2014 (1) TMI 978 - AT - Income Tax

Unexplained expenses - Held that - The AO has not brought any other material evidence on record to substantiate that expenses were incurred by the assessee - The AO has accepted that the amount has been incurred for the purchase of property of Shah Malleable Castings - The AO has also not made any effort to examine the persons in whose names the amounts have been found recorded in the seized documents - No evidence has been brought on record which could suggest that the AO has made investigations from the seller of the property to verify whether a sum of Rs. 50,05,000/- has been paid to them over and above the amount recorded in the books of accounts - Following ACIT Vs Prasant Ahluwalia 2004 (6) TMI 260 - ITAT CUTTACK - Amounts noted in round figures clearly indicate that they were rough estimates and because they were not actually expended, all the figures were in round figures - As no corroborative material was brought on record by the AO for rejecting assessee s contention that jotting on the piece of paper was an estimate and not actually expended, additions based on chit papers and presumption of the AO could not be sustained in the absence of any corroborative material or evidence - Decided against Revenue.

Summary

Issues:
Appeal against deletion of addition made under section 69C of the Income Tax Act based on unexplained expenses found in seized documents during search and seizure action.

Analysis:
The case involved an appeal by the Revenue against the order of the Ld. CIT(A)-37, Mumbai pertaining to A.Y. 2007-08. The Revenue contended that the Ld. CIT(A) erred in deleting the addition made under section 69C of the Income Tax Act on the basis of unexplained expenses identified in documents seized during a search and seizure action under section 132(1) of the Act. The documents seized from the office premises of a group company indicated expenses related to a property transaction, with a portion of the expenses already recorded in the assessee's books. The Revenue argued that the remaining unexplained expenditure should be treated as income under section 69C. The assessee, on the other hand, explained that the seized documents contained estimated entries and not actual expenses, with the recorded expenses already reflected in its books.

The Ld. CIT(A) considered the explanations provided by the assessee and concluded that the round sums mentioned in the seized documents were estimated in nature, as evidenced by the allowance of a portion of similar estimated expenses in the books. The Ld. CIT(A) found no corroborative evidence during the search to support the unrecorded expenses as claimed by the Revenue. Emphasizing the requirement for substantiation, the Ld. CIT(A) deleted the addition under section 69C.

Upon appeal, the Revenue argued that the Ld. CIT(A) took contradictory views on the same document, claiming that recorded entries negate the estimation argument. The Tribunal, after reviewing the submissions and evidence, noted that while a portion of the expenses was recorded, the unexplained balance lacked substantiation by the Revenue. The Tribunal highlighted the absence of verification from relevant parties mentioned in the seized documents and the failure to investigate the actual expenditure with the property seller. Citing precedents, the Tribunal stressed the need for corroborative material to support additions based on estimations and conjectures. Ultimately, the Tribunal upheld the Ld. CIT(A)'s decision, dismissing the Revenue's appeal.

In conclusion, the Tribunal found no grounds to interfere with the Ld. CIT(A)'s findings, leading to the dismissal of the Revenue's appeal against the deletion of the addition made under section 69C of the Income Tax Act.