PENTAGON WATERLINES P.LTD, MUMBAI V. DCIT CEN CIR 24& 26, MUMBAI

ITA 2275/MUM/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5529 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 17-02-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 20-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KUMAR SANJAY
• Keywords: Unexplained expenditure
• Section: 153A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.2275/M/2015 ASSESSMENT YEAR: 2011-12 M/S. PENTAGON WATERLINES PVT. LTD., G-6, GROUND FLOOR, EVEREST GRANDE BLDG., MAHAKALI CAVES RD., NR AHUJA CENTRE, SHANTI NAGAR, MUMBAI-400 093 PAN: AADCP 6334J VS. DCIT, CENTRAL CIRCLE-24 & 26, AAYAKAR BHAVAN, MUMBAI (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : SHRI PARESH VAKHARIA, A.R. MS. DISHA SONI, A.R. REVENUE BY : SHRI KUMAR SANJAY, D.R. DATE OF HEARING : 24.05.2018 DATE OF PRONOUNCEMENT : 19.07.2018 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 21.01.2015 OF THE COMMISSIONE R OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2011-12. 2. THE VARIOUS GROUNDS RAISED BY THE ASSESSEE ARE A S UNDER: 1.1 THE LEARNED CIT(A) ERRED IN REJECTING THE APPE LLANT'S GROUND OF APPEAL THAT IN THE ABSENCE OF SATISFACTION OF INGRE DIENTS OF SEARCH PRESCRIBED UNDER SECTION 132(1) OF THE ACT; THE ASS ESSMENT BE DECLARED WITHOUT JURISDICTION AND INVALID. 1.2 THE LEARNED CIT(A) FAILED TO TAKE NOTE OF THE I MPORTANT FACT THAT ITA NO.2275/M/2015 M/S. PENTAGON WATERLINES PVT. LTD. 2 THE APPELLANT HAD SUBMITTED ITSELF TO THE ASSESSMEN T JURISDICTION UNDER PROTEST VIDE LETTER DATED 22-10-2012. 1.3 THE LEARNED CIT(A) FAILED TO APPRECIATE THE RAT IO LAID DOWN BY THE HIGH COURTS IN VARIOUS CASE LAWS CITED BEFORE HER WHEREI N THE RIGHT OF THE ASSESSEE TO CHALLENGE THE VALIDITY OF THE SEARCH BE FORE THE APPELLATE AUTHORITIES UNDER THE IT ACT HAS BEEN CONFIRMED. 1.4 THE LEARNED CIT(A) ERRED IN JUSTIFYING THE REJE CTION OF THE RIGHT OF CHALLENGE TO THE VALIDITY OF THE SEARCH BASED ON THE REASONS UNACCEPTABLE IN LAW. 1.5 CONSEQUENT UPON THE FOREGOING, THE LEARNED CIT( A) FAILED TO APPRECIATE THAT ASSESSMENT OF INCOME MADE SOLELY ON THE BASIS OF DECLARATION OF INCOME MADE BY THE APPELLANT UNDER U NDUE INFLUENCE FROM THE INVESTIGATING TEAM IN THE COURSE OF SEARCH OPERATIONS, IS INVALID IN LAW AND THEREFORE LIABLE TO BE DELETED. ALTERNATIVE GROUNDS: IN THE FACTS OF THE CASE AND IN LAW, THE LEARNED CI T(A) FAILED TO APPRECIATE THE CONTENTION OF THE APPELLANT THAT IT WAS CLEARLY DISCERNIBLE FROM THE STATEMENT TAKEN DURING THE SEA RCH PROCEEDINGS THAT THE APPELLANT HAD OFFERED THE INCO ME FOR TAXATION UNDER THE CONFUSED STATE OF MIND AND THAT THE SUM OF RS.14,88,222/- WAS NOT THE ADDITIONAL INCOME OF THE APPELLANT. 3. VIDE GROUND NO.1, THE ASSESSEE HAS CHALLENGED THE VALIDITY OF THE SEARCH. 4. THE FACTS IN BRIEF ARE THAT THE SEARCH WAS CONDU CTED ON THE ASSESSEE ON 11.02.2011 AND THE SEARCH WAS CLOSED TEMPORARILY ON 12.02.2011 AT 10 A.M. THEREAFTER, T HE SEARCH WAS AGAIN COMMENCED ON 01.03.2011 WHICH CONTINUED T ILL 4:30 P.M. ON 02.03.2011. DURING THE STATEMENT RECORDE D UNDER SECTION 132(4) THE ASSESSEE OFFERED INCOME OF RS.11,49,259/- IN A.Y. 2010-11 AND RS.25,95,851/- IN A. Y. 2011-12 TOWARDS BOGUS FREIGHT AND TRANSPORT EXPENSE S DEBITED IN BOOKS OF ACCOUNTS. A COMMISSION OF RS.14 ,88,222/- WAS PAID IN CASH TO A BUSINESS ASSOCIATES WHICH WAS ALSO OFFERED AS UNEXPLAINED EXPENDITURE IN F.Y. 2010-11. HOWEVER, WHILE FILING RETURN IN PURSUANCE OF NOTICE UNDER SE CTION 153A THE ASSESSEE DID NOT OFFER THE SAID INCOME TO TAX O N THE BELIEF ITA NO.2275/M/2015 M/S. PENTAGON WATERLINES PVT. LTD. 3 THAT THE SAID COMMISSION OF RS.14,88,222/- WAS PAID OUT OF THE CASH RECEIVED FROM BOGUS TRANSPORT EXPENSES ALR EADY OFFERED FOR INCOME. THE SAID FACTS WERE EXPLAINED IN THE ASSESSMENT PROCEEDINGS BUT WERE NOT ACCEPTED BY THE AO AND FINALLY ADDITION OF RS.14,88,222/- WAS MADE UNDER S ECTION 69(3) AS UNEXPLAINED EXPENDITURE. 5. THE LD. CIT(A) ALSO DISMISSED THE GROUND RAISED BY THE ASSESSEE REGARDING VALIDITY OF THE SEARCH HOLDING T HAT THE SEARCH WAS VALIDLY, INITIATED AND CONCLUDED AS HAS B EEN STATED IN THE PANCHANAMAS AND ACCORDINGLY AFFIRMED THE ORD ER OF AO ON THE GROUND OF VALIDITY OF THE SEARCH. THE LD. A.R . SUBMITTED BEFORE THE BENCH THAT STATEMENT WAS RECOR DED ON 01.03.2011 AND CONTINUED TILL 4:30 P.M. ON 02.03.2011. THE LD. A.R. FURTHER ARGUED THAT THE STATEMENT WAS NOT RE CORDED DURING THE COURSE OF SEARCH PROCEEDINGS AND THEREFO RE HAS NO VALIDITY AS THE SEARCH WAS CONCLUDED ON 12.02.2011, ON THE BASIS OF FIRST PANCHNAMA. THE LD. A.R. CONTENDED THAT THERE WAS NO BASIS FOR CONDUCTING SEARCH WHICH WAS CONDUC TED ON THE BASIS OF SUSPICIOUS AND SURMISES AND THEREFORE IS INVALID. 6. THE LD. D.R., ON THE OTHER HAND, OPPOSED THE ARGUM ENT OF THE LD. A.R. BY RELYING ON THE ORDER OF AUTHORIT IES BELOW. THE LD. D.R. ARGUED THAT THE SEARCH WAS COMMENCED ON 11.02.2011 AND WAS TEMPORARILY CONCLUDED ON 12.02.2011 THEREAFTER AGAIN TAKEN ON 01.03.2011 AND FINALLY CO NCLUDED ON 02.03.2011 AND THUS THERE IS NO WEIGHT IN THE ARGUMEN TS OF THE LD. A.R. ITA NO.2275/M/2015 M/S. PENTAGON WATERLINES PVT. LTD. 4 7. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE UNDISPUTED FACTS ARE THAT THE SEARCH WAS CONDUCTED ON 11.02.2011 AND TEMP ORARILY CONCLUDED ON 12.02.2011 ON THE BASIS OF FIRST PANCHN AMA DRAWN ON 12.02.2011. AGAIN AS PER 2 ND PANCHNAMA THE SEARCH COMMENCED ON 01.03.2011 AT 12:30 P.M. AND PROCEEDING S WERE CLOSED ON 02.03.2011 AS FINALLY CONCLUDED. IN OU R OPINION, THE ORDER OF LD. CIT(A) UPHOLDING THE VALIDI TY OF SEARCH IS QUITE REASONED AND WELL FOUNDED AS THERE IS NOTHING ON RECORD TO SHOW THAT SEARCH IS INVALID. WE OPINE D ON THE BASIS OF PANCHNAMA THAT THE SEARCH INITIATED ON 11.0 2.2011 AND CONCLUDED ON 02.03.2011. ACCORDINGLY, THE GROUND S RAISED BY THE ASSESSEE AS TO THE VALIDITY OF THE SE ARCH IS DISMISSED. 8. THE ISSUE RAISED IN 2 ND GROUND OF APPEAL IS AGAINST THE ORDER OF LD. CIT(A) NOT APPRECIATING THE FACT THAT A SUM OF RS.14,88,222/- WAS OFFERED UNDER CONFUSED STATE OF MIND AND WAS NOT AN ADDITIONAL INCOME OF THE ASSESSEE BUT TH E SOURCE OF SUCH EXPENSE WAS OUT OF RECEIPTS FROM BOGUS FREIGHT AND TRANSPORT EXPENSES. 9. THE FACTS OF THE CASE HAVE BEEN STATED HEREINABO VE IN THE FIRST GROUND OF APPEAL. THE SAID AMOUNT WAS OF FERED IN THE COURSE OF STATEMENT RECORDED UNDER SECTION 132(4) O F THE ACT TOWARDS CASH PAYMENT OF COMMISSION TO THE ASSOCIATE CONCERNS. THE ASSESSEE DID NOT OFFER THE SAME IN T HE RETURN OF INCOME ON THE GROUND THAT THE SAID AMOUNT WAS NOT O VER AND ABOVE BUT WAS DECLARED ON ACCOUNT OF BOGUS BILLING OF FREIGHT ITA NO.2275/M/2015 M/S. PENTAGON WATERLINES PVT. LTD. 5 AND TRANSPORTATION CHARGES. THE ASSESSEE CLAIMED TH AT THE SAID AMOUNT WAS OFFERED IN A CONFUSED STATE OF MIND AS ASSESSEE WAS UNDER CONSIDERABLE PRESSURE AND COULD NOT UNDERSTAND THE CONTENTS HE OFFERED IN THE STATEMENT RECORDED UNDER SECTION 132(4) OF THE ACT. NOW THE ASSESSEE IS CLAIMING THAT THE TELESCOPIC BENEFIT SHOULD BE GRANTED TO TH E ASSESSEE AS THE SEARCH TEAM HAS NOT FOUND ANY INCRIMINATING DOCUMENTS EVIDENCING THE PAYMENT OF SAID COMMISSION TO THE ASSOCIATE CONCERN. HOWEVER, THE AO ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 10. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) ALS O CONFIRMED THE SAME ON THE GROUND THAT ASSESSEE ITSE LF AGREED TO HAVE EXPENDED RS.14,88,222/- TOWARDS PAYMENT OF COMMISSION TO THE ASSOCIATE CONCERN. 11. THE LD. A.R. VEHEMENTLY SUBMITTED BEFORE US THAT THE ASSESSEE OFFERED RS.14,88,222/- UNDER DURESS AND CONF USED STATE OF MIND AS ASSESSEE WAS UNDER TREMENDOUS PRES SURE DUE TO THE SEARCH AND IT WAS BEING THE FIRST SEARCH INC IDENCE ON THE ASSESSEE. THE LD. A.R. SUBMITTED THAT THE ASSESSEE HAS ALREADY OFFERED RS.11,49,259/- IN A.Y. 2010-11 AND RS.25,95,851/- IN A.Y. 2011-12 TOWARDS BOGUS FREIGHT AND TRANSPORT EXPENSES DEBITED IN THE BOOKS OF ACCOUNTS . THE LD. A.R. SUBMITTED THAT THE SAID PAYMENT OF COMMISSION AMOUNTING TO RS.14,88,222/- SHOULD BE TELESCOPED OUT O F THE ABOVE SURRENDERED INCOME AND THE ASSESSEE SHOULD BE GRANTED THE BENEFIT OF TELESCOPING AND THUS NO SEPA RATE ADDITION IS CALLED FOR. MOREOVER, THE ASSESSEE ALS O SUBMITTED ITA NO.2275/M/2015 M/S. PENTAGON WATERLINES PVT. LTD. 6 THAT SINCE NO INCRIMINATING DOCUMENT WAS FOUND DURI NG THE COURSE OF SEARCH AND THE ADDITION IS NOT JUSTIFIED BASED ON THE ADMISSION BY THE ASSESSEE IN THE STATEMENT RECORDED UNDER SECTION 132(4) WHICH HAS NO EVIDENTIARY VALUE AS NO T BEING CORROBORATED BY SIMULTANEOUS DETECTION OF SAME INCR IMINATING MATERIAL. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE OFFERED THE INCOME TO TAX DURING THE COURSE OF RECORDING OF STATEMENT UNDER SECTION 132(4) OF T HE ACT OF RS.11,49,259/- IN A.Y. 2010-11 AND RS.25,95,851/- IN A. Y. 2011-12 TOWARDS BOGUS FREIGHT AND TRANSPORT EXPENSE S DEBITED IN THE BOOKS OF ACCOUNTS. BESIDES, THE ASSES SEE ALSO MADE THE COMMISSION PAYMENTS OF RS.14,88,222/- TO ASSOCIATE CONCERN WHICH WAS ADMITTED BY THE ASSESSE E AT THE TIME OF RECORDING OF STATEMENT UNDER SECTION 132(4) OF THE ACT AND OFFERED THE SAME TO TAX IN A.Y. 2011-12. SO FAR AS THE OFFERING OF INCOME ON ACCOUNT OF BOGUS FREIGHT AND TRANSPORT EXPENSES IS CONCERNED, THERE IS NO DISPUTE AND THE SAME HAS BEEN ACCEPTED AND OFFERED BY THE ASSESSEE IN THE RE TURN OF INCOME BUT THE DISPUTE IS AS REGARDS RS.14,88,222/- W HICH WAS OFFERED AT THE TIME OF RECORDING OF STATEMENT A S PAYMENT OF COMMISSION IN CASH TO BUSINESS ASSOCIATE CONCERN BUT LATER ON WAS NOT OFFERED IN THE RETURN OF INCOME REASONIN G THAT THE SAME WAS MADE OUT OF THE CASH GENERATED BY THE ASSE SSEE BY BOOKING BOGUS FREIGHT AND TRANSPORT EXPENSES TO THE TUNE OF RS.25,95,851/-. WE ALSO OBSERVE THAT NO INCRIMINATI NG MATERIAL WAS FOUND DURING THE COURSE OF SEARCH CORR OBORATING ITA NO.2275/M/2015 M/S. PENTAGON WATERLINES PVT. LTD. 7 THE PAYMENT COMMISSION OF RS.14,88,222/-. UNDER THESE CIRCUMSTANCES WE ARE OF THE VIEW THAT THE CASH GENE RATED BY THE ASSESSEE OUT OF THE BOOKING OF BOGUS FREIGHT AN D TRANSPORT EXPENSES SHOULD BE ALLOWED TO BE USED BY THE ASSESS EE IN MAKING THE COMMISSION PAYMENT AND THE TELESCOPING O F THE SAME SHOULD BE ALLOWED TO THE ASSESSEE. THUS WE FIN D MERITS IN THE CONTENTION OF THE ASSESSEE THAT RS.14,88,222/- WAS MADE OUT OF THE CASH GENERATED OUT OF BOOKING OF BI LLS OF FREIGHT AND TRANSPORTATION CHARGES. IN VIEW OF THE ABOVE DISCUSSION AND FACTS ON RECORD, WE ARE INCLINED TO S ET ASIDE THE ORDER OF LD. CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION OF RS.14,88,222/-. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.07.2018. SD/- SD/- (PAWAN SINGH) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 19.07.2018. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY /ASSTT. REGISTRAR, ITAT, MUMBAI.