TaxTMI 
TaxTMI 
2018 (1) TMI 1682
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....peals are directed against separate orders of the ld.CIT(A)-I. Assessment years involved in these appeals are from A.Y 2003-04 to 2006-07. 2. Out of this bunch, in two appeals viz. ITA No.355 and 386/RJT/2011 Revenue impugned the orders of the ld.CIT(A)-I, Rajkot against cancellation of penalty imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961 for the Assessment Years 2004-05 and 2005-06. Since in all these appeals/crossobjections, issues and facts are intertwined to each other, we proceed to dispose of all by this common order for the sake of brevity and convenience. 3. Before adverting the specific grievance of the parties in particular assessment year, we would like to take note of certain basic common facts. 4. Assessee, Smt.Manisaben N. Mashru is an individual engaged in the business of domestic and international air-tickets booking, incentive tours, hotel reservations and visa formalities under the name and style "M/s.Divya Travels". A survey under section 133A of the Income Tax Act, 1961 was carried out at the premises of the assessee on 18.2.2005. During the survey, certain loose papers, diaries, files etc. were found and impounde....
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....has compiled details of narrations made in these annexures. He also took into consideration credit entries in these pages and reproduced them on page nos.4 to 11 of the assessment orders. He confronted the assessee to show why these credit entries should not be added as unexplained cash credit of the assessee under section 68 of the Income Tax Act, 1961. According to the AO, the assessee failed to explain source of credit entries and also failed to reconcile entries with other material. Accordingly he treated alleged credit entries as unexplained cash credit of the assessee and made addition of Rs.5,10,28,350/- in the Asstt.Year 2003-04. Similar additions have been made in other two assessment years. On appeal, the ld.CIT(A) has deleted these additions. 7. The ld.counsel for the assessee during the course of hearing compiled details in tabular form and filed a synopsis exhibiting additions made by the AO; relief granted by the ld.CIT(A) and additions sustained by the ld.CIT(A). Common composition of ground no.1 in the Revenue's appeals for all these three years has been depicted as under: The Ld. CIT(A)-I, Rajkot has erred in law and on facts in granting relief as per column ....
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....52,26,696 1,41,72,402 2,61,99,141 Total 5,10,28,350 (b) At the outset, it is respectfully submitted that the appellant is engaged in the business of booking of domestic and international air tickets for AIR India: Kingfisher Jet Airlines: International Air Lines etc. (in short, principals) in her proprietary concern in the name & style as M/s Divya Travels. (c) The appellant is having whole sale business on behalf of the principals and her major business is with the sub-travel agents. She is member of International Air Transport Association (IATA), who secure guarantee for payments to the principals. (d) The turnover in respect of domestic & international booking of air tickets runs in cores of rupees and the Gross commission receipts on such sales was nearly Rs. 6.90 crores, during the year under consideration. The entire business transactions with principals are through the banking channel. (e) The appellant is maintaining regular books of account, which are duly supported by business related documents. The same are subject to audit u/s 44AB of the Act as well. There is no disqualification in audit report (copy of audited ....
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....total of the jottings of each credit entries mentioned in the rough note book ignoring the debit entries reflected on same pages. It is settled proposition of law that the document is to be considered as a whole. Reliance is placed on the decision in the case of Indore Malva United Mills Ltd. vs. State of Madhya Pradesh (1966) 60 ITR 41 (SC). (I) Hon'ble Supreme Court has, in the case of National Thermal Power Co. Ltd. vs. CIT (1998) 229 ITR 383, observed that: "The purpose of an assessment proceeding before the taxing authority is to assess correctly the tax liability of the assesses in accordance with law." (m) The AO has made sum of the total of the credit entries in impounded note books on subjective consideration. There are multiple additions on repeated entries, besides additions in respect of telephone numbers and receipt voucher numbers which identified in summary as sated vide Para (j) above. (n) It may be mentioned that the extensive survey proceedings were carried out at the business premises of the appellant and associate concerns simultaneously on same date. The appellant has also furnished necessary explanations during the cours....
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....are forthcoming. The plea of the appellant that the diaries are not regular books of account and entries in such diaries cannot be a base for making the addition u/s 68 of the IT Act is correct. It is proposition of law that the scope of the provision of section 68 of the IT Act cannot be extended to noting in rough notebook which is not books of account as defined in section 2(12A) of the IT Act. There was no case for making the addition u/s68 of the Act on the basis of jotting in impounded documents. Further, the AO has made the addition of admitted income of Rs.36,50,978/- while finalizing the assessment for the assessment year 2005-06. There was no justification for making such a fresh addition in the assessment year under consideration. As per the settled proposition of law, the purpose of an assessment proceeding before the taxing authority is to assess correctly the tax liability of the assessee in accordance with law. However at the same time the appellant was not in a position to explain transactions to the tune of Rs. 1,59,624/- recorded in impounded documents. The instances of unrecorded business transactions lead to reasonable conclusion that there are business transact....
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....satisfied with regard to the explanation of the assessee. The assessee has compiled details and submitted before the AO exhibiting discrepancies worked out by the AO in assessment order which were reconciled by him in the remand proceedings and un-reconciled entries have been examined by the ld.CIT(A). We deem it appropriate to take note of these details which read as under: AY Discrepancies worked out by AO in assessment order Discrepancies worked out by AO in remand report Unreconciled entries as , accepted by Ld. CIT(A) Ratio of discrepancy finally determined 2003-04 5,10,28,350 1,56,29,459 1,59,624 0.31% 2004-05 17,92,73,560 9,15,66,115 38,77,759 2.16% 2005-06 90,84,157 27,91,555 61,469 0.68% Total 23,93,86,067 10,99,87,129 40,98,852 1.05% 13. At this stage, we would like to make a reference to section 68 of the Income Tax Act, which contemplates that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof, or the explanation offered by the assessee is not, in the opinion of the AO satisfac....
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....as income of the assessee. Therefore, we modify the direction of the ld.CIT(A). The ld.AO shall calculate the profit at the rate assessee has shown on the basis of regular books in these years and accepted by AO. In other words only element of profit is to be included in the taxable income out of the un-reconciled entries worked out by the ld.CIT(A) and not the gross receipt. The grounds of CO are allowed. 17. Ground no.2 in Revenue's appeal for the Asstt. Year 2003-04. In this ground the Revenue has pleaded that the ld.CIT(A) has erred in law and on facts in deleting addition of Rs.36,50,978/- which was added by the AO on ground that the assessee has voluntarily admitted this amount before the DDIT(Investigation). A perusal of computation of income for Asstt.Year 2003-04 would indicate that at serial no.5, the ld.AO has made an addition of Rs.36,50,978/- under the heading "Disclosure made before the DDIT(Investigation)-2, Rajkot.". The assessee pleaded that she has worked out peak balance of Rs.32,20,478/- on the basis of impounded documents and offered the same for taxation for the Asstt.Year 2005-06. Subsequently, peak balance was revised at Rs.36,50,978/-. The AO has finalis....
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....1. The AO has calculated interest at the rate of 12% which ought to have been charged by the assessee on the interest free advance given by her. Accordingly, he made disallowance. 22. On appeal, the ld.CIT(A)has deleted disallowance made by the AO on the ground that interest free funds available with the assessee were much more than the interest free advance given by her. The ld.CIT(A) has observed that the assessee had interest fee funds of Rs.2,63,69,501/- in the Asstt.Year 2003-04 and Rs.1,95,9,856/- in Asstt.Year 2004-05 and 2005-06. 23. On due consideration of the above facts, we do not find any error in the order of the ld.CIT(A) because interest expenditure could be disallowed if interest bearing funds were used by the assessee for the purpose of granting loan without charging interest. The assessee has demonstrated that she has more interest free funds during the year than the interest free advance, and therefore there could not be any attribution of interest expenditure on such interest free loans. These grounds of appeal are rejected in all these assessment years. 24. Ground no.4, 4, 3, 5 of Revenue's appeal in the Asstt.Year 2003- 04, 2004-05, 2005-06 and 2006-0....
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....s not, in the opinion of the AO satisfactory, then the sum so credited in the accounts may be treated as income of the assessee of that previous year. This amount was not found to be credited in the books of the assessee for the first time, rather, it was a carried forward from earlier year. Explanation of the assessee could be sought in the year in which the amount was for the first time shown as credit balance. Therefore, the ld.CIT(A) has rightly deleted this addition. 32. Ground no.4: In this ground of appeal, grievance of the Revenue is that the ld.CIT(A) has erred in deleting addition of Rs.2,36,700/- out of total addition made by the AO at Rs.4,71,700/-. 33. Brief facts of the case are that out of administrative expenses debited by the assessee, the ld.AO has made an adhoc disallowance of Rs.4,71,700/- which is 20% of the total expenses debited by the assessee. On appeal, the ld.CIT(A)has restricted this disallowance to 10% on the ground that the assessee is an individual. She has huge turnover and earned commission income of more than Rs.12 crores. We have considered this aspect while disposing of ground no.4 of the Revenue's appeal in the Asstt.Year 2003-04 i.e. i....
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.... The assessee has been carrying out voluminous business in ticket booking. She has earned commission of crores of rupees. Looking into their background, it appears that they must have living a good life and the AO must have considered that aspect while estimating the household expenses. Two Revenue authorities have exercised their discretion in estimating household expenditure. Therefore, without there being anything on record that such opinion was formed by the Revenue authorities for extraneous reasons, we do not wish to replace those opinions by a third-one, which is also based on estimation. We do not find any merit in these grounds of appeal. They are rejected. 40. Ground no.2 in assessee's appeal for the Asstt.Year 2006-07: "The ld.CIT(A) erred on facts as also in law in confirming the disallowance made in respect of discount of Rs.82,63,965/- u/s.40(a)(ia) of the Act" 41. Brief facts of the case are that the assessee is a member of International Air Transport Association("IATA"). She used to book airtickets for domestic and international air-travellers for AirIndia, Kingfisher, JetAirline and other international air-lines. Some of travel agents booked air-tick....
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...., there is no relationship of principal and agent. In other words, there is no agency between the assessee and the alleged travel agents. Agency has been assumed by the AO with the help of section 194H of the Income Tax Act, 1961. The AO was of the opinion that since the assessee has parted with her volume of commission amongst travel agents, then it should be construed that those agents were acting on behalf of the assessee while booking international air-tickets. We find that the Hon'ble Gujarat High Court has considered almost similar situation in the case of Ahmedabad Stamp Vendors Association (supra). It is pertinent to take note of the following finding of the Hon'ble Gujarat High Court. "..... It is also not possible to accept the contention of Mr. Naik for the Revenue that the definition of "commission or brokerage" as contained in the Explanation to Section 194H is so wide that it would include any payment receivable, directly or indirectly, for services in the course of buying or selling of "goods and that, therefore, the discount availed of by the stamp vendors constitutes commission or brokerage within the meaning of Section 194H. If this contention were to be ....
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....e petition), issued by the Senior Treasury Officer, Ahmedabad, to the secretary of the petitioner's association are quashed and set aside." 44. In the light of the above interpretation of section 194H if the facts of the present case are looked into then it would reveal that the assessee has just given a trade discount out of commission earned by her from the airlines. She has not appointed any travel agents for acting on her behalf. Thus, there was no relationship of principal and agent. We further find that almost in an identical condition, ITAT Mumbai Bench has considered this issue and observed as under: " ...It was clear that the intermediaries were booking tickets from the assessee. Therefore, the intermediaries were not working as agents of the assessee for doing the assessee's business rather the intermediaries were bringing the business to the assessee as recorded by AO and the assessee was passing out some handling charges. Thus, the assessee was, in fact, giving some discount to the intermediaries for getting business. It was not a transaction between the principal and agent but it was as transaction between the principal and principal." 45. Respec....
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.... receipt and payment of the amount through banking channel etc. Hence, this ground of appeal is rejected. 54. Ground No.2. In this ground grievance of the Revenue is that the ld.CIT(A) has deleted addition of Rs.3,18,688/- which was added by the AO by making disallowance of proportionate interest expenditure. 55. With the help of ld.representatives, we have gone through the record carefully. It emerges out from the record that the assessee has advanced Rs.21,24,587/- to four parties without charging interest. Therefore, the ld.AO has calculated proportionate interest expenditure on such advances and made disallowance. Before the ld.CIT(A) it was contended that the assessee has total interest free funds of Rs.1,35,24,553/-. Thus, she has not used interest bearing funds for making interest free advances, the ld.CIT(A) deleted the disallowance. 56. We have already held that the assessee was able to demonstrate that if she has more interest free funds than the advance then on notional basis interest cannot be computed for disallowance. We do not find any error in the order of the ld.CIT(A). This ground is rejected. 57. Ground no.3: In this ground, grievance of the Revenue i....
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....d commission receipts on which TDS deducted by the payer and she has claimed the credit of the TDS. Considering the finding of the ld.CIT(A), we do not find any merit in this ground. It is rejected. 64. Ground No.5: In this ground of the appeal, grievance of the Revenue is that the ld.CIT(A) has erred in granting relief of Rs.11,026/- out of total addition of Rs.51,226/-. 65. It is pertinent to observe that the ld.AO has made adhoc disallowance out of the expenses incurred towards telephone, vehicle etc. The ld.CIT(A) has partly confirmed the disallowance and partly deleted. While considering ground of the assessee, whereby the disallowance of Rs.42,200- out of total disallowance of Rs.51,226/- was confirmed, we observed that these are adhoc disallowance made by the AO by observing that possibility of personal user of car and telephone cannot be ruled out. It is an estimated disallowance which has been scaled down by the ld.CIT(A) marginally. Therefore, we do not see any reason to interfere in the order of the ld.CIT(A). This ground of appeal is rejected. 66. In the result, the appeal of the Revenue for the Asstt.Year 2006- 07 is dismissed. 67. Now we take up Revenue's ....
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....rect that such person shall pay by way of penalty. (i)and (Income-tax Officer,)** ** ** (iii) in the cases referred to in Clause (c) or Clause (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefit the furnishing of inaccurate particulars of such income or fringe benefits: Explanation 1- Where in respect of any facts material to the computation of the total income of any person under this Act, (A) Such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the CIT to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income or such person as a result thereof shall, for the purposes of Clause (c) of this sub-s....
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....ven bona fide and all the facts relating to the same and material to the computation of the total income have been disclosed by the assessee. These two situations provided in Explanation 1 appended to section 271(1)(c) makes it clear that that when this deeming fiction comes into play in the above two situations then the related addition or disallowance in computing the total income of the assessee for the purpose of section 271(1)(c) would be deemed to be representing the income in respect of which inaccurate particulars have been furnished. 73. In the light of the above, if we examine the facts of the present case, then it would reveal that the income of the assessee has been determined on an estimate basis. By way of present order, we have changed that estimation. We have held that un-reconciled entries be considered only for working out element of profit involved in it. Gross receipt cannot be added. Similarly, we have observed that profit is to be estimated in these assessment years according to the rate of profit disclosed by the assessee on the basis of regular books of accounts. Thus, there cannot be any element of concealment of income. The assessee has explained papers....
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.... Even otherwise also, there is no material with the Revenue to prove that the money was in fact belonging to the assessee and to suggest that any unrecorded advance was made to Smt.Mansihaben Mashru by the assessee. Therefore, we do not find any error in finding of the ld.CIT(A) on this issue, this ground is accordingly dismissed. 78. Next effective ground of appeal of the Revenue is that the ld.CIT(A) has erred in deleting addition of Rs.85,00,900/- on account of unexplained investment in shares. 79. Brief facts of the case are that during the assessment proceedings, the AO noticed increase of share capital of the assessee form Rs.24,99,100/- to Rs.1,10,00,000/-. The AO was not satisfied with the explanation of the assessee, therefore, he made addition of Rs.85,00,900/-. However, the ld.CIT(A) has deleted this addition by observing that the addition was made by the AO on the basis of surmises though investment was reflected in the books of accounts and that the assessee has sufficient funds in the form of bank balance and receivables for making investment of Rs.85,00,900/-. 80. On due consideration of the facts and circumstances, we are not inclined to interfere in the or....
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....xation. Even otherwise, no addition can be made on the basis of rough noting without any corroborative evidence. The ld.CIT(A) considered contentions of the assessee and deleted the impugned addition. 88. On due consideration of facts and circumstances of the present case, we find that similar issue was raised by the Revenue in its appeal for the Asstt.Year 2005-06 in ITA No.961/RJT/2010, wherein we have upheld the finding of the ld.CIT(A) and dismissed that ground of the Revenue. In the present case also, facts and circumstances are similar except the quantum, and there is nothing on record to force us to take a different view in this case. Therefore, we do not find any force in these two grounds of appeal of the Revenue. They are dismissed. 89. In the third ground, the Revenue challenges deletion of addition of Rs.27.00 lakhs by the ld.CIT(A) on account of disallowance of fictitious liability. 90. We heard both the parties and perused record and the orders of the Revenue authorities. During the assessment proceedings, on the basis of papers found in the survey proceedings, the AO formed an opinion that the assessee was having credit balance of Rs.8,05,000/- with M/s.Divy....