Income Tax Appellate Tribunal - Mumbai
Cambata Aviation P. Ltd, Mumbai vs Assessee on 2 May, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" BENCH, MUMBAI
BEFORE SHRI, J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND
SMT. ASHA VIJAYRAGHAVAN, JUDICIAL MEMBER
IT(SS)A no. 85/Mum./2009
(Block Period : 1.4.1991 to 1.5.2001)
Date of Hearing: 2.5.2011
M/s. Cambata Aviation P. Ltd.
Hanger no.3, Juhu Aerodrome
Mumbai 400 054
PAN - AAACC6450B ....................... Appellant
v/s
Asstt. Commissioner of Income Tax
Central Circle-8, Mumbai ................... Respondent
Assessee by : Mr. Vijay Mehta
Revenue by : Mr. Ajit Kumar Sinha
ORDER
PER J. SUDHAKAR REDDY, A.M.
The appeal preferred by assessee, is directed against the impugned order dated 9th October 2009, passed by the Commissioner (Appeals)- XXXVII, Mumbai, wherein he confirmed the order passed by the Assessing Officer under section 158BC of the Income Tax Act, 1961 (for short "the Act"), for the block period from 1st April 1991 to 1st May 2001.
2. Brief facts of the case, as brought out by the Commissioner (Appeals) vide Paras-1.1.2 to 1.1.3, read as follows:-
2 M/s. Cambata Aviation P. Ltd.
IT(SS)A no.85/Mum./2009 "1.1.2 The appellant is a company engaged in the business of providing ground handling services to various international airlines such as Cathay Pacific, Lufthansa airlines, Swiss Air, Gulf Air, Eva Air, etc. The appellant's premises were covered under the search and seizure proceedings under section 132 of the Act on 1.5.2001, thereafter appellant's New Delhi premises were also covered u/s 133A of the Act. For ready reference, the chronology of the events to the present dispute may be summarized as under:-
Sr.No. Date Particulars 1. 30.08.2000 First Settlement Petition u/s 245C(1) for A.Y. 1996-97 to 2000-01 filed. 2. 18.12.2000 Admission of first Settlement Petition u/s 245D(1) 3. 01.05.2001 Search and seizure action u/s 132 at Bombay Branch 4. 28.03.2002 Form 2B filed. 5. 31.07.2002 Second Settlement Petition u/s 245C(1) for the block period 1992-93 to 2001-02 and 01.04.2001 to 01.05.2001 filed. 6. 27.12.2005 Order of the Hon'ble Supreme Court Settlement Commission w.r.t. SA dated 30.08.2000. 7. 31.03.2008 In view of amendment in s. 245HA(1)(iv) the second petition was abated and proceedings got transferred to the A.O. 8. 25.03.2009 Order u/s 158BC of the Act.
1.1.3 It is stated by the ld. Assessing Officer that the appellant company was involved in the business of ground handling activities, custom clearing and carting services at international airports in India. Certain enquiries regarding refunds claimed by one M/s. Rydhan Tours & Travels were initiated by the I.T. Department. On enquiry, it was detected that the appellant had given wrong addresses on certain TDS certificates. It was detected that the appellant company was claiming bogus expenditure by using bills issued by non-existing concerns. Having regard to the possession of these evidences, the I.T. Deptt. initiated reassessment proceedings against the appellant company. Soon thereafter, the appellant filed a Settlement application under section 245C(1) before the Settlement Commission on 30.8.2000 for A.Y. 1996-97 to 2000-01 declaring additional undisclosed income of ` 6,15,68,000. The settlement application dated 30.8.2000 was admitted on 18.12.2000 under section 243D(1) by the Settlement Commission and the final order u/s 245D(4) was passed on 27.12.2005 by the said Settlement Commission."
Extract of Assessment order Page-3 / Para-5 3 M/s. Cambata Aviation P. Ltd.
IT(SS)A no.85/Mum./2009 "Disclosure of Income u/s 132(4) at the time of search
5. It is noticed that during the course of search proceedings, the assessee had filed letter dated 26.6.2001 and 29.6.2001 making declaration of income of ` 1,74,41,822. However, the assessee had declared a sum of only ` 65,81,092 as undisclosed income of the block period 1.4.1991 to 1.5.2001. The assessee was asked to show cause as why the income of ` 1,74,41,822 should not be considered as undisclosed income as against the income of ` 65,18,092 and hence addition of ` 1,09,23,730 be made. The detailed break up of the undisclosed income in block return and that declared u/s 132(4) is given below:-
Particulars Undisclosed Disclosed u/s Amount not income shown 132(4) & vide disclosed in the in return of letter dt. return of block block period 26.6.2001 & 29.6.2001 Rent Paid ` 5,90,000 ` 50,09,500 ` 44,19,500 IOU ` 7,80,841 ` 53,10,200 ` 45,29,359 Seized Paper File A1 ` 47,32,070 ` 47,32,010 --
Expenses of Mr. Sam ` 2,10,181 ` 3,37,052 ` 1,26,871 Cambata R.E. Meharji - ` 20,000 ` 20,000 --
vouchers Mr. B. Nicholson - ` 35,000 ` 35,000 -- vouchers Payment to Milan ` 1,50,000 ` 1,50,000 -- Zatakia Cash Payment to ` Nil ` 18,48,000 ` 18,48,000 settle litigation Total: ` 65,18,092 ` 1,74,41,822 1,09,23,730
6. The assessee has submitted that the disclosure made vide letter dated 26.6.2001 and 29.6.2001 cannot be held as binding upon the assessee for the purpose of carrying out the assessment proceedings. It was also submitted that cognizance has to be taken in respect of clarification about the quantum of undisclosed income made vide letter dated 28.3.2002, filed along with the return of income filed as well as affidavit of the director dated 7.5.2003. The assessee submitted that when the income declared in the statement under section 132(4) of the Act is revised on proper appreciation of facts, the Assessing Officer must take cognizance of the same unless there are evidences found as a result of search to the contrary. The additions should not simply be made on the basis of such declaration more particularly when it was explained that the said statement was made on mis-conception of 4 M/s. Cambata Aviation P. Ltd.
IT(SS)A no.85/Mum./2009 facts and on misconceived grounds. The assessee has also filed detailed explanation as regards to various claims which were perused and placed on records."
3. The Assessing Officer did not accept the application of the assessee wherein he had given reasons for reduction in the amounts disclosed from ` 1,74,41,882 to 65,18,092 and computed the undisclosed income of ` 1,84,44,179.
4. On appeal, the first appellate authority agreed with the Assessing Officer. Further aggrieved, the assessee is in appeal before the Tribunal, raising following grounds:-
"1. The learned CIT(A) has erred in law and in facts in upholding the order passed by the Assessing Officer u/s 158BC which was illegal and bad in law.
2. The learned CIT(A) has erred in law and in facts in upholding the order passed by the Assessing Officer u/s 158BC without following the principles of natural justice.
3. The learned CIT(A) has erred in law and in facts in confirming the assessment of a sum of ` 50,09,500 being the alleged cash payment of rent at New Delhi, as undisclosed income of the appellant.
4. The learned CIT(A) has erred in law and in facts in approving the assessment of a sum of ` 53,10,200 paid to the employees on the strength of IOUs obtained from them as the undisclosed income of the appellant.
5. The learned CIT(A) has erred in law and in facts in concurring with the treatment given by the Assessing Officer to the amount of ` 7,00,000 paid to Shri Dilip Parekh and its assessments as the undisclosed income of the appellant.
6. The learned CIT(A) has erred in law and in facts in confirming the assessment of ` 3,37,052 paid to Shri Sam Cambata as the undisclosed income of the appellant.
7. The learned CIT(A) has erred in law and in facts in upholding the assessment of a sum of ` 2,71,500 on ad-hoc basis as the undisclosed income of the appellant out of total expenditure of ` 13,57,529 incurred and booked under the head "custom clearing expenses.
8. The learned CIT(A) has erred in law and in facts in upholding the assessment of a sum of ` 1,16,857 as the undisclosed income which in
5 M/s. Cambata Aviation P. Ltd.
IT(SS)A no.85/Mum./2009 fact was the expenditure incurred by the appellant through M/s. Lunar Lubricants and M/s. Solar Oil Company.
9. The learned CIT(A) has erred in law and in facts in confirming the assessment of a sum of ` 17,62,000 being alleged difference in cash, as the undisclosed income of the appellant."
5. Before us, learned Counsel, Mr. Vijay Mehta, appearing on behalf of the assessee, submits that grounds no.1 and 2 are general in nature and, therefore, he is not pressing the same. Consequently, we dismiss these grounds as "not pressed".
6. Ground no.3, is on the issue of addition on account of alleged cash payment of rent at New Delhi.
7. Learned Counsel submits that this issue has been discussed by the Assessing Officer at Page-5 / Para-7 of the assessment order and all that the assessee is asking for is the telescoping benefit. He submits that the Assessing Officer has not accepted the stand of the assessee that the payment of rent, as per the seized material, has been made by the assessee out of cash available with the assessee from bogus expenditure claimed in the books of account. He submits that cash was generated by the assessee by booking bogus expenditure and this very cash was used to pay rent. He submits that bogus expenditure has already been declared in the Petition filed before the Hon'ble Settlement Commission and the same has been assessed accordingly. He submits that cheques were given to certain people and bogus expenditure booked and these persons had returned that money in cash and this cash was paid to the landlord towards rent. He submits that whatever was not covered by the declaration made before the Hon'ble Settlement Commission, was offered to tax. He referred to Page-6 / Para-9 of the assessment order and compared the observations therein to the findings of the Hon'ble Settlement Commission and submits that all that the Hon'ble Settlement Commission has said is that the expenditure is bogus. He referred to Para-11, pages-7 and 8 of the assessment order and emphasized 6 M/s. Cambata Aviation P. Ltd.
IT(SS)A no.85/Mum./2009 the findings in Para-37.13 / Page-48 of the Hon'ble Settlement Commission's order wherein it is clearly stated that the assessee has agreed that the expenditure is not genuine and that the money is partly received back in cash and has been spent for the purpose of funding certain unaccounted expenditure and also the finding that what happened to the unspent cash had not been explained and that the destination of such cash remains to be disclosed. He emphasized that during the course of search, the Revenue has not found any excess cash or investment. He also submits that except for payment of this unaccounted rent, no other unaccounted expenditure was found by the Revenue in the entire search operations. He pointed out that all the receipts are from foreign airlines for ground handling services and there is no allegation that the assessee has received certain unaccounted money by way of income. He referred to Page-18 of the Commissioner (Appeals)'s order and submits that the Commissioner (Appeals) has chosen to pick selected sentences from the order of the Hon'ble Settlement Commission and this resulted in coming to a distorted conclusion on the findings of the Hon'ble Settlement Commission. He took this Bench through the contents of the settlement application filed as well as the submissions made by the assessee before the Hon'ble Settlement Commission and submits that a perusal of these two documents would set at rest, the stand of the assessee. He also referred to the statement of facts before the Hon'ble Settlement Commission at assessee's paper book at Pages-21 and 22. He referred to assessee's paper book Page-30 / Para-4 and submits that the assessee wanted telescoping benefit even before the Hon'ble Settlement Commission.
8. Learned Counsel submits that the learned CIT(A) erred in asking for nexus, for the reason that when one-to-one nexus is proved, there is no question of grant of telescoping. He submitted a chart to point out that the bogus expenditure declared in each of the year under reference, is much larger than the rent paid and, hence, prayed that the benefit of telescoping may be granted. He pointed out that the cash generated from bogus expenditure was ` 6,15,71,572 and that this amount was assessed to tax in 7 M/s. Cambata Aviation P. Ltd.
IT(SS)A no.85/Mum./2009 the proceedings before the Hon'ble Settlement Commission in the first application and that the amount of 44,19,500 only was paid in cash from out of the cash generated from bogus expenditure and that balance ` 5,90,000 from total rental cash payment of ` 50,09,500 was declared in the block return. For the proposition that the telescoping benefit is to be granted, he relied on the following case laws:-
1. CIT v/s Jawanmal Gemaji Gandhi, (1985) 151 ITR 353 (Bom.);
2. Balaram Saha v/s CIT, (2011) TIOL-274-HC-KOL-IT (Cal.);
3. CIT v/s K.S.M. Guruswamy Nadar & Sons, (1984) 149 ITR 127 (Mad.); &
4. ACIT v/s Dharamdas Agarwal, (1983) 144 ITR 143
9. He contends that the Assessing Officer as well as the Commissioner (Appeals) had conveniently considered only one side of the coin i.e., the offers made by the assessee in their letters dated 26th June 2001 and 29th June 2001 and have brushed aside the contents of the subsequent letter dated 28th March 2002, which was filed along with the return of income to substantiate the undisclosed income declared therein. He also submits that the director of the assessee company has filed an affidavit dated 7th May 2003, giving the correct state-of-affairs and also bring out the inaccurately in the initial offer. He submits that the contents of the affidavit were not rebutted by the Assessing Officer or the Commissioner (Appeals). He relied on the judgment of the Hon'ble Supreme Court in Mehta Parikh & Co. v/s CIT, (1956) 30 ITR 181 (SC), for the proposition of uncontroverted affidavit is a valuable piece of evidence. He referred to Explanation-2 to section 271(1)(c) and submits that the legislature as also recognised the concept of telescoping.
10. Referring to ground no.4, learned Counsel submits that this addition was made by the Assessing Officer on account of IOU payments reflected in the seized material. He submits that the assessee has large number of employees operating at different airports of India and for administrative reasons and accounting evidence, the assessee has taken a policy of
8 M/s. Cambata Aviation P. Ltd.
IT(SS)A no.85/Mum./2009 advancing cash to employees and reflecting them under the head "IOU". He submits that when the amounts are paid as advance, no entries are passed in the cash book and, hence, the cash balance continued without reduction. On account of IOU, he submitted that the effective cash balance would be the actual cash balance plus the sum total of IOUs. He submits that when the employee submits vouchers and bills, then the adjustment is made. He submits that on each of the days, the cash balance as per books of account was sufficient to cover the IOUs and, hence, no addition is required to be made. Alternatively, he submits that benefit of telescoping has to be granted and for this submission, he relied on the argument made earlier in ground no.4.
11. Ground no.5, is with regard to an amount of ` 7,00,000 being the payment made to Mr. Dilip Parikh, in settlement of certain disputes / litigations. The learned Counsel seeks telescoping benefit as in the earlier grounds.
12. Ground no.6, is an addition of ` 3,37,052, made on account of amount paid to Mr. Sam Cambata.
13. Counsel submits that the amount was recorded in the books of account and, hence, it cannot be disallowed in the regular assessment.
14. Learned Counsel, referring to ground no.7, submits that this is an ad- hoc disallowance of 20% of the total amount and that no material was found making such disallowance. He submits that the Assessing Officer has wrongly stated that one of the Duty Managers, Mr. Shrikant Tarikar, has accepted that 20% of the expenditure has been illegally made. He vehemently contended that there are no such averments made in the statement of the said employee.
15. Insofar as ground no.8 is concerned, which is on the disallowance of expenditure incurred on Lunar Lubricants, learned Counsel submits that 9 M/s. Cambata Aviation P. Ltd.
IT(SS)A no.85/Mum./2009 these are the claims in the regular books of account and, hence, cannot be a matter of addition in the block assessment proceedings.
16. Coming to ground no.10, learned Counsel submits that the cash found by the Department during the course of search was ` 11,87,000 and, whereas, the cash balance as per books of account was ` 29,49,011. He submits that the difference cannot be added as undisclosed income under any of the provisions of the Act. He, accordingly, prayed for relief.
17. Learned Departmental Representative, Mr. Ajit Kumar Sinha, on the other hand, opposed the contentions of the assessee and submits that the assessee himself was not sure on the issue whether the expenditure in question was genuine or bogus expenditure. He submits that the assessee originally contended before the Hon'ble Settlement Commission that the expenditure was genuine in nature and on the face of such submissions, it cannot be said that cash was returned to the assessee for being available to incur unaccounted expenditure. He contends that the decision of Hon'ble Settlement Commission has to be seen in the context in which it is made. He submits that the Hon'ble Settlement Commission has considered the issue on facts. He submits that Explanation-2 to section 158BA(2), makes it clear that regular assessed income cannot be a subject matter of block assessment and thus, entries of bogus expenditure in the regular books of account cannot be taken shelter of in the block assessment .
18. He referred to Page-17 of the Commissioner (Appeals)'s order and submits that at Pages-6 and 7 of the Hon'ble Settlement Commission under section 245B(4) in S.A. no.15/VI/011/2000-01/it extracted the questions and answers during the course of hearing and came to a conclusion that no cash was generated and the amount was offered before the Hon'ble Settlement Commission in the circumstances of the case. He further submits that the Hon'ble Settlement Commission has clearly held that the material found during the course of search, cannot be taken into consideration for determination of income in its order and that the same should be considered 10 M/s. Cambata Aviation P. Ltd.
IT(SS)A no.85/Mum./2009 in the block assessment. He further pointed out that the assessee has not proved any nexus of the expenditure, the mode of payment of rental in cash vis-à-vis the income disclosed in the regular assessment years. He referred to the letters filed before the investigating authorities offering the income and submits that the retraction at the time of filing of return of income was bad-in-law.
19. On ground no.5, which pertains to addition on account of IOUs, the learned Departmental Representative submits that the arguments of telescoping was never taken before the Commissioner (Appeals) and under such circumstances, the issue cannot be adjudicated at this stage. He contends that the assessee has raised an entirely different set of arguments before the Tribunal and that, at best, the issue should be set aside to the file of the Commissioner (Appeals) for considering the issue of telescoping.
20. On ground no.6, which pertains to payment made to Mr. Dilip Parikh, the learned Departmental Representative submits that the issue is of illegal payment and it is not a case of telescoping. He submits that the expenditure was held as not allowable as it was not wholly and exclusively incurred for the purpose of business. He points out that the assessee itself disallowed ` 11,48,000 in the return of income filed for the assessment year 2001-02 and on the same footing, the balance amount of ` 7,00,000 is to be disallowed.
21. On ground no.7, which pertains to payment made to Mr. Sam Cambata, the learned Departmental Representative, referred to Page-33 to 36 of the Commissioner (Appeals)'s order and drew the attention of the Bench to the findings that the payment was not made for the purpose of business. Mr. Sam Cambata, is neither employee nor there was any contractual obligation to pay him.
22. On ground no.8, which is on the issue of ad-hoc disallowance of 20%, the learned Departmental Representative submits that the amount of 20% 11 M/s. Cambata Aviation P. Ltd.
IT(SS)A no.85/Mum./2009 was speed money and this was based on seized documentary evidence. He relied on the order of the Assessing Officer.
23. Ground no.9, which is pertaining to disallowance of expenditure incurred through Lunar Lubricants, learned Departmental Representative, submits that the assessee itself had declared expenditure in the name of said parties as bogus and, hence, cannot take a different stand here.
24. On the last issue of difference in cash balance, the learned Departmental Representative submits that it was for the assessee to explain the same. He prayed that the order of the first appellate authority be upheld.
25. Joining the issue, the learned Counsel submits that Explanation to section 158BA(2), places a bar on taxing the income twice. He submits that there is no bar on the issue of telescoping. He submits that the assessee has not retracted from the statement in this case but has only explained the source of money for incurring the unrecorded expenditure. On IOUs, he submits that the datewise cash balance chart has been filed before the Commissioner (Appeals) and the Commissioner (Appeals) has not considered the argument of the assessee that the daily cash balance is over and above the daily IOUs. On ad-hoc disallowance of expenditure, learned Counsel submits that the expenditure in cash did not exceed 10% of custom clearing expenditure. Under such circumstances, to hold that 20% of the expenditure is speed money is not correct.
26. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and a perusal of papers on record as well as the case laws cited before us, we hold as follows:-
(i) As already stated, grounds no.1 and 2 have not been pressed by the learned Counsel, therefore, these grounds are dismissed as "not pressed".
12 M/s. Cambata Aviation P. Ltd.
IT(SS)A no.85/Mum./2009
(ii) Ground no.3, the issue is of telescoping. The Hon'ble Settlement Commission has, after considering the Petition of the assessee, the various arguments from both the parties and the material in hand, has finally come to the following conclusion.
"12. We also do not agree with the contention of the applicant that the payments were genuine. In spite of the claim of the applicant, that the payments have been made by account payee cheques to those parties, under the facts and circumstances of the case, we are not satisfied that the payments were genuine.
13. Under these facts and circumstances of the case, the question which arises is whether the apparent can be considered as the real. It has been laid down by our Supreme Court that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real and that the taxing authority are entitled to look into the surrounding circumstances to find the reality and the matter has to be considered by applying the test of human probabilities.
14. We are convinced, in view of what has been discussed above that the transactions under consideration are not genuine. The expenditure under the various heads, as described above, was inflated and bogus. They were not incurred for the purpose of the business. And the contention of the applicant that they are offering these as income only because they are not in a position to substantiate these payments "on account of reasons beyond its control" is unacceptable."
(iii) These findings have to be read with the averments in the application made by the assessee to the Hon'ble Settlement Commission in Form no.34B, wherein at Para-6, it is stated as follows:-
"6. ........... The applicant submits that though the aforesaid expenditure had been incurred for the purpose of business, it is submitted that the applicant on account of reasons beyond its control will not be in a position to substantiate the same with supporting bills / invoices. Accordingly, since the aforesaid expenditure under the aforesaid head or as a bogus expenditure, the applicant offers the aforesaid amount of ` 6,16 crores as additional income to be assessed over and above the income returned for the assessment year 1996-97 to 2000-01 in the manner as stated below:-
Assessment Year Additional Income
1996-97 ` 96,69,000
13 M/s. Cambata Aviation P. Ltd.
IT(SS)A no.85/Mum./2009
1997-98 ` 2,86,41,000
1998-99 ` 67,05,000
1999-2000 ` 1,06,24,000
2000-01 ` 59,29,000
Total: ` 6,15,68,000"
(iv) In its submissions dated 11th December 2006, made before the Hon'ble Settlement Commission, it was stated as follows:-
"40. It was further submitted that the additional income as has been offered has been generated from the business in which the applicant is engaged and was to meet its business expenditure, which sum so generated has been incurred for the unaccounted expenditure of the business in the very same year or in the subsequent year(s) and no portion of any such undisclosed income so generated found its place in the creation of any assets in the hands of the applicant or in the hands of its directors. It was submitted that part of the income offered represented unverifiable expenditure, which might have been manipulated by the staff of the applicant company to sign advantage for themselves. It was submitted that it was for this reason when the applicant filed the application on August 30, 2000, it made necessary verification by deputing their staff and wherever it was found that the payees were not then existing, all such amount which aggregated to ` 6,15,71,572 had been offered. Obviously, this sum included even the inflated expenditure as bogus bills were raised from parties, who were otherwise non-existing i.e., non-genuine."
(v) Further at Para-28 of the order under section 245D(4), the Hon'ble Settlement Commission held as follows:-
"28. Facts on record clearly indicate that applicant has indulged in unreliable financial practices for all the years under consideration. The books of account maintained by the applicant cannot be relied upon. Both in the proceedings connected with the search and in the present proceedings the applicant has categorically accepted having incurred expenditure not recorded in the books of account. The applicant has also, in no uncertain terms, has conceded that they were inflating expenditure by raising bogus bills and cash generated thereby have been utilized for funding those unrecorded expenditure. However, the applicant has not clearly indicated as to the final destination of the entire cash generated from inflation of expenditure by debiting bogus bills."
14 M/s. Cambata Aviation P. Ltd.
IT(SS)A no.85/Mum./2009
(vi) From the reading of the above, it is clear that the Hon'ble Settlement Commission has concluded on facts that the payments were not genuine. It has given a categorical finding that the expenditure under various heads, as described above, was inflated and bogus. It also observed that the assessee had conceded that cash was generated by inflation of expenditure and that such cash was utilized for funding certain unrecorded expenditure. In the light of the factual findings of the Hon'ble Settlement Commission, we are of the considered opinion that the finding of the Assessing Officer as well as the learned CIT(A) are erroneous. Both these authorities have not considered the order of the Hon'ble Settlement Commission in its proper perspective and have just picked up certain phrases & sentences and came to conclusions. This is not proper. As the Hon'ble Settlement Commission found that this expenditure is bogus, the claim of the assessee that the cash generated by booking this bogus expenditure, has been partly utilized to meet certain expenditure which was not recorded in the books of account, is of possible explanation. The additional income declared by way of bogus expenditure is about ` 6,15,00,000 and whereas the rent paid in cash over the period is only ` 44,20,000. Compared to the cash flow by way of bogus booking, this unaccounted expenditure is small. The learned Departmental Representative has not, in principle, challenged the theory of telescoping. The Hon'ble Bombay High Court in Jawanmal Gemaji Gandhi (supra) has considered the judgment of Hon'ble Supreme Court in Anantharam Veerasinghaiah v/s CIT, (1980) 123 ITR 457 (SC), and at Page-356, held as follows:-
The Hon'ble Supreme Court has clearly stated that the secret profits or undisclosed income of an assessee earned in an earlier assessment year can constitute a fund, though concealed, from which the assessee may draw subsequently. That observation is clearly contrary to the finding of the Kerala High Court. The assessee acquired the gold during the latter half fo the assessment year; it could then very well be that the undisclosed income of ` 10,702 earned in that very year constituted the fund from which this asset was acquired."
15 M/s. Cambata Aviation P. Ltd.
IT(SS)A no.85/Mum./2009 Applying this proposition, on facts, we uphold the contention of the assessee for telescoping. We hold that the unrecorded rental expenditure can be said to have been funded from inflated bogus expenditure and no separate addition is called for. Hence, we allow this ground of the assessee.
(vii) Insofar as ground no.4 is concerned, for the same reason given in ground no.3, we are of the opinion that the benefit of telescoping is to be granted and no separate addition is called for on IOUs found during the course of search. We also find that the assessee has furnished a daily cash flow statement before the Commissioner (Appeals) and a perusal of cash flow statement shows that the cash balance in the books of account on each day is over and above the IOU's balance of that day. Looking at it from any angle, the addition cannot be sustained.
(viii) Coming to the addition of ` 7,00,000, we find that the total payment of ` 18,48,000, was made to one Mr. Dilip Parikh. The assessee had voluntarily filed letters disclosing this amount as undisclosed income before the investigation wing. In the return of income filed for assessment year 2001- 02, the assessee has already disallowed ` 11,48,000 suo-motu. Before the Hon'ble Settlement Commission, the learned Counsel belatedly argued that the amount was paid out of cash generated from inflated expenditure. In our considered opinion, as the assessee himself has disallowed major part of the expenditure, a separate argument cannot be raised for allowing the same. What holds good for ` 11,48,000, also holds good for the balance amount of ` 7,00,000. Thus, we dismiss this ground.
(ix) Coming to the addition on payment made to Mr. Sam Cambata, the payment was made to the brother of one of the directors and the assessee has not furnished any document to demonstrate that the expenditure was incurred for the purpose of business. Mr. Sam Cambata, was neither employed with the company nor, in any way, connected with the business of the company. For lack of evidence, the amount was added by the Assessing 16 M/s. Cambata Aviation P. Ltd.
IT(SS)A no.85/Mum./2009 Officer. For these reasons, we uphold that the order of the first appellate authority and dismiss this ground.
(x) Now, coming to ground no.6, which pertains to ad-hoc disallowance @ 20% of custom clearing expenditure, the submissions of the learned Counsel for the cash payment was not more than 10%, is not controverted by the learned Departmental Representative. During the course of search and seizure action, certain vouchers were found showing expenditure under the head "Customs Clearing Expenditure". These vouchers cannot be considered as incriminating documents. The vouchers were duly recorded in the books of account. It was factually incorrect on the part of the Assessing Officer to state that duty manager Mr. Shrikant Tarikar has stated in his statement that the assessee has paid speed money. In view of the above discussions, we allow this ground of the assessee.
(xi) The assessee had declared expenditure incurred in the name of two parties for Lunar Lubricants as bogus before the Hon'ble Settlement Commission. The documents found during the course of search are connected with the payments made through these two parties. The assessee has not produced any evidence to contradict the findings of the Assessing Officer that the payments made to these parties are bogus and that the assessee cannot take a different stand for these proceedings. Thus, this ground is dismissed.
(xii) The last ground is on the addition made due to the difference in physical cash and the balance recorded in the cash book. On the date of search, balance in cash book was ` 29,49,011, and whereas, the physical cash found by the Department was ` 11,87,000. The Assessing Officer added the difference as undisclosed income. In our opinion, such an addition is not correct. There is no undisclosed asset or unrecorded expenditure found during the course of search. When the physical cash balance is lesser than the recorded cash balance, no addition can be made under any sections of 17 M/s. Cambata Aviation P. Ltd.
IT(SS)A no.85/Mum./2009 the Act, as it does not result into income or any asset. For these reasons, we delete the addition and allow the ground of the assessee.
27. In the result, assessee's appeal is allowed in part.
Order pronounced in the open Court on 24.6.2011
Sd/- Sd/-
ASHA VIJAYRAGHAVAN J. SUDHAKAR REDDY
JUDICIAL MEMBER ACCOUNTANT MEMBER
MUMBAI, DATED: 24.6.2011
Copy to:
(1) The Assessee;
(2) The Respondent;
(3) The CIT(A), Mumbai, concerned;
(4) The CIT, Mumbai City concerned;
(5) The DR, "C" Bench, ITAT, Mumbai.
TRUE COPY
BY ORDER
Pradeep J . Chowdhu ry ASSISTANT REGISTRAR
Sr. Private Secretary ITAT, MUMBAI BENCHES, MUMBAI