Axiscades Aerospace & Technologies Private Limited Vs DCIT (ITAT Bangalore)
Selling & Marketing Expenditure Cannot Be Disallowed Merely Due to Ledger Nomenclature Error; ITAT Deletes Addition and Remands Balance Claim for Verification
The Bangalore ITAT held that business development and marketing expenses incurred through a holding company cannot be disallowed merely because of an accounting nomenclature error in the ledger, where the assessee is able to substantiate the expenditure through supporting debit notes and other documentary evidence. The Tribunal observed that a clerical description in the ledger cannot override the substance of a genuine business transaction.
The assessee, engaged in the defence and offset business, had claimed selling and marketing expenses allocated by its holding company, Axiscades Engineering Technologies Pvt. Ltd., on a cost-to-cost basis without any mark-up. The Assessing Officer disallowed part of the expenditure for want of adequate documentary evidence, and the CIT(A) sustained a disallowance of ₹1,58,05,355, comprising ₹37,48,685 and ₹1,20,56,670. Before the Tribunal, the assessee produced an additional debit note relating to the first amount and explained that the second amount, though shown in the ledger as payable to “TDS – Contractors”, actually represented payment to the holding company, the incorrect narration having arisen due to limitations of the accounting software.
The Tribunal admitted the additional evidence relating to the expenditure of ₹37,48,685, holding that the assessee had shown sufficient cause for its earlier non-production, and restored that issue to the Assessing Officer for de novo adjudication after verification of the additional documents. As regards the balance amount of ₹1,20,56,670, the Tribunal found that the ledger entry stood duly corroborated by the debit note issued by the holding company and accepted the assessee’s explanation that the discrepancy arose only because of the nomenclature used in the accounting software. Holding that the expenditure had been satisfactorily established, the Tribunal deleted the addition to that extent. The appeal was allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
The assessee has filed the present appeal against the impugned order dated 09.01.2026, passed under section 250 of the Income Tax Act, 1961 (“the Act”), by the learned Commissioner of Income Tax (Appeals), National
Faceless Appeal Centre, Delhi [“learned CIT(A)”], for the assessment year 2017-18.
2. In this appeal, the assessee has raised the following grounds: –
1. The order of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre dated 09.01.2026 passed under section 250 of the Income-tax Act, 1961, in so far as it is prejudicial to the interests of the appellant, is opposed to law, facts and circumstances of the case.
2. The learned CIT(A) erred in partly sustaining the disallowance of Selling and Marketing expenses amounting to Rs. 1,58,05,354 whereas the same was incurred for the business of the assessee.
3. The learned CIT(A) erred in not considering the expenditure as business expenditure and failed to appreciate that the impugned expenditure was incurred wholly and exclusively for the purposes of business and is allowable under Section 37(1) of the Income-tax Act, 1961.
4. The above grounds are without prejudice to one another. The Appellant craves leave to add, alter, amend, modify OR withdraw any of the above grounds and to submit further documents at OR before the time of hearing of the appeal.
3. The solitary grievance of the assessee is against the disallowance of selling and marketing expenses.
4. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is engaged in system integration activities for defence and offset business. For the year under consideration, the assessee filed its return of income on 27.10.2017, declaring a total income of Rs. 1,88,53,340/-. The return filed by the assessee was selected for scrutiny, and statutory notices under sections 143(2) and 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, from the perusal of the financial statements of the assessee, it was observed that the assessee has debited expenses of Rs. 4,07,59,301/- during the year, which was significantly higher than the selling and marketing expenses of Rs. 1.30 crore debited in the immediately preceding assessment year. From the details provided by the assessee of the selling and marketing expenses, it was observed that an amount of Rs. 3,97,67,582/- was incurred towards business development expenses. In this regard, the ledger was also examined. From the details placed on record, it was observed that the assessee has debited various expenses under this head which were paid to Axiscades Engineering Technologies Private Ltd., a related party of the assessee. In the absence of any other response from the assessee and also in the absence of any agreement between the assessee and Axiscades Engineering Technologies Private Ltd., the Assessing Officer (“AO”), vide order dated 13.12.2019 passed under section 143(3) of the Act, held that the expenses mentioned under the head “TDS – Contractor”, “TDS Rent”, “Axiscades” total amounting to Rs. 2,26,08,500/- are questionable as the genuineness of the said expenditure has not been satisfactory explained by the assessee.
5. In the appellate proceedings before the learned CIT(A), the assessee submitted the invoice dated 31.12.2016 in respect of amount of Rs. 68,03,146/- paid to Axiscades Engineering Technologies Private Ltd. Accordingly, the learned CIT(A) deleted the addition to the extent of Rs. 68,03,146/-. However, in respect of expenditure of Rs. 37,48,685/- towards TDS Rent, the assessee failed to submit the invoice dated 31.03.2017. Further, in respect of payment of Rs. 1,20,56,670/- payable to Axiscade Engineering Technologies Private Ltd., the assessee submitted invoice dated 30.09.2016. However, the learned CIT(A) noted that this amount is not reflected in the ledger. Further, it was noticed that regarding Rs. 1,20,56,670/- paid to TDS – Contractors mentioned in the ledger, no invoice or details were submitted. Accordingly, the learned CIT(A) granted partial relief to the assessee, restricting the disallowance of Rs. 1,58,05,355/-. Being aggrieved, the assessee is in appeal before us.
6. During the hearing, the learned Authorised Representative (“learned AR”) submitted that the copy of the invoice dated 31.03.2017 in respect of payment of Rs. 37,48,685/- is now available with the assessee and the assessee seeks permission to file the same on record as additional evidence. As regards the expenditure of Rs. 1,20,56,670/-, the learned AR submitted that the said amount was mentioned in the ledger as payment to TDS – Contractors instead of Axiscades Engineering Technologies Private Ltd. due to limitations of the accounting software. The learned AR submitted that the invoice in respect of the said payment was already furnished during the appellate proceedings before the learned CIT(A), and the same has been duly recorded in the impugned order.
7. On the other hand, the learned Department Representative (“learned DR”) vehemently relied upon the order passed by the lower authorities.
8. We have considered the submission of both sides and perused the materials available on record. In the present case, the assessee is a subsidiary of Axiscades Engineering Technologies Private Ltd., which is in the same line of business. As per the assessee, its holding company incurs certain expenditure, which is allocated to group entities based on usage. It is the plea of the assessee that the actual cost incurred by the holding company for rendering marketing services was recovered from the assessee on a pure cost-to-cost basis, without any mark-up and periodic debit notes were issued in respect of the same, containing details regarding the allocation methodology and detailed cost break-up. As per the assessee, during the year under consideration, the holding company allocated selling and marketing expenses pertaining to business development expenditure of Rs. 3,97,67,582/- to the assessee. From the record, we find that the AO, to an extent of Rs. 2,26,08,500/-, disagreed with the submissions of the assessee in the absence of proper documentary evidence substantiating the genuineness of the expenditure claimed by the assessee. In appellate proceedings before the learned CIT(A), in view of the additional documents filed by the assessee, the learned CIT(A) granted partial relief to the assessee and restricted the disallowance towards business development expenses to Rs. 1,58,05,355/-.
9. It is evident from the record that the said disallowance comprises two components, i.e., Rs. 37,48,685/- and Rs. 1,20,56,670/-. As regards the payment of Rs. 37,48,685/-, the assessee, by way of an application seeking admission of additional evidence under Rule 29 of the ITAT Rules, 1963, placed on record the debit note issued by the holding company on 31.03.2017. From the perusal of the record, we find that before the lower authorities, even though the assessee claimed that the said expenditure was bona fide business expenditure towards the rental premises. However, it could not furnish the invoice dated 31.03.2017, and therefore, the addition was upheld to that extent. Thus, we are of the considered view that due to sufficient reasons, the assessee could not furnish the additional evidence now placed on record before us, and accordingly, we admit the said additional evidence. During the hearing, the learned DR submitted that the additional evidence now placed on record by the assessee needs verification, as the same has been filed for the first time by the assessee. Therefore, in view of the facts and circumstances as noted above, the issue pertaining to the addition to an extent of Rs. 37,48,685/- in respect of business development expenses is restored to the file of the Jurisdictional AO for de novo adjudication after taking into consideration the additional evidence filed by the assessee before us.
10. As regards the business expenses of Rs. 1,28,67,670/-, it is the plea of the assessee that the same was also payable to Axiscades Engineering Technologies Private Ltd. However, the disallowance was upheld to that extent as the said amount was not reflected in the ledger in respect of marketing expenses, which is placed in the paper books from Pages 242 – 244. On perusal of the said ledger, we find that the amount of Rs. 1,20,56,670/-has been recorded as payable to TDS – Contractors on 28.12.2016. During the hearing, the learned AR submitted that due to the limitations of the accounting software, the name of the holding company could not be mentioned in the ledger, and the said payment was in fact made to the holding company, i.e. Axiscades Engineering Technologies Private Ltd. In support of this submission, the learned AR referred to the debit note issued by the holding company on 30.09.2016 in respect of marketing expenses amounting to Rs. 1,20,56,670/-. Therefore, having perused the documents placed on record and considering the submissions, we find merit in the contentions of the assessee that the said payment of Rs. 1,20,56,670/- was made to the holding company and the confusion only arose due to the different nomenclature in the ledger account. As the assessee has duly corroborated the entry in the ledger account of Rs. 1,20,56,670/- with the debit note dated 30.09.2016, which forms part of the paper book on Page 381, we are of the considered view that the addition to that extent is unsustainable, and thus is directed to be deleted.
11. Accordingly, in view of our findings in the foregoing paragraphs, only to the extent of Rs. 37,48,685/-, the matter is restored to the file of the Jurisdictional AO for de novo adjudication after taking into consideration the additional evidence filed by the assessee and the remaining addition sustained by the learned CIT(A) is deleted. As a result, the grounds raised by the assessee are allowed for statistical purposes.
12. In the result, the appeal by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 24th July, 2026
