AVINASH CONSTRUCTIONS,PUNE vs. DCIT CENT. CIR 2(3) , MUMBAI

These appeals are filed by different assessees of same group against different orders of Learned Commissioner of Income Tax (Appeals)–48, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 22.07.2019 and 29.06.2021 for the A.Y.2014-15 and 2017-18 respectively.

Since the issues raised in both these appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order. We are taking Appeal in ITA.No. 1307/MUM/2021 for Assessment Year 2014-15 as a lead appeal.

Brief facts of the case are, assessee filed its return of income on 29.09.2014 declaring loss of ₹.43,64,334/-. The case was selected for scrutiny and the assessment order dated 23.12.2016 was passed u/s.143(3) of Income-tax Act, 1961 (in short “Act”). A search u/s 132 of the Act was conducted on 21.07.2017 in the case of Avinash Bhosale Group Various residences of partners/directors of the group as well as the business premises of the group entities were covered under search

During the assessment proceedings Assessing Officer observed that during the course of search proceedings, statement of Shri Avinash Bhosale, director of the assessee company was recorded u/s 132(4) of the Act on 24.07.2017 Shri Avinash Bhosale, in his statement [Q Nos. 19 to 22 of the statement (Page nos 23-24 of the paper book)) was asked regarding the issue of equity and preference shares at a premium to M/s. Varali Infrastructure Limited by the assessee. In his reply, he stated that the assessee has issued shares to M/s. Varali Infrastructure limited and the transaction has been recorded in the books of accounts. Further, he also explained that the premium was arrived on the basis of the valuation done by the assessee. The copy of valuation report was provided during the course of search action.

The Assessing Officer noted that as per the valuation report, the assessee had issued 50,000 preference shares of face value of ₹.100, and at a premium of ₹.4,900 per share. He observed that the assessee had calculated the value per share on the basis of DCF method.

In response, assessee, vide letter dated 03.06.2019 filed a detailed reply before the Assessing Officer. The assessee also explained as to how the revenue figures taken by the assessee, while working out value per share as per DCF method, were justified. It was also submitted that the value per share as per the valuation report was ₹.5,005/- which was higher than the value at which the assessee issued shares and hence, the provisions of section 56(2)(viib) of the Act would not apply. The Assessing Officer did not agree with the submissions of the assessee. He issued notices u/s: 133(6) and Section 131 of the Act to M/s. Varali Infrastructure Limited to inquire about the basis of valuation and other details such as source of fund. M/s Varali Infrastructure Limited, in response submitted the source of payment for subscribing to the shares

Aggrieved assessee preferred an appeal before the Ld.CIT(A) and contended that the entire addition u/s. 56(2)(viib) of the Act on account of excess share premium is bad in law since no incriminating material has been found during the course of search and the relevant year is a non-abated year. The Ld.CIT(A) called for a remand report from the Assessing Officer seeking his comments on the legal argument raised by the assessee. The Assessing Officer, vide remand report dated 19.10.2020, reiterated his objections on merits of the addition as stated in the assessment order and offered no comments in respect of the legal argument raised by assessee. The assessee submitted its rejoinder to the remand report dated 28.10.2020. The Ld.CIT(A) did not agree with

On merits, the submissions made before the Assessing Officer were reiterated before the CIT(A). It was further submitted that the assessee has redeemed the preference shares held by M/s. Varali Infrastructure Limited at ₹.5,417/- per share and hence the transaction of issue of shares is very much justified. The Ld.CIT(A) did not agree with the contention of the assessee and upheld the addition of ₹. 23,70,00,000/- u/s 56(2)(viib) of the Act. Against the said order passed by Ld.CIT(A), the assessee is in appeal before us.

Assessee has raised following grounds in its appeal: - “1. On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in confirming the AO's action of making addition in respect of share premium u/s 56(2)(viib) amounting to Rs.23,70,00,000/- despite the fact that the original assessment u/s 143(3) was completed vide order dated 23.12.2016 and no incriminating material was found or seized during the course of search so as to revisit the assessment originally completed u/s.143(3) for the AY 2014-15.

10 It was further submitted that in reply to Q. Nos 19 to 22 of the statement (Pg nos 23-24) of Shri AvinashBhosale recorded u/s 132(4) of the Act dated 24.07 2017, he has explained the transaction of issue of shares and stated that the premium on shares was arrived at on the basis of valuation report. Hence, on the basis of the statement, it cannot be concluded that the premium on shares is not justified. It was submitted that the statement of Shri Avinash Bhosale dated 24.07.2017 cannot be considered to be incriminating or relied upon for making addition u/s 56(2)(viib) of the Act. It any case, it was submitted that the statement recorded is material ‘obtained’ during the course of search and not ‘found’ during the course of search. It was further submitted

It was submitted that since nothing incriminating is found from the premises of the assessee, the Assessing Officer cannot rely on a document that was already available on record for making addition in respect of non-abated year. It was submitted that in absence of any incriminating material in the impugned year, being a non-abated year, no addition can be made. In order to support the said contention reliance was placed on the decisions of the Hon'ble Bombay High Court in the case of CIT vs Continental Warehousing Corporation (NhavaSheva) Ltd. (374 ITR 645) and CIT v. Gurinder Singh Bawa 1386 ITR 483). In view of the above, it was submitted that addition on account of share premium u/s 56(2)(viib) of the Act is bad in law

Ld.DR relied on the orders of the lower authorities.

Considered the rival submissions and material placed on record. We observe from the record that a search was conducted in the case of the assessee on 21.07.2017. We also observe that the AO completed the assessment u/s 153A without there being any incrementing material

With regard to Ground No 3 which is in respect of Addition of ₹.23,70,00,000/- u/s. 56(2)(viib) of the Act, Ld. AR submitted that the assessee is in the business of real estate development and hospitality industry, During the previous year relevant to the assessment year under consideration, as noted above, the assessee had issued 50.000 preference shares to M/s. Varali Infrastructure Ltd having face value of Rs. 100 at a premium of Rs 4.900/- per share. The assessee had 11 1797/MUM/2021) AvinashBhosale Infrastructure Pvt. Ltd., Avinash Constructions adopted DCF method as per the valuation report dated 31.03.2013 and arrived at the fair market value of Rs. 5,005/- per share.

It was submitted that the assessee, while adopting DCF method, had projected revenues from two projects namely Lower Parel project and Goregaon project. During the course of assessment proceedings, the actual revenues from both the projects were submitted/available. The Assessing Officer noted that there was operating income from the Lower Parel Project however, the Goregaon project was still in its initial stage and only MOU was signed. The assessee had applied DCF method for valuation of share. The assessee, while arriving at the value per share as per DCF method, projected revenue and profit from Lower Parel project and Goregaon project. The Assessing Officer was of the view that since the Goregaon project was still in initial stage, the valuation done by assessee considering revenue and profit from Goregaon project is not reliable. The Assessing Officer substituted the figures of projected revenue and profits with the actual revenue figures in respect of both projects. Rejected the submissions made by the assessee. In appeal, the CIT(A) upheld the action of the Assessing Officer.

It was further submitted that there are decisions of Tribunal and Hon'ble High Courts. Reliance was also placed upon (i) CIT v/s. VVA Hotels (P.) Ltd. [122 taxmann.com 106 (Mad)] and (ii) Freedom Wealth Solutions Pvt. Ltd. v/s ITO in 7000/Mum/2019 for A.Y.S 2013-14 and 2015-16 in dated 22.09.2021.

It was further submitted that the authorities below have also ignored the fact that the same preference shares have been redeemed by the assessee company to Varali Infrastructure Ltd. at a premium of Rs. 5,417/-. Thus, it was submitted that the issue has also been 14 1797/MUM/2021) AvinashBhosale Infrastructure Pvt. Ltd., Avinash Constructions supported by the subsequent redemption price. It also demolishes the value of preference shares at Rs. 260 per share arrived at by the Assessing Officer. It was submitted that the parties are at arm's length and issuer as well as subscriber are in the real estate sector. Thus, there cannot be any exchange of unaccounted money in this transaction nor there is any allegation by either of the authority. It was submitted, it is accepted position in law that provisions of S. 56(2) of the Act are 'anti abuse' provisions and it cannot be applied in the cases of genuine transactions.

It was also submitted that a detailed submission was made before the lower authorities explaining the reason as to why the actual revenue figures are not matching with the projected figures. This detailed submission has not been rebutted by the lower authorities. Thus, neither the projected figures nor the process of deriving those figures have been doubted by the authorities below.”

Further, Ld.AR submitted with regard to valuation of share, it was accepted during the course of original assessment proceedings, the assessee had filed complete details in respect of valuation of shares along with the valuation of report (Pgnos 9-13 of P.B.). In response to 15 1797/MUM/2021) AvinashBhosale Infrastructure Pvt. Ltd., Avinash Constructions specific query raised by the Assessing Officer in respect of valuation of shares issued by the assessee, the assessee had also filed a note on issue of shares (Pgnos 14-15 of PB). The Assessing Officer, after considering the submissions of the assessee, passed the assessment order u/s 143(3) of the Act on 23.12.2016 wherein no addition was made on account of share premium. Hence, the valuation of shares was already accepted by the department in original assessment proceedings. The said fact was also brought to our notice of the Assessing Officer vide letter dated 24.04.2019 (Pgnos 31-32 of P.B.) during the course of reassessment proceedings u/s 153A of the Act.

Ld.DR relied on the orders of the Authorities below.

Considered the rival submissions and material placed on record, we observe from the record that the valuation report and issue of preference shares are subject matter of assessment u/s 143(3) of the Act, which was duly accepted by the then AO. Further, with regard to valuation of the shares adopting DCF method is one of the accepted method under Rules 11UA. The AO has reassessed the valuation of shares done by the assessee adopting the methodology prescribed under DCF method and also certified by a Valuer. While reassessing the 16 1797/MUM/2021) AvinashBhosale Infrastructure Pvt. Ltd., Avinash Constructions valuation, AO replaced the projected values with the actual figures from the financial statement. This is post valuation exercise, which is not the proper way of assessment, as held in the various judicial pronouncements. The decision relied by the assesseey, in which the coordinate bench of the Hyderabad bench has held that whether the actual result can be adopted in the valuation of "IP". The Id AR has also brought to our knowledge the decision of ITAT, Bangalore in the case of Tally Solutions (P) Ltd. (supra) In the above case the assessee attempted to adopt the actual revenues for the future years which were available then, which was rightly declined by the Bangalore Bench We are in agreement with the above findings of the Bangalore Bench that the valuation method adopted for determining the future years cannot be replaced with actuals down the line, the valuation will go either way. When it goes to north, the revenue may adopt the same time when it goes to south, the assessee may adopt, there won't be any consistency. What is important is the value available at the time of making business decision.

Further, we observe that the assessee also redeemed the same shares at the value of Rs.5417/-, which the revenue authorities

In the result, appeal filed by the assessee is allowed.

Brief facts of the case are, a search u/s 132 of the Act was conducted on 21.07.2017 in the case of Avinash Bhosale Group, Business premises of the group as well as residential premises of partners/directors of group entities were covered in search action. The assessee was also covered in the said search. The group is primarily engaged in infrastructure development, real estate development and hospitality industry.

During the course of search proceedings, the residential premises of Nitin Bharamnor was also covered. There were certain loose papers

The Assessing Officer sought details of persons with PAN from whom cash of ₹.8,25,00,000/ is received and also asked assessee to submit details of expenses paid in cash. The assessee fiied a detailed reply which has been reproduced on Page Nos. 7-9 of the assessment order. The assessee submitted that no addition can be made u/s 69C of 19 1797/MUM/2021) AvinashBhosale Infrastructure Pvt. Ltd., Avinash Constructions the Act in respect of unaccounted expenditure recorded in the seized material since the source of such expenditure is the receipts from advisory and consultancy services. The Assessing Officer did not agree with the contention of the assessee and added the cash receipt of ₹. 8,25,00,000/ u/s 69C r.w.s. 1158BE of the Act and disallowed the claim of expenditure.

So far as the addition of ₹.40,32,500/- made by the Assessing Officer is concerned, the facts are as follows. During the course of search proceedings certain loose papers were found and seized labelled as Annexure-A-6. On Page No. 36 of Annexure A-6. it was stated that ₹.40,32,500/- belongs to Company's accounts. It was submitted that the said amount was accounted cash belonging to various companies of the group. The assessee submitted complete list of persons and entities to whom the cash belongs along with their cash balances. The assessee also submitted the bank statements of persons and entities in which the cash deposit and cash withdrawal entries are reflecting. The list of persons/entities along with the amount of cash balance held by them as on date of search was submitted to the Assessing Officer. The Assessing Officer, without considering the details filed by the assessee

Aggrieved assessee, preferred an appeal before the Ld.CIT(A) and assessee before Ld.CIT(A) in respect of addition of ₹.825,00,000/- the submissions made before the Assessing Officer were reiterated before the CIT(A). The Ld.CIT(A) did not agree with the contention of the assessee and upheld the order passed by Assessing Officer. In respect of addition of ₹.40,32.500/- the assessee again submitted all the evidences filed before Assessing Officer. The Ld.CIT(A) held that the assessee has not produced the relevant documents in form of bank statements of group companies and upheld the order passed by Assessing Officer.Against this order of the Ld.CIT(A), the assessee has filed the present appeal.

Assessee has raised following grounds in its appeal: - “The following grounds are taken without prejudice to each other. On the facts and the circumstances of the case and in law -

The assessee is a partnership firm, it provides consultancy and advisory services through its partners to various entities engaged in the business of construction. The assessee, in response to notice issued u/s 22 1797/MUM/2021) AvinashBhosale Infrastructure Pvt. Ltd., Avinash Constructions 153A of the Act has declared cash receipt of ₹.8,25,00,000/- earned from rendering advisory and consultancy services. The assessee claimed expenditure @ 30% against the said receipt and paid tax on the balance amount. It was submitted that the nature of such income earned by the assessee is ‘Business Income’ since the assessee is in the business of providing advisory and consultancy services.

It was submitted that the Assessing Officer has added Rs. 8.25,00,000/- u/s 69C of the Act and applied the tax rate @ 60% as per Sec. 115BBE of the Act. It was submitted that the receipts of Rs. 8,25,00,000/- have already been offered to tax after claiming deduction of 30% of expenses, in the return filed in response to S.153A of the Act. It was submitted that addition u/s 69C of the Act can be made in respect of expenditure of which source was not explained. It was submitted that the source of expenditure is the receipts on account of advisory and consultancy services. It was submitted that the Assessing Officer was seeking to tax the receipts earned by assessee on account of advisory and consultancy services u/s.69C of the Act which is not permissible. If the Assessing Officer would have disbelieved the cash receipt on account of consultancy services rendered, he would have 23 1797/MUM/2021) AvinashBhosale Infrastructure Pvt. Ltd., Avinash Constructions brought to tax the corresponding expenditure of Rs 7,56,51,667/-. However, the Assessing Officer has chosen to tax the receipts on account of consultancy fees of Rs 8,25,00,000/- Thus, the Assessing Officer has taxed the consultancy income as declared by the assessee during the year under consideration as well as other years as tabulated in the following chart:

It was submitted that the Assessing Officer has taxed the receipts from advisory and consultancy services u/s 69C of the Act. It was submitted that S. 69C of the Act deals with taxation of unexplained expenditure and not receipts. It was also submitted that, if at all, the Assessing Officer wanted to tax the receipts, the same could have been taxed u/s 68 of the Act which has not been done in the present case.

Ld.DR relied on the orders of the Authorities below.

Considered the rival submissions and material placed on record, we observe from the record that during the course of search proceedings, the residential premises of Nitin Bharamnor was also covered. There were certain loose papers found and seized as Annexure-A-6 which is running from Page nos 1 to 38E. The said papers contain details of unaccounted cash transactions, which includes

We observe from the record that the assessee has accepted the whole cash found during the search as unaccounted cash transactions. The assessee has declared the part of the cash receipt as income from consultancy as business income. The AO asked for the details of such receipts and the details of persons from whom the income was received. Since the assessee has given information, which is not acceptable to the AO, he proceeded to make addition u/s 69C of the Act of the same amount which the assessee has already declared as income from business. It is clear from the record that AO has technically made double

The next question is, the assessee has claimed the 30% of the consultancy charges declared as business income, without submitting any evidence. It was submitted that the unaccounted expenditures were incurred which are less than 20k and 10k, for which there is no violation under TDS provisions. The source for these expenditure are the consulancy income received in cash. There is merit in the arguments of the AO that assessee has not submitted any evidence of cash expenditure. Therefore, AO can make disallowance only the expenditure not the whole consultancy income, which assessee has already declared in its return of income. Therefore, we are inclined to remit the issue of adhoc claim of expenditure to the file of AO to determine actual allowable expenditure, since the assessee claims that these are incurred for the purpose of carrying of business and expenditures incurred are below the cash limit prescribed under the Act. Therefore, AO is directed the verify the same after giving opportunity of being heard to the

With regard to Ground No 2 which is in respect of addition of ₹.40,32,500/- u/s 69C r.w.s. 115BBE of the Act, Ld. AR submitted during the course of search, certain loose papers were found and seized labelled as Annexure A-6. The said paper contained certain notings of unaccounted cash transactions. It was submitted that the amount of Rs. 40.32,500/- mentioned in the said paper was accounted cash belonging to various companies of the group. During the course of assessment proceedings, the assessee submitted complete list of persons and entities to whom the cash belongs along with their cash balances. The assessee also submitted the bank statements of persons and entities in which the cash deposit and cash withdrawal entries are reflecting. The list of persons/entities along with the amount of cash balance held by them as an date of search was also submitted during the course of assessment proceedings.

It was submitted that the assessee also filed all the relevant details before the CIT(A) (refer Page no 7. para (b) of CIT(A)'s order). However, the CIT(A) held that the assessee has not produced the

It was submitted that complete details were filed before the CIT(A) including the bank statements of group entities. The said fact has been noted by the Ld.CIT(A) in his order. It was submitted that all details were also filed during the course of assessment proceedings. In view of the above, it was prayed that the matter may be sent back to the file of the Assessing Officer for verification and to decide the issue after considering all the details filed before him.

Ld.DR relied on the orders of the Authorities below.

Considered the rival submissions and material placed on record, we observe from the record that during the course of search proceedings, the residential premises of Nitin Bharamnor was also covered. There were certain loose papers found and seized as Annexure-A-6 which is running from Page nos 1 to 38E. The said papers contain details of unaccounted cash transactions, which includes unaccounted cash receipts of ₹.23.97.23.219/- and expenditure of ₹.8.94,26,667/-. The assessee submitted that except ₹.40,32,500/-, the 29 1797/MUM/2021) AvinashBhosale Infrastructure Pvt. Ltd., Avinash Constructions entire amount is unaccounted. It was submitted that the amount of Rs. 40.32,500/- mentioned in the said paper was accounted cash belonging to various companies of the group. During the assessment proceedings and appellate proceedings, all the details of cash balance held on behalf of group companies were submitted. The authorities has not appreciated and asked for the further details like sources and bank details. The assessee submitted that even these details were submitted during appellate proceedings and the same details are filed before us in the paper book. Therefore, we are inclined to remit this issue back to the file of AO to verify the same and allow the same as per law. It is needless to say that an opportunity of being heard to the assessee. Accordingly the ground raised by the assessee is allowed for statistical purpose. In the result, appeal filed by the assessee is partly allowed as indicated above.

To Sum-up, appeals filed by the assessees in is allowed and in ITA No 1797 is partly allowed as indicated above.