Tax deduction compliance and payee income recognition govern consultancy disallowance, while no exempt income prevents related expenditure disallowance.

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....Tax deduction disallowance for consultancy charges may be deleted where the service-tax component or TDS compliance is established; where the payee has accounted for the income, verification of relief under the second proviso to section 40(a)(ia) read with section 201(1) is required. Expenditure may be allowed when it crystallises in the relevant year, including invoices issued in an associated company's name, particularly where treatment is revenue-neutral. Business balances not qualifying as bad debts may remain deductible as business expenditure or loss. Customer advances supported by identity, genuineness and creditworthiness are not unexplained credits. No disallowance of expenditure relating to exempt income arises where no exempt income is earned. Routine electricity charges incurred wholly and exclusively for business are allowable.....