2024 (1) TMI 68 - HC - Income Tax

Management fees paid to ATS deemed legitimate business expenses after adequate documentation provided

Delhi HC ruled in favor of the assessee regarding management fees paid to ATS. The court found that the assessee successfully discharged the burden of ... Disallowance of management fees paid to ATS as being ‘excessive’ and ‘unreasonable’ - management fees paid by the respondent/assessee to ATS should have been added back to the income of assessee - HELD THAT:- We are of the view that the onus laid on the respondent/assessee was indeed discharged. We have also queried revenue as to whether the AO found fault with the documents furnished by the respondent/assessee in support of the plea that ATS did furnish services to the respondent/assessee, but he was not able to answer this question. Notwithstanding the above, there is no doubt that, given the material placed on record, the onus cast on the respondent/assessee was, in fact, discharged. Thus no substantial question of law arises for our consideration. Issues involved: Assessment Year (AY) 2014-15 and AY 2013-14; Delay in filing appeals; Disallowance of management fees paid to ATS; Onus of proof on respondent/assessee; Documentary evidence supporting services rendered by ATS.Delay in filing appeals:The appellant/revenue sought to assail the Tribunal's order due to a delay of 187 days in filing the appeals. The reasons cited for the delay included processing through official hierarchy and compliance-fulfillment, which were deemed vague. Despite this, the appeals were heard on merits due to the argument that the respondent/assessee did not discharge its onus in proving that ATS did render services to it.Disallowance of management fees:The Tribunal considered whether the management fees paid by the respondent/assessee to ATS should be added back to its income. In AY 2013-14, the respondent/assessee's ROI declared a loss, but the AO disallowed the management fees as excessive and unreasonable. The CIT(A) later deleted this disallowance, which was upheld by the Tribunal based on the documentary evidence provided by the respondent/assessee.Onus of proof and documentary evidence:The respondent/assessee successfully demonstrated the services rendered by ATS through various documents, including MOUs, acknowledgments, confirmations, invoices, and project details. The CIT(A) found that the Assessing Officer did not appreciate the services provided by ATS, leading to the deletion of the disallowance. The same pattern was observed in AY 2014-15, where similar documentary evidence supported the provision of services by ATS.Conclusion:The High Court found that the onus on the respondent/assessee was discharged, and no interference was warranted with the impugned order. The factual findings based on documentary evidence in both AYs led to the disposal of appeals on merits, with no substantial question of law arising for consideration. The condonation of delay applications by the appellant/revenue was deemed inefficacious and closed.