TaxTMI 
TaxTMI 
2011 (7) TMI 1227
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....see derives income from trading of precious and semi precious stones and roughs on wholesale basis under the name and style of M/s. R.A. Gems. During the course of search, cash of Rs. 27,08,050/- was found out of which cash of Rs. 28.50 lacs was admitted as unaccounted in statement u/s 132(4) of the Act. During the course of search, many incriminating documents were found and seized. The statement of the assessee was recorded on 22June, 2007 u/s 132(4) of the Act. The AO in his order at page 3 has reproduced the relevant portion of the statement in which the assessee admitted the undisclosed income to the extent of Rs. 5.00 crores. The statement was recorded u/s 131 on 17-07-07 by DDIT (Inv.), Jaipur and the assessee enhanced the offer of undisclosed income to Rs. 6.00 crores n the basis of the seized incriminating documents. The relevant question and answer has been reproduced by the AO at page 3 of the assessment order and the undisclosed income shown in the returns by the assessee for the following three assessment years are as under:- Assessment year. Additional Income offered. 2006-07 Rs.1.00 crore 2007-08 Rs. 3.00 crores 2008-09 Rs. 1.00 crore Total....
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....91,287 - 1,91,287 04-05 - 2,47,834 2,47,834 9,00,000 - 9,00,000 05-06 - 4,44,474 4,44,474 42,25,000 - 42,25,000 06-07 68,44,000 11,51,573 79,95,573 66,15,000 100,00,000 100,00,000 07-08 295,39,000 26,26,165 321,65,165 282,99,411 300,00,000 321,65,165 08-09 * 85,17,000 50,36,637 135,53,637 10,00,000 + 26,00,000 (Cash) 100,00,000 135,53,637 Total 449,00,000 97,84,910 5,46,84,910 459,39,411 500,00,000 633,35,089 In A.Y. 2008-09, AO further made addition of Rs. 49,00,000/- by not accepting the amount realized from debtors after search, utilized in payment of taxes and thus for this year undisclosed income was assessed at Rs. 1,84,53,637/- (135,53,637 + 49,00,000). 2.4 The facts in brief in respect of addition of Rs. 50,36,637/- representing accrued interest on debtors are as under:- ''In search certain approval memo were found. These approval memos are in relation to out of books transactions in 'Kharad' as explained by the assessee in statement recorded u/s 132(4). On some of these slips the rate ....
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....st on particular rate on the approval memo and there is no chance of not receiving interest after search when the debts are outstanding. (v) In search the record of each and every transaction for recovery of interest could not have been recovered or due to the unaccounted entries it may not have been maintained, but it is appropriate to calculate interest on accrual basis. (vi) The cases referred by the assessee are quite distinguishable as they are related to pawing business where the creditors return the amount together with interest and take back his ornaments. Whereas in the case of assessee debts have been given and the interest is recoverable after every 2 to 3 months as admitted by the assessee. 2.7 Before us, the ld. AR submitted that approval memo did not pertain to the transactions of 'Kharad' where the party did not make payment. Therefore, for such outstanding debtors, approval memo was obtained. Wherever there was a stipulation about interest, the rate of interest is mentioned on the approval memo. Where there was no stipulation of interest, no rate is mentioned. There are number of approval memos pertain to period prior to A. Y. 2006-07 and ....
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....ted that approval memo on which interest rate is not mentioned cannot be excluded. For the purpose of computing interest on accrual basis, it was therefore, submitted that the AO was justified in including interest on accrual basis. 2.10 The assessee is doing business as per regular books of accounts and is also doing business outside the books of accounts for which no regular cash book or ledger has been maintained. The incriminating documents found during the course of search do suggest that the assessee was indulging in the business outside the books of accounts and this is not disputed by the assessee. We required the assessee to show as to whether interest was being charged from trade debtors to whom the goods were being sold on credit. The ld. AR has filed the information alongwith copies of P & L A/c and balance sheet prepared on the basis of regular books of account. It was submitted that the balance sheet showed that there are trade debtors in the regular books of account. On the another query raised by the Bench, the ld. AR stated that none of the seized papers indicate any receipt of interest. No evidence in respect of realization of interest on outstanding debtors wa....
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....Birla Gwalior (P) Ltd. 1973 CTR (SC) 349: (1973) 89 ITR 266 (SC). What can therefore, be assessed is real income as income-tax is a tax on income. The test therefore, before income can be tax is whether there is real accrual of income. In our opinion, the ratio of that judgement fully applies to the facts of the present case.'' 2.12 The Hon'ble Jurisdictional High Court in the case CIT Vs. VTC Leasing Finance Ltd. 215 CTR 51 had an occasion to consider the following question of law. (i) Whether on the facts and in the circumstances of the case and in law, the learned Tribunal was justified in deleting the addition of Rs. 17,35,958/- on account of income from lease rent made by the AO and as upheld by the ld. CIT(A) specially when the assessee was maintaining books of accounts on mercantile method as provided u/s 145 of the Act? 2.13 Hon'ble Jurisdictional High Court thereafter decide the above referred question of law after observing as under:- ''5. So far as the first question is concerned, of course, it has come that the assessee was maintaining books of accounts by both manners viz . by receipt basis, and on mercantile basis as well, inasmuch as, ....
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.... and thus the ground raised by the assessee was accepted. 6. In our view, so far as the legal proposition propounded, and considered by ld. Tribunal are concerned, they are not in dispute, moreso, when the Tribunal has proceeded on the basis of judgement of Hon'ble Supreme Cout in Andhra Bank Ltd. cse. Therefore, it remains only a question of fact, as to whether any income was derived by the assessee in the relevant period, so as to be able to tax, and the ld. Tribunal has considered, that tax liability cannot be attracted merely on the basis of entries in the book keeping unless income is accrued. Thus, in substance the finding of fact, is to be effect, that the assessee did not earn the income, which has been deleted by the Tribunal by the impugned order. In that view of the matter, the question no. 1 as framed, is answered accordingly, and it is held that the conclusion of the Tribunal was correct.'' 2.14 The Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Ferozpur Finance (P) Ltd. 124 ITR 619 held that unless income is accrued, there should be no tax liability and that even in mercantile system of accounting an assessee could forgo the whole or part of ....
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....ainable from any seized documents that the assessee has received the interest though the assessee admitted that he has received the advance interest only for 2/3 months. The contention of the assessee is that the interest is mentioned in the approval memo so that the debtor should be under pressure to repay the amount as early as possible. In case interest is realized then the same is used for making advance and receipt of interest is accruing as and when the debt is realized. The assessee is basically earning from the trading of rough stones i.e. Kharar and the earning of the interest is incidental. The taxability on the basis of the real income theory has been considered in the following case laws : 1. CIT Vs. FAL Industries Ltd. , 314 ITR 47 (Mad.) 2. CIT Vs. City Union Bank Ltd. (Mad.) 3. CIT Vs. Federal Bank Ltd., (Ker.) 4. CIT Vs. Birla Gwalior (P) Ltd., 89 ITR 266 (SC) 5. Rajasthan State Ganganagar Sugar Mills Ltd. Vs. DCIT (ITA No. 28/JP/2010 dated 20-08-2010) 6. Madan Lal Jain Vs. ACIT,(ITA No. 198.JP/2005), ITAT Jaipur (copy of available in paper book) When we are relying on some part of the statement of assessee as....
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.... of taxes has been deleted.'' 3.4 The ld. DR supported the orders of the AO. According to him, the AO, the onus was on the assessee to establish the source of payments in respect of tax deposited. In absence of any information, the AO was justified in making the addition of Rs. 49.00 lacs. 3.5 On the other hand, the ld. AR has filed the following written submission. ''The assessee has offered the amount mentioned on the approval memos as undisclosed investment in debtors which the AO has accepted. In order to make payment of tax on undisclosed income, the assessee after search could realize some of the debtors. In respect of such realization the expectation of the AO to furnish confirmation is unreasonable, since the transactions were unrecorded transactions. Once the AO accepts the amount involved in approval memos as undisclosed investment of the assessee in debtors on the basis of statement of the assessee without making any independent enquiry, then on the basis of the affidavit of the assessee he ought to accept the realization from these debtors. The AO cannot blow hot and cold at the same breath. He should not adopted an attitude of 'Head I win, tale you lose'. T....
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....ssment for the assessment year 2008-09 is being made for the first time because return has been filed after the search. This is a regular assessment and the assessment is to be made u/s 153A because search and seizure actions have been undertaken. Hence, the AO was justified in making disallowance out of the expenses. 4.4 After hearing both the parties, we feel, that the ld. CIT(A) was fair and reasonable to restrict the disallowance of Rs. 24,880/-. 5.0 Now we take up the appeal for the assessee for the assessment year 2002-03. 5.1 The first ground of appeal of the assessee is that the ld. CIT(A) has erred in confirming the addition of 23.00 lacs on account of undisclosed investment in debtors. 5.2 The AO on the basis of the incriminating documents noticed that there were debtors to the extent of Rs. 23.00 lacs at the end of the of previous year relating the business outside the books of accounts. The contention of the assessee is that it has surrendered income on the basis of the debtors for three assessment years. Hence, it was submitted before the AO that either the addition should be made or the same should be reduced from the income returned. The AO was not satisfied....