2016 (3) TMI 1379 - AT - Income Tax

Disallowance of expenses claimed as professional fees - application of provisions of sec. 40A(2)(a) - HELD THAT - In the instant case the submission of the assessee that Shri Adiya Mitra Anand is not a person specified in sec. 40A(2)(b) has not been controverted. Hence the question of application of provisions of sec. 40A(2)(a) does not arise. As pertinent to note that the agreement is between the assessee and Shri Aditya Mitra Anand and the assessee shall normally expect the quality professional services from him, i.e., any businessmen shall not be bothered as to how the professional assignment is executed so long as they were satisfied with the quality of service. AO has not doubted about the genuineness of the expenditure, but was suspicious about the reasonableness of the expenditure. However, since the expenditure has been incurred by the assessee out of commercial expediency and since the payments have been made by the assessee in accordance with the agreed terms, it is not correct on the part of the AO to question the correctness of the decision taken by the assessee out of commercial expediency. Accordingly, we are of the view that the Ld CIT(A) was justified in deleting the impugned disallowance. - Appeal filed by the revenue is dismissed.

Summary

Issues:
Challenge to deletion of disallowance of professional fees made by the assessing officer.

Analysis:
1. The revenue filed an appeal challenging the deletion of a disallowance of professional fees by the assessing officer for the assessment year 2009-10.
2. The assessing officer disallowed a portion of the professional fees claimed by the assessee, stating it was excessive and unreasonable.
3. The AO conducted inquiries and concluded that the professional fee paid was excessive and unreasonable due to the involvement of another agency in the valuation process.
4. The assessee contended that the payment was a commercial decision made out of commercial expediency, citing various case laws to support their argument.
5. The Ld CIT(A) agreed with the assessee's contentions and directed the AO to delete the disallowance.
6. During the appeal hearing, the AO's view that the payment was made to a known person at an excessive figure was refuted by the assessee.
7. The tribunal noted that the question of whether the expenditure was excessive or unreasonable should be examined in respect of payments made to specified persons under sec. 40A(2)(b) of the Act.
8. The tribunal found that Shri Aditya Mitra Anand was not a specified person under sec. 40A(2)(b), and thus, the provisions of sec. 40A(2)(a) did not apply.
9. The expenditure was required to be examined under the conditions specified in sec. 37(1) of the Act, which the assessing officer did not doubt.
10. The tribunal emphasized that the AO cannot make additions based on suspicion and inferences without proper examination.
11. Commercial decisions taken out of business expediency should be appreciated, and the reasonableness of expenditure should be judged from a businessman's perspective.
12. The tribunal upheld the Ld CIT(A)'s decision to delete the disallowance, stating that the expenditure was incurred out of commercial expediency and in accordance with agreed terms.

This detailed analysis of the judgment highlights the key issues, arguments presented by both parties, legal provisions applied, and the tribunal's reasoning behind upholding the deletion of the disallowance of professional fees.