OSWAL ENTERPRISES,MUMBAI vs. ITO 24(3)(1), MUMBAI

O R D E R Per Shamim Yahya (AM) :-

This appeal by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals) [in short learned CIT(A)] dated 15.3.2016 pertaining to assessment year 2013-14.

1. The CIT(A) has erred in law and in facts to confirm action of AO to add Rs. 8,38,850/- being the amount received for sale of plot as cash credit specially when the sale deed itself for the same receipt was submitted before CIT(A).

2. The CIT(A) has erred in law and in facts to confirm action of AO without any finding from his part and also failed to consider the fact that the creditor was trade creditor as apparent from sale deed and section 68 cannot be applied to trade creditors. 3. The CIT(A) has erred in law and in facts to confirm action of AO without any finding from his part that the how appellant has failed to prove its onus and in fact it is AO who has failed to prove its onus. 4. The CIT(A) has erred in law and in facts to confirm action of AO without any finding from his part that the how the appellant has failed to prove genuineness, credit worthiness and identity of the creditor and specially when it was a trade creditor dully supported by sale deed.

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5. The CIT(A) has erred in law and in facts to confirm action of AO even When the amount is dully explained with all details and it cannot be treated as unexplained and specially when it has been converted to sales immediately after few days and evidenced by registered sale deed.

6. The CIT(A) has erred in law and in facts to confirm action of AO to make the addition purely on the basis of summaries and suspicion in spite of the facts that books are duly audited and accepted by the AO u/s 145.

7. The CIT(A) has erred in law and in facts to come to the conclusion that The appellant has not been able to substantiate with the aid of any cogent material as regards the transaction of sale of plot and which is contrary to facts as apparent from appeal order itself and The learned CIT has erred to pass the order without considering the material/evidences submitted before him in the form of (1) (Details of name alongwith full details of plot and address vide letter dated 23.11.15, (2)The details of sale for A.Y.14-15 vide letter dated 11/2/16, (3)cash book, (4) the fact that booking amount has been converted to sales on 8.4.13 vide registered sale deed, (5) Books audited u/s 44AB, (6) so e deed dated 3/4/18 and which shows that cash receipt of above amount is dully reflected at page no. 8 of sale deed.

B) Addition of Rs 47.42.9Q5/-be/nq 40% of turnover for low G.P.

2. The CIT(A) has erred in law and in facts to confirm action of AO to held that normal GP is at 40% as against shown at 21.09% without any basis, and purely on the basis of surmises and suspicion.

3. The CIT(A) has erred in law and in facts to come to the conclusion that the appellant has not been able to substantiate in detail the nature of expenses which have been incurred on development of the project as apparent from the documents in the form of all details vide letter dated 23.11.15, 6.1.16 & 11.2.16 containing following details specifically i.e. (1)The details of direct expenses and purchases vide point no. 15 (3) vide annexure (4) vide letter dated 11.2.16 and annexure attached (2) The detail of direct expenses- vide letter dated 23.11.15 vide point no. 15 (3) The details of purchases vide letter dated 23.11.15 vide point no.9 (4)The detail of expenses exceeding 50,000/- vide letter dated 23.11.15 vide point no. 15(5)AlI stock details at point no 3 of letter dated 23.11.15 .

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5. The CIT(A) has erred in law and in facts not quashing the order when the AO failed to issue show cause for above addition and which is against the contravention of CBDT Instruction No. 20/2015, Central Board of Direct dated 29th of December, 2015 and Any attempt of not affording an opportunity to the assessee would be violating principles of natural justice and any addition made in such a manner in assessment is bad in law.

7. The CIT (A) has erred in law and in facts to pass the order without considering all the material in spite of stated in the order itself.

“Return of income for the year under consideration was e-filed on 24.09.2013 declaring total income of Rs. Nil. Subsequently the assessee filed revised return on 28.05.2014 declaring total loss of Rs.7,23,833/-. It was picked up for scrutiny under CASS. Statutory notice u/s. 143(2) dated 23.09.2014 was issued and served on the assessee within stipulated time. The assessee is a partnership firm constituted of six partners engaged in the business as Developers of Land and Building etc. during the course of scrutiny proceedings the AR of assessee filed various details required for assessment for the period under consideration.

It was observed from AIR transactions of assessee that during the year there were cash deposits of Rs.17,14,003/- in saving account with HDFC bank Ltd., Senapati Bapta Marg, Mumbai, vide notice u/s. 24.09.2015 the assessee was asked to submit details of cash deposits made into the Bank Accounts during the year along with its source. In response vide letter dated 23.11.2015 the assessee submitted his reply. The submission made by the assessee was considered but not found to be acceptable. The assessee was specifically asked to submit details of source of cash deposits, it is pertinent to note that vide letter dated 25.02.2016 the assessee submitted cash book for the FY 2012-13.

The pattern of receipts from Babulal Jain Relatives at the fag end of FY in denomination of Rs. 1,95,000/- each for cash deposit in bank account to be reported in AIR is highly suspicious. The assessee did not submit the details at the first instance in his letter dated 23.11.2015 and subsequently, submitted the cash Book after more than three months on 25.02.2016 showing some receipts against sale of plots, including the above. It appears that after getting the query in regard to sources of cash deposit in bank, the assessee somehow managed to show the receipts against sale of plots. The use of word Relatives against plot no. 13 Babulal Jain also proves that the said party did not have cash balance at his own. For any cash credit

4 Oswal Enterprises transactions the onus was on the assessee to prove the identity & creditworthiness of party and genuineness of transactions in which the assessee grossly failed. Hence, the entire amount of Rs.38,850/- received from Babulal Jain-Relatives was considered for addition as unexplained cash credit u/s. 68 of the Act in hands of assessee. Accordingly, the addition comes to Rs.8,38,850/- which was added to total income of the assessee under Income from Other Sources.”

Lower gross profit shown on sale of plots:- It was observed that the assessee had shown sales of Rs. 294.37 lakhs against which Cost of goods sold was charged at Rs.242.50 lakhs. After charge of various expenditures the assessee had shown net loss of Rs. 7.38 lakhs. Vide notice u/s. 142(1) dated 24.09.2015 the assessee was asked to submit various details including details of project-1(1007) and Project-2(807), details of sales purchases along with name & address of the parties, details of Inventory of opening stock and closing stock, details of Direct expenses along with name and address of the parties to whom such payments were made alongwith copies of sample bills and copies of ledger accounts etc.

In response the assessee submitted details vide letter dated 23.11.2015, 06.01.2016 & 11.02.2016 which were placed on record.

The details submitted by assessee were carefully perused. The assessee has shown revenue from two projects i.e. project 1 & project 2 under both these projects the assessee had purchased land and sold some plots out of such land. The sale is made at Rs.2500/- per sq. mtrs. And the cost of sales was computed at Rs.2060.66 & Rs.1786.63 per sq. mtrs. respectively.

Looking at the project cost claimed by the assessee in several multiples of land cost i.e. more than 32 times in Project 1 and more than 5 times in project 2 the project cost escalation by the assessee cannot be ruled out. Also the assessee has grossly failed in its onus to submit complete details to prove the genuineness of expenses claimed. In these circumstances there was no other alternative but to make the addition on adhoc basis. On a conservative basis, the AO estimated a reasonable gross profit having earned by assessee @ 50% on sales. Such gross profit @50% on sales of Rs.2,05,07,778/- comes to Rs.1,02,53,889/- against which the assessee had already shown gross profit at Rs,43,25,253/-. Hence, the balance amount of Rs.1,02,53,889/- 43,25,253 = 59,28,636/- was added to the total income of the assessee.”

4. Upon assessee appeal learned CIT(A) confirmed the same holding as under :- “4.1.4 The ground of appeal nos. 1 to 5 relate to deposit of cash in the bank account of the appellant which the Assessing Officer has added under section 68 of the Act. The appellant has tried to prove the source of the said cash deposited in the bank account by explaining that the cash is received on sale of plot. The appellant has not been able to substantiate with the aid of any cogent material as regards the transaction of sale of plot and thus, the 5 Oswal Enterprises receipt of cash from one Mr. Babulal Jain. As a result, the ground of appeal nos. 1 to 5 of the appellant is hereby Dismissed. 4.2.1 The Ground of appeal nos. 6 to 8 relate to the addition made by the Assessing Officer on ad-hoc basis @50% of the sales. The case of the Assessing Officer is that the appellant is a developer of plots wherein he buys plot of big size and then develops them and sells them of small size and thus, the profits earned would be large. The details of expenses incurred on the development of the plot have been asked for by the Assessing Officer during the course of the assessment proceedings which the Assessing Officer has claimed have not been filed by the appellant and thus, having no choice left with him, an estimation has been done by him at 50% of the sales 4.2.2 Considering the facts in the present case together with the submissions of the appellant and primarily submission of the appellant that all the details as regards expenses incurred on development of plot having been filed with the Assessing Officer and also the aspect of non rejection of the books of account of the appellant and thus, the addition of ad-hoc disallowance being unwarranted by law; I find that there is merit in the argument of the appellant' however, the case of the Assessing Officer cannot be rejected in its entirety in as much as the appellant has not been able to substantiate in detail the nature of expenses which have been incurred on development of the project and having not done so and considering all the facts of the case in mind I direct 40% of addition as regards gross profit be made and direct balance 10% to be deleted. As a result, the ground of appeal nos. 6 to is partly allowed.”

6. I have heard learned Departmental Representative and perused the record. I find that the Assessing Officer has passed an order based on surmises and conjecture. His order is bereft on cogent material on which addition is based. Learned CIT(A) himself has further passed a contradictory order where he claimed that assessee and the Assessing Officer both are correct. The defect in Assessing Officer’s approach pointed out by learned CIT(A) that books have not been rejected, would not warrant sustaining the addition. I further note that the assessee in grounds of appeal has also raised the issue of lack of opportunity. Accordingly in the facts and circumstances of the case I deem it appropriate to remit the issue to the file of the Assessing Officer. The Assessing Officer should pass an order afresh after giving the assessee proper opportunity of being heard.

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Pronounced in the open court on 21.10.2021.