Related-party consultancy payments and vehicle-loan interest disallowances rejected where business use and supporting evidence were established.

Related-party consultancy charges were held deductible where the agreements defined the work, supporting invoices, tax deduction at source and service tax payments were on record, and the Revenue failed to show that the expenditure was excessive or not for business purposes; an ad hoc disallowance based only on missing individual service details was rejected. Interest on a vehicle loan was also allowed because the loan remained outstanding from earlier vehicle purchases, and the absence of fresh vehicle acquisition during the year was not a valid basis to deny the claim. The additions were deleted and the assessee obtained full relief.

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Issues: (i) Whether the disallowance of consultancy charges paid to the sister concern under section 40A(2)(b) of the Income-tax Act, 1961 was justified; (ii) Whether the disallowance of interest on vehicle loan was justified.

Issue (i): Whether the disallowance of consultancy charges paid to the sister concern under section 40A(2)(b) of the Income-tax Act, 1961 was justified.

Analysis: The consultancy agreements defined the scope of work and the assessee had placed supporting material such as agreements, sample invoices, deduction of tax at source, and payment of service tax. The absence of every individual service detail on the invoices did not, by itself, negate actual rendition of services. The lower authorities proceeded on an incorrect factual premise regarding the contractual value and made an ad hoc disallowance without bringing material to show that the expenditure was excessive or not incurred for business purposes.

Conclusion: The disallowance of consultancy charges was deleted and the issue was decided in favour of the assessee.

Issue (ii): Whether the disallowance of interest on vehicle loan was justified.

Analysis: The assessee had purchased vehicles in the earlier year and the interest was claimed for the full year in the year under consideration because the loan remained outstanding. The material on record showed that the increase in interest was linked to the timing of earlier vehicle purchases and did not indicate any non-business or excessive claim. The disallowance was made only because no fresh vehicle purchase occurred during the year, which was not a valid basis to deny interest on outstanding loan liability.

Conclusion: The disallowance of interest on vehicle loan was deleted and the issue was decided in favour of the assessee.

Final Conclusion: The additions made by the lower authorities were set aside and the assessee obtained full relief in the appeal.

Ratio Decidendi: A related-party expenditure cannot be disallowed on an ad hoc basis merely because invoices do not set out every service detail, where the agreements, surrounding evidence, and business necessity establish actual rendition of services and the Revenue does not show that the claim is excessive or non-genuine.

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