2010 (1) TMI 812

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....ards consultancy charges. According to the Revenue, the assessee had not produced any evidence for services rendered by the recipients of the above amounts who fell within the purview of section 40A(2)(b) of the Act, nor could it substantiate the business expediency for such payments. 3. During the course of assessment proceedings of the assessee, which is engaged in audio visual services, the Assessing Officer noted that there was claim for commission and incentive payment of Rs.12,86,042. This included the following payments which fell within the purview of section 40A(2)(b) of the Act: i. Shri Sidharth Lulla, director Rs. 97,340 ii. Shri Manohar Lulla, brother of Shri Ramesh Lulla Rs. 2,75,000 iii. Smt. Padmini....

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....ed that the assessee was unable to produce the details of the services nor the orders procured through her. Similar lacuna was noted in the case of payment to Shri Sidharth Lulla also. Therefore, invoking the provisions of section 40A(2) (b) of the Act, he disallowed the sum totalling Rs.8,98,000. 6. The assessee had also paid consultancy charges of Rs.5,73,558 during the relevant previous year which included a sum of Rs.1,09,000 to Shri Manohar Lulla and Rs.1,20,000 to Shri Sidharth Lulla. According to the Assessing Officer, the assessee was unable to establish what services were rendered by such persons to the company and he, therefore, once again invoked section 40A(2)(b) of the Act and made disallowance of Rs.2,29,000. 7. In its a....

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.... data furnished by the assessee. 10. We have considered the rival contentions and material on record. For invoking clause (b) of sub-section (2) of section 40A of the Act, the first requirement is that the Assessing Officer has to have an opinion that the expenditure incurred in relation to the related parties was excessive or unreasonable having regard to the fair market value of the services, or the payments made were not for the legitimate needs of the business of the assessee. Here, the Assessing Officer has not at any point of time considered the fair market value of the services rendered by the above three persons. There is no comparative study of similar payments made by the assessee to other persons, before coming to a conclusion....