KHANDELWAL INFOTECH LTD, MUMBAI V. DCIT 2(2), MUMBAI

ITA 1315/MUM/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4264 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 22-03-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 14-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Depreciation
• Section: 68; 37

Judgement Text

1 ,' INCOME TAX APPELLATE TRIBUNAL,MUMBAI- A,BENCH , , BEFORE S/SHJOGINDER SINGH,JUDICIAL MEMBER & RAJENDRA,ACCOUNTANT MEMBER ./ ITA NO./4119/MUM/2014 , / ASSESSMENT YEARS: 2006-07 DCIT-2(2) ROOM NO.545, AAYAKAR BHAVAN, M.K. ROAD,MUMBAI-400 020. VS. SHRI ARUN KHANDELWAL 102, POONAMS,23,NEW INDIA SOCIETY, 11 TH N.S. ROAD, JVPD SCHEME, VILE PARLE(W),MUMBAI-400 049. PAN:AHGPK 1833 N ./ ITA NO./1314/MUM/2011 , / ASSESSMENT YEARS: 2006-07 ARUNKUMAR DEVIPRASAD KHANDELWAL, VILE PARLE(W),MUMBAI-400 049. PAN:AHGPK 1833 N VS. DCIT-2(2) ROOM NO.577, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020. ./ ITA NO./1315/MUM/2011, / ASSESSMENT YEARS: 2007-08 M/S.KHANDELWAL INFOTECH LTD. ARUNKUMAR DEVIPRASAD KHANDELWAL 2, REHEM MANSION, 44 S.BHAGATSINGH RD. COLABA,MUMBAI-400 039. PAN:AAACK 1637J VS. INCOME TAX OFFICER WARD-3(1)4, MUMBAI. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI ARVIND KUMAR ASSESSEE BY: SHRI DEEPAK TRALSHAWALA / DATE OF HEARING: 04.04.2016 / DATE OF PRONOUNCEMENT: 04.04.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA A.M. - CHALLENGING THE ORDERS OF CIT(A)-5,MUMBAI THE ASSES SEES AND THE ASSESSING OFFICER(AO) HAVE FILED APPEALS FOR THE ABOVE MENTIONED AY.S. AS THE APPEALS ARE OF THE SAME GROUP,SO,WE ARE ADJUDICATING THEM BY A SINGLE COMMON ORDER. THE DETAILS OF FILING OF RETURN,RETURNED INCOMES ETC.CAN BE SUMMARIZED AS UNDER : ITA NOS. A.Y. ROI FILED ON RETURNED INCOME ASSESSMENT DT. ASSESSED INCOME DT. OF ORDERS OF CIT(A) 4119/M/2014 2006-07 14.03.2008 2,00,532/- 23.12.2008 25,00,530/- 12.03.2014 1314/M/2011 2006-07 14.03.2008 2,00,532/- 23.12.2008 25,00,530/- 03.01.2011 1315/M/2011 2007-08 21.10.2007 NIL 10.11.2009 3,50,000/- 04.12.2010 ITA 1314/MUM/2011-AY.06-07: 2. THE EFFECTIVE GROUND OF APPEAL IS ABOUT CONFIRMING THE EARNEST MONEY AMOUNT OF RS.23.00 LAKHS.DURING THE ASSESSMENT PROCEEDINGS ,THE AO ASK ED THE ASSESSEE TO FILE CONFIRMATION OF LOANS AND BANK STATEMENTS ETC.WHEN ASKED TO EXPLAIN THE AMOUNT OF RS.23.00 LACS,IT WAS STATED THAT PROPRIETARY CONCERN OF THE ASSESSEE HA D RECEIVED RS.23.00 LACS,AS ADVANCE AGAINST THE PURCHASE OF TDR TO BE GENERATED AS A MUNICIPAL MARKET PLOT,FROM M D CONSTRUCTION CO. (MDC)-A PROPRIETARY CONCERN OF YOGESH MEHTA.THE ASS ESSEE PRODUCED A XEROX COPY OF MOU ENTERED BETWEEN HIS PROPRIETARY CONCERN AND MDC.THE AO DIRECTED THE ASSESSEE TO SUBMIT CONFIRMATION FROM MDC.HOWEVER, THE ASSESSEE EXPRESS ED HIS INABILITY TO FILE CONFIRMATION 4119,1314-15-KHANDELWAL 2 STATING THAT THERE WAS DISPUTE WITH MDC.THE AO HELD THAT IN ABSENCE OF CONFIRMATION,AMOUNT CLAIMED TO HAVE BEEN RECEIVED FROM MDC,COULD NOT BE CONSIDERED AS A GENUINE TRANSACTION. FINALLY,HE HELD THAT AMOUNT IN QUESTION WAS TO BE T REATED AS UNEXPLAINED CASH CREDIT AND MADE HE MADE AN ADDITION U/S. 68 OF THE ACT FOR THE SAID AMOUNT. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FIL ED AN APPEAL BEFORE THE FIRST APPELATE AUTHORITY (FAA).BEFORE HIM IT WAS STATED THAT THE A SSESSEE HAD FILED A COPY OF MOU DT.26.10.2005, THAT THE MOU CLEARLY MENTIONED THAT RS.23.00 LACS WERE RECEIVED AS EARNEST MONEY, THE ADDRESS OF THE PAYER WAS MADE AVAILABLE TO THE AO. THE FAA CALLED FOR A REMAND REPORT FROM THE AO.AFTER CONSIDERING THE AVAILABLE MATERIAL THAT THE ASSESSEE WAS NOT ABLE TO PRODUCE CONFIRMATION FROM MDC,THAT THERE WERE MANY DISCREPANCIES IN THE MOU,THAT THERE WAS NO MENTION OF THE PAYMENT TO BE MADE TO THE ASS ESSEE,SUBSEQUENT TO THE MOU,THAT THE MOU COULD NOT BE TREATED FOR CREDIBLE EVIDENCE,THAT THE SOURCE OF THE DEPOSIT REMAINED UNEXPLAINED.HE CONFIRMED THE ORDER OF THE AO. 4. DURING THE COURSE OF HEARING BEFORE US,THE AUTHORIS ED REPRESENTATIVE(AR)CONTENDED THAT THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH MDC , THAT HE HAD RECEIVED RS.23.00 LACS AS EARNEST MONEY, THAT MDC WAS TO PAY RS.2.77 CRORES L ATER ON IN INSTALMENTS, THAT BECAUSE OF THE DISPUTE WITH MDC THE TRANSACTION FAILED,THAT TH E ASSESSEE HAD RETURNED BACK THE MONEY TO MDC,THAT EARNEST MONEY WAS RECEIVED THROUGH BANKING CHANNELS,THAT COURT PROCEEDINGS ARE GOING ON BETWEEN THE ASSESSEE AND MDC,THAT BECAUSE OF THE POLICE CASE ASSESSEE WAS NOT IN A POSITION TO OBTAIN CONFIRMATION FROM MDC,THAT IT WA S NOT A FIT CASE FOR INVOKING PROVISIONS OF SECTION 68 OF THE ACT.DEPARTMENTAL REPRESENTATIV E (DR) SUPPORTED THE ORDER OF THE FAA. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT AN FIR WAS FILED ON 30.7.2008, IN PURSUANCE OF THE ORD ER OF THE METROPOLITAN MAGISTRATE DT.27.5.2008 WITH REGARD TO MONETARY TRANSACTION TA KEN PLACE BETWEEN THE ASSESSEE AND MDC, THAT IN THE ORDER OF THE METROPOLITAN MAGISTRATE IT HAS BEEN OBSERVED THAT THE ASSESSEE HAD RECEIVED TOKEN MONEY RS.73.21 FROM MDC,THAT THOSE P APERS WITH REGARD TO THE FIR WERE FILED DURING THE COURSE OF APPEAL PROCEEDINGS IN TH E PENALTY MATTER.AS PER THE ESTABLISHED PRINCIPLES OF TAXATION JURISPRUDENCE,PROVISIONS OF SECTION 68 CAN BE INVOKED IF THE IDENTITY AND CREDITWORTHINESS OF THE CREDITOR IS NOT ESTABLI SHED AND THAT THE TRANSACTION IS NOT GENUINE. IN THE CASE UNDER CONSIDERATION,THE GENUINENESS OF THE TRANSACTION STANDS PROVED BECAUSE THE MONEY HAS COME FROM A KNOWN SOURCE-THROUGH BANKING CHANNELS. AS FAR AS IDENTITY AND CREDIT WORTHINESS IS CONCERNED,SAME CANNOT BE DOUBT ED.PROPRIETOR OF THE MDC AND THE ASSESSEE ARE FIGHTING LEGAL BATTLE IN THE COURT AND THE ORDER OF THE MAGISTRATE CLEARLY STATES THAT PAYMENT OF RS.23.00 LACS WAS MADE BY MDC TO TH E ASSESSEE DURING THE UNDER APPEAL. THEREFORE,IN ABSENCE OF EXISTENCE OF BASIC INGREDIE NTS OF SECTION 68,THE FAA WAS NOT JUSTIFIED IN UPHOLDING THE ORDER OF THE AO,WHO HAD MADE THE ADDITION OF RS.23 LAKHS. SO, REVERSING THE ORDER OF THE FAA,WE DECIDE THE EFFECT IVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE . ITA/4119/M/2014,AY.2006-07: 6. THE ONLY GROUND,RAISED BY THE AO,IS ABOUT DELETING THE PENALTY OF RS.6.40 LACS LEVIED BY THE AO ON ISSUE OF ADDITION OF RS.23 LACS MADE U/S. 68 OF THE ACT.WHILE DECIDING THE QUANTUM APPEAL(PARAGRAPHS 2-5),WE HAVE DELETED THE ADDITION MADE BY THE AO AND CONFIRMED BY THE FAA FOR THE DISPUTED AMOUNT I.E.RS.23LACS. 4119,1314-15-KHANDELWAL 3 7. WE FIND THAT THE FAA HAD CONSIDERED THE FIR,ORDER O F THE METROPOLITAN MAGISTRATE AND PAYMENT MADE BY MDC DURING THE YEAR AND IN THE SUBS EQUENT YEARS,WHILE DECIDING THE PENALTY APPEAL.CONSIDERING THESE FACTS,HE HAD DELET ED THE PENALTY IMPOSED BY AO U/S. 271 (1) (C)OF THE ACT.AS WE HAVE DELETED THE ADDITION MADE BY THE AO, WHILE DECIDING THE QUANTUM APPEAL,SO,PENALTY WOULD NOT SURVIVE.CONFIRMING THE ORDER OF THE FAA WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. ITA NO.1315/MUM/2014,AY.2007-08: 8. EFFECTIVE GROUND OF APPEAL IS ABOUT CONFIRMING THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES OF RS.29.80 LACS, EMPLOYEES EXPENSES OF RS.10.52 LA CS AND DEPRECIATION OF RS.2.2 LACS.DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO FOUND T HAT ASSESSEE HAD DEBITED THE ABOVE MENTIONED EXPENSES TO THE P&L ACCOUNT AND HAD SHOWN A LOSS OF RS.40.54 LACS. HE OBSERVED THAT THE ASSESSEE DID NOT CARRY OUT ANY BUSINESS AC TIVITY IN THE LAST FEW YEARS, THAT THE SOLITARY TRANSACTION UNDERTAKEN BY THE ASSESSEE WAS OF SELLI NG A PAINTING, THAT ASSESSEE WAS NOT CARRYING OUT ANY REGULAR BUSINESS TRANSACTION, ACCO RDINGLY HE HELD THAT THE EXPENSES INCURRED BY THE ASSESSEE DID NOT FULFILL THE REQUIREMENT OF SECTION 30 TO 37 OF THE ACT. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FAA. BEFORE HIM IT WAS CONTENDED THAT ASSESSEE WAS RUNNING A BU SINESS C ENTRE, THE EXPENSES INCURRED WERE ROUTINE IN NATURE, THAT MANUFACTURING UNIT OF THE ASSESSEE STOPPED FUNCTIONING SINCE 1990,EXPENSES WERE ALLOWABLE TO MAINTAIN A MINIMUM STAFF AND OFFICE SET UP.AFTER CONSIDERING THE ASSESSMENT ORDER AND THE SUBMISSION OF THE ASSESSEE THE FAA HELD THAT THE MAIN BUSINESS OF THE ASSESSEE STOOD CLOSED AS FAR B ACK AS 1990, THAT THE EXPENSES WERE DIS- PROPORTIONATELY HIGH, THEY COULD NOT BE HELD TO BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE ASSESSEE , THAT THE EXPENSES ALSO C OULD NOT BE ATTRIBUTED TO BUSINESS SERVICE CENTRE.THE FAA REFERRED TO CASE OF LAHORE ELECTRIC SUPPLY CO. (60ITR1);INDERCHAND HARIRAM (23ITR437); SHERWANI BROTHERS & CO.(23ITR51); AND N ATIONAL SYNDICATE (41 ITR 225) AND UPHELD THE ORDER OF THE AO. 9. BEFORE US,THE AR SATED THAT ASSESSEE WAS RUNNING A BUSINESS CENTRE, THAT IT HAD EARNED INCOME, AND HAD INCURRED EXPENSE FROM THE BUSINESS CENTRE/FOR RUNNING THE BUSINESS CENTRE, THAT INCOME FROM THE BUSINESS CENTRE HAS GONE DOWN DURING THE YEAR UNDER CONSIDERATION AS COMPARED TO LAST YEAR, THAT CORRESPONDINGLY EXPENSE S HAD ALSO REDUCED,THAT IN THE EARLIER YEAR(AY-05-06) THE AO HAD ALLOWED MAJOR PORTION OF IDENTICAL EXPENSES. THE DR SUPPORTED THE ORDER OF THE FAA. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT ASSESSEE HAD SHOWN INCOME OF RS.8.53 LACS FOR THE Y EAR UNDER APPEAL. (PG-8 OF THE PAPER BOOK),THAT INCOME FROM BUSINESS CENTRE HAD BEEN SHO WN AT RS.2.70 LACS AS AGAINST THE INCOME OF RS.4.85 LACS FOR THE PREVIOUS YEAR,UNDER THE HEA D BUSINESS-INCOME,THAT THE ASSESSEE HAD SHOWN EXPENDITURE OF RS.29.80 LACS FOR THE YEAR UND ER CONSIDERATION AS AGAINST EXPENDITURE OF RS.48.13 LACS FOR THE EARLIER YEAR.IN THESE CIRCUMS TANCES,IT CANNOT BE STATED THAT ASSESSEE WAS NOT CARRYING OUT ANY BUSINESS ACTIVITY.IT IS A FACT THAT ASSESSEE HAS CLOSED DOWN ITS MANUFACTURING UNIT LONG BACK,BUT IT DOES NOT MEAN T HAT HE WAS NOT CARRYING OUT ANY BUSINESS ACTIVITIES.WE FIND THAT WHILE FINALISING THE ASSESS MENT OF THE ASSESSEE FOR THE AY.2005-06,THE AO HAD ALLOWED 75% OF THE IDENTICAL EXPENSES.ON A Q UERY BY THE BENCH THE AR CONCEDED THAT ASSESSEE HAD NOT AGITATED THE ISSUE BEFORE THE FAA IN THAT MATTER.CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE,WE WAN T TO RESTRICT THE DISALLOWANCE TO 25% OF THE EXPENSES DISALLOWED.EFFECTIVE GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE IN PART. 4119,1314-15-KHANDELWAL 4 AS A RESULT APPEAL FILED BY THE ASSESSEE-INDIVIDUAL FOR THE AY.2006-07 STANDS ALLOWED AND THE APPEAL OF THE AO FOR THAT YEAR STANDS DISMISSED .APPEAL OF THE OTHER ASSESSE FOR THE AY.2007-08 IS PARTLY ALLOWED. - . .2006-07 . . .2007-08 . ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH APRIL, 2016. 4 , 2016 SD/- SD/- /JOGINDER SINGH) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 04.04.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , A , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.