2023 (8) TMI 1174 - AT - Income Tax

Addition of 20% of expenses incurred for services rendered - CIT (A) accepting the claim of the assessee that there was no profit element involved in the transaction wherein the assessee had provided a highly technical and professional services to the other party, that too by utilising its own funds - HELD THAT - As decided in own case 2020 (11) TMI 868 - ITAT MUMBAI unless the officer was able to come to the conclusion, on the material before him, that the assessee had really made profits in the transaction, it was not permissible for him to add any fictional income to the assessee's return. In the absence of any evidence to show either that the sales were sham transactions or that the market prices were in fact paid by the purchasers, the mere fact that the goods were sold at a concessional rate to benefit the purchasers at the expense of the company would not entitle the income-tax department to assess the difference between the market price and the price paid by the purchasers, as profit of the company. Thus direct the learned assessing officer to delete the addition made in this year being 20% of the expenditure incurred by the assessee. Accordingly, the order of the learned CIT A is confirmed and appeal of the learned assessing officer is dismissed.

Summary

Issues involved:
Two appeals filed by The Assistant Commissioner Of Income Tax for assessment year 2014-15, 2015-16 involving the deletion of addition of expenses incurred for services rendered to M/s Cigna TTK, justification of no profit element in the transaction, and the appreciation of functions performed by the assessee company.

Issue 1 - Addition of Expenses:
The learned assessing officer added 20% of expenses incurred by the assessee for services rendered to M/s Cigna TTK, questioning the absence of profit element and the nature of services provided. The AO held that the assessee should have charged a mark-up on the services provided to its sister concern, considering the commercial decision and mutual agreement between the parties. The AO noted that the assessee received advances less than 50% of the actual expenditure, indicating a profit element in the activities performed by the assessee. The AO treated the 20% mark-up as income of the assessee and added it to the total income.

Issue 2 - Justification of No Profit Element:
The learned CIT - A, following the decision of the ITAT in a previous year, directed the AO to delete the addition, stating that the transaction was not expenditure in the hands of the assessee and that no income was earned beyond the vendor agreement terms. Referring to legal precedent, the CIT - A emphasized that unless there was evidence of actual profit, fictional income should not be added to the return. The coordinate bench affirmed the CIT - A's decision, highlighting the importance of real price over market price in transactions.

Issue 3 - Appreciation of Functions:
The learned departmental representative argued that providing services without charging a mark-up was incorrect, emphasizing the technical nature of the services. However, the authorized representative cited a previous decision in favor of the assessee for the same issue in an earlier year, claiming that the issue was squarely covered in favor of the assessee. The coordinate bench, considering the previous decision, directed the AO to delete the addition, confirming the CIT - A's order.

The appeals for assessment years 2014-15 and 2015-16 were dismissed based on the decision to delete the addition of expenses incurred for services rendered to M/s Cigna TTK, following the precedent set in a previous year's case. The coordinate bench's decision in the earlier year's case was upheld, emphasizing the absence of evidence of actual profit and the importance of real transaction prices over market prices.