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Income Tax Appellate Tribunal, MUMBAI BENCH “E” MUMBAI
Before: SHRI RAVISH SOOD & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the Revenue. The relevant assessment year is 2008-09. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-16, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
The grounds of appeal
filed by the Revenue read as under: i. On the facts and in the circumstances of the case and in law, the Ld. CTT(A) erred in deleting the disallowance of Rs.12,50,000/- out of expenses debited under the head 'salary’, without appreciating the fact that the assesses neither during the Assessment proceedings nor during Shri Suresh Henry 2 appeal remand proceedings furnished any satisfactory explanation regarding sudden increase in salary expenditure. ii. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.25,09,558/- u/s 41(1) of the Act, on account of credit balance of M/s Wish Invested Pvt. Limited, by admitting the additional evidence and explanation without remanding it to Assessing Officer for verification, thus contravening the provisions of Rule 46A. iii. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting disallowance/addition of Rs.32,03,753/- on account of negative cash flow accepting the assessee's contention and explanation without giving opportunity to the A.O. to verify the contention and has thus violated the provisions of Rule 46A.
3. Briefly stated, the facts of the case are that the assessee filed his return of income for the AY 2008-09 on 15.04.2009 declaring total loss of Rs.42,61,283/-. The Assessing Officer (AO) noticed during the course of assessment proceedings that the assessee had debited salary of Rs.14.48 lakhs in the month of March, whereas for remaining 11 months, salary so debited ranged from Rs.1,00,000/- to Rs.2,00,000/-. The AO asked the assessee to explain why the balance amount of Rs.12.50 lakhs should not be disallowed being excess salary debited to the P&L account in the month of March, 2008. The assessee failed to file any explanation before the AO on the above. Therefore, the AO made a disallowance of Rs.12.50 lakhs. 3.1 Further, the AO found that the assessee had shown the following sundry creditors: a. Alliance Sales Corporation Rs.1,70,000/- b. Swan Trading Company Rs.5,20,800/- Shri Suresh Henry 3 ITA No. 4447/Mum/2016 c. Wish Invested Pvt. Ltd. Rs.25,09,558/- Rs.32,00,358/- During the course of assessment proceedings, the AO asked the assessee to file the name and address and confirmation of the above sundry creditors. The assessee failed to do so. The AO further noted that M/s Wish Investment Pvt. Ltd. has written off the debit against the assessee in their books of accounts and claimed the same as bad debts. He asked the assessee to explain it. However, the assessee failed to file any explanation. Therefore, the AO made a disallowance of Rs.32,00,358/-. 3.2 Also the AO, after verification of the books of accounts of the assessee’s proprietary concern, noticed that there was negative cash balance in the cash book of the proprietary concern. The cash flow as per the books of accounts is as under:
Month (-) Balance April 2007 1,11,839/- June 2007 5,84,154/- August 2007 1,19,479/- September 2007 9,85,172/- January 2008 2,14,197/- March 2008 11,88,912/- Total 32,03,753/- During the course of assessment proceedings, the AO asked the assessee to explain the negative cash flow and source of the same at the respective end of the months. The assessee failed to explain the source of the cash which were brought in for the expenditure incurred.
Shri Suresh Henry 4 Therefore, the AO made an addition of Rs.32,03,753/- u/s 68 of the Act.
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). During the appeal proceedings, the AR of the assessee submitted before the Ld. CIT(A) that the AO has not fully appreciated the soft copy of the accounts submitted to him along with the hard copy. That the other related documents submitted to him were also not fully appreciated. Therefore, the Ld. CIT(A) forwarded the submission of the assessee to the AO for his report/comments on the same. In response to it, the AO furnished a remand report dated 02.12.2013 to the CIT(A). In respect of the disallowance of Rs.12,50,000/- made by the AO, the Ld. CIT(A) having gone through the assessment order, the remand report, the contentions of the assessee and materials on record held as under: “The AO has made addition mainly on the basis of his observation that a much larger salary amount was found debited in the last month of the FY and the AO has concluded that in the absence of evidence this was done also as to reduce profit and ultimately the appellant’s income tax liability. For the regular salary each month the appellant has filed details with name/s of the employees etc. and the same does not call for any addition, since the AO has not pointed out that these are non-genuine. The appellant has explained the disproportionate salary expense in the month of March, 2008 as part of the salary expense, amounting to Rs.3,60,546/- was incurred by Crescendo Promotions and Management on behalf of the Assessee, debit note for which was received in the month of March and hence, the same was booked in the month of March. The explanation is rational, the AO is directed to allow the same after due verification of the payment. For statistical purposes the ground is treated as allowed.”
Shri Suresh Henry 5 4.1 Regarding the addition of Rs.25,09,558/- made by the AO, the Ld. CIT(A) having gone through the assessment order, remand report the contentions of the assessee and materials on record held as under: “As regards, Wish Investread P. Ltd., the said company has written off the amount in its books. The appellant has paid back part of the amount itself and Rs.28,00,000/- has been paid on its behalf by IMI Mobile P. Ltd. consequent upon a tripartite agreement, letter from Wish Investread P. Ltd. dated 26.04.2011 has been filed acknowledging payment made by IMI Mobile P. Ltd. made on behalf of the appellant, in full and final settlement of dues from the appellant cheque no has been cited in such acknowledgement and copy of cheque for Rs.28,00,000/- has been filed. The addition on this court is also deleted in view of the explanation filed.” 4.2 Regarding the disallowance of Rs.32,03,753/- made by the AO on account of negative cash flow, the Ld. CIT(A), again having gone through the assessment order, the remand report, the contentions of the appellant and materials on record held : “The entries appearing in the bank account statement have been verified and the appellant’s explanation is found to be in order. It is found that the cash flow statement is actually the fund flow statement and relates to bank entries and not actual physical cash as per cash book. The addition made by the AO is therefore, found to have been made on a wrong basis, the addition is accordingly deleted.”
Before us, the Ld. DR relies on the order of the AO and submits that the Ld. CIT(A) has violated the provisions of Rule 46A by admitting the additional evidence filed by the assessee without remanding it to the AO for verification. On the other hand, the Ld. counsel of the assessee submits that the Ld. CIT(A) has remanded the matter to the AO to verify the Shri Suresh Henry 6 additional evidence filed during the appellant proceedings. It is also stated by him that copy of tripartite agreement, cash flow statement for the financial year 2007-08 (AY 2008-09) and cash book for the financial year 2007-08 (AY 2008-09) were filed with the AO. The Ld. counsel thus supports the order passed by the Ld. CIT(A).
We have heard the rival submissions and perused the relevant materials on record. As mentioned at para 4 hereinbefore, the Ld. CIT(A) forwarded a copy of the submission filed by the assessee to the AO for his report/comments on the same. In response to it the AO furnished his remand report dated 02.12.2013 to the CIT(A). Thereafter, the Ld. CIT(A) forwarded a copy of the AOs remand report to the assessee for rebuttal/comments. Rule 46A(3) provides that no evidence produced under Rule 46A(1) shall be taken into account unless the AO has been given a reasonable opportunity of examining the evidence or documents produced. In the instant appeal, the Ld. CIT(A) has arrived at a finding after going through the remand report sent by the AO and the rebuttal/comments filed by the assessee on the said report. This is clearly evident from para 4.5 (page 6-7), para 5.5 (page 9) and para 6.5 (page 12) of the appeal order dated 25.03.2014 passed by the Ld. CIT(A). Regarding the disallowance of Rs.12,50,000/- made by the AO, we find that the Ld. CIT(A) has directed the AO to allow the same after due verification of the payment. We further find that the Ld. CIT(A) has deleted the addition of Rs.25,09,558/- and Rs.32,03,753/- made by the AO after proper examination of the facts. We have extracted it at para 4.1 and 4.2 hereinbefore.