ASST CIT 15(2)(1), MUMBAI vs. HAWARE CONSTRUCTION P. LTD, NAVI MUMBAI

ORDER

PER N.K. PRADHAN, AM

(AY-2009-10) 2. To begin with , we refer to the grounds raised by the assessee under Rule 27 of the ITAT Rules, 1963, wherein it is stated that the ld. CIT(A) erred in upholding the re-opening of the assessment u/s. 147 / 148 of the Act. 2.1. The ld. counsel submits that the re-opening done by the AO, being bad in law, should be quashed. On the other hand, the ld. DR supports the order passed by the ld.CIT(A). 2.2. We have heard the rival submissions and perused the relevant materials on records. Briefly stated, the facts of the case are that the assessee filed its return of income on 27/09/2009 declaring total income at Rs.1,70,61,600/-. The Assessing Officer (AO) completed the assessment u/s 143(3) on 30/12/2011 assessing the total income at Rs.12,25,11,130/-. After giving effect to the order of the CIT(A), the AO revised the total income to Rs.2,28,60,465/-. The assessee is a builder/ developer, engaged in civil construction works . The AO received information received from the Investigation Wing of the Income tax Department, Mumbai, that the assessee had obtained bogus purchase bills amounting to Rs.2,20,472/- from M/s. Top Bricks and Sand Suppliers, which is one of the hawala operators as notified by the Investigation carried out by the Sales tax department, Govt. of Maharashtra. On that basis, the AO recorded the reasons for re-opening the assessment and issued notice u/s. 148 of the Act . In the instant case the notice u/s. 148 of the Act has been issued on 26/03/2013, thus within 4 years from the relevant AY 2009-10. As there was specific information received on the basis of investigation conducted by the sales tax department , Govt. Of Maharashtra, that the assessee had obtained bogus purchase bills of 2. M/s. Haware Construction Pvt.Ltd.

Rs.2,20,472/- from Top Bricks and Sand Suppliers, the AO has rightly issued notice u/s. 148 on 26/03/2013. In a similar case involving beneficiary of accommodation entries, the Hon’ble Bombay High Court in the case of Om Vinyls P. Ltd. vs. ITO [Writ Petition (L) No. 3114 of 2014] has held that: “The information received by the Assessing Officer on which basis the impugned notice is issued is specific. There is no ambiguity in the information which would require investigation. The information of accommodation entries has been given by a participant and this is reason enough to believe that income chargeable to tax has escaped assessment. At this stage, the Assessing Officer is not required to conclusively prove that the reasons in support of the impugned notice establish that the petitioner has taken accommodation entries. This is a matter which would be subject of further investigation during the reassessment proceedings. At that stage it would be open to the petitioner to raise all permissible defences and also to insist on cross examination of the persons who have made a statement implicating the petitioner in having participated in taking accommodation entries. However these are subject matters of investigation into adjudicatory facts and this Court would not in the present facts at the very threshold prevent the Assessing Officer from making further enquiry into a prima facie view which has been formed in the reasons indicated in support of the impugned notice ” . Once, the original assessment is re-opened on some issue, the AO can reassess any issue which may come to his notice subsequently during the course of proceedings u/s. 147 of the Act as per Explanation-3 to section 147.Thus, we uphold the order of the ld. CIT(A) on the issue of reopening.

such purchases without giving any finding as to how the above estimate can be arrived at, ignoring the assessee’s failure to prove the purchases. 3.1. In the course of re-assessment proceedings, the assessee filed before the AO copies of ledger accounts in its books, copies of purchase orders, copies of bills, check list for bill passing, details of payment made etc. However, the AO was not convinced with the same as the assessee failed to prove with supporting documentary evidence that the material was actually delivered in its premises. The assessee failed to file evidence of deliveries like Vajan Kata/transporters bilty etc. to establish that the material had been physically delivered in its premises. In view of the above facts, the AO made an addition of Rs.2,20,472/-. 3.2. Aggrieved by the order of the AO the assessee filed an appeal before the ld. CIT(A). It is seen that the ld. CIT(A) by following the judgment of the Hon’ble Gujarat High Court in CIT vs. Simit Sheth (2013) 38 taxmann.com 385 (Guj.) directed the AO to estimate the profit @12.5% of the purchases made from the disputed parties. 3.3. Before us, the ld.DR submits that as the assessee failed to prove with supporting documentary evidence that materials were actually delivered in its premises, the ld. CIT(A) should have confirmed the full amount of Rs.2,20,472/- instead of directing the AO to restrict the disallowance to 12.5% of the disputed purchases. 3.4. On the other hand the ld. counsel of the assessee submits that no disallowance is called for in the instant case. 3.5. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decision are given below. M/s. Haware Construction Pvt.Ltd.

The assessee failed to file evidence of deliveries like Vajan Kata/transporters bilty etc. to establish that the material had been physically delivered in its premises. However, we find that the AO has failed to find any fault on the sales made by the assessee. In the case of Simit P. Sheth (supra), the Hon’ble Gujarat High Court has held that where purchases were not bogus but were made from parties other than those mentioned in the books of account, not entire purchase price but only profit element embedded in such purchases can be added to income of the assessee. The Hon’ble High Court referred to a similar view taken in the case of CIT vs. Vijay M. Mistry Construction Ltd. [2013] 355 ITR 498 (Guj) and CIT vs. Bholanath Poly Fab (P) Ltd. [2013] 355 ITR 290 (Guj). Therefore, the ld. CIT(A) has rightly directed the AO to restrict the disallowance to 12.5% of the disputed purchases. We uphold the order of the ld. CIT(A) and dismiss the 1st ground of appeal filed by the revenue.

4. The 2nd ground of appeal raised by the revenue is that the ld. CIT(A) erred in holding the unsold flats as stock-in-trade used for purpose of business relying on the decision of the Hon’ble Supreme Court in the case of M/s. Chennai Properties and Investment Ltd. vs.CIT ,231 Taxman 336. It is stated that the above decision pertains to assessees engaged in the business of letting out properties. 4.1. As stated earlier, the assessee is a builder and developer and at the end of the year it had inventory of stock-in-trade which are not sold and lying vacant of Rs.12,10,05,508/-. The AO relied upon the judgment of the Hon’ble Delhi High Court in CIT vs. Ansal Hsg. Finance & Leasing Co. Ltd., (ITA No.18/1999 dtd. 31/10/2012) and computed deemed income from M/s. Haware Construction Pvt.Ltd. house property by estimating @8.5% of cost of construction and after allowing the deductions of 30%, computed the income. 4.2. Aggrieved by the order of the AO, the assessee filed appeal before the ld. CIT(A). We find that the Ld. CIT(A), relying on the decision in Shyam Burlap Co. Ltd. vs. CIT, 61 taxmann.com 121 (Calcutta High Court), M/s. Chennai Properties and Investment Ltd. (supra) and the order of the Tribunal in C.R. Development Pvt. Ltd. (ITA No.4277/Mum/2012 dtd. 13/05/2016), deleted the addition as per para 2.4.60 of his appellate order dtd.01/02/2016. 4.3. The ld. DR relies on the decision in Ansal Hsg. Finance & Leasing Co. Ltd., (supra), and submits that the order passed by the AO may be restored. 4.4. On the other hand, the ld. counsel of the assessee relies on the judgement of the Hon’ble Gujarat High Court in CIT vs. Neha Builders Pvt. Ltd. 296 ITR 661 (Guj.) and the order of the Tribunal in M/s. Runwal Constructions vs. ACIT (ITA No.5408/Mum/2016 dtd.22/02/2018) and Progressive Homes vs. ACIT (ITA No.5082/Mum/2016 dtd. 16/05/2018). 4.5. We have heard the rival submissions and perused the relevant materials on record. On the above issue, we come across one decision for the assessee and another decision for the revenue. The decision in Neha Builders Pvt.Ltd.(supra) is for the assessee, whereas the decision in Ansal Hsg. Finance & Leasing Co. Ltd., (supra) is for the Revenue. The Hon’ble Supreme Court in the case of CIT vs. Vegetable Products 88 ITR 192 (SC) has held that “if two reasonable constructions of a taxing provisions are possible, that construction which favours the tax payer must be adopted.” M/s. Haware Construction Pvt.Ltd.

In view of the above position of law, we shall follow the decision in Neha Builders Pvt.Ltd.(supra). 4.5.1. We now come to the relevant provisions in the Act. The following sub-section (5) has been inserted after sub-section (4) of section 23 by the Finance Act, 2017, w.e.f. 01.04.2018: “(5) Where the property consisting any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to nil.” Thus, in order to give relief to Real Estate Developers, section 23 has been amended w.e.f. AY 2018-19 (FY 2017-18). By this amendment, it is provided that if the assessee is holding any house property as his stock-in- trade which is not let out for the whole or part of the year, the annual value of such property will be considered as Nil for a period up to one year from the end of the financial year in which a completion certificate is obtained from the competent authority. In view of the above amendment to section 23, we are not adverting to the other case laws relied on by the Ld. counsel. In the instant case, the assessee is a builder and developer. The issue of taxability is with regard to unsold flats. The AY is 2009-10. In view of the insertion of sub-section (5) in section 23 by the Finance Act, 2017, w.e.f. 01.04.2018 narrated hereinbefore, we uphold the order of the Ld. CIT(A) and dismiss the 2nd ground of appeal filed by the revenue. M/s. Haware Construction Pvt.Ltd.

ITA No.3172/Mum/2016 (AY-2011-12) 6. The 1st ground raised by the revenue in this appeal is against the order of the Ld. CIT(A) deleting the disallowance made by the AO u/s. 14A r.w. Rule 8D of Income tax Rules, 1962. 6.1. The assessee has made investment of Rs.36,78,500/- in shares of group companies. During the course of assessment proceedings, the AO found that the assessee had not maintained separate books of accounts for the sources of exempt income. The funds, management and all the expenses incurred were mixed for both exempt sources as well as taxable sources. In view of the above facts, the AO computed a disallowance of Rs.18,829/- [Rs.436/- under Rule 8D (2)(ii) and Rs.18,393/- under Rule 8D(2)(iii)]. 6.2. In appeal, the ld. CIT(A) observed that the reserves and surplus available with the assessee were far in excess of investment made in group entities. By following, the decision in CIT vs. HDFC Bank Ltd. 366 ITR 505 (Bom), the ld. CIT(A) deleted the disallowance of Rs.18,829/- made by the AO. 6.3. Before us, the Ld. DR relies on the order of the AO, whereas the ld. counsel of the assessee supports the order passed by the Ld. CIT(A). 6.4. We have heard the rival submissions and perused the available material on record. We agree with the ld. CIT(A) that the share capital and 8 M/s. Haware Construction Pvt.Ltd. reserves and surplus in the present case is more than investment made by the assessee. Therefore, following the decision in HDFC Bank Ltd. (supra), we delete the disallowance of Rs.436/- made by the AO. However, we find that the AO has rightly made a disallowance of Rs.18,393/- u/s. 14A r.w. Rule 8D(2)(iii) of the Income tax Rules, 1962. This is in line with the judgement of the Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg.Co.Ltd. vs. DCIT (2010) 328 ITR 81 (Bom). Therefore, we set aside the order of the CIT(A) on the above issue and restrict the disallowance to Rs.18,393/- in place of Rs.18,829/- made by the AO. Thus, the 1st ground of appeal is partly allowed.

7. The 2nd ground of appeal filed by the revenue relates to the order of the ld. CIT(A) in respect of unsold flats, which we have discussed at para-4 hereinbefore. Facts being identical, we follow the decision at para 4.5 above and dismiss the 2nd ground of appeal of the revenue. Accordingly, the ground raised by the assessee under Rule 27 of the ITAT Rules in respect of unsold flats becomes unfructuous.

8. To sum up, the appeal for AY 2009-10 is dismissed, whereas the appeal for 2011-12 is partly allowed. Order pronounced in the open Court on 31.08.2018. Sd/- Sd/- (MAHAVIR SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai: Dated: 31/08/2018 JV., Sr.PS Copy of the Order forwarded to :

1. The Appellant

2. The Respondent. 9 ITA No.3172/Mum/2016 M/s. Haware Construction Pvt.Ltd.