Gandhi Shrenik Kantilal, Godhara V. ITO, Ward-2, Godhara

ITA 1759/AHD/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 2617 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 07-08-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: BALKRISHNA THAKKAR
• Keywords: Business income; Tangible material; Fair market value; Corroborative evidences; Set aside
• Section: 143(3); 143(2); 72; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD SMC BENCH (CONDUCTED THROUGH VIRTUAL COURT) BEFORE: SHRI AMARJIT SINGH, ACCOUNTANT MEMBER AND MS. MADHUMITA ROY, JUDICIAL MEMBER GANDHI SHRENIK KANTILAL, 5-947, OPP. JAIN DERASAR, LUHARI KUVA, GODHRA-389001 PAN: ADYPG8346E (APPELLANT) VS THE ITO, WARD-2, GODHARA (RESPONDENT) REVENUE BY: SHRI PURUSHOTTAM KUMAR, SR. D.R . ASSESSEE BY: SHRI BALKRISHNA THAKKA R, A.R. DATE OF HEARING : 05-10-2021 DATE OF PRONOUNCEMENT : 27-10-20 21 /ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:- THESE TWO APPEALS FILED BY ASSESSEE FOR A.Y. 2013-1 4 & 2014-15, ARISE FROM ORDER OF THE CIT(A)-4, VADODARA DATED 31 -05-2018, IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL:- 1. THE GROUNDS OF APPEAL MENTIONED HEREUNDER ARE W ITHOUT PREJUDICE TO EACH OTHER. 2. THE ASSESSMENT ORDER UNDER APPEAL IS BAD IN LAW AND DESERVES TO BE QUASHED. 3. GROUNDS OF APPEALS AS ENUMERATED AS BELOW; SL. NO. PARTICULARS AGAINST WHICH APPEAL PREFERRED. AMOUNT (RS.) GROUND OF APPEAL ITA NOS. 1758 & 1759/AHD/2018 ASSESSMENT YEAR 2013-14 & 2014-15 I.T.A NOS. 1758 & 1759/AHD/2018 A.Y. 2013-14 & 2014-15 PAGE NO GANDHI SHRENIK KANTILAL VS. ITO 2 1 DISALLOWANCE OF SALARY TO SPECIFIED PERSONS 2,69,784/- BASED ON THE FINDINGS OF LD. CIT(A) IN THE PRECEDING YEAR LD. A.O. WITHOUT GIVING DUE CONSIDERATION TO THE FACTS AND SUBMISSIONS AT ASSESSMENT STAGE DISALLOWED RS. 2,69,784/-. EVERY ASSESSMENT IS INDEPENDENT. THE SAID DISALLOWANCE OF EXPENSES IS BAD IN LAW AND DESERVES TO BE QUASHED. 2 DISALLOWANCE OF PAYMENT OF RENT TO SPECIFIED PERSONS 2,88,000/- BASED ON THE FINDING OF LD. CIT(A) IN THE PRECEDING YEAR LD. A.O. WITHOUT GIVING DUE CONSIDERATION TO THE FACTS AND SUBMISSION AT ASSESSMENT STAGE DISALLOWED RS. 2,88,000/-. EVERY ASSESSMENT IS INDEPENDENT. THE SAID DISALLOWANCE OF EXPENSES IS BAD IN LAW AND DESERVES TO BE QUASHED. TOTAL RS. 5,57,784/- 4. LOOKING TO THE OPPORTUNITY FOR REPRESENTING THE DEFENSE YOUR APPELLANT PREFERRED AN APPEAL. 3. THE FACT IN BRIEF IS THAT RETURN OF INCOME DECLA RING INCOME OF RS. 65,370/- WAS FILED ON 11 TH OCTOBER, 2013. THE CASE WAS SUBJECT TO SCRUTINY ASSESSMENT AND NOTICE U/S. 143(2) OF THE ACT WAS IS SUED ON 2 ND SEP, 2014. THE ASSESSMENT U/S. 143(3) OF THE ACT WAS FINALIZED ON 4 TH JAN, 2016 DETERMINING THE TOTAL INCOME AT RS. 7,10,744/-. T HE FACTS PERTAINING TO THE I.T.A NOS. 1758 & 1759/AHD/2018 A.Y. 2013-14 & 2014-15 PAGE NO GANDHI SHRENIK KANTILAL VS. ITO 3 ISSUES CONTESTED IN THE GROUNDS OF APPEAL OF THE AS SESSEE ARE DISCUSSED WHILE ADJUDICATING THESE GROUNDS OF APPEAL AS FOLLOWS:- GROUND NO. 1 ( DISALLOWANCE OF SALARY TO SPECIFIED PERSON RS. 2,69,784/-) 4. DURING THE COURSE OF ASSESSMENT, THE ASSESSING O FFICER HAS ASKED THE ASSESSEE TO JUSTIFY THE SALARY PAID TO PERSONS SPEC IFIED U/S. 40A(2)(B) OF THE ACT IN RESPECT OF SHRI HARSHIT GANDHI, PARAS GANDHI , RAJSHREEBEN GANDHI TO WHOM THE ASSESSEE HAD PAID SALARY OF RS. 3,09,684/- , RS. 3,39,600/-, RS. 1,60,500/- RESPECTIVELY DURING THE YEAR UNDER CONSI DERATION. THE ASSESSEE HAS GIVEN DETAILED SUBMISSION REPRODUCED BY THE ASS ESSING OFFICER AT PAGE NO. 4 AND 5 OF THE ASSESSMENT ORDER WHEREIN ASSESSE E HAS EXPLAINED THE DETAILS OF THE CONTRIBUTION OF EACH EMPLOYEE AND JU STIFICATION FOR PAYMENT OF SALARIES. HOWEVER, THE ASSESSING OFFICER HAS NOT ACCEPTED THE SUBMISSION OF THE ASSESSEE AND RESTRICTED THE SALARY AMOUNT OF THESE EMPLOYEES ON THE BASIS OF DISALLOWANCE MADE IN THE PREVIOUS YEAR AND RESTRICTED THE SALARY AMOUNT AS SHOWN UNDER:- NAME OF THE SPECIFIED PERSON RELATIONSHIP WITH THE ASSESSEE NATURE OF PAYMENT SALARY PAID AMOUNT OF SALARY PROPOSED TO BE ALLOWED HARSHIT GANDHI SON SALARY 309684 240000 PARAS GANDHI BROTHER SALARY 339600 240000 RAJSHRIBEN GANDHI SISTER IN LAW SALARY 160500 60000 TOTAL 809784 540000 I.T.A NOS. 1758 & 1759/AHD/2018 A.Y. 2013-14 & 2014-15 PAGE NO GANDHI SHRENIK KANTILAL VS. ITO 4 ACCORDINGLY, AN AMOUNT OF RS. 2,69,749/- WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE OF THE ASSESSEE. GROUND NO. 2 (DISALLOWANCE OF RENT TO SPECIFIED PER SON TO RS. 2,88,000/-) 5. DURING THE COURSE OF ASSESSMENT THE ASSESSING OF FICER NOTICED THAT ASSESSEE HAS MADE PAYMENT OF RENT TO RELATED PERSON SPECIFIED U/S. 40A(2)(B) OF THE ACT. THE ASSESSEE HAS GIVEN THE DETAILED S UBMISSION WHICH HAS BEEN REPRODUCED BY THE ASSESSING OFFICER AT PAGE NO. 7 & 8 OF THE ASSESSMENT ORDER. THE ASSESSEE HAS EXPLAINED THE COMPARATIVE PREVAILING RATE AND NATURE OF RENT AND LOCATION OF THE PREMISES ETC ON THE BASIS OF SUCH RENT WERE PAID. THE ASSESSING OFFICER HAS NOT ACCEPTED THE SUBMISSION OF THE ASSESSEE AND STATED THAT IN THE PREVIOUS YEAR ALSO SIMILAR DISALLOWANCE HAS BEEN MADE, THEREFORE, THE ASSESSING OFFICER HAS RES TRICTED THE PAYMENT OF RENT TO THE SPECIFIED PERSON AS SHOWN AGAINST EACH NAME AS PER TABLE GIVEN BELOW:- NAME OF THE SPECIFIED PERSON RELATIONSHIP WITH THE ASSESSEE NATURE OF PAYMENT AMOUNT PAID IN AY 2013- 14 AMOUNT OF RENT PROPOSED TO BE ALLOWED PARAS GANDHI BROTHER RENT 144000 84000 PURNIMA GANDHI SISTER RENT 24000 18000 RAJSHRI GANDHI SISTER IN LAW RENT 132000 72000 RASILABEN GANDHI WIFE RENT 132000 72000 GANDHI CONSULTANCY SISTER CONCERN RENT ON FURNITURE & FIXTURE 2,22,000 120000 I.T.A NOS. 1758 & 1759/AHD/2018 A.Y. 2013-14 & 2014-15 PAGE NO GANDHI SHRENIK KANTILAL VS. ITO 5 TOTAL 654000 366000 6. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE THE L D. CIT(A). THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE. 7. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFOR E US AT THE OUTSET THE LD. COUNSEL CONTENDED THAT IDENTICAL ISSUE ON SIMIL AR FACT IN THE CASE OF THE ASSESSEE ITSELF HAS BEEN ADJUDICATED BY THE ITAT AH MEDABAD FOR ASSESSMENT YEAR 2011-12 AND ASSESSMENT YEAR 2012-13 VIDE ITA N OS. 2872 & 2873/AHD/2015 VIDE ORDER DATED 01-01-2019. 8. WITHOUT REITERATING THE FACTS AS CITED ABOVE, WI TH THE ASSISTANCE OF THE LD. REPRESENTATIVES, WE HAVE GONE THROUGH THE DECIS ION OF ITAT IN THE CASE OF ASSESSEE ITSELF AS REFERRED ABOVE VIDE ITA NOS. 28 72 & 2873/AHD/2015 IN THE CASE OF SHRENIK KUMAR KANTILAL GANDHI VS. ITO S UPRA. THE RELEVANT OPERATIVE PART OF THE PARA ON THE ISSUE OF THE ITAT ORDER IS REPRODUCED AS UNDER:- 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE INSTANT CASE RELATES TO THE DISALLOWAN CE MADE BY THE AO FOR THE SALARY PAID BY THE ASSESSEE TO THE SPECIFIED PERSONS. THE ASSESSEE DUR ING THE YEAR HAS PAID THE SALARY TO THE SPECIFIED PERSONS AMOUNTING TO RS. 8,36,760/- ONLY. HOWEVER, THE AO FOUND THAT THE SALARY PAID TO THE SPECIFIED PERSONS WAS EXCESSIVE AND UNREASONABLE. A CCORDINGLY, HE MADE THE DISALLOWANCE OF RS. 4,16,000/- UNDER THE PROVISIONS OF SECTION 40A(2) O F THE ACT. 8.1 HOWEVER, ON APPEAL, THE LEARNED CIT (A) REDUCED THE DISALLOWANCE TO RS. 2,96,000/- ONLY. 8.2 THE CONTROVERSY BEFORE US ARISES FOR OUR ADJUDI CATION WHETHER THE ASSESSEE IN THE GIVEN FACTS AND CIRCUMSTANCES MADE PAYMENT OF SALARIES TO THE SPECIFIED PERSONS EXCESSIVE AND UNREASONABLE. AT THIS JUNCTURE, WE FIND IMPORTANT T O REFER THE PROVISIONS OF SECTION 40A(2)(A)OF THE ACT WHICH READS AS UNDER: I.T.A NOS. 1758 & 1759/AHD/2018 A.Y. 2013-14 & 2014-15 PAGE NO GANDHI SHRENIK KANTILAL VS. ITO 6 (2)(A) WHERE THE ASSESSEE INCURS ANY EXPENDITURE I N RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERSON 56 REFERRED TO IN CLAUSE (B) OF THIS SUB-SECTION, AND THE 57 [ASSESSING] OFFICER IS OF OPINION THAT SUCH EXPENDI TURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS , SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSI NESS OR PROFESSION OF THE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING TO HIM THEREFROM , SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE S HALL NOT BE ALLOWED AS A DEDUCTION. 8.3 A PLAIN READING OF THE ABOVE PROVISIONS REVEALS THAT THE DISALLOWANCE UNDER SECTION 40A(2) CAN BE MADEONLY WHEN THE AO IS OF THE OPINIO N THAT THE PAYMENT MADE TO THE SPECIFIED PERSONS IS EXCESSIVE OR UNREASONABLE IN COMPARISON TO THE FAIR MARKET VALUE. IN THE CASE BEFORE US, THE AO HAS NOT MADE ANY COMPARISON OF THE SALARY PA ID BY THE ASSESSEE TO THE SPECIFIED PERSONS WITH THE FAIR MARKET VALUE OF SUCH SERVICES. AS SUC H THE AO HAS MADE THE DISALLOWANCE WITHOUT MAKING ANY COMPARISON OF THE SALARY PAID BY THE ASS ESSEE WITH THE FAIR MARKET VALUE. 8.4 WE ALSO NOTE THAT ALMOST SIMILAR SALARY WAS ALL OWED BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. IN THE YEAR UNDER CONSID ERATION, THE SALARY HAS SLIGHTLY INCREASED IN COMPARISON TO THE EARLIER YEAR SALARY. THUS IT IS C LEAR THAT THE AO BEFORE MAKING THE DISALLOWANCE OF THE SALARY HAS NOT CONSIDERED THE SALARY PAID TO THESE PERSONS IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. 8.5 WE FIND THAT THE HONBLE DELHI HIGH COURT IN TH E CASE OF COMMISSIONER OF INCOME-TAX VS. MODI REVLON (P.) LTD. REPORTED IN 26 TAXMANN.COM 13 3 DELETED THE ADDITION MADE BY THE AO UNDER SECTION 40A(2) OF THE ACT WITHOUT MAKING ANY COMPAR ISON TO THE FAIR MARKET VALUE. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW: '25. THIS COURT NOTICES THAT IN ORDER TO DETERMINE WHETHER THE PAYMENT IS NOT SUSTAINABLE, THE AO HAS TO FIRST RETURN A FINDING THAT THE PAYME NT MADE IS EXCESSIVE, UNDER SECTION 40- A (2) OF THE INCOME TAX ACT. IF IT IS FOUND TO BE S O, THEN THE AO HAS TO DETERMINE WHAT CONSTITUTES THE FAIR MARKET VALUE OF THE SERVICES R ENDERED AND DISALLOW THE DIFFERENCE BETWEEN WHAT IS CLAIMED AND WHAT IS SUCH VALUE DETE RMINED (AS FAIR MARKET VALUE). 8.6 THE ALLEGATION OF THE AO THAT THE ASSESSEE HAS NOT RECRUITED THE EMPLOYEE FROM THE OUTSIDE IS THE BASELESS OBSERVATION. IT IS BECAUSE THE AO CANNOT ENTER INTO THE SHOE OF THE ASSESSEE AND DIRECT HIM FOR THE RECRUITMENT OF THE STAFF OF HIS BUSINESS. THE ASSESSEE IS THE BEST PERSON TO UNDERSTAND AND DECIDE HIS AFFAIRS OF THE BUSINESS. THUS NO DISALLOWANCE CAN BE MADE UNDER SECTION 40A(2) OF THE ACT ON THE BASIS THAT THE ASS ESSEE HAS NOT RECRUITED THE PERSON FROM OUTSIDE. 8.7 WE ALSO NOTE THAT THERE WAS NO SPECIFIC DEFECT POINTED OUT BY THE INSPECTOR IN HIS REPORT SUGGESTING THAT THE SALARY EXPENSES INCURRED BY THE ASSESSEE WERE NOT ALLOWABLE UNDER THE PROVISIONS OF SECTION 40A(2) OF THE ACT. SIMILARLY, THE DISALLOWANCE CANNOT BE MADE OF THE SALARY EXPENSES MERELY ON THE GROUND THAT THERE WAS NO SAL ARY AND ATTENDANCE REGISTER MAINTAINED BY THE ASSESSEE. THERE WAS NO MENTION OF THE SERVICES REND ERED BY THESE SPECIFIED PERSONS TO THE ASSESSEE. THUS WE CAN INFER THAT THERE WAS NO DEFEC T OR FLAW IN THE SERVICES PROVIDED BY THE SPECIFIED PERSONS TO THE ASSESSEE. 8.8 THE SALARY PAID TO THE PERSONS IN THE CASE BEFO RE US IS REPRESENTING INDIRECT EXPENSES WHICH ARE FIXED IN NATURE. AS SUCH THESE EXPENSES H AVE TO BE INCURRED ON A TIMELY BASIS IRRESPECTIVE OF THE VOLUME OF THE BUSINESS OF THE A SSESSEE. THUS THE REDUCTION IN THE SALES AND NET PROFIT CANNOT BE THE BASIS OF HOLDING THAT SALARY P AID TO THE SPECIFIED PERSONS WAS EXCESSIVE AND UNREASONABLE. 8.9 WE ALSO NOTE THAT THE NATURE OF THE BUSINESS OF THE ASSESSEE IS TRADING AND BROKING IN THE SECURITIES. IT IS THE FACT THAT THE SHARE MARKET BU SINESS IS VERY MUCH VOLATILE AND FLUCTUATING. THUS NOTHING CAN BE PREDICTED FOR THE PROFIT OR LOSS FRO M SUCH BUSINESS. THEREFORE, THE DISALLOWANCE OF I.T.A NOS. 1758 & 1759/AHD/2018 A.Y. 2013-14 & 2014-15 PAGE NO GANDHI SHRENIK KANTILAL VS. ITO 7 SALARY EXPENSES CANNOT BE MADE IN THE EVENT OF A RE DUCTION IN THE BUSINESS AND PROFIT OF THE ASSESSEE. 8.10 WE ALSO NOTE THAT THE ASSESSEE HAD EXPLAINED T HE PROFILE OF ALL THE SPECIFIED PERSONS BEFORE THE LEARNED CIT (A) AND NO DEFECT OF WHATSOE VER WAS POINTED OUT BY HIM DURING THE APPELLATE PROCEEDINGS. 8.11 IN VIEW OF THE ABOVE WE ARE INCLINED TO HOLD T HAT THE DISALLOWANCE MADE BY THE AO WAS BASED ONLY ON THE SURMISE AND CONJECTURE, WITHOUT B RINGING ANY TANGIBLE MATERIAL TO JUSTIFY THAT THE SALARY WAS PAID EXCESSIVE AND UNREASONABLE. 8.12 THEREFORE, WE REVERSE THE ORDER OF AUTHORITIES BELOW. ACCORDINGLY WE SET ASIDE THE ORDER OF THE LEARNED CIT (A) AND DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM. THUS THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. ON THE ISSUE OF PAYMENT OF RENT, THE OPERATIVE PARA OF THE ITAT IS REPRODUCED AS UNDER:- 13.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE INSTANT CASE RELATES TO THE RENT EXPEN SES CLAIMED BY THE ASSESSEE IN RESPECT OF CERTAIN PREMISES AND HIRING OF COMPUTERS &INFRASTRUCTURE FA CILITIES AVAILABLE AT SUCH PREMISES. THE AO WAS OF THE VIEW THAT THE RENT HAS BEEN PAID TO THE SPECIFIED PERSONS AS PROVIDED UNDER SECTION 40(A)(2)(B) OF THE ACT. AS SUCH THERE WAS NO REQUIR EMENT IN THE BUSINESS OF THE ASSESSEE FOR TAKING SO MANY PREMISES AND COMPUTERS &INFRASTRUCTURE FACI LITIES ON RENT. THUS THE AO DISALLOWED THE SUM OF RS. 2,10,000/- OUT OF TOTAL RENT EXPENSES CL AIMED BY THE ASSESSEE OF RS. 6,60,000/-. 14. THE VIEW TAKEN BY THE AO WAS SUBSEQUENTLY CONFI RMED BY THE LEARNED CIT (A). 14.1 NOW THE CONTROVERSY BEFORE US ARISES WHETHER T HE ASSESSEE HAS CLAIMED BOGUS EXPENSES UNDER THE GARB OF RENT PAID TO THE PERSONS AS SPECI FIED UNDER SECTION 40A(2)(B) OF THE ACT. AT THE OUTSET WE NOTE THAT THE AO HAS MADE THE DISALLOWANC E OF THE RENT EXPENSES PARTLY, MEANING THEREBY, THE AO HAS ACCEPTED PART OF THE RENT EXPEN SES AS GENUINE. THERE WAS NO BASIS PROVIDED BY THE AO FOR ACCEPTING PART OF THE RENT EXPENSES AS G ENUINE AND PART OF THE RENT EXPENSES AS EXCESSIVE. 14.2 THE PROVISIONS OF SECTION 40(A)(2) OF THE ACT REQUIRES THE AO TO ESTABLISH THAT THE RENT PAID BY THE ASSESSEE IS EXCESSIVE AND UNREASONABLE KEEPING IN VIEW THE PREVAILING MARKET RATE. BUT THE AO HAS NOT BROUGHT ANY IOTA OF EVIDENCE SUGGEST ING THAT THE ASSESSEE HAS PAID EXCESSIVE AND UNREASONABLE RENT IN COMPARISON TO THE FAIR MARKET RATE. 14.3 THE PAYMENT MADE TO THE SPECIFIED PERSONS CANN OT BE DISALLOWED WITHOUT BRINGING ANY TANGIBLE MATERIAL TO PROVE THAT THE RENT HAS BEEN P AID EXCESSIVELY. 14.4 WE FIND THAT THE ITAT MUMBAI IN THE CASE OF NA T STEEL EQUIPMENT (P.) LTD. VS. NAT STEEL EQUIPMENT (P.) LTD. REPORTED IN 95 TAXMANN.COM 159 DELETED THE ADDITION MADE BY THE AO UNDER SECTION 40A(2) OF THE ACT WITHOUT BRINGING ANY MATE RIAL. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW: WE ARE OF THE CONSIDERED VIEW THAT THE LOWER AUTHO RITIES HAD CARRIED OUT THE DISALLOWANCE UNDER SEC. 40A(2)(A) ON AN ADHOC BASIS VIZ. 30% OF THE PAYMENTS MADE TO THE RELATED PARTIES AND MADE A DISALLOWANCE OF RS. 38,87,705/- WITHOUT PLACING ON RECORD ANY MATERIAL WHICH COULD PROVE TO THE HILT THAT THE PAYMENTS WERE EXCESSIVE OR UNREASONABLE, HAVING REGARD TO THE FAIR MARKET VALU E OF THE SERVICES FOR WHICH THE SAME I.T.A NOS. 1758 & 1759/AHD/2018 A.Y. 2013-14 & 2014-15 PAGE NO GANDHI SHRENIK KANTILAL VS. ITO 8 WERE MADE OR KEEPING IN VIEW THE LEGITIMATE NEEDS O F THE BUSINESS OF THE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING TO THE ASSESSEE THER EFROM. BE THAT AS IT MAY, WE ARE OF THE CONSIDERED VIEW THAT IN THE ABSENCE OF SATISFACTION OF THE BASIC CONDITION FOR INVOKING OF SEC. 40A(2)(A) BY BOTH OF THE LOWER AUTHORITIES, TH E DISALLOWANCE OF 30% OF THE RELATED PARTY EXPENSES I.E RS. 38,87,705/- MADE UNDER SE. 4 0A(2)(A) CANNOT BE SUSTAINED. 14.5 IN VIEW OF THE ABOVE WE HOLD THAT THE AO HAS M ADE THE DISALLOWANCE ON HIS SURMISE AND CONJECTURE WITHOUT BRINGING ANY EVIDENCE ON RECORD. ACCORDINGLY, WE ARE NOT IMPRESSED WITH THE FINDING OF LOWER AUTHORITIES IN THE GIVEN FACTS AND CIRCUMSTANCES. ACCORDINGLY, WE SET ASIDE THE ORDER OF LEARNED CIT (A) AND DIRECT THE AO TO DELET E THE ADDITION MADE BY HIM. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. CONSIDERING THE DECISION OF THE ITAT AS REFERRED AB OVE, THERE IS NOTHING BEFORE US ON HAND TO DIFFER FROM THE ISSUE RAISED IN THE CASE CITED (SUPRA) SO AS TO TAKE A DIFFERENT VIEW ON THIS ISSU E. THEREFORE, SINCE THE ISSUE IS ON HAND HAVE SQUARELY COVERED FOLLOWING THE PRIN CIPLE OF CONSISTENCY, WE FIND MERIT IN THE SUBMISSION OF THE ASSESSEE AND AL LOW BOTH THE GROUNDS OF APPEALS OF THE ASSESSEE. ITA NO. 1759/AHD/2018 A.Y. 2014-15 GROUND NOS. 1 AND 2 OF ITA NO. 1759/AHD/2018 9. AS THE FACTS AND ISSUE INVOLVED IN GROUND NO S. 1 & 2 OF APPEAL VIDE ITA NO. 1759/AHD/2018 ASSESSMENT YEAR 2014-15 ARE SIMIL AR AS IN ITA NO. 1758/AHD/2018 ASSESSMENT YEAR 2013-14, THER EFORE, AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO . 1758/AHD/2018 AS SUPRA IN THIS ORDER, BOTH THE GROU NDS OF THIS APPEAL OF THE ASSESSEE ARE ALLOWED. GROUND NO. 3 (LONG TERM CAPITAL GAIN OF RS. 2,10,16 1) 10. DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS CLAIMED LONG TERM GAIN OF RS. 2,01,261 /-. ON QUERY, THE ASSESSEE EXPLAINED THAT SHARES WERE PURCHASED FOR T HE INVESTMENT PURPOSES, I.T.A NOS. 1758 & 1759/AHD/2018 A.Y. 2013-14 & 2014-15 PAGE NO GANDHI SHRENIK KANTILAL VS. ITO 9 THEREFORE, LONG TERM CAPITAL GAIN WAS CLAIMED ON TH E SALE OF THOSE SHARES. THE ASSESSING OFFICER HAS NOT ACCEPTED THE SUBMISSI ON OF THE ASSESSEE STATING THAT THAT ASSESSEE HAS NOT SHOWN THE SOLD S HARE IN THE BALANCE SHEET AS INVESTMENT AND TREATED THE SAME AS BUSINESS INCOME. 11. THE ASSESSEE HAS FILED APPEAL BEFORE THE LD. CI T(A). THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE REITERATI NG THE SAME FACT AS REPORTED BY THE ASSESSING OFFICER. 12. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFO RE US, THE LD. COUNSEL HAS SUBMITTED THAT ASSESSING OFFICER HAS NOT VERIFI ED THE DETAILS SUBMITTED BY THE ASSESSEE EXPLAINING THAT SOLD SHARES WERE B ONUS SHARES WHICH WERE RECEIVED IN APRIL, 2006, THEREFORE, THE SAME WERE NOT REFLECTED IN THE BALANCE SHEET AS INVESTMENT. ON THE OTHER HAND, LD . DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF LOWER AUT HORITIES. 13. HEARD BOTH THE SIDES AND PERUSED THE MATERIAL O N RECORD. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE LD. CIT(A), THE ASSESSEE HAS SPECIFICALLY SUBMITTED IN HIS SUBMISSION THAT HE HA S INVESTED IN THE SHARES OF INFOSYS IN 1990. SUBSEQUENTLY, THE INFOSYS DECLARE D BONUS SHARES AND CAPITAL GAIN WAS EARNED ON THE SALE OF BONUS SHARES . IN THIS REGARD, THE ASSESSEE HAS ALSO PLACED COPIES OF CONTRACT NOTE, D EMAT STATEMENT, STATEMENT OF HOLDING OF INFOSYS SHARES IN THE PAPER BOOK. AF TER PERUSAL OF THE DETAIL FILED BY THE ASSESSEE, IT IS CLEAR THAT ASSESSING O FFICER HAS NOT TAKEN INTO CONSIDERATION THE RELEVANT SUBMISSION ALONG WITH CO PIES OF DOCUMENT FILED BY THE ASSESSEE IN SUPPORT OF HIS CLAIM OF LONG TER M CAPITAL GAIN ON THE SALE I.T.A NOS. 1758 & 1759/AHD/2018 A.Y. 2013-14 & 2014-15 PAGE NO GANDHI SHRENIK KANTILAL VS. ITO 10 OF IMPUGNED SHARES. THEREFORE, WE RESTORE THIS IS SUE TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING DE-NOVO AFTER VERIFI CATION OF THE DETAIL FILED UPON AFFORDING ADEQUATE OPPORTUNITY TO THE ASSESSEE . THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICA L PURPOSES. GROUND NO. 4 (DISALLOWANCE OF BAD DEBT OF 3,31,070/ -) 14. DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS CLAIMED BAD DEBT OF RS. 3,31,070/- AND STATED MOTILA OSWAL HAS DEBITED THE BAD DEBT IN ASSESSEES ACCOUNT. IN TH IS REGARD, THE ASSESSING OFFICER STATED THAT ASSESSEE WAS A SUB-BROKER OF MO TILAL OSWAL OF GODRA AND HIS SOURCE OF INCOME WAS ONLY BROKERAGE RECEIVED FR OM M/S. MOTILAL OSWAL. THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE TH E ASSESSEE HAS NOT OFFERED THE CORRESPONDING INCOME IN ITS BOOKS, THEREFORE, CLAIM OF BAD DEBT IS NOT ALLOWABLE. ACCORDINGLY, THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF BAD DEBT. 15. THE ASSESSEE HAS FILED APPEAL BEFORE THE LD. CI T(A). THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE REITERATIN G THE FACTS AS STATED BY THE ASSESSING OFFICER. 16. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFO RE US, THE LD. COUNSEL SUBMITTED THAT ASSESSEE HAS GIVEN NOMENCLATURE AS B AD DEBT, BUT IN FACT, IT WAS TRADING LOSS WHICH WAS RECOVERED BY THE PRINCIP AL FROM THE ASSESSEE. HE HAS FURTHER SUBMITTED THAT AS PER THE AGREEMENT BET WEEN THE PRINCIPAL MOTILAL OSWAL AND THE AGENT (ASSESSEE) IN CASE OF NON-RECOV ERY OF OUTSTANDING FROM 25 CLIENTS, THE SAME WILL BE RECOVERED FROM THE SUB -BROKER. THE LD. COUNSEL I.T.A NOS. 1758 & 1759/AHD/2018 A.Y. 2013-14 & 2014-15 PAGE NO GANDHI SHRENIK KANTILAL VS. ITO 11 HAS ALSO PLACED THE COPY OF ACCOUNTS OF ALL THE PAR TIES WHOSE DEBT HAVE BEEN ADJUSTED BY THE PRINCIPAL FROM THE BROKERAGE AMOUNT . ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED T HE ORDER OF LOWER AUTHORITIES. 17. HEARD BOTH THE SIDES AND PERUSED THE MATERIAL O N RECORD. WITHOUT REITERATING THE FACT AS CITED ABOVE DURING THE COUR SE OF ASSESSMENT, THE ASSESSING OFFICER OBSERVED THAT MOTILAL OSWAL HAS D EBITED THE BAD DEBT IN ASSESSEES ACCOUNT. HE WAS OF THE VIEW THAT BAD DE BT OF THE IMPUGNED BROKER SHOULD NOT BE BORNE BY THE ASSESSEE. THEREF ORE, THE SAME WAS DISALLOWED. DURING THE COURSE OF APPELLATE PROCEE DINGS BEFORE US, THE LD. COUNSEL EXPLAINED THAT ACTUALLY IT WAS A TRADING LO SS BECAUSE OF NON-PAYMENT OF CONTRACT AMOUNT BY THE PARTIES IN RESPECT OF SHA RE TRANSACTION ENTERED INTO BY SUB-BROKER. AS PER THE AGREEMENT IN CASE OF NO N-RECOVERY FROM SUCH PARTIES, THE SAME WILL BE RECOVERED FROM THE SUB-B ROKER. IN THIS REGARD, THE ASSESSEE HAS PLACED COPY OF DEBIT NOT OF MOTILAL IN VESTMENT SERVICES, STATEMENT OF BAD DEBT WRITTEN OFF, COPY OF CUSTOMER ACCOUNT FROM BOOKS OF THE ASSESSEE ETC. AFTER PERUSAL OF THE AFORESAID F ACTS AND MATERIAL FILED BY THE ASSESSEE, WE ARE OF THE VIEW THAT THE ISSUE OF TRAD ING LOSS INSTEAD OF BAD DEBT AS CLAIMED BY THE ASSESSEE IS REQUIRED TO BE EXAMIN ED FROM THE SUBMISSION MADE BY THE ASSESSEE, THEREFORE, WE RESTORE THIS IS SUE TO THE FILE OF ASSESSING OFFICER FOR DECIDING DE-NOVO AFTER EXAMINATION/VERI FICATION OF THE DETAILS TO BE FURNISHED BY THE ASSESSEE IN THE SET ASIDE PROCE EDINGS UPON AFFORDING ADEQUATE OPPORTUNITY TO THE ASSESSEE. ACCORDINGLY , THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. I.T.A NOS. 1758 & 1759/AHD/2018 A.Y. 2013-14 & 2014-15 PAGE NO GANDHI SHRENIK KANTILAL VS. ITO 12 GROUND NO. 5 ( ADDITION OF UNEXPLAINED CAPITAL OF R S. 1,40,000/-) 18. DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT THERE WAS ADDITION TO THE CAPITAL ACCOUNT OF THE AS SESSEE TO THE AMOUNT OF RS. 1,40,000/-. ON QUERY, THE ASSESSEE CLAIMED THAT TH E SAME WAS OUT OF THE WITHDRAWAL MADE BY THE ASSESSEE IN THE THREE PRECED ING YEARS. HOWEVER, THE ASSESSEE FAILED TO SUBSTANTIATE HIS CLAIM WITH RELEVANT SUPPORTING EVIDENCES, THEREFORE, THE ASSESSING OFFICER HAS ADD ED THE SAME AS UNEXPLAINED TO THE TOTAL INCOME OF THE ASSESSEE. 19. THE ASSESSEE HAS FILED APPEAL BEFORE THE LD. CI T(A). THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE. 20. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFO RE US, THE ASSESSEE HAS REITERATING THE SAME SUBMISSION THAT SOURCE OF INTR ODUCTION OF CAPITAL OF RS. 1,40,000/- WAS OUT OF WITHDRAWAL MADE IN THE PAST T HREE YEARS. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPO RTED THE ORDER OF LOWER AUTHORITIES. 21. HEARD BOTH THE SIDES AND PERUSED THE MATERIAL O N RECORD. THE ASSESSEE HAS CLAIMED THAT THE SOURCE OF ADDITION TO THE CAPI TAL ACCOUNT WAS OUT OF WITHDRAWAL MADE IN THE PAST THREE YEARS. HOWEVER, THE ASSESSEE HAS NOT FURNISHED ANY RELEVANT SUPPORTING EVIDENCES BEFORE THE LOWER AUTHORITIES. ON THIS ISSUE, WE FIND THAT EVEN DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE ASSESSEE HAS ONLY FURNISHED THE COP Y OF BALANCE SHEET OF THE ASSESSEE WITHOUT ANY RELEVANT SUPPORTING EVIDENCES TO DEMONSTRATE THAT THE SOURCE OF ADDITION TO THE CAPITAL ACCOUNT OF RS. 1, 40,000/- WAS ACTUALLY OUT OF I.T.A NOS. 1758 & 1759/AHD/2018 A.Y. 2013-14 & 2014-15 PAGE NO GANDHI SHRENIK KANTILAL VS. ITO 13 THE EXPLAINED WITHDRAWAL. THEREFORE, WE DO NOT FIN D ANY INFIRMITY IN THE DECISION OF LD. CIT(A) ON THIS ISSUE. ACCORDINGLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 23. IN THE RESULT, APPEAL ITA 1758/AHD/2018 IS A LLOWED AND APPEAL ITA 1759/AHD/2018 IS PARTLY ALLOWED FOR STATISTICAL PUR POSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27-10-2021 SD/- SD/- (MADHUMITA ROY) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 27/10/2021 / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,