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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI C.N. PRASAD & SHRI S. RIFAUR RAHMAN
PER S. RIFAUR RAHMAN, A.M.
The captioned appeals have been filed by the assessee challenging the impugned orders of even date 31st December 2018, passed by the learned Commissioner (Appeals)–52, Mumbai, for the assessment year 2011–12, 2012–13, 13–14, 2014–15 and 2015–16, respectively.
2 M/s. Argent Construction
In all these appeals, ground no.1, being general in nature, hence no separate adjudication is required. Consequently, ground no.1, in all these appeals is treated as dismissed.
The issue arising out of ground no.2, in all the appeals, except variation in figures, raised by the assessee is, whether or not the learned CIT(A) was justified in confirming the addition on account of profit earned @ 50% of the gross receipts from the transactions recorded in the seized books.
Amount Gross A.Y. Profit (in `) 48,77,500 A.Y. 2011–12 19,26,945 A.Y. 2012–13 26,07,043 A.Y. 2013–14 24,93,693 A.Y. 2014–15 31,73,792 A.Y. 2015–16
The relevant facts relating to above ground are, assessee is a partnership firm engaged in the business of construction of residential complex. A search and seizure action under section 132 of the Income Tax Act, 1961 (for short "the Act") was conducted on 26th February 2015 at the residence of Shri Vipul Mangal, partner of the assessee- firm. Simultaneously, the business premises of the assessee-firm were also covered under section 133A of the Act. During the course of search and survey action, various loose papers, notebook, diaries, etc.
3 M/s. Argent Construction were found and seized / impounded, as the case may be, which indicated the acceptance of ‘on money’ on sale of the flats constructed by the assessee. Seized documents also reveal various payments/expenses made for the purpose of the construction business of the assessee.
A statement on oath was recorded from Shri Vipul Mangal, partner of the assessee firm under section 132(4) of the Act at the time of search proceedings by the search party. In that sworn statement, the partner of the assessee firm had categorically stated that there was on-money receipts on sale of flats in the project carried out by the assessee and which were duly reflected in the seized documents found during the search. The said partner had also stated that in the very same seized documents, there were certain details of expenditures incurred by the assessee in the very same project carried out by the assessee which were also kept outside the books of accounts. Accordingly, the said partner had pleaded before the Search authorities that the net profit emanating out of such unaccounted transactions shall be offered to tax by him in the return of income filed in response to proceedings pursuant to search and survey. The relevant questions in this regard from the said sworn statement recorded under section 132(4) of the Act from the partner of the assessee firm during the course of search proceedings are reproduced
4 M/s. Argent Construction herein below for the sake of convenience.
“Q.16. I am showing you Annexure-A-3, One planner of Extra marks written pages from 1 to 74 found and seized during the course of search proceedings under section 132 from your black colour bag found in your bedroom at your residence on 26.02.2015. Please confirm the same and explain the contents thereof. Ans: Yes, I confirm the same. The seare details of flat sales, cash received and cash expenses which is also available in soft copy in data back–up. For eg., Pg. no.24, sale consideration of Rs.125 lakhs is received out of which 20 lakhs is cash. Pg.33 Sale consideration of Rs.128 lakhs out of 23 lakhs is received in cash. “B” is abbreviation for Black and “W” is abbreviation is for White. Total amount of cash received on sale of flats is Rs.9.75 crore which is not recorded in regular books of accounts. Now I am offering the same for taxation in respective A.Y.” “Q. No.22. Do you want to say anything else? Ans. As mentioned in answer no.16, against the amount of 9.75 crores received from sales of flats, Argent Constructions have incurred several expenses and hence, the net amount may be offered for taxation.”
We notice from Pages no.63-69 of the paper book containing a letter dated 18th June 2015, addressed by assessee to the DDIT, Unit- 2(1), Investigation Wing, Mumbai, wherein it has been categorically stated by the assessee that on-money receipts on sale of flats was ` 9,75,50,000/- out of which ` 6,01,09,970/- totally spent by the assessee for the purpose of construction of the project belonging to the assessee firm which are not recorded in the books of accounts of the assessee. The details of these expenses were duly listed out in the seized document diaries and assessee sought deduction for the same. In this regard, the assessee also filed the entire details together with 5 M/s. Argent Construction the narration and the nature of payment and the name of the party to whom such payments were made together with the complete break-up with dates for the total unaccounted expenditure of Rs.6,01,09,970/-. Accordingly, the assessee offered for all the years put together unaccounted income as under:-
Gross receipts representing on- ` 9,75,50,000/- money on sale of flats Less:– Unaccounted expenses used in Construction of the ` 6,01,09,970/- project belonging to The firm. Net unaccounted income ` 3,74,40,030/- offered to tax for all the years put together
The assessee had submitted that the said net income of ` 3,74,40,030/- being the unaccounted income offered for all the years put together alone represented 38.38% of the gross unaccounted receipts. The main belief of the assessee is that the seized document in the form of diaries which contains details of unaccounted receipts on sale of flats as well as unaccounted expenses which were used for the purpose of assessee’s business should be considered in toto and benefit of deduction for the said expenditure be given. We find that the break-up offered by the assessee for various years areas under:-
A.Y. % Gross Receipts Expenses Net Income 2011-2012 10 9,755,000 6,010,997 3,744,003 2012-2013 17 16,583,500 10,218,695 6,364,805
6 M/s. Argent Construction
2013-2014 23 22,436,500 13,825,293 8,611,207 2014-2015 22 21,461,000 13,224,193 8,236,807 2015-2016 28 27,314,000 16,830,792 10,483,208 TOTAL 97,550,000 60,109,970 37,440,030
The assessee had offered aforesaid income in the respective assessment years by filing returns to the search and survey.
The assessee is following percentage of completion method in respect of its project and accordingly had offered the unaccounted receipts to the extent of work completed in the respective assessment years as tabulated above. There is absolutely no dispute with regard to the method of accounting followed by the assessee and the lower authorities have duly accepted the percentage of completion method followed by the assessee in the instant case. The A.O. observed that the expenses, as detailed in the seized diaries, are not proved to be meant for the purpose of business of construction in the assessee firm and accordingly denied deduction for the same and brought to tax only gross on-money receipts in the relevant years as under:-
Addition on Difference due accoupnt of Returned Assessed to non- Sr.No A.Y partners’ Income Income allowance of capital expenses contribution 1 2011-12 37,44,003 97,55,000 60,10,997 2,54,000 2 2012-13 63,64,805 1,65,83,500 1,02,18,695 –
7 M/s. Argent Construction
3 2013-14 86,11,207 2,24,36,500 1,38,25,293 – 4 2014-15 82,36,807 2,14,61,000 1,32,24,193 – 5 2015-16 67,39,205 2,73,14,000 1,68,30,792 – TOTAL 3,74,40,030 9,75,50,000 6,01,09,970 2,54,000
From the above table, it could be seen that for assessment year 2011-12 alone, the Assessing Officer had made further addition of `’2,54,000/- on account of partner’s capital contribution.
The Assessing Officer disregarded the claim of deduction towards expenses recorded in the seized diaries for the following reasons:-
“a) The assessee has not produced any documentary evidence to substantiate its claim of expenses. b) On perusal of the list provided towards expenses incurred, the ld. Assessing Officer observed that assessee has provided only the nature of expenses, or the name of the person to whom payments were made. Assessee has not furnished the full name of the persons to whom payments were made. c) In majority of the cases address of the persons and PAN were not provided by the assessee. d) In most of these cases, expenses were incurred in cash in excess of Rs.20,000/-there by violating the provisions of Section 40A(3) of the Act. e) The claim of the assessee that the expenses reflected in the seized diary are in the nature of architecture fees, the stamp duty, made to tenants as compensation for eviction, electrification fees, court case expenses, brokerage, parking lot eviction expenses, land demarcation expenses, NOC from various regulatory departments, revalidation fees, marble expenses, furniture expenses, plumber expenses, substation charges, legal charges, etc., cannot be believed as the same were not substantiated by the assessee.”
8 M/s. Argent Construction 11.1 The assessee has not produced any documentary evidence substantiate its claim of expenses. On perusal of the list provided towards expenses incurred, the Assessing Officer observed that assessee has provided only the nature of expenses, or the name of the person to whom payments were made. Assessee has not furnished the full name of the persons to whom payments were made. In majority of the cases address of the persons and PAN were not provided by the assessee. In most of these cases, expenses were incurred in cash in excess of ` 20,000/- thereby violating the provisions of Section 40A(3) of the Act. The claim of the assessee that the expenses reflected in the seized diary are in the nature of architecture fees, the stamp duty, made to tenants as compensation for eviction, electrification fees, court case expenses, brokerage, parking lot eviction expenses, land demarcation expenses, NOC from various regulatory departments, revalidation fees, marble expenses, furniture expenses, plumber expenses, substation charges, legal charges etc., cannot be believed as the same were not substantiated by the assessee.
11.2 The assessee has also furnished the name and address of the parties together with the specific amounts paid to them and also mobile number of those parties before the Assessing Officer which are tabulated in Pages–16 & 17 of the assessment order to the tune of ` 500,06,930/- out of the total expenditure of ` 601,09,970/-. No cross
9 M/s. Argent Construction verification whatsoever was sought to be made by the Assessing Officer even in respect of details submitted by the assessee for ` 500,06,930/-. Despite this fact, the Assessing Officer had resorted to disallow the entire expenditure reflected in the very same seize documents which contains the details of on-money receipts which had been duly considered in the income offered by the assessee in the returns for the A.Y 2011-12 to 2015-16.
Aggrieved with the above order, assessee preferred an appeal before CIT(A) and filed detailed submissions. Before the ld. CIT(A), the assessee had also made an additional claim of expenses of ` 1,88,51,945/- representing additional claim of expenses which were omitted to be claimed before the Assessing Officer at the time of assessment proceedings. The assessee submitted before the learned CIT(A) that the details of the said claim were also reflected in the same seized document Annexure A-3 at Pages–42, 44, 46, 48, 50, 52, 54, 56, 58, 60, 62, 64, 66, 68, 70 & 71. Accordingly, the assessee pleaded for claim of fresh deduction in the sum of ` 1,88,51,945/- before the learned CIT(A).
After considering the submissions of the assessee, the learned CIT(A) without getting into these intricate details of expenses which were corroborated with entries in the seized documents proceeded to allow deduction towards unaccounted expenses to the extent of 50%
10 M/s. Argent Construction of gross receipts on ad–hoc basis and distributed the same to various years in accordance with percentage completion method followed by the assessee. The relevant observation of the learned CIT(A) in this regard are reproduced herein for the sake of convenience:-
“6.11. From the decisions of the Hon’ble High Courts cited above, it can be concluded that if the notings in the seize documents in respect of the unaccounted receipts are being considered to be true and considered while determining the undisclosed income of an assessee, the notings on the same seized documents in respect of the expenses a real so required to be considered while determining its undisclosed income. It is also relevant to note that the unaccounted transactions are carried out primarily on trust and considering the inherit nature, the level of documentation is minimal. Therefore, it is not fair on the part of AO to insist on the complete details as well as documentation in respect of the said unaccounted cash expenses as held in the aforesaid two decisions of the Hon’ble High Courts. Therefore, in principle, it is held that the Assessing Officer should have allowed set–off of the unaccounted cash expenses as per the notings on the seized documents. However, only those unaccounted cash expenses can be allowed as a deduction which relate to the said unaccounted on-money receipts of Rs.9,75,50,000/-. Also, such unaccounted cash expenses should be revenue in nature and also not prohibited by law. Moreover, as per the matching principle only such unaccounted expenses can be allowed as a deduction where the corresponding receipts have been booked. 6.12 In course of the appellate proceedings, it was noted that the said total amount of unaccounted cash expenses of Rs.6,01,09,970/- also includes cash payment of Rs.50,00,000/- for buying land at Taloja which clearly cannot be allowed to be set off against the said on-money receipts. Further, the assessee itself in course of the appellate proceedings has quantified the payments which are prohibited by law to be of Rs.10,50,000/- and the expenses of capital nature to be of Rs.1,00,000/-. Further, as mentioned earlier, it is a fact that the level of documentation in respect of the said unaccounted cash expenses is minimum and therefore, it is almost impossible to ascertain as to what portion of the said unaccounted expenses relate to (i) the project of Silver Arch, (ii) is not capital in nature, (iii) not prohibited by law and (iv) whether the corresponding in come as per matching principle has 11 M/s. Argent Construction duly been accounted. In view of such a factual position, the profit on the said on-money receipts of Rs.9,75,50,000/- has to be reasonably estimated since the exact amount out of the said unaccounted expenses which can be allowed as a deduction while computing the undisclosed income of the assessee cannot be quantified. Moreover, once the undisclosed income is being determined in an estimation basis, the provisions of Section 40A(3) cannot be applied as held by the Hon’ble High Courts in the cases of Smt. Santosh Jain (296 ITR 324) (P&H) and Banwari Lal Banshidhar, 229 ITR 229 (All.) 6.12 On the issue of what should be the reasonable profit margin which should be applied, the assessee contends that the profit margin shown by it in its books of 19.97% is much higher than the margin shown in the construction industry where even margin of 8% is considered to be reasonable. It was further submitted that on the said on-money receipts of Rs.9,75,50,000/- it has offered a very high margin of 38.38% and therefore, the assessee contended that the action of the Assessing Officer of making further additions, is not correct. These contentions of the assessee cannot be accepted since, the margin earned by an assessee is to be decided on a case-to-case basis. If an assessee has claimed the entire expenses related to its project in its books, in that case, the entire on-money receipts have to be considered while determining its undisclosed income. Further, if the component of on-money vis-à- vis the accounted / cheque receipt is higher, the profit embedded in the on-money component will be lower since more proportion of the on-money will be used for the unaccounted expenses as well as the regular expenses. In the instant case, the assessee itself has determined the net surplus/profit; to be of Rs.3,74,40,030/- @ 38.38% after considering the unaccounted cash expenses in respect of the said on-money receipts. Moreover, as noted above primary verification itself revealed that the said unaccounted cash expenses of Rs.6,01,09,970/- includes expenditure of Rs.50,00,000/- related to some other project, expenses of Rs.10,50,000/- which are prohibited by law and expenses of Rs.1,00,000/- which are capital in nature. Moreover, as noted earlier, in terms of the matching principle, only that portion of such expenses can be allowed for which corresponding on-money receipts have been booked during the relevant year. Therefore, it will be fair and reasonable to estimate the profit in respect of the on-money receipts of Rs.9,75,50,000/-by applying a margin of 50% which will factor the non-allowable expenses out of the said unaccounted cash expenses of Rs.6,01,09,970/-. Accordingly, the profit of the assessee on the said on-money receipts works out to Rs.4,87,75,000/-. Since, only 10% of the project was incrementally completed during the relevant year, the profit for the relevant year is therefore, estimated at Rs.48,77,500/-.”
12 M/s. Argent Construction
Aggrieved with the above order, assessee is in appeal before us.
Before us, the Ld AR brought to our notice basic facts and the findings of Ld CIT(A) at Page 10 of the order. He submitted that the Assessing Officer accepted the on money found during search but rejected the expenses incurred out of the above on money receipt, which was incurred only for the purpose of business. He also submitted that the relevant expenses were found in the same set of papers found during search. The assessee had submitted during the search as well as assessment proceedings that it is offering the net income for tax purpose. He submitted the learned CIT(A) accepted the plea of the assessee for the expenses claim and also submitted that the assessee made additional expenses claim of ` 1.88 crore before Ld CIT(A) which assessee omitted to claim in its return. These additional expenses were part of the same documents which were found during search. He submitted that the learned CIT(A) after considering the additional evidence submitted in support of above claim, still preferred to restrict the expenses on ad–hoc basis. In support of his submissions, he brought to our notice the seized documents which is at paper book Pages–80 to 86. He prayed that the income should be assessed on the basis of real income. He submitted that even income is assessed under presumptive basis, it may be at 8%, whereas the assessee had already declared more than the above percentage.
13 M/s. Argent Construction
On the other hand, Ld DR submitted that the claim of the assessee that it had incurred expenditure to the extent of 81% of income is factually incorrect. He brought to our notice the Para–6.3 of learned CIT(A) order and submitted that the assessee declared 19.97% as per its regular books of account and 38.38% of income which was declared by the assessee itself before Assessing Officer. The additional deduction claim before learned CIT(A), which is at Page–79 of the paper book and he submitted that the assessee has not claimed the additional deduction. Further, he submitted that the Argent and Splendor are two different entities, the entity Splendor is already in the business of marketing and sales for the entire group, there is no necessity for the assessee to incur brokerage expenses.
Further, he submitted that the assessee claim several unlawful expenses, he brought to our notice the payments made to Mr. Charanjeet Thapar and he submitted that this is return of loan amount taken by the assessee which the assessee cannot claim the same as expenditure. He also brought to our notice payment made to Mr. Anil Sharma Taloja towards purchase of land at Taloja of Rs. 50 lacs and also payment made to Bhoomi group. He also submitted with reference to the assessee’s reply dated 18.06.2015 that assessee has not made any claim of the expenditure before the Assessing Officer or the CIT(A) but only at the fag end, it was claimed even though
14 M/s. Argent Construction assessee was given several opportunities to prove the genuineness of the expenses. He also brought to our notice Para 4.9 and 4.10 of the assessment order and submitted that the assessee never proved the genuineness of the expenditure. He also submitted that the case law relied by the counsel for the assessee is distinguishable and submitted that the CIT(A) has not verified the expenses claimed by the assessee but still allowed the same on ad–hoc basis to the extent of 50% of the on money received. Therefore, the expenses claimed by the assessee to the extent of Rs.1.88 crore was never claimed and not verified by authorities, therefore the claim should not be entertained.
In rejoinder, Ld AR submitted as below:–
“20.1 He submitted that the Departmental Representative mentioned that we have offered for tax 38.38% of gross on- money received and not 19.05% as claimed by the Authorised Representative during the course of hearing. In this connection, please find below the calculation of the aforesaid 38.38% and 19.05% – Total on-money receipts 9,75,50,000 Less: Claimed before AO 6.01.09,970 –––––––––– 3,74,40,030 – 38.38% Less: Additional claimed before 1,88.51,945 CIT(A) Net income 1,85,88,085 – 19.05% ======= It is thus, he submitted that the assessee has actually offered 19.05% of gross on-money receipts as income and not 3838%. The additional claim of Rs 1,88,5 1,945 was made before the CIT(A) by filing the details before him by letter dated nil of Nagin Parekh and Associates, Chartered Accountants. The claim was put before the CIT(A) by the aforesaid letter and during the 15 M/s. Argent Construction discussions with the CIT(A) in the appellate proceedings. He submitted that the assessee staked a claim of additional expense of ` 1,88,51,945, by giving the details of expenses; such expenses emanate from the same seized documents from where the income of Rs 9.75 crores is offered. 20.2 The Departmental Representative has referred to Question nos 5 and 9 of statement on oath dated 26.02.2015 of Mr Vipul Mangal, partner of appellant-firm wherein Mr Vipul Mangal stated that Messrs Argent Constructions is a construction company and Messrs Splendor Developers is a marketing and sales company and accordingly, the Departmental Representative raised objection on the claim of brokerage expenses (for instance at Sr nos 138, 149, 170, etc) against the income from construction activity. According to him, brokerage expense paid to various persons cannot be claimed by us when a separate entity namely, Splendor Developers, a group company is engaged in marketing and sales activities. In this connection, he submitted that some flats have been sold through outside brokers and not through Splendor Developers; we have paid the said brokerage to such outside brokers in cash and hence, the same should be allowed as deduction. 20.3 The Departmental Representative referred to payments made to Mr Charanjeet Thapar as appearing in the seized material and submitted that this is return of loan and hence, ought not be allowed as expenditure; he referred to the receipts of amounts on the receipt side of the diary seized. In this connection, he submitted that Mr Charanjeet Thapar together with his family members purchased six flats in our project 'Silver Arch' and paid Rs 291 lacs as on-money which has been declared and offered to tax (in Rs 9,75,50,000) as unaccounted income - refer page no 66 of the paper book. Later, some disputes have arisen and, assessee repaid Rs 34 lacs out of the aforesaid Rs 291 lacs and claimed the said Rs 34 lacs as expenditure/ reduction in receipt of on-money. As such, he submitted that Rs 34 lacs is not a repayment of loan but refund of excess on-money received and hence, the same ought to be allowed as deduction' reduction from on-money received. 20.4 He submitted that the Departmental Representative submitted that there are several expenses appearing in the details of expenses claimed (page nos 80 to 85 of the paper book) which are not permissible in law and hence, ought not to be allowed as deduction inasmuch as the same is not allowable under section 37
16 M/s. Argent Construction of the Act. He more particularly referred to payments made to 'Faisal (OSD)' and 'Architect Mr Rasik Dudhwadkar' for Deficiency! CC! Fire NOC etc. In this connection, he submitted that Mr Rasik Dudhwadkar was the key architect handling the project 'Silver Arch'. Assessee paid architect fees to Mr Rasik Dudhwadkar in phase-wise manner that is, at every stage of work completion - for example, on getting CC, assessee paid ` 20 lacs in cash on 09.01.12 (refer Sr. No 152), similarly, cash ` 5 lacs is paid to him towards his professional fees on 01.03.12 for obtaining "fungible parking" (refer Sr. No 156), going further, cash ` 2.50 lacs is paid to him on 07.03.12 when he obtained Fire NOC (refer Sr. No 157), cash ` 11 lacs is paid to him on 13.03.12 when he obtained certificate for open space (refer Sr. No 158), and so on and so forth. Cash paid to the architect as his professional fees for work done, stage wise, is allowable expenditure and not hit by the provisions of the Explanation to section 37 of the Act. Further, he submitted that there is no evidence to suggest that these payments are not permissible in law - neither the Assessing Officer nor the CIT(A) has made any such allegations. Thus, it is submitted that the Departmental Representative cannot better the case of the Assessing Officer. As such, it is submitted that the amount paid to Mr Rasik Dudhwadkar ought to be allowed as a deduction. Further, insofar as 'Faisal (OSD)' is concerned, we submit that Faisal is our person handling 'on-sight development' work and hence, it is mentioned as Faisal (OSD); thus, OSD here means on- site development. Further, there is no evidence to suggest that these payments are not permissible in law - neither the Assessing Officer nor the CIT(A) has made any such allegations. Thus, it is submitted that the Departmental Representative cannot better the case of the Assessing Officer. As such, it is submitted that the amount paid to Faisal OSD) ought to be allowed as a deduction. 20.5 The Departmental Representative referred to payment of Rs 50 lacs to Mr Anil Sharma Taloja and submitted that the said Rs 50 lacs is paid towards purchase of land at Taloja and hence, being a capital payment, should not be allowed as deduction. He further submitted that the assessee itself admitted that the said ` 50 lacs is paid towards purchase of land at Taloja. In this connection, he submitted that it is an undisputed fact that we have carried out only one project by the name of 'Silver Arch' situated in Chembur, Mumbai. We have not purchased any land at Taloja - refer our balance sheet, however, we under a 17 M/s. Argent Construction misconception stated that the said payment of Rs 50 lacs is towards purchase of a land at Taloja. It is submitted that the said payment is towards purchase of land on which the project is built, and not for any separate land at Taloja. The phrase Taioja' is mentioned in the seized diary for the reason that Mr Anil Sharma was from Taloja and not because the land was located in Taloja. As such, we submit that the said expenditure of Rs 50 lacs should be allowed as a deduction. 20.6 The Departmental Representative also referred to payments to Bhoomi Group In this connection, he submitted that the payment is made for purchase of TDR which is very clearly mentioned in the narration giving the nature of expense (refer Sr. Nos 14 and 15, Statement 1.”
Considered the rival submissions and material on record. It is not in dispute that the details of unaccounted expenses in the sum of ` 6,01,09,970/- were part of the very same seized documents vide seized documents referred in Annexure-A3 which also contained details of on-money receipts to the tune of ` 9,75,50,000/- for all the assessment years put together. It is trite law that the said seized documents should be considered in toto and the revenue cannot leave that part of the seized documents which is detrimental to it and consider only that part of the seized document which is favourable to it while framing the assessment. Reliance in this regard has been rightly placed by the ld.AR at the time of hearing on the following decisions:-
i) CIT v/s Indeo Airways (P.) Ltd, 349 ITR 85 (Delhi High Court); ii) CIT vs Damac Holdings (P.) Ltd. 401 ITR 495 (Kerala High Court); iii) C.Chander Mohan Mehta v/s ACIT, 71 ITD 245 (Pune Tribunal); iv) DCIT v/s Kanakia Hospitality (P.) Ltd. 179 ITD 1 (Mum.) (Trib.).
18 M/s. Argent Construction
Hence, certainly deduction towards unaccounted expenses reflected in the very same seized documents need to be granted. However, what is relevant to be considered is whether those expenditure are revenue in nature, whether they are not personal in nature and allowable as deduction within the meaning of Section 37(1) of the Act. We find that the ld.CIT(A) had categorically observed that out of the total expenditure of ` 6,01,09,970/-, the sum of ` 50,00,000/- pertains to land at Taloja, which represents amount spent for some other project of the assessee and expenses of ` 10,50,000/- which are prohibited by law and ` 1,00,000/- which are capital in nature. There is a categorical finding to this effect in Para 6.13 of the ld. CIT(A) as reproduced supra. Against this finding, the Revenue is not in appeal before us. Hence, the various arguments made by the ld.DR before us at the time of hearing need to be looked into from the perspective of finding given by the ld. CIT(A) in his order which is not appealed by the revenue before us. We find that the ld. DR was trying to point out that assessee had incurred various expenses which are prohibited by law and the same is not restricted to ` 10,50,000/- alone as mentioned in the order of the ld. CIT(A). We find that the ld. DR was trying to improve the case of the revenue before us which is not permissible as per law. Reliance in this regard is placed on the Special Bench of Mumbai Tribunal in the case of Mahindra and Mahindra Ltd.,
19 M/s. Argent Construction vs. DCIT reported in 2009-TIOL-255-ITAT-Mum-SB. Hence, the finding given in this limited aspect in the order of the ld. CIT(A)need not be disturbed at this second appellate forum. We also find that assessee had also tried to match the total expenses to the tune of ` 5,00,06,930/- out of the total expenses of ` 6,01,09,970/- by giving the name, address, mobile number, nature of payment of the parties for their respective amounts before the Assessing Officer itself. We find that the learned Counsel for the assessee also responded to the submissions made by the Ld DR, which was reproduced supra for convenience, they also explained the reasons clearly. However, considering the fact that these are unaccounted expenses and all these unaccounted expenses could not be fully substantiated by the assessee with proper supporting documents and also considering the fact that assessee’s declared profit was 19.05% as per its regular books of accounts which is also categorically admitted by the ld.CIT(A) in page 25 of his order, we hold that the assessee would have made profit of 20% approximately on these unaccounted transactions by having the benefit in the form of huge cash discounts, huge savings in levy of indirect taxes, better negotiation of prices of materials due to cash purchases and also the expenses specifically identified by Ld CIT(A), which the Ld AR has explained the nature of expenses in his submissions before us, may be few expenses which may be not substantiated by the assessee due to the fact that these expenses met
20 M/s. Argent Construction out of unaccounted cash and they may not taken particular interest to record the proper reasons. Hence, for the sake of justice and fairness, we direct the Assessing Officer to add 20% of ` 9,75,50,000/- (gross receipts) as the unaccounted income which has to be distributed to all the assessment years in accordance with the percentage of work completed by the assessee.
With regard to yet another observation made by the Assessing Officer with regard to applicability of provisions of Section 40A(3) of the Act are concerned in respect of unaccounted business expenses incurred in cash, we find admittedly that these are unaccounted transactions and hence, the same would have to be obviously incurred in cash and accordingly, the provisions of Section 40A(3) of the Act cannot be brought into operation at all. It is not the case of the revenue that the various expenses reflected in the seized documents are not meant for the purpose of assessee’s business other than the specific instances pointed out by the ld. CIT(A) in Para 6.13 of his order such as expenses that are capital in nature, expenses which are prohibited by law and expenses that are relevant for the different project of the assessee. Admittedly, the seized document contains unaccounted income as well as unaccounted expenditure both were duly transacted only in cash. Hence, the applicability of provisions of Section 40A(3) of the Act to the said payments would not serve the 21 M/s. Argent Construction scheme of taxation and would ultimately result only ending up in taxing the entire unaccounted gross receipts alone without giving benefit of deduction to the assessee. This is certainly not the intention of the legislature and more so, the provisions of the Act. Accordingly, the grounds raised by the assessee in this regard for all the assessment years are partly allowed.
The ground no.3 raised by the assessee is with regard to addition made on account of capital contribution in the assessee firm by the partner.
We have heard rival submissions and perused the materials available on record. We find that the partners of assessee firm have made capital contributions for an aggregate amount of ` 1,00,09,000. It is not in dispute that assessee’s partner had categorically stated in the statement of oath recorded under section 132(4) of the Act at the time of search that capital contribution in the assessee firm has been made out of on-money receipts on sale of flats. Hence, the source of capital contribution gets duly explained by the on-money receipts. We find that the assessee had offered on-money pertaining to assessment year 2011-12 at ` 97,55,000/- and accordingly, the Assessing Officer had allowed telescoping of the same with capital contribution made by the assessee to that extent. This evidently led to a difference of ` 2,54,000/- in capital contribution (` 1,00,09,000–97,55,000/-) which 22 M/s. Argent Construction remain unexplained, which was sought to be added by the Assessing Officer. We find that the seized documents does not state the year of receipts of on-money by the assessee. In this regard, we hold that the benefit should be given to the assessee by holding that the on-money receipts that pertaining to the entire project were received by the assessee in the initial year itself and the said money is certainly available for making capital contribution in to the assessee firm, irrespective of the fact that only part of the such on-money receipts has been offered to tax in A.Y. 2011-12. What is to be seen is the availability of cash in the hands of the partner to make the capital contribution in the assessee firm which is explained by on-money receipts. Hence, we direct the Assessing Officer to delete the addition made in the sum of ` 2,54,000/- being the deficit and unexplained capital contribution. Accordingly, the ground No.3 raised by the assessee is allowed.
Ground no.4 raised by the assessee is general in nature for A.Y. 2011-12 and does not require any specific adjudication.
Insofar as other appeals for the assessment year 2012–13, 2013– 14, 2014–15 and 2015–16 are concerned, the issues arising out of the grounds of appeal raised in these assessment years are mutatis mutandis identical to the issues arising out of the grounds of appeal raised in the assessment year 2011–12 decided supra, the findings of 23 M/s. Argent Construction which are equally applicable to the assessment years 2012–13 to 2015–16 as well , since the facts and circumstances are similar to the assessment year 2011–12. Conclusively, the appeals for assessment year 2012–13 to 2015–16 are partly allowed.
In the result, all the appeals are partly allowed. Order pronounced in the open court on 02.08.2021