KAMAL KISHORE RATHI, MUMBAI V. DCIT CC 4 (3), MUMBAI

ITA 7758/MUM/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 3581 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: misc
• Appeal Filed On: 16-12-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Salary income; Principle of natural justice
• Section: 148; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER IT A N o. 7 75 8/ Mu m /20 19 (As se ss me nt Y ea r: 20 10- 11 ) Kamal Kishore Rathi 115B Shalimar Miracle, Opp. ICICI Bank S. V. Road, Goregaon (W), Mumbai-400 002 Vs. Dy. CIT, Central Circle-4(3), Mumbai PA N/ GI R No . AA G PR 1 50 8 N (Appellant) : (Respondent) Appellant by : None Respondent by : Ms. Usha Shrote Dat e of H ea ri ng : 05.04.2022 Dat e of P ro no un ce me nt : 27.04.2022 O R D E R Per Shamim Yahya, A. M.: This appeal by the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals)-52, Mumbai (‘ld.CIT(A) for short) dated 09.10.2019 and pertains to the assessment year (A.Y.) 2010-11. 2. The grounds of appeal read as under: 1. Based on facts and circumstances of the case and further as explanation offered the order passed by learned CIT (A) is bad in law and against the principles of natural justice. 2. The order passed by learned CIT (A) is based on surmises and unnatural assumptions. 3. Based on the facts and circumstances of the case and further as per the explanation offered the learned CIT(A) erred in disallowing the payment of commission amounting to Rs.12,50,000/- to Mr. Alliance Intermediaries & Network P. Ltd. for use of their account. 4. The learned CIT(A) grossly erred in confirming the order of AO towards addition of commission paid to M/s. Alliance Intermediaries & Network Pvt. Ltd. amounting to Rs.12.50.000/-. 2 I T A N o . 7 7 5 8 / M u m / 2 0 1 9 ( A . Y . 2 0 1 0 - 1 1 ) Kamal Kishore Rathi vs. Dy. CIT 5. The leamed CIT (A) ought to have given due consideration to the fact that amount was paid to M/s. Alliance Intermediaries & Network Pvt. Ltd. by account payee cheques issued from the Account of the appellant. 6. The leamed CIT(A) ought to have given due consideration to the fact that an affidavit duly signed by Shri Jayesh Sampath, one of the director of M/s. Alliance Intermediaries & Network Pvt. Ltd., admitting the receipt of said commission amount, and should have allowed as deductible expense. 7. The learned CIT(A) ought to have given due consideration to confirmation statement filed by the appellant at the time of assessment proceedings. 8. Your appellant humbly submit that the amount paid to M/s. Alliance Intermediaries & Network Pvt. Ltd. was never received back by the appellant either directly or indirectly. Hence the amount paid as commission to M/s. Aliance Intemediaries & Network Pvt. Ltd. amounting to Rs. 10,00,000/- should be allowed (Rahul Khania Vs. ITO (2308/Kot/2016) CIT Vs. Printer House P. Ltd. (188 ITR 70) 9. Based on the facts and circumstances of the case and further as per submission made the learned CIT(A) grossly erred in disallowing the claim of salaries amounting to Rs. 10,50,000/- paid to the employees of the assessee. 10. The learned CIT(A) ought to have given due consideration to various documentary evidences filed at the time of assessment before AO. These documents includes confirmation statements of various employees, copy of Return of Income filed by those employees, Copy of ledger account etc. 11. The learned CIT(A) erred in concluding the genuineness of salary paid on the ground that the recipient has disclosed the income under the head "Business Income and not as "Salary Income". 12. The learned CIT (A) ought to have appreciated the fact that basis for allowing any expense is its genuineness and not the nature of disclosure by the recipient. The fact that the recipient had shown the amount received in his return of income proves the genuineness of the payment made by the assesse and hence be allowed. 13. The Learned CIT(A) ought to have appreciated the fact that for running any business there are certain expenses involved. The payee may account those expenses under head that is suitable to his business while recipient may account the income under the head suited to him. But it does not mean the amount pa towards the expense is not genuine. Hence your appellant request you to kindly allow the expenses incurred by payment of salary to various employees as genuine expense even though the amount received by the recipient is shown under different head. 3. Brief facts of the case are that a survey u/s.133A of the Act was carried out on 26.08.2010 in the case of the assessee, consequent upon a search action carried out in the case of Kamal Jajoo Group. During the course of the survey, assessee's statement was recorded, wherein he offered an amount of Rs.35,00,000/- for taxation as additional income in his hands for A.Y. 2010-11 which was over and above his regular income. 3 I T A N o . 7 7 5 8 / M u m / 2 0 1 9 ( A . Y . 2 0 1 0 - 1 1 ) Kamal Kishore Rathi vs. Dy. CIT Subsequent to the survey action, the assessee filed his original return of income on 26.03.2011 declaring an income of Rs.3,35,710/- Since, the assessee had not filed his return of income incorporating the disclosure made of Rs.35,00,000/- at the time of the search action, the AO issued notice u/s. 148 dated 03.09.2012. In response, the assessee informed that the original return of income filed on 26.03.2011 be treated as filed in response to notice issued u/s 148. The AO examined the return of the assessee and held that the aggregate expenses claimed of Rs.29,47,556/- on account sub- brokerage, salary etc., are not justified and after disallowing them completed the assessment u/s. 143(3) rws 147 at an assessed income of Rs.35,00,000/- which was the disclosure made at the time of the search action for the relevant year. Aggrieved by the order of the AO, the assessee preferred appeal before the First Appellate Authority (FAA), however, the same was dismissed. Aggrieved by the order of the FAA, the assessee preferred further appeal before the Hon'ble ITAT. Before the Hon'ble ITAT, the assessee filed additional evidences in support of his claim of the various expenses which were allowed to be admitted. Thereafter, the Hon'ble ITAT restored the matter to the file of the AO to make fresh assessment after giving opportunity to the assessee and allowing cross-examination of Shri Mukesh Choksi. 4. In accordance with the directions of the Hon'ble ITAT, the AO allowed opportunity to the assessee to cross-examine Shri Mukesh Choksi. In the cross- examination, Shri Mukesh Choksi reiterated that a signed cheque book was given to the assessee and the assessee was allowed to operate the said bank account by charging commission @0.15%. However, the assessee did not bother to cross examine Shri Mukesh Choksi on the genuineness of the said sub-brokerage payment of Rs.12,50,000/- to one of his concerns, M/s Alliance Intermediaries & Network P. Ltd. In view of the re- confirmation of Shri Mukesh Choksi, in course of the cross-examination about the dubious nature of the transactions carried out through the said bank account by charging commission@ 0.15%, the AO held that the assessee's claim of sub-brokerage payment of Rs.12,50,000/- is bogus and again disallowed it. The AO also investigated the assessee's claim of expenses on account of salary & incentives to staff after issuing summons to 4 4 I T A N o . 7 7 5 8 / M u m / 2 0 1 9 ( A . Y . 2 0 1 0 - 1 1 ) Kamal Kishore Rathi vs. Dy. CIT out of the 6 employees involved. The investigations revealed that one of the employees Shri Indrapratap Singh had stopped working for the assessee from the year 2009 itself. In respect of the other 3 employees, it was revealed that they are filing their return after showing business income and are not showing any income on account of salary. The AO therefore held that the expenses claimed on account of salary & incentives to staff are out that relevant to point also bogus and again disallowed the entire claim. It is relevant to point out that subsequent to the said reassessment order, information was received that the assessee was operating 2 benami bank accounts. On the basis of this information, the assessment was again reopened and 2 nd re-assessment order completed at reassessed income of Rs.55,40,000/- after making further additions of Rs.20,40,000/-. The AO therefore again assessed the income of the assessee pursuant to the directions of the Hon'ble ITAT at Rs.55,40,000/-. 5. Upon the assessee’s appeal, the ld. CIT(A) noted that in the appellate proceedings, the assessee submitted that he had made a declaration of gross receipts of Rs.35,00,000/- and not of the taxable income. He had duly honoured the declaration by offering the said gross receipts of Rs.35,00,000/- in the return filed for the relevant year and against this, he had claimed legitimate expenses on account of sub-brokerage and salary. As regards the disallowance of sub-brokerage expenses of Rs.12,50,000/- to one of the concerns of Shri Mukesh Choksi, M/s. Alliance Intermediaries & Network P. Ltd., it was submitted that he was in touch with one another Director, Shri Jayesh Sampath of M/s. Alliance Intermediaries & Network P. Ltd. and therefore, the statement given by Shri Mukesh Choksi, is not very relevant. As regards the disallowance made by the AO out of the expenses claimed on account of salary of Rs.10,50,000/-, it was submitted that the said employees were paid salary in cash and he cannot be penalized if the said employees rather than showing salary income in their returns have shown business income. 6. The ld. CIT(A) held as under: 5.3 The contentions of the assessee have been duly considered. As regards the disallowance of sub-brokerage expenses of Rs.12,50,000/-, it is observed that in accordance with the directions of the Hon’ble ITAT, the A.O. allowed opportunity to the assessee to cross-examine Shri Mukesh 5 I T A N o . 7 7 5 8 / M u m / 2 0 1 9 ( A . Y . 2 0 1 0 - 1 1 ) Kamal Kishore Rathi vs. Dy. CIT Choksi. In the cross-examination, Shri Mukesh Choksi reiterated that a signed cheque book was given to the assessee and the assessee was allowed to operate the said bank account by charging commission @ 0.15%. It is noted that the assessee did not bother to cross examine Shri Mukesh Choksi about the genuineness of the said sub-brokerage payment of Rs.12,50,000/- to one of his concerns.. In view of the reconfirmation of Shri Mukesh Choksi, in course of the cross- examination about the dubious nature of the transactions carried out through the said bank account by charging commission 0.15%, the action of the AO of concluding that the assessee's claim of sub-brokerage payment of Rs.12,50,000/- is bogus, cannot be faulted. Moreover, the contention of the assessee that Shri Jayesh Sampath, one of the another Directors of the said concern of Shri Mukesh Choksi, had filed an affidavit accepting having received the said sub- brokerage payment, is not very relevant since it is an open secret that Shri Mukesh Choksi was the mastermind and all the others only worked under his control. In any case, the assessee had never mentioned about this new angle before the Hon'ble ITAT. As regards, the assessee's claim of expenses on account of salary of Rs.10,50,000/-, it is observed that for the purpose of verifying this claim, the AO had issued summons to 4 employees out of the 6 employees. In course of the examination, it was revealed that one of the employees had stopped working for the assessee long back and the other 3 employees were not showing any income on account of salary in their returns. Thus, the action of the AO of concluding that the assessee's claim of expenses on account of salary is non-genuine, also cannot be faulted. 5.4 In view of the aforesaid discussion, no infirmity is found in the action of the AO of disallowing the assessee's claim of sub-brokerage expenses of Rs.12,50,000/- and of disallowing the salary of Rs.10,50,000/-. 7. Against the above order, the assessee is in appeal before the ITAT. 8. I have heard the ld. Departmental Representative (ld. DR for short). None appeared for and on behalf of the assessee despite several notices. 9. Upon careful consideration, I find that the assessee has engaged into bogus penny stock transaction, and after our disclosure of amount has not duly honoured the same. The ld. CIT(A) as well as A.O. have passed a reasonable and well reasoned order after duly complying with earlier ITAT direction. Nothing is on record on behalf of assessee to rebut the finding that it has engaged into bogus penny stock transaction. Thereafter, after again having made the disclosure, the assessee tried to cover the amount by claim of expenditure, which were totally an afterthought and assessee could not support the same despite opportunity. Moreover, the new plank raised in set aside proceedings has also been correctly rejected by the ld. CIT(A). Firstly, the assessee could not have made a fresh claim and moreover the same also was only ipse dixit, without proper corroborative material. Hence, I confirm the order of the ld. CIT(A). 6 I T A N o . 7 7 5 8 / M u m / 2 0 1 9 ( A . Y . 2 0 1 0 - 1 1 ) Kamal Kishore Rathi vs. Dy. CIT 10. In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open court on 27.04.2022. Sd/- (Shamim Yahya) Accountant Member Mumbai; Dated : 27.04.2022 Roshani, Sr. PS 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/Sr. Private Secretary) ITAT, Mumbai