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Before: SMT. P. MADHAVI DEVI & SHRI A. ALANKAMONY
IN THE INCOME TAX A PPELLATE TRIBUNAL HYDERABAD BENCH ‘B', HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. ALANKAMONY, ACCOUNTANT MEMBER Assessment Year: 2005-06 M/s Madhupala Estates vs. Dy. Commissioner of Pvt. Ltd., Hyderabad. Income-tax, Circle – 16(2), Hyderabad. PAN – AACCM3943R Appellant Respondent Assessee by: Shri A. Srinivas Revenue by: Shri Ashok Kumar Kardam Date of hearing: 20/01/2020 Date of pronouncement: 23/01/2020 O R D E R PER SMT. P. MADHAVI DEVI, J.M.:
This is an appeal filed by the assessee against the order of CIT(A) – V, Hyderabad dated 06/10/2010 for AY 2005-06.
On 18/06/2018, it was informed by the ld. counsel for the assessee that the company’s name has been struck off by the Registrar of Companies (ROC) and, therefore, it has to be revived before the appeal can be heard. Due to such circumstances, appeal was adjourned from time to time as the ld. DR had sought time to get instructions from the AO on the steps being taken by the Department to get the name of the company back on the rolls of ROC by filing requisite application before the NCLT. Meanwhile, on 10/07/2019, the ld. DR has brought the decision of the Hon’ble Supreme Court of India in the case of CIT, Jaipur Vs. M/s Gopal Shri Scrips Pvt. Ltd., [2019] (SC) 104 Taxmann.com 192 (SC) to our notice wherein the Hon’ble Apex Court has held that the Courts can go ahead with the income-tax appeals even if name of the company has been struck off by the ROC in view of the section 560(5) & Proviso (α) of the Companies Act, 1956 and Chapter XV of Income Tax Act. In view of the said decision of the Hon’ble Supreme Court, we have proceeded to hear and adjudicate the matter as under:
Brief facts of the case are that the assessee company, engaged in the business of real estate, filed its return of income for the AY 2005-06 on 30/10/2005 admitting income of Rs. 41,36,210/-. Thereafter, there was a survey operation u/s 133A of the IT Act on 07/11/2005 and a report was sent by the ADIT, Unit – II(1), Hyderabad to the effect that there is undisclosed income of Rs. 1,07,59,000/- in real estate deals. Therefore, the assessment for the year under consideration was reopened by issuance of a notice u/s 148 of the Act on 08/12/2008. During the course of reassessment proceedings u/s 143(3) rws 147 of the Act, the AO asked the assessee to explain the transaction relating to payment of Rs. 40,95,000/- being 25% of Rs. 1,63,80,000/-, the cost of land measuring 117 acres at Bibinagar, Garden Village @ 1,40,000/- per acre made to P. Balaiah and others against a land sale agreement along with the relevant accounts and documents. Assessee explained that the assessee had purchased the land through one mediator Mr. Rama Krishna Reddy, who was engaged by the assessee to help it in the purchase of the land from farmers, and also to carry on the development activities in the land. It was submitted that the advances for the land had been given to Mr. Rama Krishna Reddy, who had further advanced them to the landlords of the land. It was submitted that the total advances given to the landlords through various persons was Rs. 25.97 crores, which was reflected in the balance sheet under the head ‘loans and advances’. It was also submitted that the registration of the land was made at Rs. 1.40 lakhs per acre and a further amount of Rs. 1.70 lakhs per acre was paid to Mr. Rama Krishna Reddy towards advance for the development of the land and handing over of the developed land to the assessee. It was submitted that only 14 acres and 10 guntas of land had actually been transacted during the relevant financial year and balance amounts were lying in the form of advances with Mr. Ramakrishna Reddy and others.
3.1 The AO, however, did not accept assessee’s contentions and observed that during the course of search in the case of the company, the assessee’s Director Mr. S. Suresh had accepted that only one amount of Rs. 5 lakhs paid on 04/05/2005 is recorded in the regular books of account and further that during the scrutiny proceedings for the AY 2006- 07, in the letter dated 26/12/2008, the assessee company retracted from its earlier statement by stating that no transaction had taken place with Mr. Rama Krishna Reddy. The AO, therefore, treated the total of cash payment of Rs. 1,07,59,000/- to Mr. Rama Krishna Reddy as unexplained investment u/s 69 of the Act and brought it to tax.
3.2 Aggrieved, the assessee preferred an appeal before the CIT(A), who confirmed the order of the AO and the assessee is in second appeal before the ITAT by raising the following grounds of appeal: “1. The order of the A.O is contrary to law, facts and circumstances of the case.
2. The A.O ought not to have added an amount of Rs.1,07,59,000/- as unexplained investment when the same were recorded in the books of accounts.
3. The CIT, Appeals, ought not to have confirmed the order of the A.O for the addition made under section 69 of the Act.
4. Any other ground which the appellant might urge either at or before the time of hearing.”
The ld. counsel for the assessee submitted that the transactions of advance payments to the owners of lands through Mr. Rama Krishna Reddy, has been duly recorded in the books of account of the assessee and, therefore, the same cannot be brought to tax u/s 69 of the Act. In support of the same, he drew our attention to the relevant pages of the paper book filed by the assessee before us to show that the transaction has been recorded in the books of account. He further placed reliance upon the decision of Hon’ble Delhi high Court in the case of CIT Vs. Anoop Jain in of 2005 vide order dated 22/08/2019 in support of the contention that if the entries are reflected in the books of account, the same cannot be brought to tax u/s 69 of the Act.
The ld. DR, on the other hand, supported the orders of the authorities below and particularly relied upon findings of the AO that the company had admitted that no transaction was done through Mr. Rama Krishna Reddy. Therefore, according to him, the expenditure claimed by the assessee has to be disallowed and it may not be treated as a disallowance u/.s 69 of the Act, as done by the AO.
Having regard to the rival contentions and material on record, for the purpose of ready reference and clarity, the provision of section 69 is reproduced hereunder: “Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any,
maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the AO, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.” A literal reading of this provision clearly shows that only such investments which are not recorded in the books of account maintained by the assessee, can be brought to tax u/s 69, if the assessee offers no explanation or if the explanation offered by the assessee is not satisfactory to the AO. But, in the case before us, we find that the assessee has shown the total of Rs. 25.97 crores as advances to the landlords in Schedule – VIII of the balance sheet and Mr. Rama Krishna Reddy’s name is mentioned in the list of people to whom advances have been paid. Therefore, it is clear that the relevant entries have been made in the books of account and the same is also reflected in the material found i.e. “note book” impounded by the department during the course of search. Further, AO has not rejected the books of account. In fact, he proceeded to make additions to the income returned by the assessee as per its P&L Account and Balance Sheet. The loans and advances is shown in the Balance Sheet of the company. Therefore, the addition made u/s 69 is not sustainable. The AO has made the disallowance u/s 69 and the ld. DR cannot, now, argue that the disallowance is of expenditure and not u/s 69 of the Act. Further, the loans and advances is a balance sheet item and has not been claimed as expenditure. Hence, there can be no disallowance of expenditure, which has not been debited to the P&L A/c. Since the payment of the amount to Mr. Rama Krishna Reddy is not doubted by the AO, and he has brought it to tax only u/s 69 of the Act, and the relevant entries are already recorded in the books of account, we hold that it cannot be brought to tax u/s 69 of the Act. Therefore, we hereby delete the addition made by the AO and confirmed by the CIT(A) on this account. Thus, the grounds raised by the assessee are allowed.