2025 (6) TMI 1063 - HC - Income Tax

Assessment u/s 143 (3) - disallowance of claim of the assessee for expenditure on account of payment of noncompete fee disallowed loss on sale of land and disallowed the leveling and fencing expenditure - Tribunal held that mere production of ledger account and payment by way of cheques would not suffice and for such reason upheld the order passed by the assessing officer and reversed the findings of the CIT(A). Assessee filed an appeal before this Court 2019 (6) TMI 611 - CALCUTTA HIGH COURT the order passed by the learned Tribunal dated 19.1.2018 was set aside on one issue and the Tribunal was directed to determine the issue upon hearing the parties within a time frame - Tribunal refused to re-appreciate the material which was already available on record Whether the scope of enquiry by the learned Tribunal in terms of the order of remand passed by the Hon ble Division Bench of this Court should be construed as a long drawn procedure for verification of the documents? HELD THAT - The assessee having been given an opportunity to prove its case it goes without saying that the assessee can support the ledger entries by certain documents and this cannot be construed to be a long drawn process of verification by adducing oral and documentary evidence. In any event if the assessee has in its possession certain documents to prove ledger entries we are of the view that such opportunity should not be denied to the assessee as tax has to be levied and collected on the correct income and nothing more. Therefore we are of the view that the matter should be remanded to the assessing officer to enable the assessee to produce the documents which were filed before the Tribunal in Annexures B1 to H11 so as to enable the assessing officer to examine those documents and take a decision as to whether the assessee has been able to establish the genuineness of the expenditure claimed by them by corroborating the same with the ledger entries. For such reasons we are inclined to interfere with the order passed by the learned Tribunal and remand the matter to the assessing officer for considering the above aspect alone. Accordingly the appeal is allowed. The order passed by the learned Tribunal is set aside and the matter stands remanded to the assessing officer to consider the documents which were filed before the learned Tribunal as Annexures B1 to H11 and afford an opportunity of personal hearing to the authorised representative of the assessee and take a fresh decision on merits and in accordance with law.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal under Section 260A of the Income Tax Act, 1961, arising from the assessment year 2009-10, are as follows:

(i) Whether payment by cheque and subsequent reflection of the same in the ledger establish the verity of the expenses under the Income Tax Act, 1961Rs.

(ii) Whether payment through formal banking transactions and subsequent reflection in audited Books of Accounts constitute sufficient proof to establish the genuineness of the expensesRs.

(iii) Whether the Tribunal erred in concluding that expenses recorded in ledger and paid through bank do not establish the genuineness of claims for expenses incurred for leveling of ground and setting up fencingRs.

(iv) Whether the Tribunal erred in confirming the Assessing Officer's order and setting aside the order of the Commissioner of Income Tax (Appeals) that partly allowed the expenditureRs.

(v) Whether the Tribunal failed to reconsider the earlier order of the High Court that allowed the expenditure and directed reassessmentRs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i) and (ii): Payment by cheque and reflection in ledger as proof of genuineness of expenses

The legal framework requires that expenses claimed by an assessee must be genuine, incurred wholly and exclusively for business purposes, and properly substantiated. Mere payment by cheque and entry in ledger accounts, although indicative of a transaction, do not ipso facto establish the genuineness of the expenditure. The Tribunal relied on precedents emphasizing that banking transactions and ledger entries alone cannot conclusively prove the authenticity of expenses without corroborative evidence.

The Court noted that while payment through formal banking channels and audited books are important, these factors alone are insufficient to discharge the burden of proof on the assessee to establish that the expenses were truly incurred and allowable under the Act.

The assessee had produced ledger copies and photostat copies of certain bills (Annexures B1 to H11) to corroborate the claimed expenses. However, the Tribunal had declined to accept these as sufficient evidence in absence of further verification or additional documentary proof. The Court observed that such an approach was overly restrictive and did not align with the earlier directions of the High Court.

Issue (iii): Whether the Tribunal erred in rejecting ledger and bank payment as proof of genuineness of leveling and fencing expenses

The Tribunal upheld the Assessing Officer's disallowance of Rs. 57.27 lakhs claimed for leveling and fencing expenses on the ground that ledger entries and cheque payments were inadequate proof. The Court analyzed the Tribunal's reasoning in light of the earlier High Court judgment dated 9.4.2019, which had remanded the matter with directions to the Tribunal to consider the genuineness of the expenses on the basis of the documents produced by the assessee in a summary manner, without resorting to protracted evidentiary procedures.

The Court found that the Tribunal had failed to give effect to the High Court's directions and had imposed a requirement akin to a long drawn evidentiary process, contrary to the mandate. The Court held that the assessee should be permitted to support ledger entries with documentary evidence and that such opportunity should not be denied, especially since tax must be levied on correct income.

Issue (iv): Whether the Tribunal erred in confirming the Assessing Officer's order and setting aside CIT(A)'s partial allowance

The CIT(A) had partly allowed the expenditure claimed by the assessee, but the Tribunal reversed this and upheld the Assessing Officer's disallowance. The Court scrutinized this reversal in light of the earlier High Court judgment and found that the Tribunal's decision was not consistent with the remand directions. The Tribunal's refusal to re-appreciate the material already on record, particularly the Annexure bills, without affording the assessee an opportunity to substantiate the ledger entries, was held to be erroneous.

The Court emphasized that the Tribunal's role was to apply the law to the facts as directed by the High Court and not to reject the evidence summarily. The Assessing Officer was directed to reconsider the documents and give a fresh decision on merits.

Issue (v): Whether the Tribunal failed to reconsider the High Court's order allowing expenditure and directing reassessment

The High Court's earlier judgment had set aside the Tribunal's order and remanded the matter for fresh consideration of the genuineness of the expenses with the opportunity to the assessee to prove the claim on the basis of disclosed documents. The Tribunal, however, held that the assessee was required to file an application under Rule 29 of the Appellate Tribunal Rules, 1946 to bring additional evidence, and since no such application was filed, refused to re-examine the evidence.

The Court clarified that the High Court's remand order explicitly dispensed with the need for a Rule 29 application in this context, as the assessee was to prove the claim in a summary manner based on existing documents. Therefore, the Tribunal's insistence on a Rule 29 application was misplaced and inconsistent with the High Court's directions.

The Court thus found that the Tribunal failed to properly reconsider the High Court's order and directed a remand to the Assessing Officer for fresh adjudication on the basis of the documents (Annexures B1 to H11) already filed before the Tribunal, with an opportunity for personal hearing.

3. SIGNIFICANT HOLDINGS

The Court held:

"The necessity to file application under Rule 29 of the Applicable Tribunal Rules, 1946 would not arise in the instant case."

"The assessee having been given an opportunity to prove its case, it goes without saying that the assessee can support the ledger entries by certain documents and this cannot be construed to be a long drawn process of verification by adducing oral and documentary evidence."

"If the assessee has in its possession certain documents to prove ledger entries, we are of the view that such opportunity should not be denied to the assessee as tax has to be levied and collected on the correct income and nothing more."

Accordingly, the Court remanded the matter to the Assessing Officer to consider the documents already on record, provide an opportunity for personal hearing, and decide on the genuineness of the expenditure claimed for leveling and fencing, within four months from the date of receipt of the order.

The substantial questions of law raised by the assessee were left open for fresh consideration in the light of the remand.