ITAT: Expenditure Incurred in Earlier Years can be Taxed in Subsequent Years on the Ground of Bogus Expenditure

ITAT: Expenditure Incurred in Earlier Years can be Taxed in Subsequent Years on the Ground of Bogus Expenditure

The Income Tax Appellate Tribunal (ITAT), Delhi, by its division member bench of C.M. Garg (Judicial Member) and Dr. B.R.R. Kumar (Accountant Member) has observed that revenue department can bring expenditures incurred in earlier years to be taxed in subsequent years if it is proved that the expenditure incurred was bogus and the revenue can deem the liabilities ceased as time went by taking into consideration, the period of non-payment of dues and the intention to pay the dues.

The factual matrix of the case was that the assessee/appellant as per its balance sheet, showed creditors of Rs. 1,54,67,677. The assessee was asked to file confirmation from all 35 creditors as shown in the balance sheet. The assessee filed confirmation from only 7 creditors, the total amount for which a confirmation was filed was only Rs. 45,84,804. No confirmation was filed for the balance amount of Rs. 1,08,82,873 by the assessee during the course of the assessment proceedings.

Subsequently, notice was also issued to some of the parties, but no response was received. Hence, the balance amount for which confirmation was not received was added back to the declared income of the assessee.

Accordingly, the Assessing Officer (AO) made an addition on account of Sundry Creditors as the appellant could not get confirmation from the parties.

The appellant contended that he could not obtain the confirmation as they are very old creditors. The assessee further contended that the sundry creditors were the purchases of earlier years and, if at all, they are treated as taxable incomes, they should have been taxed in the earlier years.

The issue raised firstly, was whether revenue could bring the expenditure incurred in the earlier years to be taxed in the subsequent years.

Secondly, whether the revenue unilaterally deemed the liabilities ceased as time went by?

After referring to catena of judgments, the ITAT held that the revenue can bring the expenditure incurred in the earlier years to be taxed in the subsequent years if it is proved that the expenditure incurred was bogus and the revenue can deem the liabilities ceased as time went by taking into consideration, the period of non-payment of dues and the intention to pay the dues.

“Having examined the expenses payable and the detailed order of the ld. CIT(A) how the expenses are not found to be genuine, we hold that the expenses which have not been paid for the last six years and the expenses which have been incurred for Amit Saree and Rangoli Collection pertaining to F.Y. 2007-08 and all other expenses wherein not even a single creditor had demanded the money back nor the assessee made any attempt to repay the same,” the ITAT observed.

Therefore, the bench held that the CIT(A) had correctly examined the invoices, period and purpose and accordingly dismissed the appeal.