INTEGRATED GAS CONTROLS TECHNOLOGIES PRIVATE LIMITED,HYDERABAD vs. INCOME TAX OFFICER, WARD-2(1), HYDERABAD

Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the Ld.CIT(A), the assessee has filed detailed written submissions on the issue, which has been extracted at para 5 from pages 8 to 21 of 3 Ld.CIT(A) order. The sum and substance of the arguments of the assessee before the Ld.CIT(A) are that the expenditure recorded in the books of accounts cannot be treated as unexplained expenditure u/s 69C of the Act. The learned counsel for the assessee further submitted that the assessee has filed relevant bills and vouchers in support of various expenditure and had also deducted TDS. The Assessing Officer has called for agreement with the parties, but the fact remains that the assessee has not entered into any agreement thereto. But, the Assessing Officer simply made additions towards expenditure u/s 69C of the Act. The Ld.CIT(A) after considering the submissions of the assessee and also taking note of evidences filed by the assessee observed that although the assessee has filed bills and vouchers in support of expenditure and also proved that the payments have been made through proper banking channel, but the fact remains that Mr.Giridhar Ghanta has breached trust by deceiving the appellant company and did not render services for which payments were made. Therefore, observed that the expenditure debited towards payment made to Mr.Giridhar Ghanta cannot be allowed as deduction. Similarly, the Ld.CIT(A) observed that the assessee although filed bills in support of other payments made to three parties, but failed to file relevant evidences to prove that the said expenditure is genuine in nature, therefore, rejected the submissions of the assessee and sustained the additions made by the Assessing Officer u/s 69C of the Act.

Aggrieved by the Ld.CIT(A) order, the assessee is now in appeal before the Tribunal.

We have heard both the parties, perused the material on record and gone through the orders of the authorities below. The Assessing Officer disallowed the expenditure towards consultancy / professional charges on the ground that the assessee could not prove the genuineness of the expenditure by filing relevant evidences. According to the Assessing Officer, the assessee could not explain the nature of expenditure and sources to the satisfaction of the Assessing Officer and therefore, opined that the expenditure incurred by the assessee under the head ‘professional charges’ is bogus in nature and accordingly disallowed u/s 69C of the Act. The Assessing Officer has invoked the provisions of section 69C. In order to invoke section 69C, if any assessee, in any financial year, has incurred any expenditure and the assessee offers no explanation about the source of such expenditure or part thereof or explanation if 6 any offered by him is not in the opinion of the Assessing Officer satisfactory, then section 69 can be invoked. In the preset case, the assessee has incurred expenditure and also recorded such expenditure in the books of accounts and paid the amounts through banking channels after deducting applicable TDS as per law. Therefore, in our considered view, once the assessee explained the nature of expenditure and also records such expenditure, then the provisions of section 69C cannot be invoked merely on the ground that the assessee could not substantiate the nature of expenditure. Therefore, to this extent, we are not in agreement with the reasons given by the Assessing Officer to disallow expenditure u/s 69C of the Act and upheld by the Ld.CIT(A).

Having said so, let us come back to the nature of expenditure incurred by the assessee. The appellant has paid a sum of Rs.31,85,557/- to Mr.Giridhar Ghanta towards professional charges and claimed that the said person has not rendered any services and deceived the company. The assessee has debited the said expenditure to capital account and apportioned over a period 5 years and claimed 1/5th of expenditure for the year under consideration. Similarly, the assessee has paid various payments to M/s Karamchand Linganna Komireddy and M/s Magostech Information Systems Private Ltd. for various purposes and also deducted applicable TDS as per law. The assessee claims that it has filed relevant bills and vouchers in support of expenditure and also claimed that there are no agreements with the parties for rendering services, because the said services are routine in nature and 7 does not warrant any kind of agreement with the parties. We find that the Assessing Officer himself has admitted the fact that the assessee has filed certain evidences, however, claimed that the assessee could not prove the genuineness of the expenditure. Before us, the assessee has filed copies of invoices issued by service providers and also proved payment through proper banking channel. Going by the evidences filed by the assessee, in our considered view, the assessee is able to prove the nature of expenditure and also genuineness of the said expenditure. Therefore, we are of the considered view that the reasons given by the Assessing Officer and sustained by the Ld.CIT(A) to disallow expenditure is contrary to the evidence on record. Further, in the case of expenditure towards payment made to Mr.Giridhar Ghanta, because the service provider has not rendered any service and also deceived the company, the assessee had capitalized the expenditure and apportioned over a period of five years and debited 1/5th of the expenditure for the year under consideration. Since the assessee has incurred expenditure in the course of its business, even if the service provider did not render any service and deceived the company without rendering services, but such expenditure cannot be disallowed as non-genuine. Further, the assessee has himself capitalized it’s expenditure and apportioned over a period of five years and claimed only 1/5th of the expenditure for the year under consideration, whereas, the Assessing Officer has disallowed the entire expenditure. Since the assessee has proved the nature of expenditure by filing relevant evidences, in our considered view, the expenditure incurred by the assessee for the purpose of its business needs to be allowed. Therefore, 8 we direct the Assessing Officer to delete addition made u/s 69C towards payment to Mr.Giridhar Ghanta. In so far as expenditure incurred towards payment made to three persons like M/s Karamchand Linganna Komireddy, M/s Magostech Information Systems Private Ltd and M/s Manjunath Hari Naik, the assessee has filed relevant evidences including bills submitted by the service providers and payment made for rendering services. Since the assessee has filed evidences to substantiate the claim of expenditure, in our considered view, the Assessing Officer has erred in disallowing expenditure u/s 69C of the Act. The Ld.CIT(A) without considering the relevant evidences, simply sustained the additions made by the Assessing Officer. Thus, we set aside the order of the Ld.CIT(A) and direct the Assessing Officer to delete the additions made towards unexplained expenditure u/s 69C of the Act.

In the result, appeal filed by the assessee is allowed.