IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH `G' : NEW DELHI)
BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT
and
SHRI A.T. VARKEY, JUDICIAL MEMBER
ITA No.1434/Del./2013
(ASSESSMENT YEAR : 2007-08)
M/s. Sahil Study Circle Pvt. Ltd., vs. DCIT, Circle 7 (1),
B 1/637, Janakpuri, New Delhi.
New Delhi 110 058.
(PAN : AAHCS4592H)
(APPELLANT) (RESPONDENT)
ASSESSEE BY : Shri Ajay Wadhwa, Advocate
REVENUE BY : Shri B.R.R. Kumar, Senior DR
Date of Hearing : 03.11.2015
Date of Pronouncement : 22.01.2015
ORDER
PER A.T. VARKEY, JUDICIAL MEMBER :
This appeal, at the instance of the assessee, is filed against the order of
the CIT (Appeals)-X, New Delhi dated 02.01.2013 for the assessment year
2007-08.
2. The assessee company caters to the need of students preparing for
engineering and medical examinations. It also serves to the students
appearing in Board examinations of various educational boards. The assessee
company runs its coaching institutes at various centers in and outside Delhi
2 ITA No.1434/Del./2013
and some of the centers are being run on franchisee basis. The main source of
the income of the assessee is from fees collected from the students/aspirants
taking up coaching classes.
2.1 The assessee filed return of income on 31.10.2007 declaring total loss
of Rs.29,78,771.69. During the year, a survey was conducted u/s 133A of the
Income Tax Act, 1961 (hereinafter `the Act') on 09.08.2007 in the business
premises at B-1/637, Janakpuri, New Delhi. Subsequently, the assessment
was completed u/s 143(3) of the Act making the two additions i.e. (i)
Rs.65.50 lakhs as undisclosed income u/s 69A of the Act in respect of cash
receipts found and impounded during the course of survey action and
Rs.8,27,275/- on account of deferred revenue expenses on account of
advertisement expenses for the month of March 2007. The ld. CIT (A)
confirmed the additions made by the AO.
3. Now, the assessee being aggrieved is in appeal against the aforesaid
two additions.
4. Revised Grounds No.1 to 3 are against the sustenance of the addition of
Rs.65.50 lakhs as undisclosed income u/s 69A of the Act in respect of cash
receipts found and impounded during the course of survey action.
5. Brief facts to the aforesaid ground are that during the year, a survey
was conducted u/s 133A of the Act on 09.08.2007 and during the course of
survey, various cash receipts were found and impounded. These cash receipts
3 ITA No.1434/Del./2013
were correlated with the ledger account for the relevant period and it was
noticed that these receipts were not reflected in the regular books of accounts
of the assessee company. The AO confronted these facts and evidences with
Shri Satish Kumar Suri, MD of the assessee company and observed that even
after giving the opportunity, Shri Suri was unable to submit any plausible
explanation and accepted that the amount involved in these receipts
amounting to Rs.65.50 lakhs was unaccounted receipts for FY 2006-07 over
and above the income as per books of accounts prepared. The AO further
observed that however, while filing the return of income the assessee declared
a loss of Rs.29,78,771/- whereby the earlier amount accepted by the
Managing Director during the course of survey had not been reflected. The
AO provided an opportunity to the assessee to explain the reasons for this
change of declaration to which the assessee filed a reply dated 03.11.2009.
The AO, after considering the reply of the assessee made the following
observations :-
(i) The assessing officer has observed that even though the assessee
has argued that the receipts found during the course of survey
were actually only a record for internal transfer of funds / cash at
the centre and was never a regular receipt. Further, the AO has
highlighted that the nature of these receipts clearly mentioned
heading as "Mode", "Particulars", "Amount" and "Drawn On". It
was further highlighted by the assessing officer that in these
4 ITA No.1434/Del./2013
receipts there were particular columns for center, batch number,
roll number as well as amount received.
(ii) The A.O. has highlighted that the receipts were carrying running
numbers like JP/001 to JP/208. This indicates clearly that such
unaccounted receipts pertained to a particular center of Janak
Puri and had been received from a particular student. The A.O.
has also specifically pointed out that every slip contains the
purpose for which the money has been taken and it varies from
tuition to particular class with subject. Therefore, the contentions
of the assessee that these receipts were only for internal transfer
of amounts cannot be accepted.
(iii) The A.O. has further highlighted that from the nature of receipt it
was possible to identify the students and purpose for receiving
this amount. During the entire survey proceedings, no. doubts or
explanations had ever been presented by the assessee or Shri
S.K. Suri, the Managing Director.
(iv) The A.O. has also highlighted that the contention of the assessee
that no cash was found during the survey and, therefore, these
receipts in cash amounting to Rs.65.50 lakhs is not supported by
the evidence found. In this regard it was also observed that as per
the books of accounts there was a cash balance of Rs.1,00,217/-,
which had also not been found at the premise. The A.O. has,
therefore, stated that such huge amount of cash could not be kept
idle at the business premises and, therefore, could not be found at
this particular premise.
(v) The A.O. has stated with regard to the contention that Shri Suri
was in bad mental state and accordingly had given the statement
regarding Rs.65.50 lakhs was also not accepted since from the
5 ITA No.1434/Del./2013
nature of the statement given by Shri S.K. Suri specifically
reproduced on page 8 & 9 of the assessment order, it is clear that
the statement was given with alertness and balanced frame of
mind. Accordingly, after considering the details of statements
which was also reproduced on page 10 to 12 of assessment order,
it was clear that Sh. S.K. Suri was fully in control of the running
of the business and after considering that these receipts could not
be explained, this amount of RS.6S.S0 lakhs had been
surrendered.
The assessing officer has, therefore, highlighted that the retraction with regard
to this Rs.65.50 lakhs was not justified and during the course of survey, Sh.
S.K. Suri, MD of the company had made the surrender of Rs.65.50 lakhs in a
balanced frame of mind and after fully considering that the receipts found
were not accounted for in the regular books of accounts maintained by the
assessee and made the impugned addition.
5.1 Aggrieved, the assessee filed an appeal before the first appellate
authority and the ld. CIT (A) confirmed the addition by observing as under :-
"2.3 I have gone through the facts of the case, observations of the A.R.
and submissions of the A.R. of the appellant. This ground is being
finalized after making the following observations:
A. On going through the facts of the case it is clear that survey action
u/s 133A had been carried out at the business premise of the appellant.
During the course of survey, certain documents in the form of receipts had
been found which were confronted to the Managing Director of the
company. The survey team had taken an elaborate statement of the
Managing Director wherein proper opportunity had been provided for the
appellant to reconcile these receipts and documents with the regular books
of accounts maintained by the assessee. However, despite the
opportunities provided and after carefully considering the documents, Sh.
S.K. Suri, the Managing Director of the company made a surrender of
Rs.65.50 lakhs as undisclosed sources over and above the details as per the
6 ITA No.1434/Del./2013
books of accounts maintained by the assessee. At that stage, there was no
dispute regarding the nature of these receipts and the statement given by
the Managing Director Sh. S.K. Suri was elaborate one which clearly
indicated that he was the principal person looking after the administration
and finance of the appellant company.
B. During the course of assessment proceedings, the assessing officer
questioned the retraction of the appellant with regard to the amount
surrendered during the course of survey. It is pertinent to note that even
after survey was completed, the Managing Director, Sh. S.K. Suri or any
other person of the appellant company did not retract from the surrender of
Rs.65.50 lakhs made during the course of survey. However, it was only
during filing of the income tax return, after completion of few months
from the survey that the appellant decided to retract from his surrender. In
this regard, no proper explanation or justification for the delayed retraction
was put forward by the A.R. of the appellant either before the assessing
officer or during the appellate proceedings. It is pertinent to note that Sh.
S.K. Suri, the Managing Director of the company was a person looking
after the day to day affairs including financial transactions of the company
and it is difficult to accept that he would not be in a position to explain the
primary documents found during the course of survey. From the details
elaborated in the assessment order as well as submissions of the A.R. of
the appellant, it only shows that the nature of these receipts were different
from the receipts issued normally to various students against fee received
from them. In fact, this would also clearly establish that the difference in
the nature of receipts was only because these amounts were received in
cash and not accounted for in the regular books of accounts. Therefore, the
counter argument of the A.R. of the appellant is not acceptable.
C. The A.R. of the appellant has submitted that the MD of the
company was not in his proper state of mind and was exhausted during the
course of survey. However, it is also important to note that the statement
of Sh. S.K. Suri was a long statement wherein different details were
elaborately discussed showing the mental alertness of Sh. S.K. Suri and at
the same
time since he was fully aware of the financial system of the company, it is
difficult to accept that he would fumble in the crucial question regarding
the receipts found at the survey premises. If all other answers in the
statements were found to be eligible and sound, to accept that only
for this question he will not be in a position to provide a proper answer,
also does not appear to be logical and acceptable.
D. The contention of the A.R. that the provisions of section 69 are not
applicable, is also not acceptable since "valuable" article would consist of
such unaccounted cash receipts found during the course of survey.
Another argument submitted by the A.R. of the appellant was that no cash
to support these receipts was found during the course of survey. However,
in this regard it is pertinent to note that even with regard to the cash
7 ITA No.1434/Del./2013
balance shown in the books of accounts, the same was not found at the
premises on that day. The survey action was only at a particular
business premise and it is quite possible that the cash amount would be
kept by the appellant at some other more secure premise. In any case, the
onus would be on the assessee to explain whether all the cash was being
maintained by the company, since the cash even as per the books was not
found at the premise.
E. After careful consideration of the circumstances of the case, it is
clear that the specific evidences and documents found during the course of
survey were accepted as unexplained income by the Managing Director of
the company after a detailed statement given during the course of survey.
Even though the appellant retracted after several months, there was no
justification for this retraction when the Managing Director had himself
accepted the amounts as explained earlier on. The various documents
submitted by the A.R. of the appellant during the course of appellate
proceedings, only appear to be an afterthought and cannot be accepted.
Accordingly, in view of the above observations, I am convinced
that the addition made by the assessing officer amounting to Rs.65.50
lakhs is fully justified and this ground of the appellant is treated as
dismissed."
6. The assessee, being aggrieved, is in appeal before us on this issue.
7. Ld. AR for the assessee reiterated the submissions made before the ld.
CIT (A) and also filed the written submissions. For the sake of clarity, the
written submissions filed by the ld. AR are reproduced as under :-
"1) Inapplicability of Section 69A:
(I) Section 69A states that addition u/s 69A of the I.T Act can be made
only when the following conditions are satisfied:
i. Where in any financial year the assessee is found to be the owner of
any money, bullion, jewellery or other valuable article and,
ii. such money, bullion, jewellery or valuable article is not recorded in the
books of account, if any, maintained by him for any source of income,
iii. and the assessee offers no explanation about the nature and source of
acquisition of the money, bullion, jewellery or other valuable article, or the
explanation offered by him is not, in the opinion of the AO, satisfactory,
8 ITA No.1434/Del./2013
iv. then, the money and the value of the bullion, jewellery or other valuable
article may be deemed to be the income of the assessee for such financial
year.
(II) The addition so made u/s 69A is not tenable per se as the assessee has
not been found to be the owner of any money, bullion, jewellery or other
valuable article. The slips impounded during the survey action are neither
money nor bullion.
Kindly refer to the judgments in the case of
(a) CIT v. Ravi Kumar [2008] 294 ITR 78 (Punjab & Haryana),
"8. In the present case, the assessee was found to be in possession of
loose slips and not of any valuable articles or things. Neither the possession
nor the ownership of any jewellery mentioned in the slips could prove. In
view thereof, the provisions of section 69A of the Act had rightly not been
applied by the Tribunal to the facts of the case in hand. Accordingly,
question No. 1 is answered against the revenue and in favour of the
assessee."
(b) D.N Singh v. CIT [2010] 324 ITR 304 (PAT.):
"Para 13. In my opinion, any article which has value will come under the
expression, "valuable article" mentioned in section 69A of the Act and the
value of such article can be deemed to be the income of the assessee in case
the assessee fails to offer explanation or the explanation offered is not
satisfactory. "
(c) Relevant para of Kanga & Palkhiwala's 'The Law and Practice of
Income Tax' (page 1370 -para 2) states as follows:
"2. "Valuable Article"; Meaning.- The Patna High Court has held that the
expression 'valuable article' and money in any 'article which has value', but
the Chattisgarh High Court (interpreting the same expression in s. 69B) has
held that it refers to articles that normally have a high price, thereby
excluding ordinary articles. It is submitted that the latter MP High Court's
view is correct, because the Patna High Court appears to have overlooked
the well-known rule of construction that general words that follow specific
words within a genus must be construed ejusdem generis. The term 'money',
however, has a narrower meaning, and include only something that can be
used as a circulating medium in general use, having representative value."
2) Regarding retraction of statement by Sh. S.K Suri:
i. During the course of survey, Sh SK Suri was confronted with the cash
receipts found. Sh Suri was unable to provide any explanation and accepted
that the amount involved in these receipts was unaccounted receipts for FY
2006-07.
9 ITA No.1434/Del./2013
ii. However, while filing the return of income, the assessee declared a loss
of Rs.29,78,771/- whereby the amount of cash receipts was not reflected.
iii. A detailed explanation was given by the assessee as to why the amount
surrendered was never the income of assessee and was just a record of
internal transfer of cash from one centre to another.
iv. In question no 21, the authorised officer confronted Sh. SK Suri with
slips seized and pointed out that cash has been written thereon and required
him to give details thereof. In response to this question, the assessee
submitted "I cannot provide details of the receipts at present". (Relevant
extract of statement attached at PB 45-56)
v. However, the authorised officer again vide question no 22 required
him to co-relate those receipts with the books of accounts of the assessee
company for that year. Sh Suri had already explained that he cannot give
the details of such 'receipts' at that time and therefore when he was again
required by the authorised officer to co-relate the same with books of
accounts for FY 2006-07, he had submitted that those receipts have not
been entered in books of accounts.
vi. Further, Sh Suri had given this statement at about 3:00 am to 4:00 am on
09.08.2007 when the survey was being continued in his premises since 8.30
am on 08.08.2007.
vii. It is evident from the above that Sh SK Suri was asked the same
question regarding the receipts so found despite the fact that he had clearly
stated that he could not provide the details of the receipts at that time.
Further inquiry was done by long duration of survey which continued for
more than 20 hours at a stretch. Sh Suri is an old person and probably could
not undergo the anxiety and strain to which he was exposed to.
viii. Therefore, it was in these circumstances when he was not able to give
any explanation to the repetitively asked question, he agreed to surrender
the amount of Rs.65,05,115/- in his statement at the time of survey.
ix. Kindly read statement at pg.9 of the AD's order which says 'probably
been left out. .. Since I am not able to give any explanation in this regard ...
". Explanation was later given which was credible.
3) Regarding the true nature of receipts found (Ground 3):
i. It was only after the conclusion of survey that the assessee company
found that such "receipts" infact were not receipts of fees from students, but
were only evidence of inter center cash transfer when cash was collected in
different coaching centres run by the assessee company and these receipts
were made just for a record that cash was being brought to the Janakpuri
centre.
10 ITA No.1434/Del./2013
ii. The receipts in fact were never the income of the assessee company and
therefore addition in this respect is not tenable.
4) Receipts found were only a record of internal transfer of cash:
The fact that the receipts found in the survey were not fees receipts from
students but were a record of documents prepared only for internal transfer
of funds by various centres of the assessee company can be established by
the following:
i. That the 208 "receipts" found at Janakpuri centre were on the
formats of unused receipts earlier printed for use in the centre but were not
used due to printing irregularities in the said "receipts".
ii. The assessee pointed out that the format of these "receipts" were different
from the format of fee receipts issued by the assessee in the regular course
of business as the same neither included the head of service tax nor included
the cheque number and bank name and also did not include the course and
class for which the fees is being alleged to be received. Accordingly the
same could not be used for issuing receipts to students from whom fees was
received in regular course and therefore were used only as a memoranda
account for internal transfer of funds by the assessee company.
iii. It was also explained that no income or revenue was earned by the
assessee against such receipts since the original receipts prepared were
found during the course of survey (PB 63-162) and therefore it cannot be
said that the assessee had received any fees from any student since in case
of actual receipt from students the original copy would have to be given to
the payer and the assessee would have retained only a carbon copy. It was
pointed out to the learned Assessing Officer that in fact all the 208
"receipts" were the original copy which could not be available with the
assessee in case any actual receipt had been issued.
iv. It was further explained that no name of payer was found written in any
of these slips which also proved that they could not have been issued to any
student since every student would insist on a receipt which bears his name.
v. The assessee further explained that the receipts issued in the regular
course of its business were of totally different colour as well as different
format and the receipts issued in regular course of business were produced
before the AO to show that the 208 receipts were not for receiving fees.
vi. The assessee further explained that even during the course of survey no
excess cash was found and therefore also no adverse inference can be drawn
against the assessee.
vii. The assessee also explained that for each and every student who is
studying in any coaching centre of the assessee company a registration form
11 ITA No.1434/Del./2013
is created at the time of admission and even during the course of survey no
discrepancy or irregularity was found when such registration forms were
compared with the fees accounted for by the assessee company in its books
of accounts.
viii. The assessee also filed copies of registration form as specimen before
the AO in support of its claim that no receipt could be issued to any student
without giving his or her name on the receipt.
ix. The assessee further drew the attention of the learned Assessing Officer
to the receipts issued in the regular course of business which were found
duly accounted in the books of the assessee to show that on each and every
receipt the name of the student is clearly indicated and that can be the only
proof of a student having paid his fees to the Institute, whereas on the case
of these 208 receipts no name was mentioned and this itself proves that
these 208 receipts were prepared only for internal transfer of funds.
x. It can also be seen from the seized 'receipts' that amounts in few
bills are not a round-off figure. For eg; JP/007 - Rs. 34243/-, JP/062 - Rs.
16836/-, JP/117 - Rs. 22422/-. It is submitted that it never happens or
happened that the tuition fees received from students is in non-rounded off
amounts like the ones stated above.
xi. Also, in the usual business proceedings, the tuition fees received from
students is in instalments. It rarely happens that the student gives a lump
sum amount of tuition fees. As can be seen from the sample receipts and
student-wise statement of tuition fees received during the year (PB 57-62),
it has hardly happened that the amount received is a lumpsum fees amount
of about Rs. 30,000 or more. However, in the seized receipts, there are
hardly any bills of amounts less than Rs.30,000/- and almost all bills are of
lumpsum amounts ranging between Rs.30,000 to Rs. 65,000/-, which is a
rare transaction in the routine of the assessee's business.
xii. Besides and most importantly, the assessee company provides coaching
for exams that are held in March every year. Because of this reason, it is an
established routine every year that the faculty at the centres complete the
course by January each year. It is therefore very uncommon that a student
takes admission in a batch whose course has been completed. Also, one
would not pay fees in lumpsum much before the start of batches i.e, in
April-May.
The fact that there is a very meagre number of new admissions in Jan-Feb-
March every year can be established from the ledger of tuition fees received
by the assessee company of FY 2006-07, 2005-06.
But, as apparent from the seized receipts, there are 59 receipts that pertain
to the period Feb - March. It would be completely against the established
routinely business proceedings if these receipts are to be treated as fees
12 ITA No.1434/Del./2013
receipts since such a huge number of students taking admission in a 'non-
seasonal' period is not only dubious but also next to impossible.
5) Addition made is contradictory to Board Circular:
It is also submitted that the addition made and upheld by the ld. CIT (A) on
the basis of statement obtained during the course of survey is contrary to the
Board's Instruction F.No.286/2003 IT(Inv)-1I dated 10.03.2003 and hence,
the addition needs to be set aside (Ground 4).
The said circular is reproduced below for your ready reference:
"Confession of additional income during the course of search and seizure
and survey operation.
Instruction: F. No. 286/2/2003-IT (Inv. II), dated 10-3-2003.
Instances have come to the notice of the Board where assessees have
claimed that they have been forced to confess the undisclosed income
during the course of the search & seizure and survey operations. Such
confessions, if not based upon credible evidence, are later retracted by the
concerned assessees while filing returns of income. In these circumstances,
such confessions during the course of search & seizure and survey
operations do not serve any useful purpose. It is, therefore, advised that
there should be focus and concentration on collection of evidence of income
which leads to information on what has not been disclosed or is not likely to
be disclosed before the Income-tax Department. Similarly while recording
statement during the course of search & seizure and survey operations no
attempt should be made to obtain confession as to the undisclosed income.
Any action on the contrary shall be viewed adversely.
Further, in respect of pending assessment proceedings also, Assessing
Officers should rely upon the evidences/materials gathered during the
course of search/survey operations or thereafter while framing the relevant
assessment orders."
6) Statement u/s 133A has no evidentiary value:
i) In the case of the assessee, mere reliance has been placed on the statement
of Sh. Satish Kr Suri, MD, without any evidence to substantiate the
statement with.
ii) Reliance is placed on the decision by the Hon'ble Supreme Court in the
case of CIT v. S. Khader Khan Son [2012] 254 CTR 228 whereby it was
held;
"Section 133A of the Income Act, 1961 - Survey - Whether Section 133A
does not empower any ITO to examine any person on oath; so statement
13 ITA No.1434/Del./2013
recorded under section 133A has no evidentiary value and any admission
made during such statement cannot be made basis of addition - Held, yes"
iii) As per CIT v. Dhingra Metal Works [2010] 328 ITR 384 (Delhi HC);
"Para 2; During the course of survey, the tax officials noticed some
discrepancies in stock and cash in hand. During the said survey, respondent-
assessee surrendered an amount of Rs.99,50,000/- and offered the seine for
the purposes of taxation. The additional income offered included a sum of
Rs.45,00,000/- on account of excess stock found during the course of
survey and offered by one of the partners of the respondent-assessee as
additional income.
5. However, subsequently, the respondent-assessee vide its letter dated 29th
November, 2004 contended that the statement about stock was incorrect and
that the impugned discrepancy had been reconciled as it was only a mistake.
Consequently, the respondent-assessee withdrew the offer of additional
income for taxation on account of excess stock.
Para 6; The AO relied upon the statement of one of the partners of
respondent-assessee given during the course of survey under Section 133A
of the Act and concluded that the explanation/ retraction by the respondent-
assessee was an afterthought and had no element of truth.
14. Moreover, the word may used in Section 133A(3)(iii) of the Act
clarifies beyond doubt that the material collected and the statement recorded
during the survey is not a conclusive piece of evidence by itself. 15. In any
event, it is settled law that though an admission is extremely important
piece of evidence, it cannot be said to be conclusive and it is open to the
person who has made the admission to show that it is incorrect.
16. Since in the present case, the respondent-assessee has been able to
explain the discrepancy in the stock found during the course of survey by
production of relevant record including the excise register of its associate
company, namely, M/s. D.M.W.P. Ltd., we are of the opinion that the AO
could not have made the aforesaid addition solely on the basis of the
statement made on behalf of the respondent-assessee during the course of
survey."
7) Admission cannot be said to be conclusive and is open to rebuttal:
Hon'ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd.
v. State of Kerala [1973] 91 ITR 18 has held- "an admission is an extremely
important piece of evidence but it cannot be said that it is conclusive. It is
open to the person who made the admission to show that it is incorrect. "
8) Addition of whole of Rs. 65.50 lacs without adjusting with business loss:
14 ITA No.1434/Del./2013
Without prejudice to the above, the Id. CIT(A) has added an amount of
Rs.65.50 lakhs on the basis of cash receipts found during the course of survey
without adjusting the same with the business loss computed at Rs.21,51,496/-
."
8. On the other hand, the ld. DR relied on the orders of the authorities
below.
9. We have heard both the sides and perused the material. Relying only
on the statement made by Shri Suri at the time of survey, the lower authorities
cannot saddle the impugned addition in the light of the retraction made by
Shri Suri wherein he have reconciled the receipts found during survey and has
explained the receipt as that of inter branch transfer and without examining
the veracity of the claim of the assessee, the AO jumped into a conclusion
based only on the admission made by Shri Suri during survey cannot be
countenanced. The Hon'ble Supreme Court in the case of CIT v. S. Khader
Khan Son [2012] 254 CTR 228 has held as under :-
"Section 133A of the Income Act, 1961 - Survey - Whether
Section 133A does not empower any ITO to examine any
person on oath; so statement recorded under section 133A has
no evidentiary value and any admission made during such
statement cannot be made basis of addition - Held, yes"
And we take note of the decision the Hon'ble jurisdictional High Court in a
similar case i.e. CIT v. Dhingra Metal Works [2010] 328 ITR 384 (Delhi HC)
wherein the Hon'ble High Court held as under :-
"2 During the course of survey, the tax officials noticed
some discrepancies in stock and cash in hand. During the said
survey, respondent-assessee surrendered an amount of
Rs.99,50,000/- and offered the seine for the purposes of
15 ITA No.1434/Del./2013
taxation. The additional income offered included a sum of
Rs.45,00,000/- on account of excess stock found during the
course of survey and offered by one of the partners of the
respondent-assessee as additional income.
......
5. However, subsequently, the respondent-assessee vide its
letter dated 29th November, 2004 contended that the statement
about stock was incorrect and that the impugned discrepancy
had been reconciled as it was only a mistake. Consequently, the
respondent-assessee withdrew the offer of additional income for
taxation on account of excess stock.
6. The AO relied upon the statement of one of the partners
of respondent-assessee given during the course of survey under
Section 133A of the Act and concluded that the explanation/
retraction by the respondent-assessee was an afterthought and
had no element of truth.
.....
14. Moreover, the word may used in Section 133A(3)(iii) of
the Act clarifies beyond doubt that the material collected and
the statement recorded during the survey is not a conclusive
piece of evidence by itself. 15. In any event, it is settled law that
though an admission is extremely important piece of evidence,
it cannot be said to be conclusive and it is open to the person
who has made the admission to show that it is incorrect.
......
16. Since in the present case, the respondent-assessee has
been able to explain the discrepancy in the stock found during
the course of survey by production of relevant record including
the excise register of its associate company, namely, M/s.
D.M.W.P. Ltd., we are of the opinion that the AO could not
have made the aforesaid addition solely on the basis of the
statement made on behalf of the respondent-assessee during the
course of survey."
We take note that survey started on 08.08.2007 at 8.30 AM and Shri Suri's
statement was recorded at about 3.00 AM to 4.00 AM on 09.08.2007 and the
admission was made by him when he was stressed and totally exhausted. The
discrepancy noticed during the survey of receipts were reconciled by Shri Suri
16 ITA No.1434/Del./2013
who explained that the receipts were only in respect to inter-branch cash
transfer and not receipts of fees from students. No students will remit fees
and not insist on bills to be issued in their names. So the explanation that
receipts without names as explained by the assessee that it is only in respect
to cash transfer from different branches is plausible in the light of the
following explanation given by the assessee :-
That receipts issued to students which are placed from page 93 is
different and as explained by the ld. AR that the 208 "receipts" found at
Janakpuri centre were on the formats of unused receipts earlier printed
for use in the centre but were not used due to printing irregularities in
the said "receipts". The ld. AR pointed out that the format of these
"receipts" were different from the format of fee receipts issued by the
assessee in the regular course of business as the same neither included
the head of service tax nor included the cheque number and bank name
and also did not include the course and class for which the fees is being
alleged to be received. Accordingly the same could not be used for
issuing receipts to students from whom fees was received in regular
course and therefore were used only as a memoranda account for
internal transfer of funds by the assessee company.
In the light of the above facts and circumstances, we are of the considered
opinion that the ld. CIT (A) erred in upholding the conclusion of the AO
17 ITA No.1434/Del./2013
based only on the admission during survey made by Shri Suri at the wee
hours (i.e. between 3.00 AM 4.00 AM) to fasten the liability when Shri Suri
was able to explain and reconcile the receipts. The AO did not bother to
enquire into the veracity of the explanation given by the assessee. The AO
could have easily called for details from the branches of the assessee at
Janakpuri and tested the explanation given by the assessee in respect to inter-
branch transfer of cash to the Head Office, without doing so, the addition
made solely on the basis of admission during survey cannot be upheld as held
by the Hon'ble Supreme Court in CIT vs. S. Khader Khan Song (supra) and
in a similar case of Hon'ble jurisdictional High Court in CIT vs. Dhingra
Metal Works (supra). Therefore, the orders of the lower authorities are bad in
law and are set aside on this issue. These grounds are allowed.
10. Ground No.4 is against the sustenance of disallowance of
advertisement expenses amounting to Rs.8,27,275/- on the ground that similar
expenses were disallowed and offered for taxation in earlier years.
11. The Assessing Officer had disallowed an amount of Rs.8,27,275/- by
observing that in the earlier years i.e. F.Y. 2005-06 an amount of
Rs.10,97,150/- was offered to tax on ground that the revenue out of these
advertisement expenses would be generated in the next year. Similarly, for
A.Y. 2007-08, the AO observed that the assessee had incurred an expenditure
of Rs.8,27,275/- which had been incurred in the month of March, 2007.
18 ITA No.1434/Del./2013
Accordingly, the AO held that since this was a clear deviation from the
regular practice followed by the assessee with an intention to reduce its
taxable income, this amount was added to the income of the assessee.
12. Aggrieved, the assessee went in appeal before the first appellate
authority and the ld. CIT (A) confirmed the addition by observing as under:-
3.3 After going through the observations of the A.O., facts of
the case and submissions of the A.R. of the appellant, it is clear
that the assessing officer has made this disallowance on the
grounds that similar expense in the earlier year had been offered to
tax by the assessee but in this year the same had not been offered
to tax with the intention to reduce the taxable income as an income
of Rs.65.50 lakhs had been surrendered during the course of
survey. On going through the reply of the A.R. of the appellant
also, it has nowhere mentioned as to why similar expense had been
disallowed in the earlier year and the assessee had offered for
taxation why in this year this practice has been discontinued.
Accordingly, it appears that the assessing officer has followed the
rule of consistency in accounting as well, as in allowing
advertisement expenses and has accordingly disallowed this
amount. I do not find any reason for interfering with the findings
of the assessing officer and accordingly, this addition is upheld and
this ground of the appellant is dismissed.
13. Ld. AR submitted the written submission which are reproduced as
under :-
"The complete details of advertisement expenses including the ledger and
bills of 'advertisement expenses' (PB --) incurred by the assessee were
furnished before the ld. AO and it was explained that the entire expenditure
had been incurred
wholly and exclusively for the purpose of business.
In no possible way had the AO pointed out any discrepancy or any
expenditure of inadmissible nature as per section 37 of the I.T Act, 1961.
The disallowance was made only on the ground that during AY 2006-07,
the expenses incurred in March 2006 had been offered for tax by the
19 ITA No.1434/Del./2013
assessee, which is evidently not a substantial ground taken by the ld AO and
the Id. CIT (A) despite the fact that all the supporting documents giving
proof of expenditure incurred had been furnished before the authorities.
Further, the AO has failed to appreciate the fact that there is no concept of
deferred revenue expenditure in the Income Tax Act, 1961. If the
expenditure incurred is on account of business, then the same is ought to be
allowed u/s 37 of the Act.
Legal issue:
(i) It is an established fact under following judgements by Apex courts
that "to be an allowable expenditure under section 37(1), the money paid
out or away must be:
(a) paid out wholly and exclusively for the purpose of the business or
profession; and further
(b) must not be;
(i) capital expenditure;
(ii) personal expense; or
(iii) an allowance of the character described in sections 30 to 36 and section
80W"
A) CIT v. Indian Molasses Co. (P.) Ltd. [1970] 78 ITR 474 (SC)
B) J.K. Cotton Mfrs. Ltd. v. CIT [1975] 101 ITR 221 (SC)
C) Sassoon J. David & Co. (P.) Ltd. v. CIT [1979] 118 ITR 261 (SC)
(ii) As is evident from the ledger of advertisement expenditure (PB 163-
168), the assessee company has incurred advertisement expenditure on
advertising the in newspapers and magazines and the same have been
incurred:
- Wholly and exclusively for the purpose of business, and
- The expenditure is not:
- Capital in nature,
- For personal expenses,
- Described in sections 30 to 36 of the Act."
14. On the other hand, the ld. DR relied on the orders of the authorities
below.
20 ITA No.1434/Del./2013
15. We have heard both the sides on the issue and perused the material.
The assessee has claimed advertisement expenses amounting to Rs.8,27,275/-.
However, the same was disallowed by the AO on the ground that in earlier
years, it was not allowed and revenue, out of these advertisement expenses,
would be generated in the next year. So, according to the AO, there has been
deviation from the regular practice followed by the assessee and that too to
reduce its taxable income, so he disallowed the same and added to the income
of the assessee. Ld. CIT (A) also concurred with the view of the AO. We find
that the assessee had produced the ledger and bills of the advertisement
expenses before the lower authorities below and explained that entire
expenditure has been incurred wholly and exclusively for the purpose of
business. The AO has not pointed out any discrepancy or any reason
explained even inadmissible in the nature as per section 37 of the Act. Just
because the assessee has not offered for tax in the previous years, it cannot be
the ground for disallowing the expenses. It should be remembered that there
is no estoppel against the law. It is a trite law that if the expenses are wholly
and exclusively for the purpose of business or profession and if it is not a
capital expenditure or personal expenditure then the expenditure need to be
allowed. From the ledger of the advertisement expenditure (Pages 163 to 168
of PB), we find that the assessee company had incurred advertisement
expenditure on advertising the same in newspapers and magazines. In the
21 ITA No.1434/Del./2013
light of the fact that there were no other justifiable reasons given by both the
authorities below to disallow the advertisement expenditure, cannot be
countenanced. Therefore, we delete the addition made by the authorities
below and the ground is allowed.
16. In the result, the appeal of the assessee stands allowed.
Order pronounced in open court on this 22nd day of January, 2016.
Sd/- sd/-
(G.D. AGRAWAL) (A.T. VARKEY)
VICE PRESIDENT JUDICIAL MEMBER
Dated the 22nd day of January, 2016
TS
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT(A)-X, New Delhi.
5.CIT(ITAT), New Delhi.
AR, ITAT
NEW DELHI.
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