EVALUATIONZ INDIA PRIVATE LIMITED,BENGALURU V. .DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(1), BANGALORE

ITA 1103/BANG/2024

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Evaluationz India Pvt. Ltd. appealed against the order of the National Faceless Appeal Centre, which had confirmed the addition of Rs. 3,655,489 as unexplained expenditure under section 69C of the Income Tax Act, 1961. The expenditure was related to professional charges paid to Techprocode Information Technology Pvt. Ltd. for background verification services. The assessing officer had initially disallowed the expenditure due to the vendor's non-response to a notice under section 133(6) and the absence of the vendor's income tax return for the relevant assessment year. The Tribunal, after considering the extensive documentation and evidence provided by the assessee, including agreements, invoices, bank statements, and GST compliance, concluded that the expenditure was genuine and substantiated, leading to the reversal of the disallowance.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 470933 (ITAT-BANGALORE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2018-2019
• Other Referred Cases: Radhika Creation vs. CIT, CIT vs. Orissa Corporation (P) Ltd, Anis Ahmad & Sons vs. CIT, CIT vs. Metachem Industries
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Opportunity of being heard; Corroborative evidences; Unexplained expenditure
• Section: 143(3); 143(2); 250; 133(6); 69C; 234B

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH : BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT AND SHRI SOUNDARARAJAN K., JUDICIAL MEMBER ITA No.1103/Bang/2024 Assessment year : 2018-19 Evaluationz India Pvt. Ltd., # 305, Royal Heritage, Old Madras Road, TIN Factory, Benniganahalli, Doorvani Nagar, Bengaluru – 560 016. PAN: AABCE 5590M Vs. The Deputy Commissioner of Income, Circle 2(1)(1), Bangalore. APPELLANT RESPONDENT Appellant by : Shri Padamchand Khincha, CA Respondent by : Shri V. Parithivel, Jt.CIT(DR), ITAT, Bengaluru. Date of hearing : 09.12.2024 Date of Pronouncement : 20.12.2024 O R D E R Per Prashant Maharishi, Vice President 1. ITA No. 1103/Bang/2024 is filed by Evaluationz India Pvt. Ltd. (assessee/appellant) for assessment year 2018–19 against the appellate order passed by the National Faceless Appeal Centre, Delhi (the learned CIT–A) on 6/5/2024 wherein the appeal filed by the assessee against the assessment order dated 6/4/2021 passed under section 143(3) of the Income-tax Act, 1961 (the Act) by the National e-Assessment Centre, Delhi (the ld.AO) was dismissed. ITA No.1103/Bang/2024 Page 2 of 12 2. Assessee aggrieved with the same has preferred this appeal raising following grounds as under: – “1. General Ground 1.1. The order passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (hereinafter referred to as CIT(A), NFAC) under section 250 of the Act to the extent prejudicial to the appellant is bad in law and liable to be quashed. 2. Disallowance of expenditure of Rs. 36,55,489 under section 69C 2.1. The learned AO and the CIT(A), NFAC have erred in making addition of Rs. 36,55,489 under section 69C in respect of expenditure paid to M/s Techprocode Informat Technology Pvt. Ltd only for the reason that the notice under section 133(6) issued to the said entity was not replied. 2.2. The learned AO and CIT(A), NFAC erred in not appreciating and considering the PAN, GST regn no, agreement, invoices, bank statement for payments made, bank account no of vendor, GSTR 2A as documentary evidences in respect of the expenditure incurred and paid by the appellant. 2.3. The entire basis of making the impugned addition under section 69C is contrary to facts, bad in law and liable to be quashed. 2.4. On facts and circumstances of the case and law applicable, impugned addition of Rs. 36,55,489 is bad in law and liable to be deleted. 3. Levy of interest under section 234B and 234C 3.1 The learned AO and the CIT(A), NFAC have erred in confirming the levy of interest under section 234B and 234C. 4. Prayer 4.1. In view of the above and other grounds to be adduced at the time of hearing, the appellant prays that the order passed under ITA No.1103/Bang/2024 Page 3 of 12 section 250 of the Act by the learned CIT(A), NFAC to the extent prejudicial to the appellant be quashed or in the alternative the above grounds and the appeal be allowed. The Appellant submits that each of the above grounds/ sub- grounds are independent and without prejudice to one another. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal, so as to enable the Income-tax Appellate Tribunal to decide the appeal according to law. The appellant prays accordingly.” 3. Brief facts of the case shows that assessee is a private limited company and is engaged in the business of background verification of candidates shortlisted for hiring by corporate entities like Oracle, Infosys, BPO, Tata consultancy services, ICICI bank, Accenture solutions and Amazon et cetera. Assessee filed its return of income on 27/9/2018 declaring total income of Rs. 25,483,830/–. The return of income was picked up for scrutiny as a limited scrutiny case, to verify the genuineness of the expenses, therefore notice under section 143(2) was issued on 28/9/2019. 4. During assessment proceedings, the learned assessing officer found that assessee has incurred expenditure of Rs. 3,655,489 on account of professional charges paid to Techprocode Information Technology Pvt. Ltd. [vendor]. It was found that vendor has not filed the return of income. The learned assessing officer asked the assessee to furnish the relevant details such as income tax return, Ledger account, bank account details, confirmation from parties for verification of the expenditure along with the copy of the ITA No.1103/Bang/2024 Page 4 of 12 agreement and work awarded to the professionals. The assessee furnished the details such as tax deduction at source, bank account statement, Ledger account of verification of expenses paid to that company along with the copy of agreement for verification of the expenses, emails for services, details of vendor work done for each of the verification etc. 5. The learned AO issued notice under section 133(6) of the Act to the recipient of the income for genuineness of the payment along with the various details which was not responded to. Therefore, the learned assessing officer reached at the conclusion that these Rs. 3,655,489 paid towards professional charges for the verification job work to Techprocode Information Technology Pvt. Ltd. is an unexplained expenditure under section 69C of the Act. 6. Consequently show cause notice was issued to the assessee. In response to the show cause notice assessee also submitted that the notice issued under section 133(6) issued really reached to the vendor is not confirmed. The learned assessing officer thereafter found that as the assessee has not provided the copies of the return of income for assessment year 2018-19 filed by the vendor and also the vendor has also not complied with the notices issued under section 133(6) of the Act confirming the same transaction, despite being given an opportunity of being heard, thus the said transaction remains unverified in absence of necessary documents, Accordingly addition under section 69C of the Act is made of the above sum. ITA No.1103/Bang/2024 Page 5 of 12 7. Assessment order was passed under section 143(3) read with sections 143(3A) and 143(3B) of the Income Tax Act on 6/4/2021 determining the total income of the assessee at Rs.2,91,39,322 wherein the addition of Rs. 3,655,489/– was made. 8. The assessee aggrieved with the same preferred an appeal before the learned CIT–A wherein the assessee submitted that the assessee has availed the service of the above company amounting to Rs. 36.55 lakhs and all the payments were made to the vendor by the RTGS system by making appropriate tax deduction at source. The assessee submitted the permanent account number, GST registration, agreement, invoices, bank account of the assessee, vendor’s bank account as well as the GST R – 2A return also. The learned CIT–A confirmed the disallowance holding that assessee has simply argued that assessee is no way obligated to produce the vendor before the assessing officer and the AO directing the assessee to file a copy of tax return of the vendor is unreasonable. He held that it is the responsibility of the appellant to furnish supporting evidence about the claim made by it in the return of income to the satisfaction of the assessing officer. Accordingly appeal of the assessee was dismissed. 9. The learned authorised representative appeared before us and furnished paperbook containing 508 pages along with the copies of the account of Techprocode Information Technology Private Limited from the books of accounts of the assessee for assessment year 2018-19. A further case law compilation containing 8 judicial ITA No.1103/Bang/2024 Page 6 of 12 precedents was also furnished. The learned authorised representative also relied upon the decision of the honourable Delhi High Court in case of (2011) 10 taxmann.com 138 (Delhi) in case of Radhika Creation dated 30 April 2010. 10. The contention of the learned authorised representative is that assessee has furnished all the necessary evidence to prove the genuineness of the expenditure incurred. He referred to the agreement placed at page number 89-102 of the paper book wherein the above vendor was employed for address verification, employment verification etc. Further he submitted that based on this agreement the assessee has in the services of the above party wherein in the invoices itself the verification was shown. He further referred to letter dated 2/4/2021 addressed to the assessing officer wherein the necessary evidence such as permanent account number, GST registration number, agreement copy, verification of expenditure by producing the invoices, bank statement of the assessee, bank account number of the vendor, details of the verification executed by the vendor extracted from computerised database by the assessee company, email correspondence dated 18/10/2017 from the vendor and other email communication. Further on the amount paid by the assessee through RTGS, necessary tax deduction at source was also made which is also placed before the assessing officer. The master data downloaded from the MCA website maintained was also produced before the assessing officer to show the address of the vendor, its directors, ITA No.1103/Bang/2024 Page 7 of 12 and other details available therein. To show that the invoices raised by the vendor have also been uploaded by the vendor on the website of goods and service tax authorities in GSTR–2A. Accordingly on the above document basis the assessee has elaborated and clearly explained the rendition of the services as well as the genuineness of the expenditure incurred. He extensively referred to the submission made before the learned assessing officer and the learned CIT–A. He also referred to the validation of month-wise candidates by the vendor placed at page number 127 – 404. He further referred to several email correspondence placed at page number 405–408 to show that the services have been rendered and the payment is genuine. He further relied upon the decision of the honourable Delhi High Court in 10 taxmann.com 138 in case of Radhika Creation wherein it has been categorically held that the disallowance on account of non-authenticity of the expenditure could not be made under section 69C of the Act. According to him, section 69C is on source of expenditure and not on authenticity of the expenditure itself. He submitted that the books of accounts clearly show the above expenditure incurred by the assessee. The learned assessing officer has made an addition under section 69C of the Act. Therefore, on this ground itself the addition deserves to be deleted. He further submitted that merely issue of notice under section 133 (6) with no additional efforts cannot be a valid ground for addition in the hands of the assessee. For this proposition, he relied upon the decision of the honourable Supreme Court in case ITA No.1103/Bang/2024 Page 8 of 12 of CIT v. Orissa Corporation (P) Ltd (1986) 159 ITR 78 (SC) and Anis Ahmad & Sons (2008) 161 Taxman 84 (SC). He further submitted that when the assessee has produced the documents establishing the genuineness, merely because the parties did not appear before the learned assessing officer, no addition could have been made. For this proposition he relied upon the decision of the honourable Bombay High Court in case of 150 taxmann.com 362, 88 taxmann.com 502 and 104 taxmann.com 402. He further referred to the decision of the honourable Madhya Pradesh High Court in case of CIT versus Metachem Industries (2001) 116 Taxman 572 to submit that assessee cannot answer whether the payee has offered the sum to taxation or not, and that cannot result into disallowance in the hands of the assessee. 11. The learned departmental representative vehemently supported the order of the learned lower authorities and submitted that when the vendor whether payment was made by the assessee has not responded to notice under section 133 (6) of the Act, the assessee has not discharged its onus of proving the genuineness of the expenditure and therefore the disallowance has been correctly made by the learned lower authorities. 12. We have carefully considered the rival contention and perused the orders of the learned lower authorities. The assessee is into the business of comprehensive employee/customer back ground verification. It has a large corporate clients like Accenture solutions, Amazon, Oracle, and other IT players. Before recruiting ITA No.1103/Bang/2024 Page 9 of 12 employees they wish to have their antecedents checked for the proper employment. This process is called background verification of the new employees. This activity is carried out because no employees with fake or false information is selected by the clients. The comprehensive background verification process is consisting of education verification, address check, previous employment verification, criminal records check, identity check, earlier remuneration shown verification etc. Most of the time the assessee carries out the checks with the help of its own team of staff. Sometimes it also takes the help of third parties to carry on the work. The verification reports are also provided in a standard format. On filing of the return of income, the case of the assessee was selected for verification of the genuineness of the expenditure. The vendor payments made by the assessee was also questioned during the assessment proceedings where the assessee explained that all the payments are made by account payee cheques, tax deduction at source is made, the vendors are having permanent account number and GST registration number, and the expenses are properly grouped on verification of the details. Assessee also explained that the verification expenditure paid to the vendors are comparable with previous year expenditure and subsequent year expenditure. The assessee also produced the complete details of the verification made by the vendor. During previous year it has incurred expenditure of vendor payment for such verification activities. Only issue involved in this appeal is that assessee has ITA No.1103/Bang/2024 Page 10 of 12 made a payment vendor of Rs. 36.55 lakhs for background verification of the various employees, notice under section 133 (6) was issued by the learned assessing officer but not responded by that vendor, has resulted into the addition of the above expenditure. Assessee has substantiated that the services have been rendered by the vendor showing the various statement of verification expenditure showing the name of the client, the verification expenses incurred, the number of persons verified along with the complete list of the verification details. The assessee has also submitted the permanent account number details, GST registration, agreement copy of the vendor, verification expenses Ledger, bank statement of the assessee, bank account number of the vendor, the invoices issued by the vendor, the details of the verification job by the vendor as per the computerised database by the assessee company, various email correspondence, and consequently the payment of verification expenses to the vendor on tax deduction at source and issuing the certificate for tax deduction. The assessee has also demonstrated before the assessing officer from the master data downloaded from the site of the Ministry of Corporate Affairs showing the address of vendor, its directors, and its profile. It also produced that the vendor did verification job charged goods and service tax, this was paid to the government authorities, the vendor also furnished the GST returns. This was demonstrated by producing GST–2A return. Therefore, the assessee has conclusively proved that the vendor performed verification job, ITA No.1103/Bang/2024 Page 11 of 12 raised appropriate bills and source for making the payment is from the bank account of the assessee wherein the bank account of the recipient is also reflected, the bank account of the vendor with ICICI bank was also furnished. 13. Because the learned assessing officer issued notices under section 133 (6) which was not responded to by the vendor, cannot result into an addition to the hands of the assessee when overwhelming details are produced before the assessing officer. During assessment proceedings, assessee asked the ld. AO that whether the notices have reached that assessee vendor or not. It was not answered. Response to the ld. AO by third party in case of assessee in response to notice u/s 133 (6) of the Act is not in the hands of the assessee. Even otherwise, such non-appearance/non submission of details by third party, when assessee has produced overwhelming details, which remains not controverted, cannot result into disallowance. 14. It is not the case of the learned assessing officer that the activities carried on by the vendor which was substantiated by the assessee is not genuine. Further the learned assessing officer has made addition under section 69C of the Act. The books of accounts of the assessee have disclosed this expenditure. The source of the payment of the expenditure is bank account of the assessee. Therefore, the source of the expenditure incurred by the assessee is properly shown. Accordingly, the addition/disallowance under section 69C is not warranted and not in accordance with the ITA No.1103/Bang/2024 Page 12 of 12 provisions of the Act. Further several judicial precedents produced before us clearly show that when the assessee has brought on record voluminous details of incurring an expenditure, the assessee could not be held responsible for parties not appearing in person before the learned assessing officer. 15. In the result, we do not find any reason to uphold the orders of the learned lower authorities confirming the disallowance of Rs. 3,655,489 under section 69C in respect of expenditure paid to Techprocode Information Technology Pvt. Ltd. Accordingly ground number 2 of the appeal of the assessee is allowed. 16. Ground number one is general and ground number 3 is consequential in nature and therefore same is dismissed. 17. In the result, appeal of the assessee is partly allowed. Pronounced in the open court on this 20th day of December, 2024. Sd/- Sd/- ( SOUNDARARAJAN K.) ( PRASHANT MAHARISHI ) JUDICIAL MEMBER VICE PRESIDENT Bangalore, Dated, 20th December 2024. /Desai S Murthy / Copy to: 1. Appellant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore. "