2016 (12) TMI 1299 - HC - Income Tax

Undisclosed income of the assessee - Held that - Revenue had not brought on record any material indicating that the amount received by the assessee was by way of compensation. On the other hand, the employees of the assessee were cross examined in respect of the entries made in the pay-in-slips and this cross examination had revealed that narrations in the pay-in-slips accompanying the two cheques of ₹ 50 lakhs each were made by them on their own without any directions or instructions from the assessee. The order of the Tribunal cannot be faulted. However, we are in agreement with the view taken by the Tribunal to the effect that the entry made in the pay-in-slips cannot prevail over the entry in the books of account since the books of account would reflect the appropriate record wherein treatment of receipts would be found. In the circumstances, we have no hesitation coming to our conclusion and as a result we find that the Tribunal was justified in holding that the amount of ₹ 1 crore cannot be assessed as undisclosed income. In the result, the question referred to us for our opinion is answered in the affirmative i.e. in favour of the assessee and against the Revenue.

Summary

Issues:
1. Whether the amount of ?1,00,000/- can be assessed as 'undisclosed' income of the assessee?

Analysis:

Issue 1:
The case involved a reference from the Income Tax Appellate Tribunal regarding the treatment of ?1 crore received by the assessee from another company. The Tribunal had to decide if this amount should be considered as undisclosed income of the assessee. The assessee company, a sister concern of another company, received ?1 crore from the other company, which was initially treated as share application money. However, during scrutiny, it was considered as compensation by the Assessing Officer. The Tribunal, on appeal, concluded that the amount should be treated as share application loan based on the entries in the books of account and records, disregarding notings or narrations by the assessee's staff.

The Revenue argued that the assessee should have received compensation for its construction work, as indicated by entries in bank pay-in slips. They contended that the Managing Director's statements were vague and contradictory, suggesting the likelihood of compensation. In contrast, the respondent supported the Tribunal's decision, emphasizing that the treatment of amounts in the company's books was crucial, and the Managing Director's statements were unreliable. The High Court found the Managing Director's statements unreliable and agreed with the Tribunal's consideration of records. They held that the Assessing Officer's conclusion of the amount being undisclosed income could not be sustained since the books of account should prevail unless proven otherwise. The Court noted the lack of evidence supporting the Revenue's claim of compensation and highlighted that the entries in the books of account were reliable. They concluded that the Tribunal's decision was justified, ruling in favor of the assessee.

In conclusion, the High Court upheld the Tribunal's decision, stating that the amount of ?1 crore could not be considered as undisclosed income of the assessee. The Court emphasized the importance of entries in the books of account over pay-in-slip notations and found no fault with the Tribunal's order. The question referred was answered in favor of the assessee, and the reference was disposed of with no costs awarded.