Uday Shankar Mahawar, Kolkata V. A.CI.T.,Circle-36, Kolkata

ITA 1099/KOL/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8961 (ITAT-KOLKATA)
• Duration Of Justice: 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: misc
• Appeal Filed On: 09-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Assessee Lawyers: MIRAJ D. SHAH
• Keywords: Business expenditure; Search and seizure; Salary income; Accommodation entries
• Section: 142(1); 133A; 143(2); 131; 68; 37; 10

Judgement Text

1 ITA NO. 1099/KOL/2019 UDAY SHANKAR MAHAWAR, AY 20 15-16 , C , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA ( ) . . , . ' # $% % , '( ) [BEFORE SHRI A. T. VARKEY, JM & DR. A. L. SAINI, A M] I.T.A. NO. 1099/KOL/2019 ASSESSMENT YEAR: 2015-16 UDAY SHANKAR MAHAWAR (PAN: AFAPM9477Q) VS ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-36, KOLKATA. APPELLANT RESPONDENT DATE OF HEARING 12.12.2019 DATE OF PRONOUNCEMENT 15.01.2020 FOR THE APPELLANT SHRI MIRAJ D. SHAH, AR FOR THE RESPONDENT SHRI SUPRIYO PAL, JCIT, SR. DR ORDER PER SHRI A.T.VARKEY, JM THIS APPEAL PREFERRED BY THE ASSESSEE IS AGAINST TH E ORDER OF THE LD. CIT(A)-10, KOLKATA DATED 22.02.2019 FOR AY 2015-16. 2. THE SOLE ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE ACTION OF LD. CIT(A) IN CONFIRMING THE ADDITION MADE BY AO OF RS.1,62,00,00 0/- ON ACCOUNT OF UNDISCLOSED INCOME U/S. 68 OF THE INCOME TAX ACT, 1961 (HEREINA FTER REFERRED TO AS THE ACT). 3. BRIEFLY STATED FACTS AS OBSERVED BY THE AO ARE T HAT THE ASSESSEE FILED HIS E-RETURN OF INCOME ON 29.03.2017 DECLARING TOTAL INCOME OF RS.1 ,49,11,110/-. A SURVEY OPERATION U/S. 133A OF THE ACT DATED 22.08.2014 WAS CONDUCTED BY T HE INVESTIGATION WING, KOLKATA AT THE OFFICE PREMISES OF THE ASSESSEE. THE CASE WAS SELE CTED FOR COMPULSORY MANUAL SCRUTINY AS INSTRUCTED BY CBDT, NEW DELHI DATED 07.07.2017. SU BSEQUENTLY, NOTICE U/S. 143(2) OF THE ACT WAS ISSUED BY ITO, WARD-36(4), KOLKATA ON 12.09 .2017 AND THE SAME WAS DULY SERVED UPON THE ASSESSEE. THEREAFTER, THE CASE WAS TRANSF ERRED FROM ITO, WARD-46(4), KOLKATA TO ACIT, CIRCLE-36, KOLKATA. THEREAFTER, NOTICE U/S. 142(1) OF THE ACT ALONG WITH DETAILED QUESTIONNAIRE WAS ISSUED ON 02.11.2017 AND THE SAME WERE SERVED UPON THE ASSESSEE. DURING THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YE AR UNDER CONSIDERATION, THE AO NOTED 2 ITA NO. 1099/KOL/2019 UDAY SHANKAR MAHAWAR, AY 20 15-16 THAT THE ASSESSEE DERIVES HIS INCOME FROM SALARY, H OUSE PROPERTY, BUSINESS OR PROFESSION, CAPITAL AND INCOME FROM OTHER SOURCES. THE AO WHILE COMPLETING THE ASSESSMENT OBSERVED THAT DURING THE COURSE OF SURVEY OPERATION ON 22.08 .2014 THE ASSESSEES STATEMENT WAS RECORDED U/S. 133A OF THE ACT AND SUBSEQUENTLY ON O ATH U/S. 131 OF THE ACT ON 25.08.2014 WAS ALSO RECORDED. IN SUCH STATEMENT, ASSESSEE HAD DISCLOSED A SUM OF RS.3,00,00,000/- AS HIS UNDISCLOSED INCOME OVER AND ABOVE HIS REGULAR I NCOME. AND ON 27.08.2014 ASSESSEE HAD SUBMITTED A DISCLOSURE PETITION IN THE OFFICE O F THE DIT (INV.), KOLKATA WHEREIN HE HAD STATED AS UNDER: 'IN THE COURSE OF STATEMENT RECORDED UNDER SECTION 133A EARLIER I HAD VOLUNTARILY AND IN GOOD FAITH OFFERED INCOME OF RS.3 CRORES AS UNDISCLOSED INCOME OF THE GROUP. THE UNDERSIGNED SUBMITS THAT IT MANAGED AND CONTROLLED VARIOUS COMPANIES WHICH INTE R ALIA FORMS PART OF THE LIST OF COMPANIES INVENTORIED IN THE COURSE OF SURVEY. THE UNDERSIGNE D HAD GIVEN SOME ACCOMMODATION ENTRIES FROM THESE COMPANIES TO VARIOUS PERSONS/ GROUPS. THE UND ERSIGNED OBTAINED ACCOMMODATION ENTRIES AND PASSED ACCOMMODATION ENTRIES TO VARIOUS BENEFICIARI ES. THE UNDERSIGNED USED TO EARN COMMISSION ON THE ACCOMMODATION ENTRIES GIVEN THROUGH THEIR CO MPANIES AND HAD TO PAY CHARGES FOR THE ACCOMMODATION ENTRIES OBTAINED. THE COMMISSION EARN ED FROM THE ACCOMMODATION ENTRIES GIVEN RANGED FROM 0.3% TO 0.8%. THE UNDERSIGNED HAD TO AL SO INCUR VARIOUS EXPENSES/CHARGES IN THE COURSE OF GIVING SUCH ACCOMMODATION ENTRIES. BASED ON ESTIMATED CALCULATIONS & WORKINGS, THE UNDERSIGNED HAD MADE A REASONABLE ESTIMATE AND ACCO RDINGLY AN AGGREGATE INCOME OF RS.3 CRORES WILL BE OFFERED TO TAX IN THE HANDS OF THE UNDERSIG NED, SHRI UDAY SHANKAR MAHAWAR FOR THE FIN. YEAR 2014-15 RELEVANT TO A.Y. 2015-16. THE AFORESAI D INCOME BEING OFFERED TO TAX REPRESENTS THE INCOME WHICH WAS ORIGINALLY OFFERED IN THE COURSE O F SURVEY PROCEEDINGS. ' 4. HOWEVER, ACCORDING TO AO, ON 29.03.2017, WHEN TH E ASSESSEE FILED HIS INCOME TAX RETURN FOR A.Y. 2015-16 HE DISCLOSED HIS TOTAL INCO ME (AFTER GIVING DEDUCTION U/CH VIA), AT RS.1,49,11,1L0/-, WHICH THE AO NOTED WAS F AR BELOW HIS DISCLOSURE MADE BEFORE THE DIT(INV.), KOLKATA ON 27.08.2014. DURING THE CO URSE OF ASSESSMENT PROCEEDING, THE AO NOTED THAT ASSESSEE PRODUCED THE PROFIT & LOSS A CCOUNT AS WELL AS BALANCE SHEET. AFTER PERUSAL OF THE PROFIT & LOSS ACCOUNT, THE AO FOUND THAT ASSESSEE HAD DISCLOSED ONLY RS.1,38,00,000/- AS 'DISCLOSED INCOME TO THE DEPAR TMENT. SO, ACCORDING TO AO, IT IS CLEAR THAT ASSESSEE HAD DISCLOSED AN INCOME WHICH IS LESS BY RS.1,62,00,000/- (RS. 3 CR. RS.1,38,00,000/-) FROM THE INCOME DISCLOSED IN HIS STATEMENT RECORDED U/S. 131 OF THE ACT ON 25.08.2014 AS WELL AS IN HIS DISCLOSURE PETITION DATED: 27.08.2014. TAKING NOTE OF THESE DEVELOPMENTS, THE AO DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, THROUGH NOTICE U/ S 142(1) OF THE ACT, DATED: 02.11.2017 ASKED THE ASSE SSEE TO PRODUCE COMPLETE COMPUTATION OF THE INCOME OF RS.1,38,00,000/- MENTIONED AS 'DIS CLOSED INCOME TO IT'. IN RESPONSE TO 3 ITA NO. 1099/KOL/2019 UDAY SHANKAR MAHAWAR, AY 20 15-16 THE NOTICE, THE AUTHORIZED REPRESENTATIVE (AR), FIL ED THE ASSESSEE'S SUBMISSION, THE RELEVANT CONTENT HAS BEEN RECORDED BY AO IN THE AS SESSMENT ORDER WHICH IS AS FOLLOWS:- 'POST, SURVEY PROCEEDING AT MY PREMISES, MY NAME WA S HIGHLIGHTED BY THE MEDIA, NEWS CHANNELS AND OTHER AGENCIES. AS A RESULT OF WHICH, I LOST MY REPUTATION AND CREDIBILITY AMONG ALL BUSINESS GROUPS WITH WHICH I HAD GOOD RELATIONS AND FROM WHOM I WAS SUPPOSED TO RECEIVE THE COMMISSION INCOME. ALSO, AS A CONSEQUEN CE TO THE SURVEY PROCEEDINGS AT MY PREMISES THE INCOME TAX DEPARTMENT CONSECUTIVELY, C ONDUCTED SEARCH AND SURVEY OPERATIONS IN ALMOST ALL BUSINESS GROUPS IN WHICH I HAD GIVEN ENTRIES. AS A RESULT OF WHICH MOST OF THE BUSINESS GROUPS FR OM WHOM I WAS SUPPOSED TO RECEIVED MY COMMISSION INCOME, REFUSED TO PAY ME THE BALANCE AM OUNTS. THE AMOUNTS WHICH WERE RECEIVED IN ACTUAL WERE OFFERED FOR TAXATION FOR TH E A. Y. 2015-16. AS I FAILED TO RECOVER ANY FURTHER AMOUNT AND THE SAME SEEMS NO MORE RECOVERAB LE, HENCE ONLY THE AMOUNT ACTUALLY RECEIVED BY ME WAS SHOWN AS 'INCOME DISCLOSED TO IT '. 5. ACCORDING TO AO, THE ABOVE REPLY OF THE ASSESSEE IS CLEARLY A STORY FOR NON-PAYMENT OF THE DISCLOSED AMOUNT. BUT, ACCORDING TO AO, EVE N THE ASSESSEE HAD FAILED TO SUBSTANTIATE THE AMOUNT OFFERED FOR TAXATION IN HIS ITR AS TO HO W COULD HE DERIVED AT THAT FIGURE. IN RELATION TO THE ABOVE MENTIONED FACTS AND FAILURE O N HIS PART TO SUBSTANTIATE HIS CLAIM IN ITR, HE WAS SHOW CAUSED VIDE LETTER DATED 11.12.201 7 AS TO WHY SUCH DIFFERENCE OF RS.1,62,00,000/- (RS.3,00,00,000 - RS.1,38,00,000) SHOULD NOT BE TREATED AS HIS UNDISCLOSED INCOME AND ADDED BACK TO THE TOTAL IN COME FOR THE A.Y. 2015-16. ACCORDING TO AO, THE ASSESSEE APPEARED BEFORE AO ON 18.12.2017 AND SUBMITTED THAT THE AMOUNT THAT HE HAS DISCLOSED AT THE TIME OF SURVEY U/S. 133A DATED 22.08.2014 WAS UNPAID COMMISSION. ACCORDING TO ASSESSEE, SUCH RECEIVABLE HAD BECOME BAD DEBT AFTER THE DEPARTMENT CONDUCTED RAID ON THE BENEFICIARYS PREM ISES. HOWEVER, ACCORDING TO AO, THE REPLY OF THE ASSESSEE IS NOT ACCEPTABLE AS THE SOUR CE OF THE AMOUNT WAS FROM PROVIDING ACCOMMODATION ENTRIES AS AN ENTRY OPERATOR AND AS T HE ASSESSEE HAS ALREADY DISCLOSED THE SAME DURING THE COURSE OF SURVEY OPERATION DATED 22 .08.2014. AND ACCORDING TO AO, THE DISCLOSED SUM OF RS. 3,00,00,000/- WAS EARNED BY TH E ASSESSEE WHILE MAKING SUCH ACCOMMODATION ENTRIES IN A SUBVERSIVE MANNER AGAINS T THE LAW TO BENEFIT PEOPLE TO REDUCE THEIR TAXABLE INCOME. AND, THEREFORE, SUCH INCOME C ANNOT BE TREATED AS BAD DEBT AS IT WAS DONE TO ABUSE THE TAX LAWS. THEREFORE, SINCE HE HAD DISCLOSED RS. 3,00,00,000/- AT THE TIME OF SURVEY AND IN HIS DISCLOSURE PETITION, HENCE, HE IS LIABLE TO DISCLOSE THE ENTIRE SUM. HENCE, THE DIFFERENCE OF RS.1,62,00,000/- (RS.3,00, 00,000 - RS.1,38,00,000) WAS TREATED AS HIS UNDISCLOSED INCOME AND ADDED BACK TO THE TOTA L INCOME FOR THE A.Y. 2015-16. 4 ITA NO. 1099/KOL/2019 UDAY SHANKAR MAHAWAR, AY 20 15-16 AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO CONFIRMED THE ACTION OF AO. AGGRIEVED, THE ASSESSEE IS BEFORE US . 6. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT A SURVEY OPERATION WAS COND UCTED ON 22.08.2014 AND STATEMENT WAS RECORDED BY THE DEPARTMENT WHEREIN ASSESSEE OFFERED RS. 3 CR. AS HIS UNDISCLOSED INCOME. THE ASSESSEE REITERATED THE SAME ON 25.08.2014 AS W ELL AS BY FILING A DISCLOSURE PETITION ON 27.08.2014 WHICH HAS BEEN REPRODUCED AT PARA 3 SUPR A. WE NOTE THAT THOUGH THE ASSESSEE OFFERED RS.3 CR. AS HIS UNDISCLOSED INCOME DURING T HE RELEVANT ASSESSMENT YEAR IN THE YEAR OF SURVEY, BUT WHEN HE FILED RETURN OF INCOME HE OF FERED ONLY RS.1,38,00,000/-. ON BEING ASKED WHY HE HAS BROUGHT DOWN HIS UNDISCLOSED INCOM E FROM RS. 3 CR. TO RS.1,38,00,000/-, THE ASSESSEE HAD OFFERED AN EXPLANATION WHICH STATE S THAT AFTER THE SURVEY ACTION BY THE DEPARTMENT AT HIS OFFICE PREMISES, HIS NAME WAS ADV ERSELY HIGHLIGHTED BY THE MEDIA AND NEWS CHANNELS AND OTHER AGENCIES. AS A RESULT OF TH E ADVERSE PUBLICITY/MEDIA GLARE, HE LOST HIS REPUTATION AND CREDIBILITY AS AN ENTRY-OPERATOR AMONG ALL BUSINESS GROUPS WITH WHICH HE HAD GOOD RELATIONS AND FROM WHOM HE WAS SUPPOSED TO RECEIVE THE COMMISSION INCOME (FOR THE SERVICE HE RENDERED TO GIVE ACCOMMODATION ENTRY). ALSO, AS A CONSEQUENCE TO THE SURVEY PROCEEDINGS AT HIS PREMISES, THE INCOME TAX DEPARTMENT CONSECUTIVELY, CONDUCTED SEARCH/SURVEY OPERATIONS IN ALMOST ALL BUSINESS GRO UPS IN WHICH HE HAD GIVEN ACCOMMODATION ENTRIES, WHICH ACTION IN TURN ANNOYED AND ENRAGED THEM AND SO THEY CONSEQUENTLY DISTANCED FROM HIM AND REFUSED TO PAY THE COMMISSION FOR HIS SERVICE. RESULTANTLY, MOST OF THE BUSINESS GROUPS BENEFICIAR IES FROM WHOM HE WAS SUPPOSED TO RECEIVE HIS COMMISSION INCOME, REFUSED TO PAY HIM T HE BALANCE DUE AMOUNTS. ACCORDING TO ASSESSEE, THE AMOUNTS WHICH WERE RECEIVED IN ACTUAL [REAL INCOME] WERE OFFERED FOR TAXATION FOR THE A. Y. 2015-16. AND SINCE HE FAILED TO RECOVER ANY FURTHER AMOUNT AND THE SAME SEEMS NOT POSSIBLE IN FUTURE HENCE, ONLY THE A MOUNT ACTUALLY RECEIVED BY HIM WAS SHOWN WHILE FILING THE RETURN OF INCOME. 7. FROM THE AFORESAID FACTS AND CIRCUMSTANCES DISCU SSED, WHEN WE ANALYZE THE FACTS AS REVEALED BY THE DISCLOSURE PETITION, WE NOTE THAT I MMEDIATELY AFTER THE SURVEY OPERATION THE DISCLOSURE PETITION WHICH WAS FILED ON 27.08.2014, THE RELEVANT STATEMENT OF ASSESSEE CAN BE CULLED OUT AS UNDER: 5 ITA NO. 1099/KOL/2019 UDAY SHANKAR MAHAWAR, AY 20 15-16 .THE UNDERSIGNED SUBMITS THAT IT MANAGED AND CON TROLLED VARIOUS COMPANIES WHICH INTER ALIA FORMS PART OF THE LIST OF COMPANIE S INVENTORIED IN THE COURSE OF SURVEY. THE UNDERSIGNED HAD GIVEN SOME ACCOMMODATION ENTRIE S FROM THESE COMPANIES TO VARIOUS PERSONS/ GROUPS. BASED ON ESTIMATED CALCU LATIONS & WORKINGS, THE UNDERSIGNED HAD MADE A REASONABLE ESTIMATE AND ACCO RDINGLY AN AGGREGATE INCOME OF RS.3 CRORES WILL BE OFFERED TO TAX IN THE HANDS OF THE UNDERSIGNED, SHRI UDAY SHANKAR MAHAWAR FOR THE FIN. YEAR 2014-15 RELEVANT TO A.Y. 2015-16. 8. SO, IT IS DISCERNED FROM THE ABOVE STATEMENT IN THE DISCLOSURE PETITION OF THE ASSESSEE AND DURING THE SURVEY AND AFTER SURVEY THE ASSESSEE HAS ADMITTED THAT HE MANAGED AND CONTROLLED VARIOUS COMPANIES AND HAD GIVEN ACC OMMODATION ENTRIES FROM THESE COMPANIES TO VARIOUS BENEFICIARIES AND GOT COMMISSI ON FOR HIS SERVICES. BASED ON THE ESTIMATED CALCULATIONS AND WORKINGS, FOR HIS SERVIC ES RENDERED TO THE BENEFICIARIES, HE HAD PROJECTED/ESTIMATED AN INCOME OF RS. 3 CR. DURING T HE ASSESSMENT YEAR 2015-16 WHEN THE SURVEY TOOK PLACE ON 22ND OCTOBER, 2014. AFTER THE STATEMENT AND DISCLOSURE PETITION HAS BEEN FILED IN GOOD FAITH AS STATED, THE ASSESSEE FO UND THAT THE PERSONS/BENEFICIARIES WHO TOOK BENEFIT OF THE ACCOMMODATION ENTRIES REFUSED T O PAY HIM FOR THE SERVICES HE RENDERED TO THEM, SINCE HIS REPUTATION AS AN ACCOMMODATION E NTRY PROVIDER WAS BADLY HIT AND STOOD EXPOSED BY THE MEDIA GLARE; AND SIMULTANEOUSLY THE DEPARTMENT STARTED KNOCKING AT THE DOORS OF THE BENEFICIARIES WHICH IN TURN ENRAGED TH EM AND MADE THEM DISTANCING FROM HIM. AND CONSEQUENTLY THEY REFUSED TO PAY THE COMMISSION AS PROMISED TO HIM FOR THE SERVICES RENDERED TO THEM. BECAUSE OF THIS NEGATIVE DEVELOP MENT, THE ASSESSEE FOUND THAT HE WAS OUT OF HIS BUSINESS/ PROFESSION OF PROVIDING ACCOM MODATION ENTRY AND IN THAT BACK-LASH HE COULD REALIZE ONLY RS.1.38 CR. IN PLACE OF RS. 3 CR . AS ESTIMATED EARLIER. THEREFORE, IN THIS BACK GROUND, WE NOTE THAT THE ASSESSEE WHILE FILING THE RETURN OF INCOME HAD OFFERED HIS UNDISCLOSED INCOME ONLY AT RS.1.38 CR. IN PLACE OF RS. 3 CR. WHICH HE ESTIMATED TO BE HIS INCOME WHILE FILING THE DISCLOSURE PETITION. HOWEV ER, HIS CLAIM OF REALIZING ONLY RS.1.38 CR. FROM THE MARKET WAS NOT BELIEVED/ACCEPTED BY TH E AO/LD. CIT(A). ACCORDING TO AO, IT WAS AN AFTERTHOUGHT TO WRIGGLE OUT OF THE COMMITMEN T MADE BY FILING DISCLOSURE PETITION WHEREIN ASSESSEE ON HIS OWN VOLITION DISCLOSED HIS UNDISCLOSED INCOME TO THE TUNE OF RS. 3 CR. SO HE WAS PLEASED TO ADD THE DIFFERENCE OF RS. 1.62 CR. TO THE TOTAL INCOME OF THE ASSESSEE, WHICH ACTION OF AO HAS BEEN UPHELD BY THE LD. CIT(A). WE DO NOT COUNTENANCE THIS ACTION OF THE AUTHORITIES BELOW IN THE BACK-DR OP OF FACTS AND CIRCUMSTANCES DISCUSSED (SUPRA). THOUGH WE ACKNOWLEDGE THAT ADMISSION IS A BEST PIECE OF EVIDENCE, HERE ON THE FACTS OF THE CASE, ADMISSION ALONE CANNOT BE THE BA SIS FOR MULCTING THE ADDITION. WE HAVE 6 ITA NO. 1099/KOL/2019 UDAY SHANKAR MAHAWAR, AY 20 15-16 TO NOTE THAT THE SURVEY TOOK PLACE ON 22.10.2014, A ND THE ASSESSEE WHEN ASKED BY THE INVESTIGATION WING TO OFFER HIS UNDISCLOSED INCOME WAS INTENDED FOR THE ENTIRE FINANCIAL YEAR, SO HE HAS TO OFFER THE INCOME FOR THE ENTIRE AY 2015-16, I.E. UPTO 31.03.2015, WHICH MEANS THE ASSESSEE HAD TO ESTIMATE/WORK OUT THE INC OME WHICH HE WOULD GET FOR HIS SERVICE OF ACCOMMODATION ENTRY PROVIDING RENDERED TO HIS CU STOMERS UPTO 31.03.2015. IT HAS TO BE APPRECIATED THAT THE ASSESSEE HAS OFFERED THROUGH H IS DISCLOSURE PETITION DATED 27.08.2014 RS. 3 CR. AS HIS UNDISCLOSED INCOME FOR AY 2015-16, WHICH WAS BASED ON ESTIMATION. AND IT IS ALSO NOTED FROM A READING OF ASSESSMENT ORDER AND THE FIRST APPELLATE ORDER THAT THE CASE OF DEPARTMENT/AO IS NOT THAT INCRIMINATING MATERIAL SEIZED DURING SURVEY ON 22.08.2014 SUGGEST HIDDEN INCOME OF RS. 3 CR. ON THE DATE OF S URVEY AND BASED ON THE INCRIMINATING MATERIALS THE ASSESSEE HAD OFFERED RS. 3 CR. IN OT HER WORDS, THE SURVEY TEAM HAD INCRIMINATING MATERIAL TO SUPPORT ASSESSEES UNDISC LOSED INCOME OF RS. 3 CR. AND THE DISCLOSURE PETITION OF ASSESSEE, EVEN IF DISCARDED COULD INDEPENDENTLY SUPPORT THE ADDITION OF RS. 3 CR. AND EVEN IF THAT IS THE CASE OF AO, T HEN ALSO THE ASSESSEES EXPLANATION AS TO WHY HE HAD TO SCALE DOWN HIS ESTIMATED UNDISCLOSED INCOME FROM RS. 3 CR. TO RS.1.38 CR. NEEDS TO BE APPRECIATED AND CANNOT BE BRUSHED ASIDE UNLESS THERE IS MATERIAL TO SUGGEST THAT THE EXPLANATION GIVEN BY THE ASSESSEE IS A LIE AND ONLY INTENDED TO MISLEAD THE DEPARTMENT AND SINCE THAT IS NOT THE CASE IN HAND, MOREOVER WE NOTE THAT THE AO AND THE LD. CIT(A) HAS ACCEPTED/NOT DISPUTED THAT THE ASSESSEE WAS ENG AGED IN THE ACTIVITY OF PROVIDING ACCOMMODATION ENTRY TO THE CUSTOMERS/BENEFICIARIES WHICH IS NOT A LEGALLY RECOGNIZED SERVICE AND IS A PERNICIOUS ILLEGAL ACTIVITY, SO TH E ASSESSEE WAS ENGAGED IN THE ILLEGAL ACTIVITY OF PROVIDING ACCOMMODATION ENTRY TO THE CU STOMERS FOR A COMMISSION WHICH THE ASSESSEE ESTIMATED HIS UNDISCLOSED INCOME AT RS. 3 CR. ON 27.08.2014 CANNOT BE THE BASIS OF AO TO MAKE THE ADDITION OF RS.1.68 CR., FOR THE REA SONS THAT EVEN IF FOR ARGUMENT SAKE, THE ESTIMATED INCOME OF ASSESSEE FOR AY 20-15-16 IS TAK EN AS RS. 3 CR. THEN ALSO DUE TO THE FACTUAL CIRCUMSTANCE WHICH DEVELOPED AFTER THE SURV EY, WE HAD NOTED THAT THE CUSTOMERS/BENEFICIARIES REFUSED TO PAY FOR HIS SERV ICES SINCE THE DEPARTMENT STARTED ROUNDING UP THE BENEFICIARIES. THE SURVEY ATTRACTE D UNDUE MEDIA ATTENTION, WHICH RESULTED IN PUTTING A FULL STOP TO THE ASSESSEES BUSINESS/P ROFESSION OF ILLEGAL ACTIVITY OF PROVIDING ACCOMMODATION ENTRY AND THUS HE WAS OUT OF BUSINES S/PROFESSION AND THE INCOME EXPECTED DID NOT COME INTO HIS COFFERS, HAD TO BE ACCEPTED I N THE GIVEN FACTS AND CIRCUMSTANCES DISCUSSED (SUPRA) AND, THEREFORE, THE INCOME WHICH CAME INTO THE HANDS OF ASSESSEE WHICH 7 ITA NO. 1099/KOL/2019 UDAY SHANKAR MAHAWAR, AY 20 15-16 HE HAS OFFERED IN HIS ITR CAN ONLY BE TAXED IN THE ABSENCE OF ANY EVIDENCE TO DISPROVE THE EXPLANATION RENDERED BY THE ASSESSEE. SO, RESULTAN TLY EVEN IF IT IS ACCEPTED THAT THE ASSESSEES ESTIMATE OF RS.3 CR. AS HIS UNDISCLOSED INCOME IS CORRECT, STILL, SINCE HE COULD RETRIEVE ONLY RS.1.38 CR. THIS YEAR AND THERE IS NO POSSIBILITY TO RECOVER THE BALANCE OF RS.1.68 CR., THIS BALANCE AMOUNT NON-RECOVERABLE TO THE TUNE OF RS.1.68 CR. IS LOSS SUFFERED BY THE ASSESSEE WHICH IS INCIDENTAL TO HIS ILLEGAL ACTIVITY OF PROVIDING ACCOMMODATION ENTRY. WE ALSO NOTE THAT DURING ASSESSMENT PROCEEDI NG, THE ASSESSEES PLEA THAT BALANCE OF THE INCOME COULD NOT BE RECOVERED AND THE SAME TO BE TREATED AS BAD DEBT COULD NOT FIND FAVOUR WITH THE AO, WHO DID NOT ACCEPT THE SAME BEC AUSE THE ASSESSEE WAS DOING AN ILLEGAL ACTIVITY OF PROVIDING ACCOMMODATION ENTRY TO THE BE NEFICIARIES TO JACK-UP THEIR EXPENDITURE AND IN TURN REDUCE THEIR PROFIT. SO, WE NOTE THAT T HE AO ACCEPTED THE FACT THAT THE ASSESSEE WAS IN THE ILLEGAL ACTIVITY WHICH IS THE SOURCE OF HIS UNDISCLOSED INCOME. FURTHER WE NOTE THAT IN THE DISCLOSURE STATEMENT THE ASSESSEE IN NO UNCERTAIN TERMS HAD ADMITTED TO BE AN ACCOMMODATION ENTRY PROVIDER. THIS ADMISSION OF TH E ASSESSEE HAS BEEN ACCEPTED BY THE AO AND THE LD. CIT(A) AS DISCUSSED BEFORE. SO, THE AMOUNT HE COULD NOT RECOVER FROM HIS ILLEGAL ACTIVITY HAS TO BE ALLOWED AS LOSS. FOR THA T PROPOSITION WE RELY ON THE RATIO DECIDENDI OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. PIARA SINGH (1980) 124 ITR 40 (SC) WILL BE ATTRACTED. THE HEAD-NOTES READ AS FOLLOWS: THE RESPONDENT, WHO WAS CARRYING ON SMUGGLING ACTI VITY, WAS APPREHENDED BY THE INDIAN POLICE, WHILE CROSSING THE BORDER INTO PAKISTAN, AN D A SUM OF RS. 65,000/- IN CURRENCY NOTES WAS RECOVERED FROM HIS PERSON. ON INTERROGATION HE STATED THAT HE WAS TAKING THE CURRENCY NOTES TO PAKISTAN TO PURCHASE GOLD THERE AND SMUGGL E IT INTO INDIA. THE CUSTOMS AUTHORITIES CONFISCATED THE CURRENCY NOTES. THE INCOME-TAX AUTH ORITIES FOUND THAT THE ASSESSEE WAS CARRYING ON THE BUSINESS OF SMUGGLING AND THAT HE W AS LIABLE TO INCOME-TAX ON INCOME FROM THAT BUSINESS AND SUCH INCOME WAS ASSESSED TO TAX. THE QUESTION WAS WHETHER THE ASSESSEE WAS ENTITLED TO DEDUCTION UNDER S. 10 OF THE INDIAN I.T . ACT, 1922, OF THE LOSS OF RS. 65,000, ARISING BY THE CONFISCATION OF THE CURRENCY NOTES: HELD, THAT THE CARRIAGE OF THE CURRENCY NOTES ACROS S THE BORDER WAS AN ESSENTIAL PART OF THE SMUGGLING OPERATION AND DETECTION BY THE CUSTOMS AU THORITIES AND CONSEQUENT CONFISCATION WAS A NECESSARY INCIDENT AND CONSTITUTED A NORMAL F EATURE OF SUCH AN OPERATION. THE CONFISCATION OF THE CURRENCY NOTES WAS A LOSS OCCAS IONED IN PURSUING THE BUSINESS OF SMUGGLING: IT WAS A LOSS IN MUCH THE SAME WAY AS IF THE CURRENCY NOTES HAD BEEN STOLEN OR DROPPED ON THE WAY WHILE CARRYING ON THE BUSINESS. IT WAS A LOSS WHICH SPRANG DIRECTLY FROM THE CARRYING ON OF THE BUSINESS AND WAS INCIDENTAL TO IT AND ITS DEDUCTION HAD TO BE ALLOWED UNDER S. 10. 9. ALSO THE HONBLE SUPREME COURT IN THE CASE OF DR . T. A. QUERESHI VS. CIT (2006) 287 ITR 547 (SC) HAS HELD AS UNDER (HEAD NOTES): 8 ITA NO. 1099/KOL/2019 UDAY SHANKAR MAHAWAR, AY 20 15-16 BUSINESS LOSS - LOSS OF STOCK-IN-TRADE - IS A BUSI NESS LOSS - MEDICAL PRACTITIONER - HEROIN FORMING PART OF STOCK-IN-TRAD E OF ASSESSEE SEIZED - ASSESSEE ENTITLED TO DEDUCT VALUE OF HEROI N SEIZED FROM GROSS INCOME AS BUSINESS LOSS - THAT POSSESSION OF HEROIN IS AN OFFENCE IRRELEVANT - PROVISION RELATING TO ALLOWANC E OF BUSINESS EXPENDITURE DOES NOT GOVERN DEDUCTION OF BUSINESS L OSS - INCOME- TAX ACT, 1961, S. 37 , EXPLN BUSINESS EXPENDITURE - PROVISION RELATING TO ALLOWA NCE OF BUSINESS EXPENDITURE DOES NOT GOVERN DEDUCTION OF BUSINESS L OSS - INCOME- TAX ACT, 1961, S. 37 , EXPLN LEGAL PRINCIPLES - CASES TO BE DECIDED NOT ON ONE'S MORAL VIEWS - LAW DIFFERENT FROM MORALITY THE ASSESSEE, A MEDICAL PRACTITIONER, CLAIMED DEDUC TION OF THE VALUE OF HEROIN SEIZED FROM HIS GROSS INCOME. THE DEPARTMENT DENIED THE DEDUCTI ON. ON APPEAL THE APPELLATE TRIBUNAL HELD AS A FACT THAT HEROIN WAS A PART OF HIS STOCK- IN-TRADE AND ALLOWED DEDUCTION OF THE ESTIMATED VALUE OF THE HEROIN SEIZED FROM THE GROSS INCOME AS A BUSINESS LOSS. ON APPEAL THE HIGH COURT HELD THAT THE RIGOUR OF THE EXPLANAT ION TO SECTION 37 OF THE INCOME-TAX ACT, 1961, WAS FULLY SATISFIED, THAT POSSESSION OF HEROI N WAS AN OFFENCE, THAT IT WAS DISGRACEFUL FOR. A DOCTOR TO INDULGE IN ACTIVITIES AGAINST HUMA NITY, AND THAT HENCE THE QUESTION OF CLAIMING DEDUCTION OF THE VALUE OF THE SEIZED ARTIC LE DID NOT ARISE. ON APPEAL TO THE SUPREME COURT: HELD, REVERSING THE DECISION OF THE HIGH COURT, (I) THAT THE EXPLANATION TO SECTION 37 HAD NO RELEVANCE AS THIS WAS NOT A CASE AT BUSINESS EXP ENDITURE BUT WAS ONE OF BUSINESS LOSS. BUSINESS LOSS WAS ALLOWABLE AN ORDINARY COMMERCIAL PRINCIPLES IN COMPUTING THE PROFITS. ONCE IT WAS FOUND THAT THE HEROIN SEIZED FORMED ART OF THE STOCK-IN-TRADE OF THE ASSESSEE, IT FOLLOWED THAT THE SEIZURE AND CONFISCATION OF SUCH STOCK-IN-TRADE HAD TO BE ALLOWED AS A BUSINESS LOSS. CIT V . PIARA SINGH [1980] 124 ITR 40 (SC) FOLLOWED . 10. TO SUM UP, WE NOTE THAT IN THIS CASE ON HAND TH E ASSESSEE FOR THIS YEAR HAD ESTIMATED HIS UNDISCLOSED INCOME TO THE TUNE OF RS. 3 CR. FRO M HIS ILLEGAL ACTIVITY OF PROVIDING ACCOMMODATION ENTRY AFTER SURVEY ON HIS PREMISES ON 22.08.2014. HOWEVER, SINCE THE SURVEY IN HIS PREMISES ATTRACTED MEDIA ATTENTION HI S CUSTOMERS/BENEFICIARIES DISTANCED FROM HIM, WHICH RESULTED IN ASSESSEE LOSING RS.1.68 CR. (NON-RECOVERY OF COMMISSION FROM THE ILLEGAL ACTIVITY OF PROVIDING ACCOMMODATION ENTRY) SO, WE FIND THAT THE LOSS OCCURRED TO THE ASSESSEE SPRINGS DIRECTLY FROM THE CARRYING ON OF T HE BUSINESS OF PROVIDING ACCOMMODATION ENTRY TO THE BENEFICIARIES AND IS THUS INCIDENTAL T O IT HAS TO BE ALLOWED AS A DEDUCTION. WE NOTE THAT THOUGH THE AO AND LD. CIT(A) NOTED THAT T HE ASSESSEE IS IN THE ILLEGAL ACTIVITY OF PROVIDING ACCOMMODATION ENTRY DID NOT APPRECIATE TH E TRUE SIGNIFICANCE OF THE DISTINCTION BETWEEN AN INFRACTION OF THE LAW COMMITTED IN THE C ARRYING ON OF A LAWFUL BUSINESS AND AN INFRACTION OF LAW COMMITTED IN A BUSINESS INHERENTL Y UNLAWFUL AND CONSTITUTING A NORMAL 9 ITA NO. 1099/KOL/2019 UDAY SHANKAR MAHAWAR, AY 20 15-16 INCIDENT OF ITS ACTIVITY [CIT VS. PIARA SINGH (SUP RA)] AND, THEREFORE, IN THE PRESENT CASE IN HAND SINCE THE ASSESSEE HAS SUFFERED THE LOSS IN HI S UNLAWFUL ACTIVITY OF GIVING ACCOMMODATION ENTRY WHICH RESULTED IN THE BENEFICIA RIES NOT GIVING THE INCOME TO THE ASSESSEE IS AN ALLOWABLE DEDUCTION. THUS, EVEN IF THE ASSESSEES ESTIMATION OF RS. 3 CR. AS HIS INCOME AS PER THE DISCLOSURE PETITION IS ACCEPT ED, STILL THE ASSESSEES LOSS OF RS. 1.68 CR. HAS TO BE GIVEN AS DEDUCTION AND, THEREFORE, THE AD DITION IN ANY CASE WAS NOT WARRANTED. SO, WE DIRECT DELETION OF RS.1.68 CR. AS DISCUSSED SUPRA. 11. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWE D. ORDER IS PRONOUNCED IN THE OPEN COURT ON 15TH JAN UARY, 2020. SD/- (DR. A. L. SAINI) SD/-(ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED :15THJANUARY, 2020 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. APPELLANT SHRI UDAY SHANKAR MAHAWAR, AA-47, SA LT LAKE CITY, SECTOR- 1, KOLKATA-700 064. 2 RESPONDENT ACIT, CIRCLE-36,, KOLKATA. 3. 4. 5. CIT(A)-10, KOLKATA. (SENT THROUGH E-MAIL) CIT , KOLKATA DR, ITAT, KOLKATA. (SENT THROUGH E-MAIL) / TRUE COPY, BY ORDER, ASSISTANT REGISTRAR