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Income Tax Appellate Tribunal, NAGPUR BENCH : : NAGPUR
Before: S.S.GODARA & DR. DIPAK P. RIPOTE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
This is an appeal filed by the Assessee against the order of ld.Commissioner of Income Tax(Appeals)-1, Nagpur dated 05.11.2014 emanating from the order of ACIT(AO) dated 30.12.2011 passed under section 143(3) of the Act,1961. The assessee has raised the following grounds of appeal: “1] A.C.I.T. erred in rejecting the audited books of account and estimated income @ 5% of total receipts and also adding additional income of Rs.30 Lacs to the returned income. Learned C.I.T.(A) has confirm the addition without any basis. 2] Learned C.I.T.(A) and A.C.I.T. erred in not accepting the assessee’s various submission and supporting documents filed by the A.Y.2009-10 M/s.Bellazza (India) Pvt. Ltd.,[A] appellant. 3] Learned C.I.T.(A) erred in not applying his mind properly. 4] Assessee craves to urge additional grounds at the time of hearing, if necessary.”
2. Brief facts: The assessee company has filed return of income for the A.Y. 2009-10 on 30.09.2009 showing total income at Rs.30,09,760/-. As per the assessment order, assessee has a chain of beauty salon in different cities of India. There was a survey under section 133A of the Act at various premises of the assessee company during the F.Y. 2008-09 on 25/02/2009. During assessment proceedings , the Assessing Officer(AO) has rejected the books of accounts of the assessee and estimated the net profit at 5% and accordingly determined the total income at Rs.85,30,209/- as under: i) Estimated net profit : Rs.55,30,209/- ii) Income declared during survey : Rs.30,00,000/- Total : Rs.85,30,209/-
3. Aggrieved by the order of the AO, the assessee filed appeal before the ld.CIT(A). The ld.CIT(A) upheld the addition. Aggrieved by the same, the assessee filed appeal before this Tribunal.
The ld.Authorised Representative(ld.AR) of the assessee submitted that the additions made by the AO are based on surmises and conjectures. There is no basis for the additions made by the AO. The Department had carried surveys at various premises of the assessee on 25/02/2009. No statement of any director or any A.Y.2009-10 M/s.Bellazza (India) Pvt. Ltd.,[A] employee was recorded during the survey. No discrepancy or defects were pointed out during the survey. The AO has not pointed out any specific defect in the books. The AO has not referred to any material found during the survey. Thus, the entire addition made by the AO is based on conjectures. All the expenses are duly supported.All the vouchers are duly signed by the person who prepared it and the recipients. The ld.AR relied on CBDT Circular to emphasise the point that declaration made during the survey has got no relevance and additions cannot be made based on declaration during the survey.
The ld.Departmental Representative(ld.DR) of the Revenue relied on the order of the AO. The ld.DR read out the relevant part of the assessment order.
Discussion and findings: 6. We have hard both the parties and perused the records. Before discussing the merits of the case, we would like to reproduce the relevant part of the assessment order as under: “7. Further, the assessee has submitted that one of the reasons for fall in GP is expenditure of Rs.3,81,000/- towards registration fee for increase in authorized capital. The contention of the assessee is not acceptable as that these expenses for increase in authorized capital are, in fact, capital in nature. Reliance is placed on the decision of the Hon'ble Supreme Court in the case of Brook Bond India Ltd. Vs. CIT [1997] 225ITR 798 (SC). As per the decision of Hon'ble Supreme Court, any expenditure incurred for increase in capital of the company assumes a character the capital expenditure as it is directly related to the expansion capital base of the company. Thus, the expenditure of A.Y.2009-10 M/s.Bellazza (India) Pvt. Ltd.,[A] Rs.3,81,000/- is liable to be disallowed u/s.37(l) of I.T.Act, 1961. As seen from the chart above, major expenses are incurred by the assessee in cash, such as salaries, office and general expenses, salary and wages PF contribution amenity charges etc. During the verification of books of account, it was noticed that most of the vouchers related to these expenses were self made. Further, in case of salary and office and general expenses the assessee did not furnish the complete bills and vouchers and other supporting evidences except giving the ledgers and the plea was taken that looking at the number of centers, it was not possible to maintain all bills and vouchers. For example, in case of incentives, only the ledgers of incentives were submitted. During the verification of books it was also found that the assessee has debited various amounts as donations on regular basis, the explanation and relation to the business of these receipts was never explained. The assessee has inflated expenditure in order to set off the tax liability due to surrender of additional income during the survey u/s.133A. Thus, looking the overall facts and circumstances of the case, it is clear that books of accounts of the assessee are not reliable. Hence, the books of the assessee are rejected as per the provisions of section 145(3) of the Income tax Act, 1961.
The assessee has shown net profit of 4.34% during the F.Yr.2007-08, hence I estimate net profit at 5% looking at the overall facts and circumstance of the case. The overall receipts of the assessee during the year are Rs. 11,06,00,195/-, 5% of the above comes to Rs.55,30,209/-. Thus, Rs.55,30,209/- is considered as the income of the assessee excluding the surrendered additional amount of Rs.30 lacs. Thus, the total income of the assessee for the year is estimated at Rs.85,30,209/-. Penalty proceedings u/s.271(1)(c) for furnishing inaccurate particulars of income are initiated.” It is a fact that there was a survey in the case of assessee, however, in the assessment order AO has vaguely mentioned that most of the vouchers related to salary, office expenditure were self-made. The AO has not referred to the specific vouchers and quantum mentioned in those vouchers. Similarly, the AO has vaguely mentioned in the assessment order that assessee did not furnish complete bills and A.Y.2009-10 M/s.Bellazza (India) Pvt. Ltd.,[A] supporting evidence except giving ledgers. In his case, since there was a survey, the Department was at the assessee’s premises, it means all the books of accounts, bills, vouchers were available to the Department for verification. The AR has specifically mentioned that no discrepancies were pointed out during Survey and DR has not rebutted this. It means no discrepancies were pointed out during survey. However, in the assessment order, the AO is not referring the ledger accounts and corresponding bills to point out the defects. In the assessment order, the AO has mentioned that certain expenses were cash expenditures, but the AO has not tabulated which expenditures were cash expenditure and what was the exact quantum of the cash expenditure, what was the nature of the expenditures. The AO has not mentioned whether these expenditures were more than Rs.20,000/-. The onus is on AO to point out the specific defects, once the ledger accounts have been submitted by the assessee. The AO has not mentioned the relevant portion of the statement recorded during the survey and whether any defects were pointed out during the survey and what was the answer given by the assessee during the survey. On the contrary, the AR submitted that no statement was recorded during the survey and no discrepancies were pointed out during the survey.None of these facts have been A.Y.2009-10 M/s.Bellazza (India) Pvt. Ltd.,[A] analysed and mentioned by the AO in the assessment order. The AO has even not mentioned whether any provisional trading account or provisional profit and loss account was prepared at the time of survey, rather AO has not even mentioned the date of the survey in the assessment order. During the assessment Proceedings in reply to the query raised by the AO the assessee has submitted elaborate explanation , the assessee submitted that during the year there was increase in Centres, which resulted in increase in Turnover to 11,06,04,195/- as compared to 6,69,21,649/- of earlier year. The staff strength has increased to 450 from 294 of earlier year. All these explains increase in the expenditure as compared to earlier years. In these facts and circumstances, we are constrained to hold that the AO has rejected books of account based on surmises and conjectures and there is no basis. Similarly, the estimation made by the AO is also without any basis. Therefore, we direct the AO to delete the estimation made by the AO.
The AO has made the addition of Rs.30,00,000/- as additional income declared during the survey. However, the AO has not referred to any statement recorded during the survey. The AO has made addition of Rs.30,00,000/- without any supporting evidence.
A.Y.2009-10 M/s.Bellazza (India) Pvt. Ltd.,[A] 7.1 The Hon’ble Kerala High Court in the case C.K. Abdul Azeez vs CIT 417 ITR 363 has observed as under : Quote “Assessment of tax cannot be made solely on the basis of such sworn statement made by the assessee under Section 133A(3)(iii) of the Act. At the same time, such statement can be used to corroborate other materials before the assessing authority, including the contents of any document.” Unquote. 7.2 The ITAT Cochin in the case of ITO vs Tomas Enterprises 175ITD 607(cochin) has held as under : Quote, “12. In our opinion, the Assessing Officer has made the addition only on the basis of sworn statement of the managing partner. Accordingly, we dismiss the ground taken by the Revenue. The appeal of the Revenue is dismissed. ” Unquote. 7.3 Hon’ble Madras High Court in the case of CIT vs P.Balasubramanian 354 ITR 116(Madras) has observed as under : Quote, “The statement recorded during survey operation under Section 133A may be a relevant material. But in the absence of further materials to substantiate the same, such statement recorded under Section 133A can hardly be the basis for assessment. During the survey, 900 gms of gold was found in the premises of the assessee and the statement of the assessee was supported only to the extent of actual seizure of 900 gms. Since the statement of assessee in respect of the remaining gold was not substantiated, the Tribunal rightly set aside the addition in respect of the gold.” Unquote. 7.4 ITAT Mumbai in the case of DCIT Vs. Premsons , [2010] 130 TTJ 159 (Mumbai)[15-01-2009],observed as under : Quote, “Vide CBDT circular dt. 10th March, 2003 it has been made clear by the Board that no attempt should be made to obtain confession as to the undisclosed income and the addition should be made only on the basis of material gathered during the course of search and survey. Going by the verdict of the two Hon'ble High Courts and the position reaffirmed by the CBDT through its circular, it becomes abundantly clear that no addition can be made or sustained simply on the basis of statement recorded at the time of survey/search. In order to make an addition on the basis of surrender during search or survey, it is sine qua non that there should be some other material to co-relate the undisclosed income with such statement.” Unquote A.Y.2009-10 M/s.Bellazza (India) Pvt. Ltd.,[A]
8. Thus, Hon’ble High Courts and ITAT has repeatedly observed that no addition can be made only on the basis of declaration in the absence of supporting evidences. In these facts and circumstances of the case,we are unable to sustain the addition made by the AO of Rs.30 lakhs. It is apparent from the order of the ld.CIT(A) also that ld.CIT(A) has also not referred to any statement recorded during the survey. Therefore, we are constrained to direct the AO to delete the addition Rs.30 lakhs. Thus, in the facts and circumstances of the case, the ground number 1 of appeal raised by the assessee is allowed.
However, it is an admitted fact by the assessee that Rs.3,81,000/- had been spend on Registration fee for increase in Authorised capital. This issue has been discussed by the AO in the assessment order and AO has relied on the decision of Hon’ble SC in the case of Brook Bond India Ltd 225 ITR 798 (SC), while disallowing the impugned amount. The assessee has accepted in the submission which is reproduced in the assessment order that the said expenditure was towards registration fee for increase in authorised capital. The said expenditure is not revenue expenditure but capital expenditure.Hence, the disallowance made by the AO is confirmed. Therefore, the AO is directed to disallow the said expenditure and add the same to the total income of the assessee shown by the A.Y.2009-10 M/s.Bellazza (India) Pvt. Ltd.,[A] assessee in the return of income. Accordingly, the addition is confirmed to the extent of Rs.3,81,000/-.
In the result, appeal of the Assessee is Partly Allowed. Order pronounced in the open Court on 13th January, 2023.