The Income Tax Appellate Tribunal (ITAT), Delhi Bench deleted the disallowance against Max Medical Services Limited on the basis of the rate of charging lease rental and maintenance charge.
The Assessee, Max Medical Services Ltd. had entered into an agreement for the leasing of equipment and construction/maintenance of hospital building with M/s Devki Devi Foundation (DDF) for consideration of 10% and 6% of the annual turnover of the hospital. The agreements were revised during the assessment year 2011-12, wherein the percentage of the fee agreed was revised downward from 10% to 8% and 6% to 5%, respectively.
The AO had doubted the reasonableness of the aforesaid downward revision in the fee receivable by the assessee from DDF and on the basis has disallowed expenses incurred by the assessee during the year on ad hoc basis.
The CIT(A) after considering the submissions of the assessee observed that the nexus drew by the AO between the expenses incurred by the assessee during the year for the purposes of business and a downward revision in the fee receivable from M/s Devki Devi Foundation was not supported by any material fact.
It was further noted by the CIT(A) that there was no decline in the gross revenue earned by the assessee from M/s Devki Devi Foundation which had increased in absolute terms in relation to the preceding year and that it was only the percentage of fees agreed between the parties originally was revised downward, on grounds of commercial expediency which could not be disputed/dictated by the AO. The CIT(A) deleted the ad-hoc disallowance made by the AO.”
The tribunal headed by the Vice-President, Shushma Chowla held that the AO made the arbitrary disallowance without pointing out any defect in the books of accounts maintained or any specific vouchers of disallowable nature. The said action of the AO was purely based on suspicion and surmises without bringing any evidence on record in support of the disallowance.
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