DCIT Central Circle 13, V. M/s. UTV Software Communication Ltd.,

ITSSA 456/MUM/2004

• Counselvise Citation: [2010] 124 COUNSELVISE.COM (IT) 9416 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 25-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 24-02-2010
• Assessment Year: misc
• Appeal Filed On: 06-08-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A P SINGH
• Assessee Lawyers: RACH NA AGARWAL
• Keywords: Depreciation; Search and seizure; Deemed dividend; Block assessment
• Section: 131; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH, MUMBAI BEFORE SHRI R.V. EASWAR, SENIOR VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER IT(SS) NO. 456/MUM/2004 (ASSESSMENT YEAR: 01.04.1995 TO 04-09.2001) DCIT, CENTRAL CIRCLE 13 M/S. UTV SOFTWARE COMMUNICA TION LTD. ROOM NO. 1101, 11TH FLOOR 1076, PARIJAT HOUSE, DR. E. MOSES RD. OLD CGO ANNEX BLDG VS. WORLI, MUMBAI 400018 MUMBAI 400020 PAN - AAACU 4122 G APPELLANT RESPONDENT IT(SS) NO. 454/MUM/2004 (ASSESSMENT YEAR: 01.04.1995 TO 04-09.2001) M/S. UTV SOFTWARE COMMUNICATION LTD. DCIT, CENTRAL CIRCLE 13 1076, PARIJAT HOUSE, DR. E. MOSES RD. ROOM NO. 1101 , 11TH FLOOR WORLI, MUMBAI 400018 VS. OLD CGO ANNEX BLDG PAN - AAACU 4122 G MUMBAI 400020 APPELLANT RESPONDENT REVENUE BY: SHRI A.P. SINGH ASSESSEE BY: MISS RACHNA AGARWAL O R D E R PER B. RAMAKOTAIAH, A.M. THESE CROSS APPEALS ARE BY THE REVENUE AND ASSESSEE AGAINST THE ORDER OF THE CIT(A), CENTRAL VII, MUMBAI DATED 28.05.2004 . 2. REVENUE IS AGGRIEVED ON THE FOLLOWING TWO GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) ERRED IN ALLOWING THE PAYMENT OF BRO KERAGE OF RS.37,500/- ALLEGEDLY PAID IN CONNECTION WITH ADVAN CING LOAN TO SISTER CONCERN, DESPITE THE FACT THAT ALL THESE FIN ANCIAL TRANSACTIONS WERE NOT RELATED TO ASSESSEES BUSINESS ACTIVITIES. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN HOLDING THAT THE UNVERIFIAB LE PRODUCTION EXPENSES ARE TO BE DISALLOWED AT THE RATE OF 9% INS TEAD OF 11%, AS WORKED OUT BY THE A.O. BY ADOPTING SCIENTIFIC AND R EASONABLE BASIS. IT(SS) NO. 456/MUM/2004 M/S. UTV SOFTWARE COMMUNICATION LTD. 2 4. THE ASSESSEE IS AGGRIEVED ON THE FOLLOWING THREE GR OUNDS: - 1. ORDER PASSED U/S 158BC IS TIME BARRED AND HENCE BAD IN LAW. THE LEARNED DCIT FAILED TO PASS ORDER U/S 158BC(C) AS P ER THE TIME LIMIT PRESCRIBED U/S 158BE(2)(B, BEING 2 YEARS FROM THE E ND OF THE MONTH IN WHICH AUTHORIZATION OF SEARCH EXECUTED I.E. ON 4 .9.2001/5.9.2001, THE BLOCK ASSESSMENT ORDER SHOULD HAVE BEEN PASSED ON OR BEFORE 30.9.2003 AND HENCE, ORDER PASSED ON 31.12.2003 IS TIME BARRED, BAD-IN-LAW AND LIABLE TO BE QUASHED. 2. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW THE LEARNED CIT(A) OUGHT TO HAVE DELETED THE UNDISCLOSED INCOME ASSESSED AS DEEMED DIVIDEND ON PROTECTIVE BASIS. 3. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW THE LEARNED CIT(A) HAS ERRED IN RECOMPUTING OF DISALLOWANCE OF UNVERIFIABLE PRODUCTION EXPENSES AT RS.26.91 LACS BY TAKING AN A VERAGE PERCENTAGE OF PERSONS AND AMOUNTS. 5. IN THE COURSE OF ARGUMENT GROUND NO. 2 IN ASSESSEE APPEAL WAS NOT PRESSED AS THE CIT(A) HAS GIVEN FINDINGS ON THE ISS UE WHILE RESTORING THE ISSUE TO AO AND THE ASSESSEE HAS TAKEN UP THE ASPEC T SEPARATELY. HENCE, GROUND NO. 2 IS TREATED AS WITHDRAWN. 6. GROUND NO. 1 IN ASSESSEE APPEAL PERTAINS TO THE ISS UE OF LIMITATION AND GROUND NO. 2 IN REVENUE APPEAL AND GROUND NO. 3 IN ASSESSEES APPEAL ARE ON THE SAME ISSUE I.E. DISALLOWANCE OF PRODUCTI ON EXPENSES. THE GROUND NO 1 IN REVENUE APPEAL IS ON DISALLOWANCE OF BROKER AGE BUT ALLOWED BY CIT(A). THESE ARE CONSIDERED ISSUE-WISE. 7. ISSUE OF LIMITATION: - THIS ISSUE HAS BEEN RAISED BY THE ASSESSEE AS GROUND NO. 1 STATING THAT THE ORDER PASSED BY THE D CIT UNDER SECTION 158BC ON 31.12.2003 WAS TIME BARRED AS THE ASSESSME NT SHOULD HAVE BEEN COMPLETED ON OR BEFORE 30.09.2003. THE LEARNED COUNSEL FOR THE ASSESSEE HAD SUBMITTED COPIES OF PANCHANAMAS DRAWN UP IN THE COURSE OF SEARCH PROCEEDINGS IN SUPPORT OF THE CONTENTIONS AN D GAVE THE FOLLOWING CHART TO SUBMIT THAT THE SEARCH HAVING BEEN FINALLY CONCLUDED ON 04.09.2001 THE ASSESSMENT ORDER SHOULD HAVE BEEN PA SSED ON OR BEFORE 30.09.2003 AND ACCORDINGLY THE ORDER PASSED ON 31.1 2.2003 WAS TIME BARRED. IT(SS) NO. 456/MUM/2004 M/S. UTV SOFTWARE COMMUNICATION LTD. 3 DATE OF PANCHANAMA TIME TAKEN (HRS) STATUS AS PER PANCHANAMA PG. NO. OF PAPER BOOK 04.09.2001 04.09.2001: 8:30 PM 05.09.01 08:12 PM FINALLY CONCLUDED 2 22-10-2001 22.10.01 12:50 PM 22.10.01 08:15 PM TEMPORARILY CONCLUDED 7 29-10-2001 29.10.01 10:50 AM 29.10.01 09:20 PM TEMPORARILY CONCLUDED 11 06-12-2001 06.12.01 12:15 PM 06.12.01 12:40 PM FINALLY CONCLUDED 15 8. RELIANCE IS PLACED ON THE PRINCIPLES LAID DOWN BY T HE HON'BLE BOMBAY HIGH COURT IN THE CASES OF CIT VS. MRS. SANDHYA P. NAIK 253 ITR 354 AND CIT VS. DEEPAK AGARWAL 175 TAXMAN 1 (DEL.). IN THE COURSE OF ARGUMENT THE LEARNED COUNSEL ALSO RELIED ON THE DECISION OF THE ITAT IN THE CASE OF DCIT VS. ADOLF PINTOO 284 ITR (AT) 207 AND SHAHRUKH KHAN VS. ACIT 290 ITR (AT) 143 FOR THE PROPOSITION THAT ONCE THE SEARCH WAS FI NALLY CONCLUDED EXTENSION OF SEARCH PROCEEDINGS BY WAY OF PROHIBITORY ORDER U NDER SECTION 132(3) PASSED IN RESPECT OF SEARCH CANNOT BE ALLOWED TILL THE REVOCATION OF THE PROHIBITORY ORDER. THE LEARNED COUNSEL ALSO DISTING UISHED THE SPECIAL BENCH DECISION IN THE CASE OF SMT. KRISHAN VERMA VS. ACIT , FARIDABAD 113 ITD 655 (DEL) (SB) TO SUBMIT THAT IN THAT CASE THERE WAS A SEIZURE AT THE END OF REVOCATION OF PROHIBITORY ORDER WHEREAS IN ASSESSEE S CASE THERE IS NO SEIZURE BUT ONLY LIFTING OF PROHIBITORY ORDERS. SHE ALSO PL ACED ON RECORD THE FOLLOWING CASE LAWS IN SUPPORT OF THE CONTENTIONS: - I) NANDLAL M. GANDHI VS. ACIT 115 ITD 1 (MUM) (TM) II) CIT VS. S.K. KATYAL 177 TAXMAN 380 (DEL) 9. TO A QUESTION WHY SIMILAR GROUND WAS WITHDRAWN BEFO RE THE CIT(A) IT WAS THE CONTENTION OF THE LEARNED COUNSEL THAT IT I S A LEGAL GROUND WHICH CAN BE RAISED AND ARGUED BEFORE THE ITAT. 10. THE LEARNED D.R., HOWEVER, OBJECTED TO THE CHART SU BMITTED BY THE ASSESSEE AND SUBMITTED THAT THE SEARCH WAS NOT CONC LUDED ON 05.09.2001 AS MENTIONED IN THE CHART BUT IT WAS TEMPORARILY CO NCLUDED. HE FILED A COPY OF THE PANCHANAMA FROM THE DEPARTMENTAL RECORDS TO SUBMIT THAT THE ASSESSEES COPY INDICATE THE CUT OUT PORTION WRONGL Y AS THE ALIGNMENT OF COPIES WERE WRONGLY PLACED AND INSTEAD OF TEMPORARI LY CONCLUDED BEING CUT IT(SS) NO. 456/MUM/2004 M/S. UTV SOFTWARE COMMUNICATION LTD. 4 OUT ORIGINALLY IN THE FIRST COPY OF THE PANCHANAMA, IT APPEARS THAT THE CUT OUT PORTION CAME OUT TO FINALLY CONCLUDED IN ASSE SSEES COPY BUT THE ACTUAL FACT WAS THAT THE SEARCH WAS TEMPORARILY CONCLUDED ON 05.09.2001 WHICH WAS ULTIMATELY CONCLUDED ON 06.12.2001 AND ACCORDIN GLY THE ASSESSMENT ORDER PASSED ON 31.12.2003 WAS CORRECT. 11. WE HAVE EXAMINED THE ISSUE. AS SEEN FROM THE COPIES OF THE PANCHANAMA FILED BY THE ASSESSEE AND THE DEPARTMENT IT SEEMS THAT THERE IS A SMALL OVERLAP OF CROSSING OF THE RELEVANT WORD IN ASSESSEES COPY WHICH MIGHT HAVE LED TO THE OBSERVATION THAT THE SEARCH W AS FINALLY CONCLUDED ON 05.01.2001. AS SEEN FROM THE COPIES OF THE PANCHANA MA PLACED ON RECORD BY THE REVENUE THE SEARCH WAS TEMPORARILY CONCLUDED ON 05.09.2001, SUBSEQUENTLY THERE WAS LIFTING AND REPLACEMENT OF S EALS ON 22.10.2001, 29.10.2001 AND ULTIMATELY CONCLUDED ON 06.12.2001. MAY BE IN VIEW OF THIS FACT, THE ASSESSEES COUNSEL HAS NOT PRESSED THE GR OUND BEFORE THE CIT(A) WHO HAS GIVEN THE FOLLOWING FINDING IN APPELLATE OR DER: - 2. FIRST GROUND OF APPEAL IS GENERAL IN NATURE AND IT RELATES TO STATEMENT OF CERTAIN FACTUAL POSITION. IT WAS ARGUE D THAT THE SEARCH WHICH WAS CARRIED WAS WITHOUT JURISDICTION AND MORE OVER IT HAS BEEN ARGUED THAT THE ORDER HAS BEEN PASSED AFTER TWO YEA RS FROM THE END OF THE MONTHS IN WHICH THE LAST AUTHORIZATION WAS ISSU ED AND TO THAT EXTENT IT WAS ARGUED THAT THE ORDER WAS BARRED BY LIMITATI ON. HOWEVER AT THE TIME OF APPELLATE PROCEEDINGS THE SAID GROUND WAS N OT PRESSED FOR AND IS ACCORDINGLY DISMISSED. 12. THE REASONS FOR NOT PRESSING THE GROUND BEFORE CIT( A) ARE NOT AVAILABLE ON RECORD BUT SUFFICE TO SAY THAT THE PROCEEDINGS H AVE NOT BEEN CONCLUDED ON 05.09.2001 BUT CONTINUED TILL 06.12.2001 AS PER THE SERIES OF PANCHANAMAS PLACED ON RECORD. IN VIEW OF THIS, WE A RE OF THE OPINION THAT THE ORDERS PASSED ARE IN TIME AS HELD BY THE SPECIA L BENCH IN THE CASE OF SMT. KRISHNA VERMA VS. ACIT, FARIDABAD 113 ITD 655 (DEL) (SB) THE FACTS OF WHICH ARE MORE OR LESS SIMILAR TO ASSESSEES CAS E. MOREOVER, SINCE THE ASSESSEE HAS NOT PRESSED THE GROUND BEFORE THE CIT( A), MAY BE AFTER EXAMINATION OF RECORDS, WE ARE OF THE OPINION THAT THERE IS NO NEED TO ADJUDICATE THE GROUND AFRESH IN THIS PROCEEDINGS AF TER BEING WITHDRAWN BEFORE THE CIT(A). FOR THESE REASONS ASSESSEES GRO UND IS REJECTED. IT(SS) NO. 456/MUM/2004 M/S. UTV SOFTWARE COMMUNICATION LTD. 5 13. DISALLOWANCE OF PRODUCTION EXPENSES : GROUND NO. 3 IN ASSESSEES APPEAL AND GROUND NO. 2 IN REVENUE APPEAL ARE ON TH E ISSUE OF DISALLOWANCE OF PRODUCTION EXPENSES AS UNVERIFIABLE IN NATURE. T HE BRIEF FACTS ARE THAT THERE IS A SEARCH AND SEIZURE ACTION UNDER SECTION 132 OF THE I.T. ACT CONDUCTED ON 04.09.2001 IN THE GROUP COMPANIES OF U TV AND IN THE COURSE OF SEARCH THE ASSESSEE HAS DISCLOSED INCOMES UNDER SECTION 132(4) WHICH, HOWEVER, WAS FOLLOWED UP BY PARTIAL FILING OF RETUR NS. THE RETURN OF THE ASSESSEE WAS FILED DISCLOSING AN INCOME OF RS.113,9 2,931/-. THE A.O. EXAMINED THE PRODUCTION EXPENDITURE INCURRED IN CAS H ON THE BASIS OF THE SEIZED PAPERS 1 TO 95 OF ANNEXURE A-2 SEIZED FROM W ORLI OFFICE AND PAGES 1- 56 OF ANNEXURE A-3 AND PAGES 1 TO 35 OF ANNEXURE A- 4 AS PER PANCHANAMA DATED 22.10.2001 AND ALSO ON THE BASIS OF THE STATE MENT RECORDED FROM SHRI ROHINTON SCREWALA ON 22.10.2001. THE A.O. WAS OF TH E VIEW THAT SEVERAL VOUCHERS WERE WITHOUT ANY PROPER SUPPORTING EVIDENC ES AND ALSO UNVERIFIABLE IN NATURE. SINCE THE ASSESSEE ITSELF H AS OFFERED RS.46.75 LAKHS AS ITS UNDISCLOSED INCOME PERTAINING TO ALLEGED INF LATION OF EXPENSES, THE A.O. UNDERTOOK A RANDOM SAMPLING METHOD OF THE PROD UCTION EXPENSES INCURRED IN CASH. HE HAS ARRIVED AT THE PERCENTAGE OF PRODUCTION EXPENSES TO THE TOTAL EXPENDITURE INCLUDING DEPRECIATION AT 70% OF THE TOTAL EXPENSES. THUS HE ARRIVED AT PRODUCTION EXPENSES INCURRED IN CASH OUT OF RS.2928 LAKHS WHICH CAME TO 2049.66 LAKHS. LATER HE ARRIVED AT THE CASH EXPENSES WHICH DO NOT HAVE ANY EXTERNAL EVIDENCES AND CASH E XPENSES WHERE INTERNAL EVIDENCE COULD BE AVAILABLE AND APPLYING THE MATHEM ATICAL RATIO ARRIVED AT A CONCLUSION THAT OUT OF THE TOTAL PRODUCTION EXPENSE S INCURRED IN CASH 42% BELONGS TO THOSE EXPENSES WHERE THERE ARE INSTANCES OF NON-AVAILABILITY OF ADEQUATE SUPPORTING. THE PERCENTAGE OF 42 WHEN APPL IED TO THE TOTAL CASH PRODUCTION EXPENSES, THE SAME COMES TO RS.861 LAKHS . THE NEXT TASK WAS WORKING OUT QUANTUM OF EXPENSES WHICH WERE NOT PROP ERLY SUPPORTED FOR WHICH SUMMONS WERE ISSUED UNDER SECTION 131 AS WELL AS FIELD ENQUIRIES WERE CONDUCTED ON RANDOMLY SELECTED VOUCHERS AND HE ARRIVED AT APPROXIMATELY 11% INSTANCES WHICH COULD NOT BE VERI FIED. ACCORDINGLY, HE FORMED AN OPINION THAT 11% OF THE EXPENDITURE INCUR RED HAS TO BE DISALLOWED AS THE GENUINENESS WAS NOT ESTABLISHED. THIS RATIO WHEN APPLIED IT(SS) NO. 456/MUM/2004 M/S. UTV SOFTWARE COMMUNICATION LTD. 6 TO RS.861 LAKHS CAME TO RS.94.71 LAKHS. THE A.O. HA S CONCLUDED THAT THIS WAS APPROXIMATE QUANTUM OF PRODUCTION EXPENSES INCU RRED IN CASH, WHICH HAVE BEEN CLAIMED BY THE ASSESSEE BUT IN SUPPORT OF THIS CLAIM SUITABLE EVIDENCES WERE NOT AVAILABLE. ACCORDINGLY, HE TREAT ED THE SAME AS UNDISCLOSED INCOME OF THE ASSESSEE FOR THE BLOCK PE RIOD AND THE SAME WAS APPORTIONED FOR DIFFERENT ASSESSMENT YEARS ON PRO-R ATA BASIS OF PRODUCTION EXPENSES IN THAT YEAR. 14. BEFORE THE CIT(A) THE ASSESSEE HAS CONTESTED THE AB OVE DISALLOWANCE. AFTER EXAMINING ASSESSEES CONTENTIONS THE CIT(A) H AS CONCLUDED VIDE PARA 5.4 TO 5.6 AS UNDER: - 5.4 I HAVE CONSIDERED THE SUBMISSION AND THE FACTS ON RECORD, METHOD ADOPTED BY THE AO, THE STATISTICAL APPROACH AND THE SAMPLE TAKEN ETC. WHICH APPEARS TO BE QUITE SCIENTIFIC AND REASONABLE AND EVEN THE ASSESSEE HAS NOT OBJECTED TO THE METHOD ADOPTED BY THE AO. HIS ONLY OBJECTION WAS RELATING TO THE PERCENTAGE ADOPT ED FOR THE COMPUTATION OF UNDISCLOSED INCOME COMPUTED ON THE B ASIS OF SUCH SAMPLE. THE ASSESSEE HAD SUBMITTED THAT THE AO HAD TAKEN THE FIGURE OF 11% BASED ON THE UNVERIFIABLE CASES, ON THE BASIS O F NUMBER OF PERSON INVOLVED, WHEREAS THE CORRESPONDING AMOUNT WAS ACTU ALLY 7% SO THE ASSESSEE HAD ARGUED THAT THE FIGURE OF 7% WAS TO BE ADOPTED SINCE THE QUANTUM OF ADDITION WOULD BE GOVERNED BY THE AMOUNT . HAVING SAID SO THE ASSESSEE HAD GIVEN THE RELEVANT COMPUTATION WHI CH HAS BEEN REPRODUCED EARLIER. IN MY VIEW IT WOULD BE FAIR TO TAKE A FURTHER STATISTICAL AVERAGE OF THE FIGURE OF AMOUNT AND PER SONS, PERCENTAGEWISE AND THE SAME WOULD BE 9% I.E. AVERAGE OF 11% AND 7% . 5.5 ONE OTHER ISSUE THE APPELLANT HAS RAISED DURING THE APPEAL WAS THAT OUT OF THE PRODUCTION EXPENSES, THE AO IN A RE GULAR ASSESSMENT FOR A.Y. 1999-2000 HAD HIMSELF WORKED OUT THE UNVERIFIA BLE EXPENDITURE AT RS.8,51,185/-. THE ASSESSEE SUBMITTED THAT THIS WOU LD BE PART OF A TOTAL QUANTUM OF UNVERIFIABLE EXPENDITURE THAT HAS BEEN W ORKED OUT FOR THE PURPOSES OF UNDISCLOSED INCOME. THE AO HAVING CONSI DERED THE SAME TO BE PART OF REGULAR ASSESSMENT ALREADY, THE ADDITION FOR SAID ASSESSMENT YEAR UNDER THE SAID HEAD WOULD AMOUNT TO DOUBLE ADD ITION. THIS ARGUMENT OF THE APPELLANT APPEARS TO BE IN ORDER TH E SAID AMOUNT OF RS.8,51,185/- WOULD BE PART OF BLOCK ASSESSMENT INS TEAD OF REGULAR ASSESSMENT AND ASSESSEE WILL BE ENTITLED TO THE SAI D RELIEF IN THE REGULAR ASSESSMENT BECAUSE THE FINDING THAT THERE WAS UNVER IFIABLE CASH PRODUCTION EXPENSES LEADING TO INFLATION OF EXPENSE S WAS FINDING OF THE SEARCH AND THAT IS HOW THE AMOUNT HAS RIGHTLY TAKEN BY THE AO IN HIS BLOCK ASSESSMENT. THE AO HAVING HELD THAT THESE AMO UNTS WOULD BE PART OF BLOCK ASSESSMENT AND TAKING INTO ACCOUNT TH E ASSESSEES ARGUMENT THAT THE SAID RS.8,51,158/- FORMS THE PART OF THE SAME QUANTUM EVEN BY AOS ARGUMENT THE ASSESSEE WOULD BE ENTITLED TO RELIEF IT(SS) NO. 456/MUM/2004 M/S. UTV SOFTWARE COMMUNICATION LTD. 7 TO THAT EXTENT IN THE REGULAR ASSESSMENT OF A.Y. 19 99-2000 TO AVOID DOUBLE TAXATION OF THE SAME AMOUNT AND ALSO IN VIEW OF THE RESTRICTIONS OF EXPLANATION TO SECTION 158BA(2). 5.6 ON A CAREFUL CONSIDERATION OF THE SUBMISSION I AM OF THE VIEW THAT IT WOULD BE FAIR TO TAKE THE AVERAGE OF UNVERIFIABL E AMOUNT RELATING TO NUMBER OF PERSONS AND THE AMOUNT WHICH IS 11+7/2 = 9%. SIMILARLY, THE AO HAVING DISALLOWED HIMSELF OUT OF PRODUCTION EXPE NSES FOR A.Y. 1999- 2000 FOR LACK OF VERIFIABILITY TO THE EXTENT OF 8.5 1 LACS, THE ASSESSEE WILL BE ENTITLED TO RELIEF TO THAT EXTENT TO AVOID DOUBL E TAXATION IN THE REGULAR ASSESSMENT. CONSEQUENTLY THE FIGURES OF UNDISCLOSED INCOME FOR THE BLOCK PERIOD IS WORKED OUT AS UNDER: A.Y. UNDISCLOSED INCOME IN RESPECT OF PRODUCTION EXPENSES AS PER THE AO RECALCULATED UNDISCLOSED INCOME 1996-97 881750 72143.82 1997-98 1082535 885710.45 1998-99 2041948 1670684.73 1999-2000 1913142 1565298 2000-01 1599652 1308806.18 2001-02 1433909 1173198.27 01.042001 TO 04.092001 518604 41304.74 TOTAL 73,66,434.19 15. THE ASSESSEE HAS CONTESTED THE DISALLOWANCE SO WORK ED OUT BY THE CIT(A) AND WHEREAS REVENUE IS CONTESTING THE REDUCT ION OF DISALLOWANCE FROM 11% TO 9% . 16. THE LEARNED COUNSEL REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A). SHE REFERRED TO PARA 5.3 OF CIT(A)S ORDER TO SUBMIT THAT THE A.O. HAS TAKEN 111 PERSONS SAMPLE FOR EXAMINATION INVOLV ING AN AMOUNT OF RS.3,82,285/- WHICH IS MINUSCULE PERCENTAGE COMPARE D TO RS.861 LAKHS CONSIDERED FOR DISALLOWANCE. OUT OF THIS, THE UNVER IFIABLE PERSONS ARE ONLY 12 INVOLVING AN AMOUNT OF RS.27,378/- WHICH ITSELF IS VERY SMALL COMPARED TO THE EXPENDITURE INCURRED BY THE ASSESSEE. THE PE RCENTAGE OF UNVERIFIABLE 11% RATIO IS WITH REFERENCE TO NUMBER PERSONS WHERE AS IN AMOUNT TERMS THAT IS ONLY 7%. IF THE 7% IS ADOPTED THE ADDITION WOULD COME TO ONLY IT(SS) NO. 456/MUM/2004 M/S. UTV SOFTWARE COMMUNICATION LTD. 8 RS.51.76 LAKHS WHEREAS THE A.O. HAS ADOPTED RS.94.7 1 LAKHS ON THE BASIS OF NUMBER OF PERSONS AT 11%. THE CIT(A) UNFORTUNATE LY HAS ADDED THE NUMBER OF PERSONS OF 11% TO THE AMOUNT OF 7% AND RE STRICTED TO 9% WHICH CANNOT BE DONE. THE BASIS SHOULD BE THE AMOUNT INVO LVED BUT NOT AN ARBITRARY AVERAGE. 17. THE LEARNED D.R., HOWEVER, WHILE ACCEPTING THAT THE STATEMENT IN PARA 5.3 AS CORRECT SUBMITTED THAT THE CIT(A) WAS WRONG IN RESTRICTING IT TO 9% WHEREAS THE A.O. CORRECTLY MADE DISALLOWANCE AT 11% . HE SUPPORTED THE ORDER OF THE A.O. 18. WE HAVE CONSIDERED THE ISSUE. PARA 5.3 OF CIT(A)S ORDER IS AS UNDER: - 5.3 THE APPELLANT DID NOT QUESTION THE METHOD ADOP TED NOR HAS IT QUESTIONED THE SAMPLE ADOPTED BUT ITS ONLY OBJECTIO N WAS THAT THE FIGURE OF 11% THAT HAS BEEN ARRIVED AT ON THE BASIS OF NUMBER OF PERSONS IN WHOSE CASES THE CASH EXPENSES COULD NOT BE VERIFIED, WHEREAS THE AMOUNT INVOLVED IN SUCH SAMPLE OF 11% E VEN AS PER THE AOS FINDINGS WAS 7%. IT WAS ARGUED THAT SINCE THE ULTIMATE PARAMETER OF ADDITION IS THE AMOUNT IT WOULD BE APP ROPRIATE EVEN BY AOS APPROACH ADOPT A FIGURE OF 7% INSTEAD OF 11 % ADOPTED BY HIM. SO IF THE SAID FIGURE IS TAKEN THEN THE ADDITI ON WOULD BE RESTRICTED TO MUCH LESSER FIGURE. THE FOLLOWING CHA RT WAS ENCLOSED TO GIVE THE REVISED FIGURE OF ADDITION WHICH WOULD BE REQUIRED. NO. OF PERSON AMOUNT TOTAL SAMPLE 111 382285 UNVERIFIABLE 12 27378 % 10.8 7.16 SAY 11% 7% PRODUCTION EX. IN CASH (IN LACS) AS PER AOS WORKING 861 861 % OF UNVERIFIABLE (LACS) 94.71 60.27 LESS; DISALLOWED IN REGULAR ASSESSMENT A.Y. 99-2000 (POST SEARCH) 8.5 94.71 51.76 RELIEF 42.95 94.71 IT(SS) NO. 456/MUM/2004 M/S. UTV SOFTWARE COMMUNICATION LTD. 9 A.Y. % AMOUNT 1996-97 9.3 560511 1997-98 11.44 689489 1998-99 21.56 1299421 1999-99 20.20 366269 (1271453 851185 2000-01 16.89 1017960 2001-02 15.14 912488 1-4-01 TO 4-9-01 5.47 329862 100 5176000 19. AS CAN BE SEEN FROM THE ABOVE, THE A.O. HAS SELECTE D 111 PERSONS FOR VERIFICATION OUT OF RS.861 LAKHS INCURRED OF AMOUNT ARRIVED AT BY THE A.O. FOR CONSIDERATION OF CASH DISALLOWANCE. THE TOTAL AMOUN T INVOLVED FOR VERIFICATION WAS ONLY RS.3.82 LAKHS AND THE UNVERIF IABLE PORTION OUT OF THIS WAS ONLY RS.27,378/- WHICH WAS AT 7%. THE ASSESSEE S CONTENTION THAT IF AT ALL DISALLOWANCE IS TO BE MADE IT CAN ONLY BE ON TH E QUANTUM BASIS AND NOT ON THE PERSON BASIS. WE ARE NOT IN A POSITION TO UN DERSTAND HOW THE TWO PERCENTAGES: (I) THE NUMBER OF SAMPLED PERSONS UNVE RIFIABLE;(11%) (II) THE AMOUNT OF PERCENTAGE UNVERIFIABLE (7%) CAN BE AVERA GED AND DETERMINED AT 9% BY THE CIT(A). CONSIDERING THE AMOUNT INVOLVED I N THE CLAIM, EVENTHOUGH THE ASSESSEE DID NOT QUESTION THE METHOD ADOPTED NO R QUESTIONED THE SAMPLE ADOPTED, WE ARE OF THE OPINION THAT THE DISA LLOWANCE CAN ONLY BE MADE ON THE UNVERIFIABLE NATURE OF THE AMOUNT INVOL VED, I.E. AT 7%. THE REVENUE IS NOT CONTESTING THE DISALLOWANCE OF RS.8. 5 LAKHS ALSO MADE IN REGULAR ASSESSMENT FOR A.Y. 1999-2000 BUT DELETED. ACCORDINGLY, WE MODIFY THE ORDER OF THE CIT(A) AND DIRECT THE A.O. TO REST RICT THE DISALLOWANCE TO 7% OF THE AMOUNT INVOLVED AND REWORK OUT THE DISALLOWA NCE ACCORDINGLY. ASSESSEES GROUND 3 IS ALLOWED WHEREAS REVENUE GROU ND 2 IS REJECTED. 20. ALLOWANCE ON PAYMENT OF BROKERAGE: - THE ASSESSEE PAID AN AMOUNT OF RS.37,500/- AS BROKERAGE FOR OBTAINING INTERCORP ORATE DEPOSITS, WHICH THE A.O. DISALLOWED HOLDING THAT THE BUSINESS EXPEDIENC Y COULD NOT BE PROVED. THE CIT(A) CONSIDERED THE SUBMISSIONS OF THE ASSESS EE AND THE REASONS OF THE A.O. AND ALLOWED THE EXPENDITURE BY STATING AS UNDER IN PARA 4.7 TO 4.9:- IT(SS) NO. 456/MUM/2004 M/S. UTV SOFTWARE COMMUNICATION LTD. 10 4.7 THE A.O. HAS NOT FOUND THAT ANY EXPENDITURE IN CURRED BY THE ASSESSEE IS IN THE NATURE OF NON-GENUINE EXPENDITUR E IN THE ASSESSMENT FRAMED IN ITS CASE. THE EXPENDITURE CLAIMED BY THE ASSESSEE HAS BEEN ASSESSED AS RECEIPT AT THE HANDS OF THE RECIPIENT. 4.8. IN VIEW OF THE ABOVE FACTS IT WAS SUBMITTED TH AT DISALLOWANCE OF EXPENDITURE CLAIMED IS UNJUSTIFIED AND SAME BE DIRE CTED TO BE DELETED FROM THE INCOME ASSESSED. 4.9 LASTLY, IT IS A SETTLED LAW THAT IF AO HAS TO D ISALLOW THE CLAIM, THEN IT IS HIS RESPONSIBILITY TO JUSTIFY SUCH DISAL LOWANCE. IT IS NEEDLESS TO MENTION THAT AO HAS NOT BROUGHT ON RECORD ANYTHI NG TO SUBSTANTIATE THE DISALLOWANCE AND IN ANY CASE THE DISALLOWANCE C ANNOT BE SUSTAINED ON MERE CONJECTURE AND SURMISE WHEN THE B ASIC TRANSACTION I.E. GIVING OF THE ICD AND THE RECEIPT OF REASONABL E INTEREST HAVE NOT BEEN DISPUTED. IN ANY CASE THE ASSESSEE HAD ARGUED THAT THE REASONABILITY OF THE EXPENDITURE HAS TO BE JUDGED F ROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT FROM THE POINT OF V IEW OF REVENUE AUTHORITIES WHEN THE GENUINENESS OF THE TRANSACTION S HAS NOT BEEN DISPUTED. HAVING SAID SO, IN VIEW OF WHATEVER HAS B EEN STATED EARLIER THE CLAIM HAS TO BE ALLOWED AND CONSEQUENTLY DISALL OWANCE HAS TO BE DELETED. 21. NOTHING WAS BROUGHT ON RECORD TO COUNTER THE FINDIN GS OF THE CIT(A). AFTER HEARING THE ARGUMENTS OF THE LEARNED D.R. AND THE CONTENTION RAISED BY THE LEARNED COUNSEL, WE ARE OF THE VIEW THAT THE RE IS NO NEED TO INTERFERE WITH THE ORDER OF THE CIT(A). THE A.O. HAS DISALLOW ED THE AMOUNT OF BROKERAGE PAID ON PRESUMPTIONS. IN VIEW OF THIS, WE CONFIRM THE ORDER OF THE CIT(A) AND REJECT GROUND NO. 1 OF REVENUE. 22. IN THE RESULT, REVENUE APPEAL IS DISMISSED AND ASSE SSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH MARCH 2010. SD/- SD/- (R.V. EASWAR) (B. RAMAKOTAIAH) SENIOR VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 25 TH MARCH 2010 IT(SS) NO. 456/MUM/2004 M/S. UTV SOFTWARE COMMUNICATION LTD. 11 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) VII, MUMBAI 4. THE CIT CENTRAL - I, MUMBAI CITY 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.