2021 (6) TMI 696 - AT - Income Tax

Addition u/s 68 - 'unexplained cash credits - taxability of said cash receipts - HELD THAT - It is not possible to presume that the unaccounted sales are made from the accounted purchases - the unaccounted sales, in the present case, are from unaccounted purchases only. In such a case, the fair way is to estimate and determine the possible income from such unaccounted sales, is by adopting the gross profit ratio. The ld. CIT(A) has adopted gross profit as the basis for arriving at profit from business. The gross profit ratios of the assessee in accounted business of the rice mill for the Asst. year 2011-12 is about 27% and for Asst. year 2012-13 is about 22%. Therefore, if above gross profit rate is applied, the profit from unaccounted sales of ₹ 5.80 crores and ₹ 1.50 crores, for the A.Ys.2011-12 and 20 12- 12 will be ₹ 1,58,45,600/- and ₹ 33,40,500/-, respectively. Hence, he has directed the Assessing Officer to treat cash receipts of ₹ 5.80 crores and ₹ 1.50 crores, shown in the diary / note book, in F.Ys.2010-l1 and 2011-12, as unaccounted sales and adopt profit from such unaccounted sales, at ₹ 1,58,45,600/- and ₹ 33,40,500/-, respectively, in the A.Ys.2011-12 and 2012- 13. Thus, additions to the extent of ₹ 1,58,45,600/- and ₹ 33,40,500/-, respectively, in the assessments of A.Ys.2011-12 and 20 12-13 are confirmed, in place of unexplained cash credits. The remaining amounts of cash credits assessed in A.Ys.2011-12 and 2012-13 and the total amounts of cash credits assessed in A.Ys.2013-14 to 2015-16 are deleted. The facts remain unchanged. Revenue has failed bring on record any evidence to prove that findings of fact recorded by the ld. CIT(A) is incorrect. Hence, we are inclined to uphold findings of the ld. CIT(A) and reject grounds taken by the Revenue. Unexplained investment u/s 69 - Addition were made based on the retrieved data from CPU found from the assessee premises - HELD THAT - All unaccounted investments etc., made by the group, in various financial years, are within the limits of funds received from M/s. True Value Homes P Ltd in the respective years. In other words, there are no unexplained investments in the hands of the assessee in any of the assessment years under consideration. Instead, there is excess funds (sources) over the investments etc., as on 31.03.2015, in the hands of the assessee or its managing director or the group. The Ld. CIT(A) after considering relevant explanation and cash flow statement, had recorded categorical finding that in the absence of any contrary evidences, the above investments of payments for purchase of agricultural lands and other lands, during the financial years 2011-12 to 2014-15 (A.Ys.2012-13 to 2015-16), are deemed to have been made out of cash receipts received from M/s. True Value Homes P Ltd. Consequently, source for above payments for agricultural lands have been explained out of known source and hence, addition made towards payments for purchase of agricultural lands and other lands, as unexplained investments u/s.69 of the Act, in the assessments of A.Ys.2012-13 to 2015-16, cannot be sustained under law. The facts remain unchanged. The Revenue has failed bring on record any evidence to prove that findings of fact recorded by the ld. CIT(A) is incorrect. Hence, we are inclined to uphold findings of the ld. CIT(A) and reject grounds taken by the Revenue. Unexplained investment u/s.69 towards difference in the bank ledger - HELD THAT - Having considered relevant fact, we find that the. Ld. CIT(A) has recorded categorical findings that entire investment is fully accounted for in its books and the entire amount was paid through banking channels, including sum of ₹ 5,00,000/- considered as unexplained investment by the AO. We further note that the impugned payment of ₹ 5,00,000/- has been paid on 20-09-2014 by cheque number 00104871 of Indian Bank, Trichy Branch. Therefore, we are of the considered view that the Assessing Officer is not justified in adding sum of ₹ 5,00,000 as unexplained investment u/s.69 of the Act. The ld. CIT(A) after considering relevant fact has rightly deleted addition and hence, we are inclined to uphold findings of the ld. CIT(A) and reject grounds taken by the Revenue. Addition made u/s 69C towards unexplained expenditure on account of DMK 10th State level conference held in Trichy in the financial 2013-14 - HELD THAT - We are of the considered view that conference expenses of ₹ 3,00,30,312/- belonged to the DMK party, and the expenses are met by DMK District Secretary Shri KN Nehru. Hence, these expenses cannot be considered as expenses of the assessee, leave alone whether it is explained or unexplained. In addition, there are evidences in the very same retrieved data from CPU, to show that the amount has been received from Shri KN Nehru. Hence, the Assessing Officer is not justified in treating said expenses as unexplained expenses u/s.69C of the Act, in the hands of the assessee company. The CIT(A) after considering relevant facts has rightly deleted addition made by the Assessing Officer towards DMK party expenses u/s 69C of the Act. Hence, we are inclined to uphold findings of the ld. CIT(A) and reject grounds taken by the revenue. Addition u/s 69C as unexplained expenditure towards alleged amount spent for house construction - HELD THAT - AO was some irrelevant entries which are nowhere connected to the assessee and his office and hence, those entries can only be treated as dumb documents and from those documents, no additions can be made u/s.69C of the Act. We, further noted that the ld. CIT(A) has also recorded a categorical findings that the assessee is having sufficient source to explain cash payments. In case, retrieved entries are considered to be true, then availability of source out of amount received from M/s True Value Homes Pvt. Ltd cannot be ignored. Therefore, we are of the considered view that there is enough source to explain said payment and hence, said payment cannot be considered as unexplained expenditure which can be brought to tax u/s 69C of the Act. Facts remain unchanged. The Revenue has failed to bring on record any evidences to prove the findings of fact recorded by the ld. CIT(A) is incorrect or we can take a different view other than the view taken by the ld. CIT(A).Hence, we do not find any reason to interfere with findings of ld. CIT(A). Hence, we reject grounds taken by the Revenue. Addition u/s 69 as based on three deleted entries from computer CPU - HELD THAT - impugned entries were retrieved from the tally software books of accounts of M/s GSNR Rice industries Pvt. Ltd and those books are nothing to do with assessee and M/s Narayana Reddiyar Modern Rice Mill. Further, the assessee has denied those entries and any cash payments. Under these facts, it is difficult to accept findings of the AO that said deleted entries of cash payments did actually took place and represents unexplained investments which can be brought to tax u/s 69 of the Act. We further noted that the person who maintained accounts in tally software had explained the reason for entering and later deleting those entries from tally software. Therefore, when the person who entered the entries in computer software had clarified that said entries are not belongs to business affairs of the assessee and further, he had also categorically explained nature and source of such entries and the reason for deletion of entries in the computer software, then those deleted entries cannot be considered as unexplained investments to bring those entries within the ambit of section 69. There is enough source to explain said payment and hence, said payment cannot be considered as unexplained investments which can be brought to tax u/s 69 of the Act. We further noted that the ld. CIT(A) after considering cash flow statement filed by the assessee, very categorically held that the assessee is having source out of amount received from M/s True Value Homes Pvt. Ltd and which is used for making various payments, including payments made for purchase of Agricultural lands. Facts remain unchanged. The Revenue has failed to bring on record any evidences to prove the findings of fact recorded by the ld. CIT (A) is incorrect or we can take a different view other than view taken by the ld. CIT (A). Hence, we do not find any reason to interfere with findings of ld. CIT (A). Accordingly, the ground taken by the revenue is rejected. Estimated notional interest u/s 56 - AO has made addition based on excel sheet as per which the assessee is engaged in money lending business and has advanced loans to various persons - HELD THAT - CIT(A) has recorded categorical findings that all most all advances claimed to have been given to various persons are accounted in regular books of accounts of M/s Ramjay Trading Company, a proprietorship concern of the assessee. The ld. CIT(A) has further noted that none of these loans are advanced in the financial year 2015-16, relevant to Asst year 2016-17. He further noted there is no details as to how interest of ₹ 1,181,58,712/- was calculated for a loan amount of ₹ 1,88,49,400/-. He further noted that out of total loan amount shown in excel sheet, a sum of ₹ 1,28,79,400/- was accounted in regular books and further entire amount was repaid in earlier financial year. Further, if accounted loans are excluded from total advances as per excel sheet, the balance unaccounted advances is comes to ₹ 59,70,000/. On this balance unaccounted loans, interest @24% is calculated, then it works out to ₹ 14,32,800/-. Therefore, the ld. CIT(A), out of total interest addition of ₹ 1,18,58,712/-, sustained addition of ₹ 14,32,800/- and deleted balance amount of ₹ 1,04,25, 912/-. Facts remain unchanged. The Revenue has failed to bring on record any evidences to prove the findings of fact recorded by the ld. CIT(A) is incorrect or we can take a different view other than the view taken by the ld. CIT(A). Hence, we do not find any reason to interfere with findings of ld. CIT(A).

Summary

Issues Involved:
1. Applicability of Section 68 for unexplained cash credits.
2. Applicability of Section 69 for unexplained investments.
3. Applicability of Section 69C for unexplained expenditure.
4. Validity of using diary, notebook, and retrieved data from CPU as books of accounts.
5. Corroboration of entries in the diary, notebook, and retrieved data with regular books of accounts.
6. Treatment of entries as business receipts or unaccounted sales.
7. Source of funds from M/s. True Value Homes Pvt. Ltd.
8. Double addition and source explanation for unexplained expenditure.

Detailed Analysis:

1. Applicability of Section 68 for Unexplained Cash Credits:
The Revenue raised common grounds of appeal for all assessment years, focusing on the deletion of additions made under Section 68. The key argument was whether the diary, notebook, and retrieved data from the CPU could be considered "books of accounts" under Section 68. The Tribunal held that these documents do not qualify as regular books of accounts. The Tribunal emphasized that Section 68 applies only to credits found in the regular books of accounts maintained by the assessee. The Tribunal also noted that the diary and notebook were not in the handwriting of the directors or accountants and lacked corroborative evidence linking the entries to the assessee’s business. Therefore, the Tribunal upheld the CIT(A)’s decision to delete the additions made under Section 68.

2. Applicability of Section 69 for Unexplained Investments:
The Tribunal examined the additions made under Section 69 based on entries in the diary, notebook, and retrieved data from the CPU. It was noted that these documents were not part of the regular books of accounts. The Tribunal accepted the assessee's explanation that the funds for the alleged investments came from M/s. True Value Homes Pvt. Ltd. The Tribunal found that the assessee had provided sufficient evidence to explain the source of these funds. Consequently, the Tribunal upheld the CIT(A)’s decision to delete the additions made under Section 69.

3. Applicability of Section 69C for Unexplained Expenditure:
The Tribunal addressed the addition of unexplained expenditure under Section 69C related to the DMK 10th State level conference. The Tribunal accepted the assessee's explanation that the expenditure was incurred by the DMK party and not by the assessee. The Tribunal noted that the documents found were related to the DMK conference and that the expenses were confirmed by the DMK party's District Secretary. Therefore, the Tribunal upheld the CIT(A)’s decision to delete the addition made under Section 69C.

4. Validity of Using Diary, Notebook, and Retrieved Data from CPU as Books of Accounts:
The Tribunal clarified that the term "books of accounts" refers to regular books maintained by the assessee for recording business transactions. The Tribunal held that the diary, notebook, and retrieved data from the CPU do not qualify as such books. The Tribunal emphasized that these documents were not used for preparing financial statements or filing tax returns. Therefore, they cannot be considered as books of accounts under Section 68 or 69.

5. Corroboration of Entries in the Diary, Notebook, and Retrieved Data with Regular Books of Accounts:
The Tribunal found that the entries in the diary, notebook, and retrieved data were not corroborated with the regular books of accounts. The Tribunal noted that the assessee had disowned these documents and that there was no evidence to link the entries to the assessee’s business transactions. The Tribunal also noted that the person who maintained the diary and notebook had confirmed that he could not recollect the details of the entries.

6. Treatment of Entries as Business Receipts or Unaccounted Sales:
The Tribunal considered the possibility that the entries could represent business receipts or unaccounted sales. The Tribunal noted that the assessee is running a rice mill and that the cash receipts could be from unaccounted sales. However, the Tribunal held that the entire sale proceeds cannot constitute net profit and applied the gross profit ratio to estimate the profit from unaccounted sales. The Tribunal upheld the CIT(A)’s decision to treat the cash receipts as unaccounted sales and estimate the profit accordingly.

7. Source of Funds from M/s. True Value Homes Pvt. Ltd.:
The Tribunal accepted the assessee’s explanation that the funds for the alleged unexplained cash credits and investments came from M/s. True Value Homes Pvt. Ltd. The Tribunal noted that the assessee had provided sufficient evidence, including ledger extracts and audited financial statements, to support this claim. The Tribunal found that the amounts received from M/s. True Value Homes Pvt. Ltd. matched the entries in the diary and notebook.

8. Double Addition and Source Explanation for Unexplained Expenditure:
The Tribunal addressed the issue of double addition and source explanation for unexplained expenditure. The Tribunal found that the same entries were considered for addition under multiple sections, leading to double addition. The Tribunal also noted that the assessee had explained the source of funds for the alleged unexplained expenditure, which came from M/s. True Value Homes Pvt. Ltd. Therefore, the Tribunal upheld the CIT(A)’s decision to delete the additions.

Conclusion:
The Tribunal dismissed the appeals filed by the Revenue for the assessment years 2011-12 to 2015-16, upholding the CIT(A)’s decisions to delete the additions made under Sections 68, 69, and 69C. The Tribunal emphasized that the diary, notebook, and retrieved data from the CPU do not qualify as regular books of accounts and that the assessee had provided sufficient evidence to explain the source of funds for the alleged unexplained cash credits, investments, and expenditure.