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TMI Blog2021 (8) TMI 765X X X X Extracts X X X X X X X X Extracts X X X X ..... not been brought on record by the Lower Authorities, we further grant the benefit of another 10% to the Assessee. Thus, we restrict the disallowance upto 10% of the expenditure claimed by the Assessee by making the payment of M/s Oxbridge International Private Limited for both the assessment years. In the result, both the Appeals are partly allowed. - ITA Nos.65/Asr/2017 & 169/Asr/2018 - - - Dated:- 16-8-2021 - Shri Laliet Kumar, Judicial Member And Dr. Mitha Lal Meena, Accountant Member For the Appellant : Sh. Sudhir Sehgal, Adv. For the Respondent : Smt. Jatindra Kaur, DR. ORDER PER LALIET KUMAR, J.M. These are the two appeals filed by the Assesse for the assessment years 2013- 14 and 2014-15 for the following grounds:- Grounds in ITA no 65/2017 1. That the Ld. CIT(A) has erred in partly confirming the disallowance of professional expenses u/s 40A(2)(b) of the Income Tax Act, 1961 ( the Act ) on estimation basis @ 20% being ₹ 12,08,496/- out of the total expenditure of ₹ 60,42,461/- claimed by the appellant. 2. That the Ld. CIT(A) has erred in confirming the part disallowance only on presumption basis estimat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by M/s Oxbridge International Private Limited were subjected to deduction of TDS and Service Tax which were deducted and deposited with the Treasury. 2. However, the Assessing Officer was not satisfied to the reasoning given by the assessee. The Assessing Officer has observed that the assessee has entered in a contract with the sister concern having no experience in the field which is clear from the comparison of the revenue from operation, employee benefit expenses and other expenses for the financial years 2012-13 and 2013-14. Lastly, it was concluded that the assessee is not entitled to any deduction of the expenses paid to M/s Oxbridge International Private Limited by invoking the provision of Section 40A(2). 3. Feeling aggrieved by the Order passed by the Assessing Officer, the assessee preferred the appeal before the CIT Appeal. The CIT Appeal vide impugned order dated 30.11.2016 for the assessment year 2013-14 and Order dated 29.01.2018 for the assessment year 2014-15 have partly granted the relief and have confirmed the disallowance at the rate of 20% of the total expenses paid to M/s Oxbridge International Private Limited. Thus, for the assessment year 2013-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents of the AR during the appellate proceedings have been considered. The AR has argued that exactly the same issue arose during AY 2013-14 which was decided in first appeal vide order dated 30.11.2016 in Appeal no. 01/IT/CIT(A)-5/Ldh/2016-17 wherein after considering the entire facts the disallowance has been restricted to 20% of the total expenses under this head. The relevant portion of the order dated 30.11.2016 is reproduced below: The AR has submitted that the services rendered by M/s Oxbridge International Pvt. LTd are covered by the contract between the assessee and the said company and the existence or authenticity of the contract has not been doubted by the AO. The service provider M/s Oxbridge International Pvt. Ltd is a separate entity and an assessee under income tax Act therefore existence and identity cannot be doubted. The assessee paid service charged and TDS has been duly deducted and deposited with the Government and Service Tax has been duly charged by them on the invoices and the same have been paid on timely basis. As per AR the profile of the employees of M/s Oxbridge International Pvt LTd and their existence has not been doubted, the nature of assista ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon some case laws in support that the assessee is free to run its business as per business acumen and the department cannot dictate its term as to how to carry out the business and whom to hire for services. The contentions raised by the AO for making the disallowance have been replied point wise by the AR and in the end submitted that had the assessee not taken the services of this company than some other person had to be employed for day to day monitoring of this work and to look after the keep up of building and then also the expenditure would have been allowable. As per AR, in order to have independent control over the works, the services of the company were taken for which expenditure deserves to be allowed. On consideration of all the facts and circumstances of the case the argument of the AR are found acceptable that whole of the expenditure cannot be disallowed by invoking the provision of Section 40A(2)(b) which provides that so much of the expenditure as is considered by the AO to be excessive or unreasonable shall not be allowed as a deduction having regard to the fair market value of goods, services or facilities for which the payment is made or the legitimate n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. Therefore in the circumstances the ends of justice would be met if disallowance of only a part of the expenses, which can reasonably be considered as excessive over and above the market price, paid to the sister concern is made instead of the disallowance of the whole of the amount. After considering all the aspect of the case including the argument of the AR that expenses have gone down, it would be reasonable to disallow 20% of the expenses and as already mentioned an estimation has to be resorted to as the fair market value of the expenses is not known in this case. Thus the disallowance to the extent of ₹ 12,08,496/- is confirmed and the appellant gets a relief of the balance amount. The facts of the year under consideration are identical to the facts for AY 2013-14, therefore, for the reasons mentioned in the order dated 30.11.2016, reproduced above, the disallowance is restricted to 20% of the expenses during the year (total expenses amounting to ₹ 1,01,12,400/-) which comes to ₹ 20,22,480/-. Therefore the addition/disallowance to the extent of ₹ 20,22,480/- is confirmed and the appellant gets the relief of the balance amount. 4. The Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction : 49 [ Provided that no disallowance, on account of any expenditure being excessive or unreasonable having regard to the fair market value, shall be made in respect of a specified domestic transaction referred to in section 92BA, if such transaction is at arm s length price as defined in clause (ii) of section 92F.] ( b ) The persons referred to in clause ( a ) are the following, namely :- ( i ) where the assessee is an individual any relative of the assessee; ( ii ) where the assessee is a company, firm, association of persons or Hindu undivided family any director of the company, partner of the firm, or member of the association or family, or any relative of such director, partner or member; ( iii ) any individual who has a substantial interest in the business or profession of the assessee, or any relative of such individual; ( iv ) a company, firm, association of persons or Hindu undivided family ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture incurred by the Assesse was either excessive or unreasonable, having regard to the market value. 10. If we look into the order passed by the Assessing Officer and partly confirmed by the CIT Appeal, we come to the conclusion that this essential aspect has been missed by both the Authorities. The CIT Appeal had wrongly and in a pro rata manner, had sustained the 20% of the expenditure claimed by the Assesse. There was no reason for coming to the conclusion for sustaining 20% of the disallowance. No fair market value of the services or goods has been brought on record by the Lower Authorities. 11. It is undisputed that the Assessing Officer had allowed the similar expenditure for the assessment years 2015-16, 2017-18 and 2018-19. Further, we are of the opinion that in the absence of any comparable instance of rendering the similar services/supply of goods, it would not be permissible to disallow the expenditure under Section 40A(2). As the needful was not done by the Lower Authorities and on adhoc/estimate basis, the CIT Appeal has restricted the disallowance upto 20%. In these peculiar facts and circumstances when the comparable fair market value have not been broug ..... X X X X Extracts X X X X X X X X Extracts X X X X
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