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2023 (3) TMI 1530 - HC - Income TaxDisallowance of payments claimed u/s 36 (1) (iii) - HELD THAT - CIT (A) has accepted the amount paid to M/s. Azure as part of business strategy and the same has been accepted by the ITAT. ITAT following the decision in S.A. Builders Ltd. 2006 (12) TMI 82 - SUPREME COURT With regard to payment of Rs. 40 lakhs made to I Designs Delloitte Corporate Finance Services Pvt. Ltd., etc., AO has recorded that the said recipient was not connected with the Assessee. As recorded hereinabove in respect of M/s. Asianet TV Holdings Pvt. Ltd., and India Radio Ventures Pvt. Ltd., both CIT (A) and ITAT have accepted Assesse s contention that it was a payment made towards purchaser of shares and to consolidate share holding in the two companies. With regard to M/s. Azure Services Pvt. Ltd., both fact finding authorities have recorded that the expenditure was commercially expedient. It is settled that the AO cannot sit in the chair of an Assessee and decide what is commercially expedient in a particular transaction. Having re-examined the matter, we find no error in the order passed by the CITA and confirmed by the ITAT on this aspect. Accordingly, question No. 3 is answered in favour of the Assessee and against the Revenue. Transfer of money is to the sister concerns towards consultancy fee - AO has recorded that only invoice and agreement have been produced before the AO and there was no other evidence to show that any consultancy services was provided by the recipients - HELD THAT - Admittedly, Assessee has paid Rs. 6.06 crores to Hindustan Infrastructure Projects, Rs. 78,44,600/- to Vectra Holdings Pvt. Ltd., and Rs. 4,50,000/- Vectra Stocks and securities Pvt. Ltd..They are all sister concerns. AO has recorded that except producing General Agreement, there is no material on record to substantiate the payment. Shri Sanmati has rightly pointed out from the order passed by the CIT (A) and ITAT, that there is no proper application of mind while reversing the findings recorded by the AO. Although Shri. Narendra Kumar made a feeble attempt to justify the order of CIT (A) and ITAT, we are persuaded to accept the argument of the Revenue that except invoice and the agreement, there is no other material to substantiate the payment of large sums of money in the name of consultancy services. Moreso, first three companies are sister concerns. Hence, we are of the view that matter requires re-consideration, in the hands of AO.
Issues:
1. Disallowance of short term loss claimed by assessee. 2. Disallowance made under Section 14A read with Rule 8D (ii) of the Act. 3. Disallowance made under Section 36(1)(ii) of the Act. 4. Disallowance made under Section 40A (2) alternatively under Section 37 of the Act. 5. Disallowance made under section 37 of the Act for payment towards Consulting Fee for setting up joint venture. Issue 1 - Disallowance of Short Term Loss: The Tribunal considered whether the disallowance of short term loss claimed by the assessee was justified, given the circumstances where the assessing authority alleged a colorable device to reduce tax liability. The Tribunal held that the shares acquired by the assessee could be considered stock-in-trade, despite the assessing authority's claims. The Tribunal found that the assessee had not provided a reason for the conversion of loan to shares at an exorbitant pricing. The Court upheld the Tribunal's decision, ruling in favor of the assessee. Issue 2 - Disallowance under Section 14A read with Rule 8D (ii) of the Act: The Tribunal examined the disallowance made under Section 14A read with Rule 8D (ii) of the Act and whether it was justified. The Tribunal relied on a decision of the Delhi High Court and deleted the disallowance, even though it was made in accordance with the Act's parameters. The Court upheld the Tribunal's decision in favor of the assessee. Issue 3 - Disallowance under Section 36(1)(ii) of the Act: The dispute centered on the disallowance of payments claimed under Section 36(1)(ii) of the Act. The Assessing Officer disallowed the payments, alleging diversion of funds for non-business purposes. However, the Commissioner of Income Tax (Appeals) and the ITAT ruled in favor of the assessee, accepting the payments as part of a business strategy. The Court upheld the decisions of the lower authorities, ruling in favor of the assessee. Issue 4 - Disallowance under Section 40A (2) alternatively under Section 37 of the Act: The Tribunal considered the disallowance made under Section 40A (2) alternatively under Section 37 of the Act. The assessing authority had questioned the payments made towards consultancy fees to sister concerns. The Tribunal found that there was insufficient evidence to substantiate the payments for consultancy services. The Court remitted this issue back to the Assessing Officer for reconsideration. Issue 5 - Disallowance under Section 37 of the Act for Consulting Fee: The Tribunal reviewed the disallowance made under Section 37 of the Act for payments towards Consulting Fee for setting up a joint venture. The assessing authority had raised concerns about the nature of the expenditure. The Court remitted this issue back to the Assessing Officer for further consideration in accordance with the law. In conclusion, the High Court of Karnataka addressed various issues related to disallowances claimed by the assessee, upholding some decisions in favor of the assessee while remitting others back to the Assessing Officer for reconsideration. The judgment provided detailed reasoning for each issue, considering the facts and legal aspects involved in each disallowance.
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