2024 (7) TMI 145 - HC - Income Tax

Addition of unexplained expenditure based on seized diary during the course of search action u/s 132 - HELD THAT - As held that group companies having offered income on account of unexplained expenditure for the AY 2007-08 in their respective hands can be considered as an explanation and coupled with the fact that the department has not disproved the contention of the assessee company with any corroborative evidence. Tribunal further observed a well reasoned Order is passed by the CIT(A). The Tribunal has further recorded that the assessee company in support of its stand has in fact filed an affidavit, the contents of which affidavit has not been disproved by the AO and no further inquiry appears to have been carried out by the AO. Tribunal observed that the AO has arrived at a belief that the contents in the said seized diary are pertaining to the instant Assessment Year 2010-11 only on the basis of presumption. We do not find any perversity in such a finding. Addition of legal expenses - Tribunal based on the materials on record, arrived at a conclusion that it is not discernable whether the Assessee has actually paid the said amount towards the legal expenses as no date is mentioned nor any other information can be gathered to say that the said amount has been incurred towards legal expenses by the assessee company and no corroborative evidences have been brought on record by AO - HELD THAT - As observed that the assessee company has to this effect, filed an affidavit itself, which cannot be brushed aside since the averments made in the duly sworn affidavit has not been disproved by the AO during the course of assessment proceeding or before the CIT(A) or before the Tribunal. We find that the CIT(A) and the Tribunal has recorded findings of fact based on the materials which cannot be said to be perverse. The view is a possible one. Thus, the CIT(A) and the Tribunal have concurrently come to the conclusion that the materials on record does not justify such additions of the AO.

Summary

Issues:
1. Addition of unexplained expenditure in seized diary
2. Addition of legal expenses in seized diary
3. Acceptance of assesses' version regarding diary entries

Analysis:

Issue 1: Addition of unexplained expenditure in seized diary
The revenue appealed against the Tribunal's judgment deleting the addition of Rs. 2,28,54,314/- for unexplained expenditure found in a seized diary during a search action. The Tribunal held that group companies had offered income for a previous year, totaling the disputed amount, which could explain the entry. The Tribunal noted the lack of evidence disproving the assessee's claim and the absence of further inquiry by the Assessing Officer. The Tribunal found the Officer's belief based on presumption and upheld the deletion of the addition, considering the materials and the affidavit filed by the assessee. The High Court concurred with the Tribunal's findings, stating no perversity in the decision.

Issue 2: Addition of legal expenses in seized diary
Regarding the addition of Rs. 2,00,00,000/- for legal expenses, the Tribunal concluded that it was unclear if the assessee had actually incurred the mentioned amount, as no specific details were provided in the diary. The Tribunal emphasized the lack of corroborative evidence by the Assessing Officer and highlighted the affidavit filed by the assessee, which remained unchallenged. Both the CIT(A) and the Tribunal found no justification for the addition based on the available materials. The High Court agreed with this analysis, stating that the findings were based on facts and not perverse, supporting the deletion of the legal expenses addition.

Issue 3: Acceptance of assesses' version regarding diary entries
The revenue challenged the Tribunal's decision, arguing that the Order was contrary to the provisions of the Act and misinterpreted relevant provisions. The Counsel for the Appellant contended that the questions of law raised were substantial and arose from the Tribunal's Order. However, the High Court found no perversity in the findings of the Tribunal and the CIT(A) regarding the assesses' version of the diary entries. The Court dismissed the Tax Appeal, stating that no question of law arose from the case.

In conclusion, the High Court upheld the Tribunal's decision to delete the additions of unexplained expenditure and legal expenses, finding no justification for the revenue's appeal. The judgment emphasized the importance of evidence, lack of disproval by the Assessing Officer, and the reasonableness of the Tribunal's findings based on the materials presented.