The Delhi bench of Income Tax Appellate Tribunal ( ITAT ) held that no disallowance should be made under Section 40A(2) of Income Tax Act in respect of payments of supervision and risk management charges to relative concerns.
The Assessee, Trinity Global Enterprises Ltd Incurred expense o f Rs.4,46 ,50,000/- on account of supervision and risk management charges which have been paid to related concern “M.M. Carpet & Inds . Pvt. Ltd.” The Assessing Officer held that payment has been made to sister concern for not doing actual work, therefore he disallowed 100% thereof being Rs.4 ,46 ,50,000/-.
Aggrieved, the assessee filed an appeal before the CIT(A) who in the absence of complete details and documentary evidence, only 30% is allowed, 70% disallowed. Therefore the assessee filed another appeal before the tribunal.
Rajkumar Gupta, Counsel for the assessee argued that the M & M Carpet and Industries Ltd. is in the business o f Risk Management and Supervisory work over the years and become pioneer in its field over the period based on its experience and expertise
Further the counsel argued that The similar expenses have been disallowed by the AO in A.Y . 2012-13 which has been allowed by the ld. CIT(A)
Subhra J. Chakraborty, Counsel for the revenue, supported the order of lower authorities.
It was observed by the Tribunal that the Assessing Officer or the ld. CIT(A) have not brought any comparable cases to prove that the payments made to M.M. Carpets are more than the market averages
Furthermore the bench relied upon the decision of Aradhana Beverages & Foods Co. (P.) Ltd . Vs. DCIT observed that “It should be borne in mind that provisions o f s. 40A(2)(b) are meant to check evasion o f tax through excessive or unreasonable payments to relatives or associate concerns and should not be applied in a manner, which will cause hardship in bona fide cases .”
After reviewing the submissions of both parties the two-member bench Of Dr. B. R. R. Kumar,( Accountant Member ) and Yogesh Kumar US, ( Judicial Member ) held that no disallowance should be made under Section 40A(2) of Income Tax Act in respect of payments of supervision and risk management charges to relative concerns.
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