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2016 (3) TMI 76

usion 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 exp .....

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in respect of cash receipts found and impounded during the course of survey action and ₹ 8,27,275/- on account of deferred revenue expenses 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 survey was conducted u/s 133A of the Act on 09.08.2007 and during the course of survey, various cash receipts were found and impounded. These cash receipts were correlated with the ledger account for the relevant period and it was noticed that these receipts were not reflected in the regular books of accounts of the assessee company. The AO confronted these facts and evidences with Shri Satish Kumar Suri, MD of the assessee company and observed that even after giving the opportunity, Shri Suri was unable to submit any plausible explanation and accepte .....

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s there was a cash balance of ₹ 1,00,217/-, which had also not been found at the premise. The A.O. has, therefore, stated that such huge amount of cash could not be kept idle at the business premises and, therefore, could not be found at this particular premise. (v) The A.O. has stated with regard to the contention that Shri Suri was in bad mental state and accordingly had given the statement regarding ₹ 65.50 lakhs was also not accepted since from the nature of the statement given by Shri S.K. Suri specifically reproduced on 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, highlighted that the retraction with regard to this ₹ 65.50 lakhs was not justified and during the course of survey, Sh. S.K. Suri, MD of the company had made t .....

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re 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 submissions of the A.R. of the appellant, it only shows that the nature of these receipts were different from the receipts issued normally to various students against fee received from them. In fact, this would also clearly establish that the difference in the nature of receipts was only because these amounts were received in cash and not accounted for in the regular books of accounts. Therefore, the counter argument of the A.R. of the appellant is not acceptable. C. The A.R. of the appellant has submitted 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 dis .....

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also filed the written submissions. For the sake of clarity, the written submissions filed by the ld. AR are reproduced as under :- 1) Inapplicability of Section 69A: (I) Section 69A states that addition u/s 69A of the I.T Act can be made only when the following conditions are satisfied: i. Where in any financial year the assessee is found to 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 bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year. (II) The addition so made u/s 69A is not tenable per se as the assessee has not been found to be the owner of any money, bullion, jewellery or other valuable article. The slips impounded during the survey action are neither money nor bullion. .....

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endered 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 written thereon and required him to give details thereof. In response to this question, the assessee submitted "I cannot provide details of the receipts at present". (Relevant extract of statement attached at PB 45-56) v. However, the authorised officer again vide question no 22 required him to co-relate those receipts with the books of accounts of the assessee company for that year. Sh Suri had already explained that he cannot give the details of such 'receipts' at that time and 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 reg .....

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therefore were used only as a memoranda account for internal transfer of funds by the assessee company. iii. It was also explained that no income 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 the original copy which could not be available with the assessee in case any actual receipt had been issued. iv. It was further explained that no name of payer was found written in any of these slips which also proved that they could not have been issued to any student since every student would insist on a receipt which bears his name. v. The assessee further explained that the receipts issued in the regular course of its business were of totally different colour as well as different format and the receipts issued in regular course of business were pr .....

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and most importantly, the assessee company provides coaching for exams that are held in March every year. Because of this reason, it is an established routine every year that the faculty at the centres complete the course by January each year. It is therefore very uncommon that a student takes admission in a batch whose course has been completed. Also, one would not pay fees in lumpsum much before the start of batches i.e, in April-May. The fact that there is a very meagre number of new admissions in Jan-Feb- March every year can be established 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 contradictory to Board Circular: It is also submitted that the addition made and upheld by the ld. CIT (A) on the basis of statement obtained during the course of sur .....

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ing 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 contended that the statement about stock was incorrect and that the impugned discrepancy had been reconciled as it was only a mistake. Consequently, the respondent-assessee withdrew the offer of additional income for taxation on account of excess stock. Para 6; The AO relied upon the statement of one of the partners of respondent-assessee given during the course of survey under Section 133A of the Act and concluded that the explanation/ retraction by the respondentassessee was an afterthought and 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, i .....

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e decision the Hon ble jurisdictional High Court in a similar case i.e. CIT v. Dhingra Metal Works [2010] 328 ITR 384 (Delhi HC) wherein the Hon ble High Court held as under :- "2 During the course of survey, the tax officials noticed some discrepancies in stock and cash in hand. During the said survey, respondent-assessee 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 contended that the statement about stock was incorrect and that the impugned discrepancy had been reconciled as it was only a mistake. Consequently, the respondent-assessee withdrew the offer of additional income for taxation on account of excess stock. 6. The AO relied upon the statement of one of the partners of respondent-assessee given during the course of survey under Section 133A of the Act and concluded that the explanation/ retraction by t .....

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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 the above facts and circumstances, 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 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 .....

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ished before the ld. AO and it was explained that the entire expenditure had been incurred wholly and exclusively for the purpose of business. 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. Further, the AO has failed to appreciate the fact that there is no concept of deferred revenue expenditure in the Income Tax Act, 1961. If the expenditure incurred is on account of business, then the same is ought to be allowed u/s 37 of the Act. Legal issue: (i) It is an established fact under following judgements by Apex courts that "to be an allowable expenditure under section 37(1), the money paid out or away must be: (a) paid out wholly and exclusively for the purpose of the business or profession; and further (b) must not be; (i) capital e .....

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