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Income Tax Appellate Tribunal, “ SMC ” BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI PRADIP KUMAR KEDIA
आदेश / O R D E R
PER PRADIP KUMAR KEDIA - AM: The captioned appeal has been filed at the instance of the assessee against the order of the Commissioner of Income Tax(Appeals)-2, Ahmedabad [CIT(A) in short] dated 31/08/2015 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961
ITA No.3329/Ahd/2015 Elsner Technologies Pvt.Ltd. vs. ITO Asst.Year – 2012-13 - 2 - (hereinafter referred to as "the Act") dated 26/02/2015 relevant to Assessment Year (AY) 2012-13.
By its grounds of appeal, the assessee in essence has challenged the action of the CIT(A) in partly confirming the action of the Assessing Officer (AO) towards disallowance on account of alleged inflated expenses.
Briefly stated, the assessee a Private Limited is engaged in I.T. Enabled Services and BPO Services. The return of the assessee relevant to AY 2012-13 was subject to scrutiny assessment. In the course of the scrutiny assessment, the AO inter alia observed that a sum of Rs.1,05,38,348/- was claimed under the head other expenses which is relatable to data entry charges. The AO on enquiry found that the assessee has failed to offer satisfactory explanation on its exact revenue model both customer-wise and service-wise and failed to correlate the data entry charges with the corresponding services provided. The AO also found certain abnormal features in the hands of the recipients of the professional fees on enquiry conducted under s.133(6) of the Act. The relevant operative portion of the order of the AO is reproduced hereunder:-
“3.1.1 Both the replies of the assessee have been carefully considered. However as the assessee has not been able to even produce the bifurcation of
ITA No.3329/Ahd/2015 Elsner Technologies Pvt.Ltd. vs. ITO Asst.Year – 2012-13 - 3 - the total revenue receipts- shown, it could not be ascertained whether the expenses related to the revenue recognized only have been claimed. As the nature of work of the assessee is such that there may be several on-going contracts for which revenues may not yet have been recognized, but the assessee claimed data entry expenses in respect of those contracts. Hence such expenses are not allowable on matching principle of accounting of contractual income. It is settled law that the primary onus was on the assessee to produce evidences to the department showing that it has claimed only those expenses where revenue has been recognized. Vide the above replies, the assessee has not been able to justify entire claim of expenses and even it has admitted that mapping of revenue to expenses is not possible in its case. Moreover, this office had also issued Notice U/s 133(6) to various persons who had done data entry work of the assessee i.e Meenaben Kantialal Shah, Tanvi Kantilal Shah, Mamta Kantilal Shah etc who are found to be operating from common premises. Further perusal of the Bank Statement also of these persons revealed that there were credit entries from assessee company only and on credit of the amounts in their bank accounts, immediate withdrawal in the name of 'Dipak Jayantilal' was effected. Further one of these parties was even paid rent by the assessee. All these facts indicate that these persons were closely related to the assessee company and the assessee had adopted this modus-operand to inflate its expenses.
3.1.2 In view of the above, taking into consideration the overall nature of business, it is estimated that the assessee has inflated its claimed expenses under the head data entry which are not directly related to its revenue receipts comprising of SEO Charges by 20%, which comes to Rs 21,07,670 ( 20% of Rs 1,05,38,348). Therefore a disallowance of Rs 21,07,670/- is made and added to the total income of the assessee.”
The AO accordingly observed that have regard to the facts and circumstances of the case, the assessee has inflated its expenses under the head data entry which are not directly relatable to revenue receipts. He accordingly estimated the possible inflation of expenses at 20% on data
ITA No.3329/Ahd/2015 Elsner Technologies Pvt.Ltd. vs. ITO Asst.Year – 2012-13 - 4 - entry expenses of Rs.1,05,38,348/- and accordingly disallowed an amount of Rs.21,07,670/- and added to the total income of the assessee.
In first appeal, the CIT(A) revisited the submissions of the assessee in this regard and restated that assessee has not been able to demonstrate the linkage between the expenditure and income. The CIT(A) also took note of the other circumstances and granted part relief out of estimated disallowance under the head data entry charges. The CIT(A) scaled down the quantum of disallowance/addition @ 10% instead of 20% estimated by the AO and confirmed the disallowance of Rs.10,53,135/-.
Aggrieved, the assessee is in appeal before the Tribunal.
The Ld.AR reiterated the submissions made before the CIT(A) and added that the books of accounts have been audited under s.44AB of the Act where no adverse remarks have been observed. The Ld.AR submitted that the books of accounts ought not to have been rejected by invoking provisions of section 145(3) of the Act on the face of tangible evidences to support the expenditure incurred, such as copy of invoices, confirmation of work done as well as bank statement and income-tax returns of the recipients etc.
ITA No.3329/Ahd/2015 Elsner Technologies Pvt.Ltd. vs. ITO Asst.Year – 2012-13 - 5 - 8. The Ld.DR, on the other hand, relied upon the order of the CIT(A) and submitted in furtherance that the assessee has failed to demonstrate that expenditure incurred relates to the corresponding revenue recognized. Likewise doubtful circumstances found in enquiry under the proceedings under s.133(6) of the Act has remained unexplained. The Ld.AR submitted that the CIT(A) has, in the given circumstances, already taken a most benevolent view and granted suitable relief against the action of the AO. The Ld.DR accordingly submitted that no interference with the order of the CIT(A) is called for.
We have carefully considered the rival submissions and perused the orders of the authorities below as well as the material adverted to us in the course of hearing. We find that the CIT(A) has examined the facts in perspective and observed that the assessee has failed to correlate the data entry charges with the revenue collection to the specific task. The CIT(A) has also taken into account the outcome of the enquiry conducted under s.133(6) of the Act and thereafter estimated the probable inflation in the data entry charges. We do not find any irregularity in the action of the CIT(A). The CIT(A) was justified in endorsing the action of the AO in principle, where the assessee has failed to discharge its onus by placing satisfactory explanation which was found to be scrappy in the facts of the case. We find that the CIT(A) has proceeded to affirm the
ITA No.3329/Ahd/2015 Elsner Technologies Pvt.Ltd. vs. ITO Asst.Year – 2012-13 - 6 - action of the AO partly in view of the factual incoherence as noted in its order. We thus decline to interfere.
In the result, appeal of the assessee is dismissed.
This Order pronounced in Open Court on 05 / 01/2018
Sd/- Sd/- (राजपाल यादव) (�द�प कुमार के�डया) �या�यक सद�य लेखा सद�य (RAJPAL YADAV) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 05/ 01 /2018
ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-2, Ahmedabad �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//
उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad