RSVA & CO,MUMBAI CITY vs. ITO 16(3)(3), MUMBAI

9,28,000/- to Mr. Rishi Agarwal, Mrs. Gujarathi and Mrs. S. Ramu. The AO

was of the view that the assessee failed to file sufficient supporting

evidence to justify such claim. No evidence of genuineness of such

payment was furnished. The AO accordingly disallowed Rs. 9,28,000/-

under section 40A(2)(b).

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

assessee filed detailed written submissions on both additions. The

submissions of the assessee are recorded in para 4 of the order of ld.

CIT(A). On the disallowance of professional fees for want of TDS, it was

submitted on behalf of the assessee that the assessee firm consists of 11

partners, spread over in 8 cities. The partner in the Ahmedabad branch is

mainly looking after case in Income Tax Appellate Tribunal representations

(ITAT) and Commissioner of Income Tax (Appeals) level. The part of the

fees received on account of service rendered by Ahmadabad officer was

wrongly deposited in the account of Thane Branch. Since the client’s

cheque was deposited in one branch while belonging to other branch, the

ITA 5620/Mum/2025 (AY 2014-15) Rsva& Co.

credit taken in professional fees at Thane was transferred to Ahmedabad

branch which does not attract disallowance under section 40(a)(ia). The

assessee furnished ledger account showing the transaction of Rs.

8,29,000/-. The assessee further explained that a professional fees of

Rs.4,50,000/- credited to Mr. K.G. Anantha Rao and Rs. 3,00,000/-

credited to Mr. R.S. Agarwal who were also partners of assessee firm. It

may be considered under section 40(b). It was a reimbursement paid to

working partner which was grouped under professional fees and will not

attract TDS at source. The copy of partnership firm was furnished. On the

disallowance under section 40A(2)(b) of Rs. 9,28,000/-, the assessee

stated that partner of assessee namely Mr. R.S. Agarwal used car

Mahindra Xylo, which belonged to his son, Mr. Rishi Agarwal. The rent of

Rs. 8,40,000/- was paid which is Rs. 7,000/- per month which a

reasonable keeping in view that payment made to related parties is on

lower side, the car is not available on hire for less than Rs. 10,000/- per

month. On the other disallowance of Rs. 4,70,000/- and Rs. 3,74,000/-

paid to partners wife, the assessee stated that both these two persons are

working in firm for last 15 years and are consistently helping in audit

assignments as well as administrative issues pertaining to the activities of

the firm. The firm was set up in 2001 with 4 partners in the name of

Sudhir Shetty & Co., later through the efforts of one founding partner, Mr.

B.N. Rao, and seven more partners merged with this firm in 2008 and the

name of firm was changed to RSVA & Co. Mrs. Gujarati and Mrs. S. Ramu

are working in the firm since long that is before merger. Thus, the

ITA 5620/Mum/2025 (AY 2014-15) Rsva& Co.

payment is made against the services rendered. Therefore, the payment is

not hit by section 40A(2)(b) of the Act. The assessee also explained about

each payment in details. The assessee also furnished copy of re-

constitution deed of partnership.

the additions / disallowances. On the disallowance under section 40(a)(ia),

the ld. CIT(A) held that assessee has not furnished any documentary

evidence about existence of branch Ahmedabad and merely rely on

partnership deed wherein there is clause that firm is free to set up any

branch anywhere so it cannot be accepted its fact value and confirmed the

addition/disallowance of Rs. 8,29,000/- with regard to payment made to

K.G. Anantha Rao and R.S. Agarwal of Rs. 1,50,000/- & Rs. 3,00,000/- that

such payment should be considered as remuneration, the ld. CIT(A)

recorded that remand report was called from AO and AO is objected that

such explanation is afterthought. The ld. CIT(A), thus, confirmed the entire

addition. For other payment that is payment to K.P. Joshi & Co. of Rs.

76,656/- and Rs. 1,35,000/- of Upbeat Innovators Pvt. Ltd. (UIPL), the ld.

CIT(A) noted that TDS was made on such payment, therefore, to the

extent of Rs. 2,11,656/- was deleted. Thus, the assessee was allowed part

relief and remaining addition was upheld.

travelling expenses and remuneration paid to wife of partner. The ld.

CIT(A) asked for educational qualification of Mrs. Gujarathi and Mrs. S.

Ramu and bank statement of both the parties. Similarly, the details of Xylo

ITA 5620/Mum/2025 (AY 2014-15) Rsva& Co.

car owned by Rishi Agarwal was also asked. The ld. CIT(A) recorded that

required details were not furnished. The ld. CIT(A) was of the view that

wife cannot be considered “employee” in the traditional sense. No role and

responsibility is allocated to this spouse of partner in the partnership deed.

The assessee has made payment without explaining role of these spouses.

On the payment of vehicle, the ld. CIT(A) recorded that car owns by a son

of partner namely R.S. Agarwal, the ld. CIT(A) recorded that prima facie it

appears that assessee entered into financial transaction with family

members with sole objective of reducing tax liability. No agreement for the

purpose of hiring of car is furnished. The car could be used partner without

hiring it. On such observations, the ld. CIT(A) confirmed the disallowance

under section 40A(2)(b). Further, aggrieved the assessee has filed present

appeal before Tribunal.

through the orders of lower authorities carefully. On perusal of record

shows that there is delay of 133 days in filing appeal before Tribunal. The

impugned order was asked by ld. CIT(A) on 28.02.2025, however his

appeal was filed only on 10.09.2025. Thus, there is delay of 133 days. The

assessee has filed affidavit of Shri B.N. Rao, partner of assessee firm. The

learned authorised representative (ld. AR) of the assessee submits that

there was internal bickering among the partner due to which e-mail

address given in the tax return could not be assessed. The assessee was

not aware about the dismissal of appeal by ld. CIT(A). On receipt of

initiation of penalty proceeding under section 271(1)(c), the order of ld.

ITA 5620/Mum/2025 (AY 2014-15) Rsva& Co.

CIT(A) from the portal was downloaded and appeal was filed. The ld. AR of

the assessee submits that there is no intentional or deliberate delay in filing

appeal before Tribunal. The assessee has good case on merit and likely to

succeed. The assessee always made compliance in time. The assessee is

really interested in pursuing case on merit. Hence, the delay in filing

appeal may be condoned and matter may be heard on merit.

DR) for the Revenue not seriously opposed the plea of condonation of

delay.

delay. Considering the fact that delay in filing appeal is not intentional or

deliberate rather, the assessee is interested in pursuing their appeal on

merit. Therefore, the delay in filing appeal is condoned. Now, adverting to

merits of the case.

of the assessee invited our attention on page 2 of para 5 of assessment

order wherein the AO identified 5 parties (professionals) to whom

payments were made and no TDS under section 194J as made. The

assessee has not deducted TDS on payment to Ahmadabad Branch of Rs.

8,29,000/-, Mr. K.G. Anantha Rao Rs. 1,50,000/- and Shri R.S. Agarwal of

Rs. 3,00,000/-. The remaining payment of Rs. 76,656/- and to Upbeat

Innovators Pvt. Ltd. UUIPL) of Rs. 1,35,000/- has already been deleted by

ld. CIT(A) on furnishing TDS. Thus, dispute remains with regards to three

payments only. For first payment which relates to Ahmadabad Branch of

ITA 5620/Mum/2025 (AY 2014-15) Rsva& Co.

Rs. 8,29,000/-. The ld. AR of the assessee submits that admittedly the

assessee is a partnership firm of Chartered Accountants having 11

partners spread in 8 cities. The copy of certificate of Chartered

Accountant of India about office / locations along with its partners is

placed on record. The partners at Ahmedabad is mainly looking after work

related to ITAT and CIT(A) matters. The part of fees received on account

of service rendered by that branch was wrongly deposited in the bank

account of Thane branch and was shown as professional fees of that

branch. The AO himself accepted this payment to Ahmadabad Branch and

not to individual. We find that at the end of year, such deposit was

treated as professional fees of Ahmedabad Branch and by passing journal

entry. There is no irregularity on such payment. The internal transfer

does not attract TDS. So far as other payment paid to R.S. Agarwal and

K.G. Anantha Rao is concern, both are partner of assessee firm. Shri R.S.

Agarwal is partner in Andheri Branch and K.G. Anantha is partner at

Madhya Karnataka, it may be considered under section 40(b) for

allowability. Hence, we find merits in the submissions of ld AR of the

assessee that the remuneration paid to working partner does not call for

deduction of TDS. The AO objected without application of mind. When

payments made to partners for their services in the professional firm

whatever may be the nomenclature, it partakes the color of remuneration

to partner to be considered under section 40(b) for its allowability or

otherwise. Similarly, for payment made to K.G. Anantha Rao, the ld. AR of

the assessee submits that he is also one of the partner and managing one

ITA 5620/Mum/2025 (AY 2014-15) Rsva& Co.

of the branches. The payment made to whom is also grouped under

professional fees and the same is allowable as explained in case of R.S.

Agarwal.

gone through the orders of lower authorities carefully. We find that this

ground of appeal relates to disallowance of payment to Ahmedabad

Branch aggregating of Rs. 8,29,000/- and Rs. 1,50,000/- and Rs.

3,00,000/- paid to K.G. Anantha Rao and R.S. Agarwal. We find that the

AO disallowed all 3 payments that no TDS as required under section 194J

was made against these 3 payments. The ld. CIT(A) confirmed all 3

payments. The ld. CIT(A) also held that assessee has not furnished any

evidence regarding existence of assessee’s office in Ahmadabad. The ld.

AR of the assessee while making his submission submitted before us that

being a professional and partner of Chartered Accountants firm, he is

required to inform to Chartered Accountant Institute about existence of

partnership form, copy of details downloaded from the Institute of

Chartered Accountant of India (ICAI) is placed on record which clearly

shows one of the address of assessee firm in Ahmedabad and that such

office is in existence from 2008. All such information is in public domain.

The amount was wrongly deposited in bank account of Thane instead of

bank account of Ahmedabad. So far as the other disallowance of

professional fees paid to K.G. Anantha Rao and R.S. Agarwal, the ld. AR

of the assessee submits that both are admittedly partner of assessee firm

and it could be considered as remuneration paid to working partner. We

ITA 5620/Mum/2025 (AY 2014-15) Rsva& Co.

find that genuineness of such payment is not doubted by the lower

authorities. The lower authorities disallowed for the want of TDS. We find

that convincing force in the submission of ld. AR of the assessee that fees

of Ahmedabad Branch was wrongly deposited in Thane Branch which was

transferred by way of journal entry. Similarly, if the payment is made to

working partner, it does not require any TDS. Both the partners are

working partner of assessee firm. Therefore, the disallowance is made for

branch transfer and profession paid to R.S. Agarwal and K.G. Anantha

Rao is also deleted. In the result, ground no. 1 of the assessee is allowed.

assessee submits that Mrs. S. Ramu is working from last 15 years and

helping in audit assignments as well as administrative issues of assessee

firm. The AO objected in his remand report but have not seen ledger

account of salaries paid to Mrs. Srividya Ramu and Mrs. Sonal Gujarati

from April 2010. The reasonableness is not doubted. The payment to

related parties is not prohibited under the law. It has to be seen with its

reasonableness. So far as payment made for use of car of related parties,

the ld. AR of the assessee submits that there is prohibition under the law

for hiring of vehicle for services from related parties but it has to be seen

on the basis reasonableness. The ld. AR of the assessee also submits that

relevant evidence has been placed on record to substantiate the claim.

lower authorities.

ITA 5620/Mum/2025 (AY 2014-15) Rsva& Co.

gone through the orders of lower authorities. We find that lower

authorities have objected / disallowed on the ground that payments were

made to related parties. We find that services rendered such related

parties are not disputed. Such disallowances have to be made if such

expenditure is excessive or unreasonableness having regard to the fair

markets of services rendered or facilities availed or goods purchase. No

comparable analysis is made by lower authorities. Thus, we do not find

any justification in absence of observation of reasonableness /

unreasonableness of such expenses either on account of car hire charges

or the remuneration paid to wives of partners for their services rendered.

In the result, ground no 2 of assessee’s appeal is also allowed.

Sd/- Sd/- (ARUN KHODPIA) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Dated: 06/04/2026 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