Tribunal allows appeals for assessment years 2014-15 & 2015-16, with exceptions

The Tribunal partially allowed the appeals for assessment years 2014-15 & 2015-16. It directed the deletion of disallowances for computer and equipment hire charges under section 40A(2)(b) of the Income Tax Act, as the rates paid were found to be reasonable compared to third-party providers. However, the disallowance of consultancy charges paid to a director was upheld due to insufficient evidence justifying the payments, despite a 50% relief granted by the CIT(A).

---

---

Issues:
1. Disallowance of computer and other equipment hire charges under section 40A(2)(b) of the Income Tax Act.
2. Disallowance of consultancy charges paid to a director under section 40A(2)(b) of the Income Tax Act.

Issue 1: Disallowance of computer and other equipment hire charges under section 40A(2)(b) of the Income Tax Act:
The appeals were filed against a common order pertaining to assessment years 2014-15 & 2015-16. The Assessing Officer disallowed a portion of the computer and other equipment hire charges under section 40A(2)(b) of the Act, deeming them excessive and unreasonable compared to market rates. The CIT(A) partially sustained the disallowance, directing restrictions on disallowances for desktop computers and laptops while upholding disallowances for other equipment. The AR for the assessee argued that ad-hoc disallowances were inappropriate as comparable cases showed third-party service providers charging more. The Tribunal found that no comparable cases were presented by the Assessing Officer, and the rates charged by third-party providers were higher than those paid by the assessee. Consequently, the disallowance of hire charges was deemed incorrect, and the additions were directed to be deleted.

Issue 2: Disallowance of consultancy charges paid to a director under section 40A(2)(b) of the Income Tax Act:
The Assessing Officer disallowed consultancy charges paid to a director due to lack of evidence justifying the payments. The assessee claimed the director provided services related to corporate strategy and acquisitions. However, the Assessing Officer found the evidence insufficient. The CIT(A) allowed 50% relief, directing the Assessing Officer to restrict the disallowance accordingly. The Tribunal noted that apart from a board resolution authorizing the payments, no credible evidence was provided to justify the consultancy charges. The lack of evidence supporting the actual services rendered or the nature of services obtained led the Tribunal to uphold the CIT(A)'s findings and reject the grounds taken by the assessee.

In conclusion, the appeals for both assessment years were partly allowed, with the Tribunal directing the deletion of disallowances made towards system hire charges and upholding the findings on consultancy charges.

---