The Jabalpur bench of ITAT, on Wednesday held that the expenditure incurred on payment of service tax cannot be deemed as unexplained for the purpose of Income Tax Act if the same was done through banking channel.
In the instant case, the assessee was a retired Lt.Colonel, being engaged in the activity of supplying security personnel to BHEL, BPCL, AIR and IOC under the sole proprietorship concern and he filed his annual return on time in the correct format. The AO found that the assessee made some mistakes in showing the taxable income. According to him the receipts showed by the assessee in the return less by a huge amount. Out of this ¼ th is the receipt from one of the said company and ¾ th from another company. The assesse gave clarifications for the aforesaid mistake. But the AO was not satisfied and he also made addition towards unexplained expenditure.
The assessee filed an appeal before the bench and he argued that, the aforesaid ¼ th of the amount was included in the gross receipt of subsequent years. And in the case of the balance ¾ th amounts which he has not claimed have received but it was received by a person and had fraudulently made a bank account in Patna and carrying business in the name of the assessee.
The bench comprising of Partha Sarathi Chaudhury (Judicial Member) and Manish Borad (Account Member) has observed that the payment made by the companies has not received by the assessee and the sum amount was received by some other person fraudulently on behalf of assessee. Therefore, it cannot be brought to tax in his hands when the said money is not received by the assessee and the assessee has strong proof documents showing that some other person opened a fake bank account in his name and appropriate the funds on his own. Hence the bench has deleted the addition made by the CIT (A) and also found that the assessee has paid the service tax amount through banking channel.
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