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2018 (12) TMI 1893 - AT - Income TaxDisallowance of Legal and Professional Expenses paid to Associated Enterprise - HELD THAT - Since, the AO and the Ld. DRP have held that the evidence on record is not sufficient to substantiate the contention of the assessee, the assessee has collected the additional documents from M/s Inventa Research and submitted before us for admitting as additional evidence. As perused these documents and we are also of the considered view that these documents are essential for proper adjudication of the issue raised by the appellant/ assessee. Admittedly, these documents were not available with the assessee during the assessment proceedings or proceedings before the Ld. DRP, the assessee could not furnish the same before the authorities concerned. We therefore, admit these documents as additional evidence in the interest of justice - since these documents have been placed for the first time the same are required to be verified and taken into consideration by the AO - we set aside the findings of the Ld. DRP and send this issue back to the file of AO for deciding the same afresh after hearing the assessee in the light of the additional documents submitted by the assessee. Hence, this ground of appeal is allowed for the statistical purposes. Disallowance towards commission on sale on the ground that payments made on account of commission on sales is not a genuine transaction or not incurred in relation to the business of the appellant - HELD THAT - In the case of Commissioner of Income Tax vs. Septu India Pvt. Ltd. 2008 (2) TMI 306 - PUNJAB AND HARYANA HIGH COURT has held that when the assessee had proved the actual payments of amounts of commission and service charges as well as receipt of the same amount by the parties concerned then the claim put forth by the assessee should not have been disallowed merely on the ground that the same was not supported by any documentary evidence - the assessee has discharged the primary onus of establishing the genuineness of the expenditure made in connection with its business. DRP has confirmed the disallowance without pointing out any cogent evidence which rebut the claim of the assessee. We accordingly allow this ground of appeal and set aside the DRP direction. Hence, we direct the AO to allow the expenditure claimed by the assessee. Disallowance paid on account of proving financial consultancy and human resources consultancy services - HELD THAT - We notice that the assessee has not produced any evidence to establish that the services of Smt. Namrata Goel and Nidhi Goel were availed by the assessee - assessee has not placed on record any evidence to explain the nature of services rendered by them for which the assessee company had paid each to the aforesaid parties during the year relevant to the assessment year under consideration. Even before us, the Ld. counsel did not point out any evidence available on record to substantiate that the expenditure was incurred and that too in connection with the business of the assessee. Under section 37(1) of the Act, expenditures incurred wholly and exclusively for the purposes of the business are allowed in computing the income chargeable under the head. In the present case, even if it is assumed that the assessee had paid the said amount to the aforesaid parties, it has failed to establish that the expenditure has been laid out wholly and exclusively for the purpose of the business of the assessee. Hence, we endorse the findings of the Ld. DRP and uphold the disallowance made by the AO in terms of the DRP directions. Accordingly, we dismiss this ground of the appeal of the assessee.
Issues Involved:
1. Disallowance of Legal and Professional Expenses paid to Associated Enterprise (? 9,00,000). 2. Disallowance of Legal and Professional Expenses paid on account of commission on sales (? 15,20,000). 3. Disallowance of Legal and Professional Expenses paid on account of providing financial consultancy and human resource consultancy services (? 5,94,000 each). Issue-wise Detailed Analysis: 1. Disallowance of Legal and Professional Expenses paid to Associated Enterprise (? 9,00,000): The assessee challenged the disallowance of ? 9,00,000 paid to M/s Inventa Research Pvt. Ltd. for technical consultancy fees, which the AO deemed as a sham transaction. The assessee submitted invoices, TDS certificates, and additional documents such as a technology transfer agreement, appointment letter for an R&D employee, and audited balance sheet to substantiate their claim. The Tribunal admitted these additional documents as essential for proper adjudication and remanded the issue back to the AO for fresh consideration in light of the new evidence. This ground of appeal was allowed for statistical purposes. 2. Disallowance of Legal and Professional Expenses paid on account of commission on sales (? 15,20,000): The assessee contested the disallowance of ? 15,20,000 paid to M/s Captain K.N. George & Company and Smit Enterprises Pvt. Ltd. for commission on sales. The AO disallowed these expenses, questioning the genuineness of the transactions. The assessee provided various documents, including agency agreements, sales details, ledger accounts, confirmations from the agents, and email exchanges. The Tribunal noted that the assessee had furnished sufficient evidence to substantiate the claim and that similar expenses were allowed in previous years. Citing precedents, the Tribunal concluded that the assessee had discharged the primary onus of establishing the genuineness of the expenditure and allowed this ground of appeal, directing the AO to allow the claimed expenditure. 3. Disallowance of Legal and Professional Expenses paid on account of providing financial consultancy and human resource consultancy services (? 5,94,000 each): The assessee disputed the disallowance of ? 5,94,000 each paid to Ms. Namrata Goel and Ms. Nidhi Goel for consultancy services. The AO and DRP disallowed these expenses, stating the assessee failed to prove the genuineness of the transactions and the exclusive business purpose of the expenditure. The assessee submitted appointment letters, TDS certificates, and confirmations of receipt. However, the Tribunal observed that the assessee did not provide sufficient evidence of the nature of services rendered or their necessity for the business. Consequently, the Tribunal upheld the disallowance of ? 11,88,000, endorsing the findings of the DRP. Conclusion: The appeal filed by the assessee for the assessment year 2011-2012 was partly allowed for statistical purposes. The disallowance related to the payment to M/s Inventa Research Pvt. Ltd. was remanded for fresh consideration, while the disallowance related to commission on sales was overturned, and the disallowance related to consultancy services was upheld.
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