2012 (4) TMI 316 - AT - Income Tax

Procedure of Appellate Tribunal whether order proposed by AM while giving effect to the opinion of the majority consequent to the opinion expressed by the Third Member, can be said to be a valid or lawful order passed in accordance with the provisions of Section 255 difference of opinion in respect of additions made u/s 68 and allowability of expenses - Held that - Third Member was called upon to answer two questions on which there was difference of opinion among the two members who framed the questions and the Third Member in a well considered order, answered the reference by giving sound and valid reasons agreeing with the views of the Judicial Member. Thus, the majority view was in favour of the assessee. We further hold that the proposed order dated 18.2.2010 of the Accountant Member who is in the minority and had become functus officio wherein he has expressed his inability to give effect to the opinion of the majority and proceeded to frame three new questions to be referred to the President, ITAT again for resolving the controversy cannot be said to be a valid or lawful order passed in accordance with the provisions of section 255(4) and, hence, the said order proposed by the AM is not sustainable in law.

Summary

Issues Involved:
1. Validity of the order passed under Section 255(4) of the Income Tax Act.
2. Addition under Section 68 for cash credit.
3. Disallowance of payments for reimbursement of expenses.

Issue-Wise Detailed Analysis:

1. Validity of the Order Passed Under Section 255(4) of the Income Tax Act:
The primary issue was whether the order proposed by the Accountant Member (AM) while giving effect to the opinion of the majority, consequent to the opinion expressed by the Third Member, can be said to be a valid or lawful order passed in accordance with Section 255(4) of the Income Tax Act.

The Tribunal held that the majority decision must prevail. The Third Member's opinion, which agreed with the Judicial Member, formed the majority. The Accountant Member, being in the minority, was bound to follow the majority opinion. The Accountant Member's attempt to frame new questions and refer the matter back to the President was outside the purview of Section 255(4) and thus invalid. The Tribunal emphasized judicial propriety and discipline, asserting that the minority member must accept the majority's opinion.

2. Addition Under Section 68 for Cash Credit:
The assessee received amounts from Shri Somendra Khosla, which were added to the income by the Assessing Officer (AO) under Section 68 due to doubts about the identity, creditworthiness, and genuineness of the transaction. The CIT(A) upheld this addition, rejecting additional evidence provided at the appellate stage.

The Judicial Member, considering all evidence, concluded that the assessee had discharged the onus of proving the cash credit. The Accountant Member disagreed, maintaining that the onus was not discharged even after considering additional evidence. The Third Member, agreeing with the Judicial Member, held that the assessee had established the identity, creditworthiness, and genuineness of the transaction, thus discharging the onus under Section 68. Consequently, the addition of Rs. 4,78,12,403/- and Rs. 1,02,91,176/- for the respective assessment years was deleted.

3. Disallowance of Payments for Reimbursement of Expenses:
The assessee entered into agreements with Tulip Star Hotels Pvt. Ltd. (TSHL) and Cox & King (India) Pvt. Ltd. (CKIL) for operating a hotel and marketing services, respectively. The AO disallowed the reimbursement claims, arguing that the assessee had claimed these as expenses in the Profit & Loss account and had not deducted tax at source.

The Judicial Member found that the assessee had not claimed these amounts as expenses in its Profit & Loss account, as they were merely pass-through entries. The Accountant Member, however, insisted on disallowance due to the absence of evidence for services rendered and non-deduction of tax.

The Third Member agreed with the Judicial Member, noting that the assessee did not claim these amounts as deductions, and therefore, the question of disallowance did not arise. The disallowances of Rs. 7,56,16,910/- and Rs. 61,93,015/- for the respective assessment years were deleted.

Conclusion:
The Tribunal, by majority opinion, resolved the issues in favor of the assessee. The order proposed by the Accountant Member was deemed invalid under Section 255(4). The additions under Section 68 were deleted, and the disallowances for reimbursement of expenses were also deleted, as the assessee had not claimed these as deductions in its Profit & Loss account.