MOHD. FARUQUE AZAM, MUMBAI V. ITO 24(1)(4), MUMBAI

ITA 5241/MUM/2011

• Counselvise Citation: 524119914 RSA 2011
• Duration Of Justice: 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 12-10-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 08-07-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G P TRIVEDI
• Keywords: Business expenditure; Income from undisclosed sources; Opportunity of being heard
• Section: 143(3); 68

Judgement Text

1 ITA 5241/ M/2011, SHRI MOHD. FARUQUE AZAM IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B BEFORE SHRI B.R. MITTAL, J.M. AND SHRI R.K. PANDA, A.M. ITA NO. 5241/MUM/2011 ASSESSMENT YEAR 2007-08 MR. MOHD. FARUQUE AZAM, P.M.C. NO. 66, GATE NO. 7, MALWANI COLONY, MALAD (W), MUMBAI - 400095. PAN AERPA8375D VS. INCOME TAX OFFICER 24(1)(4), MUMBAI. APPELLANT RESPONDENT APPELLANT BY MR. PRAMOD KUMAR PAR IDA MR. SANJUKTA CHOWDHURY RESPONDENT BY MR. G.P. TRIVEDI DATE OF HEARING 12.10.2011 DATE OF PRONOUNCEMENT 19.10.2011 ORDER PER R.K. PANDA A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DT. 15.10.2010 OF THE CIT(A)- 34, MUMBAI RELATING TO A. Y. 2007-08. 2. IN GROUNDS OF APPEAL NO. 1, THE ASSESSEE HAS CHA LLENGED THE ORDER OF THE LD. CIT(A) IN SUSTAINING THE ADDITION OF ` 26,66,252/- OUT OF THE ADDITION OF ` 31,50,388/- MADE BY THE A.O. U/S 68 OF THE ACT. 2 ITA 5241/ M/2011, SHRI MOHD. FARUQUE AZAM 2.1 FACTS OF THE CASE IN BRIEF ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTED THAT THE ASSESSEE HAS S HOWN THE FOLLOWING UNSECURED LOANS IN THE BALANCE SHEET:- 1. SMT. F.T. AXAM ` 4,84,136/- 2. ROYAL AUTOMOBILES ` 9,22,252/- 3. CITY AUTOMOBILES ` 7,64,000/- 4. OTHERS ` 9,80,000/- ` 31,50,388/- 2.2 THE A.O. ASKED THE ASSESSEE TO PRODUCE LOAN CON FIRMATIONS FROM THE ABOVE PARTIES WITH NAME, ADDRESS, PAN ETC. AND PROD UCE PROOF FOR THEIR CAPACITY TO GIVE THE LOAN AND TO VERIFY THE GENUINE NESS OF THE TRANSACTION ETC. THE A.O. NOTED THAT IN CASE OF LOAN FROM SMT. F.T. AZAM, THE ASSESSEE PROVIDED THE PAN BUT NO EVIDENCE WAS PRODUCED SUCH AS COPY O F RETURN OF INCOME AND BANK STATEMENT ETC. TO PROVE THE IDENTITY AND CAPAC ITY OF THE LOAN CREDITOR AND GENUINENESS OF THE TRANSACTION. SO FAR AS THE PARTY NAMELY CITY AUTOMOBILES IS CONCERNED, HE NOTED THAT THE ASSESSEE FILED ONLY A COPY OF ASSESSEES ACCOUNT ON THE PARTYS LETTER HEAD. HOWEVER, THE DETAILS SU CH AS PAN, COPY OF THE RETURN, BANK STATEMENTS ETC. WERE NOT FILED. SO FAR AS THE LOAN OF ` 9,80,000/- FROM OTHERS, THE A.O. NOTED THAT THE ASSESSEE FILED LIST OF 52 PARTIES UNDER THE HEAD UNSECURED LOAN FROM FAMILY AND FRIENDS SHOWING LO AN OF LESS THAN ` 20,000/- FROM EACH PARTY IN CASH. NEITHER THE PAN OF THE PA RTIES WERE GIVEN NOR ANY EVIDENCE WHATSOEVER WAS FILED TO VERIFY THE GENUINE NESS OF THE ALLEGED LOAN. IN VIEW OF THE ABOVE, THE A.O. DISALLOWED AN AMOUNT OF ` 31,50,388/- AS INCOME FROM UNDISCLOSED SOURCES. IN APPEAL, THE LD. CIT(A ) DELETED AN AMOUNT OF ` 4,84,136/- BEING THE AMOUNT OF LOAN TAKEN FROM THE WIFE OF THE ASSESSEE WHO IS ALSO ASSESSED TO INCOME TAX WITH THE SAME A.O. WITH WHOM THE ASSESSEE IS BEING ASSESSED. HOWEVER, IN ABSENCE OF ANY SATISFA CTORY EXPLANATION SUBMITTED 3 ITA 5241/ M/2011, SHRI MOHD. FARUQUE AZAM BEFORE HIM, THE LD. CIT(A) CONFIRMED THE BALANCE AM OUNT OF ` 26,66,252/-. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 3. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE WIFE OF THE ASSESSEE SMT. F.D. AZAM IS PROPRIETOR OF ROYAL AUTOMOBILES. SIMILARLY, THE ASSESSEE IS THE PROPRIETOR OF CITY AUTOMOBILES. REFERRING TO PA GE 40 & 41 OF THE PAPER BOOK HE SUBMITTED THAT SINCE THESE ARE RUNNING ACCOUNTS AND SINCE THE STATEMENT OF ACCOUNTS WAS FILED BEFORE THE A.O., THEREFORE, T HERE WAS NO NECESSITY OF FURNISHING ANY FURTHER DETAILS. SO FAR AS LOAN OF ` 9,80,000/- TAKEN FROM OTHERS, THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO PAGE 42 TO 45 OF THE PAPER BOOK SUBMITTED THAT THE ASSESSEE HAS TAKEN UNSECURED LOA N OF ` 9,80,000/- FROM 52 PERSONS WHO ARE EITHER FRIENDS OR RELATIVES OF THE ASSESSEE. HE SUBMITTED THAT SINCE THEY ARE FRIENDS AND RELATIVES, NO INTEREST H AS BEEN PAID TO THEM WHO HAD GIVEN LOAN TO THE ASSESSEE AT THE TIME OF BUSINESS REQUIREMENT. REFERRING TO THE NEW PAPER BOOK PAGE 8 TO 11, HE SUBMITTED THAT THE ENTIRE AMOUNT HAS BEEN REPAID BY CHEQUE TO THE PERSONS CONCERNED. HE SUBMI TTED THAT SINCE THE ASSESSEE HAS DISCHARGED THE ONUS CAST UPON HIM AND THE DEPARTMENT HAS NOT BROUGHT ANYTHING ON RECORD TO PROVE THE CONTRARY, T HEREFORE, NO ADDITION U/S 68 IS CALLED FOR. 4. THE LD. D.R., ON THE OTHER HAND, WHILE SUPPORTIN G THE ORDER OF THE LD. CIT(A) AND THE A.O. SUBMITTED THAT THE ASSESSEE HAS NOT DISCHARGED THE ONUS CAST UPON HIM BY PROVING THE CAPACITY OF THE LOAN C REDITORS AND THE GENUINENESS OF THE TRANSACTION. THEREFORE, THE ADDI TION AS SUSTAINED BY THE LD. CIT(A) SHOULD BE UPHELD. 5. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PURSUED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT TH E ASSESSEE IN THE BALANCE 4 ITA 5241/ M/2011, SHRI MOHD. FARUQUE AZAM SHEET UNDER THE HEAD UNSECURED LOAN HAS SHOWN AN AMOUNT OF ` 31,50,380/- AND THE ACCOUNTS OF THE ASSESSEE ARE AUDITED. IN A BSENCE OF FURNISHING OF FULL DETAILS, THE A.O. ADDED AN AMOUNT OF ` 31,50,380/- U/S 68 OF THE ACT. WE FIND THE LD. CIT(A) DELETED THE ADDITION OF ` 4,84,136/- TAKEN FROM SMT. F.T. AZAM, WIFE OF THE ASSESSEE, ON THE GROUND THAT SHE IS ALS O ASSESSED TO TAX WITH THE SAME A.O. WHERE THE ASSESSEE IS BEING ASSESSED. SO FAR AS THE OTHER LOANS ARE CONCERNED, THE LD. CIT(A) UPHELD THE ACTION OF THE A.O. DUE TO NON-SUBMISSION OF SATISFACTORY EVIDENCE BY THE ASSESSEE TO PROVE T HE GENUINENESS OF THE LOAN TRANSACTION AND THE CAPACITY OF THE LOAN CREDITORS. IT IS THE SETTLED PROPOSITION OF LAW THAT FOR CLAIMING ANY CASH CREDIT AS GENUINE , THE ONUS IS ALWAYS ON THE ASSESSEE TO PROVE TO THE SATISFACTION OF THE A.O. R EGARDING THE IDENTITY AND CAPACITY OF THE LOAN CREDITOR AND THE GENUINENESS O F THE TRANSACTION. IN THE INSTANT CASE, THE ASSESSEE HAS FAILED TO DISCHARGE THE ONUS CAST UPON HIM. IN THE CASE OF ROYAL AUTOMOBILES, IF IT IS THE PROPRIE TARY CONCERN OF THE ASSESSEES WIFE, THEN THE ASSESSEE SHOULD HAVE FILED THE BALAN CE SHEET OF ROYAL AUTOMOBILES BEFORE THE A.O. SO AS TO PROVE THE CAPA CITY OF THE WIFE OF THE ASSESSEE TO GIVE SUCH AMOUNT AS LOAN OR IF IT IS A RUNNING ACCOUNT THEN TO SUBSTANTIATE THE SAME WITH EVIDENCE TO THE SATISFAC TION OF THE A.O. SIMILARLY, IN THE CASE OF CITY AUTOMOBILES, ALTHOUGH IT IS THE PROPRIETARY CONCERN OF THE ASSESSEE HIMSELF, WE FIND NOTHING WAS PRODUCED BEFO RE THE A.O. OR THE LD. CIT(A) TO SUBSTANTIATE THE AVAILABILITY OF THIS MUC H FUND IN ASSESSEES PROPRIETARY CONCERN OR TO PROVE THE SAME TO BE RUNN ING ACCOUNT BY PRODUCING ADEQUATE DETAILS. SIMILARLY, IN THE CASE OF LOAN O BTAINED FROM OTHERS AMOUNTING TO ` 9,80,000/- APART FROM GIVING NAME AND ADDRESS OF T HE PERSONS, THE ASSESSEE HAS NOT FURNISHED THE CONFIRMATION LET TERS OF THE PARTIES AND THE CAPACITY OF THE PERSON TO EXTEND SUCH LOAN WHICH AR E ADMITTEDLY TAKEN IN CASH AND EACH LOAN IS BELOW ` 20,000/-. THEREFORE, THE LOWER AUTHORITIES WERE FU LLY JUSTIFIED IN NOT ACCEPTING THE LOAN AS GENUINE. TH E REPAYMENT OF THE LOAN OF ` 9,80,000/- IN SUBSEQUENT YEARS BY CHEQUE DOES NOT A BSOLVE THE ASSESSEE OF THE ONUS CAST UPON HIM. IT IS ALSO NOT KNOWN WHETHER T HE CHEQUES ARE CROSSED 5 ITA 5241/ M/2011, SHRI MOHD. FARUQUE AZAM ACCOUNT PAYEE CHEQUE OR MERE BEARER CHEQUES. WE FI ND THE A.O. HAS ALSO NOT VERIFIED OR ENQUIRED INTO PROPERLY THE PROPRIETARY CONCERN OF WIFE OF THE ASSESSEE ROYAL AUTOMOBILES AND THE PROPRIETARY CONCERN OF TH E ASSESSEE NAMELY CITY AUTOMOBILES ALTHOUGH BOTH OF THEM ARE ASSESSED UNDE R HIM. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE AND IN THE INTERE ST OF JUSTICE WE ARE OF THE CONSIDERED OPINION THAT ONE MORE OPPORTUNITY SHOULD BE GIVEN TO THE ASSESSEE TO SUBSTANTIATE WITH EVIDENCE TO THE SATISFACTION O F THE A.O. REGARDING THE GENUINENESS OF THE LOAN OF ` 26,66,252/-. THE A.O. SHALL DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. T HE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PUR POSE. 6. IN GROUND NO. 2, THE ASSESSEE HAS CHALLENGED THE ORDER OF THE LD. CIT(A) IN SUSTAINING THE AMOUNT OF ` 17,000/- OUT OF ` 42,500/- DISALLOWED BY THE A.O. UNDER THE HEAD BROKERAGE AND COMMISSION. 6.1 AFTER HEARING BOTH THE SIDES WE FIND THE ASSESS EE HAD DEBITED AN AMOUNT OF ` 1,70,000/- TO THE P&L ACCOUNT AS BROKERAGE AND COM MISSION WHICH WAS STATED AS PAID TO THE STAFF AND DELIVERY BOYS. THE A.O. NOTED THAT THE ABOVE EXPENSES ARE INCURRED THROUGH SELF MADE VOUCHERS AN D NO PROPER CHECK/VERIFICATION IS AVAILABLE. ALSO NO DETAILS W ERE GIVEN REGARDING THE SERVICES RENDERED BY THE CONCERNED PERSONS. HE, TH EREFORE, DISALLOWED THE AMOUNT OF ` 42,500/- ON ADHOC BASIS BEING 25% OF THE AMOUNT. ON APPEAL, THE LD. CIT(A) RESTRICTED SUCH DISALLOWANCE TO 10% FOR WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 6.2 ON VERIFICATION OF THE DETAILS FURNISHED BY THE ASSESSEE IN THE PAPER BOOK, IT IS SEEN THAT THE ENTIRE AMOUNT OF ` 1,70,000/-HAS BEEN PAID IN CASH ALTHOUGH IT WAS STATED BEFORE THE A.O. THAT PAYMENTS HAVE BE EN MADE BY CHEQUE AS WELL AS IN CASH. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE 6 ITA 5241/ M/2011, SHRI MOHD. FARUQUE AZAM ASSESSEE IS IN THE BUSINESS OF TRADING IN ELECTRONI C GOODS AND APPLIANCES AND THE STAFF AND DELIVERY BOYS ARE GIVEN BROKERAGE AND COMMISSION AS AN INCENTIVE TO THE STAFF. FURTHER, SIMILAR EXPENSE HAD BEEN IN CURRED IN THE EARLIER AND SUBSEQUENT YEARS AND NO ADDITION HAS BEEN MADE IN T HE ORDER PASSED U/S 143(3) OF THE ACT. ON GOING THROUGH THE ASSESSMENT ORDERS FOR A.Y. 2006-07 AND 2008-09 WE FIND NO SUCH DISALLOWANCE HAVE BEEN MADE UNDER THE HEAD BROKERAGE AND COMMISSION ALTHOUGH OTHER DISALLOWA NCES ARE MADE. HOWEVER, CONSIDERING THE FACT THAT ASSESSEE HAS NOT FURNISHE D THE DETAILS OF NATURE OF SERVICES RENDERED BY THE CONCERNED PERSONS, THE ENT IRE AMOUNT, IN OUR OPINION, CANNOT BE ALLOWED. CONSIDERING THE TOTALITY OF THE CASE FACTS OF THE CASE, DISALLOWANCE OF 5% OF THE TOTAL AMOUNT, IN OUR OPIN ION, WILL MEET THE ENDS OF JUSTICE. ACCORDINGLY, THE ADDITION IS RESTRICTED T O ` 8,500/-. THIS GROUND BY THE ASSESSEE IS PARTLY ALLOWED. 7. IN GROUNDS OF APPEAL NO. 3, THE ASSESSEE HAS CHA LLENGED THE ORDER OF THE LD. CIT(A) IN SUSTAINING THE ADDITION OF ` 50,000/- OUT OF THE DISALLOWANCE OF ` 1 LAC MADE BY THE A.O. UNDER THE HEAD WAGES AND SALA RIES. 7.1 FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSE E HAS DEBITED A SUM OF ` 10,33,417/- TO THE P&L ACCOUNT AS WAGES AND SALARIE S AS COMPARED TO ` 2,88,500/- DEBITED IN THE PRECEDING YEAR. CONSIDERI NG THE INCREASE IN THE TURNOVER, THE A.O. NOTED THAT SOME INCREASE IN THE EXPENDITURE IS EXPECTED. HOWEVER, THE EXPENDITURE IS ALMOST FOUR TIMES OF TH E LAST YEARS EXPENDITURE WHICH ACCORDING TO HIM IS NOT JUSTIFIED. IN ABSENC E OF PROPER SUPPORTING DETAILS, HE DISALLOWED A SUM OF ` 1 LAC AS NON-BUSINESS EXPENDITURE WHICH WAS RESTRICTED TO 50% BY THE LD. CIT(A). AGGRIEVED WIT H SUCH ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PURSUED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK 7 ITA 5241/ M/2011, SHRI MOHD. FARUQUE AZAM FILED ON BEHALF OF THE ASSESSEE. FROM THE DETAILS F ILED BY THE ASSESSEE, WE FIND OUT OF THE TOTAL EXPENDITURE OF ` 10,33,417/- THE ASSESSEE HAS PAID ` 1,83,412/- THROUGH BANK AND ` 8,50,000/- BY CASH. THE INCREASE IN THE WAGES AND SALARIES ACCOUNT FOR THE YEAR IS SUBSTANTIALLY HIGH AS COMPARED TO THE PREVIOUS YEAR. NO DOUBT, THE TURNOVER OF THE ASSES SEE HAS GONE UP DURING THE YEAR AS HELD BY THE A.O. HOWEVER, IT IS ALSO A FAC T THAT FULL DETAILS OF SUCH EXPENSES SUCH AS PROPER SUPPORTING DETAILS/VOUCHERS ETC. WERE NOT FURNISHED BEFORE THE A.O. THEREFORE, SOME DISALLOWANCE IS JU STIFIED. HOWEVER, THE DISALLOWANCE OF ` 50,000/- APPEARS TO BE ON HIGHER SIDE. WE, THEREF ORE, RESTRICT THE SAME TO ` 20,000/-. THIS GROUND BY THE ASSESSEE IS ACCORDIN GLY PARTLY ALLOWED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 19.10.2011. SD/- SD/- (B.R. MITTAL) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 19.10.2011. RK COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 34, MUMBAI 4. THE CIT 24, MUMBAI 5. THE DR BENCH, B 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI