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TMI Blog2021 (6) TMI 197X X X X Extracts X X X X X X X X Extracts X X X X ..... als)-3, Visakhapatnam bearing No.725/2019-20/10482/CIT(A)-3/VSP/2020-21 dated 09.10.2020 and No.727/2019-20/10484/CIT(A)-3/VSP/2020-21 dated 05.11.2020. Since the facts are identical, these appeals are clubbed, heard together and disposed of in a common order for the sake of convenience. The facts of the case are extracted from ITA No.04/Viz/2021 for the A.Y.2015-16. 2. For the A.Y.2015-16, the assessee filed the return of income on 28.09.2015 admitting total income of Rs. 7,82,240/- which was processed/s 143(1) of the Income Tax Act, 1961 (in short 'Act') on 10.10.2015. A search u/s 132 was conducted in this case on 11.04.2017 in the premises of M/s Phozo Digital Press Pvt.Ltd.,( in short 'company) Visakhapatnam and the residences of it's promoters viz., Sri Badam Venkateswarlu and his two sons Sri Badam Bhogalinga Swamy and Sri Badam Venkata Demullu residing in the same building. Subsequently, the case was taken up for scrutiny and the Assessing officer (AO) has issued the notice u/s 153A of the act on 22.02.2018 calling for the return of income and in response to which the assessee has filed the return of income on 19.08.2019. Subsequently, the AO issued the notices u/s 143(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how cause notice issued by the AO, the assessee filed explanation stating that the entries made in the scribbling pad were the gross amounts received from various agents located in different places after deduction of the designing charges/commission approximately 37% payable to the designer / agent. The said amount was received by Shri B.V.Demullu, the Director of the company. The assessee further submitted that the amounts received by the Directors from photographers / agents were duly taken into books of accounts of the company as gross turnover. The assessee vehemently opposed for the proposed addition by the AO, stating that there was no undisclosed amount and no other evidence was found during the course of search indicating unaccounted receipt or unaccounted asset or unaccounted expenditure. The assessee further stated that no bills or vouchers were found with regard to suppression of turnover. The turnover accounted in the books of accounts for the period under consideration was more than the turnover found in the handwritten notings of the scribbling pad. The assessee also furnished the month wise turnover declared in the return of income to demonstrate that the receipts in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.Y.2016-17 on the basis of notings in the scribbling pad which contain the details for 11 months i.e. from April 2015 to February 2016 and the AO extrapolated the same for 12 months on average basis. For the A.Y.2016-17, the AO has noted some instances of payments made to various persons, i.e., Rs. 3,00,000/- to T.Mahesh in May 2015, Rs. 2,00,000/- to B.Ravi in July 2015, Rs. 3,35,000/- to Ramana, Rs. 1,10,000/- to Naidu and Rs. 1,50,000/- to Subbu in September 2015, Rs. 5,00,000/- to Vasu etc. The AO was of the opinion that the above mentioned amounts were related to the money lending business but not related to the business of the assessee company. Hence, the AO held that assessee had received the above unaccounted income which was shared between all the three directors i.e. Shri B.Venkateswarlu, Shri B.Bhogalinga Swamy and Shri B.V.Demullu and used for personal purposes. Since, the payments and expenditure mentioned in the scribbling pad was not related to the business of the assessee, the AO treated the entire sum mentioned in the scribbling pad as income of the assessee and accordingly estimated the unaccounted income (profit) of Rs. 2,11,00,000/- and deducted the income a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee company and he categorically stated that the amounts represent the gross receipts of the company which was already admitted in the regular books of accounts. The Ld.CIT(A) viewed that the department failed to disprove the claim of the assessee that the amounts mentioned in the diary represent the gross cash receipts and the same were duly accounted in the books of accounts. Therefore, the Ld.CIT(A) held that the AO is not justified in treating the amounts mentioned in scribbling pad as income of the assessee without having any corroborative evidence to suggest that the assessee has not accounted amounts in the books of accounts. Hence, the Ld.CIT(A) held that the notings made in the scribbling pad does not represent the unaccounted income of the assessee and accordingly, deleted the addition and allowed the appeals of the assessee. 4. Against the orders of the Ld.CIT(A), the department has filed appeal before this Tribunal. During the appeal hearing the Ld.DR submitted that incriminating material was found during the course of search marked as annexure A/BVS/02 in the form of scribbling pad in the residence of B.Venkateswarlu, who is one of the promoter Directors of the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of the Ld.CIT(A) and argued that during the course of assessment proceedings, Shri B.V.Demullu has explained the scribbling pad details as the amounts received from the customers after reducing the 37% commission / designing charges related to the photographer or agent's commission. The Ld.AR submitted that the assessee engages the photographers, agents who receive the gross amounts and reduce their designing charges and the balance is remitted to the company. Shri B.V.Demullu was handling the cash, hence he maintained the diary for record purpose. The designing charges were the amounts paid to the photographer approximately ranging from 34% to 37%. For example, if the photographers receives Rs. 100, after reducing Rs. 37, the balance amount of Rs. 63/- was remitted to the assessee company which was recorded as 63% of 100. Thus submitted that the assessee has rightly explained the nature of receipt and the amount of receipt during the course of recording the statement u/s 131 of the Act and subsequently in his reply. Therefore, the Ld.AR argued that it is incorrect for the AO to assume that the entire gross amount is profit of the company. The amounts mentioned in the scr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e agents from different places. The noting was made for 5 months for the financial year 2014-15 and for 11 months for the financial year 2015-16. The AO extrapolated the 5 months information to the whole year i.e. 12 months taking average receipts of 5 months for the F.Y.2014-15 and 11 months information that was available for F.Y.2015-16 was extrapolated to 12 months on average basis and determined the undisclosed income. Further, the AO also enhanced the receipts noted in the diary by including the agents commission, designing charges, which was stated to be deducted by the agents at source, thus, made the addition of such increased amount. The AO also viewed that the entire receipts duly enhanced and extrapolated required to be brought to tax, without allowing any expenditure. However, while taxing the entire receipts as undisclosed income, the AO has not invoked any section of Income Tax Act i.e. section 68, 69 or 69C. During the course of assessment proceedings, one of the directors Shri B.V.Demulu has explained the contents of the diary stating that it was the gross receipts after deducting the agents commission which was ranging from 33% to 37% and the same was noted as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the diary was examined by the coordinate bench of ITAT Amritsar in 124 taxmann.com 68 (Amrit- Trib) in the case of Smt.Harmohinder Kaur Vs. DCIT, Central Circle-II, Jalandhar and considered the decision of Hon'ble Supreme Court in the case of CBI Vs. V.C.Shukla 199 taxman.com 2155 and the decision of Common cause (registered society) Vs. Union of India 77 taxman.com 245 and the decision of Hon'ble Delhi High Court in the case of CIT Vs. Praveen Jones in ITA No.57/2017 dt.14.07.2017 and held that without corroborative evidence to prove the authenticity of diary seized during the course of search, the AO cannot make the addition in assessee's income on the basis of notings in the diary of third party by making presumptions as per section 292C. For the sake of clarity and convenience, we extract para No.12 and 13 of the order which reads as under : "12. The Apex Court in the cases of V.C. Shukla (supra) and Common Cause (A registered Society) (supra) analyzed the position of law with regard to the loose sheets/diary in which some noting has been made by the person other than the persons searched and clearly held that the said document do not have any value in the eyes of law. Fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not mean that the Assessing Officer can arrive at any figure without any basis by adopting an arbitrary method of calculation. In the present matter, A3, A4 and A6 nowhere records the turnover of the assessee as found by the Tribunal and yet on the wrong basis of the incoming and outgoing cash transactions, the Assessing Officer has arrived at the turnover. Moreover, the peak investment was Rs. 40,14,806 for three months. However, there is no material seized to justify any figure to be included for a period earlier to the said period of three months. In the circumstances, the Tribunal has recorded a finding of fact and has held that the addition of Rs. 3.40 crores was totally unjustified. The entire finding of the Tribunal is based on the facts. No substantial question of law arises. Hence, the appeal is dismissed." 6.2. Similarly, the coordinate bench of ITAT, Pune in S.P. Goyal v.Deputy Commissioner of Income-tax[2002] 82 ITD 85 (Mumbai) (TM)/[2002] 77 TTJ 1 (Mumbai) (T) on reference, third member agreed with the view of the Accountant Member and held that loose sheet itself has no intrinsic value unless it is supported by the corroborative evidence. For the sake of clarity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der: "9. In view of the above, it is held that the entire statement of the assessee has to be accepted. If that is so, no addition can be sustained on the basis of the materials mentioned above. The loose papers were maintained and kept by the assessee for his private knowledge and information and not meant for disclosing to the Department. If the statement of the assessee is to be rejected in toto, then no addition can be made on the basis of loose papers since those would be dump papers as discussed in the earlier part of our order. If the statement of the assessee is accepted in toto, then contents of the statement are to be accepted and the borrowings mentioned in these loose papers have to be accepted as genuine. In either case, no addition is called for. No doubt, the presumption to the correctness of the documents can be rebutted by the Department, but the Revenue has not been able to bring any material on the record for rebuttal. Therefore, we are of considered view that no addition can be sustained on the basis of these materials." 6.4. In the instant case, the AO has completely brushed aside the explanation of the assessee on the contents of the diary. The AO has not t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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