INCOME TAX OFFICER, WARD 2(2)(7), BENGALURU vs. ETERNO INFOTECH PRIVATE LIMITED, BENGALURU

In this appeal, the Revenue has raised the following grounds: – 1. Whether the Ld. CIT(A)/NFAC erred in law as well as on facts by overlooking the parameters prescribed under Rule 46A of the Income-tax Rules and Section of 250(4) of the Income Tax Act, 1961 and is erroneous and perverse in the facts and circumstances of the case and in law? 2. Whether the Ld. CIT(A)/NFAC was right in law in disposing the appeal without verification of details by calling for a remand report from the Assessing Officer? 3. Whether the Ld. CIT(A)/NFAC was justified on the facts of the case and in law, in deleting the addition made by the AO without appreciating the facts and reasons given in the assessment order for the disallowance? 4. The appellant craves the right to add, delete, alter or amend any ground of appeal.

The sole issue that arises for our consideration, in the present appeal, pertains to the deletion of the disallowance of business promotion expenditure claimed by the assessee.

The brief facts of the case pertaining to this issue are that the assessee is engaged in the business of developing and providing innovative technologies and applications to aggregate content as an intermediary, along with advertisements and endorsements on its platform. For the year under consideration, the assessee filed its return of income on 29/10/2018, declaring a total income of INR 34,67,05,583. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, upon perusal of the audited profit and loss account of the assessee, it was observed that the assessee has shown total sales of INR 68.39 crore and has declared a loss of INR 36,94,60,000. On further perusal, it was noticed that the assessee has debited business promotion and entertainment expenses amounting to INR 56,68,90,000. Based on the assessee's gross turnover, the business promotion expenses claimed were found to be high. Accordingly, the assessee was asked to file details regarding business promotion and entertainment expenditure. However, the assessee failed to respond and did not file the details as sought during the assessment proceedings. Accordingly, the Assessing Officer (“AO”), vide order dated 18/03/2021, passed under section 143(3) read with sections 143(3A) and 143(3B) of the Act, held that in the absence of details, the genuineness of the expenses remained unproven and unexplained. The AO found that the business promotion expenditure claimed by the assessee is almost 82.9% of the gross sales reported. Therefore, the AO arrived at the conclusion that the assessee has deflated its profit by claiming exaggerated expenses. On comparing the business promotion expenditure incurred by the assessee in the assessment year 2017-18, the AO noticed an excess claim of INR 1,52,93,995 in the year under consideration. Accordingly, the AO treated the said differential as unexplained expenditure within the meaning of section 69C of the Act.

The learned CIT(A), vide impugned order, allowed the appeal filed by the assessee and held that the expenditure has been disallowed merely on the basis of comparison of expenditure debited in the earlier assessment year and the AO has not pointed out any discrepancy regarding the genuineness of expenditure debited. The learned CIT(A) further held that there is no finding that the business promotion expenditure debited is not related to the assessee's business. Accordingly, the impugned disallowance made by the AO was deleted. Being aggrieved, the Revenue is in appeal before us.

During the hearing, the learned Departmental Representative (“learned DR”) submitted that in the appellate proceedings before the learned CIT(A), the assessee filed detailed submissions along with documentary evidence, which also forms part of the paper book from pages 222-243. However, the learned CIT(A), without seeking any remand report from the AO regarding the said evidence, allowed the assessee's appeal, deleting the impugned disallowance.

On the other hand, the learned Authorised Representative (“learned AR”) submitted that the learned CIT(A) granted the relief to the assessee without referring to any of the documentary evidence filed by the assessee.

We have considered the submissions of both sides and perused the material available on record. In the present case, the assessee is carrying on the business of Mobile Media Platforms with a special focus on enabling Indian languages across a variety of handsets. During the year under consideration, as per the assessee, it incurred business promotion and advertisement expenses amounting to INR 56,68,89,860 to promote its products in the market. As per the assessee, similar expenditure was also incurred in the immediately preceding assessment year, i.e. 2017-18, amounting to INR 55,15,95,192. From the record, it is evident that in absence of any details being filed by the assessee during the assessment proceedings, the AO not only rejected the books of the assessee under section 145(3) of the Act, but also proceeded to make the disallowance under section 69C of the Act on account of business promotion and advertisement expenses, which was found to be incurred in excess of the preceding year.

From the record, we find that in the appellate proceedings before the learned CIT(A), the assessee filed detailed submissions along with the documentary evidence providing the details of the parties to whom the payments were made during the year under consideration. From a perusal of these details, which form part of the paper book from pages 38-243, we find that the assessee made payments to various entities during the year under consideration and, on those payments, also deducted tax at source. It is undisputed that such details have not been verified by any of the lower authorities. Further, despite the assessee furnishing such details before the learned CIT(A), the same were not forwarded to the AO for necessary verification, and the impugned disallowance was deleted by the learned CIT(A).

From the perusal of the assessment order, it is evident that the AO recorded a specific finding that, in the absence of the details, the genuineness of the business promotion and entertainment expenses claimed by the assessee during the year under consideration remained unproven and unexplained. Therefore, we do not find any merit in the findings of the learned CIT(A) that the AO has not pointed out any discrepancy regarding the genuineness of the expenditure debited in the profit and loss account.

The sole dispute is regarding the business promotion and advertisement expenditure incurred by the assessee. Therefore, we are of the considered view that the details submitted by the assessee need verification. Thus, we restore this issue to the file of the jurisdictional AO for de novo adjudication after necessary verification/examination of the details filed by the assessee regarding the incurring of business promotion and advertisement expenditure. Needless to mention, no order shall be passed without affording reasonable opportunity of hearing to the assessee. Further, the assessee is directed to produce any other details as may be sought by the AO. Accordingly, the impugned order on this issue is set aside, and the grounds raised by the Revenue are allowed for statistical purposes.

In the result, the appeal by the Revenue is allowed for statistical purposes. Order pronounced in the open court on 9th July, 2026 Sd/- Sd/- (WASEEM AHMED) (SANDEEP SINGH KARHAIL) ACCOUNTANT MEMBER JUDICIAL MEMBER

CIT 4. DR, ITAT, Bangalore

CIT(A) Page 6 of 7 By order Assistant Registrar, ITAT,Bangalore