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2024 (8) TMI 1113 - AT - Income TaxTaxation of additional income u/s 115BBE - surrender of additional income at the time of search - valuation of the stock of jewellery found at the time of search - Government empanelled valuer arrived at valuation with the difference in the valuation of stock of jewellery on the date of search - HELD THAT - Assessee had the full and complete break up of bills of the same based on the actual purchase price paid by it for such items to the supplier at the time of purchase of each items of jewellery which indeed had a definite tag and which clearly mentioned separately the weight of precious metal and weight of stones with value for purchasing. This value was completely ignored by the Govt valuer at the time of search thereby resulting in alleged discrepancy. The discrepancy has been accepted by the assessee in the statement u/s 132(4) of the Act as well as in the revised return filed on 20.09.2018 by offering the discrepancy amount to tax as business income which is evident from the revised computation of income enclosed. The disclosure of additional income was made by the assessee at the time of search on 18.11.2016 while giving statement u/s 132(4) of the Act at 10 PM whereas the higher tax rate of 60% got introduced u/s 115BBE of the Act only pursuant to Taxation Laws (2nd Amendment) Act 2016 which got notified in the official gazette only on 15.12.2016 being the date of receipt of accent of the Hon ble President of India which got further culminated as the Taxation Laws (2nd Amendment) Act 2016. Hence obviously the provisions of section 115BBE of the Act applying higher tax rate @ 60% cannot be applied at all in respect of search conducted prior to 15.12.2016 and incomes earned prior to 15.12.2016. Hence the assessee is entitled for relief on this count also. We have no hesitation to hold that the additional income is to be brought to tax only as business income liable to tax at normal rate and not @60% provided u/s 115BBE. Decided in favour of assessee. Addition u/s 68 - cash deposits made during the demonetization period - HELD THAT - No discrepancies whatsoever were found during the course of search conducted in the business premises of the assessee which was just 9 days after the date of announcing of demonetization by the Govt of India. The books of account of the assessee had not been rejected and to the extent of cash sales made corresponding reduction in stock register had been duly made by the assessee. As stated earlier the assessee s trade practice warranted monetary receipt of cash on its sales. The assessee had also duly explained the reasons behind issuing estimate chits to the customers for receiving advance in cash for the jewellery sales to be made in future. The sales made during the quarter ended December 2016 is very much comparable with that of December 2015 and December 2017 and no abnormality is being noticed thereon as is evident from the table reproduced in earlier part of this order qua this ground. The turnover of the assessee during the year had indeed increased to Rs. 283.69 crores when compared to Rs. 216.88 crores in the immediately preceding year. The assessee had given adequate justification for huge increase in sales during the fag end of October 2016 till the first fortnight of November 2016 quoting the reasons of festivals season which fact cannot be disputed at all. There is absolutely no basis for the ld AO to arrive at the daily average sales of a particular day and arriving at the availability of cash sales as on 08.11.201 - very same transactions of Rs. 11.99 crores being the addition made by the ld AO is already part of actual sales already disclosed by the assessee in its return of income and in the books of account. We hold that adding this sum of Rs. 11.99 crores will only result in double addition. The entire sales made by the assessee had been duly reflected in the VAT/ GST returns and no infirmity in any manner whatsoever was found by the concerned authorities. Decided against revenue. Disallowance of advertisement and exhibition expenses on ad hoc basis - AO in the assessment proceedings made an ad hoc disallowance of 10% of total exhibition expenses and advertisement expenses on the ground that the assessee could not produce vouchers for some of the transactions and hence the same remained unverified - CIT(A) deleted addition - HELD THAT - We find that the books of account of the assessee book results of the assessee were not rejected by the ld AO by invoking the provisions of section 145(3) of the Act. Hence there is no question of making any ad hoc disallowance @10% of total advertisement and exhibition expenses. The same is absolutely without any basis. As stated by the ld CIT(A) even the 3 vouchers which the AO stated in the assessment order were produced by the assessee before the CIT(A) from where it was found that payments were made to the respective parties by account payee cheques after due deduction of tax at source. Hence we do not find any reason to interfere in the order of the ld CIT(A) granting relief to the assessee in this regard.
Issues Involved:
1. Taxation of additional income under Section 115BBE of the Income-tax Act, 1961. 2. Deletion of addition made under Section 68 of the Act. 3. Deletion of disallowance of advertisement and exhibition expenses on an ad hoc basis. Issue-wise Detailed Analysis: 1. Taxation of Additional Income under Section 115BBE: The primary issue in the assessee's appeal was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in confirming the taxation of additional income of Rs. 3,67,13,530/- under Section 115BBE of the Income-tax Act. The assessee, engaged in the trading of jewelry, was subjected to a search and seizure operation, leading to the discovery of discrepancies in the valuation of stock. The valuation method used by the government-appointed valuer was found to be flawed, leading to an erroneous valuation. The assessee had initially filed a return of income excluding the surrendered income but later revised the return to include the additional income as business income. The Assessing Officer (AO) ignored the revised return and taxed the additional income at a higher rate under Section 115BBE. The CIT(A) upheld the revised return's validity but still treated the additional income as undisclosed, subjecting it to Section 115BBE. The Tribunal held that since the additional income arose from business activities and was not of the nature referred to in Sections 68 to 69D, it should be taxed at the normal rate and not under Section 115BBE. The Tribunal also noted that the higher tax rate under Section 115BBE was introduced after the search, making it inapplicable to the case. Thus, the appeal of the assessee was allowed. 2. Deletion of Addition Made Under Section 68: In the revenue's appeal, the issue was the deletion of an addition of Rs. 11,99,00,000/- made by the AO under Section 68. The AO questioned the source of cash deposits made during the demonetization period, suspecting them to be unaccounted income. The assessee explained that the deposits were from cash sales and advances received, providing detailed records and VAT/GST returns to support the claim. The CIT(A) accepted the explanation, noting that the sales were consistent with previous years and supported by proper documentation. The Tribunal agreed with the CIT(A), emphasizing that no discrepancies were found during the search, the books of account were not rejected, and the sales were duly reflected in VAT/GST returns. The Tribunal also noted that the AO's method of averaging daily sales to determine cash availability was flawed. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the addition, dismissing the revenue's appeal. 3. Deletion of Disallowance of Advertisement and Exhibition Expenses: The revenue also challenged the deletion of an ad hoc disallowance of Rs. 18,23,000/- on account of advertisement and exhibition expenses. The AO had disallowed 10% of these expenses, citing unverifiable transactions. The assessee provided ledgers, bills, and vouchers, showing payments made by account payee cheques with TDS deductions. The CIT(A) accepted the evidence, concluding that the expenses were incurred wholly and exclusively for business purposes. The Tribunal found no basis for the ad hoc disallowance, noting that the AO had not rejected the assessee's books of account. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal on this ground. Conclusion: The Tribunal allowed the assessee's appeal, holding that the additional income should be taxed at the normal rate and not under Section 115BBE. The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s deletion of the addition under Section 68 and the disallowance of advertisement and exhibition expenses. The order was pronounced in the open court on 13/08/2024.
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