The Addl. CIT, Range-1, Baroda V. M/s. Checkmate Services Pvt.Ltd., Baroda

ITA 103/AHD/2016

AI Insights

The case involves appeals by both the assessee, Checkmate Services Pvt. Ltd., and the Revenue against the order of the Commissioner of Income Tax (Appeals)-1, Vadodara. The appeals arose from an assessment order under section 143(3) of the Income Tax Act, 1961 for the Assessment Year 2011-12, following a survey action under section 133A. The survey revealed undisclosed income, which the assessee admitted but contested the double taxation of certain amounts. The Tribunal's decision addressed issues of undisclosed income, bad debts, and alleged suppressed sales, with a focus on the legal principles of telescoping and the evidentiary value of statements made during the survey.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 114210 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 29-11-2022
• Assessment Year: 2011-2012
• Appeal Filed On: 14-01-2016
• Other Referred Cases: TRF Ltd. Vs. CIT, Pullangode Rubber Produce Co. Ltd. Vs. State of Kerala, CIT vs. S. Khader Khan Son, CIT vs. Abhalbhai Arjanbhai Jadeja, CIT vs. Bhagwandas D. Vachhani
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained expenditure; Depreciation; Income from undisclosed sources; Question of law; Bad and doubtful debts; TDS; Set aside
• Section: 131; 143(3); 133A; 205; 250; 251; 44AB; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH Before: Ms. Annapurna Gupta, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member M/s. Checkmate Services Pvt. Ltd. Ground Floor, Aman Towers, Fatehgunj, Baroda PAN No:AAACC8465A (Appellant) Vs Addl. Commissioner of Income Tax Range-1, Baroda (Respondent) Addl. Commissioner of Income Tax Range-1, Baroda PAN No:AAACC8465A (Appellant Vs M/s. Checkmate Services Pvt. Ltd. Ground Floor, Aman Towers, Fatehgunj, Baroda PAN No:AAACC8465A (Respondent) Assessee Represented: Shri Parimalsingh B. Parmar, A.R. Revenue Represented : Shri A.P. Singh, CIT-D.R. Date of hearing : 30-11-2022 Date of pronouncement : 31-01-2023 ITA No. 3591/Ahd/2015 Assessment Year 2011-12 ITA No. 103/Ahd/2016 Assessment Year 2011-12 I.T.A No. 3591/Ahd/2015 & 103/Ahd/16 A.Y. 2011-12 Page No Checkmate Services Pvt. Ltd. vs. ACIT 2 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- These appeals are filed by the Assessee and Revenue as against the Appellate order dated 12.10.2015 passed by the Commissioner of Income Tax (Appeals)-1, Vadodara arising out of the Assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2011-12. 2. The brief facts of the case is that the assessee is a Company engaged in service industry in providing security personnels to various company, firms, institutions, etc. There was a survey action u/s. 133A of the Act on 06.12.2010 by the Investigation Wing in Several premises of the assessee. Various incriminating papers/documents, diaries including pocket diaries etc. were found and impounded as per impounding orders. Statement of the Managing Director of the assessee company was recorded wherein he admitted voluntarily undisclosed of Rs. 27 crores on various “Heads” for different assessment years. 2.2. In that Rs. 17 crores is relating to the present assessment year 2011-12 namely ‘Renovation and repair expenses’ of Rs. 2.5 crores, Misc. receivables of Rs. 1.5 crores and Inflation/Bogus expenditure under the head salary/wages of Rs. 13 crores. However the assessee in the Return of Income filed has not offered the “Renovation and Repair expenses” and Misc. receivables. The I.T.A No. 3591/Ahd/2015 & 103/Ahd/16 A.Y. 2011-12 Page No Checkmate Services Pvt. Ltd. vs. ACIT 3 assessee explained that the Renovation and Repair expenses of Rs. 2.5 crores and Misc. receivables of Rs. 1.5 crores are included in the undisclosed income of Rs. 13 crores offered by the assessee. Thus the sum of Rs. 4 crores represent application of undisclosed income. Since the “undisclosed income” has already offered for tax, again taxing a sum of Rs. 4 crores being “application of income” will tantamount to double taxation which has never been the intention of the Legislature. Hence the assessee pleaded to apply the “benefit of telescoping” of the “application of income” against “undisclosed income” offered to tax by the assessee. 2.3. The Assessing Officer rejected the above submissions of the assessee on the ground that the statement recorded during the survey and post survey proceedings, the assessee has clearly bifurcated the heads of unaccounted income, amount of corresponding unaccounted income, year of taxability of such income. Heads of disclosure relating to any asset actually represents unaccounted income introduced for acquiring the same, which is liable for tax. Further the statements recorded from the Managing Director was never been retracted at any time by the assessee. But disclosure of unaccounted income has been made by the assessee for each specific head. Therefore the assessee after considering all facts and also after taking 40 days time period disclosed the net unaccounted income of Rs. 17 crores for the present Assessment Year 2011-12. Now the assessee is trying to manipulate the facts and to evade the tax. Therefore the above submissions of the assessee is not acceptable and therefore I.T.A No. 3591/Ahd/2015 & 103/Ahd/16 A.Y. 2011-12 Page No Checkmate Services Pvt. Ltd. vs. ACIT 4 rejected, the same and added Rs. 4 crores as the income of the assessee. 2.4. During the assessment proceedings, the assessee was asked to furnish the details of Rs. 6,90,01,038/- claimed under the head “Deduction from Customers” as the same was abnormally very high in comparison to earlier years. The assessee replied that it debited Rs. 6.9 crores as bad debts/deduction from customers for security guards found sleeping, theft of material from site, guards without uniform, security guard not found during night check, rate differences, etc. Further there were disputed long outstanding from various customers, amount non-recoverable from customers whose contract period is over and deduction on account of mis-match in terms of contract. The assessee vide letter dated 23.12.2013 submitting the various reasons for the deduction, bad debts and relied upon Hon’ble Supreme Court judgment in the case of TRF Ltd. Vs. CIT reported in (2010) 323 ITR 397 and claimed that it is enough, if the bad debts are written off as irrecoverable in the accounts of the assessee and the entire claim of Rs. 6.90 crores to be allowed. 2.5. The Assessing Officer after going through the details of the submissions found that a sum of Rs. 97,51,105/- is relating to the current year and the balance of Rs. 5,92,43,933/- pertains to the earlier years. Further perusal of the records shown only the list of names of so called debtors has been provided by the assessee which is not sufficient to identify/verify such debtors. It is also a peculiar fact that the assessee has not shown “bad debts written I.T.A No. 3591/Ahd/2015 & 103/Ahd/16 A.Y. 2011-12 Page No Checkmate Services Pvt. Ltd. vs. ACIT 5 off” under the separate head, but shown under “deduction from customers” which raises doubts on the intention of the assessee company. Without deep scrutiny, one cannot find the fact that actually, bad debts has been written off. Therefore the sum of Rs. 5,92,43,933/- is added back to the total income of the assessee as the same is not allowable under the provisions of section 36(1)(vii) of the Act. 2.6. On the balance amount of Rs. 97,57,105/- pertaining to the present Assessment Year, the Assessing Officer disallowed 30% namely Rs. 29,25,332/- on account of unverifiable expenditure and added the same as the income of the assessee. 2.7. Further as per information available with the Assessing Officer total receipt of the assessee is Rs. 341,47,13,958/- on which TDS of Rs. 6,84,33,897/- is made but the assessee has shown gross receipt of Rs. 338,.63 crores. Thus there is suppression of receipt of Rs. 2,83,82,42/-. The assessee was asked to reconcile this discrepancy. After various discussion, the Assessing Officer determined the suppressed sales/receipt worked out to Rs. 34,98,571/- and added as the total income of the assessee. 3. Aggrieved against the Assessment Order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals)-1. The ld. CIT(A) confirmed the addition of Rs. 2.5 crores in respect of Renovation and Repair expenditure and a sum of Rs. 1.5 crores in respect of Misc. receivables as follows: I.T.A No. 3591/Ahd/2015 & 103/Ahd/16 A.Y. 2011-12 Page No Checkmate Services Pvt. Ltd. vs. ACIT 6 4.2. I have considered the appellant's submissions and the AO's observations. From the facts narrated by the AO in his order, it is seen that neither during the course of the first statement recorded of the managing director of the appellant company during the course of the survey proceedings, nor at the time of the confirmation of the disclosure made during survey in his statement recorded under section 131 of the Act, it was claimed that the expenses on account of renovations and repairs as well as miscellaneous receivables were made out of the inflation made in the wages. It was only at the time of filing of return of income that the appellant came out with this idea of telescoping these expenses and claimed that these have been made out of the fund available with it on account of inflation made by it in the wages. Had the contentions of the appellant been true, then the entire inflated wages should have been disclosed as miscellaneous receivables at the time of a statement itself and there would not have been any separate disclosure of the amount of Rs. 1.5 crores as miscellaneous receivable as on the date of survey. This makes it clear that the action of the appellant was nothing but an afterthought. Similarly, if the contentions of the appellant were correct, there would not have been any separate disclosure on account of renovations and repairs. Or at least the same would have been claimed to have been set off against the inflated wages. Nothing of this sort was claimed during the course of these two statements. 4.2.1. Moreover, except for this contention that telescoping of all these three heads of expenditures should be made, the appellant has not produced any evidence to show that the unexplained expenditure on account of renovations and repairs and the miscellaneous receivables were made out of the inflated wages. The Hon'ble Jurisdictional High Court in its decision in the case of [2015] 56 taxmann.com 284 (Gujarat), Bhagwandas D. Vachhani, has held as follows: "22. The aforesaid shows that the burden would be upon the Assessee to give explanation and the Assessing Officer has to consider the explanation reasonably. The relevant aspect is that so far as the H.U.F. is concerned, it is not at all maintaining any books of account. Therefore, deposit of the amount in the respective bank accounts of the H.U.F. may be required to be considered by showing the corresponding entry as that of under invoicing or over invoicing of the capital goods or over invoicing of the expenses etc. if any. No evidence whatsoever is produced by the /Assessee before the A.O. Mere statement of the partners is too vague and too general that the money credited in the respective bank accounts of the HUFs. is earned out of under invoicing of the sales and over invoicing of the expenses and over invoicing of the capital goods of the companies. In absence of any sufficient satisfactorily material produced by co- relating to the credit in the bank accounts of the HUFs. and transactions in the company, if not treated as the sufficient explanation by the A.O. or by the Tribunal, it could not be said that the officers while appreciating the evidence have over acted unreasonably or have not applied reasonable prudence for forming I.T.A No. 3591/Ahd/2015 & 103/Ahd/16 A.Y. 2011-12 Page No Checkmate Services Pvt. Ltd. vs. ACIT 7 opinion about non-acceptance of the explanation. In our view, as observed earlier, the burden is upon the Assessee to give sufficient explanation for the source of the amount. Moreover, after considering all the materials, namely, statement or the record, if any, produced or when no record of books of account is produced or when no transactions by showing co-relation are demonstrated, the opinion is to be formulated by the A.O. as to whether the explanation can be considered as sufficient or not? It is true that while forming the opinion, the A.O. has to apply reasonable prudence but thereafter, if the reasonable prudence is applied and the opinion is formed, such would be the ultimate finding of fact as to whether the explanation can be treated as sufficient or not? In our view, if such an opinion is formed by applying reasonable prudence by the A.O. and it is further confirmed by the Tribunal, which is the ultimate fact finding authority, this Court, in the further appeal, wherein, the judicial scrutiny would be limited to substantial question of law, only, would not interfere or upset such finding of fact as the same would be beyond the scope of the present appeal. 4.2.2. In the present appeal also, the appellant has not submitted any details of the wages which were inflated. The appellant is having its offices all over India and no evidence has been given as to which particular wages were bogus expenses, when these bogus expenses were debited in the books of accounts, how the money was taken out, how such money was utilized for the purposes of renovations and repairs and how some part of such expenses remained receivable in the hands of the appellant. No books of accounts have been maintained for such undisclosed transactions. In the absence of any such correlation between the inflation of wages and unexplained expenditure disclosed on account of renovations and repairs and miscellaneous receivables, it is held that the AO has rightly disallowed such claim of telescoping and has made separate additions on account of renovations and repairs and miscellaneous receivable as disclosed during the course of the survey proceedings. 4.2.3 As a matter of fact, by accepting that only the amount of Rs. 1.5 crores remained as miscellaneous receivable not shown in the books of accounts as on the date of survey, the appellant has got the right to credit this amount only in its books of accounts. But it is seen that the appellant has credited the amount out of the inflated wages, which remained as balance after the claim of telescoping of such inflated expenses against miscellaneous receivables and repairs and innovations disclosed during the course of the survey, in its books of accounts. Hence in subsequent assessment yeas also, the AO is directed to verify the fact as to whether 'any amount out of such miscellaneous receivable, which could not have been credited in the books of accounts, has been credited back in the books of accounts of the appellant in order to explain certain expenses. The nature of such credits will remain unexplained only. I.T.A No. 3591/Ahd/2015 & 103/Ahd/16 A.Y. 2011-12 Page No Checkmate Services Pvt. Ltd. vs. ACIT 8 3.1. Regarding the claim of bad debts and unverifiable amount of deduction from customers, the Ld. CIT(A) deleted the same as follows: 5.3. I have considered the appellant’s submissions, the AO’s observation and the facts of the case. So far as the discrepancy mentioned by the AO regarding the amounts of bad debt claimed by the appellant is concerned, the appellant’s AR explained during the course of the hearing that the total write-off amount as per profit and loss account was Rs. 6,90,1,38/-, out of which Rs. 5,92,43,933/- pertains to bad debts of previous years and Rs. 97,57,105/- is deduction from customers of A.Y. 2011-12. It was further submitted by him that the total amount of bad debts mentioned in the table reproduced in the AO's order is Rs. 6,53,46,058/- which includes service tax also. Accordingly the amount written off as bad debt of Rs. 5,92,43,933/- is net of service tax. As per the rules of the service tax as prevailing in current assessment year, the service tax was due to be paid to the government after the amount was received from the customers and accordingly the service tax on bad debts was debited to the service tax payable account. Since the books of accounts are maintained on mercantile basis, hence service tax liability was accounted as and when invoice was raised but paid after the receipt from the customer. While writing off the amount, the service tax based on the applicable service tax rate in various years has been written back and reduced from the payable account. He explained that the learned AO failed to understand the working submitted during the assessment proceedings. Accordingly, he submitted that only an amount of Rs. 5,92,43,933/- was claimed as bad debt and the balance amount was on account of service tax payable which could not have been considered as bad debt for the cur/rent year. On verification of the submissions made by the appellant's AR, it has been found to be correct and hence, there is no discrepancy in the amount of bad debt claimed by the appellant as mentioned by the AO in his order. 5.3.1. A perusal of the reply submitted by the appellant during the course of the assessment proceedings before the AO shows that the appellant had submitted full details to show that the bad debts had been claimed by it on account of lower payment made by its clients at the time of settling the bills raised by the appellant. Such deduction is made by the clients are in the nature of bad debt only. The entire bill for sales raised by the appellant had been accounted for in the profit and loss account. Once a part of such sales is not paid by the clients, it takes the nature of bad debts though it may be regarded as deductions made by the clients in the books of accounts. Moreover, the provisions of section 36(l)(vii) read with section 36(2) makes it clear that even a part of the income accounted for in the current year also can be claimed as a bad debt. Once the deduction made by the clients account is debited and the clients' accounts are credited, the conditions laid down by these sections are fulfilled and such amounts are I.T.A No. 3591/Ahd/2015 & 103/Ahd/16 A.Y. 2011-12 Page No Checkmate Services Pvt. Ltd. vs. ACIT 9 allowable as a bad debt in the computation of total income. The appellant is not required to establish that such debts have actually become bad before writing off the same in its books of accounts. Accordingly the AO is not correct in making ad hoc disallowance out of the deductions made by the clients during the current year itself. The appellant's explanation are legally and factually correct and hence the disallowances made by the AO are directed to be deleted and both of these grounds of appeal are allowed. 3.2. Thus the Ld. CIT(A) partly allowed and partly dismissed the assessee’s appeal. 4. Aggrieved against the same, both the assessee and Revenue is in appeal before us raising the following Grounds of Appeal: ITA No. 3591/Ahd/2015 (by Assessee) 1. (a) The CIT(A) has erred both in Law and in Fact in upholding the addition of Rs.2,50,00,000/- being declared during survey Renovation and Repair expenditure as claimed as incurred during course of Business and for purpose of Business. (b) The CIT(A) has further erred in giving a direction with regard to addition of Rs. 1,50,00,000/- declared during survey as Miscellaneous Receipt and he having agreed on principal on facts of the case being declared before him he ought to have deleted the said addition instead of giving direction to the Assessing Officer to verify and delete the amount. 2.(a) The CIT(A) has erred both in facts and in Law in confirming addition of Rs.4,58,60,861/- added by the Assessing Officer as "Suppressed Sales". It is submitted by your Appellant that the said amount was subject to rectification and the final mount of Rs.2,00,00,000/- ought to have been deleted by CIT(A) since all facts and details were before him instead of his giving direction to the Assessing Officer to verify and deleted the excess amount. (b) It is submitted by the Appellant that the entire amount of Suppressed Sales of Rs.4,58,60,861/- is not liable to be included as Income since the Assessing Officer have not found any mistake or lacuna in Books of Accounts which are duly Audited u/s. 44AB and the addition being on presumption and guess work the entire amount ought to have been deleted. 3. The CIT(A) has erred both in Law and in fact in not dealing with and deciding the Ground of addition of Rs.34,98,571/- added by the Assessing Officer as "Suppression of Sales". I.T.A No. 3591/Ahd/2015 & 103/Ahd/16 A.Y. 2011-12 Page No Checkmate Services Pvt. Ltd. vs. ACIT 10 The addition have been made by the Assessing Officer on presumption guess work and without any basis the said amount was not liable to be added. 4(a) The Ld. CIT(A) has erred both in Law and in enhancing Income of your Appellant by making addition of delay in payment of Employees Provident Fund of Rs. 4,30,96,567/- and Employees ESI of Rs. 88,31,826/-. (b) It is submitted that the Assessing Officer was seized of facts of the case and since he had opted not to make any addition it is submitted by your Appellant that there was no mistake apparent on the record and that the CIT(A) ought not have restored to enhancement of income. (c) without prejudice to above it is submitted by your Appellant that employees Provident Fund of Rs. 4,30,96,567/- and Employees ESI payment of Rs. 80,31,826/- is not liable to be disallowed/added as held by various High Courts and to Supreme Court of India and that CIT(A) ought to have followed the judgment of Supreme Court of India and he should not have enhanced the Income of your Appellant. It is therefore submitted that relief claimed above be allowed and the order of the Assessing Officer be modified accordingly. ITA No. 103/Ahd/2016 (By Revenue) 1. "On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in by deleting addition on the issue of bad debts by approving and holding assessee's contention correct and held that there is no discrepancy in the amount of bad debt claimed by the assessee without appreciating merits and findings of the case by Assessing Officer". 2. "On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in by deleting addition on the issue of Unverifiable amount of deductions from customers without appreciating merits and findings of the case by Assessing Officer as given in Assessment Order". 5. The Learned Senior Counsel Shri Tushar Hemani appearing for the assessee submitted that the Assessing Officer erred in stating that the assessee has not offered income of Rs. 2.5 crores on Renovation and Repair and Rs. 1.5 crores on Misc. receivables (relating to ground no. 1(a) and 1(b) of the appeal) in the Return of Income filed by the assessee. The assessee made disclosure of Rs. I.T.A No. 3591/Ahd/2015 & 103/Ahd/16 A.Y. 2011-12 Page No Checkmate Services Pvt. Ltd. vs. ACIT 11 13 crores on account of “inflated sales and wages expenses” and duly offered for taxation as undisclosed income. It was explained before the A.O. that the sum of Rs. 2.5 crores and Rs. 1.5 crores on Renovation and Repair and Misc. receivables also represents the “application of undisclosed income”. The Assessing Officer move to tax again the sum of Rs. 4 crores which tantamount to “double taxation” which is not permissible in law. Thus the Assessing Officer ought to have granted the “benefit of telescoping” of the “application of income” as against the undisclosed income offered to tax by the assessee. However both the Assessing Officer and Ld. CIT(A) have placed heavy reliance on the statement of the Managing Director recorded during the survey proceedings without appreciating the fact that Section 133A does not empower, the Assessing Officer to examine a person on oath. Such statement has no evidentiary value and any admission made during such statement cannot be used for the basis of addition and relied upon Hon’ble Supreme Court Judgment in the case of CIT vs. S. Khader Khan Son reported in 25 taxmann.com 413 (SC). 5.1. Further from the statement of the Managing Director that there is no corroborative material to establish that any unaccounted income has been earned by the assessee. It is well settled principle of law that merely on the basis of “statement” not substantiated by any documentary evidence, no addition can be made. In this connection, the Ld. Senior Counsel relied upon unreported judgment of the Jurisdictional High Court in the case of CIT vs Abhalbhai Arjanbhai Jadeja in Tax Appeal No. 233-235 of 2013 dated 03.04.2013 wherein it is held that no addition can be I.T.A No. 3591/Ahd/2015 & 103/Ahd/16 A.Y. 2011-12 Page No Checkmate Services Pvt. Ltd. vs. ACIT 12 made merely on the basis of statement, when there is nothing to substantiate the same. Thus the Ld. Counsel pleaded that mere fact that assesse did not plead for benefit of telescoping at the time of survey, cannot be a ground to deny such benefit. If the facts of the case is being taken up in correct perspective, rather than taking a hyper technical view thus both the A.O. and Ld. CIT(A) ought to have deleted the above additions. 5.2. In fact, the Assessing Officer is duty bound to advise the assessee to claim reliefs even though not claimed in the Return as per Board’s Circular dated 11 th April, 1955 which were referred by the Jurisdictional High Court in the case of CIT vs Ahmedabad Keiser-E-Hind Mills Co. Ltd. 128 ITR 486 (Guj.) and Chokshi Metal Refinery vs. CIT 107 ITR 63 (Guj.) Alternatively, the Ld. Sr. Counsel claimed that at least depreciation may be allowed on the amount of expenses capitalized in the books of accounts. 5.3. Regarding ground no. 2 addition of Rs. 4,58,60,861/- in respect of alleged suppressed sales, the same is being deleted by the Assessing Officer while giving effect order dated 15.02.2019. Hence is not pressed ground no. 2. 5.4. Regarding ground no. 3 addition of Rs. 34,98,571/- added as alleged suppressed sales for the Assessment Year 2011-12. This ground has not been dealt by the Ld. CIT(A) which was raised as ground no. 5 before Ld. CIT(A). On merits, the Ld. Senior Counsel submitted that the Assessing Officer found that in certain cases, “receipts” shown by the assessee were lesser than receipts as per I.T.A No. 3591/Ahd/2015 & 103/Ahd/16 A.Y. 2011-12 Page No Checkmate Services Pvt. Ltd. vs. ACIT 13 Departmental database. Hence, the differential sum of Rs. 34,98,571/- as suppressed sales. 5.5. At the outset, it is submitted that the mere fact that higher receipts are reflected in the Departmental database as compared to assessee’s records cannot be a ground to straightway treat the differential sum as suppressed sales and make an addition when there is no corroborative evidence to substantiate such claim by the Assessing Officer. Thus the addition is not correct in law. Alternatively, even in the case of “suppressed sales”, only the “profit element” embedded therein can be added and that too based on “Net Profit” of the assessee and reliance is placed on the following judgments: DCIT vs. Panna Corporation -TA 323 of 2000(Guj) (Annex. "D"); CIT vs. President Industries - 258 ITR 654 (Guj.); CIT vs. Gurubachhan Singh J. Juneja-302 ITR63 (Guj); CIT vs. Samir Synthetics Mill - 326 ITR 410 (Guj); Man Mohan Sadani vs. CIT - (2008) 304 ITR 52 (MP); CIT vs. Balchand Ajit Kumar - (2003) 263 ITR 610 (MP) 5.6. Thus the Ld. Sr. Counsel drawn our attention to the Profit rate of the assessee for the past two years which was given in the synopsis, as follows: Asst. Year Total receipts (A) Profit (B) Profit rate (B/A*100) Pg. of P/B 2009-10 2,86,46,59,122 36,74,62,642 12.83% Pg. 205 2010-11 2,68,79,61,305 17,69,65,592 6.58% Pg. 32 2011-12 308,64,93,319 16,33,75,483 5.29% Pg. 32 Total/Avg. 863,91,13,764 70,78,03,717 8.19% --- I.T.A No. 3591/Ahd/2015 & 103/Ahd/16 A.Y. 2011-12 Page No Checkmate Services Pvt. Ltd. vs. ACIT 14 5.7. Thus the Ld. Sr. Counsel pleaded that adopting the average profit rate at 8.19% on the suppressed sales of Rs. 34,98,571 works out to Rs. 2,86,532/-. Thus the impugned addition made be restricted to the extent of Rs. 2,86,532/- and allow the assessee’s ground. 6. Regarding ground no. 4 namely addition of Rs. 5,11,28,393/- on account of delayed payment of PF and ESI. This issue is now covered against the assessee by the Hon’ble Supreme Court in assessee’s own case in Civil Appeal No. 2833 of 2016 dated 12.10.2022. Therefore the same is also not pressed. 7. Per contra, the Ld. CIT-DR Shri A.P. Singh appearing for the Revenue submitted that if the contentions of the assessee had been true then the entire inflated wages ought to have been disclosed as Misc. receivables at the time of recording statement of the Managing Director itself and there is no need to make a separate disclosure of Rs. 2.5 crores on Renovation and Repair and Rs. 1.5 crores as Misc. receivables on the date of survey. Or at least the same would have been claimed to have been set off against the inflated wages. Nothing of this sort was claimed while in the course of statements recorded during survey and post survey proceedings. 7.1. Further answer to the question no. 4 during the recording of statement namely “what is the modus operandi of booking bogus expenses?” The Managing Director answered that “there is no systematic/regular method, however the quantification of the amount is based on broad memory and business requirements and I.T.A No. 3591/Ahd/2015 & 103/Ahd/16 A.Y. 2011-12 Page No Checkmate Services Pvt. Ltd. vs. ACIT 15 as per impounding of annexures A-13 & A-14”. Furthermore, the assessee in the statement has given break-up of the undisclosed income on various head-wise as well as assessment year-wise for each of its group concerns. Furthermore, the above submissions were not retracted by the assessee at any point of time. 7.2. In the above circumstances, the Ld. CIT(A) has followed the Jurisdictional High Court judgment in the case of Bhagwandas D. Vachhani (cited surpa) therefore the assessee having not produced any evidences and not having maintained the separate books of accounts. The Assessing officer and the Ld. CIT(A) has rightly disallowed such claim of telescoping the income. However the ld. CIT(A) directed the A.O. to verify the fact as to whether any amount out of such Misc. receivables, which could not have been credited in the books of accounts, has been credited back in the books of accounts of the assessee in order to explain certain expenses in subsequent assessment years. Thus the findings of the Ld. CIT(A) does not require any interference. 7.3. Regarding ground no. 3 namely addition of Rs. 34,98,571/- added as alleged suppressed sales. Though the same is not adjudicated by the Ld. CIT(A) in his Appellate Order, the same may be remanded back to the file of the Assessing Officer and the net sale be determined in accordance with law. 8. We have given our thoughtful consideration and perused the materials available on record including the Paper Book filed by the assessee. The argument of the Ld. Senior Counsel for the assessee I.T.A No. 3591/Ahd/2015 & 103/Ahd/16 A.Y. 2011-12 Page No Checkmate Services Pvt. Ltd. vs. ACIT 16 that the statement recorded during the survey proceedings cannot be the basis of addition and relied upon the Hon’ble Supreme Court Judgment in the case of S. Khader Khan & Son. However the Hon’ble Apex Court in the case of Pullangode Rubber Produce Co. Ltd. Vs. State of Kerala reported in 91 ITR 18 (SC) held that an admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect. We find that the assessee has not produced any details evidences and not maintained proper books of accounts. The assessee has not submitted any details of the wages which were inflated before any of the Lower Authorities. The assessee having its offices all over India and no evidence has been given as to which particular wages were bogus expenses, when these bogus expenses were debited in the books of accounts, how the money was taken out and how such money was utilized for the purposes of renovations and repairs. No books of accounts have been maintained for such undisclosed transactions. In the absence of any such co-relation between the inflation of wages and unexplained expenditure disclosed on account of renovations and repairs, the claim of telescoping does not arise. 8.1. Further the Hon’ble Jurisdictional High Court in the case of Bhagwandas D. Vachhani (cited supra) has clearly held that it is burden upon the assessee to give sufficient explanation for the source of the amount. After considering all materials, statement or the record or when no record of books of account is produced or when no transactions by showing co-relation are demonstrated by the assessee and the opinion is to be formulated by the A.O. cannot I.T.A No. 3591/Ahd/2015 & 103/Ahd/16 A.Y. 2011-12 Page No Checkmate Services Pvt. Ltd. vs. ACIT 17 be disturbed. Thus the submissions made by the assessee does not hold it good with proper evidences and the same is rejected. However, the alternative claim of depreciation on the assets capitalized on “Renovation and Repair” expenditure of Rs. 2.5 crores on Kerala Property & Fire Safety Institute at Baroda are found to be a legally valid claim. Therefore, in our considered opinion to this extent, the matter is remanded back to the file of the Assessing Officer to verify into the expenses claimed, capitalized and allow appropriate depreciation in accordance with law. Thus ground no. 1 is partly allowed. 9. Ground No. 2 is “Not pressed” by the assessee and Ground no. 4, it is admitted by the assessee, that it is covered against the assessee in its own case by the Hon’ble Supreme Court in Civil Appeal No. 2833 of 2016 dated 12-10-2022, so the same is dismissed. 10. The remaining is ground no. 3. As it can been seen from the Appellate Order, the Ld. CIT(A) failed to adjudicate this ground. The claim of the assessee that average profit rate is to be adopted on the suppressed sales made by the assessee is legally a valid ground and the Ld. D.R. is also in agreement for a remand to the A.O. for correct verification. Therefore we are of the considered opinion to set aside this issue to the file of the Assessing Officer, to work out the average profit rate and assess the suppressed sales of Rs. 34,98,571/- in accordance with law by providing proper opportunity to the assessee. I.T.A No. 3591/Ahd/2015 & 103/Ahd/16 A.Y. 2011-12 Page No Checkmate Services Pvt. Ltd. vs. ACIT 18 11. In the result, the appeal filed by the Assessee is partly allowed for statistical purposes. ITA No. 103/Ahd/2016 (Revenue’s appeal) 12. The Ld. CIT-DR appearing for the Revenue supported the order of the Assessing Officer and claimed that the Ld. CIT(A) erred in deleting the addition in respect of bad debts and also unverifiable amount of deduction from customers. 12.1. Per contra, the Ld. Sr. Counsel appearing for the assessee submitted before us, though similar claim of bad debts however claimed by the assessee as “deduction from customers” is in the Profit and Loss account for the Assessment Year 2009-10 and 2010-11, the same were also been allowed by the Assessing Officer while framing assessment orders under section 143(3) for both the assessment years 2009-10 & 2010-11, which is reflecting at page no. 207-241 of the Paper Book. Similarly for the Assessment Year 2005-06, the Assessing Officer has allowed this claim, which is available at page nos. 242 to 250 of the Paper Book, which is confirmed by the Ld. CIT(A) which is available at page nos. 251 to 257 of the Paper Book. Therefore following the principle of consistency, the disallowance of bad debts made by the Assessing Officer is unwarranted for the preset assessment year 2011-12. 12.2. Further the assessee has already written-off the amount in question in the books of accounts as “bad debts”. But however under different nomenclature namely “Deductions from I.T.A No. 3591/Ahd/2015 & 103/Ahd/16 A.Y. 2011-12 Page No Checkmate Services Pvt. Ltd. vs. ACIT 19 customers”. However the nature of expenses does not change. Therefore following Hon’ble Supreme Court Judgment in the case of TRF Ltd. the claim of bad debts is allowable under the provisions of law, thereby the Ld. A.R. pleaded to dismiss the appeal filed by the Revenue. 13. We have given our thoughtful consideration and perused the materials available on record. It is seen that the assessee during the course of assessment proceedings, the assessee had submitted full details of bad debts on account of lower payments made by its clients, while settling the dues. Further the entire bill for sales raised by the assessee had been accounted for in the profit and loss account. Once a part of such sales is not paid by the clients, it takes the nature of bad debts. Further the provisions of section 36(1)(vii) read with section 36(2) makes it clear that even a part of the income accounted for in the current year also can be claimed as a bad debt. Therefore the findings arrived by the Ld. CIT(A) namely once the deduction made by the clients account is debited and the assessee’s accounts are credited, the conditions laid down by section 36(1)(vii) read with section 36(2) are fulfilled and such amounts are allowable as a bad debt in the computation of total income. Further the assessee is not required to establish that such debts have actually become bad before writing off the same in the books of accounts. Therefore the findings arrived by the Ld. CIT(A) does not require any interference. Thus the grounds raised by the Revenue does not hold merits and the same is hereby rejected. I.T.A No. 3591/Ahd/2015 & 103/Ahd/16 A.Y. 2011-12 Page No Checkmate Services Pvt. Ltd. vs. ACIT 20 14. Similar is the facts relating to the unverifiable amount of “Deductions from customers”, the same is also allowed in favour of the assessee. 15. In the result, the appeal filed by the Revenue is hereby dismissed. Order pronounced in the open court on 31-01-2023 Sd/- Sd/- (ANNAPURNA GUPTA) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 31/01/2023 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद