TaxTMI 
TaxTMI 
2022 (11) TMI 1204
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....It filed its return of income on 28.11.2013 for the A.Y. 2013-14 declaring loss of Rs.3,12,21,967/-. Subsequently, the case of the assessee company was selected for scrutiny and statutory notices under sections 143(2) and 142(1) of the I.T. Act, 1961 were issued and duly served upon the assessee. In response to the said notices, the Authorised Representative of the assessee appeared before the A.O. from time to time and filed written submissions and required details called for. During the course of assessment proceedings, the A.O. noted that the assessee company had made various payments to ATS Infrastructure Limited amounting to Rs.3,37,08,000/- towards management fees. The A.O. asked the assessee to show cause as to why the expenditure incurred in respect of management fees should not be treated as excessive and unreasonable under section 40A(2)(b) of the I.T. Act, 1961. The assessee filed detailed reply before the A.O. However, the A.O. did not satisfy with the submissions of the assessee and made the impugned addition of Rs.3,37,08,000/- as against the returned loss claimed by the assessee company at Rs.3,12,21,967/- and completed the assessment under section 143(3) of the I.T.....
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....e Ltd (vi) Invoices issued by ATS Infrastructure Ltd to its clients (vii) Ledger of ATS Infrastructure Ltd and the certificate/confirmation obtained from M/s ATS Infrastructure Limited. The above documents are also placed on record in the paper book filed by the assessee company before the Tribunal. The Learned Counsel for the Assessee further submitted that in the confirmation it has been explained by M/s ATS Infrastructure Limited that it has provided following managerial services to the assessee company viz., (i) Design and development of project (ii) Planning Labour management and emoluments disbursement (iii) Procurement (iv) Sales and CRM (v) Accounting and finance including fund raising and credit appraisal (vi) Human resource planning, appraisal and review (vii) Information Technology for managing project (viii) Compliance with various regulatory authorities. The Learned Counsel for the Assessee submitted that the assessee company had provided the details of project expenses incurred in the year under consideration under the guidance and consultancy of M/s. ATS Infrastructure Limited which is placed on record at pages 133 to 137 of the paper book. The assessee company had a....
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....int of view of businessman, but, only viewed as revenue, which is contrary to CBDT Circular No.6P dated 06.07.1968. In support of his submissions, the Learned Counsel for the Assessee relied upon the various decisions such as CIT vs., M/s. Second Leasing Pvt. Ltd., 2017 (11) TMI-269-Delhi-HC, CIT vs., Dalmia Cement (P.) Ltd., reported in 254 ITR 377 CIT vs., Padmani Packaging (P) Ltd., 155 taxmann 268 (Del.), Judgment of Hon'ble Supreme Court in the case of S.A. Builders Limited vs., CIT reported in 288 ITR 1 (SC) wherein the Hon'ble Supreme Court observed that ".....once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profit. The income-tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at th....
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....he considered view that ATS has provided services as per service agreement to the appellant and the payment of management fee of Rs.3,00,00,000/- is fully justified. Further, since the service tax liability is consequential to the project management fees and that the same, in any ways, is deposited into the government accounts, the same cannot be held to be excessive or unreasonable by any means and hence Rs.37,08,000 is fully justified. It is also observed from the order that Assessing Officer has applied the provisions of Section 40A(2)(b) while disallowing the payment of management fee made to ATS, however, AO has failed to give any instance of services which were not on arm's length, therefore, he was not justified in invoking the provisions of Section 40A(2)(b). Merely because the appellant is a related party of ATS, it cannot be held that the payments were not on arm's length or without commercial expediency. In this regard, reliance is placed on the decision of Supreme Court in the case of S.A. Builders Limited: 288 ITR 1. Reliance is also placed on the judgment of Hon'ble Supreme Court in the case of Glaxosmithkline Asia Pvt. Ltd. 236 CTR 113 wherein the appellate aut....
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.... ATS are subject to same rate of tax and are not claiming any exemption and, therefore, there is no loss to the revenue and there is no need for any disallowance under section 40A(2) of the I.T. Act, 1961. We find force in the submissions of the Learned Counsel for the Assessee. The Ld. CIT(A) also accepted the contention of assessee by following the Judgment of Hon'ble Supreme Court in the case of Dhakeshwari Cotton Mills Ltd., vs., CIT [1954] 26 ITR 775 (SC) wherein the Hon'ble Apex Court held that the Revenue Authorities cannot resort to ad-hoc adjustment without any reasonable basis. The CBDT also in its Circular No.6P dated 06.07.1968 clarified on the issue stating that the provisions of Section 40A(2) are meant to check evasion of tax through excessive or unreasonable payments to relatives and associate concerns and should not be applied in a manner which will cause hardship in bonafide cases. The assessee company had filed all the requisite documents before A.O. as called for, but, however, the A.O. without considering the fact that there is no loss to the revenue since assessee company as well as ATS are not claiming any exemption, disallowed the impugned expenditure of Rs.....