TaxTMI 
TaxTMI 
TaxTMI 
2014 (12) TMI 470
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....arious types of additions. It is pertinent to note that the AO, inter alia, rejected the books of account maintained by the assessee and accordingly estimated the income from profession. The appeal filed by the assessee before the ld. CIT(A) challenging the various additions made by the AO was partly allowed. Aggrieved by the decision of the ld. CIT(A), the revenue has filed this appeal before us. 4. We have heard both the parties and perused the record. The first issue relates to rejection of books of account and estimation of profit. The assessee is a private limited company and it has got its account audited under the provisions of Companies Act, 1956. The assessee has stated that it was following cash system of accounting. However the AO took the view that the assessee, being a private limited company, is required to follow mercantile system of accounting in accordance with Companies Act. Since the assessee had followed cash system of accounting and since the same is against the mandate of provision of Companies Act, the AO took the view that the books of accounts of the assessee are not reliable. Further, citing some more reasons, the rejected the books of account and estimat....
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....eciding the individual grounds of appeal. Similarly, I do not find any merit in sub point 5 of para 9. Only on the basis of debit of depreciation in profit & loss account, veracity of books of accounts cannot be challenged. The arguments of AO is found to be baseless. I have gone through the rival submissions and am of the opinion that as per Income Tax Law, assessee can maintain its books of accounts on Cash Basis or Mercantile basis. It is not the case of A.O. that assessee has maintained its books on hybrid system which has been done away with, by the Income Tax Act 1961. Further, assessee has not changed its method of accounting since inception. Therefore, this is no ground for rejection of books of account. In any event, even after rejecting of the books of accounts A.O. could not have assessed net profit @15% on turnover without any verifiable evidence in possession. There is no basis for the same. As a matter of fact, if any assessee company invests and expands its business, the depreciation would increase and if a fixed net profit is assessed, the entire provisions of allowing depreciation would become meaningless. I am therefore of the opinion that the amount of Rs. 20,41....
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....C). Accordingly, the AO assessed the above said amounts as income in the hands of the assessee. 8. Before the ld. CIT(A), the assessee contended that the ratio of decision of TVS Sundaram Iyengar & Sons (supra) is not applicable, since the facts prevailing in the instant case are different, i.e., the assessee submitted that the liability has not ceased to exist in its case, where as in the case of T.V. Sundram Iyengar & Sons, the liability had ceased and the assessee therein had taken the amount to its Profit and Loss account. The assessee, on the contrary, relied upon the following decisions and contended that the deposits cannot be assessed as its income. a) Liquidator, Mysore Agencies P. Ltd V/s CIT (1978) 114 ITR 853 (Karn); b) CIT V/s Indian Research Institure Pr. Ltd (1979) Tax LR (NOC) 66 (Cal),; c) K V MoosaKoya & Co V/s ITO (1989) 175 ITR 120, 124 (Ker) and d) Bombay Dyeing and Mfg Co.Ltd V/s State of Bombay (1958) SCR 112,1135= AIR 1958 SC 328, Accordingly, the assessee contended that there is no cessation of liability as presumed by the AO. Further, the assessee also contended that it has not received any benefit like perquisite and hence the provisions of section 2....
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....and hence the AO assessed the above said amount as unexplained investment in the hands of the assessee under section 69 of the Act. 12. The ld. CIT(A) noticed that the assessee has clubbed together the Security Deposit account and the M/s Royal Dental Clinic (P) Ltd, while preparing the Balance Sheet and accordingly the net amount only was disclosed in the balance sheet. The manner of disclosure of the Security Deposit account and the amount given to M/s Royal Dental Clinic Pvt. Ltd is extracted by Ld CIT(A) as under : a. from banks b.from others NIL 7941700.00 Security deposits from patients Opening balance During the year (846 x 15000) Refund during the year (3 x 15000, 25 x 2400) Royal Dental Opening balance During the year 32406700.00 12690000.00 (-)105000.00 44991700.00 (-)24465000.00 (-)12585000.00 (-)37050000.00 7941700.00 Accordingly, the ld. CIT(A) held that the assessee has in fact, accounted for the deposit of Rs. 3.70 crores paid to M/s Royal Dental Clinic Pvt.Ltd in its books of account but the same was netted of against the security deposit while preparing the balance sheet. Accordingly, the ld. CIT(A) deleted the addition made by the AO ....