TMI Blog2024 (2) TMI 528X X X X Extracts X X X X X X X X Extracts X X X X ..... to group consultant is unreasonable and excessive and has made disallowance on adhoc basis, merely stating that the order of the ITAT in group case has not been accepted by the revenue. AO has observed that the assessee may have benefitted from the bulk or centralized purchasing done though to group consultant but it does not justify the entire payment. Once it is accepted by the AO that the assessee is benefited through to group consultant , no adhoc disallowance is called for - we delete the disallowance u/s. 40A(2) of the Act. Decided in favour of assessee. - SHRI GEORGE GEORGE K., VICE PRESIDENT AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER For the Appellant : Shri S.K. Tulsiyan, Advocate For the Respondent : Shri V. Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rival submissions, we note that there was sufficient cause for delay in filing the appeal and condone the delay of 660 days. 5. The assessee is a private limited company engaged in the business of running hospitals and filed return of income for the AY 2016-17 on 17.10.2016 declaring a loss of Rs. 53,99,72,875. The assessee entered into a service agreement with MEMG International India Pvt. Ltd. [MEMGIIPL] for provision of various services in the nature of fund management, financial and accounting, auditing, brand royalty, administration etc. and paid Rs. 34,10,763 as back-office charges to MEMGIIPL. The payment is calculated at 0.5% of the revenue of the assessee for mediation with banks and other institutions for facilitation of loa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enchmarked on the basis of cost incurred by the service provider, whereas the payment has been made as a fixed percentage of the revenue received by the assessee which does not have relationship with the services received. Accordingly, the CIT(Appeals) dismissed the appeal of the assessee. Aggrieved, the assessee is in appeal before the Tribunal. 8. The ld. AR submitted that the assessee is one of the many companies which are under the holding company MEMGIIPL which in turn represents the entire group when it negotiates with various banks. When large volumes of loans/business is assured to the banks with group corporate guarantee, banks are more comfortable to lend money to individual company. The loan syndication fees that is generally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered by the above group concern and the assessee company with MEMGIIPL are the same. Therefore it was submitted that the disallowance u/s. 40A(2) is to be deleted. 9. The ld. DR relied on the orders of lower authorities. 10. After hearing both the sides, perusing the entire material on record and the orders of the lower authorities, we note that similar issue came up for consideration before the Tribunal in the case of assessee s group case viz., Manipal Health System Systems Pvt. Ltd. in ITA No.1667/Bang/2016 for AY 2009-10 dated 27.6.2018 and it was decided in favour of the assessee by holding as under:- 9. Having carefully examined the orders of lower authority in the light of rival submissions we find that this service ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is opinion is found to be excessive or unreasonable. It was also held that provisions of section 40A(2) are not automatic and can be called into play only if the AO establishes that expenditure incurred is in fact in excess of fair market value. In the case of CIT Vs. Modi Revlon (Pvt.) Ltd., (supra), the Hon'ble Delhi High Court has held that in order to determine whether the payment is not sustainable, the AO has to first return a finding that payment made is excessive, under section 40A(2) of the Act. If it is found to be so, that AO has to determine what constitutes the fair market value of the services rendered and disallow the difference between what is claimed and what is such value determined fair market value. In the case of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elete the additions in this regard. 11. The above decision of the Tribunal in the case of Manipal Health Enterprises Pvt. Ltd. (supra) has been confirmed by the Hon ble High Court of Karnataka in ITA No.817 of 2018 dated 12.10.2023 and it is held as under:- 12. The ITAT has rightly held that the AO has not doubted the payment nor held the payment as excessive even though in terms of Section 40A (2) only 'legitimate needs of the business' is allowable as expenditure. Thus there is no material on record to support AO's opinion. Therefore, we find no error in the order passed by the ITAT. 12. In the present case also, the assessee has entered into agreement dated 01.04.2015 with MEMGIIPL (page 78 of PB) and Annexure-I t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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