M/S ESCO MARUTI BUILDERS PVT. LTD.,,AGRA vs. J.C.I.T., RANGE-4, AGRA

PER, A. D. JAIN, JUDICIAL MEMBER:

This is assessee’s appeal for Assessment Year 2011-12, contending that the Authorities below have erred in law and on facts in arbitrarily denying the increase

in closing stock claimed by the assessee of Rs.6 crore without giving an opportunity of hearing or issuing any show cause notice in this regard or rejecting the audited books of account.

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in the business of Construction Activity and Real Estate Development. A survey

under section 133A of the Act was conducted at its business premises on

15.03.2011, wherein, the survey party had found and impounded certain

incriminating documents. One such impounded document is marked as Annexure-

4, which is a ledger, and as per details recorded therein, it was found that the

assessee had received cash advances amounting to Rs.8,00,02,000/- from 43

persons during financial year 2010-11. On examination, it was found that the

assessee had received such amounts by doing transactions outside its books of

account, as these were not recorded in the assessee's regular books of account. The

assessee was confronted with and asked to explain, by the Survey Party, such

significant discrepancies involving cash receipt of Rs.8,00,02,000/- as per the

notations appearing in the said document, i.e., ledger marked as Annexure A-4.

The assessee was further asked to explain whether the amounts were recorded in

the books of account. However, the assessee could not furnish any explanation

about the non-inclusion of such amounts in its regular books of account, and

besides, the assessee had also shown its inability to provide the necessary details as

to the identity and addresses of such 43 persons against whose names the assessee

had recorded the receipt of amounts totaling Rs. 8,00,02,000/-. The assessee,

through its Director, had come forwarded and surrendered the said sum as its

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unexplained/ undisclosed income for the relevant year. A statement of one of the directors of the assessee company, namely, Sh. Rakesh Mangal, was recorded, in which, he admitted and confessed the amount of Rs. 8,00,02,000 as the assessee company’s undisclosed income and, therefore, he had made the surrender. Subsequently, the assessee company had field its return of income declaring income of Rs. 8,06,36,220/- with the Department, which included the surrendered income. Out of the surrendered income, Rs.8 Crore was introduced in the books as increase in work in progress (closing stock) and Rs. 2,00,02,000/- was disclosed as cash balance introduced in Cash Book. During the assessment stage, the AO, after considering the assessee's replies/explanation, framed the assessment in the assessee's case at a total income of Re. 8,00,35,220/-, which was as per the income returned by the assessee. However, the AO had noticed that the assessee had surrendered the amount of Rs. 8,00,35,220/- on the basis of unrecorded amounts received from 43 persons, however, the assessee, while showing the surrendered amount, had apportioned and taken it into its closing stock value, increasing it by the same amount, i.e., Rs. 6 Cr., by increasing the value of its closing stock. Thus the income as declared by the assessee on basis of such disclosure was treated by the AO as the assessee's undisclosed income u/s 68 of the Act and added towards the assessee's income. The AO observed that the treatment of inflating its closing stock was not as per, or in consonance with its admission, vide which, the assessee

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company's Director had surrendered the amount of Rs. 8,00,02,000/ on the basis of cash receipts from 43 persons and therefore, there was no reason that the assessee, by way of giving a unilateral treatment in its accounts, could inflate its closing stock value and in the process, get doubly benefitted, one for the income on account of cash receipts which was caught by the survey party, and another for the inflating the closing stock value. It was also observed that besides, it was against the actual findings which were noticed during the course of survey, and at the same time, in being against the documentary evidences in the shape of valuation submitted by the assessee from its own registered valuer. Thus the AO, while framing the assessment, denied the benefit of closing stock for the assessment year 2011-12 and the opening stock for the assessment year 2012-13 to the assessee in respect of Rs. 6 Crore on the ground that it was never stated in the statement recorded that there was any investment which was made in the value of building construction under progress as shown by the assessee.

The ld. CIT(A), dismissing the assessee’s appeal, observed as follows: 3.

“5. I have considered the facts of the case, the written submissions as filed by the Ld AR for the appellant and perused the order of the AO with relevant facts on record Besides, the report as submitted from the AO and rejoinder on same as filed by the Ld AR have also been considered. It is an admitted fact that the appellant had surrendered the amount of

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Rs.8,00,02,000/- in respect of money received from various persons which were found unrecorded, and admitted to be received by the appellant outside its books of account. However, it is equally true that the director of the appellant company Sh. Rakesh Mangal had never stated or even for that matter before the AO, during the course of assessment proceedings that amount received from various persons and surrendered as undisclosed income was invested in work in progress of Maruti City project The claim of investment in work in progress of Maruti City project out of the surrendered income has been made during the course of assessment proceedings by furnishing trading account which has been incorporated by the AO in the assessment order The said trading account shows that the appellant has claimed to have 'invested a sum of Rs.6,00,00,000 in Maruti City as per survey and included in closing stock under the head Amount voluntarily offered for tax (M City)" whereas this fact is not borne out from the statement of the appellant's company Director recorded on oath during the course of survey or even from any evidence placed/available on record. The appellant has laid emphasis on the certificate of the Architect in respect of the investments claimed to have been made in the project"Maruti City

5.1 It is seen that during the course of assessment proceedings, the appellant had furnished two certificates dated 04.04.2011 issued by the architect Sh. Amit Juneja of AADHARSHILA. In the certificate issued in respect of

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construction work on the project Maruti Residency on khasra No.1048(P) Mauza Bodla, Tehsil and Distt. Agra, he has certified that 'an approximate amount of Rs.6,72 Cr. has been invested so far in the construction of building excluding the land cost & profit. The break has been given in the 5.1 certificate as under-

Investment up to 31/3/2010 4 25 crores

Investment (1/4/2010 to 31/3/2011) Rs.2.47 crores"

In another certificate dated 4/4/2011 issued in respect of the construction work completed up to 31/3/2011 on the project "Maruti City" on Khasra No. 149(P) & 150(P) Mauza Kehrai, Tohsil & Distt. Agra, he certified that "An approximate amount of Rs.34.75 lacs has been invested so far in the construction of the building excluding the land cost & profit

5.2 The certificates dated 04 04.2011 issued by the architect Shri Amit Juneja in respect of investment in the project Maruti City' and Maruti Residency during the previous year relevant to assessment year 2011-12 are made Annexure-A and Annexure- B respectively to this order

5.3 It is also seen from the Trading Account furnished by the appellant that expenses incurred during the year under appeal in Maruti City project excluding the claim of investment as per survey is Rs. 4,34,50,488/- whereas the architect Sh. Amit Juneja has certified the investment only to the extent of Rs.34.75 lacs. Similarly in the project Maruti Residency. the

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expenses incurred during the year under appeal is Rs.1 whereas the architect Shri Amit Juneja of AADHARSHILA' has certifed the investment to the extent of Rs.2.47 Cr. Thus the investment in both the projects certified by the appellant's own architect are not matched with the investment as claimed by the appellant. The claim of the appellant regarding investment of Rs.6 Cr. in Maruty City as per survey is not found acceptable in view of the certificate of the appellant's own architect who has certified the investment in Maruti City' project only at Rs.34.75 lacs. Since the investment in both the projects are not commensurate with the appellant's own evidence, then how the benefit of Rs.6 Cr. out of the surrendered income claimed to have en invested in closing stock of work in progress in the project Maruti City can be claimed or for that matter could be allowed by the AO.

It is relevant to mention here that if the assessee plea that out of surrendered amount, Rs.6 crore is invested in closing stock, it would be a case of retraction of statement of surrendered given by the Director of the company at the time of survey. At the time of survey the appellant's director surrendered the amount of cash found noted in the ledger not accounted for in the books claimed in form of advance from customers Therefore, it was nothing but the amount received from the customer over and above the actual sale consideration shown in the books of accounts. When the appellant voluntarily came forward to surrender the amount of Rs.8,00,02,000/- as income from undisclosed sources as it was not a position to

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disclose the name & address of the persons from whom advances were claimed to have been received, at the time of surrender to avoid penalty and prosecution, the appellant should have offered the same in its correct nature and perspective as income from undisclosed source and not in the way as has been treated and done by the appellant i.e. by way of increasing the value of closing stock, which itself found to be false from the certificates filed by the appellant itself, and nullify the tax paid in the year under consideration by increasing the closing stock in subsequent year. Therefore, the Ground Nos. 1 to 3 of assessee are dismissed.”

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very statement in part by not accepting the investment of Rs. 6 Crore in Maruti

City Project. However, the income component has been accepted by him. Once the

AO has accepted the income component which was not duly recorded in the books

of account till the date of survey, then it is not understood that how the AO could

disallow the other balancing part of the same income which is the investment in

Maruti City Project. The Assessing Officer cannot have two yard-sticks to assess

the income of the assessee. The statements and facts have to be accepted in totality

and not in piece-meal as suits the Assessing Officer. The assessee has followed the

provisions of the Companies Act and that is why both the entries of income are on

the credit side and in the debit side, the balancing entries for the same in cash

account and in work done account have been passed. It is further claimed that once

the assessee is in the construction business, the unaccounted amount which is

surrendered is obviously on account of construction activity and, therefore, the

same is shown in the trading account as investment in Maruti City Project and,

accordingly, taken to the closing stock as arising out of the surrender shown in the

Trading Account.

which were not recorded in the books of account and, correspondingly, the AO

allowed the introduction of cash of Rs 2.00,02,000/-. He, however, denied the

claim of investment of the balancing figure of Rs. 6 Crore shown in the Maruti

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City Project. The assessee fully co-operated with the department and no retraction

of the amount offered for tax of Rs.8,00,02,000/- was done by the assessee and it

paid the due amount of tax on the same. It is correct that in the light of the above

facts, when the assessee has fully shown the income in its Trading Profit & Loss

A/c and the AO has accepted the books of account, without rejecting them, the

amount represented by investment in work done in Maruti City Project, of Rs. 6

Crore, cannot be rejected. The assessee had sought introduction of the surrendered

amount in the books of account. The AO had accepted and allowed one part of

such introduction being cash, whereas the other part, being investment in work in

progress, was denied. Had it been not invested in work in progress, as claimed by

the assessee, the cash to this extent would, obviously, have been found during the

survey. No such cash was found during survey. Had the assessee possessed full

particulars of the amount as advanced from the customers and the amount invested

in Maruti City Project, then there would have been no occasion to bring to tax this

income.

the AO at assessment stage. This has been duly endorsed by the AO in the initial

part of the assessment order. Therefore, the observation and conclusion of the AO

in not accepting the 6 Cr. as investment in work in progress is not supported by any

valid reason, since he has mentioned that no bills and vouchers of work done by

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the assessee have been produced, therefore the benefit of allowing Rs. 6 Cr.

investment in work in progress is not being allowed. The AO has not rejected the

books of account and has not found any discrepancy therein. The assessee has

complied with all the queries raised during the course of assessment stage and

further substantiated the investment for work done by submitting the certificate of

registered architect, which has not been found to be false by the AO. Further no

specific show cause notice was given before denying the benefit of Rs. 6 crore in

work-in-progress.

director never stated in his statements, or even before the AO, that the amount

received from various persons was invested in work in progress of Maruti City

project. In this regard, it is the submission of the assessee no question was asked by

the survey party with regard to investment done and further, before the AO, in the

assessment proceedings, it is clearly mentioned by the assesse that the advances

received have been invested in the project under consideration during the period

itself, as per para 3(iv) page 2 of the A.O's order.

invested in Maruti Residency project, as certified by the assessee's architect, is

Rs.4.25 crore and the investment done in F.Y. 2010-11 is Rs.2.47 crores, as per the

certificate. It is also mentioned that in another certificate of Maruti City project, the

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investment shown by the architect is Rs.34.75 lacs only. The certificate are at PB pages no. 42-45, however it is seen from these certificates that the amount taken as investment in Maruti City project at Rs.34.75 lacs, is only in respect of 7 row houses, where the construction was done during the year, and not on the entire Maruri City project. The Maruti City project of the assesse consisted of different type of structures being

- duplex houses - 9 units,

- plots - 218 units,

- row houses - 78 units,

- G +2 houses - 36 units

as has been mentioned in a chart of projects which was submitted before the AO in

the assessee’s submissions dated 23-01-2014 (PB page 33 – 39) and was available on record. The architect's certificate has only mentioned about the construction activity done in 7 row houses / plots, as mentioned in his certificate. Hence, to say that in Maruti City project as per the architect, the investment is only Rs.34.75 lacs, is erroneous. The assesse has submitted the trading account PB page 40, which is also mentioned in the assessment order at page 3, wherein it is clearly mentioned that the amount invested in Maruti City project was Rs.8,64,64,993/- as on 31st March 2011. It had an opening balance of Rs.78,23,295 and direct

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expenditure incurred during the year, apart from Rs. 6 crores invested out of the undisclosed income, was Rs.4,34,50,488/-Hence, to say that the architect certified the work at Rs.34.75 lacs, is erroneous and does not emerge from the records available with both the Authorities below.

‘M/s Kim Pharma (P) Ltd. Vs. CIT’, passed by the Punjab & Haryana High 11. Court on 27.04.2011 in ITA No.106/2011 (O & M), concerned a case where the nature and source of investment had not been explained. It is not so here, as discussed. The same is with regard to ‘CIT, Trichur, vs. M/s Kerala Sponge Iron Ltd. Kerala’, rendered by the Hon’ble Kerala High Court in ITA No.195/2014 on 11.04.2014 and the order dated 17.12.2012 of the Chandigarh Bench of the

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Tribunal in ‘M/s Liberty Plywood P. Ltd. Vs. ACIT, Ambala’, in ITA No.727/Chd/2012, for A.Y. 2005-06.

and it is accepted as such. The increase in clsoing stock claimed by the assessee at

Rs.6 crore is directed to be allowed to the assessee.

Order pronounced in the open court on 12/04/2018.

Sd/- Sd/- (DR. MITHA LAL MEENA) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 12/04/2018 *AKV* Copy forwarded to: 1. Assessee 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT AGRA