2021 (10) TMI 858 - AT - Income Tax

Addition as income from inflation of expenses - assessee s group cases who had preferred application before the Hon ble Income Tax Settlement Commission - Asst Year 2012-13 - HELD THAT - There is no dispute on this aspect. It is not in dispute that assessee had resorted to inflation of expenses by making certain cheque payments and receiving back cash in return. It is not in dispute that the said cash had already also been utilised for the purpose of meeting business related expenses by the assessee. What is to be taxed is only the left over portion of the cash remaining with the assessee on this subject mentioned transaction being the profit element which has been already accepted by the Income Tax Settlement Commission at 12% vide its order dated 28/06/2018 in assessee s group company cases. We hold that the lower authorities ought to have followed the same in view of identical facts in the assessee herein also. Accordingly we direct the ld AO to make an addition @ 12% of inflation of expenses of Rs. 28, 76, 106/- for the relevant Asst Year in line with the direction of the Income Tax Settlement Commission in assessee s group company cases. See M/S. BHALCHANDRA TRADING P. LTD. VERSUS DY. CIT CENTRAL CIRCLE-6 (2) MUMBAI 2021 (2) TMI 1095 - ITAT MUMBAI - Grounds raised by the assessee are partly allowed. Unexplained cash u/s 69 - as reflected in the seized material that cheque was received back in lieu of which cash was paid by the assessee company - Asst Year 2014-15 -HELD THAT - As version of the assessee deserves to be believed that it had not received any sum of Rs. 7, 84, 932/- by cheque. In any case the case of the revenue is only that the assessee had received cheque for Rs. 7, 84, 932/- and for which the assessee had in turn paid cash from its unexplained sources. It is not in dispute that there is abundance of cash balance in the assessee group reflected in the parallel books of accounts which were subject matter of seizure in the course of search and huge addition on peak credit basis of Rs. 26 crores was indeed offered by the group. Hence in any case the meagre alleged cash payment of Rs. 7, 84, 932/- stands explained by the said income itself. Hence there is no need to make any addition on account of unexplained cash u/s 69 of the Act in the instant case. Accordingly the grounds raised by the assessee are allowed.

Summary

Issues Involved:
1. Addition of Rs. 26,76,106/- as income from inflation of expenses for A.Y. 2012-13.
2. Addition of Rs. 57,42,679/- as income from inflation of expenses for A.Y. 2013-14.
3. Addition of Rs. 7,84,932/- as income from inflation of expenses for A.Y. 2014-15.

Issue-Wise Detailed Analysis:

1. Addition of Rs. 26,76,106/- as income from inflation of expenses for A.Y. 2012-13:
The first issue addressed was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in confirming the addition of Rs. 26,76,106/- as income from inflation of expenses. The search operation under Section 132 of the Income Tax Act, 1961, conducted on the Ahuja group on 25/06/2015, led to the discovery of parallel books of accounts showing inflated expenses. The Assessing Officer (AO) added Rs. 64,35,000/- towards inflation of expenses under Section 68 of the Act. The assessee contended that the actual expenses were Rs. 28,76,106/-, not Rs. 64,35,000/-. The CIT(A) allowed only Rs. 2,00,000/- as genuine business expenses and disallowed the remaining Rs. 26,76,106/-. The Tribunal directed the AO to make an addition at 12% of the inflated expenses of Rs. 28,76,106/-, following the Income Tax Settlement Commission's (ITSC) order for the assessee's group companies.

2. Addition of Rs. 57,42,679/- as income from inflation of expenses for A.Y. 2013-14:
For A.Y. 2013-14, the facts and nature of the addition were identical to A.Y. 2012-13. The AO made an addition of Rs. 57,42,679/- under Section 68 of the Act, while the actual expenses were Rs. 11,44,080/-. The CIT(A) allowed Rs. 2,00,000/- as genuine business expenses and disallowed the remaining Rs. 9,44,080/-. The Tribunal, applying the same rationale as for A.Y. 2012-13, directed the AO to make an addition at 12% of the inflated expenses of Rs. 11,44,080/-.

3. Addition of Rs. 7,84,932/- as income from inflation of expenses for A.Y. 2014-15:
For A.Y. 2014-15, the AO treated Rs. 7,84,932/- as unexplained cash payment under Section 69 of the Act. The assessee denied the transaction of inflation of expenses and contended that no such entry was found in its books. The CIT(A) confirmed the addition without addressing the assessee's objections. The Tribunal found that neither the AO nor the CIT(A) provided any seized document reference to prove the receipt of Rs. 7,84,932/- by cheque. The Tribunal concluded that the alleged cash payment was explained by the cash balance in the parallel books of accounts, which were subject to seizure and offered to tax. Thus, the addition under Section 69 was unwarranted.

Conclusion:
- ITA No. 2975/Mum/2019 for A.Y. 2012-13 was partly allowed.
- ITA No. 2976/Mum/2019 for A.Y. 2013-14 was partly allowed.
- ITA No. 2983/Mum/2019 for A.Y. 2014-15 was allowed.

Order Pronounced on 08/09/2021.