2018 (10) TMI 781 - AT - Income Tax

Addition u/s 40A(3) - expenses which has been incurred in cash - Held that - The addition has been made as unexplained expenditure/payment outside books of account for which addition has been made by the Assessing Officer. There is no such disallowance made u/s 40A (3) made by AO which has been claimed by the assessee as an expenditure out of the income disclosed by him. The very basis on which the ground has been raised is erroneous as application of Section 40A (3) was never a dispute. As clearly brought on record by the assessee that not only during the course of assessment proceedings but also during the course of appellate proceedings, the entries in the said loose papers were, first of all shown to be belonging to M/s. Gahoi Builwell Ltd., in whose case during scrutiny proceedings, exactly the same documents have been examined and verified and no addition has been made in the case of the said company; and secondly, the contents noted in the loose paper were reflected in the books of K4U. Once these facts are undisputed, ostensibly these additions could not have been made in the hands of the assessee at all. CIT (A) was thus correct on facts in directing the Assessing Officer to verify these facts and delete the additions. - Decided against revenue.

Summary

Issues:
Appeal against impugned order for Assessment Year 2009-10 - Addition of funds based on loose papers found during search - Dispute regarding nature of expenses - Application of Section 40A(3) - Verification of transactions recorded in seized papers - Deletion of additions by CIT (A) - Dismissal of Revenue's appeal.

Analysis:
The appeal was filed by the Revenue against an order passed by the Ld. CIT (Appeals) for the Assessment Year 2009-10, concerning the addition of funds based on loose papers discovered during a search operation. The main dispute revolved around the nature of expenses recorded in these papers and the application of Section 40A(3) of the Income Tax Act, 1961. The seized papers detailed transactions related to various entities, including M/s. K4U Services and the 'Indrapuram Project' of Gahoi Buildwell Ltd. The Assessing Officer treated certain amounts as unexplained expenses, leading to additions in the assessment. The assessee contended that all transactions from the seized papers were duly reflected in the books of M/s. K4U Services and Gahoi Buildwell Ltd., thus challenging the validity of the additions.

During the proceedings, it was argued that the Assessing Officer's additions were erroneous as the transactions were accounted for in the regular course of business. The CIT (A) considered the submissions and evidence, directing the Assessing Officer to verify the entries related to M/s. Gahoi Buildwell Ltd. and M/s. K4U Services. If the transactions were found to be in line with the respective entities' records, the additions were to be deleted. The CIT (A) partially allowed the grounds of appeal, emphasizing the need for proper verification before making such additions.

The Tribunal noted that the Revenue's grounds of appeal were unfounded as there was no disallowance under Section 40A(3) as claimed by the assessee. It was established that the transactions in question belonged to M/s. Gahoi Buildwell Ltd. and M/s. K4U Services, with no discrepancies found in their records. Therefore, the additions made by the Assessing Officer were deemed unjustified. The Tribunal upheld the CIT (A)'s decision to delete the additions, dismissing the Revenue's appeal based on the lack of merit in their contentions.

In conclusion, the Tribunal upheld the CIT (A)'s order, emphasizing the importance of verifying transactions before making additions based on seized papers. The appeal of the Revenue was ultimately dismissed, affirming the deletion of the contested additions.