EZRA VICTOR ABOODY,MUMBAI vs. ASST CIT 12(2), MUMBAI

During the course of hearing before us, it was fairly submitted by the Ld. Counsel that the limited prayer with regard to these grounds was that relief provided at 25% was too little; therefore, it should be suitably increased.

Per contra, the Ld. DR was also fair in submitting that some more relief can be provided to the assessee and it can be increased to say 50% of impugned expenses.

We have gone through the facts and circumstances of the case and find that disallowing 100% of the expenses was not justified on the part of the AO especially when gross receipts were accepted by the AO as it is. We also find that ad-hoc allowance @25% is on the lower side. Thus, after taking into account all the facts and circumstances of the case, we find it appropriate to allow the expenses @50% instead of 25% allowed by the Ld. CIT(A). Thus, the order of Ld. CIT(A) is modified to the extent that the AO is directed to allow 50% of the claim in respect of expenses as have been directed to be allowed by the Ld.CIT(A). The remaining portion of the order of Ld. CIT(A) remains same as far as these grounds are concerned. As a result, grounds 1 & 2 are partly allowed.

Ground 3 : In this ground, the assessee has challenged the addition of Rs.50 lacs as unexplained expenditure made by the lower authorities.

In this regard, the brief background is that the assessee was having some serious disputes with his landlords and, therefore, with a view to sort out the dispute, he took help of a local politician, viz. Shri Arun Gujarathi. During the course of survey proceedings, the AO found a letter 5 Ezra victor dated Nil written by the assessee to Shri Arun Gujarathi. According to the AO, the text of the said letter indicated that assessee had incurred an amount of Rs.1.50 crores towards renovation of the premises. The assessee accepted the fact that the said letter was written by him. Accordingly, AO asked the assessee to justify the sources of expenses incurred. The AO was not satisfied with the explanation put forth by the assessee and, therefore, it was held by him that the assessee offered no legitimate explanation and has not filed any supporting evidences / confirmation about the source of such expenditure. Under these circumstances, the entire amount was added u/s 69C as unexplained expenditure. Addition of Rs.50 lacs was made in AY 2003-04 and balance Rs. 1 crore was added in AY 2004-05.

During the course of appeal before the Ld. CIT(A), it was submitted that the said letter was written to Shri Arun Gujarathi, who was a politician belonging to NCP for seeking help. The figures mentioned therein were ‘rounded’ sums and not exact figures taken from accounts. It was further submitted that AO had wrongly understood the meaning of the letter, wherein AO has inferred that aggregate amount of Rs.1.50 crores was incurred whereas even if the letter is taken as fully correct, the total amount of Rs.1 crore was stated to be incurred since the amount of Rs.1 crore mentioned in latter portion of the letter included the first mentioned amount of Rs.50 lakhs.

In addition to above, the assessee submitted before the CIT(A), a statement of details compiled from the accounts and documents which were submitted to the AO. On the basis of these documents, it was contended that final accounts and documents available before the AO reveals that the assessee had already disclosed an amount of 6 Ezra victor Rs.1,25,21,500. It was submitted that if the letter is read correctly, then it conveys that assessee had claimed to have spent an aggregate amount of Rs.1 crore on the renovation of office premises. Thus, no further addition can be made. But, the Ld. CIT(A) was not satisfied with the arguments of the assessee and, therefore, entire addition made by the AO was confirmed.

During the course of hearing before us, the Ld. Counsel of the assessee has vehemently contested the addition made by the lower authorities. Our attention was drawn upon the letter written to Shri Arun Gujarathi and contended that it was a letter written to a local politician seeking help in distress. Under such a situation, the assessee narrates the facts in such a manner so as to seek maximum help. Further, the figures mentioned in the letter were in round estimates. Further, in any case, perusal of the letter reveals that aggregate sum of Rs.1 crore only has been spent by the assessee. The lower authorities have wrongly added Rs.50 lakhs and one core and made addition of the aggregate amount of Rs.1.5 crores whereas the second amount of Rs.1 crore includes the first figure of Rs.50 lakhs. Under these circumstances, the assessee has already disclosed a sum of Rs.1.25 crores which is not disputed by the lower authorities. Therefore, there was no further possibility of any addition. It was again re-emphasised that this letter cannot be taken as sacrosanct to be used against the assessee in absence of any other corroborating evidence. It was submitted that the lower authorities have made this addition in a highly unjustified manner and in violation of principles of natural justice. Our attention was also drawn on page 13 of order of Ld. CIT(A) wherein it is clearly coming out that an aggregate amount of Rs.1,25,21,500 has been disclosed by the assessee in his books of account.

Per contra, the Ld. DR submitted that this letter has never been rejected or retracted by the assessee. Further, the aforesaid amount of Rs.1,25,21,500 has not been proved to be from disclosed sources by the assessee. The AO and the Ld. CIT(A) could not verify the facts properly since the entire addition of Rs.1.50 crores was made on the basis of the said letter.

We have gone through the facts of the case. It is an admitted fact that the said letter was written by the assessee at the time of distress when he was in dire need of help. It is also an admitted fact that the letter was written to a local politician for seeking requisite help. It is also clear from the perusal of the letter that no precise facts and figures have been mentioned with regard to incurring of the expenditure. Two figures have been casually mentioned at paras 8 and 9 of the letter for Rs.50 lakhs and Rs.1 crore respectively. In our view, on the basis of this letter, no precise facts can be ascertained. The possibility of increasing or magnifying the figures also cannot be ruled out since the assessee was in dire need of maximum help. In any case, in our considered view, no final action can be taken against the assessee solely on the basis of this letter as far as determination of his taxable income is concerned. On the other hand, it has been contended that a sum of Rs.1,25,21,500/- has already been disclosed by the assessee in its books of account. This amount is quite close to the figures mentioned in the letter. Under these, circumstances, in our considered view, in case the assessee is able to satisfy the AO that the aforesaid amount has already been disclosed in the books of account, then no further addition is required to be made in the hands of the 8 Ezra victor assessee. Thus, keeping in view the facts and circumstances of the case, we find it appropriate to send this issue back to the file of the AO. The assessee shall submit required details and documents to establish that a sum Rs.1,25,21,500/- has been made from disclosed sources. In case, assessee is able to satisfy the AO, then no further addition shall be made. However, AO shall be free to make addition to the extent as the assessee is not able to show from disclosed sources out of total amount of Rs.1,25,21,500/-, which is claimed to have been spent was from disclosed sources. The assessee should be given adequate opportunity of hearing to furnish requisite details and documentary evidences in support of its claim. The AO shall decide this issue afresh after considering the material as may be placed on record by the assessee. This ground is allowed for statistical purposes.

Ground 4 is consequential and dismissed.

Now we shall take up Revenue’s appeal in During the course of hearing it was jointly stated by both the parties that tax effect in this appeal filed by the revenue is less than Rs.10 lakhs, therefore, this appeal is not maintainable in view of CBDT circular No.21 of 2015 dated 10-12-2015.

We have gone through the working submitted by the Ld. Counsel, showing that tax effect in this appeal is less than Rs.10 lakhs. Thus, in view of the aforesaid circular of the Board, the appeal filed by the Revenue is not maintainable and therefore dismissed as withdrawn. Our order shall have no bearing on the merits of the case.

Now we shall take up the appeal filed by the assessee in ITA No.5939/Mum/2012 for A.Y.2004-05.

Ground 3: In this regard, as stated above also, an aggregate addition of Rs.1.50 core was made by the AO, i.e. Rs.50 lakhs in AY. 2003- 04 and balance Rs. 1 crore in AY. 2004-05. In our order of AY 2003-04, we have sent this issue back to the file of the AO with certain directions. The AO is directed to follow the directions contained in our order for AY. 2003- 04 and allow relief accordingly. This ground may be treated as allowed, for statistical purpose.

Ground 4 is consequential and, therefore, dismissed.

As a result, appeal filed by the assessee is partly allowed.

Now we shall take up appeal filed by the Revenue in for AY 2004-05, on the following grounds:

Ground 1: The revenue has challenged the action of CIT(A) in allowing the disallowance of maintenance charges of Rs.5,95,000. The facts and circumstances for making the disallowance are identical to AY. 2003-04. The AO disallowed the maintenance charges paid by the assessee disregarding the evidences submitted by the assessee merely on the ground that books of account of the assessee have been rejected. Ld. CIT(A) considered the evidences submitted by the assessee and also all the facts and circumstances of the case and allowed the claim of the assessee with the following observations:

During the course of hearing, the Ld. DR was not able to point out anything wrong in the findings of Ld. CIT(A). The Ld. Counsel submitted 11 Ezra victor that proper evidences were placed in this regard before the lower authorities and after taking into account the same, the Ld. CIT(A) has allowed the relief.

We find that the Ld. CIT(A) has given the relief after considering the evidences brought before him. Nothing wrong could be pointed out by the Ld. DR in this regard and, therefore, no interference is called for in the order of the Ld. CIT(A) on this issue. As a result, ground 1 of the revenue is dismissed.

Ground 2: In this ground, the Revenue has challenged the action of the Ld. CIT(A) in deleting the addition of Rs.42 lakhs which was made by the AO as unexplained cash credit.

The brief background of the case is that the AO made aggregate addition of Rs.82 lakhs on the ground that in the bank account of the assessee various entries remained unexplained. During the course of proceedings before Ld. CIT(A), the assessee furnished complete evidences to establish the identity, creditworthiness and genuineness of the amounts received by the assessee which were deposited in the bank account. All these evidences were sent by the Ld. CIT(A) to the AO for examination in the remand proceedings and for sending remand report. Copy of the remand report was received from the AO in which the AO had examined the complete evidences and it was confirmed by the AO in the remand report that amount of Rs.42 lakhs was given to the assessee by Mrs. Eva Aboodi, proprietor of M/s Alliance Phototypesetters. After considering the remand report of the AO as well as the submissions of the assessee, Ld. CIT(A) deleted the addition made by the AO with following observations: “On merits, in view of the evidence filed by the appellant, the identity of the lender, the narration as per balance sheet of the lender who is assessed to income tax, and the certificate of the Chartered accountant, the fact that moneys have come into the appellant's books from Mls Alliance Phototypesetters is confirmed. The Assessing Officer's objection that the name is shown as Zra Aboody and not as Ezra Aboody appears to be a typographical error and needs to be overlooked. The bank 12 Ezra victor account of Alliance Phototypesetters is not the only evidence which could support the transfer of funds, corroboration is provided by the Auditor's certificate and the fact that the same is reflected in the balance sheet of the lender. The addition as regards amounts received from Smt. Eva Aboody of Rs. 42,00,000/- is accordingly deleted.”

During the course of hearing before us, the Ld. DR was not able to pint out anything wrong in the factual findings recorded by Ld. CIT(A). It is noted that the amount received by the assessee stands duly confirmed. The amount was given by assessee’s mother from her bank account, who was assessed to income-tax. In our considered opinion, no interference is called for in the order of Ld. CIT(A), and therefore, the same is confirmed. As a result, ground 2 of the Revenue’s appeal is dismissed.

Now we shall take up assessee’s appeals in for A.Y. 2005-06; ITA Nos 5941/Mum/2012 for A.Y 2006-07, A.Y. 2007-08 and ITA No.5943/Mum/2012 for AY 2008-09.

In the result, Revenues appeals are dismissed; assessee’s appeals are partly allowed.