DCIT, CIRCLE-1(1)(1), AHMEDABAD, AHMEDABAD vs. BLAZENET LIMITED, AHMEDABAD

This appeal has been filed by the Revenue against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 02.09.2024 passed for A.Y. 2018-19.

The Revenue has raised the following grounds of appeal:

The brief background of the assessee’s case is that the assessee is a closely held company engaged in the business of providing internet services in the regions of Gujarat and Mumbai. It filed its return of income for the Assessment Year 2018-19 on 18.10.2018, declaring a total income of ₹1,63,83,290/- and book profit under section 115JB at ₹1,70,91,368/-. Subsequently, the return was selected for scrutiny primarily on the issues of default in TDS, allowability of business expenses, and related disallowances. The final assessment order was completed at a total income of ₹9,76,16,700/- after making disallowances aggregating to ₹8,12,33,410/-, including ₹40,34,000/- under section 40(a)(ia) for alleged TDS default, ₹2,16,90,868/- out of expenses claimed by the assessee, and ₹5,55,08,542/- towards unsubstantiated expenses. The assessee filed appeal before CIT(Appeals) against the order passed by the Assessing Officer. CIT(Appeals) allowed the appeal of the assessee, after calling for a remand report from the Assessing Officer.

Aggrieved by the order passed by Ld. CIT(A), the Department is now in appeal before us. On hearing both the parties before us and on perusal of assessment records, we note that in the assessment order, the Assessing Officer made disallowances aggregating to ₹8,12,33,410/- under three heads, namely: (i) disallowance under section 40(a)(ia) amounting to ₹40,34,000/-, (ii) disallowance of network maintenance expenses of ₹2,16,90,868/-, and (iii) disallowance of unsubstantiated expenses of ₹5,55,08,542/-. We note that additional evidences were placed on record before CIT(Appeals), who also sought a remand report from the DCIT vs. Blazenet Ltd. Asst.Year –2018-19 - 3– concerned Assessing Officer. We observe that the Assessing Officer, in the remand proceedings, after issuing appropriate notices and obtaining complete details and supporting documents from the assessee, examined the claims afresh. In respect of the disallowance of ₹2,16,90,868/- towards network setup expenses, the AO noted that the assessee submitted complete party-wise expense details, including confirmations, sample invoices, communication details, bank statements and PAN details of all four parties under dispute. Upon verification, all documents were found to be valid and genuine. No adverse inference was drawn on this issue by the Assessing Officer in remand proceedings. Regarding the disallowance of ₹5,55,08,542/- on account of alleged unsubstantiated expenses, the AO confirmed that the assessee had submitted complete ledger accounts and sample invoices during remand proceedings. The documents were verified and no discrepancies were found. Accordingly, the AO accepted the genuineness of these expenses, and again, no adverse inference was drawn. As to the disallowance of ₹40,34,000/- under section 40(a)(ia) of the Act, the assessee submitted Form 26A certificates, duly signed by a Chartered Accountant, along with income tax return acknowledgments and computation details of the payees. The AO acknowledged that the conditions under the first proviso to section 201(1) were satisfied, and therefore, as per law, the assessee could not be treated as an assessee in default. Accordingly, even in respect of this issue, no adverse inference was drawn by the Assessing Officer in remand proceedings. From the above findings by the Assessing Officer in his remand report, it is evident that all three additions made in the original assessment order are not sustainable in view of the material evidences produced by the assessee and accepted by the AO in remand proceedings. Therefore, in light of the assessee’s facts and the findings given by the Assessing Officer in remand proceedings, in our considered view, the additions made by the AO in the assessment order under section 143(3) of the Act are liable to be deleted. Accordingly, we find no infirmity in order of Ld. CIT(A) so as to call for any interference.

In the result, the appeal filed by the Department is Dismissed. This Order pronounced in Open Court on 30/07/2025