2019 (2) TMI 1134 - AT - Income Tax

Tribunal overturns deletion of business expenditure under IT Act, stresses evidence substantiation

ITO, Wd-4 (1) (4), Mumbai Versus M/s Columbus Traders Ltd

The Tribunal set aside the deletion of an addition made under various sections of the IT Act for unexplained expenditure related to business transactions. ... Unexplained expenditure u/s 69C - Held that:- The assessee was involved in providing accommodation entries to 47 parties, but while arriving at final conclusion to delete addition made by the AO towards disallowance of total purchases, directed the AO to delete addition without recording any reasons as to how the profit declared by the assessee is matched with the commission charged on accommodation entries. Notice that the assessee, before the AO, never filed any documents. CIT(A), without appreciating this fact, has accepted the arguments of the assessee that it earns only 1 to 1.5% commission on bogus bills, without further verifying the facts gathered by the AO during the course of assessment proceedings in the light of assessee’s written submission that it has provided similar accommodation entries to another 47 entities. Insofar as disallowance of expenditure, the CIT(A) has allowed 25% adhoc deduction towards expenses on gross commission income without narrating how the assessee has proved expenditure debited to the P&L Account with necessary evidences. Although there is merit in the findings of the CIT(A) that no income could be earned without expenditure, but it is for the assessee to prove expenditure debited to the P&L Account with necessary evidence and also to prove that such expenditure has been incurred wholly and exclusively for the purpose of business. We, therefore, are of the opinion that the findings of the Ld.CIT(A) are not supported by any evidence and are contrary to assessee’s own admission. The issue needs to go back to the AO for further verification in the light of the fact that the assessee is involved in providing similar accommodation entries to another 47 entities for the purpose of ascertaining the true and correct nature of transactions carried out by the assessee. Hence, we set aside the issue to the file of the AO and direct him to redo the assessment after affording reasonable opportunity of hearing to the assessee.- Appeal filed by the revenue allowed for statistical purpose. Issues:Appeal against deletion of addition made under various sections of the IT Act for unexplained expenditure related to business transactions.Analysis:The case involved an appeal by the revenue against the deletion of an addition of Rs. 11,17,69,752 made under sections 69C, 40A(3), 40A(3A), and 40(aJ)(ia) of the IT Act for unexplained expenditure. The assessee, a dormant company, failed to comply with notices and furnish details during assessment proceedings. The AO found discrepancies in the company's transactions with M/s Arshiya International Ltd, leading to suspicions of accommodation entries without actual business activity. The AO disallowed the claimed purchases and expenses, citing unexplained expenditure. The CIT(A) considered additional evidence and the AO's findings, concluding that the company was providing accommodation entries. The CIT(A) directed deletion of the addition towards total purchases but upheld a 25% disallowance of expenditure. The revenue appealed, arguing that the CIT(A) erred in deleting the addition without proper justification.The revenue contended that the CIT(A) erred in deleting the addition without appreciating the company's involvement in providing accommodation entries. The revenue argued that the CIT(A) should not have allowed expenditure on an adhoc basis without proper evidence. The assessee, on the other hand, supported the CIT(A)'s decision, emphasizing the nature of the company's business and justifying the expenditure claimed. The Tribunal noted the assessee's admission of providing accommodation entries and the revenue's concerns regarding the lack of evidence for claimed expenditure.The Tribunal found that the CIT(A)'s decision lacked proper evidence and failed to consider the revenue's arguments. It noted the discrepancies in the company's transactions and the need for further verification of the nature of the transactions. The Tribunal set aside the issue for the AO to re-examine and redo the assessment after providing a reasonable opportunity for the assessee to be heard. The appeal filed by the revenue was treated as allowed for statistical purposes.In conclusion, the Tribunal's decision highlighted the importance of substantiating claimed expenditures with evidence and the need for thorough verification of transactions in cases involving accommodation entries. The case underscored the significance of proper documentation and compliance with assessment procedures in determining the legitimacy of business transactions.