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TMI Blog2024 (9) TMI 1707X X X X Extracts X X X X X X X X Extracts X X X X ..... hey are decided together under this combined order. Facts of the case: 2. The assessee is a company engaged in the hospitality business, was subjected to a search and seizure operation under Section 132 of the Act on 30-10-2018 at the premises of the Kailash Goenka Group. The search revealed incriminating materials in the form of handwritten diaries, loose papers, and bills, indicating substantial unaccounted receipts from the hotel and restaurant businesses, as well as corresponding unaccounted expenditures incurred in cash. 3. During the assessment proceedings under Section 153A read with Section 143(3) of the Act, the AO rejected the 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 inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. AC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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.66/Ahd/2022 for AY 2015-16 - 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 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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.2,00,96,792/- 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 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. 5. 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. In IT(SS)A No.50/Ahd/2022 for AY 2017-18 - In the case of ACIT vs. Sankalp Recreation 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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. In IT(SS)A No.67/Ahd/2022 for AY 2016-17 - 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 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 disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) has erred in law and on facts of the case in confirming an addition of Rs. 55,33,113/- 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. 12,189/- 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 & 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 passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levying interest u/s. 234A/B/C of the Act. 7. 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. 8. 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 ITA No.576/Ahd/2022 for AY 2019-20 - 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 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. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted receipts of the business, hence telescoping is applied. 5. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance u/s 36(1)(va) of Rs. 127,450/- 6. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of unexplained cash of Rs. 1,92,05,140/- u/s 69A, despite the assessee failed explain the source thereof. 7. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of unexplained cash of Rs.9,00,000/- u/s 69A, despite the assessee failed explain the source thereof 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nating material was found during the search, especially relating to unaccounted receipts and expenditures, which formed the basis for the additions in the relevant assessment years. For years where the AO made additions without substantial incriminating evidence, the CIT(A) restricted the additions based on the principle that additions under Section 153A must be linked to incriminating material found during the search. This principle was applied in cases where the CIT(A) found that no new material existed for certain additions. However, for the years where incriminating material related to unaccounted business transactions was found, the CIT(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 accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unted Expenses 8. The concise grounds of both assessee and revenue are tabulated below to deal with them together. Sr. No. Original Ground No. Ground of Appeal Assessment Year(s) IT(ss)A / ITA Nos. Amount (Rs.) 1 Revenue Ground 1 Telescoping of unaccounted income against unaccounted expenditure. 2016-17 49/Ahd/2022 1,81,99,048/- reduced to 21,83,886/- 2017-18 50/Ahd/2022 4,61,09,275/- reduced to 55,33,113/- 2018-19 51/Ahd/2022 4,46,29,473/- reduced to 53,55,536/- 2019-20 569/Ahd/2022 1,92,54,656/- reduced to 21,83,886/- 2 Revenue Ground 2 Restriction of addition regarding unaccounted 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely treating the expenditures as independently unexplained and taxable. 9. The CIT(A) allowed telescoping of unaccounted income against unaccounted expenditures, setting off the unaccounted income discovered during the search with the unexplained expenditure incurred by the assessee. Since the unaccounted receipts and expenditures were part of the same business activity and the expenditures were incurred from the unaccounted receipts, the CIT(A) found it appropriate to apply telescoping to avoid double taxation. The CIT(A) restricted the addition concerning unaccounted cash receipts by applying a net profit rate instead of taxing the entire 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, it was logical to allow the set-off of payments against receipts. The AR contended that only the profit element embedded in the unaccounted receipts should be taxed, not the entire gross receipts which aligns with the well-established legal principle that only the real income should be brought to tax. The AR placed reliance on several judicial precedents, including the judgment of Hon'ble Gujarat High Court in case of CIT vs. President Industries reported at (2002) 258 ITR 654. The AR also placed reliance on various judicial precedents which held that the seized material has to be read in its entirety and pick & choose theory cannot be 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 Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not considered entire unaccounted expenditure as allowable and has disallowed considerable amounts of expenses by adopting 12% rate of net profit which is far more than the rate of net profit as per regular books of accounts. The AR also stated that the DR's estimation of PBDIT / PBT is misplaced which do not consider unaccounted records of receipts and expenses and the PBT rate put forward by the DR is 9.58% which is much lower than the rate adopted by CIT(A) and therefore requested to uphold the decision of CIT(A). The AR placed reliance on the various judicial precedents including the judgements of Hon'ble Gujarat High Court in case of 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. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipts 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. 13.2. 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the grace period and due date for return filing provisions, supported by judicial precedents. The same are tabulated as below: Sr. No. Original Ground No. Ground of Appeal A.Y. IT(ss)A / ITA Nos. Amount (Rs.) 1 Revenue Ground 4 Deletion of disallowance u/s 36(1)(va) for PF/ESIC contributions. 2017-18 50/Ahd/2022 3,93,000/- 2018-19 51/Ahd/2022 4,50,000/- 2019-20 569/Ahd/2022 5,00,000/- 2 Assessee Ground 5 Disallowance of employees' PF & ESIC contributions u/s 36(1)(va) r.w.s. 2(24)(x). 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 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 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unabated assessment. In case of A.Y. 2019-20, the AR submitted that the disallowance for this year was wrongly made by the AO. The contribution in question was for June 2018, and while it was deposited on 16th July 2018, the statutory due date (15th July 2018) was a Sunday. The AR argued that since 15th July 2018 was a public holiday, the contribution made on the next working day (16th July 2018) should be considered as made within time, as per General Clauses Act. The AR supported its position by citing the CIT(A)'s order, which deleted the addition on this ground, and maintained that no disallowance is warranted for this year. 16.1. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was likely part of the business receipts, as the assessee had provided sufficient evidence to show that cash was regularly generated from day-to-day operations. The cash flow statement provided by the assessee demonstrated a reasonable link between the seized cash and the business transactions. The CIT(A) concluded that the AO's treatment of the seized cash under Section 69A of the Act was not justified. The AO had simply classified the cash as unexplained without fully examining the assessee's explanation. The CIT(A) emphasized that the provisions of Section 69A of the act apply to cash that is unexplained or not satisfactorily accounted 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 recei ..... X X X X Extracts X X X X X X X X Extracts X X X X
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