DCIT CENTRAL CIRCLE 6(1), MUMBAI, NARIMAN POINT MUMBAI vs. GNP REALTY LLP, THANE

2.2 In response to the said query, the assessee vide letter dated 12.08.2022 filed its submissions wherein the assessee has claimed that the entries/transactions appearing in the aforesaid excel sheet pertains to M/s. GNP Consultancy & Solutions Pvt. Ltd. and the income of Rs.2.75 crores has already been offered in the hands of the said entity pursuant to search action and findings therefrom.

2.3 Though the AO considered the said claim of the assessee, however, not found acceptable mainly on the reasons that Shri Girish Pawar in response to the questions while explaining the verticals of the business categorically claimed that M/s. GNP Consultancy & Solutions Pvt. Ltd. does the mining related business for the GNP group; Sunny is the nickname of Shri Parashar Kudalkar who looks after the mining related activities of GNP group; the assessee has himself stated that the transactions in the said excel sheet are undertaken by the Sunny; the conjoint reading of the above facts clearly establishes that the transactions found in the aforementioned excel sheet associated with the name of Sunny are indeed the transactions of M/s. GNP Realty LLP; during the course of search proceedings Shri Rajendra Pawar, CFO, GNP group and Shri Girish Pawar also accepted the fact that these transactions are unaccounted transactions of the assessee. The context of the said answers establishes that these transactions are related to the assessee only. Therefore, their acceptance during the search proceedings that the transactions in the excel sheet are the unaccounted income of the M/s. GNP Realty LLP leaves no doubt that the claim of the assessee that the said transactions are related to consultancy business is merely an afterthought. 2.4 The AO ultimately treated the amount of Rs.2.75 crores as unaccounted receipts/business income and accordingly taxed under section 28 of the Act.

2.5 The AO also considering the fact “that the Assessee has also claimed expenses of Rs.1,343/- on account of interest paid on late payment of TDS which has been claimed under section 37 of the Act” disallowed the said amount of Rs.1,343/- as per the provisions of section 37(1) of the Act.

“M/s GNP Realty LLP was incorporated on 21.12.2017 under The Limited Liability Partnership Act, 2008 with the main object of acquiring, exploring. prospecting, developing and operating into business of Mining activities. To attain the main object M/s. GNP Realty LLP, the assessee proposed to acquire the lease mining rights in Manganese Ore from an entity M/s. Veet Rag Exploration and Minerals Private Limited. Assessee had applied for grant of license in their name and same was finally approved by the State Government only on 28.04.2022 i.e much after the date of search. As stated above during the year under consideration the firm was still at initial stage exploration. of testing & exploration.

The AO has added the entire unaccounted business receipts of Rs. 2.75 Cr in the hands of assessee, without appreciating the fact that the said income (net of 30% estimated expenses) is duly offered in the hands of M/s. GNP Consultancy & Solutions Pvt. Ltd in AY 2021-22.

Assessee submitted that Consultancy / liasoning work contains the allotment of mines, compliance & extension of time of mining tenure, extension of time limit for compliance during allotment. All these services were provided by M/s GNP Consultancy & Solutions Private Limited through a consultant Shri Parashar Kudalkar (Nick Name Sunny). Consultancy Services related to MIDC & Mining etc were rendered by assessees group concern M/s GNP Consultancy & Solutions Pvt. Ltd only and assessee i.e M/s GNP Realty LLP did not have any resources or manpower to provide consultancy related services which is exclusive domain of its group company M/s GNP Consultancy & Solutions Private Limited. The assesse was in the process of acquiring manganese mining rights in Nagpur in the rural areas and was in stage of exploration. However, no commercial activity had yet started at the time of the search. The assesse submitted that it had never provided consultancy services to the parties mentioned in the seized document. Therefore, there could be no question of such alleged receipts of Rs 2.75 Crores appearing in its trial balance or books of accounts.

The assessee has group entities which are into construction and consultancy business. The consultancy services are provided by GNP Consultancy and Solutions Pvt Ltd. This company gives services to clients providing end to end solutions right from selecting ideal location of plot, plot construction and post that helping them for various registrations and / or permissions, regulatory compliance, besides other services like Maharashtra Pollution Control Board, Fire NOC etc. in the field of industrial set up in MIDC, mining etc.

During the search, the assesse group entity M/s GNP Consultancy & Solutions Private Limited had offered additional income from consultancy business. A chart of additional income offered was enclosed on page 35 of the appellant's paper book (APB). According to the assessee, M/s GNP Consultancy & Solutions Private Limited had already offered 70% of receipts of Rs 2,75,00,000/- i.e. a sum of Rs 1,92,50,000/- to tax during Assessment Year 2021-22 by them in the return of income filed.

The date of filing of return of M/s. GNP Consultancy & Solutions Private Limited was 15.03.2022 which was after the date of search. The returned income was Rs 12,15,92,714/- which included the additional income of Rs 1,92,50,000/- (net of expenses @30% on 2,75,00,000/-) relating to the said assessee from mining consultancy fees. The assessee group vide its letter dated 03.03.2022 submitted on 30.03.2022 before DDIT (Inv) (page no 199 of APB) had specifically mentioned that an income of Rs.2.75 Crs belonged to consultancy business & duly offered to tax u/s 132(4) in the hands of the group company M/s GNP Consultancy & Solutions Private Limited. However, according to the assessee, without considering the explanation and submission given by the assessee, the AO has wrongly stated that during the course of search, no such claim was made.

Assessee submitted that the said income has already been offered on substantive basis in the hands of M/s GNP Consultancy and Solutions Private Limited for the reasons explained above. The same income cannot be taxed twice in the hands of two separate entities. Since the consultancy income is already taxed in the hands of GNP Consultancy & Solutions Pvt Ltd, the same income cannot be taxed in the hands of the assessee. Therefore, addition made by the AO is to be deleted.”

“9.5 I have considered the findings of the Assessing Officer and the submissions of the assessee. 9.6 In this case, the addition is based on the fact that during the search a file was found containing details of alleged undisclosed receipts from mining consultancy through one person named Sunny. The file was confronted to Sh. Girish Pawar. Since the file was related to mining, it was presumed by AO that the income related to the assessee LLP which was the only entity tity of GNP group which indulged in mining activities. The relevant Question 166 at page 77 of statement of Sh. Girish Pawar is reproduced below: "Q. 166 The Trial Balance of GNP Group Entity M/s GNP Realty LLP, which is involved in mining, as on 11.12.2020, 31.03.2021 and as on 22.09.2021, as submitted in the statement of Sh. Rajendra Pawar dated 27.06.2021 as Annexure -11 is shown to you. It is seen that the entities present in the two files mentioned above - Mining Accountiung-2 and "Sunny Mining Accounting" are not present in the said Trial Balances or in the Books of Accounts. Please Confirm. Ans: Yes Sir, I confirm that these entities are not present in the Trial Balances nor are present in the Books of accounts. The income in these sheets is unaccounted."

9.7 A similar statement was given at Question 76 of the statement of Sh. Rajendra Pawar. In this statement, he submitted that these entries are not present in the trial balance or books of GNP Realty LLP.

9.8 During the course of appeal proceedings, the assessee submitted that such income of Rs 2.75 Crores belonged to a separate group entity GNP Consultancy & Solutions Pvt. Ltd and said entity had already offered the alleged mining receipts in their return of income for Assessment Year 2021-22 filed pursuant to the search. In offering such mining receipts, GNP Consultancy & Solution Pvt Ltd had claimed 30% deduction for expenditure. Thus, GNP Consultancy & Solutions Pvt Ltd has offered net mining income of Rs 1,92,50,000/- (i.e 70% of gross receipts of Rs 2.75 Crores). I have noticed that, during the post search proceedings, GNP group had written a letter dated 03.03.2022 to the DDIT (Inv.) stating that such income of Rs 2.75 Crores was offered to tax by GNP Consultancy & Solution Pvt Ltd. Even during the assessment proceedings, this fact was also communicated to the AO.

9.9 On verification of the records, I find that the contention of the assessee is correct. The assessee has produced copy of acknowledgment of return of income, computation of total income and Assessment Order of GNP Consultancy & Solutions Pvt Ltd for Assessment Year 2021-22 The additional income offered pursuant to search was Rs 7,15,77,000/ (gross) which included Rs 2,75,00,000/- pertaining to the assessee LLP. After claiming 30% deduction for estimated expenses, GNP Consultancy & Solutions Pvt Ltd has offered additional income of Rs. 5,01,03,900/- for Assessment Year 2021-22. Thus, the assessee has proved that such income of Rs. 2.75 Crores pertaining to the search had already been taxed in the hands of its group entity GNP Consultancy & Solutions Pvt Ltd for the same year. 9.10 The AO has, however, placed reliance on the statement of Sh. Girish Pawar stating that he has admitted that the mining income was earned by the assessee LLP. I find that nowhere in his statement was he asked which entity the mining income of Rs 2.75 Crores pertains to. He was just shown the trial balance / books of accounts of the assessee LLP and asked whether the mining income was already reflected therein. He was not asked whether the mining income was earned by the assessee LLP or any other entity. Hence, the excessive reliance has been placed on the statement of Sh. Girish Pawar.

9.11 Apart from the above, there are various judicial precedents which have held that the same income cannot be taxed twice in the hands of two separate entities: • Laxmipat Singhania v CIT (72 ITR 291) (SC) • Joti Prasad Agarwal vs. ITO [37 ITR 107] [AII] • CIT vs. Murlidhar Jhawar & Purna Ginning and Pressing Factory [60 ITR 95] 9.12 M/s GNP Realty LLP is a Limited Liability Partnership formed and incorporated on 21.12.2017 under The Limited Liability Partnership Act, 2008 with a main object of acquiring, exploring, prospecting, developing and operating into business of Mining activities. During the appeal proceedings, the assesse has filed its financial statements. A reference to the same also shows Nil sales for the year ended 31.03.2020 and 31.03.2021. This shows that the assessee LLP was a newly incorporated entity. Since commercial operation had not commenced, entire expenses incurred on testing, excavation etc were reported as pre-operative expenses in the financial statements for FY 2020-21. On the other hand, GNP Consultancy & Solutions Pvt. Ltd gives services to clients providing end to end solutions right from selecting ideal location of plot, plot construction and post that helping them for various registrations and/or permissions, regulatory compliance, besides other services like Maharashtra Pollution Control Board, Fire NOC etc. in the field of industrial set up in MIDC, mining etc. This company is not newly incorporated and is in existence for past several years. It is clear that this company provided the mining consultancy services.

9.13 The most important aspect is the file - Accounting which Sunny Mining MENT is at Annexure 14 to the statement of Sh. Ginsh Pawar. This This fife gives the party wise breakup of Rs 2.75 Crores showing unaccounted mining consultancy income. The same is mentioned in Question 164 of statement of Sh. Girish Pawar. In the said Annexure 14, the name of the assessee LLP is not found mentioned. A list of parties is mentioned, nature of work is mentioned and amount received is also mentioned. The file contains total project receivables, amount received till date which was Rs 2.75 Crore and balance receivable. The nature of work relates to the allotment of mines, compliance & extension of time of mining tenure, extension of time limit for compliance during allotment. No notings of any mining activity carried out by assessee as explained above is found mentioned. In fact the assessee had not commenced its mining activity when the search took place and in the absence of any evidence found relating to mining activity as part of the said seized document, it cannot be concluded that the said document is pertaining to the assessee LLP.

9.14 At Question 12 of the statement of Sh. Girish Pawar, has given the description of the activities undertaken by all the entities of GNP group. Sh. Pawar stated that GNP Realty LLP is into mining business. The search party correlated this answer with the file - Sunny Mining Accounting and presumed that the mining income shown therein pertains to the assessee LLP since no other entity was in mining business. During the appeal proceedings, the assessee has proved that this document found was not related to the assessee. The assessee is into digging of mines and extraction of minerals. The assessee does not provide consultancy services. Moreover, the assessee's mining activity had not yet commenced when the search took place. Thus, the correlation between Question 12 and the file Sunny Mining Accounting is not found correct.

9.15 The main point is that at Question 12, Sh. Pawar has stated that GNP Consultancy Pvt Ltd is into consultancy business.

Consultancy business contains a broad array of services and includes mining consultancy. Thus, the contention of the assessee are supported by Question 12.

9.16 There is one more aspect that even though a group entity has offered such mining consultancy income, the entity has claimed a deduction of 30% and offered 70% of the mining consultancy income. The following legal precedents have held that only the profit element embedded in the on money a reasonable percentage of on money can be taxed: • CIT v. M/s. Prime Developers, of 2013 dated 18/07/2016 (Bombay High Court) • Pranav Construction Co. v ACIT [1998] 96 ΤΑΧΜΑΝ 323 (MUM.) • CIT v C Najeeb [2019] 104 taxmann.com 250 (Kerala) • DCIT v Adarsh Industrial Estate Pvt Ltd [2021] 130 taxmann.com 142 (Mumbai - Trib.) • DCIT v/s Panna Corporation reported in ITA No. 323/325 of 2000 (Bombay High Court) • CIT v/s Golani Brothers reported in ITXA 17, 19, 26, 27 & 42 of 2015 (Bombay High Court) • Anand builders vide ITA NO 52 OF 2002(Guj)

9.17 Further, apart from the above cases related to 'on money' earned by builders, there are general legal precedents which have held that if any undisclosed sales are found during the search, only the profit element can be taxed:

. CIT vs. Shri Hariram Bhambhani reported in of 2013 (Bombay)

. CIT v. President Industries [2002] 258 ITR 654 (Gujarat)

9.18 Thus, the additional income offered @ 70% income offered by group entity GNP Consultancy & Solutions Pvt Ltd of Rs 1,92,50,000/- (ie 70% of gross receipts of Rs 2.75 Crores) is reasonable and in line with the above judicial precedents.

9.19 Moreover, it is seen that the AO has simply brushed aside the arguments of the assessee. He has not dealt with the argument that a group company has already offered such income for taxation. In fact, while completing the assessment in the case of GNP Consultancy & Solutions Pvt Ltd, the AO has upheld the addition of these receipts in the hands of GNP Consultancy & Solutions Pvt Ltd only. The AO has very much relied upon the statement of Sh. Girish Pawar while completing the assessment in the case of GNP Consultancy & Solutions Pvt. Ltd. I am of the view that such statement cannot be viewed adversely as far as the assessee is concerned as in no part of the statement has Sh. Girish Pawar admitted that the mining consultancy income relates to the assessee firm GNP Realty LLP. Moreover, the AO while doing the assessment for AY 2021-22 in the case of GNP Consultancy & Solutions Pvt Ltd has very much accepted the disclosure of the said receipts in the hands of GNP Consultancy & Solutions Pvt Ltd. In view of above facts and reasons stated above, Ground No. 4 is hereby allowed. The addition of unaccounted mining consultancy receipts of Rs 2,75,00,000/- is hereby deleted.”

Even considering the peculiar facts and circumstances of the case in totality and the specific findings of the Ld. Commissioner, we do not find any infirmity, impropriety and/or illegality in the decision arrived at by the Ld. Commissioner in deleting the addition of Rs.2.75 crores which is under consideration. Hence, the decision of the Ld. Commissioner for deleting of the addition under consideration is affirmed and the grounds raised by the Revenue Department pertaining to the issue under consideration stand dismissed/rejected.

10. Coming to the challenge to the disallowance of interest on late payment of Rs.1,343/- as TDS under section 37(1) of the Act, we observe that before the AO the assessee has claimed the said amount of expenses on account of interest paid on late payment of TDS, as allowable expense as per the provisions of the Act. However, the AO disallowed the same as per the provision of section 37(1) of the Act. 10.1 The Ld. Commissioner on appeal reversed the findings of the AO and consequently allowed the aforesaid expense by holding the same as allowable deduction by following the judgment of the co- ordinate Bench of the Tribunal in the case of Resolve Solvage and Fire India Pvt. Ltd. vs. DCIT (2022) 139 Taxman.com 196 (Mum.) wherein the co-ordinate Bench has followed the decision of another co-ordinate Bench of the Tribunal in the case of Stup Consultants (P.) Ltd. vs. Addl. CIT 5827 (Mum.) of 2012. Conclusion drawn by the ld. Commissioner is as under:

“10.1. During the assessment proceedings, the assesse was asked to justify its claim of interest on delayed payment of TDS of Rs 1,343/- as the same is not an allowable expense under the Act. The assessee submitted that the same was a deductible expense. The AO did not accept this submission and disallowed a sum of Rs.1,343/-.

10.2. During the appellate proceedings, the assesse submitted that the said interest is deductible u/s 37(1) of the Act in view of the decision of Mumbai ITAT in the case of Resolve Salvage & Fire India P Ltd v DICT (2022) 139 taxmann.com 196 (Mum). 10.3. I have considered the finding of the Assessing Officer and submissions of the assessee. From a reading of the judgment of Resolve Salvage & Fire India P Ltd (supra), it is observed that the Mumbai ITAT has followed another Mumbai ITAT judgment in the case of STUP Consultants (P.) Ltd. v. Addl. CIT [IT Appeal No.5827 (Mum.) of 2012, dated 11.12.2018 and held that interest paid on delayed payment of TDS u/s 201(1A) is an allowable deduction.

10.4. Following the judgment of jurisdictional Hon'ble Mumbai ITAT, Ground No 5 of the appeal is allowed and disallowance of interest on TDS of Rs 1,343/- u/s 37(1) of the Act is hereby deleted.”

10.2 The Revenue Department being aggrieved also challenged this addition. 10.3 We have given thoughtful consideration to the rival claims of the parties and observed that Hon’ble Apex Court in the case of Bharat Commerce & Industries Ltd. vs. CIT 230 ITR 733 (SC) (1998) has also dealt with the identical issue as to whether interest paid for delayed payment of advance tax could be considered as wholly and exclusively for business to be allowable as business expenditure. The Hon’ble Apex Court ultimately laid down the dictum that interest paid for delayed payment of advance tax cannot be allowed as business expenditure. Hence, respectfully following the judgment of the Hon’ble Apex Court we are inclined to reverse the decision of the Ld. Commissioner in deleting the addition under consideration and consequently allow the corresponding ground raised by the Revenue Department. Consequently, the disallowance of Rs.1,343/- is upheld.

Order pronounced in the open court on 29.05.2024.