2020 (8) TMI 47 - AT - Income Tax

Addition on account of rate of charging lease rentals and maintenance charges agreed earlier - as per revenue reduction of rate of charging lease rental and maintenance charges, the assessee was providing financial assistance to DDF and reducing the rate of lease rentals and maintenance charges was not for the purpose of business of the assessee - HELD THAT - As decided in own case MAX MEDICAL SERVICES PVT. LTD. 2019 (5) TMI 1393 - DELHI HIGH COURT issue decided in favour of assessee. Disallowance of expenditure attributable to goods sold on cost to cost basis - HELD THAT - The issue being settled in favour of the assessee on identical ground in 2017 (10) TMI 580 - ITAT DELHI , thus needs to be allowed in favour of the assessee and we find no merit in the ground of appeal of the Revenue in this regard. It may be pointed out that the Revenue did not raise any issue before the Hon ble High Court with regard to the second issue raised by the assessee.. - Decided in favour of the assessee

Issues Involved:

1. Deletion of addition on account of rate of charging lease rentals and maintenance charges.
2. Deletion of disallowance under section 40A(2) of the Income Tax Act.
3. Application of the principle of estoppel in income tax proceedings.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Rate of Charging Lease Rentals and Maintenance Charges:

The first issue pertains to whether the CIT(A) was justified in deleting the addition of ?4,68,45,000/- made by the Assessing Officer (AO) based on the revised rates of lease rentals and maintenance charges agreed between the assessee and Devki Devi Foundation (DDF). The AO argued that the reduction in these rates was not for the purpose of the business of the assessee but to provide financial assistance to DDF. The assessee had initially agreed to receive 10% and 6% of the revenue earned by DDF for leasing medical equipment and providing maintenance, respectively. These rates were later reduced to 8% and 5% due to financial difficulties faced by DDF. The CIT(A) deleted the disallowance, relying on the findings from previous assessment years (2010-11 and 2011-12), which were upheld by the Tribunal and the Hon’ble High Court.

The Tribunal noted that the AO's disallowance was based on suspicion and lacked any material evidence. The Tribunal referred to various case laws, including CIT Vs B. Dalmia Cement Ltd., which emphasized that the revenue cannot determine the reasonableness of business expenditure if a nexus between the expenditure and the business purpose is established. The Hon’ble High Court had also dismissed the Revenue's appeal on this issue, affirming that the reduction in rates was due to business exigencies. Thus, the Tribunal found no merit in the Revenue's appeal and dismissed it.

2. Deletion of Disallowance under Section 40A(2) of the Income Tax Act:

The second issue involved the deletion of disallowance of ?11,16,266/- under section 40A(2) of the Act. The AO had disallowed this amount, arguing that no prudent businessman would supply goods to another party at cost without charging incidental expenses. The CIT(A) deleted this disallowance, following the findings from previous years.

The Tribunal noted that the AO did not provide any tangible evidence to support the disallowance. The CIT(A) had observed that the expenses were incurred for business purposes, and no specific expenditure was identified as non-business-related. The Tribunal reiterated that the AO's disallowance was based on conjecture and lacked any substantial evidence. The Tribunal upheld the CIT(A)'s decision, stating that the reduction in revenue sharing was due to business exigencies and did not warrant an ad hoc disallowance of expenses.

3. Application of the Principle of Estoppel in Income Tax Proceedings:

The third issue raised by the Revenue was whether the CIT(A) was justified in holding that the decision in one assessment year is binding in subsequent years, contrary to the principle of estoppel. The Tribunal noted that the CIT(A) had relied on the findings from previous assessment years, which were upheld by the Tribunal and the Hon’ble High Court. The Tribunal found that the issues raised were identical to those in earlier years and had been settled in favor of the assessee.

The Tribunal emphasized that the Revenue did not raise any new arguments or evidence to challenge the CIT(A)'s findings. Consequently, the Tribunal dismissed the Revenue's appeal on this ground as well.

Conclusion:

The Tribunal concluded that the issues raised by the Revenue were already settled in favor of the assessee in previous years, and there was no merit in the Revenue's appeal. The Tribunal dismissed all the appeals filed by the Revenue for the assessment years 2012-13 to 2015-16. The order was pronounced in the open court on 31st July 2020.

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