ACIT, COIMBATORE vs. SRI BALAJI REAL ESTATES, POLLACHI

आदेश / O R D E R

PER INTURI RAMA RAO, ACCOUNTANT MEMBER

For the sake of convenience and clarity the facts relevant to the 3. appeal in 2011-12 are stated herein.

‘’1. The order of the learned CIT(A) is not acceptable on the facts and circumstances of the case.

2. The Learned CIT(A) has erred in law, in deleting the disallowance on cessation of Liability.

3. The Learned CIT(A) has erred in not considering the fact the major portion of payments for purchasing a property cannot be made in two years after the registration when there was another party who had , 1237 & :- 3 -: 1238/17, 2544 & 2545/18 made major payment as advance towards the purchase of the property.

4. The [earned CIT(A) has erred in stating that he AO is contradicting the payment of extra consideration over and above that in the registered document for which evidence was found during survey wherein the AO has only held that the entire payments were made on or before the date of registration and not in deferred in manner.

5. The Learned CIT(A) has erred in stating that the assessment order does not mention anything about reliability of payment of Rs.6,50,00,000/- Later as AO has clearly brought in the order that above payment has not been made in deferred manner as claimed by the assessee. 5. For these and other grounds that may be adduced at the time of hearing, the order of the CIT(A) may be cancelled and that of the Assessing Officer restored’’.

The Respondent -assessee namely ‘’Sri Balaji Real Estates’’ is a partnership firm engaged in the business of real estates. The return of income for the AY 2011-12 was not filed under the provisions of Section 139 of the Income Tax Act, 1961 (in short ‘’the Act’’).

Subsequently, the Assessing Officer had come to know that assessee firm had purchased land for consideration of �7,98,70,000/-. Based on this information, he formed an opinion that income escaped assessment and accordingly issued notice u/s.148 of the Ac on 12.11.2013. In response to the said notice, assessee filed return of income for the Asst. Year 2011-12 on 16.11.2013 electronically disclosing Nil income. Against the said return of income, the assessment was completed by the Assessing Officer at total income of , 1237 & :- 4 -: 1238/17, 2544 & 2545/18 �6,50,00,00/- vide order dated 29.03.2015 passed u/s.147 r.w.s. 144 of the Act. While doing so, the Assessing Officer made addition of �6,50,00,000/- being amount payable to Mr. Kanakaraj and Mr. Senthil Vadival on purchase of the property disbelieving existence of the liability.

The facts as set out by the Assessing Officer is extracted 6. below:-

‘’A survey action 133A was conducted in the premises of M/s Kwality Spinning Mills Pvt Ltd, Pollachi on 04-09-2013. During the course of survey action it came to light that M/s. Kwality Spinning Mills Private Ltd had sold 16.39 acres of land (Old chitta no -53; New Chitta no-169; S.F No 23/B and 40/1) to Sh. Kanakaraj and Sh. R.M.Senthil Vadivel of M/s Vanjiamman Finance & Real Estates, Pollachi. This property in turn was sold to assessee, M/s Balaji Real Estate on 27-12-2010 for value of Rs.61,62,502/- vide registered sale deed dated: 27-12-2010, document no 10563/2010 and Rs.19,57,498/- vide registered sale deed dated : 27-12-2010 , document no 10564/2010. However some unregistered documents were recovered during the survey proceedings. As per one of the document the property had been sold to assessee firm for Rs.7,98,70,000/- vide unregistered document dated: 25-11-2010. In order to verify the true nature of the transactions, statement u/s 131 of the IT Act were recorded under oath from Sh. Kanakaraj and Sb. R.M.Senthil Vadivel on 05- 09-2013. In the statement Sh. Kanakaraj and Sb. R.M.Senthil , 1237 & :- 5 -: 1238/17, 2544 & 2545/18 Vadivel, both admitted on oath that the property was registered at a lower value , but the actual sale consideration received was Rs.7,98,70,000/- from M/s Balaji Real Estates’’.

Based on the above information, the Assessing Officer formed an opinion that income had escaped assessment and accordingly issued notice u/s.148 of the Act dated 12.11.2013 and during the course of assessment proceedings, the Assessing Officer found that out of total consideration of �7,98,70,000/- paid to sellers namely Mr. Kanakaraj and Mr. Senthil Vadival, found that source of investment for purchase of property for �1,48,70,000/- was explained. However, for the balance amount of �6,50,00,000/- when required by the Assessing Officer to explain the source of investment, it was explained that balance amount was paid in subsequent two years in cash. The Assessing Officer disbelieved the explanation of the assessee and held that balance consideration of �6,50,00,000/- was paid at the time of registration of the sale deed by placing reliance on the decision of Hon'ble Supreme Court in the case of Sumati Dayal vs. CIT, 214 ITR 801 by holding that the liability is not existing and brought to tax a sum of �6,50,00,000/-. , 1237 & :- 6 -: 1238/17, 2544 & 2545/18 7. Being aggrieved by the above addition, an appeal was preferred before ld. CIT(A), who vide impugned order deleted the addition taking into consideration the following set of facts.

‘’(a) It has not been established that the payment is not made in Financial Years 2011-12 and 2012-13.

(b) The parties in their statements have not given any proof for the receipt of payment before registration.

(c) The assessment order does not mention anything about the reliability of payment of Rs. 6,50,00,000/- later.

(d) The Assessing Officer by stating cessation of liability is contradicting the payment of extra consideration over and above that in the registered document for which evidence was found during the course of survey u/s 133A.

(e) There is no cogent rebuttal of the appellant’s argument that the payment was deferred as there was legal dispute over the property’’.

Being aggrieved by the order of the ld. CIT(A), the Revenue 8. is in appeal before us in for assessment year 2011-12. It is contended before us that the ld. CIT(A) ought not have deleted the addition considering the circumstantial evidence, such as statement of the partners and having regard to the prevailing practice in the real estate business ought to have held that on money was paid at the time of purchase of land for which the source remained unexplained. , 1237 & :- 7 -: 1238/17, 2544 & 2545/18 9. On the other hand, ld. Authorised Representative submitted that balance of consideration of �6,50,00,000/- was paid during the previous year relevant to assessment years 2012-2013 and 2013-14 and having regard to the observation made by the Assessing Officer during the course of assessment proceedings in the year 2012-2013, and Assessing Officer having had recorded a finding that the vendors of the property i.e. Mr. Kanakaraj and Mr. Senthil Vadival, had admitted on oath on 05.09.2013 that the entire sale consideration was received, he cannot resort to making addition on account of cessation of liability.

We heard the rival submissions and perused the material on 10. record. During the previous year relevant to assessment year under consideration, respondent – assessee brought 16.39 acres of land at Pollachi from Mr. Kanakaraj and Mr. Senthil Vadival. This property was purchased by the sale deed dated 27.12.2010 vide document No.10563/2010 for �61,62,502/- and document No.10564/2010, dated 27.12.2010 for �19,57,498/-. However, it was an admitted fact that total consideration paid on purchase of said land was �7,98,70,000/-, out of which a sum of �6,50,00,000/- was shown payable to the seller of the property as on 31.03.2011 was disbelieved by the Assessing Officer and brought to tax as non existing liability. On appeal before the ld. CIT(A), the ld. CIT(A) deleted the addition made by the , 1237 & :- 8 -: 1238/17, 2544 & 2545/18 Assessing Officer. From the perusal of para 1.5 of the assessment order, it is clear that the Assessing Officer had recorded statement from Mr. Senthil Vadival, who is the seller of the popery, confirmed the factum of receipt of balance consideration of �6,50,00,000/- in cash during the previous year relevant to assessment years 2012-13 and 2013-14 and he also explained before the Assessing Officer, the circumstances under which the balance consideration was accepted in cash. However based on the plaintiff filed by one Shri. Varadharaj in the Civil Suit, who is the partner of M/s. Vanjiamman Finance and Real Estates that a sum of �4,00,00,000/- was received in cash had concluded that there was no money payable on account of purchase of property. The allegation of Shri. Varadharaj required to be proven, in a Court of law. The outcome of Civil Suit was not brought on record by the Assessing Officer. In the circumstances, it cannot be said that it is a conclusive proof of payment of �4,00,00,000/- by the Respondent – assessee firm to the vendors. In any event there is no material on record suggesting payment of �6,50,00,000/- on the date of purchase of property. Further, the Assessing Officer had not brought evidence in rebuttal of the explanation of the assessee that the balance consideration of �6,50,00,000/- was paid during the previous years relevant to assessment years 2012-13 and 2013-14. In the circumstances, it cannot be said that there is a cessation of , 1237 & :- 9 -: 1238/17, 2544 & 2545/18 liability of �6,50,00,000/- as on 31.03.2008, therefore no addition on account of cessation of liability is warranted in the hands of the respondent assessee firm. Therefore, we do not find any reason to interfere with the order of the ld. CIT(A). The appeal filed by the Revenue stands dismissed.

Now, we take up appeal of the assessee in ITA 12.

NO.1238/CHNY/2017 for assessment year 2011-2012 for adjudication.

This is an appeal filed by the assessee directed against the 13. order of ld. Principal Commissioner of Income Tax-2, Coimbatore (in short ‘’ld. PCIT) passed u/s.263 of the Act dated 24.03.2017 for assessment year 2011-2012.

‘’1. The orders of PrCIT are opposed to on law and facts of the case.

2. The PrCIT ought to have appreciated that he erred in passing orders u/s 263 in this case

5. The PrCIT ought to have dropped proceedings u/s 263 when the department has filed an appeal questioning the orders of CIT (A) on the cessation of the liability (ITA 397/2016 with ITAT Chennai A Bench)

11. The appellant reserves the right of adding to or otherwise modifying the grounds as may be advised.’’

On the other hand, ld. Departmental Representative 17. opposed the submissions made on behalf of the assessee.

The Assessing Officer passed order consequent to the order 21. passed by the ld. PCIT-2, Coimbatore u/s.263 of the Act dated 24.03.2017 after making disallowance of �69,70,000/- u/s.40A(3) of the Act rejecting the contention of the assessee that cash payments were made on Sundays and Bank holiday and therefore no disallowance can be made.

Being aggrieved by the order of the ld. CIT(A), the Revenue 23. is in appeal before us. The ld. Departmental Representative argued that the ld. CIT(A) ought not have held the payment are genuine, in as much as, the payments have been made intentionally on holidays just to avoid the consequence of disallowance.

On the other hand, the ld. Authorised Representative placed 24. reliance on the order of the ld. CIT(A).

We heard the rival submissions and perused the material on 25. record. Admittedly, the cash payments are made towards purchase of property, which is stock in trade in the hands of the assessee firm.

The provisions of Section 40A(3) of the Act states that any expenditure incurred in cash aggregating to the sum of �20,000/- on a single day shall be disallowed except under the circumstances mentioned under Rule 6DD. It is a matter of record that both the assessee, as well as the payees admitted cash payments and the same was duly reflected in the respective books. Thus, the genuineness of the expenditure is established beyond doubt, no disallowance can be made u/s.40A(3) of the Act in the light of the of the judgment of Hon'ble Supreme Court in , 1237 & :- 15 -: 1238/17, 2544 & 2545/18 the case Attar Singh Gurumukh Singh (supra) wherein it was held as follows:-

‘’Section 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from undisclosed sources. The terms of section 40A(3) are not absolute. Considerations of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section’’.

Thus, the deletion made by the ld. CIT(A) is based on law laid by Hon'ble Supreme Court in the case of Attar Singh Gurumukh Singh (supra). We do not find any reason to interfere with the order of the ld. CIT(A). The appeal filed by the Revenue stands dismissed.

On the other hand, the ld. CIT- Departmental Representative 31. placed reliance on the order of the ld. PCIT.

We heard the rival submissions and perused the material on 32. record. The solitary issue involved in the present appeal relates to the validity of assumption of jurisdiction u/s.263 of the Act. In this case, original assessment order was completed on 27.03.2015. At the time of completion of original assessment, factum of payment of consideration of �3,50,00,000/- in cash is within the knowledge of the Assessing Officer. However, the Assessing Officer was of the opinion that the entire consideration was discharged during the previous year relevant to assessment year 2011-2012 and the balance consideration shown as payable, he held it to be fictitious and according chose to make addition on account of cessation of liability. The addition was contested by the assessee in assessment year 2011-2012 and the ld. CIT(A) had deleted the addition. On further appeal before this Tribunal, the deletion of addition was confirmed by the Tribunal vice para 10 above (supra). In the backdrop of these facts, the issue that comes up for consideration is whether the exercising the revisionary powers u/s.263 of the Act holding the assessment order erroneous for , 1237 & :- 19 -: 1238/17, 2544 & 2545/18 failure of the Assessing Officer to consider the applicability of Section 40A(3) of the Act to the cash payments made is correct or not. From the perusal of the assessment orders for the years 2011-2012 and 2012-2013, it would demonstrate that the Assessing Officer had rejected the contention of the assessee that cash payments were made in the subsequent assessment years i.e. 2012-13 and 2013- 2014. Accordingly, the Assessing Officer had not chosen resort to the disallowance u/s.40A(3) of the Act. The course of action adopted by the Assessing Officer is inconsonance with the approach adopted by him in the preceding assessment year which is one of the possible view. The view of the Assessing Officer is being challenged by the assessee, before ld. CIT(A) when relief was granted by the CIT(A), the matter was being challenged in further appeal before the Tribunal.

This would go to show that the Assessing Officer is of the opinion that course of action adopted by him is correct and the ld. PCIT cannot revise the assessment order on the ground that Assessing Officer should have adopted different view in respect of very same issue which is not permissible in view of the judgment of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. (supra). The Relevant para is abstract hereunder:-

The phrase “prejudicial to the interests of the Revenue” has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of , 1237 & :- 20 -: 1238/17, 2544 & 2545/18 the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue ; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC)’’.

Appling the principle enunciated above to the facts of the case, we are of the opinion that the order of revision by the ld. PCIT is not valid in law and therefore we quash the revisionary proceedings u/s.263 of the Act.

In the result, the appeal filed by the assessee in ITA 33. No.1237/CHNY/2017 for assessment year 2012-2013 is allowed. Now, we take up appeals of the Revenue in & 34. 3148/CHNY/2018 for assessment year 2012-2013 for adjudication.

397/CHNY/2016 and 2544/CHNY/2018 for assessment year 2011-2012 and & 3148/CHNY/2018 for assessment year 2012-2013 stand dismissed.

Order pronounced on 24th day of October, 2019, at Chennai.