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TMI Blog2017 (10) TMI 580X X X X Extracts X X X X X X X X Extracts X X X X ..... le in the eyes of law. Moreover, the AO did not bring anything on record to substantiate that by reducing the percentage of share of fee, the assessee was looser in terms of earning the revenue and that the extra expenses were incurred by the assessee in the same ratio in which the revenue sharing was reduced. The contention of the assessee that the reduction in the fees from leasing of equipments/maintenance of the office building was on account of business exigency, had not been rebutted at any stage. - Decided against revenue - ITA No. 4050/Del/2014 And ITA No. 4051/Del/2014 - - - Dated:- 13-9-2017 - Sh. N. K. Saini, AM And Sh. Sudhanshu Srivastava, JM For The Assessee : Sh. Akhilesh Gupta, CA Ms. Priya Juneja, CA For The Revenue : Ms. Shaifali Swaroop, CIT DR Sh. Pradeep Kumar Meel, Sr. DR ORDER Per N. K. Saini, AM: These two appeals by the department are directed against the separate orders dated 16.04.2014 and 22.04.2014 of ld. CIT(A)-IX, New Delhi for the assessment years 2010-11 and 2011-12 respectively. 2. Since the issue involved is common and the appeals were heard together so these are being disposed off by this consolidated order f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of percentage of profit as per the agreement dated 21.02.2009, be not disallowed. The assessee was also asked to explain as to why expenses be not disallowed as sale of ₹ 1.72 crores had been made to the related party at cost price, thus, yielding no profits. 6. In response, the assessee submitted as under: In this regard, it is submitted that the assessee company has readjusted the percentages of above agreements due to the rapidly changing business environment and competition. In regards to the above query it is respectfully submitted that the percentage of the adjusted gross annual turnover were reduced due to repeated requests from the Customer and for commercial expediency. As per clause C and D of the Supplementary Agreement entered between the assessee company and the service provider, the equipment leasing agreement was revised due to the following reasons: C Pursuant to financial difficulties, the User has requested the Company for certain concessions with respect to the payments required to be made to the Contractor under the Equipment Leasing Agreement and certain amendments to the payments terms set out there under. D. The Parties wish to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he service provider. The relationship of the Assessee-Company and the service provider in the light of section 40A(2) of the Act has already been explained through our previous reply dated December 31, 2012. In view of the above, both the agreements were revised due to the concessions asked by the unrelated party and renegotiation of rates for the payment for lease rental and payment for construction and maintenance. Therefore, no adverse inference can be drawn in relation to any nexus between the proportionate expenses equal to the amounts by which income from lease maintenance has decreased due to readjusted % of income as per the agreements. II. Sale of stores amounting to ₹ 172.45 lacs. During the relevant Assessment Year, the Assessee-Company had sold hand instruments and stunts to Max Healthcare Institute Limited ( MHIL ) on cost-to-cost basis amounting to Rs, 172.45 lacs. In this regard, it is submitted that the Assessee Company is just a pass through medium to transfer these instruments to MHIL on actual basis. This can be demonstrated through sample invoices enclosed herewith as Annexure 4 to 8 to this letter. This is done in order to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcentage as per Supplementary Agreements dated 21.02.2009 Reduction of profits of the assessee on account of decrease in percentage of shares Income from Lease 626,50(000) 10% 8% 152,62(000) Income from maintenance activities 391,57(000) 6% 5% 78,31(000) 230,93(000) The AO also observed that the expenditure incurred by the assessee during the year equal to the reduction of percentage in the revenue i.e. ₹ 2,30,93,000/- was to be disallowed. Accordingly, the said amount was added to the income of the assessee. 8. The AO further observed that the assessee had sold goods of ₹ 1,72,45,488/- to its related party namely, M/s Max Healthcare Institute Ltd. at cost price. The reply furnished by the assessee that it was just a pass through medium to transfer these instruments/goods to M/s Max Healthcare Institute Ltd. on actual basis, it was in order to get ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onable cause for the above decrease, While making the aforesaid disallowance, the Ld. AO has questioned the decision of the Appellant to reduce the rates for the payment of lease rental and payment for construction and maintenance on the ground of business prudence. The above contentions of the Ld. AO are misplaced on the following grounds: * Section 40A(2) is not applicable in the instant case * The percentage of revenue was reduced on ground of commercial expediency 10. The reliance was placed on the following case laws: * S.A. Builders Ltd. Vs CIT 289 ITR 26 (SC) * Atherton Vs British Insulated Helsby Cables Ltd. (1925) 10 TC 155 (HL) * Eastern Investments Ltd. Vs CIT (1951) 20 ITR 1 (SC) * CIT Vs Chandulal Keshavlal Co. (1960) 38 ITR 601 (SC) * Shahzada Nand Sons Vs CIT (1977) AIR 1182 (SC) * CIT, Punjab, Haryana, J K, Vs Panipat Wollen General Mills (1976) AIR 640 (SC) * CIT Vs B Dalmia Cement Ltd. 174 CTR 188 (Del.) 11. It was further submitted as under: That the Ld. AO has not brought any cogent material on record in support of his contention. The impugned disallowance has been made merely o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Agarwal Vs ITO 52 ITD 239 (Cal) * Rattah Mechanical Works Ltd. Vs ITO 87 Taxman 288 (Chd.) * Shriram Pistons and Rings Ltd. Vs IAC 39 TTJ 132 (Del.) * Roger Enterprises Pvt. Ltd. Vs ITA 52 TTJ 198 (Del.) * Ramji Das Modi Vs DCIT 110 Taxman 107 (JP) * ACIT Vs Bateli Tea Co. Ltd. (2003) SOT 72 * Continental Seeds Chemicals Ltd. Vs ACIT (2003) SOT 393 13. The ld. CIT(A) after considering the submissions of the assessee observed that the assessee had entered into an agreement for leasing of equipment and construction/maintenance of hospital building with Devki Devi Foundation for consideration of 10% and 6% of annual turnover of the hospital respectively. The said agreements were revised during the relevant assessment year whereby the percentage of fee agreed was revised downward from 10% to 8% and 6% to 5% respectively, in accordance with the terms of supplementary agreement dated 21.02.2009. He further observed that the nexus drawn by the AO between the expenses incurred by the assessee during the year for the purposes of business and downward revision in the fee receivable from M/s Devki Devi Foundation was not supported by any material fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al. The ld. CIT DR strongly supported the order passed by the AO and reiterated the observations made in the assessment order dated 06.02.2013. 16. In his rival submissions the ld. Counsel for the assessee reiterated the submissions made before the authorities below and strongly supported the impugned order passed by the ld. CIT(A). He further submitted that the sharing of the revenue was reduced due to the computation and the business exigency, so there was no reason to make the ad-hoc disallowance out of the expenses, particularly when no defect was pointed out in the books of accounts maintained by the assessee. 17. We have considered the submissions of both the parties and perused the material available on the record. In the present case, it appears that the AO made the disallowance of the expenses only on this basis that there was reduction in the sharing of the revenue in comparison to the earlier years, no other reasons has been given. In the instant case, it is also noticed that there was increase in the income earned by the assessee in comparison to the earlier year i.e. 53% more than the preceding year as is evident from the chart furnished by the assessee before th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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