M/s. Disha Communications Private Limited, Bengaluru V. Deputy Commissioner Of Income-Tax, Circle-2(2), Bengaluru

ITA 500/BANG/2023

• Counselvise Citation: [2023] 102 COUNSELVISE.COM (IT) 0588 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Next Hearing Date: 09-10-2023
• Assessment Year: 2019-2020
• Appeal Filed On: 10-07-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard
• Section: 131; 132; 40A(3); 153A; 40(a)(ia); 250; 143(2); 139(1); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH : BANGALORE BEFORE SMT. BEENA PILLIA, JUDIIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA Nos.496 to 500/Bang/2023 Assessment year : 2015-16 to 2019-20 M/s. Disha Communications Pvt. Ltd., No.16, Dishantar, Church Road, Shanti Nagar, Bengaluru – 560 027. PAN : AAACD 5099B Vs. The Deputy Commissioner of Income Tax, Central Circle 2(2), Bengaluru. APPELLANT RESPONDENT Appellant by : Shri S.V. Ravi Shankar, Advocate Respondent by : Ms. Neera Malhotra, CIT(DR)(ITAT), Bengaluru. Date of hearing : 10.10.2023 Date of Pronouncement : 25.10.2023 O R D E R Per Bench These five appeals filed by the assessee are against the separate DIN & Order No.ITBA/APL/M/250/2023-24/1052830711(1), 1052829421(1), 1052830064(1), 1052829632(1), 1052839242(1) dated 15.05.2023 of the CIT(Appeals)-15, Bangalore for the AYs 2015-16 to 2019-20 respectively. Certain common issues are involved in these appeals which were heard together and disposed of by this consolidated order for the sake of convenience and brevity. 2. We first take up AY 2015-16 on the following grounds:- ITA Nos.496 to 500/Bang/2023 Page 2 of 13 “ 1. The appellate order of the learned Commissioner of Income-tax [Appeals] - 15, Bengaluru passed under Section 250 of the Act dated 15/05/2023 for the impugned Assessment Year 2015-16, in so far as it is against the Appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant's case, requires to be quashed. 2. The order of assessment passed under section 153A of the Act is bad in law and void-ab-initio in as much there was no valid search conducted in the premises of the appellant and consequently, the provisions of section 153A of the Act, ha e no application and therefore, the impugned order passed deserves to be cancelled. 3. Without prejudice to the above, there is no justification to issue the warrant to search the premises of the appellant as the conditions specified in terms of Sec. 132[1] of the Act did not exist and therefore the search action is illegal and consequently the impugned assessment order founded thereon deserves to be cancelled. 4. Without Prejudice, the appellant denies itself liable to be assessed on total income of Rs. 1,96,43,066/- as determined by the learned assessing officer and upheld by the learned Commissioner of Income-tax [Appeals], as against the income reported by the appellant of Rs. 1,74,81,726/-, on the facts and circumstances of the case. 5. Grounds on addition made of Rs. 6,72,117/- being estimation of gross profit on alleged unaccounted sales: [i]. The learned Commissioner of Income-tax [Appeals] is not justified in confirming the addition made by the learned assessing officer amounting to Rs. 6,72,117/- being the estimated gross profit by the learned assessing officer at 10.15% on the alleged suppressed sales amounting to Rs. 66,21,840/-, on the facts and circumstances of the case. [ii]. The learned Commissioner of Income-tax [Appeals] failed to appreciate that the learned assessing officer was not justified in not appreciating that mere admission in the statement recorded which was later retracted, would not alone be sufficient to make ITA Nos.496 to 500/Bang/2023 Page 3 of 13 additions without any other co-roborative evidences and consequently the learned assessing officer ought not to have arrived at a conclusion that the appellant has made certain alleged unaccounted sales and estimated the income of the appellant, on the facts and circumstances of the case. [iii]. Without prejudice, though not conceding the gross profit percentage adopted by the learned assessing officer at 10.15% on the alleged unaccounted sales is far too excessive and the said gross profit ratio adopted by the learned assessing officer requires to be reduced substantially, on the facts and circumstances of the case. 6. Grounds on addition made of Rs. 14,87,431/-: [i]. The learned Commissioner of Income-tax [Appeals] is not justified in confirming the addition made by the learned assessing officer of Rs. 14,87,431/ - being the disallowance of alleged cash expenses on estimation basis at 25% of the total alleged cash expenses amounting to Rs. 59,49,723/-, on the facts and circumstances of the case. [ii]. Without prejudice, the learned Commissioner of Income-tax [Appeals] failed to appreciate that the learned assessing officer was not justified in making a disallowance of alleged estimated expenses amounting to Rs. 14,87,431/-, since the income of the appellant having been determined on an estimation basis, then no other disallowances under the provisions of the statute is warranted, on the facts and circumstances of the case. [iii]. The learned Commissioner of Income-tax [Appeals] failed to appreciate that the learned assessing officer has made the addition on account of disallowance of alleged cash expenses on an estimation basis which is arbitrary, based on suspicion, surmise and conjecture without any proper basis, which is impermissible in law, on the facts and circumstances of the case. 7. The learned Commissioner of Income-tax [Appeals] is not justified in confirming the disallowance made by the learned assessing officer amounting to Rs. 1,792/- being the delayed remittance of employee contribution towards Provident Fund, ITA Nos.496 to 500/Bang/2023 Page 4 of 13 ESI under the provisions of section 36[1][va] of the Act, on the facts and circumstances of the case. 8. Without prejudice, the appellate order passed by the learned Commissioner of Income-tax [Appeals], is against the principles of natural justice, since the appellant was not afforded a reasonable opportunity of hearing to make its submission, consequently the impugned appellate order passed requires to be cancelled, on the facts and circumstances of the case. 9. Without prejudice, to the right to seek waiver as per the parity of reasoning of the decision of the Hon'ble Apex Court in the case of Karanvir Singh 349 ITR 692, the Appellant denies itself liable to be charged to interest under section 234 B of the Income Tax Act on the facts and circumstances of the case. The appellant contends that the levy of interest under section 234 A & 234 B of the Act is also bad in law as the period, rate, quantum and method of calculation adopted by the learned assessing officer on which interest is levied are not discernible and are wrong on the facts of the case. 10. The appellant craves leave to add, alter, amend, substitute or delete any or all of the grounds of appeal urged above. 11. For the above and other grounds to be urged during the course of hearing of the appeal the Appellant prays that the appeal be allowed in the interest of equity and justice.” 3. The common facts are that the assessee is a company which provides advertisement services, address the varied communications vehicles and also offers comprehensive communication solutions. The assessee filed the return of income u/s 139(1). 4. A search action u/s. 132 was conducted in the assessee’s premises on 27.02.2019 and notice u/s. 153A was issued on 18.11.2019 requiring the assessee to file the return within 30 days from the date of ITA Nos.496 to 500/Bang/2023 Page 5 of 13 receipt of the notice which was duly served on 18.11.2019. In response the assessee filed return of income admitting income returned u/s. 139(1) of the Act. Subsequently notice u/s. 143(2) and other statutory notices were issued to the assessee. After considering the submissions of the assessee, the AO noted from the seized material A/DCPL/01 and A/DCPL/06 during the course of search at the assessee’s premises that assessee had unaccounted turnover which was not recorded in the books of accounts and Mr. K.K. Mathew, the director of the company in the statement recorded u/s. 131 of the Act offered the unaccounted cash sales during the year to tax. The AO noted that the assessee had not offered the admitted income during search in the return filed u/s. 153A of the Act. Summons u/s. 131 in this regard was issued to the Director for explanation and statement u/s. 131 recorded. The assessee file details of Gross Profit and Net Profit for FYs 2014-15 to 2017-18 on the basis of audited accounts. The AO after discussing various case laws observed that during the search the assessee had surrendered the unaccounted sales and the department was refrained from making any further enquiry into the matter and therefore it was not open to retract the earlier statement u/s. 131. The AO noted from the GP and NP rate submitted by the assessee that in AY 2015-16 highest GP rate was achieved @ 10.15% which was considered for all the AYs on the undisclosed/unaccounted sales, the AO further made addition towards violation of section 37, 40A(3) and 40(a)(ia) of the Act as under:- ITA Nos.496 to 500/Bang/2023 Page 6 of 13 AY 2015-16 AY 2016-17 AY 2017-18 AY 2018-19 AY 2019-20 Unaccounted sales found during course of search 66,21,840 34,71,999 43,96,000 431,03,470 490,82,970 Profit @ 10.15% determined on unaccounted sales by AO 6,72,117 3,52,408 4,46,194 43,75,002 49,81,922 Disallowance u/s. 37, 40A(3) & 40(a)(ia) made by AO 14,87,431 7,79,898 9,87,452 96,82,117 110,25,262 5. The CIT(Appeals) confirmed the order of the AO. 6. The ld. AR reiterated the submissions made before the lower authorities and submitted that the AO has applied higher GP rate for all the AYs which is not correct. Since books of accounts had been audited and accepted by the AO and no discrepancies were noted, the actual profit calculated by the assessee is as under :- Particulars A Y 2013-14 A Y 2014-15 A Y 2015-16 A Y 2016-17 A Y 2017-18 A Y 2018-19 A Y 2019-20 F Y 2012-13 F Y 2013-14 FY-2014-15 FY-2015-16 FY-2016-17 FY-2017-18 FY-2018-19 Amount Amount Amount Amount Amount Amount Amount Revenue From operations Total Turnover Less- Operational Costs Gross Profit 1,09,90,44,851 1,02,73,22,914 1,11,42,47,22792,51,73,589 1,13,56,77,531 1,41,87,63,716 1,34,45,62,337 1,09,90,44,851 1,02,73,22,914 1,11,42,47,22792,51,73,589 1,13,56,77,531 1,41,87,63,716 1,34,45,62,337 1,00,69,51,81192,87,92,424 1,00,11,41,87385,05,85,618 1,04,33,40,289 1,29,06,26,863 1,22,35,70,871 9,20,93,0409,85,30,490 11,31,07,45,87,971 9,23,37,24212,81,36,853 12,09,91,466 8.389.59 10.158.06 8.139.03 9.00 average GP %8.91 6.1 The assessee did not dispute the unaccounted sales, but the only grievance raised is that the average GP rate may be applied. 7. The ld. DR relied on the orders of lower authorities and she submitted that in the return filed u/s. 153A, the assessee did not offer ITA Nos.496 to 500/Bang/2023 Page 7 of 13 the admitted income during the course of statement recorded by the searched team. The GP rate of 10.15% in FY 2014-15 is rightly applied by the AO on the unaccounted sales which is earned by the assessee, therefore, it should be reduced. 8. Considering the rival submissions and perusing the material on record and the orders of authorities below, we note that for the AY 2015-16 the assessee has achieved highest GP rate @ 10.15% which has been considered by the AO for all the AYs towards unaccounted sales. We further note that from the above table the unaccounted sales found during the course of search varies and in the AY 2018-19 and 2019-20 it is much more higher compared to the preceding years and due to increase in the turnover, the semi-variable expenses increase gradually and there is slight difference between the GP achieved and the average GP rate calculated by the assessee. Therefore, the saving in semi-variable expenses will compensate the decrease/increase in the profit which is very much less in percentage as noted in above table. Therefore, we hold that for the AYs 2018-19 and 2019-20, the GP rate calculated by the AO at 10.15% is justified. In the AY 2015-16, the actual GP rate is 10.15% which cannot be disturbed. For the AYs 2016-17 and 2017-18, the unaccounted sales are Rs.34,71,999 and Rs.43,96,000, therefore the GP rate calculated by the assessee @ 8.06% and 8.13% respectively should be applied. Accordingly, this ground raised by the assessee on similar facts for all the assessment years are partly allowed. ITA Nos.496 to 500/Bang/2023 Page 8 of 13 9. The next common ground is the disallowance of cash expenses on estimation basis under sections 37, 40A(3) and 40(a)(ia) of the Act. During the assessment proceedings, the AO also noted from the seized material that the assessee also made expenses in cash which were not recorded in the books of accounts which is evident from the statements made before the DDIT. However, over the income estimated @ 10.15%, the AO noted from the transactions that the expenses in cash cannot directly be correlated with the business of the assessee which are violation of Sections 37, 40A(3) and 40(a)(ia) and in view of the same a further disallowance of 25% of cash expenses was worked out over and above the gross profit on estimate basis on unaccounted sales. The CIT(Appeals) confirmed the order of the AO. 10. The ld. AR submitted that once the profit has been estimated by the AO on the unaccounted sales, no further disallowance can be made on the same towards expenses. The profit estimated by the AO covers all the violation of the provisions of the Act for earning the profit on sales made and the AO cannot make adhoc disallowance under the above sections. In support of his arguments, he relied on the following judgments:- i) CIT v. Smt. Santosh Jain, [2007]159 Taxman 392 (P&H) ii) CIT v. Banwari Lal Banshidhar [1998] 229 ITR 229 (All) iii) CIT v. Pushottam Lal Tamrakar [2004] 270 ITR 314 (MP) 11. The ld. DR relied on the orders of the lower authorities and submitted that during the course of search cash payments were noted and the assessee has violated the provisions of the Act, therefore the ITA Nos.496 to 500/Bang/2023 Page 9 of 13 AO has rightly made the disallowance Sections 37, 40A(3) and 40(a)(ia) over and above the gross profit. 12. Considering the rival submissions we note that during the course of search some incrementing materials were found. It is clear from the incriminating documents that the assessee had not recorded the sales in its regular books of accounts. The AO has estimated the profit on such unaccounted sales, which we have upheld in paragraph 7 above. The AO further disallowed for violation of Section 37, 40A(3) & 40(a)(ia) on estimated basis also without specifying the quantum of disallowance under particular section. We note that the AO has made addition on estimated basis on unaccounted sales for earning the profit as per Income Tax Act, therefore no further addition is called for under the provisions for earning profit of the business. The ld. CIT(A) has wrongly observed that assessee has violated the provision of section 37, 40A(3) of the Act. Since the AO has accepted that it was unaccounted sales and estimated the profit, therefore, the expenses incurred by the assessee were towards carrying of the business of the assessee. In our view, once the gross profit rate is applied on the turnover, no further addition can be made and this view is fortified by the case laws in the case of CIT v. Smt. Santosh Jain, [2007]159 Taxman 392 (P&H) and other decisions (supra) and CIT v. Hindustan Equipment (P) Ltd. [2013] 30 taxman.com 295 (MP) and ITO v. Sadananda Singha, 49 taxmann.com 323 (Kolkata Trib). Therefore, we delete the addition on this count and the ground raised by the assessee on similar facts for all the years is allowed. ITA Nos.496 to 500/Bang/2023 Page 10 of 13 13. Now we take up the other grounds of appeal. For AY 2015-16, ground Nos.1, 10 & 11 are general in nature. ground No.4 & 9 is consequential in nature and grounds No.2, 3, 7 & 8 were not pressed by the ld. AR and dismissed as not pressed. 14. For AY 2016-17, grounds No.1, 9 & 10 are general, ground No.4 is consequential and grounds 2, 3, 7 & 8 were not pressed and dismissed as not pressed. 15. For AY 2017-18, grounds 1, 12 & 13 are general, ground No.4 & 11 is consequential and grounds 2, 3, 8 & 10 were not pressed and dismissed as not pressed. 15.1 Ground No.7 is regarding addition of Rs.18,21,734. The AO noted from the return filed in response to section 153A that the assessee has reported net profit before tax as per P&L account at Rs.1,06,80,567 whereas in the return u/s. 139(1) the amount was Rs.1,25,02,301 for which the assessee did not give satisfactory explanation, therefore the difference was added back to the income and upheld by the CIT(A). 15.2 During the course of argument, the ld. AR requested that the assessee will provide necessary details and evidence and this matter may be sent back to the AO for further verification. Considering this prayer, we restore this issue to the AO for fresh decision as per law after giving opportunity of being heard to the assessee. The assessee is ITA Nos.496 to 500/Bang/2023 Page 11 of 13 directed to substantiate its case before the AO with necessary documents. This issue is allowed for statistical purposes. 15.3 Ground No.9: The ld. AR submitted that in the computation of income for the AY 2017-18, the brought forward loss from the previous year is wrong. Since this issue has consequential effect, therefore the AO is directed to consider the correct figure of brought forward loss from the previous year as per law. This ground is allowed for statistical purposes. 16. For AY 2018-19, grounds 1, 10 & 11 are general, grounds 4 & 9 are consequential and grounds 2,3,7 & 8 were not pressed and dismissed as not pressed. 17. For AY 2019-20, the ld. AR submitted that grounds 1, 9 & 10 are general, ground 8 is consequential. He further submitted that grounds 6 & 7 are not pressed by the assessee. Nothing was argued by the ld. AR in respect of issue raised in ground No.5. Accordingly, ground Nos. 5 to 7 are dismissed. 17.1 Ground No.2: In this ground the assessee has challenged the entire addition made by the AO including the addition of Rs.28,48,210 towards cash found during the course of search which was not recorded in the books of accounts of the assessee and it was treated as unexplained money by the AO and confirmed by the CIT(A). The ld. AR submitted that during the search and seizure proceedings, unaccounted sales were worked out to Rs.4,90,82,970 and the AO has ITA Nos.496 to 500/Bang/2023 Page 12 of 13 considered 10% profit on the unaccounted sales which comes to Rs.49,81,922 and search and seizure took place 27.02.2019, which almost completed 11 months of the year and books of accounts were not completed. The profit estimated by the AO on the unaccounted sales is much more than the cash found during the search & seizure proceedings, which is clearly accepted by the assessee before the search authorities. However in the statement recorded the assessee explained that this cash found related to the unaccounted expenditure and unaccounted sales income. Accordingly cash found during the search was generated from the unaccounted sales. Therefore, no addition can be made towards cash found during the search. 17.2 On the other hand, the ld. DR supported the orders of lower authorities. He submitted that the CIT(A) has after discussing the issue in detail has rightly upheld the issue in favour of revenue. 17.3 Considering the rival submissions, we note that on 27.2.2019, during the search & seizure proceedings, a sum of Rs.49,000 was recorded in the books of accounts. Cash of Rs.28,48,210 was found which was not recorded in the books of accounts of the assessee. As per the statements recorded Q. & A No.18, 19, 20 & 21 quoted in the assessment order, the assessee has explained that the unaccounted cash was from the unaccounted sales and unrecorded expenditure. We further note that the AO has estimated profit @ 10.15% on unaccounted sales which comes to Rs.49,81,922 which is more than the cash found during the course of search. We also note that in the ITA Nos.496 to 500/Bang/2023 Page 13 of 13 preceding four years, during the course of search & seizure, the unaccounted sales were found on which the AO has applied profit uniformly @ 10.15% to which we have decided in the above terms including the current year. Therefore, considering the totality of the facts and statements recorded from the assessee, it can safely be presumed that unaccounted cash is generated from the unaccounted sales in the nature of profit which covers the addition made by the AO. Therefore, we delete the addition. 18. In the result, all the appeals are partly allowed for statistical purposes. A common order passed shall be kept in respective case files. Pronounced in the open court on this 25 th day of October, 2023. Sd/- Sd/- ( BEENA PILLAI ) (LAXMI PRASAD SAHU ) JUDICIAL MEMBER ACCOUNTANT MEMBER Bangalore, Dated, the 25 th October, 2023. / Desai S Murthy / Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore.