Undisclosed consultancy fee not attributed to assessee leads to addition deletion by Ld. CIT(A)

The undisclosed consultancy fee addition of Rs. 2,27,51,586/- in the hands of the assessee was the primary issue in this case. The Ld. CIT(A) deleted the addition after finding that the income did not pertain to the assessee, as services were rendered by another entity. The invoice was accounted for before the search, and no evidence linked the consultancy income to the assessee. The Revenue's appeal was dismissed as the Ld. CIT(A)'s decision was upheld due to lack of evidence attributing the income to the assessee.

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Issues:
Whether addition of undisclosed consultancy fee could be assessed in the hands of the assessee.

Analysis:
The appeal was filed by the Revenue against the order of the Ld. CIT(A)-24, New Delhi, for Assessment Year 2007-08. The primary issue was whether an addition of Rs. 2,27,51,586/- on account of undisclosed consultancy fee could be assessed in the hands of the assessee. The search and seizure action was conducted on the assessee, who was the main promoter and Chairman and Managing Director of U. K. Paints group of companies. A survey was also conducted on U.K. Paints (Overseas) Ltd. The first notice u/s 153A of the Act was issued on the assessee, and subsequently, a second search was conducted. The assessment was framed after adding the sum of Rs. 2,27,51,586/- as undisclosed consultancy income in the hands of the assessee based on an invoice raised by U.K. Paints (Overseas) Ltd. on an unrelated Indian company. The assessee contended that the invoice was already accounted for in the books of U.K. Paints (Overseas) Ltd. and should not lead to double taxation.

The Ld. AO disregarded the assessee's contentions and made the addition in the assessment. However, the Ld. CIT(A) directed the AO to conduct further enquiry. The AO reported that no documentary information was provided by the Indian company regarding any formal agreement executed. The Ld. CIT(A) considered the remand report and the rejoinder by the assessee and deleted the addition. It was observed that the invoice was recovered from the office premises of U.K. Paints (Overseas) Ltd. and not the assessee's premises. The Ld. CIT(A) concluded that the income did not pertain to the assessee, as services were rendered by U.K. Paints (Overseas) Ltd. and not by the assessee. The addition made in the hands of the assessee was deleted as there was no evidence to attribute the consultancy income to the assessee.

The Ld. CIT(A) highlighted that the invoice was accounted for in the books of U.K. Paints (Overseas) Ltd. before the search and survey. It was emphasized that no services were rendered by the assessee to the Indian company to earn the consultancy income. The crucial findings of the Ld. CIT(A) were not challenged by the Revenue. The sum in question had already been offered as consultancy income in the books of U.K. Paints (Overseas) Ltd., and double taxation was not warranted. The order of the Ld. CIT(A) was upheld, and the appeal of the Revenue was dismissed.

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