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TMI Blog2023 (2) TMI 905X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Ld. CIT(A) and Ld. AO deserve to be deleted, as also the deduction and addition sustained to the total loss declared by the Appellant; 2. That the Ld. CIT(A) has erred in not accepting the additional evidences submitted by the appellant under Rule 46A of the Income Tax Rules, 1962. 3. That the Ld. CIT(A) has erred on facts and in law in confirming the ad-hoc disallowance of expenses made by the Ld. AO of Rs. 4,68,30,034 being 20% of 'other expenses' and outrightly rejecting the additional evidences filed by the Appellant during the appellate proceedings on an arbitrary basis. 4. That the Ld. CIT(A) has erred in facts and on law in confirming the addition of Rs. l,87,03,731made by the Ld. AO u/s 68 of the Income-tax Act, 1961 ('Act')on account of difference between the opening and closing balance of creditors which has been taxed at the rate of 30% u/s 115BBE of the Act. 5. That the Ld. AO erred in not appreciating the complete facts of the case and passed its appellate order in haste. Further, the Ld. CIT(A) has erred in not providing sufficient time considering that the Appellant was in the process of collecting various evidences such as withholding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature and not incurred wholly and exclusively for the purpose of business. The estimated disallowance of expenses was thus worked out at Rs.4,68,30,034/-. 6. This apart, the Assessing Officer also observed that huge sundry creditors outstanding at the beginning as well as at the end of the year. The Assessing Officer required the assessee to furnish details of creditors along with their confirmation. The Assessee however did not comply with the requirement and could not support the bonafides of outstanding sundry creditors. Consequently, in the absence of any cogent details of creditors and their confirmations, the Assessing Officer alleged that the assessee has failed to discharge onus cast upon it to explain the source, identity and genuineness of the creditors. The Assessing Officer thus invoked Section 68 of the Act and made an addition of Rs.1,87,03,731/- (closing balance Rs.23,04,71,124/- less opening balance Rs. 21,17,67,393/-) being the difference between opening and closing balance of the sundry creditors. 7. Aggrieved by the additions made, the assessee preferred appeal before the CIT(A). 8. The CIT(A) however confirmed the estimated disallowance of expenses as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eport. All the expenses under the head 'other expenses' debited to Profit and Loss account were genuine expenses incurred wholly and exclusively for the purpose of business. Note No.21 of audited financial statement showing details of other expenses was adverted and it was submitted that (i) the total expenses of Rs.2341.50 lakh 'other expenses' , among others, include bad debt Rs.64.60 lakh on which estimated disallowance cannot be applied as incorrectly done by the AO. Similarly, an amount of Rs.245.01 lakh out of 'other expenses' represents 'net loss of foreign currency transaction and translations' which expenses also cannot be subjected to estimated disallowance by its very nature. The ld. counsel next submitted that the assessee during the year was inter alia engaged in operations and maintenance of BRT Bus Services in Indore as per agreement with Atal Indore City Transport Services Ltd. The increase in power fuel expenses was on account of BRT Bus Services together with increase in rates of power and fuel. The ld. counsel further pointed out that the assessee company has taken office premise on lease and part of that has been sub-let to other parties wherein it derived incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g bonafides of expenses and urged the CIT(A) under Rule 46A of the Income Tax Rules to admit the fresh evidences which was nonetheless declined. The Ld. Counsel thus vociferously contended that due to existence of peculiar circumstances of the case, the new management is handicapped and is not in a position to provide relevant books of account and other documents to substantiate the expenses to be Revenue Authorities but the facts however remains that expenses were genuinely incurred by the assessee company. The fact that books of accounts maintained by the assesseecompany, under the control of earlier management, were duly audited, tax audit was conducted, applicable TDS was deducted on the expenses incurred and the payments were made through banking channels goes to prove the genuineness of expenses debited in the P&L account and hence requires to be given due weightage. 10.4 The ld. counsel thus submitted no adhoc disallowance out of other expenses was justified and thus urged for reversal of the action of the Revenue Authorities. 10.5 In the alternative, the Ld. Counsel submitted that the disallowance made by the Assessing Officer @ 20% of the 'other expenses' is unreasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reater owing to such abject failure to discharge its onus. 11.2 In rebuttal of the claim of the assessee that due to change in management, the financial records are not available to support the claim of expenses or trade credits etc. The ld. DR adverted to a Share Purchase Agreement dated 11.03.2015 entered into between the old management and the new management and referred to paragraph 7.1 at page 32 of the agreement which reads as '7.1 True, correct and complete copies of financial statements have been provided to the purchaser and the same is acknowledged by the purchasers. The ld. DR thus submits that the new management is apparently in custody of all the financial record since inception. Otherwise also, the Revenue Authorities are concerned with the assessee and change of management would not exonerate the assessee to avoid production of financial records without which the assessment under Section 143(3) would be meaningless. The assessee was thus duty bound to produce the full records which he does not claim even today to be in any position to do so. Thus, the course adopted by the Assessing Officer was most liberal and benign in the context of the circumstances. The abstrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is not capable of any verification. The ld. DR submitted that even if the increase in the creditors is on account of conversion rate of foreign currency at the end of the year, this by itself will not absolve the assessee from the rigors of Section 68. Section 68 applies to all credits received during the year without any distinction and consequently the onus lies upon the assessee to explain the nature and source of such credit to the satisfaction of the Assessing Officer. It is quite possible that some new credits were received during the year and some old credits might have been paid. The ingredients of S. 68 would apply to all new credits. The AO was prevented from ascertaining these facts in the absence of basic records and hence the Assessing Officer was yet again very benign in making the additions of only differential amount. The Assessee, on the other hand, miserably failed to discharge onus which lay upon him. The Ld. DR thus submitted in conclusion that no interference with the orders of Revenue Authorities are called for. 12. We have carefully considered the rival submissions and perused the first appellate order and the Assessment order. We have also perused the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d management and incapacity of new management to substantiate the claim. 16. On a similar footing, it is noticed that the bona fides and correctness of outstanding trade payables is not evidenced by any material available on record. The assessee has tried to prove its claim circumstantially in the absence of the foundational records citing peculiar circumstances of change of management. Before the CIT(A) also, the assessee had attempted to file certain documents to support its case circumstantially and without possession of any clinching evidence. 17. As observed, the assessee has entered into a Share Purchase Agreement which resulted in transfer of management and control from the one set of shareholders to the new set of shareholders namely M/s. TravelTime Car Rental Private Limited and M/s. Mahalaxmi Automotives Private Limited. The agreement runs into 44 pages punctuated by 24 clauses and sub-clauses duly numbered. The consideration involved for transfer of shares is Rs.9.54 crore. This apart, the assessee co., driven by new management and backed by new set of shareholders, was also put under an obligation to meet the substantial liability to the tune of Rs.9.21 crore of Serco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such magnitude. Such clause of the agreement runs contrary to the stand of the assessee towards non-availability of records. As contended, the assessee has deftly stonewalled the enquiry and investigations by such non-production of records by such craven excuses. 17.3 Thus, the story propounded on behalf of the assessee towards its inability to produce the books of account defies rationale and is utterly unconceivable and unbelievable and hence rejected. 18. In the absence of any records, the AO cannot be faulted in making estimations of possible disallowances towards nonbusiness purposes and other count. The explanation of the assessee to justify the genuineness of 'other expenses' claimed without any cogent support material has no leg to stand. It is for the assessee to corroborate the entries in the financial records with documentary evidences when called for. Merely because similar expenses have been incurred in the earlier year by itself can be no ground to summarily allow the expenses in the subsequent years without production of any documentary evidence and attendant enquiry, if so needed. It goes without saying the process of assessment cannot be regarded as an empty form ..... X X X X Extracts X X X X X X X X Extracts X X X X
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