Validity of Additions on the basis of ‘window-dressed’ financials prepared for bank loans.

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Validity of Additions on the basis of ‘window-dressed’ financials prepared for bank loans.
Validity of Additions on the basis of ‘window-dressed’ financials prepared for bank loans.
[Binod Kumar Agarwala v. CIT [2018] 94 taxmann.com 422 (Calcutta)]

Validity of Additions on the basis of ‘window-dressed’ financials prepared for bank loans:

The assessee approached a bank to obtain the credit facilities on basis of books of account prepared by a firm of Chartered Accountants. Subsequently, different financial statements were presented before Income-tax Dept. which were audited by another Chartered Accountants Firm. The financials for Income-tax purposes were not commensurate with what was reflected in the books of account presented before Bank. The Assessing Officer made additions due to difference in two audited balance sheets.

The High Court held in favour of revenue that once assessee presents the financial statements, as certified by a Chartered Accountant, for obtaining bank loan, he can’t subsequently backtrack from such position at the time of filing annual accounts for purpose of taxation. The assessee can’t argue that that earlier accounts had been prepared on estimation basis for presentation thereof to bank.

When financial statement of an assessee is accompanied by a certificate as to its fairness, it couldn’t be tailor-made to suit a particular purpose or window-dressed to make it attractive for bankers to rely thereupon. Thus, it was open to the Assessing Officer and income tax authorities to pin assessee down on basis of assessee’s representation contained in earlier balance-sheet and make additions.

HC upheld additions on basis of ‘window-dressed’ financials prepared for bank loans.

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