Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “D” Bench, Mumbai
Before: Shri Ravish Sood & Shri N.K. PradhanShri Ravindranath B. Doddi
O R D E R
PER RAVISH SOOD, JM
The present appeal filed by the revenue is directed against the order passed by the CIT(A)-37, Mumbai, dated 16.06.2017, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961, dated 27.03.2015 for A.Y. 2011-12. The revenue assailing the impugned order has raised before us the following grounds of appeal before us: “1. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has failed to appreciate the facts that the addition of Rs. 1,60,300/-was made being the 15% of the sum of Rs.7,73,552/- on account of advertising and marketing P a g e | Income Tax Officer-25(3)(3) Vs. Shri Ravindranath B. Doddi expenses as some of the these expenses were made in cash and vouchers were not verifiable.
2. On the facts and in the circumstances of the case and in law the Ld. CIT (A) has failed to appreciate that the assessee despite giving opportunities and sufficient time to justify his claim during the assessment proceedings, failed to give explanation with supporting evidences and so the entire amount of Rs.81,64,000/- was remained unexplained cash credit in the books of the assessee.
3. The appellant prays that the order of the CIT (A) on the above rounds be set aside and that of the assessing officer be restored.
4. The appellant craves leave to amend or to alter any ground or add a new ground, which may be necessary.”
2. Briefly stated, the assessee had filed his return of income for A.Y. 2012-13 on 20.09.2012, declaring his total income at Rs.nil. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec.143(2). The A.O while framing the assessment interalia made the following addition/disallowance:
Sr. No. Particulars Amount 1. Disallowance out of advertising and marketing Rs.1,16,032/- expenses. 2. Addition on account of unexplained cash credit Rs.86,64,000/- under Sec.68
Aggrieved, the assessee carried the matter in appeal before the CIT(A). As regards the disallowance of advertising and marketing expenses of Rs.1,16,033/-(out of Rs.7,73,500/-), it was observed by the CIT(A) that the disallowance of the said expenses was merely backed by the general observations of the A.O. Apart there from, it was observed by him that the advertising and marketing expenses were incurred by the franchiser of the assessee viz. M/s Frame box Bandra, which thereafter on the basis of „debit notes‟ wereby way of a consistent practiceallocated towards the share of the assessee in his status as that of a franchisee. Accordingly, the CIT(A) not finding favour with the aforesaid disallowance of expenses by the A.O deleted the same. Further, it was observed by the CIT(A) that the A.O had P a g e | Income Tax Officer-25(3)(3) Vs. Shri Ravindranath B. Doddi made an addition of an amount of Rs.81,64,000/- that was introduced by the assessee in the „capital account‟ of his proprietary concern viz.M/s Quantum Technologies during the year under consideration. It was observed by the CIT(A) that the addition of Rs. 81,64,000/- made to the „capital account‟ of the assessee was comprised of two parts viz.
(i) the amount transferred from his personal bank account to his proprietary concern viz. M/s Quantum Technologies: Rs.46,64,000/-; and (ii) transfer of the liability of the proprietary concern i.e M/s Quantum Technology to the personal account of the assessee in his status as that of a proprietor: Rs.35,00,000/-. It was submitted by the assessee before the CIT(A) that no „cash flow‟ had taken place insofar the addition of Rs.35,00,000/- in his „capital account‟ was concerned. Apart there from, the assessee also filed the copy of his bank statement with ING Vysya Bank, Branch: Khar, Mumbai, and explained all the transactions pertaining to the year under consideration. As regards the source of the addition of Rs. 46,64,000/- that was introduced by the assessee in the „capital account‟ of his proprietary concern viz. M/s Quantum Technology, it was observed by the CIT(A) that the same was sourced out of the amounts which were transferred by the assessee during the year from his personal saving bank account. It was observed by the CIT(A), that a perusal of the SB account No. 528010105130 of the assessee with ING Vysya Bank, Branch: Khar, Mumbai, revealed that the source of the aforesaid addition of Rs. 46,40,000/- in the „capital account‟ of the assessee with M/s Quantum Technology was an amount of Rs.78,81,835/- that was received by him from M/s Royal Orchids Hotels Ltd. during the year under consideration. The assessee explaining the nature of the aforesaid receipt, had submitted before the CIT(A) that the same was the balance sale consideration pertaining to the sale of shares of M/s Maruti Comforts & Inn Pvt. Ltd., which were sold by him and his P a g e | Income Tax Officer-25(3)(3) Vs. Shri Ravindranath B. Doddi family members way back in the period relevant to A.Y 2005-06 to the aforesaid concern viz. M/s Royal Orchids Hotel Ltd. It was the claim of the assessee that the sale of shares of M/s Maruti Comforts & Inn Pvt. Ltd. were duly disclosed by him in the return of income for A.Y. 2005- 06, and the resultant capital gain of Rs.2,27,21,350/- was duly brought to tax in the said year. In order to fortify his aforesaid contention the assessee had filed with the CIT(A) certain documentary evidences viz. (i) copy of the assessment order passed in his case for A.Y. 2005-06; (ii) copy of his ledger account; (iii) copy of his personal „balance sheet‟, as well as that of his HUF i.eRavindranathDoddi, HUF. It was the claim of the assessee before the CIT(A) that the aforesaid details were furnished by him with the A.O, vide his submission dated 09.03.2015 during the course of the assessment proceedings. In the backdrop of the aforesaid facts, the CIT(A) observed that the A.O had totally ignored the documentary evidences that were submitted by the assessee in the course of the assessment proceedings. It was observed by the CIT(A) that as the A.O had not pointed out any defect in the aforesaid documentary evidences submitted by the assessee during the course of the assessment proceedings, therefore, the source and genuineness of the transactions under consideration could not have been doubted. In fact, it was observed by the CIT(A) that as the evidences relating to the transaction were submitted by the assessee with the A.O, therefore, the „onus‟ had thereafter shifted on him to prove that the same were non-genuine. Accordingly, the CIT(A) was of the view that the assessee had in the course of the assessment proceedings duly substantiated the source of the capital introduced by himin his „capital account‟ on the basis of supporting documentary evidence. Observing, that as the assessee had duly explained the „nature‟ and „source‟ of the cash credit of Rs.81,64,000/- which had P a g e | 5 AY. 2012-13 Income Tax Officer-25(3)(3) Vs. Shri Ravindranath B. Doddi not been dislodged or disproved by the A.O, the CIT(A) deleted the addition of Rs.81,64,000/-.
The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Departmental Representative (for short „D.R‟) relied on the order of the A.O. It was submitted by the ld. D.R that as the „advertising and marketing expenses‟ were not verifiable, therefore, the A.O had rightly made an adhoc disallowance of 15% of the total expenses and made an addition of Rs.1,60,300/-. As regards the addition of Rs.81,64,000/- made by the A.O under Sec. 68, it was submitted by the ld. D.R that as the assessee had failed to furnish any explanation as regards the „nature‟ and „source‟ of the addition made in his„capital account‟during the year under consideration, therefore, the A.O had rightly added the same to his returned income. In order to fortify his aforesaid contention the ld. D.R drew our attention to the relevant observations of the A.O in the assessment order. The ld. D.R taking us through Para 7.4 of the assessment order submitted, that the assessee had failed to come forth with an explanation as regards the „nature‟ and „source‟ of the capital addition of Rs.81,64,000/- on the basis of any supporting documentary evidence. On the basis of his aforesaid contention, it was averred by the ld. D.R that as the CIT(A) was in error in vacating the addition/disallowance made by the A.O., therefore, his order may be set aside and that of the A.O be restored.
Per contra, the ld. Authorized Representative (for short „A.R‟) for the assessee relied on the order passed by the CIT(A). As regards the adhoc disallowance of 15% of the advertising and marketing expenses, it was submitted by the ld. A.R that the same were the expenses which were allocated by the franchiser of the assessee viz. M/s Frameboxxby issuing „debit Notes‟ to the assessee. Accordingly, it was submitted by P a g e | 6 ITA No. 5434/Mum/2017 AY. 2012-13 Income Tax Officer-25(3)(3) Vs. Shri Ravindranath B. Doddi the ld. A.R that as the fact that the assessee had borne his share of the aforesaid expenses was witnessed by the „debit notes‟ issued by the franchiser, therefore, the CIT(A) had rightly observed that there was no justification for the A.O to have disallowed any part of the said expenses. As regards the addition of Rs. 81,64,000/- that was made by the A.O in context of the „capital account‟ additions in the proprietary concern of the assessee viz. M/s Quantum Technologies of Rs.81,64,000/-, the ld. A.R relied on the order passed by the CIT(A). It was submitted by the ld. A.R that the addition of Rs.81,64,000/- comprised of two parts viz. (i) amount transferred from the personal bank account of the assessee to his proprietary concern: Rs.46,64,000/-; and (ii) the amount of liability of Rs.35,00,000/- of the proprietary concern that was taken over by the assesse as a proprietor of the said concern. On a specific query by the bench as to whether the documentary evidence supporting the „source‟ of the capital that was introduced by the assessee by way of transfer of funds from his personal saving bank account was furnished with the A.O in the course of the assessment proceedings, it was answered by the ld. A.R in the affirmative. On being queried that the letter dated 28.03.2015(Page 40) of the assesses „Paper Book‟ (for short „APB‟), which was addressed by M/s Royal Orchid Hotels Ltd. to the A.O was bearing a date subsequent to the passing of the assessment order i.e 27.03.20015, it was submitted by the ld. A.R that though the assessee had filed the said letter with the A.O on 31.03.2015, however, the assessment was framed by him on 27.03.2015. The ld. A.R took us through the relevant pages of the APB in order to substantiate his claim that the addition made to the „capital account‟ during the year under consideration was out of the explained sources of the assessee.
We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material P a g e | Income Tax Officer-25(3)(3) Vs. Shri Ravindranath B. Doddi available on record. The revenue has assailed before us the order of the CIT(A) on two grounds viz. (i) that, the CIT(A) had erred in deleting the adhoc disallowance of Rs.1,60,300/- made by the A.O on account of unverified advertising and marketing expenses; and (ii) that, the CIT(A) had erred in deleting the addition of Rs.81,64,000/- made by the A.O under Sec. 68 in respect of the addition to the „capital account‟ of the assessee during the year under consideration. Adverting to the first aspect i.e the adhoc disallowance of 15% of the advertising and marketing expenses, we find substantial force in the contention advanced by the ld. A.R that the same is not backed by any basis or logical reasoning. As is discernible from the orders of the lower authorities, the aforesaid disallowance had been made by the A.O merely on the basis of a general statement that the vouchers pertaining to the said expenses were not verifiable. We are afraid that the said observation of the A.O is absolutely misconceived. As claimed by the ld. A.R, the advertising and marketing expenses were incurred by the franchiser viz. M/s Frameboxx and thereafter the said expenses were allocated to various franchises all over India by raising „debit notes‟ on them. Accordingly, it has been the claim of the assessee that the aforesaid expenses as a matter of a consistent practice were booked by him during the yearon the basis of the „debit notes‟ that were raised on it by its franchiser.Apart there from, we find that the claim of the assessee that the copies of the said „debit notes‟ were filed with the A.O in the course of the assessment proceedings had also not been dislodged or disproved before us. Also, no part of the said expenses are stated to have been incurred in cash. Further, we also find, that though the A.O had observed that some of the expenses were found to be unverifiable but what were those expenses had not been pointed out by him in the assessment order. On the basis of the aforesaid facts, we are unable to persuade ourselves to subscribe to P a g e | 8 AY. 2012-13 Income Tax Officer-25(3)(3) Vs. Shri Ravindranath B. Doddi the adhoc disallowance i.e 15% of the advertising and marketing expenses made by the A.O. Accordingly, finding no infirmity in the order of the CIT(A), who in our considered view had rightly vacated the disallowance of Rs.1,60,300/- made by the A.O, we uphold his order to the said extent. The Ground of appeal
No. 1 raised by the revenue is dismissed.
7. We shall now advert to the addition of Rs.81,64,000/- that was characterised as an unexplained cash credit by the A.O and added to the income of the assessee under Sec. 68 of the Act. As is discernible from the orders of the lower authorities, the assessee had made an addition of an amount of Rs.81,64,000/- in the „capital account‟ of his proprietary concern viz. M/s Quantum Technologies during the year under consideration. The aforesaid addition comprised of two parts, viz. (i) the amount transferred from the personal bank account of the assessee to his proprietary concern i.e M/s Quantum Technologies: Rs.46,64,000/-; and (ii) takeover of the liability of the proprietary concern i.e M/s Quantum Technologies by the assessee as a proprietor the said concern: Rs.35,00,000/-. As for the liability of Rs.35,00,000/-, we find that the same was comprised of takeover of the outstanding liability towards certain creditors of the proprietary concern viz. (i) Yava Goel: Rs.20,00,000/-; (ii) Kings for Construction: Rs.5,00,000/-; (iii) Beena Chaturvedi: Rs.2,00,000/-; (iv) Mayank Hospitality Services: Rs.8,00,000/-.We find that as the aforesaid transfer of an outstanding liability of the proprietary concern viz. M/s Quantum Technologies to the assessee is only in the nature of a „book entry‟ and no cash flow was therein involved, therefore, the CIT(A) had rightly vacated the characterisation of the same by the A.O as an unexplained cash credit u/s 68 of the Act. Also, the ld. D.R in the course of hearing the appeal had failed to point out any infirmity in the deletion of the said addition by the CIT(A). Accordingly, finding no P a g e | 9 ITA No. 5434/Mum/2017 AY. 2012-13 Income Tax Officer-25(3)(3) Vs. Shri Ravindranath B. Doddi infirmity in the order of the CIT(A) in context of the aforesaid issue under consideration, we uphold his order to the said extent.
8. As regards the addition of Rs.46,64,000/- made by the assessee in his „capital account‟ during the year under consideration, we find, that the same was comprised of funds which were transferred from the personal Saving Bank account No. 528010105130 of the assessee with ING Vysya Bank, Branch: Khar, Mumbai to the bank account of his proprietary concern viz. M/s Quantum Technologies i.e Currrent Account No. 528011013259 with ING Vysya Bank, Branch: Khar, Mumbai, during the year under consideration. We have further perused the bank account of the assessee i.e SB account No. 528010105130 with ING Vysya Bank, Branch: Khar, Mumbai, out of which the aforesaid amount aggregating to Rs. 46,64,000/- was transferred to the bank account of the proprietary concern of the assessee i.e M/s Quantum Technologies. We find that the aforesaid transfer of funds aggregating to Rs. 46,40,000/- wassourced from anamount of Rs.78,81,835/- that was credited on 28.07.2011 in the aforesaid personal bank account of the assessee. It is the claim of the assessee that the aforesaid amount of Rs.78,81,835/- was towards full and final remittance of the balance sale consideration of the shares of M/s Maruti Comfort & Inn Pvt. Ld. from M/s Royal Orchid Hotels Ltd., which during the year under consideration were received vide cheque no. 003081, dated 26.07.2011. As observed by us hereinabove, it has been the claim of the assessee that the shares of M/s Maruti Comforts & Inn Pvt. Ltd. were sold way back in the period relevant to A.Y. 2005- 06 by Sh. Ravindranath B. Doddi, HUF, and the capital gain of Rs.2,27,21,350/- arising there from was duly accounted for and subjected to tax in the said year. In sum and substance, it is the claim of the assessee that the amount of Rs.78,81,835/- credited in his bank account on 28.07.2011 pertained to a sale transaction of shares P a g e | Income Tax Officer-25(3)(3) Vs. Shri Ravindranath B. Doddi which was undertaken by its HUF viz. Sh. Ravindranath B. Doddi way back in the period relevant to A.Y. 2005-06. On a specific query by the bench as to whether the explanation as regards the source of the credit of the aforesaid amount of Rs.78,81,835/- was furnished in the course of the assessment proceedings, it was submitted by the ld. A.R that complete details as regards the same were filed with the A.O. However, we are not inspired by the aforesaid claim of the assessee. We find that the assessment order passed by the A.O under Sec.143(3), dated 27.03.2015 only refers to an unsubstantiated explanation of the assessee as regards the source of the aforesaid amount of Rs.78,81,835/- credited in his bank account on 28.07.02011. Rather, we find that a letter dated 28.03.2015 of M/s Royal Orchid Hotel Ltd. addressed to the A.O, as is heavily relied upon by the ld. A.R before us, is subsequent to the date of the framing of the assessment itself. As observed by us hereinabove, the ld. A.R on being confronted with the aforesaid fact had claimed that though the assessee had put up an appearance before the A.O on 31.03.2015 and had filed the said letter, but the assessment was framed by him vide his order passed u/s 143(3), dated 28.03.2015. However, the ld. A.R could not substantiate his aforesaid claim by placing on record any documentary evidence. We have given a thoughtful consideration and are unable to persuade ourselves to subscribe to the aforesaid unsubstantiated claim of the assessee that the letter dated 28.03.2015 of M/s Royal Orchid Hotel Ltd. was filed with the A.O in the course of the assessment proceedings. Be that as it may, in our considered view, as it is the claim of the assessee that the amount of Rs.78,81,835/- forms part of the sale consideration on the sale of certain shares which had duly been accounted for in the return of income for A.Y. 2005-06, therefore, in our considered view the matter requires to be revisited by the A.O for making necessary verifications as regards the P a g e | 11 AY. 2012-13 Income Tax Officer-25(3)(3) Vs. Shri Ravindranath B. Doddi veracity of the said claim. Accordingly, we restore the matter to the file of the A.O for the purpose of verifying both the „nature‟ and „source‟ of the amount of Rs.78,81,835/- credited in the bank account of the assessee on 28.07.2011. Needless to say, the A.O shall in the course of the „set aside‟ proceedings afford a reasonable opportunity of being heard to the assessee. Accordingly, the matter is restored to the file of the A.O for the limited purpose of making verification quaboth the „nature‟ and„source‟of the amount of Rs.78,81,835/- credited in the bank account of the assessee, out of which an amount aggregating to Rs.46,64,000/- had been transferred to his „capital account‟ with M/s Quantum Technologies. The Ground of Appeal
No. 2 raised by the revenue is allowed for statistical purpose.