ITO 8(3)(3), MUMBAI V. TAC TECHNOSOFT P.LTD, MUMBAI

ITA 6959/MUM/2014

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 9622 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2021
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 14-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR MENONLD
• Assessee Lawyers: MIHIR TANNA LD
• Keywords: Business income; Accommodation entries; Sham transactions; FORM 26AS
• Section: 133(6); 201; 144

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI , , BEFORE HONBLE SHRI AMARJ I T SINGH , JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM (HEARING THROUGH VIDEO CONFERENCING MODE) ./ I.T.A. NO. 6959 /MUM/201 4 ( / ASSESSMENT YEAR : 2010 - 11 ) ITO WARD 4(3)(1) R. NO. 648, 6 TH FLOOR AAYAKAR BHAVAN MUMBAI - 400 020 / VS. M/S TAC TECHNOSOFT PVT . LTD. ( NOW MERGED WITH M/S NOVUS TRADESTAR PVT. LTD.) SHOP NO. 8, CRYSTAL COURT BUILDING NEAR POWAI POLICE STATION, CHANDIVALI, ANDHERI (E), MUMBAI - 400 072 ./ ./ PAN/GIR NO . A A BCT - 4144 - L ( / APPELLANT ) : ( / RESPONDENT ) REVENUE BY : SHRI VIJAY KUMAR ME NON LD. DR ASSESSEE BY : SHRI MIHIR TANNA LD. A R / DATE OF HEARING : 20 /07 /2021 / DATE OF PRONOUNCEMENT : 26/0 7 /2021 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AF ORESAID APPEAL BY REVENUE FOR ASSESSMENT YEAR (AY) 2010 - 11 ARISES OUT OF THE ORDER OF LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - 18 , MUMBAI [CIT(A)], DATED 18/09 /20 14 IN THE MATTER OF ASSESSMENT FRAMED BY LD. ASSESSING OFFICER (AO) U/S 14 4 OF THE ACT ON 26/03/2013 . THE GROUNDS OF APPEAL READ AS UNDER: - (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN RESTRICTING THE QUANTUM OF COMMISSION TO BE CHARGED TOWARDS ACCOMMODATION ENTRIES PROVIDED BY THE ASSESSEE A T THE RATE OF 0.6% BASED ON THE 2 AVERAGE OF THE PAST FOUR YEARS PROFITS OVERRULING ASSESSING OFFICER'S ESTIMATION @ 1% THEREBY GRANTING A RELIEF OF RS. 27,47,974/ - WITHOUT APPRECIATING THAT THE PROFITS SHOWN BY THE ASSESSEE IN SUCH YEARS WERE NOT HELD AS TH E COMMISSION INCOME RECEIVED FROM BOGUS ACCOMMODATION ENTRIES BY THE ASSESSEE?' (II) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN HOLDING THAT NO REASON OR BASIS WAS GIVEN BY THE AO WHILE ADOPTING THE RA TE OF 1% AS COMMISSION CHARGEABLE ON BOGUS ENTRIES PROVIDED BY THE ASSESSEE IGNORING THAT THE BASIS FOR ADOPTING NET COMMISSION INCOME FROM THE ACTIVITY OF PROVIDING ACCOMMODATION ENTRIES WAS CLEARLY AND ELABORATELY EXPLAINED AT PAGE 7 [PARA 21 TO 23] OF T HE AS SESSMENT ORDER DATED 26.03. 201 3? (III) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN ENHANCING THE VALUE OF THE BOGUS TRA NSACTIONS BY ONLY RS. 32,16,78,450/ - AS AGAINST RS.35,14,51,708/ - REQUESTED B Y THE ASSESSING OFFICER (IN THE REMAND REPORT DATED 12.08.2014) PERTAINING TO THE ASSESSEE'S TRANSACTIONS WITH M/S. VAKRANGEE SOFTWARE LTD. IGNORING THAT THE ASSESSEE HAD SHOWN TRANSACTIONS WITH THE AFORESAID COMPANY ONLY AT RS.42,28,78, 000/ - WHEREAS M/S. VAKRANGEE SOFTWARE LTD. HAD ADMITTED TO HAVE ENTERED INTO TRANSACTIONS TO THE TUNE OF RS.77,43,38,708/ - WITH THE ASSESSEE - COMPANY? (IV) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF BROKERAGE AND COMMISSION INCOME OF RS.54,75,138/ - BY AGREEING WITH THE SUBMISSION OF THE ASSESSEE THAT THE SAID RECEIPTS WERE CREDITED TO PROFIT & LOSS ACCOUNT OVERLOOKING THE FACT THAT THE ENTIRE T URNOVER COMPRISING OF PURCHASE / SALE TRANSACTIONS HAS BE EN HELD BY THE CIT(A) AS BOGUS / ACCOMMODATION ENTRIES' TURNOVER? (V) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF BROKERAGE AND COMMISSION INCOME IGNORING THE RATIO LAID DOW N BY THE DECISION OF THE HYDERABAD ITAT ON THIS ISSUE IN THE CASE OF TOTEM INFRASTRUCTURE LTD. VS ACIT - 2(3) [ITA NO.650/HYD/2 013] [ORDER DATED 07. 03. 2014]? (VI) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED I N DELETING THE ADDITION OF BROKERAGE AND COMMISSION INCOME ALLOWING RELIEF BY RELYING ON THE OBJECTS OF THE MEMORANDUM OF ASSOCIATION WITHOUT FACTUALLY VERIFYING THE INCLUSION OF SUCH RECEIPTS BY THE ASSESSEE IN ITS ACCOUNTS IGNORING THE RATIO LAID DOWN BY THE HON'BLE APEX COURT'S IN THE CASE OF COMMISSIONER OF INCOME - TAX VS CALCUTTA NATIONAL BANK LTD. [1959] 37 ITR 171 (SC) THAT ONLY THE OBJECTS AND CLAUSES SET OUT IN THE MEMORANDUM OF ASSOCIATION CANNOT BE TAKEN AS THE BASIS FOR HEADS OF INCOME TO BE ASSE SSED? (VI I ) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF CONTRACTUAL INCOME OF RS.2,66,08,263/ - NOT APPRECIATING THAT BY HOLDING THE CONTRACTUAL INCOME TO BE PART OF THE MAIN BUSINESS OF DEALING IN COMPUTERS HE HAS CONTRADICTED HIS OWN PREVIOUS FINDING ON THIS ISSUE THAT THE ASSESSEE - COMPANY HAD FAILED TO SUBSTANTIATE PURCHASE / SALE TRANSACTIONS SHOWN IN THE RETURN OF INCOME WHEREIN HE HAS ALSO CONFIRMED LEVY OF COMMISSION INCOME AS A FIXED PERCENTAGE OF SUCH TRANSACTIONS / ENTRIES? (VIII) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THAT SINCE HE HAS ENDORSED THE LEVYING OF COMMISSION INCOME TOWARDS PURCHASE AND SALE TR ANSA C TIONS SHOWN BY THE ASSESSEE COMPANY, BY DEL ETING THE ADDITION OF CONTRACT IN COME, THE CIT(A) HAS EFFECTIVELY ALLOWED S ET OFF OF CONTRACTUAL INCOME A GAINST THE SHAM / STRUCTURED TRADING LOSS OF RS.3,02,08,661/ - CLAIMED BY THE ASSESSEE? THUS, THE DECISI ON OF THE CIT(A) IN 3 CONTRADICTION TO ITS OWN DECISION ON THE ISSUE OF CHARGING OF COMMISSION INCOME TOWARDS PURCHASE / SALES T RANSACTIONS. IX) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN IGNORING HIS O WN DECISION IN THE CA S E OF M/S REA LSTONE EXPORTS PVT. LTD. FOR THE AY 2010 - 11 [APPEAL NO . C IT(A ) - 18/IT - 92/ITO - 8(3)(3)/2013 - 14 DATED 06.03.2014] INVOLVING SIMILA R FACTS W HEREIN HE HAS NOT ONLY UPHELD THE CHARGING OF NET COMMISSION AT THE RATE OF 1% TOWARDS PROVIDING ACCOMMODATION ENTRIES BUT ALSO CONFIRMED THE ADDITION OF INTEREST & CONTRACT INCOME MADE SEPARATELY BY THE ASSESSING OFFICER UNDER THE HEAD INCOME FROM OTHER SOURCES. (X) THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE SE T ASIDE AND THAT OF THE A O B E RESTORED. AS EVIDENT, THE REVENUE IS AGGRIEVED BY CERTAIN RELIEF PROVIDED BY LEARNED CIT(A) IN THE IMPUGNED ORDER WHILE ESTIMATING THE COMMISSION INCOME. 2. WE HAVE CAREFULLY HEARD THE RIVAL SUBMISSIONS AND PERUSED RELEVANT MA TERIAL ON RECORD INCLUDING DOCUMENTS PLACED IN THE PAPER BOOK. OUR ADJUDICATION TO THE SUBJECT MATTER OF APPEAL WOULD BE AS GIVEN IN SUCCEEDING PARAGRAPHS. ASSESSMENT PROCEEDINGS 3.1 THE MATERIAL FACTS ARE THAT THE ASSESSEE BEING RESIDENT CORPORATE ASSESSE E WAS ASSESSED AT RS.482.36 LACS AS AGAINST RETURNED INCOME OF RS.4.23 LACS FILED BY THE ASSESSEE ON 04/10/2010 . THE ASSESSEE IS STATED TO BE ENGAGED IN THE BUSINESS OF TRADING OF COMPUTER SYSTEMS AND SOFTWARE ETC. IT ALSO ENGAGED IN PROVIDING MANPOWER SUP PORT TO VARIOUS CLIENTS IN THE AREA OF DATA PROCESSING ETC. THE ASSESSEE REFLECTED SALES / OPERATIONAL INCOME OF RS.6905.03 LACS DURING THE YEAR. 3.2 DURING ASSESSMENT PROCEEDINGS, VARIOUS DETAILS WERE CALLED FROM THE ASSESSEE, HOWEVER, NONE ATTENDED AND ONLY PART DETAILS WERE FURNISHED. NOTICES ISSUED U/S 133(6) TO SUPPLIERS AS WELL AS MAJOR CUSTOMER OF THE ASSESSEE DID NOT ELICIT ANY SATISFACTORY RESPONSE. 3.3 ON THE BASIS OF MATERIAL ON RECORD, LD. AO CAME TO CONCLUSION THAT THE ASSESSEE DID NOT CARRY O UT ANY ACTUAL SALE / PURCHASE TRANSACTIONS 4 AND THE FINANCIAL TRANSACTIONS WERE ONLY SHAM TRANSACTIONS. ACCORDINGLY, THE BOOKS WERE REJECTED U/S 145(3). THE ASSESSEE REFLECTED PURCHASE & SALE TRANSACTIONS OF RS.5162.32 LACS & RS.6532.78 LACS RESPECTIVELY WI TH OUTSIDE PARTIES. THE LD. AO ESTIMATED NET COMMISSION INCOME OF 1% AGAINST THESE TRANSACTIONS WHICH CAME TO RS.116.95 LACS. AS PER DETAILS AVAILABLE IN FORM 26AS, THE ASSESSEE EARNED INTEREST INCOME OF RS.44.57 LACS, C ONTRACT INCOME OF RS.266.08 LACS AND COMMISSION INCOME OF RS.54.75 LACS. ALL THESE ITEMS WERE SEPARATELY ADDED TO THE INCOME OF THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES. FINALLY, THE INCOME WAS DETERMINED AT RS.482.36 LACS. APPELLATE PROCEEDINGS 4.1 DURING APPELLATE PROCEEDINGS, THE ASSESSEE SUBMITTED FURTHER DETAILS AGAINST WHICH A REMAND REPORT WAS SOUGHT FROM LD.AO. THE ASSESSEE FURNISHED CERTAIN OTHER DOCUMENTS DURING REMAND PROCEEDINGS WHICH WERE IN THE SHAPE OF LEDGER ACCOUNT OF 4 SUPPLIERS, COPIES OF BILLS AND PAYMENT OF P ROOFS ETC. THE ASSESSEE ALSO TABULATE D TURNOVER AND PROFITABILITY DATA OF PAST 4 YEARS AND SUBMITTED THAT THERE WAS DRASTIC INCREASE IN TURNOVER WHICH REDUCED THE MARGINS OF THE ASSESSEE. THE LD. AO WHILE SUPPORTING THE ADDITIONS, MAKE OUT A CASE OF ENHANC EMENT SINCE DISCREPANCY OF RS.3 2 16.78 LACS WERE NOTED. THE LD. AO NOTED THAT THERE WAS A DIRECT BILLING FROM M / S HINDUSTAN CONTINENTAL LTD. TO M/S VKRANGEE SOFTWARE LTD WHICH WAS NOT REFLECTED BY THE ASSESSEE IN TIS TURNOVER. THE LD. AO ALSO SUBMITTED THAT THE GOODS PURCHASED WERE SOLD AT A LOSS OF RS.302.08 LACS AND THE ASSESSEE COULD NOT FURNISH ANY QUANTITATIVE DETAILS. FURTHER THE NATURE OF SALES / PURCHASE TRANSACTIONS WAS QUITE VAGUE AND AMORPHOUS. VARIOUS DISCREPANCIES WERE NOTED IN PARTIAL DETAILS SUBMITTED BY THE ASSESSEE. 5 4.2 THE LD. CIT(A), AFTER DUE CONSIDERATION OF ASSESSEE SUBMISSIONS AND REMAND REPORT CONCURRED WITH LD. AOS APPROACH IN REJECTING THE BOOKS AND ESTIMATE THE INCOME EARNED BY THE ASSESSEE DURING THE YEAR. HOWEVER, REGARDING EST IMATION OF 1% AS MADE BY LD. AO, IT WAS OBSERVED BY LD. CIT(A) THAT AVERAGE NET PROFIT OF PREVIOUS FOUR YEARS WAS 0.52%. THEREFORE, THE ESTIMATION WAS TO BE MADE 0.6% ON TOTAL TURNOVER INCLUDING THE ENHANCED AMOUNT. THE SAME REDUCED THE ADDITION OF RS.116. 95 LACS TO RS.89.47 LACS. THE SEPARATE ADDITION OF INTEREST INCOME WAS UPHELD. 4.3 R EGARDING COMMISSION INCOME OF RS. 54.75 LACS, THE ASSESSEE PLEADED THAT THE SAME WAS TO BE CONSIDERED AS PART OF BUSINESS INCOME ONLY. THE L D. CIT(A) CONCURRED THAT THE COM MISSION INCOME WAS PART OF TURNOVER OF THE ASSESSEE. THE EARNING OF COMMISSION WAS ONE OF THE MAIN OBJECTS OF THE ASSESSEE COMPANY AND THEREFORE, THE SAME WA S TO BE CONSIDERED AS PART OF TOTAL TURNOVER ONLY ASSESSABLE AS BUSINESS INCOME ONLY . HENCE, SEPARA TE ADDITION OF THE SAME UNDER THE HEAD INCOME FROM OTHER SOURCES WAS NOT SUSTAINABLE. SIMILAR WAS THE ADJUDICATION FOR CONTRACT INCOME OF RS.266.08 LACS WHEREIN LD.CIT(A) HELD THAT THE SAME WAS TO BE CONSIDERED AS PART OF TOTAL TURNOVER ONLY AND SEPARATE A DDITION THEREOF WOULD NOT BE SUSTAINABLE. 4.4 AGGRIEVED AS AFORESAID, THE REVENUE IS IN FURTHER APPEAL BEFORE US. IT HAS BEEN SUBMITTED THAT THE ASSESSEE HAS ACCEPTED THE VERDICT OF LD. CIT(A) AND HAS NOT PREFERRED ANY FURTHER APPEAL. OUR FINDINGS & ADJUD ICATION 5. UPON DUE CONSIDERATION OF ORDERS OF LOWER AUTHORITIES, SO FAR AS THE RATE OF COMMISSION IS CONCERNED, WE FIND THAT THE ESTIMATION AS MADE BY LD. CIT(A) WAS IN ACCORDANCE WITH AVERAGE PROFITS SHOWN IN EARLIER 4 6 YEARS. EVEN IF THE TRANSACTIONS WER E SHAM TRANSACTIONS, THE ESTIMATION, IN OUR CONSIDERED OPINION, WAS TO BE ON SOME RATIONAL BASIS. THE BASIS AS ADOPTED BY LD. CIT(A) WAS MORE RATIONAL AND PLAUSIBLE ONE. THEREFORE, NO FAULT COULD BE FOUND IN THE SAID ESTIMATION. 6. SO FAR AS THE CONTRACT R ECEIPTS AND COMMISSION INCOME ARE CONCERNED, LD.CIT(A) HAS MERELY GONE BY THE FACT THAT THE AFORESAID RECEIPTS WOULD BE BUSINESS INCOME OF THE ASSESSEE KEEPING IN VIEW ASSESSEES MAIN OBJECTS. IN THE PROCESS, LD. CIT(A) HAS OVERLOOKED THE FACT THAT NO ESTI MATION OF INCOME WAS MADE BY LD. AO AGAINST THESE TRANSACTIONS AND THE ESTIMATION WAS ONLY WITH RESPECT TO SALE & PURCHASE TRANSACTIONS. THESE ITEMS, AS NOTED BY LD. AO, WERE SEPARATELY CREDITED TO PROFIT & LOSS ACCOUNT AND HENCE, CONSTITUTE SEPARATE STREA M OF INCOME FOR THE ASSESSEE. THEREFORE, A SEPARATE ESTIMATED INCOME AGAINST THESE TWO ITEMS WOULD CERTAINLY BE REQUIRED. WE MAKE THE ESTIMATION @8% FOR BOTH THESE STREAMS OF INCOME. THE SAME WOULD WORK OUT TO BE RS.25,66,672/ - (8% OF RS.54,75,138/ - + RS. 2 ,66,08,263/ - ). WE DIRECT LD.AO TO RE - COMPUTE ASSESSEES INCOME IN TERMS OF OUR ESTIMATION. 7. THE APPEAL STANDS PARTLY ALLOWED TO THE EXTENT INDICATED IN THE ORDER. ORDER PRONOUNCED ON 26 TH JULY 2021 SD/ - SD/ - ( AMARJIT SINGH) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 26/0 7 /2021 SR.PS, DHANANJAY 7 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.