TaxTMI 
TaxTMI 
2026 (3) TMI 1336
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....1,69,620/- relying upon the additional evidence filed during the appellate proceeding without giving opportunity of being heard to AO violating the provisions of Rule 46 (A) (2) and 46A (3) of the IT Rules? 2. Briefly stated, the facts of the case are that the assessee company is engaged in providing global management and financial consulting services to corporates, financial institutions, banks and sovereign enterprises in the areas of trade finance, management consultancy and strategic advisory. The assessee also renders technology-enabled services and knowledge-based backend support to its associated enterprise, namely Blend Management Services FZCO, Dubai, United Arab Emirates, on a cost-plus basis. 2.1 For the year under consideration, the assessee filed return of income declaring total income of Rs.10,47,251/- after setting off of loss of Rs.26,13,054/-. The return of income filed by the assessee was selected for scrutiny and statutory notices under the Income Tax Act, 1961 (in short, "the Act") were issued and supplied. 2.2 The assessment was completed under section 143(3) of the Act on 24.04.2021. In the said assessment, the Assessing Officer made two additions:(i)....
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....dered the remuneration paid to her to be excessive. Similar observations were made in respect of the remuneration paid to Shri Ravi Gupta and certain other related persons. 6.3 On this basis, the Assessing Officer invoked section 40A(2)(b) of the Act. Instead of determining the fair market value of the services rendered, the Assessing Officer adopted the expenses of financial year 2016-17 as the base year and assumed a permissible annual increase of 10%. Applying this methodology, he computed such expenses for the year under consideration at Rs.1,91,49,169/- and thus the balance expenses of Rs.1,62,10,571/- (3,53,59,740 - 1,91,49,169/-) was treated as excessive expenditure, which was disallowed. 6.4 The assessee challenged the said disallowance before the learned CIT(A) and filed detailed submissions supported by documentary evidence explaining the nature of services rendered by the directors, the commercial rationale for the remuneration paid, and the agreements relating to car rent, guest house rent and professional services. For ready reference said submission are reproduced as under : "7. The AO stated in the Asst order that Vaibhavi Thakkar (CEO of the appellant....
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....4 Lacs. Nor did the AO even check that Mr. Ravi Gupta's qualification is Chartered Accountant. He is also well read, extremely knowledgeable in finance and international financial products, meets hundreds of clients the world over, well-travelled person and has cracked deals worth crores for Blend. We request that he also be examined on oath by the AO. He is the Managing Director and driving force behind the appellant-company and founder director of Blend since 1997. Appropriate resolutions were passed. Without prejudice Ravi Gupta is also paying highest slab taxes 30%. Hence logic of AO in para 5.6 page 8 fails because both parties are paying 30% tax. Hence considering the above facts the payments made to Ravi Gupta is fully justified and the disallowance made by the AO is incorrect. This is especially keeping in mind that there was no change in Salary of Ravi Gupta vis-à-vis AY: 17-18. 9. Jigar Thakkar was a new appointee and his salary as Rs.28,09,440/-. There was no comparison with last year i.e Asst year 17-18. The Appellant states that as per the AO's order effectively even his salary as disallowed to some extent. The Appellant states that thi....
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....0% to related parties in the Appellant case was unreasonable. There is no basis for such a statement. It's a bald statement. In fact the AO has even reworked the salary for Asst year: 17-18 on the assumption of 10% increase salary, though it was not a scrutiny assessment. The AO has disregarded the actual salary of Asst year: 17-18 and made his own conclusions and then worked out for AY: 1819. Hence the entire approach of the AO is fallacious, illogical and impracticable. 14. The AO made additions of Rs. 1,62,10,571/- on directors salary on the assumptions of an acceptable annual 10% increase in Directors salary starting from base year AY 17-18 and for AY 18-19. The AO has thus disturbed the salary expense of AY 17-18 which was assessed u/s 143(3) and no additions made on salary issue. The increase in overall salary from AY 17-18 to 18-19 was about 10%. As per the AO directors salary could go up every year only by 10% like a rule. The AO effectively does not even accept the salary of AY 17-18 which is assessed u/s 143(3). The AO fails to appreciate that the appellant had already being assessed in AY 16-17 and AY 17-18 and expenses paid to the related parties were allow....
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....e refer and rely on the case ACIT Central Circle-1, Surat vs. J.B & Brothers Pvt Ltd ITA No. 552/SRT/2023 dt: 26-10-23 21. We refer and rely on the case Virbala Kiritkumar Patel vs. DCIT, Circle-5, Baroda ITA No. 1213/Ahd/2024 dt 23-6-25 22. We refer and rely on the case CIT vs Indo Şaudi Services (Teravel) Pvt Ltd 2008(8) TMI 208 - Bombay High Court dt: 20-08-2008. 23. We refer and rely on the case ACIT 8 (2)(1), Mumbai vs. Piramal fund Management Pvt Ltd 2025 (4) TMI 136- ITAT Mumbai dt: 19-03-25 24. We refer and rely on the case Astra management Services (P) Ltd vs. DCIT 3(2), New Delhi ITA No. 8332/Del/2019 dt 31-12-24. 25. Therefore disallowing Rs. 1,62,10,571/- u/s 40A(2)(b) being salary to directors etc, following fallacious logic without bringing any material on record to demonstrate that the payments made to the related parties is excessive and unreasonable is legally not valid and incorrect and same should be deleted." 6.5. The learned CIT(A), after examining the assessment order, the submissions of the assessee and the supporting documents, held that the Assessing Officer had failed to bring any material on record to d....
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....trary 10% increment ceiling and reworking prior years' assessments is not legally sustainable. No comparable market data or expert evidence was presented by the AO. The earlier assessments for AY 2016-17 and AY 2017-18 stand accepted and offer additional support for the appellant's position. Accordingly, the disallowance of Rs. 1,62,10,571/- under section 40A(2)(b) is not justified and is hereby deleted. Therefore, these grounds of appeal are allowed." 6.6 We have heard the rival submissions and carefully perused the material available on record. At the outset, it is pertinent to note that the disallowance has been made by invoking section 40A(2)(b) of the Act. Under the said provision, the Assessing Officer is required to form an opinion that the expenditure incurred by the assessee in respect of payments to specified persons is excessive or unreasonable having regard to the fair market value of the services, facilities or goods for which the payment is made. 6.7 In the present case, the Assessing Officer has not undertaken any exercise to determine the fair market value of the services rendered by the directors and related persons. Instead, he has merely compared th....
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....ed counsel for the assessee submitted that no additional evidence was filed before the learned CIT(A) and that the documents relied upon were already part of the assessment records. 7.2 Facts in brief are that the Assessing Officer observed that foreign travelling expenses had increased substantially compared to the preceding year. On verification, he noted that directors and employees of the assessee had undertaken foreign travel to several countries apart from Dubai. Out of the total travel expenditure of Rs.1,25,01,268/-, the Assessing Officer noted that Rs.39,45,489/- related to travel of directors and their relatives, while Rs.72,24,132/- pertained to travel undertaken by employees. The Assessing Officer further observed that substantial travel had been undertaken to countries from which no income was directly earned by the assessee during the year. On that basis, he disallowed foreign travel expenses of Rs.1,11,69,620/-. Accordingly, the Assessing Officer disallowed the said sum. 7.3 The learned CIT(A), after examining the material on record, held that the assessee had furnished documentary evidence including travel bills, correspondence with clients and proof of reimbu....