ITAT Mumbai Clarifies Tax Treatment of One-Time Liaisoning Income and Section 69 Addition
Overview of the Dispute
In the case of Suraj Vijay Kulkarni vs. ITO, the Income Tax Appellate Tribunal (ITAT) Mumbai dealt with the tax treatment of income arising from a one-off consultancy venture connected with Slum Rehabilitation Authority (SRA) redevelopment projects in Mumbai, for Assessment Year 2010-11.
The assessee, who was essentially a salaried individual, carried out a single assignment of liaisoning and coordination and received substantial consultancy fees. The core issues before the Tribunal were:
- Whether the entire gross consultancy receipts could be treated as unexplained investment under
Section 69of the Income Tax Act 1961 - To what extent the business expenditure claimed against these receipts could be allowed when supporting evidence was largely unverifiable or missing
The ITAT ultimately:
- Rejected the approach of taxing the entire gross receipts under
Section 69 - Partly sustained disallowance of expenses on an estimated basis, based on a concession given by the assessee’s representative
This ruling offers useful guidance to assessees who engage in sporadic or one-time consultancy activities and later face reassessment proceedings.
Factual Matrix
Nature of Income and Return Filing
The assessee, an individual drawing salary income, also entered into a one-time liaisoning and coordination assignment relating to SRA redevelopment projects in Mumbai.
Key facts:
- The assessee filed a return of income on 30.11.2017, declaring total income of Rs. 86,33,920.
- He had undertaken a single business venture of liaisoning/coordination in relation to SRA projects.
- From this activity, he received consultancy fees aggregating to Rs. 1,03,90,000 from four different redevelopment projects.
- Against these receipts, he claimed expenses of Rs. 45,20,500, offering the net income of Rs. 58,69,500 to tax.
Initially, the assessee treated the income from this assignment under the head “Income from Other Sources”, and claimed deduction of expenses under Section 57.
Subsequently, the case was reopened by issuing notice under Section 148 on 20.03.2017. In the reassessment proceedings, the issue of characterization of receipts and allowability of claimed expenses came under scrutiny.
Consultancy Receipts and Parties Involved
The consultancy fees were linked to SRA redevelopment assignments and were associated with the following coordinators/projects:
- Balaji Project – handled by Balaji Project Management Consultancy
- SS Consultants Project – handled by SS Consultants
- Latika Consultancy Project – handled by Latika Consultancy
- Yashwant Poojari Project – handled by Yashwant Poojari
The total consultancy consideration of Rs. 1,03,90,000 was received from the following sources:
- Balaji Project Management Consultancy – Rs. 40,00,000
- S.S. Consultants – Rs. 41,00,000
- Latika Consultancy – Rs. 11,49,000
- Yashwant Poojari – Rs. 11,41,000
- Total – Rs. 1,03,90,000
The assessee claimed that:
- The receipts were duly reflected as income from a new business venture, and
- The claimed expenditure of Rs. 45,20,500 was incurred for carrying out liaison work, including payments to slum occupants and other related costs.
Assessment Proceedings and Addition Under Section 69
Stand of the Assessing Officer
During reassessment under Section 143(3) r.w.s. 147, the Assessing Officer (AO):
- Questioned the nature and source of the entire receipts of Rs. 1,03,90,000
- Examined the financials of Shri Yashwant Shekhar Poojari, who appeared connected with the projects
- Observed that:
- There was no disclosure of investment in concerns such as M/s Balaji Project Management Consultancy, SS Consultancy and Latika Consultancy in the balance sheet of Shri Poojari
- The only income in Shri Poojari’s profit and loss account was from cable connection activities
- No disclosure was made by Shri Poojari in his accounts regarding the alleged payments to the assessee, despite specific queries
Based on this, the AO concluded that: