SAURABH AGRAWAL ,INDORE vs. ASSISTANT COMMISSIONER OF INCOME TAX (CENTRAL)-II, INDORE

IT(SS)A No.303/Ind/2017 Assessment Year: 2013-14 Saurabh Agrawal ACIT, Central-1 बनाम/ 531, Sudama Nagar, Shiv Indore Vs. Mandir Chowk, Indore (Appellant) (Revenue) PAN: AGTPG6488P Appellant by Shri Anil K. Khandelwal, CA Revenue by Smt. Ashima Gupta CIT-DR Date of Hearing: 24.06.2019 Date of Pronouncement: 09.07.2019 आदेश / O R D E R Saurabh Agrawal ITANo.702/Ind/2017 & IT(SS)ANo.303/Ind/2017 PER MANISH BORAD, A.M: These two appeals at the instance of Assessee pertaining to A.Ys. 2013-14 & 2014-15 are directed against the order of Ld. Commissioner of Income Tax(Appeals)-III, Indore, (in short ‘CIT(A)’), dated 31.08.2017 which are arising out of the order u/s 153A of the Income Tax Act 1961(hereinafter called as the ‘Act’) framed on 30.03.2016 by ACIT-(Central)-1, Indore.

3. Briefly stated facts as culled out from the records and relevant to the issue raised before us are that the assessee is an individual and engaged in the business of an RTO agent since last many years. Search and seizure operation u/s 132 of the Act were carried out at the premises of the assessee along with business and residential premises of the LCH Group of Indore on 04.10.2013. Notices u/s 153A of the Act were served upon the assessee for A.Ys. 2008-09 to 2013-14 and u/s 143(2) of the Act for A.Y. 2014-15. In response thereto the assessee filed return of income. The instant appeal relates to the issue of disallowance of expenses claimed by the assessee against the income earned from commission. In the Income tax return filed for A.Ys.2013-14 & A.Y.2014-15 assessee declared gross receipts at Rs.16,50,000/- and Rs.10,80,000/- and 2 Saurabh Agrawal ITANo.702/Ind/2017 & IT(SS)ANo.303/Ind/2017 claimed expenses @40% towards salary, conveyance, commission, mobile, stationery expenses. Learned Assessing Officer (in short ‘Ld. AO’) however was not convinced with this claim as well as with the decreased gross receipts and assessed the income treating the gross receipts of Rs.16,50,000/- as income from commission for A.Ys. 2013-14 & 2014-15 without allowing any expenditure. Income for A.Ys. 2013-14 & 2014-15 assessed at Rs.18,42,830/- & Rs.18,65,250/-.

4. Aggrieved assessee preferred an appeal before the Ld. CIT(A) but partly succeeded, as ld. CIT(A) gave some relief on account of gross receipts and also allowed the expenses to the tune of Rs. 20% of the gross receipts. 5. Now, the assessee is in appeal before the Tribunal. 6. Ld. counsel for the assessee submitted that in the line of business in which the assessee is engaged into incurring of expenses towards salary, conveyance, commission, mobile, stationery expenses as well as commission paid for procuring the business is normal and assessee has conservatively claimed 40% of the expenses which should have been allowed. 7. Per contra Learned Departmental Representative (Ld. DR) vehemently argued and supporting the orders of the lower authorities. 8. We have heard rival contentions and perused the record placed before us. The common issue raised for A.Ys.2013-14 & 2014-15 related to allowability of expenses against commission income offered by the assessee. Expenses @40% of gross receipts claimed Saurabh Agrawal ITANo.702/Ind/2017 & IT(SS)ANo.303/Ind/2017 by the assessee but Ld. CIT(A) sustained it to 20% of the gross receipts.

9. We observe that the ld. CIT(A) allowed 20% of gross receipts as expenses for A.Ys. 2013-14 & 2014-15 giving following finding. “Ground No.6 and Additional Ground These grounds are regarding the addition of Rs.16,50,000/- made on account of commission income. The appellant has relied on the detailed submissions made for A.Y. 2008-09. This issue has been dealt with in detail in the appellant’s appeal no.IT-14/16-17 for A.Y.2008-09. Vide the appeal order dated 31/08/2017 for A.Y. 2008-09 it has been held as under: 5.3 During the search incriminating note LPS-1/6 to LPS-1/13 were seized which contained tubular hand written entries for the period 12.12.2012 to 16.08.2013. The appellant admitted that these entries have been written by him and contain details of RTO related work on daily basis. During the assessment proceedings the appellant under oath decoded the entries in the said note books. On the basis of the entries in the above mentioned seized diaries the gross income was calculated by the appellant during the course of assessment proceedings for the period 12.1.22012 to 16.08.2013 as under: LPS No. Period As Amount MS Amount LPS11 12.12.2012 to 10.01.2013 107595 102340 LPS12 15.01.2013 to 10.02.2013 78820 66300 LPS 7 14.02.2013 to 13.03.2013 90520 118800 LPS 8 15.03.2013 to 10.04.2013 102575 37100 LPS 9 15.04.2013 to 10.05.2013 75050 66970 LPS 10 17.05.2013 to 14.06.2013 107320 69150 LPS 6 17.06.2013 to 17.07.2013 59495 46700 LPS 3 18.07.2013 to 16.08.2013 53465 40945 674840 548305 5.5 The Gross income calculated for the period 12.12.2012 to 16.08.2013 i.e. for 8 month is Rs.12,23,145/-. In the assessment proceedings the assessing officer asked the assessee as to why the income should not be estimated at average of Rs.1,52,893/- per Saurabh Agrawal ITANo.702/Ind/2017 & IT(SS)ANo.303/Ind/2017 month on pro-rata basis and similarly estimated for A.Ys. 2008-09 to 2014-15. The appellant submitted that deduction of 40% of the gross receipts should be allowed for the expenditure incurred on the salaries of 3 assistants, petrol and conveyance, commission mobile, stationery and photocopy expenses. The appellant submitted that during the period 12.12.2-2012 to 16.08.2013 the volume of work had increased substantially because he started working on thin margins. Considering a consistent gradual growth in the business the appellant estimated his income and offered the revised income in the assessment proceedings as under- A.Y. Income Revised income offered in Estimated by AO shown u/s assessment proceedings 153A 2008-09 1,06,260 3,00,000 4,06,260 2009-10 1,39,370 3,60,000 4,99,370 2010-11 1,34,950 4,20,000 5,54,950 2011-12 1,59,980 4,80,000 6,39,980 2012-13 1,78,460 5,40,000 7,18,460 2013-14 1,92,830 9,90,000 18,42,380 2014-15 2,15,250 6,48,000 18,65,250 5.6 However, no revised returns were filed in this regard. The assessing Officer accepted the estimated the income as given above by the appellant. The only difference between the income estimated by the assessing officer for A.Ys. 2008-09 to 2012-13 and that offered by the appellant is that the assessing officer has made the estimation of the commission income over and above the income offered by the appellant in the return filed u/s 153A. As no details of the earlier period are available the appellant made on ad hoc offer for the earlier years. The assessing officer has stated in the order that the estimation is being done on the basis of the quantum of investment made in the properties and cash deposits in bank accounts. After considering all the facts and circumstances of the case, I am of the view that the estimation of income has been correctly done on pro-rata basis on the entries found for period 12.12.2012 to 16.08.2013. Taking the average of Rs.1,52,893/- pm, the gross income for A.Y. 2012-13 can be estimated at Rs.18,34,718/-. However, I do not see any justification in the appellant’s claim of 40% as expenses especially as it is showing substantial expenditure on commission for which there is no evidence placed on record. Considering from the seized diaries, it is logical to accept that assistants would be required and expenditure incurred on phone Saurabh Agrawal ITANo.702/Ind/2017 & IT(SS)ANo.303/Ind/2017 calls, photocopy and conveyance tec. Thus, I am of the view that 20% is a faire estimated of the expenses which more than covers the salaries petrol and conveyance, mobile stationary photocopy expenses estimated by the appellant himself during the assessment proceedings. The income for A.Y. 2013-14 on account of commission is therefore worked out to Rs.14,67,774/- after allowing 205 expenses from the gross income estimated at Rs.18,34,718/-. 4.1 The seized diaries are for the period 12.12.2012 to 16.08.2013 and as discussed above the average gross income per month is taken at Rs.1,52,893/-. The search was conducted on 04.10.2013 and the appellant has submitted that after the search there no business and it would be unjust to estimate the monthly average gross income for the post search period at the same etc. The submissions made in this regard as under: In connection with the above case in respect of the A.Y. 2014- 15, we respectfully submit before your honor that appellant’s premises were search on 4-5 Oct, 2013 and thereafter his business virtually come to halt because appellant could not pay attention to eh business in view of attending various dates, notices and preparing relevant information sought by the department besides mental stress. The same status maintained for remaining part of the F.Y. 2013-14 i.e. A.Y.2014-15. Considering these factors it is submitted that he did not earn any income for six months in A.Y. 2014-15 and no income be estimated for the same. 4.2 It is reasonable to accept that after the search was conducted, the business of the appellant at RTO agent would be affected adversely for a few months. Therefore, the monthly gross income from 01.04.2013 to 30.09.2013 for 6 months is taken at Rs.1,52,893/- which amounts to total of Rs.9,17,358/-. For the balance 6 months i.e. the post search period, the appellant’s contention that there was no business conducted is not acceptable and it would be reasonable to take the gross income at 50% which amounts to Rs.4,58,679/-. Thus, the gross income for A.Y. 2014-15 amounts to Rs.13,76,037/- and considering 20% as expenses as discussed in the appellate order for A.Y. 2008-09 the net income for A.Y.2014-15 is worked out to Rs.11,00,830/-. In view of the above, ground no.6 and additional ground are partly allowed.”

Saurabh Agrawal ITANo.702/Ind/2017 & IT(SS)ANo.303/Ind/2017 10. We observe that for proper running of RTO Agent business, assessee is required to incur expenditure of phone calls, photocopy, conveyance etc. It is also observed that the seized note book LPS-1/6 to LPS-1/13 contained regular hand written entries for the period 12.12.2012 to 16.08.2013 about various amounts received by the assessee as commission and it also contained details of cash payment made for incurring various expenses. A rough account was maintained for inflow and outflow of cash. The assessee made rough estimate of expenses at 40% of gross receipts which Ld. CIT(A) has confirmed to 20% of gross receipts.