AI Drafter 
TaxTMI 
TaxTMI 
2026 (1) TMI 297
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, a private company, is engaged in the business of logistics, courier and allied services. For the year under consideration, the assessee declared a loss of Rs. 768,38,95,521/- after setoff of income from other sources for Rs. 10,74,193/- and capital gain of Rs. 4,25,82,091/- only. The case of the assessee was selected for complete scrutiny under CASS to verify the claim of huge loss. 4. During the assessment proceedings, the assessee company was asked to explain how it incurred such a huge loss in one year, the nature of the losses and the reason thereof. 5. The assessee company in response claimed that it got incorporated as on 8th June 2015 and the year under consideration is the first year of its business operation. Being the first year of business operation, it was trying to be picking up business and taking time to read the market to establish itself. Further, it claimed that being in the initial stage of business it charges customers (mainly Flipkart) at discounted rate in hope of raising its business. At the time, it was not able to negotiate a good deal with third party logistics vendors to whom payments for delivery or transportation were paid. Hence the same resul....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... not start its business from scratch, instead it acquired well established business having well recognized brand name from a group company. Hence, the claim of the assessee that it was first year operation and it was trying to pick up business is not acceptable. 6.2 The AO further noted that the assessee company got majority of business only from Flipkart (a group company). To complete the work order received from Flipkart the assessee company hires the services of local vendors or third parties such as Bluedart, Delhivery, DTDC etc. The records show that the assessee was paying much higher charges to vendors like Blue Dart, while at the same time, it was charging Flipkart, its group company, at much lower rates. For example, where Flipkart was billed only Rs.15 to Rs.31 for certain shipments, Blue Dart charged the assessee Rs.22 to Rs.32 for the same weight slabs. Similarly, for cash-on-delivery, the assessee collected only Rs.5 from Flipkart but paid Rs.30 to Blue Dart. In addition, Blue Dart also levied fuel and other charges, which the assessee did not recover from Flipkart. Both contracts-with Flipkart and with Blue Dart-were signed on the same date, which shows that the as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee, before the learned CIT(A), submitted that the loss incurred during the year was a genuine operating loss arising in the normal course of business. It was engaged in providing logistics and allied services to enhance the efficiency of the e-commerce retail supply chain. These services included pick-up of shipments from warehouses, forward delivery, cash-on-delivery/postpaid facility across serviceable pin codes, reverse logistics, and ERP integration with a specialized customer interface. Revenue was earned from providing these services to Flipkart, which is its group company, as well as from independent customers like Vector E-Commerce and Xerion Retail. 8.1 During AY 2016-17, the company was in its very first year of operations and at an early stage of growth. The Indian e-commerce logistics industry itself was then in its early stages and highly competitive, with several established players already present in the market. To enter and sustain in this competitive field, the assessee had no choice but to invest heavily in infrastructure, manpower, and technology, and to offer services at attractive rates. This was necessary to expand scale, cover maximum geographical areas,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... business or protecting future growth. The Hon'ble Supreme Court in Walchand & Co. (65 ITR 381) and Sassoon J. David & Co. (118 ITR 261) has held that "wholly and exclusively" does not mean "necessarily," and that it is for the assessee to decide the manner in which business is carried on. Therefore, the losses incurred in the initial years, arising from the assessee's strategy to expand operations and win customers, are on account of commercial expediency and cannot be disallowed. 8.6 Further, the AO has erred in indirectly bringing notional profits to tax by disallowing genuine business losses by treating the loss as if it were a discount given to its group company. The AO has in effect created a deemed income which was never earned. Under the Income-tax Act, only real profits actually earned can be taxed, and not hypothetical income that could have been earned if contracts were structured differently. The assessee emphasizes that its contracts were entered into on commercial grounds, and the adequacy of consideration cannot be questioned by the AO. As settled by law, profits must be computed from actual income after deducting legitimate business expenditure, unless expressly ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cs services from WS Retail Pvt. Ltd. was acquired by the appellant on a slump sale basis which leads to an inference that the business was already running effectively. It is also gathered that WS Retail was found by the Flipkart founders Shri Sachin Bansal & Binny Bansal and was later sold to investors. Earlier WS Retail was in house vendor of Flipkart and generated a bulk of its revenue before Flipkart turned into a market place. The parent company of Flipkart is Flipkart Singapore Pvt. Ltd. and in order to carry out direct sales to the customers an Indian company by name WS Retail was created as a logistic partner. However, around 6 years ago in 2018, WS Retail stopped selling on its former parent market place Flipkart as DIPP had introduced new FDI rules where e-commerce company cannot allow more than 25 % sales from one vendor. 5.18 WS Retail was also running a logistics business under the brand "ekart". So, it can be concluded that the logistics business under the brand "ekart" was already established before the acquisition of the business form WS Retail Pvt. Ltd. This also evidenced by the fact that the "ekart" brand was valued at Rs. 9.18 crores and had a distributi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... stated that the revenue inflow from Flipkart Internet cannot be co-related with the expenses outflow from their end and it is not possible to map item to item. 5.21 The appellant vide submission dated 06.01.2025 has contended that Flipkart Internet was not its sole customer as it has provided logistic services to other customers in all relevant years under consideration. The appellant also submitted that the revenue earned from Flipkart Internet vis-à-vis other customers has gradually decreased from 96.46% in AY 2016-17 to 65.33% in AY 2017-18 and 37.08% in AY 2018-19. Hence, without prejudice to the written submissions regarding the allowability of losses, the appellant contended that proportionate losses to the extent of revenue earned from Flipkart Internet can be disallowed. As requested, the appellant was provided with an opportunity of hearing on 07.01.2025 and the case was discussed. During the course of hearing the appellant submitted that the facts of the present case are similar in facts in the case of a group company, Flipkart India Pvt. Ltd. wherein similar additions were made and the Hon'ble ITAT, Bengaluru in its decision reported in 150 taxman.com 27....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ase of A. Khadar Basha held that where a trader transfer his goods to another trader at a price less than the market price and the transaction is a bonafide one, the taxing authority cannot take into account the market price of those goods, ignoring the real price fetched, to ascertain profit from the transaction. The Hon'ble High Court held that only exception in such scenario was if section 40(A)(2)(a) of the Act applies i.e., parties to the transaction are related. In a result the ITAT, Bengaluru in the case of Flipkart India Pvt Ltd held that there is no provision in the Act by which AO can ignore the sale price declared by the assessee and proceed to enhance the sale price without any material evidence to show that the assessee has realized a higher sale price. The ITAT also held that one cannot proceed on the basis of presumption that profit forgone is expenditure incurred and further that expenditure so incurred was for acquisition intangible asset like brand and goodwill. While concluding the ITAT held that loss has declared by the appellant in the return of income should be accepted by the AO and the addition made was accordingly deleted. 5.24 The Order of the Hon....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tinent to mention here that the case of the appellant for A.Y 2021-22 was picked up for scrutiny and the assessment u/s 143(3) was completed on 33/12/2022. The appeal before the undersigned was filed on 26/1/2023 and is pending for adjudication. Identical issues arise from this appeal. On perusal of the assessment order passed for the A.Y.2021-22, it is seen inspite of decrease in the revenues earned from Flipkart in this said A.Y, the appellant is still charging less to Flipkart in cases where shipments weigh more than 1000gms and 1500gms. Elaborate discussion regarding rates charged to Flipkart and rates charged by the other parties is available in paras 4.4.11 to 4.4.19 of the assessment order for the A.Y 2021-22. The inferences drawn from the discussion of such rates is as under: * Rates charged by the appellant to Flipkart for shipments weighing 1000gms and 1500 gms is less than the rates charged by other parties to the appellant * The other parties also charge additional rates for airway bill and surcharge for return via process. The first mile charges are also charged by other parties to the appellant * The third party vendors also charge additiona....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 11.2 The ld. AR further drew attention to the fact that all expenses of the appellant have been duly recorded in the audited financial statements, which have been accepted as correct and complete under section 145(3) of the Act. There has been no allegation of suppression of sales, inflation of expenditure, or violation of provisions such as section 40A(2) of the Act. The accounts are fully vouched and supported by proper evidence. In such circumstances, the settled law is that the Revenue cannot substitute its own view of what profits ought to have been earned or disallow real expenses merely because the business has resulted in losses. Reliance was placed on the Hon'ble Supreme Court's judgment in CIT v. A. Raman & Co. [1968] 67 ITR 11, which held that only real income can be taxed, and not hypothetical or notional income that could have been earned. Similar support was drawn from decisions in Highways Construction Co. (P) Ltd. and VBHC Value Homes Pvt. Ltd., where ad-hoc disallowance of business losses without specific defects was struck down. 11.3 It was also argued that the difference in rates between customers and vendors, as highlighted by the AO, is not the sole basi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (i) The assessee is a group concern of Flipkart, (ii) Services were provided to Flipkart at rates lower than market rates, (iii) Higher vendor costs were incurred simultaneously, and (iv) The arrangement lacked profit motive. 12.2 The ld. CIT(A) after considering the submissions of the assessee confirmed the addition made by the AO. 12.3 On careful perusal, we find merit in the submissions of the assessee. First, the assessee has demonstrated with evidence that the rates charged to Flipkart Internet and to unrelated third-party customers were the same during the relevant year and subsequent years. A rate chart for AY 2016-17 and subsequent year clearly supports this fact. Hence, the allegation that the assessee designed its business activity in a way to provide services to its group company at a discount rate and thereby booking loss in books of account is not fully correct. 12.4 Secondly, the logistics industry in India, particularly in the ecommerce segment, at the relevant point of time, was at an early and highly competitive stage. It is an accepted business reality that new entrants have to incur heavy infrastructure and operational costs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es goods for the purpose of trading at say Rs. 100/- from unrelated parties. He sells it to retailers at Rs. 80/-. The retailers are also unrelated parties. The retailers sell the goods through the Assessee's web portal "flipkar.com". The trading by the retailers to the end user is through E-Commerce. The customers browse the website and see the various products and place orders electronically. The products are delivered physically to the customers at their desired place. The payment is also made electronically or by cash at the point of deliver to the customers. As far as the Assessee is concerned it deals only with retailers. On sale to the retailers the Assessee incurs loss. The case of the AO is that a wholesale trader normally sells his products at cost + his mark-up (margin) + indirect costs incurred in the business of wholesale trading. The plea of the Assessee is that E-commerce was at a nascent stage and therefore to attract customers to purchase goods through E-Commerce, the only way was to offer goods at a lesser price than what the retailers in physical market in show room offer (referred to as retailers in brick and mortar). The further plea of the Assessee was tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....come can be regarded as income even though they do not fall within any of the categories of income set out in various sub-clauses of Sec. 2(24) of the Act. The aspect to be noted is that there should be income and its receipt or accrual because it is only income which accrues or arises that can be subject matter of total income u/s. 5 of the Act. Sec. 14 lays down that income for the purpose of computation of total income has to be classified under the following heads of income viz., Salaries, Income from house property, Profits and gains of business or profession, Capital gains and Income from other sources. Sec. 28 of the Act lays down various categories of income that shall be chargeable to income-tax under the head "Profits and gains of business or profession". The income of the Assessee in the present case would fall within Sec. 28(i) of the Act viz., "the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year". Section 145 of the Act provides how income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" has to be computed and it lays down that such income sha....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Co. Ltd. (supra), that where a trader transfers his goods to another trader at a price less than the market price and the transaction is a bona fide one, the taxing authority cannot take into account the market price of those goods, ignoring the real price fetched to ascertain the profit from the transaction. The Hon'ble Court explained that the only exception was if Section 40(A)(2)(a) of the Act applies viz., where the parties to the transaction are related. Following the aforesaid decisions, we hold that the AO was not right in proceeding to ignore the books results of the Assessee and resorting to a process of estimating total income of the Assessee in the manner in which he did. We find force in the submission of the learned counsel for the Assessee that what can be taxes is only income that accrues or arises as laid down in Sec. 5 of the Act. Nothing beyond Sec. 5 of the Act can be brought to tax. As contended by him there was nothing to show accrual of income so as to disregard the loss declared by the Assessee in the return of income filed. As we have already seen there is no provision in the Act by which the AO can ignore the sale price declared by an Assessee and pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....crual of any liability on account of any expenditure or actual outflow of funds towards expenditure. One cannot proceed on the basis of presumption that the profit foregone is expenditure incurred and further that expenditure so incurred was for acquiring intangible assets like brand, goodwill etc. As pointed by the Hon'ble Supreme Court and the Hon'ble Bombay High Court in the case of B.C. Srinivasa Setty (supra) and Evans Frazer (supra), for creation of intangibles like say goodwill it is not possible to ascertain in terms of money the cost of acquisition of goodwill; it is equally impossible to ascertain in terms of money the cost of addition or alteration to the quality of goodwill which led to the increase in its value. It is therefore not possible to say that profits foregone created goodwill or any other intangibles or brand to the Assessee. The argument of the learned DR on the existence of intangibles/brands or goodwill was on the basis of purchase of Assessee's shares at a premium by investors. Despite making losses, the Assessee's shares were purchased by investors at a high premium. In this regard two instances of purchase by venture capitalists of the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....soon J. David (118 ITR 261) has settled that losses arising in the ordinary course of business and expenses incurred wholly and exclusively for business purposes are allowable, even if they do not result in immediate profit. The assessee's loss is real, revenue in nature, incidental to trade, and not barred under any provision. 12.9 We, therefore, hold that the disallowance of the entire business loss by the AO and sustained by the ld. CIT(A) is arbitrary, based on conjecture, and contrary to law. The assessee's claim of business loss deserves to be allowed in full. Therefore, we hereby set aside the finding of the learned CIT(A) and direct the assessee to delete the disallowances made by him. Hence, the ground of appeal of the assessee is hereby allowed. 13. In the result, the appeal of the assessee is allowed. Coming to ITA No. 544/Bang/2025, assessee's appeal for A.Y. 2017-18 14. The only effective issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowances of claim of business loss. 15. At the outset, we note that the issues raised by the assessee in its grounds of appeal for the AY 2017-18 is identical to the issue raised by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., and is wholly and exclusively for business purposes. By incentivizing employees, the scheme directly contributed to business efficiency and growth. The assessee emphasized that the ESOP expenditure met all statutory conditions for allowability and should not be disallowed merely because the shares were of the holding company. 17.3 In support of its claim, the assessee relied upon various decision of different benches of Tribunal and the judgment of the Hon'ble Delhi High Court in Lemon Tree Hotels Ltd. v. Addl. CIT (ITA No. 4588/Del/2013, dated 23.06.2014). 17.4 Furthermore, the assessee on the issue of non-deduction of tax at source under section 195 of the Act, submitted that the amounts remitted to FKS towards ESOP costs are purely in the nature of reimbursement of expenses incurred on behalf of the assessee. It was explained that under section 5 of the Act, income of a non-resident is taxable in India only if it is received or deemed to be received in India, or accrues/arises or is deemed to accrue/arise in India. Since the ESOPs were granted and administered by FKS outside India and the cross charges represented only cost-to-cost recovery without any element of income,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....penditure unless there is a real cash outflow. 18.2 The AO concluded that section 37 of the Act mandates that only actual expenditure, incurred wholly and exclusively for the purposes of business, can be allowed. A notional or artificial book entry cannot be treated as deductible. Since in this case the assessee had not incurred any real expenditure and the so-called cross-charge was only a device to shift profits outside India, the AO held that the claim failed the conditions under section 37 of the Act. Accordingly, the entire amount of Rs.12,95,76,277/- was disallowed. 18.3 Without prejudice to the above the AO further examined the issue from the angle of tax deduction at source (TDS). It was noted that the assessee had made payment of ESOP cross-charge to its non-resident holding company FKS without deducting tax under section 195 of the Act. It was observed that the payments to FKS were linked to services of employees rendered in India and the assessee, being an Indian entity, was the beneficiary of such services. By virtue of section 5(2) and Section 9(1)(i) of the Act, the income was deemed to accrue or arise in India because the situs of the payer was in India and the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the Act. It was submitted that the Karnataka High Court in the case of Biocon has confirmed the judgement of Hon'ble Special Bench of ITAT, Bengaluru wherein the Court allowed the deductibility of expenses incurred on ESOP in the hands of the employer company. 6.7 During the course of the hearing on 07.01.2025 the appellant submitted a copy of the order passed by the ITAT, Bengaluru in the case of a group company, Flipkart India Pvt. Ltd. for AY 2017-18 wherein the Tribunal has allowed the expenditure incurred on reimbursement of ESOP expenses made to the holding company based in Singapore. The facts of the said case are that the appellant Flipkart India incurred an expenditure towards ESOP and claimed deduction u/s 37 of the Act. Both the AO and the CIT(A) disallowed the expenditure for the reason that the expenditure is notional/contingent and is not to be incurred by the appellant company. In this case the Hon'ble ITAT, Bengaluru relying on the decision of the coordinate Bench of the Tribunal in the case of Novo Nordisk India Pvt. Ltd. Vs DCIT (2014) 42 taxmann.com 168 held that ESOP cross charge expenses are allowable u/s 37 of the Act. While coming to such conclusio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 8. We heard the rival submissions and perused the material on record. We notice that the coordinate bench of the Tribunal in the case of Novo Nordisk India (P.) Ltd. v. Dy. CIT [2014] 42 taxmann.com 168/63 SOT 242 (Bang. - Trib.) has considered the similar issue and held that - "18. We have considered the rival submissions. It is clear from the facts on record that there was an actual issue of shares of the parent company by the assessee to its employees. The difference, between the fair market value of the shares of the parent company on the date of issue of shares and the price at which those shares were issued by the assessee to its employees, was reimbursed by the assessee to its parent company. This sum so reimbursed was claimed as expenditure in the profit & loss account of the assessee as an employee cost. The law by now is well settled by the decision of the Special Bench of the ITAT Bangalore in the case of Biocon Ltd. v. Dy. CIT [2013] 35 taxmann.com 335 and other connected appeals, by order dated 16-7-2013, wherein it was held that expenditure on account of ESOP is a revenue expenditure and had to be allowed as deduction while computing income. The Specia....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... why this expenditure should not be considered as expenditure wholly and exclusively incurred for the purpose of business of the assessee. 20. We fail to see any basis for the observation of the CIT (A) that the obligation to issue shares at a discounted price to the employees of the Assessee was that of the foreign parent company and not that of the Assessee. Admittedly, the shares were issued to employees of the Assessee and it is the Assessee who has to bear the difference in cost of the shares. The expenditure is necessary for the Assessee to retain a health work force. Business expediency required that the Assessee incur such costs. The parent company will be benefitted indirectly by such a motivated work force. This will be no ground to deny the deduction of a legitimate business expenditure to the Assessee as laid down by the Hon'ble Supreme Court in the case of Sassoon J. David& Co. (P.) Ltd. (supra). 21. The reference by the CIT (A) to the provisions of sec. 40A(2)(b) of the Act is again without any basis. The price of the shares of NNAS is arrived at by applying the average market price for the period 3rd October, - 17 the October, 2005 in the Copenh....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... its own framed the NNIPL ESOP Scheme, 2005, to benefit its employees. NNAS may have a global policy of rewarding employees of affiliates with its shares being given at a discount and that policy might be the basis for the Assessee to frame ESOP. That by itself will not mean that the ESOP was at the behest of the parent company. In any event the immediate beneficiary is the Assessee though the parent company may also be indirect beneficiary of a motivated work force of a subsidiary. We are of the view that the factual basis on which the CIT(Appeals) distinguished the decision of the Mumbai Bench of ITAT in the case of Accenture Services (P.) Ltd. (supra) is erroneous. 23. With regard to the observations of the CIT (Appeals) that the ESOP actually benefits only the parent company, we are of the view that the expenditure in question is wholly and exclusively for the purpose of the business of the assessee and the fact that the parent company is also benefited by reason of a motivated work force would be no ground to deny the claim of the assessee for deduction, which otherwise satisfies all the conditions referred to in section 37(1) of the Act. The decision of the Hon'b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of reimbursement of ESOP costs to the parent company. Hence, we do not find any reason to interfere in the finding of the learned CIT(A). Hence the ground of appeal raised by the revenue is hereby dismissed. 26. In the result, the appeal of the Revenue is hereby dismissed. Coming to ITA No. 496/Bang/2025 an appeal by the assessee for A.Y. 2018-19. 27. The first effective issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowances of claim of business loss. 27.1 At the outset, we note that the issues raised by the assessee in its grounds of appeal for the AY 2018-19 is identical to the issue raised by the assessee in ITA No. 543/Bang/2025 for the assessment year 2016- 17. Therefore, the findings given in ITA No. 543/Bang/2025 shall also be applicable for the assessment year 2018-19. The appeal of the assessee for the A.Y. 2016-17 has been decided by us vide paragraph No.12 to 13 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2016- 17 shall also be applied for the assessment year 2018-19. Hence, the ground of appeal filed by the assessee is hereby a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in support of genuineness of payment to the vendor M/s Surya Team Management Pvt Ltd claimed to have furnished documentary evidence such as copy of the agreement executed with the vendor, sample copy of invoice raised by the vendor and copy of EFP ESI return and challan by the vendor for the contract employee pertaining to the company. The assessee claimed that all the payment was made through banking channel and duly traceable. The payment was made after deduction of tax at source under section 194C of the Act. The assessee claimed that the party M/s Surya Team Management Pvt Ltd is a company and still registered with MCA. The party is also registered under the GST Act. Accordingly, the assessee argued that the genuineness of the payment cannot be doubted merely for the reason that the party was not found at their address as per the enquiry conducted by the department on later dates. As the existence of the party shall be considered on the date of availing of the services. The assessee in this regard placed reliance on the judgment of Hon'ble Calcutta High Court in the case of Diagnostic vs. CIT reported in 20 taxmann.com 692 where it was held "if an assessee took care to purchas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....contended that the AO had erred in questioning the genuineness of manpower supply expenses only on suspicion. It was submitted that agreements with the vendors were valid and that minor differences in dates of signatures and stamp papers cannot render them non-genuine, as it is a common business practice. The assessee pointed out that invoices were computer-generated as part of digitalised processes and all payments were routed through proper banking channels after due deduction of TDS. The assessee further argued that statements recorded from ground-level manpower did not establish any bogus nature of services, and therefore reliance on such statements without corroborative evidence was misplaced. It was also emphasized that all necessary legal and documentary proofs were furnished to show that services were actually availed for business purposes. Lastly, the assessee highlighted that it has been incurring losses since incorporation and had no incentive to inflate or claim bogus expenses, as there was no tax advantage in doing so. 34.1 However, the learned CIT(A) after considering the facts in totality confirmed the disallowance made by the AO. The relevant finding of the learn....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the expenses paid to the vendor for sourcing manpower is confirmed. Hence, ground no. 31 to 37 for AY 2018-19 is dismissed. 35. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 36. The learned AR before us submitted that that the assessee had availed manpower services from M/s Surya Team Management Services Pvt. Ltd. during AY 2018-19 for an amount of Rs.19.90 crores. The manpower provided by the vendor was used for logistics and warehousing operations of the assessee, which is a core part of its business. The entire process of availing manpower was systematic and documented from raising requirements, registration of employees on the company's software with Aadhaar, bank and resume details, background verification, biometric attendance, preparation and validation of payroll registers. The payment to vendor was made through banking channel and TDS u/s 194C of the Act was duly deducted. Copies of payroll registers, invoices, payment advice, and statutory compliances like PF and ESI returns of the vendor were submitted as evidence. The learned AR stressed that these records, along with audited accounts and statutory filings, prove that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....anking channels with deduction of TDS under section 194C of the Act. The genuineness of the expenditure must be examined with reference to the year in which it was incurred, and once the assessee has produced sufficient evidence of availing services, non-traceability of the vendor at a later stage does not automatically render the transaction non-genuine. This principle has also been recognised by the Hon'ble Calcutta High Court in Diagnostic vs. CIT [20 taxmann.com 692], wherein it was held that subsequent non-availability of a supplier cannot invalidate otherwise genuine purchases made earlier. 38.1 Further, the Revenue has accepted similar manpower expenses claimed by the assessee from other vendors in the same year, and no infirmity has been found in those cases. This consistent pattern of acceptance lends support to the assessee's explanation that the manpower requirement was real, large-scale, and met through multiple vendors, including the disputed vendor. In the absence of any material to show that the assessee had received back money in cash or had inflated expenses for tax evasion, the disallowance made solely on the basis of suspicion and third-party non-compliance ca....