M/S. DINAKAR SAI CONSTRUCTIONS,VISAKHAPATNAM vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, VISAKHAPATNAM

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, HON’BLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, HON’BLE ACCOUNTANT MEMBER

S.A. Nos.63, 66 & 64/VIZ/2019 And ITA Nos. 596, 606 & 597/VIZ/2019 (Asst. Year : 2012-13, 2013-14 & 2014-15) M/s. Dinakar Sai Constructions, vs. ACIT, Central Circle-1, D.No. 45-49-15/3, Sai Teja Visakhapatnam. Residency, Abid Nagar, Akkayyapalem, Visakhapatnam. PAN No. AAGFD 1213 L (Appellant) (Respondent)

Assessee by : Shri G.V.N. Hari – Advocate. Department By : Shri T.S.N. Murthy – CIT DR Smt. Suman Malik – Sr. DR

Date of hearing : 18/11/2019. Date of pronouncement : 11/12/2019. O R D E R PER V. DURGA RAO, JUDICIAL MEMBER

By filing Stay Applications, assessee seeks stay on outstanding demand for the A.Ys. 2012-13 to 2014-15 till disposal of the appeals. The assessee filed the appeals against the separate orders of Commissioner of Income Tax (Appeals)-3, Visakhapatnam, all dated 14/07/2019 for the Assessment Years

2 ITA Nos. 596, 606 & 597/VIZ/2019 S.A.No. 63-66/VIZ/2019 (M/s. Dinakar Sai Constructions) 2012-13 to 2014-15. Since facts and issues are common, clubbed and heard together and disposed of by way of this consolidated order. ITA No.596/VIZ/2019 (A.Y. 2012-13) 2. Ground Nos. 1 & 7 are general in nature, no adjudication is required, therefore same are dismissed. Ground No.2 is not pressed by the assessee’s counsel, therefore same is dismissed as not pressed. Ground No.6 is consequential in nature and not pressed, therefore same is dismissed as not pressed. The only grounds for adjudication before us are as follows:- 3. a) The ld. CIT(A) is not justified in sustaining Rs. 23,54,580/- the addition of Rs. 76,20,000/- towards on money received on sale of flats. b) Without prejudice to the above, the ld.CIT(A) ought to have directed the Assessing Officer to tax only the net profit in respect of the above receipts. 4. The ld. CIT(A) ought to have estimated profit Rs. 7,974/- @8% in respect of Rs. 3,22,560/- received from Sri M.K.S. Pratap. 5 a) The ld. CIT(A) is not justified in making Rs. 17,52,030/- addition of Rs. 56,70,000/- towards unexplained investment in purchase of property. b)Without prejudice to the above, the ld.CIT(A) ought to have telescopes the addition.

3 ITA Nos. 596, 606 & 597/VIZ/2019 S.A.No. 63-66/VIZ/2019 (M/s. Dinakar Sai Constructions) SVBC group u/sec. 133A was conducted in the business premises of the assessee. During the course of survey operation, certain incriminating material was found and impounded as Annexure- A/DSC/1 to 16. In the assessment order, the Assessing Officer has noted that assessee has received on money on sale of flats, undisclosed profit on sale of flats, unexplained cash payments towards purchase of jewellery and unexplained investment in purchase of property and accordingly he completed the assessment u/sec. 143(3) r.w.s. 147 of the Act on 28/12/2017 assessing the total income at Rs. 1,40,00,870/-. 4. Ground No.3 raised by the assessee in respect of receipt of on-money Rs. 76.20 lakhs. In the assessment order, the Assessing Officer has noted that at the time of survey, statement of Managing Partner-Shri K.S.N. Murthy was recorded, wherein he stated that he has received Rs. 76.20 lakhs from Indian Overseas Bank of the assessee firm. However, on verification of the bank account, it is seen that it had contained only the registered value of the flat, but on-money received over and above the registered value is not accounted for. During the course of survey, a note book is found and impounded. The said note book contains the names of the buyers and actual consideration received by the assessee, which matches with the statement of Shri K.S.N.

4 ITA Nos. 596, 606 & 597/VIZ/2019 S.A.No. 63-66/VIZ/2019 (M/s. Dinakar Sai Constructions) Murthy. Shri K.S.N. Murthy in his statement categorically stated that he does not maintain proper books of account and is maintained rough books. Hence, note books, khatas, diaries, pocket diaries impounded are true books of account belonging to the firm. The assessee in its reply stated that on money consideration collected over and above the registered value is shown in the books of Shri K.S.N. Murthy, who has not filed his return of income. Therefore, the claim of the assessee was rejected and the entire on-money receipt is added back to the income returned. 5. On appeal before the ld. CIT(A), the assessee has submitted as under:-

"The appellant constructed an apartment by the name Jaya Residency consisting of 8 flats. During the course of appeal hearing, the appellant submitted a detailed chart containing the details of all the flats. As it can be verified from the chart, the appellant sold five flats during the relevant previous year for a sum of Rs.98,94,000/- and these receipts were duly disclosed in the return of income filed by the appellant. Apart from the above, the customers paid a sum of Rs.65,56,000 towards additional works. Two flats were sold to one Mr MKS Pratap. Out of these, one flat was sold during the financial year 2011-12 for a sum of Rs.22,86,000 and one flat was sold during the financial year 2012-13 for a sum of Rs. 15,36,000, The assessing officer included the sale value of the 2nd flat also in the financial year 2012-13. Accordingly, the assessing officer considered the value of additional works in respect of the 2 flat amounting to Rs. 10,64,000 also for the financial year 2011-12, Thus, the assessing officer considered the total additional amount atRs.76,20,000 (Rs.65,56,000+Rs. 10,64,000) and proposed to consider, the some as on money in the hands of the appellant. The appellant submitted that the alleged on

5 ITA Nos. 596, 606 & 597/VIZ/2019 S.A.No. 63-66/VIZ/2019 (M/s. Dinakar Sai Constructions) money is the consideration paid by the customers towards additional works and these additional works were carried out by Sri KSN Murthy who is the managing partner of the firm in his individual capacity. Further, it was submitted that Sri KSN Murthy admitted income towards these additional works in the returns of income filed by him. The assessing officer rejected the explanation for the reason that the total turnover admitted by Sri KSN Murthy for the A. Y.2012-13 is only Rs27,50,000 and further the appellant failed to submit the books of account of Sri KSN Murthy. The appellant submits that the income is, assessable on the basis of completion of work done and not on the basis of advance paid by the customers, The total turnover admitted by Sri KSN Murthy from A.Y.2012-13 to A.Y.2015-16 is Rs. 2,32,54,866 and out of this the turnover in respect of additional works of Jaya Residency is Rs. 1,42,96,282. Income was admitted by Sri KSN Murthy u/s 44AD of the Act and hence books of account were not maintained by him. Such being the factual position, the appellant submits that the assessing officer is not justified in treating the amount paid by the customers towards additional works as on money in the hands of the appellant firm. Without prejudice to the above, the appellant submits that the assessing officer is not justified in subjecting to tax the entire amount of alleged on money. The appellant submits that the assessing officer ought to have taxed only the profit in respect of this amount @8%."

6.2) I have carefully considered the facts of the case and submissions furnished by the Authorized Representative of the appellant. It is seen that the only explanation of the appellant is that the on money received is shown as gross receipt (turn over) in individual hands of partner and income ® 8% is shown by the concerned partner on receipt in the return filed u/s 44AD in the hands of the partner, the income returned by the appellant has been assessed as 'Income from other sources" by the AO. The same was also subject matter of appeal which was decided as under in ITA No.273/2017-18/CIT(A)-3/vsp/19-20 dated 14/06/2019. “I have carefully considered the facts of the case and submissions furnished by the Authorized

6 ITA Nos. 596, 606 & 597/VIZ/2019 S.A.No. 63-66/VIZ/2019 (M/s. Dinakar Sai Constructions) Representative of the appellant. The appellant has not produced even an iota of evidence in support of their contention. The appellant has not filed the return of income originally within due date. The above income is shown only to set-off expenses against unaccounted receipts. The above claim is not backed by any evidences. No such evidences were found during the survey conducted nor produced during, the 'assessment proceedings'. n view of the above, the action of AO is justified the ground raised by the appellant is rejected". In view of the above, the explanation of appellant do not hold any ground and addition made by the AO is confirmed and the ground raised is rejected.”

7 ITA Nos. 596, 606 & 597/VIZ/2019 S.A.No. 63-66/VIZ/2019 (M/s. Dinakar Sai Constructions) are of the opinion that the Assessing Officer cannot make the entire addition, only profit has to be estimated. Accordingly, we set aside the order of the ld. CIT(A) and remit the matter back to the Assessing Officer to consider the details filed by the assessee and decide the case in accordance with law. Thus, this ground of appeal raised by the assessee is allowed for statistical purpose. 12. Ground No.4 relates to estimation of profit. The Assessing Officer estimated the profit at 20%, which the ld. CIT(A) reduced to 16%. The ld. counsel for the assessee has submitted that the assessee is a small assessee and section 44AD applies to him and therefore estimation may be made at 8%. We find that this case is covered by section 44AD, hence, estimation of profit at 8% is sufficient to meet the ends of justice. Accordingly, the estimation is scaled down to 8%. Thus, this ground of appeal raised by the assessee is partly allowed. 13. Ground No. 5 relates to addition in respect of unexplained investment in purchase of property. During the course of assessment proceedings, the Assessing Officer has noted that during the survey proceedings, one sale deed executed between Saraswthula Venkata Surya Seeta Rama Sastry & Others (vendor) and M/s. Dinakar Sai for Rs. 56.70 lakhs was found and impounded in page Nos. 235-240 of Annexure-A/DSC/15. As per

8 ITA Nos. 596, 606 & 597/VIZ/2019 S.A.No. 63-66/VIZ/2019 (M/s. Dinakar Sai Constructions) the deed, the assessee has paid in cash totalling to Rs. 56.70 lakhs on different dates during the Financial Year 2011-12 relating to the A.Y. 2012-13. In the course of hearing assessee was asked to furnish the source of investment. In response, assessee vide its submission dated 05/12/2017 stated that the said property advance has been shown in the books of account of Sri Kotagri Suryanarayana Murthy partner. The Assessing Officer noted that the contention of the assessee was verified with the return of income of Sri Kotagri Suryanarayana Murthy for the assessment year under consideration. On verification of the record, it is found that Sri Kotagri Suryanarayana Murthy has also not filed his return of income u/sec. 139(1) of the Act, however, he filed his return of income on 28/07/2017 only after issue of notice u/sec. 148 and after survey action on the firm wherein he is one of the partners. Further on verification of return of income, it is seen that Sri Kotagri Suryanarayana Murthy has shown gross receipts of Rs.27,00,500/- and income disclosed u/sec. 44AD. Further on verification of balance sheet for the A.Y. 2011-12 relevant to the A.Y. 2012-13, it is seen that he has shown investment of Rs.1,47,880/- in the said firm but not the amount of Rs. 56.70 lakhs. Further on verification of balance sheet of Sri Kotagri Suryanarayana Murthy, it is seen that he has neither any

9 ITA Nos. 596, 606 & 597/VIZ/2019 S.A.No. 63-66/VIZ/2019 (M/s. Dinakar Sai Constructions) investment nor drawing from said firm. Moreover, on verification of balance sheet for the A.Y. 2013-14 of Sri Kotagri Suryanarayana Murthy it was found that he has invested an amount of Rs. 1,55,040/- but not the amount of Rs. 56.70 lakhs in the said firm. Here it is worth to mention that assessment proceedings in the case of Sri Kotagri Suryanarayana Murthy are also going on for the A.Y. 2011-12, 2012-13 & 2013-14. He was asked to furnish the books of account, source of investment of assets, copies of bank statements and cash flow statements for the Financial Years 2008-09 to 2011-12, but failed to produce the same for verification. Therefore, the claim of the assessee firm that the cash payment made in the books of partner Sri Murthy is found false and afterthought and it cannot be believed. 14. Before the ld.CIT(A), the assessee has submitted that the property was purchased on 10/12/2014, however, the amount paid by Sri Kotagri Suryanarayana Murthy is disclosed in his balance sheet on 31/03/2012 filed during the assessment proceedings it cannot be for simultaneously along with other assessee-firm. The ld. CIT(A) after considering the explanation of the assessee observed that the balance sheets filed by the assessee-firm and Mr.Murthy, the entire amount is paid in cash

10 ITA Nos. 596, 606 & 597/VIZ/2019 S.A.No. 63-66/VIZ/2019 (M/s. Dinakar Sai Constructions) and therefore confirmed the addition made by the Assessing Officer. 15. On appeal before us, ld. counsel for the assessee has pointed out from the paper book at page No. 17 wherein the advance site at BS Layout 305 sq.yds. for an amount of Rs. 56.70 lakhs clearly mentioned in the balance sheet. Keeping in view of the disclosure made by the partner Sri Kotagri Suryanarayana Murthy, in our opinion the addition cannot be survived. Accordingly, the addition made by the Assessing Officer and confirmed by the ld. CIT(A) is deleted. Thus, this ground of appeal raised by the assessee is allowed. ITA No. 606/VIZ/2019 16. Ground Nos. 1 & 5 are general in nature, no adjudication is required, therefore same are dismissed. Ground No.2 is not pressed, therefore same is dismissed. The only grounds for adjudication before us are as follows:- “3. a) The ld. CIT(A) is not justified in sustaining the addition of Rs. 25,28,000/- made by the Assessing Officer. towards alleged on-money received on sale of flats. b) Without prejudice to the above, the ld. CIT(A) ought to have directed the Assessing Officer to tax only the net profit in respect of the above alleged receipts. c) The findings of the ld. CIT(A) are ambiguous. 4. The ld. CIT(A) ought to have deleted the addition of Rs. 9,38,000/- made by the Assessing Officer u/sec. 69C of the Act towards unexplained expenditure.”

11 ITA Nos. 596, 606 & 597/VIZ/2019 S.A.No. 63-66/VIZ/2019 (M/s. Dinakar Sai Constructions) 17. In the assessment order, the Assessing Officer has noted that on verification of impounded material, the assessee has received on money for sale of flats to the tune of Rs. 25.28 lakhs. The assessee failed to substantiate the same, therefore entire amount of Rs. 25.28 lakhs was treated as undisclosed income of the assessee and added back to the income returned. 18. On appeal before the ld. CIT(A), the assessee has submitted as under:- "The assessing officer inferred on the basis of information for A.Y.2014-15 that the expenditure to the extent of Rs.9,38,000 is from unaccounted source and further held that the expenditure is in violation of S.40A(3) of the Act. The appellant submits that the income from business was admitted by the appellant u/s 44AD of the Act. The appellant did not maintain any books of account. Therefore, the assessing officer is not justified in inferring that the expenditure was from explained source. Further, the profit having been assessed on estimate basis in terms of S.44AD of the Act, the assessing officer is not justified in making separate addition u/s 40A(3) of the Act. Thus, on both the counts the addition is not justified and deserves to be deleted." 19. The ld. CIT(A) after considering the explanation of the assessee observed that the only explanation of the assessee is that on money received is shown as gross receipt (turnover) in the individual hands of the partner and income @ 8% is shown by the concerned partner in the return filed u/sec. 44AD in the hands of the partner and the income returned by the assessee is assessed as ‘income from other sources’ by the Assessing Officer. The

12 ITA Nos. 596, 606 & 597/VIZ/2019 S.A.No. 63-66/VIZ/2019 (M/s. Dinakar Sai Constructions) same was also subject matter of appeal which was decided in ITA No. 273/2017-18/CIT(A)/Vsp/2019-20, dated 14/06/2019. The ld.CIT(A) further observed that assessee has not filed any evidence to support the contention raised by the him nor produced during the assessment proceedings, therefore same is rejected. 20. Before us, the assessee is not able to substantiate the addition made by the Assessing Officer in respect of on money for Rs. 25.28 lakhs, therefore we find no reason to interfere with the order passed by the ld. CIT(A). Thus, this ground of appeal raised by the assessee is dismissed. 21. So far as addition made by the Assessing Officer in respect of estimation of profit, the Assessing Officer estimated the profit at 21%, which is scaled down to 16% by the ld. CIT(A). We find that this is covered by section 44AD, therefore estimation of 8% is justified and accordingly directed the Assessing Officer to estimate the profit @8%. Thus, this ground of appeal raised by the assessee is partly allowed. ITA No.597/VIZ/2019 22. Ground Nos. 1 & 6 are general in nature, no adjudication is required, therefore same are dismissed. Ground No. 2 is not pressed by the assessee’s counsel, therefore same is dismissed. Ground No. 5 is consequential in nature, therefore same is

13 ITA Nos. 596, 606 & 597/VIZ/2019 S.A.No. 63-66/VIZ/2019 (M/s. Dinakar Sai Constructions) dismissed. The only grounds for adjudication before us are as follows:- 3. The ld. CIT(A) is not justified in Rs. 10,73,197/- sustaining the addition of Rs. 34,73,000/- made by the Assessing Officer u/sec. 690C of the Act. 4. The ld. CIT(A) is not justified in Rs. 1,05,987/- sustaining the addition of Rs. 3,43,000/- towards undisclosed contract receipts 23. So far as unexplained investment is concerned, the Assessing Officer has noted that the assessee firm has paid to Mahesh or Govinda Rao, Yendada or Naidu, SKC or Saulesh, Madhurawada or Sivaji or Krishna or Appala Naidu or Anand who have received payments on behalf of their other team workers. It is pertinent to mention that on the above issue it is not only the cash payment more than Rs. 20,000/- in a single day to a single person but also it is the expenditure from unexplained source. On verification of annexure impounded it is seen that individual pages allotted to individual party, some payments were made by cash some payments were made by cheque also. The cheque payments were cross checked with the bank account maintained by firm and found that it has duly been debited in the bank account of the firm. From these facts, the note books, diaries, pocket diaries impounded as annexed above are the true books of account.

14 ITA Nos. 596, 606 & 597/VIZ/2019 S.A.No. 63-66/VIZ/2019 (M/s. Dinakar Sai Constructions) Hence, the above payments made by the assessee-firm as business expenditure in cash to different parties/workers in a single day aggregate to more than Rs. 20,000/- during the above mentioned financial years is correct and true. When it was confronted to Sri Kotagiri Suryanarayana Murthy who is the partners of the assessee firm, he failed to offer any explanation. Moreover, on verification of the books of account it is found that assessee has not reflected the source as well as expenditure in the books of account. From the facts found in course of survey u/sec. 133A and during the course of assessment proceedings, the assessee failed to substantiate the source of expenditure as mentioned in the above narrated impounded note books, khatas, pocket diaries etc. Hence, considering the nature of business as well as practice followed by the assessee it is ascertained that the assessee is having unexplained expenditure of Rs. 34.73 lakhs during the year under consideration. Even otherwise, this expenditure amount of Rs. 34.73 lakhs should be disallowed u/sec. 40A(3) of the Act as the payment or aggregate payments were made to a person in a single day in cash. The burden lies on the assessee to offer the explanation in respect of the concerned expenditure. Therefore, it is the duty of the assessee to offer the relevant explanation with concrete proof as regards the source of

15 ITA Nos. 596, 606 & 597/VIZ/2019 S.A.No. 63-66/VIZ/2019 (M/s. Dinakar Sai Constructions) expenditure of Rs. 34.73 lakhs in question, which it failed to do. Therefore, this case is covered u/sec. 69C of the Act. Even otherwise, this expenditure amount of Rs. 34.73 lakhs should be disallowed u/sec. 40A(3) of the Act as the payment or aggregate payments were made to a person in a single day in cash. 24. On appeal, ld. CIT(A) confirmed the order of the Assessing Officer on the ground that assessee failed to substantiate his case by providing relevant evidence. 25. The case of the assessee is that once income of the assessee is estimated, no separate addition can be made on account of expenditure incurred by the assessee. It is further submitted that the alleged cash payments were made towards various works like brick centering, mason, concrete and transportation charges against representing the persons who have received the payment on behalf of the entire team of the workers. Thus, the assessee contended that payments cannot be treated as paid to a single person. We find that the assessee has not given any proper explanation in respect of source of expenditure to the tune of Rs.34.73 lakhs before the Assessing Officer and even before the ld. CIT(A) also. Before us also no proper explanation is given. We find that Assessing Officer is justified in making the addition.

16 ITA Nos. 596, 606 & 597/VIZ/2019 S.A.No. 63-66/VIZ/2019 (M/s. Dinakar Sai Constructions) Accordingly, this ground of appeal raised by the assessee is dismissed. 26. So far as ground No.4 relates to addition of Rs. 3,43,000/- on account of undisclosed contract receipts. The Assessing Officer has noted in the assessment order that assessee filed return of income on 15/04/2017 disclosing gross receipts of Rs.4,63,50,000/- whereas information gathered u/sec. 133(6) of the Act, it was found that assessee has executed total contract of Rs. 4,66,93,000/-, thereby there is undisclosed income of Rs.3,43,000/- (Rs. 4,66,93,000 – Rs. 4,63,50,000). The same discrepancy was apprised to the assessee vide this office show cause dated 02/11/2017, but failed to submit any explanation, therefore the Assessing Officer has made the addition of Rs.3,43,000/- in the hands of the assessee. Even before the ld.CIT(A) no explanation is given. Even before us no satisfactory explanation is offered, therefore we find no reason to interfere with the order passed by the ld.CIT(A). Thus, this ground of appeal raised by the assessee is dismissed. 27. So far as Stay applications are concerned, as we have already disposed of the assessee’s appeals, stay applications have become infructuous and are dismissed accordingly.

17 ITA Nos. 596, 606 & 597/VIZ/2019 S.A.No. 63-66/VIZ/2019 (M/s. Dinakar Sai Constructions) 28. In the result, appeals filed by the assessee are partly allowed for statistical purpose and that of stay applications are dismissed. Order Pronounced in open Court on this 11th day of Dec., 2019.

Sd/- sd/- (D.S. SUNDER SINGH) (V. DURGA RAO) Accountant Member Judicial Member Dated: 11th December, 2019. vr/- Copy to: 1. The Assessee – M/s. Dinakar Sai Constructions, D.No. 45-49-15/3, Sai Teja Residency, Abid Nagar, Akkayyapalem, Visakhapatnam. 2. The Revenue – ACIT, Central Circle-1, Visakhapatnam. 3. The Pr.CIT (Central), Visakhapatnam. 4. The CIT(A)-3, Visakhapatnam. 5. The D.R., Visakhapatnam. 6. Guard file. By order

(VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Visakhapatnam.