Case Law Details

Case Name : Shri Mukesh Choksi Vs The ACIT (ITAT Mumbai)
Appeal Number : ITA No.2299/M/2010
Date of Judgement/Order : 11/02/2011
Related Assessment Year : 2002/03

Shri Mukesh Choksi Vs ACIT (ITAT Mumbai)

It was submitted that the case of the assessee was akin to the share brokers and therefore only the commission should be considered as receipts of the assessee and not the purchase/ sale value of shares. In our view the claim had been rightly rejected by the CIT(A). A share broker only facilitates the share transaction of the clients through the stock exchanges and the payment/ receipts for purchase/ sale of shares are made through the stock exchanges. In case of the assessee he had himself received the money through the concerns in his control and in exchange thereof had issued cheques. Therefore the transaction was principle to principle basis and not as agent. Therefore in our view in case of the assessee gross amounts received in connection with entry business have to be considered for the purposes of ceiling of Rs.40 lacs under section 44AB.

FULL TEXT OF THE ITAT JUDGMENT

These appeals by the assessee are directed against common order dated 8.2.2010 of CIT(A) for the assessment years 2002-03, 2006-07 and 2007-08. The common dispute raised in all these appeals is regarding levy of penalty of Rs.1 lac by the AO in each of the years involved which has been confirmed by the CIT(A).

2. Briefly stated facts of the case are that there was a search conducted in case of one Shri Hitesh M.Bagthariya on 28.6.2006 during the course of which in his statement recorded under section 132(4) he had stated that he was an entry operator and he used to arrange cheques of M/s.Mahasagar Securities Pvt. Ltd. and M/s.Goldstar Finvest Pvt. Ltd. It was also stated by him that Mr. Mukesh Chowkshi, the assessee in this appeal, had floated various companies including his personal capacity for providing accommodation entries to the entry seekers. A survey under section 133A was also carried out on the same day at the business premises of Mr. Mukesh Chowkshi and his concern M/s. Mahasagar Securities Pvt. Ltd. Shri Chowkshi at the time of survey admitted that the following companies had been operating at the address and they were engaged in providing accommodation entries :

i) M/s.Goldstar Finvest (P) Ltd.

ii) M/s.Richmond Securities (P) Ltd.

iii) M/s. Alliance Intermediateries (P) Ltd.

iv) M/s.Mahasagar Securities (P) Ltd. (formerly known as Richmond Securities (P) Ltd.

v)M/s.Alpha Chemie Trade Agency (P) Ltd.

vi)M/s.Mihir Agencies (P) Ltd.

vii)M/s.Talent Infoway (P) Ltd.

viii) M/s. Buniyad Chemicals Ltd.

ix) Mukesh Chowkshi, Individual

3. The AO noted that the modus operandi adopted by the assessee was that he first received cash from entry seekers which were deposited in the bank account of one of the group companies and after depositing the cash in the bank accounts, a cheque was issued and the equal amount in favour of entry seekers. The assessee thus returned the cash of the entry seekers in the guise of cheque after retaining commission. The assessee had filed returns of income for the assessment year 2002-03, 2006-07 and 2007-08 on 14.7.2008, 16.4.2008 and 17.4.2008 respectively. From perusal of the said returns the AO noted that the said returns filed in Form No.2D did not contain the audited accounts and audit report in Form No.3CD. During the assessment proceedings however the assessee had filed copy of profit and loss account for all the years and the sundry receipts declared in these returns were Rs.2,01,84,742/-, Rs.2,89,74,988/- and Rs.1,68,51,132/- respectively for the three years under reference. The AO observed that under the provisions of section 44AB the assessee was required to get the accounts audited by the accountant and furnish the copy of the same to the AO within the specified date which was the due date of filing the return of income under section 139(1) i.e 31st day of October of the relevant assessment year. Since the assessee had failed to get its accounts audited and furnish a copy of the same before the specified date the AO initiated penalty proceedings under section 271B of the Income-tax Act by issuing the show-cause notice dated 25.5.2009. In response to the show cause notice the Authorized Representative of the assessee filed a reply dated 9.6.2009 stating that all the tax audit reports and other relevant documents were filed along with return of income and therefore no penalty should be levied. The Authorized Representative who appeared before the AO was confronted with the returns filed by the assessee to point out that the returns were not accompanied with tax audit report. The Authorized Representatives however did not offer any comments in the matter. The AO also observed had the accounts been audited the assessee would have produced a copy of the same during the course of penalty proceedings or even the Chartered Accountant could have produced the record to show that the accounts were actually audited which was not done in this case. The AO therefore concluded that the accounts were not audited and the audit report had not been furnished within due date. He therefore levied the penalty of Rs.1 lac in each year under section 271B of the Income-tax Act.

4. In appeal the assessee submitted that he was engaged only in the business of providing accommodation entries to the entry seekers and was earning commission there from @ 0.15%. The commission earned was therefore much less the limit of Rs.40 lacs for compulsory audit of accounts. It was also submitted that the amount received by the assessee belonged to the entry seekers and hence the same could not be regarded as the receipt of the assessee. His position was identical to that of share broker who earned commission on share transactions. The assessee referred to the decision of Ahmedabad Bench of the tribunal in case of R.Wadiwala & Co. vs ACIT (72 ttj 34) in which the tribunal had held that turnover of dealing in shares made on behalf of the various buyers and sellers of shares was not includable in the turnover for the purpose of section 44AB. It was pointed out that the AO himself had not initiated penalty proceedings in the earlier years and that the AO had not issued defect memo under section 139(9) of the Income-tax Act for defect in the return. The assessee also referred to the CBDT circular No.452 dated 17.3.86 in which the Board had clarified that in case of Kaccha Arathia only the commission was to be considered for the purpose of determining the applicability of section 44AB. CIT(A) however did not accept the contentions raised. It was noted by him the assessee had taken conflicting stands. During the penalty proceedings the assessee had admitted his liability to get the accounts audited but during the appellate proceedings a different stand was taken that he was not liable to get the accounts audited. It was observed by him that the provisions of section 44AB were very clear which referred to total sale, turnover or gross receipts for the purpose of ceiling of Rs.40 lacs. Thus the essence of section 44AB was gross receipts and not the element of income. He distinguished the decision of tribunal in case of R.Wadiwala & Co. Vs ACIT (supra) on the ground that the same related to share transactions which were completely different from issuing accommodation bills. Moreover in that case genuineness of share transactions was not in doubt whereas in the present case the transaction was not genuine. The tribunal in that case had also held that the assessee was under bonafide belief that the provisions of section 44AB was not applicable which was not so in the present case. Referring to the CBDT circular No. 452 CIT(A) observed that it did not lay down any general principle regarding the ceiling of Rs.40 lacs and that the same was restricted to only Kaccha Arathia. Further the circular also stated that each transaction was required to be examined with reference to the terms and conditions of that case and no hard and fast rules would be laid down as to whether a person was acting only an agent or principal. There was therefore violation of provisions of section 44AB in this case and CIT(A) accordingly confirmed the penalties levied by the AO. Aggrieved by the said decision the assessee is in appeal in all the three years.

5. Before us the Learned AR for the assessee reiterated the submissions made before lower authorities that audit had been conducted and audited accounts had been filed with the return of income. It was also pointed out that in other years audited accounts had been filed and no penalty had been imposed. The Learned AR also filed affidavit dated 7.2.2011 both from the assessee and the CA Shri S.M.Bhatt and requested that the same may be admitted. In that affidavit the assessee has stated that the Chartered Accountant Mr. Bhatt had informed him that audit reports were filed along with returns of income and that he had carried out the audits for all the years. Shri S.M.Bhatt the CA in the affidavit has stated that he had issued the audit reports within the specified time and the same were filed with return of income for all the years. It has also been stated that when he was informed that the audit reports were not available on record he had requested the AO to verify the records pertaining to the original return of income or other reports where report may have been kept and had volunteered to file the report during the penalty proceedings. It was requested that the additional evidence should be admitted and the matter may be referred to AO for verification and fresh orders.

6. We have to first deal with the admissibility of the additional evidence. The provisions for admitting additional evidence are contained in rule 29 of ITAT rules. As per the said rule the parties are not entitled to produce additional evidence which can be admitted only if the tribunal requires any document to be produced or witness to be examined or an affidavit to be filed to enable it to pass order or for any other substantial cause or if the Income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them. In this case there is no case made out that sufficient opportunity had not been given by the authorities below to adduce any evidence. The AO had issued show cause notice as to why penalty should not be imposed for non compliance of provisions of section 44AB. The assessee had also been confronted with the original returns filed which showed that no audited accounts had been filed. The assessee had also opportunity to file any additional evidence or any affidavit before the CIT(A) which had also not been done. We have also no difficulty in deciding the issue on the basis of material available on record because filing of audited accounts could be easily verified from the records which have already been gone into by the authorities below and the assessee has not produced any acknowledgment receipt etc even at this stage. Even if these affidavits are admitted in our view these are not going to serve any purpose other than delaying the proceedings as these only contain the points made before the lower authorities. The additional evidences are therefore not admitted.

7. We have therefore to decide the appeals on the basis of material available on record. Under the provisions of section 44AB in case the total sales/ turnover/ gross receipts of the business exceeds Rs.40 lacs the assessees are required to get the accounts audited compulsorily and furnish the same to the AO within the due date of filing the return of income under section 139(1). In this case the assessee had filed returns of income but no audited accounts or audit report had been enclosed with the return. The AO had therefore initiated penalty proceedings under section 271B. The assessee had been given opportunity to explain the matter. The AO had shown the original returns to the assessee to explain as to how the audit reports were contained there in but the AR of the assessee could not offer any comments. The Learned DR has rightly pointed out that in the return of income there is column for mentioning the documents enclosed with the returns and had the audit reports been enclosed with the returns, the Learned AR for the assessee could have easily pointed out the same. Moreover the assessee could have also produced records of the auditor to show that accounts were actually audited which has also not done. It is interesting to note that the auditors were also the Authorized Representative of the assessee in the penalty proceedings. But they did not even file the copy of the audited accounts and audit reports even during the penalty proceedings. Considering the entirety of facts and circumstances we have to hold that the authorities below had rightly concluded that no audited accounts and audit reports had been filed by the assessee. We also note that under section 44AB the audited accounts were required to be furnished to the AO within 31st October of the relevant assessment year and even if the assessee’s conversion was to be accepted for the sake of arguments that the audit reports had been filed with the return of income these had been filed much after the due date i.e. 31st October of the relevant assessment year. Therefore in our view the assessee had committed default for which penalty was leviable.

8. The assessee had also raised some legal issues before CIT(A) that the assessee was not liable for audit. It was submitted that the case of the assessee was akin to the share brokers and therefore only the commission should be considered as receipts of the assessee and not the purchase/ sale value of shares. In our view the claim had been rightly rejected by the CIT(A). A share broker only facilitates the share transaction of the clients through the stock exchanges and the payment/ receipts for purchase/ sale of shares are made through the stock exchanges. In case of the assessee he had himself received the money through the concerns in his control and in exchange thereof had issued cheques. Therefore the transaction was principle to principle basis and not as agent. Therefore in our view in case of the assessee gross amounts received in connection with entry business have to be considered for the purposes of ceiling of Rs.40 lacs under section 44AB. The circular No.452 of the CBDT relied upon by the assessee is also distinguishable as the same related to kachha arithia. The decision of the tribunal in case of R.Wadiwala & Co. Vs ACIT (supra) is obviously distinguishable as the same related to share transactions and not accommodation bills. It may also be pointed out that the assessee has not raised any ground that he was not liable for audit under section 44AB. The arguments advanced are therefore rejected.

9. In view of the foregoing discussion and for the reasons given earlier we agree with the findings of the authorities below that the case of the assessee was covered under section 44AB and the accounts were required to be audited and audit reports were required to furnished within the prescribed date which had not been done. Penalties were therefore leviable and the same had been rightly levied by the authorities below. The order of CIT(A) is accordingly upheld.

10. In the result all the appeals of the assessee stand dismissed.

11. The decision was pronounced in the open court 11.02.2011.

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