2016 (7) TMI 664 - AT - Income Tax

Allowability of expenditure - mere accommodation entry or not - Held that - As there being no change in facts and circumstances of these cases respectfully following the order of the Tribunal in Konichiva Builders Ltd. 2014 (4) TMI 533 - ITAT DELHI the issue of allowability of expenses in similar lines is restored to the AO herein also requiring the assessee to prove its claim with cogent material the limited plea of the assessee is accepted

Summary

Issues Involved:
1. Delay in filing the appeals.
2. Allegations of the assessee providing accommodation entries.
3. Rejection of books of accounts.
4. Estimation of income and allowance of expenditure.

Detailed Analysis:

1. Delay in Filing the Appeals:
The registry noted a delay of 30 days in filing the appeals. The appellant's representative (AR) explained that the delay was due to the critical illness and subsequent death of the controlling person’s father. The AR referenced a previous case (Konichiva Builders Ltd.) where a similar delay was condoned. The opposing counsel (DR) had no objection to condoning the delay. The tribunal, considering the facts and the precedent, decided to condone the delay.

2. Allegations of Providing Accommodation Entries:
The case involved a search and seizure operation at the business and residential premises of the controlling individual and associated companies. The investigation revealed that the companies, including the assessee, were allegedly issuing accommodation bills without rendering actual services. The findings included:
- The companies were ostensibly created for various services but did not actually provide them.
- The controlling person did not have the necessary infrastructure or manpower.
- The companies issued accommodation bills for tax evasion.
- No evidence of actual services was found during the search.
- The controlling person admitted to providing accommodation bills in lieu of cheques and cash returns.
- Duplicate books of accounts and other incriminating documents were seized.

3. Rejection of Books of Accounts:
The assessing officer (AO) concluded that the assessee was engaged in accommodation entry business and not genuine business activities. The assessee failed to produce regular books of account, sale and purchase vouchers, and other relevant documents. Consequently, the AO rejected the book results under section 145(3) of the Income Tax Act, 1961. This rejection was upheld by the First Appellate Authority (CIT(A)), who confirmed the addition made by the AO based on these findings.

4. Estimation of Income and Allowance of Expenditure:
The AO estimated the income from accommodation entries at 2% of the sale and investment turnover, based on the controlling person’s statement. The CIT(A) affirmed this estimation. The assessee appealed, requesting that the expenditure incurred to earn the income be allowed. The tribunal noted that the AO relied on the controlling person’s statement, which mentioned incurring expenses for salary, rent, and other operational costs. The tribunal held that the AO must consider the entire statement, including the expenses mentioned. Therefore, the issue was remitted to the AO to examine the allowance of expenditure based on cogent material provided by the assessee.

Conclusion:
The tribunal, following the precedent set in the Konichiva Builders Ltd. case, restored the issue of allowability of expenses to the AO, directing the assessee to substantiate its claims with evidence. The other grounds raised by the assessee were dismissed. The appeals were partly allowed for statistical purposes, with identical directions applying to both assessment years under consideration.