DREAM WORLD CONCEPTS P.LTD, MUMBAI V. ITO 8(1)(3), MUMBAI

ITA 1431/MUM/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3515 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 15-05-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 19-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: UTTAM G BOTHRA
• Keywords: Rejection of books of accounts; Business income
• Section: 144

Judgement Text

. , IN THE INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI , BEFORE SHRI R. K. GUPTA , JM ITA NO S . 1 430 TO 1432 / MUM/ 20 1 3 ( ASS ESSMENT YEAR S : 200 5 - 06, 2006 - 07 & 2007 - 08 ) M/S DREAM WORLD CONCEPTS PVT. LTD, 12, LUBINI PALACE, TEJPAL, VILE PARLE (E), MUMBAI - 400 057. VS. ITO 8 ( 1 )( 3 ), MUMBAI - 400 020 PAN/GIR NO. : A ACCD 4657 R ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : SHRI UTTAM G. BOTHRA /REVENUE BY : SHRI ARUN KUMAR DATE OF HEARING : 2 2 ND MAY , 201 3 DATE OF PRONOUNCEMENT : 12 TH JUNE , 2013 O R D E R THESE ARE THREE APPEALS BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 1 6 , MUMBAI RELA TING TO THE ASSESSMENT YEAR S 2005 - 06, 2006 - 07 & 2007 - 08, RESPECTIVELY . 2 . SINCE COMMON ISSUES ARE INVOLVED IN ALL THE CASES, THEREFORE, FOR THE SAK E OF CONVENIENCE, ALL THESE THREE CASES HAVE BEEN HEARD AND DISPOSED OF BY THIS CONSOLIDATED ORDER. 3 . THE LEGAL GROUND IN RESPECT OF ISSUING NOTICE UNDER SECTION 153C HAS BEEN RAISED IN THESE THREE APPEALS. IT HAS BEEN STATED THAT ISSUANCE OF NOTICE UNDE R SECTION 153C WAS BAD IN LAW AS THERE WAS NO MATERIAL FOUND RELATING OR BELONGING TO ASSESSEE, ON WHICH BASIS ANY ADDITION CAN BE MADE. THEREAFTER THE ASSESSEE IS CHALLENGING IN CONFIRMING THE ASSESSMENT COMPLETED UNDER SECTION 144 BY WHICH ESTIMATED ADDI TIONS ITA NO. 1430 - 1432 /20 1 3 2 ON ACCOUNT OF COMMISSION RECEIPT AND CERTAIN DISALLOWANCE OF EXPENSES ON THE BASIS OF WHICH ORIGINAL RETURN WAS FILED. FOR ASSESSMENT YEAR 2005 - 06, THE ESTIMATED INCOME ON ACCOUNT OF COMMISSION IS MADE AT RS. 1,88,580/ - . F OR ASSESSMENT YEAR 2006 - 07, T HE ADDITION WAS MADE OF RS.3,47,000/ - AND FOR ASSESSMENT YEAR 2007 - 08, THE ADDITION WAS MADE OF RS.1,30,650/ - . THE ADDITIONS ON ACCOUNT OF DISALLOWANCE OF CERTAIN EXPENSES OF RS.62,190/ - , RS. 52,964/ - AND RS. 54,857/ - FOR ASSESSMENT YEARS 2005 - 06 TO 2007 - 08, RESPECTIVELY HAS BEEN MADE, WHICH IS OBJECTED BY THE ASSESSEE. 4 . I WILL TAKE FIRST GROUND ON MERIT FOR ALL THE RELEVANT ASSESSMENT YEARS. FOR ASSESSMENT YEAR 2005 - 06, THE AO NOTED THAT THE ASSESSEE RECEIVED FRESH FUNDS THROUGH ISSUANCE OF 98,920/ - SHARE S AT RS. 50/ - PER SHARE AT A PREMIUM OF RS. 40/ - PER SHARE TO THE 15 SHAREHOLDERS AGGREGATING TO RS. 49,46,000/ - . THE AO ALSO NOTED THAT THE TOTAL INVESTMENT SHOWN DURING THE YEAR BY THE ASSESSEE IS RS . 2,16,50,000/ - . THE AO NOTED THAT THE INVESTMENT MADE IN E ARLIER YEAR IS NOT REFLECTED IN THE CURRENT YEAR. THE ASSESSEE HAS NOT DECLARED ANY CAPITAL GAIN/LOSS OR DISPOSAL OF SHARES. CERTAIN DISCREPANCIES WERE NOTED BY THE AO AND ACCORDINGLY HE REJECTED THE BOOKS OF ACCOUNT. THE AO IN PARA 11 HAS NOTED THAT THE A SSESSEE COMPANY INDULGED IN THE SHARE TRANSACTIONS TO FUND THE INVESTMENT OF VARIOUS COMPANIES, AS THE OTHER COMPANIES IN WHICH THE ASSESSEE COMPANY INVESTED IS THE ULTIMATE BENEFICIARY OF THE CIRCULAR TRANSACTIONS. THEREFORE, IT IS CLEAR THE INTENTION OF THE ASSESSEE IS TO ACCOMMODATE OR SUPPORT OTHER GROUP CONCERNS OR OUTSIDERS IN THEIR DUBIOUS BUSINESS ACTIVITY. THE AO FURTHER NOTED THAT THE RETURN FROM SUCH ITA NO. 1430 - 1432 /20 1 3 3 ACTIVITIES ARE EITHER IN THE FORM OF CASH OR IN KIND. AS PER MARKET INFORMATION, FOR PROVIDING SU CH FINANCIAL CAPITAL/BOOK ENTRY TRANSACTION COMMISSION TO THE EXTENT OF 5% OF THE FUNDING IS PAID TO THE CONDUIT, WHICH IS GENERALLY PAID IN CASH. IN PARA 12, THE AO OBSERVED THAT THE ASSESSEE HAS MADE FRESH INVESTMENT OF RS. 57,50,000/ - IN THE SHARES OF VA RIOUS COMPANIES AND IN TURN THE ASSESSEE MAY HAVE PAID COMMISSION TO THE VARIOUS PARTIES WHO HAVE INVESTED IN ITS SHARES. SUCH COMMISSION WOULD NOT EXCEED 2% OF THE RECEIPTS CHANNELIZED TO PURCHASE/INVEST IN THE SHARES OF VARIOUS COMPANIES. THEREFORE, DURI NG THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS INVESTED AN AMOUNT OF RS. 57,50,000/ - AND RECEIVED RS. 49,46,000/ - AS SHARE CAPITAL INCLUDING SHARE PREMIUM . ON THE BASIS OF THE SAME, THE ASSESSEE MUST HAVE RECEIVED COMMISSION OF RS. 2,87, 500/ - (5% OF RS. 57, 50,00/ - ) AND MUST HAVE PAID COMMISSION OF RS. 98,920/ - (2% OF RS. 49,46,000/ - ) IN TURN. THEREFORE, HE ESTIMATED A NET COMMISSION EARNED BY THE ASSESSEE DURING THE YEAR AT RS. 1,88,580/ - , WHICH TREATED AS UNDISCLOSED INCOME OF THE ASSESSEE. IN ADDITION TO THIS ADDITION, THE AO FURTHER OBSERVED THAT ON RS. 1,40,550/ - ON WHICH TDS HAS BEEN DEDUCTED. SINCE THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED UNDER SECTION 145(3) , IT IS ESTIMATED THAT THE ASSESSEE MUST HAVE INCURRED 50% OF THE RECEIPTS TOWARDS EXPENSES. IN VIEW OF THE SAME, AFTER ALLOWING DEDUCTION TO THE EXTENT OF 50% OF THE RECEIPTS, THE BALANCE AMOUNT OF RS. 70,275/ - IS ASSESSED AS BUSINESS INCOME OF THE ASSESSEE. IN THIS WAY, THE TOTAL INCOME WAS COMPUTED AT RS. 2,58,860/ - . FOR THE SAKE OF CLARIFICATION AGAINS T INCOME OF RS. 8090/ - , THE ASSESSED INCOME IS RS. 2,58,860/ - . ITA NO. 1430 - 1432 /20 1 3 4 5 . IN APPEAL, THE CIT(A) CONFIRMED THE ACTION OF THE AO. 6 . AFTER CONSIDERING THE ORDER OF THE AO AND CIT(A) AND THE SUBMISSIONS, I FOUND THAT BOTH THE ADDITIONS MADE BY THE AO WHICH IS CONFI RMED BY THE LEARNED CIT(A) ARE MERELY ON PRESUMPTION AND ASSUMPTION BASIS. THERE IS NO EVIDENCE EITHER BEFORE THE AO OR BEFORE THE CIT(A) TO HOLD THAT THE ASSESSEE HAS PAID ANY COMMISSION OR EARNED ANY COMMISSION ON ACCOUNT OF INVESTMENT MADE DURING THE YE AR OR INVESTMENT RECEIVED DURING THE YEAR. THEREFORE, WITHOUT ANY MATERIAL ON ANY INFORMATION, ESTIMATION OF COMMISSION INCOME WAS WITHOUT ANY BASIS AND CANNOT BE SUSTAINED. ACCORDINGLY, THE SAME IS DELETED. 7 . REMAINING ADDITION OF RS. 62,190/ - ON ACCOU NT OF EXPENSES, AGAIN IT IS ON PRESUMPTION BASIS, NEITHER THERE WAS ANY MATERIAL NOR ANY INFORMATION THAT THE ASSESSEE IS INDULGED IN INCURRING BOGUS EXPENSES. MERELY ON REJECTION OF BOOKS OF ACCOUNTS, NO ADDITION CAN BE MADE, IF THERE IS NO BASIS OR MATER IAL. IT IS A CASE OF ASSESSMENT COMPLETED UNDER SECTION 153C AS SEARCH WAS CONDUCTED IN THE CASE OF BHATIA GROUP OF COMPANIES FROM WHERE CERTAIN DOCUMENTS WERE RECEIVED AND IT IS A MATTER OF FACT THAT NO ADDITION WAS MADE ON THE BASIS OF THOSE MATERIALS AS NO INCRIMINATING MATERIAL WAS FOUND, NEITHER THOSE MATERIALS BELONG TO THE YEAR UNDER CONSIDERATION AS THE MATERIAL RECEIVED BELONGING TO THE ASSESSMENT YEAR 2004 - 05. THEREFORE, WITHOUT GOING INTO THE DETAILS FURTHER, I HOLD THAT BOTH THE ADDITIONS MADE B Y THE AO WAS WITHOUT ANY BASIS AND ACCORDINGLY THE SAME CANNOT BE SUSTAINED. I HOLD THAT LEARNED ITA NO. 1430 - 1432 /20 1 3 5 CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITIONS MADE BY THE AO AS THERE WAS NO BASIS OR MATERIAL FOR MAKING SUCH ADDITIONS. 8 . SINCE I HAVE ALLOWED THE G ROUNDS ON MERIT, THEREFORE, I AM NOT INCLINED TO DISPOSE THE LEGAL GROUNDS AT THIS STAGE. 9 . FOR ASSESSMENT YEAR 2006 - 07, THE ADDITIONS WERE MADE ON ACCOUNT OF ESTIMATED COMMISSION INCOME AND DISALLOWING EXPENSES AT THE RATE OF 50%. AGAIN I FOUND THAT T HESE ADDITIONS WERE MADE ON PRESUMPTION AND ASSUMPTION BASIS AS THERE WAS NO MATERIAL BEFORE THE AO TO HOLD THAT ANY COMMISSION INCOME OR COMMISSION EXPENDITURE HAVE BEEN INCURRED BY THE ASSESSEE OR ANY OTHER EXPENSES HAVE BEEN INFLATED BY THE ASSESSEE. S IMILAR ESTIMATION HAS BEEN MADE FOR ASSESSMENT YEAR 2005 - 06, IN WHICH I HAVE ALREADY DELETED THE ADDITIONS AS ABOVE. THEREFORE, ON THE SAME REASONING, THE ADDITIONS MADE FOR THESE TWO YEARS ALSO I.E. FOR ASSESSMENT YEARS 2006 - 07 & 2007 - 08, ARE HEREBY DELET ED. 10 . SINCE I HAVE DELETED THE ADDITIONS, THEREFORE, I AM NOT INCLINED TO DISPOSE THE LEGAL GROUNDS AT THIS STAG E FOR THESE TWO YEARS ALSO I.E. FOR ASSE SSMENT YEARS 2006 - 07 & 2007 - 08. 11 . IN THE RESULT, APPEAL S OF THE ASSESSEE ARE ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF JUNE 2013 201 3 SD/ - ( ) ( R.K.GUPTA ) / JUDICIAL MEMBER MUMBAI; DATED : 12/06 /2013 /PKM , PS ITA NO. 1430 - 1432 /20 1 3 6 COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) , MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI