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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: SHRI P.M. JAGTAP, VICE- & SHRI T.R. SENTHIL KUMAR
आयकर अपील�य अ�धकरण, अहमदाबाद �यायपीठ ‘A’ अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD ] ] BEFORE SHRI P.M. JAGTAP, VICE-PRESIDENT AND SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER Assessment Year : 2014-15 Miten Patel HUF, Income Tax Officer, C/o. Shri Vinit Moondra, CA Vs Ward 3(2)(3), 201, Sarap, Opp. Navjivan Press, Ahmedabad Ashram Road, Ahmedabad-14 PAN : AANHM 4435 J अपीलाथ�/ (Appellant) �� यथ�/ (Respondent) Assessee by : None Revenue by : Shri Shramdeep Sinha, Sr. DR सुनवाई क� तार�ख/Date of Hearing : 22/08/2022 घोषणा क� तार�ख /Date of Pronouncement: 09/09/2022 आदेश/O R D E R PER P.M. JAGTAP, VICE-PRESIDENT :
This appeal filed by the assessee is directed against the order of learned Commissioner of Income-tax (Appeals)-3, Ahmedabad [“CIT(A)” in short] dated 28.12.2018 and the solitary issue involved therein relates to the addition of Rs.2,08,17,445/- made by the Assessing Officer and confirmed by the learned CIT(A) on account of unverifiable expenses.
The assessee, in the present case, is a HUF which is engaged in the business of Information Technology and Data Entry Job Work in the name and style of its proprietary concern M/s. Microweb Outsourcing Services. Return of income for the year under consideration was filed by the assessee on 08.09.2014 declaring a total income of Rs.3,82,520/-. The case of the assessee was selected for scrutiny through CASS in order to examine the large expenses reported in AIR. During the course of assessment proceedings, the assessee was called upon by the Assessing Officer to Miten Patel-HUF Vs. ITO AY : 2014-15 2 support and substantiate its claim for direct expenses of Rs.6,24,52,237/- as claimed in Schedule–P2. Although some submission was made on behalf of the assessee, the same was found to be sketchy by the Assessing Officer. Since the assessee failed to furnish the relevant details and documents to support and substantiate its claim for direct expenses of Rs.6,24,52,237/- inspite of giving adequate opportunity during the course of assessment proceedings, the Assessing Officer made a disallowance of Rs.2,08,17,445/- being 30% of the direct expenses claimed by the assessee and made an addition to that extent under Section 69C of the Income-tax Act, 1961 [“the Act” in short] to the total income of the assessee in the assessment completed under Section 143(3) of the Act vide an order dated 30.12.2016.
Disallowance of expenses amounting to Rs.2,08,17,445/- made by the Assessing Officer was challenged by the assessee before the learned CIT(A). During the course of appellate proceedings before the learned CIT(A), additional evidence was filed by the assessee under Rule 46A which was admitted and forwarded by the learned CIT(A) to the Assessing Officer for verification. In the remand report submitted to the learned CIT(A), the Assessing Officer pointed out that there was no compliance on the part of the assessee during the course of remand proceedings and the details & documents required to support and substantiate the claim of direct expenses could not be furnished by the assessee. After taking into consideration the submissions made on behalf of the assessee as well as the material available on record including the remand report submitted by the Assessing Officer, the learned CIT(A) proceeded to confirm the addition of Rs.2,08,17,445/- made by the Assessing Officer out of direct expenses for the following reasons given in paragraph Nos. 2.3 to 2.8 of his impugned order:-
Miten Patel-HUF Vs. ITO AY : 2014-15 3 “2.3. I have carefully considered the facts mentioned in the assessment order and the submission of the appellant. The AO has observed that on verification of the submission of the appellant the whole business is found to be fictitious as he has failed to maintain any record of accounts. The contention of the appellant is not believable that a person whose turnover amounts to as high as Rs. 6,33,77,482/- will not maintain any accounts or as simple as diary or a kind of book wherein details of persons [to whom payment(s) have been made or persons/entities from whom payment(s) have been received] is maintained. No bank statements has been submitted by the appellant. The submission made by the appellant does not even mention about bank details. It is also observed by the AO that vide submission dated 16/11/2016 the appellant had admitted his inability to provide documentary evidence and deliberately not submitting the facts. A final opportunity of being heard to the appellant has been granted on 23.11.2016. However, the appellant from time to time extending numerous opportunities of being heard and could not produce any supporting evidence of his claim with any kind of documentary evidences during the whole assessment proceeding that lasted around a year. Therefore, it is clear that the appellant has nothing to support and authenticate his transaction with even a few piece meal samples. Under these circumstances the assessment order has been issued by the AO by making an addition of Rs. 6,24,52,337/- u/s.69C of the IT Act as unexplained expenditure. 2.4. On the other hand, the appellant submitted that he had submitted all the receipt entries appearing in bank statement with summary along with the copy of bank statements. The actual figures of outsourcing income is clear from this working. The figure of actual receipts in bank comes to Rs.47,14,757/- which shows that figure of Rs.6,33,77,482/- as taken by the AO in assessment order is incorrect. On a plain reading of section 69C it is clear that addition can be made u/s 69C only when source of funds used for incurring the expenditure is not properly explained. In appellant's case the question of examining the source of funds from which the expense have been incurred has never been raised. The AO has never questioned the source and only questioned the genuineness of expenses. The AO has not made any efforts to verify the expenses. All the expenses were made from banking channel, and the AO could have obtained the bank statements from the bank directly, as he had all the information from the mode of original submission and AIR report. However, AO has not made any independent examination, to verify the real income. The appellant also submitted that the AR of the appellant was seriously ill during the assessment proceedings & was being frequently hospitalized, and his office was also disturbed for all that period, hence no proper reply could be given as appearing in assessment order, and in fact even the audited financials submitted were not correct as they had Miten Patel-HUF Vs. ITO AY : 2014-15 4 been prepared for taking bank loan. The figure of sales of Rs. 6.33 crores as appearing in Audited financials is incorrect and this fact could have been verified at assessment stage if actual receipts in bank statements were verified by the AO. 2.5. The submission has been treated as additional evidences under Rule 46A of the IT Act vide assessee letter dated 31.01.2018, which has been admitted and forwarded to the AO vide this office letter dated 02.02.2018 for his comments, it is submitted by the AO in Remand Report "that in pursuance to your directions vide above referred letter, the assessee was requested [vide this office letter No.ITO,3(2)(3)/Remand Report/MP/2017-18 dated 06.02.2018] to furnish requisite details in order to verify the facts contended by him. However, no reply by post/email or in person has been submitted till date. The telephonic efforts to contact his AR has also been ineffective. In this scenario, the verifications of documents and financial transaction neither been completed till date nor seems any compliance". 2.6. After going through the facts of the case, it is seen that appellate is net maintaining any books of accounts. The AO has given sufficient opportunities to submit the details of the expenditure incurred by the appellant The appellant has net submitted the same and in fact he has shown the inability to produce the same at the time of assessment proceedings and Remand Proceedings. The appellant at the time of appellate proceedings has stated that AO has not given the opportunities to submit the details and requested that the submission dated 31.01,2018 may be treated as additional evidences under Rule 46A of the IT Act. In fairness of the things, the same has been admitted as additional evidences under Rule 46A of the IT Act and sent to the AO for examining the same, ft is to be seen that despite request from the AO for submitting the details, the appellant has not submitted any details to show that to whom all these money has been paid in the form of expenditures or from the above money has been received by the appellant. Section 69C is as under:- "Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case maybe, maybe deemed to be the income of the assessee for such financial year." 2.7. A plain and simple reading of the aforesaid provision reveals that where in any financial year the assessee incurs any expenditure and he fails to offer any explanation to justify the source of such expenditure or if the Miten Patel-HUF Vs. ITO AY : 2014-15 5 explanation offered is not satisfactory, the amount covered by such explanation or part thereof as may be necessary, may be deemed to bo the income of the assessee for the said financial year. The language of Section 69C of the A ct stipulates two conditions necessary for deeming the expenditure incurred by the assessee to be his income for the said year (i) where no explanation is offered; and (ii) where the explanation offered is not found to be satisfactory. At the same time, the use of the word "may" in the aforesaid provision makes the deeming provision discretionary and not mandatory. In other words, even if not explanation is offered or it is found to be unsatisfactory, it is not mandatory to treat such unexplained expenditure to be the income of the assessee. This position is well settled in law vide C/T, Ernakulam vs. Smt. P.K. Noorjahan AIR 1999 Supreme Court 1600 which lays down that the provisions of Section 69A of the Act which are pari materia to Section 69C of the Act are not mandatory inasmuch as the legislature had used the word "May" in the provision. Therefore, the Assessing Officer has full discretion to add or not to add any such expenditure or any part thereof in the income of the assessee for the financial year in question even if no explanation has been offered or if offered is not found to be satisfactory provided the discretion is exercised in a judicious manner. 2.8. There is no dispute that in pursuance to the notice requiring the assessee to submit explanation regarding the aforesaid expenditure, the assessee had not furnished any explanation whatsoever. From the above discussions with AR from time to time and extending numerous opportunities of being heard and given natural justice, the assessee could not support his claims with any kind of documentary evidences during the whole assessment proceeding that lasted around a year. The assessee has not even submitted its bank transaction (s) details to authenticate his claim of "payment by online transfer to data entry job workers" and admitted his inability to provide any documentary evidence. The nature of business of the assessee that is related to Information Technology and job-work of data entry. In these circumstances, there was no explanation as contemplated under Section 69C of the Act from the side of the assessee on record. Thus, taking a technical view of the matter the Assessing Authority added the unexplained expenditure as the deemed income of the assessee in the said assessment year. The expenditure being Rs.6,24,52,337/- remains unexplained by the assessee even after providing sufficient opportunities. The AO decision of taking a very liberal and considerate view by adding only 30% [i.e. Rs.2,08,17,445/-] of his total unexplained expenditure amounting to Rs.6,24,52,337/-, is confirmed. The ground of the appeal is dismissed.”
Miten Patel-HUF Vs. ITO AY : 2014-15 6
Aggrieved by the order of the learned CIT(A), the assessee has preferred this appeal before the Tribunal.
At the time of hearing fixed in this case on 22.08.2022, none appeared on behalf of the assessee. It is observed that there was a similar non- compliance on the part of the assessee when this appeal was fixed for hearing on 25.10.2021, 28.01.2022, 09.03.2022 and 09.06.2022. The written submission filed by the Authorized Representative of the assessee, however, is available on record; and, this appeal of the assessee is, therefore, being disposed of after taking into consideration the written submission filed by the assessee, the material available on record and the arguments raised by the learned DR. In the written submission, the assessee mainly has raised the following contentions:-
i) The gross receipts and gross expenses adopted by the Assessing Officer at Rs.6,33,77,482/- and Rs.6,24,52,337/- are not correct and the gross receipts of the assessee as well as direct expenses claimed during the year under consideration are actually only Rs.41,75,757/- and Rs.8,40,000/- as reflected in the Profit & Loss Account; ii) The addition made by the Assessing Officer and confirmed by the learned CIT(A) on account of unexplained expenditure under Section 69C is not sustainable because the source of funds used for incurring the said expenditure was never questioned either by the Assessing Officer or by the learned CIT(A); iii) The Authorized Representative of the assessee, Shri R.B. Rathi, Advocate who was appointed to represent the case of the assessee before the Assessing Officer, was seriously ill for over one year at the relevant time and unfortunately passed away on 16.12.2016. The case of the assessee, therefore, could not be represented properly before the Assessing Officer which resulted in the non-compliance; iv) The summary of bank account of the assessee would show that the gross receipts for the entire year under consideration were only
Miten Patel-HUF Vs. ITO AY : 2014-15 7
Rs.41,75,757/- while the net profit earned during the year under consideration from business was Rs.22,78,825/-.
The learned DR, on the other hand, strongly relied on the orders of the authorities below in support of the Revenue’s case on the issue under consideration.
We have considered the rival submissions and also perused the relevant material available on record. It is observed that total direct expenses amounting to Rs.6,24,52,337/- were claimed by the assessee for the year under consideration as reported in AIR as well as shown by the assessee himself in Schedule P2 annexed to the return of income. Since the assessee failed to file the relevant details and documents to support and substantiate its claim for the said expenses in spite of proper and adequate opportunity given during the course of assessment proceedings, the Assessing Officer disallowed 30% of the said expenses. Although additional evidence was filed by the assessee in support of his case on the issue during the course of appellate proceedings before the learned CIT(A), the same was not found to be sufficient by the Assessing Officer to prove the claim of the assessee for direct expenses as reported by him in the remand report submitted to the learned CIT(A). Moreover, there was no compliance on the part of the assessee even during the course of remand proceedings before the Assessing Officer as pointed out by the Assessing Officer in the remand report. Keeping in view this failure of the assessee as well as all other facts of the case, learned CIT(A) confirmed the disallowance made by the Assessing Officer out of direct expenses by passing a well discussed order and after considering the contentions raised on behalf of the assessee before him.
Miten Patel-HUF Vs. ITO AY : 2014-15 8 7.1 In the written submission filed before the Tribunal, the assessee has claimed that the direct expenses incurred by him during the year under consideration were not Rs.6,24,52,237/- as adopted by the authorities below and the same were only to the extent of Rs.8,40,000/- as reflected in the Profit & Loss Account now filed before the Tribunal. It is, however, observed that the assessee himself during the course of assessment proceedings before the Assessing Officer had made an attempt to explain the direct expenses of Rs.6,00,00,000/- incurred on staff salary & wages and direct payments made to temporary staff amounting to Rs.24,52,337/-. Moreover, the profit and loss account now filed by the assessee is not even signed by the assessee or his authorized representative as a true copy and in the absence of any books of account maintained by the assessee as admitted during the course of assessment proceedings before the Assessing Officer, we are of the view that no credence can be given to the same.
7.2 Insofar as arguments raised on behalf of the assessee challenging the applicability of Section 69C of the Act, we find that disallowance out of direct expenses claimed by the assessee was made by the Assessing Officer to the extent of 30%; and, having regard to the observation/findings recorded by the Assessing Officer in the assessment order, the same was made on account of unverifiable elements involved in the direct expenses claimed by the assessee since there was a failure on the part of the assessee to furnish the details and documents in order to support and substantiate his claim for the said expenses. Reference to Section 69C of the Act made by the Assessing Officer, therefore, was totally unwarranted and it appears that the reference to Section 69C was made by the Assessing Officer through inadvertent mistake. In our opinion, such inadvertent reference made by the Assessing Officer to Section 69C of the Act could not or should not come
Miten Patel-HUF Vs. ITO AY : 2014-15 9 in a way to sustain the disallowance in question made by the Assessing Officer which otherwise was justifiably made on account of unverifiable elements involved in the direct expenses claimed by the assessee. As such, considering all the facts of the case, we are of the view that the disallowance of Rs.2,08,17,445/- made by the Assessing Officer out of direct expenses was fully justified and there was no infirmity in the order of the learned CIT(A) in confirming the same. We, therefore, uphold the impugned order of the learned CIT(A) on this issue and dismiss this appeal filed by the assessee.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the open Court on 9th September, 2022 at Ahmedabad.