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Income Tax Appellate Tribunal, “D” Bench, Mumbai
Before: Shri Ravish Sood & Shri N.K. Pradhan
PER RAVISH SOOD, JM
1. The present appeal filed by the revenue is directed against the order passed by the CIT(A)-3, Thane, dated 20.12.2016, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961 (for short „Act‟), dated 31.03.2015 for A.Y. 2012- 13. The revenue has assailed the impugned order on the following grounds of appeal:
“1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) Thane, erred in deleting major expenses and restricting expenses only upto 20% i.e to Rs.51,76,857/ instead of Rs 2,58,84,285/-.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A)-3, erred in deleting brokerage of Rs 93,10,505/- and thereby restricting the expenses toRs 75,76,857/- only.
3. On the facts and in the circumstances of the case and in law, the Ld.CIT(A)-3,erred in deleting unexplained cash credit u/s 68 amounting to Rs 57,50,000/-.
4. The appellant prays that the order of the Ld. CIT(A)-3, Thane may be set-aside and that of the A.O. be restored.
5. The appellant craves leave to add, alter or amend any or all of the above ground/grounds which may be necessary. Further, the assessee is also before us as a Cross-Objector. The assessee has objected to the order passed by the CIT(A) on the following grounds:
“ 1 . T h e H o n . C I T ( A ) e r r e d i n c o n f i r m i n g d i s a l l o w a n c e t o t h e e x t e n t o f Rs.51,76,857/-, being 20% of expenditures incurred on material purchases. construction expenses and leveling of land, on the adhock basis. In spite of the expenditure being fully supported by evidences and confirmed by the respective parties in assessment proceedings in response to 133(6) notices.
2. The Hon. CIT (A) erred in confirming the disallowance of brokerage expenses to the extent of Rs. 24,00,000/- on adhock basis, not appreciating the facts of the matter.
P a g e | C.O No.226/Mum/2018 (Arising out of AY. 2012-13) Income Tax Officer, Ward 4(1) Vs. M/s Divine Developers 3. The respondent craves leave to add, alter, amend, delete and/or vary any of the above grounds of cross objections at any time before the decision of the appeal/cross objections.” As common issues are involved in the appeal of the revenue and the cross-objection filed by the assessee, therefore, the same are being taken up together and are being disposed off by way of a consolidated order.
Briefly stated, the assessee firm had filed its return of income for A.Y 2012-13 on 20.09.2012, declaring its total income at Rs.49,00,094/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2).
3. The A.O while framing the assessment made the following additions/disallowances in the hands the assessee:
Sr. No. Particulars Amount 1. Disallowance of land development expense. Rs.2,58,84,288/- 2. Disallowance of brokerage expenses. Rs.93,10,505/- 3. Addition under Sec.68. Rs.57,50,000/- Accordingly, the A.O assessed the income of the assessee firm at Rs.4,58,44,890/-.
4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the assessee and perusing the material available on record restricted the disallowance of the “land development expenses” to an amount of Rs. 51,76,857/- i.e 20% of the claim raised by the assesse, as against the disallowance of the entire claim of Rs.2,58,84,285/- made by the A.O. As regards the brokerage expenses of Rs.93,10,505/-, the CIT(A) restricted the said disallowance to an amount of Rs.24,00,000/-.
P a g e | C.O No.226/Mum/2018 (Arising out of AY. 2012-13) Income Tax Officer, Ward 4(1) Vs. M/s Divine Developers Insofar, the addition of the „unexplained cash credit‟ of Rs.57,50,000/- made by the A.O under Sec. 68 of the Act was concerned, the same was deleted by the CIT(A). Accordingly, on the basis of his aforesaid observations the CIT(A) partly allowed the appeal of the assessee.
The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Briefly stated, the assessee is a partnership firm engaged in the business of trading in land. During the year under consideration the assessee had sold a parcel of land at Village: Tarapur, district Palghar for a consideration of Rs.9,00,00,000/-. After claiming the deduction for various expenses including cost of land, total income declared by the assessee from the aforesaid sale transaction was shown at Rs.49,00,094/-. The A.O in the course of the assessment proceedings examined the expenses debited by the assessee in its profit and loss account and carried out inquiries by issuing notices under Sec. 133(6). Also, summons were issued by the A.O under Sec.131 to various parties in the course of the assessment proceedings. In response to the aforesaid notices/summons issued under Sec.133(6)/131, compliance was made by the parties. However, the A.O was of the view that the compliance made by the parties was found to be inadequate. Accordingly, the A.O holding a conviction that the assessee had failed to substantiate the genuineness of its claim of having incurred certain expenses viz. (i). land development expenses: Rs.2,58,84,285/-; and (ii) brokerage expenses: Rs.93,10,505/-,thus disallowed the same. Also, the A.O added the loans aggregating to Rs. 57.50,000/- which were claimed by the assessee to have been received from Mrs. Nivedita
P a g e | C.O No.226/Mum/2018 (Arising out of AY. 2012-13) Income Tax Officer, Ward 4(1) Vs. M/s Divine Developers Patil & Mrs. Sunita Lobo, as unexplained cash credits under Sec. 68 of the Act. On the basis of his aforesaid deliberations the A.O assessed the income of the assessee firm at Rs.4,58,44,890/-.
We shall first advert to the disallowance of the “land development expenses” aggregating to Rs.2,58,84,285/-, which as per the records was comprised of viz. (i) land development expenses: Rs.1,95,10,608/-; (ii) purchase of material: Rs.66,560/-; (iii) construction expenses: Rs.14,20,253/-; and (iv) levelling expenses: Rs.48,86,867/-. As is discernible from the orders of the lower authorities, the assessee firm on being queried as regards the authenticity of its claim of land development expenses, had submitted before the A.O that the said expenses pertained to land development in the form of land filling work, pitching to stop inflow of creek water, compound wall construction and levelling of land. Copy of the contracts for the purpose of development and levelling of the land, along with the details of the tax deducted at source on the payments made to the payees were also furnished with the A.O. The details filed by the assessee did not inspire much of confidence with the A.O for twofold reasons viz. (i) that, all the payments were found to have largely been made in the month of March, 2012, and (ii). that, the claim of the land development expenses raised by the assessee in its „books of accounts‟ did not match with the details which were filed in the course of the assessment proceedings. In order to verify the veracity of the aforesaid land development expenses, the A.O issued notices under Sec.133(6) to the parties whose services were claimed by the assessee to have been availed for carrying out the land development work. As the compliance the notices issued under Sec.133(6) was effected by only some of the parties, which too had furnished part replies, therefore, the A.O directed the assessee to P a g e | C.O No.226/Mum/2018 (Arising out of AY. 2012-13) Income Tax Officer, Ward 4(1) Vs. M/s Divine Developers produce the parties for necessary verification. It was also observed by the A.O that the „books of account‟ produced by the assessee also did not inspire much confidence. It was noticed by the A.O that the assessee had only filed a print out of the trial balance, cash book and bank book, and have not produced the ledgers for verification. Apart there from, it was noticed by him that only some cash vouchers were submitted in the course of the proceedings. It was observed by the A.O that the assesses counsel had expressed her inability to produce „bills‟ in support of other expenses, and had stated that the parties were not traceable. Apart there from, it was noticed by the A.O that while for the alleged contractors were claimed to have raised multiple bills on the assessee, however, a perusal of their ledger accounts revealed only one entry. Also, it was observed by the A.O that a substantial amount of the land development expenses were shown by the assessee as payable to some of the contractors who were stated to have rendered their services for carrying out land development work. As the A.O was not satisfied with the authenticity of the claim of land development expenses of Rs.2,58,84,285/- ,therefore, he disallowed the entire claim of the said expenses raised by the assessee. On appeal, the CIT(A) restricted the disallowance to 20% of the total land development expenses of Rs.2,58,84,285/- and accordingly sustained the addition to the extent of Rs.51,76,857/-.
We have perused the orders of the lower authorities as well as material placed on our record in context of the issue under consideration. As is discernible from the records, all the parties to whom notices were issued by the A.O under Sec.133(6) had responded and confirmed the transactions with the assessee firm. Also, the said parties had filed documentary evidence in support of the fact that they had rendered their services to the assessee by placing on record the P a g e | C.O No.226/Mum/2018 (Arising out of AY. 2012-13) Income Tax Officer, Ward 4(1) Vs. M/s Divine Developers copies of their income tax returns etc. The fact that the assessee had made the payments to the aforementioned parties through banking channels and had deducted tax at source at the time of making of such payments also fortifies the authenticity of the transactions under consideration. Further, the assessee had in the course of the assessment proceedings filed with the A.O the copies of bills, ledger accounts and agreements, wherever applicable, in support of his aforesaid claim of land development expenditure. As can be gathered from the assessment record, for the reason that the aforementioned parties who were directed by the A.O to file additional detail viz. copies of their service tax returns, VAT returns, details of technical competence and details of expenses incurred by them in carrying out their respective jobs, had failed to file the same, therefore, the aforesaid claim of land development expenditure raised by the assessee was rejected by the A.O. We find that the assessee in order to prove the genuineness of the aforesaid land development expenses had placed on record of the A.O, photographs of the land which clearly shows existence of a compound wall, filling and pitching work done to stop creek water from flowing on the land etc. Also, in the course of the proceedings before us the ld. A.R had drawn our attention to the copies of the aforesaid photographs which were filed with the A.O (Page 163-165) of the assesses „Paper Book‟ (for short „APB‟). Further, the assessee in order to dispel any doubts as regards the genuineness of the aforesaid transactions, had also furnished with the A.O the bank statements of the parties to whom payments were made towards land development, material purchase and construction as well as levelling expenses aggregating to Rs.2,58,84,788/-. As observed by us hereinabove, the A.O in the course of the assessment proceedings by issuing notices u/s 133(6) of the Act, had also verified the P a g e | C.O No.226/Mum/2018 (Arising out of AY. 2012-13) Income Tax Officer, Ward 4(1) Vs. M/s Divine Developers genuineness of the land development expenses which were claimed to have been incurred by the assessee. As is discernible from the orders of the lower authorities, we find that majority of the parties had complied with the said notices and had duly confirmed the fact that they had rendered their services to the assessee for carrying out the work of land development. In fact, the genuineness of the aforesaid claim of expenditure raised by the assessee can also be gathered from the fact that the respective parties had also filed the copies of their returns of income, wherein the amounts received from the assessee was duly shown as a part of their receipts. The ld. A.R in the course of the hearing of the appeal had also drawn our attention to the supporting documentary evidences which were filed in the course of the assessment proceedings in order to substantiate the veracity of the aforesaid land development expenses paid to the respective parties. We have perused the said documents, details of which can briefly be culled outon the basis of the details filed by the assessee before us, as under:
Sr. No. Name of the Evidences of Leger A/c of Bank Statement of Amount (Rs.) party Expenditure like Party in the the party in the Invoice/ITR paper book at paperbook at page copy/Reply to pg. no‟s no. 133(6) notices etc. appeal at pg. no. of paper book.
M/s Prime 96 to 104 162 184 5,740,000.00 Enterprises 2. M/s Perfect 105 to 114 161 185 & 186 1,504,691.00 Enterprises 3. M/s Reliable 115 to 123 160 187 2,888,000.00 Associates 4. M/s Subhash 124 to 133 160 188 5,523,950.00 Enterprises 5. M/s Om 134 to 143 160 189 & 190 1,133,061.00 Enterprises 6. M/s PNP 144 to 151 159 191 & 191 5,628,077.00 Enterprises 7. M/s Swapnil 152 159 193 to 195 905,051.00 Construction 8. M/s Siddhant 153 159 196 to 198 515,202.00 Construction 9. M/s Dhananjay 154 162 199 700,000.00 Lokhande 10. M/s Giriraj 155 162 ----- 66,560.00 Cement Product 11. Sundry 156 ----- ----- 7,386.00
P a g e | C.O No.226/Mum/2018 (Arising out of AY. 2012-13) Income Tax Officer, Ward 4(1) Vs. M/s Divine Developers Expenses 12. Opening WIP ---- ---- ----- 1,272,310.00 Total 25,884,288.00
8. As observed by us hereinabove, the assessee had on the basis of clinching documentary evidence substantiated the veracity of its aforesaid claim of land development expenses of Rs.2,58,84,285/-. In order to fortify its aforesaid claim the copies of bills, ledger accounts and agreements, wherever applicable in support of the aforesaid expenditure was also filed by the assessee. Apart there from, we find that almost all the parties to whom notices under Sec. 133(6) were issued by the A.O for verifying the genuineness of the aforesaid expenses, had responded and confirmed their respective transactions with the assessee firm. Insofar the fact that the expenses were incurred by the assessee towards construction of a compound wall, filling and pitching work done to stop creek water from flowing on the land etc., the same as observed by us hereinabove can safely be gathered from a perusal of the photographs of the land that were furnished by the assessee in the course of the assessment proceedings. We are also of the considered view, that the fact that the payments to the aforesaid parties for their services rendered were made through banking channels after deduction of tax at source, also inspires confidence as regards the genuineness of the said claim of expenditure. Apart there from, we find that the assessee had also furnished the complete details of construction expenses and the levelling expenses incurred in context of the various parties. The fact that the aforesaid transactions had been confirmed by the respective parties along with supporting documents which were called for by the A.O under Sec.133(6), also substantially supports the genuineness of the claim of the aforesaid expenses incurred by the assessee. As is discernible from the orders of the lower authorities, the sole issue that P a g e | C.O No.226/Mum/2018 (Arising out of AY. 2012-13) Income Tax Officer, Ward 4(1) Vs. M/s Divine Developers had weighed in the mind of the A.O while disallowing the entire amount of land development expenses of Rs.2,58,84,285/-, was that the respective parties on being called upon by him to furnish additional details in the form of their service tax returns, VAT returns, details of technical competence and also the details of the expenses incurred by them for carrying out their respective jobs, had failed to furnish the same with him. We have given a thoughtful consideration and are unable to persuade ourselves to subscribe to the view taken by the A.O for dislodging the duly substantiated claim of land development expenses raised by the assessee. In our considered view, the assessee by placing on record the aforesaid substantial documentary evidence had duly discharged the „onus‟ as was cast upon it to substantiate the authenticity of the transactions and the factum of having incurred the aforesaid expenses towards development of land etc. Apart there from, the fact that the payments to the respective parties were made by the assessee through banking channel after deduction of tax at source also fortifies the genuineness of said claim of expenditure. Also, as observed by us hereinabove, the fact that the amounts received by the parties had been offered to tax by them in their respective returns of income for the year under consideration can also not be lost sight of while adjudicating the allowability of the aforesaid claim of expenditure raised by the assessee. We are of a strong conviction that now when the assessee had duly discharged the „onus‟ for proving the genuineness of the aforesaid expenses by placing on record supporting documentary evidence, and also the said respective parties had confirmed their respective transactions with the assessee on the basis of documents filed in compliance to notices issued by the A.O under Sec.133(6), therefore, there was no justification for the A.O to have drawn adverse
P a g e | C.O No.226/Mum/2018 (Arising out of AY. 2012-13) Income Tax Officer, Ward 4(1) Vs. M/s Divine Developers inferences as regards that claim of the said expenditure so raised by the assessee. Insofar the observation of the A.O that as the aforementioned parties had failed to place on record their service tax returns, VAT returns, details of technical competence and also the details of expenses incurred by them in carrying out their respective jobs in the course of rendering of the services to the assessee, we are afraid that the said basis for disallowing the assessee claim of expenditure is too farfetched. We are of a strong conviction that now when the assessee had substantiated on the basis of irrefutable documentary evidence the fact of having incurred the land development expenses, therein, merely for the reason that the said respective parties could not furnish the aforesaid documents could not have justified the disallowance of the assesses claim of expenditure. Our aforesaid observation has to be read in the backdrop of the fact, that the said respective parties had duly confirmed on the basis of documentary evidence the factum of having rendered their respective services to the assessee. As regards the sustaining of the 20% of the disallowance of the land development expenses i.e Rs.51,76,857/- by the CIT(A), we are unable to comprehend as to on what basis the aforesaid disallowance had been sustained by him. As observed by us hereinabove, now when the assessee had substantiated the incurring of the land development expenses of Rs.2,58,84,285/-, therefore, without placing on record any documentary evidence which could irrefutably disprove the genuineness of the aforesaid expenses, it was not justified on the part of the lower authorities to have sustained the disallowance of any part of the aforesaid expenses. Accordingly, we are of the considered view that in the backdrop of the aforesaid facts no disallowance out of the land development expenses of Rs.2,58,84,285/- was called for in the hands of the assessee. We thus
P a g e | C.O No.226/Mum/2018 (Arising out of AY. 2012-13) Income Tax Officer, Ward 4(1) Vs. M/s Divine Developers in terms of our aforesaid observations modify the order of the CIT(A). The Ground of appeal No. 1 raised by the revenue is dismissed. Further, the Cross Objection No.1 raised by the assessee is allowed.
9. We shall now advert to the disallowance of the brokerage expenses of Rs.93,10,505/- claimed by the assessee. As is discernible from the records, the assessee had claimed to have incurred brokerage expenses aggregating to Rs.93,10,505/- viz. (i) payment made to three parties, i.e Mr. Wasim Raza Poonawala, Mr. Abahim Rashid Muchale and Shri Sabbir Damanwala as confirming parties to the registered purchase agreement, dated 04.01.2012:Rs.50,50,505/-; and (ii) payment towards brokerage for purchase/sale of the property under consideration to 15 parties: Rs.42,60,000/. The A.O had disallowed the entire payment of Rs50,50,505/- that was claimed by the assessee to have been paid to the aforesaid three confirming parties. As regards the brokerage expenses of Rs.42,60,000/-, the same too were disallowed by the A.O in entirety. On appeal, the CIT(A) had vacated the disallowance of the payments aggregating to Rs.50,50,505/- paid by the assessee to the aforementioned parties viz. Wasim Poonawala and two others. However, the disallowance of the balance brokerage expenses of Rs.42,60,000/- was restricted by the CIT(A) to an amount of Rs.24,00,000/-. Accordingly, the CIT(A) on the basis of his aforesaid observations had restricted the allowability of the brokerage expenses to the extent of Rs. 69,10,505/- [Rs. 93,10,505/- (-) Rs. 24,00,000/-].
We have deliberated at length on the issue under consideration in the backdrop of the facts available on record and the contentions advanced by the authorized representatives for both the parties. As is discernible from the orders of the lower authorities, it had throughout been the claim of the assessee that it had paid an amount aggregating
P a g e | C.O No.226/Mum/2018 (Arising out of AY. 2012-13) Income Tax Officer, Ward 4(1) Vs. M/s Divine Developers to Rs.50,00,000/- to Mr.Wasim Poonawala and two other persons i.e the confirming parties for purchase of land at Village: Tarapur Talluka Palghar, as per the registered purchase agreement dated 04.01.2012. It is the case of the assessee that as the seller of the land had earlier received certain amounts from the aforementioned parties viz. (i) Mr. Wasim Poonawala; (ii) Mr. Abahim Rashid Muchale; and (iii) Shri Sabbir Damanwala, therefore, they had acquired a right, title and interest in the concerned land. It is the claim of the assessee that the aforesaid amount aggregating to Rs.50,00,000/- was paid to the aforementioned parties not by way of brokerage but as payment to them in their status as that of being the confirming parties to the registered purchase agreement, dated 04.01.2012. The ld. A.R had drawn our attention to Page Nos. 200A to 217A of the APB (translated copy of the registered purchase agreement). A perusal of the aforesaid registered purchase agreement, dated 04.01.2012 (Page 216A and 217A of the „APB‟ categorically records that a consideration of Rs.50,00,000/- was paid to the aforementioned confirming parties viz. Wasim Raza Poonawala; Rs.40,00,000/-; (ii) Abrahim Rashi Muchale: Rs.5,00,000/-; and (iii). Sabbir Damanwala: Rs.5,00,000/-. Further, the fact that the aforesaid parties were the confirming parties to the purchase transaction under consideration is also clearly discernible from a perusal of the aforesaid registered purchase agreement. Apart there from, the assessee had also deposited an amount of Rs.50,505/- towards TDS on the aforesaid amount of Rs.50,00,000/- paid to the aforementioned parties. Accordingly, it is the claim of the assessee that as the expenditure of Rs.50,50,505/- [Rs. 50,00,000/- (+) Rs. 50,505/-] is a part of the cost of land, which is supported by the copy of the registered purchase agreement and the fact that the said respective amounts had been paid through banking channels,
P a g e | C.O No.226/Mum/2018 (Arising out of AY. 2012-13) Income Tax Officer, Ward 4(1) Vs. M/s Divine Developers therefore, the same could not have been disallowed. We have given a thoughtful consideration to the aforesaid facts and are of the considered view that as its stands conclusively proved that the assessee had made a payment of Rs.50,00,000/- to the aforesaid confirming parties viz. (i) Mr. Wasim Poonawala and two others, after deduction of tax at source, therefore, the same was rightly claimed by the assessee as a part of the cost of acquisition of the land under consideration. On a perusal of the orders of the lower authorities, we find that the A. O had disallowed the aforesaid part of the cost of acquisition of the land under consideration for the reason that Mr. Wasim Poonawala was not produced for necessary verification before him. We have given a thoughtful consideration and are unable to persuade ourselves to accept the aforesaid view of the AO. As observed by us hereinabove, a perusal of the registered purchase agreement, dated 04.01.2012 clearly makes a reference to the payments aggregating to Rs. 50 lac made to Mr. Wasim Poonawala and the two other confirming parties. Also, the said confirming parties as is discernible from the registered purchase agreement had agreed to handle litigation in the land. Apart there from, the photographs of the said three persons along with their respective signatures/thumb impression are also discernible from the aforesaid registered purchase agreement, dated 04.01.2012. As the fact that an amount of Rs.50,00,000/- was paid by the assessee to the aforesaid confirming parties vis. Wasim Poonawala; (ii) Abrahim Rashi Muchale; and (iii) Sabbir Damanwala, therefore, there is no reason for doubting the aforesaid claim of expenditure raised by the assessee. Insofar the balance amount of Rs.50,505/- is concerned, we find that the same is the amount of TDS on the aforesaid payment deposited by the assessee in respect of the aforesaid payment of Rs. 50 lac paid to the P a g e | C.O No.226/Mum/2018 (Arising out of AY. 2012-13) Income Tax Officer, Ward 4(1) Vs. M/s Divine Developers aforesaid parties. We are of the considered view that as the aforesaid claim of the assessee of having made a payment of Rs.50,00,000/- to the aforementioned confirming parties is clearly discernible from the registered purchase agreement, dated 04.01.2012, therefore, the CIT(A) had rightly vacated the disallowance of the aforesaid amount of Rs.50,00,000/- (along with TDS of Rs.50,505/- deposited by the assessee on behalf of the aforesaid parties) by clearly relating the same to the cost of acquisition of the land under consideration. As regards the adverse inferences drawn by the A.O in respect of allowability of the aforesaid amount as an expense for the reason that Mr. Wasim Poonawala could not be produced for verification in the course of the assessment proceedings, we are in agreement with the contention advanced by the ld. A.R that the said fact on a standalone basis would not suffice for dislodging the aforesaid claim of the assessee, which as observed by us hereinabove was clearly substantiated on the basis of the registered purchase agreement itself. Accordingly, finding no infirmity in the order of the CIT(A), we uphold the deletion of Rs.50,50,505/-.
We shall now advert to the disallowance of the brokerage expenses of Rs.42,60,000/- that was claimed by the assessee to have been paid to 15 parties, who are stated to have rendered their services to facilitate and purchase and sale of the aforesaid plots. It has been the claim of the assessee that the said brokers in order to facilitate the purchase and sale of the land under consideration had performed various activities viz. attending meetings, arranging site visits of the parties from time to time, and preparing the documents. It was the claim of the assessee that the payments made to the aforesaid brokers were duly confirmed by them in the course of the assessment proceedings. Apart there from, a perusal of the orders of the lower
P a g e | C.O No.226/Mum/2018 (Arising out of AY. 2012-13) Income Tax Officer, Ward 4(1) Vs. M/s Divine Developers authorities reveals that the A.O in the course of the assessment proceedings had examined 8 brokers by issuing summons under Sec. 131, and out of them 6 brokers had confirmed that they had provided brokerage services to the assessee with regard to purchase or sale of land. Also, it is a fact borne from the records that two parties had categorically denied of having been involved in any such transactions. Apart there from, the assessee had also tried to take support of the fact that as the total brokerage expenditure of Rs.42,00,000/- worked out to a meagre 1.55% of the total value of land purchased and sold, therefore, the same was well within the reasonable parameters. We have given a thoughtful consideration and are of the considered view that insofar the claim of the assessee of having paid brokerage to two parties viz. (i). Mr. Xaviour Zack: Rs.3 lac; and (ii) Mr. Raymond Pereira: Rs.3 lac is concerned, we find that they had in their respective statements recorded by the A.O under Sec.131 denied of having carried out any such transactions with the assessee Accordingly, in our considered view the disallowance of the claim of commission expenditure of Rs. 6 lac raised by the assessee in context of the said two parties had rightly been sustained by the CIT(A). As regards the balance brokerage of Rs.36 lac [Rs.42 lac (-) Rs.6 lac], we find that the same includes a brokerage of Rs.32,00,000/- that was paid by the assessee to 10 remaining parties (out of the balance 13 parties) which fall within the realm of the persons specified under Sec.40A(2)(b) of the Act. As regards the observations of the A.O that while for it was the claim of the assessee that multiple bills were raised by the alleged contractors, however, in case of 5 such contractors viz. (i) M/s Perfect Enterprises; (ii) M/s PNP Enterprises; (iii)M/s Prime Enterprises; (iv) M/s Reliable Enterprises: (v) M/s Subhash Enterprises, a perusal of their ledger accounts appearing in the „books of accounts‟ (computer
P a g e | C.O No.226/Mum/2018 (Arising out of AY. 2012-13) Income Tax Officer, Ward 4(1) Vs. M/s Divine Developers printout) of the assessee revealed only one entry for the aforesaid amounts, the same was assailed by the ld. A.R in the course of hearing of the appeal before us. In order to rebut the aforesaid observation, the ld. A.R had drawn our attention to accounts of the some of the parties which revealed to the contrary. We find that it is a matter of fact borne from the records that the aforesaid payment made by the assessee to the abovementioned brokers through banking channels was duly confirmed by them on the basis of their respective confirmations which were filed with the A.O in the course of the assessment proceedings. Further, as observed by us hereinabove, 6 brokers(out of 8 brokers) whose statements were recorded under Sec.131 of the Act, had admitted of having provided services to the assessee and received brokerage income in lieu thereof. The complete details of the brokers along with their confirmations and the statements recorded under Sec. 131 had been culled out by the assessee by way of chart filed before us, as under:
Sr. No. Name of the parties to Amount (Rs.) Confirmation in the Statement recorded in whom brokerage paid paperbook at page no. response to summons issued u/s 131in the paperbook at page no.
1. Sylvestor Lopes 611,111.00 219 234 to 236 2. Philip Lopes 388,889.00 220 ........
Satish Save 60,000,00 221 ........
Mr. Cjitan Suscano 400,000.00 222 237 & 238 5. Mr. Cnnycious Correia 200,000.00 223 239 & 240 6. Mrs. Cecilia Correia 200,000.00 234 .........
7. Mr. Francis Lobo 400,000.00 225 ..........
Mr. Kamlakar Patil 200,000.00 226 241 & 242 9. Mr. Philippa Correia 200,000.00 227 ...........
10. Mr. Pravin Patil 200,000.00 228 243 & 244 11. Mr. Remond Pereira 300,000.00 229 ...........
Mr. Robert Lopes 200,000.00 230 245 & 246 13. Mr. Robert Lopes 300,000.00 231 .........
14. Mr. Robinson Lopes 300,000.00 232 247 & 248 15. Mr. Xavier Zack 300,000.00 233 .......... Total 4,260,000.00
P a g e | C.O No.226/Mum/2018 (Arising out of AY. 2012-13) Income Tax Officer, Ward 4(1) Vs. M/s Divine Developers In our considered view, now when the remaining 13 parties had duly confirmed the fact that they had received the brokerage from the assessee firm and had in their respective confirmations also furnished their PAN numbers and complete addresses, therefore, the A.O was not justified to have summarily disallowed the claim of brokerage expense raised by the assessee in context of the said parties. Apart there from, we are also not persuaded to subscribe to the view taken by the CIT(A) that as certain parties to whom the brokerage amount had been paid were covered by Sec.40A(2)(b) of the Act, therefore, a further disallowance of 50% of the balance brokerage expenses amounting to Rs.18,30,000/- (ie. 50% of Rs.36,60,000/-) was to be made by holding the same as being excessive. In our considered view, as the said observation of the CIT(A) is not backed by any basis or reasoning, hence the same cannot be upheld and is liable to be vacated. Accordingly, in terms of our aforesaid observations, we sustain the disallowance of brokerage expenses of Rs.6 lac (out of Rs.42,60,000/-). To sum up, the addition of Rs.6,00,000/- out of the total disallowance of brokerage expenses of Rs.93,10,505/- is sustained. The Ground of appeal No. 2 raised by the revenue is dismissed. Further, the Ground of Cross Objection No. 2 is partly allowed in terms of our aforesaid observations.
12. We shall now take up the addition of the loans received by the assessee from two parties viz.(i) Mrs. Nivedita Patel: Rs.25,00,000/-; and (ii) Mrs. Sunita Lobo: Rs.32,50,000/- as unexplained cash credits under Sec.68 by the A.O. The assessee firm had raised loans from the aforesaid persons during the year under consideration. The A.O in order to verify the genuineness of the aforesaid loan transactions issued notice under Sec.133(6) to the said parties. In reply, the aforesaid parties duly confirmed the respective loan transactions and P a g e | C.O No.226/Mum/2018 (Arising out of AY. 2012-13) Income Tax Officer, Ward 4(1) Vs. M/s Divine Developers also filed the copies of their bank statements from which the loans were advanced, as well as the copies of their returns of income for the year under consideration. Apart there from, the aforesaid parties had duly explained the source from where the aforesaid loans were advanced by them. However, the A.O being of the view that the assessee had failed to prove the genuineness of the transactions and also the capacity of the lenders to advance the said respective loans, therefore, added the aforesaid amount of Rs.57,50,000/- as unexplained cash credits under Sec.68 in the hands of the assessee.
We have given a thoughtful consideration to the aforesaid issue in the backdrop of the facts discernible from the records and the contentions advanced by the authorized representatives for both the parties. In our considered view, now when the assessee had duly substantiated the genuineness of the respective loan transactions by placing on record supporting documentary evidence viz. (i) confirmation letters of the loans; (ii) copies of the bank statement of the lenders; (iii) copies of the income tax returns of the lenders; and (iv) source out of which the amount had been advanced to the assessee firm, therefore, there was no justification on the part of the A.O to have characterised the said loan transactions as unexplained cash credits under Sec.68 in the hands of the assessee. We are of the considered view, that as the assessee had duly established the identity and creditworthiness of the lenders, and also the genuineness of the loan transactions under consideration, therefore, the CIT(A) had rightly vacated the addition of Rs.57,50,000/- made by the A.O under Sec.68 of the Act. Accordingly, finding no infirmity in the order of the CIT(A), to the extent he had deleted the addition of Rs.57,50,000/-, we uphold the same. The Ground of appeal No. 3 raised by the revenue is dismissed.
P a g e | C.O No.226/Mum/2018 (Arising out of AY. 2012-13) Income Tax Officer, Ward 4(1) Vs. M/s Divine Developers
Resultantly, the appeal of the revenue is dismissed. On the other hand the cross objection filed by the assessee is partly allowed.
Order pronounced in the open court on 26.07.2019