2021 (1) TMI 1068 - AT - Income Tax

Assessment u/s 153A - ad-hoc disallowance of various expenses - HELD THAT - It is well settled principle of law that unless Assessing Officer makes out a case that expenditure debited to profit loss account is not genuine and which are not supported by necessary evidences, he cannot make ad-hoc disallowance on the ground that assessee has not produced necessary details and vouchers for verification. In this case, on perusal of assessment order passed by Assessing Officer, we find that Assessing Officer has failed to make out a case for ad-hoc disallowance of expenses, that too in the assessment framed u/s.153A -Considering facts and circumstances of this case and by following the decision of ITAT., Chennai in the case of M/s. Susi Auto Plaza Pvt.Ltd 2010 (1) TMI 975 - ITAT CHENNAI , we are of the considered view that learned CIT(A) was right in deleting additions made towards ad-hoc disallowance of various expenses, hence we are inclined to uphold findings of learned CIT(A) and reject ground taken by Revenue Addition u/s. 40A(3) - cash payment made to M/s. Kokilam Foundations Pvt.Ltd. with whom assessee entered joint venture - HELD THAT - We are of the considered view that transactions of investment in joint venture cannot be brought into ambit of provisions of section 40A(3) - CIT(A), after considering relevant facts and by following decision of ITAT., Chennai in the case of M/s. R.K.Powergen Pvt.Ltd. 2016 (6) TMI 1410 - ITAT CHENNAI has rightly deleted additions made by AO towards disallowance of cash payment u/s. 40A(3) - No error or infirmity in the order of learned CIT(A) and hence, we are inclined to uphold the findings recorded by learned CIT(A) and reject ground taken by Revenue Addition towards profit and gains from business or profession - admission of revised statement of total income in absence of revised return - HELD THAT - We find that restriction imposed by Hon ble Supreme Court in the case of M/s Goetz (India) Ltd. 2006 (3) TMI 75 - SUPREME COURT is only on the Assessing Officer but not on the appellate authorities. Appellate authorities are empowered to admit any additional claim or ground, even if, such claim was not before Assessing Officer, but fact relating to such claim should be on record. In this case, facts with regard to claim of loss from business or profession was already on record and no new facts are required to be verified and hence, we are of the considered view that there is no merit in the ground taken by Revenue in light of Hon ble Supreme Court judgement in the case of M/s Goetz (India) Ltd. Vs. CIT (supra) and hence, the same is rejected. Declaration of loss from business or profession as against profit in the original return filed for relevant assessment year - CIT(A) has recorded categorical finding in light of revised profit loss account filed by assessee that after exclusion of purchase of land and stock in trade from books of account, the net profit from business or profession resulted into net loss. The facts of finding recorded by learned CIT(A) has not been controverted by Revenue with any evidences - assessee has filed necessary evidences to prove that transactions between the assessee and M/s. Kokilam Foundations Pvt. Ltd. was an investment transaction which has been regarded as purchase of land and stock in trade by inadvertent error and the same has been rectified by passing necessary entries in books of account. CIT(A) after considering relevant facts has rightly directed the Assessing Officer to consider revised statement of total income filed by assessee. No infirmity in the findings recorded by learned CIT(A) and hence, we are inclined to uphold the findings of learned CIT(A) and reject ground taken by Revenue.

Summary

Issues Involved:
1. Deletion of 50% disallowance amounting to ?26,01,929/- towards unproved expenditure.
2. Deletion of addition of ?5 crores made under Section 40A(3) for cash payment.
3. Deletion of addition of ?56,97,318/- by adopting the income returned by the assessee.

Issue-wise Detailed Analysis:

1. Deletion of 50% Disallowance Amounting to ?26,01,929/- Towards Unproved Expenditure:

The Revenue challenged the deletion of a 50% disallowance amounting to ?26,01,929/- made by the Assessing Officer (AO) towards unproved expenditure claimed by the assessee against business income. The AO had made ad-hoc disallowances on various expenses such as electricity charges, business promotion expenses, telephone charges, interest payment, and consultancy charges, citing the assessee's failure to furnish original bills/vouchers.

The learned CIT(A) deleted the disallowance, noting that no incriminating material was found during the search to justify such disallowance. The CIT(A) emphasized that the AO did not reference any search findings indicating that the expenditures were inflated or bogus. The tribunal upheld the CIT(A)'s decision, affirming that ad-hoc disallowances cannot be made without concrete evidence suggesting the expenditures were not genuine.

2. Deletion of Addition of ?5 Crores Made Under Section 40A(3) for Cash Payment:

The AO disallowed a cash payment of ?5 crores made to M/s. Kokilam Foundations Pvt. Ltd. under Section 40A(3), treating it as revenue expenditure. The AO argued that the payment was for the purchase of land, which was shown as stock-in-trade in the books of the assessee.

The CIT(A), however, found that the payment was part of an investment in a joint venture project with an assured return, as per the MoU and supplementary agreement between the assessee and M/s. Kokilam Foundations Pvt. Ltd. The CIT(A) concluded that the transaction was an investment, not a purchase of property, and thus, the provisions of Section 40A(3) were not applicable. The tribunal agreed with the CIT(A), noting that the nature of the transaction was indeed an investment in a joint venture, supported by the MoU and supplementary agreement, which could not be considered as revenue expenditure.

3. Deletion of Addition of ?56,97,318/- by Adopting the Income Returned by the Assessee:

The AO had rejected the revised statement of total income filed by the assessee, which showed a net loss of ?34,57,307/- instead of the initially declared profit of ?24,40,011/-. The AO contended that the revised statement was not filed as a revised return, as required by the Supreme Court's decision in M/s Goetz (India) Ltd. Vs. CIT.

The CIT(A) accepted the revised statement, directing the AO to consider the net loss as per the revised profit & loss account. The tribunal supported the CIT(A)'s decision, stating that appellate authorities are empowered to admit additional claims or grounds even if not presented before the AO, provided the facts are on record. The tribunal found that the revised statement of total income was justified as it reflected the true nature of the transactions, which were investment activities rather than purchases of land.

Conclusion:

The tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all three issues. The tribunal found that the AO's disallowances and additions were not supported by sufficient evidence or legal justification, and the CIT(A)'s conclusions were based on a thorough examination of the facts and applicable law. The order was pronounced in the open court on 20th January 2021.