M/s. Smart Eye Security System vs Income Tax Officer

PER MANISH AGARWAL, A.M.:

The present appeal is filed by assessee against the order dated 04.11.2025 passed by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] in Appeal No. NFAC/2022-23/10482664 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 21.03.2025 passed u/s 143(3) r.w.s. 144B of the Act pertaining to Assessment Year 2023-24.

Brief facts of the case are that the assessee company is a partnership firm, engaged in the business of supplying CCTV cameras and related security system items and filed its return of income on 07.10.2023, declaring total income of INR 15,00,050/-. The case of the assessee was selected under CASS for complete scrutiny for the reason high credits/liabilities & business expenses. Statutory notice u/s 143(2) followed by notices u/s 142(1) of the Act were issued from time to time which were duly replied. The AO observed that the assessee has shown sundry creditors of more than INR 18.00 crores however, as per the detailed filed it was found that in respect of one of the creditors namely M/s AMSEC System (Proprietor Shri Manit Verma) for which no explanation was tendered thus, the AO made the addition of INR 3,76,26,868/- i.e. closing balance appearing in the account of such party as unexplained credits u/s 68 of the Act and further invoked the provisions of section 115BBE of the Act for charging special rate of tax. Besides this, the AO has made addition on account of difference in balance of sundry creditors as per Balance Sheet and total of the list of sundry creditors as provided by the assessee. The AO has further made disallowance of INR 13,42,049/- out of certain expenditure and further made disallowance of INR 2,06,10,716/- @ 30% u/s 40(a)(ia) of the Act being paid to M/s. Aditya Infotech Ltd. on which no TDS was deducted u/s 194Q of the Act on the purchases made from the said party. Accordingly, total income was assessed at INR 6,17,78,137/-.

Aggrieved by the said order, assessee preferred an appeal before the ld. CIT(A) who vide impugned order dated 04.11.2025, deleted the addition made on the account of difference in the amount of Sundry Creditors as well as disallowance of expenses however, confirmed the addition of INR 3,76,26,868/-made u/s 68 of the Act towards the one creditor held as unexplained and further confirmed the disallowance of INR 2,06,10,716/- made u/s 40(a)(ia) of the Act and thus partly allowed the appeal of the assessee.

Aggrieved by the order of ld. CIT(A), the assessee is in appeal before the Tribunal by taking various Grounds of appeal as mentioned in the appeal memo.

During the course of hearing vide letter dated 02.01.2026, the assessee has filed the concise Grounds of appeal which reads as under:-

Ground of appeal No.1 is general in nature, hence not adjudicated.

Ground of appeal No.2 of the assessee is with respect to the addition of INR 3,76,26,868/- made as unexplained credit u/s 68 of the Act.

Brief facts leading to this issue are that assessee is engaged in the business of supplying and installation of CCTV Camera and security related items. It had carried out regular business transactions of purchases of material from M/s AMSEC System of New Delhi and during the year under appeal, had made the purchases of more than INR 3.15 crores. The assessee has also made payment of INR 77.00 lacs to the said parties and there was closing balance of INR 3,76,26,868/-. The AO has held the credit balance appearing at the closing day of the previous year in the name of the said party solely for the reason that assessee has not filed any supporting documents and the notice issues u/s 133(6) of the Act to M/s AMSEC System remained non-compiled. Accordingly, ld. CIT(A) observed that since the assessee has not filed any details therefore, the said creditor was held as bogus.

Before us, ld.AR for the assessee submits that books of accounts of the assessee were accepted and trading results have not been doubted. The purchases made from M/s AMSEC System have been accepted and corresponding sales have also not been doubted. The assessee has made purchases of more than INR 3.15 crores during the year from the said parties and all the bills and vouchers are available. Ld.AR submits that the case of the assessee was assessed through NFAC where books of accounts could not be uploaded however, all the information and supporting material is available with it and the same could be submitted if desired so. The AO never asked the assessee to file the bills and vouchers of the said party therefore, they were not supplied. Ld. AR submitted that in preceding assessment years also, goods were purchased and payments were made to the said supplier and the closing balance was never doubted. For the sole reason that the said party has filed to make reply of the notice issued u/s 133(6) of the Act, the closing balance appearing in its name was added. In order to establish the genuineness of the transaction, before us, the assessee has filed a prayer under Rule 29 of the I.T. Rules, 1962 alongwith the additional evidences which includes the following:

On the other hand, ld. Sr. DR for the Revenue vehemently supported the orders of the lower authorities and submits that the assessee has not filed any details and therefore, by placing reliance on the judgment of Hon’ble Rajasthan High Court in the case of Rajshree Synthetics Pvt. Ltd. vs. Commissioner of Income-Tax reported in [2002] 256 ITR 331 which order has been relied upon by ld. CIT(A) while confirming the disallowance, prayed for the confirmations of the additions made by the lower authorities.

Heard the contentions of both the parties at length and perused the material available on record. In the instant case, the AO has invoked the provisions of section 68 of the Act for holding that the closing credit balance of one of the creditor from whom assessee has made regular purchases in the year under appeal as well as in preceding AYs as unexplained. It is observed that during the year under appeal, assessee has made total purchases of more than INR 3.15 crores from the said party which was duly recorded in the books of accounts and corresponding sales made, have been accepted. The AO has not raised any doubts about the purchases and sales and the stock declared by the assessee which inter-alia includes the material purchased from the said party was accepted. For the sole reason that no compliance was made in response to notice issued u/s 133(6) of the Act, closing balance of the creditor was held as unexplained credit. Once the purchases have been accepted from the said party and it is also a matter of fact that the outstanding balance have been repaid substantial in succeeding AY and the assessee has been able to demonstrate that due to fire incident, already have not been able to comply with the notices issued u/s 133(6) of the Act.

Before us, ld.AR for the assessee has filed additional evidences in the form of following:-

It was the claim of the assessee that these documents could not be filed before the lower authorities due to fire incident taken place at the business premises of M/s AMSEC System. Considering the overall facts and circumstances, we are of the considered view that in the instant case, the assessee has been able to explain the reasonable cause for not filing these details before the lower authorities in respect to the genuine transactions carried out made with it. Form the perusal of all the details filed as additional evidences, it is observed that they were regular transactions carried out with the said party in the normal course of business and the said party was in existence which is verifiable from its GST registration and ITR. Under these circumstances, we admit additional evidences filed by the assessee and sent them to the file of AO for making necessary verification of these details. The AO is further direct that if no discrepancy is found in the evidences now filed as additional evidences, no addition be made as unexplained credit u/s 68 of the Act. Assessee is also directed to appear and can file further details in order to establish the genuineness of the creditor. With these directions Ground of appeal No.2 of the assessee is allowed for statistical purposes.

Ground of appeal No.3 of the assessee is with respect to the confirmation of the disallowance of INR 2,06,10,716/- made u/s 40(a)(ia) of the Act.

Brief facts leading to this issue are that during the year under appeal, the assessee has made purchases from M/s Aditya Infotech Ltd. and had made the payments. The AO alleges that assessee has not made TDS u/s 194Q on such purchases whereas the claim of the assessee was that M/s Aditya Infotech Ltd. has collected the tax at source on the sales made to the assessee and therefore, assessee was not required to deduct the tax u/s 194Q of the Act on the payments made. For this, ld. AR for the assessee placed reliance on the CBDT Circular No.13/2021 dated 30.06.2021 wherein it is clarified that if the transaction is in purview of sales u/s (1H) of section 206 of the Act, the tax is required to be deducted u/s 194Q however, for any reason, the tax has been collected by the seller before the buyer could deduct the tax u/s 194Q, such transaction would not be qualified for tax deduction again by the buyer. Ld.AR thus, submits that in view of the aforesaid Circular, the disallowance made u/s 40(a)(ia) of the Act be deleted.

On the other hand, ld. Sr. DR for the Revenue vehemently submits that Circular is now filed and should not be admitted at this stage. Alternatively he requested to remand the matter back to the file of AO for making necessary verification of the facts.

Heard the contentions of both the parties and perused the material available on record. At the outset, it is observed that main allegation of the AO is that assessee has not deducted tax at source u/s 194Q on the payments made to M/s Aditya Infotech on the gross amount of INR 6,87,02,389/- as reduced by INR 50.00 Lakhs on which TDS has already made.

In this respect, we refer to the CBDT Circular 13/2011 dated 30.06.2021 wherein various Guidelines were issued regarding the application of section 194Q by the Board. As per para 4.9.5 of the said circular, certain clarifications are made and sub-clause (v) of para 4.9.5, deals with the issue in hand, which reads as under:-

From the perusal of the above, it is clear that in the event seller has collected the tax at source u/s 206C(1H) of the Act prior to TDS by the buyer, the buyer is exempted from the liability of TDS on such payments.

In the instant case, claim of he assessee was that the seller has already collected tax at source on the total sale made to the assessee which is verifiable from the copy of 26AS statement filed before us, as per which tax has already been collected on the sales made to the assessee thus the assessee was not obliged to deduct tax at source on the payments made. In view of the CBDT Circular (supra), we are of the considered opinion that the assessee cannot be held as defaulter u/s 194Q of the Act and thus the provisions of sections 40(a)(ia) of the Act could not be invoked and therefore, the disallowance made is hereby, deleted. Ground of appeal No.3 raised by the assessee is hereby, allowed.

In the result, appeal of the assessee is partly allowed.