TaxTMI 
TaxTMI 
2025 (7) TMI 1422
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.....Y. 2018-19 in ITA No. 2182/Bang/2024. 3. At the outset, we note that there is a single issue being the allegation of unaccounted sales involved in all the appeals, cross-appeal and cross-objections. Therefore, we for the sake of brevity combined all the appeals for the purpose of adjudication. The observation and finding given hereunder shall be the applied to all the appeals and cross objections. 4. The relevant facts are that the assessee, a private limited company, is engaged in the business of providing medical and diagnostic services. The assessee was subject to search proceedings under section 132 of the Act, carried out on 8th November 2017. In consequence of the search proceedings, various materials and information were collected, from which it was revealed that the assessee uses customized software namely "Power Lab" for billing purposes. A total of nine staff members are involved in the billing process, and one Smt. Latha Chandran is in charge of the billing section. The sales bills are recorded in different series such as H, S, G, A, J, R, Y, K, and V etc. The different series represent patients referred by different hospitals, except for the K and V series. The "....
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....nt manager, Shri Mallikarjun (who has been working with the assessee company for more than 15 years), and he confirmed the same. It was also admitted that once the doctors' commission was computed, the daily summary statement of the V-series was handed over to the MD, Dr. H.M. Venkatappa, who later destroyed the same. 9. It was found that Shri Rajeevalochan, after receiving the commission statements of doctors and the cash in sealed covers from the accounts team, handed over the same to the marketing team for distribution to the respective doctors. Accordingly, the statements of marketing executives Shri Arvind B.R. and Shri Shyam Sunder were recorded, wherein they confirmed that around the 1st or 2nd day of each month, they received commission statements and cash in sealed covers, which they delivered to the respective doctors. They stated that they were not aware of how the commission was computed or how much cash was contained in the covers. 10. Further, during the search, in the software "Power Lab," only the bill generated on 8th November 2017 under the "V" series was found. In other words, no details of bills generated under the "V" series for the earlier period were fo....
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.... project. He claimed that this practice of unaccounted cash receipts was not followed before this time or after the project was completed. 17. The assessee further said that during the search, cash of Rs. 1.62 crores was found at the office of H.B. Sunil & Co., and Rs. 67 lakhs was found at the home of Shri H.M. Venkatappa. They stated this cash came from the "V" series billing. Based on this, they offered Rs. 2,28,98,208/- as income from "V" series receipts for the period from May 2017 to November 2017 in the AY 2018-19. 18. To support the claim, he pointed out that the cash found was in new Rs. 2000 notes, which proves that the "V" series billing started only after demonetization. They also argued that just because unaccounted receipts were found for one month, it is not fair to assume the same for other months. Lastly, the assessee said that Shri H.M. Venkatappa made the earlier admission when he was not in the right state of mind, and therefore, those statements were later withdrawn. 19. The AO rejected the assessee's claim that the "V" series billing started only from May 2017. The AO found that, after the search proceedings in the assessee's case, a survey under sect....
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....earned CIT(A), the assessee regarding the legal ground submitted that there was no material of whatsoever found during the course of search in relation to A.Ys. 2014-15 to 2017-18. The assessee claimed these assessments years falls under the category of unabated/completed assessments as the last date to issue scrutiny notice under section 143(2) of the Act was already expired for these assessment years on the date of issuance of notice under section 153A of the Act. Therefore, considering the ratio laid down by the Hon'ble Supreme Court in the case of PCIT vs. Abhishar Buidlwell Pvt Ltd reported in 149 taxmann.com 399, the proceedings initiated under section 153A of the Act for A.Y. 2014-15 to 2017-18 in the absence of incriminating materials and consequence assessment orders are invalid. 26. Before the ld. CIT(A), the assessee on merit of the case submitted that during the search at various premises related to the company, cash amounting to Rs. 67 lakhs was found at the residence of the Managing Director and Rs. 1,61,98,000/- was found at the office of the auditor. In addition, some loose sheets related to diagnostic receipts for the month of September 2017, which were unaccoun....
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....s well as on decisions of the coordinate bench of the Jodhpur Tribunal in ACIT vs. Ercon Composites (49 taxmann.com 489), and the Delhi Tribunal in Vijay Kumar Jain vs. ITO, ITA No. 1730/Delhi/2024. Accordingly, the assessee requested the learned CIT(A) to delete the addition made by the AO. 31. The ld. CIT-A after considering the submission of the assessee and assessment order dismissed the assessee legal ground for A.Y. 2014-15 to 2017-18 but allowed the assessee's grounds of appeal on the merit of the addition for A.Ys. 2014-15 to 2017-18. For A.Y. 2018-19, the learned CIT(A) deleted the addition on account of suppression of sale, however confirmed addition of Rs. 2,28,98,000/- on account of cash found as unexplained money under section 69A of the Act. The relevant findings of the learned CIT(A) on legal grounds as well as on merit of the case are extracted as under: The ld. CIT(A) finding on legal grounds for AY. 2014-15 to 2017-18: 5.2 The questions raised on the validity of the Assessment are disposed off first. The primary contention of the AR was that the Assessments stood unabated/completed since the due date for issuance of notice u/s 143(2) had expired as ....
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....sessment in the manner provided under Section 144 of the Act. For doing so, the books of accounts ordinarily would require to be rejected. It is seen that this exercise has not been done. This proposition finds support in the judgments rendered by the Delhi High Court in the case of PCIT vs. Forum Sales Pvt. Ltd. ITA No.862/2019 which dwells upon rejection of books in such circumstances. Further the Hon'ble Supreme Court in the case of Lalchand Bhagat Ambica Ram vs. the CIT (1959) 37 ITR 288 (SC) observed that where the books of accounts of the assessee were not challenged per se, the explanation offered by the assessee requires to be construed as reasonable and the decision of an authority based on misplaced suspicion, conjecture and surmises is not sustainable. The Hon'ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd. v. Commissioner of Income Tax (1954) 26 ITR 775 (SC) has observed that powers given to the Revenue authority, howsoever wide, do not entitle him to make the assessment on pure guess without reference to any evidence or material. The assessment cannot be framed only on bare suspicion. The assessment should rest on principles of law and one should avoid pr....
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....s of Rameshchandra Sothy & Sons (2021) 163 taxmann.com 666 (Bangalore - Trib.) are relevant to the matter in hand (reproduced below): *************************leave purposely *********************** 7.5 Accordingly, the argument put forward by the AO in his remand report is devoid of merit and unacceptable. 7.6 The AO has also relied on statements u/s 132(4) made by certain employees of the Appellant company regarding payment of referral fee. However, the Managing Director, Dr. H M Venkatappa, in his deposition u/s 132(4) has repeatedly refuted the payment of referral fee. There is no record of the AO having summoned or examined any doctor to whom the alleged referral fees were purportedly paid. The Appellant company is obviously a very closely held company and as such the Managing Director is the person in charge of all of the company's affairs. It is unlikely that the employees concerned would be enjoying the confidence of the MD so as to be aware of the ultimate application of funds. Furthermore, it is also noticed that one employee by name Mr. Aravind B R, has contradicted his own statement by initially saying that referral fee of 20% on bill amount w....
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.... supported by CBDT Instruction F. No. 286/98/2013-IT (Inv. II) dated 18th December 2014, discouraging officers from making addition solely based on statements without tangible materials. The words 'evidence found as a result of search' would not take within its sweep statements recorded during search and seizure operations. However, such statements on a standalone basis without reference to any other material discovered during search and seizure operations would not empower the Assessing Officer to make an assessment merely because an admission was made by the assessee during search operation. 7.9 It is well established that no additions can be made in the absence of any incriminating materials found during the course of search by relying solely on the statements or surrender made by the appellant especially when the same has been retracted. Reliance is placed on the following judicial pronouncements where this aspect of the matter has been examined in detail: ********** reproduction of various case purposely leaved *************** 7.10 It is evident from the discussions above that there is no conclusive evidence that the Appellant company was suppressing its sale....
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....t the addition made by the AO amounting to Rs. 3,19,39,725/- deserves to be deleted. 8.6 Vide ground of appeal no 3 it is stated that the Assessing Officer made an error by adding Rs. 2.28 Crores as income from unexplained sources without considering that the Appellant had already included this amount in its turnover. As a result, this addition leads to the same income being taxed twice. 8.7 Regarding the addition of Rs. 2,28,98,000/- as unexplained money u/s 69A, the AO's reasoning in the assessment order has been extracted hereunder for reference: "25. It has been established clearly that, the assessee has been generating unaccounted cash for paying illegal referral commission to the doctors. As claimed by the assessee, if the entire suppressed turnover of V-series bills was just accumulated (without a single rupee spent therefrom) resulting in the discovery of such cash of Rs. 2.28 crores exactly by the search team, what is the source for the payment of referral fees to the doctors. Conversely, if it can be concluded that the cash generated by suppression of sales have been utilised for payment of referral fees, then the cash found and seized is unexpl....
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....ees to its doctors. The Appellant cannot be expected to prove the negative and therefore, the onus for proof would fall on the Ld. AO to show that the Appellant was in fact making such payments to its doctors. AlternatePlea "21) Without prejudice to all the above submissions and as an alternate thereto, it is submitted that the Appellant Company does not have any other source of income except its business income. This fact is also not disputed by the Ld. AO in the impugned order. Despite this, the Ld. AO has proceeded to treat the cash seized as unexplained money u/s 69A of the Act on the grounds that the income generated from suppressing V-series bills would have been spent on payment of referral fees to the doctors. Assuming without admitting that an addition is warranted on account of the cash seized during the search, it is humbly submitted that the source for the same could only be from business and therefore, it would be chargeable to tax under the head Business and not u/s 69A r.w.s 115BBE." 8.9 The submissions of the AR and the reasoning of the AO have been considered in detail. Even if the explanation of the Appellant that it was generating cash ....
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....al copies of MoUs with hospitals dating back to 2013, which were never reflected in the appellant's books of accounts. Furthermore, sworn statements from third party (software developer), along with seized evidence showing deletion of vouchers related to suppressed sales, reinforced the Revenue's case that the appellant was engaged in systematic tax evasion. 33.1 The learned DR further emphasized that statements from employees who were given access to "V" series bills confirmed the manipulation of records and suppression of cash sales. More significantly, the Power Labs Software used by the appellant was found to be configured in such a way that it allowed selective deletion of sales records in this case those in the "V" series whenever the server was turned off. This technical manipulation of data indicated a premeditated effort to suppress income and evade taxes. The learned DR highlighted that such actions were not accidental or due to oversight, but were part of an intentional strategy devised by the appellant and executed by key personnel. 33.2 The learned DR also pointed out that the appellant himself had admitted to suppression of sales during the period from May 2017 ....
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....ovember 2017. The entire assessment is premised on an unproven and speculative allegation that the assessee paid referral fees to medical professionals, thereby allegedly suppressing actual sales. In support of this claim, the Department relied solely on statements recorded from employees during search operations, which is directly contrary to the binding instruction issued by the Central Board of Direct Taxes vide Instruction No. F.No. 286/98/2013-IT(Inv.II) dated 18 December 2014. This instruction clearly states that no admission or concession extracted under coercion or duress during a search can form the sole basis for an assessment unless corroborated by independent evidence. 34.2 The AR emphasized that the AO blatantly ignored the retraction and detailed affidavit submitted by the company's Managing Director, who categorically denied the allegations and provided a reasoned explanation addressing all concerns. The MD, being in the best position to speak on the financial and operational matters of the company, should have been accorded greater evidentiary weight. Instead, the AO selectively relied on the statements of employees who were not privy to the financial working....
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.... procedurally flawed but also substantively devoid of merit. It rests on conjecture, selective reliance on statements, and an absence of independent verification or inquiry. Accordingly, the findings of the ld. CIT(A) in deleting the additions are entirely in accordance with law and the evidentiary record, and hence, deserve to be upheld. 34.6 The learned AR regarding the treatment of cash found as unexplained money under section 69A of the Act submitted that the entire addition is based on an erroneous presumption that the seized cash represents unexplained income, whereas the amount was voluntarily disclosed and duly declared in the tax return. The cash in question was generated from regular business receipts, as evident from V-series billing, and has been properly recorded in the appellant's books of accounts. Therefore, the two preconditions for invoking Section 69A of the Act, namely, that the money is not recorded in the books and the sources of such money was not explained or the explanation furnished by the assessee are not satisfactory. In the given case, the sources of such cash are duly explained which was not unsatisfactory. As such, the addition under section 69A of....
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.... is no evidence of the assessee investing in property, gold, or other assets using this income. Nothing was found during the search that establishes the flow or utilization of this alleged suppressed income. 35.4 Lastly, the books of account were not rejected by the AO. In the absence of rejection of books, any estimation of income is not valid. Therefore, we find that the ld. CIT(A) has correctly deleted the addition on merit for A.Y. 2014-15 to 2017-18, and we uphold that decision. Similarly, for A.Y. 2018-19, the AO's attempt to estimate suppression beyond what the assessee has already admitted (Rs. 2.28 crores) lacks supporting material. We find no justification to disturb the CIT(A)'s conclusion on this point. Accordingly, the Revenue's appeals on merit for A.Y. 2014-15 to 2018-19 are dismissed. FINDING ON LEGAL GROUND - ASSESSEE'S CROSS OBJECTION FOR A.Y. 2014-15 TO 2016-17 36. The assessee has raised a legal challenge regarding the validity of assessments for A.Ys. 2014-15 to 2016-17. In this regard, we note that the search took place on 8th November 2017. On that date, the time limit for issuing notices under section 143(2) had already expired for these yea....