TMI Blog2024 (4) TMI 926X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the first appellate authority. To sum up, the view taken by the A.O that the expenses corresponding to the unaccounted receipts of Rs. 5.18 crore (approx.) already formed part of the expenses claimed by the assessee company in its books of accounts had rightly been found to be incorrect and dislodged by the first appellate authority. We concur with the CIT(Appeals) that now when the assessee company had credited the profit element embedded in the unaccounted banquet booking receipts in its profit and loss account for the immediately succeeding year, i.e., A.Y 2018-19, which thereafter had been accepted by the A.O vide his order passed u/s 143(3) for the said succeeding year, therefore, an inconsistent approach could not have been adopted for rejecting the claim raised by the assessee company on the same lines during the subject year, i.e., A.Y. 2017-18. Once the A.O while scrutinizing the case of the assessee company for the immediately succeeding year, i.e. A.Y. 2018-19 had approved the credit of the profit element embedded in the unaccounted banquet booking receipts of Rs. 99.21 lacs (supra) in the profit and loss account by the assessee company, therefore, it is incomprehen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he immediately succeeding year, i.e., A.Y. 2018-19 was for justifiable reasons. Also, the reasonableness of the assessee's claim for deduction of expenses can safely be gathered from a comparative analysis of those booked by him in the immediately last two preceding years. We concur with the CIT(Appeals) that the comparative analysis carried out by the A.O of the expenses incurred by the assessee company during the whole year vis-a-vis those incurred by him for two months, i.e. April, 2017 and May, 2017 could by no means be held to be a feasible comparison. We are also persuaded to concur with the CIT(Appeals) that certain expenses incurred by the assessee company in the aforementioned two months, viz. April, 2017 and May, 2017 (which were adopted as a yardstick) would have been booked after the aforesaid months, therefore, no proper comparison of the expenses incurred by the assessee company during the whole year could have been carried out as against those incurred during the aforesaid two months. Thus in the absence of any material having been placed on record by the A.O which would substantiate that the assessee s claim for deduction of the aforesaid expenditure, i.e. to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isters of banquet booking identified as BI-1 and BI-2 were found and impounded. On examination of the aforesaid impounded registers, it was gathered by the survey officials that part of the banquet bookings received in cash during the subject year amounting to Rs. 5,18,57,901/- were unaccounted. On being confronted with the aforesaid fact S/shri Komal Yadav and Amit Paul who were looking after the accounting work of the assessee company, had in their respective statements recorded on oath during the survey proceedings admitted that the aforesaid cash receipts were not recorded in the books of accounts. Also, Shri Jagjeet Singh Khanuja, Director of the assessee company in his statement recorded u/s. 131 of the Act on 14.06.2017, had admitted the discrepancies gathered by survey team based on the aforesaid impounded registers and had surrendered an amount of Rs. 5,18,57,901/- as undisclosed banquet booking receipts of the company for the year under consideration. 4. The A.O, on a perusal of the profit and loss account of the assessee company, observed that the assessee company as against the amount of Rs. 5,18,57,901/- that was surrendered/disclosed during the course of the survey pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pril, 2017 May, 2017 amounted to Rs. 1,84,57,146/-, against which, the corresponding stores, wines and operational expenses were claimed at Rs. 43,23,679/- and Rs. 23,21,990/-, aggregate of which expenses worked out at 36% of the total receipts. As against that, the A.O observed that the final accounts of the assessee company for the subject year revealed that as against its total receipts of Rs. 12,34,93,017/- the cost of material consumed was claimed at Rs. 5,69,41,028/- and other expenses at Rs. 3,42,87,332/-, which worked out at 73.87% of the total receipts. 6. The A.O. on a comparative analysis of the aforesaid details was of the view that the assessee company had booked all the expenses before surrendering its undisclosed income. Accordingly, the A.O was of a firm conviction that the amount surrendered by the assessee company towards unaccounted banquet booking receipts during the course of the survey proceedings, i.e. Rs. 5,18,57,901/- was purely towards its undisclosed income for the subject year. Also, the A.O observed that the assessee company apart from the income surrendered during survey proceedings, i.e. Rs. 3.39 crore (aprox.) had total revenue from operations of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the suppressed banquet booking receipts as were gathered during the survey proceedings from the impounded registers identified as BI-1 and BI-2. Apart from that, the CIT(Appeals) observed that the comparative expenditure incurred by the assessee company during the year under consideration, i.e. A.Y. 2017-18 conformed with that of the immediately preceding year, i.e. A.Y. 2016-17. Referring to the increase in the expenditure booked by the assessee during the year under consideration as against that of the immediately succeeding year, i.e. A.Y. 2018-19, the CIT(Appeals) found favor with the claim of the assessee that the same had occasioned for the reason that in the succeeding year its bar license was suspended, which, thus, had resulted to lower expenses in the said year. 8. It was, thus, observed by the CIT(Appeals) that a comparison of the expenditure booked by the assessee company during the year under consideration as against that of the immediately preceding and succeeding year did not reveal any abnormal increase. Also, the CIT(Appeals) did not concur with the view taken by the A.O. that as the assessee company had claimed various expenditures in its books of account till the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y during the two months preceding the date of the survey, i.e. April, 2017 and May, 2017 as against those incurred during the whole year. Once again the CIT(Appeals) was of the view that as the majority of the expenditures were incurred by the assessee company after survey proceedings, it was, thus, incorrect for the A.O to have observed that expenses pertaining to the unrecorded sales had already been claimed by the assessee company. Also, the CIT(Appeals) observed that the A.O. had neither pointed out any bogus expenditure recorded in the books of account of the assessee company nor rejected its audited books of account before making the disallowance on an ad-hoc basis. The CIT(Appeals), observing, that the disallowance of expenditure was not based on any supporting material but was guided by guesswork, assumptions, and presumptions, thus, was of the view that the same could not be sustained. Accordingly, the CIT(Appeals) drawing support from the various judicial pronouncements vacated the disallowance of Rs. 91,22,836/- made by the A.O. 10. The revenue being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us. 11. We have heard the ld. authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... joining the job a year back from Shri P.A.K Pillai. 14. Admittedly, it is a matter of fact borne from the record that the cash receipts recorded in the impounded registers, viz. BI-1 and BI-2 were the unrecorded banquet booking cash receipts of the assessee company. There is no dispute as regards the nature of the aforesaid cash receipts which had not only been admitted by Shri Jagjeet Singh Khanuja (supra) and his key employees as the unaccounted banquet booking receipts but had thereafter also been admitted by the assessee company by crediting the profit element embedded in the said unaccounted receipts in its profit and loss account for the subject year. 15. Controversy involved in the present appeal lies in a narrow compass, i.e. as to whether it is the profit element of the aforesaid unaccounted cash receipts that was liable to be credited in the profit and loss account (as offered by the assessee company); or it was the entire amount of the unaccounted receipts which that was to be credited to the profit and loss account while computing the income of the assessee company, as had been so done by the A.O? 16. On a perusal of the order of the CIT(Appeals), it transpires that he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 131 of the Act. The Ld. AO has not pointed out any discrepancy in the books of account of the appellant produced during the course of assessment proceedings. Further, similar type of disclosure had been made for AY, 2018-19, wherein, gross profit of 65% was offered against the gross profit of 32.44% of immediate preceding year i.e. year under consideration. The Ld. AO has accepted the above disclosure and not made any addition as made in the year under consideration. The appellant has also submitted the comparative expenditure chart explaining that the gross profit shown on the unrecorded receipts is genuine. This chart is reproduced hereunder: I find that after claiming expenditure relating to unrecorded receipts, total expenses comes to 62% which is equal to immediate preceding year i.e. AY 2016-17. Further, the appellant has also explained that in the .AY 2018-19, the bar license was discontinued and for this reason total expenses has come down to 53%. On perusal of above comparison, no abnormal increase in expenditure is found. It also establish that the appellant had not claimed various expenses in the books of account till the date of survey. The Ld. AO has made following d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax (Appeals) and also that of the Tribunal. It is not disputed that the undisclosed income was Rs. 2,57,000. The sole question that arises for consideration is whether the entire income has to be treated as profit or there should be adoption of a method of net profit income. In the case of CIT v. President Industries [2002] 258 ITR 654, the High Court of Gujarat in a similar matter came to hold as under (page 655) : Having perused the assessment order made by the Assessing Officer, the order made by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal, we are satisfied that the Tribunal was justified in rejecting the application under Section 256(1). It cannot be a matter of an argument that the amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represented the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realization of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that investment by way of incurring the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corresponding to the unaccounted banquet booking receipts had already been claimed by the assessee company in its regular books of accounts, thus, it was not entitled to claim any further expenditure pertaining to the said receipts. The A.O to fortify his aforesaid conviction had carried out a comparative analysis of the assessee's claim for expenses for the whole year, i.e. 73.87% (of total receipts of the year) as against those claimed for the two months before the date of survey i.e. April, 2017 and May, 2017 which worked out at 36% (of the total receipts of the two months). 18. At the threshold, we concur with the view taken by the CIT(Appeals) that the A.O had fundamentally erred in drawing adverse inferences as regards the claim for expenses incurred by the assessee company without pointing out any discrepancy in its duly audited books of account for the subject year. Also, the observation of the CIT(Appeals) that the assessee's claim for expenditure vis-a-vis its total receipts for the subject year was in parity with that worked out at 62% of the immediately succeeding year, i.e. A.Y. 2016-17 further instills confidence as regards the veracity of the claim of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounted banquet booking receipts had been accepted by the A.O vide his order u/s. 143(3) of the Act dated 24.06.2021 for A.Y. 2018-19, therefore, we concur with the CIT(Appeals) that there was no justification for the A.O to have adopted an inconsistent approach and held the entire amount of unaccounted banquet booking receipts of Rs. 5.18 crore (supra) for the year under consideration as the income of the assessee company. Also, as is discernible from the records, it is a matter of fact that Shri Jagjeet Singh Khanuja, director of the assessee company in his statement recorded u/s. 131 of the Act dated 14.06.2017 in reply to Question No.1 had for both the years under consideration, i.e. A.Y. 2017-18 and A.Y. 2018-19 came up with a disclosure of the profit element embedded in the unaccounted banquet booking receipts of Rs. 5,18,57,901/- and Rs. 99,21,325/-, respectively as were gathered by the survey team from the entries recorded in impounded registers, viz. BI-1 and BI-2. Once the A.O while scrutinizing the case of the assessee company for the immediately succeeding year, i.e. A.Y. 2018-19 had approved the credit of the profit element embedded in the unaccounted banquet booking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income of the assessee company, as it was only the profit element attributable to the said receipts which was rightly credited by the assessee company in its profit loss account for the subject year. Our aforesaid view is fortified by the judgments of the Hon'ble High Court of Gujrat in the case of CIT Vs. President Industries (2002) 258 ITR 654 (Guj) and DCIT Vs. Panna Corporation, (2012) 82 CCH 266 ( Guj). Also, a similar view had been taken by the Hon'ble High Court of Madhya Pradesh in the case of CIT Vs. Balchand Ajit Kumar (2003) 263 ITR 610 (MP). Accordingly, finding no infirmity in the well-reasoned order of the CIT(Appeals), we herein approve the same to the extent he had vacated the addition of Rs. 1,79,44,938/-. Thus, Ground of appeal No.1 raised by the revenue is dismissed in terms of our aforesaid observations. B). Disallowance of 10% of expenditure, on ad-hoc basis : Rs. 91,22,836/- 22. As is discernible from the assessment order, the A.O had raised serious doubts about the assessee's claim for deduction of expenses, i.e cost of material consumed and other expenses for two-fold reasons, viz. (i) that the assessee's claim for expenses, i.e. stores, wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice before making the above addition. The said disallowance has been made on mere presumption basis and no evidence to support the presumption has been brought on the record. Therefore, the addition made by the Ld. AO is not justified. The appellant has also placed reliance upon following judgments of its favour:- (i) Jurisdictional ITAT, Nagpur (Camp at Raipur) in the case of Shashi Singhania, ITA No. 240/Nag/05 order dated 19.01.2006. (ii) Hemkund Fertilisers Pvt Ltd, ITA No, 359/Nag/2008. (iii) Mahindra Oil Cake Industries Pvt Ltd (1996) 55 TTJ 711 (AHD). (iv) Dakeshwari Cotton Mills Ltd (1954) 26 ITR 775. (v) Smt. Rajmati. Devi, ITA No. 332/LKW/2011. 4.2.2. I find that Ld. AO has not given any basis for making 10% disallowance of expenditure of Rs. 9,12,28,360/-. No discrepancy has been pointed out in the audited books of account by the Ld. AO. Further, I find that the expenses claimed by the appellant are not abnormal. The appellant has successfully establish that total expenditure incurred in the immediate preceding year and in the year under consideration are at the same ratio. Further, the such expenses also includes expenses incurred on account of power, linen/uniform/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 1,84,57,146 12,34,93,017 Stores, Wines Others Consumables 43,23,679 23% 5,69,41,028 46% Operational Expenses 23,21,990 13% 3,42,87,332 28% Expenses and sales ratio 66,45,669 36% 9,12,28,360 74% The conclusion arrived at by the Ld. AO is not found justified. Many times, bills of expenses are not received immediately whereas receipts are recorded. In the instant case also various bills had been received after the May, 2017 which were related to receipts of April and May. No provision with respect to such expenses can be made on month to month basis. Further, Ld. AO did not find out any bogus expenditure recorded in the books of account and did not rejected audited books of account before making adhoc disallowance. The Ld. AO has grossly erred in making addition simply on the basis of guess work, assumption and presumption. It is well settled that no addition can be made as a leap in the dark. The AO is not entitled to make a guess without evidence. The assessment of any particular year cannot be based on mere suspicion or bare guess, but on a legitimate material from which a reasonable inference of bogus expenditure can be made. The above view is supported by various judicial prono ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observe that the A.O while working out the aforesaid disallowance of the assessee s claim for expenses (on an ad-hoc basis), had neither pointed out any infirmity in the assessee's claim for deduction of the aforesaid expenses; nor brought on record any such observation which would reveal that its claim for deduction of expenses was not as per the mandate of Section 37 of the Act. As observed by the CIT(Appeals), the expenditure incurred by the assessee company during the year under consideration was found to be in the same ratio as those incurred in the immediately preceding year. Further, as observed by the CIT(Appeals), and rightly so, the comparative decline in the assessee s claim of expenditure vis- -vis its total receipts in the immediately succeeding year, i.e., A.Y. 2018-19 was for justifiable reasons. Also, the reasonableness of the assessee's claim for deduction of expenses can safely be gathered from a comparative analysis of those booked by him in the immediately last two preceding years, which as per details filed by him before the CIT(Appeals) are culled out as under: Other Expenses 2017-18 2016-17 2015-16 Linen, Uniform Crockery 5256965 4653968 4755915 Powe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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