SHRI SUGAN CHAND RANGWANI, Jaipur V. ITO, Jaipur

ITA 39/JPR/2012

• Counselvise Citation: 3923114 RSA 2012
• Duration Of Justice: 2 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-07-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 13-01-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D C SHARMA
• Assessee Lawyers: K L MOOLCHANDAN I
• Keywords: Opportunity of being heard; Peak credit; Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH: JAIPUR (BEFORE SHRI R.P. TOLANI AND SHRI T.R. MEENA) I.T.A. NO. 39/JP/2012 ASSTT. YEAR- 2008-09 PAN NO. AAIPR 6405 R SHRI SUGAN CHAND RANGWANI, THE I.T.O., PROP. OF M/S RAJASTHAN CLOTH AGENCIES, VRS. WARD-1 (3). SHOP NO. 34, PROHIT JI KI KATLA, JAIPUR. JAIPUR. (APPELLANT) (RESPONDENT) I.T.A. NO. 112/JP/2012 ASSTT. YEAR- 2008-09 PAN NO. AAIPR 6405 R THE I.T.O., SHRI SUGAN CHAND RANGWANI, WARD-1(2). VRS. PROP. OF M/S RAJASTHAN CLOTH AGE NCIES, JAIPUR. SHOP NO. 34, PROHIT JI KI KATLA, JAIPUR. ASSESSEE BY :- SHRI K.L. MOOLCHANDANI. DEPARTMENT BY :- SHRI D.C. SHARMA. DATE OF HEARING : 10/07/2014 DATE OF PRONOUNCEMENT : 25/07/2014 O R D E R PER: T.R. MEENA, A.M. THE ITA NO. 39/JP/2012 FILED BY THE ASSESSEE AS WELL AS CROSS APPEAL NO. 112/JP/2012 BY THE REVENUE ARE AGAINST THE ORDE R DATED 02/11/2011 OF THE LEARNED C.I.T.(A)-I, JAIPUR FOR THE A.Y. 2008-09 . THE SOLE GROUND OF ASSESSEES APPEAL IS AGAINST IN NOT PASSING CIT(A) SPEAKING ORDER IN GROUND 2 NO. 4 REGARDING ADDITION OF RS. 44,75,000/- ON ACCO UNT OF CASH DEPOSIT IN BANK ACCOUNT. 2. THE LEARNED A.R. FOR THE ASSESSEE HAS NOT PRESSED THIS GROUND OF APPEAL BY FILING OF LETTER DATED 10/7/2014. THE LEARNED D.R . ALSO HAS NOT OBJECTED AGAINST THIS APPEAL. THEREFORE, WE DISMISS THE ASSESS EES APPEAL. 3. THE GROUND OF REVENUES APPEAL ARE AS UNDER:- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LEARNED CIT(A) IS JUSTIFIED IN: 1. DELETING THE ADDITION MADE BY THE ASSESSING OFFICER U/S 40A(2) OF THE I.T. ACT. 2. DIRECTING TO ADD PEAK BALANCE OF CASH DEPOSITS IN T HE BANK IGNORING THE FACT THAT THE ASSESSEE COULD NOT SUBMI T ANY EVIDENCE. 4. THE FIRST GROUND OF APPEAL IS AGAINST DELETING TH E ADDITION MADE BY THE ASSESSING OFFICER U/S 40A(2) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THE ASSESSING OFFICER RECORDED IN HIS ASSESSMENT ORD ER THAT THE ASSESSEE HAD DEBITED SALARY IN THE PROFIT AND LOSS ACCOUNT OF RS . 3,74,250/-. THE BUSINESS OF THE ASSESSEE IS COMMISSION AGENCY FOR CLOTHES WHERE ORDERS RECEIVED FOR PURCHASE FROM DIFFERENT PARTIES AND TRADERS WERE FOR WARDED TO WHOLESALERS AND MANUFACTURES OF CLOTH WHERE NO STAFF IN LARGE NUMBER AND SIZE IS REQUIRED IN THIS TYPE AND NATURE OF BUSINESS. THE LEARNED ASSES SING OFFICER FOUND THAT SALARY EXPENSES IN VIEW OF THE LINE OF BUSINESS WERE FOUND EXCESSIVE. AFTER CONSIDERING THE ASSESSEES REPLY ON THIS ISSUE, THE LEARNED ASSESSING OFFICER FOUND EXCESSIVE PAYMENT U/S 40A(2) OF THE ACT TO TH E NEAR RELATIVE OUT OF WHICH A FAIR AND REASONABLE PART WAS ADDED BACK @ 40% OUT OF TOTAL EXPENSES 3 IN THE INCOME OF THE ASSESSEE. HE MADE TOTAL ADDITI ON OF RS. 1,28,160/- IN THE INCOME OF THE ASSESSEE. 5. BEING AGGRIEVED BY THE ORDER OF THE LEARNED ASS ESSING OFFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LEARNED CIT (A), WHO HAS ALLOWED THE APPEAL IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UN DER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED ASSESSING OFFICER HAS GROSSLY ERRED IN MAKING DISAL LOWANCE OF RS. 1,28,160/- U/S 40A(2) ON FLIMSY GROUNDS. 5.1 THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD PAID SALARY TO PERSONS WHO WERE COVERED U/S 40A(2). IT WAS OBSERV ED IN THE ORDER THAT THE BUSINESS OF THE ASSESSEE IS THAT OF COMMISSION AGENCY OF CLOTHES WHERE THE ORDERS WERE RECEIVED FOR PURCHASES FROM DIFFERENT PARTIES AND TRADERS WHICH WAS PROCURE D FROM WHOLESALERS AND MANUFACTURER. THEREFORE, NO SUBSTANTI AL STAFF WAS REQUIRED IN THIS TYPE AND NATURE OF BUSINESS. HE FO UND THESE EXPENSES TO BE EXCESSIVE AND HE HELD THAT THEY DID NOT CONTRIBUTE IN ANY WAY IN THE BUSINESS AND DISALLOWED 40% OF THE APPELLANTS CLAIM. 5.2 THE AR OF THE ASSESSEE SUBMITTED THAT THE BUSINE SS WAS A FAMILY CONCERN AND THE FAMILY MEMBERS WERE ENGAGED IN ASSIS TING HIM IN RUNNING THE BUSINESS ACTIVITIES SMOOTHLY AND EFFECT IVELY. ALL THE FAMILY MEMBERS EMPLOYED WERE ADULTS AND DEPENDENT UP ON THIS CONCERN FOR EARNING THEIR LIVELIHOOD. REGARDING NATURE OF BUSINESS, IT HAS BEEN SUBMITTED THAT THE A.O. HAS NOT APPRECIATED THE FACTS CORRECTLY. THE ASSESSE E PROCURED GOODS FROM AHMEDABAD, MUMBAI AND SURAT WHICH WERE SUP PLIED TO THE PROSPECTIVE BUYERS AT JAIPUR AND NEARBY VILL AGES ON COMMISSION BASIS. FOR THIS PURPOSE, THE ASSESSEE IS MAINTAINING BRANCH OFFICE AT AHMEDABAD WHICH WAS BEING LOOKED AFT ER BY HIS BROTHERS AND SONS. REGARDING THE FAIRNESS AND REASO NABLENESS OF SALARY PAYMENT, IT WAS SUBMITTED THAT FOR RUNNING TH E BUSINESS SMOOTHLY AND EFFECTIVELY, ALL THESE MEMBERS WERE REQ UIRED TO BE DEPLOYED TO VISIT THE TOWNS AND VILLAGES FREQUENTLY FOR GETTING THE ORDERS, SUPPLY OF THE GOODS AND TO PURSUE COLLECTIO NS. IT WAS ALSO 4 POINTED OUT THAT THERE WAS NO MATERIAL ON RECORD TO SHOW THAT SUCH PAYMENTS WERE EXCESSIVE OR UNREASONABLE. RELIAN CE WAS ALSO PLACED IN THE CASE OF M/S UPPER INDIA PUBLISHI NG HOUSE PVT. LTD. VS. CIT (1979) 117 ITR 569 (S.C.) I HAVE CAREFULLY PERUSED THE ORDER OF THE A.O. AND THE SUBMISSIONS OF THE AR. THE FOLLOWING TWO CONDITIONS AR E TO BE TAKEN INTO CONSIDERATION WHILE MAKING DISALLOWANCE UN DER THIS HEAD. THESE ARE: A) WHEN THE A.O. IS OF OPINION THAT SUCH EXPENDITUR E IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES F OR WHICH THE PAYMENT IS MADE OR B) THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSIO N OF THE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING TO HIM THERE FROM. FROM THE PERUSAL OF THE ORDER IT IS SEEN THAT THE A .O. HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO SHOW THAT THE PAY MENT MADE TO THE RELATIVES OF THE ASSESSEE WERE NOT FOR BUSINE SS PURPOSE OR WERE FOR MORE THAN THE FAIR MARKET VALUE GIVEN THE S ERVICES PROVIDED. IT SEEMS THAT HE HAS ACCEPTED THE FACT TH AT THESE PEOPLE WERE EMPLOYED BY THE ASSESSEE FOR BUSINESS BU T A DISALLOWANCE WAS MADE @ 40% ON SALARY PAYMENT WITHOUT BRINGING ON RECORD ANY EVIDENCE TO SHOW THAT THESE P AYMENTS WERE MORE THAN THE FAIR MARKET VALUE FOR SERVICES RE NDERED. IN ABSENCE OF ANY FINDING/EVIDENCE TO SHOW THAT THE SA LARY PAYMENT WAS HIGHER THAN THE FMV FOR SERVICES RENDERED THE DI SALLOWANCE OF RS. 1,28,160/- U/S 40A(2) CANNOT BE UPHELD AND I S DIRECTED TO BE DELETED. NOW THE REVENUE IS IN APPEAL BEFORE US. 6. AT THE OUTSET, THE LEARNED D.R. SUPPORTED THE OR DER OF THE LEARNED ASSESSING OFFICER WHEREAS THE LEARNED A.R. FOR THE ASSESSEE RELIED ON THE ORDER OF THE LEARNED CIT(A). 5 7. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES, PERUSED THE RELEVANT MATERIAL ON RECORD THE LEARNED D.R. HAD NO T CONTROVERTED THE FINDING OF CIT(A) AS THE SALARY PAID TO THE RELATIVE ARE EXC ESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF SERVICES RENDERED. AS PER SECTION 40A(2) OF THE ACT, THE BURDEN GENERALLY LIES ON THE REVENUE TO PROVE THAT PAYMENTS MADE TO THE RELATED PARTY IS EXCESSIVE BY GIVING COMPARABLE CASES. THEREAFTER THE ASSESSEE IS REQUIRED TO JUSTIFY THE R EASONABLENESS OF PAYMENT. THE MAXIMUM SALARY PAID BY THE ASSESSEE PER MONTH TO HIS SON @ 7,000/- PER MONTH IN A.Y. 2008-09, WHICH APPEARS TO BE REASONABL E IN VIEW OF THE MARKET CONDITION OF THE CLOTH BUSINESS, THUS WE UPHELD THE ORDER OF THE LEARNED CIT(A). 8. REVENUES GROUND NO. 2 IS AGAINST DIRECTING TO A DD PEAK BALANCE OF CASH DEPOSITS IN THE BANK ACCOUNT IGNORING THE FACT THAT THE ASSESSEE COULD NOT SUBMIT ANY EVIDENCE. THE ASSESSING OFFICER FOUND THA T THE ASSESSEE HAS NOT DISCLOSED BANK ACCOUNT NO. 031010100268387 WITH AXIX BANK. ASPER AIR INFORMATION, A SUM OF RS. 44,75,000/- WAS DEPOSITED BY THE ASSESSEE IN CASH IN THIS BANK ACCOUNT. THE ASSESSEE NEVER INFORMED TO THE ASSESSING OFFICER ABOUT THIS BANK ACCOUNT. THE ASSESSING OFFICER GAVE REASONABLE OPPORTUNITY OF BEING HEARD. THE ASSESSEE ALSO RESPONDED FROM TIME T O TIME BEFORE THE ASSESSING OFFICER. AFTER CONSIDERING THE ASSESSEES REPLY, THE LEARNED ASSESSING OFFICER HELD THAT THIS CASH DEPOSITED IN THE BANK ACCOUNT ARE 6 UNDISCLOSED INCOME OF THE ASSESSEE, THUS HE MADE TH E ADDITION OF RS. 44,75,000/- IN THE INCOME OF THE ASSESSEE. 9. BEING AGGRIEVED BY THE ORDER OF THE LEARNED ASSE SSING OFFICER, THE ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT(A) WH O HAS ALLOWED THE APPEAL PARTIALLY BY OBSERVING AS UNDER:- 6.3 I HAVE CAREFULLY PERUSED THE ORDER OF THE A.O. AND THE SUBMISSIONS OF THE AR. CONSIDERING THAT THE ASSESSE E HAD NOT EXPLANATION REGARDING THE INITIAL CASH DEPOSIT OF R S. 12,50,000/-, THE ENTIRE AMOUNT IS DIRECTED TO BE ADDED TO THE IN COME OF THE ASSESSEE AS UNEXPLAINED CASH DEPOSIT. THEREAFTER, TH E A.O. IS DIRECTED TO DETERMINE THE PEAK BALANCE OF CASH FOR THE PURPOSE OF MAKING AN ADDITION ON ACCOUNT OF UNEXPLAINED CASH D EPOSITS. REGARDING SUBMISSION OF THE ASSESSEE THAT THE SURRE NDER OF THE PEAK AMOUNT IS BEING MADE TO BUY PEACE SUBJECT TO T HE CONDITION THAT NO PENALTY PROCEEDINGS WOULD BE INITIATED, IT I S HELD THAT THE ASSESSEE HAS NOT BEEN ABLE TO DISCHARGE HIS ONUS OF EXPLAINING THE CASH DEPOSITS IN HIS BANK AND SO THESE ARE LIAB LE TO BE ADDED TO THE INCOME OF THE ASSESSEE ON THE BASIS OF ROTAT IONAL CASH WITHDRAWALS. THERE IS NO QUESTION OF BUYING PEACE PAR TICULARLY AS THE INCOME-TAX ACT, 1961 DOES NOT PROVIDE FOR BROKE RING OF PEACE UNDER ANY OF ITS PROVISIONS. 10. NOW THE REVENUE IS IN APPEAL BEFORE US AND THE L EARNED D.R. VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFF ICER WHEREAS THE LEARNED A.R. FOR THE ASSESSEE SUPPORTED THE ORDER OF THE LE ARNED CIT(A) AND ARGUED THAT THE BANK ACCOUNT HAS BEEN CONSIDERED BY THE LE ARNED CIT(A) AND THE ASSESSING OFFICER HAS BEEN DIRECTED TO DETERMINE TH E PEAK BALANCE OF CASH OF THE BANK ACCOUNT FOR DETERMINING THE UNDISCLOSED IN COME. 7 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF BOT H THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IT IS FACT THAT THI S BANK ACCOUNT WAS UNACCOUNTED AND IT HAD NOT BEEN DISCLOSED FOR TAXAT ION PURPOSES. THE WHOLE CASH CANNOT BE INCOME OF THE ASSESSEE AS THERE ARE DEBIT AS WELL AS CREDIT OF CASH IN THE BANK ACCOUNT. THUS, THE LEARNED CIT(A) WAS RIGHT IN DIRECTING FOR CALCULATION OF PEAK CASH BALANCE TO THE ASSESSING O FFICER. THUS, WE CONFIRM THE ORDER OF THE LEARNED CIT(A). 12. IN THE RESULT, THE ASSESSEES APPEAL AS WELL AS THE APPEAL OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25/07/2014. SD/- SD/- (R.P. TOLANI) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR, DATED : 25 TH JULY, 2014 * RANJAN COPY FORWARDED TO :- 1. SHRI SUGAN CHAND RANGWANI, JAIPUR. 2. THE ITO, WARD-1(3)/ITO WARD 1(2), JAIPUR. 3. THE CIT (A) 4. THE CIT 5. THE D/R GUARD FILE (I.T.A. NOS. 39/JP/2012 & 112/JP/2012) BY ORDER, AR ITAT JAIPUR.