Contact us   Feedback   Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (7) TMI 175 - GUJARAT HIGH COURT

2016 (7) TMI 175 - GUJARAT HIGH COURT - TMI - Disallowance u/s 40A (2)(b) - payment for consultancy services provided by group companies - unreasonable and excessive expenditure - Held that:- From the record, it is clear that the technical people of Araham Developer Pvt. Ltd. have rendered the services for helping the appellant (assessee) in rendering the consultancy services to Bakeri Group. - Without the help of the employees of M/s. Araham Developer Pvt. Ltd. it would not have been possi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

voking the provisions of Section 40A(2)(b). Provisions of section 40A (2) (b) couldn't be invoked mechanically and simply for the reasons that the payment was made to a group concern - Decided in favour of assessee - TAX APPEAL NO. 822 of 2007 - Dated:- 22-6-2016 - MR. KS JHAVERI AND MR. G.R.UDHWANI, JJ. FOR THE APPELLANT : MR MANISH J SHAH, ADVOCATE FOR THE OPPONENT : MR NITIN K MEHTA, ADVOCATE ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By way of this appeal, the assessee has cha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ication of section 40A (2)(b) ₹ 5,00,000/- from the payment of ₹ 10,00,000/- made by the assessee to M/s.Araham Developers Pvt. Ltd. in respect of the consultancy services provided by them to the assessee? 3. Mr.Manish Shah, learned counsel for the appellant submitted that the assessee is a consultancy firm and since it was new in the business at the relevant point of time, it took the services of another consultancy firm and paid ₹ 10 Lacs for the work to the other firm. He fu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lant to carry out the project work undertaken by the appellant for various associations of Bakeri group and for that services the appellant agreed to make payment of R.10 lakhs to M/s. Araham Developer Pvt. Ltd. which was wholly and exclusively for the business purpose only and the same could not have been disallowed simply by invoking the provisions of Section 40A (2) (b) of the IT Act, 1961 and without bringing any contrary evidence to the facts of the case. It was contended that the provision .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sing officer, I find that the appellant's main source of income is from consultancy services of ₹ 25 lakhs from various associations of Bakeri Group. This was the first year the appellant undertook to provide consultancy in projects. The appellant has received ₹ 25 lakhs as consultancy charges and as the appellant did not have necessary technical expertise, man power and infrastructure to provide the services like planning layout, designing of water storage facilities, electrical .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

paid to their employer M/s. Araham Developer Pvt. Ltd. towards salary. M/s. Araham Developer Pvt. Ltd. had the expert technical personnel, who were basically the engineers and technical persons, who had helped the appellant in designing and estimation work etc. It was contended that out of the total receipts of consultancy charges, consultancy fees were paid to M/s. Araham Developer Pvt. Ltd., because these persons were instrumental in helping the appellant for rendering the consultancy services .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the IT Act. It is clear from the facts of the case that without the help of the employees of M/s. Araham Developer Pvt. Ltd. it would not have been possible for the appellant to have rendered the services to various associations of Bakeri Group. The claim of 40% of the total receipts as an expenditure against the total receipt of consultancy charges can be considered as reasonable expenditure and the entire payment of ₹ 10 lakhs to Araham Developer Pvt. Ltd. can be considered as reasonabl .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

isputed that Araham Developers Pvt. Ltd. is a person to which the provision of sec. 40A (2) (b) are applicable. It is also an admitted fact that the assessee has received consultancy services from the Bakeri Group amounting to ₹ 25 lacs and has paid a sum of ₹ 10 lakhs to Araham Developer Pvt. Ltd. The assessee has submitted before the authorities below that the five employees of Araham Developer Pvt. Ltd. helped the assessee in rendering the consultancy services for associate concer .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rsons who have assisted the assessee. The consultancy charges received by Araham Developer Pvt. Ltd. during the year are ₹ 20 lacs. Even if it is assumed that there were five persons, the salary allocated on the basis of consultancy fees received by Araham Developer Pvt. Ltd. relating to the assess would be only 50% of ₹ 6,95,250/-. We have also noted from the balance sheet that Araham Developer Pvt. Ltd. has received consultancy services for the first time and therefore we do not ag .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of the five persons who have worked for the assessee. The AO in this case has allowed a sum of ₹ 5 lakhs out of the sum of ₹ 10 lakhs. Section 40 A (2) (b) empowers the AO whether the expenditure has been incurred on the persons referred to in sec.40A (2) (b), only to allow those expenses as is considered by him to be reasonable having regard to the fair market value of the services rendered by such persons. It is an admitted fact that the assessee has availed of the services of five .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d. Thus this ground stands allowed. 5. He submitted that only because the payment was made to a group concern, the same could not have been disallowed simply by invoking the provisions of Section 40A (2) (b) of the IT Act, 1961 and without bringing any contrary evidence to the facts of the case. He submitted that payment of R.10 lakhs to M/s. Araham Developer Pvt. Ltd. was wholly and exclusively for the business purpose only. He has relied upon the decision of this Court rendered in Tax Appeal N .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

k up was given, therefore, it was rightly reduced by 50% of the total amount. He submitted that, therefore, the Tribunal is justified in confirming the order of the Assessing Officer. 7. We have heard learned counsel for both sides. We have also considered the relevant provisions and the material on record. From the record, it is clear that in the statement recorded before the AO it is confirmed that there is no doubt that the technical people of Araham Developer Pvt. Ltd. have rendered the serv .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

roup. The entire payment of ₹ 10 lakhs to Araham Developer Pvt. Ltd. can be considered as reasonable, looking to the services rendered by them. Therefore, we find that the Tribunal has committed an error while passing the impugned order. We may also refer to the observations made by this Court at the time of deciding Tax Appeal No.1058 of 2006:- 4.1. Learned counsel for the appellant further submitted that in view of the decision of this Court in the case of Commissioner of Income Tax III .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

15,49,163/- for AY 2005-06 and ₹ 14,97,668/- for AY 2006-07 out of the total payment of bus rent under section 40A(2)(b). With respect to AY 2006-07 AO also made disallowance of ₹ 93,25,426 made under section 40(a)(ia) of the Act by holding that the amendment carried out by Finance Act, 2010 can be held to be retrospective from AY 2005-06. Now, so far as the disallowance made under section 40A(2)(b) of the Act on the ground of motor bus rent is concerned, it appears that the AO disa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ative prices for similar transport services was cited by the AO and therefore, was not justified in making ad-hoc disallowance of 5% under section 40A(2)(b) of the Act and therefore, the CIT(A) as such rightly deleted the disallowances made under section 40A(2)(b) of the Act. Considering the provisions of Section 40A(2)(b) of the Act and the Evidence Act, if the AO was of the opinion that the payment for which disallowance is claimed, is excessive or unreasonable. In that case, it was for the AO .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ment being excessive or unreasonable can only be made when the payment is made to the specified persons under clause 40A(2)(b) and the Assessing Officer is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market price of the goods, services or facilities for which the payment is made. The opinion of the Assessing Officer for the expenditure being excessive or unreasonable is to be formed vis-a-vis fair market price of such goods services or facilities. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on to make a disallowance under section 40A(2). The very scheme of Section 40A(2) does not envisage an adhoc disallowance as has been made in the present case. For this short reason alone, the impugned deletion of disallowance must stand confirmed. There is, however, one more reason for doing so. As evident from a plain reading of the assessment order, the Assessing Officer, had called upon the assessee to demonstrate that the payment made by the assessee to the specified persons is not unreason .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

situation can be a reason enough to make a disallowance under section 40A(2) nor the onus of explaining such a variation is on the assessee. A tax auditor is an independent professional and any errors in his report cannot be put to assessees disadvantage. In view of these discussions, as also bearing in mind entirety of the case, we approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter. We are in complete agreement with the view taken by the ITAT and the observa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

icularly paragraph No.5, which reads as under:- 4. Heard Shri Varun Patel, learned advocate for the revenue. Now so far as question no. 2(a) with respect to disallowance of ₹ 1,22,13,280/- made by the AO u/s 40A(2)(b) of the Act being excessive interest paid to associates is concerned, it is required to be noted that it is the contention on behalf of the revenue that as such the company paid the interest at different rates from different persons / companies and therefore, the same was righ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lely because the assessee for whatever reasons/ consideration charged the interest at different rates by that itself cannot be a ground to come to the conclusion that charging of interest at higher rate than charged from other party was excessive and/ or unreasonable. Under the circumstances, both the learned CIT(A) as well as learned ITAT have rightly deleted the disallowance of Rs. ₹ 1,22,13,280/- made by the AO u/s 40A(2)(b) of the Act. We are in complete agreement with the view taken b .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

o.3.1 of the Assessing Officers order, wherein the Assessing Officer held relating to the question framed in this appeal i.e. commission of Govind Glass Industries limited, we see no germane reason in the finding of the Assessing Officer in concluding against the appellant. 7. Further, the CIT(A) while partly allowing the appeal of the assessee has again in paragraph No.8 has held that the commission payment to GGL was justified but the CIT(A) has not given any reason why the total sales of 5% s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version