SAHIL STUDY CIRCLE PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘G’ : NEW DELHI) BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT and SHRI A.T. VARKEY, JUDICIAL MEMBER ITA No.1434/Del./2013 (ASSESSMENT YEAR : 2007-08) M/s. Sahil Study Circle Pvt. Ltd., vs. DCIT, Circle 7 (1), B – 1/637, Janakpuri, New Delhi. New Delhi – 110 058. (PAN : AAHCS4592H) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Ajay Wadhwa, Advocate REVENUE BY : Shri B.R.R. Kumar, Senior DR Date of Hearing : 03.11.2015 Date of Pronouncement : 22.01.2015

O R D E R PER A.T. VARKEY, JUDICIAL MEMBER :

This appeal, at the instance of the assessee, is filed against the order of the CIT (Appeals)-X, New Delhi dated 02.01.2013 for the assessment year 2007-08. 2. The assessee company caters to the need of students preparing for engineering and medical examinations. It also serves to the students appearing in Board examinations of various educational boards. The assessee company runs its coaching institutes at various centers in and outside Delhi

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and some of the centers are being run on franchisee basis. The main source of the income of the assessee is from fees collected from the students/aspirants

taking up coaching classes. 2.1 The assessee filed return of income on 31.10.2007 declaring total loss of Rs.29,78,771.69. During the year, a survey was conducted u/s 133A of the

Income Tax Act, 1961 (hereinafter ‘the Act’) on 09.08.2007 in the business premises at B-1/637, Janakpuri, New Delhi. Subsequently, the assessment was completed u/s 143(3) of the Act making the two additions i.e. (i) Rs.65.50 lakhs as undisclosed income u/s 69A of the Act in respect of cash

receipts found and impounded during the course of survey action and Rs.8,27,275/- on account of deferred revenue expenses on account of advertisement expenses for the month of March 2007. The ld. CIT (A)

confirmed the additions made by the AO. 3. Now, the assessee being aggrieved is in appeal against the aforesaid two additions.

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were correlated with the ledger account for the relevant period and it was noticed that these receipts were not reflected in the regular books of accounts

of the assessee company. The AO confronted these facts and evidences with Shri Satish Kumar Suri, MD of the assessee company and observed that even after giving the opportunity, Shri Suri was unable to submit any plausible

explanation and accepted that the amount involved in these receipts amounting to Rs.65.50 lakhs was unaccounted receipts for FY 2006-07 over and above the income as per books of accounts prepared. The AO further observed that however, while filing the return of income the assessee declared

a loss of Rs.29,78,771/- whereby the earlier amount accepted by the Managing Director during the course of survey had not been reflected. The AO provided an opportunity to the assessee to explain the reasons for this

change of declaration to which the assessee filed a reply dated 03.11.2009. The AO, after considering the reply of the assessee made the following observations :-

(i) The assessing officer has observed that even though the assessee has argued that the receipts found during the course of survey were actually only a record for internal transfer of funds / cash at the centre and was never a regular receipt. Further, the AO has highlighted that the nature of these receipts clearly mentioned heading as "Mode", "Particulars", "Amount" and "Drawn On". It was further highlighted by the assessing officer that in these

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receipts there were particular columns for center, batch number, roll number as well as amount received. (ii) The A.O. has highlighted that the receipts were carrying running numbers like JP/001 to JP/208. This indicates clearly that such unaccounted receipts pertained to a particular center of Janak Puri and had been received from a particular student. The A.O. has also specifically pointed out that every slip contains the purpose for which the money has been taken and it varies from tuition to particular class with subject. Therefore, the contentions of the assessee that these receipts were only for internal transfer of amounts cannot be accepted. (iii) The A.O. has further highlighted that from the nature of receipt it was possible to identify the students and purpose for receiving this amount. During the entire survey proceedings, no. doubts or explanations had ever been presented by the assessee or Shri S.K. Suri, the Managing Director. (iv) The A.O. has also highlighted that the contention of the assessee that no cash was found during the survey and, therefore, these receipts in cash amounting to Rs.65.50 lakhs is not supported by the evidence found. In this regard it was also observed that as per the books of accounts there was a cash balance of Rs.1,00,217/-, which had also not been found at the premise. The A.O. has, therefore, stated that such huge amount of cash could not be kept idle at the business premises and, therefore, could not be found at this particular premise. (v) The A.O. has stated with regard to the contention that Shri Suri was in bad mental state and accordingly had given the statement regarding Rs.65.50 lakhs was also not accepted since from the

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nature of the statement given by Shri S.K. Suri specifically reproduced on page 8 & 9 of the assessment order, it is clear that the statement was given with alertness and balanced frame of mind. Accordingly, after considering the details of statements which was also reproduced on page 10 to 12 of assessment order, it was clear that Sh. S.K. Suri was fully in control of the running of the business and after considering that these receipts could not be explained, this amount of RS.6S.S0 lakhs had been surrendered. The assessing officer has, therefore, highlighted that the retraction with regard

to this Rs.65.50 lakhs was not justified and during the course of survey, Sh.

S.K. Suri, MD of the company had made the surrender of Rs.65.50 lakhs in a

balanced frame of mind and after fully considering that the receipts found

were not accounted for in the regular books of accounts maintained by the

assessee and made the impugned addition.

5.1 Aggrieved, the assessee filed an appeal before the first appellate

authority and the ld. CIT (A) confirmed the addition by observing as under :-

“2.3 I have gone through the facts of the case, observations of the A.R. and submissions of the A.R. of the appellant. This ground is being finalized after making the following observations: A. On going through the facts of the case it is clear that survey action u/s 133A had been carried out at the business premise of the appellant. During the course of survey, certain documents in the form of receipts had been found which were confronted to the Managing Director of the company. The survey team had taken an elaborate statement of the Managing Director wherein proper opportunity had been provided for the appellant to reconcile these receipts and documents with the regular books of accounts maintained by the assessee. However, despite the opportunities provided and after carefully considering the documents, Sh. S.K. Suri, the Managing Director of the company made a surrender of Rs.65.50 lakhs as undisclosed sources over and above the details as per the

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books of accounts maintained by the assessee. At that stage, there was no dispute regarding the nature of these receipts and the statement given by the Managing Director Sh. S.K. Suri was elaborate one which clearly indicated that he was the principal person looking after the administration and finance of the appellant company. B. During the course of assessment proceedings, the assessing officer questioned the retraction of the appellant with regard to the amount surrendered during the course of survey. It is pertinent to note that even after survey was completed, the Managing Director, Sh. S.K. Suri or any other person of the appellant company did not retract from the surrender of Rs.65.50 lakhs made during the course of survey. However, it was only during filing of the income tax return, after completion of few months from the survey that the appellant decided to retract from his surrender. In this regard, no proper explanation or justification for the delayed retraction was put forward by the A.R. of the appellant either before the assessing officer or during the appellate proceedings. It is pertinent to note that Sh. S.K. Suri, the Managing Director of the company was a person looking after the day to day affairs including financial transactions of the company and it is difficult to accept that he would not be in a position to explain the primary documents found during the course of survey. From the details elaborated in the assessment order as well as submissions of the A.R. of the appellant, it only shows that the nature of these receipts were different from the receipts issued normally to various students against fee received from them. In fact, this would also clearly establish that the difference in the nature of receipts was only because these amounts were received in cash and not accounted for in the regular books of accounts. Therefore, the counter argument of the A.R. of the appellant is not acceptable. C. The A.R. of the appellant has submitted that the MD of the company was not in his proper state of mind and was exhausted during the course of survey. However, it is also important to note that the statement of Sh. S.K. Suri was a long statement wherein different details were elaborately discussed showing the mental alertness of Sh. S.K. Suri and at the same time since he was fully aware of the financial system of the company, it is difficult to accept that he would fumble in the crucial question regarding the receipts found at the survey premises. If all other answers in the statements were found to be eligible and sound, to accept that only for this question he will not be in a position to provide a proper answer, also does not appear to be logical and acceptable. D. The contention of the A.R. that the provisions of section 69 are not applicable, is also not acceptable since "valuable" article would consist of such unaccounted cash receipts found during the course of survey. Another argument submitted by the A.R. of the appellant was that no cash to support these receipts was found during the course of survey. However, in this regard it is pertinent to note that even with regard to the cash

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balance shown in the books of accounts, the same was not found at the premises on that day. The survey action was only at a particular business premise and it is quite possible that the cash amount would be kept by the appellant at some other more secure premise. In any case, the onus would be on the assessee to explain whether all the cash was being maintained by the company, since the cash even as per the books was not found at the premise. E. After careful consideration of the circumstances of the case, it is clear that the specific evidences and documents found during the course of survey were accepted as unexplained income by the Managing Director of the company after a detailed statement given during the course of survey. Even though the appellant retracted after several months, there was no justification for this retraction when the Managing Director had himself accepted the amounts as explained earlier on. The various documents submitted by the A.R. of the appellant during the course of appellate proceedings, only appear to be an afterthought and cannot be accepted. Accordingly, in view of the above observations, I am convinced that the addition made by the assessing officer amounting to Rs.65.50 lakhs is fully justified and this ground of the appellant is treated as dismissed.”

CIT (A) and also filed the written submissions. For the sake of clarity, the

written submissions filed by the ld. AR are reproduced as under :-

“1) Inapplicability of Section 69A: (I) Section 69A states that addition u/s 69A of the I.T Act can be made only when the following conditions are satisfied: i. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and, ii. such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, iii. and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the AO, satisfactory,

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iv. then, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year. (II) The addition so made u/s 69A is not tenable per se as the assessee has not been found to be the owner of any money, bullion, jewellery or other valuable article. The slips impounded during the survey action are neither money nor bullion. Kindly refer to the judgments in the case of (a) CIT v. Ravi Kumar [2008] 294 ITR 78 (Punjab & Haryana), "8. In the present case, the assessee was found to be in possession of loose slips and not of any valuable articles or things. Neither the possession nor the ownership of any jewellery mentioned in the slips could prove. In view thereof, the provisions of section 69A of the Act had rightly not been applied by the Tribunal to the facts of the case in hand. Accordingly, question No. 1 is answered against the revenue and in favour of the assessee." (b) D.N Singh v. CIT [2010] 324 ITR 304 (PAT.): "Para 13. In my opinion, any article which has value will come under the expression, "valuable article" mentioned in section 69A of the Act and the value of such article can be deemed to be the income of the assessee in case the assessee fails to offer explanation or the explanation offered is not satisfactory. " (c) Relevant para of Kanga & Palkhiwala's 'The Law and Practice of Income Tax' (page 1370 -para 2) states as follows: "2. "Valuable Article"; Meaning.- The Patna High Court has held that the expression 'valuable article' and money in any 'article which has value', but the Chattisgarh High Court (interpreting the same expression in s. 69B) has held that it refers to articles that normally have a high price, thereby excluding ordinary articles. It is submitted that the latter MP High Court's view is correct, because the Patna High Court appears to have overlooked the well-known rule of construction that general words that follow specific words within a genus must be construed ejusdem generis. The term 'money', however, has a narrower meaning, and include only something that can be used as a circulating medium in general use, having representative value." 2) Regarding retraction of statement by Sh. S.K Suri: i. During the course of survey, Sh SK Suri was confronted with the cash receipts found. Sh Suri was unable to provide any explanation and accepted that the amount involved in these receipts was unaccounted receipts for FY 2006-07.

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ii. However, while filing the return of income, the assessee declared a loss of Rs.29,78,771/- whereby the amount of cash receipts was not reflected. iii. A detailed explanation was given by the assessee as to why the amount surrendered was never the income of assessee and was just a record of internal transfer of cash from one centre to another. iv. In question no 21, the authorised officer confronted Sh. SK Suri with slips seized and pointed out that cash has been written thereon and required him to give details thereof. In response to this question, the assessee submitted "I cannot provide details of the receipts at present". (Relevant extract of statement attached at PB 45-56) v. However, the authorised officer again vide question no 22 required him to co-relate those receipts with the books of accounts of the assessee company for that year. Sh Suri had already explained that he cannot give the details of such 'receipts' at that time and therefore when he was again required by the authorised officer to co-relate the same with books of accounts for FY 2006-07, he had submitted that those receipts have not been entered in books of accounts. vi. Further, Sh Suri had given this statement at about 3:00 am to 4:00 am on 09.08.2007 when the survey was being continued in his premises since 8.30 am on 08.08.2007. vii. It is evident from the above that Sh SK Suri was asked the same question regarding the receipts so found despite the fact that he had clearly stated that he could not provide the details of the receipts at that time. Further inquiry was done by long duration of survey which continued for more than 20 hours at a stretch. Sh Suri is an old person and probably could not undergo the anxiety and strain to which he was exposed to. viii. Therefore, it was in these circumstances when he was not able to give any explanation to the repetitively asked question, he agreed to surrender the amount of Rs.65,05,115/- in his statement at the time of survey. ix. Kindly read statement at pg.9 of the AD's order which says 'probably been left out. .. Since I am not able to give any explanation in this regard ... ". Explanation was later given which was credible. 3) Regarding the true nature of receipts found (Ground 3): i. It was only after the conclusion of survey that the assessee company found that such "receipts" infact were not receipts of fees from students, but were only evidence of inter center cash transfer when cash was collected in different coaching centres run by the assessee company and these receipts were made just for a record that cash was being brought to the Janakpuri centre.

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ii. The receipts in fact were never the income of the assessee company and therefore addition in this respect is not tenable. 4) Receipts found were only a record of internal transfer of cash: The fact that the receipts found in the survey were not fees receipts from students but were a record of documents prepared only for internal transfer of funds by various centres of the assessee company can be established by the following: i. That the 208 "receipts" found at Janakpuri centre were on the formats of unused receipts earlier printed for use in the centre but were not used due to printing irregularities in the said "receipts". ii. The assessee pointed out that the format of these "receipts" were different from the format of fee receipts issued by the assessee in the regular course of business as the same neither included the head of service tax nor included the cheque number and bank name and also did not include the course and class for which the fees is being alleged to be received. Accordingly the same could not be used for issuing receipts to students from whom fees was received in regular course and therefore were used only as a memoranda account for internal transfer of funds by the assessee company. iii. It was also explained that no income or revenue was earned by the assessee against such receipts since the original receipts prepared were found during the course of survey (PB 63-162) and therefore it cannot be said that the assessee had received any fees from any student since in case of actual receipt from students the original copy would have to be given to the payer and the assessee would have retained only a carbon copy. It was pointed out to the learned Assessing Officer that in fact all the 208 "receipts" were the original copy which could not be available with the assessee in case any actual receipt had been issued. iv. It was further explained that no name of payer was found written in any of these slips which also proved that they could not have been issued to any student since every student would insist on a receipt which bears his name. v. The assessee further explained that the receipts issued in the regular course of its business were of totally different colour as well as different format and the receipts issued in regular course of business were produced before the AO to show that the 208 receipts were not for receiving fees. vi. The assessee further explained that even during the course of survey no excess cash was found and therefore also no adverse inference can be drawn against the assessee. vii. The assessee also explained that for each and every student who is studying in any coaching centre of the assessee company a registration form

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is created at the time of admission and even during the course of survey no discrepancy or irregularity was found when such registration forms were compared with the fees accounted for by the assessee company in its books of accounts. viii. The assessee also filed copies of registration form as specimen before the AO in support of its claim that no receipt could be issued to any student without giving his or her name on the receipt. ix. The assessee further drew the attention of the learned Assessing Officer to the receipts issued in the regular course of business which were found duly accounted in the books of the assessee to show that on each and every receipt the name of the student is clearly indicated and that can be the only proof of a student having paid his fees to the Institute, whereas on the case of these 208 receipts no name was mentioned and this itself proves that these 208 receipts were prepared only for internal transfer of funds. x. It can also be seen from the seized 'receipts' that amounts in few bills are not a round-off figure. For eg; JP/007 - Rs. 34243/-, JP/062 - Rs. 16836/-, JP/117 - Rs. 22422/-. It is submitted that it never happens or happened that the tuition fees received from students is in non-rounded off amounts like the ones stated above. xi. Also, in the usual business proceedings, the tuition fees received from students is in instalments. It rarely happens that the student gives a lump sum amount of tuition fees. As can be seen from the sample receipts and student-wise statement of tuition fees received during the year (PB 57-62), it has hardly happened that the amount received is a lumpsum fees amount of about Rs. 30,000 or more. However, in the seized receipts, there are hardly any bills of amounts less than Rs.30,000/- and almost all bills are of lumpsum amounts ranging between Rs.30,000 to Rs. 65,000/-, which is a rare transaction in the routine of the assessee's business. xii. Besides and most importantly, the assessee company provides coaching for exams that are held in March every year. Because of this reason, it is an established routine every year that the faculty at the centres complete the course by January each year. It is therefore very uncommon that a student takes admission in a batch whose course has been completed. Also, one would not pay fees in lumpsum much before the start of batches i.e, in April-May. The fact that there is a very meagre number of new admissions in Jan-Feb- March every year can be established from the ledger of tuition fees received by the assessee company of FY 2006-07, 2005-06. But, as apparent from the seized receipts, there are 59 receipts that pertain to the period Feb - March. It would be completely against the established routinely business proceedings if these receipts are to be treated as fees

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receipts since such a huge number of students taking admission in a 'non- seasonal' period is not only dubious but also next to impossible. 5) Addition made is contradictory to Board Circular: It is also submitted that the addition made and upheld by the ld. CIT (A) on the basis of statement obtained during the course of survey is contrary to the Board's Instruction F.No.286/2003 IT(Inv)-1I dated 10.03.2003 and hence, the addition needs to be set aside (Ground 4). The said circular is reproduced below for your ready reference: "Confession of additional income during the course of search and seizure and survey operation. Instruction: F. No. 286/2/2003-IT (Inv. II), dated 10-3-2003. Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, such confessions during the course of search & seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income-tax Department. Similarly while recording statement during the course of search & seizure and survey operations no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely. Further, in respect of pending assessment proceedings also, Assessing Officers should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders." 6) Statement u/s 133A has no evidentiary value: i) In the case of the assessee, mere reliance has been placed on the statement of Sh. Satish Kr Suri, MD, without any evidence to substantiate the statement with. ii) Reliance is placed on the decision by the Hon'ble Supreme Court in the case of CIT v. S. Khader Khan Son [2012] 254 CTR 228 whereby it was held; "Section 133A of the Income Act, 1961 - Survey - Whether Section 133A does not empower any ITO to examine any person on oath; so statement

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recorded under section 133A has no evidentiary value and any admission made during such statement cannot be made basis of addition - Held, yes" iii) As per CIT v. Dhingra Metal Works [2010] 328 ITR 384 (Delhi HC); "Para 2; During the course of survey, the tax officials noticed some discrepancies in stock and cash in hand. During the said survey, respondent- assessee surrendered an amount of Rs.99,50,000/- and offered the seine for the purposes of taxation. The additional income offered included a sum of Rs.45,00,000/- on account of excess stock found during the course of survey and offered by one of the partners of the respondent-assessee as additional income. 5. However, subsequently, the respondent-assessee vide its letter dated 29th November, 2004 contended that the statement about stock was incorrect and that the impugned discrepancy had been reconciled as it was only a mistake. Consequently, the respondent-assessee withdrew the offer of additional income for taxation on account of excess stock. Para 6; The AO relied upon the statement of one of the partners of respondent-assessee given during the course of survey under Section 133A of the Act and concluded that the explanation/ retraction by the respondent- assessee was an afterthought and had no element of truth. 14. Moreover, the word may used in Section 133A(3)(iii) of the Act clarifies beyond doubt that the material collected and the statement recorded during the survey is not a conclusive piece of evidence by itself. 15. In any event, it is settled law that though an admission is extremely important piece of evidence, it cannot be said to be conclusive and it is open to the person who has made the admission to show that it is incorrect. 16. Since in the present case, the respondent-assessee has been able to explain the discrepancy in the stock found during the course of survey by production of relevant record including the excise register of its associate company, namely, M/s. D.M.W.P. Ltd., we are of the opinion that the AO could not have made the aforesaid addition solely on the basis of the statement made on behalf of the respondent-assessee during the course of survey.” 7) Admission cannot be said to be conclusive and is open to rebuttal: Hon'ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 has held- "an admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the person who made the admission to show that it is incorrect. " 8) Addition of whole of Rs. 65.50 lacs without adjusting with business loss:

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Without prejudice to the above, the Id. CIT(A) has added an amount of Rs.65.50 lakhs on the basis of cash receipts found during the course of survey without adjusting the same with the business loss computed at Rs.21,51,496/- .”

below.

on the statement made by Shri Suri at the time of survey, the lower authorities

cannot saddle the impugned addition in the light of the retraction made by

Shri Suri wherein he have reconciled the receipts found during survey and has

explained the receipt as that of inter branch transfer and without examining

the veracity of the claim of the assessee, the AO jumped into a conclusion

based only on the admission made by Shri Suri during survey cannot be

countenanced. The Hon'ble Supreme Court in the case of CIT v. S. Khader

Khan Son [2012] 254 CTR 228 has held as under :-

"Section 133A of the Income Act, 1961 - Survey - Whether Section 133A does not empower any ITO to examine any person on oath; so statement recorded under section 133A has no evidentiary value and any admission made during such statement cannot be made basis of addition - Held, yes"

And we take note of the decision the Hon’ble jurisdictional High Court in a

similar case i.e. CIT v. Dhingra Metal Works [2010] 328 ITR 384 (Delhi HC)

wherein the Hon’ble High Court held as under :-

"2 During the course of survey, the tax officials noticed some discrepancies in stock and cash in hand. During the said survey, respondent-assessee surrendered an amount of Rs.99,50,000/- and offered the seine for the purposes of

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taxation. The additional income offered included a sum of Rs.45,00,000/- on account of excess stock found during the course of survey and offered by one of the partners of the respondent-assessee as additional income. …… 5. However, subsequently, the respondent-assessee vide its letter dated 29th November, 2004 contended that the statement about stock was incorrect and that the impugned discrepancy had been reconciled as it was only a mistake. Consequently, the respondent-assessee withdrew the offer of additional income for taxation on account of excess stock. 6. The AO relied upon the statement of one of the partners of respondent-assessee given during the course of survey under Section 133A of the Act and concluded that the explanation/ retraction by the respondent-assessee was an afterthought and had no element of truth. ….. 14. Moreover, the word may used in Section 133A(3)(iii) of the Act clarifies beyond doubt that the material collected and the statement recorded during the survey is not a conclusive piece of evidence by itself. 15. In any event, it is settled law that though an admission is extremely important piece of evidence, it cannot be said to be conclusive and it is open to the person who has made the admission to show that it is incorrect. …... 16. Since in the present case, the respondent-assessee has been able to explain the discrepancy in the stock found during the course of survey by production of relevant record including the excise register of its associate company, namely, M/s. D.M.W.P. Ltd., we are of the opinion that the AO could not have made the aforesaid addition solely on the basis of the statement made on behalf of the respondent-assessee during the course of survey.” We take note that survey started on 08.08.2007 at 8.30 AM and Shri Suri’s

statement was recorded at about 3.00 AM to 4.00 AM on 09.08.2007 and the admission was made by him when he was stressed and totally exhausted. The discrepancy noticed during the survey of receipts were reconciled by Shri Suri

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who explained that the receipts were only in respect to inter-branch cash transfer and not receipts of fees from students. No students will remit fees

and not insist on bills to be issued in their names. So the explanation that receipts without names as explained by the assessee that it is only in respect to cash transfer from different branches is plausible in the light of the

following explanation given by the assessee :- That receipts issued to students which are placed from page 93 is different and as explained by the ld. AR that the 208 "receipts" found at Janakpuri centre were on the formats of unused receipts earlier printed

for use in the centre but were not used due to printing irregularities in the said "receipts". The ld. AR pointed out that the format of these "receipts" were different from the format of fee receipts issued by the

assessee in the regular course of business as the same neither included the head of service tax nor included the cheque number and bank name and also did not include the course and class for which the fees is being

alleged to be received. Accordingly the same could not be used for issuing receipts to students from whom fees was received in regular course and therefore were used only as a memoranda account for

internal transfer of funds by the assessee company. In the light of the above facts and circumstances, we are of the considered opinion that the ld. CIT (A) erred in upholding the conclusion of the AO

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based only on the admission during survey made by Shri Suri at the wee hours (i.e. between 3.00 AM – 4.00 AM) to fasten the liability when Shri Suri

was able to explain and reconcile the receipts. The AO did not bother to enquire into the veracity of the explanation given by the assessee. The AO could have easily called for details from the branches of the assessee at

Janakpuri and tested the explanation given by the assessee in respect to inter- branch transfer of cash to the Head Office, without doing so, the addition made solely on the basis of admission during survey cannot be upheld as held by the Hon’ble Supreme Court in CIT vs. S. Khader Khan Song (supra) and

in a similar case of Hon’ble jurisdictional High Court in CIT vs. Dhingra Metal Works (supra). Therefore, the orders of the lower authorities are bad in law and are set aside on this issue. These grounds are allowed.

advertisement expenses would be generated in the next year. Similarly, for A.Y. 2007-08, the AO observed that the assessee had incurred an expenditure of Rs.8,27,275/- which had been incurred in the month of March, 2007.

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Accordingly, the AO held that since this was a clear deviation from the

regular practice followed by the assessee with an intention to reduce its

taxable income, this amount was added to the income of the assessee.

authority and the ld. CIT (A) confirmed the addition by observing as under:-

3.3 After going through the observations of the A.O., facts of the case and submissions of the A.R. of the appellant, it is clear that the assessing officer has made this disallowance on the grounds that similar expense in the earlier year had been offered to tax by the assessee but in this year the same had not been offered to tax with the intention to reduce the taxable income as an income of Rs.65.50 lakhs had been surrendered during the course of survey. On going through the reply of the A.R. of the appellant also, it has nowhere mentioned as to why similar expense had been disallowed in the earlier year and the assessee had offered for taxation why in this year this practice has been discontinued. Accordingly, it appears that the assessing officer has followed the rule of consistency in accounting as well, as in allowing advertisement expenses and has accordingly disallowed this amount. I do not find any reason for interfering with the findings of the assessing officer and accordingly, this addition is upheld and this ground of the appellant is dismissed.

under :-

“The complete details of advertisement expenses including the ledger and bills of 'advertisement expenses' (PB --) incurred by the assessee were furnished before the ld. AO and it was explained that the entire expenditure had been incurred wholly and exclusively for the purpose of business. In no possible way had the AO pointed out any discrepancy or any expenditure of inadmissible nature as per section 37 of the I.T Act, 1961. The disallowance was made only on the ground that during AY 2006-07, the expenses incurred in March 2006 had been offered for tax by the

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assessee, which is evidently not a substantial ground taken by the ld AO and the Id. CIT (A) despite the fact that all the supporting documents giving proof of expenditure incurred had been furnished before the authorities. Further, the AO has failed to appreciate the fact that there is no concept of deferred revenue expenditure in the Income Tax Act, 1961. If the expenditure incurred is on account of business, then the same is ought to be allowed u/s 37 of the Act. Legal issue: (i) It is an established fact under following judgements by Apex courts that "to be an allowable expenditure under section 37(1), the money paid out or away must be: (a) paid out wholly and exclusively for the purpose of the business or profession; and further (b) must not be; (i) capital expenditure; (ii) personal expense; or (iii) an allowance of the character described in sections 30 to 36 and section 80W" A) CIT v. Indian Molasses Co. (P.) Ltd. [1970] 78 ITR 474 (SC) B) J.K. Cotton Mfrs. Ltd. v. CIT [1975] 101 ITR 221 (SC) C) Sassoon J. David & Co. (P.) Ltd. v. CIT [1979] 118 ITR 261 (SC) (ii) As is evident from the ledger of advertisement expenditure (PB 163- 168), the assessee company has incurred advertisement expenditure on advertising the in newspapers and magazines and the same have been incurred: - Wholly and exclusively for the purpose of business, and - The expenditure is not: - Capital in nature, - For personal expenses, - Described in sections 30 to 36 of the Act.”

below.

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However, the same was disallowed by the AO on the ground that in earlier years, it was not allowed and revenue, out of these advertisement expenses, would be generated in the next year. So, according to the AO, there has been

deviation from the regular practice followed by the assessee and that too to reduce its taxable income, so he disallowed the same and added to the income of the assessee. Ld. CIT (A) also concurred with the view of the AO. We find that the assessee had produced the ledger and bills of the advertisement

expenses before the lower authorities below and explained that entire expenditure has been incurred wholly and exclusively for the purpose of business. The AO has not pointed out any discrepancy or any reason

explained even inadmissible in the nature as per section 37 of the Act. Just because the assessee has not offered for tax in the previous years, it cannot be the ground for disallowing the expenses. It should be remembered that there

is no estoppel against the law. It is a trite law that if the expenses are wholly and exclusively for the purpose of business or profession and if it is not a capital expenditure or personal expenditure then the expenditure need to be

allowed. From the ledger of the advertisement expenditure (Pages 163 to 168 of PB), we find that the assessee company had incurred advertisement expenditure on advertising the same in newspapers and magazines. In the

21 ITA No.1434/Del./2013

light of the fact that there were no other justifiable reasons given by both the authorities below to disallow the advertisement expenditure, cannot be countenanced. Therefore, we delete the addition made by the authorities below and the ground is allowed. 16. In the result, the appeal of the assessee stands allowed. Order pronounced in open court on this 22nd day of January, 2016.

Sd/- sd/- (G.D. AGRAWAL) (A.T. VARKEY) VICE PRESIDENT JUDICIAL MEMBER Dated the 22nd day of January, 2016 TS