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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
ORDER Per Shri A.T.Varkey, JM
This is an appeal filed by the assessee against the order of Ld. CIT(A)-XII, Kolkata dated 09.07.2012 for AY 2005-06. 2. The first ground of appeal of assessee is against the action of Ld. CIT(A) in confirming the addition of Rs.3,87,000/- as made by the AO treating the same as undisclosed investment.
3. Briefly stated facts as observed by the AO are that the assessee had invested a sum of Rs.3,00,000/- (by cheque No. 524125) and Rs.87,000/- (by cheque No. 709002) on 09.02.2005 and 11.02.2005 respectively in booking/advancing against a plot of land, [which is termed as ‘Kalibari Lane Project’]. According to AO, those cheques were issued from the assessee’s bank account with Standard Chartered Bank, Kolkata. As no such investment was reflected in the assessee’s relevant balance sheet as on Claridge Commercial Pvt. Ltd., AY 2005-06 31.03.2005, the assessee was asked to explain the matter. The assessee vide written explanation dated 27.08.2007 stated that the project was booked in the name of M/s. Capital Construction, a sister concern. According to assessee, it was initially planned that the assessee [M/s. Claridge Commercial Pvt. Ltd.] would take over the project and accordingly part payment was made to landlord from assessee’s/M/s.Claridge Commercial Pvt. Ltd. account. However, the initial plan did not materialize and the project remained with M/s. Capital Construction (sister concern) and in the FY 2006- 07 (AY 2007-08) the advance paid by assessee to landlord was adjusted with current account balance of M/s. Capital Construction. According to AO, from the above submission of assessee, it is clear that the assessee company had invested a sum of Rs.3,87,000/- during the relevant assessment year in the Kalibari Lane Project and the AO observed that the Ld. AR had submitted copy of the related agreement in this regard which was made between the landlord of ‘Kalibari Land Project’ and M/s. Capital Construction (sister concern of the assessee). According to AO, this agreement also supports the fact of payment of Rs.3,87,000/- by assessee. According to AO, since neither the assessee company nor M/s. Capital Construction had shown respective sundry debtor and sundry creditor against this payment in their respective Balance Sheet for the AY 2005-06, the assessee was show caused to explain the matter. Vide written explanation dated 16.11.2007 the assessee once again reiterated the same plea as mentioned above. Apart from that assessee also added that since both the assessee/M/s. Claridge Commercial & M/s. Capital Construction are closely held wherein Mr. Subash Paul is the owner, no formal agreement was made and M/s. Capital Construction did not pass any entry for this transaction. Assessee also confirmed that there was no question of doing any business and/or earning any income out of this booking amount paid during the FY 2004-05. However, according to AO, the said explanation of the assessee does not hold any merit. According to AO, the status of the assessee is a company and it had accepted the fact that it had invested the said amount of Rs.3,87,000/- to M/s. Capital Construction during the relevant FY 2004-05 and the said investment has not been reflected in its corresponding Balance
Claridge Commercial Pvt. Ltd., AY 2005-06 Sheet for the AY 2005-06 and thus, the assessee had concealed the investment. Thus, according to AO, it is proved beyond doubt that the assessee had undisclosed investment of Rs.3,87,000/- which is not disclosed in its books of account in terms of sec. 69B of the Income-tax Act, 1961 (hereinafter referred to as the “Act”). So he added back the said sum of Rs. 3,87,000/- to the total income of the assessee. Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who confirmed the action of AO. Aggrieved, assessee is in appeal before us.
We have heard rival submissions and gone through the facts and circumstances of the case. We note that assessee had given the amount of Rs.3,87,000/- as advance for the golf club road project, which is evidenced in the balance sheet of assessee as on 31.03.2005. Initially assessee wanted to take over the project from its sister concern M/s. Capital Construction , which did not materialize, so the advance paid by assessee to landlord was adjusted with current account balance of sister concern M/s. Capital Construction. The AO has made the addition only because assessee has not shown the same in its sister concern in their balance sheet. We note that assessee in fact had shown the same under the head “Loans and Advances” and has included the amount in “Advances recovered in cash or in kind” in its balance sheet as on 31.03.2005 and the payment had been made by cheque for Golf Club Road Project. So, no addition was warranted u/s. 69B (undisclosed investment) of the Act. It is trite law that method of accounting cannot determine the true character of a transaction CIT Vs. MESSRS. SHOORJI VALLABHDAS AND CO (1962) 46 ITR 144 (SC). In the present case, the assessee has given advance for the property which was taken over by assessee’s sister concern and shown by assessee in its balance sheet and squared up in later year so no addition under section 69B of the Act is sustainable and therefore directed to be deleted.
The next ground of appeal of assessee is against the action of Ld. CIT(A) in confirming the additions of Rs.3,85,000/- (the correct amount is Rs.3,55,000/-) to the total income of the assessee u/s. 69C of the Act as undisclosed expenditure.
Claridge Commercial Pvt. Ltd., AY 2005-06 6. Briefly stated facts as observed by the AO are that out of the total expenditure/payment of Rs.23,60,385/- made by the assessee as purchase consideration to landlord of plot located at 23, Kalibari Lane, Kolkata since the assessee could not make the payment of sale consideration agreed at Rs.18,05,500/- within the agreed period and, therefore, had to incur interest @ 12% for the four months included Rs.3,55,000/- which was paid in cash. The AO accepted the payment by cheque, however, asked the assessee to produce the landlords who were paid in cash. According to AO, in order to prove payment in cash the assessee could produce only photo copies of some money receipts and failed to produce parties in person before him. So, the AO drew adverse inference against assessee and made an addition of Rs.3,55,000/- u/s. 69C of the Act as unexplained expenditure. Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who confirmed the addition by stating that the assessee did not produce any evidence/document in order to prove the creditworthiness of the six parties who had given cash to the assessee. Aggrieved, the assessee is before us.
We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee had to incur additional interest expenditure for buying property at Kalibari Lane. The AO accepted the payment of interest to landlords given by cheque. However, according to AO, since the assessee failed to produce the parties he added the same u/s. 69C of the Act. On appeal, the Ld. CIT(A) confirmed the action of AO citing the reason that assessee failed to prove the creditworthiness of the six parties from whom the cash was taken. According to assessee, it had made the payment of Rs.3,55,000/- to six parties on 3 (three) different dates which were routed through cash book, which is evidenced by receipt of individual six parties. And since there was a condition in the agreement of sale to pay interest on late payment, the assessee incurred the interest expenditure. We note that the AO accepted these facts however he was not satisfied with the cash payment of Rs.3,55,000/- and made the addition of Rs.3.55 lakh since assessee failed to produce the parties before him. However, the Ld. CIT(A) confirmed the action of AO on the Claridge Commercial Pvt. Ltd., AY 2005-06 reason that the assessee failed to prove the creditworthiness of the parties from whom the assessee sourced the cash for making the payment to six landlords. We note that AO made the addition since assessee failed to produce the landlords to whom payments were made and Ld. CIT(A) made the addition since assessee did not produce the parties creditworthiness from whom the assessee sourced the cash for making the payment. Since according to assessee, it had made the payment of Rs.3,55,000/- to six parties on 3 (three) different dates which were routed through cash book, and the AO having not examined the cash book even to determine whether the assessee had the cash balance to make the payment on three different dates, which is necessary to adjudicate the issue, it is remanded back to AO for de novo adjudication. So on this issue the Ld CIT(A) order is set aside and the issue remanded back to AO for fresh adjudication in accordance to law. Needless to say the assessee would be heard before passing the order.
7.1. Before parting, it is noted that the order is being pronounced after ninety (90) days of hearing. However, taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. For coming to such a conclusion, we rely upon the decision of the Co-ordinate Bench of the Mumbai Tribunal in the case of DCIT vs. JSW Limited in & 6103/Mum/2018, Assessment Year 2013-14, order dt. 14th May, 2020. In light of the above discussion, the appeal of assessee is allowed for statistical purposes.