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2015 (4) TMI 767 - AT - Income TaxAddition on account of Undisclosed income - Addition on account of Inflated expenditure - Addition on account of unexplained foreign travels expenses - Addition on account of income surrender during search - Held that - In the case of Mr. B. Srinivas 2013 (11) TMI 826 - ITAT HYDERABAD , it was held that A.O. as per the scheme of the Act and as per section 153A of the Act, no doubt, shall initiate the assessments for all the six years prior to the assessment year in which the search had taken place, but he will get the free hand only in respect of those assessments which had not attained finality on the date of search. It was held that the pending assessments in such cases will abate and the A.O. while framing the assessment under section 153A/153C of the Act will get free hand through abatement and will frame the assessment afresh. It was held that where proceedings have reached finality, the assessment under section 153A read with 143(3) however has to be made as was originally made/assessed and further addition should be restricted only to the extent they are supported/justified by any material found during the course of search. In this context, when it was pointed out to the Ld. Counsel for the assessee at the time of hearing that the search having been conducted in the case of the assessee on 12.12.2007, the assessment proceedings only up to A.Y. 2006- 2007 had become final and the assessment proceedings for A.Y. 2007-2008 being pending on the date of search, the scope of assessment for A.Y. 2007-2008 was wide akin to the regular assessment, he has not disputed this position. We, therefore, uphold the impugned order of the Ld. CIT(A) deleting the addition made by the A.O. on account of undisclosed income from the alleged suppression of catering receipts for A.Ys. 2002-2003 to 2006-2007 as there was no material found during the course of search to support and substantiate the said addition and this position has not been disputed even by the learned D.R. We however, do not find ourselves in agreement with the Ld. CIT(A) giving similar relief to the assessee for A.Y. 2007-2008 as the assessment for that year was pending as on the date of search and the scope of the said assessment therefore was wide and not restricted to make addition only on the basis of material found during the course of search. We, therefore, uphold the impugned order of the Ld. CIT(A) on this issue for A.Y. 2002-2003 to A.Y. 2006-2007, but set aside the same for A.Y. 2007-2008 restoring the matter back to A.O. with a direction to decide the same afresh after giving an opportunity of being heard to the assessee. In so far as A.Y. 2008-2009 is concerned, there is no dispute that relevant material found during the course of search revealed the fact that catering receipts to the extent of ₹ 56,17,750 were suppressed by the assessee. On such receipts, the A.O. estimated the undisclosed income of the assessee by applying the average G.P. rate of 52.58% at ₹ 29,53,813 and made the addition to that extent ignoring completely that income of ₹ 50 lakhs surrendered during the course of search on account of suppression of catering receipts etc., was claimed to be offered by the assessee in the return of income filed for A.Y. 2008-2009. The Ld. CIT(A) however, rightly took note of this additional income declared by the assessee on account of suppression of catering receipts etc., and held that the addition of ₹ 29,53,813 separately made by the A.O. was not sustainable. Having regard to all the facts and circumstances of the case including the additional income declared by the assessee, we find no infirmity in the impugned order of the Ld. CIT(A) deleting the addition made by the A.O. on account of undisclosed income from suppression of catering receipts for A.Y. 2008-2009. Accordingly, the impugned order of the Ld. CIT(A) giving relief to the assessee on this issue for A.Y. 2002-2003 to 2006-2007 and 2008-2009 is upheld while the same is set aside for A.Y. 2007-08. Addition on account of Inflated expenditure - As rightly submitted on behalf of the assessee before us as well as before the authorities below, it was not a case of any expenditure inflated by the assessee as alleged by the A.O. as the expenditure in question was in the nature of regular expenditure that is required to be incurred in the ordinary course of assessee s catering business. The defects/ deficiencies pointed out by the A.O. in the relevant vouchers were sufficient to show that the expenditure claimed by the assessee was not fully verifiable, but there was no reason for the A.O. to allege that the same represented expenditure inflated by the assessee. Having regard to all these facts and circumstances of the case, we are of the view that the Ld. CIT(A) was fully justified in directing the A.O. to restrict the disallowance made on this issue to the extent of 5% of the relevant expenses for unverifiable element involved therein and his impugned order on this issue, in our opinion, does not call for any interference. It is pertinent to note here that the addition made on this issue although was supported by the evidence found during the course of survey for A.Ys. 2007- 2008 and 2008-2009, there was no such evidence to support this addition for A.Ys. 2002-2003 to 2006-2007. The assessee however, has not filed any appeal or cross objection disputing the disallowance confirmed by the Ld. CIT(A) to the extent of 5% of the relevant expenditure in these years apparently because of the smallness of the amounts involved. Ground Nos. 4 and 5 of the Revenue s appeal for all the seven years under consideration are accordingly dismissed. Addition on account of unexplained Foreign travel expenses - It is observed that the additions made by the A.O. in the relevant four years i.e., A.Ys. 2005-2006, 2006-2007, 2007-2008 and 2008-2009 on account of expenses incurred on the foreign travels of the assessee are deleted by the Ld. CIT(A) inter alia on the ground that there was no material found during the course of search to support and substantiate the same. As already held by us in this context, the assessments for A.Ys. 2005-2006 and 2006- 2007 having been already completed on the date of search, the addition, if any, can be made to the total income of the assessee for the said years only on the basis of material found during the course of search. Since there was no such material found during the course of search, we uphold the impugned order of the Ld. CIT(A) giving relief to the assessee on this issue for A.Ys. 2005-2006 and 2006-2007. As regards A.Ys. 2007- 2008 and 2008-2009, the position, however, is different inasmuch as the scope of the assessments made under section 147(3) read with section 153A is wide and akin to a regular assessment. In these two years, the claim of the assessee as made before the Ld. CIT(A) relying on the additional evidence filed before him for the first time in the form of copies of bank statements, loan account of M/s. Nimantran Caterers etc., was that the expenditure incurred on account of expenses during the foreign trips was out of explained source. It appears from the impugned order of the Ld. CIT(A) that this claim made by the assessee was accepted by him relying on the additional evidence filed by the assessee without giving any opportunity to the A.O. to verify the same. We, therefore, find merit in the contention of the learned D.R. that this issue for A.Ys. 2007- 2008 and 2008-2009 should be restored to the file of A.O. for giving him an opportunity to verify the said additional evidence. Accordingly, we set aside the impugned order of Ld. CIT(A) on this issue for A.Ys. 2007-2008 and 2008-2009 and restore the matter to the file of the A.O. for deciding the same afresh in the light of additional evidence filed by the assessee before the Ld. CIT(A) after giving the assessee an opportunity of being heard. Ground Nos. 6 to 9 of Revenue s appeals for A.Ys. 2005-2006 and 2006-2007 are dismissed and for A.Ys. 2007- 2008 and 2008-2009 are treated as allowed for statistical purposes. Addition on account of income surrender during search - At the time of hearing before us, the Ld. Counsel for the assessee has invited our attention to the copy of computation of total income placed at page-3 of the paper book as well as copy of Trading and Profit and Loss Account placed at page-4 of the paper book and submitted that although additional income of ₹ 30 lakhs only was offered in the computation of total income, the sum of ₹ 20 lakhs was separately offered by crediting the same as other income to the P & L Account. As rightly contended by the learned D.R. in this regard, this explanation was not offered by the assessee during the course of appellate proceedings before the Ld. CIT(A) in spite of specific opportunity afforded in this regard. She has contended that an opportunity may therefore be given to the A.O. to verify the explanation of the assessee. We find merit in this contention of the D.R. Accordingly, the impugned order of the Ld. CIT(A) on this issue is set aside and the matter is restored to the file of the A.O. with a direction to decide the same after verifying the claim of the assessee that the amount of ₹ 20 lakhs credited to P & L account as other income represented the part amount of ₹ 50 lakhs surrendered during the course of search. The A.O. shall decide this issue after giving the assessee proper and sufficient opportunity of being heard. The appeal of the assessee is treated as allowed for statistical purposes. - Decided against the assessee except in A.Y.2008-09 and revenue's appeals are partly allowed.
Issues Involved:
1. Deletion of additions made by the A.O. on account of undisclosed income from suppressed turnover. 2. Deletion of additions made by the A.O. towards inflation of expenditure. 3. Deletion of additions made by the A.O. on account of expenditure incurred by the assessee on foreign trips. 4. Direction to the A.O. to make the addition of Rs. 20 lakhs on account of income surrendered by the assessee during the course of search. Detailed Analysis: 1. Deletion of Additions on Account of Undisclosed Income from Suppressed Turnover: The common issue in all the seven appeals by the Revenue pertains to the deletion by the Ld. CIT(A) of the additions made by the A.O. to the total income of the assessee on account of undisclosed income arising from suppressed turnover. The assessee, a catering contractor, was subjected to a search under section 132 of the Act, revealing suppressed receipts amounting to Rs. 56,17,750 for A.Y. 2008-2009. The A.O. applied an average gross profit rate of 52.58% to estimate the undisclosed income at Rs. 29,53,813 and made corresponding additions for A.Y. 2008-2009. For A.Ys. 2002-2003 to 2007-2008, the A.O. estimated suppressed sales based on the ratio found for A.Y. 2008-2009, resulting in further additions. The Ld. CIT(A) found merit in the assessee's submissions, noting that the evidence found during the search was only sufficient to show suppression for A.Y. 2008-2009, and the income of Rs. 50 lakhs was already offered by the assessee to cover the suppressed receipts. Thus, the Ld. CIT(A) deleted the additions for all years, except for A.Y. 2008-2009, where he directed the A.O. to add Rs. 20 lakhs due to a discrepancy in the declared income. The Tribunal upheld the Ld. CIT(A)'s order for A.Ys. 2002-2003 to 2006-2007, agreeing that no material was found to support the additions. However, for A.Y. 2007-2008, the Tribunal set aside the Ld. CIT(A)'s order, as the assessment was pending on the date of search, and restored the matter to the A.O. for fresh consideration. For A.Y. 2008-2009, the Tribunal upheld the Ld. CIT(A)'s deletion of the addition, noting that the income of Rs. 50 lakhs was already declared by the assessee. 2. Deletion of Additions Towards Inflation of Expenditure: During the search, debit vouchers of M/s. Niyantran Caterers were found, lacking supporting bills or signatures, leading the A.O. to treat the expenses as inflated and make corresponding additions for A.Ys. 2007-2008 and 2008-2009. The A.O. also estimated inflated expenses for A.Ys. 2002-2003 to 2006-2007 based on the ratio found for A.Y. 2007-2008. The Ld. CIT(A) found merit in the assessee's explanation that the expenses were incurred in the ordinary course of business and directed the A.O. to restrict the disallowance to 5% of the relevant expenses for unverifiable elements. The Tribunal upheld this decision, noting that while the expenses were not fully verifiable, there was no evidence of inflation, and the 5% disallowance was reasonable. 3. Deletion of Additions on Account of Expenditure Incurred on Foreign Trips: The A.O. added Rs. 1 lakh per year for A.Ys. 2005-2006 to 2008-2009 as undisclosed income from foreign trips funded by M/s. Legend Estate P. Ltd. and a further Rs. 1 lakh per year as unexplained expenditure on these trips. The Ld. CIT(A) deleted these additions, noting that the air tickets were funded by Legend Estates and the expenditure was met from the assessee's business activities. The Tribunal upheld the deletion for A.Ys. 2005-2006 and 2006-2007, as there was no material found during the search to support the additions. For A.Ys. 2007-2008 and 2008-2009, the Tribunal restored the matter to the A.O. for verification of the additional evidence provided by the assessee. 4. Direction to Add Rs. 20 Lakhs on Account of Income Surrendered During Search: The Ld. CIT(A) directed the A.O. to add Rs. 20 lakhs to the total income for A.Y. 2008-2009, noting that only Rs. 30 lakhs of the Rs. 50 lakhs surrendered during the search was declared in the computation of income. The Tribunal condoned the delay in the assessee's appeal and restored the matter to the A.O. for verification of the assessee's claim that the remaining Rs. 20 lakhs was credited to the P & L account as other income. Conclusion: The appeals of the Revenue for A.Ys. 2002-2003 to 2006-2007 were dismissed, while the appeals for A.Ys. 2007-2008 and 2008-2009 were partly allowed for statistical purposes. The assessee's appeal for A.Y. 2008-2009 was allowed for statistical purposes.
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