2017 (4) TMI 1542 - AT - Income Tax

Addition u/s 69C - no evidence the payment has been made and that too in the said financial year relevant to Assessment year in the appeal - HELD THAT - As perused the statements given by Sh. K.K.Goel during search proceeding and also of Shri. A.K. Aggarwal and Shri. P.K. Jain during the assessment proceedings. Nowhere in the statements the matter of amount being received in cash has been established by the Revenue. In all the three statements, it was categorically said that there were request for hike in salary. Under these circumstances there is no need for a cross examination by the assessee also where as the Ld. CIT(A) has observed that cross examination was declined by the assessee. Nowhere the Revenue could prove or establish that this amount represents the cash paid or any evidence that the amount have been received by the recipients. The Ld. CIT was also not sure where the amount have been paid or payable. The Revenue has to prove that these documents represents unaccounted payments by either direct evidence or corroborative evidence which was not so in this case. Hence the addition is hereby deleted. Disallowance under section 14A - DR argued that the investment for earning exempt income were made from mixed funds hence disallowance under section 14A has been made as per Rule 8D - HELD THAT - On perusal of the records it was found that no statement has been obtained by the AO to prove whether the amount are mixed funds or not and also keeping in view the fact that Ld. CIT has deleted the addition in the earlier year and no new investment has been made, hence, no disallowance is warranted for the Assessment year 2010.11.

Summary

Issues:
1. Addition under section 69C for alleged cash payments to key employees.
2. Upholding addition under section 14A and Rule 8D for interest and administrative expenses.

Issue 1: Addition under section 69C for alleged cash payments to key employees:

The appeal concerned the addition of ?16,03,000 under section 69C for alleged cash payments made to key employees outside the books of accounts. The documents seized during a search operation contained details of such payments. The AO made the addition based on these documents and statements recorded during the assessment proceedings. The CIT(A) confirmed the addition, noting that the documents clearly indicated salary details of key employees, and the assessee failed to provide evidence to refute the allegations. The assessee argued that the amounts were proposed salary hikes and not actual cash payments, citing precedents where additions based on loose papers were deemed insufficient without corroborative evidence.

During the hearing, the assessee contended that some amounts were not relevant to the assessment year and were proposed salary hikes, not actual cash payments. The Revenue argued that cash payments for part salaries were common in the dairy industry. The tribunal observed that the Revenue failed to establish through statements or evidence that the amounts were actually paid in cash. The tribunal noted discrepancies and lack of proof regarding the alleged cash payments, leading to the deletion of the addition.

Issue 2: Upholding addition under section 14A and Rule 8D for interest and administrative expenses:

In the appeal for the assessment year 2010-11, the assessee challenged the addition under section 14A and Rule 8D for interest and administrative expenses. The CIT(A) upheld the additions without satisfaction of the AO or CIT(A) regarding the correctness of the claims. The assessee argued that no disallowance was warranted as there were no new investments made during the year, similar to the previous year where such additions were deleted.

The Revenue contended that disallowance under section 14A was justified as investments for earning exempt income were made from mixed funds. However, the AO failed to obtain statements or evidence to prove the nature of the funds. Considering the lack of new investments and the deletion of similar additions in the previous year, the tribunal concluded that no disallowance was warranted for the assessment year 2010-11.

In conclusion, both appeals by the assessee were allowed for statistical purposes, with the tribunal deleting the additions under section 69C and ruling against the additions under section 14A and Rule 8D for interest and administrative expenses.