TaxTMI 
TaxTMI 
2024 (9) TMI 420
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....enditure incurred as per Income and expenditure 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 oa....
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.... filed by the Assessee is only with respect to the deletion of the addition made by the AO of Rs. 1,71,72,858/-, which has 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 t....
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....penses, which were re-examined with the ledger account 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. 6. Although it is noticed from the assessment record that the assessee had already submitted t....
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....xplanatory 14 News Papers &periodicals 1,08,339 51,874 56,465 covered by A.O 15 Office Exp 8,39,122 4,76,717 3,62,405 covered by A.O 16 Printing & Stationery 7,14,633 5,90,693 1,23,940 covered by A.O 17 Repair & Maintenance 8,17,444 6,44,593 1,72,851 Recorded in books of accounts 18 Salary 49,60,000 36,15,060 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 subm....
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.... on higher side' and under provisions of Income Tax Act 1961 and on the side of justice does not require 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. (APB 184-192) (iv) Bank interest- As per Audited books of accounts of the appellant, the interest amount Rs. 75,30,019/-, levied by the concerned Bank is appearing in the Bank Statement 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/ inf....
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....ged by the appellant to look after various requirements and shoulder various responsibilities and the nature of duties/post held by staff do themselves justify the expenses under this head. The expenses of manpower employed by appellant cannot be taken and treated as 'bogus expenses booked on higher side' Copy of Salary Sheet is enclsoed. (APB 204) (ix) Misc Expenses Rs. 4,38, 107/- is very small amount as compared to the total expenses and interalia includes very and unthouught of Urgent Services and may not have any substantiation. (APB 205-206) Copy of ledger/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 othe....
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....23 Water Exp 74,178 49,978 24,200 TOTAL 49,32,482/- 4.5 Self-explanatory and self evident accounts: Entries at S No 5,10 and 13 in Chart below, working out to Rs. 27,70,215/- pertain to Bank Charges, Bank Interest and Interst charges, which are self explanatory and self evident from the Bank Accounts that are produced before lower authorities and payment of such Interest charges have been made through Banking Channel and TDS levied thereon was duly paid, do not need any further clarification and also not rebutted by lower authorities. 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 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 i....
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....made by rejecting the books of accounts. However, the AO has not rejected the books of accounts. The additions made by the AO in the absence of any other corroborative material assessment of tax are made solely on basis of such sworn statement made. 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 addition made is not found to be sustainable and deleted." Thus, disallowances made by the ld. AO are rightly deleted by the ld. CIT(A) as the same were not sustainable in the eyes of law and facts discussed in details above. Therefore, this ground taken by the revenue deserves to be dismissed. DGOA-3 : Claim of Assessee that impounded document are incomplete records is not justified: Submission: 1. Memorandum records/incomplete accounts not a good basis for additions: It is submitted that impounded document, 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 Shee....
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....ax laws by a proper presentation of the accounts before the tax authorities and considerably saving the time of assessing officers in carrying out routine verifications, like checking correctness of totals and verifying whether purchases and sales are properly vouched or not. The time of the assessing officers thus saved could be utilized for attending to more important investigational aspects of a case." Thus, importance and relevance of Audited Accounts cannot be ignored. Interestingly, both the lower authorities have not pointed out any inherent defects in the books of accounts nor have they rejected the books of accounts and rather they have accepted the books of accounts as correct and complete. Therefore, doubting the Audited Accounts duly supported by bills and vouchers and all possible evidences, merely because some rough memorandum papers were could be found, (which is a normal practice), AO must not have doubted as any claim of bogus / inflated expenditure. 4. No addition permissible 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, im....
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....d 7: Deletion of addition based on admission - not justified: Facts: The AO during the assessment proceeding had heavily relied upon the statement of the assessee recorded u/s 131 r/w S. 133A(3)(iii) [in DGOA-4] on dated 02.02.2017 and in particular Q & A No.23 (APB 36-39) in addition to the impounded documents being Annexure-8, Exhibit -8, Page No 97 to 99(APB 32- 35). In these grounds also, the Revenue has heavily relied upon those statements and the deletion made by the ld. CIT (A) despite such admission, is under challenge. Submissions: 1.1 Revenue's grounds lack on merit and legality both: It appears that the revenue has proceeded on serious misconception of fact and law while repeatedly alleging that the ld. CIT(A) has ignored the basic fact that the assessee had already admitted income on oath u/s 131, which contention appears totally contrary to the factual and legal finding recorded by the CIT(A: "The evidentiary value of the statement recorded under oath cannot be denied. However, the explanation furnished by the assessee cannot be rejected only on the basis of statement recorded during the survey. It is true that the statement recorded....
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....ts favour - Held, yes - Whether where assessee succeeded before Commissioner (Appeal) in ultimate analysis and was, thus, not an aggrieved party, in Revenue's appeal, Tribunal committed a mistake by not permitting assessee (respondent before it) to support final order of Commissioner (Appeal) by assailing findings of Commissioner (Appeal) on issues that had been decided against him - Held, yes[Para 26] [In favour of assessee] Words and phrases : Term 'thereon' as occurring in section 254(1) of the Income-tax Act, 1961/ Term "though he may not have appealed" as occurring in rule 27 of the Income-tax(Appellate Tribunal) Rules, 1963" 2. No evidentiary value of Survey Statement: 2.1 Further as per section 133A, there is nothing which suggests that a statement can be recorded on oath before the commencement of Survey or during Survey. However, if recourse is taken to section 131(1), during the survey, a statement can be recorded on oath, as the powers to record a statement on oath are vested in the authority u/s. 131(1) read with section 133(6) and in the circumstances specified u/s. 133(6) only. Section 133A does not empower any ITO to examine any....
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....bmission was that the disclosure made by Mr. Pawan Gadia in his statement under Section 133A was sufficient to be construed as incriminating material qua all the aforementioned AYs, the assessment for which could be re-opened by invoking Section 153A of the Act. It is significant that while in the written submission dated 26th April, 2017, Mr. Manchanda termed the statement of Mr. Pawan Gadia as "the statement dated 23rd December, 2005 recorded under Section 132(4) of the Act", he was careful to describe it as such in the subsequent written submission dated 2nd May, 2017. This was for a good reason. The statement was in fact not under Section 132(4) of the Act but under Section 133A of the Act. There is a difference between a statement made during a survey under Section 133A of the Act and that made during the course of search under Section 132 (4) of the Act. Section 132(4) of the Act states that the authorized officer may, during the course of search and seizure, "examine on oath any person who is found to be in possession or control of any books of account, documents, monies, bullion, jewellery..."and that any statement made during such examination may be used thereafter in evid....
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....scussed the same in the earlier part of this order. No admission made in a statement recorded under section 133A on oath during survey can be relied as evidence against the maker or the assessee. Undeniably, the Assessing Officer has made impugned addition on the basis of the statement of Shri Manohar Lal Agarwal and specifically by relying on his reply to question No. 23 of his statement. As per the assessment order, the excess stock of Rs. 5,08,98,166 has been worked out after giving the benefit of discount and the gross profit rate but mainly relying on the statement of one of the partners of the assessee-firm. If the statement of Shri Manohar Lal Agarwal and others are excluded in view of the above legal position, the value of the alleged excess stock can be ascertained in the light of the facts of this case. The legal issue is decided in favour of the assessee" 3. Moreover, with regard to incriminating and impounded papers & documents Shri Naresh Jain, husband of assessee in his recorded statement has very clearly said that "these are incomplete records" therefore by any stretch of imagination allegation of admitted income is incorrect and cannot be taken as having an....
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....by the concerned person, who is summoned or is being enquired, then and then only the IT Authority shall be having powers u/s 131(1) under which, he may be summoned and on every failure to comply with, penalties can be imposed under other provisions of the law. But otherwise also, no action under this section could be taken by the survey authorities or the AO without having the prior approval of the Superior Authorities. The said provision nowhere empowers the IT Authorities to record the statement on oath. 2. The Revenue has also alleged in its grounds that the CIT (A) did not appreciate that the statements were recorded only u/s 131 but not u/s 133A (3)(iii). The revenue however, has not appreciated that statement u/s 131 can be recorded only during the course of some proceedings if it is pending which is indicated by the use of words "for the purposes of this Act" and therefore, the Hon'ble Courts have been consistently holding that unless there is a pendency of any proceedings, no summon can be issued nor statement could be recorded u/s 131(1). It is only when there is a purpose before the Revenue in relation to which, statements may be recorded but not otherwise. Unde....
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.... part was denied right from the beginning. However, when this issue arose in AY 2016-17, the assessee claimed that they pertain to AY 2015-16. It is in this background, the AO has considered this issue in AY 2015-16 only but not in AY 2016-17. Thus, no specific controversy has been raised by the Revenue in this ground and the only issue was the year and the AO having accepted the claim of the assessee that these expenses pertain to AY2015-16, had considered the same in this year and made the addition of Rs. 1.71 crore, which was under challenge before the CIT(A) and once deleted, such deletion is now under challenge by the Revenue through DGOA-1 and others grounds. Hence this ground is to be read along with the other grounds of appeal. Therefore, this ground taken by the revenue deserves to be dismissed. Common submission: The AO and Revenue in its GOA have repeatedly relied upon the Survey statement of Shri Naresh Jain alleging admission made by him w.r.t. different addition which, are wrongly relied upon being survey statement and further once stood retracted, which has been elaborately submitted in this WS and may be considered towards all such grounds....
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....re in full agreement with the findings recorded by the ld CIT(A). The relevant observations of the ld. CIT(A) made in his order at page 54 , para 5.11 are reproduced in following words "I have considered the facts of the case and written submissions of the appellant as against the observations/findings of the AO in the assessment order for the year under consideration. The contentions/submissions of the appellant are being discussed and decided as under: - In this case, the AO noted that during the survey action, incriminating documents were impounded and duly confronted. Assessee/AR has tried to justify her claim by stating that incomplete records were found at the time of survey. The assessee when asked about these papers has denied the details mentioned in these papers and stated that these papers are dump papers. The contention of the assessee is not acceptable since these figures are exactly appearing in the audit report file along with return of income. Since the details as appearing in the loose papers is exactly matching with the expenses claimed in the P&L account, the relevance of the loose papers cannot be denied. Based on these, it is....
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....8/ 2017-18 dated 12-02-2019 reduced this addition to Rs. 5,00,000/- (APB 214-221). These expenses were already considered by the AO in the original assessment proceedings. Therefore, disallowing these expenses again is not found to be justified on the basis of only statement recorded. The evidentiary value of the statement recorded under oath cannot be denied. However, the explanation furnished by the assessee 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. Hon'ble High Court Of Kerala in the case of C.K. Abdul Azeez v. Commissioner of Income Tax, Central Circle, Calicut [2019] 111 taxmann.com 74 (Kerala) held as under - -------xxx-------xxx-------xxx-------xxx-------xxx-------xxx------- In this case, the AO has used statement to corroborate other materials impounded during the survey. However, the appellant is in a position to explain that the entries in the impounded documents are explainable from the books of accounts. In these circumstances, the corroborative material relied upon by the AO is treated as explained. The corrobo....
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....he basis of which admission was made is explained by the appellant. In the absence of any other corroborative material assessment of tax cannot be made solely on basis of such 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. 27,70,215/- is concerned. Therefore, the addition made by the AO is not found to be sustainable and deleted. It is argued that the expenses S No 1, 2, 11, 17, 18 and 24, appearing in the Chart above and the difference being of Rs. 1,04,16,049/- and in support of the same, detailed clarification has already been submitted in the foregoing paras. Copy of chart of various expenses amounting to Rs. 1,04,16,049/- was enclosed -Annexure-5, page No 18.. The AO in the second remand report has reported that the expenses are supported by bills and vouchers. The payment is made mainly thorough banking channel. In view of these facts the expenses cannot be treated as non - genuine. In these circumstances, ....
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....s 145(3) of Income Tax Act 1961 before making an addition of Rs. 1,71,72,858/- which was made merely on the basis of incriminating documents impounded during the course of survey proceedings as well as statement recorded of Shri Naresh Jain husband of Smt Nisha Jain despite the facts that all the books of account for the year under consideration had duly been audited from chartered Accountant therefore, the Assessing Authority has wrongly observed that books of accounts and the documents are not true and correct. The reply of the appellant is considered. It is correct that the AO has taken contradictory stand in the assessment order. The AO recorded that amounts appearing under various heads of expenses in the 'Audit Report' and the 'impounded loose papers' are exactly same. In such a situation, where the impounded papers and Audit Report contains same figures, then the addition could only be made by rejecting the books of accounts. However, the AO has not rejected the books of accounts. The additions made by the AO in the absence of any other corroborative material assessment of tax are made solely on basis of such sworn statement made. As held by the Hon'ble Kerala High ....
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....has reported that the expenses are supported by bills and vouchers. Further, the payment is made mainly through a banking channel hence it leaves no iota of doubt of manipulation in accounts. The same is reproduced at Pg 51 & 52 - Pr. 4 & 5 of the CIT(A) order and is also reproduced here under for a ready reference: "4. On perusal of aforesaid reply, it is noticed that the expenses related to bank charges of Rs. 2,79,875/- are totally related to bank charges made by Syndicate Bank, which is verified from the bank statement of the assessee submitted during the course of assessment proceeding. Expenses related to bank interest of Rs. 75,30,019/- is related to Bank interest payment made by the assessee to the different Banks mentioned in the ledger of bank interest account. The same interest payments are also verified from the concerned Bank account statements. Further on perusal of ledger account of interest paid of Rs. 15,35,608/-, it is noticed that such interest was paid to M/s R. C. Jain Invest & Fin (P) Ltd. During the year under consideration & TDS has been deducted as per the provisions of Income Tax Act, which is also verified from the Form No. 26Q filed by the asses....
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....and Report when read in the light of the fact of audited accounts without any adverse finding, assumes special significance. Consequently, the total claim of expenditure of Rs. 4.12 crore cannot be alleged to be excessive, bogus or in-genuine, merely based on the admission made by the assessee during the course of survey, in absence of any other corroborative evidence, specifically showing that what the assessee claimed through the audited accounts, audited income P & L account, was not genuine or real expenditure incurred. No doubt, such a remand report operates as an estoppel, against the revenue. However, an independent examination of the record by us, also shows that expenses of Rs. 27,70,215/- related to bank charges, bank interest and interest charges which were all routed through banking channels and subjected to TDS. The major expenditure claimed related to discount and rebate at Rs. 1,29,68,729/- in support of which copies of ledger account of all the payees were submitted and available at Pg 62 to 181. However, no enquiry appears to have been made by the AO from these parties directly. The salary expenses of Rs. 49.60 lakh were verifiable from the salary sheet (copy place....