PRAVEEN BAKSHI ,NEW DELHI V. DCIT, CENTRAL CIRCLE- 8 , NEW DELHI

ITA 7135/DEL/2019

AI Insights

The case involves appeals by Praveen Bakshi, the Director of D-Art Furniture System Pvt. Ltd., against the orders of the Commissioner of Income Tax (Appeals)-34, New Delhi, for the Assessment Years 2010-11 and 2011-12. The primary issues in dispute were the assessment of salary income under 'Income from Other Sources', unexplained bank deposits, and disallowance of business expenditures. The Tribunal found that the salary should be assessed under 'Salary' and not 'Income from Other Sources', leading to the deletion of certain additions. However, the matter of unexplained bank deposits and disallowance of business expenditures was sent back to the Assessing Officer for further examination.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 42254 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 2 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 04-09-2024
• Assessment Year: 2010-2011
• Appeal Filed On: 29-08-2019
• Other Referred Cases: Ram Prasad 86 ITR 122, Indian Molasses Co (P) Ltd. v. CIT 37 ITR (SC), UK Bose in ITA No. 258-2010 order dated 30th November, 2012
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P.N. BARNWAL; CITDR
• Assessee Lawyers: ANIL CHOPRA
• Keywords: Opportunity of being heard; Revenue expenditure; Business expenditure; Unexplained cash credit; Salary income; Principle of natural justice
• Section: 132; 153A; 2; 44AB; 271B

Judgement Text

" 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘F’: NEW DELHI BEFORE SHRI SAKTIJIT DEY, HON’BLE VICE PRESIDENT AND SHRI AVDHESH KUMAR MISHRA, ACCOUNTANT MEMBER ITA No.7135 & 7134/Del/2019, A.Y. 2010-11 & 2011-12 Praveen Bakshi L-107, Kirti Nagar, New Delhi PAN: AFAPB9843B Vs. DCIT, Central Circle-8 New Delhi (Appellant) (Respondent) Appellant by Shri Anil Chopra, CA Respondent by Sh. P. N. Barnwal, CITDR Date of Hearing 04/09/2024 Date of Pronouncement 28/11/2024 ORDER PER AVDHESH KUMAR MISHRA, AM Since the issues involved in these two appeals are identical; hence, these are being heard together and are being disposed off by way of common order for the sake of brevity. 2. The appeals for the Assessment Year (hereinafter, the ‘AY’) 2010- 11 and 2011-12 filed by the assessee are directed against the orders, dated 17.06.2019 and 19.06.2019 respectively, passed by the ITA No.7134 & 7135/Del/2019 2 Commissioner of Income Tax (Appeals)-34, New Delhi [hereinafter, the ‘CIT(A)’]. 3. Following grounds were raised in these appeals: - ITA No. 7135/Del/2019, A.Y. 2010-11 “1. Ld. CIT(A) has erred in upholding the amount of House Rent Allowances and conveyance allowances aggregating Rs.33,600/- which has been claimed in the Return of Income for A.Y. 2010-11. 2. Ld. CIT(A) has erred in upholding the additions at Rs.7,00,000/- as unexplained credit in Bank on account of sale of immovable Property in AY 2009-10. 3. Ld. CIT(A) has erred in upholding the business expenditure which are as per Audited profit and Loss Account for the relevant assessment year to the extent of Rs.18,11,296.” ITA No. 1734/Del/2019, A.Y. 2011-12 “1. Ld. CIT(A) has erred in upholding the additions of Rs.9,41,013/- made on account of salary received during the relevant assessment year. 2. Ld. CIT(A) has erred in upholding the additions of amount credited in the bank account to the extent of Rs.15,00,000/- during assessment year 2011-12. 3. Ld. CIT(A) has erred in upholding the additions of business expenditure in nature of direct and indirect which are as per Audited Profit and Loss Account in the relevant assessment year amounting Rs.8,41,586/-.” 4. Facts of these cases giving rise to these appeals are that the appellant/assessee, Director of D-Art Furniture System Pvt. Ltd. was searched on 19.10.2010 under section 132 of the Income Tax Act, 1961 ITA No.7134 & 7135/Del/2019 3 (hereinafter, the ‘Act’) along with Suppliers of Common Wealth Games Group Cases searched together by the Income Tax Department. Thereafter, the notices under section 153A of the Act were issued for the relevant years on 24.11.2011. The appellant/assessee filed his Income Tax Returns (hereinafter, the ‘ITR’) declaring income of Rs.8,79,896/- and Rs.23,65,680/- for AYs. 2010-11 and 2011-12 respectively. 5. In AY 2010-11; the Assessing Officer (hereinafter, the ‘AO’) held that the appellant/assessee, Director of D-Art Furniture system Pvt. Ltd. could not be held as an employee of D-Art Furniture system Pvt. Ltd. as he had full control over D-Art Furniture system Pvt. Ltd. as promoter. Placing reliance on the decision of the Hon’ble Supreme Court in the case of Ram Prasad 86 ITR 122, the AO held that there was no employee-employer relationship; hence, the salary income shown in the ITR was assessed as income from other sources.Consequently, the claim of deduction/exemption of conveyance allowances of Rs.9,600/- and HRA of Rs.24,000/- was disallowed and charged to tax. Further, the AO held bank deposits of Rs.28,50,025/- as unexplained and taxed the same accordingly. Further, the AO disallowed 50% of business expenditure (Trading and P & L Account) of the proprietary concern; D- Art Furniture System on the reasoning that the appellant/assessee had failed to file any evidence in support of the expenses. The relevant part of the assessment order is reproduced herein under: ITA No.7134 & 7135/Del/2019 4 “8.3 The assessee has shown the sale in the D-Art Furniture System amounting Rs.1,83,86,266/- and the assessee was required to file the Audit report under section 44AB on the prescribed form but the same has not been filed. In the absence of any audit report, the penalty proceedings under section 271B are initiated separately. 8.4 In the proprietary concern i.e. D-Art Furniture Systems the assessee has debited in the trading account a sum of Rs.2,69,890 on account of freight & forwarding charges, Rs.2,26,160/- on account of fitting and repair charges, Rs. 1,67,090/- on account of loading and unloading expenses, Rs.8,69,918/- on account of installation charges and Rs.2,00,193/- on account of consumable store. Neither any details nor any evidence in support of the expenses debited in the trading account has been produced for verification. In the absence of the same, the book results cannot be accepted and the expense debited to the extent of 50% i.e. Rs. 8,66,626/- are disallowed and the trading results are recomputed. By this the gross profit will rise to the extent of 8,66,626/- underthe proviso of I.T.Act, 1961 and the G.P. will comes to Rs. 36,45,006/-. In the profit and loss account the assessee has debited expense to the extent of Rs. 19,21,342/-. The assessee has not produced the evidence in support of the revenue expenditure. Expenditure is what is “paid out” or “away” and is something which is gone irretrievably as decided in the case of Indian Molasses Co (P) Ltd. v. CIT 37 ITR (SC). In the absence of any evidence, the expenses to the extent of 50% i.e. 9,60,671/- are disallowed which comes to G.P. as discussed above Rs. 36,45,006/- under the proviso of I.T.Act, 1961. Computation of Net Profit during the year as under: Gross Profit: Rs. 36,45,006/- Less: Expenses as discussed above Rs. 9,60,671/- Net profit from business Rs. 26,84,335/- (Addition: 18,11,296/-)” Besides the above, certain other additions were also made by the AO. ITA No.7134 & 7135/Del/2019 5 5.1 In appeal of AY 2010-11, the Ld. CIT(A) upheld the finding of the AO assessing salary income shown in the ITR as income from other sources and consequential disallowance of conveyance allowance & Housing Rent Allowance (HRA). The Ld. CIT(A) also upheld the addition of Rs.7,00,000/- out of bank deposits of Rs.28,50,025/-The disallowance of business expenditure of Rs.18,11,296/- was upheld by the Ld. CIT(A) on the reasoning that the appellant/assessee failed to produce not only the bill & voucher of these expenses but also failed to establish genuineness of such expenditure. Besides, all-other additions/disallowances made by the AO were knocked off by the Ld. CIT(A). 5.2 The assessment of (i) salary income under the head income from other sources and consequential disallowance of conveyance allowance & HRA, (ii) unexplained bank deposit of Rs.7,00,000/- and (iii) disallowance of business expenditure of Rs.18,11,296/- are in dispute in AY 2010-11. 6. In AY 2011-12, the appellant/assessee had shown aggregate salary of Rs.22,08,987/- received from D-Art Furniture System Pvt. Ltd. and ESAJV D-Art Indo India Pvt. Ltd. The details furnished by the appellant/assessee revealed that he had received salary for 12 months ITA No.7134 & 7135/Del/2019 6 from D-Art Furniture System Pvt. Ltd. @ Rs. 10,000/- per month from April to July and thereafter @ Rs.1,50,000/- per month. However, the AO worked out salary @ Rs.1,50,000/- per monthfor 12 months from D- Art Furniture System Pvt. Ltd. because the appellant/assessee had received salary of Rs.1,50,000/- in the month of April and thereafter in Nov. (Rs.1,50,000/-), Dec. (Rs.3,00,000/-) and March (Rs.6,00,000/-). The AO, inferring the employment for 12 months, worked out salary on accrual basis for 12 months at Rs.18,00,000/- and assessed the same under the head income from other sources on the reasoning that there was no employee-employer relationship based on the finding mentioned above in para 4 for AY 2010-11. Further, salary of Rs.13,50,000/- received from ESAJV D-Art Indo India Pvt. Ltd. had been also treated as income from other sources. Accordingly, income of Rs.31,50,000/- (Rs.22,08,987/- shown in the ITR + accrued salary of Rs.9,41,013/-) was taxed in AY 2011-12 under the head income from other sources. The AO also held bank deposits of Rs.40,64,626/- unexplained and taxed it accordingly. Further, the AO disallowed 50% of business expenditure debited in Trading and P & L Account on the reasoning that the appellant/assessee failed to produce any evidence thereof. Besides the above in para-5, certain other additions were also made. ITA No.7134 & 7135/Del/2019 7 6.1 In appeal of AY 2011-12, the Ld. CIT(A) upheld the finding of the AO assessing salary shown in the ITR under the head income from other sources and also the addition of salary of Rs.9,41,013/- on accrual basis. The Ld. CIT(A) also upheld the addition of Rs.15,00,000/- out of bank deposits of Rs.40,64,626/- taxed as unexplained deposits on the reasoning that the appellant/assessee failed to explain the same. The disallowance of business expenditure of Rs.8,41,586/- was upheld by the Ld. CIT(A) on the reasoning that the appellant/assessee failed to produce not only the bill & voucher of these expenses but also failed to establish genuineness of such expenditure. Besides, all-other additions /disallowances made by the AO were knocked off by the Ld. CIT(A). 6.2 The assessment of (i) salary income of Rs.31,50,000/- (Rs.22,08,987/- shown in the ITR + accrued salary of Rs.9,41,013/-) under the head income from other sources, (ii) unexplained bank deposit of Rs.15,00,000/- and (iii) disallowance of business expenditure of Rs.8,41,586/- are in dispute in AY 2010-11. 7. The Ld. Authorized Representative (hereinafter, the ‘AR’) submitted that neither the Ld. CIT(A) nor the AO had brought any material on the record before inferring that there was no employee and employer relationship between the appellant/assessee and D-Art Furniture System Pvt. Ltd. & ESAJV D-Art Indo India Pvt. Ltd. The Ld. ITA No.7134 & 7135/Del/2019 8 AR submitted that the appellant/assessee had 13.8% shares of D-Art Furniture System Pvt. Ltd. It was further contended that the salary received by the Director of any company had to be assessed under the head salary income and not under the head income from other sources. In support of the arguments, the Ld. AR placed reliance on the decision of Hon’ble Delhi High Court in the case of UK Bose in ITA No. 258-2010 order dated 30th November, 2012. The Ld. AR distinguished the case laws, relied upon by the AO, on facts. Further, the Ld. AR submitted that the deduction/exemption with respect to conveyance allowance and HRA had to be allowed as per law. 8. As far as the bank deposit of Rs.7,00,000/- in AY 2010-11 was concerned, the Ld. AR submitted that this bank deposit was nothing but the deposit of the sale consideration received on sale of 2nd floor of one of the properties. To substantiatethe claim, the Ld. AR drew our attention to the sale deed dated 29.04.2009 and contended that the credit of Rs.7,00,000/- in the bank account on 02.05.2009 was from the same cheque which found mentioned in the sale deed dated 29.04.2009. Hence, the Ld. AR submitted that the source of the bank deposit of Rs.7,00,000/- got explained and thus, prayed for consequential relief. 8.1 As far as the bank deposit of Rs.15,00,000/- in AY 2011-12 was concerned, the Ld. AR submitted that the loan of Rs.7,50,000/- each ITA No.7134 & 7135/Del/2019 9 was taken from Shri Radhey Intermediaries Pvt. Ltd. and Kanha Enterprises Pvt. Ltd. which were refunded in subsequent years. The Ld. AR further contended that the AO did not provide proper opportunity of being heard before making the addition of Rs.15,00,000/-. Thus, it was against the principle of natural justice and hence, prayed for relief on this score. 9. For disallowances of business expenditure of Rs.18,11,296/- and Rs.8,41,586/- of AY 2010-11 and 2011-12, the Ld. AR submitted that these expenditures were genuine and paid through banking channels whereas the AO made disallowances without providing any opportunity of being heard and rejecting the book results, which was against the principle of natural justice. In support of the claim, the Ld. AR submitted copy of the office note where in the AO had admitted that the books of account of the assessee were called for and verified for on test check basis. In such circumstances the disallowances were not justified and hence, prayed for relief on this score. 10. The Ld. CIT-DR with the help of facts mentioned in the assessment order and appellate order submitted that reasonable opportunities of being heard were provided to the appellant/assessee by the AO and Ld. CIT(A) but the appellant/assessee tactfully ensured non- compliance. Reiterating the finding of the Ld. CIT(A), he prayed for ITA No.7134 & 7135/Del/2019 10 upholding of orders of the lower authorities. Our attention was drawn to the fact that the Ld. AR did not bring any material on the record to explain the creditworthiness of Shri Radhey Intermediaries Pvt. Ltd. and Kanha Enterprises Pvt. Ltd. From whom loans aggregating to Rs.15,00,000/- was received in AY 2011-12. It was argued that the subsequent repayment of the said loans did not explain loans in the relevant year. The Ld. AR further contended that the Ld. AR had failed to explain the genuineness of loans aggregating to Rs.15,00,000/- received in AY 2011-12. It was also contended that the AO did not provide proper opportunity of being heard before making the addition of Rs.15,00,000/-. Thus, it was against the principle of natural justice and hence, prayed for relief on this score. Further, the Ld. CIT-DR submitted that the appellant/assessee had not produced any primary document; such as bills & vouchers of business expenditure before the AO and Ld. CIT(A). He drew our attention to the fact that the Paper-Book submitted by the Ld. AR also did not contain bills & vouchers of business expenditure. 11. We have heard the rival contentions and have perused the material available on record. The first issue is the assessment of salary under the head income from other sources. The action of the Ld. AO to assess salary under the head income from other sources results some ITA No.7134 & 7135/Del/2019 11 disallowance; viz, standard deduction, value of perquisite, disallowance of HRA, conveyance allowances, etc. Even after the search, under section 132 of the Act, on the appellant/assessee, the AO has not referred any adverse material in support of his finding that there was no employee-employer relationship between the appellant/assessee and D- Art Furniture System Pvt. Ltd. &ESAJV D-Art Indo India Pvt. Ltd. The AO has not specified any reason for assessing salary received from ESAJV D-Art Indo India Pvt. Ltd. under the head income from other sources. In ESAJV D-Art Indo India Pvt. Ltd. It is worth mentioning that the appellant/assessee is not a major share-holder of ESAJV D-Art Indo India Pvt. Ltd. We are also surprised to note that the AO, who had assessed the salary @ Rs.10,000/- per month in AY 2010-11, has not accepted the salary @ Rs.10,000/- per month in April to July, 2011 ignoring the appellant/assessee’s submission in this regard. The assumption of salary @ Rs.1,50,000/- per month in AY 2011-12 by the AO is not corroborated by any evidence; hence, we are of the considered view that the AO is not justified in assessing salary @ Rs.1,50,000/- per month in AY 2011-12. It is very surprising to note that the AO has worked out salary on accrual basis in AY 2011-12 and has assessed the same under the head income from other sources as both cannot go together. Such inference in absence of any corroboratory evidence is not justified. ITA No.7134 & 7135/Del/2019 12 12. The revenue implication of assessing salary under the head income from other sources is very minimal than that of the litigation cost. Admittedly, the company is a juristic person and it is governed by the board of directors and is altogether an independent entity other than the directors. The appellant/assessee had 13.8% shares of D-Art Furniture System Pvt. Ltd. and supervises sales only. He received fixed remuneration for that. The said remuneration is not linked with the profit of D-Art Furniture System Pvt. Ltd. The director involved certain kind of responsibility to be carried out in terms of his appointment whether specified or not. The Board of Directors has a right to appoint. It has right to determine the nature of the duties to be performed by the whole-time directors. It has right to determine the salary to be paid. Therefore, the company could be an employer while appointing one of its directors as whole-time director on a particular remuneration and prescribing the terms and conditions of his appointment.In common parlance, the whole-time director may not be an employee but even then the character of the receipt or remuneration having come within the definition of salary under section 17(1)(iv) being a fee or remuneration by whatever name it is called and not being excluded by the Explanation 2 to section 15. The appellant/assessee had a dual capacity. He was entrusted to manage the business. The appointment was of employment and not for employment. Therefore, ITA No.7134 & 7135/Del/2019 13 having regard to the material placed before us, we are of the considered view that the appellant/assessee’s receipt is assessable under the head 'Salary'. Therefore, the remuneration received by the appellant/ assessee have to be assessed income under the head 'Salary' and not as income from other sources.Accordingly, we order so for both years. The AO is further directed to allow deduction of conveyance allowance and HRA, as per the law, in AY 2010-11. 13. In view of the foregoing discussions and in absence of any corroboratory evidence, we are of the considered view that there is no rationale and justification for addition of Rs.9,41,013/- in AY 2011-12 under the head income from other sources. Accordingly, we delete the addition of Rs.9,41,013/-made in AY 2011-12. 14. The next issue is the bank deposit of Rs.7,00,000/- in AY 2010- 11. We find merit in the Ld. AR submission that this bank deposit was nothing but the deposit of the sale consideration received on sale of 2nd floor of one of the properties as the cheque from which the sale consideration received is found mentioned in the sale deed dated 29.04.2009 and also in the bank passbook. The Ld. CIT-DR was not able to contradict the argument of the Ld. AR with the help of any evidence. We, therefore, are of the considered view that the bank deposit ITA No.7134 & 7135/Del/2019 14 of Rs.7,00,000/- in AY 2010-11 is explained and thus, the same is deleted. 15. The next issue is the bank deposit of Rs.15,00,000/- in AY 2011- 12. We find merit in the Ld. CIT-DR’s submission that the Ld. AR had failed to explain the creditworthiness and genuineness of loans of Rs.15,00,000/- received from Shri Radhey Intermediaries Pvt. Ltd. and Kanha Enterprises Pvt. Ltd. in AY 2011-12. This issue was neither properly dealt by the AO nor by the CIT(A). Therefore, in totality of facts & circumstances of the case as discussed above and in the interest of justice, we are of the considered view that this issue requires restoration back to the AO for deciding it afresh. Accordingly, we order so. The appellant/assessee is also directed to cooperate and furnish all the details, documents, etc., to explain loans of Rs.15,00,000/- in AY 2011- 12, before the AO. 16. The disallowance of business expenditure was upheld in both years by the CIT(A) on the reasoning that the appellant/assessee had failed to produce not only the bills & vouchers of these expenditures but also failed to establish genuineness such expenditures. We find merit in the Ld. CIT-DR’s submission that the Ld. AR had not brought any material on the record to contradict the finding of the CIT(A). We have perused the Paper Book and find that it contains only the ledger ITA No.7134 & 7135/Del/2019 15 accounts of various heads of business expenditures. The office note of the assessment order also says so. The Ld. AR had not brought any material to contradict the finding of the lower authorities. Therefore, in totality of facts & circumstances of the cases as discussed above and in the interest of justice, we are of the considered view that this issue for both years requires restoration back to the AO for deciding it afresh. Accordingly, we order so. The appellant/assessee is also directed to cooperate and furnish all the details, documents, etc. to substantiate his claim before the AO. 17. In the result, the assessee’s appeals for both years are partly allowed as above. Order pronounced in open Court on 28th November, 2024. Sd/- Sd/- (SAKTIJIT DEY) (AVDHESH KUMAR MISHRA) VICE PRESIDENT ACCOUNTANT MEMBER Dated:28th/11/2024 Binita, Sr. PS Copy forwarded to: 1. Appellant 2. Respondent 3. PCIT 4. CIT(Appeals) 5. CIT-DR ASSISTANT REGISTRAR ITAT, NEW DELHI "