2024 (9) TMI 420 - AT - Income Tax

Excessive and bogus expenses - Addition made on account of impounded loose papers, showing Income and Expenditure A/c - case of the AO is that what was found during the survey was the real and actual expenditure incurred, whereas the claim of expenditure made by the assessee now through the audited accounts is more as shown in the impounded documents - HELD THAT - Claim of expenditure of Rs. 4.12 crore cannot be alleged to be excessive, bogus or in-genuine, merely based on the admission made by the assessee during the course of survey, in absence of any other corroborative evidence, specifically showing that what the assessee claimed through the audited accounts, audited income P L account, was not genuine or real expenditure incurred. No doubt, such a remand report operates as an estoppel, against the revenue. However, an independent examination of the record by us, also shows that expenses related to bank charges, bank interest and interest charges which were all routed through banking channels and subjected to TDS. The major expenditure claimed related to discount and rebate in support of which copies of ledger account of all the payees were submitted and available at Pg 62 to 181. No enquiry appears to have been made by the AO from these parties directly. The salary expenses were verifiable from the salary sheet. It is noticed that copies of the ledger account and other supporting evidence were furnished. Thus, if in the final accounts, which are duly audited, there is an increase in the expenditure as compared to the sheet found during the course of survey, such increase itself cannot result in an income and the allegation of the Revenue of having claimed excessive and bogus expenses is nothing more than a suspicion. DR failed to rebut all these factual findings and evidence brought on record by the assessee during the course of hearing. Very pertinently, the accounts were neither rejected directly by invoking section 145 nor indirectly in any manner and therefore, we find no substance in the grounds taken by the Revenue. Relevance of document relied upon by the AO - We are also in agreement with the finding of the ld. CIT(A) that the impounded document relied upon by the AO, has been fully explained by the assessee with the help of corroborate evidence to support the claim of the assessee and such relief has not been granted merely on the legal aspects and technicalities. Therefore, the Department's grounds of appeal as hereby dismissed. Assessee in his statement had already claimed / admitted undisclosed income during the course of assessment proceedings for A.Y. 2016-17, which fact was not appreciated by the CIT(A) - No merit and force in the ground taken by the Revenue and the same appears factually incorrect on the face of it inasmuch as based on the admission of the Assessee that such expenditure related to A. 2015-16 and not to AY 2016-17 only, the AO considered this issue in A.Y. 2015-16 only but not in AY 1617. The ld. CIT(A) has nowhere said that such an issue was to be considered in A.Y. 2016-17 but not in A.Y. 2015-16, hence the ground of the Revenue fails on this count only. However, the other part of the ground wherein it is alleged that the assessee admitted such undisclosed income for A.Y. 2015-16 is contrary to facts. The assessee right from the beginning has been agitating such addition, the merit of which we have already dealt with in response to Ground No. 1 and 3 taken by the Revenue and already stands dismissed and in fact, it was only an alternate argument raised that if at all additions are sustained, they pertain to A.Y. 2015-16 and not A.Y. 2016-17, which cannot be considered as an acceptance or admission of the Assessee. Hence, this ground of the Revenue fails and is hereby dismissed.

Summary

Issues Involved:
1. Justification of CIT(A) in deleting the addition of Rs. 1,71,72,858 (enhanced to Rs. 1,81,18,746) on account of excessive and bogus expenses.
2. Consideration of Naresh Jain's statement recorded under oath under section 131.
3. Assessment of the plea that the impounded documents were incomplete records.
4. Application of the decision of the Kerala High Court in K. Abdul Azeez vs Commissioner of Income Tax.
5. Validity of recording statements under section 131.
6. Relevance of undisclosed income offered during the survey for AY 2015-16.
7. Evidentiary value of the statement recorded under oath and its impact on the assessment.

Detailed Analysis:

1. Justification of CIT(A) in Deleting the Addition:
The Revenue challenged the deletion of the addition made by the AO of Rs. 1,71,72,858/- based on impounded documents showing Income and Expenditure A/c. The AO alleged that the assessee maintained two accounts to manipulate expenses. The assessee argued that the expenses were genuinely incurred, supported by bills and vouchers, and audited without any adverse remarks. The CIT(A) found that the AO's remand report verified the expenses as genuine, supported by bills, vouchers, and banking transactions. The CIT(A) concluded that the addition could not be sustained solely on the basis of the statement recorded during the survey, especially when the books of accounts were not rejected. Therefore, the addition was deleted.

2. Consideration of Naresh Jain's Statement:
The Revenue relied heavily on Naresh Jain's statement recorded under section 131, where he admitted increased expenditure. The CIT(A) acknowledged the evidentiary value of the statement but emphasized that it was not conclusive. The CIT(A) found that the corroborative material used by the AO was fully explained by the assessee, and in the absence of any other corroborative evidence, the admission alone could not be the basis for the addition. Thus, the deletion of the addition was justified.

3. Assessment of the Plea of Incomplete Records:
The assessee argued that the impounded documents were memorandum records, commonly used before making final entries in the books of accounts. The CIT(A) noted that the AO himself agreed that the details in the loose papers matched the expenses claimed in the P&L account. The CIT(A) found that the expenses were recorded in the regular books of accounts, supported by bills and vouchers, and audited without any adverse remarks. Therefore, the plea of incomplete records was accepted, and the addition was deleted.

4. Application of the Kerala High Court Decision:
The Revenue contended that the CIT(A) wrongly applied the decision of the Kerala High Court in K. Abdul Azeez vs Commissioner of Income Tax. The CIT(A) found that the addition was based solely on the statement recorded during the survey, without any other corroborative material. The CIT(A) applied the Kerala High Court's decision, which held that assessment of tax could not be made solely on the basis of such sworn statements. Therefore, the deletion of the addition was justified.

5. Validity of Recording Statements under Section 131:
The Revenue argued that the statement recorded under section 131 was valid. The CIT(A) found that the statement recorded during the survey was not conclusive and required corroborative evidence. The CIT(A) noted that the AO's remand report verified the expenses as genuine, supported by bills and vouchers. Therefore, the recording of the statement under section 131 did not justify the addition.

6. Relevance of Undisclosed Income Offered During Survey for AY 2015-16:
The Revenue claimed that the assessee accepted the undisclosed income of Rs. 1,71,72,858/- as related to AY 2015-16. The CIT(A) found that the assessee consistently contended that the documents were incomplete records and the audited accounts showed the true and correct expenditure. The CIT(A) noted that the AO considered the issue in AY 2015-16 based on the assessee's claim. Therefore, the deletion of the addition was justified.

7. Evidentiary Value of the Statement Recorded Under Oath:
The CIT(A) acknowledged the evidentiary value of the statement recorded under oath but emphasized that it was not conclusive. The CIT(A) found that the corroborative material used by the AO was fully explained by the assessee, and in the absence of any other corroborative evidence, the admission alone could not be the basis for the addition. Therefore, the deletion of the addition was justified.

Conclusion:
The appeal of the Revenue was dismissed, and the deletion of the addition by the CIT(A) was upheld on the grounds that the expenses were genuinely incurred, supported by bills and vouchers, and audited without any adverse remarks. The statement recorded during the survey was not conclusive and required corroborative evidence, which was not provided by the AO. Therefore, the addition was not sustainable.