Income Tax Appellate Tribunal - Delhi
Seasons Catering Services Pvt. Ltd., ... vs Assessee on 1 September, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'G': NEW DELHI
BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER &
SHRI R.C. SHARMA, ACCOUNTANT MEMBER
ITA No. 3463/Del/2008
Assessment Year : 2005-06
Seasons Catering Services Pvt. Ltd., Dy. Commissioner of Income Tax,
B-6, Anupam Plaza, Vs. Circle - 8(1),
Azad Apartments, Hauz Khas, New Delhi
New Delhi
PAN: AAFCS 6016 G
Appellant Respondent
Appellant by : Shri Kapil Goel, CA
Respondent by : Mrs. Shumana Sen, Sr. DR
ORDER
PER: C.L. SETHI, J.M. The assessee is in appeal against the order dated 01.09.2008 passed by the ld. CIT(A) in the matter of assessment made by the AO u/s. 143(3) of the Income Tax Act, 1961 ("the Act") for the A.Y. 2005-06.
2. Ground no. 1 and 2 are directed against the CIT(A)'s order in sustaining the addition of Rs. 25,00,000/- made by the AO on account of undisclosed income allegedly dictated at the time of survey conducted against the assessee u/s. 133 of the Act.
ITA No. 3463/Del/20052.1 Relevant facts giving rise to this issue as borne out from the orders of the authorities below and materials on record , may, in brief, be stated in ensuing paras.
2.2 The assessee company is engaged in the business of catering, F&B Contract of DLF Golf Club Gurgaon, and has been running an independent restaurant in the DDA Picnic Hut Complex, Mehrauli. There was a survey operation u/s. 133A conducted against the assessee on 14.12.2004 by the department at assessee's various business premises. During the course of survey various incriminating documents were found and some of the documents were also impounded.
2.3 In this connection, the AO stated that in the light of the various discrepancies revealed from the various documents and papers found during the survey, the assessee company voluntarily surrendered amount of Rs. 25,00,000/- as additional income vide letter dated 11.02.2005 and, the assessee also paid the advance tax thereupon, but on perusal of profit & loss account and balance sheet filed alonwith the return of income, it was found that the assessee has not included in the return of income the aforesaid sum of Rs. 25,00,000/- surrendered by the assessee vide letter dated 10.02.2005. During the assessment proceedings, the assessee was, thus, asked by the AO to explain the reason for not disclosing the amount of Rs. 25,00,000/- 2 ITA No. 3463/Del/2005 surrendered by the assessee vide aforesaid letter. In reply, the assessee submitted as under:-
"We have surrendered Rs. 25,00,000/- at that point of time, the surrender was made in spite of there being no clarity about the existence/nature/extent of undisclosed income. As can be expected, during survey proceedings, a lot of material, mostly irrelevant was impounded by the department and at that point of time, we had deposited an adhoc payment of tax of Rs. 9,15,000/-. Subsequently, after closing of the year on March, 31, 2005 when we finalized our accounts, we arrived at our total tax liability for the year on which we duly paid the entire tax after adjusting the adhoc payment of Rs. 9,15,000/-."
2.4 The aforesaid explanation of the assessee was not found favour with the AO particularly in view of the discrepancies in the books of accounts found and impounded at the time of the survey.
2.5 It was noticed by the AO from Annexure A - 1(5), impounded from premises at D 1-7, Dr. Ambedkar Colony, New Delhi that it was a part register containing the record of clients or parties or customers catered by the assessee. The other records were also impounded from the premises D- 6, Anupam Plaza, Azad Apartments, Hauz Khaas, New Delhi. From the impounded documents, it was noted that the assessee has not recorded all the receipts in its books of account.
2.6 The AO then pointed out the various other discrepancies found in the accounts vis-à-vis the material or papers impounded during the course of the survey.
3 ITA No. 3463/Del/2005 2.7 In the light of the discrepancies noticed by the AO, the AO vide order- sheet entry dated 20.08.2007 specifically asked the assessee to file a note on the business of catering and give explanation as to how the rates are fixed and menu is decided. The assessee vide letter dated 05.09.2007 stated that rate are fixed in the industry on various factors like:-
i. Composition of menu
ii. Time of the order when the party is held (season, non-season,
peak season, lean season)
iii. Availability to do and profile of the customers.
iv. The lead-time between the order and the date of function.
v. Where it is to be held.
vi. Relationship with the customers and duration of association
with the customer.
2.8 The reply of the assessee was not found acceptable to the AO in as much as the assessee failed to provide details about the menu, rate, and nature of services etc. The AO further observed that the assessee has conducted a function and party raising as high of Rs. 13,00,000/- and Rs. 10,58,168/- to 12.25 lacs. On these facts, the AO stated that it cannot be accepted that the assessee was running a totally unorganized sector. 4 ITA No. 3463/Del/2005 2.9 Since the various transactions found recorded in the papers found during the course of survey were not recorded in the books of accounts, the AO vide order-sheet entry dated 10.12.2007 asked the assessee to explain as to why the books of the assessee should not be rejected u/s. 145 of the Act. In reply there to, the assessee vide letter dated 12.12.2007 submitted that the assessee's accounts were audited u/s. 44AB of the Act, and also under the Companies Act, and duly audited accounts alongwith audit reports were filed alongwith return of income filed by the assessee. The assessee further submitted that the list of books of accounts maintained by the assessee are mentioned in the tax audit report, and all entries of business were duly recorded in the books of accounts. The assessee vide letter dated 18.12.2007 further submitted that since survey was conducted on 14.12.2004 and the same was lasted till wee hours on 15.12.2004 creating a lot of stress on all the employees and work and the business was hampered to a great extent, the assessee immediately cancelled the function of Mr. Kushaal as they were not in a position to carry out the order. This explanation of the assessee about the cancellation of the party was not found acceptable to the AO in the absence of evidences and having regard to the ground realities. With regard to the assessee's submission that books of accounts were duly audited under the Income Tax Act as well as under the Companies Act, the AO commented that getting the accounts audited u/s. 44AB or under the 5 ITA No. 3463/Del/2005 Companies Act, would not mean that the assessee has recorded all the receipts and the payments in his books of accounts as the auditor can only audit the entries, which were entered into the books of accounts, and auditors are not supposed to know about the entries which are not recoded in the books of accounts.
2.10 In the light of the various defects found in the books of accounts of the assessee, the AO rejected the books of accounts of the assessee and made the addition of Rs. 25,00,000/- to the trading result declared by the assessee in the books.
2.11 Being aggrieved, the assessee preferred an appeal before the ld. CIT(A).
2.12 Before the ld. CIT(A), the assessee submitted that the AO had misread and misinterpret the entry on impounded pages of 52 and 53 of Annexure A
- 1 (5), in as much as, the observation of the AO that only Rs. 400/- per head was recorded in the books as against Rs. 650/- charged per head was incorrect. It was explained that these pages related to the catering services provided to Gannon Dunkerley & Co. on 15.12.2004 and a certificate for that company was furnished showing that the catering was for 200 persons @ Rs. 410/- per head, whereas Rs. 650/- per kg. was charged separately for 20 kg. prawn to be supplied extra. It was, therefore, stated that there was no discrepancy between the document and the amount recorded in the books. 6 ITA No. 3463/Del/2005 He further contended that the catering services intended to be provided to Mr. Kushaal as recorded in impounded documents was ultimately cancelled and consequently, the assessee received no money on that account, and that is why no receipt was shown in the books of account. With regard to the other discrepancies noted in various other documents, the assessee submitted that the entries on those papers were rough working and they had no relevancy with the actual receipt recorded in the books of account. It was submitted that the contents of the documents did not indicate anything or the context in which they were written. They were not signed nor dated. The nature of calculation made on those documents was also not known. The assessee, therefore, contended that addition of Rs. 25,00,000/- made by the AO on the basis of assessee's declaration was not justified. The assessee also relied upon the various decisions as mentioned in the CIT(A)'s order. The assessee further contended that since the alleged discrepancies pointed out by the AO were duly explained, the A was not justified in rejecting the books of accounts of the assessee and then making the addition of Rs. 25,00,000/-.
2.13 After considering the assessee's submission and the AO's order including the assessment records and the various materials and papers collected in the present case, the CIT(A) confirmed the addition by observing and holding as under:-
7 ITA No. 3463/Del/2005
i. Various decisions relied upon by the assessee are of no assistance to the assessee in as much as, in the present case, the assessee has surrendered the income not during the course of the survey proceedings but surrendered the income voluntarily vide letter dated 11.02.2005 filed after about two months from the date of the survey conducted on 14.12.2004. The CIT(A) observed that in the decisions relied upon by the assessee, the issue is with regard to the surrender of the additional income made at the time of survey, but later on retracted. Though in the present case, the additional income has been offered by the assessee subsequently after the assessee was asked to give explanation as to the various documents impounded at the time of the survey. The CIT(A) further observed that it was the case where not only did the assessee disclosed the additional income of Rs. 25,00,000/- but also paid the taxes of Rs. 9,150,000/- due thereupon by way of advance tax paid by 31.03.2005 ii. The CIT(A), further held that it is not the case where statement declaring additional income was made under pressure or coercion or under mistaken belief at the time of the survey. iii. The impounded documents were handed over by the Investigation Wing to the AO vide letter dated 21.01.2005, and, 8 ITA No. 3463/Del/2005 after examining the various papers and documents found at the time of survey, the assessee vide letter dated 11.02.2005 voluntarily offered the additional income, and thus, retraction made in the return of income does not have any valid reason or basis.
iv. The certificate from the Gannon Dunkerley & Co. filed during the course of appellate proceedings would also of no help to the assessee in as much as, it is a self serving document and once event of catering services is completed, the additional money received by the caterer paid in cash would never be certified by the customers. The addition has been made by the AO on the basis of noting in the impounded paper in respect of which the assessee has not given any satisfactory explanation. 2.14 Still aggrieved, the assessee is in appeal before us. 2.15 The ld. counsel for the assessee has reiterated the contentions and submissions that were made before the ld. CIT(A) to contend that actual charges received from Gannon Dunkerley & Co. was only Rs. 400/- per head and not Rs. 650/- per head, and that money of Rs. 650/- mentioned in the impounded documents was with reference to the rate of prawns per kg.
to be charged for 20 kg. prawns to be supplied extra, and, thus, there was no discrepancy between the entry made in the impounded document and the 9 ITA No. 3463/Del/2005 entry made in books. He further submitted that the other documents found during the course of the survey was with reference to the catering services intended to be given to one Mr. Kushaal, to whom services were ultimately not given because of survey taken place at the assessee's premises on 14.12.204 continued upto wee hours of 15.12.2004. He further contended that various other discrepancies pointed out by the AO are purely based on rough noting and working having no relation or connection to the actual business activity carried on by the assessee. He further submitted that merely on the basis of declaration without the same being supported by any material or evidences found during the course of the survey, no addition can be made. He further submitted that the statement made at the time of the survey is not conclusive so that any income offered by the assessee in the statement can be brought to tax merely on the basis of assessee's statement without the same being supported by any supporting evidences. He, therefore, submitted that the addition of Rs. 25,00,000/- made by the AO and further confirmed by the CIT(A), is unjustified.
2.16 The ld. DR, on the other hand, submitted that the assessee has not been able to give any satisfactory or acceptable explanation with regard to the various documents or papers found during the course of the survey. It was the burden of the assessee to explain the nature of each and every entry recorded in the impounded documents by giving the satisfactory explanation 10 ITA No. 3463/Del/2005 and evidences in support thereof. It was further contended by the ld. DR that since various defects pointed out by the AO in the books of accounts have not been reconciled or have been properly explained, there could not be any dispute to the fact that the books of accounts maintained by the assessee were not correct and complete so as to deduce the true profit therefrom. He, therefore, contended that the AO was justified in rejecting the books of accounts maintained by the assessee and then in making addition of Rs. 25,00,000/-, which has been reasonably determined in the light of the assessee's own admission. He also, reiterated the various observation and reasons given by the ld. CIT(A) in sustaining the addition. 2.17 Rival contentions of both the parties have been considered. The orders of the authorities below have been carefully perused. We have also perused the various documents and papers placed in the paper book filed by the assessee.
2.18 In the present case, in the light of the various defects and discrepancies found in the books of account maintained by the assessee, the AO has rejected the books of accounts maintained by the assessee and has made the addition of Rs. 25,00,000/- to the trading results declared in the books by the assessee. The ld. CIT(A) has upheld the AO's order. In this respect, the first question that arises for our consideration is whether the AO was justified in rejecting the books of accounts of the assessee. It is an 11 ITA No. 3463/Del/2005 admitted position that a survey u/s. 133A was conducted at the assessee's business premises on 14.12.2004, during the course of which certain documents and papers were found and were also impounded. One of the document found and impounded during the course of the survey is Annexure A-1(5), page no. 52 indicating that the assessee had rendered catering services in respect of 600 persons @ Rs. 450/- per person. It is the allegation of the AO that this receipt was not accounted for in the books of accounts of the assessee. However, on the other hand, it has been submitted by the assessee that the party booked in respect of one function at the premises of one Mr. Kushaal to be organized, was ultimately cancelled, and no receipt towards catering services were received by the assessee and, therefore, the question of entering those receipts in the books of accounts did or could not arise. The assessee submitted that for the reason that a survey was conducted on 14.12.2005 at the assessee's premises and the assessee was very much upset by the survey, the function arranged for 15.12.2004 for Mr.Kushaal was cancelled as if the assessee would have gone ahead with the arrangements, the assessee would not have been able to carry out the same efficiently and there would have been a total loss of reputation. The explanation of the assessee as well as the AO's stand in this respect of the matter has been examined and considered by us. We have gone through the relevant seized papers placed at page 110 of the paper book filed by the 12 ITA No. 3463/Del/2005 assessee. In this page, it is mentioned that on occasion of Shaadi, an arrangement was to be made on 15.12.2004. Number of guests guaranteed by the host was given at 600, and numbers of guests expected were mentioned as 700. The rate per head was fixed at Rs. 400/- + taxes. The details of the menu has also been mentioned therein. This order was booked on 12.09.2004. This is on assessee's own letter-head. It is also mentioned therein that an advance of Rs. 20,000/- was received by the assessee. In the course of hearing of this appeal, a query was raised by the Bench to the ld. counsel for the assessee as to whether the assessee has filed any confirmation letter from Mr. Kushaal that the dinner fixed on account of Shaadi to be arranged by the present assessee on 15.12.2004 was not arranged by the assessee, and the customer made alternative arrangements of his own. In reply thereto, the ld. counsel for the assessee submitted that no such letter or confirmation from Mr. Kushaal has been produced by the assessee either before the AO or before the ld. CIT(A) that the dinner to be arranged by the assessee was cancelled. It was also pointed out to the ld. counsel for the assessee as to whether the advance amount of Rs. 20,000/- received by the assessee at the time of booking the order has been accounted for in the books of accounts, and if it so accounted for, whether the amount received by way of advance has been refunded by the assessee to Mr. Kushaal and necessary entries to that effect are made in the books of 13 ITA No. 3463/Del/2005 accounts. In this respect, the ld. counsel for the assessee failed to give any reply. The assessee failed to point out that amount of Rs. 20,000/- received on 12.09.2004 was accounted for in the books of accounts. In the light of these facts pointed out above, we find that the assessee has merely given a fanciful and blunt explanation without the same being supported by any iota of evidence that dinner to be arranged by the assessee on 15.12.2004 was ultimately cancelled. We, therefore, have no hesitation in holding that the receipt against the said catering services rendered by the assessee to Mr. Kushaal has not been recorded in the books of accounts, and has been kept outside the books, and thus, the receipts have been suppressed by the assessee. It is well settled that when there is suppression of sales or receipts, the books of the assessee can be rejected and income can be estimated. It is of great importance that the details of all the sales and receipts should be verifiable and correctly recorded. The books can be rejected even if the some of the sales are found to be verifiable and the rest are not verifiable. Therefore, we hold that the AO was justified in rejecting the books of the assessee and in estimating the income my making addition to the trading results declared by the assessee.
2.19 We find that the assessee has not been able to give any satisfactory explanation as to the following discrepancies found in the books of account 14 ITA No. 3463/Del/2005 maintained by the assessee vis-à-vis various documents and papers found and impounded during the course of the survey:-
Discrepancies noticed:
Annexure A-9/page - 16, B - 6, Hauz Khas It is a hand written rough working, It is a plain paper in the name of Kunal Lalani regarding details of functions dated 06.11.2004 for dinner party on 6.11.2004 for 325 persons. The amount quoted is Rs. 2,34,737/-. The same has not been accounted for in the books of account. The assessee's explanation is that, it is hand written rough working and not relevant with the books of account, is not acceptable.
Page - 39/A-1 dated 28.11.2004 - Rs. 22,375 It is a note in respect of some casual boys.
Corresponding entry of receipts are not appearing in the books of account.
A - 1/page - 42 Expenditure of Rs. 10,500/- signed by Ashish Gupta not accounted for. The corresponding receipt of the function where the casual labour were deployed were not accounted for in the books.
A - 1/page 43 Amount of expenditure 5,300 Not accounted for in the books of account A - 1(1), Page - 123, D-127, Ambedkar Colony Page 123, 526, 9, 10, 11, 12, 13, 14, 215 and 26 Contained the noting about the expenditure ranging between 900 to 3000 and not accounted for in the books of account. All the above discrepancies normally show that the assessee's books of account do not contain all the receipts and expenses and therefore cannot be relied upon.15 ITA No. 3463/Del/2005
2.20 In respect of the aforesaid discrepancies pointed out by the AO, the assessee has given a wild explanation that they are either hand written rough working or they are not related to any receipts and expenses incurred by the assessee. It is not in dispute that all the papers and documents were found in the control and custody of the assessee, and, therefore, it was the burden of the assessee to explain the nature and contents of those documents. It was within the specific knowledge of the assessee that why certain notings on these papers were made and why those were not recorded in the regular books of accounts but the assessee has failed to give any satisfactory and acceptable explanation except giving a blunt and wild reply. In the light of these aforesaid discrepancies noted by the AO, the books of accounts maintained by the assessee are undoubtedly liable to be rejected in as much as all the receipts and expenses recorded in the various documents and papers found at the time of the survey were not recorded or accounted for in the books of accounts maintained by the assessee.
2.21 For the reason given above, we, therefore, hold that the AO has rightly rejected the books of accounts of the assessee, and has proceeded to estimate the assessee's income by making addition to the trading result declared by the assessee. Now, the question arises as to the quantum of reasonable addition, which is called for, in the present case.16 ITA No. 3463/Del/2005
2.22 It is an undisputed fact that survey u/s. 133A was carried out against the assessee on 14.12.2004 during the course of which various documents and papers were found and impounded indicating that certain receipts and expenses of business were not recorded in the assessee's books of accounts.
Number of documents and papers were found during the course of the survey, which were marked as Annexure 1 to Annexure 10 and then Annexure A-1 and A-2. Annexure A-1(1) contained 127 pages, Annexure A-1(2) contained 242 pages, Annexure A-1(3) contained 218 pages, Annexure A-1(4) contained 273 pages, Annexure A-1(5) contained 86 pages, Annexure A-1(6) contained 98 pages, Annexure A-1(7) to Annexure A-1(14) contained various papers regarding material transferred from one unit to another, daily day book, vehicle log book, stock register, staff attendance report, payment received books etc. In other words voluminous papers and documents about the assessee's business activities and the receipts and expenses were found during the course of the survey. These documents were thoroughly examined and verified by Investigation Wing, and the assessee was given a full and sufficient opportunity to give necessary explanation as to the nature and contents thereof. The assessee was also given sufficient opportunities to examine and verify all the various documents and papers found during the course of the survey. Thereafter, the assessee vide its letter dated 11.02.2005 had chosen or decided to make a 17 ITA No. 3463/Del/2005 disclosure of income of Rs. 25,00,000/-. In the assessee's letter dated 11.02.2005, the assessee has stated that in the course of the survey carried at three business premises of the assessee on 14th December, 2004, the department had seized/impounded various documents, records, registers, books of accounts etc. pertaining to several years over which the assessee had been in business. The assessee has stated in this letter that the department had raised various queries on the seized documents, records etc. found at the time of the survey, and has given various hearings thereafter, and in view of all the documents seized by the department, the assessee had chosen or decided to make a disclosure of income of Rs. 25,00,000/-. From this averment made by the assessee in its letter dated 11.02.2005, it is clear that the department had raised various queries on the seized documents/records etc. at the time of the survey and as well at the various hearings made, thereafter, and later on, in view of all the documents impounded by the department, the assessee decided to make a disclosure of income of Rs. 25,00,000/- vide assessee's letter dated 11.02.2005. It is, thus, more than clear that the assessee had disclosed the sum of Rs. 25,00,000/- in the light of the various documents seized by the department, and it is not merely an imaginative figure without the same being based on any material or documents found at the time of the survey. In the letter, the assessee has further stated that the disclosure was being made in the light of 18 ITA No. 3463/Del/2005 the various discussions and hearing with the concerned officials of the department, which would mean that the assessee was given full opportunity of being heard in respect of the various documents and records seized or impounded during the course of the survey, and after proper deliberation and examination of the documents, the assessee decided to make a disclosure of income of Rs. 25,00,000/-. It is also pertinent to note that the assessee has not only decided to make a disclosure of income of Rs. 25,00,000/- but also paid the tax in advance due thereupon. The assessee had paid the sum of Rs. 9,15,000/- being the tax and surcharge due on the sum of Rs. 25,00,000/- and the said amount has been paid before the close of the relevant financial year. It is, thus, clear that the assessee has quantified the disclosed amount at Rs. 25,00,000/- after going through the various documents seized and impounded by the department and that too after about two months from the date of survey. It is not a case where disclosure was made at the spot at the time of the survey without examining and verifying the various documents and papers found at the time of the survey, but, it is a case where voluminous documents and records or papers found at the time of the survey were duly examined and verified by the assessee, and the disclosure was made after various queries on the seized documents and records were raised by the department, and after various hearings were taken place, and after the assessee was given sufficient opportunities to give explanation to the various 19 ITA No. 3463/Del/2005 queries raised by the department. It is only at the time when the return of income was filed by the assessee on 30.10.2005 that the assessee retracted from its own statement made in its letter dated 11.02.2005 declaring additional income of Rs. 25,00,000/-, and changed the stand without any valid reason. When no explanation as to the discrepancies in accounts was given at the time of the survey and thereafter at the stage of various hearings given to the assessee and when the assessee had given an understanding to the department about determination of undisclosed income at Rs. 25,00,000/- vide his letter dated 11.02.2005, and has also paid tax thereupon within the financial year itself after examining and verifying all the documents and papers found at the time of the survey and after availing full opportunity of being heard on all the queries raised by the departments on said documents/papers, he cannot be now allowed to turn round and urge that such determination of undisclosed income of Rs. 25,00,000/- is incorrect, unjustified and unwarranted by retracting his admission later on in the course of assessment proceedings. It is also not the case where the declaration was made under pressure or coercion, if any, exercised by the department at the time of the survey or thereafter. The declaration was made by the assessee after due verification and examination of the various documents, after a period of about two months from the date of the survey. Even the assessee himself admitted in its letter dated 11.02.2005 that 20 ITA No. 3463/Del/2005 assessee was grateful to all the officers of the department for extending their full support and corporation to the assessee during and after the survey proceedings. The assessee has also stated in the aforesaid letter that the assessee shall be able to achieve the object of buying peace with the department and ensure smooth sailing for it not only at the investigation stage but also at the assessment stage. From the aforesaid averment made by the assessee in its letter 11.02.2005, it is fully established and proved that it is not the case where disclosure has been made either under coercion or pressure or because of any misunderstanding and/or mistaken reading of the document. It was never the case of the assessee that the assessee has misunderstood the contents of the various documents and papers found at the time of the survey and has wrongly declared the amount of Rs. 25,00,000/- vide its letter dated 11.02.2005, which was submitted after about two months from the date of the survey in the light of various documents and papers found at the time of the survey.
2.23 In these circumstances, we, therefore, hold that the assessee's conduct in not including the aforesaid sum of Rs. 25,00,000/- declared vide letter dated 11.02.2005, in the light of the various documents and papers found at the time of the survey on which tax was also paid in advance, is not justified but is an unwarranted attempt to reduce its due and just tax liability. 21 ITA No. 3463/Del/2005 2.24 The assessee's disclosure of an amount of Rs. 25,00,000/- on the basis of various documents and papers found at the time of the survey in respect of which various enquires were raised by the department from time to time and various hearing had taken place and the assessee was provided sufficient opportunity to explain the documents etc. before the disclosure was made by the assessee, and payment of advance tax due thereupon, are itself sufficient piece of evidence and basis on which the addition of Rs. 25,00,000/- can be made to the trading result declared by the assessee in its books. This is the case where addition have not been merely on the basis of assessee's declaration but the addition made in the light of the various discrepancies or defects found in the books of accounts maintained by the assessee and in the light of the suppressed sales or expenses found recorded in the seized documents or papers found at the time of the survey, on the basis of which the assessee has made a declaration of Rs. 25,00,000/-.
2.25 It is also well settled that once the books of accounts of the assessee are rightly rejected u/s. 145(3) of the Act, the AO have to proceed to determine the assessee's income on the basis of material available on record and to the best of his judgment. It is well settled that that in a best judgment the assessment there is always a certain degree of guesswork. No doubt that the authorities has tried to make an honest and fair estimate of the income. There is necessarily some amount of guesswork involved in a best judgment 22 ITA No. 3463/Del/2005 assessment. In this case, the AO resorted to make an addition of Rs. 25,00,000/- to the book result declared by the assessee in the light of various defects and discrepancies found in the books of accounts maintained by the assessee and on the basis of assessee's own admission where the assessee has disclosed an amount of Rs. 25,00,000/- as additional income and has also paid taxes in advance accordingly. Therefore, in the present case, it could not be said that there is any arbitrariness in the action of the AO in making addition of Rs. 25,00,000/- to the book result declared by the assessee. It is the assessee itself who is to blame, as the assessee did not maintain true and correct and proper accounts, and did not submit proper account to the department. The fact that assessee has been indulging in suppressing sales of its business has been detected as a result of a survey conducted by the department during the course of which various documents and papers were found and impounded indicating that all the transaction of receipts and payments were not recorded in the books of accounts submitted by the assessee to the department. In the light of the totality of the discussions made above, we, therefore, upheld the order of the CIT(A) in confirming the addition of Rs. 25,00,000/- made to the trading results declared by the assessee. This ground raised by the assessee is thus rejected. 23 ITA No. 3463/Del/2005
3. The ground no. 3 is directed against the CIT(A)'s order in sustaining the disallowance of Rs. 1,00,000/- out of business promotion expenses made by the AO.
3.1 Relevant facts relating to the issue are that in the course of assessment proceedings, it was noticed by the AO that the assessee has debited the amount of Rs. 07,08,293/- under the head "business promotion expenses". On being asked to justify the claim, the assessee vide letter dated 26.12.2007 submitted as under:-
"In business promotion expenses, the main expenditure is related to restaurant bills and some hotel bills in India where the directors go for meeting the clients for the purpose of business of the hospitality industry and hence there is a lot of expenditure incurred in the restaurants for meeting the clients and for obtaining the business from the client. Since our clients are very high profit and for that we have to take them to various restaurants to update them about the various kinds of cuisines and equipment available with us. Besides this, since our industry is food oriented industry, we have to update our information and we have to know about our competitor's recipes and new recipes/items available in the market .................. Besides this some expenditure is made on the flower arrangements/bouquet's sent to the prestigious clients on various occasions to get them updated and for PR and for getting more business from as our clients are repeated clients over the years."
3.2 After considering the assessee's submissions, the AO disallowed the expenses to the extent of Rs. 1,00,000/- by observing as under: 24 ITA No. 3463/Del/2005
"From the details of the expenditure incurred it is seen that most of the expenses have been incurred either in cash or through credit card and the nature of the expenditure is for lunch, gifts etc. The personal element of expenditure including therein therefore cannot be avoided and disallowance of Rs. 1,00,000/- is made on this account. (disallowance Rs. 1,00,000)"
3.3. On an appeal, the CIT(A) confirmed the disallowance by observing that the assessee has filed only copy of account of business promotion expenses, and from the copy of accounts, it is noted that the some of the expenses are in the form of hotel and restaurant bills and have been incurred from credit card and while some expenses incurred in cash also, and, therefore, the assessee has not been able to justify that entire expenses are incurred wholly and exclusively for the business purpose. 3.4. We have heard both the parties and have carefully gone through the orders of the authorities below.
3.5. It is not in dispute that the assessee had claimed business promotion expenses of Rs. 7,08,293/- out of which the some of Rs. 1,00,000/- has been disallowed by giving the reason the that same has not been incurred wholly and exclusively for the purpose of business. The expenses of Rs. 7,08,293/- has been incurred in the course of meeting with the clients and other business associates by arranging the meeting at various hotels and restaurants. The details of the payments has been filed by the assessee. The payments have been made through credit cards. However, the CIT(A) in his 25 ITA No. 3463/Del/2005 order stated that some expenses are incurred in cash also, but he has failed to quantify the amount of those items in respect of which the payments were made in cash. The CIT(A) has made a general observation in that regard. It is also pertinent to note that both the authorities below have accepted in principle that the expenses were incurred for the purpose of business. However, they have disputed the quantum of the expenses incurred by the assessee by disallowing Rs. 1,00,000/- out of Rs. 6,08,293/-. In other words, the authorities below himself admitted that sum of Rs. 7,08,293/- are allowable expenses. They have not pointed out any specific item, which could be said being not related to the assessee's business. Without pointing out any specific item, we are of the considered view that the authorities below are unjustified in disallowing part of the total expenses incurred on account of business promotion expenses. The AO should have pointed out some of the instances in respect of which he was of the view that expenses were not incurred for the purpose of business, but the AO has not done so, and, has disallowed the amount purely on estimate. In this view of the matter, we, therefore, do not find any justification in sustaining the disallowance of Rs. 1,00,000/- out of the business promotion expenses of Rs. 7,08,293/-. We, therefore, delete the disallowance of Rs. 1,00,000/-.
4. Ground no. 4 is directed against the CIT(A)'s order in sustaining the disallowance of Rs. 75,000/- out of the total disallowance of Rs. 1,00,000/- 26 ITA No. 3463/Del/2005 made by the AO out of vehicle running, vehicle maintenance and depreciation.
4.1. The sum of Rs. 1,00,000/- has been disallowed by the AO out of vehicle running and maintenance and depreciation treating the same to have been incurred for personal use. The disallowance so made by the AO has been sustained to the extent of Rs. 75,000/- by granting a relief of Rs. 25,000/- by the ld. CIT(A).
4.2 We have heard both the parties and carefully gone through the orders of the authorities below.
4.3. The present case is a case of private limited company, where the vehicles belonging to the company were also used by the Directors. Even if the Directors were using the vehicle for their personal use, in so far as company is concerned, the expenses are to be treated as being incurred for the purpose of business. If any personal benefit is accruing to the Directors by use of vehicle for their personal purposes, the perquisite value could have been added as income in the hands of the Directors. It is also to be note that providing a car to the Director by the company cannot said to be on non- business account. Moreover, the books of account of the assessee have been rejected and the addition of Rs. 25,00,000/- has been made by the AO in the trading result, and, therefore, there would be no justification to make further disallowance out of the expenses claimed in the profit and loss account when 27 ITA No. 3463/Del/2005 the addition of Rs. 25,00,000/- has already been made by the AO. We, therefore, delete this addition of Rs. 75,000/- sustained by the ld. CIT(A).
5. In the result, the appeal filed by the assessee is partly allowed.
6. This decision is pronounced in the open court on 30th April, 2010.
Sd/- Sd/-
(R.C. SHARMA) (C.L. SETHI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 30th April, 2010
*Nitasha
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, New Delhi.
By Order
Deputy Registrar
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