RAKESHKUMAR M. GUPTA, MUMBAI vs. ITO 14(3)(2), MUMBAI

Basis of addition for all the years are as under:-

A.Y A.Y A.Y A.Y A.Y A.Y A.Y Particulars 02-03 03-04 04-05 05-06 06-07 07-08 08-09 Estimation of commission income At 6% on 34,22,868 sales At 7% on 7,399,410 sales At 4% on 3,071,999 2,958,244 2,763,394 3,522,073 2,711,165 Sales At 3% on 1,842,925 1,639,557 1,889,964 1,651,105 1,932,479 Purchases Less: 1,71,143 (245,745) (229,890) (232,668) (369,971) (232,182) Expenses @ 5% on estimate commission 4,669,178 4,367,911 4,420,690 5,173,179 7,029,440 4,411,462 Unexplained - - - 14,000,000 - - cash loan Total 32,51,725 46,69,178 4367911 44,20,690 1,91,73,179 70,29,440 44,11,462 additions The Assessing Officer has levied the penalty and CIT(A) is confirmed the same.

ITA.NO.2596 to 2600 /Mum/15 Rakesh Kumar M. Gupta. tribunal there is no question of imposing the penalty. Similarly in the group case in Mohit Rakesh Kumar Gupta assessee in other group case wherein the similar penalty has been levied by the revenue authorities in the case of Smt. Hema R. Gupta and Shri Nilesh Rakesh Kumar Gupta in ITA.No.2639/Mum/15 wherein the similar kind of penalty has been deleted. Therefore this appeal may also be allowed. Ld.Dr relied upon the order of the Revenue Authorities.

“12. Having Carefully examined the various Orders in the case of different assessees, it has become amply at that in these type of activities brokers are only a concerned with their commission on the value of the transactions. Now the question

ITA.NO.2596 to 2600 /Mum/15 Rakesh Kumar M. Gupta. comes what would be the reasonable percentage of commission on the total turnover? The assessee has also made out a case that the customers do not come directly to him and they come through a sub-broker who also charges a particular share of commission. In all the judgments what has been stated his that an average percentage of commission these between.15% to .25%. In the case of Polrestia &. Co (supra) and Kiran & and Co. (supra), the Tribunal has considered reasonableness of percentage of commission to be earned on turnover was at .1%. The assessee himself has offered the percentage of commission at 0.15%, which is more than the percentage of commission considered to be reasonable by the Tribunal in the cases of Palresha & Co. (supra) and Kiran & Co. (supra), in similar type of projections. The theory of the Assessing Officer to treat the entire deposit as unexplained cash credits, cannot be accepted in the light of assessment orders in the case of beneficiaries and also in the light of the fact that assessee is only concerned with the commission earned on providing accommodation entries. We, therefore, of the view that since the assessee itself has declared the commission on turnover at O. 15% which is more than the percentage considered to be reasonable by the Tribunal in the case of Palresna & Co. (supra) and Kiran & Co. (supra), the same should be accepted. We, accordingly, accept the commission declared by the assessee and set aside the order of the CIT (A) in this regard”.

6.2 We find that ITAT in case of Sanjay Kumar Gard (Supra) has applied 0.2% commission on turnover and in Gold Star Finvest Ltd. (Supra) approved 0.15%. so, taking all factors into consideration, we hold that percentage of commission to be earned on turnover is reasonable at 0.6%. We hold so.”

imposed. The Hon'ble Punjab & Haryana High Court in case of Harigopal Singh Vs. Commissioner of Income Tax reported in (2002) 125 Taxmari 242, wherein the estimated addition made by the AO was considerably reduced by the Tribunal, has held that in such cases, provisions of section 271 (1 )(c) of the Act are not attracted. The same view have been taken by the ITAT Chandigarh in JCIT v. Bhagwan Dass Gorg (2014) 48.taxmann185 (Chandiqarh-Trib), Jodhpur Tribunal 111 ITO v. Gurunanak Oil Agency (2013) 35 taxmann 562(Jodhpur-Trib.) and other Benches of ITAT. So, in view of the decisions of the Hon'ble High Courts and Tribunals, we are of the considered opinion that this is not a fit case where penalty can be imposed under section 271 (1 )(c) of the Act for concealment of income or for furnishing incorrect particulars of income. We, therefore, set aside the impugned order and allow the grounds of appeal of the assessee. We respectfully following the same we delete the penalty.

6. In case of the additional ground for levying the penalty which reads as under:

The learned commissioner of Income Tax (Appeal) erred in facts and law in confirming the action of the Assessing Officer and sustaining the penalty levied on the alleged unexplained loan of Rs.1,40,00,000/- based on own his surmises and conjectures ignoring the material evidences on record.

ITA.NO.2596 to 2600 /Mum/15 Rakesh Kumar M. Gupta.

"8. I had taken home loan from Standard Chartered Bank and G E Financial. I have claimed it correctly and best of my knowledge. I am sending the sanctioned letter issued by the above mentioned bank with this letter. The loan account Number and loan details are mentioned on it. The bank Certificate and interest certificate are in the documents impounded by your department. I would like to request you to collect it from there itself. The housing loan taken is not wrongly claimed and is in the preview of income tax act, 1961, so cants be disallowed."

19.1 Assessee submitted that assessee had provided all the details available Assessing Officer. Hence, Assessing Officer cannot state that assessee failed to substantiate the claim. So, the deduction claimed by assessee is requested to be allowed. In fact, this issue is with regard to deduction of Rs.l ,40,00,000/ - advance given to Madanlal Bagrecha to substantiate same. The stand of assessee has been that assessee had given cheques of Rs.l,40,00,000/- in July 2006 to Mr. Madanlal Bagrecha forgetting the cash. Mr. Madanlala Bagrecha doing the business of cheque discounting. These cash were required to be paid to assessee purchase parties at Bhiwandi for getting goods purchases. Mrr. Madanalal Bagrecha had ITA.NO.2596 to 2600 /Mum/15 Rakesh Kumar M. Gupta. intentionally withhold this amount for which assessee had lodged an official complaintwith concern Police department and financial crime department. (Refer Page No.SS to 91 of paper book) . Thus, it was a business loss of assessee which required to be allowed to assessee. Assessing Officer and CIT(A) observed that assessee had given cash loan of Rs. 1,40,00,000/ - to Shri Madanlal Bagrecha and source of same was unexplained. Hence, they made addition of Rs. 1,40,00,000/- u/s.69A of the Act. The stand of assessee has been that it is a business loss and required to be allowed and same should not be added because assessee had given advances in normal business practice which was lost. Hence, it was submitted to the case where assessee suffered from loss. Hence, it was a business loss and required to be allowed instead of making addition of the same.In this regard, assessee placed reliance on the decision of Vijayashanthi Builders Ltd. vs. JCIT [2016] 69 taxmann.corn 31(Chennai – Tirb.) wherein assessee-builder paid advance Money to buy a land for construction of residential flats there upon and said money was forfeited, such loss was to be treated as revenue loss as it was incurred to acquire stock-in- trade i.e. land. Even if, it is assumed that assessee needs this cash for accommodation business, then also it is allowable expenditure as it is directly. linked with the business activity even though the business activity is illegal. Learned Authorized Representative also relied on the decision of Dr. T. A. Quereshi vs. Cl T [2006] 157 taxman 514 (SC), wherein heroin formed part of stick-in-trade of assessee. In view of said finding, the Tribunal allowed assessee's claim of deducting the loss of 5 kg. of heroin whose value was assessed by the Tribunal at Rs. 2 lakhs as a business loss. The view taken by the Tribunal was sustained by Hon'ble High Court by taking an emotional and moral approach rather than a legal approach. In appeal, Hon'ble High Court observed that assessee was committing a highly immoral act in illegally manufacturing and selling heroin. However, cases were to be decided by the Court on legal principles and not on one's own moral views. The Explanation to section 37 of the Act has really nothing to do with the instant case as it was not a case of business expenditure; but of business loss. Business losses were allowable on ordinary commercial principles in computing profits. Once it was found that heroin seized formed part of stock in - trade of assessee, it followed that the seizure and confiscation of such stock-in-trade had to be allowed as a business loss. Loss of stock-in-trade has to be considered as a trading loss. Consequently, the impugned decision of Hon'ble High Court could not be sustained and was set 7

ITA.NO.2596 to 2600 /Mum/15 Rakesh Kumar M. Gupta. aside and order of Tribunal was restored. Facts being similar, so, taking all facts and circumstances into consideration, we hold that addition of Rs.l ,40,00,000/ - is unjustified. Same should be allowed as business loss. However, same will be offered to tax as and when it is received. Assessing Officer is directed accordingly.

Order pronounced in the open court on 03rd February, 2017