THE COMMISSIONER OF INCOME TAX vs. M/S. DESAI REAL ESTATE DEVELOPERS

PDF · subscribers
TXA/46/2010HC BombayHCBM05001377201004 August 2010Author: F. M. REIS,A. S. OKA6 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the concurrent findings of fact by the CIT(Appeals) and the Tribunal, that the assessee had carried out work for DCC and received the amount in connection therewith, could not be disturbed in the appeal. The Tribunal's observation that the entire contract receipt could not be treated as income, and that only the profit element was taxable, was upheld. The Tribunal correctly placed the burden on the assessee to establish the factum and quantum of expenses incurred in connection with the contract execution, as well as the source of funds for these expenses. If the assessee failed to discharge this burden, the entire amount would be brought to tax without deduction. The order of remand by the Tribunal was based on these concurrent findings of fact, and no substantial question of law arose. Therefore, the appeal was dismissed.

What were the facts?

The assessee, M/s. Desai Real Estate Developers, filed a return of NIL income for Assessment Year 2004-2005. Due to non-audited books, a special audit was conducted. The regular assessment assessed total income at Rs. 96,41,205/-. The special audit report highlighted Rs. 27,11,203/- pertaining to construction work for a sister concern, M/s. Dessai Cement Company Pvt. Limited (DCC), which was not accounted for as contract receipt. DCC's books showed the assessee as a creditor of Rs. 45,000/-, while the assessee's books showed DCC as a creditor of Rs. 26,33,203/-. A show cause notice was issued, and the Assessing Officer (AO) taxed the entire Rs. 27,11,203/- as unaccounted sales. The CIT(Appeals) upheld the AO's decision. The assessee appealed to the Income Tax Appellate Tribunal (ITAT). The ITAT, in its impugned order, rejected the assessee's claim that no work was done for DCC. However, it held that the entire amount could not be treated as income and a deduction for expenses would be necessary. The matter was restored to the AO for determining expenses and their source.

What were the issues?

1. Whether the Income Tax Appellate Tribunal erred in holding that the entire amount of Rs. 27,11,203/- cannot be treated as income of the assessee and that a deduction on account of expenses incurred in connection with the execution of the contract should be allowed, subject to the assessee establishing the factum, quantum, and source of such expenses? Assessee's Contention: The assessee contended that no work was actually done for DCC in the year under consideration and that the sister concern had made a wrong claim. The work for DCC was completed in a previous year (related to AY 2007-2008). Revenue's Contention: The revenue argued that the entire amount of Rs. 27,11,203/- was on account of work already executed by the assessee for DCC in the year in question and was therefore liable to tax.

Which sections of the Income-tax Act were involved?

Section 69C,Section 260A

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
1 IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEAL NO.46 OF 2010 The Commissioner of Income Tax, Having Office at Aayakar Bhavan, Patto Plaza, Panaji-Goa. .... Appellant v e r s u s M/s. Desai Real Estate Developers, Desai House, Khadpabandh, Ponda, Goa. ..... Respondents Ms. Asha Dessai, Advocate for the Appellant. Mr. A.N.S. Nadkarni, Senior Advocate with Mr. H.D. Naik, Advocate for the Respondent. CORAM: A. S. OKA & F. M. REIS, JJ DATE: 4TH AUGUST, 2010.

ORAL ORDER: We have heard the learned Counsel for the Appellant and the learned Senior Counsel for the Respondent. This is an appeal under Section 260 A of the Income Tax Act, 1961. 2. On 27th October, 2004 the Respondent/ Assessee filed his return of income returning NIL income for the assessment year 2004 – 2005. As the Assessee did not get the books of accounts audited, the case was referred for special audit. The regular assessment was completed and total income was assessed at Rs.

2 96,41,205/-. The report of the Special Audit indicated that a sum of Rs.27,11,203/- pertaining to construction work done for sister concern M/s. Dessai Cement Company Pvt. Limited (hereinafter referred to as “DCC”) was not accounted as a contract receipt. The books of DCC showed the Respondent/Assessee to be a creditor to the extent of Rs.45,000/- only, while the books of the assessee portray DCC to be a creditor to the extent of Rs.26,33,203/-. Thereafter a show cause notice was issued to the respondent/assessee as to why a sum of Rs.27,11,203/- should not be brought to tax as unaccounted sales in the books of accounts for the year ending. The Assessment Officer came to the conclusion that the entire amount of Rs.27,11,203/- is liable to tax as the Respondent/Assessee had not offered the same for taxation. An Appeal was preferred by Respondent/Assessee before the CIT(Appeals). The CIT (Appeals) did not accept the contention of the Respondent/Assess. An appeal was carried by the Respondent/Assess before the Income Tax Appellate Tribunal.

3.

By the impugned Judgment and Order, as far as the amount of Rs.27,11,203/- is concerned the Tribunal rejected the claim made out by the Respondent/Assessee that no work was actually done by the Respondent/Assessee for the DCC in the year

3 under consideration. However, the Tribunal further observed that the entire amount of contract receipt of Rs.27,11,203/- cannot be treated as its income and a deduction will have to be made on account of expenses. The Tribunal further held that the burden to prove the expenses incurred in connection with the execution of contract was on the respondent/assessee. It was also held that the source for funds for meeting the expenses will have to be established by the Respondent/Assessee and if the source was not established, the amount thereof is liable to be added to the income under Section 69C of the said Act of 1961. Therefore, to that extent the said issue was ordered to be restored to the Assessing officer with a direction to allow the claim of the assessee for deduction of expenses provided the Respondent/Assessee was able to establish the factum and quantum of such expenses incurred in connection with execution of the contract and also the source of funds utilized to meet the said expenses. This part of the impugned order has been subjected to challenge by way of this appeal. The other part of the impugned order is as regards the credit to the extent of Rs. 4,67,655/-, for which there is an order of remand. However, there is no challenge to that part of the order.

4

4.

The learned counsel for the Appellant submitted that the case of the Appellants is that a contract work was carried out by the Respondent/Assessee for DCC, in the year in question, and therefore, the entire amount of Rs.27,11,203/- was liable to tax. The learned counsel for the appellant submitted that the amount is on account of a work which was already executed and that no work was carried out during the current year.

5.

We have considered the submissions. The first contention of the Respondent/Assessee was that the sister concern DCC had made a wrong claim and therefore it should not go against the Assessee especially when the work for the sister concern was completed by the respondent/assessee in the previous year relating to the assessment year 2007-2008. The CIT (Appeals) as well as the Tribunal did not accept the case made out by the Respondent/Assessee. A finding of fact was recorded that the Assessee had already carried out work for DCC and had received aforesaid amount in connection with the work carried out. This was a finding recorded by the CIT (Appeals), in the appeal preferred by the Respondent/Assessee and the said finding of fact has been confirmed by the Tribunal. Now, therefore, the contention of the learned counsel for the appellant that in fact no 5 work was actually done for the sister concern during the said year cannot be accepted. The Appellate Tribunal held that entire amount of contract receipt cannotbe treated as income and it is only profit element which could be brought to the tax. The concurrent findings of fact cannot be disturbed in this Appeal. It must be however noted here that the Tribunal has clearly held that the burden will be on the Respondent/Assessee to establish the factum and quantum of alleged expenses incurred by filing necessary supporting evidence to claim the said deduction. Apart from establishing the factum and quantum of such expenses, the Respondent/Assessee will have to prove the source of funds utilized to meet the expenses. The said issues have been obviously kept open. If the Assessee does not discharge the burden, the entire amount will have to be brought to tax without any deduction.

6.

Hence, we find that the order of remand is based on concurrent findings of facts. No substantial question of law arises and the appeal is accordingly dismissed. A. S. Oka, J F. M. Reis, J

6 Ap/-

More judgments on Section 69C

All 8,217 judgments and leading authorities on Section 69C →

Recent GST High Court judgments

Search GST case law →