Income Tax Appellate Tribunal - Pune
Prabhakar Damodar Gawande,, ... vs Income-Tax Officer, Ward - 3,, ... on 9 May, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND
SHRI VIKAS AWASTHY, JUDICIAL MEMBER
आयकर अपील सं. / ITA Nos.2543, 2187 & 2545/PUN/17
िनधा रण वष / Assessment Years : 2008-09, 2013-14 & 2014-15
Prabhakar Damodar Gawande, ITO, Ward-3,
Gawande Niwas, Plot No.3, Vs. Ahmednagar
Asara Society, Pipeline Road,
Savedi, Ahmednagar - 414 003
PAN : AIKPG5764B
(Appellant) (Respondent)
Appellant by Shri M.K. Kulkarni
Respondent by Shri Rajesh Gawali
Date of hearing 08-05-2019
Date of pronouncement 09-05-2019
आदेश / ORDER
PER R.S.SYAL, VP :
These three appeals by the assessee relate to the Assessment Years 2008-09, 2013-14 & 2014-15. Since some of the issues raised in these appeals are common, we are, therefore, proceeding to dispose them off by this consolidated order for the sake of convenience. 2
Prabhakar D. Gawande A.Yrs. 2008-09, 2013-14 & 2014-15 A.Y. 2008-09 :
2. The first issue raised in this appeal is against the confirmation of addition of Rs.4.00 lakh as undisclosed income.
3. Briefly stated, the facts of the case are that the assessee is an individual running coaching classes. The Assessing Officer (AO) initiated re-assessment proceedings by recording, inter alia, that excess capital balance of Rs.4.00 lakh was taken by the assessee. He, therefore, made an addition of Rs.4.00 lakh.
Apart from that, the assessee had claimed total expenses of Rs.5,42,704/-. In the absence of original bills or vouchers, the AO made disallowance @15% amounting to Rs.81,405/-. The ld. CIT(A) confirmed the additions apart from upholding the initiation of re-assessment proceedings. Aggrieved thereby, the assessee has come up in appeal before the Tribunal.
4. We have heard both the sides and gone through the relevant material on record. In sofaras the first addition is concerned, the AO has reproduced the reasons recorded prior to issue of notice u/s.148 of the Income-tax Act, 1961 (hereinafter also called 'the Act') in the assessment order itself. It has been recorded in such reasons that "It was also observed by the 3 Prabhakar D. Gawande A.Yrs. 2008-09, 2013-14 & 2014-15 Investigation Wing that the assessee has taken opening capital balance as on 01-04-2008 at Rs.23,29,401/- as against the closing balance on 31-03-2008 at Rs.19,29,401/-. The excess capital balance of Rs.4.00 lakh has been taken by the assessee." From the above reasons, it is apparent that the AO referred to the excess capital shown by the assessee as on 01-04-2008 by Rs.4.00 lakh which formed the basis for the addition. Instantly, we are considering the A.Y. 2008-09 covering the period 01-04-2007 to 31-03-2008. It is revealed that on 31-03-2008, the assessee had correctly shown closing balance of capital at Rs.19.20 lakh. The excess amount of Rs.4.00 lakh was shown on 01-04-2008, which is the first day of the financial year 2008- 09 with the corresponding assessment year of 2009-10. Since such excess capital was recorded in the books for the financial year relevant to the A.Y. 2009-10, no addition on this score could have been made for A.Y.2008-09 under consideration. We, therefore, order to delete this addition.
5. The only other ground on merits is against the confirmation of ad hoc addition of Rs.81,405/-. Apart from this, the assessee has also challenged the initiation of re- assessment proceedings by the AO. It can be seen from the 4 Prabhakar D. Gawande A.Yrs. 2008-09, 2013-14 & 2014-15 reasons recorded by the AO that he took up the re-assessment proceedings on account of excess capital balance of Rs.4.00 lakh and also Tax Evasion Petition (TEP) detailing undisclosed investment made by the assessee in certain properties. However, the assessment was completed by making an addition of Rs.4.00 lakh and further disallowance of Rs.81,405/- out of expenses. No addition was made towards excess investments given in the TEP. We have deleted the addition of Rs.4.00 lakh in an earlier para by holding the same as not sustainable for the year under consideration.
6. Section 147 of the Act provides that: "If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section...'. A bare perusal of the above provision manifests that the AO is fully empowered to bring to tax any other income which has escaped assessment and which comes to his notice subsequently in the course of proceedings u/s 147, apart 5 Prabhakar D. Gawande A.Yrs. 2008-09, 2013-14 & 2014-15 from the income escaping assessment on which the AO formed reason to believe about the escapement of income and issued notice u/s 148. The use of words 'and' between the income escaping assessment forming reasons to believe for issuing notice u/s 148 and other income chargeable to tax which escaped assessment and comes to the notice of the AO in the course of the proceeding, amply shows that the existence of the former is a pre-condition for taxing the latter. To put it simply, if the grounds set out in the re-assessment notice are non- existent, i.e., either no addition is made on such grounds or the addition so made does not finally pass the scrutiny by the appellate forums, then, obviously, no further addition can be made for income which comes to his notice during the course of proceedings u/s 147. Without there being such a deterrent, the AO could have got unhindered powers to initiate re-assessment at the drop of a hat without any legally sustainable reasons and then made other additions resulting in multiplicity of proceedings, which the legislature has sought to curb. Any lawful jurisdiction to make addition on account of other incomes coming to the notice of the AO during the course of proceedings u/s 147 can be acquired only on the foundation of a validly acquired jurisdiction on legally sustainable items of 6 Prabhakar D. Gawande A.Yrs. 2008-09, 2013-14 & 2014-15 income escaping assessment forming reasons for issuing notice u/s 148. In other words, if the AO fails to acquire a valid jurisdiction to make re-assessment on the basis of his reasons, then, he is also debarred for making additions for other incomes chargeable to tax which escaped assessment and come to his notice subsequently in the course of proceedings u/s 147. The Hon'ble Bombay High Court in CIT vs. Jet Airways (I) Ltd. (2011) 331 ITR 236 (Bom) has held to this extent. Similar view has been taken by the Hon'ble Delhi High Court in CIT vs. Chiel Communications India Pvt. Ltd. (2013) 354 ITR 549 (Del).
7. When we test the facts of the instant case on the touchstone of the principle as discussed hereinabove, it turns out that the only addition made by the AO out of the recorded reasons stands deleted. In view of the above referred judgment of the Hon'ble jurisdictional High Court in Jet Airways (supra), we order to delete the addition of Rs.81,405/-, since the sole addition made by the AO on the foundation of the recorded reasons has not passed the judicial scrutiny by the Tribunal in an earlier para. Thus, there can be no question of making any other addition to the income. We, therefore, hold that the 7 Prabhakar D. Gawande A.Yrs. 2008-09, 2013-14 & 2014-15 initiation of reassessment was bad in law. Such initiation as well as the further proceedings are, therefore, set aside. Ex consequenti, we order to delete the addition of Rs.81,405/-.
8. In the result, this appeal is allowed.
A.Y. 2013-14 :
9. The first issue raised in this appeal is against non-service of notice u/s.143(2) of the Act.
10. The facts apropos this issue are that the assessee was subjected to survey u/s.133A of the Act on 29-01-2015 and 30-01-2015. During the course of such survey, the assessee offered additional income of Rs.25.00 lakh for the assessment year under consideration. Such amount was not offered for taxation in the return of income. The AO made addition for the said sum. The assessee argued before the ld. CIT(A) that no notice u/s.143(2) was served on the assessee. The ld. CIT(A) called for a remand report from the AO. The AO confirmed that not only notice u/s.143(2) was issued but the same was also served on the assessee. A copy of acknowledgment issued by the postal authorities in this regard was sent back to the ld. first appellate authority, which has been reproduced on page 7 of the 8 Prabhakar D. Gawande A.Yrs. 2008-09, 2013-14 & 2014-15 impugned order. In view of the fact that the notice u/s.143(2) of the Act was issued and served as affirmed by the postal authorities, we hold that no exception can be taken to the view adopted by the ld. CIT(A) on this score. This ground is not allowed.
11. The assessee has also challenged the initiation of re- assessment proceedings on the ground that the AO failed to obtain sanction before the issue of notice u/s.148. In this regard, the ld. CIT(A) has recorded on page 8 of the impugned order that notice u/s.148 was issued on 15-03-2016 which is within a period of four years from the end of the relevant assessment year and further no scrutiny assessment was done earlier. He further observed that the requirement of approval is only when there is previous scrutiny assessment and the period of more than four years from the relevant assessment year has elapsed. The ld. AR could not point out any infirmity in the raison d'etre given by the ld. CIT(A). We, therefore, refuse to interfere in the impugned order to this extent.
12. Another legal ground raised by the assessee is against not passing a separate order to the objections taken by the assessee 9 Prabhakar D. Gawande A.Yrs. 2008-09, 2013-14 & 2014-15 against the initiation of re-assessment. In this regard, it is observed that notice u/s.148 was issued on 15-03-2016 which was served on 16-03-2016. No reply was filed in response to notice u/s.148. It is not coming either from the assessment order or from any other material that assessee raised any objection to the initiation of re-assessment proceedings, which could have warranted the passing of a separate order by the AO before espousing the assessment on merits. It is further pertinent to note on a perusal of the grounds taken before the ld. CIT(A) that no such issue was taken up. The ld. AR has not invited our attention towards any material divulging the raising of objections before the AO against the initiation of re- assessment proceedings. In such circumstances, there could have been no occasion for the AO to pass a separate order disposing the objections to the re-assessment. We, therefore, dismiss this ground of appeal.
13. The only other issue which survives in the instant appeal on merits is against the confirmation of addition of Rs.25.00 lakh.
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Prabhakar D. Gawande A.Yrs. 2008-09, 2013-14 & 2014-15
14. The factual matrix of this issue is that in the course of survey certain facts brought out that the assessee had not properly reflected his correct income. When confronted, the assessee agreed to offer an additional income of Rs.25.00 lakh. However, no such additional income of Rs.25.00 lakh was included in the return of income filed after the conclusion of survey. The AO completed the assessment by making an addition of Rs.25.00 lakh which came to be sustained in the first appeal. The assessee is aggrieved by the confirmation of addition.
15. We have heard both the sides and gone through the relevant material on record. The ld. AR contended that surrender was obtained by the Department under coercion and as such the same should be ignored. The ld. AR further pointed out that the assessee retracted from such surrender before completion of the assessment. In our considered opinion, there can be no invalid or illegal extraction of surrender by the Department. If however, certain other material indicates during the course of survey that the assessee did not offer certain income or claimed bogus expenses, then, of course, there can be no bar on the assessee in making surrender of equivalent 11 Prabhakar D. Gawande A.Yrs. 2008-09, 2013-14 & 2014-15 income. If such a surrender, properly backed by documentary evidence is not honoured, then the assessee is liable for the consequences.
16. Here, we are confronted with a situation in which the assessee made surrender of additional income of Rs.25.00 lakh during the course of survey. As against the claim of the ld AR that the surrender was extracted by the Revenue authorities under coercion, we find the facts are otherwise. Page 8 of the paper book is a composition of the surrendered income of Rs.25.00 lakh, which comprises of three items, namely, Rs.4,21,500/- towards excess salary claimed; Rs.1,76,365/- towards the amount paid for Advertisement charges without deduction of tax at source and the resultant application of section 40(a)(ia) of the Act; and suppressed receipts of Rs.18,84,750/-. Statement of assessee was recorded at the time of survey, a copy of which is available on page 29 onwards of the paper book. Through question no. 10, the assessee was called upon to state the number of employees working with him along with the salary paid. He submitted that two persons were working with him during the period relevant to the assessment year under consideration and the salary paid to them was to the 12 Prabhakar D. Gawande A.Yrs. 2008-09, 2013-14 & 2014-15 tune of Rs.3.00 lakh. The survey team examined the Profit and loss account of the assessee for the year under consideration and found that there was a debit of salary for a sum of Rs.7,21,500/- This fact was confronted to the assessee vide question no.29 and he was requested to explain as to why the excess salary of Rs.4,21,500/- (Rs.7,21,500 as claimed in the Profit and loss account minus Rs.3.00 lakh as stated to be actually paid in response to question no.10) should not be added to this total income, the assessee admitted excess salary of Rs.4,21,500/- for the assessment year under consideration and offered the same as additional income. Thus, it is evident that this component of additional income towards excess salary claimed by the assessee amounting to Rs.4,21,500/- is not in the air. The assessee himself admitted to have made false claim in his Profit and loss account filed along with the original return of income for the year. In our considered opinion, such amount is rightly chargeable to tax.
17. The second component is Rs.1,76,365/-. The survey team found that Advertisement expenses of Rs.1,76,365/- were claimed as deduction without any tax withholding u/s 194C of the Act. On being called upon to explain as to why the 13 Prabhakar D. Gawande A.Yrs. 2008-09, 2013-14 & 2014-15 provisions of section 40(a)(ia) should not be applied, the assessee agreed that no deduction of tax at source was made and this amount may be added to his returned income for the year. Here again, we find that when there was failure on the part of the assessee to deduct tax at source attracting the provisions of section 40(a)(ia) of the Act, there could have been no reason to be aggrieved by such a surrender made during the course of survey without further showing as to why the disallowance be not made. As such, the surrender to this extent cannot be said to be devoid of any substance.
18. The last component of the surrender is a sum of Rs.18,84,750/- towards suppressed receipts. Two registers were found during the course of survey in which the assessee had recorded his receipts from tuition fee. Such amounts in the two registers totalled to Rs.40,68,700/-. As against that, the assessee had included only a sum of Rs.21,83,950/- in the audited accounts. When this fact was confronted to the assessee through question no.31, the assessee admitted that the differential amount of Rs.18,84,750- be taxed as an additional income. Here again, we find that this component of additional income is properly backed by the evidence in asmuchas the 14 Prabhakar D. Gawande A.Yrs. 2008-09, 2013-14 & 2014-15 assessee, in fact, received higher tuition fee to this extent but did not include the same in his receipts chargeable to tax.
19. Total of the above three amounts comes to Rs.24,82,615/-. There is no reference to the source of the remaining additional income making such addition at Rs.25.00 lakh. To this extent, that is, Rs.17,385/-, the surrender is not backed by any evidence and the same cannot be acted upon. We, therefore, reduce the addition to Rs.24,82,615/-.
20. In the result, the appeal is partly allowed. A.Y. 2014-15 :
21. The only issue raised in this appeal is against the confirmation of addition of Rs.50.00 lakh made by the AO towards surrender made by the assessee during the course of survey but not offered for taxation.
22. The facts of this issue are that certain material was found during the course of survey which transpired that the assessee had earned certain income which was not offered for taxation. When confronted, the assessee offered additional income of Rs.50.00 lakh for the year under consideration. The same was thereafter retracted and not included in the total income. The 15 Prabhakar D. Gawande A.Yrs. 2008-09, 2013-14 & 2014-15 AO finalised the assessment by including such amount of Rs.50.00 lakh in the total income, which came to be sustained in the first appeal. The assessee is aggrieved by the confirmation of the addition.
23. Similar to the preceding year, we find that the surrender of Rs.50.00 lakh is properly documented and based on the relevant material evidence to a greater extent. The assessee has set out the composition of Rs.50.00 lakh on page 19 of the paper book. The first item is a sum of Rs.27,48,310/- which is based on question no.28 of the statement of assessee recorded by the survey team. Similar to preceding year, the assessee suppressed tuition fee receipts to the tune of Rs.27,48,310/- for the year under consideration. This fact emerged from two registers found during the course of survey indicating the receipt of tuition fee of Rs.68,36,000/- as against the amount shown in the audited accounts at Rs.40,87,690/-. When confronted, the assessee agreed to surrender the unrecorded receipts. Since the surrender of Rs.27,48,310/- is based on material found during the course of survey divulging the assessee not having reflected tuition fee receipts to this extent, 16 Prabhakar D. Gawande A.Yrs. 2008-09, 2013-14 & 2014-15 we are satisfied that the addition to this extent deserves to be rightly sustained.
24. The next component is sum of Rs.14,57,000/-. This amount is on account of excess salary claimed by the assessee in his Profit and loss account. During the course of survey, the assessee admitted that he paid salary of Rs.3.00 lakh. However, in the Profit and loss account, a sum of Rs.17,57,000/- was recorded, which when confronted, was accepted by the assessee as additional income. In our considered opinion, the excess claim of salary in the audited accounts to the tune of Rs.14,57,000/- deserves to be added to the assessee's total income.
25. The next component of the surrender is a sum of Rs.2,18,400/-. The assessee paid Advertisement charges to this extent without deduction of tax at source. The survey team confronted this fact to the assessee that the provisions of section 40(a)(ia) were attracted. The assessee agreed with the same and offered additional income. Here again, we find that the disallowance was rightly included in the composition of surrender for the same reasons as set out by us for the preceding year.
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Prabhakar D. Gawande A.Yrs. 2008-09, 2013-14 & 2014-15
26. The last item is a sum of Rs.5.00 lakh. A flat at Aman Residency was purchased for a sum of Rs.24.62 lakh. The assessee had declared consideration of Rs.14.62 only in his balance sheet. On being called upon to explain as to why additional sum paid outside the books of account be not added, the assessee submitted that the flat was jointly purchased with his wife, Mrs. Chhaya Prabhakar Gawande. He agreed that the amount of investment of Rs.10.00 lakh was unexplained. A sum of Rs.5.00 lakh was offered in the name of his wife and the remaining equal sum was offered as his own additional income.
27. There is no doubt that the assessee agreed to surrender a sum of Rs.5.00 as additional income. However, the fact of the matter is that the amount of Rs.5.00 lakh represents application of undisclosed income. While dealing with the suppressed receipts shown by the assessee to the tune of Rs.27,48,310, we have held that the assessee, in fact, earned income to this extent which was not included in the tuition fee receipts shown in the Profit and loss account. Once there is an earning of some undisclosed income and simultaneously there is an application of this undisclosed income through undisclosed expenditure, it is only the higher amount of unexplained income which can be 18 Prabhakar D. Gawande A.Yrs. 2008-09, 2013-14 & 2014-15 added and not lower amount of utilization of such undisclosed income in the form of unexplained expenditure. As the amount of Rs.5.00 lakh offered by the assessee as an unexplained investment is less than the amount of undisclosed tuition fee receipts of Rs.27.48 lakh, we hold that the surrender to this extent could not have been obtained.
28. To sum up, we sustain the addition of Rs.44,23,710/- (Rs.27,48,310 towards undisclosed professional receipts + Rs.14,57,000 towards bogus salary expenditure claimed + Rs.2,18,400/- towards the amount not allowable u/s.40(a)(ia) of the Act). The remaining addition of Rs.5,76,290/- is directed to be deleted.
29. In the result, the appeal is partly allowed.
Order pronounced in the Open Court on 09th May, 2019.
Sd/- Sd/-
(VIKAS AWASTHY) (R.S.SYAL)
JUDICIAL MEMBER VICE PRESIDENT
पुणे Pune; दनांक Dated : 09th May, 2019.
सतीश
19
Prabhakar D. Gawande
A.Yrs. 2008-09, 2013-14 & 2014-15
आदेश क ितिलिप अ िे षत/Copy
षत of the Order is forwarded to:
1. अपीलाथ / The Appellant;
2. यथ / The Respondent;
3. आयकर आयु (अपील) /
The CIT (Appeals)-2, Pune
4. The Pr.CIT-1, Pune
5. िवभागीय ितिनिध, आयकर अपीलीय
अिधकरण, पु णे "बी" / DR 'B', ITAT, Pune;
6. गाड फाईल / Guard file. // True copy //
आदेशानुसार/
ार BY ORDER,
// True Copy //
Senior Private Secretary
आयकर अपीलीय अिधकरण ,पु णे / ITAT, Pune
Date
1. Draft dictated on 08-05-2019 Sr.PS
2. Draft placed before author 08-05-2019 Sr.PS
3. Draft proposed & placed JM
before the second member
4. Draft discussed/approved JM
by Second Member.
5. Approved Draft comes to Sr.PS
the Sr.PS/PS
6. Kept for pronouncement on Sr.PS
7. Date of uploading order Sr.PS
8. File sent to the Bench Clerk Sr.PS
9. Date on which file goes to
the Head Clerk
10. Date on which file goes to
the A.R.
11. Date of dispatch of Order.
*