2024 (12) TMI 1008 - AT - Income Tax

Assessee wins appeal on consultancy fees and power expenses with proper documentation provided

CISB Services Pvt. Ltd. Versus Dy. Commissioner of Income Tax, Circle-1 (2) (1), Mumbai

The ITAT Mumbai allowed the assessee's appeal regarding consultancy and legal fees, directing the AO to delete the addition as the assessee provided ... Expenditure in respect of consultancy and legal fees - HELD THAT:- We find that the assessee has not only provided the declaration from these individuals but also furnished their PAN card and Aadhar card to prove their identity. In the present case, there is no dispute regarding the business profile of the assessee and it is evident from the record that out of the total income declared by the assessee in its return of income, the assessee has declared business income. Thus, in the absence of any contradictory material being brought on record, the mere fact that these individuals did not file their return of income on the basis that their income was below the taxable limit, cannot lead to the conclusion that the expenditure incurred by the assessee towards consultancy fees is not genuine. Accordingly, we direct the AO to delete the balance addition made on account of consultancy and legal fees. Power and fuel expenses - Since the only basis for rejecting the same by the CIT(A) was that the bills were not in the name of the assessee and they were in the name of some other individuals for which reasonable explanation has been furnished by the assessee, we are of the considered view that expenditure to an extent of Rs. 10,42,713/- on account of power and fuel be deleted. We order accordingly. Balance expenditure in the past, its net profit has been in the range of 3.7%. However, in the year under consideration, the assessee claimed that it earned a net profit of 4.37%. Accordingly, we deem it appropriate to direct the AO to make the addition on account of the balance expenditure by applying the net profit rate earned by the assessee, after necessary verification of the documentary evidence in this regard. Issues:Assessment of consultancy and legal fees disallowance under section 37 of the Income Tax Act, 1961. Disallowance of power and fuel expenses under section 37 of the Act. Verification of expenditure documentation and net profit percentage adjustment.Consultancy and Legal Fees Disallowance:The appellant, a private limited company, appealed against disallowance of consultancy and legal fees by the AO. The AO disallowed Rs. 23,08,963 out of total expenses claimed due to lack of confirmation for a portion of the expenditure. The CIT(A) upheld the disallowance citing non-filing of income tax returns by payees. The appellant provided documentation, including PAN and Aadhar cards, to prove the genuineness of the payments. The Tribunal found no contradiction in the business profile and directed the AO to delete the disallowed amount as the lack of tax returns from payees does not invalidate the expenditure.Power and Fuel Expenses Disallowance:The AO disallowed Rs. 39,93,958 of power and fuel expenses due to insufficient bill submission by the appellant. The CIT(A) upheld the disallowance as bills were not in the appellant's name. The appellant submitted rent agreements showing the premises were rented, explaining the bills' names. The Tribunal accepted the explanation and directed deletion of Rs. 10,42,713 from the disallowed amount, correlating with documented evidence. The remaining Rs. 31,05,327 was to be adjusted based on the appellant's historical net profit percentage.Net Profit Percentage Adjustment:The Tribunal directed the AO to adjust the balance expenditure of Rs. 31,05,327 based on the appellant's net profit rate, historically at 3.7% but claimed at 4.37% for the relevant year. Grounds 2 and 3 were allowed partly for statistical purposes, while Ground 1 required no separate adjudication. The appeal was partly allowed for statistical purposes.This judgment addressed issues related to the disallowance of consultancy and legal fees, power and fuel expenses, and the adjustment of expenditure based on net profit percentage. The Tribunal emphasized the genuineness of expenditures, the relevance of supporting documentation, and the need for proper verification before disallowing expenses.