TaxTMI 
TaxTMI 
2026 (5) TMI 893
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....144B of the Act. The assessee is a company engaged in the pharmaceutical business, primarily involved in the trading and sale of bulk pharmaceutical and chemical products. The company operates in both domestic as well as international markets. The issue raised before the Bench pertains to the addition of Rs. 6,75,38,035/- made on account of disallowance of professional fees paid in connection with imports from OFAC entities, i.e., import of goods originating from Iran. Due to sanctions imposed on goods originating from Iran, the assessee faced substantial delays in remittance of payments to its overseas creditors. In order to facilitate expeditious clearance of such payments, the assessee engaged the services of M/s. MJB Overseas (hereinafter referred to as "the party"). According to the assessee, such arrangement enabled quicker release of payments to creditors, resulting in enhancement of turnover during the impugned assessment year and consequently higher business profits. However, the Ld. AO disallowed the said expenditure towards professional fees on the ground that the payments lacked genuineness and were not incurred wholly and exclusively for the purposes of business. Aggri....
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.... 2. M/s MJB Overseas ("Recipient") and the assessee are not related at all. 3. Recipient has confirmed the transactions and receipt of professional fees in response to summons issued u/s 133(6) by the Ld. AO. Details including, invoices, their return of income, their audited financials and bank statement have been filed to show that income has been disclosed and offered to tax. 4. The issue was pertaining to payments for imports from OFAC entities i.e., import of goods originating in Iran. There were sanctions imposed by United States and there were issues in remitting money in a time bound manner. Remitting for OFAC country origin was a complex process. As a result, the imports were getting slowed due to delayed payments and resulting in a reduced turnover. Some sort of liasoning and use of good office was required to push the bank for making early payments. Even the banks had to face the risk of being sanctioned. 5. This was not a job for any normal executive to handle and it was only possible due to banking relations of the Recipient with the Banks. In fact, the appellant had to open new bank accounts in the banks with whom the Recipient was having goo....
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....own is incorrect. Details have been shown including the invoice and working of professional fees by linking the same to remittances made and import documents. 15. It is important to note that subsequent to the imports, the Assessee and its director have been put in the OFAC Sanction list for importing good originating from Iran." 5. The Ld. AR further submitted that the said party is an existing and duly operational business entity. During the impugned assessment year, the turnover of the said party amounted to Rs. 16,33,28,340.05/-, whereas the profit before tax stood at Rs. 1,80,15,219/-. The Ld. AR further placed reliance upon the GST Assessment Order, wherein the transactions undertaken by the assessee were duly accepted by the GST Authorities vide Final Audit Report No.581/Audit- Thane/2025-26 dated 11.02.2026, passed by the Office of the Commissioner of CGST and Central Excise Audit, Thane. 6. The Ld. AR further contended that during the course of appellate proceedings, the assessee duly complied with the notices issued by the Ld. CIT(A) and furnished all relevant documentary evidences and submissions. The relevant submissions of the assessee, as incorporated i....
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....pany would had suffered on account of slow payment cycle to the suppliers as mentioned above, copy of bills raised by MJB overseas are also attached as AnnexureB1 to B9A We also take this opportunity to add one more fact, wherein the company was maintaining huge bank balance as the payment to importers were getting delayed which was effecting our business the facts are depicted below. Particulars A.Y. 2020-21 A.Y. 2021-22 A.Y. 2022-23 A.Y. 2023-24 a) Bank Fund Position with Bank 16,44,07,364 49,89,20,935 34,22,08,084 40,78,57,191 b) Debtors Sales 3,22,74,98,412 15,07,90,66,686 26,20,06,60,503 19,32,34,25,998 Outstanding Debtors 53,56,01,494 2,99,05,75,987 6,21,33,45,961 5,08,65,33,402 Days 61 72 87 96 c) Import Creditors Purchases 2,01,48,29,717 14,19,36,87,954 21,50,56,71,715 16,13,20,29,173 Outstanding Creditors 89,62,75,373 6,51,13,66,303 6,06,44,97,090 5,33,62,94,151 Days 162 167 103 121 As per the above table it can be lear....
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....ess, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the Income Tax Department. It is, of course, open to the Appellate Tribunal to come to a conclusion either that the alleged payment is not real or that it is not incurred by the assessee in the character of a trader or it is not laid out wholly and exclusively for the purpose of the business of the assessee and to disallow it. But it is not the function of the Tribunal to determine the remuneration which in their view should be paid to an employee of the assessee." [at pages 529-530]." 8. The respectfully reliance was placed in the order of Hon'ble Bombay High Court in the case of CIT vs Indo Saudi Services (Travel) (P.) Ltd. reported in [2009] 310 ITR 306 (Bom) the relevant para 5 and 6 which is reproduced as below: "5. In view of the aforesaid admitted facts we are of the view that the Tribunal was correct in coming to the conclusion that the CIT(A) was wrong in disallowing half per cent commission paid to the sister concern of the assessee during the asst. yrs. 1991-92 and 1992-93. The learned advocate appearing for the appellant was also not in a positi....
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....to whom such service is rendered. Moreover, it was incorporated only in August 2020 and the so called agreement with the appellant was entered in October 2020 itself. 6.3.7 The pertinent point to note here is that the appellant assessee or M/s. MJB Overseas has failed to furnish the details of services rendered both at the time of assessment proceedings and even at the time of appeal proceedings. Both are submitting the copy of invoice, mode of payment and details of payment but they have not furnished what exactly is the service rendered against each of the invoice for which commission has been calculated & paid. 6.3.8 Even in ITR for AY 2023-24 of M/s MJB Overseas, the Revenue from operation is shown at Rs. 6,30,44,879/- comprising of Sales at Rs. 3,71,10,255/- & Business consultancy charges at Rs. 2,59,34,623/- and that entire business consultancy income is again contributed by the appellant assessee only. 6.3.9 Thus the copy of ITR of M/s. MJB Overseas speaks loud that M/s. MJB Overseas though claimed to be rendering expert import payment services, it is not so because except from the appellant assessee it did not receive such a huge amount as busines....
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....ny. However, neither the entity M/s. MJB Overseas nor the assessee has submitted any details with supporting evidence. The copy of invoices pertaining to M/s. MJB Overseas has been perused, it is seen from the same that, it has two addresses one at Pune and one at Mumbai. The address of pune is a residential address and the address at Mumbai is also an address of chawl, the relevant screenshot of the same e is reproduced hereunder." 11. We heard the rival submissions and perused the material available on record. The core issue involved in the present appeal relates to the disallowance of professional fees amounting to Rs. 6,75,38,035/- paid by the assessee to M/s. MJB Overseas in connection with facilitation of remittances for imports originating from OFAC sanctioned entities, particularly goods originating from Iran. On careful consideration of the facts available on record, we find that the assessee has furnished substantial documentary evidences in support of the impugned expenditure. The payment has admittedly been made through proper banking channels after deduction of tax at source. The recipient party has duly responded to the notice issued u/sec. 133(6) of the Act and co....
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....cause M/s. MJB Overseas had predominantly rendered such services to the assessee alone, the same cannot by itself lead to an inference that the transactions are sham or ingenuine. The recipient entity is duly registered, assessed to tax and its receipts have been accepted by the Department. The GST Audit conducted by the Office of the Commissioner of CGST and Central Excise Audit, Thane has also accepted the transactions without any adverse findings. No material has been brought on record by the revenue to establish that the payments made by the assessee had flown back to the assessee or that the services were altogether non-existent. Suspicion, however strong, cannot take the place of evidence. We respectfully rely upon the judgment of the Hon'ble Supreme Court in the case of Shiv Raj Gupta (supra), wherein it has been held that commercial expediency has to be adjudged from the point of view of the businessman and not from the perspective of the revenue authorities. The revenue cannot step into the shoes of the assessee to determine what expenditure should or should not have been incurred for the purposes of business. We further respectfully rely upon the judgment of the Hon'bl....