BOBBY S. MUKHERJI, MUMBAI V. ASST CIT 11(2), MUMBAI

ITA 6536/MUM/2011

• Counselvise Citation: 653619914 RSA 2011
• Duration Of Justice: 3 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 21-05-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 28-09-2011
• Court: TRIBUNAL
• Keywords: Depreciation; Loose papers; Opportunity of being heard; Principle of natural justice
• Section: 143(3)

Judgement Text

IN THE INCO ME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ./I.T.A. NO.6536/M/2011 ( AY: 2008 - 2009 ) BOBBY S. MUKERJI, PROP. OF BOBBY MUKERJI & ASSOCIATES, B/7, FLAT NO.49, MIG COLONY, GANDHI NAGAR, BANDRA (E), MUMBAI - 400 051. / VS. ASST. COMMISSIONER OF INCOME TAX - 11(2), MUMBAI. ./ PAN : AAHPM2304C ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI K. SHIVARAM / RESPONDENT BY : SHRI YOGESH KAMAT, SR. AR / DATE OF HEARING : 21.5 .2015 / DATE OF PRONOUNCEMENT :29 .5.2015 / O R D E R PER G.S. PANNU, AM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT (A) - 3, MUMBAI DATED 29.8.2011 FOR THE ASSESSMENT YEAR 2008 - 2009 IN THE MATTER OF ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) R.W.S. 143(2) OF THE INCOME TAX ACT 1961 (IN SHORT TH E ACT) , DATED 20.12.2010 . 2. IN THIS APPEAL, ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - A. ADDITION OF RS. 20,00,000/ - AS UNEXPLAINED INCOME. 1. THE LD CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS. 20 LAKHS MADE BY THE AO AS UNEXPLAINED INCOME MERELY ON THE BASIS OF STATEMENTS MADE BY THIRD PARTY (I.E. SHRI G. JANARDHAN REDDY) AND LOOSE PAPERS SEIZED FROM THE PREMISES OF THE SAID THIRD PARTY WITHOUT PROVIDING THE COPY OF STATEMENT RECORDED OF THE SAID THIRD PARTY NOR PROVIDING AN OPPORTUN ITY OF CROSS EXAMINATION THOUGH SPECIFICALLY ASKED IN COURSE OF ASSESSMENT PROCEEDING AS WELL AS APPELLATE PROCEEDING THEREBY VIOLATING THE PRINCIPLES OF NATURAL JUSTICE. 2. WITHOUT PREJUDICE TO ABOVE THE ASSESSEE HAD NEVER RECEIVED ANY SUCH AMOUNT NO ADDI TION CAN BE MADE MERELY PRESUMPTION AND SURMISES. B. DISALLOWANCE OF RS. 93,682/ - BEING 1/6 TH OF THE TOTAL STAFF WELFARE AND BUSINESS PROMOTION EXPENSES. 3. THE LD CIT (A) ERRED IN SUSTAINING THE AD - HOC DISALLOWANCE OF STAFF WELFARE EXPENSES AND BUSINESS PROMOTION EXPENSES WITHOUT APPRECIATING THAT THE EXPENDITURE WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 4. WITHOUT PREJUDICE TO ABOVE THE AD - HOC DISALLOWANCE IS ON HIGHER SIDE AND UNREASONABLE THEREFORE IT MAY BE RESTRICTED TO A REAS ONABLE AMOUNT. 2 C. DISALLOWANCE OF RS. 3,35,510/ - BEING 10% OF AGGREGATE OF TELEPHONE EXPENSES, MOTOR CAR EXPENSES, INSURANCE ON MOTOR CAR EXPENSES, INTEREST ON CAR LOAN AND DEPRECIATION ON MOTOR CAR. 5. THE CIT (A) ERRED IN SUSTAINING AD - HOC DISALLOWANCE O F RS. 10% OF AGGREGATE OF TELEPHONE EXPENSES, MOTOR EXPENSES, INSURANCE ON MOTOR CAR EXPENSES, INTEREST ON CAR LOAN AND DEPRECIATION ON CAR WITHOUT APPRECIATING THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND NOT IN PERSONAL NATURE AS THE TELEPHONE ARE INSTALLED AT THE BUSINESS PREMISES AND MOBILE PHONES ARE GIVEN TO EMPLOYEES AND USED BY THE ASSESSEE SIMILARLY THE ASSESSEE HAS DEBITED EXPENSES ON MOTOR CAR IN HIS PERSONAL CAPITAL ACCOUNT FOR CAR USED FOR HIS PERSONA L USE. THEREFORE, NO PART OF EXPENSES SHOULD BE DISALLOWED. 6. WITHOUT PREJUDICE TO ABOVE THE DISALLOWANCE OF RS. 3,35,510/ - BEING 10% OF AGGREGATE EXPENSES IS ON HIGHER SIDE AND UNREASONABLE THEREFORE IT MAY BE RESTRICTED TO A REASONABLE AMOUNT. 3. TH E ASSESSEE BEFORE US IS AN INDIVIDUAL WHO IS AN ARCHITECT AND INTERIOR DESIGNER. FOR THE YEAR UNDER CONSIDERATION, HE FILED RETURN OF INCOME DECLARING THE TOTAL INCOME OF RS. 2,03,52,107/ - , WHICH WAS SUBJECTED TO A SCRUTINY ASSESSMENT WHEREBY THE TOTAL IN COME WAS ASSESSED AT RS. 2,27,81,300/ - AFTER MAKING CERTAIN ADDITIONS / DISALLOWANCES. THE ASSESSEE CARRIED MATTER IN APPEAL BEFORE THE CIT (A) CHALLENGING THE ADDITIONS MADE. THE CIT (A) HAS DISMISSED THE PLEAS OF THE ASSESSEE AGAINST WHICH THE ASSESSE IS IN FURTHER APPEAL BEFORE US ON THE AFOREMENTIONED GROUNDS OF APPEAL. 4. IN SO FAR AS THE GROUND NO. A OF THE APPEAL IS CONCERNED THE SAME RELATES TO THE ADDITION OF RS. 20 LAKHS MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THE SAME REFLECTS UNEXPLAI NED INCOME OF THE ASSESSEE. THE ASSESSING OFFICER HAS REFERRED TO A COMMUNICATION RECEIVED FROM ADI (INV), BELGAUM IN TERMS OF WHICH CERTAIN INFORMATION AND MATERIAL SEIZED IN THE COURSE OF SEARCH AT THE RESIDENCE AND BUSINESS PREMISES OF ONE SHRI G. JANA RTHAN REDDY GROUP OF CASES WAS FORWARDED. THE ASSESSING OFFICER FURTHER NOTICED THAT THE MATERIAL SEIZED I.E., A DIARY CONTAINS THE INFORMATION IN RESPECT OF THE CONSTRUCTION ACTIVITIES UNDERTAKEN BY SHRI G. JA NARTHAN REDDY GROUP WHICH INTER - ALIA , INCLUDED THE DETAILS OF PAYMENTS TO THE ASSESSEE. THE ASSESSING OFFICER IN PARA 4.1 OF THE ORDER NOTICED THAT THE ASSESSEE WAS ABLE TO RECONCILE THE MAJOR PORTION OF THE AMOUNT S RECORDED TO HAVE BEEN PAID TO HIM IN SUCH SEIZED MATERIAL EXCEPT TO THE EXTE NT OF RS. 20 LAKHS SAID TO HAVE BEEN PAID TO THE ASSESSEE IN CASH. SINCE, THE ASSESSEE FAILED TO RECONCILE RS. 20 LAKHS, WHICH WAS STATED TO HAVE BEEN PAID IN CASH TO HIM, THE ASSESSING OFFICER TREATED SUCH AMOUNT AS UNEXPLAINED INCOME OF THE ASSESSEE. 5. IN APPEAL BEFORE THE CIT (A), ASSESSEE CHALLENGED THE ADDITION ON VARIOUS GROUNDS. ONE OF T HE POINT RAISED BY THE ASSESSEE WAS THAT THE ADDITION WAS BASED 3 ON PAPERS FOUND FROM THE PREMISES OF A THIRD PERSON AND THE STATEMENT RECORDED OF THE SAID PERSON N AMELY SHRI G. JANARTHAN REDDY. ASSESSEE OBJECTED TO THE RELIANCE ON SUCH STATEMENT BECAUSE NEITHER A COPY OF THE STATEMENT OF MR. G. JANARDHAN REDDY WAS PROVIDED TO THE ASSESSEE AND NOR ASSESSEES REQUEST TO PRODUCE SHRI G. JANARDHAN REDDY FOR CROSS EXAMI NATION WAS ALLOWED BY THE ASSESSING OFFICER. IT WAS ALSO POINTED OUT TO THE CIT (A) THAT THE ASSESSEE HAS CONSISTENTLY DENIED THAT ANY CASH PAYMENT WAS RECEIVED BY HIM. THE CIT (A), HOWEVER, DISAGREED WITH THE ASSESSEE PRIMARILY ON THE GROUND THAT A PAR T OF THE ENTRIES AND THE CONTENTS OF THE SEIZED MATERIAL WERE ADMITTEDLY PERTAIN ING TO THE ASSESSEE BECAUSE ASSESSEE HAD RECONCILED SUCH PAYMENTS EXCEPT TO THE EXTENT OF RS. 20 LAKHS. ACCORDING TO THE CIT (A), IF THE CONTENTS OF THE SEIZED MATERIAL ARE FO UND TO BE PARTLY TRUE AND CORRECT AS THE SAME ARE ALSO REFLECT ED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND THEN THERE WAS NO REASON AS TO WHY THE OTHER CONTENTS AND ENTRIES REFLECTED IN SUCH SEIZED MATERIAL SHOULD NOT BE TAKEN AS TRUE AND CORRECT. THERE FORE, HE AFFIRMED THE ACTION OF THE ASSESSING OFFICER IN TREATING THE AMOUNT OF RS. 20 LAKHS AS UNEXPLAINED INCOME. AGAINST THE AFORESAID DECISION OF THE CIT (A), ASSESSEE IS IN FURTHER APPEAL BEFORE US. 6. IN THE COURSE OF HEARING, THE LD REPRESENTATIVE FOR THE ASSESSEE VEHEMENTLY ARGUED THAT THE ADDITION HAS BEEN SUSTAINED BY THE CIT (A) AGAINST THE PRINCIPLES OF NATURAL J USTICE BECAUSE THE COPY OF THE SEIZED MATERIAL OR THE STATEMENT OF SHRI G. JANARDHAN REDDY HAS NOT BEEN PROVIDED TO THE ASSESSEE AND A SSESSEE HAS ALSO NOT BEEN ALLOWED AN OPPORTUNITY TO CROSS EXAMINE THE SAID MR. G. JANARDHAN REDDY. IT WAS THEREFORE, CONTENDED THAT HAVING REGARD TO THE FOLLOWING DECISIONS, THE ADDITION WAS UNSUSTAINABLE: - 1. CIT VS. EASTERN COMMERCIAL ENTERPRISES [1994] 21 0 ITR 103 ; 2. KISHINCHAND CHELLARAM VS. CIT [1980] 125 ITR 713 (SC) ; 3. VASANJI GHELA AND CO. VS. C ST [1997] 40 STC 544 (BOM) (HC); 4. CIT VS. RAJESH KUMAR [2008] 306 ITR 27 (DEL.) (HC) 7. THE LD REPRESENTATIVE SUBMITTED THAT ASSESSEE WOULD BE SATISFIED AT PRESENT IF THE MATTER IS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER FOR CONSIDERING THE AFORESAID PLEA OF THE ASSESSEE IN ACCORDANCE WITH LAW. 8. ON THE OTHER HAND, LD DR APPEARING FOR THE REVENUE HAS REITERATED THE REASONING ADVERTED TO BY THE ASSESSING O FFICER AS WELL AS THE CIT (A) IN SUPPORT OF 4 THE CASE OF THE REVENUE WHICH WE HAVE ALREADY NOTED IN EARLIER PARAS, AND THE SAME ARE NOT REPEATED FOR THE SAKE OF BREVITY. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND FIND THAT THE ADDITION IN QUE STION HAS BEEN MADE WITHOUT FOLLOWING THE DUE PROCESS OF LAW INASMUCH AS THE ASSESSEE HAS NOT BEEN PROVIDED EITHER WITH THE COPY OF THE STATEMENT RECORDED O F MR. G. JANARDHAN REDDY AND NOR AN OPPORTUNITY OF CROSS - EXAMINING THE PERSON HAS BEEN ALLOWED . THE ASSESSEE CANVASSED BEFORE THE ASSESSING OFFICER AS WELL AS BEFORE THE CIT (A) THAT THE RELEVANT SEIZED MATERIAL ALONG WITH THE COPY OF THE STATEMENT DEPOSED BY SHRI G. JANARDHAN REDDY BE PROVIDED , AND AN OPPORTUNITY OF CROSS - EXAMINATION BE ALLOWED. THE STAND OF THE CIT (A) THAT SINCE ASSESSEE HAD ADMITTED SOME OF THE ENTRIES APPEARING IN THE SEIZED MATERIAL THEREFORE, THE ENTRY OF RS. 20 LAKHS SHOULD ALSO BE ACCEPTED AS TRUE AND CORRECT. IN THIS CONTEXT, WE FIND THAT THE ASSESSING OFFICER NOTED THA T THE SEIZED MATERIAL SHOWED THAT UP TO THE DATE OF SEARCH, ASSESSEE WAS STATED TO HAVE RECEIVED TOTAL PAYMENT OF RS. 1,35,00,000/ - AND THE ASSESSEE WAS ABLE TO RECONCILE ONLY AN AMOUNT OF RS. 1,18,20,811/ - AS PER THE DETAILS NOTED BY HIM IN PARA 4.5 OF TH E ASSESSMENT ORDER. THE BONE OF CONTENTION IS AN ENTRY OF RS. 20 LAKHS FOUND RECORDED IN THE SEIZED MATERIAL WHICH IS STATED TO HAVE BEEN PAID TO THE ASSESSEE IN CASH. NOTABLY, THE DISCUSSION IN PARA 4.4 OF THE ASSESSMENT ORDER REVEALS THAT THE ADI (INV) , BELGAUM CONVEYED THAT RS. 58 LAKHS WAS STATED TO BE PAID TO THE ASSESSEE IN CASH ON VARIOUS DATES I.E., RS. 30 LAKHS AND RS. 8 LAKHS ON 30.5.2007 AND THERE IS NO DATE WITH REGARD TO THE PAYMENT OF RS. 20 LAKHS. WITH RESPECT TO THE PAYMENT OF RS. 30 LAK HS AND RS. 8 LAKHS STATED TO HAVE BEEN RECEIVED IN CASH, ASSESSEE FURNISHED EXPLANATIONS WHICH REVEALED THAT SUCH PAYMENTS WERE INDEED RECEIVED BY CHEQUES AND SUCH EXPLANATION OF THE ASSESSEE HAS ALSO BEEN REPRODUCED BY THE ASSESSING OFFICER. IN THE CONTE XT OF THE PAYMENT OF RS. 20 LAKHS, ASSESSEE DENIED THE SAME. T HE INFORMATION FROM THE OFFICE OF ADI (INV), BELGAUM REVEALED THE DATE OF PAYMENT FOR THE AMOUNT S OF RS. 30 LAKHS AND RS. 8 LAKHS AS 30.5.2007, BUT THERE IS NO DATE WITH REGARD TO THE ENTRY OF RS. 20 LAKHS IN THE SEIZED MATERIAL. FURTHER , THE INFORMATION FROM ADI (INV), BELGAUM SHOWS PAYMENTS OF RS. 30 LAKHS AND RS. 8 LAKHS HAVING BEEN MADE ON 30.5.2007 IN CASH WHEREAS THE EXPLANATION OF THE ASSESSE E WAS THAT THE AMOUNTS WERE RECEIVED BY CHEQUE S , WHICH HAS BEEN ACCEPTED BY THE ASSESSING OFFICER . IN THIS VIEW OF THE 5 MATTER , WHERE THE ASSESSEE HAS DENIED THE RECEIPT OF RS. 20 LAKHS , IT WAS IMPERATIVE FOR THE ASSESSING OFFICER TO PROVIDE THE ASSESSEE WITH THE COPY OF THE STA TEMENT OF SHRI G. JANAR DHAN REDD Y, SO AS TO ENABLE THE ASSESSEE TO MEET WITH THE ADVERSE MATERIAL SOUGHT TO BE USED AGAINST HIM . UNDER THESE CIRCUMSTANCES, WE FIND NO REASON TO DISAGREE WITH THE PLEA OF THE LD REPRESENTATIVE FOR THE ASSESSEE FOR RESTORING THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR ALLOWING THE ASSESSING OFFICER TO PROVIDE THE ASSESSEE COPIES OF THE MATERIAL WHICH I S INTENDED TO BE USED AGAINST THE ASSESSEE , INCLUDING THE STATEMENT OF SHRI G. JANARDHAN REDDY. NEEDLESS TO SAY , THE ASSESSING OFFICER SHALL ALLOW THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD ON THE AFORESAID ASPECTS AND ONLY THEREAFTER DECIDE THE EFFICACY OF THE SAID ADDITION , AS PER LAW. THUS, ON THIS GROUND ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSES. 10. THE OTHER GROUNDS , NAMELY GROUND NO S . B AND C RELATE TO AD - HOC DISALLOWANCE S OF RS. 93,682/ - AND RS. 3,35,510/ - OUT OF VARIOUS EXPENSES. THE ASSESSING OFFICER HAS DISALLOWED A PORTION OF THE TOTAL EXPENSES INCURRED ON STAFF WELFARE, BUSINESS PROMOTION, TELEPHONE EXPENSES, M OTOR CAR EXPENSES ETC., IN AN AD - HOC MANNER ATTRIBUTING TO BE FOR PERSONAL USE. NO SPECIFIC ARGUMENTS HAVE BEEN PUT FORTH ON THESE GROUNDS EXCEPT POINTING OUT THAT THE ADDITION IS BASED ON MERE SURMISES AND CONJECTURES . IN THIS CONTEXT, WE HAVE PERUSED T HE ASSESSMENT ORDER AS WELL AS THE DISCUSSION IN THE ORDER OF THE CIT (A) AND FIND THAT NO PARTICULAR INSTANCE OF ANY EXPENSE HAVING BEEN INCURRED FOR PURPOSES OTHER THAN THE PURPOSE OF BUSINESS HAS BEEN BROUGHT OUT. THEREFORE, THE DISALLOWANCE WITHOUT PO INTING OUT ANY PARTICULAR INFIRMITY IS UNSUSTAINABLE AND ACCORDINGLY WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITIONS OF RS. 93,682/ - AN D RS. 3,35,510/ - . THUS, ON GROUND NO S . B AND C ASSESSEE SUCCEEDS. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNC ED IN THE OPEN COURT ON 29 TH MAY, 2015. SD/ - SD/ - ( SANJAY GARG ) ( G.S. PANNU ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; .5 .2015 . . ./ OKK , SR. PS 6 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI