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Income Tax Appellate Tribunal, MUMBAI BENCHES “D” MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
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 2011-12. It is directed against the order of Commissioner of Income Tax (Appeals)-25, 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 the income of the appellant at 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 raised is that the ld. CIT(A)erred in holding that appellant was earning net commission income @ 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) and 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 than what has been determined in the assessment order. The 3rd ground is that the ld. CIT(A) failed to appreciate that appellant in her affidavit has admitted the rate of commission earned in case of building material supply at 0.75% of the gross value of the bills issued to various parties as against rate of 2% as determined by him in his order. The 4th ground is that the ld. CIT(A) erred in not allowing the various expenses claimed by the appellant and claimed 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 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 and in the course of the business 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 the ld. CIT(A) erred in ignoring as also not adopting the ratio laid down by this honourable Tribunal in so far as allowablity of expenses claimed by the appellant. The 6th 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 case akin to the case of the appellant.
3. In a nutshell, the facts are that the assessee filed her return of income for the A.Y. 2011-12 on 29/09/2011 declaring total income of Rs. 1,53,030/-. The assessee is a proprietor of M/s. D.K.Enterprises and M/s. D.C. Corporation .Since the sundry creditors were exceeding the purchases in both the proprietary concerns of the assessee, the AO issued a detailed questionnaire dated 01/11/2013 to the assessee asking to furnish details of purchases, sales and creditors in respect of both the concerns. The assessee vide letter dated 06/01/2014 furnished the list containing the names and addresses of all the purchases, sales and creditors and the expenses incurred in cash. The AO issued notices u/s 133(6) to various parties to verify the transactions of both the proprietary concerns. The notices sent by the AO were returned back by the postal authorities unserved with the remark ‘not known’ ‘left’ etc. In response to the notice u/s 142(2) dated 28/01/2014 issued by the AO, the assessee filed a written submissions dated 04/02/2014 stating the following:-
“At this stage of assessment proceedings I would reiterate that all the transactions of sales are not genuine and are accommodative transactions on which I have earned half percent in transport bills and 0.75% in case of building material bills issued by me through my two proprietary concerns. This contention is substantiated by banking transactions of the two proprietary concerns where in it can be seen that cash has been withdrawn by issuing bearer cheques soon after cheques received from various persons to whom bills have been issued has been encashed in the bank. I am submitting herewith Bank statements confirming withdrawals of cash in support of the fact that the cash has been withdrawn.” The AO then estimated income of the assessee out of accommodation bills @ 2%. The AO has also made an addition of Rs. 2081/- of bogus TDS.
The assessee filed appeal against order of the AO before the ld. CIT(A). The ld. CIT(A) held that the income assessed by the AO @ 2% of the gross value of the building material is correct. The ld. CIT(A)directed the AO to estimate 0.5% of the transportation bills as the income of the assessee as there was no TDS.
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 only 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:-
“5. 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.” 7.1 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%.
7.2 Accordingly we set aside the order of the ld. CIT(A) on this issue and restore to the same to the file of the A.O to follow the direction as given at para 7.1 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 &3 are allowed for statistical purpose.
7.3 Now we come to ground number 4,5 & 6. 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 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.” 7.3.1 Keeping the principle laid down in the above decision of the Hon’ble High Court instead of the Tribunal decision 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 4,5 & 6 are dismissed.
In the result the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 28/11/2016