₹1.37 Cr ‘Consultancy’ Charges Not Proven as Business Expense: ITAT Upholds Income Tax Disallowance against Jeweler [Read Order]

The Income Tax Appellate Tribunal (ITAT) Bangalore Bench has upheld the disallowance of ₹1.37 crore claimed by a jewellery company as consultancy expenditure, ruling that the assessee failed to prove the genuineness or business necessity of the payment.

The jewellery firm had contested the order of the Principal Commissioner of Income Tax (Appeals)–11, which upheld the reassessment under Section 147 and disallowed the expenditure under Section 37(1) of the Income Tax Act, 1961, for Assessment Year 2019–20.

The case originated from a search conducted on 17 February 2021 in the group case of Shri Adichunchagiri Shikshana Trust, where post-search enquiries revealed that Prakash Nath Swamiji had received consultancy payments from the assessee. The Assessing Officer reopened the assessment after finding that the company had paid ₹1.37 crore to Swamiji without adequate proof of services rendered.

Appearing for the assessee, Davanam Jewelers Private Limited, CA Pooja Maru, argued that the payments were made for Vaastu and business development consultancy and that Swamiji had already offered the income to tax, making the disallowance tantamount to double taxation. The assessee also contended that the proceedings should have been initiated under Section 153C, not Section 147.

On the other hand, the revenue represented by N. Balusamy, JCIT, stated that the reopening under Section 147 was valid because post‑search enquiries provided tangible information about consultancy payments.

The Bench comprising Prashant Maharishi (Vice-President ) and Keshav Dubey (Judicial Member) rejected these arguments. The Tribunal held that the reopening was based on specific, tangible information obtained through post-search enquiries and was therefore valid under Section 147. It noted that no material was found during the search to trigger Section 153C.

On merits, the Tribunal observed that the agreement dated 6 June 2018 between the assessee and Swamiji was vague, lacking any clear description of services rendered. The assessee failed to produce evidence of Swamiji’s professional expertise, visits, or activities connected to the jewellery business.

The Bench remarked that “the claim of the assessee is bald, bereft of genuineness and lacking any evidence to support it,” concluding that the expenditure was not incurred wholly and exclusively for business purposes.

The Tribunal also upheld disallowances of ₹20.39 lakh towards employees’ delayed PF and ESI contributions under Section 36(1)(va), citing the Supreme Court’s ruling in Checkmate Services Pvt. Ltd., and ₹22,500 under Section 40(a)(ia) for non-deduction of tax at source on advertisement expenses.

Accordingly, the appeal was dismissed

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates