Consultancy fee payments backed by agreement, invoices, bank transfers and TDS; disallowance based on suspicion rejected, deletion upheld.

Disallowance of consultancy-fee expenditure was in issue, specifically whether it could rest solely on perceived documentary inconsistencies and general third-party/survey inputs. The Tribunal held that once the taxpayer produced primary evidence (agreement, invoices, bank payments, and TDS), the onus shifted to the AO to rebut it with cogent material. As no incriminating survey material was confronted, no independent corroboration was brought on record, and there was no finding of bogus invoices, non-rendering of services, cash kickbacks, or excessiveness/unreasonableness of the expenditure, mere suspicion could not substitute proof. Extraneous references in the assessment to unrelated penny-stock issues further undermined the addition. The CIT(A)'s deletion of the addition was upheld and the appeal was dismissed.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether consultancy/service expenditure of Rs. 3,75,00,000/- could be disallowed as non-genuine solely on the basis of (a) general "high-risk/accommodation entry" information and survey-related inputs concerning the payee, and (b) differences between agreement copies furnished by the payer and payee, despite the assessee producing primary evidences of services, invoicing, banking payments, and tax deduction at source.

(ii) Whether, once the addition was deleted on merits, the assessee's challenge to the validity of reassessment under section 147 required adjudication, or was to be dismissed as infructuous/academic.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Genuineness and allowability of consultancy expenditure

Legal framework (as discussed by the Court): The Court proceeded on the principle that suspicion cannot substitute proof, and that where the assessee produces primary documentary evidence (agreement(s), invoices, ledger extracts, bank statements evidencing payments through banking channels, and proof of deduction/deposit of tax at source), the burden shifts to the Assessing Officer to disprove the claim through cogent, direct, or corroborative material. The Court also emphasised that third-party information must be corroborated and confronted before it can support an adverse inference.

Interpretation and reasoning: The Court treated the assessee's business as highly specialised and found that engagement of technical/marine consultancy for an offshore project was commercially plausible and aligned with the operational requirements of such work. On facts, the Court noted that invoices were raised for the assignment, payments were made through regular banking channels with tax deducted at source, and the transaction was recorded in the books. The Court found that the Assessing Officer's disallowance rested mainly on (a) general Insight Portal/survey-related inputs about the payee and (b) perceived discrepancies between agreement copies.

On the agreement discrepancy, the Court accepted the finding that two agreements of the same date existed-a draft and a final executed agreement-and held that it is common commercial practice to exchange drafts before finalising and executing the operative document. The Court held that production of a draft copy by one party in response to a statutory notice does not, by itself, negate the genuineness of services flowing from the final agreement, particularly where the final agreement was acted upon.

On survey/third-party information, the Court held that no incriminating material from such inputs was confronted to the assessee, and no statement/document/evidence was brought on record to show that services were not rendered or that payments were routed back or otherwise fictitious. It was also considered significant that the consultant did not deny rendering services, and there was no finding that the expenditure was excessive or unreasonable. The Court further noted that the assessment order contained extraneous observations unrelated to the disputed expenditure, undermining the reliability of the disallowance reasoning.

Conclusions: The Court upheld deletion of the addition, holding that the assessee had discharged the initial onus through primary evidences and the Assessing Officer failed to rebut them with any independent, credible corroboration. Disallowance based only on uncorroborated third-party "high-risk" information and documentary inconsistencies (explained as draft versus final agreement) was held unsustainable.

Issue (ii): Adjudication of reassessment challenge after deletion on merits

Interpretation and reasoning: Since the addition forming the subject matter of reassessment did not survive on merits, the Court held that the legal grounds challenging reassessment became academic. The Court expressly declined to decide those grounds on merits.

Conclusions: The cross-objection challenging reassessment validity was dismissed as infructuous/academic, with the issues left open.

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