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Facts
During a search operation, the assessee's director surrendered Rs. 22.79 crores for unverifiable expenses/creditors for A.Y. 2016-17. Subsequently, the Assessing Officer made three separate additions: Rs. 85.13 lakhs for credit balance difference, Rs. 10 lakhs for ad-hoc disallowance of expenses, and Rs. 1.42 crores for unexplained cash payments. The CIT(A) deleted all these additions. For A.Y. 2017-18, the Revenue's appeal memorandum lacked the Assessing Officer's signature, and the Revenue failed to comply with the Tribunal's directions.
Held
For A.Y. 2016-17, the Tribunal upheld the CIT(A)'s deletion of all three additions, agreeing that the AO failed to prove their genuineness, and also allowed the benefit of telescoping for the unexplained cash payments given the earlier surrender. For A.Y. 2017-18, the Tribunal dismissed the Revenue's appeal due to procedural non-compliance and the absence of the AO's signature on the appeal memorandum.
Key Issues
Whether additions for credit balance difference, ad-hoc expenses, and unexplained cash payments were correctly deleted by CIT(A); and whether an appeal should be dismissed for procedural defects.
Sections Cited
40A(3), 69C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI ‘H’ BENCH,
Before: SHRI SAKTIJIT DEY, & SHRI N.K. BILLAIYA
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-
The above captioned two separate appeals by the Revenue are preferred against two separate orders of the ld. CIT(A), Kanpur dated 08.06.2021 pertaining to A.Ys. 2016-17 and 2017-18 respectively.
Since both the appeals were heard together and involve common issues, they are disposed of by this common order for the sake of convenience and brevity.
The first grievance of the Revenue is that the ld. CIT(A) erred in deleting the addition of Rs. 85,13,790/- on account of difference in credit balance of M/s Haryana Oil Corporation.
The underlying facts in the issue are that during the course of search and seizure operation conducted at the premises of the assessee, a seized document containing names of 13 creditors was found. When this list of creditors was confronted to Shri Tapesh Tyagi, Director of the assessee company, he surrendered an amount of Rs. 22,79,43,844/- on account of unverifiable expenses/creditors for the F.Y 2015-16 relevant to A.Y 2016-17.
The assessee also honored the surrender and offered the surrendered income in its return of income. During the course of scrutiny assessment proceedings and on careful perusal of the seized ledger account, the Assessing Officer noticed that credit balance of creditor M/s Haryana Oil Corporation is Rs. 3,08,11,093/-. But, as per the ledger account of the creditor M/s Haryana Oil Corporation, total credit balance was Rs. 3,93,24,883/-, which resulted into a difference of Rs. 85,13,790/-.
The assessee was required to explain the difference. The assessee filed detailed reply which did not find any favour with the Assessing Officer who made the addition of Rs. 85,13,790/-.
The assessee challenged the addition before the ld. CIT(A) and explained that it has already surrendered credits on the basis of seized document amounting to Rs. 22.79 crores. It was strongly contended that the purchases have not been disallowed and since the purchases have been accepted, no further addition should be made and concluded by saying that none of these parties were bogus.
After considering the facts and submissions, the ld. CIT(A) was convinced with the contention of the assessee and observed that the Assessing Officer could not bring into record any finding which may prove that the bills of Rs. 85,13,790/- are not genuine. Merely because the assessee made the disclosure cannot make all the purchases bogus. The ld. CIT(A) deleted the addition of Rs. 85,13,790/-.
Though the ld. DR strongly supported the findings of the Assessing Officer, but could not point out any factual error in the findings of the ld. CIT(A).
We have given thoughtful consideration to the findings of the authorities below. It is true that the assessee has offered Rs. 22.79 crores as unverifiable creditor. We are of the considered view that there is a difference between unverifiable credit entries and creditors not in existence. It is true that the Assessing Officer has not pointed out any error or defect in the bills of Rs. 85,13,790/- and no purchases have been disallowed. We, therefore, do not find any reason to interfere with the findings of the ld. CIT(A). Ground No. 1 is dismissed.
Ground No. 2 relates to addition of Rs. 10 lakhs on account of adhoc disallowance.
During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has claimed expenses under various heads in its profit and loss account and on perusal of the bills and vouchers, the Assessing Officer formed a belief that these vouchers are self-generated and went on to make adhoc disallowance of Rs. 10 lakhs.
Addition was challenged before the ld. CIT(A). It was strongly contended that the Assessing Officer has failed to cite any specific expenses which could not be verified and the entire adhoc disallowance has been made on the basis of a general and sweeping observation. The ld. CIT(A) was convinced with the contention of the assessee and deleted the adhoc disallowance of Rs. 10 lakhs.
We have given thoughtful consideration to the orders of the authorities below. It is true that the Assessing Officer has made general observation in so far as expenses under various heads are concerned. It is equally true that the Assessing Officer has not pointed out any specific voucher which according to him, was not genuine.
It is also not the case of the Assessing Officer that the assessee has inflated its expenditure by Rs. 10 lakhs. Therefore, we are of the considered view that adhoc disallowance of Rs. 10 lakhs is without any basis. The ld. CIT(A) has rightly deleted the same which calls for no interference. Ground No. 2 also stands dismissed.
Ground No. 2 relates to the deletion of addition of Rs. 1,42,20,900/-.
On the basis of incriminating documents found at the time of search, the Assessing Officer formed a belief that the assessee company has made cash payments amounting to Rs. 1,42,20,900/-.
The assessee was asked to explain the source of such cash payment.
The assessee filed detailed reply which did not find any favour with the Assessing Officer who made addition of Rs. 1,42,20,900/-.
The assessee challenged the addition before the ld. CIT(A) and strongly contended that the entire basis of the addition according to the Assessing Officer, the assessee could not explain the source of incurring the expenditure. It was brought to the notice of the ld. CIT(A) that the assessee has disclosed an amount of Rs. 22.79 crores and deserves benefit of telescoping.
The ld. CIT(A) was convinced with this contention of the assessee and deleted the addition of Rs. 1,42,20,900/-.
We have given thoughtful consideration to the findings of the ld. CIT(A). Firstly, the Assessing Officer proceeded by asking the assessee why the disallowance should not be made under provisions of section 40A(3) of the Act. When the assessee explained that it has never claimed any expenditure, the Assessing Officer changed the colour of transaction and made addition u/s 69C of the Act.
22 We are of the considered view that all that is expected from the assessee is to explain the source of Rs. 1,42,20,900/-. The undisputed fact is that the assessee has surrendered an amount of Rs. 22.79 crores and we are of the considered view that the assessee should get benefit of telescoping and source of Rs. 1,42,20,900/- is the amount surrendered. Therefore, no addition is called for on this count.
Ground No. 3 is also dismissed.
As a result, appeal of the Revenue stands dismissed.
ITA No. 1346/DEL/2021 [A.Y. 2017-18]
Perusal of the record reveals that the Memorandum of appeal does not contain any grounds of appeal under the signature of the Assessing Officer. Our records show that on 29.08.2022, the bench made the following noting in the order sheet:
“The ld. DR is directed to provide GOA to the ld. counsel for the assessee. Hearing of the appeal is adjourned to 28.11.2022 at the written request of the ld. counsel for the assessee. Both the sides informed in the open court.”
Till date, the Revenue has not complied with the directions of the Bench. Since a substantial time has lapsed, we are left with no choice but to dismiss this appeal of the Revenue with a liberty to approach the Tribunal after complying with the directions of the Bench.
In the result, the appeals of the Revenue in and 1346 /DEL/2021 are dismissed.
The order is pronounced in the open court on 05.04.2024.