Income Tax Appellate Tribunal - Mumbai
Alliance Finstock Ltd, Mumbai vs Assessee
आयकर अपील य अ धकरण "ए " यायपीठ मुंबई म।
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH, MUMBAI ी आय.पी. बंसल, या यक सद य एवं ी संजय अरोड़ा, लेखा सद य के सम ।
BEFORE SHRI I. P. BANSAL, JM AND SHRI SANJAY ARORA, AM
आयकर अपील सं./I.T.A. Nos. 5663 & 5786/M/2011
( नधारण वष / Assessment Years: 2006-07& 2008-09)
Alliance Finstock Ltd. Asst. CIT
Shri Prakash Jhunjhunwala, Central Circle-29,
Chartered Accountant, Mumbai
5, Jolly Bhawan, No.2, बनाम/
GR. Floor, 7, New Marine Lines, Vs.
Churchgate, Mumbai - 400 020
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. AADCA 9058 Q
(अपीलाथ /Appellant) : ( यथ / Respondent)
अपीलाथ ओर से / Appellant by : Srs. Prakash Jhunjhunwala &
Shri Sagar Glosar
यथ क ओर से/Respondent by : Shri Surinder Jit Singh
सनु वाई क तार ख / : 26.08.2013
Date of Hearing
घोषणा क तार ख /
: 20.09.2013
Date of Pronouncement
आदे श / O R D E R
Per Sanjay Arora, A. M.:
These two Appeals by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-40, Mumbai ('CIT(A)' for short) dated 14.06.2011, for two assessment years (A.Y.) 2006-07& 2008-09, dispose the assessee's appeals contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for the said order.
2ITA Nos.5663&5786/M/2011 (A.Ys. 06-07 & 08-09) Alliance Finstock Ltd. vs. Asst. CIT
2. At the very outset, it was inquired by the Bench of the learned DR if the Revenue is in appeal; the first appellant authority having granted substantial relief in appeal, and to which he confirmed in the negative, i.e., as being not so, and upon which the hearing in the matter was proceeded with. The appeals raising common issues were heard together and are, accordingly, being disposed of by a common, consolidated order.
3. Opening the arguments, it was submitted by the learned Authorized Representative (AR), the assessee's counsel, that it is not pressing the legal ground/s challenging the initiation of search and, consequently, the validity of the assessment framed in pursuance thereof, as projected per Ground Nos. 1.0 and 1.1 for assessment year 2006-07 and Ground 1.0 for assessment year 2008-09, making an endorsement to this effect on the relevant grounds of appeal on record.
4.1 As regards the second ground for both the years, it was submitted b y him that the subject matter of addition is the same, even as there is a small difference in the amount, being at Rs.16,79,150/- and Rs.16,00,000/- for AY 2006-07 and A.Y. 2008-09 respectively. The assessee was unable to explain the source of cash credit in its books for Rs.16.79 lacs, introduced on the basis of cash voucher as receipts, so that the same came to be added u/s. 68. Further, on the said amount being repaid by the assessee in the subsequent year, i.e., the previous year relevant to AY 2008-09, the Revenue has added the same u/s. 69C. The whole premise on which the same stands sustained by the ld. CIT(A) is that the director in his statement during the course of survey action u/s. 133A offered an additional income of Rs. 16,00,000/- for the assessment year 2008-09.
4.2 The ld. DR would rely on the orders of the authorities below, even as it was confirmed by her that the vouchers for receipt of cash pertain to the 3 ITA Nos.5663&5786/M/2011 (A.Ys. 06-07 & 08-09) Alliance Finstock Ltd. vs. Asst. CIT previous year relevant to AY 2006-07, and there is nothing apart from the statement of the director to support the addition for AY 2008-09.
5. We have heard the parties, and perused material on record. Firstly, the assessee before us conceded to the addition qua unexplained cash receipt/s for Rs.16,79,150/- for the assessment year 2006-07; it being unable to explain cash credits to that extent in terms of section 68 of the Act. As regards the addition for A.Y. 2008-09, however, we find little merit in the Revenue's case in the absence of any material leading to the inference of additional income, i.e., separate and apart from Rs.16.79 lacs made and sustained for A.Y. 2006-07, for that year, i.e., A.Y. 2008-09. The director may have offered the additional income, what is though required to be seen is the reason for which he does so. If the basis of the same, as explained to us during hearing by the ld. AR, to no rebuttal by the ld. DR, is the said cash vouchers, addition qua which stands already made for A.Y. 2006-07, there is no scope or merit in sustaining another addition for the current year. The Revenue has not been able to make out any case in the matter. We, accordingly, have not hesitation in directing its deletion. We decide accordingly, confirming and deleting the addition for the two successive years respectively. We decide accordingly.
6. The third issue, which arises for A.Y. 2008-09, is in respect of the claim for audit fees, consultancy fees and bad debts written off, at Rs.11,236/-, Rs. 70,000/- and Rs.36,70,138/- respectively. The basis of the said disallowances is that the assessee's final accounts (P&L A/c for the year ending and balance-sheet as on 31/3/2008), as found during the course of survey on 09.07.2008, are at variance with the final audited balance- sheet, forming part of the return of income (ROI), and on the basis of which it returned its income for the said year, qua the said sums. The said expenses were therefore considered by the Revenue to have been booked by 4 ITA Nos.5663&5786/M/2011 (A.Ys. 06-07 & 08-09) Alliance Finstock Ltd. vs. Asst. CIT the assessee as an afterthought and, accordingly, disallowed, and which stands confirmed on the same basis.
7. We have heard the parties, and perused the material on record. 7.1 The Revenue's case is that the assessee has, post survey, 'suitably' manipulated its accounts, claiming inflated expenses, i.e., to the extent of the reported variances, inasmuch as its balance-sheet as found during survey was only final, as apparent from the same being not only in agreement with the books of account, but also that there are no other changes therein with reference to the audited final statements. The audit of accounts does not lead to any variation in any expenditure, though ma y result in a different treatment being accorded to an expenditure alread y incurred and booked. Surely, it is not a case of an error or omission being rectified by the auditors. Again, small or minor differences are understandable, particularly where the unaudited accounts bear the relevant expenditure, while in the instant case, as the ld. DR would submit before us, there is no expenditure either under the head 'consultancy fees' or 'sundry debts written off' in the accounts found during survey. True, the said accounts were not audited, but the auditor does not write, and only verifies the accounts with reference to the underlying documents, and their compliance with the various accounting standards, with a view to ensure that they reflect a true and fair state of affairs for the period to which they relate. The auditor cannot of his own make changes in the accounts, and can at best suggest proper and suitable explanation toward (some of) the estimates made, or the accounting policies followed in finalizing the accounts, or qualify his report where not in agreement with the assessee- auditee's treatment of a particular transaction/s in its accounts, stating the reason/s for his view/s. The modifications made by the assessee were 5 ITA Nos.5663&5786/M/2011 (A.Ys. 06-07 & 08-09) Alliance Finstock Ltd. vs. Asst. CIT clearly deliberate, with a view to suppress income, on its actual profit coming to light per the unaudited financial statements found in survey.
The assessee's case, on the other hand, is that it is nowhere precluded by law in passing entries as on 31.03.2008 after the close of the year (on that date), i.e., as long as there is basis thereto. The final statements found in survey were unsigned. The process of finalization of accounts can only be regarded as complete only on the signing of the balance-sheet. There is no basis or substance in the Revenue's allegation of the impugned differences being tainted with mala fides.
7.2 In our considered view, there is little merit in the case of either party before us. The issue involved is primarily factual, i.e., whether the expenditure in the impugned sums stands, in fact, incurred by the assessee during the relevant year or not. Why, even as observed during hearing itself, an expenditure even not booked could be claimed where actually incurred and otherwise deductible? The passing of the entries in the books of account only implies recognizing the same in accounts. Also, there is no bar per se in passing the accounting entries pertaining to a transaction during the year after the close of the year, and what would become relevant, i.e., from the verification stand point, is the genuineness of those transactions and matters incidental thereto; viz. how and why they remained to be accounted for in the first place; the reason for non-payment even six months after the close of the relevant accounting year, etc. As such, where the circumstances, as of finding an unaudited though complete set of final accounts in the instant case, suggest of certain changes having been effected with a view to depress profit, so as to create a doubt about the veracity of those changes; the only recourse with the Revenue is to verify the same with reference to the underlying facts. True, the function of the Auditor is to audit the accounts as maintained and report thereon. That is stating the position broadly, and does not exclude his finding non-booking of expenditure, or of it having not been booked in the proper sum, so that an adjustment in its respect is warranted, so that what of is of relevance is, as afore-mentioned, the 6 ITA Nos.5663&5786/M/2011 (A.Ys. 06-07 & 08-09) Alliance Finstock Ltd. vs. Asst. CIT genuineness of the matter or of the said adjustments. The question of qualifying his report by the Auditor would arise only where the Auditor and the Auditee continue to maintain their different stands, and not where these are reconciled, including by passing accounting entries, leading thus to changes in the unaudited accounts. Whether the said reconciliation or the appropriate course is by way of disclosure or adjustment/s, which would ordinarily depend on the materiality of the transaction/s, is for the enterprise and its auditor to decide. The matter, we may emphasize, is purely factual, and on which we find the assessee to have not stated its case, resulting in the ld. CIT(A) issuing a finding that the assessee-appellant had failed to provide proper clarification with regard to the impugned claim/s. It has even not as much as stated the date on which the balance-sheet for the year was approved by the Board of Directors prior to being given to the auditors for their opinion thereon. It needs to be appreciated that independent and de hors the Revenue's case, which has not found our favour, the onus to establish its claims per the ROI is only on the assessee.
7.3 Continuing further, we find that two of the three amounts involved, i.e., qua audit fees and consultancy fees, represent contractual obligations. The audit fee, or its parameters, is finalized at the time of the appointment (or reappointment) of the auditor, i.e., the last Annual General Meeting (AGM). In fact, the difference being marginal appears to us to be on account of audit expenses, though only verification could lead to a firm statement in the matter. The consultancy fee is, again, contractual, so that it would need to be verified with reference to the relevant contract, and the obligations arising therefrom, viz., the rendering of the services, etc., and which could only be determined on the basis of the evidence/s adduced or led by the assessee. As regards the claim for bad debts written off (Rs.36.70 lacs), the law, post amendment by Direct Tax Laws (Amendment) Act, 1987, w.e.f. 01.04.1989, it is by now well settled, only mandates the write off of a debt as irrecoverable in his accounts to entitle the assessee a claim in its respect. The same, thus, is itself an evidence of the debt being, in the view of the Management, not recoverable, and which is deemed sufficient, so as to be admissible and 7 ITA Nos.5663&5786/M/2011 (A.Ys. 06-07 & 08-09) Alliance Finstock Ltd. vs. Asst. CIT allowed as an expense for the relevant year, i.e., subject to the satisfaction of section 36(2). The passing of the entry in the accounts, and its timing, thus assumes vital significance. We have already clarified that an accounting entry as on the year-end (as, say, 31.03.2008) could be passed, or for that matter for any date during the accounting year, even after the said date (31.03.2008). The only condition or qualification is that the same must pertain to and represent the conditions existing as on that date. This is as the accounts are segregated on a year-wise basis. Even the information obtained after the close of the year could also be taken into account, but only so far as it relates to an assessment of and, consequently, the determination of the amounts relating to the conditions as they exist as at the year-end. The reason for the same is simple: the accounts being closed year-wise, and the balance-sheet represents the state of affairs obtaining as on that date, subject of-course to the information available (as on the date of preparation of the balance-sheet), so that it represents the best estimate possible in light thereof. It is only in extra-ordinary circumstances, where the substratum of the concern, viz. the going concern premises, is impacted and comes under doubt that, even though occurring after the balance-sheet date (31.03.2008), that the same are factored into the balance-sheet as on that date, clearly explaining the said circumstances and specifying their financial impact/adjustment thereof in the notes to the accounts.
What, therefore, is to be seen is whether the decision by the management of the debt/s becoming bad, though made subsequent to 31.03.2008, is based on evidence/s or event/s prior or subsequent thereto. In the latter case, the assessee's claim would be valid only where the event/s enables assessment of the position as obtaining on 31.03.2008, and not otherwise. The nature of the events or the account behavior post the year-end (31.03.2008) would, therefore, require being examined to see if they have in any manner influenced the decision for the impugned write off. A decision guided by the said event/s, being after the year-end, could only be recognized after its occurring, while where it is reflective of a state of affairs as at the year-end, the entry would relate back to the year- end. Reliance in this context is drawn to Accounting Standard (AS) 4 [Contingencies and Events occurring after the Balance-Sheet date] issued by the ICAI, also relied upon by 8 ITA Nos.5663&5786/M/2011 (A.Ys. 06-07 & 08-09) Alliance Finstock Ltd. vs. Asst. CIT the assessee. Where there are no such circumstances, so that the decision for write off is based on the events up to the relevant year-end (31.03.2008), the fact of passing the entries after the said date, becomes irrelevant.
7.4 In view of the foregoing, the matter being essentially factual, is accordingly restored to the file of the first appellate authority to decide the same in light of our foregoing observations, by issuing definite findings of fact, and after hearing the parties, including on the satisfaction of s. 36(2) (qua the claim for bad debts). We decide accordingly.
8. In the result, the assessee's appeal for A.Y. 2006-07 is partly allowed, and that for A.Y. 2008-09 is partly allowed for statistical purposes.
प रणामतः नधा रती क अपील नधारण वष 2006-07 के लए आं शक वीकृत, और नधारण वष 2008-09 के लए सां यक य उ े य के लए वीकृत क जाती है ।
Order pronounced in the open court on September 20, 2013 Sd/- Sd/-
(I. P. BANSAL) (SANJAY ARORA)
या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
मुंबई Mumbai; दनांकDated : 20.09.2013
. न.स./A.K.PATEL. PS & Roshani, Sr. PS
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आयु त(अपील) / The CIT(A)
4. आयकर आयु त / CIT - concerned
5. वभागीय त न ध, आयकर अपील य अ धकरण, मंब
ु ई / DR, ITAT, Mumbai
6. गाड फाईल / Guard File
आदे शानस
ु ार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt. Registrar)
आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai