ITO 22(3)(4), NAVI MUMBAI vs. SONIA DASWANI, NAVI MUMBAI

The aforesaid appeal has been filed by the Revenue against the order dated 16.12.2009 passed by the Commissioner of Income Tax(Appeals)-33, Mumbai (Hereinafter called “the CIT(A)) , for the assessment year 2006-07 , the appellate proceedings before the CIT(A) arising from the assessment order dated 31-12-2008 passed by the Assessing Officer(hereinafter called “the AO”) u/s 143(3) of the Income Tax Act,1961(hereinafter called “the Act”).

The grounds raised by the Revenue in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) reads as under :

None appeared on behalf of the assessee despite several opportunities being given to assessee as per order sheet entries , since January 2011 and when this appeal was called for hearing on the date fixed for hearing of this appeal , again none appeared on behalf of the assessee, hence, we are proceeding to dispose off this appeal ex-parte after hearing the learned Sr. DR and on the basis of the material available on record.

The assessee is an individual and proprietor of the firm M/s. Saira Impex.

During the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act, the AO observed from the Profit and Loss Account of the assessee filed with the Revenue, that the assessee has shown sales of Rs.3,52,27,603/-. The Information u/s. 133(6) of the Act was called by the AO directly from Casio India Company Private Limited . On perusal of the details submitted by the Casio India Company Private Limited in response to notice by the AO u/s 133(6) of the Act, it was observed by the AO that the sales made by the assessee during the financial year 2005-06 were Rs.5,61,35,271/-. The assessee was show caused vide notices dated 24.12.2008 and 29.12.2008 by the AO about the afore-stated difference in the sales and why the sales of Rs.5,61,35,271/- should not be taken instead of sales of Rs.3,52,27,603/- as shown by the assessee in the Profit and Loss Account submitted with the Revenue . The AO observed that as per clause 3 of the agreement for consignee dated 11.01.2005 with Casio India Company Private Limited , no commission was payable by the said M/s. Casio India Company Private Limited to the assessee for the sale made outside the state of Maharashtra. The above clause clarified that the sales made within Maharashtra was Rs.3,52,27,603/- and the balance sale was outside Maharashtra of Rs. 2,09,07,668/. However, the assessee could not submit any explanation or produce books of accounts to explain about this difference in sales before the AO in reply to above show cause notices, hence profit @5% i.e. Rs.10,45,383/- worked on the undisclosed sale of 2,09,07,668/-was added to the income of the assessee by the AO vide assessment orders dated 31.12.2008 passed u/s 143(3) of the Act.

The assessee filed a statement of facts along with the grounds of appeal before the CIT(A), in which it was stated that she was carrying on business as consignee agent of M/s. Casio India Company Private Limited on commission basis. The assessee’s books of account were regularly maintained for the businesses carried on by the assessee which were regularly audited as per the provisions of Section 44AB of the Act. The audit report was duly filed along with return of income on 31.10.2008. The assessee submitted that she had given necessary evidences/documents/explanations in the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act to the authorized representative. It was only on reading of the assessment order dated 31.12.2008 it appeared that the details/explanations given by the assessee to the counsel were not submitted by the counsel to the AO, which has resulted into various additions resulting into assessed income being computed u/s 143(3) of the Act at Rs. 83,38,000/- , against returned income of Rs.4,81,383/-.

The CIT(A) considered the submissions of the assessee and the assessment order of the AO . In view of the fact that the assessee has herself conceded that the income has not been correctly calculated and offered for taxation, the CIT(A) found that action of the AO in calculating the profit on sales of Rs.2,09,07,668/- on which the assessee had not declared any profits could not be faulted with. Further the assessee had himself submitted on 29.11.2009 that the net profit rate of 10% to 15% or any other figure should be calculated on sales as commission received which would include the deduction of expenses claimed. The CIT(A) found that in the assessment order dated 31.12.2008 u/s. 143(3) of the Act, the AO had added back Rs.9,51,665/- claimed as deduction of courier expenses in the P & L account by the assessee as per the agreement for consignee agent made between the Casio India Company Private Limited and the assessee, it clearly states that the expenses of courier were to be reimbursed by Casio India Company Private Limited and if this was so then the expenses would not have been incurred by the assessee at all. The CIT(A) considered the submissions of the assessee and observed that as the assessee had herself offered that correction in her commission income be made, the CIT(A) estimated 11% rate of commission on undisclosed sales of Rs.2,09,07,668/- which is in parity with the commission earned on disclosed sales of Rs.3,52,27,603/- made by the assessee. With respect to courier charges of Rs.9,51,665/- was also added to the gross income being commission of Rs.39,11,279/- on disclosed sales and commission income so estimated of Rs.22,99,843/- on undisclosed sales made by the assessee, and taxable income being net profit @15% on aggregate of commission and courier charges as above , was estimated at Rs.10,74,418/- as net profit from business of the assessee and brought to tax vide orders of the CIT(A) dated 16.12.2009 .

Aggrieved by the orders dated 16.12.2009 of the CIT(A), the Revenue filed appeal before the Tribunal.

The learned Sr. DR contended that the CIT(A) erred in deleting the addition of Rs. 10,45,383/- as profit @5% on undeclared sales made through the assessee by Casio India Company Private Limited. The learned DR submitted that the CIT(A) erred in deleting the addition of Rs.9,51,665/- being courier charges as the CIT(A) has erroneously taken 15% of this reimbursement as income. He further submitted that the assessee has undisclosed sale of Rs.2,09,07,668/-. The assessee has reported a sale of Rs.3,52,27,603/- on which she has received commission of Rs.39,11,279/- but she has not declared any income on the undisclosed sale of Rs.2,09,07,668/-. Similarly, it was submitted that the CIT(A) has added 15% of the courier charges of 9,51,665/- along with commissions on total sales, to estimate the total profit at Rs.10,74,418/- from business. The Sr. DR stated that the courier charges has been wrongly claimed as expenses because the said expenses were reimbursed by Casio India Company Private Limited as per terms of the agreement hence, the order of the CIT(A) should be set aside and the AO be directed to verify whether it is justifiable to include it as a part of gross receipt and if not then it should be disallowed and added to the income of the assessee.

None appeared on behalf of the assessee despite several opportunities being given to the assessee and even notices being served through DR as per order sheet entries , since 2011. We have heard the learned Sr. DR and perused the material on record. We have observed that the assessee has entered into an agreement for consignee dated 11.01.2005 with Casio India Company Pvt. Ltd. , whereby there was a sale of Rs.3.52 crores which was made through the asssessee by Casio India Company Private Limited which was declared to the Revenue , further there was sale of 2.09 crores which was sale made by Casio India Company Private Limited through assessee , which was not disclosed in the return of income filed by the assessee with the Revenue. The AO made an enquiries u/s 133(6) of the Act with Casio India Company Private Limited and observed that an agreement with Casio India Pvt. Ltd., stipulates that the assessee is not entitled for any commission for sale made outside Maharashtra. The assessee did not submit evidences to substantiate that this sale of Rs.2.09 crores which was not disclosed to the Revenue does not entitle it to any income as per agreement with Casio India Pvt. Ltd. which could be brought to tax by the Revenue. The AO has duly made enquiries with Casio India Pvt. Ltd. u/s. 133(6) of the Act. During the course of appellate proceedings , it was submitted by the assessee that she had given necessary documents/evidences to the counsel but the same were not forwarded to the Revenue during the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act. She further submitted that the books were not properly maintained and, hence, the income be estimated. The AO estimated profit@5% on the said undisclosed sale of Rs.2.09 crores. The CIT(A) estimated the commission income @11% on the said undisclosed sale of Rs.2.09 crores based upon the parity with the existing rate calculated on the commission of Rs.39,11,279/- earned on the disclosed sale of Rs.3.52 crores which comes to 11% and from the commission income so estimated against which necessary expenses were allowed by the CIT(A), for which the CIT(A) estimated that 15% net profit ratio will be justified . Similarly, with respect to the courier charges of Rs.9,51,665/-, it was estimated by the CIT(A) to be part of receipt being reimbursement of courier charges and profit ratio of 15% was applied while granting benefit of deduction of expenses. In our considered view, the assessee did concede that her tax consultant has not maintained proper books of accounts and requested for rejection of book results and estimating profit chargeable to tax. The estimates are to be made keeping in view the background of the business of the assessee and the available records and is to be a reasonable and fair estimate of income to be brought to tax which necessarily involves estimation based on some guess work and the same cannot achieve perfection or precision to yield exact income which can be brought to tax . The CIT(A) made an estimate of the earnings of the assessee keeping in view the entire background of the case and in our considered view, no defect or infirmity is observed in the working of the estimates by the CIT(A), which is hereby ordered to be confirmed.

With respect to ground no.3, during the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act, the AO observed that as per the AIR information , the assessee had received interest amount of Rs.4,225/- from Kotak Mahindra Bank Ltd. . The assessee was asked to give details of interest earned from the Kotak Mahindra bank. In this regard the assessee submitted that she had no such bank account in Kotak Mahindra Bank and no interest was received by her.

Aggrieved by the assessment order dated 31.12.2008 passed by the AO u/s 143(3) of the Act, the assessee filed first appeal with the CIT(A).

Before the CIT(A), the assessee submitted that the assessee was dealing with Thakkral Computers Pvt. Ltd and Rs.24,55,282/- (dealt in the next ground and inter- related to this ground of appeal) represented the amounts paid to M/s. Thakkral Computers Pvt. Ltd. against purchase of goods which were sold in the market, whereby both purchases and sale thereof has not been disclosed in the return of income filed with the Revenue. As regards additions of Rs.27,50,000/- represented by cash deposit of Rs. 5 lacs and deposit of cheques of Rs.22,50,000/- on different dates with Kotak Mahindra Bank represents trading receipt on sale of electronic items which were purchased from the said Thakkral Computers Private Limited .

The learned DR relied on the order of the AO while none appeared for the assessee despite several opportunities given to the assessee , since 2011.

We have heard the learned DR and have perused the material on record. We find that the assessee had made payment of Rs. 24,55,282/- to Thakkral Computers Pvt. Ltd. through banking channels from the IndusInd Bank which is an bank account duly disclosed and declared to the Revenue and sources of credit in the said bank account stood explained as per the facts emerging from the orders of the authorities below. The assessee has neither disclosed the purchases made from Thakkral Computers Private Limited nor the corresponding sales made , to the Revenue in the return of income filed with the Revenue. The assessee has come forward with the explanation that Rs.5 lacs deposited in the bank in cash is out of the cash sales made by the assessee out of the undisclosed purchases made from Thakkral Computers Private Limited . The Revenue has not brought any incriminating material to disprove the contentions of the assessee and to prove that the said cash so deposited in bank of Rs. 5 lacs , is out of any other source of income of the assessee which is not declared and disclosed to the revenue while the explanation offered by the assessee is a plausible explanation which keeping in view the factual matrix of the case was accepted by the CIT(A). The total payment made for the undisclosed purchases made from Thakkral Computers Private Limited through the bank account is 24,55,282/- and hence there will also be sales corresponding to the said purchases. Both the sales and purchases with respect to these electronic items so purchased from Thakkral Computers Private Limited is not declared and disclosed by the assessee to the Revenue in the return of income filed with the Revenue. There are cheques deposited of Rs.22,50,000/- on different dates in the Kotak Mahindra Bank Limited by the assessee for which no explanations was offered by the assessee to satisfy the ingredients of Section 68 of the Act which was added by the AO to the income of the assessee and confirmed by the CIT(A). With respect to the cash deposit of Rs.5 lacs in Kotak Mahindra Bank , the assessee came out with an explanation that the same is part of sale proceed in cash of the electronic items purchased through Thakkral Computers Private Limited and the same should be treated as part of sale proceeds in cash, which explanation was accepted by the CIT(A) being plausible and bona-fide explanation in the absence of any incriminating material brought by the Revenue to disprove the contentions of the assessee and in our considered view, we donot find any infirmity in the orders of the CIT(A) which we confirm and the action of the CIT(A) granting relief of Rs.5,00,000/- is upheld. We order accordingly.

During the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act, the assessee submitted a copy of ledger account of Thakkral Computers Pvt. Ltd. which shows payment of Rs.24,55,282/- has been made by the assessee from IndusInd Bank, which is a regular bank account of the assessee duly declared in the return of income filed with the Revenue. The AO alleged that the assessee has made investments which are not recorded in the books of account and, hence, the same should be treated as income u/s. 69 of the Act. Despite giving sufficient opportunities, the assessee failed to discharge its onus before the AO. Thus, the AO made an addition of Rs.24,55,282/- to the total income of the assessee on account of unexplained investment u/s 69 of the Act vide assessment order dated 31.12.2008 passed u/s 143(3) of the Act.

Aggrieved by the assessment orders dated 31.12.2008 passed by the AO u/s 143(3) of the Act, the assessee filed first appeal before the CIT(A).

The CIT(A) observed that as per the assessee , the transactions of purchases with Thakkral Computers Private Limited whereby payment of Rs.24,55,282/- was made , is an unaccounted transactions. The assessee had submitted that Rs 5 lacs cash deposit in Kotak Mahindra Bank represent part of the profits of these transactions and since the profit is more than 20%, Section 44AF of the Act as contended by the assessee cannot be accepted. The CIT(A) observed that payment of Rs.24,55,282/- has been made out of IndusInd Bank to Thakkral Computers Private Limited which is explained by the assessee to be the regular bank account of the assessee disclosed to the Revenue in return of income filed with the Revenue, whereby commission income earned by the assessee were credited which were duly offered for taxation in the return of income filed with the Revenue. Thus, the CIT(A) after considering the material on record held that the investment cannot be said to be made out of undisclosed sources. Therefore , as per the CIT(A) section 69 of the Act would not have any application. But the profit from these transaction of sale and purchase of electronic items which were not disclosed to the Revenue in the return of income filed with the Revenue, are to be brought to tax.

Aggrieved by the orders of the CIT(A) dated 16.12.2009, the Revenue is in appeal before the Tribunal.

Before us the learned Sr. DR submitted that the assessee has made unexplained investments of Rs.19,55,282/- which has been erroneously deleted by the CIT(A). The total investment was Rs.24,55,282/- and the AO has correctly made the addition. However, no enquiries were made with Thakkral Computers Pvt. Ltd. The learned CIT(A) should have called for the remand report from the AO with respect to the additional evidences submitted by the assessee. None appeared for the assessee despite several opportunities given to the assessee , since 2011.

We have considered the contentions of the ld. Sr. DR and perused the material on record. We have observed that the assessee has made payment of Rs.24,55,282/- to Thakkral Computers Pvt. Ltd. out of the regular bank account with IndusInd Bank whereby the credits are duly offered for tax by the assessee as per the facts emerging from the orders of the authorities below, the said payments of Rs.24,55,282/- to Thakkral Computers Pvt. Ltd. had not been recorded in the books of account. The assessee has come forward with the explanation that this represent unexplained purchases and correspondingly unrecorded sales were made.

In ground no.5, the revenue is aggrieved by the double stage of estimation by the CIT(A) wherein at first stage the CIT(A) estimated commission income on sales @11% and thereafter allowed relief of deduction of expenses and applied net profit rate@15% of the commission income so estimated @11% on sales. The learned DR submitted that the CIT(A) erred in giving relief of double stage by first estimating commission @11% on sales and then applying profit rate of 15%.

We have heard the learned Sr. DR and perused the record. The CIT(A) based upon the profitability on disclosed sales has applied on the same parity , the same rate of commission @11% on the undisclosed sales made by the assessee.

In the result, the appeal of the revenue is partly allowed.