2017 (5) TMI 254 - HC - Income Tax

Bogus claim of consultancy charges payments - providing accommodation entries - Held that - Material found in the course of search or other proceedings in relation to a third party assessee could not be treated as conclusive in relation to the present case; although the assessee was unable to show the precise nature of the services provided (and for which expenses were justifiably claimed) that per se could not lead one to conclude that the expenses were bogus. Counsel thus, underlined the distinction between lack of a full or proper explanation on the one hand, and no explanation on the other. This court is of the opinion that the impugned order is unreasoned and has blindly accepted the CIT (A) s logic that propriety demands that the assessee s surrender restricted to ₹ 50 lakhs should be accepted. The expenses claimed were ₹ 1 crore. Once the assessee admitted that ₹ 50 lakhs was claimed excessively, the onus of showing that the balance ₹ 50 lakhs was a justified expenditure lay upon it. The assessee did not discharge that onus; the AO was therefore justified in bringing in to tax that expenditure. The reasoning adopted by the CIT (A) and the ITAT are therefore, unsustainable.Question of law framed has to be answered in favour of the revenue

Summary

Issues:
1. Whether the learned ITAT erred in restricting the addition of ?1.00 crore to ?50 lakhs on account of bogus claim of consultancy charges payments to M/S T&G Quality Management Consultants Limited.
2. Whether the CIT (A) and ITAT's decisions were justified in the given circumstances.

Analysis:

Issue 1:
The case involved a search and seizure action in the business of an individual and various companies controlled by him. The revenue added ?1,00,00,000 to the assessee's income due to a claim of consultancy charges paid to a company without sufficient evidence of services rendered. The CIT (A) partially accepted the assessee's appeal, noting a voluntary settlement at ?50 lakhs and deleting the balance. The ITAT upheld the CIT (A)'s decision, deeming it just and appropriate. The revenue contended that the deletion of ?50 lakhs was unjustified as the assessee failed to justify the claimed expenditure. The court held that the CIT (A) and ITAT's reasoning was unsustainable, as the onus was on the assessee to prove the remaining ?50 lakhs as justified expenditure, which it failed to do. Consequently, the appeal was allowed in favor of the revenue.

Issue 2:
The CIT (A) considered the retraction of statements by the directors and the individual controlling the consultancy company, leading to the exclusion of their statements as evidence. The court agreed that statements retracted after assessment could be considered under sub clause 46A (1) (c) and cited relevant case law to support this view. The ITAT found the CIT (A)'s order well-reasoned and upheld it for both years, dismissing the department's appeals. The court, however, found the ITAT's reasoning flawed, emphasizing that the CIT (A) and ITAT's acceptance of the assessee's surrender at ?50 lakhs without justification for the remaining amount was incorrect. The court ruled in favor of the revenue, highlighting the assessee's failure to prove the legitimacy of the entire claimed expenditure.

In conclusion, the judgment addressed the issues of restricting consultancy charges addition and the justification of CIT (A) and ITAT's decisions. It emphasized the importance of proving claimed expenditures and the admissibility of retracted statements in assessments. The court ultimately ruled in favor of the revenue due to the assessee's failure to justify the claimed expenditure, overturning the decisions of the lower authorities.