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TMI Blog2018 (3) TMI 1341X X X X Extracts X X X X X X X X Extracts X X X X ..... UTTA HIGH COURT) and CIT vs. Kishore Rao and Others (2016 (4) TMI 430 - KARNATAKA HIGH COURT). Adhoc disallowance by invoking the provisions of section 40A(2b) being payments made to related parties - Held that:- Prices paid for purchase of jewellery by the assessee company seems to be fair and reasonable and therefore, no part of such price is required to be disallowed by invoking the provisions of Section 40A(2)(a) for the reason that the AO is unable to bring anything on record which proves that the price paid by assessee is excessive or unreasonable. Accordingly, we delete the disallowance and allow this issue of assessee’s appeal. Disallowance of service charges on adhoc basis - Held that:- AO is unable to prove the non-genuineness of the expenditure despite the fact that the assessee has deducted TDS on this expenditure and also paid service charges. Further, entire details were available with the AO and he has not carried out any examination of any of the parties and without that adhoc disallowance at the rate of 25% of the expenditure was made. It means, that the AO has accepted the genuineness of the expenditure and once genuineness of the expenditure is accepted, AO canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible explanation is provided. Neither any business purposes has been proved nor any reasonable cause has been shown for making such interest free loans to these persons. Moreover, during the course of assessment proceedings, the assessee itself had agreed for this disallowance which has been narrated in assessment order itself and the assessee had itself computed the disallowance. In given facts and circumstances, it is unfortunate on the part of the assessee to agitate disallowance in appellate proceedings. In view of the facts of the case, discussed in the assessment order, I find no infirmity in the action of the A.O. to make disallowance of interest expenses attributable interest free loans to 3 concerns/individual." Aggrieved, now assessee is in appeal before Tribunal. 4. We have heard the rival contentions and gone through the facts and circumstances of the case. We find from the assessment order that the assessee himself calculated the amount in regard to interest free advances for disallowance of interest under section 36(1)(iii) of the Act amounting to ₹ 11,27,850/- and agreed for disallowance. The AO stopped the investigation and he is not proceeded further to fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee as already deducted TDS but a short deduction was made. The relevant information of TDS is as under:- 7. In view of the above facts, the learned Counsel for the assessee stated that as regards to the short deduction of TDS no disallowance under section 40(a)(ia) of the Act can be made in view of the decision of Hon'ble Calcutta High Court in the case of CIT vs. S.K. Tekriwal 361 ITR 432 (Cal) and also Hon'ble Karnataka High Court in the case of CIT vs. Kishore Rao and Others (HUF) 387 ITR 196(Karn). As the issue is squarely covered in favour of assessee by these two high court decisions in the case of S.K. Tekriwal & Kishore Rao and Others (HUF), & no contrary decision was brought to our notice by the revenue, respectfully following the same, we direct the AO to delete the disallowance. 8. The next issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in disallowing Signage Charges for non- deduction of TDS by invoking the provisions of section 40(a)(ia) of the Act. For this assessee has raised the following ground No. 3:- "3. Disallowance of signage charges under Section 40(a)(ia) of the ₹ 4,03,238/-: On the facts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Aggrieved, now assessee is in second appeal. 12. We find that assessee is engaged in the business of sale of jewellery of its own brand. The said jewellery is acquired primarily from Say India jewellers Private Limited, a company covered by the provisions of Section 40A(2)(b) of the Act. Further, during the year, the assessee company also acquired a small quantum of jewellery aggregating from Nascent jewellery Private Limited which is also a company covered by the provisions of Section 40A(2)(b) of the Act. The assessee company has been asked to justify that the price paid for acquiring the said jewellery is fair and reasonable. It was explained that assessee has earned gross margin of 43.68% on sale of jewellery, which by itself justifies that the price paid by it is not excessive or unreasonable. The reason for incurrence of loss in the hands of the assessee company is on account of low volume of business and consequently, non-recoupment of fixed overheads. Before us it was explained that for the assessment year under consideration Say India Jewellers Private Limited has paid tax under provisions of Section 115JB of the Act and Nascent jewellery Private Limited has incurred a lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no details were submitted about the deployment of specific number of persons at individual stores, salary range and sale from these stores to justify the expenses of service charges. Accordingly, the AO made the adhoc disallowance at the rate of 25% of service of ₹ 152.20 lacs i.e. ₹ 38 lacs. Accordingly, the AO disallowed ₹ 38 lacs on this issue. Aggrieved, assessee preferred the appeal before CIT(A), who also confirmed the action of the AO and the relevant observation of the CIT(A) reads as under:- "At the cost of repetation, it is necessary to note that the AO was furnish evidences as to rendition of service as required by him. Accordingly, in all fairness, the AO disallowed 25% of service charges paid, which is reasonable in light of facts of the case and nature of the business. Hence, no interference is called for and an addition / disallowance of ₹ 38,00,000/- stands confirmed." Aggrieved, now assessee is in appeal before Tribunal. 16. Before us, the learned Counsel for the assessee filed statement showing the details of service charges for the year ended 39-03-2011 and the details are enclosed at assessee's paper book at page 84. This clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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