Case Law Details
Fyers Securities Private Limited Vs DCIT (ITAT Bangalore)
The appeal concerned the disallowance of ₹5,50,80,000 paid as consultancy fees by the assessee to a related party, M/s. Fyers Investment Advisors Private Limited, for Assessment Year 2022-23. The assessee, engaged in stock brokering services, had claimed the expenditure as a business deduction. The Assessing Officer disallowed the claim under Section 37 of the Income Tax Act, and the disallowance was subsequently confirmed by the Commissioner of Income Tax (Appeals).
During assessment proceedings, the assessee explained that the consultancy company provided technical and professional services, including intellectual property consultancy, real estate advisory, documentation services, payment of stamp duty, and other related services. The assessee produced the consultancy agreement dated 04.12.2018 and furnished details of invoices raised by the service provider. The service provider also supplied information in response to a notice issued under Section 133(6), including income tax returns, audited accounts, GST returns, TDS details, and particulars of services rendered.
The Assessing Officer, however, observed that the transaction was between related parties and concluded that the arrangement lacked sufficient substantiation. According to the Assessing Officer, the service provider had not furnished specific details establishing the services rendered. Consequently, the entire consultancy payment was treated as inadmissible expenditure and disallowed.
On appeal, the Commissioner (Appeals) upheld the disallowance. The appellate authority noted that the consultancy agreement was unregistered and found no evidence demonstrating actual rendition of services. It was also observed that the assessee had not produced correspondence between itself and the service provider to establish that the activities mentioned in the agreement had in fact been performed. On that basis, the expenditure was held not to have been incurred wholly and exclusively for business purposes.
Before the Tribunal, the assessee filed extensive documentary evidence and sought admission of additional evidence under Rule 29 of the Income Tax Appellate Tribunal Rules. The assessee contended that the lower authorities had not specifically sought such evidence and that the disallowance had ultimately been sustained for lack of proof regarding rendition of services. The assessee further pointed out that similar payments made to the same party in an earlier year had been allowed. It was also argued that the assessee’s revenue had increased substantially during the relevant year and that consultancy and professional expenses had increased proportionately. The assessee emphasized that the Assessing Officer had not alleged that the remuneration paid to the related party was excessive.
The Tribunal examined the material on record and noted that the assessee had produced the consultancy agreement, proof of payment, and detailed responses furnished by the service provider under Section 133(6). The service provider had explained the nature of services rendered and supplied supporting tax and regulatory records. The Tribunal observed that even if the service provider had no other clients, that fact alone could not justify disallowance. The relevant consideration was whether the expenditure had been incurred wholly and exclusively for the assessee’s business.
The Tribunal further found that the services rendered were reflected in the expenditure incurred by the service provider and disclosed in its financial statements. It also took note of additional evidence showing trademark registrations for the mark “Fyers,” which was owned by the service provider and used by the assessee in carrying on its business. The Tribunal observed that the consultancy charges were not disproportionate when compared with the assessee’s revenue growth. While consultancy charges had increased, the ratio of such expenses to revenue remained broadly consistent with the preceding year.
According to the Tribunal, the material on record indicated that the expenditure had been incurred for services rendered, including the right to use the “Fyers” trademark and other services provided by the service provider. The Tribunal observed that the expenditure appeared to have been incurred wholly and exclusively for business purposes and that the assessee had produced additional evidence that had not been examined by the lower authorities.
Since the additional evidence, particularly the trademark registration documents, was not available before the Assessing Officer or the Commissioner (Appeals), the Tribunal restored the entire issue to the Assessing Officer for fresh examination. The Assessing Officer was directed to verify the additional evidence and reconsider the allowability of the expenditure in light of the Tribunal’s observations. The appeal was accordingly allowed for statistical purposes.
FULL TEXT OF THE CESTAT BANGALORE ORDER
1. ITA No. 2755/Bang/2025 is filed by M/s. Fyers Securities Private Limited (the Assessee/Appellant) for Assessment Year 2022-23 against the Appellate Order passed by the National Faceless Appeal Centre, Delhi (the Ld. CIT(A)) on 24.09.2025 wherein the Appeal filed by the Assessee against the Assessment Order passed u/s. 143(3) r.w.s. 144B of the Income Tax Act, 1961 (the Act) by the Income Tax Department Assessment Unit (the Ld. Assessing Officer) dated 18.03.2024 was dismissed.
2. The solitary issue in this Appeal raised by the Assessee is the disallowance of Rs. 5,50,80,000/- being the consultancy fees paid by the Assessee claimed as the expenditure disallowed by the Ld. Assessing Officer and confirmed by the Ld. CIT(A).
3. Brief facts of the case show that Assessee is a company engaged instock brokering services filed its return of income on 29.09.2022 at a total income of Rs. 30,86,31,000/-. On selection of the case for scrutiny, the Assessee was asked to explain payment of consultancy fees of Rs. 5,50,80,000/- paid to M/s. Fyers Investment Advisors Private Limited. The Assessee submitted a consultancy agreement dated 04.12.2018 and submitted that the consultancy company is providing technical and professional services to the Assessee in the form of intellectual property consultancy; real estate advisory; end to end documentation services including purchase and stamp papers, payment of stamp duty and any other services. It was further stated that payment of consultancy charges of Rs. 5,50,80,000/- is comprising of GST and therefore the actual services are Rs. 5,10,00,000/-. Thus, Assessee submitted that it has explained the nature of services and nature of consultancy rendered by the Assessee. The Assessee also submitted the details of 13 invoices raised by the service provider stating its Permanent Account Number, GST number, nature of services rendered and the amount of services paid.
4. The Ld. Assessing Officer held that the agreement is between related parties and the basis of making payment is not detailed in the said agreement and therefore he issued notice u/s. 133(6) of the Act on 19.02.2024 to the service provider. On the basis of the submission made by the service provider, the Ld. Assessing Officer reached the conclusion that service provider has not submitted specific details called for and issued a show cause notice.
5. The Assessee reiterated the same facts and further stated that Assessee has replied to u/s. 133(6), income tax return, audited annual accounts, GST returns, TDS details etc., It was further stated that the detailed services provided by the service provider were also mentioned.
6. However, the Ld. Assessing Officer held that transaction is with related party. The entire consideration received by related parties from the Assessee and however it is mere paperwork of the Assessee and therefore disallowed the same u/s. 37 of the Act by Assessment Order passed u/s. 143(3) r.w.s. 144B of the Income Tax Act on 18.03.2024 determining the total income of Rs. 36,37,11,000/-.
7. The Assessee approached Ld. CIT(A). The Assessee reiterated the same facts. However, the Ld. CIT(A) confirmed the disallowance stating that the agreement produced by the Assessee is unregistered with its related party but there is no evidence of rendition of services and therefore the payment made by the Assessee is not exclusively incurred for the purposes of the business. The Ld. CIT(A) further noted that Assessee failed to furnish a single correspondence exchanged between the Assessee and the service provider to demonstrate that any of the activity mentioned in the agreement was performed by it. Thus, the Appeal of the Assessee was dismissed.
8. On Appeal before us, the Assessee furnished written submission as well as a paper book containing 305 pages and also an application for admission of additional evidence under Rule 29 of the Income Tax Appellate Tribunal Rules. In additional evidence, the Assessee produced the evidence with respect to rendition of the services. The reason given by the Ld. Authorized Representative is that these were neither asked by the Ld. Assessing Officer nor by the Ld. CIT(A) but in the Appellate Order the addition was confirmed on this account. In his detailed note, the Ld. Authorized Representative mentioned that service provider has rendered the services which are remunerative according to the agreement, the expenditure is wholly and exclusively incurred for the purpose of the business and further the disallowance was wrongly computed. He submitted that for the year ended on 31.03.2021, the Assessee has paid such remuneration to this party for Rs. 250 lakhs which was allowed. However, for this year, the payment was Rs. 510 lakhs which were disallowed. He further stated that the revenue income of the Assessee for the previous year was Rs. 1800 lakhs whereas for this year it is Rs. 5778 lakhs and therefore the consultancy expenses incurred by the Assessee in the last year of Rs. 346 lakhs are also increased to Rs. 684 lakhs. He further submitted that despite being a related party it is not claimed by the Ld. Assessing Officer that the remuneration paid by me is excessive. He further referred to the paper book wherein he submitted that in reply given by the service provider u/s. 133(6) clearly furnished all the details of the service provider about the rendition of the services. He thereafter referred to the annual accounts of the service recipient to show that he submits that the service recipient as by name suggests an investment company also who is having the investment of Rs. 4 crores and is earning dividend etc., of Rs. 703 lakhs as per profit and loss account. Thus, it is not the case that Assessee is the only source of revenue for the service provider. He further referred to the nature of the business of the service provider wherein it is stated that it is advisory in the share trading activities. He further submitted that the addresses of the service recipient and the service provider are also different. He also looked at the expenditure schedule of the service provider wherein at sl. no. 18 note no. 18, details of expenditure of Rs.12 lakhs are incurred of various nature for rendition of these services. In view of the above facts, he submitted that the disallowance made by the Ld. Assessing Officer and confirmed by the Ld. CIT(A) is incorrect. He further referred to several documents to show that the services were rendered, the expenses were incurred for such services, same are reasonable, similar to the turnover the Assessee of earlier years and supported by the agreement of the parties. Even otherwise, he submitted that there would not be any difference as the service provider and the service recipient both are companies and are paying tax at the same rate.
9. The Ld. Departmental Representative vehemently submitted that Assessee has failed to prove the rendition of services by a related party of a huge magnitude and there is no business of the related party except the above service charges received from the Assessee, the claim of the Assessee was disallowed. He further submitted that it is irrelevant that tax is paid by the recipient of the services at the same rate. In fact, tax is chargeable on the income of the Assessee irrespective of the rate. It cannot be said that if the recipient has paid higher or equivalent tax, expenses, invariably allowed without verification of its allowability u/s. 37(1) of the Act. He therefore supported the orders of the Ld. lower authorities.
10. We have considered the rival submissions and perused the orders of the learned lower authorities. The Assessee carries on the business of brokerage. Its revenue for the year ended 31.03.2021 was Rs. 1860 lakhs, whereas for the year under appeal it was Rs. 5565 lakhs. The Assessee claimed Rs. 684 lakhs as legal and professional charges, out of which Rs. 510 lakhs were paid to its related party, M/s. Fyers Investment Advisors Private Limited. The record contains the agreement and proof of payment. In response to notice under section 133(6) of the Act, the service provider filed a detailed reply, placed on page 254 of the paper book, setting out the nature of services rendered to the Assessee. It also furnished invoice particulars, copies of its income-tax return, tax audit report, GST returns, and TDS certificates. As regards the related-party transaction, it was stated that the payment had been considered and approved by the Board of Directors. Reference was also made to the experience of the service provider’s management in the stock market, real estate, and mutual funds. Even if the service provider had no clients other than the Assessee, that fact itself would not justify disallowance. The relevant test is whether the expenditure was incurred wholly and exclusively for the purposes of Assessee’s business. Whether the service provider worked exclusively for the Assessee or also for others is not, by itself, determinative of allowability.
11. In the present case, the Assessee has adequately explained the nature of the services, and their rendition is also reflected in the expenditure incurred by the service provider as disclosed in its annual accounts. In the absence of any other client, such expenditure is clearly relatable to the services rendered to the Assessee. By way of additional evidence, the Assessee has also produced trademark certificates under the Trademarks Act in respect of the mark ‘Fyers’, which is owned by the service provider and used by the Assessee in rendering services to its clients. It is likewise incorrect to suggest that the consultancy charges are disproportionate. In the preceding year, consultancy charges were Rs. 246 lakhs against service income of Rs. 1860 lakhs, amounting to about 13.22%, whereas in the year under appeal, service income was Rs. 5565 lakhs and legal and professional charges were Rs. 684 lakhs, amounting to only about 12%. The legal charges are, therefore, in line with the revenue earned by the Assessee. Further, as the very name of the Assessee—M/s. Fyers Securities Private Limited—indicates, it uses the trade name ‘Fyers’, which is owned by the service provider. In these circumstances, it cannot be said that there was no rendition of services when the Assessee was permitted to use that trademark.
12. It is, therefore, evident that the Assessee incurred the expenditure for services rendered, including the right to use the trademark and the other services provided by the service provider. The expenditure was thus incurred wholly and exclusively for the purposes of the Assessee’s business. This conclusion is further supported by the fact that the name ‘Fyers’ has not been permitted to be used by any entity other than the Assessee.
13. As the Assessee has furnished the additional evidence in the form of various certificates of registration of trademark in the name of service provider which were not available before the Ld. lower authorities, In view of these facts, we restore the whole issue back to the file of the Ld. Assessing Officer to examine the additional evidences submitted in the form of paper book at page no. 306-364 which may be verified and then the issue of the allowability of these expenditure may be decided afresh keeping in view the observations made by us above.
14. In the result, Appeal filed by the Assessee is allowed for statistical purposes.
Order pronounced in the open court on 18th May, 2026.
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