LOKHANDWALA INFRASTRUCTURE P.LTD,MUMBAI vs. ACIT CC 46, MUMBAI

On the facts and circumstances of the appellant's case and in law the Ld. CIT(A) erred in confirming the Ld. A.O's action of making estimated addition based on the noting in Page No. 117 of Annexure-A2 of the seized material amounting to Rs.69,25,000/-.

On the facts and circumstances of the appellant's case and in law the Ld. CIT(A) erred in confirming the Ld. A.O's action of disallowing a sum of Rs. 16,02,000/- on account of advertisement expenses.

On the facts and circumstances of the appellant's case and in law the Ld. CIT(A) erred in confirming the Ld. A.O's action of disallowing a sum of Rs.3,84,263/- on account of misc./office expenses.

On the facts and circumstances of the appellant's case and in law the Ld. CIT(A) erred in confirming the Ld. A.O's action of disallowing a sum of Rs. 10,69,072/- on account of repairs and maintenance expenses.

On the facts and circumstances of the appellant's case and in law the Ld. CIT(A) erred in confirming the Ld. A.O's action of disallowing a sum of Rs.6,59,480/- on account of security guard expenses.

On the facts and circumstances of the appellant's case and in law the Ld. CIT(A) erred in confirming the Ld. A.O's action of 3 M/s Lokhandwala Infrastructure Pvt. Ltd. disallowing a sum of Rs.3,00,000/- on account of sundry expenses.

At the outset, the ground no. 3 has not been pressed, therefore the same is dismissed as not pressed.

The facts in brief qua the issue raised in grounds of appeal are that, a search & seizure action u/s 132(1) carried in the case of Lokhandwala Group of Companies in which the assessee company was also covered on 23rd December 2008. In response to the notice issued u/s 153A, assessee filed its return of income declaring total income of Rs.5,45,31,110/- which was same as original return of income was filed on 28-09-2008 u/s 139(1). During the course of search and seizure operation, some documents were found which was Page No. 117 of Annexure A-2 wherein rough noting in respect of cash received aggregating to Rs. 68.75 lakhs was mentioned. In response to the show cause noticed, Mangaing Director who was confronted with the paper in his statement and also before AO it was stated that the noting on page No. 117 of Annexure- A-2 does not belong to the assessee company and he is not aware about the contents of it. It was further explained that the 4 M/s Lokhandwala Infrastructure Pvt. Ltd. noting recorded does relate to the assessee at all it and probably some visitor might have left this page. The noting is rough working and cannot be taken cognizance of for drawing any adverse inference. The AO has incorporated the transactions, which are as under:- Dilip Uncle - Room Account 24.03.08 Cash recd. Pd to tenant Remarks 1 11.50 10.75 2 11.50 11.25 3 12.00 10.50 35.00

50 Cash recd Pd to tenant 24.03.08 1 11.25 11.50 2 11.25 10.75 3 11.25 11.00 33.75

25

75 Total cash recd. Rs. 68.75

75 Total Recd 3.00 .50 Recd. From Cash recd. Kusle Rs. 50 lakhs

50 Total Total Rs. 69.25

Thus, AO deduced from the aforesaid loose paper found from the business premises of the assessee that, assessee has made various transaction in cash regularly which is evident from various other seized documents, and accordingly he treated the same as unaccounted cash not recorded in the regular books of accounts and added Rs. 69,25,000/- to the total income of the assessee.

With regard to disallowance of Rs. 16,02,000/- on account of advertisement expenses as raised in Ground no. 2, the AO noted that assessee has deducted certain advertisement expenses wherein assessee has claimed the expenses on account of payments to the various Ganesh Uttsav Mandal, Navratra Mandal, etc. which assessee has paid the payments without deducting the tax at 6 M/s Lokhandwala Infrastructure Pvt. Ltd. source in terms of section 194C of I.T. Act. He also noted that on verification of the vouchers, some of the payments made in the nature of donation, but such expenses were claimed as advertisement expenses which are not allowable and some of the expenses were not supported by the vouchers. The details of which are Annexure A wherein he noted that the expenses aggregating to Rs. 16,02,000/-, the assessee had not submitted the bills.

With regard to addition made on account of repairs & maintenance, security guard expenses and sundry expenses as raised in Ground no. 4, 5 & 6, the AO noted that repair and maintenance expenses are incurred on Bandra Bunglow of the directors and thus are personal expenses and made disallowance of Rs. 10,69,072/-. Similarly, the expenses claimed under security guard, AO noted that these expenses are also incurred for Bandra Bunglow, therefore disallowed Rs. 6,59,480/-. With regard to sundry expenses claimed under the head „Misc. Expenses‟, AO noted that these expenses incurred on morcha /police bando-basta, weeding gift, lunch expenses, misc. expenses, contingency expenses etc which are not supported by vouchers as well as considering the 7 M/s Lokhandwala Infrastructure Pvt. Ltd. nature of such expenses it appears that such expenses are not an allowable, expenses. Moreover, some expenses are not supported by vouchers fully. To cover up the omission, an adhoc addition of Rs. 3,00,000/- is made to the total income of the assessee.

Ld. CIT(A) in so far as addition made on account of cash transaction recorded in seized document amounting to Rs. 69,25,000/-, he incorporated the detail submission of assessee as well as remand report of the AO, however, he confirmed the said addition after observing as under:-

0 I have carefully examined the facts of the case, the stand taken by the A.O in the assessment order and in the remand report, the grounds of appeal, the written submissions and further rejoinder filed by the appellant during the hearing proceedings.

1 The above seized material was seized during the course of search in the business premises of the appellant. The appellant refused to explain the contents of the seized material. Mere explanation that the document must have been left behind by some visitor is not substantiated. The presumption under the provisions of law is that the document belongs to the person under whose possession it was found and that the contents therein are true. Though sub-section 4A of section 132 of the Act provides for rebuttable presumption but the same has not been rebutted by the 8 M/s Lokhandwala Infrastructure Pvt. Ltd. appellant to the satisfaction of the A.O. The document is self speaking and it is clearly mentioned in the document information relating to "cash received" and "paid to tenant". The appellant's explanation that in general sense the tenants are paid only rents and it is in thousands of rupees is not acceptable for the reason that no tenant is paid rent, instead it is tenant who pays the rent. The appellant is in the business of properly development and building residential projects. It is stated by the A.O that the appellant has made various transactions in cash and such transactions are not recorded in the books of account which shows that the appellant is in the habit of not recording the cash transactions in the books of account. Therefore, the addition of Rs.69,25,000/- made by the A.O is hereby confirmed.

However, in so far disallowance on advertisement expenses, Ld. CIT(A) has changed the entire reasoning of disallowance by holding that assessee has not deducted TDS u/s 194C on the payments made, which AO had disallowed on the ground that bills were not produced. The relevant findings and observation of Ld. CIT(A) reads as under:-

0 The facts of the case, the stand taken by the A.O in the assessment order and the written submissions filed by the appellant during the appeal hearing proceedings have been carefully considered. The basic issues raised by the A.O are two-

With regard to other expenses in respect of repairs & maintenance, security guard expenses and sundry expenses, Ld. CIT(A) has confirmed the action of AO.

Before us Ld. Counsel for the assessee, Shri Vijay Mehta submitted that at the time of search itself when assessee was confronted with various seized documents, Shri Md. Abdul Hussain Lokhandwala (MD) in his statement recorded on oath u/s 132(4) in response to question no. 7 whereby he was specifically confronted

On the other hand, Ld. CIT-DR after reffering to the various observation of the AO and Ld. CIT(A) submitted that, here in this case, the document has been found from the possession of the assessee, wherein there is a noting about specific transaction about cash received and payment made to the tenant. Further, assessee is in the business of construction and redevelopment, therefore such documents indicate cash received from buyers which was supposed to be paid to tenant and once there is no record in the books of accounts, the same remains unexplained and has rightly been added by the AO and confirmed by Ld. CIT(A). She further submitted that presumption under the law is that it belongs to the assessee and assessee has to rebut by cogent evidence.

Having heard both the parties and perusing the relevant findings given in the impugned order as well as material placed on record, we find that the addition of Rs. 69,25,000/- has been made on the basis of seized document no. „117 Annexure A-2‟, which is a rough noting of certain transaction found from the premises of the assessee company. The said document mentions about certain figures of cash transaction and on the left side, there is amount of claim paid to the tenants which is mentioned in the typed version as incorporated in the foregoing paragraph. The controversy is, whether based on this document, the impugned addition can be made in the hands of the assessee company or not?

From the perusal of the material placed on record and the statement and explaination of the CMD of the assessee company, Shri Md. Abdul Hussain Lokhandwala, we find that during the course of search there were various seized papers and documents found which were confronted to him. Most of the seized documents were accepted by him and few of them have been denied either on the ground that it was not in his handwriting or it does not pertains to the assessee at all. With regard to this particular document at 14 M/s Lokhandwala Infrastructure Pvt. Ltd. page no. 117, he categorically denied that as it is not in his handwriting and he does not know the name written on the top “Dilip Uncle”. Thereafter, the investigation /search had not carried out any inquiry so as to find the veracity of assessee‟s statement wherein he has categorically denied that. From the reading of relevant extract of his statement wherein he was confronted with various documents marked as Annexure A-2 containing hundreds of loose papers, he has given page wise description and it is also transpired from the record that huge additional income was also offered for taxation based on these seized documents. However, this particular document was not owned by him even during the course of assessment proceedings. The assessee has reiterated its stands and stated that this particular document does not belong to the assessee company nor the name mentioned, „Mr. Dilip Uncle‟ has no relationship with the assessee company nor was he any employee or agent of the assessee company. Both the authorities have simply made the additions holding that, once the document was found from the premises the assessee company, then there is presumption under the law that the same belongs to the assessee company. Section 132(4A), cast a presumption that, if any books of 15 M/s Lokhandwala Infrastructure Pvt. Ltd. accounts, other documents, name, bullion, jewellery or other valuable article are found from the possession of the person during a search, then it is presumed that the same belongs to such person. However, such presumption is rebuttable presumption and assessee can always rebut by either denying the document or by adducing any evidence or material to show that the contents are not correct or the documents found does not belonging to him. Once the assessee has rebutted the document found from his control or possession, then AO has to carry out some verification or inquiry or any coroborative material is found or linked with the same document, he can show that rebuttable made by assessee is not correct.

This principle has bee upheld by the Hon‟ble Allahabad High Court in the case of Ajay Gupta Vs. CIT (supra) on similar situation, wherein their Lordships have observed and held as under:-

We have heard counsel for the parties and perused the material on record. It is not in dispute that two loose papers were found during search from the premises of assessee, however, during block assessment proceedings, the assessee had denied the 16 M/s Lokhandwala Infrastructure Pvt. Ltd.

As, Section 132(4A) of the Act provides that any books of account, documents, money, bullion, jewellary or other valuable articles or things found in possession or in control of any person in course of search may be presumed to be belonging to such person, and further, contents of such books of account and documents are true. But this presumption is not provided in absolute terms and the word used is "may" and not "shall", as such the revenue has to corroborate the entries made in the seized documents before presuming that transactions so entered were made by the assessee. Presumption so provided is not in absolute terms but is subject to corroborative evidence.

In the present case, Tribunal only on basis of presumption under Section 132 (4A) of the Act, reversed the finding of CIT (A),

Ergo, the presumption u/s 132(4A) is not absolute and same is rebuttable; and if such document is not corroborated with any inquiry conducted by the AO or Investigation authorities or any coroborative material is found or linked with the same document in search or post inquiry, then the addition cannot be made. There has to be some verification or inquiry to link the said document with assessee if the same has been categorically denied by the assessee. Similarly, the Hon‟ble Juri ictional High Court in the case of PCIT vs. Umesh Ishrani (supra) also held that if the entries reflected in loose paper which are not corroborated with any other evidence on record, the Tribunal was justified in deleting the additions. Hon‟ble Delhi High Court also in the case of CIT vs. Praveen Juneja (supra) had pointed out the same and held that without making any further inquiry, addition on the basis of document found during search cannot be made. Thus, when the assessee was not aware of the contents of the page and at the time

Another important fact is that the document mentions the name of ‘Dilip Uncle room account’. It means that, this document belongs to some Dilip Uncle which has been denied by the assessee that he does not know such person nor any inquiry has been done whether this explaination or fact is correct or not. Thus, such document cannot be said to pertain to or relate to assessee to draw any adverse inference for making addition. Under these circumstances, we do not find any justification or making addition based on such seized document and the same is directed to be deleted.

With regard to addition on account of advertisement expenses, AO has though made his observation that assessee has not deducted TDS u/s 194C while making payment for advertisement expenses, but from „Annexure A‟ of his order wherein details have been mentioned by the assessee, AO has cited the reason that the 19 M/s Lokhandwala Infrastructure Pvt. Ltd. bills were not submitted. It has been explained by Ld. Counsel for the assessee that the same mostly pertains to banner and pandal for Ganesh Utsav and other religious celebration wherein assessee had advertised its brand and name on the premises taken on rent for that period. Ld. CIT-DR had stated that AO was very categorical that bills have been produced, whereas Ld. CIT(A) has gone in a different direction holding that the entire disallowance has to be made by invoking the provision of section 40(a)(ia) for non- deduction of TDS u/s 194C. Thus, the addition made by the AO should be sustained on account of non-production of bills.

Ld. Counsel for the assessee in his rebuttal has stated that now that Ld. CIT(A) has made the disallowance on the ground that payment has been made without deduction of TDS and revenue is not in cross objection, then issue has to be seen qua the disallowance sustained by the Ld. CIT(A). He further submitted that, assessee was not required to deduct TDS u/s 194C and this fact is covered by the decision of Tribunal in assessee‟s own case for earlier year that provision of section 194C is not applicable. In support of it, he relied on the decision of Tribunal (ITA No.

We have carefully considered the submissions of the ld. Representatives of the parties and orders of the authorities below. We have also considered the details of the payments as enclosed as annexure-A to the assessment order and also the disallowance restricted by ld CIT(A) details given at pages 15-16 of the impugned order. The only issue before us is as to whether the said payment made by assessee to various mandals for the purposes of putting its banner and hoarding at the space hired by the said mandals are in the nature of advertisement expenses or the assessee made the rental payment for the said space on which the assessee put its banners and hoardings. There is no dispute to the fact that the CBDT has clarified vide its Circular No.715 dated 8.8.1995, copy placed at pages 40 to 44 of the paper book, that when there is a contract for putting up hoardings in the nature of advertising contract, provisions of section 194C of the Act would be applicable. However, if person has taken particular space on rent and thereafter sub-let the space fully or in part for putting up hoarding, he would be liable to deduct TDS u/s 194I and not u/s 194C of the Act. There is no dispute to the fact that the said mandals are registered as trust. We observe that the said mandals have reserved certain space for the purpose of putting the banner and hoardings inter alia by assessee at the space hired by them and against which the assessee made payment to these mandals The 21 M/s Lokhandwala Infrastructure Pvt. Ltd. assessee has stated that it has taken said space on rent for a particular period and therefore, the said payment is in the form of rent. Whereas the department’s contention is that it is just a lump sum payment to those mandals and the said mandals have allowed the assessee to put its hoardings and banners for the purpose of advertisement only. We observe that the ld. CIT(A) has mentioned in the impugned order that the assessee has made the said payment under a contractual obligation for the purpose of enabling the assessee to put its hoarding in respect of its on going projects and accordingly, the ld. CIT(A) has concluded that the said payments are subject to provisions of section 194C of the Act. We are of the considered view that even if a space is taken on rent and the banners are put on the said space, so hired, they are for the purpose of gaining publicity. Hence mere publicity could not be a criteria to decide whether the said payments is subject to provisions of section 194C of the Act or sec.194I of the Act. We observe that CIT(A) has stated that assessee has made payments to the Mandals etc under a contractual obligation. It is a fact that during the Utsav/festivals seasons the organizers provide space to various persons to put its banners and charge fee from them, not only that the purpose to advertise their products but for providing space to them. We are of the considered view on the facts before us that the assessee hired space and made payments to those mandals to put its banners/hoardings during the said festive period. Hence the said payment to the mandals could be treated towards rent for the space provided by them to the assessee for 22 M/s Lokhandwala Infrastructure Pvt. Ltd. putting its hoarding and banners. Therefore, we are of the considered view that in the facts and circumstances of the case, TDS was required to be deducted u/s 194I of the Act. Since admittedly none of the payment is exceeding to a person of Rs.1,20,000/-, we are of the considered view that the disallowance u/s 40(a)(ia) on account of non deduction of TDS is not justified.

It is sen that the Ld. CIT(A) has invoked the provision of section 194C holding that TDS should have been deducted in respect of payment and disallowance has been confirmed u/s 40A(ia) of the Act. We find that similar reasoning was given in the earlier appeal which has been reversed by the Tribunal holding that assessee was not required to deduct TDS u/s 194C, albeit provision of section 194(1) was applicable, because assessee had made payment for various Mandals for putting it banner at the site provided which are in the nature of advertisement expenses. The payment is rental payment for putting its banners. In this year also like earlier years, the assessee has also incurred advertisement expenses for banners by renting the space in pandals for display at the space provided to it. Thus in line with the earlier years, addition made u/s 40(a)(ia) by invoking section 194C is set aside and the addition sustained by Ld. CIT (A) is directed to be deleted.

In so far as disallowance of repair and security guard expenses, the only reason given by the Ld. Counsel before us is that though these expenses were incurred for Bandra Bungalow which is residence of Directors, but due to certain security threat, certain repairs were carried out for extending the walls of the bungalow and for the security guards. However, such reasoning cannot be sustained, because these are purely personal in nature not used for the purpose of assessee‟s business, which is evident from the detail mentioned in Annexure „C‟ and Annexure „D‟. Accordingly, the addition sustained by Ld. CIT(A) is confirmed and Ground No. 4 & 5 are dismissed.

With regard to disallowance of sundry expenses, no material evidence has been filed by the assessee. On perusal of order we find that this is an adhoc addition relating to expenses on account of morcha/police bandobast, wedding gifts, lunch expenses, misc. expenses, etc. But yet, there is no material placed on record that these were for business purpose nor these were fully supported by bills. Accordingly, the addition sustained by Ld. CIT(A) is confirmed and this ground is dismissed.

In the result, the appeal filed by the assessee is partly allowed. Orders pronounced in the open court on 27th June, 2002. (Gagan Goyal) (Amit Shukla) Accountant Member Judicial Member मुंबई Mumbai;नदनधंक Dated : 27/06/2022 Sr.PS. Dhananjay