AI Drafter 
TaxTMI 
TaxTMI 
2018 (7) TMI 571
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly appreciating the facts on the case and the material brought on the record. 2. On the facts and in the circumstances of the case, the learned CIT(A) ought to have upheld the order of the assessing officer. 3. It is therefore, prayed that the order of the Ld. CIT(A) may be set aside and that of the assessing officer may be restored to the above extent." 3. The issue raised by Revenue in ground no.1, 2 and 3 is that Ld. CIT(A) erred in deleting the disallowance of Rs. 54,00,000/- on account of infrastructure and referral fee. 4. Briefly stated facts are that the assessee is a private limited company, registered as NBFC with RBI and engaged in the business of financing. The assessee in the year under consideration debited expenses for Rs. 60,00,000/- under the head 'common infrastructure & referral fee' which is to be paid to the following companies: 1. Monarch Project & Finmarket Ltd. (Goregaon) Rs. 36 lacs 2. Monarch Research & Brokerage Pvt. Ltd. Rs. 24 lacs The AO during the assessment proceedings observed certain facts about the above expenses as detailed under: i) The Net profit ratio of assessee reduced from the preceding ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... three parties was effective from 01/04/2012 which evidences that the same is not applicable for the year under consideration, i.e. F.Y. 2010-2011. iv. As per the MOU, the assessee was to utilize the infrastructure facility of these companies available at various locations in Ahmadabad & outside Ahmadabad. But the assessee has not used all the infrastructure facility except the one as discussed above. v. The assessee has already debited salary & administrative and miscellaneous expenses in its profit & loss a/c for Rs. 7,62,171.00 and 76,168.00 during the year against Rs. 6,98,750.00 and Rs. 33,511.00 as claimed in the preceding year. Thus there was not any business expediency for such huge expenditure. vi. One of the company has filed its return of income declaring the loss. Thus the argument of the assessee that both the companies have suffered tax at the Maximum Marginal rate is incorrect. vii. Both the parties are related parties in pursuance to the provisions of section 40A(2)(b) of the Act to the assessee, and therefore the unreasonable & excessive amount has been paid by the assessee. In view of above, the AO disallowed the expenses of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed u/s. 40A(2)(b) of the I. T. Act, 1961. The aforesaid claim of expenditure pertaining to Monarch Project and Finmarkets Ltd. (MPFL in short) was at Rs. 36 lacs and Monarch Research and Brokerage Pvt. Ltd. (MRBPL in short) was at Rs. 24 lacs. The claim of aforesaid expenditure has been disallowed for the reasons discussed in Para No. 3.2 of the assessment order. Briefly, the expenditure was held to be not for the business expediency as per the AO. It was observed by the AO that the common infrastructure and referral fee expenses have not been made for any client reference to the appellant company. Further these payments have been made to the related parties covered under the provisions of section 40A(2)(b) of the I. T. Act, 1961. It was also observed that assessee company have its client base in Ahmedabad since long and there was no reason to utilise the infrastructure facility of Monarch Research and Brokerage Pvt. Ltd. and Monarch Project and Finmarkets Ltd., Guregaon, situated outside Ahmedabad. As per the MOU agreement which was executed between the appellant company, M/s. Monarch Research and Brokerage Pvt. Ltd. and M/s. Monarch Project and Finmarkets Ltd., the same ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for making the disallowance of the entire excessive claim of the expenditure by the appellant. It has been noticed that an MOD dated 01/04/2011 between the appellant and other two recipient companies have been executed on the stamp paper and relevant portion of the sharing of the infrastructure facilities among them is reproduced as under:- "All companies here agrees with mutual consent to share infrastructure and common expenses borne carrying business in a group hereby includes usage of office along with office utilities, lounge, reception with competent personnel to handle messages, secretarial services, internet and telecom facilities, electricity, water supply, pantry and securities, salary of employee, Branch General Expenses (including Rent, furniture cost, other administrative cost, back office cost), other administrative cost. Here the term rent means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together] any' a. land; or b. building; or office; or c. land appurtenant to a building; or d. equipment; or e. furnitu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ency is not based upon any information / evidences. AO has not denied that the said common premises with facilities have not been utilised by the appellant company for its business activities. Moreover, it has been found that the appellant company has made the TDS on the total payment of Rs. 60 lacs under the provisions of section 194J of I. T. Act totaling to Rs. 6,27,000/- and the same have been deposited on 27/06/2012 in the government account. Thus, the genuineness of the claim of the expenditure is also remained explained not only from the terms and conditions of the MOU but from the deduction of TDS upon the payments. Since the claim of expenditures have been reimbursed to the related parties, therefore, the possibility of making the excess payment cannot be ruled out, and considering the appellant's contention vide letter dated 05/01/2015 in the assessment proceedings as has been reproduced on Page 7 of the assessment order which reads as under:- "In view of the above, proposed disallowance of Rs. 60 lacs may please be dropped or in the alternative reduced substantially." the disallowance of the aforesaid expenditure @ 10% which amounted to Rs. 6 lacs i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d perused the materials available on record. In the present case, the assessee has incurred expenses of Rs. 60.00 which were paid to two companies as discussed above. As per the assessee, such expenses were incurred for using the infrastructure facility owned by both the companies. But the AO disagreed with the contention of the assessee and made the disallowance. But the ld. CIT-A restricted the disallowance to the tune of 10% of the total expenses, i.e. Rs. 6 Lacs. From the preceding discussion, we note certain facts as detailed under: 1. There was no payment made by the assessee in the preceding year to the above-said companies as evident from note 13 attached to the financial statements of the assessee. The relevant extract is placed on page 12 of the PB and reproduced as under: Note: 13-Administrative, selling and Distribution Particulars Figures for the period ended 31st March 2012 Figures for the period ended 31^st March 2011 Administration expenses Audit fees a Statutory Auditor 10 000 10 000 b Tax Auditor 5000 5000 Postage, Printing & Stationery 971 36 225 Software Development Charges 0 55 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....utstanding until the finalization of financial statements as evident under : Note: 6 - Short-term Provisions Particulars Figures as at 31st March 2012 Figures as at 31st March 2011 a. Salary Payables b. Others -Provisions for Income Tax -TDS Collection & remittance -Others 0 21,56,500 8,84,496 550 51,600 19,60,000 2,33,312 2,620 30,41,546 22,47,532 7. M/s Monarch research Pvt Ltd. was assessed to tax at the maximum marginal rate but monarch project and fin-markets ltd. had paid tax under MAT. Therefore the plea of the assessee that both the companies have suffered the tax on maximum marginal rate is wrong. Moreover, it is nowhere mentioned in any law that if any payment made by a person which is taxable in the hand of the recipient will not be disallowed to the payer. It is also important to note that one of the companies is paying tax under MAT for which tax credit can be claimed in future years. It is noted that common infrastructure facility available at Monarch house opp. Jaggers park, Nr, Ishwar Bhawan navrangapura Ahmadabad which is owned by the MRBPL and If assessee had used infrastructure facility only....