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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI MANOJ KUMAR AGGARWAL
Date of Hearing – 27.10.2016 Date of Order – 11.11.2016
O R D E R PER SAKTIJIT DEY, J.M.
This is an appeal by the assessee against order dated 11th December 2014, passed by the learned Commissioner (Appeals)–52, Mumbai, for the assessment year 2011–12.
The only issue in dispute in the present appeal is in relation to addition of an amount of ` 18,85,500 as undisclosed income.
2 Inch by Inch The Body Temple Healthcare Pvt. Ltd.
Briefly the facts are, assessee a private limited company is engaged in the business of running a chain of fitness centres. For the assessment year under dispute, assessee filed its return of income originally on 30th September 2011, declaring nil income. A survey under section 133A of the Act was carried out at the assessee’s business premises on 2nd February 2012. In course of survey operation certain incriminating material in the form of a loose paper was found, which according to the Department indicated income not recorded in the books of accounts. When this fact was confronted to the assessee at the time of survey he came forward to offer aggregate income of ` 37,70,000 for the assessment year 2011–12. In consequence to the survey operation assessment for the impugned assessment year was re-opened under section 147 of the act and during the re-assessment proceedings the assessee vide letter dated 8th May 2012 offered additional income of ` 37,70,000 to buy peace with the Department. The assessing officer referring to the loose paper impounded at the time of survey observed that the said document pertains to the period April 2010 to November 2010 and covers activities of all the branches. He noted, as per the loose paper the total receipt amounts to ` 158.50 lakhs as under:-
i) On records ` 120.9 lakh; and Off records ` 37.70 lakh. ii)
3 Inch by Inch The Body Temple Healthcare Pvt. Ltd.
The assessing officer observed, taking into account off record receipts from April 2010 to November 2010, the off record receipts for the rest of the four months of the financial year at the average rate of ` 4.71 lakh per month would come to ` 18,85,000. Accordingly, he added back the aforesaid amount to the income of the assessee. Similarly, extrapolating the average monthly off record receipts of ` 4.71 lakh per month the assessing officer added back an amount of ` 56.55 lakh in the succeeding assessment year i.e., assessment year 2012–13.
Being aggrieved of the addition made by the assessing officer assessee preferred appeal before the learned Commissioner (Appeals). The first appellate authority, however, confirmed the addition made by the assessing officer by observing that on the basis of incriminating material indicating unaccounted sales/purchases for a part of the year the assessing officer can make an estimate for the whole of the year on some reasonable basis.
The learned Authorised Representative submitted, except the loose paper no other incriminating material was found by the Department to indicate assessee has indulged in off record transactions. He submitted, the assessing officer without conducting any enquiry on his own either from the members of the fitness centre
4 Inch by Inch The Body Temple Healthcare Pvt. Ltd. or from any other source to find out the actual number of membership and the fees received, simply relying upon the loose paper found at the time of survey had made the addition on pure estimate basis and guesswork. He submitted, under identical facts and circumstances the Tribunal in assessee’s own case for the assessment year 2012–13 had deleted similar addition made by the assessing officer on the basis of the loose paper found at the time of survey. A copy of the said order of the tribunal was also placed before the bench.
The learned Departmental Representative submitted, no reliance can be placed on the order of the Tribunal for the succeeding assessment year as the addition made in the impugned assessment year is on the basis of an incriminating material found at the time of the survey which pertains to the relevant financial year. He submitted, the assessee had also owned up the transaction recorded in the said loose paper and offered additional income. Referring to the decisions relied upon by the first appellate authority the learned departmental representative submitted, on the basis of the receipts recorded in the loose paper the assessing officer was justified in computing income for four months.
We have considered the submissions of the parties and perused the materials on record in the light of decisions relied upon.
5 Inch by Inch The Body Temple Healthcare Pvt. Ltd. Undisputedly, assessing officer has made the addition of ` 18,85,500 by extrapolating off the record sales as per the impounded loose paper found at the time of survey. As it appears from the assessment order, the assessing officer has not made any independent enquiry from the members of the fitness centre or through any other means to find out the actual membership of the fitness centre and the actual monthly fees received from them. For this reason, the ITAT deleted similar addition made in the succeeding assessment year 2012–13, as evident from order dated 29th September 2015 passed in ITA No. 1343/Mum. /2015. Though, the loose paper found from the assessee’s premises revealed certain financial transactions pertaining to the part of the relevant financial year, however, that alone cannot be the basis for estimating the income of the entire year. At best, it may raise a doubt in the mind of the assessing officer which should have triggered further enquiry at his end to ascertain the actual receipt of the assessee from the fitness centres. Without conducting any such enquiry the assessing officer cannot make addition on presumptions and surmises by extrapolating figures from the loose paper. Merely because the assessee offered additional income on the basis of the figures mentioned in the loose paper, it will not give a handle to the assessing officer to make additions simply on guess work even for the period not covered in the said loose paper. The decisions relied upon
6 Inch by Inch The Body Temple Healthcare Pvt. Ltd. by the first appellate authority are not applicable to the facts of the present case since, they relate to traders involved in sales transactions. Therefore, it could not have been possible for the assessing officer to make enquiry with the customers to find out the actual sales transactions. That being the case, the assessing officer had no other option but to make estimation of sales at a reasonable basis on the basis of unaccounted sales found from the incriminating material. However, in the present case the assessee is not involved in trading activity but runs fitness centre where customers are admitted on membership basis. Therefore, the details of customers are available on record. On the basis of these details the assessing officer could very well have conducted enquiry with the members/customers of the fitness centre, even on random basis, for ascertaining the actual fees paid by them. Without doing any such enquiry the assessing officer certainly cannot make addition purely on guesswork. In view of the aforesaid we delete the addition made by the assessing officer and sustained by the first appellate authority. Grounds are allowed.
In the result assessee’s appeal is allowed. Order pronounced in the open Court on 11.11.2016