2019 (5) TMI 1393 - HC - Income Tax

Disallowance on account of the change in percentage of profit from 10% to 8% - CIT(A) deleted the addition upheld by ITAT - Assessee is engaged in a business of constructions of hospitals, leasing and sale of medical equipments and deals in chemicals, medicines and drugs - HELD THAT - One of the issues that arose was the agreement entered into between the Assessee and the aforementioned M/s Devki Devi Foundation on 10th December 2011, where the profit sharing percentage for the period of 30 years was 10%. The Assessee pointed out that for the AYs in question on account of the business exigencies the profit sharing percentage had been reduced from 10% to 8%. Although, the AO did not accept the explanation offered by the Assessee, it has been found to be acceptable both by Commissioner of Income Tax CIT (A) in the order dated 22nd April 2014 and the ITAT in the impugned order. The impugned order in fact discusses the relevant clauses of the agreement and concludes that the explanation offered by the Assessee as accepted by the CIT A was believable. The points raised against the views of the CIT A and the ITAT are essentially factual and the Court sees no substantial question of law arising in the present appeal.

Summary

Issues:
- Disallowance of change in profit percentage
- Justification of ITAT's decision
- Acceptance of Assessee's explanation

Disallowance of Change in Profit Percentage:
The case involved appeals by the Revenue against an order passed by the Income Tax Appellate Tribunal (ITAT) regarding the disallowance made by the Assessing Officer (AO) on account of the change in profit percentage of the Assessee and another entity. The Assessee, engaged in various businesses, had reduced the profit sharing percentage from 10% to 8% due to business exigencies. The AO did not accept this explanation initially, but both the Commissioner of Income Tax (CIT) and the ITAT found it acceptable. The ITAT analyzed the agreement between the Assessee and the other entity, concluding that the Assessee's explanation was believable.

Justification of ITAT's Decision:
The primary issue raised by the Revenue was whether the ITAT was justified in deleting the disallowance made by the AO. The ITAT's decision was based on a thorough examination of the agreement and the circumstances leading to the change in profit percentage. The ITAT found the Assessee's explanation credible, which was also upheld by the CIT. The High Court noted that the points raised against the decisions of the CIT and the ITAT were essentially factual, and no substantial question of law arose in the appeal. As a result, the appeals were dismissed, and the pending applications were also rejected.

Acceptance of Assessee's Explanation:
The Assessee's explanation regarding the reduction in profit sharing percentage was a crucial aspect of the case. Despite the initial rejection by the AO, both the CIT and the ITAT accepted the Assessee's explanation as reasonable and believable. The High Court concurred with the lower authorities' findings, emphasizing that the factual aspects of the case did not give rise to any significant legal questions. Therefore, the Assessee's explanation was upheld, leading to the dismissal of the appeals by the Revenue and the rejection of pending applications.