2021 (12) TMI 704 - AT - Income Tax

Disallowance of consultation fees on an adhoc basis - assessee company is engaged in the business of trading in computer hardware, software products and services - This is the second round of proceedings before this Tribunal - In the first round of proceedings, Tribunal had set aside this issue to the file of the AO for denovo consideration - assessee had always pleaded that these technicians had possessed requisite skill sets and the assessee had been using their services on hire basis as and when there is a requirement instead of providing employment on a permanent basis to them - HELD THAT - Assessee had always pleaded that these technicians had possessed requisite skill sets and the assessee had been using their services on hire basis as and when there is a requirement instead of providing employment on a permanent basis to them. AO identified eight parties to be produced before him in the remand proceedings and they were all produced by the assessee along with their affidavits before the ld. AO. These parties are listed in page 3 of the ld. CIT(A) s order. Apart from this, the assessee also furnished the chart showing the details of sales / service charges received, consultancy charges claimed, consultancy charges allowed and consultancy charges disallowed by the ld. AO from A.Yrs. 2003-04 to 2008-09. AO had sought to disallow the consultancy charges on an estimated basis only during the year under consideration and no disallowance was made either in earlier years or in subsequent years. Even going by the rule of consistency as upheld in the case of Radhasaomi Satsang 1991 (11) TMI 2 - SUPREME COURT when there is no change in the facts and circumstances of the case, the Revenue is not bound to take a divergent stand during a particular year alone. Admittedly, the modus operandi practiced by the assessee had not changed in hiring of consultants on need basis and deploying them at the respective client location to render services on behalf of the assessee and remunerate them in the form of consultancy charges. The books of accounts produced by the assessee had not been rejected by the lower authorities. The assessee had furnished all the relevant documents that could be filed to prove the genuineness of consultancy charges from its side. The ld. AO had not pointed out any defect in the said details or had not found any defect in the books produced by it together with supporting evidences. Hence, there cannot be any justification on the part of the lower authorities to make any disallowance of expenses on an estimated basis. - Decided in favour of assessee.

Summary

Issues:
Disallowance of consultation fees on an adhoc basis.

Analysis:
The appeal in ITA No.187/Mum/2020 for A.Y.2006-07 concerns the disallowance of consultation fees amounting to ?44,77,661. The assessee, a company trading in computer hardware, software products, and services, had claimed consultancy charges paid to technical individuals providing services to its clients. The first round of proceedings led to the issue being remanded to the ld. AO for reconsideration. In the subsequent round, the ld. AO disallowed 80% of the consultancy charges on an adhoc basis, which was reduced to 50% by the ld. CIT(A). Despite acknowledging the expenses were for business purposes, the ld. CIT(A) upheld the disallowance. The assessee challenged this decision, leading to the current appeal.

The assessee submitted various documents to substantiate the consultancy charges, including details of consultants, services rendered, payments made, and bank statements. The ld. CIT(A) requested a remand report from the ld. AO, who delayed responding for three years. The ld. AO eventually submitted a report reiterating previous submissions and acknowledging receipt of affidavits from certain consultants. The assessee produced eight parties and their affidavits as requested. A comparative chart of consultancy charges claimed, allowed, and disallowed for multiple assessment years was also presented. Notably, the ld. AO had only disallowed charges for the year under consideration, maintaining consistency with previous and subsequent years.

The Tribunal found no justification for the estimated disallowance of expenses, as the books of accounts were not rejected, and the assessee provided comprehensive documentation to support the genuineness of the consultancy charges. The ld. AO failed to identify any defects in the evidence presented. Consequently, the Tribunal directed the ld. AO to delete the disallowance of consultancy charges, ruling in favor of the assessee and allowing the appeal. The decision was pronounced on 30/11/2021.