M/S ORION ENTERPRISES, MUMBAI V. ACIT CC 20, MUMBAI

ITA 6457/MUM/2019

AI Insights

The case involves M/s Orion Enterprises, a partnership firm engaged in interiors and paintings, which faced scrutiny following a search and seizure operation under Section 132(1) of the Income Tax Act, 1961. The Assessing Officer made several additions to the firm's income for the Assessment Year 2009-10, which were partly contested and modified by the CIT(A). The main issues in the appeal were the additions made under Section 69B for the value of paintings and under Section 69A for unexplained loans. The Tribunal's decision focused on the adequacy of evidence provided by the appellant and the nature of the seized documents.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 113517 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: G
• Next Hearing Date: 17-10-2022
• Assessment Year: 2009-2010
• Appeal Filed On: 09-10-2019
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Loose papers; Document seized; Documents seized
• Section: 132; 143(3); 69B; 69A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL "G" BENCH, MUMBAI SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 6457/MUM/2019 (Assessment Year: 2009-10) M/s Orion Enterprises, 5-A, Sangam Building, Near HDFC Bank, Juhu Versova Link Road, Andheri (W), Mumbai - 400053 [PAN: AABFO0229Q] ACIT, Central Circle-20, Room No. 402, 4 th Floor, Aayakar Bhawan, M.K. Road, Mumbai - 400020 .................. Vs ................ Appellant Respondent Appearances For the Appellant/Assessee For the Respondent/Department : : Shri Jayesh Dadia Shri Vinay Sinha Date of conclusion of hearing Date of pronouncement of order : : 18.10.2022 12.01.2023 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Appellant has challenged the order, dated 30.08.2019, passed by the Ld. Commissioner of Income Tax (Appeals)-51, Mumbai [hereinafter referred to as „the CIT(A)‟] for the Assessment Year 2009-10 whereby the Ld. CIT(A) had partly allowed the appeal against the Assessment Order, dated 30.12.2010, passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟). 2. The Appellant has raised following grounds of appeal: 1. The Ld. CIT(A) has erred in law and on the facts of the case in confirming the action of the assessing officer in ITA. No. 6457/Mum/2019 Assessment Year: 2009-10 2 making addition of Rs. 15,74,700/- u/s 69B of the Act. The action is unjustified and unwarranted. 2. The Ld. CIT(A) has erred in law and on the facts of the case in confirming the action of the assessing officer in making addition of Rs. 45,20,000/- u/s 69A of the Act. The action is unjustified and unwarranted. 3. The relevant facts, in brief, are that Appellant is a partnership firm carrying on the business of interiors and paintings. A search & seizure under Section 132(1) of the Act was carried out by the DDIT (Inv) Unit-II(2) in the case of Nagi Group on 30.05.2008. The Appellant filed return of income for the Assessment Year 2009-10 on 16.10.2009 declaring total income of INR 2,59,860/-. The case of the Appellant was taken up for scrutiny. The Assessing Officer, vide order dated 30.12.2010, framed assessment on the Appellant for the Assessment Year 2009-10 under Section 143(3) of the Act after making, inter alia, the following additions/disallowances: (a) Addition of INR 15,74,700/- under Section 69B of the Act (b) Addition of INR 95,20,000/- (INR 45,20,000/- + INR 50,00,000/-) under Section 69A of the Act (c) Addition of INR 4,54,405/- holding the same to be unexplained money. (d) Adhoc disallowance of INR 2,79,579/- being 25% of expenses aggregating to INR 11,18,317/- debited to the Profit & Loss Account. 4. Being aggrieved, the Appellant preferred appeal before CIT(A) against the Assessment Order dated 30.12.2010. The CIT(A) vide order dated 30.08.2019, partly allowed the aforesaid appeal. The CIT(A) deleted the addition of INR 50,00,000/- made by the Assessing Officer under Section 69A of the Act and restricted the adhoc disallowance to 10% of the aggregate ITA. No. 6457/Mum/2019 Assessment Year: 2009-10 3 expenses of INR 11,18,317/- debited to the Profit & Loss Account. The CIT(A), however, confirmed the addition of INR 15,74,700/- under Section 69B of the Act, as well as the addition of INR 45,20,000/- under Section 69A of the Act. 5. Not being satisfied with the relief granted by the CIT(A) vide order, dated 30.08.2019, the Appellant has preferred the present appeal on the grounds reproduced in paragraph 2 above which are taken up hereinafter in seriatim. Ground No. 1 6. Ground No. 1 pertains to addition of INR 15,74,700/- made by the Assessing Officer in respect of value of painting found during the course of search. 7. During the course of search, 44 paintings were found from the premises of the Appellant. An inventory of paintings was prepared and the value estimated for the aforesaid paintings aggregated to INR 15,74,700/-. During the assessment proceedings, the Appellant was asked to show cause why the aforesaid amount of INR 15,74,700/- should not be added to the total income of the Appellant. In reply, the Appellant submitted that the paintings pertained to Ms. Supreet Kaur Nagi, a partner in the Appellant firm, who was a painter and a muralist who like to paint for herself also. The commercial paintings were already shown in the books of accounts. The paintings found during the course of search were her personal effects for decorating her office, home and studio. Therefore, no addition could be made in respect of these paintings. Further, since these were not commercial paintings meant for sale, commercial value could not have been adopted for the same. Not being convinced, the Assessing Officer made an ITA. No. 6457/Mum/2019 Assessment Year: 2009-10 4 addition of INR 15,74,700/- in the hands of the Appellant under Section 69B of the Act. In appeal, the CIT(A) decline to grant relief on this issue. Therefore, the Appellant is before us in appeal on this issue. 8. We have heard the rival submissions and perused the material on record. The Ld. Authorised Representative for the Appellant reiterated the submissions before the authorities below while the Ld. Departmental Representative relied upon the order passed by the Assessing Officer and the CIT(A). We note that the Assessing Officer had made the addition of INR 15,74,700/- holding as under: “3.2 It is important to mention that there were total 44 paintings found at the office of the assessee and the value of the painting adopted is nothing but the cost of the painting. Further, many of the paintings are of unknown artists and not the personal paintings made by the assessee. In view of the same, Rs. 15,74,700/- is added in the total income of the assessee, Orion enterprises U/S 69B of the Income Tax Act, 1961.” 9. Thus, the Assessing Officer rejected the contentions raised by the Appellant on the ground that, firstly, the painting seized included many paintings from unknown artist, and secondly, the value adopted for the paintings was nothing but the cost of the paintings (and not the commercial value). The CIT(A) confirmed the addition holding as under: “5.3 The assessment order, the Remand Report of the AO and also the Rejoinder of the assessee have been duly considered. It is noted that the assessee has not been able to segregate paintings into the paintings made by other painters and her own paintings. As regards, the paintings of other painters, the onus is on the assessee to provide the supporting bills and also evidences explaining the source of the payments made for acquiring them. However, neither in the original assessment ITA. No. 6457/Mum/2019 Assessment Year: 2009-10 5 proceedings nor even in the remand proceedings, any such evidences have been submitted. As regards, the paintings made by the assessee, even such paintings have a making cost attached to them. However, the assessee has neither identified the paintings made by her nor quantified the expenditure incurred for making them and explained whether such expenditure is duly reflected in the regular books of accounts. Thus, the action of the AO of making the said addition of Rs. 15,74,700/- cannot be faulted and the same is upheld. Accordingly, Ground no. 1 of the appeal is dismissed.” 10. From the perusal of above, it can be seen that the CIT(A) confirmed the addition primarily for the reason that the Appellant had neither identifying the paintings made by her nor quantified the expenditure incurred for making the same. Further, the Appellant had also not explained whether the expenditure incurred for making personal paintings was recorded in the regular books of accounts. However, on perusal of the inventory of paintings seized during the course of search under Section 132 of the Act, we find that the inventory contains details as to title, surface, medium, size, artist and value. The name of the artist is specified in the inventory itself against each painting seized. Ms. Supreet Kaur Nagi also operated under alias Ruble Nagi. In our view, no addition can be made in respect of paintings prepared by Ms. Supreet Kaur Nagi alias Ruble Nagi. As regards paintings from other/unknown artist, the Appellant was under obligation to provide the details of the artist and the price at which the same were obtained. Since the Appellant had failed to provide the same, the Assessing Officer was justified in making addition in respect of the same. Section 69A of the Act does not mandate the Assessing Officer to make a reference for valuation and that the Assessing Officer is free to ITA. No. 6457/Mum/2019 Assessment Year: 2009-10 6 estimate the value of the asset to be taxed in the hands of an assessee. In view of the above, we confirm the additions made under Section 69A of the Act to the extent the same pertain to paintings from unknown artist as specified in the inventory while we delete the additions made in relation to the paintings by Ms. Supreet Kaur Nagi alias Ruble Nagi. Accordingly, Ground No. 1 raised by the Appellant is partly allowed. Ground No. 2 11. Ground No. 2 pertains to addition of INR 45,20,000/- made by the Assessing Officer under Section 69A of the Act on the basis of seized documents marked as page 27 of Annexure A1 of the seized document (placed at page 18 of the paper-book) which contained handwritten noting in pencil showing details of unsecured loans, advances receipt, sundry creditors, etc. The aforesaid seized document contained the following notings relating to unsecured loans: “Unsecured Loan Cash Col. G S Soodan - 20,20,000/- Surender Singh Raina - 25,00,000/- 45,20,000/-” 12. During the assessment proceedings, the Appellant was asked to show cause why the aggregate amount of INR 45,20,000/- should not be added to the total income of the Appellant. In reply the Appellant submitted that, both, Col. G S Soodan and Shri Surender Singh Raina were related to Ms. Supreet Kaur Nagi (partner in the Appellant-firm) being her father and grandfather, respectively. Though she had sought loan from them, no cash loan was granted. However, vide letter dated ITA. No. 6457/Mum/2019 Assessment Year: 2009-10 7 22.10.2010, it was contended on behalf of the Appellant that INR 45,20,000/- represent exhibition sales incorporated in the books of accounts. The notings in the seized material were the queries raised by the consultant for seeking explanation on the basis of incorrect entries. Taking note of the fact that the Appellant had taken to contradictory stands, the Assessing Officer made addition of INR 45,20,000/- in the hands of the Appellant under Section 69A of the Act. 13. Being aggrieved, the Appellant carried the issue in appeal before CIT(A). The CIT(A) called for remand report from the Assessing Officer. Vide Remand Report dated 03.05.2019, the Assessing Officer submitted that the Appellant has failed to file any additional evidence to support his contention and therefore, the contention of the Appellant that the seized documents are dumb documents should be rejected. When the Appellant was confronted with the Remand Report, it was contended by the Appellant before CIT(A) that the seized documents were in the nature of dumb documents which did not provide whether the loan was given or received by the Appellant. Further, the documents were undated/unsigned and therefore, could not have been relied upon to make under Section 69A of the Act. The CIT(A) after considering the submissions and the Remand Report dated 03.05.2019, concluded that the Assessing Officer was justified in making addition of INR 45,20,000/- under Section 69A of the Act based upon seized documents and on account of failure of the Appellant to explain the source. The CIT(A) had also took note of the fact that the Appellant had taken contradictory stands during the assessment proceedings. ITA. No. 6457/Mum/2019 Assessment Year: 2009-10 8 14. Being aggrieved by the order dated 30.08.2019, passed by the CIT(A), the Appellant is now in appeal before us on this issue. 15. The Ld. Authorised Representative for the Appellant reiterated the submissions made before the CIT(A) and submitted that no cash was seized from the possession of the Appellant. Further, the seized document was a dumb document and no addition could have been made by the Assessing Officer under Section 69A of the Act by solely relying on the aforesaid document. Per contra, the Ld. Departmental Representative relied upon the order passed by Assessing Officer and the CIT(A). He submitted that the Appellant had failed to provide any evidence to support his submission and taken contradictory stands during the assessment proceedings. 16. We have considered the rival submissions and perused the material on record. We note that during the assessment proceedings the Appellant initially explained that the notings under consideration represented a request for proposed loan which was never taken. However, later on the Appellant explained that the notings under consideration were the queries raised by the consultant on the basis of incorrect entries and that amount of INR 45,20,000/- represented exhibition sale which has been incorporated in the books of accounts. While the Appellant has taken different stands, the issue were arises for consideration is whether addition could have been made by the Assessing Officer on the basis of documents seized. The notings contained in the document have been reproduced in paragraph 11 above. On perusal of the same, it cannot be concluded that unsecured loan was taken by the Appellant. The entries do not contain any date or ITA. No. 6457/Mum/2019 Assessment Year: 2009-10 9 signature. Amount of INR 20,20,000/- is reflected against the name of Col. G S Soodan whereas amount of INR 25,00,000/- is reflected against the name Shri Surender Singh Raina. The Appellant has categorically stated that loan was not taken from Col. G S Soodan and/or Shri Suredner Singh Raina. However, no enquiry was made by the Assessing Officer in this regard. No corroborative material was brought on record in support of the conclusion that loan was taken by the Appellant. We find merit in the contention advance on behalf of the Appellant that the document seized is a dumb document as does not speak whether unsecured loan was taken or given by the Appellant. Further, the seized document does not contain date and signature, or reference to any transaction. Therefore, in our view, no addition could have been made in the hands of the Appellant solely on the basis of the seized document in absence of any corroborative material. Accordingly, addition of INR 45,20,000/- is deleted and Ground No. 2 raised by the Appellant is allowed 17. In the result, the present appeal is partly allowed. Order pronounced on 12.01.2023. Sd/- Sd/- (Om Prakash Kant) Accountant Member (Rahul Chaudhary) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 12.01.2023 Alindra, PS ITA. No. 6457/Mum/2019 Assessment Year: 2009-10 10 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त(अपील) / The CIT(A)- 4. आयकर आय क्त / CIT 5. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदिकरण, म ुंबई / ITAT, Mumbai