MR. DHIMANT P. DOSHI, MUMBAI v. TJE ITO 13(3)(1), MUMBAI

ITA 397/MUM/2008 | 2004-2005
Pronouncement Date: 14-05-2010 | Result: Partly Allowed

Appeal Details

RSA Number 39719914 RSA 2008
Bench Mumbai
Appeal Number ITA 397/MUM/2008
Duration Of Justice 2 year(s) 3 month(s) 27 day(s)
Appellant MR. DHIMANT P. DOSHI, MUMBAI
Respondent TJE ITO 13(3)(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 14-05-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted K
Tribunal Order Date 14-05-2010
Date Of Final Hearing 06-04-2010
Next Hearing Date 06-04-2010
Assessment Year 2004-2005
Appeal Filed On 17-01-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K MUMBAI BEFORE SHRI A.L. GEHLOT (AM) AND SMT. ASHA VIJAYAR AGHAVAN (JM) ITA NO. 397/MUM/2008 ASSESSMENT YEAR-2004-05 MR. DHIMANT P. DOSHI 512 ANANT DEEP CHAMBERS 273/277 NARSHI NATHA STREET MUMBAI-400 009 PAN-AABPD 4374M VS. THE ITO-13(3)(1) AAYAKAR BHAVAN MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SAMEER G. DALAL RESPONDENT BY: SHRI AMOL KAMAT O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DT. 5.10.2007 PASSED BY THE LD. CIT(A)-XIII MUMBAI FOR THE ASSESSMENT YEAR 2004-05. 2. THE ASSESSEE IS IN THE BUSINESS OF CLEARING FORWAR DING AND ARE SHIPPING AGENTS. FOR THE ASSESSMENT YEAR 2004-05 T HE ASSESSEE FILED THE RETURN OF INCOME DECLARING AN INCOME OF RS. 6 53 62 0/-. THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY. ON PERUSAL OF THE DETAILS FURNISHED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE IS CREDITING ONLY THE COMMISSION TO THE AC COUNT AND THE OTHER PAYMENTS RECEIVED SUCH AS PAYMENTS OF CUSTOM DUTY A ND FOR OTHER INCIDENTAL EXPENSES ON BEHALF OF THE CLIENTS HAVE N OT BEEN CREDITED TO THE PROFIT AND LOSS ACCOUNT. DURING THE COURSE OF ASSES SMENT PROCEEDINGS IN THE CASE OF M/S FATCH INDUSTRIES ASSESSED IN THE CH ARGE OF A.O. FOR A.Y. 2004-05 IT WAS NOTICED BY THE AO THAT THE ASSESSEE IS RECEIVING FULL ITA NO. 397/M/08 2 PAYMENTS IN CONNECTION WITH CUSTOM CLEARING GOODS F ROM CUSTOMERS AND HE GIVES THE RECEIPT FOR THE FULL AMOUNT WHEREAS TH E ASSESSEE HAS SHOWN ONLY AGENCY COMMISSION OF RS.4 000/- .THEREFORE THE ASSESSEE WAS REQUESTED BY AO TO FURNISH THE DETAILS OF GROSS REC EIPT FROM THE CUSTOMERS AND THE DETAILS OF EXPENDITURE INCURRED O N THEIR BEHALF WITH SUPPORTING EVIDENCE. IN RESPONSE TO THIS ASSESSEE HAD FILED THE DETAILS OF THE GROSS RECEIPT AND EXPENDITURE INCURRED WITHOUT ANY SUPPORTING DOCUMENTS. ACCORDING TO THE AO HE OBSERVED THAT THE ASSESSEE HAS RECEIVED GROSS PAYMENT OF RS.74 04 276/- AND CLAIME D TO HAVE INCURRED EXPENSES ON BEHALF OF THE CLIENTS AMOUNTING TO RS.6 7 89 164/- THE ASSESSEE WAS REQUESTED BY THE AO TO PRODUCE THE BOO KS OF ACCOUNTS VOUCHERS AND BILLS TO VERIFY THE GENUINENESS OF THE EXPENSES CLAIMED BY THE ASSESSEE. 3. THE AO HELD AS FOLLOWS: IN SPITE OF REPEATED REMINDERS THE ASSESSEE HAD FAI LED TO PRODUCE THE BOOKS OF ACCOUNT AND OTHER SUPPORTING DOCUMENTS . SINCE THE ASSESSEES ACCOUNT ARE NOT SUBJECT TO AUDIT AND ALS O THE PROFIT AND LOSS ACCOUNT DID NOT DISCLOSE CORRECT PICTURE OF GROSS R ECEIPTS AND EXPENDITURE INCURRED. THE ASSESSEE WAS REQUESTED BY THE AO TO EXPLAIN AS TO WHY THE BOOK RESULT DISCLOSED BY HIM SHOULD NOT BE REJECTED U/S 145(3) OF THE IT ACT AND THE PROFIT SHOULD NOT BE ESTIMATED ON THE BASIS OF THE INFORMATION AVAILABLE IN THE RECORD . 4. IN RESPONSE TO THIS THE ASSESSEE HAS SUBMITTED A REPLY VIDE LETTER DATED 22.12.2006. 5. THE AO ADDED CERTAIN PERCENTAGE OF THE RECEIPTS OBSERVING AS UNDER: I HAVE CONSIDERED THE ASSESSEES SUBMISSION. ON P ERUSAL OF THE DETAILS OF EXPENDITURE INCURRED THE ASSESSEE HA S NOT PRODUCED NOT A SINGLE SUPPORTING EVIDENCE IN SUPPORT OF THE EXPENDITURE OF RS.67 89 164/- AND ALSO NOT FURNISHED THE DETAILS I N RESPECT OF THE EXPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT . IT IS ALSO SEEN THAT HE IS LIABLE TO GET THE ACCOUNT AUDITED U/S 44 AB OF THE IT ACT. IT ITA NO. 397/M/08 3 CANNOT BE ACCEPTED THAT THE ASSESSEE IS NOT LIABLE TO GET HIS ACCOUNTS AUDITED U/S 44AB OF THE I.T. ACT AS THE ASSESSEE RA ISED THE BILL ON HIS CLIENTS FOR THE ENTIRE DUES AND THE SAME HAS BE EN PAID BY THEM AND ALSO ASSESSEE DEBITS CLIENTS ACCOUNT FOR THE E NTIRE BILL AMOUNT AND NOT FOR COMMISSION IN VIEW OF THIS I HAVE NO OTHER ALTERNATIVE BUT TO REJECT THE BOOK RESULT U/S 145(3) OF THE I.T . ACT. ACCORDINGLY THE BOOKS OF ACCOUNTS ARE HEREBY REJECTED. PENALTY PROCEEDINGS U/S 271B OF THE I.T. ACT ARE INITIATED FOR NOT GETTING BOOKS OF ACCOUNTS AUDITED. ON PERUSAL OF THE PROFIT AND LOSS ACCOUNT IT IS SEE N THAT THE ASSESSEE HAS DISCLOSED THE NET PROFIT AT THE RATE O F 14.087%. I AM AWARE THAT THE SAME 14.087% CANNOT BE ADOPTED ON TH E PAYMENTS RECEIVED AS REIMBURSEMENT AS CERTAIN PAYMENTS HAVE BEEN MADE TO GOVERNMENT AGENCIES ON BEHALF OF THE ASSESSEES CLI ENTS. TAKING INTO ALL ABOVE FACTS INTO CONSIDERATION. I ESTIMATE THE NET PROFIT FROM CLEARING AGENTS BUSINESS EXCLUDING INCOME FROM DEP B AND INTEREST ON MONEY MULTIPLIER AT THE RATE OF 5% OF THE GROSS RECEIPT OF RS.74 04 276 X 5% WHICH COMES O RS.3 70 214/-. THIS HAS RESULTED IN A NET ADDITION OF RS. 2 58 797 /- TO THE NET PROFITS ALREADY OFFERED BY THE ASSESSEE. 6. AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFORE TH E LD. CIT(A). THE FIRST APPELLATE AUTHORITY DISMISSED THE APPEAL OF T HE ASSESSEE OBSERVING AS UNDER: 4.2 DURING THE ASSESSMENT PROCEEDINGS THE AO ASKED THE APPELLANT TO PRODUCE BOOKS OF ACCOUNT AND OTHER SUP PORTING DOCUMENTS. THE APPELLANT WAS ASKED TO FURNISH DETA ILS OF EXPENDITURE ALONGWITH SUPPORTING EVIDENCE. THE APPE LLANT WAS ALSO ASKED TO PRODUCE BILLS AND VOUCHERS FOR EXAMINATION . BEFORE THE AO THE APPELLANT CLAIMED THAT BOOKS OF ACCOUNT WERE KE PT BY ACCOUNTANT AND THAT THE ACCOUNTANT HAD INFORMED TH AT ALL THE BOOKS OF ACCOUNTS WERE WASHED AWAY IN THE RAINY SE ASON. AS BOOKS OF ACCOUNT WERE NOT MADE AVAILABLE TO THE AO THE AO REJECTED THE BOOK RESULT U/S 145(3) OF THE IT ACT. THE AO ESTIMATED THE INCOME OF THE APPELLANT AT 5% OF GROSS RECEIPT OF RS.74 04 276/- BEFORE ME THE APPELLANT CONTENDED THAT BOOKS OF ACC OUNT COULD NOT BE PRODUCED AS THEY WERE LOST DURING THE TORRENTIAL RAIN ON 26.7.2005. IT IS CONTENDED THAT NO ELEMENT OF PROF IT IS INVOLVED IN REIMBURSEMENT OF EXPENSES MADE BY THE CLIENT. IT IS CONTENDED THAT ESTIMATION OF 5% IS ARBITRARY AND EXCESSIVE. ITA NO. 397/M/08 4 4.3. I HAVE CONSIDERED THE CONTENTION OF THE APPELLANT. NO PROFIT ARISES OUT OF REIMBURSEMENT IN PRINCIPLE. T HIS PRINCIPLE IS ALSO ACCEPTED BY THE AO. HENCE THE QUESTION ARISE S ABOUT THE GENUINENESS OF EXPENSES CLAIMED TO HAVE BEEN MADE B Y THE APPELLANT AND REIMBURSED BY CLIENTS. JUST BECAUSE THE AMOUNT HAS BEEN REIMBURSED WILL NOT AUTOMATICALLY MEAN THA T CORRESPONDING EXPENDITURE CLAIMED IS GENUINE IF TH E EXPENDITURE IS LESS THAN WHAT IS CLAIMED INCOME WILL ARISE OUT OF THAT. THE ONUS IS ON THE APPELLANT TO PROVE THAT EXPENDITURE CLAIMED BY IT IS GENUINE. BY NOT PRODUCING THE BOOKS OF ACCOUNT AND SUPPORTING EVIDENCE FOR WHATEVER REASON THE APPELLANT CANNOT ESCAPE CONSEQUENCES. IF THE EXPENSES ARE NOT EXAMINED BY THE AO HE WILL BE AT LIBERTY TO ESTIMATE THE INCOME. THE APP ELLANT DID NOT PRODUCE BEFORE ME ANY DETAIL TO SUBSTANTIATE GENUIN ENESS OF EXPENDITURE. THE COMPARATIVE INCOME OF LAST FOUR Y EARS PROVES NOTHING. IN FACT THE COMPARISON SHOWS DRASTIC REDU CTION IN INCOME (IF OTHER INCOME SHOWN IS TAKEN OUT). HENCE I DO NOT FIND ANY REASON TO ACCEPT THE CONTENTION OF THE APPELLANT. THE ESTIMATION MADE BY THE APPELLANT AS INCOME FROM SHIPPING AGENC Y IS THEREFORE CONFIRMED. THE GROUND FAILS. 7. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. T HE ASSESSEE HAS RECEIVED A TOTAL CONSIDERATION OF RS. 74 04 276/- F ROM HIS CLIENTS. OUT OF THIS AMOUNT RS. 7 90 890/- REPRESENTED COMMISSION R ECEIVABLE BY THE ASSESSEE FROM HIS CLIENTS AND THE BALANCE OF RS. 66 13 386/- WAS COLLECTED AS REIMBURSEMENT OF EXPENSES TO BE PAID O VER TO VARIOUS PARTIES. THE ASSESSEE DID NOT FURNISH PARTICULARS O F THE EXPENDITURE INCURRED BY HIM EITHER BEFORE THE AO OR THE LD. CIT (A). NO PARTICULARS HAVE BEEN FURNISHED BEFORE US ALSO. THE AO THEREFOR E ESTIMATED PROFITS AT 5% OF THE TOTAL RECEIPTS AT RS. 3 70 214/-. THE ASS ESSEE HAS OFFERED THE COMMISSION RECEIPTS OF RS. 7 90 890/- FOR TAX AND A FTER DEDUCTING THE EXPENDITURE HAS OFFERED RS.1 11 416/- AS NET PROFIT FROM THIS BUSINESS. THE ASSESSEE OBJECTED THAT THE NET PROFIT OF RS. 3 70 214/- ADOPTED BY THE AO WHICH WILL BE AS MUCH AS 46% OF THE COMMISSI ON RECEIPT AND HENCE UNSUSTAINABLE PARTICULARLY AS THE AO HAS NOT DISALLOWED ANY EXPENDITURE CLAIMED BY THE ASSESSEE. ITA NO. 397/M/08 5 8. AS HELD BY THE LD. CIT(A) AS THE ASSESSEE HAS N OT BEEN ABLE TO GIVE SUBSTANTIATE OR PARTICULARS OF EXPENSES FOR WHICH R EIMBURSEMENT HAS BEEN RECEIVED FROM CLIENTS IT CANNOT BE ACCEPTED T HE ASSESSEE HAS IN FACT INCURRED THESE EXPENDITURE. THE AO HAS ESTIMATED TH AT ATLEAST SOME OF THE EXPENSES CLAIMED TO HAVE BEEN REIMBURSED WERE N OT IN FACT ACTUALLY INCURRED BY THE ASSESSEE. THEREFORE REIMBURSEMENT O F THESE UNPROVED EXPENSES IS NOTHING BUT PROFITS OF THE ASSESSEE. RE IMBURSEMENT OF EXPENSES WOULD NOT HAVE ANY ELEMENT OF PROFIT ONLY IF THE ASSESSEE HAS SPENT THE AMOUNT RECEIVED FROM THE CLIENT. IN THIS CASE THE ASSESSEE HAVING RECEIVED RS.66 13 386/- TOWARDS REIMBURSEME NT OF EXPENSES HAS NOT PROVIDED ANY PROOF OF HAVING SPENT THAT AMOUNT. HENCE THE ASSESSING OFFICER HAS ESTIMATED SUM OF RS. 2 58 797/- AS INCO ME FROM OUT OF THE AMOUNT RECEIVED AS REIMBURSEMENT OF EXPENSES. THIS CONSTITUTES ABOUT 3.9% OF THE AMOUNT OF RS. 66 13 386/- RECEIVED AS R EIMBURSEMENT. THE ASSESSEE HAS WRITTEN TO THE AO THAT ALL THEIR BOOKS HAVE BEEN WASHED AWAY BY RAIN AND HENCE IT WILL NOT SERVE ANY USEFUL PURPOSE TO GIVE ANOTHER OPPORTUNITY TO THE ASSESSEE TO EXPLAIN THE EXPENSES. IN THE CIRCUMSTANCES WE HAVE NO OPTION BUT TO AGREE WITH T HE ADDITION MADE BY THE LOWER AUTHORITIES. HOWEVER NO SEPARATE ADDITION NEED BE MADE ON THIS ACCOUNT AND THIS WILL BE TELESCOPED INTO THE A DDITION OF RS. 5 00 000/- MADE BY TREATING THE SO CALLED GIFT RECE IVED AS UNDISCLOSED INCOME DISCUSSED BELOW. 9. THE NEXT ISSUE ON APPEAL BY THE ASSESSEE IS AGAI NST THE ADDITION OF RS. 5 00 000/- AS UNEXPLAINED CREDIT U/S 68 OF THE ACT. ON A PERUSAL OF THE ACCOUNTS THE AO FOUND THAT THE ASSESSEE HAD REC EIVED A GIFT OF RS. 5 LAKHS FROM ONE SHRI.ANIL V. BAJAJ. WHEN ASKED TO PR ODUCE PROOF THE ASSESSEE VIDE HIS LETTER DT 25.8.2006 HAD SUBMITTE D THE DONORS PASS BOOK AS WELL AS HIS INCOME TAX RETURN FOR AY 2004-0 5. THE ASSESSEE WAS SUMMONED AND A STATEMENT WAS RECORDED FROM HIM ON 1 0.10.2006 IN WHICH THE ASSESSEE HAD CONFIRMED THE GIFT AND HAS S TATED THAT THE GIFT ITA NO. 397/M/08 6 WAS JUST BEFORE THE ASSESSEES MARRIAGE ANNIVERSARY . THE AO FOUND THAT SHRI. ANIL V. BAJAJ AND HIS WIFE SMT. SAROJ BAJAJ H AVE TOGETHER GIFTED DURING THE YEAR RS. 17.5 LAKHS TO THE ASSESSEE HIS HUF HIS BROTHER AND BROTHERS HUF. OTHER FAMILY MEMBERS HAD RECEIVED A GIFT OF RS. 5 LAKHS FROM THE SAME DONORS FOR THE EARLIER ASSESSMENT YEA R 2003-04. THE ASSESSING OFFICER FOUND THAT ALTHOUGH THE GIFTS WER E THROUGH BANKS ACCOUNTS THERE WAS NO REGULAR FUND FLOW IN THE ACC OUNT TO SUBSTANTIATE THE CAPACITY OF THE DONOR TO MAKE THE GIFT. THE INC OME TAX RETURN ALSO SHOWED A TAXABLE INCOME OF RS. 5 377/- ONLY. HENCE THE ASSESSING OFFICER CONCLUDED THAT THE ASSESSEE HAD NOT PROVIDED ANY PR OOF REGARDING THE DONORS CAPACITY TO MAKE THE GIFT AND HENCE ADDED R S. 5 LAKHS AS INCOME FROM UNDISCLOSED SOURCES. 10. ON APPEAL THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO. HE HELD THAT MERELY BECAUSE THE GIFT WAS GIVEN THROUGH BANK ING CHANNEL WOULD NOT BY ITSELF PROVE THE CREDITWORTHINESS OF THE DON OR TO MAKE THE GIFT. HE CONCLUDED THAT THE ASSESSEE HAS FAILED TO GIVE ANY PROPER REASONABLE AND ACCEPTABLE EXPLANATION AS REGARDS GIFTS RECEIVED BY HIM. HE RELIED ON THE DECISION OF THE CALCUTTA HIGH COURT IN THE CASE OF CIT V ANIL KUMAR (292 ITR 552) WHEREIN THE HIGH COURT HAD HELD THAT MERE PROOF THAT GIFTS WERE RECEIVED FROM NRE ACCOUNT WOULD NOT ESTABLISH CAPAC ITY OF THE DONORS TO MAKE THE GIFTS. 11. AGGRIEVED THE ASSESSEE IS ON APPEAL BEFORE US. HE HAS NOW FILED THE BANK STATEMENT RETURN OF INCOME TRIAL BALANCE ETC . OF ANIL V. BAJAJ AND CONTENDED THAT THE DONOR HAD THE CAPACITY TO MAKE T HE GIFT. BUT WE FIND THAT THE ISSUE HAS BEEN EXAMINED IN DETAIL BY THE L OWER AUTHORITIES. AS HELD BY THE CALCUTTA HIGH COURT IN THE CASE OF CIT VS ANIL KUMAR (292 ITR 552) MERE IDENTIFICATION OF THE DONOR AND MOVEM ENT OF THE GIFT THROUGH BANKING CHANNELS IS NOT SUFFICIENT TO PROVE THE GENUINENESS OF THE GIFT. ONUS LIES ON THE ASSESSEE TO ESTABLISH NO T ONLY THE IDENTITY OF THE ITA NO. 397/M/08 7 DONOR BUT ALSO HIS CAPACITY TO MAKE THE GIFT. AS H ELD BY THE APEX COURT IN THE CASE OF SUMATI DAYAL VS CIT (214 ITR 801) F OR CONSIDERING WHETHER THE APPARENT IS REAL THE MATTER HAS TO BE CONSIDERED BY APPLYING THE TEST OF HUMAN PROBABILITIES. THE SAME DONOR AN D HIS WIFE HAVE GIVEN A GIFT OF RS. 17.5 LAKHS TO THE ASSESSEE AND HIS RE LATIVES WITH WHOM THE DONORS DO NOT HAVE ANY CLOSE CONNECTION AND FOR NO APPARENT REASON. IN THE CIRCUMSTANCES WE HAVE NO HESITATION IN UPHOLDIN G THE ADDITION OF RS. 5 00 000/- SHOWN AS GIFT FROM SHRI. ANIL V. BAJAJ A S UNDISCLOSED INCOME OF THE ASSESSEE. 12. AS POINTED OUT EARLIER THIS ADDITION OF RS. 5 0 0 000/- AS UNDISCLOSED INCOME WILL COVER AND INCLUDE ANY ADDIT ION THAT HAS BEEN MADE ON ACCOUNT OF LOW GP. THEREFORE A SEPARATE ADD ITION NEED NOT BE MADE ON ACCOUNT OF LOW GP. THE ASSESSING OFFICER HA S MADE AN ADDITION OF RS. 2 58 797/- ON ACCOUNT OF LOW GP AND RS. 5 00 000/- AS UNDISCLOSED INCOME. TELESCOPING THE TWO WE SUSTAIN THE ADDITION OF RS. 5 00 000/- AND DELETE THE SEPARATE ADDITION ON ACCO UNT OF LOW GP AS BEING COVERED BY THE ADDITION SUSTAINED. 13. IN THE RESULT THE APPEAL FILED BY THE ASSESSE E IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 14 TH DAY OF MAY 2010 SD/- SD/- (A.L. GEHLOT) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 14 TH MAY 2010 RJ ITA NO. 397/M/08 8 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR K BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR I.T.A.T MUMBAI ITA NO. 397/M/08 9 DATE INITIALS 1 DRAFT DICTATED ON: 10.5.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 12. 5 .2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______