2019 (8) TMI 234 - AT - Income Tax

Disallowance on account of set off of the losses - claimed during the course of assessment proceedings by way of revised computation instead of revised return u/s 139 (5) - HELD THAT - We find the AO rejected the claim of the assessee on the ground that the loss on Futures and Options cannot be claimed by filing a revised computation since assessee has not filed a revised return within the meaning of section 139 (5) and, therefore, following the decision of Hon ble Supreme Court in the case of Goetz India Limited 2006 (3) TMI 75 - SUPREME COURT he rejected the claim. We find the Ld. CIT(A) following the decision of Hon ble Supreme Court in the same case allowed the loss claimed by the assessee to be set off against the business profit. We do not find any infirmity in the order of the Ld. CIT(A) in allowing the claim of the assessee on account of loss of future and option by filing a revised computation during the assessment proceedings instead of filing a revised return of income. Hon ble Delhi High Court in the case of Jai Parabolic Springs Ltd. 2008 (4) TMI 3 - DELHI HIGH COURT that the Hon ble Supreme Court in the case of Goetze (India) Ltd. (supra) has made it clear that the decision was limited to the power of the assessing authority to entertain a claim for deduction otherwise than by a revised return and did not impinge on the powers of the appellate authority. The ground raised by the revenue is accordingly dismissed. Bogus expenses addition - construction material purchased - assessee failed to prove the identity, credit worthiness and genuienss of the transaction - AO issued notices u/s 133(6) to these parties, in most of the cases notices were received back with remarks no such party exists in some there were huge differences - CIT(A) find that GP rate of each property is more or less 8% to 13% except two properties - HELD THAT - We are of the considered opinion that out of the total disallowance of ₹ 4,33,89,009/- only the amount of ₹ 52,85,490/-relating to the project J-174 is doubtful and the balance amount should not have been added by the Assessing Officer especially when the assessee has made payments against the sundry creditors in the subsequent years or has offered to tax the same in the return of income of subsequent years. We, therefore, uphold the order of the CIT(A) to the extent of ₹ 3,81,03,519/- (i.e. ₹ 4,33,89,009- 52,85,490). So far as the amount of ₹ 52,85,490/- relating to the project J-174 is concerned, it is the submission of the assessee that assessee has declared this amount in financial year 2018-19 as income i.e. assessment year 2019- 20 after court matter was settled. We, therefore, deem it proper to restore this issue to the file of the AO for the limited purpose of verification of the property in dispute i.e.J-174, the outcome of the court case, the settlement arrived at by the assessee and subsequent offer of the assessee for taxation during financial year 2018-19. AO shall decide the issue of allowability of ₹ 52,85,490/- as per fact and law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The ground raised by the revenue on this issue is accordingly partly allowed for statistical purpose. Addition made on account of cessation of liability u/s. 41 (1) - addition being the static creditors on the ground that the assessee has offered the same for taxation during the course of assessment proceedings - assessee subsequently retracted the surrender - HELD THAT - CIT(A) deleted the addition on the ground that assessee in the subsequent letter to the AO has not only retracted from the surrender but also had filed detailed explanation that the creditors were not static since some of the creditors in subsequent period were squad off / either paid off or written off on account of building material of J-174 project. Since the assessee had already retracted from the surrender made before the AO and the AO is fully aware of the same, therefore, ignoring such letter of retraction the AO could not have made the addition on account of static creditors by invoking the provisions of section 41 (1). Since the order of the CIT(A) on this issue is based on facts and the order is a reasoned one and since the Ld. DR could not bring any material to take a contrary view than the view taken by the CIT(A) on this issue, therefore, we do not find any infirmity in the order of the CIT(A) on this issue and accordingly uphold the same. The ground raised by the revenue is accordingly dismissed.

Summary

Issues Involved:
1. Deletion of disallowance on account of set off of losses claimed by the assessee without filing revised return.
2. Deletion of addition made by AO on account of bogus expenses claimed by the assessee.
3. Deletion of addition made by AO on account of cessation of liability under section 41(1) of the IT Act.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance on Account of Set Off of Losses Claimed by the Assessee Without Filing Revised Return:

The revenue's appeal questioned the deletion of disallowance made by the AO on the set-off of losses claimed by the assessee without filing a revised return. The assessee, a company engaged in construction and share trading, filed its return declaring an income of ?35,61,030/-. During assessment, it filed a revised computation reducing taxable income to ?18,04,306/- due to unclaimed business loss from Futures and Options. The AO disallowed this citing the Supreme Court's decision in Goetze India Ltd. which mandates a revised return for such claims. However, the CIT(A) allowed the claim, noting that the error was rectified during assessment and the AO could have corrected it. The Tribunal upheld the CIT(A)'s decision, referencing the Bombay High Court's ruling in Pruthvi Brokers and Shareholders Pvt. Ltd. that appellate authorities can consider claims not made in the original return. Thus, the revenue's ground was dismissed.

2. Deletion of Addition Made by AO on Account of Bogus Expenses Claimed by the Assessee:

The AO had made an addition of ?4,33,89,009/- as bogus expenses for material purchases, noting discrepancies in vouchers and unserved notices to creditors. The CIT(A) deleted this addition, criticizing the AO for not allowing the assessee to counter the evidence and for not considering the detailed documentation provided. The Tribunal found that the AO had inconsistently mentioned figures and failed to substantiate the addition. It was noted that the expenses related to a disputed property (J-174), with the matter settled in court later. While the Tribunal upheld the deletion of ?3,81,03,519/-, it restored the issue of ?52,85,490/- (related to J-174) to the AO for verification, directing reassessment based on the court settlement and subsequent offer for taxation.

3. Deletion of Addition Made by AO on Account of Cessation of Liability under Section 41(1) of the IT Act:

The AO added ?70,79,504/- as cessation of liability under section 41(1) based on the assessee's initial surrender during assessment. However, the assessee later retracted, explaining that the creditors were not static and some liabilities were settled or written off. The CIT(A) accepted this retraction, noting that the AO ignored the subsequent detailed explanations and documentation. The Tribunal supported the CIT(A)'s findings, emphasizing that the AO should have considered the retraction and the factual details provided, thus dismissing the revenue's ground.

Conclusion:

The Tribunal upheld the CIT(A)'s decisions on all three issues, providing detailed justifications for each. The appeal by the revenue was partly allowed for statistical purposes, specifically directing the AO to reassess the disputed amount related to J-174. The judgment emphasized the importance of considering all relevant facts and documentation during the assessment process and the appellate authorities' power to consider claims not made in the original return.