2023 (2) TMI 905 - AT - Income Tax

Addition u/s 68 - difference between opening balance and closing balance of creditors - HELD THAT - It is the case of the assessee that the sundry creditors predominantly comprises of outstanding payable by the assessee to Serco UK. As contended, the increase in sundry creditors is mainly on account of increase in outstanding liability of Serco UK. As claimed, the increase in such liability of Serco UK is owing to currency difference and consequently increase in the value foreign currency (pound) qua the earlier year. The explanation offered by the assessee is obviously abstract one and without support of any documentary evidences. At the cost of repetition, neither the ledger account of creditors are available nor any document to vouch for such abstract explanation. It is not known whether the old liability on account of trade payable has continued as such when the business of the assessee company shows the expenses incurred pegged at Rs.29. 35 crore and revenue of Rs. 7.35 Cr.. In the absence of any record to vindicate the bonafides of outstanding liability on account of trade payables as claimed, we see no traction in the plea of the Assessee. We are rather persuaded by the contentions raised on behalf of Revenue. We are thus dis-inclined to interfere with the findings of Assessing Officer and CIT(A). Disallowance of expenses being 20% of other expenses - HELD THAT - AO was within its power to estimate the disallowances under such circumstances, in discharge of its quasi-judicial function. The action of the Assessing Officer in making estimations thus cannot be dubbed as asymmetric or beset with any illegitimacy. The CIT(A) resonated with the action of the AO and concurred with the same owing to failure of the Assessee yet again to substantiate the claim. It will be wholly speculative for the tribunal to displace the quantum of estimations by some lower amount and say that estimate arrived by revenue under such gross circumstances was excessive or otherwise. We are in no position to weigh or modify the estimations as urged on behalf of the assessee on the basis of some abstract explanations offered on behalf of the assessee. AO has arrived at an estimate of disallowance which he was entitled to, in the absence of supporting evidences. CIT(A) has endorsed the aforesaid action after due appraisal of facts and circumstances. We hardly see any potency in the plea of the Assessee. Arguments canvassed by Revenue without repetition, has considerable force. We thus decline to interfere therewith. Appeal of the assessee is dismissed.

Summary

Issues Involved:
1. Ad-hoc disallowance of expenses.
2. Addition under Section 68 of the Income Tax Act, 1961.
3. Non-acceptance of additional evidences under Rule 46A.
4. Procedural fairness and opportunity for the appellant to present evidence.

Issue-Wise Detailed Analysis:

1. Ad-hoc Disallowance of Expenses:
The assessee, a subsidiary of Serco Group PLC, UK, declared a loss of Rs. 28,34,90,537 for AY 2014-15. The Assessing Officer (AO) noted that the assessee incurred Rs. 23,41,50,172 under 'other expenses' but failed to substantiate these expenses despite multiple opportunities. Consequently, the AO disallowed 20% of these expenses, amounting to Rs. 4,68,30,034, citing them as excessive and not incurred wholly and exclusively for business purposes. The CIT(A) confirmed this disallowance, noting the assessee's failure to provide satisfactory evidence. The Tribunal upheld the AO's decision, emphasizing the assessee's inability to produce books of account and supporting documents, despite the change in management. The Tribunal found the AO's estimation reasonable given the circumstances and rejected the assessee's arguments for a reduction in the disallowance.

2. Addition under Section 68 of the Income Tax Act, 1961:
The AO observed significant outstanding sundry creditors and required the assessee to furnish details and confirmations, which the assessee failed to provide. Consequently, the AO invoked Section 68 and made an addition of Rs. 1,87,03,731, representing the difference between the opening and closing balances of sundry creditors. The CIT(A) upheld this addition, noting the lack of satisfactory explanation from the assessee. The Tribunal agreed with the CIT(A) and AO, rejecting the assessee's claim that the increase in creditors was due to foreign exchange fluctuations. The Tribunal emphasized the absence of ledger accounts and documentary evidence to support the assessee's explanation.

3. Non-Acceptance of Additional Evidences under Rule 46A:
The assessee attempted to submit additional evidence during the appellate proceedings, citing difficulties in obtaining documents from the previous management. However, the CIT(A) rejected these additional evidences, and the Tribunal upheld this decision. The Tribunal noted that the new management should have obtained the necessary records during the transfer of control and found the explanation for non-possession of records unconvincing. The Tribunal emphasized that the assessee's failure to produce records impeded the assessment process, justifying the AO's reliance on estimations.

4. Procedural Fairness and Opportunity for the Appellant to Present Evidence:
The assessee argued that the AO did not appreciate the complete facts and passed the order in haste, and that the CIT(A) did not provide sufficient time to collect crucial evidence. However, the Tribunal found that ample opportunities were given to the assessee to substantiate its claims. The Tribunal noted that the assessee's inability to produce records, despite multiple opportunities, justified the AO's and CIT(A)'s actions. The Tribunal dismissed the assessee's arguments, emphasizing the importance of supporting financial records and the fiduciary responsibility of the management to maintain and produce such records.

Conclusion:
The Tribunal dismissed the appeal, upholding the AO's and CIT(A)'s decisions on both the ad-hoc disallowance of expenses and the addition under Section 68. The Tribunal emphasized the assessee's failure to produce necessary records and found the explanations for non-possession of records unconvincing. The Tribunal also upheld the rejection of additional evidence under Rule 46A, emphasizing the procedural fairness and opportunities provided to the assessee during the assessment and appellate proceedings.