TMI Blog2020 (1) TMI 686X X X X Extracts X X X X X X X X Extracts X X X X ..... lawful business and an infraction of law committed in a business inherently unlawful and constituting a normal incident of it's activity [CIT Vs. Piara Singh [ 1980 (5) TMI 2 - SUPREME COURT] and, therefore, in the present case in hand since the assessee has suffered the loss in his unlawful activity of giving accommodation entry which resulted in the beneficiaries not giving the income to the assessee is an allowable deduction. Thus, even if the assessee's estimation of ₹ 3 cr. as his income as per the disclosure petition is accepted, still the assessee's loss of ₹ 1.68 cr. has to be given as deduction and, therefore, the addition in any case was not warranted. So, we direct deletion of ₹ 1.68 cr. as discussed supra. - Appeal of assessee is allowed. - I.T.A. No. 1099/Kol/2019 - - - Dated:- 15-1-2020 - Shri A. T. Varkey, JM And Dr. A. L. Saini, AM For the Appellant : Shri Miraj D. Shah, AR For the Respondent : Shri Supriyo Pal, JCIT, Sr. DR ORDER Per Shri A. T. Varkey, JM This appeal preferred by the assessee is against the order of the Ld. CIT(A)-10, Kolkata ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The undersigned used to earn commission on the accommodation entries given through their companies and had to pay charges for the accommodation entries obtained. The commission earned from the accommodation entries given ranged from 0.3% to 0.8%. The undersigned had to also incur various expenses/charges in the course of giving such accommodation entries. Based on estimated calculations workings, the undersigned had made a reasonable estimate and accordingly an aggregate income of ₹ 3 Crores will be offered to tax in the hands of the undersigned, Shri Uday Shankar Mahawar for the Fin. Year 2014-15 relevant to A.Y. 2015-16. The aforesaid income being offered to tax represents the income which was originally offered in the course of survey proceedings. 4. However, according to AO, on 29.03.2017, when the assessee filed his Income Tax Return for A.Y. 2015-16 he disclosed his Total Income (after giving deduction u/Ch - VIA), at ₹ 1,49,11,1l0/-, which the AO noted was far below his disclosure made before the DIT(Inv.), Kolkata on 27.08.2014. During the course of Assessment Proceeding, the AO noted that assessee produced the Profit Loss Account as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 1,38,00,000) should not be treated as his Undisclosed Income and added back to the total income for the A.Y. 2015-16. According to AO, the assessee appeared before AO on 18.12.2017 and submitted that the amount that he has disclosed at the time of Survey u/s. 133A dated 22.08.2014 was unpaid commission. According to assessee, such receivable had become 'Bad Debt' after the department conducted raid on the beneficiary's premises. However, according to AO, the reply of the assessee is not acceptable as the source of the amount was from providing accommodation entries as an Entry Operator and as the assessee has already disclosed the same during the course of Survey Operation dated 22.08.2014. And according to AO, the disclosed sum of ₹ 3,00,00,000/- was earned by the assessee while making such accommodation entries in a subversive manner against the law to benefit people to reduce their taxable income. And, therefore, such income cannot be treated as Bad Debt as it was done to abuse the tax laws. Therefore, since he had disclosed ₹ 3,00,00,000/- at the time of Survey and in his disclosure petition, hence, he is liable to disclose the entire sum. Hence, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn of income. 7. From the aforesaid facts and circumstances discussed, when we analyze the facts as revealed by the disclosure petition, we note that immediately after the survey operation the disclosure petition which was filed on 27.08.2014, the relevant statement of assessee can be culled out as under: .......The undersigned submits that it managed and controlled various companies which inter alia forms part of the list of companies inventoried in the course of survey. The undersigned had given some accommodation entries from these companies to various persons/ groups....... Based on estimated calculations workings, the undersigned had made a reasonable estimate and accordingly an aggregate income of ₹ 3 Crores will be offered to tax in the hands of the undersigned, Shri Uday Shankar Mahawar for the Fin. Year 2014-15 relevant to A.Y. 2015-16. 8. So, it is discerned from the above statement in the Disclosure petition of the assessee and during the survey and after survey the assessee has admitted that he managed and controlled various companies and had given accommodation entries from these companies to various beneficia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2015, which means the assessee had to estimate/work out the income which he would get for his service of accommodation entry providing rendered to his customers upto 31.03.2015. It has to be appreciated that the assessee has offered through his disclosure petition dated 27.08.2014 ₹ 3 cr. as his undisclosed income for AY 2015-16, which was based on estimation. And it is also noted from a reading of assessment order and the first appellate order that the case of department/AO is not that incriminating material seized during survey on 22.08.2014 suggest hidden income of ₹ 3 cr. on the date of survey and based on the incriminating materials the assessee had offered ₹ 3 cr. In other words, the survey team had incriminating material to support assessee's undisclosed income of ₹ 3 cr. and the disclosure petition of assessee, even if discarded could independently support the addition of ₹ 3 cr. And even if that is the case of AO, then also the assessee's explanation as to why he had to scale down his estimated undisclosed income from ₹ 3 cr. to ₹ 1.38 cr. needs to be appreciated and cannot be brushed aside unless there is material to sugg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r expenditure and in turn reduce their profit. So, we note that the AO accepted the fact that the assessee was in the illegal activity which is the source of his undisclosed income. Further we note that in the disclosure statement the assessee in no uncertain terms had admitted to be an accommodation entry provider. This admission of the assessee has been accepted by the AO and the Ld. CIT(A) as discussed before. So, the amount he could not recover from his illegal activity has to be allowed as loss. For that proposition we rely on the ratio decidendi of the Hon'ble Supreme Court in the case of CIT Vs. Piara Singh (1980) 124 ITR 40 (SC) will be attracted. The head-notes read as follows: The respondent, who was carrying on smuggling activity, was apprehended by the Indian police, while crossing the border into Pakistan, and a sum of ₹ 65,000/- in currency notes was recovered from his person. On interrogation he stated that he was taking the currency notes to Pakistan to purchase gold there and smuggle it into India. The customs authorities confiscated the currency notes. The income-tax authorities found that the assessee was carrying on the business of smu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ful for. a doctor to indulge in activities against humanity, and that hence the question of claiming deduction of the value of the seized article did not arise. On appeal to the Supreme Court: Held, reversing the decision of the High Court, (i) that the Explanation to section 37 had no relevance as this was not a case at business expenditure but was one of business loss. Business loss was allowable an ordinary commercial principles in computing the profits. Once It was found that the heroin seized formed art of the stock-In-trade of the assessee, it followed that the seizure and confiscation of such stock-in-trade had to be allowed as a business loss. CIT v . PIARA SINGH [1980] 124 ITR 40 (SC) followed. 10. To sum up, we note that in this case on hand the assessee for this year had estimated his undisclosed income to the tune of ₹ 3 cr. from his illegal activity of providing accommodation entry after survey on his premises on 22.08.2014. However, since the survey in his premises attracted media attention his customers/beneficiaries distanced from him, which resulted in assessee losing ₹ 1.68 cr. (non-recovery of comm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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