SHRI HARJIVANBHAI C. PATEL,,AHMEDABAD vs. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-3(2),, AHMEDABAD

PER PRADIP KUMAR KEDIA, AM: The captioned cross appeals have been filed at the instance of the Revenue and the assessee against the order of the CIT(A)-3, Ahmedabad dated 21st July, 2016 arising in the assessment order dated 27.02.2015 passed by the Assessing Officer under Section 143(3) of the Income-tax

ITA Nos. 2384 & 2460/Ahd/2016 Assessee : Harjivanbhai C Patel AY: 2012-13 2

Act, 1961 (hereinafter referred to as “the Act”) concerning Assessment Year 2012-13. 2. Both Revenue as well as the assessee are aggrieved by the action of the CIT(A) in the common issue concerning addition on account of Short Term Capital Gains.

supported by the corroborate evidences in this regard. The Assessing Officer issued summons under Section 131 of the Act to all the three parties involved in land filling, compound wall construction etc.. It was observed by the Assessing Officer that Shri Dharmendra R. Patel summoned in connection with land filling denied having carried out any work of land filling on behalf of the assessee. The Assessing Officer further observed that two other parties namely Shri Ravi Patel and Shri Vijay L. Darbar concerning land filling and compound wall construction respectively did not appear in response to the summons served to support their bills for expenses incurred by the assessee in this regard. The Assessing Officer accordingly concluded that the expenditure claimed by the assessee on account of land filling and compound wall construction is not allowable expenditure on account of cost of improvement for the purposes of determination of Short Term Capital Gains arising on sale of land at Village Bidaj and Village Maflipur- Dholka as noted above. The Assessing Officer accordingly enhanced the Short Term Capital Gains arising on sale of land parcels to the extent of Rs.1,71,72,895/- by denying the costs claimed towards improvement of capital assets.

coming to adverse conclusion against the assessee is a denial statement of one third party namely Shri Dharmendra R. Patel, who raised bills towards land filling through his proprietorship concern. It was contended before the CIT(A) that the copy of the statement recorded behind the back of the assessee was never provided to the assessee despite specific request in gross transgression of natural justice. The assessee further contended that the witness of the Department (Shri Dharmendra R. Patel) was nursing hostility against the assessee on account of non-payment of his invoice and, therefore, has given such untruthful statement. The assessee further contended before the CIT(A) that summons under Section 131 was duly served upon the other two parties also and, therefore, failure of these parties to respond to the statutory summons does not call for any adverse view in law. The assessee further contended before the CIT(A) that neither the statement of Shri Dharmendra R. Patel allegedly recorded by the Assessing Officer was provided nor was the cross-examination thereof granted inspite of specific mention on this. The CIT(A), in the light of these submissions, called for the remand report from the Assessing Officer; however, the Assessing Officer failed to respond to the requisition of the CIT(A) despite several reminders in this regard. Consequently, the CIT(A) relied upon several judicial precedents has noted in his order and analyzed the facts placed before him. On the basis of the facts available on record, the CIT(A) found merit in the plea of the assessee towards bonafides of the expenditure to the extent of Rs.1,22,23,795/- relatable to land filling expenses and compound wall construction expenses qua Shri Ravi Patel and Shri Vijay L. Darbar where summons were served and not responded. However, the cost of services provided by Shri

ITA Nos. 2384 & 2460/Ahd/2016 Assessee : Harjivanbhai C Patel AY: 2012-13 5

Dharmendra R. Patel concerning land filling was denied owing to incriminating statement given by the supplier of the services before the Assessing Officer. The CIT(A), in conclusion, admitted the claim towards cost of improvement of land under sale to the extent of Rs.1,22,23,795/- and confirmed the rejection made by the Assessing Officer of such expenses to the extent of Rs.49,49,100/-.

“4.2 Decision: I have gone through the facts in assessment order and submission of appellant carefully. The additional evidence as per Rule 46A were sent to the AO on 02.02-2016 for the report within 20 days. A reminder to AO was sent on 04-04.2016 saying that there was no progress in the appellate proceedings in this case for want of remand report with the request to submit the same by 21.04.2016. The reminder-2 was sent to AO on 03.05.2016 but neither remand report nor any communication received from AO till date. The matter was brought to the notice of seniors. However, the evidences submitted are considered to be necessary for the decision in the matter and ratio laid down by following case laws on the subject is considered:- i) ITO vs. Modi Rubber Limited 43 ITD 396 (ITAT - Del) ii) PrabhavatiS, ShahVs. CIT231 ITR 1 (Bom.) iii) K. Mohammed Vs. ITO 107 ITR 808 (Ker.) iv) Dwarka Prasad Vs. ITO 63 ITD 1 (ITAT - Pat) v) B.L. Choudhury Vs. CIT 105 ITR 371 (Ori.) vi) ITO Vs. Industrial Roadways (2007) 19(I) ITCL 460 (ITAT-Mum). In view of ratio laid down in above case laws, the additional evidences so submitted are decided to be admitted. The juri ictional directions laid down by Hon'ble Supreme Court in the case of Jute Corporation of India Ltd. 187 ITR 688 (SC) are also being relied. As there is no response from the AO, the appeal is being decided as per facts on record.

ITA Nos. 2384 & 2460/Ahd/2016 Assessee : Harjivanbhai C Patel AY: 2012-13 6

The ground No.2 has four parties to whom certain expenses have been paid. There is non-reconciled figures figuring in assessment order and in certain submission of the appellant. The bills for land development expensed have been seen and for further analysis the total amount is reconciled as under: Bill Name of the party No. Amount Settled at Khodal Transport 21 2700000 2430000 Khodal Transport 29 2799000 2519100 Sub Total (A) 5499000 4949100 Om Roadways - Ravi Patel 62 2375000 2375000 Om Roadways - Ravi Patel 63 2505000 2254500 Sub-Total (B) 4880000 4629500 Vijay L. Darbar 3 2714250 2442825 Vijay Darbar 14 2766100 2489490 Sub Total (C) 5480350 4932315 MayurC. Patel 5 2661980 2661980 Sub Total (D) 2661980 2661980 Others 0 Grand Total A to D 18521330 17172895

Therefore, it is total of last column i.e. Rs.1,71,72,895/- which has been disallowed by the AO. Further the ground is being bifurcated into two parts. (a) As regards Shrt Dharmendra R. Patel, following payments have been claimed:

Total Rs.54,99,000/- However, actual claim by Shri Dharmendra R. Patel is of Rs.49,49,100/-. The assessing officer in the assessment order at para 4.3 has mentioned as under:

ITA Nos. 2384 & 2460/Ahd/2016 Assessee : Harjivanbhai C Patel AY: 2012-13 7

"4.3 To verify the genuineness of the assessee's claim, summons u/s.131 of the IT Act dated 08.01.2015 was issued to all the three parties mentioned above. The witness was requested to attend on 19.01.2015 and depose before the undersigned. However, out of the three parties only Shri Dharmendra R. Patel, Proprietor Khodal Transport attended. The statement of Shri Dharmendra R. Patel was recorded on oath. In response to the questions Shri Dharmendra R. Patel clearly stated that he has not done any work for and behalf of the assessee of land filling. He also submitted in response to Question No.8 that he has only two small Tata Truck with small loading capacity of three tons. In response to Question No. 12 he categorically denied knowing Shri Harjivanbhai Patel assessee. In response to Question No. 15 he categorically stated that Bill No.21 & 29 submitted by the assessee was not issued by him. He also stated that it is not practically possible to conduct 900 and 933 trips with the small trucks he has. The Income Tax return filed by Shri Dharmendra R. Patel with ITO, Ward 3(2)(1), Ahmedabad for A. Y.2012-13 has also been verified. On verification of copy of return of Shri Dharmendra R. Patel for A.y.2012-13, it is observed that the gross receipts from the business is Rs.4,58,513/- only. Whereas, the assessee claims payment of Rs. 54,99,000/- to Shri Dharmendra R. Patel." The appellant in the grounds of appeal as well as subsequent submission has repeated the contention that neither cross examination of Shri Dharmendra R. Patel was allowed nor a copy of his statement was provided, therefore, the addition has been made behind the back. The relevant portion of submission dated 12.07.2016 is reproduced below: "2.01 That the learned Assessing Officer has erred in law and facts by making disallowance of cost of improvement and construction of compound wall of Rs. 1,71,72,895/- and therefore, the learned Assessing Officer be directed to allow the same in full, while computing the total income.

ITA Nos. 2384 & 2460/Ahd/2016 Assessee : Harjivanbhai C Patel AY: 2012-13 8

As can be seen above the appellant has tried to shift the onus to the Department and the attempt to allow cross examination of Shri Dharmendra R. Patel (Prop. Khodal Corporation) to the appellant has not been made by the AO even during remand proceedings. Notwithstanding this fact, startling positive evidences have been brought on record by the AO during the assessment proceedings itself and same are forming part of para No.4.3 of assessment order. Shri Dharmendra R. Patel has not only denied having done any such work as claimed by appellant but also categorically justified his statement with the fact that he did not have capacity to undertake such big work with limited transport vehicles at his disposal. The alternative plea of the appellant of taxing only 12.5% of such questioned expenditure by the appellant as per ITAT judgment in the case of Bholanath Poly Fab Pvt. Ltd. (approved by Gujarat High Court -355 ITR 290 - Guj.) is not accepted as per evidence on record. The AO has recorded statement u/s. 131, therefore, the instant case can be distinguished especially when the story has ended only with the statement. No further analysis of sales or total project or asset has been recorded. In view of these facts, the expenditure claim of Rs.49,49,1QQ/- in relation to Dharmandra R. Pate! (Prop. Khodal Corporation) is hereby confirmed. (b) The second portion of ground No.2 is relating to expenditure disallowance in relation to following parties:-

ITA Nos. 2384 & 2460/Ahd/2016 Assessee : Harjivanbhai C Patel AY: 2012-13 9

Shri Ravi Patel, Prop. Om Roadways has filed notarized affidavit, the main portion is reproduced below:-

I Ravi Patel of Om Roadways, Prantiya, Dist Gandhinagar do hereby confirmed that I have carried out the work of mati puran on behalf of Mr. Harjivanbhai Patel for his site at plot No.49D mouje Maflipur, Tal. Dholka, Dist. Ahmedabad from time to time. Total number of trips have been carried 1785 at agreed price and as per invoices issued by me. Accordingly, I have issued two invoices bearing No.62 dated 31.05.2011 for Rs.23,75,000/- (Rupees Twenty Three Lakh Seventy Five thousand only) and Wo.63 dated 30.10.2015 for Rs.25,05,000/- (Rupees twenty five lakh five thousand only).

What I stated above is True Ravi Patel Om Roadways 07.12.15

Shri Vijay L. Darbar has filed notarized affidavit, the main portion is reproduced below:-

I Vijay L. Darbar, 42/A Bhagwannagar, Near Ambica Tube, Vatva, Ahmedabad do hereby confirmed that I have carried out the work of compound Walls with material alongwith water tank and two Room (with material) as per invoices issued by me to Mr. Harjivanbhai Patel for his site at Block No. 49 d Mouje Maflipur, Ta. Dholka, District, Ahmedabad.

I hereby confirm that I have issued two invoices bearing No.3 dated 05.11.2011 for Rs.27, 14,250/- (Rs. Twenty seven lacs fourteen thousand only) and No. 14 dated 10.11.2011 for Rs.27,66,100/- (Rs. Twenty seven lacs sixty six thousand one hundred

What I stated above is True Vijay Darbar 07.12.15

ITA Nos. 2384 & 2460/Ahd/2016 Assessee : Harjivanbhai C Patel AY: 2012-13 10

Shri Mayur C. Patel has filed notarized affidavit, the main portion is reproduced below:- I Mayur C. Patel, B/35 Dhwani Tenament, Isanpur, Ahmedabad do confirm that I have carried out the work of Compound Wall with material alongwith water tank and two Room (with material) as per invoices issued by me to Mr. Harjivanbhai Pael for his site at Bidaj, Ta. Dist. Kheda. I hereby confirm that I have issued one invoice bearing No.5 dated 10.06.2011 for Rs.26,61,980/- (Rs. Twenty six lacs sixty one thousand nine hundred eighty only).

What I stated above is True , . . Mayur C. Pate Om Roadways 07.12.15 The affidavit filed by 3 parties above has been perused wherein bill No./Amount/work executed for appellant has been specifically detailed. The ledger accounts of these three parties are on record and it is seen that payments by appellant has been made through cheques.

The appellant has filed affidavits from the parties, full addresses with PA No. Therefore, it is claimed that the expenditure incurred is genuine through banking channel and the same has been done as it was necessity for the asset in question. The fact remains that the AO has not proved that this was non - genuine expenditure. The AO also could not extract positive evidences for revenue by recording statements u/s. 131 of the I. T. Act, 1961 of the vendors to prove that no such material was purchased by the appellant or no such services rendered to the appellant. There is also no evidence brought on record to prove that the money has been returned by the vendors to the appellant. The full details were on record and the AO could have done the same as he is bestowed with such powers which would have been very much within the realm of Departmental procedure. Once affidavits have been filed, further action, if any, is required to be taken in case of vendors and not in case of appellant.

In view of facts on record, I am not inclined to accept the findings of the A.O. which are prominently based on the fact that there was non attendance of vendors u/s 131 during assessment proceedings.

ITA Nos. 2384 & 2460/Ahd/2016 Assessee : Harjivanbhai C Patel AY: 2012-13 11

Appellant can't be punished for default of related party as it has been held in CIT Vs. CARBO IND HOLD LTD 244 ITR 0422 (Cal) such as "if share broker, even after issue of summons does not appear, for that reason, the claim of assessee should not be denied, specially in the cases when the existence of broker is not in dispute, nor the payment is in dispute. Merely because some broker failed to appear, assessee should not be punished for the default of a broker and on mere suspicion the claim of assessee should not be denied." The plethora of evidences on record cannot be ignored. The genuine expenditures is allowable as per guidelines laid down by Hon'ble Affidavits of the vendors have remained uncontroverted. The same were not disproved or found to be false. If that be so Hon'ble Gujarat High Court in the case of Glass Line Equipment 253 ITR 454 has held that when affidavit were not controverted, they have to be taken as accepted. The improvement expenditure (mati puran and Compound Wall) incurred by the appellant of Rs.1,22,23,795/- is hereby allowed. In other wands, disallowance of Rs,49,49,100/- is confirmed out of the total disallowance of Rs.1,71,72,895/-. The appellant gets relief of Rs.1,22,23,795/-. Hence the ground No.2 is partly allowed.”

rightly appreciated the facts in its perspective and held that there was no warrant for the Assessing Officer to take an adverse view for non- attendance of the summons by third parties unconnected to the assessee. Learned Authorized Representative next submitted that, notwithstanding the part relief granted by the CIT(A), as deserved, the CIT(A) also fell in error in holding a part addition to the extent of Rs.49,49,100/- on the basis of a statement of land filling contractor without providing a copy of the statement purportedly recorded. The assessee neither knows the contents of the statement to defend its case nor the assessee was provided with the remedy available to it in law seeking cross-examination of such alleged adverse statement. The learned Authorized Representative accordingly contended that placing blind reliance on the so-called statement of the supplier unilaterally without confronting the assessee in this regard is not judicially permissible. The learned Authorized Representative cited plausible reasons for the so-called adversarial statement of the supplier to be owing to non-payment against the bills raised triggering hostility. The learned Authorized Representative submitted that, in the absence of the cross-examination made available on statement recorded behind the back, the bills raised towards land filling/construction work before sale of land cannot be held to be unreal in any manner. Learned Authorized Representative next contended that no physical inspection of the land was carried out at any stage to appreciate the claim of the assessee. The learned Authorized Representative accordingly submitted that CIT(A) mi irected itself in law and on facts in placing sole reliance on unverified statement and in rejecting the claim of the cost of improvement to the extent of Rs.49,49,100/- corroborated by ITA Nos. 2384 & 2460/Ahd/2016 Assessee : Harjivanbhai C Patel AY: 2012-13 13

documentary evidences in the form of bills etc.. The learned Authorized Representative consequently pleaded for reversal of the action of the CIT(A) upholding the disallowance to the extent of Rs.49,49,100/- and for dismissal of appeal of the Revenue seeking reversal of the action of the CIT(A) for the part relief granted by it.

ITA Nos. 2384 & 2460/Ahd/2016 Assessee : Harjivanbhai C Patel AY: 2012-13 14

filling and constriction of wall expenses is maintainable in the facts and circumstances of the case or not? As noted in the preceding paragraphs, the assessee holds certain land parcels at Village Maflipur-Dholka and Village Bidaj. The land parcels were sold during the year and while computing the incidence of capital gains thereon, the assessee, inter alia, claimed cost of improvement as a part of cost of acquisition to the extent of Rs.1,71,72,895/-. The bills, payments made etc. towards such cost incurred were found to be attributable to three parties (i) Dharmendra R. Patel (land filling) (ii) Shri Ravi Patel (land filling) and (iii) Shri Vijay L. Darbar, Civil Contractor (compound wall construction). The Assessing Officer issued summons for verification of the expenses to all the three parties. The first party named above have appeared and purportedly made assertion contradicting the claim of the assessee. The amount of Rs.49,49,100/- attributable to services rendered on account of land filling by the aforesaid witness was thus declined towards cost of improvement - both by the Assessing Officer and the CIT(A). As regards other two parties rendering services on account of cost of improvement to the extent of Rs.1,22,23,795/-, the Assessing Officer denied cost of improvement for the broad reasons of non-attendance of these two parties. The CIT(A), however, granted relief in respect of these two parties mainly on account of the fact that despite seeking remand report on the aforesaid issue the Assessing Officer has failed to bring any adverse material on record.

principle of natural justice demands that the statement obtained from a third party requires to be confronted to the assessee. Failure to do so would vitiate the action of the Revenue in placing reliance on such statement and drawing adverse inference there from. The reference to the judgments of Hon’ble Supreme Court in the case of Kishanchand Chelaram vs. CIT [(1980) 125 ITR 713 (SC)] and Late Laxman S. Patel vs. CIT, 327 ITR 290 (Guj) was made in this regard. The Assessing Officer as well as the CIT(A) have categorically failed in discharging the obligation cast upon them as a quasi-judicial authority in this regard. The assessee has demanded the copy of the statement as well as the cross-examination of the witness which request cannot be brushed aside in view of the decision of Hon’ble Supreme Court in the case of Andaman Timber Industries vs. CCE, 281 CTR 241 (SC) (2015) also. The action of the Revenue Authorities thus suffers from serious irregularities while drawing conclusion adverse to the assessee. Therefore, we consider it just and expedient to restore the action of the CIT(A) partly confirming the disallowance of cost of improvement to the extent of Rs.49,49,100/- to the file of the Assessing Officer for adjudicating afresh in accordance with the law after granting proper opportunity and following principles of natural justice in this regard. Needless to say that the copy of the statement so recorded shall be provided to the assessee for its necessary action at its end and cross-examination thereof be provided to the assessee if so demanded while deciding the issue. The onus will shift upon the assessee only after the cross-examination of Shri Dharmendra R. Patel (Prop: Khodal Corporation) is provided. Thus, the issue concerning cost of improvement arising in the assessee’s appeal is set

ITA Nos. 2384 & 2460/Ahd/2016 Assessee : Harjivanbhai C Patel AY: 2012-13 16

aside and restored to the file of the Assessing Officer for adjudication afresh in accordance with law.

ITA Nos. 2384 & 2460/Ahd/2016 Assessee : Harjivanbhai C Patel AY: 2012-13 17

Order pronounced in the Court on 27th April, 2018 at Ahmedabad (RAJPAL YADAV) ACCOUNTANT MEMBER Ahmedabad, Dated 27/04/2018 *Bt

आदेश क! ""त$ल%प अ&े%षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant ""यथ" / The Respondent. 2. 3. संबं"धत आयकर आयु!त / Concerned CIT आयकर आयु!त(अपील) / The CIT(A) 4. 5. $वभागीय "'त'न"ध, आयकर अपील"य अ"धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड- फाईल / Guard file.

आदेशानुसार/ BY ORDER,उप/सहायक पंजीकार (Dy./Asstt.