2017 (5) TMI 526 - AT - Income Tax

Undisclosed receipt from beauty parlors - Held that - The search statement cannot override the evidence seized by the department in the shape of documents. The gross receipts cannot be taxed as income. Therefore, under the facts and circumstances of the case, CIT-A correctly directed the AO to give credit of the expenses recorded in the seized documents but not found recorded in the regular books of account . The A/R of the assessee has made working for this. The comparative chart is placed at PB pg 100 to 102 which shows the total expenses of ₹ 14,63,159/- are recorded in the seized documents but not in regular books of the parlour. This expenses were incurred to earn the suppressed receipts of the parlour therefore, it should be deducted from the suppressed receipts of the parlour. Therefore, CIT-A correctly directed the AO to delete the addition of ₹ 14,63,159/- and rest of the addition of ₹ 25,38,273 ₹ 14,63,159 ₹ 10,75,114/- is sustained. Addition on account of goodwill receipt - it was contended that assessee herself generated the name for herself by setting up and creation of chain on this account which is capital in nature only and not liable to tax being not a revenue receipt - Held that - It is noted from the available records that the assessee had repaid the amount of ₹ 21.50 lacs as against the receipt of amount of ₹ 21.00 lacs from Smt. Saroj Joshi which includes the impugned amount of ₹ 16.00 lacs. In the books of account the assessee treated ₹ 16.00 lacs as receipt on account of goodwill and ₹ 5.00 lacs on account of contribution in capital account of firm. - taking into consideration all the facts and circumstances of the case, we find no reason to interfere with the order of the ld. CIT(A) that the amount of ₹ 16.00 lacs is not taxable receipt in the hands of assessee, accordingly , therefore, direct the AO to delete the addition made by him on account of goodwill. - Decided in favour of assessee.

Summary

Issues Involved:
1. Restriction of addition on account of undisclosed receipt from beauty parlors.
2. Deletion of addition on account of goodwill receipts.

Issue-wise Detailed Analysis:

1. Restriction of Addition on Account of Undisclosed Receipt from Beauty Parlors:

The Revenue challenged the reduction of an addition from ?25,38,273 to ?10,75,114 by the CIT(A), arguing that the CIT(A) ignored the seized material and the assessee's statements. The CIT(A) noted that the Assessing Officer (AO) compared the receipts from the seized records but ignored the expenditure side. The AO relied on the search statement, assuming all expenses were recorded in the regular books, which was contradicted by the seized documents showing unrecorded expenses. The CIT(A) directed the AO to account for these expenses, reducing the addition to ?10,75,114.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the search statement cannot override the seized evidence. The seized documents should be read as a whole, considering both receipts and expenses. The Tribunal found that the AO's approach was not in accordance with the seized documents and natural justice principles. Thus, the Tribunal dismissed the Revenue's ground, affirming the CIT(A)'s restriction of the addition.

2. Deletion of Addition on Account of Goodwill Receipts:

The Revenue contested the CIT(A)'s deletion of a ?16,00,000 addition for goodwill receipts, arguing that the CIT(A) did not consider relevant case law. The CIT(A) found that the assessee repaid ?21,50,000 to Smt. Saroj Joshi, which included the ?16,00,000 initially treated as goodwill. The repayment was ordered by an Arbitrator appointed by the High Court, proving the amount was a liability, not income. The CIT(A) concluded that the assessee's entry was a bona fide mistake, and the nature of the transaction determined its taxability, not the book entry.

The Tribunal agreed with the CIT(A), noting that the repayment was mandated by the Arbitrator, confirming the amount was not taxable income. The Tribunal emphasized that the real nature of the transaction, not the book entry, determines taxability. The Tribunal found no merit in the Revenue's argument and dismissed this ground, affirming the CIT(A)'s deletion of the addition.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both issues. The Tribunal emphasized the importance of considering the real nature of transactions and the entirety of seized documents, aligning with principles of natural justice and accurate income determination. The appeal was dismissed in its entirety.