HI-TECH ESTATES & PROMOTERS PVT. LTD.,BHUBANESWAR vs. ACIT, CIRCLE-2(2), BHUBANESWAR

आयकर अपीलीय अधधकरण, कटक न्यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI N.S.SAINI, AM & SHRI PAVAN KUMAR GADALE, JM आयकर अपील सं./ITA No.119/CTK/2012 (धनधाारण वषा / Assessment Year :2007-2008 & 2008-2009) Hi-tech Estates & Vs. ACIT, Circle-2(2), Promoters (P) Ltd. A/170, Bhubaneswar Sahid Nagar, Bhubaneswar स्थायी लेखा सं./जीआइआर सं./ PAN/GIR No. : AAACH 9591 G (अपीलाथी /Appellant) .. (प्रत्यथी / Respondent) निर्ााररती की ओर से /Assessee by : Shri B.D.Ojha, AR राजस्व की ओर से /Revenue by : Shri D.K.Pradhan, DR सुनवाई की तारीख / Date of Hearing : 19/09/2017 घोषणा की तारीख/Date of Pronouncement 22/09/2017 आदेश / O R D E R Per Shri N.S.Saini, AM: This is an appeal filed by the assessee against the order of the CIT(A)-1, Bhubaneswar dated 21.01.2016 for the assessment year 2009- 2010. 2. Brief facts of the case are that the assessee company is engaged in the business of real estate and filed its return of income for the assessment year 2009-2010 declaring total income of Rs.21,20,492/-. Initially, the AO completed the assessment u/s.143(3) of the Act determining total income of the assessee at Rs.2,12,56,570/- making various additions. Subsequently, the AO reopened the case of the assessee u/s.147 of the Act and assessed the total income as it was determined in the original assessment without making any further additions. Aggrieved thereby, the assessee assailed in appeal before the CIT(A) but of no favour to the assessee as the CIT(A) confirmed the

2 ITA No.119/CTK/2016 Hi-tech Estates & Promoters (P) Ltd. additions made by the AO. Against, which the assessee is in further appeal before the Tribunal with the following grounds of appeal :- 1. Because that the learned Commissioner of Income Tax (Appeals)-1, Bhubaneswar erred in law as well as in fact by confirming the addition of Miscellaenous expenses amounting to Rs.3,00,000/- without appreciating the business necessity of such expenses which is based on presumptions & surmises and the same is liable to be allowed. 2. Because that the learned Commissioner of Income Tax (Appeals)-1, Bhubaneswar erred in law as well as in fact by confirming the addition of sales promotion expenses amounting to Rs.1,52,710/- without appreciating the business necessity of such expenses which is based on presumptions & surmises and the same is liable to be allowed. 3. Because that the learned Commissioner of Income Tax (Appeals)-1, Bhubaneswar erred in law as well as in fact by confirming the addition of Incentive expenses amounting to Rs.25,93,897/- without appreciating the business necessity of such expenses which is based on presumptions & surmises and the same is liable to be allowed. 4. Because that the learned Commissioner of Income Tax (Appeals)-1, Bhubaneswar erred in law as well as in fact by confirming the addition of Rs.93,31,501/- u/s.68 of the I.T.Act in respect of advance received from customers on a percentage basis instead of specific customer wise advances and the same is liable to be deleted. 5. Because that the learned Commissioner of Income Tax (Appeals)-1, Bhubaneswar erred in law as well as in fact by confirming the addition of land development expenses amounting to Rs.54,88,500/- representing the amount paid to land owners as premium for sale of land in excess of the amount as mentioned in the conveyance deeds which is the business practice in such business and same is liable to be allowed. 3. Ground No.1 is directed against the order of CIT(A) in confirming the addition made by the AO on account of miscellaneous expenses amounting to Rs.3,00,000/-. The AO found that the assessee had debited an amount of Rs.7,70,001/- under the head miscellaneous expenses. On verification of ledger, the AO found that the above expenses had been

3 ITA No.119/CTK/2016 Hi-tech Estates & Promoters (P) Ltd. incurred for club membership, puja and charities. Such expenses appeared not to have been incurred for the purpose of business. The assessee also did not offer any satisfactory explanation that the said miscellaneous expenses had any business nexus, therefore, the AO disallowed an amount of Rs.3,00,000/- on estimate basis. 4. Ground No.2 is directed against the order of CIT(A) in confirming the addition of Rs.1,52,710/- on account of sales promotion expenses. During the assessment proceedings, on being asked, the assessee could not furnish any details to substantiate the legitimacy of the expenses, therefore, disallowed Rs.1,52,710/-. 5. Ground No.3 is directed against the order of CIT(A) in confirming the addition of Rs.25,93,897/- on account of incentive expenses. The AO observed that the assessee has claimed to have paid incentive of Rs.1,72,92,653/-. Details were called for and the assessee stated that the amount was paid to staff members for bringing in more customers for Kalyan Plaza Project. The details were required for verification and on perusal of a text check basis, the AO found that the assessee could not explain the genuineness of such claim and disallowed 15% of the total incentive to the extent of Rs.25,93,897/-. 6. In appeal the CIT(A), considering the observations of AO, upheld the above additions. 7. Ld. AR for the assessee reiterated the submissions made before the AO and submitted that the assessee has produced all the details as required by the AO during assessment proceedings and the authorities

4 ITA No.119/CTK/2016 Hi-tech Estates & Promoters (P) Ltd. below without considering the necessity of such expenses in the assessee’s business activities, have disallowed. It was, therefore, submitted that the AO’s action in disallowing the above expenses entirely on surmises and conjectures is bad in law and need to be deleted. 8. On the other hand, ld. DR relied on the orders of lower authorities. 9. We find that on similar issue in appeal of 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, the Tribunal vide its order dated 31.08.2017, has restored the matter back to the file of AO with the following observations :- 40. We find that it is not in dispute that the assessee had produced before the Assessing Officers bills and vouchers relating to scheme promotion expenses. The Assessing Officer has made sweeping remarks that entire expenditure is not subject to verification without pointing out which part of the expenses out of scheme promotion expenses is not verifiable and made estimated disallowance @ 10% out of total expenses claimed at Rs.1,85,51,649/- and made addition of Rs.18,55,165/- to the income of the assessee. Such an action of the Assessing Officer is not tenable in law. The Assessing Officer is duty bound to point out which expenses are not supported by bills or vouchers are not verifiable. He is to be specific and cannot make an estimated disallowance where the assesse has produced bills and vouchers relating to the expenses before him during the course of assessment proceedings. As we have restored back the issue of advance from customers and the issue of unreconciled advance from customers to the file of the Assessing Officer for re- adjudication of the same afresh, we restore this issue also back to the file of the Assessing Officer to re-adjudicate the issue afresh in the light of observation made hereinabove after allowing reasonable opportunity of hearing to the assessee. Hence, this ground of appeal is also allowed for statistical purposes. We find that in the present appeal also the facts are identical, therefore, respectfully following the decision of the Tribunal in case of Hi-tech Estates & Promoters Pvt. Ltd., in IT(SS)A No.03 to 09/CTK/2017 (supra),

5 ITA No.119/CTK/2016 Hi-tech Estates & Promoters (P) Ltd. we restore the issue back to the file of AO with the same directions given in the aforesaid appeals, quoted above. Thus, ground Nos.1, 2 & 3 of appeal of assessee are allowed for statistical purposes. 10. Ground No.4 is directed against the order of CIT(A) in confirming the addition on account of advance received from customers. 10.1 Brief facts of the case are that the AO observed that the assessee had claimed to have received advance from customers of Rs.3,73,26,005/-. 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. Therefore, the AO disallowed 25% of the total advance received from the customers amounting to Rs.93,31,501/- u/s.68 of the Act. 10.1 On appeal, the CIT(A) observed that the assessee neither during assessment proceedings nor during appellate proceedings has furnished the genuineness of the receipts including addresses of the old customers from whom the advances were allegedly received and following its appellate order for immediately preceding assessment year 2008-09 has considered only 25% of the alleged advances as unexplained cash credit. 10.2 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). 10.3 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., in IT(SS)A No.03 to 09/CTK/2017 for the assessment years 2000-01 to

6 ITA No.119/CTK/2016 Hi-tech Estates & Promoters (P) Ltd. 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 there was direction of the Tribunal to make denovo assessment after considering the return of income to be filed by the assessee

7 ITA No.119/CTK/2016 Hi-tech Estates & Promoters (P) Ltd. 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 Assessing Officer to consider seized materials in its entirety and thereafter draw a conclusion based on facts and make addition to

8 ITA No.119/CTK/2016 Hi-tech Estates & Promoters (P) Ltd. 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.5 is allowed for statistical purposes 11. Ground No.6 is directed against the order of CIT(A) in confirming the addition of Rs.54,88,500/- under the head development expenses. 12. 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 and amount paid over and above the registered value of the land to the land owners. The assessee paid the amount over and above the amount of registered value of the land is Rs.34,56,200/- and 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.

9 ITA No.119/CTK/2016 Hi-tech Estates & Promoters (P) Ltd. 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.54,88,500/-. 13. On appeal, the CIT(A) confirmed the disallowance of land development expenses of Rs.54.88.500/- 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.54,88,500/- under the head development expenses. 14. Ld. AR reiterated the submission made before the lower authorities. On the other hand, ld. DR supported the orders of authorities below.

10 ITA No.119/CTK/2016 Hi-tech Estates & Promoters (P) Ltd. 15. 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 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).

11 ITA No.119/CTK/2016 Hi-tech Estates & Promoters (P) Ltd. 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 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, ground No.5 is allowed for statistical purposes. 16. In the result, appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on this 22/09/2017. Sd/- Sd/- (PAVAN KUMAR GADALE) (N. S. SAINI) न्याधयक सदस्य / JUDICIAL MEMBER लेखा सदस्य / ACCOUNTANT MEMBER कटक Cuttack; ददनांक Dated 22/09/2017 प्र.कु.धि/PKM, Senior Private Secretary आदेश की प्रधतधलधप अग्रेधषत/Copy of the Order forwarded to : अपीलाथी / The Appellant- 1. Hi-tech Estates & Promoters (P) Ltd. A/170, Sahid Nagar, Bhubaneswar 2. प्रत्यथी / The Respondent- ACIT, Circle-2(2), Bhubaneswar 3. आयकर आयुक्त(अपील) / The CIT(A), 4. आयकर आयुक्त / CIT निभागीय प्रनतनिनर्, आयकर अपीलीय अनर्करण, कटक / DR, ITAT, Cuttack 5. 6. गाडा फाईल / Guard file. सत्याधपत प्रधत //True Copy// आदेशानुसार/ BY ORDER,

(Senior Private Secretary) आयकर अपीलीय अधधकरण, कटक / ITAT, Cuttack