Loading judgment…
Facts
The Assessing Officer (AO) disallowed consultancy expenses of Rs. 63,96,717/- from the assessee's claim, stating a lack of description of services and failure to prove business nexus, even though the assessee claimed payments were made through banking channels with TDS. The First Appellate Authority (FAA) confirmed this disallowance, noting that responses to Section 133(6) notices were either nil or incomplete from the payees.
Held
The Tribunal admitted additional evidence (consultancy contracts) filed by the assessee under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963, citing difficulties in collating evidence post-Covid. Deeming the evidence crucial to the issue, the Tribunal restored the matter to the AO to examine the fresh evidence and decide on the allowability of the expenditure.
Key Issues
Whether consultancy expenses of Rs. 63,96,717/- were incurred wholly and exclusively for business purposes and thus allowable under Section 37(1) of the Income Tax Act, and the admissibility of additional evidence before the Tribunal.
Sections Cited
250, 143(3), 144B, 37(1), 133(6), Rule 29 of ITAT Rules
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE K & SHRI JAGADISH
आदेश/ O R D E R
PER GEORGE GEORGE K, VICE PRESIDENT:
This appeal filed by the assessee is directed against the order of Commissioner of Income Tax (Appeal), National Faceless Appeal Centre (NFAC), Delhi dated 10.06.2025, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2021-22.
:- 2 -: 2. The grounds raised read as follows: 1. That on facts and circumstances of the case and in law, the Order u/s 143(3) rws 144B of the Income-tax Act, 1961 (‘Act’) is bad in law;
That on the facts and circumstances of the case, the Ld.AO/NFAC erred in disallowing professional and consultancy expenses amounting to Rs.63,96,717 as not being incurred wholly and exclusively for the purpose of business;
3. The Appellant craves leave to add, amend, alter, vary and / or withdraw any or all the above grounds of appeal.
Brief facts of the case are as follows: The AO in the assessment completed u/s.143(3) r.w.s. 144B of the Act dated 24.12.2022 had disallowed the sum of Rs.63,96,717/- by observing as under:- “B. On perusal of the records, it is seen that the assessee has claimed consultancy expenses of Rs.66,50,917/-. The assessee has filed reply with detail of expenses. The assessee failed to submit the description of services. The assessee has submitted that it has hired consultant as the assessee has limited employees. It is essential that documentary evidence of services and business nexus for any expenditure incurred by the assessee is very necessary. In view of the above it can be concluded that where an assessee claims a deduction the onus is on him to bring all material facts on record to substantiate his claim. Mere production of vouchers in support of the claim for deduction of the expenditure would not prove the claim made by the assessee. It is his duty to prove payment especially when the ITO doubts the genuineness thereof. It cannot be disputed that before an assessee can become entitled to an allowance under section 37(1), he must satisfy the department of the purpose for which the amount is spent. In order to claim that an expenditure falls under section 37(1), the burden of proving the necessary facts in that connection is on the assessee where the assessee failed.
:- 3 -: 4. Aggrieved by the order of the AO, assessee filed appeal before the First Appellate Authority (FAA). The FAA dismissed the grounds raised on the issue. The relevant finding of the FAA reads as follows:- “6.2.1 The contention of the appellant is not acceptable on merit. Mere payment through banking channels and deduction of TDS does not give eligibility to the appellant for claiming deduction as business expenses. Provisions of section 37(1) are as under:
Any expenditure (not being expenditure of the nature described in sections 30 to 36 [***][Certain words omitted by Act 32 of 1985, Section 11 (w.e.f. 1.4.1986).] and not being in the nature of capital expenditure of personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession From the reading of above section, it is clear that appellant had to prove that the claimed consultancy expenses were laid out or expended wholly and exclusively for the purposes of the business. However, the appellant has failed to do so. Further, when AO issued notices to the various parties to whom payments were made in form of consultancy expenses, parties either did not file reply or filed incomplete reply. Therefore, in the present case, since the business expediency of the expenses has not been established by the appellate, I am of the view that AO has rightly disallowed the consultancy expenses of Rs.63,96,717/-. Therefore, the disallowance made by AO is confirmed. Ground No.2 of the appeal is dismissed.”
Aggrieved by the order of the FAA, assessee has filed the present appeal before the Tribunal. The Ld.AR submitted that assessee’s contentions before the IT authorities were that payments were made to the doctors through banking channels :- 4 -: and on such payments, necessary tax was deducted at source. Hence, expenditure cannot be disallowed. The assessee before ITAT has filed petition under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963, for admission of additional evidence. The additional evidence that is sought to be admitted is the consultancy contract for services entered by the assessee with the various doctors. It is stated in the petition that the additional evidence now sought to be admitted took time for collating with all the supporting evidence and could not be filed before the AO and the FAA. It was stated that the assessment order was passed post Covid period and assessee had taken time to obtain the relevant information which is now being filed as additional evidences. The Ld.AR submitted that additional evidences now filed goes to the root of the issue to prove the payment made to the doctors are for the business purpose of the assessee and same is to be allowed as a deduction. Therefore, it was prayed that additional evidence now filed before the Tribunal may be taken on record for substantial cause and justice.
The Ld.DR strongly supported the orders of the AO and the FAA.
:- 5 -: 7. We have heard rival submissions and perused the material on record. The AO during the course of assessment proceedings noticed that assessee had claimed consultancy expenses of Rs.66,50,917/-. The AO directed the assessee to furnish the details of such expenses with name, PAN and address of the payees. For verification, the AO issued notice u/s.133(6) of the Act to the various persons to whom such payments were made. Since some of the payees did not respond to the notice issued u/s.133(6) of the Act within the due date of compliance as per the notice issued, the AO treated the sum of Rs.63,96,717/- as expenditure having no nexus to the business of the assessee. The FAA confirmed the disallowance made by the AO by observing that the business expediency of the expenses has not been established by the assessee. The assessee’s contention was that these payments were made through banking channels and requisite TDS were made on such payments. Apart from the above contentions, the assessee had not produced any evidence to justify that the expenses were incurred in the course of business and is for business expediency.
The assessee before the Tribunal has furnished additional evidences in the form of consultancy contract for services entered :- 6 -: with the doctors for which the impugned payments were made. These additional evidences now filed before the Tribunal goes to the root of the issue. It is stated that post Covid, to collate the supporting evidences the assessee had taken time and missed out in filling the same before the FAA. The additional evidences go to the root of issue, hence, for substantial cause and justice, we admit the additional evidence filed before us. Since additional evidences are admitted, we deem it appropriate to restore the matter to the files of the AO. The AO is directed to examine the additional evidences filed before us and take a decision whether the expenditure incurred is an allowable deduction or not. It is ordered accordingly.
In the result, the appeal filed by the assessee is allowed for statistical purposes.