FAIYAZ YUNUS PATEL,MUMBAI vs. INCOME TAX OFFICER 27(1)(4), MUMBAI

PER OM PRAKASH KANT, AM

This appeal has been preferred by the assessee against the order dated 28.02.2023 passed by the Ld. Commissioner of Income- tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2017-18, raising following grounds:

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unexplained cash credit by invoking provisions of unexplained cash credit by invoking provisions of unexplained cash credit by invoking provisions of section 68 of the Act. Provisions of the Act ought to have been properly construed Provisions of the Act ought to have been properly construed Provisions of the Act ought to have been properly construed and regard being had to facts of the case such income and regard being had to facts of the case such income and regard being had to facts of the case such income should not have been assessed under section 68 of the Act. should not have been assessed under section 68 of the Act. should not have been assessed under section 68 of the Act. Reasons assigned by Assessing Officer are wrong and Reasons assigned by Assessing Officer are wrong and Reasons assigned by Assessing Officer are wrong and insufficient to assess Rs. 12,67,239/ ient to assess Rs. 12,67,239/- as unexplained cash as unexplained cash credit under section 68 of the Act. credit under section 68 of the Act. 2. On the facts and in the circumstances of the case and in On the facts and in the circumstances of the case and in On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeal), law the learned Commissioner of Income Tax (Appeal), law the learned Commissioner of Income Tax (Appeal), NFAC erred in confirming disallowance of Rs.75,600 by NFAC erred in confirming disallowance of Rs.75,600 by NFAC erred in confirming disallowance of Rs.75,600 by invoking provisions of section 40(a)(ia)of the Act on rent voking provisions of section 40(a)(ia)of the Act on rent voking provisions of section 40(a)(ia)of the Act on rent expense. Provisions of the Act ought to have been properly construed Provisions of the Act ought to have been properly construed Provisions of the Act ought to have been properly construed and regard being had to facts of the case such expense and regard being had to facts of the case such expense and regard being had to facts of the case such expense should not have been disallowed under section 40(a)(ia) of should not have been disallowed under section 40(a)(ia) of should not have been disallowed under section 40(a)(ia) of the Act as there the Act as there is no TDS provision applicability to the is no TDS provision applicability to the Assessee for the relevant assessment year. Reasons Assessee for the relevant assessment year. Reasons Assessee for the relevant assessment year. Reasons assigned by Assessing Officer are wrong and insufficient to assigned by Assessing Officer are wrong and insufficient to assigned by Assessing Officer are wrong and insufficient to disallow Rs.75,600 under section 40(a)(ia) of the Act on disallow Rs.75,600 under section 40(a)(ia) of the Act on disallow Rs.75,600 under section 40(a)(ia) of the Act on Rent Expenses. Expenses. 3. The order made under section The order made under section 143(3) of the Act is illegal, 143(3) of the Act is illegal, bad-in-law, ultra virus and without allowing reasonable law, ultra virus and without allowing reasonable law, ultra virus and without allowing reasonable opportunity of the hearing, without appreciating facts, opportunity of the hearing, without appreciating facts, opportunity of the hearing, without appreciating facts, submission and evidences in their proper perspective is submission and evidences in their proper perspective is submission and evidences in their proper perspective is liable to be annulled. liable to be annulled. 4. The appellant crave leave to ad The appellant crave leave to add, amend, alter and/ or d, amend, alter and/ or vary any of the grounds of appeal before or at the time of vary any of the grounds of appeal before or at the time of vary any of the grounds of appeal before or at the time of hearing. 2. Briefly stated, facts of the case are that the asessee is an Briefly stated, facts of the case are that the asessee is an Briefly stated, facts of the case are that the asessee is an individual, and was running a proprietary concern under the name was running a proprietary concern under the name was running a proprietary concern under the name of M/s Patel Enterprises for the y of M/s Patel Enterprises for the year under consideration. The said ear under consideration. The said proprietary concern was engaged as a distr proprietary concern was engaged as a distributor of mobile ibutor of mobile recharges of brand “Vo recharges of brand “Vodafone” and its other relates services. The and its other relates services. The

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assessee earned nominal margin of income on sale of recharge assessee earned nominal margin of income on sale of assessee earned nominal margin of income on sale of balances to retailers. to retailers.This nominal margin was provided to the argin was provided to the assesee by the ‘Vodafone’ in the form of ‘ recharge balance’ only, assesee by the ‘Vodafone’ in the form of ‘ recharge balance’ only, assesee by the ‘Vodafone’ in the form of ‘ recharge balance’ only, which was monetised by the assesee by way of sale of those which was monetised by the assesee by way of sale of those which was monetised by the assesee by way of sale of those recharge balance to retailors. by recharge balance to retailors. by The asessee further passed on The asessee further passed on some of the margin in the form of margin in the form of ‘charge balance rge balance’ to retailers on sale of recharges. During the year under consideration, the sale of recharges. During the year under consideration, the sale of recharges. During the year under consideration, the assessee also provided services of transfer of money through assessee also provided services of transfer of money through assessee also provided services of transfer of money through ‘Vodafone M-pesa’ i.e. an online wallet i.e. an online wallet application application, and earned commission .

2.1 For the year under For the year under consideration, the assessee filed return of consideration, the assessee filed return of income on 02.11.2017 declaring total income of Rs.4,48,860/-. The income on 02.11.2017 declaring total income of Rs.4,48,860/ income on 02.11.2017 declaring total income of Rs.4,48,860/ return of income filed by the assessee was selected for scrutiny return of income filed by the assessee was selected for scrutiny return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the Income-tax Act, 1961 assessment and statutory notices under the Income assessment and statutory notices under the Income (in short ‘the Act’) were issued and complied with. The assessee filed t’) were issued and complied with. The assessee filed t’) were issued and complied with. The assessee filed necessary documents including tax audit report u/s 44AB of the necessary documents including tax audit report u/s 44AB of the necessary documents including tax audit report u/s 44AB of the Act, loan confirmation, bank statement etc. The Assessing Officer loan confirmation, bank statement etc. The Assessing Officer loan confirmation, bank statement etc. The Assessing Officer completed the assessment u/s 143(3) of the Act on 10.12.2019 and completed the assessment u/s 143(3) of the Act on 10.12.2019 and completed the assessment u/s 143(3) of the Act on 10.12.2019 and additions. Firstly, addition of Rs.12,67,239/ made two additions. , addition of Rs.12,67,239/- was made as unexplained cash credit u/s 68 of the Act in relation to cash as unexplained cash credit u/s 68 of the Act in relation to cash as unexplained cash credit u/s 68 of the Act in relation to cash deposits received in various bank accounts from the retailers deposits received in various bank accounts from the retailers deposits received in various bank accounts from the retailers Secondly Secondly, against ‘Vodafone Vodafone M M-Pesa’ service facility. the disallowance of Rs.75,600/ f Rs.75,600/- was made u/s 40(a)(ia) of the Act on was made u/s 40(a)(ia) of the Act on account of non-deduction of tax at source deduction of tax at source (TDS) payment of rent of payment of rent of

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Rs.2,52,000/-. On further appeal, the Ld. CIT(A) rejected the . On further appeal, the Ld. CIT(A) rejected the . On further appeal, the Ld. CIT(A) rejected the request of the assessee for adjournment and dismissed the appeal request of the assessee for adjournment and dismissed the appeal request of the assessee for adjournment and dismissed the appeal ex-parte.

3.1. The Ld. Departmental Representative (DR) on the other hand tmental Representative (DR) on the other hand tmental Representative (DR) on the other hand relied on the order of the lower authorities. relied on the order of the lower authorities.

3.2. We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. The brief facts qua the issue in dispute relevant material on record. The brief facts qua the issue in dispute relevant material on record. The brief facts qua the issue in dispute are that the assessee alon are that the assessee alongwith the business of distribution of the business of distribution of recharge balances of Vodafone recharge balances of Vodafone, also opted for services of Vodafone also opted for services of Vodafone for transfer of instant money using wallet scheme launched by for transfer of instant money using wallet scheme launched by for transfer of instant money using wallet scheme launched by Vodafone namely ‘M Vodafone namely ‘M-Pesa’. In respect of business of distribution n respect of business of distribution

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mobile recharge balances mobile recharge balances, the assessee earned margin in purchase , the assessee earned margin in purchase and sale of recharge/talk time but the services of M-Pesa being and sale of recharge/talk time but the services of M and sale of recharge/talk time but the services of M purely service of money transfer like bank therefore, Vodafone gave purely service of money transfer like bank therefore, Vodafone gave purely service of money transfer like bank therefore, Vodafone gave a nominal commission as handling charges. For the purpose of a nominal commission as handling charges. For the purpose of a nominal commission as handling charges. For the purpose of handling cash received handling cash received from retailers under M-Pesa Pesa , a separate account in the bank of ICICI was opened where beneficiary was account in the bank of ICICI was opened where beneficiary was account in the bank of ICICI was opened where beneficiary was Vodafone M-Pesa Ltd. Further on the direction of Vodafone Pesa Ltd. Further on the direction of Vodafone Pesa Ltd. Further on the direction of Vodafone company for avoiding bank charges company for avoiding bank charges, the asessee the asessee opned a new escrew type account screw type account with Yesh Bank Ltd, wherein total wherein total of Rs.4,26,27,248/- was was deposited deposited during ng the the year year under under consideration, which was received in cash from retailors. The major consideration, which was received in cash from retailors. consideration, which was received in cash from retailors. portion of the M-Pesa transaction was Pesa transaction was being made during the being made during the year through said Yes Bank M said Yes Bank M-Pesa account. However, Pesa account. However, in certain instances, rather than instances, rather than directly depositing the money of M the money of M-Pesa transaction into the said Yes Bank transaction into the said Yes Bank account, the account, the assessee had deposited the said M deposited the said M-Pesa into his other accounts s and thereafter transferred that amount to Yes Bank account or that amount to Yes Bank account or that amount to Yes Bank account or ICICI Bank account. The assessee has provided the detail of the total proceeds account. The assessee has provided the detail of the total account. The assessee has provided the detail of the total relating to M-PESA transaction during the year under consideration transaction during the year under consideration transaction during the year under consideration as under: M-PESA Proceed Received through : PESA Proceed Received through : Amount Percentage (%) (Rs.) Directly in Yes Bank Ltd. Exclusive Directly in Yes Bank Ltd. Exclusive 4,26,27,248 97.11% account bearing No. 041963000000156 bearing No. 041963000000156 Through Through other other bank bank accounts accounts (as (as 12,67,239 2.89% mentioned) mentioned) maintained maintained for for normal normal business transactions business transactions Total 4,38,94,487 100%

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3.3. The assessee before us, submitted that assessee has already The assessee before us, submitted that assessee has already The assessee before us, submitted that assessee has already declared commission income of Rs.1,09,149/ declared commission income of Rs.1,09,149/- earned from the said earned from the said M-Pesa transaction of Rs.4,38,94,437/ Pesa transaction of Rs.4,38,94,437/- and same are also reflected and same are also reflected in Form No. 26AS. We find that the Assessing Officer has duly in Form No. 26AS. We find that the Assessing Officer has duly in Form No. 26AS. We find that the Assessing Officer has duly noted this fact of earning commission on M ted this fact of earning commission on M-Pesa. However, Pesa. However, the AO treated the cash received of Rs.12,67,239/ treated the cash received of Rs.12,67,239/- as unexplained cash as unexplained cash credit. Whereas, the the assessee has before us duly demonstrated that assessee has before us duly demonstrated that said amount of Rs.12,67,239/ said amount of Rs.12,67,239/- has been transferred to Vodafone has been transferred to Vodafone (PB-22 to PB-32) and thus this money was received by the assessee and thus this money was received by the assessee and thus this money was received by the assessee on behalf of the Vodafone M on behalf of the Vodafone M-Pesa. In our opinion, the Ld. Assessing the Ld. Assessing Officer has ignored the factual information provided by the Officer has ignored the factual information provided by the Officer has ignored the factual information provided by the assessee. When the receipt is subjected to commission income the assessee. When the receipt is subjected to commission income assessee. When the receipt is subjected to commission income assessee was not liable to record the same as turnover of the assessee was not liable to record the same as turnover of the assessee was not liable to record the same as turnover of the assessee. In view of the discussion above assessee. In view of the discussion above, The impugned order of The impugned order of the Ld. CIT(A) on the issue in dispute is accordingly set aside and the Ld. CIT(A) on the issue in dispute is accordingly set aside and the Ld. CIT(A) on the issue in dispute is accordingly set aside and we direct the Assessing Officer to delete the addition of we direct the Assessing Officer to delete the addition of we direct the Assessing Officer to delete the addition of Rs.12,67,239/- made u/s 68 of the Act.. The ground made u/s 68 of the Act.. The ground made u/s 68 of the Act.. The ground No. 1 of appeal of the assessee is accordingly allowed. of the assessee is accordingly allowed.

4.1. We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. We find that the assessee has been relevant material on record. We find that the assessee has been relevant material on record. We find that the assessee has been subjected to tax audit u/s 44AB of the Act for the first time in subjected to tax audit u/s 44AB of the Act for the first time in subjected to tax audit u/s 44AB of the Act for the first time in

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assessment year 2017 assessment year 2017-18 i.e. current assessment year. Since, the i.e. current assessment year. Since, the assessee was not subjected to tax audit u/s 4 assessee was not subjected to tax audit u/s 44AB in assessment 4AB in assessment year 2016-17, therefo 17, therefore, provisions of Chapter XVII re, provisions of Chapter XVII-B (TDS) were not applicable for the assessment year under consideration and not applicable for the assessment year under consideration and not applicable for the assessment year under consideration and would be applicable would be applicable from subsequent assessment year i.e. subsequent assessment year i.e. assessment year 2018 assessment year 2018-19. We are of the opinion that the Assessing 19. We are of the opinion that the Assessing Officer has ignored the requirement of section 194I of the Act for Officer has ignored the requirement of section 194I of the Act for Officer has ignored the requirement of section 194I of the Act for liability of individual u/s 194 liability of individual u/s 194-I of the Act in the assessment year I of the Act in the assessment year subsequent to the year of audit u/s 44AB of the Act. In view of the year of audit u/s 44AB of the Act. In view of the year of audit u/s 44AB of the Act. In view of the above, we direct the Assessing Officer to delete the disallowance the above, we direct the Assessing Officer to delete the disallowance the above, we direct the Assessing Officer to delete the disallowance the order of the Ld. CIT(A) on the issue in dispute is set aside. The order of the Ld. CIT(A) on the issue in dispute is set aside. The order of the Ld. CIT(A) on the issue in dispute is set aside. The ground No. 2 of appeal of the assessee is accordingly allowed. ground No. 2 of appeal of the assessee is accordingly allowed. ground No. 2 of appeal of the assessee is accordingly allowed.

Order pronounced in the open Court on nounced in the open Court on 10/07/2023. /07/2023. Sd/ Sd/- Sd/- (KAVITHA RAJAGOPAL KAVITHA RAJAGOPAL) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 10/07/2023 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, BY ORDER,

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//True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai