Section 40A(2)(a) applies to payments to directors with substantial interest in company

DCIT Vs Quantum Advisors Pvt. Ltd. (ITAT Mumbai)

ITAT Mumbai held that provisions of section 40A(2)(a) of the Income Tax Act are applicable in cases, wherein, the director of subsidiary company, to whom payment has been made, has substantial interest in the assessee.

Facts- The assessee company is registered with SEBI as a discretionary portfolio manager. The return of the assessee was selected for scrutiny assessment. In the assessment completed u/s 143(3), AO made disallowance including: (i) disallowance for marketing and distribution fees of Rs.2,46,81,144/- paid to associated company (related party) namely M/s QIEF management LPP, Mauritius and (ii) disallowance of Rs.2,33,69,884/- out of fee paid to subsidiary company namely M/s Quantum Asset Management Co. P Ltd for rendering research services to the assessee.

CIT(A) deleted both the additions. Being aggrieved, revenue has preferred the present appeal.

Conclusion- Held that we feel it appropriate to restore the issue back to the file of the Assessing Officer with the direction to the assessee to produce all the documentary evidence in support of services rendered by M/s QIEF including correspondence for soliciting business of marketing services rendered including e-mail correspondence etc.

Please become a Premium member. If you are already a Premium member, login here to access the full content.