THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, VISAKHAPATNAM vs. DOLPHIN HIGHRISE PRIVATE LIMITED,, KILKATA

PER S. BALAKRISHNAN, Accountant Member :

Simultaneously, survey operations U/s. 133A of the Act were conducted at the office premises of the construction project ‘Happy Homes’, Marripalem, Visakhapatnam and consequent to the search, the assessee company was centralized to DCIT, Central Circle-2, Visakhapatnam vide proceeding of the Principal Commissioner of Income Tax-4, Kolkata in F. No. Pr.CIT- 4/Tech/F-53/Centralization-Out/2017-18/11463-68, dated 13/3/2018. Accordingly, a notice U/s. 153A of the Act was issued on 12/9/2018. In response to the notice, the assessee- company filed its return of income on 29/11/2018 admitting an income of Rs. 9,20,54,075/-. Thereafter, notice U/s. 143(2) of the Act dated 18/2/2019 was issued and served on 24/2/2019.

Subsequently, notice U/s. 142(1) dated 14/3/2019 along with questionnaire was issued and served on the assessee on 30/03/2019. In response, the Ld. Authorized Representative of the assessee appeared and submitted the information called for.

During the course of search and seizure operations, certain incriminating material was found and seized and it was noticed that the assessee-company is in the construction of affordable residential complex comprising of 360 residential units at 5 Marripalem, Visakhapatnam wherein the total saleable area for the company is 4,87,031 sq ft. It was also noticed that inspite of receiving advance for flats since FY 2014-15, the assessee- company has not recognized any revenue in the return of income filed till AY 2016-17 and also for the impugned assessment year.

It was pointed out to the assessee that the revised versions of income computations and disclosure standards (ICDSs) were issued vide CBDT Notification No. 87/2016 [S.O. 3079(E)], dated 29/9/2016 for the purpose of computation of income chargeable to income tax which will apply to the AY 2017-18 and subsequent AYs. Thereafter, Sri Alakram Satyanandam, Managing Director of the assessee-company in his sworn statement recorded U/s. 132(4) of the Act on 14/11/2017 admitted to disclose the revenue of the assessee-company on “Percentage Completion Method” as mandated by the above CBDT Notification, for the AY 2017-18 in the return of income filed in response to notice U/s. 153A of the Act. Based on the incriminating documents found and seized as Page No.4 of Annexure-A/Satyanandam/Res/01 wherein it was mentioned that M/s. Alakram International Trading Company Private Limited wherein Sri Alakram Satyanandam is a Director has purchased 4 Acres of land in Vellanki Village, Anandapuram for Rs. 16 Crs from DRK Reddy Educational Society. During the 6 course of the search proceedings in the office of M/s DRK Reddy Educational Society on 16/9/2017, Sri Dwarampudi Satyanarayana Reddy, Secretary of M/s. DRK Reddy Educational Society in his sworn statement recorded U/s. 132(4) of the Act admitted that he received a total consideration of Rs. 16 Crs (Rs.

4.13 Crs through cheque and Rs. 11.86 Crs in cash) for the sale of 4 Acres of land in Vellanki Village, Anandapuram. Sri Alakram Satyanandam in his sworn statement recorded U/s. 132(4) of the Act on 14/11/2017 admitted that the assessee-company has purchased 3.90 Acres of land from M/s. DRK Educational Society for Rs. 16 Crs and has paid Rs. 11.86 Crs in cash in addition to the consideration as per the registered sale deeds of Rs. 4.13 Crs.

On being questioned about the source of Rs. 11.86 Crs in cash Sri Alakram Satyanandam in his statement recorded U/s. 132(4) of the Act dated 14/11/2017 stated that the source is from the share application money received from M/s. Dolphin Highrise for Rs. 2 Crs and share application money from M/s. Bhagavan Niketan for Rs. 9.80 Crs. It was noticed that as per the cash book impounded of M/s. Alakram International Trading Company Pvt Ltd for the period 1/4/2016 to 31/3/2017 there is no such transaction of providing share capital by the assessee-company to M/s. Alakram International Trading Company Private Limited.

7 Thereafter, a show cause notice was issued to the assessee to prove the identity, creditworthiness of the parties and genuineness of the transactions. In response, the assessee submitted its reply dated 23/12/2019 stating that the sources of the share application money invested by the assessee-company are out of the funds available with the company by way of income received during the FY 2016-17 and all these transactions are recorded in the books of accounts and the company has filed the return of income and paid the taxes accordingly. Further, it was submitted by the assessee company that the cash books and other documents impounded during the search proceedings are not audited books of accounts while the return of income filed by the assessee is based on the audited financials and it was submitted to the Ld. AO during the assessment proceedings. The Ld. AO did not accept the explanation of the Assessee’s Representative and observed that the assessee has revised the cash book by showing cash balance of Rs. 6,32,87,966/- as on 1/4/2016 and has also taken advantage of telescoping of profit offered under “Percentage Completion Method” for the cash payments made towards share application to M/s. Alakram International Trading Company Pvt. Ltd. The Ld. AO therefore treated the source of payments remained unexplained and 8 assessed it substantively in the hands of M/s. Alakram International Trading Company Pvt Ltd. And protectively in the hands of the assessee-company by considering a sum of Rs. 8,25,03,350/- as unexplained investment U/s. 69 r.w.s 115BBE of the Act. Aggrieved by the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A).

4. On appeal, the Ld. CIT (A) considering the submissions made by the Assessee’s Representative and the audited financial statements and found that the transactions of share application are recorded in the books of accounts of the assessee-company and the assessee-company has filed the return of income admitting a total income of Rs. 9.18 Crs and has paid the taxes accordingly. Since the transactions are recorded in the books of account of the assessee-company as well as in the books of account of M/s. Alakram International Trading Company Private Limited, the Ld. CIT(A) deleted the addition made by the Ld. AO U/s. 69 of the Act thereby partly allowed the appeal of the assessee. Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us by raising the following grounds of appeal:

“1. On the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the addition made by the AO of unexplained investment U/s. 69 r.w.s

9 115BBE of the Act holding that the Assessing Officer failed to establish that the investment made by the appellant were not recorded in the books of account even though the AO has made the addition with reference to the cash books impounded of M/s. Alakram International Trading Company Pvt Ltd., for a period of 1/4/2016 to 31/3/2017 as per which no such transaction of providing share capital was recorded in the books of the company.

2. The Ld. CIT(A) has erred in holding that the sources of the share application money invested by the assessee are out of the funds available with the assessee-company during the FY 2016-17, wherein as per the balance sheet of the assessee company for the period from 1/4/2016 to 31/3/2017 impounded during the course of survey proceedings no such entries of investment in share application money is available.

3. The Ld. CIT(A) erred in accepting the explanation furnished by the assessee towards unexplained investment U/s. 69 of the Act during the course of appellate proceedings without according an opportunity to the AO.

4. Any other ground of appeal that may arise at the time of hearing.”

10 made the additions U/s. 69 of the Act. He therefore pleaded that the order of the Ld. AO be upheld.

Per contra, the Ld. Authorized Representative of the assessee submitted that the books of accounts seized and impounded during the search and seizure operations were not audited and the return of income was filed based on the audited books of accounts. The Ld. AR referred to the paper book wherein the audited financials were submitted before the Ld. Revenue Authorities as well as before us. The Ld. AR also further referred to the revised cash books wherein the cash transactions are recorded in the books of accounts of the assessee-company and hence no additions can be made U/s. 69 of the Act. The Ld. AR fully supported the order of the Ld. CIT(A).

Alakram International Trading Company Private Limited for acquisition of 10,97,815 shares. The Ld. AO has accepted the payments made by cheque to the extent of Rs. 1.63 Crs and treated the balance amount of Rs. 8.25 Crs as unexplained

11 investment U/s. 69 r.w.s 115BBE of the Act. The case of the Ld.

AO is that the assessee has not recorded these cash transactions in the books of accounts impounded during the search and seizure operations, but has entered these cash transactions in the revised books of accounts. However, the Ld. AO failed to appreciate the fact that the return of income has been filed based on the audited financial statements which discloses the cash transactions in the books of accounts of the assessee-company.

Further, from the submissions of the Ld. AR, we find that the assessee-company has also shown investments in 11,07,815 Equity shares of M/s. Alakram International Trading Company Private Limited in Schedule-9 “Current Investments” which is an Annexure to the Financial Statements for the FY 2016-17. The Ld. AO has merely relied on the impounded books of accounts and has concluded that these transactions are not recorded in the cash book impounded during the search and seizure operations. Further, the Ld. AO did not consider the fact that the due date for filing of return of income for the AY 2017-18 has not expired. The return of income filed by the assessee based on the audited financial statement accounts were not considered by the Ld. AO to the limited extent of the cash transactions / investments by the assessee company. The Ld. AO however, has 12 not disputed the total income declared by the assessee while filing the return of income U/s. 153A of the Act based on the audited Financial Statement Accounts. It is also found in the order of the Ld. AO that the Ld. AO has merely based on surmises and assumptions and has framed the assessment by taxing the investments made by way of cash U/s. 69 of the Act.

We extract below section 69 of the Act for the sake of brevity.

“Sec 69. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.”

13 that the Ld. CIT(A) has rightly considered the above facts and therefore we find no infirmity in the order of the Ld. CIT(A). Accordingly, all the grounds raised by the Revenue are dismissed.

(Assessment Year :2017-18) (DCIT vs. M/s. Dolphin Highrise Private Limited)

“1. On the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the addition made by the AO of unexplained investment U/s. 69 r.w.s 115BBE of the Act holding that the Assessing Officer failed to establish that the investment made by the appellant were not recorded in the books of account even though the AO has made the addition with reference to the cash books impounded of M/s. Alakram International Trading Company Pvt Ltd., for a period of 1/4/2016 to 31/3/2017 as per which no such transaction of providing share capital was recorded in the books of the company.

2. The Ld. CIT(A) has erred in holding that the sources of the share application money invested by the assessee-company in M/s. Alakram International Trading Company Private Limited are out of the funds available with the assessee- company during the FY 2016-17, wherein as per the balance sheet of the assessee company for the period from 1/4/2016 to 31/3/2017 impounded during the course of survey proceedings, no such 14 entries of investment in share application money is available.

3. The Ld. CIT(A) erred in accepting the explanation furnished by the assessee towards unexplained investment U/s. 69 of the Act during the course of appellate proceedings without according an opportunity to the AO.

4. Any other ground of appeal that may arise at the time of hearing.”

15 20/10487/CIT(A)-3/VSP/2020-21, dated 29/3/2021 arising out of the order passed U/s. 143(3) r.w.s. 153A of the Act for the AY 2017-18.

Simultaneously, survey operations U/s. 133A of the Act were conducted on the retail garments shop and in the office at construction site of Dolphin Heights. The assessee-company has not filed its return of income U/s. 139(1) of the Act and subsequently, after search proceedings, the assessee filed its return of income U/s. 139(4) on 7/11/2017 admitting a total income of Rs. 2,80,85,895/-. The case was centralized to Central Circle (2), Visakhapatnam vide proceedings of the Principal

16 Commissioner of Income Tax, Kolkata vide order No. 12/2017-18, dated 5/3/2018. The assessee company in response filed its return of income on 30/11/2018 admitting a total income of Rs. 2,80,85,895/-. Thereafter, a notice U/s. 143(2) of the Act dated 18/2/2019 was issued and served on the assessee on 24/2/2019. Subsequently, notice U/s. 142(1) of the Act along with a questionnaire was issued and served on the assessee on 30/3/2019. In response to the above notices, the assessee furnished its books of accounts and other required information.

On verification of the books of accounts it was noticed that the assessee has not recognized the revenue in the return of income filed till AY 2016-17 as well as for the impugned Assessment Year. It was pointed out to the assessee that the revised versions of income computations and disclosure standards (ICDSs) were issued vide CBDT Notification No. 87/2016 [S.O. 3079(E)], dated 29/9/2016 for the purpose of computation of income chargeable to income tax which will apply to the AY 2017-18 and subsequent AYs. Thereafter, Sri Alakram Satyanandam, Managing Director of the assessee company while recording the statement U/s. 132(4) of the Act on 14/11/2017 agreed to disclose the revenue of the assessee company on “Percentage Completion Method” for the AY 2017-18 and accordingly filed the return of income in response to 17 the notice U/s. 153A of the Act for the AY 2017-18 admitting a total income of Rs.2,42,10,414/-. It was noticed that the assessee company has purchased an immovable property of 3.90 Acres of land at Vellanki, Anandapuram, Visakhapatnam from M/s. DRK Reddy Educational Society for a registered sale consideration of Rs. 4.13 Crs. During the course of search proceedings a hand written paper was found and seized vide Annexure-A/Satyanandam/Res/01 wherein the value of the property was mentioned as Rs. 16 Crs for 4 Acres of land. During the course of the search proceedings in the office of M/s. DRK Reddy Educational Society, Sri Dwarampudi Satyanarayana, Secretary of M/s. DRK Reddy Educational Society admitted that the total consideration of Rs. 16 Crs (Rs. 4.13 Crs through cheque and Rs. 11.86 Crs in cash) paid. It was explained by Sri Alakram Satyanandam, Director of the assessee-company, in his sworn statement recorded U/s. 132(4) of the Act on 14/11/2017 that the source of cash is the share application money received from M/s. Dolphin Highrise Private Limited and M/s. Sri Bhagwan Niketan Private Limited. It was observed by the Ld. AO that M/s. Dolphin Highrise Private Limited has invested a sum of Rs. 1,79,00,1000/- as share application / share capital money in cash in the assessee’s company out of the income received during

18 the FY 2016-17. Further, it was also submitted by the assessee that M/s. Sri Bhagwan Niketan Private Limited has invested a total sum of Rs.9,88,03,350/- out of which a sum of Rs. 8,25,03,350/- was received in cash and the balance of Rs. 6.3 Crs by way of bank transactions. On verification of the balance sheet for the year ending 31/3/2017 it was noticed that M/s.

Dolphin Highrise Private Limited was allotted 1,98,900 shares and M/s. Bhawan Niketan Private Limited was allotted 11,07,815 shares. Subsequently, a show cause notice was issued to the assessee on 16/12/2019 wherein the Ld. AO brought to the notice of the assessee that as per the balance sheet for the FY ending 31/3/2017 no such entry of share application money nor any allotment of shares are available. The Ld. AO observed that it is only a book entry without actual receipt of funds. Further, it was also observed by the Ld. AO that as per the cash book impounded for the period 1/4/2016 to 31/3/2017 no such cash transaction of receiving share application money was found and the assessee was asked as to why it should not be treated as unexplained investment U/s. 69 of the Act. In response, the assessee filed a reply on 23/12/2019 stating that the assessee has received the funds from M/s. Dolphin Highrise Private Limited and M/s. Sri Bhagwan Niketan Private Limited towards

19 share capital and these transactions are recorded in the books of accounts. Further, the assessee also submitted that the cash book found and impounded during the course of the search are not audited books of accounts. The Ld. AO did not accept the explanation of the assessee and found that the claim of the assessee regarding the source of the cash is out of the share capital, is only a book entry made in the financials without corresponding actual flow of cash. The Ld. AO therefore concluded that since the sources remained unexplained, the same is treated as unexplained cash credit in the hands of the assessee and taxed it U/s. 68 r.w.s 115BBE of the Act. The Ld. AO found that no cash withdrawals corresponding to the receipts in bank for linking the amount of Rs. 1.63 Crs through banking channels as a source for cash payment for purchase of land, did not accept the assessee’s explanation. Therefore the Ld. AO treated a sum of Rs. 10,04,04,350/- [Rs. 8,25,03,350 + Rs. 1,79,00,1000] as unexplained cash credit U/s. 68 of the Act. The remaining sum of Rs. 1.63 Crs received through banking channels along with Rs. 18,95,650/- [Rs. 11.86 Crs – Rs. 11,67,04,350] was treated as unexplained investment towards purchase of land U/s. 69 r.w.s 115BBE of the Act. Aggrieved by 20 the order of the Ld.AO, the assessee filed an appeal before the Ld. CIT(A)-3, Visakhapatnam.

“1. On the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the addition made by the AO who held that the assessee failed to establish the receipt of cash as share application money which were not recorded in the books of account of respective companies viz., M/s. Bhagwan Niketan Limited and M/s. Dolphin Highrise Private Limited as per the impounded cash book.

2. The Ld. CIT(A) has erred in not considering the fact that M/s. DRK Reddy Educational Society from whom the assessee-company has purchased the land, has accepted the receipt of the said cash from the assessee-company and the same was disclosed by M/s. MRK Reddy Educational Society during the search proceedings and paid the resultant taxes thereon,.

3. The Ld. CIT(A) has erred in holding that once the genuinity of the bank payments is accepted, the genuinity of cash payments also is to be accepted, ignoring the fact that the payments made through banking channels would be verifiable, however, the payments made through cash cannot be verified.

Per contra, the Ld. Authorized Representative fully supported the order of the Ld. CIT(A). The Ld. AR further submitted that these cash transactions are being recorded in the audited financial statements based on which the return of income was filed by the assessee and hence recorded in the books of accounts of the assessee-company and the investor companies.

He therefore pleaded that the order of the Ld. CIT(A) be upheld.

22 by the Ld.AR that the investments in the assessee-company by the investor companies were out of the funds available by way of income received during the FY 2016-17. The Ld. AO has not disputed the return of income filed investor companies but has disputed the receipt of cash by the assessee-company towards share capital. We also find from the paper book submitted by the Ld. AR wherein financial statements disclose the allotment of shares to M/s. Bhagwan Niketan Limited and M/s. Dolphin Highrise Private Limited. The Ld. AO relied on the material impounded during the search proceedings which did not contain any details about the allotment of shares but has failed to consider the audited financial statements, based on which the return of income is filed, and submitted during the assessment proceedings wherein it can be seen that the details of allotment of shares and receipt of cash for subscription towards share capital was duly recorded in the books of accounts by the assessee-company. It was also clearly established by the assessee that the cash payments were made out of the funds available with the assessee-company by way of income during the FY 2016-17. The Ld. AO has accepted the books of accounts for the purpose of disclosure of the profit declared by the assessee- company and investor companies while filing the return of 23 income U/s. 153A of the Act whereas did not accept the cash transactions recorded in the books of account for the purpose of receipts towards share capital. It was also noticed that the Ld. AO has not rejected the books of accounts. Further, the Ld. AO has accepted and satisfied with the genuinity of the share application money received through banking channels amounting to Rs. 1.63 Crs. The Ld. AO has not disputed the investment made by M/s. Bhawan Niketan Limited and M/s. Dolphin Highrise Private Limited but has only contested the cash receipts from the investor companies towards share capital. The Ld. AO failed to consider the fact that the investor companies have declared income based on the audited books of accounts which was submitted to the Ld. AO during the assessment proceedings, which was utilized for subscribing to share capital. The Ld. AO on the one hand accepted the income declared by the investor companies but has denied to accept the fact that there is a cash surplus in the books of accounts of the investor companies which was invested in the investee company towards share capital. We find that the Ld. CIT(A) has considered all the above facts and has rightly deleted the addition made by the Ld. AO thereby allowing the appeal of the assessee and therefore there is no 24 infirmity in the order of the Ld. CIT(A). Accordingly, all the Grounds raised by the Revenue are dismissed.

Pronounced in the open Court on 30th January, 2024.