2018 (4) TMI 307 - AT - Income Tax

Addition u/s 40A - sum total of the debit entries that are not carried to the regular books of accounts - entitled to the benefit of set off of the surrendered amount - Held that - No reason not to agree with the statement of the learned AR on this aspect of law and adjustability of the peak amount and the other amount of ₹ 6,35,000/- from out of the surrendered amount of ₹ 1,65,60,000/- subject to the verification of such amount at the end of the AO. Whether or not the assessee claimed any of the debit entries as allowable expenditure has to be verified by the AO to see whether or not the provisions u/s 40A(3) are applicable so also the AO has to verify from the entries of the ledger A3 & A11 to calculate the peak amount - direct the AO to verify whether any expenditure relatable to the un-carried entries in Annexure 3 & 11 and if there is any such expenditure claimed to calculate the net amount of the credit and debit entries so as to adjust the same from out of the surrendered amount. While making such adjustments, the AO will consider the possibility of adjusting the amount of ₹ 6,35,000/-. We, therefore, allow the grounds of appeal of the assessee for statistical purposes. Set off of the surrendered amount - Held that - As in the preceding paragraphs, we direct the learned AO to verify whether any expenditure was claimed in respect of the debit entries of Annexure 3 & 11 and then to decide the applicability of Section 40A(3). The observations of the learned CIT(A) would be subject to such finding of the learned AO after verification. We, therefore, do not find any merit in the contention of the revenue that no set off should be allowed in respect of the surrendered amount from out of the amount ultimately found to be taxable. We reject this ground.

Issues involved:
1. Addition of unexplained income based on seized documents.
2. Treatment of unexplained entries in the imprest account.
3. Application of Section 40A(3) to disallow certain entries.
4. Set off of surrendered amount against taxable income.
5. Addition of unexplained income on estimate basis.
6. Verification of surrendered amount and adjustments.

Detailed Analysis:
1. The judgment involves cross-appeals by the assessee and the revenue challenging the Commissioner of Income-tax (Appeals) order regarding additions made to the income of the assessee based on seized documents following a search operation under the Income-tax Act, 1961.

2. The assessee contended that the entries in the imprest account of certain individuals were not reconciled, but the surrendered amount should cover these discrepancies. The Commissioner upheld the addition, stating that the surrendered amount was already adjusted against other confirmed entries, leaving no balance for these additions.

3. The application of Section 40A(3) was disputed, with the assessee arguing that the provisions did not apply as none of the entries were claimed as allowable expenditure. The Tribunal directed the Assessing Officer to verify the applicability of Section 40A(3) and adjust the peak amount from the surrendered amount, allowing the assessee's appeal for statistical purposes.

4. The issue of set off of the surrendered amount against taxable income was debated. The Tribunal agreed with the Commissioner's observation that the surrendered amount should be adjusted against the taxable amount arising from certain entries. However, it directed the Assessing Officer to verify the claimed expenditures before deciding on the applicability of Section 40A(3).

5. The Tribunal upheld the Commissioner's decision regarding the addition of unexplained income on estimate basis, stating that the revenue must substantiate such additions with incriminating material.

6. Lastly, the Tribunal emphasized the importance of verifying the surrendered amount and making necessary adjustments based on the findings, allowing the assessee's appeal for statistical purposes and dismissing the revenue's appeal.

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