Income Tax Appellate Tribunal - Raipur
Deputy Commissioner Of Income Tax, ... vs Hotel Babylon International Private ... on 19 April, 2024
आयकर अपील य अ धकरण यायपीठ रायपुर म।
IN THE INCOME TAX APPELLATE TRIBUNAL,
RAIPUR BENCH, RAIPUR
BEFORE SHRI RAVISH SOOD, JUDICIAL MEMBER
AND
SHRI ARUN KHODPIA, ACCOUNTANT MEMBER
आयकर अपील सं. / ITA No. 115/RPR/2023
नधारण वष / Assessment Year : 2017-18
The Deputy Commissioner of Income Tax
(Central Circle)-2, Raipur (C.G.)
.......अपीलाथ / Appellant
बनाम / V/s.
Hotel Babylon International Pvt. Ltd.
Rajiv Gandhi Marg, VIP Road,
Raipur (C.G.)
PAN: AABCH2709M
...... यथ / Respondent
Assessee by : S/shri Praveen Jain &
R.B Doshi, CAs
Revenue by : Shri Satya Prakash Sharma, Sr. DR
सुनवाई क तार ख / Date of Hearing : 14.03.2024
घोषणा क तार ख / Date of Pronouncement : 19.04.2024
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DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd.
ITA No. 115/RPR/2023
आदे श / ORDER
PER RAVISH SOOD, JM:
The present appeal filed by the revenue is directed against the order passed by the Commissioner of Income-Tax (Appeals)-3, Bhopal, dated 09.01.2023, which in turn arises from the order passed by the A.O under Sec.143(3) of the Income-tax Act, 1961 (in short 'the Act') dated 31.12.2019 for the assessment year 2017-18. The revenue has assailed the impugned order on the following grounds of appeal:
"1. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the addition of Rs.1,79,44,938/- made by the AO on account of discrepancy noticed w.r.t. undisclosed income found & duly admitted under oath during the survey as against corresponding disclosure in the return?
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs.91,22,836/- made by the AO on account of disallowance of inflated expenses?
3. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the addition of Rs.91,22,836/- made by the AO on account of disallowance of expenses inflated by the assessee to 'adjust' for the income surrendered on account of survey?
4. Any other ground that may be adduced at the time of the hearing."
2. Succinctly stated, the assessee company which is running a hotel had e-filed its return of income for A.Y.2017-18 on 26.03.2018, declaring an income of Rs.2,18,80,530/-. Subsequently, the case of the assessee company was selected for scrutiny assessment u/s. 143(2) of the Act.
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DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd. ITA No. 115/RPR/2023
3. During the course of the assessment proceedings, the A.O observed that the assessee company was visited with survey proceedings u/s.133A of the Act during 30.05.2017 to 01.06.2017. It was observed by him that during the course of survey operations two cash registers of banquet booking identified as BI-1 and BI-2 were found and impounded. On examination of the aforesaid impounded registers, it was gathered by the survey officials that part of the banquet bookings received in cash during the subject year amounting to Rs.5,18,57,901/- were unaccounted. On being confronted with the aforesaid fact S/shri Komal Yadav and Amit Paul who were looking after the accounting work of the assessee company, had in their respective statements recorded on oath during the survey proceedings admitted that the aforesaid cash receipts were not recorded in the books of accounts. Also, Shri Jagjeet Singh Khanuja, Director of the assessee company in his statement recorded u/s. 131 of the Act on 14.06.2017, had admitted the discrepancies gathered by survey team based on the aforesaid impounded registers and had surrendered an amount of Rs.5,18,57,901/- as undisclosed banquet booking receipts of the company for the year under consideration.
4. The A.O, on a perusal of the profit and loss account of the assessee company, observed that the assessee company as against the amount of Rs.5,18,57,901/- that was surrendered/disclosed during the course of the survey proceedings u/s. 133A of the Act had credited only a sum of Rs.3,39,12,963/- in its profit and loss account. Also, the A.O observed that the assessee company after setting off its regular 4 DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd. ITA No. 115/RPR/2023 business receipts and the additional income, i.e. the unaccounted banquet booking receipts disclosed during the survey proceedings against the expenses booked in its profit and loss account had disclosed a net profit of Rs.1,94,33,175/-. On being queried, it was the claim of the assessee company that as it had in the course of survey proceedings surrendered the income earned on suppressed business receipts of Rs.5,18,57,901/-, thus, it had duly offered the profit element embedded in the said receipts, i.e, Rs.3,39,12,963/- as its income in the profit and loss account. However, the aforesaid explanation of the assessee company did not find favor with the A.O. It was observed by him that the assessee company which had in the course of survey proceedings submitted its trial balance up to the date of survey, on being confronted with the discrepancies emanating from the impugned registers, i.e. BI-1 & BI-2, had offered Rs.5,18,57,901/- as its undisclosed income for the year under consideration, i.e. over and above its normal net profit. Also, the A.O. observed that during the survey proceedings, it transpired that though the assessee company had suppressed the cash banquet bookings receipts but had properly entered all the expenses in its books of account. It was observed by him that during the survey proceedings, no expenses/bills were found which were not entered in the books of account of the assessee company. Also, the A.O. observed that the assessee company had not produced any such bills which were not entered in its books of account. To sum up, the A.O. was of the view that while the assessee company had 5 DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd. ITA No. 115/RPR/2023 suppressed its cash banquet booking receipts, but had already booked all the expenses in its books of accounts.
5. The A.O based on his aforesaid observations concluded that the assessee company had failed to credit in its profit & loss account the balance amount of suppressed cash receipts, i.e. Rs.1,74,44,938/- [Rs.5,18,57,901/- (-) Rs.3,39,12,963/-]. Also, the A.O observed that a perusal of the trial balance prepared and submitted before the survey team revealed that total expenses booked by the assessee company for the two months preceding the date of survey, i.e. April, 2017 & May, 2017 amounted to Rs.1,84,57,146/-, against which, the corresponding stores, wines and operational expenses were claimed at Rs.43,23,679/- and Rs.23,21,990/-, aggregate of which expenses worked out at 36% of the total receipts. As against that, the A.O observed that the final accounts of the assessee company for the subject year revealed that as against its total receipts of Rs.12,34,93,017/- the cost of material consumed was claimed at Rs. 5,69,41,028/- and other expenses at Rs.3,42,87,332/-, which worked out at 73.87% of the total receipts.
6. The A.O. on a comparative analysis of the aforesaid details was of the view that the assessee company had booked all the expenses before surrendering its undisclosed income. Accordingly, the A.O was of a firm conviction that the amount surrendered by the assessee company towards unaccounted banquet booking receipts during the course of the survey proceedings, i.e. Rs.5,18,57,901/- was 6 DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd. ITA No. 115/RPR/2023 purely towards its undisclosed income for the subject year. Also, the A.O observed that the assessee company apart from the income surrendered during survey proceedings, i.e. Rs.3.39 crore (aprox.) had total revenue from operations of Rs.12.34 crore (excluding the surrendered amount), whereas, in the immediately preceding year, i.e. A.Y.2016-17, its revenue from operations was Rs.13.64 crore (approx.). Considering the expenses booked by the assessee company in its books of account, the A.O taking cognizance of the fact that the revenue from operations of the assessee company had decreased as in comparison to the preceding year, thus, was of the view that it had inflated its expenses to show loss from business with a purpose to adjust the income surrendered during survey. Accordingly, the A.O backed by his aforesaid observations disallowed 10% of the total expenses claimed by the assessee company under the head cost of material consumed and other expenses, i.e. 10% of Rs.9,12,28,360/- and made a consequential disallowance of Rs.91,22,836/- in the hands of the assessee company. After, inter alia, making the aforesaid additions/disallowances, viz. (i) addition towards suppressed receipts (based on the disclosure made during the course of survey proceedings u/s. 133A of the Act) : Rs.1,79,44,938/- and (ii) disallowance of 10% of the expenses (on an ad-hoc basis): Rs.91,22,836/-, the income of the assessee company was determined by the A.O vide his order passed u/s. 143(3) dated 31.12.2019 at Rs.5,01,68,210/-.
7. Aggrieved the assessee company carried the matter in appeal before the CIT(Appeals), who after deliberating at length on the contentions advanced by the 7 DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd. ITA No. 115/RPR/2023 assessee regarding both the aforesaid issues found favour with the same. It was observed by him that the A.O had drawn adverse inferences as regards the book results of the assessee company without pointing out any discrepancies in its books of accounts. Also, it was observed by the CIT(Appeals) that a similar type of disclosure was made by the assessee company during the course of survey proceedings u/s. 133A of the Act for A.Y.2018-19, wherein, the gross receipt of 65% was offered as against gross profit of 32.44% of the immediately preceding year under consideration, and the same was accepted vide order passed u/s 143(3) of the Act, dated 24.06.2021 for A.Y 2018-19 by the A.O. The CIT(Appeals) observed that the A.O had vide his order passed u/s. 143(3) dated 24.06.2021 for A.Y.2018- 19 had accepted the aforesaid disclosure of the assessee company, i.e., the credit in the profit & loss account of the profit element embedded in the suppressed banquet booking receipts as were gathered during the survey proceedings from the impounded registers identified as BI-1 and BI-2. Apart from that, the CIT(Appeals) observed that the comparative expenditure incurred by the assessee company during the year under consideration, i.e. A.Y.2017-18 conformed with that of the immediately preceding year, i.e. A.Y.2016-17. Referring to the increase in the expenditure booked by the assessee during the year under consideration as against that of the immediately succeeding year, i.e. A.Y.2018-19, the CIT(Appeals) found favor with the claim of the assessee that the same had occasioned for the reason 8 DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd. ITA No. 115/RPR/2023 that in the succeeding year its bar license was suspended, which, thus, had resulted to lower expenses in the said year.
8. It was, thus, observed by the CIT(Appeals) that a comparison of the expenditure booked by the assessee company during the year under consideration as against that of the immediately preceding and succeeding year did not reveal any abnormal increase. Also, the CIT(Appeals) did not concur with the view taken by the A.O. that as the assessee company had claimed various expenditures in its books of account till the date of the survey, therefore, there was no justification on its part to claim further expenses during the subsequent period. It was also observed by the CIT(Appeals) that during the pre-survey period, i.e. April, 2017 and May, 2017 on various occasions the bills for expenses incurred were not received by the assessee company, while, the corresponding receipts stood recorded. Accordingly, the CIT(Appeals) based on his exhaustive deliberations was of a firm conviction that as the genuineness of the expenses claimed by the assessee company had not been doubted by the A.O, therefore, only the profit element embedded in the unaccounted banquet booking receipts that was disclosed by the assessee was liable to be credited in its profit & loss account for the subject year. The CIT(Appeals) had while concluding as hereinabove drawn support from certain judicial pronouncements. Accordingly, the CIT(Appeals) based on his aforesaid observations vacated the addition of Rs.1.79 crore (supra) that was made by the A.O. 9 DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd. ITA No. 115/RPR/2023
9. Apropos the disallowance on an ad-hoc basis of Rs.91,22,836/- i.e. 10% of total expenses of Rs.9,12,28,360/- made by the A.O, the CIT(Appeals) observed that the A.O during the course of the assessment had though verified the books of accounts, vouchers, etc. but had not pointed out any such discrepancies which would reveal that any part of the assessee's claim for expenditure was not maintainable. Also, the CIT(Appeals) observed that the A.O. had not issued any Show Cause Notice (SCN) to the assessee company before making the disallowance of its claim of expenses that was based on a presumptive basis. Further, the CIT(Appeals) observed that the expenses claimed by the assessee company during the subject year were not abnormal. It was observed by him that the total expenditure incurred by the assessee company in the immediately preceding year and during the year under consideration were in the same ratio. Referring to the nature of expenses, i.e. expenditure incurred on account of power, linen/uniform/ crockery, bar license fee, etc., the CIT(Appeals) was of the view that disallowance of any part of the same could have been made only based on corroborative evidence after rejecting the books of accounts of the assessee company. Further, the CIT(Appeals) did not find favor with the comparative analysis of the expenditure incurred by the assessee company during the two months preceding the date of the survey, i.e. April, 2017 and May, 2017 as against those incurred during the whole year. Once again the CIT(Appeals) was of the view that as the majority of the expenditures were incurred by the assessee company after survey proceedings, it was, thus, incorrect for the 10 DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd. ITA No. 115/RPR/2023 A.O to have observed that expenses pertaining to the unrecorded sales had already been claimed by the assessee company. Also, the CIT(Appeals) observed that the A.O. had neither pointed out any bogus expenditure recorded in the books of account of the assessee company nor rejected its audited books of account before making the disallowance on an ad-hoc basis. The CIT(Appeals), observing, that the disallowance of expenditure was not based on any supporting material but was guided by guesswork, assumptions, and presumptions, thus, was of the view that the same could not be sustained. Accordingly, the CIT(Appeals) drawing support from the various judicial pronouncements vacated the disallowance of Rs.91,22,836/- made by the A.O.
10. The revenue being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.
11. We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions.
12. As the grievance of the revenue hinges around two additions/disallowances that have been vacated by the CIT(Appeals), viz. (i) addition of the suppressed gross receipts as were disclosed by the assessee company during the survey proceedings u/s. 133A of the Act: Rs.1,79,44,938/-; and (ii) disallowance of 10% of the total 11 DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd. ITA No. 115/RPR/2023 expenditure on an ad-hoc basis : Rs.91,22,836/-, therefore, we shall chronologically deal with the same as under:
A). Suppression of gross receipts: Rs.1,79,44,938/-
13. At the threshold, we may herein observe that cash registers of banquet booking identified as BI-1 & BI-2 were found and impounded from the premises of the assessee company during the course of survey proceedings u/s. 133A of the Act. Shri Jagjeet Singh Khanuja, director of the assessee company in his statement recorded u/s. 131 of the Act dated 14.06.2017 on being queried about the entries of cash receipts in the impounded registers had admitted that these were the banquet booking receipts that were not entered in the regular books of account of the assessee company. For the sake of clarity, the relevant extract of the statement of Shri Jagjeet Singh Khanuja (supra) recorded u/s. 131 of the Act on 14.06.2017 is culled out as under:
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DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd.ITA No. 115/RPR/2023
Also, Shri Amit Paul, Finance Manager of the assessee company in his statement recorded during the course of survey proceedings on 30.05.2017, on being confronted with the entries in the aforesaid impounded registers had vide his reply to Question No.16 & 17, stated that the same referred to the cash received by Shri Komal Yadav, Assistant Manager, Finance towards banquet bookings. Also, it was stated by him that the aforesaid entries were not entered in the computerized books of account of the assessee company which were maintained on IOS software.
Further, Shri Komal Yadav, Assistant Manager, Finance of the assessee company in his statement recorded during survey proceedings on 30.05.2017 on being queried 13 DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd.ITA No. 115/RPR/2023
as to why he had not recorded the entries in the aforementioned impounded registers, viz. BI-1 and BI-2 had stated that he had so done as per the directions that were received at the time of joining the job a year back from Shri P.A.K Pillai.
14. Admittedly, it is a matter of fact borne from the record that the cash receipts recorded in the impounded registers, viz. BI-1 and BI-2 were the unrecorded banquet booking cash receipts of the assessee company. There is no dispute as regards the nature of the aforesaid cash receipts which had not only been admitted by Shri Jagjeet Singh Khanuja (supra) and his key employees as the unaccounted banquet booking receipts but had thereafter also been admitted by the assessee company by crediting the profit element embedded in the said unaccounted receipts in its profit and loss account for the subject year.
15. Controversy involved in the present appeal lies in a narrow compass, i.e. as to whether it is the profit element of the aforesaid unaccounted cash receipts that was liable to be credited in the profit and loss account (as offered by the assessee company); or it was the entire amount of the unaccounted receipts which that was to be credited to the profit and loss account while computing the income of the assessee company, as had been so done by the A.O?
16. On a perusal of the order of the CIT(Appeals), it transpires that he had after deliberating at length on the aforesaid issue found favor with the claim of the assessee company that it was only the profit element embedded in the unaccounted 14 DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd. ITA No. 115/RPR/2023 banquet booking receipts recorded in the impounded registers that was to be credited in the profit and loss account for the subject year. Accordingly, the CIT(Appeals) had vacated the addition of Rs.1,79,44,938/- that was made by the A.O. For the sake of clarity, the observations of the CIT(Appeals) are culled out as under:
"4.1.3. I have considered the facts of the case and found that during the course of survey proceedings unrecorded receipts of Rs. 5,18,57,901/- were detected on the basis of two cash book registers marked as B1-1 and BI-2. The statements of responsible employees and director of the appellant company were recorded on the above finding. During statement proceedings u/s 131 of the Act on 14.06.2017, Shri Jagjeet Singh Khanuja, director stated that the above said amount had not been recorded in the books of account and therefore, profit on the above unrecorded receipts would be offered for taxation. The appellant in its return of income has shown gross profit of Rs. 3,39,12,963/- on such unrecorded sales. Thus, the appellant claimed expenses of Rs. 1,79,44,938/- against the unrecorded sales. However, the Ld AO has given finding that the expenses relating to above unaccounted sales had already been made part of books of account and for this reason, no claim for expenditure could be given. Accordingly, the Ld. AO treated entire unrecorded sales as income and added balance amount of Rs. 1,79,44,938/- (Rs. 5,18,57,901- Rs. 3,39,12,963). The Ld. AO has also compared the expenses of two months relating to year under consideration with the expenses claimed for the whole year and found that expenditure for the two months comes to 36% of receipts of two months. However, for the whole year, this ratio comes to 73.87% of total receipt. Accordingly, it has been inferred that the appellant had already claimed all the expenditure relating to unrecorded receipts. On the contrary, the appellant has submitted that during the course of survey proceedings, the profit accruing on the total unrecorded receipt was offered for taxation, not the entire receipt. The amount of undisclosed income is 65.39% of the total such receipts. Therefore, the appellant has fully honored the statement recorded u/s 131 of the Act. The Ld. AO has not pointed out any discrepancy in the books of account of the appellant produced during the course of assessment proceedings. Further, similar type of disclosure had been made for AY, 2018-19, wherein, gross profit of 65% was offered against the gross profit of 32.44% of immediate preceding year i.e. year under consideration. The Ld. AO has accepted the above disclosure and not made any addition as made in the year 15 DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd.ITA No. 115/RPR/2023
under consideration. The appellant has also submitted the comparative expenditure chart explaining that the gross profit shown on the unrecorded receipts is genuine. This chart is reproduced hereunder:
I find that after claiming expenditure relating to unrecorded receipts, total expenses comes to 62% which is equal to immediate preceding year i.e. AY 2016-17. Further, the appellant has also explained that in the .AY 2018-19, the bar license was discontinued and for this reason total expenses has come down to 53%. On perusal of above comparison, no abnormal increase in expenditure is found. It also establish that the appellant had not claimed various expenses in the books of account till the date of survey. The Ld. AO has made following data to arrive at conclusion that expenses against such unrecorded sales had already claimed and again such claim could not be given:
The conclusion arrived at by the Ld. AO is not found justified. Many times, bills of expenses are not received immediately whereas receipts are recorded. In the instant case also various bills had been received after 16 DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd.ITA No. 115/RPR/2023
the May, 2017 which were related to receipts of April and May. No provision with respect to such expenses can be made on month to month basis. The appellant also submitted copy electricity bills also and related ledger. The books of account were duly examined in the course of assessment proceedings by the Ld. AO and no shortcomings have been pointed out by him. Genuineness of expenses claimed has been doubted by the Ld. AO. In such circumstances, the gross profit on unrecorded sales shown by the appellant can not be doubted. Only the profit element embedded with such sales should be taxed as income. The appellant has also placed reliance upon various judicial pronouncements, wherein, it has been held that entire sales could not be taxed as income, only profit attributable to such unrecorded sale can be taxed. This finding is supported by the decisions of Hon'ble Bombay High Court in the case of Hariram Bhambhani (2015) 92 CCH 46, Hon'ble ITAT, Kolkata in the case of Maniklal Day 1TA No. 436, 2343-2344/Ko1/2016, Hon'ble ITAT, Lucknow in the case of Ashok Kumar Gupta, ITA No. 447/LLW/2016. I find the contention of the appellant are justified particularly, when, in the subsequent year the Ld AO has accepted the gross profit on unrecorded sale offered by the appellant and no addition like this year has been. made. I also find support from the judgments of Hon'ble MP High Court, wherein, it has been held that in such circumstances only profit should be brought into the tax net. Hon'ble M.P. High Court in the case of CIT vis Balchand Ajit Kumar 263 fill 610 (M.P.) has taken this view. Relevant para of the said decision is reproduced hereunder:
"3. On appreciating the rival submissions raised at the Bar, we have carefully perused the order passed by the Commissioner of Income Tax (Appeals) and also that of the Tribunal. It is not disputed that the undisclosed income was Rs.2,57,000. The sole question that arises for consideration is whether the entire income has to be treated as profit or there should be adoption of a method of net profit income. In the case of CIT v. President Industries [2002] 258 ITR 654, the High Court of Gujarat in a similar matter came to hold as under (page 655) :
"Having perused the assessment order made by the Assessing Officer, the order made by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal, we are satisfied that the Tribunal was justified in rejecting the application under Section 256(1). It cannot be a matter of an argument that the amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represented the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realization of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that investment by way of incurring the cost in acquiring the goods which have been sold has been made by the assessee and that has also 17 DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd.ITA No. 115/RPR/2023
not been disclosed. In the absence of such finding of fact the question whether the entire sum of undisclosed sale proceeds can be treated as income of the relevant assessment year answers by itself in the negative. The record goes to show that there is no finding nor any material has been referred about the suppression of investment in acquiring the goods which have been found subject of undisclosed sales.
4. We are in respectful agreement with the aforesaid opinion inasmuch as the total sale cannot be regarded as the profit of the assessee. The net profit rate has to be adopted and once a net profit rate is adopted, it cannot be said that there is perversity of approach. Whether the rate is low or high, it would depend upon the facts of each case. In the present case net profit rate of five per cent. has been applied. We do not think it appropriate that the same requires to be enhanced. We are also inclined to think that it is high. In any case, it cannot be said that there has been perversity of approach."
Similar view has also been taken in the case of Manmohan Sadani v/s CIT 304 ITR 52 (M.P.) wherein the Hon'ble jurisdictional High Court has held that total sales cannot be regarded as profit of the assessee, on the contrary, it is a net profit rate which has to be adopted in such case. Further, similar view has also been expressed by Hon'ble Gujarat HC in the case of CIT V/s President Industries 158 CTR 0372 (Guj) wherein it was held that entire sales could not be added as income of the assessee, but addition could be made only to the extent of estimated profits embedded in sales for which net profit rate was adopted. In view of these judicial pronouncements, the addition made by the Ld. AO is not justified in making addition. Therefore, addition of Rs.1,79,44,938/- is, hereby, deleted. Appeal on this ground is allowed."
17. We have thoughtfully considered the aforesaid issue in hand in the backdrop of the contentions advanced by the ld. authorized representatives of both parties. As observed by the CIT(Appeals), and rightly so, the A.O, had inter alia, rejected the credit of only the profit element embedded in the unaccounted banquet booking receipts in the profit and loss account by the assessee company. The A.O. was of the view that as the expenses corresponding to the unaccounted banquet booking receipts had already been claimed by the assessee company in its regular books of 18 DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd. ITA No. 115/RPR/2023 accounts, thus, it was not entitled to claim any further expenditure pertaining to the said receipts. The A.O to fortify his aforesaid conviction had carried out a comparative analysis of the assessee's claim for expenses for the whole year, i.e. 73.87% (of total receipts of the year) as against those claimed for the two months before the date of survey i.e. April, 2017 and May, 2017 which worked out at 36% (of the total receipts of the two months).
18. At the threshold, we concur with the view taken by the CIT(Appeals) that the A.O had fundamentally erred in drawing adverse inferences as regards the claim for expenses incurred by the assessee company without pointing out any discrepancy in its duly audited books of account for the subject year. Also, the observation of the CIT(Appeals) that the assessee's claim for expenditure vis-a-vis its total receipts for the subject year was in parity with that worked out at 62% of the immediately succeeding year, i.e. A.Y.2016-17 further instills confidence as regards the veracity of the claim of the assessee company. Also, the plausible explanation as regards the comparative decline in the quantum of expenditure claimed by the assessee company during the immediately succeeding year, i.e. 53% of its total receipts further dispels all doubts as regards the claim of expenses raised by the assessee company in its books of account for the subject year. On the issue of the comparison carried out by the A.O regarding expenses claimed by the assessee company during the year under consideration, i.e. 74% (of total receipts of the year) as against that for the period of two months up to the date of survey, i.e. April, 2017 and May, 2017 19 DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd. ITA No. 115/RPR/2023 of 36% (of receipts for the two months), we concur with the view taken by the CIT(Appeals) that no feasible results could have been arrived at based on the aforesaid distorted comparison.
19. We, thus, based on our aforesaid observations, are of a firm conviction that the adverse inferences drawn by the A.O as regards crediting of the profit element embedded in the unaccounted banquet booking receipts of Rs.3.39 crore (approx.) in the profit and loss account of the assessee company, had rightly been dealt with and vacated by the first appellate authority. To sum up, the view taken by the A.O that the expenses corresponding to the unaccounted receipts of Rs.5.18 crore (approx.) already formed part of the expenses claimed by the assessee company in its books of accounts had rightly been found to be incorrect and dislodged by the first appellate authority.
20. Apart from that, we concur with the CIT(Appeals) that now when the assessee company had credited the profit element embedded in the unaccounted banquet booking receipts of Rs.99,21,925/- in its profit and loss account for the immediately succeeding year, i.e., A.Y 2018-19, which thereafter had been accepted by the A.O vide his order passed u/s 143(3) of the Act, dated 28.06.2021 for the said succeeding year, therefore, an inconsistent approach could not have been adopted for rejecting the claim raised by the assessee company on the same lines during the subject year, i.e., A.Y. 2017-18. It would be pertinent to point out that the survey officials had gathered about the unaccounted banquet receipts of the assessee company for both 20 DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd. ITA No. 115/RPR/2023 the years, i.e, A.Y 2017-18 and A.Y 2018-19 from the impounded registers, viz. BI- 1 and BI-2. As the credit of the profit element embedded in the unaccounted banquet booking receipts had been accepted by the A.O vide his order u/s. 143(3) of the Act dated 24.06.2021 for A.Y. 2018-19, therefore, we concur with the CIT(Appeals) that there was no justification for the A.O to have adopted an inconsistent approach and held the entire amount of unaccounted banquet booking receipts of Rs.5.18 crore (supra) for the year under consideration as the income of the assessee company. Also, as is discernible from the records, it is a matter of fact that Shri Jagjeet Singh Khanuja, director of the assessee company in his statement recorded u/s. 131 of the Act dated 14.06.2017 in reply to Question No.1 had for both the years under consideration, i.e. A.Y.2017-18 and A.Y.2018-19 came up with a disclosure of the profit element embedded in the unaccounted banquet booking receipts of Rs.5,18,57,901/- and Rs.99,21,325/-, respectively as were gathered by the survey team from the entries recorded in impounded registers, viz. BI-1 and BI-2. Once the A.O while scrutinizing the case of the assessee company for the immediately succeeding year, i.e. A.Y. 2018-19 had approved the credit of the profit element embedded in the unaccounted banquet booking receipts of Rs.99.21 lacs (supra) in the profit and loss account by the assessee company, therefore, it is incomprehensible that by adopting an inconsistent approach a similar offer of the profit element by the assessee company pertaining to its unaccounted banquet booking receipts of Rs.5.18 crore (supra) for the year under consideration was not 21 DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd. ITA No. 115/RPR/2023 be accepted. It is not the claim of the department that the facts and circumstances leading to credit of the profit element of the unaccounted banquet booking receipts by the assessee company in its profit & loss account for A.Y 2018-19 was distinguishable as against those for the subject year, i.e., A.Y 2017-18. Our aforesaid view that the department cannot be allowed to adopt an inconsistent approach based on the same set of facts is supported by the judgment of the Hon'ble Supreme Court in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC). The Hon'ble Apex Court in its aforesaid order had on observed as under:
"We are aware of the fact that strictly speaking resjudicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasonings in the absence of any material change justifying the Revenue to take a different view of the matter- and if there was not change it was in support of the assessee- we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income-Tax in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under ss. 11 and 12 of the Income Tax Act of 1961."
(emphasis supplied by us) 22 DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd. ITA No. 115/RPR/2023
21. On merits also, we concur with the CIT(Appeals) that there was no justification for the A.O to have held the entire amount of unaccounted banquet booking receipts as the income of the assessee company, as it was only the profit element attributable to the said receipts which was rightly credited by the assessee company in its profit & loss account for the subject year. Our aforesaid view is fortified by the judgments of the Hon'ble High Court of Gujrat in the case of CIT Vs. President Industries (2002) 258 ITR 654 (Guj) and DCIT Vs. Panna Corporation, (2012) 82 CCH 266 ( Guj). Also, a similar view had been taken by the Hon'ble High Court of Madhya Pradesh in the case of CIT Vs. Balchand Ajit Kumar (2003) 263 ITR 610 (MP). Accordingly, finding no infirmity in the well-reasoned order of the CIT(Appeals), we herein approve the same to the extent he had vacated the addition of Rs.1,79,44,938/-. Thus, Ground of appeal No.1 raised by the revenue is dismissed in terms of our aforesaid observations. B). Disallowance of 10% of expenditure, on ad-hoc basis : Rs.91,22,836/-
22. As is discernible from the assessment order, the A.O had raised serious doubts about the assessee's claim for deduction of expenses, i.e cost of material consumed and other expenses for two-fold reasons, viz. (i) that the assessee's claim for expenses, i.e. stores, wines and operational expenses for the period of two months prior to the date of survey, i.e., April, 2017 & May, 2017 worked out at 36% of its total receipts, while for, that for the subject year worked out at an exorbitant figure 23 DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd. ITA No. 115/RPR/2023 of 73.87%; and (ii) that the claim of expenses by the assessee company in the backdrop of the fact that its total revenue disclosed from its operations amounting to Rs.12.34 crore (excluding surrendered amount) had substantially declined as in comparison to that of Rs.13.64 crore for the immediately preceding year, i.e. 2016- 17, did not inspire any confidence as regards the veracity of the same. It was, thus, observed by the A.O that while for the revenue from operations of the assessee company had decreased as in comparison to the last year but it had during the subject year inflated its claim for expenses in order to adjust the income surrendered during survey proceedings. Accordingly, the A.O based on his aforesaid deliberations on an ad-hoc basis disallowed 10% of the assessee's claim of expenses of Rs.9,12,28,360/- and made a consequential addition of Rs.91,22,836/-.
23. On a perusal of the order of the CIT(Appeals), it transpires that he had found favor with the contentions advanced by the assessee and had vacated the disallowance of 10% of expenses (on ad-hoc basis) as was made by the A.O, observing as under:
"4.2. Ground No. 2:- Through this ground of appeal, the appellant has challenged ad-hoc disallowance amounting of Rs. 91,22,836/- being 10% of total expenses amounting to Rs. 9,12,28,360/- made by the Ld. AO.
4.2.1. I have considered the facts mentioned in the assessment order as well as the submission of the appellant. The Ld. AO observed that total revenue from operations was decreased in comparison to the immediate preceding year. This indicates that the appellant had inflated the expenses to show the loss from business and to adjust the income surrendered during the survey proceedings. On this basis only, the Ld. AO disallowed 10% of total expenses shown under the head 'cost of material consumed and other expenses' and made addition of Rs. 91,22,836/, The appellant 24 DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd.ITA No. 115/RPR/2023
has submitted that the Ld. AO has verified books of account, vouchers etc. during the assessment proceedings, but, no discrepancy pointing out any expense for non business purposes has been found. The Ld. AO has also not issued any show cause notice before making the above addition. The said disallowance has been made on mere presumption basis and no evidence to support the presumption has been brought on the record. Therefore, the addition made by the Ld. AO is not justified. The appellant has also placed reliance upon following judgments of its favour:-
(i) Jurisdictional ITAT, Nagpur (Camp at Raipur) in the case of Shashi Singhania, ITA No. 240/Nag/05 order dated 19.01.2006.
(ii) Hemkund Fertilisers Pvt Ltd, ITA No, 359/Nag/2008.
(iii) Mahindra Oil Cake Industries Pvt Ltd (1996) 55 TTJ 711 (AHD).
(iv) Dakeshwari Cotton Mills Ltd (1954) 26 ITR 775.
(v) Smt. Rajmati. Devi, ITA No. 332/LKW/2011.
4.2.2. I find that Ld. AO has not given any basis for making 10% disallowance of expenditure of Rs. 9,12,28,360/-. No discrepancy has been pointed out in the audited books of account by the Ld. AO. Further, I find that the expenses claimed by the appellant are not abnormal. The appellant has successfully establish that total expenditure incurred in the immediate preceding year and in the year under consideration are at the same ratio. Further, the such expenses also includes expenses incurred on account of power, linen/uniform/crockery, bar licence fee etc. Such disallowance can be made at the strength of corroborative evidences and rejection of books of account. Further, GP and NP ratio of the appellant has been duly accepted by the Ld. AO. The appellant had also submitted comparable chart of expenditure which shows the reasonability of the expenses incurred. I would like to reproduce such chart and explanation of the appellant hereunder:
2.10 with respect to adhoc disallowance of 10% under other Expenses it is hereby submitted as under:25
DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd.ITA No. 115/RPR/2023
- Linen, Uniform & Crockery: In FY 2016-17 the said expenses are lower as compared to expenses incurred in preceding year as well as subsequent year.
- Power-This pertains to Electricity bill and has been paid to the Government Undertaking, moreover same is slightly higher as there were major Repairs during the year. In monetary terms there is no major variation in the said head during the year as compared to subsequent year.
- Repair & --Maintenance -- During the year there were major Repair and Maintenance activities, which is evident from the Electricity expenses incurred. Moreover the figures of preceding year are comparable with the expenses incurred during the year.
- Hire Charges -- The expenses incurred are much lower than the expense incurred during the year and preceding year.
- Bar License Fees -- The License fees is fixed by the State Government every year and is paid to the state government directly. In subsequent FY 2017-18, appellant did not get Bar license.
- Functional Expenses --The expense incurred is less than the expense incurred in preceding year and is comparable to the expense incurred in subsequent year.
The appellant has also submitted that the Ld. AO has compared expenditure of two months i.e. April and May with the entire year for making such disallowance which is not justifiable. The Ld. AO has relied upon following data to arrive at conclusion that expenses against such unrecorded sales had already claimed and again such claim could not be given and there is inflation in expenditure:26
DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd.ITA No. 115/RPR/2023
The conclusion arrived at by the Ld. AO is not found justified. Many times, bills of expenses are not received immediately whereas receipts are recorded. In the instant case also various bills had been received after the May, 2017 which were related to receipts of April and May. No provision with respect to such expenses can be made on month to month basis. Further, Ld. AO did not find out any bogus expenditure recorded in the books of account and did not rejected audited books of account before making adhoc disallowance. The Ld. AO has grossly erred in making addition simply on the basis of guess work, assumption and presumption. It is well settled that no addition can be made as a leap in the dark. The AO is not entitled to make a guess without evidence. The assessment of any particular year cannot be based on mere suspicion or bare guess, but on a legitimate material from which a reasonable inference of bogus expenditure can be made. The above view is supported by various judicial pronouncements. Hon'ble Supreme Court in the case of Dhakeshwari Cotton Mills Ltd. Nis CIT (1954) 26 ITR 775 (SC) has held that although strict rules of Evidence Act do not apply to income tax proceedings, still assessment cannot be made on the basis of imagination and guess work and make an assessment without reference to any evidence or material at all. It has been held in the case of Umacharan Saha & Bros co. v/s CIT 37 ITR 21 (SC) that suspicion, however strong cannot take place of evidence. Similar views have been expressed by Apex court in the case of Dhiraj Lal Girdharilal v/s CIT (1954) 26 ITR 736 (SC). Hon'ble M.P. High Court in the case of V.B. Gadkari Vs. STO -- 59 STC 362 (M.P.) held that the estimate must be related to 'some evidence or material and it must be something more than suspicion. It has been held that "Now in the instant case, after rejecting the books of account and the taxable turnover disclosed by the petitioner in the return, all that the assessing authority has stated in the order of assessment is that the taxable turnover is determined at Rs. 1,05,000. The order of assessment does not refer to any material whatsoever on which the estimate is based. It is thus clear that the assessing authority made an assessment based on pure guess without reference to any evidence or material at all. Under the circumstances the order of assessment passed by respondent No. I and the order dismissing the revision petition passed by respondent No. 2 are vitiated by an error apparent on the face of record and deserve to be quashed" Hon'ble 27 DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd.ITA No. 115/RPR/2023
Supreme Court in the case of State of Kerala Vs. M.M. Mathew reported in (1978) 42 STC 348.(SC) has held "Strong suspicion, strange coincidence and grave doubts cannot take the place of legal proof." In the instant case, the Ld. AO has also not discredited the results of the audited books of account of the appellant and no evidence to disallow certain percentage of expenses has been brought on record. In the above facts and circumstances and in view of the above judicial pronouncements, ad-hoc addition of Rs.91,22,836/- is not sustainable. Accordingly, the addition made is, hereby, deleted. Appeal on the above ground is allowed."
24. We have heard the contentions advanced by the Ld. Authorized Representatives of both the parties and considered the orders of the lower authorities. At the threshold, we may herein observe that the A.O while working out the aforesaid disallowance of the assessee's claim for expenses (on an ad-hoc basis), had neither pointed out any infirmity in the assessee's claim for deduction of the aforesaid expenses; nor brought on record any such observation which would reveal that its claim for deduction of expenses was not as per the mandate of Section 37 of the Act. As observed by the CIT(Appeals), the expenditure incurred by the assessee company during the year under consideration was found to be in the same ratio as those incurred in the immediately preceding year. Further, as observed by the CIT(Appeals), and rightly so, the comparative decline in the assessee's claim of expenditure vis-à-vis its total receipts in the immediately succeeding year, i.e., A.Y. 2018-19 was for justifiable reasons. Also, the reasonableness of the assessee's claim for deduction of expenses can safely be gathered from a comparative analysis of those booked by him in the immediately last two preceding years, which as per details filed by him before the CIT(Appeals) are culled out as under: 28
DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd.ITA No. 115/RPR/2023
Also, we concur with the CIT(Appeals) that the comparative analysis carried out by the A.O of the expenses incurred by the assessee company during the whole year vis-a-vis those incurred by him for two months, i.e. April, 2017 and May, 2017 could by no means be held to be a feasible comparison. We are also persuaded to concur with the CIT(Appeals) that certain expenses incurred by the assessee company in the aforementioned two months, viz. April, 2017 and May, 2017 (which were adopted as a yardstick) would have been booked after the aforesaid months, therefore, no proper comparison of the expenses incurred by the assessee company during the whole year could have been carried out as against those incurred during the aforesaid two months.
25. Be that as it may, in the absence of any material having been placed on record by the A.O which would substantiate that the assessee's claim for deduction of the aforesaid expenditure, i.e. to the extent of 10% of its claim was not in order; or did 29 DCIT (Central Circle-2), Raipur Vs. Hotel Babylon International Pvt. Ltd. ITA No. 115/RPR/2023 not satisfy the provisions of Section 37 of the Act, we find no infirmity in the view taken by the CIT(Appeals) who had rightly vacated the said disallowance to the said extent based on his well reasoned obsrvations. Thus, Grounds of appeal No.2 and 3 raised by the revenue are dismissed in terms of our aforesaid observations.
26. Ground of appeal No.4 being general in nature is dismissed as not pressed.
27. In the result, appeal of the revenue is dismissed in terms of our aforesaid observations.
Order pronounced in open court on 19th day of April, 2024
Sd/- Sd/-
ARUN KHODPIA RAVISH SOOD
(ACCOUNTANT MEMBER) (JUDICIAL MEMBER)
रायपुर/ RAIPUR ; दनांक / Dated : 19th April, 2024
****#SB
आदे श क त ल प अ े षत / Copy of the Order forwarded to :
1. अपीलाथ / The Appellant.
2. यथ / The Respondent.
3. The CIT(Appeals)-3, Bhopal
4. The Pr. CIT, Raipur-1 (C.G)
5. वभागीय त न ध, आयकर अपील य अ धकरण, रायपरु बच,
रायपुर / DR, ITAT, Raipur Bench, Raipur.
6. गाड फ़ाइल / Guard File.
आदे शानुसार / BY ORDER,
// True Copy //
नजी स चव / Private Secretary
आयकर अपील य अ धकरण, रायपुर / ITAT, Raipur.