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TMI Blog2013 (2) TMI 429X X X X Extracts X X X X X X X X Extracts X X X X ..... 20% paid to its holding company - Held that:- AO has made no effort to demonstrate as to what would be fair market value of services and proceeded to disallow the same on adhoc basis as overall percentage of expenditure incurred. The disallowance in the present case is thus based on quantum of expenditure incurred rather than the fair market value of services for which expenditure is incurred. This approach, is contrary to the scheme of the Company. As decided in Indo Saudi Travel Services P. Ltd.,[2008 (8) TMI 208 - BOMBAY HIGH COURT], the legal proposition that payment to a sister concern cannot be disallowed under section 40A(2)(b) of the Act unless tax avoidance motive is established and as in the present case DR does not dispute that both the companies i.e. the assessee and parent company are taxed at the same rate and have sufficient taxable profits. Thus the mere fact that the allocation of expenses has not been made on the basis of rigid and detailed formula does not by itself make the expense disallowable under section 40A(2)(b) thus the impugned disallowance was indeed uncalled for on the facts of this case - in favour of assessee. - ITA No.6127/Mum/2011 - - - Dated:- 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, he upheld the action of AO. Being aggrieved, assessee is in further appeal before us. 5. At the time of hearing, ld A.R. produced a copy of decision dated 8.10.2009 of ITAT in assessee s own case for assessment year 2003-04 against revision order of ld CIT and submitted that the basis on which the authorities below have held that the credit will be given for TDS only to the extent of the amount credited in the P L account, is overruled by the Tribunal. Therefore, he urged before us to set aside the order of ld CIT(A). 6. On the other hand, ld D.R. supported the orders of authorities below. 7. We have heard ld representatives of parties and have perused the orders of authorities below. 8. We observe that similar issue had come up for consideration before the Tribunal in a revision order for the assessment year 2003-04, wherein, the Tribunal has reversed the order of ld CIT and directed the AO to allow proportionate part of the tax deducted at source. The relevant portion of the order of the ITAT reads as under: 3.2 Coming to the other aspect of allowing credit of TDS at ₹ 14.61 lakhs as against actually allowed by the AO at ₹ 37.48 lakhs, the view po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound No.2 reads as under: On the facts and circumstances of the case and in law, ld CIT(A) has erred in confirming the adhoc disallowance of ₹ 24,98,602 towards the common facility charges being 20% of ₹ 1,24,93,010 paid to its holding company. 10. Assessing Officer noticed that assessee has paid a sum of ₹ 1,24,93,010 to TLG India Pvt Ltd. towards charges for common facilities. AO noted that these payments fell within purview of section 40A(2)(b) of the Act. Accordingly, AO asked the assessee to furnish the full details regarding the nature of this payment. It was submitted by the assessee before AO that the payments for common facility mainly represents corporate allocation of payroll costs of top management of TLG to the assessee for time spent on clients business serviced by the assessee. It was submitted that as per agreement, TLG provided the services like creative, media buying and planning, managerial, finance, human resources, etc. AO did not accept the contention of assessee and following the method adopted by the AO for assessment year 2005-06, disallowed ₹ 37,47,903/- being 30% of the amount of ₹ 1,24,93,010 under section 40A(2)(b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . the assessee and parent company are taxed at the same rate and have sufficient taxable profits. This is also so stated by the assessee in the statement of facts, which have not been controverted before us. As regards the basis of allocation, we have noted that costs have been allocated to the assessee company on the basis of turnover, and it cannot, therefore, be said that allocation of expenses are devoid of any basis. In any event, as learned counsel has rightly points out that the mere fact that the allocation of expenses has not been made on the basis of rigid and detailed formula does not by itself make the expense disallowable under section 40A(2)(b). It is essential to bear in mind that the fact the company to which the payment has been made is a parent company of the assessee and commercial realities do not dictate rigidity a in such approach in intra group dealings. The basis of allocation of expenses may be less than perfect, but what renders a deduction disallowable is its being excessive and unreasonable vis- -vis the fair market price of such services. There is no finding about latter in this case. The disallowance under section 40A(2)(b) can come into play when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,00,000/- paid to TLG India. Being aggrieved, assessee filed appeal before ld CIT(A). Ld CIT(A) following the decision taken in assessment year 2005-06, restricted the same to 20% of the royalty paid. Hence, this appeal by assessee. 15. Ld A.R. produced the decision dated 29.10.2010 of ITAT in assessee s own case for assessment year 2005-06 in I.T.A. No.1545/M/09 and I.T.A. No.1599/M/09 and contended that this issue is squarely covered in favour of assessee. Ld D.R. relies on order of ld CIT(A). 16. We find the above issue is squarely covered by a coordinate bench s decision in assessee s own case for assessment year 2005-06 (supra), wherein the Tribunal has, inter alia, observed as follows: 15. Having heard the rival contentions and having perused the material on record, we are of the considered view that the impugned disallowance indeed deserves to be deleted. We have perused the agreement dated 19.4.2004 between TLG India P. Ltd., and the assessee company, copy of which is placed on record at pages 23 to 27 of paper book, which provides that the royalty not exceeding 5% of the billing of the company will be payable in consideration for use of proprietary materials ow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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