DAVANAM JEWELLERS PRIVATE LIMITED,BANGALORE vs. ACIT, CENTRAL CIRCLE-1(4), BANGALORE

Briefly stated facts of the case show that the Assessee is in Jewelry business, search action was conducted in the group case of M/s. Shri Adichunchagiri Shikshana Trust on 17.02.2021. One of the Trustee of that trust Shri Prakash Nath Swamiji was also covered u/s. 132 of the Act. Page 1 of 10

Information has been flagged on Insight Portal as per Risk Management Strategy of Central Board of Direct Taxes wherein it was found that during post-search proceedings in case of Shri Prakash Nath Swamiji it was revealed that he was paid consultancy charges by the Assessee company. Further enquiries regarding the nature of consultancy services availed by the Assessee were made by the Deputy Commissioner of Income Tax, Circle 2(4), Bangalore wherein Assessee as per submission dated 22.09.2021 stated that consultancy services have been rendered by Shri Prakashnath Swamiji to the Assessee company and also submitted the copies of the consultancy agreement entered into and the ledger account of Swamiji in the books of the Assessee.

As per the above fact and on examination of Ledger it was found that a sum of Rs. 1,37,00,000/- has been paid by the assessee to Swamiji on account of consultancy charges. Assessee could not produce relevant documentary evidence in the form of bank statements to show that the amounts have been incurred and further invoices or vouchers to prove the genuineness or proof of tax deduction at source. The Assessee company also could not show that these are considered as expenditure allowable to the Assessee.

Based on this, the notice u/s. 148A(b) of the Act was issued to the Assessee on 01.03.2023 to explain the genuineness of the expenses incurred. The Assessee submitted details and after providing opportunity to the Assessee, an order u/s.148A(d) was passed on 06.04.2023 stating that it is a fit case for issuance of notice u/s. 148 of the Act. Accordingly, notice u/s. 148 of the Act was issued on 06.04.2023. The Assessee replied with a letter dated 13.04.2023 to consider the return of income originally filed u/s. 139 of the Act on 18.10.2019 declaring a total income of Rs. 3,66,82, 240/-.Notice u/s. 143 (2) of the Act was also issued. Assessee raised several objections to the same which were dealt with by the Ld. Assessing Officer.

On the issue about allowability of consultancy charges paid to Shri Prakash Nath Swamiji, Assessee was asked regarding the nature of these expenses, expenses incurred during the year and how these expenses can be considered as being incurred for the purposes of the business of the Assessee. Assessee submitted that Swamiji was paid on account of Vaastu and related to growth and Page 2 of 10

On careful consideration of the same the Ld. Assessing Officer perused the agreement dated 06.06.2018 between the Assessee and Swamiji. On perusal of the agreement, he held that the agreement did not talk about the Vaastu consultancy. However, the Assessee did not produce any evidence to support the rendition of the services. The Ld. Assessing Officer was of the view that only expenses laid out or expended wholly and exclusively for the purposes of the business shall be allowable to the Assessee as a deduction. He further held that Assessee is in the Jewelry business, therefore Assessee needs to prove that the consultancy charges paid are related to the business of jewelry and further services have been rendered. He found that a sum of Rs. 1,37,00,000/- is the sum paid. He disallowed the same u/s. 37 of the Act.

The Assessee carried the matter before the Ld. CIT(A), where the Assessee challenged the reopening of the assessment u/s. 147 of the Act. Further, it was contested that Assessing Officer should have invoked the provisions of section 153C of the act and further on the merits it was submitted that Assessee has submitted the agreement, Swamiji has offered income of the above commission. The details of consultancy services were providing inputs with respect to the customers behavior, their buying pattern, for branding and customer outreach and was a strategic business decision and therefore it would not have been disallowed u/s. 37 (1) of the Act.

The Ld. CIT(A) considered the explanation of the Assessee and thereafter held that there is no infirmity in the order of the Ld. Assessing Officer as the Assessee has failed to prove any specific services rendered, such expenses incurred cannot be considered wholly and exclusively for business purpose. Accordingly, this ground of appeal was dismissed.

Aggrieved with the same the Assessee is in appeal before us. The Assessee has raised following grounds of appeal:

The first ground of appeal raised by the Assessee was that the Assessment Order passed by the Ld. Assessing Officer was bad in law and liable to be quashed for the lack of jurisdiction, erroneous presumption of jurisdiction, failure to comply with the principles of natural justice. No specific arguments were advanced by the Assessee and therefore ground No. 1 of the Appeal is dismissed.

Ground No. 2 is against the initiation of reassessment proceedings u/s. 147 of the act in absence of valid information suggesting escapement of income and without independent application of mind. The Ld. Authorized Representative reiterated the same ground in her submission.

We have carefully considered the contention of the Ld. Authorized Representative. We find that the search took place in case of some trust on 17.02.2021. There was also a search u/s. 132 in case of one of the Trustee. Information was flagged on Insight Portal as per Risk Management Strategy of the Board. Post-search proceedings also revealed that Assessee has paid consultancy charges to Shri Prakash Nath Swami. Therefore, there was specific tangible information coming into the possession of the Assessing Officer that the consultancy services charges paid by the Assessee to one Swamiji requires examination. According to that the necessary notices were issued based on the enquiry carried out by the Deputy Commissioner of Income Tax, Circle - 2 (4), Bangalore. The Assessee was also given an opportunity. The Assessee merely submitted some information but could not show about the rendition of services and genuineness of this expenditure and how this has been incurred wholly and exclusively for the purposes of the business. Based on this, the notices were issued u/s. 148 after carrying out the procedure prescribed u/s. 148A(b) and passing an order u/s. 148A(d) of the Act. In view of this, we do not find any infirmity in the action of Ld. Assessing Officer in reopening the assessment proceedings. Accordingly, Ground No. 2 of the Appeal is dismissed.

The third ground of appeal is with respect to challenge of action of the Ld. Assessing Officer contending that Assessing Officer should not have invoked the provisions of section 147 of the Act but should have invoked the provisions of section 153C of the Act.

We have heard the rival contention. We find that the provisions of section 153C of the Act could be invoked only when certain incriminating material or material pertaining to ‘other person’ is found in case of search on an Assessee. Such material is transmitted after the satisfaction of the Assessing Officer of the searched person to the Assessing Officer of the other person, if such material belongs to or pertains to ‘other person’. Undoubtedly, no material is found by the assessee in search of Mr. Prakashnathji Swamiji. Here the information is generated in the post-search proceedings and enquiries. The enquiries were conducted in case of Assessee where Assessee failed to give any intimation. Therefore, we have held that provision of section 147 of the Act is correctly invoked. As there is no material found in search of Shri Adichunchagiri Shikshana Trust or Prakashnahthji Swamiji pertaining to or relating to the Assessee, there are no conditions for invoking the provisions of section 153C existed. It was also not shown by the counsel that there is some material seized / found in during search of the Trust or Swamiji. Accordingly ground No. 3 of the Appeal is dismissed.

Ground No. 4 to 6 are on the issue of disallowance of consultancy charges of Rs. 1,37,00,000/- lakhs paid to Shri Prakash Nath Swamiji. The contention of the Assessee is that these expenses are incurred by the Assessee for services rendered by Swamiji of Vaastu and relating to customers etc., Swamiji has already paid tax thereon. Therefore, this disallowance has resulted in double taxation of income.

On careful consideration, the facts clearly show that the Assessee has paid consultancy charges of Rs. 1,37,00,000/- to Shri Prakash Nath Swamiji on account of Vaastu and are related to growth and development of business. No doubt the Assessee submitted copy of the agreement, ledger account and bank statement along with the proof of tax deduction at source. According to the agreement dated 06.06.2018 between the Assessee and the Swamiji it was stated that Swamiji is Page 6 of 10

On careful perusal of the agreement, we find that nature of services provided by Swamiji to the assessee is constantly changing. The agreement speaks about general services. The agreement did not speak about what kind of services Swamiji would render, whether Swamiji is aware of the Jewelry business of the Assessee or whether the recipient of income has provided any services to the Assessee or not. The Assessee did not provide any evidence of rendition of any services except the agreement which did not talk about the nature of services and further tax invoice which has only description as “professional charges”. Thus, there is ambiguity in which kind of services to be provided to the assessee by Swamiji.

An agreement serves as documentation of the parties’ intent to undertake specific actions; however, the execution of such actions is essential to permit related expenses for the payee. Therefore, both the existence of the agreement and the actual conduct must substantiate the assessee’s claim regarding the allowability of these expenses.

Regarding rendition of services, no proof is adduced by the assessee. Merely payment of tax by recipient is not at all evidence of rendition of services. Payment of sum by cheque also does not prove any rendition of services. In absence of any services rendered by Swamiji, no fault can be found with the orders of ld. Revenue authorities.

There is no evidence in agreement or in any other material produced to show that the Swamiji was having knowledge experience or aware about the business of the

There is no evidence about the professional expertise and experience of Swamiji in providing professional services. It was also not shown that Swamiji is engaged in providing such service to the assessee in past or in future to this AY.

There is no evidence shown that Swamiji is really a professional providing such services and possesses adequate skill or professional qualification to render such services.

It was further not demonstrated that Swamiji is rendering services to any other individuals.

No evidence of any visit or efforts made by Swamiji were shown such as event photography or any material of Swamiji to show any services rendered to the assessee.

Thus, the claim of the assessee is bald, bereft of genuineness and lacking any evidence to support it. Agreement is also a make-believe document.

According to the provisions of section 37 (1) of the Act, the expenses incurred by the Assessee are allowable to the Assessee as deduction only if such expenses are wholly and exclusively incurred by the Assessee for the purposes of the business. In the present case the Assessee could not produce a single instance of rendition of services and therefore the expenditure incurred could not be said wholly and exclusively for the purposes of the business of the Assessee.

In view of the above facts, we do not find any infirmity in the order of the Ld. Lower Authorities in confirming the about disallowance u/s. 37 of the act. Accordingly ground No. 4 – 6 of the appeal are dismissed.

Ground No. 7 is with respect to the disallowance of the Employees’ contribution to the provident fund and ESI amounting to ₹ 20,39,196/- u/s. 36(1) (va) of the Act deposited beyond the due dates prescribed under the respective employee welfare Acts. This fact shows that as per the tax audit report filed by the Assessee, Page 8 of 10

After hearing the Assessee, we find that issue is squarely covered against the Assessee by the decision of the Hon’ble Supreme Court 143 taxmann.com 178 [SC] and therefore no infirmity is found in the orders of the Ld. Lower Authorities. Accordingly ground No. 7 of the Appeal is dismissed.

Ground No. 8 of the Appeal is against disallowance u/s. 40 (a)(ia) of the Act of Rs. 22,500/-. Briefly stated the fact shows that the Ld. Assessing Officer has disallowed sum of Rs. 75,001/– being amount paid for advertisement and photo shoot expenses on which no tax is deducted at source. It is agreed by the Assessee that Assessee has missed the deduction of tax at source on the above payment out of inadvertence. The Ld. Assessing Officer disallowed 30% of such expenditure which is also confirmed by the Ld. CIT(A).

After hearing the Assessee and Authorized Representative, we found that as the Assessee was required to deduct tax at source on advertisement and photo shoot expenses of Rs. 75,001/– which was subjected to tax deduction at source, but Assessee failed to deduct tax at source thereon. Therefore, the provisions are clear about the disallowance of 30% of the amount of expenditure/s 40a (ia) of the Act. We do not find any infirmity in the order of the Ld. Assessing Officer in disallowing the above amount. Accordingly Ground No. 8 of the Appeal is dismissed.

Ground No. 9 of the Appeal is against the initiation of penalty proceedings which is premature and hence dismissed.

In the result appeal of the Assessee is dismissed.