DCIT CIRCLE 9 (1) vs. SUNCITY PROJECTS LTD,

ORDER PER H.S. SIDHU : JM Revenue has filed these two appeals which emanate from the common order dated 29.10.2007 for A.Y. 2002-03 and A.Y. 2003-04 of the Ld. CIT(A). The assessee has filed two Cross Objections against the order of the Ld. CIT(A) rejecting its contention on the issue of reopening of the assessment. Since the issues involved are common and identical, hence, both the appeals and the Cross Objections were heard together and are being disposed of by this common order, by dealing with assessment year 2002-03.

“(i) On the facts and in the circumstances of the case, Ld. CIT(A) erred in law and on facts in deleting the addition of Rs.9,73,50,000/- for A.Y. 2002-03 u/s 68 of the Income – Tax Act

1961.”

“(i) On the facts and in the circumstances of the case, Ld. CIT(A) erred in law and on facts in deleting the addition of Rs.2,24,50,000/- for A.Y. 2003-04 u/s 68 of the Income – Tax Act

1961.”

REVENUE’S APPEALS

4.1 During the course of the reassessment proceedings, the assessee was asked to submit the details with supporting evidences for source, identity and creditworthiness of the parties from whom the assessee has received advances against booking of flats. Not being satisfied with the reply, the AO made addition of Rs.9,73,50,000/- in A.Y. 2002-03 and Rs.2,24,50,000/- in A.Y. 2003-04 vide his order dated 27.12.2006 & 28.12.2006 respectively passed u/s. 143(3)/147 of the I.T. Act, 1961 and completed the reassessment at Rs. 9,61,50,180 and Rs. 2,69,30,553/- respectively.

4.2 Aggrieved by the order of the AO, the assessee preferred an appeal before the Ld. CIT(A) who vide his common impugned order dated 29.10.2007 deleted the addition holding that the assessee company is in the business of real estate development and project management relating to real estate projects and these amounts have been received in the form of booking advances from prospective customers. These amounts have been received through bank account of the creditors through normal banking channel. The assessee has also explained the nature of credit and the source thereof as booking advances. The assessee having filed the confirmations, having given the name and address and individual account for each of the transactions including PAN, etc. Ld. CIT(A) observed that the AO was not justified in drawing adverse inference without bringing any further adverse material and accordingly vide his order dated 29.10.2007 has allowed the appeal of the assessee.

The ld. CIT(A) has deleted the addition holding that in the absence of any enquiry or any adverse material, additions cannot be made. Later, the ITAT has got the verification done and the report has been received from the AO. It was contended by the ld DR that in this report, in some of the cases, the AO has pointed out errors and discrepancies. It was submitted by the ld. DR that taking into consideration the errors/ discrepancies pointed out by the AO, the matter be decided accordingly.

More than 7 years have elapsed since then and nothing adverse has come out against the assessee as is evident from the report submitted by the AO so as to justify the additions. In regard to the errors/ discrepancies pointed out in its report in PAN, in some of the cases and other issues, the ld counsel of the assessee submitted that each and every error pointed out by AO have been clarified in the reply submitted by it along with evidences. The AO has submitted report on verification of PAN, ROC data and status and movement in Bank Account. As such it is a case where after detailed verification nothing has come out. In this regard it was submitted that this assessment was reopened merely for the purpose 5 of verification as is evident from the reasons recorded wherein it has been alleged that the advances received by the assessee for booking of flats remain unverifiable. Even in the reasons recorded for reopening there was no adverse material against the assessee.

After going through the facts we note that it is a case where additions have been made on the allegation that advances received by the assessee against booking of flats remain unverifiable.

9.1 The assessee is a company engaged in the business of real estate development. During the year under consideration, the assessee was developing its project in Sector 54, Gurgaon. It has incurred a total cost of Rs.101.89 Crore on this project during the financial year 2001-02 i.e. A.Y. 2002-03. Against this, the assessee company has received advances from the customers of Rs.78.20 Crore. In the next year i.e. F.Y. 2002-03 (A.Y. 2003-04) it incurred further expenditure of Rs.132.83 Crore on this project and received advances from customers against booking of flats of Rs.123.84 Crore. The AO has raised doubt about these advances to the extent of Rs.9.73 Crore only out of total advances received of Rs.78.20 Crores in the A.Y. 2002-03 and Rs.2.24 Crore only out of total advances received of Rs.123.83 Crores in the A.Y. 2003-04.

9.2 During the reassessment proceedings the AO called upon the assessee to substantiate these advances. The assessee company submitted the documents/ evidences for each of these advances which included confirmations, bank statement, copy of ITR, copy of application form for allotment of residential unit, allotment letter issued by the Assessee Company, confirmation of account, etc. The AO thereafter did not carry any further enquiry or verification. The AO on the basis of the report received by him from the Director (Inv) added this amount as unexplained credit in the hands of the assessee. The learned CIT(A) has deleted the additions holding that –

(i) It is preliminary duty of the assessee to explain and establish the nature of sum debited in his books of account and the source thereof;

(ii) Once the nature and source has been explained, it is the duty of the AO to disapprove the explanation of the assessee about the nature and source;

(iii) Before rejecting assessee’s explanation the AO must make enquiries and in the absence of proper enquiries the addition cannot be sustained;

(iv) in the present case appellant company being in the real estate development has received the amounts in the form of booking advances from the prospective buyers, these advances have been received by account payee cheques, the amounts so 7 received by the appellant company have been cleared from the bank account of the creditors through the normal banking channel.

(v) The assessee company has filed confirmation from the parties about the transactions giving names and addresses of the parties and individual amount in each transaction including

PAN during the assessment proceedings for consideration and verification by the AO about the real existence of the parties, their capacity to advance such amount and the genuineness of the transaction.

(vi) The Assessing Officer thereafter did not carry out any verification and not bring adverse material to discredit/ rebut the evidences submitted by the assessee.

(vii) The assessee thus has duly explained the nature and source thereof with relevant supporting documentary evidences/ details and as such fulfilled and discharged its onus that lay on it in terms of Section 68 of the Act.

9.3 When the matter travelled to the ITAT, the ITAT directed the CIT(DR) to carry out the verification and in this regard passed a detailed interim order as under:-

“The learned CIT (DR) is directed to furnish us the following details for the purpose of assisting us in laying down the facts in its right perspective.

1) The assessee has provided the PAN of the persons who have given the advances for purchase of plots at Gurgaon Sector 54 projects. The PAN is to be verified with the names & addresses given.

2) The latest income tax return copies alongwith the balance sheets and schedules there to in respect of all the persons whose PAN have been given are to be produced. The income tax return copies filed by all the said PAN holders for the assessment year 2002-03 &

2003-04 alongwith balance sheet and schedule thereto are to be produced. The income tax returns of all the said PAN holders for the assessment year 2005-06 &

2006-07 are also to be produced. In the event that income tax returns are not available, copies of the returns filed for those years called for may be obtained from the registrar of companies as are available with the Registrar of Companies.

3) It is noticed that the assessee has returned advances through its accounts in HDFC Bank Ltd. and has been given in the chart provided in brief is enclosed as Annexure A-I. The return of the deposits is to be verified in connection with the cheque number which have also been provided and you are directed to inform us as to which accounts. The names of accounts holders and the bank account and provide copies of the bank accounts for the period during which the cheques have been encashed and the statement of the funds there from. These details are to be produced before us before the next date of hearing.

Copies of all the details are also to be given to the assessee immediately on being.

The details are also to be given by 1st Feb. 2010 and the case is adjourned to 15.2.2010.”

9.4 Pursuant to the directions of the ITAT, the AO has carried out the verification and has submitted his Report on the verification of PAN, availability of the data/ status with the Registrar of Companies as well as on verification from the respective bank account of each of these creditors. On going through these reports, we note that except pointing out some errors in the PAN, some companies inactive with ROC and AO not being able to obtain details in some cases from the respective bank, nothing adverse has been brought on record against the assessee. In the report dated 29.03.2012, the AO has confirmed that PAN of the parties have been verified except in some of the cases. Out of 37 cases, the AO has pointed out errors in respect of 9 cases meaning thereby that PAN stand verified in rest of the 28 cases. The assessee in its reply has clarified each of the error pointed out by the AO in these 9 cases. The assessee in support of it clarification has submitted evidences in the form of assessment order, copy of PAN and the payment of challan, etc. On going through this report of AO and the reply of the assessee, we note that error has occurred in because in some of the cases the name of the company has been changed and that is why the AO has pointed out error.

After submission of the clarification with evidences by the assessee, no further errors have been pointed out by the AO. The Ld. DR during the course of hearing also could not rebut the reply of the assessee.

9.5 We also note that on the issue of verification from the Registrar of Companies, the AO has also submitted report whereby he has pointed out that some of the companies are dormant and some of the companies’ names have been struck off. The assessee has filed reply to this report of the AO. It has been clarified by the assessee that these companies were active at the relevant point of time and evidences in support thereof were also filed. Later on, after 7 or 8 years since these companies have become dormant or inactive and the same cannot be a ground to draw any adverse inference.

9.6 We further find that the AO has also carried out verification from the bankers of the creditors and a detailed report has been submitted on this aspect also. On going through this report we note that in many cases the AO has got the amount verified. In many cases AO has not got details from the Bank. The fact remains that nothing has come out so as to draw adverse inference against the assessee in the verification carried out by the AO. On the contrary this report confirms that existence of such creditors and their bank account.

9.7 We also note that vide another report dated 02.05.2012, the AO has confirmed that it has obtained income tax returns from the respective AOs of these creditors. In this report also nothing adverse has been pointed out.

9.8 Keeping in view of the facts and circumstances of the case, we are of the view that in the present case not only the assessee has led sufficient evidences in support of its contention but also in the detailed verification carried out by the AO nothing has come out so as to draw adverse inference against the assessee. The assessee has received advances for booking of flats in respect of the project being developed by it in Gurgaon. The assessee has received not only these advances for booking of flats but also from other customers as is evident from the figures stated hereinabove. The assessee having duly accounted for these advances and having submitted the necessary evidences in support thereof, we are also of the view that the AO was not justified in making these additions in the hands of the assessee. It is a case where the assessee has led sufficient evidences in support of its contention and accordingly we are of the considered view that Ld. CIT(A) has passed a well reasoned order which does not need any interference on our part, hence, we uphold the order of the Ld. CIT(A) and as a result thereof, the appeals filed by the Revenue stand dismissed.

ASSESSEE’S CROSS OBJECTIONS:-

“1. The Ld. CIT(A), New Delhi has grossly erred both in facts and in law in confirming the action of AO in reopening the assessment u/s. 148 of the Income Tax

Act, 1961 as he has dismissed the ground by referring in the order that in his view the challenge to reopening the assessment was a general allegation against the assessment order passed and proceedings initiated u/s. 147/148 and he was disposed of the ground of reopening of the assessment by stating that I am of the view that no separate adjudication is necessary.

2. The respondent craves leave to add, to amend, alter,

vary or substitute the above grounds of Cross Objection or add a new ground or grounds at any time before or at the time of hearing of the Cross Objection as they may be advised.”

“1. The Ld. CIT(A), New Delhi has grossly erred both in facts and in law in confirming the action of AO in reopening the assessment u/s. 148 of the Income Tax

Act, 1961 as he has dismissed the ground by referring in the order that in his view the challenge to reopening the assessment was a general allegation against the assessment order passed and proceedings initiated u/s. 147/148 and he was disposed of the ground of reopening of the assessment by stating that I am of the view that no separate adjudication is necessary.

2. The respondent craves leave to add, to amend, alter,

vary or substitute the above grounds of Cross Objection or add a new ground or grounds at any time before or at the time of hearing of the Cross Objection as they may be advised.”

Order pronounced in the Open Court on 06-01-2017.