The ITO, Ward-5(3), Ahmedabad V. Shri Zahir Jalaluddin Rana, Ahmedabad

ITA 1157/AHD/2008

• Counselvise Citation: 115720514 RSA 2008
• Duration Of Justice: 3 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 04-08-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 02-04-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVINDRA KR
• Assessee Lawyers: J M TRIVEDI
• Section: 40A(3); 142(1); 37(1); 147; 148; 139; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, D BENCH, AHMEDABAD BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER I.T.A. NO.1157 / AHD/2008 (ASSESSMENT YEAR 2003-04) ITO, WARD 5(3), AHMEDABAD VS. ZAHEER JALALUDDIN RANA, 13, NURE BURHAN SOCIETY, SARKHEJ ROAD, AHMEDABAD I.T.A.NO. 1427/AHD/2008 (ASSESSMENT YEAR 2003-04) ZAHEER JALALUDDIN RANA, VS. ITO, WARD 5(3), 13, NURE BURHAN SOCIETY, AHMEDABAD SARKHEJ ROAD, AHMEDABAD I.T.A.NO. 1461/AHD/2008 (ASSESSMENT YEAR 2003-04 ITO, WARD 5(3), VS. REMO MARKETING PVT. LTD., AHMEDABAD 49, 5 TH FLOOR, SHREE KRISHNA CENTRE, NR. MITHAKHALI SIX, ROAD, AHMEDABAD I.T.A.NO. 1489/AHD/2008 (ASSESSMENT YEAR 2003-04) REMO MARKETING PVT. LTD., VS. ITO, WARD 5(3), 49, 5 TH FLOOR, SHREE KRISHNA CENTRE, AHMEDABAD NR. MITHAKHALI SIX, ROAD, AHMEDABAD PAN/GIR NO. : ADKPR7123A (APPELLANTS) .. (RESPONDENTS) I.T.A.NO.1157,1427,1461 & 1489 /AHD/2008 2 APPELLANT BY: SHRI RAVINDRA KR. CIT DR RESPONDENT BY: SHRI J M TRIVEDI, AR DATE OF HEARING: 22.09.2011 DATE OF PRONOUNCEMENT: 21.10.2011 O R D E R PER SHRI A. K. GARODIA, AM:- THESE ARE CROSS APPEALS IN RESPECT OF TWO DIFFEREN T BUT CONNECTED ASSESSEES AND THESE APPEALS ARE DIRECTED AGAINST TH E ORDER OF LD. CIT(A) XI, AHMEDABAD DATED 02.03.2007 FOR THE ASSESSMENT Y EAR 2003-04 IN THE CASES OF SHRI ZAHIR JALALUDDIN RANA. THE APPEALS I N CASE OF M/S. REMO MARKETING PVT. LTD. FOR THE SAME ASSESSMENT YEAR AR E AGAINST THE ORDER OF THE SAME CIT(A) DATED 15.02.2008. SINCE CONNECTED ISSUE IS INVOLVED IN THESE TWO CASES, ALL THESE APPEALS WERE HEARD TOGET HER AND ARE BEING DISPOSED OFF BY WAY OF THIS COMMON ORDER. 2. THE GROUNDS RAISED IN THE ASSESSEES APPEAL I.E. IN THE CASE OF ZAHIR J. RANA IN I.T.A.NO. 1427/AHD/2008 ARE AS UNDER: 1. THAT THE LD. A.O. HAS ERRED IN LAW AND ON FACT S IN DETERMINING TOTAL INCOME AT RS.7,53,04,460/- AND LD . VIA HAS ERRED IN CONFIRMING INCOME I.E. COMMISSION INCOME @ 7% OF RECEIPTS. 2. THAT O AS WELL AS CIT(A) ERRED IN DETERMINING IN COME ON RECEIPT OF REMO MARKETING PVT. LTD., WHICH WAS NOT INTRODUCED BY THE APPELLANT. 3. THAT THE LD. CIT(A) ERRED IN NOT PROPERLY CONSID ERING THE VARIOUS EXPLANATIONS FURNISHED BY THE APPELLANT. 3. THE GROUNDS RAISED BY THE REVENUE IN THE SAME CA SE IN I.T.A.NO. 1157/AHD/2008 ARE AS UNDER: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE COMMISSION TO 7% INSTEAD OF 11% AS ADOPTED BY T HE A.O. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE COMMISSION FROM RS.7,53,04,460/- TO RS.4,79,21, 020/-. I.T.A.NO.1157,1427,1461 & 1489 /AHD/2008 3 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE A.O. 4. IT IS, THEREFORE, PRAYED THATS THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. 4. THE GROUNDS RAISED BY THE ASSESSEE IN THE CASE O F M/S. REMO MARKETING PVT. LTD. IN I.T.A.NO. 1489/AHD/2008 ARE AS UNDER: 1. THAT THE LD. A.O. ERRED IN ASSESSING INCOME AT RS.68,45,86,000/- U/S 144 R.W.S. 147 OF THE ACT AND LD. CIT(A) ERRED IN ESTIMATING INCOME AT RS.16,43,00,786/- FOR TAXATION PURPOSE ON THE REASON STATED IN RESPECTIVE ORDERS. 2. THAT A.O. AS WELL AS CIT(A) ERRED IN NOT CONSIDE RING PROPERLY THE NATURE OF BUSINESS AS WELL AS THE MATERIAL AVAI LABLE ON RECORD AS WELL AS THE PROVISION OF LAW AND CASE LAW AND EXPLA NATION FURNISHED BY APPELLANT. 3. THAT THE LD. CIT(A) ERRED IN NOT APPRECIATING TH AT NOTICE AS WELL AS PROCEEDING U/S 142(1) AND U/S 144 BEING NOT PROPER, ASSESSMENT REQUIRED TO BE CANCELLED. 4. ON THE FACTS AVAILABLE, IT IS SUBMITTED THAT EST IMATE OF INCOME S MADE BY CIT(A) BEING EXCESSIVE REQUIRE TO BE DELE TED AND OR SUBSTANTIALLY REDUCED. 5. THE GROUNDS RAISED BY THE REVENUE IN THE SAME CA SE IN I.T.A.NO. 1461/AHD/2008 ARE AS UNDER: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE A.O. TO CALCULATE GROSS PROFIT AT 30% OF THE TOTAL RECEIPTS INSTEAD OFRS.68,45,86,000/- AS COMPUTED BY THE A.O. 2. THE LD CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE A.O. TO ALLOW 20% OF GROSS PROFIT AS AN EXPENDITURE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE A. O. 4. IT IS THEREFORE PRAYED THAT THE ORDER OF LD. CIT (A) MAY BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. 6. THE BRIEF FACTS OF THE CASE REGARDING THE CASE O F REMO MARKETING PVT. LTD. ARE THAT IT IS NOTED BY THE A.O. IN THE A SSESSMENT ORDER THAT THE I.T.A.NO.1157,1427,1461 & 1489 /AHD/2008 4 ASSESSEE HAD NOT FILED ITS RETURN OF INCOME U/S 139 (1) OF THE INCOME TAX ACT, 1961 FOR THE PRESENT ASSESSMENT YEAR AND HENCE NOTICE WAS ISSUED BY THE A.O. U/S 148 OF THE INCOME TAX ACT, 1961 ON 18. 04.2005 WHICH WAS SERVED ON THE ASSESSEE ON 04.05.2005. IT IS ALSO N OTED BY THE A.O. IN THE ASSESSMENT ORDER THAT THIS NOTICE U/S 148 WAS ISSUE D AFTER RECORDING REASONS FOR THE SAME. THE A.O. HAS FURTHER NOTED T HAT IN RESPONSE THERETO, THE ASSESSEE DID NOT FURNISH ANY RETURN OF INCOME A ND SUBSEQUENT NOTICE U/S 142(1) WAS ALSO ISSUED ON 20.01.2006, 26.10.200 6 AND 14.11.2006 BUT NONE OF THE NOTICES HAD BEEN COMPLIED WITH. HE FUR THER NOTED HAT SHRI ZAHIR J RANA, MD OF THE ASSESSEE COMPANY IN HIS SUB MISSION DATED 13.02.2006 CITING VARIOUS REASONS STATED THAT AS HE WAS BEHIND THE BARS SINCE MAY 2005, HE IS NOT IN A POSITION TO ATTEND T HE OFFICE. THE A.O. WAS NOT SATISFIED REGARDING THIS REASON FOR NON COMPLIA NCE OF THE NOTICES ISSUED BY HIM AND A FINAL SHOW CAUSE NOTICE DATED 0 5.12.2006 HAD BEEN ISSUED WITH A REQUEST TO COMPLY WITH THE REQUIREMEN TS MENTIONED IN THE NOTICES ISSUED EARLIER. THE A.O. HAS NOTED THAT TH ERE WAS NO COMPLIANCE OF THIS SHOW CAUSE NOTICE ALSO AND HENCE, THE A.O. HELD THAT THERE IS NO ALTERNATIVE BUT TO FINALIZE THE ASSESSMENT U/S 144 OF THE INCOME TAX ACT, 1961 ON MERITS AND ON THE BASIS OF MATERIAL AVAILAB LE ON RECORD. IN PARA 8 OF THE ASSESSMENT ORDER, THE A.O. HAS NOTED THAT EX CEPT THE COPIES OF THE DOCUMENTS MENTIONED IN THAT PARA, NO OTHER EVIDENCE IS AVAILABLE TO ASSESS THE CORRECT INCOME OF THE ASSESSEE COMPANY FOR THE PRESENT ASSESSMENT YEAR. THE DOCUMENTS STATED IN THAT PARA OF ASSES SMENT ORDER ARE STATEMENT OF SHRI ZAHIR J RANA RECORDED BEFORE THE POLICE AUTHORITIES ON 26.05.2003 AND THE DETAILS OF MOVABLE/IMMOVABLE PRO PERTIES AS PREPARED AND PROVIDED BY THE POLICE AUTHORITIES AND BANK STA TEMENT OF VARIOUS BANKS, IN TOTAL 6 BANKS COLLECTED DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS U/S 133(6). THE A.O. HAS NOTED THE DET IALS OF THESE BANK I.T.A.NO.1157,1427,1461 & 1489 /AHD/2008 5 ACCOUNTS ON PAGE 6 OF THE ASSESSMENT ORDER AS PER W HICH, TOTAL AMOUNT OF RS.82,79,97,,479/- WAS DEPOSITED IN THESE BANK ACCO UNTS DURING THE RELEVANT YEAR. THE A.O. FURTHER NOTED THAT THE ASS ESSEE IS RUNNING THE BUSINESS IN THE NAME OF REMO MARKETING PVT. LTD. WH EREIN IT HAS DONE THE BUSINESS OF MARKETING OF VARIOUS SCHEMES DURING THE PRESENT YEAR AND IT HAD FLOATED VARIOUS SCHEMES DETAILS OF WHICH ARE GIVEN BY THE A.O. IN ANNEXURE C OF THE ASSESSMENT ORDER. OTHER DOCUM ENTS I.E. STATEMENT OF SHRI ZAHIR J RANA AND THE DETAILS OF MOVABLE /IM MOVABLE PROPERTIES ARE ALSO ENCLOSED BY THE A.O. ALONG WITH THE ASSESSMENT ORDER AS PER ANNEXURE A & B RESPECTIVELY. THE A.O. HAS FURT HER NOTED AT PARA 8 OF THE ASSESSMENT ORDER THAT THE ASSESSEE HAS MADE TOTAL 3422933 MEMBERS (SEPARATE ANNEXURE D) AND COLLECTED RS.68,4 5,86,600/- AND STATED THAT LIST OF SUCH MEMBERS AND THE AMOUNTS CO LLECTED IS ALSO NOTED BY HIM ON PAGE 7 OF THE ASSESSMENT ORDER. THE A.O. FURTHER NOTED THAT ACCORDING TO THE STATEMENT OF SHRI ZAHIR J. RANA, T HE COMPANY IS HAVING ABOUT 500 AGENTS WHO ARE BEING PAID COMMISSION AS P ER THEIR INDIVIDUAL PERFORMANCE. HE FURTHER NOTED THAT THERE ARE APPRO XIMATELY 100 EMPLOYEES WORKING ON MONTHLY SALARY AND AFTER DEDUC TION OF BUSINESS RUNNING EXPENDITURE, GENERALLY PROFIT @ 25% IS EARN ED WHICH HAS BEEN USED FOR PURCHASE OF VARIOUS ASSETS BEING MOVABLE/I MMOVABLE PROPERTIES IN THE NAME OF SHRI RANA AND HIS CLOSE RELATIVES. THE A.O. ALSO NARRATED DESCRIPTION OF VARIOUS ASSETS ON PAGE 8 OF THE ASSE SSMENT ORDER AND TOTAL VALUE HAD BEEN WORKED OUT BY HIM AT RS.1,92,94,761/ - FOR IMMOVABLE ASSETS AND AT RS.208.50 LACS FOR MOVABLE ASSETS. T HEREAFTER, THE A.O. HAS NOTED THAT IN VIEW OF THE SPECIFIC PROVISIONS OF SE CTION 37, THE ASSESSEE IS NOT ENTITLED FOR CLAIMING ANY EXPENSES FOR COLLECTI ON OF THE RECEIPTS OF RS.6845.86 LACS. HE HAS PLACED RELIANCE ON THE JUD GMENT OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS SMT AMAR JEET KAUR AS I.T.A.NO.1157,1427,1461 & 1489 /AHD/2008 6 REPORTED IN 283 ITR 71 IN SUPPORT OF THIS CONTENTIO N THAT WHEN EXPENDITURE INCURRED IS PROHIBITED BY LAW IN VIEW O F THE EXPLANATION TO SECTION 37(1) OF THE INCOME TAX ACT, 1961, THE EXPE NDITURE SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUS INESS AND, THEREFORE, NO DEDUCTION OR ALLOWANCE CAN BE MADE IN RESPECT OF SUCH EXPENDITURE IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PRO FITS & GAINS OF BUSINESS OR PROFESSION. HE FURTHER NOTED THAT THE FACTS OF THIS CASE ARE SIMILAR TO THOSE OF THE ASSESSEE COMPANY. HE ALSO PLACED RELIANCE ON THE JUDGMENT OF HONBLE M.P. HIGH COURT RENDERED IN THE CASE OF CIT VS DR. P.A. QURESHI AS REPORTED IN 275 ITR 352 IN SUPPORT OF THE SAME CONTENTION. BY FOLLOWING THESE TWO JUDGEMENTS AND BY INVOKING THE PROVISIONS OF EXPLANATION TO SECTION 37(1), IT WAS HELD BY THE A.O. THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION OF ANY E XPENDITURE AGAINST THE TOTAL RECEIPT OF THE ASSESSEE OF RS.6845.86 LACS AN D HE ASSESSED THE INCOME OF THE ASSESSEE COMPANY AT A FIGURE OF RS.68 45.86 LACS, WHICH IS GROSS RECEIPTS. AGAINST THIS, THE ASSESSEE CARRIED THE MATER IN APPEAL BEFORE LD. CIT(A) WHO HELD THAT ALTHOUGH NO DETAILS ARE FORTHCOMING EVEN DURING APPELLATE PROCEEDINGS BUT STILL IT HAS TO BE ACCEPTED THAT THERE WOULD BE SEVERAL EXPENSES TO RUN THIS KIND OF BUSIN ESS AND TO PROVIDE AMENITIES AND FACILITIES TO THE CUSTOMERS AND IT CA NNOT BE RULED OUT. HE HELD THAT 20% OF GROSS RECEIPTS SHOULD BE TAKEN AS PROFIT AND IT WILL BE REASONABLE IN THE FACTS OF THE PRESENT CASE AND ACC ORDINGLY, HE DIRECTED THE A.O. TO ASSESS THE INCOME OF THE ASSESSEE COMPANY A T RS.16,43,00,786/- BEING 20% OF THE GROSS RECEIPT. NOW, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US FOR THE ADDITION SUSTAINED BY LD. CIT(A) AND THE REVENUE IS IN APPEAL FOR THE RELIEF ALLOWED BY THE LD. CIT(A). 7. REGARDING INDIVIDUAL CASE OF SHRI ZAHIR J. RANA, THE FACTS ARE THAT IT IS NOTED BY THE A.O. IN THE ASSESSMENT ORDER THAT H E DID NOT FILE ANY RETURN I.T.A.NO.1157,1427,1461 & 1489 /AHD/2008 7 OF INCOME U/S 139(1) AND THAT NOTICE U/S 148 WAS IS SUED ON 18.04.2005 WHICH WAS SERVED ON 04.05.2005 BUT ASSESSEE DID NOT FURNISH ANY RETURN OF INCOME AND SUBSEQUENTLY, NOTICE U/S 142(1) HAD B EEN ISSUED ON VARIOUS DATES BUT THERE IS NO COMPLIANCE OF THESE NOTICES A LSO AND THEREAFTER, THE ASSESSEE HAS GIVEN REPLY DATED 14.02.2006 STATING V ARIOUS REASONS STATING THAT AS HE IS BEHIND THE BARS SINCE MAY 2005, HE IS NOT IN A POSITION TO ATTEND THE OFFICE. THE A.O. WAS NOT SATISFIED AND HE ISSUED FINAL SHOW CAUSE NOTICE DATED 05.12.2006 AND ASKED THE ASSESSE E TO COMPLY WITH THE REQUISITION MENTIONED IN THE EARLIER NOTICES BUT TH ERE WAS NO COMPLIANCE OF THIS SHOW CAUSE NOTICE ALSO AND, THEREAFTER, THE A.O. HELD THAT UNDER THESE FACTS, HE HAS NO ALTERNATIVE BUT TO COMPLETE THE ASSESSMENT PROCEEDINGS U/S 144 OF THE INCOME TAX ACT, 1961. T HEREAFTER, HE NOTED THAT THE ASSESSEE IS THE MANAGING DIRECTOR IN THE C OMPANY REMO MARKETING PVT. LTD. AND HE IS HAVING THE INCOME AS REMUNERATION AND COMMISSION INCOME FROM THE SAID COMPANY WHICH IS EN GAGED IN THE BUSINESS OF MARKETING VARIOUS PRODUCTS. THE A.O. F URTHER NOTED THAT IN THE PRESENT YEAR, THE COMPANY HAS FLOATED DIFFERENT SCHEMES WHICH HAVE BEEN MENTIONED IN THE ASSESSMENT ORDER PASSED FOR T HE SAME ASSESSMENT YEAR OF THE SAID COMPANY. HE FURTHER NOTED THAT T HE ENTIRE BUSINESS OF THAT COMPANY HAD BEEN RUN BY SHRI ZAHIR J RANA BY R ESORTING VARIOUS PROGRAMS AND PROPAGANDA AS IS EVIDENT FORM THE STAT EMENT OF SHRI RANA RECORDED BY THE POLICE AUTHORITIES. THE ENTIRE ACT IVITIES OF THE COMPANY RUN AROUND SHRI RANA AND VIRTUALLY, IT HAS BEEN ONE MAN SHOW. HE FURTHER NOTED THAT AS THERE IS NO EVIDENCE AVAILABLE FOR WO RKING OUT THE COMMISSION PAID TO SHRI RANA, THE RATIO OF THE COMM ISSION PAID IN THE PRECEDING YEAR IS TAKEN OVER AS BASE. HE FURTHER N OTED THAT IN THE LAST YEAR, THE TURNOVER OF THE COMPANY WAS SHOWN AT RS.1 37.02 LACS ON WHICH THE ASSESSEE HAD RECEIVED COMMISSION OF RS.14,92,76 1/-, WHICH WORKS OUT I.T.A.NO.1157,1427,1461 & 1489 /AHD/2008 8 TO 10.9%. HE FURTHER NOTED THAT FROM THE DETAILS C OLLECTED, IT IS SEEN THAT THE INVESTMENT IN VARIOUS PROPERTIES HAS BEEN MADE BY THIS ASSESSEE AND HE NOTED THE DETAILS OF THOSE INVESTMENTS BEING IMM OVABLE PROPERTIES OF RS.1,92,94,761/- AND MOVABLE PROPERTY OF RS.208.50 LACS TOTAL OF RS.4,01,44,761/-. THE A.O. COMPLETED THE ASSESSMEN T AT 11% OF THE TOTAL RECEIPT OF REMO MARKETING PVT. LTD. OF RS.6845.86 L ACS AND IN THIS MANNER, HE ASSESSED THE INCOME OF THE ASSESSEE AT R S.7,53,04,460/-. BEING AGGRIEVED, THIS ASSESSEE ALSO CARRIED THE MAT TER IN APPEAL BEFORE LD. CIT(A) WHO HELD THAT HE IS SATISFIED THAT COMMISSIO N INCOME OF THIS ASSESSEE SHOULD BE ASSESSED @ 7% OF THE GROSS RECEI PT OF THE COMPANY INSTEAD OF 11% AS HAS BEEN DONE BY THE A.O. NOW, T HE REVENUE IS IN APPEAL BEFORE US FOR THE RELIEF ALLOWED BY THE LD. CIT(A) AND THE ASSESSEE IS IN APPEAL BEFORE US FOR THE ADDITION CONFIRMED B Y HIM. 8. IT WAS SUBMITTED BY THE LD. A.R. THAT IN THE PRE CEDING YEAR, IN THE CASE OF THE COMPANY I.E. M/S. REMO MARKETING PVT. L TD., DEDUCTION WAS ALLOWED OF EXPENSES TO THE EXTENT OF 94.15% OF GROS S RECEIPT AND NET PROFIT WAS ONLY 5.85% OF GROSS RECEIPT AND HENCE, I N THE PRESENT YEAR ALSO, THE INCOME OF THE COMPANY SHOULD BE ASSESSED @ 6% O F GROSS RECEIPT WHICH WORKS OUT TO RS.4,10,75,160/-. HE SUBMITTED THAT THE BALANCE SHEET OF THE COMPANY FOR THE YEAR ENDED 31.03.2002 IS AVA ILABLE ON PAGE 145 OF THE PAPER BOOK AND P & L ACCOUNT OF THAT YEAR IS AV AILABLE ON PAGE 146 OF THE PAPER BOOK AND ITS GROUPINGS ARE AVAILABLE ON P AGES 147-148 OF THE PAPER BOOK. 9. IN THE CASE OF THE INDIVIDUAL SHRI ZAHIR J RANA, IT WAS SUBMITTED BY HIM THAT THE A.O. HAS FINALIZED THE ASSESSMENT U/S 144 OF THE INCOME TAX ACT, 1961 BY ESTIMATING THE INCOME OF THE ASSESSEE @ 11% OF THE ENTIRE RECEIPT OF REMO MARKETING PVT. LTD. AS COMMISSION I NCOME AND FOR DOING SO, HE HAS BASED HIS DECISION ON THE ORDER OF EARLI ER YEAR. HE FURTHER I.T.A.NO.1157,1427,1461 & 1489 /AHD/2008 9 SUBMITTED THAT THE A.O. BASED HIS DECISION ON THE B ASIS OF LAST YEAR BUT HE HAS NOT FOLLOWED THE FACTS. IT WAS SUBMITTED THAT IN THE LAST YEAR, MAJOR RECEIPT OF THE COMPANY WERE INTRODUCED THROUGH ASSE SSEE HIMSELF AND THE RECEIPT OF THAT YEAR WAS ONLY RS.137.02 LACS WHEREA S RECEIPT IN THE PRESENT YEAR OF THE COMPANY IS RS.6845.86 LACS WHICH COMPRI SES OF RECEIPTS BROUGHT BY OUTSIDE AGENTS AS WELL AS OTHERS AND ENT IRE RECEIPT OF THE COMPANY IS NOT ON ACCOUNT OF EFFORTS OF THE ASSESSE E. HE FURTHER SUBMITTED THAT SINCE THE ASSESSEE IS BEHIND THE BAR S, HE COULD NOT PROVE THE SAME BUT THE FACTUAL POSITION SHOULD BE CONSIDE RED AND THE ISSUE SHOULD BE DECIDED ON THIS BASIS. 10. AS AGAINST THIS, LD. D.R. OF THE REVENUE SUPPOR TED THE ASSESSMENT ORDER. HE ALSO PLACED RELIANCE ON THE JUDGMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF CIT VS HYNOUP FOOD & OIL INDIA (P) LTD. AS REPORTED IN 150 TAXMAN 194 AND SUBMITTED THAT NO DE DUCTION IS ALLOWABLE IN THE CASE OF THE COMPANY FOR THE EXPENSES BECAUSE THE ENTIRE EXPENSES WERE INCURRED BY THE COMPANY IN CASH AND AS PER THE PROVISIONS OF SECTION 40A(3), IT THE EXPENSES ARE INCURRED IN CAS H FOR AN AMOUNT EXCEEDING RS.20,000/-, NO DEDUCTION IS ALLOWABLE U/ S 40A(3) UNLESS THE ASSESSEE ESTABLISHES BUSINESS EXPEDIENCY AND GENUIN ENESS OF PAYMENT AND IDENTITY OF PAYEE. IT WAS SUBMITTED THAT SINCE IN THE PRESENT CASE, THE ASSESSEE HAS NEITHER ESTABLISHED BUSINESS EXPEDIENC Y NOR GENUINENESS OF PAYMENT AND IDENTITY OF THE PAYEE, NO DEDUCTION IS ALLOWABLE IN THE HANDS OF THE COMPANY FOR THIS REASON ALSO. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORDED AND HAVE GONE THROUGH THE ORDERS OF AUTHOR ITIES BELOW. FIRST WE DECIDE THE CASE OF THE COMPANY M/S. REMO MARKETING PVT. LTD. THE A.O. HAS INVOKED THE PROVISIONS OF EXPLANATION TO SECTIO N 37(1), AS PER WHICH, WHERE EXPENSE INCURRED BY THE ASSESSEE IS AN OFFENC E OR WHICH IS I.T.A.NO.1157,1427,1461 & 1489 /AHD/2008 10 PROHIBITED BY LAW, IT SHALL NOT BE DEEMED TO HAVE B EEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHOULD BE MADE IN RESPECT OF SUCH EXPENDITURE. AS PER THI S EXPLANATION TO SECTION 37(1), IF THE EXPENSES INCURRED BY AN ASSES SEE IS AN OFFENCE OR IF SUCH EXPENDITURE IS PROHIBITED BY LAW, IT SHOULD NO T BE CONSIDERED FOR ALLOWING ANY DEDUCTION, BUT THE QUESTION IS, AS TO WHETHER, THE ENTIRE EXPENSES INCURRED BY THE COMPANY IS OF SUCH NATURE. LD. CIT(A) HAS STATED IN HIS ORDER THAT THE ASSESSEES ENTIRE BUSI NESS RECEIPTS CANNOT BE TREATED AS INCOME SINCE THE ASSESSEE GIVES INCENTIV ES TO THE NUMBER OF CUSTOMERS INTRODUCED AND ULTIMATELY THERE CAN BE ON LY A GROSS PROFIT FOR WHICH FURTHER EXPENDITURE LIKE ELECTRICITY, SALARIE S PAID TO THE EMPLOYEES, RENT OF THE BUSINESS PREMISES ETC. HAVE TO BE ALLOW ED. ON THE BASIS OF THIS ARGUMENT, HE HELD THAT INCOME TO THE EXTENT OF 20% OF THE GROSS RECEIPT SHOULD BE CONSIDERED REASONABLE IN THE PRESENT CASE . WE ALSO FEEL THAT IN THE FACTS OF THE PRESENT CASE, THE ORDER OF LD. CIT (A) DESERVES TO BE UPHELD BECAUSE IT CANNOT BE ACCEPTED THAT ALL THE E XPENSE INCURRED BY THE COMPANY WERE FOR AN OFFENCE OR WERE PROHIBITED BY L AW BECAUSE THE PAYMENT OF INCENTIVES TO CUSTOMERS, PAYMENT TO AGEN TS, ELECTRICITY, RENT ETC. CANNOT HE HELD TO BE AN OFFENCE OR PROHIBITED BY LAW. SINCE, NO DETAILS OR EVIDENCE HAS BEEN BROUGHT ON RECORD BY T HE ASSESSEE, THE INCOME OF THE ASSESSEE HAD BEEN DETERMINED ON A REA SONABLE BASIS BY LD. CIT(A) AND IN THE FACTS OF THE PRESENT CASE, WE FEE L THAT THE DECISION OF LD. CIT(A) TO ASSESSEE 20% OF THE GROSS RECEIPT AS INCOME OF THE COMPANY IS REASONABLE ESTIMATE AND HENCE, WE UPHOLD THE DECISION OF LD. CIT(A) CONSIDERING THE FACTS OF THE PRESENT CASE. 12. REGARDING RELIANCE OF LD. D.R. ON THE JUDGMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF CIT VS H YNOUP FOOD & OIL IND. (P) LTD. (SUPRA), WE FEEL THAT THE SAME ALSO G OT COMPLIED WITH WHEN I.T.A.NO.1157,1427,1461 & 1489 /AHD/2008 11 THE INCOME IS ASSESSED @ 20% OF GROSS RECEIPT BECAU SE IT IS NOT ACCEPTABLE THAT ENTIRE EXPENDITURE WAS INCURRED IN CASH AND THAT TOO EXCEEDING RS.20,000/- PER DAY PER PAYEE BECAUSE AS PER THE BALANCE SHEET OF THE COMPANY AVAILABLE ON PAGES 144-188 OF THE PA PER BOOK, THE COMPANY WAS HAVING BANK ACCOUNT ALSO AND THEREFORE, IT CANNOT BE ACCEPTED THAT THE ENTIRE EXPENDITURE WAS INCURRED I N CASH AND THAT TOO EXCEEDING RS.20,000/- PER DAY PER PAYEE. WE FEEL TH AT SINCE IN THE LAST YEAR, ONLY 5.85% OF GROSS RECEIPT WAS THE INCOME DE CLARED BY THE ASSESSEE AS PER P & L ACCOUNT APPEARING ON PAGE 146 OF THE P APER BOOK FOR THE YEAR ENDED 31.03.2002, THE INCOME OF THIS COMPANY @ 20% OF THE GROSS RECEIPT WILL TAKE CARE OF THE DISALLOWANCES UNDER E XPLANATION TO SECTION 37(1) AS WELL AS DISALLOWANCES TO BE MADE UNDER SUB -SECTION (3) TO SECTION 40A. WE, THEREFORE, DECLINE TO INTERFERE I N THE ORDER OF LD. CIT(A) IN THE CASE OF THE COMPANY. 13. NOW, WE TAKE UP AND DECIDE THE APPEAL OF THE IN DIVIDUAL SHRI ZAHIR J. RANA. IN THIS CASE, THE A.O. HAS ASSESSED THE C OMMISSION INCOME OF THE ASSESSEE @ 11% OF GROSS RECEIPT OF THE COMPANY M/S. REMO MARKETING PVT. LTD. HIS DECISION IS BASED ON THE COMMISSION INCOME OF THE ASSESSEE IN THE PRECEDING YEAR. IN HIS CASE, LD. CIT(A) HAS DIRECTED THE A.O. TO ASSESS THE COMMISSION INCOME OF THE ASSESSEE @ 7% O F GROSS RECEIPT OF THE COMPANY REMO MARKETING PVT. LTD. BEFORE LD. CI T(A) AND BEFORE US, THIS IS THE CONTENTION OF THE LD. A.R. THAT IN THE PRECEDING YEAR, THE GROSS RECEIPT OF THE COMPANY M/S. REMO MARKETING PV T. LTD. WAS VERY SMALL, I.E. RS.137.03 LACS ONLY WHEREAS IN THE PRES ENT YEAR, THE GROSS RECEIPT OF THIS COMPANY IS HUGE AT RS.6845.86 LACS. IT IS ALSO SUBMITTED THAT IN THE PRECEDING YEAR, THE ENTIRE RECEIPT OF T HE COMPANY WAS BECAUSE OF THE EFFORTS OF THE ASSESSEE I.E. SHRI ZAHIR J RA NA, MANAGING DIRECTOR OF THE COMPANY. BUT IN THE PRESENT YEAR, THE GROSS RE CEIPT OF THIS COMPANY I.T.A.NO.1157,1427,1461 & 1489 /AHD/2008 12 TO THIS EXTENT OF RS.6845.86 LACS CANNOT BE ON THE BASIS OF SOLE EFFORTS OF ONE INDIVIDUAL SHIR ZAHIR J RANA. WE FIND FORCE IN THIS CONTENTION OF THE LD. A.R. AND HENCE, WE FEEL THAT LD. CIT(A) HAS RIG HTLY DECIDED THE ISSUE BY HOLDING THAT 7% OF GROSS RECEIPT OF THE COMPANY M/S. REMO MARKETING PVT. LTD. SHOULD BE ASSESSED AS COMMISSION INCOME O F THIS INDIVIDUAL ASSESSEE SHRI ZAHIR J RANA. WE, THEREFORE, DECLINE TO INTERFERE IN THE ORDER OF LD. CIT(A) IN HIS CASE ALSO. 14. IN THE RESULT, BOTH APPEALS OF THE ASSESSEES AN D OF THE REVENUE ARE DISMISSED. 15. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST OCT., 2011. SD./- SD./- (BHAVNESH SAINI) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED : 21.10. 2011 SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD 1. DATE OF DICTATION 17/10 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 18/10.OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S.19/10 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 21/10 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.21/10 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 21/10/2011 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. ..