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2017 (1) TMI 262 - AT - Income TaxAddition u/s 40(A)(2)(a) - related person - disallowing administrative services charges paid by the assessee to TACO - excessive and unreasonable expenditure - Held that - As decided Tata Johnson Controls Automotive Limited Versus The Dy. Commissioner of Income Tax 2016 (4) TMI 963 - ITAT PUNE in on similar issue there is no basis for measuring such services and in the absence of any evidence brought on record to establish that the expenditure incurred by the assessee was excessive i.e. more than market value of the said services, we find no merit in the orders of authorities below in invoking provisions of section 40A(2)(a) of the Act. Accordingly, we direct the Assessing Officer to allow the expenditure in totality in the hands of the assessee as the said expenditure has been laid down in terms of the agreement agreed upon between the parties and is for carrying on of the business of the assessee more efficiently and is allowable as business expenditure. - Decided in favour of assessee Disallowance of transportation and staff welfare expenses - Held that - The Assessing Officer shall re-examine the documents furnished by the assessee and shall make disallowance only to the extent of vouchers not produced by the assessee in respect of expenditure claimed. If the assessee is able to produce the relevant documentary evidence, no disallowance is to be made under this head. Accordingly, ground Nos. 3 and 4 raised in the appeal for assessment year 2007-08 is allowed for statistical purpose.
Issues Involved:
1. Disallowance of administrative service charges paid to Tata Autocomp Systems Ltd. (TACO). 2. Disallowance of transportation and staff welfare expenses. Issue-wise Detailed Analysis: 1. Disallowance of Administrative Service Charges: The assessee company entered into an Administrative Support Agreement with Tata Autocomp Systems Ltd. (TACO) on 01-04-2006, agreeing to pay TACO 2% of net sales for various administrative services. The Assessing Officer disallowed these payments under section 40(A)(2)(a) of the Income Tax Act, 1961, citing lack of documentary evidence and questioning the necessity of such payments given the company’s established status. The Commissioner of Income Tax (Appeals) restricted the disallowance to 75%, allowing 25% of the claimed expenses. Both the assessee and the Revenue appealed this decision. The Tribunal noted that the services provided by TACO were detailed and included support in areas such as cash management, investment decisions, human resources, legal and taxation compliance, and strategic planning. The Tribunal referenced similar cases (Tata Johnson Controls Automotive Limited and Tata Toyo Radiator Pvt. Ltd.) where administrative service charges paid to TACO were allowed. It was emphasized that the agreement was commercially exigent and the expenses were reasonable. The Tribunal concluded that the disallowance was unjustified and directed the Assessing Officer to allow the full amount of administrative service charges claimed by the assessee. 2. Disallowance of Transportation and Staff Welfare Expenses: For the assessment years 2007-08 to 2009-10, the Assessing Officer disallowed 20% of the transportation and staff welfare expenses in 2007-08 and 10% in 2008-09 and 2009-10, citing inadequate supporting documentation. The Commissioner of Income Tax (Appeals) reduced the disallowance to 10% for 2007-08 but upheld the 10% disallowance for the subsequent years. The Tribunal found that the disallowance was made arbitrarily without pointing out specific defects in the books of account. It directed the Assessing Officer to re-examine the documents and make disallowance only to the extent of vouchers not produced. If the assessee could produce the relevant documents, no disallowance should be made. Revenue’s Appeals: The Revenue’s appeals challenged the Commissioner of Income Tax (Appeals) decision to allow 25% of the administrative service charges. Given the Tribunal’s decision to allow the entire amount claimed by the assessee, the Revenue’s appeals were dismissed. Conclusion: The Tribunal allowed the assessee's appeals regarding administrative service charges for all assessment years and directed the Assessing Officer to allow the full amount. It also remanded the issue of transportation and staff welfare expenses back to the Assessing Officer for re-examination, allowing the assessee to produce the necessary documentation. The Revenue’s appeals were dismissed.
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