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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: HON’BLE SHRI MAHAVIR SINGH, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
Per Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeals by assessee for Assessment Years [AY] 2012- 13 to 2014-15 contest common order of Ld. Commissioner of Income- Tax (Appeals)-47, Mumbai, [CIT(A)], Appeal Nos. CIT(A)-47/456-458/16- 17 dated 01/12/2017 on certain common grounds of appeal. Since common issues are involved, we proceed to dispose-off the same by way of this common order for the sake of convenience & brevity.
2. The grounds raised
in AY 2012-13 read as under: -
1. On the facts and circumstances of the case and law the Ld. CIT (A) erred in confirming addition in hand of assessee merely basis on statement which is taken under pressure where M/s Abhayraj Gems Pvt Ltd and Rishabh Impex is regularly audited and maintained property books of account.
2. On the facts and circumstances of the case and law the Ld. CIT (A) erred in confirming addition on account of commission on loan where in the statement recorded on oath never mention that assessee earning commission on loan. Without any statement and evidences, addition made on presumption is bad in law.
3. On the facts and circumstances of the case and in law Ld. CIT(A) erred in adding the notional commission on unsecured loan treating the same as accommodation of bogus transaction @ 2.4% i.e. from M/s. Abhayraj Gems Pvt Ltd Rs.7,09,607/- & M/s. Rishabh Impex Rs.8,54,659/-in the hands of the assessee.
4. On the facts and circumstances of the case and in law Ld, CIT(A) erred in adding the notional commission on purchases treating the same as accommodation of bogus transaction @ 0.075% i.e. from M/s. Abhayraj Gems Pvt Ltd Rs.38,546/- & M/s. Rishabh Impex Rs.5,07,819/- in the hands of the assessee.
5. On the facts and circumstances of the case and in law Ld. CIT(A) erred in adding the notional commission on imports treating the same as imports made on behalf of others @ 0.275% i.e. from M/s. Abhayraj Gems Pvt Ltd Rs.7,32,454/- M/s. Rishabh Impex Rs.4,89,323/- in the hands of the assessee.
6. On the facts and circumstances of the case and law the Ld. CIT(A) erred in making ad-hoc addition of notional interest without rejecting the books of accounts of from M/s. Abhayraj Gems Pvt Ltd & M/s. Rishabh Impex under the provisions of Section 145(3) of The Income Tax Act, 1961.
7. On the facts and circumstances of the case and law the Ld. CIT(A) erred making addition on estimated commission on sales without ensuring that there is no statement recorded by assessee that assessee received commission on sales. Without any statement and evidences, addition made on presumption is bad in law.
8. On the facts and circumstances of the case and law the Ld. CIT(A) erred making addition of Rs. 8;58,843/- (6,19,162 i.e. .075% on 82,55,49,314/- from M/s Rishabh Impex and addition of Rs.2,39,681 i.e .075% on 31,95,75,203/- from Abhayraj Impex Pvt Ltd) on account of sale.
9. Without prejudice to above if Ld. CIT(A) erred in not providing expenses more than 50% of Commission which company has incurred during the relevant previous year to run the business and restricting expenses up to 25% of Commission Income which is not fair and reasonable.
10. On the facts and circumstances of case and in law, Ld. Assessing officer erred in initiating proceeding u/s.274 r.w.s 271 (1) (c) of Income Tax Act 1961.
11. On the facts and circumstances of the case and law the Ld. CIT (A) erred in confirming interest under section 234A,234B and 234C of the Income Tax Act, 1961.” 3.1 Brief facts as emanating from record for AY 2012-13 is that the assessee & its group concerns were subjected to search proceedings u/s 132(1) on 03/10/2013. Consequently, the assessment for impugned AY was framed u/s 153A read with Section 143(3) on 31/03/2016 wherein the assessee’s income was assessed at Rs.31.60 Lacs after certain addition of estimated undisclosed commission for Rs.29.99 Lacs as against returned income of Rs.1.61 Lacs filed by the assessee on 18/10/2013. 3.2 In response to notice u/s 153A dated 21/07/2015, the assessee filed return of income on 20/08/2015 at the same figure of Rs.1.61 Lacs as it was originally filed. It transpired that the assessee being a resident individual was one of the directors in a corporate entity namely M/s Abhayraj Gems Private Limited which was stated to be engaged in the business of trading of diamonds. 3.3 During assessment proceedings, a detailed show-cause notice dated 07/03/2016 was issued to the assessee, the relevant extract of which has already been reproduced in the quantum assessment order at para 2.3. In the stated notice, it was alleged that the assessee was operating and managing not only the above stated entity i.e. M/s Abhayaraj Gems Private Ltd. in which he was a director but also another entity namely Rishabh Impex, the name sake proprietor of which was stated to be an individual namely Shri Bherulal Jain. Similar features were noted in operations / transactions carried out in these two firms.
3.4 During search proceedings, the assessee, in statement on oath u/s 132(4) recorded on 05/10/2013, accepted the aforesaid fact and submitted that he was importing goods on behalf of the real importers and the import consignment was handed over to them after receipt of material against cash. All these transactions were stated to have taken place out of regular books of accounts of the real importers as well as the aforesaid two entities. The bogus stock was, thereafter, used to issue bogus sale bills to various beneficiaries who made payment through banking channels against cash. The receipts in bank accounts, were later used to provide bogus loan entries to various persons desirous of taking such loans. The nature and content of parallel accounts containing details of cash transactions was found from the residential premise of the assessee. The voluminous documents titled as Annexure A-1 to Annexure A-5 containing details of transactions were found and seized. Armed with above information / incriminating documents, Ld.AO proceeded to estimate the unaccounted commission income earned by the assessee against these entries. 3.5 The assessee refuted the allegations levelled in the show-cause notice by submitting that statement u/s 132(4) was not given in proper frame of mind, the same was not correct and extracted forcefully which would have no evidentiary value in the eyes of law. In the above background, it was submitted by the assessee that genuine business was being carried out by the two entities and they were separately assessed to Tax and no adverse inference could be drawn against the assessee merely on the basis of retracted statements. 3.6 However, Ld. AO after careful consideration of incriminating material found during search proceedings, did not find any substance in all these submissions and came to a finding that the two entities were benami concerns of the assessee which was proved by overwhelming corroborative and circumstantial evidences gathered by the investigation wing during search proceedings. Reliance was placed, inter-alia, on the observation of Hon’ble Apex Court rendered in Sumati Dayal Vs. CIT [214 ITR 801] to support these observations / conclusions. It was also observed that the retraction was made by the assessee after a lapse of nearly 10 months and too, without any valid basis and the same was merely an afterthought and tutored statement. The provisions of section 132(4A) raising rebuttable presumption against the assessee were also noted in the light of various binding judicial pronouncements. 3.7 Finally, at para 6 of the quantum assessment order, Ld. AO came to a conclusion that it was conclusively proved with overwhelming direct and corroborative evidences that the assessee was engaged in providing accommodation entries through the two benami concerns. In the light of said conclusion, Ld. AO proceeded to estimate the commission income earned by the assessee against these accommodation entries. Since the two entities were being managed and controlled by the assessee, the estimated income of these two entities, in the opinion of Ld. AO, was to be clubbed / added in the hands of the assessee. Finally, the commission income was worked out on the basis of audited accounts of these two concerns as per following estimate: - No. Nature of Transactions Estimate Rate of Commission 1. Accommodation of bogus unsecured loans 2.4% 2. Accommodation of bogus purchases 0.075% 3. Accommodation of bogus imports made for 0.275% real importers 4. Estimated Expenses allowed against above 10% estimated commission income The aforesaid working resulted into net addition of Rs.29.99 Lacs in the hands of the assessee. 4.1 Aggrieved, the assessee agitated the same on same lines with partial success before Ld. first appellate authority vide impugned order dated 01/12/2017. The Ld. CIT(A), after careful consideration of factual matrix, upheld the action of Ld. AO in making additions on estimated basis since the finding of Ld. AO, in the opinion of Ld. CIT(A), was not based merely on statement given u/s 132(4) but also on the basis of overwhelming incriminating material, documents, systematic and voluminous electronic data found during the course of search operations. The ratio of various binding judicial pronouncement was noted while arriving such a conclusion. 4.2 While doing so, the Ld. first appellate authority proceeded to examine the reasonableness of the quantification of unaccounted commission earned by the assessee on accommodation entries. It was noted that assessee failed to bring on record any material evidence to indicate the rate of such commission earned on the accommodation entries and Ld. AO also did not make any efforts to quantify the rate of commission as recorded in the seized estimate sheets / data contained in the pen-drive and therefore, the estimated rates of commission were to be accepted. 4.3 At the same time, it was also observed that Ld. AO did not take into consideration the sales made by the two entities viz. M/s Abhayaraj Gems Private Ltd. & M/s Rishabh Impex to work out the estimated commission as against the finding of investigation wing that all the transactions were carried out for the purpose of accommodation entries and therefore, the sale reflected by these two concerns should have also been considered to arrive at the estimation of unaccounted commission income earned by the assessee. In other words, it was observed that the assessee’s income was to be enhanced to the extent of estimated unaccounted commission earned on sales reflected by the two entities. Although the assessee agitated the enhancement, however, Ld. CIT(A) estimated commission of .075% against the same. 4.4 The Ld. AO had estimated allowable expenditure against unaccounted commission @10%. However, relying upon the appellate orders in similar cases decided at Surat, the said rate was enhanced to 25% and accordingly, the relief to that extent was granted to the assessee. Aggrieved as aforesaid, the assessee is in further appeal before us.
The Ld. Authorized Representative for Assessee [AR], drawing our attention to the documents placed in the paper-book, submitted that the assessee was merely a director in one of the entities and derived income from salary from that entity. The estimated income earned by the two separate legal entities could not be clubbed / added into the hands of the assessee. An alternative plea has been raised to submit that the estimation made by lower authorities was on the higher side keeping in view the estimation made by revenue on similar factual matrix in similar other cases. A plea has also been raised that enhancement of income by first appellate authority was without any corroborative material on record and lastly, the allowance of expenditure was still on the lower side and as a natural consequence, credit of income reflected by the two entities in their respective return of income, was to be provided to the assessee. Per Contra, Ld. Departmental Representative [DR] submitted that the estimation made by lower authorities was quite reasonable one and therefore, the same would not warrant any interference. 6.1 We have carefully heard the rival submissions and perused relevant material on record including the documents placed in the paper- book & judicial pronouncements as cited before us. 6.2 The Ld. AR has relied upon the orders of this Tribunal rendered in M/s Morewel Impex Pvt. Ltd. [ITA No. 6992/Mum/2010 & others, order dated 14/10/2015] & Sunshine Import & Exports Pvt. Ltd. [ITA No.4347/Mum/2015 & others, order dated 09/09/2016] to submit that the additions were not warranted in the hands of the assessee since the same were made merely on the statements given by the assessee. However, both these case laws do not apply to the facts of the present case in view of the fact that both these decisions deal with a situation wherein the assessee was subjected to survey proceedings and the additions were made merely on the basis of statement given by the assessee without there being any incriminating material on record. Therefore, the same are clearly distinguishable and do not apply to the fact of present case in hand since incriminating material has been found in the search proceedings and statement has been given under oath u/s 132(4). 6.3 Upon perusal of orders of lower authorities, it transpires that the assessee, in statement on oath u/s 132(4) on 05/10/2013, during search proceedings, categorically admitted to be engaged in providing accommodation entries of varied nature through two name-sake entities without carrying out any actual business activity. The modes-operandi adopted by the assessee has elaborately been enumerated in the impugned order as well as in the statement given by the assessee. The incriminating material in the shape of Annexure A-1 to Annexure A-5 in respect to parallel accounts containing details of cash transactions etc. was found from the possession of the assessee which unequivocally corroborated the aforesaid statement. The Ld. AR has submitted that the statement was retracted but it is noted that the statement has been retracted after lapse of more than 10 months without any supporting facts to demonstrate that the same was given under any coercion or threat. Therefore, the presumption of Section 132(4A) stood against the assessee and complete onus to negate the same was on assessee which has remain undischarged. All these factors do not inspire us to accept the submissions of Ld. AR that additions of the two entities were not justified in the hands of the assessee. Therefore, lower authorities, in our considered opinion, were quite right in making the impugned additions in the hands of the assessee, under the given circumstances. Accordingly, Ground Nos. 1, 2 & 6 of the appeal stands dismissed. 7.1 Now, the only question that survives for our consideration is the estimation of unaccounted commission earned by the assessee on providing accommodation entries. For the same, the assessee has raised Ground Nos. 3,4,5,7,8 & 9. 7.2 The perusal of statement u/s 132(4) given by the assessee on 05/10/2013, reveal that the assessee was making imports for other entities against commission. The goods were handed over to real importers after receipt thereof. The fictitious stock thus created by the assessee in the books of accounts, was later used to provide accommodation sale bills to other entities against commission. The payment received through banking channels from those suppliers was, in turn, used to advance fictious loans and advances to other entities. The chain of the transactions establishes that the assessee has received commission on three accounts viz. commission on import purchases made on behalf of other entities, commission on accommodation local sales bills provided to other entities and commission on entries of loans and advances being provided to certain beneficiaries. In this factual background, the commission on local purchases stated to be made by the two entities, under the circumstances could not be sustained. Nothing has been brought on record to suggest that the assessee has received commission on account of local purchases stated to be made by the two entities. The same is also not supported by the statement made u/s 132(4). Therefore, the addition on account of commission on local purchases, as made by lower authorities, in our opinion, could not be sustained. Therefore, we delete the same. Ground No. 4 stand allowed. 7.3 The commission on account of accommodation entries of loans and advances has been estimated @2.4%. However, no material has been brought on record to justify the same. The assessee has also not indicated the same in the statement made u/s 132(4). Therefore, under the given circumstances, we estimate the same @0.5%. Ground No. 3 stand partly allowed. 7.4 The commission on import has been estimated @0.275% whereas commission on sales has been estimated @0.075%. Our attention has been drawn to the first appellate orders dated 30/10/2017 passed in the case of Shri Bhanwarlal Jain for AYs 2008-09 to 2014-15 to submit that the additions, under similar circumstances, have been estimated on lower side. After perusal of the same, we find force in the submissions and therefore, we estimate the commission on import @0.2% and commission on sales @0.05%. Ground Nos. 5, 7 & 8 stand partly allowed. 7.5 By way of ground no. 9, the assessee is aggrieved by the fact that the allowance for expenditure has been provided only to the extent of 25% whereas the same, considering the nature of activities being carried out by the assessee, was on the higher side. The Ld. CIT(A) has estimated the expenses as 25% of unaccounted commission. However, the perusal of material on record reveal that the assessee had employed four persons during the year to carry out various transactions. One of the entities was a corporate entity for which additional expenditure has to be incurred to maintain the corporate personality. Keeping in view the same, we enhance the same to 50% of unaccounted commission. Ground No. 9 stands partly allowed. 7.6 As a natural consequence, in the above circumstances, the income reflected by M/s Abhayaraj Gems Private Ltd. & the proprietor of M/s Rishabh Impex could not be termed as real income and therefore, the credit of the same shall be granted to the assessee. The assessee, in its own return of income, has reflected salary from M/s Abhayaraj Gems Private Ltd. which also, for the same reasons, could not be termed as real income and therefore, the same would stand deleted from the income of the assessee.
The appeal stands partly allowed in terms of our above order. AYs 2013-14 & 2014-15 9. Facts are pari-materia the same in these two years. The impugned order is common order for all the three assessment years. The assessee has raised identical grounds in these two appeals. Therefore, our observation, conclusion, adjudication as given for AY 2012-13, shall mutatis mutandis apply to these years also. Accordingly, both these appeals stand partly allowed. Conclusion 10. All the appeals stand partly allowed in terms of our above order. Order pronounced in the open court on 03rd May 2019.
Sd/- Sd/- (Mahavir Singh) (Manoj Kumar Aggarwal) �ाियक सद� / Judicial Member लेखा सद� / Accountant Member मुंबई Mumbai; िदनांक Dated :03/05/2019 Sr.PS, Jaisy Varghese आदेशकी�ितिलिपअ�ेिषत/Copy of the Order forwarded to : अपीलाथ�/ The Appellant 1. ��थ�/ The Respondent 2. आयकरआयु�(अपील) / The CIT(A) 3. आयकरआयु�/ CIT– concerned 4. िवभागीय�ितिनिध, आयकरअपीलीयअिधकरण, मुंबई/ DR, ITAT, Mumbai 5. गाड�फाईल / Guard File 6.