Trinity Global Enterprises Ltd. Vs ITO (ITAT Delhi)
ITAT Delhi held that supervision and management charges paid to sister concern (i.e. related parties) doesn’t attract section 40A(2)(b) of the Income Tax Act as AO failed to prove the payment as unreasonable and excessive. Accordingly, charges duly allowed.
Facts- AO observed that the assessee had issued 1500000 shares of Rs.10 each on a premium of Rs.50/- per share and received Rs.90,00,000/- during the year. Based on the information furnished by the assessee, AO the assessee company was failed to furnish confirmation of share money and share premium money received during the course of proceedings. Owing to filing of non-confirmation, AO treated the amount of share application received of Rs. 90,00,000/- u/s. 68 of the Income Tax Act. CIT(A) affirmed the order of AO. Being aggrieved, the present appeal is filed.
Further, assessee incurred supervision and management charges u/s. 40A(2)(b) which were disallowed by AO reasoning that payments has been made to sister concern and payment is not made for doing actual work. CIT(A) allowed ad hoc 30% deduction and disallowed 70%.
Conclusion- Tribunal in the case of Al Anam Agro Foods (P.) Ltd. Vs. CIT has held that since identity of shareholders stood proved on record, amount of share application money could not be added to income of assessee. Thus, held that no addition is called for u/s 68 of the Income Tax Act, 1961.
Tribunal in the case of IKEA Trading (India) (P.) Ltd. Vs. DCIT has held that as per section 40A(2)(b), onus had been cast upon Assessing Officer to bring on record comparable cases to demonstrate that transactions made by assessee with related parties were unreasonable and excessive. Thus, held that the provisions of Section 40A(2)(b) are not attracted in this case and also having examined the payment made to Sh. Harpreet Singh Jolly of Rs.3,50,000/- and consultation charges of Rs.2,50,000/- are also being allowed as eligible expenses.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal has been filed by the Assessee against the order of ld. CIT(A)-9, New Delhi dated 29.03.2016.
2. Following grounds have been raised by the assessee:
“1. Under the facts and circumstances of the case the Learned CIT(A) has erred in confirming the addition of Rs. 90 Lacs u/s 68 of the income Tax Act, 1961 for share application received by the company.
2. Under the facts and circumstances of the case the Learned CIT(A) has erred in confirming the addition to the extent of 70% of supervisory and risk management charges of Rs. 4,46,50,000/- paid to the sister concern u/s 40A(2)(b) of the Income Tax Act, 1961 and Rs. 5,60,500/-paid to others without assigning any reason for allowing only 30% of total expenditure claimed by the assessee.”
Share Application Money:
Excerpts taken from the Assessing Officer:
3. During the assessment proceedings, the Assessing Officer observed that the assessee had issued 1500000 shares of Rs.10 each on a premium of Rs.50/- per share and received Rs.90,00,000/- during the year. The assessee was asked to file the details of increase in share capital and share premiums vide notice u/s 142(1) of the Income Tax Act, 1961 dated 09.04.2013. The assessee had filed its reply vide letter dated 14.05.2013 stating that the company received a share application/share premium money of Rs.90,00,000/- for 150000 equity shares from various companies and issued the share of Rs.10/- each on premium of Rs.50/- per share. The company had received the share application money/share premium money from the following companies:
