NEELKAMAL CINEPLEX PVT. LTD.,DELHI vs. ITO, NEW DELHI

This appeal filed by the assessee is directed against the order dated 31.03.2016 of the CIT(A)-20, New Delhi, relating to assessment years 2011-12.

Facts of the case, in brief, are that the assessee is a company and engaged in the business of real estate developers. It filed its return of income on 24th March, 2012 declaring the total income at Rs.1,15,810/-. During the course of assessment proceedings, the AO noted from the balance sheet of the assessee that share application money of Rs.4,02,50,000/- was pending for allotment out of which an amount of Rs.77 lakh was received during eh year and Rs.3,25,00,000/- was shown as outstanding as on 01.04.2010. The AO asked the assessee to file the confirmation of share application money pending for allotment including those received during the year along with ITR, balance sheet and bank statement with source to prove the identity, genuineness and credit worthiness of the parties and also file justification for non-allotment of shares. The assessee filed the following chart:- Particulars Opening Addition Closing Balance Balance as on 01.04.2010 31.03.2011 Rama Ply Board India Private 57,00,000 Limited Satkar Fin Lease Private Limited 40,00,000 Zayatt Construction Private Limited 10,00,000 Total Amount Received during period 325,50,000 107,00,000 432,50,000 01.04.2010 31.03.2011 3. In absence of filing of any confirmation, address, IT particulars and bank statement to prove the identity, genuineness and credit worthiness of the parties from whom share application money was received, the AO made addition of Rs.1,07,00,000/- to the total income of the assessee.

Similarly, the AO observed that there is difference in opening stock and closing stock since the opening stock as on 01.04.2010 was appearing at Rs.12,15,76,258/- whereas the closing stock shown as on 31.03.2010 was Rs.11,38,67,290/-. He, therefore, asked the assessee to substantiate the difference of Rs.77,08,968/-. It was explained by the assessee that during the year expenditure of Rs.77,08,967/- was incurred for the completion of mall which was added to the opening stock while filing the return of income electronically.

Since there was difference in the figure of share application money received and opening stock and closing stock, the AO held that the books of account are not reliable. He, therefore, invoked the provisions of section 145 of the IT Act and estimated the net income of the assessee at Rs.11,17,600/- being 8% of gross receipt of Rs.1,39,70,000/- declared in the ITR form. Since the assessee company has declared the net profit of Rs.1,15,812/-, the AO made an addition of Rs.10,01,788/- to the total income of the assessee being the difference. The AO, accordingly, completed the assessment at a total income of Rs.1,96,55,650/- as against the returned income of Rs.2,44,892/-

In appeal, the ld.CIT(A) restricted the addition of Rs.1,07,00,000/- to Rs.57 lakhs being the amount received from Rama Ply Board India Private Limited. So far as the addition of Rs.77,08,967/- is concerned, the ld.CIT(A) upheld the action of the AO by observing as under:- 3

So far as the estimation of GP at 8% is concerned, the ld.CIT(A upheld the action of the AO by observing as under:-

Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds:-

That the Ld. CIT (Appeal) has erred in law and on facts in confirming the addition of Rs 10,01,788/-being the estimated business income of the assessee at 8% of the total sales for the year under consideration and upholding the rejection of Books of Accounts by AO .

That the impugned appellate order is arbitrary, illegal, bad in law and in violation of rudimentary principles of contemporary jurisprudence.

Grounds of appeal No.1, 5 and 6 being general in nature are dismissed.

So far as ground of appeal No.2 is concerned, the ld. Counsel for the assessee submitted that both the authorities have failed to appreciate that the assessee was following revenue recognition method and the difference has happened due to the format of ITR in which the return of income has to be submitted. He submitted that the books of account of the assessee are audited which reflect the correct figure of the opening and closing stock. Referring to page 36 of the paper book, Schedule ‘G’, the ld. Counsel for the assessee drew the attention of the Bench to the same and submitted that if this page is read with page 109 of the paper book it will prove that the figures were wrongly entered in the return of income. He submitted that the above fact was brought to the notice of the AO which he has ignored. He submitted that the entries in the books of account are not sacrosanct for determining the income of the assessee. He further submitted that it is also an admitted fact that the assessee was having no unaccounted stock. He submitted that the complete details of inventory was provided during the course of assessment proceedings which was matching with the audited books and, therefore, merely because the expenses have been wrongly added in the opening stock, the same does not mean that the assessee has not incurred these expenses. He submitted that the ld.CIT(A) while accepting the contention of the assessee sustained the addition on the ground that date and purpose of these expenses are not clear. He failed to appreciate that this figure is of the expenses incurred for carrying out the construction of the properties. The heading of these expenses, thus, suggests that the expenses are relevant for carrying out the business of real estate. He further submitted that no separate addition u/s 69C has been made by the AO vis-à-vis the expenses of Rs.77,08,967/-. The ld. Counsel for the assessee filed a chart containing the net profit rate for the last four years including the year under appeal. Without prejudice to the above, he submitted that it is the settled proposition of law that once the books are rejected, then, the same books cannot be visited again for making other additions. For the above proposition, he relied on the decision of the Rajasthan High Court in the case of Malpani House of Stones vs. CIT (2017) 395 ITR 385 (Raj).

So far as ground of appeal No.3 is concerned, the ld. Counsel for the assessee submitted that the AO has adopted the net profit rate of 8% which has been upheld by the CIT(A). He submitted that in the line of business of the assessee and considering the past results, the net profit cannot exceed 2%. He accordingly submitted that the net profit rate adopted by the AO and the CIT(A) at 8% should be reduced to 2%.

The ld. DR, on the other hand, heavily relied on the order of the CIT(A). He submitted that the books of account maintained by the assessee are not at all reliable. The AO has rightly rejected the book results and has gone for estimation of profit at 8%. So far as the addition of Rs.77,08,967/- is concerned, he submitted that there is difference in the closing stock of the preceding year vis-à-vis the opening stock of the current year which the assessee could not reconcile. Therefore, the ld. CIT(A) was justified in sustaining the addition made by the AO.

We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO, in the instant case, completed the assessment u/s 144 of the IT Act wherein, apart from making the addition u/s 68 of the Act, made addition of Rs.77,08,967/- being the difference in the closing stock of the preceding year and opening stock of the current year and made further addition of Rs.10,01,788/- being the difference in the net profit adopted by him at 8% of the total receipts and the net profit declared by the assessee. We find, the ld.CIT(A) upheld the action of the AO the reasons for which have already been reproduced in the preceding paragraphs. It is the submission of the ld. Counsel for the assessee that once the books of account are rejected, the AO cannot revisit the same books for making other trading additions. Further, it is also his argument that the profit rate of 8% adopted by the AO and upheld by the CIT(A), in the instant case, is on the higher side. A perusal of the net profits for different assessment years filed by the ld. Counsel for the assessee in the paper book shows the following results:- A.Y Turnover Net profit % of profit Status of Return Remarks 2011-12 1,85,10,856/ 3,95,477 2.14 143(3) Present matter - 2012-13 1,61,09,261 7,05,676/- 4.38 143(3) Final 2013-14 8,12,31,117 (77,68,545/-) N.A 143(3) Final 2014-15 2,90,45,585/ (12,90,983/-) N.A 143(3) Final -

We find, in the instant case, the assessee has explained the difference in the closing stock figure of the last year and the opening stock figure of the current year filed before the AO and the CIT(A). However, the same was rejected on the ground that the details of the expenditure and date of incurring such expenditure along with the purpose was not given. However, at the same time, it is also an admitted fact that the books results were rejected u/s 145(3) of the IT Act and the AO has gone for estimation of profit. Considering the totality of the facts of the case and considering the fact that there is difference of Rs.77,08,967/- in the closing stock of preceding year and the opening stock of the current year, we are of the considered opinion that adoption of net profit rate of 3% on Rs.2,16,78,967/- (i.e., the turnover of Rs.1,39,70,000/- + Rs.77,08,967/- being the difference in stocks) will meet the ends of justice. We accordingly set aside the order of the CIT(A) and direct the AO to recompute the addition by considering the net profit at Rs.6,50,369/- less net profit already disclosed by the assessee at Rs.1,15,812/- (subject to verification). Grounds of appeal No.2 and 3 filed by the assessee are accordingly partly allowed.

Ground of appeal No.4 relates to the order of the CIT(A) in confirming the addition of Rs.57 lakhs.

The ld. Counsel for the assessee submitted that during the year, the assessee has received fresh share application money to the tune of Rs.1,07,00,000/-. In support of the same, the assessee filed a few documents with the AO and certain other documents before the CIT(A) with an application for accepting the additional evidences. On the basis of such additional evidences, the CIT(A) called for a remand report from the AO. After considering the remand report, the ld.CIT(A) deleted Rs.50 lakhs and sustained Rs.57,00,000/-. The ld. Counsel for the assessee submitted that although the assessee has filed various details during assessment proceedings as well as remand proceedings, however, the same were completely ignored and the addition sustained by the CIT(A) to the extent of Rs.57 lakhs is not correct. The ld. Counsel for the assessee drew the attention of the Bench to the following sequence of events as per para 20 of his synopsis which is as under:- Date Particulars Page No 1.04.2010 Rama Ply Board merged with AAA paper Pg No-4 of decisions PB 22.09.2011 Search in Rama Paper Mill group was conducted Pg- 9 Decisions PB 14.11.2011 & Hon’ble Delhi High Court allowed merger with effect Pg No 8 of 08.2.2012 from 1.04.2010 Decisions PB 24.03.2012 Present assessee filed return of Income for the impugned Admitted fact in AO year order 06.06.2013 AO of Rama issued notice for assessment of AY 2011- Pg no-9 of 12 under section 153A. No addition in the hands of AAA Decisions PB vis-a-vis advance/investment made in the assessee Company 28.04.2017 Hon’ble Lucknow Bench of the ITAT quashed the Pg No11 of assessment proceedings of AAA cases Decisions PB

He submitted that a perusal of the above shows that there is not even an iota of doubt vis-à-vis identity of M/s Rama Ply Board India Pvt. Ltd. Further, the assessee has explained that the total outstanding of M/s Rama Ply Board India Private Ltd., was Rs.3.17 crore which has been accepted by the CIT(A). Further, during the course of search in case of Rama Paper Mill group, nothing incriminating was found that the assessee has received back his own money. Further, all outstanding amounts were finally settled in 2014-15. He submitted that during A.Y. 2014-15, the AO in the case of Rama Ply Board India Private Ltd. (now M/s AAA Paper) had made an addition of Rs.2.7 crore on the ground that it has received a loan from the assessee. However, the CIT(A), after considering the remand report and statements filed by the assessee has observed that M/s AAA Paper has ultimately got a shop in Senior Mall developed by the assessee against their advance and it is not an advance from Nilkamal to AAA Paper. He accordingly submitted that the addition made by the AO and sustained by the CIT(A) should be deleted. In his alternate contention, he submitted that the matter should be restored to the file of the AO or the CIT(A) with a direction to adjudicate the issue afresh in the light of the submissions now made that the amount has already been refunded in the subsequent years through sale of shop.

The ld. DR, on the other hand, heavily relied on the order of the CIT(A).

We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions relied on by the parties. We find, the AO, in the instant case, made addition of Rs.1,07,00,000/- u/s 68 on the ground that the assessee could not substantiate the amount received from three different parties on account of share application money. We find, in appeal, the ld.CIT(A) deleted the addition of Rs.40 lakhs received from Satkar Finlease P. Ltd. and Rs.10 lakh received from M/s Zayat Construction (P) Ltd. for which the Revenue is not in appeal before the Tribunal. So far as the order of the CIT(A) sustaining the addition of Rs.57 lakhs from Ram Plyboard Industries P. Ltd., is concerned, we find he sustained the same by observing as under:- “……. Therefore, the appellant’s submission with regard to share application money amounting to Rs.50 lakhs from the above 2 entities are accepted. However, during the year under consideration the appellant has got total of rs. 1,07,00,000/- therefore, the balance details were not produced before the A.O as is mentioned in the assessment order. It has not been filed as additional evidences during appellate proceedings. I have further taken into consideration that the M/s Ram Plyboard Industries P Ltd has not given any confirmation with regard to investment in share application money. It has confirmed the transaction which runs to Rs.3.17 crore during the year with the appellant company. Therefore, appellant's claim cannot be accepted unless the party confirms about the nature of transaction. Therefore, the balance amount of Rs.57 Lakhs is confirmed as addition under section 68 of the Act. Appellant's ground of appeal on this issue is partly allowed.”

Since the ld.CIT(A) has sustained the addition to the tune of Rs.57 lakhs on the ground that no confirmation was filed by the assessee and considering the fact that there is a running account between the assessee and M/s Rama Ply Board Industries Ltd., therefore, considering the totality of the facts of the case, we deem it proper to restore the issue to the file of the AO with a direction to grant one final opportunity to the assessee to substantiate the nature of transaction to his satisfaction and decide the issue as per fact and law. Needless to say, the AO shall give due opportunity of being heard to the assessee. We hold and direct accordingly. Ground of appeal No.3 is accordingly allowed for statistical purposes.