INTEGRATED GAS CONTROLS TECHNOLOGIES PRIVATE LIMITED,HYDERABAD V. INCOME TAX OFFICER, WARD-2(1), HYDERABAD

ITA 1172/HYD/2024

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The case involves Integrated Gas Controls Technologies Private Limited, which appealed against the order of the Commissioner of Income Tax (Appeals) sustaining additions made by the Assessing Officer under section 69C of the Income Tax Act for unexplained expenditures amounting to Rs. 14,54,144. The expenditures were related to payments made to various parties for services rendered. The Assessing Officer had disallowed these expenditures citing lack of sufficient evidence to prove their genuineness. The Tribunal, after reviewing the evidence and submissions, concluded that the assessee had adequately demonstrated the genuineness of the expenditures and directed the deletion of the additions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 472545 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Assessment Year: 2018-2019
• Other Referred Cases: CIT Vs. M/s Radhika Creation, Alexis Global Private Ltd Vs. ACIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SRINATH SADANALA
• Assessee Lawyers: T. CHAITANYA KUMAR
• Keywords: Set aside; Unexplained expenditure; TDS; Bogus
• Section: 69; 69C

Judgement Text

" आयकर अपीलीय अधिकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘A’ Bench, Hyderabad Before Shri Vijay Pal Rao, Vice President and Shri Manjunatha G., Accountant Member आ.अपी.सं /ITA No.1172/Hyd/2024 (निर्धारण वर्ा/Assessment Year: 2018-19) Integrated Gas Controls Technologies Private Limited Hyderabad [PAN : AADCI9868A] Vs. Income Tax Officer Ward-2(1) Hyderabad (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Shri T.Chaitanya Kumar, AR रधजस् व द्वधरध/Revenue by: Shri Srinath Sadanala, DR सुिवधई की तधरीख/Date of Hearing: 09/01/2025 घोर्णध की तधरीख/Date of Pronouncement: 24/01/2025 आदेश / ORDER PER. MANJUNATHA G., A.M: This appeal filed by the assessee is directed against the order dated 29.08.2024 of the learned Commissioner of Income Tax (Appeals) [Ld.CIT(A)], National Faceless Appeal Centre (NFAC), Delhi, pertaining to A.Y.2018-19. 2. The brief facts of the case are that the assessee company, engaged in the business of manufacturing and assembling of LPG safe regulators, filed its return of income for the A.Y.2018- 19 on 30.10.2018, admitting current year loss of 2 Rs.2,63,96,264/-. The case was selected for scrutiny and during the course of assessment proceedings, the Assessing Officer called upon the assessee to file necessary evidences, in support of large expenses debited to Profit & Loss account. In response, the assessee, vide letter dated 19.02.2021 filed relevant details including bills and vouchers in support of various expenditure debited to Profit & Loss account. The Assessing Officer, after considering relevant submissions of the assessee observed that although the assessee has filed certain evidences, but failed to file bills / vouchers in the case of few expenses. The Assessing Officer observed that the assessee has paid Rs.31,85,557/- to Mr.Girdhar Ghata and deducted TDS u/s 194J, but failed to file bills for expenses and agreement if any with the party. Therefore, made addition of Rs.31,85,557/- u/s 69C of the Act as unexplained expenditure. Similarly, the Assessing Officer noticed that the assessee has paid Rs.3,00,000/- to M/s Karamchand Linganna Komireddy. The assessee has also paid Rs.2,19,144/- to M/s Magostech Information Systems Private Ltd. Likewise, the assessee has paid Rs.9,35,000/- to M/s Manjunath Hari Naik. But, failed to file relevant evidences in support of the above three payments. Therefore, made additions of Rs.14,54,144/- u/s 69C of the Act as unexplained expenditure and brought to tax under the provisions of 115BBE of the Act. 3. Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the Ld.CIT(A), the assessee has filed detailed written submissions on the issue, which has been extracted at para 5 from pages 8 to 21 of 3 Ld.CIT(A) order. The sum and substance of the arguments of the assessee before the Ld.CIT(A) are that the expenditure recorded in the books of accounts cannot be treated as unexplained expenditure u/s 69C of the Act. The learned counsel for the assessee further submitted that the assessee has filed relevant bills and vouchers in support of various expenditure and had also deducted TDS. The Assessing Officer has called for agreement with the parties, but the fact remains that the assessee has not entered into any agreement thereto. But, the Assessing Officer simply made additions towards expenditure u/s 69C of the Act. The Ld.CIT(A) after considering the submissions of the assessee and also taking note of evidences filed by the assessee observed that although the assessee has filed bills and vouchers in support of expenditure and also proved that the payments have been made through proper banking channel, but the fact remains that Mr.Giridhar Ghanta has breached trust by deceiving the appellant company and did not render services for which payments were made. Therefore, observed that the expenditure debited towards payment made to Mr.Giridhar Ghanta cannot be allowed as deduction. Similarly, the Ld.CIT(A) observed that the assessee although filed bills in support of other payments made to three parties, but failed to file relevant evidences to prove that the said expenditure is genuine in nature, therefore, rejected the submissions of the assessee and sustained the additions made by the Assessing Officer u/s 69C of the Act. 4. Aggrieved by the Ld.CIT(A) order, the assessee is now in appeal before the Tribunal. 4 5. The learned counsel for the assessee submitted that the Ld.CIT(A) erred in sustaining the additions made by the Assessing Officer towards expenditure u/s 69C of the Act, even though the said provisions have no application, when the assessee has recorded expenditure in the books of accounts and also explained the sources for the said expenditure. The learned counsel for the assessee further referring to paper book filed by the assessee submitted that the assessee has filed relevant bills and vouchers in support of payments made to Mr.Giridhar Ghanta and other three parties and also obtained confirmation from the parties for rendering services. The Assessing Officer and the Ld.CIT(A) sustained additions merely on the basis of not producing agreement if any, for rendering services. Therefore, he submitted that the additions made by the Assessing Officer and confirmed by the Ld.CIT(A) should be deleted. The learned counsel for the assessee further referring to the paper book filed by the assessee, more particularly, the expenditure booked towards payment made to Mr.Giridhar Ghanta submitted that the assessee has capitalized the above expenditure in their books of accounts and has only claimed 1/5th of the expenditure and addition if any, needs to be made, then only to the extent of expenditure debited to books of accounts can be made. Therefore, the additions made by the Assessing Officer towards total expenditure should be deleted. In this regard, he relied upon the decision of Hon'ble Delhi High Court in the case of CIT Vs. M/s Radhika Creation in ITA 692/2009, judgement dated 30.04.2010. He has also relied upon the decision of ITAT Delhi Bench in the case of Alexis Global Private Ltd Vs. ACIT in ITA No.2497/Del/2024 dated 31.07.2014. 5 6. The learned DR on the other hand, supporting the order of the Ld.CIT(A) submitted that the assessee could not prove genuineness of expenditure incurred in the name of Mr.Giridhar Ghanta and other three parties and further, the assessee itself had admitted the fact that one party has deceived the company and not rendered any services. Therefore, the Ld.CIT(A) has rightly held that the expenditure debited to profit and loss account is not allowable expenditure. Further, although the assessee filed certain evidences like bills and vouchers, but could not justify the nature of expenditure and services rendered by the parties. The Ld.CIT(A) after considering the facts has rightly sustained the additions made by the Assessing Officer, therefore, the order of the Ld.CIT(A) should be upheld. 7. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. The Assessing Officer disallowed the expenditure towards consultancy / professional charges on the ground that the assessee could not prove the genuineness of the expenditure by filing relevant evidences. According to the Assessing Officer, the assessee could not explain the nature of expenditure and sources to the satisfaction of the Assessing Officer and therefore, opined that the expenditure incurred by the assessee under the head ‘professional charges’ is bogus in nature and accordingly disallowed u/s 69C of the Act. The Assessing Officer has invoked the provisions of section 69C. In order to invoke section 69C, if any assessee, in any financial year, has incurred any expenditure and the assessee offers no explanation about the source of such expenditure or part thereof or explanation if 6 any offered by him is not in the opinion of the Assessing Officer satisfactory, then section 69 can be invoked. In the preset case, the assessee has incurred expenditure and also recorded such expenditure in the books of accounts and paid the amounts through banking channels after deducting applicable TDS as per law. Therefore, in our considered view, once the assessee explained the nature of expenditure and also records such expenditure, then the provisions of section 69C cannot be invoked merely on the ground that the assessee could not substantiate the nature of expenditure. Therefore, to this extent, we are not in agreement with the reasons given by the Assessing Officer to disallow expenditure u/s 69C of the Act and upheld by the Ld.CIT(A). 8. Having said so, let us come back to the nature of expenditure incurred by the assessee. The appellant has paid a sum of Rs.31,85,557/- to Mr.Giridhar Ghanta towards professional charges and claimed that the said person has not rendered any services and deceived the company. The assessee has debited the said expenditure to capital account and apportioned over a period 5 years and claimed 1/5th of expenditure for the year under consideration. Similarly, the assessee has paid various payments to M/s Karamchand Linganna Komireddy and M/s Magostech Information Systems Private Ltd. for various purposes and also deducted applicable TDS as per law. The assessee claims that it has filed relevant bills and vouchers in support of expenditure and also claimed that there are no agreements with the parties for rendering services, because the said services are routine in nature and 7 does not warrant any kind of agreement with the parties. We find that the Assessing Officer himself has admitted the fact that the assessee has filed certain evidences, however, claimed that the assessee could not prove the genuineness of the expenditure. Before us, the assessee has filed copies of invoices issued by service providers and also proved payment through proper banking channel. Going by the evidences filed by the assessee, in our considered view, the assessee is able to prove the nature of expenditure and also genuineness of the said expenditure. Therefore, we are of the considered view that the reasons given by the Assessing Officer and sustained by the Ld.CIT(A) to disallow expenditure is contrary to the evidence on record. Further, in the case of expenditure towards payment made to Mr.Giridhar Ghanta, because the service provider has not rendered any service and also deceived the company, the assessee had capitalized the expenditure and apportioned over a period of five years and debited 1/5th of the expenditure for the year under consideration. Since the assessee has incurred expenditure in the course of its business, even if the service provider did not render any service and deceived the company without rendering services, but such expenditure cannot be disallowed as non-genuine. Further, the assessee has himself capitalized it’s expenditure and apportioned over a period of five years and claimed only 1/5th of the expenditure for the year under consideration, whereas, the Assessing Officer has disallowed the entire expenditure. Since the assessee has proved the nature of expenditure by filing relevant evidences, in our considered view, the expenditure incurred by the assessee for the purpose of its business needs to be allowed. Therefore, 8 we direct the Assessing Officer to delete addition made u/s 69C towards payment to Mr.Giridhar Ghanta. In so far as expenditure incurred towards payment made to three persons like M/s Karamchand Linganna Komireddy, M/s Magostech Information Systems Private Ltd and M/s Manjunath Hari Naik, the assessee has filed relevant evidences including bills submitted by the service providers and payment made for rendering services. Since the assessee has filed evidences to substantiate the claim of expenditure, in our considered view, the Assessing Officer has erred in disallowing expenditure u/s 69C of the Act. The Ld.CIT(A) without considering the relevant evidences, simply sustained the additions made by the Assessing Officer. Thus, we set aside the order of the Ld.CIT(A) and direct the Assessing Officer to delete the additions made towards unexplained expenditure u/s 69C of the Act. 9. In the result, appeal filed by the assessee is allowed. Order pronounced in the Open Court on 24th January, 2025. Sd/- Sd/- (VIJAY PAL RAO) VICE PRESIDENT (MANJUNATHA G.) ACCOUNTANT MEMBER Hyderabad, Dated 24th January, 2025 L.Rama, SPS 9 Copy to: S.No Addresses 1 M/s Integrated Gas Controls Technologies Private Limited, E-Block, Flat 101, Aditya Empress Towers, Shaikpet Nala, Tolichowki, Golconda Post, Hyderabad 2 The Income Tax Officer, Ward-2(1), Signature Towers, Kondapur, Hyderabad 3 The Pr.CIT, Hyderabad 4 The DR, ITAT Hyderabad Benches 5 Guard File By Order "