Appeal Details
Counselvise Citation
[2014] 140 COUNSELVISE.COM (IT) 81068 (ITAT-CHANDIGARH)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
2 year(s) 3 month(s) 6 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
24-12-2014
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
A
Next Hearing Date
08-12-2014
Assessment Year
2009-2010
Appeal Filed On
18-09-2012
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO. 1026/CHD/2010 ASSESSMENT YEAR: 2006-07 ITA NO. 682/CHD/2011 ASSESSMENT YEAR: 2007-08 ITA NO. 542/CHD/2012 ASSESSMENT YEAR: 2008-09 SHRI PAWAN KUMAR TAH, VS. THE ADDL CIT, CHANDIGARH RANGE-III, CHANDIGARH PAN NO.ABBPK3805D ITA NO. 696/CHD/2011 ASSESSMENT YEAR: 2007-08 THE ACIT, CIRCLE 3(1), VS. SHRI PAWAN KUMAR TAH, CHANDIGARH CHANDIGARH ITA NO. 483/CHD/2012 ASSESSMENT YEAR: 2008-09 THE ITO, WARD 3(3), VS. SHRI PAWAN KUMAR TAH, CHANDIGARH CHANDIGARH (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHWANI KUMAR RESPONDENT BY : SHRI MANJIT SINGH & ITA NO. 944/CHD/2012 ASSESSMENT YEAR: 2009-10 SHRI PAWAN KUMAR TAH, VS. THE ITO, WARD 3(3), CHANDIGARH CHANDIGARH (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VRIND JAIN RESPONDENT BY : SHRI MANJIT SINGH DATE OF HEARING : 08.12.2014 DATE OF PRONOUNCEMENT : 24.12.2014 ORDER 2 PER T.R.SOOD, A.M. THE BUNCH OF 06 APPEALS FILED BY THE ASSESSEE AND REVENUE PERTAINING TO DIFFERENT ASSESSMENT YEARS ARE DIRECTED AGAINST TH E SEPARATE ORDERS OF CIT(A) . 2. SINCE THE ISSUES INVOLVED IN ALL THE APPEALS ARE IDENTICAL AND CORRELATED, THEREFORE, ALL THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATION ORDER. FIRST WE SHALL DEAL WITH THE APPEAL OF THE ASSESSEE IN ITA NO. 1026/CHD/2010 FOR ASSESSMENT YEAR 2006-07 IN TH E CASE OF SHRI PAWAN KUMAR TAH. 3. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS:- THAT ORDER U/S 250(6) PASSED BY LD. COMMISSIONER OF INCOME TAX (APPEALS), CHANDIGARH IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS SHE WAS NOT JUSTIFIED TO ARBITRARILY UPHOLD THE ACTION OF THE LD. ASSESSING OFFICER IN D ISALLOWING A SUM OF RS. 33,000/- PAID ON ACCOUNT OF PROFESSION AL FEE BY RESORT TO PROVISIONS OF SECTION 40A(IA). THAT SHE WAS FURTHER NOT JUSTIFIED TO UPHOLD DISALLOWANCE OF COMMISSION AMOUNTING TO RS. 31,20,6 81/- PAID TO FOUR PERSONS NAMELY, SH. GIAN CHAND SINGLA, SH. SANDEEP SARDANA, SH. G. S. SARDANA AND SH. SANJAY S ARDANA. THAT SHE WAS FURTHER NOT JUSTIFIED TO ARBITRARILY U PHOLD DISALLOWANCE OUT OF TELEPHONE AND VEHICLE RUNNING E XPENSES AT 1/10 TH OF THE TOTAL EXPENDITURE. 4. THE GROUNDS RAISED VIDE PARAS 1 & 3 WERE NOT PRESSED BEFORE US, THEREFORE, SAME ARE DISMISSED AS NOT PRESSED. 5. THE BRIEF FACTS IN RESPECT OF REMAINING GROUND A RE THAT ASSESSEE HAD PAID COMMISSION AMOUNTING TO RS. 31,20,681/- TO FOUR PER SONS OF CHANDIGARH AND PANCHKULA. THE DETAILS OF COMMISSIONS ARE AS UNDER :- 3 1. SH. GIAN CHAND SINGLA, SECTOR 8 , PANCHKULA RS. 3,00,000/- 2. SH. SANDEEP SARDANA, HUF, # 3085, SECTOR 21-D, CHANDIGARH. RS. 9,29,893/- 3. SH. G.S. SARDANA, C/O MANAV MANGAL SCHOOL, SECTOR 21-C, CHANDIGARH. RS. 9,60,053/- 4. SH. SANJAY SARDANA, (HUF) # 3085, SECTOR 21-D, CHANDIGARH. RS. 9,30,735/- RS. 31,20,681/- FROM THE RECORDS, IT WAS OBSERVED THAT ASSESSEE HA S ITS OFFICES IN DELHI, LUKCNOW AND MUMBAI APART FROM THE OFFICE AT CHANDIG ARH. IT WAS FURTHER NOTICED THAT MAXIMUM BUSINESS WAS PROCURED FROM DEL HI OFFICE AND SOME BUSINESS WAS PROCURED FROM MUMBAI AND LUCKNOW OFFIC E ALSO. IN CHANDIGARH OFFICE, BUSINESS WAS MINIMUM. THE ASSESSEE HAD ALL OWED TRADE DISCOUNTS TO VARIOUS PARTIES DIRECTLY. IN VIEW OF THESE FACTS, THE ASSESSEE WAS ASKED TO CLARIFY THE FOLLOWING POINTS:- 1. WHEN YOU ARE RECEIVING YOUR MAXIMUM BUSINESS FRO M VARIOUS PARTIES OF DELHI, THEN HOW IS IT THAT ALL THE COMMI SSION HAS BEEN PAID BY YOU TO 4 PERSONS MENTIONED ABOVE WHO WERE BASED IN CHANDIGARH. 2. YOU ARE REQUESTED TO FURNISH THE NAMES AND ADDRE SSES OF THE PARTIES FROM WHOM ALL THESE PERSONS GOT BUSINESS FO R YOUR ADVERTISING AGENCY ALONG WITH AMOUNT OF BUSINESS FR OM THESE PARTIES. 3. GIVE DETAILS OF CORRESPONDENCE BETWEEN YOU AND A LL THE 4 PERSONS TO WHOM COMMISSION HAS BEEN SAID. 4. WHEN YOU HAD BEEN GIVING TRADE DISCOUNT TO ALMOS T ALL THE PARTIES FROM WHICH YOU HAVE GOT BUSINESS, THEN WHAT WAS THE PURPOSE OF PAYING COMMISSION TO ALL THE ABOVE MENTIONED 4 P ERSONS. 5. WHAT WAS THE %AGE OF COMMISSION BEING PAID TO TH ESE 4 PERSONS AND WHETHER THEY WERE WORKING EXCLUSIVELY F OR YOU OR THEY HAD ANY OTHER SOURCE OF INCOME. IS THERE ANY WRITTE N AGREEMENT OR CONTRACT BETWEEN YOU & THESE 4 PERSONS. 4 IN RESPONSE, THE ASSESSEE VIDE LETTER DATED 17.11. 2008 AND 28.11.2008 SUBMITTED AS UNDER:- IN THIS CONNECTION WE SHALL DRAW YOUR ATTENTION T O THE FACT THAT WE HAVE GOT ONLY ONE BRANCH OFFICE IN NEW DELHI AND NO T 4 AS STATED IN YOUR QUESTIONNAIRE. ACTUALLY WE HAD TWO ADJOINING A PARTMENT NO. 1001 AND 1002 AT INDRAPRAKASH BUILDING, BARAKHAMBA ROAD, NEW DELHI. APARTMENT NO. 1001 WAS VACATED IN THE MONTH OF JUNE AND THE NEW ACCOMMODATION I.E. K-14, JANGPURA EXTN, NEW DELHI WAS HIRED IN JULY 2005. APARTMENT NO. 1002 WAS VACATED IN THE MONTH OF AUGUST 2005. SECONDLY WE WOULD LIKE TO BRING TO YOUR KIND NOTICE THAT THE EXECUTION OF WORK IS THE RESPONSIBILITY OF THE ADVE RTISING AGENCY AND THE PERSON RECEIVING COMMISSION HAS NOTHING TO DO W ITH THE EXECUTION OF WORK. HE IS PAID THE COMMISSION FOR HI S CONTACT AND THE INTRODUCTION OF CLIENTS TO US SO THE TRAVELING EXPE NSES INCURRED IN DELHI HAS NO RELEVANCE WITH THE COMMISSION PAID. CO NVEYANCE CHARGES ARE ON A HIGHER SIDE IN DELHI KEEPING THE D ISTANCE IN VIEW. THIRDLY WE ADMIT THAT WE GET THE SUBSTANTIAL BUSINE SS FROM DELHI AND HENCE TRADE DISCOUNT IS MORE FOR DELHI. WE WOUL D LIKE TO BRING TO YOUR KIND NOTICE THAT ALL THE BIG ADVERTISING AG ENCIES ARE BASED IN DELHI AND HENCE THE COMPETITION IS MUCH HIGHER T HAN THAT OF CHANDIGARH. MOREOVER THE AMOUNT OF BUSINESS GIVEN B Y THE DELHI CLIENTS ARE MUCH MORE VOLUMINOUS AS COMPARED TO CHA NDIGARH, THEREFORE, ENJOY A BETTER BARGAIN POSITION THAN THE CLIENTS IN CHANDIGARH. NOW THE POINT WISE REPLY TO YOUR QUERIES IS AS UNDE R: 1. WE HAVE ADMITTED THE FACT ABOVE THAT WE GET MORE BU SINESS FROM THE PARTIES BASED AT DELHI BUT THE COMMISSION HAS B EEN PAID TO THE PERSONS WHO ARE BASED IN CHANDIGARH BECAUSE OF THE FACT THAT THEY HAVE THE CONTACTS. WE HAVE ALREADY STATED ABOVE THAT THE COMMISSION IS PAID FOR INTRODUCTION OF THE CLIE NTS IRRESPECTIVE OF THE PLACE WHERE THE PERSON RESIDES. 5 2. WE ARE FURNISHING THE NAME OF THE PARTIES FROM WHOM ALL THESE PERSONS GOT US THE BUSINESS OF ADVERTISING ALONG WI TH THE AMOUNT REALIZED DURING THE YEAR UNDER CONSIDERATION FROM T HESE PARTIES. 3. THERE IS NO CORRESPONDENCE BETWEEN US AND THE PERSO NS TO WHOM THE COMMISSION HAS BEEN PAID. IT IS ALL THE VERBAL COMMUNICATION BETWEEN US FROM TIME TO TIME. 4. IT DEPENDS UPON THE NEGOTIATIONS WITH THE DIRECT AD VERTISER THAT WE DECIDE THE COMMISSION PERCENTAGE OF THE COMMISSI ON AGENT. BASICALLY IT IS THEIR INTRODUCTION THAT WE GET THE BUSINESS FROM THESE ADVERTISERS. AS IT IS PREVALENT IN THE ADVERT ISING BUSINESS. THE ADVERTISERS ARE AWARE OF THE FACT THAT THE ADVE RTISING AGENCIES OFFER THE TRADE DISCOUNT, THEREFORE, THEY NEGOTIATE ON THE TRADE DISCOUNT. WE SETTLE THE COMMISSION KEEPIN G IN VIEW THE TRADE DISCOUNT OFFERED TO THE ADVERTISER. 5. THE PERCENTAGE OF COMMISSION PAID TO THE COMMISSION AGENTS IS DEPICTED IN THE CHARTS ENCLOSED FOR THE PAYMENT OF COMMISSION AS PER ANNEXURE I TO III MR. G.S. SARDANA IS HAVING SU BSTANTIAL INCOME FROM OTHER SOURCES WHILE SANDEEP SARDANA HUF AND SANJAY SARDANA HUF HAVE MINOR INCOME FROM OTHER SOU RCES. 6. THERE IS NO WRITTEN AGREEMENT OR CONTRACT BETWEEN U S AND THE COMMISSION AGENTS AND THE COMMISSION IS SETTLED IN ACCORDANCE WITH THE VOLUME OF BUSINESS OFFERED BY THE AGENT / ADVERTISER. 6. FROM THE REPLIES AND OTHER DETAILS THE ASSESSING OFFICER NOTICED THAT SHRI G. S. SARDANA TO WHOM COMMISSION HAS BEEN PAID GOT BUSINESS FROM ASSESSEE AND FROM VARIOUS OFFICE OF BSNL LOCATED IN PUNJAB , HARYANA, UTTAR PRADESH, GUJRAT AND MUMBAI ETC. THE BUSINESS WAS PROCURED B Y SHRI G.S. SARDANA EVEN FROM REMOTE PLACES LIKE GONDA, BARABANKI AND AKOLA ETC. SHRI SANDEEP SARDANA (HUF) IS SUPPOSED TO HAVE GOT BUSINESS FOR THE ASSE SSEE FROM M/S JAIPURIA INFRASTRUCTURE DEVELOPMENT CO. LTD AND FROM NEW OKH LA INDUSTRIAL DEVELOPMENT AUTHORITY AND IS FURTHER SUPPOSED TO HA VE PROCURED BUSINESS FORM DCPS OF VARIOUS POLICE DISTRICTS OF DELHI. SHRI SAN JAY SARDANA IS SUPPOSED TO 6 HAVE GOT BUSINESS FROM M/S NIHO CONSTRUCTION LTD, M /S SUPER TECH CONSTRUCTION PVT LTD AND M/S TODAY HOME INFRASTRUCT URE PVT LTD. THEREFORE, TO UNDERSTAND HOW THESE PERSONS HAVE GOT BUSINESS FROM VARIOUS PARTIES, FURTHER ENQUIRIES WERE MADE FROM M/S C.G.M BSNL CHANDIGARH, CGM BSNL U.P. EAST CIRCLE LUCKNOW, M/S NIHO CONSTRUCTION LTD AND M/S J AIPURIA INFRASTRUCTURE DEVELOPMENT CO. LTD NEW DELHI. THESE PARTIES WERE REQUESTED TO FURNISH THE FOLLOWING INFORMATION (I) COPIES OR RELEASE ORDER GIVEN TO SH. PAWAN KUM AR TAH BY YOUR OFFICE. (II) WHETHER THE ADVERTISEMENT WAS GIVEN DIRECTLY TO THE ABOVE MENTIONED AGENCY OR THEY WERE GIVEN THROUGH SOME MI DDLE MAN/AGENTS. (III) IF THERE WAS ANY MIDDLEMAN/AGENT INVOLVED NAME & AD DRESS AND NATURE OF SERVICE RENDERED BY HIM. (IV) ALSO, FURNISH DETAILS OF WRITTEN CORRESPONDENCE BET WEEN YOUR OFFICE AND THE AGENT / MIDDLE MAN. 7. VARIOUS AUTHORITIES GAVE REPLIES IN RESPONSE TO THE QUERIES RAISED BY THE ASSESSING OFFICER. THE REPLIES HAVE BEEN EXTRACTED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. THE AGM MARKETING AND CGM BS NL PUNJAB CIRCLE CLEARLY STATED VIDE LETTER DATED 4.12.2008 THAT ADV ERTISEMENT WERE GIVEN DIRECTLY TO THE ABOVE MENTIONED AGENCIES I.E ASSESSEE AND NO AGENTS WERE EMPLOYED. SIMILAR REPLY WAS FILED BY CHANDIGARH, U.P. EAST CI RCLE. M/S JAIPUR INFRASTRUCTURE DEVELOPMENT COMPANY LTD. WHO ALSO ST ATED VIDE THEIR LETTER DATED 4.12.2008 THAT ADVERTISEMENTS WERE GIVEN DIRECTLY T O M/S RAM ADVERTISING SERVICE I.E. ASSESSEE, COPY OF ACCOUNT WERE ALSO FU RNISHED AND ASSESSING OFFICER NOTED THAT NAME OF SHRI SANDEEP SARDANA WAS NOT MEN TIONED EVEN IN THE COPY OF ACCOUNT. M/S NIHO CONSTRUCTION LTD. VIDE REPLY DAT ED 10.12.2008 SUBMITTED AS UNDER:- 7 PAYMENT WERE MADE AS PER BILL BY ACCOUNT PAYEE CH EQUES ONLY. RAM ADVERTISING SERVICE IS REFERRED BY MR. SANJAY S ARDANA. AS RAM ADVERTISING SERVICE IS ONLY REFERRED BY MR. SANJAY SARDANA, SO NO DIRECT SERVICE RECEIVE FROM THE MIDD LEMAN. AS RAM ADVERTISING SERVICE IS ONLY REFERRED BY MRS. SANJAY SARDANA, SO NO DIRECT SERVICE RECEIVE FROM SUCH MID DLEMAN. THUS NO CORRESPONDENCE AVAILABLE BETWEEN OUR OFFICE AND THE MIDDLEMAN. 8. SINCE M/S NIHO C ONSTRUCTION LTD. HAS REFERRED TO THE NAME OF SHRI S ANJAY SARDANA, THE ASSESSING OFFICER MADE THE FOLLOWING O BSERVATIONS:- FROM THE REPLY FURNISHED BY M/S NIHO CONSTRUCTION I T APPEARS THAT BEFORE SENDING THE REPLY TO THIS OFFIC E, THE AUTHORIZED SIGNATORIES CONTACTED SH. PAWAN KUMAR TA H REGARDING THE PURPOSE FOR WHICH THE DEPARTMENT HAD CALLED FOR INFORMATION FROM M/S NIHO CONSTRUCTION AND THAT IS WHY IN ITS REPLY IT HAS BEEN SIMPLY STATED THAT M/S RAM ADVERTISING SERVICE IS ONLY REFERRED BY SH. SANJAY SARDANA. AT THE SAME TIME THE COMPANY HAS STATED THAT NO DIR ECT SERVICE HAS BEEN RECEIVED FROM THE MIDDLE MAN SH. S ANJAY SARDANA AND THAT THERE IS CORRESPONDENCE AVAILABLE BETWEEN THEIR OFFICE AND THE MIDDLE MAN. IT IS PRETTY CLEAR THAT NAME OF SH. SANJAY SARDANA AS A A REFERRING PERSON HAS B EEN INSERTED BY M/S NIHO CONSTRUCTION JUST TO HELP THE ASSESSEE IN ITS INCOME TAX PROCEEDINGS PENDING BEFORE THIS OFFI CE. THEREAFTER THE ASSESSING OFFICER RECORDED THE STATE MENT OF SHRI G.S. SARDANA AND SHRI SANJAY SARDANA WHICH HAS BEEN REFERRED TO AT PAGES 12 TO 20 OF THE ASSESSMENT ORDER. ON THE BASIS OF THESE STATEMENTS , THE FOLLOWING SALIENT POINTS WERE NOTED BY THE ASSESSING OFFICER IN THE CASE OF G.S. SARDANA. 1. SH. G.S. SARDANA IS INTO AN ALL TOGETHER DIFFERENT BUSINESS OF RUNNING/MANAGING THREE SCHOOLS OF HIGH REPUTE IN CH ANDIGARH / PANCHKULA / MOHALI. 8 2. AS PER LIST FURNISHED BY SH. PAWAN KUMAR TAH, SH. G .S. SARDANA IS SUPPOSED TO HAVE GOT BUSINESS FOR SH. PA WAN KUMAR TAH FROM VARIOUS FAR FLUNG OFFICES OF M/S B.S .N.L LOCATED IN 5-6 STATES AND THE TOTAL NUMBER OF THESE OFFICES IS MORE THAN 30. 3. SH. G.S. SARDANA HAS SIMPLY STATED THAT HE HAS GOT BUSINESS FOR SH. PAWAN KUMAR TAH FROM THEIR HEAD OFFICE AT D ELHI. 4. SH. G.S. SARDANA DOES NOT KNOW THE EXACT ADDRESS OF THE HEAD OFFICE OF M/S B.S.N.L AT DELHI. HE DOES NOT EVEN KN OW THE AREA/ROAD WHERE ITS HEAD OFFICE IS LOCATED. 5. SH. G.S. SARDANA HAS NEVER VISITED THE HEAD OFFICE OF M/S. B.S.N.L IN DELHI. 6. SH. G.S. SARDANA HAS NEVER VISITED ANY OF THE BRANC H OFFICES OF M/S B.S.N.L FROM WHOM SH. PAWAN KUMAR TAH HAS GO T BUSINESS. 7. WHEN ASKED SPECIFICALLY AS TO WHETHER HE HAD ANY TY PE OF WRITTEN / VERBAL / TELEPHONIC CORRESPONDENCE WITH A NY OF THE BRANCHS OF ;M/S B.S.N.L, SH. G.S. SARDANA REPLIED T HAT HE DID NOT HAVE ANY TYPE OF CORRESPONDENCE WITH THEM. WHER EAS, IN HIS REPLY FILED JUST BEFORE THE RECORDING OF THE ST ATEMENT (PARA NO. 2)SH. G.S. SARDANA HAS SUBMITTED THAT COMMUNICATION BETWEEN ME AND SH. PAWAN KUMAR TAH AN D THE OTHER PARTIES WAS MADE EITHER THROUGH TELEPHONE OR BY PERSONAL VISITS. THE REPLY OF THE ASSESSEE FILED JU ST BEFORE THE RECORDING OF STATEMENT AND THE REPLIES GIVEN DURING THE COURSE OF RECORDING OF STATEMENT ON 18.12.2008 ARE CONTRADICTING EACH OTHER ON THE ISSUE OF PERSONAL V ISITS AS WELL AS ANY TYPE OF CORRESPONDENCE. 8. SH. G.S. SARDANA DOES NOT KNOW ABOUT THE HIERARCHY OF THE MANAGEMENT OF M/S B.S.N.L. 9 9. SH. G.S. SARDANA EVEN DOES KNOW WHETHER M/S B.S.N.L IS A CENTRAL OR STATE GOVERNMENT DEPARTMENT, A COMPANY, A TRUST OR A SOCIETY. 10. WHEN ASKED AS TO IF HE IS AWARE OF THE KIND OF SERV ICES M/S B.S.N.L IS PROVIDING, SH. G.S. SARDANA STATED THAT NO, I NEED NOT KNOW THESE THINGS. 11. WHEN CONFRONTED WITH THE FACT THAT O/O THE C.G.M, M /S B.S.N.L LTD. CHANDIGARH AS WELL AS O/O THE C.G.M M/ S B.S.N.L LTD, LUCKNOW IN THEIR REPLIES HAVE ALREADY STATED THAT ADVERTISEMENTS WERE GIVEN DIRECTLY TO M/S RAM ADVER TISING SERVICE AND THERE WAS NO AGENT/MIDDLEMAN INVOLVED. SH. G.S. SARDANA SATATED THAT IT IS NOT A MATTER OF RECORD. THAT IS ALL I HAVE TO SAY ABOUT THIS. THIS REPLY OF SH. G.S. S ARDANA MAY IMPLY THAT SOME ILLEGAL MEANS MAY HAVE BEEN USED IN THE PROCESS. 12. SH. G.S. SARDANA HAS STATED THAT HE DOES NOT CONTAC T ANYBODY IN THE HEAD OFFICE OF M/S B.S.N.L IN DELHI. HE ONLY REQUESTS SOMEBODY IN HIS KNOWN CIRCLE WHO THEN PUTS UP A WOR D WITH THE CONCERNED PERSONS IN THE HEAD OFFICE OF M/S B.S .N.L AND CONSEQUENTLY THE BUSINESS IS ALLOTTED TO SH. PAWAN KUMAR TAH. WHEREAS, SH. PAWAN KUMAR DID NOT GET ANY BUSIN ESS FROM THE HEAD OFFICE OF M/S B.S.N.L. HE ONLY GET BU SINESS FROM VARIOUS BRANCHES OF M/S B.S.N.L WHICH ARE WORK ING INDEPENDENTLY UNDER THE OVER ALL CONTROL/ADMINISTRA TION OF THE CHIEF GENERAL MANAGER (CGM) RANK OFFICERS OF THE B. S.N.L AND THESE SMALL MATTERS OF GIVING ADVERTISEMENTS AR E HANDLED BY THEM INDEPENDENTLY IN THE HEAD OFFICE. 13. WHEN ASKED SPECIFICALLY AS TO WHOM DID HE REQUEST I N HIS KNOWN CIRCLES TO PUT UP A WORD WITH THE CONCERNED P ERSON IN HEAD OFFICE OF M/S. B.S.N.L, HE SIMPLY STATED THAT I DO NOT REMEMBER ANYTHING ABOUT THE SAME AT PRESENT. HE EV EN DID NOT REMEMBER THE NAME AND THE DESIGNATION OF THE CO NCERNED PERSON IN THE HEAD OFFICE OF M/S B.S.N.L IN DELHI, WHO WAS REQUESTED BY SOMEBODY IN HIS KNOWN CIRCLE. 10 IT IS TOTALLY CLEAR THAT SH. G.S. SARDANA DOES NOT KNOW ANYTHING ABOUT HE B.S.N.L AND ANYBODY WORKING IN THE B.S.N.L . HE HAS SIMPLY STATED THAT SOMEBODY ON HIS BEHALF PUTS UP A WORD WITH THE CONCERNED PERSON IN THE HEAD OFFICE OF B.S.N.L AND THAT IS HOW SH. PAWAN KUMAR TAH GOT BUSINESS FROM M/S B.S.N.L. IN NUTSHELL, SH. G.S. SARDANA DID NOT DO ANYTHING FOR WHICH HE W AS PAID HEFTY COMMISSION OF RS. 9,60,053/- BY THE ASSESSEE. 9. ACCORDING TO ASSESSING OFFICER THE STATEMENT VER Y CLEARLY REFLECTS THAT THE CLIENTS WHO HAVE GIVEN THE BUSINESS TO THE ASSESSEE HAD GIVEN THE ADVERTISEMENTS DIRECTLY AND NO MIDDLEMAN WAS INVOLVED. FURTHER THE RECIPIENTS DID NOT KNOW THE LOCATION OF THE OFFICE OR THE IDENTITY OF THE PERSO N WHO IS SUPPOSED TO HAVE BEEN INTRODUCED BY THE ASSESSEE, THEREFORE, STORY OF SUC H PERSONS BEING INTRODUCED BY THESE RECIPIENTS WERE TOTALLY FABRICATED. THE ASSES SING OFFICER ALSO PERUSED THE TDS CERTIFICATES AND NOTED THE DETAILS AS UNDER:- AMOUNT PAID DATE SH. G.S. SARDANA SANJAY SARDANA(HUF) SANDEEP SARDANA (HUF) 25.04.2005 80,000 70,000 70,000 25.05.2005 80,000 70,000 70,000 25.06.2005 80,000 70,000 70,000 23.07.2005 80,000 80,000 80,000 25.08.2005 1,60,000 1,60,000 1,60,000 24.11.2005 1,60,000 1,60,000 1,60,000 24.12.2005 80,000 80,000 80,000 24.01.2006 80,000 80,000 80,000 24.02.2006 80,000 80,000 80,000 25.03.2006 80,000 80,000 80,000 FROM THE ABOVE, HE NOTED THAT THERE WAS A SET PATTE RN FOR PAYMENT OF COMMISSION WHICH WAS PAID EVERY MONTH ALMOST EQUALLY DIVIDED.. THE PAYMENTS WERE MADE ON THE SAME DAY TO ALL THE THREE PERSONS AND THE SA ME AMOUNT WAS PAID TO ALL THE THREE PERSONS IRRESPECTIVE OF THE FACT THAT BUSINES S WAS PROCURED FOR DIFFERENT 11 AMOUNTS AND FROM DIFFERENT OFFICES DURING DIFFERENT PERIOD. THE ASSESSEE WAS ALSO CONFRONTED WITH THE REPLIES GIVEN BY VARIOUS A UTHORITIES WHICH STATED THAT ADVERTISEMENTS WERE RELEASED DIRECTLY AND NO MIDDLE MAN WAS INVOLVED. THE ASSESSEE AGAIN REITERATED THAT ROLE OF THESE PERSON S WERE ONLY LIMITED TO INTRODUCING THE PROSPECTIVE PARTIES FROM WHOM THE S UBSTANTIAL BUSINESS WAS OBTAINED. IT WAS FURTHER STATED THAT THESE PERSONS HAVE DULY REFLECTED THE INCOME IN THEIR RETURNS AND COPY OF THE RETURNS FILED BY T HESE PERSONS WERE ALSO FILED. 10. ON THE BASIS OF THE ABOVE ENQUIRIES THE ASSESSI NG OFFICER CONCLUDED THAT COMMISSION TO THESE THREE PERSONS WERE NOT PAID WHO LLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS BUT SUCH COMMISSIONS WERE PAID ONLY TO REDUCE TAXABLE INCOME. HE ALSO NOTED THAT THESE PERSONS HAVE STAT ED THAT THEY USED THEIR INFLUENCE IN FINAL DECISION MAKER IN BSNL / OTHER G OVERNMENT AGENCIES THROUGH THEIR CONTACTS THE ADVERTISING BUSINESS OF THE ASSE SSEE. THIS ACCORDING TO ASSESSING OFFICER MAY AMOUNT TO USING EXTERNAL PRES SURE TO DECISION MAKING OF VARIOUS GOVERNMENT DEPARTMENTS WHICH IS AGAINST THE LAW OF LAND AND, THEREFORE, THE EXPLANATION TO SECTION 37(1) WAS ATTRACTED. TH EREFORE, COMMISSION PAID TO THESE THREE PERSONS I.E SHRI G.S. SARDANA, SHRI SAN DEEP SARDANA (HUF) AND SHRI SANJAY SARDANA HUF AMOUNTING TO RS. 28,20,681/- WAS DISALLOWED. 11. IT WAS FURTHER NOTED THAT COMMISSION AMOUNTING TO RS. 3 LAKHS HAS BEEN PAID TO SHRI GIAN CHAND SINGLA. IN RESPONSE TO THE QUERY REGARDING THIS COMMISSION, A COMPROMISED DEED BETWEEN SHRI PAWAN K UMAR TAH AND M/S SEENGAL HOTEL PVT LTD. CHANDIGARH HIS SISTER CONCER N WAS FURNISHED. THE COMPROMISE DEED SHOWS THAT M/S SEENGAL HOTEL PVT LT D. AND HIS SISTER CONCERN HAD ENGAGED THE SERVICE OF SHRI PAWAN KUAMR TAH FRO M TIME TO TIME FOR ISSUING ADVERTISEMENTS IN REQUIRED NEWSPAPERS AND THERE WAS LITIGATION BETWEEN THE PARTIES REGARDING RECOVERY OF DUES. FURTHER THE DE ED SHOWS THAT A COMPROMISE WAS REACHED BETWEEN SHRI PAWAN KUMAR TAN AND SHRI G IAN CHAND SINGLA AND 12 ASSESSEE PAID A COMMISSION OF RS. 3 LAKHS FOR THE SERVICES RENDERED FOR GETTING SERVICES FROM M/S SEENGAL HOTEL PVT LTD. AND SISTER CONCERN IN THE EARLIER YEARS. INFORMATION WAS ALSO COLLECTED FORM SHRI GIAN CHAND SINGLA U/S 133(6) AND IN RESPONSE TO THIS QUERY SHRI GIAN CHAND SINGLA CONFI RMED THE RECEIPT OF COMMISSION OF RS. 3 LAKHS AND IT WAS FURTHER STATED THAT HE HAD ALREADY SHOWN THIS COMMISSION IN HIS INCOME TAX RETURN. THE ASSES SING OFFICER MADE AN OBSERVATION THAT COMMISSION WAS PAID FOR THE BUSINE SS DONE IN THE EARLIER YEARS AND, THEREFORE, THIS AMOUNT REPRESENTS THE PREVIOUS YEAR EXPENSES AND WAS NOT ALLOWABLE. ACCORDINGLY, THE COMMISSION OF RS. 28,20 ,681/- WAS DISALLOWED BEING BOGUS COMMISSION AND RS. 3 LAKHS WAS DISALLOW ED BEING EXPENSES RELATED TO EARLIER YEARS. 12. ON APPEAL, IT WAS MAINLY STATED THAT ASSESSEE H AS DISCHARGED THE BURDEN OF ONUS REGARDING BUSINESS EXPENDITURE AND HAVE PRODUC ED THE COPY OF THE RETURN FILED BY THE RECIPIENTS OF THE COMMISSION AND IT WA S FURTHER POINTED OUT THAT ALL THESE PERSONS WERE EXAMINED BY THE ASSESSING OFFICE R WHO HAVE CLEARLY CONFIRMED THE FACT OF RECEIVING THE COMMISSION A RECIPIENT OF THE COMMISSION HAD PAID PROPER TAXES AND, THEREFORE, THERE IS NO J USTIFICATION OF TAXING THE SAME INCOME AGAIN,. 13. THE LD. COMMISSIONER AFTER EXAMINING THE SUBMIS SIONS OBSERVED FROM THE STATEMENT OF THE RECIPIENTS OF COMMISSION THAT IT W AS CLEAR THAT THEY COULD NOT TELL WHICH ORDER WERE PROCURED. HOW THESE WERE PRO CURED, WHO WERE OFFICERS AND PEOPLE CONTACTED BY THEM ETC. EVEN THE STRUCTU RE OF THE ORGANIZATION FROM WHOM ORDERS WERE PROCURED WAS NOT KNOWN TO THE RECI PIENT. FURTHER, SHE ALSO REFERRED TO THE PAYMENT DETAILS MENTIONED BY THE AS SESSING OFFICER AND OBSERVED THAT THE SAME SHOWS NON-GENUINENESS OF THE COMMISSI ON. IN THIS BACKGROUND SHE CONFIRMED THE ADDITION. 13 14. BEFORE US LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT IDENTICAL COMMISSION WAS PAID TO THE SAME PERSONS TO WHOM COM MISSION HAS BEEN PAID DURING THE YEAR AND SAME WAS ACCEPTED IN ASSESSMENT FRAMED U/S 143(3) IN ASSESSMENT YEARS 2004-05 AND 2005-06 FOR WHICH HE R EFERRED TO THE COPY OF THE ASSESSMENT ORDER AND OTHER DETAILS FILED AT IN THE PAPER BOOK. HE ALSO SUBMITTED THAT SAME COMMISSION WAS ALLOWED EVEN IN ASSESSMENT YEAR 2011-12 FOR WHICH ALSO ASSESSMENT ORDER HAS BEEN PLACED IN PAPER BOOK . THEREFORE, THE PRINCIPLE OF CONSISTENCY SHOULD BE FOLLOWED AND COMMISSION SHOUL D HAVE BEEN ALLOWED. 15. HE FURTHER SUBMITTED THAT ALL THE PERSONS TO WH OM COMMISSION WAS PAID WERE PRODUCED BEFORE ASSESSING OFFICER AND THEY CLE ARLY ACCEPTED THE FACT OF RECEIVING THE COMMISSION AND THEY HAVE FURTHER SHOW N SUCH RECEIPT IN THEIR INCOME TAX RETURNS AND THIS PROVES THAT SERVICE HA VE DEFINITELY BEEN RENDERED BY SUCH PERSONS. THEREFORE, THERE IS NO QUESTION OF DO UBTING SUCH PAYMENT OF COMMISSION. HOWEVER, ON BEING QUESTIONED BY THE BEN CH WHETHER ANY EVIDENCE OR CORRESPONDENCE WAS AVAILABLE SHOWING OF RENDERIN G OF SERVICE HE ADMITTED THAT NO WRITTEN CORRESPONDENCE OR AGREEMENT WAS AVA ILABLE. HE SUBMITTED THAT COMMISSION WAS BASICALLY PAID FOR INTRODUCING CERTA IN PEOPLE IN VARIOUS ORGANIZATIONS FOR OBTAINING BUSINESS. THE LD. COUN SEL FOR THE ASSESSEE FURTHER RELIED ON THE FOLLOWING DECISIONS:- A) CIT VS. NANGALIA FABRICS (P) LTD. 40 TAXMAN 206 (GUJARAT) B) DCIT VS. SMT. JASPREET KAUR IN ITA N0. 4765/DE L/2012 (ITAT- DELHI) C) CIT V MUNDRA PORT AND SEZ LTD. 45 TAXMANN 361 (GUJARAT ) 16. ON THE OTHER HAND, LD. DR SUBMITTED THAT IN THE EARLIER YEARS NO ENQUIRIES HAVE BEEN MADE IN RESPECT OF COMMISSION, THEREFORE, IT CANNOT BE SAID THAT IN EARLIER YEAR THE PAYMENT OF COMMISSION WAS ACCEPTED BY THE DEPARTMENT. THEN HE REFERRED TO THE ASSESSMENT ORDER AND CARRIED US THROUGH THE STATEMENT OF VARIOUS RECIPIENTS OF THE COMMISSION AND POINTED OU T THAT GLARING OMISSIONS OF 14 FACTS E.G SHRI G.S. SARDANA COULD NOT GAVE THE NAM E OF PERSONS TO WHOM HE HAS INTRODUCED TO THE ASSESSEE WHEN IT IS BEING CLAIME D THAT COMMISSION WAS MAINLY PAID IN INTRODUCING A PARTICULAR PERSONS. MR. SARA DANA WAS NOT AWARE OF THE ORGANIZATION OF BSNL. HE WAS NOT AWARE OF THE ADDRE SS OF THE OFFICES. HE WAS NOT EVEN AWARE OF THE ADDRESS OF THE ASSESSEES OFF ICE. ALL THESE FACTS CLEARLY SHOW THAT PAYMENT OF COMMISSION IS BOGUS. FURTHER, VARIOUS ORGANIZATIONS LIKE BSNL, M/S JAIPURIA INFRASTRUCTURE DEVELOPMENT CO. L TD AND M/S NIHO CONSTRUCTION LTD. HAS CLEARLY STATED IN REPLY TO TH E ENQUIRES BY THE ASSESSING OFFICER U/S 133(6) THAT THEY HAVE GIVEN THE ADVERT ISEMENTS DIRECTLY TO THE ASSESSEE AND NO MIDDLEMAN WAS INVOLVED. THIS FURTH ER PROVES THAT COMMISSION IS BOGUS. 17. THE LD. DR STRONGLY RELIED ON THE DECISION OF H ON'BLE SUPREME COURT IN THE CASE OF SWADESHI COTTON MILL CO. LTD. VS. CIT 6 3 ITR 57 (SC) AND READ OUT CERTAIN PORTIONS OF THE JUDGEMENTS. HE ALSO REFERR ED TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF LACHMINARAYAN MADAN LA L VS CIT 86 ITR 439 (SC) WHEREIN IT WAS HELD MERE EXISTENCE OF AGREEME NT WILL NOT PROVE THE SERVICES. HE SUBMITTED THAT IN CASE OF ASSESSEE EVE N THERE WAS NO AGREEMENT ALSO. 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY IN THE LIGHT OF MATERIAL ON RECORD AND DECISIONS CITED BY THE PARTI ES. FIRST OF ALL LET US UNDERSTAND THE LEGAL POSITION. IT IS SETTLED LAW T HAT IF EXPENDITURE HAS BEEN CLAIMED BY THE ASSESSEE, THE ONUS LIES ON HIM TO PR OVE THE GENUINENESS OF SUCH EXPENSES. THE HON'BLE SUPREME COURT IN THE CASE OF SWADESHI COTTON MILL CO. LTD VS. CIT (SUPRA) HAS CLEARLY HELD THAT INCOME-TA X OFFICER IS NOT BOUND TO HOLD THAT A PARTICULAR EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS SIMPLY BECAUSE AN AGREEMENT EXISTS BETWEEN THE ASSE SSEE AND THE EMPLOYER. IN THAT CASE THE ASSESSEE COMPANY WAS MANAGED BY THE M ANAGING AGENTS WHOSE 15 REMUNERATION WAS AN OFFICE ALLOWANCE OF RS. 5,000 P ER MONTH AND 10% OF THE NET PROFITS OF THE COMPANY. UNDER ARTICLE 118 OF THE AR TICLES OF ASSOCIATION OF THE COMPANY ITS DIRECTORS WERE EACH ENTITLED TO A REMUN ERATION OF RS. 100 PER MONTH. AT AN EXTRAORDINARY GENERAL MEETING OF ITS S HAREHOLDERS ARTICLE 118 WAS AMENDED TO PROVIDE FOR THE PAYMENT TO THE DIRECTORS OF A COMMISSION OF 1% OF THE NET PROFITS OF THE COMPANY IN ADDITION TO THEIR MONTHLY REMUNERATION AND AS A RESULT THE FIVE DIRECTORS OF THE COMPANY BECAME E NTITLED TO A SUM OF RS. 28,218 EACH FOR THE CALENDAR YEAR 1948. THE TRIBUNAL FOUND THAT THE PAYMENT OF THE COMMISSION TO THE DIRECTORS WAS FOR EXTRA-COMMERCIA L REASONS ON THE GROUNDS, (I) THAT THEY DID NOT RENDER ANY SPECIAL SERVICE IN THAT YEAR; (II) THAT THE MANAGEMENT OF THE COMPANY WAS DONE BY THE MANAGING AGENTS AND VERY LITTLE WAS DONE BY THE DIRECTORS; (III) THAT THE REMUNERAT ION OF RS. 100 PER MONTH WAS NOT CONSIDERED BY THE DIRECTORS TO BE INADEQUATE IN EARLIER YEARS; (IV) THAT THE INCREASE IN THE COMPANY'S PROFITS BY ABOUT RS. 30 L AKHS WAS DUE TO THE CONTROL OF CLOTH HAVING BEEN LIFTED AND NOT TO ANY SPECIAL EXE RTION OF THE DIRECTORS; AND DISALLOWED THE PAYMENT OF THE COMMISSION AS IT WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS. 19. ON THE ABOVE FACTS, THE HON'BLE SUPREME COURT M ADE THE FOLLOWING OBSERVATIONS AT PAGES 59 TO 61. ON BEHALF OF THE APPELLANT LEARNED COUNSEL PUT FOR WARD THE ARGUMENT THAT THE AMOUNT OF RS. 1,11,090 PAID TO T HE DIRECTORS WAS SPENT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF TH E COMPANY AND WAS THEREFORE PROPERLY CLAIMED AS A DEDUCTION UNDE R SECTION 10(2)(XV) OF THE INCOME-TAX ACT. IT WAS POINTED OU T THAT THE AMENDMENT TO ARTICLE 118 WAS ADOPTED BY A SPECIAL RESOLUTION OF THE SHAREHOLDERS AND THE AMENDMENT WAS MADE IN ACCO RDANCE WITH LAW AND THE PAYMENT CANNOT BE CALLED IN QUESTION IN INCOME-TAX PROCEEDINGS. IN OUR OPINION, THERE IS NO SUBSTANCE IN THIS ARGUMENT. IT IS TRUE THAT AS BETWEEN THE DIRECTORS AND THE C OMPANY THE RESOLUTION HAD A BINDING EFFECT AND THE PAYMENT HA D TO BE LEGALLY MADE. BUT IT IS FOR THE INCOME-TAX OFFICER TO DECI DE WHETHER THE AMOUNT SO PAID TO THE DIRECTORS WAS WHOLLY AND EXC LUSIVELY SPENT 16 FOR THE PURPOSE OF THE BUSINESS WITH IN THE MEANING OF SECTION 10(2)(XV) OF THE INCOME-TAX ACT. IT IS AN ERRONEOUS PROPOSITION TO CONTEND THAT AS SOON AS AN ASSESSEE HAS ESTABLISHED TWO FACTS, VIZ., THE EXISTENCE OF AN AGREEMENT BETWEEN THE EMPLOYER AND THE EMPLOYEE AND THE FACT OF ACTUAL PAYMENT, NO DISCRE TION IS LEFT TO THE INCOME-TAX OFFICER EXCEPT TO HOLD THAT THE PAY MENT WAS MADE WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUS INESS. ALTHOUGH THE PAYMENT MIGHT HAVE BEEN MADE AND ALTHOUGH THER E MIGHT BE AN AGREEMENT IN EXISTENCE, IT WOULD STILL BE OPEN T O THE INCOMETAX OFFICER TO TAKE INTO CONSIDERATION ALL THE RELEVANT FACTORS WHICH WILL GO TO SHOW WHETHER THE AMOUNT WAS PAID AS REQ UIRED BY SECTION 10(2)(XV). THE QUESTION AS TO WHETHER AN A MOUNT CLAIMED AS EXPENDITURE WAS LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF SUCH BUSINESS, PROFESSION OR VO CATION HAS TO BE DECIDED ON THE FACTS AND IN THE LIGHT OF THE CIRCUM STANCES OF EACH CASE. BUT, AS OBSERVED BY THIS COURT IN EASTERN INV ESTMENTS LTD. V. COMMISSIONER OF INCOME-TAX (1), THE FINAL CONCLUSIO N ON THE ADMISSIBILITY OF AN ALLOWANCE CLAIMED IS ONE OF LA W. IT IS FOR EXAMPLE OPEN TO THE ASSESSEE TO CONTEND THAT THE D ECISION ARRIVE AT BY THE INCOME-TAX AUTHORITIES WAS BASED ON NO E VIDENCE AT ALL. IF THE ASSESSEE SATISFIES THE COURT THAT THE DECISI ON OF THE INCOME- TAX OFFICER AUTHORITIES IS BASED ON NO EVIDENCE THE N THE QUESTION AT ISSUE BECOMES ONE OF LAW AND THE COURT WOULD BE ENTITLED TO SAY THAT THE DECISION OF THE INCOME-TAX OFFICER IS DEF ECTIVE 4 IN LAW. BUT, AS WE HAVE ALREADY STATED, IT IS NOT OPEN TO THE ASSESSEE TO CONTEND THAT MERELY BECAUSE OF THE EXISTENCE OF AN AGREEMENT, BETWEEN THE EMPLOYER AND THE EMPLOYEE AND THE FACT OF ACTUAL PAYMENT, THE INCOME-TAX OFFICER MUST HOLD THAT THE PAYMENT WAS MADE EXCLUSIVELY AND WHOLLY FOR THE PURPOSE OF THE BUSINESS. IT IS MANIFEST THAT THE INCOME-TAX OFFICER IS ENTITLED T O EXAMINE THE CIRCUMSTANCES OF EACH CASE TO DETERMINE FOR HIMSELF WHETHER THE REMUNERATION PAID TO THE EMPLOYEE OR ANY PORTION TH EREOF WAS PROPERLY DEDUCTED UNDER SECTION 10(2)(XV) OF THE I NCOME-TAX ACT. THE VIEW THAT WE HAVE EXPRESSED IS BORN OUT BY THE DECISION OF THE JUDICIAL COMMITTEE IN ASPRO LIMITED V. COMMISSIONE R OF TAXES (2). IN THAT CASE, THERE WERE TWO SHAREHOLDERS OF A COMP ANY AND THEY WERE ALSO THE SOLE DIRECTORS OF THE COMPANY AT THE END OF EACH TRADING YEAR THE COMPANY FIXED AT GENERAL MEETING ABOUT TWO-THIRD OF THE PROFITS AS DIRECTORS' FEES, AND IN THE YEAR 1931, AS ABOUT 17 LARGE A SUM AS 10,000 WAS DEBITED IN THE ACCOUNTS AS DIRECTORS' FEES. THE COMMISSIONER OF INCOME-TAX DISALLOWED TH IS ITEM TO THE EXTENT OF 8,000 AND THE QUESTION THAT FELL FOR D ETERMINATION OF THE JUDICIAL COMMITTEE WAS WHETHER THIS DISALLOWANCE WA S JUSTIFIED. AT PAGE 269 OF REPORT, THE JUDICIAL COMMITTEE POINTED OUT THAT THE TRUE ISSUE THAT ARISES IN CASES LIKE THIS IS WHETH ER THERE WAS EVIDENCE BEFORE THE MAGISTRATE ON WHICH HE WAS ENT ITLED TO REFUSE TO HOLD IT PROVED THAT THE 10,000 HAD BEEN EXCLUS IVELY INCURRED IN THE PRODUCTION OF THE ASSESSABLE INCOME AND THAT ASSESSMENT WAS EXCESSIVE. A SIMILAR VIEW WAS EXPRESSED BY THE BOMB AY HIGH COURT IN JETHABHAI HIRJI AND CO. V. COMMISSIONER OF INCO ME-TAX AND IT WAS HELD IN THAT CASE THAT THE INCOME-TAX TRIBUNAL WAS RIGHT IN DISALLOWING UNDER SECTION 10(2)(XV) THE SUM OF RS. 11,000 OUT OF THE SUM OF RS. 12,000 PAID BY THE ASSESSEE TO HIS EMPL OYEES AS COMMISSION. FROM THE ABOVE IT BECOMES CLEAR THAT ASSESSING OFFI CER HAS FULL POWERS TO EXAMINE THE FULL FACTS EVEN IF THERE IS AN AGREEMEN T BETWEEN THE ASSESSEE AND OTHER PARTY. 20. THIS DECISION WAS FOLLOWED LATE ON BY THE HON'B LE SUPREME COURT IN THE CASE OF LACHMINARAYAN MADAN LAL VS CIT (SUPRA). IN THAT CASE ALSO THE ISSUE WAS PAYMENT OF COMMISSION AND ON THE BASIS OF APPRE CIATION OF EVIDENCE THE SAME WAS DISALLOWED AND THE HON'BLE SUPREME COURT HAS HELD AS UNDER:- HELD, THAT THE FINDINGS OF THE TRIBUNAL WERE FINDI NGS OF FACT AND NO QUESTION OF LAW AROSE OUT OF THE TRIBUNAL'S ORDER. THIS WAS A CASE WHERE THE ASSESSEE, BY ADOPTING A DEVICE, HAD MADE IT TO APPEAR THAT THE INCOME WHICH BELONGED TO IT HAD BEEN EARNE D BY SOME OTHER PERSON. THE MERE EXISTENCE OF AN AGREEMENT BETWEEN THE ASSE SSEE AND ITS SELLING AGENTS OR PAYMENT OF CERTAIN AMOUNTS AS COM MISSION, ASSUMING THERE WAS SUCH PAYMENT, DOES NOT BIND THE INCOME-TAX OFFICER TO HOLD THAT THE PAYMENT WAS MADE EXCLUSIVE LY AND WHOLLY FOR THE PURPOSE OF THE ASSESSEE'S BUSINESS. ALTHOUG H THERE MIGHT BE 18 SUCH AN AGREEMENT IN EXISTENCE AND THE PAYMENTS MIG HT HAVE BEEN MADE, IT IS STILL OPEN TO THE INCOME-TAX OFFICER TO CONSIDER THE RELEVANT FACTS AND DETERMINE FOR HIMSELF WHETHER TH E COMMISSION SAID TO HAVE BEEN PAID TO THE SELLING AGENTS OR ANY PART THEREOF IS PROPERLY DEDUCTIBLE UNDER SECTION 37 OF THE ACT. FROM BOTH THESE DECISIONS IT BECOME CLEAR THAT ASSE SSING OFFICER HAS RIGHT TO EXAMINE FULL FACTS IN RESPECT OF PARTICULAR EXPEND ITURE. 21. THE ASSESSING OFFICER FIRST OF ALL COLLECTED IN FORMATION US 133(6) FORM M/S BSNL, M/S NIHO CONSTRUCTION LTD AND M/S JAIPURI A INFRASTRUCTURE DEVELOPMENT CO. LTD NEW DELHI. IN THE REPLY GIVEN D IRECTLY TO THE ASSESSING OFFICER IT WAS CATEGORICALLY STATED BY BSNL AND M/S JAIPURIA INFRASTRUCTURE DEVELOPMENT CO. LTD THAT ADVERTISEMENTS WERE DIRECT LY GIVEN BY THESE ORGANIZATIONS TO THE ASSESSEE AND NO MIDDLEMAN WAS INVOLVED. HOWEVER, M/S NIHAO CONSTRUCTION LTD FROM SHRI SANJAY SARDANA IS SUPPOSED TO HAVE GOT THE BUSINESS VIDE ITS REPLY DATED 10.12.2008 STATED AS UNDER:- PAYMENT WERE MADE AS PER BILL BY ACCOUNT PAYEE CH EQUES ONLY. RAM ADVERTISING SERVICE IS REFERRED BY MR. SANJAY S ARDANA. AS RAM ADVERTISING SERVICE IS ONLY REFERRED BY MR. SANJAY SARDANA, SO NO DIRECT SERVICE RECEIVE FROM THE MIDD LEMAN. AS RAM ADVERTISING SERVICE IS ONLY REFERRED BY MRS. SANJAY SARDANA, SO NO DIRECT SERVICE RECEIVE FROM SUCH MID DLEMAN. THUS NO CORRESPONDENCE AVAILABLE BETWEEN OUR OFFICE AND THE MIDDLEMAN. 22. ON THE ABOVE REPLY THE ASSESSING OFFICER HAS MA DE FOLLOWING OBSERVATIONS:- FROM THE REPLY FURNISHED BY M/S NIHO CONSTRUCTION IT APPEARS THAT BEFORE SENDING THE REPLY TO THIS OFFICE, THE AUTHOR IZED SIGNATORIES CONTACTED SH. PAWAN KUMAR TAH REGARDING THE PURPOSE FOR WHICH 19 THE DEPARTMENT HAD CALLED FOR INFORMATION FROM M/S NIHO CONSTRUCTION AND THAT IS WHY IN ITS REPLY IT HAS BE EN SIMPLY STATED THAT M/S RAM ADVERTISING SERVICE IS ONLY REFERRED B Y SH. SANJAY SARDANA. AT THE SAME TIME THE COMPANY HAS STATED TH AT NO DIRECT SERVICE HAS BEEN RECEIVED FROM THE MIDDLE MAN SH. S ANJAY SARDANA AND THAT THERE IS CORRESPONDENCE AVAILABLE BETWEEN THEIR OFFICE AND THE MIDDLE MAN. IT IS PRETTY CLEAR THAT NAME OF SH. SANJAY SARDANA AS A A REFERRING PERSON HAS BEEN INSERTED BY M/S NI HO CONSTRUCTION JUST TO HELP THE ASSESSEE IN ITS INCOME TAX PROCEED INGS PENDING BEFORE THIS OFFICE. THESE OBSERVATIONS SEEMS TO BE CORRECT BECAUSE THAT M/S NIHO CONSTRUCTION LTD. ON THE ONE HAND SAYS THAT BUSINESS WAS RELEASED TO M/S RAM ADVERTISING AGENCY WHICH WAS REFERRED TO BY MR. SANJAY SARDANA BUT AT THE SAME TIME IT ALSO STATES THAT NO SERVICE WAS RECEIVED FROM THE MIDDLEMAN. 23. THE STATEMENT OF SHRI G.S. SARDANA IS ALSO REC ORDED AND RELEVANT QUESTION AND ANSWERS ARE REPRODUCED BY ASSESSING OFFICER FOR M PAGES 13 TO 16. WE ARE REPRODUCING SOME OF THE CRUCIAL QUESTION ANSWERS AS UNDER:- Q.2 WHAT IS THE EXACT ADDRESS OF BUSINESS PREMISES OF SH. PAWAN KUMAR TAH? ANS. IT IS IN SEC 22-B, CHANDIGARH. I DONT REMEMBE R THE SCO NO. AT PRESENT. Q6. FROM WHICH PARTIES DID YOU GET BUSINESS FOR THE ADVERTISING CONCERN OF SH. PAWAN KUMAR TAH ? ANS. I GOT BUSINESS FROM M/S. B.S.N.L. Q7. FROM WHICH BRANCH OF M/S. B.S.N.L. DID YOU GET BUSINESS FOR SH. PAWAN KUMAR TAH ? ANS. I GOT BUSINESS FOR SH. PAWAN KUMAR TAH FROM TH EIR HEAD OFFICE. Q8. WHERE IS THE HEAD OFFICE OF B.S.N.L. LOCATED ? ANS. IT IS LOCATED IN DELHI. 20 Q9. WHAT IS THE EXACT ADDRESS OF M/S B.S.N.L(HEAD O FFICE) IN DELHI ? ANS. I DONT REMEMBER THE EXACT ADDRESS AT DELHI. I WILL LIKE TO SUBMIT HERE THAT I HAVE NEVER BEEN TO HEAD OFFICE O F M/S. B.S.N.L IN DELHI. MY JOB IS TO BASICALLY CONTACT TH E PERSONS SUGGESTED BY SH. PAWAN KUMAR TAH- TO WHOSE DEPARTME NT HE HAS ALREADY GIVEN HIS PRESENTATION AND HAS ALREADY QUALIFIED AS PER THEIR TECHNICAL REQUIREMENTS. INFACT MORE TH AN ONE PERSON/ADVERTISING AGENCY QUALIFIES FOR AS PER THE REQUIREMENTS OF M/S B.S.N.L. I THEN REQUEST SOMEBOD Y IN THE KNOWN CIRCLES, WHO PUTS UP A WORD WITH THE CONCERNE D PERSON IN THE HEAD OFFICE OF M/S B.S.N.L AND SUBSEQUENTLY THE BUSINESS IS ALLOTTED TO SH. PAWAN KUMAR TAH BY M/S B.S.N.L. Q10. WHOM DID YOU REQUEST IN YOUR KNOWN CIRCLES, TO PUT UP A WORD WITH THE CONCERNED PERSON IN HEAD OFFICE OF M/S B.S .N.L ? ANS. I DONT REMEMBER ANYTHING ABOUT THE SAME AT PR ESENT. Q11. DO YOU REMEMBER THE NAME AND DESIGNATION OF TH E CONCERNED PERSON IN THE HEAD OFFICE OF M/S B.S.N.L. AT DELHI WHO WAS REQUESTED IN THIS REGARD ? ANS. NO, I DONT REMEMBER. Q12. WHAT DO YOU KNOW ABOUT M/S B.S.N.L WHETHER I TS A GOVERNMENT DEPARTMENT CENTRAL OR STATE A COMPAN Y, TRUST OR SOCIETY ? ANS. IT IS M/S BHARAT SANCHAR NIGAM LTD. Q13. WHETHER M/S B.S.N.L ALLOTS THE ADVERTISING WOR K ON CENTRAL/HEAD OFFICE BASIS FOR THE WHOLE OF THE COUN TRY OR ITS BRANCH OFFICES LOCATED IN VARIOUS CITIES OF INDIA D O IT THEMSELVES ? ANS. DETAILS OF THE BUSINESS ARE HANDLED/TAKEN CARE OF BY SH. PAWAN KUMAR TAH HIMSELF, I JUST GET HIM INTRODUCED TO SOM E BODY IN THE HEAD OFFICE AT DELHI. Q14. DO YOU KNOW AT WHICH PLACES IN INDIA, PARTICUL ARLY IN PUNJAB, HARYANA & CHANDIGARH, WHERE ARE THE OFFICE OF B.S.N .L. LOCATED ? 21 ANS. FOR ME, IT IS NOT NECESSARY TO KNOW ALL THESE DETAILS. Q15. DO YOU KNOW THE HIERARCHY OF THE MANAGEMENT OF M/S B.S.N.L. ANS. NO, I DONT KNOW Q16. DO YOU KNOW THE NAME OF THE SERVICE FROM WHICH CLASS I OFFICERS OF M/S B.S.N.L. ARE APPOINTED ? ANS. NO, I NEED NOT KNOW THESE THINGS. Q17. ARE YOU AWARE WHAT KIND OF SERVICES, M/S B.S.N .L. IS PROVIDING? ANS. NO, I NEED NOT KNOW THESE THINGS. Q18. MR. PAWAN KUMAR TAH, VIDE HIS REPLY DATED 28.1 1.2008 HAS SUBMITTED A LIST OF VARIOUS OFFICES OF M/S B.S.N.L. LOCATED IN VARIOUS STATES OF INDIA FROM WHICH HE IS SUPPOSED TO HAVE GOT BUSINESS, THROUGH YOU THE LIST IS BEING SHOWN TO YOU- HAVE YOU BEEN TO ANY OF THESE BRANCH OFFICES OF M/S B.S. N.L OR HAVE YOU HAD ANY WRITTEN, VERBAL OR TELEPHONIC CORRESPON DENCE WITH ANY OF THESE BRANCHES ? ANS. NO, I HAVE NEVER VISITED ANY OF THESE BRANCH O FFICES, NOR I HAD ANY TYPE OF CORRESPONDENCE WITH THEM. I ONLY GOT IN TRODUCED SH. PAWAN KUMAR TAH TO THE CONCERNED PERSON IN THE HEAD OFFICE AT DELHI. Q19. VIDE THIS OFFICER LETTER NO. 6636 DATED 28.11. 2008 THE O/O THE C.G.M (PUNJAB CIRCLE), M/S B.S.N.L., CHANDIGARH WAS SPECIFICALLY ASKED AS TO WHETHER ADVERTISEMENT WAS GIVEN DIRECTLY TO M/S RAM ADVERTISING SERVICE OR THEY WRE GIVEN THROUGH SOME AGENT. TO WHICH THEY HAVE VIDE THEIR R EPLY DATED 04.12.2008 STATED THAT ADVERTISEMENTS WERE GIVEN DI RECTLY TO THE AGENCY. SIMILARLY THE D.G.M(MKTG) O/O C.G.M, M/ S B.S.N.L., LUCKNOW VIDE LETTER DATED 16.12.2008 HAS STATED CLEARLY THAT ADVERTISEMENT WERE GIVEN DIRECTLY TO T HE AGENCY. WHAT YOU HAVE TO SAY ABOUT THIS ? ANS. IT IS NOT A MATTER OF RECORD. THATS ALL I HAV E TO SAY ABOUT THIS. 22 Q20. ANYTHING ELSE YOU WOULD LIKE TO SAY THAT YOU D ID SOMETHING TO GET BUSINESS FOR SH. PAWAN KUMAR TAH FROM VARIOUS O FFICES OF M/S B.S.N.L ? ANS. I WOULD LIKE TO REPEAT THAT ONCE SH. PAWAN KUM AR TAH FULFILLS ALL THE BASIS CONDITIONS REQUIRED BY M/S B.S.N.L., HE NEEDS A LITTLE PUSH, WHICH IS OF GREAT VALUE OF HIM AND IS PROVIDED BY ME. IF SHRI G.S.SARDANA, WAS REALLY DOING LIAISONING BUSINESS FOR THE ASSES SEE AND HAD RECEIVED COMMISSION OF RS. 9,60,053/- IN THE WH OLE YEAR AND FURTHER SUCH PAYMENT WAS RECEIVED BY ABOUT 10 CHEQUES IN VARIOUS MONTHS THEN HOW IT IS POSSIBLE THAT HE DOES NOT KNOW EVEN THE ADDRESS OF THE ASSESSEE COMPANY BECAUSE IN REPLY TO QUESTION NUMBER 2, HE HAS STATE D THAT THE OFFICE IS IN SECTOR 22-B BUT HE DOSE NOT REMEMBER THE SCO NUMBER. IN REPLY TO QUESTION NUMBER 7, SHRI SARDANA STATED THAT HE GOT THE BUSINESS OF THE ASSESSEE FROM THE HEAD OFFICE OF THE BSNL. IF SO, THEN HE DOES NOT REMEMB ER EVEN THE PLACE WHERE ITS HEAD OFFICE IS LOCATED BECAUSE IN REPLY TO QUESTION NO. 8, HE SIMPLY STATED THAT IT IS LOCATED IN DELHI AND IN REPLY TO QUESTION NO.9, HE FURTHER ADMITS THAT HE DOES NOT REMEMBER THE EXACT ADDRESS AT DELHI BECAUSE HE HAS NEVER BEEN TO THE HEAD OFFICE. HOW IT IS POSSIBLE THAT M/S SARDANA WHO IS GOING TO HEAD OFFICE OF BSNL COMPANY ABLE TO OBTAIN THE BUSINESS FOR SHRI P AWAN KUMAR TAH. IN ANSWER TO QUESTION NO. 9, HE HAS VERY CATEGORICALLY STATED THAT HE USED TO CONTACT THE PERSON SUGGESTED BY SHRI PAWAN KUMAR TA H TO WHOSE DEPARTMENT SHRI PAWAN KUAMR TAH HAS ALREADY MADE PRESENTATION. IF THIS IS SO, WE FAIL TO UNDERSTAND WHAT IS THE ROLE OF SHRI SARDANA IF THE PRESENTATION WAS ALREADY MADE TO A PERSON BY SHRI PAWAN KUMAR TAH I.E. ASSESSEE T HEN HE SHOULD HAVE BEEN ABLE TO CONTACT SUCH PERSON DIRECTLY. FURTEHR, IF T HE SUGGESTION IS THAT SOME UNDERHAND PAYMENTS WERE BEING HANDED OVER FOR WHICH SERVICES OF SHRI SARDANA WAS REQUIRED THEN THE SAME WOULD BE HIT BY EXPLANAT ION TO SECTION 37(1), WHICH READS AS UNDER:- SECTION 37(1) 23 EXPLANATION-- FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED TH AT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PUR POSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR P ROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE. IF THAT IS NOT SO THEN THERE IS NO REQUIREMENT OF SHRI SARDANA. IN R EPLY TO QUESTION NO. 10, SHRI SARDANA CLEARLY ADMITTED THAT HE DOES NOT REMEMBER THE PERSON HE CONTACTED. IN REPLY TO QUESTION NO.11, HE ADMITS THAT HE DOES NOT REMEMBER THE DESIGNATION OF PERSON HE CONTACTED. IN REPLY TO QUESTION NO.12, HE DOES NOT KNOW WHAT BSNL IS DOING IN REPLY TO QUESTION NO.14, THROUGH WHICH IT WAS ASKED THAT IN WHICH PARTICULAR STATE T HE BSNL OFFICE IS LOCATED, HE SAYS THAT HE DOES NOT REMEMBER, THEN HOW HE OBTAINE D THE BUSINESS FROM SUCH OFFICE. IN REPLY TO QUESTION NO.15, SHRI SARDANA C LEARLY ADMITS THAT HE DOES NOT KNOW THE HIERARCHY OF THE BSNL. IN REPLY TO QUESTI ON NO. 17, HE ADMITS THAT HE DOES NOT KNOW WHAT ARE THE SERVICES BEING PROVIDED BY BSNL AND REPLY TO QUESTION NO. 18 IS REALLY VERY CRUCIAL BECAUSE THRO UGH THAT QUESTION IT WAS ASKED THAT ASSESSEE HAS GIVEN A LIST OF OFFICES FO R WHICH SHRI SARDANA HAS PROVIDED SERVICES BUT SHRI SARDANA STATES THAT HE H AS NOT VISITED ANY OF SUCH BRANCH OFFICE. THE REPLY TO QUESTION NO.19 IS ALSO CRUCIAL AND IS TOTALLY EVASIVE AND, THEREFORE, WE WOULD LIKE TO REPRODUCE THIS QUE STION-ANSWER AT THE COST OF REPETITION. Q19. VIDE THIS OFFICER LETTER NO. 6636 DATED 28.11 .2008 THE O/O THE C.G.M (PUNJAB CIRCLE), M/S B.S.N.L., CHANDIGARH WAS SPECIFICALLY ASKED AS TO WHETHER ADVERTISEMENT WAS GIVEN DIRECTLY TO M/S RAM ADVERTISING SERVICE OR THEY WRE GIVEN THROUGH SOME AGENT. TO WHICH THEY HAVE VIDE THEIR R EPLY DATED 04.12.2008 STATED THAT ADVERTISEMENTS WERE GIVEN DI RECTLY TO THE AGENCY. SIMILARLY THE D.G.M(MKTG) O/O C.G.M, M/ S B.S.N.L., LUCKNOW VIDE LETTER DATED 16.12.2008 HAS STATED CLEARLY THAT ADVERTISEMENT WERE GIVEN DIRECTLY TO T HE AGENCY. WHAT YOU HAVE TO SAY ABOUT THIS ? 24 ANS. IT IS NOT A MATTER OF RECORD. THATS ALL I HAV E TO SAY ABOUT THIS. 24. THE ABOVE QUESTION ANSWERS VERY CLEARLY SHO WS THAT SHRI SARDANA DOES NOT KNOW ANY THING ABOUT THE BUSINESS OF BSNL, THE LOCA TION OF THEIR OFFICE, THE ADDRESSES OF THEIR OFFICES. HE DOES NOT KNOW ANY PA RTICULAR OFFICER THERE. HE HAS NOT VISITED ANY OF THE OFFICES FROM WHERE HE HAD OB TAINED BUSINESS FOR ASSESSEE, THEN WE FAIL TO UNDERSTAND WHAT ROLE HE HAS PERFORM ED PARTICULARLY WHEN NO AGREEMENT OR CORRESPONDENCE IS EXISTING BETWEEN THE ASSESSEE AND SHRI SARDANA. IT WAS CONTENDED BEFORE US THAT IN SUCH TYPE OF DEA LS THE ONLY ROLE IS TO INTRODUCE THE PERSON BUT SHRI SARDANA MISERABLY FAI LS EVEN TO NAME SUCH PERSONS WHO WERE INTRODUCED BY HIM TO THE ASSESSEE. IN FAC T THE PERUSAL OF THE ENTIRE STATEMENTS CLEARLY SHOWS THAT HE DOES NOT KNOW ANYT HING ABOUT THE BSNL AND HE ALSO DOES NOT KNOW ANY OF THEIR OFFICERS. FURTHER, THE PATTERN OF PAYMENTS WHICH HAS BEEN EXTRACTED BY ASSESSING OFFICER AT PAGE 25 IS AS UNDER:- DATE SH. G.S. SARDANA SANJAY SARDANA(HUF) SANDEEP SARDANA (HUF) 25.04.2005 80,000 70,000 70,000 25.05.2005 80,000 70,000 70,000 25.06.2005 80,000 70,000 70,000 23.07.2005 80,000 80,000 80,000 25.08.2005 1,60,000 1,60,000 1,60,000 24.11.2005 1,60,000 1,60,000 1,60,000 24.12.2005 80,000 80,000 80,000 24.01.2006 80,000 80,000 80,000 24.02.2006 80,000 80,000 80,000 25.03.2006 80,000 80,000 80,000 THE ABOVE ALSO CLEARLY SHOWS THAT PAYMENT HAS BEEN MADE IN A MECHANICAL FASHION THEN HOW IT IS POSSIBLE THAT PAYMENT TO ALL THREE PARTIES HAVE BEEN MADE ON SAME DATE OF THE SAME AMOUNT. ALL THESE FACTORS CLEARLY SHOWS THAT NO COMMISSION HAS BEEN PAID BY THE ASSESSEE AND IT IS ONLY A BOGUS ENTRY. THE 25 STATEMENTS OF OTHER TWO PERSONS I.E. SHRI SANJAY SA RDANA AND SHRI SANDEEP SARDANA ALSO ARE ON THE SIMILAR PATTERN AND HAVE BE EN EXTRACTED BY ASSESSING OFFICER AT PAGES 18 TO 20 AND 21 TO 24. 25. WE HAVE ALSO PERUSED THE JUDGMENT IN THE CASES OF CIT VS. NANGALIA FABRICS (P) LTD. (SUPRA), DCIT VS. SMT. JASPREET KA UR (SUPRA) AND CIT VS MUNDRA PORT AND SEZ LTD. (SUPRA) AND FIND THAT THOS E CASES ARE TOTALLY DISTINGUISHABLE BECAUSE THOSE JUDGMENTS HAVE BEEN R ENDERED ON THEIR OWN FACTS. THE JUDGEMENTS ARE FURTHER DISTINGUISHABLE IN VIEW OF JUDGMENT RENDERED BY HON'BLE SUPREME COURT IN SWADESHI COTTON MILL CO. L TD. VS. CIT (SUPRA) AND LACHMINARAYAN MADAN LAL VS CIT (SUPRA) IS TO BE TRE ATED AS LAW OF LAND AND THESES DECISIONS HAVE NOT BEEN EITHER CITED BY THE HIGH COURT OR TRIBUNAL AND HAVE NOT BEEN DISCUSSED BY THE RESPECTIVE TRIBUNALS . 26. IT WAS ALSO CONTENDED THAT SOME PAYMENTS HAVE BEEN CLAIMED AND ALLOWED IN EARLIER TWO ASSESSMENT YEARS I.E. 2004-05 AND 20 05-06 AS WELL AS LATER YEAR IN ASSESSMENT YEAR 2011-12. WE HAVE CAREFULLY PERUSED THESE ASSESSMENT ORDERS AND INTERESTINGLY BOTH IN ASSESSMENT YEARS 2004-05 AND 2005-06 RESPECTIVELY, NO QUESTIONS HAVE BEEN RAISED BY THE ASSESSING OFFICER IN REPLY TO COMMISSION. IN ASSESSMENT YEAR 2011-12, THE ONLY INQUIRY MADE BY A SSESSING OFFICER WAS FROM SHRI G.S.SARDAN, THEREFORE, IT IS AGAIN A CASE OF N O ENQUIRY AND BECAUSE OF A PARTICULAR ASSESSING OFFICER DOES NOT MAKE AN ENQUI RY AND COMMITS A MISTAKE THE SAME IS NOT REQUIRED TO BE FOLLOWED IN THE LATE R YEARS. IN THIS REGARD, WE WOULD LIKE TO REFER TO THE OBSERVATIONS OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS BRITISH PAINTS INDIA LTD. 188 ITR 44 (SC), WHICH READS AS UNDER:- IT IS NOT ONLY THE RIGHT BUT THE DUTY OF THE ASSES SING OFFICER TO CONSIDER WHETHER OR NOT THE BOOKS DISCLOSE THE TRUE STATE OF ACCOUNTS AND THE CORRECT INCOME CAN BE DEDUCED THER EFROM. IT IS INCORRECT TO SAY, AS CONTENDED ON BEHALF OF THE ASSESSEE, THAT THE OFFICER IS BOUND TO ACCEPT THE SYSTEM OF ACCOUNTING 26 REGULARLY EMPLOYED BY THE ASSESSEE THE CORRECTNESS OF WHICH HAD NOT BEEN QUESTIONED IN THE PAST. THERE IS NO ES TOPPEL IN THESE MATTERS AND THE OFFICER IS NOT BOUND BY THE METHOD FOLLOWED IN THE EARLIER YEARS. 27. ANOTHER CONTENTION RAISED BEFORE US IS THAT REC IPIENTS OF THE COMMISSION HAS DULY SHOWN THE SAME IN THEIR INCOME TAX RETURNS . IN OUR OPINION THAT DOES NOT DETERMINE THE ISSUE BECAUSE ISSUE BEFORE US IS WHETHER COMMISSION PAID IS GENUINE OR BOGUS. IT SEEMS TO BE A CASE OF COLLUSIV E ARRANGEMENTS WHEREBY ONE PERSON WAS LOOKING FORWARD TO BOOK EXPENSES AND OTH ER PERSON WANTED TO BOOK SOME INCOME AND BOTH HAVE MADE THESE ARRANGEMENTS. IN ANY CASE IT IS ALMOST SETTLED THAT TREATMENT GIVEN BY RECIPIENTS TO A PAR TICULAR ITEM DOES NOT DETERMINE THE NATURE AND THAT ITEM IN THE HANDS OF PAYEE AND IN THIS REGARD REFERENCE MADE TO THE DECISION OF HON'BLE SUPREME COURT IN THE CAS E OF EMPIRE JUTE CO. LTD. V CIT 124 ITR 1(SC) . THEREFORE, IN VIEW OF THE ABO VE DISCUSSION, IT CLEARLY SHOWS THAT ASSESSEE HAS MISERABLY FAILED TO SHOW SE RVICES PROVIDED BY THREE RECIPIENTS OF THE COMMISSION, THEREFORE, THE SAME I S OF BOGUS NATURE. THEREFORE, WE CONFIRM THE DISALLOWANCE OF COMMISSION PAID TO I N THE CASE OF FOLLOWING PARTIES:- SHRI SANDEEP SARADANA, HUF # 3085, SECTOR 21-D, CHANDIGARH RS. 9,29,893/- SHRI G.S. SARDANA, C/O MANAV MANGAL SCHOOL, SECTOR 21-C, CHANDIGARH RS. 9,60,53/- SHRI SANDAY SARDANA (HUF), # 3085, SECTOR 21-D, CHA NDIGARH RS. 9,30,735/- 28. NOW AS FAR AS COMMISSION PAID TO SHRI GIAN CHAN D SINGHLA, PANCHKULA IS CONCERNED, THE ASSESSING OFFICER HAD MADE ENQUIRIES U/S 133|(6) FROM SHRI GIAN CHAND SINGLA AND IN RESPONSE TO WHICH SHRI GIA N CHAND SINGLA HAS STATED AS UNDER:- 1. YES, M/S PAWAN KUMAR TAH, PROPRIETOR OF RAM ADVE RTISING SERVICE PAID COMMISSION OF RS. 3 LACS TO ME DURING THE F.Y. 2005-06 FOR ADVERTISING BUSINESS RELATING TO COMPAN IES OWNED 27 BY SH. SATISH SEENGAL C/O SCO-856, NAC, MANIMAJRA, CHANDIGARH. 2. THE COMMISSION OF RS. 3 LACS IS SHOWN AS INCOME BY ME IN MY INCOME TAX RETURN FILED WITH THE INCOME TAX DEPARTM ENT ON 08.01.2007 VIDE ACKNOWLEDGEMENT NO. 2326318 WITH IN COME TAX OFFICER / WARD 2(3), CHANDIGARH. 3. THE LUMP SUM COMMISSION OF RS. 3 LACS WAS GIVEN TO ME BY M/S RAM ADVERTISING SERVICES FOR BUSINESS PROCURED BY M E IN EARLIER YEARS. FURTHER THERE WAS NO WRITTEN AGREEMENT BETWE EN ME AND THE PARTIES FROM WHOM BUSINESS WAS PROCURED FOR SH. PAWAN KUMAR TAH. I DID NOT ENTER INTO ANY CORRESPONDENCE WITH SH. PAWAN KUMAR TAH AND THE CONCERNED PARTIES FROM WHOM I GOT BUSINESS FOR SH. PAWAN KUMAR TAH. 29. AFTER PERUSING THE ABOVE REPLY THE ASSESSING OF FICER OBSERVED THAT IT BECOMES CLEAR THAT BUSINESS WAS PROCURED FOR SHRI G IAN CHAND SINGLA IN THE EARLIER YEARS AND COMMISSION HAS BEEN DISALLOWED BE CAUSE BUSINESS PERTAIN TO EARLIER YEARS. IN RESPECT OF THIS COMMISSION WE FIN D FORCE IN THE CONTENTION OF LD. COUNSEL FOR THE ASSESSEE THAT IT DOES NOT MAKE DIFFERENCE IN WHICH YEAR THE BUSINESS WAS PROCURED PARTICULAR WHEN THERE WAS DIS PUTE BETWEEN THE PARTIES AND COMMISSION HAS BEEN SETTLED THROUGH A COMPROMISE AG REEMENT. THE ASSESSING OFFICER HAS NOT DOUBTED THE PAYMENT OF COMMISSION T O SHRI GIAN CHAND SINGLA ON ANY OTHER CONTEXT WHICH MEANS HE HAS ACCEPTED TH E SERVICES PROVIDED BY SHRI GIAN CHAND SINGLA, THEREFORE, IN OUR OPINION, THIS COMMISSION WAS ALLOWABLE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD. CIT(A) AND HOLD THAT PAYMENTS MADE TO SHRI GIAN CHAND SINGLA IS ALLOWABLE AS COMMISSIO N PAID TO S/SHRI SANDEEP SARDANA HUF, SHRI G.S. SARADANA AND SHRI SANJAY SAR DANA HUF WHICH HAS BEEN CORRECTLY DISALLOWED BY ASSESSING OFFICER AND CIT(A ). 30. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ITA NO. 682/CHD/2011 ASSESSMENT YEAR 2007-08 28 31. IN THIS APPEAL THE ONLY ISSUE INVOLVED IS REGAR DING PAYMENT OF COMMISSION AMOUNTING TO RS. 31,81,895/- PAID TO FIVE PERSONS N AMELY S/SHRI GIAN CHAND SINGLA, SANDEEP SARDANA, G.S.SARDANA, MRS USHA SAR DANA AND SANJAY SANDANA. SINCE THE FACTS OF THIS COMMISSION ARE IDENTICAL TO THE FACTS IN ITA NO. 1026/CHD/2010, THEREFORE, WE HOLD THAT COMMISSION P AID TO SHRI GIAN CHAND SINGLA IS TO BE ALLOWED WHEREAS COMMISSION PAID TO FOUR PERSONS I..E SHRI G.S.SARDANA, SANJAY SARDANA, SANJEEP SARDANA AND MR S. USHA SARDANA IS TO BE DISALLOWED BY FOLLOWING OUR ORDER IN ASSESSMENT YEA R 2006-07. 32. IN THE RESULT, THIS APPEAL IS PARTLY ALLOWED. ITA NO. 542/CHD/2012- ASSESSMENT YEAR 2008-09 33. IN THIS APPEAL, FOLLOWING GROUNDS HAVE BEEN RAISED:- 1. THAT ORDER PASSED U/S 250(6) OF THE INCOME TAX A CT, 1961 BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS), CHAND IGARH IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH HE WAS NOT JUSTIFIED TO ARBITRARILY UPHOLD THE DISALLOWANCE OF RS. 23,17,999/- MADE BY THE LD. ASSESSING OFFICER ON AC COUNT OF PAYMENT OF COMMISSION. 2. THAT HE WAS FURTHER NOT JUSTIFIED TO ARBITRARILY UPHOLD THE DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER OF: A) INTEREST ON ADVANCE FOR PROPERTY B) A SUM OF RS. 43,448/- BY RESORT TO PROVISIONS OF SE CTION 14A. 34. GROUND NO.1: IN THIS YEAR COMMISSION HAS BEEN PAID TO SHRI G.S. SARDANA AND SHRI SANJAY SARDANA HUF AND SHRI SANDEE P SARDANA HUF. THIS DISALLOWANCE WAS MADE ON THE BASIS OF ASSESSMENT OR DER FOR ASSESSMENT YEAR 2006-07. SINCE THE FACTS IN RESPECT OF THESE PERSO NS ARE IDENTICAL TO THE FACTS IN ASSESSMENT YEAR 2006-07, WHICH WE HAVE ADJUDICATED ABOVE IN ITA NO. 29 1026/CHD/2010 AND FOLLOWING THE SAME WE CONFIRM THE ORDER OF LD. CIT(A) AND UPHOLD THE DISALLOWANCE OF COMMISSION. THEREFORE, T HIS GROUND IS DISALLOWED. 35. GROUND NO. 2(A): THIS GROUND WAS NOT PRESSED BE FORE US, THEREFORE, THE SAME IS DISMISSED AS NOT PRESSED. 36. GROUND NO. 2(B): AFTER HEARING BOTH THE PARTIE S WE FIND THAT DURING ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT ASSESSEE HAD INVESTED A SUM OF RS. 5,07,000/- IN SHARES INCOME FROM WHICH WAS EXEMPT, THEREFORE, ASSESSING OFFICER INVOKED RULE 8-D READ WITH SECTION 14A AND MADE A DISALLOWANCE OF RS. 43,448/-. 37. ON APPEAL, THE DISALLOWANCE HAS BEEN CONFIRMED THE LD CIT(A). 38. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMIT TED THAT HE ADMITS THAT DISALLOWANCE CAN BE MADE U/S 14A READ WITH RULE 8-D BUT DURING THE YEAR THERE WAS NO EXEMPT INCOME, THEREFORE, NO DISALLOWANCE CA N BE MADE IN VIEW OF THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS LAKHANI MARKETING INCL., FARIDABAD ITA 970 OF 2008 DATED 2.4.2014. 39. ON THE OTHER HAND LD. DR RELIED ON THE ORDER O F CIT(A). 40. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS LAKHANI MA RKETING INCL., (SUPRA) HAS CLEARLY HELD THAT NO DISALLOWANCE CAN BE MADE U/S 1 4A, IF THERE IS NO EXEMPT INCOME DURING THE YEAR. HOWEVER, FROM THE PERUSAL O F THE ASSESSMENT ORDER AND IMPUGNED ORDER, IT DOES NOT BECOME CLEAR WHETHER AS SESSEE HAD ANY EXEMPT INCOME OR NOT, THEREFORE, WE SET ASIDE THE ORDER OF LD CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF ASSESSING OFFICER FOR VE RIFICATION OF THE FACT WHETHER 30 ANY EXEMPT INCOME WAS THERE DURING THE YEAR. IN CA SE THERE IS NO EXEMPT INCOME THEN NO DISALLOWANCE SHOULD BE MADE OTHERWIS E THE ISSUE MAY BE DECIDED IN ACCORDANCE WITH LAW. 41. IN THE RESULT THE APPEAL IS PARTLY ALLOWED. ITA NO. 696/CHD/2011 ASSESSMENT YEAR 2007-08 42. IN THIS APPEAL REVENUE HAS RAISED THE FOLLOWIN G GROUNDS:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) HAS GRAVELY ERRED IN DELETING THE A DDITION OF RS. 12,25,181/- MADE ON ACCOUNT DISALLOWANCE OUT OF INTEREST FOR INTEREST FREE LOANS & ADVANCES AS THE ASSESSEE HAS DIVERTED FUNDS FOR NON-BUSINESS PURPOSES. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) HAS GRAVELY ERRED IN DELETING THE A DDITION MADE BY THE AO UNDER THE PROVISIONS OF SEC. 14A AS THE AO HAS RIGHTLY CALCULATED THE DISALLOWANCE OF INTEREST ON THE BASIS OF RULE 8D(2)(II) AS IT DOES NOT STATE THAT T HE NEXUS IS REQUIRED TO BE ESTABLISHED BETWEEN THE BORROWED FUN DS AND INVESTMENT TO EARN EXEMPT INCOME. 43. GROUND NO. 1 : AFTER HEARING BOTH THE PARTIES W E FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT ASSESSEE HAS MADE VARIOUS ADVANCES TO THE SISTER CONCERN OR RELATIVES . FURTHER, ASSESSEE HAD BORROWED FUNDS, THEREFORE, ASSESSING OFFICER INVOK ED THE PRINCIPLE LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS ABHISHEK INDUSTRIES LTD. 286 ITR 1 AND DISALLOWED THE PROPOR TIONATE INTEREST AMOUNTING TO RS. 12,25,181/-. 44. ON APPEAL, IT WAS MAINLY SUBMITTED THAT NO ADVA NCE WAS MADE DURING THE YEAR AND ALL THE ADVANCES WERE CARRY FORWARD, THERE FORE, DISALLOWANCE WAS NOT 31 JUSTIFIED. THE LD CIT(A) FOUND FORCE IN THESE SUBM ISSIONS AND DELETED THE ADDITION. 45. BEFORE US LD. DR STRONGLY SUPPORTED THE ORDER OF ASSESSING OFFICER. 46. ON THE OTHER HAND LD. COUNSEL FOR THE ASSESSEE SUPPORTED THE IMPUGNED ORDER. 47. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT DETAILS OF ADVANCES HAS BEEN GIVEN BY THE ASSESSING OFFICER IN PARA 3 W HICH IS AS UNDER:- NAME AMOUNT DATE OF ADVANCE DEEMED INTEREST ADVANCE OF STAFF UPENDRA SINGH 279063 BROUGHT FORWARD 33488 RENU CHOPRA MRS. 900000 BROUGHT FORWARD 108000 RAVI PARKASH SINGH, LUCKNOW 427568 BROUGHT FORWARD 51308 KRISHNA LAL MR. 900000 BROUGHT FORWARD 108000 KAVITA SHARMA 155765 BROUGHT FORWARD 18692 JOTIRAM SHEDGE 925000 BROUGHT FORWARD 111000 JAYANT KUMAR 69565 BROUGHT FORWARD 8348 MR. K.C. BHARDWAJ 800000 BROUGHT FORWARD 96000 212278 BROUGHT FORWARD 25473 VIJAY KUMAR 2500 1456023 BROUGHT FORWARD 174723 ALOK SHARMA MR. 361658 BROUGHT FORWARD 43399 TOTAL BUSINESS ADVANCES SUBHASH SHARMA 498000 BROUGHT FORWARD 59760 MR. NEERAJ JAIN 700000 BROUGHT FORWARD 84000 GROWTH COMMERCIAL LTD. 200000 BROUGHT FORWARD 24000 RAJESH LAKHANPAL 300000 BROUGHT FORWARD 36000 RAMESH KUMAR 235563 BROUGHT FORWARD 28268 32 MANOJ KUMAR 58353 BROUGHT FORWARD 7002 ATUL THAKKAR 231000 BROUGHT FORWARD 27720 ANUBHAV KALIA 700000 BROUGHT FORWARD 84000 AAKASH TAH 800000 BROUGHT FORWARD 96000 TOTAL 446750 GRAND TOTAL 12,25,181 THE ASSESSEE HAD BORROWED FUNDS FROM BANKS AND OTHE RS AND PAID INTEREST OF RS. 57,17,891/- HAS BEEN PAID TO VARIOUS BANKS. THE ASSESSEE WAS SPECIFICALLY ASKED TO FURNISH IN DETAIL THE PURPOSE OF THESE INTEREST FREE LOANS AND ADVANCES GIVEN TO VARIOUS INDIVIDUALS, BU T NO SPECIFIC REPLY/PURPOSE FOR ADVANCEMENT OF THESE LOANS COULD BE FURNISHED BY THE ASSESSEE. 48. FROM THE ABOVE IT BECOME CLEAR THAT ALL THE ADV ANCES ARE BROUGHT FORWARD ADVANCES WHICH MEANS THEY HAVE NOT BEEN GIVEN IN TH IS YEAR, THEREFORE, DISALLOWANCE OF INTEREST HAS BEEN RIGHTLY DELETED B Y LD. CIT(A) AND ACCORDING WE CONFIRM HIS ORDER. 49. GROUND NO. 2: AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS ASSESSING OFFICER NOTICED TH AT ASSESSEE HAS MADE SIMILAR INVESTMENTS IN THE SHARES AND, THEREFORE, H E INVOKED RULE 8D READ WITH SECTION 14A AND CONCLUDED THE PROPORTIONATE DISALLO WANCE OF RS. 35,801/-. BEFORE LD. CIT(A) IT WAS SUBMITTED THAT NO EXEMPT INCOME IS ACCRUED DURING THE YEAR. LD CIT(A) AFTER DETAILED DISCUSSION DEL ETED THE ADDITION. 50. BEFORE US, BOTH THE PARTIES MADE SIMILAR CONTEN TIONS AS WERE MADE IN ASSESSEES APPEAL FOR ASSESSMENT YEAR 2008-09 IN IT A NO. 542/CHD/2012. SINCE THE ISSUE IS IDENTICAL, WE DECIDE THE SAME BY SETTI NG ASIDE THE SAME TO THE FILE OF ASSESSING OFFICER WITH A DIRECTION THAT IF EXEMPT I NCOME HAS BEEN EARNED DURING THE YEAR THEN NO DISALLOWANCE IS POSSIBLE IN VIEW O F THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS LAKHANI MARKETING INCL., (SUPRA). FURTHER, IN ANY CASE EVEN IF THERE IS INC OME THEN ASSESSING OFFICER 33 SHOULD NOTE THAT RULE 8D IS NOT APPLICABLE IN THIS YEAR IN VIEW OF THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG VS DCIT 328 ITR 81 (BOM) AND THEN ONLY REASONABLE DISALLOWANCE SHOULD BE MADE. 51. IN THE RESULT, APPEAL IS PARTLY ALLOWED FOR STA TISTICAL PURPOSES. ITA NO. 483/CHD/2012 ASSESSMENT YEAR 2008-09 52. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLO WING GROUNDS:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS GRAVELY ERRED IN DELETING THE ADDITION OF RS. 13,08,995/- MADE ON ACCOUNT OF DISALLOWANCE OUT OF INTEREST FOR INTEREST FREE LOANS AND ADVANCES AS THE ASSESSE E HAS DIVERTED FUNDS FOR NON-BUSINESS PURPOSE. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS. 2,22,78,800/- MADE BY THE ASSESSING OFFICER ON ACCO UNT OF UNEXPLAINED CASH CREDITS U/S 68 OF INCOME TAX ACT, 1961, AS THE ASSESSEE HAD ROUTED HIS UNACCOUNTED MONEY IN HI S BOOKS THROUGH THE 12 NUMBERS NON-EXISTING AND FICTITIOUS CONCERNS. THE MODUS OPERANDI ADOPTED BY THE ASSESSEE IS ALSO NOT IN ACCORDANCE WITH THE BANKING LAWS. 53. GROUND NO.1 : AFTER HEARING BOTH THE PARTIES WE FIND THAT ISSUE I S IDENTICAL TO THE ISSUE RAISED IN GROUND NO.1 BY THE REVENUE IN ASSESSMENT YEAR 2007-08 IN ITA NO. 696/CHD/2011. BOTH THE PARTIES HAVE MADE SIMILAR CONTENTIONS. 54. AFTER CONSIDERING THE RIVAL CONTENTIONS WE FIND THAT A SLIGHT DIFFERENCE IS THAT IT IS NOT CLEAR FROM ASSESSMENT ORDER OR IMPUG NED ORDER WHETHER THE LOANS ARE BROUGHT FORWARD FROM EARLIER YEARS, THEREFORE, WE SET ASIDE THE ORDER OF LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF ASS ESSING OFFICER WITH A DIRECTION TO VERIFY IF ADVANCES GIVEN TO THE SISTER CONCERN IN THIS YEAR ARE BROUGHT FORWARD ADVANCES THEN NO DISALLOWANCE SHOUL D BE MADE. FURTHER, IF THE 34 ADVANCES WERE MADE DURING THE YEAR THEN ISSUE MAY B E DECIDED IN ACCORDANCE WITH LAW. 55. GROUND NO.2 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT IN NUMBER OF ACCOUNTS ONLY FINANCIAL TRANSACTIONS WERE ENTERED. THE DETAILS OF THE FOLLOWING PARTIES WERE NOTED BY ASSESSING OFFICER WHICH IS A S UNDER:- ELECTRONIC TRADERS, NORWEST NETWORKS, AAKASH & ASS OCIATES, BENZ FINANCIAL SERVICES, BHARATI PRAKASHAN, CORPORATE CO MMUNICATION, DORNIER PUBLICATIONS, INTER-ALLIANZ GROUP SERVICES, RAVE SERVICES, PARAM FINANCIAL SERVICES (P) LTD, RAVE ADV. & MARKE TING, RAMA AGENCIES. ON 16.08.2010 YOUR HAVE FURNISHED ADDRES SES OF ACCOUNT HOLDERS REFLECTING ON YOUR BOOKS WHICH SHOWS THAT A DDRESSES OF ABOVE CONCERNS ARE YOUR OFFICE ADDRESS AT 1112-13, SECTOR 22-B, CHANDIGARH OR HOUSE NO.399, SECTOR 46 A, CHANDIGARH . THEREFORE, ASSESSING OFFICER ISSUED A SHOW CAUSE NO TICE TO GIVE THE JUSTIFICATION OF THESE TRANSACTIONS. IN RESPONSE TO THIS QUERY, I T WAS STATED AS UNDER:-- A COPY OF ACCOUNT IN RESPECT OF 12 PARTIES ARE AN NEXED AS PER ANNEXURE 17 TO 28 EXPLAINING EACH & EVERY ENTRY OF THEIR BANK ACCOUNTS RECEIVED FROM THEM. DIFFERENCE:- THE DIFFERENCE STATED AS ABOVE DATE WI SE IS ON ACCOUNT OF THE FACT THAT THE ACCOUNTING IN THE CASE OF 12 COMPANIES HAS BEEN DONE ON THE BASIS OF REALIZATION WHILE IN THE CASE OF RAM ADVERTISING BOOKS THE ACCOUNTING HAS BEEN DONE ON T HE BASIS OF CHEQUE PURCHASE. I HAVE ALREADY EXPLAINED TO YOUR G OOD SELF THAT I HAVE AVAILED THE CHEQUE PURCHASE FACILITY IN ALL TH ESE 12 FIRMS. I HAD A CHEQUE PURCHASE FACILITY FROM THE CENTURION B ANK OF PUNJAB LTD. AMOUNTING TO RS. 2 CRORE AND I USED TO GET THE CHEQUES OF THESE FIRMS PURCHASED BY THE BANKER AND THE BANKER USED T O ADVANCE ME THE MONEY AGAINST THESE CHEQUES. THESE CHEQUES TOOK TIME FOR CLEARING WHILE I WAS GIVEN AN INSTANT ADVANCE AGAIN ST THESE CHEQUES BY THE BANK. SO THERE WAS A TIME GAP BETWEEN THE CH EQUES PURCHASED AND THEIR REALIZATION AND HENCE THE DIFFERENCE. 35 I WOULD LIKE TO BRING IT TO YOUR KIND NOTICE THAT E ACH AND EVERY BANK ENTRY DURING THE YEAR UNDER CONSIDERATION OF ALL TH E 12 FIRMS HAVE BEEN EXPLAINED IN DETAIL IN THE BANK ACCOUNTS OF TH ESE PARTIES. BASICALLY THESE ARE THE CHEQUE PURCHASE ENTRIES BET WEEN THESE 12 FIRMS AND RAM ADVERTISING SERVICE AS IT IS APPARENT FROM THE RECORD OF THE EXPLANATION OF ALL THE ENTRIES OF ALL THE FI RMS AND RAM ADVERTISING SERVICE. OUT OF THESE FIRMS, PAWAN KUMAR TAH IS THE PROPRIET OR IN 8 FIRMS AND ONE EACH IS OWNED BY THE SONS OF MR. PAWAN KUMA R TAH AND ONE IS OWNED BY THE CLOSE RELATION AND THE THINGS A RE QUITE CLEAR THAT THESE ARE ONLY FINANCIAL TRANSACTIONS TO AVAIL THE CHEQUE PURCHASE FACILITY FROM THE BANKER. 56. THE ASSESSING OFFICER EXTRACTED THE VARIOUS MOV EMENTS OF CHEQUES IN THE ASSESSMENT ORDER AT PAGES 45 TO 54 AND DAILY; TRANS ACTION HAVE BEEN EXTRACTED AT PAGES 54 TO 62. THEREAFTER, THE ASSESSING OFFICER H AS NOTED THE DIFFERENCE IN BALANCE OF THESE PARTIES IN PARA 5.7. ACCORDING TO ASSESSING OFFICER THE MAXIMUM CREDIT BALANCE OUTSTANDING IN THE NAMES OF THESE 12 ENTITIES IS RS. 2,22,78,800/-. HE FURTHER OBSERVED THAT AS PER SEC TION 68 IF ASSESSEE IS NOT ABLE TO GIVE ANY EXPLANATION THEN THIS AMOUNT HAS TO BE TREATED AS INCOME. SINCE THE ASSESSEE HAS FAILED TO GIVE ANY JUSTIFICATION, THIS AMOUNT WAS ADDED TO THE INCOME OF THE ASSESSEE. 57. ON APPEAL, DETAILED WRITTEN SUBMISSIONS WERE FI LED BEFORE CIT(A) WHICH HAVE BEEN EXTRACTED AT PARA 6.2 WHICH ARE AS UNDER: - 6.2 DURING THE COURSE OF APPELLATE PROCEEDINGS, TH E LD. COUNSEL FOR THE APPELLANT HAS FILED A WRITTEN SUBMISSION, RELEVANT PORTION OF WHICH IS REPRODUCED BELOW: BEFORE PROCEEDING FURTHER IT WOULD BE TOPICAL TO U NDERSTAND THE SEEMINGLY COMPLEX AND INTRICATE, BUT NEVERTHELESS ACTUALLY SI MPLE SET OF TRANSACTIONS AND FLOW OF FUNDS, A FLAWED AND SOMEWHAT ERRONEOUS UNDERSTANDING OF WHICH HAS LED TO THE CONCLUSION AND SUBSEQUENT ADDI TION MADE BY THE 36 LEARNED ASSESSING OFFICER. DURING THE YEAR UNDER AP PEAL, THE APPELLANT WAS OPERATING TWELVE BANK ACCOUNTS IN VARIOUS BANKS IN THE NAMES OF THE TWELVE FIRMS OF WHICH THE SIGNATORIES WERE EITHER T HE APPELLANT HIMSELF OR HIS CLOSE FAMILY MEMBERS. IN FACT THERE ARE ELEVEN PARTIES AS SR. NO. 6 IS MISSING IN THE DETAILS OF THE PARTIES IN THE ASSESS MENT ORDER. THE LD. ASSESSING OFFICER, ON THE BASIS OF AN EXERCISE, HAS PROCEEDED TO TREAT THE SAID ACCOUNTS AS FICTITIOUS AND MADE AN ADDITION U/ S 68 OF THE INCOME TAX ACT, 1961 OF RS. 2,22,78,800/-, ON THE BASIS OF IT BEING THE PERCEIVED MAXIMUM COMBINED BALANCE OUTSTANDING OF THESE TWELV E ENTITITES IN THE BOOKS OF M/S RAM ADVERTISING SERVICES OF WHICH THE APPELLANT IS THE PROPRIETOR. THE ABOVE BANK ACCOUNTS WHICH HAVE BEEN FOUND BASIS OF THE ADDITION U/S 68 OF THE INCOME-TAX ACT, 1961 WERE ESSENTIALLY OPE NED AND OPERATED EITHER BY THE APPELLANT OR IN THE NAME OF CLOSE FAMILY MEM BERS. THE DETAILS OF THE SAID BANK ACCOUNTS ARE AS FOLLOWS:- SR. NO. NAME OF PARTY NAME OF PROP. PAN BANK NAME ACCOUNT NO. 1 DORNIER PUBLICATIONS SH. P.K. TAH ABBPK3805D PNB, SECTOR- 22B, CHANDIGARH 3248002100006297 2 BENZ FINANCIAL SERVICES SH. P.K. TAH ABBPK3805D PNB, SECTOR 22B, CHANDIGARH 3248002100006109 3 RAVE ADVT. & MARKETING SH. AKASH TAH ADTPT2401Q CANARA BANK, 44 CHD AND CBOP SEC-9D, CHD 3299201000608 100802000000243 4 NORWEST NET WORKS SH. P.K. TAH ABBPK3805D KARNATAKA BANK LTD., SEC- 22, CHD 1462000100078301 5 BHARTI PRAKASHAN SMT. ANUPAM TAH AFHPT7499C PNB, SECTOR- 22B, CHANDIGARH 3248002100044884 6 FUTURE MARKETING SH. P.K. TAH ABBPK3805D CBOP LTD. SEC-35, CHANDIGARH 110702000002130 7 CORPORATE COMMUNICATIO NS SH. AKASH TAH ADTPT2401Q CBOP LTD., SEC- 35 CHANDIGARH 110702000000690 8 AKASH & ASSOCIATES SH. P.K. TAH ABBPK 3805 D CBOP LTD., SEC 9D, CHANDIGARH 100802000000321 9 INTER ALLIANZ GROUP SERVICES SH. P.K. TAH ABBPK 3805D INDUSIND BANK LTD. SEC-8, CHANDIGARH 824188050 10 ELECTRONIC TRADERS SH. K. C. BHARDWAJ ABPPB6648D CBOP LTD. SEC-35, 110702000000220 37 CHANDIGARH 11 RAMA AGENCIES SH. P.K. TAH ABBPK3805D CBOP LTD. SEC-9D, CHANDIGARH 100802000000621 THE APPELLANT HAD OBTAINED CHEQUE PURCHASE FACILITY FROM THE CENTURION BANK OF PUNJAB, SECTOR 35 , CHANDIGARH IN RESPECT OF THE FO LLOWING ACCOUNTS:- SR. NO. NAME OF PARTY ACCOUNT NO. BANK NAME 1 FUTURE MARKETING 110702000002130 CBOP LTD., SEC- 35, CHANDIGARH 2 CORPORATE COMMUNICATIONS 110702000000690 CBOP LTD. SEC- 35, CHANDIGARH 3 ELECTRONIC TRADERS 110702000000220 CBOP LTD., SEC - 35, CHANDIGARH COPIES OF CERTIFICATES FROM RESPECTIVE BANK ARE OBT AINED TO THE EFFECT THAT THESE CONCERNS WERE AVAILING CHEQUES PURCHASE FACILITIES DURING THE YEAR UNDER APPEAL. (AS PER ANNEXURE B). THE MANNER IN WHICH THE SAID ACCOUNTS WERE OPERATED AND FUNDS ROTATED WERE SUCH THAT CHEQUES DRAWN BY M/S RAM ADVERTISING SERVICE ( OF WHICH THE APPELLANT IS A PROPRIETORSHIP) IN FAVOUR OF THE ABOVE PARTIES WERE DISCOUNTED WITH THE SAID BANK AND THE PROCEEDS THEREOF FURTHER TRANSFERRED TO THE OTHER ACCOUNTED LISTED ABOVE WHICH, IN TURN, DIRECTLY OR INDIRECTLY FOUND THEIR WAY INTO THE BOOKS OF THE APPELLANT. SUCH A SYSTEM WAS ADOPTED MERELY IN ORDE R TO GENERATE AND INFUSE MORE FUNDS FOR OPERATIONAL ACTIVITIES OF THE PROPRIETARY FIRM BY UTILIZING THE CHEQUE PURCHASED FACILITY OBTAINED FROM THE CENTURION BANK OF PUNJAB. THE SAID MODUS OPERANDI DID NOT LEAD TO ANY INFUSION OF EXTERNAL F UNDS BY WAY OF LOANS / CASH CREDIT FROM ANY PARTY. THE SOURCS OF THE SAID FUNDS ARE ULTIMATELY AND CLEARLY LINKED TO THE CHEQUE PURCHASE FACILITY OBTAINED FRO M THE CENTURION BANK OF PUNJAB LTD. THE FUNDS OBTAINED FORM THE CENTURION BANK OF PUNJAB LTD. WERE CYCLED INTO THE APPELLANTS FIRMS FROM WHERE THEY WERE AGAIN RE TURNED IN ORDER TO MAKE SURE THAT THE LIABILITY IN RESPECT OF CHEQUE DISCOUNTED WERE MADE ON THE DUE DATE. TO PUT IN OTHER WORDS IT IS ONLY THE FUNDS THAT WERE GENER ATED FROM THE DISCOUNTING OF CHEQUES IN THE APPORTIONED FOR ACCOUNTS WITH THE CE NTURION BANK OF PUNJAB LIMITED WHICH WERE CYCLED, MAY BE CIRCUITOUSLY, INT O THE APPELLANTS BUSINESS. AS SUCH THERE IS NO EXTERNAL INFUSION OF FUNDS WHICH C AN BE CALLED IN THE NATURE OF AN UNEXPLAINED CASH CREDIT SINCE THE SOURCE OF FUNDS I N ULTIMATELY THE FUNDS OBTAINED BY THE CHEQUE PURCHASE FACILITY FROM CENTURION BANK OF PUNJAB. IT MAY AGAIN BE EMPHASIZED THAT THERE IS NO EXTERNAL INFLOW OF FUND S FROM ANY CASH CREDIT BUT THE 38 SAME ARE RELATABLE ONLY TO THE FUNDS GARNERED FROM THE CLEAN CHEQUE PURCHASE FACILITY OBTAINED FROM THE CENTURION BANK OF PUNJAB . IT NEEDS TO BE UNDERSTOOD HERE THAT THE SAID BANK A CCOUNTS DO NOT REFLECT ANY BUSINESS ACTIVITY APART FROM THE MOVEMENT OF FUNDS FROM ONE BANK ACCOUNT TO THE OTHER. AS AN ILLUSTRATIVE CASE, THE MOVEMENT OF FUN DS CAN BE EXPLAINED AS FOLLOWS:- DATE PARTICULARS AMOUNT 15-04-2007 CHEQUE OF RS. 1,50,000 RECEIVED FROM RANA ADVERTISING SERVICE DISCOUNTED BY FUTURE MARKETING WITH THE CENTURION BANK OF PUNJAB LIMITED (DUE DATE OF THE CHEQUE IS 15.05.2007) RS. 1,00,000/- 16-04-2007 FUNDS TRANSFERRED TO M/S RAVE ADVERTISING AND MARKETING RS. 1,00,000/- 17-04-2007 FUNDS TRANSFERRED TO M/S RAMA ADVERTISING SERVICE, THE PROPRIETARY CONCERN OF THE APPELLANT. RS. 1,00,000/- 10-05-2007 FUNDS REPAID BY M/S RAMA ADVERTISING SERVICE TO M/S RAVE ADVERTISING AND MARKETING RS. 1,00,000/- 11-05-2007 FUNDS REPAID BY M/S RAVE ADVERTISING AND MARKETING TO FUTURE MARKETING RS. 1,00,000/- 12-05-2007 LIABILITY OF CHEQUE PURCHASE BY M/S FUTURE MARKETING ON THE DUE DATE RS. 1,00,000/- THE ABOVE IS VERY SIMPLISTIC AND SOLITARY INSTANCE OF THE MANNER IN WHICH THE FUNDS HAVE MOVED. HOWEVER, IN ORDER TO MAXIMIZE AVAILABIL ITY OF FUNDS WITH A VIEW TO ENSURING THE OPTIMUM UTILIZATION AND TURN AROUND TI ME, THE APPELLANT CREATED A NETWORK OF TWELVE DIFFERENT BANK ACCOUNTS THROUGH W HICH THE TRANSACTIONS WERE ROUTED FORM TIME TO TIME, WITH THE SOLE AIM OF OPTI MUM UTILIZATION OF FUNDS TO ENSURE THAT THE LIABILITY IN RESPECT OF CHEQUES PUR CHASED WAS MET ON OR BEFORE THE DUE DATE. SUCH A SEEMINGLY COMPLEX WEB OF TRANSACTI ONS WAS CREATED BY THE APPELLANT ONLY WITH A VIEW TO ENSURE MAXIMUM UTILIZ ATION OF FUNDS GENERATED BY THE CHEQUES PURCHASED. 39 IN ORDER TO FURTHER LEND SUPPORT TO THE AVERMENTS M ADE ABOVE THE TRANSACTIONS IN THE SAID BANK ACCOUNTS HAVE BEEN DULY LEDGERISED WH EREUPON IT IS CLEAR THAT THERE IS NO ADDITIONAL INFUSION OF FUNDS AND ALL THE ENTR IES THEREIN STAND DULY EXPLAINED AND VERIFIED. THIS BEING THE CASE, NO NEED OR CAUSE ARISE FOR RECOURSE TO THE PROVISIONS OF SECTION 68 SINCE ALL THE ENTRIES STAN D EXPLAINED THEREIN AS WOULD BE CLEAR FROM THE LEDGERIZATION OF THE ACCOUNT WITH RE FERENCE TO THE BANK STATEMENTS OF ALL THE ACCOUNTS DULY ATTACHED HEREWITH. ( AS PER A NNEXURE C) AS A RESULT OF THE ABOVE EXPLANATION AND THE WORKIN GS BEING FILED HEREWITH FACTUALLY SPEAKING NO CAUSE EXISTS AS TO RECOURSE T O THE PROVISIONS OF SECTION 68 IN AS MUCH AS THE ONUS ON THE APPELLANT VIS--VIS THE GENUINENESS OF THE TRANSACTION AND CREDIT WORTHINESS OF THE PARTY HAS BEEN EFFECTI VELY AND COMPLETELY DISCHARGED. A MERE PERUSAL OF THE SAID DOCUMENTS WOULD REVEAL T HAT THE ONUS ON THE APPELLANT WITH REGARD TO THE DUTIES ENJOINED UPON IT REGARDIN G THE RECEIPT OF THE MONEY HAVE BEEN SATISFACTORILY FULFILLED AND COMPLETELY DISCHA RGED. THE ABOVE FACTUAL BACKGROUND NOW NEED TO BE HARMONI ZED AND VIEWED AGAINST THE BACKDROP OF THE CONCLUSIONS ARRIVED AT BY THE LEARN ED ASSESSING OFFICER AND THE RELEVANT PROVISIONS OF THE INCOME-TAX ACT, 1961. TH E LEARNED ASSESSING OFFICER HAS RESORTED TO THE PROVISIONS OF S. 68 OF THE INCOME T AX ACT, 1961 WHILE MAKING THE IMPUGNED ADDITION OF RS. 2,22,78,800/-. THE SAID SE CTION READS AS FOLLOWS:- S. 68 WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AND THE ASSESSEE OFFERS NO EXPLA NATION ABOUT THE NATURE AND SOURCE THEREOF OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINION OF THE OFFICER, SATISFACTORY, THE SUM SO CREDITED MAY BE C HARGED TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR. AN ANALYSIS OF THE PROVISIONS OF SECTION 68 AND A H ISTORICAL DISTILLATION OF THE CASE LAWS LEADS TO THE FOLLOWING PROPOSITIONS OF LAW IN THE CONTEXT OF SECTION 68, WHEREBY AN ASSESSEE IS TO PRIMA FACIE ENJOINED TO P ROVE:- A) THE IDENTITY OF THE CREDITOR/SUBSCRIBER; B) THE GENUINENESS OF THE TRANSACTION, NAMELY, WHET HER IT HAS BEEN TRANSMITTED THROUGH BANKING OR OTHER INDISPUTABLE CHANNELS; C) THE CREDITWORTHINESS OR FINANCIAL STRENGTH OF TH E CREDITOR / SUBSCRIBER; D IF RELEVANT DETAILS OF THE ADDRESS OR PAN IDENTIT Y OF THE CREDITOR / SUBSCRIBER ARE FURNISHED TO THE DEPARTMENT ALONGWIT H COPIES OF THE 40 SHAREHOLDERS REGISTER, SHARE APPLICATION FORMS, SHA RE TRANSFER REGISTER, ETC. IT WOULD CONSTITUTE ACCEPTABLE PROOF OR ACCEPTABLE EXPLANATION BY THE ASSESSEE. IN ADDITION THE LAW ALSO MANDATES THAT A) THE DEPARTMENT WOULD NOT BE JUSTIFIED IN DRAWING AN ADVERSE INFERENCE ONLY BECAUSE THE CREDITOR/SUBSCRIBER FAILS OR NEGLECTS T O RESPOND TO ITS NOTICES; B) THE ONUS WOULD NOT STAND DISCHARGED IF THE CREDI TOR / SUBSCRIBER DENIES OR REPUDIATES THE TRANSACTION SET UP BY THE ASSESSEE N OR SHOULD THE ASSESSING OFFICER TAKE SUCH REPUDIATION AT FACE VALUE AND CON STRUE IT, WITHOUT MORE EVIDENCE AGAINST THE ASSESSEE; C) THE ASSESSING OFFICER IS DUTY-BOUND TO INVESTIGA TE THE CREDITWORTHINESS OF THE CREDITOR/SUBSCRIBER THE GENUINENESS OF THE TRAN SACTION AND THE VERACITY OF THE REPUDIATION. THE ABOVE SECTION ENJOINS UPON AN ASSESSEE THE DUTY TO ADEQUATELY, SATISFACTORILY AND SUBSTANTIVELY EXPLAIN THE SOURCE OF ANY CASH CR EDIT IN HIS BOOKS OF ACCOUNTS AND NO FURTHER. TO PUT IT DIFFERENTLY AN ASSESSEES BURDEN OF PROOF WOULD STAND DISCHARGED IF HE IS ABLE TO PROVE THE NATURE AND SO URCE OF EH CASH CREDIT RECEIVED. AS LONG AS THE NATURE, A SOURCE AND IDENTITY OF THE INVESTOR IS ESTABLISHED NO FURTHER ONUS OF PROOF CAN BE ENJOINED ON IT. IN THE INSTANT CASE NO CASE CAN BE MADE OUT TO DOUBT THE GENUINENESS, EXISTENCE OR IDENTITY OF THE SO CALLED CASH CREDITS AND AS SUCH NO CASE FOR THE INVOCATION OF S 68 CAN BE MADE OUT. IN THE INSTANT CASE THE APPELLANT HAD DULY DISCHARGED ITS ONUS BY PLACING O N RECORD THE REQUISITE NECESSARY, AND MANDATORY DETAILS AND RECONCILIATION AND ALSO BY PROVIDING OTHER CORROBORATIVE EVIDENCE. IN THIS CONNECTION, YOUR HONOUS ATTENTION IS ALSO INVITED TO THE DECISIONS OF THE GUJARAT HIGH COURT IN THE CASE OF MURLIDHAR LAHORIM AL V. COMMISSIONER OF INCOME-TAX [(2006) 280 ITR 512 (GUJ)] WHEREIN THE F OLLOWING OBSERVATIONS HAVE BEEN MADE;- SECTION 68 OF THE INCOME-TAX ACT, 1961, REQUIRES T HAT THERE HAS TO BE A CREDIT IN THE BOOKS MAINTAINED BY AN APPELLANT, SUCH CREDIT H AS TO BE OF A SUM DURING THE PREVIOUS YEAR; AND THE APPELLANT OFFERS NO EXPLANAT ION ABOUT THE NATURE AND SOURCE OF SUCH CRDIT; OR THE EXPLANATION OFFERED BY THE APPELLANT IS NOT , IN THE OPINION OF THE ASSESSING AUTHORITY SATISFACTORY, TH EN THE SUM SO CREDITED MAY BE CHARGED TO TAX AS INCOME OF THE APPELLANT OF THE PR EVIOUS YEAR. AS SECTION 68 OF THE 41 ACT DENOTES, ONCE THERE IS A CREDIT IN THE BOOKS MA INTAINED BY THE APPELLANT, THE PRIMARY ONUS IS ON THE APPELLANT, NAMELY, TO OFFER AN EXPLANATION AS TO THE NATURE AND SOURCE OF THE CREDIT. AN APPELLANT CAN BE ASKED TO PROVE THE SOURCE OF CREDIT IN THE BOOKS, BUT CANNOT BE ASKED TO PROVE THE SOURCE OF THE INCOME. THE APPELLANT, AN INDIVIDUAL, FILED A RETURN OF INC OME ACCOMPANIED BY A COPY OF HIS CAPITAL ACCOUNT IN THE PARTNERSHIP FIRM WHERE H E WAS A PARTNER. THE CAPITAL ACCOUNT CONTAINED A CREDIT ENTRY SHOWING A SUM OF R S .50,000/- AS GIFT RECEIVED. THE DONOR HAD FILED A RETURN OF GIFT IN RESPECT OF THE GIFT OF RS. 50,000/- AND THE ASSESSMENT CAME TO BE COMPLETED UNDER SECTION 15(3) OF THE GIFT-TAX ACT, 1958. ASSESSMENT WAS MADE ACCEPTING THE GIFT BUT NOTICE W AS SUBSEQUENTLY ISSUED UNDER SECTION 148 ON THE GROUND THAT THE GIFT WAS NOT GEN UINE AND THE AMOUNT OF RS. 50,000 WAS ASSESSABLE UNDER SECTION 68. THE TRIBUNA L FOUND THAT THE GIFT WAS GIVEN BY WAY OF BANK DRAFT; THE DONOR APPEARED BEFORE THE ASSESSING OFFICER AND CONFIRMED THE FACT OF HAVING MADE THE GIFT. HE PROD UCED EVIDENCE IN SUPPORT OF THE SOURCE FROM WHICH THE FUNDS FOR MAKING THE GIFT WER E AVAILABLE WITH HIM. THE TRIBUNAL HOWEVER, HELD THAT THE MOTIVATION FOR MAKI NG THE GIFT WAS NOT ESTABLISHED. IT UPHELD THE ADDITION. ON A REFERENCE; HELD, THAT THE TRIBUNAL FAILED TO NOTE THE FACT THA T THE IDENTITY OF THE DONOR WAS ESTABLISHED, THE DONOR HAVING APPEARED IN PERSON B EFORE THE ASSESSING OFFICER, THE GENUINENESS OF THE TRANSACTION WAS ESTABLISHED, NOT ONLY BY THE RECEIPT OF THE BANK DRAFT, BUT ALSO BY THE FACT OF THE TRANSACTION HAVI NG BORNE GIFT TAX ONCE THE ASSESSMENT WAS FRAMED. THE PRIMARY ONUS WHICH RESTE D WITH THE APPELLANT, THUS STOOD DISCHARGED. THEREAFTER, IF THE REVENUE WAS NO T SATISFIED WITH THE SOURCE OF THE FUNDS IN THE HANDS OF THE DONOR, IT WAS UP TO T HE REVENUE TO TAKE APPROPRIATE ACTION. THE TRIBUNAL CONSIDERED THE MOTIVATION FOR MAKING THE GIFT WHICH WAS NOT RELEVANT. THE ADDITION OF RS. 50,000 WAS NOT JUSTIF IED. IN THIS CONNECTION REFERENCE MAY ALSO BE MADE TO TH E DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF A RAJENDRAN AND OT HERS V. ASSISTANT COMMISSIONER OF INCOME-TAX [(2007)291 ITR 178(MAD)] WHEREIN THE LIMITS, EXTENT AND ENTIRE GAMUT OF THE POWERS ON THE LD. ASSESSING OFFICER HAVE BEEN, CRITICALLY AND ADMITTEDLY, ANALYZED, WITH THE FOLLOWING REMARK S:- BEFORE PROCEEDING TO ANALYZE THE MERITS AND DEMITS OF THESE BATCH OF CASES, LET US APPLY OUR MIND TO SECTION 68 OF THE INCOME-TAX ACT AND THE E LAW ON THAT SECTION. UNDER SECTION 68 OF THE INCOME-TAX ACT, HEREINAFTER REFERRED TO AS THE ACT, WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AC COUNT OF AN ASSESSEE AND THE 42 ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE THEREOF, OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINION O F THE ASSESSING OFFICER, SATISFACTORY, THEN THE SUM SO CREDITED MAY BE CHARG ED TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN SREELEKHA BANERJEE V. VIT[(1963) 49 ITR 12(HON'BLE SUPREME COURT)], THE SUPREME COURT, WHIL E DEALING WITH SECTION 34 OF THE INDIAN INCOME-TAX ACT, 1922 (WHICH CORRESPONDS TO SECTION 68 OF THE CURRENT ACT), HELD THAT (HEAD NOTE) IF THE EXPLANATION SHO WS THAT THE RECEIPT WAS NOT OF AN INCOME NATURE, THE DEPARTMENT CANNOT ACT UNREASONAB LY AND REJECT THAT EXPLANATION TO HOLD THAT IT WAS INCOME. IF, HOWEVER , THE EXPLANATION IS UNCONVINCING AND ONE WHICH DESERVES TO BE REJECTED, THE DEPARTMENT CAN REJECT AND DRAW THE INFERENCE THAT THE AMOUNT REPRESENTS I NCOME ETC.THEREFORE, THE PRINCIPLE THAT CAN BE DEUCED FROM THE ABOVE JUDGMEN T IS, IF THE EXPLANATION OF THE ASSESSEE SHOWS THAT THE RECEIPT WAS NTO OF AN INCOM E NATURE, THE DEPARTMENT CANNOT ACT UNREASONABLY IN REJECTING THE EXPLANATIO N. IN SUMATI DAYALV. CIT [(1995)214 ITR 801 (SC)], THE SUPREME COURT AGAIN R EITEREATED THAT, WHILE CONSIDERING THE EXPLANATION OFFERED BY THE ASSESSEE FOR THE AMOUNT CREDITED IN HIS ACCOUNT, THE DEPARTMENT CANNOT, HOWEVER, ACT UNREAS ONABLY. FOR SUCH A CONCLUSION, THE SUPREME COURT RELIED UPON ITS EARLI ER JUDGMENT NAMELY, SREELEKHA BANERJEE V. CIT[(1963) 49 ITR 12(SC)]. IN CIT V. DU RGA PRASAD MORE [(1971)82 ITR 540(SC)], THE SUPREME COURT HELD AS HEREUNDER. IT IS TRUE THAT AN APPARENT MUST BE CONSIDERED RE AL UNTIL IT IS SHOWN THAT THERE ARE REASOS TO BELIEVE THAT THE APPARENT IS NO T THE REAL. THE TAXING AUTHORITIES WERE NOT REQUIRED TO PUT ON BLINKERS WH ILE LOOKING AT THE DOCUMENTS PRODUCED BEFORE THEM. THEY WERE ENTITLED TO LOOK INTO THE SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY O F THE RECITALS MADE IN THOSE DOCUMENTS. THE SUPREME COURT AGAIN, IN THE JUDGMENT REPORTED I N SUMATI DAYAL V. CIT[(1995)214 ITR 801 (HON'BLE SUPREME COURT)], HAD REITERATED THE LAW LAID DOWN IN CIT V. DURGA PRASAD MORE [(1971) 82 ITR 540 (HON'BLE SUPREME COURT)] THAT THE APPARENT MUST BE CONSIDERED REAL ONLY IF I T IS SHOWN THAT THERE ARE REASONS TO BELIEVE THAT THE APPARENT IS NTO THE REAL AND TH AT THE TAXING AUTHORITIES ARE ENTITLED TO LOOK INTO THE SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY AND THE MATTER HAS TO BE CONSIDERED BY APPLYING THE TEST OF HUMAN PROBABILITIES. THEREFORE, IT IS CLEAR FORM THE ABOVE JUDGMENTS THAT THE BURDE N IS ON THE ASSESSEE TO SHOW THAT THE RECEIPT IS NOT OF AN INCOME NATURE BY GIVING AN EXPLANATION; THE INCOME-TAX OFFICER IS NOT EXPECTED TO PUT BLINDERS AND ACCEPT IT AS IT IS ; IT IS OPEN TO HIM TO PROBE FURTHER AND FIND OUT WHETHER THE APPARENT IS REAL OR NOT AND TAKE A DECISION 43 ON SUCH PROBING, IN THE LIGHT OF HUMAN PROBABILITIE S. HOWEVER, HE SHOULD NOT ACT UNREASONABLY. THE ABOVE JUDGMENT CLEARLY OUTLINES THE EXTENT AND LIMITS OF THE POWERS AVAILABLE TO AN ASSESSING OFFICER U/S 68 OF THE INCOME-TAX AC T, 1961 WHEREBY THE QUESTION OF AN ASSESSING OFFICER NOT ACTING UNREASONABLY HAS BEEN EMPHASIZED. IN THE INSTANT CASE IT IS DEMONSTRABLY CLEAR THAT THE LEAR NED ASSESSING OFFICER HAS BREACHED THE WALL OF REASONABLENESS AND CONSEQUEN TLY RESORTED TO MAKING AN INDEFENSIBLE ADDITION. ACCORDINGLY NO RECOURSE CAN BE HAD TO THE PROVISION S OF S. 68 OF THE INCOME-TAX ACT, 1961 AND THE ADDITION IS CONSEQUENTLY NOT SUST AINABLE. IN THE INSTANT CASE ALL THE CRITERIA LAID OUT IN SECTION 68 VIZ IDENTITY CR EDITWORTHY AND GENUINENESS OF THE TRANSACTION ARE SATISFIED NOT ONLY ADEQUATELY BUT C OMPLETELY AND AS SUCH THERE IS NO CAUSE FOR TREATING THE SAME AS UNDISCLOSED INCOM E BE RESORTED BY RESORT TO THE PROVISIONS OF SECTION 68. THE LD. ASSESSING OFFICER HAS MADE THE IMPUGNED ADD ITION OF RS. 2,22,78,800/- ON THE GROUND THAT THIS IS THE PEAK OF THE CREDIT BALA NCE. I WILL LIKE TO DRAW YOUR KIND ATTENTION ON PAGE-52 OF THE ASSESSMENT ORDER FROM W HERE THE FIGURE OF PEAK HAS BEEN ADOPTED PERUSAL THEREOF WILL REVEAL THAT THE PEAK IS OF THE DEBIT AMOUNT, NOT OF THE CREDIT AMOUNT. THIS CAN BE VERIFIED FROM THE COPIES OF THE LEDGER ACCOUNTS OF THE VARIOUS PARTIES AS REFLECTED IN THE BOOKS OF ACCOUNTS OF THE APPELLANT. EVEN ON THIS COUNT, THE ADDITION MADE DESERVES TO BE DEL ETED. 58. THE LD. CIT(A) AFTER CONSIDERING THE ABOVE SUB MISSIONS DELETED THE ADDITIONS. 59. BEFORE US LD. DR SUBMITTED THAT THESE ENTITIES HAVE BEEN INCORPORATED BY THE ASSESSEE WITHOUT ANY BUSINESS PURPOSES AND IT I S CLEARLY THE CASE OF MONEY LAUNDERING. HE FURTHER SUBMITTED THAT EVEN BANK AC COUNTS HAVE BEEN OPENED WITHOUT CONFIRMING TO THE KYC NORMS. THE MONEY HAS BEEN CIRCULATED THROUGH THESE ENTITIES BY EXPLOITING THE BANKING SYSTEM AND , THEREFORE, THESE AMOUNTS WERE RIGHTLY ADDED U/S 68 OF THE ACT. 44 60. ON THE OTHER HAND LD. COUNSEL FOR THE ASSESSEE WHILE STRONGLY SUPPORTED THE IMPUGNED ORDER AND SUBMITTED THAT ASSESSEE HAS MERELY FLOATED THESE ORGANIZATIONS TO OBTAIN EXTRA CREDIT FROM THE BANK. MONEY WAS MOVED FROM THE BANK. HE ELABORATED THE PROCEDURE BEFORE US BY SHO WING THAT CHEQUES ISSUED BY THE ASSESSEE IN THE NAME OF CONCERN A WHICH WAS G OT DISCOUNTED BY LAST CONCERN AND MONEY WAS HANDED OVER TO ANOTHER CONCER N, THEREFORE, WHATEVER MONEY WAS PAID TO THE ASSESSEE MADE THE READY CASH AVAILABLE WITH THE ASSESSEE. ALL THE CONCERNS ARE PROPRIETARY CONCERNS, THEREFOR E, KYC NORMS HAVE BEEN PROPERLY COMPLETED. IN ANY CASE, EVEN IF THERE IS SOME NON-COMPLIANCE UNDER SOME OTHER LAW THAT WOULD NOT ALTER THE CORRECT DET ERMINATION OF INCOME. 61. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT LD. CIT HAS ADJUDICATED THIS ISSUE VIDE PARAS 6.3 AND 6.3.1 WHICH IS AS UNDER:- 6.3 I HAVE CONSIDERED THE SUBMISSION OF THE LD. CO UNSEL FOR THE APPELLANT. THE APPELLANT HAD 12 BANKS ACCOUNTS IN V ARIOUS BANKS IN THE NAME OF 11 CONCERNS, WHICH WERE OPERATED BY EIT HER THE APPELLANT HIMSELF OR HIS CLOSE FAMILY MEMBERS. OUT OF THESE 11 CONCERNS, THE APPELLANT HAD TAKEN CHEQUE PURCHASE F ACILITY FOR THREE CONCERNS FROM THE CENTURION BANK OF PUNJAB, SECTOR 35, CHANDIGARH. THE APPELLANT HAS SUBMITTED COPY OF BAN K CERTIFICATE IN THIS REGARD. THESE ACCOUNTS WERE OPERATED AND FUNDS WERE ROTATED IN SUCH A WAY THAT THE CHEQUES ISSUED BY THE PROPRI ETORSHIP CONCERN OF THE APPELLANT- M/S RAMA ADVERTISING SERVICES IN FAVOUR OF THESE CONCERNS WERE DISCOUNTED FROM THE SAID BANK AND THE PROCEEDS THEREOF WERE TRANSFERRED TO THE BANK ACCOUNTS, WHIC H DIRECTLY OR INDIRECTLY FOUND THEIR WAY INTO THE BOOKS OF THE AP PELLANT. THE SYSTEM WAS ADOPTED TO GENERATE CONCERN OF THE APPEL LANT BY UTILIZING THE CHEQUE PURCHASE FACILITY. THE ENTIRE MODUS-OPERANDI DID NOT INVOLVE ANY INFUSION OF INTERNAL/EXTERNAL F UNDS EITHER BY THE APPELLANT OR FROM ANY OTHER PERSON. THE FUNDS OBTAI NED FROM THE BANK WERE CYCLED INTO APPELLANTS CONCERN, FROM WHE RE THESE WERE RETURNED TO MAKE SURE THAT THE LIABILITY IN RESPECT OF CHEQUES DISCOUNTED WAS MADE UP BY THE DUE DATE. 45 6.3.1 I HAVE GONE THROUGH THE MODUS-OPERANDI ADOPTE D BY APPELLANT TO MAXIMIZE AVAILABILITY OF FUNDS TO ENSURE OPTIMUM UTILIZATION. IT IS ALSO SEEN THAT THE ASSESSING OFFICER HAS MADE ADDIT ION ON THE GROUND THAT IT WAS THE PEAK OF THE CREDIT BALANCE B UT INFACT IT IS PEAK OF THE DEBIT AMOUNT AND APPELLANTS CONTENTION IN THIS REGARD IS CORRECT. AS NO MONEY HAS BEEN INTRODUCED IN THE BOOKS OF ACCOUNTS WHICH ARE UNEXPLAINED, QUESTION OF DISALLO WING ANY AMOUNT U/S 68 OF THE ACT DOES NOT ARISE. THE MODUS- OPERANDI ADOPTED BY THE APPELLANT MAY NOT BE IN ACCORDANCE W ITH BANKING LAWS, BUT THE FACT IS THAT NO AMOUNT HAS BEEN INTRO DUCED IN THE WHOLE PROCESS EITHER BY WAY OF DEPOSIT IN THE BANK ACCOUNT OR BY WAY OF CREDITS IN THE BOOKS OF ACCOUNTS AND SO NO A DDITION WAS CALLED FOR. HENCE, IT IS HELD THAT THE ASSESSING OF FICER WAS NOT RIGHT IN MAKING ADDITION OF RS. 2,22,78,800/- U/S 68 OF T HE ACT AND THE SAME IS DELETED. GROUND OF APPEAL NO. 3 IS ALLOWED. 62. IN OUR OPINION, THE LD CIT(A) HAS CORRECTLY DEC IDED THE ISSUE. BASICALLY ASSESSEE HAS FLOATED VARIOUS ENTITIES TO OBTAIN EXT RA MONEY FROM THE BANKING SYSTEM BY ISSUING AND CIRCULATING CHEQUES WHICH WER E GOT DISCOUNTED FROM BANK AND MONEY WAS HANDED OVER TO THE ASSESSEE WHICH WAS LATER ON PAID AFTER SOMETIME. EVEN IF ASSUMING THAT THERE ARE CERTAIN N ON-COMPLIANCE WITH OTHER LAWS THAT WOULD NOT; ALTER THE BASIC NATURE OF THE TRANSACTIONS BECAUSE MONEY HAS COME FROM BANK THROUGH VARIOUS PROPRIETY ENTITIES, THEREFORE, WE FIND NOTHING WRONG WITH THE ORDER OF LD CIT(A) AND WE CONFIRM TH E SAME. 63. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 944/CHD/2012 ASSESSMENT YEAR 2009-10 64. IN THIS APPEAL VARIOUS GROUNDS HAVE BEEN RAISED WHICH ARE AS UNDER:- 1. THE LD. CIT APPEALS HAS ERRED ON FACTS & LAW WITHOU T CONSIDERING THE FACTS OF THE CASE UNDER CONSIDERATI ON AND DECIDING THE MATTERS ON THE BASIS OF PREVIOUS ORDER S. 46 2. THE LD. CIT APPEALS HAS ERRED IN UPHOLDING THE ADDI TION MADE BY AO. FOR THE COMMISSION PAID AMOUNTING TO RS. 170 9232/- AS BOGUS, BE ALLOWED AS LEGITIMATE BUSINESS EXPENDITUR E. 3. THAT LD. CIT APPEALS ERRED IN UPHOLDING THE ADDITIO N MADE BY AO. FOR THE INTEREST AGAINST THE INTEREST NOT CHARG ED ON ADVANCE GIVEN FOR THE PURCHASE OF PROPERTY BY THE ASSESSEE BEING INDIVIDUAL. 4. THE LD. CIT APPEALS HAS ERRED IN UPHOLDING THE ADDI TION MADE BY AO. BY DISALLOWING RS. 57797/- U/S 14A WITHOUT G ETTING INTO DETAIL THAT THERE IS NO EXPENDITURE DEBITED INTO TH E P&L A/C WHICH CAN BE DISALLOWABLE U/S 14, DISALLOWANCE MAY BE REVERSED. 5. THAT LD. CIT APPEALS HAS ERRED IN UPHOLDING THE ADD ITION MADE BY AO. BY DISALLOWING RS. 54308/- FOR VEHICLE RUNNI NG & MAINTENANCE EXPENDITURE. DISALLOWANCE MAY BE REVERS ED. 6. THAT CIT APPEALS HAS ERRED IN CHARGING INTEREST U/S 234B & 234D WITHOUT ANY SPECIFIC ORDER. 65. OUT OF THE ABOVE GROUND NOS. 3 TO 5 WERE NOT PR ESSED AN,D THEREFORE, THE SAME ARE DISMISSED AS NOT PRESSED 66. GROUND NO. 1 IS OF GENERAL NATURE AND DOES NOT REQUIRE SEPARATE ADJUDICATION. 67. GROUND NO.2 : AFTER HEARING BOTH THE PARTIES WE FIND THAT ISSUE RAISED THROUGH THIS GROUND IS IDENTICALLY SAME AS THE ISSU E OF COMMISSION PAID TO THREE PARTIES AS UNDER:- 1. SH. G.S. SARDANA C/O MANAV MANGAL SCHOOL, SEC. 21-C , CHD. RS. 3,59,638/- 2. SH. SANDEEP SARDANA, HUF, H.NO. 3085/21-D, CHD. R S. 6,61,171/- 3. SH. SANJAY SARDANA, H.NO. 385 SEC. 21-D, CHD. RS. 6,88,667/- 68. IN THIS CASE WHICH WAS REPRESENTED THROUGH DIFF ERENT COUNSEL SHRI VRIND JAIN, WHO ALSO ADOPTED THE CONTENTIONS WHICH WERE G IVEN IN THE CASES OF ASSESSEE FOR EARLIER THREE YEARS I.E. ASSESSMENT YEARS 2006- 07 TO 2007-08 AND 2008-09 IN 47 ITA NOS.1026/CHD/2010, 682/CHD/2011 AND 542/CHD/201 2 ADJUDICATED ABOVE. THE ONLY OTHER CONTENTION IS THAT ASSESSEE KEPT ON PAYING THESE COMMISSIONS DESPITE OF THE DISALLOWANCE BEING MADE IN THE EARLI ER YEARS WHICH ITSELF SHOWS THAT PAYMENT OF COMMISSION WAS GENUINE AND IN THE A BSENCE OF SUCH PAYMENTS, THE BUSINESS OF THE ASSESSEE COULD NOT BE CARRY FOR WARD. HAD THE COMMISSION BEEN BOGUS THEN ASSESSEE WOULD HAVE STOP PAYING THI S COMMISSION. 69. ON THE OTHER HAND LD. DR SUBMITTED THAT ASSESS EE HAS MERELY TAKEN A CHANCE AND HE REPEATED THE ARGUMENTS AS WERE MADE I N THE EARLIER YEARS. 70. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE ARE NOT IMPRESSED BY THIS CONTENTION THAT ASSESSEE HAS CONTINUED TO PAY THIS COMMISSION DESPITE THE DISALLOWANCE IN THE EARLIER YEARS. THE ASSESSEE HAS MERELY TAKEN A CHANCE THAT HE MIGHT WIN IN THE APPEALS. SIMPLY BECAUSE THE PAYME NT HAS BEEN CONTINUED IN THE LATER YEARS WOULD NOT MAKE THE BOGUS PAYMENT AS GENUINE. THIS ISSUE HAS BEEN DELIBERATED UPON IN DETAIL AND DECIDED IN ASSE SSEES OWN CASE IN ASSESSMENT YEAR 2006-07 IN ITA NO.1026/CHD/2010 VI DE PARAS 18 TO 30 AND FOLLOWING THE SAME WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 71. GROUND NO.2: THE ISSUE IS REGARDING THE LEVY O F INTEREST U/S 234B AND 234D IS OF CONSEQUENTIAL IN NATURE AND ASSESSING OF FICER IS DIRECTED TO LEVY THE INTEREST AS PER THE LAW. 72. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 24.12.2014. SD/- SD/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 24 TH DECEMBER, 2014 RKK COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR
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