INTERNET DATA SERVICES (INDIA) PVT. LTD., MUMBAI V. DCIT CIRCLE -1(2)(1), MUMBAI

ITA 6225/MUM/2019

AI Insights

The case involves Internet Data Services (India) Pvt Ltd, which appealed against the order of the Commissioner of Income Tax (Appeals) -6, Mumbai, concerning the assessment year 2012-13. The primary issues in the appeal were the disallowances made by the Assessing Officer (AO) on various expenditures claimed by the assessee, including salaries, miscellaneous expenses, travel and conveyance, repairs and maintenance, and legal and professional fees. The AO had initially made substantial disallowances due to lack of supporting documents, which were later contested and partially reduced by the CIT(A). The ITAT, after considering the submissions and evidence presented, further reduced the disallowances and directed the deletion of certain claims, thereby partly allowing the appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 125445 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 08-02-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 30-09-2019
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V.K CHATURVEDI
• Keywords: Additional evidence; TDS
• Section: 143(3); 142(1); 143(1); 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRI BASKARAN BR, ACCOUNTANT MEMBER & SHIR PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA No. 6225/Mum/2019 (A.Y: 2012-13) Internet Data Services (India) Pvt Ltd C-124, 12 th Floor, Mittal Court, C Wing, Nariman Point, Mumbai -400021. Vs. DCIT, Circle-1(2)(1), Aayakar Bhavan, M.K. Road, Churchgate, Mumbai -400020. PAN/GIR No. : AAACI2698P Appellant .. Respondent Appellant by : Mr. Madhur Agrawal.AR Respondent by : Mr. V.K Chaturvedi.DR Date of Hearing 09.02.2023 Date of Pronouncement 20.02.2023 आदेश / O R D E R PER PAVAN KUMAR GADALE JM: The assessee has filed the appeal against the order of the Commissioner of Income Tax (Appeals) –6, Mumbai passed u/s 250 of the Act. The assessee has raised the following grounds of appeal: 1. The learned C IT(A) erred in partly conf irming the adhoc disallowances (tabulated below) made by the learned assessing officer and restricting the same to 10%, without providing any basis or reason f or sustaining the adhoc disallowances. ITA No. 6225/Mum/2019 Internet Data Services (Ind) Pvt Ltd, Mumbai. - 2 - Sr. No Nature of Expend iture Amo unt of ad hoc disal l o wance made b y the l earned t ax off icer (bei ng 25% of the expenditure) Amo unt of adhoc disal l o wance risctred by the CIT(A ) ( being 10% of the expe ndi ture) 1 Sal ary, wages and staf f welf are 82,21,916 32,88,766 2 Miscell aneo us Ex pe nse s 4,33, 625 1,73,450 3 Travel and conv ey ance 6,85, 610 2,74,244 4 Repairs and mainte nance 4,55, 658 1,82,263 2. The learned CIT(A) erred in conf irming the disallowance made by the learned AO on account of foreign exchange f luctuation loss of Rs. 55,98,904, wi thout appreciating the supporting documents submitted during the course of appellate proceedings. 3. The learned CIT(A) erred in conf irming the disallowance made by the learned AO on account of Legal and Professional expenses of Rs. 44,52,796, without appreciating the supporting documents and the contentions made during the course of appellate proceedings. 4. Each one of the above grounds of appeal is without prejudice to the other. The appellant reserves the right to add, alter or amend to the above grounds of appeal. 2. The brief facts of the case are that, the assessee company is engaged in the business of providing on line information on emerging market.The assessee has ITA No. 6225/Mum/2019 Internet Data Services (Ind) Pvt Ltd, Mumbai. - 3 - filed the return of income for the A.Y 2012-13 on 03.12.2012 disclosing a total income of Rs. 1,43,86,350/- and the return of income was processed u/s 143(1) of the Act.Subsequently the case was selected for scrutiny under CASS and notice u/s 143(2) and 142(1) of the Act along with questionnaire are issued. In compliance to the notice, the Ld. AR of the assessee appeared from time to time and submitted the details. The Assessing Officer (AO) on perusal of the financial statements and in particular in the Audited Balance sheet found that(i) the assessee has made additions to fixed asset and no evidence was filed in support of purchase of assets and Rs. 9,68,432/- was added to the total income. (ii)the assessee has claimed the expenditure of staff welfare, salary and wages and the AO found that the assessee has not produced the supporting bills and vouchers, in respect of claim of expenses and the AO for the want of details has made ad-hoc disallowance @25% which worked out to Rs. 82,21,976/-. ITA No. 6225/Mum/2019 Internet Data Services (Ind) Pvt Ltd, Mumbai. - 4 - 3.(iii) the A.O. found that the assessee has claimed miscellaneous expenditure in the profit and loss account of Rs. 17,34,503/-, since no bills and information were submitted/ produced, therefore the AO made disallowance of 25% of the total expenses which worked out to Rs. 4,33,625/-.(iv) the AO on perusal of the Profit and Loss account find that the assessee has debited bad debts and other receivable loans and advances written off of Rs. 28,38,853/-. Since the assessee has failed to produce the ledger account copy, sales bills, invoices etc, the AO relied on the provisions of Sec. 36(2) of the Act and made disallowance of Rs.28,39,893/-.(v) The A.O found that the assessee has debited loss on foreign exchange currency transactions of Rs. 55,98,904/- in the profit & loss account and the assessee has failed to produce the details and the claim was disallowed (vi) the AO found that the assessee has claimed service tax expenses of Rs.2,43,04,755/- since there no bills and vouchers were produced and the assesee has failed to establish genuineness therefore made disallowance@25% of claim which worked to Rs.7,76,188/-. ITA No. 6225/Mum/2019 Internet Data Services (Ind) Pvt Ltd, Mumbai. - 5 - 4.(vii) The assessee has claimed travelling and conveyance expenses of Rs 27,82,443/- since the assessee has failed to establish the genuineness of the transactions, the AO has made disallowance @ 25% of claim which worked out to Rs. 6,85,610/-. (viii) The assessee could not submit the details of repairs and maintenance of Rs.18,22,633/- and hence the AO has estimated @25% disallowance of the expenses which worked out to Rs. 4,55,658/-.(ix) The assessee has claimed the interest on delay and deferment of income tax of Rs. 27,89,450/-, since the assessee has not complied with the information in the proceedings, the A.O. has disallowed the claim and (x) The assessee has claimed legal and professional expenses of Rs.44,52,796/- and was called to produce the details with supporting bills, vouchers and TDS details. Since there was no compliance, the AO has made the disallowance. Finally the A.O. has assessed the total income of Rs.4,79,08,780/- and passed the order u/s 143(3) of the Act dated 02.02.2015. 5. Aggrieved by the order, the assessee has filed an appeal before the CIT(A). In the appellate proceedings the CIT(A) has considered the grounds of appeal, ITA No. 6225/Mum/2019 Internet Data Services (Ind) Pvt Ltd, Mumbai. - 6 - submissions of the assessee, findings of the AO, remand report and the additional evidence in respect of the claim of expenses. Whereas, the CIT(A) has relied on the facts and submissions and has restricted the addition to the extent @ 10% in respect of salaries and wages, staff welfare, miscellaneous expenses, travelling conveyance expenses, repairs and maintenance expenses as against 25% ad-hoc addition made by the AO. But the CIT(A) has confirmed the addition of foreign exchange loss and disallowance of professional and legal expenses claimed and granted relief in other grounds of appeal and partly allowed the assessee appeal. Aggrieved by the order of the CIT(A), the assessee has filed an appeal before the Hon’ble Tribunal. 6. At the time of hearing, the Ld. AR submitted that the CIT(A) has erred in restricting the addition @ 10% overlooking the submissions that the assessee company books of accounts are audited and the asssessee has substantiated with the evidences and information filed in the course of remand proceedings. In respect of second disputed issue, the Ld.AR submitted that the evidences in respect of the foreign ITA No. 6225/Mum/2019 Internet Data Services (Ind) Pvt Ltd, Mumbai. - 7 - exchange loss has been submitted before the AO and the claim is genuine and cannot be disputed. On the last disputed issue, the Ld. AR submitted that the legal and professional fees were paid for the purpose of business and the assessee has substantiated before the lower authorities with all the details including TDS. Further the revenue has accepted the claims in the earlier and subsequent assesseement years. The Ld.AR substantiated the submissions with voluminous paper books and judicial decisions and prayed for allowing the assessee appeal. Per Contra, the Ld. DR submitted that no books of accounts and details were produced for verification and examination in the assesseement proceedings and the Ld.DR supported the order of the CIT(A). 7. We heard the rival submissions and perused the material on record. The contentions of the Ld. AR are that the CIT(A) has erred in restricting the disallowance @10% in respect of expenses of salary, wages, staff welfare, miscellaneous expenses, travelling expenses and repairs and maintenance though the assessee has substantiated the information before the lower authorities and the ITA No. 6225/Mum/2019 Internet Data Services (Ind) Pvt Ltd, Mumbai. - 8 - claim is genuine and there could be various reasons for non production of books of accounts at the time of hearing proceedings but in the remand proceedings the information was filed. Further the Ld.AR highlighted the findings at Para 8.3 of the CIT(A) order, where the details and documents were filed on the sample basis and the assessee has made submissions/ filed details in the remand proceedings and demonstrated letter dated 8-2-2018 at Page 857 of the paper book-II. Considering the facts, submissions, details and remand report, we find that the assessee is in the business of data entry services and the expense are to be supported with proper bills and vouchers. Accordingly, to meet the ends of justice, we restrict the disallowance @2% as against @10% by the CIT(A) and partly allowed the ground of appeal of the assessee. 8. On the second disputed issue, where the assessee has claimed foreign exchange loss, the AO has made disallowance as no details were submitted, whereas the Ld.AR demonstrated letter dated 08.02.2018 at page 1205 of the paper book in particular at 1208 explaining the nature of the foreign exchange ITA No. 6225/Mum/2019 Internet Data Services (Ind) Pvt Ltd, Mumbai. - 9 - transactions and the details of parties and the assessee has been claiming such transactions loss in the earlier year and subsequent year and the revenue has accepted the same. We find that the A.O. has not disputed the genuineness and disallowance was made for non submissions of details, which were filed subsequently and is not disputed and accordingly we direct the Assessing officer to delete the addition and allow the ground of appeal. 9. The last disputed issue being disallowance of Legal and Professional fees. The Ld.AR has explained the nature of professional services/ works availed by the asssessee company for the purpose of business operations and substantiated with the supporting bills, invoices and TDS details. The Ld.AR has demonstrated the ledger accounts of the claims and TDS details at Page 1323 &1325 of the paper book-III and the details are filed in the course of hearing proceedings before the lower authorities. We find the submissions of the Ld.AR are realistic and cannot be ignored. Therefore, considering the facts, details and the material information filed are of the view that the AO was not justified in making the disallowance ITA No. 6225/Mum/2019 Internet Data Services (Ind) Pvt Ltd, Mumbai. - 10 - overlooking the details and the genuineness of expenses are not doubted. Accordingly, we set aside the order of the CIT(A) on this ground of appeal and direct the Assessing officer to delete the disallowance and allow the ground of appeal in favour of the assessee . 10. In the result, the appeal filed by the asssessee is partly allowed. Order pronounced in the open court on 20.02.2023. Sd/- Sd/- (BASKARAN BR) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 20.02.2023 KRK, PS /Copy of the Order forwarded to : 1. / The Appellant 2. / The Respondent. 3. आ आ / The CIT(A) 4. आ आ ( ) / Concerned CIT 5. ! !" , आ $ %, हमद द / DR, ITAT, Mumbai 6. () * + / Guard file. ान ु सार/ BY ORDER, ! //True Copy//() ( Asst. Registrar) ITAT, Mumbai