2016 (5) TMI 400 - HC - Income Tax

Allowability of business expenditure u/s 37 - Held that - Since no expenditure was incurred in respect of purchase of gold coins and therefore expenditure could not be allowed under Section 37(1) of the Act - Decided against assessee

Summary

Issues Involved:
1. Justification of Tribunal's dismissal of the appellant's appeal.
2. Confirmation of ?4,77,58,412/- as unexplained expenditure under Section 69C.
3. Rejection of additional evidence by the Tribunal.
4. Reimbursement of expenditure for gold coins.
5. Material evidence before the Tribunal for confirming the addition of ?4,77,58,412/-.

Issue-wise Detailed Analysis:

1. Justification of Tribunal's Dismissal of the Appellant's Appeal:
The Tribunal dismissed the appellant's appeal and upheld the orders of the Assessing Officer (A.O.) and Commissioner of Income Tax (Appeals) [C.I.T. (A)]. The appellant's primary business involves manufacturing watches, calculators, and trading mobiles. For the assessment year 2006-07, the appellant disclosed a book profit of ?1.61 crores under Section 115JB of the Income Tax Act, 1961. The A.O. questioned the appellant's claim for deduction of selling and distribution expenses totaling ?9.53 crores. The appellant claimed reimbursements from various entities amounting to ?7.72 crores, but the A.O. found insufficient evidence for the expenditure related to discounts, sales incentives, or gold coins, leading to an addition of ?8.77 crores to the appellant's income.

2. Confirmation of ?4,77,58,412/- as Unexplained Expenditure under Section 69C:
The Tribunal confirmed the addition of ?4,77,58,412/- as unexplained expenditure. The appellant argued that this amount was reimbursed and not debited to the profit and loss account. However, the A.O. and C.I.T. (A) found that the appellant failed to provide credible evidence for the expenditure on gold coins. Investigations revealed that the supplier, M/s. Opal Industries, had no prior dealings in gold and lacked documentation to support the transactions. Consequently, the Tribunal upheld the addition, concluding that the expenditure was not incurred for business purposes and thus not allowable under Section 37(1).

3. Rejection of Additional Evidence by the Tribunal:
The appellant submitted additional evidence during the appeal to the C.I.T. (A), including details of selling and distribution expenses. The C.I.T. (A) called for a remand report, which questioned the legitimacy of the gold coin transactions. The Tribunal found the affidavit of Mr. Subhash Gujar, proprietor of M/s. Opal Industries, unreliable due to inconsistencies and lack of supporting documentation. The Tribunal noted that the appellant failed to produce advertisements or evidence of the gold coin scheme, further discrediting the claim.

4. Reimbursement of Expenditure for Gold Coins:
The appellant claimed that the expenditure on gold coins was reimbursed by Sagem SA France. However, the Tribunal found no credible evidence of the expenditure on gold coins being incurred. The appellant's argument that the reimbursement should not be taxed as income was rejected because the expenditure itself was not substantiated. The Tribunal emphasized that the appellant could not establish the expenditure was for business purposes, and thus, the reimbursement claim was not valid.

5. Material Evidence Before the Tribunal for Confirming the Addition of ?4,77,58,412/-:
The Tribunal examined the evidence and found significant discrepancies in the appellant's claims. The lack of documentation, inconsistent statements by Mr. Subhash Gujar, and absence of advertisements or customer identification for the gold coin scheme led the Tribunal to conclude that the expenditure was not genuine. The Tribunal's findings were based on a thorough examination of the evidence, and it upheld the addition of ?4,77,58,412/- as unexplained expenditure.

Conclusion:
The High Court dismissed the appeal, finding that the Tribunal's decision was based on substantial evidence and credible findings of fact. The appellant's failure to substantiate the expenditure on gold coins and the lack of credible evidence led to the confirmation of the addition under Section 69C. The High Court found no substantial question of law arising from the Tribunal's decision and upheld the dismissal of the appeal.