Case Law Details
S.J. Studio & Entertainment Ltd. Vs ACIT (ITAT Mumbai)
ITAT Mumbai held that when assessee submits the sales to be fictitious sales, the onus is on AO to prove that such sales were cash sales as claimed by him. Addition unsustainable as AO failed to provide any evidence of cash sales.
Facts- Post survey proceedings, assessee explained that profit was on higher side due to one sales entry in the name of XYZ amounting to total Rs. 81,07,050/-. It was explained that said XYZ is fictitious, non-existent entity and said entries were made for the purpose of showing increase in turnover for presenting to the bank for the purpose of availing loan for expansion of studio.
AO rejected the contention of the assessee and held that the same were actual sales which were intended to keep out of books.
CIT(A) also rejected the contention of the assessee. Being aggrieved, the present appeal is filed.
Conclusion- Held that we are of the opinion that it is the Assessing Officer, who was required to establish whether those were the cash sales as claimed by him and not the fictitious sales as claimed by the assessee . In absence of any such evidence of the cash sales, the addition confirmed by the Ld. CIT(A) is not justified and accordingly, we set aside the finding of the Ld. CIT(A) on the issue in dispute. The grounds of the appeal of the assessee accordingly allowed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal by the assessee is directed against order dated 16/02/2016 passed by the Ld. Commissioner of Income-tax(Appeals)-4, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2010-11, raising following grounds:
1. The Ld. Commissioner of Income Tax (A) has erred in confirming the action of the Assessing Officer assessing the Income of the assessee at Rs. 1,20,85,400/ – instead of Rs. 34,80,498/ – as declared by the appellant in his return of income.
2. The Ld. Commissioner of Income Tax (A) has erred in facts and in law in adding Rs. 81,07,050/ – as sales of the Appellant even though it was explained that Appellant had nothing to sale and entry were inflated to apply for more credit facilities from the bank.
3. The order of Ld. Commissioner is wrong factually as well as legally and cannot be sustained.
2. At the outset, the Ld. counsel of the assessee referred to application for condonation of the delay in submitting the appeal. He submitted that order of the Ld. CIT(A) dated 16/02/2016 was received by the assessee company on 05/04/2016 and therefore appeal was to be filed before the ITAT latest by 03/06/2016. However due to health problems of the director Sh SS Hamid , he resumed office in the month of May 2016, and thereafter only the appeal could be filed on 21/06/2016. He referred to the affidavit filed by the Director of the assessee company. The Ld. counsel submitted that there is a reasonable and sufficient cause for delay in filing the appeal and it was not an intentional as the assessee is not benefiting in any manner by delay in filing appeal. The led arne DR however objected for condoning the delay.
3. We have heard rival submission of the parties on the issue of condoning the delay in filing the appeal. In our opinion, due to medical reasons stated in the affidavit by the director of the assessee company, the assessee was prevented by sufficient cause and could not file the appeal on time. In the circumstances, we admit the appeal for adjudication.
4. Briefly stated facts of the case are that during the year under consideration, the assessee was engaged in providing facilities of studio for production o f television serial and commercial film. The assessee filed return of income on 24/09/2010 declaring total income of ₹34,80,500/ -for the year under consideration. The return of income filed by the assessee was selected for scrutiny and statutory notices under the Income-tax Act, 1961 (in short ‘the Act’), were issued and complied with.
4.1 During assessment proceedings, the Assessing Officer noticed that a survey action under section 133A of the Act was conducted in the case of the assessee on 04/03/2010. The survey team mainly observed two discrepancies. Firstly, cash balance in the books of accounts maintained in the computer was of ₹5,77, 411/-, whereas actual cash of ₹80, 500/- was found and therefore there was difference of cash of rupees 4,96,911/-Secondly, net profit of ₹1,57,05,468/-was shown in the profit and loss account generated at the time of the survey, but when being questioned as why the advance tax was not paid on the said profit earned , the director Sh Sahir Siraj Hamid in his statement dated 04/03/2010 stated that actual profit must had been less due to certain expenses like depreciation, interest etc. not debited to the profit loss account, but agreed to pay an amount of ₹ 25 lakhs towards the tax liability.
4.2 After 11 days of the survey proceedings, when again the statement of the assessee was recorded on 15/03/2010, Shri Sahir Siraj Hamid stated that profit was on the higher side due to one sales entry in the name of XYZ was made at the end of the every month from April, 2009 to January 2010 having total amount of ₹81,07,050/-. He further submitted that XYZ was a fictitious, non-existent entity and said entries we re made for the purpose of showing increase in turnover for presenting to the bank for the purpose of availing loan for expansion of the studio.
4.3 The Ld. Assessing Officer rejected the contention of the assessee as an afterthought for evading tax and held that same were actual sales which were intended to keep out of books.
5. Before the Ld. CIT(A), the assessee claimed that there was no evidence of receipt of ₹81,750/-by the assessee from the alleged XYZ Private Limited either in the form of the cash, cheque or demand draft. It was submitted by the assessee that burden was on the revenue authorities to prove that income sought to be taxed was in fact an income of the assessee. The assessee also explained that no such company in the name of XYZ private limited existed in the register of registrar of companies . However, the Ld. CIT(A) rejected the contentions of the assessee observing as under:
3.3. I have considered the outcome of survey conducted u/s. 133A of the Income-tax Act, 1961 on 04.03.2010, the findings of the Assessing Officer in assessment order, rival submission of the appellant and evidences on record, carefully. During the course of survey proceeding, it was found by the survey party that as per the profit & loss account as on 05.03.2010 generated from the computerized books of accounts, Net Profit was of Rs. 1,57,05,468/ -, nevertheless Appellant had not paid any Advance-tax. When this information was extracted from the evidences created by the Appellant, Appellant was confronted with these facts. However, no convincing explanation was given by the Appellant at the time of survey. Mr. Sahir Siraj Hamid, the Director was examined and his statement on oath was recorded on 05.03.2010.When he was confronted with the evidences in possession that as per the profit & loss account generated from the computer, there was a Net Profit of Rs.1,57,05,468/ – , but no Advance-tax was paid, the Director of the Company was not able to explain and had shifted his responsibility upon the Accountant on the ground that his Accountant had gone to his native place and all the necessary evidences would be given after his return. When initial explanatior. was that this much profit could not be there the business receipts was considerably less during the year and further it was clarified that such profit of Rs. 1,57,05,468/ – would be reduced after claiming depreciation and other expenditure which were yet to be entered. However, during the course of survey proceedings, the Director of the Company has admitted as under : –
…to buy peace of mind and in order to avoid inconvenience, I am prepared to pay an amount of Rs.25 lacs towards the tax liability”
3.4. Subsequently on 15.03.2010, the Director has stated that he had discussed the matter that his Accountant who has stated that profit was on higher side due to sale entry made in the name of M/s. XYZ at the end of every month from April, 2009 to January, 2010. Mis. XYZ is not an existing party as there is a difference in Si.Nos. of Sales Bills of regular customers and Sale Bills shown in the name of Ms. XYZ. The contention that due to fictitious sale, profit has been inflated by Rs.81,07,050/-, in this regard, it is pertinent to mention that clarification of the Appellant is not at all convincing one, rather found to be meaningless. When genuineness of books of accounts are claimed by the Appellant and it has never been admitted that Appellant maintains false Accounts, such outcome of profit & loss accounts that upto the date of survey i.e. 05.03.2010, there was a profit of Rs.1,57,05,468/ -. The claim that sales were inflated in the name of non-existing person, is of no avail because if sales has been inflated in the month of April, 2009, definitely cash might be generated or unaccounted income would have been channelized. The Appellant has failed to explain the cash balance appearing at the end of every month, therefore, the sales shown in any name cannot be ignored on the basis of such retraction. It is very evident from the evidences on record that Appellant has earned good profit but with a view to suppress the same, he has tried to advance “cooked-up story” after 05.03.2010. It can be seen from the reply to Question No. 13 of the statement dated 05.03.2010 that Appellant was explaining that this Net Profit of Rs. 1,57,05,468/ – would be reduced after claiming depreciation and other expenses which were yet to be entered. It means some expenditure and depreciation was to be reduced whereas subsequently, Appellant has changed the stand and had tried to make believe that sales was inflated by Rs.81,07.050/ –
3.5. Further, it is pertinent to mention that in response to the notice us. 142(1) of the Income-tax Act, 1961 dated 20.11.2012 appellant has submitted explanation dated 11.12.2012 stating “As per the survey dated 04.03.2010, the income-tax officer on his visit to our Studio realized that on this day my accountant was on leave, and due to that reasons the profit & loss account was shown at Rs.1.44 Crores. And after a couple of days hence when our Accountants joined back we once again went through our Books of Accounts and realized that the profit shown is actually not the real profit since many entries were not taken into account for e.g. like depreciation, provisions entry, interest and other payment entry because the accounting year was not completed. And we never had profits of Rs.80 lakhs”.
3.6. Thus, it is very evident that against the income inflated in profit & loss account as on 05.03.2010 expenditure like depreciation, provision entry, interest and other expenditure was to be claimed. It means profit shown was correct and only routine expenditure was to be claimed which Appellant had claimed. Subsequently. therefore, the profit unearthed to the extent of Rs.1,57,05,468/ – cannot be substituted.
As regard various arguments, it is pertinent to mention that none of the arguments is tenable. In written submission, the Appellant has shown name of alleged party as “XYZ Pvt. Ltd.” whereas throughout the proceedings and in his statement the Director has referred to only “MIs. XYZ” and not “MIs. XYZ Pvt. Ltd.”. Therefore, there is a twisting of fact.
3.7. It is meaningless to argue that name of this party was not appearing in the register of ROC. Further, I find no merit in the argument that the Assessing Officer has not considered the explanation of the Appellant. It is not necessary for the Assessing Officer to accept the explanation which is not acceptable at all. The Ld. Assessing Officer has rightly rejected the cooked-up story claimed to be explanation. Further, it is important to point out that the addition has not been made u/s.68 or 69 of the Income-tax Act, 1961 but addition has been made on account of suppression of income unearthed during the course of survey proceeding. Further, explanation that profit has been increased with a view to obtain credit facilities from the Bank, is not tenable because when subsequently, application was not moved to the Bank and when no further intention was there to obtain Bank loan, such entry if at all was fictitious, could be removed, but it is very evident that right from April onwards Sales has been shown and cash has been generated or black money has been introduced in the name of sale. Such argument of the Appellant contradicts it’s stand. Therefore, from this angle also, addition so made deserves approval.
3.8. Further, it is important to mention that when addition has not been made us.68 or 69 of the Income-tax Act, 1961, there was no occasion to rely upon the cases decided in the context of additional cash credit. None of the case laws relied upon by the Ld. A.R. is applicable to the facts of the case.
Therefore, in the background of above discussion of the fact and various references of the evidences, I also reach to the conclusion that additions so made by the Assessing Officer is correct, hence additions of Rs.81,07,050/ – is sustained.”
6. Before us, Ld. counsel of the assessee filed a paper book containing page 1 to 246 and also filed copy of bills which were impounded during the course of survey proceedings.
7. Both the grounds of the appeal of the assessee relate to the addition of ₹81,07,050/ -. The Ld. counsel of the assessee reiterated the submission made before the Ld. CIT(A) and further submitted that during the course of the survey even no bills or invoices in the name of XYZ Private Limited were found or impounded, which shows that only fictitious entries of the sales were made for increasing the turnover for the year under consideration. To support this contention, he also referred to the bills impounded, copy of which was obtained from the Assessing Officer through RTI application. The Ld. counsel also submitted that the effect that company XYZ Private Limited is a fictitious and non-existent entity, is evident from the record of the Registrar of Companies (ROC) that no such entity existed in their record.
8. The Ld. Departmental Representative (DR) on the other hand, relying on the order of the lower authorities submitted that during the course of the survey, the assessee did not submit the fact of fictitious bills but only after 11 days of the survey, the assessee for the first time came out with this explanation which is an afterthought only. He submitted that filing copy of bills impounded during survey by the Ld. counsel of the assessee is of no assistance and the difference amount has been correctly assessed by the learned AO as undisclosed income of the assessee.
9. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. Onthe issue in dispute, the assessee has contended that sales of ₹81,07,050/-which was recorded in the books maintained on computer as sales to XYZ, was a fictitious entry for the purpose of availing bank loan and there being no real sale, the addition made by the Assessing Officer for the same is not justified. On the contrary, the Assessing Officer is of the view that same are actually sales made in cash by the assessee, whereas recorded in the name of XYZ only ,therefore the claim of the assessee for removing the amount of ₹81,07,050/- from the sales cannot be accepted. We find that survey was conducted at the premises of the assessee on 04/03/2010, wherein books of accounts were found to be maintained on the computer and a profit and loss account based on the books of accounts was prepared for the period up to 04/03/2010, which was worked out to ₹1,57,05,468/-. When the director of the assessee company, Sh Sahid Siraj Hamid was asked to pay advance tax on said profit, he submitted that this profit figure was on higher side as depreciation, interest etc. expenses were not debited to the profit and loss account. When he was summoned before the Assessing Officer, he submitted that in case of regular sales Bill/ invoice number started from 1501 as on 01/04/2009, whereas Bill No. in the name o f M/s XYZ were shown having serial No. from 1 to 10 for a sum of ₹81,07, 050/-. According to him, these were not actual sales and was entered only a fictitious entry for the purpose of showing higher turnover for availing loan from banks.
9.1 Further during the assessment proceedings, the assessee submitted that turnover of the assessee for the year under consideration was less ( Rs. 2.51 crores) as compared to immediately preceding year (Rs. 4.43 Crores) due to the reasons of recession in the market, fall in sales of ready to shoot studios, all India strike by TV serial production Guild, strike by film Federation against theatre owners, major customers of the assessee did not shoot at the studio of the assessee in the year under consideration.
9.2 During the assessment proceeding, the assessee submitted the name of the said fictitious party was XYZ Private Limited. It was further submitted that there is no such company in the name of record of registrar of companies and therefore it supports the contention of the assessee of XYZ Private Limited being a fictitious entry.
9.3 In background of above facts, we find that firstly, the assessee during the course of the survey, brought to the notice of the income tax authorities, the figures of the profit worked out were on higher side. During the course of the survey proceedings, the accountant of the assessee was not available, and the director of the company cannot be expected to explain each and every entry of sales to the Income tax authorities, without specifically pointed out to him, particularly, about the monthly sales recorded in the name of XYZ. Secondly, the series of bills recorded in respect of the XYZ is different from the series in respect of the undisputed sales, which also indicate that those are not part of regular sales. Thirdly, when the assessee himself is submitting that those sales are fictitious sales, then onus is on the Assessing Officer to establish whether those are cash sales. The income tax authorities have carried out survey at the premises of the assessee and no evidence suggesting cash sales by the assessee has been found. The assessee cannot substantiate more than that that no such party in the name of XYZ Private Limited exist in the registrar of companies. As far as the contention of the Assessing Officer that during statement recorded on 15/03/2010, the director stated only XYZ whereas in submission during assessment proceeding, the party’s name was mentioned as XYZ Private Limited, we are of the opinion that name of the said fictitious party was entered in the books of account of the assessee, and the income tax authorities must have impounded soft copy of the same. The Ld. DR was asked to produce sales ledger of ₹81,07,050/- appearing in the books of accounts found during the course of the survey, but despite specifically being asked no such information was provided or brought on record. In the circumstances, the allegation of the revenue, that nonexistence of XYZ Private Limited in the ROC does not support the case of the assessee, are rejected. We find that in the preceding assessment year the turnover of the assessee was of Rs.4.43 crore, and in the year under consideration turnover was only of ₹2.5 Crores, therefore any such attempt for increasing the turnover for the purpose of availing bank loan by an accountant or other person cannot be ruled out, though it is an illegal act and Bank Authorities should take note of this. In the circumstances, we are of the opinion that it is the Assessing Officer, who was required to establish whether those were the cash sales as claimed by him and not the fictitious sales as claimed by the assessee . In absence of any such evidence of the cash sales, the addition confirmed by the Ld. CIT(A) is not justified and accordingly, we set aside the finding of the Ld. CIT(A) on the issue in dispute. The grounds of the appeal of the assessee accordingly allowed.
10. In the result, the appeal of the assessee is allowed.
Order pronounced under Rule 34(4) of the ITAT Rules, 1963 on 13/02/2023.
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