Income Tax Appellate Tribunal - Delhi
Taruna Grover , New Delhi vs Department Of Income Tax on 30 April, 2010
1 ITA No.3350 & 3216/Del/2010
Asstt.Year: 2006-07
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `H' NEW DELHI
BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT
AND
SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER
I.T.A.No.3350/Del/2010
Assessment Year : 2006-07
Addl. Commissioner of Income Tax, vs Taruna Grover,
Circle 21(1), F-2, Vikas Bhawan, R/o 183-184, Pocket E-21,
New Delhi. Sec-03, Rohini, Delhi.
(PAN: AHZPG9959N)
I.T.A.No.3216/Del/2010
Assessment Year : 2006-07
Taruna Grover, vs Addl.Commissioner of Income Tax,
Rohini, Delhi. New Delhi.
(Appellant) (Respondent)
Appellant by: Shri Raj Kumar, CA
Respondent by : Shri Sameer Sharma, Sr. DR
ORDER
PER CHANDRAMOHAN GARG, JUDICIAL MEMBER
The above captioned appeals have been preferred against the order of the Commissioner of Income Tax(A)-XXII, New Delhi dated 30.04.2010 in Appeal No.207/08-09 for AY 2006-07. For the sake of brevity, convenience and clarity in the findings, these appeals have been clubbed and are being disposed of by this consolidated order.
2 ITA No.3350 & 3216/Del/2010Asstt.Year: 2006-07
2. Ground no. 2 of the revenue and ground no. 2 of the assessee are related to the issue of estimation of net profit and we find it appropriate to decide these grounds simultaneously.
3. Ground no. 2 of the revenue reads as under:-
"The ld. Commissioner of Income Tax(A) erred in law and on facts in restricting the other disallowance made by the Assessing Officer to the tune of Rs.13,61,654/- i.e. 15% of N.P. rate."
4. Grounds no. 2 of the assessee reads as under:-
"2.1 That under the facts and circumstances, there is absolutely no legality and justification in not accepting the declared N.P. rate of 5.54% and estimating the same at 15% thereby in making and sustaining an addition of Rs.13,61,654/-."
2.2 That the ld. Commissioner of Income Tax(A), after giving a categorically finding that no adverse inference can be drawn from the statement of the auditor, was legally and factually required to accept the declared book results based on audited books of accounts.
2.3 That under the facts and circumstances, the expenses claimed needs to be allowed in toto.
2.4 That without prejudice, the N.P. rate applied is, at any rate very - very excessive."
Ground No. 2 of the assessee and revenue
5. We have heard rival arguments of both the parties and carefully perused the record inter alia assessment and first appellate order. The 3 ITA No.3350 & 3216/Del/2010 Asstt.Year: 2006-07 assessee's representative (AR) submitted that the assessee is an agent of ICICI Bank and had been operating from four offices with about 100 telephone lines and about 100 employees. The AR further submitted that the assessee gets commission from ICICI Bank on soliciting property loans, car loans and other loans and commission is directly credited to the bank account of the assessee after TDS which was Rs.1,43,98,534/- during the year under consideration. The AR further submitted that the assessee could not produce books of accounts and complete vouchers during the assessment proceedings but maximum bills and vouchers were produced before the Assessing Officer. The AR vehemently contended that the Assessing Officer disallowed 94.64% of the total expenses claimed in the P&L account of the assessee without any basis and cogent reason and maximum heads of rejected claim were allowed during the earlier and subsequent years of the assessment.
6. The AR vehemently contended that when the Assessing Officer rejected the declared and returned income of the assessee, the estimation of net profit has to be done on the basis of declared N.P. rate for the preceding and subsequent assessment years but the Assessing Officer disallowed 94.64% expenses claimed by the assessee on wrong premise and without any basis. The AR further contended that the Commissioner of Income Tax(A) 4 ITA No.3350 & 3216/Del/2010 Asstt.Year: 2006-07 estimated the NP at 15% of the receipts on the basis of result of AY 2005-06 which were actually showing NP of 9.23% of the receipts. The AR also contended that if the Commissioner of Income Tax(A) has chosen to estimate net profit on the basis of percentage of receipts based on result of AY 2005-06, then the Commissioner of Income Tax(A) was not justified in enhancing the NP rate of AY 2005-06 from 9.23% to 15% for the year under consideration.
7. The AR also pointed out that when the various authorities proceeded to estimate NP rate, then NP rate in assessee's own earlier and subsequent year assessments or NP rate of other synonymous concerns must be considered as a basis of estimation. The AR pointed out that in similar comparable case of M/s Moneyline Marketing (P) Ltd., the declared and accepted NP rate for AY 2005-06 and 2006-07 were 1.28% and 1.60% of the commission receipts respectively. The AR also pointed out the case of another similar concern M/s Treasure which declared NP rate at 2.8% of receipts for the AY 2007-08 which was accepted by the department. The AR further pointed out that the Commissioner of Income Tax(A) grossly erred in not accepting the declared NP rate of 5.54% and estimating the same at 15%.
5 ITA No.3350 & 3216/Del/2010Asstt.Year: 2006-07
8. Replying to the above, ld. DR submitted that when the assessee is not furnishing books of accounts and other vouchers and bills pertaining to claim of expenses reflected in the P&L account, then the Assessing Officer had no option but to disallow the claim of the expenses and the Assessing Officer rightly disallowed the claimed expenditure for which the assessee could not submit reliable evidentiary proof. The DR contended that some bills and vouchers produced by the assessee in support of claimed expenses were not found to be correct by the AO and in this situation, the Assessing Officer was right in making disallowance and additions in this regard. The DR also contended that during the first appellate proceedings, the Commissioner of Income Tax(A) proceeded to estimate the NP rate on the basis of 15% of total receipts during the year and the Commissioner of Income Tax(A) erred in law and on facts in restricting the disallowance made by the Assessing Officer to the tune of Rs.13,61,654/-. The DR further pointed out that some expenses of the assessee were in the nature of fixed expenses which do not increase or inflate in the same proportion in which the gross receipts increase like rent, fixed salary etc. and there was a substantial increase in the receipts of the assessee during the year and these factors obviously will increase the net profitability of a concern, therefore, 6 ITA No.3350 & 3216/Del/2010 Asstt.Year: 2006-07 NP rate of 9.23% on the receipts for AY 2005-06 could not be a proper basis for estimation of income of the assessee for the year under consideration.
9. On careful consideration of above rival contentions and submissions of both the parties, at the outset, we observe that since the Assessing Officer held that the assessee could not submit her books of accounts and some bills and vouchers pertaining to the claim of expenses were not found to be correct. Therefore, the Assessing Officer disallowed 94.64% of the expenses claimed by the assessee and consequently made an addition of Rs.1,28,71,393 in this regard. The first appellate authority i.e. Commissioner of Income Tax(A) went on to estimate the net profit (NP) of the assessee on the basis of specific percentage of the receipts during the year. The Commissioner of Income Tax(A) noticed the NP rate of AY 2005- 06 which was 9.23% of the total receipts but the Commissioner of Income Tax(A) observed and held that some expenses like rent, fixed salary etc. do not increase or inflate in the same proportion in which the gross receipts increase. Hence, on this basis, the Commissioner of Income Tax(A) adopted a higher percentage i.e. 15% of the receipts. The assessee is aggrieved by the higher estimation and the revenue is aggrieved by the restriction of addition to the tune of Rs.13,61,654 i.e. 15% of gross receipts but when the assessee is not producing books of accounts before authorities below and 7 ITA No.3350 & 3216/Del/2010 Asstt.Year: 2006-07 bills and vouchers submitted by her were not found to be correct, then the authorities below had no option but to estimate the profit on the basis of best assessment and judgment u/s 144 of the Act. We are unable to see any valid reason to interfere with the action of the Commissioner of Income Tax(A) where he proceeded to estimate the NP rate but the Assessing Officer disallowed 94.64% of expenses ignoring the facts of the case and Assessing Officer did not consider this very fact that maximum heads of expenses were allowed during earlier and subsequent assessments, and we are not in agreement with this action of the Assessing Officer.
10. From the impugned order, we observe that the Commissioner of Income Tax(A) has dealt the issue for estimation of 15% of receipts as net profit of the assessee with following observations and findings:-
"9.4 Now, the important question arises for consideration that what should be the basis and the method for computing the assessable income from the said activity. As per the chart given above, out of total expenses claimed at Rs. 1,36,00,428/-, expenses to the tune of Rs. 1,28,71,393/- have been disallowed, thus, only Rs. 7,29,035/- have been allowed. In terms of percentage, 94.64% out of the total expenses stands disallowed and only balance 5.36% stands allowed. On examining the details of expenses claimed under various heads, as per the chart given earlier, it is clear that most of the expenses have been 100% disallowed. To quote some examples, 100% disallowed expenses includes major head of expenses namely conveyance, computer consumables, insurance, legal charges, mineral water, consultation, photostat, postage, bonus to staff, conveyance allowance, 8 ITA No.3350 & 3216/Del/2010 Asstt.Year: 2006-07 staff medical allowance, newspaper allowance, salary and wages, HRA, staff incentive, staff welfare, uniform, advertisement, business promotion, conference expenses printing and stationery, promotional benefit to business team, remuneration to sub DSA, staff / marketing team telephone expenses, commission on business development, electricity, office maintenance, misc., repairs, etc .. apart from 78% disallowance out of office telephone expenses and 96% disallowance out of petrol expenses. The nature of these expenses and the extent of disallowance made (wherein in most of the cases it is 100%) is unthinkably and unimaginably excessive. The nature of income is commission / service charges from ICICI Bank ltd. on the business procured by the appellant for ICICI Bank in the nature of loan customers provided by the appellant to ICICI Bank Ltd. This nature of business needs a big team of field and office workers and intensive communication and persuasion to the customers for soliciting the business being a competitive line. The telephone connections more than 70 at a time and the operation of business from 4 offices itself proves the massive involvement of staff, which involves substantial expenses. The biggest head of expenditure is salary, wages, commission, incentives and other benefits to the staff which are partly as fixed amount and partly out of the commission income earned by the appellant through the efforts of these staff persons. Thus, the incurring of substantial expenses taking away a major portion of the gross commission receipts of the appellant cannot be ruled out. In this case, from the Asstt. Order it is evident that the AO has disallowed all such expense for which documentary evidence/ supportings upto the satisfaction of the AO have not been furnished. The case of the appellant is that although all the supportings and evidences duly existed and were also subjected to audit, however, for the reasons already mentioned by the appellant, the same could not be produced before the AO. Under these facts, the basis of disallowance of these expenses by the AO on the ground of non-production of the vouchers cannot be sustained. However, at the same time, the claim of the appellant for allowing all the expenses 9 ITA No.3350 & 3216/Del/2010 Asstt.Year: 2006-07 claimed, in the absence of vouchers cannot be given a go ahead. Under these circumstances, the issue of determining assessable income has to be decided on the basis of declared and assessed results of other comparable years. In the case of Maharaja Shri B.P. Singh Deo 76 ITR 690 (SC) and CIT v. Pawan Kumar (2008) 9 DTR (P & H) 104, it has been held that power to make best judgment assessment is not an arbitrary power and the assessment has to be based on relevant basis and material. In the case of R. Tahilram 229 ITR 34 (AT) (AHD.) (TM), it has been held that where the claim of the assessee that the books were lost was found to be false, the estimate based on past records and profits in similar business is appropriate basis. Thus, in my considered opinion, in this case also, for determining the taxable income, the inference, guidance and support needs to taken from the results declared by the appellant in other years. As per 1 comparative study details in his own case filed by the appellant, it has been noticed that in A.Y. 2005 - 06 i.e. in the immediate preceding year, in the similar nature of business, N.P. rate of 9.23% has been declared. The claim the appellant is that, the correct comparison has to be made only from A.Y. 2007 - 08 where the nature of business was similar and the gross commission receipt in A.Y. 2007 - 08 was Rs. 1.47 cr which are comparative to A.Y. 2006-07, where receipts was Rs. 1.44 cr, whereas in A.Y.2005-06 the receipts was only Rs. 37 lacs. However, I do not find much substance in this contention the appellant. As per various authorities quoted above, more appropriately, the comparative study should have been made from the results of preceding years. Hence, I hold that in the case of appellant, the basis should have been taken from A.Y. 2005 - 06. Now, the appellant has himself declared N.P. rate 9.23% in A.Y. 2005-06. It is a common knowledge that some expenses are the nature of fixed expenses, which do not increase or inflate in the san proportion in which the gross receipts increases, like rent, fixed salary, etc. etc ... This factor, obviously, will increase the net profitability of the concern. Keeping in view this aspect and the fact that in A.Y. 2005 - 06 the declared N.P. rate is 9.23%, I hold that it will be 10 ITA No.3350 & 3216/Del/2010 Asstt.Year: 2006-07 most appropriate to determine the N.P. rate in the year under consideration at 15% against declared at 5.54%. This NP rate will take into its consideration all disallowances out of expenses for whatever reason made by the AG. The result of my finding will be that the N.P. will stand calculated at Rs.21,59,780/- against declared at Rs. 7,98,126/- by the assessee, thereby making and sustaining the addition to the extent of Rs. 13,61,654/-.
At this stage, I need to mention that the appellant has filed comparative results of similar case namely M/s Moneyline Marketing (P) Ltd. for A.Y. 2005 -06 wherein N.P. rate has been declared at 1.28% on gross receipts of Rs. 2.83 Cr and for A.Y. 2006 - 07 declaring N.P. rate of 1.6% on gross receipts of Rs. 1.10 Cr. The appellant has also filed comparative details of another firm M/s. Treasure for A.Y. 2007 - 08 wherein on declared gross receipts of Rs. 46.20 lacs, N.P. has been declared at 2.82% which has been accepted u/s. 143 (3) with minor and routine additions in expenses and has claimed that all these comparative results were accepted by the Deptt. Thus this should be the basis for determining the ultimate N.P. rate in the case of appellant and the declared results should be accepted as it is. This contention of the appellant cannot be accepted when the comparative results are available in the case of appellant himself. There remains no need for taking any support or guidance from the case of other appellant.
In view of above, for the reasons already given, the N.P. rate stands determined at 15% which sustains the addition to the extent of Rs.13,61,654/-, as per the calculations given above."
11. On careful perusal of the above, we observe that the assessee did not produce books of accounts and complete relevant bills and vouchers before the Assessing Officer and the Assessing Officer disallowed 94.54% of the 11 ITA No.3350 & 3216/Del/2010 Asstt.Year: 2006-07 expenses claimed by the assessee and during the first appellate proceedings, the Commissioner of Income Tax(A) proceeded to estimate the net profit of the assessee on the basis of 15% of total receipts of the assessee during the year under consideration. The revenue is aggrieved by the action of the Commissioner of Income Tax(A) which restricted the disallowance on the basis of 15% of NP rate of the receipts but revenue authorities are expected to act on the cogent justified basis and the basis of estimation was rightly adopted by the Commissioner of Income Tax(A). Accordingly, we hold that the Commissioner of Income Tax(A) rightly proceeded to estimate the NP on the basis of total receipts of the assessee during the financial year relevant to the assessment year under consideration. We also hold that when the assessee could not produce books of accounts and other relevant complete bills and vouchers before the Assessing Officer, then the Commissioner of Income Tax(A) was justified in estimation of NP rate on the basis of total receipts. The Commissioner of Income Tax(A) rightly noticed that there was a substantial increase in the receipts of the assessee during the year and at the same time, some fixed expenses like rent and fixed salary etc. do not inflate in proportion to increase in receipts. Hence, the Commissioner of Income Tax(A) adopted a balanced view in adopting 15% of total receipts for estimation of net profit of the assessee. The other 12 ITA No.3350 & 3216/Del/2010 Asstt.Year: 2006-07 comparables are not relevant when the assessee herself is declaring higher percentage of NP during earlier and subsequent years of assessment and the Commissioner of Income Tax(A) rightly rejected the same. On the basis of discussions made hereinabove, we are of the view that action of the Assessing Officer in disallowing 94.64% of the expenses claimed was not justified and on the other hand, the Commissioner of Income Tax(A) adopted a reasonable and balanced approach in proceeding to estimate the NP rate of the assessee on the basis of total receipts during the year and also the Commissioner of Income Tax(A) took 15% of total receipts as net profit of the assessee as per factual matrix and other relevant facts and circumstances of the case and we are unable to see any valid or justified reason to interfere with the impugned order in this regard. Accordingly, ground no. 2 of the revenue and ground no. 2 of the assessee are dismissed. Ground No. 1 of the Revenue
12. Ground no. 1 of the revenue reads as under:-
"The ld. Commissioner of Income Tax(A) erred in law and on facts in deleting the addition of Rs.70,170/- made by the Assessing Officer on account of difference in service charges as claimed by the assessee."
13. Apropos above ground of the revenue, the DR submitted that the Commissioner of Income Tax(A) erred in law and on facts in deleting the addition of Rs.70,170/- made by the Assessing Officer on account of 13 ITA No.3350 & 3216/Del/2010 Asstt.Year: 2006-07 difference in service charges as claimed by the assessee. The DR pointed out that as per TDS certificate, the gross service charges had been shown at Rs. 1,44,68,704/- as against Rs.1,43,98,534/- as disclosed by the assessee. Therefore, the short amount had been rightly added by the Assessing Officer.
14. Replying to the above, the AR submitted that the service charges paid to the assessee by ICICI Bank were directly credited to the bank account. The AR further contended that the assessee was not aware of the reason of alleged difference of Rs.70,170 and it was the duty and onus was on the Assessing Officer to specifically acknowledge the assessee about this difference and therefore, at the most, the assessee could not have allowed the credit of TDS related to Rs.70,170. The AR supported the impugned order.
15. On careful consideration of above submissions and contentions, we observe that the Assessing Officer made addition with following observations:-
"61. As per TDS certificate issued by ICICI Bank, enclosed with the return it is seen that total service charges of Rs. 1,44,68,704/- have been credited by the bank to the assessee during the period 1/4/2005-31/3/2006. However, as per return filed the assessee has disclosed only a sum of Rs. 1,43,98,534/-vide questionnaire dated 17/9/2008 the assessee was asked to explain as to why the total service charges received by her had not been disclosed in the return. She was also asked to explain as to 14 ITA No.3350 & 3216/Del/2010 Asstt.Year: 2006-07 why the difference of Rs. 70,170/-should not be added to her income.
(Addition of Rs. 70,170/-)
62. No explanation in this regard has been furnished by the assessee. Accordingly, the amount of Rs. 70,170/ - being commission earned by assessee is added to income of the assessee."
16. On first appeal by the assessee, the Commissioner of Income Tax(A) deleted the addition with following observations:-
" 9.7 The contention of the appellant has been carefully considered. In the TDS certificate issued by ICICI Bank Ltd. the gross service charges (commission) have been shown at Rs. 1,44,68,704/- against Rs. 1,43,98,534/-as declared by the appellant, thus the difference remains of Rs. 70,170/- which has been added by the AO. The appellant has categorically denied the accrual or receipt of this sum of Rs. 70,170/- at any point of time. The claim of the appellant that this sum remains un-identified and unsubstantiated in the bank statement as well as from any other material in possession of the AO. This contention remains un-rebutted in the Asstt. Order. Under these facts, I am constrained to agree with the contention of the AR that in the absence of discharge of onus by the AO of proving the accrual or receipt of said sum, it cannot be considered as undeclared income simply on the basis of mentioning of a figure on the TDS certificate by ICICI Bank. In case the AO wanted to verify this fact, he could have sought the details from the ICICI Bank and only after finding the same being not declared, it could had been added. Hence as per the discussion made above I delete the addition of Rs. 70,170/-. However, in the fitness of things, the appellant is not entitled for the credit of TDS relatable to this sum of Rs. 70,170/- if allowed to the appellant. In case it already stands 15 ITA No.3350 & 3216/Del/2010 Asstt.Year: 2006-07 allowed, the Assessing Officer is directed to withdraw the same."
17. In view of above, we observe that the assessee did not furnish any explanation about the difference in TDS certificate and bank statement and the Assessing Officer made addition in this regard. During first appellate proceedings, the Commissioner of Income Tax(A) held that the undeclared income cannot be considered on the basis of TDS certificate. The Assessing Officer could have verified the same from ICICI Bank (the payer) and only after finding that the same was found undeclared by the assessee, the additions could have been made and the Commissioner of Income Tax(A) deleted the additions. The Commissioner of Income Tax(A) directed the Assessing Officer not to provide credit of TDS in regard to Rs.70170/- but this was not a proper approach. The Assessing Officer should have been given an opportunity to verify the amount shown by the assessee and shown in the TDS certificate issued by the payer ICICI Bank but the Commissioner of Income Tax(A) has decided the issue in favour of the assessee without any verification. Hence we find it appropriate to restore this issue to the file of the Assessing Officer with a direction that the Assessing Officer shall decide the issue by affording due opportunity of hearing to the assessee. The Assessing Officer shall verify the correctness of the amount shown by 16 ITA No.3350 & 3216/Del/2010 Asstt.Year: 2006-07 the assessee in the light of TDS certificate. Accordingly, ground no. 1 of the Revenue is disposed of in the manner as indicated above and deemed to be allowed for statistical purposes.
Ground no. 3 of the assessee
18. Ground no. 3 of the assessee reads as under:-
"That under the facts and circumstances and more so, in view of the fact that complete receipts are subjected to TDS, no interest u/s 234B should have been charged."
19. Apropos ground no. 3, the AR submitted that since complete receipts are subjected to TDS, no interest u/s 234B should have been charged. The DR pointed out that the issue of levy of interest is consequential to the main issue and also fairly accepted that all receipts i.e. commission of the assessee were subjected to TDS. From the orders of the authorities below, we observe that undisputedly all receipts of the assessee were subjected to TDS and a certificate was also issued by ICICI Bank in this regard. In this situation, we direct the Assessing Officer to decide the issue of levy of interest on the assessee u/s 234B of the Act by considering the result of ground no. 1 of the Revenue which has been restored to his file for a fresh adjudication by the earlier part of this order and the Assessing Officer is directed to grant appropriate relief to the assessee in this regard. 17 ITA No.3350 & 3216/Del/2010 Asstt.Year: 2006-07 Accordingly, ground no. 3 of the assessee is disposed of with the direction to the Assessing Officer as mentioned hereinabove.
20. In the result, the appeal of the revenue is partly allowed and appeal of the assessee is dismissed.
Order pronounced in the open court on 20.12.2013.
Sd/- Sd/-
(G.D. AGRAWAL) (CHANDRAMOHAN GARG)
VICE PRESIDENT JUDICIAL MEMBER
DT. 20th DECEMBER 2013
'GS'
Copy forwarded to:-
1. Appellant
2. Respondent
3. C.I.T.(A)
4. C.I.T. 5. DR
By Order
Asstt.Registrar