2023 (3) TMI 397 - AT - Income Tax

Renovation and Repair expenditure in respect of Misc. receivables disallowed - Assessee admitted voluntarily undisclosed income on various “Heads” for different assessment years - assessee made disclosure on account of “inflated sales and wages expenses” and duly offered for taxation as undisclosed income - assessee argued that statement recorded during the survey proceedings cannot be the basis of addition - HELD THAT:- Hon’ble Apex Court in the case of Pullangode Rubber Produce Co. Ltd. Vs. State of Kerala [1971 (9) TMI 64 - SUPREME COURT] held that an admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect.

Assessee has not produced any details evidences and not maintained proper books of accounts. Assessee has not submitted any details of the wages which were inflated before any of the Lower Authorities. Assessee having its offices all over India and no evidence has been given as to which particular wages were bogus expenses, when these bogus expenses were debited in the books of accounts, how the money was taken out and how such money was utilized for the purposes of renovations and repairs. No books of accounts have been maintained for such undisclosed transactions. In the absence of any such co-relation between the inflation of wages and unexplained expenditure disclosed on account of renovations and repairs, the claim of telescoping does not arise.

Also in the case of Bhagwandas D. Vachhani [2015 (4) TMI 269 - GUJARAT HIGH COURT] has clearly held that it is burden upon the assessee to give sufficient explanation for the source of the amount. After considering all materials, statement or the record or when no record of books of account is produced or when no transactions by showing co-relation are demonstrated by the assessee and the opinion is to be formulated by the A.O. cannot be disturbed. Thus the submissions made by the assessee does not hold it good with proper evidences and the same is rejected - the alternative claim of depreciation on the assets capitalized on “Renovation and Repair” expenditure of Rs. 2.5 crores on Kerala Property & Fire Safety Institute at Baroda are found to be a legally valid claim. Therefore,the matter is remanded back to the file of the AO to verify into the expenses claimed, capitalized and allow appropriate depreciation in accordance with law. Thus ground no. 1 is partly allowed.

Addition in respect of bad debts and also unverifiable amount of deduction from customers - HELD THAT:- It is seen that the assessee during the course of assessment proceedings, the assessee had submitted full details of bad debts on account of lower payments made by its clients, while settling the dues. Further the entire bill for sales raised by the assessee had been accounted for in the profit and loss account. Once a part of such sales is not paid by the clients, it takes the nature of bad debts. Further the provisions of section 36(1)(vii) read with section 36(2) makes it clear that even a part of the income accounted for in the current year also can be claimed as a bad debt.

Therefore the findings arrived by the Ld. CIT(A) namely once the deduction made by the clients account is debited and the assessee’s accounts are credited, the conditions laid down by section 36(1)(vii) read with section 36(2) are fulfilled and such amounts are allowable as a bad debt in the computation of total income. Further the assessee is not required to establish that such debts have actually become bad before writing off the same in the books of accounts - Decided against revenue.

Unverifiable amount of “Deductions from customers”, the same is also allowed in favour of the assessee.