DCIT-3(1)(1), MUMBAI, AAYAKAR BHAWAN vs. RIVERSIDE INDUSTRIES PRIVATE LIMITED, MUMBAI

PER PAWAN SINGH, JUDICIAL MEMBER:

dated 27.10.2025 for Assessment Year (A.Y.) 2017-18.

“1. Whether on fact and in the circumstances of the case in law the Ld. CIT(A) erred in deleting the disallowance of business development and business promotion expenses paid to shareholders/related parties without appreciating the absence of infrastructure, office establishment, independent clientele, and evidence of actual services rendered.

business of drugs and pharmaceuticals, filed its return of income for

assessment year (A.Y.) 2018-19 declaring income Nil under normal

provisions and book profit under the provisions of section 115JB of Rs.

54,13,154/-. The case was selected for scrutiny. During assessment, the

assessing officer noted that assessee in its profit and loss account has

debited business development expenses of Rs. 6.11 crore and business

promotion expenses of Rs. 5.00 crore. Further in show cause, the

assessee furnished the name of persons to whom the business

development and promotion expenses were paid. The assessing officer in

order to verify the claim issued notice under section 133(6) to all such

persons. The specimen format of notice under section 133(6) is

extracted in para 4.3 of assessment order. In the notice under section

133(6), the assessing officer required the nature of business activities,

ITR details of business premises, address, number of staff with such

parties’ details of services, modus operandi and other details, who

provided business promotion and business development services. The

assessing officer issued notice to 9 persons. The AO asked the assessee

to produce such individual or their Principal Officers on 18.12.2019. The AO recorded that on the date fixed, Rajesh Mulchandani and and Vijay

Mulchandani attended his office. Their statement was recorded under

section 131by AO. They furnished the reply of all the parties in response

to notice under section 133(6).The AO recorded that all replies are

similar. On the basis of details furnished, the AO again issued notice

dated 19.12.2019. The content of show cause notice is recorded on page

4 to 6 of assessment order. In the show cause notice the AO mentioned

that exact nature of services provided by related parties is not explained.

None of the parties have their independent business establishment from

where they operate no correspondence or any exchange of information

to establish exact service against huge payment is not provided. The

assessing officer also sought the details of educational qualification. The

details of educational qualification along with shareholding pattern was

provided. The assessing officer recorded the name of individuals /

entities and the gist of their reply on page 8 of assessment order. On

page 9 of assessment order, the AO recorded that all the persons are

filing return of income under the provisions of section 44AD and offered

6% of total receipt as their net profit on providing such services. The

assessing officer rejected the explanation and various evidences

furnished by assessee by holding that all the documents furnished by

assessee are bearing the date of October, 2019 which is the date

subsequent to notices issued by AO. The assessee has paid Rs. 6.11

crore under business development expenses and Rs. 5.00 crore for promotion expenses. The assessee was incorporated in January, 2014

and all of them are supported providing service together from F.Y. 2015-

16 and F.Y. 2016-17. In absence of any correspondence, it is not

established that there is any contract of providing such services. All the

individuals are not having any office establishment from which they can

carry out their professional activities. On the basis of such observation,

the assessing officer disallowed the entire aggregate of business

development expenses and business promotion expenses of Rs. 11.11

crore while passing assessment order on 30.12.2019.

cars, which is not in the name of assessee company. On show cause

notice, the assessee submitted that cars were purchased in the name of

directors and were used for the purpose of business and as per order of

Mumbai Tribunal in Edwise Consultants Pvt. Ltd. vs DCIT. In ITA No.

5376/Mum/2011, the assessee is eligible for depreciation. The reply of

assessee was not accepted by assessing officer by holding that car is not

registered in the name of company. The assessee has not been able to

prove by documentary evidence that car has been used for the purpose

of business. Only those expenses can be allowed which are directly

relatable to the business of assessee company. The uses of car for

business purpose are not proved by assessee company. Thus, the AO

disallowed the claim of depreciation and thereby reduce the written

down value (WDV) to that extent.

appeal before ld. CIT(A). Before ld. CIT(A), the assessee filed detailed

written submission on 05.02.2024. The submission of assessee is

recorded on page 13 onwards. The assessee in its submission submitted

that assessee is a domestic company engaged in the business of

manufacturing of drugs and pharmaceuticals. During the assessment

party-wise details as called for by AO in respect of business development

expenses and business promotion expenses were furnished complete

details. In response to notice under section 133(6), the assessee

produced directors namely Vijay Mulchandani and Rajesh Mulchandani

before assessing officer. The AO recorded their statement under section

were furnished. Copy of ITR of all the parties along with ledger account

and qualification of service provider, nature of services rendered and

modus operandi were furnished. The AO not accepted the details of

expenses on the ground that parties have shown their income under

presumptive taxation scheme under section 44AD on the amount so

received. Their family members of directors having same address. On the

objection of AO that replies were similar, the assessee explained that AO

applied theory of preponderances without bringing any specific finding

about non-genuine of such services. The AO has not pointed out any

deficiency in the details. The AO rejected the contention on surmises.

The AO without bringing any evidence on record rejected the claim of assessee. The services rendered were not disputed. On the depreciation

of car which is in the name of directors, the assessee submitted that AO

disallowed depreciation on the ground that assessee has not provided

any documentary evidence to substantiate that motor car has been used

for the purpose of business of assessee company. He never called in

documentary evidence that motor cars were not used for the purpose of

business. The AO simply asked that motor cars are not in the name of

directors and company is not having any ownership. The assessee

reiterated that similar claim is allowed by Mumbai Tribunal in Edwise

Consultants Private Ltd. vs DCIT (supra).

businessdevelopment services and business promotion services. The ld.

CIT(A) noted that such evidence was not furnished before assessing

officer. Such evidence was treated as additional evidence. The assessee

also filed application under Rule 46A of Income Tax Rules-1962, for

seeking permission for admission on additional evidence. The ld. CIT(A)

obtained the remand report from assessing officer vide his direction

dated 06.08.2024. The assessing officer furnished his remand report.

The contents of remand report are recorded on page no. 18 onwards. In

the remand report, the AO commented that MOUs for business

promotion services and business development services are dated

01.04.2016. The assessee failed to demonstrate any justifiable reason for

non-submission of such evidence before him during assessment. As per Rule 46A, additional evidence is admissible only, if AO refused to admit

or the assessee was prevented from by reasonable cause from producing

and / or the evidences are relevant to the issue and will aid in complete

decision. The AO commented that MOUs are internal documents and are

covered by the findings given by the assessment order. Such evidence

does not add in merits of the facts of the case and may not be admitted.

The AO requested to ld. CIT(A) to decide the issue on merit. Copy of

remand report was provided to assessee for their comment. The

assessee filed its objection to the remand report which are recorded on

page no. 20 onwards in the order of ld. CIT(A). The assessee filed its

objection to the remand report and submitted that complete details of

service rendered by related parties and their qualifications were

furnished. The assessee submitted that AO has not refuted the

authenticity of MOUs. He has not challenged the relevance and

evidentiary value. In subsequent assessment, the assessing officer

accepted such MOUs. MOUs are crucial for adjudication of issue. On

similar issue, the case of assessee for A.Y. 2020-21 was reopened and

after verifying the genuineness of expenses paid to shareholders and

directors and on verifying same MOUs no disallowance of similar

business expenses was made. Similarly, in A.Y. 2019-20 & 2022-23, the

assessment was completed under section 143(3) and no disallowance

was made.

report of AO and rejoinder of assessee and other material placed before

him deleted the entire addition by holding that similar MOUs are

consistently accepted by department on same issues. The ld. CIT(A)

referred the order under section 148A(d) dated 29.06.2025 in A.Y. 2019-

20 wherein similar expenses claim for payments made to directors of Rs.

9.97 crore was accepted. Further, similar claim for A.Y. 2020-21 in the

assessment order passed under section 147 dated 18.03.2025 was

accepted by revenue. The ld. CIT(A) also referred the assessment order

for A.Y. 2018-19, 2020-21 & 2022-23 wherein similar expenses were

accepted. The ld. CIT(A) also referred the return of income and

assessment order of various shareholder directors in accepting their

return of income. The ld. CIT(A) ultimately held that similar expenses is

accepted in various years in assesses own case as well as in cases of

service provider. The existence of MOUs between the assessee and the

service provider is not denied. Once similar expenses have been

accepted in other year there is no need to disturb the trend and disallow

the business development expenses and business promotion expenses in

the current year as well. The educational and professional experience is

sufficient with the shareholder and relatives. There is positive increase in

the subsequent years. Disclosure of the amount received by the service

provider has been accepted by their assessing officer. Thus, there is no ground for disallowing the claim of business development expenses and

business promotion expenses.

assessing officer disallowed such depreciation that assessee failed to

show that vehicles were used for the purpose of business. The vehicles

have been disclosed in the scheduled in the fixed asset, in the audited

books. The decision cited by assessee in Edwise Consultants Private

Limited (supra) is squarely applicable on the fact of the present case and

allowed depreciation on two motor cars to the assessee by deleting the

disallowance.

appeal before Tribunal.

Authorised Represent (ld. AR) of the assessee. The ld. Sr. DR for the

revenue supported the order of AO on the disallowance business

promotion expenses and business development expenses. The ld. Sr. DR

submits that assessee has paid such expenses to the close relatives

without proving the services rendered by them. The ld. CIT(A) allowed

relief to the assessee on accepting on MOUs and on the basis of order of

other years. Each year has to be considered separately. On the

disallowance of depreciation of car, the ld. Sr. DR submits that such

vehicles are not registered in the name of assessee company. The

assessee has not proved by evidence that such vehicles was used for the purpose of business. The ld. Sr. DR for the revenue prayed that order of

ld. CIT(A) may be reversed by restoring the order of AO on both the

additions / disallowances.

CIT(A). On the disallowance of business promotion expenses and

business development expenses, the AR of the assessee submits that

during assessmentthe assessing officer issued show cause notice raising

the plea that assessee has made transaction with related parties and

claimed expenses. The assessee was asked to furnish name, PAN details,

amount paid relationship with directors of each of individual to whom the

assessee has made such transaction to furnish service agreement /

contract with each recipient along with payment during the details of

actual services rendered. In response to show cause notice, the assessee

filed its reply and submitted required details statement showing all

payments to related parties including shareholder, directors and sister

concern during the relevant financial year. The nature of expenditure and

the head of business under which the assessee debited were also

furnished. The assessee furnished name, PAN, amount and relationship

and the invoices raised by each of the related parties with corresponding

bank statement of parties with ledger accounts were furnished. The

assessee submitted that TDS were made wherever applicable. The copies

of Form 16A issued to the parties, copies of which were also furnished.

The assessee submitted that the said parties were providing business support services being family members. The assessee explained that the

family members / related parties are provided such services so that

family business of assessee company grows and the growth is important

to their families. The assessee furnished complete details of their books

of account along with tax audit report with all details and annexure. The

assessee furnished the name and qualification of related parties and

reiterated that all family members are working for family-owned

company fir its growth and development and providing business services

from assessment year 2016-17. They have their skill through years of

experience in working together for family old business over the years.

They are giving 100% attention, efforts and commitment for the growth

of their company. On the issue of business development activity, plant

inspection, control checking factory inspection and supervisor work, the

assessee explained that such business-related activities are carried out

by related parties and their activities are not restricted to any particular

scope of work. The assessing officer disallowed the expenses merely on

the basis of surmises. In subsequent years similar expenses have been

allowed by AO. The ld.CIT(A) appreciated the fact and allowed full relief

to the assessee. On the depreciation of motor vehicle, the ld. AR of the

assessee supported the order of ld. CIT(A). The ld. AR of the assessee

submits that in fact such issue is covered by the decision of Tribunal

which has been relied by ld. CIT(A).

gone through the orders of lower authorities carefully. The basis of

disallowance of business promotion and business development expenses

is recorded by us in foregoing paragraphs. Similarly, the basis of

allowance of relief by ld. CIT(A) is also recorded by us in preceding paras

which is not repeated here for the sake of revenue. On our independent

appreciation of fact, we find that assessing officer disallow business

promotion expenses and business development expenses by taking view

that no written agreement is furnished and all payments were made to

related parties who have shown their income under presumptive section

of 44AD.

party-wise details in respect of business development expenses and

business promotion expenses. The assessee furnished complete details.

Further, in response to notice under section 133(6), the assessee

produced its two directors namely Vijay Mulchandani and Rajesh

Mulchandani before assessing officer. The AO recorded their statement

under section 131. Further, copy of ITR of all the parties along with

ledger account and qualification of service provider, nature of services

rendered and modus operandi were furnished. The AO has not pointed

out any deficiency in the details except doubting on assumption and

surmises and without bringing any evidence on record. The services

rendered by the related parties were not disputed.

with the parties who rendered business development services and

business promotion services. The ld. CIT(A) recorded that such evidence

was not furnished before assessing officer. The assessee also filed

application under Rule 46A of Income Tax Rules-1962, for seeking

permission for admission on additional evidence. The ld. CIT(A) directed

the AO to furnish his remand report. Remand report was filed by AO. In

the remand report, the AO commented that MOUs for business

promotion services and business development services are dated

01.04.2016 and that the assessee failed to demonstrate any justifiable

reason for non-submission of such evidence before him during

assessment. The AO commented that MOUs are internal documents and

are covered by the findings given by him in the assessment order and

such evidence does not add in merits of the facts of the case and may

not be admitted. The assessee in its objection submitted that AO has not

refuted the authenticity of MOUs. He has not challenged the relevance

and evidentiary value. We find that on similar issues, the case of

assessee for A.Y. 2020-21 was reopened and after verifying the

genuineness of expenses paid to shareholders and directors and on

verifying same MOUs no disallowance of similar business expenses was

made, copy of assessment order dated 18.03.2025, wherein similar

expenses claim for payments made to directors of Rs. 9.97 crore was

accepted, copy of assessment order is available on record. Similarly, in A.Y. 2019-20 & 2022-23, the assessment was completed under section

143(3) and no disallowance was made on account of similar expenses

incurred by assessee. Thus, we find that similar MOUs are accepted by

AO in all subsequent assessment orders.Hence, the AO/ revenue cannot

be allowed to take inconsistent view on similar set of facts in different

assessment years. We further find that AO has not doubted the

reasonableness of the expenses. No comparable instances are brought

on record. It is an undisputed fact that assessee is engaged in the

business of pharmaceuticals and drugs. The assessee is closely held

company. All the directors are close family members and relatives. The

turnover of the assessee has drastically increased from first year to

subsequent assessment years. Hence, we affirm the order of ld CIT(A)

with our additional findings. In the result, ground No. 1& 2 of the appeal

are dismissed.

find that the AO disallowed depreciation on two motor cars by taking

view that the vehicles re not registered in the name of assessee

company and that the assessee failed to produce evidence that these

vehicles are used for the business of the assessee. We find that the ld

CIT(A) allowed relief to the assessee by taking view that vehicles have

been disclosed in the scheduled in the fixed asset, in the audited books.

It was further held that decision relied by assessee in Edwise Consultants

Private Limited (supra) is squarely applicable on the fact of the present case. We find that coordinate bench of Mumbai Tribunal inEdwise

Consultants Private Limited (supra) held that if the car which is

purchased in the name of directors of the company and is used for the

purpose of business and as per order of Mumbai Tribunal in Edwise

Consultants Private Ltd. vs DCIT (supra), the assessee is eligible for

depreciation. Thus, in view of the above factual and legal position, we do

not find any reason to interfere with the findings of ld CIT(A). in the

result, ground No. 3 of the appeal is also dismissed.

Order announced in open court on 07/05/2026.

Sd/- Sd/-

MAKARAND VASANT MAHADEOKAR PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER

MUMBAI, Dated: 07/05/2026 Biswajit

Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order

Assistant Registrar ITAT, Mumbai