2010 (10) TMI 36 - HC - Income Tax

Allowability of Expenses- Addition made by AO on the ground that payment made by the assessee was utilized for a work other than contracted work- Addition deleted by the court.

Summary

Issues:

1. Challenge to the order of the Income Tax Appellate Tribunal under Section 260A of the Income Tax Act, 1961 for the Assessment Year 2005-2006.
2. Justification of deleting the addition of Rs.15,08,948/- made by the Assessing Officer.
3. Examination of expenses incurred for marketing consultancy and their relevance to the respondent-assessee's business.
4. Confirmation of the Commissioner of Income Tax (Appeals) decision by the Tribunal.

Analysis:

The appeal before the High Court challenged the order of the Income Tax Appellate Tribunal (Tribunal) dated 11th September, 2009, concerning the Assessment Year 2005-2006 under Section 260A of the Income Tax Act, 1961. The primary issue in consideration was the deletion of the addition of Rs.15,08,948/- made by the Assessing Officer (AO). The AO contended that the expenses paid by the respondent-assessee to Mr. Anil Solanki were not incurred for the business purposes of the respondent-assessee. However, the Commissioner of Income Tax (Appeals) [CIT(A)] overturned this addition based on the invoices produced by the respondent-assessee, showing payments made for professional services by Mr. Anil Solanki.

The CIT(A) noted that the consultancy services provided by Mr. Anil Solanki had a significant impact on the respondent-assessee's business, leading to a substantial increase in export turnover. The Tribunal, in its order, upheld the decision of the CIT(A), emphasizing that the expenses in question were justified as they directly benefited the respondent-assessee's business operations. The Tribunal highlighted that the sales in the US market had increased significantly, and the services of Mr. Anil Solanki played a crucial role in this growth.

The Tribunal's observations indicated that the genuineness of the payments to Mr. Anil Solanki was not in dispute, and the only contention was the AO's suspicion regarding the nature of the expenses incurred. The Tribunal found that the respondent-assessee had provided evidence to support the consultancy arrangements, which were acknowledged by both the CIT(A) and the AO. Consequently, the Tribunal concluded that there was no valid reason to interfere with the decision of the CIT(A) and dismissed the appeal of the revenue.

In light of the evidence presented and the significant impact of the consultancy services on the respondent-assessee's business performance, the High Court dismissed the appeal, affirming the Tribunal's decision to uphold the deletion of the addition of Rs.15,08,948/- as business expenses incurred for the benefit of the respondent-assessee.