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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI PAWAN SINGH & SHRI RAJESH KUMAR
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the assessee against the order dated 21.01.2015 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2011-12.
The various grounds raised by the assessee are as under: “1.1 The learned CIT(A) erred in rejecting the appellant's ground of appeal that in the absence of satisfaction of ingredients of search prescribed under section 132(1) of the Act; the assessment be declared without jurisdiction and invalid. 1.2 The learned CIT(A) failed to take note of the important fact that 2 M/s. Pentagon Waterlines Pvt. Ltd. the appellant had submitted itself to the assessment jurisdiction under protest vide letter dated 22-10-2012. 1.3 The learned CIT(A) failed to appreciate the ratio laid down by the High Courts in various case laws cited before her wherein the right of the assessee to challenge the validity of the search before the appellate authorities under the IT Act has been confirmed. 1.4 The learned CIT(A) erred in justifying the rejection of the right of challenge to the validity of the search based on the reasons unacceptable in law. 1.5 Consequent upon the foregoing, the learned CIT(A) failed to appreciate that assessment of income made solely on the basis of declaration of income made by the appellant under undue influence from the investigating team in the course of search operations, is invalid in law and therefore liable to be deleted. Alternative Grounds: In the facts of the case and in law, the learned CIT(A) failed to appreciate the contention of the appellant that it was clearly discernible from the statement taken during the search proceedings that the appellant had offered the income for taxation under the confused state of mind and that the sum of Rs.14,88,222/- was not the additional income of the appellant.”
3. Vide ground No.1, the assessee has challenged the validity of the search.
The facts in brief are that the search was conducted on the assessee on 11.02.2011 and the search was closed temporarily on 12.02.2011 at 10 A.M. Thereafter, the search was again commenced on 01.03.2011 which continued till 4:30 P.M. on 02.03.2011. During the statement recorded under section 132(4) the assessee offered income of Rs.11,49,259/- in A.Y. 2010-11 and Rs.25,95,851/- in A.Y. 2011-12 towards bogus freight and transport expenses debited in books of accounts. A commission of Rs.14,88,222/- was paid in cash to a business associates which was also offered as unexplained expenditure in F.Y. 2010-11. However, while filing return in pursuance of notice under section 153A the assessee did not offer the said income to tax on the belief
3 M/s. Pentagon Waterlines Pvt. Ltd. that the said commission of Rs.14,88,222/- was paid out of the cash received from bogus transport expenses already offered for income. The said facts were explained in the assessment proceedings but were not accepted by the AO and finally addition of Rs.14,88,222/- was made under section 69(3) as unexplained expenditure.
The Ld. CIT(A) also dismissed the ground raised
by the assessee regarding validity of the search holding that the search was validly, initiated and concluded as has been stated in the panchanamas and accordingly affirmed the order of AO on the ground of validity of the search. The Ld. A.R. submitted before the Bench that statement was recorded on 01.03.2011 and continued till 4
30. P.M. on 02.03.2011. The Ld. A.R. further argued that the statement was not recorded during the course of search proceedings and therefore has no validity as the search was concluded on 12.02.2011, on the basis of first panchnama. The Ld. A.R. contended that there was no basis for conducting search which was conducted on the basis of suspicious and surmises and therefore is invalid.
The Ld. D.R., on the other hand, opposed the argument of the Ld. A.R. by relying on the order of authorities below. The Ld. D.R. argued that the search was commenced on 11.02.2011 and was temporarily concluded on 12.02.2011 thereafter again taken on 01.03.2011 and finally concluded on 02.03.2011 and thus there is no weight in the arguments of the Ld. A.R.
4 M/s. Pentagon Waterlines Pvt. Ltd.
We have heard the rival submissions of both the parties and perused the material on record. The undisputed facts are that the search was conducted on 11.02.2011 and temporarily concluded on 12.02.2011 on the basis of first panchnama drawn on 12.02.2011. Again as per 2nd panchnama the search commenced on 01.03.2011 at 12:30 P.M. and proceedings were closed on 02.03.2011 as finally concluded. In our opinion, the order of Ld. CIT(A) upholding the validity of search is quite reasoned and well founded as there is nothing on record to show that search is invalid. We opined on the basis of panchnama that the search initiated on 11.02.2011 and concluded on 02.03.2011. Accordingly, the grounds raised by the assessee as to the validity of the search is dismissed.
The issue raised in 2nd ground of appeal is against the 8. order of Ld. CIT(A) not appreciating the fact that a sum of Rs.14,88,222/- was offered under confused state of mind and was not an additional income of the assessee but the source of such expense was out of receipts from bogus freight and transport expenses.
The facts of the case have been stated hereinabove in the first ground of appeal. The said amount was offered in the course of statement recorded under section 132(4) of the Act towards cash payment of commission to the associate concerns. The assessee did not offer the same in the return of income on the ground that the said amount was not over and above but was declared on account of bogus billing of freight
5 M/s. Pentagon Waterlines Pvt. Ltd. and transportation charges. The assessee claimed that the said amount was offered in a confused state of mind as assessee was under considerable pressure and could not understand the contents he offered in the statement recorded under section 132(4) of the Act. Now the assessee is claiming that the telescopic benefit should be granted to the assessee as the search team has not found any incriminating documents evidencing the payment of said commission to the associate concern. However, the AO added the same to the income of the assessee.
In the appellate proceedings, the Ld. CIT(A) also confirmed the same on the ground that assessee itself agreed to have expended Rs.14,88,222/- towards payment of commission to the associate concern.
The Ld. A.R. vehemently submitted before us that the assessee offered Rs.14,88,222/- under duress and confused state of mind as assessee was under tremendous pressure due to the search and it was being the first search incidence on the assessee. The Ld. A.R. submitted that the assessee has already offered Rs.11,49,259/- in A.Y. 2010-11 and Rs.25,95,851/- in A.Y. 2011-12 towards bogus freight and transport expenses debited in the books of accounts. The Ld. A.R. submitted that the said payment of commission amounting to Rs.14,88,222/- should be telescoped out of the above surrendered income and the assessee should be granted the benefit of telescoping and thus no separate addition is called for. Moreover, the assessee also submitted
6 M/s. Pentagon Waterlines Pvt. Ltd. that since no incriminating document was found during the course of search and the addition is not justified based on the admission by the assessee in the statement recorded under section 132(4) which has no evidentiary value as not being corroborated by simultaneous detection of same incriminating material.
We have heard the rival submissions of both the parties and perused the material on record. The undisputed facts are that the assessee offered the income to tax during the course of recording of statement under section 132(4) of the Act of Rs.11,49,259/- in A.Y. 2010-11 and Rs.25,95,851/- in A.Y. 2011-12 towards bogus freight and transport expenses debited in the books of accounts. Besides, the assessee also made the commission payments of Rs.14,88,222/- to associate concern which was admitted by the assessee at the time of recording of statement under section 132(4) of the Act and offered the same to tax in A.Y. 2011-12. So far as the offering of income on account of bogus freight and transport expenses is concerned, there is no dispute and the same has been accepted and offered by the assessee in the return of income but the dispute is as regards Rs.14,88,222/- which was offered at the time of recording of statement as payment of commission in cash to business associate concern but later on was not offered in the return of income reasoning that the same was made out of the cash generated by the assessee by booking bogus freight and transport expenses to the tune of Rs.25,95,851/-. We also observe that no incriminating material was found during the course of search corroborating
7 M/s. Pentagon Waterlines Pvt. Ltd. the payment commission of Rs.14,88,222/-. Under these circumstances we are of the view that the cash generated by the assessee out of the booking of bogus freight and transport expenses should be allowed to be used by the assessee in making the commission payment and the telescoping of the same should be allowed to the assessee. Thus we find merits in the contention of the assessee that Rs.14,88,222/- was made out of the cash generated out of booking of bills of freight and transportation charges. In view of the above discussion and facts on record, we are inclined to set aside the order of Ld. CIT(A) on this issue and direct the AO to delete the addition of Rs.14,88,222/-.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on 19.07.2018.