2025 (5) TMI 886 - AT - Income Tax

Addition on account of director s remuneration on the basis of seized treating the same as bogus expenditure - HELD THAT - Based on the statement of Smt Reenyu Goel the AO made an addition which stood confirmed by the Learned CITA. Merely because a particular expenditure has been reflected in the books of the Assessee company it does not become an allowable deduction. The Learned AO in the instant case had doubted the genuinity of the expenditure per se by placing heavy reliance on the statement of Smt Reenu Goel under section 132(4) of the Act. Hence the onus is on the Assessee to prove that Smt Reenu Goel was indeed a director of the Assessee company and she was paid director s remuneration for the services rendered. The Assessee company is also duty bound to prove the nature of services rendered by Smt Reenu Goel and the business nexus thereon. None of these facts were proved in the instant case except stating that the said sum of Rs 3 lakhs being reflected in the books of accounts of the Assessee company. Accordingly we do not deem it fit to interfere in the order of the Learned CITA confirming the treatment of the Learned AO by treating expenditure to be bogus. Accordingly the grounds raised by the Assessee are dismissed.

Summary

The core legal question considered in this appeal is whether the addition of Rs. 3,00,000 made on account of director's remuneration, based on a seized document and the statement recorded under section 132(4) of the Income-tax Act, 1961, was justified in treating the expenditure as bogus and disallowing it as a deduction.

The principal issue revolves around the genuineness and allowability of the director's remuneration expenditure claimed by the assessee company for the assessment year 2013-14, especially in light of contradictory evidence arising from the statement of the alleged director recorded during the search and seizure operation.

Another related issue concerns the evidentiary value and weight to be accorded to a statement recorded under section 132(4) of the Act during search proceedings, vis-`a-vis the books of accounts and audit reports reflecting the same expenditure.

Further, the question of the burden of proof on the assessee to establish the genuineness of the expenditure and the nature of services rendered by the director was implicitly considered.

Lastly, the procedural aspect regarding the abated assessment under section 153A and whether incriminating material is necessary for additions in such assessments was also touched upon.

Issue-wise Detailed Analysis

1. Validity of Addition of Director's Remuneration as Bogus Expenditure

Relevant Legal Framework and Precedents: The Income-tax Act, 1961, under sections 153A and 143(3), governs the assessment proceedings post search and seizure operations. Section 132(4) permits recording of statements during search, which can be used as evidence. The law mandates that for an expenditure to be allowed as a deduction, it must be genuine and supported by credible evidence. Mere reflection in the books of accounts is not conclusive proof of genuineness.

Court's Interpretation and Reasoning: The Court observed that the assessee company declared director's remuneration of Rs. 3 lakhs paid to Smt. Reena Goel, which was reflected in the audited books of accounts. However, during the search on 15-10-2013, a statement under section 132(4) was recorded from Smt. Reena Goel, wherein she denied having any role as director or receipt of remuneration from the assessee company.

The Assessing Officer relied heavily on this statement to treat the expenditure as bogus and disallow it. The Commissioner of Income Tax (Appeals) confirmed this addition, and the Tribunal upheld the same.

Key Evidence and Findings: The seized document (Annexure A-1, pages 62-63) showed the payment of Rs. 3 lakhs as director's remuneration. The assessee argued this was a declaration and was reflected in the books of accounts audited by a Chartered Accountant. However, the statement of Smt. Reena Goel under section 132(4) negated her directorship and receipt of remuneration.

Application of Law to Facts: The Tribunal emphasized that mere reflection in the books does not guarantee the allowability of expenditure. The onus lies on the assessee to prove the genuineness of the payment, the directorship of the recipient, and the nature of services rendered with business nexus. The assessee failed to discharge this burden beyond the books of accounts.

Treatment of Competing Arguments: The assessee's contention that the seized document was merely a declaration and the expenditure was audited was considered insufficient in the face of the contradictory statement recorded during search. The Tribunal gave precedence to the statement under section 132(4) as a credible piece of evidence indicating the bogus nature of the expenditure.

Conclusion: The Tribunal concluded that the addition of Rs. 3 lakhs as bogus director's remuneration was justified and upheld the disallowance.

2. Evidentiary Value of Statements Recorded Under Section 132(4)

Relevant Legal Framework: Section 132(4) of the Income-tax Act authorizes recording of statements during search and seizure operations. Such statements are admissible evidence and can be relied upon to determine the correctness of claims made in returns or books of accounts.

Court's Interpretation: The Tribunal accepted the statement of Smt. Reena Goel recorded under section 132(4) as a significant piece of evidence contradicting the assessee's claim of payment of director's remuneration.

Application to Facts: Since the statement was recorded contemporaneously during the search, it was deemed reliable. The Tribunal found that the Assessing Officer was justified in relying on this statement to question the genuineness of the expenditure.

Conclusion: The statement under section 132(4) was accorded substantial evidentiary weight, supporting the addition.

3. Burden of Proof on the Assessee to Establish Genuineness of Expenditure

Legal Framework: The principle that the assessee must prove the genuineness of claimed deductions and establish business nexus is well settled in tax jurisprudence.

Court's Reasoning: The Tribunal underscored that the assessee failed to provide documentary or testimonial evidence to prove that Smt. Reena Goel was a director, that she rendered services, or that the remuneration paid was for genuine consultancy services in jewellery designing.

Application: The mere assertion and reflection in books of accounts were held insufficient. The Tribunal noted the absence of any corroborative evidence such as board resolutions, appointment letters, contracts, or service records.

Conclusion: The onus was not discharged, justifying the addition.

4. Requirement of Incriminating Material in Abated Assessments under Section 153A

Legal Context: Section 153A provides for assessment of undisclosed income found during search. The Court noted that for abated assessments, incriminating material is not a prerequisite to make additions.

Court's Reasoning: The Tribunal agreed with the Commissioner of Income Tax (Appeals) that the absence of incriminating material at the time of search does not preclude the Assessing Officer from making additions based on available evidence.

Conclusion: This argument by the assessee was rightly dismissed.

Significant Holdings

"Merely because a particular expenditure has been reflected in the books of the Assessee company, it does not become an allowable deduction."

"The onus is on the Assessee to prove that Smt Reena Goel was indeed a director of the Assessee company, and she was paid director's remuneration for the services rendered."

"None of these facts were proved in the instant case except stating that the said sum of Rs 3 lakhs being reflected in the books of accounts of the Assessee company."

"It is a fact that during the course of search on 15-10-2013, Smt Reenu Goel was subjected to examination and a statement was recorded under section 132(4) of the Act from her... she categorically replied that she is not aware of any such transaction... Based on the statement... the Learned AO made an addition which stood confirmed by the Learned CITA."

The Tribunal's final determination was to dismiss the appeal and uphold the addition of Rs. 3 lakhs as bogus director's remuneration, affirming the disallowance made by the Assessing Officer and confirmed by the Commissioner of Income Tax (Appeals).