Case Law Details
DCIT Vs Vinod Kumar Bajaj (ITAT Delhi)
Introduction: The Income Tax Appellate Tribunal (ITAT) of Delhi recently issued a significant ruling in the case of DCIT Vs Vinod Kumar Bajaj, where it declared the act of determining income based purely on conjecture and presumption as grossly illegal. The case revolved around an addition made to Bajaj’s income by the Assessing Officer (AO) based on an internal email conversation, which the AO considered as evidence of undisclosed income from election consultancy services.
Analysis: In this case, the AO presumed that Bajaj had provided election consultancy services, hence earning income from it. The conclusion was reached based on an internal email, which merely discussed the scope of potential services and associated fees, but provided no concrete evidence of services rendered. Despite Bajaj’s denial and clarification, the AO added a sum of Rs. 6,61,50,000 to Bajaj’s income, an action subsequently overturned by the ld CIT(A) on the grounds that it was based merely on conjecture.
ITAT Delhi, in its judgement, agreed with the ld CIT(A)’s decision, stating that the AO’s extrapolation from the email was flawed and baseless. The tribunal stated that the mere presence of a discussion around potential services could not be construed as evidence of actual services provided. Thus, it dismissed the revenue’s appeal, agreeing that determination of income based purely on presumption is grossly illegal.
Conclusion: The ruling of ITAT Delhi in the case of DCIT Vs Vinod Kumar Bajaj reinforces the importance of corroborative and factual evidence in tax assessments. The case clarifies that potential earnings or hypothetical scenarios should not be used as grounds for income determination, particularly in cases involving undisclosed income. Instead, concrete and verifiable evidence of income earned must be presented.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. This appeal in ITA No.1087/Del/2022 is filed by the revenue and the cross objection No. 163/Del/2022 for A.Y. 2016-17 arises out of the order by ld CIT(A)-30, New Delhi in appeal No. 10399/201920 dated 17.03.2022 (hereinafter referred to as ld CIT(A) in short) against the order of assessment passed u/s 153 r.w.s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 17.12.2019 by the AO, DCIT, Central Circle-32, New Delhi (hereinafter referred to as ld. AO).
2. The only issue to be decided in this appeal as to whether the ld CIT(A) was justified in deleting the addition made in the sum of Rs. 6,61,50,000/- on account of undisclosed income from election consultancy services in the facts and circumstances of the instant case.
3. We have heard the rival submission and perused the material available on record. The assessee had filed his original return of income for AY 2016-17 on 27.03.2017 declaring income of Rs. 8,15,530/-. This income was processed u/s 143(1) of the Act. A search and seizure operation was carried out at the various premises of Bajaj Group and its associates on 20.04.2017 and search warrant was issued in the name of the assessee. Further, e-mails were seized from RNB House, 2-3, Shivaji Enclave, New Delhi, from the premises of RNB Infrastructure Pvt. Ltd and RNB Leasing and Financial Service. In other words, these e-mails were seized during the course of search warrant executed in the name of RNB Infrastructure Pvt. Ltd and RNB Leasing and Finance Services. The ld AO issued notice u/s 153A of the Act on 10.07.2018 directing the assessee to file return for AY 2016-17. The assessee vide letter dated 18.07.2018 replied that the return of income originally filed on 27.03.2017 may be treated as return in response to notice issued u/s 153A of the Act. The ld AO in the course of search assessment proceedings u/s 153A of the Act issued notice 142(1) of the Act dated 18.10.2019 by alleging that the assessee has rendered election consultancy services and has earned income of Rs. 6,61,50,000/- (126 constituencies X Rs. 5,25,000/- per constituency) based on internal e-mail between Vinod Kumar Bajaj and Kishan Kumar Bajaj which was extracted from the laptop seized during the search of RNB House, 2-3, Shivaji Enclave, New Delhi. The assessee filed reply letter dated 02.12.2019 and submitted the complete note on business activity and the nature of income which included income from salary of Rs. 60,000/-, business profit of Rs. 8,01,986/- and income from other sources of Rs. 74,246/-. The assessee also filed reply vide letter dated 14.12.2019 and submitted that political survey work is not done by him and the same is the business of RNB International Pvt. Ltd. The assessee further submitted that emails between Vijay Kumar Bajaj and Kishan Kumar Bajaj are internal e-mails where only scope of work was discussed and no such services were indeed rendered by the assessee. The ld AO however, ignored these submissions of the assessee and proceeded to add the income in the sum of Rs. 6,61,50,000/- on the presumption that assessee had rendered these services and earned corresponding income thereon. The ld CIT(A) deleted this addition on the ground that AO had made this addition merely based on surmises and conjectures and without appreciating any corroborative evidence on record.
4. Aggrieved, the revenue is in appeal before us.
5. The ld DR vehemently relied on the order of the ld CIT(A) and the written synopsis filed by him before the bench.
6. Per contra, the ld AR submitted that email found during the course of search conducted in some other premises wherein only the scope of services to be rendered was discussed together with fee thereon. The said email nowhere stated that services had been rendered by the assessee and the assessee is entitled for the consultancy income.
7. From the perusal of the materials available on record, we find that the sole basis of the addition is only internal email dated 17.02.2016 sent by assessee to Shri Kishan Kumar Bajaj, which apparently contained a statement that assessee had entered into an agreement with the Chief Minister of Assam for providing election related consultancy services for the then upcoming Assam Legislative Elections in the month of April, 2016. The entire email is reproduced at page 5 of the assessment order and the same is not reiterated herein for the sake of brevity. The ld AO also found that two emails sent by the assessee to Shri Gaurav Gogoi, son of Chief Minister of Assam, Shri Tarun Gogoi, containing certain election related reports in PDF format. Accordingly, the ld AO had concluded that assessee had rendered election related services and earned consultancy income of Rs. 5,25,000/- per constituency and added in the assessment. In our considered opinion and on perusal of the email, nowhere it states that the assessee had indeed rendered consultancy services to the political party. Email only contains the scope of services to be rendered by the assessee, if the assessee is engaged to do so. In any case, the consultancy charge of Rs. 5,25,000/- is merely an average of figures of Rs. 4,25,000/- and Rs. 6,25,000/-mentioned in the email which has been considered by the ld AO. Moreover, the email does not specify anywhere that the assessee had indeed rendered consultancy services for all the constituencies that are relevant for Assam Legislative Elections. Hence, this very clearly goes to prove that extrapolation has been done by the ld AO by taking a single piece of information contained in the email and alleging that the assessee had rendered services for all the election constituencies in Assam. It was submitted that the email dated 17.02.2016 contained only a general survey that show case quality of services and not as part of services itself. This can never be construed as rendering of actual services by the assessee. We find that nowhere in the email, there is some mention of 126 constituencies in total for which services are rendered. Hence, determination of income based on surmise and conjecture is grossly illegal and incorrect on the part of the AO.
8. We have no hesitation to hold that the entire addition has been made based on the surmises and conjectures without any basis that could be appreciated in the eyes of law. Hence, we find that the ld CIT(A) had rightly appreciated these facts and deleted the addition on which we do not find any infirmity. Accordingly, ground raised by the revenue is dismissed.
9. At the time of hearing, the ld AR submitted that the grounds raised by the assessee in his cross objection are not pressed.
10. In the result, appeal of the revenue is dismissed and cross objection of the assessee is dismissed as not pressed.
Order pronounced in the open court on 27/06/2023.
