Income Tax Appellate Tribunal - Mumbai
Sunil Mittal, Mum vs Department Of Income Tax on 24 December, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "A", MUMBAI
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
AND SHRI VIVEK VARMA, JUDICIAL MEMBER
ITA No. 6756/Mum/2003
(Assessment year : 1993-94)
ITA No. 3015/Mum/2003
(Assessment year : 1994-95)
Income-tax Officer 14(2)-4, Vs Shri Sunil Mittal,
rd
Earnest House, 3 Floor, C/o Satischandra Agarwal,
Nariman Point, 1201-1202, Sewai, B-
Mumbai -400 021 Building, 12th Floor, Raheja
Garden, Opp. Teen Hath
Naka, Thane (West)
PAN: A.C.C 33/7 S
(Appellant) (Respondent)
Appellant by : Shri Om Prakash Meena
Respondent by : Shri Sunil Mittal
Date of Hearing : 24-12-2012
Date of Pronouncement : 23-01-2013
ORDER
PER VIVEK VARMA, JM:
The two appeals have been filed by the department against separate orders CIT(A) XIV, Mumbai dated 30.07.2003 and 02.01.2003 respectively.
ITA no. 6756/Mum/2003 for Assessment year 1993-94:
2. The department has raised the following grounds:
1. On the facts and in the circumstances of the case the ld. CIT(A) erred in law in directing the AO to delete the addition of Rs 3,00,000/- on account of income out of refund racket.
2. On the facts and in the circumstances of the case the ld. CIT(A) erred in law in directing the AO to assessee income from Hawala business at Rs 9,912/- as against Rs 45,000/- as per assessment order.
3. On the facts and in the circumstances of the case the ld. CIT(A) erred in law in directing the AO to delete the addition of Rs 3,04,930/- being income of non existence person with the direction to assessee the said income substantively in the hands of such person only.
2 Shri Sunil Mittal ITA 6756/M/2003 ITA 3015/M/2003 The appellant prays that the order of the CIT(A) on the above ground(s) be set aside and the order of the Assessing Officer be restored. The appellant craves leave to amend or alter any ground or add a new ground which may be found necessary."
3. Ground no. 1 is against the deletion of Rs. 3,00,000.
4. The facts are that the assessee was alleged to be running a refund racket and was operating from Thane and Kalyan, wherein the assessee would solicit the refund in the cases of salaried employees with private organization in connivance with some CAs and trusts. According to the deposition made u/s 131 dated 17.01.1994, the assessee explained the modus operandi for such fraudulent refunds and as consequence of the modus operandi, as explained, it was presumed that the assessee was the man behind the entire fraud exercise. It was thus presumed that the assessee would retain substantial portion and pass on the remaining 25-30% to such fraudulent assessees and earned between 20 to 25 lacs in assessment year 1994-95. The AO, therefore, on the basis of these presumptions, estimated assessee's income from this fraudulent exercise at Rs. 3,00,000 and added it to the income of the assessee.
5. Before the CIT(A), the assessee explained that he was an ITP and was only assisting its clients. The assessee submitted that the fact that private sector employees filed fraudulent returns was between those persons and the revenue department. The assessee also submitted that neither it was the case of the department that the refunds were issued to the assessee nor was the case of the department that the assessee had solicited any refunds. On the contrary, after the fraud was blown up, the department issued notices u/s 148 on all such assesses who had claimed false refunds and not only added the amounts to their income, but raised the equivalent demand in all such cases and subsequently recovered the entire fraudulent refund amounts and also levied penalty in all such cases.
3 Shri Sunil Mittal ITA 6756/M/2003 ITA 3015/M/2003
6. It was also submitted before the CIT(A) that even the search u/s 132 did not indicate anything adverse against the assessee with regard to the fraudulent refunds, claimed by private sector employees from whom the department was able to recover Rs 26,01,118.
7. On the basis of these facts, the CIT(A) deleted the addition on the basis of complete lack of evidence against the assessee.
8. The department is now before the ITAT.
9. Before us, the DR strenuously supported the order of the AO and submitted that the assessee was deep into the modus of fraudulent refunds and that the assessee has himself admitted the same in the statement recorded. The DR, therefore, submitted that the addition should be sustained.
10. The assessee, representing himself, supported the decision of the CIT(A) and pleaded that the CIT(A) has taken the decision after considering facts and search and seizure operation against him.
11. We have heard the arguments and have gone through the order of the revenue authorities and we find that the CIT(A) has given a very reasoned finding. We also found that there was no evidence despite the search operation against him, which would indicate any income from the fraudulent activity committed by the assessee.
12. The only evidence that is the formation of basis of addition was statement recorded u/s 131, wherein the assessee had only explained the modus for claiming of fraudulent refund. In this statement also, the assessee had not admitted to have been the real beneficiary. In any case, the addition based only on the basis of an outside information 4 Shri Sunil Mittal ITA 6756/M/2003 ITA 3015/M/2003 and on uncorroborated statement, cannot be sustained. In the instant case, even in the search action, nothing was found, which would prove or indicate and consequently indict the assessee in the fraud committed against the Income Tax Department.
13. We, therefore, sustain the findings of the CIT(A) and reject the ground of appeal, filed by the department.
14. Ground no. 2 is against the restriction of addition of Rs. 45,000/- to Rs. 9,912/-.
15. The fact is that in the statement recorded u/s 131, it was stated by the assessee that he had given loans to M/s Sanjeev Fabrics and M/s Goyal Textiles to the tune of Rs. 1,10,000/- and Rs. 3,06,000/- respectively, which cannot be termed as genuine. The AO, on the basis of statement recorded estimated a sum of Rs. 45,000/- as income from such hawala transactions.
16. Before the CIT(A), the assessee produced his books and pointed out that he had actually earned Rs. 1,650/- on Rs. 1,10,000/- given to Goyal Textiles for five months and Rs. 8,262/- on Rs. 3,06,000/- given to Sanjeev Fabrics for 9 months. On the basis of these facts, the CIT(A), reduced the amount added as commission on hawala transaction to Rs. 9,912/- against Rs. 45,000/-, estimated by the AO.
17. The department is in appeal before us and the DR strongly supported the decision of the AO, in adding Rs. 45,000/-. The AR on the other hand supported the observations of the CIT(A).
18. We have heard the arguments from either side and we find that except for the admission of the assessee in his statement u/s 131 that he was giving hawala loans, nothing else has been found in the search 5 Shri Sunil Mittal ITA 6756/M/2003 ITA 3015/M/2003 nor any evidence indicated anything beyond, what the assessee had himself admitted before the CIT(A).
19. Even before us, the DR has not been able to bring about anything which, which could indicate anything that could be added beyond Rs. 9,912/- on factual basis.
20. In these circumstances, we are inclined to sustain the addition made of facts at Rs. 9,912/-, then the addition made on estimation, as done by the AO.
21. We, therefore, reject the ground of appeal.
22. Ground no. 3 is against the direction to the AO to delete the addition of Rs. 3,04,930/-.
23. The facts are that corroborative evidence was gathered, whereby the assessee had generated 11 entities, in whose names the return were being filed and taxes were being paid and gradually increasing the capital. Out of these capitals, the generated persons would give loan to the assessee, who would then give loans to other persons. Returns in all these assesses were filed and assessments were framed. It is undisputed fact that all these generated assessees were assessed u/s 144.
24. According to the seized documents in the current assessment year, the assessee had generated Rs. 3,04,930/-. This was added to the income of the assessee on substantive basis and on the 11 generated assessees on protective basis.
25. The issue was taken up before the CIT(A), who directed the AO to delete the addition made on the assessee on substantive basis and 6 Shri Sunil Mittal ITA 6756/M/2003 ITA 3015/M/2003 directed, that income of so called non existent persons should substantially be assessed in the hands of such persons only, and taxes be recovered from such persons. If such persons were found to have been created by the assessee then taxes be recovered from the assessee.
26. The department is in appeal against these directions and pleaded that since it has been conclusively been proved that it was the assessee who had created the 11 non existent assessee, then it was incorrect on the part of the CIT(A) to give a contrary decision.
27. The AR submitted that an appropriate view may be taken.
28. We have heard the arguments and are of an opinion that the CIT(A) has indirectly sustained the addition made by the AO and also directed the AO to collect the taxes from the assessee, if those or any of the 11 non existent persons are not to be found, because, the CIT(A) has very categorically directed the AO, "... if any, and since those non existing persons were created by the appellant himself, he would pay taxes for such non existing persons, if any, as per demand notice, in such non existing persons". The CIT(A) only meant, if out of such persons, there is any genuine person/assessee, then the assessee should not be burdened by that persons' liability. If in circumstance, the assessee(s) is non existent as in the case is quite apparent, then the liability has been cast upon the instant assessee, by the CIT(A), to meet the tax demands and make the tax payments accordingly.
29. We, endorse this finding of the CIT(A) and endorse the decision of the CIT(A).
30. In the result, the appeal filed by the department is dismissed.
7 Shri Sunil Mittal ITA 6756/M/2003 ITA 3015/M/2003 ITA no. 3015/Mum/2003 for Assessment year 1994-95:
31. The appeal filed by the department is directed against the order of CIT(A) XIV, Mumbai, dated 02.01.2003, wherein, the department has raised the following grounds :
1. On the facts and in the circumstances of the case the Ld. CIT(A) erred in law in deleting the addition of Rs. 5,55,036/- u/s 69A being investment made in acquisition of jewellery, out of undisclosed income.
2. On the facts and in the circumstances of the case the Ld. CIT(A) erred in law in deleting the addition of Rs. 90,000/- added u/s 69A being unexplained cash.
3. On the facts and in the circumstances of the case the Ld. CIT(A) erred in law in deleting the addition of Rs. 5 Lacs added u/s 69A being investment in future and fixtures from undisclosed sources.
4. On the facts and in the circumstances of the case the Ld. CIT(A) erred in law in deleting the AO to assessed the salary income receivable from M/s Agarwal Trading Co. Rs. 37,500/- as against assessed salary of Rs. 48,000/-.
5. On the facts and in the circumstances of the case the Ld. CIT(A) erred in law in deleting the addition of Rs. 4,00,000/- being commission income holding that no commission income of Rs. 4,00,000/- could be assessed in the hands of the assessee.
6. On the facts and in the circumstances of the case the Ld. CIT(A) erred in law in deleting the AO to tax consultancy income of the assessee at Rs. 35,000/- in place of the assessed consultancy income or Rs. 95,000/-.
7. On the facts and in the circumstances of the case the Ld. CIT(A) erred in law in deleting the AO to tax interest and dividend income at Rs.
10,269/- as against assessed income of Rs. 35,000/- under the said head.
8. On the facts and in the circumstances of the case the Ld. CIT(A) erred in law in deleting the AO to tax 10% of Rs. 89,602/- being alleged commission out of Hawala Loan transaction earned by the assessee as against the assed commission of Rs. 89,602/- under the above head.
9. On the facts and in the circumstances of the case the Ld. CIT(A) erred in law in deleting the addition of Rs. 30 lacs being income out of refund rackets.
10. The appellant crave to amend or alter any ground or add a new grounds which may be found necessary.
32. Grounds 1, 2 & 3 are additions on account of deeming provisions of section 69A and 69C, wherein, the AO has added Rs. 5,50,036/- on account of jewellery found at the time of search, Rs. 90,000/- as unexplained cash found and Rs. 5,00,000/- on account of furniture and fixtures inventorised at the time of search.
8 Shri Sunil Mittal ITA 6756/M/2003 ITA 3015/M/2003
33. The assessee was subjected to search and seizure operation u/s 132 of the Income Tax Act, 1961 on 07 & 08.01.1994 at the residential and business premises. During search operation, the following were found and seized form the assessee from his residence:
Sr.No. Items Found Seized
(Rs.) (Rs.)
01 Cash 90,533 50,000
02 Jewellery 6,51,834 5,50,036
03 Shares 18050 18,050
04 Furniture & 5,00,000 5,00,000
fixtures
(under deemed
seizure)
34. As per the submissions made before the CIT(A), the assessee contended that he was not provided with the seized material and because of which, he was unable to assist the AO. The AO, on consequential non cooperation added the above items, except for shares, under section 69A and 69C.
35. Since, the assessee took the plea that he was not provided with the copies of seized papers, the CIT(A) directed the AO to provide the assessee with the necessary documents. The assessee, on receipt of the documents filed his reply, sent the same to the AO for his comments in the remand proceedings. On receipt of the remand proceedings, the CIT(A) came to the conclusion:
a) Jewellery : Jewellery was found from the bed room of the assessee's parents and the entire jewellery was ladies jewellery.
The assessee also submitted to the CIT(A) that on the date of search, he was still a bachelor and the only lady in the house was his mother and since the entire jewellery found and seized were ladies, it actually belonged to his mother. Even in the remand report, the AO could not controvert this fact. Since the jewellery belonged to the mother of the assessee, the CIT(A), deleted the addition.
9 Shri Sunil Mittal ITA 6756/M/2003 ITA 3015/M/2003
b) Cash of Rs. 90,000/- : It was submitted that cash belonged to the firm M/s Aggarwal Trader, where assessee was a partner. The books reflected the said balance on the date of search. The books were also found and were in possession of the department. This was also sent to the AO for his comments. Since the cash was duly reflected in the books of the firm, the CIT(A) held that the cash did not belong to the assessee as his unexplained cash and deleted the same.
c) Investment in furniture and fixtures at Rs. 5,00,000/- :
The AO added the inventory value of furniture and fixtures at Rs. 5,00,000. It was submitted that the flat belonged to the parents of the assessee, which was purchased in 1986 and the furniture & fixtures was also purchased around the same time or immediately thereafter. This submission was also sent to the AO for his comments in remand proceedings. Since there was no separate evidence, indicating that the furniture & fixtures belonged to the assessee or the assessee spent his undisclosed money to acquire the same, the CIT(A), deleted the same.
36. On these factual decisions, the department is in appeal on these points.
37. The DR relied on the order of the AO, whereas, the assessee was representing the case himself, pleaded that the CIT(A) had taken a very appropriate view.
38. We have heard the rival arguments and we find that on these additions, the decision taken by the CIT(A) is based on facts, ascertained and adjudicated only after the comments were received from the AO in remand proceedings, where the AO was unable to controvert the facts which were pointed out by the assessee in his
10 Shri Sunil Mittal ITA 6756/M/2003 ITA 3015/M/2003 submissions before the CIT(A) and also in the remand proceedings. On these facts, we are of the opinion that the CIT(A) was correct in deleting these three additions. We, sustain the order of the CTI(A) on these three additions.
39. Grounds no. 1, 2 & 3 are therefore rejected.
40. Grounds no. 4 & 5.
41. The facts are, the assessee was a partner in M/s Aggarwal Trading Company and as per the Deed of Partnership, the assessee would receive Rs. 48,000/- as salary and commission @ 2% of turnover (Rs. 4,00,000/-, being 2% of Rs. 2,00,00,000/- turnover). The assessee submitted before the CIT(A), that, his salary income from the said firm was only Rs. 37,500/-. However, despite the fact that according to the partnership deed, the assessee would have received commission on turnover, as provided for, no such commission income was received by the appellant. Therefore, the question of estimating the commission income did not arise at all. The AO did not accept the said explanation and stated that, these points were discussed at length in the assessment order for A.Y. 1993-94, where an amount of Rs. 48,000/- was added in the hands of the appellant as salary received from M/s Agarwal Trading Co, and an amount of Rs. 8,62,000/- was added being commission @ 2% of the business turnover of the said firm. Thus like the last year, an amount of Rs. 48,000/- was added as salary from M/s Aggarwal Trading Co. and Rs. 4 lacs being 2% of the estimated turnover of M/s Aggarwal Trading Co. as commission earned. He, therefore, added Rs. 2,48,000/-, to the total income of the appellant assessee.
42. The assessee submitted that, the AO estimated the turnover of the said firm at Rs 2 crores, and thereby, estimated commission 11 Shri Sunil Mittal ITA 6756/M/2003 ITA 3015/M/2003 income at Rs. 4 lacs, which was added in the income of the appellant along with salary of Rs. 48,000/- from the said firm. He further submitted that, though there was a clause in the partnership deed for entitlement of salary and commission, he did not receive either the salary or the commission. The assessee, further stated that, as per clause 14 of the said partnership deed it was provided that, the partners could waive the salary and commission. The assessee submitted that the AO also did not refer to any evidence to prove that, the appellant had actually received such salary or commission from the said firm, and submitted that the additions were merely made on the basis of said clause in the partnership deed. The appellate maintained his books of accounts on the cash system of accounting. The income could not he considered, unless it was actually received by the appellant. The said firm was dissolved in January 1994, without making any payment for salary and commission. In view of the above factual position the appellant requested that, the additions made by the AO, may be deleted, as no such salary and commission income were received by the appellant. The assessee, without prejudice to the above, as the appellant vide letter dated 17/02/1997 offered Rs. 37,500/- as salary income receivable from M/s Aggarwal Trading Co. Since, the appellant was entitled for 9 months salary @ Rs. 4,000/- p.m. and Rs. 6,000/- p.m. to Smt. Kaushalyadevi Mittal. The actual salary receivable by the appellant was as under:
Rs. 72,300 X 4 = Rs. 32,133/-9
Thus, according to the assessee, the salary of Rs. 32,133/- would be assessable in the hands of the appellant, because the business of the firm was close w.e.f. 10/01/1994, after the search and seizure action. Thus, the business of the firm was for the period from 01/04/1993 to 01/01/1994 i.e. for 9 months. These points were referred to the AO for his comments in remand proceedings, wherein the AO stated that, "the addition on account of salary and commission income assessed by the AO at Rs. 4,48,000/- was not received by the assessee as verified from
12 Shri Sunil Mittal ITA 6756/M/2003 ITA 3015/M/2003 the seized material". In the further submission with respect to the observation in the second Remand proceedings, the appellant reiterated the same arguments, as put forth in the original submission as narrated above, and requested to assess the salary income receivable in the hands of the appellant at Rs 32,133/-, in place of Rs 48,000/- added by the A.O, and further requested that, since no commission income was received by the appellant, or paid by the firm, no presumptive addition could be made of Rs. 4 lacs and the same may be deleted.
43. After hearing the arguments of the appellant and after taking into consideration the observation made by the AO in the Remand Report(s), the CIT(A) observed that even in the letter dated 17/02/1997, the assessee offered Rs. 37,500/-. The CIT(A), thus concluded that the appellant's salary income from M/s Aggarwal Trading Co., should be taken at Rs. 37,500/- in place of the salary income taken by the A.O at Rs. 48,000/-. He, therefore, directed the AO to assess the salary income receivable from M/s Aggarwal Trading Co., at Rs. 37,500/-.
44. Regarding the commission income of Rs. 4 lacs, since the appellant had not received any commission income, which was confirmed by the AO in his Remand Report, the CIT(A), directed the AO that, no commission income of Rs. 4 lacs could be assessed in the hands of the appellant, and he, deleted the addition of Rs. 4 lacs made on account of commission income.
45. The department is in appeal.
46. Before us, the DR relied on the observations of the AO and the assessee relied on the decision of the CTI(A).
13 Shri Sunil Mittal ITA 6756/M/2003 ITA 3015/M/2003
47. On hearing and on going into the facts as reproduced in the order of the CIT(A), we are of the opinion that the CIT(A) had taken the factual view of the issue in question and concluded that income from salary cannot exceed, what has actually been received by him, and specially in the circumstance that the assessee was maintaining the books on cash system.
48. In so far as the commission income, the AO himself, in the remand proceedings, accepted that no commission was paid by the firm to the assessee. It was that basis, the CIT(A) deleted the addition of commission income.
49. Before us, as well, neither any forwarding evidence nor any submissions were placed, which could indicate that the assessee was in receipt of commission. As there was no evidence in the seized papers nor was there any credit of commission in the books/bank statement maintained by the assessee on which reliance could have been placed for making or sustaining the addition. Neither the AO in the assessment order nor the DR before us could provide any convincing argument, which could have helped us to sustain the addition made by the AO.
50. We, in the absence of any evidence to the contrary, sustain the findings and decision of the CIT(A) and consequentially reject the grounds filed by the department.
51. Grounds no. 4 & 5 are rejected.
52. Ground no. 6 : Addition of Rs. 95,000/-, reduced to Rs. 35,000/-.
14 Shri Sunil Mittal ITA 6756/M/2003 ITA 3015/M/2003
53. The facts are that the assessee is an ITP and as per the seizure, it was noted by the AO that the assessee had filed 394 returns in the period covering 1989-90 to 1994-95, as per seized documents, B-2, B- 3, B-10, A/1-16, & A/1-22. On the basis of these documents, he estimated the consultation fee at an average of Rs. 271/- per return, the AO computed the fee at Rs. 95,000/-. In the submissions before the CIT(A), the assessee submitted that he had actually earned Rs. 25,000/-. These submissions were forwarded to the AO for his comments. In conclusion of the remand proceedings, in the Remand Report dated 20/11/2002, the AO stated that, "total number of returns of income filed by the appellant Shri. Sunil Mittal on behalf of his clients as stated in the statement recorded u/s 132(4) of the IT Act, dated 17/01/1994 were 350, and amount of income estimated by the AO on account of consultancy income worked out to be Rs. 271/- per return of income and, therefore, estimated the total consultancy income at Rs. 95,000/-.
54. The appellant in the submission before the CIT(A) contended that the AO did not make any factual observation, while making addition of Rs. 95,000/- as consultancy income. To prove his arguments, the appellant filed the chart, which was prepared from the seized material, during the course of inspection granted and also at the time of remand proceedings. From the said chart, the assessee submitted that he had filed only 195 returns during the relevant previous year pertaining to A.Y. 1994-95.
55. The CIT(A), after taking into consideration all the relevant submissions on this issue concluded that in the current year, the assessee had actually filed only 194 returns and not 394, as per the basis of addition made in the assessment order. The CIT(A), accepted the average fee of Rs. 271/- per return and computed average expenses at 36%, concluded that the assessee would have earned Rs.
15 Shri Sunil Mittal ITA 6756/M/2003 ITA 3015/M/2003 33,820/- as fee for filing the returns and held that Rs. 35,000/- would be reasonable addition to be made.
56. The department is in appeal before the ITAT on this reduction made by the CIT(A).
57. The DR, vehemently argued that the observations made by the AO were correct, while on the other hand, the assessee supported that observations of the CIT(A).
58. We have heard the arguments of both the parties and after perusing the orders of the revenue authorities, we find that the documents recovered in the search operations pertained to period from 1989-90 to 1994-95, wherein the returns filed in the relevant period were only 194, which is under our consideration. This was proved by the assessee in the proceedings before the CIT(A) and in the remand proceedings before the AO by way of a chart, prepared by the assessee, about filing of the returns of income year wise, from the seized material, from the period 1989-90 to 1994-95. We find that applying revenues and cost factors involved and adopting the average of Rs. 271/-, as per the average taken by the AO and allowing expenses, the residual income cannot exceed Rs. 33,820/-, as computed by the CIT(A). Therefore, according to us, the income estimated by the CIT(A) at Rs. 35,000/- is very reasonable, which we sustain, consequentially rejecting the submissions made by the DR in estimating the income at Rs. 95,000/- as done by the AO.
59. Thus, the ground of appeal is rejected.
60. Ground no. 7 is with regard to estimating the dividend income at Rs. 35,000/-.
16 Shri Sunil Mittal ITA 6756/M/2003 ITA 3015/M/2003
61. In the instant year, the appellant had admitted an amount of Rs. 10,269/- as dividend income, as per computation of total income filed. In absence of any details, the AO estimated interest and dividend income at Rs. 35,000/-.
62. In the submissions made before the CIT(A), the appellant submitted that, the appellant had declared the interest and dividend income at Rs. 10,269/- in the return of income. Against this, the AO estimated the same at Rs. 35,000/-, observing that, the appellant did not file any evidence to substantiate the same. The assessee submitted that he could not substantiate, because all the books of accounts and documents were seized by the Department and in absence of the same, no evidence could be produced before the AO, at the time of assessment proceedings. Considering these facts, the CIT(A) called for the remand report, wherein, in the Remand Report dated 20/11/2002, the AO, in para 4 & 6 stated that, the addition on account of interest and dividend income assessed by the AO at Rs. 35,000/- was not received by the assessee, as verified from the seized material.
63. The CIT(A), thus concluded, on the submissions of the assessee and the remand report that the AO had only estimated the interest and dividend income at Rs. 35,000/-, whereas, the appellant had correctly declared Rs. 10,269/- as income from interest and dividend in the return of income, on the basis of bank statement. The CIT(A) accordingly, directed the AO to take the interest and dividend income at Rs. 10,269/- in place of the estimated income at Rs. 35,000/-.
64. The department is in appeal before the ITAT on this issue.
65. Before us the DR relied on the observations made by the AO, whereas, the assessee, submitted that the view taken by the CIT(A) was correct.
17 Shri Sunil Mittal ITA 6756/M/2003 ITA 3015/M/2003
66. We have heard the arguments of either side and have perused the orders of the revenue authorities and we find that the CIT(A) has taken the decision after the receipt of the remand report, wherein the AO had after going through the seized documents came to the conclusion and thereafter, accepted that in the impugned year, the assessee had not received any dividend or interest income.
67. In the light of these observations of the CIT(A), we are of the view that the decision taken by the CIT(A) was very reasonable. We, therefore, reject the ground of appeal, filed by the department.
68. Ground no. 8 is with regard to the addition of Rs. 89,602/-, being commission out of hawala loans.
69. The AO stated in the order that, an amount of Rs. 89,602/- being 4% commission income earned on total transactions in hawala loans amounting to Rs. 22,40,050/-, had been added in the hands of M/s Sanjay Enterprises, (a sister concern of the appellant), on protective basis, with the comment that, "the same would be added in the hands of the appellant on substantive basis, as the appellant was a real beneficiary". Accordingly, the said commission income, out of hawala loans transactions, amounting to Rs. 89,602/- was added in the hands of the appellant.
70. The assessee submitted before the CIT(A), that the AO simply referred to the order of M/s Sanjay Enterprises, for A.Y. 1993-94, which referred to the assessment order for A.Y. 1992-93, while making this addition. The AO had taken the total transactions of hawala loans at Rs. 22,40,050/- and estimated the comrnission @ 4% on the same, which came to Rs. 89,302/-. There was no basis for estimating the transaction of hawala loans at Rs. 22,40,050/- and the commission @ 18 Shri Sunil Mittal ITA 6756/M/2003 ITA 3015/M/2003 4% there on, in the assessment year under consideration. There was no evidence in the search material/documents, to assume that, the appellant earned such income. The assessee also referred to the order of the coordinate Bench in Mumbai ITAT, filed by M/s Sanjay Enterprises for A.Y. 1992-93, wherein it was held that, "an expenditure for earning such income should be allowed at 90% of such gross commission income". In view of the said judgment of the Hon'ble ITAT, the deduction @ 90% may be allowed from the alleged commission income, (copy of the judgment of Hon'ble ITAT is enclosed in the paper book). As such, out of the gross commission income of Rs. 89,602/-, which was estimated in the case of M/s Sanjay Enterprises protectively, an amount of the expenditure of Rs. 80,642/- being 90% should be allowed as expenses and only Rs. 8,960/- may be treated as income of the appellant.
71. The issue was referred to the AO for his comments in remand proceedings. The AO in the Remand Report dated 20/11/2002 stated that, addition on account of commission out of hawala loan transactions of Rs. 89,602/-, addition made in the case of M/s Sanjay Enterprises was on protective basis and substantive in the hands of the appellant.
72. The CIT(A), after considering the entire factual matrix, which included the order of the coordinate Bench of Mumbai ITAT in the case of Sanjay Enterprises, concluded to tax 10% of Rs. 89,602/- being alleged commission, out of hawala loan transactions earned by the appellant. He, therefore, directed the AO to restrict the addition of Rs. 89,602/-, to an addition of Rs. 8,960/- on account of commission out of hawala loan transactions, on substantive basis in the hands of the appellant.
73. The department is in appeal before the ITAT.
19 Shri Sunil Mittal ITA 6756/M/2003 ITA 3015/M/2003
74. Before us the DR submitted that the fact that the assessee was indulging in hawala business is not in dispute and in such circumstance, the AO was correct in estimating the income at Rs. 89,602/-, even though a similar addition was made in Sanjay Enterprises on protective basis.
75. The assessee, on the other hand submitted that the view taken by the CIT(A) was to be relied upon.
76. After hearing the parties, we find that a definite view has been taken by the coordinate Bench in the case of Sanjay Enterprises. The addition has been based primarily on the statement recorded under section 132(4), wherein the assessee has accepted to be having hawala business. Since the addition is entirely based on the addition made in Sanjay Enterprises, though protectively, cannot be sustained. However, we also find that even at this stage, the assessee has not been able to bring out any evidence, which could prove otherwise. In these circumstances, we sustain the findings and accept the estimate made by the CIT(A), which would meet the ends of justice, considering the fact that Sanjay Enterprises was a sister concern of the assessee and on which, the ITAT has already confirmed a similar addition.
77. Accordingly, this ground of appeal, filed by the department is rejected.
78. Ground no. 9 pertains to addition of Rs. 30,00,000/- being income out of refund racket.
79. Similar addition was made in the preceding assessment year, which were also based on the same seized papers, i.e. bundle No. 6, 7, 9, 10, 11, 12, 13, 14, 15, 16, 18, 19 and 22 to the Panchanama, dated 08/01/1994, wherein the AO stated in the order in assessment year 20 Shri Sunil Mittal ITA 6756/M/2003 ITA 3015/M/2003 1993-94, that, the appellant was running the refund racket of private salary employees, employed with private companies, in connivance with some C.As and some trusts. The modus operandi was that, the concerned assessees were setting off the salary income, by claiming loss under the head "Business". Due to which, the refund arose, in all cases, which was deducted by the Department on account of TDS on salaries. The appellant himself had explained the modus operandi applied for claiming bogus refund, in his deposition recorded u/s 131 of the I.T. Act, dated 17/01/1994. On the basis of this deposition, an amount of Rs. 30,00,000/- was added in the hands of the appellant, being income from fraudulent encashment on refunds.
80. The assessee submitted before the CIT(A), that, the allegation and the additions made were without any basis and accordingly no addition was called for in the hands of the appellant. It was undisputed fact that, the appellant was a Income Tax Practitioner (ITP) and, the cases alleged by the AO, related to some employees of the private sector. It was not denied that, the returns were filed by them. Whether these returns were fraudulent or not, was the matter between the said employees anal the Income Tax Department. It was not the case of the AO that, the refunds in such cases were issued to the appellant. Further, subsequent to the search on the assessee, such returns of income were reopened under section 148 of the Income Tax Act and were taken under scrutiny. The department, by assessing those persons, not only disallowed the refunds granted to them, also initiated penalty proceedings and raised demands on such assessees. If at all it was the assessee, who was the mastermind in the racket, then how the refunds were received by the clients of the assessee, then how could such demands would have been raised, in the cases of such employees (the copies of order in such few cases were enclosed in the paper book). The assessee further submitted that, he merely acted as an ITP in these cases and the refunds had neither accrued to him, nor received by him. Further it was natural for most of the assessees to 21 Shri Sunil Mittal ITA 6756/M/2003 ITA 3015/M/2003 keep there bank passbooks etc, with their Tax Practitioner, which fact would not lead to the conclusion that, such bank accounts belonged to the appellant. Even if, in some cases of the employees of private sector companies, the refund had been granted on the basis of the returns of income filed, in all such cases, the scrutiny assessments were made, and the Department had recovered such refunds granted wrongly, by raising the demands and recovering the same from the said employees. In view of the above, it was submitted that, addition of Rs. 30,00,000/- was uncalled for, which may be deleted, as the assessee was not the beneficiary of such fraudulent refunds. These submissions were sent for the AO's comments, who vide
81. Remand Report dated 20/11/2002 stated that, "with regard to the addition of income of Rs. 30,00,000/- out of refund racket, the employees of private sector had filed fraudulent returns, through the assessee, to claim the refund, and refund of Rs. 25,53,469/-, was obtained by the assessee. The AO had estimated such refund at Rs. 30,00,000/-, considering some omissions. The facts of the case as per seized material were that, as per total of 135 refund orders, contained in bundle No. 36 & 37 of the seized material, the total of such refunds worked out to Rs. 26,01,118/- and not Rs. 25,53,469/- as worked out by the AO. The total of the list of 138 refunds as calculated by the AO was enclosed herewith in support of the addition.
82. While offering the comments on the Remand Report of the AO, the assessee submitted that, the AO in his Remand Report did not specifically observe, whether such refunds actually accrued to the appellant or to the concern employees of the private companies. On the contrary from the sample copies of orders in case of the respective employees of private sector, for A.Y. 1992-93 and 1993-94 made u/s 143(3) of the I T Act, dated 09/11/98 and 20/11/1998, respectively, it was found that, such refunds were recovered by raising the demand, 22 Shri Sunil Mittal ITA 6756/M/2003 ITA 3015/M/2003 and the even the appeals filed before the CIT(A), were dismissed in the appeals of such employees. Thus, it was argued by the assessee before the CIT(A) that, no income accrued to the appellant.
83. The CIT(A), after going through the facts of the case from the assessment order and after hearing the arguments of the appellant, and after perusing the seized material, particularly bundle No. 36 & 37 of the seized material, he found that the respective AOs had reopened such cases and made assessments u/s 143(3) raising the demands against such employee assessees and also levied penalty u/s 271(1)(c), for declaring inaccurate particulars of income. Thus, the entire evidence, as narrated above indicated that, Shri Sunil Mittal only acted as ITP in helping the respective employees of the private companies, to file the returns of income and claim the refunds, which were issued to them. No any evidence in the seized material pointed out towards the fact that, all these refunds claimed by the respective employees of private companies, ultimately accrued to the assessee. The CIT(A), accordingly, held that the income of Rs. 30,00,000/- assessed in the hands of the appellant was unreasonable and without any evidence on record. He, therefore, directed the AO to delete the addition of Rs 30,00,000/- made by him, being income out of refund rackets.
84. The department is in appeal against this decision of the CIT(A).
85. Before us the DR and the AR relied their arguments as per the arguments in assessment year 1993-94.
86. We have discussed the issue on facts in assessment year 1993- 94, wherein the addition is based on the same set of seized documents and we have taken the decision, wherein, we have deleted the addition.
23 Shri Sunil Mittal ITA 6756/M/2003 ITA 3015/M/2003
87. Since the addition is based on same facts and on same seized documents, respectfully following our own order in the assessment year 1993-94, we delete the addition, in this year as well.
88. In the result, the ground of appeal is dismissed.
89. In the result, the appeal filed by the department is dismissed.
To sum up:
Departmental appeal for AY 1993-94 is dismissed. Departmental appeal for AY 1994-95 is dismissed. Order pronounced in the open Court on 23rd January, 2013.
Sd/- Sd/- (B. RAMAKOTAIAH) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai: 23rd January, 2013 Copy to: 1) The Appellant 2) The Respondent 3) The CIT (A)-XIV, Mumbai.
4) The Commissioner of Income-tax -XIV, Mumbai
5) The DR, "A" Bench Mumbai By Order / / True Copy / / Asst. Registrar, ITAT, Mumbai *Chavan