PANKAJ BHARGAVA, MUMBAI V. INCOME TAX OFFICER 22(3)(3), MUMBAI

ITA 6917/MUM/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3705 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 06-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: OMI C NINGSHEN
• Assessee Lawyers: NARENDRA MAN GAL
• Keywords: Unexplained cash credit; Business expenditure; Maximum Marginal Rate; Additional evidence; Fair market value
• Section: 37(1); 68

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI RAMLAL NEGI (JM) I.T.A. NO. 6917 /MUM/ 2017 (ASSESSMENT YEAR 20 11 - 12 ) PANKJA BHARGAVA F - 6/1, SECTOR - 7 VASHI, NAVI MUMBAI MAHARASHTRA - 400 703. PAN : AAHPB9397G V S . ITO 22(3)(3) MUMBAI ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI NARENDRA MANGAL DEPARTMENT BY SHRI OMI C. NINGSHEN DATE OF HEARING 18.7. 201 8 DATE OF PRONOUNCEMENT 0 8. 8 . 201 8 O R D E R PER B.R. BASKARAN (AM) : THE APPEAL FILED BY TH E ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 30.8.2017 PASSED BY THE LEARNED CIT(A) - 26, MUMBAI AND IT RELATES TO A.Y. 2011 - 12. THE ASSESSEE IS AGGRIEVED BY THE DECISION RENDERED BY THE LEARNED CIT(A) ON FOLLOWING ISSUES : - A) DISALLOWANCE OF COMMISSION PAI D TO RELATIVES OF THE ASSESSEE B) DISALLOWANCE OF PROFESSIONAL FEES PAID TO RELATIVES OF THE ASSESSEE C) DISALLOWANCE OF RENT EXPENSES D) ADDITION RELATING TO UNEXPLAINED CASH CREDIT E) DISALLOWANCE OF INTEREST EXPENSES 2. FACTS RELATING TO THE CASE ARE STATED IN BR IEF. THE ASSESSEE IS A PROFESSIONAL, I.E., A HUMAN R ESOURCE CONSULTANT. THE ASSESSEE FILED HIS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION DECLARING A TOTAL INCOME OF ` 11.10 LAKHS. THE ASSESSING OFFICER COMPLETED ASSESSMENT BY MAKING VARIOUS ADDITIO NS. IN THE APPEAL FILED BEFORE THE LEARNED CIT(A), THE APPEAL WAS PARTLY ALLOWED. STILL AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. PANKJA BHARGAVA 2 3. THE F IRST ISSUE RELATES TO COMMISSION PAID TO RELATIVES OF THE ASSESSEE AND THE SECOND ISSUE REL ATES TO PROFESSIONAL FEES PAID TO RELATIVES OF THE ASSESSEE. THE AO NOTICED THAT THE ASSESSE HAS PAID COMMISSION TO HIS RELATIVES AS DETAILED BELOW: - M/S VIJAY KUMAR BHARGHAVA (HUF) - RS.5,00,000/ - M/S PANKAJ BHARGHAVA (HUF) - RS.5,00,000/ - MR S. JAGRITA BHARGAVA - RS.1,50,000/ - M/S VIJAY KUMAR BHARGHAVA (HUF) IS ASSESSEES FATHERS HUF. M/S PANKAJ BHARGHAVA (HUF) IS ASSESSEES HUF. MRS. JAGRITA BHARGHAVA IS ASSESSEES WIFE. BESIDES THE ABOVE MRS. JAGRITA BHARGHAVA HAS BEEN PAID PROFE SSIONAL FEE OF RS.70,000/ - . THE AO DISALLOWED ALL THE ABOVE SAID EXPENSES BY HOLDING THAT THEY ARE ARTIFICIAL EXPENSES. THE LD CIT(A) ALSO CONFIRMED THE SAME. 4. WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. THE LD A.R STRONGLY PLACED R ELIANCE ON THE SUBMISSIONS MADE BEFORE THE TAX AUTHORITIES. HE SUBMITTED THAT THE ASSESSE E , DUE TO THE NATURE OF HIS PROFESSION, HAD TO TRAVEL FREQUENTLY AND HIS OFFICE AND THE RELATED ACTIVITIES HAVE BEEN LOOKED AFTER BY THE ABOVE SAID CONCERNS. WE NOTI CE THAT T HE AO HAD TAKEN THE VIEW THAT THE COMMISSION IS USUALLY PAID FOR PROVIDING PERSONAL SERVICES AND HENCE THE CLAIM OF PAYMENT OF COMMISSION TO HUF WAS DOUBTED BY THE AO. THE LD A.R SUBMITTED THAT THE KARTA OF THE HUF WERE LOOKING AFTER THE BUSINESS ACTIVITIES ON BEHALF OF THE HUF AND HENCE HE CONTENDED THAT THE VIEW TAKEN BY THE AO WAS WRONG. HE SUBMITTED THAT THE ASSESSEE HAS DEDUCTED TDS FROM THESE PAYMENTS AND THE RECIPIENTS HAVE DULY DECLARED THE RECEIPTS AS INCOME IN THEIR RESPECTIVE HANDS. 5. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THESE PAYMENTS HAVE BEEN MADE TO THE PERSONS SPECIFIED U/S 40A(2)(B) OF THE ACT. THE ASSESSEE HAS FAILED TO SHOW THAT THEY HAVE PROVIDED SERVICES TO THE ASSESSEE. HE SUBMITTED THAT HUF CANNOT BE EXPECTE D TO PROVIDE PERSONAL SERVICES. HE SUBMITTED THAT THE PANKJA BHARGAVA 3 ASSESSEES WIFE MR.S JAGRITA BHARGHAVA HAS BEEN PAID SALARY ALSO. HE SUBMITTED THAT THE LD CIT(A) HAS DULY ADDRESSED ALL THE CONTENTIONS RAISED BY THE ASSESSEE. 6. WE HAVE HEARD RIVAL CONTENTI ONS AND PERUSED THE RECORD. WE NOTICE THAT THE LD CIT(A) HAS CONFIRMED THE ABOVE SAID TWO DISALLOWANCES WITH THE FOLLOWING OBSERVATIONS: - 5.5 I HAVE CONSIDERED THE FACTS OF THE CASE, THE APPELLANT'S SUBMISSIONS, AO'S REMAND R EPORT AND THE APPEL LANT'S REJOINDER THEREON. WHILE COMPLETING THE ASSESSMENT, COMMISSION EXPENSES AND PROFESSIONAL FEES WERE DISALLOWED AS NO EVIDENCE OF SERVICES RENDERED BY THE THREE PARTIES WAS PRODUCED. DURING REMAND PROCEEDINGS ALSO NO SUCH EVIDENCE HAS BEEN PRODUCED. THE ONLY BASIS FOR CLAIMING THE COMMISSION EXPENSES ARE THE INVOICES RAISED BY VIJAY BHARGAVA HUF, PANKAJ BHARGAVA HUF AND MS. JAGRITA BHARGAVA AND THE APPELLANT'S GENERAL CONTENTION THAT THEIR SERVICES WERE ENGAGED TO TAKE CARE OF THE INTEREST OF THE BUSINESS. THE NARRATIONS IN THE INVOICES READ AS UNDER: M/S VIJAY KUMAR BHARGAVA(HUF) 'COMMISSION FOR ADMINISTRATIVE SUPPORT (AGREED AT 15% OF LIKELY TURNOVER OR RS. 5, 00, 000 / - WHICHEVER IS LOWER) ' M/S PANKAJ BHARGAVA(HUF) 'COMMISSION FOR B ACK END OPERATIONAL SUPPORT (AGREED AT 15% OF LIKELY TURNOVER OR RS. 5, 00,000 / - WHICHEVER IS LOWER) ' MS. JAGRITA BHARGAVA 'COMMISSION FOR ACCOUNTS MANAGEMENT SUPPORT (AGREED AT 5% OF LIKELY TURNOVER OR RS. 1,50,000/ - WHICHEVER IS LOWER)' THE SERVICES STATED TO BE RENDERED AS PER THE NARRATIONS IN THE INVOICES ARE IN THE NATURE OF SECRETARIAL ASSISTANCE ONLY AND DO NOT JUSTIFY THE AMOUNTS CLAIMED AS COMMISSION. THE APPELLANT'S WIFE, MS. JAGRITA BHARGAVA, IS ALREADY BEING PAID A SALARY OF RS.30,000/ - P. M. TO TAKE CARE OF THESE FUNCTIONS. NOTHING HAS BEEN BROUGHT ON RECORD TO SHOW THAT THESE PARTIES HAD PROCURED THE CONTRACTS/ASSIGNMENTS IN RESPECT OF WHICH THE APPELLANT HAD CONSULTANCY FEES. REGARDING PROFESSIONAL FEES OF RS.70,000/ - PAID TO MS. JAGRITA BHARGAVA , ONLY A COPY OF LEDGER ACCOUNT HAS BEEN FILED . NO EVID ENCE OF THE PROFESSIONA L SERVICES RENDERED HAS BEEN PRODUCED. PANKJA BHARGAVA 4 5.6 IN HIS REJOINDER TO THE AO'S REMAND REPORT, THE APPELLANT IS SILENT ON THE ISSUE OF NO EVIDENCE BEING PRODUCED IN SUPPORT OF THE SERVICES RENDERED BY THE THREE PARTIES TO JUSTIFY THE CLAIM OF COMMISSION AND PROFESSIONAL FEES. THE APPELLANT HAS SIMPLY REITERATED HIS CONTENTION THAT THEIR SERVICES WERE ENGAGED TO TAKE CARE OF THE INTEREST OF THE BUSINESS. THE APPELLANT HAS ALSO EM PHASIZED ON THE ISSUE OF AN HUF BEING A SEPARATE LEGAL ENTITY AND THAT THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THE COMMISSION PAID WAS EXCESSIVE OR UNREASONABLE NOR EVEN CITED ANY COMPARABLE INSTANCES IN RESPECT OF THE FAIR MARKET VALUE OF THE SERVICES RENDERED BY THE RELATIVES. THE PERTINENT ISSUE AT HAND IS TO DETERMINE THE BASIS AND JUSTIFICATION FOR THE COMMISSION AND PROFESSIONAL FEES PAID TO THE THREE PARTIES WHO ALSO HAPPEN TO FALL WITHIN THE PURVIEW OF SECTION 40A(2)(B) OF THE I T ACT 1961. WHEN NO EVIDENCE OF SERVICES RENDERED HAS BEEN SUBMITTED, THE QUESTION OF EXAMINING THE REASONABLENESS OF THE QUANTUM OF PAYMENT DOES NOT ARISE. CONSIDERING THE FACTS OF THE CASE IN TOTALITY AND IN THE ABSENCE OF ANY EVIDENCE BEING PRODUCED IN S UPPORT OF THE SERVICES RENDERED BY THE THREE PARTIES TO JUSTIFY THE CLAIM OF COMMISSION AND PROFESSIONAL FEES, I AM OF THE CONSIDERED VIEW THAT THIS IS A PLAIN AND SIMPLE CASE OF TAX ARBITRAGE WHEREBY THE APPELLANT HAS SOUGHT TO REDUCE HIS TAX LIABILITY BY DIVERTING HIS INCOME TO OTHER FAMILY MEMBERS. PERUSAL OF THE RETURNS OF INCOME OF THESE THREE PARTIES SHOWS THAT NO OTHER COMMISSION INCOME EXCEPT WHAT IS RECEIVED FROM THE APPELLANT HAS BEEN SHOWN. THIS INDICATES THAT THESE PARTIES ARE NOT ENGAGED IN COM MISSION BUSINESS. THE APPELLANT'S TOTAL INCOME AS PER THE RETURN OF INCOME FILED IS RS.11,09,292/ - . THE INCOME SO DIVERTED WILL, THEREFORE, ATTRACT TAX AT THE MAXIMUM MARGINAL RATE WHERE AS BY SUCH DIVERSION , EVEN THOUGH CORRESPONDING INCOME HAS BEEN ACCOU NTED FOR IN THE RETURNS OF THE ` THREE PARTIES, TAX HAS BEEN PAID AT A LESSER RATE. THE DISALLOWANCE OF COMM ISSION EXPENSES OF RS. 11,50,000 / - AND PROFESSIONAL FEES OF RS. 70,00 0/ - PAID TO THE APPELLANT'S RELATIVES IS, THEREFORE, SUSTAINED. THESE TWO GROUN DS OF APPEAL ARE DISMISSED. 7. THOUGH THE ASSESSEE HAS MENTIONED THE PAYMENTS MADE TO THE THREE PARTIES AS COMMISSION EXPENSES, YET IN THE EXPLANATIONS IT HAS BEEN STATED THAT THE NATURE OF PAYMENT IS COMMISSION FOR ADMINISTRATIVE SUPPORT, WHICH IS NOT IN ACCORDANCE WITH THE TRADE PRACTICE. IN ANY CASE, THE ASSESSEE HAS NOT SHOWN OR EXPLAINED THE NATURE OF ADMINISTRATIVE SUPPORT RENDERED BY THESE PERSONS. AGAIN, AS MENTIONED BY THE AO, THE ADMINISTRATIVE SUPPORT IS IN THE NATURE OF PERSONAL SERVICE S AND THE QUESTION AS TO WHETHER A HUF COULD BE ABLE TO PROVIDE SUCH KIND OF SERVICES SHALL REMAIN A DEBATABLE ONE. IN THE ABSENCE OF EVIDENCES TO SHOW THAT THESE THREE PARTIES HAVE ACTUALLY PROVIDED PANKJA BHARGAVA 5 ANY SERVICE TO THE ASSESSEE, IN OUR VIEW, THE TAX AUTHOR ITIES ARE JUSTIFIED IN DISALLOWING THE ABOVE SAID PAYMENTS GIVEN IN THE FORM OF COMMISSION AND PROFESSIONAL CHARGES. ACCORDINGLY WE CONFIRM THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE. 8. THE NEXT ISSUE CONTESTED BY THE ASSESSEE RELATES TO THE DISALL OWANCE OF RENT EXPENSES. SINCE THE ASSESSEE DID NOT FURNISH DETAILS OF RENT PAYMENT AND THE DETAILS OF PREMISES TAKEN ON RENT, THE AO DISALLOWED THE CLAIM. THE LD CIT(A) HAS CONFIRMED THIS DISALLOWANCE WITH THE FOLLOWING OBSERVATIONS: - 6.5 I HAVE CONSIDER ED THE FACTS OF THE CASE, THE APPELLANT'S SUBMISSIONS, AO'S REMAND REPORT AND THE APPELLANT'S REJOINDER THEREON. PERUSAL OF THE PAPER BOOK SUBMITTED BY THE APPELLANT AS ADDITIONAL EVIDENCE SHOWS THAT CERTAIN DETAILS REGARDING RENT, TRAVELLING EXPENSES & INTEREST HAVE BEEN SUBMITTED. IN RESPECT OF RENT, A LEAVE AND LICENCE AGREEMENT IN RESPECT OF PREMISES F - 6/1, SECTOR 7,VASHI , NAVI MUMBAI HAS BEEN SUBMITTED WHEREIN THE LICENCE FEE HAS BEEN FIXED AT RS.8,000 / - PER MONTH. HOWEVER, AS PER INFORMATION AVAIL ABLE FROM THE VARIOUS DETAILS SUBMITTED BY THE APPELLANT, IT IS SEEN THAT THIS ADDRESS IS SHARED BY THE APPELLANT WITH VIJAY KUMAR BHARGAVA(HUF), PANKAJ BHARGAVA (HUF) AND MS. JAGRITA BHARGAVA. IT IS ALSO SEEN THAT SOME OF THE ELECTRICITY EXPENSES DEBITED TO THE P & L ACCOUNT ARE IN RESPECT OF PLOT NO.16, OFFICE 917, SECTOR 30, VASHI WHICH INDICATES THAT THE APPELLANT IS HAVING HIS OFFICE AT THIS PREMISES. PERUSAL OF THE APPELLANT'S BALANCE SHEET ALSO SHOWS THAT THE APPELLANT HAS AN OFFICE UNDER JOINT OWNER SHIP . IT IS APPARENT FROM THESE FACT THAT THE RENT OF FLAT TAKEN FOR THE RESIDENCE OF THE APPELLANTS FAMILY ALONG WITH PARENTS HAS BEEN CLAIMED AS A BUSINESS EXPENSES WHICH IS NOT ALLOWABLE U/S. 37(1) OF THE ACT. THE DISALLOWANCE OF RENT BY THE ASSESSING OFFICER IS, THEREFORE, CONFIRMED . WE NOTICE THAT THE LD CIT(A) HAS GIVEN A FINDING THAT THE ASSESSEE IS HAVING OFFICE PREMISES SOMEWHERE ELSE. HENCE THE LD CIT(A) HAS TAKEN THE VIEW THAT THE FLAT, FOR WHICH RENT WAS PAID, HAS BEEN TAKEN ON RENT FOR RESID ENCE PURPOSE. BEFORE US, NO MATERIAL WAS PLACED TO CONTRADICT THIS FINDING. HENCE WE CONFIRM THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE. 9. THE NEXT ISSUE RELATES TO THE ADDITION OF CASH CREDITS MADE U/S 68 OF THE ACT. WE NOTICE THAT THE ASSESSEE HAS CLAIMED TO HAVE TRANSFERRED BALANCE STANDING IN SUNDRY CREDITORS ACCOUNT TO LOAN ACCOUNT. HOWEVER THIS PANKJA BHARGAVA 6 CONTENTION OF THE ASSESSEE HAS NOT BEEN EXAMINED BY THE AO. SINCE THE LOAN TRANSACTIONS HAVE NOT BEEN ROUTED THROUGH THE BANK, THE AO HAS MADE THE ADDITION U/S 68 OF THE ACT AND THE SAME HAS BEEN CONFIRMED BY LD CIT(A). IF THE ASSESSEE HAS TRANSFERRED THE BALANCE FROM SUNDRY CREDITORS ACCOUNT, THEN THE LOAN TRANSACTIONS WILL NOT FIND PLACE IN THE BANK ACCOUNT. HENCE, IN OUR VIEW, THIS ISSUE REQUIRE S FRESH EXAMINATION AT THE END OF THE AO. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO FOR EXAMINING THIS ISSUE AFRESH. 10. THE LAST ISSUE URGED BY WAY OF ADDITIONAL GROUND RELATES TO TH E DISALLOWANCE OF INTEREST EXPENSES. THE LD A.R CONTENDED THAT THE INTEREST EXPENSES PERTAINED TO BROUGHT FORWARD LOAN, I.E., LOAN TAKEN IN THE YEAR RELEVANT TO AY 2010 - 11. HE CONTENDED THAT THERE IS NO JUSTIFICATION IN DISALLOWING INTEREST EXPENDITURE, WHEN THE LOAN HAS BEEN ACCEPTED. WE HAVE RESTORED THE ISSUE RELATING TO ADDITION OF LOAN U/S 68 OF THE ACT. HENCE WE PREFER TO RESTORE THIS ISSUE ALSO TO THE FILE OF THE AO FOR EXAMINING IT AFRESH. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) O N THIS ISSUE AND RESTORE THE SAME TO THE FILE OF AO FOR EXAMINING IT AFRESH. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 8 .8 . 201 8 . SD/ - SD/ - (RAMLAL NEGI) (B.R.BASKARAN) J U DICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 8 / 8 / 20 1 8 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI PANKJA BHARGAVA 7 6. GUARD FILE. BY ORDER, //TRUE COPY// ( SENIOR P RIVATE S ECRETARY ) PS ITAT, MUMBAI