AXISCADES AEROSPACE & TECHNOLOGIES PRIVATE LIMITED,BENGALURU vs. DCIT, CIRCLE-1(1)(1), BENGALURU

In this appeal, the assessee has raised the following grounds: -

The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is engaged in system integration activities for defence and offset business. For the year under consideration, the assessee filed its return of income on 27.10.2017, declaring a total income of Rs. 1,88,53,340/-. The return filed by the assessee was selected for scrutiny, and statutory notices under sections 143(2) and 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, from the perusal of the financial statements of the assessee, it was observed that the assessee has debited expenses of Rs. 4,07,59,301/- during the year, which was significantly higher than the selling and marketing expenses of Rs. 1.30 crore debited in the immediately preceding assessment year. From the details provided by the assessee of the selling and marketing expenses, it was observed that an amount of Rs. 3,97,67,582/- was incurred towards business development expenses. In this regard, the ledger was also examined. From the details placed on record, it was observed that the assessee has debited various expenses under this head which were paid to Axiscades Engineering Technologies Private Ltd., a related party of the assessee. In the absence of any other response from the assessee and also in the absence of any agreement between the assessee and Axiscades Engineering Technologies Private Ltd., the Assessing Officer (“AO”), vide order dated 13.12.2019 passed under section 143(3) of the Act, held that the expenses mentioned under the head “TDS - Contractor”, “TDS Rent”, “Axiscades” total amounting to Rs. 2,26,08,500/- are questionable as the genuineness of the said expenditure has not been satisfactory explained by the assessee.

In the appellate proceedings before the learned CIT(A), the assessee submitted the invoice dated 31.12.2016 in respect of amount of Rs. 68,03,146/- paid to Axiscades Engineering Technologies Private Ltd. Accordingly, the learned CIT(A) deleted the addition to the extent of Rs. 68,03,146/-. However, in respect of expenditure of Rs. 37,48,685/- towards TDS Rent, the assessee failed to submit the invoice dated 31.03.2017. Further, in respect of payment of Rs. 1,20,56,670/- payable to Axiscade Engineering Technologies Private Ltd., the assessee submitted invoice 3 dated 30.09.2016. However, the learned CIT(A) noted that this amount is not reflected in the ledger. Further, it was noticed that regarding Rs. 1,20,56,670/- paid to TDS – Contractors mentioned in the ledger, no invoice or details were submitted. Accordingly, the learned CIT(A) granted partial relief to the assessee, restricting the disallowance of Rs. 1,58,05,355/-. Being aggrieved, the assessee is in appeal before us.

During the hearing, the learned Authorised Representative (“learned AR”) submitted that the copy of the invoice dated 31.03.2017 in respect of payment of Rs. 37,48,685/- is now available with the assessee and the assessee seeks permission to file the same on record as additional evidence. As regards the expenditure of Rs. 1,20,56,670/-, the learned AR submitted that the said amount was mentioned in the ledger as payment to TDS – Contractors instead of Axiscades Engineering Technologies Private Ltd. due to limitations of the accounting software. The learned AR submitted that the invoice in respect of the said payment was already furnished during the appellate proceedings before the learned CIT(A), and the same has been duly recorded in the impugned order.

On the other hand, the learned Department Representative (“learned DR”) vehemently relied upon the order passed by the lower authorities.

We have considered the submission of both sides and perused the materials available on record. In the present case, the assessee is a subsidiary of Axiscades Engineering Technologies Private Ltd., which is in the same line of business. As per the assessee, its holding company incurs certain expenditure, which is allocated to group entities based on usage. It is the plea of the assessee that the actual cost incurred by the holding company for rendering marketing services was recovered from the assessee on a pure cost-to-cost basis, without any mark-up and periodic debit notes were issued in respect of the same, containing details regarding the allocation methodology and detailed cost break-up. As per the assessee, during the year under consideration, the holding company allocated selling and marketing expenses pertaining to business development expenditure of Rs. 3,97,67,582/- to the assessee. From the record, we find that the AO, to an extent of Rs. 2,26,08,500/-, disagreed with the submissions of the assessee in the absence of proper documentary evidence substantiating the genuineness of the expenditure claimed by the assessee. In appellate proceedings before the learned CIT(A), in view of the additional documents filed by the assessee, the learned CIT(A) granted partial relief to the assessee and restricted the disallowance towards business development expenses to Rs. 1,58,05,355/-.

It is evident from the record that the said disallowance comprises two components, i.e., Rs. 37,48,685/- and Rs. 1,20,56,670/-. As regards the payment of Rs. 37,48,685/-, the assessee, by way of an application seeking admission of additional evidence under Rule 29 of the ITAT Rules, 1963, placed on record the debit note issued by the holding company on 31.03.2017. From the perusal of the record, we find that before the lower authorities, even though the assessee claimed that the said expenditure 5 was bona fide business expenditure towards the rental premises. However, it could not furnish the invoice dated 31.03.2017, and therefore, the addition was upheld to that extent. Thus, we are of the considered view that due to sufficient reasons, the assessee could not furnish the additional evidence now placed on record before us, and accordingly, we admit the said additional evidence. During the hearing, the learned DR submitted that the additional evidence now placed on record by the assessee needs verification, as the same has been filed for the first time by the assessee. Therefore, in view of the facts and circumstances as noted above, the issue pertaining to the addition to an extent of Rs. 37,48,685/- in respect of business development expenses is restored to the file of the Jurisdictional AO for de novo adjudication after taking into consideration the additional evidence filed by the assessee before us.

As regards the business expenses of Rs. 1,28,67,670/-, it is the plea of the assessee that the same was also payable to Axiscades Engineering Technologies Private Ltd. However, the disallowance was upheld to that extent as the said amount was not reflected in the ledger in respect of marketing expenses, which is placed in the paper books from Pages 242 – 244. On perusal of the said ledger, we find that the amount of Rs. 1,20,56,670/-has been recorded as payable to TDS – Contractors on 28.12.2016. During the hearing, the learned AR submitted that due to the limitations of the accounting software, the name of the holding company could not be mentioned in the ledger, and the said payment was in fact made to the holding company, i.e. Axiscades Engineering Technologies 6 Private Ltd. In support of this submission, the learned AR referred to the debit note issued by the holding company on 30.09.2016 in respect of marketing expenses amounting to Rs. 1,20,56,670/-. Therefore, having perused the documents placed on record and considering the submissions, we find merit in the contentions of the assessee that the said payment of Rs. 1,20,56,670/- was made to the holding company and the confusion only arose due to the different nomenclature in the ledger account. As the assessee has duly corroborated the entry in the ledger account of Rs. 1,20,56,670/- with the debit note dated 30.09.2016, which forms part of the paper book on Page 381, we are of the considered view that the addition to that extent is unsustainable, and thus is directed to be deleted.

Accordingly, in view of our findings in the foregoing paragraphs, only to the extent of Rs. 37,48,685/-, the matter is restored to the file of the Jurisdictional AO for de novo adjudication after taking into consideration the additional evidence filed by the assessee and the remaining addition sustained by the learned CIT(A) is deleted. As a result, the grounds raised by the assessee are allowed for statistical purposes.

In the result, the appeal by the assessee is allowed for statistical purposes. Order pronounced in the open court on 24th July, 2026