Service Tax paid through Banking Channel cannot be deemed as Unexplained

Full Text of the ITAT Order is as follows:-

These cross appeals are directed against the order of CIT(A)-1, Jabalpur dated 30/06/2014 relating to assessment year 2009-10 arising out of the order u/s 148/144 of the I.T. Act dated 31/12/2013.

2. Assessee’s appeal no. 137/Jab/2014 is a recalled matter for the limited purpose of adjudicating the ground No. 3 which remained unadjudicated by the Tribunal. This appeal was recalled by M.A. No. 27/Jab/2016 dated 23/01/2017.

3. Briefly stated, the facts of the case, are that the assessee is a retired Lt. Colonel. Under settlement scheme framed by the Government of India, the assessee received certain security contract from the Government body. For the year under appeal the assessee was engaged in the activity of supplying security personnel to BHEL, BPCL, AIR and IOC and this activity was carried out under the sole proprietorship concern Militia Security Net. Return of income was filed on 07/12/2009 declaring income of Rs. 3,31,990/-. Notice u/s 148 of the Act was issued. Necessary reply was filed. The Assessing Officer observed that the receipts shown in the return were less by Rs. 76,94,926/- as against the receipts shown in Form No. 26AS available on the income tax website. This alleged difference of Rs. 76,94,926/- comprised of two amounts; (i) Rs. 24,89,710/- being the receipt from BHEL which the assessee has claimed to have included in the gross receipts of subsequent years and (2) receipt of Rs. 51,33,559/- from BPCL, AIR and IOC which the assessee has not claimed to have received but was received by a person Shri Madhup Singh who had fraudulently opened bank account in Patna and carried the business in the name of assessee. The Assessing Officer was not satisfied with the reply given during the assessment proceedings and made the addition of Rs. 76,94,926/-. Addition was also made towards unexplained expenditure u/s 69C for payment of service tax of Rs. 4,33,505/-.

3.1 Aggrieved, the assessee preferred appeal before the CIT(A) and partly succeeded. The CIT(A) deleted the addition u/s 69C of Rs. 4,33,505/- but as regards the concealed receipt of Rs. 76,94,926/-, sustained the addition to the extent of 40% of the receipts and calculated the addition at Rs. 30,77,970/-.

3.2 Aggrieved, both the Revenue and the assessee came in appeal before the Tribunal. Due to some reason assessee’s appeal was listed before the Tribunal and came up for hearing on 11/02/2015 but the Revenue’s appeal was not listed on this date. The assessee’s appeal was heard by the Tribunal. The Tribunal set aside the issues relating to alleged receipts from BPCL, AIR, IOC and GAIL to the file of the Assessing Officer for deciding afresh in the light of the observations that Shri Madhup Singh has fraudulently operated the bank account at Patna in the name of the assessee and received sum of Rs. 51,33,559/- and as regards the receipt from GAIL to verify that whether the assessee has included in the gross receipts in the subsequent year. Thereafter assessee filed Misc. Application against the order of the Tribunal in I.T.A. No. 137/Jab/2014 mentioning that ground No. 3 raised in this appeal for the alleged estimation of profit at 40% of the concealed receipts remained unadjudicated. This Misc. Application was allowed vide M.A. No. 27/Jab/2016 recalling the order of the Tribunal in I.T.A. No. 137/Jab/2016 for the limited purpose of adjudicating ground No. 3 raised by the assessee. Now we will adjudicate the issue raised in these cross appeals.

4. First we take up the assessee’s appeal in I.T.A. No. 137/Jab/2014. Ground No. 3 which needs adjudication reads as follows:

“3. Without prejudice to the above grounds, the learned Commissioner of Income Tax (Appeals) is not justified in estimating the profit at 40% net on the receipts of Rs. 51,33,559/- and Rs. 24,89,710/-. The estimation of net profit is exorbitantly high and unjustified. No profit at all should have been charged on the above receipts, therefore, the entire addition of net profit should be deleted or in the alternative the estimation of net profit rate may please be reduced reasonably.

4.1 The issue raised in this ground was linked to ground No. 1 & 2 raised by the assessee, which read as follows:

“1. The ld CIT(A) is not justified in holding that the business carried out at Patna for security service belong to the assessee and thereby confirming the receipt of Rs. 51,33,559/- in the hands of assessee as business receipt is not justified. The assessee had no role in the Patna business. It was fraudulently secured by Mandhup Kumar Singh. Therefore, the treatment of receipt of Rs. 51,33,559/- as assessee’s receipt is not justified, should be quashed in toto.

2. That ld CIT(A) is not justified in confirming the addition of Rs. 24,89,710/- on account of receipts from BHEL, Bhopal for the assessment year 2009-10. The bills for these payments were raised in the month of April, 2009 and they were received in financial year 2009-10 relevant to assessment year 2010-11 and were accordingly declared by the assessee. The estimation of profit on 24,89,710/- is not justified, should be deleted.”

4.2 In ground No. 3 the assessee is aggrieved with the estimation of 40% on the alleged receipt of Rs. 51,33,559/- and Rs. 24,89,710/-. Out of these two receipts, the assessee has claimed that Rs. 51,33,559/- was never received by him and it was received by Shri Madhup Singh in the bank account operated by him with the forged signature of the assessee. The remaining amount of Rs. 24,89,710/- received from BHEL was claimed to have been shown in subsequent year. Tribunal has appreciated the contention of the assessee and restored all the issues relating to the alleged receipts of Rs. 51,33,559/- and Rs. 24,89,710/- to the file of the Assessing Officer for carrying out necessary verification and decide afresh. Relevant finding of the Tribunal reads as under:

“8. In our considered view, merely because a payment is reflected in AS-26 and is shown to have been made to the assessee, it cannot be brought to tax in his hands when the said money is not received by the assessee. We have noted that the stand of the assessee is that these payments made by BPCL, AIR and IOC were never received by the assessee, and the monies, received fraudulently in the name of and on behalf of the assessee, were received by some other person. Neither this aspect of the matter is examined on merits, nor any effort is made to find out through appropriate inquiries through related banks, the actual beneficiary of these payments. It is only elementary that income tax proceedings are not adversarial proceedings and the powers vested in the income tax authorities are to be used when circumstances so warrant or justify. It is a fit case in which the Assessing Officer ought to have established the trail of money and find out actual beneficiary of the payments which were admittedly made through banking channels. As a matter of fact assessee has given ample evidence that some other person had opened a bank account in assessee’s name and appropriated the funds on his own, in such account. All these facts require to be properly investigated. In this view of the matter, we delete the additions in respect of monies said to have been paid by BPCL, AIR and IOC and restore the matter to the file of the AO with the direction that the same can be brought to tax in the hands of the assessee only when, a result of proper inquiries to be carried out in the light of our above observations and after confronting the assessee, it can be established that assessee was actual beneficiary of these payments. In any other case, the appropriate action is to be taken in the hands of the actual beneficiary of these payments.

9. As far as the variation in BHEL receipts (Rs. 24,89,710/-) we direct the Assessing Officer to examine the explanation of the assessee on merits and in the event of these receipts having been included in the receipts disclosed for the subsequent year on account of late receipts, exclude the same for double taxation in this year as well.”

4.3 We, therefore, respectfully following the order of the Tribunal, delete this addition of Rs. 30,77,970/- calculated by CIT(A) applying 40% net profit rate on concealed receipts as the issue of alleged gross receipt has itself been remitted to Assessing Officer for re verification. However, our this decision of deleting the impugned addition confirmed by the CIT(A) should not be taken as a precedence and lower authorities will be free to decide the case on merits after the completion of assessment proceedings carried on by the assessing authority as per the finding and direction of the Tribunal vide order dated 30/03/2015. Ground No. 3 of the assessee’s appeal is allowed.

5. Now we take up Revenue’s appeal in I.T.A. No. 173/Jab/2014. Ground No. 1 relates to the relief granted by CIT(A) sustaining addition only to the extent of 40% of the concealed receipt of Rs. 76,94,626/-. We find that we have already adjudicated this issue while dealing ground No. 3 of the assessee’s appeal and deleted the impugned addition of 40% in view of the order of the Tribunal dated 30/03/2015 restoring all the issues relating to alleged gross receipts to the file of the Assessing Officer for carrying out necessary verification. This ground of the Revenue is dismissed.

6. Ground No. 2 of the Revenue’s appeal relates to the deletion of addition of Rs. 4,33,505/- made by the Assessing Officer on account of unexplained payment of service tax. We find that the assessee has paid the service tax amount through banking channel. Challans of the payment of tax were placed on record before the assessing authority. The source of alleged service tax amount is well explained in the books of account. We, therefore, find no infirmity in the order of CIT(A) deleting the addition of 4,33,505/-. This ground of Revenue is dismissed.

7. Ground No. 3 of the Revenue’s appeal is general in nature and do not require any specific adjudication therefore, the same is dismissed.

8. In the result, the appeal of the assessee is allowed whereas the appeal of the Revenue is dismissed.

(Order was pronounced in the open court on 08/11/20 17