2021 (8) TMI 789 - AT - Income Tax

Disallowance of payment of professional fee to the directors - allegation of paying excessive remuneration to the directors - services provided by the directors towards professional physical fitness programme of Crossfit Inc., a global brand for fitness services - HELD THAT - The documents on record clearly indicate that the assessee was to provide fitness services at Khar Gymkhana, the payments were made to the directors in accordance with the Board Resolution for professional services rendered at Khar Gymkhana. The assessee has filed sufficient evidence in the form of educational/professional qualification certificates of the directors to show that the directors were professionally qualified to provide the services. Assessee has pointed that in the subsequent assessment year the professional fee paid to the directors has been allowed by the Assessing Officer in scrutiny assessment proceedings on same set of documents. It is not the case of Revenue that the professional fees paid to the directors is in excess of the market rate. I find merit in the contentions raised by the assessee. The disallowance of payment of professional fee to the directors is unjustified, hence, the same is directed to be deleted. It would be relevant to mention here that both the directors in their respective return of income has offered professional fee received from the assessee to tax. Consequently, ground No.1 of the appeal is allowed. Disallowance of donation - AO made disallowance as no documentary evidence was filed by the assessee in the form of receipt, etc. to substantiate the donation made - HELD THAT - Even before the Tribunal no evidence is produced by the assessee. In the absence of any evidence ground No.2 of the appeal is dismissed.

Summary

Issues: Disallowance of professional fees paid to directors and disallowance of donation

Disallowance of Professional Fees:
The appeal involved the disallowance of professional fees paid to directors of the assessee company. The appellant contended that the fees were paid for services rendered in providing fitness services at Khar Gymkhana. The appellant entered into a Memorandum of Understanding with Khar Gymkhana for this purpose. The Board Resolution authorized the payment of fees to the directors. The appellant provided evidence of the directors' qualifications and the services rendered. The Assessing Officer disallowed the fees due to lack of documentary evidence. However, the Tribunal found the evidence submitted by the appellant sufficient and noted that the fees were offered for taxation by the directors as well. The disallowance was deemed unjustified, and the Tribunal directed its deletion. The Tribunal highlighted that the fees were paid in accordance with the Board Resolution and the directors' qualifications, and there was no evidence of excess payment. The appeal on this issue was allowed.

Disallowance of Donation:
The second issue pertained to the disallowance of a donation of ?6,000 made during Ganesh Utsav. The Assessing Officer disallowed the donation due to the absence of documentary evidence to substantiate it. The appellant failed to produce any evidence before the Tribunal as well. As a result, the appeal on this issue was dismissed. The Tribunal upheld the disallowance of the donation due to the lack of supporting evidence presented by the appellant.

In conclusion, the appeal was partly allowed concerning the disallowance of professional fees paid to directors, which was deemed unjustified and directed to be deleted. However, the disallowance of the donation was upheld due to the absence of documentary evidence. The Tribunal's decision was pronounced on April 1, 2021.