SANTOSH A. PATEKAR, MUMBAI v. DCIT 22(3), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH MUMBAI BEFORE SHRI RAJESH KUMAR AM AND SHRI AMARJIT SINGH JM / I.T.A. NO. 753 /MUM/201 8 ( / ASSESSMENT YEAR: 20 11 - 12 ) SANTOSH PATEKAR B - 1304/1305 BOLIVIAN ALPS B HAKT I PARK WADALA (E) MUMBAI - 400037 . / VS. DCIT 22(3) C 11 5 TH FLOOR BANDRA (E). ./ ./ PAN/GIR NO. : AHLPP6643E ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING: 15 / 11 / 201 9 /DATE OF PRONOUNCEMENT: 27 / 11 / 201 9 / O R D E R PER AMARJIT SINGH JM: THE ASSESSEE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 15 . 11 .201 7 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 26 MUMBAI [HEREINAFTE R REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 20 11 - 1 2 . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1. THE LD. CIT(A) IS ERRED IN ADDING A SUM OF RS.33 07 000/ - AS UNDISCLOSED INCOME U/S 68 EVEN THOUGH ASSESSEE HAS DULY SUBMITTED ALL THE DETAILS ALONG WITH THE CONFIRMATIONS OF CREDITORS FROM WHOM ADVANCES HAD BEEN RECEIVED. 2. THE LD. CIT(A) IS A LSO ERRED IN CONFIRMING ADDITION OF RS.1 05 377/ - AS DISALLOWED INTEREST EXPENSES. 3. THE LD. CIT(A) IS ALSO ERRED IN CONFIRMING ADHOC DISALLOWANCE OF EXPENSES AND ADDED SUM OF RS. 1 25 000/ - TO THE TOTAL INCOME. ASSESSEE BY : SHRI ANIL THAKRAR R EVENUE BY: SHRI CHAUDHARY ARUN KUMAR SINGH (SR. DR) ITA NO. 753 / M/201 8 A.Y.20 11 - 1 2 2 4. THE APPELLANT REQUEST TO DELETE THE ADDITION CONFIRMED BY THE CIT(A). 5. THE APPELLANT CRAVES TO ADD ALTER OR OMIT ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED HIS RETURN OF INCOME ON 30 .0 9 .20 11 DECLARING TO TAL INCOME TO THE TUNE OF RS . 36 57 890 / - FOR THE A.Y. 2011 - 1 2 . T HE RETURN WAS PROCESSED U/S 143(1) OF THE I.T. ACT 1961. THE CASE WAS SELECTED FOR SCRUTINY THEREFORE NOTICES U/S 143(2) & 142(1) OF THE ACT WERE ISSUED AND SERVED UP ON THE ASSESSEE . THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SELLING OF CLUB MEMBERSHIP OF ROYAL TWINKLE STAR CLUB LTD. AND GETS COMMISSION FROM THE COMPANY. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE RECEIVED COMMISSION FROM M/S. ROYAL TWINKLE STAR CLUB LTD. OF RS.98 64 667/ - OUT OF WHICH HE HAS CLAIMED EXPENSES OF RS.61 02 614/ - AND OFFERED NET PROFIT OF RS.37 62 503/ - . THE ASSESSEE HAS ALSO RECEIVED ADVANCES FROM TRADE CRED ITORS OF RS.33 07 000/ - WHICH HAS BEEN REFLECTED UNDER SUNDRY CREDITORS IN THE BALANCE SHEET. ON APPRAISAL OF THE BALANCE - SHEET IT WAS FOUND THAT THE ASSESSEE HAS RECEIVED AN AMOUNT OF RS.33 07 000/ - DURING THE YEAR FROM 175 PARTIES IN CASH ALL RANGING BETWEEN RS.18 000/ - TO 19 500/ - . THE NOTICE WAS GIVEN AND AFTER THE REPLY OF THE ASSESSEE THE SAID AMOUNT WAS ADDED TO THE INCOME OF THE ASSESSEE AS UNEXPLAINED TRADE ADVANCE U/S 68 OF THE ACT. THE ASSESSEE HAS ALSO CLAIMED THE INTEREST IN SUM OF RS. 2 23 496/ - AS INTE REST ON LOAN AND AN AMOUNT OF RS .69 660/ - AS LEGAL AND PROFESSIO NAL FEES BUT THE ASSESSEE FAILED TO DEDUCT THE TAX AT SOURCE (TDS) HENCE THE AMOUNTS OF RS.2 93 156/ - WAS ADDED TO THE INCOME OF THE ASSESSEE U/S 40(A)(IA). THE ASSESSEE ALSO CLAIMED THE BUSINESS PROMOTIONS EXPENSES OF RS.5 61 528/ - CONVEYANCE EXPENSES OF RS.2 59 056/ - MEETING AND SALARY EXPENSES TO SALESMAN (RS.8 08 351/ - ETC. SINCE THE ASSESSEE FAILED TO SUBSTANTIATE HIS CLAIM THEREFORE AN AMOUNT OF ITA NO. 753 / M/201 8 A.Y.20 11 - 1 2 3 RS.2 50 000/ - HAS BEEN DISALLOWED ON ESTIMATION BASIS AND ADDED TO THE INCOME OF THE ASSESSEE. FEELIN G AGGRIEVED THE ASSESSEE AN APPEAL BEFORE THE CIT(A) WHO PARTLY ALLOWED THE CLAIM OF THE ASSESSEE BUT THE ASSESSEE WAS NOT SATISFIED ON THE GROUNDS RAISED ABOVE THEREFORE THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US . 4 . WE HAVE HEARD THE ARGUMENT ADVANCED BY THE LD. REPRESENTATIVE OF THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF ADDITION IN SUM OF RS.33 07 000/ - AS UNDISCLOSED INCOME U/S 68 OF THE ACT. THE ASSESSEE IS IN THE BUSINESS OF SELLING OF CLUB MEMBERS HIP OF ROYAL TWINKLE STAR CLUB LTD. AND GETS COMMISSION FROM THE COMPANY. THE ASSESSEE HAS RECEIVED THE COMMISSION FROM M/S. ROYAL TWINKLE STAR CLUB LTD. IN SUM OF RS.98 64 667/ - . THE ASSESSEE ALSO CLAIMED THE EXPEN SES IN SUM OF RS.61 02 614/ - . THE ASSESSE E CONFIRMED THE NET PROFIT IN SUM OF RS. 37 62 503/ - . THE ASSESSEE RECEIVED THE TRADE ADVANCES OF RS.33 07 000/ - WHICH HAS BEEN REFLECTED UNDER SUNDRY CREDIT IN THE BALANCE - SHEET. THE AO RAISED THE ADDITION ON THE BASIS OF THIS FACT THAT THE CREDIT WORTHINE SS AND GENUINENESS OF THE TRANSACTION HAVE NOT BEEN PROVED. THE TRADE CREDITORS WERE 175 IN NUMBER WHO PAID CASH ALL RANGING BETWEEN 18 000/ - TO 19 500/ - . THE AO EXAMINED THE 82 PARTIES AND ARRIVED AT THIS CONCLUSION THAT THE PARTIES ARE NOT CREDIT WORTHIN ESS . THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE CIT(A) HAS CONFIRMED THE ADDITION RAISED BY THE AO ON THE BASIS OF SURMISES AND CONJECTURES. IT IS ALSO ARGUED THAT THE NO COGENT AND CONVINCING REASON HAS BEEN GIVEN TO DECLINE THE CLAIM OF T HE ASSESSEE. IT IS ALSO SPECIFIC ALLY ARGUED THAT THE ASSESSEE HAS GIVEN THE NAME OF THE TRADE CREDITORS PAN NUMBER BANK - STATEMENT & ITR ETC. TO SUBSTANTIATE THE CLAIM THEREFORE THE CLAIM OF THE ASSESSEE IS LIABLE TO BE ALLOWED . HOWEVER ON THE OTHER HA ND THE LD. REPRESENTATIVE OF THE ITA NO. 753 / M/201 8 A.Y.20 11 - 1 2 4 DEPARTMENT HAS REFUTED THE SAID CONTENTION AND PLACED RELIANCE UPON THE FINDING OF THE CIT(A) IN QUESTION. WE NOTICED THAT THE ASSESSEE HAS GIVEN THE NAME OF THE PARTIES PAN NUMBER ADDRESS AND AMOUNT OF THE PARTIES WHICH LIES AT PAGE NO. 49 TO 59 OF THE PAPER BOOK. THE AO EXAMINED THE 89 TRANSACTIONS AND ARRIVED AT THIS CONCL USION THAT THE SAME ARE NOT CREDIT WORTHINESS AND GENUINE. THE AO HAS GIVEN THE FOLLOWING REASONS TO DECLINE THE CLAIM OF THE ASSESSEE. I THE DATES OF RECEIPT AND THE AMOUNTS RECEIVED FROM TRADE CREDITORS FURNISHED BY THE ASSESSEE VIDE THEIR LETTER DATED 10.01.2014 AND THE LOAN CONFIRMATION SUBMITTED IS DIFFERENT IN MANY CASES. II. MANY OF THE TRADE CREDITORS FROM WHOM MEMBERSHIP DEPOSITS ARE RECEIV ED ARE COMMON TO BOTH THE ASSESSEE HIS WIFE AND ALSO TO M/S ROYAL TWINKLE STAR CLUB LTD. III. MANY OF SUCH TRADE CREDITORS ARE NOT EVEN FILING THEIR RETURNS OF INCOME. IV. MANY OF SUCH TRADE CREDITORS ARE REFLECTING MERELY A MEAGRE COMMISSION INCOME. V. T HE BANK STATEMENTS ON RECORD DO NOT REFLECT WITHDRAWALS FOR ADVANCING SUCH AMOUNT TO THE ASSESSEE OR HIS WIFE. VI. THE ASSESSEE HAS MERELY FILED CERTAIN CONFIRMATIONS TO PROVE THE IDENTITY OF THE PERSONS. IN ALL THE CASES THE GENUINENESS AND THE NATURE OF TRANSACTIONS REMAINS UNEXPLAINED. IN ALL THE CASES BARRING A FEW THE CAPACITY OF SUCH PERSONS TO MAKE EVEN THESE SMALL ADVANCES REMAINS UNPROVED. THOSE WITH SUFFICIENT INCOME ARE THEMSELVES MEMBERS OF M/S ROYAL TWINKLE STAR CLUB LTD. VII. THE ASSESSE COUL D NOT PROVIDE ANY DOCUMENTARY EVIDENCES AS TO WHETHER THE CONCERN FROM WHOM THEY ARE RECEIVING SUCH COMMISSION INCOME ALLOWS THEM TO HAVE SUCH MEMBERSHIP DEPOSITS. THE ASSESSEE HAS STATED THAT THEY HAVE MERELY PAID MEMBERSHIP FEES TO M/S ROYAL TWINKLE STAR CLUB LTD AND DO NOT HAVE ANY AGREEMENT WITH THEM. VIII. EVEN WHEN IT WAS SPECIFICALLY POINTED OUT TO THE ASSESSEE THAT THE EXPLANATIONS AND CONFIRMATIONS DID NOT REVEAL THE TRADE TRANSACTIONS AND THE ASSESSEE WAS ASKED TO FURNISH THE LEDGER ACCOUNTS FROM THESE PARTIES FOR SUBSEQUENT YEARS THE ASSESSEE DID NOT FURNISH THE SAME. THUS THE BENEFITS TO THESE PARTIES ON ACCOUNT OF SUCH TRANSACTION WITH THE ASSESSES ARE NOT FURNISHED WHICH CONFIRMS THE FACT THAT NO BENEFIT ACCRUED TO THEM FROM THESE TRANSACTION S. EVEN WHEN CONFRONTED WITH THE FACT THAT THE ITA NO. 753 / M/201 8 A.Y.20 11 - 1 2 5 NATURE OF TRANSACTIONS WITH THESE 'TRADE CREDITORS' REMAINED UNPROVED THE ASSESSEE DID NOT PRODUCE EVEN A SINGLE PARTY. IX. THESE 'MEMBERSHIP DEPOSITS' ARE NOT RETURNED/ REFUNDED TILL DATE. X. NO INTEREST IS PAID ON THESE 'DEPOSITS'. XI. HOW THESE DEPOSITS HELPED THE ASSESSEE IN CONDUCTING THE BUSINESS OF CONVINCING THE PUBLIC IN LARGE TO INVEST IN MIS ROYAL TWINKLE STAR CLUB LTD REMAINS UNEXPLAINED. XII. WHAT BENEFIT AROSE FROM THE ASSESSES TO THESE TRADE CRE DITORS REMAINS UNEXPLAINED. XIII. THE ASSESSEE HAS EVEN REFLECTED ADVANCES FROM HIS EMPLOYEES AND HIS WIFE'S EMPLOYEES TO INCREASE THE NUMBER OF DEPOSITS TO ENSURE THAT EACH DEPOSIT REMAINS BELOW RS.20.000/ - . XIV. SOME OF THESE CONFIRMATIONS ARE INVALID AND IN SOME CASES THE PAN IS INVALID IN SOME CASES THE PAN HAS BEEN OBTAINED SUBSEQUENT TO THE DATE OF SUCH TRANSACTION I.E. AS LATE AS 2013. ALL THESE REFLECT THAT SOME PANS HAVE BEEN OBTAINED TO LEND AUTHENTICITY TO THE TRANSACTIONS. 5. THE EXPLANATION OF THE ASSESSEE IS THAT THE ASSESSEE WAS RECEIVING THE DEPOSIT FOR TIME SHARING HAVING LOCK PERIOD 3 TO 5 YEARS ON DEMAND AS PER MUTUAL UNDERSTANDING BETWEEN TRADE CREDITORS AND ASSESSEE. THE ASSESSEE PROVIDED THE CONFIRMATION PAN BANK STATEMENT & AND I TR AND ADDRESS OF THE PARTIES. THE ASSESSEE WAS CONVINCING THE PUBLIC IN LARGE TO INVEST IN THE ROYAL TWINKLE STAR CLUB LTD. FOR DIFFERENT TYPE OF BENEFICIAL SCHEME INCLUDING HOLIDAY PACKAGE FOOD SERVICE. THE ASSESSEE WAS GETTING THE COMMISSION FOR THE IN VESTMENT. THE ASSESSEE WAS ALSO ARRANGING THE MEETING AT DIFFERENT PLACES FOR WHICH HE HAS TO GO ON TOUR AND TO MEET AND TO ATTEND THE CONFERENCE AND TO PROVIDE THE GIFT TO THE CLIENTS. 6. IT IS TO BE SEEN WHETHER THE EXPLANATION OF THE ASSESSEE IS JUSTIFI ABLE OR NOT. THE ASSESSEE WAS GETTING THE COMMISSION FOR SELLING CLU B MEMBERSHIPS OF ROYAL TWINKLE S TAR CLUB LTD. THE ASSESSEE WAS ACTING AS A COMMISSION AGENT. THE SUBSCRIPTION AMOUNT GOES WITH THE CLUB ON WHICH THE ASSESSEE WAS GETTING COMMISSION. THE AS SESSEE HAS SHOWN T HE TRADE ITA NO. 753 / M/201 8 A.Y.20 11 - 1 2 6 ADVANCES BUT THE PURPOSE IS NOT CLEAR . I T NOWHERE SEEMS JUSTIFIABLE THAT THE TRADE CREDITORS WERE DEPOSITING THE AMOUNTING IN ADVANCE TO GET THE MEMBERSHIP OF ROYAL TWINKLE STAR CLUB LTD. NO BUSINESS HAS BEEN SHOWN IN THE BOOKS OF ACCOUNT EXCEPT GETTING THE COMMISSION FOR GETTING THE CLUB MEMBERSHIP OF ROYAL TWINKLE STAR CLUB LTD. MOREOVER THE AO EXAMINED THE CREDIT WORTHINESS AND THE GENUINENESS OF THE TRANSACTION OF ALL THE ADVANCES AND EXAMINED 175 PARTIES . AO FOUND THAT 82 P ARTIES WERE NOT FILING THE INCOME TAX RETURN. THE BANK - STATEMENT NOWHERE SHOWED THE GENUINENESS OF THE CLAIM . THE TRADE ADVANCES WERE NOT RETURNED TILL FINALIZES OF THE ASSESSMENT I.E. ON DATED 19.03.2014 . THE CONFIRMATION LETTER OF 21 PERSONS WERE FOUND U NSIGNED . AMONG 119 PERSONS THE 75 PERSONS NOWHERE FILED THE RETURN OF INCOME. T HE RETURN WAS FURNISHED IN 35 CASES AND THE INCOME OF THE PERSONS WAS FOUND BETWEEN 15 020 TO RS.50 000/ - AND IN 5 CASES IT RANGES BETWEEN RS.51 000/ - TO RS.1 0 0 000/ - AND IN 1 6 CASES IT RANGES BETWEEN RS.1 00 000/ - TO RS.2 00 000/ - AND IN 4 CASES BETWEEN RS.2 00 000/ - TO RS.2 50 000/ - AND IN 2 CASES ABOVE RS.2 00 000/ - . IT NOWHERE SEEMS CHEWABLE WHERE INCOME IS RANGING FROM 15 020/ - TO RS.50 000/ - WOULD ADVANCES THE LOAN TO THE ASSESSEE IN SUM OF RS.36 000/ - TO RS.38 500/ - (BOTH TO THE ASSESSEE AND HIS WIFE) AT MUTUALLY LOCKED FOR A PERIOD OF 3 TO 5 YEARS. MOREOVER IN ALL THE CASES THE ADVANCE WAS IN CASH BELOW 20 000/ - . NO DOUBT THE CONFIRMATION WAS FILED IDENTITY WAS GIVEN AND PAN NUMBER OF SOME PERSONS WAS GIVEN . BUT I T IS NOT SUFFICIENT TO PROVE THE TRANSACTION BECAUSE NO CREDIT WORTHINESS AND GENUINENESS OF TRANSACTION HAS BEEN PROVED. THE TRANSACTION NOWHERE SEEMS JUSTIFIABLE SPECIFICALLY IN THE CIRCUMSTANCES WHEN THE AS SESSEE FAILED TO PROVE THE CLAIM BY GIVING COGENT AND CONVINCING EVIDENCE. THE CIT(A) HAS RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SUMATI DAYAL VS. CIT (1995) 214 ITR 801 (SC) WHEREIN IT HAS BEEN SPECIFICALLY ITA NO. 753 / M/201 8 A.Y.20 11 - 1 2 7 HELD THAT ANY TRANS ACTION WHERE NO DIRECT EVIDENCE IS A VAILABLE THEN THE TRANSACTION SHOULD BE INFERRED ON THE BASIS OF SURROUNDING CIRCUMSTANCES AND BY APPLYING THE TEST ON PROBABILITIES. TAKING INTO ACCOUNT ALL THE FACTS AND CIRCUMSTANCES WE ARE OF THE VIEW THAT THE FIND ING OF THE CIT(A) IS QUITE CORRECT WHICH IS NOT LIABLE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDINGLY WE DECIDE THIS ISSUE IN FAVOUR OF THE REVENUE AGAINST THE ASSESSEE. ISSUE NO.2 7 . THIS ISSUE HAS NOT BEEN PRESSED BY THE LD. REPRESENTATIVE OF THE ASSESSEE THEREFORE THIS ISSUE IS BEING DECIDED IN FAVOUR OF THE REVENUE AGAINST THE ASSESSEE BEING NOT PRESSED. ISSUE NO.3 8 . UNDER THIS ISSUE THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF ADDITION IN SUM OF RS.1 25 000/ - ON ACCOUNT OF PROMOTION E XPENSES CONVEYANCE EXPENSES AND SALARY ETC. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE TO THE EXTENT OF RS. 2 50 000/ - ON THE BASIS OF THIS FACT THAT THE EXPENSE S WERE IN CASH AND ON THE BASIS OF SELF - MADE VOUCHERS . THE AO FOR WANT OF VERIFICATION AND AL SO ON THE BASIS OF PERSONAL ELEMENT DECLINED THE EXPENSES TO THE EXTENT OF 2 50 000/ - . HOWEVER IN APPEAL THE CIT(A) HAS RESTRICTED THE ADDITION TO THE EXTENT OF 1 25 000/ - . AT THIS STAGE ALSO T HE FACTS ARE NOT D ISTINGUISHABLE . T HE SELF - MADE VOUCHERS WER E NOT VERIFIABLE AND EXPENSES OF PERSONAL ELEMENT CANNOT BE DECLINE D . ACCORDINGLY WE FIND IT JUSTIFIABLE THE DISALLOWANCE IN SUM OF RS.1 25 000/ - THEREFOR E WE AFFIRM THE FINDING OF THE CIT(A) ON THIS ISSUE AND DECIDE THIS ISSUE IN FAVOUR OF THE REVENUE AGAINST THE ASSESSEE. ITA NO. 753 / M/201 8 A.Y.20 11 - 1 2 8 9 . IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS HEREBY ORDERED TO BE DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 27 /11 /2019 . SD/ - SD/ - ( RAJESH KUMAR ) (AMARJIT SINGH) / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; DATED : 27 /11 /2019 V IJAY / SR. P.S. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. / DR ITAT MUMBAI 6. / GUARD FILE. / BY ORDER //TRUE COPY// (SR. PRIVATE SECRETARY) / ITAT MUMBAI