2018 (6) TMI 1731 - AT - Income Tax

Tax Tribunal: Varied decisions on unaccounted expenditure & set-off losses.

The Tribunal partly allowed ITA No. 597/PUN/2013, confirming the addition of Rs. 15,46,095 instead of Rs. 1.61 crores for unaccounted expenditure. ITA No. ... Unaccounted transaction of undisclosed receipts and undisputedly undisclosed expenditure outside the books of account - survey action u/s.133A - discovery of incriminating information and the papers/ documents relating to both the assessee under consideration - disclosure of additional income includes that the assessee earned unaccounted income on sale of stock and incurred unaccounted expenditure outside the books - HELD THAT:- Demand for the said adjustment in principle has the basis of the figures emanating from the impounded papers during the survey action. Assessee already offered the additional income of ₹ 2.06 crores and paid taxes on this. Over and above the same, AO made addition of ₹ 1.61 crores and the same is the subject of all this litigation. Therefore, there is no justification for rejecting the claim of adjustments. It is well settled legal proposition that the contents of the incriminating papers have to be considered as a whole and not in a piece meal. AO cannot selectively consider some of the entries on said pages and not the others. It is also well observed practice of business that the Managing Director of the company do receive unaccounted receipts from the clients/company and keep with him in safe custody. Managing Director returns or spends the same for the company too. It is also not uncommon that such receipts are sometimes recouped outside the books of account, although the same constitutes unaccounted transactions. It is not correct to ignore these facts in business when we need to determine the net unaccounted income of the assessee. Grant of benefit of contra entries allegedly kept with the Managing Director - In the absence of any other corroborative evidences, on the issue of one to one correlation, the end of the previous year-net figures need to be considered after set off of cash receipts and return after safe keeping is considered. As such, there is no legal requirement of establishing such one to one correlation of figures. Therefore, in the absence of any incriminating information with the AO to establish that cash given to Managing Director for safe keeping is not for business purposes, the safe keeping-centric explanation of the assessee needs to be accepted. Hence, in that case, the net expenditure figure of ₹ 3.28 crores is proper. To that extent, the order of the CIT(A) needs to be reversed. Undisclosed expenditure u/s 69C - Excess undisclosed expenditure of ₹ 15,46,095/-, we find this amount needs to be added to the income returned by the assessee and not ₹ 1.61 crores as done originally in the assessment. Assessee has no objection on this issue. To that extent, the arguments of Ld. Counsel are allowed. Thus, the sum of ₹ 15,46,095/- is confirmed in place of ₹ 1.61 crores. Cash flow in and out is the part of safe keeping and the request for adjustment of undisclosed expenditure to the tune of ₹ 82,94,744/- is allowed. Therefore, the undisclosed expenditure works out to ₹ 3.28 crores only (i.e. ₹ 4.11 cr – 0.83 cr) and not ₹ 4.11 crores (rounded off). Further, also, the excess expenditure spent works out to ₹ 15,46,095/-. At the end, we confirm to the extent of ₹ 15,46,095/- only in place of ₹ 1.61 crores. To that extent, the order of the CIT(A) stands reversed. Thus, relevant grounds of the assessee are partly allowed. Applicability of the provisions of section 40A(3) to the undisclosed expenditure - We examined the list of expenses of ₹ 48,59,292/- and find most of them are paid to local bodies towards PMC taxes and electrical charges etc. Other expenses are found to be below the specified limit of ₹ 10,000/- or ₹ 20,000/-, as the case may be. Accordingly, the arguments of Ld. DR are dismissed on technical grounds. Allowability of undisclosed expenditure for business purposes - HELD THAT:- As from the list furnished before us that expenditure was incurred on account of PMC taxes, electrical charges, sales promotion, marketing charges etc. All these accounts broadly falls in revenue zone and for the business expenses of the assessee. Infact, the major expenditure of ₹ 2,79,46,095/- was incurred in connection with the purchase of land and there is no dispute about this transaction. The dispute is only on the sum of ₹ 48,59,292/-. In our view, the proviso to section 37(1) of the Act will not come to this picture as no contravention of any law is made out by the AO. Therefore, AO shall note that these expenses are allowable for working out the excess expenditure spent outside the books of account. Therefore, this part of the arguments of Ld. DR stands dismissed. Benefit of set off of the brought forward losses pertaining to A.Y. 2004-05 against the income of this year - HELD THAT:- Since the direction of the CIT(A) is to allow set off brought forward losses ‘in accordance with law’, no corrigendum is necessary in the matter. When there are no brought forward losses pertaining to A.Y. 2004-05 as on date, question of set off of brought forward loss of that year against the income of A.Y. 2005-06 does not arise as per law and even otherwise such brought forward business loss, if any, cannot be set off against the ‘deemed income’ assessed for A.Y. 2005-06. Addition on account of entire expenditure incurred on the capital asset - HELD THAT:- No dispute about the sale of shops to Mr. Dheeraj Keshwani for a sum of ₹ 1,99,00,000/- with extra works specified in the sale agreement. Assessee could not complete those works and the same works out to ₹ 56,20,400/-. We find that the said amount has to be borne by the assessee. Since the works are not done by the assessee, the assessee reimbursed the same to Mr. Dheeraj Keshwani. Therefore, assessee claimed the same as Revenue expenditure in his account. However, the same was claimed as Capital expenditure in the revised return of income. CIT(A) gave a categorical finding in stating that the assessee paid the amount in account payee cheque to Mr. Dheeraj Keshwani and there is no dispute about it. As such, assessee also did not claim the said expenditure as the Revenue expenditure finally. Therefore, in our view, the decision of CIT(A) given in Para No.5.1 of his order above is favour of the Revenue and it does not call for any interference. Accordingly, the grounds raised by the Revenue are dismissed. Issues Involved:1. Unaccounted Expenditure of Rs. 1.61 Crores2. Rectification Order and Set Off of Brought Forward Losses3. Addition of Rs. 50,59,040 as Unexplained ExpenditureDetailed Analysis:I. Unaccounted Expenditure (UE) of Rs. 1.61 Crores:Facts and Arguments:- The assessee, a property development company, was subjected to a survey under Section 133A of the Income Tax Act, revealing unaccounted transactions and undisclosed income.- The AO added Rs. 1.61 crores as unexplained expenditure under Section 69C based on discrepancies in unaccounted cash receipts and payments.- The assessee argued for downward adjustments of the unaccounted expenditure from Rs. 4,25,58,303 to Rs. 3,28,04,337, citing duplicate entries and cash handled by the Managing Director (MD) for safekeeping.- The CIT(A) allowed a partial adjustment of Rs. 14,58,222 for duplicate entries but denied the adjustment for Rs. 82,94,744 handled by the MD.Tribunal's Decision:- The Tribunal found that the figures emanated from the impounded material and the safe-keeping explanation was justified.- The Tribunal allowed the adjustment of Rs. 82,94,744, reducing the net unaccounted expenditure to Rs. 3,28,05,337.- It was concluded that the excess expenditure spent outside the books was Rs. 15,46,095, which was confirmed for addition instead of Rs. 1.61 crores.- The Tribunal rejected the applicability of Section 40A(3) for cash payments and allowed the business expenditure under Section 37(1).II. Rectification Order and Set Off of Brought Forward Losses:Facts and Arguments:- The assessee appealed against the CIT(A)'s rectification order that denied the set-off of brought forward losses of Rs. 1.04 crores from A.Y. 2004-05.- The CIT(A) had originally directed the AO to allow the set-off 'in accordance with law' but later expunged this direction, stating the losses were not crystallized.Tribunal's Decision:- The Tribunal upheld the CIT(A)'s decision, agreeing that the set-off was not permissible as the losses were not crystallized and could not be set off against deemed income.III. Addition of Rs. 50,59,040 as Unexplained Expenditure:Facts and Arguments:- The AO added Rs. 50,59,040 as unexplained expenditure related to the sale of a property to Mr. Dheeraj Keshwani, which included additional works reimbursed by the assessee.- The CIT(A) deleted this addition, accepting the assessee's claim that the expenditure was capitalized and reimbursed through account payee cheques.Tribunal's Decision:- The Tribunal found no dispute about the sale and the reimbursement through account payee cheques.- The Tribunal upheld the CIT(A)'s decision, confirming that the expenditure was correctly capitalized and did not call for any addition.Conclusion:- ITA No.597/PUN/2013: Partly allowed, confirming the addition of Rs. 15,46,095 instead of Rs. 1.61 crores.- ITA No.1609/PUN/2014: Dismissed, upholding the rectification order denying the set-off of brought forward losses.- ITA No.767/PUN/2013: Dismissed, upholding the deletion of the addition of Rs. 50,59,040.