SRI. E. KRISHNAPPA,BANGALORE vs. DCIT, BANGALORE

Per Shri Vijay Pal Rao, J.M. : This appeal by the assessee is directed against the order dt.29.01.2016 of

Commissioner of Income Tax (Appeals) for the Assessment Year 2010-11.

“1. On the facts and in the circumstances of the case, the ld. Assessing Officer erred in passing the order in the manner in which he did.

2 ITA No.552/Bang/2016 Shri E Krishnappa

3 ITA No.552/Bang/2016 Shri E Krishnappa

adjudication.

cash credit under Section 68 of the Income Tax Act, 1961 (in short 'the Act').

The Assessing Officer noticed from the cash book furnished in respect of E K

Land Developers that there are deficient cash balances on various dates and

peak of the same are culled out by the Assessing Officer on different dates i.e.

24.4.2009, 20.08.2009 & 11.10.2009 amounting to Rs.1,86,311; Rs.42,87,130

and Rs.26,48,191 respectively total amounting to Rs.71,21,632. The assessee

4 ITA No.552/Bang/2016 Shri E Krishnappa was asked to show cause as to why the above cash book credit of deficient cash

balance of Rs.71,21,632 should not be treated as unexplained cash credit under

Section 68 and brought to tax as income from other sources. In response the

assessee filed reply vide letter on 18.03.2013 and submitted that the cash book

produced by the assessee does not reflect in deficit cash balance. The

Assessing Officer found that the assessee's reply is not correct , the cash book

which was produced on 22.02.2013 shows the cash deficit as pointed out by the

Assessing Officer. However, the cash book produced by the assessee on

18.3.2013 is not the cash book which was produced on 22.2.2013. Therefore

the Assessing Officer rejected the reply of the assessee and the deficit cash

balance of Rs.71,21,632 was treated as unexplained cash credit under Section

68 of the Act. On appeal, the CIT (Appeals) issued remand order. The

Assessing Officer in the remand report stated that the cash book produced

after the issue of show cause notice cannot be accepted as genuine and has

been a window dressed by adjusting some entries to arrive a positive cash

balance. The CIT (Appeals) after considering the remand report and reply of

the assessee confirmed the addition made by the Assessing Officer.

submitted that in response to the notice issued by the Assessing Officer, the

5 ITA No.552/Bang/2016 Shri E Krishnappa assessee filed all the details which were called for. Since the Accountant has

missed contra entries while updating in tally and subsequently the same were

corrected and furnished before the Assessing Officer. The Assessing Officer has

not accepted the submissions of the assessee and made the addition. The

learned Authorised Representative has further contended that after proper

reconciliation of books of accounts by posting and voucher there was no

negative balance on any date. The peak credit balance in the computerized

cash book arose due to incomplete set of books prepared by the employee

who was not well versed with maintenance and handling of the accounting

work. The mistake committed by Accountant at the relevant point of time has

to be accepted by the Assessing Officer. Thus the learned Authorised

Representative has submitted that the addition is not justified and is liable to

be deleted.

submitted that despite sufficient opportunity given by the Assessing Officer

during the assessment proceedings as well as during remand proceedings, the

assessee failed to furnish the necessary details of credit. He has relied upon the

orders of the authorities below.

6 ITA No.552/Bang/2016 Shri E Krishnappa 7. We have considered the rival submissions as well as the relevant material

on record. There is no dispute that the assessee has furnished two sets of cash

book and as per the cash book furnished by the assessee on 22.2.2013 there

was a peak cash deficit on three occasions total amounting to Rs.71,21,632. In

reply to show cause notice, the assessee produced fresh cash book claiming to

be the correct cash book containing all contra entries which were missed out

by the Accountant at the time of preparing the first cash book. The Assessing

Officer out-rightly rejected second cash book filed by the assessee. It is

pertinent to note that when the assessee has explained the reasons of

difference and specifically point out certain contra entries which were left out

in the first cash book then the Assessing Officer was required to properly

examine the explanation of the assessee and then could have rejected the

entries whch were found to be bogus. Instead of doing the said exercise of

verification and examination of the entries the Assessing Officer has just made

the general comments without pointing out which entry in the subsequent cash

book is bogus. Accordingly, in the facts and circumstances of the case, we set

aside this issue to the record of the Assessing Officer for proper verification and

examination of the cash book produced by the assessee claiming to be correct

cash book.

7 ITA No.552/Bang/2016 Shri E Krishnappa 8. Ground Nos.4 & 5 are regarding disallowance made under Section 40A(3) of

the Act.

through the cash book and ledger extract of M/s. E K Entertainer and M/s. E K

Audio found that the assessee has made cash payments towards expenses

exceeding Rs.20,000. Accordingly, the Assessing Officer invoked the provisions

of section 40A(3) of the Act and disallowed the sum of Rs.33,10,343 in respect

of M/s. E K Entertainer and Rs.45,29,195 in respect of M/s. E K Audio total

amounting to Rs.78,39,538. On appeal, the CIT (Appeals) issued remand order

directing the Assessing Officer to file the remand report. The Assessing Officer

reiterated the view as taken in the assessment order in the remand report.

After considering the remand report, the CIT (Appeals) has confirmed the

addition/disallowance made by the Assessing Officer.

submitted that the assessee has given unsecured loan to M/s. E K Entertainers

and M/s. E K Audio of Rs.97,30,000 and Rs.1,31,17,860 respectively. During the

assessment year under consideration a sum of Rs.31 lakhs has been given for

business purpose and also returned by M/s. E K Entertainers. It was further

submitted that the said amounts are reflected in the balance sheet of M/s. E K

8 ITA No.552/Bang/2016 Shri E Krishnappa Entertainers and M/s. E K Audio. She has referred to the ledger extracts and

profit and loss account as well as balance sheet. The learned Authorised

Representative has thus submitted that the Assessing Officer has not verified

the books of accounts of the assessee properly which was furnished during the

course of assessment proceedings. She has further contended that since

these were advance and unsecured loans given to these concerns and therefore

not claimed as expenditure and consequently the disallowance made by the

Assessing Officer is not justified.

submitted that the Assessing Officer after examination of the books of accounts

of the assessee has noted that the assessee has made cash payments towards

expenses and not as an advance. Therefore when the Assessing Officer has

given sufficient opportunity to the assessee to produce the details and record

of the creditors but the assessee failed to produce the same then the

disallowance made by the Assessing Officer is justified.

on record. The Assessing Officer has made disallowance under Section 40A(3)

of the Act by treating these payments to M/s. E K Entertainers and M/s. E K

Audio in cash towards expenses. The assessee contended before the CIT

9 ITA No.552/Bang/2016 Shri E Krishnappa (Appeals) that these payments are for business purposes in the form of

unsecured loan and not towards expenses. The assessee also referred to the

balance sheet as well as ledger accounts in support of its claim. However the

Assessing Officer in the remand report has reiterated its stand without re-

examination of the record and books of accounts of the assessee. The remand

report reproduced by the CIT (Appeals) at page 7 of the impugned order clearly

reveal that the Assessing Officer has stated that the details of payment are

verified in the respective cash book and also respective concerns during the

course of scrutiny. Thus it is clear that the Assessing Officer has not examined

the record during the remand proceedings and simply made a statement that

these were examined during the course of scrutiny assessment. Further we

note that the assessee has clearly brought to the notice of the CIT (Appeals)

that the assessee was asked to produce the details from the creditor but when

the assessee appeared before the Assessing Officer on 4.11.2015 along with the

note and relevant evidence, the Assessing Officer had already sent the remand

report without giving an opportunity to the assessee. In view of the above facts

and circumstances of the case, we find that the Assessing Officer has not

properly examined the relevant record as well as books of accounts of the

assessee and the corresponding books of these two concerns to ascertain the

10 ITA No.552/Bang/2016 Shri E Krishnappa correct factual position. Accordingly, we set aside this issue to the record of

the Assessing Officer to properly examine the relevant record and books of

accounts and then decide the same after giving an opportunity of hearing to

the assessee.

loan credit.

assessee has taken cash loan during the year in respect of the following

concerns, details of which are reproduced by the Assessing Officer in para 5 as

under :

i. D C Gowdru Rs.6,99,200 ii. Harish Rs.6,71,800 iii. M. Harish, Adakamaranahalli. Rs.6,81,200 iv. Manjunath Rs.6,63,900 v. Shadakshari Rs.6,34,600 Total : Rs.33,50,700

The Assessing Officer found that the loan has been received below Rs.20,000

per day on various dates during the year under consideration. The assessee was

asked to furnish the full name and address of the persons. In response the

assessee furnished the addresses of the above persons and the Assessing

Officer issued notice under Section 133(6) of the Act to these persons at the

11 ITA No.552/Bang/2016 Shri E Krishnappa given address however there was no response from the above persons.

Subsequently the assessee was asked to furnish the confirmation from these

persons. Since the assessee failed to furnish the confirmations from these

persons the Assessing Officer made the addition of Rs.33,50,700. On appeal,

the CIT (Appeals) issued a remand order and after considering the remand

report confirmed the addition made by the Assessing Officer.

submitted that the assessee has produced additional evidence before the CIT

(Appeals) containing the confirmation letters from the creditors. She has

referred to the various confirmation letters. It is further contended that even

during the remand proceedings, the Assessing Officer has not given proper

opportunity to the assessee as the Assessing Officer has not given a particular

date of hearing but asked the assessee to furnish the details of creditors. The

assessee appeared before the Assessing Officer on 4.11.2015 with the note and

all evidences but by that time the Assessing Officer had already submitted the

remand report. Thus the learned Authorised Representative has submitted

that the additional evidences produced by the assessee is not taken into

account by the authorities below.

12 ITA No.552/Bang/2016 Shri E Krishnappa 16. On the other hand, the learned Departmental Representative has

submitted that the assessee was given sufficient opportunity during the

assessment proceedings as well as remand proceedings but despite that the

assessee failed to produce the confirmations as well as other requisite details in

support of the claim.

on record. We note that the CIT (Appeals) has confirmed the addition made by

the Assessing Officer by recording the reasons that despite opportunity given to

the assessee to explain the necessary details the assessee failed to produce the

same. We further note that the assessee has categorically stated before the

CIT (Appeals) that when the assessee appeared before the Assessing Officer on

28.9.2015, the case was adjourned and the assessee was asked to file the

return copy of the sundry creditors to prove the creditworthiness of the

creditors. However no specific date of hearing was given. The assessee has

also pointed out that when the assessee approached to the office of the

Assessing Officer to enquire about the dates of hearing it was told that due to

shifting of office, hearing will be fixed later. Finally, the assessee appeared

before the Assessing Officer on 4.11.2015 along with the relevant evidences,

but the Assessing Officer already sent the remand report. In view of the above

13 ITA No.552/Bang/2016 Shri E Krishnappa facts and circumstances of the case, we find that the issue has not been

examined properly by considering the details to be filed by the assessee.

Therefore in the facts and circumstances of the case, we set aside the matter to

the record of the Assessing Officer for proper examination and verification of

the relevant record to be filed by the assessee.

towards development charges.

development charges payable of Rs.7,74,05,400 under the head ‘sundry

creditors’ in respect of M/s. E K Land Developers. The assessee was asked to

furnish the name and address of the persons along with their PAN to whom

these amounts were payable and what is the nature of work done by them vide

office letter dt.1.3.2013. In response to the said letter, the assessee filed the

reply on 18.3.2013 however, the Assessing Officer noted that the assessee has

not furnished any details but shown only these amounts and other columns are

left blank. The assessee again filed a letter dt.23.3.2013 and stated that M/s. E

K Land Developers was in the activity of development of sites and formation of

layouts. He has made an agreement with M/s. Prakash, Vijaykumar, Muniraj

AC and B. Premanath Reddy who were also the owners of the land along with

14 ITA No.552/Bang/2016 Shri E Krishnappa the assessee. The development work was started in the year 2009 and was

completed till March, 2010 and expenditure was estimated to the extent of

Rs.7,74,05,400. The assessee contended that it is a capital expenditure and

not charged to the profit and loss account till the sale of sites. The Assessing

Officer did not accept the assessee's reply and observed that the assessee has

merely created general entry towards development charges on the liability side

and another account towards development charges on the asset side of the

balance sheet. The Assessing Officer further held that this is not ascertainable

liability and what is the exact nature of expenditure incurred. There is no

contract between the parties who have executed the work. Accordingly, the

Assessing Officer treated the said claim of Rs.7,74,05,400 as ungenuine/

artificial liability created to reduce the profit against the future sale. On appeal,

the CIT (Appeals) issued a remand order and after receiving the remand report

has confirmed the action of the Assessing Officer.

referred to the balance sheet of the assessee of each year during which the

development charges were shown as liability payable and also capitalized on

the assets side. The learned Authorised Representative has also referred to the

certificate of engineer who has certified the work in progress. She has further

15 ITA No.552/Bang/2016 Shri E Krishnappa contended that development charges which has been directly taken into

balance sheet are proportionately allowable deduction against the sale of sites.

In support of her contention, she has relied upon the decision of co-ordinate

bench of this Tribunal dt.25.10.2013 in the case of M/s. Jain Farms & Resorts

Ltd. Vs. ACIT in ITA Nos.1324 & 1325/Bang/2010.

upon the orders of the authorities below.

on record. The Assessing Officer has made the addition on the ground that the

assessee has created artificial liability on account of development charges to be

claimed as a deduction against the future sale of sites. It is pertinent to note

that the assessee has not claimed this amount of Rs.7,74,05,400 as deduction

during the year under consideration but it was shown in the balance sheet as

payable towards development expenses. Thus the assessee claimed that the

said amount is proportionately allowable as deduction against the future sales

of sites. When the assessee has not claimed this amount as a deduction in the

profit and loss account then the addition of this amount cannot be made

during the year under consideration on account of ungenuine and bogus claim

of expenditure. However this issue of allowability of this claim in the year when

16 ITA No.552/Bang/2016 Shri E Krishnappa the assessee debit the expenditure against the sale of sites can be examined

along with the genuineness of the expenditure in the year in which such claim is

made by the assessee. Accordingly in the facts and circumstances of the case,

we delete the addition made by the Assessing Officer for the Assessment Year

under consideration however, we leave this issue open for the consideration in

the year in which the assessee claims this expenditure against sale of sites.

the Act.

on account of earth filling of Rs.23,58,169 and on account of JBC hire charges of

Rs.22,02,480 total amounting to Rs.45,60,648. The Assessing Officer further

noted that the assessee has not deducted TDS in respect of these expenses.

Accordingly, he has disallowed the said amount by invoking the provisions of

Section 40(a)(ia) of the Act. On appeal, the CIT (Appeals) has issued remand

order and after considering the remand report upheld the action of the

Assessing Officer.

submitted that since the expenses were already paid and nothing was payable

17 ITA No.552/Bang/2016 Shri E Krishnappa as on 31.3.2010 therefore no disallowance can be made under Section 40(a)(ia)

of the Act.

upon the decision of Hon'ble jurisdictional High Court in the case of Ryatar

Sahakari Sakkare Karkhane Niyamit, Ranna Nagar, Timmapur Vs. ACIT 383

ITR 561.

on record, at the outset we note that this issue is covered against the assessee

by the decision of the Hon'ble jurisdictional High Court in the case of Ryatar

Sahakari Sakkare Karkhane Niyamit, Ranna Nagar, Timmapur Vs. ACIT (supra)

wherein the Hon'ble High Court has held in paras 33 & 34 as under :

“ 33. In view of the aforesaid discussion, we are of the considered view that the impugned order passed by the Tribunal is unsustainable in law. The judgment rendered by the Hon’ble High Court of Allahabad in the case of Vector Shipping Pvt. Ltd., is not applicable to the facts of these cases. Consequently, the first substantial question of law, raised by the Revenue merits consideration. 34. In the result, the appeals filed by the Revenue are allowed by answering the following substantial question of law in its favour and it is held that in the facts and circumstances of this case, the Tribunal was not correct in interpreting the language of section 40(a)(ia) to mean that the consequence of disallowance is attracted only in respect of amounts which remain payable on the last day of the financial year.” Following the decision of the Hon'ble jurisdictional High Court (supra), we do

not find any error or illegality in the order of the CIT (Appeals) qua this issue.

18 ITA No.552/Bang/2016 Shri E Krishnappa 29. The Assessing Officer found that as per AIR information, the assessee

has made payment of Rs.27,45,200 through American Express Bank. The

assessee was asked to explain whether these expenses are account for. In

response the assessee stated that the expenses are accounted under the

business promotion and other expenses. The Assessing Officer examined the

ledger account under the head ‘business promotion expenses’ and found that

the expenses under these heads are through Canara Bank only and not a single

item which reflected under American Express Bank. Accordingly, the Assessing

Officer has made addition of Rs.27,45,200 by treating the same as unexplained

expenditure under Section 69C of the Act. The CIT (Appeals) after considering

the remand report has confirmed the addition made by the Assessing Officer.

referred to the details of the expenditure incurred through credit card of

American Express Bank at page No.103 of the paper book and submitted that

when the Assessing Officer itself has taken up the issue on the basis of the AIR

information that the expenditure was incurred by using the credit card then

provisions of Section 69C cannot be invoked for making the disallowance of the

said expenditure. Further, the learned Authorised Representative has

submitted that the payment of the credit card made by using the Canara Bank

19 ITA No.552/Bang/2016 Shri E Krishnappa

Account and therefore in the ledger account the expenses are shown through

Canara Bank.

upon the orders of the authorities below.

on record. The Assessing Officer has taken up this issue on the basis of AIR

information regarding the payment made by the assessee through American

Express Bank credit card. The Assessing Officer found that in the ledger

account the assessee has shown the expenses through Canara Bank and not the

American Express Bank. It is pertinent to note that using the credit card is not

the final settlement of the expenses but expenses are finally paid when the

assessee makes credit card payment. Therefore it cannot be ruled out that the

assessee has made the payment of the credit card through Canara Bank

account. Accordingly, we find that the Assessing Officer has proceeded wrongly

by making this addition without considering the relevant facts as well as the

details on this issue. Hence in the facts and circumstances of the case, we set

20 ITA No.552/Bang/2016 Shri E Krishnappa aside this issue to the record of the Assessing Officer to reconsider the same by

considering and examination of all the facts of this issue.

Sd/- Sd/- (A.K. GARODIA) (VIJAY PAL RAO) Accountant Member Judicial Member Bangalore, Dt. 17.02.2017.

*Reddy gp

Copy to : 1. Appellant 2. Respondent 3. C.I.T. 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard File.

By Order

Asst. Registrar, ITAT, Bangalore