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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI AMARJIT SINGH
आदेश/O R D E R
PER RAJPAL YADAV, JUDICIAL MEMBER: In the Asstt.Years 2006-07 and 2007-08, assessee and the Revenue are in cross-appeals against order of the ld.CIT(A) dated 16.11.2010 and 16.4.2013 passed in the Asstt.Years 2006-07 and 2007-08 respectively. In the Asstt.Year 2000-01, the assessee alone is in appeal against order of the ld.CIT(A) dated 14.12.2016. These were heard originally on 31.10.2018 and 1.11.2018. However, on 28.1.2019 these appeals were re-fixed for clarification and fresh hearing. The order dated 28.1.2019 passed by the Bench reads as under:
“28-01-2019 A bunch of 15 appeals for different assessment years pertaining to Navratna Organisers & Developers P.Ltd. was heard on 31st Oct., and 1st Nov., 2019. Out of 15 appeals, orders in 10 have already been dictated and pronounced.
In the Asstt.Year 2007-08 assessee and the Revenue are in cross appeals against order of the ld.CIT(A) dated 16.4.2013. In the Asstt.Year 2002-03 the assessee alone is in appeal against the order of the ld.CIT(A) dated 14.12.2016. These appeals were heard along with group appeals of the assessee on 31.10.2018 and 1.11.2018. First we take up appeal for the Asstt.Year 2007-08.
Grounds of appeal taken by the Revenue as well as by the assessee are inter-connected with each other. Before taking note of specific grounds pleaded by the appellants in respective appeals, we would like to note brief background of the dispute.
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 3 3. The assessee has filed its return of income on 30.10.2007 declaring total income at Rs.NIL. Notice under section 143(2) of the Act was issued and served upon the assessee. Assessment order was passed under section 143(3) r.w.s 153A(1)(b) of the Act on 31.12.2008. The assessee had development agreement with Kalhar Society and on the basis of development agreement it has provided various services as a developer narrated in the development agreement. According to the ld.CIT(A) in the first round of litigation the AO has accepted that the assessee is engaged in the business of development at various schemes on land owned and belonged to various entities. A sum of Rs.9,06,87,708/- was reflected towards liability side in the construction of Kalhar bungalows. This liability was doubted by the AO and addition was made. The dispute travelled to the ld.CIT(A). The ld.CIT(A) vide order dated 25.3.2011 directed the AO to re-verify the genuineness of the above liability while giving effect to his order. The AO has passed order giving effect on 12.1.2012. He partly accepted the genuineness of the liability. In other words, he granted relief to the extent of Rs.1,54,30,436/-. The rest of the liability of Rs.7,52,53,272/- was confirmed. Against this order giving effect, the assessee came up in appeal. In the appeal, it was contended by the assessee that this liability of Rs.9,06,87,708/- comprised of two amounts viz. (a) booking amount received from members of Rs.5,20,36,309/- and (b) sundry creditors of Rs.3,86,47,399/-. The ld.CIT(A) has accepted genuineness of booking amount received from members, and deleted addition of Rs.5,29,36,309/-. This deletion is being challenged by the Revenue in its first of round of appeal. Out of the total sundry creditors at Rs.3,86,47,399/-, the ld.CIT(A) has observed that while giving effect to the order of the ld.CIT(A), the AO has not issued any notice to the creditors totaling to Rs.1,04,69,465/-. Thus, according to the ld.CIT(A), the AO did not choose to verify the details of these creditors and in the absence of such non- inquiry, addition cannot be made. Hence, the ld.CIT(A) deleted this addition of Rs.1,04,69,465/-. This is being challenged by the Revenue in ground no.2. The ground no.3 and 4 are general grounds of appeal.
It is pertinent to observe that against order of the ld.CIT(A) dated 25.3.2011, assessee and Revenue filed appeals before the ITAT bearing No.IT(SS) A.No.406/Ahd/2011 and
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 4 448/Ahd/2011. These appeals have been decided by the Tribunal on 10.4.2015. The Tribunal has set aside the issue to the file of the AO for adjudication afresh. The issue regarding alleged liability of Rs.9,06,83,708/- has also been set aside, meaning thereby, the directions of the CIT(A) to the AO while giving effect to his order, the AO to verify genuineness of this outstanding liability, stands merged in the directions of the Tribunal or directions of the CIT(A) should be construed as vacated. We have not been appraised of, what happened after the ITAT’s order. Therefore, we deem it necessary to find out the status of fresh assessment order in the Asstt.Year 2007-08.
Similarly, in the Asstt.Year 2000-01, order of the ITAT passed in ITA No.214/Ahd/2008 on the assesee’s appeal has not been placed on record. Order in the Revenue’s appeal along with CO of the assessee has been placed on record at page nos.18 to 29 of the paper book. Without going through order of the Tribunal in the first round, it is difficult to adjudicate this appeal. In the Asstt.Year 2006-07, we felt necessity of having clarification with regard to first issue involved in the assessee’s appeal. Considering the above development after conclusion of hearing, we deem it appropriate to re-fix these appeals for clarification. Registry is directed to list these appeals for clarification on 14th Feb., 2019.
Copy of this order be supplied to both the parties.
Sd/- Sd/- AJS RPY (AM) (JM)
In this background, we take appeal for the Asstt.Year 2007-08. In order to give clarification on the issues pointed out by the Bench, the assessee has filed the following submissions:
> Your Honors, vide order sheet entry dated 28.01.19, had raised certain queries in connection with this appeal and fixed the hearing on 14.02.19. In connection with the same, the present submissions are being made;
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 5 > Hon'ble ITAT, vide order dated 10.04.15 passed in IT(SS)A No.406/Ahd/2011 and IT(SS)A No.448/Ahd/2011 had set-aside the issue to the file of AO for adjudication afresh. Accordingly, even the issue w.r.t addition of Rs.9,06,83,708/- in respect of liabilities was remanded;
> In the set-aside proceedings, AO passed Asst. Order dated 28.12,16 under section 143(3) r.w.s. 254 of the Act wherein various additions were made including the addition of Rs.9,06,83,708/- in respect of liabilities was remanded;
> At the outset, AO himself, vide order dated 12.01.12 passed while giving effect to CIT(A)'s order dated 25.01.11, gave relief of Rs.1,54,30,436/- out of total addition of Rs.9,06,83,708/- made in respect of liabilities which was not pursuant to any directions or findings of CIT(A). AO granted such relief on his own after accepting the submissions of the Assessee;
> It is a settled law that Hon'ble ITAT does not have powers of enhancement; Any relief granted by AO cannot be taken back by Hon'ble by ITAT. Reliance is placed on "Mcorp Global (P.) Ltd. vs. CIT - 309 ITR 434 (SC)".
> What cannot be done directly by Hon'ble ITAT can also not be done indirectly. Accordingly, relief granted by AO (here, Rs.1,54,30,436/-) could neither have been taken back by Hon'ble ITAT nor by AO in the set-aside proceedings while passing order u/s 143(3) r.w.s. 254. Hon'ble ITAT had remanded the matter to AO for adjudication afresh and hence, in the set-aside proceedings, AO acted at the instance of Hon'ble ITAT. Accordingly, in the set-aside proceedings, AO could not have denied relief of Rs.1,54,30,436/- granted by him earlier while passing order dated 12.01.12 giving effect to CIT(A)'s order dated 25.01.11. To that extent, fresh effect giving order dated 28.12.2016 is without jurisdiction and thus, not legal. However, the same cannot be agitated in this proceedings as the appeal against that order is pending before CIT(A);
> As regards addition to the extent of Rs.5,20,36,309/-, the same represent excess of collection from members over expenses. CIT(A) deleted addition lo that extent following AY 2009-10; Hon'ble ITAT, vide order dated 23.01.19 passed in assessee's own case bearing "ITA 2634/Ahd/2011 and others", deleted the addition in respect of excess of
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 6 collection from members over expenses"; Hence, following the said judgment, addition to the extent of Rs.5,20,36,309/- deserves to be deleted in this year as well.
> In any case, the impugned addition has been made in respect of "liabilities " i.e. amounts outstanding at the end of the year. The only section which permits addition in respect of "liabilities" outstanding at the end of the year is S.41(1) which has, admittedly, not been invoked in this case. Hence, the impugned addition could not have been made at all. Even if S.41(1) is invoked, then also merely because there appears a liability at the end of the year, the same cannot added u/s 41(1). Reliance is placed on:
* CIT vs. Nitin S. Garg - (2012) 22 taxmann.com 59 (Guj); * Riddhi Steels & Tubes Pvt. Ltd. vs. ACIT - ITA 638 & 909/Ahd/2015;
> Assessee further relies on all the submissions raised vide the synopsis filed during the course of earlier hearing. The above contentions are in addition to the contentions raised in such synopsis.
With the assistance of the ld.representatives, we have gone through the record carefully. The contentions of the ld.counsel for the assessee is that the Tribunal while setting aside order of the ld.CIT(A) dated 25.3.2011 has not basically reversed that order, but concurred with the ld.CIT(A), hence, executability of that order still in existence, and it could not be construed that the Tribunal vide order passed on 10.4.2015 in IT(SS)A.No.406/Ahd/2011 and 448/Ahd/2011 has vacated the direction of the ld.CIT(A).
On due consideration of our order dated 28.1.2019 and explanation given by the assessee, we are of the view that judgment relied upon by the ld.counsel for the assessee in the case of Mcorp Global P.Ltd. Vs. CIT., 309 ITR 434 (SC) and Riddhi Steels & Tubes P.Ltd. Vs. ACIT, ITA No.638 & 909/Ahd/2015 are not applicable on the facts of the present case. Order of the ld.CIT(A) dated 25.3.2011 was challenged by the assessee as well as by the Revenue before the Tribunal. On re-appreciation of the details, the Tribunal
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 7 recorded a finding that this order is not sustainable and set aside the same. The Tribunal remitted all issues to the file of the AO for fresh adjudication. Moment this order has been set aside, then its executability at the end of the AO for passing any order would extinguish. The AO cannot give effect to an order which has been set aside by her higher authority. If he could not give any effect to that order, then all the consequence by virtue of his order would become redundant. The case of the assessee is that since while giving effect to this order, the AO has granted relief to the assessee, and if that order is being vacated, then that amounts to enhancement. It is a wrong assumption at the end of the assessee. The question before us is that, on execution of order, if something is being granted to the assessee, and it is held that power assumed by the AO from an order and that order has been extinguished, then he has no power to grant any relief to the assessee. Therefore, the order passed by the AO dated 12.1.2012 giving effect to the order of the ld.CIT(A) dated 25.3.2011 is not sustainable, and vacated. Consequential proceedings, i.e. appeal before the ld.CIT(A) and present appeal becomes redundant and infructous. By virtue of this order of the AO, no relief will be given to the assessee nor any issue is to be construed as decided against the assessee. In this background, both the appeals i.e. appeal of the assessee in ITA No.1731/Ahd/2013 and IT(SS)A.No.249/Ahd/2013 at the instance of the Revenue are treated as allowed for statistical purpose, and disposed of in the above term. In other words, these appeals became infructous in view of ITAT’s order dated 10.4.2015.
Now we take ITA No.338/Ahd/2017.
In order to explain our query, the assessee has contended that against order of the ld.CIT(A) in the first round, the assessee has not filed any appeal. The appeal was only at the instance of the Revenue, and while giving effect to
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 8 order of the ITAT, the AO has passed fresh assessment order on 31.3.2015 which is under section 143(3) r.w.s. 254. 7. Sole issue involved in this appeal is that the ld.CIT(A) has erred in confirming the addition of Rs.14,95,000/- which was added by the AO with the aid of section 68 of the Income Tax Act, 1961 determining total income at Rs.53,00,095/-. The dispute travelled up to the Tribunal and it was remitted to the AO for fresh adjudication vide order dated 5.9.2013 passed in ITA No.2143/Ahd/2009. The AO has observed that the assessee has received unsecured loans in the name of following persons:
Pinakin Kalyanbhai 275000 2. Pradipbhai V. Shah 50000 3. Hemakshi K. Shah 150000 4. Nila R. Shah 75000 5. Diolip J. Sanghvi 100000 6. Dipak J. Sanghvi 400000 7. Renuka Yogeshchandra 75000 8 Ragini R. Chokshi 200000 9. Nupur D. Shah 170000 Total Rs.14,95,000/-
The AO had issued notice under section 133(6) to four persons. Out of which notices could not be served upon two persons. They were returned with postal remark “left”. Other two persons did not respond to the notice of the AO, hence, the ld.AO has made addition under section 68 of the Act. Appeal to the ld.CIT(A) did not bring any relief to the assessee. The ld.counsel for the assessee contended that the assessee has filed confirmation from all the creditors. It has disclosed their PAN numbers, amounts have been taken through account payee cheques. These have been returned to some of the persons. He drew our attention towards page no.92 of the paper book. A sum of Rs.75,000/- alleged to have been returned to Renuka Yogeshchandra vide cheque no.123464 dated 15.6.2001, and cheque
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 9 no.33317 dated 13.11.2001. She has also confirmed about the receipt of money. On the other hand, the ld.DR relied upon the order of the AO. 9. We have duly considered rival contentions and gone through the record carefully. Section 68 of the Income Tax Act contemplates that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof, or the explanation offered by the assessee is not, in the opinion of the AO satisfactory, then the sum so credited in the accounts may be treated as income of the assessee of that previous year. A perusal of the record would indicate that on behalf of Pinakin Kalyanbhai no compliance was made. The assessee has received a sum of Rs.2,75,000/- from this person. According to the assessee confirmation could not be filed because this person has died. We have perused the alleged confirmation filed on page no.41. In place of signature, a remark has been made “party deceased”. Hence, there was no confirmation from legal heirs of this creditor. The assessee failed to fulfill ingredients of section 68. As far as other creditors are concerned, the assessee has given their confirmations, PAN and also evidences for some of the creditors to show that money received has been returned. The AO has not conducted complete inquiry. He has issued notice on selective basis. Therefore, considering evidence submitted by the assessee, and manner of inquiry, we are of the view that the assessee has fulfilled ingredients of section on the remaining creditors, and the addition deserves not to be made. We partly allow the appeal of the assessee and delete addition except credit appearing against the name of Pinakin Kalyanbhai amounting to Rs.2,75,000/- . This addition is confirmed.
Now we take appeal for the Asstt.Year 2006-07.
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 10 11. First we take appeal of the Revenue i.e. IT(SS)A.No.94/Ahd/2011. In The first ground of appeal, Revenue has pleaded that the ld.CIT(A) has erred in deleting the addition of Rs.1,06,03,790/-. 12. Brief facts of the case are that a search and seizure action was conducted at the Navratna Group of companies on 10.5.2006. In order to give logical end to the proceedings, a notice under section 153A was issued and served upon the assessee on 11.5.2007. The assessee has filed its return of income on 8.6.2007 declaring total income at Rs.4,68,49,830/-. A notice under section 143(2) of the Act was issued on 1.11.2007 which was duly served upon the assessee. The ld.AO has observed that the assessee had received advance payment from two projects viz. Kalhar Project and Kings Square Project. He has worked out the total amount received by the assessee and how much work it has done. Similarly, he has noticed sundry creditors as on 31.3.2006 as well as 31.3.2005. According to the AO, the project advance payments shown as on 31.3.2005 was Rs.41,04,99,327/- whereas as on 31.3.2006 these were Rs.51,46,27,557/-. Thus, there was a difference of Rs.10,41,28,230/-. The AO thereafter noticed difference in the sundry creditors. He observed that total work done by the assessee is of Rs.11,67,80,197/-. According to the understanding of the AO, on this work assessee should have shown profit at 8%. Similarly, he worked out the working done by the assessee at Kings Projects and estimated profit at 8%. In this case, the AO was of the opinion that the assessee should have shown profit on work-in-progress. He has estimated such profit at 8% and thereafter made addition. On appeal, the ld.CIT(A) has deleted this addition by observing the following finding:
“10.4 In the present case, the appellant is acting as a developer and consultants of the projects. In other words, the appellant is not covered by the provisions of Accounting. Standards (A.S.7) as presumed by the Assessing Officer in the assessment order. Besides; the appellant is
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 11 required to follow either cash system of accounting or mercantile system of accounting u/s.145 of the l.T.Act The appellant cannot be forced to follow the percentage completion method. The appellant is consistently following the mercantile system of accounting since inception. The appellant had incurred various expenses which were directly referable to the projects and they were debited to the work in progress account. The Assessing Officer-has erroneously presumed that the addition to the capital work in progress should be equal to the construction income. The construction income depends upon income accrued in favour of the appellant on account of business operation and debits to the work in progress account are on account of expenditure to the said projects. The project completion method and percentage completion method, both have also been recognized by the C.B.D.T. in instruction No.4/2009 dated 30.09.2009. The Assessing Office has not pointed out a single instance of unreporting of income or under reporting of income. The addition of Rs.1,06,03,790/- is deleted.”
The ld.counsel for the assessee at the very outset submitted that identical issue was raised in other years, more particularly, Asstt.Year 2008- 09. This issue has been examined by the Tribunal in Appeal for the Asstt.Year 2008-09 which were heard originally along with this appeal. The Tribunal has held that no addition is required to be made on WIP. He drew our attention towards the finding of the Tribunal in para-10 and 11 of the order dated 23.1.2019 passed in the asstt.Year 2008-09, 2009-10 etc. On the other hand, the ld.DR relied upon order of the AO.
The Tribunal while dealing with this in the Asstt.Year 2008-09 has recorded a finding that the assessee was not owner of these projects, rather he has carried out the construction activities on fee basis. The discussion made by the Tribunal reads as under:
“9. With the assistance of ld.representatives, we have gone through the record carefully. A perusal of the assessment order would indicate that the ld.AO has treated the assessee as owner of Kalhar Project whereas the case of the assessee is that it is a developer. It used to
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 12 develop housing project on behalf of the cooperative societies and charges development fees for carrying out such development work. According to the assessee, cooperative societies provide material for carrying out development activity. The assessee used to collect booking amount on behalf of the society and its development work is being shown under the head work-in-progress on asset side of the balance sheet. Similarly, collections taken from the members are being shown as liability in the balance sheet. Thus, stand of the assessee before the AO was that being a developer, its rights were limited to receive development fees on completion of project. The society is owner and has right, title and interest on work-in-progress. This stand of the assessee has been accepted by the ld.CIT(A) in both the assessment years. Contrary to this stand, nothing has been brought to our notice. The assessee has demonstrated that it was working only as a developer and alleged collection over expenditure cannot be treated as its business income, rather, it was a liability in the balance sheet. Therefore, we are of the view that the ld.CIT(A) has rightly deleted this addition and, no interference is called for. Similarly, in A.Y.2009-10 and addition of Rs.4,84,35,702/- was made on account of excess of collection over expenses. It was deleted by CIT(A). We do not find any error in the order of the ld.CIT(A). Thus, this ground is rejected in both years.
As far estimation of profit at 8% of the WIP in both these years is concerned, we have gone through the record with the assistance of the ld.representatives. In the Asstt.Year 2008-09, WIP of Rs.45,98,27,752/- was noticed by the AO. He estimated 8% profit on such WIP and made addition of Rs.3,67,86,220/-. On similarly analogy, he noticed WIP of Rs.54,36,30,173/- in the Asstt.Year 2009-10 and estimated profit at Rs.4.34 crores. These additions have been deleted by the ld.CIT(A). Similar addition was made in the case of the assessment in the Asstt.Year 1997-98 which was deleted by the ld.CIT(A). Dispute travelled upo the Tribunal vide ITA No.1114/Ahd/2005 and the Tribunal has upheld the deletion. Copy of the Tribunal’s order has been placed on record. 11. On due consideration of all the materials, we are of the view that the assessee was working as a developer. It was not owner of work-in- progress. Moreover, on completion of project, it used to offer receipt received in the shape of development fees and such receipts have been recognized on completion of project. Consistently, this has been shown by the assessee. The AO has made an addition on hypothetical basis by treating the WIP belonged to the assessee. It has been contended
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 13 before us that the AO has invoked Accounting Standard-7 which otherwise applicable on contractor. The assessee is a developer, and AS-7 is not applicable. After going through the finding of the ld.CIT(A) and relying upon the order of the ITAT in the assessee’s own case for the Asstt.Year 1997-98, we are of the view that 8% profit on alleged WIP cannot be estimated in the case of the assessee. Hence, the ld.CIT(A) has rightly deleted this addition in both the years. No other ground has been agitated by the Revenue in the Asstt.Year 2008-09. Hence, its appeal is rejected.”
There is no disparity of facts in other years also where additions have been deleted by the Tribunal. Therefore, respectfully following the order of the ITAT in the Asstt.Year 1997-98, coupled with the findings of the CIT(A) extracted (supra), we do not find any merit in this ground of appeal, it is rejected.
Ground Nos.3 and 4: In these grounds of appeal, grievance of the Revenue is that the ld.CIT(A) has erred in deleting addition of Rs.28,50,000/- which was added by the AO with the aid of section 68 of the Income Tax Act, 1961 on account of unexplained cash credit appeared in the books of the assessee.
Brief facts of the case are that on scrutiny of the accounts, it revealed to the AO that the assessee has shown credit of Rs.28,50,000/- against names of four persons viz. Deepak S. Soni, HUF; Indira S. Vaidya, Rajidas & Sons and Shirishbhai Vaidya of Rs.25,00,000/-, Rs.1,00,000/-, Rs.1,50,000/- and Rs.1,00,000/- respectively. The AO observed that the assessee failed to fulfill ingredients of section 68, hence he made addition.
On appeal, the ld.CIT(A) has deleted the addition by observing that the assessee has filed confirmation from all the creditors; their PAN numbers; the amounts were withdrawn through cheque; details of bank etc. were produced.
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 14 The ld.CIT(A) thereafter recorded a specific finding that these documents were not investigated by the AO, hence, he deleted the addition.
With the assistance of ld.representatives, we have gone through the record carefully. Section 68 of the Income Tax Act contemplates that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof, or the explanation offered by the assessee is not, in the opinion of the AO satisfactory, then the sum so credited in the accounts may be treated as income of the assessee of that previous year. It is pertinent to note that in order to discharge onus put upon the assessee by virtue of this section, it has submitted confirmation, PAN numbers of creditors and bank details. Now primary onus has been discharged by the assessee. Thereafter, it was for the AO to carry out investigation and demonstrate that these evidences are not sufficient for ascertaining the nature of transaction, identity of creditors and their credit-worthiness. But as per the finding of the ld.CIT(A) no such exercise was done by the AO. Therefore, we do not find any reasons to interfere in the finding of the ld.CIT(A) on this issue. It is rejected.
Ground No.5 & 6: In these grounds of the appeal, grievance of the Revenue is that the ld.CIT(A) has erred in deleting addition of Rs.4,96,00,000/- which was made by the AO on account of unexplained investment in material.
Brief facts of the case are that the ld.AO has made reference to pages no.175 to 196 of the annexure A/9 seized from the office premises of the assessee on 10.5.2006. According to the AO, these pages are the balance sheet, profit and loss account and related schedules of Sujan Infrastructure P.Ltd. for the period of 31.3.2006. He observed that the first set of profit & loss account and balance sheet was prepared on 28.3.2006; second set on
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 15 30.4.2006 and third on 10.5.2006. But on 10.5.2006 search was carried out, therefore, the accounts could not be prepared on that date. He further observed that on perusal of these sets reveal that there existed many discrepancies and variations in the cost of material, expenses and advances. The ld.AO thereafter made reference to pages, 177, 180, 186 and 196 for demonstrating various defects. He made reference to the statement of Shri Pranav D. Shah recorded on 4.7.2006 and observed that in response to question no.25, Shri Pranav D. Shah explained that material of Rs.4.96 crores shown as purchase in the books of accounts of Sujan Infrastructure P.Ltd. from Kalhar Societies. But the delivery of this material could not be materialized, and therefore, after making this entry in the books of accounts, the same was reversed subsequently. The ld.AO after making narrations of various pages harboured a belief that the assessee must have arranged material having value of Rs.4.96 cores for Sujan Infrastructure or excess material was available at the site of Kalhar Societies. Therefore, he made addition of Rs.4.96 crores on account of unexplained investment in material. On appeal, the ld.CIT(A) has deleted this addition by recording following finding:
“26. I have considered the submissions made by the counsel of the appellant and order framed by the assessing-officer and on careful consideration of the submissions-and the facts. I am inclined to accept contention of the appellant. It is clear that Kalhar Societies have made purchases of various materials and since Sujan was in requirement of the material with a view to completing certain extension, materials aggregating to Rs.4,96 crores were agreed to be purchased by Sujan from Kalhar Societies. Necessary entries were made in the books of Kalhar Societies and M/s Sujan. Documents which were seized i.e. page No. 185-187 are reflecting the entry. On the basis of details provided, it is evident that Kalhar Societies has made purchases of materials aggregating to Rs.26,63,37,190/- and Rs. 26,84,01,322/- respectively upto 31st March, 2006 and 11th May, 2006 which have been duly accounted in the books of account of the societies. Societies
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 16 were therefore in possession of the materials having aggregate value of Rs. 4.96 crores and therefore, the question of any unexplained investment does not arise. It is also clear that appellant was not involved in the transaction and it was never the case of transfer of materials belonging to the appellant. No supporting document or evidence has been brought on the record by the assessing, officer who would establish ownership of the materials of the appellant and involvement of the appellant in transfer of the materials to Sujan. The addition of Rs.4,96,00,000/- is deleted.” 22. Before us, the ld.DR relied upon order of the AO, whereas, the ld.counsel for the assessee relied on order of the ld.CIT(A) and also written submissions filed by the assessee which has been reproduced by the ld.CIT(A) in para-15 of the impugned order.
On due consideration of the above facts, we are of the view that the ld.AO failed to bring any evidence showing unexplained investment in purchase of the material at the end of the assessee. He just made reference to certain purchases found during the course of search and without establishing the chain amongst them showing the unexplained investment in purchase of material at the end of the assessee, inferred certain allegations. There is no coherence between the prima facie opinion formed by the AO vis- à-vis material discussed by him. The assessee has pointed out that so far as the balance sheet, profit & loss account as alleged to have been prepared on 10.5.2006 is concerned, that was the date on which the meeting of the Board of Directors of Sujan Infrastructure was scheduled. These accounts could be presented before the meeting, and only then they could be finalized. Thus, they were not complete set of accounts. Similarly, at one point of time, it was decided that certain material be shifted from Kalhar Societies to Sujan Infrastructure and entry was made to that effect. But thereafter it was realized that transportation charges and other logistical issues made it unviable and entry was reversed. The AO has simply made reference to certain entries on
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 17 11.5.2006 which has no relevancy for harbouring a belief that the assessee has made unexplained investment in the purchase of the material. It is also pertinent to observe that if anything is available in accounts, then that was related to Kalahar and Sujan Infrastructure Projects. How all of a sudden a role of the assessee can be assumed. Therefore, taking into consideration the submissions of the assessee before the ld.CIT(A) and finding thereof by the ld.CIT(A) we are of the view that no interference is called for. Accordingly, this ground of appeal is rejected.
Ground No.7 and 8: In these grounds of appeal, the grievance of the Revenue is that the ld.CIT(A) has erred in deleing the addition of Rs.4.48 crores.
Brief facts of the case are that the ld.AO has discussed this issue on page no.69 of the assessment order. He made reference to the pages 148 to 167 of Annexure A/12. According to the AO, during the course of search proceedings various discrepancies in the figures of balance sheet were found and noticed. Show cause notice was issued to the assessee under section 142(1) whereby it was required to explain various figures in the balance sheet with respect to current liabilities, provisions, sundry creditors etc. In response to this query, it was contended by the assessee that these discrepancies were on account of re-grouping or re-arranging of certain current liabilities. However, the ld.AO was not satisfied with the explanation of the assessee. He observed that in the current liability a provision on page no.151 was shown at Rs.16.63 cores, but the same figure has been shown at Rs.12.15 cores. This figure of Rs.4.48 crores has been treated as unexplained liability and added. The discussion made by the AO on this issue reads as under:
“During the .course of post search statement Mr. Pranav D. Shah had failed to explain these discrepancies. In its reply dated 19/11/2008, the assessee has submitted that the reason for variation in different figures
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 18 was because of the fact that there are various changes in grouping and creditors for goods reflected in provisional account were transferred into project account. Further, it had been claimed in the course of search proceedings that because of confusion regarding purchase of material by Sujan Infrastructure Pvt. Ltd. from Kalhar Societies of Rs.4.96 crores, the same confusion was in case of Navratna Organisers & Developers Pvt. Ltd. also, therefore, the entries of liabilities were changed accordingly. However, this explanation doesn't seem to be correct prima facie. Because, if this would have been the reason, same difference of this amount of Rs.4.96 Crores should have been reflected, in both the cases No further proof regarding the genuineness and correctness of the claim made has been submitted by the assessee. In view of the above, the discrepancies remained unexplained. The difference in the figure of current liability and provisions, which on page 151 is shown as Rs.16.63 crores, but the same figure has been shown at Rs.12.15 crores amounts to Rs.4.48 crores. This discrepancy covers the quantum of difference in other balance sheet figure also.
Therefore, the difference of Rs,4.48 crores is disallowed and treated as unexplained liability. Penalty u/s.271(1)(c) is also initiated for furnishing inaccurate particulars of income.”
Discussion made by the ld.CIT(A) in para-30 of the impugned order reads as under:
“30. I have carefully considered, submissions made by the appellant, the evidences-produced by the appellant, the details of grouping, the copies of the ledger accounts of various parties, contents of the report submitted by the assessing officer vide letter dated 20th September, 2010 and the submissions made by the appellant vide letter dated 9th October, 2010. On careful perusal of the grouping, the copies of the ledger account of various parties for the assessment year under consideration and also in respect of preceding assessment years and subsequent assessment years, it is found that there was merely change in the groupings of balances of various parties and closing balances of each- party has been carried forward to the subsequent year and accounts have been settled as per the law. Closing balances and the ledger accounts are consisting of several transactions namely transactions in respect of purchases made by the appellant and the transactions in respect of payments made by the appellant and each and every transaction has been accepted by the assessing officer as
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 19 genuine and duly supported by the evidence acceptable in the eyes of law. The addition has been made by the assessing officer merely on account of change in grouping. The addition cannot be sustained because merely on account of change in groupings, the question of generation of any income does not arise. The addition of Rs. 448 lacs, which has been made by the assessing officer merely on account of regrouping cannot be sustained in the eyes of law particularly when each and every entry in accounts of the said parties have been accepted as genuine and no material has been brought on record on which any adverse view can be taken. The ground of appeal is accordingly allowed and addition of Rs.448 lacs is deleted.”
With the assistance of the ld.representatives, we have gone through the record carefully. The case of the AO is that there are discrepancies in the balance sheet prepared by the assessee wherein the amounts of current liability and provisions have been shown differently. He observed that at page no.155, the current liabilities were shown at Rs.16.63 crores, however on page no.167 it was shown at Rs.12.15 crores. Similarly, on page no.148 sundry creditors have been shown at Rs.3.90 crores, however on page no.164, these were shown at Rs.24.09 lakhs. The difference in the current liability noticed by the AO has been added. On the other hand, the case of the assessee is that there is no variation in the figure. The AO did not want to go through the details submitted by the assessee, wherein it has reconciled these figures on the ground that these amounts have been regrouped and shown under different heads. When this aspect was brought to the notice of the ld.CIT(A) in the written submissions along with schedules, then the ld.CIT(A) was satisfied and observed that the AO and did not try to reconcile the figures and details submitted by the assessee. He simply noticed the difference and then proceeded to make addition. Before us, the ld.DR failed to point out as to how the finding of the ld.CIT(A) is factually incorrect. Neither along with appeal any submissions has been made by the Revenue demonstrating the explanation of any current liability which has not been shown, correctly by
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 20 the assessee, nor at the time of hearing it was brought to our notice. Thus, after taking into consideration the finding of the ld.CIT(A), we do not find any reasons to interfere his order on this issue. This ground of appeal of the Revenue is rejected.
In the result, the appeal of the Revenue is dismissed.
Now we take the appeal of the assessee i.e. IT(SS)A.No.99/Ahd/2011. 30. The assessee has taken nine grounds of appeal including sub-grounds, which are not in consonance with Rule 8 of the Income Tax (Appellate Tribunal) Rules, 1963. They are descriptive and argumentative in nature.
In ground no.1 and 1.1 the assessee has pleaded that the ld.CIT(A) has erred in not quashing the assessment order. At the time of hearing, no arguments were raised on this issue. The assessee failed to point out as to how the assessment deserves to be quashed. Therefore, we do not find any merit in these grounds. They are rejected.
Ground nos.2, 3, 3.1 and 3.2: In these grounds, again the assessee has taken peripheral arguments pleading therein that the ld.CIT(A) has erred in upholding the validity of the notice issued by the AO. No arguments were advanced by the ld.counsel for the assessee at the time of hearing. Nothing has been brought to our notice showing any irregularity committed by the AO while passing the assessment order. Therefore, these grounds are rejected.
Ground No.5, 5.1 and 5.2: In these grounds of appeal, grievance of the assessee is that the ld.CIT(A) has erred in confirming the addition of Rs.22 lakhs, which was added by the AO that interest income on the advance given by the assessee as accrued, which has not been shown by the assessee.
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 21 33. Brief facts of the case are that the assessee had given an advance of Rs.2.00 crores to Agarwal Estate Developers in May 2005. It was entitled to interest at the rate of 12% per annum. However, the assessee did not recognize the interest income from 11-5-2005 to 31-3-2006. The assessee has pleaded that interest was received in subsequent year, and therefore, it was shown in the next year. The assessee also pleaded that since year has not completed upto 31.3.2006, therefore, it has not recognized the interest income. The AO was of the opinion that for the period of ten-and-half months, it should have shown interest income. The ld.AO has included the interest income at Rs.22.00 lakhs and made addition. Appeal to the ld.CIT(A) did not bring any relief to the assessee. The ld.CIT(A) has confirmed the addition by observing as under: “20. I have carefully considered the submissions made by the counsel of the appellant and the observations made by the assessing officer. It is not disputed that NODL had given advance of Rs. 2 crores to Agrawal Estate Developers Pvt. Ltd in the month of May, 2005 on which the appellant is entitled to interest at 12% per annum. However, admittedly no interest for the period from 11th May, 2005 to 31st March, 2006 has been considered by the appellant. The interest income is required to be considered on accrual basis. After considering the facts and submissions, addition of Rs.22 lacs made by the assessing officer as accrued interest is confirmed. The assessing officer is however, advised to delete addition of Rs. 22 lacs made in the subsequent previous year after due verification. The assessing officer is also directed to allow credit proportionately in respect of tax deducted at source with reference to accrued interest of Rs. 22 lacs. The ground of appeal is accordingly disposed off.
With the assistance of the ld.representatives, we have gone through the record carefully. The assessee is following mercantile system of accountancy. Therefore, it has to recognize the interest income on accrual basis and not on receipt basis. As on 31.3.2006 it should have recognized the interest income
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 22 for the period 11.5.2005 to 31.5.2006. The ld.CIT(A) has rightly confirmed the addition.
So far as recognization of interest income in subsequent period is concerned, the ld.CIT(A) has taken cognizance of this fact and also issued directions to the AO for allowing the credit proportionately in respect of tax deducted at source as well as interest income, if any, shown in the subsequent year. In other words, there should not be any double taxation, and credit of TDS ought to be granted in this very year. After taking into consideration well reasoned finding of the ld.CIT(A), we do not find any force in this grounds of appeal. It is rejected.
Ground no.6: In this ground of appeal, grievance of the assessee is that the ld.CIT(A) has erred in confirming the addition of Rs.95,00,254/-.
Brief facts of the case are that during the course of search, it revealed to the search party that the assessee has raised bills for development fees on 31.3.2006. However, it has not recognized the income involved in these bills. It has shown development fees of Rs.13,95,461/- whereas according to the AO, it should have shown the income at Rs.1,08,95,715/-. When the assessee was confronted with this evidence, then it was contended by the assessee that it used to receive development fees on fixed basis. It has recognized the development fees of this project and offered for taxation in the subsequent assessment years. The recognisation of recovery of development fees is subject to certain conditions, and it does not entitle to receive only on the basis of bills available in the computer. The ld.AO was not satisfied with this explanation. He made addition of differential amount i.e. Rs.1,08,95,715/- minus Rs.13,95,461/-. On appeal, the ld.CIT(A) concurred with the AO and confirmed the addition by observing as under:
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 23
“23. I have carefully considered the facts, records and the order framed by the assessing officer. The development fees have accrued in favour of the appellant in pursuance of agreement between the appellant and (1) Ashwamegh Co-operative Housing Society Ltd., Vibhag-1, (2) Ashwamegh Co-operative Housing Society Ltd., Vibhag- 2, (3) (A) Smt. Satyavatiben Jaigopal, (B) Shri Chimanlal Jaigopa!, (C) Shri Nandlal Jaigopal, & (D) Shri Sanjaybhai Chimanlal in respect of Kalhaar Exotica Project. Admittedly, the bills in question were raised by the appellant and these are dated 31.03.2006.. These bills have ' been discovered by the department in the 'computer hard disc seized from the business premises of the appellant. These facts have not been controverted by the appellant either in assessment proceedings or in appeal proceedings. Hence, addition of the balance amount of Rs.95,00,254/- is considered justified and same is confirmed. However, the consequential effect, in any, should be allowed in subsequent years.
As observed earlier, the assessee has been following mercantile system of accountancy. If it has raised bills, and copies of these bills were recovered during the course of search, then it would demonstrate that right to receive development fee has accrued to the assessee. It should have recognized the income on the basis of accrual system of accountancy. As far as declaration of that income in the subsequent year is concerned, the ld.CIT(A) has already given directions to the AO for granting consequential effect in subsequent year. In other words, assessment of Rs.95,00,254/- in this year be excluded from the subsequent year if offered for taxation, and credit be given in this very year. After going through the finding of the ld.CIT(A), we do not find any merit in this appeal of the assessee. It is rejected.
Ground nos.7, 7.1, 7.2, 7.3, 8 and 9: In these grounds of appeal, the assessee has not pleaded any specific grievance, rather raised peripheral arguments in support of the main issue viz. it sought to plead that the ld.CIT(A) ought to have expunged or quashed certain observation of the AO recording quantification of the amount of development and construction fees
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 24 etc. Specific arguments were not advanced before us, and therefore, we do not find any necessity to record any finding on this aspect. These grounds are rejected.
Ground no.4, 4.1 and 4.2. : These are substantial grounds of appeal raised by the assessee. It has pleaded that the ld.CIT(A) has erred in confirming the addition of Rs.5,54,45,000/- which was added by the AO with the aid of section 69C on account of unexplained expenditure incurred by the assessee.
Brief facts of the case are that the assessee, viz. Navratna Organisers P.Ld. (“NOPL”) is the flagship of the group which is engaged in the business of construction and development. A search under section 132 of the Act was carried out at Navratna Group on 10.5.2006. During the course of search various loose papers were found and seized. It revealed to the Department that commercial projects viz. Kshitij project near Fun Republic, Sarkhej- Gandhinagar Highway, Ahmedabad was taken for development. According to the AO, this project belongs to a company viz. Navratna S.G. Highway Properties Ltd. This company was floated as a special purpose vehicle for the construction and development of this commercial project. The equity capital of Navratna S.G. Highway Properties Ltd., is held by the assessee (NOPL) and Kshitij Venture Capital Fund in the ratio of 10% and 90% respectively. In other words, the NODL has 10% share, whereas Kshitij Venture Capital has 90% shares. This concern was managed and controlled by Pantaloon Retail India Ltd. of Pantaloon Group. This land was purchased in F.Y.2005- 06 from Gulmohar Society, a residential society. According to the AO, during the course of search, loose papers inventorised as pages 93 and 94 of Annexure 10 were found form the office of NOPL. The ld.AO has reproduced the details of page no.93 and thereafter formed an opinion that a
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 25 sum of Rs.5.54 crores was borne by the assessee towards payment as on- money in cash for the land. Hence, this amount has to be assessed as unexplained income of the assessee. The ld.AO for this purpose made a detailed analysis of the seized material as well as statement of Shri Pranav D. Shah recorded at the time of search. He has reproduced explanation of the assessee; replies of Shri Pranav D. Shah qua question nos.27 and 28. Thereafter, he summarized the reasons for arriving at this conclusion. The reasons summarized by the AO read as under:
“It is a matter of fact and prevailing practice in the real estate business that the land transactions are not completed without of payment of "On money". These findings are supported by following conclusive facts and legal positions:-
(1) The documents seized are meticulously written giving full details of areas, per square metre rate and total cost.
(2) Amount of land cost paid by cheque at Rs. 18.25 crores exactly matches with land cost recorded in the books of a/c.
(3) "Land cost others" at Rs.554.96 lakhs to be taken care by Shri Pranav D. Shah (PS) and Management Consultancy (MC) at Rs.69.11 lakhs & Rs.285.34 lacs respectively also corroborates with the entries recorded in books of a/c. subsequently for consultancy fees received for reimbursement of expenses and-discount in equity..
(4) The assessee has only tried, to avoid the explanation on the entries recorded on seized papers. It has not discharged its onus as required u/s.292CoftheAct.
(5) Statement of Shri Pranav D, Shah & reply filed during the course of assessment proceedings prove beyond doubt that the expenditure of Rs.5,54,45,500/- was actually" incurred by the assessee company in respect of Kshitij Project under the head "Land cost Others" which may include legal charges, plan passing, "on money11 payment to the owners of land and any other such expenses of unaccounted nature.
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 26 (6) Since the expenditure of Rs.5,54,45,500/- has actually been incurred by the assessee first and then compensation is paid, it is out of undisclosed sources as the same is not recorded in the books of account at the time of incurring such expenses. (7) It is an established law that when entries meticulously recorded on the seized document corroborate with entries recorded in the books of account, then such document is a conclusive evidence and has to be relied upon for making the additions. Reliance in this regard is placed on the ratio laid down by Hon'ble Guiarat High Court in the case of Ramilaben Ratilal Shah Vs. CIT 282 ITR 176 (Gui.) and Hon'ble Pune Tribunal in the case of Dhanvarsha Builders & Developers Pvt. Ltd. vs. DCIT, 102 ITD 375 (Pune), wherein it has been held that when entries such as area, name of property, cheque amount etc. are written besides other entries and such specific entries corroborate with the actual transactions recorded in the books of account, then the entire document has to be read as a whole and the addition on the basis of such documents is wholly justified.
In view of the above facts, circumstances and corroborative evidences and legal position, it is held that the expenditure of Rs.5,54,45,500/- as "land cost others" has actually been incurred by the assessee out of its undisclosed sources and hence the same is required to be added u/s.69C of the Act and in view of the proviso to this section, no deduction for this expenditure will be allowed in any of the years.
(Addition - Rs.5,54,45,500/-)” 40. The ld.CIT(A) has concurred with the AO and brief finding recorded by the ld.CIT(A) reads as under:
“13. I have considered the submissions of the appellant and also observations made by the assessing officer in the body of the assessment. The photocopies of the various documents which were found during the proceedings under section 132 and which have been placed on the paper book at page No. 290-301 have also been very carefully considered. It is an admitted fact that the document seized categorically states that the amount of Rs. 5,54,45,500/- was computed as land compensation (land cost others), land cost at Rs. 5500/- per sq.yds and the figure has been worked out on page No, 93 of the seized material. On perusal of the documents the order of the assessment, it is clear that Rs. 5,54,45,500/- was land compensation (land cost others)
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 27 which had been spent and which was partly set off by offering management consultancy to the extent of Rs: 285.34 lacs and balance on discount in equity shares of Navratna S.G.Highway Properties Ltd. The said amount was paid to the appellant and therefore backward computation was made by Shri Bipin Panchal, Manager accounts and Jayesh Soneji as is evident on page No. 101 of Annexure 10. The expenditure under the head of the land cost others amounting to Rs.5,54,45,500/- was also incurred by the appellant and the appellant was reimbursed to the extent of Rs.242.20 lacs by offering discount in equity shares in Navratna S.G. Highway Properties Pvt. Ltd. In view of the facts and circumstances and collaborative evidences and the legal position. It is held that expenditure of Rs.5,54,45,500/- as land cost others was actually incurred by the appellant out of undisclosed income. The additions therefore made by the assessing officer of Rs.5,54,45,560/- is confirmed. Ground No. 4 is accordingly dismissed.”
While impugning the order of the Revenue authorities, the ld.counsel for the assessee contended that the ld.AO failed to appreciate that pages no.93 and 94 of annexure-10 merely contained some rough calculations as to “Revised cost of Land” and “Means of Finance”. It may be appreciated that the assessee being a developer, it has to work out different calculations from time to time for estimating total project cost upto the project completion, and for that mode of raising funds. Therefore, whatever rough calculations contained in the pages cannot be interpreted to be the actual expenditure incurred by the assessee. There is no evidence with the AO to doubt the alleged incurrence of the expenditure as to how and when such expenses have been incurred, segregation and/or linking of so-called expenses to any particular project, details of payees, whether payment has been paid or not, and nature of work that might be carried out by the assessee. Ld.counsel for the assessee contended that figures mentioned in the sheet, could not be tallied with books of accounts of the assessee. Not a single proof to support the allegation made by the department to substantiate the alleged expenses incurred by the assessee. When the Department is making allegation of expenses incurred by the assessee, it is for the Department to substantiate its
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 28 claim. Having failed to do so, the Department has no case against the assessee. The impugned addition under section 69C was merely on the basis of presumption and surmises. It is further pointed out that share capital shown to have been issued at a discount of Rs.242.20 lakhs in the seized paper was not issued on 31.3.2006. The fact of the matter is that the assessee- company was holding only 1000 shares for which payment of Rs.10,000/- was made. It is further contended that Shri P.D.Shah, director of the assessee- company in his reply to question 27 categorically stated that a sum of Rs.5.54 core has not been given in cash, and that he has not confirmed the figures shown in the sheet, rather in a question no.28, he stated that figures contained in the paper were projected/estimated. Accordingly, the ld.counsel submitted that addition based on some dumb documents containing some rough calculations cannot be made basis for the addition without corroborative evidence. For buttressing his contentions, the ld.counsel for the assessee relied on the decision of Hon’ble Gujarat High Court in the case of ACIT Vs. Dharmendrasinh R. Waghela, Tax Appeal No.1539 of 2011 (Guj) and also ACIT Vs. Manav Infrastructure P.Ltd., IT(SS)A.No.572/Ahd/2011.
In alternative contentions, the ld.counsel for the assessee submitted that assuming the payment of Rs.554.46 lakhs alleged to have been paid towards the land cost to be true, then reimbursement of a sum of Rs.473.99 towards management constancy fee cannot be taxed again and the same has to be excluded from the income offered by the assessee.
On the other hand, the ld.CIT-DR took us through the seized material available at page no.293 of the paper book. He contended that on perusal of this pages would indicate that some of the entries available on this page duly tallied with books of the assessee viz. the assessee has made payment through account payee amounting to Rs.1,82,569,111/-. This figure duly tallied in the
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 29
accounts of the assessee. Similarly, consultancy charges are concerned, it also reflected in the accounts of the assessee. Therefore, it is to be construed that this page has been prepared after taking into consideration all the relevant facts and the figures which are not available in the accounts, but showing incurrence of expenditure in cash, ought to be treated as true and admissible against the assessee. The ld.AO has rightly drawn inference that the assessee has incurred expenditure of Rs.5.54 crores out of the books, which deserves to be added in the hands of the assessee.
We have duly considered rival contentions and gone through the record carefully. The document which has been relied upon by the ld. AO for harbouring a belief that the assessee has incurred expenditure of Rs.5,54,45,500/- is available at page no.293 of the paper book. It is the page 93 of annexure A/10. We deem it pertinent to take note of this document which reads as under: “LAND COST REVISED AREA SQ. YARDS 10,061 LAND COMPENSATION LAND COST CHEQUE RS 16,110 182,569,111 LAND COST OTHERS RS. 5,500 55,445,500 LAND COST TOTAL RS 23,610 238,014,611 STAMP DUTY CHEQUE RS. 1,811 18,256,911 TOTAL COST CHEQUE RS. 200,826,022 OTHERS RS. 55,445,500 TOTAL RS 256,271,522
CONSTRUCTION COST REVISED
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 30
AREA BU SQ.FTS 219,226 BEFORE 442,202,615 MU INCLUDED P.SQ.FTS 300 65,767,800 MU TO BE INCLUDED P.SQ.FTS 600 131,535,600 NOW REVISED CONSTRUCTION 507,970,415 COST REVISED PRE OEPRATIVE 50,797,042 EXPENSES REVISED INTEREST 61,293,888 MANAGEMNT CONSULANCY PROPOSED LAND COST OTHERS RS. LACS 554.46 TO BE TAKE CARE OF BY RS. LACS 285.34 MC
BALANCE TAKEN CARE RS. LACS 269.11 OF BY PS DISCOUNT TO BE RS. LACS 269.11 OFFERED IN EQUITY MANAGEMENT RS. LACS 285.34 CONSULTANCY PROPOSED MANAGENT NET OF 47,396,957 TAXES TAX COMPONENT RS. LACS 188.64 COVERED IN ABOVE TOTAL PROJECT COST 865,286,323 REVISED Adjustment in Pricing of 34,000,000 Share Issue 13,396,957 Taken care by Navratna 269.11 Less: Share of Navratna 26.91 (10%) Discount to be offered to 242.20
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 31 Navratna Premium to KVC 242.20
Equity Contribution Schedule NAVRATNA 10% As above 289.41 Less: Discount on Issue of 242.20 Equity Balance to be Contributed 47.21
KVC 90% Resultant as above 2,604.69 Share Premium 242.20 Total 2,846.88 Total Equity Now 2,894.09 DISCOUNT 242.20
According to the AO, if various narrations of this page are construed, then they goad the adjudicating authority on the conclusion that a sum of Rs.5.54 crores was incurred in cash for purchase of land, and this expenditure was incurred by the assessee, therefore, addition of the amount is to be made in the hands of the assessee under section 69C on account of unexplained expenditure. On the other hand, the stand of the assessee is that its Director, Shri Pranav D. Shah was confronted with this page while recording his statement under section 131(1A) on 4.7.2006. The question nos.27 and 28 has been referred by the AO and noticed on page no.43 and 44 of the assessment order. The ld.counsel for the assessee submitted that the director has explained this working as projected as well as estimated. He did not confirm that “MC” mean management consultancy or “PS” means project and
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 32 strength. Accoridng to him, PS can be elongated as Pranav Shah as well as Permission and Stamp Charges. Thus, emphasis of the ld.counsel for the assessee is that the Revenue failed to bring any evidence on record to show nexus between this pages vis-à-vis incurrence of any expenditure in cash.
Let us analyse the evidence and inference drawn by both the sides. The assessee has 10% shareholding in the joint venture, and the rest 90% was held by Kshitij Venture Capital. The land was owned by Gulmohar Society for a flat scheme. First question is, if payment in cash for purchase of the land as alleged by the AO was made, then how the vendors recognized it. It is to be appreciated that if the vendor was an individual or family, then it could be little difficult to verify from them because they cannot admit receipt of on- money, but here vendor was a society. Either the amount would be credited in the accounts of the society or given to each member in proportion. It is pertinent to mention that when it is difficult to arrive at a conclusion by deductive reasons, then inductive method ought to be adopted. In other words, when the dispute arise about construction of a document, and it was not possible to draw conclusion or form an inference from reading only, then the efforts should be made to corroborate the documents from outside material, and in that direction in the present case, confirmation on verification from members of the society as a vendor should be of some help. The ld.AO did not try to get verification from the vendor. As observed earlier, the assessee is having only 10% holding in the JV. Then question will arise, why it would incur an expenditure of Rs.5.54 crores as unexplained, unless it get back the same in some form. The ld.AO has observed that it would be compensated in two ways; viz. (a) by offering the shares of JV at a discounted rate. In this regard he made reference of a figure of Rs.242.20 lakhs mentioned in the seized paper. The AO for that purpose has made a working on page no.40 and observed that shares of JV i.e. Navratna Sarkhej-
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 33 Gandhinagar Highway Project Ltd. would be offered at a discount of Rs.242.20 lakhs. This inference of the AO is without any substance because the assessee has demonstrated that shares held by the assessee were only 1000 for which payment of Rs.10,000/- was made. There were no shares issued to the assessee as on 31.3.2006. The other reason assigned by the AO is that the balance will be taken care of by the management consultancy. Let us evaluate this reason also. The receipt of management consultancy fees is a taxable amount in the hands of consultant, whereas the expenditure towards projects of land, if shown in the books is an allowable expenditure, as incurred for the purpose of business. If an assessee has to offer tax on a receipt, then why he would incur expenditure out of unexplained sources and compensate himself to that expenditure from a taxable receipts. In other words, if an expenditure incurred and accounted in the books, it will be allowed to the assessee. In other words, why a receipt after payment of tax be used as a compensation for the expenditure which were not booked in the accounts ? We could appreciate the stand of the AO if some unaccounted receipts were given to the assessee, then he could set off against the unaccounted expenditure. No businessmen would like to compensate himself for an unaccounted expenditure by way of accounted income, because the very idea of treating the expenditure out of unexplained sources would be frustrated. Efforts at the end of the assessee will always to avoid payment of tax. Here the ld.AO is giving a suggestion that unexplained expenditure incurred by the assessee would be compensated from a taxable income, which goes against the very probability of avoiding payment of taxes.
We have reproduced reasons summarized by the AO and also finding recorded by the ld.CIT(A). As far as order of the ld.CIT(A) is concerned, it does not deal with specific arguments raised by the assessee in the finding extracted (supra). The ld.AO has made an analysis of the evidence, and
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 34 thereafter assigned reasons. We have taken note of these reasons in the foregoing paragraphs of this order. Let us deal with these reasons one by one. First summarized reason is that documents seized are meticulously written giving full details of area per sq.meter, rate and total cost. This reason makes a reference to the first part of the documents. Yes, whosoever has written this document, he has made a mention of the area and the payment made through account payee cheque. The assessee has also not disputed this figure. In the second reasons, the ld.AO has observed that the land cost paid by cheque has been worked out at Rs.18.24 crores which exactly matches with the land cost mentioned in the books, which again not disputed by the assessee. Dispute relates to reasons no.3 to 6 assigned by the AO at the cost of repetition, let us take note of reasons nos.3 to 6 as under:
(1) The documents seized are meticulously written giving full details of areas, per square metre rate and total cost.
(2) Amount of land cost paid by cheque at Rs. 18.25 crores exactly matches with land cost recorded in the books of a/c.
(3) "Land cost others" at Rs.554.96 lakhs to be taken care by Shri Pranav D. Shah (PS) and Management Consultancy (MC) at Rs.69.11 lakhs & Rs.285.34 lacs respectively also corroborates with the entries recorded in books of a/c. subsequently for consultancy fees received for reimbursement of expenses and-discount in equity..
(4) The assessee has only tried, to avoid the explanation on the entries recorded on seized papers. It has not discharged its onus as required u/s.292CoftheAct.
(5) Statement of Shri Pranav D, Shah & reply filed during the course of assessment proceedings prove beyond doubt that the expenditure of Rs.5,54,45,500/- was actually" incurred by the assessee company in respect of Kshitij Project under the head "Land cost Others" which may include legal charges, plan passing, "on money11 payment to the owners of land and any other such expenses of unaccounted nature.
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 35
(6) Since the expenditure of Rs.5,54,45,500/- has actually been incurred by the assessee first and then compensation is paid, it is out of undisclosed sources as the same is not recorded in the books of account at the time of incurring such expenses. 48. At this stage, we would like to make reference to the question nos.27and 28 of the reply given by Shri Pranav D. Shah in his statement recorded by the Dy.Director of Investigation on 4.7.2006. They read as under:
"Q.27 Refer Annexure A/10, Page No.93 & 94. In Page No.93 it has been written by Land Cost Cheque is Rs.18.25 Crore and Land Cost Others is Rs.5.54 Crores. 'Further, in the heading of 'Management Consultancy proposed' Land Cost Others of Rs.5.54 Crore has been bifurcated in'o two parts, one to be taken care of by MC Rs,2.85 Crore and second balance taken care of by PS is Rs.2.69 Crores. This amount of Rs.2.69 Crores further appears in the name of NODL in Page No.94. From this it is clear that Rs.5.54 Crores have been given in cash for land cost and this has been received for management consultancy. Since details of this land are related to Kshitij Venture Capital and area of land 10081 sq.yds. is tnat of Kshitij Project, it is clear that this cash amount relates to NODL / PS / MC and related persons. Explain as to why this should not be considered as undisclosed income of your group concerns.
Ans.27 First of all I would like to deny the charges made in the question that Rs.5.54 Crores have been given in cash for land cost and this has been received for management consultancy. It is written there Rs.5.54 Crores is against 'Land Cost Others' and this 'Others' is being translated into cash amount which is not fact. Land payment made to various land owners comes to approximately Rs.18.25 Crores. All other legal charges, stamp duty, registration charges, plan passes, and alt other clearances related to land could be termed as 'Land Cost Others'.
Q. 28 Can you bring the proofs to verify that this amount of Rs. 5.54 Crores relates to legal charges, registration charges, plan passes, etc. ? And if not, then explain as to why your submission should be
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 36 accepted as correct ? What is the meaning of PS and MC ? Can it not be interpreted as for Pranav Shah and Management Consultancy ? Since PS has been interchangeably used for Navratna and in details of Management Consultancy, figure of Rs.2.85 Crores appears,
Ans. 28 I can produce the details of payment made on account of lecja! charges, stamp duty, registration charge's. Plan passing charges, etc. To tell that this figure will match with Rs.5.54 Crores exactly is difficult at this point of time. The working of figures shown on paper could be projected as well as estimated also and it might not exactly tally with the above figure. I don't know the interpretation of PS and MC, As Management Consultancy is written on paper, it can be termed as MC but I am not confirming that MC written on these papers means Management Consultancy. And it is just a near coincidence that PS also can be elongated as Pranav Shah but that is not the fact It could also be elongated as Permissions and Stamp Charges."
The above explanation by the Director would indicate that reference to land cost others was not made for making payment in cash. He emphasised that being developer, they needed to work out expenses in an estimated manner; project wise and how the finance will be raised. It does not mean that all these figures showed that the assessee has actually incurred expenditure. It appears that in these reasons, the ld.AO has assumed incurrence of expenditure without establishing the direct link or nexus after cross verification of various details. We have highlighted fallacy in his approach while observing that why a businessman would like to compensate himself for source of unexplained expenditure through taxable income. Both these approach are contradictory to each other. The conclusion according to the assessee was on estimated basis. The page does not contain signature of any person. It is not established who has prepared this page; what was purpose of making these narrations. Nothing has been brought on record. Therefore, this page does not logically lead to the conclusion that a sum of Rs.5.54 crore was actually incurred by the assessee, and it was incurred for
IT(SS)A.249/Ahd/2013, ITA No.1731/Ahd/2013 and 3 Others Navratna Organizers & Developers P.Ltd. Vs. ACIT 37 purchase of land. Otherwise also, if it was incurred towards the payment of stamp duty or others, then those could be verified from the stamp duty authority and other sources. Nothing that sort of investigation was being done by the Revenue. Taking into consideration above facts and circumstances, we are of the view that in the absence of corroboration, the conclusions drawn by the AO on reading of these papers are not sustainable. We allow this ground of appeal and delete the addition.
We summarize result of all these appeals as under: i) ITA No.338/Ahd/2017 is partly allowed; ii) ITA No.1731/Ahd/2013 and IT(SS)A.No.249/Ahd/2013 both becomes infructous and for statistical purpose treated as allowed; iii) IT(SS)A.No.94/Ahd/2011 is dismissed; iv) IT(SS)A.No.99/Ahd/2011 is partly allowed. Order pronounced in the Court on 19th March, 2019 at Ahmedabad.
Sd/- Sd/- (AMARJIT SINGH) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 19/03/2019