RAPPORT OUTDOOR ADVERTISING PRIVATE LIMITED,MUMBAI vs. DCIT-3(3)(1), MUMBAI

5. Without prejudice to the above, on the facts and circumstances of the case, and in law, if the subject addition is confirmed in the current year, then due relief should be granted to the Appellant vis-à-vis the same income already offered to tax in the subsequent years.

III. Disallowance of management service fees amounting to INR 88,39,537

6. On the facts and circumstances of the case, and in law, NFAC has erred in confirming the disallowance of the management service fees amounting to INR 88,39,537, alleging the same to be excessive as per section 40A(2)(b) of the Income Tax Act, 1961 ('Act').

7. On the facts and circumstances of the case, and in law, the learned AO has erred in making an addition of INR 88,39,537 instead of INR 82,63,818 [INR 88,39,537 less INR 5,75,719 (i.e., the allowable expense computed by the learned AO)].

Non-grant of set off of earlier year's loss amounting to INR 36,38,049

8. On the facts and circumstances of the case, and in law, the learned AO has erred in not granting set off of earlier year's loss amounting to INR 36,38,049 against the income of the captioned year.

Each of the above grounds of appeal is without prejudice to and independent of one another

The Appellant prays that the additions made by the learned AO and upheld by the Hon'ble NFAC be deleted and consequential relief be granted.

The Appellant craves leave to add, alter, amend and/or withdraw any of the above grounds of appeal and to submit such statements, documents and papers as may be considered necessary either at or before the hearing of this appeal as per law.”

3. The issue arising in ground no.1 is general in nature and therefore needs no separate adjudication.

4. The issue arising in ground no.2 pertains to the addition made on account of the difference in the amount appearing in Form 26AS and books of account.

For the year under consideration, the assessee filed its return of income on 25/11/2014 declaring a total income of INR 1,56,56,150 and book profit under section 115 JB of the Act of INR 1,56,74,246. The return filed by the assessee was selected for scrutiny and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, it was observed that the assessee has claimed credit for TDS amounting to INR 1,34,10,835.

Accordingly, the assessee was asked to furnish the reconciliation of income vis-à-vis the income as per Form 26AS. In response, the assessee submitted the reconciliation of income vis-à-vis the TDS credit. After perusal of the details submitted by the assessee, the Assessing Officer (“AO”) vide order dated 29/12/2016 passed under section 143(3) of the Act noted that the income amounting to INR 92,26,013 has been short-offered to tax in the year under consideration. During the assessment proceedings, the assessee was also asked to provide proof of why the above income was considered in the assessment year 2015-16, whereas the TDS was claimed in the assessment year 2014-15. In response, the assessee submitted that it runs various campaigns in the field of outdoor advertising and some campaigns run into two financial years. It was further submitted that many of the clients of the assessee company follow the accrual system of accounting and therefore, they make provisions in the month of March and deduct TDS thereon. However, the invoices are prepared after the campaign is over in the subsequent months and therefore the revenue is recorded in the subsequent financial year. Accordingly, the assessee submitted that there is no revenue loss to the government. The AO, vide assessment order, disagreed with the submissions of the assessee since the same was without any supporting document or material. Further, the AO held that the assessee has not provided any justification as to why the TDS has been claimed in the year under consideration without offering corresponding income to tax.

Accordingly, the AO treated the income amounting to INR 92,26,013 as income of the assessee for the year under consideration and allowed the corresponding TDS credit. The learned CIT(A), vide impugned order, dismissed the ground raised by the assessee on this issue. Being aggrieved, the assessee is in appeal before us.

The learned AR submitted that the assessee has now compiled all the supporting documentary evidence, which has been submitted by way of the present application seeking admission of additional evidence. From the perusal of the afore-noted application, we find that the assessee has prepared a detailed statement showing party-wise reconciliation between the gross receipts as per Form 26AS and revenue offered to tax in the financial year 2013-14. Further, the assessee has also prepared a party-wise breakup of gross revenue, media cost and net revenue for the financial years 2013-14 and 2014-15. On the other hand, the learned Departmental Representative (“learned DR”) submitted that since these documents were not filed before the lower authorities, therefore an opportunity should be given to the Revenue to verify the same.

Accordingly, following the approach adopted in preceding years, the AO disallowed the Management Service Fees paid to Lintas India Private Limited under section 40A(2)(b) of the Act by treating the same as excessive.

“6. We have heard the rival submissions and perused the material before us. We find that assessee had made payment of Rs.56.65 lakhs to Lintas as against 10 lakhs paid in earlier years that the AO made a disallowance of Rs.43.18 lakhs, invoking the provisions of section 40A(2)(b) of the Act that the FAA restricted the disallowance to Rs.31.65 lakhs that managing director of the company and 11 other-key employees left the assessee during the year under appeal,that Lintas increased their active participant in providing management support for servicing clients of the assessee, that for the AY.2005-06 the management fee was 0.3%, that during the year the fee was 0.58% of the turnover, that turnover of the assessee had increased.In our opinion, the AO and the FAA were not justified in invoking the provisions of section 40A(2)(b) of the Act. The said section can be applied only if it is found that payments made or goods/services is higher than Fair Market Value of Goods/services received/availed. Both the authorities have failed to point out comparison of management fee with the FMVof services availed.By placing expenses of earlier AY.s vis a vis the revenue earned by it and the circumstances that compelled the assessee to incur higher expenses on record the assessee had discharged the initial onus cast upon it. Thereafter, the onus thus shifted to the Department to demonstrate how the payment was excessive or unreasonable. Apart from the presumption, based on the relationship between the JV and the assessee- company, there was no other material before both the revenue authorities to come to the conclusion that the payment of management charges was not reasonable. In short, "Excessive - ness and unreasonableness of the payment, the precondition for making the disallowance U/s40A(2)(b)has not been proved.

Besides, as per the settled principles of tax jurisprudence AO’s are not supposed to step into the shoes of the assessee. Considering the increased revenue of the assessee for the year under appeal as compared to the income of earlier years and absence of jurisdiction to invoke provisions of section 40A(2)(b) of the Act, we are unable to endorse the view taken by the FAA. So, reversing his order, we decide effective GOA in favour of the assessee.”

Order pronounced in the open Court on 25/10/2024