2023 (3) TMI 397 - AT - Income Tax

Renovation and Repair expenditure in respect of Misc. receivables disallowed - Assessee admitted voluntarily undisclosed income on various Heads for different assessment years - assessee made disclosure on account of inflated sales and wages expenses and duly offered for taxation as undisclosed income - assessee argued that statement recorded during the survey proceedings cannot be the basis of addition - HELD THAT - Hon ble Apex Court in the case of Pullangode Rubber Produce Co. Ltd. Vs. State of Kerala 1971 (9) TMI 64 - SUPREME COURT held that an admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect. Assessee has not produced any details evidences and not maintained proper books of accounts. Assessee has not submitted any details of the wages which were inflated before any of the Lower Authorities. Assessee having its offices all over India and no evidence has been given as to which particular wages were bogus expenses, when these bogus expenses were debited in the books of accounts, how the money was taken out and how such money was utilized for the purposes of renovations and repairs. No books of accounts have been maintained for such undisclosed transactions. In the absence of any such co-relation between the inflation of wages and unexplained expenditure disclosed on account of renovations and repairs, the claim of telescoping does not arise. Also in the case of Bhagwandas D. Vachhani 2015 (4) TMI 269 - GUJARAT HIGH COURT has clearly held that it is burden upon the assessee to give sufficient explanation for the source of the amount. After considering all materials, statement or the record or when no record of books of account is produced or when no transactions by showing co-relation are demonstrated by the assessee and the opinion is to be formulated by the A.O. cannot be disturbed. Thus the submissions made by the assessee does not hold it good with proper evidences and the same is rejected - the alternative claim of depreciation on the assets capitalized on Renovation and Repair expenditure of Rs. 2.5 crores on Kerala Property Fire Safety Institute at Baroda are found to be a legally valid claim. Therefore,the matter is remanded back to the file of the AO to verify into the expenses claimed, capitalized and allow appropriate depreciation in accordance with law. Thus ground no. 1 is partly allowed. Addition in respect of bad debts and also unverifiable amount of deduction from customers - HELD THAT - It is seen that the assessee during the course of assessment proceedings, the assessee had submitted full details of bad debts on account of lower payments made by its clients, while settling the dues. Further the entire bill for sales raised by the assessee had been accounted for in the profit and loss account. Once a part of such sales is not paid by the clients, it takes the nature of bad debts. Further the provisions of section 36(1)(vii) read with section 36(2) makes it clear that even a part of the income accounted for in the current year also can be claimed as a bad debt. Therefore the findings arrived by the Ld. CIT(A) namely once the deduction made by the clients account is debited and the assessee s accounts are credited, the conditions laid down by section 36(1)(vii) read with section 36(2) are fulfilled and such amounts are allowable as a bad debt in the computation of total income. Further the assessee is not required to establish that such debts have actually become bad before writing off the same in the books of accounts - Decided against revenue. Unverifiable amount of Deductions from customers , the same is also allowed in favour of the assessee.

Summary

Issues Involved:
1. Addition of Rs. 2.5 crores for Renovation and Repair expenditure.
2. Addition of Rs. 1.5 crores for Miscellaneous Receivables.
3. Addition of Rs. 4,58,60,861/- for Suppressed Sales.
4. Addition of Rs. 34,98,571/- for Suppressed Sales.
5. Addition of Rs. 5,11,28,393/- for delayed payment of PF and ESI.
6. Deletion of addition for Bad Debts.
7. Deletion of addition for Unverifiable amount of Deductions from Customers.

Detailed Analysis:

1. Addition of Rs. 2.5 crores for Renovation and Repair expenditure:
The assessee argued that the Rs. 2.5 crores for Renovation and Repair expenses were included in the Rs. 13 crores of undisclosed income. The Assessing Officer (AO) rejected this claim, stating that the statement of the Managing Director during the survey clearly bifurcated the heads of unaccounted income. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, emphasizing that the assessee did not claim the expenses were made out of inflated wages during the survey. The Tribunal found that the assessee did not provide sufficient evidence to support the claim and upheld the disallowance but remanded the issue back to the AO to verify and allow appropriate depreciation on the capitalized expenses.

2. Addition of Rs. 1.5 crores for Miscellaneous Receivables:
The assessee claimed that the Rs. 1.5 crores for Miscellaneous Receivables were also part of the Rs. 13 crores of undisclosed income. The AO and CIT(A) rejected this claim for similar reasons as the Renovation and Repair expenses. The Tribunal upheld the disallowance, stating that no evidence was provided to show the correlation between inflated wages and the unexplained expenditure.

3. Addition of Rs. 4,58,60,861/- for Suppressed Sales:
This ground was not pressed by the assessee as the AO had already deleted the addition while giving effect to the order dated 15.02.2019.

4. Addition of Rs. 34,98,571/- for Suppressed Sales:
The AO added Rs. 34,98,571/- as suppressed sales based on discrepancies in receipts. The CIT(A) did not adjudicate this ground. The Tribunal remanded the issue back to the AO to work out the average profit rate and assess the suppressed sales in accordance with the law.

5. Addition of Rs. 5,11,28,393/- for delayed payment of PF and ESI:
This issue was not pressed by the assessee as it was covered against them by the Hon'ble Supreme Court in their own case.

6. Deletion of addition for Bad Debts:
The AO disallowed Rs. 5,92,43,933/- claimed as bad debts, stating that the assessee did not provide sufficient details. The CIT(A) deleted the addition, finding that the assessee had provided full details and that the bad debts were allowable under section 36(1)(vii) read with section 36(2). The Tribunal upheld the CIT(A)'s decision, stating that the assessee had fulfilled the conditions laid down by the relevant sections and that the AO's disallowance was unwarranted.

7. Deletion of addition for Unverifiable amount of Deductions from Customers:
The AO disallowed Rs. 29,25,332/- out of Rs. 97,57,105/- claimed as deductions from customers, citing unverifiable expenditure. The CIT(A) deleted the addition, finding that the deductions were in the nature of bad debts and allowable under the law. The Tribunal upheld the CIT(A)'s decision, stating that the assessee had provided sufficient details to support the claim.

Conclusion:
The Tribunal partly allowed the assessee's appeal for statistical purposes and dismissed the Revenue's appeal. The key takeaways include the importance of providing sufficient evidence to support claims and the applicability of the principle of consistency in allowing claims for bad debts.