2023 (7) TMI 457 - HC - Income Tax

High Court affirms Tribunal decision favoring appellant, dismissing revenue's appeal on tax management fees.

The High Court upheld the Tribunal's decision in favor of the appellant, dismissing the appeal filed by the revenue. The Court found no substantial ... TP Adjustment - addition of management fee paid to foreign Associate Enterprises - disallowance made u/s 40A (2) (b) on account of payment of administrative charges paid to TACL - excessive or unreasonable expenditure - ITAT deleted additions -HELD THAT:- Appeal of the assessee was accepted by the Tribunal by setting aside the order of AO passed u/s 143 (3) r.w.s.144C by holding that the TPO for the AY 2008-2009, 2009-2010 & 2011-2012 has accepted the transaction of payment of management fees paid to NLC by NLT and therefore the same having been made entirely for business consideration incurred wholly and exclusively for the purposes of business. Hence no addition was held to be sustainable for the assessment year 2010-2011. Disallowance made u/s 40A (2) (b) on account of payment of administrative charges paid to TACL - excessive or unreasonable expenditure - Tribunal recorded that the AO had failed to discharge the onus as per the mandate of the provisions of Section 40A (2) - assessee i.e NLT had received services from TACL in respect of which payment had been made as per documentary evidence on record and thus, there was no warrant for disallowance paid to TACL by the assessee when the payment was adjudged on the principle of commercial expediency when viewed from the point of view of a prudent businessman. The present appeal filed by the department/revenue thus deserves to be dismissed in view of principle of consistency and rule of finality, in view of judgments i.e CIT vs. Dalmia Dadri Cement Ltd. [1969 (11) TMI 16 - PUNJAB AND HARYANA HIGH COURT], Radhasoami Satsang vs. CIT [1991 (11) TMI 2 - SUPREME COURT], CIT vs. Girish Mohan Ganeriwala [2002 (10) TMI 61 - PUNJAB AND HARYANA HIGH COURT] - No substantial question of law Issues:1. Setting aside of the order passed by the Income Tax Appellate Tribunal2. Addition of management fees paid to foreign Associate Enterprises3. Disallowance of management fees paid to a related party under Section 40(A)(2)(b) of the Income Tax Act4. Allegations of tax evasion and profit diversion1. Setting aside of the Tribunal's order:The appellant filed an appeal under Section 260-A of the Income Tax Act seeking to set aside the order passed by the Income Tax Appellate Tribunal for the assessment year 2010-2011. The Tribunal had allowed the appellant's appeal on 28.08.2015, leading the revenue to file an appeal against the Tribunal's decision. The questions of law raised by the revenue pertained to the deletion of management fee paid to foreign Associate Enterprises and the disallowance of management fees paid to a related party under Section 40(A)(2)(b) of the Act.2. Addition of management fees to foreign Associate Enterprises:The Transfer Pricing Officer (TPO) determined the Arm's Length Price (ALP) of international transactions related to management consultancy fees paid to an Associate Enterprise as nil, against the amount claimed by the appellant. The Dispute Resolution Panel and Assessing Officer upheld this decision, leading to an addition of the management fees to the appellant's income. The Tribunal, however, allowed the appellant's appeal, questioning the necessity of the payment and the lack of evidence of work performed by the associate enterprise, ultimately leading to the deletion of the addition.3. Disallowance of management fees to a related party under Section 40(A)(2)(b):The Tribunal was questioned for disallowing the management fees paid to a related party under Section 40(A)(2)(b) of the Income Tax Act. The revenue contended that the Tribunal erred in applying this provision and failing to establish the commercial expediency of the payment. The appellant's argument of differential treatment in the taxable and exempt units was presented, along with allegations of tax evasion and profit diversion by the related party.4. Allegations of tax evasion and profit diversion:The revenue raised concerns regarding the diversion of profits to reduce tax liability and alleged tax evasion by the related party receiving management fees. The appellant's inconsistent treatment of management fees between units and the related party's nil return filing were highlighted as indicators of potential tax evasion. However, the Tribunal's decision was based on the principle of consistency, rule of finality, and previous judgments supporting the appellant's case, ultimately leading to the dismissal of the appeal.In conclusion, the High Court dismissed the appeal, stating that no substantial question of law arose for consideration based on the factual position and the principles of consistency and finality. The orders passed by the Tribunal in favor of the appellant were upheld, emphasizing the commercial expediency of the transactions and the lack of evidence supporting the revenue's claims of tax evasion and profit diversion.