2018 (12) TMI 1893 - AT - Income Tax

Assessee's Appeal Partially Allowed: Payment Remanded, Sales Commission Overturned, Consultancy Disallowance Upheld

M/s Rochem Separation Systems (India) Pvt. Ltd. Versus The Assistant Commissioner of Income Tax, Central Circle- 2 (4), Mumbai

M/s Rochem Separation Systems (India) Pvt. Ltd. Versus The Assistant Commissioner of Income Tax, Central Circle- 2 (4), Mumbai - TMI Issues Involved:1. Disallowance of Legal and Professional Expenses paid to Associated Enterprise (Rs. 9,00,000).2. Disallowance of Legal and Professional Expenses paid on account of commission on sales (Rs. 15,20,000).3. Disallowance of Legal and Professional Expenses paid on account of providing financial consultancy and human resource consultancy services (Rs. 5,94,000 each).Issue-wise Detailed Analysis:1. Disallowance of Legal and Professional Expenses paid to Associated Enterprise (Rs. 9,00,000):The assessee challenged the disallowance of Rs. 9,00,000 paid to M/s Inventa Research Pvt. Ltd. for technical consultancy fees, which the AO deemed as a sham transaction. The assessee submitted invoices, TDS certificates, and additional documents such as a technology transfer agreement, appointment letter for an R&D employee, and audited balance sheet to substantiate their claim. The Tribunal admitted these additional documents as essential for proper adjudication and remanded the issue back to the AO for fresh consideration in light of the new evidence. This ground of appeal was allowed for statistical purposes.2. Disallowance of Legal and Professional Expenses paid on account of commission on sales (Rs. 15,20,000):The assessee contested the disallowance of Rs. 15,20,000 paid to M/s Captain K.N. George & Company and Smit Enterprises Pvt. Ltd. for commission on sales. The AO disallowed these expenses, questioning the genuineness of the transactions. The assessee provided various documents, including agency agreements, sales details, ledger accounts, confirmations from the agents, and email exchanges. The Tribunal noted that the assessee had furnished sufficient evidence to substantiate the claim and that similar expenses were allowed in previous years. Citing precedents, the Tribunal concluded that the assessee had discharged the primary onus of establishing the genuineness of the expenditure and allowed this ground of appeal, directing the AO to allow the claimed expenditure.3. Disallowance of Legal and Professional Expenses paid on account of providing financial consultancy and human resource consultancy services (Rs. 5,94,000 each):The assessee disputed the disallowance of Rs. 5,94,000 each paid to Ms. Namrata Goel and Ms. Nidhi Goel for consultancy services. The AO and DRP disallowed these expenses, stating the assessee failed to prove the genuineness of the transactions and the exclusive business purpose of the expenditure. The assessee submitted appointment letters, TDS certificates, and confirmations of receipt. However, the Tribunal observed that the assessee did not provide sufficient evidence of the nature of services rendered or their necessity for the business. Consequently, the Tribunal upheld the disallowance of Rs. 11,88,000, endorsing the findings of the DRP.Conclusion:The appeal filed by the assessee for the assessment year 2011-2012 was partly allowed for statistical purposes. The disallowance related to the payment to M/s Inventa Research Pvt. Ltd. was remanded for fresh consideration, while the disallowance related to commission on sales was overturned, and the disallowance related to consultancy services was upheld.