9911796707
TMI Blog2024 (9) TMI 1707X X X X Extracts X X X X X X X X Extracts X X X X ..... no material evidence to suggest that the entire unaccounted receipts represent the income of the assessee. DR's submissions, while highlighting procedural violations, do not justify taxing the gross receipts without considering the expenses involved in generating such receipts. Once profit is estimated, no further additions can be made for procedural violations like cash payment limits or TDS non-compliance. This is consistent with judicial principles that when profit is computed based on estimation, it covers all aspects of the business, including potential violations. We also find that the 12% Net Profit Rate (NPR) applied by the CIT(A) is reasonable, given the nature of the case. The assessee was found to have engaged in unaccounted cash transactions, and in such cases, where the full details of receipts and expenses are not available, higher profit rates are often justified. The application of a higher NPR ensures that any profit derived from undisclosed income is appropriately taxed, and it compensates for the lack of documentation. We find that no concrete evidence has been provided by the assessee to substantiate a lower profit rate. Assessee has not demonstrated, with c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at would warrant the disallowance under section 36(1)(va) of the Act for these assessment years 2013-14 to 2017-18. As the assessment year 2019-20 was an abated assessment year due to the search proceedings, the AO made additions for late deposit of employees' contributions, citing a delay for contributions related to June 2018, which were deposited on 16th July 2018. The CIT(A) rightly deleted the addition, noting that 15th July 2018 was a Sunday, and hence the payment on the next working day (16th July 2018) was within the permissible time limit. This finding aligns with the judicial principles governing General Clauses Act, where payments made on the next working day following a holiday are treated as timely payment. Accordingly, the corresponding grounds of appeals filed by the assessee are allowed and grounds of revenue deserve to be dismissed. Treatment of unexplained cash discovered during the search and seizure operation carried out at the assessee's premises - AO made an addition based on the cash seized during the search, treating it as unaccounted income u/s 69A - assessee's contention that the cash represents business receipts from daily operations aligns with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee's books of accounts under Section 145, stating that they were incomplete and unreliable due to the non-disclosure of significant unaccounted receipts and expenditures. The AO proposed to treat the entire amount of unaccounted receipts as income and made additions, accordingly, also disallowing the unaccounted expenditures under Section 69C of the Act. 3.1. `The assessee contended that only the net profit from unaccounted receipts should be taxed, and the related unaccounted expenditures should be allowed as deductions, as they were incurred for legitimate business activities. The assessee also disputed the AO's disallowance of employee contributions to PF & ESIC under Section 36(1)(va) of the Act. 3.2. The CIT(A) partially upheld the AO's order, applying a 12% net profit rate on the unaccounted receipts and granting relief to the assessee by allowing the set-off of unaccounted expenditures against unaccounted receipts. The CIT(A) also upheld the disallowance of employee contributions to PF & ESIC based on the Hon'ble Supreme Court's decision in Checkmate Services Pvt. Ltd. 4. Aggrieved by the order of CIT(A) both the assessee and the revenue are in appeals before us, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s. 234A/B/C of the Act. 11. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in initiating penalty under various sections of the Act. 12. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. In IT(SS)A No.65/Ahd/2022 for AY 2014-15 - In the case of Sankalp Recreation Pvt.Ltd. vs. ACIT 1. The learned CIT(A) has erred in law and on facts of the case in confirming the assessment order u/s 153A r.w.s. 143(3) of the Act which is passed in violations of provisions of the Act and against the scheme of assessment related to search cases. 2. The learned CIT(A) has erred in law and on facts of the case in confirming the additions made by learned Assessing Officer without any incriminating material found during the search. 3. The learned CIT(A) has erred in law and on facts of the case in rejecting the books of accounts of the appellant u/s 145 of the Act. 4. The learned CIT(A) has erred in law and on facts of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d CIT(A) has erred in law and on facts of the case in confirming the additions made by learned Assessing Officer without any incriminating material found during the search. 3. The learned CIT(A) has erred in law and on facts of the case in rejecting the books of accounts of the appellant u/s 145 of the Act. 4. The learned CIT(A) has erred in law and on facts of the case in confirming an addition of Rs. 4,70,502/- by estimating net profit at the rate of 12%. In the facts and circumstances of the case, such estimation is highly excessive and does not reflect the real income earned by the appellant. 5. The learned CIT(A) has erred in law and on facts of the case in confirming the disallowances pertaining to employees' contribution to PF & ESIC, amounting to Rs. 5,46,758/- u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act. 6. The learned CIT(A) has erred in law and on facts of the case in confirming the disallowances pertaining to employees' contribution to PF & ESIC u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act, despite of the issue being covered by the completed assessment u/s 143(1) of the Act. 7. Alternatively, and without prejudice, the CIT(A) have erred in law and on the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation Pvt.Ltd. 1. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the unaccounted income should be telescoped against the unaccounted expenditure to determine the real income of the assessee. 2. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the addition of Rs.4,61,09,275/- towards unaccounted cash receipts income to Rs.55,33,113/- estimating the N.P. at 12%. 3. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.3,93,81,546/- towards unexplained cash expenditure u/s 69C holding that the unaccounted expenditure is incurred out of unaccounted receipts of the business, hence telescoping is applied. 4. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of unexplained expenditure incurred of Rs.43,83,995/- holding that the unaccounted expenditure is incurred out of unaccounted receipts of the business, hence telescoping is applied. 5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the search. 3. The learned CIT(A) has erred in law and on facts of the case in rejecting the books of accounts of the appellant u/s 145 of the Act. 4. The learned CIT(A) has erred in law and on facts of the case in confirming an addition of Rs.21,83,886/- by estimating net profit at the rate of 12%. In the facts and circumstances of the case, such estimation is highly excessive and does not reflect the real income earned by the appellant. 5. The learned CIT(A) has erred in law and on facts of the case in confirming the disallowances pertaining to employees contribution to PF & ESIC, amounting to Rs. 5,03,557/- u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act. 6. The learned CIT(A) has erred in law and on facts of the case in confirming the disallowances pertaining to employees' contribution to PF & ESIC u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act, despite of the issue being covered by the completed assessment u/s 143(1) of the Act. 7. Alternatively, and without prejudice, the CIT(A) have erred in law and on the facts of the case in making a disallowance of payments of PF & ESI made within the grace period. 8. Alternatively, and without prejudice, the CIT(A) have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o PF & ESIC u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act, despite of the issue being covered by the completed assessment u/s 143(1) of the Act. 7. Alternatively, and without prejudice, the CIT(A) have erred in law and on the facts of the case in making a disallowance of payments of PF & ESImade within the grace period. 8. Alternatively, and without prejudice, the CIT(A) have erred in law and on the facts of the case in not appreciating the 'due date as defined under the respective PF and ESI Acts. 9. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. The action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 10. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s. 234A/B/C of the Act. 11. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of the Act and against the scheme of assessment related to search cases. 2. The learned CIT(A) has erred in law and on facts of the case in confirming the additions made by learned Assessing Officer without any incriminating material found during the search. 3. The learned CIT(A) has erred in law and on facts of the case in rejecting the books of accounts of the appellant u/s 145 of the Act. 4. The learned CIT(A) has erred in law and on facts of the case in confirming an addition of Rs. 23,10,559/- by estimating net profit at the rate of 12%. In the facts and circumstances of the case, such estimation is highly excessive and does not reflect the real income earned by the appellant. 5. The learned CIT(A) has erred in law and on facts of the case in not adjudicating upon ground No. 6 raised before him with respect to issue of addition of Rs. 1,50,000/- u/s 69C of the Act as unexplained unaccounted expenditure. 6. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O. 9. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent. 4.1. For the sake of convenience, the concise grounds are tabulated and dealt with as given below: Sr. No. Original Ground No. Assessee's Common grounds of Appeal for All A.Y.(s) in ITA Nos. 64-69/Ahd/2022, ITA No. 576/Ahd/2022 1 Assessee Ground 1 The learned CIT(A) has erred in law and on facts of the case in confirming the assessment order u/s 143(3) r.w.s. 153B(1)(b) of the Act which is passed in violations of provisions of the Act and against the scheme of assessment related to search cases. 2 Assessee Ground 2 The learned CIT(A) has erred in law and on facts of the case in confirming the additions made by learned Assessing Officer without any incriminating material found during the search. 3 Assessee Ground 3 The learned CIT(A) has erred in law and on facts of the case in rejecting the books of accounts of the appellant u/s 145 of the Act. 5. These grounds are interrelated; therefore, we discuss and decide to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) upheld the additions made by the AO. The CIT(A) upheld the rejection of the books of accounts by the AO. The incriminating material found during the search indicated significant unaccounted transactions that were not reflected in the regular books of accounts. The CIT(A) agreed with the AO's view that the books of accounts were incomplete and unreliable, as they failed to present a true picture of the assessee's financial affairs, given the magnitude of the unaccounted receipts and expenditures. 7. We note that the Ld.CIT(A) acted in accordance with the legal framework governing Section 153A assessments, correctly dismissing the assessee's objections and confirming the assessment under Section 153A r.w.s. 143(3) as valid. The discovery of substantial incriminating material during the search further solidified the CIT(A)'s decision to uphold the assessment. In case of addition without incriminating material the CIT(A) followed the principle laid down in judicial precedents such as CIT vs. Kabul Chawla (380 ITR 573) and PCIT vs. Saumya Construction Pvt. Ltd. (387 ITR 529), where it was held that additions under Section 153A can only be made in respect of incriminating mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash receipts. 2016-17 49/Ahd/2022 Same as above 2017-18 50/Ahd/2022 Same as above 2018-19 51/Ahd/2022 Same as above 2019-20 569/Ahd/2022 Same as above 3 Revenue Ground 3 and 4 Deletion of addition towards unexplained cash expenditure u/s 69C. (Including poker related income and expenditure) 2016-17 49/Ahd/2022 2,00,96,792/- 2017-18 50/Ahd/2022 3,93,81,546/- 43,83,995/- 2018-19 51/Ahd/2022 4,75,71,939/- 44,31,537/- 2019-20 569/Ahd/2022 1,53,81,860/- 4 Assessee Ground 4 Excessive estimation of net profit at 12%. 2013-14 64/Ahd/2022 1,60,608/- 2014-15 65/Ahd/2022 28,509/- 2015-16 66/Ahd/2022 4,70,502/- 2016-17 67/Ahd/2022 21,83,886/- 2017-18 68/Ahd/2022 55,33,113/- 2018-19 69/Ahd/2022 53,55,513/- 2019-20 576/Ahd/2022 23,10,559/- These common grounds deal with addition made by AO relating to unaccounted receipts and expenses. The AO completed the assessments based on the findings of the search and seizure operations carried out under Section 132 of the Act, which revealed substantial unaccounted income and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re receipts as income. The CIT(A) took into account that the entire gross receipts do not represent the actual income but include business expenditures. Accordingly, a reasonable net profit rate of 12% was applied on the unaccounted receipts to determine the taxable income. The CIT(A) applied at 12% net profit rate after considering both the AO's likely demand for a higher percentage (or full taxation of receipts) and the assessee's argument for a lower percentage based on industry conditions and operational expenses. The CIT(A) took into account 6.58% (represent the difference between unaccounted receipts & payments) and 8.83% (represent the net profit margins from the accounted business transactions of the assessee, as per the regular books of accounts) - as reference points for determining the true profitability of the business. The 12% net profit rate was chosen instead of 8.83% by the CIT(A) for estimation of profit. The CIT(A) recognised the importance of taxing only the real income of the assessee. 9.1. The CIT(A) deleted the addition made by the AO under Section 69C towards unexplained cash expenditure. The AO had disallowed the expenditure on the grounds that it was unacc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted while interpreting such seized material. 11. The Departmental Representative (DR) contended that the assessee was involved in substantial unaccounted cash transactions, which were only discovered due to the search and seizure operations. The DR submitted that the assessee had not provided any satisfactory explanation for the unaccounted receipts and expenses which led to the invocation of Sections 68 (unexplained credits) and 69C (unexplained expenditure). Further the DR stated that there are violations of provisions of the Act such as Section 40A(3), non-compliance with TDS provisions, etc. and the assessee has not provided the details of expenses which will determine whether they are incurred wholly and exclusively incurred for the purpose of business, whether they are of capital nature or revenue and therefore, such expenses incurred in violation of the provisions cannot be allowed as a deduction under Section 37(1) of the Act. The DR placed reliance on some judicial precedents; (i) ACIT vs. Kantilal Exports Surat (2023) 150 taxmann.com 172(SC) and (ii) Sunil Balsubramaniam Shankar (2019) 107 taxmann.com 55 (Madras) dealing with maintaining books out of regular books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dy. CIT Vs. Panna Corporation in Tax Appeal No. 323 of 2000 and CIT Vs. President Industries (2002) 258 ITR 654. The AR also pointed out that even the decision of Rajkot Bench of the Tribunal relied on by the DR in case of ACIT Vs Conor Granito (P.) Ltd. reported at [2024] 159 taxmann.com 1209 also talks about the justifiable rate and not ad hoc rate. 13. The primary issue under consideration is whether the entire unaccounted receipts should be taxed as income or whether only the profit element embedded in these receipts should be considered. The assessee has relied on the Gujarat High Court's judgement in President Industries (cited supra), which held that the entire amount of unaccounted sales cannot be treated as income. In that case, the court ruled that only the net profit element should be taxed, as the sales represent receipts from which the cost of goods sold must be deducted. In the present case, similar facts exist where the AO has not provided any evidence of undisclosed investments used to generate the unaccounted receipts. The CIT(A) correctly followed the principle established in President Industries, by estimating the profit embedded in the unaccounted receipts rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailable, higher profit rates are often justified. The application of a higher NPR ensures that any profit derived from undisclosed income is appropriately taxed, and it compensates for the lack of documentation. Furthermore, we find that no concrete evidence has been provided by the assessee to substantiate a lower profit rate. The assessee has not demonstrated, with comparable industry data or business-specific records, that a lower NPR should be applied. In cases involving unaccounted income, courts have consistently upheld the application of a higher NPR. We further note that the assessee has not provided any alternative basis for applying a lower NPR. In the absence of any detailed documentation or business records from the assessee, the CIT(A)'s estimation of 12% NPR stands justified. Estimation by nature requires some discretion, and it must account for the lack of transparency in the assessee's accounts. Therefore, the assessee's ground of appeal challenging the 12% NPR is dismissed. 13.3. The Revenue has contested the CIT(A)'s deletion of additions related to the poker income and expenses, which arose from noting found in the seized material during the search operation. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22 5,03,557/- 2017-18 68/Ahd/2022 12,189/- 2018-19 69/Ahd/2022 Not Specified 2019-20 576/Ahd/2022 1,50,000/- 3 Assessee Ground 6 Alternative Ground on PF/ESIC Payments made within the grace period. 2013-14 64/Ahd/2022 5,04,832/- 2014-15 65/Ahd/2022 8,71,723/- 2015-16 66/Ahd/2022 5,46,758/- 2016-17 67/Ahd/2022 5,03,557/- 2017-18 68/Ahd/2022 12,189/- 2018-19 69/Ahd/2022 NIL 2019-20 576/Ahd/2022 1,27,450/- 4 Assessee Ground 7 Due Date Definition under PF & ESIC Acts. 2013-14 64/Ahd/2022 5,04,832/- 2014-15 65/Ahd/2022 8,71,723/- 2015-16 66/Ahd/2022 5,46,758/- 2016-17 67/Ahd/2022 5,03,557/- 2017-18 68/Ahd/2022 12,189/- 2018-19 69/Ahd/2022 NIL 2019-20 576/Ahd/2022 1,27,450/- 15. The AO had disallowed these payments under Section 36(1)(va) read with Section 43B of the Income Tax Act, 1961, for the Assessment Years under consideration, as they were deposited beyond the due dates prescribed under the respective statutes. The assessee, however, contended that since the contributions were deposited before the filing of the income tax return, no disallowance should be made. The CIT(A) upheld the disallowance made by the AO. While doi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the other hand, the Ld.DR also relied upon the orders of the lower authorities. 17. We have considered rival submissions and perused the material available on record. The issue of additions under section 36(1)(va) of the Act, particularly with respect to employees' contributions to PF and ESI, requires careful scrutiny, especially in cases involving completed or unabated assessment years. The Apex Court, in the case of Abhisar Buildwell (supra), reaffirmed the principle that in the case of a completed or unabated assessment, any addition can only be made if it is based on incriminating material found during a search or survey under section 132 or 133A of the Act. In the present case, the additions made by the Assessing Officer (AO) regarding the delayed deposit of employees' contributions to PF and ESI for the assessment years 2013-14 to 2017-18 fall under unabated assessment years, as no proceedings were pending for these years when the search was initiated. As per the judgment in Abhisar Buildwell (supra), for completed assessments, no additions can be made unless they are based on incriminating material found during the search. The revenue and CIT(A) both failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unted for. In this case, the assessee had provided a plausible explanation that the cash was part of the regular business income, albeit not yet recorded. 18.1. Based on the submissions made by the assessee and the findings of the CIT(A), we have carefully examined the issue of seized cash in relation to A.Y. 2019-20. We observe that the assessee has provided a reasonable explanation regarding the source of the seized cash. The cash was generated from the hospitality business, where significant amounts of cash are regularly handled, and the receipts were yet to be recorded in the books due to the timing of the search. The assessee's contention that the cash represents business receipts from daily operations aligns with the nature of its business activities and the usual practice in the hospitality industry of dealing with cash transactions. The CIT(A) correctly observed that the seized cash was part of the normal business income and not unexplained. The AO's invocation of Section 69A to treat the seized cash as unexplained income is not justified in this case. Section 69A applies when money is found in possession of the assessee for which no explanation is provided. However, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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