EQUIFAX CREDIT INFORMATION SERVICES PVT LTD,MUMBAI V. INCOME TAX OFFICER WD-9(2)(1), MUMBAI

ITA 5324/MUM/2025

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The case involves Equifax Credit Information Services Pvt. Ltd., which appealed against the orders of the National Faceless Appeal Centre (NFAC), Delhi, concerning additions and disallowances made in the assessments for the Assessment Years 2011-12 and 2012-13. The primary issues were the addition of share capital under section 68 and disallowances related to payments to a related party under section 40A(2)(b). The Tribunal examined the creditworthiness of EFX Holdings Ltd., a foreign investor, and the genuineness of payments made to Equifax Software Systems Pvt. Ltd. (ESS). The Tribunal concluded that the additions and disallowances were not justified based on the evidence provided, including audited financial statements and regulatory compliance documents.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 839948 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 28-08-2025
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RITESH MISRA
• Assessee Lawyers: AJIT JAIN AW
• Keywords: Set aside; Revenue expenditure; Unexplained cash credit; Fair market value; TDS; Source of fund; Tangible material; Related party transaction; FORM 26AS
• Section: 143(3); 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, ‘E’ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No.5323/Mum/2025 (Assessment Year :2012-13) & ITA No.5324/Mum/2025 (Assessment Year 2011-12) Equifax Credit Information Services Private Limited Unit No.931, 3rd Floor Solitaire Building No.9 Solitaire Corporate Park Andheri East Chakala MIDC Mumbai - 400093 Vs. Income Tax Officer, 9(2)(1), Mumbai PAN/GIR No.AACCE0474F (Appellant) .. (Respondent) Assessee by Shri Ajit Jain a/w. Shri Siddhesh Chaugule Revenue by Shri Ritesh Misra, CIT DR Date of Hearing 10/02/2026 Date of Pronouncement 24/02/2026 आदेश / O R D E R PER AMIT SHUKLA (J.M): These two appeals, being ITA Nos. 5324/Mum/2025 and 5323/Mum/2025, have been filed by the assessee against separate orders of even date 30.06.2025 passed by the NFAC, Delhi (for short, “learned CIT(A)”) arising out of assessments Printed from counselvise.com ITA No.5323 & 5324/Mum/2025 Equifax Credit Information Services Pvt. Ltd. 2 framed under section 143(3) read with section 254 of the Income-tax Act, 1961 for Assessment Years 2011–12 and 2012–13. Since the issues involved are interlinked and arise from a common set of facts and earlier appellate directions, both appeals were heard together and are disposed of by this consolidated order. 2. We shall first take up the appeal for Assessment Year 2011–12. 3. The assessee, M/s Equifax Credit Information Services Pvt. Ltd., is a private limited company engaged in the business of credit information services. For A.Y. 2011–12, the assessee had filed its return declaring NIL income and claiming loss. The return was processed under section 143(1) and the case was selected for scrutiny. The assessment was originally completed under section 143(3) on 19.03.2014 determining total income at Rs. 14,25,89,390/- inter alia by making (i) disallowance of business loss, (ii) disallowance/adjustment relating to payments to a related party and (iii) addition of share capital under section 68 of Rs. 12,25,00,000/-. In the first round, learned CIT(A) had granted relief on certain aspects; however, in further appeal, the Tribunal had, inter alia, set aside and restored the issue of addition under section 68 for denovo examination because the matter of creditworthiness and supporting financials required proper verification, and it was noticed that the issue Printed from counselvise.com ITA No.5323 & 5324/Mum/2025 Equifax Credit Information Services Pvt. Ltd. 3 could not have been concluded merely on the basis of regulatory approvals. Similar, on the issue touching section 40A(2)(b), the Tribunal had remitted the issue for factual verification, particularly in the context of the controversy as to whether ESS was a “related party” under the then prevailing statutory frame and whether the factual matrix was examined by the Assessing Officer at all. 4. Pursuant to the directions of the Tribunal, the Assessing Officer framed the set-aside assessment under section 143(3) read with section 254. In the said assessment order, the Assessing Officer reiterated two principal adjustments for A.Y. 2011–12, namely: (a) disallowance of Rs. 4,30,91,544/- in relation to payments to M/s Equifax Software Systems Pvt. Ltd. (“ESS”) under section 40A(2)(b) and allied reasoning about genuineness/quantum; and (b) addition of Rs. 12,25,00,000/- under section 68 in respect of share capital subscribed by M/s EFX Holdings Ltd., a Mauritius-based entity. The assessee carried the matter in appeal. The learned CIT(A), by the impugned order dated 30.06.2025, confirmed both the additions/disallowances. It is this confirmation which is assailed before us. 5. We have heard the rival submissions and perused the material placed on record, including the impugned orders, earlier appellate directions, and the paper book containing the audited financial statements, reconciliation workings, RBI Printed from counselvise.com ITA No.5323 & 5324/Mum/2025 Equifax Credit Information Services Pvt. Ltd. 4 acknowledgements, FIRC, and other documents referred to during the course of hearing. 6. So far as the addition under section 68 is concerned, the factual canvas is largely undisputed. The assessee had issued share capital aggregating to Rs. 25 crores, out of which Rs. 12,25,00,000/- was subscribed by EFX Holdings Ltd. (“EFX”). It is also borne out that EFX held 49% stake in the assessee company, while the remaining 51% shareholding was held by various domestic financial institutions. Even after induction of additional capital, the shareholding of EFX remained intact and continued at 49%. The Assessing Officer did not dispute that the funds were received through banking channels and were supported by FIRC and RBI acknowledgements in the sense of reporting/filing under the foreign investment regime; nevertheless, he treated the subscription by EFX as unexplained cash credit. 7. The Assessing Officer’s reasoning, as emanating from the set-aside assessment order, proceeds on a few specific planks. First, he notes that in the earlier round, the Tribunal had remitted the issue de novo because, according to the Tribunal, “in the absence of financial statement, only RBI approval alone cannot be said to have fully proved creditworthiness of the party”, and therefore the creditworthiness and genuineness required deeper verification. Secondly, in the set-aside proceedings, EFX, in Printed from counselvise.com ITA No.5323 & 5324/Mum/2025 Equifax Credit Information Services Pvt. Ltd. 5 response to notice under section 133(6), furnished its financial statements for the years ended 31.12.2009, 31.12.2010 and 31.12.2011. On perusal thereof, the Assessing Officer observed that the said financials showed either negligible or NIL income and, in certain years, losses. Based on this, he concluded that EFX did not have income of its own to justify such large subscription, and therefore its “financial capacity” stood in doubt. Thirdly, the Assessing Officer also noticed that some confirmations/annexures furnished were not signed and certified, and hence he regarded them as unauthenticated. He further recorded that certain statutory/supporting documents were not furnished to his satisfaction, such as certificate of residence issued by Mauritius authorities, resolution passed in board meetings of the assessee for issue and allotment of shares to EFX, cogent evidence of source of funds in the hands of share applicant which had been used to subscribe the shares, and certified/authenticated copies of supporting documents. The Assessing Officer then proceeded to state, in substance, that receipt of money through banking channels is not sacrosanct by itself and cannot be accepted at face value without requisite documentary evidence establishing the three ingredients, namely, identity, creditworthiness and genuineness. He also placed reliance on various judicial pronouncements mentioned in the assessment order and held that the assessee failed to discharge its burden under section Printed from counselvise.com ITA No.5323 & 5324/Mum/2025 Equifax Credit Information Services Pvt. Ltd. 6 68; hence the addition of Rs. 12,25,00,000/- was made and added to total income. 8. The learned CIT(A) has affirmed this approach and has confirmed the addition under section 68. From the impugned appellate order, it is evident that the learned CIT(A) proceeded on the premise that the Assessing Officer’s doubts were justified because the assessee, despite opportunities, did not furnish certain documents in an authenticated and verifiable manner, and because the financial statements of the foreign investor showed negligible income/consistent losses which, according to the learned CIT(A), impaired the capacity/creditworthiness of the investor to infuse such amount. The learned CIT(A) also held, in effect, that mere filing of papers or routing through banking channels is not sufficient unless the assessee establishes the foundational requirements to the satisfaction of the Assessing Officer, and therefore the addition deserved to be sustained. 9. The assessee before us has, however, vehemently contested the above, and has pointed out both from the paper book and from the scanned submissions that the Assessing Officer ignored the substance of the materials. It has been reiterated that EFX is an investment holding entity, which, by its very nature, is not set up to earn operational income like a trading or service company; such entities typically act as conduits for investments, funded through shareholder Printed from counselvise.com ITA No.5323 & 5324/Mum/2025 Equifax Credit Information Services Pvt. Ltd. 7 infusions, capital contributions, intra-group funding, or upstreaming of funds from parent/subsidiary entities, and the financial statements reflect investments as assets rather than revenue streams. The assessee has also pointed out that the audited financial statements of EFX duly disclose the investment/shares subscribed in the assessee company, reflected in the balance sheets; and that the remittance is evidenced by FIRC and regulatory reporting to RBI. It was also explained that EFX had undergone amalgamation into another group entity (Equifax Luxembourg), and the bank statements related to a period as old as 10 years, and therefore extraction/production of certain statements took time; however, the audited cash flow statement forming part of the financials evidences the source and movement of funds. It has also been urged that the Assessing Officer’s narrative, suggesting that the assessee is a sham or that banks/RBI have taken on record investment whose source is unknown, is wholly misconceived in the backdrop of established regulatory compliance and the presence of 51% domestic institutional shareholders whose capital induction has been accepted. 10. Having examined the entire factual matrix, we are unable to subscribe to the conclusions drawn by the Assessing Officer and affirmed by the learned CIT(A). The reason is simple: the touchstone of section 68 is not the profitability of the creditor, but the explanation regarding the nature and source of the credit coupled with identity, Printed from counselvise.com ITA No.5323 & 5324/Mum/2025 Equifax Credit Information Services Pvt. Ltd. 8 genuineness and capacity. In a case of share subscription by a holding/investment company, the “capacity” is not to be tested by looking only at its profit and loss account as if it were required to have operational income commensurate with the investment. An investment company may legitimately have NIL operating income and yet possess the capacity by virtue of capital, shareholder funds, borrowings, or group funding; and this is precisely why balance sheet, capital structure, and cash flow statements assume greater relevance than the revenue line in the profit and loss account. Thus, the observation that EFX had “negligible or NIL income” cannot, by itself, become a determinative factor to hold that it lacked creditworthiness, particularly when the financials themselves reflect investment as an asset and when the fund movement is evidenced through regulated banking channels. 11. Another pivotal fact, which the lower authorities have not evaluated in the correct perspective, is that from a bare perusal of EFX’s audited financial statements, the investment/shares subscribed in the assessee company is duly disclosed and reflected in the balance sheet. This disclosure is not a mere self-serving assertion; it is part of global audited accounts, and the investment is shown as an asset. The Assessing Officer’s approach of discrediting the financials because some annexures or confirmations were allegedly not signed, without appreciating that the audit report and the financial statements are audited and certified Printed from counselvise.com ITA No.5323 & 5324/Mum/2025 Equifax Credit Information Services Pvt. Ltd. 9 and that notes form integral part of the accounts, is more in the nature of technical rejection rather than a substantive rebuttal of the transaction. Likewise, the fixation on documents like “certificate of residence” in a context where neither party is claiming treaty benefit for taxation of income, and the transaction under consideration is share subscription in the assessee’s books, does not directly answer the core inquiry under section 68, i.e., whether the shareholder exists, whether the transaction is real, and whether the shareholder had the means/source for the investment. 12. It is also significant that the assessee is a joint venture entity with 51% holding by domestic financial institutions. The Assessing Officer has accepted the induction of capital by domestic institutions, but has singled out the foreign investor’s proportionate contribution, despite the shareholding remaining constant and despite the inflow being through banking channels supported by FIRC and RBI reporting. If, as was insinuated, the entire arrangement was a sham, it would be difficult to reconcile such insinuation with the accepted participation of reputed domestic financial institutions. The addition under section 68 cannot rest on suspicion, conjecture or mere rhetorical doubt; it must rest on cogent material demonstrating that the explanation offered is false or that the transaction is not genuine. Printed from counselvise.com ITA No.5323 & 5324/Mum/2025 Equifax Credit Information Services Pvt. Ltd. 10 13. We also note that the Tribunal in the earlier round had remitted the matter because it found that in the absence of financial statements, RBI approval alone could not prove creditworthiness. That remand was to enable proper factual examination. In the set-aside proceedings, financial statements were produced. The Assessing Officer was expected to examine them holistically capital structure, shareholder funds, cash flow, and disclosures. Instead, the Assessing Officer has primarily emphasised NIL income and questioned the authenticity of annexures/confirmations, without bringing any affirmative material to demonstrate that the funds did not emanate from the stated source or that the transaction is non-genuine. Once the assessee has demonstrated identity (EFX is an existing corporate entity), genuineness (funds received through banking channels with regulatory reporting) and capacity by audited financial statements disclosing the investment, the burden shifts; and it is for the Revenue to rebut the explanation with tangible material. Mere reference to the fact that funds were routed through Mauritius, or broad remarks about “tax havens”, without correlating such remarks to any incriminating material showing falsity of the transaction, does not meet the standard of reasoning required to sustain an addition under section 68. 14. In view of the above, we hold that the addition of Rs. 12,25,00,000/- under section 68 cannot be sustained. The Printed from counselvise.com ITA No.5323 & 5324/Mum/2025 Equifax Credit Information Services Pvt. Ltd. 11 assessee has furnished the primary evidences to explain the nature and source of the share capital, and the Revenue has not brought any material on record to dislodge the same except to rely on the NIL income aspect and alleged non- authentication of some annexures, which, in the facts of this case, cannot override the substantive evidences. Accordingly, the addition under section 68 is directed to be deleted. 15. Now, coming to the disallowance under section 40A(2)(b) in respect of payments to ESS. The Assessing Officer, in the set-aside order, has proceeded to disallow Rs. 4,30,91,544/- on the premise that the payment to ESS was unsubstantiated/excessive and also by drawing an inference from a mismatch between what was reflected in Form 26AS of ESS and what was booked by the assessee in its books. The Assessing Officer recorded that as per Form 26AS of ESS for the relevant period, gross receipt from the assessee was Rs. 14.45 crores, whereas in the assessee’s books/return, aggregate payment to ESS stood recorded at only Rs. 9.07 crores (comprising hardware/software maintenance, hosting charges and professional fees). On this basis, he inferred that there was an unexplained discrepancy of Rs. 5.38 crores which, according to him, cast serious doubt on genuineness of the assessee’s accounts and admissibility of the payments, and therefore, the payment of Rs. 4,30,91,544/- remained unsubstantiated and was disallowed. In further reasoning, the Assessing Officer also took a view that the Tribunal’s Printed from counselvise.com ITA No.5323 & 5324/Mum/2025 Equifax Credit Information Services Pvt. Ltd. 12 remand for “factual verification” was not confined only to the status of related party but also included scrutiny of genuineness, reasonableness and quantification. 16. The learned CIT(A) has confirmed the Assessing Officer’s action. The appellate order proceeds on the reasoning that (i) the Assessing Officer had found discrepancy on the basis of Form 26AS and books; (ii) reconciliation was not satisfactorily produced/verified; (iii) the Assessing Officer was within his jurisdiction to examine genuineness/quantum in the set- aside proceedings; and (iv) in the absence of convincing explanation and corroborative evidence, the disallowance deserved to be upheld. The learned CIT(A) also made reference to case law and held, in essence, that the tax authorities are entitled to examine the substance of the transaction and are not required to accept the assessee’s explanation merely on the basis of form. 17. The assessee, on the other hand, has filed a detailed reconciliation also reflected in the scanned reconciliation document demonstrating that the Assessing Officer’s inference of mismatch was factually flawed because the assessee had not merely booked Rs. 9.07 crores; rather, a substantial portion of invoices raised by ESS had been capitalised as intangible assets/WIP and therefore did not pass through the profit and loss account. The related party transaction schedule from audited financials, as produced, Printed from counselvise.com ITA No.5323 & 5324/Mum/2025 Equifax Credit Information Services Pvt. Ltd. 13 shows the break-up aggregating to Rs. 14,29,16,885/- comprising professional fees, hardware & software maintenance, hosting charges, communication charges, royalty (if any), and two significant capitalised components, namely Intangible Asset – CBS Software (capitalised) and Intangible Asset – CBS Software closing WIP (capitalised). The assessee has further demonstrated that the capitalised amount aggregated to Rs. 6,03,95,535/-. Thereafter, the reconciliation adjusts for provisions where TDS was not deducted (Rs. 1,22,35,398/-), arrives at net expense, and further accounts for service tax (at 10.30% in the working) resulting in net amount of Rs. 14,41,41,680/-. The gross receipt as per Form 26AS of ESS is Rs. 14,45,48,263/-, leaving a small residual difference of Rs. 4,06,583/-, which, given the age of the data and accounting classifications, is neither unusual nor indicative of any inflation or non- genuineness. The assessee has thus contended that the very foundation of the Assessing Officer’s discrepancy of Rs. 5.38 crores stands demolished. 18. We have considered the above rival positions and perused the reconciliation placed on record. The first and foremost aspect which emerges is that the Assessing Officer’s conclusion of mismatch was drawn by comparing Form 26AS gross receipts in the hands of ESS with only the revenue expenditure debited by the assessee to profit and loss account, without appreciating that certain invoices were Printed from counselvise.com ITA No.5323 & 5324/Mum/2025 Equifax Credit Information Services Pvt. Ltd. 14 capitalised. Once capitalisation is demonstrated from audited schedules, the comparison becomes incomplete unless the capitalised components are also brought into the reconciliation. The assessee has precisely done that by producing the related party transaction schedule and the reconciliation. The reconciliation is not a mere oral claim; it is a structured working supported by audited disclosures, showing that the total transactions with ESS aggregate to Rs. 14.29 crores, which is very close to Form 26AS gross receipts of Rs. 14.45 crores, and after tax/provision adjustments the difference is reduced to a nominal figure. 19. In such circumstances, the Assessing Officer’s inference that the assessee’s accounts are unreliable or that payments remained unsubstantiated cannot stand. Furthermore, section 40A(2) is not a deeming provision for disallowance on mere relationship. The statutory mandate is that where an assessee incurs expenditure in respect of which payment has been made to a specified person, and the Assessing Officer is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods/services/facilities, or the legitimate needs of the business, or the benefit derived, then so much of the expenditure as is considered excessive/unreasonable may be disallowed. Thus, the sine qua non is formation of an opinion based on some objective material and a comparative yardstick either market benchmarking, comparable uncontrolled Printed from counselvise.com ITA No.5323 & 5324/Mum/2025 Equifax Credit Information Services Pvt. Ltd. 15 pricing, service benefit analysis, or any demonstrable excess. In the present case, the disallowance sustained by the Assessing Officer is not founded on any such fair market value analysis; rather, it appears to have been sustained largely on the perceived mismatch and on a broad assertion about lack of substantiation. Once the mismatch is reconciled, the substratum of the disallowance is rendered infirm. 20. Even on the jurisdictional aspect, we note that the Tribunal had remitted the matter for factual verification. The assessee’s grievance, as reflected in the earlier proceedings, was that the Assessing Officer had not examined the factual matrix properly. A remand for factual verification does not mean that additions/disallowances can be sustained on conjectures; it only means that the authority must examine the facts fully and decide in accordance with law. Here, once the assessee produced reconciliation and audited schedules showing capitalisation and total transaction values, the Assessing Officer was required to test the same by calling for ledger extracts, fixed asset schedules, invoice-wise mapping, or by making limited verification. Instead, the conclusion of unsubstantiated payment appears to have been drawn without properly demolishing the reconciliation. Therefore, the confirmation by learned CIT(A) also cannot be sustained because the appellate confirmation rests on the same basic premise of mismatch and inadequate explanation, which Printed from counselvise.com ITA No.5323 & 5324/Mum/2025 Equifax Credit Information Services Pvt. Ltd. 16 premise stands addressed by the reconciliation supported by audited disclosures. 21. Accordingly, on the totality of facts and in view of the material on record, we hold that the disallowance of Rs. 4,30,91,544/- sustained under section 40A(2)(b) cannot survive and is directed to be deleted. 22. Since similar issue relating to disallowance under section 40A(2)(b) arises in A.Y. 2012–13 and the factual matrix is stated to be identical, our findings rendered hereinabove for A.Y. 2011–12 on this issue shall apply mutatis mutandis to A.Y. 2012–13 as well. Consequently, the disallowance in A.Y. 2012–13 on this count also stands deleted. 23. In the result, the appeal for A.Y. 2011–12 is allowed, and the appeal for A.Y. 2012–13 is also allowed in terms of our findings recorded above. Order pronounced on 24th February, 2026. Sd/- (GIRISH AGRAWAL) Sd/- (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; 24/02/2026 KARUNA, sr.ps Printed from counselvise.com ITA No.5323 & 5324/Mum/2025 Equifax Credit Information Services Pvt. Ltd. 17 Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// Printed from counselvise.com "