BHAVESH PRAVINCHANDRA SHETH, MUMBAI V. JTCIT 12(2), MUMBAI

ITA 4050/MUM/2012

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8395 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 16-10-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 08-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A P SINGH
• Assessee Lawyers: PRAKASH JOTHWANI
• Keywords: Opportunity of being heard; Principle of natural justice; Earning of tax free income; Additional evidence; Commercial expediency
• Section: 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER I.T.A. NO. 4050/M/2012 ASSESSMENT YEAR: 2008-2009 SHRI BHAVESH PRAVINCHANDRA SHETH, 110, VAISHANI CHAMBERS, 47, NEW MARINE LINES, CHURCHGATE, MUMBAI 400 020. PAN: AAVPS0801N VS. THE JT. COMMISSIONER OF INCOME TAX (A)-12(2), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PRAKASH JOTHWANI RESPONDENT BY : SHRI A.P.SINGH, CIT-DR DATE OF HEARING: 16.10.2012 DATE OF ORD ER: 9.11.2012 O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 8.6.2012 AGAIN ST THE ORDER OF CIT (A)-23, MUMBAI DATED 21.3.2012 FOR THE ASSESSMENT YEAR 2008 -2009. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GRO UNDS WHICH READ AS UNDER: 1. A) THE LD CIT (A) ERRED IN CONFIRMING DISALLOWANCE OF RS. 6,69,49,500/- BEING PROFESSIONAL FEE PAID TO SHRI DH ARMESH SHETH. B) THE LD CIT (A) ERRED IN UPHOLDING AOS FINDINGS THAT THE APPELLANT MAINTAINED CASH SYSTEM OF ACCOUNTING IGNORING THE PLETHORA OF MATERIAL FILED INCLUDING CERTIFICATE FR OM AUDITOR TO EVIDENCE THAT THE APPELLANT WAS FOLLOWING MERCANTIL E SYSTEM OF ACCOUNTING. C) THE LD CIT (A) ERRED IN GIVING FINDING THAT JUST IFICATION OF PAYMENT AND COMMERCIAL EXPEDIENCY FOR RS. 6,69,49,5 00/- PAID TO DHARMESH SHETH WAS NOT PROVIDED, WHILE BOTH THE LOW ER AUTHORITIES HAD NOT QUESTIONED JUSTIFICATION AND THE ISSUE WAS CENTERED ONLY ON THE METHOD OF ACCOUNTING ADOPTED BY THE APPELLAN T. D) THE ACIT-12(2) ALSO ISSUED NOTICE U/S 210(3) ALO NG WITH DEMAND NOTICE U/S 156 TO DMR. DHARMESH SHETH DATED 4.1.201 TO PAY ADVANCE TAX INSTALLMENT ON THE ABOVE INCOME OF 15.12.2010. FROM THE SAID NOTICE IT IS CONCLUSIVE THAT THE AO H AS TREATED THE SAME AMOUNT AS INCOME OF MR. DHARMESH SHETH. IF SA ME IS NOT ALLOWED AS EXPENSE MR. BHAVESH SHETH THEN IT WILL L EAD TO DOUBLE TAXATION OF THE SAID AMOUNT. 2 SHRI BHAVESH PRAVINCHANDRA SHETH 2. THE LD CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS. 17,96,360/- TOWARDS PROFESSIONAL FEES WHICH WAS ALREADY OFFERED FOR TAX LEADING TO DOUBLE TAXATION. THE LD CIT (A) ERRED IN NOT GIVING FINDING FOR CONFIRMING THE SAME. 3. THE LD CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS. 17,61,246/- TOWARDS PROFESSIONAL FEES WHICH WAS OFFERED FOR TAXATION LEADING TO DOUBLE TAXATION. THE LD CIT (A ) ERRED IN NOT GIVING FINDING FOR CONFIRMING THE SAME. 4. THE LD CIT (A) ERRED IN CONFIRMING DISALLOWANCE OF OUTSTANDING EXPENSES OF RS. 62,246/- ON THE GROUND THAT THE APPELLANT FOLLOWED CASH SYSTEM OF ACCOUNTING. 5. THE LD CIT (A) ERRED IN CONFIRMING DISALLOWANCE OF RS. 25,99,959/- U/S 40(A)(IA) ON THE GROUND THAT NO PROOF OF TDS HAD BEEN FURNISHED. 6. THE LD CIT (A) ERRED IN CONFIRMING DISALLOWANCE OF RS. 4,53,603/- U/S 14A WITHOUT ESTABLISHING NEXUS OF EXPENSES THAT MAY HAVE BEEN INCURRED TOWARDS EARNING OF TAX FREE INCOME. 7. THE LD CIT (A) ERRED IN NOT ADJUDICATING THE CHA RGING OF INTEREST U/S 234A AND 234B OF THE IT ACT. 3. DURING THE PROCEEDINGS BEFORE US, AT THE VERY OU TSET, SHRI PRAKASH JOTHWANI, LD COUNSEL FOR THE ASSESSEE BROUGHT THE ATTENTION O F THE BENCH TO THE PAPER BOOK FILED BY HIM AND MENTIONED THAT PAGE 102 TO 210 ARE BEING FILED BEFORE THE TRIBUNAL FOR THE FIRST TIME AND MOST OF THEM WERE NOT FILED BEFORE THE LOWER AUTHORITIES TOO. AS PER THE CERTIFICATE OF THE ASSESSEE ON THE SAID PAPER BOOK, THE ASSESSEE DID NOT FURNISH THE SAME BEFORE THE CIT (A) TOO. IN FACT, SO ME OF THE PAPERS WERE NOT FILED BEFORE THE AO TOO. REFERRING TO THE SL.NO.3 & 5 OF THE PAPER BOOK I.E. ASSESSMENT ORDERS OF SHRI BHAVESH FOR AY 2004-2005 TO 2007-200 8 AND LETTER DATED 2.11.2010 ADDRESSED TO THE ASSESSING OFFICER, LD COUNSEL MENT IONED THAT ONLY THEY WERE AVAILABLE TO THE AO AND NONE OTHERS. THESE PAPERS W ERE CERTAINLY BEING FILED FOR THE FIRST TIME BEFORE THE TRIBUNAL AS ADDITIONAL EVIDEN CES. THE PARTICULARS THAT WERE NOT FURNISHED BEFORE THE AO ARE (I) NOTE ON SERVICES PR OVIDED BY DHARMESH SHETH (II) COPIES OF E-MAILS OF CLIENTS SHOWING NAME OF DHARME SH AND KIND OF SERVICES DONE BY DHARMESH AND (III) ASSESSMENT ORDERS SHRI DHARMESH SHETH FOR AY 2004-2005 TO 2009-2010 AND THE WRITTEN REPRESENTATION BEFORE THE AO. LD COUNSEL MENTIONED THAT ALL THESE INFORMATION IS ABSOLUTELY REQUIRED A S THEY GO INTO THE CORE ISSUE ON THE ALLOWABILITY OF THE PROFESSIONAL FEES PAID BY THE A SSESSEE TO SHRI DHARMESH SHETH, THE BROTHER OF THE ASSESSEE. FURTHER, HE MENTIONED THAT THESE DOCUMENTS IF ADMITTED WOULD ASSIST FOR DECIDING THE METHOD OF AC COUNTING REGULARLY FOLLOWED BY 3 SHRI BHAVESH PRAVINCHANDRA SHETH THE ASSESSEE IN RESPECT OF PROFESSIONAL FEES AS WEL L AS RECIPIENT SHRI DHARMESH SHETH. BRIEFLY MENTIONING THAT THERE IS A PROBLEM WITH THE CHARTERED ACCOUNTANT, WHO AUDITED THE BOOKS OF ACCOUNT OF THE ASSESSEE AN D SIGNED ON AUDIT REPORT AND IN FORM NO.3 CD U/S 44AB OF THE ACT AND MENTIONED THAT THERE ERRORS CREPT IN THE AUDIT REPORT VIS--VIS QUA THE METHOD OF ACCOUNTING SYSTE M FOLLOWED BY THE ASSESSEE AS WELL AS THE ENTRIES MADE BY THE AUDITORS AGAINST TH E COLUMN RELATING TO THE PAYMENTS MADE TO THE SPECIFIED PERSONS U/S 40A(2)(B) OF THE ACT. 4. IN RESPONSE TO THE ASSESSEES REQUEST FOR ADMISSI ON OF THE ADDITIONAL EVIDENCE, LD CIT-DR OPPOSED THE SAID ADMISSION AND MENTIONED THAT THESE PAPERS WERE ACTUALLY AVAILABLE WITH THE ASSESSEE AT THE RE LEVANT POINT OF TIME BUT THE SAME WERE NOT FILED FOR THE REASONS BETTER KNOWN TO THE ASSESSEE. THEREFORE, THE ADDITIONAL EVIDENCES SOUGHT TO BE ADMITTED NOW, SHO ULD NOT BE ENTERTAINED AT THIS STAGE. 5. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE OF ADMISSION OF ADDITIONAL EVIDENCES AND FIND THAT THE AO MADE ADDITION OF RS. 6,69,49,500/- ON THE GROUND THAT ASSESSEE HAS NOT PAID THE SAID AMOUNT IN THE Y EAR UNDER CONSIDERATION AND THE SAME WAS PAID UNDISPUTEDLY IN THE YEAR RELEVANT FOR THE ASSESSMENT YEAR 2011-2012 AFTER MAKING TDS ON 8.12.2010. THE SAID TDS WAS PAI D ONLY AFTER THE DISCOVERY OF THE DEFECTS BY THE AO. FURTHER, WE FIND THAT THE AS SESSEE AND HIS AUDITOR HAS NOT FURNISHED THE CORRECT FACTS RELATING TO THE CORRECT METHOD OF ACCOUNT BEING FOLLOWED BY THE ASSESSEE AND THERE APPEARS AN EXISTENCE OF INCONGRUITY OF FACTS BETWEEN THE BOOKS AND THE AUDIT REPORT FURNISHED U/S 44AB OF TH E ACT. OF COURSE, THE ASSESSEE TERMS IT AS A BONA FIDE MISTAKE. IT IS THE SUBMISSION OF THE ASSESSEE THAT THE ASSESSEE ACCOUNTED THE IMPUGNED AMOUNT PAYABLE TO H IS BROTHER ON ACCRUAL BASIS AND THE SRI DHARMESH SHETH ACCOUNTS THE SAME ON CAS H BASIS. THE CLAIM OF THE AO IS THAT, UNDER THESE FACTUAL CONTEXT, THE SAID AMOU NT IS ALLOWABLE ONLY IN AY 2011- 2012 AND NOT IN AY 2008-2009 AS CLAIMED BY THE ASSE SSEE WHO FOLLOWS THE CASH SYSTEM OF ACCOUNTING AS MENTIONED THE AUDIT REPORTS DULY ENCLOSED U/S 4 4AB OF THE ACT. HOWEVER, THE CLAIM OF THE ASSESSEE IS THA T IN FACT, ASSESSEE FOLLOWS THE MERCANTILE SYSTEM OF ACCOUNTING AND AUDIT REPORT IS ERRONEOUS TO THAT EXTENT 4 SHRI BHAVESH PRAVINCHANDRA SHETH AND RELIED ON THE SPECIFIC ENTRIES IN THE BOOKS OF ACCOUNT AS WELL AS THE ASSESSMENT ORDERS OF THE EARLIER AS WELL AS LATER ASSESSMENT Y EARS WHERE ASSESSEES CLAIM OF MERCANTILE SYSTEM OF ACCOUNTING WAS ACCEPTED BY THE REVENUE. SO FAR AS THE FACTS ON THE SERVICES RENDERED TO THE ASSESSEE BY SHRI DHARMESH SHETH, LD COUNSEL RELIED ON THE DETAILED NOTE AS WELL AS THE E-MAIL C OPIES OF THE CLIENTS FURNISHED BY THE ASSESSEE IN FORM OF ADDITIONAL EVIDENCE. THUS, THE ISSUE TO BE DECIDED RELATES TO WHETHER THE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF A CCOUNTING OR NOT AND WHETHER THE ASSESSEE RECEIVED THE SERVICES FROM SHRI DHARME SH SHETH TO BECOME FOR SUCH PAYMENTS. PERUSAL OF THE ORDERS REVEALS THAT THERE IS INADEQUACY OF PAPERS / EVIDENCES FOR ALLOWING THE CLAIM OF THE ASSESSEE. THUS, THERE IS NECESSITY OF THE PAPERS FILED NOW BEFORE US IN SUPPORT OF THE CLAIMS OF THE ASSESSEE. 6. IN OUR OPINION, THE ADMISSION OF THESE ADDITIONAL EVIDENCES IS A REQUIREMENT FOR ADJUDICATION OF THE ISSUES UNDER CONSIDERATION IN A JUDICIOUS MANNER. WE, THEREFORE, FIND NO REASON TO REJECT THE PRAYER OF T HE ASSESSEE AND PROCEED TO ADMIT THE SAME. HOWEVER, CONSIDERING THE PRINCIPLES OF NATURAL JUSTICE FOR VERIFYING THE GENUINENESS OF THESE DOCUMENTS AS WELL AS THE CONTE NTS MENTIONED THEREIN, WE ARE OF THE OPINION THAT THESE DOCUMENTS MUST BE REMANDE D TO THE FILES OF AO FOR EXAMINATION AND THEIR USE IN DECIDING THE RELEVANT ISSUES RAISED IN THE GROUND NO.1 CONTAINING SUB-GROUNDS 1(A) TO 1(D) IN THE APPEAL B EFORE US. AO SHALL GRANT A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE AND ASSESSEE IS DIRECTED TO FURNISH THE IMPUGNED ADDITIONAL EVIDENCES AND OTHER EVIDENCES IF ANY AS REQUIRED BY THE ASSESSING OFFICER FOR MEANINGFUL ADJUDICATION O F THE GROUNDS. ACCORDINGLY, GROUND NO.1 WITH SUB-GROUNDS IS SET ASIDE. 7. GROUND NOS. 2 AND 3 RELATE TO ADDITION OF RS. 17 ,96,260/- AND 17,61,246/- PAID TOWARDS PROFESSIONAL FEES. IT IS ALLEGED THAT THE TAXATION OF THESE AMOUNTS TANTAMOUNT TO DOUBLE TAXATION. DURING THE PROCEEDI NGS BEFORE US, LD COUNSEL MENTIONED THAT THESE GROUNDS (2 & 3) WERE RAISED BE FORE THE CIT (A) VIDE GROUND NOS. 4 AND 5 WITH ITS SUB-GROUNDS AND THE CIT (A) O MITTED TO ADJUDICATE THE SAID GROUNDS IN A MEANINGFUL MANNER. IN THIS REGARD, LD COUNSEL BROUGHT OUR ATTENTION TO PARA 2.3 OF THE CIT (A) ORDER WHICH DOES NOT CON TAIN ADJUDICATION ON THESE 5 SHRI BHAVESH PRAVINCHANDRA SHETH ADDITIONS. IN THIS REGARD, BOTH THE PARTIES AGREED THAT THESE GROUNDS MUST BE SET ASIDE TO THE FILES OF AO FOR WANT OF SPEAKING ORDER AND A DECISION AS PER THE PROVISIONS OF SECTION 250(6) OF THE ACT. WE FIND M ERIT IN THE COUNSELS ARGUMENT AND PROCEED TO SET ASIDE THE ISSUE TO THE FILES OF CIT (A) FOR MEANINGFUL ADJUDICATION. ACCORDINGLY, GROUND NOS. 2 AND 3 ARE SET ASIDE . 8. GROUND NO.4 RELATES TO OUTSTANDING EXPENSES OF R S. 62,246/- AND IT IS A PRAYER OF THE ASSESSEES COUNSEL THE SAME HAS TO BE DECIDE D IN THE LIGHT OF THE FINDING OF THE TRIBUNAL WHETHER THE ASSESSEE IS FOLLOWING MERC ANTILE SYSTEM OF ACCOUNTING OR CASH SYSTEM OF ACCOUNTING. AS PER THE LD COUNSEL, THE ADJUDICATION OF THIS GROUND IS CONSEQUENTIAL TO THE FINDING OF THE FACT BY THE TRI BUNAL IN GROUND NO.1 OF THE PRESENT APPEAL. WE FIND, THE SAID ISSUE IN GROUND NO.1 IS SET ASIDE IN VIEW OF THE ADDITIONAL EVIDENCES FILED BEFORE US. THEREFORE, FOR WANT OF CONSISTENCY, WE SET ASIDE THIS GROUND ALSO TO THE FILES OF AO FOR FRESH ADJUDICATI ON. ACCORDINGLY, GROUND NO.4 IS SET ASIDE. 9. GROUND NO.5 RELATES TO DISALLOWANCE OF RS. 25,99 ,959/- U/S 40(A)(IA) OF THE ACT. IN THIS REGARD, LD COUNSEL RELIED ON THE SPECI AL BENCH DECISION IN THE CASE OF MARYLINE SHIPPING AND TRANSPORTS LTD VIDE ITA 277/V ISAKH/2008 DT29TH MARCH 2012 FOR THE PROPOSITION THAT THE SAID PROVISIONS ARE AP PLICABLE TO THE AMOUNTS PAYABLE AND TO THE SUMS ALREADY PAID DURING THE FINANCIAL YEAR. 9.1. RELEVANT FACTS IN THIS REGARD ARE THAT THE ASS ESSEE PAID THE ABOVE SUM TO OTHER PARTIES WITHOUT FURNISHING THE EVIDENCE OF MA KING TDS. HOWEVER, ASSESSEE CLAIMED THAT THE SAID PAYMENTS SUFFER TDS AND RELIE D ON THE RELEVANT LEDGER ACCOUNTS. CONSIDERING THE ABSENCE OF COPIES OF TDS CERTIFICATES FILED BY THE ASSESSEE, THE ASSESSING OFFICER AS WELL AS CIT (A) CONFIRMED THE DISALLOWANCE. HOWEVER, THIS IS A SETTLED ISSUE NOW THAT PAYMENTS IF MADE BY THE ASSESSEE BEFORE THE END OF THE FINANCIAL YEAR, THE SAME SHOULD NOT BE DISALLOWED INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT MERELY F OR WANT OF NOT MAKING OF TDS. THEREFORE, WE ARE OF THE OPINION THAT CLAIM OF THE ASSESSEE IS NOW COVERED BY THE 6 SHRI BHAVESH PRAVINCHANDRA SHETH SAID DECISION OF THE SPECIAL BENCH IN THE CASE OF MARYLINE SHIPPING AND TRANSPORTS LTD (SUPRA). ACCORDINGLY, GROUND NO.5 IS ALLOWED . 10. GROUND NO.6 RELATES TO DISALLOWANCE OF RS.4,53, 603/- INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. IN THIS REGARD, LD COUNS EL MENTIONED THAT THIS ISSUE SHOULD BE SET ASIDE FOR FRESH DECISION IN THE LIGHT OF BOMBAY HIGH COURT JUDGMENT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. 328 ITR 81. 11. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS O F THE REVENUE AUTHORITIES. 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. CONSIDERING THE FACTUAL MATRIX OF THE CASE AS WELL AS THE PRAYER OF THE LD COUNSEL FOR REMANDING, WE PROCEED TO SET ASIDE THE GROUND RAISED BY THE ASSES SEE FOR FRESH ADJUDICATION. AO SHALL GRANT REASONABLE OPPORTUNITY OF BEING HEARD T O THE ASSESSEE. ACCORDINGLY, GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATIS TICAL PURPOSES. 13. GROUND NO. 7 RELATES TO CHARGING OF INTEREST U/ S 234A AND 234B OF THE ACT WHICH IS CONSEQUENTIAL TO THE ABOVE RAISED GROUNDS. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 9 TH DAY OF NOVEMBER, 2012. SD/- SD/- (D.K. AGARWAL) (D. KARUNAKARA RAO) JUDICIAL MEMBER A CCOUNTANT MEMBER DATE : 9.11.2012 AT :MUMBAI OKK COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR F, BENCH, ITAT, MUMBAI. 6. GUARD FILE. 7 SHRI BHAVESH PRAVINCHANDRA SHETH // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI