Case: Assistant Commissioner of Income-tax Vs Kin Ship Services (India) (P.) Ltd.. ITAT (Income Tax Appellate Tribunal)
| Judges | O.K. Narayanan, Accountant Member and N. Vijayakumaran, Judicial Member |
| Issue | Direct Taxation |
| Citation | [2009] 31 SOT 375, (2010) 128 TTJ 108 |
| Judgement Date | March 26, 2009 |
| Court | ITAT (Income Tax Appellate Tribunal) |
Order:
O.K. Narayanan, Accountant Member, (Cochin Bench)
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This is an appeal filed by the revenue. The relevant assessment year is 2004-05. The appeal is directed against the order of the CIT (Appeals)-II at Kochi dated 27-03-2007. The appeal arises out of the assessment completed under Section 143(3) of the Income-tax Act, 1961.
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The first ground raised by the revenue in this appeal is that the CIT (Appeals) has erred in ignoring the grounds made out in the assessment order for part disallowance of staff salary and allied expenses pertaining to sister concern, while deleting the addition of Rs. 8,50,000.
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The assessee is engaged in shipping and other related activities such as stevedoring, clearing and forwarding. In the past, the very same business was carried on by the sister concern of the assessee, M/s. M. Bhaskar Kini & Co. (P.) Ltd. The said company was facing a lot of problems on account of labour unrest. In order to avoid this problem, the assessee-company was formed to start a new business in the same line but with the ultimate object of taking over the business as well as assets and the personnel of M/s. M. Bhaskar Kini & Co. (P.) Ltd. On the basis of the above understanding, when the new company started operations, the entire staff support came from the old company, M/s. M. Bhaskar Kini & Co. Pvt. Ltd. The assessee company utilized the services of the old company for all its operational activities. In consideration, the assessee-company was paying corresponding amounts to M/s. M. Bhaskar Kini & Co. Pvt. Ltd. The assessee was claiming such payments as deductions on a regular basis. The department accepted this position as well.
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But for the impugned assessment year, the Assessing Officer held a view that the payments made by the assessee-company to M/s. M. Bhaskar Kini & Co. Pvt. Ltd. was excessive in terms of laws stated in Section 40A(2)(a). On that ground, the Assessing Officer disallowed the sum of Rs. 8,50,000 out of the total claim of Rs. 24 lakhs.
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In first appeal, it was argued before the CIT (Appeals) that in order to invoke provisions of law contained in Section 40A, the Assessing Officer has to establish either the fair market value of the goods, services or facilities for which payments were made by the assessee was excessive or unreasonable or it should have been established that the amount paid by the assessee was excessive or reasonable having regard to the legitimate needs of the business carried on by the assessee. On testing the above two requirements in the light facts of the present case, the CIT (Appeals) found that there was no justification to invoke the provisions of law contained in Section 40A and, accordingly, deleted the disallowance made by the assessing authority.
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The revenue is aggrieved and, therefore, this issue is raised as the first ground in the present appeal. Regarding the facts of the issue, there are no disputes. The assessee-company was formed to take over the business of M/s. M. Bhaskar Kini & Co. Pvt. Ltd. in a phased manner and in that course to absorb the employees as well, wherever feasible. Therefore, in order to keep the labour situation under control and not to aggravate the situation, the assessee-company was utilizing the services of the employees of M/s. M. Bhaskar Kini & Co. Pvt. Ltd. for carrying on its business. This is proved by the fact that subsequently all the employees of M/s. M. Bhaskar Kini & Co. Pvt. Ltd. have been absorbed on the rolls of the assessee-company and they are now regular employees of the assessee-company.
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The question of reasonableness of the payments made by the assessee-company should be examined in the...
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