2014 (6) TMI 539 - AT - Income Tax

Capital Work-in-Progress - unexplained expenditure - additions u/s 69C - Held that - when an assessee incurs expenditure from known sources section 69C does not get attracted; in order to invoke the section it has to be shown that the assessee had not explained about the source of such expenditure or part thereof. In the instant case there is no dispute with regard to the source of expenditure and it is also not in dispute that the assessee incurred expenditure. It is not the case of the Revenue that the assessee claimed it as business expenditure. It was only added to the capital work-in-progress . - Decided against the revenue. Addition u/s 68 of the Act Unexplained credits in books Admission of additional evidence under Rule 46A of the Act - Held that - under section 68 of the Act the AO is duty bound to prove that the assessee would have earned such additional income by the use of the expression may in section 68 of the Act whereas in the instant case the AO tried to make a case on assumptions without proving that the material available before the AO is wrong and insufficient. Decided against Revenue. Revenue appeal before the tribunal - Commissioner has not given his reasons as to why he has authorised the AO to file an appeal on this issue - Held that - AO has raised a soulless ground which deserves to be dismissed in limine. We could have saved a lot of time had the Commissioner not given his authorisation on such frivolous issues. On the contrary it is incumbent upon the Commissioner as a supervisory authority to admonish the AO for making an addition without basic understanding of legal position. - In fact this is a peculiar case where even the Commissioner (Administration) who is supposed to supervise the proper functioning of the AO under his charge has allowed him to file appeals without properly examining the assessment order and the order of the learned CIT(A) which results in unnecessary expenditure to the assessee when appeal is filed by the Revenue and the assessee had to undergo the trauma of engaging counsel and paying substantial fees to defend the case when the Revenue has no case at all. - a token cost of 5, 000/- imposed upon the revenue - Decided against the revenue.

Summary

Issues Involved:
1. Deletion of addition under Section 69C of the Income Tax Act.
2. Allowing capitalization of expenses considered as penal in nature.
3. Deletion of addition under Section 68 of the Income Tax Act.
4. Admission of additional evidence in violation of Rule 46A of the Income Tax Rules.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 69C:
The Assessing Officer (AO) treated professional fees paid by the assessee as unexplained expenditure under Section 69C, despite the assessee providing names, addresses, PAN details, and TDS proof. The CIT(A) found that the assessee had explained the source of the expenditure and that Section 69C was not applicable as the expenditure was added to "capital work-in-progress" and not claimed as business expenditure. The Tribunal upheld the CIT(A)'s decision, criticizing the AO and the Commissioner for filing a frivolous appeal without proper understanding of the legal provisions.

2. Allowing Capitalization of Expenses Considered as Penal in Nature:
The AO disallowed capitalization of Rs. 18,83,222/- (later corrected to Rs. 15,91,645/-) for expenses including rent, payments to Fisheries Development Fund, and extension fees for a hydroelectric project, treating them as penalties. The CIT(A) allowed the capitalization, noting that the payments were necessary for obtaining NOCs and extending project deadlines, not penalties. The Tribunal agreed with the CIT(A), emphasizing that the AO and the Commissioner failed to provide substantial reasons for their disallowance.

3. Deletion of Addition under Section 68:
The AO added Rs. 45,14,610/- as unexplained credits under Section 68, questioning the genuineness of share application money received from M/s. Toptrack Garments Pvt. Ltd. The CIT(A), after obtaining a remand report, found that the identity, genuineness, and creditworthiness of the creditor were established, and the AO's addition was arbitrary. The Tribunal upheld the CIT(A)'s decision, noting the AO's failure to conduct proper enquiries and the lack of contradictory evidence from the Revenue.

4. Admission of Additional Evidence in Violation of Rule 46A:
The AO objected to the CIT(A) admitting additional evidence under Rule 46A, arguing that the assessee had ample opportunity to present it earlier. The CIT(A) justified the admission, stating that the basic details were already provided, and the additional evidence was necessary for a thorough enquiry. The Tribunal supported the CIT(A)'s approach, emphasizing that the AO had sufficient information to verify the claims but failed to do so.

Conclusion:
The Tribunal dismissed the Revenue's appeal, criticizing the lack of diligence by the AO and the Commissioner. It awarded costs to the assessee for the unnecessary litigation caused by the frivolous appeal and directed payment within a month. The Tribunal also instructed the Registry to inform the Chairman, CBDT, to ensure better scrutiny of appeals in the future.