2023 (8) TMI 1081 - HC - Income Tax

Disallowance of expenses u/s 40A(3) - Failure to provide any basis for working out the difference between the contents of two financial datas in the parallel books maintained by ABCL Ltd. and the Assessee himself - ITAT deleted te addition - HELD THAT - Tribunal also found that data available on record was only in respect of liability but not as regards assets or expenditure. Tribunal thus found that in view of above AO wrongly held the difference to be invested in fixed assets and undisclosed expenditure, without any supportive material on record. Tribunal therefore drew inference that Assessee had incurred certain liability which though recorded in the parallel Books of Accounts of the Assessee was not recorded in the regular Audited Books of Account. The Tribunal in this background found that the case of the Assessee was of suppression of liability in the Audited Books of Account vis-a-vis the parallel set of Books of Account and; therefore, it was rightly concluded by the Tribunal that under the law undisclosed investment or undisclosed expenditure can be subject matter of addition either u/s 69 or 69A or 69B or 69C of the IT Act but in the present case the issue is not in regard to undisclosed investment or expenditure but undisclosed liability. Accordingly, the Tribunal held that the findings of the AO in this regard are based purely on assumption and; therefore, the addition made by the Assessing Officer was held unjustified. Decided against revenue.

Summary

Issues involved:
The appeal challenges the final order of the Income Tax Appellate Tribunal regarding additions made by the Assessing Officer, specifically related to disallowance of expenses and undisclosed income.

Disallowance of expenses under section 40A(3):
The Tribunal found that the Assessing Officer failed to provide a basis for the difference between financial data in parallel books, leading to unjustified additions. The Tribunal concluded that the Assessee's case involved suppression of liability in audited books, not undisclosed investment or expenditure. Therefore, the addition made by the Assessing Officer was deemed unjustified.

Undisclosed income additions:
The Tribunal upheld the deletion of additions made by the Assessing Officer for undisclosed income, as it found the findings of the Assessing Officer to be based purely on assumption. The Tribunal clarified that the issue was related to undisclosed liability, not investment or expenditure, and held that the additions were not justified under sections 69, 69A, 69B, or 69C of the Income Tax Act.

Concurrent factual findings:
The Tribunal's findings were deemed factual in nature, and the Revenue's appeal sought interference in these concurrent findings of fact by the Tribunal and CIT(A). The High Court concluded that no substantial questions of law arose from the Tribunal's factual findings, leading to the dismissal of the appeal without costs.