TaxTMI 
TaxTMI 
TaxTMI 
2014 (4) TMI 631
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.... (Appeal)-VII, Hyderabad in so far as it went against the appellant, is erroneous both on facts and in law. (2) The CIT(A) ought to have deleted the addition of Rs. 2,44,96,200 made towards unexplained credits in the bank account having held that the said amount was utilised for payment of electricity charges for business purposes. (3) The CIT(A) while holding that the amount of Rs. 2,42,60,67 as admissible expenditure having been utilized for electricity payments for business purposes erred in estimating assumed profit at Rs. 38,58,701/- on assumption. (4) The CIT(A) erred in estimating the seed capital required at Rs. 33,49.5671- for earning the profit estimated by him. (5) The CIT(A) resorted to the additions of Rs. 38,58,701 and Rs. 33,49,567 purely on estimate basis and the assessment being a searched related assessment such routine additions should not have been made without there being any incriminating seized material detected during the search operations. (6) Without prejudice to the above contention, the CIT(A) ought to have considered the amount of Rs. 2,44,96,200 deposited in banks as turnover and estimated reasonable profit on the same without resorting to the amo....
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....her maintained on a loose sheet which has no legal base. The assessee itself stated that there are unrecorded electricity expenses. The sources for meeting these expenses are from the bank deposits. Hence, the assessee could to some extent explained the sources for the unrecorded expenditure. There are bank deposits to the tune of Rs. 2,44,96,200 in the name of four persons. The deponent Shri Kantilal admitted that deposits pertain to business activities of M/s Mahavir Ispat Pvt. Ltd and the same were not considered in the accounts of the assessee company for the AY 2008509. In this regard, the assessee simply stated that these amounts represent advances received from the purchases. The assessee could not produce any evidence in support of having received the above sums. Hence, these deposits of Rs. 2,44,96,200 are nothing but unexplained deposits in the bank. The unexplained deposits of Rs .24496200 are added to the income returned. 5. The assessee objected to the above addition of Rs. 2,44,96,200. It was submitted before the CIT(A) that while the sources of the deposits in the said bank accounts was from the business funds of the company, the said deposits were utilized by the a....
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....he assessment order and the essence of the said submissions indicate as under: (a) The amount of Rs. 2,44,96,200- deposited in the individual bank account were advances by customers and the monies were forfeited on technical grounds as the company did not issue any receipt for such deposits to the depositors. (b) Bank deposits were utilized for the purpose of paying electricity charges of the assessee company. (c) The electricity charges were not debited in the regular books of accounts but have been separately noted on a paper. (d) Had the assessee recorded these entries in books of accounts, it would have only increased electricity charges and receipts etc., and since the deposits and electricity charges are more or less equal, the aforesaid transactions neutralized the P&L A/c. (e) Since the expenditure incurred towards electrical charges is for regular running of the business and as the payment is amply proved since the entire payment is made by a/c payee cheques, it is an admissible expense. 8. It was further argued by the assessee that the deposits into bank accounts were utilized for electricity charges of the company, as supported by the evidences in the form of bills....
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....mpany that such deposits were out of the business receipts of the company. 10. The CIT(A) further observed that, as indicated by the assessee, this issue/factual position was brought to the notice of the Department at the very first stage of the search operations as well as the assessment proceedings. However, while completing the assessments, the Assessing Officer did not consider the assessee's claim of utilization of the said deposits towards the electricity expenses as business expense of the company, while treating the deposits/credits into the bank accounts as a business receipt of the assessee company. He has gone through the relevant portion of the statement recorded from Shri Kantilal Agarwal, the MD of the company which runs as under: " ... the amounts deposited in the aforesaid bank accounts were utilized for the payment of electricity charges incurred by MIPL. Certain advances for supply of goods and deposits were received from various customers for supply of goods which were forfeited and were deposited in the above said bank accounts. The amounts were received in respect of business activities of M/s Mahavir Ispat Pvt. Ltd. and amounts received are more or less ....
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....the date of search and as such cannot be claimed as an exercise of an afterthought and as such cannot be ignored. The fact that were brought on the record clearly indicate that though the unaccounted receipts as well as the expenses are part of the record found in the course of search and are well documented, supported by payments through account payee cheques. This clearly indicates that the amounts are expended for earning the income, though the same were not recorded in the regular books of accounts maintained by the assessee. In support of its contentions, the assessee filed copies of relevant electricity bills, receipts for payment of electricity bills and copies of the bank account through which the cheque payments are made for the said expenses. As could be seen from the record of the assessee with special reference to the above mentioned transactions, it is an admitted and undisputed fact that both the receipts of the assessee company and also the payments made subsequently, were related to the assessee company, though they are outside the regular books of accounts. Any expenditure to become an allowable expenditure as per the provisions of section 37(1), the amounts must5 ....
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....ny incriminating material suggesting suppression of either production or sales, it was conceded that the production/income generated by the unaccounted expenditure, do exceed the expenses incurred. The information related to such production/turnover and the related manufacturing expenses, specially with reference to the consumption of power by the assessee for the year under reference along with few of the subsequent years, throw a pattern and on the said lines, the following information was brought on record. Rs. Electricity expenses recorded in books of account 2,17,54,813 Turnover as per the books of account 12,53,14,790 % of electricity consumption to the turnover 17.36% Turnover outside the books on pro5rata basis on the electricity expenses of Rs. 2,42,70,675 13,98,08,035 A.Y. Turnover (Rs.) 2008509 Mfg. expenses (Rs.) 12,53,14,790 GP/Percentage (Rs.) 12,18,44,048 34,70,742/2.76 2009510 13,23,18,275 12,93,53,642 29,64,633/2.24 2010511 7,24,37,528 7,14,10,688 10,26,840/1.41 2011512 8,84,32,437 8,67,79,591 16,52,846/1.86 15. The Gross Profit for the year under reference is worked out to 2.76%, whereas, the aggregate of the Gross Pr....
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....hat if the nature of the business is the same under the ordinary circumstances, it may be presumed that results of the business of the assessee will remain the same. 17. The CIT(A) observed that the information related to the assessee's record as regards the turnovers and purchases accounted in the books of account for the relevant year, so as to make the basis for estimating the amounts of investments associated with the unaccounted turnover linked to the unaccounted expenditure of Rs. 2,42,70,760-, which was claimed by the assessee under the head 'electricity expenses'. This is based on the above mentioned assumption that results of the business will remain the same under the normal circumstances. Sales/turnover as per books-Rs. 12,53,14,790 Purchases as per books-Rs. 10,80,81,500 Percentage of purchases to the sales-86.25% Unaccounted turnover estimated on the basis of electricity Expense Rs. 13,98,08,035 Purchases against such turnover on Pro-rata basis ( @86.25%) Rs. 12,05,85,430 Average monthly purchases Rs. 1,00,48,702 18. The CIT(A) observed that, keeping the practical and field situation, specially the activities related to the trade under referen....
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....red for an accounted turnover- Rs, 33,49,567 Add: Profit on the unaccounted turnover- Rs. 38,58,701 Rs. 72,08,268 20. The CIT(A) observed that it is pertinent to look into the plea of the assessee that the balance of Rs. 2,25,525-, being the amounts drawn from the bank accounts as referred, being the balance amounts after meeting the expenditure of electricity charges (24496200-24270760), may be considered as the investment in the unaccounted production/turnovers. This amount is the total of the cash deposited into the bank account representing the unaccounted receipts of the company as reduced by the amount spent for the electricity charges related to the unaccounted turnover, as per the assessee. Since, the amounts were withdrawn in cash, credit was requested for the cash available, for meeting the expenses related to the unaccounted turnover. According to the CIT(A) the unaccounted investments is allowed to be reduced to the extent of cash available with the assessee in the form of the amounts withdrawn from bank accounts to the extent of Rs. 2,25,525-, after meeting the expenditure under the head 'electricity charges'. Accordingly, the investment re....
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....ceipts. 23. The learned AR submitted that the CIT(A) merely estimated the turnover in the absence of any seized material unearthed to support his findings. The CIT(A) is not justified in estimating the unaccounted turnover of Rs. 13,98,08,035 as against the annual declared turnover as per audited accounts at Rs. 12,53,14,790 and after estimating the unaccounted turnover on the basis of unaccounted electricity charges, he estimated the profit on the unaccounted turnover at Rs. 2.76%. Accordingly, there is no basis for such addition. 24. On the other hand, the learned DR submitted that the CIT(A) ought to have confirmed the unaccounted deposit in the bank accounts and also unexplained expenditure on electricity. Instead of this, he has given relief to the assessee. He pleaded to confirm the order of the AO. 25. We have heard both the parties and perused the material on record. In this case there is an unaccounted deposit in the bank account at Rs. 2,44,96,200 and afterwards the same amount was used for payment of electricity charges at Rs. 2,42,60,675. Thereafter, the CIT(A) worked out the turnover on the basis unaccounted electricity charges worked out at Rs. 13,98,08,035 and es....
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....ccepted the contention of the assessee that the cash deposits in the bank account pertain to the business of the assessee without any documentary evidence being brought on record. (3) The learned CIT(A) has erred in allowing unaccounted electricity expenses of Rs. 2,42,70,675/- from the unexplained bank deposits, as it was never established that the cash deposits pertain to the business of the assessee. (4) The learned CIT(A) has erred in holding that an initial investment of 10 days purchases is a minimum requirement to achieve the turnover outside the books, as a result investment of Rs. 31.24 lakhs only is received to achieve turnover of Rs. 13.98 crores which is not reasonable as per any business standards. (5) The learned CIT(A) has erred in accepting various additional evidences submitted by the assessee during the course of appellate proceedings without allowing an opportunity to the Assessing Officer to cross examine the same in accordance with the Rule 46A of the IT Rules. 29. We have heard both the parties and perused the material on record. This appeal becomes infructuous since we have decided the issue, arising out of the above grounds, in favour of the assessee in ....
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....lotted to the applicants subsequently on 2250652009. The assessee also furnished a note on legal position in the matter of investments made towards share application money/share capital vis5a5vis their assessability in the hands of the assessee company, while furnishing a list of judicial decisions on the issue of accepting such investments as share application money/share capital. While furnishing the written submissions, the assessee also furnished the confirmations from the share applicants, who are none but the Directors of the company and their family members, who also fall under the jurisdiction of the Assessing Officer. On appeal the CIT(A) confirmed the addition. 32. We have heard both the parties and perused the material on record. As seen from the order of the CIT(A) all 13 investors are of the family members/director of the assessee5 company and out of them 9 are assessed to tax and they have furnished returns of income and investment is through banking channels and the CIT(A) deleted Rs. 30.25 lakhs pertaining to 9 parties and confirmed Rs. 4 lakhs from non5assessees as held by the Supreme Court in the case of CIT vs. Lovely Exports (216 CTR 195). When the assessee fur....
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....was held that even the share holders are not genuine, share capital cannot be regarded as undisclosed income of the assessee. 5.2 In the case of CIT Vs. Sophia Finance Ltd. (205 ITR 98) Delhi (Full Bench), wherein it was held that for the operation of section 68, it would be immaterial whether the amount is credited in the books in the share application money account and it was held that S.68 is applicable in respect of share application money. 5.3. In the case of CIT Vs. Lovely Exports (216 ITR 195) (SC), wherein it was held that even if the share application money is received by the assessee company from the alleged bogus share holders whose names are given to the assessing officer, then the department is free to proceed their individual assessment in accordance with law but it cannot be regarded as undisclosed income of the assessee. 5.4. In the case of VIT Vs. Value Capital Services (P) Ltd. (307 ITR 334), wherein it was held that CIT(A) having accepted the existence of share applicants and the revenue having not shown, that applicant did not have the means to make the investment and that such investments actually not emanated from the coppers of the assessee company, the ad....
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....as the assessment was completed determining the total income at Rs. 81,15,440 by virtue of the addition of Rs. 53,25,800 being the cash deposits made in the bank account no. 1624, at Nasik Cooperative Urban Bank Ltd., and disallowance of Rs. 25,83,100 being cash deposits in bank account no. 1426, maintained with Agrasen Cooperative Urban Bank Ltd. While computing the taxable, income, the Assessing Officer has treated the amounts credited in bank account bearing no. 1624 with Nasik Cooperative Urban Bank Ltd and the deposits made in the bank account for the year under reference is quantified at Rs. 53,25,800. On enquiry by the Assessing Officer, it was stated that the assessee tried to explain the said cash deposits by giving different versions at different times, with the main end use of the said amounts being the amounts paid as electricity charges for M/s Mahavir Ispat Pvt. Ltd. Not satisfied with the explanations as regards to the sources of such cash deposits, the Assessing Officer has treated it as unexplained cash credits u/s 68 of the IT Act, 1961 and added to the total income of the assessee, on protective basis, since the same amount was added in the hands of the M/s. Maha....
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....ble. Accordingly, he directed the AO to delete the addition made on the protective basis in the hands of the assessee. 39. The next ground of appeal relates to the addition of Rs. 25,83,100 on account of undisclosed income being the cash credits in the bank account mentioned to be the account with Agrasen Cooperative Urban Bank Ltd. While making the addition, the Assessing Officer has referred to the said account no. as 1426 and added the amount of Rs. 25,83,100, as unexplained cash deposits in the said account, without taking further details. 40. The CIT(A) observed that there is confusion as regards to the bank account referred to and the quantity of the cash deposits made into the said bank account. As per the information submitted by the assessee, the account number of the bank is 1424 maintained with Agrasen Cooperative Urban Bank Ltd of Siddiamber Bazar Branch, held jointly by Mr. Shivram Agarwal and his wife Smt Vanita Devi Agarwal, but not 1426, as referred by Assessing Officer in his order. The deposits made into such account is Rs. 29,04,100, for the year under reference which is exactly tallying with the amounts mentioned by the assessee while submitting his explanatio....
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.... the credits appeared in the books of accounts which also include the bank accounts, need to be explained by the party in whose names such credits are taken place. In the present case, the credits are taken place in the joint account held by the assessee and along his wife Smt. Vanita Devi Agarwal, who stated that the said bank account was opened by Mr. Shivram K. Agarwal and he will be able to explain the sources for the said credits. However, the assessee failed to prove such credits either at the stage of assessment proceedings or appeal proceedings, along with the required evidence. Hence, the assessee is not eligible for the relief on this addition. Since the addition was made in the hands of Smt. Vanita Devi Agarwal on protective basis which was deleted by the order of CIT(A)5VII in ITA No. 1312/DCIT CC54/CIT(A}5VII/10511 dt. 16.01.2012, the addition of the same amount of Rs. 29,04,100, is confirmed in the hands of the assessee. Accordingly, the CIT(A) dismissed this ground of appeal. Against this, the assessee is in appeal before us. 42. We have heard both the parties and perused the material on record. The Revenue appeal in 639/Hyd/2012 is to be dismissed as this addition ....