2024 (5) TMI 1236 - AT - Income Tax

Consultancy fee allowed if business purpose proven; subscription fee remanded for TDS determination under section 40(a)(ia)

ITAT Mumbai remanded two issues back to AO for fresh examination. First, regarding consultancy fee payment to Dr. Abhishek Shukla, the court held that ... Payment of consultancy fee - Legal & Professional Fees paid - Allowable business expenditure or not? - appellant had not furnished copy of contract for consultancy services rendered by Dr. Abhishek Shukla - Before the CIT (A), assessee too filed certain details and explanations however, same has been disallowed holding that the payment is not for the business purpose - HELD THAT:- If the payment has been made during the course of the business even if the business did not result into revenue in that year, then also it is allowable, but onus is heavily upon the assessee to substantiate that the payment was for the purpose of business, and what was the scope of work and activity carried out by the professional. Since most of the documents were not before the ld. AO and CIT (A) therefore, in the interest of justice, this issue is restored back to the file of the ld. AO to examine this issue afresh after considering the documents. The onus will be on the assessee to substantiate the purpose of payment of professional fees for the business and nature of professional services rendered by the said person. Accordingly, this issue is remanded back to the ld. AO. Disallowance u/s. 40(a)(ia) - Payment of subscription fee - Non-deduction of TDS - HELD THAT:- Disallowance as concerned, from the perusal of the invoice, it is seen that the same is for the purpose of renewal of some annual subscription. Since this document was not before the AO and CIT (A), accordingly, this issue is also restored back to the file of the AO and if it is in the nature of subscription fee, then no TDS is required to be deducted. Appeal of the assessee is allowed for statistical purposes. Issues Involved:1. Disallowance of Rs. 45,000/- under Section 40(a)(ia) of the Income Tax Act.2. Disallowance of Rs. 40,11,200/- as professional fees paid to Dr. Abhishek Shukla.3. Non-consideration of bills of Dr. Abhishek Shukla by the CIT(A).4. Classification of payment to Dr. Abhishek Shukla as salary instead of consultancy fees.Detailed Analysis:1. Disallowance of Rs. 45,000/- under Section 40(a)(ia) of the Income Tax Act:The Assessing Officer (AO) disallowed Rs. 45,000/- under Section 40(a)(ia) of the Income Tax Act due to non-deduction of TDS on a payment of Rs. 1,50,000/- made to Accord Fintech Pvt. Ltd. The CIT(A) upheld this disallowance, stating that the appellant failed to prove that the payee had fulfilled the conditions stipulated in the first proviso to Section 201(1) of the Income Tax Act, 1961. The Tribunal, however, noted that the invoice was for the renewal of an annual subscription and remanded the issue back to the AO for fresh examination. If the payment is found to be for a subscription fee, no TDS would be required.2. Disallowance of Rs. 40,11,200/- as Professional Fees Paid to Dr. Abhishek Shukla:The AO disallowed the payment of Rs. 40,11,200/- to Dr. Abhishek Shukla, claiming it as professional fees for business consultation, due to the lack of sufficient evidence and non-submission of required documents. The CIT(A) confirmed this disallowance, observing that the payments appeared to be salary rather than consultancy fees because they were made monthly and included house rent reimbursements. The CIT(A) also noted that no business activity was carried out by the appellant company during the year. The Tribunal remanded this issue back to the AO, emphasizing the need for the assessee to substantiate the business purpose and nature of the professional services rendered by Dr. Abhishek Shukla.3. Non-consideration of Bills of Dr. Abhishek Shukla by the CIT(A):The CIT(A) did not consider the bills submitted by the appellant during the appellate proceedings, as the appellant had not requested to accept additional evidence under Rule 46A. The Tribunal highlighted that the appellant had submitted these bills to demonstrate the payment of professional fees. The Tribunal directed the AO to examine these documents afresh to determine the legitimacy of the claimed professional fees.4. Classification of Payment to Dr. Abhishek Shukla as Salary Instead of Consultancy Fees:The CIT(A) classified the payments to Dr. Abhishek Shukla as salary rather than consultancy fees, noting the regularity and fixed nature of the payments. The Tribunal acknowledged this observation but emphasized that if the payments were indeed for business purposes, they should be allowed as business expenditure. The Tribunal remanded the issue back to the AO for a detailed examination of the nature and purpose of these payments.Conclusion:The Tribunal allowed the appeal for statistical purposes, remanding the issues back to the AO for fresh examination. The AO is directed to consider the additional evidence and substantiate the business purpose and nature of the payments made to Dr. Abhishek Shukla and Accord Fintech Pvt. Ltd. The onus is on the assessee to provide sufficient evidence to support their claims.