TaxTMI 
TaxTMI 
2016 (9) TMI 1381
X X X X Extracts X X X X
X X X X Extracts X X X X
.... we hereby condone the delay as assessee has reasonable cause in not preferring the appeal in time. Appeal is admitted. 2. Briefly stated facts are that assessee is a partnership firm carrying on chit fund activity. For the AY. 2004-05, it filed its return of income on 29-11-2004 admitting an income of Rs. 42,400/-. The said return was originally processed u/s. 143(1) of the Income Tax Act [Act]. The Assessing Officer (AO), thereafter, conducted survey u/s. 133A of the Act at the premises of assessee on 30-09-2007. AO during the course of survey, impounded certain books of account showing suppression of receipts and inflation of expenditure. AO accordingly issued a notice u/s. 148. AO mentions that on verification of the accounts it is revealed that some of the entries made in the books of account are not considered while preparing the return of income; certain transactions were not at all reported to the department; the P&L A/c prepared and annexed to the return of income did not tally with the books of account maintained by assessee; there is also discrepancy between the books of account of one year and another year as the opening and closing balances are not tallying; some of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted in various differences in capital accounts, expenditures and claims etc. Not only that in trial balance, the assets and liabilities were shown separately whereas in final accounts, these were shown at net amounts. Therefore, CIT(A) was not correct in accepting partly where as all the additions are explainable. 6. Ld. DR however, explained the details of additions made from the assessment order and submitted that survey has been conducted after three years and so assessee's statement that books of accounts were not closed or final entries were not made is not correct. The acceptance of assessee contentions by Ld. CIT(A) is not correct and supported the grounds raised by Revenue. 7. We have considered the rival contentions and perused the paper book placed on record. Certain facts are to be noted before adjudicating the various additions: * Assessee even though has maintained Books of Account, they are not complete as the final entries have not been incorporated by way of journal entries in the Books of Account; * Assessee has not subjected the Books of Account to audit as assessee's turnover is less than Rs. 40 Lakhs and compulsory audit was not prescribed; * AO himself ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... accounts, wherein each of the partners have contributed Rs. one Lakh each totalling to Rs. 5 Lakhs during that year and those amounts have not been carried over as opening balance in the Books of Account for this year. Since the entries are shown in the final accounts filed for the earlier year, the discrepancy of Rs. 5 Lakhs in cash receipt has come in the opening cash balance of this year. Further, an amount of Rs. 79,312/- was collected from the subscriptions on the chits, which was shown as a difference in the statements, whereas this amount collected was adjusted in the final accounts. Thus, the total amount of Rs. 5,79,312/- has affected not only the cash difference but also various other accounts. Since the partners have contributed the amount in the earlier year which was already accepted, an amount of Rs. 5 Lakhs cannot be considered as 'discrepancy' in this year. With reference to the amount of Rs. 79,312/- collected from various subscribers, this has come in for adjustment in various chit subscriptions account, therefore, as per the Books, the chits subscription amount was at Rs. 25,93,234/-. But in the final statements it was Rs. 25,93,234/-. Since these amounts have b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rs and has filed the returns in their individual capacities admitting the cash credits. The AO could have verified these in the individual hands but not in the firm's hands. Therefore, CIT(A)'s order is correct not only on facts but also on law. There is no merit in Revenue's ground, accordingly the same is dismissed. Disallowance of salary of Shri K. Mohan Reddy: 10. An amount of Rs. 18,000/- was disallowed as salary paid to one of the partners Shri K. Mohan Reddy. According to AO, the said partner is not a working partner and therefore, salary to him is not an allowance, in view of the provisions of Section 40(b) of the Act. AO relied on the statement recorded from the said partner who stated that he has no active role in chit fund company. Ld. CIT(A) also confirmed the disallowance. 10.1. After considering the rival contentions and examining the statement placed on record at pgs. 33-35 of the Paper Book, we are of the opinion that the disallowance is not warranted. First of all, the statement recorded u/s. 131 clearly indicates that Shri Mohan Reddy is aware about his partnership in the firm and admits that he is responsible as a partner for all affairs of the firm. In fact, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nue's ground is accordingly dismissed and assessee's ground is allowed. Addition of suppression of income of Rs. 1,082/-: 12. AO by briefly stating that an amount of Rs. 1,082/- was short computed in the dividend account made an addition which assessee contends that dividend is correctly accounted. There is no clarity in the addition of AO. As seen from para 4 of the order, the so called discrepancies between Books and entries in the final statements on the Liabilities side, there was a difference of Rs. 450/- in the dividend payable account. On the Assets side, there is no discrepancy on this account but in the income on chits, there is a discrepancy of Rs. 1203.99, as per the AO in the table provided. Instead of reconciling dividend payable and dividend on chit accounts and further without verifying the final statements, the AO has arrived at the so called discrepancy. It is not an addition of short computation of dividend income but net of dividend, miscellaneous income and penalties. As far as miscellaneous income is concerned, in the final accounts, assessee offered Rs. 57,123/- as income, whereas in the Books, it was only Rs. 33,510/-, thereby a negative figure of Rs. 23,61....