KAMAL KISHORE RATHI,MUMBAI vs. DCIT CC 4 (3), MUMBAI

Briefly stated facts necessary for consideration and adjudication of the issues at hand are : on the basis of action carried out under section 133A of the Income Tax Act, 1961 (for short ‘the Act’) on the assessee on 26.08.2010, the assessee filed a return of income declaring total income of Rs.3,35,710/-. During the course of survey the assessee admitted that an amount of Rs.35,00,00/- would be offered for the purpose of taxation in A.Y. 2010-11 over and above the regular income. However, the assessee has not filed his return of income incorporating the disclosure made of Rs.35,00,000/- at the time of search action and consequently the Assessing Officer (AO) reopened the assessment by initiating the proceedings under section 147/148 of the Act. The AO while examining the return noticed that aggregate expenses claimed by the assessee to the tune of Rs.29,47,556/- on account of sub brokerage, salary etc. are not justified and disallowed the same and framed the assessment under section 143(3) read with section 147 of the Act at income of Rs.35,00,000/-. 3. The assessee challenged the original assessment order before the Ld. CIT(A) by way of filing appeal which was dismissed.

Thereafter in accordance with the directions issued by the Tribunal the AO allowed opportunity to the assessee to cross examine Mukesh Chokshi, however the assessee has not preferred to cross examine Mukesh Chokshi on the genuineness of the brokerage payment of Rs.12,50,000/- to one of his concern. Mukesh Chokshi duly reiterated his earlier statement recorded during survey proceedings. The AO also examined assessee’s claim of expenses on account of salary and incentives to the staff after issuing summons to 4 out of 6 employees involved. It has come on record that one of the employees namely Indrapratap Singh had stopped working for the assessee from the year 2009 itself and qua remaining three employees it has come on record that they are filing the return after showing business income and are not showing any income on account of salary. The AO therefore disallowed the expenses claimed by the assessee on account of salary and incentive to the staff being bogus one. Subsequent to the re-assessment order information was again received by the AO that the assessee was operating two benami bank accounts and second re-assessment order was completed at reassessed income of Rs.55,40,000/- after making further addition of Rs.20,40,000/-. Pursuant to the direction issued by the Tribunal the AO assessed the income of the assessee at Rs.55,40,000/-.

We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto.

The assessee by filing present appeal raised two grounds challenging the disallowance of assessee’s claim of sub brokerage expenses and salary to the employees to the tune of Rs.12,50,000/- and Rs.10,50,000/- respectively by the AO and confirming the same by the Ld. CIT(A).

We have perused the order passed by the Ld. CIT(A) who has duly thrashed the facts and evidence collected during the survey as well as reopening proceedings which are extracted for ready perusal as under: “5.2 The submissions and contentions of the assessee have been duly considered. In the appellate proceedings, the assessee submitted that he had made a declaration of gross receipts of Rs. 35,00,000/- and not of the taxable income. He had duly honoured the declaration by offering the said gross receipts of Rs. 35,00,000/- in the return filed for the relevant year and against this, he had claimed legitimate expenses on account of sub-brokerage and salary. As regards the disallowance of sub-brokerage expenses of Rs. 12,50,000/- to one of the concerns of Shri Mukesh Choksi, M/s. Alliance Intermediaries & Network P. Ltd., it was submitted that he was in touch with one another Director, Shri Jayesh Sampath of M/s. Alliance Intermediaries & Network P. Ltd. and therefore, the statement given by Shri Mukesh Choksi, is not very relevant. As regards the disallowance made by the AO out of the expenses claimed on account of salary of Rs. 10,50,000/-, it was

So far as question of disallowance of sub brokerage expenses of Rs.12,50,000/- paid to one of the concerns of Mukesh Chokshi viz. M/s. Alliance Intermediaries and Network Pvt. Ltd. is concerned, in the first round of litigation before the Tribunal the assessee had taken the plea that he was not given an opportunity to cross examine Mukesh Chokshi who has categorically stated in his statement recorded during survey proceedings that he has given a signed cheque book to the assessee and the assessee was allowed to operate the said bank account by charging commission @ 0.15%, which otherwise amounts to Rs.12,50,000/-.

Perusal of the impugned order passed by the Ld. CIT(A) goes to prove that the entire disallowance made by the AO is on the basis of statement of Mukesh Chokshi recorded during survey proceedings before the Ld. CIT(A). The assessee has raised extensive submissions by bringing on record the fact that before the AO he has given confirmation of accounts of M/s. Alliance Intermediaries and Network Pvt. Ltd. which have not been examined by the AO as well as the Ld. CIT(A).

We have perused the order passed by the AO as well as Ld. CIT(A) who has made the disallowance of Rs.12,50,000/- by treating the sub brokerage expenses claimed by the assessee to M/s. Alliance Intermediaries and Network Pvt. Ltd. as bogus on the mere statement of Mukesh Chokshi and on the fact that Mukesh Chokshi has not been cross examined on the genuineness of the transaction.

So far as question of disallowance of salary of Rs.10,50,000/- claimed to have been paid by the assessee to different persons is concerned, the AO has duly thrashed the case of four persons namely Mr. Indrapratap Singh, Mr. Jitendra Chandrabhan Singh, Ms. Sandhya Badekar & Mr. Amit Mahade on random basis and issued notice to them under section 131, examined their income tax returns. Even summons issued to Mr. Jitendra Chandrabhan Singh was not served at the given address. However, the assessee filed the written submissions of Mr. Jitendra Chandrabhan Singh along with his return of income wherein he has offered total income at Rs.1,40,140/- in the head “business income” instead of “salary”. He has also filed return in ITR-2 which has not a valid return for salaried person.

In view of what has been discussed above, the impugned order passed by the Ld. CIT(A) is partly set aside to the extent of disallowance of sub brokerage expenses of Rs.12,50,000/- claimed by the assessee and appeal is remitted to the AO to decide the issue afresh in view of the evidence already brought on record by the assessee as discussed in the preceding paras. However, present appeal of the assessee qua the claim of deduction on account of salary expenses to the tune of Rs.10,50,000/- is hereby dismissed.

Resultantly, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 18.04.2023.