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Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
Before: Shri Mahavir Prasad & Shri Amarjit Singh
आदेश/ORDER PER BENCH:-
These seven appeals filed by assessee for A.Y. 2006-07 to 2012-13, arise from order of the CIT(A)-IV, Ahmedabad dated 26-09- 2014, in proceedings under section 153A r.w.s.143(3)/143(3) of the Income Tax Act, 1961; in short “the Act”.
I.T(SS)A 374 & ITA 3096 to 3101/Ahd/2014 A.Y. 2006-07 to 2012-13 Page No 2 M/s. Garrison Polysacks P. Ltd. vs. Dy. CIT
As the facts in these seven appeals are similar, so we take IT(SS)A No. 374/Ahd/2014 for assessment year 2006-07 as the lead case and decide all the seven appeals filed by assessee for the sake of convenience.
The assessee has raised following grounds of appeal:- IT(SS)A No. 374/Ahd/2014 “(1) That on facts, and in law, all the additions made and confirmed are beyond the provisions of assessments U/S.153A r.w.s.143 (3) of the Act, and hence void ab-initio and invalid. (2) That on facts, and in law, the learned CIT(A) has grievously erred in confirming the disallowance of payment of rent of Rs.l,08,000/- (3) That the learned CIT(A) has grievously erred in confirming the disallowance of contribution towards gratuity fund of Rs.1,19,731/-.”
In this case , a search action u/s. 132 of the act was conducted on 29th September, 2011 in the Nopany Group cases that also includes the case of the assessee. The issue in the appeal is that during the course of assessment proceedings, the assessing officer has asked for the details of rend paid by the assessee to Smt. Chandadevi N. Nopany. The assessee has filed the details of rent paid to Chandadevi N. Nopany as under:- 2006-07 1,08,000 2007-08 1,08,000 2008-09 1,08,000 2009-10 1,08,000 2010-11 1,80,000 2011-12 1,80,000
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2012-13 1,80,000 The assessing officer noticed that Managing Director of the assessee-company in his statement recorded u/s. 132(4) of the act on 4th October, 2011 had categorically admitted that the rental payment made to Smt. Chandadevi N. Nopany was bogus and the premises 32, Meghdut, 95/B, Netaji Subhash Road, Marine Drive, Mumbai was not occupied for any purposes by the assessee. During the course of assessment proceedings the assessee stated that an agreement was entered into between the assessee company and Chandadevi N. Nopany in respect of rent payable for the use of the aforesaid flat . The assessing officer has not accepted the submission of the assessee on the ground that on physical examination during search action it was found that the property was not occupied by the assessee and further in the statement recorded u/s 132(4) of the act it was admitted that rental payment was bogus.
Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has sustained the addition on the issues by observing as under:- “6.2 I have carefully considered the submissions made by the appellant and have gone through the assessment orders as well. 6.2.1 The submission of the appellant is not founded on the factual evidences. As clear from the assessment order, during the course of search itself, it was found on physical inspection that the property situated at 32, Meghdut, 95/B, Netaji Subhash Road, Marine Drive, Mumbai was not actually rented to the appellant company and it was a residential property. In view of this, Shri Arvind N Nopany, Managing Director of the appellant company was questioned on this finding during search. The relevant Question & Answers of his statement recorded u/s 132(4) are as below:- Q.5 Please give residential address of your parents and their source of income. Ans. My mother Chandadevi N. Nopany residing at 31, Megdoot, 95/B Netaji Subhash Road, Marine Drive, Mumbai-2. Her source of income is rental income from Garrison
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Polysacks Pvt. Ltd. She is a Director in Daulat Ram Rameshwarlal Private Limited and Nopany India Pvt. Ltd. The detailed address of rental property is 32 Megdoot, 95/B Netaji Subhash Road, Marine Drive, Mumbai. Q.6 On physical inquiry, it is gathered that the said rental property is a residential address on which Garrison Polysacks Private Limited is paying rent. You are required to explain why the rent paid by Garrison Polysacks Private Limited should be treated as bogus and disallowed. Ans Yes I agree that the rental payment made to my mother is bogus and the premise 32, Megdoot, 95/B Netaji Subhash Road, Marine Drive, Mumbai is not occupied for any purpose. M/s. Garrison Polysacks Private Limited is paying Rs. 12,000/- rent per month for last four financial years. I don't remember exact details. 6.2.2 Thus, the Managing Director of the appellant company, during search, not only accepted that the rental payment made to his mother was bogus but also accepted that this property at 32, Meghdut, 95/B, Netaji Subhash Road, Marine Drive, Mumbai was not occupied for any purpose. 6.2.3 The statement recorded during search on oath u/s 132(4) of the Act is a strong piece of evidence. Courts have given significance to the statement recorded u/s 132(4) observing that surrender made in the course of search by way of statement u/s 132(4) has got evidentiary value and it cannot be used to side track the attention of the Department from making deeper investigation in the matter. For this, reliance is placed on following judicial rulings: (a) In the case of Ravindra D. Trivedi vs. CIT [2008] 215 CTR 313 (RAJ.) it has held by the High Court of Rajasthan that a bare look at the order of the Tribunal, does show that at the time of search, the search team found the stock, Available at the business premises, to be in excess of the one, mentioned in the books of accounts and in his statement, made under section 132(4), the assessee clearly admitted as follows : "/ agree for the difference of Rs. 3 lakhs in stock and I am ready to disclose the same as my undisclosed income for the current year." This statement was further corroborated by the statement of his son, who was working as a manager on salary. Admittedly, this surrender has not been retracted by the assessee, much less by successfully making out sufficient ground for discrepancy. Then, it has also been found by the learned Tribunal that the assessee had accepted the discrepancy, rather, as a matter of fact, made disclosure by way of a calculated attempt to sidetrack the attention of the search party and, therefore, sidetracked the investigation of the discrepancy and in the return or at the assessment stage, despite the above statement under section 132(4), the assessee has not disclosed this income in the return. On the basis of language of section 132(4), this addition could rightly be made and has rightly been made. (b) The Punjab and Haryana High Court has also held in its decision dated 24.09.2007 in the case of Rakesh Mahajan vs. CIT 642 of 2007 (Taxpert) and 214 CTR 218 that it is well settled that admission constitute best piece of evidence because admission are self bearing statements made by the maker believing it to the based on truth. (c) Kunhambu v. Commissioner of Income-tax [1996] 86 TAXMAN 477 (KER.) Section 132 of the Income-tax Act, 1961 - Search and seizure - Assessment years 1980- 81 and 1981-82 - During course of search undersection 132 managing partner of assessee-firm in a statement, admitted unaccounted excess stock worth Rs. 3 lakhs, before two witnesses, who were traders in same locality - Assessing Officer made addition after spreading.it over in assessment years 1980-81 and 1981-82 -Whether
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Explanation inserted under section 132(4) after aforesaid search -was made, sought to clarify necessary import of main provisions of section 132(4), and thus, /TO had power to record statements on oath on all matters pertaining to suppressed income -Held, yes - Whether there was sufficient material for Tribunal to upheld impugned addition towards excess stock and to observe that assessee had failed to discharge his burden to prove that statement was obtained by intimidation and coercion - Held, yes - Whether Tribunal having found that statement from aforesaid witness in support of plea that statement was made voluntarily and having not obtained any statement from aforesaid witnesses in support of plea that statement was obtained by coercion or intimidation, Tribunal's findings were findings of facts and could not be interfered with - Held, yes (d) Where the statement is made voluntarily without any coercion and the contents of the statement were clear and unambiguous, the same could be binding on the assessee even if the statement was retracted subsequently. Hotel Kiran v. Asstt C1T [2002] 82 ITD 453 (Pune). (e) The Hon'ble Kerala High Court in the case of V, Kunhikannan vs. C1T (219 ITR 235 to 243) has held that, "If a partner came forward to disclosed about the non-entry of excess stock in the registers during the course of search the Income Tax Officer could use it even though there was no actual verification of the stock. The assessment was based on the statement of the assessee. Since the case had been made that the statement was made under a mistaken belief of fact or law and the statement being voluntarily one there was no scope for the assessee to challenge the correctness of the assessment." (f) The Hon'ble Supreme Court in its decision dated 25.10.1996 in Special Leave Petition (C) no. 14028 of 1996 in the case of Surjeet Singh Chahbra Vs Union of India and Others, has held that the Revenue Officials are not Police Officers and the confession, though retracted, is an admission and binds the petitioner. As such whatever he has admitted during the search operation is binding on him despite retraction. ' 6.2.4 As against above factual evidences and statement collected during search, the appellant did not have any evidences except the rent agreement entered between the two entities. The availability of rent agreement does not serve any \ purpose once a factual inspection was carried out during search and the fact of the property not used for any purpose was accepted by the Managing Director of the company and the son of the owner of the property. Once the property was not used for the business purpose of the appellant company, the rent claimed for this property be debited and allowed as deduction in the books of the appellant company. The appellant, neither during assessment proceedings nor during appellate proceedings has been able to provide any other evidence, except rent agreement, to prove that the relevant premises was, used for the business purpose of appellant company. Accordingly, it is held that AO was justified in disallowing rent expenses in respect of premises at 32, Meghdut, 95/B, Netaji Subhash Road, Marine Drive, Mumbai in all the seven assessment years. This ground is dismissed for all the years.”
The second issue in the appeal is pertained to the disallowance of amount of Rs. 1,19,731/- in respect of gratuity payment. During the course of assessment proceedings the assessing officer has noticed that the gratuity fund was not approved as per the provision
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of section 40A(7)(b).In this connection, the assessee has explained that in the year 1998 an application was made before the Commissioner of Income Tax-1, Baroda for approval of the gratuity scheme subsequently, a number of reminders were issued from time to time but till date no letter for approval of the gratuity scheme was received from CIT-1, Baroda. The assessing officer has not accepted the explanation of the assessee and stated that as per provisions of section 40A(7)(b) deduction shall be allowed in respect of any contribution towards approved gratuity fund. Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has sustained the addition on the issues by observing as under:- “7.2 I have carefully considered the submissions made by the appellant and have gone through the assessment orders as well. 7.2.1 Admittedly, even till date the appellant has not received the approval of the Commissioner. As informed, the application for approval of gratuity fund was made to Commissioner of Income-tax-l, Baroda in 2008 when the trust first formed. It is also informed no other correspondence was received from the Department except for a letter dtd. 21-03-2014 informing that application of the applicant was transferred to the Commissioner of Income-tax (Central)-ll, Ahmedabad. From these facts, it is clear that the application of appellant is still pending as the same has been transferred to other Commissioner charge. Therefore, the claim of the appellant that the approval is deemed to have been granted cannot be accepted. Even the appellant itself, on its own has disallowed and added back such provisions to the total income in subsequent assessment years 2010-11 to 2012-13. As per section 40A(7) only the payment by way of contribution towards an "approved gratuity fund" are allowable as deduction. Accordingly, the action of the AO is justified as gratuity fund of the appellant is not approved during the relevant year. Therefore, the second ground is dismissed for the relevant assessment years.”
During the course of appellate proceedings before us, the learned counsel has referred to the paper book containing detail of filing of return by Smt. Chandadevi N. Nopany, copy of assessment order, copy of rent agreement, copy of submission made before the ld. CIT(A) etc. He contended that the assessee has paid rent as per the rent agreement. Regarding contribution towards approved gratuity
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funds he has contended that the concerned CIT has neither rejected the application of the assessee nor given any reply in spite of a number of reminders issued from time to time by the assessee. We have heard both the sides and perused the material on record carefully. During the course of search lf, it was found on physical inspection that the property situated at 32, Meghdut, 95/B, Netaji Subhash Road, Marine Drive, Mumbai was not actually rented to the assesseet company and it was a residential property. Shri Arvind N Nopany, Managing Director of the assessee company and son of the assessee has admitted that the aforesaid property actually was not given on rent . Answers to questions number 5&6 of his statement recorded u/s 132(4) is reproduced as under:-
Q.5 Please give residential address of your parents and their source of income. Ans. My mother Chandadevi N. Nopany residing at 31, Megdoot, 95/B Netaji Subhash Road, Marine Drive, Mumbai-2. Her source of income is rental income from Garrison Polysacks Pvt. Ltd. She is a Director in Daulat Ram Rameshwarlal Private Limited and Nopany India Pvt. Ltd. The detailed address of rental property is 32 Megdoot, 95/B Netaji Subhash Road, Marine Drive, Mumbai. Q.6 On physical inquiry, it is gathered that the said rental property is a residential address on which Garrison Polysacks Private Limited is paying rent. You are required to explain why the rent paid by Garrison Polysacks Private Limited should be treated as bogus and disallowed. Ans Yes I agree that the rental payment made to my mother is bogus and the premise 32, Megdoot, 95/B Netaji Subhash Road, Marine Drive, Mumbai is not occupied for any purpose. M/s. Garrison Polysacks Private Limited is paying Rs. 12,000/- rent per month for last four financial years. I don't remember exact details. The above statement was corroborated by the physical inspection of the property at the time of search which demonstrates that the property was actually not given on rent. On perusal of the record, we observed that the statement was not retracted and as per the record, the statement is made voluntary and the contents of the statement
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were clear and unambiguous. After considering the above facts and the findings of the Ld.CIT(A), we do not find any reason to interfere in the decision of the Ld.CIT(A) on this issue. Therefore, this ground of the assessee is dismissed for all the years.
The second issue in the appeal is pertained to the disallowance of amount of Rs. 1,19,731/- in respect of contributions towards gratuity on the ground that the gratuity fund was not approved. We observed that it is an undisputed fact that the assessee had made an application in the year 1998 before the Commissioner of Income Tax-1, Baroda for approval of the gratuity scheme. Subsequently, a number of reminders were issued from time to time but till date no letter for approval of the gratuity scheme was received from CIT-1, Baroda. We have perused the page number 81 to 86 in the paper book showing the correspondence made in respect of approval of gratuity fund .We considered that in spite of frequent reminders and correspondence made by the assessee till date no reply was given by the concerned commissioner of income tax. After considering theses facts we are of the view that the Ld. CIT(A) is not justified in dismissing the appeal of the assessee on this issue, therefore, the appeal of the assessee on this issue is allowed.
Third issue pertaining to assessment year 2011-12 and assessment year 2012-13 is regarding disallowance of deduction u/s. 24 of the act. During the previous year relevant to assessment year 2011-12, the assessee has claimed deduction of Rs. 66,250 u/s.
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24(a) of the act out of the total rent income of Rs. 2,17,500/-. The assessing officer has observed that the assessee has shown rent income of Rs. 2,17,500/- under the head miscellaneous income. In the computation of total income, the assessee has shown net income of Rs. 1,52,250/- after claiming deduction of Rs. 66,250 u/s. 24(a) of the act as income from House Property. However, the assessing officer has noticed that the rented property was reflected in the block of building on which depreciation @ 10% was claimed by the assessee. He has further stated that in the preceding years, the assessee has shown the rental income from the aforesaid property under the head business income. Therefore, the assessing officer has disallowed the claim of deduction u/s. 24(a) on the ground the rented party was a business assets falling under the block of assets. The ld. CIT(A) has dismissed the appeal of the assessee by observing as under:- “9.2. I have carefully considered the submissions made by the appellant and have gone through the assessment orders as well. 9.2.1 From the above facts, it is an admitted position that appellant has claimed depreciation on the same office premises, the rental income from which is claimed as 'income from house property' eligible for deduction u/s 24(a) of the Act. The appellant is incorrect in 'claiming that both the claims i.e. depreciation and deduction u/s 24(a) can be claimed in respect of same property. This is totally unacceptable proposition. If the property is used by the appellant as a business asset only then depreciation is allowable. On the other hand, if the property was not used for business purpose the rental income earned therefrom constitutes house property income against which deduction u/s 24(a) is allowable. Accordingly, the action of the AO of denying deduction u/s 24(a) is correct and as per law. Therefore, the additions made by the AO of Rs.65,250/- u/s 24(a) for assessment years 2011-12 and 2012-13 are hereby sustained. This ground is dismissed.” 10. We have heard the rival contentions and perused the material on record carefully. We observed that the property from which rent was received was shown under the head block of building and depreciation @ 10% was claimed. The property was a business
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asset on which depreciation @ 10% was claimed by the assessee. In view of the above facts and findings of the ld. CIT(A), we do not find any errors in the decision of the ld. CIT(A). Therefore, the appeal of the assessee is dismissed on this issue.
In the result, all the seven appeals of the assessee are partly allowed.
Order pronounced in the open court on 16-11-2017
Sd/- Sd/- (MAHAVIR PRASAD) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 16/11/2017 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद