GERA DEVELOPMENTS PVT. LTD.,,PUNE vs. COMMISSIONER OF INCOME-TAX (APPEALS) -1,,

आदेश / ORDER

PER D. KARUNAKARA RAO, AM :

There are 3 appeals filed by the assessee under consideration -

for the common A.Y. 2005-06. Two of them, i.e. ITA Nos.597 &

767/PUN/2013, are the cross appeals. The remaining appeal ITA

No.1609/PUN/2014 is filed by the assessee in connection with the rectification order passed by the CIT(A) u/s.154 of the Act correcting

mistake in the order with reference to his direction to AO on the claim

of set off of brought forward losses.

We shall take up both the appeals of the assessee first.

ITA Nos.597/PUN/2013 & 1609/PUN/2014 - By Assessee

assessee is a company and is engaged in the development of properties.

There was survey action u/s.133A of the Act on the assessee on

24-01-2007. The aid action resulted in the discovery of incriminating information and the papers/ documents relating to both the assessees

under consideration. The same were impounded for use in making of

the assessments. It also resulted in discovery of unaccounted

transaction of undisclosed receipts and they are undisputedly

undisclosed expenditure outside the books of account. Based on these discrepancies as well as the disclosure of unaccounted income vide the

sworn statement of the concerned persons of the assessees on

13-02-2007, an additional unaccounted income of Rs.2.06 crores was

admitted in the hands of GDPL. Further, another sum of Rs.53 lakhs

was admitted in the hands of M/s. Construction Portals Pvt. Ltd. (in

short ‘CPPL’), a sister concern of M/s. GDPL. Both the assessees

revised their revised returns and included the total such income of

Rs.2.59 crores (Rs.2.06 crores + 0.53 crores).

of Rs.2.59 crores (Rs.2.06 cr. + 0.53 lakhs) includes that the assessee

earned unaccounted income on sale of stock and incurred unaccounted

expenditure outside the books. The total such unaccounted cash

receipts as per Bundle No.10 works out to Rs.4,15,58,368/- and

similarly, the total such cash payments works out to Rs.4,25,58,303/-.

Assessee explained that the said gap of Rs.1.61 crores is explainable.

As such, there is no dispute on these gross figures. Elaborating the

need for arriving at the net amounts, the assessee submitted that the

said figure of Rs.4,15,58,368/- and Rs.4,25,58,303/- need to be

adjusted downwards to remove the effect of the duplicate entries, cash

receipts and the withdrawals by the Managing Director for the business

purposes of both M/s. GDPL and M/s. CPPL. Further, it is explained

that since the unaccounted cash payments exceeded the unaccounted

cash receipts, the entire unaccounted cash payments of

Rs.4,25,58,303/-, being the higher sum, was considered for addition in

the A.Y. 2005-06 u/s.69 of the Act. Against these discrepancies, the

assessee disclosed the said sum of Rs.2.06 crores in the hands of GDPL

and Rs.53 lakhs in the case of CPPL leaving the balance of Rs.1.66

crores (Rs.4.25 cr – Rs.2.59 cr) for the present litigation on this

account. Otherwise, the difference between the cash receipts and the

cash payments works out to around Rs.10 lakhs.

proposing to make the said amount as addition for the A.Y. 2005-06 in

case of M/s. GDPL. In reply, assessee explained that the additional

income which was actually offered in the hands of M/s.CPPL is Rs.58

lakhs and not Rs.53 lakhs as discussed above. Therefore, the balance

figure for reconciliation works out to the reduced figure of Rs.1.61

crores only and not Rs.1.66 crores. Further, the assessee explained

that the figure of Rs.4,25,58,303/- needs to be adjusted downwards for

reasons already discussed above. However, in the assessment, AO

analysed the above as well as the contents of sworn statement of the

assessee and proceeded to make addition of Rs.1.61 crores u/s.69C of

the Act as unexplained expenditure.

Further, AO also examined another issue relating to the capital

receipts involving a property owned by Shri Dheeraj Keshwani and

found need of making further addition of Rs.50,59,040/- as

unexplained expenditure u/s.69C of the Act.

in para 8 along with its sub-paragraphs of the assessment order. Brief

facts include that the assessee sold a property to Mr. Dheeraj Keshwani.

On his demand, certain works were undertaken by the assessee for the

repairs on the flat, which resulted in additional expenditure of

Rs.56,20,400/-. The same was reimbursed by Mr. Dheeraj Keshwani.

Rejecting the explanation that the said expenditure was incurred on the

capital asset belonging to Mr. Dheeraj Keshwani, AO made the said

addition. Otherwise, the total cost of the property-shop works out to

Rs.99.50 lakhs. Out of the same, the net amount reimbursed by Mr.

Dheeraj Keshwani works out to Rs.50,59,040/-.

before the CIT(A).

of said additions of Rs.1.61 crores as well as other addition of

Rs.50,59,040/-. CIT(A) partly allowed the appeal of the assessee.

CIT(A) confirmed the addition amounting to Rs.1.47 crores out of

Rs.1.61 crores. Other additions are deleted. Subsequently, in

connection with the claim of set off of the brought forward losses, CIT(A)

rectified his order dated 25-06-2014 expunging certain expressions

used in the direction given to AO on this issue and against the assessee.

appeal (ITA No.767/PUN/2013) on the issues relating to net

unaccounted expenditure of Rs.50,59,040/- incurred on the capital

asset/flat owned by Mr. Dheeraj Keshwani.

confirmation of addition of Rs.1.47 crores (Rs.1.61 cr. – Rs.14,58,222).

Further also, the assessee is in appeal (ITA No.1609/PUN/2014)

against the minor relief withdrawn vide the rectification order passed by

the CIT(A) dated 25-06-2014. Revenue is in appeal against deletion of

addition of Rs.50,59,040/-.

following amended grounds and the Revenue raised the following

grounds in connection with the rectification order passed by the CIT(A).

The said grounds are extracted here as under :

Amended grounds by assessee vide ITA No.597/PUN/2013 :

“1. On facts and circumstances prevailing in the case and as per provisions & scheme of the Act, it be held that the learned Assessing Officer (‘Ld.AO’) erred in adding Rs.1,61,00,000/- to the income of the Appellant and the first appellate authority erred in confirming the addition to the extent of Rs.1,47,00,081/- u/s. 69C of the Income Tax Act, 1961 ( ‘the Act’). The Appellant be granted just and proper relief in this respect. 2. On facts and circumstances prevailing in case and as per provisions of law, it be held that the Ld. AO and the first appellate

authority erred in not setting-off the undisclosed income against undisclosed expenditure-and adding the entire undisclosed expenditure u/s. 69C of the Act although the expenditure no longer remained unexplained. Just and proper relief be granted to the Appellant in this respect.

It is respectfully submitted that the grounds raised above also include the additional ground raised vide letter dated 16th April, 2018.”

Ground raised by the assessee against rectification order passed by the CIT(A) vide ITA No.1609/PUN/2014 :

“1. On facts and circumstances prevailing in the case and as per provisions & scheme of the Act it be held, that first appellate authority rectified the appellate order dated 22-01-2013 passed by the CIT(A)-I, Pune is improper, erroneous, beyond jurisdiction, contrary to the provisions of law and facts prevailing in the case, it further be held the CIT(A) –I, Pune have no jurisdiction to review/rectify appellate order passed by his predecessor. It be held that rectification letter dated 25- 06-2014 be deleted. The appellant be granted just and proper relief in this respect.”

Grounds raised by the Revenue vide ITA No.767/PUN/2013 :

“1. The order of the Ld.CIT(A) is contrary to law and to the facts and circumstances of the case.

amounts of Rs.82,94,744/- given to Managing Director for safe keeping

and return of the sum of Rs. 57,51,770/- back to company constitute

contra entries. However, the CIT(A) rejected the same as per the

discussion given in Para No.4.9 of his order. CIT(A) only allowed the

claim of duplicate entries amounting to Rs.14,58,222/-. Finally, the

CIT(A) concluded in para No.4.11 of his order stating the following :

“ 4.11 Therefore, keeping in view the discussion contained in preceding paragraphs 4.5 to 4.10 above, it is to be held that the addition under the head unaccounted expenditure u/s.69C, is to be taken Rs.1.47 Crores. This figure is arrived at by reducing cash payments of Rs.4,25,58,303 ( as per impounded) by Rs.14,58,222 ( duplicate entries). The resultant figure would be Rs.4,10,99,081/- or rounded off to Rs.4.11 Crores. Since appellant has already disclosed Rs.2.64 crores by way of fining revised return, the total addition that is sustained would be Rs.1.47 crores ( Rs.4.11 crores-Rs.2.64 Crores). Ground of appeal No. 2 (a) and 2 (b) are therefore, treated as partly allowed.”

Thus, the CIT(A) granted part relief to the extent of Rs.14,58,222/- and

denied the assessee’s explanation to the extent of Rs.82,94,744/-.

Assessee holds that this amount constitutes the one given to Managing

Director safe keeping. Per Contra, Revenue holds that it is the part of

the unaccounted expenditure of the company. However, as can be

seen, the CIT(A) did not utter a word on this part of the claim of the

assessee. However, in this regard, CIT(A) commented on the absence of

cash out/in nexus, i.e. one to one transactional nexus and held that

such nexus is the requirement for allowing the claim of further

reduction of Rs.82,94,744/- out of the sum of unaccounted expenditure

of Rs.4,25,58,303/-. Further, CIT(A) deleted the addition of

Rs.50,59,040/-.

deleting the entire addition of Rs.1.61 crores and not merely

Rs.14,58,222/- as the entire UE is spent for business needs of the

assessee. Alternatively, Ld. Counsel for the assessee submitted that the

assessee made certain working in the form of tables on the principle of

appropriation of unaccounted income, expenditure, and summed up by

mentioning that the addition, if any at all, needs to be restricted to

Rs.15,46,095/- only. Relevant calculations are given in the table

discussed in the later part of this order. (para No.14). Appeal wise

adjudication is taken up in the succeeding paragraphs.

ITA No.597/PUN/2013 & ITA No.1609/PUN/2014 – By Assessee

revolves around the confirmation of Rs.1,47,00,081/- out of the original

Rs.1.61 crores, the difference between the unaccounted expenditure of

Rs.4,25,58,303 and the disclosed sum of Rs.2.06 crores. Other minor

issue raised by the assessee relates to the rectification order qua the set

off of the brought forward losses of the assessee. Therefore, the issues

linked to the addition of Rs.1.61 crores is take up in the succeeding

paras.

BEFORE THE TRIBUNAL

I. Unaccounted Expenditure (UE) of Rs.1.61 Crores : In the

assessment, AO added this amount of Rs.1.61 crores on account of

unaccounted expenditure. The manner of working of the amount of

Rs.1.61 crores is already discussed in Para No.4 of this order above.

On the addition of Rs.1.61 crores, it is the argument of the Ld.

Counsel for the assessee that the total unaccounted expenditure as per

the AO works out to Rs.4,25,58,303/-. Considering the claim that the

sum of Rs.82,94,744/- was given for safe keeping with Mr. R.K. Gera,

Managing Director of the company along with the another claim of

Rs.14,58,222/- on account of duplicate entries the net UE works out to

Rs.3,28,04,337/- only and not Rs.4,25,58,303/-. The details are

discussed in Para 8 of the impugned order and the relevant table is

extracted here as under :

Summary : YE As per AO As per actual Duplicate Expenditure 31.03.2005 verification (Pages 1- done by A.Y 2005-06 Expenditures 116) M.D. incurred by ( RKG MD) company

B-10 117-122 27333538 19438794 7894744 B Pages 1-116 12407465 12107465 300000 B-19 1571222 113000 1458222 B-5 269674 169674 100000 GP 8 Page 37 84300 84300 Difference 892104 892104 Total for Y.E 42558303 32804337 1458222 *8294744 • Shri R.K. Gera, Managing Director took this amount for safekeeping and returned Rs.57,51770/- to the company for the business use.

From the above facts, the case of the assessee is that the figure

of Rs.4,25,58,303/- is not sacrosanct and the same requires downward

adjustments to the extent of (1) the expenditure of Rs.82,94,744/-

handled directly by Mr. R.K. Gera and (2) the duplicate entries of

Rs.14,58,222/-. Both these claims of the assessee are borne out of the

impounded material discovered during the survey action on

24-01-2002. We shall now deal with these claims of the assessee for

downward adjustments of the unaccounted expenditure of

Rs.4,25,58,505/-.

II. Expenditure of Rs.82,94,744/- spent by Shri R.K. Gera,

Managing Director of M/s. GDPL : The impounded material reflects

the payout to Mr.R.K. Gera. Total of these payments works out to

Rs.82,94,744/-. AO holds that this amount constitute unaccounted

expenditure in the hands of Mr. R.K. Gera and rejected the safe keeping

centric explanation of the assessee. Further, Ld. Counsel for the

assessee submitted that Mr. R.K. Gera returned Rs.57,51,770/-, part of

it to the company. Ld. Counsel relied on the impounded documents in

this regard. Further, Ld. Counsel submitted that it is in the scheme of

business operation of the assessee that the unaccounted receipts/flow

bi-directionally between the company and the Managing Director of the

company depending on the safe keeping need and commercial

expediency of the business. Thus, there is bi-directional movement of

cash between the company and the Managing Director and the same is

done in the business interest of the assessee. In other words, the

assessee MD receives the unaccounted cash from the customers or

from the company for safe keeping and return the same for meeting the

needs of the business. Assessee furnished two tables showing the

figures of Rs.82,94,744/- and Rs.57,151,770/- the amounts paid to

Mr.R.K.Gera and received from Mr. R.K. Gera respectively. The

impounded documents support the above claims of the assessee and

the page numbers are specified in the tables too. Therefore, as per the

assessee, there is need for granting requisite adjustments in the gross

figures of the UE before crystallizing the net figure for addition in the

assessment. AO settled for addition on account of UE only as the same

is higher than the unaccounted receipts. As per the assessee, only the

net figures of UE only are to be considered for making any addition in

the assessment.

In para No.4.5 of his order, on considering the said submission of

the assessee, the CIT (A) analysed the details of cash receipts as well as

cash expenditure in the light of the seized/impounded papers and held

the net cash receipts works out to Rs.1,52,02,259 (Para 4.6 of the

impugned order) on the issue of unaccounted cash payments and the

net cash expenditure in the hands of the assessee works out to

Rs.3,28,04,337/-. After the matter was remanded to the AO, who was

satisfied about the need for adjustment of the total unaccounted

expenditure, the CIT(A) restricted the adjustment to the extent of

Rs.14,58,222/- only on account of duplication of entries. In the

process, CIT(A) ignored the claim of adjustment of Rs.82,94,744/-, i.e.

the amount given to Mr.R.K. Gera, the Managing Director for the

company. On considering the said sum of Rs.14,58,222/-, as per the

CIT(A), the net unaccounted/expenditure figure comes to

Rs.4,10,99,081/- (Rs.4.11 crores rounded off) in place of

Rs.4,25,58,303/-. Revenue is not aggrieved on this relief and therefore,

there is no appeal before us. As discussed, the assessee demands for

further reduction of Rs.82,94,744/- involving Mr. R.K. Gera, M.D. It is

not the UE done by the Managing Director for assessee. But this

amount was returned to the company as per needs to the extent of

Rs.57,51,770/-. In this order, we need to examine if the demand of the

assessee for adjustment of UR to that extent is fair and if the CIT(A) is

justified in denying the said claim of the assessee.

and according to him, there are 4 issues which require special

adjudication and the same emanate from the grounds raised in the

assessee in all these 3 appeals by M/s. GDPL. The following are the

issues :

(A) the correctness of addition of Rs.1.61 crores (restricted to Rs.1.47 crores by the CIT(A) on account of undisclosed income u/s.69C of the Act.

(B) whether the addition u/s.69C of the Act be restricted to the difference between unaccounted expenditure and unaccounted income declared by the assessee.

(C) Allowing of the set off against the unaccounted receipts to the unaccounted business expenditure of Rs.48,59,242/- and the applicability of explanation u/s.37(1) of the Act with reference to the unaccounted expenditure claiming set off against the unaccounted income.

(D) The applicability of provisions of section 40A(3) of the Act towards the cash expenses discovered during the survey action.

and the same are extracted here as under :

A. Regarding the first issue of the correctness of the addition of

Rs.1.61 crores towards undisclosed income made by the AO u/s.69C of

the Act, assessee filed the following written submissions :

“2.1.1 The CIT(A) in his order dated 22-01-2013 added the difference between the amount of undisclosed expenditure amounting to Rs.4,11,00,081/- and the amount of Rs.2,64,00,000/- declared by the Appellant in its revised return as unexplained expenditure us/.69C of the Act.

2.1.2. While making the above addition, the CIT(A) has not considered the fact that the amount of unaccounted cash payments and unaccounted cash receipts considered by the AO includes the cash given to the Managing Director of the Appellant Company i.e. Mr. Rohit Gera, for safekeeping and the amounts returned back by him amounting to Rs. 82,94,744/- and Rs. 57,51,770/- respectively. (Refer Para 8 and Para 6 on Page 66 and 65 respectively of the paper book). The above figures have been proved by the Appellant to be mere contra entries. These amounts although being payments and receipts respectively, cannot be said to be expenditure or income of the Appellant. Hence, the same need to be excluded while computing the addition to be made to the income of the Appellant. Accordingly, the correct amount of unaccounted cash receipts and cash payments should be Rs. 1,52,02,259/- and Rs. 3,28,05,337/- respectively.”

Assessee relied on the following judgments/decisions for the legal

proposition that when source is found then expenses should not be

considered under the provisions of section 69C :

B. Regarding the second issue relating to the addition u/s.69C of the

Act the amount for addition cannot exceed the difference between

unaccounted expenditure and unaccounted income declared by the

assessee. In this regard, the assessee submitted the following written

submissions :

“3.1 The peak credit of negative cash balance was submitted to the CIT(A), which is at Page No.90 to 95 of paper book. The peak credit of the negative cash balance is Rs.2,15,42,563/- which is well within the amount declared by the assessee as its additional business income.

3.2 Without prejudice to this fact, a revised working of additional business income and the maximum amount that could be considered by the AO and the First Appellate authority over the amount offered by the assessee is computed as under :

B Particulars Amount ( in Rs.) A Source: i. Undisclosed receipts (after setting off contra entries of MD and duplicate 1,52,02,259 entries) (Refer Table 1) ii. Total Undisclosed Expenditure (after setting off contra entries of MD 3,28,05,337 and duplicate entries) (Refer Table 1) iii. Less: Expenses on land (Refer 2,79,46,095 Annexure-1) iv. Business expenses available for iv =(ii – iii) 48,59,242 deduction v. Excess cash available v=(i-iv) 1,03,43,017 vi. Balance declared 1,60,56,983 vii. Total declaration made by Mr. Kumar 2,64,00,000 Gera in his statement during survey. Vii=(v-vi) B. Application: Investment in land 2,79,46,095 C. Excess amount spent C=B-A(v)-A(vi) 15,46,095

3.3 The DR has argued that the contra entries, being payments made to Directors and then subsequently received back from directors, have not been accepted by the department and the same have been considered as additional receipts and expenses. Considering the same to be correct, the working of additional income of the assessee would be as under :

Sr. Particulars Amount No. ( in Rs.) A Source: i. Undisclosed receipts (after setting off contra entries of MD and duplicate 2,09,54,029 entries) (Refer Table 1) ii. Total Undisclosed Expenditure (after setting off contra entries of MD 4,11,00,081 and duplicate entries) (Refer Table 1) iii. Less: Expenses on land (Refer 2,79,46,095 Annexure-1) iv. Business expenses available for iv =(ii – iii) 1,31,53,986 deduction v. Excess cash available v=(i-iv) 78,00,043 vi. Balance declared 1,85,99,957 vii. Total declaration made by Mr. Kumar 2,64,00,000 Gera in his statement during survey. Vii=(v-vi) B. Application: Investment in land 2,79,46,095 C. Excess amount spent C=B-A(v)-A(vi) 15,46,095

As per the Ld. Counsel for the assessee, the net undisclosed

receipts after the adjustment works out to Rs.1,52,02,259/- and the

excess amount spent is arrived at Rs.15,46,095/- if the business

expenditure (i.e. on land Rs.2,79,46,095 + other expenditure of

Rs.48,59,242) are allowed out of adjusted undisclosed expenditure of

Rs.3,28,04,337/-. Thus, is it eh case of the assessee that the amount

for addition is only Rs.15,46,095/- and not Rs.1.47 crores.

C. Regarding third issue of allowing of set off of undisclosed

income against undisclosed cash expenditure for making addition

u/s.69C of the Act. This issue relates to the table above. Assessee

filed the written submissions and the same are extracted below :

“The CIT(A) has added the entire amount of unaccounted cash expenditure u/s. 69C of the Act to the income of the Appellant. However, on a perusal of Para 7.5 on Page 13 of the assessment order passed by the AO, it can be observed that the AO has considered only the difference between the unaccounted cash receipts of Rs. 4.15 Crores and the unaccounted cash payments of Rs. 4.25 Crores amounting to Rs. 10,00,000/- u/s. 69C of the Act. (Refer Para 7.5 on Page 13 of the order of the AO).

D. Regarding the fourth issue on the applicability of provisions of

section 40A(3) of the Act towards the cash expenses discovered during

the survey action, the assessee submitted the following written

submissions:

In support of his arguments, assessee relied on the following

judgments/decisions :

In fact, this issue is raised by the Ld. DR for the first time before the

Tribunal. Ld.DR is of the opinion that the undisclosed cash payments

attracts the provisions of section 40A(3) of the Act.

E. Further, assessee submitted that, even if the ground raised by the

Ld. DR is allowed, the provisions of section 40A(3) of the Act cannot be

applied to the case of the assessee as the computation of income has

been made not on the books of account, but on the basis of seized

material. Ld. Counsel also filed various decisions to suggest that the

DR’s role is restricted in the Tribunal and he is prevented from raising

fresh issues for the first time before the Tribunal. DR cannot make out

a new case before the Tribunal.

F. Further, regarding application of provisions of section 37(1) of the

Act raised by the Ld. DR, assessee filed the following written

submissions :

“a) It was neither during the assessment proceedings nor during the appeal proceedings that the AO or the 1st Appellate Authority has raised any issue regarding disallowance of cash expenditure u/s.37(1) of the Act. It is for the first time before the ITAT that the Ld. DR has put forth this argument. If the contention of the Ld. DR is accepted, then a new issue which has never been part of any dispute at the assessment stage or at 1st appellate stage would emerge and which is against the provisions of the Act. b) Further, the entire case records were available before the AO as well as the CIT(A). After verifying the same, a view has been taken by the both the authorities to disallow the business expenditure as undisclosed income and not section 37(1) per se. Hence, remanding the case back to the file of the AO or CIT(A) to review the allowance of expenditure would tantamount to resorting to the powers of review provided u/s.263 of the Act to the CIT. Thus, this argument of the Ld. DR should not be accepted. Further, Explanation 1 to section 37(1) of the Act provides c) that expenditure shall not be allowed as deduction from business income if it is incurred for any purpose which is an offence or which is prohibited by law. d) However, in the case of the Appellant, the payments have been made for the purposes of the business of the Appellant. Also, the entire details of expenditure are being verified by the AO from the seize documents and these expenditure includes payments being made to various contractors, for electricity meters and taxes, payments made to brokers, architects, etc. for the ongoing projects of the Appellant. Hence, it cannot in any way be said that the said expenditures are incurred for any purpose which is an offence or which is prohibited under the law. e) The quantum of expenses will clearly suggest that these are payments made for petty work. Hence, the claim of the Appellant regarding the said expenses is covered by provisions of section 37(1) of the Act not hit by the Explanation to section 37(1) of the Act, and hence is an allowable expenditure.”

This issue/argument is relevant in the context of the claim of the

assessee that the undisclosed expenditure of Rs.3.28 crores is for

business purposes only. The same is allowable expenditure u/s.37 of

the Act. There is no violation to the provisions of section 37(1) of the

Act.

On this issue of claim of contra entries, Ld. DR submitted that the

assessee needs to explain the contra entries specifying the correlation

between cash in and cash between the assessee and the Managing

Director of the company, then only the assessee’s claim is allowable.

CIT(A) expects one to one relationship for grant of relief on the claim of

addition of Rs.82,94,744/- on account of contra entries. Further, Ld.

DR argued vehemently stating that the expenditure is to be disallowed

u/s.37 of the Act due to contravention of the law. Further, Ld. Counsel

argued that the provisions of section 40A(3) of the Act or its proviso are

attracted to the unaccounted expenditure in cash. However, Ld. DR is

silent on the specific expenditure of Rs.10,000 or Rs.20,000/- as the

case may be, details of aggregation of cash payments etc.,

DECISION OF THE TRIBUNAL ON ADDITION OF Rs.1.61 crores

issues are relevant to the core issue relating to the addition of Rs.1.61

crores made by the AO in addition to the amount of undisclosed income

declared by the assessee in the return of income.

Case of the assessee : As per the assessee, the undisclosed

expenditure based on the impounded material quantified in the

assessment order works out to Rs.4,25,58,303/-. After giving

adjustments on account of (1) duplicate entries -Rs.14,58,222/- and (2)

cash given to Mr. R.K.Gera, MD of the company - Rs.82,94,744/- for

safe keeping, the net undisclosed expenditure as per the assessee works

out to Rs.3,28,05,337/- only. Out of this, the business expenditure

incurred on the land works out to Rs.2,79,46,095/- leaving the balance

of unaccounted expenditure at Rs.48,59,242/- only. It is the case of

the assessee that entire net unaccounted expenditure is business

expenditure and the same is allowable u/s.37(1) of the Act. The net

undisclosed expenditure of Rs.3,28,05,337/-, therefore, constitutes an

allowable expenditure. Alternatively, the assessee submitted that

excess expenditure spent in the process works out to only

Rs.15,46,095/- (Ref. Table at para 13 of this order). The addition needs

to be restricted to the same against the sum of Rs.1.47 crore confirmed

by the CIT(A).

From the point of view of the undisclosed receipts,

Rs.4,15,58,368/- is the gross receipts and there is no dispute. If the

same is adjusted towards (a) duplicate entries amounting to

Rs.95,44,459/- (b) cash received back from Mr. R.K. Gera amounting to

Rs.57,51,770/- (c) amounts considered for other assessment years

other than A.Y. 2005-06 amounting to Rs.1,10,59,880/-, the net

unaccounted receipts works out to Rs.1,52,02,259/-. According to the

assessee, after all these adjustments, the excess cash available works

out to Rs.1,03,43,017/-. Against this, assessee disclosed income of

Rs.2.64 crores and therefore, no addition is called for if the above

adjustments are approved by the Tribunal. The impounded material is

heavily relied by the assessee for all these workings.

Thus, from undisclosed receipt angle too, Ld. Counsel for the

assessee submitted that, out of gross undisclosed receipts of Rs.4.25

crores, the net undisclosed receipts is only Rs.1,52,02,259/- after

adjustment of (1) duplicate entries; (2) contra entries and (3)

undisclosed receipts for other assessment years. Ld. Counsel for the

assessee adjusted the said Rs.48,59,242/- against the undisclosed

receipts of Rs.1.55 crores and arrived at the available expenditure of

undisclosed receipts of Rs.1,03,43,017/-. Against this, assessee

already declared Rs.2.64 crores and the undisclosed investment in land

is Rs.2,79,46,095/- having the excess investment of Rs.15,64,095/-.

Accordingly, the addition if any should be restricted to Rs.15,46,095/-

only and asked for deleting the addition of Rs.1.47 crores.

Ld. Counsel for the assessee brought our attention to the issue of

the existence of duplicate/contra entries on one side and the correlation

of entries of cash given/received to/from Mr. R.K. Gera to company,

and filed various workings based on the impounded documents/Bundle

No./Page No. etc. Mentioning that all these figures emanate from the

impounded material, Ld. Counsel for the assessee summed up by

stating that the CIT(A) considered this fact and granted benefit on

account of duplication of entries to the extent of Rs.14,58,222/-. Ld.

Counsel submitted that AO cannot ignore certain entries and selectively

prefer other entries for the purpose of making addition of Rs.1.61

crores. However, the CIT(A) erred in rejecting other due adjustments

on account of (a) cash given to Mr. R.K. Gera – Rs.82,94,744/- and (b)

cash received from Mr. R.K. Gera – Rs.57,51,770/-. We find it relevant

to extract the table showing the cash payment to Mr. R.K. Gera

amounting to Rs.82,94,744/- and return of the cash to company to the

extent of Rs.57,51,770/-. The working of Rs.82,94,744/- is extracted

as follows :

Page Date of Amount paid to Page No. Date of Amount No. of payment to MD of Bundle receiving the received Bundle MD amount back from MD 122 17.03.2004 8,75,000 122 26.04.2004 1,00,000 121 2,00,000 122 07.04.2004 50,000 122 20.04.2004 5,00,000 121 05.05.2004 1,31,770 121 20.05.2004 4,00,000 121 26.05.2004 20,000 121 29.05.2004 1,03,544 23.08.2004 50,000

121 28.08.2004 5,50,000 121 04.09.2004 8,16,000 121 19.10.2004 7,75,000 121 27.10.2004 1,80,200 121 28.10.2004 15,50,000 121 29.10.2004 15,00,000 121 01.11.2004 5,00,000 120 21.12.2004 12,00,000 101 24.12.2004 1,00,000 120 04.01.2005 50,000 120 22.12.2004 10,00,000 120 28.01.2005 10,00,000 120 29.12.2004 4,00,000 120 21.02.2005 1,00,000 120 23.02.2005 5,50,000 120 15.02.2005 12,20,000 120 07.03.2005 7,00,000 Total 57,51,770

68/69 02.09.2004 3,00,000 Total 82,94,744

Highlighting the unfair conclusion, Ld. Counsel submitted that the

CIT(A) selectively ignored the details on the impounded paper on flimsy

grounds of one to one nexus of cash payments and receipts involving

Mr. R.K. Gera. It is in the normal course of business of any assessee

wherever there is undisclosed receipts and payments, the Managing

Director receives the unaccounted cash for safe keeping and spends or

returns the same as per its needs. Bringing our attention to certain

documents filed before us, Ld. Counsel submitted that the contra

entries relating to establishing the cash received by Mr. R.K. Gera for

the company and spending the cash for the purpose of the company.

Ld. Counsel submitted that the impounded material is the source of

both the undisclosed receipts and undisclosed payments and therefore,

there is a requirement of allowing other adjustments narrated above.

Ld. Counsel filed a sheet giving the details of reconciliation in support of

the claim of adjustment on account of contra entries too. The same is

extracted as under :

Statement showing contra entries of cash received from customers and given to the MD on Page 85 and 86 of PB. Page Date of Narration Amount Page Date of Amount paid No. of receipt from of receipt No. of payment to to MD Bundle customer from Bundle MD customer 122 12-3-2004 Received from Dr. Shastri 1200000 122 17.03.2004 50,000.00 (Pg.84)

122 07.04.2004 122 20.04.2004 5,00,000.00 121 20.05.2004 Received from Shital 400000 121 20.05.2004 4,00,000.00 Ahuja-Gera Legend (Pg.85) 121 26.05.2004 Received from Ramlal 80000 121 26.05.2004 20,000.00 Chaudhari – Gera Legend (Pg.85) 122 12.03.2004 Received from Anjum 66500 121 29.05.2004 1,03,544.00 Datta (Pg.84) 122 18.03.2004 Received from Anjum 6300 Datta 122 27.04.2004 Received from Gumani 25000 121 26.05.2004 Received from Gumani 25000 121 23.08.2004 Received from Anjum 242800 23.08.2004 50,000.00 Datta 121 25.08.2004 Received from Sarita 300000 121 28.08.2004 5,50,000.00 Agnihotri 121 27.08.2004 Received from Parwani 250000 121 01.09.2004 Received from Tarwala 300000 121 04.09.2004 8,16,000.00 121 01.09.2004 Received from Parwani 200000 121 02.09.2004 Received from L.K. 316000 Chinchankar 121 08.10.2004 Received from Rani Rajani 550000 121 19.10.2004 7,75,000.00 121 18.10.2004 Received from Samina 225000 Santrampurwala 121 27.10.2004 Received from Neeli Singh 180200 121 27.10.2004 1,80,200.00 121 28.10.2004 Received from Anjali 2050000 121 28.10.2004 15,50,000.00 Bhongale 121 01.11.2004 5,00,000.00 101 24.12.2004 1,00,000.00 120 04.01.2005 50,000.00 120 27.01.2005 Received from Major 4900000 120 28.01.2005 10,00,000.00 Bajaj 120 21.02.2005 1,00,000.00 120 10.02.2005 Received from Dubay 50000 120 23.02.2005 5,50,000.00 120 11.02.2005 Received from Dr. 500000 Jagwani 120 24.02.2005 Received from Dr. 500000 120 07.03.2005 7,00,000.00 Jagwani 120 04.03.2005 Received from Dr. 500000 Jagwani

Pages other than 120, 121 and 122 121 23.07.2004 Received from Dubey 100000 68/69 02.09.2004 3,00,000.00 121 23.08.2004 Received from Anjum 242800 Datta Total 82,94,744.00

Therefore, Ld. Counsel submitted for grant of adjustments narrated

above and delete the addition of Rs.1.61 crores.

the Revenue revolves around the need for confirming the order of CIT(A)

without giving further adjustments as demanded by the assessee, both

on account of unaccounted expenditure as well as the unaccounted

receipts. However, Ld. DR for the Revenue did not deny the fact of

emanating from the impounded material, which establishes the fact of

undisclosed receipts and the payments on one side, the flow of cash bi-

directionally from assessee to the Managing Director and reverse.

CONCLUSION

Rs.1.61 crores. We also considered the correctness of the need for

grant of benefit of the adjustment of Rs.82,94,744/- towards the contra

entries qua the receiving and returning of the cash by Mr. R.K. Gera,

MD of the company. On consideration, we find that the demand for the

said adjustment in principle has the basis of the figures emanating from

the impounded papers during the survey action. As such, the assessee

already offered the additional income of Rs.2.06 crores and paid taxes

on this. Over and above the same, AO made addition of Rs.1.61 crores

and the same is the subject of all this litigation. Therefore, in our view,

there is no justification for rejecting the claim of adjustments. It is well

settled legal proposition that the contents of the incriminating papers

have to be considered as a whole and not in a piece meal. AO cannot

selectively consider some of the entries on said pages and not the

others. It is also well observed practice of business that the Managing

Director of the company do receive unaccounted receipts from the

clients/company and keep with him in safe custody. Managing Director

returns or spends the same for the company too. Further, it is also not

uncommon that such receipts are sometimes recouped outside the

books of account, although the same constitutes unaccounted

transactions. In our view, it is not correct to ignore these facts in

business when we need to determine the net unaccounted income of the

assessee.

Rs.82,94,744/- allegedly kept with the Managing Director, we find the

case of the assessee is that the same is not to be included in the gross

unaccounted expenditure of Rs.4.25 crores as it is the money given to

Managing Director for safe keeping. It is basically kept by the company

with him for safe keeping and the same is returned to the company as

per its need. As per the impounded papers, the Managing Director

returned to the company to the extent of Rs.57,51,770/- to be precise

out of the said safely kept sum of Rs.82,94,744/-. We find that these

calculations have the strength of the impounded material. The balance

of Rs.25.43 lakhs, i.e.(Rs.82,94,744/- - Rs.57,51,770/-) is with the

Managing Director at that point of time. If the same is considered, the

net undisclosed expenditure shall be only Rs.3.28 crores and not

Rs.4.11 crores. These workings are rejected by the AO/CIT(A), not for

the reason that these entries are not for the impounded material, but

for the reason of one to one correlation of figures on the said material.

On the contrary, AO/CIT(A) have no evidence whatsoever to

demonstrate that the said Rs.82,94,744/- given by the company,

constitutes an unaccounted expenditure and not for safe keeping. We

cannot understand otherwise, how the Revenue shall explain the fact of

refund of Rs.57,51,770/- by Mr. R.K. Gera to the company. The

incriminating material confirms this fact.

Therefore, considering the above correlation supplied by the

assessee, in our view, the said conclusion of the AO/CIT(A) against the

assessee is not sustainable. In the absence of any other corroborative

evidences, on the issue of one to one correlation, the end of the previous

year-net figures need to be considered after set off of cash receipts and

return after safe keeping is considered. As such, there is no legal

requirement of establishing such one to one correlation of figures.

Therefore, in the absence of any incriminating information with the AO

to establish that cash given to Managing Director for safe keeping is not

for business purposes, the safe keeping-centric explanation of the

assessee needs to be accepted. Hence, in that case, the net expenditure

figure of Rs.3.28 crores is proper. To that extent, the order of the CIT(A)

needs to be reversed.

in favour of the assessee and now we shall now deal with the extent of

undisclosed expenditure that is required to be confirmed in place of

Rs.1.61 crores.

In this regard, we have examined the tables furnished b y the Ld.

Counsel and extracted in Para No.14 above, said calculations provided

by the assessee in terms of the application of the said net undisclosed

expenditure of Rs.3.28 crores constitutes a possible explanation.

According to the assessee, the major expenditure was incurred on the

transaction relating to land purchase, i.e. Rs.2.79 crores. Rs.48.59

lakhs was spent on other business expenditure. Assessee furnished the

list of such expenses. If the same are considered, the excess

expenditure spent outside the books works out to Rs.15,46,095/- only.

The said calculation is not disputed. However, Ld. DR for the Revenue

has objection on the same or legal point of view. Ld. DR argued that the

undisclosed expenditure of Rs.48.59 lakhs need not be allowed as the

same is spent in violation of the provisions of sections 37(1) and 40A(3)

of the Act. We shall deal with these arguments separately. Coming

back to the excess undisclosed expenditure of Rs.15,46,095/-, we find

this amount needs to be added to the income returned by the assessee

and not Rs.1.61 crores as done originally in the assessment. Assessee

has no objection on this issue. To that extent, the arguments of Ld.

Counsel are allowed. Thus, the sum of Rs.15,46,095/- is confirmed in

place of Rs.1.61 crores.

To sum up, the cash flow in and out is the part of safe keeping

and the request for adjustment of undisclosed expenditure to the tune

of Rs.82,94,744/- is allowed. Therefore, the undisclosed expenditure

works out to Rs.3.28 crores only (i.e. Rs.4.11 cr – 0.83 cr) and not

Rs.4.11 crores (rounded off). Further, also, the excess expenditure

spent works out to Rs.15,46,095/-. At the end, we confirm to the

extent of Rs.15,46,095/- only in place of Rs.1.61 crores. To that extent,

the order of the CIT(A) stands reversed. Thus, relevant grounds of the

assessee are partly allowed.

the undisclosed expenditure. Regarding the issue of applicability of

the provisions of section 40A(3) of the Act, we have considered the DR’s

submission to keep the issue open for examining the applicability of the

said provisions to the cash expenditure discovered during the search

action. As such, this issue is not considered by the AO in the original

assessment proceedings or in the First Appellate proceedings. Strictly

speaking, this is the issue raised for the first time by the Ld. DR before

us. On considering the same, we find the issue/argument is raised

orally for the first time before us. Hence, the same is unsustainable, in

principle.

Without prejudice, we examined the list of expenses of

Rs.48,59,292/- and find most of them are paid to local bodies towards

PMC taxes and electrical charges etc. Other expenses are found to be

below the specified limit of Rs.10,000/- or Rs.20,000/-, as the case may

be. Accordingly, the arguments of Ld. DR are dismissed on technical

grounds.

in the another argument for consideration before us. Regarding the

applicability of provisions of section 37(1) of the Act as argued by the

Ld. DR, to such an undisclosed expenditure on revenue account, the

case of the Revenue is that the said unaccounted expenditure of

Rs.48,59,292/-, the same cannot be considered as an allowable

business expenditure in view of the provisions of proviso to section

37(1) of the Act. In this regard, we perused the break-up of details

furnished before us and, as discussed above, we find from the list

furnished before us that expenditure was incurred on account of PMC

taxes, electrical charges, sales promotion, marketing charges etc. All

these accounts broadly falls in revenue zone and for the business

expenses of the assessee. Infact, the major expenditure of

Rs.2,79,46,095/- was incurred in connection with the purchase of land

and there is no dispute about this transaction. The dispute is only on

the sum of Rs.48,59,292/-. In our view, the proviso to section 37(1) of

the Act will not come to this picture as no contravention of any law is

made out by the AO. Therefore, AO shall note that these expenses are

allowable for working out the excess expenditure spent outside the

books of account. Therefore, this part of the arguments of Ld. DR

stands dismissed.

is partly allowed.

ITA No.1609/PUN/2014 – By Assessee

modification order of the CIT(A). The same is discussed in the

preceding paragraphs of the order. In his order, the CIT(A) slightly

modified the direction to AO and the same went against the assessee.

Therefore, assessee filed this appeal.

brought forward losses of Rs.1.04 crores (rounded off) pertaining to A.Y.

2004-05 against the income of this year. In this regard, the CIT(A)

observed that the AO did not allow the same originally in view of the

fact that the assessment proceedings for the A.Y. 2004-05 were

incomplete at the relevant point of time. The losses were not

crystallised then. Therefore, the CIT(A) directed the AO to allow set off of

brought forward losses pertaining to the A.Y. 2004-05 in accordance

with law. Subsequently, vide order dated 25-06-2014, the CIT(A)

amended the above direction on the issue relating to the claim of set off

of brought forward losses pertaining to A.Y. 2004-05 and withdrawn the

said direction partly. In this regard, the CIT(A), on noticing the error in

the last sentences in Para No.6 of his order, the expression, i.e. “in

accordance with law” was expunged. CIT(A) directed the AO to make

correction to that extent as per his modification order dated 25-06-2014

which reads as under :

“4. In view of the above and since the direction of the CIT(A) is to allow set off brought forward losses ‘in accordance with law’, no corrigendum is necessary in the matter. When there are no brought forward losses pertaining to A.Y. 2004-05 as on date, question of set off of brought forward loss of that year against the income of A.Y. 2005-06 does not arise as per law and even otherwise such brought forward business loss, if any, cannot be set off against the ‘deemed income’ assessed for A.Y. 2005-06.”

On the given facts of the issue, in our view, the decision of the CIT(A) is

fair and reasonable and it does not call for any interference.

Accordingly, the legal ground raised by the assessee is dismissed.

ITA No.767/PUN/2013 - By Revenue

crores, we have already dealt with the relief of Rs.14,58,222/-. We have

held that the sum of Rs.15,46,095/- is only sustainable out of Rs.1.61

crores and balance is ordered for deletion. Therefore, this issue stands

adjudicated against the Revenue by our finding on the said issue.

Therefore, the only effective issue that remains to be adjudicated relates

to the relief granted to assessee on the addition of Rs.50,20,400/-. We

shall take it up in the following paragraphs of this order.

Rs.50,59,040/- on account of entire expenditure incurred on the capital

asset involving Mr. Dheeraj Keswani, CIT(A) considered the submission

of the assessee and granted relief to the assessee as per the discussion

given in Para No.5.1 of his order and the same is extracted here as

under :

“5.1. I have considered the .submissions made as per above and enclosure-II to the Statement of Facts. During the relevant financial year the appellant sold shops no. 1A1 and 1A2 at P.T. Gera Centre to Shri Dhiraj Keswani and Mrs. Varsha Keswani. The sale consideration excluding the car parking area (which was later on reduced as per the wishes of the customer) of these 2 units was Rs.1,99,00,000. The appellant had inadvertently included this amount as sale proceeds in the original return of income. However since the appellant had been showing PT Gera Centre as part of fixed assets and claiming depreciation thereon, the capital gains in respect of sale of fixed assets were to be computed in accordance with provisions of sec. 50 of the Act and the sum of Rs.56,20,400 was to be debited to the additions to fixed assets and not to the P & L account. This was accordingly corrected in the revised return of income dated 7.3.2007. It is argued before me, that the details of the expenses reimbursed to Shri Dhiraj Keswani as per the invoices raised by M/s Lemon Design Pvt. Ltd. and M/s Venkatesh Construction, the details of payments made directly to Shri Dhiraj Keswani (which were mostly paid by cheques except small payments made to labour by cash) were all filed before the Assessing Officer. However, the Assessing Officer has not accepted the contention of the appellant mainly because the balance amount pertaining to the incomplete work could have been adjusted against the sale consideration. I have examined this contention of the appellant. The appellant has received Rs.96,00,000 on account of enhanced amenities from the Keswanis which is included in the total consideration of Rs.1,99,00,000 and which were shown as part of sale proceeds. The amount of Rs.56,20,400 was claimed as revenue expenditure. In the revised return necessitated by the correction of these entries to reveal short term capital gains u/s 50 this expenditure of Rs.56,20,400 has been capitalized. Therefore, the dispute is only whether this particular expenditure is capital or revenue expenditure. It is seen that the Assessing Officer has only disallowed the amount in question on the basis of certain surmises and conjectures. The reimbursement of payments to Dhiraj Keswani was through account payee cheques. Accordingly, the amount in question has been correctly added by the appellant to the block of assets and claimed as revenue expenditure. Accordingly, Ground No. 2(c) is allowed in favour of the appellant.”

CONCLUSION

dispute about the sale of shops to Mr. Dheeraj Keshwani for a sum of

Rs.1,99,00,000/- with extra works specified in the sale agreement.

Assessee could not complete those works and the same works out to

Rs.56,20,400/-. We find that the said amount has to be borne by the

assessee. Since the works are not done by the assessee, the assessee

reimbursed the same to Mr. Dheeraj Keshwani. Therefore, assessee

claimed the same as Revenue expenditure in his account. However, the

same was claimed as Capital expenditure in the revised return of

income.

With the background of these facts, we find that the CIT(A) gave a

categorical finding in stating that the assessee paid the amount in

account payee cheque to Mr. Dheeraj Keshwani and there is no dispute

about it. As such, assessee also did not claim the said expenditure as

the Revenue expenditure finally. Therefore, in our view, the decision

of CIT(A) given in Para No.5.1 of his order above is favour of the

Revenue and it does not call for any interference. Accordingly, the

grounds raised by the Revenue are dismissed.

Order pronounced in the open court on this 01st day of June, 2018.

Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) �याियक �याियक सद�य �याियक �याियक सद�य सद�य /JUDICIAL MEMBER लेखा सद�य लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य पुणे Pune; िदनांक Dated : 01st June, 2018 सतीश

आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��थ� / The Respondent 2. 3. The CIT(A)-1, Pune 4. CIT-1, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “A Bench” 5. Pune; गाड$ फाईल / Guard file. 6.

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