TMI Blog2010 (4) TMI 1062X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed by the assessee. It is well-settled that when there is suppression of sales or receipts, the books of the assessee can be rejected and income can be estimated. It is of great importance that the details of all the sales and receipts should be verifiable and correctly recorded. The books can be rejected even if the some of the sales are found to be verifiable and the rest are not verifiable. Therefore, we hold that the AO was justified in rejecting the books of the assessee and in estimating the income my making addition to the trading results declared by the assessee. Quantum of reasonable addition - addition made to trading results - As assessee himself admitted in its letter that assessee was grateful to all the officers of the Department for extending their full support and co-operation to the assessee during and after the survey proceedings. The assessee has also stated in the aforesaid letter that the assessee shall be able to achieve the object of buying peace with the Department and ensure smooth sailing for it not only at the investigation stage but also at the assessment stage. From the aforesaid averment made by the assessee in its letter it is fully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess, but the AO has not done so and, has disallowed the amount purely on estimate. In this view of the matter, we, therefore, do not find any justification in sustaining the disallowance of ₹ 1,00,000 out of the business promotion expenses We, therefore, delete the disallowance. Disallowance out of vehicle running and maintenance and depreciation - Addition made as expenses incurred for personal use - HELD THAT:- The present case is a case of private limited company, where the vehicles belonging to the company were also used by the directors. Even if the directors were using the vehicle for their personal use, insofar as company is concerned, the expenses are to be treated as being incurred for the purpose of business. If any personal benefit is accruing to the directors by use of vehicle for their personal purposes, the perquisite value could have been added as income in the hands of the directors. It is also to be noted that providing a car to the director by the company cannot be said to be on non-business account. Moreover, the books of account of the assessee have been rejected and the addition has been made by the AO in the trading result, and, therefore, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der : We have surrendered ₹ 25,00,000 at that point of time, the surrender was made in spite of there being no clarity about the existence/nature/ extent of undisclosed income. As can be expected, during survey proceedings, a lot of material, mostly irrelevant was impounded by the Department and at that point of time, we had deposited an ad hoc payment of tax of ₹ 9,15,000. Subsequently, after closing of the year on 31st March, 2005 when we finalized our accounts, we arrived at our total tax liability for the year on which we duly paid the entire tax after adjusting the ad hoc payment of ₹ 9,15,000. 2.4 The aforesaid explanation of the assessee was not found favour with the AO particularly in view of the discrepancies in the books of account found and impounded at the time of the survey. 2.5 It was noticed by the AO from Annex. A1(5), impounded from premises at D 1-7, Dr. Ambedkar Colony, New Delhi that it was a part register containing the records of clients or parties or customers catered by the assessee. The other records were also impounded from the premises D-6, Anupam Plaza, Azad Apartments, Hauz Khaas, New Delhi. From the impounded documents, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a lot of stress on all the employees and work and the business was hampered to a great extent, the assessee immediately cancelled the function of Mr. Kushaal as they were not in a position to carry out the order. This explanation of the assessee about the cancellation of the party was not found acceptable to the AO in the absence of evidences and having regard to the ground realities. With regard to the assessee's submission that books of account were duly audited under the IT Act as well as under the Companies Act, the AO commented that getting the accounts audited under s. 44AB or under the Companies Act, would not mean that the assessee has recorded all the receipts and the payments in his books of account as the auditor can only audit the entries, which were entered into the books of account, and auditors are not supposed to know about the entries which are not recorded in the books of account. 2.10 In the light of the various defects found in the books of account of the assessee, the AO rejected the books of account of the assessee and made the addition of ₹ 25,00,000 to the trading result declared by the assessee in the books. 2.11 Being aggrieved, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has surrendered the income not during the course of the survey proceedings but surrendered the income voluntarily vide letter dt. 11th Feb., 2005 filed after about two months from the date of the survey conducted on 14th Dec., 2004. The CIT(A) observed that in the decisions relied upon by the assessee, the issue is with regard to the surrender of the additional income made at the time of survey, but later on retracted. Though in the present case, the additional income has been offered by the assessee subsequently after the assessee was asked to give explanation as to the various documents impounded at the time of the survey. The CIT(A) further observed that it was the case where not only did the assessee disclosed the additional income of ₹ 25,00,000 but also paid the taxes of ₹ 9,15,000 due thereupon by way of advance tax paid by 31st March, 2005. (ii) The CIT(A), further held that it is not the case where statement declaring additional income was made under pressure or coercion or under mistaken belief at the time of the survey. (iii) The impounded documents were handed over by the Investigation Wing to the AO vide letter dt. 21st Jan., 2005, and, after exami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the addition of ₹ 25,00,000 made by the AO and further confirmed by the CIT(A), is unjustified. 2.16 The learned Departmental Representative, on the other hand, submitted that the assessee has not been able to give any satisfactory or acceptable explanation with regard to the various documents or papers found during the course of the survey. It was the burden of the assessee to explain the nature of each and every entry recorded in the impounded documents by giving the satisfactory explanation and evidences in support thereof. It was further contended by the learned Departmental Representative that since various defects pointed out by the AO in the books of account have not been reconciled or have been properly explained, there could not be any dispute to the fact that the books of account maintained by the assessee were not correct and complete so as to deduce the true profit therefrom. He, therefore, contended that the AO was justified in rejecting the books of account maintained by the assessee and then in making addition of ₹ 25,00,000, which has been reasonably determined in the light of the assessee's own admission. He also, reiterated the variou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok filed by the assessee. In this page, it is mentioned that on occasion of Shaadi, an arrangement was to be made on 15th Dec., 2004. Number of guests guaranteed by the host were given at 600, and numbers of guests expected were mentioned as 700. The rate per head was fixed at ₹ 400 + taxes. The details of the menu have also been mentioned therein. This order was booked on 12th Sept., 2004. This is on assessee's own letter-head. It is also mentioned therein that an advance of ₹ 20,000 was received by the assessee. In the course of hearing of this appeal, a query was raised by the Bench to the learned counsel for the assessee as to whether the assessee has filed any confirmation letter from Mr. Kushaal that the dinner fixed on account of Shaadi to be arranged by the present assessee on 15th Dec., 2004 was not arranged by the assessee, and the customer made alternative arrangements of his own. In reply thereto, the learned counsel for the assessee submitted that no such letter or confirmation from Mr. Kushaal has been produced by the assessee either before the AO or before the learned CIT(A) that the dinner to be arranged by the assessee was cancelled. It was also poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itten rough working and not relevant with the books of account, is not acceptable. Page 39/A-1 dt. 28th Nov., 2004'Rs. 22,375 It is a note in respect of some casual boys. Corresponding entry of receipts are not appearing in the books of account. A-1/p. 42 Expenditure of ₹ 10,500 signed by Ashish Gupta not accounted for. The corresponding receipt of the function where the casual labours were deployed was not accounted for in the books. A-1/p. 43 Amount of expenditure ₹ 5,300 Not accounted for in the books of account. A-1(1), p. 123, D-127, Ambedkar Colony Pages 123, 526, 9, 10, 11, 12, 13, 14, 215 and 26 Contained the noting about the expenditure ranging between ₹ 900 to ₹ 3,000 and not accounted for in the books of account. All the above discrepancies normally show that the assessee's books of account do not contain all the receipts and expenses and therefore cannot be relied upon. 2.20 In respect of the aforesaid discrepancies pointed out by the AO, the assessee has given a wild explanation that they are either handwritten rough workings or they are not related to any receipts and expenses incurred by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve necessary explanation as to the nature and contents thereof. The assessee was also given sufficient opportunities to examine and verify all the various documents and papers found during the course of the survey. Thereafter, the assessee vide its letter dt. 11th Feb., 2005 had chosen or decided to make a disclosure of income of ₹ 25,00,000. In the assessee's letter dt. 11th Feb., 2005, the assessee has stated that in the course of the survey carried at three business premises of the assessee on 14th Dec., 2004, the Department had seized/impounded various documents, records, registers, books of account etc. pertaining to several years over which the assessee had been in business. The assessee has stated in this letter that the Department had raised various queries on the seized documents, records etc. found at the time of the survey, and has given various hearings thereafter, and in view of all the documents seized by the Department, the assessee had chosen or decided to make a disclosure of income of ₹ 25,00,000. From this averment made by the assessee in its letter dt. 11th Feb., 2005, it is clear that the Department had raised various queries on the seized docum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee retracted from its own statement made in its letter dt. 11th Feb., 2005 declaring additional income of ₹ 25,00,000, and changed the stand without any valid reason. When no explanation as to the discrepancies in accounts was given at the time of the survey and thereafter at the stage of various hearings given to the assessee and when the assessee had given an understanding to the Department about determination of undisclosed income at ₹ 25,00,000 vide his letter dt.11th Feb., 2005, and has also paid tax thereupon within the financial year itself after examining and verifying all the documents and papers found at the time of the survey and after availing full opportunity of being heard on all the queries raised by the Departments on said documents/papers, he cannot now be allowed to turn around and urge that such determination of undisclosed income of ₹ 25,00,000 is incorrect, unjustified and unwarranted by retracting his admission later on in the course of assessment proceedings. It is also not the case where the declaration was made under pressure or coercion, if any, exercised by the Department at the time of the survey or thereafter. The declaration wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s declaration but the addition made in the light of the various discrepancies or defects found in the books of account maintained by the assessee and in the light of the suppressed sales or expenses found recorded in the seized documents or papers found at the time of the survey, on the basis of which the assessee has made a declaration of ₹ 25,00,000. 2.25 It is also well-settled that once the books of account of the assessee are rightly rejected under s. 145(3) of the Act, the AO has to proceed to determine the assessee's income on the basis of material available on record and to the best of his judgment. It is well-settled that that in a best judgment the assessment there is always a certain degree of guesswork. No doubt that the authorities have tried to make an honest and fair estimate of the income. There is necessarily some amount of guesswork involved in a best judgment assessment. In this case, the AO resorted to make an addition of ₹ 25,00,000 to the book result declared by the assessee in the light of various defects and discrepancies found in the books of account maintained by the assessee and on the basis of assessee's own admission where the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure is made on the flower arrangements/bouquets sent to prestigious clients on various occasions to get them updated and for public relation and for getting more business from them as our clients are repeat clients over the years. 3.2 After considering the assessee's submissions, the AO disallowed the expenses to the extent of ₹ 1,00,000 by observing as under : From the details of the expenditure incurred it is seen that most of the expenses have been incurred either in cash or through credit card and the nature of the expenditure is for lunch, gifts etc. The personal element of expenditure included therein therefore cannot be avoided and disallowance of ₹ 1,00,000 is made on this account. (Disallowance ₹ 1,00,000) 3.3 On an appeal, the CIT(A) confirmed the disallowance by observing that the assessee has filed only copy of accounts of business promotion expenses, and from the copy of accounts, it is noted that the some of the expenses are in the form of hotel and restaurant bills and have been incurred from credit card and while some expenses incurred in cash also, and, therefore, the assessee has not been able to justify that entire exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e maintenance and depreciation. 4.1 The sum of ₹ 1,00,000 has been disallowed by the AO out of vehicle running and maintenance and depreciation treating the same to have been incurred for personal use. The disallowance so made by the AO has been sustained to the extent of ₹ 75,000 by granting a relief of ₹ 25,000 by the learned CIT(A). 4.2 We have heard both the parties and carefully gone through the orders of the authorities below. 4.3 The present case is a case of private limited company, where the vehicles belonging to the company were also used by the directors. Even if the directors were using the vehicle for their personal use, insofar as company is concerned, the expenses are to be treated as being incurred for the purpose of business. If any personal benefit is accruing to the directors by use of vehicle for their personal purposes, the perquisite value could have been added as income in the hands of the directors. It is also to be noted that providing a car to the director by the company cannot be said to be on non-business account. Moreover, the books of account of the assessee have been rejected and the addition of ₹ 25,00,000 has been ma ..... 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