2023 (2) TMI 345 - AT - Income Tax

Addition u/s 69A - entries in the cash book corresponding to receipts surrendered during the course of survey - statement recorded u/s 131 assessee submitted that the entries reflected therein pertain to gym receipts which have been received in advance from the respective persons, however to buy piece of mind and avoid litigation, he surrendered the receipts - HELD THAT - The factum of nature of these receipts being received by the assessee from his gym activities are not in dispute. In the return of income filed u/s 44AD, the assessee has disclosed the receipts from the gym activities which has been accepted by the Revenue and are not in dispute. Assessee has submitted a cash book containing date-wise receipts from gym activities and on perusal thereof, we find that total receipts reflected therein amounts to Rs 16,00,600/- and individual receipts totaling Rs 3,00,000/- have been included therein. It is true that the assessee was not maintaining regular books of accounts but at the same time, as evident from the statement recorded during the course of survey as well, the assessee was maintaining receipts book/bills in respect of his gym activities. Where the entries corresponding to the entries in the receipts books are reflected in the cash book and are accepted by the Revenue, I see no justifiable reason to not accept the entries in the cash book corresponding to receipts surrendered during the course of survey. I therefore find that it is a case where the assessee has surrendered business receipts amounting to Rs 3,00,000/- during the course of survey and the said receipts have subsequently been offered as part of the total business receipts in the return of income so filed by the assessee u/s 44AD. In the result, the addition of Rs 3,00,000/- so made and upheld by the ld CIT(A) is hereby directed to be deleted. Unexplained advances - during the course of survey operations at the assessee s premises, a pocket book containing certain entries were found containing name of certain persons and the corresponding amount - assessee submitted that the entries reflected therein pertain to friendly loans given by him to certain persons out of his undisclosed income and to buy piece of mind and avoid litigation and he surrendered the amount for the purposes of taxation - HELD THAT - As noted that the assessee has shown these loans transactions against individual name and corresponding amount at the beginning of the year and there are no fresh loan transactions shown during the year and then, against four persons, there are repayment of loans by cheque - The statement made during the course of survey is relevant and at the same time, where the assessee is able to demonstrate that the transactions actually pertain to previous year and there are infact repayments rather than fresh loan transactions during the year, it is essential that the said submissions be considered and examined which has not happened in the instant case. The factum of repayment through cheques could easily be verified from the bank statements. Basis material available on record, find that the assessee has reasonably demonstrated that there are no fresh loan transactions during the year and considering the same, the addition so sustained by the ld CIT(A) is hereby directed to be deleted. Unexplained advances to doubtful persons - HELD THAT - It is true that the assessee was not maintaining regular books of accounts but at the same time, as evident from the statement recorded during the course of survey as well, the assessee was maintaining receipts book/bills in respect of his business activities and further, it is also a fact that the assessee has disclosed these receipts as part of service tax/GST returns. Where the entries, corresponding to business receipts in the receipts books, are reflected in the cash book and the same are accepted by the Revenue, see no justifiable reason to not accept the entries in the cash book corresponding to advances made out of said business receipts. We find that it is a case where the assessee has offered business receipts in his return of income which is sufficient to make business advances and thus, no separate addition is called for. In the result, the addition so made and upheld by the ld CIT(A) is hereby directed to be deleted. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Addition of Rs. 3,00,000/- as unexplained money under Section 69A.
2. Addition of Rs. 4,50,000/- on account of unexplained advances.
3. Addition of Rs. 8,05,000/- on account of alleged advances made.

Issue-wise Detailed Analysis:

1. Addition of Rs. 3,00,000/- as Unexplained Money under Section 69A:

The first issue pertains to the addition of Rs. 3,00,000/- by the Assessing Officer (AO) during the assessment proceedings. The AO observed that the assessee voluntarily surrendered the receipt of Rs. 3,00,000/- vide a letter dated 23/10/2017 but did not declare any income under Section 69A/115BBE in the return of income. The assessee contended that these were normal business receipts from gymnasium business and were part of the total receipt of Rs. 16,00,600/- declared under Section 44AD. The AO did not accept the explanation, stating that the assessee admitted the entries as unexplained money during the survey and did not declare it in the return of income. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the addition, stating that the books of accounts produced later were an afterthought and not reliable.

However, the Tribunal found that the receipts of Rs. 3,00,000/- were part of the total business receipts of Rs. 16,00,600/- declared under Section 44AD and accepted by the Revenue. The Tribunal directed the deletion of the addition, noting that the entries in the cash book were consistent with the business receipts and there was no justifiable reason to not accept them.

2. Addition of Rs. 4,50,000/- on Account of Unexplained Advances:

The second issue relates to the addition of Rs. 4,50,000/- on account of unexplained advances. The AO made the addition based on the assessee's statement during the survey, where the assessee admitted to giving loans and advances out of undisclosed income. The CIT(A) confirmed the addition, stating that the books of accounts produced later were an afterthought and not reliable. The assessee argued that the advances were given in the previous financial year and were out of sufficient cash in hand, which could be verified from the bank statements.

The Tribunal found that the assessee had reasonably demonstrated that the transactions pertained to the previous year and there were repayments rather than fresh loan transactions during the year. The Tribunal directed the deletion of the addition, noting that the submissions regarding the previous financial year transactions were not considered and verified by the lower authorities.

3. Addition of Rs. 8,05,000/- on Account of Alleged Advances Made:

The third issue involves the addition of Rs. 8,05,000/- on account of alleged advances made. The AO made the addition based on the assessee's statement during the survey, where the assessee admitted to giving advances to artists out of undisclosed income. The CIT(A) confirmed the addition, stating that the books of accounts produced later were an afterthought and not reliable. The assessee argued that the advances were normal business advances given during the course of business and were out of sufficient cash in hand, which was part of the business receipts declared under Section 44AD.

The Tribunal found that the advances were in the nature of business advances and there was sufficient cash in hand available from the business receipts. The Tribunal noted that the assessee was maintaining receipts books/bills and had disclosed the receipts in the service tax/GST returns. The Tribunal directed the deletion of the addition, stating that the business receipts were sufficient to make the advances and no separate addition was called for.

Conclusion:

In conclusion, the Tribunal allowed the appeals filed by the respective assessees, directing the deletion of the additions made by the AO and confirmed by the CIT(A). The Tribunal found that the business receipts declared under Section 44AD were sufficient to cover the amounts in question and that the books of accounts produced, though prepared later, were consistent with the business receipts and should be accepted. The Tribunal emphasized that the additions were not justified and resulted in double taxation of the same amounts.