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2015 (4) TMI 767 - ITAT HYDERABAD

2015 (4) TMI 767 - ITAT HYDERABAD - TMI - Addition on account of Undisclosed income - Addition on account of Inflated expenditure - Addition on account of unexplained foreign travels expenses - Addition on account of income surrender during search - Held that:- In the case of Mr. B. Srinivas [2013 (11) TMI 826 - ITAT HYDERABAD], it was held that A.O. as per the scheme of the Act and as per section 153A of the Act, no doubt, shall initiate the assessments for all the six years prior to the assess .....

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ver has to be made as was originally made/assessed and further addition should be restricted only to the extent they are supported/justified by any material found during the course of search.

In this context, when it was pointed out to the Ld. Counsel for the assessee at the time of hearing that the search having been conducted in the case of the assessee on 12.12.2007, the assessment proceedings only up to A.Y. 2006- 2007 had become final and the assessment proceedings for A.Y. 2007- .....

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s not been disputed even by the learned D.R. We however, do not find ourselves in agreement with the Ld. CIT(A) giving similar relief to the assessee for A.Y. 2007-2008 as the assessment for that year was pending as on the date of search and the scope of the said assessment therefore was wide and not restricted to make addition only on the basis of material found during the course of search. We, therefore, uphold the impugned order of the Ld. CIT(A) on this issue for A.Y. 2002-2003 to A.Y. 2006- .....

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by applying the average G.P. rate of 52.58% at ₹ 29,53,813 and made the addition to that extent ignoring completely that income of ₹ 50 lakhs surrendered during the course of search on account of suppression of catering receipts etc., was claimed to be offered by the assessee in the return of income filed for A.Y. 2008-2009. The Ld. CIT(A) however, rightly took note of this additional income declared by the assessee on account of suppression of catering receipts etc., and held that t .....

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2003 to 2006-2007 and 2008-2009 is upheld while the same is set aside for A.Y. 2007-08.

Addition on account of Inflated expenditure - As rightly submitted on behalf of the assessee before us as well as before the authorities below, it was not a case of any expenditure inflated by the assessee as alleged by the A.O. as the expenditure in question was in the nature of regular expenditure that is required to be incurred in the ordinary course of assessee’s catering business. The defects/ .....

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penses for unverifiable element involved therein and his impugned order on this issue, in our opinion, does not call for any interference. It is pertinent to note here that the addition made on this issue although was supported by the evidence found during the course of survey for A.Ys. 2007- 2008 and 2008-2009, there was no such evidence to support this addition for A.Ys. 2002-2003 to 2006-2007. The assessee however, has not filed any appeal or cross objection disputing the disallowance confirm .....

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on the foreign travels of the assessee are deleted by the Ld. CIT(A) inter alia on the ground that there was no material found during the course of search to support and substantiate the same. As already held by us in this context, the assessments for A.Ys. 2005-2006 and 2006- 2007 having been already completed on the date of search, the addition, if any, can be made to the total income of the assessee for the said years only on the basis of material found during the course of search. Since ther .....

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dence filed before him for the first time in the form of copies of bank statements, loan account of M/s. Nimantran Caterers etc., was that the expenditure incurred on account of expenses during the foreign trips was out of explained source. It appears from the impugned order of the Ld. CIT(A) that this claim made by the assessee was accepted by him relying on the additional evidence filed by the assessee without giving any opportunity to the A.O. to verify the same. We, therefore, find merit in .....

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f being heard. Ground Nos. 6 to 9 of Revenue’s appeals for A.Ys. 2005-2006 and 2006-2007 are dismissed and for A.Ys. 2007- 2008 and 2008-2009 are treated as allowed for statistical purposes.

Addition on account of income surrender during search - At the time of hearing before us, the Ld. Counsel for the assessee has invited our attention to the copy of computation of total income placed at page-3 of the paper book as well as copy of Trading and Profit and Loss Account placed at page-4 .....

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an opportunity may therefore be given to the A.O. to verify the explanation of the assessee. We find merit in this contention of the D.R. Accordingly, the impugned order of the Ld. CIT(A) on this issue is set aside and the matter is restored to the file of the A.O. with a direction to decide the same after verifying the claim of the assessee that the amount of ₹ 20 lakhs credited to P & L account as other income represented the part amount of ₹ 50 lakhs surrendered during the course .....

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ed:- 27-3-2015 - Shri P.M. Jagtap And Smt. Asha Vijayaraghavan JJ. For the Appellant: Smt. G. Aparna Rao For the Respondent : Mr. Ajay Gandhi ORDER Per Bench : These seven appeals filed by the Revenue being ITA.No.1469/Hyd/2012 to ITA.No.1475/Hyd/2012 for assessment years 2002-2003 to 2008-2009 and the cross appeal filed by the assessee for assessment year 2008-2009 being ITA.No.1702/ Hyd/2012 are directed against the common order of the Ld. CIT(A), Guntur dated 30.03.2012 for assessment years 2 .....

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nvolved in all the seven appeals of the Revenue as raised in ground Nos. 2 and 3 relates to the deletion by the Ld. CIT(A) of the additions made by the A.O. to the total income of the assessee on account of undisclosed income arising from suppressed turnover. 4. The assessee in the present case is an individual who is engaged in the business of catering contractor in the name and style of his proprietary concern M/s. Niyantran Caterers. Search and seizure action under section 132 of the Act was .....

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95,523 2007-08 32,78,109 2008-09 72,50,860 5. During the course of search, certain documentary evidence was found showing suppression of receipts of his catering business by the assessee. Such documents identified as page Nos. 15 to 16 and 92 to 94 of Annexure-A/BJ/01 contained entries showing undisclosed receipts of catering business by the assessee aggregating to ₹ 56,17,750 during the previous year relevant to A.Y. 2008-2009. By applying the average gross profit rate of 52.58% as declar .....

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les of the assessee for the said year by adopting the ratio of suppression of receipts to the turnover disclosed by the assessee as found for A.Y. 2008-2009 and estimated the income of the assessee from such alleged suppressed catering receipts on similar line and applying the same formula as under : A.Y. The turnover shown in the trading & P & L a/c attached with the ROI The estimated suppression after applying the rate of 206.45% found in respect of suppressed receipts for the F.Y. 200 .....

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al 1,47,37,660 5.1. Accordingly, additions were made by the A.O. to the total income of the assessee for A.Ys. 2002-2003 to 2007- 2008 on account of estimated undisclosed income of the assessee from the alleged suppressed catering receipts as above. 6. The additions made by the A.O. on account of undisclosed income from the suppressed catering receipts in all the seven years under consideration were disputed by the assessee in the appeals filed before the Ld. CIT(A). During the course of appeal .....

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n in the action of the A.O. to make a separate addition of ₹ 29,53,813 on account of undisclosed income of the assessee from the suppressed catering receipts. It was also submitted by the assessee that other than the five instances of unrecorded catering receipts found during the course of search amounting to ₹ 56,17,750 for A.Y. 2008-2009, there was no material found during the course of search to show any other instance of suppression of catering receipts by the assessee. It was co .....

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and deleted the entire additions made by the A.O. to the total income of the assessee on account of undisclosed income from the suppressed catering receipts for all the seven years under consideration for the following reasons given in para Nos. 7.3, 7.4 and 7.5 of his impugned order. 7.3. I have considered the submissions made by the appellant, gone through the order of the A.O. and heard the A.R. in person and perused all other material on record, besides going through various case laws relie .....

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e back on declaration and as such the impugned declaration for the relevant assessment years is valid and accepted by the department on which there is no dispute. The dispute in this regard is as under: 7.4. In course of the assessment proceedings, it appears that the A.O. has found that the G.P. rate for the A.Y. 2008-09 was at 52.58%, and accordingly determined the element of income at ₹ 29,53,813/- from the unrecorded sales of ₹ 56,17,750/- and added the same to the total income d .....

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a result of material found during the course of action under section 132(1), such additions are also not sustained and the A.O. is directed accordingly. 7.5. In as much as the declaration made by the appellant for this assessment is concerned, it is seen that the appellant has made a declaration for ₹ 50,00,000/-, but whereas actual amount shown in the computation of income was ₹ 30,00,000/- only. When this was pointed out to the A.R. he has said that he would come back with proper .....

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008-09 as spell out herein above. 8. We have heard the arguments of both the sides on this issue and also perused the relevant material on record. The Ld. Counsel for the assessee has supported the impugned order of the Ld. CIT(A) giving relief to the assessee on this issue for A.Ys. 2002-2003 to 2007-2008 by relying on the decision of Special Bench of ITAT in the case of All Cargo Global Logistics vs. DCIT 137 ITD 287 (Mum.) (SB) wherein it was held that where the proceedings have reached final .....

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arch and seizure operation for making an assessment of the undisclosed income of the assessee. As pointed out by the Ld. Counsel for the assessee in this regard, the said decision of Hon ble jurisdictional High Court in the case of Gopallal Bhadruka (supra) has already been considered by the Coordinate Bench of this Tribunal in the case of ACIT vs. Srinivasa Rao (ITA.No.1767 & 1768/Hyd/2011 dated 08.11.2013) and the same has been found to be distinguishable on facts as in the said case, the .....

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Court decision in the case of Commissioner of Sales Tax vs. H.M. Esufali H.M. Abdulali 90 ITR 271 (SC) that undisclosed income cannot be estimated for the assessment year in question on the basis of seized material relating to some other assessment years. 10. The Coordinate Bench of this Tribunal in the case of Mr. B. Srinivas (supra) thus followed the proposition laid down by the Special Bench of this ITAT in the case of All Cargo Global Logistics Ltd., (supra) wherein it was held that the A.O .....

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d will frame the assessment afresh. It was held that where proceedings have reached finality, the assessment under section 153A read with 143(3) however has to be made as was originally made/assessed and further addition should be restricted only to the extent they are supported/justified by any material found during the course of search. 11. In this context, when it was pointed out to the Ld. Counsel for the assessee at the time of hearing that the search having been conducted in the case of th .....

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003 to 2006-2007 as there was no material found during the course of search to support and substantiate the said addition and this position has not been disputed even by the learned D.R. We however, do not find ourselves in agreement with the Ld. CIT(A) giving similar relief to the assessee for A.Y. 2007-2008 as the assessment for that year was pending as on the date of search and the scope of the said assessment therefore was wide and not restricted to make addition only on the basis of materia .....

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tent of ₹ 56,17,750 were suppressed by the assessee. On such receipts, the A.O. estimated the undisclosed income of the assessee by applying the average G.P. rate of 52.58% at ₹ 29,53,813 and made the addition to that extent ignoring completely that income of ₹ 50 lakhs surrendered during the course of search on account of suppression of catering receipts etc., was claimed to be offered by the assessee in the return of income filed for A.Y. 2008-2009. The Ld. CIT(A) however, ri .....

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ceipts for A.Y. 2008-2009. Accordingly, the impugned order of the Ld. CIT(A) giving relief to the assessee on this issue for A.Y. 2002-2003 to 2006-2007 and 2008-2009 is upheld while the same is set aside for A.Y. 2007-08. The relevant ground of the Revenue appeal i.e., ground Nos. 2 and 3 for A.Y. 2002- 2003 to 2006-2007 and 2008-2009 are dismissed while ground Nos. 2 and 3 of Revenue s appeal for A.Y. 2007-2008 are treated as allowed for statistical purposes. 13. The next common issue raised i .....

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as per pages 184 to 341 of Annexure- A/NTH/2007. These vouchers written by the same person were found to be without any supporting bills or vouchers. Most of the vouchers were not even signed by the receivers and the payments under said vouchers were also found to be made in cash. The expenses claimed under the said vouchers were mainly on account of labour, repairing charges, decoration, salary, petrol, diesel etc., and the total of such expenses was ₹ 3,92,141 for A.Y. 2007-2008 and S .....

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8 amounting to ₹ 3,92,141 was 9.04% of the total expenses claimed by the assessee. Applying the same percentage for the other years i.e., A.Y. 2002-03 to 2006-07, he estimated quantum of expenditure inflated by the assessee as under : A.Y. Amount (Rs.) 2002-03 1,43,055 2003-04 1,39,315 2004-05 1,28,508 2005-06 1,36,965 2006-07 1,67,433 15. The additions made by the A.O. on account of the alleged inflated expenses were challenged by the assessee in the appeals filed before the Ld. CIT(A). D .....

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vant expenditure was inflated for want of supporting bills was completely erroneous. It was also pointed out by the assessee that the additional income declared by him for A.Ys. 2007- 2008 and 2008-2009 was completely ignored by the A.O. while making addition on account of alleged inflated expenditure for the said two years. Reliance was also placed by the assessee in support of his case on this issue on the decision of Coordinate Bench of this Tribunal in the case of Hyderabad House P. Ltd., re .....

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the case with particular reference to the case of Hyderabad House P. Ltd., where similar operations took place, even though no incriminating documents were found, on expenditure incurred in cash, due to involvement of factors like self made vouchers, not producing bills and vouchers fully, non production of books, purchases from unorganized sectors etc., 15% disallowance made by the A.O. was reduced to 7% by CIT(A) and which was further reduced to 5% by the Tribunal. The case in hand of the appe .....

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1/- which is 9.04% debited to the profit and loss account for the A.Y. 2007-08 (for the months of April 2007 to November 2007) and based on this ratio, the A.O. has worked out disallowance of expenditure, which cannot be approved. But due to limitations on both sides of the appellant and the department, i.e., on the part of the appellant limitations like cash payments, self made vouchers, payment vouchers not signed by recipients, absence of purpose of payments etc., limitations on the part of t .....

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ch an issue was adjudicated directing the A.O. to restrict such disallowance to 5% of cash expenditure, other than the payments made through banking channels and other expenditure like payments to government agencies and the payments covered by ESI, P.F. and TDS. As seen from the records, since the cash expenditure other than the payments made to government agencies and payments covered by ESI, P.F. and TDS is not available, the A.O. is directed to find out such cash payments for every assessmen .....

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used relevant material on record. As rightly submitted on behalf of the assessee before us as well as before the authorities below, it was not a case of any expenditure inflated by the assessee as alleged by the A.O. as the expenditure in question was in the nature of regular expenditure that is required to be incurred in the ordinary course of assessee s catering business. The defects/ deficiencies pointed out by the A.O. in the relevant vouchers were sufficient to show that the expenditure cla .....

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call for any interference. It is pertinent to note here that the addition made on this issue although was supported by the evidence found during the course of survey for A.Ys. 2007- 2008 and 2008-2009, there was no such evidence to support this addition for A.Ys. 2002-2003 to 2006-2007. The assessee however, has not filed any appeal or cross objection disputing the disallowance confirmed by the Ld. CIT(A) to the extent of 5% of the relevant expenditure in these years apparently because of the s .....

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the assessee had undertaken foreign trips during the previous years relevant to A.Ys. 2005-2006, 2006-2007, 2007-2008 and 2008-2009. It was also found that the expenditure incurred for purchase of air tickets for the said trips was borne by M/s. Legend Estate P. Ltd. According to the A.O. it was in the nature of benefits given by the said company to the assessee in view of his marketing services and hence, the amount of ₹ 1 lakh was added by him to the total income of the assessee as his u .....

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2005-2006, 2006-2007, 2007-2008 and 2008-2009 was challenged by the assessee in the appeals filed before the Ld. CIT(A) and the following submissions were made on his behalf before the Ld. CIT(A) to contend that the additions made by the A.O. on this issue were not sustainable. 9.2. During the years under consideration I have travelled overseas with my family. The travel fare was borne by Legend Estates P. Ltd., This fact was admitted by legend Estates P. Ltd., The A.O. mentioned the same in th .....

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oreign travel. In this regard, I would like to state that for meeting these expenses, I purchased foreign currency equivalent to Indian rupees from the following organisations as mentioned hereunder : A.Y. Name of the organisation Amount 2005-06 Sambtek Forex Ltd., 66,600 2006-07 Sambtek Forex Ltd., 1,37,250 2007-08 Sambtek Forex Ltd., 1,79,000 2008-09 Sambtek Forex Ltd., 2,78,700 As per my instructions payment was made from Nimantran Caterers for the A.Ys. 2005-06, 2006-07 and 2007-08, my propr .....

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ign travel, out of my own explained sources, the additions made by the A.O. are totally uncalled for. Therefore, I request you to delete the same. 19.2. The Ld. CIT(A) found merit in the submissions made by the assessee on this issue and deleted the addition made by the A.O. for all the relevant four years for the following reasons given para 9.3.1 and 9.3.2 of his impugned order. 9.3.1. I have considered the submissions made by the appellant, gone through the order of the A.O. and heard the A.R .....

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llant has spent monies for stay, food, entertainment and things like that from out of his business activities. The A.O. was of the view that the appellant has received benefits in lieu of his marketing services and of the view that as on lines of perquisites such value of tickets were taxable. At the same time the A.O. was also of the view that the expenses incurred by the appellant during foreign tour were also taxable and such expenses were estimated by him. It may however be noted here that o .....

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s found from Legend Estates Pvt. Ltd that it has founded the air tickets for the appellant and hence the amount was not spent by the appellant and as such no addition is called for, for the simple reason that the source stands explained. Regarding, funding for other family members, it is true that no business nexus was there, but the A.O. could view in such a way in a regular assessment but not in 153A assessments, as the material found during the search action is the basis for such an addition .....

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e was a nexus between the foreign tour and the business of Legend Estates Pvt. Ltd. The A.O. was perfectly right in his analysis, but as mentioned already, such analysis fits into grew when the assessment was made as a scrutiny case or in a reopened proceedings, but not in search assessments. Here, the material found during the course of action under section 132(1) is important, which is not the case here. In the alternative, as in the Hyderabad Tribunal s case like the Hyderabad Hotels Pvt. Ltd .....

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ave heard the arguments of both the sides and also perused the relevant material on record. It is observed that the additions made by the A.O. in the relevant four years i.e., A.Ys. 2005-2006, 2006-2007, 2007-2008 and 2008-2009 on account of expenses incurred on the foreign travels of the assessee are deleted by the Ld. CIT(A) inter alia on the ground that there was no material found during the course of search to support and substantiate the same. As already held by us in this context, the asse .....

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however, is different inasmuch as the scope of the assessments made under section 147(3) read with section 153A is wide and akin to a regular assessment. In these two years, the claim of the assessee as made before the Ld. CIT(A) relying on the additional evidence filed before him for the first time in the form of copies of bank statements, loan account of M/s. Nimantran Caterers etc., was that the expenditure incurred on account of expenses during the foreign trips was out of explained source. .....

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of Ld. CIT(A) on this issue for A.Ys. 2007-2008 and 2008-2009 and restore the matter to the file of the A.O. for deciding the same afresh in the light of additional evidence filed by the assessee before the Ld. CIT(A) after giving the assessee an opportunity of being heard. Ground Nos. 6 to 9 of Revenue s appeals for A.Ys. 2005-2006 and 2006-2007 are dismissed and for A.Ys. 2007- 2008 and 2008-2009 are treated as allowed for statistical purposes. 21. Now, we take-up the appeal of the assessee fo .....

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of the computation of total income filed by the assessee, the Ld. CIT(A), however, found that sum of ₹ 30 lakhs only was declared by the assessee as additional income surrendered during the course of search. Since the assessee could not offer any explanation in respect of the balance amount of ₹ 20 lakhs inspite of opportunity given in this regard, the Ld. CIT(A) directed the A.O. to add the balance amount of ₹ 20 lakhs to the total income of the assessee for A.Y. 2008-2009. A .....

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cause for the delay on the part of the assessee in filing this appeal before the Tribunal belatedly. We, therefore, condone the said delay and proceed to dispose of the appeal of the assessee on merit. 24. At the time of hearing before us, the Ld. Counsel for the assessee has invited our attention to the copy of computation of total income placed at page-3 of the paper book as well as copy of Trading and Profit and Loss Account placed at page-4 of the paper book and submitted that although addit .....

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