AceVector contests Rs 267.853 crore in income-tax disallowances

AceVector Limited is contesting Rs 267.853 crore of income-tax business-expenditure disallowances for assessment years 2018-19, 2022-23 and 2023-24. The largest amount, Rs 159.728 crore for 2022-23, is under appeal before the Commissioner of Income Tax (Appeal), or CIT (Appeal), and each of the three cases has a pending penalty proceeding.

Why is AceVector contesting Rs 267.853 crore in income-tax disallowances?

AceVector is challenging three assessment orders that disallowed business expenditure totalling Rs 267.853 crore. The disputed expenditure comprises Rs 159.728 crore for assessment year 2022-23, Rs 45.959 crore for assessment year 2023-24 and Rs 62.166 crore for assessment year 2018-19. AceVector challenged each order before CIT (Appeal), and all three matters were pending as of the Red Herring Prospectus date.

The 2022-23 disallowance represents about 60% of the three-year total, making it the largest disclosed component. Assessment year 2018-19 accounts for about 23% of the aggregate, while 2023-24 accounts for about 17%. These figures are amounts of business expenditure disallowed in assessment orders, not stated final tax demands, because the prospectus does not quantify the tax payable arising from the disallowances.

Were AceVector's income-tax disallowances transfer-pricing adjustments?

No. AceVector's transfer-pricing review for assessment year 2022-23 resulted in no adverse inference on international transactions, while the later assessment order disallowed Rs 159.728 crore of business expenditure. The Transfer Pricing Officer, or TPO, issued its order under Section 92CA(3) of the Income Tax Act, 1961 on December 21, 2024, after examining the arm's-length price of AceVector's international transactions.

The March 25, 2025 assessment order for 2022-23 was issued by the assessing officer under Section 143(3) read with Section 144B of the Income Tax Act, 1961. Section 144B is the faceless-assessment mechanism cited in the prospectus. The source therefore distinguishes the business-expenditure disallowance from the TPO's review, rather than identifying the disputed Rs 267.853 crore as a transfer-pricing adjustment.

AceVector made submissions and provided documents requested by the tax authorities during all three assessments. The prospectus does not identify the individual categories of expenditure disallowed, the grounds for rejecting them, the applicable tax rate or the resulting tax demand. The disclosure supports describing the cases as expenditure disallowances, but not attributing them to particular operating costs or accounting treatments.

How did AceVector's three assessment-year cases develop?

The 2022-23 case began with an original return filed on November 25, 2022 and a revised return filed on December 9, 2022. AceVector declared business losses and claimed a refund for prepaid taxes in that period. Following scrutiny assessment proceedings and the December 2024 TPO order, the assessing officer disallowed Rs 159.728 crore on March 25, 2025; AceVector appealed to CIT (Appeal), and the penalty proceeding remains pending.

For assessment year 2023-24, AceVector filed its original return on November 30, 2023, declaring business losses and claiming a prepaid-tax refund. The National Faceless Assessment Centre completed scrutiny through an order dated March 24, 2025 under Section 143(3) read with Section 144B, disallowing Rs 45.959 crore of business expenditure. AceVector appealed the order before CIT (Appeal), with a related penalty proceeding also pending.

The oldest matter relates to assessment year 2018-19, when AceVector filed an original return on November 30, 2018 and a revised return on March 26, 2019. Computer Assisted Scrutiny Selection, or CASS, selected the return for scrutiny, and a Section 143(2) notice followed on September 22, 2019. The January 12, 2021 order disallowed Rs 62.166 crore under Section 143(3) read with Sections 143(3A) and 143(3B), and both the appeal and penalty proceeding remained pending.

What does AceVector's wider tax disclosure show?

AceVector reported six direct-tax cases and six indirect-tax cases involving the company in its tax-proceedings summary. The table showed nil amount involved for the company's direct-tax cases and Rs 3.286 crore for company indirect-tax cases. The prospectus says the summary reports claim amounts to the extent attributable and excludes penalties or fines, which means it uses a different disclosure basis from the Rs 267.853 crore of expenditure disallowances.

The tax summary also states that penalty proceedings forming part of the original company proceedings were not disclosed separately. That treatment explains why the three pending penalties described in the material tax proceedings do not appear as additional standalone cases. The status of the three appeals and penalties will determine whether the assessment orders, including the Rs 159.728 crore 2022-23 amount, remain in place or are changed through the appellate process.

Separate subsidiary cases comprised four direct-tax proceedings involving Rs 7 lakh and four indirect-tax proceedings involving Rs 1.414 crore. Directors and promoters each had three direct-tax notices attributed to Kunal Bahl as AceVector's principal officer, with nil amount stated. These categories are distinct from AceVector's three material company proceedings and are not part of the Rs 267.853 crore aggregate.

The prospectus excludes information-seeking notices from the Income Tax Department and goods and services tax authorities from its case counts. It also excludes specified indirect-tax notices received by Unicommerce and tax demands from California tax authorities and the United States Internal Revenue Service relating to Stangible Inc., which had ceased to exist. Those exclusions define the scope of the tax-proceedings summary rather than establishing a complete record of every tax communication involving the group.

Conclusion

AceVector's disclosed material income-tax disputes consist of three business-expenditure disallowances totalling Rs 267.853 crore, with assessment year 2022-23 contributing Rs 159.728 crore. The prospectus separates the 2022-23 expenditure decision from transfer pricing because the TPO made no adverse inference on the company's international transactions. The disclosed amounts remain contested rather than final because every assessment order is under appeal and every case has a pending penalty proceeding.

The next matters to watch are the decisions of CIT (Appeal) on the orders dated January 12, 2021, March 24, 2025 and March 25, 2025, as well as developments in the corresponding penalty proceedings. AceVector did not disclose hearing dates, expected resolution dates, the specific expenses disallowed or the amount of any potential penalty. Later updates on those unresolved matters would show whether the disputed expenditure amounts are sustained, reduced or otherwise changed.