IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, ‘SMC’: NEW DELHI
(Through Video Conferencing)
BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER
ITA No.5137/DEL/2019 [Assessment Year: 2013-14]
Smt. Bhavana Jain, ITO, Prop. M/s Akash Metal Ward-1, Industries, outside Barsi Gate, Hisar, Haryana Hansi, Haryana-125033 Revenue PAN-AASPJ7764L
Assessee
Assessee by Sh. K. Sampath, Advocate, Revenue by Sh. V. Rajkumar, Advocate Sh. Gaurav Pundir, Sr. DR
Date of Hearing 24.08.2021 Date of Pronouncement 21.09.2021
ORDER
This appeal filed by the assessee is directed against the
order of the learned CIT(A)-5, Ludhiana, dated 18.04.2019
pertaining to Assessment Year 2013-14. The assessee has
raised following grounds of appeal:-
1. On the facts and in the circumstances of the case and in law the Ld. CIT (Appeals) erred in initiating proceedings u/s 147/148 of the Income Tax Act, 1961 without there being valid reasons leading to belief of escapement of income and also passing order u/s 143(3) r.w.s. 147 of the Act without providing reasons recorded; 2 ITA No.5137/Del/2019
2. On the facts and in the circumstances of the case and in law the Ld. CIT (Appeals) erred in confirming the following additions made by the Assessing Officer:
i) Rs. 19,17,500/- on account of sale of TMT scrap treating the same as unexplained income;
ii) Rs.57,387/- on account of expenses incurred on insurance and electricity wrongly invoking u/s 40A(3) of the Act;
iii) Rs.8,000/- on account of notional interest disallowed on transactions with M/s S.K. Traders;
iv) Rs.50,000/- on account of car expenses, telephone expenses and salary of staff on ad- hoc basis.
2. Facts giving rise to the present appeal are that a survey
operation u/s 133A of the Income Tax Act, 1961 (hereinafter
‘the Act’) was carried out at the business premises of the
assessee on 02.09.2014. Thereafter, case of the assessee was
reopened by issuing notice u/s 148 of the Act. Thereafter, the
Assessing Officer proceeded to frame the assessment. The AO
during the course of assessment proceedings, recorded that
during the survey operation, certain documents i.e. A-3 blue
diary was impounded and certain entries of Rs.19,17,500/-
was found to be unrecorded in the books of accounts. The AO,
therefore, issued show-cause notice to the assessee to explain
the same. In response to the notice, it was stated by the 3 ITA No.5137/Del/2019
assessee that diary was for the purpose of keeping track of the entries for memory only. However, the explanation of the assessee was not found acceptable by the AO on the basis that one of the entries of Rs.75,000/- was duly recorded in the books of accounts. The Assessing Officer, therefore, made addition of Rs.19,17,500/-. Further, the AO noticed that the assessee had made expenditure in cash amounting to Rs.29,699/- on 20.12.2012 and Rs.27,688/- on 12.11.2012 respectively violating the section 40A(3) of the Act. This amount was added to the income of the assessee, the AO also noticed that the assessee had bank transaction with M/s S. K. Traders, Hansi but there was no business transaction, therefore, a sum of Rs.8,000/- was added in the income of the assessee as notional interest. The Assessing Officer also made addition of Rs.50,000/- on account of ad-hoc disallowance of the expenditure related to Car, Phone, service or staff. Thus, the AO assessed income at Rs.24,29,887/- against returned of income of Rs.3,96,980/-.
3. Ground no.1 of the assessee’s appeal is against the
reopening of the assessment. At the time of hearing, no 4 ITA No.5137/Del/2019
arguments was addressed on this ground, therefore, this ground of appeal is dismissed.
4. Ground No.2 (i) is against the sustaining the addition
of Rs.19,17,500/-, the learned counsel for the assessee
submitted that the authorities below were not justified in
making addition, he submitted that the addition has been
made purely on the basis of noting in the diary without any
corroborative evidence. He submitted that the law is well settled
that no addition can be made on the basis of entry in the diary
without corroborative evidence. He further submitted that even
otherwise also the AO should not have made the entire addition
even if it is assumed that without prejudice to the submissions
that no addition could be made, the only profit element could
be taxed.
5. On the contrary, the learned DR opposed the
submissions and supported the orders of authorities below. The
learned DR submitted that submissions of the learned counsel
for the assessee are misplaced. He submitted that the AO has
specifically recorded, which has not been disputed by the
assessee that out of entry made in the diary of Rs.75,000/- was
found recorded in the books of accounts, therefore, it cannot be 5 ITA No.5137/Del/2019
construed that the figures mentioned in the diary were imaginary and nonexistence.
6. I have heard the rival submissions, perused the
material available on record and gone through the order of the
authorities below. The assessee’s explanation with regard to
interest in the loose sheet i.e. blue diary found during the
course of search was that it was for the purpose of memory and
the addition could not have been made solely on the basis of
loose paper which is against the well settled law in this regard.
Moreover, the entire alleged receipt could not partake character
of profit. The profit element embedded into such receipt could
be subjected to tax. There is no ambiguity under law that no
addition can be made merely on the basis of loose paper
without being substantiated by any corroborative evidence. In
the present case, undisputedly, one of the entries of
Rs.75,000/- was found to be duly recorded in the books of
accounts, therefore, I am in the agreement with the contention
of the learned DR that such figures found on loose sheet could
not be imaginary. The moot question arises whether the entire
receipt is correctly taxed or only the profit element should have
been taxed. Admittedly, the AO has not invoked section 6 ITA No.5137/Del/2019
69/69A of the Act. Therefore, I am of the considered view that only profit element should have been taxed. I, therefore, direct the AO to restrict the addition of Rs.1,91,750/- @ 10% of the gross receipts. This ground of assessee’s appeal is partly allowed.
7. Coming to Ground No.2(ii) relates to addition on
account of disallowance of expenditure, where payment has
been made in cash exceeding Rs.20,000/-.
8. The Ld. Counsel for the assessee submitted that the
payments are genuine, hence the AO should have not invoked
the provisions of Section 40A(3) of the Act.
9. On the contrary, the Ld. DR submitted that the
assessee failed to demonstrate that the payments fall in any of
the exception clause as mentioned in the section 40A(3) of the
Act.
10. I have considered the rival submissions. I am in
agreement with the contention of the Ld. DR that the assessee
was required to demonstrate that the payments which has been
made in excess of Rs.10,000/- fall under any of the exception
as provided u/s 40(3) of the Act and Rules framed thereunder. 7 ITA No.5137/Del/2019
Hence, the findings of the authorities below are affirmed. The ground of the assessee’s appeal is dismissed.
11. Ground no. 2(iii) relates to charging of the tax on
earning of notional interest and the ground no. 2(iv) relates to
ad-hoc disallowance of Rs.50,000/-.
12. The Ld. Counsel for the assessee submitted that both
the addition have been made on the basis of conjectures and
surmises which is not permissible under the law. He
submitted that there is no specific finding by the AO and the
disallowance has been made purely on guess work.
13. On the other hand, the Ld. DR opposed the
submission of the Ld. Counsel for the assessee and relied on
the order of the authorities below.
14. I have heard the rival submission. I find merit in the
contention of the assessee that both the additions has been
made on the basis of surmises only. The AO has made
disallowance purely on the basis of guess work. Therefore, the
AO is hereby directed to delete the addition of Rs.8,000/- on
account of notional interest and Rs.50,000/- made on account
of ad-hoc disallowance out of car, telephone and salary of staff 8 ITA No.5137/Del/2019
and other expenses. Thus, the ground no.2(iii) and ground no.2(iv) of the appeal are allowed.
15. In the result, the appeal of the assessee is partly
allowed.
Above decision was pronounced in the open court on conclusion of Virtual Hearing on 21.09.2021.
Sd/- Sd/- [KUL BHARAT] [KUL BHARAT] JUDICIAL MEMBER JUDICIAL MEMBER Delhi; Dated: 21/09/2021. Asst. Registrar, ITAT, New Delhi f{x~{tÜ?
Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR
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