DY. COMMISSIONER OF INCOME-TAX, MUMBAI vs. QUANTUM ADVISORS PVT. LTD., MUMBAI

PER OM PRAKASH KANT, AM

This appeal by the Revenue is directed against order dated 15.05.2023 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2015-16, raising following grounds:

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research fees paid to group company as reasonable and research fees paid to group company as reasonable and research fees paid to group company as reasonable and genuine and not considering th genuine and not considering the facts and circumstances e facts and circumstances brought on record by the AO wherein it is Categorically brought on record by the AO wherein it is Categorically brought on record by the AO wherein it is Categorically mentioned that the assessee could not satisfactorily explain mentioned that the assessee could not satisfactorily explain mentioned that the assessee could not satisfactorily explain the nature purpose and genuineness of research fees?" the nature purpose and genuineness of research fees?" the nature purpose and genuineness of research fees?" 3. "On the fact and circumstances of the case and in law, the "On the fact and circumstances of the case and in law, the Ld "On the fact and circumstances of the case and in law, the CIT(A) was justified in allowing research fees of Rs. CIT(A) was justified in allowing research fees of Rs. CIT(A) was justified in allowing research fees of Rs. 2,33,59,884/ 2,33,59,884/- paid to Quantum Asset Management company paid to Quantum Asset Management company Pvt. Ltd. (QAMC) as business expenditure?" Pvt. Ltd. (QAMC) as business expenditure?" 4. "The Appellant prays that the order of the CIT(A) on the above "The Appellant prays that the order of the CIT(A) on the above "The Appellant prays that the order of the CIT(A) on the above ground be set aside and that of the AC ground be set aside and that of the ACIT 9(3)(2), Mumbai be IT 9(3)(2), Mumbai be restored. restored. 2. Briefly stated, facts of the case are that during the relevant Briefly stated, facts of the case are that during the relevant Briefly stated, facts of the case are that during the relevant year under consideration, the assessee year under consideration, the assessee company is company is registered with Securities Exchange Board of India (SEBI) as a discretionary Securities Exchange Board of India (SEBI) as a discretionary Securities Exchange Board of India (SEBI) as a discretionary portfolio manager and folio manager and was engaged in providing advisory services was engaged in providing advisory services of money management money management to its clients including institutional clients institutional clients; sovereign fund; pension fund etc. pension fund etc., in relation to their investment in in relation to their investment in ‘Indian listed securities Indian listed securities’. The ‘discretionary portfolio management discretionary portfolio management services’ means investing client’s money wherein discretion is with means investing client’s money wherein discretion is with means investing client’s money wherein discretion is with the assessee as a portfolio manager for taking investment decisions the assessee as a portfolio manager for taking investment decisions the assessee as a portfolio manager for taking investment decisions viz. as where to invest, how to invest, the period for which the viz. as where to invest, how to invest, the period for which the viz. as where to invest, how to invest, the period for which the investment is to be made or retained. be made or retained. The assessee filed return of The assessee filed return of income on 30.11.2015 declaring total income income on 30.11.2015 declaring total income at Rs.23,50,79,800/ Rs.23,50,79,800/-. The return of income filed by the assessee was selected for scrutiny The return of income filed by the assessee was selected for scrutiny The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the Income-tax Act, 1961 assessment and statutory notices under the Income assessment and statutory notices under the Income (in short ‘the Act’) were issued and complied with. In the rt ‘the Act’) were issued and complied with. In the rt ‘the Act’) were issued and complied with. In the assessment completed u/s 143(3) of the Act dated 29.12.2017, the assessment completed u/s 143(3) of the Act dated 29.12.2017, the assessment completed u/s 143(3) of the Act dated 29.12.2017, the Assessing Officer made disallowance including Assessing Officer made disallowance including: (i) disallowance disallowance for marketing and distribution fees of marketing and distribution fees of Rs.2,46,81,144/ Rs.2,46,81,144/- paid to

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associated company (related party) namely M/s QIEF namely M/s QIEF management LPP, Mauritius (in (in short short ‘QIEF’) ‘QIEF’) and (ii) disallowance disallowance of of Rs.2,33,69,884/- out of fee paid to subsidiary company namely out of fee paid to subsidiary company namely M/s out of fee paid to subsidiary company namely Quantum Asset Management Co. P Ltd ( in short ‘QAMS’) for Quantum Asset Management Co. P Ltd ( in short ‘ Quantum Asset Management Co. P Ltd ( in short ‘ rendering research services to the assessee. services to the assessee.

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Since, the Ld. CIT(A) has not carried out any inquiry in the matter, Since, the Ld. CIT(A) has not carried out any inquiry in the matter Since, the Ld. CIT(A) has not carried out any inquiry in the matter the Ld. DR submitted that matter may be restored back either to the Ld. DR submitted that matter may be restored back either to the Ld. DR submitted that matter may be restored back either to the Assessing Officer for factua the Assessing Officer for factual verification of the evidence in l verification of the evidence in support of services rendered by M/s QIEF. He submitted that the support of services rendered by M/s QIEF. He submitted that the support of services rendered by M/s QIEF. He submitted that the Assessing Officer has duly noted sessing Officer has duly noted that no evidence in support of that no evidence in support of services rendered by M/s QIEF were services rendered by M/s QIEF were filed except agreement between agreement between assessee and said party. On assessee and said party. On the contrary, the Ld. Counsel the contrary, the Ld. Counsel for the assessee submitted that issue in dispute is covered in favour of the assessee submitted that issue in dispute is covered in favour of the assessee submitted that issue in dispute is covered in favour of the assessee by the decision of the Tribunal in the case of the assessee assessee by the decision of the Tribunal in the case of the assessee assessee by the decision of the Tribunal in the case of the assessee in ITA No. 3418/Mum/2015 for assessment year 2011 No. 3418/Mum/2015 for assessment year 2011 No. 3418/Mum/2015 for assessment year 2011-12, which has been further followed in assessment year 2013 followed in assessment year 2013-14 and 2014 14 and 2014-15 by the Tribunal.

“6.3 For an expenditure to qu “6.3 For an expenditure to qualify under section 37(1), in addition to other alify under section 37(1), in addition to other conditions, the expenditure should be laid out wholly and exclusively for the expenditure should be laid out wholly and exclusively for the expenditure should be laid out wholly and exclusively for

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the purposes of business. the purposes of business. Now it is the contention of the assessee that Now it is the contention of the assessee that the payments made to QIEF for marketing its business abroad. I the payments made to QIEF for marketing its business abroad. I the payments made to QIEF for marketing its business abroad. It has been further argued that as per the written agreement between the been further argued that as per the written agreement between the been further argued that as per the written agreement between the assessee and the QIEF, 20% of the total fee received from the clients assessee and the QIEF, 20% of the total fee received from the clients assessee and the QIEF, 20% of the total fee received from the clients canvassed by the QIEF is payable as fees. Hence it has been argued that canvassed by the QIEF is payable as fees. Hence it has been argued that canvassed by the QIEF is payable as fees. Hence it has been argued that the expenditure qualifies under section 37 the expenditure qualifies under section 37(1) of the Act. The fact that the (1) of the Act. The fact that the expenditure was laid out or expended wholly and exclusively for the expenditure was laid out or expended wholly and exclusively for the expenditure was laid out or expended wholly and exclusively for the purpose of business has to be decided on the facts and in the light of the purpose of business has to be decided on the facts and in the light of the purpose of business has to be decided on the facts and in the light of the circumstances of each case. The mere existence of an agreement between circumstances of each case. The mere existence of an agreement between circumstances of each case. The mere existence of an agreement between the assessee and its marketing agent does not bind the assessing officer ssee and its marketing agent does not bind the assessing officer ssee and its marketing agent does not bind the assessing officer to hold that payment was exclusively and wholly for the purpose of to hold that payment was exclusively and wholly for the purpose of to hold that payment was exclusively and wholly for the purpose of business, although there might be such an agreement in existence and business, although there might be such an agreement in existence and business, although there might be such an agreement in existence and payments might have been made, it is still open for the payments might have been made, it is still open for the assessing officer assessing officer to consider the relevant factor and determine himself whether the said to consider the relevant factor and determine himself whether the said to consider the relevant factor and determine himself whether the said commission said to have been paid is properly deductible under section commission said to have been paid is properly deductible under section commission said to have been paid is properly deductible under section 37 of the act. This is the ratio of decision of the Supreme Court in the case 37 of the act. This is the ratio of decision of the Supreme Court in the case 37 of the act. This is the ratio of decision of the Supreme Court in the case of Lakshminarayan of Lakshminarayanan Madan Lal vs CIT 86 ITR 439. Therefore the an Madan Lal vs CIT 86 ITR 439. Therefore the expenses claimed by the assessee for the marketing and distribution are expenses claimed by the assessee for the marketing and distribution are expenses claimed by the assessee for the marketing and distribution are disallowed and added to the total income of the assessee. disallowed and added to the total income of the assessee.” 6.1 The Ld. CIT(A) however deleted the disallowance observing as The Ld. CIT(A) however deleted the disallowance observing as The Ld. CIT(A) however deleted the disallowance observing as under:

“10.1. Quite clearly, no discussion was made by the AO on facts to Quite clearly, no discussion was made by the AO on facts to Quite clearly, no discussion was made by the AO on facts to establish that there was no requirement of payment of marketing and establish that there was no requirement of payment of marketing and establish that there was no requirement of payment of marketing and distribution fees to QIEF Management LLC. Even the nature of distribution fees to QIEF Management LLC. Even the nature of distribution fees to QIEF Management LLC. Even the nature of business procured by QIEF Management LLC., if at all any, was not business procured by QIEF Management LLC., if at all any, was not business procured by QIEF Management LLC., if at all any, was not referred to. A reference to a case law, as quoted by the AO, can never eferred to. A reference to a case law, as quoted by the AO, can never eferred to. A reference to a case law, as quoted by the AO, can never determine fate of an issue, which primarily requires facts. Once the determine fate of an issue, which primarily requires facts. Once the determine fate of an issue, which primarily requires facts. Once the facts are determined, then only decisions of courts can play a vital role facts are determined, then only decisions of courts can play a vital role facts are determined, then only decisions of courts can play a vital role in regulating or deciding a matter. in regulating or deciding a matter.” 6.2 We find that the Co find that the Co-ordinate Bench of the Tribunal in ITA No. ordinate Bench of the Tribunal in ITA No. 3418/Mum/2015 for assessment year 2011 3418/Mum/2015 for assessment year 2011-12 has noted that the 12 has noted that the Assessing Officer disallowed the expenditure on the ground that Assessing Officer disallowed the expenditure on the ground that Assessing Officer disallowed the expenditure on the ground that requisite tax was not deducted at source and hence such requisite tax was not deducted at source and hence such requisite tax was not deducted at source and hence such expenditure was to be disallowed u/s 40(a)(i) of the Act. But the Ld. to be disallowed u/s 40(a)(i) of the Act. But the Ld. to be disallowed u/s 40(a)(i) of the Act. But the Ld. CIT(A) however held that expenditure was not incurred wholly and CIT(A) however held that expenditure was not incurred wholly and CIT(A) however held that expenditure was not incurred wholly and exclusively for the purpose of business of the assessee company. exclusively for the purpose of business of the assessee company. exclusively for the purpose of business of the assessee company. The Tribunal in para 7.1 noted that the associated concern of The Tribunal in para 7.1 noted that the associated The Tribunal in para 7.1 noted that the associated

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assessee M/s QIEF was having sufficient infrastructure for carrying was having sufficient infrastructure for carrying was having sufficient infrastructure for carrying out the services to the assessee. The Tribunal in its detailed finding services to the assessee. The Tribunal in its detailed finding services to the assessee. The Tribunal in its detailed finding reversed the finding of the Ld. CIT(A) the finding of the Ld. CIT(A), holding that the Ld. CIT(A) holding that the Ld. CIT(A) has not discharged the burden of demonstrating that the entire has not discharged the burden of demonstrating that the en has not discharged the burden of demonstrating that the en expenditure was disallowable u/s 37(1) of the Act. The relevant expenditure was disallowable u/s 37(1) of the Act. The relevant expenditure was disallowable u/s 37(1) of the Act. The relevant finding of the Tribunal is reproduced as under: finding of the Tribunal is reproduced as under:

“7.1 On the issue of availability of infrastructure with QIEF, in our 7.1 On the issue of availability of infrastructure with QIEF, in our 7.1 On the issue of availability of infrastructure with QIEF, in our view, the CIT(A) has merely brushed aside the material and evidence view, the CIT(A) has merely brushed aside the material and evidence view, the CIT(A) has merely brushed aside the material and evidence which the assessee sought to put hich the assessee sought to put-forth before him. In Para 1.13(a) of forth before him. In Para 1.13(a) of the order, the CIT(A) observes that assessee had failed to show the the order, the CIT(A) observes that assessee had failed to show the the order, the CIT(A) observes that assessee had failed to show the infrastructure infrastructure infrastructure available available available with with with QIEF QIEF QIEF to to to render render render services services services to to to assesseecompany. Such an observation by the CIT(A) is a bland assesseecompany. Such an observation by the CIT(A) is a bland assesseecompany. Such an observation by the CIT(A) is a bland assertion because the material which was before him, and which assertion because the material which was before him, and which assertion because the material which was before him, and which has also been placed in the Paper Book filed before us, clearly shows has also been placed in the Paper Book filed before us, clearly shows has also been placed in the Paper Book filed before us, clearly shows that it is not a case where QIEF could be said to be a concern that it is not a case where QIEF could be said to be a concern that it is not a case where QIEF could be said to be a concern without adequate infrastructure and ability to render servic without adequate infrastructure and ability to render servic without adequate infrastructure and ability to render services to assessee. The Annual Accounts of the said concern, copies of which assessee. The Annual Accounts of the said concern, copies of which assessee. The Annual Accounts of the said concern, copies of which have been placed in the Paper Book, clearly show that QIEF is a have been placed in the Paper Book, clearly show that QIEF is a have been placed in the Paper Book, clearly show that QIEF is a concern which is carrying on regular activities in the field of concern which is carrying on regular activities in the field of concern which is carrying on regular activities in the field of management of investors, etc. and it was having a subsi management of investors, etc. and it was having a subsi management of investors, etc. and it was having a subsidiary in USA. Notably, assessee is engaged in providing investment USA. Notably, assessee is engaged in providing investment USA. Notably, assessee is engaged in providing investment management services to International Institutional clients such as management services to International Institutional clients such as management services to International Institutional clients such as sovereign funds, pension fund, etc. in relation to their investment sovereign funds, pension fund, etc. in relation to their investment sovereign funds, pension fund, etc. in relation to their investment exposures in India exposures in India-listed securities. Ostensibly, such institutional institutional clients would require appropriate and diligent evaluation clients would require appropriate and diligent evaluation clients would require appropriate and diligent evaluation of their Investment Manager and for that purpose assessee had undertaken Investment Manager and for that purpose assessee had undertaken Investment Manager and for that purpose assessee had undertaken marketing efforts through QIEF. In terms of the agreement with QIEF, marketing efforts through QIEF. In terms of the agreement with QIEF, marketing efforts through QIEF. In terms of the agreement with QIEF, the said concern was tasked to look for p the said concern was tasked to look for potential opportunities and to otential opportunities and to market the capabilities and experience of the assessee market the capabilities and experience of the assessee-company on company on India-focused investment options. In fact, at Page focused investment options. In fact, at Page-339 of the Paper 339 of the Paper Book, a list of clients have been placed, who were referred to the Book, a list of clients have been placed, who were referred to the Book, a list of clients have been placed, who were referred to the assessee by QIEF and at t assessee by QIEF and at the time of hearing it was explained that he time of hearing it was explained that more than 90% of assessee’s revenues have been earned from the more than 90% of assessee’s revenues have been earned from the more than 90% of assessee’s revenues have been earned from the clients referred by QIEF. From the submissions of the asessee made clients referred by QIEF. From the submissions of the asessee made clients referred by QIEF. From the submissions of the asessee made to the lower authorities, it is seen that assessee has consistently to the lower authorities, it is seen that assessee has consistently to the lower authorities, it is seen that assessee has consistently explained that QI explained that QIEF was marketing assessee’s services to EF was marketing assessee’s services to prospective institutional investors such as sovereign funds, pension prospective institutional investors such as sovereign funds, pension prospective institutional investors such as sovereign funds, pension funds, etc. in Europe, Middle East and Asia and also to private funds, etc. in Europe, Middle East and Asia and also to private funds, etc. in Europe, Middle East and Asia and also to private sector institutional clients in USA. In our considered opinion, the sector institutional clients in USA. In our considered opinion, the sector institutional clients in USA. In our considered opinion, the assertions whic assertions which have been made by the assessee before the lower h have been made by the assessee before the lower authorities as well as before us are borne out of record inasmuch as authorities as well as before us are borne out of record inasmuch as authorities as well as before us are borne out of record inasmuch as assessee has earned income through clients referred by QIEF, which assessee has earned income through clients referred by QIEF, which assessee has earned income through clients referred by QIEF, which is not disputed. Much has been made out by the CIT(A) that mere is not disputed. Much has been made out by the CIT(A) that mere is not disputed. Much has been made out by the CIT(A) that mere existence of an agreement between asessee and QIEP would not nce of an agreement between asessee and QIEP would not nce of an agreement between asessee and QIEP would not

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ipso-facto lead to the allowability of the impugned expenditure. In facto lead to the allowability of the impugned expenditure. In facto lead to the allowability of the impugned expenditure. In absolute terms, we have no quarrel with the said proposition absolute terms, we have no quarrel with the said proposition absolute terms, we have no quarrel with the said proposition advanced by the CIT(A) but the onus in the present case was on him advanced by the CIT(A) but the onus in the present case was on him advanced by the CIT(A) but the onus in the present case was on him to establish on the basis of evidence and material that the actual tablish on the basis of evidence and material that the actual tablish on the basis of evidence and material that the actual state of affairs was contrary to the agreement. In fact, the agreement state of affairs was contrary to the agreement. In fact, the agreement state of affairs was contrary to the agreement. In fact, the agreement between assessee and QIEF has been acted upon inasmuch as between assessee and QIEF has been acted upon inasmuch as between assessee and QIEF has been acted upon inasmuch as assessee has earned business thereupon and in return assessee assessee has earned business thereupon and in return assessee assessee has earned business thereupon and in return assessee made payments for the services rendered by the e payments for the services rendered by the payee. In our payee. In our considered opinion, having regard to the material and evidence on considered opinion, having regard to the material and evidence on considered opinion, having regard to the material and evidence on record, the CIT(A) has sought to disregard the agreement on a mere record, the CIT(A) has sought to disregard the agreement on a mere record, the CIT(A) has sought to disregard the agreement on a mere hypothetical basis, without any factual support. hypothetical basis, without any factual support. 7.2 Before parting, we may mention two more aspects which were 7.2 Before parting, we may mention two more aspects which were 7.2 Before parting, we may mention two more aspects which were before the CIT(A) . In the course of the assessment proceedings, the before the CIT(A) . In the course of the assessment proceedings, the before the CIT(A) . In the course of the assessment proceedings, the only objection of the Assessing Officer was based on non only objection of the Assessing Officer was based on non-deduction deduction of tax at source and in so far as the issue of section 37 of tax at source and in so far as the issue of section 37(1) of the Act (1) of the Act was concerned, the Assessing Officer had no objection. It was only was concerned, the Assessing Officer had no objection. It was only was concerned, the Assessing Officer had no objection. It was only during the appellate proceedings that the CIT(A) show caused the during the appellate proceedings that the CIT(A) show caused the during the appellate proceedings that the CIT(A) show caused the assesseecompany on the aspect of section 37(1) of the Act. It is seen assesseecompany on the aspect of section 37(1) of the Act. It is seen assesseecompany on the aspect of section 37(1) of the Act. It is seen from the record that during the appella from the record that during the appellate proceedings, CIT(A) called te proceedings, CIT(A) called for a remand report from the Assessing Officer on the issue of for a remand report from the Assessing Officer on the issue of for a remand report from the Assessing Officer on the issue of allowability of the expenditure under section 37(1), which was not a allowability of the expenditure under section 37(1), which was not a allowability of the expenditure under section 37(1), which was not a point raised in the assessment order. In such remand report, the point raised in the assessment order. In such remand report, the point raised in the assessment order. In such remand report, the Assessing Officer observed th Assessing Officer observed that the impugned expenditure was at the impugned expenditure was incurred during the course of normal business activity by the incurred during the course of normal business activity by the incurred during the course of normal business activity by the assessee and hence deductible under section 37(1) of the Act. Thus, assessee and hence deductible under section 37(1) of the Act. Thus, assessee and hence deductible under section 37(1) of the Act. Thus, impliedly the Assessing Officer reiterated the stand taken in the impliedly the Assessing Officer reiterated the stand taken in the impliedly the Assessing Officer reiterated the stand taken in the assessment order on the issu assessment order on the issue of section 37(1) of the Act. Second e of section 37(1) of the Act. Second aspect which needs mentions is the assessment made by the aspect which needs mentions is the assessment made by the aspect which needs mentions is the assessment made by the Assessing Officer under section 143(3) of the Act for the assessment Assessing Officer under section 143(3) of the Act for the assessment Assessing Officer under section 143(3) of the Act for the assessment year 2012-13, wherein a portion of the marketing support fee paid to 13, wherein a portion of the marketing support fee paid to 13, wherein a portion of the marketing support fee paid to QIEF was disallowed by QIEF was disallowed by invoking section 40A (2)(b) of the Act. As per invoking section 40A (2)(b) of the Act. As per the CIT(A), the aforesaid two aspects reflected that the Assessing the CIT(A), the aforesaid two aspects reflected that the Assessing the CIT(A), the aforesaid two aspects reflected that the Assessing Officer was contradicting his own position taken in the assessment Officer was contradicting his own position taken in the assessment Officer was contradicting his own position taken in the assessment for assessment year 2012 for assessment year 2012-13 by accepting that the expenditure was 13 by accepting that the expenditure was deductible under section 37(1) of le under section 37(1) of the Act in the remand report. It the Act in the remand report. It appears that for the aforesaid reason, the CIT(A) disregarded the appears that for the aforesaid reason, the CIT(A) disregarded the appears that for the aforesaid reason, the CIT(A) disregarded the stand of the Assessing Officer in the remand report and proceeded to stand of the Assessing Officer in the remand report and proceeded to stand of the Assessing Officer in the remand report and proceeded to examine afresh the issue of allowability under section 37(1) o examine afresh the issue of allowability under section 37(1) o examine afresh the issue of allowability under section 37(1) of the Act. 7.3 In our considered opinion, the stand of the CIT(A) is misdirected 7.3 In our considered opinion, the stand of the CIT(A) is misdirected 7.3 In our considered opinion, the stand of the CIT(A) is misdirected and is based on a wrong perspective. In fact, the invoking of section and is based on a wrong perspective. In fact, the invoking of section and is based on a wrong perspective. In fact, the invoking of section 40A(2)(b) of the Act to disallow a portion of the expenditure in 40A(2)(b) of the Act to disallow a portion of the expenditure in 40A(2)(b) of the Act to disallow a portion of the expenditure in assessment year 2012 assessment year 2012-13 does not lend any support to the inference ny support to the inference of the CIT(A) that the expenditure has not been made wholly and of the CIT(A) that the expenditure has not been made wholly and of the CIT(A) that the expenditure has not been made wholly and exclusively for the purpose of assessee’s business because what is exclusively for the purpose of assessee’s business because what is exclusively for the purpose of assessee’s business because what is envisaged by section 40A(2)(b) is to disallow an expenditure which is envisaged by section 40A(2)(b) is to disallow an expenditure which is envisaged by section 40A(2)(b) is to disallow an expenditure which is found to be unreasonable or found to be unreasonable or excessive in relation to it’s market excessive in relation to it’s market value. Invoking of section 40A(2)(b) of the Act to disallow a portion of value. Invoking of section 40A(2)(b) of the Act to disallow a portion of value. Invoking of section 40A(2)(b) of the Act to disallow a portion of the expenditure is an altogether different dimension than invoking the expenditure is an altogether different dimension than invoking the expenditure is an altogether different dimension than invoking section 37(1) of the Act to say that the expenditure is not laid out section 37(1) of the Act to say that the expenditure is not laid out section 37(1) of the Act to say that the expenditure is not laid out

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wholly and exclusively for the purposes of business. In fact, under d exclusively for the purposes of business. In fact, under d exclusively for the purposes of business. In fact, under such a situation, it was all the more onerous on the part of the CIT(A) such a situation, it was all the more onerous on the part of the CIT(A) such a situation, it was all the more onerous on the part of the CIT(A) to demonstrate as to why the entire expenditure was disallowable to demonstrate as to why the entire expenditure was disallowable to demonstrate as to why the entire expenditure was disallowable under section 37(1) of the Act, having regard to the stand o under section 37(1) of the Act, having regard to the stand o under section 37(1) of the Act, having regard to the stand of the Assessing Officer in the remand report as well as in the assessment Assessing Officer in the remand report as well as in the assessment Assessing Officer in the remand report as well as in the assessment for assessment year 2012 for assessment year 2012- 13. The said burden, in our view, has not 13. The said burden, in our view, has not been discharged by the CIT(A) in the present case and, therefore, we been discharged by the CIT(A) in the present case and, therefore, we been discharged by the CIT(A) in the present case and, therefore, we are unable to acquiesce to the same. As a con are unable to acquiesce to the same. As a consequence, we hereby sequence, we hereby set-aside the order of the CIT(A) on this aspect and direct the aside the order of the CIT(A) on this aspect and direct the aside the order of the CIT(A) on this aspect and direct the Assessing Officer to delete the addition of Rs.3,26,05,268/ Assessing Officer to delete the addition of Rs.3,26,05,268/ Assessing Officer to delete the addition of Rs.3,26,05,268/- representing payment made to QIEF for marketing support services. representing payment made to QIEF for marketing support services. representing payment made to QIEF for marketing support services. Thus, on this aspect assessee succeeds. Thus, on this aspect assessee succeeds.” 6.3 It is evident from the finding of the Co It is evident from the finding of the Co-ordinate Bench of the ordinate Bench of the Tribunal that in the relevant assessment year the Ld. CIT(A) failed Tribunal that in the relevant assessment year the Ld. CIT(A) failed Tribunal that in the relevant assessment year the Ld. CIT(A) failed to demonstrate that there was a failure on the part of the assessee to demonstrate that there was a failure on the part of the assessee to demonstrate that there was a failure on the part of the assessee in substantiating that expenses were incurred wholly and in substantiating that expenses were incurred wholly and in substantiating that expenses were incurred wholly and exclusively for the purpose of business. But in the year under exclusively for the purpose of business. But in the year under exclusively for the purpose of business. But in the year under consideration, the Assessing Officer duly mentioned that merely consideration, the Assessing Officer duly mentioned that merely consideration, the Assessing Officer duly mentioned that merely agreement between the two parties is not sufficient to demonstrate agreement between the two parties is not sufficient to demonstrate agreement between the two parties is not sufficient to demonstrate that expenses were incurred wholly and exclusively for the pur were incurred wholly and exclusively for the pur were incurred wholly and exclusively for the purpose of the business. Thus, it was the onus of the assessee to business. Thus, it was the onus of the assessee to business. Thus, it was the onus of the assessee to substantiate incurring of expenses as wholly and exclusively for the substantiate incurring of expenses as wholly and exclusively for the substantiate incurring of expenses as wholly and exclusively for the purpose of business. purpose of business. We also note for substantiating for substantiating rendering of services by M/s QIEF to the assessee with documentary evidences, services by M/s QIEF to the assessee with documentary evid services by M/s QIEF to the assessee with documentary evid the assessee was required to demonstrate as how the said assessee was required to demonstrate as how the said assessee was required to demonstrate as how the said associated company solicited customer associated company solicited customers for the assessee including for the assessee including the evidence of correspondence between M/s QIEF and the the evidence of correspondence between M/s QIEF and the the evidence of correspondence between M/s QIEF and the customers of the assessee customers of the assessee, but no such documents have been filed no such documents have been filed before the Assessing Officer. The Ld. CIT(A) has merely mentioned e the Assessing Officer. The Ld. CIT(A) has merely mentioned e the Assessing Officer. The Ld. CIT(A) has merely mentioned that the Assessing Officer has not made any discussion on the facts that the Assessing Officer has not made any discussion on the that the Assessing Officer has not made any discussion on the to establish that there was no requirement of payment of marketing to establish that there was no requirement of payment of marketing to establish that there was no requirement of payment of marketing

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distribution fee to QIEF. In our opinion distribution fee to QIEF. In our opinion, when no documentar when no documentary evidences in support of services rendered by QIEF were in support of services rendered by QIEF were in support of services rendered by QIEF were filed before the AO, it was not possible for him to verify the rendering of it was not possible for him to verify the rendering of it was not possible for him to verify the rendering of services. The issue of expenses incurred wholly and exclusively for The issue of expenses incurred wholly and exclusively for The issue of expenses incurred wholly and exclusively for the purpose of the business has to be seen qua every year and since the purpose of the business has to be seen qua every ye the purpose of the business has to be seen qua every ye merely appeal has been allowed for assessment year 2011-12 it merely appeal has been allowed for assessment year 2011 merely appeal has been allowed for assessment year 2011 cannot cannot cannot be be be established established established that that that expenses expenses expenses in in in the the the year year year under under under consideration has also been incurred for the purpose of business of consideration has also been incurred for the purpose of business of consideration has also been incurred for the purpose of business of the assessee. This factual verification has to be done for the year the assessee. This factual verification has to be done for the assessee. This factual verification has to be done for under consideration which has not been carried out by the Ld. under consideration which has not been carried out by the Ld. under consideration which has not been carried out by the Ld. CIT(A) before deleting the disallowance before deleting the disallowance. The Hon’ble Hon’ble Delhi High Court in the case of Jansampark Marketing Pvt. Ltd. (supra) has Court in the case of Jansampark Marketing Pvt. Ltd. (supra) has Court in the case of Jansampark Marketing Pvt. Ltd. (supra) has observed as under:

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necessitated a detailed scrutiny of the material submitted necessitated a detailed scrutiny of the material submitted necessitated a detailed scrutiny of the material submitted by the assessee in response to the notice under Section by the assessee in response to the notice under by the assessee in response to the notice under 148 issued by the AO, as also the material submitted at issued by the AO, as also the material submitted at issued by the AO, as also the material submitted at the stage of appeals, if deemed proper by way of making the stage of appeals, if deemed proper by way of making the stage of appeals, if deemed proper by way of making or causing to be made a "further inquiry" in exercise of the or causing to be made a "further inquiry" in exercise of the or causing to be made a "further inquiry" in exercise of the power under Section 250(4) Section 250(4). This approach not having . This approach not having been been been adopted, adopted, adopted, the the the impugned impugned impugned order order order of of of ITAT, ITAT, ITAT, and and and consequently that of CIT (Appeals), cannot be approved or consequently that of CIT (Appeals), cannot be approved or consequently that of CIT (Appeals), cannot be approved or upheld.

6.4 Therefore, following the finding of the Hon’ble Delhi High Therefore, following the finding of the Hon’ble Delhi High Therefore, following the finding of the Hon’ble Delhi High Court in the case of Court in the case of Jansampark Marketing Pvt. Ltd. Jansampark Marketing Pvt. Ltd. (supra), we feel it appropriate to restore the issue back to the file of the feel it appropriate to restore the issue back to the file of the feel it appropriate to restore the issue back to the file of the Assessing Officer with the direction to the assessee to produce all Assessing Officer with the direction to the assessee to produce all Assessing Officer with the direction to the assessee to produce all the documentary evidence in support of services rendered by M/s the documentary evidence in support of services rendered by M/s the documentary evidence in support of services rendered by M/s QIEF including correspondence for soliciting business of marketing correspondence for soliciting business of marketing correspondence for soliciting business of marketing services rendered including e services rendered including e-mail correspondence mail correspondence etc. The Assessing Officer is at liberty to carry out enquiries deemed fit in is at liberty to carry out enquiries deemed fit in is at liberty to carry out enquiries deemed fit in the facts and circumstances of the case but shall adjudicate the the facts and circumstances of the case but shall adjudicate the the facts and circumstances of the case but shall adjudicate the issue in dispute in accordance with law spute in accordance with law after considering and after considering and verification of the documentary evidence verification of the documentary evidence submitted by the assesee submitted by the assesee. The ground No. 1 of the appeal of the Revenue is accordingly The ground No. 1 of the appeal of the Revenue is accordingly The ground No. 1 of the appeal of the Revenue is accordingly allowed for statistical purposes. allowed for statistical purposes.

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7.1 The facts in brief qua the issue in dispute are that the The facts in brief qua the issue in dispute are that the The facts in brief qua the issue in dispute are that the assessee claimed expenditure on account of research services to its assessee claimed expenditure on account of research services to its assessee claimed expenditure on account of research services to its subsidiary company namely Q subsidiary company namely Quantum Asset Management Company uantum Asset Management Company Pvt. Ltd.( QAMS) amounting to Rs.2,93,69,884/ amounting to Rs.2,93,69,884/-. The Assessing . The Assessing Officer asked the assessee to produce documentary evidence in Officer asked the assessee to produce documentary evidence in Officer asked the assessee to produce documentary evidence in support of services rendered by said subsidiary company. The support of services rendered by said subsidiary company. The support of services rendered by said subsidiary company. The assessee produced so d some sample papers of research done by Q f research done by QAMS about the companies about the companies in respect of whom the assessee advised to its assessee advised to its client for investment for investment. According to the Assessing Officer . According to the Assessing Officer, the scope of research work was quite common which the other research of research work was quite common which the other research of research work was quite common which the other research companies had offered in the field of advisory services. According to offered in the field of advisory services. According to offered in the field of advisory services. According to the Assessing Officer, the payment made to QAMS by the assessee the Assessing Officer, the payment made to QAMS the Assessing Officer, the payment made to QAMS company was excessive. The was excessive. The assessee also could not produce assessee also could not produce evidence in support of evidence in support of uniform research fee paid for paid for all the 12 months of previous year evious year. The research reports filed by by the assessee could not justify huge research fee huge research fee paid to subsidiary company paid to subsidiary company. Considering these facts the Assessing Officer held that research fee Considering these facts the Assessing Officer held that research fee Considering these facts the Assessing Officer held that research fee of Rs.60 lakhs per annum was found to be justified for research of Rs.60 lakhs per annum was found to be justified of Rs.60 lakhs per annum was found to be justified done by the QAMS and balance amount of Rs. and balance amount of Rs. 2,33,69,884 out of 2,33,69,884 out of total expenditure of Rs.2,93,69,884/ total expenditure of Rs.2,93,69,884/- was disallowed was disallowed. On further appeal, the Ld. CIT(A) deleted the addition on the ground that the Ld. CIT(A) deleted the addition on the ground that the Ld. CIT(A) deleted the addition on the ground that

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neither any discussion nor any analysis neither any discussion nor any analysis was done by the Assessing done by the Assessing Officer for restricting the research fee ficer for restricting the research fee to Rs.60 lakhs per annum. Rs.60 lakhs per annum. The relevant finding of the Ld. CIT(A) is reproduced as under: The relevant finding of the Ld. CIT(A) is reproduced as under: The relevant finding of the Ld. CIT(A) is reproduced as under:

“11.1 No discussion was made regarding nature of research work that 11.1 No discussion was made regarding nature of research work that 11.1 No discussion was made regarding nature of research work that was being performed and implication of the same with regard was being performed and implication of the same with regard was being performed and implication of the same with regard to the business of the appellant company. No analysis was made as to why business of the appellant company. No analysis was made as to why business of the appellant company. No analysis was made as to why payments so made were being restricted to Rs. 5,00,000/ payments so made were being restricted to Rs. 5,00,000/- per month. per month. 12. Therefore, in totality, there was no attempt to demonstrate that the Therefore, in totality, there was no attempt to demonstrate that the Therefore, in totality, there was no attempt to demonstrate that the expenses incurred were not "for the purpos expenses incurred were not "for the purpose of business". So long that is e of business". So long that is not established beyond reasonable doubt, no disallowance can be not established beyond reasonable doubt, no disallowance can be not established beyond reasonable doubt, no disallowance can be made u/s 37 of the Act. made u/s 37 of the Act.” 7.2 Before us, the Ld. Counsel Before us, the Ld. Counsel for the assessee submitted that the assessee submitted that firstly section 40A(2)(b) of the Act is not section 40A(2)(b) of the Act is not applicable applicable in the case of the assessee as the relationship as provided for invoking as provided for invoking section 40A(2)(a) of the Act does not exits does not exits. He submitted that assessee . He submitted that assessee being a company if payment is made to director or his relative then a company if payment is made to director or hi a company if payment is made to director or hi section 40A(2)(a) could be invoked in te ) could be invoked in terms if section 40A(2)(b)(ii) of rms if section 40A(2)(b)(ii) of the Act, but payment has been made to subsidiary company so said the Act, but payment has been made to subsidiary company so said the Act, but payment has been made to subsidiary company so said provision does not apply. He further submitted that even section provision does not apply. He further submitted that even section provision does not apply. He further submitted that even section 40A(2)(b)(iv) of the Act also d 40A(2)(b)(iv) of the Act also does not apply because same applies oes not apply because same applies where payment is made by the where payment is made by the subsiding company to company to holding company but in the case in hand transaction is vice-versa. company but in the case in hand transaction is vice company but in the case in hand transaction is vice Secondly, he submits that the subsidiary company M/s QAMS is he submits that the subsidiary company M/s QAMS is he submits that the subsidiary company M/s QAMS is also subject to same rate of the tax and therefore, there is no also subject to same rate of the tax and therefore, there is no also subject to same rate of the tax and therefore, there is no evasion of tax in the process of research tax in the process of research fee payment to the fee payment to the subsidiary company. The Ld. Counsel relied on the decision of the subsidiary company. The Ld. Counsel relied on the decision of the subsidiary company. The Ld. Counsel relied on the decision of the Tribunal in ITA No. 3989/Mum/2017 for assessment year 2012- Tribunal in ITA No. 3989/Mum/2017 for assessment year 2012 Tribunal in ITA No. 3989/Mum/2017 for assessment year 2012 13, wherein the Tribunal has set aside the finding of the Assessing herein the Tribunal has set aside the finding of the Assessing herein the Tribunal has set aside the finding of the Assessing

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Officer of restricting the research fee exp restricting the research fee expenses to Rs.5 lakhs per enses to Rs.5 lakhs per month i.e. Rs. 60 lakh per annum i.e. Rs. 60 lakh per annum.

7.3 We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. We find that in the year under relevant material on record. We find that in the year under relevant material on record. We find that in the year under consideration, the Assessing Officer has restricted the research fee consideration, the Assessing Officer has restricted the research fee consideration, the Assessing Officer has restricted the research fee expenses paid to the subsidia expenses paid to the subsidiary company to Rs.5 lakhs per month ry company to Rs.5 lakhs per month i.e. i.e. Rs.60.00 Rs.60.00 lakhs lakhs per per annu annum as against against expenses of Rs.2,93,69,884/- claimed by the assessee. Before the Ld. CIT(A) the claimed by the assessee. Before the Ld. CIT(A) the claimed by the assessee. Before the Ld. CIT(A) the assessee filed details details comparing the research report submitted by the research report submitted by the subsidiary company the subsidiary company with the identical research report the identical research report submitted by other company namely ted by other company namely ‘City Research City Research’. The relevant para of the submissions made before the Ld. CIT(A) is reproduced para of the submissions made before the Ld. CIT(A) is reproduced para of the submissions made before the Ld. CIT(A) is reproduced as under:

“1. The difference between the research report provided by QAMC vis The difference between the research report provided by QAMC vis-&- The difference between the research report provided by QAMC vis is the other brokers is demonstrated hereunder with t is the other brokers is demonstrated hereunder with the following two he following two examples. Example 1: Research report on 'Larsen & Toubro: Example 1: Research report on 'Larsen & Toubro: • Focusing on long term fundamentals, QAMC" in its report dated 11 • Focusing on long term fundamentals, QAMC" in its report dated 11 • Focusing on long term fundamentals, QAMC" in its report dated 11 March 2014 recommended a hold on fundamentals, CAME prise recommended a hold on fundamentals, CAME prise recommended a hold on fundamentals, CAME prise of INR 1200 and for a Sell target at INR 1311 1200 and for a Sell target at INR 1311 - a photocopy of the said report a photocopy of the said report of QAMC is forwarded herewith of QAMC is forwarded herewith - refer "Appendix-B" (Page Nos. 77 to B" (Page Nos. 77 to 88). Citi Research vide its research report dated 22 May 2014 recommended Citi Research vide its research report dated 22 May 2014 recommended Citi Research vide its research report dated 22 May 2014 recommended buy on "Larsen & Toubro at a price "Larsen & Toubro at a price of NR 1477 with a target price of of NR 1477 with a target price of INR 1752- a photocopy. of the said research report is forwarded a photocopy. of the said research report is forwarded a photocopy. of the said research report is forwarded herewith - refer "Appendix refer "Appendix-B" (Page Nos. In the subsequent period, the stock price of L&T remained flat. On 02nd In the subsequent period, the stock price of L&T remained flat. On 02nd In the subsequent period, the stock price of L&T remained flat. On 02nd January 2015, Citi Research became more bull January 2015, Citi Research became more bullish on the stock and ish on the stock and came out with a Buy recommendation at a price of Rs. 1,498 with a came out with a Buy recommendation at a price of Rs. 1,498 with a came out with a Buy recommendation at a price of Rs. 1,498 with a target price of INR 1,849 target price of INR 1,849 - a photocopy of the said research report is a photocopy of the said research report is forwarded herewith forwarded herewith - refer "Appendix-B" (Page Nos. 106 to 125) 106 to 125)

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• On the other hand, having recomme • On the other hand, having recommended to hold the L&T stock at its nded to hold the L&T stock at its earlier price of INR 1,200 for a target of 1311, QAMC recommended a earlier price of INR 1,200 for a target of 1311, QAMC recommended a earlier price of INR 1,200 for a target of 1311, QAMC recommended a Sell on to the stock in its research report dated 04 September 2014, Sell on to the stock in its research report dated 04 September 2014, Sell on to the stock in its research report dated 04 September 2014, when the price of the shares were at INR 1,572 when the price of the shares were at INR 1,572 - photocopy of the said photocopy of the said research repor research report of QAMC is forwarded herewith – refer "Appendix "Appendix-B" (Page Nos. 126 to 137). (Page Nos. 126 to 137). The above illustration shows the disciplined process followed by the The above illustration shows the disciplined process followed by the The above illustration shows the disciplined process followed by the research team of QAMC by focusing on long term fundamentals versus research team of QAMC by focusing on long term fundamentals versus research team of QAMC by focusing on long term fundamentals versus near term price momentum which seems to be near term price momentum which seems to be the basis of the research the basis of the research at Citi Research. at Citi Research. Example 2: Research report on 'Cummins India Limited': Example 2: Research report on 'Cummins India Limited': Example 2: Research report on 'Cummins India Limited': Focusing on long term fundamentals, QAMC in its report dated 06 Focusing on long term fundamentals, QAMC in its report dated 06 Focusing on long term fundamentals, QAMC in its report dated 06 August 2013 recommended a buy on 'Cummins India limited' at a price recommended a buy on 'Cummins India limited' at a price recommended a buy on 'Cummins India limited' at a price of INR 372 with an upside of INR 372 with an upside potential of 33% i.e Sell price of INR 496 potential of 33% i.e Sell price of INR 496 - a photocopy of the said report of QAMC is forwarded herewith photocopy of the said report of QAMC is forwarded herewith photocopy of the said report of QAMC is forwarded herewith - refer "Appendix-B" (Page Nos. 138 to 146). B" (Page Nos. 138 to 146). This was also at a time when the share price of the company was This was also at a time when the share price of the company was This was also at a time when the share price of the company was declining rapidly declining rapidly the same is evident from the chart given in the rom the chart given in the aforesaid research report. aforesaid research report. 'Citi Research' a renowned global research house vide its research 'Citi Research' a renowned global research house vide its research 'Citi Research' a renowned global research house vide its research report dated 09 report dated 09 October 2013 fearing further reduction in the share October 2013 fearing further reduction in the share price of Cummins India Limited' cut its earnings estimates for the price of Cummins India Limited' cut its earnings estimates for the price of Cummins India Limited' cut its earnings estimates for the company and came out with a recommendation of company and came out with a recommendation of 'Sell' at a price of INR 'Sell' at a price of INR 402 with a target price of just INR 377 402 with a target price of just INR 377 - a photocopy of the research report dated 09 October 2013 of Citi a photocopy of the research report dated 09 October 2013 of Citi a photocopy of the research report dated 09 October 2013 of Citi Research is forwarded herewith Research is forwarded herewith - refer "Appendix-B" (Page Nos. 147 to B" (Page Nos. 147 to 159). • In the subsequent period, the stock price of 'Cummins India Limited' In the subsequent period, the stock price of 'Cummins India Limited' In the subsequent period, the stock price of 'Cummins India Limited' increased substantially. On 23 May 2014, Citi Research having increased substantially. On 23 May 2014, Citi Research having increased substantially. On 23 May 2014, Citi Research having downgraded the stock to sell earlier, became now bullish on the stock downgraded the stock to sell earlier, became now bullish on the stock downgraded the stock to sell earlier, became now bullish on the stock and came out with a Buy recommendation at a much higher and came out with a Buy recommendation at a much higher and came out with a Buy recommendation at a much higher prices price of INR 604 reversing it earlier downgrade of the stock of INR 604 reversing it earlier downgrade of the stock - - a photocopy of a photocopy of the research report dated 23 May 2014 of Citi Research is forwarded the research report dated 23 May 2014 of Citi Research is forwarded the research report dated 23 May 2014 of Citi Research is forwarded herewith - refer "Appendix refer "Appendix-B" (Page Nos. 160 to 169). 2. Some of the aforesaid report though for a p 2. Some of the aforesaid report though for a period prior to the year eriod prior to the year under consideration are submitted just to demonstrate/explain the under consideration are submitted just to demonstrate/explain the under consideration are submitted just to demonstrate/explain the methodology and to explain the difference. We would like to point out methodology and to explain the difference. We would like to point out methodology and to explain the difference. We would like to point out that if desired, the Appellant. that if desired, the Appellant. Company can also produce the research Company can also produce the research reports for the year under reports for the year under consideration. 3. We highlight the fact that the Appellant's policy/philosophy for its 3. We highlight the fact that the Appellant's policy/philosophy for its 3. We highlight the fact that the Appellant's policy/philosophy for its clients is 'to hold long' i.e. to hold their investments for a long period to clients is 'to hold long' i.e. to hold their investments for a long period to clients is 'to hold long' i.e. to hold their investments for a long period to be able to encash the gains arising from not only the peak of a business be able to encash the gains arising from not only the peak of a business be able to encash the gains arising from not only the peak of a business cycle, the invest cycle, the investee company's results reflecting it/ indicating it ee company's results reflecting it/ indicating it - either

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by way of quarterly result, without unnecessarily chuming their by way of quarterly result, without unnecessarily chuming their by way of quarterly result, without unnecessarily chuming their portfolio - which normally results in an outflow for the investors by way which normally results in an outflow for the investors by way which normally results in an outflow for the investors by way of brokerage 0.3 of brokerage 0.3 - 0.75 %, securities transaction tax 0.125% and lastly % and lastly 'tax on short term capital gains' 15% (which add up to around 15.625% 'tax on short term capital gains' 15% (which add up to around 15.625% 'tax on short term capital gains' 15% (which add up to around 15.625% of the gains even when there is a 25% appreciation in the value of an of the gains even when there is a 25% appreciation in the value of an of the gains even when there is a 25% appreciation in the value of an equity share).” 7.4 We find that the issue in dispute is in respect of fair market We find that the issue in dispute is in respect of fair market We find that the issue in dispute is in respect of fair market value of the services rendered s rendered. The assessee firstly firstly, claimed that provisions of section 40A(2)(a) are not applicable, but we don’t agree provisions of section 40A(2)(a) are not applicable, but we don’t agree provisions of section 40A(2)(a) are not applicable, but we don’t agree with the same. The section 40A(2)(b)(v) of the Act specifies that if with the same. The section 40A(2)(b)(v) of the Act specifies that if with the same. The section 40A(2)(b)(v) of the Act specifies that if director of a company company, to whom payment has been made , has to whom payment has been made , has substantial interest in assessee , then also provisions of section nterest in assessee , then also provisions of section nterest in assessee , then also provisions of section 40A(2)(a) are applicable. In the case in hand , the target company 40A(2)(a) are applicable. In the case in hand , the target company 40A(2)(a) are applicable. In the case in hand , the target company being subsidiary company, the director of subsidiary are having being subsidiary company, the director of subsidiary are having being subsidiary company, the director of subsidiary are having substantial interest in the assessee and therefore provisions of substantial interest in the assessee and therefore provisions of substantial interest in the assessee and therefore provisions of section 40A(2)(a) are applicable. T n 40A(2)(a) are applicable. The Tribunal in he Tribunal in the case of assessee for assessment year 2012 assessment year 2012-13 has deleted the said 13 has deleted the said restriction of the research research expenses by the AO observing as under: expenses by the AO observing as under:

“4. We have heard the rival submissions of the parties and carefully 4. We have heard the rival submissions of the parties and carefully 4. We have heard the rival submissions of the parties and carefully gone through the material on record in the light of the rival submissions through the material on record in the light of the rival submissions through the material on record in the light of the rival submissions of the parties. The grievance of the assessee is that the Ld. CIT(A) has of the parties. The grievance of the assessee is that the Ld. CIT(A) has of the parties. The grievance of the assessee is that the Ld. CIT(A) has wrongly confirmed the disallowance of Rs. 2,39,18,400/ wrongly confirmed the disallowance of Rs. 2,39,18,400/- made out of the total amount of Rs. 2,99,18,400/ the total amount of Rs. 2,99,18,400/- paid towards research fees by ards research fees by the assessee to its group company Quantum Asset Management the assessee to its group company Quantum Asset Management the assessee to its group company Quantum Asset Management Company Pvt. Ltd. (QAMC) during the previous year. We notice that the Company Pvt. Ltd. (QAMC) during the previous year. We notice that the Company Pvt. Ltd. (QAMC) during the previous year. We notice that the AO has made the said disallowance u/s 40A of the Act merely on the AO has made the said disallowance u/s 40A of the Act merely on the AO has made the said disallowance u/s 40A of the Act merely on the ground that the payment made to the gr ground that the payment made to the group company for research work oup company for research work is excessive and does not commensurate with the cost of services is excessive and does not commensurate with the cost of services is excessive and does not commensurate with the cost of services rendered and further the payment has been made by the assessee only rendered and further the payment has been made by the assessee only rendered and further the payment has been made by the assessee only with an intention to enrich the other group company. It is not the case of with an intention to enrich the other group company. It is not the case of with an intention to enrich the other group company. It is not the case of the revenue that t the revenue that the fees were not at all paid by the assessee. he fees were not at all paid by the assessee. However, in the opinion of the authorities below, the fees are not However, in the opinion of the authorities below, the fees are not However, in the opinion of the authorities below, the fees are not reasonable and the same has been paid in order to enrich the reasonable and the same has been paid in order to enrich the reasonable and the same has been paid in order to enrich the subsidiary company of the assessee. As has subsidiary company of the assessee. As has been pointed out by the been pointed out by the Ld. counsel for Ld. counsel for the assessee, the Hon’ble Bombay High Court in the the assessee, the Hon’ble Bombay High Court in the case of CIT vs. Indo Saudi Services (Travel) Pvt. Ltd. (supra) has case of CIT vs. Indo Saudi Services (Travel) Pvt. Ltd. (supra) has case of CIT vs. Indo Saudi Services (Travel) Pvt. Ltd. (supra) has dismissed the appeal of the revenue challenging the action of the ITAT dismissed the appeal of the revenue challenging the action of the ITAT dismissed the appeal of the revenue challenging the action of the ITAT

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in allowing incentive commission paid to its sister concern which in allowing incentive commission paid to its sister concern which in allowing incentive commission paid to its sister concern which was more than the commission paid to other sub agents inter alia for the more than the commission paid to other sub agents inter alia for the more than the commission paid to other sub agents inter alia for the reason that revenue is not in a position to point out as to how the reason that revenue is not in a position to point out as to how the reason that revenue is not in a position to point out as to how the assessee evaded payment of tax by making payment of higher assessee evaded payment of tax by making payment of higher assessee evaded payment of tax by making payment of higher commission to its sister concern. The findings of the Ho commission to its sister concern. The findings of the Hon’ble Court are n’ble Court are as under:- “4.We have heard the learned advocates appearing for both sides. We “4.We have heard the learned advocates appearing for both sides. We “4.We have heard the learned advocates appearing for both sides. We have also perused the order passed by the Tribunal dated 21st Oct. have also perused the order passed by the Tribunal dated 21st Oct. have also perused the order passed by the Tribunal dated 21st Oct. 1992 which is impugned by the Revenue in the present appeals. We 1992 which is impugned by the Revenue in the present appeals. We 1992 which is impugned by the Revenue in the present appeals. We find that the following facts find that the following facts were established before the Tribunal and were established before the Tribunal and the same have been accepted by the Revenue even before us. the same have been accepted by the Revenue even before us. the same have been accepted by the Revenue even before us. (i) That the assessee apart from paying handling charges @ 91/2 That the assessee apart from paying handling charges @ 91/2 That the assessee apart from paying handling charges @ 91/2 per cent to its sister concern, have paid handling charges at the per cent to its sister concern, have paid handling charges at the per cent to its sister concern, have paid handling charges at the same rate to other agents Viz. M/s A.K. Travels, M/s Om same rate to other agents Viz. M/s A.K. Travels, M/s Om same rate to other agents Viz. M/s A.K. Travels, M/s Om Travels and M/s Jet Age Travels. Travels and M/s Jet Age Travels. (ii) (ii) For asst. yrs. 1986 (ii) For asst. yrs. 1986-87 and 1987-88 the assessee had paid the assessee had paid the handling charges paid were considered to be reasonable by the handling charges paid were considered to be reasonable by the handling charges paid were considered to be reasonable by the appellant. the appellant. (iii) (iii) For asst. yrs. 1989 (iii) For asst. yrs. 1989-90 and 1990-91 the assessee had 91 the assessee had reduced the payment of handling charge to 9 1/2 per cent to its reduced the payment of handling charge to 9 1/2 per cent to its reduced the payment of handling charge to 9 1/2 per cent to its sister concern. The AO has conside sister concern. The AO has considered the payment of red the payment of commission to the sister concern in the asst. yr 1989 commission to the sister concern in the asst. yr 1989 commission to the sister concern in the asst. yr 1989-90 and allowed the claim after due scrutiny. For asst. yr. 1990 allowed the claim after due scrutiny. For asst. yr. 1990 allowed the claim after due scrutiny. For asst. yr. 1990-91 also the claim of the assessee @ 9 ½ per cent has been allowed the claim of the assessee @ 9 ½ per cent has been allowed the claim of the assessee @ 9 ½ per cent has been allowed though the same has not been dealt with by the AO spe though the same has not been dealt with by the AO spe though the same has not been dealt with by the AO specifically in the order. in the order. (iv) (iv) For asst. yrs. 1993 (iv) For asst. yrs. 1993-94 and 1994-95 the assessment has 95 the assessment has been made by the AO under section 143 (3) and handling been made by the AO under section 143 (3) and handling been made by the AO under section 143 (3) and handling charges paid to the sister concern @ 9.5 per cent have been charges paid to the sister concern @ 9.5 per cent have been charges paid to the sister concern @ 9.5 per cent have been considered to be reasonable and allowed. considered to be reasonable and allowed. (v) (v) The sister (v) The sister concern of the assessee M/s Middle East concern of the assessee M/s Middle East International is also assessed to tax and income assessed for International is also assessed to tax and income assessed for International is also assessed to tax and income assessed for the asst. yr. 19914 the asst. yr. 19914-92 is Rs. 9,38,510 and for asst. yr. 1992 92 is Rs. 9,38,510 and for asst. yr. 1992-93 is Rs. 14,65,880 and the said assessment orders have been is Rs. 14,65,880 and the said assessment orders have been is Rs. 14,65,880 and the said assessment orders have been placed on record. placed on record. (vi) (vi) Under t (vi) Under the CBDT Circular No. 6-P, dated 6th July, 1968 it is P, dated 6th July, 1968 it is stated that no disallowance is to be made under section 40A(2) stated that no disallowance is to be made under section 40A(2) stated that no disallowance is to be made under section 40A(2) in respect of the payments made to the relatives and sister in respect of the payments made to the relatives and sister in respect of the payments made to the relatives and sister concerns where there is no attempt to evade tax. concerns where there is no attempt to evade tax. 5. In view of the aforesaid su 5. In view of the aforesaid submitted facts we are of the view that the bmitted facts we are of the view that the Tribunal was correct incoming to the conclusion that the CIT (A) was Tribunal was correct incoming to the conclusion that the CIT (A) was Tribunal was correct incoming to the conclusion that the CIT (A) was wrong in disallowing half per cent commission paid to the sister concern wrong in disallowing half per cent commission paid to the sister concern wrong in disallowing half per cent commission paid to the sister concern of the assessee during the asst. yrs. 1991 of the assessee during the asst. yrs. 1991- 92 and 1992 92 and 1992-93. The learned advocate appearing for the appellant was also not in a position advocate appearing for the appellant was also not in a position advocate appearing for the appellant was also not in a position to point out how the assessee evaded payment of tax by alleged to point out how the assessee evaded payment of tax by alleged to point out how the assessee evaded payment of tax by alleged payment of higher commission to is sister concern since the sister payment of higher commission to is sister concern since the sister payment of higher commission to is sister concern since the sister concern was also paying tax at higher rate and copies of the concern was also paying tax at higher rate and copies of the concern was also paying tax at higher rate and copies of the assessment orders of the sister concern were taken on record by the ssessment orders of the sister concern were taken on record by the ssessment orders of the sister concern were taken on record by the Tribunal. 6. We, therefore, answer the above question of law raised in Tribunal. 6. We, therefore, answer the above question of law raised in Tribunal. 6. We, therefore, answer the above question of law raised in

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these appeals in affirmative and dismiss the above appeals filed by the these appeals in affirmative and dismiss the above appeals filed by the these appeals in affirmative and dismiss the above appeals filed by the appellant. There will, however, be no order as appellant. There will, however, be no order as to costs.” 5. In the to costs.” 5. In the present case, the assessee has brought on record the facts that the present case, the assessee has brought on record the facts that the present case, the assessee has brought on record the facts that the subsidiary company QAMC generated an aggregate income of Rs. subsidiary company QAMC generated an aggregate income of Rs. subsidiary company QAMC generated an aggregate income of Rs. 13,13,72,237/- - by way of research fees during the previous year, by way of research fees during the previous year, which includes the fees of Rs. 2,99,18,4 which includes the fees of Rs. 2,99,18,400/- paid by the assessee. paid by the assessee. QAMC has offered the entire amount of research fees, to tax and paid QAMC has offered the entire amount of research fees, to tax and paid QAMC has offered the entire amount of research fees, to tax and paid the same rate of tax as was applicable to the assessee. On the other the same rate of tax as was applicable to the assessee. On the other the same rate of tax as was applicable to the assessee. On the other hand, the revenue has failed to point out as to how the assessee hand, the revenue has failed to point out as to how the assessee hand, the revenue has failed to point out as to how the assessee evaded payment of tax by m evaded payment of tax by making unreasonable payment to its aking unreasonable payment to its subsidiary for research services. Further, as has been held by the subsidiary for research services. Further, as has been held by the subsidiary for research services. Further, as has been held by the Hon’ble Bombay High Court in the case of CIT vs. Vs. Dempo & Hon’ble Bombay High Court in the case of CIT vs. Vs. Dempo & Hon’ble Bombay High Court in the case of CIT vs. Vs. Dempo & Company Pvt. Ltd. (supra), only a Director of a company, partner of a Company Pvt. Ltd. (supra), only a Director of a company, partner of a Company Pvt. Ltd. (supra), only a Director of a company, partner of a firm or member of the as firm or member of the association or any family or any relative of such sociation or any family or any relative of such Director, partner or member is a related person under sub Director, partner or member is a related person under sub- clause (ii) of clause (b) of sub clause (b) of sub-section (2) of section 40. A subsidiary company of the section (2) of section 40. A subsidiary company of the assessee is not a related person assessee is not a related person within the meaning of sectio within the meaning of section 40A (2), the provisions of section 40A(2) do not attract in the present case. Since, the provisions of section 40A(2) do not attract in the present case. Since, the provisions of section 40A(2) do not attract in the present case. Since, the issue involved in the present case are similar to the issue involved the issue involved in the present case are similar to the issue involved the issue involved in the present case are similar to the issue involved in the aforesaid case, it can safety be concluded that the provisions of in the aforesaid case, it can safety be concluded that the provisions of in the aforesaid case, it can safety be concluded that the provisions of section 40A(2) do not a section 40A(2) do not apply in the present case.” 7.5 Thus, the Tribunal held that even if is presumed that payment Thus, the Tribunal held that even if is presumed that payment Thus, the Tribunal held that even if is presumed that payment was excessive, but the subsidiary has been taxed at same rate of was excessive, but the subsidiary has been taxed at same rate of was excessive, but the subsidiary has been taxed at same rate of tax thus there being tax neutral exercise, there was no case of tax tax thus there being tax neutral exercise, there was no case of tax tax thus there being tax neutral exercise, there was no case of tax evasion, and hence deleted the evasion, and hence deleted the disallowance. The issue in dispute The issue in dispute in the year under consideration in the year under consideration is identical to the issue, which has issue, which has been adjudicated by the Tribunal in assessment year 2012-13. But been adjudicated by the Tribunal in assessment year 2012 been adjudicated by the Tribunal in assessment year 2012 in the year under consideration verification is required as how in the year under consideration verification is required as how in the year under consideration verification is required as how much research fee exp much research fee expenses, combined by the assessee and enses, combined by the assessee and subsidiary, has been claimed against research fee, for ascertaining subsidiary, has been claimed against research fee, for ascertaining subsidiary, has been claimed against research fee, for ascertaining any tax evasion and therefore, respectfully following the and therefore, respectfully following the ratio of and therefore, respectfully following the the Tribunal (supra) , the Tribunal (supra) , we restore the issue in dispute to the file of restore the issue in dispute to the file of the Assessing Officer for deciding in accordance with law. ng Officer for deciding in accordance with law. . The ng Officer for deciding in accordance with law. ground No. 2 and 3 of the appeal of the Revenue are accordingly ground No. 2 and 3 of the appeal of the Revenue are accordingly ground No. 2 and 3 of the appeal of the Revenue are accordingly allowed for statistical purpose allowed for statistical purpose.

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Order pronounced in the open Court on nced in the open Court on 28/11/2023. /11/2023. Sd/ Sd/- Sd/- (RAHUL CHAUDHARY RAHUL CHAUDHARY) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 28/11/2023 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai