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TMI Blog2014 (12) TMI 248X X X X Extracts X X X X X X X X Extracts X X X X ..... different inferences in the different years – there was no material to show that the service charges paid by the assessee-company to another Government company were in excess of the fair market value of services – thus, the order of the CIT(A) is upheld – Decided against revenue. Value of inventories written off as obsolete disallowed – Held that:- The assessee debited ₹ 9,45,000/- in the profit and loss account under the head of obsolete inventory - The assessee explained that these inventories became obsolete and therefore, the value of the same was claimed at Nil - the inventories were sold in subsequent years for ₹ 5,00,000/-, therefore, the claim of the assessee that these inventories had Nil value as at the end of the year under appeal cannot be accepted - as no material was brought on record by the Revenue to show that the market value of the inventory was more than ₹ 5,00,000/- as at the end of the relevant previous year, the disallowance to the extent of market value as at the end of the relevant year i.e. ₹ 5,00,000/- and is upheld and the balance amount of disallowance of ₹ 4,45,000/- is set aside – Decided partly in favour of assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause notice, the assessee explained that it had paid services charges to GGCL @ ₹ 3205/- per connection for services and infrastructure of the company used by it for gas connections. During the assessment year 2006-07, 18,187 connections were given on which payment @ 3205/- per connection, totaling to ₹ 5,82,89,335/- was made. It was further submitted that the overheads of the company were for a very meager amount. The activities of the assessee required installation and other work, procurement, etc. for which there were no employees. Since the assessee was having very few employees in the company and meager infrastructure, it was using the infrastructure facilities like power, stationery, vehicles and other expenses including communication provided by GGCL. 5. The Departmental Representative further submitted that the Assessing Officer did not accept the explanation of the assessee as convincing. The Assessing Officer observed that it was only providing gas connection for supply of piped gas by the GGCL. To provide piped gas connection to prospective customers, the assessee was taking services of labour contractors who were selected by the process of floating tende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e associates namely fair market value of goods, services or facilities for which payment is made, legitimate needs of the business of the assessee and benefit derived or accruing to the assessee. The Assessing Officer has not brought any evidence on record to show how the assessee s payment to GGCL is adversely hit by the conditions referred to above. She argued that the Assessing Officer has recorded a finding in the assessment order that since the assessee was a 100% subsidiary of GGCL, therefore, the contract entered into by 100% holding company with 100% subsidiary company was not a contract with free consent and that the replies submitted by the assessee were general in nature and the assessee did not supply the details regarding the services obtained from GGCL in lieu of the payments made under reference. Therefore, it was her submission that the order of the CIT(A) should be reversed and the order of the Assessing Officer should be restored back. 9. The Authorized Representative of the assessee vehemently argued and submitted that the lease agreement entered into with GGCL for services and infrastructure to be provided by the GGCL to the assessee for gas connections is da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax at higher rate, disallowance of alleged excess commission paid to sister concern was not justifiable. Further, he placed reliance on the decision of Hon ble Supreme Court in the case of CIT vs. Excel Industries Limited, reported in [2013] 358 ITR 295 (SC), wherein it was held that a consistent view had been taken in favour of the assessee on the questions raised, starting with the assessment year 1992-93, that the benefits under the advance licences or under the duty entitlement pass book did not represent the real income of the assessee. There was no reason for us to take a different view unless there were very convincing reasons which there were not. 12. We have heard the rival submissions and perused the orders of the lower authorities and material available on record. The undisputed facts of the case are that during the years under consideration the assessee had claimed service charges paid to GGCL @ ₹ 3205/- per connection for services and infrastructure of the company used by it for gas connection. The assessee in the Assessment Year 2006-07 claimed ₹ 5,82,89,335/- as service charges paid for 18,187 gas connections provided to the customers. The Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y evasion of tax. Moreover, we find that service charges has been paid in pursuance of an agreement dated 25.04.2003 at the rate fixed vide the said agreement. Such service charges at the same rate were also paid by the assessee-company to the same company in the assessment years 2004-05 and 2005-06. In the assessment completed u/s 143(3), the Department has not made any disallowance out of the said expenses. Thus, the Department in the earlier years accepted the same rate at which service charges were paid during the years under appeal as reasonable. In our considered view, though res judicata is not applicable in the income-tax proceedings but the rule of consistency needs to be adhered to and when the facts remains the same in different years, the Revenue cannot be permitted to draw different inferences in the different years. Our above view finds support from the following decisions of the Hon ble Supreme Court in the cases of:- (i) CIT Vs. Excel Industries Limited, [2013] 358 ITR 295 (SC), wherein it was held that a consistent view had been taken in favour of the assessee on the questions raised, starting with the assessment year 1992-93, that the benefits under the advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of stock, purchases etc. and submitted that it was carrying out exercise of writing off the inventories since last more than 10 years. It was submitted that in the interest of the customers and public at large the assessee had a policy of regularly maintaining its domestic connection by upgrading it for technological obsolesce. Therefore, it had written off regulator and other items during the relevant years which were not usable due to technological obsolesce. The Assessing Officer did not find the submissions of the assessee satisfactory on the ground that it had followed the FIFO method for valuation of closing stock and there was no question of obsolesce. The Assessing Officer also observed that the purchase material was directly supplied to the contractor. All the purchases were made by GGCL and transferred in the name of the assessee by passing JV on 31st March. The assessee was capitalizing connections and claimed it as lease transactions; therefore, the purchase of material was expenditure of capital nature and could not be claimed as Revenue expenditure. Therefore, he disallowed the deduction for ₹ 9,45,000/- claimed by the assessee and added to the income of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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