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2018 (3) TMI 69 - AT - Income TaxDisallowance of deduction on account of payment of service charges - genuineness of expenditure - Held that:- When the purchases have been accepted as genuine, the payment of service charges cannot be disallowed by raising the bogey of business expediency or lack of evidence to show rendering of services. When the assessee has submitted documentary evidences to establish that the payment of service charges were in terms with contractual obligation and parties to the contract have also confirmed payment of service charges, such evidence cannot be ignored on flimsy ground. As far as the business expediency relating to payment of such service charges is concerned, it has to be seen from the perspective of the businessman. AO certainly cannot step into the shoes of the businessman to decide whether such expenditure was for the purpose of business or not. From the details furnished by the assessee towards payment of service charges it is seen that Golden Tobacco Co. Ltd. was not only involved as an intermediary arranging supply of palm kernel fatty acid to the assessee through other importers but it has itself directly effected sales to the assessee. Notably, in respect of palm kernel fatty acid directly supplied by the Golden Tobacco Co. Ltd. to the assessee service charges have been paid to two intermediaries viz. PPL Plastics Ltd. and Raigarh Papers Ltd. amounting to ₹ 12.50 lakh and ₹ 5.59 lakh. When Golden Tobacco Co. Ltd. itself is providing all ancillary and incidental services to the assessee in procuring palm kernel fatty acid through other importers, in case of direct supply of such material by Golden Tobacco Co. Ltd. Why service charges have to be paid to other intermediaries is not understood. When the Golden Tobacco Co. Ltd. itself is capable of providing such service, there is no necessity of paying service charges to others. In case of direct supply of goods by Golden Tobacco Co. Ltd., the payment of service charges to other parties acting as intermediaries is not in the business interest of the assessee. Therefore, service charges paid of ₹ 12.50 lakh and ₹ 5.59 lakh, totalling to ₹ 18.09 lakh, to PPL Plastics Ltd. and Raigarh Papers Ltd. should not be allowed as deduction. We direct the AO to allow the balance amount of service charges paid as deduction - Decided partly in favour of assessee.
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