ACIT, BHUBANESWAR vs. RAJDHANI SYSTEMS & ESTATES (P) LTD, BHUBANESWAR

आयकर अपीऱीय अधिकरण, कटक न्यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI N.S.SAINI, AM & SHRI PAVAN KUMAR GADALE, JM आयकर अपीऱ सं./ITA No.232&233/CTK/2012 (नििाारण वषा / Assessment Year :2007-2008 & 2008-2009) ACIT, Circle-2(2), Bhubaneswar Vs. Rajdhani Systems &Estates (P) Ltd., A/170, Sahid Nagar, Bhubaneswar स्थायी लेखा सं./जीआइआर सं./ PAN/GIR No. : AABCR 8271 L (अपीऱाथी /Appellant) (प्रत्यथी / Respondent) .. AND आयकर अपीऱ सं./ITA No.253&254/CTK/2012 (नििाारण वषा / Assessment Year :2007-2008 & 2008-2009) Rajdhani Systems &Estates Vs. ACIT, Circle-2(2), (P) Ltd., A/170, Sahid Bhubaneswar Nagar, Bhubaneswar स्थायी लेखा सं./ PAN No. : AABCR 8271 L (अपीऱाथी /Appellant) (प्रत्यथी / Respondent) .. राजस्व की ओर से /Revenue by : Shri A.K.Mohapatra, CITDR निर्ााररती की ओर से /Assessee by : Shri B.D.Ojha, AR सुनवाई की तारीख / Date of Hearing : 19/09/2017 घोषणा की तारीख/Date of Pronouncement 21/09/2017 आदेश / O R D E R Per Shri N.S.Saini, AM: These are cross appeals filed by the revenue and assessee against the separate orders of the CIT(A)-II, Bhubaneswar all dated 01.02.2012 for the assessment years 2007-08 and 2008-09. 2. Since the issue and facts involved in these appeals are interconnected, therefore, they are being heard and disposed off together as under.

2 Rajdhani Systems & Estates (P) Ltd. 3. In assessee’s appeal grounds No.2 in the assessment year 2007- 08 and ground No.1 in the assessment year 2008-09 are directed against the order of CIT(A) in confirming the addition of Rs. 2,44,05,043/- in the assessment year 2007-08 and Rs.77,78,770/- for the assessment year 2008-09 being 25% of the incremental advance received from customers. Whereas ground No.1 in revenue’s appeal for the assessment year 2007- 08 is directed against the order of CIT(A) in deleting the addition of Rs.7,32,15,130/- on account of unexplained advance received from customers. 4. Brief facts of the case are that the AO observed in the assessment year 2007-08 that the assessee had claimed to have received advance from customers of Rs.9,76,20,173/-. The closing balance as on 31.03.2007 was Rs.48,31,42,401/- and on 31.030.2006 was Rs.40,95,83,723/- or a net increase of Rs.7,35,58,678/-. The AO observed that the AR of the assessee failed to give details in respect of such increase in advance received from customers, the name and full addresses, etc., the assessee has himself claimed to have received advance of Rs.9,76,20,173/- but failed to give name and addresses of the customers. Therefore, the above advance received from customers was added as unexplained cash credit. Similarly, in the assessment year 2008-09, the AO made the addition of Rs.77,78,770/- on account of unexplained cash credit. 5. On appeal, the CIT(A) observed that he called for remand report from the AO, who submitted as under :-

3 Rajdhani Systems & Estates (P) Ltd. The AO during the remand proceedings has examined the 29.6 issue of advance from customers in detail as narrated above and has given the report quoted above in which AO's recommendation is as under:- "In this context, it is humbly submitted that the issues as (2), (3) and (6) above are identical to earlier years as discussed and the same ratio may be applied." The AO in the earlier preceding year viz; A.Y. 2003-04 has given the following report which the AO wants to be applied for this year. "(6) Advance from customers : The closing balance of advance from customers as on 31.03.2002 was Rs. 9,61,47,399/- and the corresponding opening balance Rs6,48,72,299/-. The difference of Rs.3,12,75,100/- is added due to non-compliance of the A/R as the identification of the so called customers were not established and the genuineness of the transactions were not proved. The matter was taken up during remand proceedings. Following the same principal as discussed for AYrs. 2000-01, 2001-02 etc., 25% of the incremental advance may be disallowed amounting to Rs. 78,18,775/- (25% of Rs. 31275100)." The report of the AO was given to the appellant and 29.7 appellant's rejoinder to the remand report has already been quoted above. The appellant submits that receiving advances from the customers is inherent in the nature of business. The buyers of the land pay money in advance and after the land is purchased and made ready the same were registered in the name of the buyers. The appellant has kept due record of the money receipt and the same were produced before the AO. Even in the search and seizure proceedings u/s.132 of the Act, no adverse evidence was found as far as advance from customers are concerned. The Department does not have any evidence to prove that any of the claim of advance from customers is wrong. In the original assessment the entire amount was added, as 29.8 argued by the appellant, on surmises and conjectures and in a cryptic manner. During the remand proceedings the AO has examined the persons on a test check basis as it was not possible on his part to examine each and every person. Such examination has gone in favour of the appellant. The persons who appeared before the AO have admitted that they have paid the amount and yet to receive the land against the payment. The appellant y/j submits that the AO during the course of examination has not come across a single case wherein any one of the customers has disowned the advance. Under such circumstances, the appellant submits that the AO should have accepted the claim of advance from customers as genuine.

4 Rajdhani Systems & Estates (P) Ltd. The appellant further submits that having failed to establish 29.9 that the advance from customers are not genuine, the AO exceeded his jurisdiction by citing the findings in the A.Y. 2008-09 which is also under appeal. The appellant also submits that the finding in the A.Y. 2008-09 is based on the presumption after giving opportunity to the appellant which is not the fact in the impugned case. The appellant further submits that the AO has allowed the entire customer advance received during the year in respect of projects lunched after the search period and for that matter the advance received during the relevant assessment year is to be allowed based on the finding of the A.Y. 2008-09. The appellant, therefore, submits that the remand report of the AO is based on surmises and conjectures and the finding of the AO that 25% of the customer advance should be added is without having any factual basis. Since the AO has failed to establish any part of the advance from customers is bogus, the Ld. A/R vehemently argued, the entire claim of advance from customers should be allowed, the addition made in this regard be deleted and AO's report for retaining 25% of the addition be rejected. 29.10 I have carefully considered the rival submissions. It is a fact that a search and seizure operation was conducted in the premises of the appellant company on 30.09.2005. The appellant company and the sister concern have received advances from nearly 35,000 customers. The amounts received were small installments. It is not possible by any investigative agency to verify the entire customer base of 35,000 customers. In the sampling done by the AO, out of 50 cases 10 persons could not be located at the given address. The Departmental IIT was deputed to effect the service of summons which could not be accomplished. The AO confronted the appellant with the situation. The Ld. A/R stated that he had given the address as per their records which is almost 9-10 years old and expressed his inability to produce the 10 persons on whom summons could not be served. Out of 40 persons who were summoned, 32 appeared and 8 persons did not turn up. Under such circumstances it cannot be said that the advance from customers is conclusively proved as claimed by the Ld. A/R. 29.11 Moreover the sampling size of 50 out of 35,000 customers is woefully inadequate to arrive at any valid conclusion. Therefore, I tend to agree with the AO that examination spanning over a time span of more than 2 years could not produce any conclusive result. The issue needs to be decided and cannot be kept hanging for all times to come. 29.12 The same AO had another occasion to verify advance from customers during the assessment proceedings for the A.Y. 2008- 09. The conclusion of the AO has already been quoted above. The AO has added 25% of the customers advance. It is true that each assessment year is separate and conclusion for one year cannot be imported to another year unless similar facts exist. In the instant case the customer base is the same and therefore, the AO had no

5 Rajdhani Systems & Estates (P) Ltd. other alternative but to arrive at a logical basis in the matter remanded to him. When the appellant claims the advance from customers it is for the appellant to adduce evidence to support the claim. No doubt the .appellant has supplied the necessary details to the AO. During the Examination of the sample size of 50 customers the appellant failed to produce or to give the present where about of 10 customers as stated above. 29.13 The truth of the matter cannot be ascertained under the given circumstances as stated above. The preponderance of probabilities backed by circumstantial evidences need to decide the issue. In the remand report the AO has categorically stated that 25% of the incremental customer advance be added as not verifiable. It is to be noted that in the original assessment order the AO has added 100% of the incremental customer advance. During the remand proceedings, after due examination, the AO is conceding 75% of the additions and urges for retaining 25% of the customer advance. Such request of the AO is quite reasonable under the facts and circumstances of the case. On the other hand, though the appellant prays for deletion of the entire addition, the appellant was not able to substantiate the claim. It is humanly not possible to verify 35,000 customers. Both the Department and the appellant have failed to prove their point with any clinching evidence. Therefore, under the facts and circumstances of the case some reasonable estimation is to be resorted to in deciding the issue. The AO having not been able to establish the entire advance as bogus, has conceded the major portion of the addition made viz; 75%. The AO requests for retaining 25% of the advances. 29.14 1 have carefully weighed the rival submission and have pondered over the issue in detail. Upon such careful consideration I tend to agree with the remand report of the AO. In the assessment order and in the subsequent remand report the AO has clearly made out a case for retaining 25% of the additions. The rejoinder to the remand report vehemently argues against any such retention. The appellant's submission wants to take advantage of inherent difficulty in investigation. The AO has test checked 50 cases in the remand proceedings. Further more 107 names were scrutinized at random during the proceeding for the A.Y. 2008-09. Based on these examinations the AO has reported for retaining 25% of the incremental customer advance. I find sufficient merit in the remand report of the AO. For the detailed reason given above, no merit is found in the rejoinder to the remand filed by the appellant on this issue and consequently same is rejected The AO is directed to retain 25% of incremental customer advance as not verifiable as suggested by him in the remand report quoted above. As a result, out of total addition of Rs.4,33,69,447/-, a sum of Rs.1,08,42,361/- (25% of Rs.4,33,69,447) is retained and the balance amount of Rs.3,25,27,085/- is deleted as suggested by the AO in the remand report quoted above and Ground No. 16 is partly allowed.

6 Rajdhani Systems & Estates (P) Ltd. 12.6 The same principle needs to be adopted in deciding the issue of advance from customers in the case of the appellant. As per the balance ) sheet the incremental increase of advance from customers, as reported by AO in the remand report, is Rs.8,22,01,074/-. The entire amount was Padded by the AO. In accordance with the remand report of the AO for the A. Y. 7M02-03 and in consonance with my appeal order in the case of the sister concern viz; HEP, 25% of the customer base is to be retained and balance f§7j5% is to be deleted. Accordingly, out of addition of Rs.8,22,01,074/-, s&yRs.2,05,50,269/- is retained and balance of Rs.6,16,50,805/- is deleted and Ground No. 4 is partly allowed." Thereafter the CIT(A) confirmed the addition being 25% of the incremental advances of Rs.1,19,20,603/- for the assessment year 2007- 08 and Rs.77,88,770/- for the assessment year 2008-09 after observing as under:- The above order clearly states that under the facts and 6.4 circumstances of the case, based on the remand report of the AO, 25% of the advance from customers is to be retained and balance 75% is to be deleted. The AO has bifurcated the amount relating to projects lunched before search period and after search period in the A.Yrs. 2008-09 and 2009-10. However, no such bifurcation has been done for this year. Instead, the AO has disallowed the whole amount. The AO has not mentioned anything about projects before search and after search in the order. It appears the appellant has not raised the bifurcation issue before the AO. The bifurcation given by the appellant in the submission has not been verified by the AO. In any case, the addition is in the similar line as of A.Yrs.2000-01 to 2006-07. Therefore, I would prefer to be guided by my earlier order in the case of the appellant as quoted above. The basis of addition is identical. Therefore, based on my order for the A.Y. 2004-05 and the for the reasons stated in the said order as quoted above, out of total addition of Rs.9,76,20,173/-, 25% amounting to Rs.2,44,05,043/- is confirmed and balance 75% amounting to Rs.7,32,15,130/- is deleted and Ground No.3 of the appeal is partly allowed. 6. Ld. AR of the assessee reiterated the submissions made before the lower authorities and on the other hand, ld. DR supported the order of CIT(A). 7. We find that a similar issue which came up before the Tribunal in one of the group cases in case of Hi-tech Estates & Promoters Pvt. Ltd.,

7 Rajdhani Systems & Estates (P) Ltd. in IT(SS)A No.03 to 09/CTK/2017 for the assessment years 2000-01 to 2006-07, wherein the Tribunal vide its order dated 31.08.2017 remitted the matter back to the file of AO with the following observations :- 15. We have heard the rival submissions, perused the orders of lower authorities and materials available on record. The undisputed facts of the case are that a search & seizure operation was conducted in Hi-tech Group on 30.9.2005 and books of account identified as NP-1 to NP-67 were seized. Thereafter, notice u/s.153A was issued on 31.8.2006 to the assessee company and assessment u/s.153A (b)(/144 of the act completed on 31.12.2007 at an income of Rs.4,72,10,484/- in assessment year 2001-02, at an income of Rs.1,51,31,691/- in assessment year 2000-2001, at an income of Rs.10,96,72,470/- in assessment year 2002-03, at an income of Rs.18,27,05,620/- in assessment year 2003-04, at an income of Rs.22,70,16,340/- in assessment year 2004-05, at income of Rs.5,00,00,000/- in assessment year 2005-06 and Rs.5,00,00,000/- in assessment year 2006-07. Thereafter, the matter travelled to the Tribunal and the Tribunal vide order dated 14.12.2012 in IT (ss) Nos.57 to 63/CTK/2011 for the assessment years 2000-2001 to 2006-07 set aside the order of the CIT(A) for all the years under consideration and restored the matter to the file of the Assessing Officer and directed the Assessing Officer to make denovo assessment on the basis of returns to be filed by the assessee in pursuance to notice u/s.153A, which ld counsel for the assessee had agreed before the Bench to file within three months from the date of receipt of this order. Pursuant to this direction of the Tribunal, the assessee filed return of income u/s.153A at an income of Rs.55,392/- in assessment year 2001-02, at an income of Rs.52,156/- in assessment year 2000-2001, at an income of Rs.1,44,736/- in assessment year 2002-03, at an income of Rs.2,55,370/- in assessment year 2003-04, at an income of Rs.3,32,607/- in assessment year 2004-05, at an income of Rs.2,95,575/- in assessment year 2005-06 and at an income of Rs.1,08,286/- in assessment year 2006-07. 16. The Assessing Officer thereafter made assessment at an income of Rs.82,79,500/- in assessment year 2001-02, at an income of Rs.38,07,040/- in assessment year 2000-2001, at an income of Rs.107,43,398/- in assessment year 2002-03, at an income of Rs.3,08,94,665/- in assessment year 2003-04, at an income of Rs.3,60,13,362/- in assessment year 2004-05, at an income of Rs.1,24,96,690/- in assessment year 2005-06 and at an income of Rs.1,64,20,570/- in assessment year 2006-07. 17. In an assessment made, the Assessing Officer has made addition under the head “advance from customers” @ 25% of the advances received by the assessee during respective years under consideration. The argument ofld A.R. of the assessee is that

8 Rajdhani Systems & Estates (P) Ltd. there was direction of the Tribunal to make denovo assessment after considering the return of income to be filed by the assessee and other materials. The Assessing Officer while making these assessments after the set aside of the assessment orders by the Tribunal, the same very additions were made which were in the set aside assessment orders. He submitted that the only basis for making addition of 25% of the advances received from customers is that for assessment year 2008-09, it was found that incremental advances were received from 3200 customers. Out of which, 514 customers were from whom cash was received but no land was allotted to them. These transactions were considered by the Assessing Officer as suspicious. In order to verify the same, a small sample of 50 customers were selected to test check and summons were issued, 32 of the persons turned up and appeared before the Assessing Officer and confessed under oath to have paid the amount and have not received the land. The Assessing Officer thereafter has stated in the remand report dated 28.3.2011 that since the sample size was of customer base of 3200 was too small, therefore, a revised method was devised to check the customer advance. He further noted that the assessee failed to give name and address of about 25% of customers in the assessment year 2008-09 and as the same customer base was handled, therefore, same ratio may be applied and 25% of incremental customer was treated as not verifiable and additions were made in the years under appeal, which was confirmed by the CIT(A). it was therefore, the argument of ld A.R. of the assessee that no incremental material was found during the course of search and as the additions have been made on estimate without any basis , same should be deleted. 18. On the other hand, ld D.R. supported the orders of lower authorities and argued that the assessee failed to produce names and address of the customers from whom it has received advance and hence, the Assessing Officer has made a very reasonable addition on the basis of estimate. Therefore, he submitted that the order of the CIT(A) should be confirmed. 19. In the above background of the case, we are of the considered view that the assessment orders have been framed in the years under appeal without thoroughly examining the seized materials. The Assessing Officer has made assessment by making a short cut of the entire procedure and estimating unverified customers at 25% of the incremental advances received by the assessee during the years and making addition thereof. In our considered view, such an approach of the Assessing Officer cannot be sustained in law. It is also observed that the statement of the Assessing Officer to the effect that name and address of about 25% of the persons from whom fresh advance was received during the assessment year 2008-09 could not be furnished by the assessee could not be controverted by the assessee. However, the amount which was claimed to have been received from such creditors has not been brought on record. It is imperative on the part of the

9 Rajdhani Systems & Estates (P) Ltd. Assessing Officer to consider seized materials in its entirety and thereafter draw a conclusion based on facts and make addition to the income of the assessee if he arrive at a conclusion that the seized materials include same undisclosed income of the assessee. If after verifying the seized materials, he cannot draw such a conclusion that seized materials include undisclosed income of the assessee, he cannot make addition to the income of the assessee even for a single rupee. We find that the Assessing Officer has not done his job as was expected from him properly and thoroughly and, therefore, we are left with no option and are constrained to restore the matter back to his file for adjudicating the issue afresh and hope that this time the Assessing Officer will do a thorough investigation of the seized material and thereafter, pass a well- reasoned order on the above issue. Hence, this ground of appeal for all the assessment years under consideration is allowed for statistical purposes. As the facts in the present appeal are identical, respectfully following the precedent, we set aside the orders of lower authorities and restore this issue back to the file of AO with same direction as given in the case of Hi- tech Estates & Promoters Pvt. Ltd. (supra). Thus, grounds No.2 in assessee’s appeal for the assessment year 2007-08 and ground No.1 in the assessment year 2008-09 along with ground No.1 in revenue’s appeal for the assessment year 2007-08 are allowed for statistical purposes 8. In assessee’s appeal ground No.1 for the assessment year 2007-08 and ground No.2 for the assessment year 2008-09 are directed against the order of CIT(A) in confirming the addition of Rs.1,29,20,603/- under the head development expenses for the assessment year 2007-08 and Rs.98,51,251/- for the assessment year 2008-09. 9. Brief facts of the case are that the assessee company is in real estate business and activities of the company is to buy and sell land. The land development expenses consists of amount paid for sand filling, laying of roads, road site plantation of the project, construction of culverts

10 Rajdhani Systems & Estates (P) Ltd. and amount paid over and above the registered value of the land to the land owners. The total amount of Rs.1,29,20,603/- for the assessment year 2007-08 including the amounts paid to land owners over and above the amount of registered value of the land amounting to Rs.1,02,22,919/- and the balance amount of Rs.26,97,684/- was spent for other development like sand filling etc. The assessee contended that the company paid more than the registered price else land is not available from the sellers. The land development expenses of Rs.1,02,22,919/- is an amount paid to seller of land in excess of registered value of land while registering the land in favour of the assessee. The assessee company had paid to the sellers of land to acquire the land which is the main business of the assessee. The extra amount so paid is the premium for sell of land which is general practice to sell and purchase of land. The AO’s observation that payment of such sum encourages circulation of black money is not correct. In present circumstances, the company maintained the records with regard to payments made to land owners. During the assessment proceedings the assessee submitted the details of land purchases including names and address of the persons from whom land has been purchased. The AO without enquiring as to whether the company has paid such amount to the sellers or not, added the amount of Rs.1,29,20,603/- for the assessment year 2007-08 and Rs.98,51,251/- for the assessment year 2008-09. 10. On appeal, the CIT(A) confirmed the disallowance of land development expenses of Rs.1,29,20,603/- for the assessment year

11 Rajdhani Systems & Estates (P) Ltd. 2007-08, observing that the assessee had not filed any details for the entire land development expenses as stated by the AO in the assessment order. The AO stated that the amount paid to the sellers was over and above the land price. The submissions advanced by the assessee before the AO were rejected on the ground that the extra amount paid to the sellers are in contravention to the rate fixed by the State Government and is not allowable expenditure. The AO noted that even if the bribes/tips etc be paid to get some work done, the same cannot be allowed as expenditure u/s.37 of the Act. Therefore, the AO disallowed the amount. The land is required to be registered on the price paid for such land and the payment over and above the registered price violates the Registration Act. The CIT(A) observed that no evidence was produced in support of the claim that the amount was really paid to the sellers. Therefore, the CIT(A) confirmed the addition of Rs.1,29,20,603/- under the head development expenses for the assessment year 2007-08 and similarly confirmed the addition Rs.98,51,251/- for the assessment year 2008-09. 11. Ld. AR reiterated the submission made before the lower authorities. On the other hand, ld. DR supported the orders of authorities below. 12. We find that while deciding the similar issue in one of the group cases in case of Hi-tech Estates & Promoters Pvt. Ltd., in IT(SS)A No.03 to 09/CTK/2017 for the assessment years 2000-01 to 2006-07, wherein the Tribunal vide its order dated 31.08.2017 remitted the matter back to the file of AO with the following observations :- 51. We have heard the rival submissions, perused the orders of lower authorities and materials available on record. In the instant

12 Rajdhani Systems & Estates (P) Ltd. case, the Assessing Officer observed that the assessee has made excess cash payment to the sellers of land as premium amount which has been debited under the head “land development charges”. According to the Assessing Officer, excess cash payments made to land sellers in the shape of premium amount cannot be held to be in the nature of development expenses and, therefore, disallowed deduction for the same u/s.37 of the Act. 52. Before the CIT(A), the assessee contended that the extra payment made to the sellers of the land in excess of the Bench mark price fixed by State Government for collecting stamp duty was akin to premiums paid to sellers of land for purchasing their land at the prevailing market price in such business. It was submitted that the assessee enters into written or verbal agreement with the owners of the land for payment of a fixed sum as consideration on prevailing market price of the land of the particular area. After the owner of the land is paid in full the agreed amount, the land is registered in the name of the assessee. At the time of registration of land, the amount of consideration mentioned in the conveyance deed is debited to land purchase account and the balance amount is debited to land development account. It was submitted that the price at which the assessee acquires land is a business decision on commercial expediency to run the business. If the assessee sticks to the bench mark price fixed by the State Govt, for collection of stamp duty, the assessee cannot purchase any land as the bench mark price is always lower than the market price and that will affect the running of the business of the assessee. The mention of the consideration in conveyance deed is for the purpose of collecting stamp duty and not the actual consideration of the transaction. Regarding allegation that the price paid over and above the registration price is a violation of Registration Act, the assessee has to pay fine or penalty for such violation if the State Government initiates action against the assessee and fine or penalty is not deductible u/s.37 of the Act. Hence, it was submitted that the amount paid over and above the registration price should be allowed as deduction u/s.37 of the Act. In support of his contention, the assessee placed reliance on the decision of Hon’ble Bombay High Court in the case of CIT vs. Shree PanchagangaSahakariSakharKarkhana Ltd., 250 ITR 772 (Bom). 53. Ld D.R. on the other hand relied on the order of lower authorities. 54. We find that the CIT(A) confirmed the action of the Assessing Officer on the ground of alleged violation of section 40A(3) of the Act. However, the relevant details as to the date of payment on which payment in violation of section 40A(3) was allegedly made by the assessee has not been brought on record. In the circumstances, in our considered view, it shall be in the interest of justice to restore this issue back to the file of the Assessing Officer for adjudication afresh after taking into consideration the applicability or otherwise of section 40A(3) of the

13 Rajdhani Systems & Estates (P) Ltd. Act. Thus, this ground of appeal is also allowed for statistical purposes.

As the facts in the present appeal are identical, respectfully following the precedent, we set aside the orders of lower authorities and restore this issue back to the file of AO with same direction as given in the case of Hi- tech Estates & Promoters Pvt. Ltd. (supra). Thus, grounds No.1 in assessee’s appeal for the assessment year 2007-08 and ground No.2 in the assessment year 2008-09 are allowed for statistical purposes. 13. In the revenue’s appeal for the assessment year 2007-08, ground No.2 is directed against the order of CIT(A) in allowing expenses claimed by the assessee towards incentive, sales promotion and miscellaneous expenses, since necessary evidence were not produced by the assessee before the AO for verification. 14. Brief facts of the case are the in the assessment year 2007-08, the AO observed that the assessee has claimed to have paid incentive of Rs.96,85,392/-, details were called for and the assessee stated that the amount was paid to staff members for bringing in more customers. The details were required for verification and on perusal of a text check basis, the AO found that the assessee could not explain about 10% of such income claimed to have been paid and disallowed 10% of the incentive to the extent of Rs.9,68,540/-. 14.1 Further, the AO observed that the assessee claimed Rs.10,65,230/- towards miscellaneous expenditure under the head scheme promotion expenditure, however to substantiate the claim, the assessee could not

14 Rajdhani Systems & Estates (P) Ltd. file any details, therefore, the AO disallowed 15% of Rs.10,65,230/- amounting to Rs.1,59,785/-. 14.2 Further, the AO observed that the assessee has claimed Rs.15,99,285/- towards sales promotion. On perusal of the ledger account of the head office and branches, the AO found that most of the expenses are either in kind or are personal in nature, however, the assessee could not provide any details to substantiate the legitimacy of the expenses, therefore, disallowed Rs.15,99,285/-. 14.3 For the same reasons, the AO disallowed Rs.31,81,690/- being incentive expenses, Rs.1,72,386/- being miscellaneous expenses and Rs.20,61,903/- being sales promotion expenses for the assessment year 2008-09 15. Before the CIT(A), the assessee claimed that in order to attract more customers, the assessee paid incentives to persons including staff members who helped in booking new customers. Further the assessee submitted that all the details of the incentive expenses were duly submitted to the AO, however, the AO did not mention any defect in the details, and estimated Rs.9,68,540/- being 10% of the claim is bad in law. 15.1 Likewise, the assessee submitted that various miscellaneous expenses like payment to villagers for village functions, daughters’ marriage of some renowned villager and other miscellaneous expenses necessitated on business expediency were incurred by the assessee and full details were supplied to the AO. The AO has not pointed out any

15 Rajdhani Systems & Estates (P) Ltd. defect in the claim and has disallowed 10% of the claim on estimate basis. 15.2 Regarding sales promotion expenses of Rs.15,99,285/-, the assessee submitted that it had print broachers, and other promotion materials for lunching and continuing of the projects and for promotion of the schemes, gifts are to be given to the customers. The total amount of revenue generated during the year was Rs.976.23 lakhs whereas amounts spent on sales promotion was Rs.15.99 lakhs, which is 1.64% of the total amount received from the customers. It was therefore, submitted that the AO’s action in disallowing the amount entirely on surmises and conjectures is bad in law and needs to be deleted. 15.3 The CIT(A) considering the submissions of the assessee and observations of the AO in assessment order, deleted the aforesaid additions made by the AO for the assessment year 2007-08 by observing as under :- 7.4 I have duly considered the issue. The AO has not pointed out any specific defect for which estimated disallowances were made. The AO has also not made any sort of enquiry or cross verification from the respective persons to ascertain the genuineness of the expenses. The disallowance has to be based on some material and the same cannot be made arbitrarily. There is no mention as to what details and documents were exactly called for which were not produced by the appellant. The AO has not made any enquiry prior to disbelieving the claim made by the appellant. The addition has been made purely based on surmises and conjectures. The Act does not give any power to the AO to make any fanciful addition which is not borne out by the facts and circumstances of the case. Whimsical and fanciful additions without any valid reason or basis cannot be sustained. 7.5 There is a plethora of judicial decisions which supports the contentions of theappellant that additions based on surmises and conjectures needs to be deleted. There are judicial decisions in which it has been held that when the expenses were recorded in

16 Rajdhani Systems & Estates (P) Ltd. the books of accounts on a day-to-day basis and when the assessee furnishes the details, ad hoc disallowance cannot be made. Such findings are given in; (i)Ayushakti Ayurved Pvt. Ltd. vs. ACIT (2010) 4 ITR (Trib.) 537 (Mum) (ii)Monarch Foods Pvt. Ltd. vs. ACIT (1996) 54 TTJ (Ahd) 405 (iii)ACIT vs. Kerala Transport Co. (1994) 51 ITD (Coch) 405 (iv)Om Prakash Joshi vs. ITO (2009) 123 TTJ 246. (v)Lavrids Knudsen Maskinfabrik (India) Ltd. vs. Addl.CIT 102 TTJ 882. (vi)ITA No.0224/2008-09 in the case of Raj Kishore Rout vs. ITO, Ward- 2(2), Cuttack. (vii)Rajat Tradecom India Pvt. Ltd. vs. DCIT, 3 ITR (Trib) 321 (Indore ITAT) (viii)Mumbai Bench of ITAT in Pearl Farben Chem Pvt. Ltd. ITA No.ll22/Mum/2010 order dt.12/11/2010. (ix)M/s. Epcot Securities Pvt. Ltd., ITA No.395/Mumbai/2009. (x)Delhi Bench ITAT in case of M/s. Matrix Inc. ITA No.54/Del of 2009 dt.25.06.2010. (xi) Hon'ble Delhi High Court in the case of Friends Clearing Agency (P) Ltd. ITA No.3/1999 dt.04.01.2011. 7.6 Providing valid and cogent reasons are indispensable components in a quasi judicial order since the order affects the appellant prejudicially. This is also in accordance with principles of natural justice. The reasons in support of a decision must be cogent, clear and succinct. An apology of a reason or a rubber stamp reason cannot be called valid reason and the same cannot be part of a valid decision making process. Since the order of the AO for additions as stated above on estimate basis lacks cogent, clear and succinct reasons, it is liable to be quashed in view of the decision of the Hon'ble Apex Court in the case of Kranti Associates Pvt. Ltd. and Anr. Vs. Sh. Masood Ahemed Khan and Ors reported in (2010) 9 SCC 496. 7.7 In view of the above, I find no merit in these additions for the detailed reasons given above. Accordingly, addition of Rs.9,68,540/- Being incentive expenses, Rs.1,59,875/- being miscellaneous expenses and Rs.15,99,285/- being sales promotion expenses are deleted and Grounds No.4, 5 and 6 of the appeal are allowed. 15.4 For the same reasonings also, the CIT(A) deleted the additions Rs.31,81,690/- being incentive expenses, Rs.1,72,386/- being miscellaneous expenses and Rs.20,61,903/- being sales promotion expenses for the assessment year 2008-09.

17 Rajdhani Systems & Estates (P) Ltd.

18 Rajdhani Systems & Estates (P) Ltd. for both the assessment years i.e. AY.2007-08 & 2008-09 is allowed for statistical purposes.

Sd/- Sd/- (PAVAN KUMAR GADALE) (N. S. SAINI) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER कटक Cuttack; ददनांक Dated 21/09/2017 प्र.कु.मि/PKM, Senior Private Secretary आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant- प्रत्यथी / The Respondent- 2. आयकर आयुक्त(अपील) / The CIT(A), 3. आयकर आयुक्त / CIT 4. निभागीय प्रनतनिनर्, आयकर अपीलीय अनर्करण, कटक / DR, ITAT, Cuttack 5. गार्ड फाईऱ / Guard file. 6. सत्यापपत प्रतत //True Copy// आदेशािुसार/ BY ORDER,

(Senior Private Secretary) आयकर अपीऱीय अधिकरण, कटक / ITAT, Cuttack