SHRI RAJESH HIRALAL DASS , NAGPUR V. THE ASSTT. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE -1(1), NAGPUR

ITA 52/NAG/2018

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 9952 (ITAT-NAGPUR)
• Duration Of Justice: 3 year(s) 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 15-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRADEEP HEDAOO
• Keywords: Search and seizure; Opportunity of being heard; Source of fund; Accommodation entries; Set aside
• Section: 132; 271(1)(c); 143(3); 142(1); 153A; 139(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH,NAGPUR BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA No.51/Nag/2018 Assessment Year: 2007-08 With ITA No.52/Nag/2018 Assessment Year: 2008-09 With ITA No.53/Nag/2018 Assessment Year: 2009-10 With ITA No.54/Nag/2018 Assessment Year: 2010-11 Sh. Rajesh Hiralal Dass, Plot No. 27 & 28 Mishal, Layout, Tara Bhim Chowk, Jaripatka, Nagpur Vs. The Asstt. Commissioner of Income Tax, Central Circle -1(1), Nagpur PAN :AITPD6486C (Appellant) (Respondent) ORDER PER BENCH: These four appeals by the assessee are directed against four separate orders, each dated 24/06/2016, passed by the Appellant by Sh. Hitesh P. Shah, CA Respondent by Sh. Pradeep Hedaoo, CIT(DR) Date of hearing 26.10.2021 Date of pronouncement 19.01.2022 2 ITA No. 51 to 54/Nag./2018 (Rajesh Hirala Dass) learnedCommissioner of Income-tax(Appeals)-3, Nagpur for assessment years 2007-08 to 2010-11 respectively. The appeals being connected to one assessee and common issue in dispute involved, same were heard together and disposed off by way of this consolidated order for convenience and avoid repetition of facts. 2. Facts and circumstances of all the cases being identical, both the parties agreed to argue the ITA No.51/Nag/2018 for assessment year 2007-08 as lead case and follow the finding of the same in other cases. ITA No.51/Nag./2018 AY: 2007-08 3. Firstly, we take up the appeal, bearing, ITA No. 51/Nag/2018 for adjudication as a lead case. The grounds raised in the appeal are reproduced as under: 1. The order passed by the Hon’ble CIT(A) confirming the order passed by the A.O. is illegal, invalid and bad in law. 2. The Hon’ble CIT(A) erred in dismissing the plea of the assessee that the assessment made was without giving proper opportunity of being heard. 3. The Hon’ble CIT(A) erred in upholding and confirming the addition made by the A.O. of Rs.2,19,556/- on account of disallowances of expenses. 4. The Hon’ble CIT(A) erred in upholding and confirming, the income determined by the A.O. at Rs.3,70,091/- which is unjustified, unwarranted and excessive. 5. The Hon’ble CIT(A) erred in confirming charging interest u/s 234A, 234B and 234C and initiating penalty u/s 271(1)(c) of the I.T. Act, 1961. 6. Any other ground may be taken at the time of hearing. 4. Briefly stated facts of the case are that a search and seizure operation under section 132 of the Income-tax Act, 1961 (in short ‘the Act’) was carried out on 15/09/2009 at the premises of the 3 ITA No. 51 to 54/Nag./2018 (Rajesh Hirala Dass) assessee alongwith the premises of Sh. Durga Prasad (DP) Sarda, a Chartered Accountant (claimed as friend by the assessee) and M/s. ‘Sunil Hitech’ Group etc. The Assessing officer has noted observationsof Investigation wing regarding the activities carried out by Shri D.P. Sharda as under: (i) During search operation, it was noticed that Shri Durga Prasad (DP) Sarda was engaged in issuing bogus bills of purchase and sale of coal and other commodities to ‘Sunil Hitech’ Group, ‘Gupta Coal’ Group and ‘Linson’ Group etc. through entities floated by him by way of making his employees like drivers, servants, petty shopkeepers, workers or their relative and acquaintances as proprietor of firms etc. For example M/s ‘SN Coals and Coke’ is a concern floated in the name of Sh Ravi Yadav, who is servant of the Sh Sarda. M/s Ajay Trade Link is a proprietary concern in the name of Sri Ajay Yadav, who is relative of Sh Ravi Yadav (servant of sh DP Sarda) . (ii) Those persons( in whose name firms were floated) ,in their statements recorded during search admitted that their signatures were obtained for opening bank accounts, obtaining PAN , TIN etc and signatures were also obtained on blank cheques. (iii) Various incriminating documents including blank signed cheques by partner/proprietor of those concerns, blank signed Income-tax return forms of some of those persons, blank signed/unsigned bill 4 ITA No. 51 to 54/Nag./2018 (Rajesh Hirala Dass) books, payment vouchers, cash memos etc. were found and seized during the course of search at the premises of Sh. DP Sharda. (iv) On spot verification by the Department of addresses where those firms were registered , no actual business activity of any short was found to be done by those concerns. No godowns etc. of those concerns were found. (v) That money was circulated from bank accounts of one concern to the bank accounts of another concerns floated, for providing accommodation entries to various beneficiary groups and commission was charged for arranging those accommodation entries. 4.1 Regarding specific to the assessee firm, the Assessing officerhas noted observations of the Investigation wing that, the propriety concern, M/s PR Traders had been floated by Sh DP Sarda in the name of assesseeand theassessee duly admitted this fact during the course of search. The assessee also admitted that signatures were also obtained on blank cheques. During search action, at the premises of the firm, no business activity of any sort was found at the address of the concern ( i.e. which is residential address of the assessee). It is further noted by the Assessing officer that proprietary concerns of assessee is one such paper company floated by Shri DP Sarda to provide accommodation entries to the various business groups. It has been noted by the Assessing officer in the impugned assessment 5 ITA No. 51 to 54/Nag./2018 (Rajesh Hirala Dass) order that on verification by the investigation wing of the Income- tax department during search proceeding, no business activity of any sort was found to be done by the assessee concern and no godowns for keeping stock were found during the course of the search proceedings. 4.2 The Assessing officer has recorded that regular return of income in terms of section 139(1) of the Act for the year under consideration was filed by the assessee on 31.10.2007 declaring total income of Rs. 1,40,540/-, which was scrutinized u/s 143(3) of the Act after making disallowance of telephone expenses of Rs. 10,000/-. In view of the search action carried out at the premises of the assessee, the Assessing officer issued notice under section 153A of the Act on 11/08/2010 asking the assessee to file return of income in terms of provision of section 153A of the Act. In view of non-compliance, the Assessing officer further issued notices under section 142(1) on 27/04/2011 and 28/06/2011 along with a detailed questionnaire requiring the assessee to furnish explanation along with the return of income. Again,another notice under section 142(1) of the Act was issued on 08/08/2011. In response to the notices issued, the assessee filed return of income /- on 28/11/2011 declaring total income of ₹1,50,535/-. During assessment proceedings, the Assessing officer brought to the knowledge of the assessee, the various facts observed during the course of search operation and evidences collected related to the assessee, which indicated that proprietary concern of assesseewas only a paper concern and not engaged in day-to-day regular business activity. The observations of the Assessing 6 ITA No. 51 to 54/Nag./2018 (Rajesh Hirala Dass) officer made in assessment order dated 30/12/2011 are summarized as under: (i) The assessee’s proprietary concern was floated by ‘Sh. D.P. Darda’only for facilitating accommodation entries for various beneficiary parties such as ‘Sunil Hitech’ Group, ‘Gupta Coal’ Group and ‘Linkson Coal’ Group companies etc. This fact corroborated by the evidence that all books, bills, vouchers, blank cash memos, blank signed cheques in the name of M/s P.R. Traders were found only at the premises of Shri D.P. Sharda and not at the premises of the assessee. (ii) The assessee, Sh. Rajesh das, himself admitted during statement recorded u/s 132(4) of the Act on 15/09/2009 that firm, M/s PR Traders, was opened at the behest of Sh. D.P.Sharda, who managed all activity of firm, including managing books of accounts and bank account and assess himself did not know what kind of activities were carried out by the firm. The assessee stated that he had received Rs. 5000/- per year and in the year 2007 and 2008, said amount was received in cash. He further stated that he did not sign audit reports of the firm as proprietor. (iii) Despite having huge turnover every year, the firm was showing very less gross profit. No transportation expenses for goods have been claimed in books of accounts. (iv) In the audit report business activity has been claimed as trading-wholesaler, but neither any godown, nor any 7 ITA No. 51 to 54/Nag./2018 (Rajesh Hirala Dass) closing stock of any material traded was found during the course of search operation. 4.3 In view of the above observations. The Assessing officer was of view that firm, M/s P.R. Tarders, is merely a paper concern, and therefore, various expenses claimed as follows in the profit and loss account were not allowable, as not incurred wholly and exclusively for the purpose of the business: Head of Expenses claimed Amount of expenses Salary Rs.1,01,509/- Rent Rs.36,000/- Interest and Bank charges Rs.776/- Electricity expenses Rs.12,545/- Telephone & Postages Rs.35,156/- Banking Cash Transaction tax Rs.170/- Audit Fees Rs.5,400/- General Expenses Rs.31,000/- Total Rs.2,19,556/- 4.4 The assessee submitted that he hadcarried out business of purchase and sale of coal and minerals with or without delivery and also was indulged in ‘hedging’ transactions for which he had to incur various expenses like salary, bank commission and charges, electricity, rent rates and taxes and other incidental expenses, for the purpose of carrying out the operation of the company. It was submitted by the assessee that expenses recorded in books of account were genuine and could be cross- examined with the supporting documents. However, the learnedAssessing officer rejected the contention of the assessee and disallowed the expenses. The observations of the Assessing officer in AY 2007-08 are reproduced as under: 8 ITA No. 51 to 54/Nag./2018 (Rajesh Hirala Dass) “11.1 The contradiction in the above reply of the assessee is self- evident. On one hand the assessee says that the company is not a paper company, while on the other he says that the concern carries out the business of sales of coal and minerals, with or without delivery. As discussed before, it was found during search action by the Department that no business activity of any sort was found to be conducted by it. So the question that transactions of this concern are with- delivery is completely ruled out. This is also proved by the fact that the assessee concern has not claimed any transportation expense in its P/L account. The only transactions which the concern has indulged into are without- delivery paper transactions. Thus it can be logically concluded that the concern M/s P R Traders is merely a paper concern floated only to provide accommodation entries to various parties. 11.2 Moreover the above letter, though signed in the name of Shri Rajesh Dass, has no evidentiary value and it is even doubtful if Shri Dass is aware of the contents of this letter. The statement of Shri Rajesh Dass, taken u/s 132(4) of the Act on 15-09- 2009 has far greater evidentiary value than the above letter. Shri Dass had stated in this statement u/s 132(4) of the Act on 15.09.2009 that he had never seen or signed the audit report of M/s P R Traders, still these documents have been filed in his name, with the department.” 4.5 On further appeal, the Ld. CIT(A) upheld the disallowance of expenses observing as under: “5. The assessment order and the submission of the assessee are considered. The AO has observed that the assessee was not engaged in any substantial business or trading activity. All its transactions were paper transactions in the proprietary concern M/s. P.R. Traders of accommodation entries. The AO has further observed that from the profit and loss account for A. Y. 2008-09, 2009-10 and 2010-11 it is seen that despite having huge turnover every year, the assessee is showing small gross profit. No transportation expenses had been claimed by the assessee although the assessee's claimed to be in the business of trading of commodities. The AO’s stated that there was no trace of any trading activity and there were no godowns of the assessee and the assessee has not shown any closing stock of material in which it was allegedly trading. The assessee was confronted on these issues by the AO during the assessment proceedings were the assessee stated that it carries out the business of purchase and sale of coal and minerals with or without delivery and also indulges in hedging for which it has to incur various expenses like salary, bank commission and charges, electricity, rent rates and taxes and other incidental expenses. These expenses have to be 9 ITA No. 51 to 54/Nag./2018 (Rajesh Hirala Dass) incurred for the carrying out the operations of the assessee. The AO rejected the assessee’s arguments and held that the expenses claimed in profit and loss account or not genuine and the expenses were disallowed and added back by the AO. The genuineness of the assessee’s argument is suspect if one considers the statement of Shri Rajesh Dass recorded u/s. 132(4) of the Income Tax Act during search. The extract of the statement of Shri Rajesh Dass u/s. 132(4) extracted by the AO in the assessment order is as below: Q.2 What is your educational qualification & sources of income? Ans. My educational qualification is B. Com., Nagpur University. At present I am working in M/s Maheshwar Trading Co., CA Rd., Nagpur as Manager (sales) since 14 Aug 2006. Here I am getting a salary of Rs. 5000+ Rs. 3500petrol Alio.... Apart from this I am a prop. Of a firm namely P. R. Traders, 27 & 28, Mishal Layout, Jaripatka, Nagpur. The firm was established during year P. Y. 2005-06.... Here I would like to mention that the firm was constituted at the behest of Shri Durgaprasad Sarda, CA who is a close friend & is residing at Rajnagar, in sterling Apt. Nagpur. Q.3 Are you filing your Income Tax Returns also state the nature of business activity being carried out in the firm P R Traders & as to where the Books of A/c of the business are kept. Ans. As already stated the firm was constituted at the behest of Shri D.P.Sarda, CA, who manages all the activities, Books of A/cs Bank A/cs. I don’t know what kind of activities are carried out in the firm but as far as I recollect I was told by my friend Shri DP Sarda, CA that he is floating a firm dealing in coal. For using my name I was to get Rs. K5000/- a year and _ has received Rs. 5000/- a year which was received in cash in the year 2007 & 2008. All the documents, if any, must be known to Mr. D.P. Sarda, CA and all the queries in respect of M/s P R Traders will be answered by Mr. D.P. Sarda only.” In the same statement in response to question 4 to explain his position regarding Income Tax return of PR Traders, Shri Dass stated as follows- I would like to mention that I am not aware of the contents of the return I have signed all these documents without any knowledge of the business activity, in good faith. I used to sign the blank cheques of M/s P.R. Traders (bank a/c with Federal Bank) but till date I haven't seen the Bank statement of Federal Bank & also don’t know the total transactions in these Bank A/cs. 10 ITA No. 51 to 54/Nag./2018 (Rajesh Hirala Dass) Q.5 What are the documents on which Shri Sarda has asked you to sign & the bank accounts which you have signed cheques for. Ans As far as I remember I have signed cheques (Blank) of Federal Bank, Nagpur, UCO Bank, Nagpur, State Bank of Indore, CA Road, Nagpur, HDFC Bank, Nagpur all these accounts are in the name of M/s P R Traders, Nagpur. No other documents other than blank cheques has been signed by me. I have not even signed Audit Report of the firm M/s P R Traders in any of these years. 5.1 It is clear from the statement of Shri Rajesh Dass that the assessee is proprietor of P. R. Traders at the behest of Shri D. P. Sarda and P. R. Traders is one of the concerns floated by Shri Durga Prasad Sarda and controlled by Shri Darda for the purpose of arranging accommodation entries as alleged by the AO. Shri Rajesh Dass has himself stated in the statement u/s. 132(4) that the firm was constituted at the behest of Shri D. P. Sarda, CA, who managed all the activities, Books of Accounts and Bank Accounts. Shri Dass has stated that he did not know what kind of activities were carried out in the firm but he was told by Shri D. P. Sarda, CA that he (Shri D. P. Sarda) was floating a firm dealing in coal. For using the assessee’s name, he (Shri Rajesh Dass) was to get Rs. 5000/- a year. 5.2 The assessee has not been able to controvert the findings made by the department during the search and those stated by the AO in the assessment order. It is a matter of fact that concerns were floated in the names of Shri Ajay Yadav, Shri Ravi Yadav, Shri Rajesh Dass etc. and signatures of these papers on blank documents to open bank accounts and to obtain PAN were found from the premises of Shri D. P. Sarda during search as observed by the AO in the assessment order. The AO has also observed that signatures of the persons were obtained on blank cheque books and Income Tax Return form. Money was circulated from one bank account to another for the purposes of providing accommodation entries to various parties like Gupta Coal Group. Bogus bills were issued to parties from the concerns floated by Shri D. P. Sarda to facilitate booking of bogus expenses viz. in the case of Sunil Hitech Group. 5.3 The AO has been able to establish in the assessment order that the assessee has not conducted the business reported in the accounts or in the audit report. The AO has effectively established that the assessee was a paper concern floated by Shri D. P. Sarda to arrange accommodation entries. The judgments relied upon by the assessee are respectfully considered but none of them is relevant in the facts of the assessee’s case. 11 ITA No. 51 to 54/Nag./2018 (Rajesh Hirala Dass) 5.4 In the circumstances, the assessee's arguments have no merit and deserve to be rejected. In the result, it is held that the AO was justified in disallowing the expenses of Rs. 2,19,556/- claimed by the assessee under various heads in the profit and loss accounts considering that the expenses claimed were not genuine expenses. 5.5 Therefore, the addition made by the AO of Rs.2,19,556/- under the narration “expenses disallowed” is upheld and confirmed. The AO is directed accordingly.” 5. Before us, the learned counsel for the assessee has filed a paper-book for each of the assessment years, containing copy of audited financial statement and vouchers supporting payment of Taxes, VAT return, VAT audit report etc. The learned counsel submitted that even if it is presumed that assessee was engaged in providing accommodation entries, still certain expenses on salary of personnel and maintenance of office like electricity, telephone, stationery etc, bank charges etc were required for that purpose, and therefore, disallowance of such expenses by the Assessing officer is not warranted. 6. The learned DR, on the other hand, relied on the order of the lower authorities. 7. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. 7.1 As far as issue of disallowance of expenses is concerned, we find that the Assessing officer has though observed that assessee is a paper concern, however, he neither rejected books of accounts of the assessee concern, nor altered the sales or revenue and conveniently, only disallowed the expenses debited on personals, administrative and other. In our view, once the Assessing officer himself concluded that assessee company was a paper concern 12 ITA No. 51 to 54/Nag./2018 (Rajesh Hirala Dass) and was engaged only in providing bogus entries of purchase of sales or accommodation entries, then he is not justified in leaving the purchase/sales activity unaltered and onlydisallowing the expenses debited in profit loss account. The Assessing officer himself in para 5 of the assessment order has observed that commission was charged by Sh. D. P. Sharda for arranging the accommodation entry transactions and percentage of such commission was dependent on nature of such transactions. The statement recorded under section 132(4) of the Act, which has been relied by the Assessing officer, the assessee stated that receipt of ₹ 5000 per year as income for extending the firm to Shri D.P. Sharda for the purpose of providing bogus accommodation entry bills. The Assessing officerhas also held that accommodation entry business has been carried out by Sri DP Sharda. Then, in such circumstances any income from accommodation entry business should have been assessed in the hand of Sh. DP Sharda only and in the hands of the assessee income should have been assessed as per his statement under section 132(4) of the Act. Further, we agree with the argument of the learned counsel of the assessee that in case of providing accommodation entries transactions, certain expenses on salary of personals, maintainers of office, electricity expenses, telephone expenses etc. are need to be incurred. The learned counsel also submitted that vouchers of all those expenses were presented before the Assessing officer for verification, however, he did not verify and this fact has not been controverted by the Income-tax Department. 7.2 In our opinion, the Assessing officer is blowing hot and cold in one breath. On one hand, he is holding that assessee’s, 13 ITA No. 51 to 54/Nag./2018 (Rajesh Hirala Dass) proprietary firm is a paper concern, which has been used by Sh. D.P. Sharda for earning commission through providing accommodation entries, but on the other hand, he is disallowing the expenses debited in profit and loss account on the ground that same has not been incurred wholly and exclusively for the purpose of business that too without rejecting books of account. The Assessing officer being a quasi-judicial authority, he was required to determine income of the assessee in a holistic manner rather than in arbitrary manner. His action of disallowing only expenses in the profit and loss account without rejecting books of accounts and purchase and sale activity of the commodities is not based on proper appreciation of the facts. If according to the Assessing officer, the net profit offered to tax was not commensurate with the commission income on accommodation entries of sales bill provided by the assessee’s firm, then he could have altered the net profit declared by the assessee and assessed the commission from accommodation entries on protective basis rather than disallowing the expenses. 7.3 In view of the above, we are of the opinion that action of Assessing Officer of disallowing expenses, which has been sustained by the learned CIT(A), cannot be approved and accordingly, we reject the same. The issue in dispute in the case of Sh DP Sharda, observations in whose case has been made basis partly for assessing income in the case of the assessee. In such circumstances and in the interest of substantial justice , we feel it appropriate to set aside the order of lower authorities and restore the matter back to Ld. Assessing Officer for deciding afresh. The 14 ITA No. 51 to 54/Nag./2018 (Rajesh Hirala Dass) corresponding grounds raised in assessment year 2007-08 are accordingly allowed for statistical purposes. ITA Nos. 52 to 54/Nag./2018 AYs 2008-09 to 2010-11 8. Disallowance of expenses debited in profit and loss account has been made by the Assessing officer in assessment years from 2008-09 to 2010-11, which have been upheld by the Ld. CIT(A) also. The Assessment Year-wise chart of disallowance of expenses is reproduced as under: Assessment Year Personal Expenses Administrative and other expenses other expenses total 2008-09 12,56,773/- 12,56,773/- 2009-10 15,44,065/- 15,44,065/- 2010-11 5,85,646/- 5,85,646/- 9. Since the issue in dispute of disallowance of expenses debited in profit and loss account involved in appeals from assessment years 2008-09 to 2010-11, is identical to issue in dispute involved in assessment year 2007-08, therefore, following our finding in assessment year2007-08, corresponding grounds raised in those appeals are also allowed for statistical purpose. 10. In the result, all the appeals of the assessee are allowed for statistical purpose. Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 by placing the details on the notice board. Sd/- Sd/- (SANDEEP GOSAIN) (O.P. KANT) JUDICIALMEMBER ACCOUNTANTMEMBER Dated: 19.01. 2022. 15 ITA No. 51 to 54/Nag./2018 (Rajesh Hirala Dass) RK/-(DTDC) Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Nagpur City concerned; (5) The DR, ITAT, Nagpur; (6) Guard file. True Copy By Order (A.R./Sr. P.S./P.S.) ITAT, Nagpur