M/S KALYANI BUILDWELL PRIVATE LTD,AGRA vs. ACIT CIRCLE4(1), AGRA

Per Dr. M. L. MEENA; A.M.:

This appeal by the assessee is directed against the order dated 31/03/2016 of the Commissioner of Income Tax (Appeals-2), Agra, [hereinafter referred to as “the CIT(A)”] for A.Y. 2011-12 on the basis of following grounds of appeal:

2 ITA No. 292/Agra/2016 (ASSESSMENT YEAR: 2011-12) 3. That the authorities below have erred in law and on facts in disallowing the salary paid to staff amounting to Rs 7,49,705/- incurred wholly and exclusively for the purpose of business. 4. That the authorities below have erred in law and on facts in disallowing service tax payable of Rs. 21,86,222/- u/s 43B of the Act.

3 ITA No. 292/Agra/2016 (ASSESSMENT YEAR: 2011-12) the assessing officer. Aggrieved by the order of CIT(A), the appellant has filed this appeal before us.

“I have considered the facts of the case, the written submission as filed by the Ld. AR for the appellant and perused the order of the AO. The AO has made the disallowance on the ground that there was no provision under the Act to write off TDS. The contention of the Ld AR for the appellant before the AO was that it has written off the amount of recoverable TDS shown in earlier years. However, no documentary evidence had been filed before the AO. Before me, the appellant though relied upon various judicial pronouncement but still it has not filed the exact details of the amounts shown in balance sheet as TDS recoverable and how in the year under consideration these became irrecoverable. While failing to provide any details in support of its claim of irrecoverable TDS claims, besides, the appellant is also further not able to prove that in the preceding years, income including the TDS shown as recoverable were part of its income. Therefore, in view of these facts the AO was justified in making this disallowance and accordingly, the same is hereby confirmed. Thus, the grounds as taken by the appellant are dismissed.” 4.1 TheLd. AR reiterated submission furnished before the ld. CIT(A) as under: “TDS recoverable was being shown in the books of the accounts from past many years but however there were no chances of it being recovered as no documentary evidence in form of certificates were there, so the appellant had written off the same in its books of accounts. As digitalization of the records had not taken place in previous years in the company and the hard copies of the TDS certificates also got misplaced so in the absence of documentary evidence management knew that it won’t

4 ITA No. 292/Agra/2016 (ASSESSMENT YEAR: 2011-12) succeed in getting back TDS certificates from various parties. Therefore the management decided to write the liability off. Due to non-availability of TDS Certificates no documentary evidence could be produced before the lower authorities. The said account was appearing in the audited books of accounts from past many years and neither the auditors nor the Ld AO had rejected books of accounts so the accounts needs to be taken at its face value.” 4.2 Per contra, the Ld DR has placed reliance on the impugned order. 4.3 Heard. The material fact as per record is that no documentary evidence had been filed either before the lower authorities or before us. Since, it has not filed the exact details of the amounts shown in balance sheet as TDS recoverable and how these became irrecoverable in the year under consideration. Further, it failed to provide any details in support of its claim of irrecoverable TDS, besides, the being not able to prove that in the preceding years, income including the TDS shown as recoverable were forming part of its income. The Ld AR though relied on various judicial pronouncements but still he was unable to show that in previous year income related to the TDS which is shown as written off was offered to tax. Under the facts and circumstances, the ld. CIT(A) was justified in sustaining this disallowance and accordingly, the ground of appeal is rejected. 5. Apropos Ground No.2 & 3 are related to the disallowances on account of directors’ salary and staff salary of Rs. 12, 48,000/- and Rs. 7,49,705/-respectively.

5.1 while confirming the addition, the ld. CIT(A) observed that no proof of payment of salary has been placed on the record of the AO nor any evidence has been placed before him. He further observed that no justification for the increase in director’s salary has been given and no

5 ITA No. 292/Agra/2016 (ASSESSMENT YEAR: 2011-12) resolution of the board of directors has been placed on record which approved the increase in directors salary. Merely, showing the income by the directors cannot justify the payments and that no payment of salary has been made except passing the book entry which is static, recurring, and regular in nature which does not suggest any extraordinary circumstance of increase in business. Accordingly, he held the increase in salary was not justified.

5.2 The Ld AR for the appellant submitted that the material documentary evidence could not be placed before the lower authorities being misplaced in the course of survey conducted u/s 133A at business premises. It has taken time to clear the haphazard of the survey to reconcile all the documents in the IT returns and salary vouchers of the Directors and the staff in the form of additional evidence (APB, Pg.1-82) which couldn’tbe produced before lower authorities earlier.He prayed that this issue of salary may be restored to the AO to examine afresh in the light of the additional evidence furnished by the assessee in accordance of the principles of natural justice. The ld. DR has no objection on afresh examination of this issue by the AO.

5.3 In the above view and considering the principles of natural justice, we,hold that these two groundsare remitted to the file of the AO, who after taken into consideration the additional documents filed by assessee will pass afresh order in the interest of natural justice after giving due opportunity of being heard to the assessee. No doubt, Assessee shall cooperate in the fresh proceedings before the AO.

6 ITA No. 292/Agra/2016 (ASSESSMENT YEAR: 2011-12) 6. In ground no.4 the appellant has challenged the disallowance made by the AO on account of service tax payable of Rs.21,86,222 u/s 43B of the Act.

6.1 The A.O. has disallowed an amount of Rs.21,86,222/- on account of service tax payable u/s 43B of the I.T. Act.1961 during the course of assessment proceedings asunexplained.

6.2 The ld. CIT(A) while confirming the said disallowance of Rs.21,86,222/- on account of service tax payable u/s 43B of the I.T. Act.1961 held as follows- “I find that since the appellant did not debit the amount to the profit and loss account as an expenditure nor claimed any deduction in respect of the amount and considering that the appellant is following mercantile system of accounting, the question of disallowing the deduction under section 43B not claimed would not arise”.

6.3 The ld.AR submitted that the ld. CIT(A) that initially the applicability of service tax on builders was under dispute and the appellant as a prudence businessman has made the provisions in respect of service tax payable of Rs.21,86,222 u/s 43B of the Act thereof, and subsequently, the issue was settled by way of clarification in law, then the payment was done. Copy of the challans in connection to service tax paid for the year under consideration and succeeding year are being enclosed herewith (APB, Pg. 49-56).

6.3.1 The ld.AR further contended that that disallowance u/s 43B cannot be made on account of service tax payable as it does not from part of the P&L a/c of the appellant. In support, he placed reliance on various judicial pronouncements. The relevant Judgements are listed as follows-

ITA No. 292/Agra/2016 (ASSESSMENT YEAR: 2011-12)

a) Delhi High Court in CIT vs Noble And Hewitt (I) (P) Ltd. [2008] 305 ITR 324 (Delhi)

In our opinion since the assessed did not debit the amount to the Profit & Loss Account as an Expenditure nor did the assessed claim any deduction in respect of the amount and considering that the assesse is following the mercantile system of accounting,the question of disallowing the deduction under section 43B claimed would not arise.

b) Real Image Media Technologies Pvt. Ltd.vs. ACIT(ITAT Chennai)

Facts- Real Image Media Technologies Pvt. Ltd. (the Assessee) .in their books of account, did not route the service tax dues through the profit and loss account. However, the liability towards service tax was reported in the Balance Sheet. During the course of assessment proceedings, the assessing officer (AO) requested the assessee to furnish proof in support of the payment of service tax dues on or before the statutory date for filing the return of income. The Service tax amount which was not paid before the due date for filing the return of income was added to the income of the assessee.

Contentions of Assessee- In term of Service Tax Legislation, the duty of paying the service tax is on the person providing the service. Service tax is required to be paid only on the value of taxable services received in a particular month/quarter and nit on the gross amount charged or invoiced. The assessee company maintains books of accounts on accrual basis. Therefore, the service tax payable account shows the tax payable on the gross amount billed and not the amount payable as per the amount received by the assessee company. The company has paid the service tax on amounts realized no disallowance was warranted.

Held- The rigor of sec.43B may be applicable in the case of Sale-tax or Excise Duty but the same cannot be said to be the position in case of Service tax because of two reasons. Firstly, the Assessee is never allowed

8 ITA No. 292/Agra/2016 (ASSESSMENT YEAR: 2011-12) deduction on account of service tax which is collected on behalf of the Govt. and is not entitled to claim deduction on account of service tax. Hence, on this account alone addition under sec, 43B could not be made and the same has been correctly deleted by the CIT (Appeals). If there is no liability to make the payment from the receiver of services, then it cannot be said that such service tax has become payable in terms of clause (a) of sec, 43(B) because that clause specifically mentions “sum payable by the Assessee Since service tax was not payable by the Assessee, the rigor of sec.43B could not have been applied to the case.

c) Lucknow ITAT in the case of ACIT v/s Shri Ravi Kant Chadda,in I.T.A. No.516/LKw/2011

The similar views were expressed by the Tribunal in case of Nafe Singh Gahlawat v/s.ACIT (supra). SinceThe Tribunal has taken c consistent view that the rigor of the provision of section 43B would be attracted only to a case where an item is allowable as deduction but because of the failureTo make payment, such deduction would not be allowed and the rigor of section 43B might be applicable to the case of service-tax, we find no reason to take a contrary view in this appeal. TheCIT (A) has examined the issue in the light of aforesaid judgments in a proper perspective; therefore, we find no infirmity therein. We accordingly confirm the order of CIT (A).

6.4 On the other hand, the Ld DR has relied on the order of CIT(A) contending that the disallowance made by the CIT(A) is right and should be upheld.

6.5 It is seen that CIT(A) while rejecting the ground of the assessee has not given any adverse finding. However, He has not examined the issue in the light of aforesaid judgments in a proper perspective. We are of the considered opinion that the contention of the Ld AR that the amount of service tax was paid in subsequent year has to be accepted

9 ITA No. 292/Agra/2016 (ASSESSMENT YEAR: 2011-12) in view of the fact that all the challans by which the said service tax was paid are produced before the authorities below and before us as well and as such, there is no loss of revenue to the department Considering the facts of the case in hand and the judicial pronouncements relied upon by the AR, we hold that section 43 B is not applicable in the case of the assessee. The findings of the ld. CIT(A) on the issue of service tax are perverse to that extent and can not be sustained.

6.5.1 In the above view, the grievance of the assessee on the issue of service tax is accepted as genuine and the addition so made of service tax payable of Rs.21,86,222 u/s 43B of the Act and confirm by the CIT(A) is hereby deleted. Accordingly, this ground of appeal is allowed.

7.1 While confirming the said addition of Rs.8,54,470/- on account of disallowance of lease deed written off, the Ld CIT(A) observed as under: “There is no provision in the Act to spread over the expenditure was incurred in financial year 2007-08. The appellant did not choose to claim the expenses in the year of incurrence and instead choose to spread over a period of 5 years. No expenditure has been incurred by the appellant during the year; therefore the question of its allowance does not arise. Therefore, the disallowance made by the AO is found justified and hence sustained. As a result, the grounds as taken by the appellant are dismissed.”

7.2 The Ld AR of the appellant contented that, during the year under consideration, the appellant had entered into a lease agreement with M/s Vishal retail Limited, New Delhi and Rs.85,39,600/- has been paid for stamp duty thereof (APB, Pg. 57-72).This amount of stamp dutyhave

10 ITA No. 292/Agra/2016 (ASSESSMENT YEAR: 2011-12) been share equally by both the parties to agreement and therefore, the share of the appellant comes to Rs.42,69,800/-.Besidesregistration expenses of Rs. 2,550/- incurred for lease deed by the appellant assessee. Thus, the total lease deed expenses omes to Rs.42,72,350/- .The appellant had written off this amount over a period of five years. During the year under consideration the amount of write off comes to Rs.8,54,470/-.The writing off of the stamp papers value and registration expenses of lease deed was done against the business loss and since, the purpose of these expenses are intimately connected to the business of the assessee u/s 28 and hence, the said claim of expenses of lease deed is allowable expenditure u/s 37 of the Act. In support, he placed reliance on the following case laws:-

a) CIT vs. Khaitan Chemical & Fertilizers Ltd.326 ITR 114 b) CIT vs. Mahalakshmi Textile Mills Ltd. 66 ITR 710 (SC) c) CIT vs. Mysore Sugar Co. Ltd. reported in 46 ITR 649 SC) d) CIT vs. Nainital Bank Ltd. reported in 55 ITR 707 (SC) 7.2.1 The Ld AR further contented that, in immediately succeeding Assessment Years i.e. 2012-13 and 2013-14, the claim of lease deed expenses was allowed by the Ld AO for 15 years. So, instead of proportionating it in 15 years it should be proportionated in 5 years. Copy of the assessment order are placed before us.

7.3 Ld DR on the other hand, has placed reliance on impugned orderand contended that claim should not allowed as there is no provision in IT act to spread over the expenditure incurred in a particular year. He also argued that even if it is allowed, it can only be for 15 years not for 5 years. Accordingly, the Ao is directed to apportion the lease expenses into 12 years instead of aproporting it into 15 years.

11 ITA No. 292/Agra/2016 (ASSESSMENT YEAR: 2011-12) 7.4 After having heard both the parties and perusal of the assessment order of subsequent years in assessee’s own case placed before us by Ld AR, it can be seen that the claim of the lease deed expenses was allowed for 15 years. The Ld AR argued that it should be apportioned within 5 years to the year of claim. The material fact as per record is that the lease deed was entered into for 12 years and not for 5 years and therefore, the period of apportioning the lease deed can only be reduced from 15 years to 12 years, not for 5 years.

7.4.1 In view of above, the grievance of the assessee on lease deed is acceptable in the terms indicated as above. Accordingly, this ground is partly allowed.

8.1 During the course of survey proceeding the assessee had surrendered an amount of Rs. 29,63,017 on account of difference between the cash found as per physical inventory prepared and the cash as per books of accounts.

8.2 The Ld CIT(A), while confirming the finding of the AO on the addition on account of difference in cash observed that-

the cash in hand as on 31.03.2011 shown at Rs.48,64,019/- and the cash as per books as on the date of survey as on 15.03.2011 stood at Rs.29,83,017/- .This is in spite of the fact that major expenses have been booked through book entries and no explanation and evidence placed on record for having spent the cash for the benefit of company. Still the fact remains that the

12 ITA No. 292/Agra/2016 (ASSESSMENT YEAR: 2011-12) admission of the appellant not retracted within a reasonable time is a good piece of evidence to deny the benefit of no addition.

8.3 The Ld AR for the appellant submitted that, at the time of survey the statements was given under duress which was later on retracted by the assessee. He also stated that the statement recorded at the time of survey has no evidentiary value as per CBDT circular 2003. The submission made by the Ld AR is as under-

The ld CIT(A) in its order has put heavy reliance on the statement given by the director of the company during the course of survey, whereas it is a well settled law that the statement given during the course of survey proceedings has no evidentiary value attached to it as has been held by the Hon’ble SC in the case of S.Kader Khan.

As per the order of ld CIT(A) the appellant changed its stand during the course of assessment/appellant proceedings as during the course of survey it was stated that the cash was spent for the benefit of the company and in assessment/appellant proceedings it was stated that cash was kept for the safe custody at director’s premises. Whereas, the Ld CIT(A) in further para has himself mentioned that cash in hand as per date of survey i.e 15.03.2011 was Rs 29,83,017/- and cash in hand as on 31.03.2011 was at Rs 48,64,019/- so in such a short span had the company spend the cash for the purpose of the business so it won’t have been possible for the company to re- generate Rs 48,64,019/- cash in merely 15 days.

8.3.1 Ld AR also stated that CIT(A)in its order while dealing with other addition of difference in NP Surrendered, has accepted that the statement/surrendered done during the course of survey was not factually correct and the impugned addition was deleted, even when that statement/surrender was also done in the same mental condition and no retraction was done. Thus, if for one set of surrender done facts and duress condition of the appellant is given weightage than in the same

13 ITA No. 292/Agra/2016 (ASSESSMENT YEAR: 2011-12) situation at same particular time if any other statement is made than that has also to be seen within the correct facts of the situation. Even otherwise even if the appellant has not been able to satisfy the difference in shortage of cash than also there is no provision in I.T. Act,1961 to make addition on shortage of physical cash found, it is not the case of un-accounted cash found. For this purpose, the he relied on the following case law: -

Agra ITAT in the case of ITO v/s M/s Bhatnagar Opticals in ITA No. 475/Agar/2012 “On consideration of the submissions of both the parties, we do not find any merit in this ground of appeal of the Revenue. It is admitted fact that lesser cash was found during the course of survey as compared to the details found on survey. At the most,it may be believed that the assessee spent or expended the remaining amount of cash somewhere,but it cannot be believed that there was any unverifiable cash.For excess cash found during the course of survey ,for which no explanation by the assessee was given , may be treated as unaccounted cash not recorded in the books of account and addition may be justified to the income of the assessee but on account of shortage of cash,no provision has been brought to our notice under the IT Act for Making such addition. Assessee’s explanation is acceptable that for security and safety purpose when cash is kept at the residence of other partner, there is nothing wrong in the explanation of the assessee.Considering, the above discussion in the light of finding of ld.CIT(A),we do not find any merit in this ground of appeal of the Revenue.The same is accordingly dismissed.”

8.3.2 The Ld AR has also placed his reliance on the judgement of Hon’ble Allahabad High Court in case of CIT (Central) vs Jaiswal’s in which our jurisdictional court while considering the addition made by the AO on account of difference in cash as per books and physical cash

14 ITA No. 292/Agra/2016 (ASSESSMENT YEAR: 2011-12) found at the time of search, upheld the order of CIT(A) of deleting the addition made by AO holding that- cash as per books of accounts was more than, found actually during the search, hence it was deleted.

8.4 The Ld DR on the other hand, strongly relied on the order of CIT(A) contending that the appellant has not retracted from his statement till the time of filing its return of income. Hence, the contention of appellant that cash was kept at other directors’ premises cannot be accepted and it is just an afterthought. So, the addition made by the AO and confirmed by CIT(A) should be upheld.

8.5 Heard.It is well settled law that the statements recorded at the time of survey has no evidentiary value. It is further clarified vide CBDT circulars and the decision of Hon’ble Supreme Court thatthe department should emphasize on the incriminating material obtained at the time of survey and not on statements. The assessee has a right to retract his statement if he is prevented by sufficient cause.

8.5.1 In the case at hand, the contention of the appellant that the cash was kept at other director premises cannot be brush aside in view of the fact that at the time of survey the statement of only one director was recorded. Thus, the appellant was prevented by sufficient cause.

8.5.2 It is evident, that lesser cash was found during the survey as compared to the books of accounts of appellant. Even if we consider the contention of Ld DR that the assessee spent or expended the remaining amount of cash somewhere, but it cannot be believed that there was any unverifiable cash. For excess cash found during the course of survey,for which no explanation by the assessee was given, may be treated as unaccounted cash not recorded in the books of account and addition

15 ITA No. 292/Agra/2016 (ASSESSMENT YEAR: 2011-12) may be justified to the income of the assessee but on account of shortage of cash, no provision has been brought to our notice under the IT Act for making such addition. We find nothing wrong in the explanation of the assessee that for security and safety purpose the cash was kept at the residence of another partner.

8.5.3 In the above view, we accept the grievance of the assessee justified on this issue and the addition made by Ld AO and confirmed by Ld CIT(A) is hereby deleted. Thus, the ground is allowed.

Order pronounced in the open court on 22/03/2019

Sd/- Sd/- (SUDHANSHU SRIVASTAVA) (DR. MITHA LAL MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 22/03/2019 A.K.V./DOC