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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
Before: Shri J. Sudhakar Reddy, AM & Shri Satbeer Singh Godara, JM]
Per Shri Satbeer Singh Godara, JM
This assessee’s appeal for assessment year 2010-11 is directed against the Commissioner of Income-tax (Appeals)-15, Kolkata’s order dated 16.09.2016 passed in case No.393/CIT(A)-15/15-16/Wd-12(1)R&T/Kol involving proceedings u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”).
Heard both the parties. Case files perused.
The assessee’s first substantive ground challenges correctness of both the lower authority’s action adding the impugned sum of Rs.52,90,098/- towards income without taking on record reconciliation statement pertaining to its course fee. The CIT(A)’s findings under challenge read as follows: “Assessee had branches in Kolkata, Chennai, Bangalore, Delhi and Dhaka (Bangladesh). In audited P&L account company has shown course fees receipt at Rs.2,14,74,555/-. In details submission vide letter dated 16/11/2012, his receipts were shown at Rs. 2,10,64,350/-. Along with this letter assessee had also filed student wise fees collection at each branches. AO compared consolidated branch wise fee receipt figure with the student wise fee collection at each branch. As these two figures did not tally, AO took the higher figure of two and arrived at figure of Rs. 2,95,78,936/ - as the actual fee receipt of the assessee. As per consolidated branch wise total receipt, Rs. 2,42,88,838/ - was shown as the receipt for the year. As the assessee could not furnish any explanation, difference of Rs. 52,90,098/- was added to the Exterior-Interior Pvt. Ltd., AY-2010-11 total income. In appeal proceedings, assessee has submitted that addition made by the AO on the basis of assumption of cash system of accounting. Assessee is maintaining accounts on mercantile basis but AO has made the addition presuming that the accounts are on cash basis. Assessee has objected to the additions made and has relied on Delhi High Court judgment in CIT Vs. Siddhartha Trade Links Pvt. Ltd (2012) 206 taxmann 92, wherein it has been held that it is assessee's prerogative to choose the method of accounting. Assessee has further submitted that books of accounts were audited. Hence, AO should have accepted the audited books result. In reply AO has again pointed out the anomalies noticed during assessment proceedings in the books of account of the assessee, due to which tax audit report is not reliable. It is further mentioned that the total receipt of the company during the year was Rs. 3,65,74,820/ -. Had AO made assessment on cash basis of accounting, then addition of bigger amount would have been made. In rejoinder, assessee has objected to the AO's observations regarding the anomalies. I have carefully considered the facts of the case and the submissions of the assessee. AO has pointed out many defects in books, including negative cash balance on a particular day. In audit report also misrepresentation is pointed out. Appellant has itself submitted that previous management suppressed vital information and did not provide all the documents. AO has not made assessment by assuming cash system of accounting. For the discrepancies pointed out, assessee has not been able to furnish any reply. As the discrepancies remain unreconciled, addition of Rs. 52,90,098/ - is confirmed.”
We have given our thoughtful consideration to rival contentions against and in support of the impugned addition. The assessee is a company rendering interior design classes. We find from assessment order dated 25.03.2013 that the Assessing Officer went by the differential figures of the course fee receipt during the year as per letter dated 16.11.2012 and its explanation thereby adopting the higher of the two sums as its income resulting in the impugned addition. We find that there is an issue of cash or mercantile system of accounting as well as per the CIT(A)’s above extracted findings. The Assessing Officer made the impugned addition taking into account assessee’s receipts without considering the relevant course duration. There is no finding in either of the two lower proceedings about the actual time duration of the course of the interior design classes whether it pertains to the relevant previous year or spread-over to more than one assessment year. We make it clear that it is essentially a reconciliation issue of the corresponding figures taken in the assessee’s letter and explanation hereinabove. We accordingly deem it appropriate in larger interest of justice that the Assessing Officer needs re-examine the entire reconciliation once again as per law in view of the relevant documents to be submitted by the tax payer. This first substantive ground is taken as accepted for statistical purposes.
Exterior-Interior Pvt. Ltd., AY-2010-11 5. Next comes bogus advance course fee addition of Rs.10,28,076/- made in the course of assessment as confirmed in the lower appellate proceedings as under:
AO has pointed out that in respect of Camac Street Branch, assessee has shown actual fees receipt of Rs. 29,73,000/- in respect of some students whereas in a separate list of these students from whom advance fees is receipt, total receipt is shown as it Rs.40,01,676/ -. These there is an excess receipt of Rs. 10,28,076/- which has not been accounted in the books. Hence, AO has made an addition in respect of excess receipt as undisclosed income. In appeal proceedings assessee has submitted that the AO is going beyond audited accounts of the head office. AO could not point out any defects in the accounts of the head office. It is further submitted that some students were transferred from one branch to another branch. But reconciliation in this regard is not done immediately. Appellant has also filed the ledger account showing receipt of Rs. 82,13,419/-. I have carefully considered the facts of the case and the submissions of the assessee. AO had pointed out the names of students in the assessment order from whom advance receipt is more than the actual receipt booked in the account. Assessee has failed to provide any explanation in this regard. Hence, addition of Rs. 10,28,076/-, as income from undisclosed sources, is confirmed.
We have given our thoughtful consideration to rival contentions against and in support of the impugned addition arising once again from differential figures noticed from actual fee receipts of Rs.29,79,000/- as against a separate list of advance fee in respect of some of the students stating the very sum to be Rs.40,01,676/- finally culminating in the difference in question of Rs.10,28,076/-. Both the learned representatives very much agree during the course of hearing that this issue also requires reconciliation since not involving any dispute of legal or factual position. We therefore remit the instant issue as well back to the Assessing Officer for afresh adjudication in view of the reconciliation statement coming from the assessee’s side.
Next comes assessee’s third substantive ground seeking to delete addition amount of Rs.74,94,582/- as undisclosed bank deposits in its four bank accounts. Its only plea during the course of hearing is that the lower authorities have not given corresponding withdrawals/credit despite specific prayer made in the CIT(A)’s proceedings. Learned Departmental representative fails to rebut the clinching fact that assessee’s four bank accounts in question comprise of multiple withdrawals as well which could be prima facie taken as source of the corresponding deposits made later on. We therefore direct the Assessing Officer to examine assessee’s peak deposits after giving telescoping reliefs of the Exterior-Interior Pvt. Ltd., AY-2010-11 withdrawals as per law. The assessee is directed to file all relevant details in consequential proceedings. This third substantive ground is also accepted for statistical purposes.
We are now left with assessee’s fourth substantive ground challenging section 40A(3) disallowance of Rs.23,79,019/- made in both the lower proceedings. There is no dispute about the assessee having made cash payments of its business expenses triggering the impugned disallowance. Its only argument before us is that the Assessing Officer as well as the CIT(A) has simply added all cash payments without having regard to the relevant statutory expression “made to a person in a day”. We find force in assessee’s instant plea which has gone unrebutted from the Revenue’s side. We therefore direct the Assessing Officer to redo the entire exercise of computing the impugned disallowance as per law. We make it clear that the assessee shall be entitled to raise all its factual and legal arguments in support of its expenses in issue. This last ground in assessee’s appeal is accepted for statistical purposes.
This assessee’s appeal is allowed for statistical purposes.