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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI VIJAY PAL RAO & SHRI S. JAYARAMAN
Per Bench
These cross appeals are directed against the order dated 29.11.2013
of CIT(A) for the assessment year 2011-12. The assessee has
raised the following grounds.
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Ground no. 1 is general in nature and does not require any specific adjudication.
Ground no. 2 is regarding the addition on account of sale of material. The AO has made an addition of Rs. 33,05,152/- on
ITA Nos. 259 & 295/Bang/2014 Page 8 of 76 account of sale of material as these receipts were found recorded in the impounded diaries. The assessee challenged the action of the AO before the CIT(A) and submitted that the addition made on the entire amount is not justified as only profit element in the said sale could be taxed and not the whole of the receipts. The CIT(A) did not accept the contention of the assessee and sustain the addition made by the AO.
Before us the ld. AR of the assessee has pointed out that this issue is common to the issue involved for the assessment year 2006-07 and 2009-10 wherein the CIT(A) has restricted the addition only the GP rate at 9% and this Tribunal in assessee’s own case for the assessment year 2006-08 has directed the AO to adopt the GP rate at 5.5%. Thus, the ld. AR has contented that only the income / profit element in the said receipt can be taxed. On the other hand, the ld. DR has relied upon the orders of the authorities below and submitted that when the assessee has not furnished any evidence to show the corresponding purchase detail then the addition made by the AO of the entire receipt is justified.
ITA Nos. 259 & 295/Bang/2014 Page 9 of 76 5. Having considered the rival submissions as well as relevant
material on record. At the outset, we note that an identical issue
has been considered by us in assessee’s own case for the
assessment year 2007-08 to 2010-11. For the assessment year
2007-08 vide order dated 28.04.2017 in ITA Nos. 219 &
291/Bang/2014 we have dealt with this issue as under. “12.Ground no. 7 is regarding the adoption of 9% Gross Profit in respect of sale of material. The AO made an addition of Rs. 51,08,557/- as receipts recorded in the impounded diaries which are not reflected in the regular books of account. The assessee explained before the AO that the amount was received towards sale of materials. Since the assessee did not furnish the details and supporting documents to prove that the said receipts was received towards sale of material the AO has made an addition of the entire amount of Rs. 51,08,557/-. The assessee challenged the action of the AO before the CIT(A) and contended that the receipts shown in the diary were towards sale of material for civil contract work made outside books which was also explained by the assessee that the corresponding payments made towards purchase of similar material was also recorded in the diary and therefore the entries aggregating to Rs. 1,42,08,990/- are representing both in the diary and in the regular books with identity in names, dates and value total amounting to Rs. 63,03,554/-. Thus the assessee contended that this item of Rs. 63,03,554/- appears in the regular books of account which was left out by the AO while making the addition. The CIT(A) after considering the relevant record as well as submissions of the assessee has directed the AO to take average gross profit at 9% on total sale of material including Jelly and therefore the income has to be computed accordingly. Thus, the CIT(A) has granted substantial relief by restricting the addition only to the gross profit on the sale of material instead of the entire amount added by the AO.
13.Before us the ld. AR of the assessee has submitted that the CIT(A) after taking into consideration the GP ratio on various materials suppliers has directed the AO to take the average GP at 9%. However even if the instances as taken by the CIT(A) are considered the average GP of the comparable parties comes to less than 6% whereas the CIT(A) has arbitrarily adopted the GP at 9%. The ld. AR has further submitted that an identical issue has been considered by
ITA Nos. 259 & 295/Bang/2014 Page 10 of 76
this Tribunal in assessee’s own case for the assessment year 2006-07 vide order dated 30.11.2015 in ITA No. 904/Bang/2015. Thus the ld. AR has submitted that the average GP should have been taken at 5.5% instead of 9% taken by the CIT(A).
14.On the other hand, the ld. DR has relied upon the order of the AO and submitted that when the assessee has failed to explain the details and particulars of the parties to whom the alleged material were sold then the AO is justified in making the addition of the entire amount.
15.We have considered the rival submissions as well as relevant material on record. We find from the entries in the diary that the receipts as well as payments were recorded simultaneously at the same page of the diary and therefore it is clear that these receipts and payments are representing the purchases and sale of the material. The AO has taken only the receipt part of the diary entries and ignored the payment part. The CIT(A) after considering the relevant record found that these receipts are representing the sale of material for construction work like steel, cement etc and therefore the CIT(A) has asked the assessee to furnish the GP details from the local market which were furnished by the assessee as reproduced by the CIT(A) at page 27 of the impugned order as under.
16.Though the CIT(A) has considered the GP details furnished by the assessee however instead of taking the average of the these GP details the CIT(A) has adopted the GP at 9%. We find that the said adoption of 9% of GP is without any basis and rather contrary to the material on record / evidence. We further note that the coordinate bench of this Tribunal in assessee’s own case for the assessment year 2006-07 vide order dated 30.11.2015 while dealing an identical issue has held in para 11 to 14 as under.
ITA Nos. 259 & 295/Bang/2014 Page 11 of 76 “11. Before the CIT(Appeals), the assessee relied on the order of the CIT(Appeals) for the A.Ys. 2007-08 to 2011-12 and contended that a suitable rate of profit towards sale of material has to be considered and not whole of the receipts. The assessee furnished GP details from the local market which is as follows:-
Average Gross Profit for Steel was given at (6.08 to 7.56%), for Cement the Average Gross Profit was given at (3.33 to 5.09%) and for Jelly no average Gross Profit was given. The CIT(A) directed the AO to take average Gross Profit at 9% on total sale of materials including Jelly and compute income accordingly. Thus, this issue was partly allowed by the CIT(A).
Aggrieved, the assessee is in appeal before us.
We have heard both the parties. We find from the GP details from the local market furnished before the CIT(Appeals) that average GP is 5.5% approximately and hence we are of the opinion that the CIT(A) was not justified in adopting GP at 9% on total sale of materials including jelly. Hence, the AO is directed to work out the GP rate at 5.5% on sale of materials instead of 9% directed by the CIT(A).”
17.In view of the above facts and circumstances of the case as well as the decision of the coordinate bench of this Tribunal in assessee’s own case we direct the AO to work out the GP rate at 5.5% on sale of material instead of 9% directed by the CIT(A).”
Accordingly, we decide this issue in favour of the assessee and
direct the AO to adopt GP rate at 5.5%.
ITA Nos. 259 & 295/Bang/2014 Page 12 of 76 6. Ground nos. 3,5 and 11 are regarding the addition of Rs. 8,50,000/-, Rs. 2,55,555/- and Rs. 5,07,115/- on account of receipt from Shri S.N. Hiremath for construction of house. The AO noted that the receipts of Rs. 8,50,000/-, Rs. 2,55,555/- and Rs. 5,07,115/- were recorded in the impounded diary. The AO has observed that the assessee did not furnish any evidence in respect of these transactions and further the complete address of Shri S.N. Hiremath (S.N.H.) are not furnished by the assessee. Accordingly, the AO made an addition of these three amounts while completing the assessment. The assessee challenged the action of the AO before the CIT(A) but could not succeed.
As regards the receipt of Rs. 8,50,000/- from Shri S.N. Hiremath the ld. AR of the assessee has submitted that this sum was given by Shri S.N. Hiremath to the assessee towards the construction of his house. Shri S.N. Hiremath was an employee of the assessee and this amount of Rs. 8,50,000/- is withdrawn from his bank account. He has referred to the bank pass book of Shri S.N. Hiremath at page no. 39 of the paper book and submitted that these entries of withdrawal of this amount of Rs. 8,50,000/- on different occasions in the bank account are
ITA Nos. 259 & 295/Bang/2014 Page 13 of 76 matching with the entries in the diary. Thus the ld. AR has submitted that when this amount was received by the assessee
towards the construction of the house of Shri S.N. Hiremath then it cannot be treated as income of the assessee. He has further pointed out that the total payment relating to the
construction of the house as per the diary is Rs. 8,49,846/- which has been recorded by the AO at page no. 16 to 19 of assessment order. The ld. AR has further pointed out that the
impounded material contains bills relating to the expenses incurred towards the house property of Shri S.N. Hiremath for a sum of Rs. 5,07,269/-. He has referred to these bills at page
117 and 118 of the paper book. All thee three figures as recorded in the diary are in respect of the construction of the house and are overlapping in the diary and impounded material. The ld. AR has pointed out that a sum of Rs. 2,45,580/- is
appearing in both diary and impounded material which shows that these are mere duplicate entries of same transactions once in the diary and then in the other material impounded. The ld.
AR has further pointed out that a sum of Rs. 1,00,000/- is withdrawn from the bank account of Shri S.N. Hiremath as it appears in the diary entry dated 17.08.2010. The ld. AR has
ITA Nos. 259 & 295/Bang/2014 Page 14 of 76 further pointed out that a receipt of Rs. 1,00,000/- as appearing in the diary on 01.10.2010 is part of the total receipt of
Rs. 8,50,000/- from Shri S.N. Hiremath. Therefore the total amount received from Shri S.N. Hiremath is Rs. 9,50,000/- which includes Rs. 8,50,000/- + Rs. 1,00,000/-. The
corresponding total expenditure on the construction of the house is Rs. 11,11,535/- as against the total receipt of Rs. 9,50,000/- and therefore the differential amount of
Rs. 1,61,535/- is the excess of expenditure over receipt. The ld. AR has pointed out that the total expenditure will be the sum of Rs. 8,49,846/- as recorded at page 19 and 20 of the AO placed
and Rs. 2,61,689/- being the difference between Rs. 5,07,115/- being the expenses as recorded in the impounded material contains bills relating to the construction expenses of the house and Rs. 2,45,580/- which is common as appearing in both diary
and impounded material. Thus the ld. AR has submitted that all these three additions made by the AO are nothing but relating to the amount received by the assessee and corresponding
expenditure incurred towards the construction of the house of the Shri S.N. Hiremath. Therefore the said amount cannot be treated as income of the assessee.
ITA Nos. 259 & 295/Bang/2014 Page 15 of 76 8. On the other hand, the ld. DR has submitted that the assessee did not furnish the details and evidence in respect of these transactions found recorded in the diary. Therefore the explanation of the assessee cannot be accepted without supporting evidence. Further the transactions are recorded in the diary being cash receipt by the assessee and in the absence of the supporting evidence to show that these are not in the nature of income the addition is justified. As regards the expenditure amount of Rs. 8,49,846/- is concerned, there is no dispute that this amount of expenditure has been incurred by the assessee as recorded in the diary therefore in the absence of satisfactory explanation of the assessee to show that this expenditure was incurred only towards the construction of the house of Shri S.N. Hiremath and against the same receipts as recorded in the diary, the said expenditure has to be added to the income of the assessee as the assessee has failed to explain the source. He has relied upon the orders of the authorities below.
We have considered the rival submissions as well as relevant material on record. The AO has noted that the assessee
ITA Nos. 259 & 295/Bang/2014 Page 16 of 76 received various amounts on different dates total amounting to
Rs. 8,50,000/- as recorded in the diary and further certain
entries regarding cash from ATM were also found recorded in
the diary total amounting to Rs. 2,55,000/-. The AO has made
the addition of these amounts separately as income of the
assessee. Apart from these receipts entries the AO also noted
that as per the notings in the diary the assessee has incurred the
expenditure of Rs. 8,49,846/-. The AO has taken into
consideration the impounded documents containing the bills
relating to the expenses and found that as per the impounded
documents the aggregating amount of expenses incurred was
Rs. 5,07,269/-. Accordingly, the AO made an addition of
Rs. 5,07,115/-. Thus the AO has made three separate additions
in respect of the transactions towards the receipts and
expenditure of construction of house of Shri S.N. Hiremath.
The details of the receipt and expenditure are reproduced by the
CIT(A) at page no. 13, 16 and page no. 34 to 40.
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ITA Nos. 259 & 295/Bang/2014 Page 24 of 76 10. From the details of the receipts of amount of Rs. 8,50,000/- it is clear that these amounts were received on different dates as found recorded in the diary and the narrations of the transactions in the diary clearly show that these amounts were received from Shri S.N. Hiremath towards his house construction undertaken by the assessee. When the diary itself is explaining the nature of the receipt, the source of receipt and purpose of the receipt then no further explanation is required as the AO has not found any contrary record or fact either during the survey proceedings or during the assessment proceedings. The AO has made the addition only on the ground that the assessee failed to explain the full details. It is pertaining to note that when the entries in the diary are self-explanatory and no contrary fact is brought on record then the addition which is based on the diary entry cannot be made by ignoring the other facts recorded in the diary itself against each entry. This is not a case of the transactions found in the books of accounts and assessee has failed to explain the nature of transaction. These are the transactions recorded in the diary along with the description. We further note that all these transactions of receipt from the saving bank of Shri S.N. Hiremath account are
ITA Nos. 259 & 295/Bang/2014 Page 25 of 76 matching with the bank account entries as placed at page no. 39 and 40 of the paper book. We find that the saving bank account of Shri S.N. Hiremath maintained with State Bank of Mysore contains all these entries of withdrawal by cheques. Therefore when these entries are matching with the bank account then no further explanation is required about the source of these receipts. The diary itself explains the purpose for which these amounts were received by the assessee.
As regards the cash by ATM of Rs. 2,55,000/- it is clear from the details as reproduced above that the transactions recorded in the diary itself make it clear that it was an attempt to withdraw cash from ATM on different dates but the transaction did not happen. Therefore the entries in the diary is only for the purpose of memory of recording the event that the assessee tried to withdraw the cash from the ATM but the transaction did not happen. When the diary entries itself are plain and unambiguous then ignoring the facts recorded against the diary entries the addition made by the AO is not justified. Therefore this addition is deleted.
ITA Nos. 259 & 295/Bang/2014 Page 26 of 76 12. The next addition has been made by the AO of Rs. 5,07,115/- on account of the payment made towards the construction of the house. As per the details reproduced above the entries relating to this expenditure clearly show that the total expenditure incurred by the assessee towards construction of the house was Rs. 8,49,846/-. The AO further noted that as per the impounded material containing bills shows the expenditure incurred for construction of house therefore, the AO made the addition for a sum of Rs. 5,07,115/-. Thus the AO has taken the expenditure recorded in the diary and the expenditure found in the bills as separate quantum of expenditure. It is clear that the AO has already made an addition towards receipt of the amount for construction of the house and further made an addition of Rs. 5,07,115/- being the excess expenditure incurred by the assessee over and above the expenditure recorded in the diary. We find from the impounded material as placed at page 117 and 118 of the paper book that various items of expenditure are common as recorded in the impounded material and in the diary entries. The assessee has pointed out that as much as Rs. 2,45,580/- is appearing in both diary and impounded material and therefore this amount represents the duplicate
ITA Nos. 259 & 295/Bang/2014 Page 27 of 76 entries made in the diary as well as impounded material. For instance we referred to an entry dated 18.09.2010 for a sum of
Rs. 46,449/-. This entry is recorded both in diary with the narration expenses incurred towards house construction of SNH and in the impounded material which contains the bill as
towards Muudeshwar Ceramics. Thus this expenditure of such an odd amount recorded in both diary as well as part of the bills clearly shows that the expenditure as per the impounded
material to the extent of Rs. 2,45,580/- is common in diary as well as impounded material. The assessee has admitted that apart from the expenditure towards the construction of the
house as recorded in the diary there is a further expenditure of Rs. 2,61,689/- and therefore the total expenditure was Rs. 11,11,535/-. The assessee has further pointed out that a sum of Rs. 1,00,000/- was also withdrawn from the bank of
Shri S.N. Hiremath on 17.08.2010. We find from the bank account of Shri S.N. Hiremath at page no. 39 and 40 of the paper book that there is a cash withdrawal of Rs. 1,00,000/- on
17.08.2010 which is over and above the details of the cash received by the assessee found recorded in the diary and reproduced above. Therefore the total amount of receipt
ITA Nos. 259 & 295/Bang/2014 Page 28 of 76 towards the construction of the house of Shri S.N. Hiremath is Rs. 9,50,000/- (Rs. 8,50,000/- + Rs. 1,00,000/-) and the total expenditure towards the construction of the house is Rs. 11,11,535/- (Rs. 8,49,846/- + Rs. 2,61,689/-). Therefore there is an excess expenditure of Rs. 1,61,535/- for construction of the house. In view of the above details as well as discussion when these amounts are not in dispute as these were found recorded in the diary, in the bank statement of Shri S.N. Hiremath as well as in the impounded material containing the bills then no addition is called for on account of the amount received and the expenditure incurred by the assessee for the purpose of construction of the house of Shri S.N. Hiremath. Accordingly, we delete these additions made by the AO.
Ground no. 4 is regarding the addition of Rs. 13,500/- towards agriculture receipts. We have heard the ld. AR and ld. DR and considered the relevant material on record. At the outset we note that an identical issue was considered by this Tribunal in assessee’s own case for the assessment year 2006-07 vide order dated 30.11.2015 in ITA No. 904/Bang/2015 in para 17 as under.
ITA Nos. 259 & 295/Bang/2014 Page 29 of 76
“17.We have heard both the parties. We are of the opinion that one more opportunity is to be afforded to the assessee to produce details of agricultural land holding to establish that he had agricultural income which is net of agricultural expenditure. We therefore restore this issue to the file of the Assessing Officer to examine the Government records as to which crops are grown and the price it would fetch in the market so as to arrive at the agricultural income as claimed by the assessee.”
Accordingly, in view of the earlier order of this Tribunal we direct
the AO to examine the relevant record in support of the agriculture
income of the assessee. This issue is remitted to the record of the
assessee.
Ground no. 6 is regarding the addition on account of
miscellaneous receipts. The AO has made an addition of
Rs. 99,200/- on account of miscellaneous receipts found as per
the diary entry. The assessee challenged the action of the AO
before the CIT(A) and submitted that the assessee has already
declared miscellaneous income in the Profit and Loss account
under various heads which is more than this amount of
Rs. 99,200/- and therefore no further addition is justified. The
CIT(A) did not accept the explanation of the assessee and
confirmed the addition made by the AO.
ITA Nos. 259 & 295/Bang/2014 Page 30 of 76 15. Before us, the ld. AR of the assessee has submitted that out of this total amount of Rs. 99,200/- a sum of Rs. 49,000/- represents the rent / hire charges. It is further submitted that the assessee has declared receipt on hire charges of Rs. 1,15,640/- in the Profit and Loss account therefore the said addition cannot be made as it would be amounting to double taxation of the same income. He has further submitted that the another sum of Rs. 41,500/- represents the rent and Rs. 16,500/- represents the deposits and erefore the same is not an income. The balance amount of Rs. 5,00/- is a gift received and Rs. 8,200/- is sundry receipts. The assessee has declared a sum of Rs. 3,20,455/- in the Profit and Loss account under the head indirect incomes. The said income declared by the assessee includes all sundry receipts and therefore no separate addition is called for.
On the other hand, the ld. DR has submitted that the assessee has not furnished any evidence to explain that this amount has already been included in the income declared in the Profit and Loss account. Further when this amount is recorded in the diary then in the absence of the breakup of each and every
ITA Nos. 259 & 295/Bang/2014 Page 31 of 76 receipt which is part of the income declared in the Profit and Loss account the mere submissions of the assessee cannot be accepted. He has relied upon the orders of the authorities below.
We have considered the rival submissions as well as relevant material on record. The details of the miscellaneous receipts as recorded in the diary has been reproduced by the CIT(A) at page 17 and 18 as under.
The assessee has explained that out of these entries the amount of Rs. 25,000/- against the entry dated 05.06.2010, Rs. 16,500/-
ITA Nos. 259 & 295/Bang/2014 Page 32 of 76 against the entry dated 24.04.2010 and Rs. 7,500/- against the entry dated 12.08.2010 are received for rent / hire charges and
the assessee has already offered an income on account of hire charges of Rs. 1,15,640/-. Therefore it was contented that no further addition on this account is justified. We find that the
assessee included an income of Rs. 1,15,640/- under the head hire charges receipt in the Profit and Loss account which is part of the total indirect income shown in the Profit and Loss
account of Rs. 3,20,455/-. The Profit and Loss account for the year end 31.03.2011 has been placed at page no. 32 of the paper book. Therefore this amount of Rs. 1,15,640/- is not in dispute
being the income on account of hire charges already recorded in the books of accounts. The AO as well as CIT(A) has rejected the explanation of the assessee at threshold without verifying and examining this fact that the assessee has already offered the
hire charges income of Rs. 1,15,640/-. Accordingly, we are of the view that this amount of Rs. 49,000/- recorded in the diary entries on account of rent / hire charges cannot be separately
added to the income when the assessee has already accounted the hire charges income of Rs. 1,15,640/-. As regards the other items of these entries being deposit of Rs. 16,500/- and
ITA Nos. 259 & 295/Bang/2014 Page 33 of 76 Rs. 25,000/- as well as sundry receipt of Rs. 8,200/- the assessee has submitted that he has already offered miscellaneous earnings therefore this amount should not be added. We find from the details of the income offered by the assessee under indirect incomes that the other incomes offered by the assessee is only on account of interest from bank of Rs. 1,78,800/- and miscellaneous earning of Rs. 15,055/-. Therefore this miscellaneous receipt of Rs. 41,500/- is not part of the income accounted by the assessee. Hence in the absence of any explanation we confirm the addition to the extent of Rs. 41,500/-. As regards the sundry receipts of Rs. 8,200/- since the assessee has offered the miscellaneous receipt of Rs. 15,055/- therefore no separate addition can be made on this account. The another item of Rs. 500/- is clearly on account of house opening gift therefore the same cannot be treated as income of the assessee. The remaining amounts on account of interest and insurance rebate are confirmed as addition to the income of the assessee.
Ground no. 7 is regarding the addition of Rs. 7,50,000/-. The AO has made an addition of Rs. 7,50,000/- on account of
ITA Nos. 259 & 295/Bang/2014 Page 34 of 76 receipts recorded in the name of Shri V.M. Yeli. The assessee challenged the action of the AO before the CIT(A) and contented that this entry represents the payment which was wrongly considered by the AO as receipt. The assessee contented that this amount represents the payment towards disbursement of site expenses. The CIT(A) did not accept the explanation of the assessee and confirmed the addition made by the AO.
Before us the ld. AR of the assessee has submitted that during the financial year the assessee has made a withdrawal of Rs. 2,39,51,340/-. The said payment is made out of the withdrawal from the assessee’s bank account. It is further submitted that a sum of Rs. 1,90,000/- was paid to Shri V M Yeli as hand loan which is also out of said withdrawals from the bank. Since the CIT(A) has deleted the said addition of Rs. 1,90,000/- therefore the revenue has challenged the said issue in the ground no. 4 of the revenue’s appeal. Thus the ld. AR has submitted that when the assessee was having sufficient cash withdrawals from the bank then the payment of the said amount cannot be added to the income of the assessee. On the other
ITA Nos. 259 & 295/Bang/2014 Page 35 of 76 hand, the ld. DR has submitted that the assessee has not filed any evidence to prove that the said amount is not a receipt but a payment. Further the details and nature of payment are also not explained. Since this payment is not reflected in the books of accounts therefore even if it is presumed that the said amount is payment it is also liable to be taxed as unexplained payment.
We have considered the rival submissions as well as relevant material on record. The AO noted the diary entry of Rs. 7,50,000/- which has been reproduced by CIT(A) at page 20 as under.
Payment entry wrongly taken as receipt Date Particulars Amount Explanation It’s a Payment To V M Yeli not Receipt but 29/6/2010 by Cash with 750,000 wrongly taken as AESUTI receipt Total 7,50,000
The assessee explained that this is a payment to Shri V M Yeli for disbursement of expenses. We further note that the CIT(A) has sustained the addition even by considering the said amount as payment. There is no other material or fact to show that this amount is not a payment but a receipt by the assessee. Therefore we do not find any reason to treat this amount as a
ITA Nos. 259 & 295/Bang/2014 Page 36 of 76 receipt when the assessee has explained the entry in the diary as a payment. We further note that a similar entry was found for a sum of Rs. 1,90,000/- in the name of same person V M Yeli as hand loan which was accepted by the AO as well as CIT(A) as a payment though an addition was made by AO. Therefore having considered this amount as a payment the only question arises is the source of the said payment. The ld. AR has submitted that the assessee had sufficient cash being withdrawal from the bank to the extent of Rs. 2,39,51,314/- during the year therefore this payment was made out of the said cash withdrawal. Since this aspect has not been examined by the authorities below therefore we set aside this issue for the limited purpose of verifying the source of this payment. We may also clarify that the addition if any sustain for this assessment year or the earlier assessment years will be available to that extent being the source of the said payment. Accordingly, this ground of the assessee’s appeal is allowed for statistical purposes.
Ground no. 8 is regarding the addition of Rs. 1,75,000/- towards cost of sofa set. The AO made an addition of Rs.
ITA Nos. 259 & 295/Bang/2014 Page 37 of 76 1,75,000/- as found in the diary entry being the payment for sofa set. The assessee challenged the action of the AO before the CIT(A) and submitted that this payment is towards personal expenses and the same is debited to the capital account for Rs. 68,100/-, Rs. 32,625/- and Rs. 65,250/-. Thus the assessee explained that the amounts duly appearing under the head drawings from the capital account and part of the regular books. The CIT(A) did not accept the explanation of the assessee and sustained the addition made by the AO.
Before us, the ld. AR of the assessee has submitted that the assessee purchased the furniture for his house. The cost is debited to the capital account of the assessee on various dates such as on 04.05.2010 and 30.05.2010. He has referred to the copy of the capital account placed at page 34 and 35of the paper book and submitted that these expenses debited for purchase of furniture have been duly accounted in the regular books. Therefore this cannot be added to the income of the assessee. On the other hand, the ld. DR has relied upon the orders of the authorities below.
ITA Nos. 259 & 295/Bang/2014 Page 38 of 76 23. We have considered the rival submissions as well as relevant material on record. The AO as well as CIT(A) has made this addition on the ground that the assessee has failed to explain the nature of payment of Rs. 1,75,000/-. We find that this entry was found in the diary made on 22.05.2010 for sofa set. The assessee has explained right from the beginning that this payment is towards the personal expenses for purchase of furniture and has been duly accounted in the capital account of the assessee as drawings. We found that on 04.05.2010 there is entry for payment of Rs. 65,250/- in the name of Durian Industries Limited towards the purchase of furniture and on 30.05.2010 again there is an entry of Rs. 68,100/- towards purchase of sofa table. Therefore when the assessee has explained that these payments are duly reflected in the books of accounts and has a drawing from capital account then no addition can be made for the personal expenditure of the assessee. Accordingly, we delete this addition of Rs. 1,75,000/-
Ground no. 9 is regarding the addition of Rs. 2,26,28,812/- on account of unexplained payment / expenses. The AO found that there are diary entries towards the debit of payments
ITA Nos. 259 & 295/Bang/2014 Page 39 of 76 aggregating Rs. 2,26,28,812/- to Profit and Loss account. The assessee explained before the AO that these payments are
debited in the Profit and Loss account and are made for site payments accounted on different dates in normal books of accounts. Therefore the assessee contented before the AO that
all these amounts have been duly accounted in the regular books of account and debited in the Profit and Loss account. The AO did not accept he explanation of the assessee and made
the addition of the said account. The assessee challenged the action of the AO before the CIT(A) and submitted that consequent to the survey the assessee vide letter dated
02.11.2011 declared additional income of Rs. 1 crore and also paid aggregate tax of Rs. 30 Lakhs by way of advance tax. This additional income of Rs. 1 crore was explained on account of investment in residential home of Rs. 35 Lakhs, loan and
advance to the suppliers and others Rs. 45 Lakhs and expenses in labour and material of Rs. 20 Lakhs. Further the assessee contented that during the year under consideration the assessee
received gross contract receipt of Rs. 5,20,25,425/- out of this amount the assessee withdrawn from bank of Rs. 2,39,51,314/-. The details of the withdrawal from bank are furnished. The
ITA Nos. 259 & 295/Bang/2014 Page 40 of 76 CIT(A) did not accept the explanation of the assessee and sustained the addition.
Before us the ld. AR of the assessee has submitted that the details of the payment are set out in the annexure at page 57-98 of the paper book. He has further submitted that when the gross contract receipt during the year are Rs. 5,20,25,425/- and the assessee is having the cash expenses as recorded in the books of account amounting to Rs. 2,35,62,020/- then this expenditure is already debited to the Profit and Loss account and accounted in the books of account. He has further contented that the assessee has cash withdrawal of Rs. 2,39,51,314/- from his bank account and after meeting all the expenses still the assessee is having a cash of Rs. 58,05,687/-. The entire expenses are reflected in the books of account and also recorded in the diary therefore it cannot be separately added to the income of the assessee. Alternatively he has submitted that a telescopic adjustment be granted and only differential amount if any is brought to tax. The AO has made the addition of the aggregate expenses as per diary without considering the expenses as appearing in the regular books.
ITA Nos. 259 & 295/Bang/2014 Page 41 of 76 26. On the other hand, the ld. DR has submitted that the assessee failed to produce the details to show the date and the item of expenses which are recorded in the diary and also recorded in the books of accounts. He has relied upon the orders of the authorities below.
We have considered the rival submissions as well as relevant material on record. It is contented that the AO in the earlier years took only the differential amount which was over and above the expenses recorded in the regular books of accounts and made addition to the income of the assessee. However for the year under consideration the AO has made the addition of the total amount of the expenditure recorded in the diary without considering the expenditure accounted in the books of accounts and also without considering the withdrawals made by the assessee from bank. We find that the assessee has also recorded a substantial expenditure in cash in the books of accounts. It appears that the expenditure accounted in the books of accounts represents the total expenditure incurred / paid as well as accrued whereas the expenditure as recorded in the diary represents only the payments made by the assessee.
ITA Nos. 259 & 295/Bang/2014 Page 42 of 76 Therefore the expenditure which is already part of the regular books of accounts is also recorded in the diary at the time of payment and hence a case of duplication of recording the same expenditure in the books of accounts as well as in the diary is not ruled out. The details of the expenditure as recorded in the diary is very huge and it requires a proper verification. Accordingly, in the facts and circumstances of the case we set aside this issue to the record of the AO for proper verification of the amounts of expenditure under the same item / head as recorded in the books of accounts and in the diary and then only the differential amount if any can be considered as the expenditure which is not recorded in the books of accounts. Further the availability of the cash as withdrawn from the bank during the year as well as telescopic adjustment be also taken into consideration. Hence this ground of the assessee’s appeal is allowed for statistical purposes.
Ground no. 10 is regarding the addition of Rs. 6,46,494/- on account of cash paid to supervisors. The AO has made an addition of Rs. 6,46,494/- on account of cash on hand with the supervisors of various sites because these payments were not
ITA Nos. 259 & 295/Bang/2014 Page 43 of 76 reflected in the books of accounts. The assessee challenged the action of the AO before the CIT(A) and submitted that this amount of Rs. 6,46,494/- is an aggregate balance of cash in hand with supervisors of various sites and the same is adjusted towards payment to various work sites. It was also explained that the amount is available with the assessee out of the amount drawn from bank account which is spent for site. The CIT(A) was not impressed with the explanation of the assessee and confirmed the addition made by the AO on the ground that the assessee failed to explain the source of the above said payment.
Before us, the ld. AR of the assessee has submitted that this cash on hand available with the supervisors of various sites is not the payments made to the supervisors on the respective dates but it is the balance of the cash left with the supervisors on these dates. He has referred to the details of these balances as given at page 14 para 20(3) of the assessment order and submitted that the balance with Mr. Uday on 21.06.2010 as per the assessment order are Rs. 37,219/-, Rs. 36,000/-, Rs. 2,000/- and Rs. 22,000/-. The ld. AR then referred to the details at page 104 of the paper book where the copy of diary entries are placed and submitted that the same amounts are reflected in the
ITA Nos. 259 & 295/Bang/2014 Page 44 of 76 diary entry which clearly shows that these are the account balances on different dates and therefore the balance on the
earlier date and the balance on the subsequent dates cannot be clubbed. But it represents the net balances in the hand of the supervisor after incurring the expenditure. Therefore the
balance on various dates as per the diary entry cannot be clubbed together. These are the balances outstanding as on date and not the payments made on that date to the supervisors.
Thus the ld. AR has submitted that these amounts cannot be added to the income of the assessee when these are not the payments made to the supervisors on these dates but only the
outstanding balance in their hands. He has further contented that the expenditure incurred on the site and recorded in the books of accounts is part of these payments with the supervisors and therefore the entries in the diary is only for
memory and to keep the account of availability of the cash with each and every site supervisor. On the other hand, the ld. DR has submitted that when these entries found in the diary are not
reflected in the books of accounts then in the absence of the source of these cash available with the supervisors the AO is
ITA Nos. 259 & 295/Bang/2014 Page 45 of 76 justified in making the addition of these amounts. He has relied
upon the orders of the authorities below.
We have considered the rival submissions as well as relevant
material on record. From the details of the entries of the diary
as placed at page nos. 104 to 106 of the paper book we find that
the assessee has noted down the outstanding balances with the
supervisors of various sites on different dates. We further note
that in case of Mr. Uday the entries are made as under.
Cash on Hand with supervisor of various sites NOTINGS DATE MADE IN AMOUNT EXPLANATION DIARY Cash on Hand with 13 APRL Uday a/c bal 20,812 supervisor of diff sites Cash on Hand with 30 APRL Uday a/c bal 21,422 supervisor of diff sites Cash on Hand with 26-May Uday a/c bal 34,200 supervisor of diff sites Cash on Hand with 11-Jun Uday a/c bal 37,219 supervisor of diff sites Cash on Hand with 21-Jun Uday a/c bal 37,219 supervisor of diff sites Cash on Hand with 21-Jun Uday a/c bal 36,000 supervisor of diff sites Cash on Hand with 21-Jun Uday a/c bal 2,000 supervisor of diff sites
ITA Nos. 259 & 295/Bang/2014 Page 46 of 76
Cash on Hand with 21-Jun Uday a/c bal 22,000 supervisor of diff sites Cash on Hand with Uday a/c bal 24,079/- 4-Jul supervisor of diff (24079) sites …..and so on.
These entries in the diary clearly show that these are the account
balances with the supervisor and the difference between the two
dates balance may represent either expenditure incurred by the
supervisor or some payment in between made by the assessee or it
may be a case of both expenditure incurred by the supervisor as
well as the payment made by the assessee in between two dates.
Therefore prima facie it appears that if the balance on the earlier
date is more than the balance on the subsequent date then the
supervisor might have incurred some expenditure out of the cash
available with him and these entries in the diary is only to keep the
record of availability of cash with the supervisor instead of the
record of payment to the supervisor. Further, the expenditure
incurred by the supervisor as reflected the difference of the balance
available with him has to be reconciled with the expenditure
incurred for the particular site and recorded in the books of
accounts. Therefore to that extent no addition can be made merely
ITA Nos. 259 & 295/Bang/2014 Page 47 of 76 on the basis of these entries in the diary which reflect the availability of the cash balance with the supervisors of each site. It
is more of managing the affairs and keeping the availability of the cash with the supervisors for smooth work in progress at sites. Therefore clubbing of all entries in the diary which are only
balances in the hand of the supervisors is not justified for the purpose of making addition of this amount in the hand of the assessee. The addition can be made only by working out the
differences of the balances in the hand of the supervisors taking the same as an expenditure incurred by the supervisor and then reconciliating the expenditure with the expenditure if any already
recorded in the books of accounts. Accordingly, we set aside the orders of the authorities below on this issue and remit this matter to the record of the AO to properly verify the facts and then work out the amounts if any which is in excess of the expenditure recorded
in the books of accounts as well as which is also excess of the expenditure recorded in the diary which is separately considered for addition of income. We make it clear that the availability of
balance with the supervisor cannot be treated as payment made by the assessee when the expenditure has been separately recorded in the books of accounts as well as in the diary.
ITA Nos. 259 & 295/Bang/2014 Page 48 of 76 31. Ground no. 12 is regarding addition on account of payment towards household expenses. The AO made an addition of Rs. 1,06,790/- on account of payment towards personal drawings as these payments are recorded in the diary and made against the assessee’s household expenses. The assessee challenged the action of the AO before the CIT(A) and submitted that these are personal cash drawings on various dates as per the books of accounts total amounting to Rs. 2,32,939/-. Therefore the assessee submitted that when the books of accounts for the year under consideration has shown the personal cash drawings of Rs. 2,32,939/- then the further addition of Rs. 1,06,719/- is not required. The CIT(A) did not accept this explanation of the assessee and confirmed the addition made by the AO.
Before us the ld. AR of the assessee has submitted that this amount of Rs. 1,06,719/- is comprising of various transactions of small amounts of few hundreds and some of few thousands. The ld. AR has pointed out that as per the capital account of the assessee at page 34 to 38 of the paper book some of the household expenses and withdrawals are already reflected and debited to the account. The entries appearing in the diary are
ITA Nos. 259 & 295/Bang/2014 Page 49 of 76 the payment from such withdrawals. Therefore these entries are not the payments from the account of the business but these are only for the memory purpose as these payments are made by the assessee out of the personal drawings as already recorded in the capital account of the assessee. Hence, the ld. AR has submitted that when assessee’s personal drawings during the year are already shown in the capital account which are much more than these expenses then no separate addition is called for. On the other hand the ld. DR has relied upon the orders of the authorities below and submitted that the assessee has failed to reconcile the payments made as per the entries recorded in the diary and the entries as reflected in the books of accounts.
We have considered the rival submissions as well as relevant material on record. The diary entries in respect of these household payments are of small small amounts. We find that these are about 50 transactions of small amounts of household expenses paid for grocery items, pooja items, vegetables, payment to maid etc. From the diary entries it cannot be inferred that these payments are made from the business accounts of the assessee. It is also not the case of the AO.
ITA Nos. 259 & 295/Bang/2014 Page 50 of 76 Since these are the personal household expenses and therefore recording of the same in the diary will not lead to the conclusion that these expenses are made from the business fund of the assessee. There is no dispute that there is a drawing from the capital account of the assessee of more than Rs. 2,32,000/- during the year under consideration. The disallowance made by the AO and CIT(A) is mainly on the ground that the entries in the diary regarding small / petty household expenses are not matching with the entries of drawings in the capital account. It is pertinent to note that the personal drawings shown in the capital account is not necessarily be for each and every personal expenditure. Once the overall drawings during the year is more than the expenditure as recorded in the diary then no further addition is warranted. Accordingly, we delete this addition of Rs. 1,06,719/-.
Ground no. 13 is regarding payment for purchases of material for sale. This ground is connected with ground no. 2 of the appeal and therefore in view of our finding while dealing with ground no. 2 this ground stands disposed of.
ITA Nos. 259 & 295/Bang/2014 Page 51 of 76 35. Ground no. 14 is regarding addition on account of refund of sale of material. The AO made an addition of Rs. 5,23,057/- on account of payment for refund of sale of material. The AO noted that as per the details recorded in the diary various amounts were received and refunded however, the details of material sold to the parties were not furnished in support of the explanation. The assessee challenged the action of the AO before the CIT(A) and explained that this amount of Rs. 5,23,057/- represents the refund of the amount received against the sale of material. However when the material could not be supplied the amount was refunded by the assessee and therefore it cannot be considered as an income of the assessee. The CIT(A) did not accept the contention of the assessee and confirmed the addition made by the AO.
Before us the ld. AR of the assessee has submitted that these are the amounts collected in advance towards the supply of material. However, for some reasons the assessee was not able to supply the required quantity or quality of material and therefore the advances were refunded to the extent of Rs. 5,23,057/-. He has further contented that the total amount
ITA Nos. 259 & 295/Bang/2014 Page 52 of 76 collected on account of sale of material is already considered by the AO for the purpose of addition. The AO has given the details of the total amount collected at page 4 to 9 of the assessment order. Thus by comparing the details of the amount collected on account of sale of material and the refund made by the assessee for non-supply of material it can be noted that the payment is made to the same persons from whom the amount were collected. Thus it is clear that the refund of advance is made to the person who paid the money for supply of material. Therefore no addition is justified on this account. On the other hand, the ld. DR has submitted that the assessee has failed to furnish the complete details of amount received, refunded, material sold to these parties. Further, the complete name and address of the parties were not furnished. Therefore in the absence of the details of explanation the refund of these amount the AO is justified in making the addition.
We have considered the rival submissions as well as relevant material on record. The AO has made an addition on account of the receipt of sale of material of Rs. 33,05,152/-. The details of the amount received towards sale of material as per the diary
ITA Nos. 259 & 295/Bang/2014 Page 53 of 76 entry were also reproduced by the AO at page 4 and 5 of the assessment order. The AO has then also made an addition of
Rs. 5,23,057/- on the basis of the diary entries showing the refund of the amount collected in advance towards supply of material. These entries are reproduced by the AO at page 25
and 26 of the order. The assessee contented before the authorities below that refund is nothing but part of the amount received towards the sale of material and when the assessee
could not supply the material he has refunded the amount received from the client. On analysis of the entries in the diary in respect of the amounts received towards the sale of material
as well as refund of the amount due to non-supply of material we find that some of the entries are in the common names therefore, it cannot be concluded that the refund amount separately noted in the diary is not part of the amount received
towards the sale of material. Even otherwise when the diary entry itself make it clear that these amounts were on account of refund which were received by the assessee for supply of
material then the refund cannot be treated as income of the assessee. Only the amount which is received for sale of material can be taken into consideration for the purpose of
ITA Nos. 259 & 295/Bang/2014 Page 54 of 76 income of the assessee which has already been considered
separately and therefore no separate addition on account of
refund of the amount received for supply of material can be
made. Hence we delete the addition made by the AO on this
ground.
Ground no. 15 is regarding the payment relating to DDCA. We
have heard the ld. AR as well as ld. DR and considered the
relevant material on record. We have considered this issue for
the assessment year 2007-08 vide order dated 28.04.2017 in
ITA Nos. 219 & 291/Bang/2014 from para 33 to 35 as under. “33.Ground no. 14 is regarding an addition of Rs. 27,748/- representing the amounts collected for and on behalf of Dharwad District Contractors Association. This amount was found recorded in the diary but not reflected in the books of account therefore the AO has made the addition of said amount of Rs. 27,748/-. The assessee challenged the action of the AO before the CIT(A) and explained that this amount represents the collection for and on behalf of Dharwad District Contractors Association (DDCA) however the CIT(A) was not impressed by the explanation of the assessee and held that the assessee has not filed the details with supporting evidence for incurring such expenditure. 34.Before us the ld. AR of the assessee has submitted that the entries in the diary clearly mention the cheques / cash are collected on behalf of the Association. He has referred to the diary entries and submitted that there is noting against each receipt that cheque by DDCA or cheques issued by other members for DDCA. Thus the ld. AR has submitted that this amount represents only the collection for and on behalf of the DDCA. The assessee being the president of the DDCA has collected this fund contributed by members of the Association therefore this amount cannot be treated as income of the assessee. On the other hand, the ld. DR has relied upon the
ITA Nos. 259 & 295/Bang/2014 Page 55 of 76 orders of the authorities below and submitted that when the assessee has not produced any evidence then it was rightly added to the income of the assessee. 35.We have considered the rival submissions as well as relevant material on record. The AO has made the addition of this amount of Rs. 27,748/- on the basis of the diary entries. We find that the entries recorded in the diary also contains the narrations and explanation of nature of transaction. It is manifest from the noting against each entry that these are the receipts collected by the assessee on behalf of DDCA. The AO has not disputed these narrations in the diary. We also find that the entries in the diaries are self-explanatory and therefore the nature of these entries cannot be disputed when the addition itself is based on the diary entries. The AO is not permitted to take only the amount of the diary entries by ignoring the other details. Therefore if the diary entry is the basis of addition then the entire details of the diary entry is to be taken into account. Accordingly in view of the fact that these diary entries are self-explanatory as collection for and on behalf of DDCA and the assessee being the president of DDCA has collected this amount on behalf of the Association the addition is not justified. Accordingly, the said addition is deleted.”
Accordingly this addition is deleted. 39. Ground no. 16 is regarding the addition on account of diary
entries of Rs. 15,80,770. The AO made an addition of
Rs. 15,80,770/- on the basis of the diary entries and considering
same as payments made by the assessee. The AO noted that the
assessee has not furnished any supporting detail or evidence to
show that the said entries represents amount of expenses
incurred on the projects. The assessee challenged the action of
the AO before the CIT(A) and submitted that these entries are
not the payments but these are only the aggregate amount of
ITA Nos. 259 & 295/Bang/2014 Page 56 of 76 expenditure incurred on the projects. These are repetitive entries for statistical purposes. Thus the assessee contended that it will amount to double addition without any separate income when these entries are only reflecting the total expenditure incurred on these projects and not the payments. The CIT(A) did not accept the contention of the assessee and confirmed the addition made by the AO for want of details and evidences to show that these are not payments.
Before us the ld. AR of the assessee has submitted that the entries in the diary reflects the total expenditure on various projects and are not representing the payments. He has further contented that these are the aggregate amount of expenses incurred for the purchase of steel on various stages of the projects which are noted in the diary for ready reference but no transactions as such has taken place on these dates. He has further contented that these figures appear in the inner column suggesting no transaction has taken place on that date. He has further submitted that an amount of Rs. 2,00,000/- as appearing at page 105 of the paper book represents the fixed deposits for tender which eventually did not materialize. Therefore there is
ITA Nos. 259 & 295/Bang/2014 Page 57 of 76 no outgoing on any sum of Rs. 2,00,000/-. Thus the ld. AR has submitted that these are not the payments made on these dates or any other dates but these are only the aggregate expenses and further Rs. 2,00,000/- is only towards fixed deposit for tender purpose. On the other hand, the ld. DR has relied upon the orders of the authorities below and submitted that in the absence of any evidence in support of the claim of the assessee this amount of expenditure incurred on the projects is to be added to the income of the assessee.
We have considered the rival submissions as well as relevant material on record. We note that the details of the entries are reproduced by the CIT(A) at page 58 of the impugned order as under.
ITA Nos. 259 & 295/Bang/2014 Page 58 of 76 We further note that there is no specific date mentioned against the entries but date has been taken as per the diary leaf as these
entries are made in the diary page 07.04.2010 and 12.04.2010. Further we note that the manner in which two entries representing the MANTUR BRIDGE DR A/C and ISLAMPUR
KB SITE are different from the other entries on the same page of the diary. Thus entries are otherwise not showing any payments but only name of the projects is given. Further the
amounts against these entries are shown in the bracket and in the inner column. Therefore without verifying the details of the expenditure incurred and recorded in the books of accounts in
respect of these two projects these two entries cannot be treated as a separate expenditure or payment in respect of these projects. Accordingly, we set aside this issue to the record of the AO for proper verification of the facts regarding the total
expenditure in respect of these projects as recorded in the books of accounts as well as the diary entries regarding the expenditure and then after reconciliation of all the amounts the
issue has to be decided. As regards the amount of Rs. 2,00,000/- the diary entry itself clearly demonstrates that this amount represents fixed deposit for the purpose of tender.
ITA Nos. 259 & 295/Bang/2014 Page 59 of 76 The assessee explained that since the transaction did not happen therefore this fixed deposit has got cancelled and there was no outgo of this amount. Neither the AO nor the CIT(A) has taken any step to verify this fact and rejected the explanation of the assessee at threshold. Accordingly, when the entry itself shows this amount is towards the fixed deposit and it was later on cancelled then this cannot be added as income of the assessee.
Ground no. 17 is regarding addition on account of unexplained investment in house. The AO noted that the assessee has constructed a residential building at Shreyas Nagar, Hubli. The assessee has debited cost of the building at Rs. 68,25,372/- as per the balance sheet as on 31.03.2011. During the course of survey the assessee vide letter dated 02.03.2011 agreed to disclose additional income of Rs. 35,00,000/- towards investment in house for the assessment year 2011-12 and paid tax on the said additional income. However subsequently the assessee retracted the disclosure made by him and claimed refund of tax. The AO was of the view that the cost of construction debited in the books of account is low and accordingly it was referred to the DVO to determine the cost of
ITA Nos. 259 & 295/Bang/2014 Page 60 of 76 the construction of the said building. The DVO vide its report dated 30.04.2013 determined the cost of construction at Rs. 68,41,300/-. The AO further observed that as per the documents inventoried under inventory no. 26 the payments of Rs. 87,045/- relating to the said residential house were made by the assessee. Accordingly, the AO has computed the total cost of construction at Rs. 69,28,345/- as against the cost debited by the assessee at Rs. 68,25,372/-. Consequently the AO made an addition of Rs. 1,02,973/- on account of unexplained investment in house. The assessee challenged the action of the AO before the CIT(A) but could not succeed.
Before us the ld. AR of the assessee has submitted that the assessee itself has debited the cost of construction at Rs. 68,25,372/-. The AO has referred the matter of valuation to the DVO who has determined the cost of construction at Rs. 68,41,300/- which is almost same as the cost of construction debited by the assessee. The AO then made an addition of Rs. 87,045/- to the cost of construction by considering the impounded inventory no. 26 showing expenditure on cost of construction. The ld. AR has submitted that the expenditure
ITA Nos. 259 & 295/Bang/2014 Page 61 of 76 appearing in the impounded entry no. 26 are debited to the capital account of the assessee. He has referred to the capital account at page 34 to 38 of paper book and submitted that the very same item appearing in the capital account which are part of the impounded inventory no. 26. Therefore the addition made by the AO is not justified. He has further submitted that the DVO has estimated the value which is only negligibly higher than the assessee’s cost of construction. Thus he has submitted that no addition is called for on this account. On the other hand, the ld. DR has relied upon the orders of the authorities below.
We have considered the rival submissions as well as relevant material on record. Undisputedly the assessee has shown the cost of building and debited to the books of account at Rs. 68,25,372/-. The AO referred the matter of cost of construction to the DVO who has estimated the cost of construction at Rs. 68,41,300/-. Thus the difference between he assessee’s valuation and the DVO’s valuation is only Rs. 15,928/-. Since it is a matter of estimate and the DVO’s valuation is based on estimated rates and not on the actual
ITA Nos. 259 & 295/Bang/2014 Page 62 of 76 expenditure therefore, this small difference between the
assessee’s cost of construction and DVO’s estimate would not
warrant any addition. As regards the addition made by the AO
on account of impounded inventory no. 26 we note that the
details of the inventory no. 26 has been reproduced by the
CIT(A) at page 60 as under.
DATE BILL NO / NAME AMOUNT 6.10.2010 SHIVA STEELS 31793 DURIAN INDUSTIRES 4.5.2010 22653 LIMITED 65250 7.05.2010 A TO Z LIFESTYLE 32599
Thus by considering these three items, the AO has added
Rs. 87,045/- to the cost of construction. The ld. AR of the
assessee has invited our attention to the capital account of the
assessee for the year under consideration at page 34 and 35 of
the paper book wherein we find that all these three amounts has
been debited to the capital account of the assessee. Therefore,
once this amount has already been taken to the capital account
of the assessee the same cannot be added as cost of construction
of the building and consequently addition to the income of the
assessee. Accordingly, in the facts and circumstances of the
case we delete this addition on account of unexplained
investment in construction of house.
ITA Nos. 259 & 295/Bang/2014 Page 63 of 76 45. Ground nos. 18 and 19 are regarding disallowance u/s. 40A(3).
We have heard the ld. AR as well as ld. DR and considered the
relevant material on record. An identical issue has been
considered by us in assessee’s own case for the assessment year
2006-07 vide order dated 30.11.2015 in para 24 to 29 as under. “24. The next ground of appeal is regarding the addition of a sum of Rs.6,16,351 u/s. 40A(3). The AO observed from the details of expenses and party payment towards materials that assessee made cash payments to various parties exceeding Rs.20,000 in contravention of the provisions of section 40A(3). The aggregate of such payments worked out to Rs.30,81,756. The AO was of the view that the said payments are allowed to be set off against unexplained receipts and hence the same are required to be disallowed u/s. 40A(3). Hence disallowance of Rs.30,81,756 was made by the AO u/s. 40A(3). By the rectification order u/s. 154 dated 21.2.14, disallowance u/s. 40A(3) of Rs.30,81,756 was restricted to Rs.6,16,351 being 20% of the payment made in contravention of provisions of section 40A(3). 25. The CIT(A) upheld the addition made by the AO in the absence of details of cash payments to different parties and the circumstances under which the assessee made the cash payment in support of the assessee’s claim. 26. The ld. counsel for the assessee reiterated the submissions made before the lower authorities that invoking of the provisions of section 40A(3) and the addition of Rs.6,16,351 is unjustified since it has not been shown that any part of the payments as reflected in the diary represents expenditure claimed as a deduction in computing income under the head of “business” or “other sources”. It was submitted that every payment per se is not liable to action u/s. 40A(3) unless it falls within the realm of claimed expenditure with respect to the above two heads. 27. The ld. counsel for the assessee relied on the decision of the Hon’ble Allahabad High Court in the case of CIT v. Banwari Lal Banshidhar, 229 ITR 229
ITA Nos. 259 & 295/Bang/2014 Page 64 of 76 (All) at page 232. He also relied on the decision of the Hon’ble Andhra Pradesh High Court in the case of Indwell Constructions v. CIT, 232 ITR 776 (AP) wherein it was held as under:- ““. . . The question arises whether in such a case any deduction on account of purchases is at all allowed to the assessee, though it may be true that a gross profit rate of 15 per cent was fixed keeping in view all relevant facts including the purchases made by the assessee. Inasmuch as we are of the view that no deduction as such having been allowed to the assessee on account of purchases, we hold that no question of any disallowance on account of purchase can be made in this case under section 40A(3).” 28. The ld. DR objected to the submission of the assessee stating that with respect to both contract and trading, estimate was u/s. 40A(3) and assessee’s claim that sec. 40A(3) would be inapplicable can be restricted only to the trading portion, whose GP was determined at 9%, cannot be accepted. He argued that section 40A(3) would apply to the contract and trading receipts. 29. We have heard both the parties. We agree with the claim of assessee that once there has been an estimate, all the deductions are deemed to have been taken into account while making such estimate and hence no separate addition can be made. However, whether the estimate is only for trading part of the assessee’s business or it is also towards contract part of the business is to be verified by the AO. In these circumstances, we deem it fit to set aside the issue to the file of the Assessing Officer with a direction to redo the assessment following the decision in the case of Indwell Constructions (supra).”
In view of the decision of this Tribunal for assessment year
2006-07 this issue is decided in favour of the assessee and
against the revenue.
ITA Nos. 259 & 295/Bang/2014 Page 65 of 76 46. The assessee has raised an additional ground which is reproduced as under. “1.The Hon’ble Commissioner of Income Tax (Appeals) ought to have held that the provisions of Section 40(a)(ia) is not applicable under the facts and the circumstances of the case.”
We have heard the ld. AR as well as ld. DR and considered the relevant material on record for the purpose of admitting the additional ground. The ld. AR of the assessee has submitted that the assessee raised this ground before the CIT(A) and it was partly allowed by the CIT(A). However inadvertently the assessee could not file this ground alongwith the form no. 36. Thus the ld. AR has pleaded that not raising this ground in the original grounds is neither willful nor deliberate but due bonafide mistake and inadvertent. Since this ground is not a fresh plea therefore he has prayed that the same may be admitted for adjudication on merits. On the other hand the ld. DR has vehemently opposed the admission of the additional ground. 48. Having considered the rival submissions as well as relevant material on record we find that the issue of disallowance u/s. 40a(ia) was raised by the assessee before the CIT(A). The CIT(A) has considered this issue in para 25 of the impugned
ITA Nos. 259 & 295/Bang/2014 Page 66 of 76 order and granted part relief to the assessee. Therefore it is clear that this is not a fresh plea raised by the assessee at this stage but this issue is arising from the impugned orders of the authorities below. Accordingly, in the facts and circumstances of the case and in the interest of justice we admit the additional ground for adjudication on merits.
The ld. AR of the assessee has submitted that the AO has disallowed a sum of Rs. 57,20,877/- for want of TDS. The CIT(A) though confirmed the disallowance made by the AO u/s. 40(a)(ia) however granted relief to the extent of the common amount of Rs. 26,15,382/- which was disallowed u/s. 40A(3). Thus the CIT(A) has given part relief only to the extent of double disallowance. He has referred to the details of the expenditure and submitted that the assessee has deducted tax at source on Rs. 34,790/- and the payment was made before the due date of filing the return of income. He has pointed out that the amount deducted as TDS was remitted vide cheque dated 26.04.2011 whereas the due date of filing of return was 30.09.2011. Therefore the ld. AR has submitted that neither the AO nor the CIT(A) has taken into consideration the amount of TDS deducted and paid by the assessee. He has further
ITA Nos. 259 & 295/Bang/2014 Page 67 of 76 submitted that the interest on car loan from Kotak Mahindra Ltd., interest on JCB loan, Kotak Mahindra Ltd and interest on tipper loan to Sundram Finance Ltd. are the payments to non- banking financial companies. The recipients have taken the said amounts for computing their incomes and therefore in view of the proviso to section 40(a)(ia) no disallowance is called for in respect of these amounts. As regards the excavation charges of Rs. 29,36,331/- the ld. AR has submitted that the payment to a single person on a single day was not more than Rs. 20,000/- and therefore the provisions of TDS are not applicable on said amount. Thus the ld. AR has submitted that the disallowance is not called for. On the other hand, the ld. DR has submitted that the assessee is raising these issues without furnishing the details before the authorities below. He has relied upon the orders of the authorities below.
Having considered the rival submissions as well as relevant material on record. We note that out of the total disallowance of Rs. 57,28,877/- the CIT(A) has deleted the disallowance to the extent of Rs. 26,15,382/- as part of the disallowance made u/s. 40A(3). The assessee has raised various points before us
ITA Nos. 259 & 295/Bang/2014 Page 68 of 76 that in some of the payments the assessee has already deducted tax at source of Rs. 34,07,790/-. The interest payment of
Rs. 31,078/-, Rs. 31,410/- and Rs. 1,06,676/- are in respect of car loan, JCB loan and tipper loan paid to Kotak Mahindra Ltd. and Sundram Finance Ltd. Thus it is contented that these two
recipients are non-banking financial companies and have included these interests amounts in their income offered to tax and therefore no disallowance can be made for non deduction of
TDS. The ld. AR has undertaken to produce the necessary certificate in this respect. As regards the excavation charges of Rs. 29,36,331/- the ld. AR has submitted that each individual
payment to single person is less than Rs. 20,000/- and the aggregate payment to the same person in the financial year is less than Rs. 75,000/-. Therefore the provisions of TDS are not applicable and consequently the disallowance u/s. 40(a)(ia) is
not attracted. Since all these aspects go to the root of the matter and have not been considered by the authorities below therefore, in the facts and circumstances of the case and in the
interest of justice we remit this issue of disallowance u/s. 40(a)(ia) which has been confirmed by the CIT(A) to the record of the AO for proper verification as well as considering the
ITA Nos. 259 & 295/Bang/2014 Page 69 of 76 facts as claimed by the assessee. Needless to say the assessee
be given an opportunity of hearing before deciding the issue as
per law. 51. Ground no. 20 is regarding the addition on account of interest
on NSC. The AO made an addition of Rs. 22,610/- on account
of interest on NSC. We have heard the ld. AR as well as ld. DR
and considered the relevant material on record. At the outset
we note that this issue was considered by the coordinate bench
of this Tribunal for the assessment year 2008-09. This issue is
common to the issue raised for the assessment year 2008-09
and we have decided the same vide order dated 05.05.2017 in
ITA Nos. 220 to 222 & 292 to 294/Bang/2014 in para 5 as
under. “5.Ground no. 5 is regarding the addition on account of cancellation of NSC of Rs. 1,21,882/-. The assessee purchases NSC before presenting tenders form for government works (civil). A diary entry was found in respect of Rs. 1,21,882/- received on maturity of NSC and also on cancellation of NSC. The AO made an addition of the said amount. The assessee challenged the action of the AO before the CIT(A) but could not succeed. We have heard the ld. AR as well as ld. DR and considered the relevant material on record. At the outset, we note that an identical issue was considered by the coordinate bench of this Tribunal in assessee’s own case for the assessment year 2006-07 vide order dated 30.11.2015 in ITA No. 904/Bang/2015 in para 20- 23 as under. “20. The AO was of the view that the assessee has not furnished the details of NSC and how the said investment is reflected in the books, also the said encashment of NSC has not been reflected as receipts in the regular books of account. As regards withdrawal of cash from ATM, the AO observed
ITA Nos. 259 & 295/Bang/2014 Page 70 of 76 that the assessee has not explained how the said cash is reflected in the books. According to the AO, the assessee's explanation that there are sufficient withdrawals was not convincing. Hence the AO assessed the said receipts of Rs. 10,006 as income from unexplained receipts. 21. Before the CIT(Appeals), the assessee reiterated the submissions made before the AO. 22. The CIT(Appeals) held that the assessee has not filed any details in support of his claim of NSC and depended only on ATM drawings and hence in the absence of details, he upheld the addition made by the AO. 23. We have heard both the parties. We are of the opinion that one more opportunity is to be afforded to the assessee to explain his case before the AO as it is stated that the assessee has sufficient withdrawals from his capital account and the source is explained. We therefore restore this issue to the file of the Assessing Officer for fresh examination after giving an opportunity of being heard to the assessee.” 6.Following the earlier order of the Tribunal we set aside this issue to the record of the AO for fresh examination and adjudication in same terms of the earlier order dated 30.11.2015.”
In view of our finding on this issue for the assessment year
2008-09 this issue stands disposed of in same terms.
ITA Nos. 259 & 295/Bang/2014 Page 71 of 76 52. The revenue has raised the following grounds.
Ground no. 1 is general in nature and does not require any specific adjudication.
Ground nos. 2 and 3 are regarding the addition made on account sale and purchase of material which was restricted by the CIT(A) to GP rate. This issue is common as to the ground nos. 2 and 13 of the assessee’s appeal. In view of our finding
ITA Nos. 259 & 295/Bang/2014 Page 72 of 76 on this issue while dealing with the assessee’s appeal these grounds of the revenue’s appeal stands dismissed.
Ground no. 4 is regarding the addition made on account of hand loan of Rs. 1,90,000/-. We have heard the ld. DR as well as ld. AR and considered the relevant material on record. The CIT(A) has directed the AO to verify the books of accounts of the assessee with reference to the details in respect of this amount of Rs. 1,90,000/-. While dealing with the ground no. 7 of the assessee we set aside this issue to the record of the AO for verification of availability of funds with the assessee. Accordingly, this issue is set aside to the record of the AO for verification of books of accounts as well as availability of fund.
Ground no. 5 is regarding the addition made by the AO on account of unexplained payment which was deleted by the CIT(A). The AO noted that as per the diary entry dated 20.01.2011 a payment of Rs. 4 crores was made to shri K.R. Ballary. The assessee explained before the AO that this figure of Rs. 4 crores was wrongly mentioned as the correct amount is Rs. 4 lakhs. The AO did not accept this explanation of the assessee and made an addition of Rs. 3,96,00,000/- after
ITA Nos. 259 & 295/Bang/2014 Page 73 of 76 allowing this amount of Rs. 4 lakhs as explained by the assessee. The assessee challenged the action of the AO before the CIT(A) and contented that the correct amount is Rs. 4 lakhs paid to shri K.R. Ballary towards the payment of site expenses under various heads of expenditure but by oversight the same amount is written as Rs. 4 crores. After considering the entries of the receipt as well as inner column of the diary the CIT(A) directed the AO to verify the books of accounts of the assessee with reference to the details filed by the assessee and then decided whether the entry represents Rs. 4 crores or Rs. 4 lakhs.
Before us the ld. DR has submitted that when the assessee is writing each and every minute details of daily affairs in the diary then it is not possible that the assessee could have committed such a mistake of writing an amount of Rs. 4 crores instead of Rs. 4 lakhs. He has relied upon the orders of the Assessing Officer.
On the other hand the ld. AR of the assessee has submitted that it is only a bonafide mistake and inadvertent error in writing the amount. He has further submitted that the assessee filed the affidavit of shri K.R. Ballary in explaining the facts of correct
ITA Nos. 259 & 295/Bang/2014 Page 74 of 76 amount. He has also referred to the diary entries at page 99 and 100 of the paper book and submitted that the total sum of Rs. 10 lakhs is shown as paid in the brackets. The breakup of the said amount is given as given as Rs. 6 lakhs paid on 07.01.2011 at page 100 of the paper book and Rs. 4 lakhs paid on 20.01.2011. Therefore the aggregate total of these two amounts is clearly written as Rs. 10 lakhs which shows that this amount is only Rs. 4 lakhs and not Rs. 4 crores.
Having considered the rival submissions as well as relevant material on record we find that the AO has taken this amount of Rs. 4 crores as per diary entry dated 20.01.2011. We note that the entry clearly shows the payment to Shri K.R. Ballary and total amount within bracket is shown as Rs. 10 lakhs. The breakup of the said amount is further shown with the diary entry dated 17.01.2011 of Rs. 6 lakhs and the balance is apparently of Rs. 4 lakhs which is written as Rs. 4 crores on 20.01.2011. Therefore by considering all the details in respect of these entries we have no doubt in our mind that the total amount reflected in the diary entry is Rs. 10 lakhs paid to Shri K.R. Ballary comprising of the payment of Rs. 6 lakhs on 17.01.2011 and balance of Rs. 4 lakhs paid on 20.01.2011.
ITA Nos. 259 & 295/Bang/2014 Page 75 of 76 However this amount of Rs. 4 lakhs is shown as Rs. 4 crores. Therefore it is apparent that there is a mistake in writing this amount of Rs. 4 crores instead of Rs. 4 lakhs. In view of the above facts as manifest from the diary entries we direct the AO to consider this issue by taking into account all relevant details as well as the explanation and affidavit filed by the assessee. This ground of the revenue’s appeal is dismissed.
In the result the appeal of the assessee is partly allowed and revenue is dismissed.
Pronounced in the open court on this 19th day of May, 2017
Sd/- Sd/- (S. JAYARAMAN) (VIJAY PAL RAO) Accountant Member Judicial Member
Bangalore, Dated, the 19th May, 2017. / MS/
ITA Nos. 259 & 295/Bang/2014 Page 76 of 76
Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file By order
Assistant Registrar, ITAT, Bangalore.