9911796707
TMI Blog2015 (9) TMI 610X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the income of Rs. 10,02,94,349 returned by the appellant. Transfer Pricing: 2. That the assessing officer/ Transfer Pricing Officer ('TPO') erred on facts and in law in making addition to the income of the appellant to the extent of Rs. 2,99,52,717 on account of the alleged difference in the arm's length price of international transactions. 2.1 That the assessing officer/ TPO erred on facts and in law in holding the arm's length price for international transaction of payment of management fee as Nil as against management fee of Rs. 2,99,52,717 paid by the appellant on the ground that no benefit was derived by the appellant from payment of such fee. 2.2 That the Assessing Officer/TPO erred on facts and in law in not appreciating that significant benefits were drawn by the appellant from payment of management fee in terms of increased revenue and high profitability, even in the initial years of its business. 2.3 That the assessing officer/TPO erred on facts and in law in not appreciating that the appellant was able to achieve significant cost savings due to the management services provided by the associated enterprise. 2.4 That the assessing officer/the TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve. 3.3 That the assessing officer erred on facts and in law in not appreciating that the payment for administrative services, has also suffered tax in the hands of the recipient company and there could be no allegation of any tax evasion. 3.4 That the DRP erred on facts and in law in upholding the adjustment made by assessing officer without giving any cogent and germane reasons. 4. That the assessing officer erred on facts and in law in levying interest under Section 2348 and Section 234C of the Act. The appellant craves leave to add, amend, alter or vary, any of the aforesaid grounds of appeal before or at the time of hearing of the appeal and consider each of the grounds as without prejudice to the other grounds of appeal. 2. The brief facts of the case are that the appellant i.e. M/s Nippon Leakless Talbros Pvt. Ltd. is a company incorporated in India on 9th March, 2005 in pursuance of joint venture between Talbros Automotive Components Ltd. India (TACL) and Japanese partner M/s Nippon Leakless Corporation, Japan (NLK) ON 31.01.2000. The return of income for the assessment year 2010-11 was filed on 29th September, 2010 declaring income of Rs. 10,02,94,349/-. The return wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have to be developed. It may be noted that development of new model /variant of gaskets requires constant interaction of the technicians" with the customers to develop requisite drawing, design and specification, etc. The process of development of gaskets for engine primarily involves the following activities: (i) Technical review and continuous interaction with the customers after the receipt of Request For Quotation (RFQ). (ii) Freezing of product specification in discussion with the customers. (iii) Agreeing on a time line of development. (iv) Development of proto type and submission to the customers with necessary inspection report. (v) Validation of the product by the customers on the engine by running for certain specified hours. (vi) Feed-back based on the results of the validation and any necessary changes that may have to be incorporated in the product as a result of testing. (vii) Re-testing I revalidation, if required. (viii) Release of approved drawing for mass production and manufacture of necessary tooling for such mass production. Since Honda R&D as well as the associated enterprise, under consideration were situated in Japan, involving the associated ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enterprise has developed more than 100 gaskets for the assessee. The assessee, it is respectfully submitted, does not have on its payroll any technical employee possessing experienced and expertise in this field. It would be appreciated from the details of employees of the assessee that the assessee did not employe even a single personnel in the product design and developed division. The fact that the required resources were not available with the assessee is evident from the following statistics: Particulars Comparable Companies Assessee Employee cost to sales ratio 10.4% to 15.5% 4.10% In view of the aforesaid it is respectfully submitted that the assessee did not have the requisite expertise and was therefore dependent upon the associated enterprise of new product development and testing activity. It would also be appreciated that sales of the assessee have grown to Rs. 50.60 crores in FY 2009-10 from Rs. 32.18 crores in FY 2007-08. The automotive component industry is very competitive and it takes a company some time lag to get established, accepted by the customer and to break even. The assessee has not only got established in the initial years, but also has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee to engage the services of the associated enterprise for such purpose. The fact that the assessee did not have the requisite resources is evident from its low employee cost to sales and depreciation to sales ratio, as has been submitted above. Reliance in this regard is also placed on the decision of the Hon'ble Delhi Bench of the tribunal in the case of Abhishek Auto Industries Ltd vs DCIT (ITA No 1433/Del/2009) wherein the Hon'ble Tribunal held as under: "Whenever international transactions of such nature are undertaken, it is a combination of technical know-how, royalty, technical assistance through the deputation of ex- pat employees on the rolls of the person obtaining the technical know-how. There is merit in appellants submissions that merely by importing machinery, it cannot be said that the appellant would become competent to make use of such machinery. Technical know-how and technical assistance was needed for the use of machinery under the normal circumstances. " It is further submitted that the TPO failed to appreciate the difference between the grant of 'right to use the technology' and provision of services which may involve/require use of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... team of the associated enterprises in Japan for development of product. It would be appreciated that the cost of development of a single gasket to the associated enterprise is JPY 40,88,000 in case of metal gaskets and JPY 26,88,000 in cases of non-metallic gaskets. Further, the senior level employees of the associated enterprise also visited India for the purpose of representing the assessee before various prospective customers as well as for the purpose of supervising the factory machinery and building of the assessee. The cost of such visits viz. gross CTC of such employees was also not recovered by the AE from the assessee company. Additionally, the cost of travel related expenses of the employees of the associated enterprise in relation to such visits amounted to JPY 28,37,108 (equivalent to Rs. 15,03,667). In view of the aforesaid, it is submitted that the assessee derived significant benefits from the management services provided by the associated enterprise and therefore, the services provided by the associated enterprise satisfies the first criteria as laid down by the OECD guidelines. Re: Commercial and Business expediency of incurring any expenditure It is submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n profit or income either in the same year or in any of the subsequent years. The only condition is that the expenditure should have been incurred "wholly and exclusively" for the purpose of business and nothing more. It is this principle that inter alia finds expression in the OECD guidelines, in the paragraphs which we have quoted above. xxx 22 ...............So long as the expenditure or payment has been demonstrated to have been incurred or laid out for the purposes of business, it is no concern of the TPO to disallow the same on any extraneous reasoning. As provided in the OECD guidelines, he is expected to examine the international transaction as he actually finds the same and then make suitable adjustment but a wholesale disallowance of the expenditure, particularly on the grounds which have been given by the TPO is not contemplated or authorized." Following the decision of Delhi High Court, the Bangalore Bench of the Tribunal in the case of Festo Controls Pvt. Ltd. vs DC IT (ITA No. 969/Bang/2011) held that expense incurred wholly and exclusively for the purpose of business cannot be disallowed by the TPO alleging that such expenditure does not resulted in profits to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi High Court in the above said case equally applies to the facts of the case. What TPO has done in the present case is to hold that assessee need not pay any royalty or technical knowhow fee to the AE. Even though ORP has partly modified the payment of royalty, what we noticed is that they also made a mistake in allowing only 3.5% of royalty when in fact, there is no such claim in any of the earlier years. As submitted by the Ld. Counsel in the course of arguments/presentation before us assessee claimed at 7.5% in earlier year which was also allowed. The Hon'ble Tribunal in the case of M/s. Ericsson India Pvt. Ltd. vs. OCIT (ITA No. 514110e112011), too, following the law laid down by the Hon'ble jurisdictional High Court, held that " ................. it would be wrong to hold that the expenditure should be disallowed only on the ground that these expenses were not required to be incurred by the appellant............." In the case of Dresser Rand India Pvt. Ltd. vs. Addl. CIT (ITA No 8753/Mum/2010) the Hon'ble Mumbai bench of the Tribunal, while dealing with similar management fee paid to the associated enterprise held that benefits derived by the assessee is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs DCIT (ITA No 2057 & 2058/Mum/2009) the Hon'ble Mumbai Bench of the Tribunal held that "The TPO has to examine whether the price paid or amount paid was at arm's length or not under the provisions of Transfer Pricing and its rules. The rule does not authorize the TPO to disallow any expenditure on the ground that it was not necessary or prudent for assessee to have incurred the same." The Hon'ble Delhi Bench of the Tribunal in the case of- AWB India Pvt. Ltd vs Addl. CIT (ITA No 4454/Del/2011) held as under: "As also settled by judicial decision (supra), the revenue authorities are not empowered to question the commercial wisdom of the assessee and it is entirely for the assessee to take such decisions as favour the advancement of the assessee's business." Reliance in this regard is placed on the decision of Ahmadabad Bench of Tribunal in the case of KHS Machinery (P) Ltd. vs. ITO : 146 TTJ 692, wherein the Hon'ble Tribunal on the issue of similar disallowance made by the TPO of payment of royalty, has held as under: "The appellant had not made the one-time payment but making the continuous payment to the know-how provider which has been accepted by the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of M/s Ericsson India Pvt. Ltd. vs. DCIT (I.T.A. No. 5141/Del/2011). - Decision of the Mumbai Tribunal in the case of SC Enviro Agro India Ltd. vs. DCIT in (I.T.A. No . 2057 &2058/Mum/2009). " Further, the Hon'ble Hyderabad bench of Tribunal in the case of TNS India Pvt. Ltd (2014-TII-24-ITAT-HYD-TP) has deleted the similar royalty additions made by the TPO on the basis inter-alia that TPO cannot question the business decision. The Hon'ble Tribunal held as follows: "16.1. Even otherwise, the role of Transfer pricing Officer is to determine the arms length price of a transaction. He cannot reject the entire payment under the provisions of sec. 92CA as held by the Delhi High Court in the case of EKL Appliances Ltd." "17. Respectfully following the above, we are of the opinion that the TPO went beyond his jurisdiction in denying the payment outrightly, whereas, his role is limited to determining the ALP. In the guise of determination of ALP, the TPO cannot question the business decision of payment and determine that no services were rendered. In that view of the matter, the direction of the TPO cannot be upheld at all" In view of the aforesaid, it is respectfu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eged ground that the assessee has failed to prove the reasonableness and justification for the aforesaid amount. It is submitted that in terms of the agreement between the assesee and TACL, the latter is required to provide the following day to day managerial and administrative services to the assessee: (a) IT Services - All the IT related activities/services were provided by IT department of TACL and there was not a single IT employee on the payroll of TACL. (b) Secretarial Services - The assessee company being a corporate entity has to comply with a large number of statutory requirements under the Indian Companies Act. During the year it had employed on its rolls only one junior company secretary for routine documentation and executive jobs. Being a junior he needed guidance and supervision by the team of senior professionals who managed the ultimate responsibility for activities like, - Convening and holding board meetings and shareholders meetings - Maintaining minutes of all the meeting - Maintaining statutory registers and records prescribed under the law - Timely filing statutory returns and reports - Obtaining necessary permissions and licenses wherever required. - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y requirements - Ensuring due compliance of Accounting Standards and other statutory guidelines. - Dealing with Statutory and Internal Auditors, initiating necessary corrective actions and ensuring implementations of their suggestions . - Ensuring compliance with excise and service tax laws dealing with excise auditors and guiding and initiating corrective actions based on auditors observations. - Dealing with sales tax department, ensuring due compliance by timely submissions of reports/returns and attending to sales tax assessments and other related issues. - Dealing with Income tax matters, attending to tax assessments, interacting with outside consultants, wherever required. - Costing of different work centers, production processes and final products in co-ordination with the technical team - Ensuring maintenance of statutory cost accounting records - Identification and implementation of ERP system, co-coordinating with outside service provider and ensuring necessary modification/customization as and when required (e) Quality Systems - Provide necessary guidance to formalize quality systems and procedures. - Dealing with outside agency for quality certification - A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Enterprises v. CIT: 2541TR 216 Reliance in this regard was placed on the decision of the Hon'ble Delhi High Court in the case of CIT v. Dalmia Cement (P.) Ltd: 254 ITR 377. In that case the assessee was a manufacturer of cement and had appointed a company CDL as its sole selling agent. The assessee paid Rs. 1.75 per M. T. as commission to this agent and claimed the same as business deduction. The assessing officer held that the amount as paid was on higher side and Re.1 per M. T. would be permissible deduction as anything beyond Re.1 per M. T. was not for commercial expediency. The balance amount involved was, therefore, disallowed. The Court while holding the amount as claimed by the assessee as allowable deduction, observed as under: "7. It is to be noted that, in the present case, the question that has been raised by the revenue is not one relating to the expenditure being not for the purposes of the business. It is the question of an appropriate amount which would have been paid as commission. In fact, the Assessing Officer himself has allowed to the extent of Rs. 4, 35, 854 holding, inter alia, "the payment of Rs. 1.75 per M. T to Cement Distributors Ltd. is very much ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances, even if established, could be conclusive evidence of the fact that the commission was either not paid or that the same was excessive within the meaning of section 40(A)(2) of the Income-tax Act. No substantial question of law arises for our consideration. This appeal fails and is hereby dismissed." The Supreme Court in the case of S. A. Builders Limited vs. CIT: 288 ITR 1, while approving the decision of the Delhi High Court in the case of CIT vs. Dalmia Cement(B) Ltd (supra) held that: "........once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profit. The income-tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs Addl. CIT (ITA No 524/Vizag/2010), the Hon'ble Visakhapatnam Bench of the Tribunal held as under "13. We agree with the views of the Learned A.R on this issue. As submitted by him, it is the prerogative of the assessee to regulate its business affairs and it is not open for the department to question the same. Similar views have been expressed by the Hon'ble Supreme Court in the case of Oh a nrajgiriji Raja Narasingirji, referred (Supra)" Further reliance in this regard is placed on the decision of the Mumbai Bench of the Tribunal in the case of Dresser Rand India Pvt Ltd vs Addl. CIT (ITA No 8753/Mum/2010), wherein the Tribunal held as under: "It is only elementary that how an assessee conducts his business is entirely his prerogative and it is not for the revenue authorities to decide what is necessary for an assessee and what is not." XXX This analysis is also completely irrelevant, because whether a particular expense on services received actually benefits an assessee in monetary terms or not even a consideration for its being allowed as a deduction in computation of income, and, by no stretch of logic, it can have any role in determining arm's length pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar No. 6-P dated 6th July, 1968 it is stated that no disallowance is to be made under section 40A(2) in respect of the payments made to the relatives and sister concerns where there is no attempt to evade tax. 5. In view of the aforesaid admitted facts we are of the view that the Tribunal was correct in coming to the conclusion that the CIT (A) was wrong in disallowing half percent commission paid to the sister concern of the appellant during the Assessment Years 1991- 92 and 1992-93. The learned Advocate appearing for the appellant was also not in a position to point out how the appellant evaded payment of tax by alleged payment of higher commission to its sister concern since the sister concern was also paying tax at higher rate and copies of the assessment orders of the sister concern were taken on record by the Tribunal. 6. We, therefore, answer the above question of law raised in these appeals in affirmative and dismiss the above appeals filed by the appellant. There will, however, be no order as to costs" Further, in the case of CIT vs. Glaxo Smithkline Asia Pvt Ltd (SLP No 18121/25007) the Hon'ble Supreme Court while adjudicating upon an issue involving applicabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gement fee is paid by the assessee on the basis of the approval granted by Central Government, which implies that such payments are as per industry norms and are comparable to payment of management fee by other industries in the segment. The payment of management fee made as per the agreement approved by the Government cannot, in our respectful submission, be disallowed under section 40A (2) of the Act. The Central Board of Direct Taxes vide Circular No. 6P dated 8.7.1968 has also clarified that where remuneration to a Director is approved by Company Law Board, there is no question of disallowance of the same holding it to be excessive and unreasonable. The Supreme Court in the case of LIC v. Escorts Ltd (1986): 1 SCC 264 observed as under: "As we said earlier, under the scheme of the Act, it is the Reserve Bank of India that is constituted and entrusted with the task of regulating and conserving foreign exchange. If one may use such an expression, it is the 'custodian-general' of foreign exchange. The task of enforcement is left to the Directorate of Enforcement, but it is the Reserve Bank of India and the Reserve Bank of India alone that has to decide whether permissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Where the original account books of the assessee had been destroyed in a fire it was held that the Appellate Tribunal, in allowing a deduction, could rely upon other material mainly consisting of the auditors' reports from which it could be inferred that the deductions were properly supported by the relevant entries in the account books." Kind attention is further invited to the following decisions wherein adhoc disallowances made in absence of any specific mention of a unvouched expenditure liable to be disallowed have been held to be untenable and not called for. * Dwarka Prasad Agarwal v. ITO: 52 ITD 239 (Cal) * Mahendra Oil cake Industries Pvt. Ltd. v ACIT: 55 TTJ 711 (Ahd.) * Rattah Mechanical Works Ltd. v ITO: 87 Taxman 288 (Mag)(Cd.) * Shriram Pistons and Rings Ltd. v IAC: 39 IT J 132 (Del.) * Roger Enterprises Pvt. Ltd. v. ITA : 52 TT J 198 (Del.) * Ramji Das Modi v. DCIT: 110 Taxman 107 (JP) (Mag) * ACIT v. Bateli Tea Co. Ltd., [2003] SOT 72. * Continental Seeds & Chemicals Ltd. v. ACIT": (2003) SOT 393 Further the Hon'ble ITAT in the appellant's own case for AY 2008- 09 has allowed the payment of management fees and restored the matter to the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration of the services, the appellant pays 10% of profits before tax to TACL, It would be appreciated that the appellant does not have the qualified employees to perform the aforesaid functions. The assessing officer, however, disallowed the payment of administrative charges under section 40A(2) of the Act on the ground that the appellant has failed to prove the reasonableness and justification for the aforesaid amount. It is submitted that management fee is paid by the appellant on the basis of the approval granted by Central Government, which implies that such payments are as per industry norms and are comparable to payment of management fee by other industries in the segment. The payment of management fee made as per the agreement approved by the Government cannot, in our respectful submission, be disallowed under section 40A(2) of the Act. The Central Board of Direct Taxes vide Circular No. 6P dated 8.7.1968 has also clarified that where remuneration to a Director is approved by Company Law Board, there is no question of disallowance of the same holding it to be excessive and unreasonable. The Supreme Court in the case of LIC v, Escorts Ltd (1986): 1 SCC 264 observed as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional evidences have been placed on record to rebut the conclusion arbitrarily arrived at by the lower authorities and in the interest of Justice, the same may kindly be taken into consideration while deciding the appeal. Since the evidence placed on record goes to the root of the matter, the same needs to be admitted for adjudication of the appeal. Your Honour's kind attention is invited to the decision of the jurisdictional Delhi High Court in the case of CIT vs. Text Hundred India Pvt. Ltd.: 239 CTR 263. In that case, their Lordships held that Rule 29, permitting the Tribunal to admit additional evidence is made to enable the Tribunal to admit any additional evidence which would be necessary to do substantial justice in the matter. Their Lordships further observed that the various procedures, including that relating to filing of additional evidence, is handmade for justice and justice should not be allowed to be choked only because of some inadvertent error or omission on the part of one of the parties to lead evidence. The relevant observations of the Court are reproduced hereunder: "13. The aforesaid case law clearly lays down a neat principle of lawthat discretion lie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r documentary before the Tribunal, but if the. Tribunal requires any documents to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, or, if the income- tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them, or not specified by them, the Tribunal, for reasons to be recorded, may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be adduced." A perusal of the above rule would show that the parties to the appeal before the Tribunal are not entitled to produce additional evidence, either oral or documentary, as a matter of vested right. However, if the Tribunal requires any document to be produced or any witness to be examined or any affidavit to be filed, it may permit so for the reasons to be recorded. Nevertheless, it has to be understood that the discretion vested in the Tribunal is not without fetters. We say so for the reason that the rule itself carves out situations, where the exercise of such discretionary power by the Tribunal is permiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y by adjudication of the matter on hand. Following the ratio laid down in the case cited supra, we admit the additional evidence placed on record as this would be necessary to do substantial justice in the matter. 7. On the other hand, ld. CIT-DR relied on the orders of lower authorities. 8. We have heard the rival submission and perused the material on record. First we shall deal with the Transfer Pricing Adjustment (TPA) made by the Assessing Officer. The TPO held that there were no services rendered by the AE to the appellant and hence held that ALP is nil and this was summarily rejected by the DRP vide his order dated 14.11.2014. The contention of the TPO cannot be upheld for the simple reason that there were no employees with the appellant who are technically competent to be able to develop new gasket. This is evident from its low employee cost to sales as well as depreciation sales. It is imperative to refer to the OECD guidelines whether the services have been rendered or not. Para 7.6 of the guidelines states as under: "7.6 Under the arm's length principle, the question whether an intragroup service has been rendered when an activity is performed for one or more grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at "expenditure in the course of the trade which is unremunerative is none the less a proper deduction if wholly and exclusively made for the purposes of trade. It does not require the presence of a receipt on the credit side to justify the deduction of an expense". The question whether an expenditure can be allowed as a deduction only if it has resulted in any income or profits came to be considered by the Supreme Court again in CIT v.Rajendra Prasad Moody [1978] 115 ITR 519 (SC), and it was observed as under: - "We fail to appreciate how expenditure which is otherwise a proper expenditure can cease to be such merely because there is no receipt of income. Whatever is a proper outgoing by way of expenditure must be debited irrespective of whether there is receipt of income or not. That is the plain requirement of proper accounting and the interpretation of Section 57(iii) cannot be different. The deduction of the expenditure cannot, in the circumstances, be held to be conditional upon the making or earning of the income." It is noteworthy that the above observations were made in the context of Section 57(iii) of the Act where the language is somewhat narrower than the language ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have entered into the agreement to pay royalty/brand fee, because it has been suffering losses continuously. So long as the expenditure or payment has been demonstrated to have been incurred or laid out for the purposes of business, it is no concern of the TPO to disallow the same on any extraneous reasoning. As provided in the OECD guidelines, he is expected to examine the international transaction as he actually finds the same and then make suitable adjustment but a wholesale disallowance of the expenditure, particularly on the grounds which have been given by the TPO is not contemplated or authorised." 10. The ratio that can be culled out from the above decision is that it is not necessary for the assessee to show that any legitimate expenditure incurred by him is also incurred out of necessity or the expenditure incurred by him for the purpose of business actually resulted in profit. This ratio was followed by the coordinate bench of the Tribunal in the following decisions; i. Erricsson India (P.) Ltd. Vs. DCIT, [2012] 25 taxmann.com 472 (Del.) ii. Festo Controls Private Ltd. Vs. DCIT, [2013] 30 taxmann.com 16 (Bang.) iii. Fosroc Chemicals India Pvt. Ltd. Vs. DCIT, ITA( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Assessing Officer based on the material evidence available on the record. The Assessing Officer is duty bound to bring on record the comparable fair market value of the services rendered to say that the value paid by the assessee is excessive or unreasonable. We find no evidence on record to notice that the Assessing Officer made efforts in this direction. He simply made disallowance based on the surmises and conjectures. 13. We may also refer to the scope of Section 40A(2) as explain by the CBDT in Circular No. 6P, dated 06.07.1968. The CBDT clarified that while examining the reasonableness of expenditure the Assessing Officer is expected to exercise his judgment in a reasonable and fair manner. It should be borne in mind that the provision is meant to check evasion of tax through excessive or unreasonable payments to relatives and associate concerns and should not be applied in a manner which will cause hardship in bona fide cases. 14. In CIT Vs. Edward Keventer (P.) Ltd. [1972] 86 ITR 370, the Calcutta High Court considering identical provision in 1922 Act, it was held that the section places two limitations in the matter of exercise of the power. The section enjoins ..... X X X X Extracts X X X X X X X X Extracts X X X X
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