SANJAY VASANTRAO WANI,NASHIK vs. INCOME-TAX OFFICER,

PER D. KARUNAKARA RAO, AM:

This appeal is filed by the assessee against the order of Commissioner of Income Tax (Appeals)-1, Nashik dated 17-08-2016 for the Assessment Year 2012-13.

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brokerage income. There is no dispute about the taxation of commission

income. However, the dispute is about the income from Real Estate

business. Considering the facts that the assessee did not maintain the

books of account, the assessee invoked the provisions of section 44AD of

the Act for determining the presumptive income on estimation basis

applying the flat rate of 8%. In the assessment, AO accepted the said

income and did not disturb the claim of the assessee qua the application

of the provisions of section 44AD of the Act. However, on finding that

the assessee made cash payments for purchase of land, the stock in

trade, the AO invoked the provisions of section 40A(3) of the Act and

made addition of Rs.6,14,833/-, which is 1/3rd of the share of total cash

payments. This addition is over and above the estimated profits @8% as

per the provisions of section 44AD of the Act. Eventually, the AO

determined the income of the assessee at Rs.12,15,648/-. Shri Vilas

Hari Amrute and Shri Chandrashekhar Kotkar are the other partners

who purchased the land and paid the cash payments.

the provisions of section 40A(3) of the Act over and above the estimated

income as per the provisions of section 44AD of the Act. The CIT(A)

decided this issue against the assessee saying that the provisions of

section 40A(3) are applicable even to the presumptive additions made in

the assessment. However, he granted relief to the extent of Rs.59,170/-

stating that these payments have not exceeded the limit of Rs.20,000/-

provided in the statute. Thus, the CIT(A) confirmed the addition to the

extent of Rs.5,55,633/-.

before the Tribunal with the following grounds :

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“1. On the basis of facts and in the circumstances of the case and as per law, the Commissioner of Income Tax, (Appeals)-I, Nashik, is not justified in confirming disallowance of Rs. 5,55,633/- on account by invoking the provisions of Section 40A(3) of the Act.

now stands covered in favour of the assessee by the judgment of Hon’ble

Gujarat High Court in the case of CIT Vs. M.V. Construction Company

decided on 23-01-2006. Contents of Para No.11 of the judgment are

relevant. In support of his case, Ld. Counsel also relied on the following

decisions :

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dispute on facts. The dispute is only on the legal issue if the provisions

of section 40A(3) of the Act are rightly applied in the case where

presumptive profits are determined u/s.44AD of the Act by the assessee

and undisturbed by the AO in the assessment. On perusal of the said

provisions, we find even if the maintenance of books of account or

otherwise, is not a condition precedent for invoking the provisions of

section 44AD of the Act by the assessee. Once the said provisions are

invoked by the assessee and undisturbed by the AO, it is commonsense

that the provisions of section 40A(3) of the Act cannot be invoked

separately and therefore, making addition on account of the violation of

section 40A(3) of the Act over and above the said presumptive profits.

This issue was answered by the Hon’ble Gujarat High Court in the case

of CIT Vs. M.V. Construction (supra). For the sake of completeness, we

proceed to extract the relevant paras from the said judgment and the

said paras read as under :

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concerned, it is the figure declared by the assessee, and that is what is stated by the provision, has to be adopted. No processing at that stage is permissible. Therefore, the provisions of Section 40A(3) of the Act cannot be pressed into service at this stage.”

7.1 Similarly, we also perused the order of Pune Bench of the Tribunal

in the case of Shri Sanjay Javerilal Jain Vs. DCIT (supra) and found that

the facts before the Tribunal are similar to the facts of the present case.

For the sake of completeness of this order, we proceed to extract the

finding given by the Tribunal here as under :

“11. We have considered the rival submissions, orders of the authorities below and perused the case laws relied upon. The only question for determination is whether estimated purchases entry in the Profit & Loss Account prepared for reconciliation and matching the estimated declared income from unrecorded sales at the time of survey are subjected to disallowance under section 40A(3) of the Act on the assumption that these purported unaccounted purchases are impliedly made in cash. We notice that there has been consistent plea of the assessee that the estimated purchases are only in the nature of balancing entry to arrive at the pre-determined profit from undisclosed sale transactions as declared in survey which has remained uncontroverted by the Revenue. Another noticeable fact is that the income declared from these unaccounted transactions are consistent with the estimated income declared in the course of survey. It is also undisputed fact that the estimated purchases stated to be a balancing accounting entry to arrive at the income declare towards unaccounted business activities is not corroborated by any tangible evidence found during the course of search/survey. In other words, the alleged cash purchases as shown in the Profit & Loss Account prepared to declare the unaccounted income is not backed any underlying document. We find that the Pune Bench of the Tribunal in the case of ITA Nos.268 to 271/PN/2014 Kirtikumar Vishnudas Bhutada (supra) after taking cognizance several decisions of various High Courts on the issue has held in essence that once the income emanating from unrecorded and undisclosed transactions outside of account are declared and accepted, no additional disallowance under section 40A(3) of the Act is called for. Respectfully following the decision of the Pune Bench of the Tribunal, we hold that further disallowance under section 40A(3) on purported unaccounted purchases is not justified in the facts of the case and therefore is directed to be deleted.”

From the above, it is now binding on us to hold that in cases where

presumptive profits are eventually offered by the assessee for taxation

u/s.44AD of the Act and the same is finally accepted by the CIT(A), then

the provisions of section 40A(3) of the Act cannot be pressed into service.

Accordingly, the legal grounds raised by the assessee stand allowed.

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Order pronounced on this 20th day of June, 2018.

Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) �याियक �याियक सद�य �याियक �याियक सद�य सद�य /JUDICIAL MEMBER लेखा सद�य लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य पुणे / Pune; िदनांक Dated : 20th June, 2018. Satish आदेश की (ितिलिप अ*ेिषत/Copy of the Order is forwarded to : अपीलाथ� / The Appellant; 1. ��थ� / The Respondent; 2. आयकर आयु�(अपील) / The CIT(A)-1, Nashik 3. आयकर आयु� / The Pr.CIT-1, Nashik 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “SMC” 5. / DR ‘SMC’, ITAT, Pune; गाड# फाईल / Guard file. 6.

आदेशानुसार/ BY ORDER,स

स�ािपत �ित //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune