TaxTMI 
TaxTMI 
2025 (7) TMI 1490
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....he appellant. The appellant had furnished all relevant documentary evidence to substantiate the claim of professional fees, but the AO failed to consider the submissions judiciously and mechanically disallowed the expense. 2 The Ld. CIT(A) erred in confirming the disallowance of professional fees amounting to 27,00,000/- without appreciating that the consultant was engaged for a technical study of the land, a necessary and legitimate business expense. 3. The Ld. CIT(A) incorrectly held that the expenditure lacked corroborative tangible evidence and was not clearly defined, while the AO arbitrarily deemed it unrealistic and excessive. The AO further erred by comparing the professional fees with the assessee's turnover, linking it to the specifics of the work performed, and concluding that it constituted 20% of total sales. However, consultancy fees are determined by the nature of work, expertise, and deliverables, not the turnover. Technical studies and evaluations are integral to real estate and land development, essential for assessing feasibility, regulatory compliance, and business prospects. The department has no authority to question the commercial wisdom....
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....RLHL and for which amount has been received from RLHL as per the terms of the agreement. On perusal of the books of accounts, ld. AO noticed that the assessee had debited expense in P&L A/C on account of Professional Fees paid. The expense under the head seems unrealistic and excessive on the grounds that a company having total sales of Rs. 1,41,00,000/- pays professional fees to the various agencies to the tune of Rs. 27,00,000/-. In this regard a specific query was made to the assessee asking him the nature of services rendered for payment made and to provide full address of parties to whom commission has been paid. The CA/AR of the assessee submitted the details which are placed on record. However, in regard to services rendered he only submitted that the services are in nature of land development charges which is a very vague and unclear detail of services. It neither clarifies what work was done neither justifies payments amounting to 20% of the total sales, in the business of real estate or related businesses. The ld. AO based on the details filed issued notices u/s 133(6) of the Act to these parties. However all the notices returned with the remarks of either not found or no....
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....ng noncompliance cannot be attributed to procedural deficiencies doesn't hold. 5.2 Ground 2 relates to disallowance of professional fees of Rs. 27,00,000. In this ground the appellant asserts that the professional fees were legitimate expenses for land development services. However, the following points rebut this claim. 1. The services rendered were not clearly defined or corroborated with tangible evidences, despite opportunities given by the concerned AO 2 Notices under Section 133(6) to the recipients were returned undelivered. further raising doubts about the genuineness of the transactions. (iii) Merely producing TDS certificates or making payments through banking channels does not substantiate the genuineness of expenses, as held in judicial decision in case of Sumati Dayal v. CIT (214 ITR 801). The appellant's reliance on simply a confirmation letter which itself was submitted by the appellant is insufficient, as these letters were not independently verifiable and lacked corroborative documentation like agreements or reports detailing the services provided which has not been produced. 5.3 Ground 3: With ....
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....rofessional fees, but the AO failed to consider the submissions judiciously and mechanically disallowed the expense. Ground of Appeal No. 2 The Ld. CIT(A) erred in confirming the disallowance of professional fees amounting to Rs. 27,00,000/- without appreciating that the consultant was engaged for a technical study of the land, a necessary and legitimate business expense. Ground of Appeal No. 3 The Ld. CIT(A) incorrectly held that the expenditure lacked corroborative tangible evidence and was not clearly defined, while the AO arbitrarily deemed it unrealistic and excessive. The AO further erred by comparing the professional fees with the assessee's turnover, linking it to the specifics of the work performed, and concluding that it constituted 20% of total sales. However, consultancy fees are determined by the nature of work, expertise, and deliverables, not the turnover. Technical studies and evaluations are integral to real estate and land development, essential for assessing feasibility, regulatory compliance, and business prospects. The department has no authority to question the commercial wisdom of the assessee, and business decisions ma....
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....s and all payments are made by cheque. These itself is not sacrosanct. Deduction of TDS does not make a payment genuine. Mere furnishing of the particulars is not enough. Moreover, payment by cheque is neither sacrosanct nor can it make a non-genuine transaction as genuine. ........ Any expenditure to be an allowable expenditure u/s 37(1), the money paid must be paid out wholly and exclusively for the purpose of the business or profession. The veracity of the expenses debited as discussed above, the nature and purpose for business cannot be proved until and unless the services rendered are justified and proven." Findings of Ld. CIT(A): (Para 5.2 on Page No. 5 of the order u/s 250 dated 28.01.2025) "In this ground the appellant asserts that the professional fees were legitimate expenses for land development services. However, the following points rebut this claim: 1. The services rendered were not clearly defined or corroborated with tangible evidences, despite opportunities given by the concerned AO. 2. Notices under Section 133(6) to the recipients were returned undelivered, further raising doubts about the genuineness of the t....
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.... in any of these documents, nor was any adverse material brought on record by the authorities. The doubts raised by the CIT(A) are, therefore, without any substantive basis and appear to be mere conjecture, unsupported by the evidence on record. We are hereby once again enclosing confirmations from the service providers along with their ITR-V, Bank Statements reflecting receipts and Statutory Auditor certificates for your kind perusal. [PBP 1 to 14] 2. Furthermore, the Ld. CIT(A)'s observation that "the confirmation letter which itself was submitted by the appellant is insufficient, as these letters were not independently verifiable" is misplaced. The confirmation letters are on the official letterheads of the respective companies and are duly signed by their authorized signatories. In the case of Nimbus Industries Limited and, M/s Arena Trading (P) Ltd, the transactions have also been confirmed by their statutory auditor. These confirmations are independently verifiable and establish the genuineness of the transactions. The Ld. AO has not brought any material on record to suggest that the confirmations provided by the service providers are not genuine. Furthermore, all se....
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.... "In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessee's. Their index number was in the file of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee had discharged the burden that lay on him then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises." * Hon'ble Bombay High Court in the case of CIT Vs. M/s Orchid Industries Pvt. Ltd. [INCOME TAX APPEAL NO. 1433 OF 2014], dated 05.07.2017, held as under : "The Tribunal ha....
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....y the assessee. The CIT(A) also relied on several judicial precedents, including those of the Hon'ble Gujarat High Court in the case of CIT v. Pankaj Dyestuff Industries (I.T. Ref. No. 241 of 1993), holding that capital introduced by a partner cannot be assessed as unexplained income in the hands of the firm if the partner is a taxpaying entity. Accordingly, the CIT(A) deleted the addition of Rs. 8,00,00,000/- under section 68 of the Act..... ..... ...... 9. We have carefully considered the rival submissions of both the parties and perused the orders of the lower authorities, along with the supporting materials placed before us. The issue in dispute relates to the addition of Rs. 8,00,00,000/- made under section 68 of the Income-tax Act, 1961, being capital contribution by one of the partners; namely, Goodfarms Calfcare LLP, which was deleted by the CIT(A). ...... 9.2. The AO, however, proceeded to make the addition solely on the basis that the said partner, Goodfarms Calfcare LLP, failed to respond to the notice issued under section 133(6) of the Act. The AO did not point out any defect or inconsistency in the evidences submitted by....
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....estment & Trading Limited 34,64,500 2. The above figures clearly demonstrate that each of the service providers possesses sufficient financial capacity to render services of this amount. Once the assessee has furnished the PAN, ITR, and confirmation of the parties, and their financial capacity is established, no adverse inference can be drawn merely on the quantum of the transaction. 3. Accordingly, the genuineness and creditworthiness of the service providers stand established, and there is no basis to doubt their ability to provide services of the value in question. D. Irrelevance of Turnover in Determining Allowability of Professional Fees: 1. The Ld. AO has erred in comparing the professional fees paid by the assessee to its turnover, observing that such fees constituted approximately 20% of total sales, and questioning the necessity and quantum of these expenses in relation to turnover. This approach is fundamentally flawed for the following reasons: 1.1. It is important to note that the appellant is engaged in acquisition of land as intermediate facilitator to RLHL. It is relevant to note that in such kind of activities if one b....
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....rs and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman." Similarly, in CIT v. Walchand& Co. Pvt. Ltd. (1967) 65 ITR 381 (SC), the Supreme Court held that the reasonableness of the expenditure has to be judged from the point of view of the businessman and not the AO. 1.5. The department cannot substitute its own judgment for that of the assessee in matters of business expenditure. Unless the AO brings on record material to show that the expenditure is not genuine or is excessive and unreasonable having regard to the fair market value, the claim cannot be disallowed merely because the AO considers it high in relation to turnover. CIT v. Dalmia Cement (Bharat) Ltd. (2002) 254 ITR 377 (Del): The Delhi High Court held that the AO cannot question the commercial expediency of the assessee's decision unless there is evidence of collusio....
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....l that the assessee has duly discharged its burden of proof. In the case of Deputy Commissioner of Income Tax v. Rohini Builders reported in 256 ITR 360, amounts were received by the assessee by account payee cheques and initial burden of proving the credits was discharged. It is held that the assessee need not prove the source of the credits and the fact that the explanation was not satisfactory would not automatically result in deeming amounts as income of the assessee. Therefore, in our view, the view taken by the Tribunal is just and proper and it is not required to be interfered with. In that view of the matter, question posed for our consideration is answered in favour of the assessee and against the department. Accordingly, this Tax Appeal is dismissed. " * Hon'ble ITAT, Kolkata in the case of ACIT Vs. M/s. Sreeleathers, [I.T.A. No. 254/Kol/2020], dated 05.02.2021, held as under: ".....the fact that all the lender companies are regular income tax assessee's & having PAN as well as their ROC details were brought to the notice of AO & their respective balance sheet shows that all of them have enough creditworthiness to lend the amounts in question to assessee....
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....dividual workers or make payment by way of cheques. The payment was made by the assessee for business purposes and the expenditure had been incurred in the ordinary course of business. Therefore, the deduction was allowable by way of business expenditure." 9.3 In view of the above precedents, we are inclined to hold that the adhoc disallowance is not justified without rejecting the books of accounts of the assessee. Accordingly, the grounds of assessee are allowed." * The Hon'ble ITAT Raipur in the case of Shri Sandeep Kumar Dhamejani vs. ACIT [ITA No. 292/RPR/2023] vide its order dated 17.05.2024 held that: "12. On a thoughtful consideration of submission of the assessee and case laws pressed before us to support the contentions assailed by the Ld. AR, we are of the considered opinion that in the present case since the various disallowances are made on the basis of presumptive inferences by the Ld. AO without mentioning any logic for such estimations. Furthermore, while making such disallowances the books of accounts of the assessee were not rejected under the provisions of section 145(3). It shows that the books results of the assessee were disturbed by....
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....3 2 Copies of Highlighted extracts from the bank statements of the Service Providers, evidencing the receipts from the appellant for services rendered. 4-9 3 Copy of ITR-V of the service providers 10-12 4 Copies of confirmation letters from the statutory auditors of M/s Arena Trading (P) Ltd and Nimbus Industries Limited. 13-14 7. The ld. AR of the assessee in addition to the above written submission so filed vehemently argued that the assessee business of the assessee is land aggregator and thereby he has to give the fees to the professional for undertaking to help the transaction happened. The assessee has submitted for the transaction confirmations, ITR and the bank statement wherein the payment made and received were reflected. The payees are corporate entity and how can they become "not found or not available or unclaimed" which the basis for making the addition by the ld. AO. Merely notices u/s. 133(6) remained unserved no addition can be made in the hands of the assessee. The assessee in addition to the confirmation, Form no 16 and bank statement also filed a Chartered Accountant certificate certifying that the payee accounted for that income an....
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....nels does not substantiate the genuineness of expenses, as held in judicial decision in case of Sumati Dayal v. CIT (214 ITR 801). Before us the ld. AR of the assessee submitted the claim of the assessee is evidenced by the following evidence placed on record; a. Confirmation from the service providers b. Bank statements reflecting the receipts from the appellant for the services rendered c. Copies of ITR-V d. Audited Financial Statements e. Statutory Auditor certificates in the case of Nimbus Industries Limited and Arena Trading (P) Limited. It is pertinent to note that no discrepancies or deficiencies were pointed out in any of these documents, nor was any adverse material brought on record by the authorities. Even the same transaction thereby cannot be taxed twice. The ld. AO added that amount merely on the reason that notice issued u/s. 133(6) was not served. CIT(A) confirmed the addition merely based on that aspect and stated that merely TDS deducted and bank payment does not prove the transaction as genuine. Here now the issue rest the assessee has discharged his onus casted upon him by following the law and placed on vari....