M/S CSR DESIGNERS , MUMBAI V. ACIT CC 20 , MUMBAI

ITA 6836/MUM/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 8905 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: G
• Assessment Year: 2003-2004
• Appeal Filed On: 05-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHEKHAR L. GAJBHIYE
• Keywords: Income from undisclosed sources; Document seized; Additional evidence; Documents seized
• Section: 37; 6; 132; 153A; 37(1); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRI SANDEEP SINGH KARHAIL, JM ITA No. 6836/Mum/2019 (Assessment Year 2003-04) M/s CS R De s i gn e r s 3 1 6 , Ma h a vi r E sta t e Off Ma h a ka li Ca ve s Ro a d , A n d h e ri E a s t, Mu m b a i-4 0 0 0 9 3 Vs. The ACIT Central Circle-20 Room No. 402, 4 th Floor, Aayakar Bhawan, M.K. Road, Mumbai-400 020 (Appellant) (Respondent) PAN No. AAHFC 1440 K Assessee by : Shri Jayesh Dadia, AR Revenue by : Shri Shekhar L. Gajbhiye, CIT DR Date of hearing: 10.03.2022 Date of pronouncement : 09.06.2022 O R D E R PER PRASHANT MAHARISHI, AM: 01. This appeal is filed by the assessee against the order passed by the learned Commissioner Of Income Tax (Appeals) – 51, Mumbai [ The ld CIT [A]] dated 16/9/19 for assessment year 2003-04 raising following grounds of appeal:- “1. The learned CIT (A) has erred in law and on the facts of the case in confirming the action of Assessing Officer in making addition of ₹3,34,403/- and ₹10,742/- under section 37(1) of the Income Tax Act. The action is unjustified and unwarranted. Page | 2 ITA No.6836/Mum/2019 M/s CSR Designers; A.Y. 03-04 2. The Ld CIT (A) has erred in law and on the facts of the case in confirming the action of assessing officer in making addition of Rs. 17,50,131/- as unexplained sales. The action is unjustified and unwarranted. 3. The Ld CIT (A) has erred in law and on the facts of the case in confirming the action of assessing officer in making addition of Rs. 17,30,406/- as difference in profit. The action is unjustified and unwarranted. 4. You Petitioner crave leave to add, amend, alter and /or withdraw any or all the aforesaid ground of appeal.” 02. Straightjacket Facts of the case show that the assessee is a partnership firm, which had business transaction and taxable income during the year and carrying on the business of interiors and paintings. 03. A search u/s 132 of the act was carried out by The Deputy Director Of Income Tax (Investigation) in case of Nagi group on 30/05/2008. 04. Accordingly, notice u/s 153A was issued on 30/11/2010. In response to that assessee filed return of income on 21/12/2010 declaring a total income of ₹ 223,592. The assessment u/s 143 (3) with Section 153A of The Income Tax Act was carried out on 30/12/2010 where the total income of the assessee was assessed at ₹ 4,605,540/– where the ld AO made a total addition of ₹ 4,381,947/–. Page | 3 ITA No.6836/Mum/2019 M/s CSR Designers; A.Y. 03-04 05. The aggrieved assessee preferred an appeal before the learned CIT – A against the above order, he allowed the appeal of the assessee partly. Therefore, against additions confirmed by the learned CIT – A assessee is in appeal before us. 06. Ground number 1 of the appeal is against the confirmation of action of assessing officer in making addition of ₹ 334,403/– and ₹ 10,742/– u/s 37 (1) of the income tax act. 07. At the time of hearing the learned authorised representative did not press the addition confirmed of ₹ 10,742/–. Therefore in the ground of appeal we are concerned only with the addition of ₹ 334,403/–. 08. During the course of assessment proceedings, the learned assessing officer observed that as per certain documents seized the assessee has numerous credit card expenses of Supreet and Chandra Nagi, the partners of the assessee firm. Assessee submitted that these expenditure has been incurred while conducting meetings with the clients and therefore is wholly and exclusively incurred for the purposes of the business. The learned assessing officer noted that the said expenses were on restaurants and buying clothes, perfumes etc, which are clearly personal in nature. Therefore, the same was disallowed. 09. When the same were contested before the learned CIT – A, assessee submitted certain additional evidences which Page | 4 ITA No.6836/Mum/2019 M/s CSR Designers; A.Y. 03-04 were admitted and remand report was called for. The learned AO in remand report informed that in course of the remand proceedings, the assessee reiterated what was already stated by it in the assessment proceedings and therefore the addition/disallowance should be sustained. The learned CIT – A confirmed the action of the assessing officer that an expenditure of ₹ 334,403/– is personal in nature. Therefore, assessee is in appeal before us. 010. The learned authorised representative submitted that these expenses have been incurred on business promotion, car expenses that were incurred wholly and expressively for the purposes of the business of the firm. It was stated that as the firm is engaged in the business of interior designing, decoration of office and residential premises and for that purpose one has to meet new clients every day, and the expenses incurred are on coffee or car running expenses for going to the office. It was also stated that these expenses are not at all unreasonable and unusual and the AO has blindly concluded that all the expenses incurred by the partners to credit card is nothing but personal expenditure. It was further stated that the learned assessing officer has merely looked at the debit side of the expenditure where a sum of ₹ 334,403/was paid to the partners for expenses however only ₹ 187,042 has been claimed as expenses in the accounts and the balance has been debited to the partners capital account. It was further stated that even total expenditure of ₹ Page | 5 ITA No.6836/Mum/2019 M/s CSR Designers; A.Y. 03-04 187,042/– cannot be fully disallowed as personal expenditure 011. The learned departmental representative vehemently supported the orders of the lower authorities. 012. We have carefully considered the rival contention and perused the orders of the lower authorities. In fact the facts are apparent that a sum of ₹ 334,403/– was made to the partners for expenses but only a sum of ₹ 187,042/– has been claimed in expenses in the account of the partnership and therefore the disallowance at the most could be restricted to ₹ 187,042/–. Further, the fact also shows that the assessee has incurred these expenditure on lunch and entertainment of the clients. Some of the expenditure is also in the nature of personal expenditure. Therefore to meet the interest of justice the disallowances restricted to the 50% of the sum of ₹ 187,042/– and the balance disallowances deleted. Thus, assessing officer is directed to restrict the disallowance to ₹ 93,600/ –. Accordingly, ground number 1 of the appeal is partly allowed. 013. Ground number 2 is against the confirmation of addition of ₹ 1,750,131/–. The fact shows that the learned assessing officer has made an addition on account of undisclosed contract receipt for the work undertaken of club link Ballard of ₹ 566,458/–, ₹ 121,050/– and ₹ 1,062,623/–. The learned assessing officer on the basis of the certain documents seized held that the assessee has received Page | 6 ITA No.6836/Mum/2019 M/s CSR Designers; A.Y. 03-04 consideration on execution of contracts of painting and interiors in respect of club link Ballard of ₹ 566,458/– and ₹ 121,050/– however the same as mentioned not shown as receipts in the regular books of accounts. The assessee submitted that the said documents are merely quotation however; the contracts were never awarded to the assessee. The learned assessing officer disbelieves the above explanation and made an addition of ₹ 687,508/– as unrecorded receipts. AO further noted that assessee has received another contract of ₹ 1,062,623/– through Mr. Jayesh Shah Architect of club link. However, this amount has also not been shown as receipts in the regular books of account. Assessee submitted that this is merely a quotation initially given however, the scope of what was reduced, and finally the contract amount was settled only for ₹ 50,000, which is recorded in the regular books of accounts. The assessing officer disbelieve the same and made the addition of ₹ 1,062,623/–. On appeal before the learned CIT – A, he obtained the remand report and explanation of the assessee, confirm the above addition. Therefore, assessee is in appeal. 014. The learned authorised representative vehemently supported the submissions given before the lower authorities and referred the seized documents. He submitted that letter dated 7/8/2002 of the assessee to Mr. Jayesh shah the total amount of contract is ₹ 1,062,623/–, however same is merely a quotation and ultimately the contract was executed for ₹ 50,000 on Page | 7 ITA No.6836/Mum/2019 M/s CSR Designers; A.Y. 03-04 which tax at sources was deducted. The sum has already been offered for taxation. He further stated that the other letter dated 27/2/2003 address to managing director of club link; it was informed that the balance work would be executed by Orion enterprise and not by the assessee. He submitted that whatever is the receipt received by the assessee has already been disclosed in the profit and loss account and therefore the addition is purely made based on the quotations. 015. The learned departmental representative vehemently supported the orders of the lower authorities and specifically referred to paragraph number 7 of the order of the learned CIT – A wherein it has been specifically stated that the balance work done by another concern was never shown before the learned assessing officer. He therefore stated that the learned CIT – A has correctly reduce the sum by ₹ 50,000 and confirmed the balance addition of ₹ 17, 50,131/–. There is no infirmity in the order of the lower authorities. 016. We have carefully considered the rival contention and perused the orders of the lower authorities. At page number 4 of the paper book the assessee has submitted a letter dated 27/2/2003 address to the MD of club link where it is specifically mentioned that it is a quotation for Mural work at club link Malad. Further letter dated 7/8/2002 is also addressed to the architect Mr. Jayesh Shah which is also titled as quotation for Mural work of Page | 8 ITA No.6836/Mum/2019 M/s CSR Designers; A.Y. 03-04 club link amounting to ₹ 1,062,623/–. There is also a mention of discount of ₹ 80,000/– on the same quotation and final quotation (net amount) was given for ₹ 982,623. There is no evidence that such work has been carried out by the assessee. There is no confirmation from Club Link, client of the assessee. It may not be the concern of the assessee that who has done the work but the documents seized clearly shows that it is merely a quotation. Based on the quotation, it cannot be said that assessee has executed this work and has received the consideration, which has not been accounted for in the books of assessee, without any corroborative evidence. Further, there is a letter dated 21/2/2003, which clearly says that the above assessee firm has been dissolved due to some personal reasons and now a new entity, Orion Enterprise will carry out the work if allotted. The assessee also requested for a new purchase order in the name of new entity. In the same letter, it was also stated that sketch is also sent for approval. Therefore, it is apparent that the work has not been done by the assessee. There is no inquiry whether any such new quotation was given to new entity or not. Both these letter and quotation were also seized during the course of search. When both the documents are seized during the course of search they could not be interpreted in the divergent manner, that assessee has earned unaccounted income by ignoring the other communication. In view of this, we do not find any Page | 9 ITA No.6836/Mum/2019 M/s CSR Designers; A.Y. 03-04 reason to sustain the addition of ₹ 1,062,623/– hence deleted. 017. With respect to the other sums, no explanation is forthcoming which convinces us to deviate from the orders of the lower authorities, hence the same are confirmed. Accordingly, ground number 2 of the appeal is partly allowed. 018. Ground number 3 is with respect to the addition of ₹ 1,730,460/- based on one document seized being the profit and loss account of the assessee for the relevant year. The learned assessing officer observed that as per one documents seized which is the profit and loss account of the assessee for the relevant year, actual profit of the assessee is ₹ 1,953,998/– as against the income declared in the return of income of only ₹ 223,592/– and therefore the addition of ₹ 1,730,460 – was made. The matter reached before the learned CIT – A who after obtaining the remand report and rejoinder of the assessee noted that there are irreconcilable differences between the partners of the assessee, which ultimately resulted into the dissolution of the firm. Further, the assessee firm was dissolved in the relevant year , itself there remains little doubt that the said profit and loss account as per the seized document is genuine and so is the profit shown in it. He also rejected the contentions of the assessee that when the alternative addition has already made of ₹ Page | 10 ITA No.6836/Mum/2019 M/s CSR Designers; A.Y. 03-04 1,750,131/– on account of unrecorded receipt this addition should not be made. Therefore he confirmed the addition. 019. Before us the assessee submitted reconciliation at page number five of the paper book to show that there is no difference in the gross receipts amounting to ₹ 4,179,059/–. The only difference that arises is with respect to the expenditure where the seized profit and loss account shows the total expenditure of ₹ 2,226,375 whereas actual expenditure recorded in the audited profit and loss account is ₹ 3,955,377. Therefore, there is an excess of expenditure in the filed/audited profit and loss account compared to seized profit and loss account. It is the submission of the assessee that the assessee has debited higher expenditure by ₹ 1,729,001/–. However, on examination of the books of accounts of the assessee and on scrutiny by the learned assessing officer, there is not a single item of expenditure, which has been disturbed by the AO or found to be not supported by bills or bogus. He submitted that all these expenditure are supported by proper bills etc. Therefore, the addition made by the learned assessing officer and confirmed by the learned CIT – A is devoid of any merit. He further stated that the finding of the learned CIT – A with respect to the dissolution of form is without any basis and merely guesswork. Page | 11 ITA No.6836/Mum/2019 M/s CSR Designers; A.Y. 03-04 020. The learned departmental representative supported the orders of the lower authorities. He extensively read the order of the learned CIT – A on this issue. 021. We have carefully considered the rival contentions and perused the orders of the lower authorities. There is a seized paper being a profit and loss account found during the course of search. According to the seized profit and loss account the net profit worked out is ₹ 1,953,998/–. As per the actual profit and loss account filed by the assessee before the assessing officer it is ₹ 223,592/– , therefore, there is a difference of 17,30,460/ – from the profit as disclosed in the seized profit and loss account compared to the audited profit and loss account. However we find that the gross receipt of the profit and loss account is same i.e. 41, 79,059/–. However there is a difference in expenditure shown of ₹ 2,226,375/- in the seized profit and loss account whereas the actual profit and loss account shows the expenditure of ₹ 3,955,377. The reconciliation of the above shows that major items of the difference are increase in purchases of ₹ 923,699/– , salary and wages of ₹ 110,000, rent payment of ₹ 130,495. The audited profit and loss account also shows write off sundry debtors amounting to ₹ 536,992, which was not there in the seized profit and loss account. The books of accounts of the assessee were scrutinized by the assessing officer during the course of assessment proceedings. The learned assessing officer has not tinkered with any of the expenditure for making any Page | 12 ITA No.6836/Mum/2019 M/s CSR Designers; A.Y. 03-04 addition/disallowance. Further, there is higher amount of expenditure in the audited profit and loss account compared to the expenditure in the seized profit and loss account. There are no instances that in the seized profit and loss account higher expenditure are shown whereas in the audited profit and loss account no expenditure is disclosed except society charges. The clear-cut difference of ₹ 536,992/– of debtors write off would not have been as such added to the total income of the assessee on this count. Further, the total punches expenditure of ₹ 1,765,102/– has been accepted by the AO. The society charges debited in the seized profit and loss accounts of 88,495/– but has not been claimed as deduction by the assessee. Searched to place on 30/05/2008 and the profit and loss account is related to year ended on 31 st of March 2003. The seized paper also does not have any date. Therefore, it cannot be asserted that the seized documents as well as the audited accounts are prepared on the same date. There may be certain expenditure, which are not incorporated in the seized profit and loss account however they have been incurred subsequently. In view of this, there is no reason to put more credence on the seized document. Further the findings of the learned and CIT – A – that assessee firm was dissolved during the year and therefore the profits would have been higher. Had that been the fact then higher expenditure would have been taken into account at the time of resolution of the firm and that should have Page | 13 ITA No.6836/Mum/2019 M/s CSR Designers; A.Y. 03-04 been found place in the seized profit and loss account, more particularly when there is no dispute on the gross receipts. Therefore, the learned and CIT – A confirmed the addition only on his guesswork. In view of this we reverse the orders of the lower authorities and direct the learned assessing officer to delete the addition of ₹ 1,730,406 on account of difference in profit i.e. which is only difference in expenditure being on higher side in the audited accounts then in the seized paper. Accordingly, ground number 3 of the appeal is allowed. 022. In the result, appeal filed by the assessee is partly allowed. Order pronounced in the open court on 09.06.2022. Sd/- Sd/- (SANDEEP SINGH KARHAIL) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated: 09.06.2022 Sudip Sarkar, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai