Addition on the basis of mis-reporting of insurance company unsustainable

Kamal Binani Vs ITO (ITAT Mumbai)

ITAT Mumbai held that addition under section 68 of the Income Tax Act on the basis of mis-reporting of insurance company is unsustainable in law.

Facts- Notices u/s. 143(2) and 142(1) of the Act were issued and served on the assessee. The reasons recorded for reopening the assessment are “The information was received from the DDIT(Inv.) Unit 7(3), Mumbai that the assessee had paid the annual premium of ₹.6,00,000/- which is much higher than the total income declared by the assessee i.e., ₹.1,60,630/- in the return of income.

AO on a perusal of the details submitted by the assessee, he observed that there is no bank entries of ₹.6,00,000/- paid in two installments by the assessee from HDFC bank. To verify the claim Assessing Officer issued notice to the insurance company STAR UNION DAI-ICHI LIFE INSURANCE COMPANY LIMITED for confirmation of payment of ₹.6,00,000/-.

A show-cause notice u/s 142(1) was issued to the assessee to submit the details of the statement of account maintained with Bank of India, Andheri branch that there are no entries pertaining to the payment made to the insurance company as per details provided by the insurance company. Further he observed from the AIR, it is seen that assessee has deposited ₹.5,00,000/- with Shriram Transport Finance Limited. Further, he directed the assessee to provide details of share transaction amounting to ₹.29,45,122/- whether Capital Gain/Loss, if any, on the share transaction are offered to tax. Since, assessee did not respond to the above said notices based on the information available on record, AO proceeded to make the addition u/s. 68 of the Act.

Conclusion- We observe that insurance company has reported that assessee has made a subscription of ₹.6,00,000/- from Bank of India, Andheri Branch. However, it is brought to our notice that assessee has no doubt made the insurance premium from the bank account maintained by the assessee in Punjab and Maharashtra Cooperative Bank Limited in Fort branch and HDFC, Andheri (W) branch. We observe that as far as subscription of insurance is concerned assessee has accepted and brought on record that assessee has in fact made the payment and not through the bank reported by the Insurance Company and it is from the branch in which assessee is maintaining bank account. As far as the payments of premium is concerned assessee has clearly brought on record that assessee has in fact made the payment. With regard to source of funds there is no doubt on the statements and financial record submitted by the assessee that assessee has enough funds to make the above said insurance payment. Therefore, the reason for reopening of the assessment is already clarified and addressed by the assessee.

However, the issue was complicated because of the misreporting of the insurance company. Therefore, the ground raised by the assessee is accordingly, allowed.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

1. This appeal is filed by the assessee against order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short “Ld.CIT(A)”] dated 11.11.2022 for the A.Y.2012-13.

2. Brief facts of the case are, assessee filed its return of income for the A.Y. 2011-12 on 20.11.2012 declaring total income of ₹.1,60,630/-. There was no scrutiny assessment selected in this case and subsequently, this case was reopened u/s 147 of Income-tax Act, 1961 (in short “Act”), after recording the reasons. Accordingly, notice u/s.148 of the Act was issued on 31.03.2019 and served on the assessee. In response assessee filed the return of income on 02.04.2019 and declared return of income as per original return of income.

3. Subsequently notices u/s. 143(2) and 142(1) of the Act were issued and served on the assessee. The reasons recorded for reopening the assessment are “The information was received from the DDIT(Inv.) Unit 7(3), Mumbai that the assessee had paid the annual premium o f ₹.6,00,000/- which is much higher than the total income declared by the assessee i.e., ₹.1,60,630/- in the return of income.

4. The Assessing Officer on a perusal of the details submitted by the assessee, he observed that there is no bank entries of ₹.6,00,000/- paid in two installments by the assessee from HDFC bank. To verify the claim Assessing Officer issued notice to the insurance company STAR UNION DAI-ICHI LIFE INSURANCE COMPANY LIMITED for confirmation of payment of ₹.6,00,000/-. In reply the insurance company submitted as under: –

5. A show-cause notice u/s 142(1) was issued to the assessee to submit the details of the statement of account maintained with Bank of India, Andheri branch that there are no entries pertaining to the payment made to the insurance company as per details provided by the insurance company. Further he observed from the AIR, it is seen that assessee has deposited ₹.5,00,000/- with Shriram Transport Finance Limited. Further, he directed the assessee to provide details of share transaction amounting to ₹.29,45,122/- whether Capital Gain/Loss, if any, on the share transaction are offered to tax. Since, assessee did not respond to the above said notices based on the information available on record, Assessing Officer proceeded to make the addition u/s. 68 of the Act.

6. Aggrieved assessee preferred an appeal before the Ld.CIT(A) and before the Ld.CIT(A), assessee has submitted his submissions in detail as under: – [assessee has not pressed Ground No. 1 on reopening of assessment, therefore we reproduce the submissions only relating to Ground No. 2 and 3]

“a. The learned A.O. erred in making an addition of Rs:6,00,000/-for want of proof of source of insurance premium paid by the appellant to the insurance company which are available with the appellant as mentioned in the statement of facts above.

b. The Appellant is an individual. The return of income was e-filed on 20th November 2012 declaring total income of Rs. 1,60,630/-The return for income was processed u/s 143(1). No scrutiny assessment was carried out in this case of appellant.

c. Subsequently, the Assessing Officer received information from the DDIT(Investigation) unit 7(3), Mumbai that the appellant has paid annual insurance premium of Rs. 600,000/ which is much higher than the income returned by him.

d. Thereafter the case was reopened u/s 147 after recording the reasons and a notice u/s 148 dated 31st March 2019 was issued and duly served on the Appellant. In response to the same, the appellant filed the return of income on 2- 4- 2019 declaring total income of Rs. 1,60,630/

e. Subsequently, notices u/s 143(2) dated 14th September 2019 and 142(1) dated 3 October 2019 were also issued on the Appellant. However, the said emails were missed out by the appellant and therefore no submission could be made the Appellant.

f. Thereafter the AO issued notice under section 133[6] to the insurance company to verify the annual premium paid by the appellant. By letter dated 5 February 2019, the insurance company all the details of insurance policy number and date, amount of sum assured, premium paid, date of payment, cheque number, name of the branch of the bank, name of the product et cetera.

g. Accordingly, the AO completed the assessment on the basis of details available on record However, ITO has wrong information (may be wrongly given by Insurance Compact viz. Sub Life Dhan Suraksha-3) Information given by ITO in Assessment order (para no 3) about premium payment of Rs. 6 Lakhs

The ITO has observed that the appellant was not able to produce bank statements showing the proof of payment of premium of Rs.600,000/ This is incorrect because he was looking into statements of Bank of India, where as premium were paid from PMC Bank and HDFC Bank. These statements were submitted electronically on 09.10.2019. However, while framing the assessment the statements which were electronically were disregarded by the AO. The same are enclosed herewith once again.

It is therefore submitted that the AO has not appreciated the correct nature of the transaction and proof of payments submitted. It is further submitted that the same proof may be remanded back to the AO u/r. 46A for his report and verification. ”

7. After considering the submissions of the assessee Ld.CIT(A) dismissed the same by observing as under: –

“7. In respect of GOA No. (ii), the appellant has neither filed the proof of the sources of income for payment of insurance premium of Rs. 6 lakhs, before this office nor the proof of sources of such payment was filed before the AO. The small amount of income of Rs.1,60,630/-, as per the return of income does not justify the payment of large sum as insurance premium along with other Investments like deposits with the finance company and the transactions in shares and stocks. Therefore, the mere argument of the assessee regarding the payment of insurance premium, from bank accounts, by way of cheque, cannot be accepted as credible argument which can explain the sources of income of these payments. Therefore, the addition made by the AO to the tune of Rs. 6,00,000/- is confirmed and this ground of appeal is also dismissed. ”

8. Aggrieved assessee is in appeal before us raising following grounds in its appeal: –

“1. In the facts and the circumstances of the case and in law, the learned A.O. erred in passing the order u/s 143(3) r.w.s 147 only on the basis of information received from the insurance company in respect of premium paid by the appellant and thereby making the reassessment only on the basis of borrowed satisfaction.

Without prejudice to the above and alternatively,

2. In the facts and circumstances of the case and in law, the learned A.O. erred in making an addition of Rs. 6,00,000/-for want of proof of source of insurance premium paid by the appellant to the insurance company which are available with the appellant is mention in the statement of facts above.

3. In the facts and circumstances of the case and in law, the learned Commissioner of Income Tax(A) erred in confirming the same by rejecting written submissions and also overlooking the details filed.

4. The AO has wrongly levied interest u/s 234A, B, C & D and initiated penalty u/s 271(1)(c).

[C]  Relief Prayed:

The appellant therefore prays follows,

1. To quash the order passed u/s 143(3) r.w.s 147.

2. To admit the additional evidence under rule 46A.

3. To delete addition of Rs. 600000/-

4. To delete the interest u/s 234A, B, & C which is wrongly levied and initiation of penalty u/s 271(1)(c).

[D] General:

• • The appellant reserves rights to add alter or delete any portion of this appeal before its conclusion.
  • This appeal is filed in time and may please be allowed in full.
  • A detailed paper-Book along with written submissions and case laws will be submitted at the time of hearing. ”

9. At the time of hearing, Ground No. 1 is not pressed, accordingly, the same is dismissed as not pressed.

10. With regard to Ground Nos. 2 and 3, Ld. AR of the assessee submitted that the assessee has not maintained any bank account in Bank of India, Andheri Branch and assessee has submitted all other informations along with the bank statements in which assessee has maintained bank account were submitted before tax authorities, the issue raised may be because of misreporting by the insurance company. He submitted that tax authorities have observed the total income declared by the assessee in the return of income in which it is declared net income not the gross income. He submitted that the tax authorities themselves have observed that assessee has other transactions like share transactions and other income, this itself clearly shows that assessee has enough sources of funds to make the insurance premium. Therefore, he prayed that the addition made by the Assessing Officer may be deleted.

11. On the other hand, Ld. DR relied on the orders passed by the lower authorities.

12. Considered the rival submissions and material placed on record, we observe that insurance company has reported that assessee has made a subscription of ₹.6,00,000/- from Bank of India, Andheri Branch. However, it is brought to our notice that assessee has no doubt made the insurance premium from the bank account maintained by the assessee in Punjab and Maharashtra Cooperative Bank Limited in Fort branch and HDFC, Andheri (W) branch. We observe that as far as subscription of insurance is concerned assessee has accepted and brought on record that assessee has in fact made the payment and not through the bank reported by the Insurance Company and it is from the branch in which assessee is maintaining bank account. As far as the payments of premium is concerned assessee has clearly brought on record that assessee has in fact made the payment. With regard to source of funds there is no doubt on the statements and financial record submitted by the assessee that assessee has enough funds to make the above said insurance payment. Therefore, the reason for reopening of the assessment is already clarified and addressed by the assessee. However, the issue was complicated because of the misreporting of the insurance company. Therefore, the ground raised by the assessee is accordingly, allowed.

13. With regard to Ground No. 4 which is consequential in nature, Accordingly, this grounds of appeal also dismissed.

14. In the result, appeal filed by the assessee is partly allowed.

Order pronounced in the open court on 02^nd March, 2023