No additions in case business advances were made out of business receipts

Vijay Bajaj Vs ACIT / DCIT (ITAT Chandigarh)

Conclusion: Where assessee had offered business receipts amounting to Rs 41,81,800/- in his return of income which was sufficient to make business advances of Rs 8,05,000/- there was no justifiable reason to not accept the entries in the cash book corresponding to advances of Rs 8,05,000/- made out of said business receipts.

Held: Assessee was engaged in the business of providing DJ services and during the course of survey operations at the assessee’s premises, a ledger namely ‘Bajaj Entertainers’ containing certain entries was found. In his statement recorded u/s 131, assessee was asked to explain the said entries and in response, he submitted that the entries reflected therein pertain to loans and advances given to certain persons mainly artists connected with his business activities out of his undisclosed income and to buy piece of mind and avoid litigation, he surrendered the amount of Rs 8,05,000/-for the purposes of taxation. During the course of assessment proceedings where assessee was again confronted with the same and a show-cause was issued seeking explanation on the individual loan/advances transaction, it was submitted by assessee that these were normal business advances. It was noted that the name of these persons to whom the advances were given was stated by the AO in the show-cause notice and thereafter, in response to the same, assessee had also submitted the details of these persons, the amount of advance, the purpose of such advance, repayment during the year etc. Therefore, as far as the nature of these advances were concerned, a consistent picture which was emerging from the records right from the statement recorded during the course of survey, subsequent surrender letter and the submissions made before the AO was that these were in nature of business advances. Regarding the sources of these advances, there was sufficient cash in hand available in the books at the relevant point in time when the advances were given and the said amount was out of the business receipts which had been offered to tax u/s 44AD. It was true that assessee was not maintaining regular books of accounts but at the same time, as evident from the statement recorded during the course of survey as well, assessee was maintaining receipts book/bills in respect of his business activities and further, it was also a fact that assessee had disclosed these receipts as part of service tax/GST returns. Where the entries, corresponding to business receipts amounting to Rs 41,81,800/- in the receipts books, were reflected in the cash book and the same were accepted by the Revenue, there was no justifiable reason to not accept the entries in the cash book corresponding to advances of Rs 8,05,000/- made out of said business receipts. It was a case where assessee had offered business receipts amounting to Rs 41,81,800/- in his return of income which was sufficient to make business advances of Rs 8,05,000/- and thus, no separate addition wass called for.

FULL TEXT OF THE ORDER OF ITAT CHANDIGARH

Both the above appeals have been filed by the respective assessees against the separate orders of the Ld. Commissioner of Income Tax, (Appeals)-5, Ludhiana [hereinafter referred to as ‘CIT(A)’] passed under section 250(6) of the Income Tax Act, 1961 (in short ‘the Act’) each dated 27/05/2022 pertaining to A.Y. 2018-19. Both these appeals were heard and are being disposed off by this consolidated order.

2. In ITA No.569/Chd/2022, the assessee has raised the following grounds of appeal:

1. “The CIT(A) as well as AO made the addition only on the basis of statement of appellant taken at the time of survey and completely ignored the evidences and detailed explanations given during assessment proceedings. As such the additions are liable to be deleted.

2. The CIT(A) and AO failed to appreciate the law that appellant was legally not required to maintain books of account as the tax returns of current as well as earlier years were filed under section 44AD.

3. The CIT(A) and AO wrongly presumed that production of cash book during assessment proceedings was an afterthought and rejected the books without finding any fault in the books.

4. The CIT(A) wrongly confirmed the addition made by AO treating normal business receipts of appellant amounting Rs 3,00,000/- U/s 69 as unexplained investment which is bad in law as well as on facts.

5. That Rs 3,00,000/- is part of gross receipts of Rs 16,00,600/-declared by appellant U/s 44AD and further addition of Rs 3,00,000/- U/s 69 has resulted in double taxation of same amount.

6. The CIT(A) wrongly and arbitrarily confirmed addition of Rs. 4,50,000/- on account of alleged advances made ignoring the fact that there was sufficient cash in hand available as on the dates on which the advances amounting Rs 4,50,000/- are alleged to have been made.

7. That CIT(A) ignored claim of setoff of surrender of receipts of Rs 3,00.000/- against Rs 4,50,000/- being surrender of advances made and only balance Rs 1,50,000/- can be treated as income. The reason assigned by CIT(A) is that no explanation was offered at the time of survey

8. That the appellant is regularly filing returns under section 44AD as such only percentage of tax on the receipt can be charged and no separate addition on account of creditors and debtors can be made as held by Hon’ble jurisdictional High Court (P & H) in the case of CIT Vs. Surinder Pal Anand 192 Taxman 264.

9. That the advances or receipts are during the routine course of business and from the known source of business income, as such 69A read with section 1 15BBE is not applicable and the assessee has already paid the regular tax, thus it is doubly taxed.

10. That the appellant craves the right to add or delete any ground(s) of appeal before or during the appellate proceedings.”

3. Briefly the facts of the case are that a survey operation under section 133A of the Act was conducted at the business premises of the assessee on 04/10/2017. The assessee thereafter filed his return of income under section 44AD on 19/11/2018 disclosing gross receipt of Rs. 16,00,600/- and income was offered amounting to Rs. 7,16,107/- under the head “Income from business/profession”. The matter was thereafter selected for compulsory scrutiny and notice under section 143(2) and 142(1) were issued and after issuing show cause dt. 12/02/2021, the AO made an addition of Rs. 4,50,000/- on account of unexplained advances and Rs 3,00,000/- on account of unexplained money and thus made total addition of Rs 7,50,000/- to the returned income.

4. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A) who has since sustained the addition. Hence, the assessee has come up in appeal before us.

5. The first issue relates to the addition of Rs. 3,00,000/- by the AO. During the course of assessment proceedings, the AO observed that the assessee voluntarily surrendered the receipt of Rs. 3,00,000/- vide letter dt. 23/10/2017. However while filing the return of income, the assessee has not declared any income under section 69A/115BBE of the Act and accordingly the assessee was asked to show cause as to why the amount of Rs. 3,00,000/- may not be considered as unexplained money and deemed income under section 69A r.w.s 115BBE of the Act.

5.1 In response, the assessee submitted that these are normal business receipts from gymnasium business and aerobic classes and these receipts of Rs. 3,00,000/- form part of the total receipt of Rs. 16,00,600/- declared by the assessee in his return of income filed under section 44AD of the Act.

5.2 The submissions so filed by the assessee were considered but not found acceptable to the AO. As per the AO, the assessee in his statement recorded in oath on 23/10/2017 has admitted that the entries in the register correspond to gym receipt payments received in advance and keeping in view his inability to establish the identity of the persons and the source of advances made by those persons, the assessee voluntarily came forward with the disclosure of additional income amounting to Rs. 3,00,000/- on account of unexplained money and given that the assessee has not declared the same in the return of income, the same was brought to tax under section 69 of the Act.

5.3. On appeal, the Ld. CIT(A) has confirmed the addition and the relevant findings read as under:

“The facts of the case, basis of addition made by the AO and the arguments of the AR during the appellate proceedings have been considered. The AR argued that to make any addition u/s 69, the AO must first prove that there is some investment made by the appellant because Section 69 is applicable for unexplained investments whereas the amount of Rs 3,00,000/- is business receipt of the assessee. The AR further argued that amount of Rs 3,00,000/- is already included in gross receipts of the assessee which are computed for the purpose of calculation of income u/s 44AD of the Act, as such the addition made by the AO, amounts to double taxation of same amount. The AR also argued that the assessee in its statement to survey team clearly mentioned that the amount of Rs 3,00,000/- are the charges received from different customers of gym business run under the name of M/s Waves Fitness. The above arguments of the AR are not found acceptable as during the survey, the assessee was unable to provide evidence regarding above said amount and therefore offered to surrender the same, over and above the normal business income and agreed to pay the tax @ 77.25%. The AR has also argued that that the receipts of Rs. 3,00,000/- were part of the gross receipts of the assessee. Here it is relevant to observe that the addition is not made on account of disclosed receipts but the addition has been made by the AO on the basis of entries which were accepted by the assessee during the survey as unexplained. Had these entries been explained entries, the assessee could have stated so at the time of survey and could have mentioned the source and given the documentary evidence also at the time of survey. It is reiterated that the assessee was not maintaining any regular books of accounts as was found and accepted at the time of survey u/s 133A at the premises of the assessee and during the statement the assessee accepted that he was not maintaining any books of accounts and only receipts books/bills have been maintained. It is a matter of record that at the time of survey, no books of accounts were found and the assessee also accepted this fact. It is also accepted by the AR that the books produced during the assessment proceedings before the AO were prepared only at the time of filing the return which means these were prepared after a gap of almost 7 and a half month between the end of the Financial Year on 31.03.2018 and the date of filing the return on 19.11.2018. The cashbook or other books prepared by the assessee after the end of accounting period have rightly been stated by the AO as an afterthought on the part of the assessee and such books cannot be relied upon because, these were not prepared on day to day basis and are emendable to manipulation at will of the assessee. It is cardinal principal of accounting that the cashbook has to be written on day to day basis and cash-in-hand has to be arrived on daily basis. Hence, the AO has rightly disregarded such books. Under the facts & circumstances of the case, the arguments of the AR are not found acceptable and the addition of Rs. 3 lacs is sustained.”

5.4. During the course of hearing, the Ld. AR submitted that both the AO as well as the Ld. CIT(A) failed to appreciate that the assessee has filed his return of income under section 44AD of the Act, as such he was not required to maintain books of account. It was submitted that though the assessee was not legally bound to maintain books of accounts at the same time the assessee prepared its books of account and submitted the cash book before the AO as well as before the Ld. CIT(A) which has been rejected without finding any fault in a summary manner. It was submitted that both the authorities have ignored the cash book submitted by the assessee stating it to be an afterthought without finding any fault in the cash book. It was submitted that the submissions of the assessee that the sum of Rs. 3,00,000/- has already been included in the gross receipt of Rs. 16,00,600/- and further addition of Rs 3,00,000/- will amount to double taxation has been ignored. It was submitted that the Ld. CIT(A) was not correct in holding that the books of accounts were emendable to manipulation at will of the assessee for following reasons:

a) The cash book was required only for first 31 days of the year because the dates of alleged business receipts of Rs 3,00,000/- and alleged advances of Rs 4,50,000/- are within the period 01-04-2017 to 01-05-2017 i.e. only 31 days.

b) In the cash book the dates of alleged business receipts of Rs 3,00,000/-are based on the alleged impounded documents, as such the same was in the possession of department and there was no scope of any manipulation as alleged by CIT (Appeal).

c) The opening cash balance in the cash book on 01-04-2017 is taken as Rs 1,59,347/- only. The closing cash as per preceding year ITR was Rs 1,99,270/- and there was no scope of manipulation in this.

d) Further there is no possibility of any changes/alterations/modifications to the bank deposits and bank withdrawals.

e) Not even a single rupee has been raised as loan by appellant in cash during the period of aforesaid 31 days from 01-04-2017 to 01-05-2017. As such the manipulation by this mode is ruled out.

5.5 It was further submitted that the AO himself was not sure under which section amount has to be brought to tax as the show cause was issued under section 69A and the addition has been made under section 69 wherein both these sections are not applicable in case of business receipt of the assessee. It was further submitted that the assessee in its submission to the survey team clearly mentioned that the amount of Rs. 3,00,000/- are the charges received from various customers. It was submitted that the AO has accepted a part of statement of assessee which suits his purpose and ignored the rest of the same statement which is not suitable and the same cannot sustained in the light of settled judicial principles and reference was drawn to the Hon’ble Gujarat High Court in case of Glass Lines Equipment Co. Ltd. Vs. CT 253 ITR 454. Further reference was drawn to the Hon’ble Punjab & Haryana High Court decision in the case of CIT Vs. Surinder Pal Anand 192 Taxman 264 for the preposition that once the exemption from maintaining books of account has been provided under the special provision and presumptive tax @ 8% has been made the basis for determining taxable income, the assessee was not under any obligation to explain individual entry of cash deposit in the bank unless such entry had no nexus with the gross receipts. It was further submitted that in the instant case amount of Rs. 3,00,000/- has been taxed twice. Firstly the assessee has also included the said amount in the gross receipt of Rs. 16,06,600/-. Secondly the AO made an addition under section 69 on account of unexplained receipts. It was accordingly submitted that the addition so made be directed to be deleted.

5.6 The Ld. DR has relied on the order and the findings of the lower authorities.

5.7 The rival contentions were heard and material available on record carefully examined. Admittedly, the assessee is engaged in the business of health and fitness and runs a gym in name of M/s Waves Fitness and at the said premises, survey operations were conducted on 4/10/2017 and a note book containing certain entries was found containing name of certain persons and the corresponding amount. In his statement recorded u/s 131, the assessee was asked to explain the said entries and in response, the assessee submitted that the entries reflected therein pertain to gym receipts which have been received in advance from the respective persons whose name have been mentioned therein and all these entries are explainable, however to buy piece of mind and avoid litigation, he surrendered the receipts of Rs 3,00,000/- for the purposes of taxation. Therefore, the factum of nature of these receipts being received by the assessee from his gym activities are not in dispute. In the return of income filed u/s 44AD, the assessee has disclosed the receipts from the gym activities amounting to Rs 16,00,600/- which has been accepted by the Revenue and are not in dispute. In the said background, the contention of the assessee is that while filing the return of income, the receipts of Rs 3,00,000/- are included in the total receipts of Rs 16,00,600/- and where the same has already been offered to taxation, no separate addition is called for. In support of his contention, the assessee has submitted a cash book containing date-wise receipts from gym activities and on perusal thereof, we find that total receipts reflected therein amounts to Rs 16,00,600/- and individual receipts totaling Rs 3,00,000/- have been included therein. It is true that the assessee was not maintaining regular books of accounts but at the same time, as evident from the statement recorded during the course of survey as well, the assessee was maintaining receipts book/bills in respect of his gym activities. Where the entries corresponding to the entries in the receipts books are reflected in the cash book and are accepted by the Revenue, I see no justifiable reason to not accept the entries in the cash book corresponding to receipts surrendered during the course of survey. I therefore find that it is a case where the assessee has surrendered business receipts amounting to Rs 3,00,000/- during the course of survey and the said receipts have subsequently been offered as part of the total business receipts in the return of income so filed by the assessee u/s 44AD. In the result, the addition of Rs 3,00,000/- so made and upheld by the ld CIT(A) is hereby directed to be deleted.

6. The second issue relates to the addition of Rs. 4,50,000/- on account of unexplained advances. The relevant facts and the findings of the Ld. CIT(A) reads as under:

“The facts of the case, basis of addition made by the AO and the arguments of the AR during the appellate proceedings have been considered. The AR argued that the AO simply ignored all the submissions of appellant by stating that it is an afterthought and AO had not rejected the books of assessee and accepted the figure of gross receipts of the appellant which was on the basis of same books. The AR further argued that the assessee had filed written statement that these loans were given in the earlier assessment year and also submitted the balance sheet of preceding previous year and the AO didn’t made any further inquiries by taking the statements from the persons to whom such advances were made in the earlier assessment year. The arguments of the AR are not found convincing as at one point, the AR submitted that AO made the addition without rejected the books of accounts and at other place, it is mentioned that the AO rejected the books of the assessee assigning the reason that in the statement, the assessee stated that he is not maintaining books of accounts except receipt books/bills. It is a matter of record that at the time of survey, no books of accounts were found and the assessee also accepted this fact. It is also accepted by the AR that the books produced during the assessment proceedings before the AO were prepared only at the time of filing the return, which means these were prepared after a gap of almost 7 and a half month between the end of the Financial Year on 31.03.2018 and the date of filing the return on 19.11.2018. The cashbook or other books prepared by the assessee after the end of accounting period have rightly been stated by the AO as an afterthought on the part of the assessee and such books cannot be relied upon because these were not prepared on day to day basis and were emendable to manipulation at will of the assessee. It is cardinal principal of accounting that the cashbook has to be written on day to day basis and cash-in-hand has to be arrived on daily basis. Hence, the AO has rightly disregarded such books. It is a matter of fact on record and admitted by the assessee in his statement recorded at the time of survey as well as the surrender letter dated 23.10.2017 reproduced in the assessment order that the entries in the impounded documents were of loans & advances and keeping in view the inability to provide evidence of the above said entries, the assessee surrendered the above entries amounting to Rs. 4,50,000/- over & above the normal business and also agreed to pay tax @77.25%. It was also mentioned in the letter dated 23.10.2017 that the surrender has been made voluntarily without any threat and coercion. It is also argued by the AR that the advances were out of cash in hand available with the assessee as per books prepared later on, however as already discussed these books are not reliable and rightly considered by the AO as an afterthought because at the time of survey, no such books were being maintained by the assessee and the entries in the diary were not recorded in the books as accepted by the assessee also. Here it is relevant to observe that the addition has been made by the AO on the basis of entries which were accepted by the assessee during the survey as unexplained. Had these entries been explained entries, the assessee could have stated so at the time of survey and could have mentioned the source and given the documentary evidence also at the time of survey. Nothing of this sort was done and rather the assessee voluntarily surrendered the amounts over and above the normal income for the year under consideration. Under the facts & circumstances of the case and in view of the facts unearthed during the survey and also mentioned by the AO in the assessment order, the addition of Rs. 4,50,000/- made by the AO duly supported by the statement and surrender letter given by the assessee, is found sustainable and hence confirmed.”

6.1 In this regard, it was submitted that both the lower authorities have ignored the submissions of the assessee that advances of Rs. 4,50,000/- were given in the F.Y. 2016-17 and not in the year under consideration and the assessee was having sufficient cash in hand at the relevant point in time when these advances were made and our reference was drawn to submissions dated 19/02/2020 filed before the AO. It was further submitted that without prejudice, where Rs. 3,00,000/- is considered as undisclosed income of the assessee, the benefit of the same should be allowed to the assessee while making the addition of Rs. 4,50,000/- by way of telescoping specially given the fact that the date as per the alleged impounded documents for undisclosed receipts and undisclosed expenses are from 01/04/2017 to 01/05/2017. In support, reliance was placed on the Coordinate Pune Benches decision in case of Kantilal and Bros Vs. ACIT 52 ITD 412.

6.2 The Ld. DR relied on the order of the lower authorities.

6.3 The rival contentions were heard and material available on record carefully examined. Admittedly, during the course of survey operations at the assessee’s premises, a pocket book containing certain entries were found containing name of certain persons and the corresponding amount. In his statement recorded u/s 131, the assessee was asked to explain the said entries and in response, the assessee submitted that the entries reflected therein pertain to friendly loans given by him to certain persons out of his undisclosed income and to buy piece of mind and avoid litigation and he surrendered the amount of Rs 4,50,000/- for the purposes of taxation. During the course of assessment proceedings where the assessee was again confronted with the same and a show-cause was issued seeking explanation on the individual loan transactions, it was submitted by the assessee that these loans were given during the previous financial year. On perusal of the submissions dated 19/02/2020 so filed by the assessee, it is noted that the assessee has shown these loans transactions against individual name and corresponding amount at the beginning of the year and there are no fresh loan transactions shown during the year and then, against four persons, there are repayment of loans by cheque totaling to Rs 2,80,000/-. The statement made during the course of survey is relevant and at the same time, where the assessee is able to demonstrate that the transactions actually pertain to previous year and there are infact repayments rather than fresh loan transactions during the year, it is essential that the said submissions be considered and examined which has not happened in the instant case. The factum of repayment through cheques could easily be verified from the bank statements. Basis material available on record, I find that the assessee has reasonably demonstrated that there are no fresh loan transactions during the year and considering the same, the addition of Rs 4,50,000/- so sustained by the ld CIT(A) is hereby directed to be deleted.

7. In the result, the appeal of the assessee is allowed.

8. Now, coming to appeal in ITA No. 570/Chd/2022n wherein the assessee has raised the following grounds of appeal:

1. That CIT(A) has not given any finding on the ground no. 2 raised before him “That the AO in assessment order doubted the identity of persons to whom advances were made and at the same time treated Rs. 8,05,000/- advanced to those doubtful persons as income of the appellant which is contradictory as such the addition is liable to be deleted.

2. That CIT(A) has not given any finding on the ground no 3 raised before him “The AO wrongly presumed that appellant did not specified the nature of business transactions for advances amounting to Rs. 8,05,000/- whereas the detailed reply dated 22.02.2021, in response to question no 12 raised by AO. was submitted to the AO and he did not raised any further query for the same.

3. The CIT(A) and AO wrongly presumed that production of cash book during assessment proceedings was an afterthought and he failed to appreciate that appellant was legally not required to maintain books of accounts as the tax returns were U/s 44AD and the books were prepared from GST Returns data, bank statements and other bills and vouchers.

4. The CIT(A) has wrongly confirmed addition made by AO of Rs. 8,05,000/-on account of alleged advances made. The CIT(A) and AO failed to appreciate the fact that there was sufficient cash in hand available as on the dates on which the advances amounting Rs 8,05,000/- are alleged to have been made.

5. The CIT(A) has wrongly confirmed addition of normal business advances, given to staff and contract workers, amounting Rs 8,05,000/- and treated as unexplained investment U/s 69 which is bad in law as well as on facts.

6. That the advances are for the business purposes and are from normal business receipts, as such 69A read with section I 15BBE is not applicable and the assessee has already paid the regular tax.

7. That the appellant is regularly filing return sunder section 44AD as such only percentage of tax on the receipt can be charged and no separate addition on account of creditors and debtors can be made as held by Hon’ble jurisdictional High Court (P&H) in the case of CIT Vs. Surinder Pal Anand 192 Taxman 264.

8. That the appellant craves the right to add or delete any ground(s) of appeal before or during the appellate proceedings.

9. Briefly the facts of the case are that a survey operation under section 133A was conducted at the business premises of the assessee on 04/10/2017. Thereafter assessee filed his return of income on 19/11/2018 which was selected for compulsory scrutiny and notice under section 143(2) and 142(1) were issued alongwith detailed questionnaire. Further a show cause dt. 12/02/2021 was issued to the assessee stating that during the course of survey at the business premises, a notebook was impounded and the statement of the assessee was recorded under section 131 on 23/10/2017 wherein you have stated that loan and advances amounting to Rs. 8,05,000/- have been given to certain persons mainly artists connected with the business activities and given that you have failed to furnish any documentary evidence and inability to establish the source of money used to make such advances, you have voluntarily surrendered the said amount vide letter dt. 23/10/2017. However on perusal of the return of income, it is noticed that you have not declared any such income under section 69 read with section 115BBE of the Act.

9.1 In response to the show-cause, the assessee submitted that these were normal business advances given during the course of day to day business as already explained to the survey team. It was submitted that the assessee was not required to maintain books of account being covered under section 44AD of the Act that is why the assessee could not explain these entries to the survey team at the time of survey. However while filing the return of income, the assessee got the books of account prepared and then came to know that all the advances were out of the books only. And there was enough cash in hand at the time when the advances were given. It was accordingly submitted that the surrendered income of Rs. 8,05,000/- was out of the explained business receipts / sources of income from normal business as such these are already included in the business receipts shown in the return of income filed under section 44AD of the Act. Further a copy of cash book of Bajaj Entertainers showing date wise balance available with the assessee was submitted which shows that the advances amounting to Rs. 8,05,000/- were paid out of cash in hand and are duly recorded in the books of accounts.

9.2 The submissions so filed by the assessee was considered but not found acceptable to the AO. It was stated by the AO that the assessee did not raise this contention at the time of survey and keeping in view his inability to explain the discrepancy, the assessee voluntarily disclosed an additional income of Rs. 8,05,000/- vide disclosure dated 23/10/2017. It was further held by the AO that the assessee had not been able to furnish the identity of the persons to whom such advances were made nor to specify the nature of business transactions carried out with these persons along with documentary evidence. Regarding the contention of the assessee that he was having sufficient cash in hand, it was held that the submission of the assessee was recorded on 04/10/2017 and 23/10/2017 wherein the assessee has expressly stated that he is not maintaining any type of books of accounts except the receipt books / bills. Therefore the contention of the assessee that he has produced the cash book for the relevant period and has demonstrated the sufficiency of cash on the mentioned date is nothing but an afterthought. It is a matter of fact that the assessee did not maintain books of account and in absence of the same the assessee cannot claim that the loans and advances were made to various persons out of business receipts. More so assessee had himself offered on voluntary basis such loans and advances as additional income keeping in view his inability to explain the source of the same and therefore the loans and advances made by the assessee to various persons constitute unexplained investment and same was brought to tax as deemed income within the meaning of Section 69 of the Act.

10. Being aggrieved, the assessee carried the matter in appeal before the Ld.CIT(A), who has sustained the findings of the AO and the relevant findings of the Ld. CIT(A) read as under:

“The facts of the case, basis of addition made by the AO and the arguments of the AR during the course of appellate proceedings have been considered. The AR has submitted that the appellant is in the small business of providing DJ sets on rent and arranging artists for functions and regularly filing returns under the provisions of Sec 44AD. The AR further submitted that after survey, the appellant prepared the account books from the receipt and expenses available which clearly reflected that sufficient cash was available with the appellant and the AO without rejecting the books of the appellant, denied to accept the replies of appellant based on such books of accounts, without whispering anything on record. The AR also argued that no man will surrender any income as undisclosed for the running financial year in which survey is being conducted specially when the time limit for filing of return of income is still not over and there was no legal requirement to maintain books of accounts as per the provisions of section 44AD and has argued that the department cannot force or accept any surrender of undisclosed income from the assessee as guided by the CBDT Circular F. No. 286/2/2003-IT (Inv) dated 10.03.2003. The AR mentioned the names of persons to whom loans/advances were given and argued that out of the 12 persons, 10 are those persons whose name is there in the list of persons to whom advances were made by the appellant during the year. As per the AR, the entire detail was filed on 22.02.2021 before the AO and the AO didn’t raise any further query for the same and accepted the reply of the appellant and simply stated that assessee failed to specify the nature of business transactions with these persons which is against the facts on record. The AR argued that it is very surprising that a person declaring Gross receipts from Business and Profession U/s 44AD at Rs 41,81,800/-[Business Rs 38,86,800 + Profession Rs 2,95,000/-] cannot make investment of Rs 8,05,000/- from his business and the AO rejected the books of assessee on 28.05.2021 assigning the reason that assessee in the statement recorded on 04.10.2017 has stated that he is not maintaining books of accounts except the receipt books/bills, whereas the AO himself accepted that the assessee’s case falls under the provisions of section 44AD of the I. T. Act and accepted the Gross receipts of Rs 41,80,800/- as well as income declared by the assessee at Rs. 8,82,260/-. The AR argued that instead of finding any fault with the books, the AO just ignored those books and did not raise any question. As per the AR, the statement of the assessee is true and he was legally not required to maintain the books while filing the return u/s 44AD and further argued that there were no books at the time of survey but there is a gap of almost 3 and half year between the date of survey and submission of the replies to the AO and as such small books can be prepared any time where the details of receipts/bills, books and bank statement are available. The AR further submitted that the assessee prepared his books before filing the return of income and presented those at the time of assessment. These arguments of the AR are self-contradictory on many points. At one point, the AR submitted that AO made the addition without rejecting the books of accounts and at other place, it is mentioned that the AO rejected the books of the assessee on 28.05.2021, assigning the reason that in the statement, the assessee stated that he is not maintaining books of accounts except receipt books/bills. It is a matter of record that at the time of survey, no books of accounts were found and the assessee also accepted this fact at the time of survey. It is also accepted by the AR that the books presented during the assessment proceedings before the AO were prepared only at the time of filing the return which means these were prepared after a gap of almost 7 and a half month between the end of the financial year on 31.03.2018 and the date of filing the return on 19.11.2018. The cashbook or other books prepared by the assessee after the end of accounting period have rightly been stated by the AO as an afterthought on the part of the assessee and such books cannot be relied upon because these are not prepared on day to day basis and are emendable to manipulation at will of the assessee. It is cardinal principle of accounting that the cashbook has to be written on day to day basis and cash-in-hand has to be arrived on daily basis. Hence, the AO has rightly disregarded such books. It is a matter of fact on record and admitted by the assessee in his statement recorded at the time of survey as well as the surrender letter dated 23.10.2017 reproduced in the assessment order, that the entries in the impounded documents were of advances of some persons related to the business and some to the near & dear and keeping in view the inability to provide evidence of the above said entries, the assessee surrendered the above entries amounting to Rs. 8,05,000/- over & above the normal business and also agreed to pay tax @77.25% at Rs. 6,21,865/-. It was also mentioned in the letter that the surrender has been made voluntarily without any threat and coercion. One of the arguments of the AR is that, when the existence of the person has been doubted by the AO then how the advance to those persons can be treated as genuine and at the same times, the AO treated those advance as unexplained investment which as per the AR are contradictory finding by the AO. The above argument of the AR is not found convincing because the entries were found recorded on a document impounded from the business premises of the assessee and onus was on the assessee to give the identity of the person and source of the money. In the absence of explanation by the assessee regarding these two aspects, the AO was right in treating the same as unexplained investment u/s 69. It is also argued by the AR that the advances were out of cash-in-hand available with the assessee as per books prepared later on, however as already discussed these books are not reliable and rightly considered by the AO as an afterthought because at the time of survey, no such books were being maintained by the assessee and the entries were not recorded as accepted by the assessee also. The AR has also argued that the gross receipts of the assessee were Rs. 41,81,800/- and the assessee could have made investment of Rs. 8,05,000/- from his business income. Here it is relevant to observe that the addition is not made on account of disclosed receipts but the addition has been made by the AO on the basis of entries which were accepted by the assessee during the survey as unexplained. Had these entries been explained entries, the assessee could have stated so at the time of survey and could have mentioned the source and given the documentary evidence also at the time of survey. The AR has also argued that the assessee was filing the return u/s 44AD and in such cases, no addition can be made on account of creditors and debtors separately. It is however, mentioned that the addition has been made on the basis of documents found during the course of survey which were not part of the receipts of the assessee and neither accounted for anywhere as no books were being maintained and it is only an afterthought by the assessee to claim that these are advances duly recorded in the books of accounts and given out of business income, because no such explanation/books or any evidence was provided at the time of survey. Under the facts & circumstances of the case and in view of the facts unearthed during the survey and also mentioned by the AO in the assessment order, the addition of Rs. 8,05,OOO/- made by the AO supported by the statement and surrender letter given by the assessee, is found sustainable and hence confirmed.

11. Against the said findings of the Ld. CIT(A) the asessee is in appeal before

12. During the course of hearing, the Ld. AR submitted that the appellant is in a small business of providing DJ sets on rent and arranging artists for functions and regularly filing returns under the provisions of Sec 44AD. A survey was conducted by the department U/s 133A on 04.10.2017. The survey was completed and there was no surrender on the date of survey i.e. on 04.10.2017. After survey the appellant prepared the account books from the receipt and expenses available which clearly reflected that sufficient cash was available with the appellant. It was submitted that the AO, without rejecting the books of the appellant, denied to accept the replies of appellant based on such books of accounts without whispering anything on record. It was submitted that the statement of appellant, fully relied by the AO, clearly mentions that these entries of Rs 8,05,000/- are business advances. Further these advances are from the opening cash and cash generated from business receipts during the year, as such section 69 is not applicable and the appellant has paid regular tax hence the same has resulted in double taxation of the same amount.

11.1 It was submitted that the AO and ld CIT(Appeal) completely ignored the books of accounts produced by the appellant by stating that this an afterthought. It was submitted that the non availability of books of accounts during survey was not due to any fault or malafide of appellant but only for the reason that appellant was legally not required to maintain the books of accounts in accordance with provisions of presumptive taxation U/s44AD. The appellant regularly filing his income tax returns on presumptive basis U/s 44AD of the income tax Act since many years and the return for the assessment year under consideration was also filed on presumptive basis only. The CIT(Appeal) as well as AO has completely ignored this fact.

11.2 It was submitted that the assessee was registered with Indirect Tax authorities for the whole year under consideration and was regularly filing the returns of Service Tax from April 2017 to June 2017 and thereafter under GST Law from July 2017 to March 2018 i.e. for the whole year. The Service tax returns for April, May and June 2017 and GST returns for July, August, September 2017, were already filed upto the date of survey. The correctness of books can be tested in the lights of the following information already on record:

a) There was no scope of any modification in the month wise receipts of assessee as the same were filed online with indirect tax authorities even before the date of survey.

b) Further there is no possibility of any changes/alterations/modifications to the bank deposits and bank withdrawals.

c) Not even a single rupee has been raised as loan by assessee in cash upto the date of survey.

d) There was opening cash of Rs 1,79,768/- as per the earlier year’s Income tax return and the same is taken as Opening Balance on 01-04-2017 in the cash book.

11.3 It was submitted that there was no scope of any adjustment, as alleged by ld CIT(Appeal) and AO, to the actual date wise cash position of the assessee. The CIT(Appeal) and AO have simply stated that cash book is an afterthought and completely ignored the cash book/cash flow submitted by assessee without even verifying the same and without finding any fault in the cash book of the assessee.

11.4 It was submitted that the order of ld CIT(Appeal) is completely silent on the issue that the details of all the persons and the nature of relationship of assessee with those persons to whom such advances of Rs 8,05,000/- were made were duly submitted. The assessee in its detailed reply dated 22.02.2021, in response to question no 12 raised by AO provided the complete details of advances. However neither AO nor CIT(Appeal) raised any further query in relation to such persons and nature of transactions with those persons. The CIT(Appeal) and AO have not tried to verify those persons and transactions with those persons. The AO could have made further inquiries from those persons to whom the advances were given. Even the CIT(Appeal) was well within his powers to verify the same or to direct AO to verify the same. Instead of doing the same, the CIT(Appeal) as well as AO simply ignored this submission of assessee.

11.5 It was submitted that during the assessment proceedings, the AO vide its notice U/s 142(1) dated 12.02.2021, raised a specific query regarding the loans, advances and deposits given and in response a detailed reply for the same was filed with the AO. The relevant portion of the reply filed is reproduced below:

“The Details of loans/advances given by the assessee are as below:

11.6 It was submitted that the above advances are normal advances given to the artists etc to bind them and to make sure that they will be available on the date of function. The copy of account of day-to-day cash is attached herewith to show that these advances are made out of the available cash in the books of M/s Bajaj Entertainers. From the above reply filed on 22.02.2021 by the assessee before the AO, it is clear that the entire details of persons to whom advances were made, alongwith the purpose of advance, was on record. The assessment order was passed by AO on 28.05.2021. The AO didn’t raised any further query for more than 3 months and as such accepted the reply of the assessee. The business of assessee is that of providing DJ sets on rent and for arranging artists at functions of its clients. On the basis of above submissions, it is very clear that all the advances made by assessee are for the purpose of its routine business of providing DJ sets on rent and for arranging artists at functions. Even in the surrender letter also, at page 3 of the assessment order, it is clearly mentioned that these advances are given to persons relating to the business of the assessee. Further the source of all these advances were from the normal business receipts, amounting to Rs 41,81,800/-, of the assessee. However while passing the assessment order, the AO simply stated that assessee failed to specify the nature of business transactions with these persons which is against the facts on record supra. Even the CIT(Appeal) also failed to give any finding on the same.

11.7 It was submitted that the AO, without bringing any evidence on record and without making any further inquiry, simply ignored and rejected the submissions of assessee and treated the advances as undisclosed investments U/s 69 which were normal business advances as explained AO during assessment proceedings. As per the plain reading of section 69, it is clear that AO is under an legal obligation to give reasons for not accepting the explanations offered by the assessee. The AO has not conducted any enquiry and has not brought any material on record to show that the advances amounting to Rs 8,05,000/- were not for the purpose of business and were not out of the business receipts of the assessee and the AO simply rejected the Cash Book, Balance Sheet, GST & Service Tax Returns and other submissions in summarily manner without any speaking order stating that ‘it is an afterthought’. It is well settled position of law that the AO is expected to appreciate the reasonable explanation offered to him, the evidences produced before him about the nature and source of investment and he cannot make the additions merely on surmises, conjectures as well as without any supporting evidence. The onus was on the department/AO to prove that the detailed /explanations given by assessee are wrong, once the assessee discharged its liability by providing the names of persons, nature of advances, Cash Book; GST Returns, Service Tax Returns, Balance Sheet of current year to substantiate its claim that advances of Rs 8,05,000/- were out of business receipts. However the AO without bringing any evidence on record simply ignored the submissions; and evidences of assessee and made the additions.

11.8 It was submitted that it is a well settled law that once the return is filed under the presumptive provisions of section U/s 44AD, no further addition can be made to the income of the assessee unless the entry has no nexus with the gross receipts. The reliance was placed on the decision of the Hon’ble Punjab and Haryana High Court in the case of Commissioner of Income Tax-II Vs Surinder Pal Anand (ITA No. 156 of 2010) wherein it was held as under:

“Once under the special provision, exemption from maintaining of books of account has been provided and presumptive tax @ 8% of the gross receipt itself is the basis for determining the taxable income, the assessee was not under obligation to explain individual entry of cash deposit in the bank unless such entry had no nexus with the gross receipts. The stand of the assessee before Commissioner of Income-tax (Appeal) and the ITAT that the said amount of Rs. 14,95,300/- was on account of business receipts had been accepted. Learned counsel for the assessee with reference to any material on record, could not show that the cash deposits amounting to Rs. 14,95,300/- were unexplained or undisclosed income of the assessee.”

11.9 It was submitted that the case of assessee is squarely covered by the aforesaid jurisdictional High Court decision. The assessee filed his return of income U/s 44AD of Income Tax Act declaring Gross Receipts at Rs 41,81,800/- and based on gross receipts declared an income of Rs 8,82,260/-. The same was duly accepted by AO in assessment order. The advances of assessee were well below the Gross receipts of Rs 41,80,800/- as decided by Punjab and Haryana High Court Supra. The AO in the case of assessee has made the addition U/s 69 of the Income Tax Act ignoring all the submissions made by assessee during the assessment proceedings as well as during the proceedings with CIT(Appeal). It was submitted that the advances are out of the normal business receipts and that too for the purpose of business of the assessee only. Further, reliance was placed on the decisions of Coordinate Benches in case of Nand Lai Popli, Shimla vs DCIT Central Circle II, Chandigarh (ITA NO 1161-1162/CHD/2013), Shri Kokkarne Prabhakara Vs ITO Ward 3(2), Hubballi (ITA No.l239/Bang/2019) and Thomas Eapen Vs The Income Tax Officer, Ward-5, Alappuzha (ITA No.451 /Coch/2019). It was accordingly submitted that the addition so made be directed to be deleted.

12. Per contra, the ld DR has relied on the order of the lower authorities.

13. Heard the rival contentions and purused the material available on record. Admittedly, the assessee is engaged in the business of providing DJ services and during the course of survey operations at the assessee’s premises on 4/10/2017, a ledger namely ‘Bajaj Entertainers’ containing certain entries was found. In his statement recorded u/s 131, the assessee was asked to explain the said entries and in response, the assessee submitted that the entries reflected therein pertain to loans and advances given to certain persons mainly artists connected with his business activities out of his undisclosed income and to buy piece of mind and avoid litigation, he surrendered the amount of Rs 8,05,000/-for the purposes of taxation. During the course of assessment proceedings where the assessee was again confronted with the same and a show-cause was issued seeking explanation on the individual loan/advances transaction, it was submitted by the assessee that these were normal business advances. It is noted that the name of these persons to whom the advances were given was stated by the AO in the show-cause notice and thereafter, in response to the same, the assessee has also submitted the details of these persons, the amount of advance, the purpose of such advance, repayment during the year etc. Therefore, as far as the nature of these advances are concerned, a consistent picture which is emerging from the records right from the statement recorded during the course of survey, subsequent surrender letter and the submissions made before the AO is that these were in nature of business advances. Regarding the sources of these advances, it has been contended by the assessee that there was sufficient cash in hand available in the books at the relevant point in time when the advances were given and the said amount was out of the business receipts which have been offered to tax u/s 44AD of the Act. It is true that the assessee was not maintaining regular books of accounts but at the same time, as evident from the statement recorded during the course of survey as well, the assessee was maintaining receipts book/bills in respect of his business activities and further, it is also a fact that the assessee has disclosed these receipts as part of service tax/GST returns. Where the entries, corresponding to business receipts amounting to Rs 41,81,800/- in the receipts books, are reflected in the cash book and the same are accepted by the Revenue, I see no justifiable reason to not accept the entries in the cash book corresponding to advances of Rs 8,05,000/- made out of said business receipts. I therefore find that it is a case where the assessee has offered business receipts amounting to Rs 41,81,800/- in his return of income which is sufficient to make business advances of Rs 8,05,000/- and thus, no separate addition is called for.

In the result, the addition of Rs 8,05,000/- so made and upheld by the ld CIT(A) is hereby directed to be deleted.

14. In the result, the appeal of the assessee is allowed.

15. In the result, both the appeals filed by the respective assessees are allowed.

(Order pronounced in the open Court on 08/02/2023)