VIKRAM HARSHADBHAI MODI,SURAT vs. ITO WARD 3(1)(5), SURAT

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No. 196/SRT/2018 (AY 2011-12) (Hearing in Virtual Court) Shri Vikram Harshadbhai The Income Tax Officer Modi, Ward-3(1)(5), Aaykar Vs 7/2737, Chandulal Sheth Ni Bhavan, Majura Gate, Sheri, Saiyedpura, Surat-395001 Surat-395003 PAN : ALHPM 2036 Q Assessee / appellant Revenue /respondent

Assessee by Shri Biren Shah, &, Shri Vartik Chouksi, A.Rs Revenue by Ms. Anupama Singla – Sr-DR Date of hearing 01.10.2021 Date of pronouncement 30.12.2021 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee is directed against the order of ld. Commissioner of Income tax (Appeals)-3, Surat dated 24.01.2018 for Assessment Year (AY) 2011-12, which in turn the assessment order under section 144 r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 30.12.2015. The assessee has raised the following grounds of appeal:- “1. In law and in the facts and circumstances of the case, the ld. CIT(A) has grossly erred in making addition of Rs.25,00,000/- on protective basis even when the source of Rs.25,00,000/- is fully explained by the appellant. 2.In law and in the facts and circumstances of the case, the ld. CIT(A) has grossly erred in upholding the impugned addition of Rs.3,00,804/- i.e. 15% of net profit on contract receipts of Rs.20,05,360/-.

ITA No.196/SRT/2018 (A.Y.11-12) Sh.Vikram Harshadbhai Modi

ITA No.196/SRT/2018 (A.Y.11-12) Sh.Vikram Harshadbhai Modi total receipts should not be treated as unaccounted income. The assessee filed its reply dated 23.11.2015. In the reply, the assessee contended that provided one time entry on the request of RRML as he has got commission of 0.80% on Rs.25 lakh in this entry. The assessee received money from Mahesh T Patel of Rs.25 lakh and the same was transferred to the account of RRML through RTGS. In this transaction, he earned Rs.20,000/-. Thus Rs.25 lakh does not belong to him. The transaction was conducted by Shri Mahesh T Patel. With regard to contract receipt of section 194C of Rs.20,05,360/- the assessee submits that income of such receipt be assessed @ 8% of said gross receipt under section 44AD of the Act. The reply of assessee was not accepted by Assessing Officer. The Assessing Officer made addition of investment with RRML as unverifiable unexplained investment of Rs. 25 lakhs. On the contract receipt, the AO worked out net profit @ 15% of Rs. 20.05 lakhs, thereby addition of Rs.3,00,804/- and added to the total income of assessee. 3. On appeal before Ld. CIT(A) the assessee filed detailed written submission. On the submissions of the assessee, the ld CIT(A) called remand report of the AO. The AO furnished his remand report dated 03.08.3017. During the remand proceedings the assessee contended that the assessee provided one time entry at the behest of Mahesh T Patel, Prop. of Asha Traders and

ITA No.196/SRT/2018 (A.Y.11-12) Sh.Vikram Harshadbhai Modi received commission of Rs. 20,000/-. And the credit entry of Rs. 25 lakhs has been taxed in the hand of RRML. The AO mentioned in his report that he sent several request to ITO, Ward-(5)(1)(3), Ahmadabad, but not details are furnished. In the remand report the AO further mentioned that there was another entry provided by the assessee of Rs. 10.05 lakhs to Asha Traders. 4. On the remand report the AO, the assessee filed his rejoinder. In the rejoinder the assessee retreated that he provided only one entry on the amount received from Asha Traders of Rs. 25 lakhs to RRML. On the other alleged entry of Rs. 10.05 lakhs, the assessee submitted the said entry is payment made to Asha Traders. The assessee further reiterated that credit entry has been added on account of share application money in the hand of RRML, copy of assessment order passed under section 143(3) of the Act of A.Y.2011-12 was furnished. The ld.CIT(A) after considering the assessment order, remand report and the rejoinder filed by assessee held that it is clearly evident from the Bank Statement of Mahesh Tulsidas Patel, Proprietor of Asha Trader that he received Rs.1.00 crore from RRML, out of which Rs.25 lakhs were transferred to assessee and the assessee transferred the said amount to RRML, which clearly prove that source of fund was of RRML itself. The Assessing Officer failed to verify, whether share application money is assessed in the hands of RRML. In the assessment order of RRML

ITA No.196/SRT/2018 (A.Y.11-12) Sh.Vikram Harshadbhai Modi passed under section 143(3) dated 31.01.2014, the AO of that assessee made addition of Rs.33.15 crore as unexplained share application money under section 68 of the Act. The assessment order corroborate the claim of assessee. The ld.CIT(A) further noted as “since the share application money is already added in the hands of RRML which is actually the ‘source’ of the funds, no further addition in the hands of appellant is called for.” The ld.CIT(A) further held that the status of appeal in case of RRML is not known and accordingly the addition was confirmed on protective basis. The ld.CIT(A) on the basis of admission of assessee that he received Rs.20,000/- on account of commission for accommodation entries, accordingly, the addition was restricted to the extent of Rs.20,000/-. The ld CIT(A) also confirmed the addition at the hand of assessee on protective basis. On the addition on account of contract receipt added by Assessing Officer(AO) at the estimated income @15% of receipt of Rs.20,15,360/-, the ld.CIT(A) held that assessee contended that income should be estimated @ 8% as per section 44AD of the Act. The ld.CIT(A) held that no return of income under section 44AD of the Act is filed by assessee, so, the assessee cannot claim that income should be estimated as per section 44AD of the Act. Further aggrieved, the assessee has filed the present appeal before this Tribunal.

ITA No.196/SRT/2018 (A.Y.11-12) Sh.Vikram Harshadbhai Modi 5. We have heard the submission of ld. Authorised Representative (ld.AR) of assessee and the ld. Sr. Departmental Representative (ld.Sr.DR)for the Revenue and have gone through the orders of Lower Authorities carefully. Ground No.1 relates to addition on account of protective basis. The ld.AR of the assessee submits that once the ld.CIT(A) admitted that amount belongs to RRML, no addition even on protective basis can be added. Moreover, the ld.CIT(A) has made addition on commission income admitted by the assessee. 6. On the other hand, the ld.Sr.DR for the Revenue submits that only protective addition is made at the hand of assessee and the assessee should not have any grievance as no demand is raised on the assessee. 7. We have considered the submission of both the parties. We have also gone through the orders of Lower Authorities. The AO made addition on the basis information received from ITO, Ward-5(3), Ahmedabad that during the course of assessment in case of RRML for A.Y. 2011-12, it was noted that assessee made investment in share application money of Rs.25,00,000/-. The AO reopened the case of assessee on the information of ITO, Ward- 5(3), Ahmedabad. During the assessment proceedings, the assessee stated that his account was used by Mahesh Tulsidas Patel and he was given a commission of Rs.20,000/- only. The contention of assessee was not

ITA No.196/SRT/2018 (A.Y.11-12) Sh.Vikram Harshadbhai Modi accepted by Assessing Officer. The AO made addition of Rs.25,00,000/- on account of unverifiable, unexplained investment. Before the ld.CIT(A), the assessee filed a detailed written submission. On the submission of assessee, the AO was directed to file his remand report. The AO filed his remand report dated 03.08.2017. 8. In the remand report, the AO stated that during remand proceedings the assessee contended that the assessee provided one time entry at the behest of Mahesh T Patel Prop of Asha Traders and received commission of Rs. 20,000/-. The assessee contended that the credit entry of Rs. 25 lakhs has been taxed in the hand of RRML. The AO in his report stated that he sent several request to the ITO, Ward (5)(3) but not details are furnished. In the remand report the AO further mentioned that there was another entry provided by the assessee of Rs. 10.05 lakhs to Asha Traders. On the remand report of the AO, the assessee filed his objection/rejoinder. In the rejoinder, the assessee retreated that he provided only one entry on the amount received from Asha Traders of Rs. 25 lakhs to RRML. On the other alleged entry of Rs.10.05 lakhs, the assessee submitted the said entry is payment made to Asha Traders. The assessee further reiterated that credit entry has been added on account of share application money in the hand of RRML, copy of assessment order passed under section 143(3) of the Act of

ITA No.196/SRT/2018 (A.Y.11-12) Sh.Vikram Harshadbhai Modi A.Y.2011-12 was furnished. We find that the ld.CIT(A) after considering the assessment order, remand report and the rejoinder filed by assessee held that from the Bank Statement of Mahesh Tulsidas Patel, Proprietor of Asha Trader that it is clear that Mahesh Tulsidas Patel received Rs.1.00 crore from RRML, out of which Rs.25 lakhs were transferred to assessee and the same was transferred by assessee to RRML. This fact clearly proves that the source of fund of Rs.25 lakhs was of RRML. The ld.CIT(A) further held that the AO failed to verify whether share application money is assessed in the hands of RRML. It was also observed by ld.CIT(A) that in the assessment order passed against RRML under section 143(3) dated 31.01.2014 of Rs.33.15 crore received as share application money is already treated as unexplained and added in their hand under section 68 of the Act, therefore, the contents of assessment order corroborate the version of assessee. 9. We find that the ld.CIT(A) despite holding that share application money is already added in the hand of RRML who was the actual owner of said money. The ld.CIT(A) despite holding that money belongs to RRML, treated the addition on protective basis. Though the ld.CIT(A) in a reasonable manner on the basis of admission of assessee that he received Rs.20,000/- on account of commission for accommodation entries restricted

ITA No.196/SRT/2018 (A.Y.11-12) Sh.Vikram Harshadbhai Modi the addition to the extent of Rs.20,000/- only. We find that the finding of ld.CIT(A) is self-contradictory. On the one hand, the ld.CIT(A) himself held that the money involved in the credit entry of Rs.25 lakhs belongs to RRML and the assessee was taxed to the extent of commission income of Rs.20,000/-. Similarly, on the other hand, the same amount was added on protective basis. The ld.CIT(A) being having co-terminus power has not sought any report from ITO, Ward-5(3), Ahmedabad about the status of appeal in case of RRML. Therefore, we do not find any justification in making addition on protective basis. Therefore, we set-aside the finding of ld. CIT(A) in making protective addition. In the result, Ground No.1 of the appeal is allowed. 10. Ground No.2 and 3 relates to upholding the addition @15% of contract receipt of Rs.20.05 lakhs. The ld.AR of the assessee submits that addition made by AO on the contract receipt @15% is excessive. The assessee is carrying the business of job work of foil printing and received contract receipt of Rs.20.05 lakhs on which TDS was made under section 194C of the Act. The assessee is covered by the provision of section 44AD of the Act and the income earned by the assessee was less than the minimum income chargeable to tax amounting to Rs.1,60,428/- and the assessee was not required to file return of income. Even in response to notice under section

ITA No.196/SRT/2018 (A.Y.11-12) Sh.Vikram Harshadbhai Modi 148 of the Act, the assessee was under impression that his income is meagre being less than taxable income and not chargeable to tax and he is not required to file return of income. 11. On the other hand, the ld. Sr. DR for the Revenue submits that assessee could claim benefit of section 44AD only filing return of income under section 139(1) of the Act. 12. We have considered the rival submission of the parties and perused the orders of Lower Authorities. The AO made addition by taking view that on the details available in ITD System, the assessee earned contract income of Rs.20,05,360/-. In absence of return of income filed for A.Y. 2011-12, the entire receipt was treated as turnover and assessee was issued show cause notice as to why 15% of contract receipts should not be treated as unaccounted income. The assessee in response to show cause notice vide reply dated 23.09.2015 offered 8% of his total receipts of Rs.20,05,360/-. The AO not accepted the contention of assessee by taking view that no supporting evidence of contract receipt and expenditure nor any return of income in response to notice under section 148 of the Act was filed. The AO taxed the 15% of contract receipts as income of assessee and thereby added Rs.3,00,804/-. The ld.CIT(A) upheld the action of AO with similar observation. Before us, the assessee has not filed any evidence to

ITA No.196/SRT/2018 (A.Y.11-12) Sh.Vikram Harshadbhai Modi substantiate the contract receipt, though vehemently urged that the assessee is engaged in the business of foil printing and the addition @15% is on excessive side. Considering the facts and circumstances of the case, we find that estimation of income at 15% seems to be on higher side, therefore, we direct the AO to restrict the addition @10% of the alleged contract receipts. In the result, Ground No.2 and 3 of the assessee are partly allowed. 13. To sum up, appeal of the assessee is partly allowed. Order pronounced 30/12/2021 in open court and result was placed on the Notice Board.

Sd/- Sd/- (Dr ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 30/12/2021 / *SGR Copy to: 1. Appellant 2. Respondent- 3. CIT(A) 4. CIT 5. DR 6. Guard File True copy/ By order / / TRUE COPY / / Sr.Private Secretary, ITAT Surat True copy/