2016 (7) TMI 1358 - AT - Income Tax

Assessment of income - AY selection - Held that - The assessee had raised invoices on account of licence fee and annual maintenance charges for the calendar year January 2010 to December 2010. Apparently only 3 months fell in the impugned financial year i.e. A.Y. 2009-10 ending 31-3-2010. The invoice was raised for full 12 months period. Thus the income that accrued to the assessee during the year before us pertained to 3 months period only. Thus in our view the assessee has rightly shown the income for 3 months period only. It is further noted that in any case the balance amount has been included by the assessee in its income for the subsequent year i.e. A.Y. 2011-12 and has been accepted as such by the AO. Under these circumstances we do not find that the approach of the revenue was justified in following such a hyper-technical approach. Also it is further brought to our notice that tax rates in both the years are reported to be same. Under these circumstances we find no justification to sustain the addition made by the AO and therefore the same is directed to be deleted - Decided in favour of assessee Rejecting all expenses - not accepting the business income offered by the assessee company - Held that - It is noted that complete details and documentary evidences have been filed before the lower authorities. This fact has not been controverted by the Ld. DR. There was no justification for not treating the income under the head income from business . Similarly there is no justification for not allowing the expenses claimed by the assessee. Under these circumstances we direct the AO to treat the income shown by the assessee under the head Income from business . With regard to the expenses the issue is sent back to the file of the AO for allowing adequate opportunity to the assessee to file requisite details and evidences. The AO shall consider the entire material on objective basis and shall allow the expenses accordingly. No expenses should be disallowed without confronting the doubts to the assessee. This ground may be treated as allowed for statistical purpose. Addition u/s 69A - unexplained income received from SSSMPL - Held that - the undisputed facts on record are that the assessee did not receive any such amount from SSSMPL. The impugned amount might have been received by the director in the bank account of the director himself but definitely not by the assessee company. These facts were not controverted by the Ld. DR during the course of hearing before us. Under these circumstances the addition in the hands of the assessee was not permissible under the law. The addition has been made without verifying the facts and without referring to the provisions of law. In any case if the AO had some doubts then the requisite enquiries should have been made in the hands of the said director or in the hands of SSSMPL. Unless the amount is received by the assessee company the assessee is not obliged under the law to disclose the same in its books of account. Thus the impugned addition being purely illegal and to be deleted - Decided in favour of assessee.

Summary

Issues involved:
1. Challenge to addition of income for the assessment year.
2. Dispute over acceptance of business income and rejection of expenses.
3. Addition of unexplained income under section 69A of the Income Tax Act.

Issue 1 - Addition of Income for the Assessment Year:
The appeal contested the addition of income for the assessment year, specifically questioning the treatment of the entire amount as income when a portion pertained to the subsequent year. The appellant had invoiced a group company for software services, with only a fraction of the amount falling within the assessment year. The Tribunal noted the mercantile system of accounting followed by the appellant and emphasized that only the income accrued during the relevant period should be considered. Referring to legal precedents, the Tribunal criticized the revenue's hyper-technical approach and directed the deletion of the addition, citing the uniform tax rate and the acceptance of the remaining amount in the subsequent year.

Issue 2 - Acceptance of Business Income and Rejection of Expenses:
The appellant challenged the Assessing Officer's refusal to accept the business income and rejection of expenses without justification. During the hearing, the appellant's counsel highlighted the lack of reasoning behind the AO's decision. The Tribunal observed that complete details and evidence were submitted, undisputed by the Revenue. Consequently, the Tribunal directed the AO to treat the income as 'Income from business' and instructed a reevaluation of the expenses, emphasizing the need for an objective assessment and adequate opportunity for the appellant to provide necessary details.

Issue 3 - Addition of Unexplained Income under Section 69A:
The AO added an amount under section 69A as unexplained income based on an advance noted in a company's balance sheet but not reflected in the appellant's books. The Tribunal reviewed evidence demonstrating that the amount was never received by the appellant, with supporting bank records and confirmations. Notably, the AO failed to contest these facts during the proceedings. The Tribunal concluded that the addition was unjustified, illegal, and contrary to facts, directing its deletion. The Tribunal highlighted the necessity for proper verification and inquiries before making such additions, ultimately allowing this ground of appeal.

In conclusion, the Tribunal partially allowed the appeal, ruling in favor of the appellant on the issues of income addition for the assessment year and unexplained income under section 69A, while directing a reassessment of business income and expenses.