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2016 (6) TMI 640 - ITAT CHENNAI

2016 (6) TMI 640 - ITAT CHENNAI - TMI - Disallowance of loss - Intention of shifting the tax liability to charitable institution for the purpose of reducing the tax liability - assessee-company is engaged in the business of providing management and other hospital services to the general hospital run by Rajah Muthiah Chettiar Charitable and Educational Trust - sham transaction - Held that:- As rightly submitted by the ld. Counsel for the assessee, it is the initial year of the agreement between t .....

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oviding services at Rs. 1 lakhs/Rs. 2 lakhs per month for these assessment years, it is expected that the assessee has to discharge its obligation as per the agreed terms. If there was any breach of agreement, the assessee has to compensate for the breach of the conditions as agreed between the parties. When the agreement entered into between the parties are not in dispute, merely because one of the trustee Smt. Geetha Muthaiah is a director in the assessee-company that cannot be a reason to dou .....

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allow the claim of loss as claimed by the assessee for all the three assessment years. - Decided in favour of assessee - I.T.A. Nos. 3068, 3069 & 3070/Mds/2014 - Dated:- 1-6-2016 - Shri N. R. S. Ganesan, Judicial Member And Shri A. Mohan Alankamony, Accountant Member For the Appellant : Shri S Sridhar, Advocate For the Respondent : Dr. B. Nischal, JCIT ORDER Per N. R. S. Ganesan, Judicial Member These appeals of the assessee are directed against the respective orders of the Commissioner of Inco .....

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Educational Trust. According to the ld. Counsel, there was an agreement between the assessee and Chettinad Academy of Research and Education for providing various services. The consideration for the services provided by the assessee was ₹ 12 lakhs per annum excluding taxes for the assessment year 2008-9 and Rs. 24 lakhs per annum each for assessment years 2009-10 and 2010-11. Referring to the agreement dated 30.7.2008, the copy of which is available at page 338 of the paper book, the ld. C .....

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income in all these assessment years. This was disallowed by the Assessing Officer on the ground that the agreement was a sham. The Assessing Officer further observed that the object of entering into the agreement was to reduce the tax liability of the assessee-company by increasing the income of the Trust. According to the ld. Counsel, the assessee has no intention either to reduce its income or to increase the income of the Trust. The assessee as a prudent businessman entered into an agreemen .....

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ust by providing compensation in not carrying out the obligations under the agreement. Therefore, it is not a colourable device as claimed by the Assessing Officer for any tax evasion. It is a loss suffered by the assessee in the course of its business activity, therefore, according to the ld. Counsel, the CIT(A) is not justified in confirming the disallowance made by the Assessing Officer. 3. On the contrary, Dr. B Nischal, ld. Departmental Representative submitted that the assessee, in fact, e .....

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. From the incorporation of the assessee-company, the assessee has incurred huge expenses in providing managerial services to the hospital. The assessee could not even get the expenses incurred for carrying out the services as per the agreement. As a prudent businessman, the assessee would atleast ensure that the expenses incurred by the assessee are realized, if not a profit is earned. Referring to the agreement said to be entered into between the assessee and Chettinad Academy of Research and .....

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ervices undertook by the assessee. Therefore, the Assessing Officer has found that the agreement between the parties is a colourable device to evade the tax liability. Therefore, the Assessing Officer ignored the agreement entered into by the assessee for maintaining the managerial services and disallowed the loss claimed by the assessee over and above the consideration received by the assessee. 4. We have considered the rival submissions on either side and also perused the material available on .....

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onsideration for providing services was fixed between the parties at Rs. 1 lakhs per month for assessment year 2008-09 and Rs. 2 lakhs per month each for assessment years 2009-10 and 2010-11. The Assessing Officer claims that one Smt. Geetha Muthaiah is holding 90% of the shares in the assessee-company and she is also one of the trustee in Rajah Muthiah Chettiar Charitable and Educational Trust. Therefore, it is a device between the parties to reduce the tax liability of the assessee by shifting .....

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ightly submitted by the ld. Counsel for the assessee, it is the initial year of the agreement between the parties, therefore, the assessee may not anticipate the expenditure that might have been incurred in providing the service. Earning profit is the motive of the company. However, in some circumstances, loss is also inevitable. The question arises for consideration is whether the assessee-company intentionally shifted the profit to the charitable institution for the purpose of reducing the tax .....

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