TaxTMI 
TaxTMI 
2011 (7) TMI 1227
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....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 ₹ 27,08,050/- was found out of which cash of ₹ 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 ₹ 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 ₹ 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 ₹ 3.00 crores 2008-09 ₹ 1.00 crore Total ₹ 5.00 crores 2.3....
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....,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 ₹ 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 ₹ 1,84,53,637/- (135,53,637 + 49,00,000). 2.4 The facts in brief in respect of addition of ₹ 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 of interest is mentioned whereas on some slips rate of interest is not mentioned. The AO observed that the assessee has not offered the accrued interest on these debtors. Accordingly he calculated the interest on the amount of these debtors from the date mentioned on the slip till the end of the year as per rate mentioned ....
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....i) 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 in respect of such approval memo, the assessee has not been able to realise even the principal amounts upto the date of search and therefore, the question of accrual of interest on these memos do not arise. Hence, in respect of such approval memo, there is no question of accruall of interest. In the accrual system of accounting, income is to be accounted for if there is a reasonable certainty of reali....
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....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 was found. The ld. AR has also filed the copy of decision of Hon'ble Jurisdictional High Court in the case of CIT Vs. VTC Leasing & Finance Ltd. now reported at 215 CTR 51 in which Hon'ble High Court held that only real income is to be taxed. One has to consider the realities of life while arriving at the taxable income. 2.11 We have heard both the parties. The only dispute before us is as to whether interest is t....
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.... 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 ₹ 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, with respect to accrual of lease income, mercantile system was adopted. However, for lease and hire income, the receipt basis was adopted.. True it also is that by virtue of Section 145 as amended, the income chargeable under the head 'profits and gains of business or profession' or 'Income from other sources' is subject to provisions of sub- Section (2), to be computed in accordance with either cash or mercantile system of accounting, regular....
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....le 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 a debt which was irrecoverable and the same could not be added to the income of the assessee. It is illusory to take credit for interest where pre-condition is doubtful of recovery. The Hon'ble Punjab & Haryana High Court referred to the decision of Hon'ble Apex Court in the case of in the case of Shorrji Vallabhdas & Co. 46 ITR 144. The Hon'ble Apex Court in that case dismissed the appeal of the Department against the decision of The ....
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....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 correct then we must appreciate that assessee has given a true state of affair. Mention of interest was to have pressure on debtors to repay. Hence realization of interest is not certain. It is therefore, held that the interest is to be taxed at the time when the same accrues to the assessee at the time of realization of debt. Such realization stands included in the amount of debtors and hence no further addition is required to be made. After the date of search, the debtors have not paid the interest as per contention of the assesse....
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.... 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'. Therefore, the observation of the AO to furnish confirmation of the borrowers to prove the realization from debtors is wholly unjustified and far fetched. In case the amount involved in the approval memos is considered undisclosed and taxed, again taxing the realization of these approval memos would result in double taxation of the same amount. It is a settled law that, strict rule of evidence does not apply to the income tax proceedings. The human probability is to be considered in assessing an income. The Supreme Court in c....
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....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 ₹ 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 with the contention of the assessee as according to him the income is to be taxed for previous year during which the income relates. 5.3 The addition has been confirmed by the ld. CIT(A) after considering the submissions of the ld. LD. AR. 5.4 We have heard both the parties. We feel that the income is to be taxed for the preceding year. As per charging Section 4 of the Income Tax Act,, the AO was therefore, justified in making the addition of ₹ 23.00 lacs. The alternative submission of the assessee is that the exce....