TaxTMI 
TaxTMI 
TaxTMI 
2018 (1) TMI 1682
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....s 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 impounded. Simultaneous survey action was also carried ....
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....nexures. 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 (3) of following table out of total addition made as pe....
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....t 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 accounts and auditor's report attached. (f) The appellant has deployed number of employees for booking and taking score of financial transactions. There are sizabl....
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....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 course of post survey proceedings as also during the course of assessment proceedings. No material or circumstantial evidence was noticed to suggest unrecorded financial transactions or unrecorded investments. (o) Your Honor will appreciate the fact that, the noting in rough note book canno....
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....ting 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 transactions which are not recorded in regular books of account considering totality of facts, I am convinced that the ration laid down in by the.Hon'ble High Court of Gujarat in the case of CIT vs P. Pravin & Co. (2005) 274 ITR 534(Guj) is applicable to the facts of this case and respectfully following the....
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....eem 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 satisfactory, then the sum so credited in the accounts may be treated as income of the assessee of that previous year. 14. Thus, a perusal of the above details would indicate that the AO has committed an error by assuming that these are unexplained cash credits of the assessee. 15. In the remand proceedings the ld.AO has scaled down the figures of discrepancies. T....
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....oss 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 finalised the assessment making an addition of Rs.96,69,920/- in Asstt.Year 2005- 06. When the assessee challenged this addition before the ld.CIT(A) in the Asstt.Year 2005-06, then the ld.CIT(A) has observed that peak working for the Asstt.year 2005-06 is to be restricted to Rs.39,50,978/- . It includes Rs.36,50,978/- plus Rs.3.00 lakhs. Thus, the ld.CIT(A) has deleted ad....
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....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 2006-07: "The ld.CIT(A) has erred in law and on facts in granting relief out of disallowance made from administrative and selling expenses.: 25. Ground nos.3, 3, 3 and 4 of the assessee's appeal CO in the Asstt.Year 2003-04, 2004-05, 2005-06 and 2006-07 respectively. "The ld.CIT(A) erred on facts as also in law in retaining disallowance out of total disallowance made from administrative ....
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....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. in para 27 of this order. We do not find any merit in this ground of appeal. It is again dismissed. 34. Ground no.5: In this ground of appeal, grievance of the Revenue is that the ld.CIT(A) has erred in deleting addition of Rs.30,089/-. The assessee has written off the above amount in the books of accounts and claimed it as bad debt. She also alleged that these were expenses which could not be recovered, hence, she has....
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....uch 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-tickets by using assessee's membership. In other words, tickets which were to be booked in the name of the assessee were to be sold to the agents at discounted price. The alleged travel agents made payment of concessional price and assumed role of customer of the assessee. The AO treated such travel agents as agents of the assessee and observed that the discounted rate on which tickets were sold to the customers is to be construed as commission pai....
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....onal 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 accepted, all transactions of sale from a manufacturer to a wholesaler or from a wholesaler to a semi wholesaler or from a semi-wholesaler to a retailer would be covered by Section 194H. To fall within the aforesaid Explanation, the payment received or receivable, directly or indirectly, is by a person acting on behalf of another person (i) for services rendered (not being professional services), or (ii) for any services in the course of buying or selling....
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....tionship 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. Respectfully following judgment of the Hon'ble Gujarat High Court and order of the ITAT, Mumbai Bench, we are of the view that disallowance made by the AO and confirmed by the ld.CIT(A) with help of section 40(a)(ia) of the Act on account of non-deduction of TDS deserves to be deleted. We accordingly delete the disallowance. This ground of appeal is allowed. 46. In ground no.3, the assessee has challenged addition of Rs.50,000/- on account of low household withdrawals. 47. We ....
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....out 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 is that the ld.CIT(A) has erred in deleting an addition of Rs.1,31,000/-. 58. Brief facts of the case are that the assessee has obtained a loan from Manojbhai Anantrai and from Shri Anantrai Maganbhai. She has repaid these loans. Creditors have shown interest to the extent of Rs.50,000/- and Rs.81,000/- respectively. The AO assumed that since creditors have shown interest income in their accounts, therefore, the assessee must have paid interest to them without debiting in the books of accounts. He....
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....e 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 appeal, ITA Nos.355 and 386 /RJT/2011 for the Asstt.Year 2004-05 and 2005-06. 68. In these appeals, grievance of the Revenue is that the ld.CIT(A) has erred in deleting penalty of Rs.13,84,548/- and Rs.13,00,713/- for the Asstt.Years 2004-05 and 2005-06 respectively. 69. With the assistance of the ld.representatives, we have gone through the record carefully. Facts on all vital points are common in both assessment years. Therefore, for the facility of reference, we take the facts from the Asstt.Year 2004-05. 70. B....
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....erson 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-section, be deemed to represent the income in respect of which particulars have been concealed." 72. A bare perusal of this section would reveal that for visiting any assessee with the penalty, the Assessing Officer or the Learned CIT(Appeals) during the course of any proceedings before them should be satisfied, that the assessee has; (i) concealed his income or furnished inaccurate particulars of income. As far as the quantification of the penalty is concerned, the penalty imposed under this section can range in between 100% to 300% of the tax sought to be evaded by the assessee, as a result ....
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....ts 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 found during the course of survey. As observed in the quantum appeals, discrepancy in explaining these papers was ultimately determined at 2.6% of the gross value of the transaction considered by the AO on the basis of entries in these papers. In other words, the gross value of the transaction was Rs.17.92 crores worked out by the AO in the Asstt.Year 2004-05 and unreconciled entries were of only Rs.38,77,759/-. It was explained by the assessee that some of the employees must have left job and it was quite difficult to keep track of all entries noted by the employees. In this situation, the ld.CI....
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....pital 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 order of the ld.CIT(A), as the ld.CIT(A) has considered material facts on record and observed that impugned investment was recorded in the books of accounts and that sufficient funds is available with the assessee for making the investment. Though the assessee had submitted books of accounts during the assessment proceedings, the same was not considered at the end of the AO. Therefore, there is no merit in this ground of appeal of the Revenue. It is dismissed. 81. In the result appeal of the Revenue for the Asstt.Year 2005-06 in ITA No.961/RJT/2010 is dismissed. 82. Now coming to the CO of the assessee, bearing....
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....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.Divya Travels, and in the books of the assessee the assessee has shown liability of Rs.18,95,000/-. The AO held the same to be fictitious liability and taxed accordingly. Assessee challenged this addition before the ld.CIT(A) who deleted the addition on the ground that rough papers found from the premises of wife of the assessee were mere notebooks and diaries and not books of accounts of the assessee. Besides, he observed that wife of the assessee has owned up the noting in the rough diary and taxed accordingly. The ld.CIT(A) has also observed that there is no documents or material evidence with the Revenue to link flow of unrecorded....