2020 (1) TMI 453 - AT - Income Tax

Bogus expenditure - AO did not find the explanation of the assessee as convincing and stated that the assessee has not furnished any documentary evidence on which reliance could be placed such as any copy of agreement signed between the parties or any such other document which has not been prepared by the assessee company on its own - CIT(A) observed that the two invoices in question do not represent expenses, but rather represent income and deleted the addition - HELD THAT - Assessee admitted to have received the amounts covered by the invoices. There is no comment on the books of accounts of the assessee by the learned Assessing Officer, but according to the learned Assessing Officer there is no document which has not been prepared by the assessee company on its own in support of the contentions of the assessee. It is also an admitted fact that the party who paid the sums to the assessee have deducted TDS on such amounts as reflected in form AS-26. These receipts of the assessee, as observed by the Ld. CIT(A), are reflected in the books of accounts of the assessee. Finally, learned Assessing Officer was of the opinion that the bogus expenses booked and such bogus expenses were to be disallowed. On this premise learned Assessing Officer added the receipts of ₹ 2,61,56,545/-to the income of the assessee. It is, therefore, clear that the Assessing Officer is not sure whether he was adding the income or disallowing the expenses. It is not that the assessee claimed the expenses to the tune of ₹ 2,61,56,545/-which the learned Assessing Officer wanted to disallow. In view of the fact that the veracity of the agreement between M/s Vivek Pharmachem and the assessee needs to be verified by the learned Assessing Officer, as submitted by both the counsel, we are of the considered opinion that this is a fit matter to set aside the impugned order and to remand the issue to the file of the learned Assessing Officer for verification of the agreement and to reach a right conclusion - Appeal of the Revenue is allowed for statistical purpose.

Summary

Issues:
Challenging the order of the Commissioner of Income Tax (Appeals) regarding the treatment of invoices as bogus expenses and subsequent addition to the income of the assessee.

Analysis:
1. The Revenue filed an appeal against the order of the CIT(A) concerning the assessment year 2011-12 of the assessee, M/s AGS Retail Private Limited. The dispute arose from invoices raised by the assessee for commission and services provided, which were treated as bogus expenses by the Assessing Officer.

2. The Assessing Officer disallowed the expenses claimed in the invoices, totaling ?2,61,56,545, as he found the explanation provided by the assessee unconvincing. The Assessing Officer questioned the lack of documentary evidence supporting the transactions and the unclear nature of the bank account relationship between the parties involved.

3. The assessee contended that the invoices represented legitimate income for liaison and brokerage services provided, supported by agreements and other documents. The CIT(A) reviewed the evidence and concluded that the invoices reflected income, not expenses. The CIT(A) emphasized the need for evidence before disallowing expenses and noted the presence of TDS deductions and proper accounting of the receipts in the assessee's books.

4. The Revenue, dissatisfied with the CIT(A)'s decision, argued for a remand to verify the genuineness of the documents and transactions. The Revenue cited a legal precedent to support the need for a complete assessment with all necessary facts. The assessee had no objection to a limited verification by the Assessing Officer.

5. The ITAT, after considering the arguments and evidence, found the matter suitable for remand to the Assessing Officer for verifying the agreement between the parties. The ITAT observed confusion in the Assessing Officer's treatment of the invoices and the need for clarity on whether the addition pertained to income or disallowed expenses. The ITAT allowed the Revenue's appeal for statistical purposes.

6. Consequently, the ITAT set aside the CIT(A)'s order and remanded the issue for further verification, directing the Assessing Officer to examine the agreement between the parties to reach a correct conclusion. The Revenue's appeal was allowed for statistical purposes, without altering the substantive tax liability.

This detailed analysis covers the issues raised in the legal judgment, outlining the arguments, findings, and the decision of the ITAT regarding the treatment of the disputed invoices and the subsequent addition to the assessee's income.