TaxTMI 
TaxTMI 
2014 (4) TMI 631
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....The order of the Commissioner of Income tax (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 reaso....
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....at the above transactions are not recorded in the regular books of accounts and rather 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....
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....t the same explanation was offered by the assessee during the assessment proceedings and the same were shown to have been incorporated in the 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....
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....ure while treating the deposits into the bank accounts, as unexplained credits/deposits based on the admission of Shri Kantilal Agarwal, the MD of the company 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 th....
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....ills issued by the supplier of the power company. 13. The CIT(A) further observed that these facts were in the notice of both the department and the assessee since 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 compan....
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....sing out of the claim of unaccounted expenditure made by the assessee. Though, it has been contended by the assessee that the search operations did not result in detecting any 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 29,64,633/2.24 201....
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....siness considered as the relevant material unless and until it proved otherwise. In this case, the book results were accepted by the Assessing Officer and no doubts whatsoever were raised regarding them. Further, it has been held that 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....
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....ated to the production/turnover outside the books of the account, in the form of additional business activity. On the lines of the above discussion, the unaccounted income related to the unaccounted turnover is quantified as under: Investment required 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 a....
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..... 1 is general in nature and does not require any adjudication. Ground No. 2 is not pressed by the AR. Accordingly, ground No. 2 is dismissed as not pressed. 22. Ground No. 3 is with regard to estimation of profit on estimated unaccounted turnover on the basis of unaccounted receipts. 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 ....
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....ngly, we delete the addition. In the result, ITA No. 990/Hyd/2012 is partly allowed. ITA No. 1089/Hyd/2012 (By Revenue) 28. The Revenue raised the following grounds of appeal: (1) The order of the learned CIT(A) is erroneous both on facts and in law. (2) The learned CIT(A) has erroneously accepted 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 opp....
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....ed to the issue, submitting that no incriminating material to throw suspicion on the share investments was detected and the addition by the Assessing Officer was on mere suspicion. It was also submitted that the investments as share application money were made by 13 individuals belonging to the same group and shares were allotted 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....
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....count statements, confirmation letters, pattadar pass books, etc. submitted by the above four investors are on record. 5. The CIT(A) placed reliance on the above report and deleted the addition. We have carefully gone through the above remand report. 5.1. In the case of CIT Vs. Stellar Investments Ltd. (251 ITR 263) (SC), wherein it 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....
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.... the entire amount. 36. Brief facts of the issue are that the assessee, Mr. Shivaram K Agarwal, an Individual by status is deriving income from house property and other sources and related to Kantilal Group of Cases, in whose case, a search & seizure proceeding has taken place on 29.1.2009. Return of income was filed on 23.12.2010 declaring an income of Rs. 2,06,540 whereas 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 t....
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.... by the assessee indicate the position accordingly. Since the company was shown as source of the cash deposits and also the end5user of the said amounts for making out its expenditure in the form of electricity charges, the said amounts are offered for tax in the hands of M/s. Mahavir Ispat Pvt. Ltd. The CIT(A) observed that the submission of the assessee are found to be acceptable. 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 w....
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....shing the return of income and as such, the explanation can only be considered as an afterthought resorted for explaining the unexplained cash deposits made into the bank account bearing no. 1424 at Agrasen Cooperative Urban Bank Ltd., standing jointly in the names of Sri Shivram K. Agarwal and Smt Vanita Devi AgarwaL The provisions of the Income Tax Act are very dear to indicate that 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/....
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....;s husband Shivram K. Agarwal. Since we have remitted the issue back to the file of the AO in her husband's case in ITA No. 713/Hyd/2012, this is also goes back to the AO for re5examination and to sustain the addition only in one hand if warranted. ITA No. 640/Hyd/2012 is allowed for statistical purposes. ITA No. 430/Hyd/2012 (By Revenue): 46. The following ground is raised by the Revenue: (1) The Ld. CIT(A) has erred in deleting the protective addition in the hands of the assessee and in holding that the cash deposits in the bank account of the assessee pertain to M/s. Mahavir Ispat Pvt. Ltd. 47. This issue is considered in the hands of M/s. Mahavir Ispat Pvt. Ltd. in ITA No. 990/Hyd/2012. Being so, this protective assessment is annulled. Appeal of the Revenue in ITA No. 430/Hyd/2012 is dismissed. ITA No. 641/Hyd/2012 (By Revenue): 48. The following grounds are raised by the Revenue: (1) The order of the Ld. CIT(A) is erroneous on facts. (2) The ld. CIT(A) ought to have upheld the disallowance made as per the assessee undisclosed Bank account deposit as it is only found consequent to search and the assessee failed to explain sources of same. (3) The ....