Income Tax Appellate Tribunal - Indore
Dinesh Mehta, Indore vs Dcit, Central-I, Indore on 7 February, 2024
आयकर अपीलीय अिधकरण, इं दौर ायपीठ, इं दौर
IN THE INCOME TAX APPELLATE TRIBUNAL
INDORE BENCH, INDORE
BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER
AND
SHRI B.M. BIYANI, ACCOUNTANT MEMBER
IT(SS)A Nos. 33 to 39/Ind/2023
A.Ys. : 2008-09 to 2014-15
Shri Dinesh Mehta, DCIT/ACIT (Central)-I,
C/o Life Care Medicose,
बनाम/ Indore
Plot No.2, PSP-II, Vs.
Scheme No.78,
Vijay Nagar,
Indore
(PAN: ACMPM8806A)
(Appellant/Assessee) (Respondent/Revenue)
Assessee by Shri Anil Khandelwal, CA & Ld. AR
Revenue by Shri Ashish Porwal, Sr. DR
Date of Hearing 29.01.2024
Date of Pronouncement 07.02.2024
आदे श / O R D E R
Per Bench:
Feeling aggrieved by a consolidated appeal-order dated 20.06.2023 passed by learned Commissioner of Income-tax (Appeals)-3, Bhopal ["CIT(A)"], which in turn arises out of a consolidated assessment-order dated 22.03.2016 passed by ACIT, Central-I, Indore ["AO"] u/s 153A/143(3) of Income-tax Act, 1961 ["the Act"], the assessee has filed the captioned seven (7) appeals for Assessment-Years ["AY"] 2008-09 to 2014-15, on following grounds:
Page 1 of 21
Dinesh Mehta, Indore.
IT(SS)A Nos. 33 to 39/Ind/2023 - AY 2008-09 to 2014-15 IT(SS)A No. 33/Ind/2023 - AY 2008-09:
1. On the facts and in the circumstances of the case the Ld. CIT(A) erred in treating Rs. 1,20,000/- as business income earned by suppressing sales, which is baseless, arbitrary not supported by any seized incriminating material found during search.
2. The Ld. CIT(A) erred in law in confirming addition of Rs. 1,20,000/- in the hands of appellant even when the same has been rightly taxed in the hands of Life Care Hospital Limited, as recipient resulting in double taxation, not permissible in law.
3. On the facts and in the circumstances of the case and assuming but not accepting, as held by Ld. CIT(A) to tax rent and commission (return of over invoicing) payments as business income, then deduction of business expenditure such as alleged rent and commission be allowed from such income.
IT(SS)A No. 34/Ind/2023 - AY 2009-10:
1. On the facts and in the circumstances of the case the Ld. CIT(A) erred in treating refund of Rs. 18,788/- as business income earned by suppressing sales, and further treating the same amount as commission payment to LCH, contrary to facts found in seized documents found during search.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in confirming addition of Rs. 18,788/- in the hands of appellant even when the same has been rightly taxed in the hands of Life Care Hospital Limited, the recipient, resulting in to double taxation, not permissible in law.
3. On the facts and in the circumstances of the case the Ld. CIT(A) erred in treating Rs. 1,20,000/- as business income earned by suppressing sales of medicines which is baseless, arbitrary not supported by any seized incriminating material found during search.
4. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in confirming addition of Rs. 1,20,000/- in the hands of appellant even when the same has been rightly taxed in the hands of LCH, recipient, resulting in double taxation of the same amount, which is not permissible in law.
5. On the facts and in the circumstances of the case and assuming but not accepting as held by Ld. CIT(A) to tax rent and commission (return of over invoicing) payments as business income, then deduction of business expenditure such as alleged rent and commission be allowed from such income.Page 2 of 21
Dinesh Mehta, Indore.
IT(SS)A Nos. 33 to 39/Ind/2023 - AY 2008-09 to 2014-15 IT(SS)A No. 35/Ind/2023 - AY 2010-11:
1. On the facts and in the circumstances of the case the Ld. CIT(A) erred in treating refund of Rs. 3,54,321/- as business income earned by suppressing sales, and further treating the same amount as commission payment to LCH, contrary to facts found in seized documents found during search.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in confirming addition of Rs. 3,54,321/- in the hands of appellant even when the same has been rightly taxed in the hands of Life Care Hospital Limited, the recipient, resulting in to double taxation, not permissible in law.
3. On the facts and in the circumstances of the case the Ld. CIT(A) erred in treating Rs. 1,80,000/- as business income earned by suppressing sales of medicines which is baseless, arbitrary not supported by any seized incriminating material found during search.
4. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in confirming addition of Rs. 1,80,000/- in the hands of appellant even when the same has been rightly taxed in the hands of LCH, recipient, resulting in double taxation of the same amount, which is not permissible in law.
5. On the facts and in the circumstances of the case and assuming but not accepting as held by Ld. CIT(A) to tax rent and commission (return of over invoicing) payments as business income, then deduction of business expenditure such as alleged rent and commission be allowed from such income.
IT(SS)A No. 36/Ind/2023 - AY 2011-12:
1. On the facts and in the circumstances of the case the Ld. CIT(A) erred in treating refund of Rs. 6,85,583/- as business income earned by suppressing sales, and further treating the same amount as commission payment to LCH, contrary to facts found in seized documents found during search.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in confirming addition of Rs. 6,85,583/- in the hands of appellant even when the same has been rightly taxed in the hands of Life Care Hospital Limited, the recipient, resulting in to double taxation, not permissible in law.
3. On the facts and in the circumstances of the case the Ld. CIT(A) erred in treating Rs. 1,80,000/- as business income earned by suppressing sales of medicines which is baseless, arbitrary not supported by any seized incriminating material found during search.Page 3 of 21
Dinesh Mehta, Indore.
IT(SS)A Nos. 33 to 39/Ind/2023 - AY 2008-09 to 2014-15
4. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in confirming addition of Rs. 1,80,000/- in the hands of appellant even when the same has been rightly taxed in the hands of LCH, recipient, resulting in double taxation of the same amount, which is not permissible in law.
5. On the facts and in the circumstances of the case and assuming but not accepting as held by Ld. CIT(A) to tax rent and commission (return of over invoicing) payments as business income, then deduction of business expenditure such as alleged rent and commission be allowed from such income.
IT(SS)A No. 37/Ind/2023 - AY 2012-13:
1. On the facts and in the circumstances of the case the Ld. CIT(A) erred in treating refund of Rs. 8,65,899/- as business income earned by suppressing sales, and further treating the same amount as commission payment to LCH, contrary to facts found in seized documents found during search.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in confirming addition of Rs. 8,65,899/- in the hands of appellant even when the same has been rightly taxed in the hands of Life Care Hospital Limited, the recipient, resulting in to double taxation, not permissible in law.
3. On the facts and in the circumstances of the case the Ld. CIT(A) erred in treating Rs. 3,00,000/- as business income earned by suppressing sales of medicines which is baseless, arbitrary not supported by any seized incriminating material found during search.
4. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in confirming addition of Rs. 3,00,000/- in the hands of appellant even when the same has been rightly taxed in the hands of LCH, recipient, resulting in double taxation of the same amount, which is not permissible in law.
5. On the facts and in the circumstances of the case and assuming but not accepting as held by Ld. CIT(A) to tax rent and commission (return of over invoicing) payments as business income, then deduction of business expenditure such as alleged rent and commission be allowed from such income.
IT(SS)A No. 38/Ind/2023 - AY 2013-14:
1. On the facts and in the circumstances of the case the Ld. CIT(A) erred in treating refund of Rs. 14,58,901/- as business income earned by suppressing sales, and further treating the same amount as commission payment to LCH, contrary to facts found in seized documents found during search.Page 4 of 21
Dinesh Mehta, Indore.
IT(SS)A Nos. 33 to 39/Ind/2023 - AY 2008-09 to 2014-15
2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in confirming addition of Rs. 14,58,901/- in the hands of appellant even when the same has been rightly taxed in the hands of Life Care Hospital Limited, the recipient, resulting in to double taxation, not permissible in law.
3. On the facts and in the circumstances of the case the Ld. CIT(A) erred in treating Rs. 3,60,000/- as business income earned by suppressing sales of medicines which is baseless, arbitrary not supported by any seized incriminating material found during search.
4. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in confirming addition of Rs. 3,60,000/- in the hands of appellant even when the same has been rightly taxed in the hands of LCH, recipient, resulting in double taxation of the same amount, which is not permissible in law.
5. On the facts and in the circumstances of the case the Ld. CIT(A) erred in law in confirming addition of Rs. 1,02,906/- for alleged cash payment on return of unused medicines to LCH by appellant though no incriminating relevant material was seized during search at both the places and the said addition is baseless arbitrary as based on mere wrong statements as such transaction denied by the appellant.
6. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming alleged payment of Rs. 1,02,906/- as expenditure made u/s 69C of the Act though no such addition is made as recipient in the hands of LCH.
7. On the facts and in the circumstances of the case and assuming but not accepting, as held by Ld. CIT(A) to tax rent and commission (return of over invoicing) payments as business income, then deduction of business expenditure such as alleged rent and commission be allowed from such income.
IT(SS)A No. 39/Ind/2023 - AY 2014-15:
1. On the facts and in the circumstances of the case the Ld. CIT(A) erred in treating refund of Rs. 7,763,091/- as business income earned by suppressing sales, and further treating the same amount as commission payment to LCH, contrary to facts found in seized documents found during search.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in confirming addition of Rs. 7,63,091/- in the hands of appellant even when the same has been rightly taxed in the hands of Life Care Hospital Limited, the recipient, resulting in to double taxation, not permissible in law.Page 5 of 21
Dinesh Mehta, Indore.
IT(SS)A Nos. 33 to 39/Ind/2023 - AY 2008-09 to 2014-15
3. On the facts and in the circumstances of the case the Ld. CIT(A) erred in treating Rs. 1,75,000/- as business income earned by suppressing sales of medicines which is baseless, arbitrary not supported by any seized incriminating material found during search.
4. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in confirming addition of Rs. 1,75,000/- in the hands of appellant even when the same has been rightly taxed in the hands of LCH, recipient, resulting in double taxation of the same amount, which is not permissible in law.
5. On the facts and in the circumstances of the case the Ld. CIT(A) erred in law in confirming addition of Rs. 45,595/- for alleged cash payment on return of unused medicines to LCH by appellant though no incriminating relevant material was seized during search at both the places and the said addition is baseless arbitrary as based on mere wrong statements as such transaction denied by the appellant.
6. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming alleged payment of Rs. 45,595/- as expenditure made u/s 69C of the Act though no such addition is made as recipient in the hands of LCH.
7. On the facts and in the circumstances of the case and assuming but not accepting, as held by Ld. CIT(A) to tax rent and commission (return of over invoicing) payments as business income, then deduction of business expenditure such as alleged rent and commission be allowed from such income.
2. Since these appeals arise from common orders of lower-authorities and involve issues of common nature; they were heard together at the request of parties and are being disposed of by this common order for the sake of convenience and clarity.
3. The background facts leading to present appeals are such that the assessee is an individual mainly engaged in business of medical shop as proprietor of M/s Life Care Medicose. A search u/s 132 of the Act was conducted upon one LCH Group of Indore including assessee on 04.10.2013, pursuant to which the assessments were framed for seven Page 6 of 21 Dinesh Mehta, Indore.
IT(SS)A Nos. 33 to 39/Ind/2023 - AY 2008-09 to 2014-15 years u/s 153A read with section 143(3) for AY 2008-09 to 2013-14 and u/s 143(3) for AY 2014-15 after making certain additions. The assessee carried matter in first-appeal before CIT(A) but could not succeed fully. Now, the assessee has come in next appeal before us on the grounds mentioned in the beginning. For the sake of smoothness, we shall crystallise the issues involved in various years/grounds and accordingly adjudicate issue-wise. Issue No. 1 - Ground No. 1 to 3 of AY 2008-09, Ground No. 3 to 5 of AY 2009-10 to 2012-13, Ground No. 3, 4 & 7 of AY 2013-14 to 2014-15:
4. This is a recurring issue involved in all seven years. The issue relates to the addition of Rs. 1,20,000/-, Rs. 1,20,000/-, Rs. 1,80,000/-, Rs.
1,80,000/-, Rs. 3,00,000/-, Rs. 3,60,000/- and Rs. 1,75,000/- upheld by CIT(A) out of addition of Rs. 3,00,000/-, Rs. 3,00,000/-, Rs. 3,00,000/-, Rs. 3,00,000/-, Rs. 3,00,000/-, Rs. 3,60,000/- and Rs. 4,20,000/- made by AO sequentially and respectively in AY 2008-09 to 2014-15 u/s 69C on account of unexplained cash payment of rent made by assessee.
5. The AO has dealt this issue in Para 9 of assessment-order. The AO noted that during search proceeding, it was found that the assessee has taken a space in the premise of M/s Life Care Hospital Ltd. ["LCH"] on rent for carrying on medical shop in the name of M/s Life Care Medicose. The AO further noted that Dr. Brajbala Tiwari, director of LCH stated in her statements recorded on 10.03.2014 that the actual rent of space was Rs. 50,000/- per month out of which part-rent of Rs. 25,000/- was being paid Page 7 of 21 Dinesh Mehta, Indore.
IT(SS)A Nos. 33 to 39/Ind/2023 - AY 2008-09 to 2014-15 in cash which was not recorded in the books of both parties, namely LCH as well as assessee. The AO show-caused assessee to explain as to why the cash payment not recorded in books may not be added to income? In response, the assessee filed following reply dated 29.12.2015 which is re- produced by AO in Para 9.2 of assessment-order:
"9.2 The assessee has filed submission dated 29.12.2015 which is reproduced below :-
"Besides the rent payment record3ed in books, the assessee was required to pay rent in cash also. The details of such cash paid during the relevant period is as below :-
F.Y. RENT
A B
2007-08 120000
2008-09 120000
2009-10 180000
2010-11 180000
2011-12 300000
2012-13 360000
2013-14 175000
Based on above reply, the AO concluded that the assessee has himself accepted the payment of rent in cash over and above what had been recorded in books of account. Accordingly, the AO made additions of Rs.
3,00,000/- each in AY 2008-09 to 2012-13, Rs. 3,60,000/- in AY 2013-14 and Rs. 4,20,000/- in AY 2014-15 u/s 69C as unexplained expenditure.
6. During first-appeal, the CIT(A) granted part relief to assessee and restricted/upheld additions partly. The order passed by CIT(A) in this regard is extracted below:
Page 8 of 21
Dinesh Mehta, Indore.
IT(SS)A Nos. 33 to 39/Ind/2023 - AY 2008-09 to 2014-15 "3.1.2 I have considered facts of the case, plea and case laws raised by the appellant and finding of the ld. AO. The appellant through his written submissions for AYs. 2008-09 to 2014-15 has basically claimed that the ld.
AO has treated the said expenditure i.e. additional rent paid in cash to LCH as deemed income of the appellant and by invoking provisions of section 69C made addition in respective years. The appellant further stated that the shop was initially rented in August 2006 on monthly rent of Rs. 10,000/- and thereafter, the rent was increased from time to time with mutual consent of both the parties. However, during post search investigation, Smt. Brijbala Tiwari in her statement recorded on 10.03.2014 stated that at present the additional rent of Rs. 25,000/- p.m. is taken in cash. However, the ld. AO presuming the same to be for all the years under consideration and made impugned addition in the hands of appellant u/s 69C of the Act. The appellant during assessment as well as appellate proceedings has submitted that additional amount of cash payments towards rent have been made through cash generated by suppression of sales of medicines. Such sales and expenditure have not been recorded in the books of accounts. Receipt of rent in cash has also been admitted by Life Care Hospital and additional income on his account has been offered for taxation during assessment proceedings. Further, various evidences found during search and seizure proceedings also conclusively establish that the appellant has not recorded part of his sales in the books of accounts. Thus, it can be said that the appellant has paid additional rent amount in cash out of cash generated through suppression of sales. Hence, source of payment of rent in unaccounted manner is established by the appellant. Here, the payer and recipient both have accepted the cash payment and receipt. Accordingly, nature and source of payment of rent in cash is clearly gets established and provisions of section 69C will not attract here. Hon'ble Delhi High Court in the case of Kahan Udyog vs. CIT (2013) 38 Taxmann.Com 261 wherein, it has been held that unaccounted expenditure would be charged under deeming provisions of section 69C when nature and source of the same are not explained. The relevant extract of the decision is as follows :-
"3. In the block assessment order dated 29th November, 1996, the Assessing Officer has referred to various seized papers in respect of unaccounted sales and unaccounted expenditure. These were inventorised. It was found that these transactions were not reflected in the regular books of accounts. Before the Assessing Officer, the appellant had submitted that the difference between the excess of expenditure over receipts, should be brought to tax and treated as undisclosed income and the two amounts should not be separately taxed. Assessing Officer in the present case did not tax the unaccounted sales and has only taxed unaccounted expenses/expenditure/withdrawals. Before the tribunal, similar plea was raised but was rejected after making reference to the order of the tribunal in the case of Siddhartha Woolen Mills [IT Appeal No. 59 of 2000, dated 25-7-2013]. We have dismissed the appeal of the assessee in the case of Siddhartha Woolen Mills (supra). In the present case, we notice that the tribunal has given relief to the extent of Rs. 1,50,000/- and the Assessing Officer has not made any separate addition on account of profits from unaccounted sales. It is recorded in our order dated 25th July, 2013 in Page 9 of 21 Dinesh Mehta, Indore.
IT(SS)A Nos. 33 to 39/Ind/2023 - AY 2008-09 to 2014-15 the case of Siddhartha Woolen Mills (supra) that the expenditure incurred was on account of electricity, petrol, tea pool, etc. and the names of the persons and details why the expenditure was incurred had not disclosed and furnished. The appellant has not, in the present case, furnished details or explained nature and purpose behind the "expenditure". Some expenses have been incurred towards kabadi etc. Names of persons do find mention but the nature of activities undertaken why and for what purpose the payment was made, are not known. It was for the appellant assessee to produce relevant material or produce the said person to justify the payment and show and establish that the expense was not personal in nature but related to or was pertaining to unaccounted business. No one mentioned in the list had appeared before the Assessing Officer to testify and explain the nature and character of the said payments. The appellant has accepted that these transactions were not recorded in the books. The appellant ran and took the risk when he entered into these transactions and, therefore, should face the consequences prescribed and mandated under Section 69C of the Act."
It is the case of suppression of sales against which the appellant has already claimed all expenses. Further, it is not a case where evidences of unaccounted purchase and sales have been found. Hence, it may be safely concluded that the appellant has suppressed it sales to the extent of cash payment made to LCH on account of rent. In view of the above discussion, the Ld. AO is not justified in invoking provisions of section 69C of the Act.
3.1.3 It is also pertinent to mention here that similar addition was made in the hands of LCH on account of undisclosed rent income in relevant assessment years. The additional rental income which have been received in cash by LCH was found to be correct and justified at Rs. 1,20,000/- in each AYs 2008-09 & 2009-10, Rs. 1,80,000/- in each AYs 2010-11 and 2011-12, Rs. 3,00,000/- in AY.2012-13, Rs. 3,60,000/- in A.Y. 2012-13 and Rs. 1,75,000/- in A.Y. 2014- 15 and addition on that account was confirmed in the case of LCH vide order in appeal No. CIT(A)-3, Bhopal/IT-10037 to 100042/2017-18 dated 20.06.2023 (para 3.2 of appellate order of LCH). Here it is also apt to mention that the appellant has no source of income other than his proprietary concern which has also been mentioned in para 3 of the assessment order, therefore, any income either accounted or unaccounted was earned through his proprietary concern only. Further, no documents/evidence suggesting other means of income were found and seized from the premises of the appellant. Therefore, it can now safely be concluded that the appellant had earned suppressed cash income from his business only and therefore, the same is treated as business income of the appellant. Thus, addition made by the ld. AO are restricted to Rs. 1,20,000/- in A.Y. 2008-09, Rs. 1,20,000/- in A.Y. 2009-10, Rs. 1,80,000/- in A.Y. 2010-11, Rs. 1,80,000/- in A.Y. 2011-12, Rs. 3,00,000/- in A.Y. 2012-13, Rs. 3,60,000/- in A.Y. 2013-14 and Rs. 1,75,000/- in A.Y. 2014-15 and appellant gets relief of Rs. 1,80,000/- in A.Y. 2008-09, Rs. 1,80,000/- in A.Y 2009-10, Rs. 1,20,000/- in A.Y. 2011- Page 10 of 21 Dinesh Mehta, Indore.
IT(SS)A Nos. 33 to 39/Ind/2023 - AY 2008-09 to 2014-15 12, and Rs. 2,45,000/- in A.Y. 2014-15. Therefore, appeal on this ground is partly allowed."
[Emphasis supplied]
7. During hearing before us, Ld. AR basically harped on Ground No. 3 of AY 2008-09 (and identical grounds of other years) and for this purpose, he drew our attention to the emphasised portion in bold letters of the aforesaid Para 3.1.2 to 3.1.3 of the order of CIT(A). Referring to same, Ld. AR submitted that the CIT(A) has clearly accepted that the impugned cash payment of rent was made by assessee from cash generated from suppressed sale of business. Therefore, once the source of payment of rent i.e. suppressed sale of business is accepted, the deeming provision of section 69C cannot apply. Ld. AR submitted that the CIT(A) has rightly understood this factual-cum-legal aspect and accordingly rejected the application of section 69C by AO to the case of assessee, instead the CIT(A) has re- characterised the impugned addition as representing 'undisclosed business income' of assessee. Having shown this, Ld. AR submitted that there is a specific bar in proviso to section 69C which reads as under:
"Provided that notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income."
By virtue of this bar, no deduction shall be allowed qua the unexplained expenditure which is deemed to be income u/s 69C. But in present case, once it is accepted by CIT(A) that the impugned addition of cash payment of rent did not attract section 69C, the bar prescribed in proviso shall not Page 11 of 21 Dinesh Mehta, Indore.
IT(SS)A Nos. 33 to 39/Ind/2023 - AY 2008-09 to 2014-15 operate. Ld. AR went on submitting that it is an undisputed fact that the impugned rent was paid towards the space taken for carrying on the business of medical shop, hence the same constituted business expenditure. Therefore, when the addition made by AO has been sustained by CIT(A) accepting the same as 'supressed business income' and not as deemed income u/s 69C, it necessarily follows that the impugned rent payment deserves to be allowed as deduction u/s 30 of the Act. Therefore, the assessee must be allowed deduction u/s 30. Once it is done, Ld. AR submitted, the addition sustained by CIT(A) shall be offset by the claim of deduction and the addition shall turn out to Rs. Nil. Accordingly, Ld. AR prayed to delete the addition. Ld. AR also made a brief mention about Ground No. 1 to claim that the CIT(A) has erred in treating the impugned addition as business income earned from suppressed sale although no incriminating material concerning suppressed sale found during search. With respect to Ground No. 2, Ld. AR contended that the same amount of cash-payment had already been taxed by authorities as income of LCH, therefore any addition in the hands of assessee amounts to double taxation which should not happen.
8. Ld. DR for revenue relied heavily upon the assessment-order passed by AO where the AO has made addition u/s 69C. He submitted that the CIT(A)'s observation to reject section 69C by holding that the cash payment was made from suppressed sales of business, is baseless as well as contrary Page 12 of 21 Dinesh Mehta, Indore.
IT(SS)A Nos. 33 to 39/Ind/2023 - AY 2008-09 to 2014-15 to the record/facts. Therefore, the assessee's request to give deduction as business expenditure must be rejected.
9. We have considered rival submissions of both sides and perused the orders of lower-authorities carefully. In all years, the assessee has taken as many as three grounds which are identical, to assail the addition sustained by CIT(A). For convenience, we refer grounds of AY 2008-09. In Ground No. 1, the assessee himself claims that "the Ld. CIT(A) erred in treating Rs. 1,20,000/- as business income earned by suppressing sales, which is baseless, arbitrary not supported by any seized incriminating material found during search." This ground of assessee seems to be valid because no material found during search had been brought to our notice to show that there was supressed sale. Therefore, this ground can go in favour of assessee. But the next question would then be what was the source of unrecorded rent payment made by assessee? It cannot be 'suppressed sales' as observed by CIT(A). That means, the Ld. DR for revenue is very much correct in arguing that the CIT(A) has given a baseless and contrary-to- record finding that the unaccounted rent payment was made from suppressed sale. In turn, that would mean that the AO has rightly made addition u/s 69C treating the rent payment as having been made from unexplained sources. Ultimately, it would lead to a conclusion that the entire argument made by Ld. AR as per Ground No. 3 for non-applicability of the bar prescribed in proviso to section 69C and therefore giving deduction of rent u/s 30 as business expenditure would automatically collapse. Therefore, we have given a thoughtful consideration to the case of assessee. Page 13 of 21
Dinesh Mehta, Indore.
IT(SS)A Nos. 33 to 39/Ind/2023 - AY 2008-09 to 2014-15 After a serious thinking, we firstly find that the assessee has himself accepted unaccounted payment of additional rent to LCH. The department has made addition of such rent as income in the assessment-orders of LCH. Accordingly, the CIT(A) has sustained additions in the hands of present assessee equivalent to the additions sustained in assessments of LCH. Thus, there is a complete alignment in the cases of assessee as payer and LCH as receiver. Now, the disputed question in case of assessee is very limited i.e. What was source of unaccounted payment i.e. whether it was suppressed sale or not? While the AO noted that the rent was paid from unexplained source, the CIT(A) has observed that it was made from suppressed sale of business. The conclusion taken by CIT(A) is not supported by any material on record. Further, both sides are themselves claiming that the CIT(A) has erred in holding that the payment was made from 'suppressed sale'. When it is so, the AO was very much correct in applying section 69C on the basis that the source of rent payment was unexplained; it is the CIT(A) who has wrongly re-characterised the impugned addition as representing supressed sale/business income. Needless to mention that there is no addition made in assessment-order on account of 'suppressed sale' of business. Faced with this situation, we approve the AO's finding and hold that the section 69C was rightly applied to case of assessee. Being so, the bar imposed in proviso to section 69C shall operate and the assessee would not be entitled to deduction as being claimed in Ground No. 3. Regarding ground No. 2 relating to double taxation, we find that the LCH as receiver and the Page 14 of 21 Dinesh Mehta, Indore.
IT(SS)A Nos. 33 to 39/Ind/2023 - AY 2008-09 to 2014-15 assessee as payer are two different persons. While the impugned rent was additional income of LCH and therefore rightly taxed in the hands of LCH, the assessee has to show the source of payment. Therefore, when the assessee failed to explain source, it becomes deemed income u/s 69C. Hence, the theory of double taxation does not apply here. Therefore, ground No. 2 of assessee has no wroth and rejected. The net effect of entire discussion is such that the impugned unaccounted cash payment of rent was made from unexplained source, therefore the same is rightly assessed by AO u/s 69C. We, therefore, uphold the addition made by AO to the extent it was sustained by CIT(A). The assessee does not deserve any relief. The issue raised by assessee is dismissed.
Issue No. 2 - Ground No. 1 to 2 of AY 2009-10 to 2014-15:
10. This issue is also involved in multiple years. The issue relates to the addition of Rs. 18,788/-, Rs. 3,54,321/-, Rs. 6,85,583/-, Rs. 8,65,899/-, Rs. 14,58,901/- and Rs. 7,63,091/- upheld by CIT(A) out of additions of Rs. 57,149/-, Rs. 4,72,193/-, Rs. 9,40,143/-, Rs. 12,20,900/-, Rs. 20,29,432/- and Rs. 25,00,000/- made by AO sequentially and respectively in AY 2009- 10 to 2014-15 on account of unexplained commission payment u/s 69C.
11. The AO has dealt this issue in Para 10 of assessment-order. The AO has noted that during search proceeding, it was found that the assessee was paying commission to LCH which was neither recorded in the books of LCH nor in the books of assessee. The impugned commission is basically the Page 15 of 21 Dinesh Mehta, Indore.
IT(SS)A Nos. 33 to 39/Ind/2023 - AY 2008-09 to 2014-15 payment made by assessee to LCH towards cash-refund of over-invoiced bills to LCH and medicines of mediclaim policies. The AO made addition in the hands of both parties i.e. while the AO added unaccounted income in the hands of LCH, identical addition was made in the hands of assessee as unexplained expenditure u/s 69C.
12. During first-appeal, the CIT(A) partly upheld the quantum of additions equivalent to the additions partly sustained in first-appeals of LCH in CIT(A)-3, Bhopal/IT-10037 to 10042/2017-18 dated 20.06.2023 (Para 3.3 of appellate order of LCH). At the same time, the CIT(A) also re-characterized the addition sustained by him as representing 'supressed sales/business income' instead of deemed income u/s 69C as done by AO.
13. Before us, Ld. AR for assessee contended that the CIT(A) has clearly accepted in Para 3.2.2 and 3.2.3 of his order that the impugned payments were made from 'suppressed sales' of assessee. Ld. AR submitted that during the course of recording of statements by authorities, when the assessee was specifically interrogated in Q.No. 5 to explain the source from where such cash-payment was made, the assessee instantly made a straightforward reply that the payment was made from suppressed amount of cash sales (Page No. 49 of Paper-Book). Further, the assessee also submitted the modus operandi applied by him to CIT(A) to explain the source of cash-payments from suppressed sales, which is re-produced by CIT(A) on Page 22 of his order. Ld. AR tried to explain the same modus operandi to us Page 16 of 21 Dinesh Mehta, Indore.
IT(SS)A Nos. 33 to 39/Ind/2023 - AY 2008-09 to 2014-15 during the hearing. He submitted that the assessee was making cash-sales to retail customers. When the assessee over-invoiced supplies to LCH, the assessee also suppressed cash-sales of retail customers to the same extent so as to keep the total sales intact. Therefore, although the total sales of assessee remained intact and fully recorded in books of account, the cash payment of commission to LCH was sourced from suppressed cash-sales of retail customers. Hence, the CIT(A) has rightly concluded in his order that the impugned cash-payments to LCH were made out of suppressed sales of business. Having explained thus, Ld. AR submitted that there would be no income element in the hands of assessee because on one hand cash sales to retail customers is suppressed and on other hand equivalent amount of commission paid to LCH is supressed. Therefore, the two variables, one of 'supressed sales' and other of 'supressed commission-payment' automatically negate any income retention in the hands of assessee. Ld. AR submitted that the CIT(A) has upheld addition equivalent to what was ultimately sustained in the hands of LCH as income but this approach is wrong qua assessee. He submitted that so far LCH is concerned, there may be income of commission but so far the assessee is concerned, there is no income retention at all because the 'supressed sale' equalised the 'suppressed commission payment'.
14. Ld. DR for revenue relied upon the order of AO and also supported the addition upheld by CIT(A). Accordingly, he requested to confirm the quantum of addition upheld by CIT(A).
Page 17 of 21
Dinesh Mehta, Indore.
IT(SS)A Nos. 33 to 39/Ind/2023 - AY 2008-09 to 2014-15
15. We have considered rival submissions of both sides and perused the material held on record. The issue involved here is what was the source of payment of commission to LCH? We find that when the assessee was questioned in Q.No. 5 of recorded statements, the assessee made an instant reply that the impugned payment was made from suppressed amount of cash sales. Thereafter, the assessee explained modus operandi of his business at lower-stage which the CIT(A) has re-produced in his order. The CIT(A) thereafter accepted assessee's claim that the payments were made from suppressed cash sales. However, the CIT(A) only re-characterised the nature of addition and granted part-relief to assessee. But that does not address the grievance of assessee fully. The assessee has explained modus operandi of business which is precisely such that cash-sales made to retail customers was suppressed and the additional cash collected therefrom was passed on to LCH against over-invoiced sales made to LCH. Thus, there is no change in the total sales of assessee and at the same time source of payment to LCH is also explained. The assessee/Ld. AR is justified in claiming that there is no income retention by assessee in this process and hence no addition is warranted. We find weightage in assessee/Ld. AR's submission and consequently inclined to delete the addition upheld by CIT(A). The assessee succeeds in this issue. These grounds are therefore allowed.
Issue No. 3 - Ground No. 5 to 6 of AY 2013-14 and Ground No. 5 to 6 of AY 2014-15:
Page 18 of 21
Dinesh Mehta, Indore.
IT(SS)A Nos. 33 to 39/Ind/2023 - AY 2008-09 to 2014-15
16. This issue relates to the addition of Rs. 1,02,906/- and Rs. 45,595/- made by AO and upheld by CIT(A) u/s 69C on account of unexplained payment made to LCH for sale of unused medicines.
17. The AO has dealt this issue in Para 11 of assessment-order. The AO has noted that during search proceeding, it was found that the assessee has made payment to LCH for sale of unused medicines. He further noted that the assessee has himself accepted total sale of unused medicines at Rs. 1,02,906/- and Rs. 45,595/- for AY 2013-14 and AY 2014-15 respectively. Accordingly, he made additions in respective years u/s 69C.
18. Apropos to this issue, Ld. AR submitted that admittedly the unused medicines belonged to LCH and not to assessee, the assessee only sold those medicines and passed cash payment on to LCH. However, despite knowing this aspect, the department has not made any addition in the hands of LCH and instead made wrong additions in the hands of assessee. Ld. AR submitted that he fails to understand as to how such addition could be made in assessee's hands?
19. Per contra, Ld. DR for revenue submitted that the AO has categorically mentioned in Para 11.2 of assessment-order that Dr. Brajbala Tiwari, director of LCH, admitted in the statement taken on oath that LCH received cash from assessee on sale of unused medicines. Since the payment was made by assessee and not recorded in books of account, the AO has rightly made addition u/s 69C.
Page 19 of 21
Dinesh Mehta, Indore.
IT(SS)A Nos. 33 to 39/Ind/2023 - AY 2008-09 to 2014-15
20. We have considered rival submissions of both sides and carefully examined the issue being contested before us. After a thoughtful consideration, we find that the revenue has made addition on the basis of statement of director of LCH revealing that the assessee made payment to LCH towards sale of unused medicines. Though the basis adopted by revenue is not fallacious but still there appears some infirmity in the conclusion taken by authorities. When the assessee made sale of unused medicines belonging to LCH and paid cash to LCH, the source of making payment to LCH is automatically explained. Thus, there does not remain scope for attracting section 69C. However, the authorities can say that the assessee must have earned and retained some profit element in such transactions. Even Ld. CIT(A) has also mentioned in Para 3.3.2 of his order "I find that though the entire amount of sale proceeds of these unused amount would not be profit of the appellant, however, some element of the profit would have definitely been earned by the appellant". Despite such mention, the CIT(A) has ultimately upheld entire addition made by AO. In our considered view, the authorities could make addition in the hands of assessee to the extent of profit element only. Since the details of profitability of assessee is readily not available, we feel it appropriate to apply a net profit rate of 5% of the sale of Rs. 1,02,906/- and Rs. 45,595/- in respective years as prescribed in section 44AF of the Act. Accordingly, the additions to the extent of Rs. 5,145/- and Rs. 2,280/- are confirmed and remaining additions are deleted. The assessee succeeds partly in these grounds. Page 20 of 21
Dinesh Mehta, Indore.
IT(SS)A Nos. 33 to 39/Ind/2023 - AY 2008-09 to 2014-15
21. Resultantly, ITA of AY 2008-09 is dismissed; ITAs of AY 2009-10 to 2012-13 are allowed; and ITAs of AY 2013-14 to 2014-15 are partly allowed.
Order pronounced in open court on 07.02.2024.
Sd/- sd/-
(VIJAY PAL RAO) (B.M. BIYANI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Indore
िदनां क/ Dated : 07.02.2024.
CPU/Sr. PS
Copies to: (1) The appellant
(2) The respondent
(3) CIT
(4) CIT(A)
(5) Departmental Representative
(6) Guard File
By order
UE Sr. Private Secretary
Income Tax Appellate Tribunal
Indore Bench, Indore
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