2014 (7) TMI 212 - AT - Income Tax

Addition u/s 69C of the Act Unexplained expenditure - Revenue was of the view that when both the assessee and M/s SEL are following mercantile system of accounting, there should not be any difference between the payment and receipts by the assessee and SEL respectively in their books of accounts - Whether the actual payment made by the assessee during the year to M/s SEL is ₹ 22,60,62,390 after TDS. as shown by the assessee in its books or an amount of ₹ 45,16,69,046 shown as contract receipts by M/s. SEL for the year under consideration - Held that - The assessee was awarded contract work for construction of Nellore Bye pass Road Project on NH- 5,section linking the metros of Kolkata and Chennai - the assessee sub-contracted certain portion of the work of the value of ₹ 68 crores to its sister concern M/s. SEL - there is no difference between the payment of ₹ 68 lakh and receipt of the same amount as appearing in the books of both the assessee and M/s SEL in the assessment years 2003-04, 2004-05 and 2005-06. However, the only difference is with regard to the year wise payment. The difference as noted by the AO is only an imaginary one and on that basis addition cannot be made - When it has been proved that the assessee has made the payments as per the entries made in the books of accounts, which is also corroborated by the bank statement furnished before the departmental authorities, only because M/s SEL has given a different accounting treatment in its books of account, it cannot be said that the assessee has suppressed the expenditure - the reconciliation made by the assessee with supporting evidence though has been forwarded to the AO, he has not been able to controvert the same with any reasonable argument thus, the order of the CIT(A) is upheld Decided against Revenue.

Summary

Issues:
Addition under section 69C of the Act.

Analysis:
The primary issue in the present appeal was the addition of an amount under section 69C of the Act, which was deleted by the CIT (A). The case involved a private limited company engaged in executing contract works. The Assessing Officer alleged that the company had suppressed payments to a sister concern, leading to the reopening of the assessment under section 147 of the Act. The dispute arose from a variance between payments made by the company and contract receipts admitted by the sister concern. The Assessing Officer treated the difference as unexplained expenditure under section 69C. However, the company contended that the variance was due to the accounting treatment of advances and receipts by the sister concern and explained the reconciliation of payments. The CIT (A) agreed with the company's explanation, stating that the difference did not indicate suppression of expenditure. The CIT (A) emphasized that the receipts and payments must tally, but the accounting treatment may vary based on the stage of work execution. The CIT (A) found the addition made by the Assessing Officer to be legally unsustainable, leading to the direction to delete the addition.

The Tribunal examined the details provided by both parties and verified the records. It was revealed that the company had sub-contracted work to its sister concern and the dispute centered on the actual payments made by the company to the sister concern. The company reconciled the payments in its books with those in the sister concern's books for multiple assessment years. The Tribunal noted that there was no difference in the total payments and receipts between the company and the sister concern. The variance was only in the year-wise payments, which the company explained by clarifying that the sister concern admitted receipts based on work execution and billings. The Tribunal observed that the Assessing Officer's noted difference was unfounded, as the company had substantiated its payments through bank statements. Consequently, the Tribunal upheld the CIT (A)'s decision, dismissing the department's appeal.

In the Cross Objection, the company raised various grounds, but since the Tribunal upheld the CIT (A)'s decision and dismissed the department's appeal, the Cross Objection became infructuous. Therefore, both the appeal and Cross Objection were dismissed, affirming the CIT (A)'s order.