Hema Haresh Mehta Vs DCIT (ITAT Mumbai)
ITAT Mumbai held that tally accounts produced before CIT(A) provides only better clarity and understanding of seized documents which are already on record before AO. Hence, submission of the same before CIT(A) doesn’t violate provisions of rule 46A of Income Tax Rules.
Facts- In the assessment order, AO added the entire notingsas unexplained income as reflected in the seized material without referring to the nature of the same after reducing the duplicate entries and rough notings in the said seized materials.
After arriving at the peak credit for each year, CIT(A) reduced the revenue expenses incurred for the purpose of business for such years and remaining amount was confirmed. With respect to all the other entries including personal expenses, CIT(A) allowed telescoping of the entries reflected in the tally account. For entries which were not reflected in tally account, CIT(A) confirmed such additions.
In respect of peak credit additions and other miscellaneous additions, the assessee has preferred appeals before us and revenue has filed appeals against the relief provided by the ld CITA for various years.
Conclusion- We have already held that profit percentage on money receipts should be determined at 8% of Rs 35,90,000/- for the Asst Year 2006-07. Accordingly, the question of any addition on account of peak credit does not arise. Further, the business payment as well as administrative expenses are deemed to be allowed once the profit percentage is applied to the total turnover.
We hold that filing of Tally accounts before the ld CITA which actually provides better clarity and understanding of the seized documents already on record before the ld AO cannot be considered as additional evidences filed by the assessee and hence we hold that there is no violation of provisions of Rule 46A of the IT Rules.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These appeals in ITA Nos.4686/Mum/2016, 4684/Mum/2016, 4798 to 4801/Mum/2016 & 4901/Mum/2016 for A.Y. 2006-07 to 2009-10, 2010-11 and 2011-12 respectively arises out of the order by the ld. Commissioner of Income Tax (Appeals)-50, Mumbai in appeal Nos. CIT(A)-50/IT-5 17/2014-15, CIT(A) -50/IT-5 16/2014-15 CIT(A)-50/IT-512/2014-15, CIT(A)-50/IT-5 13/2014-15, CIT(A)-50/IT-5 14/2014-15, CIT(A)-50/IT-515/2014-15 dated 31/03/2016 (ld. CIT(A) in short) against the order of assessment passed u/s.153A r.w.s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 30/03/2014 by the ld. Dy. Commissioner of Income Tax, Central Circle 47, Mumbai (hereinafter referred to as ld. AO).
ITA No.4704/Mum/2016 to 4709/Mum/2016(AY: 2006- 07 to 2011-12), ITA No.4879/Mum/2016 (A.Y.2006-07), ITA No.4881/Mum/2016(AY: 2007-08), ITA No.4883/Mum/2016 (A.Y: 2009-10) & ITA No.4884/Mum/2016 (A.Y: 2010-11)
These appeals in ITA Nos. 4704/Mum/2016 to 4709/Mum/2016, 4879/Mum/2016, 4881/Mum/2016, 4883/Mm/2016 & 4884/Mum/2016 for A.Yrs. 2006-07, 2007-08, 2008-09, 2009-10, 2010-11 & 2011-12 respectively arises out of the order by the ld. Commissioner of Income Tax (Appeals)-50, Mumbai in appeal
Nos. CIT(A)-50/IT-505/20 14-15, CIT(A)-50/IT-506/20 14-15, CIT(A)- 50/IT-507/20 14-15, CIT(A)-50/IT-508/20 14-15, CIT(A)-50/IT-509/20 14- 15, & CIT(A)-50/IT-510/2014-15 dated 31/03/2016 (ld. CIT(A) in short) against the order of assessment passed u/s.153A r.w.s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 30/03/2014 by the ld. Dy. Commissioner of Income Tax, Central Circle 47, Mumbai (hereinafter referred to as ld. AO).
2. As identical issues are involved in all these appeals, they are taken up together and disposed of by this common order for the sake of
3. The brief facts of these appeals are that a search and seizure action was carried out on Rohan group of companies on 26.05.2011 in which the impugned assessees were also covered. Shri Haresh Mohanlal Mehta, was one of the directors in the Rohan group of companies. Shri Haresh Mohanlal Mehta was also engaged in construction business through his own construction company namely M s. Raj Doshi Exports Pvt. Ltd. The ld AO observed that The ‘Rohan Group’ headed by Shri Haresh Mohanlal Mehta, is one of the leading builders of the South and Central Mumbai and is mainly engaged in construction of residential buildings and re-development of old and dilapidated buildings. The group has re-developed over 50 buildings and constructed over 2.5. million sq.ft residential space. Apart from M/s Rohan Developers Pvt Ltd, other main concerns in the group are M/s Goodwill Properties Pvt Ltd and M/s Silver Arch Builders & Promoters Pvt Ltd. The ld AO noted that main persons in this group are Shri Haresh Mohanlal Mehta and Late Mr Jitendra N Mehta.
3.1. The various sources of income of the assessee which are disclosed by Shri Haresh Mohanlal Mehta are as under:-
a) Salary income as director
b) Business income by way of remuneration
c) Interest on capital from partnership firm
d) Commission income
e) Income from house property
3.2. The ld AO observed that during the course of search action, various loose papers were found and seized by the search team, showing cash receipt and payments.During the course of search action, statement of Shri Haresh Mohanlal Mehta was recorded wherein he stated that he was looking after the tenants approval and liasoning & other clearance work from government organizations for various construction sites of Rohan group. In the said process, he would receive the amounts in cash from Rohan group out of the on money received from customers and the same would be incurred for various business purposes as stated above. The said loose papers also indicated investments made in LIC in the name of assessee’s wife (Smt Hema Haresh Mehta) during the period 2001 to 2008 in cash. The ld AO observed that Shri Haresh Mohanlal Mehta earned unaccounted income from Rohan Group and same were partly applied for meeting business expenses as above and remaining applied for making investment in LIC in his name and in the name of his wife (Smt Hema Haresh Mehta), investment in jewellery, investment in Hotel Haredia, foreign travelling expenses and household expenses. The ld AO also observed in the assessment order that Shri Haresh Mohanlal Mehta had earned unaccounted income from Rohan group and made expenses from such unaccounted income. The ld AO also stated that Shri Haresh Mohanlal Mehta had furnished a statement u/s 132(4) of the Act in this regard, wherein it was admitted that unaccounted income was earned by him and out of which, he had incurred some unaccounted business expenses and also personal expenses in the form of investment in jewellery, investment in LIC policies in his name and in the name of his wife, investment in Hotel Haredia, foreign travel expenses, other household expenses etc. The ld AO further observed in the assessment order that the assessee submitted the details regarding the seized materials before him on 14.3.2014 and further furnished the page wise explanation of the seized documents as required by the ld AO.
3.3. In the assessment order, the ld AO added the entire notingsas unexplained income as reflected in the seized material without referring to the nature of the same after reducing the duplicate entries and rough notings in the said seized materials.Before the ld CITA, the assessee explained initially that the notings do not relate to theassesseeand they do not reflect income of the assessee. Further, it was explained by the said receipts at the best, be treated as construction receipts and only profit element of the receipts can be added. However, subsequently, the assessee changed his stand by accepting the contents of the seized documents as pertaining to his construction activities and agreed to explain all the outgoings , both business expenditure as well as personal expenditure and investments out of the same seized documents. For this purpose, in order to provide a better clarity of the voluminous notings found in the seized material, the assessee entered the entire handwritten notings in the tally software under the name `Haresh M Mehta 86 Others! for the limited purpose of explaining the notings. While preparing the above accounts, the assessee accepted that the notings found in the seized material from the premises of his wife as well as his company M/s. Raj Doshi Exports Pvt. Ltd. as his own. All the said notings were entered into cash books in tally software. The entire receipts recorded in the seized material were considered as business receipts of the assessee and were recorded under the head `Haresh Mehta!. Further, out of the payments, the payments related to construction activity were bifurcated into business payments and were entered under the head Haresh Mehta!. Further, payments related to the administrative expenses of the assessee were entered under the Revenue expenses account of Shri Haresh Mehta. Further, payments related to personal nature of the! assessee were entered under the Personal expenses account of Shri Haresh Mehta.
3.4. In the appellate order, the ld CITA stated that the assessee has withdrawn its contention that no income arose from the said documents. The ld CITA accepted proceeded to tax the peak credit of the entries found in the seized documents by referring to the tally accounts submitted during the course of appellate proceedings. While referring to the tally accounts prepared on the basis of seized material, receipts and payments recorded under the head “Haresh Mehta! made on account of business purpose were used for arriving at a peak credit. After arriving at the peak credit for each year, the ld CITA reduced the revenue expenses incurred for the purpose of business for such years and remaining amount was confirmed. With respect to all the other entries including personal expenses, the ld CITA allowed telescoping of the entries reflected in the tally account. For entries which were not reflected in tally account, the ld CITA confirmed such additions.
3.5. Similarly, in respect of appeal in the case of Smt. Hema Haresh Mehta, the ld CITA allowed the telescoping of the amounts which have been considered in tally account of which peak addition has already been made in the case of Shri Haresh Mohanlal Mehta.
3.6. In respect of peak credit additions and other miscellaneous additions, the assessee has preferred appeals before us and revenue has filed appeals against the relief provided by the ld CITA for various years.
3.7. In this regard, it would be relevant to consider the nature of the notings in the loose papers found during the course of search. We find that the ld AR had submitted that Shri Haresh Mohanlal Mehta is engaged in the construction activity for the past 4 decades and is a director in Rohan Group of Companies which is also extensively involved in the construction activity. Apart from this, Shri Haresh Mohanlal Mehta was further engaged in construction business through his own company namely M/s Raj Doshi Exports Pvt Ltd. These facts are not in dispute before us. Hence it could be safely concluded that the entries containing certain receipts should have emanated only from the construction business in which Shri Haresh Mohanlal Mehta has carried out on behalf of his own company and also on behalf of Rohan Developers Pvt Ltd, wherein he had received on money from various prospective buyers of properties and had incurred certain business expenditure like vacation of tenants, liasoning work etc as detailed hereinabove. The left over portion of on money thereafter is also utilised for the purpose of meeting all the personal expenses of himself, his wife (Smt Hema Haresh Mehta) including investments in LIC policies , Jewellery and investment in Hotel Haredia etc. This fact is also admitted by Shri Haresh Mohanlal Mehta in his statement recorded during search u/s 132(4) of the Act which has not been retracted in the manner known to law. We find that the ld AR before us had completely owned up the entire entries as noted in the seized materials on behalf of the assessee Shri Haresh Mohanlal Mehta by reaffirming the earlier stand taken before the ld AO and at the time of search proceedings before the Investigation team. Hence the receipts mentioned in the loose papers represent on monies received by the assessee from his business. It is a settled principle that what can be taxed in respect of on money is only a profit element since the seized material clearly shows evidences of expenditure out of the said receipts. The summary of the total receipts as per seized material and duly quantified as per tally accounts, is provided hereunder:-
Details of aggregate cash receipts as per seized material
