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Income Tax Appellate Tribunal, MUMBAI BENCHES, ‘B’ MUMBAI
Before: Shri Joginder Singh, & Shri Rajesh Kumar
आदेश / O R D E R Per Joginder Singh (Judicial Member) This bunch of six appeals is by the assessee against the impugned order dated 30/10/2017 of the Ld. First Appellate Authority, Mumbai, for Assessment Years 2008- 09 to 2013-14.
During hearing of this appeal, the Ld. Counsel for the assessee, Shri Manoj Pandit, contended that the expenses incurred for carrying on the business has to be allowed and the disallowances made by the Ld. Assessing Officer and confirmed by the Ld. Commissioner of Income Tax (Appeal) are not out of bona-fide reasons. It was contended that the assessee is dealing in transfer of own cash and no Hawala trading is done by the assessee. Our attention was invited to the statement recorded from the assessee as well as one of the employee. It was pleaded that as per section 30 of the Act, the rent has to be allowed and as per section 37 of the Act, other business expenses has to be allowed. On the other hand, the Ld. DR, Shri S. K.
Bepari, strongly defended the impugned order by contending that the assessee is involved in Hawala trading business, which is illegal, therefore, no expenses are allowable. Our attention was invited to the statement tendered by the assessee and also one of the employees. It was contended that even till today, the statements has not been retracted. In reply, the ld. counsel for the assessee pleaded that, in view of section 30 of the Income Tax Act, 1961 (hereinafter the Act), at least rent expenses are to be allowed.
2.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that a search and seizure action under section 132 of the Act was carried out in the case of M/s Gold Sukh Safety Vaults Ltd., who are in the business of providing locker on rent, without verification of KYC details. It was subsequently found that number of lockers has been given on rent to Hawala operators, who are involved in illegal transfer of cash. The statement of the assessee was recorded, wherein, he admitted that he was involved in the business of angadia, involved in transferring the money from one place to another, with respect to various parties, with the help of another angadia service providers.
Ultimately, the Ld. Assessing Officer framed assessment by disallowing various expenses claimed by the assessee and the commission involved in this business. The assessee carried the matter in appeal before the Ld. Commissioner of Income Tax (Appeal), wherein, the appeal of the assessee was dismissed. The assessee is in further appeal before this Tribunal.
2.2. Before adverting further, we are reproducing hereunder the relevant portion of the statement of Shri Asok Mohanbahi Patel (assessee) is reproduced hereunder for ready reference and analysis:-
2.3. We are also reproducing hereunder the statement tendered by Shri Pravikumar Babulal Patel:-
2.4. If the statement of the assessee tendered on 05/02/2013 (which is not retracted) is analyzed in reply to question no.14, it has been specifically tendered by him that he was involved in Hawala activities engaged in transferring cash of different parties on commission basis, which is Rs.3 per Rs.1,000/- as commission. In reply question no.3 with respect to modus operandi of the activity, he tendered that the parties comes to him for getting the cash transferred and a note of Rs.10 is given to this person at the location, where the cash is to be delivered. The person of the concerned parties, goes to the destination along with Rs.10 note and after verifying the number of the note, the cash is delivered to the parties.
Therefore, the contention of the assessee that the present appellant is only involved in transferring his own cash is factually incorrect. So far as, the statement of Shri Pravin Kumar Babulal Patel, (employee of the assessee) is concerned, in reply to question no.18, he has specifically stated that he is employee of the assessee and in reply to question no.20, he tendered that the assessee is in the business of angadia involved in transferring the money from one place to another through different angadias.
Reply to question no.21 and 26 of the statement, fortifies the claim of the Revenue. It is noteworthy that both these statements were never retracted by the assessee as well the employee of the assessee. Furthermore, the assessee is not having any license of doing the activity of transferring of cash and even on a question from the Bench whether the statement tendered by them was ever retracted, the ld. counsel for the assessee specifically said that the statements were never retracted. Even during argument, the ld. counsel for the assessee relied upon the statement tendered by the assessee as well as of the employee of the assessee (both these statements are available on record in the paper-book filed by the assessee itself).
2.5. Another argument advanced by the ld. counsel for the assessee is that the ld. Assessing Officer erred in taking gross commission income of the assessee but did not allow the expenses incurred for earning such commission income and further disallowance of rent expenses. The Ld. counsel for the assessee advanced identical arguments, whereas, the Ld. DR contended that since the assessee was doing illegal activity, such expenses cannot be allowed.
2.6. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, the commission income and claimed expenses are summarized hereunder:-
A.Y. Gross Commission Expenses Net Income income shown claimed offered to tax (in Rs.) (in Rs.) (in Rs.) 2007-08 NIL NIL NIL 2008-09 5,26,811 3,14,682 2,12,129 2009-10 6,35,667 3,34,202 3,01,465 2010-11 7,70,786 3,70,023 4,00,763 2011-12 9,43,438 4,25,735 5,18,003 2012-13 8,58,226 4,58,484 3,99,742 2013-14 8,64,322 4,61,658 4,02,664
The aforesaid expenses, claimed by the assessee, were rejected by the ld. Assessing Officer. A search and seizure operation under section 132 of the Act was carried out on 08/11/2012 and simultaneously identical action was taken in the case of M/s Gold Sukh Safety Vaults Ltd., which is engaged in providing lockers on rent. The Ld. Assessing Officer observed that survey action 133A was carried out earlier on 13/09/2010, wherein, cash amounting to Rs.7,50,000/- were found from the premises of the assessee, consequently, the survey was converted into search under section 132 of the Act and thus the aforementioned cash was seized. The grounds of appeal are similar except different figures of each years, hence, a common order is passed. In the statement recorded on 05/02/2013, the assessee stated that he was earning average annual income of Rs.7 lakhs from the Hawala business for the last six years and further he agreed with the statement of Shri Pravin Patel. This is admitted fact that in the business of Hawala trading normally no record is maintained and the money transfer business was discovered/unearthed during search proceedings. The claimed expenses by the assessee are unverifiable, therefore, we find no infirmity in the impugned order with respect to disallowance of expenses. Even otherwise, the assessee cannot be extended the benefit of unlawful business and consequently the unlawful expenses.
2.7. So far as, the argument of the Ld. counsel for the assessee that as per the provisions of section 30 of the Act, the benefit of rent and as per section 37, the benefit of any expenditure, laid out or expanded wholly and exclusively for the purpose of business has to be allowed. However, we are not agreeing with this proposition of the ld. counsel for the assessee, because as per explanation-1 to section 37, for removal of doubts, it has been categorically declared that ‘any expenditure” incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purposes of business or profession and no deduction or allowance shall be made in respect of such expenditure. The ratio laid down in Haji Aiza & Abdul Shakoor Bros. vs CIT (1961) 41 ITR 350 (Supreme Court), CIT vs Mathura Prasad H. P.
Deoria (1965) 55 ITR 476 (All.), Sadi Ram Ganga Prasad vs CIT 172 ITR 129(ALL) (penalty for breach of law), Rohit Pulp & Paper Mills ltd. (215 ITR 919, 922) (Bom.), Orient Trading Company Ltd. vs CIT 202 ITR 481, 491 (Guj.), Agra Leatheries Ltd. vs CIT (200 ITR 792)(All.), CIT vs Jayaram Metal Industres 286 ITR 403 (409) (Karn.), CIT vs Mamta Enterprises 266 ITR 356 (Karn.) supports our view. The crux of the ratio in the aforesaid cases is that any penalty/deduction/expenditure claimed in violation of legal business/infraction of law is not an allowable deduction.
Even otherwise, the word “any expenditure” used in section 37 denotes legal expenditure laid out or expanded wholly and exclusively for the purposes of business or profession, which has been further clarified in Explanation-1 to section 37 inserted by Finance No.2 Act 1998 (with retrospective effect from 01/04/1962) and further the explanation has been numbered as Explanation-1 by the Finance (No.2) Act 2014. Thus, considering the totality of facts and the provision of the Act, we find no infirmity in the conclusion of the Ld. Commissioner of Income Tax (Appeal), resultantly, the appeals of the assessee are dismissed.
Finally, the appeals of the assessee are dismissed.
This order was pronounced in the open court in the presence of the ld. representatives from both sides at the conclusion of the hearing on 04/09/2018.