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TMI Blog2021 (8) TMI 765X X X X Extracts X X X X X X X X Extracts X X X X ..... ant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off. ITA No. 169/ASR/2018 for AY 2014-15 1. That the Ld CIT(A)-5, Ludhiana has erred in partly confirming the disallowance of professional expenses u/s 40A(2)(b) of the Income Tax Act, 1961 (the Act) on estimation basis @20% being Rs. 20,22,480/- out of the total expenditure of Rs. 1,01,12,400/- claimed by the appellant. 2. That the Ld CIT(A) has erred in confirming the part disallowance only on presumption basis and estimation and without any material/evidence on record to substantiate that any excess payments have been made by the appellant to its sister concern namely M/s Oxbrixdge International Pvt. Ltd. 3. Notwithstanding the above said ground of appeal, the adhoc disallowance of expenses u/s 40A(2)(b) is unwarranted while accepting the books of accounts and method of accounting followed by the assessee and no defects have been found and neither there is invoking of proviso to section 145 and, therefore, the applicability of section 40A(2)(b) is not proper. 4. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeal.Para 4.4 of CIT(A) order provides as under:- Grounds of appeal no. 5(a), (b), (c) & (d) pertains to disallowance of Rs. 1,01,12,400/- u/s 40A(2)(b) of the Act, on account of advice and consultancy charges paid to M/s Oxbridge International Pvt. Ltd. The AO mentioned that the chart of payments made to persons specified u/s 40A(2)(b) reveals that the assessee has made a payment of Rs. 1,01,12,400/- to the sister concern M/s Oxbridge International Pvt Ltd on account of consultancy charges. The assessee was asked to produce the bills and purpose of this payment. In response the assessee provided the consultancy agreement with the said concern and submitted that M/s Oxbridge International Pvt. Ltd has provided various types of advice and consultancy to Hotel at Noida. As per the assessee during the year under consideration, all types of repairing and installation work relating to Civil as well Engineering was got done on their advice and under their supervision/monitoring. It was further submitted that the said company have a complete team of engineers and other technical staff. The assessee received proper bills after charging of service tax and even TDS was deducted and depos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture must have been incurred by the assessee. It is argued by the AR that the AO has applied the provisions of Section 40A(2)(b) for making the disallowance, therefore, it has to be presumed that the AO was satisfied that the expenditure is incurred for the purpose of business, the only doubt raised by the AO for making disallowance of whole of the amount is that the assessee company and M/s Oxbridge International Pvt LTd are related to each other and whole of the expenditure is declared doubtful and bogus. As per AR this is not a correct interpretation of section 40A(2)(b) and the disallowance has been made purely on the basis of presumption. The AR has strongly argued that by the availing the service of sister concern, the repair expenditure has been reduced from Rs. 3.52 crore during last year to Rs. 2 crores during the year under consideration. The AR drew attention to provisions of Section 40A(2)(b) which has been invoked by the AO for making the disallowance and submitted that the section is applicable in respect of any expenditure for which payment has been made to specified person which is considered excessive or unreasonable having regard to the fair market value of goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e can be whether the expenditure was unreasonable and more than the fair market value of the services or facilities provided by the sister concern. In this regard there is nothing on record to show that the rate charged by the sister concern was more than the prevailing market rate for these services or the services were available at a lower price from an independent/non-related service provider. Therefore, even it is assumed that the rate charged by the sister concern was more than the market price, then also only the excess amount can be disallowed u/s 400A(2)(b). On the other hand the AR has submitted that the expenditure under the head has gone down from Rs. 3.52 crores during last year to Rs. 2.0 crores during the year under consideration, after entering into agreement with the sister concern. There appears merit in the contention of the AR that by any stretch of imagination it cannot be said that no expenditure was incurred by the assessee, warranting disallowance of the whole of the amount of Rs. 60,42,461/-. There is further merit in the arguments of the AR that increase of employees benefit expenses in the hands of M/s Oxbridge International Pvt LTd, as observed by the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .08.2019. Secondly, it was submitted that for the assessment year 2015-16, the order under 143(1) was passed by the Assessing Officer and the similar expenditure paid to M/s Oxbridge International Private Limited have been accepted. He had also drawn our attention to the assessment order passed for the assessment years 2017- 18 and 2018-19 whereby the Assessing Officer himself had accepted the expenditure incurred by the Assessee by paying it to M/s Oxbridge International Private Limited and no additions were made. 5. On merit the Ld. AR for the Assessee submitted that for the purpose of invoking Section 40A(2) it is essential for the Assessing Officer or CIT Appeal to bring out any evidence showing excessive expenditure incurred by the Assessee by paying to the sister concern vis-à-vis to the third party. It was submitted that no comparable instance of any third party rendering the similar services was brought on record to show that the expenditure incurred by the Assessee was excessive. It was further submitted that the Assessee's books of accounts have not been rejected by the Assessing Officer and therefore the disallowance of the expenditure cannot be made by the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be, has a substantial interest in the business or profession of the assessee; or any director, partner or member of such company, firm, association or family or any relative of such director, partner or member; (vi) any person who carries on a business or profession,- (A) where the assessee being an individual, or any relative of such assessee, has a substantial interest in the business or profession of that person; or (B) where the assessee being a company, firm, association of persons or Hindu undivided family, or any director of such company, partner of such firm or member of the association or family, or any relative of such director, partner or member, has a substantial interest in the business or profession of that person. Explanation.-For the purposes of this sub-section, a person shall be deemed to have a substantial interest in a business or profession, if,- (a) in a case where the business or profession is carried on by a company, such person is, at any time during the previous year, the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) carrying not less than twenty per c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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