Sandeep S. Suri, Mumbai vs Assessee

ी संजय अरोड़ा, लेखा सद य, एवं ी िवजय पाल राव, याियक सद य के सम । BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER

आयकर अपील सं./ I.T.A. No.1842/Mum/2010 ( िनधा रण वष / Assessment Year : 2006-07)

Shri Sandeep S. Suri बनाम/ बनाम Dy. Commissioner of Income- 6, Laxmi Sadan Vs. tax- Range-15(3) N.S. Road No.10 Mumbai. Juhu Mumbai-400 049. थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : ANRPS 9421 R (अपीलाथ /Appellant) .. ( यथ / Respondent)

अपीलाथ ओर से / Appellant by : Shri Nishit Gandhi-AR यथ क ओर से/Respondent by : Shri Jeetendra Kumar - DR

सुनवाई क तारीख / Date of 27/01/2015 Hearing : घोषणा क तारीख /Date of 11/02/2015 Pronouncement :

आदेश / O R D E R

PER VIJAY PAL RAO, JM :

This appeal by the assessee is directed against the order dated 21/1/2010 of CIT(A) for the assessment year 2006-07. The assessee has raised the following grounds in this appeal :-

"1. The Learned Commissioner of Income tax (Appeals) - 26, Mumbai [Ld. CIT(A)"] erred in confirming the Assessing Officer's action to add Rs.9,66,194/- by applying provision of section 145(3).

It is respectfully submitted that appellant has tried to reconcile the said difference with the information received u/s.133(6). However, due to shortage of time and lack of details available, appellant could not reconcile the same at the time of hearing.

2 ITA No.1842/M/10 2. The Learned Commissioner of Income-tax (Appeals) - 26, Mumbai ["Ld. CIT (A)"] erred in confirming the Assessing Officer's action to add Rs.5,35,000/- on account of Commission paid.

It is respectfully submitted that the said addition is made on the basis of assumptions and without any concrete evidence on record.

3. The Learned Commissioner of Income-tax (Appeals) - 26, Mumbai [td. CIT(A)"] has upheld the decision of Assessing Officer whereby confirmed the addition of Rs.2,05,600/- made on account of Sales Promotion expenses. It is respectfully submitted that considering the nature of activity carried out by the appellant, this kind of expenses are incurred during the normal course of business for obtaining the new business and entertaining the clients to keep the healthy business environment.

4. The Learned Commissioner of Income-tax (Appeals) - 26, Mumbai ["Ld. CIT(A)"] has confirmed the addition of Rs.6,00,000/- made on account of Salary. It is respectfully submitted that all the salaries have been paid through cheques and details of salaries i.e. name of persons to whom the salaries paid, has submitted to the Assessing Officer during the course of assessment. Addition is made on the basis of assumptions.

5. The Learned Commissioner of Income-tax (Appeals) - 26, Mumbai [Ld. CIT(A)"] erred in co nfirmi ng t he Ass essi ng Offi ce r's act io n of mak ing ad d it ion of Rs. 10,70,000/- on account of disallowance of various expenses. It is respectfully submitted that said expenses are incurred genuinely for the business purpose and are incurred during the normal course of business. Also addition is merely on assumption."

2. The assessee is engaged in the business of outdoor advertising, carries on business in the name and style of M/s. Perq Advertising (P) Ltd.(PAPL). The assessee scouts and procures hoarding sites as per the orders received from its principal M/s. Perq Advertising (P) Ltd. In fact the sites are identified and procured on the basis of needs of various clients of its principal M/s. PAPL. During the course of assessment proceedings the AO noted that the work of the assessee is only purchase of site and selling the same to M/s. PAPL. Thus, the AO was of the view that the various expenses claimed by the assessee on account of conveyance, telephone, sundry vehicle expenses, office transportation, sales promotion, commission etc. are purely personal in nature and has no connection with the business. To verify the allowability of expenses and relation with the business activity of the assessee , the AO sought information u/s. 133(6) of the Act from the various parties. The assessee was asked to reconcile the 3 ITA No.1842/M/10

information received by the AO. The assessee submitted its working on the differences pointed out by the AO vide reply fated 3/12/2008. The AO held that the assessee has claimed bogus expenses on account of telephone, electricity etc. and accordingly disallowed the amount of Rs.9,63,194/- by invoking the provisions of section 145(3) of the Income tax Act. Apart from this the AO has further made disallowance on account of payment of commission, sales promotion, salary expenses, sundry expenses etc. the assessee challenged the action of AO before CIT(A) but could not succeed.

3. We have heard the ld. AR as well as the ld. DR and considered the relevant material on record. During the course of assessment proceedings the AO found that the assessee has claimed bogus expenditure and accordingly the AO invoked provisions of section 145(3) of the Income tax Act in para -13 as under :-

"13. I have considered assessee's reply, which is only as vague reply. The expenses under the head telephone and electricity are being claimed by M/s. PAPL and therefore, in this concern only bogus expenditure are claimed. If the assessee has parted with the expenditure of M/s. PAPL, he must have procured the evidence of the same but that is not the case here in other words, the assessee failed to produce the evidence. Thus, the total addition on this account comes to Rs.9,63,194/-, which is outgrowth of difference arising due to issuance of Notice u/s. 133(6) of the Income tax Act, 1961 and the same will be added to the total income of the assessee after applying the provisions of section 145(3) of the Income tax Act, 1961. Initiate penalty proceedings u/s. 271(1)(c) of the Income tax Act, 1961 on this point for furnishing accurate particulars and concealment of income."

3.1 Despite invoking provisions of section 145(3) the AO proceeded to disallow various other expenses and computed total income of the assessee as under :-

Computation of Total Income:

Amount in Rupees Income as per Returned Income 1789076 Add: Additions as discussed in this order

(i) Addition on account of interest - as 12940 discussed in paragraph 5 of this order

(ii) Addition u/s. 133(3) of Income tax 963194 Act, 1961 - as discussed in paragraphs 11 to 13 of this order

(iii) Addition on account of commission-as 535000 discussed in paragraph 14 of this 4 ITA No.1842/M/10

order

(iv) Addition on account of sales 205600 promotion expenses - as discussed in paragraphs 15 and 16 of this order

(v) Addition on account of salary - as 600000 discussed in paragraph 17 and 18 of this order

(vi) Addition on account of other heads 1070000 3386734 expenses - as discussed in paragraphs 19 to 24 of this order Total taxable Income 3386734 5175810 Rounded off to 5175810

3.2 Thus, it is clear that the AO after rejecting the book results of the assessee proceeded to compute total income by taking into account the returned income of the assessee and making various additions to the returned income. Once the AO found that the accounts of the assessee are not correct or incomplete and consequently invoked provision of section 145(3) then the assessment has to be made on the basis of best judgment by ignoring the book results. Accordingly, proper course of making the assessment of the total income is the best judgment and, the AO should have applied the GP/net profit rate as prevalent in the industry. Accordingly the action of the AO is not as per provisions of law because once the book results are rejected u/s. 145(3) then AO is required to make assessment as per provisions of section 144.

3.4 After considering the facts and circumstances of the case and in the interest of justice we set aside this matter to the record of the AO for denovo assessment.

4. In the result, appeal of the assessee is allowed for statistical purposes.

Order pronounced in the open court on 11/02 /2015.

आदेश क घोषणा खुले यायालय म) *दनांकः 11/02/2015 को क गई ।

Sd/- Sd/- ( Sanjay Arora ) ( Vijay Pal Rao ) लेखा सद य / ACCOUNTANT MEMBER याियक सद य / JUDICIAL MEMBER मुंबई Mumbai; *दनांक Dated 11/02/2015 व.िन.स./ Jv, Sr. PS 5 ITA No.1842/M/10

आदे श क ूितिल प अमे षत/Copy षत of the Order forwarded to : 1. अपीलाथ / The Appellant 2. ू यथ / The Respondent. 3. आयकर आयु (अपील) / The CIT(A)- 4. आयकर आयु / CIT

5. वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai

6. गाड$ फाईल / Guard file.

आदे शानुसार/ ार BY ORDER, स या पत ूित //True Copy// उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुंबई / ITAT, Mumbai.