M/s Shivam Resorts, Abohar V. DCIT, CC-1, Ludhiana

ITA 427/CHANDI/2023

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 0558 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 30-06-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 04-07-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAHUS SOHU
• Keywords: Rejection of books of accounts; Business income; Loose papers; Document seized; Principle of natural justice; Block assessment; Documents seized
• Section: 145; 143(3); 142(1); 133A; 143(2); 13; 153; 145(3); 22; 20

Judgement Text

आयकर अपीलȣय अͬधकरण,चÖडीगढ़ Ûयायपीठ, चÖडीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH, ‘B’, CHANDIGARH BEFORE SHRI KRINWANT SAHAY, ACCOUNTANT MEMBER & SHRI PARESH M. JOSHI, JUDICIAL MEMBER आयकर अपील सं./ ITA No. 427/CHD/2023 Ǔनधा[रण वष[ / Assessment Year: 2018-19 M/s Shivam Resorts, Malout, Hamunangarh Road, Bye Pass, Abohar Vs. बनाम The DCIT, Central Circle -1, Ludhiana èथायी लेखा सं./PAN No: ACCFS7094Q अपीलाथȸ/ APPELLANT Ĥ×यथȸ/ REPSONDENT ( HYBRID HEARING ) Ǔनधा[ǐरती कȧ ओर से/Assessee by : Shri Ashwani Kumar,CA राजèव कȧ ओर से/ Revenue by : Shri Rahus Sohu, JCIT, Sr. DR स ु नवाई कȧ तारȣख/Date of Hearing : 01.07.2024 उदघोषणा कȧ तारȣख/Date of Pronouncement : 31.07.2024 आदेश/Order Per Dr. Krinwant Sahay, A.M.: Appeal in this case has been filed by the Assessee against the order dated 24.05.2023 of the ld. Commissioner of Income Tax (Appeals)-5, Ludhiana [herein referred to as ‘CIT(A)’]. 2. Grounds of appeal are as under: - 427-Chd-2023 M/s Shivam Resorts, Abohar 2 1. That order passed u/s 250(6) of the Income Tax Act, 1961 by the Learned Commissioner of Income Tax (Appeals)-5, Ludhiana is against law and facts on the file in as much as he was not justified to uphold action of the Learned Assessing Officer in making an addition of Rs. 1,26,66,908/- on account of alleged unaccounted receipts. 2. That the Learned Commissioner of Income Tax (Appeals) gravely erred in upholding the addition of Rs. 1,26,66,908/- made by the Learned Assessing Officer merely on arbitrary calculations and extrapolation. 3. Brief facts relating to the issue raised through aforesaid grounds of appeal, as enumerated in the order of the CIT(A), are reproduced as under:- “....that the case of M/s Shivam Resorts, Malout, Hanumangarh Road Bye Pass, Abohar, in which survey u/s 133A was conducted on 16.05.2017. Notice u/s 143(2) of the Act, requiring the assessee to file his return of income was issued on 25.09.2019. During the course of survey proceedings, the assessee vide surrender letter dated 16.05.2017, surrendered an additional income of Rs. 40,00,000/- (Rs. Forty Lac only) over and above his regular business income for the F.Y.2017-18 relevant to the A.Y. 2018-19. As per AO, on perusal of the ITR dated 26.10.2018 filed for the Assessment Year 2018-19, it is clear that the assessee had included the additional business income to be surrendered of Rs. 40,00,000/- on the receipt side 427-Chd-2023 M/s Shivam Resorts, Abohar 3 of its P&L account. However, the gross receipts in the P&L Account/Receipts & Exp. Account has been shown at Rs.46,19,000/- along with Gross Receipts GST at Rs. 2,38,208/-. Therefore, the total receipts shown by the assessee firm for the Financial Year 2017-18 are at Rs. 48,57,208/- which includes surrendered income of Rs. 40 Lakh and normal receipts at Rs. 8,57,208/-. Therefore, as per AO, if the survey action would not have been conducted, the total receipts of the assessee for the Assessment Year would have been Rs. 8,57,208/- only. Further, as per AO, during the course of survey, a diary containing details of bookings accepted by the assessee firm was impounded and perusal of the same revealed that the assessee has entered bookings of functions at Rs. 46,35,000/- for the period 01.04.2017 to 21 May, 2017. As per AO, the assessee has also presented a copy of account of Gross Receipts for the period 01.04.2017 to 31.03.2018 during the course of assessment proceedings. Therefore, the AO stated that on careful perusal of the same, it is noticed that in the copy of account of Gross Receipts has total receipts amounting to Rs. 48,57,208/-, for the whole year from 01.04.2017 to 31.03.2018. Thus, an amount of Rs. 46,35,000/- out of the total receipts was received by the assessee in a short span of about One and a Half months and for the remaining part of the year i.e. for the period 22.05.2017 to 31.03.2018, the assessee had shown receipts of Rs. 8,57,208/- only. Therefore, as per AO, the books of accounts represented by the assessee cannot be relied upon. Thus, as per AO, this issue was specifically confronted to the counsel of the assessee and in response, the assessee filed submissions which were perusal but found untenable as no documentary evidence was furnished in support of his claims. 427-Chd-2023 M/s Shivam Resorts, Abohar 4 The AO held that the assessee was regularly suppressing his receipts and when the survey was conducted; his receipts recorded a massive jump of 369 Percent from the previous Financial Year i.e. from Rs. 13,15,000/- to Rs. 48,57,208/-. However, as per AO, even after the conduct of survey action on his business premises, the assessee has chosen to disclose only those receipts of which documentary evidence was seized by the department barring which meager receip' of Rs.8,57,208/- have been shown by the assessee for the post survey period i.e. 22 05.2017 to 31.03.2018 just for the sake of Lip Service to the statutory provisions of the Income Tax Act, 1961. Hence, as per AO, books of accounts of the assessee do not represent true and fair state of affairs of the assessee. Hence, books of accounts of the assessee were rejected u/s 145 (3) of the Act. The AO also mentioned that in the normal course of business, the assessee should have been in receipt of Rs. 3,70,80,000/- during the whole year i.e. Eight times of Rs. 46,35,000/- as the assessee was in receipt of Rs. 46,35,000/- in One and a half months. As per AO, this figure was not based on any surmises or conjectures but based on hard documentary evidence seized during the survey proceedings. However, as per AO, keeping in view the principles of natural justice and that the fact that the business of Marriage Palaces is a cyclical One, and that the Indian wedding/ceremony season in North sees a Lull in hot & humid weather conditions in v the months of June, July August, September & Chilly winters of Jan & Feb, accordingly, the receipts of the assessee for one half of a month amounting to Rs. 46,35,000/- were enhanced by four time accounting for six months of wedding/ceremony season i.e. Rs. 1,85,40,000/- which is a very conservative figure. However, while doing so, benefit of variable expenses 427-Chd-2023 M/s Shivam Resorts, Abohar 5 was given to the assessee. As per AO, in the receipts and expenditure account of the assessee firm for the F.Y. 2017-18 relevant to the A.Y. 2018-19 variable expenses of diesel and petrol, kitchen expenses and resort expenses amounting to Rs. 2,53,971/- have been debited on the expenses side. Therefore, an amount of Rs.10,15,884/- ( 2,53,971/- *4) was deducted from the actual receipts of the assessee worked out as above because if the receipt side has an increase by a multiple of FOUR (4), the direct/variable costs will also increase by same size. As per AO, the water and electricity expenses have not been taken to be variable because fixed bills are generated of these utilities and the expenses debited by the assessee firm on account of water and electricity expenses are taken as such. As per AO, the benefit of other fixed expenses of salary, bank charges, license fees etc. is deemed to be had been given. Thus, as per AO, actual receipts of the assessee for the year were computed at Rs. 1,75,24,116/- (Rs. 1,85,40,000/- - (Rs. 2,53,971/-*4)) after accounting for proportionate expenses and keeping in view the prevailing circumstances of the concerned industry/sector. Out of the amount of Rs. 1,75,24,116/- an amount of Rs. 48,57,208/- was already shown by the assessee. Therefore, receipts of the assessee were enhanced by Rs. 1,26,66,908/- where the benefit of the expenses was deemed to have been given. In view of the above facts and circumstances an addition of Rs. 1,26,66,908/- was made to the returned income of the assessee on account of unaccounted receipts of the assessee firm.” 427-Chd-2023 M/s Shivam Resorts, Abohar 6 4. The ld. CIT(A) in his order has given the detailed findings in this case, which is as under:- “5.1 ....In this case, survey was carried out u/s 133A on the business premises of the assessee on 16.05.2017. The assessee runs a banquet cum resort by the name of Shivam Resorts. During the course of survey proceedings, the assessee surrendered an additional income of Rs. 40 lacs over and above his regular business income. During the course of survey, a diary containing details of bookings accepted by the assessee firm was impounded. A perusal of the impounded diary shows that it pertains for the period starting from 4th of January 2017 till 21st of May, 2017. The relevant period for the year under consideration is 1st of April, 20 7 till 21.05.2017. The AO calculated the amount of unaccounted receipts as per diary for the said period i.e. 01.04.2017 to 21.05.2017 at an amount of Rs. 46,35,000/- i.e. for a period of 51 days. Further, the AO made following observations in the assessment order: a. The total gross receipts for the year under consideration for the period 01.04.2017 to 31.03.2018 as shown by the assessee is Rs. 48,57,208/-. b. An amount of Rs. 46,35,000/- has been received by the assessee in a short span of one and a half month. c. The AO further noted that if the receipt of Rs. 46,35,000/- (for 51 days) is extrapolated to one year, then the turnover of the assessee should have been Rs. 3,70,80,000/-. 427-Chd-2023 M/s Shivam Resorts, Abohar 7 d. The AO allowed benefit to the assessee while making the above extrapolation and concluded that there is lull period in the Indian Wedding Season during which the booking of resorts is very low and reduced the above extrapolation to Rs. 1,85,40,000/- (half of the amount). e. Finally, the AO allowed the benefit of proportionate expenses to the extent of Rs. 10,15,884/- and calculated the out of book receipts of the assessee at Rs. 1,75,24,116/-. f. Further, the AO held that as the assessee has already shown an income of Rs. 48,57,208/- during the year, hence only the balance amount of Rs. 1,26,66,908/- (Rs. 1,75,24,116 - Rs. 48,57,208/-) shall be added to the income of the assessee. From above, it is clear that the AO has extrapolated the income of the assessee but has given due benefit of the lull period in wedding season and proportionate allowance of expenses as well. Extrapolation of Income It is an established legal position that extrapolation of income can be carried out with respect to documents pertaining to particular year. There is no doubt that extrapolation of income on the basis of documents pertaining to one financial year cannot be carried over to other financial years in the absence of seized or impounded documents pertaining to that particular year. Moreover, extrapolation of income should be carried out only when the number of documents are sufficient enough to conclusively lead to a finding that the assessee has been carrying on unaccounted 427-Chd-2023 M/s Shivam Resorts, Abohar 8 transactions throughout the year. Also, there should be a pattern in the unaccounted transactions and the AO should be reasonable in making the said extrapolation. In the present case, it is important to examine whether the above conditions are fulfilled or not, as discussed below: a. Year to which the document pertains The impounded documents on the basis of which the extrapolation of income has been done clearly pertain to financial year 2017-18. In fact, the said diary starts from 4th of January, 2017 and continued till 21st of May, 2017. The last booking for the function has been done on 15.04.2017 for 21.05.2017. As the survey was conducted on 16.05.2017, it is obvious that the diary beyond that period is not available. Hence, the impounded document pertains to Financial Year 2017- 18 relevant to Assessment Year 2018-19. b. Duration of entries The transactions in the impounded diary are spread over a period of 51 days which is by no means ignorable. As the survey was conducted in the month of May, 2017, it is obvious that further unrecorded transactions are not available with the department. c. Pattern of Entries A perusal of the said impounded diary reveals a clear pattern of unaccounted transactions where the name of the person/guest along with the timing of the function (day/night) and the various arrangements to be made including tenting, lighting, flowering, hall rent etc. are clearly mentioned.” 427-Chd-2023 M/s Shivam Resorts, Abohar 9 In his findings, the ld. CIT(A) concluded its findings by stating as under: “In this case, the extrapolation has been done only for a six-month period keeping in view the lull period in the wedding season and proportionate expenses have also been allowed during the estimation of income. Had the impounded documents pertained to a different year or the transactions had been few i.e. one or two and there was no pattern in the said transactions, the addition made by the AO would have been questionable. But in the present case, there is a clear pattern, the documents are spread over 51 days and they pertain to the year under question, hence the addition made by the AO is on sound basis. In view of above discussion, it is apparent that the AO has followed the legal precedents, has rightly rejected the books of accounts and the addition made by the AO is very reasonable and thereby sustained”. 5. During the proceedings before us, the ld. Counsel for the Assessee submitted that the submissions made before the ld. CIT(A) are very much relevant here also. It is reproduced as under:- “The assessee, M/s Shivam Resorts, is a partnership firm filing returns for past many years. The assessee is engaged in the business of leasing out of its resort along with provision of catering and other related services which is situated at Hanumangarh Road Bye Pass, Abohar and earns business income from the same. There was a survey operation conducted at the Premises of the Firm u/s 133A of the Act on 16.05.2017, and during the course of the survey, a diary enclosing 427-Chd-2023 M/s Shivam Resorts, Abohar 10 receipts to the tune of Rs. 46,35,000/- was found, and the assessee surrendered an addition income to the tune of Rs. 40,00,000/- during the course of the survey which was declared in the income tax return for the year under consideration. The aforementioned receipts were duly recorded in the books of the account of the assessee which have been duly audited by a Chartered Accountant for the year under consideration. The copy of the Audit Report for the FY 2017-18 dated has been enclosed in the Paper-book. During the year 2017-18 under consideration, the assessee has declared Receipts of Rs.48,57,208/- including Surrendered Income of Rs.40,00,000/- and Net Profit to the tune of Rs.41,20,000/- was recorded vis-a- vis against Receipts declared during FY 2016-17 amounting to Rs.13,15,000/- wherein Loss had been Declared at Rs. 10,71,155.87. /- was paid by the assessee vide Challan. The surrendered income of Rs. 40,00,000 dated 16.06.2017, 15.09.2017, 15.12.2017, 15.03.2018. The case was centralized with DCIT-CC-1, Ludhiana vide order u/s 127 of Income Tax Act, 1961 bearing order No. 979 dated 24.11.2020 passed by the Pr. CIT-l, Amritsar. Notice u/s 142(1) of the Act dated 06.02.2021 along with questionnaire was issued for hearing on 12.02.2021. In response to these notices, written submissions /information was furnished by the assessee online through its E-filing account. The assessment order u/s 143(3) of the Act dated 23.04.2021 was passed imaginary additions were made by the Ld. Assessing Officer to the tune of Rs. 1,26,66,908/-, the details of which are as below: 427-Chd-2023 M/s Shivam Resorts, Abohar 11 Returned Income Rs. 30,48,850/- Addition Rs. 1,26,66,908/- Taxable Income Rs. 1,57,15,758/- Rounded off Rs. 1,57,15,760/- Demand Order was also issued u/s 156 of the Act dated 23.04.2021 wherein tax to the tune of Rs.61,02,817.00 was imposed, which is against the Principle of Natural Justice. Therefore, the assessee has now preferred an appeal before the Worthy CIT(A), and in respect of the same, our grounds of appeal and our point wise submission is given as below: GROUNDS OF APPEAL; 1. That Addition of Rs. 12666908.00 may be quashed as assessing officer made imaginary additions in the Receipts of the firm as against declared in Income Tax Return without any basis of Material on Record. 2. That Additions may be quashed as assessing officer made on the basis of Average Calculations as mentioned in the Order against the Fact that Books of Accounts, Cash Book, Bill Book and Receipts Produced before them by firm in course of Proceedings. 3. That the Assessing officer has not taken into consideration that firm had already paid huge Tax due to Survey conducted during the year and now made massive additions of Rs. 12666908.00 without any Basis. So the order which is illegal, arbitrary and against the Principles of Natural Justice. 4. That the order is based on Imaginations and not on the basis of Material Available on Records and against 427-Chd-2023 M/s Shivam Resorts, Abohar 12 the facts of the case. That as we read order assessing officer made imaginary additions by taking Receipts and Expenditure on imaginary Basis. That Order is purely arbitrary and causes injustice and harshness to assessee. 5. That any other ground that may be taken up at the time of appeal. OUR SUBMISSIONS: At the outset, it is submitted that survey operations u/s 133A of the Act was conducted at the business premises of the assessee on 16.05.2017 and during the course of the survey, a diary was impounded wherein bookings to the tune of Rs. 46,35,000/- for the period 01.04.2017 to 21 May, 2017. Therefore, to buy peace of mind the assessee surrendered an additional income to the tune of Rs. 40,00,000/- as business income via crediting the same to the Profit & Loss Account and tax on the same was paid at normal rates. Furthermore, the assessee has paid the aforementioned tax and there has been no dispute so far and further, during the course of the survey conducted at the business premises, that no other source of income, except the income earned from leasing of resort and allied activities has been noticed, and neither any paper or document has been found which would prove that the assessee has been carrying on some other business activity. The bookings represent the income earned from the business of the assessee. BASED ON LAW: It is humbly submitted that the evidence found and the material available during the course of the search should 427-Chd-2023 M/s Shivam Resorts, Abohar 13 be the basis for computing the undisclosed income. There cannot be any presumption part of the Ld. Assessing Officer with respect to the extrapolation of undisclosed income. Moreover, there is no indication that the assesse was maintaining any diary of undisclosed sources during the period of June 21 to March 31 of the relevant year. Furthermore, it is submitted that since the incriminating documents were found for the period of April and May of the relevant year, the same cannot be used as a basis for 'extrapolation' of income for the whole year, since no incriminating documents were found for the same. In this regard, reliance is placed on the following judgments: The Bombay High Court also had an opportunity to deal with a similar issue in CIT v. C.J. Shah & Co. [2000] 246 ITR 671/[2001] 117 Taxman 577. In the said case also the High Court observed that in matters of estimation, some amount of latitude may be required to be shown to the Assessing Officer, particularly when relevant documents are not forthcoming. However, n does not mean that the Assessing Officer can arrive at any figure without any oasis by adopting an arbitrary method of calculation. Court in the case of N.R. Paper & Board Ltd. v. sustainable. The Decision of the Gujarat High Dy. CIT [1998] 234 ITR 733/101 Taxman 525 wherein it was held that the evidence found and the material available should be the basis for computing the undisclosed income. It was observed by the Bench that to hold that even without any evidence or material the Assessing Officer would be 427-Chd-2023 M/s Shivam Resorts, Abohar 14 empowered to estimate the income was fraught with dangerous consequences. The Assessing Officer cannot presume that there must be some other material or evidence which has not been found during the search and the assessee must have derived the undisclosed income therefrom. It has been observed by the Tribunal in the above decision that in the very scheme of a block assessment, any guess work or estimate is excluded from the reckoning, if there is evidence in the seized material itself, to show that the seized material is not the complete record of unaccounted transactions or where there are indications to show that the assessee had certain other record of unaccounted transactions which was not unearthed. In the case before the Tribunal, there was no indication anywhere in the seized record to show that even in respect of other periods, the assessee was maintaining such a diary which, for some reasons or the other was not found during the course of search. It was held by Hon'ble High Court of Bombay in the case of C.J. Shah & Co. (supra) that estimation of undisclosed profit made by AO for the entire block period on the basis of seized loose papers which indicated undisclosed sales for three months was not justified. In the case of CIT v. Dolphin Builders (P.) Ltd. [2013] 35 taxmann.com 3/216 Taxman 116/356 ITR 420, Hon'ble High Court of Madhya Pradesh held that making addition merely on the basis of seized documents without cogent evidence that excess amount mentioned in seized document was actually passed on to the assessee was not sustainable where books of account of assessee were duly audited. In the case of D.N. Kamani HUF v. Dy. CIT [1999] 70 ITD 77 Hon'ble ITAT Patna Bench held that documents regarding receipt of on-money by assesses having been 427-Chd-2023 M/s Shivam Resorts, Abohar 15 found in respect of sale of flats to one party, addition could hot be made in respect of all the parties to whom assessee sold flats merely on the basis of presumption. In the case of Fort Projects (P.) Ltd. v. Dy. CIT [2013] 29 taxmann.com 84 Hon'ble ITAT Kolkata Bench held that AO was not justified in extrapolating few notings in a seized diary to balance flats in three projects given that no incriminating evidence pertaining thereto was found in the course of search. On the similar note, the Hon'ble ITAT Jaipur Bench in case of Asstt. CIT v. M.M. Sales Agencies [2006] 153 Taxman 13 (Mag.) held that the income cannot be estimated for the period for which no information is available on the basis of the seized record. A similar issue was also dealt with by the Pune Bench of the Tribunal in Hotel Vrindavan v. Asstt. CIT [2000] 67 TTJ 139 wherein it was held that the undisclosed income under Chapter XIV-B cannot be bac ed on the presumption that if the assessee suppressed sales and expenses in later years, he must have done so in the earlier years also. Similarly, the Hon'ble ITAT Ahmedabad Bench in case of Dy. CIT v. Royal Marwar Tobacco Product (P.) Ltd. [2009] 29 SOT 53 (URO) held that the Assessing Officer was not justified in making estimated additions for earlier assessment years based on the documents seized for A.Y 2004-05. The High Court of Delhi in case of CIT v. H.C. Chandna (P.) Ltd. [2007] 163 Taxman 654 upheld the finding of the tribunal that no income can be estimated on the basis of the evidences found for a particular period. 427-Chd-2023 M/s Shivam Resorts, Abohar 16 Similarly the Delhi High Court in case of CIT v. Anand Kumar Deepak Kumar [2007] 160 Taxman 206/294 ITR 497 held as under: "7. The Commissioner as well as the Tribunal found that in fact there was no discrepancy noted in the books of account in the post search period. The assumption of the Assessing Officer may have perhaps been valid if the Assessing Officer had found some discrepancy in the books of account or if the search had been conducted after the accounting year and the books of account had brought out some discrepancies. But in the present case, the books of account were examined by the Assessing Officer in the middle of the accounting year. Merely because there were some discrepancies in the pre-search period, it cannot lead to any presumption that the discrepancies would have continued in the postsearch period particularly when there was factually no evidence at all as found by both the authorities below to support such a view." On the similar lines recently the Hon'ble ITAT Ahmedabad in case of Savaliya Developers (P.) Ltd. v. Dy. CIT [ITA No. 401/Ahd/2014 & 3188/Ahd/2015] vide order 30-6-2019 held as under in context to extrapolation: "Besides, estimated cash receipts on-money of sale of all flats merely on the basis of statement of two purchasers without any tangible corroboration clearly falls in the realm of conjunctures and surmises. It is obvious that driven by misplaced suspicion, the AO has presumed the presence of on- money in respect of each of the residential flat sold. The action of the AO is a mere ipse dixit which is 427-Chd-2023 M/s Shivam Resorts, Abohar 17 not objectively justifiable by some inculpatory evidence. It is only elementary to say that estimation of unaccounted money cannot be made only on the basis of contemplation. The order of the AO in making additions of Rs. 3.28 Crores is thus clearly arbitrary and unsustainable in law. It is well settled that the Revenue authorities cannot base its findings on suspicions, conjunctures or surmises nor should it act on no evidence at all or on vague considerations partly on evidence and partly on suspicion, conjunctures or surmises. The Revenue could not demonstrate any material except unsupported statements of two persons. Such unverified statements without any proof towards its assertions are not a good evidence and do not raise any estoppel against the assessee. Therefore, the addition made by the AO is in the realm of speculation without any basis whatsoever. Hence, we decline to interfere with the order of the CIT(A) in so far as appeal of the Revenue is concerned." Therefore, in the instant case, it is submitted that the Ld. AO during the course of the proceedings has rejected the audited books of account of the assessee without any evidence to the contrary, and the whole addition is based on the conjectures, surmises and presumption of the assessee, without any application of mind. Therefore, the same addition stands invalid since there is no evidence is contrary. Addition cannot be made merely on basis of notional income: In this regard, it is submitted that the addition to the tune of Rs. 1,26,66,908/-made in the impugned case by the Ld. AO is merely on the basis of notional income as 427-Chd-2023 M/s Shivam Resorts, Abohar 18 computed by the assessee as compared to the real income of the income, which has been correctly declared by the assessee during the course of filing of return u/s 139 of the Act. Reliance in this regard is placed on the judgment of Hon'ble ITAT in the case of Sindhu Trade Links Ltd. Vs DCIT vide ITA.No.5065/Del./2017. BASED ON FACTS ON THE CASE: In this regard, it is submitted that the addition to the tune of Rs. 1,26,66,908/ -is imaginary in nature. The Assessee vide reply dated 17.04.2021 has already explained the lower quantum of receipts in the months after May, 2017 which have again reproduced below for your ready reference. 1. It is submitted that the reason on Lower Receipts in remaining Months after May, 2017 is that the Quantum of the Business does not always remain same in all years and we cannot presume average for past years/months in coming months/years. That Receipts of the Business Depends on Surrounding Circumstances which are explained as under which justifying lower receipts in remaining months after May, 2017. That after May, 2017 Business of the Firm goes on Lower side due to following reasons. 2. Moreover, two New Palaces have opened in Season of November,2017 January, 2018 in Financial Year 2017-18 3. Furthermore, there are Total about 22 Palaces in Tehsil Abohar having population of about 4.00 Lakhs here is no huge demand of palaces as compare to Population and also Competition is always there. 427-Chd-2023 M/s Shivam Resorts, Abohar 19 4. That after application of GST Act w.e.f.01.07.2017 we get our firm registered with GST and to best of our Knowledge there is no other Palace in Abohar and Nearby Areas of Abohar in District Fazilka who were then registered with GST. That on Palace Receipts GST Rate is 18%. So that is why due to Rate Difference due to GST and due to Competition our firm Receipts were lower after 01.07.2017 after application of GST as compare to Last year in same period. 5. That in every 2-3 Kms in Tehsil Abohar there is one Palace. So, all palaces are nearby areas and it creates huge competition in every year. So some year we may have higher receipts and in some year it may have lower receipts as depends on Business circumstances. That in Nutshell we cannot assume Same Business in every year and make any additions on the Basis of Last Year Gross Receipts against Actual Receipts Recorded in Books of Accounts. It cannot be basis any way to make additions. In this regard, it is submitted that the Ld. AO has alleged vide Para 4.3 in the Assessment Order issued dated 23.04.2021, "4.3 Therefore, from the above it is vividly clear that the assessee was regularly suppressing his receipts and when the survey was conducted; his receipts recorded a massive jump of 369 Percent from the previous Financial Years from Rs. 13,15,000/- to Rs. 48, 57,208/-. However, even after the conduct of survey action on his business premises, the assessee has Page 4 of 7 ACCFS7094Q- SHIVAM RESORTS A.Y. 2018-19 ITBA /AST /S/143(3) /2021-22/1032653517(1) 427-Chd-2023 M/s Shivam Resorts, Abohar 20 chosen to disclose only those receipts of which documentary evidence was seized by the department barring which meager receipts of Rs. 8,57,208/- have been shown by the assessee for the post survey period 22.05.2017 to 31.03.2018 just for the sake of Lip Service to the statutory provisions of the Income Tax Act, 1961. Hence, books which is not of each of to say of of accounts of the assessee do not represent true and fair state of affairs of the assessee. Hence, books of accounts of the assessee are rejected u/s 145 (3) of tie Act. Thus, the actual receipts of the assessee are determined on the basis of material available on record." In this regard, it is humbly submitted that the Ld. AO is not justified in rejecting books of accounts u/s 145(3) of the Act, merely on account of the fact that there has been decrease in the business of the assessee during the year under consideration. The books of accounts of the assessee present a true and fair view of the business and have been audited by a Chartered Accountant in the instant case. Therefore, the rejection of books of accounts is without merit since there exists no evidence to contrary that the books of accounts of the assessee do not represent a true and fair view. The assessee vide reply dated 17.04.2021 has already explained that the decrease in business is on account of imposition of GST Law, and therefore, the receipts amounting to Rs. 8,57,208/-do not represent the suppression of receipts, rather the downturn in the business of the assessee. Furthermore, the rejection of books of accounts is further without merit, because the assessee has promptly explained the reason for downturn. Thus, it is submitted that there cannot be any presumption on part of the Ld. Assessing Officer based 427-Chd-2023 M/s Shivam Resorts, Abohar 21 on extrapolation of data from the evidence found in diary for period of April and May, and the same stands to be invalid in the instant case. Therefore, in view of above facts and judicial pronouncements, it is prayed before your Goodself that the addition made may please be deleted." 6. The ld. DR relied on the orders of the authorities below and he vehemently argued in favour of extrapolation of income on the basis of dairy farm during the survey operation. 7. On the other hand, the ld. Counsel of the Assessee argued that after survey operation, the business of the Assessee resort had gone down drastically because of the fact that there was some sort of rumor in the market that the Income-tax Department is keeping an eye on the business in this particular resort. He also argued that the reputation of the resort became questionable in the eyes of customers and, therefore, that drastically affected the business of this resort after the survey. 8. We have considered the findings of the Assessing Officer and the ld. CIT(A). We have also considered the submissions made by the Counsel of the Assessee during the proceedings before us. We have taken into consideration the arguments of the ld. DR and oral 427-Chd-2023 M/s Shivam Resorts, Abohar 22 submissions and arguments made by the ld. Counsel of the Assessee in the proceedings before us. 9. We find that the diary which was found during the survey operation conducted u/s 133A of the Income Tax Act pertains to entries regarding events relevant for the period starting from 04.01.2017 till 21.5.2017. However, the relevant period for the year under consideration is only form Ist of April 2017 till 21 st May, 2017. Therefore, effectively the Assessing Officer had business entries and details of events that took place in this resort for only 51 days of the relevant assessment year. It is also seen that the total receipts for this 51 days was to the tune of Rs. 46,35,000/-, out of which, in order to buy peace of mind, the Assessee had already surrendered Rs. 40 lacs which has been accepted by the Department and the Assessee has already paid tax due on this amount. Now, on the basis of business recorded in the diary for only 51 days of the relevant assessment year only, the Assessing Officer has made extrapolation of business for the entire period of the remaining year and calculated half of its notional income after giving benefit of proportionate expenses of Rs. 10,15,884/- , receipt outside the books of account has been calculated of extrapolation at Rs. 1,75,26,116/-. The Assessing Officer had reduced 427-Chd-2023 M/s Shivam Resorts, Abohar 23 the declared extrapolated income of Rs. 48,57,208/- from its calculation of extrapolation income of Rs. 1,75,24,116/- and thus, an addition had been made of Rs. 1,26,66,908/-. The ld. CIT(A) in his order has confirmed this addition treating it as an extrapolation of income based on the documents found for the same and relevant assessment year. Here, it is important to note that entries for extrapolation period found in the diary for the year under consideration is only for 51 days. We find it very difficult to accept extrapolation of income of the entire year on the basis of entries found of only 51 days of the year. It does not sound logical. The ld. CIT(A) in his order has confirmed the addition made on the basis of extrapolation citing the decision of the jurisdictional Bench of the Hon'ble Punjab & Haryana High Court in the case of ‘Surinder Kumar vs. CIT’ ‘reported at [2012] 21 taxmann.com 80. 10. In the said judgement the Hon'ble High Court held as under;- "Section 158BB of the Income-tax Act, 1961 - Block assessment in search cases - Undisclosed income, computation of - Block-period 1990-91 to 2000-01 - Where seized documents showed unrecorded sales, mere fact that such documents pertained to only for 112 days could not be a ground to challenge addition made on such material" 427-Chd-2023 M/s Shivam Resorts, Abohar 24 11. Here, we find that there is a difference between facts of this case and the facts that discussed by the Hon'ble High Court in the case of ‘Surinder Kumar vs. CIT’ (supra). In fact, the incriminating documents pertaining to the block period of 112 days relating to income of the Assessee where the Assessee had already earned income before the search and, therefore, the search could not make any difference on the future income of the Assessee. But, in the instant case, the survey took place on 16.5.2017, i.e., in the beginning of the assessment year and therefore, after survey, as per the Counsel of the Assessee, the reputation of the resort was badly damaged and, therefore, it hampered the future business of the resort negatively. Thus, keeping in view this distinction, we are of the considered view that the extrapolation adopted by the A.O. for making addition was not justified. Therefore, sustaining such addition made on the basis of extrapolation, action of CIT(A) does not look convincing and logical. Accordingly, Assessee’s appeal on this ground is allowed. 12. In the result, the appeal of the Assessee is allowed. Order pronounced on 31.07.2024. Sd/- Sd/- (PARESH M. JOSHI) (DR KRINWANT SAHAY) Judicial Member Accountant Member “rkk” 427-Chd-2023 M/s Shivam Resorts, Abohar 25 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of the order forwarded to : 1. अपीलाथȸ/ The Appellant 2. Ĥ×यथȸ/ The Respondent 3. आयकर आय ु Èत/ CIT 4. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय आͬधकरण, चÖडीगढ़/ DR, ITAT, CHANDIGARH 5. गाड[ फाईल/ Guard File आदेशान ु सार/ By order, सहायक पंजीकार/ Assistant Registrar