2022 (8) TMI 854 - AT - Income Tax

Addition u/s 68 - non-confirmation of credit balances payable as provision for internal audit to TR Chadha and Co. and sum payable as leave and pension contribution to deputationist Ms. P Meera Anusha who came from State Govt. as undisclosed credit balances - HELD THAT - Contention of the assessee that the amount was made as a provision entry for F.Y. 2015-16 relevant to A.Y. 2016-17 towards internal audit fees payment to M/s. T. R. Chadha Co., who the internal auditors of the company. Since M/s. T. R. Chadha Co. has raised invoice in subsequent Financial Year i.e. in F.Y. 2016-17 after the completion of work, it was not reflected in their confirmation. Assessee has also produced the copy of account which evidences the payment of Rs. 99,000/- made to M/s. T. R. Chadha Co. in subsequent financial year aforesaid contention of the assessee has not been controverted by Revenue. Considering the totality of the aforesaid facts, we are of the view that no addition was called for more so, when no evidence about the expenses being bogus in nature has been brought on record by the Revenue. We, therefore, direct the deletion of addition made by AO. Addition payable to M/s. P. Meera Anusha, it is the contention of the assessee that she is an employee of State Govt. on deputation to the company and as per the understanding with State Govt., assessee is required to pay her in addition to her salary, the leave and pension contribution and reimbursement of expenses like Telephone, newspaper etc. The assessee has also placed on record the copy of the claims towards the expenses and the leave and pension contribution made by the assessee through her parent organization. Assessee has also demonstrated that the aforesaid amount has been paid to the assessee in subsequent year - Thus in the absence of the any evidence placed by the Revenue to demonstrate that the payment is bogus in nature, we are of the view that no disallowance of aforesaid expenses is called for in the present case. We, therefore, direct its deletion thus the ground of assessee is allowed.

Summary

Issues:
1. Addition of Rs.2,33,800/- u/s 68 on account of non-confirmation of credit balances.
2. Disallowance of provision for internal audit fees and leave and pension contribution.

Analysis:

Issue 1: Addition of Rs.2,33,800/- u/s 68 on account of non-confirmation of credit balances:
The assessee, a company engaged in toll road construction, filed its return for A.Y. 2016-17 showing a loss. The AO made additions of Rs.99,000/- and Rs.1,34,880/- based on non-confirmation of credit balances with M/s. T. R. Chadha & Co. and M/s. P. Meera Anusha, respectively. The CIT(A) upheld the AO's order. The AR argued that the provision for audit fees and payments to M/s. T. R. Chadha & Co. were made in subsequent years, supported by ledger accounts. Similarly, regarding M/s. P. Meera Anusha, it was contended that payments were made in the subsequent year as per the agreement. The Tribunal found the AO's additions unjustified as no evidence of expenses being bogus was presented by the Revenue. Consequently, the additions were deleted, and the appeal was allowed.

Issue 2: Disallowance of provision for internal audit fees and leave and pension contribution:
Regarding the provision for internal audit fees and leave and pension contribution, the AR argued that the payments were made in subsequent years as per agreements with M/s. T. R. Chadha & Co. and M/s. P. Meera Anusha, respectively. The AR provided supporting documents showing the payments were genuine and made as per agreements. The Tribunal observed that the Revenue failed to demonstrate any evidence to suggest the payments were bogus. Consequently, the Tribunal directed the deletion of the disallowance, allowing the appeal of the assessee.

In conclusion, the Tribunal found the additions made by the AO unjustified as the expenses were genuine and made in subsequent years as per agreements. The Tribunal directed the deletion of the additions and allowed the appeal of the assessee.