2016 (9) TMI 750 - AT - Income Tax

Addition on account of Bogus Expenditure - Expenditure disallowed based on the investigations done by EOW - Held that - Assessee has claimed the expenditure as it has shown and cheques were issued in the name of Eureka corporation against services rendered by it. Irrespective of the fact that same has not reached destination in spite of their usual mode of payment through banking channel. Moreover the said amount was paid after deducting TDS. It shows that bonafide of payment in this regard. In this situation expenditure in question should not be disallowed on the basis of statements of somebody in proceedings before EOW. Moreover there is nothing on record that the proceedings of EOW were confronted to the assessee in this regard in any manner. Sequence of the facts show that assessee made payment to Eureka Corporation which was fraudulently cornered by Shri Piyush Chheda and other. As stated above for the same Dilip Mehta of M/s. Eureka Corporation filed a complaint for recovery of the amount in question. It shows that Dilip Mehta of M/s. Eureka Corporation has no grievances against assessee. So the expenditure in question should not be disallowed in the hands of assessee irrespective of the fact that same has been fraudulently cornered by somebody for which separate legal proceeding claimed to be subjudice. Accordingly this amount in question should not be disallowed. Regarding other amounts payments had been made of 1, 19, 755/- to Piyush Chheda and 1, 01, 390/- to Dhaval Naik. Those payments to Piyush Chheda and Dhaval Naik should not be disallowed on the analogy of Eureka Corporation as same have been paid to respective parties against their services rendered to assessee. The facts of Eureka Corporation are different from the payments made to Piyush Chheda and Dhaval Naik. These have been incurred by assessee for the business purpose. So same should not be disallowed for reasons discussed above. Accordingly these amounts in question are directed to be allowed. - Decided in favour of assessee

Summary

Issues:
1. Disallowance of expenditure on account of alleged bogus expenditure for A.Y. 2004-05.
2. Disallowance of expenditure on account of alleged bogus expenditure for A.Y. 2003-04.

Issue 1: Disallowance of Expenditure for A.Y. 2004-05:
The Appellate Tribunal ITAT Mumbai addressed the disallowance of expenditure amounting to ?8,53,910 on account of alleged bogus expenditure for the assessment year 2004-05. The Assessing Officer had made this addition based on an investigation by the Economic Offence Wing (EOW), where payments were made to certain individuals and entities. The Tribunal noted that the assessee was engaged in the business of services related to Shipping Agent/Multimodal Transport Operator/International Freight forwarding Agents. The key issue was whether the payments made were genuine business transactions or indeed bogus as alleged. The Tribunal analyzed the nature of the transactions, the role of the individuals involved, and the complaints regarding fraudulent encashment of cheques. It was observed that the payments were made against proper invoices, TDS was deducted, and the expenditure was incurred for business purposes. The Tribunal concluded that the expenditure should not be disallowed solely based on the statements made in the EOW proceedings, especially when there was no evidence of non-incurrence of the expenditure. The Tribunal allowed the appeal for A.Y. 2004-05, directing that the amounts in question should be allowed as legitimate business expenditure.

Issue 2: Disallowance of Expenditure for A.Y. 2003-04:
The Tribunal also addressed the disallowance of expenditure amounting to ?5,36,890 on account of alleged bogus expenditure for the assessment year 2003-04. This issue stemmed from EOW proceedings related to certain transactions involving Eureka Corporation. The Tribunal noted that payments were made to Piyush Chheda and Dhaval Naik for services rendered, and TDS was duly paid. The disallowance was made by the Revenue authorities based on the analogy of the Eureka Corporation transactions. However, the Tribunal found that the payments to Piyush Chheda and Dhaval Naik were for legitimate services rendered to the assessee, and the fraud related to Eureka Corporation did not render these payments bogus. Drawing from its decision on the A.Y. 2004-05 issue, the Tribunal held that the disallowance for the year under consideration for both parties was not justified. Consequently, the Tribunal allowed the appeal for A.Y. 2003-04, directing the deletion of the disallowed amounts.

In conclusion, the Appellate Tribunal ITAT Mumbai ruled in favor of the assessee for both appeals, allowing the legitimate business expenditures in question for the respective assessment years. The Tribunal emphasized the genuine nature of the transactions, the business purposes behind the payments, and the lack of evidence to support the disallowance of the expenditures based on EOW proceedings alone.