Tribunal rules in favor of assessee, overturning disallowance of consultancy charges for business purposes.

The Tribunal overturned the decision to disallow 50% of consultancy charges on an adhoc basis for the assessment year 2006-07. Despite acknowledging the expenses were for business purposes, the lower authorities upheld the disallowance. The Tribunal found no justification for the estimated disallowance, noting the assessee provided comprehensive documentation supporting the genuineness of the charges. As the books of accounts were not rejected and no defects were identified in the evidence, the Tribunal directed the deletion of the disallowance, ruling in favor of the assessee.

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Issues:
Disallowance of consultation fees on an adhoc basis.

Analysis:
The appeal in ITA No.187/Mum/2020 for A.Y.2006-07 concerns the disallowance of consultation fees amounting to Rs. 44,77,661. The assessee, a company trading in computer hardware, software products, and services, had claimed consultancy charges paid to technical individuals providing services to its clients. The first round of proceedings led to the issue being remanded to the ld. AO for reconsideration. In the subsequent round, the ld. AO disallowed 80% of the consultancy charges on an adhoc basis, which was reduced to 50% by the ld. CIT(A). Despite acknowledging the expenses were for business purposes, the ld. CIT(A) upheld the disallowance. The assessee challenged this decision, leading to the current appeal.

The assessee submitted various documents to substantiate the consultancy charges, including details of consultants, services rendered, payments made, and bank statements. The ld. CIT(A) requested a remand report from the ld. AO, who delayed responding for three years. The ld. AO eventually submitted a report reiterating previous submissions and acknowledging receipt of affidavits from certain consultants. The assessee produced eight parties and their affidavits as requested. A comparative chart of consultancy charges claimed, allowed, and disallowed for multiple assessment years was also presented. Notably, the ld. AO had only disallowed charges for the year under consideration, maintaining consistency with previous and subsequent years.

The Tribunal found no justification for the estimated disallowance of expenses, as the books of accounts were not rejected, and the assessee provided comprehensive documentation to support the genuineness of the consultancy charges. The ld. AO failed to identify any defects in the evidence presented. Consequently, the Tribunal directed the ld. AO to delete the disallowance of consultancy charges, ruling in favor of the assessee and allowing the appeal. The decision was pronounced on 30/11/2021.

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