2024 (7) TMI 1088 - AT - Income Tax

Unexplained cash deposits - excess deposits in bank by invoking provisions of Section 69A r.w. Section 115BBE - AO made additions under the head cash deposits alleging a variance between receipts reported by the assessee in its books of accounts and audited P L account and the total receipts as noticed in the bank statements furnished by the assessee - CIT(A) deleted addition - HELD THAT - The adoption of mercantile system of accounting policy mandatory for assessee-company as per Section 145(1) has been properly disclosed in the audited financial accounts. As per mercantile method, the receipt towards coaching fee will be regarded as chargeable income only upon its accrual i.e legal right to receive such money. Mere receipt of money/ fee would not result in its taxability unless the service against such fee received has been rendered. The conclusion to dislodge perfunctory addition appears to be based on nuanced analysis of facts by the CIT(A) and resonate with the accounting principles and corroboration of facts on record. The CIT(A) has thus rightly removed the absurdity committed by the AO and correctly accepted the audited turnover as declared by the assessee. As following the mercantile method of accounting, the assessee has also recognized the income received in the earlier year but accrued in this year as the taxable income of this year. Likewise, coaching fee received in this year but services rendered in the next year has been proportionately carried forward for taxation in next year since a component of fee received did not accrue in this year. Such amount of fee was carried forward and recognized in the subsequent year as per the rudimentary principles of accounting. Noticeably, the accounts have been subjected to statutory audit without any qualifications. Furthermore, the sales/turnover recorded by the assessee in the books is found to be in conformity with the service tax return. The addition made by the AO on the other hand is plaughed with wild and creative accounting giving rise to absurd results. We can effortlessly see complete absence of any semblance in the action of the AO. The process of reasoning adopted by the CIT(A) to reverse such addition is based on objective scrutiny of facts and is thus fully endorsed. The utterly incomprehensible addition conjured up by the AO on manifestly wrong premises by including non-revenue entries without any opportunity to the Assessee can not be countenanced in any manner. Hence, we decline to interfere with the order of the CIT(A). Additions u/s 69A on account alleged unaccounted investment in property - AO has made additions towards undisclosed investment in undisclosed property on the basis of some inaccurate information gathered in SFT-12 in form 26AS - CIT(A) deleted addition- HELD THAT - With reference to alleged investment in property, the assessee has taken a clear stand that it has not made any purchase or investment in immovable property. Rather, the assessee has taken the property at lease/rent for which copy of lease/rent agreement was produced before the AO as well as before the CIT(A). An affidavit to the effect that assessee did not purchase any property during the year under consideration was also placed before the lower authorities. The copy of ledger account of security deposit with the landlord in relation to the impugned property, rent paid to landlord in relation to property vindicates the stand of the assessee. The AO, on the other hand, has not brought any concrete evidence to support bald allegation. The onus placed on the AO was thus not discharged. CIT(A), in our considered view, has analyzed the facts in right perspective which is self explanatory. On the face of tell tale facts, we endorse the action of the CIT(A) and decline to interfere. Additions on account of unexpired fee - AO alleging that the unexpired fee, in the nature of income, has been shown on the liability side of the balance-sheet - HELD THAT - The pro rata basis for calculating an unexpired fee is apparently consistent with the recognized accounting policy. The CIT(A) has rightly appreciated the facts in proper prospective. The CIT(A) has examined the issue threadbare and the basis of calculation of unexpired fee has also been correctly appreciated by the CIT(A) as tabulated in its appellate order. The action of the AO is contrary to the recognized accounting method employed by the assessee. The additions made by the AO does stand to reasons and suffers from obvious flaw. The action of the CIT(A) is in consonance with the factual matrix and accounting policy. Thus, no interference with the view taken by the CIT(A) is called for. Additions on account of rent charges on the ground that rent agreements of some property have not been provided - AO doubted the genuineness and correctness of rent charges and disallowed 10% of the total rent amount on estimated basis - CIT(A) deleted addition - HELD THAT - The rent agreements were uploaded in respect of halls booked on the website of the Income Tax together with PAN of the landlords. A comprehensive detail of rent paid along with TDS, nature of payment, name of the party, PAN, amount paid/credited, property number and address of the land and landlord was also submitted. The relevant facts were also concurrently produced before the CIT(A) as recorded by the CIT(A). Before us as well, the documentary evidences have been adverted the course of hearing. In the backdrop of facts noted above, the estimated disallowance of 10% of rent payment is wholly incomprehensible and uncalled for. The CIT(A), in our considered view, has rightly appraised the facts in perspective. The findings of the CIT(A) is self speaking and does not require further elaboration. We thus see no reason to interfere with the findings of the CIT(A). Additions on account of payment to contractors - AO alleging that assessee has provided a chart of 46 contractors including the nature of payments, name of the party, PAN, total amount paid/ credited and TDS deducted but no details of address of the contractors, confirmation, copy of agreements, etc. were furnished - CIT(A) found that the expenses have been incurred wholly and exclusively for the purposes of business and thus cancelled the disallowance - HELD THAT - The facts placed before the lower authorities were adverted and reiterated before us as well. On appraisal of facts placed on record holistically, we find that conclusion drawn by the CIT(A) is complimented by the relevant facts. In the light of comprehensive documentations, payment through banking channel, deduction of TDS on such payments etc. we see no reason to depart from the findings of the CIT(A). We thus decline to interfere with the conclusion drawn by the CIT(A). Revenue appeal dismissed.

Summary

Issues Involved:
1. Addition on account of excess cash deposits in bank.
2. Addition on account of investment in property.
3. Addition on account of unexpired fee.
4. Addition on account of rent charges.
5. Addition on account of payment to contractors.

Issue-wise Detailed Analysis:

1. Addition on Account of Excess Cash Deposits in Bank:
The AO made an addition of Rs. 21,96,68,518/- under Section 69A r.w. Section 115BBE of the Income Tax Act, alleging a mismatch between the receipts reported by the assessee and the bank statements. The CIT(A) reversed this addition, finding that the AO had erroneously treated all credit entries in the bank as turnover without considering service tax, contra entries, inter-bank transfers, and other non-revenue items. The Tribunal upheld the CIT(A)'s decision, noting that the AO's actions were contrary to accounting principles and natural justice.

2. Addition on Account of Investment in Property:
The AO added Rs. 52,96,000/- alleging unaccounted investment in property. The assessee provided evidence, including lease/rent agreements and an affidavit denying any property purchase. The CIT(A) found that the property was taken on lease/rent and not purchased, and the AO failed to provide evidence to the contrary. The Tribunal affirmed the CIT(A)'s decision, agreeing that the AO's addition was based on a misconception.

3. Addition on Account of Unexpired Fee:
The AO added Rs. 7,66,29,091/- for unexpired fee, claiming it was shown as a liability. The assessee explained that the fee was collected in advance for services to be rendered in the next financial year, consistent with the mercantile system of accounting. The CIT(A) accepted this explanation and reversed the addition. The Tribunal agreed, noting that the AO's action was contrary to recognized accounting methods and the CIT(A)'s decision was based on a correct appreciation of facts.

4. Addition on Account of Rent Charges:
The AO disallowed 10% of the total rent paid, amounting to Rs. 1,66,64,284/-, due to the absence of rent agreements for some properties. The assessee provided rent agreements, TDS certificates, and other supporting documents. The CIT(A) found the disallowance arbitrary and deleted the addition. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere.

5. Addition on Account of Payment to Contractors:
The AO added Rs. 5,38,57,551/- for payments to contractors, alleging insufficient details. The assessee provided a comprehensive chart of payments, including TDS details and sample invoices. The CIT(A) found the expenses were incurred for business purposes and deleted the addition. The Tribunal agreed, noting that the CIT(A)'s findings were supported by relevant facts and documentation.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decisions on all grounds. The AO's additions were found to be based on incorrect assumptions and a lack of proper appreciation of facts and accounting principles. The CIT(A)'s detailed analysis and reversal of the additions were upheld as justified and in accordance with the law.