ADD ADVISORS PRIVATE LIMITED,NEW DELHI V. NATIONAL E-ASSESSMENT CENTRE, DELHI, DELHI

ITA 854/DEL/2024

AI Insights

The case involves appeals by both the Revenue and the Assessee against the order of the CIT(Appeals)-NFAC, Delhi for the Assessment Year 2018-19. The Revenue challenged the deletion of disallowances related to payments made by the Assessee to M/s Sanvridhi Finance & Investment Ltd. for land aggregation and legal/professional fees. The Assessee contested the addition related to disallowance of sales promotion expenses. The Tribunal examined the submissions, evidence, and legal provisions, ultimately deciding in favor of the Assessee on all counts.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 669419 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2018-2019
• Other Referred Cases: CIT v. Dalmia Cement (P.) Ltd., Hero Cycles Pvt. Ltd. Vs. CIT (Central) Ludhiana, PCIT Vs. Merck Limited
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJAY KUMAR ARORA
• Assessee Lawyers: SANJAY AGARWAL; CHANDRESH GUPTA
• Keywords: Set aside; Revenue expenditure; Corroborative evidences; Unexplained expenditure; Unexplained investment; Income from undisclosed sources; Capital expenditure; TDS; Valuation report; Source of fund; Deemed to accrue or arise in india; Wholly owned subsidiary; Share purchase agreement; Bogus
• Section: 69; 69C; 37(1)

Judgement Text

"ITA Nos.822 & 854/Del/2024 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “A” NEW DELHI BEFORE SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER AND SHRI S RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No. 822/Del/2024 िनधा\u0005रणवष\u0005/Assessment Year: 2018-19 Deputy Commissioner of Income Tax, Circle-1(1), Room No.153A, C.R. Building, I.P. Estate, New Delhi. बनाम Vs. ADD ADVISORS PVT. LTD. Res-Cowork 03, 5th Floor, Caddie Commercial Tower, Aerocity, Delhi International Airport, New Delhi. PAN No. AAICA3938N अपीलाथ\u0011 Appellant \u0013\u0014यथ\u0011/Respondent & ITA No. 854/Del/2024 िनधा\u0005रणवष\u0005/Assessment Year: 2018-19 ADD ADVISORS PVT. LTD. Res-Cowork 03, 5th Floor, Caddie Commercial Tower, Aerocity, Delhi International Airport, New Delhi. बनाम Vs. Deputy Commissioner of Income Tax, Circle-1(1), Room No.153A, C.R. Building, I.P. Estate, New Delhi. PAN No. AAICA3938N अपीलाथ\u0011 Appellant \u0013\u0014यथ\u0011/Respondent Assessee by Shri Sanjay Agarwal, CA & Shri Chandresh Gupta, CA Revenue by Shri Ajay Kumar Arora, Sr. DR सुनवाईक\bतारीख/ Date of hearing: 27.05.2025 उ\u000eोषणाक\bतारीख/Pronouncement on 25.06.2025 ITA Nos.822 & 854/Del/2024 2 आदेश /O R D E R PER C.N. PRASAD, J.M. These appeals are filed by the Revenue as well as Assessee against the order of the Ld. CIT(Appeals)-NFAC, Delhi dated 12.01.2024 for the AY 2018-19. The Revenue in its appeal challenged the order of the Ld. CIT(A) in deleting the disallowance of Rs.3.75 crores in respect of payment made by the assessee to M/s Sanvridhi Finance & Investment Ltd. and deleting the disallowance of payment of Rs.1.45 crores towards land and professional fees. The assessee in its appeal challenged the order of the Ld. CIT(A) in sustaining the addition of Rs.30,15,500/- in respect of disallowance of sales promotion expenses u/s 37(1) of the Act. 2. Heard rival submissions, perused the orders of the authorities below. The Ld. CIT(A) deleted the disallowances made by the AO in respect of payments of Rs.3.75 crores towards aggregation of land and Rs.1.45 crores towards legal and professional fees observing as under: “9.0 In ground no 3 the assessee challenged the addition of Rs.3,75,00,000/- paid to M/s Sanvridhi Finance & Investments Limited for aggregation of land. In the assessment proceedings, the AO was not satisfied with explanation of the assessee relating to the said payment and treated the same as unexplained expenditure in para 12(1) of the order. The main reasons for the said ITA Nos.822 & 854/Del/2024 3 disallowance as gathered from the order are summarised below: 1. The assessee did not provide any facts to relating to land aggregation in support its payment of Rs. 3.75 crores to M/s Sanvridhi Finance & Investment Limited. 2. The MOU for the land aggregation between the assessee company and M/s Sanvridhi Finance & Investment Limited dated 13-12-2017 did not justify the payments for the work to be performed in the future. As per the - MOU, the contracting company was given time of 3 years to complete the task of acquiring the land and the contract expired after 3 years from 13th December, 2017 i.e. by December, 2020. 3. The assessee company failed to give evidence for land actually acquired in the period of three years to justify the payment of Rs. 3.75 Crores to the satisfaction of the Assessing Officer. 10.0 In the appellate proceedings, the assessee submitted that the AO erred in treating the payment of Rs 3,75,00,000 as unexplained expenditure u/s 69C of the Act as the amount was an advance paid for land aggregation and not claimed as expenditure in the impugned year. Also, the amount was paid out of the funds available with the company duly accounted in the books under the head Long term loans & advances (schedule 8 of Financial Statements) and for a legitimate business purpose. The assessee made a detailed submission in this regard and relied on several decisions to support the arguments. The relevant part of the submission is reproduced below: 3.1 Ground no 3 relates to the addition of Rs. 37,500,000/ [Rs.3.75 Crore]- u/s 69 C of the Act by considering the capital advance given to M/s Sanvridhi Finance & Investments Limited under memorandum of Understanding executed between parties to purchase properties for diversification of business activities in future as an unexplained expenditure. The Ld. ‘AO’ merely on the basis of ITA Nos.822 & 854/Del/2024 4 conjecture and surmises and without appreciating the facts and submission in this regard made the additions; u/s 69C of the Act. Further, the Ld. AO without bring any supporting evidence indicating such payment is bogus or unreasonable in any manner. 3.2 The assessee is engaged in the business of marketing and business management services. It is submitted that the company [‘‘assessee’’] for the purpose of strategic diversification of its business entered a Memorandum of Understanding [‘MOU’] with M/s Sanvridhi Finance & Investments Limited [herein after called the “land aggregator”] dated 13 December, 2017 to acquire a land to build warehouse business for future purpose. The land aggregator is in the business of real estate project & advisory and land aggregation services which includes the identification of the land and the negotiations on behalf of the assessee. 3.3 The assessee has agreed to make investment up to maximum amount of Rs. 15 Crore in lump sum or in one or more installments for land aggregation work. As per the terms of MOU the land aggregator will acquire the land till 3 years from the date of this MOU and the assessee shall pay the project advance to Land Aggregator as initial amount. [Copy of MOU with M/s Sanvridhi Finance & Investments Limited is attached in the page no 69-78 of paper book]. 3.4 In the pursuance of that ‘MOU’ the assessee paid as a capital advance of Rs. 3.75 Core to the Land Aggregator for the purchase of property. The said capital advance was shown under the head Long term loans & advances- schedule 8 of Financial Statements. [Copy of Financial statements of F.Y. 2017-18 has been attached in the page no 79- 96 of paper book]. 3.5During the assessment proceedings the Ld. AO treated the capital advance as an unexplained expenditure u/s 69C on account as the assessee ITA Nos.822 & 854/Del/2024 5 company failed to give an iota of evidence or land acquisition acquired to justify the payment of Rs. 3.75 Crores to the satisfaction of the Assessing Officer. The assessee has not claimed the said advance as an expense in the statement of Profit and Loss account Extract of statement of profit and loss account of the assessee for the financial year ending March 31, 2018 [A.Y. 2018-19] is attached below where, in the assessee has not claimed the said transaction as an expense. The assessee has capitalized the said advance in the financial statements. …… ……. Before delving in to detail it is necessary to understand and make the analysis of section 69C of the Act. 3.6 Section 69C- Analysis Section 69C deals with the unexplained expenditure. As per the provisions of section 69C of the act, only the expenditure incurred during the period under consideration are covered and such expenditure will be considered to be unexplained only if the source of such expenditure is not explained to the satisfaction of the assessing officer. Before delving further, it is necessary to re-produce the section 69C of the Act: 3.7 Section 69C- Unexplained Expenditure “Where in any financial year an assessee has incurred any expenditure and he offer no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to the income of the assessee for such financial year: Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income. ITA Nos.822 & 854/Del/2024 6 3.8 On the per usual of the above section it is a basic legal premise that for invoking provision of section 69C of the act, following two conditions must be satisfied: a. Firstly, the requirement of the section is that an expenditure has been found to have been incurred by an assessee in any financial year; b. Secondly, an assessee offers no explanation about the source of such expenditure or part thereof or the explanation offered by him is not satisfactory in the opinion of assessing officer. 3.9 The first pillar of section 69C of the Act the expenditure should have to be incurred. Before delving further, we need to understand the meaning of the expenditure. Expenditure- meaning and analysis. 3.10 It is to be submitted that the expenditure has not been defined in the Act’. As per general meaning expenditure means- spending in the sense of paying out or away of money is the primary meaning of expenditure. Expenditure is what is paid out or away and is something which is gone irretrievably. Expenditure, which is deductible for income tax purposes, is one which is either actually paid or, if the accounts are on mercantile basis, provided for towards a liability actually existing at the time, but putting aside of money which may become expenditure on the happening of an event is not expenditure. [Reference by Chaturvedi & Pithisaria’s -Income Tax Law- Volume 3]. 3.11 Anything which is spends out is an expenditure. The question here is in section 69C is that anything which is spends out will be covered in the expenditure. We need to analyse what type of expenditure will be covered in section 69C. Expenditure may be in the form of revenue expenditure and capital expenditure. However, the deduction under the ‘act’ will be allowed only for the revenue expenditure and not for the capital ITA Nos.822 & 854/Del/2024 7 expenditure. As per proviso of section 69C of the Act, such unexplained expenditure which is deemed to be the income of the assessee will not be allowed as deduction under any head of income. Meaning there by that on becoming deemed income such unexplained expenditure will not get deduction subsequently under the act. 3.12 Section 69C of the Act relates to treatment of unexplained investment as deemed income, in case of no explanation about the source of such expenditure and such unexplained expenditure which is deemed as income will not get the deduction under the act. On the per usual of the above it is clearly evident that the expenditure which is not getting a deduction under this act after it is treated as deemed income should be pertaining to revenue expenditure and not relating to capital expenditure. As judicially decided [ sited infra] that deduction under the act will be allowed only for the revenue expenditure and not to the capital expenditure. 3.13 The word capital connotes permanency and capital expenditure is, therefore, closely akin to the concept of securing something, tangible or intangible property, or corporeal or incorporeal right, so that they could be of a lasting or enduring benefit to the enterprise in issue. Revenue expenditure, on the other hand, is operational in its perspective and solely intended for the furtherance of the enterprise as held in [CIT v Ashok Leyland Ltd (1969) 12 ITR 137,143 (Mad), affirmed by Hon’ble supreme Court in (1972) 86 ITR 549 (SC)]. 3.14 In D.P. Chirania & Co Vs. CIT (1978) 112 ITR 12,17 (Karnataka) Expenditure of capital nature is not allowable under the Act. 3.15lt is clearly evident from the proviso that only the expenditure which is allowed as deduction will be covered under section 69C of the Act. in another words the expenditure which will be covered under section 69C of the Act should be revenue expenditure only The intention of the law is to cover those expenditure ITA Nos.822 & 854/Del/2024 8 which are deductible in nature or which are allowed as deduction under the Act will be covered under section 69C of the Act. The assessee has shown the amount as advance under the head long term loans and advance which is duly reflected in the balance sheet. As the impugned amount is showing as capital advance under the long-term loans and advance and which has not been claimed the deduction under any head of income as an expenditure. The additions of the impugned amount u/s 69C does not arise. Hence, the impugned additions need to be deleted. 3.16 Your good self may kindly appreciate the fact that the impugned payment was made to M/s. Sanvridhi Finance & Investment Ltd. was not an expense incurred during the year but was an advance paid and was outstanding as debit balance at the end of the year in the audited financial statements of the year under consideration. The assessee has not claimed any deduction under the income tax act. However, without prejudice to said fact, assessee company had filed before the Ld. AO various details and documents in support of the impugned payment to substantiate that the same is not an unexplained expenditure. Hence, this advance payment made by the assessee company cannot be deemed to be unexplained expenditure under section 69C of the Act and hence, the impugned additions need to be deleted. 3.17 The second pillar of the said section is that an assessee offers no explanation about the source of such expenditure or part thereof or the explanation offered by him is not satisfactory in the opinion of assessing officer. Source of expenditure is liable to be added- not the reasonableness of the expenditure. 3.18 0n legal analysis of provisions of section 69C of the act, it is clearly evident that the basic objective of this provision is to tax the unaccounted expenses incurred by assessee which were sourced out of unaccounted sources of income meaning thereby that an expense incurred by assessee, should not to ITA Nos.822 & 854/Del/2024 9 be included in the books of accounts nor it should be sourced out of legitimate source of income, but it came to the knowledge of the assessing officer; will be considered as unexplained expenditure u/s 69C of the act, if the assessee fails to explain any explanation in such regards and substantiate the source of it. 3.19 Legal Analysis ... ……. 3.20 It is clearly evident that the it is the source of the expenditure which needs be explained to the satisfaction of the assessing officer and it is not the nature of expenditure which needs to be explained. The basic objective of this provision is to tax the unaccounted expenses incurred by assessee which were sourced out of unaccounted sources of income. 3.21 In the said case the source of the payment of capital advance was through the banking channel and which is duly reflected in the books of account as well as in the audited financial statements. Hence, in the perusal of the above there it is submitted that firstly, it is not an expenditure which will be covered u/s 690 of the Act and secondly the source of the payment of said long term-loans and advances was the internal accruals and assessee company's own funds and same has recorded in the books of accounts of the company for the relevant period and all the payment of same was made through the normal banking channel under the duly executed agreement with the M/s Sanvridhi Finance and Investment Limited and which was duly explained to the Ld. AO in the assessment proceedings. Such advance made is accounted in the books of accounts as well as in the financial statement as long-term loans and advances which can be verified from the schedule 8 of the financial statement. Ledger accounts of Sanvridhi Finance and Investment Limited and the Bank statements [yes bank] is attached for your reference in the page no 97-98 of paper book. ITA Nos.822 & 854/Del/2024 10 3.22 It is submitted that the Ld. AO’ does not deny about the source of the capital advance made to the Sanvridhi Finance and Investment Limited as the same was paid through the banking channel after executing the MOU. The Ld. AO made the additions under this section merely on the ground that the assessee company failed to give an iota of evidence or land acquisition actually acquired to justify the payment of Rs. 3.75 Crores to the satisfaction of the Assessing Officer. 3.23 It is submitted that the section 69C will be applicable only for the expenditure incurred and the source of the expenditure needs to be explained to the satisfaction of the AO and in case in the opinion of AO the explanation is not satisfactory the amount covered by such expenditure will be treated as deemed income under section 69C of the Act. In another words, it is submitted that the source of expenditure needs to be satisfied to the Ld. AO only for and not to the nature of expenditure. 3.24 As the source of the capital advance was explained to the Ld. AO by submitting the ledger accounts and bank statements in the assessment proceedings. Hence, the impugned additions need to be deleted. Other analysis the source of the expenditure is accepted by the AO. For disallowance u/s 69C-AO needs to conduct further inquiry for proving the transactions are bogus 3.25 It is submitted that the Ld. AO has accepted the source of expenditure a genuine transaction by considering the facts. Whereas for making the disallowance under section 69C the Ld.AO needs to make further inquiries for proving the expenditure /transactions are bogus. However, in the said case firstly, the Ld. AO by accepting the source of transactions and secondly by not making the further inquiries while making the additions seems that the Ld. AO was satisfied about the source and the nature of the transaction. At the time of assessment proceedings, the banking details were available with the Ld. AO for the verification ITA Nos.822 & 854/Del/2024 11 of the transactions. However, in the said case no inference has been drawn by the Ld. AO to treat the said transactions as an unexplained or the source of the transactions are unexplained. For making the additions the Ld. AO needs to bring material evidence to rebut the evidence produced by the assessee. Hence the impugned additions without conducting the further enquiry is not as per the settled law. The Ld. AO ought not to have made the additions without carrying out independent enquiry and without affording due opportunity to the respondent. 3.26 In the light of the above judgements and the intention of the law that the expenditure which will be deemed as income u/s 69C should be bogus transactions and further to prove the bogus transactions by the Ld. AO need to conduct an independent enquiry. As the source of expenditure has been very well accepted by the Ld.AO and not conducting an enquiry about the transactions seems to the conclusion that the Ld. AO was satisfied about the transaction. Further, in the light of the above judgements it is clearly evident that payments made through banking channels towards expenditures and furnished evidences in form of purchase bills, bank details it was held that that assessee had discharged initial burden or onus of providing details of parties and, thus, case did not fall within ambit of section 690 of the Act. 3.27 In another way it can be held that the by furnishing the details of source of transactions like expenditure details, invoices and bank statements the assessee’s duty will get discharged and further to make disallowance the expenditure u/s 690 as an unexplained or as the bogus transactions, the AO need to conduct an independent enquiry. In the said case the assessee had discharged the duty by submitting the details of capital advance made, MOU entered and the relevant bank statements. Hence, there is no question arise about the source of the expenditure not explained to the Ld. AO. Hence, ITA Nos.822 & 854/Del/2024 12 the impugned additions nade by the Ld. AO needs to be deleted. 3.28 It is well settled law [as decided below] that it is for the assessee to decide how best to protect its interest for the business and not open to AO to decide. 3.29 On the per usual of the above judgements it is clearly evident that the Revenue cannot step in to the shoes the business man/ assessee that when to incur and under what circumstance the expenditure need to be incurred. Commercial decisions depend upon the business man only. 3.30 In the said case the capital advance was given for the purchase of commercial property for the expansion of business. It is most humble submitted that it is well accepted & tested business phenomenon that business strategies and plans take its own sweet time to crystalize and came into existence and same varies from business to business. Hence, the impugned additions need to be deleted. 3.31 However, as per the AO the period of the agreement and the fulfilment of the contract has already expired after 3 years from 13th December, 2017 i.e. by December, 2020. The assessee company failed to give an iota of evidence or land acquisition actually acquired to justify the payment of Rs. 3.75 crores to the satisfaction of the Assessing Officer. It is submitted that for invoking section 69C the source of expenditure needs to be explained to the satisfaction of the AO and not the commercial decisions to be taken by the business man/ assessee. Each year is a separate assessment year and AO cannot make the additions on fact of the subsequent year. 3.32 It is submitted that for making an assessment each year is a separate unit. Each year’s assessment and decision are final to only that financial year and hence so determines the liability of the assessee of that particular financial year or period. The Ld. AO’ by making the assessment on ITA Nos.822 & 854/Del/2024 13 the fact that even in December, 2020 [at the time of assessment] the assessee company failed to give an iota of evidence or land acquisition actually acquired to justify the payment of Rs. 3.75 crores to the satisfaction of the Assessing Officer. The action of the Ld. AO is not justifiable as the AO has not right to collect the facts which is relating to the subsequent years. The Ld. can make the analysis and collect facts only for the relevant assessment year and not to the subsequent years as each year is a separate year for the assessment purpose. 3.33 On the perusal of the above judgements it is submitted that the Ld.AO need to make the assessment and collect the facts relevant to the relevant assessment year and not beyond to that year. The Ld. AO merely on the basis of facts which is relating to the subsequent years that the assessee has not given its proof of the acquisition of land against the advance is bad in law and facts. Hence the action of the AO is not justifiable and the impugned additions of the Rs.3.75,00,000/- needs to be deleted. 3.34 Further, in the light of the above facts it is submitted that the assessee has shown the source of payments made for the capital advances to the satisfaction of the AO and AO made additions only on the basis of commercial decisions that the evidence of land acquisition actually happened does not deserve to make impugned additions u/s 69C of the act. The scope of section 69C of the act is to ascertain that none of the unaccounted income or unaccounted expenses remains untaxed and as such assessing officer is basically required to assess the genuineness of the source of funds from where expenses have been incurred but not to question the business strategy of the assessee company. Further, it is submitted that section 69C will apply on the incurrence of an expenditure and where the assessee has not explained the source of such expenditure. As explained supra the concerned payment is not relating to the expenses which is part of statement of profit and loss account and the said payment is ITA Nos.822 & 854/Del/2024 14 part of capital advance of the financial statements. Hence, the impugned additions of Rs.3,75,0,000/- needs to be deleted: (1) In light of the aforesaid legal analysis, it is submitted that firstly, for invoking provisions of section 69C of the act, there must be an expenditure incurred during the period under consideration; and secondly, the assessing officer is required to assess the genuineness of the source of alleged unexplained expenditure. The assessee need to explain the source of the expenditure to the satisfaction to the AO, In case of explanation offered by the assessee regarding the source of such expenditure in the opinion of AO does not satisfactory the same can be treated as an unexplained expenditure. Meaning thereby that the explanation offered by assessee to AO to be the source of expenditure only. (2) In the instant case of captioned assessee company, the impugned payment was an advance paid for future business investments out of legitimate sources and it is observed that nowhere in the assessment order the Ld. AO had not raised any objection regarding the source of impugned payment but had merely questioned the business reasoning behind impugned payment made to said party without appreciating the essence of the provisions of section 69C of the act as well as the impugned MOU between assessee company and impugned party i.e. M/s. Sanvridhi Finance & Investments Limited. (3) It is most humbly submitted that the impugned payments were made to said party as an advance but not an expense incurred during the year and also the said payment was made out of legitimate sources i.e. out of banking funds available with the company and same was duly accounted for in the books of accounts of the assessee company and was duly reported in the financial statements prepared for the pehod under consideration. As such, both conditions required ITA Nos.822 & 854/Del/2024 15 to be satisfied for invoking deeming provisions of section 69C of the act are not applicable in the impugned case in hand and thus, impugned proposed additions to the tune of Rs.3,75,00,000/- u/s 69C of the act deserves to be deleted at the outset being the same is against the basic legal essence of the said provisions of the act. (4) It has been submitted that assessing officer cannot challenge/ question the prerogative of the businessman to analyse the business feasibility of its decisions and decide whether any expense can be incurred or not. The scope of section 69C of the act is to ascertain that none of the unaccounted income or unaccounted expenses remains untaxed and as such assessing officer is basically required to assess the genuineness of the source of funds from where expenses have been incurred but not to question the business strategy of the assessee company. (5) In commencement of the proposed business depends on the surrounding market scenario and circumstances. In the case of captioned assessee company the business plan involved substantial investment of funds, as such any further action/ business investment strategy will be finalized after attaining complete satisfaction with respect to the successful implementation of the project and leaving no loopholes which may cause any risk/ loss/failure of the proposed project. /As such, it is noteworthy that executing a business strategy is not an easy task but the businessmen have to foresee all permutation and combination and thereafter, take the fool-proof final decision for a project which may yield the profits for the investor/ businessmen. Thus, it cannot be concluded that if the business strategy had not been crystalized in specified time then the transactions entered into on such account are ingenuine and require any investigation by Income Tax Department, as some time some transactions/projects, especially the real estate ITA Nos.822 & 854/Del/2024 16 related projects takes the time to implement and commence, as compared to what was expected. (6) It is most humble request that such impugned additions to the tune of Rs. 3,75,00,000/- u/s 69C of the act needs to be deleted at the outset being the same is neither an expense nor out of unexplained sources. 11. I have perused the order and the submission of the assessee. In the profit and loss account for the impugned year, the total receipts and expenditure shown is Rs.5,00,000/- and Rs.46,78,085/- respectively. Evidently there is no claim of expenditure of Rs.3,75,00,000/- under any head in the P/L account. The \"amount is rather reflected as advance in the financials. The assessee paid the said sum in lieu of the MOU with M/s Sanvridhi Finance & Investment Ltd in which the scope of the agreement, quantum of investments terms and conditions etc are clearly specified. The assessee also explained the source, purpose, and basis of making the payment to the party. However, the AO did not accept the assessee’s explanation and neither did he specifically point out any defect in the contract. As discussed above, the essential prerequisites for invoking the provisions of section 69C i.e. there must be an expenditure incurred and there should be failure of the assessee to explain the source of the expenditure to me satisfaction to the AO are not fulfilled, I believe the addition of Rs.3.75,0,000/- was not warranted. Accordingly, I direct the AO to delete the same. Ground no 3 is allowed. 12.0 In ground no 4 the assessee assailed the addition of Rs.1,45,00,000/- paid as legal and professional fees to the following parties. S.No. Name of the party Amount (Rs.) 1. Findoc Financial Services 88,50,000 2. Jivanmal Rajkumar 45,00,000 3. Aryans & Associates 29,50,000 Total 1,45,00,000 ITA Nos.822 & 854/Del/2024 17 In the assessment proceedings, the assessee submitted before the AO that it received an offer for sale of its investment in M/s Travel News Services India Private Limited, an entity engaged in the business of setting up and operating the retail shops. The assessee accepted the said offer and engaged the services of professional consultants to enter into negotiations and agreements with the prospective buyers, drafting documents for the transfer/sale of the shares, due diligence of the investee company, valuation of the proposed sale shares etc. The total amount paid was Rs 1,45,00,000 and the expenditure was capitalized in the books of account as cost of investment. 13.0 The AO disallowed the entire expenditure paid by the assessee to the parties by stating that the assessee company, (i) failed to provide the financials, profitability and the current earning per share of the company in support of due diligence to be undertaken for the sale of shares. (ii) failed to produce any type of evidence which it has collected as investor from the investee company. (iii) failed to produce the valuation report, copy of due diligence report, prospective buyers of shares and steps taken for transfer of shares to justify the payment for the professionals even after the expiry of three years as on February, 2021. (iv) mere production of the bills and TDS on payments made to the parties without sufficient proof of work did not justify the payments. 14.0 In the appellate proceedings, the assessee submitted that the AO erred in making addition of Rs.1,45,00,000/- as unexplained expenditure u/s 69C of the Act as the amount was paid on account of legal and professional charges for conducting due diligence, drafting and vetting of legal agreements in respect of proposed transfer of shares to the said company and the said expenses were capitalized in the books under ITA Nos.822 & 854/Del/2024 18 the head sale of investment. Further, the assessee submitted that the amount was paid for a legitimate business purpose out of the funds available with the company and duly accounted in the books as Investment (schedule 9 of Financial Statements). The assessee made a detailed submission in this regard and relied on several decisions to support the arguments. The relevant part of the submission is reproduced below 4.1 Ground no 4 relates to impugned additions of Rs.1,45,00,000/- u/s 69C of the Act by considering the amount capitalized on account of legal and professional charges paid for conducting due diligence including the legal, contractual and financial aspects in respect of transfer of shares of M/s Travel News Services India Pvt. Ltd. - [Wholly owned subsidiary company- ‘WOS’] to the intended buyer along with all management rights vested therein. The impugned additions made as an unexplained merely on the basis of conjecture and surmises without appreciating the submission filed by the assessee company. In the assessment proceedings the assessee company had furnished all sufficient details to substantiate the genuineness of the transaction. While making the additions u/s 69C the Ld. AO failed to prove the said transactions as bogus or unreasonable by bringing on record the supporting documents. Hence, the impugned additions made by the Ld. AO need to be deleted. 4.2 It is submitted that the Travel News Services India Pvt. Ltd. (TNSIPL) was the wholly owned subsidiary of assessee company holding its 40,04,211 equity shares of Rs. 10 each/- (at face value), involving the total investment of Rs. 28,74,81,326/- (including the premium amount). During the year under consideration the assessee has incurred expenditure of Rs.1,45,00,000/- on account of legal and professional charges paid for conducting due diligence, drafting and vetting of legal agreements in respect of proposed transfer of shares to the said company and the said expenses were capitalized in the books under the head Investment. ITA Nos.822 & 854/Del/2024 19 The same is reflected in the financial statement- schedule no 9 and 9.1. Financial statement of F.Y. 2017-18 has been attached in the page no 79-96 of paper book for your reference. 4.3 In the Financial year 2017-18, the Company received an offer for sale of said investment, which the Company was holding in l/VOS. As a process of the sale of the investment, the company had to enter into various agreements, documents for the transfer/sale of the shares which needed to be drafted, vetted, discussed and negotiated with the prospective buyers. Further, a many-fold comprehensive due diligence of the investee company has to be conducted to check and confirm the validity of the proposed sale shares and also to arrive the value of the assets, liabilities and other obligations, demands etc. of/against the investee company. 4.4 As mentioned in the note no 9.1 of the attached financial statements the assessee company has sold the investment in ‘WOS’ to M/s future retail limited by entering share purchase agreement [SPA] executed in December 2017 and approved in 11-05-2018. The impugned additions made by the Ld. AO were relating to the investment sold. By entering SPA and the sale of investment in ‘WOS' confirm the incurrence of expenses as are related to the investment only. [Share purchase agreement is attached in the page no 99-130 of the page book]. ……… ……… It is submitted that the said payments were done through the banking channels and tax was duly deducted while making payment as professional fees. ……… ………. 4.5 It is noted that the expenses incurred on account of legal and professional fees paid were pertaining to the proposed transfer of investment ITA Nos.822 & 854/Del/2024 20 and said entire process of sale of investment by conducting due diligence, validation, drafting and finalisation of the agreements etc. which had taken more than six months to arrive at the final and mutual understanding on the purchase consideration and the agreements and various documents to be executed between the parties in the course of said transaction. 4.6 The captioned expenses were incurred on account of due diligence.. negotiations with the investors, to agree with price of sale and the same were capitalized in the books of account under the head investment as they were relating to the sale of investment only. The addition of expenses was made by Ld. ‘AO’ considering as an unexplained expenditure u/s 69C of the Act. It is pertinent to note that the assessee has not claimed the deduction of the captioned expenses under the Act. 4.7 It is submitted that the nature of the business of the ‘WOS' was core-retail business and its structuring was involving many-fold/multi layered contracts, bidding process, licensing etc. as the business of the WOS was not only limited to the high streets but was also spread at various national/international & private/ government airports such as Delhi, Mumbai, Chennai, Kolkata, Hyderabad, Raipur, Indore, Bhopal etc.; at metro stations at Delhi & Mumbai; universities in Delhi, Haryana, Uttar Pradesh and Punjab and also at various eminent malls/business centers etc., the structuring of the licenses and concessions under which said stores were allotted/granted to the H/OS and its associates/subsidiary company(s), were complex and any prudent purchaser of said business would like to ensure all kind of safety, security and minimum risk and administrative/operational glitches. It was undoubtly a very cumbersome and lengthy process to assess the stores owned/ operated by the WOS’ and its associates/ subsidiaries and to ascertain stock position, assets, debtors, creditors, loans, payment obligations, liabilities, litigations, notices/demands etc. against ITA Nos.822 & 854/Del/2024 21 the WOS' etc. Said entire process of due diligence, validation, drafting and finalisation of the agreements etc. had taken more than six months to arrive at the final and mutual understanding on the purchase consideration and the agreements and various documents to be executed between the Parties in the course of said transaction. [SPA has been attached in the page no 99-130 of paper book’] It is pertinent to note that the impugned transaction of sale of shares was concluded in May 2018 and the same was duly reported in the Audited Financial Statements prepared for the period under consideration. 4.8 Without prejudice to the submission made in the ground of appeal no 3, we would like to draw your kind attention to provisions of section 69C of the act, wherein, it has been clearly mentioned that expenditures incurred out of unexplained sources are covered under the purview of section 69C of the Act. It has been discussed at length in ground of appeal no 3 above. 4.9 On the perusal of the section 69C [as discussed in ground of appeal no 3 supra] it is a basic legal premise that for invoking provision of section 69C of the act, following two conditions must be satisfied: a. Firstly, the requirement of the section is that an expenditure has been found to have been incurred by an assessee in any financial year; b. Secondly, an assessee offers no explanation about the source of such expenditure or part thereof or the explanation offered by him is not satisfactory in the opinion of assessing officer. 4.10 It is submitted that firstly, the impugned additions were not in the nature of expenditure against which the deduction are made under the act and secondly, the source of expenditure is liable to be explained to the AO, which is very well explained to the AO by furnishing bank statements, invoices ITA Nos.822 & 854/Del/2024 22 and TDS returns. The assessee has fulfilled his onus to explain the source of the said expenditure. [The said expenditure has not been claimed in the Audited Profit and Loss Account and the same has capitalized in the financial statements. The profit and loss account have been reproduced below: 4.11 In case of non-explanation of source of the expenditure the additions will be made u/s 69C of the Act. In the said case the source of expenditure was duly explained to the Ld. AO that the transactions were happened through banking channel and TDS was duly deducted while making the payments. Source of the expenses has been given by the assessee and the Ld. AO has not denying about the source of payments as an unexplained. Hence, with the above submission the impugned additions of Rs.145,00,000/-need to be deleted. …….. …….. 4.12 Without prejudice to the submission made in ground of appeal no 3 it is submitted that the Ld. AO has accepted the source of expenditure a genuine transaction by considering the facts. Whereas for making the disallowance under section 69C the Ld.AO needs to make further inquiries for proving the expenditure /transactions are bogus. However; in the said case firstly, the Ld. AO by accepting the source of transactions and secondly by not making the further inquiries while making the additions seems that the Ld. AO was satisfied about the source and the nature of the transaction. At the time of assessment proceedings, the banking details were available with the Ld. AO for the verification of the transactions. However, in the said case no inference has been drawn by the Ld. AO to treat the said transactions as an unexplained or the source of the transactions are unexplained. For making the additions the Ld. AO needs to bring material evidence to rebut the evidence produced by the assessee. Hence the impugned additions without conducting the further enquiry is not as per the settled law. The Ld. AO ought not to have made the ITA Nos.822 & 854/Del/2024 23 additions without carrying out independent enquiry and without affording due opportunity to the respondent. 4.13 It is be noted that the Ld. AO had not brought on record any adverse evidence which may indicate that the impugned payments were made for any purpose other than as explained in the assessment proceedings. Your good self may kindly appreciate the fact that without bringing on record any corroborative evidences and merely on the basis of suspicion, provisions of deeming provisions of the act such as section 69C of the act cannot be invoked. 4.14 It can be clearly implied that the Ld. AO cannot make any additions merely on the basis of suspicion, conjecture and surmises. The Ld. AO by accepting the source of transactions and by not making the further inquiries while making the additions seems that the Ld. AO was satisfied about the source and the nature of the transaction. The Ld. AO must have corroborating evidences in support of his allegations to conclude that the claim of assessee is wrong and requires interference. /As such, we most humbly submit that the impugned additions of Rs.145,00,000/- need to be deleted being the same is illegal and unjustified. Assessee to decide the expenditure and not the Revenue- Revenue cannot step in to the shoes of the Assessee. 4.15 It is well settled law that it is for the assessee to decide how best to protect its interest for the business and not open to AO to decide. As the said expenses were incurred on the sale of investment in the ‘WOS'. Sale of investment normally takes six months by executing due diligence, validation and drafting etc. Shareholding Agreements [SHA] is the final outcome which indicates the execution of transactions. [Legal Analyses_has been given in the ground no 3 above], [Share purchase agreement is attached in the page no 99-130 of the page book]. Entering the SHA confirm the incurrence of the expenses for the said purpose. ITA Nos.822 & 854/Del/2024 24 4.16 It is pertinent to note that the Ld. AO’ is by no means permitted to travel beyond the scope of the act by placing himself in the place of businessman and made the disallowance merely on the basis of presumptions and surmises that the impugned expense would have been Incurred by prudent businessmen or not. As such, impugned proposed addition u/s 690 of the act is unreasonable, unfair, unjust and need to be deleted. 4.17 It is submitted that the while invoking provisions of section 690 of the act, AO is required to assess not only that the expenditure had incurred by the assessee, but also that same is incurred out of legitimate sources. It Is pertinent to note that the basic objective of this provision is to tax the unaccounted expenses incurred by assessee which were sourced out of unaccounted sources of income meaning thereby that an expense incurred by assessee, should not to be included in the books of accounts nor it should be sourced out of legitimate source of income, but it came to the knowledge of the assessing officer, will be considered as unexplained expenditure u/s 69C of the act, if the assessee fails to explain any explanation in such regards and substantiate the source of it. 4.18 Further, in view of provisions of section 69C, we would like to submit that the aforesaid payment of expenditure for professional charges for due diligence, validation and drafting etc. in relation to the contemplated sale of the investments in the equity shares, is not covered in provisions of section 69C. Since, the expenditure for legal charges in respect for contemplated sale of investment was capitalized in the cost of investment, not claimed as revenue expenditure since it is directly related to investment itself. Hence, the impugned additions need to be deleted. It is submitted that the while invoking provisions of section 69C of the act, AO is required to assess not only that the expenditure had incurred by the ITA Nos.822 & 854/Del/2024 25 assessee, but also that same is incurred out of legitimate sources. In light of aforesaid position, as such, there is no doubt in regards to basic intent behind incurring such expenses being the same is explained with supporting evidences to the extent readily available with assessee company as of now. Thus, impugned addition of Rs.1,45,00,000/- u/s 69C of the act need to be deleted being the same is duly incurred for a specific service availed during the period under consideration and M/as sourced out of duly explained sources. Further, the Ld. AO accepting the source of the transactions and by making no further inquiries seems that the AO was satisfied about the source and nature of the transactions. Hence, the impugned additions of Rs.,45,00,000/- needs to be deleted. 15.0 I have perused the order and the submission of the assessee. The assessee entered into a share purchase agreement with seven other parties relating to transfer of shares held in M/s Travel News Services India Private Limited in which the purpose of the agreement, obligations of the parties, terms and conditions etc are clearly specified. The aassessee stated that it was in pursuance of the procedures and obligations cited in the agreement that the expenditure of Rs 1,45,00,000 was incurred in form of legal and professional charges to three parties which was capitalised as investment in the financials. The assessee also explained the source and the purpose of making the payment to the parties. 16.0 Firstly, the AO did not specifically point out any defect in the share purchase agreement. Also, the AO did not dispute the payment made towards the professional services in connection with agreement but held that the assessee was not justified in making the payment without demonstrating that the services were rendered by the professionals. It is pertinent here to note that the assessee made the payment to third parties for engaging their ITA Nos.822 & 854/Del/2024 26 professional services. The scope of work of the parties rendering the professional service were defined and mentioned in the invoice and tax was withheld at source at the time of making the payment. The Hon’ble Delhi High Court in the case of CIT v. Dalmia Cement (P.) Ltd. reported in [2002] 254 ITR 377 (Delhi) had held that the jurisdiction of the revenue is confined to deciding reality of the expenditure, namely, whether the amount claimed as deduction was factually expended or laid down and whether it was wholly and exclusively for the purpose of the business. The reasonableness of the expenditure could be gone into only for the purpose of determining whether, in fact, the amount was spent. Once it is established that there was nexus between the expenditure and the purpose of business, the revenue cannot justifiably claim to put itself in the armchair of a businessman or in the position of the board of directors and assume the said role to decide how much is a reasonable expenditure having regard to the circumstances of the case. As already noted, the AO nowhere doubted the genuineness of the agreement and the fact of actual payment of professional fees. Therefore, the assessee discharged the primary onus of explaining the transaction and that payment to the professionals were made in connection with sale of its shares in M/s Travel News Services India Private Limited. Therefore, the expenditure was valid in the eyes of law. Further, there was no failure of the assessee, to explain to the satisfaction to the AO, the source of the expenditure incurred towards the professional fees. Therefore, the provisions of section 69C are also not attracted. Accordingly, I direct the AO to delete the addition of Rs1,45,00,000/-.” ITA Nos.822 & 854/Del/2024 27 3. On careful perusal of the above findings of the Ld.CIT(A) we do not see any valid reason to interfere with the findings of the Ld. CIT(A) and the same are sustained. The grounds raised by the Revenue are rejected. 4. In so far as the sustenance of disallowance of Rs.30,15,000/- in respect of marketing/sales promotion expenses paid to M/s Viaan Industries Ltd., it is noticed that the said disallowance was primarily made by the AO and sustained by the Ld. CIT(A) on the ground that the assessee has incurred huge expenditure and shown income of Rs.5 lakhs only during the assessment year under consideration. We observed that the genuineness of the expenditure is not in doubt. The Ld. CIT(A) sustained the disallowance on the ground that the assessee incurred these expenses in anticipation of future business of prospects with M/s Holiday Inn and there is no evidence in the form of future revenues from rendering marketing services. It is observed that the expenses in question i.e. sales promotion expenses are incurred by the assessee company as it is engaged in the business of providing marketing and advertisement related services to its client at various locations on PAN India basis. As against the business of rendering marketing and advertisement ITA Nos.822 & 854/Del/2024 28 related services the assessee company has also taken out source services to render its services. 5. The Hon’ble Supreme Court in Hero Cycles Pvt. Ltd. Vs. CIT (Central) Ludhiana (379 ITR 347) and the Hon’ble Bombay High Court in the case of PCIT Vs. Merck Limited (434 ITR 596) held that where sales promotion and conference expenditure incurred by the assessee was wholly and exclusively for the purpose of business, whether necessary or not, the same has to be allowed as revenue expenditure. 6. In view of the above, we hold that there is no justification in disallowing the business promotion expenses by the authorities below. Thus, we set aside the order of the Ld. CIT(A) on this issue and direct the AO to delete the disallowance of marketing/sales promotion expenses and recomputed the income accordingly. Grounds raised by the assessee are allowed. 7. In the result, the appeal of the Revenue is dismissed and appeal of the Assessee is allowed. Order pronounced in the open court on 25/06/2025 Sd/- Sd/- (S RIFAUR RAHMAN) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER ITA Nos.822 & 854/Del/2024 29 Dated: 25.06.2025 *Kavita Arora, Sr. P.S. Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "