2025 (3) TMI 945 - AT - Income Tax

Bogus charges for installation of electricity poles bogus purchases - addition on the basis of a search and seizure operation proceedings - HELD THAT - CIT(A) has very meticulously examined the evidence of each of the suspicious or doubtful vendors. Nothing could be cited before us to allege that the appreciation of evidence and inferences drawn on the basis of evidences was so perverse so as to be interfered with in these appeals. We are of considered view that when the only ground of revenue to challenge the findings of FAA is that appreciation of evidences or information is erroneous then ld. DR should be able to show some absurdity or perversity in the inferences drawn which is not at all the case here. AO had made the addition on the basis of a search and seizure operation proceedings and the reason for doubting the transaction was failure of the assessee to file necessary evidences showing that the purchases from material supplier was not bogus. On the other hand CIT(A) has examined the party wise additions on the basis of evidences filed by the assessee and their evidentiary value. AO has not doubted the fact of allotment of contract to the assessee and that the assessee had completed the contracts as per the work orders. Certainly the completion of the contracts of the nature of street-lighting of various roads belonging to MCD would have required use of definitive material in terms of quality and quantity. There may be allegation of escalation of prices and the matter may have be investigation by other agencies but that did not dispense with onus on the ld. AO to cite discrepancy in the evidences of assessee to allege bogus expenditure on labour or material. Thus without bringing anything to discredit the expenditure in terms of labour and other charges corresponding to the use of the material in completion of the work order AO had doubted the expenditures which have been rightly deleted by CIT(A) and findings need no interference. The grounds in hand deserve to be rejected. Addition made on substantive basis and protective addition - cash found the locker - HELD THAT - What is material is that when the promoters of the company had made it clear on the day of search itself that the cash belonged to the company thereafter there is no finding of fact by the ld. AO that the books of accounts did not reflect such cash balance on the day of search. Assessee has duly submitted before the ld. AO copies of imprest accounts standing in the names of Mr. T.P. Singh and Mr. J.P. Singh in the books of the company and same have been relied by the ld. CIT(A) to delete the addition. There is no error in the findings of ld. CIT(A) that the ld. AO has simply brushed them aside holding it as an after-thought. There is no error in the conclusion of CIT(A) that the amount found in the locker being Rs 2 lacs also cannot be considered as unexplained cash as it has been submitted that the said amount represented savings of Mr. T.P. Singh and his family. CIT(A) has noted that Mr. T.P. Singh s wife was also working in a public sector undertaking. Considering the quantum of the amount found in the locker we approve the conclusion of ld. CIT(A) to treat it as explained cash when the same could be explained by long years of savings of the family. Therefore the addition made on account of unexplained cash is rightly deleted. Disallowance of bad debts being bad debts written off - CIT(A) deleted addition - HELD THAT - There is no error in the findings of CIT(A) that assessee is only required to show that he has written off the bad debts in his books of accounts. The judicial pronouncements are uniform in this regard that it is the reasonable decision of the assessee which is relevant in examining whether a particular debt has become bad or not. In the present case it is an undisputed fact that due to allegations of the loss and mismanagement in the contracts awarded in connection with Commonwealth Games 2010 several government agencies were investigating the affairs. Because of this MCD had refused to release the payments. Therefore it would unreasonable to argue that the amount lying with MCD had not become bad merely because the appellant had not yet exhausted the legal remedies. Considering all these factors the deduction for bad debts written off claimed by the appellant is rightly allowed by the ld. CIT(A). The ground has no substance.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the additions made by the Assessing Officer (AO) on account of bogus charges for installation of electricity poles, bogus purchases, and disallowance of bad debts were justified.
• Whether the cash found during the search operation was unexplained income of the assessee company.
• Whether the disallowance of bad debts written off by the assessee was valid under the applicable legal framework.

ISSUE-WISE DETAILED ANALYSIS

1. Additions on Account of Bogus Charges and Purchases

• Relevant Legal Framework and Precedents: The AO relied on the findings from a search and seizure operation under Section 132 of the Income Tax Act, 1961, and subsequent survey actions under Section 133A. The AO questioned the genuineness of transactions with certain contractors and suppliers, alleging that the expenses claimed were intended to reduce taxable profits.
• Court's Interpretation and Reasoning: The Tribunal found that the AO's conclusions were primarily based on the non-production of certain parties for verification and the absence of corroborative evidence during surveys. The Tribunal noted that the AO failed to provide concrete evidence to discredit the transactions.
• Key Evidence and Findings: The Tribunal emphasized that the CIT(A) had meticulously examined the evidence and found no infirmities. The CIT(A) had considered all relevant documents and information provided by the assessee, which the AO had overlooked.
• Application of Law to Facts: The Tribunal ruled that the AO's approach of expecting the assessee to prove the genuineness of expenditures solely based on the absence of incriminating evidence during vendor searches was flawed. The CIT(A)'s findings were upheld, as the AO did not demonstrate any absurdity or perversity in the evidence appreciation.
• Treatment of Competing Arguments: The Tribunal rejected the revenue's argument that the CIT(A)'s appreciation of evidence was erroneous, as no substantial evidence was presented to support this claim.
• Conclusions: The Tribunal upheld the CIT(A)'s decision to delete the additions related to bogus charges and purchases, finding no error in the CIT(A)'s appreciation of evidence.

2. Unexplained Cash Found During Search

• Relevant Legal Framework and Precedents: The AO made additions based on statements made during the search operation regarding cash found in lockers and briefcases, attributing it to the assessee company.
• Court's Interpretation and Reasoning: The Tribunal noted that the statements made during the search indicated that the cash belonged to the company or represented family savings. The AO failed to establish that the cash was unexplained income.
• Key Evidence and Findings: The CIT(A) relied on the imprest accounts and statements made during the search, which explained the source of the cash. The Tribunal found no error in the CIT(A)'s reliance on these documents.
• Application of Law to Facts: The Tribunal agreed with the CIT(A) that the cash found was explained and that the AO's dismissal of the imprest accounts as an afterthought was unjustified.
• Treatment of Competing Arguments: The Tribunal found the revenue's arguments unconvincing, as the CIT(A) had adequately addressed the source of the cash.
• Conclusions: The Tribunal upheld the CIT(A)'s deletion of the additions related to unexplained cash.

3. Disallowance of Bad Debts

• Relevant Legal Framework and Precedents: The AO disallowed the bad debts claimed by the assessee, arguing that legal remedies had not been exhausted and the debts had not become irrecoverable.
• Court's Interpretation and Reasoning: The Tribunal emphasized that post-1989, the only requirement for claiming bad debts is their write-off in the accounts. The Tribunal found that the CIT(A) correctly applied this principle.
• Key Evidence and Findings: The CIT(A) considered evidence of the assessee's efforts to recover the debts, including correspondence with the Municipal Corporation of Delhi (MCD) and legal notices.
• Application of Law to Facts: The Tribunal agreed with the CIT(A) that the write-off was justified, given the MCD's refusal to release payments and the involvement of investigating agencies.
• Treatment of Competing Arguments: The Tribunal dismissed the AO's argument that the debts had not become bad, as the CIT(A) had adequately considered the evidence of non-recovery.
• Conclusions: The Tribunal upheld the CIT(A)'s decision to allow the deduction for bad debts written off.

SIGNIFICANT HOLDINGS

• Core Principles Established: The Tribunal reaffirmed the principle that for claiming bad debts, the primary requirement is their write-off in the accounts, post-1989 amendments. The Tribunal also emphasized the importance of concrete evidence in disallowing expenses as bogus.
• Final Determinations on Each Issue: The Tribunal dismissed the revenue's appeals, upholding the CIT(A)'s decisions to delete the additions related to bogus charges, purchases, unexplained cash, and disallowance of bad debts.