TMI Blog2018 (1) TMI 1682X X X X Extracts X X X X X X X X Extracts X X X X ..... t have left the job also. Thus, we find that the ld.CIT(A) has rightly appreciated controversy and rightly deleted the additions. We do not find any merit in the grounds of appeal raised by the Revenue. Un-reconciled entries - HELD THAT:- Only element of profit involved in them is to be taxed. In Asstt.Year 2004-05, theld.CIT(A) has confirmed the addition of 42 lacs on an estimation basis. But even for estimation there should be some logic for working out the quantum. The ld.CIT(A) has taken the un-reconciled entries of Rs.38,77,759/- for estimation of profit. But this is the gross value of some transaction. Corresponding expenses were also there in those entries. Therefore, gross entries cannot be taken as income of the assessee. Therefore, we modify the direction of the ld.CIT(A). The ld.AO shall calculate the profit at the rate assessee has shown on the basis of regular books in these years and accepted by AO. In other words only element of profit is to be included in the taxable income out of the un-reconciled entries worked out by the ld.CIT(A) and not the gross receipt. Addition under the heading Disclosure made before the DDIT(Investigation)-2, Rajkot. - CIT(A) h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r for recovery of the outstanding amount - HELD THAT:- CIT(A) has deleted the disallowance by following judgment of the Hon ble Supreme Court in the case of TRF Ltd. [ 2010 (2) TMI 211 - SUPREME COURT] According to the ld.CIT(A) after 1.4.1989 the assessee was not supposed to bring demonstrative evidence on record to show that debts have actually become bad. It is sufficient if these amounts have been written off in its accounts. After considering the finding of the ld.CIT(A) we do not find any merit in this ground of appeal. It is rejected. Addition of low household withdrawal - HELD THAT:- It is quite difficult to determine household expenditure of any individual. It is a very subjective area. The AO must have considered his local knowledge about the assessee and their status of living in the society. The assessee has been carrying out voluminous business in ticket booking. She has earned commission of crores of rupees. Looking into their background, it appears that they must have living a good life and the AO must have considered that aspect while estimating the household expenses. Two Revenue authorities have exercised their discretion in estimating household expenditure. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th help of section 40(a)(ia) of the Act on account of non-deduction of TDS deserves to be deleted. We accordingly delete the disallowance. This ground of appeal is allowed. Disallowance of proportionate interest expenditure - HELD THAT:- We have already held that the assessee was able to demonstrate that if she has more interest free funds than the advance then on notional basis interest cannot be computed for disallowance. We do not find any error in the order of the ld.CIT(A). This ground is rejected. Addition u/s 69C - HELD THAT:- We are of the view that entries in the books of third person could not be given weightage over and above entries in the books of the assessee. The AO ought to have collected more evidence for establishing that the alleged payment was made. He has not recorded statement of the creditors showing that they have received such payment. Therefore, the ld.CIT(A) has rightly deleted the addition, and this ground is also rejected. TDS credit - HELD THAT:- CIT(A) has recorded a finding of fact that the assessee has duly credited commission receipts on which TDS deducted by the payer and she has claimed the credit of the TDS. Considering the findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for making the investment. Though the assessee had submitted books of accounts during the assessment proceedings, the same was not considered at the end of the AO. Therefore, there is no merit in this ground of appeal of the Revenue. It is dismissed. Low household withdraw - HELD THAT:- On considering orders of the Revenue authorities, we do not find any justification to take a different view than the one taken by the Revenue authorities on this issue. Looking to the quantum and size of the business carried out by the assessee and life their style both the authorities estimated low household withdrawals. There is nothing on record to show that estimation based on some opinion made by both the authorities below is unjustified, and therefore, we do not wish to replace the estimation of the Revenue authorities with a third estimation. We do not find any merit in this ground. Disallowance of fictitious liability - HELD THAT:- CIT(A) who deleted the addition on the ground that rough papers found from the premises of wife of the assessee were mere notebooks and diaries and not books of accounts of the assessee. Besides, he observed that wife of the assessee has owned up the no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the assessee i.e. M/s.Divya Tourism Pvt.Ltd. in which Shri Nailesh Masura, husband of the assessee is Managing Director, who also looks after day-to-day affairs of the proprietary concern of the assessee i.e. M/s.Divya Travels . Statement of Shri Nailesh Masura on oath was recorded under section 131(1A) of the Act in the case of survey of M/s.Divya Travels . After the survey, summons were issued to the assessee requiring to appear and furnish certain requisite details, which remained unattended. However, after filing a reply on 28.2.2005, the assessee again filed a reply on 22.3.2005 disclosing an amount of Rs.32,20,478/- for the Asstt.Year 2003-04 and agreed to pay tax on the same. 5. In the above background, the Assessing Officer issued notice under section 148 of the Act on 28.12.2007 which was served upon the assessee on 31.12.2007, requiring the assessee to file revised return. For which the assessee replied that the return filed vide receipt no.011775 on 28.12.2007 be considered. Thereafter, the Assessing Officer issued notices on various dates requiring the assessee to clarify its stand on various issues and to explain the contents of the impounded material. Thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) on account of impounded annexure. A.Y. Addition by AO Relief granted by CIT(A) Addition sustained by CIT(A) (1) (2) (3) (4) 03-04 5,10,28,350 5,07,28,350 3,00,000 04-05 17,92,73,560 17,50,73,560 42,00,000 05-06 90,84,157 51,33,299 * 3,00,000 * for AY 2005-06, addition of Rs. 36,50,9781- was sustained by Ld. CIT(A) on the basis of appellant's own admission before Investigation Wing on account of peak credit of the entries in impounded documents. 8. This ground in all these three assessment years is inter-connected with ground no.2 taken by the assessee in COs. filed in these assessment years. In other words, additions sustained by the ld.CIT(A) in the above table are being challenged by the assessee. Thus, we take all these grounds together. 9. With the assistance of the ld.re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly Rs. 6.90 crores, during the year under consideration. The entire business transactions with principals are through the banking channel. (e) The appellant is maintaining regular books of account, which are duly supported by business related documents. The same are subject to audit u/s 44AB of the Act as well. There is no disqualification in audit report (copy of audited accounts and auditor's report attached. (f) The appellant has deployed number of employees for booking and taking score of financial transactions. There are sizable valuable clients who are used to book the domestic and international air tickets on account and payments are liquidated on subsequent dates. (g) At this juncture, it is respectfully submitted that the appellant is required to make the payments towards booking of air tickets to the principals at a regular interval to respect the scheduled terms of payments. There happened instances, where the payments from clients are not materialized whereas payments to the principals are required to be made on scheduled date. (h) In the circumstances, the staff employed for taking score of the available fund and other contingencies, used to mark the av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sated vide Para (j) above. (n) It may be mentioned that the extensive survey proceedings were carried out at the business premises of the appellant and associate concerns simultaneously on same date. The appellant has also furnished necessary explanations during the course of post survey proceedings as also during the course of assessment proceedings. No material or circumstantial evidence was noticed to suggest unrecorded financial transactions or unrecorded investments. (o) Your Honor will appreciate the fact that, the noting in rough note book cannot be regarded as books of account within the meaning of section 2(12A) of the Act. The casual noting in rough diary are dumb documents having no evidential value. The reliance is placed on following judicial pronouncements . 10. The ld.AO has submitted his remand report on the explanation of the assessee with regard to each entry in the Annexures considered by him during the course of assessment proceedings. The ld.CIT(A) has reproduced remand report of the AO as well as explanation of the assessee qua entries, thereafter, the ld.CIT(A) has deleted addition by observing as under: (A.Y. 2003-04). 4.3 I have perused the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw. However at the same time the appellant was not in a position to explain transactions to the tune of Rs. 1,59,624/- recorded in impounded documents. The instances of unrecorded business transactions lead to reasonable conclusion that there are business transactions which are not recorded in regular books of account considering totality of facts, I am convinced that the ration laid down in by the.Hon'ble High Court of Gujarat in the case of CIT vs P. Pravin Co. (2005) 274 ITR 534(Guj) is applicable to the facts of this case and respectfully following the same I am of the considered view that it is reasonable to estimate the profit earned out of such unrecorded financial transactions at Rs. 3,00,000/-. In the circumstances, the additions based on Annx-A2,A3,A4,A8 amounting to Rs.5,10,28,350/- and addition of Rs.36,50,978/- taxed in the assessment year 2005-06 are hereby deleted and estimated addition of Rs.3,00,000/- is sustained the appellant gets relief accordingly. 11. The ld.DR has relied upon the order of the AO whereas the ld.counsel for the assessee relied upon order of the ld.CIT(A) as well as submissions filed by the assessee before the ld.CIT(A). 12. On due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2005-06 90,84,157 27,91,555 61,469 0.68% Total 23,93,86,067 10,99,87,129 40,98,852 1.05% 13. At this stage, we would like to make a reference to section 68 of the Income Tax Act, which contemplates that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof, or the explanation offered by the assessee is not, in the opinion of the AO satisfactory, then the sum so credited in the accounts may be treated as income of the assessee of that previous year. 14. Thus, a perusal of the above details would indicate that the AO has committed an error by assuming that these are unexplained cash credits of the assessee. 15. In the remand proceedings the ld.AO has scaled down the figures of discrepancies. These aspects have been further examined by the ld.CIT(A). This exercise would indicate that in these papers, no unexplained credits were noted by the assessee. These are rough papers kept by employees for their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng addition of Rs.36,50,978/- which was added by the AO on ground that the assessee has voluntarily admitted this amount before the DDIT(Investigation). A perusal of computation of income for Asstt.Year 2003-04 would indicate that at serial no.5, the ld.AO has made an addition of Rs.36,50,978/- under the heading Disclosure made before the DDIT(Investigation)-2, Rajkot. . The assessee pleaded that she has worked out peak balance of Rs.32,20,478/- on the basis of impounded documents and offered the same for taxation for the Asstt.Year 2005-06. Subsequently, peak balance was revised at Rs.36,50,978/-. The AO has finalised the assessment making an addition of Rs.96,69,920/- in Asstt.Year 2005- 06. When the assessee challenged this addition before the ld.CIT(A) in the Asstt.Year 2005-06, then the ld.CIT(A) has observed that peak working for the Asstt.year 2005-06 is to be restricted to Rs.39,50,978/- . It includes Rs.36,50,978/- plus Rs.3.00 lakhs. Thus, the ld.CIT(A) has deleted addition of Rs.51,33,219/- in Asstt.Year 2005-06 which is discernible from details filed by the assessee in para-5 of this order. The assessee has impugned only retention of addition of Rs.3.00 lakhs by the ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts, we do not find any error in the order of the ld.CIT(A) because interest expenditure could be disallowed if interest bearing funds were used by the assessee for the purpose of granting loan without charging interest. The assessee has demonstrated that she has more interest free funds during the year than the interest free advance, and therefore there could not be any attribution of interest expenditure on such interest free loans. These grounds of appeal are rejected in all these assessment years. 24. Ground no.4, 4, 3, 5 of Revenue s appeal in the Asstt.Year 2003- 04, 2004-05, 2005-06 and 2006-07: The ld.CIT(A) has erred in law and on facts in granting relief out of disallowance made from administrative and selling expenses.: 25. Ground nos.3, 3, 3 and 4 of the assessee s appeal CO in the Asstt.Year 2003-04, 2004-05, 2005-06 and 2006-07 respectively. The ld.CIT(A) erred on facts as also in law in retaining disallowance out of total disallowance made from administrative and selling expenses. 26. Next common issue raised by the Department and the assessee is with regard to estimated disallowance of expenses viz. (a) out of vehicle expenses, (b) telephone and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Rs.2,36,700/- out of total addition made by the AO at Rs.4,71,700/-. 33. Brief facts of the case are that out of administrative expenses debited by the assessee, the ld.AO has made an adhoc disallowance of Rs.4,71,700/- which is 20% of the total expenses debited by the assessee. On appeal, the ld.CIT(A)has restricted this disallowance to 10% on the ground that the assessee is an individual. She has huge turnover and earned commission income of more than Rs.12 crores. We have considered this aspect while disposing of ground no.4 of the Revenue s appeal in the Asstt.Year 2003-04 i.e. in para 27 of this order. We do not find any merit in this ground of appeal. It is again dismissed. 34. Ground no.5: In this ground of appeal, grievance of the Revenue is that the ld.CIT(A) has erred in deleting addition of Rs.30,089/-. The assessee has written off the above amount in the books of accounts and claimed it as bad debt. She also alleged that these were expenses which could not be recovered, hence, she has written off them. The AO has disallowed the claim of the assessee on the ground that the assessee failed to demonstrate the efforts made by her for recovery of the outsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. We do not find any merit in these grounds of appeal. They are rejected. 40. Ground no.2 in assessee s appeal for the Asstt.Year 2006-07: The ld.CIT(A) erred on facts as also in law in confirming the disallowance made in respect of discount of Rs.82,63,965/- u/s.40(a)(ia) of the Act 41. Brief facts of the case are that the assessee is a member of International Air Transport Association( IATA ). She used to book airtickets for domestic and international air-travellers for AirIndia, Kingfisher, JetAirline and other international air-lines. Some of travel agents booked air-tickets by using assessee s membership. In other words, tickets which were to be booked in the name of the assessee were to be sold to the agents at discounted price. The alleged travel agents made payment of concessional price and assumed role of customer of the assessee. The AO treated such travel agents as agents of the assessee and observed that the discounted rate on which tickets were sold to the customers is to be construed as commission paid. Assessee failed to deduct TDS and therefore the alleged concession in the ticket price is to be disallowed to the assessee. The case of the assessee is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra). It is pertinent to take note of the following finding of the Hon ble Gujarat High Court. .. It is also not possible to accept the contention of Mr. Naik for the Revenue that the definition of commission or brokerage as contained in the Explanation to Section 194H is so wide that it would include any payment receivable, directly or indirectly, for services in the course of buying or selling of goods and that, therefore, the discount availed of by the stamp vendors constitutes commission or brokerage within the meaning of Section 194H. If this contention were to be accepted, all transactions of sale from a manufacturer to a wholesaler or from a wholesaler to a semi wholesaler or from a semi-wholesaler to a retailer would be covered by Section 194H. To fall within the aforesaid Explanation, the payment received or receivable, directly or indirectly, is by a person acting on behalf of another person (i) for services rendered (not being professional services), or (ii) for any services in the course of buying or selling of goods, or (iii) in relation to any transaction relating to any asset, valuable article or thing. The element of agency is to be there in case of all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der: It was clear that the intermediaries were booking tickets from the assessee. Therefore, the intermediaries were not working as agents of the assessee for doing the assessee's business rather the intermediaries were bringing the business to the assessee as recorded by AO and the assessee was passing out some handling charges. Thus, the assessee was, in fact, giving some discount to the intermediaries for getting business. It was not a transaction between the principal and agent but it was as transaction between the principal and principal. 45. Respectfully following judgment of the Hon ble Gujarat High Court and order of the ITAT, Mumbai Bench, we are of the view that disallowance made by the AO and confirmed by the ld.CIT(A) with help of section 40(a)(ia) of the Act on account of non-deduction of TDS deserves to be deleted. We accordingly delete the disallowance. This ground of appeal is allowed. 46. In ground no.3, the assessee has challenged addition of Rs.50,000/- on account of low household withdrawals. 47. We have already considered this issue while taking up appeal for the Asstt.Year 2004-05. We reject this ground of appeal. 48. Ground No.4: In thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance. Before the ld.CIT(A) it was contended that the assessee has total interest free funds of Rs.1,35,24,553/-. Thus, she has not used interest bearing funds for making interest free advances, the ld.CIT(A) deleted the disallowance. 56. We have already held that the assessee was able to demonstrate that if she has more interest free funds than the advance then on notional basis interest cannot be computed for disallowance. We do not find any error in the order of the ld.CIT(A). This ground is rejected. 57. Ground no.3: In this ground, grievance of the Revenue is that the ld.CIT(A) has erred in deleting an addition of Rs.1,31,000/-. 58. Brief facts of the case are that the assessee has obtained a loan from Manojbhai Anantrai and from Shri Anantrai Maganbhai. She has repaid these loans. Creditors have shown interest to the extent of Rs.50,000/- and Rs.81,000/- respectively. The AO assumed that since creditors have shown interest income in their accounts, therefore, the assessee must have paid interest to them without debiting in the books of accounts. He accordingly made addition of Rs.1,31,000/- under section 69C of the Act. 59. Before the ld.CIT(A) it was contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, whereby the disallowance of Rs.42,200- out of total disallowance of Rs.51,226/- was confirmed, we observed that these are adhoc disallowance made by the AO by observing that possibility of personal user of car and telephone cannot be ruled out. It is an estimated disallowance which has been scaled down by the ld.CIT(A) marginally. Therefore, we do not see any reason to interfere in the order of the ld.CIT(A). This ground of appeal is rejected. 66. In the result, the appeal of the Revenue for the Asstt.Year 2006- 07 is dismissed. 67. Now we take up Revenue s appeal, ITA Nos.355 and 386 /RJT/2011 for the Asstt.Year 2004-05 and 2005-06. 68. In these appeals, grievance of the Revenue is that the ld.CIT(A) has erred in deleting penalty of Rs.13,84,548/- and Rs.13,00,713/- for the Asstt.Years 2004-05 and 2005-06 respectively. 69. With the assistance of the ld.representatives, we have gone through the record carefully. Facts on all vital points are common in both assessment years. Therefore, for the facility of reference, we take the facts from the Asstt.Year 2004-05. 70. Brief facts of the case are during the course of survey, certain documents were found viz. Annex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation which is found by the Assessing Officer or the Commissioner (Appeals) or the CIT to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income or such person as a result thereof shall, for the purposes of Clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed. 72. A bare perusal of this section would reveal that for visiting any assessee with the penalty, the Assessing Officer or the Learned CIT(Appeals) during the course of any proceedings before them should be satisfied, that the assessee has; (i) concealed his income or furnished inaccurate particulars of income. As far as the quantification of the penalty is concerned, the penalty imposed under this section can range in between 100% to 300% of the tax sought to be evaded by the assessee, as a result of such concealment of income or furnishing inaccurate particulars. The other mos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been determined on an estimate basis. By way of present order, we have changed that estimation. We have held that un-reconciled entries be considered only for working out element of profit involved in it. Gross receipt cannot be added. Similarly, we have observed that profit is to be estimated in these assessment years according to the rate of profit disclosed by the assessee on the basis of regular books of accounts. Thus, there cannot be any element of concealment of income. The assessee has explained papers found during the course of survey. As observed in the quantum appeals, discrepancy in explaining these papers was ultimately determined at 2.6% of the gross value of the transaction considered by the AO on the basis of entries in these papers. In other words, the gross value of the transaction was Rs.17.92 crores worked out by the AO in the Asstt.Year 2004-05 and unreconciled entries were of only Rs.38,77,759/-. It was explained by the assessee that some of the employees must have left job and it was quite difficult to keep track of all entries noted by the employees. In this situation, the ld.CIT(A) has rightly deleted penalty. We do not find any error in both the orders o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO was not satisfied with the explanation of the assessee, therefore, he made addition of Rs.85,00,900/-. However, the ld.CIT(A) has deleted this addition by observing that the addition was made by the AO on the basis of surmises though investment was reflected in the books of accounts and that the assessee has sufficient funds in the form of bank balance and receivables for making investment of Rs.85,00,900/-. 80. On due consideration of the facts and circumstances, we are not inclined to interfere in the order of the ld.CIT(A), as the ld.CIT(A) has considered material facts on record and observed that impugned investment was recorded in the books of accounts and that sufficient funds is available with the assessee for making the investment. Though the assessee had submitted books of accounts during the assessment proceedings, the same was not considered at the end of the AO. Therefore, there is no merit in this ground of appeal of the Revenue. It is dismissed. 81. In the result appeal of the Revenue for the Asstt.Year 2005-06 in ITA No.961/RJT/2010 is dismissed. 82. Now coming to the CO of the assessee, bearing No.29/RJT//2010, only issue in this CO is with regard to add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... force in these two grounds of appeal of the Revenue. They are dismissed. 89. In the third ground, the Revenue challenges deletion of addition of Rs.27.00 lakhs by the ld.CIT(A) on account of disallowance of fictitious liability. 90. We heard both the parties and perused record and the orders of the Revenue authorities. During the assessment proceedings, on the basis of papers found in the survey proceedings, the AO formed an opinion that the assessee was having credit balance of Rs.8,05,000/- with M/s.Divya Travels, and in the books of the assessee the assessee has shown liability of Rs.18,95,000/-. The AO held the same to be fictitious liability and taxed accordingly. Assessee challenged this addition before the ld.CIT(A) who deleted the addition on the ground that rough papers found from the premises of wife of the assessee were mere notebooks and diaries and not books of accounts of the assessee. Besides, he observed that wife of the assessee has owned up the noting in the rough diary and taxed accordingly. The ld.CIT(A) has also observed that there is no documents or material evidence with the Revenue to link flow of unrecorded transactions with the assessee. Since there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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