Case Law Details
Baumer Technologies India Pvt. Ltd. Vs DCIT (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT), Mumbai, allowed the assessee’s appeal against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2022-23, arising from an assessment completed under Section 143(3) read with Section 144B of the Income-tax Act, 1961.
The assessee challenged, among other issues, the addition of Rs.8,77,07,756 as unexplained expenditure under Section 69C in respect of payments made to Associated Enterprises (AEs) towards royalty, commission, and fees for technical services, as well as the addition of Rs.40,44,000 relating to Corporate Social Responsibility (CSR) expenditure. During the hearing, the assessee did not press the grounds relating to reference to the Transfer Pricing Officer and initiation of penalty proceedings, which were dismissed accordingly.
The assessee, engaged in the business of manufacturing pressure gauges and temperature calibrating systems and rendering related services, had filed its return declaring total income of Rs.16,88,24,130. The Assessing Officer observed that foreign remittances aggregating Rs.8,77,07,756 had been made to Associated Enterprises towards royalty, commission, and fees for technical services. According to the Assessing Officer, the assessee had failed to establish the business necessity of these services and had produced only agreements without substantiating the actual rendition of services. The expenditure was therefore treated as unexplained expenditure under Section 69C. The Assessing Officer also added Rs.40,44,000 on account of CSR expenditure, stating that the assessee had not furnished evidence of its actual incurrence. The Commissioner (Appeals) upheld the Section 69C addition and directed the Assessing Officer to verify whether the CSR expenditure had already been disallowed by the assessee while computing income and grant consequential relief if found correct.
Before the Tribunal, the assessee explained that the disputed amount comprised royalty of Rs.1,93,77,831, commission of Rs.60,68,683, and fees for technical services of Rs.6,22,61,242. It submitted that royalty was paid under a trademark licence and management agreement, commission represented referral fees under a service-level agreement, and technical service fees related to centralized management, finance, administration, legal, human resources, information technology, procurement, and marketing services. The assessee argued that all payments had been made through banking channels after deduction of tax at source and were supported by agreements, invoices, Form 15CA/15CB, and audited books of account. It contended that Section 69C deals with unexplained source of expenditure and cannot be invoked where expenditure is duly recorded in the books and the source of payment is fully explained. It also pointed out that similar payments had been accepted in earlier assessment years. The Revenue maintained that the assessee had failed to establish actual receipt of services and corresponding business benefit.
The Tribunal held that the disputed expenditure was duly reflected in the audited books and financial statements, the payments had been made through banking channels after deduction of tax at source, and were supported by agreements, invoices, and statutory forms. It observed that the Assessing Officer had neither disputed the remittances nor produced any material to show that the expenditure was bogus or that its source remained unexplained. The Tribunal held that Section 69C is concerned with unexplained source of expenditure and cannot be applied merely because the Assessing Officer is dissatisfied with the commercial expediency or business necessity of the expenditure. It also noted that the Assessing Officer had neither invoked Section 37(1) nor made any transfer pricing adjustment. Further, similar payments had been accepted in preceding years and no distinguishing feature had been brought on record. Accordingly, the Tribunal held that the addition of Rs.8,77,07,756 under Section 69C was unsustainable and directed its deletion.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. This appeal is filed by the assessee against the order dated 27.10.2025 passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “the CIT(A)”] for A.Y. 2022-23 arising from the assessment order passed u/s 143(3) r.w.s. 144B of the Income Tax Act, 1961 (“the Act”).
2. The assessee has filed this appeal on the following grounds:-
1. That the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (“CIT(A)”) erred in law and on facts in confirming the assessment order passed under section 143(3) read with section 144B of the Income-tax Act, 1961 (the “Act”) dated 19.03.2024 (“assessment order”) without appreciating that the assessment order is beyond jurisdiction, bad in law and void-ab-initio.
2. That the CIT(A) erred in law and on facts, in treating the assessment order as valid even when the statutory requirement to refer the international transactions to the Transfer Pricing Officer under section 92CA (1) was not fulfilled.
3. That the CIT(A) erred in law and on facts, in upholding the disallowance of Rs. 8,77,07,756/-being international transactions with associated enterprises as “unexplained expenditure” under section 69C of the Act.
4. That the CIT(A) erred in law and on facts, in not appreciating that the assessing officer erred in making the aforesaid addition without affording adequate opportunity of being heard to the appellant.
5. That the CIT(A) erred in facts and in law, in disregarding the fact that the said expenditure was duly supported by the agreements, invoices, evidences of payments being made through banking channels, Form 15CA/CB’s andevidences of TDS deductions.
6. That the CIT(A) erred in facts and in law, in disregarding the fact that similar payments were also made in the preceding assessment years and the same were not disputed in any of the assessment years.
7. That the CIT(A) has erred in law and on facts in upholding the addition of Rs. 40,44,000/- towards CSR expenditure without appreciating that the said amount had already been suo motu disallowed by the appellant in the computation of income filed along with the return, leading to impermissible double disallowance.
8. That the CIT(A) erred in law and on facts in directing the assessing officer to further verify if the said CSR expenditure was actually incurred.
9. That the CIT(A) erred in law and on facts that irrespective of whether or not the CSR expenditure has been incurred or not, the same is not an allowable deduction unless it is an eligible donation under section 80G of the Act.
10. That the assessing officer erred on facts and in law in initiating penalty under section 271AAC (1) and section 270A of the Act.
11. That the assessing officer erred on facts and in law in charging interest under section 234B of the Act and has further erred in incorrectly computing the cumulative interest levied under sections 234A, 234B, 234C, 234D and 234F of the Act.
3. Brief facts of the case are that the assessee company is engaged in the business of manufacturing of pressure gauges and temperature calibrating systems and rendering related services. The assessee filed its return of income for the year declaring total income of Rs 16,88,24,130/-. The Assessing Officer in the assessment order has observed that the assessee had made foreign remittances aggregating to Rs.8,77,07,756/- towards royalty, commission and fees for technical services to its Associated Enterprises (“AE”) but failed to establish the business necessity for availing such services from foreign entities and had merely furnished agreements without substantiating actual rendition of services. The Assessing Officer accordingly treated the expenditure of Rs.8,77,07,756/- as unexplained expenditure u/s 69C of the Act and added the same to total income of the assessee.
4. The Assessing Officer further observed that the assessee had debited CSR expenditure of Rs.40,44,000/- in books of account but did not furnish evidences to substantiate actual incurrence of CSR expenditure. Accordingly, addition of Rs.40,44,000/- was also made while computing total income.
5. Aggrieved, the assessee preferred appeal before the Ld. CIT(A). The Ld. CIT(A) upheld the addition made u/s 69C observing that mere furnishing of agreements, Form 15CB and payment through banking channels do not establish actual rendition of services or business rationale for such payments. As regards CSR expenditure, the Ld. CIT(A) directed the Assessing Officer to verify whether the assessee had already added back the said expenditure in computation of income and grant consequential relief if the claim was found correct.
6. Before us, the Ld. AR submitted that Ground No.2 and Ground No.10 are not pressed. Accordingly, the same are dismissed as not pressed.
7. As regards Ground Nos.3 to 6, the Ld. AR submitted that the impugned amount of Rs.8,77,07,756/- comprised royalty of Rs.1,93,77,831/-, commission of Rs.60,68,683/- and fees for technical services of Rs.6,22,61,242/- paid to Associated Enterprises. The Ld. AR submitted that royalty was paid under Trademark License and Management Agreement for use of “Baumer” trademark and technology marks. The commission was paid towards referral fee under service level agreement for business sourced through overseas group entity and fees for technical services were paid under centralized management service arrangements for management, finance, administration, legal, HR, IT support, procurement and marketing services rendered by group entities.
8. The Ld. AR submitted that all payments were made through banking channels after deduction of taxes at source and were duly supported by agreements, invoices, Form 15CA/15CB and audited books of account. It was argued that section 69C deals with unexplained source of expenditure and once expenditure is duly recorded in books and source of payment stands explained, provisions of section 69C cannot be invoked merely because Assessing Officer is not satisfied with business expediency or necessity of expenditure.
9. The Ld. AR relied upon the decision of Hon’ble Bombay High Court in the case of PCIT vs. Vishal P. Mehta, Hon’ble Delhi High Court in CIT vs. Radhika Creation [2011] 10 com 138, decision of coordinate bench in ITO vs. Growel Energy Co. Ltd., ACIT vs. Matrix Publicities and Media India (P.) Ltd. [2025] 213 ITD 463 and Rupee Finance and Management Pvt. Ltd. vs. ACIT [2008] 22 SOT 174. The Ld. AR further relied upon the principle of consistency laid down by Hon’ble Supreme Court in CIT vs. Excel Industries Ltd. 358 ITR 295 and Hon’ble Bombay High Court in PCIT vs. Quest Investment Advisors Pvt. Ltd. 409 ITR 545.
10. Per contra, the Ld. DR relied upon the orders of lower authorities and submitted that the assessee failed to establish actual receipt of services and corresponding business benefit derived therefrom.
11. We have heard the rival submissions and perused the material available on record. The short issue before us is whether expenditure duly recorded in books of account and paid through banking channels can be treated as unexplained expenditure u/s 69C merely because the Assessing Officer was not satisfied regarding commercial expediency or actual rendition of services.
12. We find that the impugned expenditure is duly reflected in audited books of account and audited financial statements of the assessee. The payments have admittedly been made through banking channels after deduction of tax at source and supported by Form 15CA/15CB, agreements and invoices. The Assessing Officer has nowhere disputed of remittances or brought any material on record to establish that the expenditure is bogus or that source of such expenditure remains unexplained.
13. In our considered view, section 69C primarily deals with unexplained source of expenditure. Once expenditure is duly recorded in books of account and source of payment stands explained, provisions of section 69C cannot be invoked merely because Assessing Officer was not satisfied regarding necessity or business expediency of expenditure. The Hon’ble Delhi High Court in the case of CIT vs. Radhika Creation (supra) has held that where expenditure is duly recorded in books, provisions of section 69C are not attracted. Similar view has also been taken in various judicial precedents relied upon by the assessee.
14. We further note that the Assessing Officer has not invoked provisions of section 37(1) of the Act to disallow expenditure on account of lack of business purpose nor has any transfer pricing adjustment been made. The entire addition has been made u/s 69C. Even otherwise, commercial expediency has to be examined from the perspective of businessman and not from the viewpoint of the Assessing Officer as held by the Hon’ble Supreme Court in the case of S.A. Builders vs. CIT 288 ITR 1.
15. We also find merit in submission of the assessee that similar payments were accepted in preceding years and no distinguishing feature has been brought on record by Revenue during the year under consideration. Though principle of res judicata does not strictly apply to income tax proceedings, rule of consistency as laid down by Hon’ble Supreme Court in Excel Industries Ltd. (supra) supports the case of the assessee.
16. Considering the totality of facts and judicial precedents discussed hereinabove, we are of the considered view that addition of Rs.8,77,07,756/- made u/s 69C of the Act is unsustainable. Accordingly, same is directed to be deleted. Ground Nos.3 to 6 are allowed.
17. As regards Ground Nos.7 to 9 relating to CSR expenditure of Rs.40,44,000/-, we find from the computation of income filed by the assessee that the said amount has already been added back by the assessee as disallowance u/s 37 of the Act while computing total income. The Assessing Officer himself has noted this fact in the assessment order. Therefore, making further addition of the same amount would clearly result in double disallowance, which is impermissible under law. The Ld. CIT(A), therefore, rightly directed the Assessing Officer to verify the claim of the assessee and grant consequential relief. Since the computation of income placed on record clearly evidences that the assessee has already suo motu disallowed the CSR expenditure, we direct the Assessing Officer to delete the addition of Rs.40,44,000/- after due verification from the return of income and computation filed by the assessee. Accordingly, Ground Nos.7 to 9 are allowed for statistical purposes.
18. Ground No.11 relating to levy of interest is consequential in nature.
19. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 22/05/2026.
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