DREAMZ ACHIEVERS (INDIA) PVT. LTD.,MUMBAI vs. ITO 9(3)(2), MUMBAI

O R D E R PER S. RIFAUR RAHMAN 1. This appeal is filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals) – 16, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 31.10.2019 for the A.Y. 2012-13.

(A.Y: 2012-13) M/s Dreamz Achievers (India) Pvt. Ltd., (in short ‘Act’) on book profit ₹.1,02,162/–. The return of income was processed under section 143 (1) of the act. Subsequently, the case was selected for scrutiny and notice under section 143(2) and 142(1) were issued and served on the assessee. In response to the above said notices, assessee filed relevant information as called for.

(A.Y: 2012-13) M/s Dreamz Achievers (India) Pvt. Ltd., Room Club Go Month F&B Misc Total Rev House Karting October 2525140 59549 1411504 854658 876636 5727487 November 2650105 58554 1654879 1124520 228273 5716331 December 3210415 65584 1245159 1246511 328498 6096167 TOTAL 53199212

5. After considering the submissions of the assessee, assessing officer rejected the contention of the assessee and further assessing officer observed that during survey proceedings, based on inputs received from Sales Tax Department that assessee was one of the beneficiaries of having taken accommodation entries of purchases. When confronted the assessee has accepted to have availed such accommodation entries and in post-survey assessee has disallowed the above said bogus purchases in capital work in progress. Since the assessee has involved in the above said issues in capital assets purchases. Further, he found strength from the pre-survey report on the basis of spot verification that assessee was not issuing proper invoices or receipts to its clients. Accordingly, he made the whole addition as per the loose paper found during survey as the income of the assessee for the current assessment year.

(A.Y: 2012-13) M/s Dreamz Achievers (India) Pvt. Ltd., considering the remand report from assessing officer. For the sake of clarity, it is reproduced below: “6.1.4 I have considered facts of the case, submissions made, remand report from AO, reply to remand report from the appellant and evidences before me. The loose paper containing details captioned Income Schedule from 01.04.2011 to 31.12.2011' illustrating month wise revenue from various operational activity of the appellant was found during survey. The same was explained by appellant as the estimates of revenue submitted to bank for availing loan facility. However, the same could not be availed. 6.1.5 The explanation of the appellant that the same was only an estimate could not be accepted as requirement of bank for availing any credit facility is to illustrate the income generation and loan repayment capability of the borrower. Even in case the revenue figures for 9 months are inflated; the same cannot be at more than 5 times, of the total revenue earned by the company in 12 months, without any basis. The appellant must have worked out some calculations before presenting the revenue income to banking authorities. The same ought to represent the revenue generation on estimated basis. 6.1.6 Further, Ld. AO mentioned the fact that in Inspectors pre survey report that no proper invoices or receipts are issued to the clients against the payments received for various facilities. It could be inferred from above fact that the loose paper illustrating the income schedule of Rs.5,31,99,212/- also take in account unaccounted receipts. Further, as noted by Ld. AO the appellant has also been a beneficiary party of having taken accommodation entries of purchase. The fact that the appellant accepted the above contention substantiate that it is generating unaccounted cash through business operations. The genuineness of the billing and accounting is questionable. Thus, the Ld. AO was justified in adding unaccounted income. 6.1.7 Further, I would decide on the contention that based on the tariffs the maximum revenue that could be earned was ₹.1.29 crores in entire year. The calculations provided by appellant has only considered 3 weekdays for calculating revenue and is misleading. Further, the same do not include the revenue earned for other operational and recreational activities. Thus, the same is not acceptable as the calculations are deceiving and do not give true picture. 6.1.8. The agitation of appellant that only Profit can be taxed and not the entire sales also do not stand. Any prudent businessman may deflate its income to avoid taxes but would never exclude any (A.Y: 2012-13) M/s Dreamz Achievers (India) Pvt. Ltd., genuine expense incurred by him from claiming against the income. As prudent business practice it is assumed that the claim of genuine expenses has already been awarded to appellant and what remains is only unaccounted income. 6.1.9. Considering above discussion, I decide the amount of Rs.5,31,99,212/- to be added as unaccounted receipts of appellant. Hence, the appeal of appellant is dismissed and in favor of revenue.”

3. The Ld.CIT(A) erred in confirming the charging of interest under section 234B and 234C of the Income Tax Act, 1961.

4. The Ld.CIT(A) erred in confirming the initiation of penalty proceedings u/s. 271(1)(c) of the Income Tax Act, 1961.

5. The assessee craves leave and add further grounds or to amend or alter the existing grounds of appeal on or before the date of hearing.”

(A.Y: 2012-13) M/s Dreamz Achievers (India) Pvt. Ltd., prepared by the assessee in order to submit the same to the bank and this piece of information is part of the loose sheets found during survey. He submitted that the assessee has made submission before Ld.CIT(A) that the facility available with the assessee is only 12 rooms and revenue is relating to only on these rooms. Even if hundred percent of the facilities applied for earning the income, the assessee can earn only to the extent of ₹.1.29 crores. Based on the above submission, Ld.CIT(A) has called for a remand report from the assessing officer. Assessing officer has submitted the same and the remand report is placed on record at Page No. 54 of the paper book. Ld AR submitted that the earning capacity of the assessee was clearly accepted by the assessing officer and confirmed by the assessing officer that the detailed sales register for the period was verified by him and it matches with the audited balance sheet and profit and loss submitted by the assessee during assessment proceedings. Further he also brought to our notice the assessment orders for assessment year 2008–09, 2009–10 and 2010–11, which is placed on record and he brought to notice the earning capacity of the assessee in those years, the revenue and profit achieved by the assessee. He submitted that the profit earned by the assessee in these years were declining year on year.

(A.Y: 2012-13) M/s Dreamz Achievers (India) Pvt. Ltd., 9. Further he submitted a detailed written submission, which is reproduced below: “7. The appellant further would like to submit that: - • In the Survey conducted in assessee's office and hotel premises at Lonavala in January 2013, after a search for two days, no evidence was found by the Income Tax department to show any concealment of income. In fact, the officers went through the 'Day book' of the business, showing 'all' cash/cheque/credit card entries and did not find any concealment of income. • Even the loose sheet' of paper showing 'estimates', at page No. 41 of the loose paper folder, found at the time of Survey (on the basis of which the A.O has made the addition) (Pg 30 of PB) was in existence at the time of Survey and no declaration and/or addition on account of unaccounted receipts was made. • The appellant was desperately trying to revive the Company out of its NPA status with STATE BANK OF INDIA and therefore applied to several banks to take over the credit facilities from SBI. One such bank was Jankalyan Sahakari Bank Ltd. (JKSBL) • The appellant had applied to JKSBL for sanctioning Lease Rent Discounting (LRD) credit facility to bring the company out of its NPA status. The estimates were given to JKSBL as part of the paper work 'projecting future revenues (Pg 29 of PB). This same admission was made by assessee as 'statement under oath' at the time of Survey to Q. no. 8 wherein it was stated by appellant that Pg. No. 41- Projected income schedule of Lonavala from April 2011 to 31st December 2011 - to avail of loan probably given to bank. (copy of statement Pg No. 19 PB). This demonstrates that the Appellant had never earned such Revenues and this chart was mere projections to the Bank. With regard to the same, appellant have submitted evidences in paper book pg. no.27 to 32 as follows which proves that the documents were submitted to the Jankalyan Sahakari Bank Ltd. for Lease rental discounting: - (A.Y: 2012-13) M/s Dreamz Achievers (India) Pvt. Ltd., Sr. No. Particulars Pg. No.

8. The appellant further submitted a Chart showing Comparative Revenue and Expenditure Statement of the company since inception of the hotel, i.e from A.Y. 2006-07 to A.Y. 2013-14 (Pg No. 36 of Paper Book). This chart clearly demonstrates the TREND of Total Income of the assesse year after year. This gives a fair idea of what the Reenues of the company are, from year to year. Tehse figures are nowhere close to the figures estimated by the Ld. AO. Also this clearly shows that the Ld. AO and Ld.CIT(A) has not considered the same while passing such a harsh and unjust order.

(A.Y: 2012-13) M/s Dreamz Achievers (India) Pvt. Ltd., Thus, if the loose paper was true, then the Ld. A.O would have also estimated 'higher' income for the previous years, which he has not done. Thus, establishing the fact that the 'loose paper' was merely projections and not the true state of affairs.

13. Further the G.P of the Appellant for 3 years is as under: A. Y. G.P 2010-11 3.81% 2011-12 5.47% 2012-13 1.25%

The principle laid down by the Supreme Court and various Tribunals is that as per Section 34 of the Evidence Act, 1872, loose sheets of paper are not to be considered as ‘books’ and hence entries made therein are inadmissible as evidences and canot be relied upon. Additions made merely on the basis of loose sheets and torn papers is not justified and revenue has to bring some corroborative evidence to show that the loose papers and sheets actually show some transaction and that the assessee has earned income out of it, which is undisclosed from the department. The Revenue can tax only those receipts, which must have been proved to be income in the hands of the recipient.

(A.Y: 2012-13) M/s Dreamz Achievers (India) Pvt. Ltd., The point is that certain papers which are maintained would have relevance at the time of assessment. However, loose papers or noting’s cannot be considered as independent evidence for the purposes of making additions. RELIANCE IS PLACED ON:- Supreme Court in CBI v. V.C. Shukla 1998 AIR Vol. 3 SC 410, wherein it was held that entries in the loose sheets, may not have any evidentiary value. In following cases the Tribunal have held that merely on the basis of entries in loose sheets there cannot be an addition - • S. K. Gupta v. Dy. CIT [1999] 63 TTJ 532 (Del). • Shri Ram Bhagwandas Raheja v. Asstt. CIT [ITA (S&S) No.118/Mum/1996, Bench "B", Order dated 23rd September, 1998]. • Ashwani Kumar v. ITO [1992] 42 TTJ (Del.) 644: [1991] 39 ITD 183 (Del.). • Kishenchand Shobhrajmal v. Asst. CIT [1992] 42 TTJ (Jp) 423: [1992] 41 ITD 97 (Jp). • D.A. Patel v. Dy. CIT [2001] 70 TTJ (Mumbai) 969: [2000] 72 ITD 340 (Mumbai). • Satnam Singh Chhabra v. DCIT [2002] 74 TTJ (Lucknow) 976. • Amar Natvarlal Shah 68 TTJ 51G (All) Additions on the basis of loose papers not sustainable. Further Punjab & Haryana High Court in the case of CIT v. Ram Kumar [2007] 294 ITR 78 (P&H) have held that if assessee claims that loose sheets contain rough calculations, the onus is on the revenue to rebut with material evidence. Therefore, merely loose sheets or diaries found in the course of search, may not be sufficient for the Revenue to prove that the entries represent undisclosed income of the assessee the burden is on the Department to prove, beyond reasonable doubt that the entries represent the undisclosed income of the assessee. Thus, the addition made on the basis of bad-assessment order is also bad-in-law and required to be deleted. Regarding the Remand Report given by Ld.A.O dated 19.07.2019 (Pg. No. 52-55 of PB) the appellant would like to state as under:- The Ld. A.O., during remand proceedings, gave an opportunity to the Appellant for verification where the Appellant made the submissions

(A.Y: 2012-13) M/s Dreamz Achievers (India) Pvt. Ltd., with additional evidences. The Ld. A.O in subsequent para has perused the submissions and additional evidence filed by Appellant, considering the Rates on the Tariff Card and the fact that the hotel cum resort has only 12 rooms'. To prove this the Appellant had also filed his copy of L&B License and the same was accepted by the Ld. A.O.(Pg. no. 35 of PB) The Ld. A.O submits that he has verified the sales figures as above, the sales figures in books of accounts and has confirmed that there was no discrepancy on Pg. no. 55 of PB. Having accepted that the sales shown in books and what could have been sold by referring to tariff card as correct, the Ld. A.O. has denied the loose paper which demonstrated an exceptionally high sales and made only to impress the bank to obtain a loan. Further the Remand Report is in favour of appellant which the Ld. CIT(A) has not considered and passed the appellant order without any application of mind. Thus, when Remand Report passed by Ld. AO, after verification of additional evidence, is in favour of assesse, then without application of mind and without referring to the Remand Report passed by Ld. AO the Ld. CIT(A) has confirmed the addition which is bad in law and needs to be deleted. It is pertinent to note that it is this same CIT(A) who wrote to the Ld. A.O. for the Remand Report and then passed an Order without considering the facts mentioned in it. In view of the above, we request you to delete the addition made merely by relying on the loose paper' found and not considering the evidences filed which prove otherwise. The Ld. A.O and CIT(A) have not considered the aforesaid materials. Ground No.2 On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in charging interest under section 234B and 234C of the Income Tax Act, 1961. Thus on the facts and circumstances of the case the Ld.CIT(A) erred in charging Interest under sec 234B and 234C of Income Tax Act, 1961. Ground No. 3 On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in confirming the initiation of the penalty proceeding under section 271(1)(c) of the Income tax act 1961. Consequently, the Ld. CIT(A) erred in confirming the initiation of the penalty under sec 271(1)(c) of the Income Tax Act, 1961.”

(A.Y: 2012-13) M/s Dreamz Achievers (India) Pvt. Ltd., 10. On the other hand, Ld. DR submitted that during survey proceedings a loose sheet was found in which income for 9 months were found and he submitted that the return of income filed by the assessee is only after the survey. He also brought to notice that assessee has accepted the bogus purchases of assets and revised the above said purchases in its financial statements which shows that assessee is indulging in recording accommodation entries in its books of accounts and he also submitted that the authenticity of the documents found in loose sheets and its ownership is not denied. He submitted that in order to avail the loan, assessee should have prepared position for 12 months not for 9 months and he also brought to notice the profit and loss account in Page 43 of the paper book in which assessee has not disclosed any detail of the revenue and he supported the findings of the assessing officer and conclusion of the Ld.CIT(A). He submitted that the information in loose sheet is having a bearing in assessee’s real income.

(A.Y: 2012-13) M/s Dreamz Achievers (India) Pvt. Ltd., 12. Considered the rival submissions and material on record. We notice that during survey proceedings, the Department found certain loose papers and one of the papers containing the details of earnings of the assessee in its different operations during the period April 2011 to December 2011. The assessee has submitted that this information is prepared by the assessee as a projection in order to avail bank loan and it is only a projection based on the estimate that assessee will earn the above said income after availing of the bank loan. In survey proceedings assessee was confronted with 2 issues one was towards accommodation entries availed by the assessee from various operators for the purpose of capital work in progress and second is towards the loose sheets relating to undisclosed income as per the income chart. Based on information from Sales Tax Department, assessee has accepted the accommodation entries recorded in its books of account which is relating to the new project undertaken at Goregaon and it has offered the same and rectified the books of accounts. With regard to chart found in loose papers, assessee has submitted that it is only a projection prepared by the assessee in order to avail bank loan. During assessment proceedings assessing officer once again confronted with the assessee and assessee to substantiate the undisclosed income which is not disclosed by the assessee in its return of income. Once again assessee submitted that it is only a (A.Y: 2012-13) M/s Dreamz Achievers (India) Pvt. Ltd., projection for bank facility. Since the assessee is involved in availing accommodation entries for its capital work in progress and certain information from the inspector in pre-survey stage, Assessing Officer formed the opinion that assessee has concealed the income.

(A.Y: 2012-13) M/s Dreamz Achievers (India) Pvt. Ltd., observed that assessee has already claimed the total expenditure for the operation and whatever income disclosed by the assessee is only towards its undisclosed profit. If we accept the above analogy the profit of the assessee will be 665% of the total cost claimed by the assessee in its profit and loss account. If the assessee can earn so much of profit in its operation, assessee will not be facing any financial difficulties. In reality assessee is having huge financial burden with the banks and not able to serve even the interest. If the assessee can make so much of profit, then assessee will be owning the whole Lonavala area in few years.

(A.Y: 2012-13) M/s Dreamz Achievers (India) Pvt. Ltd., 16. Assessee also raised Ground No. 3 which is consequential in nature and we are remitting this issue back to the file of Assessing Officer to determine the proper interest under section 234B and 234C after considering the findings in Ground No. 1 raised by the assessee. With regard to Ground No. 4 since we already deleted the addition made by the assessing officer, this ground becomes infructuous. With regard to Ground No. 5 it is general in nature and in the grounds of appeal assessee has wrongly numbered the grounds by missing the Ground No 2.

Order pronounced in the open court on the 08th June, 2020