TaxTMI 
TaxTMI 
2024 (9) TMI 1707
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....e common and facts are also similar, they are decided together under this combined order. Facts of the case: 2. The assessee is a company engaged in the hospitality business, was subjected to a search and seizure operation under Section 132 of the Act on 30-10-2018 at the premises of the Kailash Goenka Group. The search revealed incriminating materials in the form of handwritten diaries, loose papers, and bills, indicating substantial unaccounted receipts from the hotel and restaurant businesses, as well as corresponding unaccounted expenditures incurred in cash. 3. During the assessment proceedings under Section 153A read with Section 143(3) of the Act, the AO rejected the assessee's books of accounts under Section 145, stating that they were incomplete and unreliable due to the non-disclosure of significant unaccounted receipts and expenditures. The AO proposed to treat the entire amount of unaccounted receipts as income and made additions, accordingly, also disallowing the unaccounted expenditures under Section 69C of the Act. 3.1. `The assessee contended that only the net profit from unaccounted receipts should be taxed, and the related unaccounted expenditures shou....
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....s of the case in making a disallowance of payments of PF & ESImade within the grace period. 8. Alternatively, and without prejudice, the CIT(A) have erred in law and on the facts of the case in not appreciating the due date as defined under the respective PF and ESI Acts. 9. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. The action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 10. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s. 234A/B/C of the Act. 11. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in initiating penalty under various sections of the Act. 12. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or befor....
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.... CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s. 234A/B/C of the Act. 11. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in initiating penalty under various sections of the Act. 12. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. In IT(SS)A No.66/Ahd/2022 for AY 2015-16 - In the case of Sankalp Recreation Pvt.Ltd. vs. ACIT 1. The learned CIT(A) has erred in law and on facts of the case in confirming the assessment order u/s 153A r.w.s. 143(3) of the Act which is passed in violations of provisions of the Act and against the scheme of assessment related to search cases. 2 The learned CIT(A) has erred in law and on facts of the case in confirming the additions made by learned Assessing Officer without any incriminating material found during the search. 3. The learned CIT(A) has erred in law and on facts of the case in rejecting the books of accounts of the appellant u/s 145 of the Act. 4. The learned CI....
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....penditure to determine the real income of the assessee 2. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the addition of Rs. 1,81,99,048/- towards unaccounted cash receipts income to Rs 21,83,886/-estimating the N.P. at 12%. 3. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.2,00,96,792/- towards unexplained cash expenditure u/s 69C holding that the unaccounted expenditure is incurred out of unaccounted receipts of the business, hence telescoping is applied. 4 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O. 5. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent. In IT(SS)A No.50/Ahd/2022 for AY 2017-18 - In the case of ACIT vs. Sankalp Recreation Pvt.Ltd. 1. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the unaccounted income should be telescoped against the unaccounted expenditure to determine the real income of the assessee.....
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.... the addition of unaccounted income of Rs. 1,05,98,670/- holding that double addition made, despite the addition was made on the basis of seized materials seized from Corporate office of the assessee, which were not recorded in the books. 6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O. 7. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent. In IT(SS)A No.67/Ahd/2022 for AY 2016-17 - In the case of Sankalp Recreation Pvt.Ltd. vs. ACIT 1. The learned CIT(A) has erred in law and on facts of the case in confirming the assessment order u/s 153A r.w.s. 143(3) of the Act which is passed in violations of provisions of the Act and against the scheme of assessment related to search cases. 2. The learned CIT(A) has erred in law and on facts of the case in confirming the additions made by learned Assessing Officer without any incriminating material found during the search. 3. The learned CIT(A) has erred in law and on facts of the case in rejecting the books of accounts of the appellant u/s 145 of the ....
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....hich is passed in violations of provisions of the Act and against the scheme of assessment related to search cases. 2. The learned CIT(A) has erred in law and on facts of the case in confirming the additions made by learned Assessing Officer without any incriminating material found during the search. 3. The learned CIT(A) has erred in law and on facts of the case in rejecting the books of accounts of the appellant u/s 145 of the Act. 4. The learned CIT(A) has erred in law and on facts of the case in confirming an addition of Rs. 55,33,113/- by estimating net profit at the rate of 12%. In the facts and circumstances of the case, such estimation is highly excessive and does not reflect the real income earned by the appellant. 5. The learned CIT(A) has erred in law and on facts of the case in confirming the disallowances pertaining to employees' contribution to PF & ESIC, amounting to Rs. 12,189/- u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act. 6. The learned CIT(A) has erred in law and on facts of the case in confirming the disallowances pertaining to employees' contribution to PF & ESIC u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act, despit....
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....ppellant. 5. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. The action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 6. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s. 234A/B/C of the Act. 7. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in initiating penalty under various sections of the Act. 8. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. In ITA No.576/Ahd/2022 for AY 2019-20 - In the case of Sankalp Recreation Pvt.Ltd. vs. ACIT 1. The learned CIT(A) has erred in law and on facts of the case in confirming the assessment order u/s 143(3) r.w.s. 153B(1)(b) of the Act whi....
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.... Rs.1,92,54,656/- towards unaccounted cash receipts income to Rs 21,83,886/-estimating the N.P. at 12% 3. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 1,53,81,860/- towards unexplained cash expenditure u/s 69C holding that the unaccounted expenditure is incurred out of unaccounted receipts of the business, hence telescoping is applied. 4. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of unexplained expenditure Incurred of Rs.1,50,000/- holding that the unaccounted expenditure is incurred out of unaccounted receipts of the business, hence telescoping is applied. 5. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance u/s 36(1)(va) of Rs. 127,450/- 6. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of unexplained cash of Rs. 1,92,05,140/- u/s 69A, despite the assessee failed explain the source thereof. 7. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in del....
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....basis of the fact that the search operation under Section 132 led to the discovery of incriminating material, including unaccounted receipts and expenditures, which provided the necessary foundation for the assessments. The CIT(A) emphasised that the mere initiation of proceedings under Section 153A, following a valid search under Section 132, is sufficient to justify the assessment, provided there is evidence to support it. The CIT(A) noted that the presence of incriminating material, such as unaccounted transactions, clearly linked to the assessee's business activities, justified the continuation of proceedings under Section 153A for all relevant assessment years. The CIT(A) recognised that incriminating material was found during the search, especially relating to unaccounted receipts and expenditures, which formed the basis for the additions in the relevant assessment years. For years where the AO made additions without substantial incriminating evidence, the CIT(A) restricted the additions based on the principle that additions under Section 153A must be linked to incriminating material found during the search. This principle was applied in cases where the CIT(A) found that ....
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.... under Section 36(1)(va) relates to statutory obligations and does not necessarily require incriminating material for such an addition, as it is independent of the search findings and pertains to the non-compliance with statutory provisions. 7.2. After considering the facts, submissions, and the CIT(A)'s order, except for the ground related to PF/ESIC contributions, which will be addressed separately, the assessee's grounds challenging the validity of the assessment under Section 153A, additions made without incriminating material, and the rejection of books of accounts under Section 145 are dismissed, and the CIT(A)'s order on these issues is upheld. Grounds Relating to Unaccounted Receipts and Unaccounted Expenses 8. The concise grounds of both assessee and revenue are tabulated below to deal with them together. Sr. No. Original Ground No. Ground of Appeal Assessment Year(s) IT(ss)A / ITA Nos. Amount (Rs.) 1 Revenue Ground 1 Telescoping of unaccounted income against unaccounted expenditure. 2016-17 49/Ahd/2022 1,81,99,048/- reduced to 21,83,886/- 2017-18 50/Ahd/2022 4,61,09,275/- reduced to 55,33,113/-  ....
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....the source of these expenditures. Overall summary of these receipts and payments is given below: A.Y. Total Receipts (Rs.) Total Payments (Rs.) 2013-14 13,38,400 - 2014-15 2,37,575 - 2015-16 39,20,850 24,55,264 2016-17 1,81,99,048 2,00,96,792 2017-18 4,61,09,275 3,93,81,546 2018-19 4,46,29,473 4,75,71,939 2019-20 1,92,54,656 1,53,81,860 Grand Total 13,36,89,277 12,48,87,401 8.1. The AO treated the entire unaccounted cash receipts as the income of the assessee for the relevant assessment years. The AO did not allow for any deductions or expenses related to these receipts, effectively treating the gross receipts as taxable income. The AO also made an addition under Section 69C, treating the unexplained expenditure as deemed income of the assessee. The AO did not allow any set-off against the unaccounted receipts, effectively treating the expenditures as independently unexplained and taxable. 9. The CIT(A) allowed telescoping of unaccounted income against unaccounted expenditures, setting off the unaccounted income discovered during the search with the unexplained expenditure incurred by the assesse....
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....he hospitality industry, which often involves high attrition rates of labour, leading to cash payments being made to employees unwilling to accept payments through formal channels and the necessity of conducting some transactions in cash to meet immediate business needs. The AR stressed that these cash receipts were real business income but did not represent the entire taxable income, as the associated business expenses incurred to generate the income were not fully reflected in the records. The AR submitted that the unaccounted income generated through cash receipts was used to meet business expenses that were also unaccounted for and therefore taxing both, the unaccounted receipts and disallowing the unaccounted payments, would result in double taxation. The AR's submission emphasised that incriminating material found during the search showed both unaccounted receipts and unaccounted payments, and therefore, it was logical to allow the set-off of payments against receipts. The AR contended that only the profit element embedded in the unaccounted receipts should be taxed, not the entire gross receipts which aligns with the well-established legal principle that only the real income....
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....have been required to conduct such large-scale unaccounted transactions. The CIT(A) had overlooked this, and the DR contended that it was essential to consider this aspect before making any allowance. The DR urged to sustain the additions made by the AO on the grounds that the assessee had not explained the unaccounted receipts and expenses satisfactorily. The DR also stated that the details provided by the assessee need to be verified by the AO. 12. The AR, in rejoinder, argued that the mechanism to calculate profit is provided by the Act as per section 28 to 40 of the Act and when the books of accounts are rejected, the estimation has to be resorted to. The CIT(A) has neither adopted the percentage of 8.83% as per the accounted books of accounts nor 6.58% as per unaccounted records of receipts and payments but he has adopted 12% which is almost double the percentage of as per unaccounted records. CIT(A) has not considered entire unaccounted expenditure as allowable and has disallowed considerable amounts of expenses by adopting 12% rate of net profit which is far more than the rate of net profit as per regular books of accounts. The AR also stated that the DR's estimation of P....
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....shable. In those cases, there was no evidence to explain the expenses, whereas in the present case, the CIT(A) has rightly applied an estimated NPR based on business realities. While the DR has argued that there were violations of Section 40A(3) of the Act due to cash payments and non-deduction of TDS, these do not automatically warrant the taxation of the entire unaccounted receipts. The issue at hand is the estimation of profit, and the CIT(A) has correctly factored these into the Net Profit Rate estimation without making an arbitrary decision. 13.1. We find that the CIT(A) has correctly applied the net profit rate to the unaccounted receipts based on the principle laid in President Industries case. There is no material evidence to suggest that the entire unaccounted receipts represent the income of the assessee. The DR's submissions, while highlighting procedural violations, do not justify taxing the gross receipts without considering the expenses involved in generating such receipts. Once profit is estimated, no further additions can be made for procedural violations like cash payment limits or TDS non-compliance. This is consistent with judicial principles that when profit ....
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....principle that seized material should be considered in its entirety. This approach ensured that the assessment captured the real income of the assessee without inflating the tax liability through double additions. We find that the CIT(A) correctly deleted the separate additions for poker income and expenses for both Assessment Years 2017-18 and 2018-19, as these were already included in the broader unaccounted receipts and expenditures. Accordingly, the grounds of the Revenue on this issue are dismissed, and the order of the CIT(A) is upheld in the interest of justice. Grounds Relating to PF/ESIC Contributions (Section 36(1)(va)) 14. Under this consolidated grounds, Revenue's Appeal relates to the deletion of disallowances made for late PF/ESIC contributions, with significant amounts at stake and Assessee's Appeal spans multiple years, challenging the disallowance of contributions and seeking relief by invoking the grace period and due date for return filing provisions, supported by judicial precedents. The same are tabulated as below: Sr. No. Original Ground No. Ground of Appeal A.Y. IT(ss)A / ITA Nos. Amount (Rs.) 1 Revenue Ground 4 Deleti....
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....laws. The CIT(A) relied on the Hon'ble Supreme Court's Judgement in Checkmate Services Pvt. Ltd. Vs. CIT (2022) 448 ITR 518 (SC), where it was held that the employee contributions to PF and ESIC must be deposited within the statutory due dates prescribed under the relevant acts. This judgement clarified that payments made after these due dates, even if before the filing of the return of income, are not eligible for deduction under Section 36(1)(va) of the Act. The CIT(A) applied this binding judgment, noting that the employee contributions deposited after the due dates, regardless of whether they were made before the income tax return filing date, would not qualify for deduction. 16. During the course of hearing before us, the AR of the assessee argued that the additions are made on the basis of information available in the Audit Report in form 3CD and not on the basis of any seized material. In this respect the AR placed reliance on the judgment of Hon'ble Supreme Court in case of PCIT Vs. Abhisar Buildwell Pvt. Ltd. (2023) 454 ITR 212. The AR submitted that AYs 2013-14 to 2017-18 are unabated assessment. In case of A.Y. 2019-20, the AR submitted that the disallowance for t....
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....(A) rightly deleted the addition, noting that 15th July 2018 was a Sunday, and hence the payment on the next working day (16th July 2018) was within the permissible time limit. This finding aligns with the judicial principles governing General Clauses Act, where payments made on the next working day following a holiday are treated as timely payment. Accordingly, the corresponding grounds of appeals filed by the assessee are allowed and grounds of revenue deserve to be dismissed. Revenue's Grounds Relating to Cash Seized (A.Y. 2019-20) - Ground No. 6 and 7 18. The issue of seized cash for A.Y. 2019-20 revolves around the treatment of unexplained cash discovered during the search and seizure operation carried out at the assessee's premises. The AO made an addition based on the cash seized during the search, treating it as unaccounted income under Section 69A of the Act. The assessee, however, contended that the seized cash was explained and accounted for as income, and therefore, should not be treated as unaccounted income. The CIT(A) found merit in the assessee's submission that the seized cash was likely part of the business receipts, as the assessee had provided sufficie....