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Income Tax Appellate Tribunal, “D” BENCH MUMBAI
Before: SHRI RAHUL CHAUDHARY & SHRI GIRISH AGRAWAL
O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
1. This appeal filed by the Revenue is against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC), vide order no. ITBA/NFAC/S/250/2024-25/1064873561(1), dated 14.05.2024 passed against the assessment order by National e-Assessment Centre, Delhi u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 15.04.2021 for Assessment Year 2018- 19.
2. Grounds taken by the revenue are reproduced as under:
“1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 4,90,02,000/- made by the AO by considering expenses as professional expenses instead of liasioning expenses.
2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition ignoring the fact that the expenses are not in the nature of professional expenses but in the nature of liaisoning expenses which are not considered as a bonafide expenditure and not allowable as business expenditure under the provision of I.T. Act 1961.
3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition ignoring the fact that the Hon'ble Supreme Court has set aside the order of the Appellate Tribunal In the case of Omar Salav Mohamed Sait reported in (1959) (37 ITR 151) (SC).
3. The appellant prays that the order of the CIT(A) on the grounds be set aside and confirm the order of the AO.”
3. Assessee is a builder and developer. Assessee is developing a SRA project namely Kalpavruksh Heights situated at CTS No. 471A pt. of Village Kandivali West, Laljipada, New Link road, Mumbai - 400067. The project consists of 3 tenant buildings A, B and C wing having appx. 380 tenants and 12 amenities. Project comprises of 4 wings of 23 floors having a RERA carpet area of 1,79,840 Sq. Ft. Assessee follows percentage completion method of accounting and there is no change in the method of accounting during the previous year. Assessee filed its return of income on 08.10.2018 reporting a total income at Rs. 5,94,34,230/-. Assessee was issued show cause notice on 30.03.2021, wherein it was required to justify the payments made for liaison and professional expenses along with bank processing charges of Rs.6,83,82,535/-. After discussing the facts, ld. Assessing Officer gave the finding that professional charges amounting to Rs. 4,90,02,000/- are not allowed as the assessee has not explained the reasons for incurring these expenses. Ld. Assessing Officer alleged that these expenses are liasoning expenses which is not a bonafide expense as per Income tax provisions. Details of these expenses for which disallowance has been made by ld. Assessing Officer is tabulated below:
Particulars Amount AK Builders 1,00,00,000/- Abdulla Baig 3,00,000/- Bhavika Talaviya 4,00,000/- Devdatta Sathe 7,00,000/- Jiyani Consultancy LLP 19,90,000/- Nidhin Narayan 1,50,000/- Pragna Pate 5,00,000/ Vrinda Vishwan 2,50,000/ Kailas Yadav 2,22,12,000/- Kumbhat Advisors PL 1,00,00,000/- Olympus Fintex Solutions PL 25,00,000/- Total 4,90,02,000/- 3.1. Aggrieved, assessee went in appeal before the ld. CIT(A).
4. At the first appellate stage, assessee furnished detailed reply explaining justifications for each of the parties to whom the payment was made and deduction of expense was claimed by the assessee. In the justification for each of the parties, assessee had provided their details relating to address, PAN and details of fees corroborated by confirmation of account, brief note on nature of activity undertaken, copy of bill. Summary of all these submissions made by the assessee before the ld. CIT(A) corroborated by relevant documentary evidences as tabulated in his order is extracted below for ready reference:-
Particulars Amount AO's observation Appellant's explanation AK Builders 1,00,00,000/- No explanation about Consultancy charges the type of for Jai Bharat SOSC, consultation, Kandivali, Mumbai. This party brought project to the developer and acted as mediator b/w Jai Bharat Society. Sai Darshan Society and the Developer. Ledger A/c given, TDS deducted u/s 195J, Payment through bank. GST has been levied on the services offered.
Abdulla M. 3,00,000/- The comments / He assisted in getting Baig justification offered for the approvals, the these expenses do not copy of amended plan Justify that the is also submitted. payment of these Ledger A/c given, expenses is an TDS deducted u/s allowable expenditure. 195J, Payment In fact the expenses through bank. GST are in the nature of has been levied on liaison expenses which the services offered. not an allowable expenditure under the Bhavika 4,00,000/- provisions of I.T Act, She along with Prajna Talaviya 1961 and therefore, Patel Provided the amount of Rs. consultation for 42,90,000/-claimed as getting full liaisoning with SRA is commencement hereby disallowed. certificate of Rehab Building No.
1. Ledger A/c given, TDS deducted ws 195J, Payment Pragna G 5,00,000/- -do- Patel Devadatta 7,00,000/- Provided consultation Arvind for layout plan Sathe approvals. Ledger A/c given, TDS deducted u/s 195J. Payment through bank. GST has been levied on the services offered.
Jiyani 19,90,000/- Professional Services consultancy in the approval LLP commencement for certificate for Building No. 2. Ledger A/c given, TDS deducted u/s 195J. Payment through bank. GST has been levied on the services offered.
Kailas 2,22,12,000/- Negotiations for Yadav removing 331 members of Jai Bharat SOC.
Nidhin 1,50,000- Professional Services Narayan in the approval from SRA. Ledger A/c given, TDS deducted u/s 195J. Payment through bank, GST has been levied on the services offered.
Vrinda 2,50,000/- ----do--- Vishwan Kumbhat 1,00,00,000/- Out of payments of Rs. Kumbhat Advisors Advisors 1,07,50,000/-, the through their Pvt Ltd payment of Rs. promoter CA Neeraj 7,50,000/- is Kumbhat and their considered as associate CA Rakesh reasonable under the Kawar and CA Tejas Raj Arcades Homes Pvt Ltd., AY 2018-19 head fund raising and Chavan associated the balance amount of with were the Rs. 1,00,00,000/- is assessee company for considered excessive advising on fund and unreasonable No raising. The payment explanation has been is for fund raising, furnished with regard AO has not given to from which reason for partial institutions and how disallowance. much fund have been raised. Merely claim of the assessee that payments have been made through cheque and confirmations from the parties have been furnished do not entitle the assessee to claim the said expenditure deduction allowable as Infact the expenses are in the nature of liaison expenses which is not an allowable expenditure under the provisions of LT. Act, 1961 and therefore, out of total expenditure under this head claimed at Rs. 1,07,50,000/- a sum of Rs. 1,00,00,000/- is hereby disallowed.
Olympus 25,00,000/- A copy of bill raised by Payment has been Fintax Olympus Fintax made for professional Solution Solutions Pvt Ltd has charges and related Pvt Ltd been furnished with paper work AO has description of fund not given reason for raising and related disallowance. Ledger paper wont goods A/c given, bill raised services as Advisory and TDS deducted us for fund raising and 1950 Payment related paper work. through bank. No explanation has been furnished with regard to from which Raj Arcades Homes Pvt Ltd., AY 2018-19 institutions and how much funds have been raised. Merely claim of the assessee that payments have been made through cheque and confirmations from the parties have been furnished do not entitle the assessee to claim the said expenditure allowable 33 deduction, Intact the expensed are in the nature of liaison expenses which is not an allowable expenditure under the provisions of L.T. Act. 1961 and therefore, the amount of Rs. 25,00,000/- is hereby disallowed.
4.1. In respect of project undertaken by the assessee, it submitted that why there is a need for SRA project, what all permissions are required to be taken from SRA and how various consultants have helped the assessee in obtaining the same. Assessee stated that nature of these expenses is that these are paid to professionals for the jobs done by them effectively in professional capacity and these expenses are not in the nature of any kickback or any bribery. Assessee also submitted that Assessing Officer has not done any investigation to satisfy any doubt he had about incurring of these expenses as it was well within his power to issue notice u/s 133(6) or summons u/s 131 to these professional parties. Ld. Assessing Officer did not mention any reasons in the assessment order other than saying that the expenses doesn't seems to be reasonable and there is no justification for the expenses without going into details of the nature of expenses or pointing out any defect in the documents Raj Arcades Homes Pvt Ltd., AY 2018-19 submitted by the assessee. Ld. Assessing Officer did not give any justification while making the addition and has made the additions on conjectures and surmises.
4.2. According to the assessee, what is to be considered for deciding whether an item of expenditure will be deductible under section 37 by can be stated as under:
1. 1. Expenditure has been incurred with a view to bring profits or advantages.
2. To render the assessee immune from impending or reasonable apprehended litigation.
3. In order to save losses or foreseeable or future appreciation. 4. For effecting Economy in working which may pay dividend today or tomorrow. 5. For increasing efficiency and removing inefficiency in working.
4.3. According to the assessee, the test should be that the expenditure has been laid out wholly or exclusively for the purpose of business of the assessee. Ld. Assessing Officer, while dealing with as issue of allowing or not allowing a particular expense should consider the totality of the circumstances and should allow if the same has been incurred exclusively for the purpose of business and there cannot be a straight-jacket formula for such determination. In the present case, assessee has proved beyond doubt vide its submissions that the expenses are incurred for the purpose of business by providing details of expenses, purpose of expenses, copy of bills and confirmations. Ld. Assessing Officer has not brought on record anything to say that these expenses are not related to business and Raj Arcades Homes Pvt Ltd., AY 2018-19 not incurred wholly and exclusively for the purpose of business or profession. Once it is established that there was nexus between the expenditure and the purpose of business, the revenue cannot justifiably claim to put itself in the armchair of a businessman and assume the said role to decide how much is a reasonable expenditure having regard to the circumstances of the case. It is settled position in law that no businessman can be compelled to maximize his profits.
4.4. Assessee furnished the following also to corroborate its claim: a. Copy of TDS certificates issued to the professional parties. b. GST returns in Form 38 and 2A, showing GST claimed for the professional parties and where GST has not been levied by these parties, assessee has paid GST in reverse charge (RCM). c. Copy of ITR returns of some of the professional parties. d. Copy of bank statement of assessee to depict the fact that payments are made to the professional parties.
4.5. Having considered all the above stated submissions and contentions of the assessee, ld. CIT(A) exhaustively analysed the same to take note of the following facts which emerged from this exercise.
TDS u/s 195-J has been deducted on the professional charges paid to professional parties.
GST return evidence with 2A an 3B summary is submitted depicting GST paid on the professional charges.
The bank statement shows these payments have been made by bank.
The bills raised for professional charges has been produced.
5. Copy of ITRs of professionals has also been furnished.
Raj Arcades Homes Pvt Ltd., AY 2018-19 4.6. According to him, the consultancy services can be understood as advisory services wherein necessary advice and consultation are given to the clients for their business. The terms managerial, technical and consultancy do not find mention in the Act and it is a settled law that they need to be interpreted based on their understating in common parlance. He further noted that ld. Assessing Officer has not mentioned any reasons in the assessment order other than saying that the expenses doesn't seems to be reasonable and there is no justification for the expenses without going into details of the nature of expenses or pointing out any defect in the documents submitted by the assessee.
4.7. Ld. CIT(A), thus deleted the addition so made by the ld. Assessing Officer and allowed the appeal of the assessee. Aggrieved by the same, Revenue is in appeal before the Tribunal.
Before us, ld. Sr. DR placed reliance on the order of ld. Assessing Officer. On the specific query by the Bench as to whether TDS was done by the assessee on all these payment and requirements relating to GST were complied or not, ld. Sr. DR affirmed that necessary compliances were made by the assessee in this respect for the alleged expenses incurred as deduction.
Per contra, ld. Counsel for the assessee reiterated facts and submissions as narrated above which are not reproduced to avoid duplicity. Additionally, it was submitted that in the assessment carried out in the preceding two years, u/s. 143(3) of the Act for Assessment Year 2016-17 and 2017-18, vide order dated 25.12.2018 and 20.12.2019, respectively for the assessee, some of these parties were engaged, to whom payments were made and assessee claimed Raj Arcades Homes Pvt Ltd., AY 2018-19 deduction towards expenses incurred through these parties which have been allowed. Relevant assessment orders are placed in the paper book at page 76 and 79. Further, he submitted that assessee commenced construction of the project under consideration in the year 2012 with completion expected by March, 2025. During this period of project construction, assessee declared its profit using percentage completion method and filed its return of income accordingly. He emphasised that ld. CIT(A) has verified the nature of each expenditure made by various parties as tabulated above and verified the justification furnished by the assessee for making these payments, considering the nature of the business of the assessee.
We have heard both the parties and perused the material on record. We have also given our thoughtful consideration on submissions by both the parties as well as to the documentary evidences referred in respect of contentions made before us. From perusal of the impugned assessment order, it is noted that incurring of expenditure by the assessee is not in doubt except for questioning the justification of the expenses incurred by the assessee. Assessee has furnished all the documentary evidences and explained the nature of transaction undertaken by it with each of the parties with necessary compliances for TDS and GST. Assessee has made all these payments through proper banking channel and all the parties have confirmed the impugned transactions with the assessee. Despite these records, ld. Assessing Officer has uniformly held for all the parties that the payments made by the assessee and deduction of expenditure claimed thereon is not justified.
7.1. From the perusal of the order of ld. CIT(A), it is noted that a detailed and exhaustive exercise was undertaken by him, appreciating Raj Arcades Homes Pvt Ltd., AY 2018-19 the explanation and justification furnished by the assessee which has been duly corroborated by relevant documentary evidences. Ld. CIT(A) has listed as many as 28 bulleted points to take note of justifications on the behalf of the assessee against the disallowances made by the ld. Assessing Officer, dealing with every aspect of the claim so made. He also summarised the said explanations of the assessee mapping it to the observations made by the ld. Assessing Officer by way of a tabulation which is already extracted above.
7.2. Further, it is noted that assessee had made a specific request before the ld. Assessing Officer to issue notices u/s.133(6) to the concerned parties so as to take appropriate verification and examination of the transaction undertaken by the assessee with them and enquire about the nature of work done and the amount paid. However, ld. Assessing Officer chose not to exercise such powers vested in him under the Act and proceeded to take adverse view without providing any specific reason other than stating that expenses appears to be unreasonable and lack justification, as well as not pointing out any specific defect, fault or discrepancy in the corroborative documentary evidences furnished by the assessee. Expenses claimed by the assessee have been incurred wholly and exclusively for the purpose of its business falling within the provisions of Section 37(1) and are deductible. Assessee has discharged its onus of giving evidences in respect of expenses so incurred and claimed as deduction. Addition made by the ld. Assessing Officer is based on assumptions, presumptions, conjectures and surmises. Considering the overall factual matrix, submissions made by the assessee along with relevant documentary evidences and detailed exercise undertaken by the ld. CIT(A), we do not find any reason to interfere with the observations and findings arrived at by the ld. CIT(A) in deleting the
In the result, appeal of the Revenue is dismissed.
Order is pronounced in the open court on 02 May, 2025