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TMI Blog2025 (5) TMI 748X X X X Extracts X X X X X X X X Extracts X X X X ..... r scrutiny after survey proceedings initiated u/s 133A of the Act for the following reasons :- (a) The assessee has reported lesser amount of disallowable u/s 40(a)(ia) of the Act in the return of income based on the audit report in Form 3CD. (b) Undisclosed income has been reported on the ITBA AIMS portal after the online verification of the cash deposits during the demonetisation period. (c) Higher turnover reported in the service tax return compared to the ITR. 3. During the assessment proceedings, the AO observed that the assessee regularly disclosed the loss returns during the AYs 2013-14, 2014-15 and 2016-17 respectively. Further he observed that the auditor has reported the collection of TDS and non-deposits of the same in the Central Government Account. He further observed that the assessee has declared turnover and claimed huge expenses, the auditor has also found various discrepancies in the books as the assessee does not maintain regular books, the same was also found during the survey report. By relying on the above reports, he proceeded to reject the books of account u/s 145(3) of the Act. In order to determine the taxable income, he proceeded to estimate the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade sales on account of delivery orders, bulk orders, corporate sales and catering etc. which were not reflecting in the DSRs of restaurants and no separate account was maintained for such activities carried-out by the appellant. Director of the company in his statement under oath had admitted that the details of such sales are not maintained and no records of bills and vouchers in respect of these sales were available. The mode of receipt of such sales is mostly in cash. The Assessing Officer has also observed that the auditor of the assessee company has remarked adversely regarding the maintenance of regular books of account. The Assessing Officer has accordingly rejected the books of account of the appellant and estimated profit at the rate of 8 per cent of the total turn-over reported by the appellant in its books. ............. 10.3 In view of the above facts, I find that the books of account of the appellant are neither correct nor complete. Therefore; the decision of the AO to reject the books of account is correct. As the findings of the Ld. AO is mainly based on the statements of the Director and the remarks of Auditor in the audit report, and not on the findings in Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase of agricultural land and that the deal could not be materialized which has resulted into cash in hand of Rs. 1,34,82,685/- as worked out by the appellant. I find that the gap of few months (around 3-4 months in this case) between the cash withdrawn and cash deposited cannot be the sole reason for the rejection of appellant's explanation. The decisions of the jurisdictional High Court in the cases of Kulwant Rai (supra) and Jaya Aggarwal (ITA 315/2005/ 13th March, 2018) are also in support of these findings. In the case of Kulwant Rai, the assessee had cited withdrawal of a sum of Rs. 2 lakhs from his bank account as the source for cash found during search and the same was not accepted by the AO on the assumption that such withdrawn amount may have been spent for some other purposes. The court held that in the absence of any material in support of the view that withdrawals were spent for some other purpose, the Tribunal was right in treating the withdrawals as source of cash found. Similar is the case of the assessee where cash withdrawals from bank accounts are the source of subsequent cash deposits into the bank accounts which cannot be rejected in the absence of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od during assessment proceedings." 8. At the time of hearing Ld AR submitted as under: 1. The appellant filed the Return of Income on 30.10.2017 u/s 139(1) declaring the loss of Rs. 2,90,19,970/-. The Ld. A.O competed the assessment vide order Section 143(3) dated 26.12.2019 by making the following disallowances/additions: i) Declared loss of Rs. 2,90,19,970/- was disallowed u/s 145 of the IT Act,1961. ii) Addition of Rs. 48,36,336/- u/s 44AD by rejecting the books of accounts. iii) Addition of Rs. 1,28,30,720/- on account of cash deposited in the bank. 2. Survey u/s 133A of the Act was done on the premises of the appellant on 15.03.2017. During the year, the appellant was running restaurants on a franchise basis and was also engaged in providing consultancy in hospitality services. The appellant was maintaining regular books of accounts which were duly audited. Ground No 1, 2 & 4: Rejection of Books of Accounts and Disallowance of declared loss: 3. The appellant is a private limited company and maintains regular books of accounts which are duly audited. The corporate office of the appellant company receives daily sales reports (DSR) from the restaurants and these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd to M/s South Asian Hospitality Services Pvt. Ltd. please state whether all the sales from your various restaurants outlets are recorded in the daily sales report (DSR)? Ans. As per our present format the sales done in the restaurant premises are reflected in the DSR. Sales of delivery, Bulk Ordering, Corporate Sales, Catering etc. are not reflected there. However, the same into account while making the final P & L A/c and Balance Sheet. Q.18 Please state if you are maintaining any separate account for the sales other than those reflected in the DSR as stated by you in response to Q.17 above? Ans. We are not maintaining any separate account for the same however we are aware about the sales figures not reflected in DSR offhand as routine. Q 21 Regarding sales of delivery, bulk ordering, corporate sales, catering you have stated no response to Q.18, above that you don't maintain any separate account and are only aware of such sales in an offhand manner. In view of the same how can the figures of turnover reported in your service tax and income tax return be considered genuine? Ans. These figures are in the respective restaurants, and we have internal system to check the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onted with the assessee. The decision rendered by Jaipur bench of Tribunal in the case of Smt. Sunita Dhadda (supra) supports the case of the assessee on the above said ground. We have already noticed that the above said decision of the Tribunal has since been upheld by the Hon'ble Supreme Court in the very same case. Hence, on this ground alone, the additions made by the assessing officer in the hands of both the assessee's in the years under consideration are liable to be deleted......." 7. Therefore, the first and second observation of the Ld. AO as well as survey officer that the assessee does not maintain regular books is completely incorrect. 8. The Ld. AO mentioned that the auditor has mentioned following discrepancies in the books. The pointwise reply of each observation is as under (para 5.5 on p of the assessment order): i) VAT and service Tax not reconciled - VAT is applicable on goods and service tax is applicable on services. Therefore, Service tax return and VAT return is not reconciled. ii) TDS returns not filed - Since, the PAN of the assessee company is not working. Therefore, it is not possible to verify the same. Otherwise also, filing or non-filing of TD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iolation of the three conditions mentioned in Section 145(3), the books of accounts could not be rejected. Hence, the disallowance of loss of Rs. 2,90,19,970/-declared by the appellant is ex-facie illegal and arbitrary. Disallowance is based purely on surmises and conjectures. Therefore, it is very humbly requested that the loss of Rs. 2,90,19,970/- may kindly be allowed. Ground No.3: Addition u/s 44AD of the Act: 14. After rejecting the books of accounts, the Ld. A.O applied Sec 44AB and estimated the income at Rs. 48,36,336/- @ 8% on the total turnover of Rs. 6,04,54,198/-. Once the accounts have wrongly been rejected, income cannot be determined on estimate basis. Moreover accounts are duly audited. Further, Section 44AD is applicable only if the turnover is upto Rs. 2 crores. Since, in case of the appellant the turnover is Rs. 6.04 crores, section 44AD cannot be applied. Therefore, whole basis of addition is ex-facie illegal, arbitrary and without jurisdiction. The same may kindly be deleted. Departmental Appeal: Addition of Rs. 1,28,30,720/- on account of cash deposit in bank account during demonetization: 15. The Ld. AO has made an addition of Rs. 1,28,30,720/- on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had to deposit the cash in bank. 20. The Ld. AO made the addition just on the basis of two grounds: i) There is a gap of few months between the withdrawal and deposit in bank accounts (July to Nov) ii) No supporting document has been provided to prove that some property transaction was entered into between the assessee and other party. 21. From perusal of the observations of the Ld. AO, it is clear that it is an admitted fact that the cash was deposited out of the cash withdrawal from bank. The question is just time gap between deposit and withdrawal. The reason for the same as filed before the lower authorities has been explained above that such cash was withdrawn for purchase of agriculture land. Infact, every agriculturist insists for the payment in cash only. Moreover, when the cash is put on the table, one gets a good bargain. However, the deal could not be materialized. Thereafter, the appellant company kept the cash with it and started searching for another land. However, in the meantime, demonetization happened and the assessee has to deposit the amount in bank. Therefore, there is a genuine reason for time gap in re-deposit of cash. 22. Further, by now it is ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed by the learned CIT(A) is not correct. We, therefore, delete the same. This ground of the assessee is allowed." * Anupama Chaudhary Vs ITO; ITA No. 4155(Del)/2009; dt. 27/12/2010 "6.2 We have considered the facts of the case and submissions made before us............. Other deposits stand explained by earlier withdrawals. Therefore, nothing further can be added to the total income in respect of such deposits. In this connection, we may refer to the decision of "C" Bench of Delhi Tribunal in the case of ACIT Vs. Baldev Raj Charla & others (2009) 121 TTJ 366. In paragraph no. 27, it is mentioned that there was no finding that the money withdrawn was used for any other purpose than re-deposit in the bank account. The existence of time gap cannot be a ground to reject the explanation of the assessee. .................." * Smt. Neeta Breja vs. ITO; ITA no. 524/Del/ 2017 dt. 25-11-2019 "....11. We have carefully considered the rival contention and perused the orders of the lower authorities. In the present case it is not disputed that the amount of cash was explained as available with the assessee in the hands to deposit in the bank. Assessee has substantiated the availabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. Accordingly, the assessee withdrew the cash from bank. However, on 11/07/2016, the assessee requested the owner to provide the copy of the documents so that the same could be vetted by the lawyer. However, without giving any reason, he refused to give the same. Accordingly, the deal could not be materialized. 25. Therefore, the basis of addition made by the Ld. AO that there is no agreement to sell and legal document regarding purchase of land is against the material on record which proves that the Ld. AO made the addition without considering the facts in proper perspective. 26. In addition to the above, from perusal of the assessment order it is clear that the Ld. AO did not have any cogent material which shows that the cash deposit during demonetization is out of the undisclosed sources. It is also judicially settled that when assessee-company had given an explanation which was reasonable, revenue authorities could treat amount in question as income from undisclosed sources only if there was some other material from which such inference could have been drawn. Reliance is placed on the following case laws: * Kanpur Steel Co. Ltd. Vs CIT; [1957] 32 ITR 56 (ALL. HC) " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue. .......... We have also examined the order of ld. CIT(A) and we find that his decision is based on facts on record and is supported by adequate reasoning and, therefore, we do not want to interfere with the order of ld. CIT(A) and accordingly we uphold the findings of the ld. CIT(A) sustaining relief granted to the assessee. 9. In the result, appeal of the Revenue is dismissed." 27. Hence, the Ld. CIT(A) is fully justified in deleting the addition of Rs. 1,28,30,770/-made by the Ld. A.O. General: The appellant craves leave to add to alter, amend or vary the aforesaid grounds of appeal before or at the time of hearing. The above ground is general. Prayer: 28. In view of the facts and law as discussed above, the following prayer is made. 1) Disallowance of Rs. 2,90,19,970/- may kindly be deleted. 2) Addition of Rs. 48,36,336/- u/s 44AD of the Act may kindly be deleted. 3) Declared loss of Rs. 29019970/- may kindly be accepted as against taxed amount of Rs. 48,36,336/-. 4) Since the Ld. A.O has rightly deleted the addition of Rs. 1,28,30,770/-, Departmental Appeal may kindly be dismissed." 9. On the other hand, Ld DR of the Revenue supported the findings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of accounts however he accepted the expenses claimed by the assessee and the result. In our view, without bringing on record the rationale to reject the books of accounts u/s 145(3) of the Act, the AO cannot reject the books of accounts merely on the audit qualification of the auditor. We also observed that the AO has not brought on record how he is not satisfied with the correctness or completeness of the accounts, how the method adopted by the assessee against the provisions of section 145(1) of the Act and how the results declared by the assessee in contravention to the section 145(2) of the Act. In our view, the AO has rejected the books of account without any basis and also adopted the rate as per section 44AD overlooking the book results certified by the auditor. There is no rationale brought on record to reject the books of account and adoption of the rate as per section 44AD. Therefore, we are inclined to direct the AO to accept the books results certified by the auditor, this is not the first year of operation and the same method of accounting was adopted by the assessee in the past. There is no change in the business carried on the assessee in the past and also the meth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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