DCIT-1(3)(1), MUMBAI vs. M/S QUANTUM ADVISORS PVT LTD, MUMBAI

At the outset ld. Counsel submitted that in the quantum proceedings, the Tribunal has deleted the addition and therefore, penalty levied by the ld. AO cannot be sustained and ld. CIT (A) has rightly deleted the penalty. In this case addition/ disallowance was made on account of research marketing services fee amounting to Rs.2,39,18,400/- by the ld. AO on the ground that it is excessive and accordingly, addition was made. We find that Tribunal in in assessee’s own case has deleted the addition after observing as under:- “5. In the present case, the assessee has brought on record the facts that the subsidiary company QAMC generated an aggregate income of Rs. 13,13,72,237/- by way of research fees during the previous year, which includes the fees of Rs. 2,99,18,400/- paid by the assessee. 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 hand, the revenue has failed to point out as to how the assessee evaded payment of tax by making unreasonable payment to its subsidiary for research services. Further, as has been held by the 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 firm or member of the association or any family or any relative of such Director, partner or member is a related person under sub- clause (ii) of clause (b) of sub-section (2) of section 40. A subsidiary company of the assessee is not a related person ITA Nos. 3989 & 4259/MUM/2017 Assessment Year: 2012-13 within the meaning of section 40A (2), 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 in the aforesaid case, it can safety be concluded that the provisions of section 40A(2) do not apply in the present case.

M/s. Quantum Advisors Pvt. Ltd. 4. It has been further informed by the ld. Counsel that in A.Y.2013-14 and 2014-15, the ld. AO himself has dropped the penalty. In view of the aforesaid fact, that once quantum has been deleted, penalty levied u/s. 271(1)(c) has no legs to stand and accordingly, the order of the ld. CIT(A) is upheld.

In the result, appeal of the Revenue is dismissed.