DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-2(4), MUMBAI vs. SHRI GAJENDRA SANGHVI, MUMBAI

ITA number 811/M/2018 for assessment year 2010 – 11 and ITA number 812/M/2018 for assessment year 2011 – 12 is filed by the Deputy Commissioner Of Income Tax Central Circle (2/4) Mumbai [ the Ld AO] against the order passed by The Commissioner Of Income Tax (Appeals) – 48, Mumbai [ The ld CIT (A) ] dated 30/11/2017 raising following grounds of appeal in Appeal for AY 2011-12 :-

Grounds of appeal for AY 2010-11 are similar.

Brief facts of the case shows that assessee is an individual. Search and seizure action u/s 132 of the act was carried out on 8/11/2012 in case of Shri Gajmangal Alias Rajendra M Hirani and assessee. During the course of search, various incriminating documents were found from both the above persons. Locker number 464, which is in

The learned assessing officer found that that from the premises of the assessee various bank accounts of various persons in name of different employees, blank signed chequebooks and seized material was found which shows that assessee is carrying on hawala transactions. The special audit u/s 142 (2A) was also carried out and report was submitted on 20/9/2015.

During the course of assessment proceedings, one Mr. Lalit T Jain filed a letter dated 25/2/2015 enclosing a list of 31 bank accounts and claimed that this belongs to him and have already been added in his hands. This is out of total 52 bank accounts seized from locker number 464. Thereafter on the basis of the material seized the learned AO noted that assessee has owned up the seized material in his statement on oath before investigation Wing and during the assessment proceedings and therefore the addition of undisclosed income in the hands of the assessee was made on substantive basis and in case of Mr. Rajendra on protective basis.

The learned assessing officer further noted that seized materials pertaining to assessment year 2013 – 14 were found and seized which shows that entries in those loose papers are written in abridged form using the quotient of 100 and therefore his business of money transfer on which he is earning commission income of 0.3%. AO noted that, as is a common practice of all operators no books of accounts maintained therefore to work out the commission earned in the year under consideration Year wise turnover has been worked out based on turnover of banking transactions. For assessment year 2013 – 14 a commission income of ₹ 478,336,903/– has been worked out on a date to the total income of the assessee. Therefore on the product are basis applying the ratio of turnover down in the respective year discussed in the assessment order passed for assessment year 2013 – 14 the learned assessing officer also imputed the undisclosed income of ₹ 1,526,038/– for assessment year 2011 – 12 and ₹ 152,603 four assessment year 2010 – 11. Consequently assessment order for assessment year 2011 – 12 computed the total income of the assessee at ₹ 1,902,200/– against the returned income of ₹ 151,750 and ₹ 324,300/– for assessment year 2010 – 11 against the returned income of ₹ 147,500/–.

Both these additions were contested before the learned CIT – A who passed an order dated 30/11/2017 upheld the rate applied by the learned assessing officer on commission income of 0.3%. However

The learned assessing officer is aggrieved with the order of the learned CIT – A, has preferred this appeal. The learned assessing officer is aggrieved with two aspects of the order of the learned and CIT – A (1) allowed of expenses to the extent of 10% as business expenditure allowable u/s 37 (1) of the act, (2) deletion of the addition on account of seized documents found for assessment year 2013 – 14 based on which estimated addition is made for both these years.

The learned departmental representative vehemently submitted that assessee is engaged in the business of hawala which is opposed to the public policy, prohibited by law and therefore no expenditure incurred by the assessee is allowable as deduction u/s 37 (1) of the act. He submitted that CIT (A) has allowed business expenditure,

With respect to the deletion of addition on account of seized documents found for assessment year 2013 – 14, he submitted that though there is no evidence found for the relevant assessment years during the course of search but the addition is required to be extrapolated based on the business being carried out by the assessee. He submitted that there is no change in the business carried on by the assessee and therefore the extrapolation made by the learned assessing officer deserves to be upheld.

Despite notice to the assessee, none appeared on behalf of the assessee and therefore the appeals are decided on merits in absence of the assessee as per information available on record.

We have carefully considered the rival contention and perused the orders of the lower authorities. Undisputedly assessee is engaged in the carrying on of the hawala business which is proved by the statement of the assessee and corroborated by the incriminating evidences found during the course of search from locker number 464 owned by the assessee. It is also the statement of the assessee. According to the provisions of Section 37 (1) of the act, any expenditure incurred by the assessee wholly and exclusively for the purpose of the business should be granted as deduction to the assessee from the income of business. However the explanation 1 provides that any expenditure incurred by the assessee, which is prohibited by law, is not considered as an expenditure incurred by the assessee wholly and exclusively for the purposes of the business and should not be granted as deduction to the assessee from the income of the business. Apparently, Hawala business carried on by the assessee is opposed to the public policy and is prohibited by the law. Expenditure incurred is in furtherance of hawala business. Assessee also did not submit any proof of incurring any expenditure. Income was also not assessed on net basis @ 0.30 %. NO proof of incurring any expenditure is available on record. Therefore, naturally

With respect to the second issue in both these appeals is deletion of addition made by the learned CIT – A based on the incriminating material found during the course of search on 8/11/2012. Admittedly, incriminating material found during search were for AY 2013-14 only. As on the date of the search, assessment year 2010 – 11 is a concluded assessment. Therefore, if any addition is required to be made in concluded assessment it has to be based on incriminating material found during the course of search. Admittedly, the seized material pertains to assessment year 2013-14 and not assessment year 2010 – 11. Therefore, in absence of any incriminating material the learned CIT – A has correctly deleted the addition for assessment year 2010 – 11. Further, for assessment year 2011 – 12, no scrutiny assessment was pending. Therefore, it is also a concluded assessment as on the date of search. As no incriminating evidences are pertaining to this assessment year, the learned CIT – A has correctly deleted the addition. Accordingly, ground numbers 2 – 4 of the appeal for both the assessment years are dismissed.

In the result, appeals of the learned assessing officer are partly allowed.