M/S PYRAMID ARCADE PVT. LTD.,NAGPUR vs. DY.. C.I.T. CIRCLE -1, NAGPUR

Ie st IN THEINCOME TAX APPELLATE TRIBUNAL NAGPUR BENCHNAGPUR BEFQRE SHRI SANREeE GQSAIN_WWDICAL MEMBER AND skeI %,MANJUNATHA_ACCQWNTANT MEMBER IAnp 343NagL2015 (AsskysukolYear_ 2011-12) Ns, Pyramid Developers Ward no.125, Shree Ganesh Snehal Apartment; Shradhanandpeth S.A; Road, Nagpur 440 010 PAN AAFCP2753D Appellant vls Jt; Commissioner of Income Tax Range-1, Nagpur Respondent ITAno291Nag./2015 (Assessment Year 2011-12) Xgp0m M/s. Pyramid Arcade Pvt. Ltd. Plot no.78, Each A Classic OPP. Indian Oil Petrol Pump Abhyankar Nagar, Nagpur 440 010 PAN AAFCP2753D Appellant vs Dy. Commissicner of Income Tax Circle-1, Nagpur Respondent Assessee by Shri Ajay Singh Revenue by Shri U,U, Kasar Date of Hearing 23.10.2018 Date of Order 26.10.2018 1o5 L1 > Pyrcuj Opvoopers 6 ?"J Anaoe pv Ltd. QRDE R PER G MANWNATHAAM These two appeals have been filed by the different assessees challenging separate but identical orders dated 14 th July 2015 ad 15t October 2015, passed by the learned Commissioner (Appeals)-I, Nagpur; for the assessment year 2011-12. 2 Since these appeals involving common issues arising out of identical set of facts and circumstances, therefore , a5 a matter pf convenience; these appeals were heard together and are being Appel isposed off by way of this consolidated order. ITAno291 NagL2015 Assessee's AppeaL_ AX201L-12 MaCFVs 3 The assessee has raised following grounds of appeal: - '1) That, on facts, law and circumstances of the present case, the learned CIT (A)-L, Nagpur erred in confirming the business disallowance Qf { 43,00,000/- under section 40A(3) of the Income Tax Act, 1961, made by the learned DCIT; Circle-l_ Nagpur, whereas the impugned payment (Advance amounting to 743,00,000/- (Cash) has not been made by the appellant company during the Year under consideration; the same corresponds to F.Y 2009-10 relevant to A.Y 2010-11, 7. @ preceding the year under appeal 2} The learned CIT (A)-I, Nagpur has also erred in not Considering the evidences submitted before him, the merit and factual position of the Case resulting In confirmation of arbitrary disallowance of the sum as mentioned in Ground No. 1 Supra, the action and view taken by the learned CIT (A)-I, Nagpur as well a5 learned A.O is palpably bad and not tenable in {aw hence the Order passed by the learned 4.0 and confirmed by the learned CIT(A)-I, Nagpur, must be quashed.

Ic6 M/s, Ppramid Dreloders M/s_ Pyramid Arcade Pvt, [rz_ 2 Brief facts of the case are that the assessee is engaged in the business of land development & construction and sale Qf Flats. 4 survey action under section 133A of the Income Tax Act, 1961 (for short "the Act") was carried out at the premises of the assessee on 19th January 2011_ A_ survey action resulted into detection of incriminating documents impounded as per Annex: B-1 and B-2 Shri Gunwant Sudamrao Deopare; Director of Ms. Pyramid Arcades Pvt. Ltd_ in the curse of his statement recorded on oath under section +0 131 of the Act 0n 19th January 2011, in response to Questions no.12 to 6 had admitted the additional unaccounted income of ? 2,09,37,500. addltional unaccounted income was declared on account of on- Qqua honey received from sale of flats which has not been accounted for in the books of account. The assessee has filed its return of income for assessment year 2011-12 on 29th September 2011, declaring total income at { 1,70,13,782, as against the declared income of 0 2,09,37 S00. 3 During the course of assessment proceedings, the Assessing Officer noticed that although the assessee had admitted additional income of & 2,09,37,500, only declared an income of ? 1,70,13,782, therefore, issued a show cause notice asking the assessee as to why the sum of ? 39,23,718, should not be added to his total Income. In Jat Twon (@ve'djory 0 Vg AniWe" Pv; iTa response to the show cause notlce; the learned Authorised Representative for the assessee has filed his submissions and contended that in survey what has been agreed is the total receipt during the previous year and whole of the receipts are not income: The Assessing Officer , after considering the relevant submissions of the assessee and also taking into account the declaration given during the course of survey observed that the assessee has offered additional income made on account of on-money towards sale of flats, therefore, the plea of the assessee is not tenable: Accordingly , he made addition Qf r 39,23,718. The Assessing Officer further noticed that the assessee has N43as lebited an amount of ? 2,58,86,000, to purchase account_ In order to ascertain the correctness of purchases, the Assessing Officer called the assessee to file necessary evidences, In response, the upon assessee has filed copy of sale deeds of land, The Assessing Officer; on analysis Df sale deeds; noticed that the assessee has made cash payment exceeding ? 20,000 on various dates for purchase of land in contravention of provisions of section 40A(3) of the Act , The total of such payments comes to ? 43 lakh: Therefore, the Assessing Officer issued show cause notice and asked the assessee a5 to why cash payment of ? 43 lakh shall not be disallowed as per the provisions of section 40A(3) of the Act. In response, the assessee has submitted Ms Prra"wg {Jeveipery M: Pyrann Ai:ce Pvl_ itu that there is a business exigencies in making cash payment and also the identity and genuineness of transportation are beyond doubt: The assessee dealt with the seller for the first time and the seller insisted for cash payment; therefore, its case falls within the ambit Qf rule 6DD(j) and covered by Circular no,220 Gf 1997_ issued by the CBDT where It was explained the business exigencies. The Assessing Officer after considering the submissions of the assessee and also on analysis of provisions of secticn 40A(3) of the Act and rule-6DD(i), held that as per the provisions of section 40A(3) of the Act; if any payment is made otherwise by way 0f account payee cheque demand draft In excess of 820,000, then the whole amount shall be disallowed under section 40A(3) of the Act; The Assessing Officer further observed that though the assessee claimed to have covered within the provisions of rule 6DD(j) and CBDT Circufar no.220 of 1997, but fact remains that the provisions of rule-6DD(j} has been omitted from statue and accordingly the circular issued by CBDT explaining the provisions of rule 6DD(j) is also omitted from the statute W.e.f; 25th July 1995. Accordingly, he made addition of & 43 lakh under section 40A(3) of the Act: The Assessing Officer also made addition of penalty expenses of ? 1,19,230, rent of & 1,98,450 under section 40(a)(ia) of the Act for failure to deduct TDS under section 1941 of the Act, and also disallowed the amount of < 2,57 530 towards advertisement expenses lod Ms Pyranig {Jcvelcnars Ms Prrorrrid Arrace Prr. 4d under section 194C of the Act, for failure to deduct tax at source the Assessing Officer, Aggrieved by the assessment order passed by the assessee preferred appeal before the first appellate authority. Commissioner (Appeals) , the assessee 5. Before the learned before the Assessing Officer in reiterated the submissions made additions_ The learned Commissioner (Appeals) for the respect of all recorded in his order , dismissed the appeal fled by detailed reasons the additions made by the Assessing the assessee and conflrmed income admitted during the course of Officer towards difference in of cash payment under section 40A( 3) of the Act; survey, disallowance disallowance of rent and llowance of penalty expenses, Aggrieved by the order aailowance of advertisement expenses. Nagpuv Commissioner (Appeals) the assessee is in passed by the learned further appeal before us. 6 The only issue that came up for our consideration is disallowance of ? 43 Iakh under section 40A(3) of the Act. The of cash payments learned Counsel for assessee submitted that the learned Commissioner (Appeals) erred in not appreciating the fact in right perspective even though the assessee has filed necessary evidences to prove necessity of making cash payment for purchase of lands and also the business The learned Counse) for assessee further submitted that exigencies. X; Vyranyi Deveiopers Ms Pyanun Arcadu Pvl_ [to; has made cash payment on Sunday being holiday , the assessee therefore, there is no option for the assessee to make payment by account payee cheque or demand draft, as the said payment has been made at the instance of buyer who insisted for cash payment. The learned Counsel for assessee further submitted that there is a business exigencies and the proviso to section 40A(3) of the Act gives exception in the cases where the business exigencies required to make payment otherwise by way of account payee cheque or demand draft and such are cutside the purview of section 40A(3) of the Act: payments are The learned Counsel for assessee further submitted that the impugned are made in the financial year different than the financial {Rayments XA; 2 under appeal for which necessary evidences have been placed the learned Commissicner (Appeals) _ The learned Lefore Commissioner (Appeals) ignored all these evidences and confirmed the additions made by the Assessing Officer merely for the reason that no been filed_ Therefore, one More opportunity may be evidences have given to the assessee to file necessary evidences before the Assessing Officer ard accordingly requested for restoring the issue to the file of the Assessing Officer, 7 The learned Departmental Representative, On the pther hand, strongly supported the order of the learned Commissioner (Appeals)_ The learned Departmental Representative further submitted that the Ws Pyranm Opveper mX5 Fyranud Arcde Fyt Lto assessee although claimed to have made payment on Sunday failed to file any evidence justifying its claim, therefore, the learned Commissioner (Appeals) was right in rejecting the claim; The learned Departmental Representative further submitted that the assessee has taken different argument before the learned Commissioner (Appeals) to contend that the impugned payments are made in the financial year different from the financial year under appeal, but failed to file any corroborative evidence, therefore th learned Commissioner (Appeals) rightly rejected the claim of the assessee and his order should be upheld, We have heard rival contentions and perused the material F vailable on record; It Is undisputed fact that the assessee has made cash payment in excess Of ? 20,000 in contravention of provisions of section 40A(3) of the Act. The assessee claimed that Its case comes within the purview of proviso to section 404(3) of the Act, where it was clarified that no difference shall be made and no payment shall be deemed to be the profit and gain of business or profession under sub_ section (3) where a payment made to a person in a day olherwise than by account payee cheque drawn on a bank ot account payee bank draft in such cases and under such circumstances as may prescribed; having regard to the nature Of banking facilities avallable, consideration of business expediency and other Felevant factors; The "s " famkd UovenVhiS #s Pyro"br Arue Prt LId assessee claimed that it has made cash payments; as the buyer are dealing with us for the first time and are insisting for cash payment. Therefore; there is a business expediency and accordingly cash payment outside the purview of provisions of section 404(3} of the Act; 9 Having heard both sides, we find that although the assessee claims to have made the payment on the insistence of the buyer failed to file any corroborative evidences to justify its stand, therefore, we are of the considered view that the assessee failed to make out a case Of business expediency. Insofar as the payment made on Sunday is concerned, although the assessee claims that the payments are made AFr% c Sunday, failed to file any eviden ces, therefore, we are of the @sidered view that the assessee failed to make out even a case of RoPua tion-availability of banking facility at the place of payment and on the date of payment: Hence, we are of the considered view that the Assessing Officer was right in making additions towards cash payment under section 40A(3) of the Act, Coming back to the second argument of the assessee, the learned Authorised Representative for the assessee has taken an argument for the first time before the learned Commissioner (Appeals) that the impugned payments are made in Financial year different from financlal year under consideration; therefore, no additions can be made under section 40A4(3} of the Act, 13 Mg Pprainj DeveJcpers Wy PyranjAhje Pvb Ltd in respect of payments made in & year different from the assessment year under consideration, in this regard, he filed necessary details including copy of sale deeds. 10_ Having considered both the parties, we find that a5 per the provisions of section 40A(3) of the Act; where the assessee Incurs any expenditure in respect of which 4 payment made to a person in a day otherwise than by way of account payee cheque demand draft in excess of 7 20,000, no deduction shall be allowed in respect of such expenses. In this case; the assessee claims that it has made payment previous financial year different from the year under consideration, erefore, if at all any addition is required It can be made in 9 year in Maoeus which the payments are made. We do not Find any merit in the arguments advanced by the assessee for the reason that the vear of payment is irrelevant for the purpose of disallowance of section 40A(3) of the Act and what is required is the year of claim of expenditure in the books of account: In this case, the Assessing Officer has brought out clearly the facts to the effect that the assessee has debited expenditure towards purchase of land in the year under consideration and; hence, any payment made in cash including payment made in previous financial year are coring within the ambit of section 40A(3) of the Act, when such payment has been treated a5 expenditure in Profit & Loss account; Therefore, we are Qf the considered view that 11 1H M/5 Pyranid Dppkcners M;s. Pyramid A rane Pvt. !tu_ Officer was right in making addition towards cash the Assessing payment under section 4OA(3) of the Act The learned Commissioner (Appeals) after considering the relevant submissions has rightly confirmed the addition made by the Assessing Officer. Consequently, not find error In the order of the learned Commissinner we do any (Appeals) and, therefore, we are inclined to uphold the findings of the learned Commissioner (Appeals) and dismissed the grounds raised by the assessee_ 11. In the result; assessee's appeal stands dismissed #X APpet IIAno 343MagL2015 Aggesseg'&Appeal EAX2011-12 The first issue that came up for our consideration From ground ~r7sup: is disallowance of cash payment of 0 53,50,000 under section no.1 40A(3) of the Act. 13_ We have considered similar issue in ITA no,29 1/Nag./2015 , in preceding paragraph. The facts involved in this appeal are identical to which have already considered in appeal being ITA the facts we no.29 1/Nag-/2015 The reasons given by US in preceding paragraph mutandis apply to this appeal also and; therefare, for shall mutatis similar reasons; we uphold the finding of the learned Commissioner in confirming the disallawance of cash payment under (Appeals} 115 Ms Ayqvd Devexopts MS Prrani Ailde Py [iJ. the Act and dismiss the ground of appeal by the section 404(3) of assessee; 14_ that came up for our consideration is The second ground disallowance of bad debt written-off of ? 10.50 Iakh: 15, The Assessing Officer has disallowed bad debt written-off on the has failed to file necessary evidences to ground that the assessee rove that the income pertaining to bad debt written-off in the Year ler consideration has been considered in the previous financial year. the Assessing Officer , the assessee has not fulfilled the cording to WAO under section 36(2) of the Act, therefore, conditions prescribed disallowed bad debt claim of & 10.50 lakh It Is the contention of the assessee that once bad debt is written-off in the books of account, It Is not necessary to prove that the debt has really become bad and What is required is the debt must be written-off in its books of account and the Income has been offered in previous financial year: The assessee that even otherwise also, It is a business loss further contended in connection of the business which incurred wholly and exclusively to be allowed under section 37 of the Act, once the assessee needs proved that these are normal business advances given in the course of business, 16 13 Ms_ Syrano Vevelbpers Ms_ TyranjnJ Arradp Pv[ 'd_ 16_ We have heard Fival contentions and perused the material availabfe on record. There is no dispute with regard to the fact that the assessee has claimed bad debt written-aff in books of account by passing necessary journal entries by writing-off debts In the books of account: Once the debts are written-off in the books of account, it is sufficient compliance of provisions of section 36(1)(viia) of the Act and the assessee is not required to prove that the debt become real bad during the year under consideration. This legal position has been reiterated the Hon'ble Supreme Court in TRF Ltd, v/s CIT, 190 by taxman 391 (SC), wherein the Hon'ble Supreme Court held that after 1st April 1989, it is not necessary for the assessee to establish that the #PEL debt has become irrecoverable and it Is only if the bad debt is written - as irrecoverable in the accounts of the assessee. In this case; there no doubt with regard to the fact that the assessee has written-off Opua the debt in the books of account. Therefore, we are of the considered view that the Assessing Officer was erred in disallowing bad debt under section 36(1)(viia) pf the Act, The learned Commissioner (Appeals) without appreciating the facts simply confirmed the addition made by the Assessing Officer, Therefore, we reverse the finding of the learned Commissioner (Appeals) on this issue and direct the Assessing Officer to delete the addition made on account of bad and doubtful debt: t Ns Pyrariowniuers #XS "yfemwAnCide Pvr [to 17_ The next issue that came Up for our consideration is disallowance of brokerage ad commission expenses of ? 7,25,390. disallowed brokerage expenses of { 18, The Assessing Officer 7,25,390 on the ground that the brokerage and commission expenses excess and unreasonable when compared ciaimed by the assessee is receipt from the business. The Assessing Officer further to the gross assessee has claimed brokerage and commission observed that the expenses of = 76,47,410, which is 7.90 of gross receipts. Accordingly, and commission to the extent of 5% of has allowed brokerage balance amount has been disallowed_ It is the SS receipts and Nngur Contention 0f the assessee that brokerage and commission expenses is valid evidences and also necessary TDS has been supported by is no reason for the Assessing Officer to deducted, therefore; there the brokerage expenses on the ground that it is disallow part Of and unreasonable without bringing on record any excessive comparable cases where the brokerage expenses is {ess than or equal assessee further contended that in the absence of any to 5%. The bills and vouchers in respect pf 3 particular incorrectness in of account cannot be rejected only for expenditure, the books estimating a single expenditure: V8 15 Xs. Pwramia Deveiopery Ws Ppramid Ancado Pvt, L[C 19. Having heard both the parties and considering the material on record; we find that the Assessing Officer disallowed brokerage and commission expenses by allowing ad-hoc 5% on gross receipts without bringing on record any contrary finding in respect of books of account and bills and vouchers maintained for such expenses On the other hand, the assessee has filed necessary evidences to prove that the brokerage has been paid by cheque and necessary TDS has been deducted on such brokerage payments. Therefore, we are Qf the considered view that the Assessing Officer was erred in making ad-hoc disallowance without brirging on record any contrary finding in respect of books of account and bills and vouchers. The learned Commissioner ApP ppeals) has accepted the fact that brokerage expenses is supported valid evidence , yet confirmed partial amount of < 7,25,390 on the #agpua graund that & 7,25,290, pertains to advances reflected in the Balance Sheet as Iiability which Is pertaining to other financial years other than the year under appeal which cannot be allowed as deduction for the under consideration. We also find that the finding of the fact year recorded has not been controverted by the assessee by fifing any evidence to prove that the said amount pertains to the assessment vear in question: Therefore, we are of the considered view that there is no error in the finding of the learned Commissioner (Appeals), hence, 'II} Ms Pyrmi Duvpipo?} MS Ppodmwo Ardr AT . LmD_ are inclined to uphold the findings of the learned Commissioner we (Appeals) and reject the ground taken by the assessee: 20_ The next issue that came up for our consideration is disallowance of murum expenses, poal expenses, sand and boulder expenses of < 38,07,335, 21_ The Assessing Officer made addition towards expenditure the books of account on the ground that the incurred by rejecting has failed to file any documentary evidence in support of ssessee h expenses and also a singie entry has been passed o 319 March Moevs 52011, without any description_ The Assessing Officer further observed that the said expenditure was claimed to have been incurred in cash, The Assessing Officer further stated that the assessee could not bills and vouchers in support of expenditure: It is the produce any contention of the assessee that it has furnished necessary evidence in of murum expenses, poal expenses, sand and boulder support the Assessing Officer ignored all the evidences filed expenses, but merely far the reason that the said evidences are Xerox copies of bills The assessee further contended that it has filed and vouchers. complete details of ledger account along with bills and vouchers in support of expenses, therefore, there is no reason for the Assessing hac 17 Ms, Pyrairid Duvevocars Ms Pyrznlid Arve Pvt !X0 Officer to make disallowance of expenditure merely for the reason that one single entry has been passed in the books of account: 22_ heard rival contentions and perused the material We have on record. The assessee has filed a paper book containing available ledger account of expenditure along with bills and vouchers in support of murum expenses, poal expenses, sand and boulder expenses The that though a single entry has been passed in the assessee claimed on 31st March 2011_ the said expenditure is books of account as bills and vouchers, but the authorities below supported by proper ignored all evidences only on the reason that a single entry has been ssed at the end of the year. There is a divergent facts emerged froni the orders of the lower authorities ad the arguments of the assessee. #Opur The Assessing Officer claimed that the assessee has not filed any evidence in support of expenditure: Though, the learned Commissioner (Appeals) accepted the fact that the assessee has filed xerox Copy of but went on to confirm the additions on the ground that vouchers, those vouchers were not furnished before the Assessing Officer during the assessment proceedings _ The assessee might not have furnished evidences before the Assessing Officer, but when said evidences were before the learned Commissioner (Appeals), the learned produced Commissioner (Appeals) ought to have commented on the evidences filed by the assessee himself or get them verified from the Assessing 1a/ Ms. (tyrzmi Develcpcrs Ms Prramd Arzoe Avt t, Officer by calting for rerand report before arriving at & conclusion that the assessee has failed to give any justification for such expenditure: we are of the considered view that the Issue needs to be Therefore, re-examined by the Assessing Officer in the light of the evidences by we restore the issue to file of the Assessing the assessee, hence, to cause necessary verification of bills and Officer and direct him the assessee afresh after giving a reasonable vouchers filed by portunity of hearing to the assessee Accordingly, the ground raised he assessee is allowed for statistical purposes. #agd the assessee is allowed for statistical 23_ In the result, appeal by purposes: ITA noz 291/Nag./2015 is dismissed and 24. To sun up, appeal in no.343/Nag./2015, is partly allawed For statistical appeal in ITA purposes, Order pronounced in the open Court on 26.10.2018 Sdf - 5d/ - G. MANJUNATHA SANDEEP GOSAIN JUDICIAL MEMBER ACCOUNTAMT MEMBER NAGPUR, DATED; 26.10.2018