ITAT Mumbai Directs to Limit Additions, Concern of Cash Deposited for Different Proprietorships

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) directed a limitation on the addition to 0.05% of the total cash deposited in various proprietorship concerns linked to fictitious business activities.

Rajendra Gokuldas Parekh, the taxpayer, deposited Rs. 765,55,253/- across these concerns. Despite receiving contracts worth Rs. 5,75,000/- from two parties, the taxpayer didn’t file an income return. Consequently, the assessment was reopened based on information from the ADIT (Investigation).

Upon reviewing the assessee’s submission, the assessing officer noted a likelihood that all transactions conducted through the assessee’s proprietary concern could be overseen by their employer, Shri Hitesh G. Shah. Nonetheless, the assessing officer believed that due to the assessee’s familiarity with the employer’s business model, an estimated addition of Rs. 765,553/- (1% of the total gross sale) was warranted to augment the assessee’s total income.

Appealing to the CIT(A) proved futile for Parekh, leading to a subsequent appeal to the tribunal.

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During the proceedings, Bharat Kanaba, representing the assessee, contended that the assessee operated solely under the instructions of Mr. Hitesh G. Shah, without engaging in actual goods or services transactions. The assessee asserted no involvement in signing contracts or bills for payments deposited in the bank account linked to fictitious deals and sales.

The argument presented was that the assessee functioned merely as a front or proxy for Shri Hitesh G. Shah, with bank accounts under the assessee’s name but controlled by Shah.

Contrarily, Ajay Singh, representing the Revenue, alleged that Hitesh G. Shah, the assessee’s employer, orchestrated multiple business setups through the assessee’s cooperation, managing all associated bank accounts. Consequently, due to the assessee’s association with Shah in these deceptive business practices, the assessing officer estimated an incentive of Rs. 76,553/- (1% of the total gross amount) for the assessee.

Upon scrutinizing the facts and records, the two-member bench composed of Amarjit Singh (Accountant Member) and Kuldip Singh (Judicial Member) limited the addition to 0.05% of the gross total of Rs. 76,55,523/-. Their decision was grounded in the acknowledgement that the actual operations were controlled by the assessee’s employer, with the assessee already disclosing commission income received from the employer in the filed return.