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TMI Blog2016 (3) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... sue. - Decided in favour of assessee Disallowance of advertisement expenses - similar expenses were disallowed and offered for taxation in earlier years - Held that:- We find that the assessee had produced the ledger and bills of the advertisement expenses before the lower authorities below and explained that entire expenditure has been incurred wholly and exclusively for the purpose of business. The AO has not pointed out any discrepancy or any reason explained even inadmissible in the nature as per section 37 of the Act. Just because the assessee has not offered for tax in the previous years, it cannot be the ground for disallowing the expenses. It should be remembered that there is no estoppel against the law. It is a trite law that if the expenses are wholly and exclusively for the purpose of business or profession and if it is not a capital expenditure or personal expenditure then the expenditure need to be allowed. From the ledger of the advertisement expenditure (Pages 163 to 168 of PB), we find that the assessee company had incurred advertisement expenditure on advertising the same in newspapers and magazines. In the light of the fact that there were no other justifiabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dger account for the relevant period and it was noticed that these receipts were not reflected in the regular books of accounts of the assessee company. The AO confronted these facts and evidences with Shri Satish Kumar Suri, MD of the assessee company and observed that even after giving the opportunity, Shri Suri was unable to submit any plausible explanation and accepted that the amount involved in these receipts amounting to ₹ 65.50 lakhs was unaccounted receipts for FY 2006-07 over and above the income as per books of accounts prepared. The AO further observed that however, while filing the return of income the assessee declared a loss of ₹ 29,78,771/- whereby the earlier amount accepted by the Managing Director during the course of survey had not been reflected. The AO provided an opportunity to the assessee to explain the reasons for this change of declaration to which the assessee filed a reply dated 03.11.2009. The AO, after considering the reply of the assessee made the following observations :- (i) The assessing officer has observed that even though the assessee has argued that the receipts found during the course of survey were actually only a record for i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the business and after considering that these receipts could not be explained, this amount of ₹ 6S.S0 lakhs had been surrendered. The assessing officer has, therefore, highlighted that the retraction with regard to this ₹ 65.50 lakhs was not justified and during the course of survey, Sh. S.K. Suri, MD of the company had made the surrender of ₹ 65.50 lakhs in a balanced frame of mind and after fully considering that the receipts found were not accounted for in the regular books of accounts maintained by the assessee and made the impugned addition. 5.1 Aggrieved, the assessee filed an appeal before the first appellate authority and the ld. CIT (A) confirmed the addition by observing as under :- 2.3 I have gone through the facts of the case, observations of the A.R. and submissions of the A.R. of the appellant. This ground is being finalized after making the following observations: A. On going through the facts of the case it is clear that survey action u/s 133A had been carried out at the business premise of the appellant. During the course of survey, certain documents in the form of receipts had been found which were confronted to the Managing Dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e counter argument of the A.R. of the appellant is not acceptable. C. The A.R. of the appellant has submitted that the MD of the company was not in his proper state of mind and was exhausted during the course of survey. However, it is also important to note that the statement of Sh. S.K. Suri was a long statement wherein different details were elaborately discussed showing the mental alertness of Sh. S.K. Suri and at the same time since he was fully aware of the financial system of the company, it is difficult to accept that he would fumble in the crucial question regarding the receipts found at the survey premises. If all other answers in the statements were found to be eligible and sound, to accept that only for this question he will not be in a position to provide a proper answer, also does not appear to be logical and acceptable. D. The contention of the A.R. that the provisions of section 69 are not applicable, is also not acceptable since valuable article would consist of such unaccounted cash receipts found during the course of survey. Another argument submitted by the A.R. of the appellant was that no cash to support these receipts was found during the course of sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year. (II) The addition so made u/s 69A is not tenable per se as the assessee has not been found to be the owner of any money, bullion, jewellery or other valuable article. The slips impounded during the survey action are neither money nor bullion. Kindly refer to the judgments in the case of (a) CIT v. Ravi Kumar [2008] 294 ITR 78 (Punjab Haryana), 8. In the present case, the assessee was found to be in possession of loose slips and not of any valuable articles or things. Neither the possession nor the ownership of any jewellery mentioned in the slips could prove. In view thereof, the provisions of section 69A of the Act had rightly not been applied by the Tribunal to the facts of the case in hand. Accordingly, question No. 1 is answered against the revenue and in favour of the assessee. (b) D.N Singh v. CIT [2010] 324 ITR 304 (PAT.): Para 13. In my opinion, any article which has value will come under the expression, valuable article mentioned in section 69A of the Act and the value of such article can be deemed to be the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts for FY 2006-07, he had submitted that those receipts have not been entered in books of accounts. vi. Further, Sh Suri had given this statement at about 3:00 am to 4:00 am on 09.08.2007 when the survey was being continued in his premises since 8.30 am on 08.08.2007. vii. It is evident from the above that Sh SK Suri was asked the same question regarding the receipts so found despite the fact that he had clearly stated that he could not provide the details of the receipts at that time. Further inquiry was done by long duration of survey which continued for more than 20 hours at a stretch. Sh Suri is an old person and probably could not undergo the anxiety and strain to which he was exposed to. viii. Therefore, it was in these circumstances when he was not able to give any explanation to the repetitively asked question, he agreed to surrender the amount of ₹ 65,05,115/- in his statement at the time of survey. ix. Kindly read statement at pg.9 of the AD's order which says 'probably been left out. .. Since I am not able to give any explanation in this regard ... . Explanation was later given which was credible. 3) Regarding the true nature of recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that they could not have been issued to any student since every student would insist on a receipt which bears his name. v. The assessee further explained that the receipts issued in the regular course of its business were of totally different colour as well as different format and the receipts issued in regular course of business were produced before the AO to show that the 208 receipts were not for receiving fees. vi. The assessee further explained that even during the course of survey no excess cash was found and therefore also no adverse inference can be drawn against the assessee. vii. The assessee also explained that for each and every student who is studying in any coaching centre of the assessee company a registration form is created at the time of admission and even during the course of survey no discrepancy or irregularity was found when such registration forms were compared with the fees accounted for by the assessee company in its books of accounts. viii. The assessee also filed copies of registration form as specimen before the AO in support of its claim that no receipt could be issued to any student without giving his or her name on the receipt. ix. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese receipts are to be treated as fees receipts since such a huge number of students taking admission in a 'nonseasonal' period is not only dubious but also next to impossible. 5) Addition made is contradictory to Board Circular: It is also submitted that the addition made and upheld by the ld. CIT (A) on the basis of statement obtained during the course of survey is contrary to the Board's Instruction F.No.286/2003 IT(Inv)-1I dated 10.03.2003 and hence, the addition needs to be set aside (Ground 4). The said circular is reproduced below for your ready reference: Confession of additional income during the course of search and seizure and survey operation. Instruction: F. No. 286/2/2003-IT (Inv. II), dated 10-3-2003. Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, such confessions during the course of search seizure and survey operations do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 133A of the Act and concluded that the explanation/ retraction by the respondentassessee was an afterthought and had no element of truth. 14. Moreover, the word may used in Section 133A(3)(iii) of the Act clarifies beyond doubt that the material collected and the statement recorded during the survey is not a conclusive piece of evidence by itself. 15. In any event, it is settled law that though an admission is extremely important piece of evidence, it cannot be said to be conclusive and it is open to the person who has made the admission to show that it is incorrect. 16. Since in the present case, the respondent-assessee has been able to explain the discrepancy in the stock found during the course of survey by production of relevant record including the excise register of its associate company, namely, M/s. D.M.W.P. Ltd., we are of the opinion that the AO could not have made the aforesaid addition solely on the basis of the statement made on behalf of the respondent-assessee during the course of survey. 7) Admission cannot be said to be conclusive and is open to rebuttal: Hon'ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. v. State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned discrepancy had been reconciled as it was only a mistake. Consequently, the respondent-assessee withdrew the offer of additional income for taxation on account of excess stock. 6. The AO relied upon the statement of one of the partners of respondent-assessee given during the course of survey under Section 133A of the Act and concluded that the explanation/ retraction by the respondent-assessee was an afterthought and had no element of truth. .. 14. Moreover, the word may used in Section 133A(3)(iii) of the Act clarifies beyond doubt that the material collected and the statement recorded during the survey is not a conclusive piece of evidence by itself. 15. In any event, it is settled law that though an admission is extremely important piece of evidence, it cannot be said to be conclusive and it is open to the person who has made the admission to show that it is incorrect. ... 16. Since in the present case, the respondent-assessee has been able to explain the discrepancy in the stock found during the course of survey by production of relevant record including the excise register of its associate company, namely, M/s. D.M.W.P. Ltd., we are of the opinion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of cash to the Head Office, without doing so, the addition made solely on the basis of admission during survey cannot be upheld as held by the Hon ble Supreme Court in CIT vs. S. Khader Khan Song (supra) and in a similar case of Hon ble jurisdictional High Court in CIT vs. Dhingra Metal Works (supra). Therefore, the orders of the lower authorities are bad in law and are set aside on this issue. These grounds are allowed. 10. Ground No.4 is against the sustenance of disallowance of advertisement expenses amounting to ₹ 8,27,275/- on the ground that similar expenses were disallowed and offered for taxation in earlier years. 11. The Assessing Officer had disallowed an amount of ₹ 8,27,275/- by observing that in the earlier years i.e. F.Y. 2005-06 an amount of ₹ 10,97,150/- was offered to tax on ground that the revenue out of these advertisement expenses would be generated in the next year. Similarly, for A.Y. 2007-08, the AO observed that the assessee had incurred an expenditure of ₹ 8,27,275/- which had been incurred in the month of March, 2007. Accordingly, the AO held that since this was a clear deviation from the regular practice followed by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on account of business, then the same is ought to be allowed u/s 37 of the Act. Legal issue: (i) It is an established fact under following judgements by Apex courts that to be an allowable expenditure under section 37(1), the money paid out or away must be: (a) paid out wholly and exclusively for the purpose of the business or profession; and further (b) must not be; (i) capital expenditure; (ii) personal expense; or (iii) an allowance of the character described in sections 30 to 36 and section 80W A) CIT v. Indian Molasses Co. (P.) Ltd. [1970] 78 ITR 474 (SC) B) J.K. Cotton Mfrs. Ltd. v. CIT [1975] 101 ITR 221 (SC) C) Sassoon J. David Co. (P.) Ltd. v. CIT [1979] 118 ITR 261 (SC) (ii) As is evident from the ledger of advertisement expenditure (PB 163- 168), the assessee company has incurred advertisement expenditure on advertising the in newspapers and magazines and the same have been incurred: - Wholly and exclusively for the purpose of business, and - The expenditure is not: - Capital in nature, - For personal expenses, - Described in sections 30 to 36 of the Act. 14. On the other hand, the ld. DR relied on the orders of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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