2013 (4) TMI 420 - AT - Income Tax

Unexplained expenditure - Held that - It is true that an amount of Rs.1 lac was given to M/s. Pal Regency (P) Ltd. by the appellant by cheque on dt.1.9.2006 through the drawings account in M/s. Pal Constructions. M/s. Pal Regency (P) Ltd. has also paid Rs.1 lac which was shown as unsecured loan and appears in the books of M/s. Pal Constructions as on 31.3.2008. Accordingly, the books of M/S. Pal Constructions show liability of Rs.1 lac against MIs. Pal Regency (P) Ltd. and also show asset of Rs.1 lac through drawings account. The bank ledger in the books of M/s. Pal Regency (P) Ltd. shows that an amount of Rs.1 lac paid to M/s. Pal Constructions by cheque No.830072 on dt.12.10.2007 towards a refund of loan. Accordingly, there is no doubt that the loan given earlier by the appellant from his proprietorship concern to M/s. Pal Regency (P) Ltd. has been repaid, even though the receipts & payments have not been set off against each other and both appear in the accounts. This does not make the transactions unexplained expenditure. Thus addition made by the AO is deleted. Prior period expenses - Held that - No infirmity in the order of the CIT(A) insofar as the addition of Rs.2 lakhs was factually incorrect when the amount owed and due were combined by the AO for holding the same as unexplained expenditure in the case of the assessee is a mere absurdity and not computation of real income. Similarly, the assessee had returned income of Rs.23,79,787 which included receipt of Rs.16,62,705 was rendered to tax by the assessee could not be considered for finding as no expenditure had been incurred on the same to be taxed again. This again is an absurdity noted by the Assessing Officer which has been properly dealt with by the CIT(A) - appeal of the Revenue dismissed.

Summary

Issues:
1. Deletion of addition of Rs.2,00,000 made by AO on account of unexplained expenditure.
2. Deletion of addition of Rs.16,62,705 made by AO on account of disallowance of prior period expenses.

Analysis:

Issue 1: Deletion of unexplained expenditure addition
The Revenue challenged the deletion of Rs.2,00,000 addition made by the Assessing Officer (AO) on account of unexplained expenditure. The appellant explained that a loan of Rs.1 lac was given to another party, which was repaid in the subsequent financial year. The appellate authority found that the loan was repaid, and the transactions were accounted for in the books properly. The appellate tribunal observed that the AO's addition was factually incorrect and not a computation of real income. The tribunal upheld the decision of the appellate authority to delete the addition, stating that combining owed and due amounts as unexplained expenditure was absurd.

Issue 2: Deletion of prior period expenses addition
The second issue involved the deletion of Rs.16,62,705 addition made by the AO on account of disallowance of prior period expenses. The appellant clarified that the amount in question was receipts from pending bills, not expenditure, and had been disclosed in the Profit and Loss account. The tribunal noted that the AO misunderstood the nature of the old bills as prior period expenditure when they were actually receipts from earlier years, duly offered to tax. The tribunal found that the AO's decision to add this amount was based on an incorrect understanding of the facts. The tribunal upheld the appellate authority's decision to delete the addition, as the amount had already been taxed as income and no additional expenditure was incurred.

In conclusion, the appellate tribunal upheld the orders of the learned CIT(A) in both issues, dismissing the Revenue's appeal. The tribunal found no infirmity in the decisions of the lower authorities and disposed of the cross objection filed by the assessee accordingly. The appeal of the Revenue was dismissed, and the cross objection filed by the assessee was also disposed of in line with the decisions on the issues raised.