TaxTMI 
TaxTMI 
TaxTMI 
2016 (7) TMI 175
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....arned counsel for the appellant submitted that the assessee is a consultancy firm and since it was new in the business at the relevant point of time, it took the services of another consultancy firm and paid Rs. 10 Lacs for the work to the other firm. He further submitted that assistance of another firm was taken for a particular project and for that an amount of Rs. 10 Lacs was paid as per the understanding. He has taken us through the order of the Assessing Officer, CIT (Appeals) and the Tribunal. The CIT (A) has observed as under in para 3.2 and 3.3:- "3.2 Before me the A/R contended that the sister concern M/s. Araham Developer Pvt. Ltd., has sufficient infrastructure to provide technical personnel to the appellant so as to enable the appellant to carry out the project work undertaken by the appellant for various associations of Bakeri group and for that services the appellant agreed to make payment of R.10 lakhs to M/s. Araham Developer Pvt. Ltd. which was wholly and exclusively for the business purpose only and the same could not have been disallowed simply by invoking the provisions of Section 40A (2) (b) of the IT Act, 1961 and without bringing any contrary evidence to the....
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.... the services rendered by Araham Developer Pvt. Ltd. to the appellant and has determined Rs. 5 lakhs payment as excessive u/s. 40A (2)(b) of the IT Act. It is clear from the facts of the case that without the help of the employees of M/s. Araham Developer Pvt. Ltd. it would not have been possible for the appellant to have rendered the services to various associations of Bakeri Group. The claim of 40% of the total receipts as an expenditure against the total receipt of consultancy charges can be considered as reasonable expenditure and the entire payment of Rs. 10 lakhs to Araham Developer Pvt. Ltd. can be considered as reasonable, looking to the services rendered by them. Therefore, I am of the view that the Assessing Officer was not justified to disallow Rs. 5 lakhs as excessive u/s. 40A (2) (b) of the IT Act and I delete the addition made by the AO." 4. The Tribunal has observed as under in para 11 of the impugned order:- "11. After carefully considering the rival submissions and going through the order of CIT (A), we noted that the assessee has taken help of five employees of Araham Developer Pvt. Ltd. It is not disputed that Araham Developers Pvt. Ltd. is a person to which th....
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....es of five persons of Araham Developer Pvt. Ltd. and the salaries paid to these persons on the basis of consultancy services received by Araham Developer Pvt. Ltd., do not exceed 50% of Rs. 6,95,250/-, therefore, in our opinion, the AO was quite justified in estimating the fair market value of such services to be Rs. 5 lacs. We therefore confirm the order of the AO in disallowing the sum of Rs. 5 lakhs. Therefore, the order of CIT (A) is set aside on this issue while the order of AO is restored. Thus this ground stands allowed." 5. He submitted that only because the payment was made to a group concern, the same could not have been disallowed simply by invoking the provisions of Section 40A (2) (b) of the IT Act, 1961 and without bringing any contrary evidence to the facts of the case. He submitted that payment of R.10 lakhs to M/s. Araham Developer Pvt. Ltd. was wholly and exclusively for the business purpose only. He has relied upon the decision of this Court rendered in Tax Appeal No.1058 of 2080, wherein the payment made by way of commission under Section 40A(2)(b) was held to be valid and the appeal preferred by the assessee was allowed. 6. Mr.Nitin Mehta, learned counsel fo....
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....tion 40A(2)(b). With respect to AY 2006-07 AO also made disallowance of Rs. 93,25,426 made under section 40(a)(ia) of the Act by holding that the amendment carried out by Finance Act, 2010 can be held to be retrospective from AY 2005-06. Now, so far as the disallowance made under section 40A(2)(b) of the Act on the ground of motor bus rent is concerned, it appears that the AO disallowed 5% of the total payments towards motor bus rent by observing that the assessee has failed to reconcile the difference in payments as per tax audit report and as submitted during the assessment proceedings and had also not produced any comparative prices. The learned CIT(A) deleted the said disallowances by observing that the AO has not made out any case for excessive or unreasonable payments to the related purpose towards the motor bus rent. The learned CIT(A) also observed that no comparative prices for similar transport services was cited by the AO and therefore, was not justified in making ad-hoc disallowance of 5% under section 40A(2)(b) of the Act and therefore, the CIT(A) as such rightly deleted the disallowances made under section 40A(2)(b) of the Act. Considering the provisions of Section 40....
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....ble onus to perform. In any event, this onus is on the Assessing Officer and the AO has failed to discharge the said onus. For this reason also, the disallowance is unsustainable in law. As regards the discrepancy in the figures of the tax audit report and the assessee, neither such a situation can be a reason enough to make a disallowance under section 40A(2) nor the onus of explaining such a variation is on the assessee. A tax auditor is an independent professional and any errors in his report cannot be put to assessees disadvantage. In view of these discussions, as also bearing in mind entirety of the case, we approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter. We are in complete agreement with the view taken by the ITAT and the observations made by the learned ITAT while deleting disallowances made by the AO under section 40A(2)(b) of the Act on motor bus rent. No error has been committed by the learned ITAT which calls for interference of this Court. No question of law much less any substantial question of law arises. 4.2. Learned counsel for the appellant relied upon another decision of this Court in the case of Commissioner of Income ....