ASST CIT CEN CIR 46, MUMBAI vs. MOIZ M. LOKHANDWALA, MUMBAI

आदेश / O R D E R

Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated 31/01/2014 of the Ld. First Appellate Authority, Mumbai. The only ground raised by the Revenue pertains to deleting the addition of Rs.1.5 crores made u/s 69C of the Income Tax Act, 1961 (hereinafter the Act) without appreciating the fact that the renovation of residential bungalow “Tez Zahara”, belonging to the assessee and the source of which has not been explained by the assessee.

The present assessee was covered under search action on the basis of the search on group companies, therefore, notice u/s 153A of the Act was issued and served upon the assessee. In response to the same, the assessee declared total income of Rs.9,61,180/- in the return filed by the assessee. Subsequently, notice u/s 143(2) was served upon the assessee. The assessee was asked to furnish the necessary details. The assessee attended the proceedings on various occasions and submitted the details along with clarification as mentioned in the assessment order itself. The assessee is one of the Directors of the company namely M/s Lokhandwala Infrastructure India Ltd.. As per the Revenue, certain incriminating documents/loose papers were found and seized. At page-3 of annexure-A-1, there were certain rough notings with respect to cash payments incurred on various projects undertaken by the group companies. The statement of the assessee was recorded with respect to the entries made on such loose papers. The assessee, as per the Revenue, accepted that these transactions are not recorded in the books of accounts of the assessee company and thus as per the statement of Shri M. A. Lokhandwala, an additional income of Rs.1,22,00,000/- was offered for Assessment Year 2009-10 in the hands of the M/s Lokhandwala Infrastructure India Pvt. Ltd.. Similarly, the statement of the assessee was recorded u/s 132(4) of the Act on 23/12/2008, at his residence and the seized material was confronted to him. The assessee was asked to give the details of expenditure on the interior decoration made in “Tez Zahara Bungalow”. As per the Revenue, he admitted that he incurred expenditure of Rs.1.5 crores on the renovation of the bungalow. As per the Revenue, the assessee could not explain the source of the expenditure incurred on the renovation, thus, u/s 69C of the impugned amount was made to the income of the assessee.

2.2. The assessee carried the matter in appeal before the Ld. Commissioner of Income Tax (Appeal), wherein, the expenditure was satisfactorily explained by the assessee and thus the addition made u/s 69C was held to be unwarranted, consequently, deleted. The Revenue is aggrieved and is in appeal before this Tribunal.

2.3. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, before coming to any conclusion, we are reproducing hereunder the relevant portion from the impugned order for ready reference and analysis:-

“5.0 The only ground of appeal pertains to the addition of Rs.1,50,00,000/- u/s.69C of the Act on account of unexplained expenditure. It is stated in the assessment order that during the course of search & seizure proceedings, the statement of Shri Moiz Lokhandwala, the assessee, was recorded u/s.132(4) of the Act on 23.12.2008 and he was specifically asked to give the details of expenditure on interior decoration made at his residence 'Tez Zahra Bungalow'. In reply, the assessee stated that he had incurred expenditure of Rs,1.5 crores on renovation and interior decoration of his bungalow and the renovation was carried out in 2003. During the course of assessment proceedings, the assessee was asked to furnish the source of expenses made on renovation / interior decoration expenses on the bungalow. According to the A.O., the assessee did not offer any explanation in this regard. Therefore, the A.O held that the assessee made such expenses out of his undisclosed sources of income and accordingly made an addition of Rs. 1,50,00,000/- uls.69G of the Act to the total income of The assessee.

6.0. During the appeal proceedings, Ld. A.R. of the appellant filed written submissions. The submissions made by the appellant is reproduced as under:-

The Tez Zahra Bungalow is owned by Moonstar Properties Pvt. Ltd. The company has incurred the expenses in relation to the renovation of the bungalow from time to time which are duly reflected in the books of the company. As on 31.03.2005, the „total amount spent towards the bungalow as appealing in the books of the company is Rs.1,50,62,617/-. This company is owned by the Lokhandwala family and they have funded towards the renovation of the bungalow.'' 6.1 The appellant furnished copies of balance sheet of M/s.Moonstar Properties Pvt. Ltd. as on 31.03.2003 and as on 31.03.2004 and the list of shareholders of M/s.Moonstar Properties Pvt. Ltd. A copy of the written submissions filed by the appellant during the appeal proceedings were forwarded to the Assessing Officer vide letter dated 01.12.2011 and a report was called for on the objections raised by the appellant. The Assessing Officer vide letter dated 13.02.2012 has submitted the remand report. The relevant portion of the report is reproduced as under: "In this regard, on verification of the details submitted by the assessee and Moonstar Properties Private Limited it is seen that the bungalow had been shown in the return of income filed by Moonstar Properties Pvt. Ltd. as its assets under the head Building, however it is further seen that in the return of income for assessment year 2004-05 the cost of the building has been shown at Rs.73,91,275/- whereas in the statement of income the assessee has stated that they incurred approximately Rs. 1.5 crores on the interior decoration of the bungalow and that renovation was carried out in 2003. In this regard it is pertinent to note that in the balance sheet the interior decoration of the bungalow was meted out by the assessee from its undisclosed source of income. It is further seen from the balance sheet of the Moonstar Properties Pvt. Ltd. for the period ending 31st of March, 2004 that Mioz Lokhandwala has been shown creditor for Rs. 7,27,500/-, however, when the return of income of Moiz M. Lokhandwala was cross verified for the period ending 31st of March, 2004, it is seen that M/s. Moons tar Properties Private Limited has not been shown as debtor in its balance sheet. In view of the above, it is clear that the assessee has failed to produce evidence with regard to unsecured loans given by him to Moonstar Properties Private Limited and the addition was rightly made by the assessing officer under section 69C of the I.T. Act."

6.2 Since the remand report was found to be inconclusive on the issue of addition made u/s.69C of the Act, vide order sheet noting dated 15.03.2012, the appellant was directed to appear before the Assessing Officer and submit the required information and clarifications. The Assessing Officer was directed to submit the remand report thereafter. The Assessing Officer subsequently submitted the remand report vide letter dated 17.01.2013, which is as under:

"6. During the course of remand proceedings, vide letter dated 04.01.2013 assessee was asked to furnish bills / vouchers in respect of renovation and complete sources of payments in respect of renovation made to the bungalow. Assessee was also asked to file copy of balance sheet of M/s.Moonstar Properties Pvt. Ltd. Shri H.K. Panda, CFO attended and filed submissions and copies of balance sheets, ledger copies of account respectively of M/s.Moonstar Properties Pvt. Ltd. in the books of M/s.Lokhandwala Kataria Constructions Pvt. Ltd. It is submitted that the bungalow is owned by M/s.Moonstar Properties Pvt. Ltd. and expenses incurred in relation to the renovation of the bungalow are duly reflected in the books of the company. As on 31.03.2005, the total amount spent towards the bungalow as appearing in the books of the company was Ps. 1,50,62617/-. The above said company is owned by the Lokhandwala family and they have funded towards the renovation of the bungalow.

Details Amount Amount Bungalow A/C. 81,78,329 1 M.A. Lokhandwala 89,08,000 2 Moiz Lokhandwala 7,27,500 3 Z. A. Lokhandwala 8,55,000 4 Ali Lokhandwala 2,500 5 R.M. Lokhandwala 3,50,000 Total 1,08,43,000 81,78,329 Hence, it is clear that the amount of expenditure meted out by the assessee on interior decoration of the bungalow carried out in the year 2003 remained unexplained. Further, the sum of Rs.1.50 crores expended by the assessee as per statement recorded u/s. 132(4) on 23.12.2008 remained unexplained in the absence of any documentary evidence as discussed above. Further as stated above, the unsecured loan in the balance sheet of M/s.Mootistar Properties Pvt. Ltd. for the year ending 31.03.2004 shows a sum of Rs.7,27,5001- as closing balance in respect of Mr. Moiz Lokhandwala as above. Thus it is clear that renovation expenses of Rs. 1.5 crore remained unexplained in the hands of Moiz Lokhandwala.

The nature of the transaction also stands supported by 11. the assessee's own admission that "we incurred approximately Rs. 1.5 crore on the interior decoration of the bungalow. The renovation was carried out in 2003". In view of the above, it can be said that expenditure incurred in renovation of building could not be established with documentary evidence and the A. 0 has tightly made the addition u/s.69C of the Income-tax Act, 1961.

6.3 A copy of the remand report was made available to the appellant vide order sheet noting dated 12.08.2013 and an opportunity was given for offering the comments and further explanations, if any. The appellant submitted the explanations and comments on the remand report on 18.12.2013. The submission of the appellant is given as under:-

"The Ld. Assessing Officer has already submitted a remand report dated - 13.02.2012 before the Honorable CIT(A). The Honorable CIT(A) after considering the remand report dated 13.02.2012 of the Assessing Officer, specifically directed the Ld. Assessing Officer only to examine the source of unsecured loans given by the Assessee, his relative & his group companies to Moonstar Properties Pvt. Ltd. The Honorable CIT(A), never doubted upon the expenses incurred in Moonstar Properties Pvt. Ltd., Honorable CIT(A) only wanted to know the source of fund given as unsecured loans to Moonstar Properties Pvt. Ltd. However, the Ld. Assessing Officer while submitting the remand report has gone beyond the limit & brought some of the issues again and again, which was not called for. Your Honor may appreciate the fact that, the issue of amount incurred towards renovation of bungalow Tez Zahra is explained during the course of investigation proceedings, at the time of assessment and also in the hearing before the Honorable CIT(A). The Honorable CIT(A) never doubted on the expenses incurred towards the renovation of the bungalow. The Honorable ClT(A) just wanted to know the source of unsecured loans given to Moonstar Properties Pvt. Ltd. However, the Ld. Assessing Officer has raised certain issues in the remand report which was not called for, without prejudice to above we Mere by submit our detail submissions on the remand report dated 17.01.2013 submitted by the Assessing Officer as under: 1) The relevant statement recorded under Section 132(4) dated 23.12.2008, as mentioned in Assessment Order is reproduced here under: Q. No. 13 Please give details of expenditure on the interior decoration of Tez 29Jra bungalow? Ans. we incurred approximately Rs. 1.5 crores on the interior decoration of the bungalow. The renovation was carried out in2003. The assessee stated that the renovation was carried out in 2003 and had never stated that, the renovation was completed in 2003. There is no doubt that the renovation was started in the year 2003 and was completed in mid 2004. Also, certain bill is received only after the completion of the renovation and which was subsequently booked in the books of account, which the assessing officer failed to take into consideration. The Assessing Officer suo motto concluded that the renovation was completed in the year 2003. The ledger copies of account of Moonstar Properties Pvt. Ltd., in the books of Lokhandwala Kataria Constructions Private Limited which was duly submitted, also shows total expenses of Ps.

7,06,5091- and advances of Rs. 34,22,670/- total amounting to Rs. 41,29,1791- made on behalf of renovation / construction of bungalow. The Ld. Assessing Officer erred in concluding that Ps. 41,29, 179/- should have been included in Building Cost, since Rs.34,22, 670/- were merely advance paid for works to be, done subsequently. However, due to clerical error the amount of Ps.41,29,1791- is not shown in the books of M/s. Moonstar Properties Pvt. Ltd. as on 31.03.2004, but the fact should also be acknowledged that the same was considered subsequently in the next year and duly appeared in the books of Moonstar Properties Private Limited as on 31.03.2005.

The Ld. A.0 failed to consider the unsecured loan position as on 31.03.2005, which shows the inflow of fund from family members to the tune of Ps. 76,29,399/- in the subsequent year, the details breakup of the unsecured loans as on 31.03.2005 are as follows:

Name Amount M.A. Lokhandwala Rs. 96,43,000/- Moiz Lokhandwala Rs. 30,31,899/- Z.A. Lokhandwala Rs. 31,50,000/- P.M. Lokhandwala Rs. 3,50,000/- Aliasgar M. Lokhandwala Rs.22,97,500/- Total RS. 1,84,72,399/-

The above mentioned point clearly proves the source of the fund of renovation of the bungalow.'

6.4 The appellant submitted that the expenses incurred in relation to renovation of bungalow are accounted in the books of M/s.Moon star Properties Pvt. Ltd. As on 31.3.2005, the total investment in the books of the company is Rs.1,50,62,617/-. The renovation was started in the year 2003 and got completed in the year 2004 and the renovation expenses are accounted in the F.Y.2003-04 and F.Y.2004-05. The appellant furnished account copies of the above parties referred in para 6.3 above who appear as the loan creditors in the books of M/s.Moonstar Properties Pvt. Ltd. and also reconciled the difference in accounts The appellant also contested the validity of the addition made u/s 69C of the Act and cited the decision of Honourable Delhi High Court in the case of Radhika Creation (ITA 692/2009). Decision: 7.0 I have carefully examined the facts of the case, the stand taken by the A.0 in the assessment order and in the remand report, the grounds of appeal, the written submissions and further rejoinder filed by the appellant during the hearing proceedings 7.1 During the course of search the appellant admitted u/s.132(4) of the Act that they have incurred approximately Rs.1.5 crore on the interior decoration of "Tez Zahra bungalow" and the renovation was carried out in the year 2003. During the course of appeal proceedings as well as during the remand proceedings the appellant explained that the renovation expenses are accounted in the books of M/s.Moon Star Properties Pvt, Ltd. The appellant produced the balance sheet of the company to show that a sum of Rs.81,78,324/- was accounted in the books of the company as on 31.3.2004 and a sum of Rs.1,50,62,617/- was accounted in the books of the company as on 31.3.2005. It is also seen that the renovation expenses to the tune of Rs.41,29,179/- was incurred by M/s.Lokhandwala Kataria Construction Pvt. Ltd during the period 2003-04 and the same was transferred to the books of M/s.Moon Star Properties Pvt. Ltd. during the year 2004-05. The appellant also furnished the details of sources by furnishing the account copies of the parties concerned including the account statement of the appellant.

7.2 It may be observed that the appellant did not admit any undisclosed income on account of any renovation expenses on Tez Zahra bungalow in the statement recorded u/s.132(4) of the Act and what he stated at the time of search was that a sum of Rs.1.5 crore approximately was incurred by them as renovation expenses. The appellant did not say that the sum of Rs.1.5 crore was incurred by him and instead he used the word 'we incurred'' meaning thereby that the investment was made by many persons. Though a sum of Rs.1,50,62,617/- is found to be accounted in the books of M/s.Moonstar Properties Pvt. Ltd., the money was actually invested by the unsecured loan creditors as shown in para 6.3 above. Further, in the statement recorded u/s.132(4) of the Act the renovation was stated to have been carried out in the year 2003 and this was explained by the appellant that the year 2003 comprises two financial years 2002-03 and 2003-04. The appellant was also able to substantiate that the substantial portion of the renovation was carried out during this period. As on 31.3.2004 a sum of Rs.81,78,324/- was accounted in the books of M/s Moon star Properties Pvt. Ltd. and a sum of Rs.41,29,179/- was incurred by M/s.Lokhandwala Kataria Construction Pvt. Ltd and the balance was incurred during the period 2004-05. In view of the above and considering the fact that the renovation expenses as admitted during the course of search are accounted in the books of M/s. Moonstar Properties Pvt. Ltd, no addition can be made in the hands of the appellant and therefore the addition of Rs.1.5 crore is unwarranted and is hereby deleted.

In the result, the appeal is allowed.”

2.4. Considering the finding recorded by the Ld. Commissioner of Income Tax (Appeal), we find that the whole addition made by the Assessing Officer is based upon the statement recorded on 23/12/2008 with respect to the expenditure incurred on interior decoration made in the building “Tez Zahara bungalow”. The expenditure was claimed to be carried out in 2003. The stand of the Revenue is that the assessee could not offer any explanation with regard to the expenditure incurred on the building. It is noted that during first appellate stage, the assessee filed written submissions, which has been reproduced in the impugned order. The building was claimed to be owned by Moonstar Properties Pvt. Ltd. and the expenses were incurred by the company itself from time to time and the expenses were reflected in the books of the company. As on 31/03/2005, the total amount spent on the bungalow and appearing in the books of the companies was Rs.1,50,62,617/-. The assessee has also furnished the copies of the balance sheet of M/s Moonstar Properties ltd. as on 31/03/2003 and 31/03/2004 along with the list of share holders of the company. The explanation of the assessee along with written submissions were forwarded to the Assessing Officer for his comments. The ld. Assessing Officer vide letter dated 13/02/2012 furnished the remand report, before the Ld. Commissioner of Income Tax (Appeal) and the relevant portion of the same has been reproduced in the impugned order itself. The assessee was also directed to appear before the Assessing Officer and to submit the required information/clarification. The Assessing Officer was also directed to submit the remand report thereafter. The Ld. Assessing Officer vide letter dated 17/01/2003 furnished the remand report which has also be reproduced in the impugned order. It is further noticed that the Ld. Assessing Officer himself has admitted that the building in question belongs to M/s Moonstar Properties Pvt. Ltd. and not by the assessee. The property was also shown as fixed assert schedule after depreciation as on 31/03/2004 at Rs.73,91,275/- in the books of the company itself. It was also found by the Assessing Officer that the renovation was also carried out by another company M/s Lokhandwala Katari Construction Pvt. Ltd. and the total expenses was declared for the construction of the bungalow at Rs.41,29,179/-. Totality of facts clearly indicates that the observation made in the assessment order and the consequent addition made on account of renovation made by the assessee is not proved. The expenses were contributed by the Lokhandwala family, the details of which have been mentioned in para-9 (page-6) of the impugned order. It is also noticed that before coming to the conclusion, the remand report was made available to the assessee and his comments were sought. The submissions of the assessee are mentioned in para-6.3 onwards of the impugned order. As per the submissions of the assessee, the expenses with respect to renovation of the building are accounted for in the books of the M/s Moonstar Properties Pvt. Ltd. as on 31/03/2005 and the total investment made was Rs.1,50,62,617/-. The renovation started in the year 2003 and was completed in 2004, thus, the expenses were accounted for in Financial Year 2003-04 and 2004-05. The assessee also produced the necessary details with respect to the accounts of the parties mentioned at page-10 of the impugned order and these parties were loan creditors in the books of the M/s Moonstar Properties Ltd. and duly reconciled the accounts. Considering the totality of facts, the Ld. Commissioner of Income Tax (Appeal) and also this Tribunal are satisfied that the renovation expenses are duly accounted for in the books of the company. The assessee also furnished the details of sources of the expenses incurred by the respective parties by furnishing the accounts copies including the account statements of the assessee. It is also noted that there uncontroverted finding in the impugned order ( para 7.2) that the assessee nowhere admitted in the statement recorded u/s 132(4) of the Act that he incurred the expenses himself for renovation of the building and rather it has been specifically tendered that “we incurred”, which means investment was made by many persons. The amount of Rs.1,50,62,617/- was actually found to be incurred and accounted for in the books of M/s Moonstar Properties Ltd., thus, the assessee has duly substantiated that the expenses were incurred by the company and not by the assessee, consequently, we find no infirmity in the conclusion of the Ld. Commissioner of Income Tax (Appeal). His order is affirmed, resulting into dismissal of appeal of the Revenue.

Finally, the appeal of the Revenue is dismissed.

This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 15/11/2016.

Sd/- Sd/- (N.K. Pradhan) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated : 30/01/2017 f{x~{tÜ? P.S /�नजी स�चव आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//