M/S ROYAL RALF HOTELS P. LTD. vs. DCIT,

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH ‘ A ’ BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T. A. No.962/Bang/2013 (Assessment Year : 2007-08) M/s. Royal Ralf Hotels Pvt. Ltd., No.28/28, Geet Prakash, 21st Main, 14th Cross, Padmanabhanagar, Bangalore-560 070 …. Appellant. PAN AACCR 8037K Vs. Dy. Commissioner of Income Tax, Central Circle 1(1), Bangalore. ….. Respondent. Appellant By : Shri K.R.Vasudevan, Advocate. Respondent By : Shri C.H. Sundar Rao, CIT-I (D.R). Date of Hearing : 8.1.2015. Date of Pronouncement : 23.3.2015. O R D E R Per Shri Jason P. Boaz, A.M. :

This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-VI, Bangalore dt.25.3.2013 for Assessment Year 2007-08.

1. The order of learned CIT (Appeals) is erroneous and not in accordance with law.

2. The learned CIT (Appeals) ought not to have approved the inference drawn by the Assessing Officer about Rs.13,50,00,000 as non-genuine expenditure.

3. The learned CIT (Appeals) ought to have appreciated that the said amount was not actually an expenditure debited to the profit and loss account and that the amount was a payment made to Queencity Developers Pvt. Ltd.

4. The learned CIT (Appeals) ought to have appreciated that out of Rs.16 Crores paid to Queencity Developers Pvt. Ltd. addition has been actually made only to the extent of Rs.13,50,00,000 and such partial disallowance was not at all called for the amount having not been claimed as an expenditure in the Profit and Loss Account.

5. The CIT (Appeals) ought to have appreciated that the entire amount of Rs.16 Crores has been paid to Queencity Developers Pvt. Ltd. as evidenced by the Annexure-1, which is annexed to the CIT (Appeals) order and forms part of CIT (Appeals) order.

6. The CIT (Appeals) ought to have cross examined Queencity Developers Pvt. Ltd. in case of doubt which fact finding has not actually been done.

7. The CIT (Appeals) ought to have appreciated that the assessee was a real estate agent earning commission / consultation fee and the assessee having declared such income Rs.3,30,53,750 there was no scope for enhancement by Rs.6,22,95,334 on the basis of TDS Certificate issued by M/s. Shipra Estate Limited.

8. The CIT (Appeals) ought to have personally verified the assessee's claim that M/s. Shipra Estates Ltd has misclassified the future land acquisition advances as commission which did result in wrong tax deduction and the assessee was left with no other option rather than claiming the TDS though wrongly made.”

4. Ground Nos.1 to 6 – Addition towards cash payments : Rs.13,50,00,000. 4.1 The Grounds raised at S.Nos. 1 to 6 are in respect of the addition of Rs.13,50,00,000 towards cash payments made by the assessee to Queen City Developers Pvt. Ltd. (‘‘QCDPL’’). The facts of the matter as emanate from the records are that the assessee was involved in certain land transactions during the year. A company M/s. ‘Shipra’ Estate Ltd. (‘‘Shipra’ ’) wanted to acquire / purchase certain lands in and around Bangalore and in this regard approached the assessee. Consequently, a Memorandum of Understanding (‘MOU’) dt.24.12.2005 was entered into between the assessee and ‘Shipra’ . The assessee identified certain lands near Devanahalli, Bangalore and is consequence thereof, a piece of land measuring about 5.6 acres was acquired by the assessee from M/s. Queen City Developers Pvt. Ltd. An ”Agreement for sale” dt.25.2.2006 was entered into with ‘QCDPL’ for acquiring the said land on behalf of ‘Shipra’ . Eventually, this land was transferred to ‘Shipra’ by means of a Registered Sale Deed dt.23.6.2006 between ‘Shipra’ and ‘QCDPL’, in which the assessee was a consenting party. This transaction with ‘QCDPL’ is the one of the two issues under dispute in this appeal. 4.2.1 In the course of assessment proceedings, the assessee was asked to explain the details of the transaction with ‘QCDPL’. The assessee submitted details of the same, which have been extracted at pages 2 to 4 in the order of assessment. After examining the details furnished, the Assessing Officer concluded that the assessee had made total payments of about Rs.16 Crores in the following manner :- (i) Payments made by the assessee to ‘QCDPL’ in cash directly : Rs.14,25,25,000. (ii) Payments made to ‘QCDPL’ through Sri S.S. Nagesh : Rs.1,04,75,000. (iii) Payments made to land owner: Sri Karyappa : Rs.20,00,000. To support its claim of the payments made to ‘QCDPL’, the assessee was asked to furnish the original Agreement for Sale dt.25.2.2006 entered into between the assessee and ‘QCDPL’.

However, the assessee did not submit the original agreement but only submitted a copy of the said agreement. 4.2.2 The Assessing Officer made a reference to State Bank of Mysore which had issued the stamp paper of the first two pages of the Agreement. From the enquiry made, it transpired that the said stamp papers were issued only on 12.1.2008 whereas the agreement was dated 25.2.2006. It was also ascertained that the said stamp papers were issued in the name of some other person and not in the name of the assessee, as was mentioned in the stamp paers. In these factual circumstances, the Assessing Officer came to the view that the authenticity of the agreement and its contents are bogus and therefore rejected the document as an evidence for the claim of cash payment of Rs.16 Crores. 4.2.3 In view of the above, the Assessing Officer required the assessee to substantiate the claim of payments of Rs.16 Crores made to ‘QCDPL’ and furnish evidence for establishment of the same. The assessee submitted that the payments were made to the following persons, the details of which are extracted at pages 10 & 11 of the order of assessment and are as under :- S.No. Date Name of person Amount (Rs.) Remarks 1. 15.4.2006 S. Suresh 50,00,000 Cash Payment 2. 17.4.2006 S. Suresh 70,00,000 Cash Payment 3. 23.6.2006 S. Suresh 1,80,00,000 Pay order – admitted during enquiry. 4. 21.6.2006 R.Ramesh 3,40,00,000 Pay Order. 5. 21.6.2006 R. Keshava 1,70,00,000 Pay Order. Murthy 6. 21.6.2006 N. Krishna 3,60,00,000 Pay Order. Murthy 7. 13.6.2006 T Narayana 10,00,000 Pay Order. 8. 13.6.2006 D. Venkanna 10,00,000 Pay Order. 9. 13.6.2006 G. Narayana 10,00,000 Pay Order. Reddy 10. 21.6.2006 G R Narasimha 90,00,000 Pay Order. Murthy 11. 3.11.2005 S.S. Nagesh 1,04,75,000 Account Payee to Cheque. 30.5.2006 4.2.4 Out of the above mentioned persons, the Assessing Officer caused enquiries to be conducted with Sri S. Suresh. While Sri Suresh accepted the payment of Rs.1,80,00,000 through pay order, he denied the receipt of cash payments amounting to Rs.1,20,00,000 stating that the money was taken back of by the assessee. The Assessing Officer accepted the payments of Rs.1,80,00,000 through pay order as genuine and rejected the balance amounts as not genuine and added the balance amounts of Rs.13,50,00,000 to the income of the assessee. 4.3.1 In the proceedings before us, the learned Authorised Representative strongly assailed the line of enquiry conducted by the Assessing Officer and the conclusions drawn therefrom. It was contended that the Assessing Officer had mis-directed himself by relying only on the enquiry made about the two stamp papers and not making proper enquiries on the assessee's claim of payments made through pay orders to various persons. It was submitted that the additions to income are dependent on the genuineness of payments made to various persons specified and the ‘Agreement of Sale’ was only an incidental agreement. 4.3.2 The gist of the arguments put forth by the assessee in written submissions and proceedings before us are as under :- (i) The land transaction is between ‘Shipra’ and ‘QCDPL’ and the assessee is only a consenting party. (ii) The Agreement for sale’ is between two parties; namely, the assessee and ‘QCDPL’. The representative of ‘QCDPL’ has signed on all the pages of the agreement, including the first two pages thereof, which are held to be non-genuine stamp papers; while the representative of the assessee has signed only on the last page thereof. Further, the signature of the representative of ‘QCDPL’ in the first two pages matches, the signature in the other pages of the ‘Agreement of sale’. Therefore holding the assessee liable for the non-genuineness of the stamp paper, without making any enquiry with the other party i.e. ‘QCDPL’, which is the main party, is not correct. (iii) The Registered Sale Deed dt.23.6.2006, between ‘Shipra’ and ‘QCDPL’, with the assessee as a consenting party, does not mention the Agreement for Sale dt.25.2.2006, between the assessee and ‘QCDPL’. Therefore, the Assessing Officer was wrong in disregarding the agreement for sale, only based on his finding on the two stamp papers; (iv) The clause relating to the sale consideration is at page 5 of the Agreement for Sale, which was on genuine stamp paper and mentions that out of the total consideration of Rs.22,70,00,000, an amount of Rs.54,00,000 will be by way of DD and the remaining amount will be cash payment only. Therefore, the Assessing Officer was wrong in disregarding the claim of cash payments, based only on the finding that the first two pages of the stamp paper used for the Agreement for Sale were not genuine; 4.3.3 The learned Authorised Representative also submitted that the addition has been made to the income of the assessee without enquiring about the claim of payments made to the various persons in connection with the above land transactions. The gist of the submissions put forth by the assessee in this regard are as under :- (i) The payments have been made through pay orders, through regular banking channels and the money has flown out of the bank account of the assessee. It is therefore clear that the Assessing Officer has erred in rejecting the assessee's claims without making any enquiries in this regard. (ii) One of the payments made to Sri Nagesh is through account payee cheque and still the same has been rejected without any enquiry. (iii) The Assessing Officer made enquiries with Sri S. Suresh, who confirmed the assessee's position regarding the payment made through pay order. Therefore, the balance of convenience is in the assessee's favour as regards the other payments made to various persons through pay orders; (iv) The assessee had earlier made pay orders in the name of other persons, as reproduced in this order (supra at para 4.2.3). However, at the instance of ‘QCDPL’, the pay orders were cancelled and fresh pay orders were made in the names of persons to whom the pay orders were originally issued. The Assessing Officer’s conclusions, in totally disregarding these details without any enquiry, was not correct. The learned Authorised Representative also submitted that these payments were not claimed by the assessee as its business expenditure in its books of account and therefore the Assessing Officer was wrong in disallowing these payments. These payments were towards the land transaction between ‘Shipra’ and ‘QCDPL’ and the assessee was only an intermediary in the cash transactions and therefore these amounts ought not to have been added in the hands of the assessee. 4.4 Per contra, the learned Departmental Representative vehemently supported the orders of the authorities below and contended that the Assessing Officer has rendered a clear finding that the assessee had submitted a document which has been proved to be bogus and therefore the Assessing Officer has rightly rejected the assessee's contention. While the learned Departmental Representative fairly admitted that investigations by the Assessing Officer ought to have been made with the persons to whom the pay orders were issued, he faulted the assessee for not furnishing the details of the persons, due to which the enquiries could not have been made. 4.5.1 We have heard the rival contentions and carefully considered the submissions made and the material on record. The basic facts of the case, i.e. ;that there was a land transaction between ‘QCDPL’ and ‘Shipra’ as evidenced by the Registered Sale Deed dt.23.6.2006, is not in dispute. It is also not in dispute that the assessee was a party to the land transaction between ‘QCDPL’ and ‘Shipra’ as the Registered Sale Deed has been signed by the Directors of the assessee company as “Consenting Parties”. It is also evident that there was an Agreement to sell dt.25.2.2006 executed between the assessee and ‘QCDPL’, as Registered Sale Deed dt.23.6.2006 does mention the same. The only issue of dispute is whether there were cash transactions related to the land transaction and in whose hands it should be assessed. 4.5.2 In this regard, we are of the considered opinion that the enquiries made could have been better focused and properly carried out. While it is not in dispute that the first two pages of the document of agreement to sell dt.25.2.2006 are on non-genuine stamp paper, it is also evident from the face of the said document that it has been signed on every page by the representative of ‘QCDPL’ whereas the assessee's representative has signed only on the last page. Therefore, in our view, the Assessing Officer ought to have conducted the enquiry with the other party to the agreement i.e. ‘QCDPL’, before reaching the conclusion as to whether it should be accepted or not. Further, it is settled principle that documents found in the course of Section 132 of the Act can be accepted as evidence. In this context, page 5 of the agreement to sell containing the claim regarding sale consideration does mention about cash payment. A diligent and comprehensive enquiry on this aspect might have been given clear leads to the Assessing Officer about the possible cash transactions involved in the said land transaction. 4.5.3 Be that as it may, the additions to the income of the assessee are related to the payments alleged to have been made to various persons mentioned in the order of assessment for Assessment Year 2007-08. It is not disputed that most of the payments have been made by way of pay orders, through banking channels. That being so, it was incumbent on the Assessing Officer to have conducted enquiries with the other persons concerned, to whom these payments were made by way of pay orders, about the land transactions. From the order of assessment it appears that the Assessing Officer made enquiries with only one party, Sri Suresh. While the details of the enquiry are not mentioned, the order notes that Sri Suresh confirmed the receipt of the pay order, based on which the Assessing Officer allowed relief to the assessee on this payment. If one pay order payment is confirmed and the assessee is allowed relief, in our view it was not appropriate for the Assessing Officer to disallow other payments by way of pay orders to various other persons without any enquiry / verification. 4.5.4 In the factual matrix of the case on this issue, as discussed above, we deem it necessary to remand the issue back to the file of the Assessing Officer with a direction that he may decide this issue afresh after making proper enquiry and verification on the lines indicated in this order (supra) after affording adequate opportunity to the assessee of being heard and to make submissions in the matter, which shall be duly considered by the Assessing Officer while adjudicating the matter afresh. The assessee shall also co-operate with the Assessing Officer by furnishing the necessary details to enable the Assessing Officer to conduct proper enquiries in the matter. We, accordingly, treat the assessee's grounds of appeal as allowed for statistical purposes only.

5. Ground Nos. 7 & 8 – enhancement of Income by the CIT (Appeals) based on TDS Certificates. 5.1 In the grounds at S.Nos.7 & 8, the assessee challenges the action of the learned CIT (Appeals) in enhancing its income by Rs.6,22,95,334 on the basis of TDS Certificate issued by ‘Shipra’ . 5.2 The facts of the matter, as emanate from the record, are that in the course of appellate proceedings, the learned CIT (Appeals) observed from the records of assessment that there was a TDS Certificate issued by ‘Shipra’ , as per which the assessee had been paid an amount of Rs.9.53 Crores and after deduction of tax of Rs.53,49,084, an amount of Rs.9 Crores was deposited in the assessee's bank account on 10.4.2006. The learned CIT (Appeals) observed that while the credit for TDS has been claimed in the return of income for Assessment Year 2007-08, no corresponding income has been offered other than an amount of Rs.3,30,53,750. In this factual matrix of the matter, the learned CIT (Appeals) issued an enhancement notice under Section 251(2) of the Act proposing enhancement of the assessee's income by Rs.6,22,95,354. In response thereto, the assessee contended that it had declared consultancy income from ‘Shipra’ as per the agreement between them and the amount shown in the TDS Certificate is shown as advance in the books of account of the assessee. The learned CIT (Appeals), however, did not accept the explanation put forth by the assessee and rejected the same for the reason that the TDS Certificate clearly shows the amount as “Commission and Brokerage” and therefore held that it has to be treated as income of the assessee and accordingly passed the order enhancing the assessee's income to the extent of Rs.6,22,95,354. 5.3 In proceedings before us, the learned Authorised Representative submitted that the other party, namely ‘Shipra’ , has wrongly deducted TDS of Rs.53,49,084 on the payments of Rs.9.53 Crores and the assessee should not be saddled with the amount as income merely because of the mistake of the tax deductor. It was submitted that the assessee has entered into an agreement with ‘Shipra’ , and as per the terms of which the assessee is to be paid for its services, at the rate specified in the agreement, at the time of registration of the land in the name of ‘Shipra’ . The learned Authorised Representative submitted that the agreement with 1.4.2006 whereas the payment ofRs.9.53 Crores was made on 10.4.2006, within 10 days of the signing of the agreement. The ultimate transfer of the said land in the name of ‘Shipra’ was made on 23.6.2006, only after which the commission is payable to the assessee. It is contended that evidently, the payment made to the assessee on 10.4.2006 was an advance paid by ‘Shipra’ , in connection with the purchase consideration of the land. The amount paid as advance for the purchase of land has been wrongly considered as consultancy charges payable to the assessee. The learned Authorised Representative contends that in these factual circumstances as narrated above, the enhancement made by the learned CIT (Appeals) ought not to have been made at all and therefore requires to be deleted. 5.4 Per contra, the learned Departmental Representative supported the stand of the learned CIT (Appeals) submitting that the decision of the learned CIT (Appeals) is based on the TDS Certificate issued by the other party i.e. ‘Shipra’ and therefore requires to be upheld. 5.5.1 We have heard the rival contentions and perused and carefully considered the material on record. It is not in dispute that the other party i.e. ‘Shipra’ , has issued the TDS Certificate considering the impugned payment as “income from commission and brokerage.” The record indicates that the learned CIT (Appeals) has enhanced the income of the assessee relying on the TDS Certificate issued by ‘Shipra’ , without verifying the contention of the assessee that the amount represented only an advance. Further, it is seen that the contention of the assessee that the said amount has been offered to tax in the subsequent years, as per the agreement with ‘Shipra’ also does not appear to have been examined or verified. It is settled principle that an amount cannot be considered as income of the recipient, merely because the tax deductor has treated the amount as income, but would depend on the factual situation prevailing. In view of the facts and circumstances of the case on the issue of enhancement of income by the learned CIT (Appeals) as discussed above, we deem it necessary, in the interest of justice and equity, to remand this issue to the file of the Assessing Officer with the direction that this issue be decided afresh after examination and verification thereof in the light of our observations in this order (supra) after affording the assessee adequate opportunity of being heard and to file the details required, which shall be duly considered by the Assessing Officer. It is ordered accordingly. Consequently, the assessee's grounds at S.Nos. 7 & 8 are treated as allowed for statistical purposes.