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Income Tax Appellate Tribunal, BENCH “E”, MUMBAI
Before: SHRI RAJENDRA & SHRI PAWAN SINGH
Assessee by : Sh. Vimal Punamiya & Bharat Kumar (AR) Revenue by Sh. Pawan Kumar Beerla : (DR) Date of hearing : 20.01.2017 Date of Pronouncement : 22.02.2017 Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JM:
This appeal by assessee under section 253(1) of the Income Tax Act( ‘Act’) is directed against the order of Commissioner (Appeals)-40, dated 26 .03.2014 for Assessment Year 1994-95. The assessee has raised following grounds of appeal.
(1) The ld CIT(A) failed to considered that assessment order passed under section 144 is bad in law and required to be quashed. (2) The ld CIT(A) erred in confirming the amount of Rs. 281680/- as brokerage income by estimating total brokerage income at Rs. 15,00,000/- without any basis of material or evidence. (3) The learned CIT(A) erred in disallowance of amount of Rs. 8,42,500/- towards sub-brokerage payment to M/s Aryan Leasing & Financing Ltd without appreciating the facts in proper perspective. (4) The learned CIT(A) erred in disallowing trading loss of Rs. 57,09,725/- incurred in purchase and sale of shares without assigning proper region there for. (5) The ld CIT(A) erred in addition of Rs. 10,000/-by estimating the brokerage income at Rs. 35,000/-from the share transaction at Bombay against the , AY 1994-95 S.Ramaswamy actual brokerage income of Rs. 15,000/-and that too without assigning proper regions there for. (6) The ld CIT(A) erred in addition of Rs. 1 lakh as brokerage income from shares transaction at Madras on estimation basis. (7) The ld CIT(A) erred in disallowing the claim of bad debts of Rs. 9,50,000/- without taking into consideration the submission made in this respect and that too without assigning proper reason there for. (8) The ld CIT(A) erred in allowing an amount of Rs. 10,000/- being telephone expenses incurred for business purpose. (9) The ld CIT(A) erred in making addition of Rs. 91,63,075/-as unexplained credit without assigning proper reasons there for. (10) The ld CIT(A) erred in charging interest under section 234B and 234C of the Act (11) The ld CIT(A) erred in initiating penalty (wrongly typed as charging interest) under section 271(1)© of the Income tax Act.
Brief facts of the case as gathered from the record are that the assessee was a member of Madras Stock Exchange and proprietor of M/s Excel & Company. A search was conducted by CBI on 23 June 1992 at the residence and office of assessee on the allegation that assessee was involved in multicrore Securities Scam. Thereafter, a search under section 132 was conducted by Revenue at the premises of the assessee on 16 October 1992. The return of income for Assessment Year 1994 - 95 was due on 30th November 1994. No return of income was filed before due date, thus notice under section 142 (1) was issued to the assessee on 12th January1995 requiring the assessee to furnish return of income for relevant assessment year by 30 January 1995. The notice was served on assessee on 27 January 1995. No return of income was filed till 30 January 1995. Again, the assessee was served notice on 12 July 1996 intimating the assessee about his non-compliance of notice under section 142(1) dated 12 January 1995. The assessee was informed that non-compliance of the notice may lead to ex-parte assessment under section 144, levy of penalty under section 271(1)(b) and prosecution proceeding under section 276 CC. The assessee filed return of income for relevant assessment year on 17th February 1997 declaring income Nil. On receipt of return of income the AO asked the assessee to file the details as per notice dated 17 February 1997 by 21 February 1997. The assessee furnished the detail of expenses debited to the Profit and Loss Account, rent , AY 1994-95 S.Ramaswamy
receipts, bad debts etc. The assessee was again asked to produce the Books of Account on 3 February 1997. As no books of account were filed on the fixed date, the AO proceeded to frame the assessment order. While framing assessment the Assessing Officer observed that that assessee was under obligation to get his books of account audited and to submit a report of all such audit along with return of income on 30th November 1994. As the assessee failed to do so, accordingly, penalty under section 271B were proposed to be initiated. The assessee filed Audited Report on 27 February 1995, audited by M/s Ramesh & Ramchandran CA dated 30 September 1994. The AO concluded that assessee had not got audited his accounts by 30 September 1994 and the audited report furnished by assessee is backdated. Due to the complexity of transaction the AO directed the assessee to get audited his personal accounts as well as the accounts of his proprietary concern by M/s J. K. Shah & Co., Special Auditors appointed by Commissioner of Income Tax Central-I. However, the said Auditors decline to give their report about the veracity of the Profit and Loss account and balance-sheet of the assessee. The Special Auditor declines to express their opinion and opined that maintained by the assessee is incomplete. The AO further observed that the assessee was required to produce the books of account and supporting evidence; despite repeated opportunities the assessee not produced the ledger and Bank accounts and other records till 25 March 1997. No contracts, delivery orders, dealer slips, other bills and vouchers were produced by the assessee. The AO formed the opinion that like in earlier financial year, the situation in not different in the year under consideration. Though, the assessee contended that the relevant books have been seized by the CBI and the copies of record are not available with him. The assessing officer on the basis of information regarding the business of assessee in respect of security transaction in earlier years, which was collected from various Banks, financial institution and brokers, concluded that assessee has not disclosed all the receipt of brokerage in his books of account. Therefore, the AO proceeded to complete the , AY 1994-95 S.Ramaswamy assessment to his best judgment. The assessing officer made the following addition; 1 Undisclosed brokerage Rs.7,81,680/- 2 Disallowed brokerage Rs.8,42,500/- 3 Undisclosed interest Rs.3,12,08,239/- 4 Disallowed trading loss Rs.57,09,725/- 5 Undisclosed brokerage from shares Rs.35,000/- 6 Undisclosed brokerage from shares Rs.2,73,361/- 7 Disallowance of telephone expenses Rs.10,000/- 8 Unproved bad debts Rs.9,50,000/- Income from other sources 1 Dividend and interest as per the Rs. 70,744/- statement 2 Bank interest Rs. 461/- 3 Unexplained credits Rs. 91,63,075/- The AO assessed the income of assessee at Rs.4,91,50,680/- against nill income, vide Assessment Order dated 31.03.1997 passed under section 144of the Act. On appeal before Commissioner (appeals) the addition of undisclosed interest of Rs. 3,12,08,239/-was deleted. The addition of Rs.7,81,690/- on undisclosed brokerage income from security transaction was restricted to Rs.2,81,680/-. The rest of the addition/disallowance was sustained. Further, aggrieved by the order of Commissioner (Appeals) the assessee has filed present appeal before us.
We have heard the ld AR of the assessee and the ld DR for revenue and perused the material available on record. A first ground of appeal relates to that the assessment under section 144 is bad in law and required to quash. The ld AR of the assessee argued that search was conducted by CBI on 23rd of June 1992 and action under section 132 of income tax was conducted by the Revenue at the office and residential premises of assessee on 16th/17th of October 1992 at Chennai as well as in Mumbai. All the available documents at the residential premises as well as office were seized by both the agencies. Huge additions and , AY 1994-95 S.Ramaswamy disallowances were made by AO without supporting evidence. Which have been confirmed by ld CIT(A) without considering the facts of the case. The assessee CA issued audit report on 30 September 1994 which is the due date prescribed under section 139(1). The assessee obtained the Audit report on time but could not furnished before AO on time. However, due to non filing of audited report in time, the AO cannot presume that Audit report is invalid or was backdated. The best judgment assessment cannot be passed using material, which was gathered from the assessee and on the basis of information provided by assessee during the assessment proceeding. The non-filing of audited report in time was due to the reasons beyond the control of assessee. The ld AR prayed that all the additions were made without any basis. It was further argued that during the first appellate stage the ld CIT(A) passed order under section 250(4) dated 18.03.2004 and directed the AO to examine certain issue. The assessee was approaching the AO time and again to furnish required information and documents, despite the direction of ld CIT(A) no remand report was filed, thus all the additions and disallowance under challenged, based on mare estimation are liable to be deleted. On the other hand the ld DR for the revenue supported the order of ld CIT(A) and would argue that the appeal order was passed on the basis of material available on record.
4. We have considered the rival contention of the parties and further gone through the orders of authorities below. We have noticed that the assessee filed first appeal before Commissioner (Appeal) within time i.e. on 30th April 1997; the appeal was decided only on 26th March 2014. The AO passed the assessment order under section 144of the Act. During the first appellate stage, as per the order under section 250(4), the assessee furnished evidence with regard to the addition of Rs.91,63,075/- on account of unexplained credit , addition of Rs.57,09,725/- on account of share trading loss, estimated brokerage income of Rs.20,00,000/-, disallowance of sub-brokerage of Rs. 8,42,500/-. The ld CIT (A) called the report of AO on the evidence furnished by assessee. We have further seen that despite the repeated orders and , AY 1994-95 S.Ramaswamy