2019 (4) TMI 1178 - HC - Income Tax

Appeal dismissed due to lack of evidence, claimed expenditures deemed not genuine.

The High Court dismissed the appeal, upholding the revenue authorities and Tribunal's findings that the claimed expenditures were not genuine. The court ... Genuineness of expenditure - deduction under section 37(1) of the Income Tax Act - payments by cheque not conclusive proof of genuineness - appreciation of evidence and documentary credibility - fabrication/afterthought documents to create fictitious expenditure - prohibition on double taxation / same income taxed twiceGenuineness of expenditure - deduction under section 37(1) of the Income Tax Act - fabrication/afterthought documents to create fictitious expenditure - payments by cheque not conclusive proof of genuineness - Allowability of the claimed deduction for the settlement/compensation of Rs. 6,00,60,000 paid to BRACT - HELD THAT: - The Court upheld the concurrent findings of the Assessing Officer, the CIT(A) and the Tribunal that the claimed payment to the trust was not a genuine business expenditure and therefore not deductible. The lower authorities recorded material discrepancies: the MOU and cancellation deed appeared to be afterthoughts executed on the same date; journal entries and account adjustments did not match documentary support; the trust, being registered and exempt under section 12A, could shelter the amount from tax, suggesting diversion to reduce tax liability; and the trust's revised return showed a deficit so no tax was paid on the receipt. The Tribunal also noted the assessee had no interest in the land when the MOU was executed and that the documents and accounting entries lacked transparency and credibility. The Court held that mere payment by cheque, without cogent corroborative evidence and where documents indicate fabrication, does not entitle the assessee to deduction under section 37(1). The conclusion rests on factual appreciation of documents and credibility which was affirmed as unimpeached by any substantial question of law. [Paras 12, 13, 14]Claim for deduction of Rs. 6,00,60,000 paid to BRACT disallowed as not genuine; concurrent factual findings upheld.Genuineness of expenditure - deduction under section 37(1) of the Income Tax Act - appreciation of evidence and documentary credibility - payments by cheque not conclusive proof of genuineness - Allowability of the claimed deduction for the settlement/compensation of Rs. 4.07 crores paid to M/s Paramount Infrastructures and certain individuals - HELD THAT: - The Court sustained the concurrent conclusions of the revenue authorities that the payments were not genuine. The CIT(A) and Tribunal found multiple inconsistencies: the Tabdil Patra did not specify bifurcation or the nature of rights being extinguished; material parties did not respond to summons; supporting agreements were unregistered, unsigned, not notarised and bore indicia of afterthought (consecutive stamp papers bought on same date, parallel/conflicting transaction limbs). The Tribunal observed two sets of parallel transactions and that only the registered transactions favoured the assessee, whereas peripheral unregistered documents appeared fabricated to create fictitious encumbrances and justify settlement payments to reduce tax. On these facts, mere cheque payments without reliable corroboration were insufficient to claim deduction. The determination was factual and not a question of law. [Paras 15, 16]Claim for deduction of Rs. 4.07 crores to various parties disallowed as not genuine; concurrent factual findings affirmed.Final Conclusion: Both additions disallowing the alleged settlement/compensation payments (Rs. 6,00,60,000 to BRACT and Rs. 4.07 crores to Paramount and others) were upheld on concurrent findings of non-genuineness, fabricated/afterthought documents and lack of credible corroboration; no question of law was found and the appeal is dismissed. Issues Involved:1. Taxation of compensation amounting to Rs. 6,00,60,000/-.2. Deductibility of the compensation amount under Section 37(1) of the Income Tax Act, 1961.3. Disallowance of compensation paid to remove encumbrances on land.4. Verification of the genuineness of the agreement by the Tribunal.5. Assessing Officer's failure to use powers under Section 133(6) of the Income Tax Act, 1961.6. Tribunal's failure to provide cogent reasons for rejecting the expenses claimed.Issue-Wise Detailed Analysis:1. Taxation of Compensation Amounting to Rs. 6,00,60,000/-:The Assessee challenged the taxation of Rs. 6,00,60,000/- paid as compensation, arguing it should not be taxed twice—once in the hands of the recipient (BRACT) and again in the hands of the Appellant. The court found that the genuineness of the expenditure was in question. The Assessing Officer, CIT(A), and the Tribunal all concluded that the expenditure was not genuine, citing discrepancies in the accounts and documents presented by the Assessee. The Tribunal noted, 'The transaction by the assessee with BRACT is merely an eyewash and an attempt to circumvent the provisions of the Act.'2. Deductibility of the Compensation Amount Under Section 37(1):The Assessee claimed the compensation amount as deductible under Section 37(1) of the Income Tax Act, 1961. However, the authorities rejected this claim, stating that the expenditure was not genuine. The CIT(A) and the Tribunal highlighted that the original MOU and the cancellation deed were executed on the same day, suggesting an afterthought to justify the compensation. The Tribunal stated, 'The discrepancies highlighted by the Commissioner of Income Tax (Appeals) are very relevant and material.'3. Disallowance of Compensation Paid to Remove Encumbrances on Land:The Assessee argued that the compensation paid to remove encumbrances on the land should be allowed. However, the authorities found that the payments were not genuine. The CIT(A) noted that the Assessee failed to substantiate with reliable evidence that the parties had existing rights in the property. The Tribunal supported this view, stating, 'The entire transaction was bogus, was by way of afterthought and created in order to reduce the Assessee's tax liability.'4. Verification of the Genuineness of the Agreement by the Tribunal:The Assessee contended that the Tribunal, being the final fact-finding authority, should have verified the genuineness of the agreement. The Tribunal, however, found significant discrepancies in the documents and transactions, leading to the conclusion that the expenditures were not genuine. The Tribunal observed, 'In the present case, the very genuineness of the expenditure has been rejected.'5. Assessing Officer's Failure to Use Powers Under Section 133(6):The Assessee argued that the Assessing Officer did not use his powers under Section 133(6) to verify the authenticity of the transactions. The authorities, however, found sufficient evidence to conclude that the expenditures were not genuine without needing to invoke Section 133(6). The Tribunal noted, 'The payments have to be corroborated with cogent evidence which is missing in the transactions in the present case.'6. Tribunal's Failure to Provide Cogent Reasons for Rejecting the Expenses Claimed:The Assessee claimed that the Tribunal did not provide cogent reasons for rejecting the expenses. However, the Tribunal and the CIT(A) provided detailed reasons, including discrepancies in the agreements and the lack of reliable evidence to support the genuineness of the transactions. The Tribunal remarked, 'The other peripheral transactions have been induced to reduce the tax liability.'Conclusion:The High Court dismissed the appeal, finding no question of law arising from the case. The court upheld the concurrent findings of the revenue authorities and the Tribunal that the expenditures claimed by the Assessee were not genuine. The court emphasized that the discrepancies and lack of reliable evidence justified the disallowance of the claimed expenses. The judgment concluded, 'In the result, the Appeal is dismissed.'