| The Tax Publishers2020 TaxPub(DT) 3660 (Mad-HC) : (2020) 428 ITR 0492 : (2020) 274 TAXMAN 0468 INCOME TAX ACT, 1961
Section 69
Where expenditure incurred on account of service charges paid to employees, was substantiated by assessee by providing various documentary evidences in the form of annual accounts, register of wages of persons employed evidencing payment of service charges to different employees, copies of vouchers for payment of service charges in cash, copy of letter of CA explaining the payment of service charges to the employees etc., the AO was not justified in treating such expenditure on account of service charges as bogus.
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Income from undisclosed sources - Addition under section 69 - Alleged bogus expenditure towards service charges - Expenditure substantiated by providing various documentary evidences
Assessee-company was engaged in hotel business. AO noticed that the assessee claimed expenditure towards service charges. It was explained by the assessee that the service charges were paid in lieu of tips. Since the tips were received by the room boys only, whereas, the other employees were not able to avail the same and ultimately, the matter was discussed with the employees and an agreement was entered into. Assessee also submitted details including break-up of service charges, register of wages of persons employed, the Memorandum of Settlement entered into with workers union, etc. AO examined a few of the employees of the assessee and also recorded statement after which, he concluded that the assessee resorted to the modus operandi for inflation expenditure by showing the same under the head “service charges” and accordingly, he treated the said expenditure as bogus. Held: Assessee placed various documentary evidences in the form of annual accounts, statement of income, register of wages of persons employed evidencing payment of service charges to different employees, copies of vouchers for payment of service charges in cash to administrative/management/other employees, copy of letter of CA explaining the payment of service charges to the employees and Memorandum of Settlement between the assessee and workers union. Further, the AO while rejecting the assessee's contention did not disbelieve any of those documents. Accordingly, the AO should not have used the expression “modus operandi†to mean that the assessee adopted dubious tactics to inflate its expenditure. Further, the AO only referred to statements of four persons and on reading of selected portions of the statement, as extracted in the assessment order, would not lead to the inference that the transaction was bogus. Accordingly, the AO was not justified in rejecting the assessee's claim of expenditure under the head “service charges” and hence, the same was allowed.
REFERRED :
FAVOUR : In assessee's favour
A.Y. : 2013-14 & 2014-15
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