DCIT CENT. CIR. -5(3) (ERSTWHILE DCIT CENT. CIR. -36), MUMBAI vs. SUMER BUILDERS, MUMBAI

The assessee has raised the following grounds in its appeal: - “1. (a) The learned Commissioner of Income Tax (Appeals) erred in law in upholding the action of the learned Deputy Commissioner of Income tax, Central Circle 36, Mumbai (herein after referred to as the Assessing officer) in disallowing the entire expenditure of ₹.57,16,72,184/- from the work-in-progress account of the on-going project at Prabhadevi (the Project) representing application of appellant's undisclosed income of ₹.47,16,72,184/- and its sister concern's undisclosed income of ₹.10,00,00,000/- (representing booking advance received for flats by the appellant). (b) The learned Commissioner of Income tax (Appeals) erred in making certain observations/ findings in order to arrive at the conclusion that the aforesaid expenditure is not allowable which the appellant submits are factually incorrect, bad in law, based on assumptions, conjectures and surmises and ought to be rejected. (c) The appellant submits that the amounts referred to in Para l(a) above have been applied for the purposes of its business and the same ought to be allowed as an addition to the work in progress.

The assessee has also raised additional grounds of appeal

Briefly stated the facts are that there was a search and seizure operation in M/s. Sumer Group of cases on 23.12.2010 and the Assessee is part of M/s. Sumer Group. In the case of the present assessee however, there was no search but the site office at Prabhadevi was subjected to survey u/s 133A of the Act at the same time. During the course of search, statement u/s 132(4) of one Mr. Ramesh Shah, partner of Sumer Corporation was recorded wherein he admitted to having received on- money in cash in respect of the project undertaken by the Assessee though he is not a partner in the Assessee firm. Based on the said statement the Assessee had disclosed an amount of ₹.47,16,72,184/- as on-money received in cash on sale of flats and parking from the ongoing Prabhadevi project and the same was offered in its return of income for A.Y 2011-12. Further, another associate sister concern of the Assessee, M/s. Vighnaharta Projects Pvt. Ltd. (for short “VPPL”) had also disclosed an amount of ₹.10 Crores during the said search which was offered by it in its return of income for A.Y 2011-12. These two amounts were accepted by the Assessing Officer based on the disclosure made by the Mr. Ramesh Shah in his statement recorded u/s 132(4) of the Act.

At the time of Assessment, the Assessing Officer called for an explanation on the addition to work in progress [WIP] account of the assessee not only for the A.Y.2010-11 and the A.Y.2011-12 which is under appeal. The explanation in regards thereto was given by the assessee and it was stated by the Assessee that an addition of ₹.57.16 Crores to WIP Account was on account of application of income declared as on- money cash receipts by the Assessee and its sister concern, VPPL. So far as the on-money disclosure is concerned, the assessee offered the same in its return of income. However, the Assessing Officer disallowed the application of income of ₹.57.16 Crores on the ground that no evidence

The Assessing Officer also disallowed an amount of ₹.14.94 Crores u/s. 36(1)(iii) of the Act which was expenditure in the nature of interest on loans utilized for the purpose of the project. The said amount was also reduced from WIP. The Assessing Officer made these disallowances while completing the assessment u/s. 143(3) r.w.s. 153C of the Act. The Assessee preferred an appeal before the Ld.CIT(A) challenging these two disallowances. Further, at the time of hearing before the Ld.CIT(A), the Assessee filed additional grounds stating that out of the on-money declared as income only 10% was taxable in the current Assessment Year and the balance was taxable in the year of completion of project since the Assessee is following Project Completion Method in respect of the said project. As per the said method only 10% of incremental receipts are offered to tax every year and the balance receipts as well as costs incurred on the project are carried forward year after year till the completion of the project and income therefrom will be offered in the year of completion of the project and the subsequent sale thereof. It was contended that the said treatment has also been accepted by the Department in all the earlier years and subsequent years. It was therefore submitted that only

So far as the disallowance on account of application of income is concerned, the Ld. CIT(A) confirmed the order passed by the Assessing Officer primarily on the ground that the expenditure incurred by the assessee was mostly that which would be in violation of section 37(1) of the Act in the absence of evidences. He further disallowed the application of income on the ground that no evidence of expenditure was found during the search and therefore also the same is not allowable. He, further, relying on certain documents furnished by the assessee observed that, the project was in advance stages and was substantially completed and therefore there was no need to incur any further expenditure on the said project. As far as application of income offered by VPPL is concerned he observed that application could be allowed only in the hands of the person who has actually offered the income. Since VPPL and the Assessee are two different entities, he held that the Assessee is not entitled to claim application of income in its hands, the income offered by VPPL. Thus, the claim of application of income as made by the assessee was denied.

We have heard the rival contentions, perused the orders of the lower authorities and also the material on record including the paper books and written propositions filed by the Assessee, it was noticed that the Assessee filed a paper book on additional evidence before us. As such, the preliminary issue raised by the bench was as to the admissibility of the paper book on additional evidence. We therefore asked the Ld. Counsel for the Assessee to satisfy us as to the admissibility of the Paper book on additional evidence. To this, the Ld. AR relied on the detailed Application for admission of additional evidence filed in this regard and stated that the same were furnished in order to justify the claim of application of income raised in the grounds and which were to essentially support the finding of the Assessing Officer at Page No. 1 as well as the stand of the assessee that the project on which application of income was claimed is still under construction and not substantially completed, as

Ld. Counsel for the assessee referring to documents at Sr. No.5 of additional evidence Paper Book [AEPB] read with para 4.3.6 of the Ld.CIT(A) order submitted that out of the total additional evidence documents furnished, majority documents are those which had already been filed with the Ld. CIT(A) pursuant to his own query or are already a part of the Assessee's records with the Revenue. Ld. Counsel for the assessee submits that Sr. Nos. 6 to 9 of AEPB which are nothing but assessment orders and assessment records for subsequent years. He submits that the documents at Sr. No. 1 are nothing but photographs of the current stage of the project while those at Sr. No.2 is a published list of tenants as per MHADA who occupied the property on which the project is being developed and is available in public domain and those at Sr.No.4 are copy of High Court Orders evacuating the tenants, etc. It was therefore submitted that there was no fresh or private evidence furnished except those documents mentioned at Sr. No.3 of AEPB and which are nothing but a mere confirmation of High Court Order evacuating the tenants.

Ld. Counsel for the assessee submitted that, during the appellate proceedings the Ld.CIT(A) had remanded certain issues in appeal to the Assessing Officer for his remand report. However, no remand report was called from the Assessing Officer as regards the claim of application of income to the extent of ₹.57.16 Crores on the only project undertaken by the assessee and on which the expenditure was incurred despite the fact that the Ld.CIT(A) had himself called details regarding the current stage

Ld. Counsel for the assessee further argued that the whole purpose of the Additional Evidences is to merely show that the project is still under construction and substantial work is still required to be done which is even otherwise a matter of fact and also accepted by the same Assessing Officer in scrutiny assessment for subsequent years. The said project had many laches in the form of tenants' resistance due to which litigation happened and for which the tenants were compensated and recompensated before the project was back on track. As such, it was

Ld. Counsel for the assessee further referring to Para No. 4.3.3 at Page No. 9 of Ld.CIT(A) order submitted that, the Ld.CIT(A) has himself accepted incurring of the expenditure and the Revenue has not challenged this finding in its appeal and it has therefore become final. It is submitted that there was a survey at the site office of the Assessee where this project was undertaken, however, neither during search nor during survey any cash was unearthed which in itself would lead to a strong inference that the cash was actually utilized in the project itself and therefore an application of income was claimed. Ld. Counsel for the assessee submits that the fact that the income was applied and a break-up thereof would be furnished was even stated in the Statement u/s.132(4) of the Act of Mr. Ramesh Shah taken on oath at the time of search. Ld. Counsel for the assessee submits that the Department was not at all justified in relying on only one part of the statement and reject the other part and on this proposition a number of case laws were relied upon. It was therefore argued that the only purpose of filing additional evidence was to refute the incorrect basis of rejection of the claim of the assessee on the observation that the project was substantially completed and there was 15 & 5130/MUM/2016 (A.Y: 2011-12) M/s. Sumer Builders no need to incur further expenditure. It was urged that otherwise, the claim is simply allowable since the Ld.CIT(A) has himself accepted incurring of expenditure in cash and particularly when despite the search on the entire group including residences of partners no cash was actually found or seized.

The Ld. Counsel for the assessee further argued that as per Rule 29 of the ITAT Rules a party is entitled to produce additional evidence if the Assessing Officer has passed the order without giving sufficient opportunity of being heard to the Assessee. Pointing out to the order of the Assessing Officer as well as the order noting’s at Page No. 71 of Paper Book, it was argued that the Assessing Officer passed the order admittedly without issuing any show cause notice as regards the claim of expenditure or even without seeking any further clarification in the matter. Before the Ld.CIT(A), as well the evidences as required by him were furnished from time to time and the Ld.CIT(A) without calling for any further documents decided the issue against the assessee on observations totally contrary to the facts on record despite the fact that he himself accepted incurring of the expenditure by the assessee. As such the disallowance was made without granting a sufficient opportunity of being heard to the assessee and the additional evidence was therefore admissible.

Ld. Counsel further argued that once the Ld.CIT(A) has accepted the incurring of the expenditure, it would be beyond the power of the Tribunal to vacate this finding and remand the issue back to the file of the Assessing Officer since the Revenue is not in appeal against the said finding of the Ld.CIT(A) and it would amount to rendering a finding adverse to the assessee even without any appeal from the other side thereby making the assessee worse off than it was before filing of the Appeal. Ld. Counsel further argued that in the facts of the present case

Ld. Counsel lastly argued that even independent of the Additional evidence, the Assessee had offered ₹.47.16 Crores and its sister concern ₹.10 Crores during the course of search and as such there was no dispute about the existence of the source of funds in order to incur the expenditure. Therefore, even on this count there was no reason to deny the claim of expenditure since no cash was either found or even seized from any of the persons searched.

In response to the above, Ld.DR submitted in his written submissions as under: - “At commencement of proceedings, I had sought adjournment so that the case comes to physical hearing considering the complexity of issues raised, mainly the additional grounds. At conclusion of hearing, I had promised to submit some of the arguments in writing and this note is submitted accordingly. Matter concerning to Assessee appeal In the instant case, it can be seen that the returned income and assessed income remain same i.e ₹.48,56,82,421. The main disputed decision is in paragraph 7 and Assessing Officer has reduced WIP.

We have heard both the parties in detail, perused the order of the Authorities below and the additional evidences. We have also perused written submissions filed by the Ld.DR along with the reports of the Assessing Officer sent to the Office of the CIT(DR) for his assistance to present the case of the revenue. We observe that the notes sent by the Assessing Officer on admission of additional evidences as well as on merits of the additions/disallowances for the assistance of the Ld.DR to present the case is of only a repetition of averments already made in the Assessment Order. On a perusal of the application for additional evidence, the paper book containing documents on additional evidence and the arguments on both sides we observe that the Additional evidence furnished mostly pertains to the documents which are already on the record of the assessee with the Revenue. It also needs mention that the order of the Assessing Officer in disallowing the expenditure is short and 20 & 5130/MUM/2016 (A.Y: 2011-12) M/s. Sumer Builders cryptic and as pointed out no specific show cause was issued by the Assessing Officer nor any specific query was raised at the time of assessment as regards the claim of expenditure incurred. Before the Ld.CIT(A), the assessee filed certain documents in order to establish its claim. These documents pertained primarily to the current stage of the project since the Ld.CIT(A) had not disputed the incurring of the expenditure though he held that the expenditure would be mostly in violation of section 37(1) of the Act. Further, after taking the same on record, the Ld.CIT(A) chose not to remand the issue to the file of the Assessing Officer and in fact denied the claim of the assessee on one of the grounds that there was no need to incur any further expenditure since the project was substantially completed. We are unable to gather from where the Ld.CIT(A) had the information and evidence to observe that the project is almost complete and to come to a conclusion that the project was substantially completed. It appears to us this was never confronted to the assessee. It is this observation of the Ld.CIT(A) which has been challenged by the assessee and to refute which further evidences have been furnished and which are in support only of the documents furnished before the Ld.CIT(A). It is a settled law that the Tribunal has the authority and it is in fact its duty to arrive at a correct finding of fact.

Another important aspect of the matter is that the Ld.CIT(A) has made certain observations in his order which have not been challenged by the Revenue in its appeal. Therefore, those observations and findings are final. It is a settled law that the assessee cannot be worse off after filing an appeal before the Tribunal especially when there is no appeal by the Revenue. The Tribunal is not empowered to render even a finding adverse to the assessee on issues decided in his favour by the Ld.CIT(A) unless an appeal is preferred by the Revenue against such a finding as held in Puranmal Radhakishan v. CIT [31 ITR 294 (Bombay)], New India Assurance Co. v. CIT [31 ITR 844 (Bombay)]. We also find force in the argument of the Ld. AR that any remand at the present stage would amount to rendering an adverse finding against the assessee without any 22 & 5130/MUM/2016 (A.Y: 2011-12) M/s. Sumer Builders appeal from the Revenue which is also impermissible as per the Judgement of the Hon'ble Madras High Court in case of Ramaswamy v. CIT [40 ITR 377] wherein it has been held that, where decision of Commissioner is detrimental to Revenue, Revenue could appeal to Tribunal under section 33(3) of 1922 Act and in the absence of such appeal, Tribunal could only deal with only actual subject matter before it; namely appeal of assessee and where remand is intended for benefit of Respondent or where it would inevitably result in prejudice to appellant, there can obviously be no power to remand in such a case.

In the circumstances, considering various arguments raised and particularly because majority of the evidences are either Assessment Orders of subsequent years or Hon'ble High Court order or the evidences already on the record of the Revenue, we are inclined to admit the additional evidence as furnished and adjudicate the same at this stage itself. Our view is further supported by the various Judgements stated above on the issue of admission of additional evidence and its adjudication.

Now we shall take up Ground Nos. 1(a) to 1(c) along with the additional Ground Nos. 2 & 2.1 of the grounds of appeal raised by the assessee. These grounds pertain to denial of application of income to the 23 & 5130/MUM/2016 (A.Y: 2011-12) M/s. Sumer Builders Assessee in respect of on-money declared by the Assessee and its sister concern. In this regard the arguments of the Ld. Counsel for the assessee are summarized as follows: -

Ld. Counsel for the assessee further argued that the source has been taxed on the basis of the statement of Mr. Ramesh Shah who is not even a partner in the Assessee firm. The same was honoured and offered to tax by the Assessee. In that very statement, Mr. Ramesh Shah also stated that an application of these income would be provided to the Department and which was in fact provided which forms part of Page Nos. 52 to 56 of Paper book and which has not at all been disputed by the Department in any other concern. Ld. Counsel for the assessee therefore argued that once the statement is relied on by the Department, it must be relied on fully and the Department cannot pick and choose to rely only on that part of the statement which is favorable to it and not rely on the other part which is adverse to it. For this reliance was placed on various judgements.

Ld. Counsel for the assessee further argued that as far as the application of income of ₹.10 Crores declared by VPPL in its returns but telescoping claimed in the hands of the Assessee are concerned, it was 27 & 5130/MUM/2016 (A.Y: 2011-12) M/s. Sumer Builders unjustly denied by the Ld.CIT(A) on the ground that application of income could be allowed only in the hands of the person who has offered undisclosed income. Ld. Counsel for the assessee stated that such an approach was contrary to the judicial precedents in the case of Elite Developers v. DCIT [73 ITD 379 (Nagpur)], J B Education Society v. ACIT [28 ITR (Trib) 284 (Hyderabad)] and Rajni M Patel v. DCIT [43 ITR (Trib) 628 (Ahmedabad)]. Ld. Counsel for the assessee therefore urged that the denial of application of income by the Assessing Officer and its affirmation by the Ld.CIT(A) is bad in law and such an action needs to be reversed.

Ld. CIT, DR argued that during the course of search no documentary evidence of expenditure was found and therefore the disallowance was justified. Ld. DR further argued that the observations of the Ld.CIT(A) have been read piecemeal and on a holistic reading of the order, the disallowance sustained by him is justified. Ld. DR next argued that the assessee has not provided any evidence of the expenditure incurred and therefore the disallowance is justified. Ld. DR stated that though no specific showcause notice was given by the Assessing Officer, however, the assessee also failed to produce the evidence before the Ld.CIT(A) and therefore the Assessee's claim of non-grant of sufficient opportunity is 28 & 5130/MUM/2016 (A.Y: 2011-12) M/s. Sumer Builders wrong. Ld. DR further argued that if the application of income is allowed it would nullify the effect of disclosure made by the Assessee and therefore the same cannot be allowed. As regards the claim of application of income offered by VPPL is concerned, Ld. DR strongly urged that the same could be made only by VPPL and not the Assessee. Ld. DR further argued that the Ld.CIT(A) order is well reasoned and deserves to be affirmed.

Ld.DR submitted that with regard to matter concerning to assessee appeal, in the instant case, it can be seen that the returned income and assessed income remain same i.e. ₹.48,56,82,421/. The main disputed decision is in paragraph 7 and Assessing Officer has reduced WIP.

Ld.DR apart from arguing the matter orally also filed written submissions which are as under: - “A legal objection to the issues raised: This pertain to categorization of income in dispute as profits and gains of business and profession. Unaccounted income is, in my view, in the instant case is to be categorized as income from other sources. Once categorized as income from other sources (section 68/69/69A/69B) normal deductions under section 30 to 38 does not arise nor do Accounting Standards relevant to business activity apply. The appellant in counter to my arguments has stated that the Assessing Officer has accepted that the income falls under profit and gains of business and profession. Even if it is so, when amendments to assessment is sought for in appeal (it is legally settled principle that selective or pick and choose approach cannot be taken on an integrated issue and a wrong is to be corrected at the earliest instance), when the root of the issue is faulty, then the fault also needs correction. In this connection I submit the following: -

In reply Ld. Counsel for the assessee submitted as under: - “2. coming to the core of the submission on merits made by the Ld. DR, it is humbly submitted that the Ld. DR has sought to argue completely contrary to the Assessment Order and even the order to the Ld. CIT(A). The crux of his argument is that undisclosed income offered during search must be taxed under the head Income from Other Sources and the Assessing Officer has erred in taxing the same under the head Profits and Gains of Business and Profession. This fact is also admitted by the Ld. DR in his note. However, it is respectfully submitted that there is ample authority on the proposition that the Revenue cannot raise grounds contrary to its own order passed by the Assessing Officer. Under the scheme of the Income Tax Act, 1961 ("the Act" for short) the Department is not entitled to argue and appeal against the Assessment Order. In this regard a useful reference can be made to the following: Mahindra & Mahindra Limited v. DC1T [(2010) 122 ITD 216 (Mum-SB)] [Affirmed by the Hon’ble Jurisdictional High Court in CIT v. Mahindra & Mahindra Limited [365 ITR 560 (Bombay)]. Department did not challenge on the ruling of the Hon'ble Tribunal as regards the limitation on DR's powers to argue / make out on entirely new case contrary to the assessment order] ACIT v. Ms. Aishwarya K Rai - (2010) 1271TD 204 (Mumbai) Kwal Pro Exports v. ACIT - (2008) 110 ITD 59 (Jodhpur) Eiscsson AB v. DD1T (Intl. Tax) - (2012) 191TR(T) 341 (Delhi) Slocum Investment (P) Ltd. v. DCIT (2017) 106 ITD 1 (Delhi) Further in the case of CIT v. Maersk Global Service Centre (I) Pvt Ltd (ITA No.692 and 693 of 2012 dated 22-08-2014 before the Hon'ble Bombay High Court) it has been held that the Revenue cannot raise grounds before the Tribunal to get over the defects and lacunas so also any discrepancies in the order of the Transfer Pricing Officer. As such the position that the Ld. DR cannot argue contrary to the Assessment Order is far too settled and does not deserve any further deliberation in the humble submission of the Assessee. 3. It is submitted that once it is so held that the income has been rightly considered under the head Profits and Gains of Business and Profession then the further argument of the Ld. DR that the application of income from the said income disclosed during search 31 & 5130/MUM/2016 (A.Y: 2011-12) M/s. Sumer Builders would not be permissible becomes inconsequential. In any case, it needs reiteration that the Ld. CIT(A) has himself admitted that the expenditure has been incurred and then made observations pertaining to section 37 of the Act. As such, it is respectfully submitted that the said argument made by the Ld. DR also deserves to be rejected.

As regards the judgements relied on by the Ld. DR, it is respectfully submitted that the same are on totally different set of facts peculiar to business of co-operative credit society and co- operative banks. The issue therein is primarily on the application of section 80P of the Act. Further it also needs mention that in those judgements the very issue before the Honourable Tribunal was in respect of chargeability of the income under the head business or profession vis-a-vis income from other sources unlike the present appeal. Further, it is undisputed that the Assessee has only one project under construction and based on the seized documents and the very admission of Mr. Ramesh Shah, it is receipt from the said project. After duly noting these facts the Assessing Officer has taxed the same under the head Profits and Gains of Business and Profession. Further it is settled law, when the Assessee has only one business / project, all the income unearthed during the search have to be treated as being earned from the said business [Ref. CIT v. Mhaskar General Hospital — Tax Appeal No.1474 of 2009 and CIT v. Suman Paper and Boards Ltd. — (2009) 314 ITR 119 (Guj)]. In any case, it is a settled law, that as per the scheme of the Act all the other heads of income must be exhausted / excluded first before taxing an income under the head “Income from other sources” [Ref: S.G. Mercantile Corporation P. Ltd. v. CIT [83 ITR 700 (SC)], CIT v. T.P. Sidhwa [133 ITR 840 (Bombay)] & Bihar State Co-operative Bank Ltd. v. CIT [39 ITR 115 (SC)]. Hence even on this count the argument of the Ld. DR is contrary to the above and therefore unsustainable.

The Ld. Counsel for the assessee further stated that, the Revenue has not disputed the finding and observation of the Ld.CIT(A) that the expenditure was actually incurred. As such, the same is final and binding

However, the Ld. AR submitted without prejudice that since the assessee has sought to offer income at 10% of the on-money received of ₹.47.16 Crores its claim of application be allowed to the extent of the difference between the on-money received and the profit offered in the current year i.e. ₹.47.16 Crores minus 10% i.e. the profit offered in the current year.

We have heard the rival contentions, perused the judgements cited by either parties and also perused the material on record including the written synopsis of arguments filed by the Assessee as well as the paper

We further find that it has been held in various judgements that in respect of such expenditure which is on account of search operation there can generally be no evidence and the insistence on documentary evidence regarding the claim of expenditure may not be justified. In this regard the Hon'ble Gujarat High Court has accepted the said position in the case of Panna Corporation (supra) which has been followed by the co-ordinate

We find that in the case of the CIT v. Golani Brothers (supra) the Hon'ble Bombay High Court held as under: - “19. We have with the assistance of Mr. Suresh Kumar and Mr. Nitesh Joshi perused the paper-books, including the order of the Assessing Officer and that of the First Appellate Authority and equally the Tribunal. On a perusal thereof and particularly in the backdrop of Section 69C of the I.T. Act, 1961, we have no hesitation in agreeing with Mr. Nitesh Joshi. 20. The Tribunal had before it several issues for consideration in the appeals of the Revenue as well as the assessee. The principal issue being the deals and transactions with those who are interested in buying shops, book them in advance and pay certain sums in cash. The initial disclosure of the assessee on this cash receipt was not found to be satisfactory. It was rather a misleading explanation and which led to several actions, including search and seizure. After the materials were seized, including incriminating documents, the Assessing Officer went about the exercise of scrutinising the revised return of income. During the course of the same, several queries and questions were raised. The 'on money' deals were probed in the backdrop of a contract awarded by the Jalgaon Municipal Council to the respondent/assessee-contractor and developers. There were 36 & 5130/MUM/2016 (A.Y: 2011-12) M/s. Sumer Builders certain shops which were to be allotted to the nominees of the Municipal Council and certain shops could have been sold in open market. It is in relation to the shops and sold essentially in the open market that the issue arose for determination. The sums received in cash so as to book the shops were paid by the interested parties. These interested parties were identified, equally the shops and the consideration determined. If the total consideration was determined and certain component of it was received in advance or as 'on money' in cash, then, the Tribunal concluded that the Assessing Officer could have treated that as a receipt. That was a receipt of income which was not disclosed but discovered on account of operations such as search and seizure carried out at the office premises as also the residence of the partners of the assessee firm. During the course of such scrutiny, the Assessing Officer has found that there were shops and specific in number to be allotted to the nominees of the Municipal Council, shops to be sold in open market, all of which were located floor-wise. Therefore, he ought to have carried out a proper exercise, according to the Tribunal. The 'on money' could not have been treated as uniform irrespective of the location of the shop. There are specific advantages derived by the location of the shop on the ground floor, or basement and with frontage to the road. Therefore, all these factors and test not being applied, the Tribunal modified the Assessing Officer's order. The Tribunal, to be fair to both sides, did not probe or scrutinise the source of the power of the Assessing Officer in making reference to the DVO. It proceeded on the footing that such a reference could have been made and if made, what are the consequences thereof. Thus, the consequences then have been considered, properly analysed and to the extent the law permits, the order of the Assessing Officer has been maintained.

When it was disturbed and interfered with, the Tribunal found that there was indeed a justification for such interference. If the unaccounted expenditure is determined, then, necessarily the question which would arise for consideration before the Tribunal is whether the Assessing Officer was justified in making addition under Section 69C for the years under consideration. The Tribunal, in para 39 of the order under challenge, found that the explanation as derived from the records and placed by both can be traced to the 'on money' received at the time of booking/sale of shops. The statement of the senior partner is referred. The senior partner admitted that the sums have been received as 'on money' and at the stage aforesaid. Therefore, both the amounts, namely the 'on money' as well as the unexplained expenditure cannot be brought to tax, according to the Tribunal. If the unaccounted expenditure so incurred was from the 'on money' received by the assessee, then, the question of making any addition under 37 & 5130/MUM/2016 (A.Y: 2011-12) M/s. Sumer Builders Section 69C does not arise because the source of the expenditure is duly explained. It is only the 'on money' which can be considered for the purpose of taxation. That is what the Tribunal therefore concluded and once the 'on money' is considered as revenue receipt, then any expenditure out of such money cannot be treated as unexplained expenditure, for that would amount to double addition in respect of the same amount.”

In fact in the present case, the Ld.CIT(A) himself in Para No.4.3.6 of his order has observed that the Assessee has incurred expenditure in the project and this finding of the Ld. CIT(A) has not been challenged by the Revenue. Thus, the claim of the assessee as regards application of income could not be denied. We also find that the Ld.CIT(A) erred in sustaining the disallowance of application simply on the ground that the project of the Assessee was substantially completed and no further expenditure was required to be incurred is also baseless since the Assessing Officer himself in Para No.2 of the assessment order observed that the project is under construction. The observation of the Ld.CIT(A) is not based on any evidence on record. We further observe that even in the assessment orders for subsequent years the same position is accepted by the Revenue. Thus, the Ld.CIT(A) is not justified in rejecting the claim on such a ground which is clearly contrary to the facts on record. It is needless to say that even otherwise the Ld.CIT(A) is not justified in siting

As regards the apprehension of the Ld. DR, that if the claim for application of income is allowed it would nullify the effect of disclosure made by the Assessee, is concerned, we find that once the income has been offered by the Assessee then the application thereof could not be denied because essentially what has been claimed by the Assessee is merely telescoping of the said income into the increase in its WIP of the project from where such receipts were generated. On this we find support from the Judgement of the Honourable Supreme Court in the case of CIT v. S. Neliiappan [66 ITR 722 (SC)] in which it has been held as under: "It is true that there is no direct evidence of any connection between the cash credit entries and the income withheld from the books of account by the assessees. But if the Tribunal inferred that there was a connection between the profits withheld from the books and the cash credit entries, it cannot be said that the conclusion is based upon speculation”

Coming to the last aspect of the matter i.e. addition in respect of income offered by VPPL we notice that a similar view has been taken by 39 & 5130/MUM/2016 (A.Y: 2011-12) M/s. Sumer Builders the Tribunal in the case of J.B. Education Society v. ACIT [28 ITR (T) 284 (Hyderabad)] wherein during search at assessee, an educational society, certain documents were seized which showed that the society had collected amounts over and above the prescribed fees for the A.Ys.2009-10 and 2010-11, and that amounts were not brought in the books of account. Facts revealed that one K, being manager of the assessee-society, was in a position to collect the money from the students who were seeking admission in the assessee's college and he used his position to collect these impugned receipts from the students and while passing the assessment order the same was treated in his hands as undisclosed income and he accepted himself for being assessed by the Department. On these facts it was held that in the event of K paying the tax on the unaccounted income from the receipts in his hands, the same unaccounted receipts could not be brought to tax in the hands of the assessee once again. Similar view was taken in the case of Rajni M. Patel v. DCIT [43 ITR (T) 628 (Ahmedabad)] wherein a search and seizure operation was carried out at premises of the assessee and various firms and associated concerns. The Assessing Officer added certain undisclosed income of the assessee. Similar addition was also made in case of firms. The assessee claimed that since he was partner in 40 & 5130/MUM/2016 (A.Y: 2011-12) M/s. Sumer Builders firms, he should be given telescopic benefit of income disclosed by the firm against addition made. On these facts it was held that, the Assessing Officer had agreed that the assessee is entitled for telescopic benefit but, while giving actual benefit to the assessee, he restricted all these to a sum of ₹.13 lakhs which is the amount the assessee himself disclosed. Once an estimated addition on account of household expenses, investment in land, investment on foreign travel are being made and the source of such expenditure is stated to be flowing from the firm which has suffered tax as undisclosed income, then, telescopic benefit should be given to the total amount. Similar view is taken in the case of Elite Developers v. DCIT [73 ITD 379 (Nagpur)]. The Ld. DR has not cited any contrary judgements and in that view we respectfully following the above judgements of the Tribunal allow the claim of telescoping to the Assessee.

However, as regards the amount of claim of telescoping/application of income of ₹.47.16 Crores offered by the Assessee we observe that before the Ld.CIT(A), the Assessee has claimed that 10% of the said receipts is liable to be taxed in this year and the balance will be carried forward till the completion of the project. In that view of the matter, only the differential amount is allowed to be telescoped i.e. the claim of application is restricted to ₹.42.44 Cr (₹.47.16 Crore (-) 10%) since to the 41 & 5130/MUM/2016 (A.Y: 2011-12) M/s. Sumer Builders own admission of the Assessee, 10% is the estimated profit element and the balance is on account of expenditure incurred. Accordingly, Grounds Nos. 1(a) to (c) and Additional Grounds 2 to 2.1 are partly allowed.

Ground Nos.2, 3 and 4 are on taxability of on-money declared by the Assessee in its return of income. The Assessee had however, raised additional grounds before the Ld. CIT(A) stating that since the Assessee is following project completion method of accounting, and each year it has been offering income at 10% of the incremental project receipts, hence, only 10% of on-money received is taxable in this year and the balance is taxable in the year of completion of the project, since only at that point in time the actual real income from the project could be arrived at. The Ld.CIT(A) however, refused to admit the said grounds and thereafter rejected the same even on merits. Against such rejection of the Ld.CIT(A) the Assessee has raised the Ground Nos. 2 to 4 as stated above.

At the outset, the Ld. Counsel for the assessee stated that the Ld.CIT(A)'s action of not admitting the additional grounds is bad in law since the same were purely legal in nature and should have been admitted in view of the Judgement of the Hon'ble Supreme Court in the case of NTPC v. CIT [229 ITR 383] and in the case of CIT v. Pruthvi Brokers and 42 & 5130/MUM/2016 (A.Y: 2011-12) M/s. Sumer Builders Shareholders Pvt. Ltd. [349 ITR 336 (Bombay)]. As such, the order of the Ld. CIT(A) is bad in law since the same is contrary to the above judgements.

It was further argued that the Ld.CIT(A) erred in adjudicating the additional grounds on merit once he had himself refused to admit the additional grounds. Therefore, his action is self-contradictory.

Ld. Counsel for the assessee argued that there is no estoppel against statute and therefore, it is open to the Assessee to claim before the authorities that a particular item of income is not taxable despite having offered the same in its return of income or even having accepted the same as taxable before the authorities or even in the books of accounts. For this proposition he relied on the decision of the Hon'ble Bombay High Court in the case of Nirmala Mehta v. CIT [269 ITR 1] and others. Therefore, it is submitted that there was no bar against the Assessee in claiming that the income erroneously offered in the return of income could not be withdrawn or revoked.

Ld. Counsel for the assessee further argued that only the profit element embedded in the on-money could be taxed in the relevant assessment year, since the Assessee is following the project completion

Ld. Counsel for the assessee further contended that the Assessee has been regularly and consistently following the Project Completion Method of accounting for Prabhadevi Project which has also been accepted by the Department in earlier as well as in subsequent years. Ld. Counsel for the assessee further submitted that, it was categorically

Ld. Counsel for the assessee further stressed that it was repeatedly pointed out to the Ld.CIT(A) that the said entire on-money was erroneously offered as income in A.Y 2011-12 under an erroneous

Ld. Counsel for the assessee further referring to Page No.3, Para 4 of the Assessment order stated that, even as per the Assessing Officer on-money has been treated as merely receipt and part of sale consideration and not income, under the Act only income is liable to be taxed and not receipt. He also relied on various judgements to contend that on similar facts, similar issue of taxability of on-money has been decided by various judgements of the High Courts wherein it has been held that in case of receipts of on-money/unaccounted cash receipts only the profit embedded therein is liable to be taxed and not the entire receipt. For this he relied on the decisions of the Hon'ble Bombay High Court in the case of CIT v. Hariram Bhambhani in ITXA 313 of 2013 and CIT v. Prime Developers in ITXA 2452 of 2013, Hon'ble Gujarat High Court in the case of CIT v. President Industries [258 ITR 654], DCIT v. Panna Corporation in Tax Appeal Nos. 323 and 325 of 2000 and also in the case

It was further argued as regards Ground Nos. 3 and 4 that the Prabhadevi project from which the on-money cash receipts were generated is still not complete even as on date. Further, the books of accounts of the Assessee have not been rejected by the Assessing Officer or Ld.CIT(A) and therefore, in accordance with its regularly followed accounting policy for income tax purposes, only 10% of incremental project receipts are liable to be offered to tax in the current year and the balance at the completion of the project. Ld. Counsel for the assessee contended that, this treatment has been upheld in various judgements, ACIT v. Guruprerna Enterprises in to 257, 544 & 545/Mum/2010 and 4836/Mum/2009 (affirmed by the Hon'ble Bombay High Court in CIT v. Guruprerna Enterprises in ITA 1849 of 2011), Fort Projects P. Ltd. v. DCIT [145 TTJ 340 (Kolkata)], Dhanvarsha Builders and

Ld. Counsel for the assessee further argued that these grounds were even remanded to the Assessing Officer for his remand report. However, in his remand report, the Assessing Officer has nowhere said that the claim as made by the assessee regarding taxability of on-money is not legally admissible, but simply stated that the claim is not allowable firstly because the same was accepted by Mr. Ramesh Shah in his statement u/s. 132(4) of the Act which was not retracted and secondly because the said claim was not made by way of a revised return. Ld. Counsel for the assessee argued that both the reasons are untenable in view of the fact that the offer of income was under an erroneous understanding of law and there is no bar to make a claim as to taxability before the Appellate Authorities even without filing revised returns.

Ld. Counsel for the assessee further argued that, the last reason for the Ld.CIT(A) to dismiss the said grounds was that if the same are entertained it would lead to granting of a relief whereby the assessed income would be below the returned income. Ld. Counsel for the assessee urged that it has been held in various judgements, Gujarat Gas Co. Ltd. v. JCIT [245 ITR 84 (Gujarat)], CIT v. Milton Laminates

Ld. Counsel for the assessee lastly contended that the apprehension of the Ld.CIT(A) that allowing the said grounds would enlarge the scope of relief or lead to assessed income being below the returned income or change the entire complexion of the case, is totally ill-founded since the entire claim made by the assessee seeking taxation of the on-money at 10% in the current year is in fact a tax neutral exercise, since the same would have to be offered to tax in the year of completion of the project. Thus, it was therefore argued that the said grounds be allowed.

Ld. DR vehemently supported the orders of the authorities below. Ld. DR firstly contended that the Ld.CIT(A) has rightly rejected the said grounds raised by the Assessee as additional grounds before him. Ld. DR argued that the claim made by the assessee is not supported by a revised return was therefore not admissible in view of the Judgements of the Supreme Court in the case of Goetze India Ltd. [284 ITR 700 (SC)]. Ld. DR further argued that even otherwise there is no dispute about the receipt of the cash by the Assessee in the relevant year and in that view of the matter the offer has been rightly made and rightly taxed by the 49 & 5130/MUM/2016 (A.Y: 2011-12) M/s. Sumer Builders Assessing Officer irrespective of the year of completion of the project. Ld. DR further relied on the statement of Mr. Ramesh Shah recorded at the time of search and argued that the same has not been retracted and in view of the same, the cash receipts in respect of on-money were liable to be taxed in the relevant year and therefore no fault could be found with the order of the Ld.CIT(A). Ld. DR further argued that if the assessee’s ground is allowed then it would amount to granting him relief beyond that claimed in the return and would in effect amount to retracting its own return and accounts. Such an approach is impermissible. Ld.DR next contended that even otherwise the additional grounds are not entertainable in view of the detailed order of the LD. CIT(A). He placed strong reliance on the order of the LD. CIT(A) in this regard.

We have heard the rival contentions, perused the orders of the lower authorities and also the material on record including the synopsis and paper books furnished. We find that the Assessee had declared the on-money receipts in its return of income for A.Y 2011-12 pursuant to the statement u/s 132(4) of the Act of Mr. Ramesh Shah made during the search on Sumer Group. The said statement has not been retracted by him. However, it needs mention that as argued by the assessee in the earlier grounds, Mr. Ramesh Shah is not a partner in the Assessee firm.

Now coming to the merits of the claim, we find that the Assessing Officer has himself accepted that the Assessee is following the project completion method and has accepted the method of offering income at 10% of the incremental receipts in the project and the balance is carried forward to the year of completion of the project. This method has been consistently followed by the Assessee and has been accepted by the Department in earlier as well as subsequent years. Further, it needs

Now coming to the next aspect of the matter as to the year of taxability of on-money. We find that in the case of Dhanvarsha Builders (supra) cited by the Assessee the Pune Bench of the Tribunal held as under: - “... The third issue in this case is whether the amount will be taxable in assessment year 1996-97 or in some other year. The case of the learned counsel was that the assessee has been following project completion method for computing its profits. This has been demonstrated by referring to the returns already filed by the assessee where only day-to-day expenses were claimed and,

This has been followed by the Mumbai Bench of the Tribunal in the case of Guruprerna Enterprises (supra), holding that on-money received is taxable in the year of completion of the project and not in the year of receipt. The said judgement has been affirmed by the Hon'ble Jurisdictional High Court in the case of CIT v. Guruprerna Enterprises. The Revenue has failed to bring on record any contrary decisions and as such, respectfully following the same, we hold that only 10% of the on-money receipts are liable to be taxed in the relevant assessment year and the balance at the time of completion of the project based on the project completion method regularly followed by the Assessee which has

The other arguments raised by the Ld. DR in respect of non-filing of revised return to make this claim are addressed by the judgements of the Honourable Supreme Court in the case of NTPC (supra) and Pruthvi Brokers (supra). We also note that it is by now a settled law that assessed income could be below the returned income of an Assessee and any circulars contrary to the same are void as held in the case of CIT v. Gujarat Gas Ltd. [245 ITR 84 (Gujarat)] and other judgements cited above. In any case we find that the grievance of the Ld. DR that allowing this ground will amount to retraction of the returns and statement of the Assessee are concerned, we find that the same stands addressed by the judgements in the case of Nirmal L Mehta (supra) holding there is no estoppel against statute and the assessee could claim that its income is not taxable even if the same is offered in the return of income. In the cases of Abdul Qayumme (supra) and SAIL DSP (supra) it has been held that no amount of admission could lead to taxing an item if it is not otherwise taxable under the Act. In view of the above facts and judicial precedents, we find in favour of the Assessee and Grounds Nos. 2,3 and 4 are allowed.

The Ld. Counsel for the assessee at the outset referring to Page Nos. 25, 122 to 132 of paper book and relying on the judgements in the case of Hero Cycles Pvt. Ltd. v. CIT [379 ITR 347 (SC)], CIT v. Reliance Utilities and Power Ltd. [313 ITR 340 (Bombay)] and CIT v. HDFC Bank

Ld. Counsel for the assessee further contended that on the amount of loan of ₹.20 crores said to be diverted to Mr. Ramesh on which disallowance was sustained, referring to Page No. 208 of Paper Book it is submitted that the assessee had actually received interest (refer page 208

As regards the Department's appeal Ld. Counsel for the assessee contended that the Ld.CIT(A) has deleted the disallowance referring to and relying upon the remand report of the Assessing Officer himself and therefore the Department was not justified in sustaining the disallowance on such amount.

On the other hand, the Ld. DR has contended that that the Assessing Officer has made an analysis of the utilization of funds in his remand report and thereafter held that the amount of interest was rightly disallowable. Ld. DR further heavily relied on the order of the Assessing Officer in order to contend that the disallowance of interest was justified in the present case.

We have heard the rival contentions and perused the order of lower authorities as well as the material on record including the synopsis and the paper books as furnished. We note that the Ld. DR has not controverted the fact that the assessee had sufficient amount of interest free funds available with it in order to advance the same to its sister concerns. Even otherwise, the Honourable Jurisdictional High Court has 58 & 5130/MUM/2016 (A.Y: 2011-12) M/s. Sumer Builders in the case of Reliance Communication Infrastructure (supra) observed as under: - "Where the assessee, as in the present case, has significant interest in the business of the subsidiary and utilizes even borrowed money for furthering its business connection, there is no reason or justification to make a disallowance in respect of the deduction which is otherwise available under Section 36(l)(iii) of the Act…In the present case, when the assessee advanced an amount to RIL that was with a view to furthering the business of the assessee. RIL in turn was to execute counter guarantees in favour of financial institutions for the benefit of the discharge of the EPCG obligations by the assessee. That was a security for the guarantees which those institutions were required to execute under the EPCG Scheme. The funds which were invested in the wholly owned subsidiary were again for the purposes of the business of the assessee. There is evidently a significant interest of the assessee in the business of its subsidiary since both the assessee and the subsidiary are engaged in providing telecommunication services. Consequently, we are not inclined to interfere with the order of the Tribunal. There is a finding of fact that interest free funds borrowed are not utilized for the purposes of both the transactions. But quite apart from that, the finding is that the funds were deployed as a matter of commercial expediency and to further the business of the assessee. The latter finding is independent of whether borrowed funds were or were not utilized, for in view of the judgment of the Supreme Court held, the fact that borrowed funds were utilized for making investments or, as the case may be, for making advances would not disentitle the assessee to the deduction so long as business expediency exists”

A similar view has been taken in the case of Nishta Mall (supra) wherein again it has been held as under: - "Ld. counsel for the assessee before us clearly stated that the assessee and its sister concerns are engaged in the business of real estate and this fact was argued before LD. CIT(A) by assessee. He explained that the assessee has embarked upon setting up

The Ld. DR has not controverted this basic fact as stated by the Assessee, that the Assessee as well as its sister concerns were in the same line of business. In view of the said facts and the law as laid down by the above judgements, the disallowance made by the Assessing Officer and as affirmed by the Ld.CIT(A) deserves to be deleted.

So far as the Department's appeal is concerned, admittedly the same is agitating against the relief granted by the Ld.CIT(A) relying upon the Remand Report of the Assessing Officer himself. In our view, when the Assessing Officer has himself held that the borrowing is for the 60 & 5130/MUM/2016 (A.Y: 2011-12) M/s. Sumer Builders purpose of business and after considering the same the Ld.CIT(A) has deleted proportionate disallowance, then the same must be affirmed. In view of the above we reject the grounds raised by the Department.

In the result, appeal of the assessee is partly allowed as indicated above and appeal of the Revenue is dismissed.