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January, 22nd 2015
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                       MUMBAI BENCH "A", MUMBAI

       [ ^ .. [,    ^  [, Û   ¢ 
               (  ) ./IT(SS) No.30/M/2011
               ( Assessment Year/Block Period; 2001-02 to 2007-08)

        Shri Atul Sanghvi                      Asst. CIT CEN-1
        Sankarsett Palace,           / Vs. Mumbai ­
        Nana Chowk,
        Mumbai ­ 400 007
        PAN: AHZP52788A
             (/Appellant)                         (×/Respondent)

              (  ) ./IT(SS) No.29/M/2011
               ( Assessment Year/Block Period; 2001-02 to 2007-08)

        Shri Dilip Shah                         Asst. CIT CEN-1
        401, Spenta Towers, 55/57,
        Forgett Street,              / Vs. Mumbai ­
         Gowalia Tank,
        Mumbai ­ 400 036
        PAN: ACWPS4146B
             (/Appellant)                         (×/Respondent)

                   Assessee by                : Shri Rakesh Joshi
                   Revenue by                 : Ms. S. Padmaja

        / Date of Hearing                     : 25.11.2014
         /Date of Pronouncement               : 16 .01.2015

                                   / O R D E R

Per Sanjay Garg, Judicial Member:

      The above titled appeals have been preferred by though different but
associated assessees. Since the facts as well as the issue involved are identical
in nature, hence, both the appeals are taken together for disposal by this
                                                                IT(SS) No.29&30/M/2011

common order. For the sake of convenience, the facts have been taken from
ITSS No.30/M/2011.
ITSS No. 30/M/2011
2.    The assessee, in this appeal, has contested the order of the
Commissioner of Income Tax (hereinafter referred to as the CIT) dated
29.03.2011 passed under section 263 of the Income Tax Act whereby he has
revised the assessment order passed by the Assessing Officer (hereinafter
referred to as the AO) under section 143(3) read with section 153A of the
Income Tax Act.

3.    The brief facts as brought out by the Ld. CIT in the impugned order are
that During the course of search on the premises of the assessee, a
large number of sale bills issued by various concerns viz., raised on
M/s Varun Industries Ltd were found. Number of cheque books and
bank slips were found referring to more than 100 bank accounts.
Evidence was also found of tampering of documents such as PAN Card
by substitution of name and photograph. In one case same persons
photograph was used in 3 bank accounts under different names.
Documents were also found to show that the assessee had floated a
large number of bogus concerns and was in the business of raising
accommodation bills for various parties. The assessee submitted that
the concerns were not floated by him and they were genuine concerns.
The PAN Cards and the copies of the bank pass book belong to the
persons who supplied material and had business dealings with the
assessee. It was explained that these docu ments were kept with the
assessee for convenience as well as insurance to guard against fraud.
The PAN cards were proof that the parties were genuine. The assessee
provided confirmation from a number of persons who were supposedly running
the above concerns. Enquiry letters were sent to the addresses provided by
                                                                 IT(SS) No.29&30/M/2011

the assessee. Most of the letters were returned unserved. The
assessee was asked to produce the persons. Only 9 persons were
produced who were stated to be running multiple concerns whose bank
accounts were found in the assessee's premises. The persons could
not produce books of accounts. None except one had filed the income tax
return. No proof of business carried on by the persons could be filed. The
persons also could not explain the sources of the deposits in the bank
accounts of the concerns. Shri Atul Sanghvi and Shri Dilip Shah who
were partners of the business also made contradictory statements
regarding the conduct of the business. While, one stated that the
parties approached them for business transactions, the other stated that
they had to go and contact the parties. It was also found that most of the
addresses given while opening bank accounts were in the assessee's
neighborhood. Statement of Shri Yashwant Pandya who was working for the
assessee was also recorded. He admitted that he was preparing sale bills in
the names of concerns on the assessee's instructions. Another person Shri
Pradeep Jobalia admitted that he accepted letters from banks and concerns.
He also stated that his address was given while opening some of the
accounts. One Shri S. Shah was brought by Shri Atul Sanghvi and
introduced as his distant relative. It was stated that his photo appeared
in atleast 3 accounts in different names. There was sufficient evidence
found in the assessee's premises to conclude that they were bogus concerns
which were run by the assessee and were utilized for raising
accommodation bills for several clients.. The AO treated the sales as bogus
sales for which sales bills were found and were duly impounded. However, the
remaining sum of Rs.1388,09,01,411/- which had remained unexplained in
spite of various opportunities given to the assessee had been treated by the AO
as unexplained income of the assessee. He, however, made the said additions
                                                                IT(SS) No.29&30/M/2011

on protective basis observing that the assessee had not been able to establish
the source of these credits. The AO then Proceeded to tax only the
commission income earned by the assessee on substantive basis, to the
extent of his share in the business.

4.      The Ld. CIT thereafter called upon and examined the records of the
assessee and Shri Dilip Shah and found that the assessee and Shri Dilip Shah
were associates in the business of issuing accommodation bills through
various bogus concerns to a number of parties.         He noted that the
Assessing Officer while assessing the aggregate amount of bank
deposits of Rs. 1388.09 crores spread over various assessment years
comprised in the block period, protectively, in the hands of the
assessee and his business associate, in equal share (50%), had not
given a finding with regard to the specific person or persons on
whose hands the unexplained bank credits amounting to Rs. 1388.09
would be taxe d on s ubstant ive basis.         He obs erve d t hat i n the
absence of such finding, the amount would in reality not be taxed
in any pe rs on's h and on su bs ta nti ve ba si s. He ther efore inv o ked
t he provisions of sec. 263 of the I.T. Act, 1961. The assessee was
given an opportunity to show cause why the assessment should not
therefore be cancelled and a fresh- assessment be made. In response to the
above notice, assessee contended that the two limbs i.e the order being
erroneous and prejudicial to the interest of revenue should coexist while
invoking provisions u/s. 263 of the Act. That the assessment order framed by
the AO was neither erroneous nor prejudicial to the interest of the
revenue. It was also contended that the conclusion arrived at by the AO
could not be termed as erroneous. In a case when one possible view was
taken out of two or more possible views, it cannot lead to the
conclusion that the order passed by the AO was erroneous and prejudicial
                                                                               IT(SS) No.29&30/M/2011

to the interest of revenue.

5.       The Ld. CIT however, observed that the assessee had not given any
submission on the merits of the issue. In the instant case, the twin
conditions of erroneous and prejudicial to revenue, co-existed.
That the AO had committed an error by making a protective addition without,
however, stating where and in whose hands the amount should be
substantively added. The assessee in this case had not discharged onus on
him of explaining the source of the deposits, proving the identity of the
persons to whom the bank accounts belonged if the accounts did not
belong to the assessee, prove the credit worthiness of the persons etc.
In the absence of such explanation and proof and in view of the evidence
found in the assessee's premises, the deposits of in the bank accounts would
be deemed to be the income of the assessee. The amount of Rs.
1388.09 crores therefore should have been assessed in the hands of the
assessee to the extent of his share in the business, on substantive basis
and not on protective basis. A protective assessment only lies if the
assessee could prove that the amount belonged to other persons in whose
hands it should be assessed like in the case of Varun Industries. In that
event, the amount could be assessed on protective basis in the hands of
the assessee to safeguard the interest of the revenue. He therefore finding
the assessment order to be erroneous and prejudicial to the interest of the
revenue cancelled the same in so far as the issue of bank deposits was
concerned and directed the Asessing Officer to make fresh assessments
in the following manner.
      "a.The total amount included in the bills raised in the name of
      V a r u n Industries should be assessed protectively in the hands of the assessee to the
      extent of his share in the business, to safeguard the interest of the revenue as discussed
      above. The commission income on the above transactions should be assessed
                                                                                                      IT(SS) No.29&30/M/2011

      proportionately on substantive basis in the hands of the assessee, as already done in the
      original assessment.
      b. As regards deposits aggregating to Rs. 1388.09 crores in the assessment years
      comprised in the block period for which the assessee was not able to furnish proper
      explanation, this amount should be taxed in the hands of the assessee proportionately
      to the extent of his share in the business on a substantive basis as his own unexplained or
      unaccounted income.
      c. The assessee should be allowed opportunity to prove that the deposits are
      accounted for or are not the assessee's own income but income of some o ther
      person , y sub mittin g proof of iden tity o f su ch p erson creditworthiness of such
      person, business operation carried out and that the transaction is genuinely carried out
      by such other person. In a case where su ch p roo f is su b mitted , th e amo unt o r
      amo un ts wou ld b e reduced from the aggregate amount of unexplained bank
      deposits and t a x e d o n l y o n p r o t e c t i v e b a s i s i n t h e r e s p e c t i v e y e a r o r
      ye a r s . T h e remainin g amount, .which remains unexplained, would be taxed
      in the r e s p e c t i v e y e a r s i n t h e h a n d s o f t h e a s s e s s e e p r o p o r t i o n a t e l y , o n
      substantive basis, as stated in the foregoing para."

6.    The assessee has thus come in appeal before us agitating the revision of
the assessment order by the Ld. CIT under section 263 of the Act. We have
heard the rival contentions of the Ld. Representatives of both the parties and
have also gone through the records.                             The Ld. A.R. of the assessee has
vehemently contended that the assessment order was passed by the AO after
due application of mind. The AO had not only applied his mind during the
assessment proceedings under section 143(3) of the Act but also under section
147 of the Act in the reopened assessment proceedings.                                            He has further
contended that the action of the Ld. CIT was based on the mere change of
opinion.      Neither the assessment order in question was erroneous nor
prejudicial to the interest of the Revenue. There was no tangible material
before the Ld. CIT justifying the revision of the assessment order. He, in this
respect, has relied upon the decision of the Hon'ble Supreme Court in the case
of "Malabar Industries Company Ltd. vs. CIT" [2000] 243 ITR 83 (SC) and
                                                                    IT(SS) No.29&30/M/2011

further the decision of the Hon'ble Delhi High Court in the case of "CIT vs.
Kelvinator of India Ltd." 256 ITR 1.
      On the other hand, the Ld. D.R. has contended that the assessment order
under consideration was erroneous. The AO had made additions on protective
basis in the hands of the assessee without making any addition on substantive
basis in the hands of any other person. He has further submitted that thus the
order was prejudicial to the interest of the Revenue.

7.    We have considered the rival submissions. A perusal of the assessment
order reveals that the AO had given a categorical finding that the total credit in
the assessee's various bank accounts was amounting to Rs.2122,27,57,495/-
out of this a sum of Rs.856,64,49,533/- had been treated as bogus sales for
which sales bills were found and were duly impounded.              However, the
remaining sum of Rs.1388,09,01,411/- had remained unexplained in spite of
various opportunities given to the assessee. The AO had treated the same as
unexplained income of the assessee and decided to bring it into tax in various
assessment years. He also worked out the additions for different assessment
years. However, he made the said additions on protective basis observing that
the assessee had not been able to establish the source of these credits. He,
however, made the addition of 5% of the said amount as commission income
of the assessee on substantive basis. A perusal of the above findings itself
reveals that the order of the AO was erroneous. In the absence of any evidence
on the file as to source of the credits of the amount in question in the various
bank accounts of the assessee, the AO had treated the said amount as
unexplained income of the assessee. Once the AO had treated so, the AO was
required to make the addition of this amount on substantive basis. Even
without making the addition of the amount in question on substantive basis in
any other persons' account, the AO could not have made the addition of the
amount on protective basis in the assessee's account. From the above facts, the
                                                                       IT(SS) No.29&30/M/2011

Ld. CIT was justified in holding that the order of the AO was not only
erroneous but also prejudicial to the interest of the Revenue. Hence, we do not
find any infirmity in the order of the Ld. CIT while invoking provisions of
section 263 of the Act and thereby revising the order of the AO. The same is
therefore upheld.
ITSS No.29/M/2011
8.        The assessee in the case in hand was partner/associate in equal shares
with Atul Sanghvi i.e. the assessee in the above discussed appeal No.30. The
facts and issues involved in this case being identical in nature to the above
discussed appeal i.e. IT(SS)A No.30/M/2011, hence, in view of our
observations made above, this appeal is also decided against the assessee.

9.        In the result, both the appeals of the assessees are hereby dismissed.

          Order pronounced in the open court on 16.01.2015.
                 Û   16.01.2015    

                  Sd/-                                         Sd/-

               (.. [ /R.C.Sharma)                         (     [ /   Sanjay Garg)
  / ACCOUNTANT MEMBER                             Û  / JUDICIAL             MEMBER

/Mumbai; /Dated 16 .01.2015

* Patel
      Copy of the Order forwarded to :
1.    / The Appellant
2.   × / The Respondent.
3.    () / The CIT(A)-
4.     / CIT
5.    ,   ,  / The DR Concerned Bench,

6.   [  / Guard file.
                                                                       / BY ORDER,

                ×  //True Copy//

                                                  /  (Dy./Asstt.
                                                  /                         Registrar)
                                                       ,  / ITAT, Mumbai
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