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DCIT, Circle-6 (1) , New Delhi Versus M/s Max Medical Services Ltd.

2017 (10) TMI 580 - ITAT DELHI

Disallowance of the expenditure equal in percentage of reduction in the revenue recognized - Held that:- In the present case, it appears that the AO made the disallowance of the expenses only on this basis that there was reduction in the sharing of the revenue in comparison to the earlier years, no other reasons has been given. - In the instant case, it is also noticed that there was increase in the income earned by the assessee in comparison to the earlier year i.e. 53% more than the prece .....

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ss. The AO made the disallowance only on the basis of surmises and conjecture which is not tenable in the eyes of law. Moreover, the AO did not bring anything on record to substantiate that by reducing the percentage of share of fee, the assessee was looser in terms of earning the revenue and that the extra expenses were incurred by the assessee in the same ratio in which the revenue sharing was reduced. The contention of the assessee that the reduction in the fees from leasing of equipments/mai .....

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orders dated 16.04.2014 and 22.04.2014 of ld. CIT(A)-IX, New Delhi for the assessment years 2010-11 and 2011-12 respectively. 2. Since the issue involved is common and the appeals were heard together so these are being disposed off by this consolidated order for the sake of convenience and brevity. 3. At the first instance we will deal with the appeal in ITA No. 4050/Del/2014 for the assessment year 2010-11. Following grounds have been raised in this appeal: 1. Whether on the facts and circumsta .....

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rom the above grounds, it would be clear that only grievance of the department relates to the deletion of disallowance made by the AO out of the expenditure equal in percentage of reduction in the revenue recognized. 5. Facts of the case in brief are that the assessee filed the return of income declaring a loss of ₹ 12,02,84,626/- on 13.10.2010 and thereafter, revised the return of income on 30.03.2012 declaring a loss of ₹ 10,34,39,778/-. The reason for filing revised return was tha .....

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to receive 8% of the share of revenue towards leasing of medical & other equipments, earlier this percentage was fixed at 10% vide agreement dated 10.12.2011. Similarly, vide separate agreement dated 21.02.2009, the assessee agreed to receive 5% of the share of revenue earned by M/s Devki Devi Foundation for maintenance and healthcare facilities provided by the assessee. Earlier this percentage was 6% as per the agreement dated 10.12.2001. The AO asked the assessee to explain as to why the .....

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ompany has readjusted the percentages of above agreements due to the rapidly changing business environment and competition. In regards to the above query it is respectfully submitted that the percentage of the adjusted gross annual turnover were reduced due to repeated requests from the Customer and for commercial expediency. As per clause C and D of the Supplementary Agreement entered between the assessee company and the service provider, the equipment leasing agreement was revised due to the f .....

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d the service provider, the Construction & Maintenance Agreement was revised due to the following reasons: D. Pursuant to financial difficulties, the Owner has requested the Contractor for certain concessions with respect to the payments required to be made to Contractor under the Construction & Maintenance agreement and certain amendments to the payments terms set out there under. E. The parties wish to enter into this agreement to amend the Construction & Maintenance Agreement as s .....

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ome From Deferred Credits 2% 317 433 37% 544 71% Income from Maintenance of Healthcare Facility 5% 392 599 53% 781 99% Please find enclosed the copy of the extract of Income Statement of FY 2009-10, 2010-11 and 2011-12 for your reference attached herewith as Annexure -1, 2 and 3 to this letter. Further, it is respectfully submitted that the Assessee- Company and the other Healthcare service provider are not related to each other u/s 40A(2) of the Act. Further, none of the members/trustees of the .....

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or lease rental and payment for construction and maintenance. Therefore, no adverse inference can be drawn in relation to any nexus between the proportionate expenses equal to the amounts by which income from lease & maintenance has decreased due to readjusted % of income as per the agreements. II. Sale of stores amounting to ₹ 172.45 lacs. During the relevant Assessment Year, the Assessee-Company had sold hand instruments and stunts to Max Healthcare Institute Limited ( MHIL ) on cost .....

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sessee-Company. The said instruments are low cost instruments and small in numbers amounting to ₹ 172.45 lacs only, in the books of the Assessee-Company and were ultimately sold to MHIL as a commercial expediency. In view of the above and as evident from the sample invoices, the Assessee-Company purchases the stunts and instruments from suppliers and sells the same at the same purchase price to MHIL on cost-to-cost to MHIL on cost-to-cost basis. We trust that your honor will find the above .....

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years from the date of execution. Thus, the terms & conditions and the percentage of profits agreed between the parties were fixed after considering all the pros & cons of the business as also the duration of the agreement with future perspectives. He further observed that with the increase of cost of service being provided by the assessee due to inflation and other factors, no prudent business organization would agree to any downward adjustment for percentage of profits/revenue already .....

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unt was worked out as under: Nature of income Amount Percentage of revenue as per Original Agreements dated 10.12.2001 Percentage as per Supplementary Agreements dated 21.02.2009 Reduction of profits of the assessee on account of decrease in percentage of shares Income from Lease 626,50(000) 10% 8% 152,62(000) Income from maintenance activities 391,57(000) 6% 5% 78,31(000) 230,93(000) The AO also observed that the expenditure incurred by the assessee during the year equal to the reduction of per .....

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efit of bulk purchases and quantity discount, was not accepted by the AO. Accordingly, an ad-hoc disallowance @ 5% of the goods sold was considered as the expenditure attributable to the goods so sold at cost price and thus, a disallowance of ₹ 8,62,274/- (5% of ₹ 1,72,45,488/-) was made and added to the income of the assessee. 9. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted as under: During the relevant assessment year, the Appellant entered into t .....

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ng agreement was revised due to the following reasons: C. Pursuant to financial difficulties, the User has requested the Company for certain concessions with respect to the payments required to be made to the Contractor under the Equipment Leasing Agreement and certain amendments to the payments terms set out there under. D. The Parties wish to enter into this Agreement to amend the Equipment Leasing Agreement as set out here under. Further, as per clause D and E of the Supplementary Agreement d .....

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t to amend the Construction & Maintenance Agreement as set out here under. The Ld. AO has made an addition of ₹ 2,30,93,000 being the difference in the percentage of revenue under the supplementary agreement and the revenue to be earned by the Appellant under the previous agreement alleging that the Appellant has not provided a reasonable cause for the above decrease, While making the aforesaid disallowance, the Ld. AO has questioned the decision of the Appellant to reduce the rates fo .....

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ern Investments Ltd. Vs CIT (1951) 20 ITR 1 (SC) * CIT Vs Chandulal Keshavlal & Co. (1960) 38 ITR 601 (SC) * Shahzada Nand & Sons Vs CIT (1977) AIR 1182 (SC) * CIT, Punjab, Haryana, J & K, … Vs Panipat Wollen & General Mills (1976) AIR 640 (SC) * CIT Vs B Dalmia Cement Ltd. 174 CTR 188 (Del.) 11. It was further submitted as under: That the Ld. AO has not brought any cogent material on record in support of his contention. The impugned disallowance has been made merely on th .....

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to 96 of the Paper-book). The fact, that the income of the Appellant has increased, was duly substantiated vide our submission dated January 29, 2013 (Please refer page no. 97 to 100C of the Paper-book). This can be seen from the increasing trend in % of revenue of FY 2009-10 to FY 20 11- 12, as demonstrated in the below table: Particulars Share of revenue of FY 2009-10 FY 2009-10 FY 2010-11 Increase from FY 2009-10 FY 2011-12 Increase from FY 2009-10 Income from Leasing 8% 627 959 53% 1,249 99% .....

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ithout pointing out, any defect in the books of accounts maintained or any specific vouchers of disallowable nature. The said action of the AO was purely based on suspicion and surmises without bringing any evidence on record in support of the disallowance. The reliance was placed on the following case laws: * Dwarka Prasad Agarwal Vs ITO 52 ITD 239 (Cal) * Rattah Mechanical Works Ltd. Vs ITO 87 Taxman 288 (Chd.) * Shriram Pistons and Rings Ltd. Vs IAC 39 TTJ 132 (Del.) * Roger Enterprises Pvt. .....

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agreements were revised during the relevant assessment year whereby the percentage of fee agreed was revised downward from 10% to 8% and 6% to 5% respectively, in accordance with the terms of supplementary agreement dated 21.02.2009. He further observed that the nexus drawn by the AO between the expenses incurred by the assessee during the year for the purposes of business and downward revision in the fee receivable from M/s Devki Devi Foundation was not supported by any material fact. He furth .....

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s of the case and that the expenses had been incurred by the assessee for the purposes of business and there was no iota nor any single voucher/expense had been pointed out, suggesting that the expenditure had not been incurred for the purposes of business or was excessive having regard to the fair market, therefore, in the absence of any such finding, there was no provision in law which mandates an AO to disallow part of an expenditure on ad-hoc basis. The ld. CIT(A) also discussed in para 5.3. .....

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c disallowance made by the AO. 14. As regards to the disallowance on account of expenditure attributable to goods sold on cost to cost basis. The ld. CIT(A) observed that it had not been established by the AO that any undisclosed income was earned by the assessee nor any tangible material was available on record for the same, consequently no addition to income was to be made in the assessment order. According to the ld. CIT(A) if the expenditure was found to have been incurred for the purposes o .....

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ssessment order dated 06.02.2013. 16. In his rival submissions the ld. Counsel for the assessee reiterated the submissions made before the authorities below and strongly supported the impugned order passed by the ld. CIT(A). He further submitted that the sharing of the revenue was reduced due to the computation and the business exigency, so there was no reason to make the ad-hoc disallowance out of the expenses, particularly when no defect was pointed out in the books of accounts maintained by t .....

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