Nitin M Shah, Mumbai vs Department Of Income Tax

The present appeal has been preferred by the Revenue against the order dated 05.03.2013 of the Commissioner of Income Tax (Appeals) [(hereinafter referred to as CIT(A)] relevant to assessment year 2008-09.

2. The Revenue has taken following Grounds of appeal:

"On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.3,13,38,798/- made by the AO as a m o u n t e n c a s h e d b y t h e a s s e s s e e w h i c h w a s s h o w n a s b o g u s expenditure in the hands of the company in which he was the Managing Director.

1(i)That in doing so the Ld. CIT(A) erred in holding that the amount was c ove re d by th e ove r al l di s cl o su re o f R s . 5.3 6 C rs . m a de by a s se s se e without appreciating that the assessee had offered the sum for taxation as income earned from commodity trading and not 2 ITA No.4433/M/2013 Shri Nitin M. Shah

as income shown as bogus e xpe nditure of the com pany, as is evide nt form re ply of the assessee to question no.10, in his statement dated 19.10.2007, recorded under section 132(4) of the I T Act.

2. The Appe llant craves to leave to add, to amend and / or to alter any of the grounds of appeal; if need be.

3. The appellant, therefore, prays that on the grounds stated above, the o r d e r o f t h e C I T ( A ) - 3 9 , M u m b a i m a y b e s e t a s i d e a n d t h a t o f t h e Assessing Officer restored."

3. The Revenue in this appeal is aggrieved by action of CIT(A) in deleting the addition of Rs.3,13,38,798/- out of the total addition of Rs.5,81,07,680/- made by the Assessing Officer (hereinafter referred to as the AO) into the returned income of Rs.6,25,65,246/- of the assessee.

4. The brief facts of the case under consideration are that the assessee is the Managing Director of the company 'M/s Nitin Fire Protection Industries Ltd.' which is engaged in manufacturing of Fire Fighting Equipments etc.. The said company and the other group companies are controlled by the assessee, his family members and associates. A search operation was carried on 6.9.2007 under section 132 of the income tax Act in the case of Group Companies known as 'Nitin Group'. The A.O. issued notice u/s. 153A of the I.T. Act, 1961 on 31.07.2008 on the assessee Shri Nitin M. Shah for A.Y. 2002-2003 to 2007-08. In response to notice, the assessee filed returns of income on 22.09.2009, wherein certain additional income for some of the above noted assessment years was admitted/returned by the assessee. For the year under consideration i.e. A.Y. 2008-09 , the assessee in his original return of income filed on 30.09.2008 declared total income at Rs. 6,24,50,245/- The AO however vide order of assessment dated 30.12.09 passed u/s 143(3) of the Act, made the following additions/disallowances to the income of the assessee:

i) Income earned by way Of inflation of expenses 3 ITA No.4433/M/2013 Shri Nitin M. Shah

for acquisitjon of fixed assets in the case of M/S. Nitin Cylinders Ltd. Rs. 3, 13,38,798/- ii) Income earned by way uf bogus expenditure Showing purchase of steel Rs. 2,66,03,042/- iii) Valuation of perquisites Rs. 165840/-

Agitating the above additions, the assessee preferred appeal before the CIT(A).

5. The Ld. CIT(A) vide impugned order deleted the addition relating to item (i) above, however confirmed the additions relating to other two items. The assessee has not preferred any appeal relating to the confirmations of the additions relating to item no. (i) and (ii) above. The Revenue however, has come in the present appeal agitating the deletion of addition relating to the item

(i) above.

6. Now coming to the relevant facts relating to the issue, that during the search action, it was discovered by the department that certain capital expenses debited in the accounts of Nitin Cylinders Ltd. were bogus and cheques paid towards those purchases were encashed by the Directors. A statement of Shri Rahul N. Shah, director of Nitin Cylinders was recorded, wherein he accepted that the cost of fixed assets in M/s. Nitin Cylinders Ltd. was inflated to the extent of Rs.3,13,07,498/- . He further stated that depreciation on this amount of Rs.3,13,07,498/- would be withdrawn. The statement recorded of Shri Rahul N. Shah was brought to the notice of Mr. Nitin Shah (assessee) and his statement was also recorded under section 132(4) on 19.10,2007 wherein he stated that the cheques pertaining to the amount in question were signed by him. He further stated that those cheques were issued in a routine course. That to buy peace with the department and to avoid my further embarrassment and 4 ITA No.4433/M/2013 Shri Nitin M. Shah

in larger interest of the group business, M/s Nitin Cylinders Ltd. would not make claim of depreciation on the amount of Rs.3,13,07,498/-. The AO thereafter observed that the cheques were discounted by the Director and the cash had been withdrawn / siphoned off by him as the respective parties in whose favour those cheques were issued and debited in the books of NCL had confirmed that those cheque payments had not been made to them.

The AO, therefore required the assessee to explain as to why above stated amount of Rs.3.15 crores should not be taxed in the hands of the assessee. The assessee in his response vide letter dated 22.12.09 submitted that the amount of Rs.3. 15 Crore capitalized in Nitin Cylinders Ltd., no depreciation had been claimed. Further the said amount had already been offered to tax by the assessee in his individual capacity as the assessee had voluntarily disclosed the sum of Rs.6.85 crores and due taxes thereon had been paid. This disclosure was reflected in Return of Income of respective years. The assessee had never entered or indulged in any transactions relating to the commodity trading in grey market or on commodity exchange. That during the investigation and/or assessment proceedings, no record, material or evidence of any type of commodity trading in grey market or otherwise was found. Further, that during the statements recorded, to buy the peace and to cover the discrepancies in Nitin Cylinders Ltd. in purchase of materials/ commodities capitalized in Nitin Cylinders Ltd, the naming of the disclosure was given as commodity trading in grey market as was advised then. He, therefore, stated that the sum of voluntary disclosure of Rs. 5 Crores for A.Y. 2008-2009 was pursuant to the discrepancies which may arise during investigation/ assessment in different companies/ concerns/individual assesses of Nitin Fire Groups. Further that the sum of Rs.1.82 Crores was for covering the various issues/sundry discrepancies which could arise during investigation/ assessment in different companies/ assesses of Nitin Group. That this 5 ITA No.4433/M/2013 Shri Nitin M. Shah

disclosure would also cover any difference in purchase of steel in M/s Nitin Cylinders. That the voluntary disclosure of income was much higher than the discrepancies.

7. The AO, however did not accept the explanation of the assessee and observed that the statement of assessee at the time of search had proved that the amount of Rs.3,13,38,798/- was not actually used for construction of the plant at Visakhapatnam of the company and that in his statement Shri Nitin M. Shah had admitted to withdraw claim for depreciation of this amount in the hands of the Company. He, therefore, disallowed the sum of Rs.3,13,38,798/- from the Capital expenses incurred for the construction of the plant by the company and held that the fixed assets would be reduced by a sum of Rs.3,15,00,000/- . As this amount was encashed by the assessee Shri Nitin Shah, who was the Managing Director of the Company, the AO held that this amount was assessable in his hands as unaccounted income for the relevant assessment year (A.Y.2008-09). The AO therefore treated the amount of Rs.3.13 crores as income earned under section 28(iv) of the I.T. Act, 1961 and added to the total income of the assessee. Similarly the commission of Rs.100/- per 1.00 lac paid amounting to Rs.31,300/- was also disallowed in the hands of the assessee and added to total income of the assessee. Hence, total disallowance/addition of Rs.3,13,38,798/- was made. Aggrieved by the above addition, the assessee preferred appeal before the Ld. CIT(A).

8. During the appellate proceedings before the CIT(A), the assessee relied upon the affidavits of Shri Balkrishna Solkar and Shri K. Mandher and their statements recorded on 21-04-2011 before Asst. Commissioner of Income Tax, and contended that the sum of Rs.3.13 Crore had already been owned up by Shri Balkrishna Solkar and that the group company Nitin Cylinders Ltd. had not claimed any depreciation under I. T. Act on this sum of Rs. 3.13 Crore 6 ITA No.4433/M/2013 Shri Nitin M. Shah

capitalized in Nitin Cylinders Ltd. He further contended that this fact of owning up of the amount was stated in the assessment order of Nitin Cylinders Ltd. and that none of the said facts was refuted or controverted by the AO.It was therefore contended that the said sum of Rs. 3,13,38,798/ - was wrongfully added in the hands of the assessee. That this was a case of double addition of the same income. Further that it was very clearly stated by the assessee in his statement that Rs. 5.00 Crorcs were declared to cover up all such discrepancies or deficiencies which could arise during the assessment of group companies. Without prejudice, the assessee submitted that even vide submissions dated 22-12-2009 before the A.O. in the case of Nitin Cylinder Ltd., the clarification/ retraction with regard to voluntary declaration of Rs. 5 Crore was made to the effect that in case of Rs. 3.15 Crore capitalized in Nitin Cylinders Ltd , no depreciation under Income Tax Act 1961 was claimed and the said amount had already been offered for tax in individual capacity of Mr. Nitin Shah. That Mr. Nitn M. Shah had voluntarily disclosed the sum of Ps. 6.85 crores and due taxes thereon had been paid. That the broad bifurcation of above referred income disclosed was as under:

"a. The sum Rs. 1.5 crores is the highest peak balance of all the years both bank accounts in Standard Chartered Bank (one in the name of Nitin M. Shah and another in the name of Nitin Fire Protection Ind. Ltd.)

b. The sum of Rs. 5.35 crores is the aggregate of following items:

i) The loan given by Buniyad Chemicals Ltd. to Logicon Building System Pvt. Ltd. Rs.15,00,000/-.

ii) The loan given by Talent Infoway Ltd. to Logicon Building System Pvt.

Ltd. (group company) Rs.15,00,000/-. (both these loans are genuine and we have already submitted confirmation for the same and they have given this loan out of their own funds and as a matter of co-operation gesture, we are offering the same as a part of the disclosure).

iii) The restriction of deduction u/s 80IB in M/s Eurotech Corporation (group concern) being voluntary of Rs18,00,000/- (the details and explanations are given in M/s. Eurotech Corporation's letter dated 17-12- 2009 and 18-12-2009) 7 ITA No.4433/M/2013 Shri Nitin M. Shah

iv) The sum of Rs.3.15 crores being encashment of cheques/ demand drafts/pay orders issued by Nitin Cylinders Ltd.

v) This is to clarify that in connection with point (iv) above, during the investigation and/or assessment proceedings, there is no record and/or material and/o r evidence of any ty pe of commodity trading in grey market or otherwise is found and/or is available. I further state that I have never entered and/or indulged any of the transactions of commodity trading in grey market or otherwise and/or commodity exchange. Further, that during the statements recorded, to buy the peace and to cover the discrepancies in Nitin cylinders Ltd. in purchase of materials/commodities (since capitalized in Nitin Cylinders Ltd), the naming of the disclosure was given as commodity trading in grey market "commodity trading in grey market" as advised then. In this connection, I state that the sum of my voluntary disclosure of Rs. 5 Crores for A. Y. 2008-2009 is pursuant to the above and/or other discrepancies which may arise during investigation/assessment in different companies/ concerns/in different companies/concerns individuals /huf assessee of Nitin Fire Groups.

vi) The sum of Rs.1.82 crores is for covering the various issues, such as 25% of Rs.1.19 lacs amounts spent in Alert Fire Protection Ind. Ltd. (group company) towards party on IPO success of Nitin Fire Protection Ind. Ltd. and same is coincidence with the brith date of Mr. Nitin M. Shah and the 25% of Rs.3.29 lacs being hotel bill of ITC partly for business promotion with the foreigners on the occasion Marriage of Mr. Kunal Shah and all and/or any and/or sundry discrepancies which may arise during investigation/assessment in different companies/concerns /individuals/huf assessee of Nitin Fire Groups. This disclosure, may also cover any purchase of steel differences in M/s. Nitin Cylinders Ltd.

c. It is humbly submitted that voluntary disclosure of income is much higher than the discrepancies and the same is made as a gesture of co-operation with I.T. Department."

9. The assessee further relied upon the submission filed vide letter dated 30-12-2009 before the A.O. about which the Ld. CIT(A) observed that the same had clearly controverted the contents of the remand report dated 02-06- 2011. The relevant part of the said submissions has been reproduced in the impugned order as under:

"Dear Sir, Sub : Assessment proceedings Ref : A. Y. 2002-2003 to 2007-2008 and 2008-2009, PAN : AABPS9344L .........................................................................................................................

8 ITA No.4433/M/2013 Shri Nitin M. Shah

In continuation of our hearing from time to time, I am furnishing herewith further following information and explanation necessary for completion of assessment proceeding at the earliest.

1. It is very clear that during the search and during the declaration Rs.5 Crores was offered in the hands of Nitin M. Shah to cover up the various issues which may arise during the assessment in the cases of Nitin Shah group and in the cases of Nitin Fire Group companies during the assessment.

2. However, during the declaration, as there was discrepancy in certain goods/commodities purchased by Nitin Cylinder Ltd., the broadly declaration was named as commodity trading in grey market. However, the facts remains that none of the cases of Nitin M. Shah Group and none of the cases of Nitin Fire Group companies have any time indulged in commodity Market qrey trading. Again, it is pertinent to note that neither during the investigation and nor during the assessment, in Nitin M. Shah Group cases and Nitin Fire Group companies cases, any grey market commodity trading was found. This is ppointer to the facts that they cannot be any separate and/or double addition again on any other account.

3. Further, the assessment is high pitched and fair and proper opportunity of submission and/or cross examination not given at all.

4. We have not been given the copies of statement of other parties and the cross examination of the same does not given. We request you to grant us the same before finalization of the assessment.

5. Despite our request and our various submission, you have failed to consider our submission and you are making addition of various parties (without any opportunity of cross examination by us) who have confirmed the business and transactions as per our books of account.

6. You are requested to take note of the above facts while finalizing the assessment order."

10. The Ld. CIT(A) after considering the submissions of the assessee and appreciating the evidences on the file deleted the additions on this issue observing as under:

"9. 1 have perused the records, considered the submissions and documents placed on record. I have also taken into consideration the assessment framed under s.143(3) in the case M/s. Nitin Cylinders Ltd., for the same year i.e. 2008-09. In the assessment of M/s. Nitin Cylinders Ltd. for the A.Y 2008-09, based on the findings in the course of the search conducted on the group and also based on the post search enquiries conducted, an aggregate sum of Rs.5,81,03,042/-

9 ITA No.4433/M/2013 Shri Nitin M. Shah

(Rs.3,15,00,000/- + 2,66,03,042/-) had been held as bogus capital expenditure and hence it was held that the same is to be reduced from the fixed assets and depreciation on the same to be disallowed. In this context it is to be pointed out that in the course of search on the appellant, the appellant had declared a sum of Rs. 5 crores for the A.Y 2008-09. The said disclosure was to account for the various discrepancies/ deficiencies noticed in relation to claim of additions to the fixed assets in the case of M/s. Nitin Cylinders Ltd. and also to take care of other issues as is evident from the record. It can be seen from the statement recorded from Shri Nitin M. Shah, read alongwith his letter dated 22.12.2009 (reproduced in page 11 of the assessment order) that the disclosure is given "as commodity trading in grey market as advised then". From the reading of the said letter it can be observed that disclosure of Rs. 5 crores under the nomenclature of commodity trading" to cover Rs. 3.51 cores capitalized in M/s. Nitin Cylinders considered as bogus purchase and to cover the differences seen in purchase of steel in M/s. Nitin Cylinders Ltd., I have closely examined the disclosure as made in the return of income and on which taxed have been paid.

The Income disclosed in thereturn of income is Rs.5,36,31,953/-. Out of the said-disclosure of Rs.5.36 crores, it is undisputed that Rs.3,13,00,000/- is towards the encashment of cheques/demand drafts/pay orders by M/s. Nitin Cylinders Ltd. in the context of bogus purchases. It has been stated by the appellant that a sum of Rs. 1.82 crores (out of the disclosure of Rs. 5.36 crores) is for covering various issues such as 25% of Rs. 1.19 lacs spent in the group company Alert Fire Protection Ltd., towards the party organized in connection with the IPO success and 25% of Rs. 3.21 lacs being the hotel bill of ITC partly for business promotion with foreigners on the occasion of the marriage of Mr. Kunal Singh. It is further stated that this disclosure may also cover any purchase of steel differences in M/s. Nitin cylinders Ltd.,. Thus, the sums totally accounted for is Rs.4,97,00,000/-. As has been brought on record in the preceding paragraphs the differences seen in the purchase of steel is Rs.2,66,03,042/-. It therefore follows that the difference in purchase of steel has not been accounted for in the over all disclosure of Rs. 5,36,31,953/-.

Under the circumstances, it is directed that the addition to be made towards unaccounted income i.s Rs.2,66,03,042/-. It therefore follows that the addition of Rs.3,13,38,798/- stands deleted."

11. We have considered the rival contentions of the Ld. Representatives of the parties. In our view, the Ld. CIT(A) has rightly observed that the assessee had declared a sum of Rs. 5 crores for the year under consideration. The said disclosure was on account of various discrepancies/deficiencies that may be noted in relation to claim of additions to the fixed assets in the case of M/s. Nitin Cylinders Ltd. and also to take care of other issues. So far the contention of the department that the assessee had stated the same as unaccounted income in relation to commodity transactions in grey market is concerned, it may be 10 ITA No.4433/M/2013 Shri Nitin M. Shah

observed that neither any evidence in this regard was found during the course of search action nor in the investigations during assessment proceedings. The AO had made no enquiries in this respect. He has just relied upon the statement of the assessee made during search action, that in these type of transactions, no evidence generally is available. When there was no evidence found or detected nor there is any contention of the revenue that any evidence in this respect has been concealed by the assessee, then under such circumstances, it has not been explained by the Department as to what prompted the assessee to make such a declaration in respect of income from commodity transactions. It has also not been explained as to even why the AO had not made any enquiries in this respect during the assessment proceedings. The facts on the file clearly reveal that the declaration was made by the assessee in relation to discrepancies found during the search action in the case of Nitin Cylinders Ltd. The naming the disclosure as from commodity trading in the grey market was made as was then advised to the assessee. It is evident on the file that disclosure of Rs. 5.36 crores as per the return of income was to cover Rs.3.51 crores capitalized in M/s Nitin Cylinders considered as bogus purchase and further the sum of Rs.1.82 Crores for covering various issues as explained by the assessee in his letter dated 22.12.2009. The assessee has also claimed that the disclosure be also considered for difference in purchase of steel in M/s Nitin Cylinders Ltd. The Ld. CIT(A) though has held that the sum totally accounted for was at Rs.4,97,00,000/-, however he has not allowed the claim of the remaining amount towards difference in purchase of steel. He has confirmed the addition of Rs. 2,66,03,042/- in relation to difference in purchase of steel as unaccounted income of the assessee. The assessee has however, not preferred any appeal in this respect. We therefore do not find any infirmity in the order of the Ld. CIT(A) in deleting the further additions made by the AO on account of bogus purchases capitalized in the account of Nitin Cylinders as the same 11 ITA No.4433/M/2013 Shri Nitin M. Shah

have already been covered in the income declared of Rs.5 crore by the assessee for the year under consideration. There is no merit in the appeal of the Revenue, the same is therefore, hereby dismissed.

Order pronounced in the open court on 30.06.2015.

Sd/- Sd/- (G.S. Pannu) (Sanjay Garg) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Dated: 30.06.2015. * Kishore, Sr. P.S.

Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench //True Copy// [

By Order

Dy/Asstt. Registrar, ITAT, Mumbai.