M/S. TRAVELLINE INTERNATIONAL,PUNE vs. INCOME TAX OFFICER, PUNE

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ITA 405/PUN/2017Status: DisposedITAT Pune16 December 2019AY 2007-088 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that when undisclosed income is earned and undisclosed expenditure is incurred for earning that income, only the net amount should be added. In this case, the net outflow was Rs. 1 lakh (Rs. 26 lakh expenses vs. Rs. 25 lakh receipts), plus Rs. 10.71 lakh for flat investment and Rs. 5 lakh for other omissions, totaling Rs. 16.71 lakh, which was covered by the Rs. 17 lakh offered.

What were the facts?

During a survey, the assessee's partner declared Rs. 56 lakh in income, including unexplained expenses and unaccounted receipts. The assessee later filed a return declaring only Rs. 17 lakh of additional income.

What were the issues?

Whether the addition sustained by the CIT(A) was justified, considering the assessee's declaration during the survey and the subsequent filing of the return.

Which sections of the Income-tax Act were involved?

Section 133A,Section 37(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE

Before: SHRI R.S. SYAL & SHRI S.S. VISWANETHRA RAVI

For Appellant: Shri Rajiv Thakkar
For Respondent: Shri Ajay Dhoke

PER R.S.SYAL, VP :

This appeal by the assessee is directed against the order dated 05-10-2016 passed by the CIT(A)-6, Pune in relation to the assessment year 2007-08.

2.

The additional ground raised by the assessee was not pressed. The same is, therefore, dismissed.

2 ITA No. 405/PUN/2017 M/s. Travelline International

3.

The only issue raised in the appeal is against the

confirmation of addition of Rs.14.00 lakh.

4.

Briefly, stated, the facts of the case are that the assessee

was subjected to survey action u/s.133A of the Income-tax

Act, 1961 (hereinafter called ‘the Act’) on 13-03-2007. In the

course of survey, statement of the partner was recorded. In

response to question nos.7, 8, and 10, he made a declaration of

income to the tune of Rs.56.00 lakh, comprising of Rs.26.00

lakh towards unexplained business promotion expenses;

Rs.25.00 lakh towards unaccounted receipts; and Rs.5.00 lakh

towards other omissions and errors. However, the return was

filed with the additional income of Rs.17.00 lakh. The

Assessing Officer (AO) made addition of Rs.39.00 lakh

(Rs.56.00 lakh – Rs.17.00 lakh) on the ground that the

assessee ought to have declared the income offered during the

course of survey. The ld. CIT(A) sustained the addition at

Rs.14.00 lakh thereby deleting the addition of Rs.25.00 lakh

on account of undisclosed income. The assessee is in appeal

3 ITA No. 405/PUN/2017 M/s. Travelline International

before the Tribunal urging for the deletion of the addition

sustained.

5.

We have heard the rival submissions and gone through

the relevant material on record. The assessee was subjected to

survey action. In the course of survey, the statement of the

partner was recorded, a copy of which has been placed for our

consideration. In response to question no.7, he admitted to

have paid commission between 5% to 10% for securing

customers for its Hotel and other Tourism places business,

which was not recorded in the books of account. In response

to question no.8, he admitted that there were unaccounted

receipts to the tune of Rs.25.00 lakh. In response to question

no.10, he surrendered Rs.5.00 lakh on account of other

omissions and commissions. The assessee actually offered a

sum of Rs.17.00 lakh in the return of income with the

following chart, as has been incorporated on page 3 of the

assessment order :

4 ITA No. 405/PUN/2017 M/s. Travelline International

Particulars Amount (Rs.) Unaccounted Investment in residential flat made out of 10,71,000 withdrawals from the firm Unexplained business promotion expenses admitted at the 26,00,000 survey Total 36,71,000 Less : Unaccounted receipts utilized for aforesaid 25,00,000 payments Balance (shortfall) 11,71,000 Additional income offered to cover all omissions & 5,00,000 commissions to avoid any possible litigation & to buy peace of mind Total 16,71,000 Income offered (rounded off to the nearest Rs.1,00,000/-) 17,00,000

6.

It can be seen from the above chart that the assessee

offered Rs.10,71,000/- on account of unaccounted investment

in residential flat, which has no connection with the surrender

of Rs.56.00 lakh made by the assessee in total. Obviously, this

amount ought to have been included by the assessee in the

return. Thereafter, there is an item of Rs.26.00 lakh, which

was on account of business promotion expenses admitted by

the assessee at the time of survey incurred in the shape of

commission paid to certain parties who were bringing in

customers for the assessee’s hotel business. The assessee

admitted to have received Rs.25.00 lakh over and above the

accounted receipts. Both the figures of receipts and expenses

5 ITA No. 405/PUN/2017 M/s. Travelline International

are emanating from the statement of the assessee. Apart from

that, there is no reference to any evidence divulging the receipt

or payment of undisclosed income/expenditure.

7.

One needs to differentiate between the two situations, viz.,

one in which undisclosed income is earned and unexplained expenditure is incurred, which spending is de hors the earning

of income and two, in which undisclosed income is earned by

spending undisclosed expenditure. For example, if

undisclosed income is earned and the same is spent in

purchase of jewellery, in such a case, there will be addition

only for the earning of the unexplained income because the

outflow of the income in the shape of expenditure will be from

the inflow of the undisclosed income. On the other hand, if

some undisclosed income is earned and for earning that

income some undisclosed expenditure is also incurred, then it is the net of income vis-a-vis expenditure, which will be

added. It is so because the unexplained expenditure for earning

the undisclosed income would be met out of such undisclosed

income. In the instant case, we are confronted with the facts

6 ITA No. 405/PUN/2017 M/s. Travelline International

which are germane to the second situation, in which some

undisclosed business income was admitted to have been

earned and simultaneously some undisclosed expenditure was

also incurred for the incurring of income. In such a scenario, it

is only the excess of one over the other, which can be charged

to tax. Adverting to the facts of the instant case, it is seen that

there is net outflow of Rs.1.00 lakh which calls for addition in

as much as the assessee received business receipt of Rs.25.00

lakh outside the books of account and also spent business

expenses of Rs.26.00 lakh outside of the books of account.

The payment of commission to certain persons for fetching

customers has direct relation with the running of Hotel

business from which unaccounted receipts of Rs.25.00 lakh

were earned. Further, the payment of commission is a normal

incidence of business and is not hit by Explanation 1 to section

37(1) of the Act. Once this is the position, we fail to

appreciate as to how any addition other than Rs.1.00 lakh on

this score can be made, apart from addition of Rs.10,71,000/-

on account of investment in flat and Rs.5,00,000/- towards

additional income offered by the assessee on account of

7 ITA No. 405/PUN/2017 M/s. Travelline International

omissions and commissions. When these three amounts are

added up, the total comes to Rs.16,71,000/-. As against that,

the assessee offered Rs.17.00 lakh as additional income. In

this view of the matter, there is no reason for making or

sustaining any addition over and above this amount. We,

therefore, order to delete the addition of Rs.14.00 lakh

sustained by the ld. CIT(A).

8.

In the result, the appeal is allowed.

Order pronounced in the Open Court on 16th

December, 2019.

Sd/- Sd/- (S.S. VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT

पुणे Pune; �दनांक Dated : 16th December, 2019 सतीश

8 ITA No. 405/PUN/2017 M/s. Travelline International

आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to: क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत आदेश आदेश आदेश अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. 3. The CIT(A)-6, Pune 4. The Pr. CIT -5, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे 5. “बी” / DR ‘B’, ITAT, Pune गाड� फाईल / Guard file 6. आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

Date 1. Draft dictated on 10-12-2019 Sr.PS 2. Draft placed before author 11-12-2019 Sr.PS 3. Draft proposed & placed JM before the second member 4. Draft discussed/approved JM by Second Member. 5. Approved Draft comes to Sr.PS the Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *

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