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2024 (4) TMI 926 - AT - Income TaxAddition of the suppressed gross receipts as were disclosed by the assessee company during the survey proceedings u/s. 133A - discrepancy noticed w.r.t. undisclosed income found duly admitted under oath during the survey as against corresponding disclosure in the return - Suppression of gross receipts - whether it is the profit element of the aforesaid unaccounted cash receipts that was liable to be credited in the profit and loss account (as offered by the assessee company); or it was the entire amount of the unaccounted receipts which that was to be credited to the profit and loss account while computing the income of the assessee company, as had been so done by the A.O? HELD THAT - Adverse inferences drawn by the A.O as regards crediting of the profit element embedded in the unaccounted banquet booking receipts of Rs. 3.39 crore (approx.) in the profit and loss account of the assessee company, had rightly been dealt with and vacated by the first appellate authority. To sum up, the view taken by the A.O that the expenses corresponding to the unaccounted receipts of Rs. 5.18 crore (approx.) already formed part of the expenses claimed by the assessee company in its books of accounts had rightly been found to be incorrect and dislodged by the first appellate authority. We concur with the CIT(Appeals) that now when the assessee company had credited the profit element embedded in the unaccounted banquet booking receipts in its profit and loss account for the immediately succeeding year, i.e., A.Y 2018-19, which thereafter had been accepted by the A.O vide his order passed u/s 143(3) for the said succeeding year, therefore, an inconsistent approach could not have been adopted for rejecting the claim raised by the assessee company on the same lines during the subject year, i.e., A.Y. 2017-18. Once the A.O while scrutinizing the case of the assessee company for the immediately succeeding year, i.e. A.Y. 2018-19 had approved the credit of the profit element embedded in the unaccounted banquet booking receipts of Rs. 99.21 lacs (supra) in the profit and loss account by the assessee company, therefore, it is incomprehensible that by adopting an inconsistent approach a similar offer of the profit element by the assessee company pertaining to its unaccounted banquet booking receipts for the year under consideration was not be accepted. It is not the claim of the department that the facts and circumstances leading to credit of the profit element of the unaccounted banquet booking receipts by the assessee company in its profit loss account for A.Y 2018-19 was distinguishable as against those for the subject year, i.e., A.Y 2017-18. Our aforesaid view that the department cannot be allowed to adopt an inconsistent approach based on the same set of facts is supported by the judgment of the Hon'ble Supreme Court in the case of Radhasoami Satsang 1991 (11) TMI 2 - SUPREME COURT We concur with the CIT(Appeals) that there was no justification for the A.O to have held the entire amount of unaccounted banquet booking receipts as the income of the assessee company, as it was only the profit element attributable to the said receipts which was rightly credited by the assessee company in its profit loss account for the subject year. Our aforesaid view is fortified by the judgments of President Industries 1999 (4) TMI 8 - GUJARAT HIGH COURT and DCIT Vs. Panna Corporation 2014 (11) TMI 797 - GUJARAT HIGH COURT . Also, a similar view had been taken in the case of CIT Vs. Balchand Ajit Kumar 2003 (4) TMI 76 - MADHYA PRADESH HIGH COURT . Accordingly, finding no infirmity in the well-reasoned order of the CIT(Appeals), we herein approve the same to the extent he had vacated the addition. Decided in favour of assessee. Disallowance of 10% of expenditure, on ad-hoc basis - HELD THAT - AO while working out the aforesaid disallowance of the assessee s claim for expenses (on an ad-hoc basis), had neither pointed out any infirmity in the assessee's claim for deduction of the aforesaid expenses; nor brought on record any such observation which would reveal that its claim for deduction of expenses was not as per the mandate of Section 37 - As observed by the CIT(Appeals), the expenditure incurred by the assessee company during the year under consideration was found to be in the same ratio as those incurred in the immediately preceding year. As observed by the CIT(Appeals), and rightly so, the comparative decline in the assessee s claim of expenditure vis- -vis its total receipts in the immediately succeeding year, i.e., A.Y. 2018-19 was for justifiable reasons. Also, the reasonableness of the assessee's claim for deduction of expenses can safely be gathered from a comparative analysis of those booked by him in the immediately last two preceding years. We concur with the CIT(Appeals) that the comparative analysis carried out by the A.O of the expenses incurred by the assessee company during the whole year vis-a-vis those incurred by him for two months, i.e. April, 2017 and May, 2017 could by no means be held to be a feasible comparison. We are also persuaded to concur with the CIT(Appeals) that certain expenses incurred by the assessee company in the aforementioned two months, viz. April, 2017 and May, 2017 (which were adopted as a yardstick) would have been booked after the aforesaid months, therefore, no proper comparison of the expenses incurred by the assessee company during the whole year could have been carried out as against those incurred during the aforesaid two months. Thus in the absence of any material having been placed on record by the A.O which would substantiate that the assessee s claim for deduction of the aforesaid expenditure, i.e. to the extent of 10% of its claim was not in order; or did not satisfy the provisions of Section 37 of the Act, we find no infirmity in the view taken by the CIT(Appeals) who had rightly vacated the said disallowance to the said extent based on his well reasoned observations. Thus, Grounds of appeal No.2 and 3 raised by the revenue are dismissed.
Issues Involved:
1. Deletion of addition of Rs. 1,79,44,938/- on account of undisclosed income. 2. Deletion of addition of Rs. 91,22,836/- on account of disallowance of inflated expenses. 3. Deletion of addition of Rs. 91,22,836/- on account of disallowance of expenses inflated to adjust for the income surrendered during the survey. Summary: 1. Deletion of Addition of Rs. 1,79,44,938/- on Account of Undisclosed Income: The revenue challenged the deletion of the addition of Rs. 1,79,44,938/- by the CIT(A) based on the discrepancy noticed regarding undisclosed income found and admitted under oath during the survey. The AO observed that the assessee company had credited only Rs. 3,39,12,963/- out of the total Rs. 5,18,57,901/- surrendered during the survey. The AO concluded that the entire unaccounted receipts should be credited to the profit and loss account, not just the profit element, resulting in the addition of Rs. 1,79,44,938/-. The CIT(A) found favor with the assessee's contention that only the profit element of the unaccounted receipts should be credited. The CIT(A) noted that the AO had not pointed out any discrepancies in the books of accounts and that similar disclosure for A.Y. 2018-19 was accepted by the AO. The CIT(A) concluded that the expenses related to the unrecorded receipts were genuine and that only the profit element should be taxed, supported by various judicial pronouncements. The Tribunal concurred with the CIT(A), stating that the AO erred in drawing adverse inferences without pointing out discrepancies in the audited books. The Tribunal noted that the assessee's claim for expenses was consistent with previous years and that the AO had accepted a similar disclosure for A.Y. 2018-19. The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 1,79,44,938/-. 2. Deletion of Addition of Rs. 91,22,836/- on Account of Disallowance of Inflated Expenses: The AO disallowed 10% of the total expenses claimed by the assessee, amounting to Rs. 91,22,836/-, on the grounds that the assessee had inflated expenses to adjust the income surrendered during the survey. The AO observed that the expenses for the two months preceding the survey were significantly lower than those for the entire year, leading to the conclusion that expenses were inflated. The CIT(A) vacated the disallowance, noting that the AO had not pointed out any discrepancies in the books of accounts or issued a Show Cause Notice before making the disallowance. The CIT(A) observed that the expenses were not abnormal and were consistent with previous years. The CIT(A) concluded that the disallowance was based on guesswork and assumptions, unsupported by evidence. The Tribunal upheld the CIT(A)'s decision, stating that the AO had not provided any basis for the 10% disallowance and had not pointed out any infirmities in the expenses. The Tribunal agreed with the CIT(A) that the expenses were reasonable and consistent with previous years. The Tribunal found no justification for the disallowance and dismissed the revenue's appeal. 3. Deletion of Addition of Rs. 91,22,836/- on Account of Disallowance of Expenses Inflated to Adjust for the Income Surrendered During the Survey: The AO disallowed 10% of the expenses on the grounds that the assessee had inflated expenses to adjust the income surrendered during the survey. The CIT(A) vacated the disallowance, noting that the AO had not pointed out any discrepancies or issued a Show Cause Notice. The CIT(A) observed that the expenses were consistent with previous years and concluded that the disallowance was based on guesswork. The Tribunal upheld the CIT(A)'s decision, stating that the AO had not provided any basis for the disallowance and had not pointed out any infirmities in the expenses. The Tribunal agreed with the CIT(A) that the expenses were reasonable and consistent with previous years. The Tribunal found no justification for the disallowance and dismissed the revenue's appeal. Conclusion: The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions to delete the additions of Rs. 1,79,44,938/- and Rs. 91,22,836/- based on the grounds that the AO had not provided sufficient evidence or justification for the disallowances. The Tribunal found that the expenses claimed by the assessee were reasonable and consistent with previous years, and that only the profit element of the unaccounted receipts should be taxed.
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