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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
PER MAHAVIR SINGH, JM:
These appeals of different assessee’s are arising out of the different orders of CIT(A)-39 Mumbai, in appeal Nos. CIT(A)-39/IT-86,88, 89, 90, 91,2,80,81,82,83,85/2012-13 dated 06-09-13, 12-09-2013,08-11-2012,01- 02-2013. The Assessments were framed by ACIT Centre Circle-22, Mumbai for the A.Ys. 2004-05, 2005-06, 2006-07, 2007-08, 2008-09, 2009-10 & 2010-11 vide different orders dated 21-06-2012 under section 143(3) r.w.s. 153A/C of the Income Tax Act, 1961(hereinafter ‘the Act’).
First we will deal with ITA No. 790/Mum/2013 assessee’s appeal and ITA No. 1144/Mum/2013 Revenue’s appeal for A.Y. 2005-06 in the case of M/s M.R. Construction.
The first common issue in these cross appeals is as regards to the disallowance made by AO and partly restricted by CIT(A) on account of remuneration under section 40(b) of the Act and also expenses for non deduction of TDS under section 194C of the Act on account of transport charges by invoking the provisions of section 40a(ia) of the Act. For this Revenue has raised following ground Nos. 1 & 2: -
“1. That the ld. CIT(A) has erred in law and on facts in deleing the additions of Rs. 10,00,000/- & Rs. 1,00,000/- made under section. 40(a)(ia) on account of non-TDS on payment for labour charges & professional charges respectively without appreciating that the ratio of the decision of the Hon’ble Supreme Court in the case of Hindustan Coca Cola Beverages P. Ltd vs. CIT 293 ITR 226 is only in respect of section 201 & not in respect of section 40(a)(ia).
4 Jawahar B. Purohit, M/s M.R. Construction 2. The appellant craves to leave to add, to amend and/ to alter any of the ground of appeal, if need be.”
Assessee has also raised following ground No. 1
“1. That the learned Assessing authority (Assistant Commissioner of Income Tax- Central Circle -22, Mumbai) and has grossly erred in making disallowance of Rs. 33,05,310/- by reducing the value of work-in-progress. As per following Particulars and the learned Commissioner of Income Tax (Appeals)-39, Mumbai has grossly erred in confirming the disallowances of Rs. 22,05,310/-. As per the following particulars:
S. No Particulars Amount 1 Excess Remuneration disallowed 17,500 under section 40(b) 2. Disallowance under section 21,87,810 40(a)(ia) section 194C –Transport Total 22,05,310
The learned Counsel for the assessee stated that the AO has made disallowance of the following items: -
(a) excess remunerations disallowed under section 40(b) of the Act amounting to Rs. 19,500/-.
(b) Disallowance under section 40(a)(ia) of the Act for non deduction of TDS under section 194C of the Act amounting to Rs. 21,87,810/-. (these items were confirmed by CIT(A)).
(c) Deletion of disallowance by CIT(A) of labour charges of Rs. 10,00,000/- and professional charges of Rs. 1,00,000/- for non- deduction of TDS by invoking the provisions of section 40a(ia) of the Act.
5 Jawahar B. Purohit, M/s M.R. Construction 4. At the outset, the learned Counsel for the assessee stated that none of the disallowance is based on seized material. The learned Counsel for the assessee stated that these items are disallowed on the basis of the entries found recorded in regular books of account of the assessee whereby assessee has reduced the value of work-in-progress and not claimed these expenses in the accounts of the assessee. The learned Counsel for the assessee stated that it was engaged in construction business of development of SRA projects. A survey under section 133A of the Act and search under section 132 of the Act was carried out on the business premises and residences of the partners of the assessee firm on 16-11-2009. The assessee filed original return of income on 31-10-2005 in which these expenses were claimed and were allowed by the department. This fact is not denied by the learned CIT-DR during the course hearing before us. When a specific point was raised by the Bench whether any seized material relating to these disallowance are there or not? He fairly conceded the position that from the order of the AO or from the order of the CIT(A) or from the seized material it cannot be gathered whether any seized material relating to these disallowances are available on record. As there is a categorical fact recorded by the AO as well as CIT(A) that these disallowances are made by the Revenue on the basis of the return filed by the assessee originally on 31-10-2005 for the AY 2005-06 and search took place on 16-11-2009. The assessment/processing of return of income got completed on 31-10- 2006, as no notices under section 143(2) was issued and assessment was not abated in view of the second proviso to section 153A of the Act. Once, the assessment was completed and has not abated for relevant AY, this issue is squarely covered by the decision of the Hon’ble Bombay High Court in the case of CIT vs Continental Warehousing Corporation (Nhava Sheva) Ltd. (2015) 374 ITR 645 (Bom).
We find that this issue now stands covered in favour of assessee and against the Revenue by the decision of Hon’ble Bombay High Court
6 Jawahar B. Purohit, M/s M.R. Construction in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra), wherein considering the judgment of the Special Bench of the Mumbai Tribunal in the case of All Cargo Global Logistics 137 ITD 287(SB) (Mum), considered this issue that, whether there is scope of assessment u/s. 153A of the Act in respect to completed assessment which is limited only to undisclosed income and undisclosed assets found during the course of search or not? Hon'ble High Court held that on a plain reading of section 153 of the Act it becomes clear that on initiation of the proceedings u/s. 153A of the Act, it is only the assessment/reassessment proceedings that are pending on the date of search u/s. 132 of the Act stand abated and not the assessments/reassessments already final for those assessment years which are covered u/s. 153A of the Act. Hon'ble High Court discussed the CBDT Circular No. 8 of 2003 dated 18.09.2003 reported in 263 ITR (st.) 61 at page 107 wherein CBDT has clarified that on initiation of proceedings u/s. 153A of the Act the proceedings pending in appeal, revision or rectification proceedings against final assessment shall not abate. It is only because the final assessments do not abate the appeal, revision or rectification pending against final assessments would not abate. Therefore, Hon'ble High Court rejected the arguments of the Revenue that on initiation of proceedings u/s. 153A of the Act, the reassessment final for assessment years covered u/s. 153A of the Act stands abated. Only the pending assessments get revived u/s. 153A of the Act. Hon'ble High Court further held that once assessment has attained finality, then the AO while passing independent assessment order u/s. 153A/143(3) of the Act could not disturb the assessment order which has attained finality unless the material gathered in the course of search u/s. 132/153A of the Act established that the finality attained in the assessment were contrary to the facts unearthed during the course of search. The relevant portion of the judgment reads as under: -
7 Jawahar B. Purohit, M/s M.R. Construction “31. We, therefore, hold that the Special Bench's understanding of the legal provision is not perverse nor does it suffer from any error of law apparent on the face of the record. The Special Bench in that regard held as under:-
“The provision under section 153A is applicable where a search or requisition is initiated after 31.5.2003. In such a case the AO is obliged to issue notice u/s 153A in respect of 6 preceding years, preceding the year in which search etc. has been initiated. Thereafter he has to assess or reassess the total income of these six years. It is obligatory on the part of the AO to assess or reassess total income of the six years as provided in section 153A(1)(b) and reiterated in the 1st proviso to this section. The second proviso states that the assessment or reassessment pending on the date of initiation of the search or requisition shall abate. We find that there is no divergence of views in so far as the provision contained in section 153A till the 1st proviso. The divergence starts from the second proviso which states that pending assessment or reassessment on the date of initiation of search shall abate. This means that an assessment or reassessment pending on the date of initiation of search shall cease to exist and no further action shall be taken thereon. The assessment shall now be made u/s 153A. The case of Ld. Counsel for the assessee is that necessary corollary to this provision is that
8 Jawahar B. Purohit, M/s M.R. Construction completed assessment shall not abate. These assessments become final except in so far and to the extent as undisclosed income is found in the course of search. On the other hand, it has been argued by the Ld. Standing Counsel that abatement of pending assessment is only for the purpose of avoiding two assessments for the same year, one being regular assessment and the other being assessment u/s 153A. In other words these two assessments coalesce into one assessment. The second proviso does not contain any word or words to the effect that no reassessment shall be made in respect of a completed assessment. The language is clear in this behalf and therefore literal interpretation should be followed. Such interpretation does not produce manifestly absurd or unjust results as section 153A (i)(b) and the first proviso clearly provide for assessment or reassessment of all six years. It may cause hardship to some assesses where one or more of such assessments has or have been completed before the date of initiation of search. This is hardly of any relevance in view of clear and unambiguous words used by the legislature. This interpretation does not cause any absurd etc. results. There is no casus omissus and supplying any would be against the legislative intent and against the very rule in this behalf that it should be supplied for the purpose of achieving legislative intent. The submissions of
9 Jawahar B. Purohit, M/s M.R. Construction the Ld. Counsels are manifold, the foremost being that the provision u/s 153A should be read in conjunction with the provision contained in section 132(1), the reason being that the latter deals with search and seizure and the former deals with assessment in case of search etc, thus, the two are inextricably linked with each other.
Before proceeding further, we may now examine the provision contained in sub-section (2) of section 153, which has been dealt with by Ld. Counsel. It provides that if any assessment made under subsection (1) is annulled in appeal etc., then the abated assessment revives. However, if such annulment is further nullified, the assessment again abates. The case of the Ld. Counsel is that this provision further shows that completed assessments stand on a different footing from the pending assessments because appeals etc. proceedings continue to remain in force in case of completed assessments and their fate depends upon subsequent orders in appeal. On consideration of the provision and the submissions, we find that this provision also makes it clear that the abatement of pending proceedings is not of such permanent nature that they cease to exist for all times to come. The interpretation of the Ld. Counsel, though not specifically stated, would be that on annulment of the assessment made u/s 153(1), the AO gets the jurisdiction to
10 Jawahar B. Purohit, M/s M.R. Construction assess the total income which was vested in him earlier independent of the search and which came to an end due to initiation of the search.
The provision contained in section 132 (1) empowers the officer to issue a warrant of search of the premises of a person where any one or more of conditions mentioned therein is or are satisfied, i.e. - a) summons or notice has been issued to produce books of account or other documents but such books of account or documents have not been produced, b) summons or notice has been or might be issued, he will not produce the books of account or other documents mentioned therein, or c) he is in possession of any money or bullion etc. which represents wholly or partly the income or property which has not been and which would not be disclosed for the purpose of assessment, called as undisclosed income or property. We find that the provision in section 132 (1) does not use the word "incriminating document". Clauses (a) and (b) of section 132(1) employ the words "books of account or other documents". For harmonious interpretation of this provision with provision contained in section 153A, all the three conditions on satisfaction of which a warrant of search can be issued will have to be taken into account.
Having held so, an assessment or reassessment u/s 153A arises only when a
11 Jawahar B. Purohit, M/s M.R. Construction search has been initiated and conducted. Therefore, such an assessment has a vital link with the initiation and conduct of the search. We have mentioned that a search can be authorised on satisfaction of one of the three conditions enumerated earlier. Therefore, while interpreting the provision contained in section 153A, all these conditions will have to be taken into account. With this, we proceed to literally interpret to provision in 153A as it exists and read it alongside the provision contained in section 132(1).
The provision comes into operation if a search or requisition is initiated after 31.5.2003. On satisfaction of this condition, the AO is under obligation to issue notice to the person requiring him to furnish the return of income of six years immediately preceding the year of search. The word used is "shall" and, thus, there is no option but to issue such a notice. Thereafter he has to assess or reassess total income of these six years. In this respect also, the word used is "shall" and, therefore, the AO has no option but to assess or reassess the total income of these six years. The pending proceedings shall abate. This means that out of six years, if any assessment or reassessment is pending on the date of initiation of the search, it shall abate. In other words pending proceedings will not be proceeded with thereafter. The assessment has now to be made u/s 153A (1)(b) and the first
12 Jawahar B. Purohit, M/s M.R. Construction proviso. It also means that only one assessment will be made under the aforesaid provisions as the two proceedings i.e. assessment or reassessment proceedings and proceedings under this provision merge into one. If assessment made under sub-section (1) is annulled in appeal or other legal proceedings, then the abated assessment or reassessment shall revive. This means that the assessment or reassessment, which had abated, shall be made, for which extension of time has been provided under section 153B.
The question now is - what is the scope of assessment or reassessment of total income u/s 153A (1) (b) and the first proviso? We are of the view that for answering this question, guidance will have to be sought from section 132(1). If any books of account or other documents relevant to the assessment had not been produced in the course of original assessment and found in the course of search in our humble opinion such books of account or other documents have to be taken into account while making assessment or reassessment of total income under the aforesaid provision. Similar position will obtain in a case where undisclosed income or undisclosed property has been found as a consequence of search. In other words, harmonious interpretation will produce the following results: -
13 Jawahar B. Purohit, M/s M.R. Construction a) In so far as pending assessments are concerned, the jurisdiction to make original assessment and assessment u/s 153A merge into one and only one assessment for each assessment year shall be made separately on the basis of the findings of the search and any other material existing or brought on the record of the AO,
(b) in respect of non-abated assessments, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search.”
Accordingly, in view of the given facts and circumstances, we are of the view that this issue is squarely covered in favour of assessee and against the Revenue and hence, we allow the claim of the assessee. The AO is directed to delete the entire disallowance of excess remuneration u/s 40(b) of the Act amounting to Rs. 17,500/-, disallowance restricted by CIT(A) for non-deduction of TDS under section 194C of the Act on transportation charges by invoking the provisions of section 40a(ia) of the Act amounting to Rs.21,87,810/-. The CIT(A) has also rightly deleted the addition of Rs. 10,00,000/-on labour charges and Rs. 1,00,000/- on professional charges for non-deduction of TDS. We confirm the order of CIT(A) deleing the addition accordingly this common issue of Revenue’s appeal is dismissed and that of the assessee’s appeal is allowed.
The next issue in this appeal of assessee in ITA No. 790/Mum/2013 is as regards to the order of CIT(A) sustaining the addition of unsecured loans amounting to Rs.2.50 lacs as unexplained
14 Jawahar B. Purohit, M/s M.R. Construction cash credit under section 68 of the Act. For this assessee has raised following ground No.2: -
“2. That the learned Assessing Authority (Assistant Commissioner of Income Tax, central Circle 22, Mumbai) and the learned Commissioner of Income Tax (Appeals)-39, Mumbai have grossly erred in law and on the facts and circumstances of the case in making and confirming addition of Rs. 2,50,000/- on account of alleged unsecured loans under section 68 of the Income Tax Act 1961.”
The facts are admitted and agreed by both the parties. The facts are that the return of income was filed by the assessee for the AY 2005- 06 on 31-10-2005. No notice under section 143(2) of the Act was issued by the AO up to 31-10-2006. It means that the assessment/processing of return of income were completed u/s 143(1) of the Act. No proceedings were pending. Subsequently, the survey under section 133A and search under section 132 of the Act was conducted by the department on the office premises of the assessee firm and residences of the partners on 16-11-2009. The AO during the course of assessment proceedings notice that the assessee has received unsecured loans from Bhawani M. Purohit amounting to Rs. 1,00,000/- and Ravi Purohit of Rs. 1.50 lacs and these are unexplained cash credits. The AO notices from annexure iii to firm No. 6B of the special audit report, which contains details of unsecured loans taken and repaid and according to him these unsecured loans are unexplained cash credits and accordingly he brought to tax u/s 68 of the Act. The CIT(A) also confirmed the action of the AO and confirmed the addition of unexplained cash credit u/s 68 of the Act amounting to Rs. 2.50 lakhs. Aggrieved, assessee preferred the appeal before Tribunal.
15 Jawahar B. Purohit, M/s M.R. Construction 9. Before us, the learned Counsel for the assessee stated that addition is not based on any seized material because no incriminating documents were found during the course of search and this is mentioned by the special auditors in their report in annexure-III to form No.6B containing the details of unsecured loans from where the AO has made addition. According to the learned Counsel these details were provided by assessee from its accounts which were available before the AO in the original return of income. According to the learned Counsel this issue is also covered by the decision of Hon’ble Bombay High court in the case of continental Warehousing Corporation (Nhava Sheva) Ltd.( Supra).
We find from the facts of the case that there is no incriminating material found during the course of search relating to these cash credits and accordingly, the issue is squarely covered by the decisions of Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (Supra) as discussed in Para 5 and 6 of this order. Accordingly, this issue of assessee’s appeal is allowed.
The next issue in this appeal of assessee in ITA No. 790/Mum/2013 is as regards to the order of CIT(A) confirming the addition made by on account of alleged undisclosed advances. For this assessee has raised following ground No. 3 and 4: -
“3. That the Assistant Commissioner of Income Tax, Central Circle 22, Mumbai and the learned Commissioner of Income Tax (Appeals)-39, Mumbai have grossly erred has grossly erred in law and on the facts and circumstances of the case in making and confirming addition (on protective basis) of Rs. 89,50,295/- on account of alleged undisclosed advances.
That the Assistant Commissioner of Income Tax, Central Circle 22, Mumbai and the learned
16 Jawahar B. Purohit, M/s M.R. Construction Commissioner of Income Tax (Appeals)-39, Mumbai have grossly erred has grossly erred in law and on the facts and circumstances of the case in making addition on account of wrong reworking cash related to the current year as well as the amount negative/ positive carried forward to the following years. Further they have not given the effect by the correct amount of brought forward negative / positive cash balance of earlier years(s) in the hands of partner of the firm Mr. Jawahar B. Purohit. And the learned Commissioner of Income Tax (Appeals)-39, Mumbai has grossly erred in law and on the facts and circumstances of the case in dismissing the ground of appeal.”
At the outset, the learned Counsel for the assessee stated that in the present case the assessment is made on protective basis and additions made was confirmed by CIT(A) on substantiate the basis in the case of Shri Mahipal P Purohit and accordingly, the AO while giving appeal effect to the order of CIT(A), deleted the addition vide order dated 12-03-2014 by observing as under: -
“Order giving effect to CIT(A) order
Consequent to the Order of the CIT(A)-39, Mumbai No. 3ita-39/IT-80/2012-13 dated 08-11-2012, the total income of the assessee is revised as under: -
Sl Particulars Amount Amount No. A Total income as per order giving 92,00,295 effect of CIT(A) dated 28-03-2013 Less Relief allowed by CIT(A) 89,50,295 (i) Unrecorded advance (Addition was made on protective basis, the issue is confimrmed in the cas of Shri Mahipal Purohit and this amount is taxable in the
17 Jawahar B. Purohit, M/s M.R. Construction his hand vide CIT(A) order No. CIT(A)-39/IT-102/2012-13 dtd. 17- 89,50,295 12-2013) Gross Total Income 2,50,000 Total Taxable Income 2,50,000
When this was pointed out to the learned CIT DR, he fairly conceded the position as the substantive addition has been confirmed in the hands of Shri Mahipal P Purohit. We find that the AO has rightly deleted the addition while giving the appeal effect to the order of CIT(A) in the case of Sh. Mahipal P Purohit, as the proactive addition has been confirmed. We find that the CIT(A) has wrongly confirmed the addition and AO has rightly deleted the addition while giving appeal effect to the order of CIT(A) in the case of Sh. Mahipal P Purohit. This issue of assessee’s appeal is allowed.
ITA No. 3709/Mum/2013 of assessee’s appeal for AY 2006-07 in the case of M.R. Construction
The first issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance of working in progress amounting to Rs. 22,34,910/-. For this assessee has raised following ground No. 1: -
“1. That the Assistant Commissioner of Income Tax, Centre Circle-22, Mumbai has grossly erred in law and on the facts and circumstances of the case in making disallowances and the learned Commissioner of Income Tax (Appeals)-39, Mumbai has grossly erred in law and on the facts and circumstances of the case in confirming disallowance of Rs. 22,34,910/- reducing the value of Work-in-progress..”
At the outset, the learned Counsel for the assessee stated that the assessee filed its return of income for AY 2006-07 on 31-10-2006 and
18 Jawahar B. Purohit, M/s M.R. Construction assessment under section 143(3) was framed by the AO vide order dated 29-12-2008. The learned Counsel for the assessee stated that the AO has made a total disallowance of Rs. 44,88,410/- which is as follows: -
No. Particulars Amount 1. Excess Remuneration disallowed 45,127 under section 40(b) 2. Disallowances under section 40A(3) 4,97,915 to the extent of 20% in case of Expenditure of Rs. 2,489,573/- 3 Disallowances under section 40(a)(ia) Section 194C-Transport 1,79,965 Section 194C Labour Charges 1,72,270 Section 194C Contractor 59,067 Section 194H- Brokerage 3,60,000 Expenses/ Commission Section 194J – Professional 3,00,000 Charges Section 194J – Supervision 11,55,500 Charges 4. Adhoc Disallowance for direct 5,46,850/- Expenses @ 20% of Rs. 2,734,243 as discussed above 5. Adhoc Disallwance for indirect 5,71,717 Expenses @ 20% of Rs. 2,858,579 as discussed above 6. Brokerage expenses to Mr. 6,00,000 Krishnan Ayer considered for 100% disallowance as discussed above Reduction from WIP 44,88,410
According to the learned Counsel, the CIT(A) has deleted the part addition, made by AO on the basis special audit report, amounting to Rs 19,30,181/- and confirmed the balance sum of Rs 22,34,910/-. As per the AO, these disallowances are on the basis that the assessee has reduced these expenses from work in progress in its books of account and it means that these expenses are claimed as part of expenditure except the amount of Rs 6,00,000/- paid as brokerage to Shri Krishnan Iyer, which was disallowed 100%. The learned Counsel for the assessee admitted that the addition of Rs 6,00,000/- is based on seized material relating to disallowance of this expense. He admitted that these other disallowances
19 Jawahar B. Purohit, M/s M.R. Construction are adhoc disallowances and for non-deduction of TDS under various provisions of section by invoking provisions of section 40a(ia) of the Act.
We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the above disallowances are not based on any evidence i.e. the incriminating material found during the course of search. As the original assessment has not been abated, we are of the view that the issue is squarely covered in favour of assessee by the decision of Hon’ble Bombay High Court in the case of continental Warehousing Corporation (Nhava Sheva) Ltd. (supra). We find that the assessee himself conceded that the disallowance of brokerage expenses paid to Mr. Krishnan Iyer amounting to Rs. 6,00,000/- deserves to be confirmed. We direct the AO accordingly. This issue of assessee’s appeal is partly allowed.
The next issue in this appeal of assessee is against the order of CIT(A) confirming the addition made by AO of unsecured loans as unexplained cash credit under section 68 of the Act. For this assessee has raised following ground No.2: -
“2. That the Assistant Commissioner of Income Tax, Central Circle 22, Mumbai has grossly erred in law and on the facts and circumstances of the case in making addition and the learned Commissioner of Income Tax (Appeals) -39, Mumbai has grossly erred in law and on the facts and circumstances of the case in confirming addition of Rs. 2,20,000/- on account alleged unsecured loans under section 68 of the Income Tax Act, 1961.”
The facts are admitted and agreed by both the parties. The facts are that the return of income was filed by the assessee for the AY 2006- 07 on 31-10-2006 and original assessment was completed u/s 143(3) of the Act vide order dated 29-12-2008. No proceedings were pending.
20 Jawahar B. Purohit, M/s M.R. Construction Subsequently, the survey under section 133A and search under section 132 of the Act was conducted by the department on the office premises of the assessee firm and residences of the partners on 16-11-2009. The AO during the course of assessment proceedings notice that the assessee has received unsecured loans from Deepak amounting to Rs. 25,000/- and Pawan M. Purohit of Rs. 1.95 lacs and these are unexplained cash credits. The AO notices from annexure III to firm No. 6B of the Special Audit Report, which contains details of unsecured loans taken and repaid and according to him these unsecured loans are unexplained cash credits and accordingly he brought to tax u/s 68 of the Act. The CIT(A) also confirmed the action of the AO and confirmed the addition of unexplained cash credit u/s 68 of the Act amounting to Rs. 2.20 lakhs. Aggrieved, assessee preferred the appeal before Tribunal.
Before us, the learned Counsel for the assessee stated that addition is not based on any seized material because no incriminating documents were found during the course of search and this is mentioned by the Special Auditors in their report in annexure-III to form No.6B containing the details of unsecured loans from where the AO has made addition. According to the learned Counsel these details were provided by assessee from its accounts which were available before the AO in the original return of income. According to the learned Counsel this issue is also covered by the decision of Hon’ble Bombay High court in the case of continental Warehousing Corporation (Nhava Sheva) Ltd.( Supra).
We find from the facts of the case that there is no incriminating material found during the course of search relating to these cash credits and accordingly, the issue is squarely covered by the decisions of Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (Supra) as discussed in Para 5 and 6 of this order. Accordingly, this issue of assessee’s appeal is allowed.
21 Jawahar B. Purohit, M/s M.R. Construction Coming to cross appeals for AY 2007-08 in ITA No. 3710/Mum/2013 in assessee’s appeal and ITA No. 3645/Mum/2013 in Revenue’s appeal in the case of M.R. Construction
At the outset, the learned Counsel for the assessee stated that the assessee and Revenue has raised two common issue regarding disallowance of expense amounting to Rs. 1,03,34,780/- and also addition of unsecured loans as unexplained cash credit under section 68 of the Act amounting to Rs. 4,54,300/- confirmed by CIT(A) out of total cash credit added by the AO at Rs.19,54,300/-. For balance deletion of Rs. 15,00,000/- Revenue is in appeal. For this assessee has raised following ground Nos.1 and 2: -
“1. That the Assistant Commissioner of Income Tax, Central Circle -22, Mumbai has grossly erred in law and on the facts and circumstances of the case in making disallowances and the learned Commissioner of Income Tax (Appeals) – 39, Mumbai has grossly erred in law and on the facts and circumstances of the case in confirming disallowance of Rs. 1,03,34,780/- (including Rs. 87,74,095/- for which relief is provide in next assessment year) reducing the value of Work in progress.
That the Assistant Commissioner of Income Tax, Central Circle 22, Mumbai has grossly erred in law and on the facts and circumstances of the case in making addition and the learned Commissioner of Income Tax (Appeals) -39, Mumbai has grossly erred in law and on the facts and circumstances of the case in confirming addition of Rs. 4,54,300/- on account alleged unsecured loans under section 68 of the Income Tax Act 1961.”
22 Jawahar B. Purohit, M/s M.R. Construction Revenue has raised following ground No. 1
“On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the AO to exclude the amount of Rs. 15 lakhs from the total addition of Rs. 19,54,300/- made under section 68 of the IT Act, without bringing any evidence on record.”
The learned Counsel for the assessee drew our attention to the assessment order and stated that this disallowance of expenses is on account of assessee transferring these expenses to work in progress and accordingly, disallowance was made under section 40(b) and also 40A(3) of the Act. The learned Counsel for the assessee further stated from the assessment order that the entire addition is based on Special Audit Report and for this the AO observed as under: -
“From annexure I of the Special Audit Report, it is evident that excess remuneration of Rs. 143,960/- has been claimed. Kindly show cause as to why remuneration exceeding the limit prescribed under section 40(b) should not be disallowed.”
Further, AO also noted “form Annexure III of the Special Audit Report, it is evident that payments have been made for expenses incurred in cash exceeding Rs. 20,000 totaling to Rs. 50,63,001/-. Kindly, show cause as to why the payments made for expenses incurred in cash exceeding Rs. 20,000 should not be disallowed under section 40A(3).”
In view of the above, the learned Counsel for the assessee stated that both the additions i.e. the disallowance of expense at Rs. 1,03,34,780/- is based on the accounts of the assessee from where the Special Auditor has mentioned the same in audit report and these are not related to any incriminating material found during the course of search.
23 Jawahar B. Purohit, M/s M.R. Construction The AO has identified seven (7) cash creditors and adding a sum of Rs. 19,54,300/- out of which CIT(A) deleted the addition of unexplained cash credit at Rs. 15,00,000/- and sustain the balance addition of Rs. 4,54,300/- in the following names: -
Dinesh Kumar Jain Rs. 1,00,000/-
Vilas jadav Rs. 1,00,000/-
Norangrai Bajaj Rs. 2,54,300/-
At the outset, the learned Counsel for the assessee stated on both the grounds addition is based on the accounts of the assessee and assessee has filed its return of income for AY 2007-08 on 15-11-2007 and no notice under section 143(2) was issued to the assessee on or up to 30-11-2008. It means that the return was processed under section 143(1) and no proceedings, whatsoever, was pending as on the date of search i.e. 16-11-2009. According to the learned Counsel, it means that the issue is squarely covered by the decision of Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (Supra).
We have gone through the facts and circumstances of the case. We find that the admitted facts for the relevant AY 2007-08 are that the assessee has filed its return of income on 15-11-2007 and no notice under section 143(2) was issued up to 30-11-2008 and accordingly, the return was processed under section 143(1) of the Act and no proceedings were pending at the relevant time of search. It means that assessment has not abated for the relevant AY 2007-08 and addition on both the count i.e. disallowance of expenses at Rs. 1,03,34,780/- and addition of unexplained cash credits confirmed by CIT(A) at Rs. 4,54,300/- is based on the return of income filed by the assessee and its accounts and not based on any incriminating material found during the course of search. Once this is the position, we are of the view that the issue is squarely
24 Jawahar B. Purohit, M/s M.R. Construction covered in favour of assessee and against Revenue by the decision of Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (Supra). The appeal of Revenue is dismissed and that of assessee is allowed.
In ITA No. 3711/Mum/2013 for AY 2008-09 in the case of M.R. Construction
The first issue in this appeal of assessee is against the order of CIT(A) restricting the various disallowances at Rs. 54,29,145/- out of the total disallowances made by the AO at Rs. 2,03,71,812/-. For this assessee has raised following ground No.1 : -
“1. That the Assistant Commissioner of Income Tax, Central Circle-22, Mumbai has grossly erred in law and on the facts and circumstances of the case in making disallowances and the learned Commissioner of Income Tax (Appeals) – 39, Mumbai has grossly erred in law and on the facts and circumstances of the case in confirming disallowance of Rs. 54,29,145/- reducing the value of Work in progress.”
The AO made disallowances/ additions of various expenses leading to reduction from work-in-progress balance transferred to M/s GM construction and the AO had computed the disallowances. The following are the disallowances computed by the AO as under: -
Revised reduction from WIP balance is as under:
No. Particulars Amount Relief Balance As per given by amount Asst. order CIT(A) after appeal effect 1. Excess Remuneration disallowed under 1,43,960 Nil 1,43,960 section 40(b) 2 Disallowance u/s 40A(3) to the extent of 10,12,600 NIL 10,12,600
25 Jawahar B. Purohit, M/s M.R. Construction 20% in case of Rs. 5,063,001Expenditure 3. Disallowance u/s 40(a)(ia) – non deduction of TDS Interest on Loan – Jawahar Purohit 11,50,309 11,50,309 Nil Section 194C – Transport 52,136 52,136 Nil Section 194J – Professional Charges 1,17,125 Nil 1,17,125 Interest on Loan –Asahi Infrastructure & 10,686 Nil 10,686 Projects Ltd. Disallowance under section 40(a)(ia) – Late Payment of TDS Section 194A – Interest on loans 4,12,416 Nil 10,686 Section 194C Contractor 78,06,579 Nil 78,06,579 Section 194J – Supervision Charges 2,55,100 Nil 2,55,100 Section 194H – Brokerage Expenses/ 2,50,000 Nil 2,50,000 commission Section 194J – professional charges 50,000 Nil 50,000 4. Adhoc Disallowance for direct Expenses 92,400 Nil 92,400 @20% of Rs. 462,000 as 92,400 5. Adhoc Disallowance for Indirect 2,95,829 1,47,915 1,47,915 Expenses @20% of Rs. 1,479,147 6. Advertising Expenses disallowed under 36,000 Nil 36,000 section 37(2B) 7. Adhoc Disallowance for expenses – 3,11,080 3,11,080 Nil Kashish Constructorn for an amount of Rs. 15,55,400 to the extent of 20% Reduction from WIP 1,19,96,220 16,61,440 1,03,34,780
At the outset, the learned Counsel for the assessee stated that the assessee filed its return of income for AY 2008-09 on 08-12-2008 and processing of return filed by the assessee was done u/s 143(1) of the Act by the AO. No proceedings were pending as on the date of search on 16- 11-2009 because no notice u/s 143(2) of the Act was issued by the AO within the limitation period. According to the learned Counsel, the CIT(A) has deleted the part addition, made by AO on the basis Special Audit Report by reducing the work in progress transfer to M/s G.M. construction as business income amounting to Rs 2,03,71,812/- and confirmed the balance addition of Rs. 54,29,145/-. As per the AO, these disallowances are on the basis that the assessee has reduced these expenses from work in progress in its books of account and it means that these
26 Jawahar B. Purohit, M/s M.R. Construction expenses are claimed as part of expenditure except the amounts of Rs 4,58,858/-, Rs. 9,00,000/- being disallowance of miscellaneous expenses being repayment of advance, Rs. 14,77,884/- being adhoc disallowance of expenses incurred on Kashish Construction. The learned Counsel for the assessee admitted that these additions of the amounts of Rs 4,58,858/-, Rs. 9,00,000/- being disallowance of miscellaneous expenses being repayment of advance, Rs. 14,77,884/- being adhoc disallowance of expenses incurred on Kashish Construction are emanating from seized material. He admitted that these other disallowances are adhoc disallowances and for non-deduction of TDS under various provisions of section by invoking provisions of section 40a(ia) of the Act or 40(b) or 40A(3) of the Act.
We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the above disallowances are not based on any evidence i.e. the incriminating material found during the course of search. As the original assessment has not been abated, we are of the view that the issue is squarely covered in favour of assessee by the decision of Hon’ble Bombay High Court in the case of continental Warehousing Corporation (Nhava Sheva) Ltd. (supra). We find that the assessee himself conceded that the disallowance of the amounts of Rs 4,58,858/-, Rs. 9,00,000/- being disallowance of miscellaneous expenses being repayment of advance, Rs. 14,77,884/- being adhoc disallowance of expenses incurred on Kashish Construction are emanating out of seized material and hence, these are confirmed. We direct the AO accordingly. This issue of assessee’s appeal is partly allowed.
The next issue in this appeal of assessee is against the order of CIT(A) confirming the addition made by AO of unsecured loans as unexplained cash credit under section 68 of the Act. For this assessee has raised following ground No.2: -
27 Jawahar B. Purohit, M/s M.R. Construction “2. That the Assistant Commissioner of Income Tax, central circle-22, Mumbai has grossly erred in law and on the facts and circumstances of the case in making addition and the learned Commissioner of Income Tax (Appeals)-39, Mumbai has grossly erred in law and on the facts and circumstances of the case in confirming addition of Rs. 1,03,650/- on account of alleged unsecured loans under section 68 of the Income Tax Act 1961.”
The facts are admitted and agreed by both the parties. The facts are that the return of income was filed by the assessee for the AY 2008- 09 on 08-12-2008 and the return was processed u/s 143(1) of the Act and no proceedings were pending. Subsequently, the survey under section 133A and search under section 132 of the Act was conducted by the department on the office premises of the assessee firm and residences of the partners on 16-11-2009. The AO during the course of assessment proceedings notice that the assessee has received unsecured loans from Mr. Naik amounting to Rs. 50,000/-, Noranggrai Bajaj Rs. 27,757/- and Pawan M. Purohit Rs. 25,893/- and these are unexplained cash credits. The AO notices from annexure III to firm No. 6B of the Special Audit Report, which contains details of unsecured loans taken and repaid and according to him these unsecured loans are unexplained cash credits and accordingly he brought to tax u/s 68 of the Act. The CIT(A) also confirmed the action of the AO and confirmed the addition of unexplained cash credit u/s 68 of the Act amounting to Rs. 1,03,640/-. Aggrieved, assessee preferred the appeal before Tribunal.
Before us, the learned Counsel for the assessee stated that addition is not based on any seized material because no incriminating documents were found during the course of search and this is mentioned by the Special Auditors in their report in annexure-III to form No.6B containing the details of unsecured loans from where the AO has made
28 Jawahar B. Purohit, M/s M.R. Construction addition. According to the learned Counsel these details were provided by assessee from its accounts which were available before the AO in the original return of income. According to the learned Counsel this issue is also covered by the decision of Hon’ble Bombay High court in the case of continental Warehousing Corporation (Nhava Sheva) Ltd.( Supra).
We find from the facts of the case that there is no incriminating material found during the course of search relating to these cash credits and accordingly, the issue is squarely covered by the decisions of Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (Supra) as discussed in Para 5 and 6 of this order. Accordingly, this issue of assessee’s appeal is allowed.
In ITA No. 3646/Mum/2013 for AY 2010-11 in the case of M.R. Construction
The only issue in this appeal of Revenue is against the order of CIT(A) deleing the addition of Rs. 20 crores made by the AO on account of receipt of this amount under tripartite agreement dated 25-10-2009 for selling development rights. For this Revenue has raised following two grounds : -
“1. That on the facts and circumstances of the case, the Learned CIT(A) erred in deleting addition of Rs.20 crores out of Rs.40 cores received by the assessee from M/s. Park View Developers under a tripartite agreement dated 25.10.2009 for selling development rights on the ground that the assessee had not made the performance as required under AS-9 on Revenue Recognition to recognize the consideration received of Rs.20 crores without appreciating that AS-9 had no application to the case of the assessee and that the sum of Rs.20 crores had been received by the assessee on sale
29 Jawahar B. Purohit, M/s M.R. Construction of development right and not towards performance of any contract or meeting any obligation and liabilities under any contract whereas the balance sum of Rs.20 cores had been paid to the Joint Venture between the assessee and M/s.Green Bell, named as G.M. Construction for termination of the Joint Venture which alone had the liability to meet the obligations under the tripartite agreement dtd.25.10.2009."
That on the facts and circumstances of the case, the Learned CIT(A) erred in deleting addition of Rs.20 crores as above relying on a joint affidavit obtained from MIs. Green Bell & the assessee, as members of the Joint Venture, M/s. G.M. Construction, without confronting it to the Assessing Officer for the proposition that under the Joint Venture only the assessee had the liability to incur all the expenditure under the Joint Venture on the ground that no such expenses had been debited to the of accounts of the erstwhile Joint Venture.”
We have heard rival contentions and gone through the facts and circumstances of the case. The facts of the case are that the assessee firm came into existence on 08.07.2004. The assessee firm was granted Letter Of Intent (LOI) by Slump Rehabilitation Authority (SRA) dated 16.04.2005 in respect of certain land occupied by slums in Borivali, Mumbai. Under the LOI, the assessee firm had constructed Rehabilitation building No.2. By agreement dated 12.01.2007, assessee firm and Green Bell construction Housing P Ltd. a JV in the name of GM Construction in which the assessee firm had 50% share and the project was to be further executed by the said JV. Copy of the JV agreement is enclosed in assessee’s paper book at Pages 257-265. The joint venture had constructed Rehab Buildings 1 &3. On 25.10.2009, a tripartite agreement
30 Jawahar B. Purohit, M/s M.R. Construction was entered into between the assessee being MR construction, the JV named GM Construction and a third party M/s Park View Developers whereby it was agreed as follows (copy of tripartite agreement is enclosed at pages 266-355 of paper book filed by the assessee):
a) At page 269-270 the three parties to the agreement have been listed and the assessee firm is called as Developer,
b) Whole of the right to develop and sell units in free sale component building under the LOI is granted to the Co-developer being Park view Developers.
C) At page 273 in clause 3, consideration payable to the assessee is noted and at page 274-6 in clause 7, obligations of the assessee firm as Developer have been noted. It is clearly provided that at cost of the assessee firm Rehab building No. 4 has to be completed and also that all conditions of LOI have to be fulfilled by the assessee firm. The assessee firm is provided a consideration of Rs. 20,00,00,000/- for selling right to develop free sale building and towards completing responsibility as developer under LOI,
d) On page 273-4 in clause 4 it has been noted that JV i.e. GM Construction is dissolved, it gives up all its rights in the SRA project and it has removed itself from the site and in consideration thereof it has been paid a consideration of Rs. 20,00,00,000/- independently.
The AO held that whole of the sum of Rs. 20,00,00,000/- being consideration to the assesse firm is income of the impugned year in which tripartite agreement was entered into. The AO held that the amount of Rs. 20,00,00,000/- is taxable in the impugned year. The reason as per the AO is that as per the JV agreement with Green bell Housing, all the responsibility for completion of the project is on the JV and not of the assesse and therefore no responsibility rests on the assessee. As no
31 Jawahar B. Purohit, M/s M.R. Construction responsibility rests on the assesse firm, therefore whole of the amount is immediately taxable in the hands of the assesse firm. The assessee before AO claimed that the case of the JV, G M Construction was centralised in the same charge and assessment has been completed in its case considering the consideration received by it. Copy of the assessment order is enclosed in the assessee’s paper book. Aggrieved, assessee preferred appeal before CIT(A).
The CIT(A) held that JV was terminated and therefore no responsibility rests on the JV and it is the assessee as a developer who has to fulfil the responsibility as developer under the LOI. It has further been held that the tripartite agreement clearly records liability of the assessee firm as developer under LOI and the same cannot be ignored. It has been further held that as the said work is not complete Revenue cannot be recognized. Aggrieved, Revenue is in second appeal before Tribunal.
We find from the facts of the case that first of all, we have understand the scheme of Slump Rehabilitation which deal with problem of proliferating slums all over the city of Mumbai. The Government has announced scheme for redevelopment of land occupied by slums. The assessee is not the owner of land nor holding development rights over land on which the scheme has been sanctioned. As per the scheme, firstly three cooperative societies being Vitthal CHS, Khodiyar Mata CHS and RabariDevraj CHS were formed by slum Dwellers. By a resolution they appointed assessee firm as developer for the said slum. An application was moved with Slum Rehabilitation Authority for approval for the rehabilitation of scheme. A project for rehabilitation of slum entails lot of responsibility on the developer. Each and every eligible slum dweller has to be provided, cost, a predefined area of unit for his rehabilitation. In addition, other structures in the slum like Temples, place of worship, etc. have also to be constructed and provided. Common amenities including
32 Jawahar B. Purohit, M/s M.R. Construction roads, sewage, etc have to be planned and provided. Also various charges have to be paid to SRA authority office for welfare of slum dwellers have to be provided. Various charges have to be paid to SRA authority including development charges and corpus has to be provided to society of rehabilitation buildings for its future maintenance.
Against such outgoings, the scheme provides for incentive FSI which can be developed by the Developer and sold in open market and retain the sale proceeds thereof. The assessee before us claimed that grant of LOI by the SRA authority is the starting point for a developer. It is the scheme that though the SRA authority permits and grants proportionate FSI for free sale component in proportion to rehabilitation buildings completed but final separation of plot for rehabilitation building and free sale building with separate property card and occupation certificate for Free sale buildings is granted only after all the conditions of LOI are complete. We find from the entire scheme that Revenue in a SRA project is only from sale of development of free sale units and the same is an incentive for rehabilitating slums. For rehabilitation of slums, no separate consideration or cost is given to developer. To ensure that a developer does not enjoy incentive FSI before completion of rehabilitation, many checks and balances are provided under the scheme including the condition that developer under LOI cannot be changed and the liability of the developer as per LOI remains till the rehabilitation work is complete. Further, it is only on completion of rehabilitation work the property card for the plot of land is freshly issued by government giving separate card for land on which rehabilitation building is standing and separate card for land on which free sale building is standing. Also final occupation certificate for free sale building is issued only after all the conditions of LOT are fulfilled. The applicant has enclosed a flow chart available on web site of SRA authority where all the stages have been listed in details.
33 Jawahar B. Purohit, M/s M.R. Construction 39. In view of the above facts, we find that the assessee under the tripartite agreement has sold right to develop and sell incentive FSI under the LOI. Separate consideration has been provided to the JV towards giving up its rights in the project as well as to remove itself from the site. The tripartite agreement clearly provides that the JV has been dissolved. Once the JV is dissolved and it gave up its rights on the SRA project, the assesse is the only and exclusive developer of the SRA project. The AO erred in relying on terms of the JV agreement to hold that all the responsibility is of the JV and not the assesse. JV has received consideration for giving up its rights and the same has also been subjected to assessment by the same AO. We are of the view that the AO is clearly in error in relying on JV agreement which has been nullified by the tripartite agreement and income would accrue or arise to the assesse under the agreement when it complies with terms of the agreement. What has been agreed to be sold is incentive FSI towards Free Sale Building under the LOI. The right to the said incentive FSI comes into complete and final existence only on completion of all the conditions of LOI. As can be seen from the discussion earlier and the flow chart from web site of SRA, granting of property card for Free sale building and occupation certificate is only on completion of all conditions of LOI. The rights itself are yet to accrue to the assesse fully and finally and assesse cannot transfer what it does not own fully. It is only when conditions of LOI are fulfilled that the assesse can give away title to the free sale building. In the circumstance till the conditions of LOI are fulfilled transfer is not complete and income does not accrue to the assesse. We find from the facts of the case that lot of work in accordance with LOI was pending as on the date of tripartite agreement. This can be verified from the assessee’s paper book pages 413-430, paper book no 2. Accordingly, we are of the view that principal amongst the conditions pending completion is construction of rehabilitation building no 4 and many temples and places of worship and the CIT(A) has rightly held that
34 Jawahar B. Purohit, M/s M.R. Construction income under the tripartite agreement has not accrued to the assesse and no amount is taxable in the hands of the assesse in A Y 2010-2011. Accordingly, we confirm the order of CIT(A) and this issue of Revenue’s appeal is dismissed.
Coming to ITA Nos. 7208, 7209, 7210, 7211, 7212, 7213 & 7214 /Mum/2013 in assessee’s appeals for AYs 2004-05, 2005-06, 2006-07, 2007-08, 2008-09, 2009-10 & 2010-11 respectively in the case of Jawahar B Purohit.
The two common & inter connected issues in theses appeals of assessee is against the order of CIT(A) confirming the action of the AO in issuing the net profit by applying 10% of the gross receipts and further not allowing telescoping effect of net profit addition against addition of negative peak giving effect to the balance of pulled cash account made by AO. For this assessee has raised following ground No. 1 & 3 : -
“1. That the learned Assistant Commissioner of Income Tax, Central Circle 22, Mumbai and the learned Commissioner of Income Tax (Appeals) -. 39, Mumbai have grossly erred in law and on the facts and circumstances of the case in making addition and sustaining the addition, respectively, to the income by Rs. 14,48,166/- by applying higher percentage of Net Profit to the gross receipts.
That the learned Assistant Commissioner of Income Tax, Central Circle 22, Mumbai and the learned Commissioner of Income Tax (Appeals) - 39, Mumbai have grossly erred in law and on the facts and circumstances of the case in not giving the affect of addition and sustaining the not giving affect of addition, respectively, in business income by increasing the Cash Balance by Rs. 14,48,166/-
35 Jawahar B. Purohit, M/s M.R. Construction thereby affecting the balance of "Jawahar B. Purohit – Pooled cash Account" and further affecting the Peak Negative Cash in current and forthcoming assessment years.”
Briefly stated facts are that the assessee is a civil and labour contractor carrying on activities as proprietor of many concerns i.e. M/s Amrut Constructions and Gyanesh Constructions. The assessee is also partner in partnership firms of M/s MR Construction which is engaged in the business of development of SRA project. A search action under section 132 of the Act was carried out on the business premises of the firms and residential premises of the contractors or partners by the department on 16-11-2009. The assessee before the department during the search proceedings under section 132 of the Act admitted that all the business concerns belonged to the assessee and accordingly based on search proceedings, assessee prepared fresh state of affairs book of accounts including turnover and transactions of such concerns. Similarly, the assessee also prepared pool account of cash in the name of “jawahar B Purohit”, in which all the expenses and outgoings detected during the search were accounted for. The shortfall in the said account was offered in the returns of income filed for the six assessment years in response to notice under section 153A of the Act. The AO referred to re-casted books of accounts for Special Audit Report and assessments were completed considering the audit report furnished by the Special Auditor. During the assessment proceedings the AO made adjustment to the said pooled cash account after making other various additions against which assessee has preferred the appeal before CIT(A), which were partly allowed. These inter-connected common issues against the addition made by AO by estimating net profit at the rate of 10% of the gross receipts and the same is confirmed by CIT(A) which is challenged by assessee for AYs 2005-06, 2006-07, 2007-08, 2008-09, 2009-10,2010-11
36 Jawahar B. Purohit, M/s M.R. Construction and also claimed telescoping effect of net profit additions against additions on account of negative peak.
At the outset, the learned Counsel for the assessee fairly agreed that he has no issue in retaining the estimation of 10% net profit on gross contracts and particularly he has not challenged the rejection of books of accounts. When a query was put to the learned Sr. DR, he agreed that in case the net profit at the rate of 10% is upheld, the excess of the same can be given effect to telescope against other additions made on account of negative peak as raised by assessee in ground No. 3.
We have heared the rival contentions and gone through the facts and circumstances of the case. We find that this issue is dealt by CIT(A) in para 8 of his appellate order, wherein he has confirmed the action of the AO by rejecting the books of accounts and subsequently, upheld the estimation at the rate of 10% of the gross contract receipts in Para 8.1 and 8.1.1 as under: -
“8.1. Having rejected the books, the A.O. has proceeded to estimate the income at 10% of the gross contract receipts. The appellant had shown net profit at the rate of 3.79%, which was considered low taking into account in view of the incompleteness and incorrectness of the accounts. The appellant contents that the net profit adopted at 10% is exorbitant. It is pointed out that in the return filed under s. 139(1), the net profit rate declared was 2.89% of the turnover; in the re-drafted books, after consolidation the declared business income is 3.79% of the turnover, which is 0.90% higher than that declared earlier. It is contended that the business income assessed by the A.O. is excessively higher at 263% of the business incomer declared. On a consideration of the matter, it has to
37 Jawahar B. Purohit, M/s M.R. Construction be stated here that, no doubt in making a best judgement assessment, some estimates have to be made and there is a certain amount of guess work. In fact, it is the appellant himself who has to be blamed since no complete or proper accounts were presented/ maintained. The so as to have a basis, has mentioned section 44AD of the Act where a presumptive rate of 8% has been fixed for marginal and small contractors who do not maintain books. The A.O. cannot be faulted for referring to section 44A1) for the reason that it provides a statutory guideline for estimating income from contract receipts. The A.O. has fixed the net profit rate a little over 8%, i.e. at 10% of the gross contract receipts.
8.1.1 Considering the fact that books were not reliable, that business was also being carried on in the names of family members, relatives, not all of whom were filing returns, considering that the financial statements of all such family entities have not been made available for examination either before the Special Auditor or the Assessing Officer, it cannot be stated that the estimation by the A.O. is arbitrary and without taking into account the history of the appellant. Hence, I am in inclined to uphold the action of the A.O. in estimating the net profit at 10%. It is held that the estimation is not arbitrary but based on peculiar facts of the case. It has been held by the Hon’ble Supreme Court in the case of Commissioner of Sales Tax vs. H.M. Esufali H.M. Abdulali (1993) 90 ITR 271(SC) that if the estimate made by the assessing authority is a bonafide estimate and is based on a rational basis, the fact
Jawahar B. Purohit, M/s M.R. Construction that there is no good proof in support of the estimate is immaterial.
To sum up, it is held that the accounts of the assessee were rightly discarded and the basis adopted for estimation of income has a relevant basis. The estimation is not arbitrary, but based on the peculiar fact as existing in this case.”
We find from the comparative statement that the profit declared and adopted by the AO and confirmed by CIT(A), clearly spell out the additions, which is identical in all the orders and the same reads as under: -
A.Y Gross Net Profit % of net Peak Peak Total peak Net profit % of Addition Turnover declared profit offered in accepted offered considering net made by AO declared ROI during peak offer profit and assessment confirmed by CIT(A) adopting NP rate of 10% 2004- 2,32,59,516 8,77,786 3.79% 0 0 0 8,77,786 3.79% 14,48,166 05 2005- 4,86,74,017 18,50,018 3.80% 0 0 0 18,50,018 3.80% 30,17,384 06 2006- 3,02,89,790 11,60,339 3.83% 0 0 0 11,60,339 3.83% 18,68,640 07 2007- 4,63,02,636 17,26,319 3.73% 25,07,535 0 25,07,535 42,33,854 9.14% 27,20,029 08 2008- 10,48,76,738 39,58,773 3.77% 42,47,059 53,67,292 96,14,351 1,35,73,124 12.94% 65,28,901 09 2009- 8,59,70,431 32,72,115 3.81% 0 43,07,103 43,07,103 75,79,218 8.82% 53,24,928 10 2010- 1,19,43,168 4,70,717 3.94% 0 38,46,992 38,46,992 43,17,709 36.15% 7,36,030 11 Total 35,13,16,296 1,33,16,067 3.79% 67,54,594 1,35,21,387 2,02,75,981 3,35,92,048 9056% 2,16,44,078
We also find from the findings of CIT(A) as regards to telescoping to net profit addition against addition on account of negative peak was admitted by CIT(A) in Para 11.1 at page 10 of his appellate order, which reads as under: -
“11.1 As can be seen, the ground itself is vague and is saddled with infirmity. No specific instance of double addition /taxation has been pointed out.
39 Jawahar B. Purohit, M/s M.R. Construction Even otherwise, the addition/ disallowances are the subject matter of appeal and yet to attain finality. A submission was made that since the A.O. increased the profit under best judgement assessment, he ought to have given the effect of increase in profit of the appellant in the cash balance on the asset side of the Balance Sheet. At this stage it is premature to give effect to the same, the appellant being aggrieved by the estimation as made. Once the assessment has attained finality then it would be meaningful to examine the said contention. For the said reason, the ground stands dismissed.”
In view of the above facts and circumstances, we are of the view that the assessee himself admitted that profit @10% i.e. net profit on gross contract receipt can be confirmed as estimated by the AO but the consequential telescoping of the available cash balance amount to Rs.14,48,166/- in this year is to be allowed, giving effect to the balance of pooled cash account and further effecting the negative peak cash credit in current and in subsequent assessment years. We find the plea of the assessee is quite reasonable that the estimated net profit @ 10% is to be upheld and excess is to be allowed to be set off against negative peak cash in current assessment year as well subsequent assessment years. The assessee have filed complete details, the AO can verify and allow the same. We direct the AO accordingly.
Similar is the position in all the years, taking a consistent view, we direct the AO to allow the excess of net profit addition to be set off against negative peak cash in the pooled cash account in all the years. We direct the AO accordingly. These two inter-connected issues of the assessee are allowed but for verification and giving effect to the excess profit additions to be set off against negative peak cash account, are referred back to the file of the AO.
40 Jawahar B. Purohit, M/s M.R. Construction 48. The next issue in this appeal of assessee in ITA No. 7208/Mum/2013 for AY 2004-05 is as regards to the order of CIT(A) confirming the addition of adjustments made in working of negative peak amounting to Rs. 6,89,004/-. For this assessee has raised following ground No.2: -
“2. That the learned Assistant Commissioner of Income Tax, Central Circle 22, Mumbai and the learned Commissioner of Income Tax (Appeals) - 39, Mumbai have grossly erred in law and on the facts and circumstances of the case in net decreasing and sustaining the net decrease, respectively, by adjusting the Cash Balance by Rs. 6,89,004/- thereby affecting the balance of "Jawahar B. Purohit - Pooled Cash Account and further affecting the Peak Negative Cash in current and forthcoming assessment years.”
Brief facts relating to the issue are that the assessee filed working of negative peak cash showing a sum of Rs. 6,89,004/- shown as receivable from M/s Shyona Corporation but the AO reduced this cash balance as on 31-03-2004 from the peak working. According to the AO, no documentary evidences were furnished. The CIT(A) also confirmed the action of the AO vide Para 10.1 of his appellate order which reads as under: -
“10.1 It is observed from paragraph 15 of the order of assessment that the A.O has reduced the cash balance of the appellant by a sum of Rs.6,89,004/-. The cash balance has been reduced based on the finding in the report of the Special Auditor that a sum of Rs. 6,89,004/- is shown as having been received from MIs Shayona Corporation in the re- drafted books, whereas in the return filed under s.
41 Jawahar B. Purohit, M/s M.R. Construction 139(1) the said sum was shown as receivable. The appellant contends that the said amount was received in cash during the year. The A.O. has not accepted the said explanation and hence the same has an implication on the Peak Negative Cash that has been offered as income in the subsequent year. The impact for the current year is that the cash balance as on 31.3.2004 stands reduced to the extent of Rs. 6,89,004/-. The A.O. has calculated the res Peak Negative Cash for the year at Rs. NIL. On facts, and for the reason that appellant has no credible evidence to prove the explanation as offered, I decline to interfere with the action of the AO.”
Aggrieved, assessee is in second appeal before Tribunal.
Before us, the learned Counsel for the assessee stated that he has carried out work for M/s Shyona Corporation and the transactions were reflected in the books of accounts prepared and filed before search. But the party did not have funds to make payments by cheque but actually had made payment in cash. He explained that the party had not made payment by cheque and it exceeded the limits prescribed in the books of accounts prepared before search, the same was shown as receivable though amount was actually received by cash. He explained that in the re-casted books of accounts, the assessee has shown cash receipt against the contract work. To explain the position, the assessee stated that for over the period of two years being AYs 2004-05 and 2005-06, the assessee had done contract work for M/s Shyona Corporation and received a sum of Rs. 6,89,004/- by cash in AY 2004-05 and Rs. 24,00,000/- for AY 2005-06. The assessee made a plea that for contract work, the contractor account given credit for such a long period. He also admitted that the said amount was reflected as sales and part of turnover
42 Jawahar B. Purohit, M/s M.R. Construction on which net profit has been estimated by the AO @10% and the receipt of cash on two have been considered by the AO for preparation of pooled cash account. The learned Counsel for the assessee referred to the working of negative peak as per AO given at pages 180 to 225 of assessee’s paper book 2 filed on 23-06-2017. He also referred to separate sheet attached at page 233 of assessee’s paper book 2 which reflected this entry of Rs. 6,89,009/- The relevant statement reads as under: -
S Nature of Page No. of Page Date Amount of Remarks No. Transaction Assessment No. of Adjustment Order CIT(A) 1 Sundry Debtors Page No. Page 31- 6,89,004 This amount is on 12,Para 15 No. 9 03- account of amount point iii) Para 2004 receivable from 10.1 debtor shayona Corporation. Since the amount was received in cash, no evidence of receipt of money is available.
The learned Counsel for the assessee only requested that this amount is to be taken as received cash and should be considered for the adjustment made in working of negative peak. We find that the plea of the assessee’s Counsel is quite reasonable and accordingly, we direct the AO to consider this amount while making adjustment in the working of negative peak. We direct the AO accordingly.
The next issues in ITA No. 7209/Mum/2013 of assessee’s appeal for AY 2005-06 are in regard to remuneration of partnership, addition of interest on IT refund and disallowances made in MR construction raised by way of ground No 2, 4 and 7 are not pressed by the learned Counsel for the assessee at the time of hearing under the instruction of the assessee. Accordingly, these three issues are dismissed as not pressed.
43 Jawahar B. Purohit, M/s M.R. Construction 52. The next two issues in ITA No. 7209/Mum/2013 of assessee’s appeal for AY 2005-06 are against the order of CIT(A) confirming the action of the AO in sustain addition of negative cash balance of Rs. 1,97,176/- i.e. and not adjusting the cash balance of Rs. 40,37,942/- in the balance of Jawahar B Purohit pooled cash account. For this assessee has raised following ground Nos. 3 and 5 :-
“3. That the learned Assistant Commissioner of Income Tax, Central Circle 22, Mumbai and the learned Commissioner of Income Tax (Appeals) – 39, Mumbai have grossly erred in law and on the fact and circumstances of the case in making addition and sustaining addition, respectively on account of peak negative cash balance by Rs. 1,97,176/- thereby also affecting the Cash balance in current and forthcoming assessment years.
That the learned Assistant Commissioner of Income Tax, Central Circle 22, Mumbai and the learned Commissioner of Income Tax (Appeals) – 39, Mumbai have grossly erred in law and on the fact and circumstances of the case in net decreasing and sustaining the net decrease, respectively, by adjusting the Cash balance by Rs. 40,37,942/- thereby affecting the balance of “Jawahar B. Purohit – pooled cash account” and further affecting the Peak negative Cash in current and forthcoming assessment years.”
The learned Counsel for the assessee stated that the assessee has borrowed from various persons aggregating to Rs. 11,02,652/- and reflected in the books of accounts prepared before search action under section 132 of the Act. The assessee explained the following details which reads as under: -
Jawahar B. Purohit, M/s M.R. Construction Sr. Nature of Page No. of Page Date Amount of Details Remarks No. Transaction assessment No. of adjustment order CIT(A) 1. Unsecured Page No. Page 01.04.2004 11,02,652 A.B. More 37,088 Originally the loans 20 No.11, return of Akshar 1,89,750 point income filed Construction co. c) of under section Amrut Engineers 3,30,625 9.3 139(1), these loans were Bhanwarlal 21,275 show as paid, Purohit but the bearer BhomaramjiGelaji 19,000 cheques were issued in their Hitesh H. Purohit 22,425 names and cash was Rancchhodpurohit 22,425 withdrawan by the appellant. Rohan & 3,83,312 Confirmations Associates were filed at Shankar Shetty 20,700 the stage 153A Sharddha 33,052 proceedings Construction co. confirming that Varshasupeda 23,000 the amounts were still Total 11,02,652 outstanding.
The learned Counsel for the assessee explained from the above that this amount of Rs. 11,02,652/- in the name of various persons were borrowed and reflected in the books of accounts. The assessee had issued bearer cheques during the relevant previous year and cash was withdrawn and retained by him but in the books of accounts bear cheques were reflected as loans repaid. Subsequently in the re-casted books of accounts prepared before search action, on the basis of which assessment has been made, the assessee reflected the correct state of affairs. The learned Counsel for the assessee further stated that cash withdrawn by the assessee was shown in cash account and loans are shown as outstanding. The assessee filed confirmation letters from the lenders to the AO, but the AO did not accept the plea of the assessee and the CIT(A) also confirmed the action of the AO vide Para 9.3 of his order as under: -
“9.3 I have very carefully considered the matter. With regard to the finding of the A.O as regards the documents recovered from the premises of Shri
45 Jawahar B. Purohit, M/s M.R. Construction S.R. Desai which indicated cash payments made to various parties, whose existence was in doubt, as stated in para 20 of the order of the assessment at page no. 18. The same were not reflected in the redrafted books of accounts. It is observed from the Report of the Special Auditor that inspite of the opportunities granted no proper or satisfactory replies could be given by the assessee in order to explain the discrepancies/anomalies as pointed out. In these circumstances, I am inclined to sustain the findings of the A.O. No explanation was furnished before the Assessing Officer. However, as regards the opening cash, in all fairness the A.O will rework the peak negative cash and make adjustments taking into account the reliefs as granted.”
The second adjustment made is on account of alleged purchase of machinery of Rs. 5,35,290/- as an outgoing in preparation of old cash accounts of Shri Jawahar B Purohit. The facts are that during the survey action carried out on 16-11-2009 on Shri SR Desai, the tax consultant who was earlier preparing and filing income tax returns of the assessee. During the survey at his office certain bills for purchase of machinery etc. were found and impounded, copy of which is also enclosed in assessee’s paper book at page 255. He argued that Shri SR Desai, on being question, clearly stated that the same are bogus bills procure by him to enable his client to make non-genuine as purchase of machinery and relevant copy of statement is enclosed at page 247 of the assessee’s paper book and relevant question No. 13 at page 251 and 252 reads as under: -
“Q.13. I am showing you blank letter heads and blank bills in the name of following entities impounded at page numbers from 83 to 94 of impounded material at Annexure ‘A’.
46 Jawahar B. Purohit, M/s M.R. Construction Blank Letter Heads
National Institute of Industrial Engineering.
Indian Institute of technology Bombay
R.C. Builders and Developers
Jasmine Enterprises
Blank Bills
Metro Engineering works
Moolight Industries Pvt. Ltd.
Kohinoor sales corporation
R.H. Winsler Industries Ltd.
Rakesh Engineering Company
Jackson Engineers
Srikrishna Industries
Patel & Co.
Please confirm that these have been recovered from your office premise. Are the above mentioned entities your clients to whom you render professional service? Please state the reason why these blank letter heads and blank bills are lying in your office premise
Ans. Yes, I confirm that the above mentioned blank letter heads and blank bills have been founded at my office premises. These entities are not my clients. The blank letter heads are used on
47 Jawahar B. Purohit, M/s M.R. Construction behalf of various clients to register with BMC. The blank bills are used to show purchase from various parties.
Q.14 Vide answer to question No.13 you have mentioned that blank bills are used to show purchases from various parties Do you mean to say that the bills are merely raised in your office but the goods have not been actually procured? Please provide details that the goods have been actually delivered by showing details of transport date of delivery and bill of laden etc.
Ans. No details as mentioned above are available in my office at this time. This original bills have been taken away by the client. However, the above bills are bogus and no actual transaction has taken place.
Q.15 I am showing you photo copies bills impounded vide page number 95 to 125 at annexure ‘A’ which have been found from your office premise in the following entities: -
Shree Sundha
H.M. Container Services
Moonlight Industries Pvt. Ltd.
Rakesh Engineering Co.
Jackson Engineers.
Srikrishna Industries
Kamal Industries
Shriti Enterprises.”
48 Jawahar B. Purohit, M/s M.R. Construction 55. It was claimed by assessee that none of those bogus purchases have been accounted in the books of accounts of the assessee but AO adopted contradictory stand that the assessee must have purchase the said machinery and therefore he considered the invoices amount of Rs 5,35,290 as unaccounted investment shown as outgoing in pooled cash account. The third adjustments made by AO in respect of receipt of cash of Rs 24,00,000/- disclosed by assessee from M/s Shyona Corporation as available in pooled cash account of Jawahar B Purohit. It was contended that this amount is on account of amount receivable from debtor M/s Shyona Corporation and since the amount was in cash there is no evidence of receipt of money. The learned Counsel for the assessee relied on the page 235 and 236 of the assessee’s paper book which reads as under: -
Unaccounted Page Page 03.02- 5,35,290 This is purchase of No. No. 2005 invoice of Machinery 17,18,19 10&11 R.H. point Winsher a) of industries 9.1, Ltd. Which 9.2 is seized and from Mr. 9.3 S.R. Desai Office not from our office as we earlier also reply to special auditor and AO also that this invoices not belongs to us and this invoice never seized from us as we have never entered any
49 Jawahar B. Purohit, M/s M.R. Construction transaction with the said party but AO think this invoice very much related to us and he reduced the cash balance with this amount which is wrong. Replay to of Mr. S.R. Desai to Q. No. 13 & 14 in his statement under section 133A on 16- 11-2009 may be seen in which he has stated that these bills are bogus and no transaction has taken place. 3. Sundry Page Page 31- 24,00,000 This amount Debtors No. No. 03- Is on 19,20 10, 2005 account of point amount b) of receivable 9.1 from debtor Shayona Corporation. Since the amount was received in
50 Jawahar B. Purohit, M/s M.R. Construction cash, no evidence of receipt of money is available.
We have heard the rival contentions and gone the facts and circumstances of the case. We find that as regards to the loan brought from various persona and the same are depicted at page 234 of the assessee’s paper book whereby the assessee has issued bearer cheques in their name and cash was withdrawn by the assessee and confirmation is filed at the stage of assessment despite the fact that in the books of accounts the amount are still outstanding, the cash received by the assessee from these debtors is available with the assessee and qua this amount, the assessee’s pooled cash account should be increased and peak benefit should be allowed.
The next issue in ITA No. 6847/Mum/2013 of Revenue’s appeal for AY 2005-06 is as regards to the order of CIT(A) deleting the addition made by the AO on account of agricultural income, not accepted and treated the same as income from other sources. For this Revenue has raised following two grounds: -
“1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting addition of Rs.24,06,006/- made on account of income from other sources declared by the assessee as agricultural income when the assessee had not produced any proof of land holdings.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the proceedings are not open when the provisions of Sec.153A clearly empowers the
51 Jawahar B. Purohit, M/s M.R. Construction Assessing Officer to issue notice and make assessment and to assessee the total income of the assessee which includes disclosed as well as undisclosed income.”
At the outset, the learned counsel for the assessee stated that the assessee has declared agricultural income in its return of income filed u/s 139(1) of the Act for AY 2005-06 as on 31-10-2005. The returned was processed u/s 143(1) of the Act and no proceedings were pending as on the date of search dated 16-11-2009. There is no incriminating material found during the course of search. Once this is the position this issue is squarely covered in favour of assess and against Revenue by following the decision of Hon’ble Bombay High Court the case of continental Warehousing Corporation (Nhava Sheva) Ltd.( Supra).
We find from the facts of the case that search was carried out on 16.11.2009 and there is no incriminating material were found during the course of search relating to agricultural income and accordingly, by following the decisions of Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (Supra). Accordingly, we confirm the deletion and the appeal of Revenue is dismissed.
The only issue in ITA No. 6848/Mum/2013 for AY 2006-07 in Revenue’s appeal is as regards to the order of CIT(A) deleting the addition of Rs. 38,30,805/- made by the AO on account of agricultural income, not accepted and treated the same as income from other sources. For this Revenue has raised following two grounds:-
“1. On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting addition of Rs.38,30,805/- made on account of income from other sources declared by the
52 Jawahar B. Purohit, M/s M.R. Construction assessee as agricultural income when the assessee had not produced any proof of land holdings."
On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in holding that the proceedings are not open when the provisions of Sec.153A clearly empowers the Assessing Officer to issue notice and make assessment and to assess the total income of the assessee which includes disclosed as well as undisclosed income."
At the outset, the learned counsel for the assessee stated that the assessee has declared agricultural income in its return of income filed u/s 139(1) of the Act for AY 2006-07 as on 31-10-2006. No incriminating material found during the course of search and no proceedings were pending as on the date of search dated 16-11-2009. Once this is the position this issue is squarely covered in favour of assess and against Revenue by following the decision of Hon’ble Bombay High Court the case of continental Warehousing Corporation (Nhava Sheva) Ltd. (Supra).
We find from the facts of the case that search was carried out on 16.11.2009 and there is no incriminating material were found during the course of search relating to agricultural income. As per law what abates are only the pending assessments or reassessment proceedings and not the completed assessment and accordingly, by following the decisions of Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (Supra). Accordingly, we confirm the deletion and appeal of Revenue is dismissed.
The next common issues in ITA No. 7210/Mum/2013 of assessee’s appeal for AY 2006-07 are regarding confirmation of addition by CIT(A) of negative peak of Rs. 3,47,924/-, adjustment disallowed in working of
53 Jawahar B. Purohit, M/s M.R. Construction negative peak of Rs.1,85,000/- and disallowance made in M.R. Construction giving consequential effect in working of negative peak are not pressed by the learned Counsel for the assessee under the instructions of the assessee. Hence, the same are dismissed as not pressed.
The next common issues in ITA No. 7211/Mum/2013 for AY 2007- 08 of assessee’s appeal is as regards to addition of adjustments of negative peak amounting to Rs. 11,07,941/- and adjustment of working of negative peak of Rs. 51,41,818/-. For this assessee has raised following ground No. 2 & 4:-
“ 2. That the learned Assistant Commissioner of Income Tax, Central Circle 22, Mumbai and the learned Commissioner of Income Tax (Appeals) - 39, Mumbai have grossly erred in law and on the facts and circumstances of the case in making addition and sustaining addition, respectively, on account of Peak Negative Cash Balance by Rs. 11,07,941/- thereby also affecting the Cash Balance in current and forthcoming assessment years.
That the learned Assistant Commissioner of Income Tax, Central Circle 22, 41 Mumbai and the learned Commissioner of Income Tax (Appeals) - 39, Mumbai have grossly erred in law and on the facts and circumstances of the case in net decreasing and sustaining the net decrease, respectively, by adjusting the Cash Balance by Rs. 51,41,818/- thereby affecting the balance of "Jawahar B. Purohit - Pooled Cash Account" and further affecting the Peak Negative Cash in current and forthcoming assessment years.”
54 Jawahar B. Purohit, M/s M.R. Construction At the outset, the learned counsel for the assessee stated that the assessee has challenged the adjustment made by the AO to pooled cash account and consequential addition made to total income on account of negative cash in such pooled cash account.
The first adjustment made by AO to pooled cash account is on account of purchase of machinery on the basis of invoice found and impounded from S R Desai during simultaneous survey and search carried out at his place. The assessee contended that the AO may be directed to ignore the said amount of Rs. 10,18,660/- and not consider the same as outgoing in preparation of pooled cash account. The learned counsel for the assessee stated that this amount relates to assessee but Shri SR Desai vide question No. 13 and 14 of his statement recorded u/s 133A of the Act on 16-11-2009 categorically stated that these bills are bogus and no transaction has taken place. The assessee drew our attention to statement of addition and adjustment to peak working given at page 237 of assessee’s paper book which reads as under: -
55 Jawahar B. Purohit, M/s M.R. Construction
We find that this cash is available with the assessee as he has not made any purchases and this cash should be given effect while computing negative cash in the pooled cash account. We direct the AO accordingly. 67. The second adjustment is as regards to not giving effect of cash available in respect to labour job work of Rs. 18,39,158/-. The facts are that one of the entity which was owned up by the assessee during search proceedings was M/s. Harshita Corporation and all the transactions of the said concern has been considered in the re-casted books of accounts. During the relevant assessment year, the said concern had done labour job work and received the amount of Rs. 18,39,158/- by cash. In the re- casted books, both the sales and corresponding cost incurred had been reflected. Before us it was argue that expenses of the said concern were also recorded in re-casted books of accounts and net profit for the said year is only 4%.The AO reduced the said sales from cash receipt in pooled cash account leading to shortfall in cash on hand. Though the AO has reduced the same from turnover for making estimate of 10% NP but expenses of the said sales are still considered in the re-casted books of accounts and thereby are debited in pooled cash account. The assessee claimed that such an action amounts to double addition as sales are reduced from availability of cash in pooled cash account but corresponding expenses are still lying as debit to pooled cash account. The assessee claimed that the AO may be directed to consider sales of Rs. 18,39,158/- as available cash in pooled cash account. We find that the assessee has filed complete chart of cash sales which reads as under: -
56 Jawahar B. Purohit, M/s M.R. Construction
In view of the above facts, we direct the AO to allow the availability of this cash in the computation of negative cash in pooled cash account. We direct the AO accordingly. This issue of assessee’s appeal is allowed.
The next issue in ITA No. 7211/Mum/2013 for AY 2007-08 of assessee’s appeal is as regards to allowance of deduction of school fee under chapter VI A of the Act amounting to Rs. 25,000/-.
A the outset, the learned Counsel for the assessee stated that this issue requires reconsideration at the level of the AO as the assessee will file the evidence of payment of fee and the AO can decide accordingly. The DR has not objected. Accordingly, we restore this issue back to the file of the AO. This issue of assessee’s appeal is partly allowed.
The next issue in ITA No. 7211/Mum/2013 for AY 2007-08 of assessee’s appeal is as regards to disallowance made in M. R.
57 Jawahar B. Purohit, M/s M.R. Construction construction by giving consequential effect in working of negative peak. The learned Counsel for the assessee has not pressed this issue under the instructions of the assessee and hence, the same is dismissed as not pressed.
The next two interconnected issues in ITA No. 7212/Mum/2013 for AY 2008-09 of assessee’s appeal are making addition to the negative peak account amounting to Rs. 1,75,56,162/- and adjustment made in working of negative peak to Rs. 37,88,147. For this assessee has raised following ground No. 2 and 3: -
That the learned Assistant Commissioner of Income Tax, Central Circle 22, Mumbai and the learned Commissioner of Income Tax (Appeals) - 39, Mumbai have grossly erred in law and on the facts and circumstances of the case in making and sustaining reduction, respectively, on account of Peak Negative Cash balance by Rs. 1,75,56,162/- thereby also affecting the Cash Balance in current and forthcoming assessment year.
That the learned Assistant Commissioner of Income Tax, Central Circle 22, Mumbai and the learned Commissioner of Income Tax (Appeals) - 39, Mumbai have grossly erred in law and on the facts and circumstances of the case in net decreasing and sustaining the net decrease, respectively, by adjusting the Cash Balance by Rs. 37,88,147/- thereby affecting the Peak Negative cash in current and forthcoming assessment years.”
58 Jawahar B. Purohit, M/s M.R. Construction 73. By these ground Nos. 2 and 3 the assessee has challenged adjustment made by AO to pooled cash account and consequential addition made to total income on account negative cash in such pooled cash account. The break up and facts of various adjustments made has been summarised in statement enclosed at page 239-241 of paper book no 2, which reads as under: -
59 Jawahar B. Purohit, M/s M.R. Construction
We find from the facts of the case that the first adjustment to pooled cash account is on account of purchase of machinery on the basis of invoice found and impounded from S R Desai during simultaneous survey carried out at his place. The assessee claimed that facts and contentions relating to the said issue are the same as in ground 3 & 5 of AY 2005-06. The assessee contended that the AO may be directed to ignore the said amount of Rs. 16,52,036/- and not consider the same as outgoing in computation of pooled cash account. The second adjustment made by AO is on account of sundry creditors to the extent of Rs. 15,56,011/-. The assessee claimed that he had issued bearer cheques during the relevant previous year and cash was withdrawn and retained by him. However, in books of accounts, the bearer cheques were
60 Jawahar B. Purohit, M/s M.R. Construction reflected as payment to the said sundry creditors. In re-casted books of accounts prepared post search action on the basis of which assessment has been made, the assessee has reflected correct state of affairs. Cash withdrawn by the assessee has been shown in pooled cash account and sundry creditors are shown as outstanding. The AO has dealt with the issue on page 16-18 and the CIT(A) has dealt with the issue on page 16 in para 9.3.The assessee contended that the AO may be directed to consider cash withdrawn against bearer cheques of Rs. 15,56,011/- as available with him in computation of pooled cash account. The third adjustment made by AO is on account of loans borrowed from various persons aggregating to Rs. 4,85,000/- and reflected in books of accounts prepared before search action. The assessee claimed that he had issued bearer cheques during the relevant previous year and cash was withdrawn and retained by him. However, in books of accounts, the bearer cheques were reflected as loan repaid. In re-casted books of accounts prepared post search action on the basis of which assessment has been made, the assessee has reflected correct state of affairs. Cash withdrawn by the assessee has been shown in cash account and loans are shown as outstanding. Also, confirmation letters of the lenders were also furnished. The AO has dealt with the issue on page 17-18 and the CIT(A) has dealt with the issue on page 16 in para 9.3.The assessee urged that the AO may be directed to consider cash withdrawn against bearer cheques of Rs. 4,85,000/- as available with him in computation of pooled cash account. We find that this amount of cash is available with assessee and it should be considered while computing cash adjustment in the negative peak in pool cash account. We direct the AO accordingly.
The next issue in ITA No. 7212/Mum/2013 for AY 2009-10 of assessee’s appeal is as regards to disallowance made in M. R. construction by giving consequential effect in working of negative peak. The learned Counsel for the assessee has not pressed this issue under
61 Jawahar B. Purohit, M/s M.R. Construction the instructions of the assessee and hence, the same is dismissed as not pressed.
The next issue in ITA No. 7213/Mum/2013 for AY 2009-10 in assessee’s appeal is as regards to addition made on account of negative peak amounting to Rs. 44,57,103/- and adjustment made in working of negative peak of Rs. 1.50 lacs. For this assessee has raised following ground No. 2 and 4 :-
That the learned Assistant Commissioner of Income Tax, Central Circle 22, Mumbai and the learned Commissioner of Income Tax (Appeals) - 39, Mumbai have grossly erred in law and on the facts and circumstances of the case in making addition and sustaining addition, respectively, on account of Peak Negative Cash Balance by Rs. 44,57,103/- thereby also affecting the cash balance in current and forthcoming assessment years.
That the Assistant Commissioner of Income Tax, Central Circle 22, 41 Mumbai and the learned Commissioner of Income Tax (Appeals) - 39, Mumbai have grossly erred in law and on the facts and circumstances of the case in net decreasing and sustaining the net decrease, respectively, by adjusting the cash balance by Rs. 1,50,000/- thereby affecting the balance of “Jawahar B. Purohit – pooled Cash Account” and further affecting the peak Negative Cash in current and forthcoming assessment years.”
The assessee by these ground Nos. 2 and 3 has challenged adjustment made by AO to pooled cash account and consequential addition made to total income on account negative cash in such pooled cash account. In the present year, the claim of the assessee is restricted
62 Jawahar B. Purohit, M/s M.R. Construction to addition made on account of negative cash on account of addition made in earlier years. By ground no 5 the assessee has raised alternative plea that even if addition on account of Net profit is sustained, credit for the same ought to have been given in preparation of pooled cash account. The assessee claimed that facts and circumstance relating the ground are same as ground Nos. 3 for A Y 2004-05. The assessee claimed that the AO may be directed to give credit for addition sustained on account of net profit in preparation of pooled cash account.
We direct the AO to give credit for addition sustained on account of net profit in preparation of pooled cash account and also if any addition is made to negative cash account on account of additions of earlier years. We direct the AO accordingly. This issue of assessee’s appeal is allowed.
The next issue in ITA No. 7214/Mum/2013 of assessee’s appeal for AY 2010-11 is as regards to the addition made on account of negative peak of Rs. 41,24,256/- and adjustment made in working of negative peak of Rs. 23,19,367/-. For this assessee has raised following ground Nos. 2 and 3: -
That the learned Assistant Commissioner of Income Tax, Central Circle 22, Mumbai and the learned Commissioner of Income Tax (Appeals) - 39, Mumbai have grossly erred in law and on the facts and circumstances of the case in making addition and sustaining addition, respectively, on account of Peak Negative Cash Balance by Rs. 41,24,256/- thereby also affecting the cash balance in current and forthcoming assessment years.
That the learned Assistant Commissioner of Income Tax, Central Circle 22, Mumbai and the learned Commissioner of Income Tax (Appeals) - 39, Mumbai have grossly erred in law and on the
63 Jawahar B. Purohit, M/s M.R. Construction facts and circumstances of the case in net decreasing and sustaining the net decrease, respectively, by adjusting the Cash Balance by Rs. 23,19,367/- thereby affecting the Peak the balance of “Jawahar B. Purohit- pooled Cash Account and further affecting the peak negative cash in current and forthcoming assessment years.”
The assessee has challenged by ground Nos. 2 and 3 the adjustments made by AO to pooled cash account and consequential addition made to total income on account negative cash in such pooled cash account. The break up and facts of various adjustments made has been summarised in statement enclosed at page 242 of paper book no 2, which reads as under: -
The first adjustment to pooled cash account is towards payment of Rs. 1,82,367/- towards invoice of Shanti Electric and Hardware. The assessee claimed that the said invoice has not been paid and was outstanding. However, the AO treated the said invoice as paid and reduced the same in pooled cash account. The said issue has been discussed by AO at page 14-15 and by the CIT(A) at page 11, para 9.3. The assessee claimed that the AO may be directed to ignore the said amount of Rs. 1,82,367/- and not consider the same as outgoing in
64 Jawahar B. Purohit, M/s M.R. Construction computation of pooled cash account. The second adjustment is presumed expenditure of Rs. 44,71,000/- on a day prior to date of search. At the time of search in the preliminary statement the assessee had stated that cash of Rs. 30,00,000/- was lying at his residence and Rs. 40,00,000/- at office of M.R. Construction. The said statement is preliminary statement recorded at commencement of search and the statement was made without referring to any material or actual cash found. In the concluding statement on comparison of actual cash found of Rs. 11,00,750/- and Rs. 14,34,000/- respectively, shortfall as compared to preliminary statement was worked out at Rs. 44,71,000/- and a query was raised vide question & answer No. 14 of statement dated 16.11.2009 and the assessee had stated that he had spent the said amount. The AO has debited the said amount as outgoing in pooled cash account on the date prior to date of search. The AO has dealt with the issue on page 15-16 and the CIT(A) has dealt with the issue at page 11 in para 9.3.The assessee claimed that the preliminary statement or the concluding statement is not in nature of evidence to hold that the assessee had spent the said amount and treat the same as unexplained expenditure. The assessee submits that the reading of the concluding statement does not lead to conclusion that the assessee has incurred unexplained expenditure of Rs. 44,71,000/- on 15.11.2009.The assessee prays that the AO may be directed to ignore the said amount as outgoing in considering pooled cash account.
After both the sides and going through the facts of the case, we direct the AO to allow the claim of the assessee and consider the availability of actual cash found of Rs. 11,00,750/- and Rs. 14,34,000/- and the same can be given effect to the cash. It does not lead to the fact that the assessee has incurred unexplained expenditure of Rs.
65 Jawahar B. Purohit, M/s M.R. Construction 44,71,000/- and we accordingly delete the addition. This issue of assessee’s appeal is allowed.
In the result, in the case of M.R. Construction of assessee’s appeal in ITA Nos. 790 & 3710/Mum/2013 for AYs 2005-06 & 07-08 are allowed, in ITA Nos. 3709 & 3711/Mum/2013 for AYs 2006-07 & 08-09 are partly allowed and in Revenue’s appeal in ITA No.1144,3645 & 3646/Mum/2013 for AYs 2005-06, 07-08 & 10-11 are dismissed. In case of Jawahar B. Purohit of Revenue’s appeal in ITA Nos. 6847 & 6848/Mum/2013 for AYs 2005-06 & 06-07 are dismissed and of assessee’s appeal in ITA Nos. 7208,7209,7210,7211,7212,7213 & 7214/Mum/2013 for AYs 2004-05 to 2010-11 respectively, are partly allowed.
Order pronounced in the open court on 20-09-2017. Sd/- Sd/- (RAJESH KUMAR) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated:20- 09-2017 Sudip Sarkar /Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT (A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai //True Copy// 6. Guard file. BY ORDER, Assistant Registrar ITAT, MUMBAI