2021 (2) TMI 755 - HC - Income Tax

Telescoping benefit to unexplained investment - telescoping of expenses to be allowed against income declared - benefit of matching principle - As assessee while inviting attention of this Court to the judgment of the Supreme Court in J.K. Industries Limited and Another Vs. Union of India and Others 2007 (11) TMI 401 - SUPREME COURT submitted that the assessee is entitled to the benefit of matching principle. HELD THAT - In view of the law laid down by the Supreme Court in J.K. Industries Limited (supra) and in view of the aforesaid decision, the assessee is entitled to take a plea with regard to the matching principle and since the assessee has not been heard on the aforesaid issue, we deem it appropriate to quash the order passed by the Tribunal in so far as it pertains to the appeal preferred by the revenue and remit the matter to the Tribunal to decide the same afresh after affording an opportunity to all the parties on the aforesaid issue. Needless to state that it will be open for the parties to raise all the contentions which are admissible in law to them. Therefore, it is not necessary for us to answer the substantial questions of law.

Summary

Issues:
1. Telescoping of expenses against declared income.
2. Disallowance of expenses and unexplained investments.

Analysis:
1. The appeal involved the question of allowing telescoping of expenses against the declared income for Assessment Year 2008-09. The Tribunal had to determine whether the Assessing Officer's grant of relief for expenses of ?30,00,000 against the declared income of ?50,00,000 was correct when the revenue did not appeal. Additionally, the Tribunal had to assess whether a similar telescoping of expenses of ?32,50,000 against the declared income of ?50,00,000 was permissible without examining the availability of funds and the CIT's order disallowing expenses under Section 263 of the Income Tax Act.

2. The facts revealed that the assessee, engaged in real estate business, faced a search operation leading to the centralized case under Section 153A of the Act for the Assessment Year 2008-09. The original return showed a total income of ?8,82,13,948, with subsequent additions by the Assessing Officer. The Commissioner of Income Tax (Appeals) partially allowed the appeal, granting telescoping benefits for unexplained investments and development expenses. However, the revenue challenged this decision before the Tribunal.

3. The Tribunal, in its order, addressed the issue of alleged cash payment and investments. It noted that the assessee treated the cash payment as an investment, not an expenditure, making Section 40A(3) inapplicable. The Tribunal emphasized the need to establish the source of funds for investments and expenses. It highlighted that if expenses were already incurred but the source was unknown, claiming credit for further investments was not justified. Consequently, the Tribunal set aside the CIT(A)'s findings and restored those of the Assessing Officer.

4. Subsequently, both the revenue and the assessee appealed the Tribunal's decision. The revenue's appeal was partly allowed, while the assessee's appeal was dismissed. The assessee then approached the High Court, arguing for the application of the matching principle based on a Supreme Court judgment. The High Court, considering the principles laid down in the Supreme Court case, decided to quash the Tribunal's order related to the revenue's appeal. The matter was remitted back to the Tribunal for a fresh decision after affording all parties an opportunity to address the matching principle issue.

5. The High Court concluded by emphasizing that all parties could raise admissible contentions, and hence, it was unnecessary to address the substantial questions of law. The appeal was disposed of accordingly.