ALL FOUR SEASONS TRAVELS,AHMEDABAD vs. THE DY.CIT., CENTRAL CIRCLE-1(3), AHMEDABAD

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ITSSA 29/AHD/2022Status: DisposedITAT Ahmedabad02 August 2023AY 2018-1914 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the addition of Rs. 10,00,000/- on account of bogus commission expenses was not sustainable. The primary basis for the AO's decision was the seized material, which the Tribunal found to be bills and credit notes for commission and professional fees, not inherently incriminating. The Tribunal also found the statement of Shri Jatin Shah to be unreliable, noting that he was an employee of another group concern (M/s. Venus Corporation) and his statement was recorded under Section 131, not Section 132(4). The Tribunal emphasized that a retracted statement, or one from a person not directly involved with the assessee, cannot be the sole basis for an addition, especially when the assessee has provided evidence of genuine payments through banking channels after TDS deduction. The Tribunal directed the deletion of the disallowance of Rs. 10 lakhs commission expenses. Regarding the Rs. 5,86,945/- addition for car purchase, the Tribunal allowed telescoping against the assessee's surrender of Rs. 6,00,000/- as bogus commission expenses, finding no reason why the cash expenditure should not be offset against the admitted surrender. Both grounds of appeal were allowed.

What were the facts?

The assessee, All Four Seasons Travels, filed an appeal against the order of the CIT(A)-11, Ahmedabad, for Assessment Year 2018-19. The appeal stemmed from a search under Section 132 of the Income Tax Act, 1961, conducted on April 10, 2019, followed by a notice under Section 153A. The Assessing Officer (AO) made an addition of Rs. 10,00,000/- on account of alleged bogus commission expenses. The AO's decision was based on seized material and statements recorded during the search. The assessee contended that the seized documents were bills for professional fees and commission, and payments were made through banking channels after deducting TDS. The assessee also admitted Rs. 6,00,000/- as bogus commission and surrendered it. The AO, unconvinced, treated the remaining Rs. 10,00,000/- as bogus and added it under Section 69 of the Act. The CIT(A) upheld the AO's order. Additionally, the assessee challenged an addition of Rs. 5,86,945/- for unexplained cash payment towards a car purchase, seeking telescoping against the surrendered commission expenses.

What were the issues?

1. Whether the addition of Rs. 10,00,000/- on account of alleged bogus commission expenditure is sustainable in law, considering the nature of seized material and statements recorded during the search (Section 69C and Section 153A). - Assessee's contention: No incriminating material was found to conclude commission expenses were bogus. The AO did not provide evidence of commission being received back in cash. The CIT(A) erred in relying on the statement of Mr. Jatin Chandrakant Shah, which was recorded during post-search proceedings and lacked evidentiary value, especially when the appellant provided explanations and evidence of payments through banking channels after TDS deduction. The AO failed to conduct independent inquiries. - Revenue's contention: The employee whose statement was recorded had admitted to working for the assessee, and the addition was based on both the statement and seized documents, increasing the statement's evidentiary value. The fact that one payment was found bogus supported the addition. 2. Whether the addition of Rs. 5,86,945/- for unexplained cash payment towards car purchase can be telescoped against the surrendered bogus commission expenses of Rs. 6,00,000/- (Section 68 and Section 153A). - Assessee's contention: The addition should be telescoped against the surrender of Rs. 6,00,000/- for bogus commission expenses offered to tax. - Revenue's contention: The addition needs to be confirmed as the assessee had not proved the source of cash payment.

Which sections of the Income-tax Act were involved?

Section 132,Section 153A,Section 143(3),Section 69C,Section 69,Section 131,Section 132(4),Section 68

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD

Before: SMT.ANNAPURNA GUPTA

Hearing: 18/05/2023Pronounced: 02/08/2023

आदेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER Present appeal has been filed by the assessee against order passed by the ld.Commissioner of Income-Tax(A)-11, Ahmedabad [hereinafter referred to as “ld.CIT(A))”] dated 18.8.2022 under section 250(6) of the Income Tax Act, 1961 ("the Act" for short)pertaining to Asst.Year 2018-19.

2.

The ground no.1 and 4 raised by the assessee were stated to be general in nature, and therefore, the same are not being dealt with by us.

3.

Ground No.2 and 2.1(a) to 2.1(c), it was contended, related to the same issue of disallowance of commission expenses amounting

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to Rs.10.00 lakhs. Both grounds are therefore being dealt with by us together. The said grounds read as under:

“1. In law and in the facts and circumstances of the appellant's case, the impugned assessment order issued u/s 153A is bad in law and deserved to be cancelled. 2. In law and in the facts and circumstances of the case, the learned CIT(A) has erred in upholding addition u/s 69C amounting to Rs 10,00,000/- being alleged bogus commission expenditure on merits when no such addition can be made. 2.1 In law and in the facts and circumstances of the case, the learned CIT(A) has failed to appreciate that - (a) No incriminating material was found which leads to conclude that the commission expenses are bogus in nature. Further, the AO has not brought any evidence on record which can further prove that commission paid by appellant has received back in cash. (b) The CIT(A) has erred in relying on the statement of Mr. Jatin Chandrakant Shah recorded during the post search proceedings. However, it is pertinent to note that statement recorded during the search proceedings does not become sole material to confirm the addition, more so when the appellant has provided the explanation along with the evidences supporting the claim of appellant. The appellant had submitted that said expenses were in the nature of professional and management fees paid by the appellant firm to Rajiv Anilbhai Shah and JagishAnilbhai Shah through banking channel duly after deducting the TDS and therefore genuineness of the said transaction cannot be doubted and accordingly the addition deserves to be deleted. (c) Additionally, it is submitted that the Ld. AO has failed to conduct further independent enquiry to the person in respect of whom credit notes have been found and proceeded to make the addition only on presumption basis without carrying out any requisite enquires.”

4.

The facts relating to the issue being that the assessee was subjected to search under section 132 of the Act, search being conducted on 10.4.2019. Thereafter notice under section 153A was issued to the assessee, and after considering thereplies filed by the assessee on queries raised by the AO during the assessment proceedings, order under section 143(3) read with section 153A of the Act was passed. On the issue of commission expenses, the AO in his order noted that certain non-electronic seized material was

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found, based on which it emerged that bogus commission expenses were claimed by the assessee amounting in all to Rs.16.00 lakhs, being paid to three persons viz. (i) Jagdish Anilabhai shah, (ii) Rajiv Anilbhai Shah, and (iii) Mayur Premchand Shah. Jagdish Anilbhai Shah and Rajiv Anilbhai Shah being paid Rs.5 lakhs each on 31.3.2018 while Mayur Premchand Shah being paid Rs.6 lakhs on 31.3.2018. The assessee when confronted with the same, contended that the documents referred to by the AO as incriminating were in fact credit notes issued for commission and bills for professional fees; that they were not incriminating as such, and it was also contended that payment had been made through banking channels. The assessee also contended that it was only with respect to the payment of Rs.6 lakhs made to Mayur Premchand Shah that the same was admittedly bogus and it was pointed out that the assessee had surrendered the same in the return filed. The AO, however, was not convinced with the reply of the assessee. He referred to the statement recorded of one Shri Jatin Shah and Shri Darshan Shah during search admitting to the fact that the commission expenses paid were all bogus in nature by the assessee-firm. Further, he also noted that the assessee itself had admitted to Rs.6 lakhs commission out of total commission of Rs.16 lakhs, as being bogus in nature. Therefore he held that the remaining Rs.10 lakhs was also bogus in nature and added the same under section 69 of the Act to the income of the assessee.

5.

The issue was carried in appeal before the ld.CIT(A) who confirmed the order of the AO. The finding of the ld.CIT(A) at para 6.1 to 6.5 of the order are as under:

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6.

Before us, the contention of the ld.counsel for the assessee, challenging the order of the ld.CIT(A) holding the commission paid of Rs.10 lakhs to be bogus was to the effect that –

i) No incriminating material was found during search, and it was only bills and/or credit notes of the commission, which were found during the search. In this regard our attention was drawn to PB Page No.20 to 22, being documents mentioned in Annexure A/1 seized during search. Drawing our attention to the same, it was pointed out that they were all bills raised by Jagish Anilbhai Shah for professional fees for advising in marketing or by Rajiv Anil Shah for management fee for

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marketing matters, and by Mayur P Shah for consultation fees for marketing matters; ii) Statement on which the AO had relied was that of an employee, that too, not of the assessee concern, but of another concern relating to the group searched i.e. M/s.Venus Corporation; that the said employee had admitted to have nothing to do with the assessee-concern except handling its cash, and therefore, whatever was admitted by such employee, could not have any evidentiary value with respect to the assessee-concern. Further that in any case, the statement was recorded under section 131 of the Act and not under section 132(4) of the Act, and therefore also, it had no evidentiary value, considering the fact that the assessee had retracted the same, while filing return of income.

Our attention was drawn to the statement of Shri Jatin C. Shah referred to by the AO in his order while making addition of commission expenses, which was placed before us at PB Page No.27 to 50, more particularly, our attention was drawn to PB Page No.28 where in response to the question No.3 put to him, asking him source of income, he had responded by stating that his source of income was salary drawn from M/s.Venus Corporation, where he was an accountant. Our attention was also drawn to page no.29 wherein he had stated, besides working for M/s.Venus Corporation, he was also handling cash deposits of the assessee-firm also; that all cash collections of the day of the assessee-concern was handed over to him at the end of the day, which he

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deposited in the bank account in the next day. It was also pointed out that Shri Jatin Shah had admitted, he was not drawing salary from any other firm except Venus Corporation.

It was contended that as per the statement of Sh. Jatin Shah admittedly had nothing to do with the assessee, therefore the AO could not have given cognizance to his admission in the statement of all the seized material being in relation to bogus claim of commission expenses.

iii) that in any case all evidences were filed to the AO proving that the commissionexpenses were genuine in nature, including copy of the bank statement showing payment of commission, through bank channels to the concerned person.

7.

The ld.DR, on the other hand, supported the order of the ld.CIT(A) stating that the employee, whose statement was recorded, undoubtedly had admitted to working for the assessee also, and that addition was made not solely on thebasis of statement, but also on the basis of documents seized during the search, and therefore, evidentiary value of the statement had increased. He also contended thatthe fact that one of the payments found to be bogus, was admitted by the assessee itself as being so, it lent credence to the findingsof the authorities below that the entire claim of commission expenses was bogus. The ld.DR also stated that other than stating that no incriminating material was found or that the statement of employee had no evidentiary value, the assessee had made no efforts to prove genuineness of its claim. Therefore, the ld.DR contended

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that the ld.CIT(A) had rightly upheld the order of the AO treating the commission expenses to the tune of Rs.10 lakhs also as bogus.

8.

We have heard the rival contentions, and gone through orders of the authorities below, and have also perused the documents which were referred to before us. The commission expenses disallowed in the present case, amounting to Rs.10 lakhs related to paid to two persons viz. Rajiv Anilbhai Shah and Jagdish Anilbhai Shah amounting to Rs.5.00 lakhs each. The documents allegedly found during the search referred in the order of the AO and produced before us at PB Page No.20-21 undoubtedly are bills raised by these two persons from the assessee-company for professional and management fees respectively. Though, the ld.DR has stated that incriminating material was found during search pointing to the fact that these commission expenses were bogus in nature, nothing has been produced before us indicating this fact. Therefore, for all purposes, we are inclined to agree with the ld.counsel for the assessee that the only documents found during search were two bills of these two persons, which were raised for professional and management services rendered by them. The bills therefore ,we agree with the Ld.Counsel for the assessee ,cannot by themselves be termed to be incriminating material.

9.

The Revenue authorities have relied on this material along with statement of one Shri Jatin Shah recorded during search wherein he admitted to the bills representing bogus commission paid to these persons, for the purpose of holding that the amounts claimed to have been paid to these two persons was bogus commission expenses. Therefore it transpires that the addition is solely based on statement recorded.

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10.

On going through the contents of statement of Shri Jatin Shah placed before us in PB Page No.27 to 50, we find merit in the contention of the ld.counsel for the assessee that his admission or statement to the effect that the documents found during search all related to bogus bills of expenses cannot have any evidentiary value and cannot be given any weightage in relation to such expenses claimed by the assessee firm since he had nothing to do with the assessee firm. The reply of the Shri Jatin Shah at P.B 28, 29 reveals him to have stated that he was employee only of M/s Venus Corporation and with respect to the assessee-company, he was only handling their work of depositing cash collected in the bank account. Clearly, the scope of work Sh.Jatin Shah did for the assessee was limited to dealing in cash and he was not handling the accounts of the assessee firm at all. Shri Jatin Shah clearly is in no position to make any statement vis-a-vis accounts/bills of the assessee firm. His statement with regard to bills of commission being bogus therefore has no evidentiary value.

Even otherwise, addition, we hold, cannot be based solely on statement recorded that too of a totally unrelated reasons, dehors any incriminating material found. Our view is fortified by various decisions of Hon’ble High Court as under:

Shree Ganesh Trading Co.vs CIT 214 Taxman 262 (JH) “6. We are of the considered opinion that statement recorded under section 132(4) of the Income Tax Act, 1961 is evidence but its reliability depends upon the facts of the case and particularly surrounding circumstances. Drawing inference from the facts is a question of law. Here in this case, all the authorities below have merely reached to the conclusion of one conclusion merely on the basis of assumption resulting into fastening of the liability upon the assessee. The statement on oath of the assessee is a piece of evidence as per section 132(4) of the Income Tax Act and when there is incriminating admission against himself, then it is required to be examined with due care and caution. In the judgment of Kailashben Manharlal Chokshi (supra), the Division Bench of Gujarat High Court has considered

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the issue in the facts of that case and found the explanation given by the assessee to be more convincing and that was not considered by the authorities below. Here in this case also, no specific reason has been given for rejection of the assessee's contention by which the assessee has retracted from his admission. None of the authorities gave any reason as to why Assessing Officer did not proceed further to enquire into the undisclosed income as admitted by the assessee in his statement under section 134(2) in fact situation where during the course of search, there was no recovery of assets or cash by the Department. This fact also has not been taken care of and considered by any of the authorities that in a case where there was search operation, no assets or cash was recovered from the assessee, in that situation what had prompted the assessee to make declaration of undisclosed income of Rs. 20 lacs. Mere reading of statement of assessee is not the assessment of evidentiary value of the evidence when such statement is self-incriminating. Therefore, we are of the considered opinion that in the present case, a wrong inference had been drawn by the authorities below in holding that there was undisclosed income to the tune of Rs. 20 lacs.

7.

In view of the above reasons, without answering the question about retrospective operation of the proviso to section 134(4), we are holding that the authorities below have committed error of law in drawing inference from the materials placed on record, i.e. admission of the assessee coupled with its retraction by the assessee. The Revenue may now proceed accordingly.

CIT vs S Jayalakshmi Ammal 390 ITR 189 (Mad)

“19. While adverting to the above, we are of the considered view that, for deciding any issue, against the assessee, the Authorities under the Income Tax Act, 1961 have to consider, as to whether there is any corroborative material evidence. If there is no corroborating documentary evidence, then statement recorded under Section 132(4) of the Income Tax Act, 1961, alone should not be the basis, for arriving at any adverse decision against the assessee. If the authorities under the Income Tax Act, 1961, have to be conferred with the power, to be exercised, solely on the basis of a statement, then it may lead to an arbitrary exercise of such power. An order of assessment entails civil consequences. Therefore, under Judicial review, courts have to exercise due care and caution that no man is condemned, due to erroneous or arbitrary exercise of authority conferred.

20.

In the case on hand, statement recorded on 29.12.1999 from the son of the assessee under Section 132(4) of the Act is not corroborated by any material document. Admittedly, Revenue has also not confronted the assessee, with the said statement of his son. If that be the case, it can be safely concluded that, there was no material documentary evidence, to substantiate and corroborate the statement of Mr.Natarajan, son of the assessee. If the assessee makes a statement under Section 132(4) of the Act, and if there are any incriminating documents found in his possession, then the case is different. On the contra, if mere statement made under Section 132(4) of the Act, without any corroborative material, has to be given credence, than it would lead to disastrous results. Considering the nature of

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the order of assessment, in the instant case characterised as undisclosed and on the facts and circumstances of the case, we are of the view that mere statement without there being any corroborative evidence, should not be treated as conclusive evidence against the maker of the statement.

21.

In the light of our discussion, we are of the considered view that the Revenue has not made out a case for reversal of the orders impugned, on the grounds raised, and thus we hold that all the substantial questions of law, are answered in the negative against the Revenue, and in favour of the respondent/assessee.”

Ganjam Chinna Yellappavs ITO, 370 ITR 671 (AP)

“8. The Assessing Officer initiated proceedings under section 148 of the Act by issuing notice. At that stage, the appellants came forward with the plea that the statements were forcibly recorded, and even cheques were taken from them, under duress. That plea was not accepted and the Assessing Officer felt that there are no bona fides in the statement of retraction and orders of assessment were passed. Those orders were upheld by the Commissioner of Income-tax (Appeals) as well as the Tribunal.

9.

The Act empowers the Assessing Officers or other authorities to record the statements of the assessees, whenever a survey or search is conducted under the relevant provisions of law. The statements so recorded are referable to section 132 of the Act. Sub-section (4) thereof enables the authorities not only to rely upon the statement in the concerned proceedings but also in other proceedings that are pending, by the time the statement was recorded.

10.

If the statement is not retracted, the same can constitute the sole basis for the authorities to pass an order of assessment. However, if it is retracted by the person from whom it was recorded, totally different considerations altogether, ensue. The situation resembles the one, which arises on retraction from the statement recorded under section 164 of the Code of Criminal Procedure. The evidentiary value of a retracted statement becomes diluted and it loses the strength, to stand on its own. Once the statement is retracted, the assessing authority has to garner some support, to the statement for passing an order of assessment.

11.

In I. T. T. A. No. 112 of 2003 (see CIT v. Naresh Kumar Agarwal [2014] 369 ITR 171/[2015] 53 taxmann.com 306 (AP) this court dealt with the very aspect and held that a retracted statement cannot constitute the sole basis for fastening liability upon the assessee.

12.

In the instant case, the appellants specifically pleaded that the statements were recorded from them by applying pressure, till midnight, and that they have been denied access outside the society. The Assessing Officer made an effort to depict that the withdrawal or retraction on the part of the appellants is not genuine. We do not hesitate to observe that an Assessing Officer does not have any power, right or jurisdiction to tell, much less to decide, upon the nature of withdrawal or retraction. His duty ends

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where the statement is recorded. If the statements are retracted, the fate thereof must be decided by law meaning thereby, a superior forum and not by the very authority, who is alleged to have exerted force. 13. It is not as if the retraction from a statement by an assessee would put an end to the procedure that ensued on account of survey or search. The Assessing Officer can very well support his findings on the basis of other material. If he did not have any other material, in a way, it reflects upon the very perfunctory nature of the survey. We find that the appellate authority and the Tribunal did not apply the correct parameters, while adjudicating the appeals filed before them. On the undisputed facts of the case, there was absolutely no basis for the Assessing Officer to fasten the liability upon the appellants. Our conclusion find support from the Circular dated March 10, 2003, issued by the Central Board of Direct Taxes, which took exception to the initiation of the proceedings on the basis of retracted statements. 14. Therefore, I. T. T. A Nos. 268, 273 and 308 of 2003 are allowed and the orders of assessment dated December 1, 1998, are set aside. Since the orders of assessment are set aside, I. T. T. A. Nos. 287, 291 and 294 of 2006 have virtually become infructuous and they are, accordingly, closed. There shall be no order as to costs.”

11.

Considering our finding as above, the basis with the AO for treating the commission expenses of Rs.10 lakhs bogus does not survive,since, as noted by us above, the only basis with the Revenue rested onthe seized material being treated as incriminating in nature, coupled with the statement of Shri Jatin Shah, both of which we have found to be not material for holding so. Moreover, we find that as far as assessee is concerned, it had discharged its onus of proving genuineness of the claim, bills for commission expenses being found by the department itself during the search conducted on the assessee, and the assessee having demonstrated with evidence that payments were made to these persons through banking channels for the same.

12.

In view of the above, we hold that there is no case for disallowing the commission expenses to the tune of Rs.10 lakhs, as being bogus in nature. Disallowance made of Rs. 10 lacs of commission expenses is therefore directed to be deleted.

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Grounds of appeal No.2 & 2.1 raised by the assessee are allowed.

13.

The ground No.3 to 3.1 read as under:

“In law and in the facts and circumstances of the case, the learned CIT(A) has erred in making upholding addition of Rs 5,86,945/- u/s 68 of the Act when no such addition can be made. In law and in the facts and circumstances of the case, the learned CIT(A) has erred in not allowing telescoping of alleged bogus commission expenditure offered to tax in return of income filed in response to notice u/s 153A of the Act for Rs 6,00,000/- nor allowed telescoping of alleged bogus commission expenditure confirmed by him for Rs.10,00,000/- against alleged cash payment towards car.:

14.

Facts relating to the issue are given at para 5.1 of the AO as under:

15.

As transpires from the above the assessee was found to have made cash payment for purchase of car amounting to Rs. 5,86,945/- source of which remained unexplained. Accordingly

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addition was made of the same u/s 69 of the Act. The same was confirmed by the Ld.CIT(A).

16.

Before us, solitary plea of the ld.counsel for the assessee was that the said addition be telescoped against surrender made by the assessee of bogus commission expenses of Rs.6 lakhs. The ld.DR objected to the same, and stated that addition needed to be confirmed, since the assessee had not proved the source of cash payment.

17.

Considering the fact that the assessee did surrender an amount of Rs.6 lakhs as bogus commission expenses, we see no reason why the expenses incurred in cash for purchase of car be not telescoped against the same.

In view of the same, addition on account of unexplained investment in purchase of car of Rs.5,86,945/- is directed to be telescoped against the surrender of bogus commission expenses claimed by the assessee.

Ground of appeal 3 & 3.1 raised by the assessee are allowed in above terms.

18.

In the result, the appeal of the assessee is allowed. Order pronounced in the Court on 2nd August, 2023 at Ahmedabad.

Sd/- Sd/- (MADHUMITA ROY) (ANNAPURNA GUPTA) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad, dated 02/08/2023

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