2025 (5) TMI 212 - AT - Income Tax

Addition of technical services fees paid by the assessee to various persons - HELD THAT - As undisputed fact of the case that the assessee has not provided any evidence in the form of qualifications of the parties agreements entered with them details of amounts paid to them through banking channels etc thus far. It is trite law that it is the assessee which is required to lead evidence in its case in support of claims made. The assessee was therefore required to provide all the above evidence for examination of the lower authorities. Mere tax deduction by the assessee can be a factor to justify the claim but cannot be the sole factor. The assessee was required to explain the commercial expediency of the impugned expenses including the genuineness of the transactions identify of persons etc. Accordingly we are of the opinion that there is no case of any interference to be made in the order of FAA The same is therefore confirmed and grounds of appeal nos. 2 to 5 raised by the assessee are dismissed. Addition u/s 40A(3) - cash expenses where expenditure exceeded the threshold limit u/s 40A(3) - HELD THAT - Rule 6DD of the Income Tax rules presumes situations where it may not be possible to comply with the said threshold limit of Rs. 10, 000/- and hence certain exceptions have been made to allow for cash expenses in exceptional circumstances chiefly being non-availability of adequate banking facilities low end laborers etc. We find sufficient force in the findings of the Ld.CIT(A) that the assessee does not have any justified grounds in support of its claim. The argument of land lord insisting for cash payments cannot be a justified ground. Similarly stipend payments and salary etc to white collar workforce located in metropolis of Chennai could have been easily given by cheque as argument of non-availability of adequate banking facilities in Chennai cannot be accepted. Accordingly we do not feel any need to interfere with the order of the Ld.CIT(A) as this stage. Violation of principles of natural justice to the extent of using information against it which was gathered at its back - As we have noted that no specific detail or arguments were brought to our knowledge in support of the impugned ground. There is nothing in the order of lower authorities which alludes towards utilization of any information gathered at its back.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the addition of Rs. 83,86,539/- made by the Assessing Officer (AO) towards technical services fees paid to various persons is justified, given the lack of corroborative evidence supporting the genuineness of such expenses;

(b) Whether the addition of Rs. 66,61,467/- under section 40A(3) of the Income Tax Act, on account of cash payments exceeding the prescribed threshold limit of Rs. 10,000/-, is sustainable in light of the assessee's explanations regarding the nature of payments and alleged exceptional circumstances;

(c) Whether principles of natural justice were violated by the Revenue authorities by allegedly using information gathered without the assessee's knowledge or opportunity to respond;

(d) Miscellaneous grounds including general objections (grounds 1 and 10) which were dismissed as general in nature.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Addition of Rs. 83,86,539/- towards technical services fees

Relevant legal framework and precedents: The burden of proof lies on the assessee to establish the genuineness and commercial expediency of claimed expenses. Mere deduction of tax at source (TDS) is not conclusive evidence of the expenditure's authenticity. The AO is empowered to disallow expenses if the assessee fails to provide satisfactory evidence under relevant provisions of the Income Tax Act.

Court's interpretation and reasoning: The AO found that the assessee paid technical service fees to about ten persons but failed to produce any agreements, qualification details, or bank evidence of payments. Notices under section 133(6) issued to these parties went unanswered, and the assessee's submissions were limited to Form 16A copies showing TDS deductions and bald assertions regarding the nature of services rendered. The CIT(A) concurred with the AO's findings, emphasizing the absence of cogent evidence.

Key evidence and findings: The assessee's bank statements did not reflect payments to the recipients, and no contracts or qualification details were furnished. The parties to whom fees were allegedly paid did not file income tax returns despite notices.

Application of law to facts: The Tribunal noted the well-established principle that the assessee must furnish evidence to support claimed expenses. Mere TDS deduction is insufficient. The absence of agreements, payment proofs, and qualifications led to the conclusion that the expenses were not satisfactorily established.

Treatment of competing arguments: The assessee's reliance on prior submissions and documents was rejected due to lack of substantive evidence. The Revenue's contention that no presumption of genuineness could be drawn without demonstrative proof was accepted.

Conclusions: The addition was upheld, and the grounds challenging this addition were dismissed.

Issue 2: Addition of Rs. 66,61,467/- under section 40A(3) for cash payments exceeding Rs. 10,000/-

Relevant legal framework and precedents: Section 40A(3) aims to curb cash transactions exceeding Rs. 10,000/- to ensure traceability and prevent tax evasion. Rule 6DD of the Income Tax Rules provides exceptions where cash payments exceeding the limit may be justified, such as non-availability of banking facilities or payments to low-income laborers.

Court's interpretation and reasoning: The AO observed that cash expenses aggregating Rs. 66,61,467/- exceeded the statutory threshold. The assessee's explanation included payments of rent to landlords who were partners, stipends to students without bank accounts, and salaries to contractual staff also lacking bank accounts. The CIT(A) found these explanations insufficient, particularly rejecting the landlord's insistence on cash and the claim of non-availability of banking facilities in a metropolitan city like Chennai.

Key evidence and findings: The cash book was produced but failed to justify the exceptional circumstances required under Rule 6DD. The Tribunal accepted the CIT(A)'s view that the assessee did not establish valid grounds for such cash payments.

Application of law to facts: The Tribunal emphasized the legislative intent behind section 40A(3) to create an identifiable trail of expenses. The exceptions under Rule 6DD were narrowly construed, and the facts did not satisfy these exceptions.

Treatment of competing arguments: The assessee's arguments were considered but found unpersuasive. The Revenue's reliance on the statutory provisions and absence of valid justification was accepted.

Conclusions: The addition under section 40A(3) was confirmed, and the related grounds were dismissed.

Issue 3: Alleged violation of principles of natural justice

Relevant legal framework and precedents: Principles of natural justice require that no adverse order be passed without giving the affected party an opportunity to be heard. Use of information obtained without the assessee's knowledge or opportunity to respond may violate these principles.

Court's interpretation and reasoning: The Tribunal found no specific details or arguments substantiating the claim that information was used against the assessee without notice. The impugned orders contained no indication of such procedural irregularity.

Key evidence and findings: The record was silent on any breach of natural justice.

Application of law to facts: Without any concrete evidence or particulars, the ground was held to be without merit.

Treatment of competing arguments: The assessee's claim was dismissed for lack of substantiation.

Conclusions: The ground was rejected as infructuous.

Issue 4: General grounds of appeal

Grounds 1 and 10 were dismissed as general and non-specific.

3. SIGNIFICANT HOLDINGS

"It is trite law that it is the assessee which is required to lead evidence in its case in support of claims made. Mere tax deduction by the assessee can be a factor to justify the claim, but cannot be the sole factor."

"Section 40A(3) of the act has been brought on the statute with the objective of curbing cash transactions so that a bona-fide identifiable trail of expenses is available on records."

"The argument of landlord insisting for cash payments cannot be a justified ground. Similarly, stipend payments and salary etc to white collar workforce located in metropolis of Chennai could have been easily given by cheque as argument of non-availability of adequate banking facilities in Chennai cannot be accepted."

"No specific detail or arguments were brought to our knowledge in support of the impugned ground [violation of natural justice]. There is nothing in the order of lower authorities which alludes towards utilization of any information gathered at its back."

The Tribunal confirmed the additions made by the AO and upheld the orders of the CIT(A) in respect of both the disallowance of technical services fees and the addition under section 40A(3). The appeal was dismissed in its entirety.

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