2007 (8) TMI 43 - HC - Income Tax

Undisclosed income - AO contended that the assessee claim of consultancy fees paid by him is 11% of the contract value is incorrect and AO restricted it to 3% and add the left amount - Held that AO contention was not correct and disallowed the addition

Summary

Issues:
1. Disallowance of consultancy fees paid to Ms. Magda by the Assessee.
2. Treatment of 8854 UK pounds found in a locker as undisclosed income.

Issue 1: Disallowance of Consultancy Fees to Ms. Magda:
The Revenue challenged the order of the Income Tax Appellate Tribunal regarding the disallowance of a sum of Rs.93,10,418 paid to Ms. Magda as consultancy fees by the Assessee. The Assessee engaged consultants for marketing time shares, including Ms. Magda, and claimed expenses on commission/consultancy charges. The Assessing Officer disallowed a portion of the payment to Ms. Magda, but the Tribunal disagreed. It was noted that the Assessing Officer had treated the same payment differently in Ms. Magda's case. The Tribunal found the Assessing Officer's decision regarding the disallowance as unsustainable and perverse. The High Court concurred, stating that the payment to Ms. Magda was for business purposes and not undisclosed income of the Assessee.

Issue 2: Treatment of 8854 UK Pounds as Undisclosed Income:
Another issue raised was the treatment of 8854 UK pounds found in a locker as undisclosed income by the Assessing Officer. The Tribunal accepted the Assessee's argument that the rupee equivalent of the UK pounds should be set off against the undisclosed income through telescoping. The High Court admitted the appeal limited to this question and framed a substantial question of law to consider whether the Tribunal was correct in law in deleting the addition of 8854 UK pounds made by the Assessing Officer on the grounds of telescoping. The filing of a paper book was dispensed with for this issue.