TaxTMI 
TaxTMI 
2022 (5) TMI 1374
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.... seeks to reverse the learned lower authorities' action invoking Section 40A(2)(a)&(b) r.w.s. 37(1) disallowance(s) of administrative service charges amounting to Rs. 3,04,14,743/-, Rs. 4,68,19,249/- and Rs. 5,55,82,030/-; assessment year wise, respectively paid to M/s. Tata AutoComp Systems Ltd. The CIT(A)'s identical detailed discussion affirming the Assessing Officer's action to this effect reads as follows:- "5.2 I have carefully considered the facts of the case and law apparent from records. The assessee has e-filed original return of income on 07.10.2010 thereafter, revised return was filed by the assessee on 26.03.2012 declaring a total income of Rs. 46,68,06,960/- and income of Rs. 42,37,13,080/- u/s. 115JB. The appellant/assessee has claimed an amount of expenditure of Rs. 3,04,14,743/- on account of Administrative Service Charges paid to TACO (Tata Autocomp systems Ltd.) a related company covered u/s. 40A(2)(b). The assessee has claiming the expenditure on basis of an administrative service agreement dated 02.02.2005 @ 1% of turnover in addition to reimbursing all the external cost incurred by TACO if any. The similar expenditure claimed in A.Y. 2006-....
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....d and documents were signed to regularize the payments. It can also be said that term of 7 years has already expired from A.Y. 2002-03 wherein similar expenditure has also been claimed. 5.6 The appellant before the ITAT for appellate proceedings for A.Y. 2006-07 contended that the service charges paid by assessee to TACO have been offered to tax as income in hand of TACO in its return of income filed. During that year TACO has offered NIL income after set off of brought forwarded losses under regular provisions and only paid taxes on the book profit u/s. 115JB @ 10%, therefore, the transactions between the TACO and assessee is not revenue neutral. The ITAT considered the commercial exigency of the agreement and quantum of remuneration to allowed in hands of assessee. The ITAT relying on decision of Cochin Bench in case of Harrison Malayalam Ltd. reported in 10 SOT 363 (Coch) considered that remuneration decided on prescribed rate of turnover is allowable and decided the issue in favour of appellant. The ITAT considered the decision of the Bombay High Court in case of CIT vs. Indo Saudi Services (Travel) (P.) Ltd. reported in 219 CTR 562 and concluded that there was no evas....
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....sessee had imported rough diamonds from 'P' of New York (a sister concern of assessee) - Assessing Officer compared prices of diamond imported by assessee from 'P' and from other concerns and found that assessee had paid excess price to 'P' - Accordingly, Assessing Officer disallowed said excess amount by invoking section 40A(2)(b) - Whether once imports are made by assessee from persons falling under section 40A(2)(b), then burden is upon assessee to establish that price paid by it is not excessive or unreasonable - Held, yes - Whether since no evidence was led by assessee to establish that price paid by it to 'P' was as per price prevailing in international market, and since authorities below had not gone into that aspect, impugned orders of Commissioner (Appeals) as well as Tribunal were to be set aside and matter was to be remitted back to Assessing Officer to decide question of disallowance under section 40A(2)(b) afresh - Held, yes" The appellant in this case has not brought any material on record to prove that payments made to TACO is not excessive or unreasonable. Under these circumstances, invocation of section 40A(2)(b) is correct.....
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..... In absence of documentary evidence in respect of return filed by the TACO it cannot be said that TACO has paid tax @ 30% specially when in earlier years the TACO was paying taxes under 115JB. Therefore, it cannot be said that service charges received by TACO from the appellant is revenue neutral. Further, if TACO is assessed under normal provisions of IT Act then on payment made by appellant the TACO will be paying same taxes and such transactions would be revenue neutral. In absence of documentary evidences adverse inference has to be drawn in terms of section 114 of the Evidence Act. It cannot be said that there is no intention to evade taxes when documentary evidence are not available and the period of the agreement has already expired if observation made in order of the IT AT is taken at its face value. Now with these facts the decision of the ITAT for A.Y. 2006-07 can be applied. The decision of the ITAT in case of the appellant for A.Y. 2006- 07 and decision of the Bombay High Court in case of. Indo Saudi Services (Travel) (P.) Ltd. (supra) cannot be applied to the payment made to TACO of Rs. 3,04,14,743/'-. Therefore, disallowance made by the AO u/s. 40A(2)(b) is uphel....