INCOME TAX OFFICER, LOWER PAREL vs. BHAVANI BALASUBRAMANIAM IYER, MUMBAI

During the course of hearing, the Ld. AR submitted that the assessment was completed ex-parte by the Assessing officer wherein he has passed the order u/s. 147 res 144 r.w.s. 144B of the Act, bringing to tax an amount of Rs. 2.50 crores as un-explained investment u/s. 69 of the Act and an amount of Rs. 1.09 crores, being the gross professional receipts to tax without allowing deduction for expenses under the head „income from business/profession‟. It was submitted that the assessee is a script writer in the entertainment industry and has been regularly filing her return of income for last 25 years and have always paid the taxes as due and there are no outstanding past tax liability against her. It was submitted that for the year under consideration, due to exceptional and unforeseen health emergency in her family due to her father illness, she couldn‟t file her return of income. At the same time, it was submitted that the assessee did file response to notice received for non-filing of return of income. It was further submitted that the assessee didn‟t receive any subsequent notice online on her email, which has resulted in non- compliance to the notices issued by the AO during the course of assessment proceedings and which has in turn resulted in passing of the ex-parte assessment order.

It was further submitted that for the aforesaid reasons, during the appellate proceedings, the assessee moved an application for submitting additional evidence and submitted that she has maintained books of accounts and got them audited u/s 44AB of the Act and has submitted 2932 & 2933/Mum/2025 necessary documentation in terms of statement of income, audited Balance Sheet, Profit & Loss Account and tax audit report as well as particulars of investment made in a house property and source of such investments. It was submitted that the additional evidences were admitted and remand report of the AO were also called for by the ld CIT(A).

It was submitted by the ld AR that as per the audited financial statements and the computation of income, the assessee has suo moto disallowed an amount of Rs.15,44,465/- and has offered income of Rs. 74,33,640/- on total professional receipts of Rs.1,09,00,000/- thereby disclosing 68.19% profits on total professional receipts which is quite reasonable by any industry benchmark. It was submitted that there is no adverse finding recorded by the AO in his remand report and inspite of that, the ld CIT(A) has estimated allowable expenses @ 40% of expenses. It was submitted that books of accounts so maintained by the assessee have not been rejected and ld CIT(A) has not specified what is the basis for determining 40% of expenses as allowable expenses, no allowance for depreciation has been given which has to be statutorily allowed and further, he has not taken cognizance of the fact that the assessee has suo-moto disallowed an amount of Rs.15,44,465/- as personal expenses not attributable to professional activities. It was submitted that no comparable instance has been brought on record to justify that the assessee has disclosed lower profitability @ 68.19% and the profitability should have been on a higher side. It was submitted that reference of ld CIT(A) was also drawn to section 44ADA which provides that in case of assessee engaged in specified profession, 50% of gross receipts have been provided as deemed profit which can be brought to tax and it was submitted that even though the threshold for invoking the said section of Rs.75 lacs gross receipts doesn‟t strictly apply in the instance case, 2932 & 2933/Mum/2025 however, a reasonable basis for estimating the net profit can be derived from the said provisions given that the assessee has received whole of the professional receipts through banking channel and has also maintained books of accounts, however, the Ld.CIT(A) has summarily dismissed the same. It was submitted that in the instant case, the assessee has maintained books of accounts which have been duly audited and assessee has disclosed higher net profit @ 68.19% of gross professional receipts which should be accepted and the findings of the Ld.CIT(A) where he has estimated profits @ 85.30% of the total receipts being without any reasonable basis therefore deserve to be set-aside and necessary relief be provided to the assessee.

Secondly, regarding the source of investment in purchase of immoveable property, it was submitted that firstly, the purchase of immoveable property i.e, Flat No. 202/A, Raj Kamal Co-operative Housing Society Ltd, Versova, Andheri (West), Mumbai, happened by virtue of agreement to sell dated 31/03/2015 which falls during the financial year 2014-15 relevant to AY. 2015-16 and not during the financial year 2015- 16 relevant to the impugned assessment year 2016-17 as wrongly construed by the AO. In this regard, our reference was also drawn to the assessment order where the AO has taken note of the date of agreement as 31-03-2015 and it was submitted that inspite of that, the AO has proceeded and made the addition towards the unexplained investment. It was further submitted that the assessee has purchased the flat through borrowed funds from financial institution and the Ld.CIT(A) has rightly taken cognizance of the source of such investment as duly explained and has deleted the addition so made by the AO.

In his rejoinder, the Ld.AR submitted that during the course of appellate proceedings, the assessee has submitted that she has maintained books of accounts and duly audited financial statements and tax audit report were submitted and the assessee was thereafter never asked to submit any further details of the expenses claimed, therefore, the question of non-submissions doesn‟t arise. Regarding the nexus between loan taken and property purchased, it was submitted that as evident from agreement to sell where the sale consideration has been stated at Rs 2.5 crores, the assessee has made payment of Rs 35 lacs from her own funds, Rs 2.5 lacs was deducted towards TDS which was duly deposited and Rs 2.12 crores was taken as loan from Deewan Housing Finance Ltd (DHFL) and which was disbursed directly to the seller, Mrs Anupama Mandloi on 31/03/2015 and the sanction letter, disbursement letter and details of cheques issued directly in favour of the assessee have been placed on record. It was reiterated that the transaction of purchase of immoveable property was completed on 31-03-2015 which falls during the financial year 2014-15 relevant to assessment year 2015-16 and there is thus no basis for the AO to question the source of investment in such immoveable property during the impugned assessment year 2016-17. It was submitted 2932 & 2933/Mum/2025 that in any case, the assessee has demonstrated the source of such investment by way of partly own funds and partly borrowed funds and thus, even on this ground, no addition can be sustained. It was further submitted that in December 2015, the assessee took another loan of Rs 2.55 crores from Reliance Housing Finance Limited (RHFL) which was used to repay the earlier housing loan taken from DHFL and another loan from Axis Bank and loan disbursal, loan statement issued by RHFL and earlier loan closure documents have been placed on record. It was accordingly submitted that no investment has been made during the year and further, the investment made in earlier financial year was funded out of borrowed funds and such borrowed funds have infact been repaid during the financial year relevant to impugned assessment year.

It was accordingly submitted that necessary relief be provided to the assessee by computing the income from business and profession at Rs. 74,33,640/- and further, he supported the order of the Ld.CIT(A), wherein he has deleted the addition u/s. 69A of the Act amounting to Rs. 2.50 crores.

We have heard the rival contentions and perused the material available on record. Firstly, on the issue of allowability of expenses against the professional receipts, we find that the AO has brought to tax whole of the professional receipts to tax without allowing any expenses apparently for the reasons that the assessee has not replied to the notices and submitted any documentation. During the appellate proceedings, the assessee has come forward explaining the reasons for non-compliance and submitted that she has maintained books of accounts which have been duly audited and has submitted documentation in terms of statement of computation of income, audited Balance Sheet, Profit & Loss Account and 2932 & 2933/Mum/2025 tax audit report. As per the audited financial statements, the assessee has reported gross professional receipts of Rs 1,09,00,000/- and net profit of Rs 63,92,248/ and in the computation of income, the assessee has suo moto disallowed an amount of Rs.15,44,465/-, being the personal expenses not been incurred for the purposes of her profession and has offered net income of Rs. 74,33,640/- thereby disclosing net profit @ 68.19% on gross professional receipts. The AO in the remand report has not recorded any adverse finding regarding claim of the expenses and has thus in effect accepted the claim of the assessee. The Ld.CIT(A) has taken cognizance of the documentation so submitted and without even raising a whisper on the authenticity of the books of accounts and without rejecting the books of accounts and the results so declared/reflected as per the audited financial statements, has estimated allowable expenses @ 40% of claimed expenses without specifying the basis of such estimation which has resulted in determination of net profits @ 85.30% as against 68.19% of the gross professional receipts as so reported by the assessee in her computation of income. The Ld.CIT(A) has not even taken cognizance of the fact that the assessee has suo-moto disallowed an amount of Rs.15,44,465/- as personal expenses not attributable to professional activities, and besides that, no allowance for depreciation has been given which has been rightly claimed by the assessee and has to be statutorily allowed. The only reason stated by the Ld.CIT(A) is that the assessee has not submitted the details of the expenses claimed which has been refuted by the Ld.AR stating that no such have been called for at first place. Further, as pointed out by the Ld.AR, the Ld.CIT(A) has not brought on record any comparable case as that of the assessee where the net profit has been determined at 85.30% of gross receipts and as against that, the Ld.AR has placed reliance on provisions of section 44ADA for

In our overall analysis, we therefore find that where the books of accounts so maintained have not been rejected, there is no basis to disturb the profits so declared as per the books of accounts. Secondly, the assessee has suo-moto apportioned and disallowed certain expenses which can reasonably be related as personal in nature and not related to professional activities and thirdly, the profits so determined @ 68.19% of gross receipts are comparable to similar situated assessees and therefore, we donot see any legal and factual basis not to accept the net profits so declared by the assessee.

In light of the aforesaid discussions and in the entirety of facts and circumstances of the case, we set-aside the matter to the file of the AO for the limited purposes of re-computation and direct the AO to determine the net profit @ 68.19% of gross professional receipts as against 85.30% determined by the Ld.CIT(A). The ground of appeal taken by the assessee is thus partly allowed and the ground of appeal taken by the Revenue is dismissed.

Evidently, the information in possession of the AO and basis which the case of the assessee was reopened was in terms of TDS return (Form 26QB) submitted online by the assessee after deposit of TDS u/s 194IA on payment of sale consideration. As evident from the said information which has been reproduced by the AO in paragraph 7 of the assessment order, besides all relevant details, it contains the date of agreement as 31-03- 2015 and purchase consideration of Rs 2.50 crores and date of tds payment of 01-04-2015 and amount of TDS of Rs 2.5 lacs. The fact that the TDS has been deposited during the financial year 2015-16 doesn‟t by any stretch of imagination lead to the fact that the purchase transaction has actually got executed during the financial year 2015-16 especially where the date of agreement has been clearly specified as 31-03-2015 which falls during the financial year 2014-15. The AO cannot be allowed to read the information in piecemeal and seek to reopen the assessment for the impugned assessment year where admittedly, the transaction has happened during the previous assessment year. This also reflects non- application of mind by the AO while reopening the assessment.

In any case, the issue before us is limited to whether the investment has happened during the year under consideration and if so, what the source of such investment. As we have discussed earlier, the investment 2932 & 2933/Mum/2025 has happened evidently during the previous financial year 2014-15 relevant to assessment year 2015-16 and thus, no cause of action arises for the impugned assessment year 2016-17. Having said that, we find that the assessee has duly demonstrated through the documentation placed on record that such investment has been substantially financed through loan of Rs 2.12 crores taken from DHFL besides utilization of personal savings of Rs 35 lacs. As evident from documents placed on record, the disbursal of loan amount of Rs 2.12 crores have happened directly from DHFL to the seller and thus, establishing the necessary nexus between loan taken and property purchased by the assessee and source of such investment. For the aforesaid reasons, we upheld the conclusion so drawn by the Ld.CIT(A) whereby he has deleted the addition of Rs 2.5 crores u/s 69 of the Act. In the result, ground of appeal taken by Revenue is dismissed.

In the result, the appeal of the assessee is partly allowed and the appeal of the Revenue is dismissed.

During the course of hearing, the Ld.DR submitted that since the Department has not accepted the order of the Ld.CIT(A) in deleting the additions in the quantum proceedings, the present appeal has been filed.

Both the parties were heard and material available on record pursued. In view of our aforesaid findings in the quantum proceedings where we have set-aside the matter to the file of AO, the matter relating to levy of penalty is also set-aside to the file of the AO to take in consideration our findings in the quantum proceedings, the fact that TDS amounting to Rs. 10,90,000/- has been deducted as so reflected in Form 16A on gross professional receipts of Rs 1,09,00,000/- and determine whether the same 2932 & 2933/Mum/2025 can be excluded while computing the tax sought to be evaded and decide the matter as per law after providing reasonable opportunity to the assessee. The matter relating to levy of penalty u/s. 271(1)(c) is thus set-aside to the file of the AO with the aforesaid directions.