TMI Blog2021 (6) TMI 197X X X X Extracts X X X X X X X X Extracts X X X X ..... by B.Venkateswarlu and his two sons and observed that out of this unaccounted profit, they were using the unaccounted profit for money lending business, personal drawings and unaccounted reserve. From reading of the assessment order, it is clear that the AO himself has accepted that the notings mentioned in the diary does not pertain to the assessee company, hence, the AO did not make out a case that the notings made in the diary was related to the assessee company. Thus the addition made by the AO in the hands of the company is unsustainable, hence, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue. - I.T.A.No.04/Viz/2021& 05/Viz/2021, Cross Objection No.03/Viz/2021 and 04/Viz/2021 (Arising out of I.T.A. No.04/Viz/2021 and 05/Viz/2021) - - - Dated:- 24-5-2021 - Shri N.K.Choudhry, Hon ble Judicial Member And Shri D.S. Sunder Singh, Hon ble Accountant Member For the Revenue : Shri D.K.Sonowal, CIT(DR) For the Assessee : Shri G.V.N.Hari, AR ORDER PER BENCH: Condonation of Delay The assessee ought to have filed the appeals in this case on or before 27.12.2020. However, the appeals were filed by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment proceedings, the AO recorded the statement of Shri B.V.Demullu who stated that it was the cash account handled by him from November 2014 to January 2017 to explain the cash inflow and outflow to his brother and father i.e other Directors. He further stated that the cash was received from the customers of the company, after deducting their commission / the designing charges which was noted by him in the scribbling pad. However, the AO did not believe the contention of the assessee and viewed that the hand written details written in the notebook was the profit earned by the company from November 2014 to January 2017 and accordingly, taken the amounts mentioned in the Vijaya s diary as the Net profit (Estimated Profit) of the relevant financial years (F.Y) and arrived at the Financial Year (F.Y) wise net profit admitted in the P L account and the estimated profits as under: Financial Year (Estimated profit) As per the scribbling pad, Net profit admitted in the Returns of Income filed u/s 139(1) 2014-15(5 months) 84,00,000 6,39.809 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits of the company after all the expenses and the same is to be treated as undisclosed profit. The said profits noted in the scribbling pad @ 63%/66%/67% was enhanced to 100%, since, no evidence was produced by the assessee for payment of commission/designing charges stated to be deducted @37% by the agents and hence viewed that such receipts are to be treated 100% as undisclosed profits. The AO also observed that the expenses /payments mentioned in the note pad was not related to the assessee s business, hence, no further expenditure needs to be allowed from such undisclosed income. For the months Nov.2013 to March 2014 the receipts as per the scribbling pad was worked out to ₹ 87 lakhs and on the basis of the noting of said five months, the A.O estimated the income by extrapolation of receipts to the whole of year i.e for 12 months on estimation basis and worked out to the sum of ₹ 2,08,80,000/- (i.e.87,00,000/5= 17,40,000x12). From the said estimated income of ₹ 2,08,80,000/-, the AO reduced the income declared in the original return of income amounting of ₹ 6,39,809/- and the balance amount of ₹ 2,02,40,191/- was brought to tax for the A.Y.2015 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 2,06,50,076/- was assessed to tax as undisclosed income of the assessee. 3. Against order of the AO, the assessee went on appeal before the Ld.CIT(A) and argued that the extrapolation of receipts for 12 months on the basis of some rough notings in the scribbling pad was uncalled for and the addition of ₹ 2,08,80,000/- was estimated on presumptions and assumptions and the same is unjustified. The assessee argued before the Ld.CIT(A) that the scribbling pad( diary) found in the residential premises of B.Venkateswarlu contain the details of gross turnover received by the assessee which was duly accounted after reducing the commission in the regular books of accounts and the addition made by the AO on the basis of the said scribbling pad amounts to double addition of the turnover which was already offered to income and the same is unjustified. The assessee further submitted that the AO has taken the partial information i.e only the receipts and ignored the expenditure, the payments mentioned in the scribbling pad and the submissions of the assessee, which is incorrect. The Ld.AR further argued that the AO is not permitted to take partial information from the rough pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the scribbling pad was written by his son and Shri B.V.Demullu has accepted the said fact. Shri B.V.Demullu explained the contents of the diary as cash handled by him which consists of cash receipts from the customers and the expenses incurred by the assessee company. At the bottom of each page, the surplus cash was mentioned which according to the DR was the net profit of the month. According to the Ld.DR, 63%, 64% and 66% mentioned in the diary indicates the net profit after the business expenses. The Ld.DR argued that even the assessee failed to furnish the eveidence for payment of commission / designing charges stated to be deducted at source., therefore, submitted that the said commission / designing charges are also not allowable deduction. Hence the receipts noted @63% etc. required to be enhanced to 100% and the gross sum of 100% was the undisclosed income which required to be brought to tax. Ld.DR explained that 20% of 63% mentioned at page No.36 was to be taken as ₹ 20,00,000/- as against the sum mentioned as ₹ 12,60,000/- in the scribbling pad. The Ld.DR further submitted that the payments / expenses mentioned in the scribbling pad were not related to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the payments made for business of the assessee either for expenses / advances. Ultimately, the entire receipts recorded in the scribbling pad was admitted in the books of accounts of the company as sales and declared true and correct income. Apart from the expenditure incurred by Shri B.V.Demullu, expenditure was incurred by the company by various sections, various departments, the other directors and the employees which was accounted in the books of accounts. Similarly, for day to day running of business, the assessee has to give advances to employees, to the customers, suppliers and also the debtor / creditors which were noted in the scribbling pad. The Ld.AR argued that the entire receipts and payments mentioned in the scribbling pad were duly accounted in the books of accounts and the gross turnover declared by the assessee was more than the amount mentioned in the scribbling pad, therefore, submitted that there is no reason to assess the undisclosed income. Though search was conducted in the business premises of the assessee, no other evidence was found during the course of search either in the business premises or in the residential premises of the Directors indicating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e scribbling pad @63%. It was also explained that the amounts mentioned in the scribbling pad represent gross receipts which were duly accounted in the books of accounts. The diary was maintained for the purpose of information and to explain to other directors. Further, the director explained that the payments mentioned in the scribbling pad represent either advances or the expenses met by Shri Demullu for the purpose of business. It was also submitted that the gross turnover declared by the assessee was more than the turnover noted in the scribbling pad. Though the assessee has produced the books of accounts, cash book and all other relevant information during the course of assessment proceedings, no defects were noticed in the books of accounts. The AO did not find any defects in the books of accounts by making cross verification of entries of the diary with the regular books of accounts also. A search u/s 132 was conducted in the residence of all the directors as well as business premises of the assessee company, no other evidence was found by the department to show the unaccounted assets, investments or the expenditure. The director never accepted during the course of search or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Diaries, note books and file containing loose sheets paper not in the form of Books of Accounts and has held that such entries in loose papers/sheets are not relevant and not admissible u/s 34 of the Evidence Act. Further as to value of the entries in the books of account, that such statement shall not alone be sufficient evidence to charge any person with liability, even if they are relevant and admissible and that they are only corroborative evidence. Even then independent evidence is necessary as to trustworthiness of those entries which is a requirement to fasten the liability. 13. On the basis of the aforesaid judgments, we are of the view, diary seized during the survey/search operation, without corroboration, have no authenticity and therefore, cannot be relied upon. Even entry recorded in the diary qua amount of sale was not confirmed from the buyers of the property and without confirmation, question of any assumption or belief that the entry belongs to the assessee did not arise and hence entry found in diary without any corroborative evidence, cannot be made basis of addition. The authorities below in the instant case, made the addition only on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of clarity we, extract the view of the Hon ble third member which reads as under: 15. Lastly, the Hon ble Vice-President (Judicial Member) also cited the decision of the Hon ble Supreme Court in the case of Chuharmal (supra) for the proposition that when a person is found in possession of anything, the onus of proving that he was not its owner was on that person. The above ratio will not have application to the facts of the present case. In the case of Chuharmal (supra), the possession was in regard to valuable articles in the form of wrist watches of foreign make. The ownership of such valuable articles have to be definitely proved and if the person in whose possession the said valuable article was found claimed that the same did not belong to him, the onus of proving that he was not its owner was on that person. In the present case here it is a mere loose sheet in which the assessee confirmed that the entry was in his own handwriting. The loose paper in itself has got no intrinsic value. It does not represent negotiable instrument which can be exchanged for a sum of ₹ 60 lacs. Therefore, the above decision does not have direct applicable to the facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contents of the diary. The AO has not taken into account, the contents of the scribbling pad and the explanation of the assessee together while making the assessment. The AO has not even considered the gross amounts mentioned in the diary. He has enhanced the gross receipts with designing charges / commission which was deducted at source. The AO ought to have considered the entire material available in the diary in toto together with the explanation offered by the assessee. If the AO had considered entire material i.e., diary along with the explanation offered by the assessee, there is no case for making the addition in the instant case. Thus, the case laws above are squarely applicable to the assessee s case. 6.5. The AO in para No.18 of the assessment order for the A.Y. 2016-17 given a finding that noting is nothing but unaccounted profit earned from various businesses run by B.Venkateswarlu and his two sons and observed that out of this unaccounted profit, they were using the unaccounted profit for money lending business, personal drawings and unaccounted reserve. From reading of para No.18 of the assessment order, it is clear that the AO himself has accepted that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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