2019 (1) TMI 1805 - AT - Income Tax

Deduction of service charges paid to the employees - bogus claim as the employees who were examined by the AO had denied having received any service charges - HELD THAT - What is paid to the employees is only out of the amount collected from the customers in the form of the service charges but the total service charges paid to the employees far exceeds the amount collected. This fact undoubtedly raises doubts as to the genuineness of the claim made. Perhaps this would have triggered the AO to enquire into the genuineness of the claim. As a part of inquiry into the claim the AO had examined certain employees who had denied having received any such service charges. However this would not lead to a conclusion that the claim is untenable in view of the fact that the employees who were examined by the AO may not be working during that relevant time. Onus of proving the claim always lies on the assessee. But the present case the assessee-company failed to lead any evidence to prove the claim. CIT(A) had merely based on the presumptions that the assessee-company would have paid to the employees to the extent of the service charges collected and allowed the claim to the extent of service charges collected. Further the ld. CIT(A) had not even examined whether the service charges are really collected by the assessee-company nor was any evidence was discussed in the order in support of the claim for the expenditure. CIT(A) had proceeded on assumptions and presumptions while granting the partial relief. Order of the ld. CIT(A) is also not supported by any material on record. CIT(A) also failed to note that the facts necessary to prove the claim would be within knowledge of the assessee and it is the duty of the assessee alone to prove that what is claimed is true and correct AO was justified in drawing adverse inference on the claim and the ld. CIT(A) ought not have granted any relief in the absence of any evidence in support of the claim. Therefore the appeals filed by the assessee are dismissed and the appeals filed the Revenue are allowed.

Summary

Issues:
Cross appeals by Assessee-company and Revenue against CIT(A) order for AY 2013-14 & 2014-15.

Analysis:
The case involved cross appeals by the Assessee-company and Revenue against the CIT(A) order for AY 2013-14 & 2014-15. The Assessee, a company engaged in boarding and lodging, filed its return of income for AY 2013-14, disclosing a total income of Rs. 76,16,990. The assessment completed by the AO resulted in a total income of Rs. 2,96,04,147, disallowing the claim for deduction of service charges paid to employees amounting to Rs. 2,16,80,648. The CIT(A) allowed service charges paid through banking channels to permanent employees but disallowed the rest. The Assessee appealed against this decision, and the Revenue appealed against the part favoring the Assessee. The Tribunal noted discrepancies in the claim, where the total service charges paid to employees exceeded the amount collected from customers, raising doubts on the genuineness of the claim. The Assessee failed to provide sufficient evidence to support the claim, leading the Tribunal to dismiss the Assessee's appeals and allow the Revenue's appeals.

The Assessee's claim of service charges paid to employees was found to be questionable as the total amount paid exceeded the collected service charges. The Tribunal observed that the Assessee failed to provide concrete evidence to substantiate the claim, relying on presumptions. The Tribunal highlighted that the burden of proof lies with the Assessee, as per legal precedents, and the lack of supporting evidence led to adverse inferences drawn by the AO. The Tribunal emphasized that the CIT(A) erred in granting relief without substantial evidence to validate the claim. Citing relevant legal principles, the Tribunal concluded that the Assessee's appeals were unfounded, resulting in their dismissal, while the Revenue's appeals were allowed.

In conclusion, the Tribunal upheld the AO's decision to disallow the service charges claimed by the Assessee due to insufficient evidence supporting the claim. The Tribunal emphasized the importance of providing concrete evidence to substantiate claims and highlighted the Assessee's failure to meet the burden of proof. The lack of supporting documentation and reliance on presumptions led to the dismissal of the Assessee's appeals and the allowance of the Revenue's appeals. The judgment serves as a reminder of the necessity for taxpayers to provide substantial evidence to support their claims during assessments and appeals to avoid adverse inferences and unfavorable outcomes.