'Cannot Wear Cap of A Businessman': ITAT Delhi Deletes ₹53.30 Lakh Disallowance Against Zeta

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has granted relief of Rs. 53.30 lakh to Zeta Buildtech Pvt. Ltd., a distributor of liquor and beverages, by deleting disallowances on payments to independent service providers and holding that the Revenue cannot question the commercial wisdom of such expenditure.

For Assessment Year 2020–21, Zeta had declared total income of ₹98.48 lakh.The Assessing Officer had disallowed Rs. 31.80 lakh paid to S.P. Jindal Financial Services Limited towards internal audit and MIS services, Rs. 3 lakh paid to Bigthink Media Pvt. Ltd., and Rs. 18.50 lakh paid to S.P. Jindal Marketing Limited. The Commissioner of Income Tax (Appeals) upheld the additions.

Before the Tribunal, Zeta argued that the payments were made to unrelated entities and were wholly and exclusively for business purposes.

The Bench of Judicial Member Raj Kumar Chauhan and Accountant Member S. Rifaur Rahman ound that the service providers were “unrelated and independent” entities engaged on a contractual basis. It held that the Revenue could not substitute its own view of what was commercially reasonable

“Therefore, we cannot wear a cap of a businessman to determine disallowance of expenses particularly it is incurred for the purpose of business.”

On the marketing payments, the tribunal rejected the revenue's comparison approach and held:

“We cannot apply same logic to compare the reasonableness of the expenses. Since, we do not know the location, nature and complexity involved in each assignments"

Allowing the appeal in full, the bench concluded:

“Therefore, we are inclined to allow the grounds raised by the assessee on the basis of payment to independent and unrelated parties.”