DCIT Vs Vidarbha Infotech Pvt. Ltd. (ITAT Nagpur)
Summary: The Revenue appealed against the order of the learned CIT(A)-3, Nagpur, deleting an addition of Rs. 7.50 crore made by the Assessing Officer under section 69C of the Income Tax Act, 1961, towards alleged unexplained expenditure, along with a further addition of Rs. 20,67,364 relating to the difference between additional income disclosed during survey proceedings and the income declared in the return.
The assessee, Vidarbha Infotech Pvt. Ltd., was engaged in construction, wholesale and retail trade and other services and had undertaken IT infrastructure and automation-related work for municipal corporations. During the relevant year, it had claimed consultancy expenditure of Rs. 7.50 crore, comprising Rs. 2.50 crore paid to Aarti Sponge and Power Ltd. and Rs. 5 crore paid to Bhagwati Power and Steel Ltd. The assessee produced agreements, invoices, ledger accounts and details of payments after deduction of tax at source. Both recipient companies also responded to notices issued by the Assessing Officer under section 133(6), confirming the transactions and furnishing agreements, bank statements and audited financial statements.
The Assessing Officer nevertheless treated the Rs. 7.50 crore expenditure as unexplained expenditure under section 69C. The principal reasoning was that the recipient companies were primarily engaged in manufacturing activities and, according to the Assessing Officer, did not have the IT employees or administrative/technical infrastructure necessary to render consultancy services of such magnitude. The Assessing Officer also referred to the absence of a bifurcation of the work.
