2016 (5) TMI 964 - AT - Income Tax

Disallowance of Service Charges paid - where professional services were not rendered by Nova or whetger any money in respect of the payments to Nova had flown back to the assessee - Held that - Respectfully following the decision of the Hon ble Bombay High Court in the case of CIT vs. Nikunj Eximp Enterprises (P) Ltd. (2013 (1) TMI 88 - BOMBAY HIGH COURT ) and CIT vs. Mundra Port and Sez Ltd. (2014 (1) TMI 1594 - GUJARAT HIGH COURT ) we hold in favour of the assessee and direct the AO to delete the disallowance of ₹ 48,49,624/- claimed by the assessee as payment for professional services rendered by Nova Corporate Services P. Ltd. and consequently allow the assessee s claim. - Decided in favour of assessee Interest under section 234A, 234B, 234C and 234D - Held that - The charging of interest is consequential and mandatory and the AO has no discretion in the matter. This proposition has been upheld by the Hon ble Apex Court in the case of Anjum H. Ghaswala (2001 (10) TMI 4 - SUPREME Court ) and we therefore uphold the action of the AO in charging the said interest

Summary

Issues Involved:
1. Disallowance of professional payments under Section 69 of the Income Tax Act.
2. Levy of penal interests under Sections 234A, 234B, 234C, and 234D of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Professional Payments under Section 69:

The assessee, a firm engaged in architectural services, filed its return for A.Y. 2007-08 declaring an income of ?21,96,770/-. During scrutiny, the Assessing Officer (AO) disallowed payments amounting to ?48,49,624/- made to M/s. Nova Corporate Services Pvt. Ltd. (Nova) for professional services, treating them as unexplained and unproved purchases/investments under Section 69. The AO based this on information from the Financial Intelligence Unit (FIU) and subsequent investigations revealing that Nova was allegedly providing accommodation entries. The AO was not satisfied with the evidence provided by the assessee, which included TDS certificates, bills, and confirmation from Nova, and insisted on producing five individuals to substantiate the services rendered, which the assessee failed to do.

Upon appeal, the CIT(A) upheld the AO's decision, leading the assessee to appeal before the Tribunal. The Tribunal noted that the AO and CIT(A) were unclear about the specific section under which the disallowance was made. The Tribunal observed that Section 69 was not applicable as there were no unrecorded investments. The payments were made by cheque, confirmed by Nova, and declared in Nova's tax returns. The Tribunal found no evidence that the payments were not for genuine services or that the money flowed back to the assessee. The Tribunal cited similar cases, such as CIT vs. Nikunj Eximp Enterprises (P) Ltd. and CIT vs. Mundra Port and Sez Ltd., where disallowances based on suspicions were overturned.

The Tribunal concluded that the AO's disallowance was based on mere suspicion and not supported by substantive evidence. Consequently, the Tribunal directed the AO to delete the disallowance of ?48,49,624/- and allowed the assessee's appeal on this ground.

2. Levy of Penal Interests:

The assessee contested the liability for penal interests under Sections 234A, 234B, 234C, and 234D. The Tribunal upheld the AO's action, noting that the charging of interest is consequential and mandatory as per the Supreme Court's decision in Anjum H. Ghaswala (252 ITR 1). However, the AO was directed to recompute the interest chargeable, if any, while giving effect to the Tribunal's findings.

Conclusion:

The Tribunal allowed the assessee's appeal for A.Y. 2007-08, directing the deletion of the disallowance of ?48,49,624/- for professional services and upheld the charging of interest, subject to recomputation based on the Tribunal's order. The order was pronounced on 13th April 2016.