Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “F” Bench, Mumbai
O R D E R Per B.R. Baskaran (AM) :-
The appeal of the assessee is directed against the order dated 19-02- 2015 passed by Ld CIT(A)-9, Mumbai and it relates to the assessment year 2010-11. The assessee is aggrieved by the decision of Ld CIT(A) in confirming the addition of Rs.70.00 lakhs relating to undisclosed income and the addition of Rs.3.86 lakhs made u/s 14A of the Act.
The appeal is barred by limitation by 231 days. The Ld A.R submitted that the assessee had discontinued the business operations way back in 2009 itself. He submitted that the affairs of the company are looked after a staff belonging to a sister concern. The said staff has received the order and he, inadvertently, failed to bring the same to the notice of the directors. The assessee came to know about the order passed by Ld CIT(A), only when it received the notices for penalty proceedings. Immediately, the assessee took the steps and filed the present appeal. The Ld A.R submitted that the assessee has furnished an affidavit obtained from the concerned staff also to 2 M/s. Valueline Equities Pvt. Ltd.
substantiate its pleadings. Accordingly the Ld A.R submitted that the delay has occurred on account of reasons beyond the control of the assessee and accordingly prayed that the delay be condoned.
On the contrary, the Ld D.R strongly objected to the plea of the assessee and contended that the reasons given by the assessee are not appealing.
Having heard rival submissions, we are of the view that the explanations given by the assessee deserves acceptance. The assessee has stated that the business operations have been stopped and the appeal order was received by a staff belonging to group concern. We find from the record that the assessee has surrendered its trader rights with NSE in September, 2009 itself. The staff, who claimed to have received the order, has given an affidavit owning up the responsibility. Hence the other explanation of the assessee also gets substantiated. Under these set of facts, we find merit in the explanations of the assessee and accordingly condone the delay and admit the appeal for hearing.
The first issue contested by the assessee relates to the addition of Rs.70.00 lakhs relating to undisclosed income. The facts relating to the same are discussed in brief. The assessee was subjected to survey operations on 03- 08-2009. During the course of survey operations, two proforma invoices of Rs.29.78 lakhs raised each raised against M/s Value line Advisors P Ltd and M/s S.B & T International Ltd were found. When confronted with the same, the director of the assessee company, Shri Sajiv Chenani admitted that these invoices have not been accounted for and they represent income of the year. Accordingly he agreed to offer a sum of Rs.70.00 lakhs as undisclosed income. However, the assessee did not disclose the same in its return of income.
Before the AO, the assessee submitted that it has closed down its business on 29-09-2009, i.e., within short period after the survey operations. It further submitted that the proforma invoices were raised against the two companies, cited above, in order to give quotation for the services proposed to be rendered. However, the services were not rendered at all and hence the 3 M/s. Valueline Equities Pvt. Ltd.
assessee did not receive the income. It was further submitted that the accounts of the above said companies also show that they did not make any payment to the assessee. Accordingly it was submitted that the admission made, which is contrary to the facts, should be ignored. However, the AO noticed that the assessee had paid advance tax on the above said amount of Rs.70.00 lakhs in the months of December, 2009 and March, 2010. Accordingly he took the view that the assessee’s explanations are only afterthoughts. The AO, by placing reliance on the invoices found during the course of search and the statement given by the director, added the above said sum of Rs.70.00 lakhs to the total income of the assessee. The Ld CIT(A) also confirmed the same without deliberating much.
We heard the parties on this issue. The admitted facts are that the invoices found during the course of search were “Proforma invoices”, which cannot be equated with actual invoices. The assessee has submitted that these invoices represent only proposals given to the two companies cited above and it did not render any service and consequently did not receive any payment. In support of the said submissions, the assessee has also produced the copies of accounts of M/s Value line Advisors P Ltd and M/s S.B & T International Ltd. There is no dispute with regard to the fact that the ledger accounts of the above said two companies did not show any payments to the assessee. We notice that the Assessing officer could not contradict the submissions made by the assessee in this regard. The assessee also relied upon following case law in order to submit that the addition cannot be made merely on the basis of proforma invoices without establishing that the transactions have been carried out:- (a) Airports Authority of India Vs. CIT (2012)(340 ITR 407)(Delhi) (b) CIT Vs. Shib Sankar Das (2017)(83 taxmann.com 193)(Cal)
The Ld A.R further submitted that the survey team did not find any other discrepancy in the books of accounts of the assessee. Further no other material was brought on record to correlate the impugned income of Rs.70.00 lakhs surrendered by the assessee. Accordingly he submitted that the AO
4 M/s. Valueline Equities Pvt. Ltd. should not have made the addition on the basis of mere statement given by the assessee during the course of survey operations. In this regard, he placed reliance on the decision rendered by the co-ordinate bench in the case of DCIT Vs. Premsons (2010)(130 TTJ (Mum) 159). He further submitted that the statement given during the course of survey operations does not have evidentiary value and hence the AO should have brought on record other materials to support his case of suppression of income. In this regard, he placed reliance on the decision rendered by Delhi bench of Tribunal in the case of DCIT Vs. Bansal Credits Ltd (2016)(74 taxmann.com 224) and other decisions rendered on the similar lines.
The Ld A.R submitted that the Income tax Act provides for assessing the real income of the assessee. He submitted that the Hon’ble Supreme Court has held in the case of Balbir singh (86 taxmann.com 94) that the notional income cannot be taxed. Accordingly he submitted that the impugned addition of Rs.70.00 lakhs is liable to be deleted on several accounts.
On the contrary, the Ld D.R placed strong reliance on the orders passed by tax authorities. She submitted that the assessee has so managed its affairs in order to avoid declaring of the impugned income after the survey operations. The same is supported by the fact that the assessee has paid advance tax subsequent to the survey operations. She further submitted that the Hon’ble Delhi High Court has held in the case of Jansampark Advertising & Marketing (P) Ltd (2015)(375 ITR 373) has held that the, in the event of AO failing to discharge his functions properly, obligation to conduct proper enquiry on facts would shift to the door of CIT(A)/Tribunal, since they are also forums of fact finding. Accordingly she submitted that the lacunae, if any, of the AO should be corrected by the Tribunal by ordering for further enquiries.
We do not find merit in the submissions made by Ld D.R. In our view, the facts of the case, does not warrant any further enquiry. We notice that the AO mainly relied upon the statement given by the director of the assessee
5 M/s. Valueline Equities Pvt. Ltd. during the survey operations. The statement so given is not held to have any evidentiary value, meaning thereby, the AO is required to bring on record any other material to corroborate the admission, when it is retracted. It is also a fact that the search team did not unearth any other material or found fault with the accounts of the assessee. In respect of proforma invoices, the assessee has explained that they were only proposals and they were not given effect to. It is a fact that the assessee has closed down its business operations shortly after the survey operations and hence the possibility of offering services would not be there. The assessee has further substantiated its claim by furnishing copies of accounts of M/s Value line Advisors P Ltd and M/s S.B & T International Ltd in order to show that they did not make any payment to the assessee as shown in the proforma invoices. Hence, we are of the view that the claim of the assessee that it did not receive the income shown in the proforma invoices is required to be accepted in the facts and circumstances of the case. Since the advance tax is paid on the estimated income and since the assessee would have taken the present stand belatedly on account of real income principle, the payment of advance tax alone would not make a notional income a real one. Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the impugned addition of Rs.70.00 lakhs.
The next issue relates to the disallowance made u/s 14A of the Act. The assessee received dividend income of Rs.3,217/- and computed disallowance u/s 14A of the Act at Rs.25,525/-. The AO, however, computed the disallowance as per Rule 8D of the I T Rules and accordingly disallowed a sum of Rs.3,86,534/-. The Ld CIT(A) also confirmed the same.
We heard the parties on this issue and perused the record. We notice that the assessee has contended that the expenses incurred under various heads did not have nexus with the exempt income. The Ld A.R submitted that the Courts have held in many cases that the disallowance cannot exceed exempt income. In the instant case, we notice that the assessee itself has disallowed a sum of Rs.25,525/- as against the exempt income of Rs.3,217/-.
6 M/s. Valueline Equities Pvt. Ltd.
We further notice that the AO did not find fault with the explanations of the assessee and mechanically followed the provisions of Rule 8D. Accordingly we are of the view that the disallowance of Rs.25,525/- computed by the assessee would be reasonable in the facts and circumstances of the case. Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to restrict the disallowance to Rs.25,525/- as computed by the assessee.
In the result, the appeal filed by the assessee is allowed. Order has been pronounced in the Court on 25.10.2017.