INCOME TAX OFFICER, WARD-1(2), HYDERABAD vs. ATHENA GLOBAL TECHNOLOGIES LIMITED (FORMERLY M/S VJIL CONSULTING LIMITED), HYDERABAD

Out of the aforesaid expenditure, the Ld. AO made the following additions in the hands of the assessee : a) addition of Rs.1,42,00,284/-, due to non-submission of bills / vouchers and due to disallowances u/s.43B of the Act. However, the Ld. AO did not mention the details of head of expenditure out of which the said addition of Rs.1,42,00,284/- has been made. b) addition of Rs.44,12,893/- u/s.40(a)(ia) of the Act on account of non-production of evidence in support of TDS compliances, estimating that 50% of interest expenses of Rs.88,25,786/- were liable for TDS. c) addition of Rs.23,463/- on account of advertisement expenses u/s.40(a)(ia) of the Act due to non-production of evidence in support of TDs compliance. d) addition of Rs.1,50,000/- on account of audit fees due to non-production of evidence in support of TDS compliances. e) addition of 50% of sales promotion expenses of Rs.13,13,955/- amounting to Rs.6,56,978/- due to non- production of bills and vouchers. f) addition of Rs.1,27,840/- on account of depreciation due to non-submission of bills in support of additions of fixed assets during the year under consideration. g) addition of Rs.1,48,354/- u/s.14A of the Act. 2.3 Finally, the Ld. AO completed the assessment u/s.143(3) r.w.s. 144 on 30.03.2015 by making total addition of Rs.11,02,98,896/-.

3. Aggrieved with the order of Ld. AO, the assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) partly allowed the appeal of the assessee. The details of relief given and the additions sustained by the Ld. CIT(A) are reproduced as under :

Addition made by Ld. Amount of Relief given Additions AO addition by Ld. sustained by the CIT(A) Ld. CIT(A) Increase of unsecured 90579084 90579084 -- loans Expenditure claimed 14200284 9868902 4331382 disallowed for non production of bills Interest expense 4412893 4412893 -- disallowed @ 50% u/s.40(a)(ia) Advertisement expenses 23463 -- 23463 u/s.40(a)(ia) Audit fees u/s.40(a)(ia) 150000 150000 -- Sales promotion 656978 -- 656978 expense @ 50% for no vouchers

Depreciation disallowed 127840 -- 127840 14A disallowance 148354 148354 -- Total 110298896 105159236 5139660

“ i) The order of the Ld. CIT(A) is erroneous on facts as well as in law. ii) The Ld. CIT(A) erred in admitting the invalid appeal by condoning the delay without giving any reasons. iii) The Ld. CIT(A) erred in deleting the addition of Rs.9,05,79,084/- made u/s 68 by admitting additional evidence without providing an opportunity to the Assessing officer as required under Rule 46A of IT rules. iv) The Ld. CIT(A) erred in deleting the disallowance of expenses of Rs.98,68,902/- out of Rs.1,42,00,284/- made by the AO. v) The Ld. CIT(A) erred in deleting disallowance of Rs.44,12,893/- made u/s 40(a)(ia) by admitting additional evidences violating Rule 46A of IT Rules. vi) Ld. CIT(A) erred in deleting the disallowance of Rs.1,48,354/- made by invoking the provisions u/s 14A r.w.Rule 8D. vii) Ld. CIT(Appeals) ought to have considered that any investment which is yielding o likely to yield exempt income falls within the ambit of section 14A and expenditure in relation to such investments has to be computed as per the formula in Rule 8D and there is no exemption in case where no exempt income is earned or not. viii) Ld. CIT (Appeals) failed to consider circular No.5/2014 dated 11.02.2014 issued by the CBDT wherein it is clarified that Rule8D read with section 14A of the Act provides for disallowance of the expenditure even when taxpayer in a particular year has not earned any exempt income. ix) Ld. CIT (Appeals) erred in deleting the addition made by the assessing officer on account of disallowance of expenses by accepting the additional evidence in the form of ledger extracts supported by vouchers submitted by the assessee for the first time before the CIT(A). x) Ld. CIT(A) ought to have appreciated that the assessee was given sufficient opportunity and time to submit the evidences/ proof to substantiate its claim which the assessee has not submitted though a show cause notice was also served on the assessee. xi) The Ld. CIT(Appeals) ought to have provided an opportunity to the Assessing officer as required under Rule 46A of IT Rules before admitting any additional evidences in respect of any ground of appeal. xii) The appeal craves leave to add, delete, substitute and amend any grounds of appeal at the time of hearing.”

6. At the outset, the Ld. DR submitted that, they are in appeal on as many as 12 grounds. The Ld. DR also submitted that, ground nos.1 & 12 are general in nature and they are not pressing ground no.2. Therefore, no separate adjudication is required on the ground nos.1, 2 and 12.

7. With regard to ground no.3, the Ld. DR submitted that, during the assessment proceedings, the Ld. AO found that there was an increase in unsecured loans during the year under consideration by Rs.9,05,79,084/-. The assessee could not file any documents before the Ld. AO to satisfy the sources of such unsecured loans in accordance with section 68 of the Act. Consequently, the Ld. AO treated the increase in unsecured loans as unexplained credit u/s.68 of the Act and made the addition of Rs.9,05,79,084/- in the hands of the assessee.

7.1 Aggrieved with the order of Ld. AO, the assessee had filed appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee submitted that it is the security deposits and not the unsecured loans, which has been increased during the year under consideration. The assessee submitted that, they had taken security deposit of Rs.9.97 Crores during the year from M/s. Hyderabad Infracom (India) Pvt. Ltd. (“Hyderabad Infracom or depositor”) and filed before the Ld. CIT(A), the ledger account of Hyderabad Infracom, copy of bank statement in which the sums were received and the confirmation letter received from Hyderabad Infracom stating that they have given the security deposit to the assessee. On considering the submissions and explanation of the assessee, the Ld. CIT(A) deleted the addition of Rs.9,05,79,084/- made by the Ld. AO. The observation of the Ld. CIT(A) in this regard is contained under para no.7.3 of his order, which is to the following effect : “ 7.3 The submission of the appellant has been carefully considered. As per Balance Sheet for this relevant year under the head ‘Long Term Liabilities’, Security Deposits has been shown of Rs.9,97,00,000/-. On verification and submission of the appellant, it is found that this amount was received as security deposit from M/s. Hyderabad Infracon (India) Pvt. Ltd., spread over the financial year. The appellant submitted the confirmation letter from M/s. Hyderabad Infracon (India) Pvt. Ltd regarding the payment of refundable security deposits of Rs.9,97,00,000/- through banking channel. The appellant submitted the ledger copy of unsecured loans and Bank statement of ICICI Bank Current Bank A/c No.004805014185 of M/s. VJIL

Consulting Ltd for the period from 01.03.2012 to 31.03.2012 reflecting the payments from M/s. Hyderabad Infracon (India) Pvt Ltd for Rs.4,65,00,000/-. The appellant also submitted the Bank statement of A/c No.52095899033 of M/s. VJIL Consulting Ltd of State Bank of Hyderabad, Punjagutta Branch, Hyderabad reflecting the payments of Rs.5,32,00,000/- on 31.03.2012. The submission of the appellant has been found to be correct. Hence, the amount of Rs.9,97,0,000/- is a security deposit, appearing in the Balance Sheet, of the appellant stands explained. The addition made by the Assessing Officer is deleted. - Ground Allowed.” 7.2 The Ld. DR further submitted that, the Ld. AO had made the addition on account of increase in unsecured loans during the year under consideration. However, the Ld. CIT(A) has wrongly considered the same as increase in security deposits. Further, he invited our attention to page no.82 of the paper book containing the confirmation of the Hyderabad Infra, accepting that they have made a deposit of Rs.9.97 Crores with the assessee. The Ld. DR submitted that, as per the confirmation letter of Hyderabad Infra, amount of Rs.2 Crores, 31 lakhs, 1 lakh have been paid by them on 04.04.2012 which falls in F.Y. 2012-13, whereas, the Ld. CIT(A) in his order has given the finding that the assessee has received the same in F.Y. 2011-12. The Ld. DR also submitted that, under such a circumstances, the Ld. CIT(A) should have called for a bank reconciliation from the assessee. Further, the Ld. DR invited our attention to page no.108 to 112 of the paper book containing the copies of bank statement and submitted that, the same copies were produced before the Ld. CIT(A), which are not legible. He finally submitted that, when the copy of bank statements are not legible and the confirmation letter given by the Hyderabad Infra shows that the payment of Rs.2 Crores, 31 lakhs, 1 lakh falls in F.Y. 2012-13, which the assessee has shown in their books in F.Y. 2011-12, the verification done by the Ld. CIT(A) is erroneous and required to be set aside. 7.3 Per contra, the Ld. AR submitted that, the order passed by the Ld. CIT(A) is well reasoned and has been passed after verification of all the relevant documents produced before him. Therefore, the allegation of the Ld. DR, that the Ld. CIT(A) has not properly verified the documents / evidences are not correct. Further, with regard to the argument of the Ld. DR regarding payment of Rs.2 Crores, 31 lakhs and 1 lakh as per the certificate of Hyderabad Infracom, the Ld. AR submitted that, they have deposited the cheque in the bank on 31.03.2012 and accordingly, the bank credited the same on the same date in the bank statement. However, it has been cleared from the account of the payer on 04.04.2012. This is a normal routine process in the case of cheques deposited in the bank. The cheque deposited in the bank, normally never cleared from the bank account of the payer on the same day. Therefore, the difference in date in banking transactions are very obvious and routine in nature. As the assessee had received the cheques from Hyderabad Infracom in F.Y. 2011-12, they have accounted for the same in F.Y. 2011- 12. Further, the cheques were deposited in the bank of the assessee on 31.03.2012, the same has been reflected in the bank statement on 31.03.2012. However, the same are cleared from the bank account of the depositor on 04.04.2012, therefore, the depositor in their confirmation letter mentioned the date as 04.04.2012. As the amount of cheque deposited in the bank, get reflected in the same year, no bank reconciliation statement is required to be prepared. The bank reconciliation is required in a case where the amount of cheque deposited is reflected in the bank statement in the next year. Further, the Ld. AR submitted that although some pages of bank statement are not legible, they were not relevant, as no transaction was executed on those dates. However, the bank statement containing the relevant transaction under consideration are legible and the same were produced before the Ld. CIT(A) for verification. After verifying all the details, the Ld. CIT(A) get satisfied with the submission of the assessee and deleted the addition. Therefore, it is not correct to say that, the Ld. CIT(A) has allowed the claim of the assessee without making verification. Accordingly, the Ld. AR prayed before the bench to uphold the order of Ld. CIT(A). 7.4 We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. We have gone through the order of Ld. CIT(A) wherein at para 7.3 of his order, the Ld. CIT(A) has given the detailed finding for deletion of Rs.9.97 Crores, which has been reproduced herein above. The Ld. AO while disallowing expenditure of Rs.1,42,00,284/-, did not provide any details of the head of expenditure out of which he made the addition. The Ld. CIT(A) after application of his mind and verification of the record pointed out that the head of expenditure, which has been disallowed by the Ld. AO. In the same way, while making the addition of Rs.9.97 Crores u/s.68 of the Act, the Ld. AO failed to provide the details of creditors which has been considered by him for the purpose of making such addition. After verification, the Ld. CIT(A) has given the findings that it is the security deposit of Rs.9.97 Crores which has been increased during the year and after considering the relevant documents filed by the assessee deleted the said addition. Further, as far as the objection of the Ld. DR that, there are differences of Rs.2 Crores, Rs.31 lakhs and 1 lakh between the certificate given by the depositor and as per the books of accounts of the assessee, we are convinced with submission of the assessee, that, such type of differences are common under banking transactions, which are caused due to time consumed in clearing. Further, we are also in conformity with the assessee that there was no need of any bank reconcilement in this case, as the bank has given the credit during the same year and accordingly, there was no difference in balance as per their books and bank statement. Accordingly, we do not find any infirmity in the order of Ld. CIT(A) and hereby uphold the order of Ld. CIT(A) qua this issue. Hence, ground no.3 of the revenue is dismissed.

8.2 With regard to the relief of Rs.88,25,786/- given by the Ld. CIT(A), the Ld. DR submitted that, the total amount of Rs.1,24,03,936/- has been debited on 31.03.2012 to the savings bank account of the assessee with State Bank of Hyderabad, which is on account of interest on cash credit loan from 01.10.2010 to 31.03.2012. Ld. DR further submitted that, whether the same is on account of interest to bank or not, is required to be verified by the Ld. AO. Therefore, the Ld. DR prayed before the bench to set aside the issue to the file of Ld. AO for verification. 8.3 As far as relief of Rs.10,43,116/- given by the Ld. CIT(A) on account of electricity expenses is concerned, the Ld. DR did not make any objection before the bench. 8.4 Per contra, the Ld. AR relied on the order of Ld. CIT(A). 8.5 We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. We have gone through the order of Ld. AO and Ld. CIT(A). It is a fact that while making the addition of Rs.1,42,00,284/- on account of non-production of bills / vouchers, the Ld. AO has not given any details of nature of expenditure or the head of expenditure out of which the said addition has been made. It seems like that, the Ld. AO has made addition on estimated basis, which is very arbitrary on the part of the Ld. AO. Any arbitrary addition made on the estimated basis cannot be sustained under the law. Accordingly, the addition made by the Ld. AO is liable to be dismissed on this count only. However, the Ld. CIT(A) in his order has given a finding that, the amount of Rs.88,25,786/- and Rs.10,43,116/- are on account of interest to bank and electricity expenses respectively, are forming part of the amount of disallowance of Rs.1,42,00,284/- made by the Ld. AO. With regard to the interest to bank, the Ld. CIT(A) after verification of the bank account of the assessee has deleted the addition. Further, as far as the electricity expenses of Rs.10,43,116/- is concerned, the same has also been deleted by the Ld. CIT(A) after verifying the electricity bill. Further, the Ld. DR has also did not make any objection with regard to the deletion on account of electricity expenses. In our considered opinion, as the Ld. CIT(A) has deleted both the additions after verifying the corresponding evidence / document, therefore, we do not find any infirmity in the order of Ld. CIT(A). Accordingly, we uphold the order of the Ld. CIT(A) on this issue. Hence, the ground no.4 of the revenue is dismissed.

10.3 Respectfully following the decision of Hyderabad Bench of ITAT (supra), we also hold that, as the assessee has not earned any dividend income which is exempted u/s.10(34) of the Act on the said investment during the year under consideration, no disallowance can be made u/s.14A of the Act in the hands of the assessee. Accordingly, we uphold the order of Ld. CIT(A) on this issue. Hence, the ground nos.6 to 8 of the revenue are dismissed.

11.1 Per contra, the Ld. AR relied on the order of Ld. CIT(A). The Ld. AR also submitted that, the allegation by the Ld. AO vide his report dated 12.09.2023 is not correct as the Ld. AO issued the letter on 15.11.2023 calling for the information. When the Ld. AO himself issued letter on 15.11.2023, then how he can give a report on 12.09.2023 that the assessee had not complied to their notices. Further, in compliance to the notice dated 15.11.2023, the assessee has complied to all the requirements of the notices before the Ld. AO on the same day i.e. 15.11.2023. Finally, the Ld. AR prayed before the bench to uphold the order of the Ld. CIT(A). 11.2 We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. We have gone through the order of Ld. CIT(A), the details of relief given by the Ld. CIT(A) to the assessee and the details of evidences / documents on the basis of which the Ld. CIT(A) has given the relief. 11.3 It is crucial to mention here that, the Ld. CIT(A) has also sustained addition of Rs.43,31,379/- out of addition of Rs.1,42,00,284/- on account of inadequacy of relevant evidences / documents. However as far as the relief of Rs.44,12,893/- u/s.40(a)(ia) of the Act on account of payment of bank interest is concerned, the same did not required the verification of any documents. The relief was given by the Ld. CIT(A) merely on the basis of interpretation of section 194A(3)(iii) of the Act, as per which, no TDS is required to be deducted on payment of bank interest and accordingly no disallowance could be made u/s 40(a)(ia) of the Act. Further, in case of disallowance of depreciation of Rs.1,27,840/-, the Ld. CIT(A) has not deleted the addition and in fact has set aside the issue to the file of Ld. AO for verification of bills / vouchers, necessitating the need of verification of the same on the part of the Ld. AO. On going through all these facts and circumstances, we found that, the Ld. CIT(A) has given the relief on the basis of only those evidences which were generated from independent sources and were sufficient to decide the issue without any further verification. However, where the evidences/documents did not comply such parameter, the Ld. CIT(A) has either not given the relief or set aside the issue to the file of the Ld. AO for further verification. Accordingly, we found that where the evidences produced by the assessee are from independent sources, the Ld. CIT(A) did not feel it necessary for further verification. Accordingly, we do not find any infirmity in the order of Ld. CIT(A). 11.4 Further, as far as the objection of revenue that the assessee did not comply to the notice of the Ld. AO qua the notice issued by the Ld. AO during pendency of proceedings before ITAT, we have gone through the letter dated 15.11.2023 issued by the Ld. AO (page no.124 of paper book) and found that the Ld. AO has issued the query letter on 15.11.2023. However, the letter regarding non-compliance on the part of the assessee was dated 12.09.2023 which is prior to the query letter issued by the Ld. AO. We have gone through page no. 127 of the paper book containing acknowledgement qua the submission of the assessee with regard to query letter dated 15.11.2023 of Ld. AO. On going through all these documents, we reject the objection of the revenue regarding the non-compliance of the assessee before the Ld. AO. 11.5 Accordingly, we dismiss the ground nos.9 to 11 of the revenue.

“1. The order of the CIT(A) is erroneous both on facts and in law. 2. The Ld.CIT (A) erred in upholding the disallowance made of Rs.4,52,391/- (out of the total disallowance of Rs.1,42,00,284/-) by holding that the expenditure on Business Promotion was not explained.

4. The Ld. CIT (A) erred in upholding the disallowance of Rs.23,463/- made u/s 40(a) (ia) of the Act.

5. The Ld. CIT (A) ought to have appreciated that the amount of Rs. 23,463/- spent towards advertisement expenses is much below the threshold limit as per the provisions of section 194C of the Act and thus no disallowance shall be made under section 40(a) (ia) of the Act. 6. The Ld. CIT(A) ought to have appreciated that the disallowance of Rs. 23,463/- is not warranted since the assessee has not been treated as an assessee in default u/s. 201(1) of the Act and no proceedings have been initiated in this regard. 7. The Ld. CIT(A) erred in upholding the disallowance made of Rs. 6,56,978/- under the head "Sales Promotion".1. The order of the CIT(A) is erroneous both on facts and in law. 8. The Ld. CIT(A) ought to have appreciated that there is no discussion in the assessment order as to the disallowance of 50% of expenditure on Sales Promotion being Rs.6,56,978/- except mentioning in the abstract of additions/disallowances by the AO. 9. The Ld. CIT (A) while confirming the disallowance of Rs. 6,56,978/- erred in holding that since no TDS had been deducted, 50% of the expenditure was disallowed by the AO. 10. The Ld. CIT(A) ought to have appreciated that the TDS provisions are not applicable for the expenses incurred in the nature of "sales promotion expenses " and hence disallowance made for Rs.6,56,978/- is bad in law. 11. The Ld. CIT(A) ought to have appreciated that the disallowance of Rs.6,56,978/- is not warranted since the assessee has not been treated as an assessee in default u/s 201(1) of the Act and no proceedings have been initiated in this regard. 12. The Ld. CIT(A) erred in allowing the ground on disallowance of depreciation of Rs.1,27,840/- subject to verification by the AO.

14. The assessee has raised the following additional ground :

“ In continuation to the earlier grounds of appeal filed from serial no.1 to 14 in respect of the assessee for the A.Y. 2012-13, additional grounds of appeal bearing serial No.15 to 17 are enclosed herewith. These were the grounds which were filed before to CIT(A) in Ground no.3. Therefore the additional grounds raised now vide No.15 to 17 are not raised for the first time before Hon'ble ITAT. You are hereby requested to kindly admit the additional grounds of appeal.” 14.1 With regard to the raising of additional grounds of appeal, the Ld. AR submitted that the same grounds were also raised before the Ld. CIT(A). hence, they are not raised for the first time before the ITAT. After hearing the Ld. DR, we take up the additional grounds raised by the assessee for adjudication.

15. With regards to the aforesaid grounds of appeal

, the Ld. AR submitted that, the ground nos.1, 14 & 17 are general in nature and they are not pressing ground nos.4, 5, 6 and 15. Accordingly, no separate adjudication is required on ground nos.1,4,5,6,14, 15 and 17.

16. The ground nos.2 & 3 and ground no.16 are with regard to addition sustained by the Ld. CIT(A) for Rs.43,31,382/-, out of addition of Rs.1,42,00,284/- made by the Ld. AO. The Ld. AR submitted that, the expenditure corresponding to addition of Rs.43,31,382/- sustained by the Ld. CIT(A) are also incurred wholly and exclusively for the business purpose of business of the assessee and are in the nature of revenue expenditure. Accordingly, the same are required to be allowed as business expenditure u/s. 37 of the Act. Therefore, the Ld. AR prayed before the bench to delete the amount of Rs.43,31,382/- sustained by the Ld. CIT(A). 16.1 Per contra, the Ld. DR relied on the order of Ld. CIT(A). 16.2 We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. As far as the addition sustained by the Ld. CIT(A) for Rs.43,31,382/- is concerned, the assessee failed to submit any evidence in the form of bills / vouchers before the Ld. AO as well as the Ld. CIT(A) and therefore, the Ld. CIT(A) sustained the said addition. Therefore, in the absence of any supporting evidence, we do not find any merit in the argument of Ld. AR. Accordingly, we dismiss the claim of the assessee. In the result, the ground nos.2 and 3 of the assessee are dismissed.

17. The ground nos.7 to 11 of the assessee ae related to addition of Rs.6,56,978/- on account of sales promotion expenses. The relevant facts with regards to this issue is that, the assessee had claimed an amount of Rs.13,13,955/- under the head of sales promotion expenses. However, in the absence of any bills / vouchers in support of the said expenditure, the Ld.

AO disallowed 50% of the expenditure i.e. Rs.6,56,978/- and added the same in the hands of the assessee. The Ld. CIT(A) also for the very same reason sustained the addition made by the Ld. AO. Before us also, the Ld. AR failed to furnish any bills / vouchers in support of its claim. The Ld. AR, except claiming that the expenditure are wholly and exclusively incurred for the business purpose and are in the nature of revenue expenditure, did not produce any evidence in the form of bills / vouchers. Therefore, in the absence of any supporting evidence, we do not find any merit in the argument of Ld. AR. Accordingly, we dismiss the claim of the assessee. In the result, the ground nos.7 to 11 of the assessee are dismissed.

i) The order of the Ld. CIT(A) is erroneous on facts as well as in law. ii) Ld. CIT(A) erred in deleting thepenalty levied u/s.271(1)(c) amounting toRs.2,71,73,725/- iii) The appeal craves leave to add, delete, substitute and amend any grounds of appeal at the time of hearing.”

21. The solitary issue of the revenue under this appeal is deletion of penalty of Rs.2,71,73,725/-, levied by the Ld. AO u/s.271(1)( c ) of the Act. The said penalty was levied against the addition of Rs.9,05,79,084/- made by the Ld. AO u/s.68 of the Act. The addition of Rs.9,05,79,084/- was also subject matter of the appeal before us under ground no.3 of the appeal of revenue in . As per our findings at para no.7.4 of this order, we have deleted the said addition of Rs.9,05,79,084/-.