COMMISSIONER OF INCOME TAX Vs. RAMAN BOARDS LTD

JUDGEMENT

(1.) The revenue has preferred this appeal challenging the order passed by the Tribunal directing the deletion of disallowance. The assessee was engaged in the manufacture of insulation paper boards. During the year 1995-96, the assessee entered into an agreement with M/s. Flexsole Raman Limited, a subsidiary company for manufacture of footwear soles. The subsidiary company was supposed to handle and manage the Stiffener division of the company. The project started in November 1993. The assessee entered into an agreement dated 01.12.1993. Under that agreement, the subsidiary company was to undertake manufacture assembly test and quality control of stiffener materials in accordance with the technical data of the assessee. The other manufacturing related jobs were also to be done by the subsidiary company for which, the assessee shall pay management fee of Rs. 4,00,000/- per month. Accordingly, the assessee claimed Rs. 48,00,000/- payment made to the subsidiary company as expenditure.

(2.) The Assessing Officer allowed 50% of the claim of the assessee and disallowed Rs. 24,00,000/- under Section 40A(2)(b) of the Income-tax Act. Aggrieved by the said order, the assessee preferred an appeal. The appellate authority confirmed the said order. Aggrieved by these two orders, the assessee preferred an appeal before the Tribunal.

(3.) The Tribunal held that the genuineness of the agreement and the services rendered by the subsidiary company are not doubted. There is no reason as to why 50% of the expenditure is to be allowed. There is no finding that payment made by the assessee is excessive under Section 40A(2)(b). The expenditure incurred by the assessee under the aforesaid provision can be disallowed if the Assessing Authority is of the opinion that such an expenditure is excessive or unreasonable having regard to the fair market value of the goods and services or the facilities for which the payment is made. No comparative date was brought on record by the assessing authority that the payment made by the assessee is excessive. Over and above the services mentioned in the agreement, they might have been given some more services like preparation of feasibility report etc. However, there cannot be a valid reason for making disallowance under Section 40A(2)(b) of the Act. Accordingly, he allowed the appeal and permitted deletion of the disallowance. Aggrieved by the said order, the revenue is in appeal.