Mr. P.Parameswaran, Coimbatore v. ITO, Coimbatore

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH D CHENNAI (BEFORE DR. O.K. NARAYANAN VICE PRESIDENT AND SHRI HARI OM MARATHA JUDICIAL MEMBER) .. I.T.A. NO. 1428/MDS/2010 ASSESSMENT YEAR : 2007-08 SHRI P. PARAMESWARAN PROPRIETOR NEW WELCOME TRAVELS NO.692 RAJA STREET COIMBATORE 641 001. PAN : AEFPP6093K (APPELLANT) V. THE INCOME TAX OFFICER WARD III(4) RACE COURSE COIMBATORE 641 018. (RESPONDENT) APPELLANT BY : SHRI R. MAHADEVAN RESPONDENT BY : SHRI K.E.B. RENGARAJAN JUNIOR STANDING COUNSEL O R D E R PER HARI OM MARATHA JUDICIAL MEMBER : THIS APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 20 07-08 IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I COIMBATORE DATED 29.06.2010. 2. THE ASSESSEE AS AN INDIVIDUAL HAS FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 ON 24.08.2007 DECLARING TOTAL INCOME I.T.A. NO. 1428/MDS/10 2 OF ` 3 31 860/-. THE FOLLOWING CHART EXPLAINS THE POSI TION OF ADDITIONS MADE BY THE A.O. AND RELIEF IF ANY GRANTED BY THE CIT(APPEALS):- NATURE OF EXPENSES CLAIMED AMOUNT CLAIMED DISALLOWANCE BY ASSESSING OFFICER ALLOWED BY CIT(APPEALS) 1. SALARY PAYMENT ` 6 40 000 ` 4 32 000 NIL 2. STAFF WELFARE EXPENSES ` 1 90 000 ` 1 16 664 NIL 3. TRAVEL EXPENSES ` 2 96 500 ` 87 000 NIL INCREASE IN CAPITAL (GIFTED BY FATHER MR. PASUPATHY) ` 4 73 132 ` 4 73 132 ` 1 00 000 WHILE THE ASSESSING OFFICER ADDED A SUM OF ` 4 73 132/- THE CIT(APPEALS) ALLOWED ` 1 00 000 AND CONFIRMED THE BALANCE ADDITION OF ` 3 73 132/-. 3. NOW THE ASSESSEE IS IN APPEAL BEFORE US AND HAD CHALLENGED THE SUSTAINED ADDITIONS. THE GROUNDS RAISED ARE AS UNDER:- 1. THE APPELLATE ORDER PASSED BY THE LEARNED COMMISSI ONER OF INCOME-TAX (APPEALS) FOR THE ASSESSMENT YEAR 2007-08 CONFIRMING THE ADDITION MAD E TO THE TOTAL INCOME BY THE ASSESSING OFFICER AMOUNTING TO RS. 10 08 796/- IS O PPOSED TO FACTS AND CIRCUMSTANCES OF THE CASE PRINCIPLES OF JUSTICE AND ALSO OPPOSED TO THE PRINCIPLES OF LAW ESTABLISHED. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S) FAILED TO ACT JUDICIOUSLY BY REJECTING THE BONAFIDE EXPLANATION AND ACTUAL FACTS PUT FORTH BY THE APPELLANT IN SUPPORT OF THE CORRECTNESS AND REASONABLENESS OF THE CLAIM UNDER T HE HEADS 'SALARY' 'STAFF WELFARE' 'TRAVELLING'. HE ALSO REJECTED THE REASONABLE EXPLA NATION IN REGARD TO THE SOURCE FOR THE AMOUNT BROUGHT IN AS ADDITIONAL CAPITAL IN THE YEAR OF ACCOUNT. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IS NOT JUSTIFIED CONFIRMING TH E ABOVE ADDITIONS .THE APPELLANT SUBMITS IN THIS CONTEXT THAT PRINCIPLES OF NATURAL JUSTICE HAS BEEN DENIED AS A RESULT OF THE FAILURE TO CONSIDER THE WRITTEN SUBMISSIONS MADE BEFORE THE AS SESSING OFFICER ON 23.12.2009 WHICH WAS MUCH BEFORE THE COMPLETION OF THE ASSESSMENT PR OCEEDINGS UNDER SECTION 143 (3). I.T.A. NO. 1428/MDS/10 3 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OU GHT TO HAVE TAKEN INTO CONSIDERATION SYMPATHETICALLY THE FACTS AND EVIDENCES BROUGHT NOT ICE IN THE LETTER FILED BEFORE HIM BEFORE COMPLETION OF ASSESSMENT. 3. IN THE APPELLATE ORDER THE LEARNED COMMISSIONER O F INCOME-TAX CONSIDERED THE FACT THE INSPECTION CONDUCTED BY THE ASSESSING OFFICER BY EN TERING THE APPELLANT'S BUSINESS PREMISES AND ALSO DEALS WITH GATHERING INFORMATION REGARDING THE APPELLANT'S BUSINESS WITH THE POWERS CONFERRED UPON THE OFFICER UNDER SECTION 133A. THE LEARNED COMMISSIONER ALSO DEALS WITH THE FACT OF FAILURE ON THE PART OF THE A PPELLANT TO MAKE APPEARANCES AT THE INITIAL STAGES OF HEARING AND ALSO THE INABILITY TO FURNISH THE DETAILS AT THE TIME OF SURVEY. AT THE SAME TIME IT IS SUBMITTED THAT THE LEARNED COMMISS IONER OF INCOME-TAX (APPEALS) FAILED TO EITHER DEAL WITH THE APPELLANT'S VALID EXPLANATION NOR HAD HE CONSIDERED THE GENUINE AND REASONABLE EXPLANATION GIVEN BY THE APPELLANT REGAR DING THE DIFFICULTIES AND HELPLESSNESS WHICH LEAD TO SUCH INABILITY AND THE FAILURE WAS NO T WANTON. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) FAILED TO CONSIDER THE FACT TH AT IMMEDIATELY AFTERWARDS THE APPELLANT TOOK EARNEST STEPS TO MEET THE REQUIREMENT OF THE A SSESSING OFFICER BY FURNISHING FULL DETAILS AND OTHER EVIDENCES RELEVANT TO THE ASSESSM ENT PROCEEDINGS. THE LEARNED COMMISSIONER OF INCOME-TAX THEREFORE FAILED TO CONS IDER AS TO HOW IN THE ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) THE ASSESSING OFF ICER FAILED TO AFFORD A REASONABLE OPPORTUNITY TO THE APPELLANT WITH REFERENCE THE DET AILS AND EVIDENCE PRODUCED ON 23.12.2009. THE LEGITIMATE AND A REASONABLE OPPORTU NITY HAVING BEEN DENIED BEFORE RESORTING TO THE HUGE ADDITIONS TO THE TOTAL INCOME ' THE APPELLANT SUBMITS THAT THERE WAS A FAILURE TO HOLD PRINCIPLES OF NATURAL JUSTICE IN TH E APPELLANT'S CASE AND THE LEARNED COMMISSIONER OF INCOME-TAX OUGHT NOT TO HAVE CONFIR MED THE ADDITIONS TO THE TOTAL INCOME MADE BY THE ASSESSING OFFICER. 4. THE LEARNED COMMISSIONER HAS ERRED IN DRAWING ADVE RSE CONCLUSIONS MERELY ON THE BASIS OF THE FAILURE TO SUBMIT THE REQUIRED DETAILS DURIN G THE COURSE OF 133A OPERATION AND AT THE TIME OF INITIAL HEARING. BUT AT THE.SAME TIME THE LEARNED COMMISSIONER NEITHER CONSIDERED THE GENUINE DIFFICULTIES OF THE APPELLANT IN THIS R EGARD NOR DID HE CONSIDER THE FACT OF THE ASSESSING OFFICER'S FAILURE TO CONSIDER THE DETAILS AND EVIDENCES AND EXPLANATION WHICH I.T.A. NO. 1428/MDS/10 4 WERE PLACED BEFORE THE ASSESSING OFFICER BEFORE THE COMPLETION OF ASSESSMENT PROCEEDINGS. THE LEARNED C.I.T.(A) HAS FAILED TO AP PRECIATE THAT THIS FAILURE ON THE PART OF THE ASSESSING OFFICER HAS RESULTED IN MAKING HUGE A DDITIONS AND RAISING TAX DEMANDS BEYOND THE PAYING CAPACITY OF THE APPELLANT. 5. THE LEARNED C.I.T.(A) FAILED TO CONSIDER THE FACT THAT THE PROVISIONS UNDER SECTION 133A ONLY EMPOWERS THE ASSESSING OFFICER TO GATHER INFORMATIO N RELEVANT TO THE APPELLANT'S BUSINESS TRANSACTIONS. BUT THE HE OUGHT TO HAVE TAKEN INTO CONSIDERATION THAT ASSESSMENT PROCEEDINGS ARE QUASI-JUDICIAL AND HENCE BEFORE PAS SING THE ASSESSMENT ORDER ALL RELEVANT INFORMATION DETAILS AND EVIDENCES BROUGHT BEFORE T HE ASSESSMENT STAGE OUGHT TO HAVE BEEN CONSIDERED AND DEALT WITH IN THE ASSESSMENT OR DER. THE LEARNED C.I.T(A)FAILED TO APPRECIATE THAT ANY STATEMENT RECORDED IN THE COURS E OF SURVEY FROM THE APPELLANT WHICH WAS MADE ON ACCOUNT OF TENSION AND WITHOUT KNOWLEDG E OF ACCOUNTS AND IN A STATE OF CONFUSED MIND IS NOT LEGALLY BINDING AND SUCH STATE MENTS CANNOT BE USED AS EVIDENCES AGAINST THE APPELLANT. 6. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) BE FORE CONFIRMING THE ADDITIONS FAILED TO TAKE INTO CONSIDERATION THAT THE APPELLANT CARRIES ON BUSINESS AS A TRAVEL AGENT AND CONSIDERING THE NATURE OF INCOME AND EXTENT OF BUSI NESS FEE OR COMMISSION EARNED ON THE SERVICES RENDERED AND HE OUGHT TO HAVE FOUND THAT THE CLAIM OF EXPENDITURE UNDER ALL HEADS ARE NOT EXCESSIVE AND THEY WERE WHOLLY NECESSARILY AND EXCLUSIVELY INCURRED FOR EARNING THE INCOME AND THERE WAS NO WARRANT TO DISALLOW ANY POR TION AS NOT RELATING TO BUSINESS AND THAT THE APPELLANT HAD NO GENUINE INTENTION TO INFLATE A NY ITEM OF EXPENDITURE TO REDUCE HIS TOTAL INCOME. 7. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) I S NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE UNDER THE HEAD 'SALARY' TO THE EXTENT OF RS.4 32 OOO REJECTING THE PLEA THAT THE APPELLANT HAD EMPLOYED EIGHT EMPLOYEES ATTENDIN G DIFFERENT FUNCTIONS ASSIGNED TO THE AND THE C.IT{A) HAD TO EMPLOY THE REQUIRED PERSONNE L IN ORDER TO MEET THE REQUIREMENT OF LATA SINCE IT WAS NECESSARY FOR THE APPELLANT TO G ET THE APPROVAL OF LATA TO DO BUSINESS. THE LEARNED C I T (A) FAILED TO CONSIDER THE FACT T HAT NECESSARY EVIDENCE IN THE FORM OF I.T.A. NO. 1428/MDS/10 5 SALARY REGISTER HAD BEEN PRODUCED BEFORE THE ASSESS ING OFFICER. WITHOUT PERUSAL OF THE EVIDENCE AND WITHOUT ACCEPTING THE VALID EXPLANATIO N IT IS SUBMITTED THAT THE ADDITION MADE AND CONFIRMED UNDER THE HEAD SALARY IS NOT JUSTIFI ED. 8. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) H AS NOT ACTED REASONABLY IN JUSTIFYING THE ADDITION OF DISALLOWANCE OF RS. 1 16 664/- UNDE R THE HEAD 'STAFF WELFARE'. HE FAILED TO NOTE THAT THE TRAVEL AGENCY OFFICE HAD TO FUNCTION CONTINUOUSLY FOR 12 HOURS AND TRAINED AND SINCERE STAFF ARE TO FUNCTION FOR THE COURTEOUS SER VICE AND RECEPTION OF THE CUSTOMERS. THE ASSESSING OFFICER HAS BRUSHED ASIDE THE BREAK UP DE TAILS AND EXPLANATION REGARDING THE EXPENDITURE UNDER THIS HEAD. THE CLAIM OF EXPENDITU RE UNDER THIS HEAD WAS GENUINE AND WAS INCURRED FOR THE BUSINESS PURPOSES. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONCLUDING THAT THE ASSESSIN G OFFICER HAS REASONABLY AND ADEQUATELY ALLOWED EXPENSES AND THAT ANY FURTHER RELIEF WOULD BE EXCESSIVE. THIS CONCLUSION IS CONTRARY TO THE FACTS. 9. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) H AS FAILED TO APPRECIATE THE FACT THAT IN THE NATURE AND MANNER OF BUSINESS OF A TRAVEL AGENC Y THE CLAIM UNDER THE HEAD 'TRAVELLING' MADE BY THE APPELLANT WAS WHOLLY AND E XCLUSIVELY NECESSARY FOR EARNING THE INCOME. THE LEARNED ASSESSING OFFICER FAILED TO CON SIDER THE DETAILS AND EXPLANATIONS OFFERED AND THE BREAK UP FOR THE CLAIM. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONCLUDING THAT THE ASSESSING OFFICER HAS CONSIDERED THE CLAIM REASONABLY AND ANY FURTHER ALLOWANCE IS UNWARRANTED. THE ENTIRE CL AIM IS SUPPORTED AND HAS BEEN INCURRED. HENCE THERE IS NO JUSTIFICATION FOR DISALLOWANCE OF RS. 87 000 UNDER THIS HEAD. 10. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) H AS ERRED IN UPHOLDING THE ADDITION OF RS. 3 73 132/- ON THE GROUND THAT TO THIS EXTENT TH E SOURCE FOR THE ADDITIONAL CAPITAL BROUGHT INTO BY THE APPELLANT WAS UNEXPLAINED. THIS CONCLUS ION IS CONTRARY TO FACTS. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) FAILED TO APPR ECIATE THE FACT THAT IT WAS NECESSARY FOR THE APPELLANT TO INCREASE HIS CAPITAL IN ORDER TO M EET THE REQUIREMENT OF LATA. THE AMOUNT REQUIRED BY THE APPELLANT FOR THE ADDITIONAL CAPITA L HAS BEEN GIFTED TO THE APPELLANT BY THE I.T.A. NO. 1428/MDS/10 6 APPELLANT'S FATHER. THE LEARNED COMMISSIONER OF INC OME-TAX (APPEALS) OUGHT TO HAVE APPRECIATED THE FACT THAT THE APPELLANT'S FATHER HA D ENOUGH RESOURCES SO AS TO BE CAPABLE OF GIVING THE AMOUNT. HE OUGHT NOT TO HAVE REJECTED TH E CONTENTION THAT THE APPELLANT'S FATHER WAS PREVIOUSLY ASSESSED ON RENTAL INCOME AND HAD SU FFICIENT TAXABLE INCOME IN THE PREVIOUS YEARS AND HAD SUBMITTED RETURNS OF INCOME TO THE DE PARTMENT. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ALSO FAILED TO APPRECIATE T HAT THE APPELLANT'S FATHER HAS SPECIFICALLY CONFIRMED HAVING MADE THIS GIFT. WITHOUT ESTABLISHI NG AS TO HOW THE SOURCE FOR THE CAPITAL HAS BEEN TREATED AS UNEXPLAINED THERE WAS NO JUSTI FICATION TO SIMPLY DISMISS THE VALID EXPLANATION AND THERE WAS NO JUSTIFICATION TO TREAT ONLY RS.1 OO OOO/- AS AMOUNT REASONABLY ATTRIBUTABLE TO THE GIFT AND BALANCE IS TO BE TREATED AS UNEXPLAINED. THIS CONCLUSION OF THE LEARNED C I T (APPEALS) DOES NOT APPEAR TO BE BASED ON THE EVIDENCES. FURTHER THE CONCLUSION IS UNJUSTIFIED AND CONTRARY TO FACTS. 11. FOR THESE AND ANY OTHER GROUNDS THAT MAY BE ADDUCE D AT THE TIME OF HEARING OF THE APPEAL IT IS PRAYED THAT THE ADDITION OF RS. 11 08 794/- CONFIRMED BY THE COMMISSIONER OF IN COME TAX (APPEALS) FOR THE ASSESSMENT YEAR 2007-08 BE FU LLY DELETED AND JUSTICE RENDERED. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND HAVE CAREFUL LY PERUSED THE ENTIRE RECORDS AVAILABLE BEFORE US. IT IS NOTI CED THAT THE ASSESSEE IS DOING BUSINESS IN TRAVEL AGENCY AND EARNS INCOME FROM COMMISSION. AS PER THE ASSESSEE TOTAL GROSS RECEI PTS IN THIS YEAR FROM COMMISSION ARE ` 24 70 350/-. FOR EARNING THIS INCOME THE ASSESSEE HAS CLAIMED VARIOUS DEDUCTIONS/ALLOWANCES WHICH HAVE NOT AT ALL BEEN ALLOWED BY THE A.O. THE LD. CIT(APPEAL S) HAS GIVEN A PART RELIEF FROM OUT OF ADDITION MADE ON ACCOUNT OF INCR EASE IN CAPITAL AS IS EVIDENT FROM THE ABOVE EXTRACTED CHART. IT IS S EEN THAT IN TRAVEL I.T.A. NO. 1428/MDS/10 7 AGENCY BUSINESS THE ASSESSEE HAS TO FACILITATE ITS CLIENTS IN AIR TRAVEL AND TRAIN TRAVEL TICKETS. THE INCOME EARNED IS FRO M COMMISSION ON SALE OF TICKETS AND TO RUN A TRAVEL AGENCY THE ASS ESSEE HAS TO GIVE BANK GUARANTEE TO AIRLINES FOR OBTAINING PRE-PRINTE D TICKETS AT PRE-FIXED VALUE. ON THE TOTAL SALES THE ASSESSEE RECEIVES A COMMISSION ON A FIXED PERCENTAGE. THE ASSESSEE HAS BEEN MAINTAININ G BANK ACCOUNTS WHICH DISCLOSES TOTAL RECEIPTS AND PAYMENT S. THE RELEVANT DOCUMENTS INCLUDING REGULAR ACCOUNTS MAINTAINED BY THE ASSESSEE FOR COMPUTING TOTAL INCOME WERE EXAMINED BY THE A.O . AND BANK ACCOUNTS WERE FOUND TO BE PROPERLY MAINTAINED BY T HE A.O. IT WAS STATED BY THE LEARNED A.R. THAT PROPER MAINTENANCE OF BOOKS OF ACCOUNTS WAS NOT DONE BECAUSE THE ACCOUNTANT WHO W AS ENTRUSTED WITH THIS WORK COULD NOT BE SUPPLIED WITH REQUIRED DOCUMENTS AS THE ASSESSEE WAS BUSY IN HIS BUSINESS AND THE ASSESSEE WAS NOT CONVERSANT WITH INCOME TAX PROCEEDINGS. WHEN THE OFFICE OF THE ASSESSEE WAS INSPECTED BY THE DEPARTMENT THE ACCOU NTS WERE NOT FOUND TO BE COMPLETE. THEREAFTER THE ASSESSEE APPO INTED A NEW CHARTERED ACCOUNTANT AND PREPARED ALL RELEVANT DETA ILS AND PRODUCED THE SAME BEFORE THE ASSESSING OFFICER THROUGH A DE TAILED LETTER DATED 23.12.2009. THE LD. CIT(APPEALS) HAS DECIDED THE C ASE ONLY I.T.A. NO. 1428/MDS/10 8 BECAUSE THE ASSESSEE COULD NOT PROVIDE SUFFICIENT E VIDENCES AT THE EARLIEST OPPORTUNITY. IT HAS BEEN PLEADED THROUGH GROUNDS OF APPEAL THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE MATTER NEEDS TO BE EXAMINED BY THE A.O. WE ARE ALSO OF TH E SAME OPINION. THEREFORE AFTER SETTING ASIDE THE APPELLATE ORDER WE RESTORE THE MATTER TO THE FILE OF THE A.O. WITH A DIRECTION THA T HE SHALL EXAMINE ALL THE RECORDS AFRESH AND MAKE A DE NOVO ASSESSMENT OR DER AFTER GIVING AN OPPORTUNITY OF HEARING TO THE ASSESSEE. 5. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. THE ORDER WAS PRONOUNCED IN THE COURT ON 28 TH FEBRUARY 2011. SD/- SD/- (DR. O.K. NARAYANAN) (HARI OM MARATHA) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI DATED THE 28 TH FEBRUARY 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-I COIMBATORE (4) CIT-I COIMBATORE (5) D.R. (6) GUARD FILE