TMI Blog2022 (11) TMI 1204X X X X Extracts X X X X X X X X Extracts X X X X ..... rwise of a commercial transaction by sitting in the chair of assessee which is not sustainable under law as per Judgment of Hon ble Delhi High Court in the case of Pr. CIT vs., M/s. Second Leasing Pvt. Ltd. [ 2017 (11) TMI 269 - DELHI HIGH COURT ] We find that the A.O. failed to bring any cogent material on record to suggest that the entire expense is excessive without bringing any comparable that the expenditure claimed by the assessee company is much higher than that of prevailing market rate. We, therefore, find no force in the arguments of Ld. D.R. on this issue. D.R. also did not brought anything on record to sustain the addition made by the A.O. In this view of the matter and the settled position of law on this issue by the Hon ble Supreme Court in the case of S.A. Builders Limited [ 2006 (12) TMI 82 - SUPREME COURT ] and the Judgment of Hon ble Supreme Court in the case of Dhakeshwari Cotton Mills Ltd. [ 1954 (10) TMI 12 - SUPREME COURT ] relied upon by the CIT(A), we find no reason to interfere with the order of the Ld. CIT(A) in deleting the disallowance made by the A.O.- Thus, we dismiss the ground of Revenue. - ITA Nos.4498 & 4499/Del/2017 - - - Dated:- 24-11-2022 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance made by the A.O. 3. Aggrieved by the order of the Ld. CIT(A), the Revenue is now in appeal before the Tribunal and has raised the following effective ground : The Ld. CIT(A) has erred in deleting the addition amounting to Rs. 3,37,08,000/- on account of payment of management fee paid to M/s ATS Infrastructure Ltd, invoking the provisions of section 40A(2)(b) of the I.T. Act. 4. During the course of hearing, the Ld. D.R. strongly relied on the order of A.O. and submitted that the assessee company had paid huge sum on monthly basis for a period of five years, but, failed to discharge its onus by filing requisite documents that the management services were actually availed from M/s. ATS Infrastructure Limited and, therefore, the disallowance of Rs.3,37,08,00/- made by the A.O. be confirmed. 5. The Learned Counsel for the Assessee, on the other hand, strongly relied on the order of the Ld. CIT(A). He filed paper book containing 1 to 303 in support of his submissions which are copy of return of income for the A.Y. 2013-14, audited financial statements for A.Y. 2013-14, copy of acknowledgment of return of income along with computation of income for the A.Y. 2014-15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Counsel for the Assessee further drew the attention of the Bench that the matter in issue is squarely covered by the CBDT Circular No.6P Dated 06.07.1968 wherein it was clarified by the CBDT that while examining the reasonableness of expenditure, the A.O. is expected to exercise his judgment in a reasonable and fair manner. It should be borne in mind that the provision is meant to check evasion of tax through excessive or unreasonable payments to relatives and associate concerns and should not be applied in a manner which will cause hardship in bona fide cases. The said Circular had been challenged before the Hon ble jurisdictional Delhi High Court in the case of Hive Communication P Ltd Vs CIT (2011)353 ITR 200 (Delhi) wherein the Hon ble Delhi High Court observed as under : We may also refer to the scope of section 40A(2) as explained by CBDT in Circular No. 6P, dated 6-7-1968. The CBDT clarified that while examining the reasonableness of expenditure the Assessing Officer is expected to exercise his judgment in a reasonable and fair manner. It should be borne in mind that the provision is meant to check evasion of tax through excessive or unreasonable payments to relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., (supra). The Learned Counsel for the Assessee, thus, prayed that the order of the Ld. CIT(A) be confirmed on this issue. 6. We have heard the Learned Representative of both the parties and perused the material available on record. We find that the A.O. determined the income of assessee company at Rs.24,86,033 by disallowing the expenditure claimed by the assessee at Rs.3,37,08,000/- as against the returned income loss at Rs.3,12,21,967/- declared by the assessee company. The assessee carried the matter in appeal before the Ld. CIT(A) on the issue of disallowance of expenditure amounting to Rs.3,37,08,800/- and the Ld. CIT(A) deleted the said addition by observing as under : I have considered the submission of the appellant, observation of the assessing officer in the assessment order and various case laws relied upon by the appellant in this regard. It is seen that Assessing Officer has not appreciated the services provided by ATS to the appellant by way of a service agreement. The Assessing Officer has not brought any information/evidence on record which has driven him to take an adverse view during the year. Further, the Assessing Officer has sought to disallow the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough the relevant material placed before us concerning Assessment Year 2001- 2002, we are of the view that, as far as this special leave petition is concerned, no interference is called for as the entire exercise is a revenue neutral exercise. Hence, this special leave petition filed by the Department stands dismissed... [Emphasis supplied]. The Apex court also said in the case of domestic transactions, the under-invoicing of sales and over invoicing of expenses ordinarily will be revenue neutral in nature, except in two circumstances having tax arbitrage: .(i) If one of the related Companies is loss making and the other is profit making and profit is shifted to the loss making concern; and [ii] If there are different rates for two related units [on account of different status, area based incentives, nature of activity, etc.] and if profit is diverted towards the unit on the lower side of tax arbitrage. For example, sale of goods or services from non-SEZ area [taxable division] to SEZ unit [non-taxable unit] at a price below the market price so that taxable division will have less profit taxable and non-taxable division will have a higher profit exemption... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial precedence on this issue as well as the Circular of CBDT No.6P Dated 06.07.1968. Thus, the A.O. flouted the CBDT Circular as well as judicial precedence on the matter in issue. We may note that in the instant case the A.O. judged the merits or otherwise of a commercial transaction by sitting in the chair of assessee which is not sustainable under law as per Judgment of Hon ble Delhi High Court in the case of Pr. CIT vs., M/s. Second Leasing Pvt. Ltd., 2017 (11) TMI 269-Del.- HC. We find that the A.O. failed to bring any cogent material on record to suggest that the entire expense is excessive without bringing any comparable that the expenditure claimed by the assessee company is much higher than that of prevailing market rate. We, therefore, find no force in the arguments of Ld. D.R. on this issue. The Ld. D.R. also did not brought anything on record to sustain the addition made by the A.O. In this view of the matter and the settled position of law on this issue by the Hon ble Supreme Court in the case of S.A. Builders Limited vs., CIT reported in 288 ITR 1 (SC) and the Judgment of Hon ble Supreme Court in the case of Dhakeshwari Cotton Mills Ltd., vs., CIT [1954] 26 ITR 775 (S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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