Case Law Details
Hotel Deepak Vs DCIT (ITAT Mumbai)
Income Tax Appellate Tribunal (ITAT) Mumbai allowed an appeal filed by Hotel Deepak against an order of the Commissioner of Income Tax (Appeals) [CIT(A)] for the assessment year 2018-19. The dispute arose from a survey conducted under Section 133A of the Income Tax Act, 1961, at the hotel’s premises. During the survey, one of the partners, Shri Chandrakanth Ramanna Shetty, made a voluntary declaration of income. However, the income declared in the subsequent return of income was lower.
The Assessing Officer (AO) added the difference to the hotel’s income, citing the survey statement and a diary recovered during the survey. The CIT(A) upheld the AO’s decision. Hotel Deepak argued that the survey declaration was made before the financial year concluded and didn’t account for certain expenses. They submitted supporting documents for these expenses, explaining the discrepancy between the survey declaration and the returned income.
The ITAT observed that while the AO considered the hotel’s explanation, it wasn’t accepted, primarily because the AO felt the expenses pertained to a period before the survey. However, the ITAT noted a similar case involving Hotel Deepak for the assessment year 2017-18, where the tribunal had considered the same partner’s declaration and the same issues regarding expenses. In that case, the tribunal had ruled in favor of the assessee, accepting the explanation for the difference in income.
The ITAT emphasized that a statement recorded during a survey under Section 133A, by itself, does not have conclusive evidentiary value and cannot be the sole basis for additions to income. While the AO had referred to the diary, the ITAT found that the core issue revolved around the discrepancy between the survey statement and the returned income, a matter already adjudicated in the prior year’s case. The ITAT, citing the earlier decision, concluded that Hotel Deepak had sufficiently demonstrated the reasons for the difference in income, primarily the unaccounted expenses. Therefore, the ITAT deleted the addition made by the AO, effectively allowing the hotel’s appeal. This decision reinforces the principle that survey statements must be corroborated with other evidence and cannot form the exclusive basis for income additions, especially when credible explanations for discrepancies are provided.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal has been preferred by the Assessee against the order dated 07.05.2024, impugned herein, passed by the Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) under section 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2018-19.
2. At the outset, it is observed that there is a delay of 5 days in filing the instant appeal, on which the Assessee has claimed that the Accountant responsible for the preparation of documents and finalization of the appeal was unwell and on medical leave from 01.07.2024 to 09.07.2024, and therefore the appeal was filed before the Tribunal on 12.07.2024 with a delay of 6 days. The delay was neither intentional nor malafide but because of the aforesaid reason. The Assessee in support of condonation of delay, has also filed duly sworn affidavit dated 06.11.2024. On the contrary, the Ld. D.R. refuted the claim of the Assessee. Considering the delay as miniscule and the reason stated for causing the delay as bonafide and genuine, the delay of 5 days is
3. Coming to the merit of the case, it is observed that a survey action u/s 133A of the Act was conducted in the case of the Assessee on 22.01.2018, wherein the statement of Shri Chandrakanth Ramanna Shetty, one of the partners of the firm, was recorded, who has admitted that the diary recovered during survey operation pertains to Hotel Deepak. Shri Chandrakanth Ramanna Shetty made the voluntary declaration of income of Rs.22,51,948/- on total sales of Rs.1,08,80,197/-, however, in pursuance to survey operation, by filling its return of income on 30.08.2018 declared its total income at Rs.12,32,100/-.
4. Subsequently, the case of the Assessee was selected for scrutiny through CASS and accordingly statutory notices were issued to the Assessee and vide notice dated 12.2020 u/s 142(1) of the Act, the Assessee was asked to explain “as to why the difference amount of Rs.10,19,848/- should not be added in the total income of the Assessee as undisclosed income”, which reads as under:
“7. Vide this office notice/s 142(1) dtd.21/12/2020 the assessee was asked to explain the same, the letter is reproduced as under:
In your case, a survey action was conducted on 22.01.2018 and during the survey action, you have offered the total income for A.Y 2018-19 of Rs 22,51,948/- on total sales of Rs 1,08,80,197/-, However, on going through the return of income filed by you for A.Y. 2018-19, filed on 30.08.2018, it is observed that you have only declared total income of Rs 12,32, 100/- instead of Rs 22,51,948/-. As per your statement recorded during the time of survey action, you had offered the above income for taxation in the hands of the firm for the A.Y. 2018-19 and you had said that the firm will not be claiming interest and remuneration to the partners. Hence, it is therefore requested as to why the difference amount of Rs. 10,19,848/- should not be added in your total income as undisclosed income.”
5. The Assessee in response to the show cause notice dated 12.2020, has submitted following reply:
“8. In response to the show cause the assessee has submitted as under:
This has reference to your query regarding reduction in the net profit to the tune of Rs. 10, 10,848/- i.e. difference between net profit offered for taxation in the ITR filed for A.Y. 2018-19 as compared to survey disclosures.
Sir, it maybe kindly noted that the survey action u/s 133A was conducted at our business premises on 22/01/2018 i.e. in midst of F.Y.2017-18 i.e. before conclusion of 2017-18.
The turnover as well as profit figures declared in the statement recorded at the time of question during the course of survey. There were certain expenditures in the form of electricity bills, government taxes like VAT, GST, ESIC, PF challans, municipal taxes etc. which remain to be taken into account while estimating the profit disclosed at the time of survey action.
These expenditures have reduced the profits and brought it to the level disclosed in ITR of Rs. 12,32,100/- from the estimated profit at the survey action of Rs. 22,51,948/-
We enclose herewith copies of these expenses viz. electricity bills, government taxes like VAT, GST, ESICPF challans, municipal taxes etc. to support of our claim of reduction in profit figure of Rs. 12,32,100/- declared by us in our IT return.
With this we have substantiated the claim of reduction in profit amount of Rs. 10,19,848/- and hope that your honours will consider the above facts positively and do the needful.
Further, we would also like to inform our honours that no deduction on account of interest and remuneration of partners is being claimed by us separately while declaring taxable income of our firm.”
6. The AO though considered the reply of the Assessee, however, not found the same acceptable mainly on the following reasons:
Reasons/Facts
“(i) During the course of survey proceedings, on going through dairy “SMART” found and impounded, the partner of the assessee firm Shri Chandrakant Ramanna Shetty in his statement recorded on oath has declared profit of Rs 22,51,948/- on total sales of Rs 1,08,80,197/- after claiming expenses of Rs.86,28,249/-. He has further stated the firm will not be claiming interest and remuneration to the partners from the above profit. Further, no expenses will be claimed on the above including depreciation. Therefore, it is established total expenses of the assessee firm of the FY 2017-18 is Rs.86,28,249/-. The bills submitted by the assessee, found that the majority of the bills pertains to period prior to the survey date.
9.1 In view of the above facts and circumstances, the difference of income voluntarily offered for taxation during the survey and income declared in the return of income for the AY 2018-19 amounting to Rs 10,19,848/- is added to the total income for the year under consideration. Penalty proceedings u/s. 270A(1) r.w.s. 270A(9) of the Act are separately initiated for mis reporting of income.”
7. The Assessing Officer (AO) considering the aforesaid facts and circumstances, ultimately added the amount of Rs.10,19,848/- being difference of income voluntarily offered for taxation during the survey and income declared in the return of income for the assessment year under consideration.
8. The Assessee, being aggrieved, challenged the said addition before the Ld. Commissioner, however, of no avail and therefore the Assessee, being aggrieved, is in appeal before this Court and reiterated its claim as made before the authorities below, whereas the Ld. D.R. supported the orders passed by the authorities below.
9. Having heard the parties and perused the material available on record, the Assessee before this Court has demonstrated that the survey action was conducted on 22.01.2018, wherein the Assessee has made voluntary declaration of Rs.22,51,948/- on a total sale of Rs.1,08,80,197/- for the period from 01.04.2017 to 31.12.2017. Whereas while filing the return of income for the assessment year under consideration for the period from 01.04.2017 to 31.03.2018, had shown total sales of Rs.1,49,13,978/- and the gross profit at Rs.41,47,599/- as against the amount of 23,24,977/- as shown during the survey operation for the period from 01.04.2017 to 31.12.2017 and after claiming deductions on account of ESIC, provident fund and salary, GST, interest, SGST (compensation), CGST (compensation) and MVAT and other depreciation and electricity expenses, ultimately had shown the net profit at Rs.12,32,101/-.
The Assessee further submitted that in the Assessee’s own case for the A.Y. 2017-18 (ITA No.1887/M/2022) the Co-ordinate Bench of the Tribunal has also considered the identical facts and circumstances and the disclosure made by Shri Chandrakanth Ramanna Shetty and ultimately justified the Assessee’s declaration of income u/s 44AD of the Act by observing and holding as under:
“5. The brief facts are that the assessee firm is engaged in the restaurant business. Pursuant to the survey action u/s.133A of the Act conducted in the business premises of the assessee dated 22.01.2018, the partner of the assessee firm Shri Chandrakant Ramanna Shetty made a voluntary declaration of Rs.26,27,872/- on the total sales of Rs.1,30,15,820/-. The assessee filed its return of income dated 30.03.2018, declaring total income of Rs.19,52,370/-. Subsequent to that, the assessment order dated 29.11.2019 was passed u/s. 143(3) of the Act determining the total income of Rs.26,27,872/- by making the addition of Rs.6,75,502/-.
6. The assessee preferred an appeal as against the assessment order before the ld. CIT(A) who confirmed the said addition made by the A.O.
7. Further aggrieved, the assessee is in appeal before us.
8. The ld. DR for the assessee contended that the addition was made on the basis of the statement of Shri Chandrakant Ramanna Shetty, partner of the assessee firm who had made voluntary declaration of income of the impugned The ld. DR further contended that the diary found during survey operation contended the total expenses which amount to Rs.1,03,87,948/-, and that the impugned expenses pertaining to VAT payment amounting to Rs.6,14,820/- was not found in the said diary. The ld. DR further stated that the alleged VAT payment was made by the customers which was included in the sales bill and that the assessee has no records to prove that the same was paid by the assessee firm. The ld. DR relied on the orders of the lower authorities.
9. Having heard the DR and perused the materials on record, it is observed that the assessee firm has declared its income on a presumptive based on the provision of section 44AD of the Act. It is also observed that the assessee has declared income @ 14.99% of the turnover, which the assessee contends to be much higher than the specified percentage of 8% as per the provisions of section 44AD of the Act. The assessee in its submission has also specified that the statement recorded u/s.133A of the Act from the partner of the firm was the sole basis of the impugned addition made by the A.O. The assessee relied on the decision of the Hon’ble Apex Court in the case of CIT vs. S. Khader Khan Son [2013] 352 ITR 480 (SC) which held that the statement recorded u/s. 133A has no evidentiary value and that the same cannot be the only basis for making the addition. The assessee has also specified that the difference in the amount declared by the partner of the assessee firm and that of return income was due to the expenses of the VAT payments which was from the coffers of the assessee and has not been collected separately in the bill, cash memo or invoice issued to the customers. The assessee contends that the said expenditure was incurred wholly and exclusively for carrying out the business of the assessee and was inadvertently not taken into account in computing the total expenses of Rs.1,03,87,948/- during the survey operation. The ld. CIT(A) on the other hand, relied on the decision of M/s. Pebble Investment and Finance Ltd. vs. ITO (2017- TIOL-238-SC-IT), wherein the Hon’ble Bombay High Court has upheld the evidentiary value of the statement recorded u/s. 133A of the Act. The ld. CIT(A) also relied on the decision of the Hon’ble Delhi High Court in the case of Raj Hans Towers P. Ltd. vs. CIT 373 ITR 9 (Del-HC) for the same proposition. The ld. CIT(A) further held that the addition made by the A.O. was not merely based upon the statement of the partner but also was corroborated from the seized diary found during the survey operation which contained the details pertaining to sale and expenses incurred by the assessee firm.
10. From the above observation, we are of the considered view that ground no. 2 raised by the assessee challenging the impugned addition as only on the basis of the statement recorded u/s.133A of the Act does not hold good in our opinion. It is pertinent to point out that the A.O. has considered the statement made by the partner of the assessee firm which was further corroborated by the diary found at the premises of the assessee during the survey operation, is justifiable to hold that the impugned addition was not merely based upon the statement recorded u/s. 133(6) of the Act but was also corroborated with material evidences. On this note, we find no merit in allowing ground no. 2 raised by the assessee. Hence, ground no. 2 is dismissed.
11. Ground no.1 pertains to the income declared u/s. 44AD of the Act at a percentage of turnover which is higher than the percentage prescribed u/s. 44AD of the It is observed that the contention of the assessee is that it had declared higher profit than the percentage specified u/s. 44AD of the Act which is 8%, whereas the assessee has declared an income @ 14.99% of the turnover made during the impugned year. The ld. CIT(A) has held that the A.O. has got extensive power to assess the income beyond section 44AD if the A.O. can substantiate the same by sufficient documentary evidence. The ld. CIT(A) further held that the A.O. can tax the assessee at a higher rate than what is specified in section 44AD or than that declared by the assessee. It is pertinent to examine the provision of section 44AD which is reproduced hereunder for ease of reference:
Special provision for computing profits and gains of business on presumptive basis. 44AD. (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession” :
[Provided that this sub-section shall have effect as if for the words “eight per cent”, the words “six per cent” had been substituted, in respect of the amount of total turnover or gross receipts which is received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date specified in sub- section (1) of section 139 in respect of that previous year.]”
9.1 Analyzation of the aforesaid facts and circumstances, goes to show that the Assessee has been able to demonstrate its case for declaring the income below than the disclosure made by one of the directors in the survey operation u/s 133A of the Act and even otherwise the Hon’ble Co-ordinate Bench of the Tribunal in the case referred to above pertaining to AY 2017-18, has analyzed the identical facts and circumstances as involved in the instant case and by giving clear cut finding approved the Assessee’s income as declared, hence, the addition under consideration is liable to be deleted, thus the same is deleted.
10. In the result, the appeal filed by the Assessee stands allowed.
Order pronounced in the open court on 30.12.2024.
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