2021 (2) TMI 1106 - HC - Income Tax

Addition of inflated expenditure - Whether the inflated expenditure admitted by the assessee is to be allowed despite the fact that the assessee could not reconcile the statements nor could prove the same with supporting documentary evidence? - Tribunal remanding the issue back for verification of inflated expenditure for the assessment year 2011-12 while allowing relief for another assessment year 2010-11 when the facts are similar on the same issue? - HELD THAT - Tribunal appears to have examined certain documents, which seemed to have been produced by the assessee for the first time before the Tribunal and the Tribunal proceeded to hold that a perusal of the sub-contract as also the invoice showed that the area was an estimated quantity only and therefore, the Tribunal found no reason to interfere disallow the expenditure. Tribunal, while testing the correctness of the order passed by the CIT(A), is required to examine as to whether there is any error of fact or law committed by the CIT(A). In the assessee's case, both before the Tribunal and the CIT(A), the assessee could not reconcile the difference and for the first time, the assessee attempted to do so before the Tribunal. Two options would be available to the Tribunal, the first being, in our opinion, the most effective, is to call for a remand report from the Assessing Officer based on the documents presented by the assessee before the Tribunal for the first time and the second option is to remand the matter to the Assessing Officer for a fresh consideration. The Tribunal did not exercise any one of the options, but proceeded to take note of certain documents placed before the Tribunal for the first time and granted relief to the assessee. We do not agree with the procedure adopted by the Tribunal and without examining the fact situation, the Tribunal ought not to have granted relief especially when the assessee could not reconcile the difference before either the Assessing Officer or the CIT(A). Hence, we are of the considered view that the Tribunal ought to have remanded the matter to the Assessing Officer for a fresh consideration and ought not to have allowed the appeal. - Appeal of revenue allowed.

Summary

Issues:
Challenging order under Section 260A of the Income Tax Act, 1961 for assessment year 2010-11 based on inflated expenditure and reconciliation discrepancies.

Analysis:
The appeal filed by the Revenue under Section 260A of the Income Tax Act, 1961 challenged the order of the Income Tax Appellate Tribunal for the assessment year 2010-11. The substantial questions of law raised by the Revenue included the remanding of the issue for verification of inflated expenditure for the assessment year 2011-12 and the allowance of inflated expenditure without proper reconciliation and supporting evidence by the assessee.

The assessee, a construction company, admitted inflated expenditure during a survey conducted under Section 133A of the Act. The Assessing Officer found discrepancies in subcontracted work values and expenditure claimed by the assessee. Despite the assessee's failure to provide documents for reconciliation, the Assessing Officer disallowed a portion of the claimed expenditure and added it to the total income.

The Commissioner of Income Tax (Appeals) upheld the disallowance of expenditure due to lack of reconciliation and substantiation by the assessee. However, the Tribunal allowed the appeal, noting that the subcontracted work area discrepancy was based on estimated quantities and found no reason to disallow the expenditure.

The High Court observed that the Tribunal should have either called for a remand report from the Assessing Officer or remanded the matter for fresh consideration, especially since the assessee failed to reconcile the differences before. Therefore, the High Court allowed the Revenue's appeal, set aside the Tribunal's order, and remanded the matter to the Assessing Officer for a fresh consideration, emphasizing that no finding on the merits was rendered.

In conclusion, the High Court's judgment focused on the proper procedure to be followed when discrepancies in expenditure and subcontracted work values arise, emphasizing the importance of reconciliation and supporting evidence to substantiate claims before allowing relief.