By TIOL News Service

MUMBAI, JAN 16, 2017: THE ISSUE IS - Whether the entry made in bank pay-in-slips will prevail over the entry made in assessee's books of account, for determining the nature of income unearthed during the course of search proceedings. NO IS THE VERDICT.

Facts of the case:

The assessee company is a sister concern of Hindustan Hotels Limited, Goa(HHL). The assessee and HHL have common Directors. HHL had undertaken a hotel project and entered into a construction contract with the assessee. In 1995, HHL abandoned the hotel project. The building which was still under construction was then sold to one Peerless Finance in April/May 1995 for a consideration of Rs.11 crores. Afterwards, assessee planned to increase its share capital and had approached HHL to contribute. HHL paid to the assessee a sum of Rs.1 crore vide two cheques of 50 Lakhs each. HHL had disclosed the sum of Rs.1 crore as "share application money". The assessee had also treated the aforesaid sum as share application money. However during search the records show that such money was received on account of business receipts. Pursuant to search, in the return filed, assessee declared undisclosed income amounting to Rs.2,34,000/-. During the search it was noticed from the bank slips that Rs.1 crore was received by the assessee as compensation from HHL. After considering the assessee's reponse in respect of such sum, the AO treated the sum of Rs.1 crore as compensation. On appeal, the Tribunal however observed that the nature of the sum of Rs.1 crore had to be decided on the basis of entries in the books of account and the records and not on the basis of notings or narrations by the assessee's staff. The Tribunal therefore concluded that such sum was to be treated as share application loan.

On appeal, the HC held that,

++ the statements recorded of the Managing Director of the company are not reliable. This court find that the consideration by Tribunal of the records was appropriate. The conclusion drawn by the AO that the amount received was compensation and amount which was undisclosed income of the assessee cannot be sustained since the treatment of the receipts in the books of account of the company should prevail being maintained in the usual course of business. There is nothing on record to establish the contrary and beyond reasonable doubt. Equally there is nothing on record to establish that the entries made in the books of account cannot be relied upon. It is pertinent to mention that the Revenue had not brought on record any material indicating that the amount received by the assessee was by way of compensation;

++ on the other hand, the employees of the assessee were cross examined in respect of the entries made in the pay-in-slips and this cross examination had revealed that narrations in the pay-in-slips accompanying the two cheques of Rs.50 lakhs each were made by them on their own without any directions or instructions from the assessee. Thus, the order of Tribunal cannot be faulted. However, this court has agreed with the view taken by the Tribunal to the effect that the entry made in the pay-in-slips cannot prevail over the entry in the books of account since the books of account would reflect the appropriate record wherein treatment of receipts would be found. In the circumstances, we have no hesitation coming to our conclusion and as a result we find that the Tribunal was justified in holding that the amount of Rs.1 crore cannot be assessed as undisclosed income.

(See 2017-TIOL-97-HC-MUM-IT)