9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2015 (7) TMI 743 - HC - Income TaxDisallowance u/s 40A(2)(b) r.w. S 40A(2)(a) - Tribunal deleting the addition - Held that - The respondent company as well as the parent company, both are assessed to income tax at the maximum marginal rate and, therefore it cannot be said that the service charge is paid to the respondent company at a unreasonable rate to evade income tax. Even the learned Counsel Mr. Bhatt for the revenue does not dispute this fact. We are in agreement with the observations made by the Tribunal as well as the ratio laid down by the coordinate Bench of this Court in the case of (1) Commissioner of Income Tax-I vs Enviro Control Associated (P) Ltd., 2014 (1) TMI 760 - GUJARAT HIGH COURT (2) Commissioner of Income Tax-III vs Ashok J Patel, 2013 (12) TMI 1480 - GUJARAT HIGH COURT and (3) Commissioner Of Income Tax vs Indo Saudi Services (Travel) P. Ltd. as reported as (2008 (8) TMI 208 - BOMBAY HIGH COURT). So far as the Circular dated 6.7.1968 is concerned, it makes clear that the provisions under Section 40A (2) and particularly with regard to the transaction between the relatives and associates is concerned, the same shall be treated as bona fide case unless the officer finds it that one of them is trying to evade payment of tax. Considering the overall facts of the case and the ratio laid down by the Hon ble Apex Court in the case of Commissioner of Income Tax vs Excel Industries Ltd, 2013 (10) TMI 324 - SUPREME COURT we are of the opinion that the appeals are meritless and the same deserve to be dismissed and accordingly dismissed. - Decided in favour of assessee.
Issues Involved:
1. Disallowance of claim under Section 40A of the Income Tax Act, 1961. 2. Applicability of the principle of res judicata in income tax proceedings. 3. Determination of fair market value for services provided. 4. Legitimacy of expenses claimed under Section 37 of the Income Tax Act. 5. Whether the expenditure claimed was excessive or unreasonable. Issue-wise Detailed Analysis: 1. Disallowance of Claim under Section 40A of the Income Tax Act, 1961: The revenue challenged the orders of the Income Tax Appellate Tribunal and the Assistant Commissioner of Income Tax (Appeals) regarding the disallowance of the respondent assessee company's claim under Section 40A. The assessee company, a subsidiary of Gujarat Gas Company Limited, entered into an agreement with its parent company to provide services. The assessee claimed service charges as deductions under Section 37 for the assessment years 2004-05 and 2005-06, which were initially allowed. However, for the assessment year 2006-07, the Assessment Officer found the claimed expenditure excessive and unreasonable, reducing the allowable amount to Rs. 1.2 crore per year. 2. Applicability of the Principle of Res Judicata in Income Tax Proceedings: The appellant argued that the principle of res judicata does not apply to income tax proceedings, as each assessment year is a separate unit. However, the court observed that in the absence of any material change, the revenue should not have taken a different view from the preceding assessment years. The Supreme Court's stance in Commissioner of Income Tax vs Excel Industries Ltd was cited, emphasizing that without substantial change, reopening issues in subsequent years is unjustifiable. 3. Determination of Fair Market Value for Services Provided: The Assessment Officer deemed the service charges excessive without providing cogent evidence or material to justify the reduction. The respondent argued that both the assessee and parent companies are government entities paying taxes at the maximum marginal rate, negating any tax evasion intent. The court noted that the Assessment Officer failed to ascertain the fair market price of the services and did not provide the assessee an opportunity to explain, contrary to established legal precedents. 4. Legitimacy of Expenses Claimed under Section 37 of the Income Tax Act: The respondent contended that the service charges were legitimate and agreed upon in a contract, which had been accepted in previous years. The court agreed, noting that the revenue had allowed similar deductions in prior years and there was no substantial change to justify disallowance in the current year. The court referenced the Supreme Court's decision in Radhasoami Satsang v. CIT, which supports maintaining consistency in the absence of new material facts. 5. Whether the Expenditure Claimed was Excessive or Unreasonable: The appellant argued that the expenditure was excessive and should be limited to Rs. 10 lacs per month. However, the respondent highlighted that the service charges were consistent with the contractual agreement and accepted in previous years. The court found that the Assessment Officer's decision lacked substantial evidence and was contrary to the principles laid down in previous judgments, including Commissioner of Income Tax vs Enviro Control Associated (P) Ltd. Conclusion: The court concluded that the appeals were meritless, emphasizing that the revenue had not provided substantial evidence to justify the disallowance of the service charges. The court upheld the decisions of the Tribunal and the Commissioner of Income Tax (Appeals), dismissing the appeals and affirming the legitimacy of the expenses claimed by the assessee under Section 37 of the Income Tax Act.
|
