2022 (1) TMI 1094 - AT - Income Tax

Addition based on statement recorded during the course of survey action u/s. 133A - Disallowance under valuation of work in progress and Disallowance of expenditure partly supported by self made vouchers and not fully supported - HELD THAT - On going through the statement recorded during the course of survey action u/s. 133A it is clear that from the questions posed to the appellant, the Assessing Officer had not brought any specific instance of discrepancies in the valuation of closing work in progress as well as any evidence in support of the bogus expenditure incurred by the assessee. It is a different matter as to why the assessee had agreed to make the addition, but the issue of valuation of work in progress as well as proof of genuineness of expenditure incurred, are pure questions of facts, which the AO should brought on record. AO failed to do so, but merely based on the statement given by the assessee, had proceeded to make the assessment and made addition. It is settled position of law that no addition can be made on the mere basis of the statement given by the assessee. Appellant had categorically stated before the Assessing Officer that there was no discrepancy in the valuation of work in progress, as well as no doubts as to the genuineness of expenditure incurred, inspite of this fact, the AO proceeded with making of addition based on the mere statement given by the assessee u/s. 133A. It is not the case of the Department that, the discrepancy if any in the valuation of closing work in progress as on date of survey, still existed in the valuation of closing work in progress as on date of end of previous year, nor no addition can be made based on discrepancies, if any, in the valuation of work in progress in the middle of previous year. This approach of the Assessing Officer does not stand to the judicial scrutiny. - Decided in favour of assessee.

Summary

Issues:
- Disallowance under valuation of work in progress
- Disallowance of expenditure partly supported by self-made vouchers
- Disallowance of expenditure of sub-contracting work
- Disallowance on account of cessation of liability towards amounts payable to sub-contractors

Analysis:

Issue 1: Disallowance under valuation of work in progress
The appellant, engaged in property development, filed an appeal against the order of the Commissioner of Income Tax for the assessment year 2013-14. The Assessing Officer disallowed ?26,00,000 under the valuation of work in progress, based on a statement recorded during a survey action. However, the appellant contested this, stating no undervaluation existed and the statement was given under a wrong impression. The Tribunal noted that the Assessing Officer failed to provide specific instances of discrepancies or evidence to support the disallowance. Relying on legal precedents, the Tribunal held that additions cannot be solely based on statements without corroborative evidence. The Tribunal set aside the addition, directing its deletion.

Issue 2: Disallowance of expenditure partly supported by self-made vouchers
Another disallowance of ?5,00,000 was made by the Assessing Officer for expenditure not fully supported by vouchers. The appellant argued that the disallowed amount was unreasonable as some expenses were supported by self-made vouchers totaling ?7,55,188. The Tribunal reiterated that additions solely based on statements without evidence are not permissible. The Tribunal found the Assessing Officer did not present facts or evidence to justify the disallowance, leading to the decision to delete the addition.

Issue 3: Disallowance of expenditure of sub-contracting work
The Assessing Officer disallowed ?62,25,000 for sub-contracting work expenses. The Commissioner partially upheld this disallowance, but the Tribunal granted relief, deleting this addition. The Tribunal emphasized the necessity of concrete evidence to support disallowances, which was lacking in this case.

Issue 4: Disallowance on account of cessation of liability towards amounts payable to sub-contractors
A disallowance of ?64,52,248 was made under the cessation of liability towards amounts payable to sub-contractors. The Commissioner confirmed part of this addition, but the Tribunal set aside the entire amount, emphasizing the need for substantiating evidence for such disallowances. The Tribunal allowed the appeal, directing the deletion of this disallowance.

In conclusion, the Tribunal allowed the appeal filed by the assessee, setting aside the additions made by the lower authorities and directing the Assessing Officer to delete the disallowances. The Tribunal stressed the importance of concrete evidence and legal precedents in making such additions, highlighting the necessity of substantiating claims with supporting documentation.