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Income Tax Appellate Tribunal, SMC BENCH, PUNE
Before: SHRI D.KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
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.
Briefly stated relevant facts include that the assessee is a land dealer and is also engaged in the business of sale of set top boxes. Assessee also earns commission too. Assessee filed the return of income on 22-02-2013 declaring total income of Rs.5,68,670/-. Assessee did not maintain books of account exclusively for the Real Estate business. He however maintained books of account for the commission and
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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.
On these facts, we need to decide if the AO is justified in invoking
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/-.
Aggrieved with the same, the assessee filed the present appeal
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.
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 particularly when the payments were made for purchase of immovable properties which were subjected to registration before Government Authorities as well as payment of stamp duty, registration charges to government and more particularly when the genuineness of the payment is not in dispute.
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 of cash payments made to the parties from whom the appellant has purchased the properties made u/s. 40A(3) of the Act by holding that the appellant has not able to demonstrate that the payment is covered by any exemption mentioned in Rule 6DD of the Income Tax Rules, 1962, particularly when it was pointed out that the parties to whom the payments were made were not having any bank account at the place where the payments were made.
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 holding that the disallowance under Section 40A(3) can be made even though the income is assessed under section 44AD of the Act.
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 the adhoc disallowance to the extent of 10% i.e. Rs. 21,430/- out of telephone expenses, petrol & diesel expenses, travelling expenses and depreciation allowances particularly when the AO has not brought on record any instances which indicates that the impugned expenses includes any personal element.
The Appellant craves for addition to, deletion, alteration, modification, change any of the grounds.
Before us, Ld. Counsel for the assessee submitted that the issue
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 :
Shri Sanjay Javerilal Jain Vs. DCIT in ITA Nos. 268 to 271/PN/2014, dated 27-11-2015.
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Himanshu H. Thakkar Vs. ITO in ITA No.1335/Ahd/2009, dated 04-06-2010
ITO Vs. Rajesh Kumar Gupta in ITA No.1138/JP/2016, dated 27-02-2017.
Ld. DR for the Revenue relied on the orders of AO/CIT(A) dutifully.
On hearing both the sides on this limited issue, we find there is no
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 :
As can be seen on a plain reading of the provision, all that it requires is that, (1) an assessee must be engaged in the business of civil construction or supply of labour for civil construction, (2) in case of such an assessee, a sum equal to 8% of the gross receipts received or accrued to the assessee in the previous year, have to be compared with the sum declared by the assessee in his return of income, (3) then, the higher of the two figures has to be adopted for the purposes of assessing the assessee. The opening portion, namely, non-obstante clause, stipulates that, for the purposes of working out the figure of 8% of gross receipts, the provisions contained in sections 28 to 43C of the Act have to be ignored. The said provision, namely, the non-obstante clause, does not have any further role to play. Similarly, insofar as the return of income is
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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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In the result, the appeal of the assessee is allowed.
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