TaxTMI 
TaxTMI 
2025 (5) TMI 2131
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....Id. CIT(A) for the AY 2017-18 has erred in deleting the addition of Rs. 3,30,82,692/- (25% of Rs. 11,90,73,294/-+ Rs. 1,32,57,474/-) on account of payment made to related parties by treating the payments was made as per fair market value. The Ld. CIT(A) has not take into consideration that the payments have been made by the assessee company to its Holding Company without following any qualitative screening process to select the most suitable vendor, which could provide the assessee company, the same quality services and that too at extremely competitive rates. Therefore, the payment of amounts paid to specified person of the assessee company cannot be treated as reasonable and hence the provision of section 13(1)(c) are clearly attracted in the case of the assessee. 2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) for the AY 2017-18 has erred in deleting the addition of Rs. 21,79,000/- by stating that Due to the violation of Section 13, the assessee cannot be denied the benefit of Sections 11 and 12. Since the benefit u/s 11, 12 and 13 of the Act has been denied the contribution received by the assessee is part of its income. 3. On the facts and ....
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....on u/s 12A of the Act on 30.05.2006. During the year under consideration, the assessee was running nine schools in Gujarat and Rajasthan. The AO has made an addition of Rs. 3,30,82,692/- for the reason that alleged benefit has been provided to persons specified in section 13(3) of the Act. The AO has taken into consideration the payment of Rs. 11,90,73,294/- made to Altus Learning Pvt. Ltd. on account of 'management fees' and 'other expenses' and a payment of Rs. 1,32,57,474/- made to YALI Education Company Pvt. Ltd. on account of 'other expenses.' The AO held that the expenses were unreasonable and the relevant findings of the AO in this context are as follows:- "4.15 Based on above it is implicit that the financial condition of the Holding Company is not strong enough to support and provide necessary infrastructure and support for all the services, for which purported payments have been made by the assessee company to its Holding Company. It is also a fact that the activity of running and operating schools do require certain types of services. It is noted that the payments to related parties in relation to Management Fees ( Payment of Rs. 11,90,73,294/- to Altus learning Pvt Lt....
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....respect of management fees is being disallowed and added to the income of the assessee company. Addition of Rs. 3,30,82,692/- (25% of Rs. 11,90,73,294 /- + Rs. 1,32,57,474/-) is being made on this account. (Addition of Rs. 3,30,82,692/-)" 4. The ld.CIT(A) has deleted this addition with the following relevant findings:- "Ground No. 1:- The ground of appeal has been raised against an addition of Rs. 3,30,82,692/- made by Ld. A.O. on account of benefit provided to persons specified in section 13(3) of the Act. The appellant Calorx Education and Research Foundation (CERF) is a not for profit company incorporated on 24.03.2005 within the meaning section 8 of Company Act. During the course of assessment proceedings, the Ld. AO observed that a payment of Rs. 11,90,73,294/- has been made to M/s Altus Learning Pvt. Ltd.(ALPL) for management fees and other expenses and a further sum of Rs. 1,32,57,474/- has been paid to M/s Yali Education Company Pvt. Ltd (YECPL) for other expenses. The Ld. AO treated payments to the extent of 25% made to the aforesaid companies as unreasonable. Further, exemption u/s 11 and 12 of the Act was also denied to the assessee. Payments made to M/s Altus L....
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....and also in other schools the Appellant availed the services of buses of ALPL. The quotation for bus usage charges from independent bus operator has also been provided. c. Further, the appellant has also submitted the justification for payments for infrastructure uses of Rs. 1,79,48,681/- as per the table below:- Sr. No. Location Agreement Dated Type of Property Cost of Assets at Altus Learning Pvt. Ltd. Area (Sq. Ft.) Per Sq.ft. Amt. Basic Rent Amount Total Amount with services tax 1 Delhi Public School, Bopal, Ahmedabad 01.08.20216 Land and Building 55232084 18500 18 3996000 (No increase since 2014) 4592070 2 Delhi Public School East, Ahmedabad 01.08.2016 Building 31799408 22200 16 4262400 (no increase since 2014) 4898200 3 Calorx Public School MundraSpecial Economic Zone (SEZ) 07.12.2012 Building 73390885 53896 6.5 4200000 (no increase since 2012) 4826500 Total 160422377 10393800 14316770 Also, the appellant entered into rental agreement with third parties for different schools which were also provided to the Ld. A.O. to justify the rate at which payment is made ....
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....also been placed on record wherein the service charges range between 7.5% to 8%. The appellant has also provided the basis of payments and justification of the expenditure as well through calculations. From the forgoing, in respect of all the payments made to ALPL and YECPL, it is evident that the Ld. AO had not raised any objection on the genuineness of the expenses. No discrepancy in the books of account of the appellant have been brought on record by the Ld. AO which could have warranted the rejection of books of accounts. The Ld. AO has not brought out any reason or comparison to show that inflated expenses have been booked by the appellant. The Ld. AO has also not given a reason or produced any documentary evidence to substantiate his decision for bench marking 25% of the expenses as excessive while during the earlier A.Y.'s the submissions of the appellant have been agreed upon by the preceding AO's and allowed by the department. The postulate of the Ld. AO is not based on any absolute market data made available. The rule of consistency must have been followed by the AO. Quantum of payments to a particular party is no reason to treat a part of payment as unreasonable since ....
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....h the AO has disallowed consequent to withdrawal of benefit u/s 11 and 12 of the Act for the alleged violation of section 13 of the Act. There is no dispute with regard to the genuineness or identity of the donors and in the aforesaid discussion with regard to the addition amounting to Rs. 3,30,82,692/-, we have examined the issue including that the AO was unable to make out a case of benefit being provided to persons specified in section 13(1)(c) of the Act. Thus, this ground is rightly determined by the CIT(A) in favour of the assessee and we sustain the same. 7. The next ground arises out of addition of Rs. 40,80,000/- made on account of payment of royalty to specified persons u/s 13(3) of the Act. The assessee is paying royalty to holding company/ALPL for using 'Calorx' word, the AO has observed in paras 4.6 to 4.9 as follows:- "4.6 At this juncture it is important to consider the below facets of the case as well 1. Altus Learning Private Limited was incorporated on 03/10/2008 as Calorx Education Company Private Limited. Its name was changed to Altus only w.e.f. 18/10/2012. 2. Calorx Education and Research Foundation (The assessee company) was incorporated on 24/03/2005.....
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.... to its holding company (ALPL). During the course of assessment proceeding, the Ld. AO has stated that the assessee company is paying royalty to its holding company even though it was in existence before the holding company. Hence, the brand name/ trade name for which assessee company is paying royalty to its holding company could be developed only through the efforts of the assessee. During the course of appellate proceedings, it has been stated by the appellant that Yali Trade Mark is owned by ALPL since 03.10.2008 and this trademark is also registered in the trade mark book in the name of M/s Calorx Education Company Pvt. Ltd. (Earlier named ALPL). So this trade name is legally registered in the name of the ALPL and in order to use this trademark the appellant is paying the particular fees for Rs. 1,70,000/- per month as per the agreed term. Calorx Trademark It has been stated by the appellant that there are two parts on the mark one is the word "Calorx" and another is the logo. For the word Calorx Education Company Pvt. Ltd. (Earlier name of ALPL) and it was registered under the trademarks records accordingly. And hence the payment of royalty charges are being made to A....