DIKESH MEHTA,MUMBAI V. DCIT, CENTRAL CIRCLE 4(2), MUMBAI

ITA 3837/MUM/2023

AI Insights

The case involves cross appeals by the assessee, Dikesh Mehta, and the revenue concerning the assessments for AY 2017-18 and 2018-19 following a search and seizure operation. The AO made substantial additions to the assessee's income based on audio files found during the search, which were interpreted as business transactions. The CIT(A) reduced the additions but sustained them as business income. The Tribunal, however, found that the provisions of section 69A of the Income Tax Act were not applicable as no physical money was found, and the audio files did not conclusively prove business transactions. Instead, the Tribunal treated the transactions as akin to 'Angadia' business (money transfer) and allowed a commission income of 0.30% on the total transactions for AY 2017-18. For AY 2018-19, the Tribunal considered the assessee's income and expenses to determine the source of the advance payment for a property, reducing the addition accordingly.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 471386 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 28-08-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 25-10-2023
• Other Referred Cases: CIT vs. Poona Electric Supply Co Ltd, D N Singh
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANYOGITA NAGPAL
• Assessee Lawyers: RAHUL HAKANI; RECORDING A STATEMENT
• Keywords: Gift; Search and seizure; Loose papers
• Section: 143(3); 153A; 69A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “D” MUMBAI BEFORE SHRI BR BASKARAN (ACCOUNTANT MEMBER) AND SHRI RAJ KUMAR CHAUHAN (JUDICIAL MEMBER) ITA Nos. 3839 & 3837/MUM/2023 Assessment Years: 2017-18 & 2018-19 Dikesh Mehta, R. No. 130, 3rd floor, Panchsheel Niwas, Kamathipur 5th Lane, Kamathipura, Mumbai-400 008. Vs. DCIT, Central Circle-4(2), 19th floor, Air India Building, Mumbai-400021. PAN NO. AYXPM 8393 H Appellant Respondent ITA No. 3932/MUM/2023 Assessment Year: 2017-18 DCIT, Central Circle-4(2), 19th floor, Air India Building, Nariman Point, Mumbai-400021. Vs. Dikesh Ramesh Mehta, R. No. 130, 3rd floor, Panchsheel Niwas, Kamathipur 5th Lane, Kamathipura, Mumbai-400 008. PAN NO. AYXPM 8393 H Appellant Respondent Assessee by : Mr. Rahul Hakani Revenue by : Mrs. Sanyogita Nagpal, CIT-DR Date of Hearing : 28/08/2024 Date of pronouncement : 26/11/2024 Dikesh Mehta 2 ITA Nos. 3839 & 3837/MUM/2023 & ITA No. 3932/MUM/2023 ORDER PER BENCH: The cross appeals filed for AY 2017-18 and the appeal of the assessee filed for AY 2018-19 are directed against the orders passed by Ld CIT(A)-52, Mumbai. 2. The facts relating to the case are stated in brief. The revenue carried out search and seizure action on Rubberwala Group and Raj group on 17-03-2021. The assessee herein belongs to Raj group. Accordingly, during the course of search operations, the residential premise of the assessee was also subjected to search. Consequently the assessments of both the years under consideration were completed u/s 143(3) r.w.s 153A of the Act. 3. In assessment year 2017-18, the AO completed the assessment by making an addition of Rs.8.18 crores on the basis of audio files found in the phone of the assessee. The Ld CIT(A), however, took the view that the profit element involved in those transactions only is required to be assessed. Accordingly, he estimated the profit @ 2.39% of Rs.8.18 crores, which worked out to Rs.19.56 lakhs. Hence the assessee has filed appeal for this year challenging the addition confirmed by Ld CIT(A) and the revenue has filed appeal challenging the relief granted. 4. In assessment year 2018-19, the AO made addition of Rs.11,21,000/- as explained money u/s 69A of the Act. Since the Ld CIT(A) confirmed the said addition, the assessee has filed the appeal for that year. ASSESSMENT YEAR 2017-18: - Dikesh Mehta 3 ITA Nos. 3839 & 3837/MUM/2023 & ITA No. 3932/MUM/2023 5. We shall first take up the appeal filed for AY 2017-18. The assessee herein is a partner in a trading concern dealing in mobile accessories, named M/s Raj Technology holding 30% share. It is stated that the assessee is in charge of day to day sales and purchases, interaction with customers of Raj brand for receiving orders and payments. We noticed that, during the course of search operation, iphone 12 belonging to the assessee was examined and it contained many audio files. Out of them, short scripts 535 audio files were recorded by the revenue. They contained conversations about financial transactions. In the said conversations, the parties had also used certain code words to refer to the quantum of monetary referred to. For example the word “peti” was used to refer to one lakh rupees. Accordingly, the AO has deciphered the monetary amounts referred to in the conversations and tabulated them in pages 3 to 24 of the assessment order. The total of those transactions worked out to Rs.8,18,57,470/-. 6. The AO conducted enquiries with the assessee by recording a statement u/s 131 of the Act. He stated that these conversations pertained to cash collections, which is divided in the market. The AO understood that the cash is being collected for him as well as for other parties also in the mobile accessories. When asked to submit the details of parties, he replied that all the records have been destroyed in the fire accident that took place in October, 2020 in the commercial complex named City Centre. The AO did not accept the explanations of the assessee. He took the view that these transactions are business transactions of the assessee carried on by him outside the books. 7. The assessee submitted that he did not carry on any business during the year relevant to AY 2017-18. The assessee also submitted that he was a full time salaried employee in a concern named M/s Rajguru International during the year relevant to AY 2017-18. Accordingly, it was stated that the assessee Dikesh Mehta 4 ITA Nos. 3839 & 3837/MUM/2023 & ITA No. 3932/MUM/2023 could not have indulged in any full time business activity while working as full time employee. He further submitted that the partnership firm M/s Raj Technology itself was formed only on 05-01-2018. Accordingly, the assessee submitted that these transactions cannot be considered as either his or his firm‟s business transactions. 8. He submitted that, in mobile accessories business, the spart parts and model of mobiles are numerous and hence none cant hold all types of spare parts of all models. Hence, a wholesale trader shall search for spare parts from other dealers, whenever he gets enquiry from his customers. In that kind of situation, the conversation may take place about payment/receipt of money and he has facilitated the same. He also submitted that the discussions are made on day to day basis for enquiries, proposed orders, pricing policy etc. He further submitted that it cannot be said that all conversations have fructified into sales. He also submitted that he was confronted with 4 – 5 sample audio files only, out of the 535 files. He further submitted that the iphone contained around 3000 audio files, but it is not discernible as to why the AO chose to prefer only 535 files. 9. The assessee also contended that the assessing officer has not brought on record any other material to corroborate the conversation found in the audio files and hence, in that case, the uncorroborated audio files could only be considered as dumb documents. Accordingly, it was contended that the addition cannot be made on the basis of audio files alone. 10. It was also submitted that the AO could tax only real income and in this case, the assessee has not earned any real income at all. The assessee also raised many legal contentions before the AO. Dikesh Mehta 5 ITA Nos. 3839 & 3837/MUM/2023 & ITA No. 3932/MUM/2023 11. However, none of the explanations/contentions of the assessee were found acceptable to the AO. Accordingly, he assessed the entire amount of Rs.8,18,57,470/- as unexplained income of the assessee u/s 69A of the Act. 12. In the appellate proceedings before Ld CIT(A), the assessee reiterated the above said submissions and also raised many legal issues. The Ld CIT(A) rejected all the legal contentions. The assessee also analysed the audio files and segregated them in the following groups:- Receipt of cash - 4,33,88,420 Payment of cash - 1,11,46,300 Inconclusive/Non materialized items - 2,73,22,750 ------------------ Total 8,18,57,470 ============ Accordingly, the assessee submitted that the audio files contained only money transactions. It was pointed out that the conversations did not refer to any sales invoice, delivery vouchers, transport vouchers etc., which would support the case of the AO that the conversations were related to the business transactions. It was also submitted that the AO has not found any cash trails relating to the alleged business transactions. Accordingly, the assessee contended that the AO was not right in presuming that the audio files are related to any business transaction. Further, it was pointed that all the audio files pertain to a short period spread over 68 days only and the AO did not refer to certain audio files of certain dates within the above said period. It was also contended that the AO did not mention any reason for selecting only 535 audio files out of the 3500 files found in the phone. Accordingly, the assessee contended that these audio files are dumb documents and cannot be relied upon. Dikesh Mehta 6 ITA Nos. 3839 & 3837/MUM/2023 & ITA No. 3932/MUM/2023 13. Before the Ld CIT(A), the assessee pointed out that the AO has made the impugned addition u/s 69A of the Act. It was submitted that an addition u/s 69A of the Act could be made only if the assessee is found to be owner of any money, bullion, jewellery or other valuable article and they were not recorded in the books of account, if any, maintained and the assessee offers no explanation about the nature and source of acquisition of above items or the explanation given by him, in the opinion of AO, is not satisfactory. It was submitted that there was no seizure of any cash, bullion, jewellery or any other valuable article or thing from the assessee. The AO has only placed reliance on the audio files found in a mobile for making impugned additions. Accordingly it was contended that the audio files cannot be treated as any asset mentioned in sec.69A of the Act, particularly, when the said files were not corroborated with any asset found during the course of search. Accordingly, it was contended that no addition could have been made by the AO u/s 69A of the Act. In this regard, the assessee relied upon a decision rendered by Hon‟ble Supreme Court in the case of D N Singh (date of ruling 16-05-2023). Accordingly, it was contended that the addition made by the AO on the basis of audio files should be deleted. 14. Without prejudice to the above contentions, the assessee submitted that the money transactions may also be held as “Angadia” business (money transfer agency), as he has facilitated both receipts and payments. It was submitted that the commission charged for such kind of facilitation is normally 0.30% on the transaction value. The assessee supported the above rate of commission by referring to two instances of receipts found in the audio files. One of the entries showed that the assessee has received a sum of Rs.1,97,400, which represented a sum of Rs.2.00 lakhs less commission of Rs.600/- calculated at 0.30%. Similar instance of another transaction was also pointed Dikesh Mehta 7 ITA Nos. 3839 & 3837/MUM/2023 & ITA No. 3932/MUM/2023 out by the assessee. Accordingly, the assessee prayed that the profit may be estimated at the above said rate and the balance amount of addition may be deleted. The assessee also presented one more possibility, i.e., it was submitted that even if it is presumed that the assessee has carried out business in mobile accessories, then the average net profit declared by the sister concern M/s Raj Technology was only 2.47% and accordingly prayed that the profit from the impugned transactions may be estimated @ 2.47% of the total value of transactions and the balance amount may be deleted. 15. The Ld CIT(A) took the view that the money transactions noted in the audio files are business transactions only, but took the view that the profit element involved therein alone could be taxed. In support of this proposition, the ld CIT(A) placed reliance on the decision rendered by Hon‟ble Bombay High Court in the case of CIT vs. Poona Electric Supply Co Ltd (49 ITR 913)(Bom). Accordingly, he agreed with the alternative contentions of the assessee that they may be taken as either Angadia transactions (money transfer agency) or actual business transactions. With regard to the applicability of sec.69A of the Act, the Ld CIT(A) observed that audio files did not indicate deployment of any capital and further held that the assessee was not shown to be owner of any cash. Hence, he agreed that the addition u/s 69A could not have been made. Accordingly, the Ld CIT(A) proceeded to estimate the income from these transactions. He took the view that the assessee might have carried out both Angadia business and also sale of products. He held that the aggregate amount of money transactions could be divided in both types of activities equally. With regard to Angadia business, the Ld CIT(A) took the profit percentage at 0.30%. With regard to cash sales, he noticed that he had adopted profit rate of 4.48% in the hands of the partnership firm, i.e., M/s Raj Technology in its hands. Accordingly, the Ld CIT(A) took the view that the Dikesh Mehta 8 ITA Nos. 3839 & 3837/MUM/2023 & ITA No. 3932/MUM/2023 average profit rate should be estimated at 2.39% (average of 0.30% + 4.48%), which worked out to Rs.19,56,393/-. Accordingly, the Ld CIT(A) sustained addition to the above extent. Both the parties are aggrieved. 16. We heard the parties and perused the record. We notice that the assessing officer has made the addition of Rs.8.81 crores on the basis of conversations noted in the audio files. In the audio files, the conversations were either related to payment of money or receipt of money. It was submitted that the some of the conversations did not fructify into receipt/payment of money. According to the assessee, the AO has aggregated all receipts, payments and unfructified transactions. We noticed that the AO has considered entire amounts as business transactions and accordingly added the same u/s 69A of the Act. 17. We shall examine as to the provisions of sec.69A can be invoked in the facts of the present case. Section 69A of the Act reads as under:- “69A. Unexplained money, etc. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.” Dikesh Mehta 9 ITA Nos. 3839 & 3837/MUM/2023 & ITA No. 3932/MUM/2023 A careful perusal of the above said provision would show that this provision could be invoked only if the assessee is “found to be the owner of any money, bullion, jewellery or other valuable article.” Thus, for invoking the provisions of sec.69A of the Act, it is required to be shown that the above said assets are available and further, the assessee was found to be the owner thereof. In the instant case, no physical money was found either with the assessee or with any other person and hence the question of the assessee, being owner of the same does not arise. Hence, we are of the view that the Ld CIT(A) was right in law in holding that the provisions of sec.69A are not applicable to the facts of the present case. 18. If the assessee was not found with any money and accordingly the provisions of sec.69A cannot be invoked, then what could be taxed under the Act is the profit element involved in those transactions. However, it is seen that there is no clarity about the nature of transactions that were discussed in the conversations found in the audio files. As pointed out by the assessee, the AO has selected only 535 files out of 3500 audio files found in the phone of the assessee. The above said audio files pertained to 68 days only. We noticed that the AO has presumed that the money transactions discussed in the conversation are trading business transactions of the assessee. However, there are no documents like sales invoices, transport vouchers, nature of products, delivery challans, other types of vouchers etc to support the view that they are the trading business transactions of the assessee. It is stated that the assessee was full time employee in a concern in the year under consideration and accordingly stated that he could not have carried on business of such a magnitude, while being an employee. In our view, there is merit in the said contentions. We also notice that the search team did not find any material/evidence of purchase and sale. No bank transaction was also found. Dikesh Mehta 10 ITA Nos. 3839 & 3837/MUM/2023 & ITA No. 3932/MUM/2023 Had the assessee carried on the business of trading as presumed by the AO, some document relating to that would have been found during the course of search. In the absence of any material to show that the conversations made in the audio files pertain to the trading business carried on by the assessee, in our view, it cannot be presumed that they are related to trading business transactions of the assessee. 19. There should not be any dispute that the Income tax Act permits taxing of real income only. The Ld CIT(A) has taken support of the decision rendered by Hon‟ble Bombay High Court in the case of Poona Electric Supply Co Ltd (supra), wherein it is observed as under:- “The following principle laid down by Lord Chancellor Halsbury has also been cited with approval as equally applicable to the Indian Income tax Act. “The thing to be taxed….is the amount of profits or gains. The word „profits‟ I think is to be understood in its natural and proper sense – in a sense which no commercial man would misunderstand. But when once an individual or a company has in that proper sense ascertained what are the profits of his business or his trade, the destination of those profits or the charge which has been made on those profits by previous agreement or otherwise is perfectly immaterial. The tax is payable upon the profits realized and the meaning to my mind is rendered plain by the words „payable out of profits‟.” The Hon‟ble Supreme Court has also held in the case of Poona Electric Supply co Ltd (57 ITR 721)(SC) that Income tax is a tax on the real income, i.e, the profits arrived at the commercial principles subject to the provisions of the Dikesh Mehta 11 ITA Nos. 3839 & 3837/MUM/2023 & ITA No. 3932/MUM/2023 Income tax Act. The real profit can be ascertained only by making the permissible deductions. 20. It is pertinent to note that the provisions of Income tax Act also contain certain deeming provisions in order to tax certain receipts, which may not be considered as income under commercial principles. One of such provisions is sec.69A of the Act and the AO has invoked the same for assessing the amount of Rs.8.81 crores. We have, in the earlier paragraphs, noticed that the provisions of sec.69A cannot be invoked in the facts of the present case, since the assessee was not found to be the owner of any money. Hence none of such deeming provisions could be invoked in the facts of the present case. Accordingly, we are of the view that the ld CIT(A) was justified in law in holding that the entire money transactions computed by the AO aggregating to Rs8.81 crores cannot be assessed as income of the assessee. 21. Having held that the real income alone is taxable, the next question that arises is - how to ascertain the same. We noticed that the assessee has explained that these are money transactions and they are absorbed in the market. This reply of the assessee, in our view, can be understood that he was handling money in the market. It may or may not belong to him or may belong to others. We noticed that the search team did not find any physical cash or any other material to show that the transactions belong to the assessee only. We noticed that the assessee has made an alternative submission that these transactions can be taken as “angadia transactions”, i.e., money transfer facility. In the facts and circumstances of the case, we are of the view that this alternative contention of the assessee suits to the facts of the present case. The following submissions made by the assessee before Ld CIT(A) are relevant here:- Dikesh Mehta 12 ITA Nos. 3839 & 3837/MUM/2023 & ITA No. 3932/MUM/2023 “Without prejudice to above, appellant would like to state that if at all your honour is of a different view, then the receipts and payments both must be considered. Not accepting but even for hypothetical reasons if it is held tht I am into Angadia business activity, as I was only acting as a facilitator in the mobile wholesale market, receipts and payments both require consideration, to be fair in justice. Accordingly, only the commission element which is normally 0.30% on the transaction value can be brought to tax. For eg., in row no.140 of the decoded audio files the total amount received is Rs.1,99,400/- which represents 99.70% of Rs.2,00,000/-. Hence the commission charged is Rs.600/- which is 0.30% of Rs.2,00,000/-. Similarly in sr. no.194, amount received is Rs.3,98,800/- which represents 99.70% of Rs.4,00,000/-. Hence the commission charged is Rs.1,200/- which is 0.30% of Rs.4,00,000/-. Adopting this method, at best your honour may kindly take the profit by calculating 0.30% of Rs.8,18,57,470/- which comes to Rs.2,45,572/- for taxation and addition to my total income.” We have held earlier that the above said transactions cannot be considered as the trading business transactions. Hence, at the most it can be held to be transactions of handling of money in the wholesale market, which can be equated with angadia business. The seized material itself shows that the rate of commission in the angadia business is 0.30%. Accordingly, we are of the view that the entire transactions may be considered as money transfer transactions and accordingly, the commission income of RS.2,45,572/- computed on the value of Rs.8.18 crores @ 0.30% alone could brought to tax. Accordingly, we modify the order passed by Ld CIT(A) on this issue and direct the AO to restrict the addition to the above said amount of Rs.2,45,572/- only. 22. The assessee has raised certain legal issues. However, no argument was advanced with regard to the same. Accordingly, we decline to adjudicate those legal issues. 23. The appeal of the revenue for AY 2017-18 is related to the relief granted by Ld CIT(A). In view of the decision taken by us in the appeal of the assessee, Dikesh Mehta 13 ITA Nos. 3839 & 3837/MUM/2023 & ITA No. 3932/MUM/2023 we do not find any merit in the appeal of the revenue with regard to the relief granted by Ld CIT(A). Accordingly, we reject the appeal of the revenue. ASSESSMENT YEAR 2018-19: - 24. We shall now take up the appeal filed by the assessee for AY 2018-19. The assessee is aggrieved by the decision of Ld CIT(A) in confirming the addition of Rs.11,21,000/- made by the AO u/s 69A of the Act. 25. The facts relating to the above said issue are that the revenue, during the course of search, found a Memorandum of Understanding (MOU) entered between the assessee and Shri Kishanlal Bishnoi & Smt Shantidevi Bishnoi. A receipt dated 23.11.2017 was also found. As per the MOU, the assessee has agreed to purchase a property located in Mumbai Central area from the above said persons and in pursuance thereto, he has paid an advance of Rs.11,21,000/- to the sellers. When questioned about the same, the assessee submitted that the sellers ultimately did not sell the property to him and a part of advance is still due to be returned. However, the assessee did not properly explain the sources for the advance payment of Rs.11,21,000/-. Hence the AO assessed the same unexplained income u/s 69A of the Act. The Ld CIT(A) confirmed the addition. 26. The Ld A.R submitted that the assessee had received gifts from seven of his family members for giving above said advance, viz., Father, Mother, Brother, Sisters and Wife. It is stated that they are assessed to income tax and the average gift given by each of the persons is around Rs.1,40,000/-. Accordingly, he submitted that the impugned addition is liable to be deleted. Dikesh Mehta 14 ITA Nos. 3839 & 3837/MUM/2023 & ITA No. 3932/MUM/2023 27. The Ld D.R, on the contrary, submitted that assessee has not made this submission before the AO. It was made before Ld CIT(A), but the first appellate authority has rejected the same, as the assessee did not furnish any evidence to prove his claim. 28. We heard the parties on this issue and perused the record. As submitted by Ld D.R, we notice that the assessee has only made oral submissions, but did not adduce any evidence to substantiate the claim that he had received gifts from relatives. The mode of receipt is, apparently, said to be by way of cash, which has to be proved beyond doubt. In the absence of any evidence to support the claim, we are of the view that ld CIT(A) was justified in rejecting those submissions. 29. However, in the immediately preceding year, we have confirmed addition to the extent of Rs.2,45,572/- and that income should be available with the assessee for making the impugned investment. The Ld CIT(A) has noted that the assessee has declared total income of Rs.7,31,260/- for this year and the same also be considered for ascertaining the sources. The aggregate of both the items is Rs.9,76,832/-. If we estimate the domestic expenses of the assessee at Rs.4,76,832/- and deduct the same, the assessee would be left with a sum of Rs.5,00,000/-, which should be available as sources for giving the above said advance of Rs.11,21,000/-. We are of the view that the above said computation is justified in the facts and circumstances of the case. Accordingly, we modify the order passed by Ld CIT(A) and direct the AO to restrict the addition to Rs.6,21,000/- (Rs.11,21,000 less Rs.5,00,000/- discussed above). We order accordingly. Dikesh Mehta 15 ITA Nos. 3839 & 3837/MUM/2023 & ITA No. 3932/MUM/2023 30. In the result, the appeals filed by the assessee for AY 2017-18 and 2018- 19 are partly allowed. The appeal filed by the revenue for AY 2017-18 is dismissed. Order pronounced in the open Court on 26/11/2024. Sd/- Sd/- (RAJ KUMAR CHAUHAN) (BR BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 26/11/2024 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, //True Copy// (Assistant Registrar) ITAT, Mumbai "