ITAT Pune Upholds ₹6 Lakh Professional Fees Disallowance For Lack of Evidence

The Pune Bench of the Income Tax Appellate Tribunal (ITAT) has upheld the disallowance of Rs. 6 lakh claimed as professional fees for the assessment year 2017-18, noting that the payment was not supported by sufficient evidence such as the recipient's income tax return, Form 26AS (annual tax statement), or bank statements.

The Bench, comprising Accountant Member Dr Dipak P. Ripote and Judicial Member Vinay Bhamore, reaffirmed that expenses claimed as professional fees must be substantiated with proper evidence and reflected in the recipient's tax filings, failing which they can be disallowed under the Income Tax Act.

In the case at hand, the Assessing Officer (AO) had found that the assessee had claimed Rs. 10.50 lakh as professional fees to one of its directors, of which Rs. 6 lakh was neither shown in the director's income tax return. It also did not appear in the assessee's bank statements and TDS on the amount was also not deducted.

An addition was made by the AO under section 143(3) of the Income Tax Act. The provision empowers the AO to complete an assessment after scrutiny of the return filed and make necessary additions or disallowances.

The CIT(A) confirmed the addition, noting that the assessee relied on ledger entries and self-prepared invoices but failed to prove actual payment or the genuineness of the transaction.

Before the Tribunal, the assessee again relied on ledger accounts and invoices. The Bench observed that the invoices lacked serial numbers and signatures, and the assessee could not explain the nature of the services.

The Tribunal further noted that the expenditure was not shown to be incurred wholly and exclusively for business purposes, as required under section 37 of the Income Tax Act. Considering that the recipient director had not offered the amount to tax, the payment was not reflected in bank statements, and no independent evidence was provided, the Tribunal held the disallowance to be justified.

Accordingly, the ITAT dismissed the appeal in its entirety.

Case Title: Tooltech Global Engineering Pvt Ltd v. The Income Tax Officer

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