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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI OM PRAKASH KANT & SMT. KAVITHA RAJAGOPAL
1 ITAs No.7759 & 7760/Mum/2019
आयकर अपीलीय अिधकरण मुंबई पीठ “एच”, मुंबई �ी ओम �काश कांत, लेखा सद� एंव �ीमती किवता राजगोपाल, �ाियक सद� के सम� IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “H”, MUMBAI BEFORE SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER AND SMT. KAVITHA RAJAGOPAL, JUDICIAL MEMBER आ.अ.सं.7759 & 7760/मुं/2019 िन.व.2011-12) ITA Nos. 7759 & 7760/Mum/2019 (A.Y. 2011-12) Shri Kamal Kishore Rathi, 115B, Shalimar Miracle Opp. ICICI Bank, S V Road Goregaon (West) Mumbai-400062. PAN:AAGPR1508N ...... अपीलाथ� /Appellant
बनाम Vs.
DCIT, CC-4(3), 1921, Air India Bldg Nariman Point Mumbai-400 021 ..... �ितवादी/Respondent अपीलाथ� �ारा/ Appellant by : Shri Vijay Shah, CA �ितवादी �ारा/Respondent by : Smt. Usha Gaikwad, Sr.AR सुनवाई की ितिथ/ Date of hearing : 22/09/2022 घोषणा की ितिथ/ Date of pronouncement : 27th /10/2022
2 ITAs No.7759 & 7760/Mum/2019 आदेश/ ORDER PER OM PRAKASH KANT (AM):
These two appeals by the assessee are directed against two separate orders, both dated 09/10/2019 passed by the Learned Commissioner of Income- tax (Appeals)-52, Mumbai [in short the Ld. CIT(A)] for Assessment Year 2011-12. The first appeal is arising out of the assessment order dated 03/10/2018 passed consequent to the order of the ITAT dated 14/06/2017, whereas the second appeal is arising out of the assessment order dated 28/12/2018 passed under section 147 of the Income-tax Act, 1961 ( in short the Act).
The grounds raised in ITA No. 7759/Mum/2019 are reproduced as under: 1. Based on facts and circumstances of the case and further as explanation offered the order passed by learned CIT (A) is bad in law and against the principles of natural justice. 2. The order passed by teamed CIT (A) is based on surmises and unnatural assumptions.
The learned CIT(A) grossly erred in not accepting the plea of appellant as to accept the Original Return of Income filed by the appellant declaring Gross amount 8,81,514/- being income as declared U/s. 131 of The Income Tax Act, 1961, as true and correct, as has been accepted by him while disposing the appeal for A.Y. 2009-10. 4. The learned CIT(A) ought to have appreciated the fact that the appellant made consolidated declaration for three years and filed the Return of Income on actual basis for each year which is different from break up of income done by investigation wing, hence the Return filed by the appellant should be accepted, as true and correct, as has been done by teamed CIT (A) in earlier year {A.Y. 2009-10) (Satinder Kuma(HUF) Vs. CIT (1977) 106 ITR 64 (SC). 5. Based on the facts and circumstances of the case and further as per the explanation offered the learned CIT(A) erred in disallowing the payment of commission amounting to Rs. 368,841/- to Mr. Alliance Intermediaries & Network P.Ltd. for use of their account.
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The learned CIT(A) grossly erred in confirming the order of AO towards addition of commission paid to M/s. Alliance Intermediaries & Network Pvt. Ltd. amounting to Rs, 3,68,841/- 7. The learned CIT (A) ought to have given due consideration to the fact that the said amount was paid to M/s. Alliance Intermediaries & Network Pvt. Ltd. by account payee cheques issued from the Account of the appellant. 8. The teamed CIT(A) ought to have given due consideration to the fact that an affidavit duly signed by Shri Jayesh Sampath , one of the director of M/s. Alliance Intermediaries & Network Pvt. Ltd., admitting the receipt of said commission amount, and should have allowed as deductible expense. 9. The learned CIT(A) ought to have given due consideration to confirmation statement filed by the appellant at the time of assessment proceedings. 10. Your appellant humbly submit that the amount paid to M/s. Alliance Intermediaries & Network Pvt. Ltd. was never received back by the appellant either directly or indirectly. Hence the amount paid as commission to M/s. Alliance Intermediaries & Network Pvt. Ltd. amounting to Rs. 3,68,841/- should be allowed (Rahul Kharia Vs. IT0 (2308/Kol/2016) CIT Vs. Printer House P. Ltd. (188 ITR 70) 11. The learned CIT(A) grossly erred in confirming the disallowance amounting to Rs. 2,04,000/- being amount of salaries paid to various staff. 12.The learned CIT(A) ought to have appreciated the fact that learned AO had personally called and verified the statements of various staff. Rejecting the expenses simply because the recipients of salaries have not shown their income under the "Salaries" but under "Business Income" is highly erroneous and unjust. The basis of allowing any expense should be its genuineness and not how the treatment was given by recipient in his Return of Income. 13.The learned CJT(A) ought to have given due consideration to the fact that the amount is duly received by the recipients and brought to tax in their respective Return of Income. The appellant humbly submits that the AO could have allowed expense under any other head and made the justice.” 2. Briefly stated facts of the case as culled out from the order of the lower authorities and paper books filed by the assessee are that the assessee filed return of income on 04/08/2011 declaring total income of Rs.2, 57, 430/-.
A survey under section 133A of the Act was carried out on the premises of the assessee on 26/08/2010, wherein he admitted undisclosed income of ₹ 25
4 ITAs No.7759 & 7760/Mum/2019 lakh and agreed to offer the same for the purpose of tax in assessment year 2011- 12 i.e. the year under consideration ,however same was not declared in the return of income filed .
The assessment under section 143(3) of the Income-tax Act, 1961 ( in short the Act) was passed on 20/03/2014 determining total income at ₹ 25 lakh after making addition/disallowance of ₹ 22,42,570/-which included disallowance of ₹ 2, 04, 000/-towards salary and wages and ₹ 3, 68, 841/- towards sub-brokerage charges, totalling to ₹ 5,72,841/-. The claim of the Assessing Officer was that assessee attempted to neutralize the offer of undisclosed receipt from brokerage declared during the course of the survey, by way of claiming unsubstantiated expenses on salary and wages and sub- brokerage, therefore he did not allow these expenses for deduction.
The Ld. CIT(A) dismissed the appeal of the assessee vide order dated 05/10/2015.
On further appeal, the Income tax Appellate Tribunal (ITAT) [in short, the Tribunal] in a combined order dated 14/06/2017 for assessment years 2009-10 to 2011-12 in ITA Nos. 167 to 168/Mum/2016 decided the issue while dealing with grounds for assessment year 2009-10 and followed the same finding for assessment year 2011-12 i.e. instant assessment year. The factual background in respect of assessment year 2009-10 regarding disallowance of salary and wages by the Assessing Officer has been reproduced in para 4.5 by the Tribunal (supra), which is extracted as under:
“4.5 The A.O. during the course of assessment proceeding issued summons u/s. 131 of the Act on test check basis to some of the persons to whom the assessee claimed to have paid certain amounts as ‘salary & wages’ and claimed the same as expenses in his P&L account
5 ITAs No.7759 & 7760/Mum/2019 filed with the revised return of income. The A.O. recorded the statement on oath of three persons namely (a) Ms. Sandhya S. Badekar, (b) Shri Jitendra Chandrabhan Singh and (c) Shri Indra Pratap Singh on 25.02.2014, 04.03.2014 and 05.03.2014 respectively. On examination of the statement recorded, the A.O. noticed that in respect of Shri Jitendra Chandrabhan Singh & Shri Indra Pratap Singh, there is a difference in amount claimed to have been paid by the assessee as salary / wages and the amounts actually received by them from the assessee. The details are as under: Name of the Person Amt. of salary claimed to have paid by the Assessee (in Rs.) Salary / wages and the amounts actually received by them from the assessee. The details are as under: Name of the Amt. of Salary Difference Relevant content in Person salary admitted to (in Rs.) the statement claimed to have recorded on oath have paid by received by the Assessee the person (in Rs.) (in Rs.) Jitendra 1,20,000 NIL 1,20,000 I had joined the firm Chandrabhan after March 2009 Singh immediately after giving my 10+2 (intermediate exams). Hence AY 2009-10 is not applicable. Indra Pratap 3,00,000 1,80,000 1,20,000 This payment was Singh made through cheque per month Rs.15,000/- (i.e. Rs.1,80,000/- p.a.) Total 4,20,000 1,80,000 2,40,000
The factual background regarding disallowance of sub- brokerage charges, reproduced by the Tribunal (supra) in para 4.6 is extracted as under:
“4.6 The assessee has claimed deduction of Rs. 10,00,000/- on account of sub- brokerage charges paid to M/s. Alliance Intermediaries & Networks Pvt. Ltd. The said company is one of the group companies floated by Mr. Mukesh M. Choksey, who is actively involved in providing accommodation entries. To examine the genuineness of the above expenditure, the A.O. issued a letter to the Assessing Officer having jurisdiction over the cases of Mr. Mukesh M. Choksey Group to clarify (a) as to whether M/s. Alliance Intermediaries & Network Pvt. Ltd. has offered the aforesaid amounts to tax in its hands for the relevant assessment years as received from Shri Kamal Kishore Rathi; and (b) as to
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whether M/s. Alliance Intermediaries & Network Pvt. Ltd., is claiming TDS credit in respect of the aforesaid amounts to tax in its hands for the relevant assessment years as received from Shri Kamal Kishore Rathi; and (b) as to whether M/s. Alliance Intermediaries & Network Pvt. Ltd., is claiming TDS credit in respect of the aforesaid amounts. The Assessing Officer after examining the issue with Mr. Mukesh M. Choksey forwarded vide letter dated 24.02.2014 a reply on the payment of sub-brokerage by the assessee. Mr. Mukesh M. Choksey has clarified that he has not received the above amount of brokerage. Thereafter, the A.O. gave an opportunity to the assessee vide letter dated 03.03.2014 to reconcile and justify the claim of expenditure. The assessee filed a reply vide letter dated 03.03.2014, referring to the copy of assessment order of Smt. Bindu A. Parmar. The A.O. was not convinced with the above reply of the assessee as the same did not prove that the assessee had made payment of sub-brokerage to Mr. Mukesh M. Choksey. Thereafter, the A.O. held the claim of expenses of Rs. 19,00,000/- on the head ‘salary and wages’ and ‘sub-brokerage’ as non-genuine. He made an addition of Rs. 5,00,000/- to the income of Rs. 2,58,670/- shown by the assessee.” 8. After considering submission of the Learned Counsel of the assessee, the Tribunal restored the matter to the Assessing Officer for providing opportunity of cross-examination of Mr Mukesh Chokesy. The relevant finding of the Tribunal (supra) is reproduced as under:
“8. We have heard the rival submission and perused the relevant material on record. One important aspect which has been strongly put by the Ld. Counsel of the assessee is that the assessee was not given an opportunity to cross examine Mr. Mukesh M. Choksey. The Hon'ble Supreme Court in State of Kerala vs. K.T. Shaduli Grocery Dealer AIR 1977 SC 1627, recognised the importance of oral evidence by holding that the opportunity to prove the correctness or completeness of the return necessarily carry with it the right to examine witnesses and that includes equally the right to cross-examine witnesses. In ITO vs. M. Pirai Choodi (2012) 20 taxmann.com 733 (SC), the Hon'ble Supreme Court has held that “Order of assessment passed without granting an opportunity to assessee to cross-examine, should not have been set aside by High Court; at most, High Court should have directed Assessing Officer to grant an opportunity to assessee to cross-examine concerned witness.” In view of the above reasons, the order of the Ld. CIT(A) is set aside and the matter is restored to the file of the A.O. to make a fresh assessment after giving opportunity to the assessee to cross- examine Mr. Mukesh M. Choksey. Needless to say the A.O. would give reasonable opportunity of being heard to the assessee before finalizing the assessment order. The assessee is directed to file necessary details before the A.O. 8.1 As we have restored the matter to the file of the A.O., we 8.1 As we have restored the matter to the file of the A.O., we are not adverting to the decisions relied on by the learned Counsel of the assessee in the legal paper book. 9. In the result, the appeal for the AY 2009-10 is allowed for statistical purposes. As we have mentioned earlier the grounds of appeal filed by the assessee for the AY 2010-11 and 2011-
7 ITAs No.7759 & 7760/Mum/2019 12 are similar to the grounds of appeal for the AY 2009-10. Therefore, our decision for the AY 2009-10 applies mutatis mutandis to the appeal for the AY 2010-11 and AY 2011-12.”
Consequent to order of the Tribunal, cross-examination of Mr Mukesh Choksi was granted by the Assessing Officer on 19/06/2018. The learned Assessing Officer has noted that assessee did not ask any question regarding sub- brokerage paid by the assessee and Mr Mukesh Choksi reiterated the fact that M/s Alliance intermediate and network Private Limited was managed by the assessee and no money was received by him. During assessment proceedings before the AO, it was submitted by the assessee that Mr Mukesh Choksi was not handling the affairs of said entity and the account of the assessee was being handled by another director Mr Jayesh Sampath and therefore his cross- examination might be provided. The said request of the assessee was declined by the Assessing Officer in view of a letter dated 03/08/2018 sent to the Assessing Officer by the company namely, M/s Alliance intermediaries and network Private Limited claiming that during relevant period said company was controlled by the assessee and no such sub-brokerage was paid by the Assessee during relevant year. The Assessing Officer accordingly, sustained the disallowance of sub- brokerage observing as under:
“10.1.4. In view of the above, it can be clearly seen that the sub-brokerage charges as claimed by the assessee have not been paid to Mr. Mukesh Choksi. The money deposited in the account of M/s. Alliance Intermediaries and Network Pvt, Ltd. have not gone to Shri. Mukesh Choksi, which is clear from the cross examination and from the earlier statement of Shri. Mukesh Choksi as mentioned in the original assessment order dated 20.03.2014. Hence, the claim of the assessee related to sub-brokerages paid to Mr. Mukesh Choksi is not acceptable as the assessee has failed to produce any concrete material.” 10. Regarding salary and wages, the assessee claimed payment of salary to 2 persons namely Ms. Sandhya Badekar and Mr. Amit Mahade. In response to
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summons issued, Ms Sandhya Badekar submitted details of business income declared by her in her return of income and, therefore, Assessing Officer concluded that the assessee had not made any payment of salary to Ms. Sandhya Badekar. Further, a summons issued to Mr. Amit Mahade at the address provided by the assessee, returned unserved and, therefore, according to the Assessing Officer, claim of the salary paid to him was not substantiated. The Assessing Officer further noted that in the year under consideration no salary expenses to Mr Jitendra Chandrabhan Singh were claimed, still in submission dated 10/09/2018, a ledger copy of account of Mr Jitendra Chandrabhan Singh was filed, which showed that the assessee was trying to claim wrong expenses. In view of above observation, the Assessing Officer sustained disallowance of salary and wages also, in his order dated 03/10/2018.
On further appeal, the Ld. CIT(A) upheld the disallowance by observing 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. 25,00,000/- and not of the taxable income. It was further submitted that after due verification, it was revealed that the gross receipts on account of brokerage are of only Rs. 8,81,5147- as against Rs. 25,00,000/- disclosed at the time of the survey action and therefore, only an amount of Rs. 8,81,514/- was shown in the return filed for the relevant year. It was also submitted that he is entitled to claim legitimate expenses on account of sub-brokerage and salary. As regards the claim of sub-brokerage expenses 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 claim of the expenses claimed on account of salary, it was submitted that the said employees were paid salary in cash and he cannot be penalized if the said employees rather than showing salary income in their returns have shown business income. 5.3. The contentions of the assessee have been duly considered. As regards the disallowance of sub-brokerage expenses, it is observed that in accordance with the directions of the Hon'ble ITAT, the AO allowed opportunity to the assessee to cross- examine Shri Mukesh Choksi. In the cross-examination, Shri Mukesh Choksi reiterated that a signed cheque book was given to the assessee and the assessee
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was allowed to operate the said bank account by charging commission @0.15%. It is noted that the assessee did not bother to cross examine Shri Mukesh Choksi about the genuineness of the said sub-brokerage payment to one of his concerns. In view of the reconfirmation of Shri Mukesh Choksi, in course of the cross- examination about the dubious nature of the transactions carried out through the said bank account by charging commission @ 0.15%, the action of the AO of concluding that the assessee's claim of sub-brokerage payment is bogus, cannot be faulted. Moreover, the contention of the assessee that Shri Jayesh Sampath, one of the another Directors of the said concern of Shri Mukesh Choksi, had filed an affidavit accepting having received the said sub-brokerage payment, is not very relevant since it is an open secret that Shri Mukesh Choksi was the mastermind and all the others only worked under his control. In any case, the assessee had never mentioned about this new angle before the Hon'ble ITAT. As regards, the assessee's claim of expenses on account of salary, it is observed that for the purpose of verifying this claim, the AO had issued summons to the concerned employees. In course of the examination, it was revealed that one of the employees was not residing at the stated address and therefore, the summons could not be served. Moreover, in respect of one another employee, it was revealed that she is not showing any income on account of salary in her return. Thus, the action of the AO of concluding that the assessee's claim of expenses on account of salary is non- genuine, also cannot be faulted. It is further noted that though the assessee in the return of income had shown receipts of only Rs. 8,81,544/- and expenses of Rs. 5,72,841/-, strangely in the submissions made in course of the appellate proceedings, it was claimed that the gross receipts are of Rs. 25,00,000/- and the expenses are of Rs. 20,52,878/- However, -there is no basis for these new higher claims of receipts and expenses. Moreover, it is also noted that the AO has rightly held that there is no basis for the assessee to not offer the amount disclosed at the time of survey action of Rs. 25,00,000/- for the relevant year.
5.4 In view of the aforesaid discussion, no infirmity is found in the action of the AO of adopting the assessee's income to be of Rs. 25,00,000/- and treating the assessee's claim of sub-brokerage and of salary expenses to be non-genuine even in the 2nd round of proceedings pursuant to the directions of the Hon'ble ITAT. Further, it is also noted that pursuant to the original assessment order u/s. 143(3), information was received that the assessee is operating 2 benami bank accounts. On the basis of the entries in these benami bank accounts, an addition of Rs. 8,65,000/- was made on account of unaccounted cash deposits and addition of Rs. 2,27,22,544/- on account undisclosed brokerage income. The income of the assessee was accordingly re-assessed vide order u/s. 143(3) rws 147 dated 15.12.2017 at Rs. 2,60,87,544/-. In view of such a factual position, the action of the AO of re- computing the income of the assessee after considering the directions of the Hon'ble ITAT to be of again Rs. 2,60,87,544/-, cannot be faulted. Accordingly, Ground Nos. 1 to 3 of the appeal are dismissed.” 12. Before us the assessee filed a paperbook containing pages 1 to 77. 13. The grounds No. 1and 2 of the appeal are general in nature and, therefore, same were not argued and accordingly dismissed as infructuous.
10 ITAs No.7759 & 7760/Mum/2019 14. The grounds No. 3and 4 were not pressed by the Learned Counsel of the assessee and accordingly same are dismissed as infructuous.
Regarding grounds 5 to 10 of the appeal, which are concerned with the issue of disallowance of sub- brokerage amounting to ₹ 3, 68, 841/-, the Learned Counsel of the assessee submitted that cross-examination of Mr Mukesh Choksi was provided as individual and not in the capacity of the director of M/s Alliance Intermediaries and network Private Limited and, therefore, Assessing Officer is not justified in disallowing the said expense. However ultimately, the Learned Counsel of the assessee submitted not to press the said grounds and accordingly he signed on grounds enclosed with form No. 36. Therefore, the grounds 5 to 10 of the Appeal are also dismissed.
The grounds No. 11 to 13 relate to disallowance of salary and wages amounting to rupees ₹2,04,000/-. The Learned Counsel of the assessee submitted that the recipient Ms Sandhya Badekar confirmed and verified the fact of payment received from the assessee and it is irrelevant that she declared the same as business income in the return of income filed by her. The learned Counsel relied on the finding of the Ld. CIT(A) in assessment year 2009-10 i.e. the year which was also restored by the ITAT to the Assessing Officer.
The Learned DR, on the other hand, relied on the finding of the lower authorities and submitted that the assessee failed to substantiate those expenses.
We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. As far as expenses on salary and wages of ₹ 2, 04, 000 is concerned, same were claimed by the assessee in respect of the two employees, namely Ms Sandhya Badekar and Mr Amit Mahade. The summon
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by the Assessing Officer issued to Mr Amit Mahade, at the address provided by the assessee, returned unserved. In such circumstances, the assessee was either required to submit his correct address or produce him for verification before the Assessing Officer. Thus, the assessee failed to discharge his onus of substantiating claim of salary expenses to Mr Amit Mahade. Accordingly, we uphold the disallowance of salary expenses corresponding to Mr Amit Mahade.
However, another employee, Ms Sandhya Badekar , confirmed the fact of receipt of payment/remuneration from the assessee. The Assessing Officer has reproduced, her written submission, which is extracted as under:
“10.2.2. In response to summon, Ms. Sandhya Badekar has filed written submission on 23/08/2018 stating as under:- "With reference to your notice dated 07.08.2018 and further to my personal presence on 14.08.2018,1 hereby confirm as under:- I have been working with Shri. Kama! Rathi, Chartered Accountant, since 2006 and I have received following remuneration during various years: Asst. Year 2009-10 Rs. 1,20,000.00 per annum Asst. Year 2010-11 Rs. 1,50,000.00 per annum Asst. Year 2011-12 Rs. 1,50,000.00 per annum"
The Assessing Officer has sustained the disallowance merely on the reason that recipient had declared the said remuneration in the return of income filed by her under the head “ business income”.
The Ld. CIT(A) in assessment year 2009-10 has confirmed disallowance of sub- brokerage expenses, however, allowed the salary expenses observing as under:
“6.2 The submissions and contentions of the assessee have been duly considered. It is observed that in accordance with the directions of the Hon'ble ITAT, the AO allowed opportunity to the assessee to cross-examine Shri Mukesh Choksi. In the cross-examination, Shri Mukesh Choksi reiterated that a signed cheque book was given to the assessee and the assessee was allowed to operate the said bank account by charging commission @0.15%. It is noted that the assessee did not bother to cross examine Shri Mukesh Choksi about the genuineness of the said sub- brokerage payment of Rs. 10,00,000/- to one of his concerns. In view of the reconfirmation of Shri Mukesh Choksi, in course of the cross-examination about the dubious nature of the transactions
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carried out through the said bank account by charging commission @ 0.15%, the action of the AO of concluding that the assessee's claim of sub-brokerage payment of Rs. 10.00.000/-is bogus, cannot be faulted. Moreover, the contention of the assessee that Shri Jayesh Sampath, one of the another Directors of the said concern of Shri Mukesh Choksi, had filed an affidavit accepting having received the said sub-brokerage payment, is not very relevant since it is an open secret that Shri Mukesh Choksi was the mastermind and all the others only worked under his control. As regards, the assessee's claim of expenses on account of salary & wages of Rs. 9,00,000/- and the deductions u/s Chapter VI-A of Rs. 92,924/-, it is observed that the AO has not at all examined the various evidences in respect of this claim which were submitted before the Hon'ble ITAT and also before him in the 2nd round of proceedings and therefore cannot be considered to be bogus. Moreover, since the additional receipts on account of survey action have already been considered by the assessee in the revised return of income, the action of the AO of making a separate addition of Rs. 5,00,000/- also cannot be sustained since it will lead to double addition.” (emphasis supplied by us)
In our opinion, in the instant assessment year ,the action of the Learned Assessing Officer of denying deduction for salary expenses is simply because the recipient of salary had not shown her income under the head ‘salary’ but under that ‘business income’. The assessee has no control on the employee to direct her or him as to how to file the return of income . Before the Assessing Officer , the employee, Ms Sandhya Badekar has confirmed remuneration of ₹ 1, 50,000/- relevant to the assessment year under consideration, which proves the fact of payment by the assessee and therefore accordingly, we direct the Assessing Officer for allowing deduction of salary and wages expenses to the extent of ₹ 1, 50,000/-. The grounds No. 11 to 13 of the appeal, are accordingly allowed partly.
Now, we take up the appeal of the assessee in ITA No. 7760/Mum/2019. The grounds raised in the appeal are reproduced as under:
“1. Based on facts and circumstances of the case and further as explanation offered the order passed by leamed CIT (A) is bad in law and against the principles of natural justice.
The order passed by learned CIT (A) is based on surmises and unnatural assumptions.
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The learned CIT(A) grossly erred in confirming the view of Learned AO that bank account in the name of M/s. Adventure India whose proprietor was Mr. Ganesh Anant Ghadge was operated by the appellant and hence making addition U/s. 68 of the income tax Act, 1961.
The learned CIT (A) ought to have given due consideration to the fact that the transactions of M/s. Adventure India were already considered by learned AO Range 35(1 )(4) while completing the assessment of Mr. Ganesh Anant Ghadge. Hence it is nothing but making addition of same income in the hands of two assesses which is against the principles of natural justice Maheshbhai Shantibhai Patel Vs.lTO 1TA No. 3447/AHD/2016)
The teamed CST(A) ought to have given due consideration to the fact that Mr. Ganesh Anant Ghadge has given an affidavit wherein he has accepted the mistake committed by him while giving statement before Investigation Wing. In fact the subject account i.e. M/s. Adventure India was operated by Shri Shirish Shah and the appellant was merely a co-ordinator. The appellant was not beneficiary of the subject account. 6. The teamed C1T(A) and AO ought to have accepted the request of appellant for cross verification of Mr. Ganesh Anant Ghadge. Making addition at the back of assesse based on statement given by other person, without confronting with appellant is unjust and against the principles of natural justice. (State of Keraia vs. K T Shduli Grocery Dealer AIR 1977 SC 1927) (Asst. CIT Vs. Katrina Rosemary Turcotte 3092/MUM/2015) 7. Learned CIT(A) failed to appreciate the decision of Apex Court in the case of Cit Vs. Bhaichand H Gandhi 71 1TR 427 wherein the Hon. Court has held the view that Bank Statement are not part of Books of Account and hence no addition can be made on the basis of entries in the Bank Statement. In the present case additions is made based on bank statement of third party, which is highly unjust and against the spirit of principles laid down by the Apex Court.
Your Appellant humbly requests that based on above Grounds of Appeal the addition made by learned AO amounting to Rs. 2,12,59,312, being 3% of all credit entries appearing in the bank account of M/s. Adventure India, which has been reduced to 2% by learned C1T(A) be deleted and appropriate relief be granted to the Appellant.” 24. During the course of the hearing, the assessee also raised additional ground. Said additional grounds are reproduced as under:
“On the Facts and circumstances of the case the appellant prays that the order passed by the AO as well as the CIT is bad In law because re-opening proceeding is invalid as the AO himself is committing that reasons recorded for the re-opening were available at the time of the original assessment therefore the re-opening
14 ITAs No.7759 & 7760/Mum/2019 proceeding is change of opinion and no fresh information was available for issuing notice u/s 148 of the income tax act. 2. On the facts and circumstances of the case and in law, the appellant prays that the reasons is not quantifying the amount escaped to assessment therefore the reasons recorded are vague and ambiguous therefore AO has re-opened the case reason to doubt instead of reason to believe therefore assessment proceeding initiated by the assessing officer is bad in law and consequentially the order passed cannot be sustained. 3. On the facts and circumstances of the case and in law, the Learned Assessing Officer has erred in determining 70,86,43,738/- without any basis even though this amount is being spread over 3 years for the period 26.02.2011 to 31.07.2012.
On the facts and circumstances of the case and in law, the Appellant prays that brokerage earned @ 0.10 % as against 3% determined by AO and 2% determined by CIT (appeal) after reducing the credit entries from sister concerns and bank. The appellant stated the learned AO should be passed the order accordingly.”
We have heard rival submission of the parties on the issue of admissibility of additional grounds.
The additional ground No. 1 is general in nature and not specific, therefore same does not deserve for admission. The Additional grounds No. 2 and 3 are legal grounds, challenging validity of reassessment. The grounds being purely of legal nature and no investigation of fresh facts is required for adjudication of the grounds, therefore same are admitted, in view of the decision of the Hon’ble supreme Court in the case of CIT Vs NTPC Ltd 229 ITR 383 (SC). The additional ground No. 3 is mainly an argument or plea in support of ground raised on merit , therefore same is declined for admission as additional ground. The additional ground No. 4, relates to disallowances of the expenses claimed on profit and loss account. This issue has been adjudicated in appeal of the assessee in ITA No. 7759, which has been adjudicated in earlier paragraphs, as was arising in that
15 ITAs No.7759 & 7760/Mum/2019 appeal. Therefore, the same issue can not be admitted for adjudication as additional ground in this appeal.
Facts relevant to the instant appeal are that subsequent to the order of the ITAT dated 14/06/2017, the Assessing Officer, on the basis of the information received from the Investigation Wing of the Income Tax department, Mumbai completed reassessment under section 143(3) read with section 147 of the Act on 15/12/2017 determining total income at ₹ 2, 60, 87, 544/-after making addition , firstly of ₹ 8, 65,000/-on account of cash deposits and secondly, of ₹ 2, 27, 22, 544/-on account of unaccounted brokerage and commission.
Thereafter, in the case of assessee, again an information was received from the investigation wing, Mumbai that huge amount of share transactions, were carried out from the bank account of M/s Adventure India, Prop. Mr Ganesh Anant Ghade, who admitted that said bank account was owned and operated by the assessee. In view of the information, after recording reasons to believe that income escaped assessment, the Assessing Officer reopened the assessment on 19/03/2018 and notice under section 148 of the Act was issued on 31/03/2018.
During reassessment proceedings, on questioned by the Assessing Officer regarding operating of the benami bank accounts, the assessee submitted that he was only looking after the income-tax matters of Shri. Ganesh Ghade arising out of the transactions carried out in the name of his firm and actually those bank accounts were operated by another person namely Shri. Shirish Shah, Mohan Building, Girgaon, Mumbai. He also enclosed an affidavit signed by Shri. Gnesh Ghade that bank accounts of M/s Adventure India were not used by the assessee, but by Mr Shirish Shah. The assessee also filed a letter before the Assessing
16 ITAs No.7759 & 7760/Mum/2019 Officer on 29th Nov., 2018 wherein the assessee claimed that Mr Ganesh Ghade had admitted the income corresponding to bank accounts of M/s Adventure India and offered the same for income tax by revising the return of income for the relevant assessment year. For verification of the affidavit of Shri Ganesh Ghade submitted by the assessee, the Assessing Officer issued notice under section 133(6) to Shri. Ganesh Ghade but same was not responded. The Assessing Officer also observed that signature of Mr. Ghade on the affidavit filed by the assessee was not matching with his signature on the statement recorded before the Investigation Wing. In view of the above observations, the Assessing Officer issued a show cause to the assessee as to why the commission income for providing accommodation entries in respect of transaction carried out through bank accounts in reference might not be added to the income of the assessee. The assessee responded that income arising out of the transactions of M/s Adventure India was under consideration for assessment in hand of Mr Ganesh Ghade before his Assessing Officer and therefore no addition, was justified in the case of the assessee. The Assessing Officer rejected those contention of the assessee and added brokerage/commission at the rate of 3% of the total transactions of ₹ 70, 86, 43, 738/-carried out through bank account of M/s Adventure India , which was worked out to ₹ 2, 12, 59, 312/-.
After considering submission of the assessee, the Ld. CIT(A) vide impugned order, upheld the transactions through bank accounts of M/s Adventure India as belonging to the assessee, however directed the Assessing Officer to adopt commission at the rate of the 2% instead of 3% applied by the Assessing Officer. The relevant finding of the Ld. CIT(A) is reproduced as under:
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“5.2 The submissions and contentions of the assessee as well as the assessment order have been duly considered. In course of the appellate proceedings, the assessee submitted that the said benami bank accounts in the name of Shri Ganesh Ghadge were being operated by Shri Shirish Shah and not by him. It was contended that, in the statement on oath recorded of Shri Ganesh Ghadge by the Investigation Wing, it was wrongly informed that these bank accounts were being operated by the assessee whereas actually they were being operated by Shri Shirish Shah. As regards the action of the AO of rejecting the affidavit of Shri Ganesh Ghadge on the basis of difference in the signature in the statement on oath recorded by the Investigation Wing and in the signature in the affidavit, the assessee submitted copy of PAN card of Shri Ganesh Ghadge wherein the signature matched with the signature in his affidavit. It was further submitted by the assessee that the said addition of undisclosed commission income has been made u/s. 68 for which it is essential that books of accounts are being maintained. However, in the instant case, the transactions in the said bank accounts are not recorded in his books of accounts and therefore no addition should have been made in his case. The assessee alternatively submitted that the income arising from the said bank accounts has already been considered for taxation in the hands of Shri Ganesh Ghadge and therefore, the same cannot again be considered for taxation in the hands of the assessee.
5.3 The contentions of the assessee have been duly considered. As regards the contention of the assessee that Shri Ganesh Ghadge had inadvertently mentioned his name as the operator of the said benami bank accounts to the Investigation Wing, it is observed from the statement on oath recorded of Shri Ganesh Ghadge by the Investigation Wing dated 19.02.2011 that in a series of questions, Shri Ganesh Ghadge has confirmed that the said bank accounts were being operated by the assessee himself. The relevant portion of the statement of Shri Ganesh Ghadge is reproduced as under:-
"Q.9. Please provide a list of Companies/Firms/Concerns in which you are director/partner/proprietor at present and in past.
Ans. Sir, I am not aware of the fact that I am/was associated with any other concern as director/partner. However, I used to sign certain documents presented before me by Shri Kamal Kishore Rathi, Chartered Accountant.
Q. 10. For which period of time would you sign papers presented before you by Shri Kamal Kishore Rathi?
Ans. Sir, to the best of my knowledge starting from the year 2011 to 2015 I used to sign such papers presented before me by Shri Kamal Kishore Rathi.
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Q.11. What made you to sign papers presented by Shri Kamal Kishore Rathi, CA without having knowledge of the content. Ans. I was given a commission of approximately Rs. 50,000/- to Rs. 60,000/- per annum for signing the papers. Apart from signing the papers, I was not involved in any other job towards these receipts.
Q. 14. Give details of Bank accounts opened by you on being asked by Shri Kamal Kishore Rathi?
Ans. Sir, I do not remember. But I can say that I visited few banks for opening accounts on being asked by Shri Kamal Kishore Rathi. I used to sign the KYC & other documents without seeing them. I also used to sign the cheque book whenever presented by Shri Kamal Kishore Rathi to me. I want to say that it was Shri Kamal Kishore Rathi who has operating all the bank accounts opened in my name or in the name of entities including companies to which I was director and made authorized signatory of bank.
Q. 16. Can you tell me the genuineness or economic rationale behind the transactions in your DMAT account, trading account, bank account held in your name or in accounts in which you were made authorized signatory?
Ans. Sir I do not know the economic rationale behind the transactions. I was acting as dummy. It is Shri Kamal Kishore Rathi who can explain.
Q. 17. As per MCA, you are/were director/share holder in many companies. Do you know the address, nature of business and any details about the companies? Ans. Sir, I want to say that I was only dummy director signing the paper presented by Shri Kamal Kishore Rathi. As I know all the companies were managed and controlled by Shri Kamal Kishore Rathi."
5.4 From the aforesaid extract of the statement of Shri Ganesh Ghadge, there remains little doubt that the assessee was the person who was actually operating the said benami bank accounts. It would have been understandable if only in respect of few questions, Shri Ganesh Ghadge had implicated the assessee as the operator of the bank accounts. However, in the instant case, in respect of 6 of the queries, Shri Ganesh Ghadge had implicated the assessee as the actual operator of the said benami bank accounts. Thus, the contention of the assessee that the said benami bank accounts were operated by Shri Shirish Shah and not by him, is rejected. It is also noted that the assessee is a Chartered Accountant and is also the authorized representative of Shri Ganesh Ghadge. Therefore, the subsequent affidavit of Shri Ganesh Ghadge is clearly an afterthought and under the influence of the assessee. Therefore, the action of the AO of rejecting the affidavit of Shri "Ganesh Ghadge, cannot be faulted.
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5.5 As regards the contention of the assessee that since the transactions in the said benami bank accounts are not part of his regular books of accounts, the action of the AO of making the addition u/s 68, is not correct. From the re- assessment order, it is observed that the AO has estimated the commission income earned @3% of the total transactions as per the said benami accounts and has as such not made any addition u/s 68. It is held that an assessee cannot be rewarded for not even disclosing the bank transactions in its regular books, which surely cannot be the intention of the legislature while enacting the provisions of/sec. 68. 5.6 As regards the alternative contention of the assessee that the income arising from operation of the said benami bank accounts have already been considered for taxation in the hands of Shri Ganesh Ghadge and therefore cannot again be considered for taxation in his hands, it is held that by allowing the assessee to operate the said benami bank accouns, Shri Ganesh Ghadge was being compensated by the assessee and in turn, the assessee on operation of the said bank accounts for providing accommodation entries was earning commission income from the beneficiaries. Shri Ganesh Ghadge has been taxed on the income earned from the assessee for allowing to operate his bank accounts. On the other hand, the assessee has earned commission income for providing accommodation entries to the various beneficiaries through the operation of these benami accounts. Thus, it is not a case wherein the same income is being taxed in the hands of Shri Ganesh Ghadge as well as the assessee. Accordingly, this alternative contention of the assessee is also rejected. 5.7 In view of the aforesaid discussion, in principle, the action of the AO of estimating the commission income on the total transactions carried out through the said benami bank accounts, cannot be faulted. However, it is observed that the AO has adopted the rate of 3% on the amount of transactions for the commission earned, which is on the higher side. As per the prevailing market practice, the rate of commission for accommodation entries of turnover is of around 1%, for purchases is around 2% and for loans/share capital is around 3%. Since, the break-up of the accommodation entries provided in terms of purchases, sales, loans, share capital, LTCG, etc. is not available, therefore, to meet the ends of justice, the AO is directed to adopt the commission rate of 2% as against 3% on the total transactions. Accordingly, all the grounds of appeal are partly allowed.”
Aggrieved, the assessee is before the Tribunal by way of grounds and additional ground as reproduced above.
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The Learned Counsel of the assessee referred to the additional ground challenging the validity of the reassessment and submitted that reasons recorded are vague as even the escaped income has not been quantified. He submitted that assessment has been reopened beyond the period of the four years from the relevant assessment year, which could be reopened only if there is a failure on the part of the assessee in disclosing true and correct affairs, which is not the case in the matter of the assessee. Further it was submitted that statement of the assessee that he operated M/s Adventure India, was available before Assessing Officer during the original assessment and therefore reopening and recording reasons to believe that income escaped are based on merely change of opinion, which is not permitted in law. In support of the contention, the Learned Counsel relied on the decision of the Coordinate Bench in the case of Shri Pravin R Shah in ITA No. 3324/Ahd/2007 for assessment year 1998-99 and decision of the Tribunal in the case of Shri Urvish B Mehta in ITA No. 2259and 1352/Mum/2016 for AY 2009-10.
The Learned DR, on the other hand, opposed the arguments of the Ld. Counsel of the assessee. He submitted that decisions relied upon by the assessee are distinguishable. He submitted that total transactions recorded in the bank account was obviously in crores of rupees and commission income is more than Rs. 1,00,000/-, therefore, the reassessment has been validly reopened. On the issue of change of opinion also, he submitted that reasons have been recorded in view of the additional information received from the Investigation Wing, Mumbai, thus it is not the matter of change of opinion based on same material, therefore, the decision relied upon by the assessee are distinguishable. He submitted that
21 ITAs No.7759 & 7760/Mum/2019 issue in dispute should be restored to the file of Ld CIT(A) as same has not been adjudicated by him.
We have heard rival submission on the issue on dispute and perused the relevant material on record. We concur with the Ld DR that issue has been raised for the first time before the Tribunal and has not been adjudicated by the Ld CIT(A), therefore, we feel appropriate to restore the issue of validity of reassessment to the file of Ld CIT(A) for adjudication after providing opportunity of being heard to both the parties. The additional grounds No.2 & 3 of the assessee are accordingly allowed for statistical purpose.
Regarding the issue on merit of the addition, the Ld Counsel submitted that rate of commission might be adopted at 0.10% on the transactions. In support, he relied on the decision of the Tribunal in the case of Shri Ramesh Kumar jain in ITA No. 3512 & 3513/Mum/2013 and ITA No. 3518,3517,3516, 3515 and 3514/Mum/2013 for AY 2006-07 to AY 2010-11.
The Ld DR on the other hand relied on the order of lower authorities. 37. We have heard the rival submission and perused the relevant material on record. In the case of Ramesh Kumar Jain (supra), the assessee admitted the fact of commission at specified rate during survey and search action, whereas the AO applied the rate of commission at the rate of 1.50 %. The Tribunal restored the matter back to the Assessing Officer, with following direction:
“17. The next common issue that arises in AY 2006-07 to 2010-11 relates to the estimation of commission income on providing accommodation bills. We earlier noticed that the assessee had declared the commission income @ 0.20% in the statement taken from him. However, in the letter filed before the assessing officer, the commission income was declared @ 0.25%. However, the assessing officer has estimated the commission income by adopting the rate of 1.50%. A perusal of the assessment orders would show that the assessing officer has not brought on record any material or basis which enabled him to
22 ITAs No.7759 & 7760/Mum/2019
adopt the rate of 1.50%. The AO has also not examined the beneficiaries of the accommodation bills to ascertain the rate of commission. Further, the assessee has submitted that the commission income earned was shared by him and two others. The said fact was also not considered by the assessing officer. 18. The assessee, in his contentions as well as in the Grounds of of appeal of all the years, has submitted that he was not allowed the opportunity of cross examining the director of M/s Akruti Metal & Alloys P Ltd and the Chartered Accountant. However, we notice that no purpose will be served in providing cross examination, since the assessee himself has confirmed their statements twice. Hence, we do not find any merit in this contention. The assessee also contended that the department did not unearth any material to show that the assessee did earn any commission income. This contention of the assessee is also liable to rejected, since the assessee himself accepted the fact of receipt of commission twice, viz., once in the statement taken from him and again in the letter furnished before the assessing officer. 19. Now the question that arises is with regard to the quantum of commission income. Since the assessee himself has confirmed the rate of commission as 0.25% and since the AO has not properly substantiated the rate of 1.50% adopted by him, we are of the view that the facts and circumstances of the case warrant that the rate of commission should be adopted @ 0.25%, in the absence of any other evidence to the contrary. Further the assessee has stated that he has shared the commission income with two others. Further it cannot be denied that certain other expenses are also required to be incurred. Accordingly, by considering all these relevant factors, we are of the view that the net commission income should be estimated at 0.10% and in our view, the same would meet the ends of justice. Accordingly, we modify the order of Ld CIT(A) in respect of this issue in all the years under consideration and direct the assessing officer to work out the addition towards commission income in the lines discussed supra.” 38. As far as rate of commission on accommodation entries is concerned , we feel that the AO has applied the rate at 3% , which has been reduced at rate of 2%. We are of the opinion that rate of commission on accommodation entries is not a standard one and it varies from case to case, but the Assessing Officer or the Ld.CIT(A) cannot apply the rate arbitrarily. There has to be some basis for said rate, which may be based on the material found or statement recorded during the course of search or survey proceedings. In the instant case, the lower authorities have not determined the same based on any material, therefore, we feel it appropriate to restore this matter back. Since the ground challenging validity has been restored to the Ld CIT(A), therefore, this issue is also sent to the file of Ld
23 ITAs No.7759 & 7760/Mum/2019 CIT(A) for avoiding proceedings simultaneously at multiple stage. It is needless to mention that both the parties should be afforded adequate opportunity of being heard. The ground of the appeals are accordingly allowed for statistical purposes. 39. In the result, the appeal in ITA No.7759/Mum/2019 is partly allowed , whereas the appeal having ITA No. 7760/Mum/2019 is allowed for statistical purpose. Order pronounced in the open court on this 27th day of October, 2022. 40. Sd/- sd/- (KAVITHA RAJAGOPAL) (OM PRAKASH KANT) �ाियक सद�/JUDICIAL MEMBER लेखा सद�/ACCOUNTANT MEMBER मुंबई/Mumbai, िदनांक/Dated: 27/10/2022 Dragon legal / Pavanan, Sr.PS �ितिलिप अ�ेिषतCopy of the Order forwarded to : अपीलाथ�/The Appellant , 1. �ितवादी/ The Respondent. 2. आयकर आयु�(अ)/ The CIT(A)- 3. आयकर आयु� CIT 4. िवभागीय �ितिनिध, आय.अपी.अिध., मुबंई/DR, ITAT, 5. Mumbai गाड� फाइल/Guard file. 6.
BY ORDER, //True Copy//
(Dy./Asstt. Registrar) ITAT, Mumbai