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Income Tax Appellate Tribunal, MUMBAI BENCHES “D” MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “D” MUMBAI
BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER)
ITA No. 1498/MUM/2015 Assessment Year 2010-11 Disha Devang Kapasi, The ITO Ward 15(3)(1) B-607, Arihant Bldg., New Ward 27 (1)-4, Vs. Sudha Park, Tower 6, 4th Floor, Behind Garodia Nagar, Room No. 412, Vashi Ghatkopar (E), Rly. Station Complex, Mumbai 400 077 Vashi, Navi Mumbai- 400 703
PAN No. : ANGPK 4952 N ( Respondent) (Appellant) ..
Appellant by: Shri Hari S. Raheja, AR Respondent by: Shri Shivaji Ghode, DR
Date of Hearing: 31.10.2016 Date of Pronouncement: 28.11.2016 ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the assessee. The relevant assessment year is 2010-11. It is directed against the order of Commissioner of Income Tax (Appeals)-26, Mumbai and arises out of the order u/s. 143(3) of the Income Tax Act, 1961 (‘the Act’).
The 1st ground raised by the assessee in this appeal is that the ld. CIT(A) erred in estimating income of the appellant @2% of the value of the sales bills issued by the appellant in respect of supply of building materials as against 0.75% actually received. The 2nd ground is that the ld. CIT(A) erred in estimating income of the appellant @3% of the value of the sales
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bills issued by the appellant in respect of supply of building materials as against 0.50% actually. The 3rd ground is that ld. CIT(A)erred in not allowing the various expenses claimed by the appellant and reflected in the Profit & loss Account filed along with the Return of Income on the ground that assessee has not carried out any genuine business activity. The 4th ground is that ld. CIT(A)erred in rejecting the rate of commission earned by the appellant in respect of transaction of accommodation entries in the form of sales bills issued in her two proprietary concerns to various parties, which she had admitted in the affidavit filed by her in the course of appellate proceedings. Without prejudice, it is submitted that (i) ld. CIT(A) failed to appreciate that appellant in her affidavit and various submissions made during the course of appellate proceedings had stated that she has earned commission @ 0.5% in respect of gross value of transport bills, (ii) on the facts and circumstances of the case and in law, the ld. CIT(A)failed to appreciate that the appellant in her affidavit has admitted the rate of commission earned in the case of building material supply @ 0.75% of the gross value of bills issued to various parties as against rate of 2% as determined by him in his order and (iii) the ld. CIT(A) also did not consider the submission made by the appellant that all the expenses claimed in respect of business activity carried on by her were incurred for the purpose of the business during the course of providing accommodation entries and therefore allowable as deduction from the income earned by way of commission on providing accommodation entries of transportation. The 5th ground is that ld. CIT(A)erred in holding that appellant might be understating the commission income and therefore decided the net commission income to be @3% of gross value of transportation and 2% of gross value of building material supply bills for determination of income without there being any evidence to suggest that the appellant might be understating her commission income as assessed by the CIT(A), without considering the fact that appellant had to incur certain expenses in carrying on this activity and therefore net commission income actually earned was substantially lower that what has been determined in the assessment order. The 6th ground is that the ld. CIT(A) erred in ignoring as also not adopting the ratio laid down by this honourable Tribunal in so far as allowablity expenses claimed by the appellant. The 7th ground is that the ld. CIT(A) erred in ignoring as also not applying the ratio laid down by this honourable Tribunal in the case of M/s. Saroj Anil Steel Pvt. Ltd. wherein the manner in which the income has to be determined has been decided in a
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case akin to the case of the appellant. The 8th ground is that the direction of the ld. CIT(A) contained in para 3.2:2 of appeal order of the manner in which the Assessing Officer should assess the net commission income is bad in law because it leads to a situation on enhancement of income already assessed and therefore is a violation of principal of natural justice, because no notice has been given by CIT(A) of his intention or proposition to enhance the assessed income and thus is a decision made on an ex-parte basis for which also no notice declaring such intention or proposition has been issued. 3. In a nutshell, the facts are that the assessee filed her return income for the A.Y. 2010-11 on 14/10/2010 declaring total income of Rs. 9,59,010/-. The assessee is a proprietor of M/s. D.K.Enterprises and M/s. D.C. Corporation. The tax audit report describes the nature of business of the assessee in both the farms as “dealer in building materials and transport contractors”. The A.O in order to verify the transactions in both the proprietary concerns issued notices u/s 133(6) to various parties. In response to it, majority of the notices issued were returned back by the postal authorities unserved with the remark ‘not known’. As the transactions were not verifiable , the AO issued summons u/s 131 dated 14/12/2012 to the assessee to produce books of accounts, purchase and sales register, stock book , cash book and the bank statements. No books of accounts as called for by the A.O were produced. In view of the above, the A.O estimated income from building materials and transport receipt bills @ 2% in respect of M/s. D.C. Corporation and M/s. D.K. Enterprises. The AO also added the bogus TDS of Rs. 5,15,519/-.
The assessee filed appeal before the ld. CIT(A) against the order of the AO. The ld. CIT(A) found that the facts in this impugned assessment year are similar to the facts in the previous assessment year 2009-10. Therefore he directed the AO to add net commission income @ 3% of gross
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value of transportation and @ 2% of the gross value of material supply bills issued.
Before us, the ld. Counsel of the assessee submits that the assessee is the proprietress of two concerns namely M/s D.C. Corporation and M/s. D.K. Enterprises shown to be in the business of building material supply and providing of transport services. It is further stated by him that the assessee has earned income @ 0.75% of the gross value of accommodation bills issued by her towards supply of building materials and 0.50% of the gross value in respect of bills issued for transportation. The ld. Counsel also submits that as per the order of the ITAT “SMC” Benches Mumbai in the case of M/s Saroj Anil Steel Pvt. Ltd. vs. ITO (ITA No. 5854/Mum/2012) for the A.Y. 1999-2000, the ld. CIT(A) should have allowed expenses claimed in respect of business activity carried on by the assessee in the course of providing accommodation entries.
The ld. DR supports the order passed by the ld. CIT(A).
We have considered the rival submissions and perused the relevant material on record. A similar issue arose before the ITAT “SMC” Benches, Mumbai in the case of Shri Devang H. Kapasi HUF vs. ITO (ITA No. 3685/Mum/2014) for A.Y. 2009-10. The Tribunal held as under:-
With regard to the receipts pertaining to accommodation bills, the assessee seems to have proved the same by showing his bank account wherein the cheque received from the parties have been immediately withdrawn by way of cash. The explanation of the assessee was that the cheques received from the parties were deposited into the bank accounts and the cash was immediately withdrawn thereafter and handed over to the parties. If the assessee is able to demonstrate that the very same modality was followed in respect of Rs.14.47 lakhs also, then the assessee’s claim for estimating income at 0.5% plus TDS amount can be admitted. However, this fact requires verification at the end of the AO. Accordingly, we set aside the order of Ld CIT(A) on this issue and restore the same to the file of the AO with the direction to examine the bank accounts and other explanations furnished by the assessee and take appropriate decision in accordance with the law.
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7.1 We find that the assessee in response to the notice u/s 142(2) issued by the AO on 18/01/2013 has filed a written submission on 28/01/2013 wherein she has admitted the following:
“In so far as attempt being made to verify the genuineness of sale, I once again affirm that my affidavit in this regard should be relied upon because none of the parties to whom bills have been issued will ever admit that the transactions with them are not genuine because in doing so they would be hit in their own tax matter in so far as their income are concerned which apparently are manipulations.” 7.2 Keeping in mind the above order of the ITAT, the AO would verify whether the cheques received from the parties were deposited in the bank accounts and cash was withdrawn immediately thereafter and handed over to the parties. If the assessee is able to prove the same before the AO, then the assessee’s claim of estimating net commission income on the gross value of the transportation fee at 0.5% + TDS shall be accepted . Also if the assessee is able to prove the above, the AO would accept the net commission income from the gross value of building material supply bills @ 0.75%.
7.3 Accordingly we set aside the order of the ld. CIT(A) on this issue and restore the same to the file of the AO to follow the direction as given at para 7.2 here-in-above and pass a fresh assessment order as per the provisions of the Act after giving reasonable opportunity of being heard to the assessee. Thus ground number 1,2, 4(i)(ii) ,5 & 8 are allowed for statistical purpose.
7.4 Now we come to ground number 3,4(iii),6 & 7. The Hon’ble Andhra Pradesh High Court in the case of Indwell Constructions vs. CIT (1998) 232 ITR 776 (AP) has held:
“The pattern of assessment under the Act is given by section 29 which states that the income from profits and gains of business shall be computed in accordance with the provisions contained in sections 30 to 43D. Section 40
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provides for certain disallowances in certain cases notwithstanding that those amounts are allowed generally under other sections. The computation under section 29 is to be made under section 145 on the basis of the books regularly maintained by the assessee. If those books are not correct or complete, the Assessing Officer may reject those books and estimate the income to the best of his judgment. When such an estimate is made it is in substitution of the income that is to be computed under section 29. In other words, all the deductions which are referred to under section 29 are deemed to have been taken into account while making such an estimate. This will also mean that the embargo placed in section 40 is also taken into account.” 7.4.1 Keeping the principle laid down in the above decision of the Hon’ble High Court instead of the Tribunal order in M/s Saroj Anil Steel Pvt. Ltd(supra), the claim of the assessee to allow expenses from the income earned by way of commission on providing accommodation entries of transportation is rejected. Thus ground number 3,4(iii),6 & 7 are dismissed.
In the result the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 28/11/2016
Sd/- Sd/- (SAKTIJIT DEY) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 28/11/2016 Pramila Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file.
BY ORDER, //True Copy// (Dy./Asstt. Registrar)