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TMI Blog2023 (10) TMI 1362X X X X Extracts X X X X X X X X Extracts X X X X ..... . At the time of hearing, learned Advocates on both sides submitted that following two questions of law only arises for our consideration: 1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the disallowance made under section 40A(2) of the Act by holding that the assessing authority has not doubted the payment nor it is held as excessive even though in terms of section 40A(2) only "legitimate needs of the business" is allowable as expenditure and, as such, the assessing authority rightly disallowed it? 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the disallowance made under section 40A(2) of the Act in respect of serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as such, the AO has rightly made the disallowance. 5. Shri. Easwar, for the assessee, supporting ITAT's order, submitted that assessee had entered into an agreement with its holding company M/s. MEMGIIPL and it is rendering consultancy services, finance, tax planning, project feasibility and marketing service. The fair market value is 2 to 2.5 % and assessee has paid 0.5% of the Total Turnover as fees to M/s. MEMGIIPL. With these submissions, he prayed for dismissal of this appeal. 6. We have carefully considered the rival contentions and perused the records. 7. Undisputed facts of the case are, assessee has entered into a Service Agreement with its holding company M/s. MEMGIIPL. For the services rendered by the holding company, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO has recorded that assessee company is 'unduly benefitting' the holding company and derives the legitimate profits of the company through a colorable device termed as service agreement. The AO has clearly made no efforts to demonstrate as to why payment made is excessive and unreasonable having regard to the market value of the services for which such payment was made. Thus, the disallowance made under Section 40A(2) of the Act is based on surmises and hence, unsustainable. 12. The ITAT has rightly held that the AO has not doubted the payment nor held the payment as excessive even though in terms of Section 40A (2) only 'legitimate needs of the business' is allowable as expenditure. Thus there is no material on record to support AO's ..... X X X X Extracts X X X X X X X X Extracts X X X X
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