2015 (2) TMI 53 - AT - Income Tax

Accommodation entry - bogus purchases - whether CIT(A) has erred in deleting the addition of ₹ 1.40 crore without fully appreciating the fact that the MD/Chairman of the assessee company, surrendered this amount of ₹ 1.40 crore as undisclosed income - Held that - At the time of survey it was clearly noted by the I.T. Authority conducting survey that the amount of RS.1 ,40,00,000/- was not reflected in the books of account although the cheque payment has been made by the appellant company. This fact has been mentioned by the AO in the order itself. Time and again it has been reiterated by the appellant, its Accounts Manager and it's Chairman/MD during the time of survey and during assessment proceedings also that the payment under reference made to B.T.Technet Ltd is advance only. This clearly means that the same has not been debited in the profit and loss account. (From perusal of the assessment order it appears that AO has not bothered to see the P&L account and b/s of the appellant.) Even final printed balance sheet has also been produced before the undersigned and on going through the P&L account, it is seen that amount of ₹ 1.40 crores has not been debited in the P&L account; rather the same has been shown as advance in the balance sheet and grouped under the sub head 'Loans and advances' in the asset side. Thus as per principle of accountancy also an amount which is appearing as advance could not have been debited in the P&L account. Thus, though on the day of survey this invoice was not recorded in the books of the appellant company (the intention of the appellant might be to claim this sum as bogus expenditure but in view of the survey conducted by the department on 27.12.2006, in the final books of accounts which is finalised as on 31;10.2007, this amount has not been claimed as an expenditure and therefore shown as advance) but subsequently when the books are finalised, the payment made against this invoice has been shown as advance. The reasons for the same may be the survey conducted by the Department, but the facts remains that this amount has not been debited in the P&L account; rather it has been directly shown as advance. (Based on this P&L Account and balance sheet the appellant has re-revised its return on 29th March 2008.) Therefore, an amount which has not been debited in the P&L account and therefore not claimed as expenditure cannot be disallowed even though the invoice may be in the nature of accommodation entry. Therefore without commenting on the correctness or otherwise of the conclusion of the AO that this invoice is in the nature of accommodation entry, the addition made by the AO cannot be upheld. We further find that Ld. CIT(A) has further observed that this amount has not been capitalised also as if it is capitalised then it will not appear in the balance sheet as 'advances'. Even otherwise no addition is found in the schedule of fixed assets during the year corresponding to this payment. Thus no depreciation has also been claimed. Thus there is no case of any disallowance of depreciation also. We find that Ld. CIT(A) has observed that there is no revenue effect in the case of the assessee based on this invoice. Therefore, he rightly held that the addition so made by the AO is, therefore, directed to be deleted. In view of the above, we are of the view that no interference is called for in the well reasoned order passed by the Ld. CIT(A), hence, we uphold the same by dismissing the appeal filed by the Revenue. - Decided in favour of assessee.

Summary

Issues:
1. Addition of Rs. 1.40 crore based on transactions with an entry provider.
2. Deletion of the addition by the Commissioner of Income Tax (Appeals).
3. Appeal filed by the Revenue against the order of the Commissioner of Income Tax (Appeals).

Issue 1: Addition of Rs. 1.40 crore based on transactions with an entry provider

The assessee company initially declared a loss of Rs. 46,88,840/-, which was later revised to NIL income. The Assessing Officer (AO) made an addition of Rs. 1,40,00,000/- under section 143(3) of the Income Tax Act, 1961. The AO observed that despite being issued a sale bill of Rs. 1.4 crore, the assessee failed to take legal steps for recovery. The payment against the sale bill was made through six different cheques with TDS deducted. The AO considered the sale bill as an accommodation entry taken by the assessee from another company. The First Appellate Authority partly allowed the appeal, noting that the AO failed to consider whether the amount was claimed as revenue or capital expenditure. The Authority found that the amount was not debited in the profit and loss account but shown as an advance in the balance sheet. The AO's addition was based on the nature of the invoice, but the Authority concluded that the amount not being debited as expenditure meant the addition was not justified.

Issue 2: Deletion of the addition by the Commissioner of Income Tax (Appeals)

The Commissioner of Income Tax (Appeals) considered the facts of the case and observed that the AO did not adequately address whether the amount in question was claimed as revenue or capital expenditure. The Authority noted that the amount was shown as an advance in the balance sheet and not debited in the profit and loss account. This indicated that the amount was not claimed as an expenditure. The Authority also found that the amount was not capitalized, and no depreciation was claimed, leading to the conclusion that there was no revenue effect for the assessee based on the invoice. Consequently, the Authority directed the deletion of the addition made by the AO.

Issue 3: Appeal filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)

The Revenue, aggrieved by the order of the Commissioner of Income Tax (Appeals), filed an appeal before the Appellate Tribunal. During the hearing, the Departmental Representative supported the AO's order, while the Assessee's Counsel relied on the order of the Commissioner of Income Tax (Appeals). The Appellate Tribunal, after considering the arguments and reviewing the records, upheld the order of the Commissioner of Income Tax (Appeals). The Tribunal agreed that the AO had not adequately considered the nature of the expenditure claimed by the assessee and that the addition made was not justified. Therefore, the appeal filed by the Revenue was dismissed.

This detailed analysis of the judgment highlights the issues involved, the arguments presented, and the reasoning behind the decisions made by the authorities and the Appellate Tribunal.