EVALUATIONZ INDIA PRIVATE LIMITED,BENGALURU vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(1), BANGALORE

The learned AO issued notice under section 133(6) of the Act to the recipient of the income for genuineness of the payment along with the various details which was not responded to. Therefore, the learned assessing officer reached at the conclusion that these Rs. 3,655,489 paid towards professional charges for the verification job work to Techprocode Information Technology Pvt. Ltd. is an unexplained expenditure under section 69C of the Act.

Consequently show cause notice was issued to the assessee. In response to the show cause notice assessee also submitted that the notice issued under section 133(6) issued really reached to the vendor is not confirmed. The learned assessing officer thereafter found that as the assessee has not provided the copies of the return of income for assessment year 2018-19 filed by the vendor and also the vendor has also not complied with the notices issued under section 133(6) of the Act confirming the same transaction, despite being given an opportunity of being heard, thus the said transaction remains unverified in absence of necessary documents, Accordingly addition under section 69C of the Act is made of the above sum.

Assessment order was passed under section 143(3) read with sections 143(3A) and 143(3B) of the Income Tax Act on 6/4/2021 determining the total income of the assessee at Rs.2,91,39,322 wherein the addition of Rs. 3,655,489/– was made.

The assessee aggrieved with the same preferred an appeal before the learned CIT–A wherein the assessee submitted that the assessee has availed the service of the above company amounting to Rs. 36.55 lakhs and all the payments were made to the vendor by the RTGS system by making appropriate tax deduction at source. The assessee submitted the permanent account number, GST registration, agreement, invoices, bank account of the assessee, vendor’s bank account as well as the GST R – 2A return also. The learned CIT–A confirmed the disallowance holding that assessee has simply argued that assessee is no way obligated to produce the vendor before the assessing officer and the AO directing the assessee to file a copy of tax return of the vendor is unreasonable. He held that it is the responsibility of the appellant to furnish supporting evidence about the claim made by it in the return of income to the satisfaction of the assessing officer. Accordingly appeal of the assessee was dismissed.

The learned authorised representative appeared before us and furnished paperbook containing 508 pages along with the copies of the account of Techprocode Information Technology Private Limited from the books of accounts of the assessee for assessment year 2018-19. A further case law compilation containing 8 judicial precedents was also furnished. The learned authorised representative also relied upon the decision of the honourable Delhi High Court in case of (2011) 10 taxmann.com 138 (Delhi) in case of Radhika Creation dated 30 April 2010.

The contention of the learned authorised representative is that assessee has furnished all the necessary evidence to prove the genuineness of the expenditure incurred. He referred to the agreement placed at page number 89-102 of the paper book wherein the above vendor was employed for address verification, employment verification etc. Further he submitted that based on this agreement the assessee has in the services of the above party wherein in the invoices itself the verification was shown. He further referred to letter dated 2/4/2021 addressed to the assessing officer wherein the necessary evidence such as permanent account number, GST registration number, agreement copy, verification of expenditure by producing the invoices, bank statement of the assessee, bank account number of the vendor, details of the verification executed by the vendor extracted from computerised database by the assessee company, email correspondence dated 18/10/2017 from the vendor and other email communication. Further on the amount paid by the assessee through RTGS, necessary tax deduction at source was also made which is also placed before the assessing officer. The master data downloaded from the MCA website maintained was also produced before the assessing officer to show the address of the vendor, its directors, and other details available therein. To show that the invoices raised by the vendor have also been uploaded by the vendor on the website of goods and service tax authorities in GSTR–2A. Accordingly on the above document basis the assessee has elaborated and clearly explained the rendition of the services as well as the genuineness of the expenditure incurred. He extensively referred to the submission made before the learned assessing officer and the learned CIT–A. He also referred to the validation of month-wise candidates by the vendor placed at page number 127 – 404. He further referred to several email correspondence placed at page number 405–408 to show that the services have been rendered and the payment is genuine. He further relied upon the decision of the honourable Delhi High Court in 10 taxmann.com 138 in case of Radhika Creation wherein it has been categorically held that the disallowance on account of non-authenticity of the expenditure could not be made under section 69C of the Act. According to him, section 69C is on source of expenditure and not on authenticity of the expenditure itself. He submitted that the books of accounts clearly show the above expenditure incurred by the assessee. The learned assessing officer has made an addition under section 69C of the Act. Therefore, on this ground itself the addition deserves to be deleted. He further submitted that merely issue of notice under section 133 (6) with no additional efforts cannot be a valid ground for addition in the hands of the assessee. For this proposition, he relied upon the decision of the honourable Supreme Court in case of CIT v. Orissa Corporation (P) Ltd (1986) 159 ITR 78 (SC) and Anis Ahmad & Sons (2008) 161 Taxman 84 (SC). He further submitted that when the assessee has produced the documents establishing the genuineness, merely because the parties did not appear before the learned assessing officer, no addition could have been made. For this proposition he relied upon the decision of the honourable Bombay High Court in case of 150 taxmann.com 362, 88 taxmann.com 502 and 104 taxmann.com 402. He further referred to the decision of the honourable Madhya Pradesh High Court in case of CIT versus Metachem Industries (2001) 116 Taxman 572 to submit that assessee cannot answer whether the payee has offered the sum to taxation or not, and that cannot result into disallowance in the hands of the assessee.

The learned departmental representative vehemently supported the order of the learned lower authorities and submitted that when the vendor whether payment was made by the assessee has not responded to notice under section 133 (6) of the Act, the assessee has not discharged its onus of proving the genuineness of the expenditure and therefore the disallowance has been correctly made by the learned lower authorities.

We have carefully considered the rival contention and perused the orders of the learned lower authorities. The assessee is into the business of comprehensive employee/customer back ground verification. It has a large corporate clients like Accenture solutions, Amazon, Oracle, and other IT players. Before recruiting employees they wish to have their antecedents checked for the proper employment. This process is called background verification of the new employees. This activity is carried out because no employees with fake or false information is selected by the clients. The comprehensive background verification process is consisting of education verification, address check, previous employment verification, criminal records check, identity check, earlier remuneration shown verification etc. Most of the time the assessee carries out the checks with the help of its own team of staff. Sometimes it also takes the help of third parties to carry on the work. The verification reports are also provided in a standard format. On filing of the return of income, the case of the assessee was selected for verification of the genuineness of the expenditure. The vendor payments made by the assessee was also questioned during the assessment proceedings where the assessee explained that all the payments are made by account payee cheques, tax deduction at source is made, the vendors are having permanent account number and GST registration number, and the expenses are properly grouped on verification of the details. Assessee also explained that the verification expenditure paid to the vendors are comparable with previous year expenditure and subsequent year expenditure. The assessee also produced the complete details of the verification made by the vendor. During previous year it has incurred expenditure of vendor payment for such verification activities. Only issue involved in this appeal is that assessee has made a payment vendor of Rs. 36.55 lakhs for background verification of the various employees, notice under section 133 (6) was issued by the learned assessing officer but not responded by that vendor, has resulted into the addition of the above expenditure. Assessee has substantiated that the services have been rendered by the vendor showing the various statement of verification expenditure showing the name of the client, the verification expenses incurred, the number of persons verified along with the complete list of the verification details. The assessee has also submitted the permanent account number details, GST registration, agreement copy of the vendor, verification expenses Ledger, bank statement of the assessee, bank account number of the vendor, the invoices issued by the vendor, the details of the verification job by the vendor as per the computerised database by the assessee company, various email correspondence, and consequently the payment of verification expenses to the vendor on tax deduction at source and issuing the certificate for tax deduction. The assessee has also demonstrated before the assessing officer from the master data downloaded from the site of the Ministry of Corporate Affairs showing the address of vendor, its directors, and its profile. It also produced that the vendor did verification job charged goods and service tax, this was paid to the government authorities, the vendor also furnished the GST returns. This was demonstrated by producing GST–2A return. Therefore, the assessee has conclusively proved that the vendor performed verification job, raised appropriate bills and source for making the payment is from the bank account of the assessee wherein the bank account of the recipient is also reflected, the bank account of the vendor with ICICI bank was also furnished.

Because the learned assessing officer issued notices under section 133 (6) which was not responded to by the vendor, cannot result into an addition to the hands of the assessee when overwhelming details are produced before the assessing officer. During assessment proceedings, assessee asked the ld. AO that whether the notices have reached that assessee vendor or not. It was not answered. Response to the ld. AO by third party in case of assessee in response to notice u/s 133 (6) of the Act is not in the hands of the assessee. Even otherwise, such non-appearance/non submission of details by third party, when assessee has produced overwhelming details, which remains not controverted, cannot result into disallowance.

It is not the case of the learned assessing officer that the activities carried on by the vendor which was substantiated by the assessee is not genuine. Further the learned assessing officer has made addition under section 69C of the Act. The books of accounts of the assessee have disclosed this expenditure. The source of the payment of the expenditure is bank account of the assessee. Therefore, the source of the expenditure incurred by the assessee is properly shown. Accordingly, the addition/disallowance under section 69C is not warranted and not in accordance with the