COGKNIT SEMANTICS PRIVATE LIMITED,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(2)(1), BANGALORE

Assessee aggrieved with this has preferred an Appeal before us. However, none appeared before us. The Ld. Joint Commissioner of Income Tax, Shri Balusamy N, was heard who submitted that Assessee has not appeared before the Ld. CIT(A) and therefore the Appeal is dismissed by him.

Briefly stated the facts of the case shows that the Assessee filed its return of income on 23.09.2022 with loss of Rs. 68,29,852/-. The return was picked up for scrutiny which resulted into the Assessment Order at a net loss of Rs. 5,11,029/-. The addition is made of Rs. 3,56,816/- u/s. 40(a)(ia) of the Act and further addition on issue of bogus purchases of Rs. 59,62,007/-.

The Assessee is a private limited company engaged in developing Intelligence, Reconnaissance and Surveillance Systems, and in carrying out research and development to enhance Military Intelligence through Artificial Intelligence. Its income is derived from orders received from defense establishments. During the assessment proceedings, the Assessee was asked to furnish details of tax deducted at source on various expenses. The Ld. Assessing Officer noted that the Assessee had already disallowed Rs. 2,75,46,280/- in its audit report. He further observed that a sum of Rs. 11,89,387/- towards service charges attracted disallowance under section 40(a)(ia) of the Act, and accordingly disallowed 30% thereof, amounting to Rs. 3,56,816/-.

It was further found that the Assessee had made purchases of Rs. 89,54,570/- from Futuryze. On verification of the sundry creditors list, the Ld. Assessing Officer noted that, although the total purchases from this party were Rs. 89,54,570/-, the Assessee produced invoices only for Rs. 29,92,563/-. As the remaining invoices were not furnished, a notice under section 133(6) of the Act was issued to the creditor, but no response was received. The Ld. Assessing Officer therefore treated only Rs. 29,92,563/- as genuine purchases and added the balance amount of Rs. 59,62,007/-.

Accordingly, the total income of the Assessee was assessed by Assessment Order dated 26.03.2024.

The Assessee approached the Ld. CIT(A) who held that Assessee despite being issued 3 notices did not respond to any of them and therefore he

Since none appeared on behalf of the Assessee, we heard the Ld. Departmental Representative and examined the orders of the lower authorities. We find that the Ld. Assessing Officer made a disallowance under section 40(a)(ia) of the Act in respect of service charges, resulting in an addition of Rs. 3,56,816/-. The original show-cause notice referred to non- deduction of tax at source on salary expenditure of Rs. 72,00,000/- and other expenditure of Rs. 1,14,00,000/-, aggregating to Rs. 1,86,41,518/-. The Assessee submitted that it had already disallowed Rs. 2,75,46,280/- in the computation of total income. On examining the details, the Ld. Assessing Officer found that tax had not been deducted at source on service charges of Rs. 11,89,387/- and, accordingly, disallowed 30% thereof, amounting to Rs. 3,56,816/-.

On consideration of the facts, we find that the Assessee was never specifically confronted with the show-cause notice with the proposed disallowance of service charges of Rs. 11,89,397/-. The notice referred only to Rs. 3,56,816/-. It is therefore unclear whether the proposed disallowance of service charges was Rs. 11,89,387/- or Rs. 3,56,816/-. In the appeal before the Ld. CIT(A), the Assessee stated in the statement of facts that the service charges identified by the Ld. Assessing Officer had already been disallowed under consultancy charges, and that any further disallowance would result in double disallowance.

With regard to the addition of Rs. 59,62,007/-, it was submitted that the addition was made solely because the third party failed to respond. The Assessee had already furnished the relevant ledger extracts, bank statements and invoices. The Ld. Assessing Officer also recorded in the Assessment Order that the Assessee had paid Rs. 83,00,000/- to this party. Thus, the

The Ld. CIT(A) held that Assessee is not interested in prosecuting the Appeal and therefore there is no infirmity in the order of the Ld. Assessing Officer.

We find that the powers of the Ld. CIT(A) are governed by section 251 of the Income Tax Act, which requires him to decide the appeal on its merits. He has no authority to dismiss the Assessee’s appeal for non-prosecution. In any event, he ought to have considered at least the statement of facts while deciding the issue. In that statement, the Assessee specifically asserted that the disallowance made by the Ld. Assessing Officer in respect of service charges had already been included under consultancy expenses and that any further disallowance would result in double disallowance. This aspect was not considered at all.

Further, on the issue of non-genuine purchases, the Assessee stated that during the assessment proceedings it had furnished the party’s ledger extracts, explanation, bank statements and invoices. The Ld. Assessing Officer himself recorded that, out of the total purchases of Rs. 89,54,570/-, the Assessee had already paid Rs. 83,00,000/-, as reflected in the bank statements. Despite these facts, the Ld. CIT(A) confirmed the addition solely because the third party failed to respond to the notice issued under section 133(6) of the Act, without considering the Assessee’s explanation.

Since the Ld. CIT(A) did not exercise his powers in accordance with section 251 of the Act, we restore the entire appeal to his file for adjudication of both disallowances on the merits. The Assessee is also directed to furnish the

In the result, Appeal filed by the Assessee is allowed for statistical purposes.