TaxTMI 
TaxTMI 
TaxTMI 
2024 (9) TMI 420
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....2 Whether on facts and in circumstances of the case. the CIT (A) is justified in not appreciating the statement of Naresh Jain (Main dealing person) recorded on oath under section 131, where he, himself explained the nature of transactions and admitted the increased expenditure of Rs 1,71,72.858/- during the filing of return and also that he did not have bill vouchers and when return was filed, all these enhanced expenses are entered on estimated basis. 3 Whether on facts and in circumstances of the case, the CIT(A) is justified in appreciating the plea of the assessee that, it was incomplete record, as the explanation of Naresh Jain recorded on path where he himself admitted the facts that the expenses are charged over and above the actual amount appearing in true transactions recorded in Income & Expenditure A/c. 4 Whether in facts and circumstances of the case, the CIT(A) is justified m applying decision of Hon'ble Kerala High Court in the case of K. Abdul Azeez vs Commissioner of Income Tax, Central Circle, Calicut [2019] 111 taxmann.com 74 (Kerala) ignoring the fact that statement was recorded on oath u/s 131(1), as also mentioned by the assessee, and not recorded us 1....
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.... been challenged on various grounds. Revenue however, has completely ignored the substantive and vital fact that in the Remand Report-II dated 19.12.2023, reproduced at pg. 52, pr. 5.10 of the CIT(A) order, the AO appears to have carried out extensive verification of the entire related record and noted his factual findings w.r.t. each and every expenditure, i.r.t. which the AO alleged inflated claim of expenditure made with Bank Charges, Bank Interest, Interest to other parties, Discount, Hoarding Rent, Electric Expenses, Repair & Maintenance expenses, salary and miscellaneous expenses, etc., aggregating to Rs. 2,07,65,446/-, to the effect that they were genuinely claimed expenditure, supported by evidences, bills, vouchers, bank statement and third-party information. There is absolutely no adverse comment made by him on this aspect, nor he claimed that such expenditure were bogus / inflated as initially alleged by the then AO in the impugned asst. order. He even stated that all these details supporting bills, vouchers, etc. were submitted during the course of the assessment proceeding itself. Such factual findings recorded in the Remand Report, when read in the light of the fact o....
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....oceedings. After verification, it is noticed that out of total expenses most of the expenses are related to discount of Rs. 1,29,68,729/- mainly to their major clients namely (i) M/s Allen Career Institute, Kota, (ii) Career Point Ltd., Kota (iii) Vakrangi Ltd., (iv) Motion Education Pvt. Ltd., Kota. The assessee has submitted the copy of ledger of the respective concerns along with bills/vouchers for verification, which is found verified. The assessee has also submitted the ledger of remaining expenses along with its bills/vouchers related to hording rent of Rs. 11,10,529/-, electricity expenses of Rs. 4,70,637/-, Repair & Maintenance expenses of Rs. 8,17,444/-, Salary Expenses of Rs. 49,60,000/- & Misc. expenses of Rs. 4,38,107/-. On perusal of such documentary evidences it is noticed that most of expenses are made through banking channel and supported with bills/vouchers except some self-made vouchers for which payment was made in cash. 6. Although it is noticed from the assessment record that the assessee had already submitted these supporting bills/vouchers related to aforesaid expenses during the course of assessment proceedings & examined by the then AO and these were not ....
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....15,060 13,45,000 Recorded in books of accounts 19 Staff Welfare 8,20,750 6,09,760 2,10,990 covered by A.O 20 Telephone 4,16,137 93,024 3,23,113 covered by A.O 21 Travelling Exp 7,96,312 4,82,562 3,13,750 covered by A.O 22 Vehicle Running Exp 5,99,946 3,69,726 2,30,220 covered by A.O 23 Water Exp 74,178 49,978 24,200 covered by A.O 24 Misc Exppenses 4,38,107 - 4,38,107 Recorded in books of accounts TOTAL 4,11,94,715 2,30,76,029 1,81,18,746 4.2 It is submitted that the assessee has explained each and every entries found recorded in impound records being Exhibit 8 Page no. 97 and 99 (APB 32-35). Also being honest taxpayer, the assessee bona fidely submitted that there was totaling mistake and the total of the expenses recorded in the impounded sheet is Rs. 1,81,18,746/- and not Rs. 1,71,72,858/-. Had it been tax evasion intent of person, he would never disclose this error. 4.3 Explanation / Clarifications submitted in detail: It is submitted that with regard to difference Rs. 1,71,72,858/- as appearing in the chart above, detailed point-wise submission dt.18.07.2023 as made before CIT(A) (also at Pg.10 pr.5.2) are repro....
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....ement of the appellant and against this factual position, the amount of Rs. 62,22,902/- appearing in the impounded loose sheets of paper the difference being Rs. 1307117/- by any stretch of imagination and inference, can be taken and treated as inflated and 'bogus expenditure, booked on higher side' and under provisions of Income Tax Act 1961 and on the side of justice does not requir to be disallowed. Under the present day legal provisions, the business entities have to transact their business activities through Banking Channel at the maximum and consequent Bank charges are meant for business purpose only. Difference 13,07,117/- judiciously cannot be taken as Bogus/ inflated expenses and have been spent for business purpose only. (APB 193-195) (v) Electricity Expenses actual being Rs. 4,70,637/- as per Books of Accounts under Audit Report and Rs. 3,55,837/- in the Impounded papers, having difference of Rs. 1,14,800/-. Electricity Expenses Rs. 4,70,637/- is well justifiable as major amount involves Electricity bills from Service Agency and leaves no room for any maniipulation and have been spent for business purpose only. (APB 197-199) (vi) Interest charges- other than to Bank ....
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....er/salary sheet of various heads of Expenses Accounts is enclosed at S No 9, page No 62 to 206 of Paper Book" 4.4 Issue already covered by Scrutiny Assessment and Appellate Order in the first round: It is an eye-opening fact that there are various expenses, (listed below in the chart), and found in the impounded papers amounting to Rs. 49,32,482/- which were already subjected to Scrutiny Assessment u/s 143(3) vide order dated 30.11.2017 (APB 207-213) whereby disallowance of Rs. 26,60,897/- was made on account of Security Service expense, Business Promotion Expense, Traveling Expenses and various other expenses u/s 37(1) were made. In the first appeal the ld. CIT(A) vide its order dt. 12.02.2019 reduced these disallowances to Rs. 5 Lakhs (APB 214-221). Thus, the expenses to the extent of Rs. 49,32,482/-, were already subjected to the scrutiny and the appellate proceedings. Notably, these disallowances were made by the AO, while examining the same very audited books of accounts, which contained the total expenditure of Rs. 4,11,94,715/-, shown in the table above in pr.4.1 (and alleged by the AO to have been inflated). Needless to say, that had there been bogus / inflated claim of....
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.... Annex- 8 Difference 5 Bank charges 2,79,876 1,76,193 1,03,683 10 Bank Interest 75,30,019 62,22,902 13,07,117 13 Interest charges 15,35,608 1,76,193 13,59,415 TOTAL 27,70,215/- 4.6 Clarification already submitted: Entries at S No 1,2,11, 17, 18 and 24, appearing in the Chart with difference being of Rs. 1,04,16,049/- and in support of the same, detailed submission were made before lower authorities along with copy of relevant Ledger Accounts (APB 62 to 206). S No Head Of Account Amount Appearing in Income & Expenditure Account of Audit Report As on 31/03/2015 Amount Appearing In Income Expenditure- (impounded document) Page- 97, Annex- 8 Difference 1 Discount & Rebate 1,29,68,729 50,64,851 79,03,878 2 Hoarding Rent 11,10,529 6,69,116 4,41,413 11 Electricity Exp 4,70,637 3,55,837 1,14,800 17 Repair & Maintenance 8,17,444 6,44,593 1,72,851 18 Salary 49,60,000 36,15,060 13,45,000 24 Misc Exppenses 4,38,107 - 4,38,107 TOTAL 1,04,16,049/- 4.7 The aggregate of above referred three categories works out to Rs. 49,32,482 + 27,70,215 + 1,04,16,049 totaling Rs. 1,81,18,746/-. Thus, detai....
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....ment, being Exhibits -8 and Pages 97 to 99 (APB 32-35) are memorandum recording which every assessee and its accountant used to note before making final entries in the books accounts and drawing the Annual Balance Sheet and P & L A/c, which is not an uncommon practice, being followed in the accounting world. The increase in the expenditure, when compared with such rough notings, does not ipso facto result in undisclosed income for the reason that, only the finally prepared annual accounts, which are based for computing total income and is relied upon by the assessee. In fact, assessee never placed reliance on such rough notings for the purposes of declaring income and merely because it was found and impounded during the course of survey does not make it credible. 2. Complete Audited Accounts Maintained: Undisputedly, the ld. Tax Auditor had already audited these accounts (APB19-31), long back on dated 29.09.2015, i.e. almost 2 years prior to the date of the survey, and had tendered his Audit Report (APB 5-18), without any qualification or adverse remark as such. In other words, in his (ld. Tax Auditor's) view, the final accounts produced before him represented the true and correc....
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....le merely on suspicion: It is well settled that suspicion, however strong, cannot take the place of reality. Thus, the impugned additions have been made merely on suspicion, impugned addition deserves to be deleted here itself. Kindly refer Dhakeshwari Cotton Mills v/s CIT (1954) 26 ITR 775 (SC), wherein it is held as under: "Assessment-Validity-ITO is not barred by technical rules of evidence and pleadings, and he is entitled to act on material which may not be accepted as evidence in a Court of law, but in making the assessment under sub-s. (3) of s. 23 the ITO is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all-There must be something more than bare suspicion to support the assessment under s. 23(3)-ITO and the Tribunal in estimating the gross profit rate on sales did not act on any material but acted on pure guess and suspicion-In arriving at its estimate of gross profits and sales Tribunal should give full opportunity to the assessee to place any relevant material on the point that it has before the Tribunal, whether it is found in the books of account or elsewhere and it should also disclose to the assessee th....
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....see cannot be rejected only on the basis of statement recorded during the survey. It is true that the statement recorded during survey is an important piece of evidence but it is not conclusive." Thus, the CIT(A) clearly held that the statement recorded on oath do have evidentiary value. However, thereafter the ld. CIT(A) also held that statement recorded during survey is not conclusive and also recorded categorical finding of fact that the corroborative material used by the AO wherein the assessee admitted, was fully explained and thereafter, in absence of any other corroborative evidence such admission alone could not be made a basis of the addition. Therefore, it is wrong to say that the CIT(A) completely ignored the admission made by the assessee. 1.2 Prayer u/r 27 of the ITAT Rules, 1963: Though, assessee is not in appeal or co. against such findings of the CIT(A) on this legal aspect, however assessee is entitled to support his order on the issue decided against him u/r 27 of the Income-tax (Appellate Tribunal) Rules, 1963 which provides that "The respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against hi....
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.... u/s. 133(6) only. Section 133A does not empower any ITO to examine any person on oath, so statement recorded under section 133A has no evidentiary value and any admission made during such statement cannot be made basis of addition. 2.2 Further, the statute has provided different provisions looking to the different factual situations as regard recording of the statement, somewhere on oath and somewhere without oath, u/s 132(4) (in such matters), u/s 133A(3)(iii) (in survey case) and u/s131 (for general inquiry). These provisions operate independently in their respective fields and cannot be used interchangeably. S.133A(3)(iii) is separate and independent from S. 131, as evident from the further fact that S. 133A (6), refers to use of the powers u/s 131 only in a given fact situation (as stated above), which manifests the legislative intention that statement of the assessee can be recorded under any of these three provisions as the situation may demand. Further, S.132(4) provides that such statement recorded during search may be used as evidence against the assessee in any proceedings, which is not the situation with S. 133A(3)(iii) nor with S. 131. In other words, though statemen....
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....ation may be used thereafter in evidence in any proceeding under the Act. On the other hand, Section 133A does not talk of the recording of any statement on oath. Under Section 133A (3) (iii), the Income Tax Authority acting under the said provision could "record the statement of any person which may be useful for, or relevant to, any proceeding under this Act." Therefore, there is a considerable difference in the nature of the statement recorded under Section 132(4) and that recorded under Section 133A(3)(iii) of the Act. 41. This distinction was noticed by this Court in Dhingra Metal Works (supra). The Court there referred to the decision of the Kerala High Court in Paul Mathews & Sons v. CIT [2003] 263 ITR 101/129 Taxman 416 and of the Madras High Court in S. Khader Khan Son (supra) and observed that the word 'may' occurring in Section 133A(3)(iii) of the Act "clarifies beyond doubt that the material collected and the statement recorded during the survey is not a conclusive piece of evidence by itself." Incidentally, the decision of the Madras High Court in S. Khader Khan Son (supra) has been affirmed by the Supreme Court by the dismissal on 20th September, 2012 of SLP....
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....entiary value. Thus, the ld. CIT(A) as rightly considered the admission made and deleted the disallowances made by the AO as the same were fully explained thereby not sustainable under the eyes of law and facts discussed in details above. Therefore, grounds taken by the revenue deserves to be dismissed. DGOA-4 and 5: Statement recorded u/s 131(1) and not u/s 133A(3)(iii): Facts: The Revenue has raised the issue that: "4. Whether in facts and circumstances of the case, the CIT(A) is justified in applying decision of Hon'ble Kerala High Court in the case of K. Abdul Azeez v. Commissioner of Income Tax, Central Circle, Calicut [2019] |11 taxmann.com 74 (Kerala) ignoring the fact that statement was recorded on oath u/s 131(1), as also mentioned by the assessee and not recorded u/s 133(3)(iii) which was the main substance of the decision in above case law. 5. Whether in facts and Circumstances of the case, the CIT(A) is justified in not appreciating the facts that the section 133A(6) empowered the Income Tax Authority to record the statement on oath, therefore the recording of statement u/s 131 in this case was not ultra-vires." Submission: 1. S.133(6)- Not applicable: A....
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....Taxation Laws (Amendment) Act, 1975, w.e.f. 01.10.1975. Therefore, when survey has been carried out u/s 133(A), there is pendency of proceedings and hence the AO can record statement on oath u/s 131(1) r.w.s 133A(3)(iii) in as much as such statement may be useful for or relevant to the survey proceedings, wherein, documents as may be found, helping in determining the true and correct income of the assessee. Therefore, in this case the statement were recorded only u/s 133A(3)(iii) r/w 131(1) and CIT(A) rightly appreciated the legal and factual position on this aspect. 3. In addition, also kindly refer our detailed submission on this legal aspect towards DGOA-2 &7. Thus, under totality of the facts & circumstances detailed above, the CIT(A) deleted the disallowance of Rs. 1,71,72,858/-. Therefore, grounds taken by the revenue as also entire appeal deserves to be dismissed. DGOA-6: Assessee accepted addition in AY 2016-17: "6. Whether facts and circumstances of the case, the CIT(A) is justified in not appreciating the in other important fact that during the assessment proceedings of the assessee for AY 2016-17 , the assess had claimed / accepted that the undisclosed income o....
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....ons have been made based on the instructions and the information provided of/by the client.'' 3.1 In the ground of appeal no. 1, the Revenue has challenged the deletion of the addition made by the AO of Rs. 1,71,72,858/- which was made on account of impounded loose papers, showing Income and Expenditure A/c being Exhibit 8 Pg 97 to 99 (copy placed at appellant's paper book at Pg 32 to 35), the income of which is admitted by the assessee in his statement recorded during the course of survey. Further, in ground number 3, the Revenue has alleged the finding that impounded documents are incomplete records. Since ground no. 1 and 3 taken by the Revenue are common in nature, hence the same are being dealt with jointly hereunder. The case of the AO is that what was found during the survey was the real and actual expenditure incurred, whereas the claim of expenditure made by the assessee now through the audited accounts at Rs. 4,11,94,715/- as against 2,30,76,029/- shown in the impounded documents, (which results into the alleged excessive and bogus expenses of Rs. 1,71,72,858/- but corrected by the assessee at Rs. 1,81,18,746/-). As against this, the case of the assessee is that all thes....
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.... more expenses as per the P&L account filed with audit report. The assessee during the AY 2015-16 had increase expenses by Rs. 1,71,7,858/- as per loose paper mentioned above and this fact was also admitted by Shri Naresh Jain (Husband of the assessee and main person dealing with financial transactions) during survey proceedings and surrendered the same amount i.e. Rs. 1,71,72,858/-. During the assessment proceedings of the assessee for AY 2016-17, the assessee has claimed/accepted that the undisclosed income offered during survey at Rs. 1,71,72,858/ was related to AY 2015-16. Therefore, the same is considered for the AY 2015-16. Accordingly, the amount of Rs. 1,71,72,858/- was added to the total income of the assessee on account of excessive and bogus expenses claimed. Per contra the appellant argued that more emphasis has been given to the recorded statement of husband of appellant Shri Naresh Kumar Jain wherein, in reply to Q No 23 has interalia accepted that Page No 97 is a chart, showing expenses for F/Y 2015-16 and F/Y 2016-17 Rs. 1,71,72,858/-. The appellant explained that the there was totalling mistake and the total of the expenses recorded in the impounded sheet is ....
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....on'ble High Court. The assessee has explained the contents of impounded document as far as addition of Rs. 49,32,482/- is concerned. Therefore, the addition made by the AO is not found to be sustainable and deleted. It is argued that S No 5, 10 and 13 of the Chart Above, working out to Rs. 27,70,215/- pertain to Bank Charges, Bank Interest and Interest charges, which are self-explanatory from the Bank Accounts and Interest charges that have been paid through Banking Channel and TDS effected thereon, do not need any further clarification. Copy of Chart showing difference of Rs. 27,70,215/- in the expenses was enclosed- Annexure-4 Page No 17. It is argued that the then AO, during assessment proceedings, has even dis -allowed the claim of appellant with regard to Bank Interest, Bank Charges and Electricity expenses which has been paid as per the demand raised to such financial institutions and have been paid to the recipient through Banking channel only. Even a lay man would not agree to such unethical and arbitrary dis-allowance to the Tax Payer. Likewise the standardized provisioning of depreciation on fixed assets, claimed and booked by the appellant as per accounting norms, ha....
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.... sworn statement made by assessee as held by the Hon'ble Kerala High Court in the case of .K. Abdul Azeez v. Commissioner of Income Tax, Central Circle, Calicut [2019] 111 taxmann.com 74 (Kerala) as discussed earlier. The assessee has explained the contents of impounded document as far as addition of Rs. 1,04,16,049/- is concerned. Therefore, disallowance of this amount of Rs. 1,04,16,049/- is not found to be sustainable. In the appellate proceedings, the appellant stated that in the impounded sheet total expenses of Rs. 1,81,18,746/- were recorded as per detail furnished. However, the AO made totaling mistake and the addition of only Rs. 1,71,72,858/- was made. The AO in the remand proceedings has verified the details with regard to expenses of Rs. 49,32,482/-, Rs. 27,70,215/- and Rs. 1,04,16,049/-. Total of these expenses comes to Rs. 1,81,18,746/-. The AO stated in the remand report that enhancement of the difference may be made in the appellate order. However, the appellant has furnished evidences, to establish that all the expenses are recorded in the regular books of accounts. The AO has reported that the expenses are supported by bills and vouchers. The payment is made mai....
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.... being Exhibit 8 Pg 97 to 99 (copy placed at appellant's paper book at Pg 32 to 35), which is a sheet of paper showing various expenses under different heads, totalling to Rs. 2,30,76,029/- being page 97 of Exhibit 8, was found from a careful perusal and consideration of the facts, it cannot be denied that the impounded document are memorandum recording which every assessee and its accountant used to note before making final entries in the books accounts and drawing the Annual Balance Sheet and P & L A/c, which is not an uncommon practice, being followed in the accounting world. It is not denied that all these expenses were finally included in the regularly maintained books of accounts, and even the AO (at Pg 9.) himself has agreed that the details appearing in the loose papers are exactly matching with the expenses claimed in the P&L account, which support this inference. 3.4 The facts are not denied that the assessee has been maintaining regular books of accounts consisting of cash book, ledger, journal and all the expenses are fully supported by bills and vouchers and were subjected to audit. 3.5 It is not the case of the AO that the ld. Tax Auditor has made adverse remarks or....
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....t of respective heads, as produced by the assessee during the course of re-verification proceedings. After verification, it is noticed that out of total expenses most of the expenses are related to discount of Rs. 1,29,68,729/- mainly to their major clients namely (i) M/s Allen Career Institute, Kota, (ii) Career Point Ltd., Kota (iii) Vakrangi Ltd., (iv) Motion Education Pvt. Ltd., Kota. The assessee has submitted the copy of ledger of the respective concerns along with bills/vouchers for verification, which is found verified. The assessee has also submitted the ledger of remaining expenses along with its bills/vouchers related to hording rent of Rs. 11,10,529/-, electricity expenses of Rs. 4,70,637/-, Repair & Maintenance expenses of Rs. 8,17,444/-, Salary Expenses of Rs. 49,60,000/- & Misc. expenses of Rs. 4,38,107/-. On perusal of such documentary evidences it is noticed that most of expenses are made through banking channel and supported with bills/vouchers except some self-made vouchers for which payment was made in cash." A careful perusal of the above remand report shows that the AO appears to have carried out extensive verification of the entire related record and noted h....
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....uch increase itself cannot result in an income and the allegation of the Revenue of having claimed excessive and bogus expenses is nothing more than a suspicion. The ld. DR failed to rebut all these factual findings and evidence brought on record by the assessee during the course of hearing. Very pertinently, the accounts were neither rejected directly by invoking section 145 nor indirectly in any manner and therefore, we find no substance in the grounds taken by the Revenue. For these reasons, the Department's grounds of appeal No. 1 and 3 taken by the Revenue are hereby dismissed. 4.1 In Grounds of Appeal No. 2 and 7, the Revenue has raised the grievance alleging that ld. CIT(A) has ignored the basic fact that the assessee had already admitted income in statement on oath u/s 131 dated 04.02.2017, and in particular Question & Answer No. 23 (copy of the statements are placed at assessee's paper book Pg 36 to 39). On the other hand, the assessee has also made a prayer under Rule 27 of the ITAT Rules, 1963 in as much as the ld. CIT(A) had rejected the contention of the assessee that survey statements do not have any evidential value and therefore cannot be taken into considerati....