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2020 (2) TMI 648

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..... g, ultimately, find that bringing to tax an amount which is of notional in nature and which was never earned by the assessee cannot stand the test of jurisprudence in the tax regime. No justification in the action of the AO making addition - Decided in favour of assessee. Disallowance of management charges and supervision charges - there was no basis for charging such basis for charging such charges and were merely book entries - CIT-A deleted the addition - HELD THAT:- here is no infirmity in the order of ld CIT(A). We note that for eligibility of an allowance u/s 37(1) of the Act, there should be a nexus between the expenditure and the purpose of the business and the expenditure should have been wholly and exclusively laid out for that purpose. Once these facts are established, the revenue cannot justifiably claim to put itself in the arm chair of business man or in a position of the Board of Directors and assumed the role of ascertaining how much is reasonable expenditure having regard to the circumstances of the case. We note that the assessee has incurred management supervision charges for the purpose of business and if the expenditure is incurred bona fide in relation to busi .....

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..... nt No.1 of the said party and no other capital in the form of investment brought in by the First Party. As per agreement, the construction of the commercial project shall be carried out by the party in the second part and entire cost of construction shall be borne by the party second part only. The assessing officer has gone through the various clauses of partnership deed and observed that no partner can create a liability against the firm or withdraw any amount more than their respective shares. Thereafter, the assessing officer has gone through the Balance Sheet of the firm and Partner s Current Account and noticed that partner mentioned at part 1 namely, Carlton Hotel Private Limited is having closing debit balance of ₹ 29,24,00,917/- and the opening debit balance of the said amount in the beginning of the year was ₹ 29,80,02,499/- and the said debit balance is coming from year after year. The AO also noted that the assessee firm was paying about 12% interest on the capital borrowed from banks. Therefore, AO asked the assessee that why one of the partners is diverting the funds for the activities other than the mentioned partnership deed. In response, the assessee fi .....

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..... y more than their respective shares. The Ld DR further stated that interest on money s borrowed by the firm and advanced by it in turn to its partners should be inadmissible, therefore, interest earned @ 12% should be charged against the average debit balance of the partner and hence AO has rightly added back of ₹ 3,54,24,205/- to the income of the assessee firm, therefore order of the AO must be sustained. On the other hand, ld Counsel submitted before us that as per the partnership Act, 1952, the partners can carry on any business jointly and can also act upon in the manner as they deem fit in the interse relationship between themselves. The partnership deed at no stage lays down that any interest will be payable either on their capital account or on their current account. Once the firm is not paying any interest to the partners on the credit balance as appearing in the partner's capital account and their current account, there arises no occasion of imputing any interest on the debit balance in any of the partner's capital account more particularly when overall capital in current account of the partners show a credit balance. Then ld Counsel took us through clause N .....

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..... year, if the Revenue has accepted a particular's view or proposition in the past, it is not open for the Revenue to take an entirely contrary or different stand in a later year on the same issue, involving identical facts unless and until a cogent case is made out by the Assessing Officer on the basis of change in facts. For that we rely on the order of the Hon'ble Supreme Court in Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC), wherein it was held as follows: "We are aware of the fact that, strictly speaking, res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasoning, in the absence of any material change justifying the Revenue to take a different view of the matter - and, if there was no change, it was in support of the assessee - we do not thin .....

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..... 012-13; in ITA No.380/Kol/2016. Ground No.3 raised by the Revenue relates to disallowance of management charges and supervision of ₹ 6,00,00,000/-. The ground No.3 raised by the Revenue is as follows: 3. "That in the facts and circumstances of the case Ld. CIT(A) has erred in deleting the disallowance of the management charges and Supervision charges despite the finding of the AO that there was no basis for charging such basis for charging such charges and were merely book entries." 12. The brief facts qua the issue are that during the scrutiny assessment, the AO noticed that the assessee firm has paid Supervision charges to the tune of ₹ 6,00,00,000/- to M/s Sahara Prime City Ltd, which is one of the group concerns of Sahara India Parivar. It was noted by AO from the records that this concept of paying Supervision charges has stated by the assessee from the A.Y. 2009-10. Prior to that the assessee itself maintained the supervision and the charges were much as compared to this year. The Table below gives clear picture of futility of Supervision charges. F.Yr. Gross Receipts Mall management charges paid Supervision charges payment Remark F.Yr.2011-12 43,91,09,5 .....

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..... ngs of the ld CIT(A) and other materials brought on record. Ld. DR submits before us that in para 4 of the assessment order the ld. Assessing Officer has drawn a chart showing the gross receipts of the assessee, mall management charges paid and supervision charges paid and thereafter he has observed that the assessee has claimed supervision charges at his whims and caprice as no payment was made in the preceding year. Further AO has observed that the supervision charges have not been actually paid but it is merely a book entry and he has written a letter to Sahara Prime City Ltd. regarding service provided by it to India Housing and no reply was received and, therefore, no conclusive evidence has been filed by the assessee during the assessment stage therefore this issue should be remitted back to the file of the assessing officer for fresh adjudication. On the other hand, ld Counsel submitted before us that the assessee firm constitutes of the following partners, namely:(1). M/s. Sahara India Commercial Corporation Ltd. (2).M/s Carlton Hotel Private Limited and (3). Mr. I. Ahmad. Mr. I. Ahmad is not a working partner and the other two partners are companies registered under the Co .....

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..... Mall supervision, Mall safety and security, Holding of Carnival etc. which require presence of substantial amount of man-power on a regular basis. 15. We note that the supervision charges have been paid by assessee as per an agreement. The assessee has deducted tax at source while making payment. The payment was made through banking channel. The ld. Assessing Officer was aware about the assessee s agreement. The assessee has paid service tax on the mall management expenses and, therefore, there arises no occasion of doubting genuineness of the expenses. The ld. Assessing Officer has not demonstrated as to how the expenditure incurred by the assessee for giving overall mall management supervision work to M/s. Sahara Prime City Ltd. was in excess of the fair market value of service or facility or was not as per legitimate needs of the business of the assessee. The maintenance of huge mall having area of 2,50,000 sq. ft., the assessee has to incur management supervision charges. Moreover, AO has not rejected books of accounts of the assessee and assessment is framed by AO under section 143(3) of the Act. Based on the factual position narrated above, we are of the view that there is n .....

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