If assessments are complete, disallowances should be considered against additional disclosures

The Income Tax Tribunal, Mumbai in the case of Shri Uday C Tamhankar, C/8 Nand Dham Society, L T Road, Borivali (West), Mumbai-400092 (Appellant) vs. Deputy Commissioner of Income Tax (OSD)-II, Central Circle-7, 4 th floor, Aayakar Bhavan, M. K. Road, Mumbai-400020 (Respondent), being I.T.A. Nos.711 to 715/Mum/2011 in connection with the Assessment Years 2004-05 to 2008-09 and in the case of Dy. Commissioner of Income Tax (OSD)-II, Central Circle-7, Ayakar Bhavan, M.K.Road, Mumbai-400020 (Appellant) vs. Shri Uday C. Tamhankar, C/8 Nand Dham Society, L T Road, Borivali (West), Mumbai-400092( Respondent) being I.T.A. Nos.857 to 862/Mum/2011 in connection with the Assessment Year 2002-03 to 2007-08 and also in that of Shri Uday C Tamhankar, C/8 Nand Dham Society, L T Road, Borivali (West), Mumbai-400092 (Appellant) vs. Dy. Commissioner of Income Tax (OSD)-II, Central Circle-7, 4 th floor, Aaykar Bhavan, M.K.Road, Mumbai-400020 (Respondent) being I.T.A. Nos.3579 to 3582/Mum/2013 in connection with the Assessment Years 2005-06 to 2008-09 has held that if assessments are complete, disallowances should be considered against additional disclosures.

Date of Hearing:

The hearing was conducted on 26.08.2015.

Date of Pronouncement:

The judgment was passed on 11.9.2015.

Backgrounds of the appeals:

The aforesaid cases were appeals and cross-appeals preferred by the assessee and Revenue against the orders passed by Ld CIT(A)-40, Mumbai in the proceedings relating to quantum of income tax and penalty.

The assessee filed appeals numbered being nos. ITA 711 to 715 against the orders passed by Ld CIT (A) in connection with the assessment years 2004-05 to 2008-09.
The revenue filed appeals being nos. ITA 857 to 862 in connection with the assessment years 2002-03 to 2007-08 against the orders passed by Ld. CIT (A) in the quantum proceedings. The other appeals were filed by the assessee challenging the orders of the Ld. CIT(A) against the penalty orders passed by the Assessing Officer under section 271(1)(c) of the Income Tax Act for the assessment years 2005-06 to 2008-09 and under section 271AAA of the Act for the assessment year 2008-09.

As all the appeals arose out of common facts, they were heard simultaneously and are being disposed of by a common order for convenience.

Facts and circumstances of the cases:

The assessee was a dentist and worked from different places through different hospitals. The department conducted search and seizure operations on 17.1.2008 at his premises. Moreover some of his concerns were also subjected to survey under section 133A of the Act.

During the search operations, cash of Rs.1, 13, 57,110/- was found. In his statement recorded under section 132(4) of the Act, the assessee admitted the cash of Rs.1, 04, 68,512/- as his black money. The assessee agreed to offer Rs.1, 25, 00,000/- as his income tax for the Assessment year 2005-09.

Accordingly, the assessee filed returns of income for the said years. The assessing officer completed the assessments and made additions for disallowances out of expenditures claimed by the assessee and additions under section 69 C for some expenses and assets.

The Ld. CIT (A) confirmed the additions towards disallowance of expenses and those made under section 69 C of the Act. He deleted the additions relating to estimated professional income.

Hence both the parties filed the appeals challenging the orders of Ld. CIT (A) on the issues decided against them.

Firstly the appeals filed by the assessee were taken up. In all the years, the assessee was contesting the disallowances made for expenses claimed by him for Car expenses, Telephone, etc. The disallowances made were also confirmed by the Ld. CIT (A).

Arguments made on behalf of the assessee:

The Ld. Counsel submitted that the car expenses which were disallowed by the Assessing Officer included depreciation and interest towards car loan. It was also submitted that both the items were statutory deductions under the Act and the disallowance was not justified.

The Counsel placed reliance on the judgment of Mumbai Tribunal in Mukesh K. Shah (2005), 92 ITD 349. It was also submitted that the assessee offered additional income of Rs.20, 00,000/- to cover up other deficiencies.

It was further submitted that the assessee did not capitalize the disclosure in his books of account. All the disallowances should be considered against the additional disclosures.

It was pointed out that the assessments were not pending as on the date of search and hence the in additions were not justified without presence of any incriminating materials.

The decision of the special bench in the case of Cargo Global logistics Ltd., 137 ITD 287 which was upheld by the Hon’ble jurisdictional Bombay High Court was also cited.

Arguments made on behalf of the Revenue:

The Ld. Counsel submitted that the assessee has admitted additional income in his statement under section 132(4) of the Act. Accordingly there were incriminating materials before the Assessing Officer and hence the he made additions.

The judgment:

Both the parties were heard at length and the records were perused. Admittedly, the assessments were not pending on the date of conduction of search. Hence, the assessing officer could not have made the additions for those years if there is no incriminating material. The contentions of the assessee also proved additional disclosure amounting to Rs.20 lakhs which is enough to cover the disallowances.

The alternative contentions of the assessee were accepted as such, the additions would result in double assessment, as it was stated that the assessee did not capitalize the amount in his books of account. Accordingly, the orders of Ld. CIT (A) in respect of the above said issues in all the years were set aside and the AO was directed to delete the disallowances.

All the appeals filed by the assessee were allowed and those filed by the revenue were dismissed.