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TMI Blog2012 (6) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... Devi, Jason Boaz, JJ. For Appellant: Smt Susan Thomas Jose, JCIT For Respondent: Shri T Suryanarayana, Adv. ORDER Per: P Madhavi Devi, JM: This appeal is filed by the Revenue. The appeal is directed against the order of the Commissioner of Income-tax - III at Bangalore dated 23.12.2010. The appeal arises out of the assessment completed u/s 143(3) of the Income-tax Act, 1961. 2. In both the appeals, the Revenue is aggrieved by the order of the CIT(A) in deleting the disallowance made by the AO u/s 40A(2) of the Income-tax Act of service fees paid to M/s Carborundum Universal Ltd. (CUMI) on the ground that CUMI is a tax paying entity having positive income and there was no attempt by the assessee to evade tax. The grievan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... control and management. Therefore, he observed that the CUMI is a person covered u/s 40A(2)(b) of the Income-tax Act. He, therefore, issued a questionnaire to the assessee asking it to justify the expenditure. The assessee vide its reply dated 4.8.2008 which is reproduced in pages 4 to 7 of the assessment order stated that the assessee has made the payment of service fee to CUMI was for the services rendered by it towards financial matters such as funds management, investments, foreign exchange managements, bank loans etc. and also guidance/clarification in direct and indirect taxation matters. After considering the said details filed by the assessee, the AO held that the explanation given by the assessee is very general in nature and does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Circular no disallowance is to be made u./s 40A(2) in respect of payments made to relatives and sister concerns where there is no attempt to evade tax. He also placed reliance upon the decision of the Hon ble Karnataka High Court in the case of DCIT Vs. Microtek Separators Ltd. reported in 293 ITR 451 , wherein it was held that so long as there is no intention to evade tax and so long as the expenditure is not shocking, the said expenditure has to be accepted, particularly in the light of the wordings of sec. 40A(2) of the Income-tax Act for deleting the addition. The CIT(A) has also observed that the assessee has deducted appropriate taxes at source before remitting the amount to CUMI as evidenced by the TDS certificate submitted to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the assessee has not given any details of the services provided to the assessee by CUMI. In support of the contention that in such circumstances the disallowance u/s 40A(2) of the Income-tax Act is justified, the learned DR placed reliance upon the decision of the Hon ble Gujarat High Court in the case of Coronation Flour Mills Vs. ACIT reported in 314 ITR 1 . 9. The learned counsel for the assessee on the other hand placed reliance upon the order of the CIT(A) and submitted that the assessee had filed all the details relating to the services rendered by its associate enterprises CUMI before the authorities below. He has drawn our attention to page No.132 of the paper book to justify assessee s submissions to the assessing autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so placed reliance upon the decision of S.K Engineer Vs. JCIT reported in 286 (AT) 210 (Bang) and also the decision of Hon ble Karnataka High Court in the case of Microtex Separators Ltd. reported in 293 ITR 451 in support of its contention. 10. Having heard both the parties and having considered the rival contentions, we find that undisputedly the assessee and CUMI are associate persons defined u/s 40A(2)(b) of the Income-tax Act. Therefore, the Assessing Officer has sought to examine the reasonableness of the payment made to CUMI by the assessee. However as already held by the Hon ble Gujarat High Court in the case of Coronation Flour Mills, whether under the provision of sec. 40A(2) of the Income-tax Act, where an assessee incurs a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng note of the CBDT Circular, which is binding on the Revenue authorities, has held that the disallowance is not justified. The Hon ble Karnataka High Court in the case of Microtex Separators Ltd. (cited Supra) after taking into consideration the decision of the various High Courts, has held that so long as there is no intention to evade tax and so long as the commission is not shocking, the said commission has to be accepted, particularly in the light of the wordings of sec. 40A(2) of the Income-tax Act and it is not the quantum alone that govern such cases but the fair market value of the goods, services, legitimate needs of the business or profession of the assessee would be guiding factor in terms of sec. 40A(2) of the Income-tax Act. W ..... X X X X Extracts X X X X X X X X Extracts X X X X
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