Department Can Bring Expenditure Incurred In Earlier Years To Be Taxed In Subsequent Years On Grounds Of Bogus Expenditure: ITAT

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has observed that the department can bring expenditures incurred in earlier years to be taxed in subsequent years on grounds of bogus expenditure.

The bench of B. R. R. Kumar (Accountant Member) has observed that the department 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.

As per the balance sheet, the assessee has shown 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 has been filed is only Rs. 45,84,804. No confirmation has been filed for the balance amount of Rs. 1,08,82,873 by the assessee during the course of the assessment proceedings.

However, notice was also issued to some of the parties, but the same was not received back. Hence, the balance amount for which confirmation has not been received was added back to the declared income of the assessee.

The Assessing Officer has made an addition on account of Sundry Creditors as the appellant could not get confirmation from the parties. The appellant has submitted that he could not obtain the confirmation as they are very old creditors.

The assessee 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 was whether revenue could bring the expenditure incurred in the earlier years to be taxed in the subsequent years.

The tribunal held that the expenses that have not been paid for the last six years, the expenses that have been incurred for Amit Saree and Rangoli Collection pertaining to FY 2007-08, and all other expenses wherein neither a single creditor nor the assessee made any attempt to repay the same. The CIT (A) has correctly examined the invoices, period, and purpose.

Case Title: Sh. Pradeep Sawhney Versus ITO

Case No.: ITA No. 393/Del/2016

Date: 12.05.2023

Counsel For Appellant: Gautam Jain

Counsel For Respondent: Kanv Bali

Click Here To Read The Order