ARMORS DEVELOPERS (P) LTD,NAGPUR vs. DCIT-CIRCLE-8, NAGPUR

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ITA 313/NAG/2014Status: DisposedITAT Nagpur24 March 2017AY 2004-0518 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

On the Assessee's appeal, the Tribunal held that the disallowance of ₹1,08,954 on account of unexplained labour payment was a clear case of double disallowance, as the amount had already been added back to the total income. Therefore, the orders of the authorities below were set aside, and the issue was decided in favour of the assessee, allowing grounds 4 and 5. The Assessee's appeal was partly allowed. On the Revenue's appeal, the Tribunal addressed several grounds. Regarding ground 7 concerning the deletion of addition on account of share capital, the Tribunal found that the AO had not considered the Special Audit Report, which was crucial given the conflicting earlier audit reports. The CIT(A) had appropriately appreciated the Special Audit Report. The Tribunal upheld the Special Auditor's finding that ₹1,79,697 was peak cash credit, treated as income from undisclosed sources, and directed deletion of the balance addition on account of share capital. To avoid double addition, no separate addition was made for ₹1,79,697 as it was already included in the AO's confirmed addition. Ground 7 was dismissed. Regarding ground 8 concerning disallowance under Section 40A(3), the Tribunal found the CIT(A)'s order not fully correct. While the AO rightly observed that director's remuneration is an expenditure covered by Section 40A(3), and payments for land purchase by the assessee (dealing in sale and purchase of land) are part of stock-in-trade, the Tribunal noted that Section 40A(3) would not be attracted if payments were made in cash due to bonafide reasons (insistence of landowners) and land registration was duly evidenced. The Tribunal restored the AO's invocation of Section 40A(3) only for the payment of directors' remuneration. Thus, the Revenue partly succeeded on this issue. The Revenue's appeal was partly allowed.

What were the facts?

These are cross-appeals by the Revenue and the Assessee, M/s. Armors Developers (P) Ltd., against the order of the Commissioner (Appeals)-I, Nagpur, for Assessment Year 2004-05. The Revenue's appeal challenges the deletion of additions made by the Assessing Officer (AO) concerning various payments. The Assessee's appeal initially raised grounds regarding confirmation of additions, but grounds 1, 2, and 3 were not pressed. The sole issue pressed by the Assessee related to the disallowance of ₹1,08,954 on account of unexplained labour payment. The Tribunal had previously directed a special audit under Section 142(2A) due to conflicting audit reports. The Special Auditor determined undisclosed income of ₹17,37,160, while the AO assessed it at ₹76,00,389.

What were the issues?

1. Whether the disallowance of ₹1,08,954 on account of unexplained labour payment is sustainable in law, considering it was already added back to the total income (Assessee's appeal, grounds 4 & 5). - Assessee's contention: The disallowance amounts to double disallowance as the amount was already added back to the total income. - Revenue's contention: Not recorded. 2. Whether the CIT(A) erred in allowing the payment of ₹22,00,000 made to Ms. Dolly Enterprises, which was not proved by the assessee during assessment proceedings (Revenue's appeal, ground 1). - Revenue's contention: The payment was not proved by the assessee. - Assessee's contention: Not recorded. 3. Whether the CIT(A) erred in allowing the payment of ₹1,07,000 made to Shri Sukhdev Manohar, which was not proved by the assessee (Revenue's appeal, ground 2). - Revenue's contention: The payment was not proved by the assessee. - Assessee's contention: Not recorded. 4. Whether the CIT(A) erred in allowing the payment of ₹3,015 made to M/s. S.M. Sales, which was not proved by the assessee (Revenue's appeal, ground 3). - Revenue's contention: The payment was not proved by the assessee. - Assessee's contention: Not recorded. 5. Whether the CIT(A) erred in allowing the payment of ₹4,67,500 made to Shri T.D. Sharma, which was not proved by the assessee (Revenue's appeal, ground 4). - Revenue's contention: The payment was not proved by the assessee. - Assessee's contention: Not recorded. 6. Whether the CIT(A) erred in allowing the payment of ₹2,44,500 shown as staff salary expenses, which was not proved by the assessee (Revenue's appeal, ground 5). - Revenue's contention: The payment was not proved by the assessee. - Assessee's contention: Not recorded. 7. Whether the CIT(A) erred in allowing the payment of ₹6,89,859 claimed as expenses on various aids, which were not supported by vouchers (Revenue's appeal, ground 6). - Revenue's contention: The expenses were not supported by vouchers. - Assessee's contention: Not recorded. 8. Whether the CIT(A) erred in deleting the addition of ₹14,00,000 despite the assessee explaining the source of introduction of share capital (Revenue's appeal, ground 7). - Revenue's contention: The assessee did not adequately explain the source of share capital. - Assessee's contention: Not recorded. 9. Whether the CIT(A) erred in allowing the payment of ₹2,23,820 in violation of Section 40A(3) of the Act (Revenue's appeal, ground 8). - Revenue's contention: The payments violated Section 40A(3). - Assessee's contention: The payments were for land purchase (capital in nature) or salary, thus not covered by Section 40A(3).

Which sections of the Income-tax Act were involved?

Section 142(2A),Section 40A(3)

AI-generated summary — verify with the full judgment below

IN THEINCQME TAXAPPELLATE TRIBINAL NAGPWR BENCH NAqeV BEFQRE ShrI SHAMIM YAHYAACCQUNTANT MEMBER AND SHRLEAMLAL NEGI_JVQICIAL MEMBEB ITAno_3LLNag./2014 (Assessment Year 2004-05) Asstt , Commissioner of Income Tax Circle-4, Saraf Chambers Nagpur 440 001 Appellant v/s Ms. Armors Developers (P) Ltd: 590, Nava Nakasha, Lashkaribagh Nagpur 400 009 PAN AAIFA6646L Respondent ITAnQ.313/Nag/2014 (Assessment Year 2004-05) Mi Ms. Armors Developers (P) Ltd. 590 , Nava Nakasha; Lashkaribagh Nagpur 400 009 PAN AAIFA6646L Appellant v/s Asstt, Commissioner of Income Tax Circle-4, Saraf Chambers Nagpur 440 CO1 Respondent Revenue by Assessee by Shri A.R, Ninawe Shri Manoj Moryani Date of Hearing 22.03.2017 Date pf Order 24.03.2017 ct M/s. Armors Developers (P) Ltd, 6i QRDEB PER SHAMIM YAHYAAM These cross appeals are directed against the impugned order dated 27th March 2014, passed by the learned Commissioner (Appeals)-I, Nagpur, for the assessment year 2004-05. ITAng 313N2g2014 Assessee'$ Appeal The grounds raised by the Revenue are reproduced below: "1S The learned CIT(A) erred in confirming total addition Of 8 18,46,114 as undisclosed income: 2 The learned CIT(A) erred in not considering the detall reply of the assessee and confirm the addition of { 9,36,483 though additlons are due to change in valuation of inventory Of work-in- progress; therefore, the addition confirmed are unjustified; unwarranted and excessive: 3, The learned CIT(A) erred In not considering the detall reply of the assessee and confirmed the addition of * 8,00,677 though the same were not pointed out by the auditor; therefore, addition confirmed are unjustified, unwarranted and excessive: 4 The learned CIT(A) erred in not considering the detail reply of the assessee and confirmed the addition Qf 1,08,954 a5 unexplalned labour payment; 52 The learned CIT(A} erred in not considering expenditure of ? 1,08,954 incurred on labour: 2 At the outset; the learned Counsel for assessee submitted that he did not wIsh to press grounds no.1, 2 and 3. Consequently, these grounds are dismissed as "not pressed" , Dmi 3 62 Mjs. Armors Developers {P} Ltd. 3 The only issue which arises from grounds no,4 and 5, relates to disallowance of ? 1,08,954 on account of unexplained labour payment. 4_ The Assessing Officer made disallowance of 3 1,08,954 being payment to labour contractor on the ground that bills for labour expenses were not produced despite noting that such expenditure was added back to the total income of the assessee. The authorities below have proceeded to disallow the same, This clearly comes under the ambit of double disallowance not sustainable in law. In this regard, we may gainfully refer to the order of the learned Commissioner (Appeals) a5 recorded in appeltate order which reads as under: - "GroundneZ: In this ground; the appellant has objected to the payment of 1,08,954 to the labour contractor The A.0. has discussed this issue In Para no,5, on Page no.24 of the order: The A.O. has disallowed the amount merely for the reason that the bills for the labour expenses were not produced by teh ass. The Auditors after verification has added back this amount in the computation of total income as the ass could not explain the same: Even during the appellate proceedings the appellant could not substantiate his claim for labour payment; therefore this amount of Rs.1,08,954/- remains unexplained, hence the addition made by the A.O. on this issue is upheld. Hence, this ground is dismissed; 5 From the above, it Is amply clear that since the impugned amount has already been added back to the total income of the assessee, there is no question of disallowing the same again; Hence, QM Ms. Armors Devetopers (P) Ltd. we set aside the orders of the authorities and decide the issue in favour of the assessee: Grounds no.4 and 5 are allowed. 6_ In the result; assessee's appeal is partly allowed, ITAng 311/Nag./2014 Revenue's Appeal 7 The grounds ralsed by the Revenue are reproduced below:_ "1, On the facts and the circumstances 0f the case and in law, Ld, the CIT(A)-I Nagpur has erred in allowing payment of Rs,2Z,00,000/- made to Ms. Dolly Enterprises, which W3s not proved by the assessee during the assessment proceedings 2 On the facts and the circumstances of the case and In Ld, CIT(A}-I, law, the Nagpur has erred in allowing the payment of Rs.1,07,000/- made to ShriSukhdev Manohar whlch was not proved by the assessee during the assessment proceedings 3, On the facts and the circumstances of the case ad in Ld; {aw, the CIT(A)-I, Nagpur has erred in allowing the payment of Rs.3,015/- made to Mjs. S.M Sales which was not proved by the assessee during the assessment proceedings 4. On the facts and the circumstances of the case and in Ld, law, the CIT(A)-L, Nagpur has erred in allowlng the payment RsA,67,5001- 0f made to Shri TD. Sharma whlch was not proved by the assessee during the assessment proceedings: 5. On the facts and the clrcumstances Of the case and in law, the Ld. CIT(A}-L, Nagpur has erred in allowing the payment Of Rs.2,44,500/- shown by assessee a5 staff salary expenses which was not proved by the assessee durlng the assessment proceedings: 6 On the facts ad the circumstances of the case and in law; Ld. the CIT(A)-I, Nagpur has erred in allowing the payment Of R5.6,89,859/- claimed by the assessee as expenses On various aids which were not supported by voucher: OM 5 Mjs, Armors Developers (P} Ltd. 7 On the facts and the circumstances of the case and in Ld, CIT(A)-I, Iaw, Nagpur has erred in deleting addition; the Rs.14,00,00/- despite the assessee explain the source of introduction of share capital 8. Onthe facts ad the circumstances Of the Case and In law, the Ld, CIT(A)-I, Nagpur has erred in allowing the payment Of Rs.2,23,820/- in violating provision of sec: 40(4)(3) of the Act; 8 Brief facts are the Tribunal, vide order in ITA no.189/ Nag,/2008 dated gth January 2009, set aside the order of the Assessing Officer and directed at Page no.4 In Para-5 to get the accounts of the assessee audited by 3 third Chartered Accountant under section 142(2A) of the Act, and obtain a report of such audit along with a Profit & Loss account and Balance Sheet and thereafter Make the assessment afresh: The Tribunal had ordered for Special Audit under section 142(2A) on the basis of the original set of accounts maintained in accordance with the provisions under section 44A4, whlch Was given 0 audit to the Special Auditors appointed u/s 142(2A} on 11* January 2O1o. The Special Audltors appointed In this case under section 142(ZA) of the Act, has prepared and submitted an exhaustlve and a detalled audit report dated 16th April 2010 to the Assessing Officer: The Special Auditors in their said report has determined a sum of 17,37,160 a5 undisclased income over and above the income declared by the assessee, The Special Auditors have determined the undisclosed income of ? 17,37,160 after making various adjustments 8 S Ms_ Armors Developers (P} Ltd, and disallowances after taking into consideration the material evidences submitted by the assessee The Assessing Officer , however, has assessed the undisclosed income of 7 76,00,389, as against the quantum of undisclosed income determined by the Special Auditors at 7 17,37,160. 9 Apropos ground no.1, on this issue, the Assessing Officer had discussed this issue in Para-2.13 on Page No.22 of the assessment order under the head "Payment of Labour Work" The AQ in his order has recorded a finding that the assessee has made the EL payment of < 2,00,000 on gth October 2003 and < 20,00,000/- on 23r0 October 2003 to M/s Dolly Enterprises. Further , the Assessing Officer states that this payment is made against the bill cf < 4,50,000 raised on 31* May 2003 and bill of & 20,00,000 raised on 31st December 2003_ The assessee clarified that the payments were made as an advance ad settled by bill dated 31s December 2003_ The Assessing Officer, however, declined to accept that the assessee has given such advance for labour work to the contractor for the reasons stating that the bills were vague and the assessee could not give any proof Dr confirmation from the party. Ck' Ms. Armors Developers (P) Ltd, 10. Upon assessee's appeal before the first appellate authority, the learned Commissioner (Appeais) granted relief to the assessee hoiding as under;_ "8.2 On careful examination of the facts; it is seen that the payment of Rs.22,00,000/- was made by the appellant by account payee cheques There Is nothing Qn record to show that payments In the question were made otherwise than the account payee chegues: In this regard, the finding recorded by the Auditor in his Audit Report is relevant: The Auditor while explaining the expenditure Of Rs.22,00,000/- on Page No.70 of his Audit Report (Annexure "N") has observed that the payment of Rs.22,00,000/- has been made by crossed cheques and they have verified the bills of Rs.2O,OO,0o0/- of Ms Dolly Enterprises furnished by the appellant during the Audit proceedings: The bili of Rs.2,00,000/- Was not produced before the Auditor but it is found on verification that the payment wa5 made from the bank: These Rs.2,OO,Qoof- bills Of were traced out by the appellant; which were submnittede before the AQ during the assessment proceedings Vide letter dated 29.04.2010 and the A.O. has done the necessary verification %f Payment with reference to Ac no.468 of UCO Bank Theabove facts goes to Prove that the Payment made through the cross cheque by the appellant is neither dlsputed nor otherwise by the A,O. proved It is also a fact emanated from records and the report of the Auditor that the appellant has furnished the relevant bills before the Auditors a5 well as befare the A.O. the AO. and has also examined the entries with reference to the bank Account of the appellant: Thus once the payment is proved to have been made by a crossed cheque from the bank account of the appellant; to my opinion, asking for further proof is Of No s@arificance coupied with the fact that the transaction has already been examined by the Auditors, during the finding Speclal Audit and a to that effect is given; Further; it Is perused from Para 2.5 on Page 21 of the assessment order that the assessee has made 9 request to the AQ to Issue summons ad examine the that has not been party , but done by the Ld.AO. Therefore; consideration theenatigiae {aoisthe eLdanotedheoefote records, into the Payments effected through the banking channel in the course Qf hls business by the appellant cannot be held to be non-genuine in the absence of any evidence contrary to the records. The AO; therefore Is not justified ad the addition made is directed to be deleted. Hence, this ground is allowed. AP_ 3 MJs. Armors Developers {P} Ltd. Against this order, the assessee Is in appeal before the Tribunal: 11_ We have heard the rival contentions and perused the material available on record; On this issue, we find that the Assessing Officer has made disallowance without bringing on record cogent reasons The learned Commissioner (Appeals) has given a finding that the payment was duly made by account payee cheque The learned Commissioner (Appeals) has also noted that the relevant records were duly produced before the Special Auditors as well as the Assessing Officer. Under these circumstances, In our considered opinion, there is no reason to interfere with the reasoned order of the learned Commissioner (Appeals) On this Issue, Consequently, upholding the order of the learned Commissioner (Appeals), ground no.1, raised by the Revenue 5 dismissed_ 2 Apropos ground 0o.2_ On this Issue, the Assessing Officer , while making disallowance of the payment observed that execution of work is not on evidence &nd that discrepancies noticed in case of Ms. Dolly Enterprises, are also applicable in this case. On the ather hand, the learned Commissioner (Appeals) has deleted the addition bv giving Following findings: _ "9.3 Further &5 regards to the payment Of ? 1,07,000/- made to Shri Sukhdeo Manohar, the Auditor on Page no.66 ad phe 68 9 Mjs. Armors Developers (P) Ltd, 42 of the Audit Repart has stated that Shri Sukhdeo Manohar is a labour contractor; Assessee has provided bill of labour contractor on 21.03.2010 which Is related to manpower supply and prepared during audit period in confirmation fo expenses The Auditor in his final audited figures &5 on 31.03.2004 on Page no.42, of the Audit Report has considered the expenditure aS genuine allowable expenses while determining the difference being disallowable; Therefore; the addition made by the A.O, in respect Of Shri Sukhdeo Manohar at < 1,07,000 is directed to be deleted. Hence, these grounds are allowed. 13_ Upon careful consideration 'of the submissions of the partles, we find that the learned Commissioner (Appeals) has deleted the addition after appropriately appreciating the evidence on record, hence, we do not find any infirmity in the order of the learned Commissioner (Appeals}_ Consequently, upholding the order of the learned Commissioner (Appeals), ground no,2 ralded by the Revenue Es #smissed. 4 Mhoza 14. Apropos ground 0o.

3.

On this issue, the Assessing Officer has made the disallowance on account of steel purchased from M/s. S.M, Sales on the ground that the assessee could not produce confirmatfon from the parties. The learned Commlssioner (Appeals) has deleted this addition by following observations;_ 14,1 The appellant contended that durIng the year under consideration M/s. S.M, Sales Corporation ralsed & bill of ? 36,325 against supply of material and transportation charges: The appellant paid 0 Sum pf F 33,900 vide two cheques bearing no.265939 dated 26.08.2003 for ? 8300/- and no.265939 dated 10 Cg MJs; Armors Developers (P) Ltd. 26.08.2003 for { 25,000 leaving 0 balance Df ? 3015 to be payable, which is reflected under the head Sundry Creditors in the Balance Sheet: Since the transaction in question Is effected through the banking channef and the relevant entries are verifiable from the Balance Sheet; hence; the addition is directed t0 be deleted. Hence, this ground is allowed: 15, Upon careful consideration of the submisslons of the parties we find that the Assessing Officer has made addition without cogent reason. Consequently, upholding the order of the learned Commissioner (Appeals) , we dismiss ground no.3, raised by the Ellal Revenue 1 Jmo3t 6, Apropos ground no,4. Brief facts are that the Assessing Officer has stated that the discrepancies noticed in the case Qf Ms. Dolly Enterprises are also appllcable in this case: The assessee vide letter dated 09.06.2010, submitted to the Assessing Officer that the payment was made by cross cheque The Assessing Officer noticed that the cheques deposited by the assessee were encashed on the same day, therefore, the payment seems to have been made by bearer cheque &s the same was encashed on the same working day. The Assessing Offilcer , however, has stated that no evidence Of execution of work is furnished, Thus, the Assessing Officer, has not pelieved the transaction through Nc payee cheque stating that payment seerns to have beer made by bearer cheque: 20 11 Ms, Armors Developers (P) Ltd. 17_ Upon assessee's appeal, the learned Commissioner (Appeals) deleted the addition holding as under:~ "9,5 On careful examination of the facts it Is seen that as per no.68 of the Audlt Report; the Auditor has accepted the Page payment made to Shri TD: Sharma of { 4,67,500. The Auditor noted 0 finding that the expenditure was incurred for the has work done by the said contractor: The payment was through the was encashed from the bank a5 per the copy of cheque which bank account submitted by the assessee. The A.O, had made the addition on the suspicion that the cheques were bearer cheque and both the sldes of the cheque were not provided to him for veriflcation. The Auditor in his final audited figures D5 on 31.03.2004 0n Page-no.42 of the Audit Report has considered the expenditure as genuine allowable_expenses while determining the difference being disallowable: Thus; the A.O. has made the disallowance merely on surmises wlthout establishing the fact and in the absence of any evidence contrary to the records Therefore the addition made by the A.O. In respect of Shri T.D Sharma at 4,67,500 Is directed to be deleted. Hence, this ground Is allowed - 18. Upon careful consideration of the submissions of the parties, we find that the learned Commissioner (Appeals} was justified in holding that the Assessing Officer has made this addition on surmises and conjectures. The evidence brought on record and considered by the learned Commissioner (Appeals} duly warranted deletion of addition Consequently , upholding the order of the learned Commissioner (Appeals) , ground no.4 raised by the Revenue Is hereby deleted: 19. Apropos ground no.

5.

On this issue, the Assessing Officer has disallowed a sum of ? 2,44,500 out of salary to staff on the ground { 12 M/s, Armors Developers (P) Ltd. that the assessee has claimed the same on tne basis of self made vouchers, The learned Commissioner (Appeals) deleted the addition by holding as under: _ "11.1 On careful examination of the facts, it i5 seen that the Auditor In Para-12 on Page no.60 Of his Audit Report had made an observation that "cash voucher for the payment Of Rs. 40,000/- made in the month of April does not contaln the details of payment of salary made pertaining to which month as per salary sheet provided there are 22 employees with the company during the financial Year 2003-04 and salary paid to them was without the deduction of professlonal tax: However, the CA accepted the expenditure 38 per Page No.43 of Audit Report; Since the Auditors after verlfication has approved the expenditure except the discrepancy noted above, this does not entail the assessee disqualified to claim the expenditure, Therefore, the additlon made bY the AO; being 30% of total salary to staff being without any basis and in the absence of any evldence contrary on record, is directed to be deleted, Hence; this ground is allowed. 20_ After hearing both the parties, we Flnd tnat the assessee'5 accounts have already been audited by Special Auditors The learned Commissioner (Appeals), in his order, has duly referred to the same In our considered opinion, the learned Commissioner (Appeals) has passed a5 well reasoned order which does not require any interference. Consequently , upholding the order Of the learned Commlssioner (Appeals), ground no.5 raised by the Revenue is dismissed, 21_ Apropos ground no.6, On this issue, the Assessing Officer has disallowed a sum of ? 6,89,859, under various heads, The Assessing Ap 2ni 72_ 13 Ms. Armors Developers {P) Ltd, identified some of the expenses in respect of which the Officer assessee could not produce the bills. Such items are enumerated at Sl,no.1 to 3 in whlch case the Assessing Officer made the addition for of production of bills. The expenditure appearing at Sl, No.7 want being advertisement was partly disallowed in the absence cf proof. The expenditure at Sl: No.1D belng Insurance was fully disallowed being in nature pertaining to Directors, The Assessing Officer personal disallowed other expenditure for want Of satisfactory explanation: However, the major expenditure relates to the commission payment of 4,04,400. The Assessing Officer has disallowed the sane On the ground that none Qf the persons have confirmed the commission peli F receipts: 2 During the first appellate authority proceedings, the learned Ko5h 3 Commissioner (Appeals) deleted the addition holding as under:- "12.1 On careful examination of the facts; it Is seen that the Auditor after verification of the expenses under variqus heads including the payment on account of commission has accepted the pf the appellant a5 genuine: As regards to the bills, the claim contention raised by the appellant that after lapse of six vears; proper bills for all expenditure may not be possible to be retained i5 acceptable: So far as commission is concerned; the appellant has provided the necessary . details to the Auditors and the AO; which has been accepted by the Auditors a genuine: The AQ, however has stated that none of the parties have confirmed the commission payments. There is nothing on record to show whether any enguiries were caused by the AO for verification of commission paid. The Ld, AO has disallowed the commission without verifving the services rendered, Therefore, such disallowance is without ay and desenves to be deleted: As regards to the other basis 14 23 Mts. Armars Developers (P} Ltd. expenditure; the appellant has adduced the necessary details ad evidences before the Auditor , which are accepted a5 genuine: Therefore, no adverse inference Can be drawn as regards to the genuineness Of such payments in the absence of any evidence to the contrary. Therefore, the claim of the appellant i5 allowable: Hence, the additions made by the AO are directed to be deleted. Hence, this ground is allowed: 23_ Upan careful consideration of the submissions of the parties, we find that the learned Commissioner (Appeals) has passed a reasoned order which does not need any Interference on our part; Consequently , upholding the order passed by the learned Commissioner (Appeals}; ground no.6 raised by the Revenue is hereby dismissed. 24_ Apropos ground no.

7.

On this issue, the Assessing Officer has made the addition for the reason that the assessee could not explain the source of introductton of share capital by eight family members including the assessee himself; 25 Upon assessee's appeal, the Tearned Commissioner (Appeals) held as under:_ "13.2 It is seen from the above finding of the Special Auditor that the share capital shown by Shri Pethe in the earlier original audit report was not based on the qualifying parameters of increase in share Capital a5 per the Companles Act; 1956, The Speclal Auditor has Clearly Incorporated a finding that though in the extraordinary General Meeting of the company held on 03.04.2003, a resolution was passed to increase the capital with corresponding changes made in the Memorandum of Association and Articles of Association of the company: However, the mandatory requirement of filing of copies of Form No.5 & Form No.23 with the Registrar of Companies Was not complied with, therefore, the resolution to increase the PEL #obni 15 MJs Armors Developers (P) Ltd. share capital Is prima-facie is invalld. Having considered this fact; the Special Auditor has noted a finding that the alleged amount of share capital has been utllised for business aS the closing stock of the company was found increased due to Iabour cost Of Rs.900,000- on account of share capltal utilisatibn money and by Rs.2,25,000/- On account Of re-payment made to Shri R,S.Gupta. The Special Auditor in his report has recorded 9 finding that two entries of R5.9,04,200/- and Rs.5,00,000/- on account Of labour contractor expenses have been passed as on 31.03.2004 showing the paymants in cash to the labour contractors to Dullfy he Impact of share application money of 14,00,000. Thus, after having considered the entries in the books of account and the utillsation of the share application money, the Special Auditor has considered a sun of Rs.1,79,697/- 35 peak cash credit; which is treated 35 Income from undisclosed sources. In the light of these facts, the finding arrived at by the Special Auditor , which is based on the material facts a9 emanated from the records, is acceptable to the facts and circumstances of the case_ The resultant Sum of Rs,1,79,697/- on account Of peak cash credit is upheld and balance addition on account of share capital is directed to be deleted. However; since this amount of Rs.1,79,697/- has already been included by the AO as undisclosed income in the total addition made of Rs;17,37,160/- which has been conflrmed by adjudicating the Ground No.l of this order; Therefore; to avert the double addition, no separate addition is being made of R5.1,79,697/- APP ELZ 26. We have heard the rival contentions and perused the material available 0n record. We find that the addition has been made by the Assessing Officer on the ground of lack of justification of source for share capital share application money introduced. This, the Assessing Officer has stated on the basis of earlier audlt report: The Assessing Officer has not considered the Special Audit Report at all; This approach of the Assessing Officer Is not understandable when due to the presence of conflicting audit report; Special Auditor was appointed, It is not understood as to why the Assessing Officer wilf disregard the 8 16 25 M/s. Armors Developers (P) Ltd. same and make the addition on the basis of earlier audit reports. The learned Commissioner (Appeals) has appropriately appreciated the Special Audit report and passed a reasoned order. Consequently, we Find Infirmity in the order passed by the learned do not any Commissioner (Appeals) and upholding the same, ground no.7 ralsed by the Revenue is hereby dismissed. 27_ Apropos ground no.

8.

On this issue, the Assessing Officer has made disallowance of < 2,23,830 under section 4OA(3) by holding as under; _ "E Disallowance u/s 40A(3): The auditor has Identified following exceeding 20,000 which are covered under the payments provislons u/s 40A(3} 5. no_ Name 0f Party Amount Details Pald to director; paid ta Shri Anand Khobragade (No vouchers produced) Qm 1 Directors Remuneratian {1,19,150 2 Sheikh Mustak Rehman {2,00,000 Purchase of land 3 Sheikh Rehman Mohmad {3,00,000 Purchase Of land 4 P.N, Bondre 5,00,000 Advance for Iand purchase {11,19,150 () The assessee has replied that the directors remuneratlon is in the nature of payment of salary hence; should be allowed: Regarding the other 3, payments it was contended that they are for purchase of Iand and therefore capital in nature: So the payment is not covered U/s. 40A(3) The explanation of the assessee for Rs. 1,19,150/- Is not accepted because remuneration i5 a expenditure In the hands of the assessee and therefore it is squarely covered by 17 Ms. Armors Developers (P} Ltd; the provisions of section 40A(3). (ii) As regards the payments of Rs. 10,00,000/- the assessee's contention that the payments are not expenditure since; they have been capitalized is not borne by the facts; The assessee deals in sale and purchase of lands and plots, therefore; the expenditure on purchase of land is expenditure on his stock in trade_ Therefore; the payments are covered by provlsions of sectlon 40A(3}. Hence, 20%6 disallowance uls 40A(3); not made. Addition made uls. 40A(3) is Rs. 2,23,830/-.~ 28. The learned Commissioner (Appeals) deleted the addition by holding as under: _ "16.1 The appellant has contended that the payment 0f 8 8,00,000 out Of ? 11,19,150 was made a5 an advance for purchase of land: Further that the amount of ? 1,19,150 pertains to the payment 0f salary to the director; which ig Included in the total remuneration pald to the Director Of { 2,73,000, The appellant; thus contended that the provisions of section 40A(3) RLLAT are not applicable 0n these payments On careful examination of the fact; it is seen that the payment actually represent advance Tor purchase of land ad salary to directors; which belng outside IobN the ambit Qf section 40A(3), addition is not warranted, The addition, therefore, is directed to be deleted. Hence, this ground js allowed; 29 We have heard the rival contentions and perused the material available on record We find that the learned Commissioner (Appeals)'s order on this Issue is not fully correct: The Assessing Officer has rightly observed that the director's remuneration is also an expenditure which falls under the realm of section 40A(3). Since sale and purchase of land in assessee's business, the payment made for purchase of land cannot be said to be capital account: However, section 4OA(3} would not be attracted in the case a5 the sale purchase of land by cash 18 Ms Armors Developers (P} Ltd. paynicnt can be considered to have been made due to bonafide reasons due to insistence of the Iand owners, Moreover, the land registration is duly evidenced by registration deed signed before the Registrar. Hence, provisions of section 40A(3) are not attracted here_ Assessing Officer's invocation of section 404(3) can be restored only qu3 payment of directors remuneration, The Revenue partly succeeded on thls issue_ 30. In the result; Revenue's appeal is partly allowed, 31. To sum UP; assessee'$ appeal as well as Revenue's appeal is partly allowed. Order pronounced in the open Court 0n 24.03.2017 - Sd] - RAM LAL NEGI JUDICIAL MEMBER SHAMIM YAHYA ACCOUNTANT MEMBER NAGPUR, DATED: 24.03.2017 Copy ofthe_ordec forwarded to;: QELLA K The Assessee; 8 The Revenue; The CITTA); The CIT, NagpurCity concerned; Wojm The DR, ITAT, Nagpur; ~Guard nle:By Order Pradeep J. Chowdhury Sr. Private Secretary {Dw-Asstt; Registrar) ITATi lJR4TT? Assi: stant Regigtrar JTDR Jriiatt4 %4RrM, Income Tax Appellate Tribuna;

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