TaxTMI 
TaxTMI 
2023 (2) TMI 345
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....ings. As such the additions are liable to be deleted. 2. The CIT(A) and AO failed to appreciate the law that appellant was legally not required to maintain books of account as the tax returns of current as well as earlier years were filed under section 44AD. 3. The CIT(A) and AO wrongly presumed that production of cash book during assessment proceedings was an afterthought and rejected the books without finding any fault in the books. 4. The CIT(A) wrongly confirmed the addition made by AO treating normal business receipts of appellant amounting Rs 3,00,000/- U/s 69 as unexplained investment which is bad in law as well as on facts. 5. That Rs 3,00,000/- is part of gross receipts of Rs 16,00,600/-declared by appellant U/s 44AD and further addition of Rs 3,00,000/- U/s 69 has resulted in double taxation of same amount. 6. The CIT(A) wrongly and arbitrarily confirmed addition of Rs. 4,50,000/- on account of alleged advances made ignoring the fact that there was sufficient cash in hand available as on the dates on which the advances amounting Rs 4,50,000/- are alleged to have been made. 7. That CIT(A) ignored claim of setoff of surrender of receipts of Rs 3,00.000/- against....
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....ted that these are normal business receipts from gymnasium business and aerobic classes and these receipts of Rs. 3,00,000/- form part of the total receipt of Rs. 16,00,600/- declared by the assessee in his return of income filed under section 44AD of the Act. 5.2 The submissions so filed by the assessee were considered but not found acceptable to the AO. As per the AO, the assessee in his statement recorded in oath on 23/10/2017 has admitted that the entries in the register correspond to gym receipt payments received in advance and keeping in view his inability to establish the identity of the persons and the source of advances made by those persons, the assessee voluntarily came forward with the disclosure of additional income amounting to Rs. 3,00,000/- on account of unexplained money and given that the assessee has not declared the same in the return of income, the same was brought to tax under section 69 of the Act. 5.3. On appeal, the Ld. CIT(A) has confirmed the addition and the relevant findings read as under: "The facts of the case, basis of addition made by the AO and the arguments of the AR during the appellate proceedings have been considered. The AR argued that to ....
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....eriod have rightly been stated by the AO as an afterthought on the part of the assessee and such books cannot be relied upon because, these were not prepared on day to day basis and are emendable to manipulation at will of the assessee. It is cardinal principal of accounting that the cashbook has to be written on day to day basis and cash- in-hand has to be arrived on daily basis. Hence, the AO has rightly disregarded such books. Under the facts & circumstances of the case, the arguments of the AR are not found acceptable and the addition of Rs. 3 lacs is sustained." 5.4. During the course of hearing, the Ld. AR submitted that both the AO as well as the Ld. CIT(A) failed to appreciate that the assessee has filed his return of income under section 44AD of the Act, as such he was not required to maintain books of account. It was submitted that though the assessee was not legally bound to maintain books of accounts at the same time the assessee prepared its books of account and submitted the cash book before the AO as well as before the Ld. CIT(A) which has been rejected without finding any fault in a summary manner. It was submitted that both the authorities have ignored the cash bo....
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....jab & Haryana High Court decision in the case of CIT Vs. Surinder Pal Anand 192 Taxman 264 for the preposition that once the exemption from maintaining books of account has been provided under the special provision and presumptive tax @ 8% has been made the basis for determining taxable income, the assessee was not under any obligation to explain individual entry of cash deposit in the bank unless such entry had no nexus with the gross receipts. It was further submitted that in the instant case amount of Rs. 3,00,000/- has been taxed twice. Firstly the assessee has also included the said amount in the gross receipt of Rs. 16,06,600/-. Secondly the AO made an addition under section 69 on account of unexplained receipts. It was accordingly submitted that the addition so made be directed to be deleted. 5.6 The Ld. DR has relied on the order and the findings of the lower authorities. 5.7 The rival contentions were heard and material available on record carefully examined. Admittedly, the assessee is engaged in the business of health and fitness and runs a gym in name of M/s Waves Fitness and at the said premises, survey operations were conducted on 4/10/2017 and a note book containin....
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....e addition of Rs. 4,50,000/- on account of unexplained advances. The relevant facts and the findings of the Ld. CIT(A) reads as under: "The facts of the case, basis of addition made by the AO and the arguments of the AR during the appellate proceedings have been considered. The AR argued that the AO simply ignored all the submissions of appellant by stating that it is an afterthought and AO had not rejected the books of assessee and accepted the figure of gross receipts of the appellant which was on the basis of same books. The AR further argued that the assessee had filed written statement that these loans were given in the earlier assessment year and also submitted the balance sheet of preceding previous year and the AO didn't made any further inquiries by taking the statements from the persons to whom such advances were made in the earlier assessment year. The arguments of the AR are not found convincing as at one point, the AR submitted that AO made the addition without rejected the books of accounts and at other place, it is mentioned that the AO rejected the books of the assessee assigning the reason that in the statement, the assessee stated that he is not maintaining ....
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....me of survey. Nothing of this sort was done and rather the assessee voluntarily surrendered the amounts over and above the normal income for the year under consideration. Under the facts & circumstances of the case and in view of the facts unearthed during the survey and also mentioned by the AO in the assessment order, the addition of Rs. 4,50,000/- made by the AO duly supported by the statement and surrender letter given by the assessee, is found sustainable and hence confirmed." 6.1 In this regard, it was submitted that both the lower authorities have ignored the submissions of the assessee that advances of Rs. 4,50,000/- were given in the F.Y. 2016-17 and not in the year under consideration and the assessee was having sufficient cash in hand at the relevant point in time when these advances were made and our reference was drawn to submissions dated 19/02/2020 filed before the AO. It was further submitted that without prejudice, where Rs. 3,00,000/- is considered as undisclosed income of the assessee, the benefit of the same should be allowed to the assessee while making the addition of Rs. 4,50,000/- by way of telescoping specially given the fact that the date as per the alleg....
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.... 8. Now, coming to appeal in ITA No. 570/Chd/2022n wherein the assessee has raised the following grounds of appeal: 1. That CIT(A) has not given any finding on the ground no. 2 raised before him "That the AO in assessment order doubted the identity of persons to whom advances were made and at the same time treated Rs. 8,05,000/- advanced to those doubtful persons as income of the appellant which is contradictory as such the addition is liable to be deleted. 2. That CIT(A) has not given any finding on the ground no 3 raised before him "The AO wrongly presumed that appellant did not specified the nature of business transactions for advances amounting to Rs. 8,05,000/- whereas the detailed reply dated 22.02.2021, in response to question no 12 raised by AO. was submitted to the AO and he did not raised any further query for the same. 3. The CIT(A) and AO wrongly presumed that production of cash book during assessment proceedings was an afterthought and he failed to appreciate that appellant was legally not required to maintain books of accounts as the tax returns were U/s 44AD and the books were prepared from GST Returns data, bank statements and other bills and vouchers. 4. T....
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....se of day to day business as already explained to the survey team. It was submitted that the assessee was not required to maintain books of account being covered under section 44AD of the Act that is why the assessee could not explain these entries to the survey team at the time of survey. However while filing the return of income, the assessee got the books of account prepared and then came to know that all the advances were out of the books only. And there was enough cash in hand at the time when the advances were given. It was accordingly submitted that the surrendered income of Rs. 8,05,000/- was out of the explained business receipts / sources of income from normal business as such these are already included in the business receipts shown in the return of income filed under section 44AD of the Act. Further a copy of cash book of Bajaj Entertainers showing date wise balance available with the assessee was submitted which shows that the advances amounting to Rs. 8,05,000/- were paid out of cash in hand and are duly recorded in the books of accounts. 9.2 The submissions so filed by the assessee was considered but not found acceptable to the AO. It was stated by the AO that the a....
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....ased on such books of accounts, without whispering anything on record. The AR also argued that no man will surrender any income as undisclosed for the running financial year in which survey is being conducted specially when the time limit for filing of return of income is still not over and there was no legal requirement to maintain books of accounts as per the provisions of section 44AD and has argued that the department cannot force or accept any surrender of undisclosed income from the assessee as guided by the CBDT Circular F. No. 286/2/2003-IT (Inv) dated 10.03.2003. The AR mentioned the names of persons to whom loans/advances were given and argued that out of the 12 persons, 10 are those persons whose name is there in the list of persons to whom advances were made by the appellant during the year. As per the AR, the entire detail was filed on 22.02.2021 before the AO and the AO didn't raise any further query for the same and accepted the reply of the appellant and simply stated that assessee failed to specify the nature of business transactions with these persons which is against the facts on record. The AR argued that it is very surprising that a person declaring Gross r....
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.... cannot be relied upon because these are not prepared on day to day basis and are emendable to manipulation at will of the assessee. It is cardinal principle of accounting that the cashbook has to be written on day to day basis and cash-in-hand has to be arrived on daily basis. Hence, the AO has rightly disregarded such books. It is a matter of fact on record and admitted by the assessee in his statement recorded at the time of survey as well as the surrender letter dated 23.10.2017 reproduced in the assessment order, that the entries in the impounded documents were of advances of some persons related to the business and some to the near & dear and keeping in view the inability to provide evidence of the above said entries, the assessee surrendered the above entries amounting to Rs. 8,05,000/- over & above the normal business and also agreed to pay tax @77.25% at Rs. 6,21,865/-. It was also mentioned in the letter that the surrender has been made voluntarily without any threat and coercion. One of the arguments of the AR is that, when the existence of the person has been doubted by the AO then how the advance to those persons can be treated as genuine and at the same times, the AO ....
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....s found sustainable and hence confirmed. 11. Against the said findings of the Ld. CIT(A) the asessee is in appeal before us. During the course of hearing, the Ld. AR submitted that the appellant is in a small business of providing DJ sets on rent and arranging artists for functions and regularly filing returns under the provisions of Sec 44AD. A survey was conducted by the department U/s 133A on 04.10.2017. The survey was completed and there was no surrender on the date of survey i.e. on 04.10.2017. After survey the appellant prepared the account books from the receipt and expenses available which clearly reflected that sufficient cash was available with the appellant. It was submitted that the AO, without rejecting the books of the appellant, denied to accept the replies of appellant based on such books of accounts without whispering anything on record. It was submitted that the statement of appellant, fully relied by the AO, clearly mentions that these entries of Rs 8,05,000/- are business advances. Further these advances are from the opening cash and cash generated from business receipts during the year, as such section 69 is not applicable and the appellant has paid regular ta....
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....details of all the persons and the nature of relationship of assessee with those persons to whom such advances of Rs 8,05,000/- were made were duly submitted. The assessee in its detailed reply dated 22.02.2021, in response to question no 12 raised by AO provided the complete details of advances. However neither AO nor CIT(Appeal) raised any further query in relation to such persons and nature of transactions with those persons. The CIT(Appeal) and AO have not tried to verify those persons and transactions with those persons. The AO could have made further inquiries from those persons to whom the advances were given. Even the CIT(Appeal) was well within his powers to verify the same or to direct AO to verify the same. Instead of doing the same, the CIT(Appeal) as well as AO simply ignored this submission of assessee. 11.5 It was submitted that during the assessment proceedings, the AO vide its notice U/s 142(1) dated 12.02.2021, raised a specific query regarding the loans, advances and deposits given and in response a detailed reply for the same was filed with the AO. The relevant portion of the reply filed is reproduced below: "The Details of loans/advances given by the assesse....
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.... for the purpose of its routine business of providing DJ sets on rent and for arranging artists at functions. Even in the surrender letter also, at page 3 of the assessment order, it is clearly mentioned that these advances are given to persons relating to the business of the assessee. Further the source of all these advances were from the normal business receipts, amounting to Rs 41,81,800/-, of the assessee. However while passing the assessment order, the AO simply stated that assessee failed to specify the nature of business transactions with these persons which is against the facts on record supra. Even the CIT(Appeal) also failed to give any finding on the same. 11.7 It was submitted that the AO, without bringing any evidence on record and without making any further inquiry, simply ignored and rejected the submissions of assessee and treated the advances as undisclosed investments U/s 69 which were normal business advances as explained AO during assessment proceedings. As per the plain reading of section 69, it is clear that AO is under an legal obligation to give reasons for not accepting the explanations offered by the assessee. The AO has not conducted any enquiry and has ....
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....the case of assessee is squarely covered by the aforesaid jurisdictional High Court decision. The assessee filed his return of income U/s 44AD of Income Tax Act declaring Gross Receipts at Rs 41,81,800/- and based on gross receipts declared an income of Rs 8,82,260/-. The same was duly accepted by AO in assessment order. The advances of assessee were well below the Gross receipts of Rs 41,80,800/- as decided by Punjab and Haryana High Court Supra. The AO in the case of assessee has made the addition U/s 69 of the Income Tax Act ignoring all the submissions made by assessee during the assessment proceedings as well as during the proceedings with CIT(Appeal). It was submitted that the advances are out of the normal business receipts and that too for the purpose of business of the assessee only. Further, reliance was placed on the decisions of Coordinate Benches in case of Nand Lai Popli, Shimla vs DCIT Central Circle II, Chandigarh (ITA NO 1161-1162/CHD/2013), Shri Kokkarne Prabhakara Vs ITO Ward 3(2), Hubballi (ITA No.l239/Bang/2019) and Thomas Eapen Vs The Income Tax Officer, Ward-5, Alappuzha (ITA No.451 /Coch/2019). It was accordingly submitted that the addition so made be direct....