OFAC Sanctions, Iran Imports & ₹6.75 Crore Consultancy Fee – ITAT Mumbai Says Revenue Cannot Sit in the Businessman’s Chair!

Indisol Marketing Pvt. Ltd. Vs DCIT (ITAT Mumbai)

The Mumbai ITAT deleted a disallowance of ₹6.75 crore paid as professional fees for facilitating import remittances relating to Iranian-origin goods affected by OFAC sanctions. The assessee, engaged in pharmaceutical imports, had appointed a consultancy firm to assist in expediting complex banking clearances and overseas remittances which were otherwise facing extraordinary delays due to sanctions scrutiny.

The Tribunal noted that the payments were made through banking channels after deduction of TDS, the recipient had responded to notice u/s 133(6), confirmed the transactions, filed returns, disclosed the income and paid taxes thereon. The ITAT held that identity of the payee, genuineness of payments and movement of funds stood fully established.

Importantly, the assessee demonstrated that after availing the consultancy services, the average payment cycle to foreign creditors reduced from 167 days to 103 days, turnover increased from ₹1507 crore to ₹2620 crore, and profits rose substantially. The Tribunal accepted that the issue was not routine import-export compliance but involved highly sensitive OFAC-sanction banking difficulties requiring specialised liaison and banking relationships.

Rejecting the Revenue’s objections regarding the consultant’s small infrastructure, chawl/residential address and lack of multiple clients, the ITAT observed that “suspicion, however strong, cannot take the place of evidence.” It reiterated that commercial expediency must be judged from the businessman’s perspective and not from the Revenue’s armchair. Relying on Supreme Court and Bombay High Court rulings, the Tribunal held that when the recipient has offered the income to tax and no evidence of bogusness or money circulation is shown, disallowance u/s 37(1) cannot survive.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The instant appeal of the assessee filed against the order of the NFAC, Delhi [for brevity the “Ld. CIT(A)”], order passed under section 250 of the Income Tax Act 1961 (for brevity ‘the Act’) for Assessment Year 2022-23, date of order 20.06.2025. The impugned order emanated from the order of the Assessment Unit Income Tax Department (for brevity the ‘Ld. AO’) order passed under section 143(3) r.w.s. 144B of the Act date of order 20.03.2024.

2. The brief facts of the case are that the assessee filed its return of income declaring a total income of Rs.11,93,80,730/-. The case was selected for scrutiny under CASS and the assessment was completed u/sec. 143(3) r.w.s. 144B of the Act. The assessee is a company engaged in the pharmaceutical business, primarily involved in the trading and sale of bulk pharmaceutical and chemical products. The company operates in both domestic as well as international markets. The issue raised before the Bench pertains to the addition of Rs.6,75,38,035/- made on account of disallowance of professional fees paid in connection with imports from OFAC entities, i.e., import of goods originating from Iran. Due to sanctions imposed on goods originating from Iran, the assessee faced substantial delays in remittance of payments to its overseas creditors. In order to facilitate expeditious clearance of such payments, the assessee engaged the services of M/s. MJB Overseas (hereinafter referred to as “the party”). According to the assessee, such arrangement enabled quicker release of payments to creditors, resulting in enhancement of turnover during the impugned assessment year and consequently higher business profits. However, the Ld. AO disallowed the said expenditure towards professional fees on the ground that the payments lacked genuineness and were not incurred wholly and exclusively for the purposes of business. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) upheld the findings of the Ld. AO. Being aggrieved, the assessee has filed the present appeal before us.

3. The Ld. AR filed a paper book containing pages 1 to 331, which has been placed on record. The Ld. AR submitted that the assessee had imported goods from OFAC entities and the goods originated from Iran. Due to sanctions applicable to Iranian-origin goods, the banks were taking more than six months to process and release payments to the overseas creditors, causing substantial hardship to the assessee on account of delay in movement and procurement of stock. In order to facilitate smooth conduct and expansion of business operations, the assessee appointed the aforesaid party for expeditious mobilization and clearance of funds through banking channels and for timely remittance of payments to creditors. During the course of assessment proceedings, the Ld. AO issued a notice u/sec. 133(6) of the Act to the said party. In response thereto, the party duly complied with the notice and furnished the relevant documentary evidence in support of the assessee’s claim. The Ld. AO has himself recorded the compliance made by the party pursuant to the notice issued u/sec. 133(6) in paragraph 3.4.1 of the assessment order for the impugned assessment year, which is reproduced below.

“3.4 Variation proposed on the basis of inference drawn:

3.4.1 From the details of professional fee paid submitted by the assessee it is seen that the assessee company has made an amount of Rs.6,75,38,035/- to M/s. MJB Overseas for business consultancy services. In order to verify the genuineness of the payment as well to verify the services made by this party, notice u/s.133(6) of the Act was issued to this party to provide the details of services rendered to you with supporting evidence. However, the party could not provide the details of services rendered to you. This party has submitted only the copy of Invoices raised and the details of payments received from you and apart from these details, no other evidence has been furnished by this party on the professional services rendered to you.”

4. In support of his argument, the Ld. AR submitted a short synopsis which is reproduced as below:

“1. Professional fees paid by banking channel. TDS deducted.

2. M/s MJB Overseas (“Recipient”) and the assessee are not related at all.

3. Recipient has confirmed the transactions and receipt of professional fees in response to summons issued u/s 133(6) by the Ld. AO. Details including, invoices, their return of income, their audited financials and bank statement have been filed to show that income has been disclosed and offered to tax.

4. The issue was pertaining to payments for imports from OFAC entities i.e., import of goods originating in Iran. There were sanctions imposed by United States and there were issues in remitting money in a time bound manner. Remitting for OFAC country origin was a complex process. As a result, the imports were getting slowed due to delayed payments and resulting in a reduced turnover. Some sort of liasoning and use of good office was required to push the bank for making early payments. Even the banks had to face the risk of being sanctioned.

5. This was not a job for any normal executive to handle and it was only possible due to banking relations of the Recipient with the Banks. In fact, the appellant had to open new bank accounts in the banks with whom the Recipient was having good relations.

6. The Ld. AO and Ld. CIT(A) have not understood the grave situation faced by entities importing petrochemical from OFAC sanctioned Countries. No efforts have been taken to understand this complex banking issue. No summons issued to banks. No inquiries made with fellow importers to understand the difficulties faced by the Industry in general.

7. The benefits of this services are tabulated below:

8. It is a settled law that commercial expediency has to be adjudged from the point of view of the assessee and that the Income Tax Department cannot enter into the thicket of reasonableness of amounts paid by the assessee. It is not open to the Department to prescribe what expenditure an assessee should incur and in what circumstances he should incur that expenditure. Every businessman knows his interest best. (See 425 ITR 420(SC) Shiv Raj Gupta vs. CIT)

9. There is no provision for determining the reasonableness of the payment made except section 40A(2) and the Transfer Pricing Provisions. None of them are applicable to the present case as the entities are not related parties. Therefore, reasonableness cannot be gone into by the Ld. AO at all, without any statutory provision in this regard.

10. There is not even a tax arbitrage since, the other party has offered a substantial amount to tax as income viz. about Rs. 1.8 crores and Rs. 3.2 crores before deducting remuneration to partners. (See [2009] 310 ITR 306 (Bom) CIT vs. Indo Saudi Services (Travel) (P) Ltd.).

11. No adverse inference in case of the Recipient by Income-tax Department.

12. GST Audit of the Recipient is also concluded without any adverse remarks.

13. Moreover, no disallowance in the others years of the Assessee as well.

14. The argument that no details or evidence of service is shown is incorrect. Details have been shown including the invoice and working of professional fees by linking the same to remittances made and import documents.

15. It is important to note that subsequent to the imports, the Assessee and its director have been put in the OFAC Sanction list for importing good originating from Iran.”

5. The Ld. AR further submitted that the said party is an existing and duly operational business entity. During the impugned assessment year, the turnover of the said party amounted to Rs.16,33,28,340.05/-, whereas the profit before tax stood at Rs.1,80,15,219/-. The Ld. AR further placed reliance upon the GST Assessment Order, wherein the transactions undertaken by the assessee were duly accepted by the GST Authorities vide Final Audit Report No.581/Audit-Thane/2025-26 dated 11.02.2026, passed by the Office of the Commissioner of CGST and Central Excise Audit, Thane.

6. The Ld. AR further contended that during the course of appellate proceedings, the assessee duly complied with the notices issued by the Ld. CIT(A) and furnished all relevant documentary evidences and submissions. The relevant submissions of the assessee, as incorporated in the impugned appellate order, are reproduced below:

“Question 1. w.r.t each of the Invoice raised by M/s. MJB Overseas along with the reconciliation of the invoices raised by the M/s. MJB Overseas and the invoices of respective supplier parties i.e from whom the appellant had imported.

At the very instance we would like to draw your attention as regards to our submission made to the learned A.O. about the agreement between the assesse and MJB overseas The details of services rendered by Mis. MJB Overseas which clearly mention about the services to be obtained from M/s MJB overseas vide agreement dt. 1 October 2020 in which one of the services was to facilitate the payment for imports made by the assesse.

The services of such nature was very much necessary to continue the business as we are importing petrochemical products from OFAC countries through our suppliers in UAB as the goods of origin is from OFAC countries, as the imports were from such countries the banks used to take very long time to process the payments, we put forward the facts which will explain the situations of overdue payments which was cropping up year on year as

To overcome such difficulties we had to take the services from such agency who can support us to process the payment and after evaluating some of the agencies we shortlisted M/s MJB overseas as the Partner Mrs. Priyanka Ghatge had experience of handling foreign payment issues with the bank and facilitate the payment process. assesse entered in to agreement to process the payments for which the charges were to be decided on case to case basis.

As per the agreement and advice of the facilitator we opened 2 new account with RBL and Yes Bank the copy of email confirming the date of opening of such account in attached here with as Annexure A5 to A9, further we also submit the working of fees paid to the facilitator as Annexure B which ranges from 0.15% to 0.75% which is very minimal as compared to the losses which the company would had suffered on account of slow payment cycle to the suppliers as mentioned above, copy of bills raised by MJB overseas are also attached as AnnexureB1 to B9A We also take this opportunity to add one more fact, wherein the company was maintaining huge bank balance as the payment to importers were getting delayed which was effecting our business the facts are depicted below.

As per the above table it can be learned that the company was having huge bank balance as per as the company was not able to process the foreign payments, whereas the debtor cycle was around 60 to 90 days and we have to remit to our foreign suppliers in 30 to 60 days from the shipment date or invoice, which was extended to average 165 days, such dare situation compelled us to engage the services of the facilitator such M/s MJB overseas.”

7. The Ld. AR respectfully relied on the order of Hon’ble Supreme Court in the case of Shiv Raj Gupta vs CIT reported in (2020) 117 taxmann.com 871 (SC). The relevant para no.15 is reproduced as below:

”15……………………………………

This finding flies in the face of settled law. A catena of judgments has held that commercial expediency has to be adjudged from the point of view of the assessee and that the Income Tax Department cannot enter into the thicket of reasonableness of amounts paid by the assessee.

This Court in CIT v. Walchand & Co. [1967] 3 SCR 214 stated as follows:

“It is open to the Tribunal to come to a conclusion either that the alleged payment is not real or that it is not incurred by the assessee in the character of a trader or that it is not laid out wholly and exclusively for the purpose of the business of the assessee and to disallow it. But it is not the function of the Tribunal to determine the remuneration which in their view should be paid to in employee of the assessee. When a claim for allowance under section 10(2)(xv) of the Income-tax Act is made, the Income Tax Authorities have to decide whether the expenditure claimed as an allowance was incurred voluntarily and on grounds of commercial expediency. In applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the purpose of the business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the Revenue.” [at page 217].

The aforesaid judgment was followed by this Court in J.K. Woollen Mfgr. v. CIT [1969] 1 SCR 525 where the Court held:

“As pointed out by this Court in CIT v. Walchand & Co. (P.) Ltd. [(1967) 65 ITR 381 : (AIR 1967 SC 1435)] in applying the test of commercial expediency for determining whether an expenditure was wholly and exclusively laid out for the purpose of the business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the Income Tax Department. It is, of course, open to the Appellate Tribunal to come to a conclusion either that the alleged payment is not real or that it is not incurred by the assessee in the character of a trader or it is not laid out wholly and exclusively for the purpose of the business of the assessee and to disallow it. But it is not the function of the Tribunal to determine the remuneration which in their view should be paid to an employee of the assessee.” [at pages 529-530].”

8. The respectfully reliance was placed in the order of Hon’ble Bombay High Court in the case of CIT vs Indo Saudi Services (Travel) (P.) Ltd. reported in [2009] 310 ITR 306 (Bom) the relevant para 5 and 6 which is reproduced as below:

“5. In view of the aforesaid admitted facts we are of the view that the Tribunal was correct in coming to the conclusion that the CIT(A) was wrong in disallowing half per cent commission paid to the sister concern of the assessee during the asst. yrs. 1991-92 and 1992-93. The learned advocate appearing for the appellant was also not in a position to point out how the assessee evaded payment of tax by alleged payment of higher commission to its sister concern since the sister concern was also paying tax at higher rate and copies of the assessment orders of the sister concern were taken on record by the Tribunal.

6. We, therefore, answer the above question of law raised in these appeals in affirmative and dismiss the above appeals filed by the appellant. There will, however, be no order as to costs.”

9. The Ld. DR argued and submitted that the genuineness of the said business entity itself is doubtful, as observed by the Ld. AO. It was contended that the party had undertaken transactions only with the assessee and had no dealings with any other entities in relation to such line of business. According to the Ld. DR, except for the transactions carried out with the assessee, no independent business transactions were undertaken by the said party.

“6.3.2 On this point, the appellant except for making the statement that it had evaluated and after that it had shortlisted M/s MJB Overseas, it had not specified what and how it had evaluated as against all the other parties who are rendering the similar services like M/s MJB Overseas, to provide services for it.

6.3.3 In this context, it is necessary to examine the copy of ROI of M/S MJB Overseas for the AYs 2022-23, 2023-24 and 2024-25 submitted by the appellant assessee.

6.3.4 It in noticed that M/s MJB Overseas is a firm incorporated only on 21.8.2020 with partners Mrs. Priyanka Milind Ghatge and M/s Rupa Ghatge with equal share of profit whose nature of business is mentioned as 09027-MJB Overseas, Wholesale of other Products n.c.c”.

6.3.5 Even in ROI, for AY 2022-23, the Revenue from Operations is shown at Rs. 16,33,28,340/-consisting of Sales at Rs.9,57,90,304/- and Business Consultancy charges at Rs.6,75,38,035 This entire business consultancy charges of Rs.6,75,38,035/- has been received by M/s. MJB Overseas from the appellant assessee only. The other small sum of Rs 75,49,187/- as per Form 16A received from Mr. Hemant Ranchandra Rohra is not offered as consultancy income.

6.3.6 If the claim of the appellant assessee i.e., M/s. MJB Overseas whose, partner M/s. Priyanka Milind Ghatge is an expert in rendering specific import payment services then why the appellant assessee is the only client to whom such service is rendered. Moreover, it was incorporated only in August 2020 and the so called agreement with the appellant was entered in October 2020 itself.

6.3.7 The pertinent point to note here is that the appellant assessee or M/s. MJB Overseas has failed to furnish the details of services rendered both at the time of assessment proceedings and even at the time of appeal proceedings. Both are submitting the copy of invoice, mode of payment and details of payment but they have not furnished what exactly is the service rendered against each of the invoice for which commission has been calculated & paid.

6.3.8 Even in ITR for AY 2023-24 of M/s MJB Overseas, the Revenue from operation is shown at Rs.6,30,44,879/- comprising of Sales at Rs.3,71,10,255/- & Business consultancy charges at Rs.2,59,34,623/- and that entire business consultancy income is again contributed by the appellant assessee only.

6.3.9 Thus the copy of ITR of M/s. MJB Overseas speaks loud that M/s. MJB Overseas though claimed to be rendering expert import payment services, it is not so because except from the appellant assessee it did not receive such a huge amount as business consultancy charges.”

10. The Ld. DR further argued and invited our attention in impugned assessment order the relevant para is reproduced as below:

The assessee in in its reply stated that the assessee has appointed MJB Overseas to facilitate the set up of import and export procedure with the bank, acting as an intermediary between them and the bank and with the help of MJB Overseas, the company was able to settle the dues with foreign parties and secure business from foreign suppliers and customers. However, the assessee could not provide any evidence of the services provided by this party. The assessee is an import and exporter of bulk pharmaceutical and chemicals products. The services claimed to have been provided by the party is usually carried out by the Import and Export Executive, who is having the knowledge of following work.

1. submission of Import and Export documents to the Bank.

2. Knowledge of Bank/RBI/FEMA rules and regulations relating to Import and Export transactions

3. submission of Imports Bills of Entry to the Bank and clearance of IDPMS on Bank/Customs portal

4. submission of Export related documents to the Bank and clearance of EDPMS on Bank/Customs portal

5. clearing backlogs of Imports and Export submissions pending on IDPMS and EDPMS

6. Bank co-ordinations for Imports and Exports

7. Interaction with the Import and Exports departments

8. Preparing and maintaining Import/Export Trackers

9. Logistics invoices checking and tracking.

10. Knowledge of Import Accounting and Export Accounting

11. connecting and getting all the works done by CHA before time.

For carrying out the above listed work, the assessee has claimed to have paid professional fees of Rs.6,75,38,035/- to M/s. MJB Overseas. However, despite specifically asking the assessee to submit supporting evidences the assessee has not furnished any supporting evidence and also justification for having paid such a huge amount of fee. As stated above para, notice u/s. 133(6) of the Act was issued to MJB Overseas to provide the details of the services rendered to the assessee which was not submitted by them. Further the assessee M/s. MJB Overseas was also asked to submit the details of their employees who are indulged in providing the service to the assessee company. However, neither the entity M/s. MJB Overseas nor the assessee has submitted any details with supporting evidence. The copy of invoices pertaining to M/s. MJB Overseas has been perused, it is seen from the same that, it has two addresses one at Pune and one at Mumbai. The address of pune is a residential address and the address at Mumbai is also an address of chawl, the relevant screenshot of the same e is reproduced hereunder.”

11. We heard the rival submissions and perused the material available on record. The core issue involved in the present appeal relates to the disallowance of professional fees amounting to Rs.6,75,38,035/- paid by the assessee to M/s. MJB Overseas in connection with facilitation of remittances for imports originating from OFAC sanctioned entities, particularly goods originating from Iran. On careful consideration of the facts available on record, we find that the assessee has furnished substantial documentary evidences in support of the impugned expenditure. The payment has admittedly been made through proper banking channels after deduction of tax at source. The recipient party has duly responded to the notice issued u/sec. 133(6) of the Act and confirmed the transactions. The recipient has also furnished its return of income, audited financial statements, invoices and bank statements demonstrating that the receipts were duly accounted for and offered to tax. Therefore, the identity of the payee, genuineness of the payment and movement of funds through banking channels stand duly established. We further find merit in the contention of the assessee that the nature of services rendered cannot be examined in a narrow or routine commercial perspective, ignoring the peculiar business circumstances faced by the assessee. The assessee was admittedly engaged in import of goods originating from Iran, which were subject to OFAC sanctions and strict banking scrutiny. The material placed on record clearly demonstrates that due to such sanctions, substantial delay was occurring in processing and remittance of foreign payments through banks, adversely affecting the assessee’s import cycle and business turnover. The assessee has also demonstrated through comparative financial data that after availing the services of M/s. MJB Overseas, the average payment cycle to foreign creditors reduced from 167 days to 103 days, while turnover substantially increased from Rs.1507 crores to Rs.2620 crores and profits increased manifold. Thus, the expenditure incurred by the assessee has a direct nexus with the business operations and commercial expediency of the assessee. The observations of the Ld. AO and the Ld. CIT(A) are primarily based on the premise that the services rendered by the recipient were not supported by conventional documentary evidences and that such activities could ordinarily be performed by an import-export executive. In our considered opinion, such reasoning proceeds merely on assumptions and surmises without properly appreciating the peculiar nature of the transactions undertaken by the assessee. The revenue authorities have completely overlooked the fact that the issue was not a routine import-export compliance matter but involved complex banking and remittance issues arising from OFAC sanctions relating to Iranian-origin goods. No independent inquiry was conducted by the revenue from the concerned banks or from similarly placed importers dealing in OFAC sanctioned jurisdictions in order to dislodge the specific contention of the assessee regarding extraordinary banking difficulties.

Further, merely because M/s. MJB Overseas had predominantly rendered such services to the assessee alone, the same cannot by itself lead to an inference that the transactions are sham or ingenuine. The recipient entity is duly registered, assessed to tax and its receipts have been accepted by the Department. The GST Audit conducted by the Office of the Commissioner of CGST and Central Excise Audit, Thane has also accepted the transactions without any adverse findings. No material has been brought on record by the revenue to establish that the payments made by the assessee had flown back to the assessee or that the services were altogether non-existent. Suspicion, however strong, cannot take the place of evidence.

We respectfully rely upon the judgment of the Hon’ble Supreme Court in the case of Shiv Raj Gupta (supra), wherein it has been held that commercial expediency has to be adjudged from the point of view of the businessman and not from the perspective of the revenue authorities. The revenue cannot step into the shoes of the assessee to determine what expenditure should or should not have been incurred for the purposes of business. We further respectfully rely upon the judgment of the Hon’ble Bombay High Court in the case of Indo Saudi Services (Travel) (P.) Ltd. (supra), wherein it was held that where the recipient has duly offered the income to tax and there is no tax evasion or tax arbitrage, disallowance merely on the ground of alleged excessiveness or suspicion is not sustainable. In the present case also, the recipient has duly disclosed the income and paid taxes thereon and there is no allegation of tax avoidance.

The findings of the Ld. AO regarding the residential or chawl address of the recipient, absence of multiple clients, or absence of large employee infrastructure cannot be decisive factors to reject the expenditure when the transactions are otherwise supported by documentary evidences and accepted banking channels. In modern commercial realities, consultancy and liaison services may be rendered through limited infrastructure depending upon specialized contacts, expertise and business relationships. The revenue has failed to bring any cogent material on record to prove that the expenditure is bogus or fictitious.

Considering the totality of the facts and circumstances of the case, we hold that the professional fees paid by the assessee to M/s. MJB Overseas were incurred wholly and exclusively for the purposes of business and satisfy the conditions prescribed u/sec. 37(1) of the Act. Accordingly, the disallowance made by the Ld. AO and sustained by the Ld. CIT(A) amounting to Rs.6,75,38,035/- is directed to be deleted. Thus, the grounds raised by the assessee are allowed.

12. In the result, the appeal of the assessee bearing ITA No.4644/Mum/2025 is allowed.

Order pronounced in the open court on 12^th day of May 2026.