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Income Tax Appellate Tribunal, ‘A’ BENCH, BANGALORE
Before: SHRI SUNIL KUMAR YADAV & SHRI INTURI RAMA RAO
Per INTURI RAMA RAO, AM :
These are cross-appeals filed by the assessee and the department directed against the order of the Commissioner of
ITA No.717 & 732/Bang/2014 Page 2 of 37 Income-tax (Appeals)-I, Bangalore [CIT(A)] dated 30/1/2014 for the assessment years 2008-09.
Briefly facts of the case are as under: The assessee is a company duly incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of development of land. Return of income for the assessment year 2008-09 was filed on 06/03/2009 declaring a total income of Rs.77,20,720/-. After processing the said return of income u/s 143(1) of the Income-tax Act,1961 [‘the Act’ for short] and issuing notice u/s 143(2), assessment was completed u/s 143(3) of the Act on 24/10/2010 determining the total income at Rs.8,04,73,105/-. While completing the assessment, the Assessing Officer [AO] made the following additions:
ITA No.717 & 732/Bang/2014 Page 3 of 37 It was stated by AO that the above additions were based on incriminating material found as a result of survey operations conducted in the business premises of the assessee u/s 133A of the Act and statements of directors of the company viz. N.Somasekhar and V.M.Rajesh recorded during the course of survey operations. During the course of survey operations, directors of the assessee-company offered additional income of Rs.2 crores for the assessment year 2008-09 apart from Rs.1 crore for the assessment year 2009-10. The AO issued several notices u/s 142(1) calling for certain details. It was observed by the AO that the assessee never filed such details despite several notices issued to it and the assessments were completed based on statements of the directors of the company and the reply filed on 24/12/2010 in response to questionnaire issued on 11/3/2010. It was found that the assessee-company made the following cash payments:
The assessee-company was show caused as to why cash payments were made to the tune of Rs.533 lakhs, only Rs.3
ITA No.717 & 732/Bang/2014 Page 4 of 37 crores was declared as undisclosed income and to prove that above cash payments were made out of explained sources of cash surplus to books of account. In response to the same, the assessee-company submitted as under:
The above submissions were not accepted by the AO by making the following observations:
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ITA No.717 & 732/Bang/2014 Page 7 of 37 3.1 The AO also noticed that the sum of Rs.120 lakhs was introduced in the books of account as share application money during the previous year relevant to assessment year under consideration. The assessee-company was asked to furnish the details and source of receipt of share application money in cash as per questionnaire issued on 11/03/2010. The assessee- company had failed to discharged the burden. Accordingly, the AO brought the entire sum of Rs.120 lakhs as unexplained income. The AO also noticed that the assessee claimed expenditure of Rs.26,40,000/- towards development expenses. The AO has called upon the assessee to prove the above expenditure and also the compliance of TDS provisions, as per questionnaire issued on 11/03/2010. The assessee-company neither produced proof of incurring of expenditure nor has shown any compliance of TDS provisions. Therefore, the AO has disallowed the same invoking the provisions of section 40(a)(ia) of the Act.
3.2 The AO, on verification of Profit & Loss [P&L] Account noticed that an expenditure of Rs.35,81,735/- was debited to Profit & Loss Account under the head ‘administrative and capital expenditure’ details of which are given below:
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The assessee-company did not furnish any evidence in support of such incriminating expenditure nor could file proof of compliance of TDS in respect of above expenditure. Therefore, the AO invoking the provisions of section 40a(ia) of the Act disallowed a sum of Rs.35,81,735/-.
3.3 The AO also made addition of Rs.7100/- debited to P&L Account under the head ‘donations’. The AO also noticed that cash payment of Rs.12,24,000/-, details of which are given below, was made to the following parties out of books of account:
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Since the assessee-company had failed to prove that above cash payments were made out of known source of income, the AO drew adverse inference and brought to tax a sum of Rs.12,24,000/-. Thus, the assessment was completed after making the above additions.
Being aggrieved, an appeal was filed before the CIT(A) who, after calling for remand report, partly allowed the appeal.
4.1 It was contended before the CIT(A) that the assessment order is not valid as wrong section viz. 115WE(3) was mentioned which deals with FBT (Fringe Benefit Tax). The said contention of the assessee was ruled out by the CIT(A) placing reliance on the plain provisions of section 292B.
4.2 As regards the addition made on cash payment of Rs.533 lakhs, the CIT(A) had passed detailed order vide paras.6.4 to 9.3 and confirmed the addition observing as under:
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Thus, the CIT(A), after considering the evidence filed before him, had come to the conclusion that out of the addition made of Rs.2,32,000/- as cash payment to M/s. Uday Associates, a sum of Rs.20 lakhs which was paid by way of cheque was deleted by the CIT(A) and in respect of cash payment made to Ms.Sarvamma & Ms. Lakshmi of Rs.1.5 crores, the entire sum has been confirmed by the CIT(A). However, addition made on account of cash payments made to various parties of Rs.83 lakhs was deleted by
ITA No.717 & 732/Bang/2014 Page 24 of 37 the CIT(A) by holding that there was sufficient cash available to make above cash payments.
In respect of addition on account of share application money, addition has been confirmed after considering the evidence brought before him and also further observed that income earned by the assessee-company was diverted to coffers of directors to minimise tax incidence and built up cash in the hands of respective directors. In respect of addition made on account of development expenditure of Rs.26,40,000/- and expenditure on account of Rs.35,81,735/- debited to P&L Account was directed to be deleted by the CIT(A) after satisfying himself that the provisions of TDS were complied with by the assessee.
Even payments out of cash of Rs.12,24,000/- was directed to be deleted by the CIT(A) after appreciating evidence brought on record that the payments were made for business considerations.
Being aggrieved by that part of the order which is against the assessee, the assessee is in appeal before us in ITA No.732/Bang/2014 and the revenue is also in appeal before us in ITA No.717/Bang/2014 aggrieved by that part of the order of the CIT(A) which is against the revenue.
The assessee raised the following grounds of appeal:
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First, we shall deal with the assessee’s appeal viz. ITA No.732/Bang/2014. 9.1 Ground Nos.1, 2 and 4 are general in nature and do not require adjudication.
ITA No.717 & 732/Bang/2014 Page 26 of 37 9.2 Ground No.3 challenges that the assessment order is not valid since wring section was mentioned viz. 115WSE(3) which deals with FBT.
9.3 After hearing both sides, we are of the considered opinion that mere mention of wrong section in the assessment order does not render the assessment order invalid especially keeping in view the plain provisions of section 292B. The assessee-company had participated in the assessment proceedings and there was no dispute about the issue of notice u/s 143(2). The proceedings finally culminated in passing of the order u/s 143 though wrong section was mentioned. We do not find fallacy in the reasoning of the CIT(A). Hence, we confirm the order of the CIT(A) on this ground. This ground of appeal is dismissed.
Ground No.4 challenges the addition made on account of cash payment made to various parties. Addition of Rs.2,32,00,000/- was made by the AO on account of cash payment made to M/s.Uday Associates. During the course of survey operations the revenue found MoU dated 13/08/2007 that one Mr.Anurag Jain of M/s.Uday Associate. In terms of this MoU, an amount of Rs.2,32,00,000/- was paid by way of cash towards consideration for purchase of 140 sites. The director of the assessee-company was also examined by the AO and the director expressed his inability to furnish any details. Therefore, the AO had drawn adverse inference that above payments were made
ITA No.717 & 732/Bang/2014 Page 27 of 37 out of books of account and there was no explained source of income for the said payment and brought to tax. Subsequently, above statement was retracted and filed letter on 01/12/2008 saying that payment of Rs.2,32,00,000/- was never made. This agreement was entered with the intention to make believe that property is worth more and to escape vigour from political bigwigs, who who evidenced keen interest to buy the aforesaid lands. Further, it was submitted that another agreement was entered with Mr.Anurag Jain of M/s.Uday Associates for a consideration of Rs.120 per sq.ft. for buying of same property. These two MOUs were found and impounded by the department from the assessee Therefore it was contended that only second MoU to be taken into consideration in terms of which a sum of Rs.70,70,000/- was paid to AJ by way of cheques and these payments are duly reflected in the books of account. This contention was not accepted by the AO. However, the CIT(A) has given relief of Rs.20 lakhs to the extent of payment made by cheque for the simple reason that statement was given by the director of the company that cash payment of Rs.232 lakhs was made in terms of the first MoU. The addition was made based on this statement of the director of the company. This statement was retracted by the assessee vide letter dated 1/12/2008. In other words, addition was based not only on the sworn statement of the director of the company but also corroborated by the MoU found as a result of survey operations. Had the second MoU has
ITA No.717 & 732/Bang/2014 Page 28 of 37 been the real one, directors would have stated so during the course of giving the sworn statement before the AO. Merely because statement was retracted, it does not lose its evidentiary value especially in view of the fact that sworn statement is corroborated by the MoU found. The very fact that the director of the assessee-company had made a statement, suggest that he is a person in the know-how of business of the company and manner in which it is conducted. In fact, his statement was made in the context of MoU found during survey operations. The retracted statement is not supported by any documentary evidence i.e. entries in the books of account and vouchers to establish that statement made earlier was not true and correct. Moreover, onus is on the deponent of the statement who seeks to retract the same to establish that earlier statement was not correct. Furthermore, there was no allegation that the statement was made out of coercion or duress on the assessee by the assessee to make a statement contrary to the facts. Thus, in light of this background, statement given by the director of the assessee-company that cash payments were made out of books of account does not make unbelievable and there was no explanation offered in the retracted statement supported by any evidence in the books of account maintained by the assessee- company. Thus the addition made can be sustained. We are also supported by the decision of Hon’ble Bombay High Court in the
ITA No.717 & 732/Bang/2014 Page 29 of 37 case of T.Lakhamshi Ladha & Co. vs. CIT (2016) 386 ITR 245 wherein it was held as follows:
(b) The decision of the Gujarat High Court in Kailashben Manharlal Chokshi v. CIT [2010] 328 ITR 411 wherein the statement made under Section 132 (4) of the Act was subsequently retracted giving proper explanation with documents in support of the retraction. Further, the statement therein was recorded at midnight, which was considered to be in voluntary in view of the subsequent retraction with documentary evidence. In the present facts, it is not the case of the appellant that the statement made under Section 132(4) of the Act was recorded in the midnight or that any pressure or coercion was put upon the appellant to make a statement contrary to the facts. In the present facts, the statement dated 15th September, 1988 was made at 9.30 p.m. This is not an odd hour. Moreover, the retraction was bereft of any supporting evidence to establish that the original statement made on oath is incorrect. Thus, the aforesaid decision does not assist the appellant. Here again, the onus to establish by corroborative evidence is upon the assessee that the statement made on oath earlier is not correct while retracting it.
10.1 The submission of the assessee-company that no addition can be based on mere statement cannot be accepted in view of above facts. In view of the fact that addition was not made merely based on statements, but based on corroborative evidence found i.e. MoU. Furthermore, the onus lies on the assessee-company to prove that first MoU was not acted upon. The revenue has discharged the initial burden of finding some material to support the finding of concealment of income.
ITA No.717 & 732/Bang/2014 Page 30 of 37 10.2 Burden of proof required is described by the Hon'ble jurisdictional High Court in the case of CIT vs. Sangmeswara Associates (345 ITR 396) as follows:
“36. In a situation where the assessee admits that a return which had been filed earlier did not disclose a true or full income, which is the case in the present situation, does not warrant proof or burden on the revenue to prove things, as it is well settled legal principle that any proof and manner of proof are all not required when there is an admission. Proof is required where it becomes a contentions issue and person asserting is required to make good his version. But in a situation where it is not contested, but admitted, production of proof is not necessary nor warranted in law.”
10.3 Law does not impose any burden on the authorities to prove by positive evidence that the accounts are unreliable or that income assessed is the correct figure. Fact necessary to prove the claim would be within the knowledge of the assessee and it is the duty of the assessee alone to prove that what is claimed is true and correct. (5 ITR 564, 12 ITR 441 and section 106 of the Evidence Act] In view of the above settled position, we have no option but to confirm the action of the lower authorities. The grounds of appeal in this regard are dismissed.
Ground No.4.2 challenges the direction of the CIT(A) retaining the addition of Rs.37 lakhs out of total addition of Rs.68 lakhs. The AO made addition of Rs.68 lakhs as alleged to be cash payment made to Global Linking Infrastrcture (GLI) and also confirmed by sworn statement of the director of the company.
ITA No.717 & 732/Bang/2014 Page 31 of 37 However, vide retracted statement dated 1/12/2008, payment of Rs.43 lakhs was admitted and subsequently enhanced to Rs.54 lakhs. 11.1 On appeal before the CIT(A), after considering that payments to the tune of Rs.31 lakhs was made by way of cheque and Rs.23 lahs was made by way of cash, the CIT(A) has disallowed entire cash payment of Rs.23 lakhs under the provisions of section 40A(3) of the Act and also confirmed the difference between declared under sworn statement and admitted in the retracted statement of Rs.54 lakhs of Rs.14 lakhs. Thus, confirmed the addition of Rs.37 lakhs.
11.2. Being aggrieved by the direction of the CIT(A) confirming addition of Rs.37 lakhs, the assessee is before us in the present appeal.
Addition was made based on sworn statement of the director of the assessee-company. Retraction of statement subsequently made on 1/12/2008 only seeks to amend the original statement made i.e. Rs.68 lakhs to Rs.43 lakhs reduced to Rs.54 lakhs. Thus, there is inconsistence in the approach of the assessee-company. This discrepancy is not explained with reference to any documentary evidence or books of account, voucher etc. The CIT(A), while deleting the payments made by cheque had confirmed the balance addition by holding that by
ITA No.717 & 732/Bang/2014 Page 32 of 37 assessee’s own admission payment of Rs.23 lakhs was made in cash. The discrepancy between cash statement in sworn statement and retracted statement is not explained with corroborative evidence. The reasoning of the CIT(A) is in conformity with the reasoning given by us while upholding addition of Rs.2,12,00,000/- in respect of ground No.4.1. Therefore, we do not find any reason to interfere with the finding of the CIT(A) and the ground of appeal is dismissed.
Ground No.4.3 : The AO made addition of Rs.1.150 lakhs of cash payment made to Ms.Sarvamma and Ms.Lakshmi. The AO found cash vouchers in the name Ms.Sarvamma and Ms.Lakshmi. In the retracted statement, though the assessee admitted having made cash payments but explained that above payments were made out of collections from customers and receipt of share application money. During the course of proceedings before the CIT(A), ledger extract of receipt of share application money were filed before the CIT(A). On consideration of the same, the CIT(A) concluded that there was no corresponding debit to cash account evidencing payment of cash to said parties. Thus, concluded that share application money received from customers was not utilized for above payments and thus confirmed the addition.
Even before us, no evidence was filed evidencing that above payments were made out of explained source of income.
ITA No.717 & 732/Bang/2014 Page 33 of 37 Furthermore, it is admitted fact that above cash payments were made towards acquisition of property which is treated as stock-in- trade by the assessee-company. Therefore, any cash purchase of above Rs.20,000/- cannot be allowed as a deduction under section 40A(3) of the Act. On this ground also, addition requires to be sustained. Therefore, we do not find any reason to interfere with the order of the CIT(A). Hence, this ground of appeal is dismissed.
Ground No.5: Next ground of appeal relates to addition on account of receipt of share application money of Rs.120 lakhs. The AO made addition as the assessee had failed to discharge the onus of proving genuineness, identity and credit worthiness of the share applicants. It is matter of record that the assessee- company had failed to discharge onus lying upon it in terms of provisions of section 68 during the course of assessment proceedings. During the course of proceedings before the CIT(A) also, the assessee-company had not filed any evidence in support of satisfying three ingredients which are required to be satisfied.
15.1 The only argument of the assessee-company appears to be that it amounts to double addition once on account of payment made to Ms.Sarvamma and Ms.Lakshmi and second, once again under section 68 addition as unexplained share application money. The CIT(A) also confirmed the same.
ITA No.717 & 732/Bang/2014 Page 34 of 37 15.2 Before us also, assessee-company had not filed any evidence in support of receipt of share application except filing ledger extract of share application money received and copies of ITRs of directors of the company. This in our considered opinion, does not satisfy any of the ingredients envisaged under provisions of section 68 of the Act. The addition under section 68 is confirmed.
15.3 The other contention of the assessee-company that it amounts to double addition cannot be accepted. Addition on account of payment made to Ms.Sarvamma and Ms.Lakshmi on account of unexplained cash to make above payments whereas addition on account of receipt of share application money is under section 68 both operate in different field. Thus the contention of the assessee-company cannot be accepted. This ground of appeal is also dismissed.
In the result, the appeal filed by the assessee is dismissed.
The revenue raised the following grounds of appeal in its appeal viz. ITA No.717/Bang/2014 :
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Ground Nos.1, 5 and 6 are general in nature and do not require adjudication. 19. Ground Nos. 2 and 3 challenge the direction of the CIT(A) deleting the addition of Rs.83 lakhs on account of payments made to various parties.
19.1 The learned CIT(DR) submitted that the addition should not have been deleted without appreciating the evidence that in the absence of proper evidence that payments are made out of
ITA No.717 & 732/Bang/2014 Page 36 of 37 known sources of income. The CIT(A) merely presumed that withdrawals made from bank were utilized for the purpose of making above cash payment.
19.2 On the other hand, learned authorised representative of the assessee relied on the order of the CIT(A).
We heard rival submissions and perused the material on record. The CIT(A) deleted addition of Rs.83 lakhs by presuming that payments were made from cash withdrawals from bank. It is undisputed fact that during the course of assessment proceedings, the assessee-company had not co-operated in the assessment proceedings and the required information as called for by the AO was not furnished. Therefore, the AO had drawn adverse inference and made the additions. If the CIT(A) had considered any additional evidence filed before him to come to conclusion that cash payments have been made out of known sources of income or out of cash withdrawals, such additional evidence should have been forwarded to the AO in terms of provisions of rule 46A of the IT Rules or the comments of the AO should have been obtained. In any event, the CIT(A) should have brought on record evidence relied upon by him suggesting that cash payment of Rs.83 lakhs was made out of cash withdrawn from bank which is available to make this impugned payment. Failure to do so renders the order of the CIT(A) invalid.
ITA No.717 & 732/Bang/2014 Page 37 of 37 Therefore, in the interest of justice, we remand this ground of appeal to the file of the CIT(A) for de novo adjudication after affording due opportunity to the assessee.
In the result, the appeal filed by the revenue is allowed for statistical purposes.
Order pronounced in the open court on 19th October,2016
Sd/- Sd/- (SUNIL KUMAR YADAV) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Place : Bangalore D a t e d : 19/10/2016 srinivasulu, sps Copy to : 1 Appellant 2 Respondent 3 CIT(A)- Bangalore 4 CIT 5 DR, ITAT, Bangalore. 6 Guard file By order Assistant Registrar Income-tax Appellate Tribunal Bangalore