Rakesh Arora, New Delhi vs Assessee

Shri Rakesh Arora, Vs. DCIT 1/1/41, Sabzimandi Clock Tower, Central Circle-20 Kamla Nagar, New Delhi. Delhi-110007.

PAN:AAJPA7365B (APPELLANT) (RESPONDENT)

Assessee by:-Sh. Gautam Jain, CA. Revenue by:-Sh. Vikram Sahay, Sr. DR Date of Hearing: 17.02.2015 Order Pronounced on: 20.03.2015 ORDER

PER C. M. GARG, JM.

This appeal has been has been preferred by the assessee against the order

of CIT (Appeals)-XXXI- New Delhi, vide dated 30.11.2011 in Appeal

No.172/2010-11 for Assessment Year 2008-09.

2. The assessee has raised following grounds in this appeal:

"1. That the Ld CIT(A) has erred in law while confirming the addition to the extent of Rs.25,54,150/- out of the total addition of Rs.50,13,750/- made by the ld. AO u/s 69 of the Income Tax Act, 1961 in the hands of assessee under the contention that the accounts to which the money is credited are the alleged benami accounts of the assessee, without considering the evidences filed during assessment proceedings and once again referred during appellate proceedings, and I.T.A .No.-5881/Del/2011 2

therefore, addition confirmed to the extent of Rs.25,54,150/- may please be deleted.

2. That the Ld CIT(A) has erred in law and on facts while confirming the addition made by the Ld AO, where such addition is made under predetermined mind set about material & documents seized during the course of search proceedings relevant to AY 2001-2002 to AY 2007-08 and not the period under consideration i.e. 2008-09, and as such addition confirmed to the extent of Rs.25,54,150/- on the basis of such evidences may please be deleted."

3. Briefly stated the facts giving rise to this appeal are that the assessee filed

his return of income on 23.10.2008 at an income of Rs.4,21,310/-.

Subsequently, the case was selected for scrutiny and a notice u/s 143(2) of the

Income Tax Act 1961 (for short the Act) was issued on 15.4.2009 and another

notice u/s 143(1) of the Act was issued on 16.12.2010 and 24.12.2010

respectively. During the course of assessment proceedings the AO noticed

unexplained cash deposits in the bank account of the assessee amounting to

Rs.50,13,750/- and the AO made addition u/s 69 of the Act. Being aggrieved by

the above assessment order the assessee preferred an appeal before ld. CIT(A)

which was partly allowed, deleting the part of addition and another part of

addition made by the AO u/s 69 of the Act amounting to Rs. 25,54,150/- was

confirmed. The ld. CIT(A) allowed relief to the assessee to the extent of

24,59,600/- and directed the AO to follow the order of the Settlement

Commission with regard to the assessablity of above amount in the hands of

Shri Rakesh Arora, and Shri Rajesh Kumar Arora.

I.T.A .No.-5881/Del/2011 3

4. Now the assessee Shri Rakesh Kumar Arora is before this Tribunal with

the grounds as reproduced hereinabove.

5. We have heard arguments of both the sides and carefully perused the

relevant material placed on record before us. The ld. counsel for the assessee

submitted that the CIT(A) has erred in law while confirming the addition to the

extent of Rs.25,54,150/- made by the AO u/s 69 of the Act in hands of the

assessee under the contention that the account to which the money is credited is

alleged benami account of the assessee, without considering the evidences filed

during the assessment proceedings and again referred during appellate

proceedings. The ld. counsel for the assessee vehemently contended that the ld.

CIT(A) was not justified in confirming the addition where such addition is made

under predetermined mind set about material and document seized during the

course of search proceeding relevant to AY 2001-02 to 2007-08 and not

relevant to the period under consideration i.e. AY 2008-09 and therefore, such

addition may please be deleted.

6. Replying to the above the ld. DR supported the orders of the authorities

below and submitted that the ld. CIT(A) was right in directing the AO to delete

addition of Rs.24,59,600/- and in directing the AO to follow the order of the

Income Tax Settlement Commission. Supporting the orders of the authorities

below, the ld. DR further contended that the ld. CIT(A) was quite justified in

confirming the addition of Rs. 25,54,150/-. The ld. DR further drawn our I.T.A .No.-5881/Del/2011 4

attention in Para 3.7 of the assessment order and submitted that the AO has

made it clear that his conclusion a subject to the decision of Income Tax

Settlement Commission , and if, Income Tax Settlement Commission takes a

decision otherwise and such unexplained income is divided in the hands of three

persons therefore, the AO also kept a space for consideration of prospective

order of the Settlement Commission and approach and action of the AO is quite

justified.

7. On careful consideration of above submissions and contention of both the

parties we are of the considered view that in Para 3.7 at page 8 of the

assessment order the AO has made it clear that since the assessee Shri Rakesh

Kumar Arora has owned the deposits and bank account as his benami during

search and before Income Tax Settlement Commission, the addition is made in

the case of assessee Shri Rakesh Arora. The AO further held that if

subsequently, Income Tax Settlement Commission takes a decision otherwise

and such unexplained income is dvided in the hands of Shri Virendra Kumar

Arora, Shri Rajesh Kumar Arora and Shri Rakesh Kumar Arora i.e. assessee of

the present case, then its effect will be given in the assessment. Hence, it is

clear that the AO made addition subject to the prospective order of the

Settlement Commission.

8. From careful perusal of the impugned order, we note that the CIT(A)

deleted the part addition of Rs.24,59,600/- in respect of bank account and in the I.T.A .No.-5881/Del/2011 5

name of M/s Samar Organics Pvt. Ltd. with following observations and

conclusion:

"6. (i) In respect of M/s Samar Organics Pvt. Ltd. on the basis of the details filed by appellant, it is observed that the company is an existing entity duly registered with the ROC. Same is also evident from the details filed during the assessment proceedings and now before me. It is observed that being a corporate entity, bank account could be operated in the name of M/s Samar Organics Pvt. Ltd. after giving evidence of the existence of the company and other related documents. As such, the AO was not correct in making the addition in the hands of appellant relying merely on the report of the Inspector and Statement of Shri Ashok Aggarwal who is not directly related to the company M/s Samar Organics Pvt. Ltd. This company is a separate legal entity having PAN No. AABCS9325E. If the cash deposit was not explainable, it should have been assessed in the company's hand. If we look at the chart at para 4.3 it is seen that this company has an account with PNB Rajender Nagar New Delhi and a separate address B-1/13 Ph-II Ashok Vihar Delhi- 52, where as all other non corporate entities in the same chart have their accounts in State Bank of Mysore, Pankha Road, Janakpuri with same address. Without lifting the corporate veil and establishing the facts beyond doubt, the AO was not justified in holding the company as benami entity of the appellant. In view of above findings, it is not justified to make any addition in the hands of the appellant in respect of bank accounts operated by the said company M/s Samar Organics Pvt. Ltd. As such to that extent the ground of appeals are disposed of in favour of the appellant and the cash credits of Rs.24,59,600/- assessed in its hands are deleted."

9. From further reading of the impugned order we also note that the CIT(A)

confirmed the remaining part of impugned deposits in the hands of assessee and

also directed the AO to follow the order of the settlement commission in respect I.T.A .No.-5881/Del/2011 6

of other alleged 10 accounts (other than account of M/s Samar Organics Pvt.

Ltd.). The relevant operative part of impugned order read thus:

"Therefore the peak calculation of Rs.4,95,000/- in the Para 5.16 is without basis and cannot be verified. In view of above facts it is concluded that the appellant is in some way having a relation with the bank accounts operated in the names of these entities. I therefore confirm the addition of Rs.25,54,150/-. The AO was not sure while making the assessment as to whether the addition should have been made in the hands of the appellant. The AO in Para 3.7 of the assessment order mentioned that "if subsequently, Hon'ble Income Tax Settlement Commission takes a decision otherwise and such unexplained income is divided in the hands Sh. Virendra Kumar Arora, Shri Rajesh Kumar Arora and Sh. Rakesh Kumar Arora, its effect will be given in this assessment." In view of above, I am of the view of that in respect of the above addition of Rs.24,59,600/- duly confirmed by me in respect of the alleged accounts (other than M/s Samar Organics Pvt. Ltd.), the AO is directed to follow the order of the Hon'ble Income Tax Settlement Commission with regard to assessability of above amount in the hands of Sh. Rakesh Arora, Virendra Kumar Rora and Rajesh Kumar Arora."

10. On careful consideration of assessment order as well as of the impugned

order we note that the AO has not made any logical enquiry and made addition

of entire amount to order of settlement commission and during first appellate

proceedings the CIT(A) deleted the part addition of Rs.24,59,600/- in respect to

M/s Samar Organics Pvt. Ltd. and since there is no appeal by the department

about this part relief, therefore, it can be safely presumed that this deletion has

been accepted by the Revenue. We further observe that the ld. counsel of the

assessee is mainly harping on the contention that even additions made by the

AO and confirmed by the CIT(A) subject to order of the Settlement

Commission has been found not to be sustainable by the Settlement I.T.A .No.-5881/Del/2011 7

Commission vide order dated 20.10.2014 which was passed after the assessment

order dated 28/12/2010 and impugned order of the CIT(A) dated 30.11.2011.

11. The relevant operative part of the order of the Settlement Commission

reads at internal page 16 & 17 as follows:

"1. Sanjeev Mehindru - He is the proprietor of M/s Lakshmi Narayan Corporation and M/s Lakshmi Narayan Corporation and M/s Mahalaxmi Thinners & Chemicals appearing at Sl. No. 4 & & of the 16 entities listed at issues no 1. The assessing officer summoned the said person u/s 131 IT Act and the has acknowledged the ownership of the bank accounts operated by him on behalf of his proprietorship concerns namely; M/s Mahalaxmi Thinners & Chemicals. It has been reported by the CIT that the said person is filing regular return of income and notice under section 148 has been also issued for assessment year 2007- 08 on 30.03.2014 is also reported that the transaction with Rakesh Arora were joint business transaction for purchase and sale. (Para 9 (9.1)(1) at pages 29-30 of this Synopsis)."

2. Manish Mehindru - He is a proprietor of M/s Punjab Solvent & Chemicals & M/s Amrita Thinners & Chemicals & M/s Shree Ganesh enterprises and M/s Hari Om Chemicals Sl. No. 1,2,5,2 and 16 of the 16 entities. The assessing officer summoned the said person u/s 131 of IT Act and he has acknowledged the ownership of the bank account operated by him on behalf of his proprietorship concerns Punjab Solvent & Chemicals, Amrita Thinners & Chemicals, Shree Ganesh Enterprises and Hari Om Chemicals. It has been reported by the CIT that the said person is filling regular return of income and notice under section 148 has also been issued for assessment year 2007- 08 on 20.3.2014 it is also reported that the transaction which is Rakesh Arora were joint business transaction for purchase and sale. (Para 9 (9.1)(2) at page 30 of this Synopsis).

3. Harish Kumar Mahindru - He is a proprietor M/s.

Mahaveer Chemicals, Sunshine paints and Chemicals, Shri I.T.A .No.-5881/Del/2011 8

Ram Enterprises (Sl. No.9, 11 & 13 of the page 16 entities) The assessing officer summoned the said person u/s 131 of IT Act and he has acknowledged the ownership of the bank account operated by him on behalf of his proprietorship concerns Mahaveer Chemicals, Sunshine Paints and Chemicals, Shri Ram Enterprises. It has been reported by the CIT that the said persons is filling regular return of income and notice under section 148 has also been issued for assessment year 2007-08 on 20.3.2014 it is also reported that the transaction which is Rekesh Arora were joint business transaction for purchase and sale. (Para 9 (9.1)(3) at page 30 of this Synopsis).

4. Girdhari Lal Swami - He is the proprietor of M/s.

Devta Chemicals Company (No.3 of the 16 entities). The assessing officer summoned the said person u/s. 131 of IT Act and he has acknowledged the ownership of the bank account operated by him on behalf of his proprietorship concerns Devta Chemicals Company. It has been reported to CIT that the said persons is filling regular returns and notice under section 148 has also been issued for assessment year 2007-08 on 20.3.2014 it is also reported that the transaction which is Rakesh Arora were joint business transaction for purchase and sale. (Para 9 (9.1)(6) at page 30 of this Synopsis).

12. The ld. counsel further submitted that the impugned additions in regard to

all 11 entities including M/s Samar Organics Pvt. Ltd. have been found to be

unsustainable by the Settlement Commission hence no addition can be made in

the hands of the assessee. The ld. DR fairly accepted that the addition was made

by the AO and upheld by CIT(A) was subject to order of the Settlement

Commission and the Settlement Commission has held that no addition can be

made in respect of alleged benami accounts.

13. On careful consideration of above submissions we are inclined to hold

that the addition made by the AO and partly confirmed by the CIT(A) in respect I.T.A .No.-5881/Del/2011 9

of 10 entities amounting to Rs.25,54,150/- was subject to decision of the

Settlement Commission and when the Settlement Commission has held that no

addition can be made then impugned addition in the hands of assessee is not

warranted and deserve to be deleted. We order accordingly. Hence, both the

grounds raised by the assessee are allowed.

14. In the result, appeal of the assessee is allowed.

Order pronounced in the open Court on 20/03/2015.

Sd/- Sd/- (B. C. MEENA ) (C. M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 20/03/2015 *AK VERMA*

Copy forwarded to:

1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT

ASSISTANT REGISTRAR