HOTEL DEEPAK ,MUMBAI vs. DCIT, CENTRAL CIRCLE -3, THANE

Subsequently, the case of the Assessee was selected for scrutiny through CASS and accordingly statutory notices were issued to the Assessee and vide notice dated 21.12.2020 u/s 142(1) of the Act, the Assessee was asked to explain “as to why the difference amount of Rs.10,19,848/- should not be added in the total income of the Assessee as undisclosed income”, which reads as under:

The Assessee in response to the show cause notice dated 21.12.2020, has submitted following reply:

The AO though considered the reply of the Assessee, however, not found the same acceptable mainly on the following reasons: Reasons/Facts “(i) During the course of survey proceedings, on going through dairy "SMART" found and impounded, the partner of the assessee firm Shri Chandrakant Ramanna Shetty in his statement recorded on oath has declared profit of Rs 22,51,948/- on total sales of Rs 1,08,80,197/- after claiming expenses of Rs.86,28,249/-. He has further stated the firm will not be claiming interest and remuneration to the partners from the above profit. Further, no expenses will be claimed on the above including depreciation. Therefore, it is established total expenses of the assessee firm of the FY 2017-18 is Rs.86,28,249/-. The bills submitted by the assessee, found that the majority of the bills pertains to period prior to the survey date.

The Assessing Officer (AO) considering the aforesaid facts and circumstances, ultimately added the amount of Rs.10,19,848/- being difference of income voluntarily offered for taxation during the survey and income declared in the return of income for the assessment year under consideration.

The Assessee, being aggrieved, challenged the said addition before the Ld. Commissioner, however, of no avail and therefore the Assessee, being aggrieved, is in appeal before this Court and reiterated its claim as made before the authorities below, whereas the Ld. D.R. supported the orders passed by the authorities below.

Having heard the parties and perused the material available on record, the Assessee before this Court has demonstrated that the survey action was conducted on 22.01.2018, wherein the Assessee has made voluntary declaration of Rs.22,51,948/- on a total sale of Rs.1,08,80,197/- for the period from 01.04.2017 to 31.12.2017. Whereas while filing the return of income for the assessment year under consideration for the period from 01.04.2017 to 31.03.2018, had shown total sales of Rs.1,49,13,978/- and the gross profit at Rs.41,47,599/- as against the amount of Rs.23,24,977/- as shown during the survey operation for the period from 01.04.2017 to 31.12.2017 and after claiming deductions on account of ESIC, provident fund and salary, GST, interest, SGST (compensation), CGST (compensation) and MVAT and other depreciation and electricity expenses, ultimately had shown the net profit at Rs.12,32,101/-.

The assessee preferred an appeal as against the assessment order before the ld. CIT(A) who confirmed the said addition made by the A.O.

Further aggrieved, the assessee is in appeal before us.

The ld. DR for the assessee contended that the addition was made on the basis of the statement of Shri Chandrakant Ramanna Shetty, partner of the assessee firm who had made voluntary declaration of income of the impugned income. The ld. DR further contended that the diary found during survey operation contended the total expenses which amount to Rs.1,03,87,948/-, and that the impugned expenses pertaining to VAT payment amounting to Rs.6,14,820/- was not found in the said diary. The ld. DR further stated that the alleged VAT payment was made by the customers which was included in the sales bill and that the assessee has no records to prove that the same was paid by the assessee firm. The ld. DR relied on the orders of the lower authorities.

Having heard the ld. DR and perused the materials on record, it is observed that the assessee firm has declared its income on a presumptive based on the provision of section 44AD of the Act. It is also observed that the assessee has declared income @ 14.99% of the turnover, which the assessee contends to be much higher than the specified percentage of 8% as per the provisions of section 44AD of the Act. The assessee in its submission has also specified that the statement recorded u/s.133A of the Act from the partner of the firm was the sole basis of the impugned addition made by the A.O. The assessee relied on the decision of the Hon'ble Apex Court in the case of CIT vs. S. Khader Khan Son [2013] 352 ITR 480 (SC) which held that the statement recorded u/s. 133A has no evidentiary value and that the same cannot be the only basis for making the addition. The assessee has also specified that the difference in the amount declared by the partner of the assessee firm and that of return income was due to the expenses of the VAT payments which was from the coffers of the assessee and has not been collected separately in the bill, cash memo or invoice issued to the customers. The assessee contends that the said expenditure was incurred wholly and exclusively for carrying out the business of the assessee and was inadvertently not taken into account in computing the total expenses of Rs.1,03,87,948/- during the survey operation. The ld. CIT(A) on the other hand, relied on the decision of M/s. Pebble Investment and Finance Ltd. vs. ITO (2017- TIOL-238-SC-IT), wherein the Hon'ble Bombay High Court has upheld the evidentiary value of the statement recorded u/s. 133A of the Act. The ld. CIT(A) also relied on the decision of the Hon’ble Delhi High Court in the case of Raj Hans Towers P. Ltd. vs. CIT 373 ITR 9 (Del-HC) for the same proposition. The ld. CIT(A) further held that the addition made by the A.O. was not merely based upon the statement of the partner but also was corroborated from the seized diary found during the survey operation which contained the details pertaining to sale and expenses incurred by the assessee firm.

From the above observation, we are of the considered view that ground no. 2 raised by the assessee challenging the impugned addition as only on the basis of the statement recorded u/s.133A of the Act does not hold good in our opinion. It is pertinent to point out that the A.O. has considered the statement made by the partner of the assessee firm which was further corroborated by the diary found at the premises of the assessee during the survey operation, is justifiable to hold that the impugned addition was not merely based upon the statement recorded u/s. 133(6) of the Act but was also corroborated with material evidences. On this note, we find no merit in allowing ground no. 2 raised by the assessee. Hence, ground no. 2 is dismissed.

Ground no.1 pertains to the income declared u/s. 44AD of the Act at a percentage of turnover which is higher than the percentage prescribed u/s. 44AD of the Act. It is observed that the contention of the assessee is that it had declared higher profit than the percentage specified u/s. 44AD of the Act which is 8%, whereas the assessee has declared an income @ 14.99% of the turnover made during the impugned year. The ld. CIT(A) has held that the A.O. has got extensive power to assess the income beyond section 44AD if the A.O. can substantiate the same by sufficient documentary evidence. The ld. CIT(A) further held that the A.O. can tax the assessee at a higher rate than what is specified in section 44AD or than that declared by the assessee. It is pertinent to examine the provision of section 44AD which is reproduced hereunder for ease of reference:

In the result, the appeal filed by the Assessee stands allowed.