BOBBY S. MUKHERJEE, MUMBAI V. DCIT 11(2), MUMBAI

ITA 5700/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83986 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-10-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 09-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DR K SHIVARAM; NEELAM JADHAV SHRI VI
• Keywords: Rejection of books of accounts
• Section: 133A; 145

Judgement Text

B , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI !' , # $% & & & & , , $% ' BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. : 5700/MUM/2011 (ASSESSMENT YEAR: 2005-06) BOBBY S MUKHERJEE, BLDG. NO. B/7, FLAT NO. 49, MIG COLONY, GANDHI NAGAR, MUMBAI -400 051 %( # .: PAN: AAHPM 2304 C VS DCIT 11(2), MUMBAI (+ (APPELLANT-CROSS OBJECTOR) ,-(+ (RESPONDENT) APPELLANT BY : DR. K. SHIVARAM & NEELAM JADHAV RESPONDENT BY : SHRI VIVEK BATRA ./0# /DATE OF HEARING : 14-08-2014 123 ./0#/ DATE OF PRONOUNCEMENT 29-10-2014 $ 5 $ 5 $ 5 $ 5 O R D E R , . . . . . .. . PER VIVEK VARMA, J.M. : THE APPEAL IS FILED AGAINST ORDER OF CIT(A) -3, MUM BAI, DATED 24.06.2011, WHEREIN THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESSEE: A) PENALTY U/S. 271(1)(C) OF RS. 22,16,230/- : 1 THE LD. CIT(A) ERRED IN CONFIRMING THE PENALTY OR DER U/S. 271(1)(C) MADE BY THE ASSESSING OFFICER LEVYING PEN ALTY OF RS. 22,16,230/- IN RESPECT OF AGGREGATE DISALLOWANCES A ND ADDITIONS MADE ON ESTIMATED BASIS OF RS.65,84,165/-, WITHOUT APPRECIATING THAT THE ASSESSEE HAD NEITHER CONCEALED THE INCOME NOR FURNISHED ANY INACCURATE PARTICULARS OF ITS INCOME, THEREFORE THE PENALTY U/S. 271(1)(C) MAY BE DELETED. ITEM WISE GROUNDS : B) PENALTY ON ACCOUNT OF ADDITION MADE ON ACCOUNT O F REJECTION OF BOOKS OF ACCOUNTS U/S. 145 THE LEARNED CIT (A) ERRED IN UPHOLDING THE LEVY OF PENALTY ON AD-HOC ADDITION OF RS. 10,00,000/- MADE, WITHOUT APPRECIAT ING THE FACT THAT THE BOOKS AND RELEVANT RECORDS WERE WASHED AWAY IN FLOODS OF 2005 BOBBY S MUKHERJEE ITA 5700/MUM/2011 2 AND THE DATA WAS GATHERED FROM AUDITORS, THIRD PART IES AND BANK STATEMENTS AND THUS, THERE WAS NO CONCEALMENT OF IN COME OR FURNISHING OF ANY INACCURATE PARTICULARS OF ITS INC OME. 3. PENALTY ON DISALLOWANCE OF PAYMENT OF COMMISSION TO SNEHAL ROAD SAFETY PRODUCTS LTD. AND TRUTHFUL LEASING & FI N INVESTMENT PVT. LTD .: THE LEARNED CIT(A) ERRED IN LEVYING PENALTY ON D ISALLOWANCE OF RS. 31,48,083/- AND RS. 15,42,800/- ON ACCOUNT OF P AYMENT OF COMMISSION MADE TO SNEHAL ROADWAYS SAFETY P. LTD. A ND TRUTHFUL LEASING FINANCE INVESTMENT P. LTD., RESPECTIVELY WI THOUT APPRECIATING THAT THE ASSESSEE HAD DEDUCTED TDS ON THE COMMISSIO N AND THE BALANCE OUTSTANDING AMOUNT OF RS. 23,11,550/- WAS O FFERED TO TAX U/S. 41(1) OF THE ACT (IN A.Y. 2007-08) AS SOON AS THE LIABILITY WAS CESSED DUE TO NON COMPLETION OF THE PROJECT , THUS THERE WAS NO CONCEALMENT OF INCOME 4. PENALTY ON DISALLOWANCE OF PROFESSIONAL FEES PA ID TO MANSI CHAPAKAR AND MCM INTERNATIONAL & MR. G.R. NAIK U/S 40 (A)(IA) : THE LEARNED CIT(A) ERRED IN CONFIRMING PENALTY ON T HE DISALLOWANCE OF RS.6,11,442/- ON PROFESSIONAL FEES PAID TO THE PART IES WITHOUT APPRECIATING THAT THE PAYMENTS MADE WERE CO MPLETELY GENUINE AND TDS WAS DEDUCTED WITH RESPECT TO SAME A ND HAVE BEEN DEPOSITED. THUS, THERE WAS NO CONCEALMENT OF I NCOME 5. PENALTY ON AD-HOC DISALLOWANCE OF EXPENDITURE MA DE OUT OF CREDIT CARD THE LEARNED CIT(A) IN LEVYING PENALTY ON AD-HOC DISALLOWANCE ON EXPENDITURE MADE OUT OF CREDIT CARD WITHOUT APPRECIATING THAT THE EXPENSES WERE MADE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE ADDITION IS MAD E COMPLETELY ON THE ESTIMATED BASIS. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE DI SALLOWANCE 60% WAS REDUCED BY THE CIT(A) TO 30% IN QUANTUM APPEAL FROM RS.5,63,679/- TO RS.2,81,840/-,THEREFORE THE PENAL LEVIED MAY BE DELETED. 7. THE APPELLANT CRAVES LEAVE TO ADD, AMEND ALTER O R DELETE ANY OR ALL THE ABOVE GROUNDS OF APPEAL. 2. THE ASSESSEE IS AN ARCHITECT AND INTERIOR DESIGN ER. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO PROCEEDED TO REJE CT THE BOOKS OF ACCOUNT AND ALSO MADE ADDITION ON CERTAIN INDIVIDUA L EXPENSES, WHICH HAVE BEEN SUSTAINED BY THE CIT(A) AND ON THAT BASIS , THE AO INITIATED PENAL PROCEEDINGS UNDER SECTION 271(1)(C). 3. GROUND NO. 1 IS GENERAL AND RELATED TO ALL THE S UBSEQUENT GROUNDS. 4. GROUND NO. 2 PERTAINS TO ADDITION OF RS. 10,00,0 00/- SUSTAINED & ON WHICH THE REVENUE AUTHORITIES HAVE INITIATED P ENALTY PROCEEDINGS. BOBBY S MUKHERJEE ITA 5700/MUM/2011 3 5. AT THE TIME OF HEARING, THE AR POINTED OUT THAT IN THE QUANTUM APPEAL, THE COORDINATE BENCH AT MUMBAI IN ITA NO. 1 534/MUM/2009 HAS RESTORED THE ISSUE TO THE FILE OF THE AO, BEING PART OF RECEIPTS OF RS. 1,93,11,059/-, TO BE EXAMINED AFRESH BY THE AO. 6. THE AR SUBMITTED THAT SINCE THE ISSUE IS RESTORE D TO THE AO, PENALTY CANNOT BE EXIGIBLE. 7. THE DR RELIED ON THE ORDERS OF THE REVENUE AUTHO RITIES BUT ACCEPTED WITH THE FACT THAT THE ISSUE NOW IS RESTOR ED TO THE AO, FOR FRESH ADJUDICATION AND ON THAT BASIS, THE PENALTY I S NOT EXIGIBLE. 8. SINCE THE QUANTUM ISSUE HAS BEEN SET ASIDE, AS A RESULT, THEREOF, WE SET ASIDE THE ISSUE OF LEVY OF PENALTY TO THE AO . THE AO IS DIRECTED TO DECIDE THE IMPUGNED ISSUE AFRESH, AFTER COMPLETI NG THE QUANTUM ISSUE. GROUND NO. 2 IS THEREFORE ALLOWED FOR STATIS TICAL PURPOSES. 9. GROUND NO. 3 PERTAINS TO LEVY OF PENALTY UNDER S ECTION 271(1)(C) ON COMMISSION PAID TO SNEHAL ROADWAYS SAFETY PVT. L TD. AT RS. 31,48,083/-, AND TO TRUTHFUL LEASING AND FINANCE AN D INVESTMENT PVT. LTD., AT RS. 15,42,800/-, AGGREGATING TO RS. 46,90, 883/-. 10. IN THE COURSE OF SURVEY OPERATIONS UNDER SECTIO N 133A ON 26.09.2006, THE REVENUE AUTHORITIES RECORDED THE ST ATEMENT OF THE ASSESSEE WITH REGARD TO COMMISSION PAID TO THE TWO PARTIES, AGGREGATING TO RS. 46,90,883/-. 11. THE ADDITIONS, PRIMARILY HAVE BEEN MADE ON THE BASIS OF WAYWARD REPLIES DEPOSED BY THE ASSESSEE, BEFORE THE AO. 12. BEFORE US THE AR SUBMITTED THAT THE ASSESSEE HA D PAID COMMISSION AS A NORMAL BUSINESS EXPENSE AND REFERRE D TO THE BILLS RAISED AND DEBIT NOTES RAISED BY THE PARTIES IN QUE STION. BOBBY S MUKHERJEE ITA 5700/MUM/2011 4 13. THE AR ALSO SUBMITTED THAT SIMILAR ADDITION WAS SUSTAINED IN ASSESSMENT YEAR 2004-05, AND THE PENALTY WAS DELETE D BY THE COORDINATE BENCH IN ITA NO. 8395/MUM/2010, ON THE A MOUNT PAID TO ONE MR. BABULAL DOSHI ON SIMILAR FACTS. 14. THE AR SUBMITTED THAT LIKEWISE PENALTY LEVIED O N THE QUANTUM ADDITION OF RS. 46,90,883/- BE DELETED. 15. THE DR ON THE OTHER HAND VEHEMENTLY SUPPORTED T HE ORDERS OF THE REVENUE AUTHORITIES AND SUBMITTED THAT THE PENA LTY HAD BEEN RIGHTLY LEVIED. 16. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED TH E ORDERS OF THE REVENUE AUTHORITIES, ORDER OF THE COORDINATE BE NCH IN THE PRECEDING YEAR AND THE EXTRACT OF THE STATEMENT, AS REPRODUCE D IN THE ASSESSMENT ORDER. 17. AT THE OUTSET, AS SEEN FROM THE EXTRACTED PART OF STATEMENT, THE ASSESSEE IS UNAWARE AS TO WHOM DID HE MAKE THE PAYM ENT. HE ONLY REMEMBERS THE PART OF THE NAMES OF CONCERNS, TO WHO M HE HAD SUPPOSED TO HAVE RENDERED HIS PROFESSIONAL SERVICES . WE CANNOT ACCEPT THE FACT THAT PERSON, WHO RENDERS ANY PROFESSIONAL SERVICES IN LIEU OF PROFESSIONAL RECEIPTS, COULD NOT REMEMBER THE NAMES OF HIS CLIENTS COMPLETELY. 18. THIS EVIDENTLY MEANS THAT THE EXPENSE AS CLAIME D ON ACCOUNT OF PAYMENTS MADE TO SNEHAL ROADWAYS SAFETY PVT. LTD. A ND TRUTHFUL LEASING FINANCE INVESTMENT PVT. LTD. DID NOT HAVE A NY TRUTH. NO DOUBT, THE EVIDENCE HAS BEEN COLLECTED BY THE ASSES SEE AND PLACED ON RECORD, BUT THE TRUTHFULNESS CANNOT BE INFERRED, AS IS EVIDENT FROM THE STATEMENT GIVEN BY THE ASSESSEE, (EXTRACT OF WHICH ARE AS FOLLOWS) :- BOBBY S MUKHERJEE ITA 5700/MUM/2011 5 Q. NO.19 COMING TO COMMISSION ASPECT, I AM TO REQ UIRE YOU TO PLEASE SPECIFICALLY STATE THE BASIS OF PAYMENT, TO WHOM PAYABLE, AND FOR SPECIFIC PROJECT/CONTRACT/SERVICE, ETC. IN RESPECT OF THE PERIOD ENDING 31 ST MARCH, 2005? ANS: I ONLY KNOW THAT SOME COMMISSION WAS PAYABLE. THE NAMES OF THE PERSONS ARE MR. JAIN OF A COMPANY WHIC H HAS ITS NAME BEGINNING WITH TRUTHFUL AND M/S SNEHAL ROAD SYSTEM OF PUNE. THE AMOUNT IS DETERMINED ON LUMP SUM BASIS FOR ENSURING THE PROJECT JOB WORK OF SOME CLIENTS. Q. NO. 20 PLEASE CLARIFY IF THE SAID COMPANY OR TH E PERSON RAISED ANY BILL OR IS THERE ANY WRITTEN AGREEMENT B ETWEEN YOU AND THEM FOR THE PAYMENT? ANS: I THINK SO, THERE MIGHT BE SOME BILLS. AS REGAR DS AGREEMENTS, I WILL HAVE TO CHECK UP. 19. THIS STATEMENT IS EVIDENCE ENOUGH AGAINST THE A SSESSEE, TO COME TO THE CONCLUSION THAT THE ASSESSEE HAD MADE A SHAM TRANSACTION. 20. WE, THEREFORE, SUSTAIN THE PENALTY ON THE QUANT UM OF RS. 46,90,883/-, BEING COMMISSION PAID TO SNEHAL ROAD S AFETY PRODUCTS PVT. LTD. AT RS. 31,48,083/- AND TO TRUTHFUL LEASIN G & FINANCE PVT. LTD. AT RS. 15,42,800/-. 21. GROUND NO. 4 PERTAINS TO LEVY OF PENALTY ON ACC OUNT OF DISALLOWANCE MADE UNDER SECTION 40(A)(IA) AT RS. 6, 11,442/-. 22. IT HAS BEEN ARGUED BY THE AR THAT PENALTY U/S 2 71(1)(C) CANNOT BE ATTRACTED ON DISALLOWANCE MADE ON ACCOUNT OF NON -DEDUCTION OF TDS. THE AR PLACED RELIANCE ON THE DECISION OF HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS L G CHAUDHARY, REPORTED IN 215 TAXMAN 95. 23. THE DR VEHEMENTLY ARGUED THE CASE OF THE REVENU E AUTHORITIES. 24. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED TH E MATERIAL ON RECORD. IT IS FACT THAT THE PENALTY HAS BEEN LEVIED ON THE DISALLOWANCE ON ACCOUNT OF NON-DEDUCTION OF TAS UNDER SECTION 40 (A)(IA). THE PROVISION HAS BEEN GRAFTED IN THE STATUTE, SO THAT THE PAYEE MUST PAY BOBBY S MUKHERJEE ITA 5700/MUM/2011 6 THE TAXES, AND BECAUSE OF THIS REASON, TO AVOID ANY MISCONDUCT OR MALICIOUS ATTEMPTS BY THE PAYEE, THE RESPONSIBILITY HAS BEEN CAST ON THE PAYER, SO THAT THE EXCHEQUER IS NOT AT A LOSS. THIS AUTOMATICALLY MEANS THAT THE ACTUAL EXPENSE INCURRED BY THE ASSES SEE IS BONA FIDE . 25. SINCE THE EXPENSE IS BONA FIDE , THE QUESTION OF ATTRACTION AND LEVY OF PENALTY DOES NOT ARISE. 26. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A ) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE PENALTY. 27. GROUND NO. 4 IS THEREFORE ALLOWED. 28. GROUND NO. 5 PERTAINS TO PART DISALLOWANCE OF E XPENSES MADE THROUGH CREDIT CARD. 29. IN THE ASSESSMENT PROCEEDINGS, THE AO DISALLOWE D 60% OF THE EXPENSES AND THE CIT(A) REDUCED THE SAME TO 30%. 30. SINCE THE EXPENSE HAS BEEN INCURRED AND HAS BEE N ACCEPTED TO BE PERTAINING TO THE NEEDS OF BUSINESS, THE DISALLO WANCE WAS MADE BECAUSE IT MIGHT HAVE INCLUDED CERTAIN EXPENSES WHI CH WERE OF PERSONAL NATURE. IT WAS BECAUSE OF THIS REASON THAT THE CIT(A) REDUCED THE SAME. ON THIS BASIS, THE AR ARGUED THAT NO PENA LTY IS LEVIABLE. 31. THE DR SUPPORTED THE ORDER OF THE REVENUE AUTHO RITIES. 32. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS. THIS IS A PURE CASE OF AD HOC DISALLOWANCE. IN ANY CASE, FIRST, THE DISALLOWANCE CAN NEITHER BE MADE NOR SUSTAINED ON C ONJECTURES, SECONDLY, PENALTY CANNOT BE LEVIED WHERE EVEN THE D ISALLOWANCE ITSELF IS SUSPECT, HAVING BEEN MADE ON AD HOC BASIS. 32. IN THESE CIRCUMSTANCES, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO DELETE THE PENALTY. BOBBY S MUKHERJEE ITA 5700/MUM/2011 7 33. GROUND NO. 5 IS THEREFORE ALLOWED. 34. IN THE RESULT, THE APPEAL AS FILED BY THE ASSES SEE IS ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH OCTOBER, 2014. SD/- SD/- (N. K. BILLAYA) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 29 TH OCTOBER, 2014 ,// COPY TO:- 1) (+/ THE APPELLANT. 2) ,-(+/ THE RESPONDENT. 3) THE CIT (A)-3, MUMBAI. 4) 6 11 , MUMBAI / THE CIT-11, MUMBAI. 5) 78,/ D , THE D.R. D BENCH, MUMBAI. 6) 89: COPY TO GUARD FILE. $5 / BY ORDER [ ;/<= , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *?@< .. * CHAVAN, SR. PS