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2016 (3) TMI 76 - ITAT DELHI

2016 (3) TMI 76 - ITAT DELHI - [2016] 46 ITR (Trib) 182 - 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 in .....

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(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 exclu .....

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iture 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 authoriti .....

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ents preparing for engineering and medical examinations. It also serves to the students appearing in Board examinations of various educational boards. The assessee company runs its coaching institutes at various centers in and outside Delhi and some of the centers are being run on franchisee basis. The main source of the income of the assessee is from fees collected from the students/aspirants taking up coaching classes. 2.1 The assessee filed return of income on 31.10.2007 declaring total loss .....

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ses on account of advertisement expenses for the month of March 2007. The ld. CIT (A) confirmed the additions made by the AO. 3. Now, the assessee being aggrieved is in appeal against the aforesaid two additions. 4. Revised Grounds No.1 to 3 are against the sustenance of the addition of ₹ 65.50 lakhs as undisclosed income u/s 69A of the Act in respect of cash receipts found and impounded during the course of survey action. 5. Brief facts to the aforesaid ground are that during the year, a .....

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as unable to submit any plausible explanation and accepted that the amount involved in these receipts amounting to ₹ 65.50 lakhs was unaccounted receipts for FY 2006-07 over and above the income as per books of accounts prepared. The AO further observed that however, while filing the return of income the assessee declared a loss of ₹ 29,78,771/- whereby the earlier amount accepted by the Managing Director during the course of survey had not been reflected. The AO provided an opportun .....

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nature of these receipts clearly mentioned heading as "Mode", "Particulars", "Amount" and "Drawn On". It was further highlighted by the assessing officer that in these receipts there were particular columns for center, batch number, roll number as well as amount received. (ii) The A.O. has highlighted that the receipts were carrying running numbers like JP/001 to JP/208. This indicates clearly that such unaccounted receipts pertained to a particular cente .....

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ving this amount. During the entire survey proceedings, no. doubts or explanations had ever been presented by the assessee or Shri S.K. Suri, the Managing Director. (iv) The A.O. has also highlighted that the contention of the assessee that no cash was found during the survey and, therefore, these receipts in cash amounting to ₹ 65.50 lakhs is not supported by the evidence found. In this regard it was also observed that as per the books of accounts there was a cash balance of ₹ 1,00, .....

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page 8 & 9 of the assessment order, it is clear that the statement was given with alertness and balanced frame of mind. Accordingly, after considering the details of statements which was also reproduced on page 10 to 12 of assessment order, it was clear that Sh. S.K. Suri was fully in control of the running of the business and after considering that these receipts could not be explained, this amount of ₹ 6S.S0 lakhs had been surrendered. The assessing officer has, therefore, highlight .....

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he addition by observing as under :- 2.3 I have gone through the facts of the case, observations of the A.R. and submissions of the A.R. of the appellant. This ground is being finalized after making the following observations: A. On going through the facts of the case it is clear that survey action u/s 133A had been carried out at the business premise of the appellant. During the course of survey, certain documents in the form of receipts had been found which were confronted to the Managing Dire .....

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er the books of accounts maintained by the assessee. At that stage, there was no dispute regarding the nature of these receipts and the statement given by the Managing Director Sh. S.K. Suri was elaborate one which clearly indicated that he was the principal person looking after the administration and finance of the appellant company. B. During the course of assessment proceedings, the assessing officer questioned the retraction of the appellant with regard to the amount surrendered during the c .....

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was put forward by the A.R. of the appellant either before the assessing officer or during the appellate proceedings. It is pertinent to note that Sh. S.K. Suri, the Managing Director of the company was a person looking after the day to day affairs including financial transactions of the company and it is difficult to accept that he would not be in a position to explain the primary documents found during the course of survey. From the details elaborated in the assessment order as well as submis .....

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itted that the MD of the company was not in his proper state of mind and was exhausted during the course of survey. However, it is also important to note that the statement of Sh. S.K. Suri was a long statement wherein different details were elaborately discussed showing the mental alertness of Sh. S.K. Suri and at the same time since he was fully aware of the financial system of the company, it is difficult to accept that he would fumble in the crucial question regarding the receipts found at t .....

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A.R. of the appellant was that no cash to support these receipts was found during the course of survey. However, in this regard it is pertinent to note that even with regard to the cash balance shown in the books of accounts, the same was not found at the premises on that day. The survey action was only at a particular business premise and it is quite possible that the cash amount would be kept by the appellant at some other more secure premise. In any case, the onus would be on the assessee to .....

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ification for this retraction when the Managing Director had himself accepted the amounts as explained earlier on. The various documents submitted by the A.R. of the appellant during the course of appellate proceedings, only appear to be an afterthought and cannot be accepted. Accordingly, in view of the above observations, I am convinced that the addition made by the assessing officer amounting to ₹ 65.50 lakhs is fully justified and this ground of the appellant is treated as dismissed. 6 .....

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o be the owner of any money, bullion, jewellery or other valuable article and, ii. such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, iii. and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the AO, satisfactory, iv. then, the money and the value of the bul .....

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assessee was found to be in possession of loose slips and not of any valuable articles or things. Neither the possession nor the ownership of any jewellery mentioned in the slips could prove. In view thereof, the provisions of section 69A of the Act had rightly not been applied by the Tribunal to the facts of the case in hand. Accordingly, question No. 1 is answered against the revenue and in favour of the assessee." (b) D.N Singh v. CIT [2010] 324 ITR 304 (PAT.): "Para 13. In my opini .....

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a High Court has held that the expression 'valuable article' and money in any 'article which has value', but the Chattisgarh High Court (interpreting the same expression in s. 69B) has held that it refers to articles that normally have a high price, thereby excluding ordinary articles. It is submitted that the latter MP High Court's view is correct, because the Patna High Court appears to have overlooked the well-known rule of construction that general words that follow speci .....

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ceipts for FY 2006-07. ii. However, while filing the return of income, the assessee declared a loss of ₹ 29,78,771/- whereby the amount of cash receipts was not reflected. iii. A detailed explanation was given by the assessee as to why the amount surrendered was never the income of assessee and was just a record of internal transfer of cash from one centre to another. iv. In question no 21, the authorised officer confronted Sh. SK Suri with slips seized and pointed out that cash has been w .....

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d therefore when he was again required by the authorised officer to co-relate the same with books of accounts for FY 2006-07, he had submitted that those receipts have not been entered in books of accounts. vi. Further, Sh Suri had given this statement at about 3:00 am to 4:00 am on 09.08.2007 when the survey was being continued in his premises since 8.30 am on 08.08.2007. vii. It is evident from the above that Sh SK Suri was asked the same question regarding the receipts so found despite the fa .....

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s statement at the time of survey. ix. Kindly read statement at pg.9 of the AD's order which says 'probably been left out. .. Since I am not able to give any explanation in this regard ... ". Explanation was later given which was credible. 3) Regarding the true nature of receipts found (Ground 3): i. It was only after the conclusion of survey that the assessee company found that such "receipts" infact were not receipts of fees from students, but were only evidence of inter .....

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f documents prepared only for internal transfer of funds by various centres of the assessee company can be established by the following: i. That the 208 "receipts" found at Janakpuri centre were on the formats of unused receipts earlier printed for use in the centre but were not used due to printing irregularities in the said "receipts". ii. The assessee pointed out that the format of these "receipts" were different from the format of fee receipts issued by the asse .....

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me or revenue was earned by the assessee against such receipts since the original receipts prepared were found during the course of survey (PB 63-162) and therefore it cannot be said that the assessee had received any fees from any student since in case of actual receipt from students the original copy would have to be given to the payer and the assessee would have retained only a carbon copy. It was pointed out to the learned Assessing Officer that in fact all the 208 "receipts" were .....

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the receipts issued in regular course of business were produced before the AO to show that the 208 receipts were not for receiving fees. vi. The assessee further explained that even during the course of survey no excess cash was found and therefore also no adverse inference can be drawn against the assessee. vii. The assessee also explained that for each and every student who is studying in any coaching centre of the assessee company a registration form is created at the time of admission and ev .....

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e regular course of business which were found duly accounted in the books of the assessee to show that on each and every receipt the name of the student is clearly indicated and that can be the only proof of a student having paid his fees to the Institute, whereas on the case of these 208 receipts no name was mentioned and this itself proves that these 208 receipts were prepared only for internal transfer of funds. x. It can also be seen from the seized 'receipts' that amounts in few bil .....

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t-wise statement of tuition fees received during the year (PB 57-62), it has hardly happened that the amount received is a lumpsum fees amount of about ₹ 30,000 or more. However, in the seized receipts, there are hardly any bills of amounts less than ₹ 30,000/- and almost all bills are of lumpsum amounts ranging between ₹ 30,000 to ₹ 65,000/-, which is a rare transaction in the routine of the assessee's business. xii. Besides and most importantly, the assessee company .....

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ablished from the ledger of tuition fees received by the assessee company of FY 2006-07, 2005-06. But, as apparent from the seized receipts, there are 59 receipts that pertain to the period Feb - March. It would be completely against the established routinely business proceedings if these receipts are to be treated as fees receipts since such a huge number of students taking admission in a 'nonseasonal' period is not only dubious but also next to impossible. 5) Addition made is contradic .....

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T (Inv. II), dated 10-3-2003. Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, such confessions during the course of search & seizure and survey operations do not serve any useful p .....

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g assessment proceedings also, Assessing Officers should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders." 6) Statement u/s 133A has no evidentiary value: i) In the case of the assessee, mere reliance has been placed on the statement of Sh. Satish Kr Suri, MD, without any evidence to substantiate the statement with. ii) Reliance is placed on the decision by the Hon'ble Supreme Court in th .....

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noticed some discrepancies in stock and cash in hand. During the said survey, respondentassessee surrendered an amount of ₹ 99,50,000/- and offered the seine for the purposes of taxation. The additional income offered included a sum of ₹ 45,00,000/- on account of excess stock found during the course of survey and offered by one of the partners of the respondent-assessee as additional income. 5. However, subsequently, the respondent-assessee vide its letter dated 29th November, 2004 c .....

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had no element of truth. 14. Moreover, the word may used in Section 133A(3)(iii) of the Act clarifies beyond doubt that the material collected and the statement recorded during the survey is not a conclusive piece of evidence by itself. 15. In any event, it is settled law that though an admission is extremely important piece of evidence, it cannot be said to be conclusive and it is open to the person who has made the admission to show that it is incorrect. 16. Since in the present case, the res .....

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rt in the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 has held- "an admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the person who made the admission to show that it is incorrect. " 8) Addition of whole of ₹ 65.50 lacs without adjusting with business loss: Without prejudice to the above, the Id. CIT(A) has added an amount of ₹ 65.50 lakhs on the basis of cash receipts found d .....

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ined the receipt as that of inter branch transfer and without examining the veracity of the claim of the assessee, the AO jumped into a conclusion based only on the admission made by Shri Suri during survey cannot be countenanced. The Hon'ble Supreme Court in the case of CIT v. S. Khader Khan Son [2012] 254 CTR 228 has held as under :- "Section 133A of the Income Act, 1961 - Survey - Whether Section 133A does not empower any ITO to examine any person on oath; so statement recorded under .....

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n amount of ₹ 99,50,000/- and offered the seine for the purposes of taxation. The additional income offered included a sum of ₹ 45,00,000/- on account of excess stock found during the course of survey and offered by one of the partners of the respondent-assessee as additional income. …… 5. However, subsequently, the respondent-assessee vide its letter dated 29th November, 2004 contended that the statement about stock was incorrect and that the impugned discrepancy had b .....

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he Act clarifies beyond doubt that the material collected and the statement recorded during the survey is not a conclusive piece of evidence by itself. 15. In any event, it is settled law that though an admission is extremely important piece of evidence, it cannot be said to be conclusive and it is open to the person who has made the admission to show that it is incorrect. …... 16. Since in the present case, the respondent-assessee has been able to explain the discrepancy in the stock fou .....

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y him when he was stressed and totally exhausted. The discrepancy noticed during the survey of receipts were reconciled by Shri Suri who explained that the receipts were only in respect to inter-branch cash transfer and not receipts of fees from students. No students will remit fees and not insist on bills to be issued in their names. So the explanation that receipts without names as explained by the assessee that it is only in respect to cash transfer from different branches is plausible in the .....

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pts issued by the assessee in the regular course of business as the same neither included the head of service tax nor included the cheque number and bank name and also did not include the course and class for which the fees is being alleged to be received. Accordingly the same could not be used for issuing receipts to students from whom fees was received in regular course and therefore were used only as a memoranda account for internal transfer of funds by the assessee company. In the light of t .....

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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 Song (supra) and in a similar case of Hon ble jurisdictional High Court in CIT vs. Dhingra Metal Works (supra). Therefore, the orders of the lower authorities are bad in law and are set aside on this issue. These .....

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the next year. Similarly, for A.Y. 2007-08, the AO observed that the assessee had incurred an expenditure of ₹ 8,27,275/- which had been incurred in the month of March, 2007. Accordingly, the AO held that since this was a clear deviation from the regular practice followed by the assessee with an intention to reduce its taxable income, this amount was added to the income of the assessee. 12. Aggrieved, the assessee went in appeal before the first appellate authority and the ld. CIT (A) conf .....

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of survey. On going through the reply of the A.R. of the appellant also, it has nowhere mentioned as to why similar expense had been disallowed in the earlier year and the assessee had offered for taxation why in this year this practice has been discontinued. Accordingly, it appears that the assessing officer has followed the rule of consistency in accounting as well, as in allowing advertisement expenses and has accordingly disallowed this amount. I do not find any reason for interfering with t .....

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In no possible way had the AO pointed out any discrepancy or any expenditure of inadmissible nature as per section 37 of the I.T Act, 1961. The disallowance was made only on the ground that during AY 2006-07, the expenses incurred in March 2006 had been offered for tax by the assessee, which is evidently not a substantial ground taken by the ld AO and the Id. CIT (A) despite the fact that all the supporting documents giving proof of expenditure incurred had been furnished before the authorities. .....

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or profession; and further (b) must not be; (i) capital expenditure; (ii) personal expense; or (iii) an allowance of the character described in sections 30 to 36 and section 80W" A) CIT v. Indian Molasses Co. (P.) Ltd. [1970] 78 ITR 474 (SC) B) J.K. Cotton Mfrs. Ltd. v. CIT [1975] 101 ITR 221 (SC) C) Sassoon J. David & Co. (P.) Ltd. v. CIT [1979] 118 ITR 261 (SC) (ii) As is evident from the ledger of advertisement expenditure (PB 163- 168), the assessee company has incurred advertisemen .....

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