2024 (9) TMI 1654 - AT - Income Tax

Validity of assessment u/s 153A - disallowance of wages payable and disallowance of salaries payable - Assessee submitted that the same is based on information available in regular books of accounts and not based on any incriminating material - HELD THAT - The assessee has reversed provision of wages payable in FY 2015-16 and claimed the same on actual payment basis in FY 2016-17. The same is very much clear from the above reconciliation. Since the provision as wrongly claimed in return of income filed u/s 139(1) has now been reversed in return of income filed u/s 153A, the payment made in subsequent year would be allowable as deduction in the subsequent year. If the same is not allowed, the assessee would suffer double disallowance which is wholly unjustified Therefore, considering the fact of the case, the amount would be allowed as deduction to the assessee during AY 2017-18. We order so. Salaries payable, it could be seen that the assessee has reversed provision of Salaries payable for Rs.14.84 Lacs during FY 2015-16 and claimed deduction of the same on actual payment basis. Therefore, the disallowance, to that extent, could not be upheld. The balance provision of Rs.14.69 Lacs has been made on 31- 03-2017. The aggregate provision as on 31-03-2017 was Rs.29.53 Lacs which has fully been paid by the assessee through banking channels in the month of April and May, 2017 which is evident from ledger of salaries payable. Therefore, the impugned disallowance in toto, is not sustainable in law. We order so. The corresponding ground raised by the assessee stand allowed.

Summary

Issues Involved:

1. Jurisdiction under Section 153A and validity of search assessment.
2. Addition of income based on alleged bogus wages and salaries.
3. Evidentiary value of seized materials and statements.
4. Double addition of income and principles of fairness in taxation.
5. Procedural fairness and principles of natural justice.

Issue-wise Detailed Analysis:

1. Jurisdiction under Section 153A and Validity of Search Assessment:

The appellant challenged the jurisdiction assumed under Section 153A of the Income Tax Act, arguing that the search assessment was completed without valid incriminating material and was passed out of time, rendering it invalid. The Tribunal noted that the CIT(A) rejected the legal arguments of the appellant, holding that the Assessing Officer (AO) could make regular additions with respect to any issue that comes to his notice during the assessment proceedings. The Tribunal did not find any defect in the jurisdiction of the AO and dismissed the corresponding grounds raised by the appellant.

2. Addition of Income Based on Alleged Bogus Wages and Salaries:

The core issue was the disallowance of wages payable amounting to Rs. 62.75 Lacs and salaries payable amounting to Rs. 29.53 Lacs. The AO alleged that the appellant made provisions for wages and salaries to suppress profits, which were not genuine. The appellant contended that these were actual expenses incurred and were claimed on an actual payment basis in subsequent years. The Tribunal found that the appellant had indeed reversed the provisions in the return filed under Section 153A and claimed the expenses on an actual payment basis in subsequent years. It was concluded that the disallowance in both years would lead to double disallowance, which is unjustified. Therefore, the Tribunal allowed the deduction of Rs. 62.75 Lacs and Rs. 29.53 Lacs as expenses for the respective assessment years.

3. Evidentiary Value of Seized Materials and Statements:

The appellant argued that the loose sheets and statements relied upon by the lower authorities had no evidentiary value. The Tribunal observed that the Managing Director's admission during the search proceedings regarding the booking of bogus wages and salaries was a significant factor in the AO's decision. However, the Tribunal emphasized that the actual expenses incurred and paid through banking channels were evidenced by ledger extracts and reconciliations, which justified the appellant's claims.

4. Double Addition of Income and Principles of Fairness in Taxation:

The appellant contended that the original addition made in the hands of the firm would result in double addition, as the same income was assessed in the hands of individual partners. The Tribunal acknowledged this concern and highlighted the importance of fairness in taxation, ensuring that the appellant does not suffer double disallowance. The Tribunal's decision to allow the deductions was in line with these principles.

5. Procedural Fairness and Principles of Natural Justice:

The appellant argued that there was no effective opportunity granted before passing the impugned order, violating the principles of natural justice. The Tribunal did not find substantial material arguments advanced on this ground and did not identify any procedural defects that warranted overturning the CIT(A)'s decision on these grounds.

Conclusion:

The appeal was partly allowed, with the Tribunal permitting deductions for wages and salaries payable, recognizing the appellant's reconciliation efforts and the reversal of provisions in subsequent years. The Tribunal upheld the jurisdiction of the AO and dismissed the legal grounds challenging the validity of the search assessment. The decision emphasized the importance of fairness in taxation and procedural justice, ensuring that the appellant was not subjected to double disallowance.