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Income Tax Appellate Tribunal, DELHI BENCH ‘G’ NEW DELHI
Before: SHRI C.M. GARG & SHRI L.P. SAHU
ORDER
Per L.P. Sahu, Accountant Member:
These cross appeals by the Revenue and the assessee are directed against the order dated 30.04.2012 of ld. CIT(A) for the assessment year 2008-09. Both the parties have raised following grounds in their respective appeals :
Ground raised by Revenue :
1. On the facts and circumstances of the case, the Ld. CIT(A) had erred in directing the AO to restrict the addition from investment and profit from sale of building to Rs.25,14,000/- in the hands of the assessee and to take necessary steps to tax the balance of Rs.10,25,000/- in the hands of Shri Abhishek Sharma when the profit from construction activity and investment therein belonged to the assessee s established by the Assessing Officer.”
Grounds raised by assessee : “1. That the assessment order is bad in law on the facts of the case.
2. That the Ld. CIT(A) has erred in law and on the facts of the case in sustaining addition of Rs.40,850/- out of the disallowance under the head “business Promotion Expenses” made by the AO on adhoc basis of Rs.1,21,740/- 30% out of the expenditure incurred of Rs.4,05,800/-. That the claim of expenditure needs to be fully allowed & the addition, so sustained is prayed to be deleted.
3. That the Ld.CIT(A) is not justified in sustaining the disallowance ofRs.40,261/- of “Bad Debts” as the embezzled amounts by employees from the recovery of debts from buyers, disallowed by the AO out of the total bad debts of Rs.17,52,691/-. That considering the nature of expenditure claimed, the disallowance is prayed to be deleted.
4. That the Ld. CIT(A) has erred in law, on the fact of the case, and the evidence on record, in sustaining the addition of Rs.13,27,328/- out of the addition of Rs.18,68,496/- made by AO u/s. 69C, on a/c of alleged investment on construction made in Uttam Nagar Property ignoring the authentic evidence on record and partially accepting the misleading, falsified, evasive contradictory and unsupported statement of Abhishek Sharma, forming the basis of the addition. The entire addition, it is prayed be deleted by accepting the credible evidence and rejecting the statement in totality, forming the basis of the addition.
5. That the Ld. CIT(A) has further erred in law, on the facts and evidence on record, to have sustained the addition of Rs.11,86,676/- out of the addition made by AO of Rs.16,70,504/- as profit arising on sale of flats on the Uttam Nagar property made on assumptions conjectures and surmises that such profit is arising to the assessee, by relying on the misleading, falsified, evasive contradictory and unsupported statement of Abhishek Sharma forming the basis of the addition. The entire addition, it is prayed, be deleted on the basis of the credible tenable and uncontravened evidence.”
Brief facts of the case are that the assessee filed its return of income on 17.10.2008 declaring a total income of Rs.45,65,250/-. The assessee is carrying on the business in the name and style of M/s. Kundan Lal Filling Station being proprietary concern of Sh. Subhash Bhatia. In the course of assessment proceedings, the AO noticed that the assessee has claimed following expenditure in the profit and loss account, which the Assessing Officer partly disallowed as under :
Sl. Nature of expenditure Amount claimed Amount disallowed By assessee by AO in Rs. & % ---- ------------------------------- -------------------- ------------------------- 01. Business Promotion Exp. 4,05,800.63 1,21,740.00 30% 02. Advertisement & Publicity 3,11,499.00 93,450.00 30% 03. Telephone expenses 2,54,266.85 50,853.00 20% 04. Vehicle Running Exp. 2,03,265.59 40,653.00 20% ---- ------------------------------ -------------------- -------------------------- The above disallowances have been made by the AO keeping in view the nature of expenditure and personal element embedded to the expenditure claimed. Regarding business promotion expenses, it is observed that most of the expenditure are shown towards hotel and restaurant bills which cannot be considered wholly and exclusively for the purpose of business. Regarding advertisement and publicity expenses, it is observed that the total expenditure on various items like glass, digital camera, blanket, tie, ball pens pant and shirts for customers cannot be said wholly for the purpose of business. Similarly, personal element in telephone expenses and vehicle running expenses has also been viewed by the AO for making disallowance. The ld. CIT(A) after considering the facts and circumstances of the case, restricted the disallowance of business promotion expenses to 1/10th as against 30%, of the amount claimed by assessee and disallowance of telephone and vehicle running expenses were restricted to 10% instead of 20% made by AO. The disallowance made by AO towards advertisement and publicity was deleted by the ld. CIT(A).
The assessee also claimed a sum of Rs.17,52,691/- as bad debt, out of which the AO disallowed a sum of Rs.40,261/- on the ground that some of the amounts as mentioned at page 9 of the assessment order, were claimed as bad debt on account of short cash deposited, salary paid to employees or other payments made to staff members etc. He also observed that primary condition before writing off any debt as bad debt is that first it should be a debt and the amount should have been credited earlier and taken into computation of income before the same is treated as bad debt, which is lacking in the present case. The AO, therefore, disallowed Rs.40,261/- on this account. In appeal, the ld. CIT(A) confirmed the addition on the ground the amounts were either not credited to the income of the earlier years or there was no documentary evidence in support of the bad debts written off by the assessee. Aggrieved by the partial sustenance of disallowance of expenses and confirmation of addition towards bad debts, the assessee has come up in appeal before us.
The assessee also showed short term capital gain of Rs.49,000/- in the computation of income. The AO asked the assessee to justify the short term capital gain by furnishing the details thereof and of the property. In response, the assessee submitted that he purchased the plot in Uttam Nagar on 21.06.2007 for Rs.2,16,000/- and the same was sold for Rs.2,65,000/- on 31.03.2008. In support purchase deed of the plot was filed before the AO. Regarding the sale of property, it was submitted that the assessee entered into MOU with one Abhishek Sharma to build and develop six flats on the said plot. As per MOU it was agreed that the assessee would be entitled to retain a net consideration of Rs.2,65,000/- against the plot on the sale of six flats and that all negotiations for the sale shall be conducted by Sh. Abhishek Sharma and that the sale deed to the individual buyers shall be executed by the assessee and the consideration shall also be received by the assessee. In terms of the MOU the assessee received the entire consideration on the sale of flats which were constructed wholly by Shri Abhishek Sharma at his own cost and no part of the cost was incurred by the assessee for the development or construction on the said plot. Accordingly, the assessee has shown short term capital gain of Rs.49,000/- after reducing the cost of acquisition of Rs.2,16,000/- from the sum of Rs.2,65,000/- retained from the sale proceeds of Rs.37,55,000/- of the flats and the remaining amount was transferred to the account of Shri Abhishekh Sharma.
In order to examine the stand of the assessee, Shri Abhishek Sharma was summoned u/s. 131 and his detailed statements were recorded on oath on 07.12.2007, as reproduced from page 12 to 14 of the assessment order. He was also cross examined on 22.12.2010 and 23.12.2010, the text of which is reproduced from pages 15 to 23 of the assessment order. He was further re- crossed and examination in chief was also made in detail as mentioned in the order of AO. On examination of all these statements, cross and re-cross examination and examination in chief, the AO observed that following facts emerged therefrom : “(1) Sh. Abhishek Sharma has signed number of documents, papers including the so called memorandum of understanding 06-08-2007 , blank cheques at the instance ,instructions and directions of Sh. Subhash Bhatia. (2)As far as the construction of the building at B-5, om Vihar, Uttam Nagar, New Delhi is concerned Sh. Abhishek sharma has got nothing to do except for having supplied labour and supervision of construction activity and for which even the payment to the labourers was not made from his sources and for the building material the payment was made by assessee either by himself or by his representative. (3) The so called memorandum of understanding dated 06-08-2007 was only signed by Sh. Abhishek Sharma without knowing the contents and even without knowing the consequences of the same. (4) Sh. Abhishek Sharma is a struggling young person fresh from the college who has hardly three to four years exposure of the outside world of the college ,who is trying to make both ends meet and eke out his livelihood by struggling to take care of his daily needs and hardly a person of any means being a petty labour contractor who has been doing petty labour work and during the current year, has undertaken two to three jobs for which he earned 25,000/- to 50,000/- for which payment actually received is dependent upon the satisfaction of the respective parties i.e. his customers and in few cases he is yet to receive his payment, in the instant case also he is to receive Rs.50,000/- so in short by any standard he cannot be a person who can be called a building developer or a builder, Even in the case of a reputed builder or a developer the totality of the facts and circumstances as are in the instant case when considered some of them being like the strange way of selling of the land , the clauses of the so called memorandum of understanding vis-a-vis sale deed , the special and mysterious way in which the bank account is opened and operated upon how the cheques have been drawn by the drawer whereas the proceeds have been appropriated by another person and not the drawer himself that to for heavy cash withdrawals. When the statement recorded u/s 131 of the IT Act 1961 alongwith examination, the cross examination is seen as to how there is repeated affirmation of a particular fact which has been confirmed and reconfirmed by person like Sh. Abhishek sharma at various stages and his consistent denial regarding his role other than earning of only Rs.50,000/- for supply of labour and that of supervision, and the aspect of total control over the building project since its inception till the sale of the flats is on the assessee, the conclusion remains the same. (5) Even according to the so called memorandum of understanding which according to Sh. Abhishek Sharma he has only signed it without having any knowledge of contents of the same from which Sh. Abhishek sharma only wanted to say that he has nothing to say about the memorandum of understanding and nothing to do with the memorandum of understanding. (6) Even the clauses which are mentioned in the so called memorandum of understanding about the contents of which there is total denial by Sh. Abhishek Sharma and which is nothing but part of the various papers, documents and various cheques having been signed at the instance, instructions and directions of Sh. Subhash Bhatia are not at all in conformity and in consonance with the respective sale deeds when have been executed for the purpose of sale of the flats in the building constructed at B-5, Om Vihar, Uttam Nagar, New Delhi, since according to so called memorandum of understanding the flats were to be sold by Sh. Abhishelk Sharma he being the so called building developer of so called flats and thus he being the so called person having right to appropriate the profits if any and bear the losses if they happen to one, whereas in reality and in fact the picture is entirely different, different from the way it has been tried to be portrayed and painted since according to the respective sale agreements all the sale agreements have been entered into by the assessee Sh. Subhash Bhatia for the flats sold in cash. (7) According to the memorandum of understanding the land at B-5, Nawada Village , Om Vihar, Uttam Nagar, New Delhi owned by Sh. Subhash Bhatia having been purchased by him for Rs.2,16,000/- on 21-06-2007 was to be transferred by him to Sh. Abhishek Sharma for Rs.2,65,000/- and this amount was to be deducted from the so called sale proceeds. (8} This was the strange way of the so called sale of land located at B-5, Nawada Village , Om Vihar, Uttam Nagar, New Delhi to Sh. Abhishek Sharma. (9} The sale proceeds of these flats have been received, the details is as per the copy of account of ledger of M/s Kundan Lal filling station proprietor of which is Sh. Subhash Bhatia the total sale proceeds have been portrayed to have been transferred to Sh. Abhishek Sharma as per annexure "A".
It is very pertinent fact that the purported respective sale proceeds claimed to have been first received in cash by Sh. Subhash Bhatia on the dates as per copy of account annexure "A" for the flats sold have been later on claimed to be have paid by cheque to Sh. Abhishek Sharma who has been portrayed as developer and thus the rightful owner having right to appropriate the profits and bear the losses if any and which has found the way into the so called bank account of Sh. Abhishek Sharma as deposits into his bank account amounting to Ks.15,00,000/- on 24-08-2008 and again there is another deposit of Rs.18,90,000/-on 31-03-2008 about which Sh. Abhishek Sharma was totally ignorant since he had only opened the bank account at the instructions and directions of Sh. Subhash Bhatia. The total sale proceeds are Rs.37,55,000/- out of which Rs.2,65,000/-is claimed to have been debited to the account of Sh. Abhishek Sharma for having been claimed to have been transferred to him. Against the above deposits the amount as under is withdrawn by Sh. Rakshat Bhatia son of Sh. Subhash Bhatia- S.No. Cheque No. Date 1. 450421 25-03-2008 2. 450422 07-04-2008 3. 450423 09-04-2008 4. 450424 09-04-2008 From The above discussion the following facts remains as under- (1) The name of Sh. Abhishek Sharma has been used in various documents and papers as under- (a) Bank account (b) Memorandum of understanding (c) Signed blank cheques In this regard it is pertinent that the fact remains that what is to be seen is the sum, substance and essence of the real transactions. The transaction may be portrayed in a particular manner to suit the convenience and as per the requirement of the assessee by the use of documents and papers so as to give the colour of a genuine transaction though it is otherwise. In the instant case it is repeatedly stated by Sh. Abhishek sharma that he has signed various papers, documents, blank cheques at the instance and the instructions of Sh. Subhash Bhatia and the various Hon'ble Courts had an occasion to examine such issues-
The Assessing Officer with respect to bank account further observed as under :
“With respect to bank account of Sh. Abhishek Sharma in ABN Amro Bank, Barakhamba Road, New Delhi the further fact remains- (A)Bank account was got opened in the same bank and branch of Sh. Subhash Bhatia. (B) Surprisingly and strangely the bank account has been opened without any identifiable introducer and on being questioned it has been claimed by the bank officials that the account has been opened by a walking customer in which regard the fact remains as to how it is possible for a person struggling to survive to meet out his daily needs can wield such an influence so as to get his account opened in a reputed bank unless he has the support of very influential person and in the instant case it is seen that as already mentioned that the said account has been opened in the same bank and branch where Sh. Subhash Bhatia is maintaining his account of his concern and is a very respected and a very prestigious and valuable customer . (C) The beneficiary of the proceeds of the blank cheques which have been issued by Sh. Abhishek Sharma is not Sh. Abhishek Sharma but Sh. Rakshat Bhatia son of Sh. Subhash Bhatia thus it is seen that the beneficiary of the sale proceeds of the flats ,in the building claimed to have been constructed by Sh. Abhishek Sharma at B-5 , Om Vihar, Uttam Nagar, New Delhi ,is not Sh. Abhishek Sharma but Sh. Subhash Bhatia , since the self withdrawal cheques have been withdrawn by Sh. Rakshat Bhatia who is the son of Sh. Subhash Bhatia, in which regard it is very pertinent to mention and the fact remains that during the examination in chief proceedings of Sh. Abhishek Sharma on being confronted with the blank signed cheques with respect to the fact whether he knew Sh. Rakshat Bhatia who had signed on the reverse side of the cheques, had answered in the affirmative and further stated that Sh. Rakshat Bhatia was the son of Sh. Subhash Bhatia ,in which regard it is extremely pertinent fact that neither Sh. Subhash Bhatia( assessee ) ,nor his counsel CA R.K. Khiwani ,who was cross examining that Sh. Abhishek Sharma had anything to say in this regard either during the cross examination proceedings or during the recross proceedings, which confirms the unrebutted fact that Sh. Rakshat Bhatia is the son of Sh. Subhash Bhatia and he is the person who has withdrawn the cash from the account: of Sh. Ashishek sharma and thus the sale proceeds of the flats in question has gone to the Bhatia family and the modus operandi adopted is that of routing the same through the account of'Sh. Abhishek Sharma. (D) From the above discussion one extremely pertinent fact is crystal clear(i) the sources for the construction in the building on the land remains totally undisclosed since Sh. Abhishek Sharma is entirely not at all competent being petty labour contractor and who had submitted in the statement that he has nothing to do with the payment of building material since these payments were directly made either by the assessee himself or by the representative of the assessee and under such circumstances and conditions the only other person is Sh. Subhash Bhatia ,who however has been claiming to have only transferred the land bought by him for Rs.2,16,000/- at Rs.2,65,000/- and having nothing to do at all with the construction of building that being the sole area of Sh. Abhishek Sharma as per the so called memorandum of understanding and his interest in the whole scheme as envisaged being limited to only earning of a capital gain at Rs.49,000/- as shown for so called transfer of land ( a very strange way of so called transfer in other words being sale ) as can be seen from the totality of facts and circumstances as discussed in the preceding paras, and which has been totally denied by Sh. Abhishek Sharma repeatedly and thus it is seen that nothing is coming in the shape of investment into the building and there of the sources into the construction of the building on plot No. B-5, Om Vihar , Uttam Nagar, New Delhi. (E) Even the strange way in the so called transfer of land , being in other words sale of the land as per the so called memorandum of understanding which is totally denied by Sh. Abhishek Sharma and as already discussed in the preceding paras even the so called memorandum of understanding ,is not in consonance when seen in this light with the actual execution of sale deed is seen. (1) If the so called claimed account of Sh. Abhishek Sharma was to be debited with the so called claim of Rs.2,65,000/- for the so called claim of transfer of land then what were those impelling and compelling circumstances that the assessee has gone totally against the so called clauses of memorandum of understanding and first taken the sale proceeds in cash from the respective buyers against the sum substance and spirit of memorandum of understanding and later on transferred the said same sale proceeds by issue of cheques to Sh. Abhishek Sharma.
(2) Even if the assessee had intentions to take the payment as above from Sh. Abhishek Sharma this could have been recovered from him much earlier, as the first sale of the flat took way back on 08-02-2008 whereas the cost of the plot has been debited on 31-03-2008 and whereas the last sale has been affected to Rajeshwari Pinki on 14-03-2008. It is beyond anybody's comprehension as to why such a modus operandi has been adopted and the same having been done for the reasons best known to the assessee .In the above regard it is not an unknown phenomena that in property deals ,lot of unaccounted investment is involved for which very reason section 50C of the IT Act, 1961 has been incorporated with the concept of deemed capital gain so as to curb the involvement of unaccounted investments in property deals and as already shown above in the instant case, the total control over the sale of the flats was with Sh. Subhash Bhatia the assessee , even the sale proceeds of these flats though routed through the bank account of Sh. Abhishek Sharma has gone to the Bhatia family through Sh. Rakshat Bhatia son of Sh. Subhash Bhatia (F) In regard to the above proceedings at large and with special reference to the statements recorded of Sh. Abhishek Sharma ,the assessee has furnished various contentions vide his letter dated 28-12-2010 placed on record , and which have been duly considered and it is seen that he has not been able to bring any relevant material and any such material which can support his strange way of sale in the shape of so called transfer, of land to Sh. Abhishek Sharma the so called developer of the land whereas the stark and unrebutted fact remains that the building constructed on plot No.B-5 ,Om Vihar, Uttam Nagar, new Delhi has been built from the undisclosed sources of Sh. Subhash Bhatia and the sale proceeds of the flats in the said constructed building has found its way back to the family of Sh. Subhash Bhatia. In this letter assessee has for the first time has made reference to the word "demised plot" for the reasons best known to him and surprisingly throughout the assessment proceedings at large and in particular to the recording of various statements there was no reference to the demised plot which clearly shows that the assessee is not sure regarding the stand to be taken by him regarding the so called transfer of land ( sale of land ) located B-5, Om Vihar, Uttam Nagar, New Delhi. (G) The examination of the sale deeds have shown that as per the circle rate the cost of the construction has been shown at Rs.5,600/- per sq. meter for one flat 55.61 Sq. Mtr. The total building constructed at B-5,Om Vihar, Uttam Nagar, New Delhi consists of six flats and the cost of construction of one flat works out to Rs.3,11.416/- and for the six flats the total works out to Rs.l8,68,496/-Thus it is seen that an amount of Ra.18,68,496/-is the minimum amount which can be conservative standard to be the amount which has been spent for constructing the building and the same having not been disclosed is treated to be the undisclosed investment and added u/s. 69C of the IT Act, 1961 and since this amount is from undisclosed sources for concealing the same and penalty proceedings u/s. 271(1)(c) of the IT Act, 1961 are initiated separately. (H). The building has been sold at Rs.37,55,000/- and out of which the land has been purchased for Rs.2,16,000/- after deducting the cost of land being Rs.2,16,000/- and that of cost of construction being 18,68,496/- as discussed above the resultant sum is the profit i.e., Rs.16,70,504/- which have been earned on the construction and sale thereof, of the building constructed on plot No. B-5, Om Vihar, Uttam Nagar, New Delhi and since this income from the construction of building has not been disclosed to the department and for concealing the same separate penalty proceedings are initiated.” Accordingly, the AO made addition of Rs.18,68,496/- u/s. 69C on account of undisclosed investment in the construction of property and Rs.16,70,504/- on account of profit from construction activity to the total income of the assessee.
Aggrieved by the conclusions of the AO, the assessee challenged the above additions in appeal before the ld. CIT(A) who after considering the statements of Abhishek Sharma and other material on record, restricted the additions to Rs. 25,14,000/- observing as under : “27. I have carefully considered the submissions of the appellant, the observations made by the A.O. in the Assessment Order and the facts of the case. The appellant, Sh. Subhash Bhatia had purchased a plot of land for Rs. 2,16,000/- on 21.6.2007. He sold this plot for Rs. 2,65,000/- on 31.03.2008 to Sh. Abhishek Sharma resulting in a Short Term Capital Gains of Rs. 49,000/-, which the appellant had shown in the Return of Income. However, this simple transaction of purchase and sale of a plot of land has been structured in a very complicated, strange and unusual manner ostensibly on the ground to safeguard the receipt of payment of Rs. 2,65,000/- from Sh. Abhishek Sharma. The appellant entered into MOU with Sh. Abhishek Sharma, which has been reproduced above. If the intention of the appellant was only to earn the profit of Rs. 49,000/- on the sale of the plot of land, the same could have been sold to any number of buyers. However, it was sold only to Sh. Abhishek Sharma who did not have the capacity to make an outright payment of Rs. 2,65,000/- as a result of which the appellant had to enter into a MOU with him, so that Sh. Abhishek Sharma could construct the building on this plot and it is only after the sale of the building that he would pay the amount of Rs. 2,65,000/- to the appellant. According to the MOU, Sh. Abhishek Sharma is supposed to construct building and make investment in the construction from his own sources and all the profits & loss resulting from the sale would belong to Sh. Abhishek Sharma after payment of Rs. 2,65,000/- to the appellant. At this stage itself it does not appear to reason why would Sh. Abhishek Sharma involve the appellant in the construction and sale of the property if he had sufficient sources to undertake the construction of the same. In that case, he would have paid the amount of Rs. 2,65,000/- to the appellant for purchase of the plot and would have undertaken the construction and subsequent sale of the building on his own without the involvement of the appellant.
The control of the building right from the stage of the plot up to its sale in the form of 6 flats has remained with the appellant as can be seen from the fact that contrary to clause 3 of the MOU it is the appellant, and not Sh. Abhishek Sharma, who has executed the sale deeds of the constructed flats in favour of the buyers.
Sale proceeds have been received by the appellant from the buyers in cash and the same have been recorded by the appellant in his ledger account in the books of M/s Kundan Lal Filling Station. It is on 31.03.2008 that the appellant has debited the amount of Rs. 2,65,000/- towards the sale proceeds of his land. Sale of the flats had started from the month of February, 2008 itself and therefore, there was no reason for the appellant to carry on collecting the sale proceeds of the flats right up to the end and receive the whole sale proceeds amounting to Rs. 37,55,000/-, whereas his interest statedly was only to the extent of Rs. 2,65,000/- in the whole scheme.
The appellant collected the entire sale proceeds of all the 6 flats in cash and he transferred the balance amount after deduction Rs. 2,65,000/- from the sale proceeds to the account of Sh. Abhishek Sharma through account payee cheques, Rs. 15,00,000/-on 29.03.2008, Rs. 18,90,000/- on 31.03.2008 and Rs. 1,00,000/- on 27.09.2008. The whole of the amount of Rs. 33,90,000/- deposited on 29th and 31sl March, 2008 was withdrawn in cash, through five cheques as per details as under – S. No. Cheque No. Dated Amount i. 450421 01.04.2008 9,25,000/- ii. 450422 08.04.2008 5,00,000/- iii. 450423 09.04.2008 9,00,000/- iv. 450424 09.04.2008 80,000/- v. 450425 10.04.2008 9,85,000/- 31. Only cash in respect of first cheque i.e. no. 450421 amounting to Rs. 9,25,000/-has been withdrawn by Sh. Abhishek Sharma, according to the confirmation received from the Regional Operations Head of the concerned bank. The rest of the cash amounting to Rs. 24,65,000/- vide four cheques has been withdrawn by Sh. Rakshit Bhatia, son of the appellant as confirmed by the banking officials mentioned above. In this regard, the contention of the appellant the Sh. Rakshit Bhatia had not signed on the back of the cheques and therefore cash could not have been handed over to him as per the banking rules and regulations, has not be found to be correct in view of the specific confirmation from two senior officials of bank who in response to a specific query (letter written by the AO on directions of the undersigned as mentioned above) have confirmed that Sh. Rakshit Bhatia had not signed on the back of the four cheque bearing no. 450422 to 450425 but cash amounting to Rs. 24,65,0007- mentioned on these cheques was withdrawn by Sh. Rakshit Bhatia. The banking staff might have flouted some rules and regulations applicable to them in terms of the banking procedure, but in view of their categorical confirmation, first during the course of the assessment proceedings and then again in response to the specific enquiry confirms that the cash amounting to Rs. 24,65,000/- was paid to Sh. Rakshit Bhatia and Rs. 9,25,000/- was withdrawn by Sh. Abhishek Sharma.
Therefore, keeping in view the facts of the case as mentioned above, it cannot be said that the interest of the appellant Sh. Subhash Bhatia in the whole transaction was only to the extent of Rs. 2,65,000/- on sale of his plot of land. Rather, he had interest in the building right through its construction and up to its sale. After sale, the amount of Rs. 24,65,000/- has been appropriated by the appellant through his son as mentioned above.
As far as Sh. Abhishek Sharma is concerned his version of the events has also not been found to be correct and in certain respects has been found to be outright false as discussed as under – i) In his statement, he had submitted before the A.O. that he had signed the MOU without reading its contents. It was further stated by him that the various documents including MOU, bank opening documents and blank cheques etc. were signed by him on oral instruction of Sh. Subhash Bhatia, the appellant. This contention of Sh. Abhishek Sharma has not been found to the true because vide his letter dated 06.12.2010 he had filed a confirmation before the A.O. that the signatures on the MOU were his. He not only admitted for having signed the MOU but also confirmed that he had undertaken the construction of the building and had further confirmed all the transactions with the appellant, Sh. Subhash Bhatia as per the copy of his account with ABN Amro Bank No. 1426573 enclosed with the letter. Sh. Abhishek Sharma is a B-Com graduate from Delhi University. Having filed above confirmation before the A.O. as late as on 06.12.2010, he denied everything in his statement dated 07.12.2010 and during the course of cross-examination on 22.12.2010 and 23.12.2010. The denial in the statement came after he was asked about the source of investment in the said construction. Thus statement of Sh. Abhishek Sharma cannot be relied on. ii) It has been stated by Sh. Abhishek Sharma that he had signed the blank cheques on the instructions of Sh. Subhash Bhatia, the appellant and that he had never withdrawn any cash through any of the cheques signed by him. In this regard, it is seen that the banking officials have confirmed that he withdrawn an amount of Rs. 9,25,000/- vide Cheque No. 450421 on 01.04.2008. Thus, this contention of Sh. Abhishek Sharma was also found to be false. iii) Throughout his statement, Sh. Abhishek Sharma kept on repeating that his interest in the whole transaction was only to the extent of Rs. 50,000/- on account of labour supply and supervision of construction activity. It was further stated by him that even this amount of Rs. 50,000/- was yet to be received by him till date of statement i.e. 07.12.2010. In this regard, a perusal of the bank account of Sh. Abhishek Sharma shows that an amount of Rs. 1,00,000/- was deposited in his account on 27.09.2008 (which was withheld by the appellant Sh. Subhash Bhatia to meet any unexpected expense for infraction of any law of any Govt. Authority) Sh. Abhishek Sharma not only received this amount but also utilized the same in the month of Oct. 2008 for issuing some cheque, which according to the appellant has been used by Sh. Abhishek Sharma for paying his insurance policy premium. Thus, the contention of Sh. Abhishek Sharma that he had not received the amount of Rs. 50,000/- even by 07.12.2010 on which date his statement was recorded, was completely false.
Thus on examination of the facts related to both Sh. Abhishek Sharma and the appellant, Sh. Subhash Bhatia, it is seen that both have denied to have made investment in the construction of the building and both have denied for having appropriated the sale proceeds in respect of the flats. In the light of the discussion made above and examination of the various documentary evidence, it is seen that the investment in the plot amounting to Rs. 2,16,000/- was made by the Sh. Subhash Bhatia, the appellant. Out of the sale proceeds of Rs.37,55,000/- an amount of Rs. 24,65,000/- has been withdrawn in cash by Sh. Rakshit Bhatia, son of the appellant and an amount of Rs. 10,25,000/- has withdrawn/ used by Sh. Abhishek Sharma (9,25,000/- withdrawn on 01.04.2008 and Rs 1,00,000/- deposited in his account on 27.09.2008 and used by him in Oct, 2008). Thus, the profit from the sale of the building as well as the investment in the same has to be divided between them in the ratio of their appropriation of cash from the bank. Therefore, the appellant's profit from the sale of the building is calculated as under:- Total sale proceeds : Rs. 37,55,000/- Less: Cost of land : Rs. 2.16.000/- : Rs.35,39,000/- Less: Cash withdrawn/used by A. Sharma : Rs. 10,25.000/- Balance : Rs. 25,14,000/- Both the parties were not satisfied with this conclusion of the ld. CIT(A), hence, these cross appeals.
We have considered the rival submissions of both the parties and have gone through the entire material available before us.
As far as disallowance of various expenses narrated above, we find that the impugned disallowances have been made on adhoc basis, which could not be sustained. The ld. Authorities below have not given any finding as to which of the expenditures were of inadmissible nature or not supported by vouchers. Therefore, adhoc disallowance of expenditures on business promotion, telephone and vehicle running expenses, is liable to be deleted. The respective grounds of appeal raised by the assessee on these accounts are, therefore, allowed.
Adverting to the disallowance of bed debt of Rs.40,261/-, we find no infirmity in sustenance of this disallowance. Keeping in view the nature of amounts treated as bad debts, as narrated in the assessment order, the ld. CIT(A) has rightly observed that the amounts were either not credited to the income of the earlier years or there was no documentary evidence in support of the bad debts claimed to have been written off by the assessee. Therefore, the ground of appeal raised by the assessee on this count, is dismissed.
10. Adverting to the main issue regarding short-term capital gain claimed by the assessee, we have carefully considered the submissions of the parties on the issue in the light of observations made by the authorities below in their respective orders and the material available before us and we find no justification to interfere with the conclusions arrived at by the ld. CIT(A) on this count. The unusual modus operandi adopted by the assessee for sale of plot of land and to safeguard the sale proceeds of Rs.2,65,000/- does not warrant only to earn profit of Rs.49,000/- as short-term capital gain from the property. The incapability of Abhishek Sharma to construct the building on his own cost, proved by his statements and his return of income, and its involvement with the appellant by way of MOU to construct the building does not appeal to reason. Had Shri Abhisekh Sharma been capable to invest such a huge amount in the construction of building, he would have paid Rs.2,65,000/- to the appellant before starting construction work. These facts further stood contradicted from the statements of Shri Abhishekh Sharma recorded by the Revenue Authorities. The terms of MOU and the attending facts of the case unequivocally show that the control of the building right from the stage of the plot up to its sale in the form of 6 flats remained with the assessee, as the assessee itself has executed the sale deeds of flats in favour of the buyers. Not only, this, the sale proceeds of flats has also been received by the assessee. The transfer of amounts to the bank account opened in the of Shri Abhishek Sharma and most importantly, the withdrawal of maximum amount of sale consideration by the son of assessee from that account, as mentioned in the impugned order at page 37 stand in testimony of the fact that the interest of the assessee Shri Subhash Bhatia in the whole transaction was not to the extent of only Rs.2,65,000/- and the ld. CIT(A) in our considered opinion that rightly held that the assessee had interest in the building right from its construction and up to its sale in the form of flats.
11. Similarly, the statements of Shri Abhishek Sharma that he was to receive only Rs.50,000/- from the assessee for construction of building, which also remained unpaid, stood falsified from the fact on record that Shri Abhishek Sharma himself withdrew a sum of Rs.9,25,000/- from the same bank account through cheque No. 450421 dated 01.04.2008 and also that Rs.1,00,000/- was deposited in his account on 27.09.2008, which was received by Shri Abhishek Sharma and utilized the same in the month of October, 2008 for payment of insurance policy, as stated by the assessee. The contentions of the assessee and statements of Shri Abhishek Sharma show that both have denied to have made investment in the construction of the building and both have denied for having appropriated the sale proceeds in respect of the flats. Keeping in view the contentions of the assessee and the statements of Shri Abhishek Sharma in the light of documentary evidences available on record, we find that the ld. CIT(A) has rightly observed that investment in plot of Rs.2,16,000/- was made by assessee and out of sale proceeds of Rs.37,55,000/- an amount of Rs.24,65,000/- was withdrawn in cash by son of assessee and an amount of Rs.10,25,000/- was withdrawn by Shri Abhishekh Sharma. We, therefore, find no infirmity in the conclusion of the ld.CIT(A) to sustain the addition of Rs.24,14,000/- as profit from the sale of building, which has been worked out after deducting cost of land of Rs.2,16,000/- and cash withdrawal by Abhishek Sharma of Rs.10,25,000/- from the total sale proceeds of building of Rs.37,55,000/-. We also do not find any infirmity in the direction of ld. CIT(A) given to the AO that he may take necessary steps to bring to tax the balance amount of Rs.10,25,000/- in the hands of Sh. Abhishek Sharma. Neither the assessee nor the Revenue could be able to rebut the conclusions of the ld. CIT(A). Therefore, in our considered opinion, there is no reason to interfere with the order of the ld. CIT(A) on this count.
In the result, the appeal of the assessee is partly allowed and that of Revenue is dismissed. Order pronounced in the open court on 03.12.2015.