TaxTMI 
TaxTMI 
2024 (4) TMI 926
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....? 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 91,22,836/- made by the AO on account of disallowance of inflated expenses? 3. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the addition of Rs. 91,22,836/- made by the AO on account of disallowance of expenses inflated by the assessee to 'adjust' for the income surrendered on account of survey? 4. Any other ground that may be adduced at the time of the hearing." 2. Succinctly stated, the assessee company which is running a hotel had e-filed its return of income for A.Y. 2017-18 on 26.03.2018, declaring an income of Rs. 2,18,80,530/-. Subsequently, the case of the assessee company was selected for scrutiny assessment u/s. 143(2) of the Act. 3. During the course of the assessment proceedings, the A.O observed that the assessee company was visited with survey proceedings u/s. 133A of the Act during 30.05.2017 to 01.06.2017. It was observed by him that during the course of survey operations two cash registers of banquet booking identified as BI-1 and BI-2 were found and im....
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....ring the survey proceedings, it transpired that though the assessee company had suppressed the cash banquet bookings receipts but had properly entered all the expenses in its books of account. It was observed by him that during the survey proceedings, no expenses/bills were found which were not entered in the books of account of the assessee company. Also, the A.O. observed that the assessee company had not produced any such bills which were not entered in its books of account. To sum up, the A.O. was of the view that while the assessee company had suppressed its cash banquet booking receipts, but had already booked all the expenses in its books of accounts. 5. The A.O based on his aforesaid observations concluded that the assessee company had failed to credit in its profit & loss account the balance amount of suppressed cash receipts, i.e. Rs. 1,74,44,938/- [Rs. 5,18,57,901/- (-) Rs. 3,39,12,963/-]. Also, the A.O observed that a perusal of the trial balance prepared and submitted before the survey team revealed that total expenses booked by the assessee company for the two months preceding the date of survey, i.e. April, 2017 & May, 2017 amounted to Rs. 1,84,57,146/-, against whi....
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....dated 31.12.2019 at Rs. 5,01,68,210/-. 7. Aggrieved the assessee company carried the matter in appeal before the CIT(Appeals), who after deliberating at length on the contentions advanced by the assessee regarding both the aforesaid issues found favour with the same. It was observed by him that the A.O had drawn adverse inferences as regards the book results of the assessee company without pointing out any discrepancies in its books of accounts. Also, it was observed by the CIT(Appeals) that a similar type of disclosure was made by the assessee company during the course of survey proceedings u/s. 133A of the Act for A.Y. 2018-19, wherein, the gross receipt of 65% was offered as against gross profit of 32.44% of the immediately preceding year under consideration, and the same was accepted vide order passed u/s 143(3) of the Act, dated 24.06.2021 for A.Y 2018-19 by the A.O. The CIT(Appeals) observed that the A.O had vide his order passed u/s. 143(3) dated 24.06.2021 for A.Y. 2018- 19 had accepted the aforesaid disclosure of the assessee company, i.e., the credit in the profit & loss account of the profit element embedded in the suppressed banquet booking receipts as were gathered du....
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.... of accounts, vouchers, etc. but had not pointed out any such discrepancies which would reveal that any part of the assessee's claim for expenditure was not maintainable. Also, the CIT(Appeals) observed that the A.O. had not issued any Show Cause Notice (SCN) to the assessee company before making the disallowance of its claim of expenses that was based on a presumptive basis. Further, the CIT(Appeals) observed that the expenses claimed by the assessee company during the subject year were not abnormal. It was observed by him that the total expenditure incurred by the assessee company in the immediately preceding year and during the year under consideration were in the same ratio. Referring to the nature of expenses, i.e. expenditure incurred on account of power, linen/uniform/ crockery, bar license fee, etc., the CIT(Appeals) was of the view that disallowance of any part of the same could have been made only based on corroborative evidence after rejecting the books of accounts of the assessee company. Further, the CIT(Appeals) did not find favor with the comparative analysis of the expenditure incurred by the assessee company during the two months preceding the date of the surve....
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....hat were not entered in the regular books of account of the assessee company. For the sake of clarity, the relevant extract of the statement of Shri Jagjeet Singh Khanuja (supra) recorded u/s. 131 of the Act on 14.06.2017 is culled out as under: Also, Shri Amit Paul, Finance Manager of the assessee company in his statement recorded during the course of survey proceedings on 30.05.2017, on being confronted with the entries in the aforesaid impounded registers had vide his reply to Question No.16 & 17, stated that the same referred to the cash received by Shri Komal Yadav, Assistant Manager, Finance towards banquet bookings. Also, it was stated by him that the aforesaid entries were not entered in the computerized books of account of the assessee company which were maintained on IOS software. Further, Shri Komal Yadav, Assistant Manager, Finance of the assessee company in his statement recorded during survey proceedings on 30.05.2017 on being queried as to why he had not recorded the entries in the aforementioned impounded registers, viz. BI-1 and BI-2 had stated that he had so done as per the directions that were received at the time of joining the job a year back from Shri P.A.K P....
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....enses of Rs. 1,79,44,938/- against the unrecorded sales. However, the Ld AO has given finding that the expenses relating to above unaccounted sales had already been made part of books of account and for this reason, no claim for expenditure could be given. Accordingly, the Ld. AO treated entire unrecorded sales as income and added balance amount of Rs. 1,79,44,938/- (Rs. 5,18,57,901- Rs. 3,39,12,963). The Ld. AO has also compared the expenses of two months relating to year under consideration with the expenses claimed for the whole year and found that expenditure for the two months comes to 36% of receipts of two months. However, for the whole year, this ratio comes to 73.87% of total receipt. Accordingly, it has been inferred that the appellant had already claimed all the expenditure relating to unrecorded receipts. On the contrary, the appellant has submitted that during the course of survey proceedings, the profit accruing on the total unrecorded receipt was offered for taxation, not the entire receipt. The amount of undisclosed income is 65.39% of the total such receipts. Therefore, the appellant has fully honored the statement recorded u/s 131 of the Act. The Ld. AO has not po....
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.... income. The appellant has also placed reliance upon various judicial pronouncements, wherein, it has been held that entire sales could not be taxed as income, only profit attributable to such unrecorded sale can be taxed. This finding is supported by the decisions of Hon'ble Bombay High Court in the case of Hariram Bhambhani (2015) 92 CCH 46, Hon'ble ITAT, Kolkata in the case of Maniklal Day 1TA No. 436, 2343-2344/Ko1/2016, Hon'ble ITAT, Lucknow in the case of Ashok Kumar Gupta, ITA No. 447/LLW/2016. I find the contention of the appellant are justified particularly, when, in the subsequent year the Ld AO has accepted the gross profit on unrecorded sale offered by the appellant and no addition like this year has been. made. I also find support from the judgments of Hon'ble MP High Court, wherein, it has been held that in such circumstances only profit should be brought into the tax net. Hon'ble M.P. High Court in the case of CIT vis Balchand Ajit Kumar 263 fill 610 (M.P.) has taken this view. Relevant para of the said decision is reproduced hereunder: "3. On appreciating the rival submissions raised at the Bar, we have carefully perused the order passed by the....
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....n Sadani v/s CIT 304 ITR 52 (M.P.) wherein the Hon'ble jurisdictional High Court has held that total sales cannot be regarded as profit of the assessee, on the contrary, it is a net profit rate which has to be adopted in such case. Further, similar view has also been expressed by Hon'ble Gujarat HC in the case of CIT V/s President Industries 158 CTR 0372 (Guj) wherein it was held that entire sales could not be added as income of the assessee, but addition could be made only to the extent of estimated profits embedded in sales for which net profit rate was adopted. In view of these judicial pronouncements, the addition made by the Ld. AO is not justified in making addition. Therefore, addition of Rs. 1,79,44,938/- is, hereby, deleted. Appeal on this ground is allowed." 17. We have thoughtfully considered the aforesaid issue in hand in the backdrop of the contentions advanced by the ld. authorized representatives of both parties. As observed by the CIT(Appeals), and rightly so, the A.O, had inter alia, rejected the credit of only the profit element embedded in the unaccounted banquet booking receipts in the profit and loss account by the assessee company. The A.O. was of the....
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....e first appellate authority. To sum up, the view taken by the A.O that the expenses corresponding to the unaccounted receipts of Rs. 5.18 crore (approx.) already formed part of the expenses claimed by the assessee company in its books of accounts had rightly been found to be incorrect and dislodged by the first appellate authority. 20. Apart from that, we concur with the CIT(Appeals) that now when the assessee company had credited the profit element embedded in the unaccounted banquet booking receipts of Rs. 99,21,925/- in its profit and loss account for the immediately succeeding year, i.e., A.Y 2018-19, which thereafter had been accepted by the A.O vide his order passed u/s 143(3) of the Act, dated 28.06.2021 for the said succeeding year, therefore, an inconsistent approach could not have been adopted for rejecting the claim raised by the assessee company on the same lines during the subject year, i.e., A.Y. 2017-18. It would be pertinent to point out that the survey officials had gathered about the unaccounted banquet receipts of the assessee company for both the years, i.e, A.Y 2017-18 and A.Y 2018-19 from the impounded registers, viz. BI- 1 and BI-2. As the credit of the prof....
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....t apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasonings in the absence of any material change justifying the Revenue to take a different view of the matter- and if there was not change it was in support of the assessee- we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income-Tax in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under ss. 11 and 12 of the Income Tax Act of 1961." (emphasis supplied by us) 21. On merits also, we concur with the CIT(Appeals) that there was no justification for the A.O to have held the entire amount of unacc....
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....he CIT(Appeals), it transpires that he had found favor with the contentions advanced by the assessee and had vacated the disallowance of 10% of expenses (on ad-hoc basis) as was made by the A.O, observing as under: "4.2. Ground No. 2:- Through this ground of appeal, the appellant has challenged ad-hoc disallowance amounting of Rs. 91,22,836/- being 10% of total expenses amounting to Rs. 9,12,28,360/- made by the Ld. AO. 4.2.1. I have considered the facts mentioned in the assessment order as well as the submission of the appellant. The Ld. AO observed that total revenue from operations was decreased in comparison to the immediate preceding year. This indicates that the appellant had inflated the expenses to show the loss from business and to adjust the income surrendered during the survey proceedings. On this basis only, the Ld. AO disallowed 10% of total expenses shown under the head 'cost of material consumed and other expenses' and made addition of Rs. 91,22,836/, The appellant has submitted that the Ld. AO has verified books of account, vouchers etc. during the assessment proceedings, but, no discrepancy pointing out any expense for non business purposes has been fou....
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....y higher as there were major Repairs during the year. In monetary terms there is no major variation in the said head during the year as compared to subsequent year. - Repair & --Maintenance - During the year there were major Repair and Maintenance activities, which is evident from the Electricity expenses incurred. Moreover the figures of preceding year are comparable with the expenses incurred during the year. - Hire Charges - The expenses incurred are much lower than the expense incurred during the year and preceding year. - Bar License Fees - The License fees is fixed by the State Government every year and is paid to the state government directly. In subsequent FY 2017-18, appellant did not get Bar license. - Functional Expenses -The expense incurred is less than the expense incurred in preceding year and is comparable to the expense incurred in subsequent year. The appellant has also submitted that the Ld. AO has compared expenditure of two months i.e. April and May with the entire year for making such disallowance which is not justifiable. The Ld. AO has relied upon following data to arrive at conclusion that expenses against such unrecorded sales had already claimed....
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.... assessment is that the taxable turnover is determined at Rs. 1,05,000. The order of assessment does not refer to any material whatsoever on which the estimate is based. It is thus clear that the assessing authority made an assessment based on pure guess without reference to any evidence or material at all. Under the circumstances the order of assessment passed by respondent No. I and the order dismissing the revision petition passed by respondent No. 2 are vitiated by an error apparent on the face of record and deserve to be quashed" Hon'ble Supreme Court in the case of State of Kerala Vs. M.M. Mathew reported in (1978) 42 STC 348.(SC) has held "Strong suspicion, strange coincidence and grave doubts cannot take the place of legal proof." In the instant case, the Ld. AO has also not discredited the results of the audited books of account of the appellant and no evidence to disallow certain percentage of expenses has been brought on record. In the above facts and circumstances and in view of the above judicial pronouncements, ad-hoc addition of Rs. 91,22,836/- is not sustainable. Accordingly, the addition made is, hereby, deleted. Appeal on the above ground is allowed." 24. We ....