Disallowance u/s 40A(2) unsustainable without finding of excessiveness/unreasonableness; salary recharge to same-tax-rate related parties allowable if business purpose proved.

आदेश/ORDER

PER MAKARAND VASANT MAHADEOKAR, AM:

This appeal is directed against the order dated 31.07.2025 passed by the Commissioner of Income-tax (Appeals)–47, Mumbai [hereinafter referred to as “CIT(A)”] under section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”]arising out of the assessment order dated 07.12.2016 passed by the Assessing Officer under section 143(3) of the Act for the Assessment Year 2014–15.

2. The brief facts of the case are that the assessee, formerly known as M/s. Vizeum Media Services India Private Limited and now merged with Dentsu Aegis Network India Private Limited, is engaged in the business of media services, including media consultancy and strategy. For the Assessment Year 2014–15, the assessee filed its return of income on 22.12.2014 declaring total income of Rs. 20,76,320/-.The case was selected for scrutiny and the assessment was completed by the Assessing Officer under section 143(3) of the Act determining the total income at Rs. 1,42,70,810/- after making, inter alia, disallowances under section 40(a)(ia) and under section 37(1) read with section 40A(2)(b). The CIT(A) confirmed the additions.

3. The issue involved in the grounds of appeal before us relates to the disallowance of salary recharge and reimbursement of expenses amounting to Rs. 62,50,720/- under section 37(1) read with section 40A(2)(b) of the Act. The relevant facts, as emerging from the assessment order, are recorded hereunder.

4. The Assessing Officer observed from the details of expenses claimed under the head “salary and wages” that the assessee had debited an amount of Rs. 46,23,220/- paid to M/s. Aegis Media India Pvt. Ltd. and Rs. 16,27,500/- paid to M/s. Carat Media Services Pvt. Ltd., which were described by the assessee as “salary recharge” or reimbursement of salary and bonus expenses (assessment order, page 6). It was further noticed that the assessee had deducted tax at source of Rs. 1,03,889/- and Rs. 36,571/- respectively on these payments (assessment order, page 6).

5. Since the assessee had also claimed substantial salary and bonus expenditure in its own profit and loss account, the Assessing Officer required the assessee to explain the nature of these additional payments and to furnish details of agreements, if any, entered into with the said group concerns. Accordingly, a notice under section 142(1) dated 03.10.2016 was issued calling upon the assessee to furnish the details of salary and bonus payments made to M/s. Aegis Media India Pvt. Ltd. and M/s. Carat Media Services Pvt. Ltd. along with copies of agreements and the basis of such payments.

6. In response thereto, the assessee submitted copies of “cost sharing agreements” executed between the assessee and the said two concerns. On examination of these agreements, the Assessing Officer recorded that both the agreements were executed on plain paper, were neither stamped nor registered or notarised, and that all the three concerns, including the assessee, were operating from the same office premises and were engaged in the same line of business of media and advertising consultancy services.

7. As the assessee had not furnished any specific details of services rendered, the Assessing Officer again issued a notice under section 142(1) dated 11.11.2016 calling upon the assessee to furnish elaborated details of the services claimed to have been received, along with the list of personnel deputed by M/s. Aegis Media India Pvt. Ltd. and M/s. Car