2016 (3) TMI 76 - AT - Income Tax

Undisclosed income u/s 69A - cash receipts found and impounded during the course of survey action - Held that - we are of the considered opinion that the ld. CIT (A) erred in upholding the conclusion of the AO based only on the admission during survey made by Shri Suri at the wee hours (i.e. between 3.00 AM 4.00 AM) to fasten the liability when Shri Suri was able to explain and reconcile the receipts. The AO did not bother to enquire into the veracity of the explanation given by the assessee. The AO could have easily called for details from the branches of the assessee at Janakpuri and tested the explanation given by the assessee in respect to interbranch transfer 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 Son (2013 (6) TMI 305 - SUPREME COURT) and CIT vs. Dhingra Metal Works (2010 (10) TMI 29 - DELHI HIGH COURT ). Therefore, the orders of the lower authorities are bad in law and are set aside on this issue. - 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 justifiable reasons given by both the authorities below to disallow the advertisement expenditure, cannot be countenanced. Therefore, we delete the addition made by the authorities below - Decided in favour of assessee

Issues Involved:
1. Addition of Rs. 65.50 lakhs as undisclosed income under Section 69A of the Income Tax Act.
2. Disallowance of Rs. 8,27,275/- on account of deferred revenue expenses related to advertisement expenses.

Issue-Wise Detailed Analysis:

1. Addition of Rs. 65.50 Lakhs as Undisclosed Income under Section 69A:

Facts and Background:
- The assessee company, which runs coaching institutes, filed a return declaring a total loss of Rs. 29,78,771.69 for the assessment year 2007-08.
- A survey conducted under Section 133A on 09.08.2007 revealed various cash receipts amounting to Rs. 65.50 lakhs, which were not reflected in the regular books of accounts.
- The Managing Director (MD) of the company, during the survey, accepted the amount as unaccounted receipts. However, this was not reflected in the income tax return filed later.

Assessment Officer's (AO) Observations:
- The receipts were not internal transfers but actual unaccounted receipts from students, as indicated by specific details on the receipts such as center, batch number, roll number, and amount received.
- The MD's statement during the survey was considered to have been made in a balanced frame of mind, and the retraction was not justified.

CIT (A)'s Observations:
- The MD had ample opportunity during the survey to reconcile the receipts but chose to surrender the amount.
- The retraction was delayed and lacked proper explanation, indicating an afterthought.
- The nature of the receipts and the MD's detailed statement during the survey suggested that the receipts were unaccounted income.

Assessee's Arguments:
- The receipts were records of internal cash transfers between centers, not actual income.
- The MD's statement was made under duress and exhaustion during the survey, which lasted over 20 hours.
- No cash was found during the survey, and the receipts did not bear the names of students, indicating they were not fee receipts.

Tribunal's Findings:
- The addition based solely on the MD's statement during the survey, without corroborative evidence, cannot be upheld.
- The explanation that the receipts were for inter-branch cash transfers was plausible and not properly investigated by the AO.
- The Supreme Court in CIT v. S. Khader Khan Son and Delhi High Court in CIT v. Dhingra Metal Works held that statements made during surveys under Section 133A have no evidentiary value unless supported by credible evidence.
- The orders of the lower authorities were set aside, and the addition of Rs. 65.50 lakhs was deleted.

2. Disallowance of Rs. 8,27,275/- on Account of Deferred Revenue Expenses:

Facts and Background:
- The AO disallowed advertisement expenses of Rs. 8,27,275/- incurred in March 2007, citing that similar expenses were disallowed in earlier years and offered for taxation in the subsequent year.

CIT (A)'s Observations:
- The disallowance was justified based on the principle of consistency, as similar expenses were disallowed in the previous year.

Assessee's Arguments:
- The entire expenditure was incurred wholly and exclusively for business purposes.
- There is no concept of deferred revenue expenditure in the Income Tax Act, and if the expenditure is for business purposes, it should be allowed under Section 37.
- The AO did not point out any discrepancy or inadmissible nature of the expenses.

Tribunal's Findings:
- The AO and CIT (A) failed to provide justifiable reasons for disallowing the expenses.
- The expenses were incurred for advertising in newspapers and magazines, wholly and exclusively for business purposes.
- Just because the expenses were not offered for tax in previous years, it cannot be a ground for disallowance.
- The addition made by the authorities below was deleted.

Conclusion:
- The appeal of the assessee was allowed, and the additions made by the lower authorities were deleted. The tribunal emphasized the importance of corroborative evidence and proper investigation before making additions based on statements made during surveys.

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