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TMI Blog2013 (7) TMI 739X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany was supposed to handle and manage the Stiffener division of the company. The project started in November 1993. The assessee entered into an agreement dated 01.12.1993. Under that agreement, the subsidiary company was to undertake manufacture assembly test and quality control of stiffener materials in accordance with the technical data of the ssessee. The other manufacturing related jobs were also to be done by the subsidiary company for which, the assessee shall pay management fee of Rs. 4,00,000/- per month. Accordingly, the assessee claimed Rs. 48,00,000/-payment made to the subsidiary company as expenditure. 3. The Assessing Officer allowed 50% of the claim of the assessee and disallowed Rs.24,00,000/- under Section 40A(2)(b) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the cost of the goods supplied to the assessee. Therefore, the amount paid by the assessee is excessive and accordingly, deduction of 50% is proper and therefore, he submits a case for interference is made out. 6. Per contra, the learned counsel for the assessee supported the impugned order. 7. The appeal was admitted to consider the following substantial question of law on 20.09.2007. "Whether the Tribunal is right "in setting aside the finding recorded by the Assessing Officer that the expenditure allowed to an extent of Rs.24,00,000/- to Flexsole Raman Limited, which is a subsidiary company out of Rs.48,00,000/- under the head of manufacture and other expenses under Section 40A sub-section 2 clause (b) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company. The person to whom they have to make payment in order to attract the said provision is any Director of the Company or any relative or Director. Admittedly, in this case, payment is made to the subsidiary company and not to any director or any relative of the said Director. Therefore, the requirement to the Section is not fulfilled. 10. The Bombay High Court in the case of COMMISSIONER OF INCOME TAX, PANAJI-GOA VS. V.S.DEMPO & CO. (P.) LTD. reported in (2011) 196 TAXMAN 193 (BOM.) held that when the assessee is a company and the seller is its subsidiary company, the seller i.e., the subsidiary company does not fall in any of the capacities mentioned under sub-clause (ii) of clause (b) Only a director of the company or any relative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly and exclusively for the purpose of business and therefore, disallowance is justified. There is no substance in the said contention. In the instant case, the agreement between the assessee and the subsidiary company is not in dispute. Payment of Rs. 48,00,000/- by the assessee to the subsidiary company is admitted. The material on record shows that, the subsidiary company has incurred an expenditure of Rs.21,00,000/- to perform the contract under the agreement. The material on record also discloses that there was labour unrest in the subsidiary company for nearly half of the year which contributed to the lower production, lower sales and poor profitability of the assessee-company. For another four months, the employees of the subsidiary c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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