AJIT KUMAR J SINGH,MUMBAI vs. ASST CIT 27(1), NAVI MUMBAI

Application of Fund Amount (Rs.) Investment in Lodha Property 38,37,745 Investment in Evershine Property 9,03,955 Credit Card Expenses Drawing 13,09,544 Total Application of Fund 60,51,244 Source of Fund Capital Receipt through Sale of 16,00,000 Aurangabad Property Gross receipt Received 43,31,773 Out of Credit Card Expenses 1,19,471 Total source of Fund 60,51,244 2.5 However certain discrepancies were noted in the investment figures reflected in the Balance Sheet which was show-caused to the assessee vide notice dated 13/02/2015. It was noted that the assessee, in its Balance Sheet as on 31/03/2012, reflected Advance to Lodha as Rs.80 Lacs and shown investment in residential properties as Rs.88.16 Lacs which were not matching with the details furnished by the assessee. 2.6 The assessee, vide reply dated 28/02/2015, accepting the nomenclature issues, bifurcated the gross investments of Rs.168.16 Lacs in the following manner: - Head Amount (Rs.) Investment in Lodha Property Flat No. 1904 38,17,387/- Investment in Lodha Property Flat No. 1903 3,34,210/- Investment in Evershine Property 96,39,200/- Old Premises at Bihar 30,25,615/- Total 1,68,16,412/- 2.7 However, not convinced, Ld. AO opined that expenses incurred as well as investment made by the assessee were in excess of the income shown during the year by Rs.29.51 Lacs as computed in the following manner: - Head Amount (Rs.) Gross Receipts Credited in P & L Account 43,31,773/- Less: Expenses through credit card 25,41,544/- Investment in Flat No. 1904 38,37,745/- Investment in Flat No. 1603 9,03,955/- 72,83,244/- Excess Expenses / investments 29,51,471/- Accordingly, excess amount of Rs.29.51 Lacs was added in the hands of the assessee as unexplained investment u/s 69. 2.8 The last addition of Rs.16 Lacs was an addition on protective basis against sale of a property bearing Plot No. M-46, MIDC Waluj, Gangapur, Distt. Aurangabad. It was submitted that the property belonged to a partnership firm of the assessee namely M/s Maratha Chemicals. It was submitted that the assessee was the GPA holder of the firm. The Land was acquired by the firm and a factory building was constructed thereupon. During the year, the said plot along with construction and Machinery was sold to M/s Omkar Industries for a sale consideration of Rs.16 Lacs and the possession was handed over on 25/08/2011. Since the firm was not having any bank account and was in the process of obtaining PAN, the assessee, as GPA holder got the credit of the same in his own bank account which was nothing but receipts under trust. In the said background, it was submitted that the same would be reflected in the Income Tax Return of the firm. Accepting the assessee’s version, the addition was made on protective basis. The impugned order of Ld. CIT(A) records a finding that till the date of appellate proceedings which concluded vide order dated 09/02/2017, no return was filed by the firm and therefore, the additions were confirmed in first appeal.

Aggrieved, the assessee agitated the additions before Ld. CIT (A), wherein while confirming the additions, relief of Rs.16 Lacs, being receipts of Aurangabad property was granted against addition of unexplained investments. In other words, the addition on account of unexplained investment were reduced from Rs.29.51 Lacs to Rs.13.51 Lacs. Aggrieved, the assessee, is in further appeal before us. 4.1 We have carefully heard rival submissions and perused relevant material on record. At the outset, so far as the addition of Rs.16 Lacs is concerned, we find that the assessee has failed to demonstrate that the said amount was ever offered by the firm to tax. The addition was made on protective basis on the strength of assessee’s reasoning that the money was received under Trust on behalf of the firm which was under the process of filing its return of income. Nothing has been brought on record to establish that the firm has filed its return of income for the impugned AY. Therefore, this income would be assessable in the hands of the assessee. 4.2 The Ld. AR has alternatively pleaded that since the aforesaid income has arisen out of sale of long-term capital assets, the same would be assessable as Long-Term Capital Gains only. The working of the same has also been placed on record. We agree with the same. Upon perusal, it is noted that additions have been made u/s 68 as unexplained cash credit, which is not the case here since the assessee is able to explain the nature of credit. It is uncontroverted fact that the gains have arisen on sale of a long-term capital assets and therefore, the resultant gains would be assessable as Long-Term Capital Gains only. The computation of the same shall be governed by the provisions of the act and accordingly, the benefit of cost of acquisition etc. shall be available to the assessee against the sale consideration. The assessee has already placed on record the working of the same and submitted that Long-Term Capital Gains would work out to Rs.14.51 Lacs. The Ld. AO is directed to verify the computations and assess the income accordingly. The ground stand partly allowed.

So far as the expense disallowance of Rs.13.70 Lacs is concerned, we find that the assessee reflected receipts of Rs.43.31 Lacs from liasioning business and after claiming expenditure of Rs.13.70 Lacs against the same, reflected profit of Rs.29.61 Lacs which was more than 68% of total receipts. This rate is much more than presumptive rate of 8% as prescribed by Section 44AD of the Act. Since the offered rate was much more than 8%, there was no requirement on assessee to maintain books of accounts etc. Further, these expenses were stated to be in the nature of Audit Fees, Bank Charges, Conveyance expenses, Salary expenses, travelling expenses etc. as submitted before Ld. first appellate authority. Therefore, the addition of expense disallowance for Rs.13.70 Lacs could not be sustained. We order so. The ground stands partly allowed.

The last addition of Rs.29.51 Lacs representing unexplained investments has been reduced to Rs.13.51 Lacs by Ld. first appellate authority after giving the credit of Rs.16 Lacs, being receipts of sale of Aurangabad property. However, it was submitted that the amount of Rs.12.32 Lacs was cash withdrawals through credit cards and the same were not investments, as wrongly taken by Ld. AO. This aforesaid fact remains uncontroverted before us. Another pertinent fact to be noted is that the addition has been made u/s 69 as unexplained investments. However, we find that the investments were duly recorded by the assessee in the books of accounts and they were not unexplained investments found out of the books. Further, the conclusion drawn by Ld. AO could not be sustained since the opening cash / bank balances have not been considered in the computations. Viewing from any angle, the impugned addition of Rs.13.51 Lacs could not be sustained. By deleting the same, we allow this ground of appeal