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Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. ITA number 2129/Del/2015 is an appeal filed by Shree Anuj Sethi, legal heir of the appellant Shri Rakesh Sethi, against the order of the ld Commissioner Of Income Tax (Appeals) – 24, New Delhi dated 30.01.2015 for the Assessment Year 2009-10. 2. The assessee has raised the following ground of appeal in :- “1. The ld CIT(A) has erred on facts and in law in confirming the addition of Rs. 2,00,000/- as the difference between the income surrendered and the income shown in the Return of income.
2. The ld CIT(A) has erred on facts and in law in confirming the disallowance made by the Assessing Officer of Rs. 2,09,901/- with respect to loss of two proprietary concerns.
3. The ld CIT(A) has erred on facts and in law in confirming disallowance of Rs. 53130/- held to be expenses of personal nature by the Assessing Officer.” 3. The brief facts of the case are that there was a search under section 132 of the income tax act on Raj Darbar group of companies and its associates. Certain documents belonging to the assessee were seized, notice under section 143 (2) of the act was also issued on 30/8/2010. During the current year as it is stated that the assessee has closed its business along with his two proprietary concerns and incurred losses due to the fixed expenses to be incurred by the assessee in respect of current assessment year. The assessee has filed his return of income on 30/8/2010 declaring an income of ₹ 2977830/–.
During the post-search proceedings the assessee vide his letter dated 26/9/2008 addressed to the Deputy Director Of Income Tax (Investigation) Unit – II, New Delhi made an offer to surrender ₹ 35 lakhs as undisclosed income of the assessee for assessment year 2009 – 10. In the said letter, the assessee submitted that surrender of ₹ 35 lakhs in the hands of the assessee is made for assessment year 2008 – 09 and ₹ 2 lakhs for the financial year 2007 – 08 to cover up the shortfall of the jewelry of ₹ 6.85 lakhs and the income assessee has received from royalty on commission from various picture halls during the three assessment years. The assessee has also stated that it has purchased old machinery up to 31/3/2000 of ₹ 2 lakhs up to 31/3/2008 and ₹ 1.5 lakhs for the second batch of the second- hand machinery at a total investment of ₹ 3.5 lakhs, which was not disclosed in the return of income and therefore the amount is being surrendered over and above the regular income for assessment year 2008 – 09 by ₹ 2 lakhs and ₹ 1.5 lakhs on Page | 2 account of old scrap machinery for the financial year 2008 – 09 of ₹ 1.5 lakhs and ₹ 1.5 lakhs on repairs of these machines. Thus, assessee further surrendered a sum of ₹ 5 lakhs in all the machinery and repairs thereof and the balance of ₹ 15.15 lakhs as miscellaneous income relevant to the assessment year 2009 – 10 was disclosed. It was further stated by the assessee that this disclosure is part of the statement recorded under section 132 (4) of the income tax act.
On perusal of the return of income filed by the assessee, the learned assessing officer noted that the assessee has only disclosed undisclosed income to the tune of ₹ 33 lakhs and therefore a further addition of ₹ 2 lakhs was made and penalty proceedings were initiated for furnishing of the inaccurate particulars of income. Further during the course of search and seizure some jewellery was found amounting to Rs. 2287823/– and on enquiry the assessee submitted that he has already surrendered ₹ 6.95 lakhs on that count. The assessee submitted that the balance jewellery is covered by the instruction number 1916 dated 11/05/1994 of central board of direct taxes. The learned assessing officer examined the claim of the assessee and held that the CBDT instructions are only for the purpose of the seizure and therefore he made an addition of Rs 1787823/– on account of unexplained investment in jewellery. Further, the assessee has two proprietary concerns MM enterprise and Radha Ballabh Enterprise. Assessee has claimed loss incurred by these two business entities. The learned assessing officer noted that such losses are after the businesses are wound up and not allowable as there is any business during the year. The learned AO further disallowed Rs. 56134/- being expenses of personal nature. Consequently the assessment under section 143 (3) of the act was passed on 21/12/2010 determining the total income of the assessee at ₹ 5231684 against the returned income of ₹ 2977830/–.
Aggrieved, assessee preferred appeal before the Commissioner of income tax appeals, who deleted the addition of ₹ 1 787823/– on account of unexplained jewellery by granting the relief on account of CBDT instruction number 1916. None of the parties is aggrieved with it. However, He confirmed the addition of the addition of ₹ 2 lakhs because of difference in the disclosure of ₹ 35 lakhs and ₹ 33 lakhs disclosed in the return of income as undisclosed income. He also upheld the disallowance of the losses of the proprietary concern of Rs 209901/- as the businesses have been closed down. He also confirmed the disallowance of ₹ 56130 because of expenses debited on personal nature. Therefore assessee is aggrieved with the order has preferred an appeal before us.
The first ground of appeal
is with respect to the confirmation of the addition of ₹ 2 lakhs being the difference between the income surrendered and the income shown in the return of income.
8. The learned authorised representative submitted that the surrender of ₹ 35 lakhs made by the appellant even included the income of the years other than the year under consideration. For instance, it was stated that royalty on commission from various picture halls was ₹ 10 lakhs during the preceding three years. He further stated that surrender of ₹ 35 lakhs included both assets as well as income. The appellant was made to confess both the income as well as its application. He stated that for instance jewellery of ₹ 6.85 lakhs and purchase of old machinery of ₹ 5 lakhs were assets and rest of the items in the surrender indicating earning of income the appellant was therefore made to suffer double taxation. He stated that appellant has paid tax on undisclosed income of ₹ 33 lakhs out of the surrendered sum of ₹ 35 lakhs and surrender was made primarily to buy peace even though equivalent corresponding undisclosed assets or evidences were not found during the search. He stated that it is a settled law that the tax assessment should be made in accordance with law undue benefit of ignorance of the taxpayer should not be taken. Therefore, he stated that it is unfair to enhance the undisclosed income by ₹ 2 lakhs when the corresponding undisclosed income or undisclosed assets were not found during the course of search.
The learned departmental representative vehemently supported the orders of the lower authorities and extensively read them to show that the addition made by the learned assessing officer and confirmed by the learned CIT – A are in accordance with the law.
We have carefully considered the rival contention and perused the orders of the lower authorities. The learned assessing officer has made the addition on the ground that the appellant did not include ₹ 2 lakhs in the return of income for the current assessment year even though such a surrender was made by the appellant’s letter submitted which was part of statement under section 132 (4) of the act. Assessee surrendered ₹ 35 lakhs for assessment year 2009 – 10 and ₹ 2 lakhs for assessment year 2008 – 09. The assessee disclosed ₹ 35 lakhs but has not offered the same in the income tax return and did not give the reasons also for scaling down his disclosure to Rs 33 lakhs. The learned commissioner Appeals has noted in para number 4.3.4 where the assessee has stated that he had sold of all the machinery to scrap dealers and there were no machineries with him, however the department found Guthka making machinery being operated with generator sets and raw materials as well as finished goods in the appellant’s premises. In the statement dated 17/12/2000 , date the assessee admitted that he was not only having the such machinery but also surrendered ₹ 35 lakhs towards investment in the machinery and unaccounted income from the said activity for assessment year 2009 – 10 and ₹ 2 lakhs for assessment year 2008 – 09. This was also confirmed by submitting a letter dated 26/9/2008. Assessee also did not submit in the letter that why is he disclosing income and its application both. Further, the assessee has also disclosed major sums for miscellaneous income for which no break up was given. Assessee has never explained his disclosure before ld AO. For the reasons given by the learned commissioner Appeals in para number 4.3.5 also we are not inclined to interfere in the orders of the lower authorities and therefore the addition of ₹ 2 lakhs is confirmed. Accordingly, ground number one of the appeal of the assessee is dismissed.
The second ground of appeal
is against the confirmation of the disallowance made by the assessing officer of ₹ 209901 with respect to loss of two proprietary concerns.
12. The learned authorised representative submitted that it was grossly incorrect to assume that the business of proprietary concerns had ceased to exist especially in view of the fact that in the immediately preceding year assessed by the same assessing officer very substantial turnover with respect to both the entities were shown in assessed. He further stated that the same commissioner appeals in his appellate order passed on 5/2/2013 in the same factual backdrop not only accepted the business existence of same two proprietary concerns but also deleted the addition made with respect to the same by the AO. He stated that the both the proprietary concerns in the year under consideration were holding assets related to the proprietary business and only claim made by the appellant was with respect to the interest on the loans taken. The interest payment has not been doubted by the learned assessing officer and therefore denying this expenditure solely for the reason that business has ceased to exist is unjustified. He further stated that even if it is assumed just for the sake of argument that the proprietary businesses does not exit the appellant being a proprietor was always entitled to claim the interest expenditure as the liability of the proprietary business which became his liability in this liability could not be called personal liability by any stretch of imagination. He therefore stated that the disallowance of the loss, which is because of payment of the interest, deserves to be allowed. He further stated that when CIT A and ld AO both are saying that assessee has business income of manufacturing Guthka , there is no reason to believe that business of the assessee has ceased to exist.
The learned departmental representative vehemently supported the order of the learned lower authorities and stated that assessee has not carried on any business during the year and therefore the loss cannot be allowed.
We have carefully considered the rival contention and perused the orders of the lower authorities. In preceding year it was submitted that there is a substantial turnover with respect to both the entities and which are assessed to the income tax and further the Commissioner of income tax appeals in his appellate order passed on 5/2/2013 has accepted the business existence of the same two proprietary concern but also deleted addition,. Further in this year it was found that machineries of Guthka were running in business premises of the assessee on generator, these two facts goes a long way to show that the business of the proprietary concern is not closed. Further in this year, business income is taxed as a part of disclosure, then where from these income is generated other than these two proprietary business of the assessee, is not shown. It is also unfair to tax the income as business income, and not to grant benefit of losses resulting out of expenses of that income. In view of this, we are not inclined to uphold the orders of the lower authorities and therefore we direct the learned assessing officer to allow the loss of ₹ 209901 because of business losses of the proprietary concern. In the result ground number two of the appeal of the assessee is allowed.
Ground number three of the appeal is against the disallowance of Rs. 5 6130 because of expenses of personal nature.
The learned authorised representative submitted that addition has been made by the learned assessing officer mentioning them to be the expenses of the personal ledger. The assessee has claimed ₹ 95978 minus Rs 2860 , i.e. ₹ 93118 as interest expenditure and ₹ 19152 excluding expenditure. Out of this, the AO disallowed the expenditure of ₹ 56130. He further stated that in the subsequent year the interest expenditure of ₹ 315906 has been allowed by the learned commissioner of income tax appeals. He further stated that the copy charges of the hard disk was done at the instance of the officers of the income tax department during search and seizure and therefore this cannot be considered to be a personal expenditure.
The learned departmental representative vehemently supported the order of the lower authorities and stated that the expenditure because of interest expenditure and hard disk copy charges are personal expenditure in nature and therefore the learned lower authorities have correctly disallowed the same.
We have carefully considered the rival contention and perused the orders of the lower authorities. Before the learned commissioner appeals the assessee produced the profit and loss account of one proprietary concern but not of the second proprietary concern. The expenditure in the nature of the copy charges of hard disk are not appearing either in the profit and loss account of any of the proprietary concerns. This expenditure has been debited in the appellant’s individual income and expenditure account. The learned commissioner appeals has noted that the total income and expenditure account claim of the assessee shows that assessee has claimed the expenditure of Rs 115130/– towards hard disk copy charges in interest expenditure. Out of these the assessing officer disallowed only ₹ 5 6130/–. In absence of the complete details filed before the lower authorities, as mentioned by the learned commissioner of income tax appeals in para number 4.5.3 of his order, we do not interfere in the finding of lower authorities on e disallowance of ₹ 5 6130 out of the total expenditure incurred by the assessee. In view of this ground number three of the appeal of the assessee is dismissed.
In the result ITA number 2129/Del/2015 for assessment year 2009 – 10 filed by the assessee is partly allowed.
ITA number 2130/ Del/ 2015 has been filed by the assessee against the order of the Commissioner Of Income Tax Appeals – 24, New Delhi wherein the penalty levied under section 271AAA of ₹ 3.5 lakhs by the learned Deputy Commissioner Of Income Tax, Central circle – 05, New Delhi vide order dated 24 /6/2011 is confirmed. Aggrieved with that order assessee has raised the following ground of appeal in “1. The ld CIT(A) has erred on facts in law in confirming the penalty of Rs. 3,50,000/- under section 271 AAA of the Income Tax Act, 1961.
2. The ld CIT(A) has erred on facts and in law in holding that the entire surrender was made by the appellant on account of incriminating evidences found during the course of search.
3. The ld CIT(A) has erred on facts and in law in not appreciating the provisions of Section 271AAA of the Income Tax Act, 1961 and has further erred in ignoring several rulings of the higher judicial authorities without ascribing any reasons.”
21. The brief fact shows that during the course of search and seizure the assessee has disclosed and surrendered income of ₹ 35 lakhs on 31/7/2008. Accordingly the assessment under section 153A of The Income Tax Act 1961 was passed on 21/12/2010 at a total income of ₹ 5231684/–. The amount of disclosure has been included to the extent of ₹ 33 lakhs in the return of income and the balance sum of ₹ 2 lakhs was not disclosed, however the learned assessing officer made an addition of ₹ 35 lakhs as undisclosed income in that year based on the statement along with letter u/s 132 (4) of the act. Therefore, ld AO held that the assessee was liable for penalty u/s 271 AAA of the act.
During the course of penalty proceedings, assessee submitted that he has submitted the complete details regarding the source of income and surrendered amount were explained. The disclosure was made to avoid any litigation with the Department on an agreed basis with the precondition that no penalty proceedings may be initiated. He further stated that assessee has duly explained at the time of search undisclosed income and during the course of assessment proceeding and its manner of earning and investments. Ld AO does not have any material available on record indicating earning of undisclosed income by the assessee otherwise. The assessee has also paid the tax along with interest on the surrendered amount in order to buy peace with the understanding that no penalty would be imposed. The learned AO considered the explanation of the assessee and held that as assessee has surrendered the sum of ₹ 35 lakhs the penalty at the rate of 10% of such sum is leviable and therefore he imposed a penalty of ₹ 3.5 lakhs vide order dated 24/6/2011.
Assessee being aggrieved with the order of the learned AO preferred an appeal before the learned commissioner of income tax appeals who dismissed the appeal and confirmed the penalty.
The learned authorised representative submitted that during the course of search, the disclosure has been made by way of a letter. Assessee has not been given any opportunity to disclose the manner of deriving the income as it was never asked to the assessee. He further stated that such question was never asked to the assessee during the course of assessment proceedings also. He further relied upon the decision of the honourable Delhi High Court in Principal CIT vs. Emirates Technologies Private limited
The learned departmental representative vehemently supported the orders of the lower authorities. He further stated that the levy of the penalty is mandatory when the assessee has disclosed the sum during the course of search.
We have carefully considered the rival contention and perused the orders of the lower authorities. Admittedly, the assessee has disclosed the sum of ₹ 35 lakhs during the course of search. However, it was not shown by the revenue that whether the assessee was given an opportunity to explain the source of the undisclosed income and specify the manner in which the undisclosed income, surrendered during the course of search, had been derived. Therefore, the issue is squarely covered in favour of the assessee by the decision of the honourable Delhi High Court in case of principal CIT vs Emirates Technologies Private Limited (ITA 400/2017 dated 18/7/2017). Identical view has also been taken by Honourable Gujarat High court in [2017] 398 ITR 170 (Guj) Principal Commissioner of Income Tax v. Mukeshbhai Ramanlal Prajapati and [2018] 401 ITR 488 (Guj) Principal commissioner of Income Tax v. swapna Enterprise. Recently Honourable Delhi High court in case of Bhavi Jindal in Income Tax Appeal No. 973/2018 dated 13/9/2018 has held as under :- “9. Plea and contention of the Revenue in the present appeal is to the effect that the statement made under Section 132(4) did not indicate and state the manner in which the undisclosed income was derived. This is different from the ground and reason given by the Assessing Officer to impose penalty of Rs.3 crores under Section 271AAA of the Act, which was that the respondent-assessee had not been able to substantiate the manner in which the undisclosed income of Rs.30 crores had been derived. The two aspects are different as is clear from clauses (i) and (ii) to sub-section (2) to Page | 12