Dy. Commissioner of Income Tax , Circle-1(2), Hyderabad V. Coastal Insurance Brokers Private Limited, Hyderabad

ITA 116/Hyd/2018

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 7438 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2021
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB-B
• Assessment Year: 2014-2015
• Appeal Filed On: 11-01-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ROHIT MUJUNDAR
• Keywords: Additional evidence; Capital expenditure; TDS
• Section: 143(3); 37(1); 13

Judgement Text

ITA No.116/Hyd/2018 1 IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ B ‘ Bench, Hyderabad (Through Video Conferencing) Before Shri A. Mohan Alankamony, Accountant Member AND Shri S.S. Godara, Judicial Member ITA No.116/Hyd/2018 Assessment Year: 2014-15 The Deputy Commissioner of Income Tax, Circle – 1(2), Hyderabad. Vs. Coastal Insurance Brokers Private Limited, No.4, 23-J-4, Jalavayuvihar, Kukatpally, Hyderabad – 500 072. PAN : AACCCS5848F. (Appellant) (Respondent) Assessee by: Shri V. Siva Kumar Revenue by : Shri Rohit Mujundar Date of hearing: 20/10/2021 Date of pronouncement: 29/11/2021 O R D E R Per S. S. Godara, J.M. This assessee’s appeal for A.Y 2014-15 arises from the Commissioner of Income Tax (Appeals)-1, Hyderabad’s order dated 13.10.2017, in case No.0399/CIT(A)-1/Hyd/2016-17/2017-18 involving proceedings under section 143(3) of Income Tax Act, 1961 (in short, “the Act”). Heard both the parties. Case file perused. ITA No.116/Hyd/2018 2 2. Coming to the Revenue’s sole substantive grievance that the learned CIT(A) has erred in law and on facts in reversing the Assessing Officer’s action in disallowing bogus expenditure of Rs.2,47,26,160/-, we note that the lower appellate discussion to this effect reads as under : “5. Only Ground is regarding disallowance' of Bogus expenditure of Rs.2,47 ,26,160/- 5.1 During the assessment proceedings, the Assessing Officer noticed that the assessee has claimed an expenditure of Rs.2,47,26,160/- under the head 'Infrastructure Services' for the first time in the year under consideration. The Assessing Officer asked the assessee to explain the nature of expenditure and also the business purpose for which the expenditure was claimed. The assessee submitted that the company received infrastructure and LT. support services from related party namely M/s.Pushkal Consultants and Technocrats Pvt Ltd (PCTL), Hyderabad and paid an amount of Rs.2,47,26,160/- towards these services. The assessee submitted that TDS· was deducted from the payments/credits to M/s.Pushkal Consultants and Technocrats Pvt Ltd at the applicable rates and remitted the same to the Government account. The assessee submitted that the following are the services were provided by the M/s.Pushkal Consultants and Technocrats Pvt Ltd at various locations: a. Keeping a compact and informative profile of the clients to enable the assessee to follow up on renewals, premium reminders and other customer related activities. b. Development of systems and service for generation of policies/renewals/pay-in-slips, cancellation of policies, issuing certificates etc. c. Maintenance of appropriate records of clients and passing the same to the assessee for follow up for the action and results. d. Providing the required hardware and software, maintenance of operating and security systems, to meet IT requirements of the assessee in line with various Insurance Companies. e. Any other services as requested by the assessee from time to time. f. It was also submitted by the assessee that PCTL used to raise monthly invoices on the assessee for the services and the copies of these invoices were also filed by the assessee. ITA No.116/Hyd/2018 3 After verification, the Assessing Officer concluded that though the company has been in the business of general insurance broking business for the last 13 years, the said expenditure of infrastructural management services was claimed for the first time in this year. The entire services are claimed to have been received from the related party i.e., group concern of the assessee company. It is evident from copies of the invoices raised by M/s.Pushkal Consultants and Technocrats Pvt that the invoices were serially numbered from 1 to 10 and they have striking resemblance in font and impression which indicate that the same were prepared in March, 2014, though it was claimed that the invoices relate to different months from June, 2013 to March, 2014. It was also noticed from the ledger account of 'Infrastructure expenses', that the first payment towards infrastructural expenses was made on 15.03.2014 and an amount of Rs.1.02 Crores was shown as payable as on 31.03.2014, out of the total claim of expenditure of Rs.2,47 Crores. If the claim was genuine, and the services were rendered from June, 2013 as claimed by the assessee, there would have been periodical and staggered payments to M/s. Pushkal Consultants and Technocrats Pvt Ltd, from June 2013. It was also noticed that as per the TDS details, the TDS in case of payment/credit of Rs.l,00,00,000/- to M/s.Pushkal Consultants and Technocrats Pvt Ltd was remitted to the Government account on 10.09.2014, unlike other TDS remittances which were made on or before April, 2014. From the ITR filed by M/s. Pushkal Consultants and Technocrats Pvt Ltd, Hyderabad for the A.Y.2014-15, the said company has rendered the alleged services only to the assessee company and not to any other entity in the year ended 31.03.2014. It was also noticed that the said company has claimed substantial expenditure of Rs.40 lakhs toward professional charges and Rs.86,10,000/- towards infrastructural charges for the first time in the F.Y.2013-14 and offered taxable income of only Rs.78 lakhs as against the receipt of Rs.2,47 crores. In view of the above, the Assessing Officer concluded that it was only an accommodation entry provided by the group concern to the assessee in the guise of infrastructure services. The said expenditure was booked by the assessee as an after-thought at the end of the year in March 2014, so as to reduce its taxable income. Thus, the claim made by the assessee for expenditure of RS.2,47 Crores towards 'infrastructure services' is prima facie fictitious expenditure booked ,at the end of the year in connivance with group concern. When confronted with the discrepancies, the assessee could not offer any plausible explanation to justify its claim of genuineness of such expenditure. In view of this, the Assessing Officer disallowed Rs.2,47,26,160/claimed as expenditure towards 'Infrastructure services' and added to the total income of the assessee. 5.2 Before me, the appellant submitted that the appellant has entered into an agreement with M/s.Pushkal Consultants and Technocrats Pvt Ltd on 14.06.2013. The appellant submitted as per Section 2(e) of the Indian Contract Act 1872, defines the term agreement as "every promise and every set of promises, forming a consideration for each other" and Section 2(h) of the Indian Contract Act 1872, defines the ITA No.116/Hyd/2018 4 term contract "as an agreement made between two or more parties which the law will enforce". To analyze, a contract is defined by Sec 2(h) of the Indian Contract Act 1872 as "an Agreement enforceable by Law". Again, according to Section 10 of the Indian Contract Act 1872, "all Agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and which a lawful object and or not expressly declared Void". The appellant submitted that the services were rendered by the M/s.Pushkal Consultants and Technocrats Pvt Ltd as per the recitals contained in the as per the agreement dated 14.06.2013. The consideration there for was paid by the appellant to M/s.Pushkal Consultants and Technocrats Pvt Ltd as per the agreement only. The appellant submitted that there was no finding by the Assessing Officer holding the above agreement as "in-operative or Void in Law" and thereby the existence of the above agreement was not disputed. As per the well-established judicial precedents and also mandatory provisions contained in the Statute, in order to constitute on expenditure falling u/s.37(1) of the Act, one should satisfy six conditions, Viz., (i) the Expenditure should not be of the nature described in the Section 30 to 36 (ii) it should have been incurred in the accounting year (iii) it should be in respect of business which was carried on by the assessee and the profits of which are to be computed and assessed (iv) it should not be in the nature of personal expenses (v) it should have been laid out or expended wholly and exclusively for the purpose of such business and (vi) it should not be in the nature of capital expenditure. The appellant submitted that the claim made by the assessee to the extent of 2.47 Crores towards payments made to M/s. Pushkal Consultants and Technocrats Pvt Ltd for the year under review are in conformity with the provisions laid down by the Section 37(1) of the Act. The appellant submitted that the assessee engaged the services of M/s. Pushkal Consultants and Technocrats Pvt Ltd, this year with the object of extending its business activity and to achieve its object by undertaking the above services. The appellant submitted that it is evident from the financial statements for the year ended 31.03.2013, where revenue receipts were Rs.4.68 crores as against Rs.14.96 crores for the year ended 31.03.2014. The appellant submitted that there was three-fold increase in the receipts this year. The appellant submitted this evident that the services were under taken with the specific object of extending the area of operations and such object was fulfilled by utilizing their services. ITA No.116/Hyd/2018 5 The appellant submitted that the Assessing Officer's finding that the entire services are claimed to have been received from related party is not factually correct. The appellant submitted that none of the directors/ shareholders hold any interest in the recipient company Viz., M/s. Pushkal Consultants and Technocrats Pvt Ltd. Some of the directors may hold individual relationship, interest, and it does not mean that both the concerns are interrelated. The appellant submitted that all the ten invoices which were raised by the M/s. Pushkal Consultants and Technocrats Pvt Ltd. The bills were raised by them in the guise of above invoices every month from June, 2013 onwards, towards the services rendered by them as for the contractual obligation laid down by the Agreement dated 14th June, 2013. The appellant submitted that from the account of the M/s.Pushkal Consultants and Technocrats Pvt Ltd was credited with the infrastructure expenses month-wise at Rs.25,30r970/- which included Service Tax and TDS. The appellant submitted that the amount due from M/s.Pushkal Consultants and Technocrats Pvt Ltd was credited to its account at the end of each month as per the "mercantile" basis. The appellant submitted that the entire amount of Rs.2,47,26,160/- was not credited in one lump sum at the end of the year i.e. March 2014, as opined by the Assessing Officer. Further as per the above ledger extracts, the first payment was made in September, 2013 at Rs.5,00,000/-, the second payment was made on 21.01.2014 at Rs.5.00,000/- and on 24.02.2014 at Rs.2,84,000/- and the remaining amounts were paid during the month of March 2014 and closing balance was shown Rs.79r51r002/- and the same was also discharged in subsequent year. So, it is not correct to say that the. first payment was made on 15tl1 March 2014. The appellant submitted that as per mercantile system of accountancy, it is suffice to credit the amounts to the recipient party and payments there from could be made in the subsequent points of time subject to availability of funds. In regard to the belated remittance of TDS to Government account, the appellant submitted that the payments were made to the Government account by due date for filing of return of income i.e., by 30.09.2014 remitting the same on 10.09.2014 along with interest, hence there is no violation. The appellant submitted that the M/s.Pushkal Consultants and Technocrats Pvt Ltd accounted taxable income at Rs.78,00,000/- only as against the receipts of Rs.2,47 Crores after claiming substantial expenditure of Rs.40,00,000/- towards professional charges and Rs.86,10,000/- towards infrastructural charges. The appellant submitted that they have no control over M/s.Pushkal Consultants and Technocrats Pvt Ltd. The appellant submitted that if M/s.Pushkal Consultants and Technocrats t Pvt Ltd filed its return of income for the A.Y under review Viz., A.Y.2014-15 accounting for the 'gross receipts of Rs.2.47 crores and if according to Assessing Officer the net profit shown by it is low, then the Assessing Officer could have taken appropriate action against the recipient company as per the mandatory provisions contained in Law. The appellant submitted that the disclosure of lower income, as alleged, by the recipient company may not be the relevant factor to formulate adverse findings against the appellant by any stretch of imagination and such presumption is also not permitted by law. In ITA No.116/Hyd/2018 6 view of this, the appellant submitted' that it is primarily and basically established by the fact that even according to the Assessing Officer the agreement dated 14.06.2013 is a valid one. And the above agreement was not held as bogus one. The appellant submitted that payment of Rs.2.47. crores to the recipient company, the services were undertaken and the consideration was paid in reality as per the recitals contained in the above agreement, which is proved to be genuine. Hence, the addition of Rs.2.47 Crores may be deleted in the interest of equity and justice and also to be in conformity in the provisions of Law. 5.3 The submissions of the appellant have been carefully considered. The issue is regarding the genuineness of expenditure and payments made to M/s.Pushkal Consultants and Technocrats Pvt Ltd. The appellant had made TDS on the payments made to M/s.Pushkal Consultants and Technocrats Pvt Ltd. Before me, the appellant submitted 'Infrastructure and IT Support Agreement dated 14.06.2013, which was between the 'appellant company and M/s.Pushkal Consultants and Technocrats Pvt Ltd to provide IT services. Accordingly, the appellant company made payments to M/s.Pushkal Consultants and Technocrats Pvt Ltd for availing services by deducting TDS and Service Tax. Hence, the expenditure in question was incurred by the appellant towards business efficiency and falls under Section 37(1) of the Act. In view of this, the payment made to M/s. Pushkal Consultants and Technocrats Pvt Ltd, proved to be genuine. It is also contended that TDS has been made in this case. However, the Assessing Officer may raise demand for non-remittance of tax to the Government separately. I accept the contention of the appellant and the addition made is deleted.” 3. We have given our thoughtful consideration to rival contentions against and in support of the CIT(A)’s findings deleting the impugned disallowance. Learned authorized representative has filed assessee’s petition under Rule 29 of the ITAT Rules, 1963 seeking to place on record additional evidence running into 12 pages. We find that neither the assessee’s foregoing written submissions nor its additional evidence serve its cause. 4. It transpired during the course of hearing that the assessee herein as well as its payee M/s. Pushkal Consultants and Technocrats Pvt. Ltd. are group concerns although not strictly covered u/s 40A(2) of the Act. There is further no dispute it has ITA No.116/Hyd/2018 7 merely filed the corresponding agreement and the said payees’ income tax details rather than proving the latter to have actually rendered the services in issue by producing on record the corresponding ledger account at least. Learned counsel invited out attention to assessee’s paper book dt.11.08.2021 running into 14 pages that the payee herein M/s. Pushkal Consultants and Technocrats Pvt. Ltd. had engaged another third parties; at much lesser price(s); for the purpose of arranging the very nature of services to the taxpayer. He further sought to highlight that it has already placed on record the corresponding details of M/s. Pushkal Consultants and Technocrats Pvt. Ltd. to have been assessed to tax qua the expenditure treated as bogus. We hold with all these details nowhere prove the actual rendering of services by the assessee’s payee / group concern. This latter payee rather appears as a mere namelender who has not rendered even a single service but has charged the assessee at a higher price and then; in turn; arranged further service providers by way of outsourcing only. We thus hold the assessee’s impugned payments lacks genuineness element going by the principle of human probability(ies) after removing all blinkers as held in CIT v/s Sumati Dayal (1995) 214 ITR 801 (SC) and CIT v/s Durga Prasad More (1971) 82 ITR 540 (SC). We accordingly accept the Revenue’s instant sole substantive grounds to restore the impugned bogus expenditure disallowance of Rs.2,47,26,160/- in issue. No other ground has been pressed before us. ITA No.116/Hyd/2018 8 5. This Revenue’s appeal is allowed in above terms. Order pronounced in the Open Court on 29 th November, 2021. Sd/- Sd/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (S.S. GODARA) JUDICIAL MEMBER Hyderabad, dated 29 th November, 2021. TYNM/sps Copy to: S.No Addresses 1 Coastal Insurance Brokers Private Limited, No.4, 23-J-4, Jalavayuvihar, Kukatpally, Hyderabad – 500 072. 2 The Deputy Commissioner of Income Tax, Circle – 1(2), Hyderabad. 3 CIT (A) – 1, Hyderabad. 4 Pr. CIT – 1, Hyderabad. 5 DR, ITAT Hyderabad Benches 6 Guard File By Order