Income Tax Appellate Tribunal - Hyderabad
Dy.Cit, Circle-1(2),, Hyderabad vs M/S Deepika Infratech Private ... on 28 April, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "A", HYDERABAD
BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER
ITA No. 749/Hyd/2013
Assessment Year: 2008-09
Dy. Commissioner of Income- Vs. M/s Deepika Infratech Pvt.
tax, Circle - 1(2), Hyderabad. Ltd., Hyderabad.
PAN - AABCD 9818 R
(Appellant) (Respondent)
Revenue by : Shri P. Chandra Sekhar
Assessee by : Shri A.V. Raghuram
Date of hearing : 01-03-2017
Date of pronouncement : 28-04-2017
ORDER
PER S. RIFAUR RAHMAN, A.M.:
This is an appeal of the Revenue directed against the order of the learned Commissioner of Income-tax(A) - V, Hyderabad, dated 24/01/2013 for AY 2008-09 wherein the revenue has raised the following grounds of appeal:
"1. The order of the CIT(A) is erroneous in law and on facts of the case.
2. The learned CIT(A) erred in deleting the addition made of Rs.8.06 crores on the basis of loose sheets found at the time of the survey in the absence of any evidence produced by the assessee that the transaction is not related to the assessee.
3. The learned CIT(A) erred in deleting the addition made u/s 69 of the IT Act, 1961 of Rs.8.15 crores on the basis of loose sheets found at the time of the survey in the absence of any evidence produced by the assessee that the transaction is not related to the assessee.2 ITA No. 749/H/13
M/s Deepika Infratech Pvt. Ltd., Hyd.
4. The learned CIT(A) erred in deleting the addition made of Rs.12.40 lacs and Rs.5.36 lacs as the assessee failed to produce evidence in support of the claim that the transaction is between one Sri Subramanyam and M/s. Venkat Reddy and Co.
5. The learned CIT(A) erred in restricting the addition made u/s.68 of the IT Act towards unexplained credits in the form of Sundry Creditors.
6. The learned CIT(A) erred in deletion of addition made u/s 40(a)(ia) on the ground that the amount in question are not debited to P&L a/c during the year.
7. The learned CIT(A) erred in not confirming the addition to the extent of Rs.76,07,900/- towards unexplained share capital, as the assessee could not produce the evidence before the AO during the remand proceedings.
8. Any other ground that may be urged at the time of hearing.
2. Ground Nos. 1 & 8 are general in nature.
3. As regards ground No. 2 relating to addition on account of Disallowance u/s 69 of the Act of Rs.8,06.40,000, it is observed that in the assessment order dated 31.12.2010, vide page no.13 of the impounded Annexure A/19/DIPL, notings showing payments made with regard to Bangalore site of Rs.6,54,75,000/- and Rs.1,51,65,000/- under the head 'RAS' were noticed. Since, the above site work details were not explained with proper evidences at the time of assessment proceedings u/s 144 of the Act, the total payment aggregating to Rs.8,06,40,000 (Rs.6,54,75,000-JSR + Rs.1,51,65,000
- RAS) was treated as unexplained investment u/s 69 of the Act and accordingly added in the hands of the assessee.
4. On an appeal before the CIT(A), the assessee objected to the above addition and has made a written submission through a paper book duly mentioning that the transaction belonging to Bangalore site pertains to JSR Constructions and the amounts represented bank transfers from Head Office to Bangalore site for Devangiri site and that these transactions actually pertain to AY 2009-10 and not AY 3 ITA No. 749/H/13 M/s Deepika Infratech Pvt. Ltd., Hyd.
2008-09, which is subject matter of appeal under consideration. He further argued that there were no transactions for the AY 2008-09 since no sub-contract was assigned to JSR Constructions for the AY 2008-09. However, survey was conducted in the year 2010, the AO has wrongly included the contract works pertaining to FY 2008-09 (AY 09-10) in her assessment order passed for the AY 2008-09.
4.1 When the CIT(A) called for a remand report from AO, the AO in her remand report dated 03.10.2011 has mentioned that with regard to addition made of Rs.8,06,40,000/- based on the impounded material A/19/DIPL/Loose sheets (Vide page no.13), it was stated by the assessee that M/s JSR Constructions did not have any transactions in the FY 2007-08 and in the account of M/s RAS Infrastructure, the entries in the loose sheets (same page no.13 of Annexure A/19/DIPL/Loose sheets), were not connected to the assessee's accounts. As such the AR was requested to file copies of the agreements entered into by the assessee for verification of the contract work given to both the above concerns. In response, to the same, the assessee had stated that the JSR Constructions copy could not be produced since there were no transactions in the FY 2007-08 relevant to AY 2008-09. However, he has produced the work order copy of RAS Constructions for the period 01.04.2007 to 31.03.2008 i.e. FY 2007-08 relevant to AY 2008-09 before the AO. The AO has noticed that except discrepancy noted with regard to one transaction dated 07.05.2007 in the books of RAS Infrastructure Ltd, for which the assessee was asked to produce bank account statement in order to verify the discrepancy. She went on to add that other than this, no discrepancy was noted and the details produced were found to be in order. Form No.16A of JSR and RAS were also obtained and placed on record.
4 ITA No. 749/H/13M/s Deepika Infratech Pvt. Ltd., Hyd.
4.2 After considering the submissions of the assessee as well as the remand report of AO, the CIT(A) deleted the addition made by the AO by observing as under:
4.4 I have gone through the facts of the case and the submissions of the assessee. I had obtained the work order copy of JSR during the course of appellate proceedings, wherein, letter of acceptance by Deepika for the quotation given by JSR dated 02.02.2009 for the work relating to Western Transport corridor - Tumkur - Haveri Section (Km 207+000 to Km 284+000) work is noticed. Further, on verification of the ledger pertaining to JSR Constructions for the period of March, 2009 (01.03.09 to 31.03.09), it is seen that the total contract work amounting to Rs.6,06,79,800/- was executed and the TDS of Rs.3,39,900/- is deducted. As such, the contention of the assessee that no transactions took place with JSR Constructions during the FY 07-08 relevant to AY 08-09 is accepted and the addition made by the AO of Rs. Rs.6,54,75,000/-, based on the loose sheet vide page no.13 of Annexure A/19/DIPL/Loose Sheets is deleted since the said addition pertains to AY 2009-10.
With regard to Sub-contract work with RAS Infrastructure, the ledger account copy for the period 01.04.2007 to 31.03.2008 (AY 08-09) was obtained and perused. On verification of the same, it is seen that the total sub-contract payments made to RAS Infrastructure Ltd through cheques was Rs.1,27,08,995/-, for which TDS amounting to Rs.1,43,995/- is deducted. Moreover, the AO in remand report dated 03.10.2011 has stated that except for a particular transaction dated 7.05.2007, the transactions/work site details were found to be in order. However, she has not given any clarity about the nature of discrepancy noticed in her remand -sport. In order to examine the discrepancy, the ledger accounts in the books of RAS as well as that of the assessee were verified particularly with reference to 07.05.2007 transaction. It is seen that the discrepancy was in the books of RAS, wherein, for the cheque no.430745, the bank mentioned was State Bank of India, Film Nagar Branch, whereas in the books of the assessee, for the same cheque no., the bank mentioned was UCO bank. This is the only discrepancy which was noticed at the time of appellate proceedings as far as the discrepancy mentioned by the AO for the transaction dated 07.05.2007 is concerned. Other than this, the AO has not mentioned of any other shortcomings in the details that were filed before her and that the AO herself has commented that the transactions/work site details which were provided by the assessee are found to be in order. Accordingly, the addition 5 ITA No. 749/H/13 M/s Deepika Infratech Pvt. Ltd., Hyd.
made by the AO of Rs. 1,51,65,000/- is hereby deleted since the assessee has booked the sub-contract works at Rs.1,27,08,995/- in his ledger maintained for the period 01.04.2007 to 31.03.2008 (AY 2008-09), and not Rs.1,51,65,000/- which was relied by the AO based on the Annexure A/19/DIPL/Loose Sheets (page no.13). Accordingly, the consolidated addition of Rs.8,06,40,000/- as unexplained investment u/s 69 of the Act, is ordered to be deleted and this ground of appeal is Allowed."
5. Aggrieved by the order of the CIT(A), the revenue is in appeal before us.
6. Considered the rival submissions and perused the material facts on record. Considering the fact that this assessment was completed u/s 144, AO has made the addition with the improper information available on record. The information found during survey was about the transactions relating to JSR Constructions and RAS Infrastructure Ltd. Based on the objections raised by the assessee on the above transactions, the CIT(A) called for remand report from the AO in which assessee could not submit the details of JSR Constructions as there were no transactions in the FY 2007-08. However, assessee has submitted the transactions relating RAS Infrastructure for the period 01/04/2007 to 31/03/2008. In the remand report, with reference to RAS Infrastructure, the AO has found one discrepancy in the transaction dated 07/05/2007 and other transactions are found to be in order. CIT(A) has verified the work order copy of JSR Constructions in the appellate proceedings wherein the assessee has carried on the work relating to Western Transport Corridor - Tumkur, while on verification of the ledger copy of JSR Constructions for the period March'09, CIT(A) has noticed that total work amounting to Rs. 6,06,79,800/- was executed and TDS was also deducted. Since, these transactions are relating to AY 2009-10, the addition made in AY 2008-09 was deleted. With regard to RAS Infrastructure, CIT(A) called for ledger account copy for the period 01/04/07 to 31/03/08, on verification of the above ledger copy, it was noticed that total sub-
6 ITA No. 749/H/13M/s Deepika Infratech Pvt. Ltd., Hyd.
contract payments made to RAS Infrastructure Ltd., through cheque was Rs. 1,27,08,995/- for which TDS was also deducted of R. 1,43,995/-. In the remand report, AO noticed discrepancy in only one transaction and other transactions are found to be in order. The discrepancy noted by the AO was carefully verified by CIT(A) and it was noticed that cheque No. 430745, which was mentioned as SBI, Film Nagar Branch, whereas, in the books of the assessee for the same cheque no., the bank was mentioned as UCO Bank. Since this is only one discrepancy noted by the AO, which was examined by the CIT(A), the whole transaction seems to be in order and accordingly, the addition made by the AO in this regard also deleted. Since the whole transactions are verified by CIT(A) and in the remand report AO also found the transaction are to be in order, with regard to RAS Infrastructure Ltd. and with regard to JSR Constructions, the transactions of which were relating to AY 2009-10, in our opinion, the findings of CIT(A) are found to be in order. Accordingly, we uphold the order of CIT(A) on this issue and dismiss the ground raised by the revenue.
7. As regards ground No. 3 relating to addition on account of Disallowance u/s 69 - 8,15,22,060 & Rs.1.95,65,295/- u/s 28, it is observed that as per notings in the impounded annexure A/19/DIPL/Loose Sheets, details of investment of Rs.8,15,22,060/- and interest income earned of Rs.1,95,65,295/- were noticed. Since, the assessee has not given any satisfactory explanation, the same was added by the AO u/s 69 and 28 totaling Rs.10,10,87,355 to the income returned.
8. Before the CIT(A), the assessee in his written submissions has stated that these are rough calculations for various permutations and combinations made by staff and has no relevance to accounts. It was 7 ITA No. 749/H/13 M/s Deepika Infratech Pvt. Ltd., Hyd.
further submitted that loose sheets and rough notings cannot be the basis of addition unless the same is coupled with substantive evidence and as such the assessee do not attribute the loose sheet, as the hand writing is neither recognizable, nor the figures are reconcilable. The assessee has contested during the course of appellate proceedings that the loose sheet has no relevance to it.
8.1 When the CIT(A) called for a remand report from the AO, in the remand report, the AO has mentioned that the assessee was requested to explain fully about the nature of such transaction including identity of the person who has jotted down the above amounts. However, the assessee has not attributed the above loose sheet since neither the hand writing nor the figures were recognizable. The AO has concluded that the assessee's contention was not acceptable as the amounts were written with dates and since the chit was found in assessee's premises, the onus lies on the assessee to prove. As the assessee has not discharged its onus, the amounts were added in the hands of the assessee. While forwarding the above remand report, the AddI.CIT, Range-1 has in fact suggested that since the above slip passes through two financial years i.e. 08-09 & 09-10, an amount of Rs.8,15,22,060/- may be added for the AY 08-09 and the balance amount of Rs.1,95,65,295/- for the subsequent AY.
8.2 The CIT(A) after considering the submissions of the assessee as well as the remand report of the AO, deleted the addition made by the AO by observing as under:
"5.4 I have gone through the facts of the case and the submissions of the assessee. On a close perusal of the slip, other than indicating the dates and the amount, no other notings is found on the slip suggesting that it belongs to the assessee, since no name of any person associated with the assessee is 8 ITA No. 749/H/13 M/s Deepika Infratech Pvt. Ltd., Hyd.
reflected. No doubt it indicates the total receipt as on 31.03.2008 and 31.03.2009, but no evidentiary value is noticed to attribute this amount to the assessee. In this situation, the burden of proof rests on the AO to prove conclusively that the amounts belong to the assessee, as the assessee has consistently disowned the same. The AO in remand report dated 03.10.2011 has merely suggested that since the assessee has not proved its onus to disprove the contention of the Department that it actually belonged to the assessee, the same is proposed to be added. In fact the AO has not proved anything new other than shifting the onus on the assessee to prove. No further effort/inquiry was made by the AO to crack the notings in identifying the handwriting. The Assessing Officer has to establish the link between these loose documents with other books of accounts of the assessee in order to sustain the addition. The notings as such cannot be considered alone as conclusive evidence. The entire case depends on the rule of evidence. The assessee has every right to shift the burden of proof. There is no conclusive presumption. The Assessing Officer shall be specific about the nature of nexus of the material to the business of the assessee. The Assessing Officer should act in a judicious manner, proceed with judicial spirit and should come to a judicial conclusion and to act fairly as a reasonable person and not arbitrarily and capriciously. Assessment made should have adequate material and it should stand on its own legs. The basis for addition is only a loose slip. This loose slip is an unsigned document. The Assessing Officer has not established any nexus between the loose slip and the business of the assessee. As such in my opinion, it is a dumb document having no evidentiary value and hence no addition can be made in the absence of corroborative material. If there is circumstantial evidence in any form, the addition is to be made on that basis, to the extent of material available. The assessee is not expected to explain the loose papers found as there is no evidence other than loose slip for coming to the conclusion by the AO. In my opinion, no addition can be made on the basis of dumb documents/loose slip in the absence of any other material to show that the assessee has made investments as opined by the AO. Notings on the loose sheets are required to be supported/corroborated by other evidence and are also include the statement of a person who admittedly is a party to the noting. The evidence on record is not sufficient to support that the assessee made investment/received money. The circumstances surrounding the case are not strong enough to justify the addition. Therefore, merely on the basis of presumption and some uncorroborated notings, additions cannot be sustained. As a quasi judicial authority the Assessing Officer has to satisfy on the basis of cogent material either found in 9 ITA No. 749/H/13 M/s Deepika Infratech Pvt. Ltd., Hyd.
course of surveyor on post survey enquiries that the transaction recorded is a real, but not an imaginary one, and the same has actually taken place.
5.5 In the case of Harish Daulatram Imani Vs Den (Inv) Mumbai 2008 (24 SOT 541) it was held that uncorroborated notings in the loose paper cannot be the basis of any addition. In the case of the assessee, no attempt has been made by the AO in making enquiry and unilaterally fixing the liability on the assessee. My view is further strengthened by the case of CIT Vs Moulali Kumar Shah 2008 (307 LTR 137) (Guj), wherein, it was held that in the absence of corroborative material and examination of parties, no addition is Possible. In such cases onus heavily lies on the department to prove with corroborative evidence that entries in the loose sheets actually represented the undisclosed income of the assessee. In the light of the above Judicial precedents and In the absence of any enquiry by the Assessing Officer and the inconsistencies found in the notings, I am of the considered opinion that the addition made by the AO on account of loose slip notings, cannot be sustained. I, therefore, direct the Assessing Officer to delete the addition of Rs.10,10,87,355/-. This ground of appeal is thus allowed.
9. Considered the rival submissions and perused the material facts on record. During the survey proceedings, the department impounded certain loose sheets as per which details of investment of Rs. 8,15,22,060/- and interest calculation of Rs. 1,95,65,295/- were noticed. Since assessee has not given any explanation, the same were added u/s 69 and u/s 28 of the Act to the taxable income of the assessee. Assessee in the appellate proceedings, submitted that these loose sheets contain rough calculations for various permutations and combinations made by staff and has no relevance to accounts. It was further submitted that loose sheets and rough notings cannot be the basis for addition. In the remand report, AO has confirmed the addition by observing that onus is on the assessee to prove by way of documentary evidence and explaining that it involves two AYs, income can be charged to tax accordingly. However, the fact remains that the loose sheets found during survey has no evidence to show that it belongs to assessee nor it has any relevance to the business carried 10 ITA No. 749/H/13 M/s Deepika Infratech Pvt. Ltd., Hyd.
on by the assessee. In view of these observations, we are in agreement with the findings of CIT(A) that AO has not brought on record any evidence to show that loose sheets has any relevance to the assessee nor to the business of the assessee as paper found has no name of the assessee nor the person in whose favour the details of investment or interest receipt is found nor found any evidence to show that such transactions were carried on by assessee. Mere finding of loose sheets can be equated without any evidence of the person or has any link to completion of any business transaction, it can be regarded as dumb document. The basis of such dumb document cannot be the basis to make any addition, hence, we are in agreement with the finding of CIT(A) and accordingly upholding the decision of CIT(A) on this issue, the ground raised by the revenue in this regard is dismissed.
10. As regards ground No. 4 relating to addition on account of unexplained expenditure u/s 68 - Rs.12,40,000 &. Rs.5,36,855/- u/s 28, it is observed that the AO in the assessment order has noted that as per Annexure A/19/DIPL, payment of Rs.12,40,000/- was shown to have been paid to one Sri Subramanyam. When this was confronted the assessee, no explanation was provided for. As such the AO has considered this amount as unexplained expenditure u/s 68 of the Act and has added to the income returned.
11. Before the CIT(A), the assessee filed written submissions wherein it was stated that the amount of Rs.12,40,000/- was paid to S. Subramanyam by M/s G Venkat Reddy & Co. pertaining to some transaction between them. He further stated that since the AO has not summoned or examined Sri Subramanyam, no reason was established to add the above amount of Rs.12,40,000/- in the hands of the assessee.
11 ITA No. 749/H/13M/s Deepika Infratech Pvt. Ltd., Hyd.
11.1 On forwarding the written submissions to the AO by the CIT(A), vide remand report dated 03.10.2011 the AO has stated that a statement was recorded from the MD Sri K.Upender Reddy. The relevant portion is reproduced as under:
Q.7) I am showing you the page no.27 of the paper book in which a statement was shown which was titled 'S.Subramanyam' and at the end of the statement, it was mentioned as 'balance to be received at Rs.54,79,009. Please throw light on the same.
Ans: This matter pertained to Sri S.Subramanyam, who happened to be a contractor. He has come for a settlement with G. Venkata Reddy & Co. and the paper to this effect might have been left in our premises. It has nothing to do with our business."
11.2 With regard to addition made of Rs.5,36,855/- pertaining to same Sri S. Subramanyam, the AO has noticed that as per Annexure A/19/DIPL, the amount released from the Court of Rs.10,34,341/- and interest of Rs.5,76,226/- (01.03.07 to 27.06.09 for Rs.10,34,341), thus totaling to Rs.16,10,567/- was not offered to tax. As the assessee could not give proper explanation, hence 1/3rd of Rs.16,10,567 i.e. Rs. 5,36,855/- which is relevant to AY 2008-09 is added u/s 28.
11.3 Before the CIT(A), the assessee vide his paper book has submitted that since the court matter does not pertain to the assessee, the same has no reference to the assessee and that AO should have verified with Sri S.Subramanyam, before resorting to addition in its hands.
11.4 In her remand report dated 03.10.2011, the AO has recorded a statement from Sri Upender Reddy, which is reproduced as under:
Q.8. I am showing you the page No. 29 of the paper book in which it was mentioned about a sum totalling to Rs.18,19,433/-12 ITA No. 749/H/13
M/s Deepika Infratech Pvt. Ltd., Hyd.
and having a mention as 'from the date of receiving (as per KUR)......... amounting to Rs. 35, 00, 000/-. Please explain.
Ans: This matter also pertained to Sri S. Subramanyam, who happened to be a contractor. He has come for a settlement with M/s G. Venkat Reddy & Co. and the paper to this effect might have been left in our premises. Myself being the arbitrator for the said dispute, told to pay interest on the amount to settle the dispute..... It is nothing to do with my own business activities"
11.5 As such summons u/s 131 were issued to Sri S.Subramanyam, which were returned unserved. As the assessee could not furnish the court case details, the submissions made was not accepted and accordingly added in the hands of the assessee suggesting that Rs.10,34,341/- (not part of assessment order) and Rs.5,36,855/- along with addition of Rs.12,40,000/- made vide page No. 60 of A/19/DIPL.
11.6 The CIT(A) after considering the submissions of the assessee as well as the remand report of the AO, deleted the addition made by the AO by observing as under:
"7.7 I have gone through the facts of the case and the submissions of the appellant and I would like to throw the following points on this issue.
• First of all the issue is not at all related to the assessee since this a transaction between Sri Subramanyam and Ms G.Venkat Reddy & Co, which is evidenced by the statement given by the MD Sri Upender Reddy before the AO • The assessee on his part has furnished the residential address of Sri subramanyam who was residing at Flat at No.503, Krishna sai Apartments, Yousufguda, Hyderabad, 500045 i.e. to say he has identified the person to whom such transaction belongs to.
• Since the assessee had pointed out that the Assessing Officer did not summon Sri subramanyam of S.S. Constructions, the burden of proof which lay on the assessee stood discharged. Therefore, the addition made in the hands of the assessee was 13 ITA No. 749/H/13 M/s Deepika Infratech Pvt. Ltd., Hyd.
not justified as the assessee had discharged its burden of proof in identifying Sri subramanyam.
• This fact was also accepted by the AO in her remand report dated 03.10.2011 that the above submission of Sri Upender Reddy more or less matches with the submissions of the assessee, that the transaction was in fact between Sri subramanyam and Mis G.Venkat Reddy & Co .
• The AO has not made any further enquiry with regard to the above transaction in spite of having residential address in hand and accordingly not discharged its burden of proof.
• The AO has mentioned that Summons issued u/s 131 to Sri S. Subramanyam returned unserved due to change in address. However, it seems no further attempt has been made to locate Sri Subramanyam.
• It is also not known whether any attempt has been made to contact M/s G.Venkat Reddy & Co., who is also one of the party to the above transaction.
• Further, no attempt has been made to know the whereabouts of subramanyam as to where he is living presently.
• It was held by various courts that there can be no presumption on the basis of some uncorroborated notings and on the basis of mere suspicion, that additions can be made.
Moreover, the expression that the assessee offered no explanation, means, the assessee offers no proper, reasonable and acceptable explanation as regards the nature of the slip found during the course of survey. The assessee on his part has identified Sri Subramanyam, provided residential address and stated that it was a transaction between Subramanyam and Venkat Reddy & Co by giving a statement. Thus, the assessee has discharged its complete responsibility in putting the facts before the AO. The AO has put effort only in issuing summons u/s 131 and when the same were returned unserved, she has come to the conclusion that the assessee has not proved anything in spite of ample opportunities. The opinion of the AO for not accepting the explanation offered by the assessee as not satisfactory, is required to be based on proper appreciation of facts. The opinion of the AO is required to be formed objectively with reference to the material on record file.14 ITA No. 749/H/13
M/s Deepika Infratech Pvt. Ltd., Hyd.
Due to lacuna of above points, I hold that taxing a third party transaction in the hands of the assessee is not tenable and sustainable in the eye of law. Hence the additions made of Rs.12,40,000/- and Rs.5,36,855/- in the hands of the assessee is deleted. However, the AO is directed to make a fresh enquiry in identifying Sri Subramanyam's whereabouts, record a statement from him and accordingly obtain the sources of the above two additions including the Court release amount of Rs.10,34,341/- and tax in the hands of Sri Subramanyam. Accordingly, this ground of appeal is allowed."
12. Considered the rival submissions and perused the material facts on record. AO has made additions of Rs. 12,40,000/- and Rs. 5,36,855/- in the hands of assessee whereas the MD Shri K. Upender Reddy in his statement clearly explained that these two transactions were not relating to assessee and these transactions were relating to Shri S. Subramanyam and Shri G. Venkata Reddy & co. These payments were relating to some disputes between the parties who has no connection with the assessee company. Since it has no relevance to the assessee company, we are also in agreement with the findings of CIT(A) that these transactions in fact has no relation with the assessee company. Accordingly, we uphold the decision of the CIT(A) on this issue and dismiss the ground raised by the revenue.
13. As regards ground No. 5 relating to the addition on account of Disallowance u/s 68 - Rs.27,10,43,771/-, it is observed that during the course of assessment proceedings, assessee was asked to provide details of sundry creditors for which it has furnished the details amounting to Rs. 27,64,91,074/-. In order to verify the details submitted by the assessee, notices u/s 133(6) were issued to all the creditors from time to time. In response to such notices, confirmations were received from parties. At the time of completion of assessment, creditors confirmation amounting to Rs. 63,77,127/-
15 ITA No. 749/H/13M/s Deepika Infratech Pvt. Ltd., Hyd.
were received and since AO was not in a position to reconcile the same, addition was made.
14. In the appellate proceedings, assessee contested that AO has made addition both debit and credit balances of the parties and the AO has issued confirmations for the balances as on 31/03/2009 were called for in stead of 31/03/2008. CIT(A) has called for remand report and AO has submitted the remand report dated 03/10/11 wherein it was stated that only in respect of few cases confirmations were received which were contrary to the amounts actually shown in the assessee's books. He submitted that assessee has failed to furnish confirmations and not reconciled the figures. Thus, the addition made may be sustained.
14.1 CIT(A) on receipt of remand report, directed the AO to submit consolidated report on sundry creditors. Based on the above direction, AO has furnished consolidated report vide her letter dated 16/02/12 and the same was forwarded to Additional CIT, Range - 1, Hyderabad on 22/02/12. In the same report, it was mentioned that assessee has offered for an addition of Rs. 20% of outstanding creditors in cases where the addresses, account copies and confirmations were not available since some of the creditors are located in remote areas, data got corrupted and also closure of business of certain creditors. However, Addl. CIT has not accepted the voluntary disclosure of the assessee and forwarded Annexures - III, IV, V & VI totalling to Rs. 25,24,82,662/-.
14.2 The above remand report was forwarded to the assessee for its comments. The assessee has submitted that with regard to sundry creditors out of total of Rs. 27.74 crores, 14.83 crores were mobilisation advances received from various Govt. agencies. Out of 16 ITA No. 749/H/13 M/s Deepika Infratech Pvt. Ltd., Hyd.
the balance creditors of Rs. 12.91 crores, according to the Annexure
- IV of the remand report, confirmations received from seven parties. It was further submitted even in respect of the above 7 parties, the amounts are subjected to reconciliation and in AY 2009-10 closing balances were accepted during scrutiny proceedings and hence, reconciled in the subsequent AY. It was further submitted that keeping in view of such discrepancies, assessee has offered voluntarily 20% disallowance of outstanding creditors in cases where addresses, confirmations etc. are not available. Accordingly, such disallowance worked out to Rs. 1.16 crores, but, the AO rejecting the said offer proposed for a disallowance of Rs. 21.25 crores, which was not based on facts.
14.3 After considering the remand report and submissions of the assessee, the CIT(A) has analysed the creditors annexure wise and considered the addition based on annexures submitted by the AO as under:
"Appellant's comments on Annexure-III The appellant vide letter dated 19.03.2012 filed before the appellate authority has mentioned that in the above Annexure, out of nine parties, five parties have confirmed the balances which are higher than the closing balances in our books. In respect of remaining four parties, they are subject to reconciliation, which is an ongoing process.
He further stated that in respect of some creditors, the amounts are reconciled in the AY 2009-10 and closing balances were accepted during scrutiny proceedings and hence reconciled and tallied in the subsequent year. The appellant further submitted that the outstanding creditors for the AY 2008-09, were also added again as outstanding creditors in the assessment year 2009-10. As such, the Assessment order passed for the AY 2009- 10 dated 30.12.2011, wherein the total sundry creditors added of Rs.2,43,36,140/- is also noted: The ledger accounts of creditors for the financial year 2008-09 (AY 2009-10) were also produced before me for verification of opening and closing balances. In respect of some cases, the appellant has furnished conformations 17 ITA No. 749/H/13 M/s Deepika Infratech Pvt. Ltd., Hyd.
from the parties. Accordingly, the final findings for the Annexure
- III are as under.
Sl. Name of the Closing Confirmation Difference Final findings
No Party (M/s) balance as s from (+/- (Rs.)
per books parties (Rs.)
(Rs.)
1 Ashoka 2,75,00,000 2,79,96,825 (+)4,96,925 As the creditor
Builders has confirmed
excess mount of
Rs.4,96,925/the
same is added in
the hands of the
appellant.
2 Cynergy 2,35,000 4,56,152 (+)2,21,152 Since this is a
Engineers & debit balance,
Construction itcannot be
s treated as
creditor, hence
deleted.
3 Mithra Earth 15,807 15,807 --- Confirmation is
Movers furnished during
appellate
proceedings.
Hence this
amount is
deleted.
4 RR & Co 1,41,194 34,499 (-)1,06,695 In the books of
the appellant as
on 01.04.2008,
there is a credit
balance of
Rs.1,41,194/-.
However, during
the AY 200809,
the shortfall of
Rs.1,06,695/- is
reconciled in the
AY 09-10,Hence,
no addition is
made.
5 Sec-bad 14,479 36,090 (+)21,611 In the books of
Engg. the creditor, the
Corpn. brought forward
balance as on
01.04.08
represents
Rs.36,090/-. The
amount of
Rs.21,611/- got
reconciled during
the AY 08-09.
Hence, no
addition is made.
6 Shiv Steel 41,02,925 46,24,345 (+)5,21,420 The opening
Agency balance of Rs.41
,02,925/- as on
01.04.08 is
18
ITA No. 749/H/13
M/s Deepika Infratech Pvt. Ltd., Hyd.
reconciled and a
closing balance of
Rs.21,00,000 is
shown in AY 08-
09. As such the
amount of
Rs.5,2l,420/- got
reconciled in AY
08-09. hence,
amount of
Rs.5,2l,420/- is
deleted.
7 Usha 38,198 1,61,855 (+)1,23,657 The opening
Engineers credit balance of
Rs.38,198/- in the
books of the
appellant got
reconciled and
closing balance of
Rs.66,505/- is
shown for AY 08-
09. Hence the
amount of
Rs.1,23,657 is
deleted.
8 Sri Sri 3,17,31,485 34,13,426 (-) The appellant has
Parameswar 2,83,18,059 taken LC from
a Service Andhra Bank,
Station Somajiguda
Branch,
Hyderabad and
made payments
to the creditor
from 18.02.08 to
26.03.08
amounting to
Rs.2,82,99,869/-.
Hence the
balance amount
of Rs.18,190/-
(2,83,18,059-
2,82,99,869) is
added as
unexplained
sundry creditor
now.
9 Vertex 77,63,830 49,02,446 (-) Since, no
Engineers 28,61,384 confirmation is
provided for the
balance amount
of Rs.28,61,384/-
, this addition is
sustained.
To sum up, out of the total sundry creditors of Rs.3,19,68,633/- as per Annexure III, sundry creditors amounting to Rs.33,76,499/- is added u/s 68 of the Act, since 19 ITA No. 749/H/13 M/s Deepika Infratech Pvt. Ltd., Hyd.
confirmations/reconciliation could not be done by the appellant even during the course of appellate proceedings.
10.8 Details of sundry creditors not received - Rs.1.06,47,003/-.
As per col. no.(3) of the final/consolidated remand report forwarded by the AddI.CIT, R-1, Hyderabad, the details of sundry creditors where confirmations not received are quantified at Rs.1,06,47,003/-. This was forwarded to the appellant for submitting his comments/objections. The appellant vide letter dated 19.03.2012 has stated that since party wise breakup for the above quantification was not furnished, they continue to rely on the written submissions filed to the department on sundry creditors.
I have gone through the above quantification of sundry creditors amounting to Rs.1,06,47,003/-. Other than simply mentioning that details of confirmations not received, the AO has not furnished any details such as names/amounts/ etc. For all other variations she has furnished the list in Annexures, but for arriving at this amount, no clear quantification is given. In the absence of such details, it is not possible for the undersigned to give a clear direction. As such, I take pain in referring the matter back to the desk of the AD to quantify the names of the creditors who fit into the above addition of Rs.1,06,47,003/-, with a direction to give an opportunity to the appellant. While doing so, necessary precaution in identifying the exact creditor may be taken, in order to avoid duplication.
10.9 ANNEXURE - IV - Addition made under this head is Rs.3,08,62,764/-
Appellant's comments on Annexure-IV The appellant vide letter dated 19.03.2012 filed before the undersigned with regard to above proposal for addition of Rs.2,67,56,423/- has submitted that by oversight the amounts of AY 2009-10 were furnished before the IT(A), which are not comparable with the balance sheet figures of AY 2008-09. Therefore, to this limited extent their earlier written submissions may kindly be ignored to the extent of amounts only and these amounts are actually not to be considered as sundry creditors and no additions can be done on this count, since the entire sundry creditors for the year have already been considered. Accordingly, the final findings for Annexure-IV are as under.
Sl. Name of the Closing As per Difference Remarks No Party (M/s) balance books 20 ITA No. 749/H/13
M/s Deepika Infratech Pvt. Ltd., Hyd.
before
CIT(A)
1 Aishu 3,68,344 ------ 3,68,344 This entry
Castings appears in
Annexure-V, it
should be deleted
from Annexure-V.
Secondly, as
there is no
confirmation of
creditor, the
addition of
Rs.3,68,344/- is
sustained.
2 Ambica 72,72,459 31,69,632 41,02,827 The opening
Steels Ltd balance of
Rs.72,72,459 as
on 01.04.08 is
reconciled during
the AY 0910 vide
entry
dated 23.06.2008
in the ledger ale
of Arnbica Steels
which shows that
the amount of
Rs.41,02,8271-
was paid to the
creditor through
LC taken on
Andhra Bank,
Somajiguda.
Hence, the
addition of
Rs.41,02,827 is
directed to be
deleted.
3 Salvo 40,84,625 ------ 40,84,625 The appellant has
Explosives furnished
confirmation from
the above
creditor for
Rs.38,94,493/-.
For the balance
amount of
Rs.l,90,132/- it
got reconciled in
the AY 2009-10.
As such, this -
addition IS
deleted. However,
the same entry
appears in
Annexure- V
also. Hence, it
should be
deleted from
Annexure-V.
4 Shiv Steel 41,02,925 ------- 41,02,925 The opening
Agency balance of
Rs.4l,02,295/- as
21
ITA No. 749/H/13
M/s Deepika Infratech Pvt. Ltd., Hyd.
on 01.04.08
pertaining to
above creditor
got reconciled in
the closing
balance of
Rs.21,00,00,000fo
r the AY
2009-10. Hence,
no addition is
made to avoid
double taxation of
the creditor.
5 Shreya 15,19,900 ------ 15,19,900 The opening
Enterprises balance of
Rs.15,19,900/- as
on 01.04.08
pertaining to
above creditor is
reconciled as the
closing balance of
Rs.2,74,900/- is
added as
unconfirmed
sundry creditor
for the AY 2009-
10. Hence, the
addition made in
this year is
deleted to avoid
double taxation.
6 Sree Spares 60,000 ------ 60,000 As on 01.04.08
the opening,
balance of
Rs.60,000/- is
noticed in the
ledger account of
the creditor.
However, in the
AY 2009-10, an
amount
of Rs.55,100/-
was added in the
assessment order
for the AY 09-10.
As such, the
balance amount
of Rs.4,900/-
(60,000-55,100)
is added in this
AY 2008-09.
Further, as the
amount of
Rs.60,000/-
appears in
Annexure V, it
has to be deleted
from Annexure- V
also.
22
ITA No. 749/H/13
M/s Deepika Infratech Pvt. Ltd., Hyd.
7 Sri Sai 91,29,721 ------ 91,29,721 Since, no
Enterprises confirmation is
provided, the
amount of
Rs.9l,29,721/- is
added. However,
the same entry
appears in
Annexure- V also.
Hence, it should
be deleted from
Annexure-V.
8 Motor & 1,08,720 ----- 1,08,720 Since, no
General confirmation is
Traders provided, the
amount of
Rs.1,08,720/- is
added. However,
the same entry
appears in
Annexure- V also.
Hence, it should
be deleted from
Annexure-V.
9 Md.Khadir 1,03,484 1,00,000 3,484 Since, no
Tyre Works confirmation is
provided, the
amount of
Rs.3,484/- is
added now.
10 Md. Muneer 1,15,000 ---- 1,15,000 This opening
Old Tyres balance of
Rs.1,15,000/- as
on 01.04.08 is
noticed. However
in the AY 2009-
10, Rs.2,82,700/-
is added as
unconfirmed
creditor. As the
said amount got
reconciled and
was added in the
AY 2009-10, the
amount of
Rs.1,15,000/- is
deleted. However,
as the same entry
is appearing in
Annexure-V, to
avoid double
taxation of
creditor, it is
deleted from
Annexure-V.
11 Sai Durga 1,09,051 ----- 1,09,051 Since, no
Engg. Works confirmation is
provided, the
amount of
23
ITA No. 749/H/13
M/s Deepika Infratech Pvt. Ltd., Hyd.
Rs.1,09,051/- is
added. However,
the same entry
appears in
Annexure- V also.
Hence, it should
be deleted from
Annexure-V.
12 Sri Sai 35,72,021 ----- 35,72,021 The opening
Enterprises balance of
Rs.3512021 as on
01.04.08 is
reconciled and a
closing balance of
Rs.35,02,621 is
added as
unconfirmed
creditor for the
AY 09.10.
Hence, the
balance amount
of 69,400
(35,12,021
35,02,621) is
added now.
However, as the
same entry
appears in
Annexure- V also.
Hence, it should
be deleted from
Annexure-V.
13 Sri Srinivasa 61,815 ------ 61,815 Since, no
Engg. Works confirmation is
provided, the
amount of
Rs.61,815/- is
added. However,
the same entry
appears in
Annexure- V also.
Hence, it should
be deleted from
Annexure-V.
14 M Sudarshan 1,01,115 ----- 1,01,115 As on 01.04.08
the opening
balance of
Rs.l,01,115/- is
noticed in the
ledger account of
the creditor.
However, in the
AY 2009-10, an
amount of
Rs.11,551/- was
added in the AY
09-10. As such,
the balance
amount of
Rs.95,624/-
24
ITA No. 749/H/13
M/s Deepika Infratech Pvt. Ltd., Hyd.
(107175 -
11,551) is added in this AY 2008-
09. Further, as the amount of Rs.1,01,115/-
appears in
Annexure V, it
has to be deleted
from Annexure- V
also.
15 Srinivasa 58,900 ------ 58,900 Since, no
Reddy confirmation is
provided, the
amount of
Rs.58,900/- is
added. However,
the same entry
appears in
Annexure-V
also. Hence, it
should be deleted
from Annexure-V.
16 Andhra 1,19,600 ------ 1,19,600 As on 01.04.08
Engg. Works the opening
balance of
Rs.l,19,6001- is
noticed in the
ledger account of
the creditor.
However, in the
AY 2009-10, an
amount of
Rs.91,500/- was
added in the AY
09-10. As such,
the balance
amount of
Rs.28,100
(Rs.1,19,600 -
91,500) is added
in this AY 2008-
09. Further, as
the amount of
Rs.1,19,6001-
appears in
Annexure V, it
has to be deleted
from Annexure- V
also.
17 Motor & 28,33,639 ------ 28,33,639 Since, no
General confirmation is
Traders provided, the
amount of
Rs.28,33,639/- is
added.
However, the
same entry
appears in
25
ITA No. 749/H/13
M/s Deepika Infratech Pvt. Ltd., Hyd.
Annexure-V also.
Hence, it should
be deleted from
Annexure-V.
18 Standard 2,80,000 ------ 2,80,000 As on 01.04.08
Tyre the opening
Retreaders balance of
Rs.2,80,0001- is
noticed in the
ledger account of
the creditor.
However, in the
AY 2009-10, an
amount of
Rs.3,00,000/- was
added in the AY
09-10. As the
above amount of
Rs.2,80,000/- got
reconciled and a
final unconfirmed
sundry creditor is
added in AY
2009-10. No
addition is made
since the same
got reconciled in
AY 09-10.
Further, as the
amount of
Rs.2,80,000/-
appears in
Annexure V, it
has to be deleted
from Annexure- V
also.
19 M 80,850 ------ 80,850 The outstanding
Venkatarayu balance of
lu Chetty Rs.80,8501- is
not appearing
& in the ledger
account of the
Sons creditor for
the period
01.04.08 to
31.03.09. Hence,
the addition of
Rs.80,850/- is
sustained.
20 Vijay 44,077 ------ 44,077 As on 01.04.08
Industries the opening
balance of
Rs.44,077/- is
noticed in the
ledger account of
the creditor.
However, in the
AY 2009-10, an
amount of
s.1,36,669/- was
added as
26
ITA No. 749/H/13
M/s Deepika Infratech Pvt. Ltd., Hyd.
unconfirmed
creditor in the AY
09-10. As the
above amount of
Rs.44,071/- got
reconciled and a
final nconfirmed
sundry creditor is
added in AY 09-
10, the addition
of
Rs.44,077/- is
deleted now.
Further, as the
amount of
Rs.44,071/-
appears in
Annexure V, it
has to be deleted
from Annexure-V
also.
To sum up, out of the total sundry creditors of Rs. 3,08,62,764/- as per Annexure IV, an amount of Rs. 1,28,12,858/- is added u/s 68 of the Act, since confirmations/reconciliation could not be done by the appellant in spite of sufficient opportunity and time availed by the appellant.
10.10 ANNEXURE-V - Addition made under this head is Rs.2,67,56,423/-
Appellant's comments on Annexure-V The appellant vide letter dated 19.03.2012 filed before the undersigned with regard to above proposal for addition of Rs.2,67,56,423/- has submitted that by oversight the amounts of AY 2009-10 were furnished before the CIT(A), which are not comparable with the balance sheet figures of AY 2008-09. Therefore, to this limited extent their earlier written submissions may kindly be ignored to the extent of amounts only and these amounts are actually not to be considered as sundry creditors and no additions can be done on this count, since the entire sundry creditors for the year have already been considered.
On verification of Annexure-V with that of Annexure-IV, I observe :tat AO has wrongly included the same parties in Annexure-V, which is nothing but duplication of addition of the same creditors. As I had given a direction for Annexure - IV, vide column no.(6), the entire addition of Rs.2,67,56,423/- in Annexure-V, gets deleted automatically.27 ITA No. 749/H/13
M/s Deepika Infratech Pvt. Ltd., Hyd.
10.11 ANNEXURE-VI - Addition made under this head is Rs.15,22.47,839/-
Appellant's comments on Annexure-VI The AO vide Annexure-VI of remand report dated 22.02.12 has quantified the addition at Rs.15,22,47,839/-. The said quantification was forwarded to the appellant for his submissions/objections, if any. In response to the same, the appellant vide letter dated 19.03.2012 argued that this Annexure contains only the list of debit balances in the books of the assessee, as confirmed by the AO in her remand report. Therefore, debit balances being the nature of asset cannot be added to the income, since it is the amount receivable by the assessee and not a liability. Further, he stated that the issue of sundry creditors being a continuous process, the courts have held that where there are differences in balances of credits according to books of accounts of assessee and creditor's books and which are subject to reconciliation, they cannot be added u/s 68 of the Act.
While furnishing some confirmations from the parties, the appellant stated that the amount of sundry creditors as per Audited balance sheet is Rs. 27.74 crores, out of which Rs. 14.83 crores represents mobilisation of advance received from various Govt. agencies as such the net un-reconciled sundry creditors balance is only 5.78 crores. The final findings/observations on Annexure - VI are as under:
Sl. No. Name of the Debit balances Remarks party having no confirmations 1 BHEL 13,23,43,385 Confirmation furnished Advance Alc from BHEL as advance paid to the appellant of Rs.13,66 crores. Hence, deleted.
2 Mithra Earth 2, 15,807 Confirmation furnished
Movers from the creditor during
appellate proceedings,
hence deleted.
3 Sagar 40,18,151 Confirmation furnished
Cements from the creditor during
appellate proceedings,
hence deleted.
4 Vibromax 1,896 Since, this is a debit
28
ITA No. 749/H/13
M/s Deepika Infratech Pvt. Ltd., Hyd.
Engineering balance, the addition is Corporation deleted.
5 Vijaya 13,91,466 Since, this is a debit Electricals balance, the addition is Ltd deleted.
6 WMI Cranes 38,31,000 Confirmation furnished from the creditor during appellate proceedings, hence deleted.
7 Vertex 1,54,534 As Vertex Projects is a Projects Subcontractor, an advance of Rs.1,54,534/- is given to him. The same entry is reflected in sl.no.(9) of Annexure-II enclosed to the final remand report.
Since, this amount shows debit balance, the same is deleted.
8 P Subba 6,14,753 As P. Subba Rao is a Rao Subcontractor, an advance of Rs.6,14,753/- is given to him. The same entry is shown in sl.no.(6) of Annexure-II enclosed to final remand report. Since, this amount shows debit balance. the same is deleted.
9 SS 3,09,090 As SS Constructions is a Constructions Subcontractor, an advance of Rs.3,09,090/- is given to him. The same entry is shown in sl.no.(5) of Annexure-II enclosed to final remand report. Since, this amount shows debit balance, the same is deleted.
10 NSR 94,37,232 As NSR Constructions is a Constructions Subcontractor, an advance of Rs.94,37,232/- is given to him. The same entry is shown in sl.no.(18) of Annexure-II enclosed to final remand report. Since, this amount shows debit balance, the same is deleted.
29 ITA No. 749/H/13M/s Deepika Infratech Pvt. Ltd., Hyd.
11 K Dinakar 130525 As K.Dinakar Reddy is a Reddy Subcontractor, an advance of Rs.1,30,525/- is given to him. The same entry is shown in sl.no.(35) of Annexure-II enclosed to final remand report. Since, this amount shows debit balance, the same is deleted.
All the entries in the Annexure-VI represent debit balances in the looks of the appellant (this fact is also mentioned by AD itself). Debit balances represent the nature of asset and hence cannot be added to the income, as it represents amount receivable by the appellant and not a liability. Hence, the addition made as per Annexure-VI amounting to Rs.15,22,47,839 is DELETED."
15. Aggrieved with the above order, the revenue is in appeal before us.
16. Ld. DR submitted that CIT(A) has deleted Annexure - V without giving proper explanation. He further submitted that the same was deleted by referring that repetition entries whereas the parties are not matching. He further submitted that CIT(A) should have brought to tax for the creditors outstanding as on 31/03/08. He cannot shift the pole to 31/03/2009.
17. Ld. AR, on the other hand, submitted that CIT(A) has verified creditors exhaustively and came to conclusion by giving proper findings and explanation.
18. Considered the rival submissions and perused the material facts on record. We observe that AO has made addition u/s 68 of Rs. 27,10,43,771/-. In the remand report AO has submitted the details for Rs. 25,24,82,662/- with detailed annexures - III to VI. CIT(A) after analysing the creditors in detail has confirmed the disallowance as under:
30 ITA No. 749/H/13M/s Deepika Infratech Pvt. Ltd., Hyd.
1. Annexure - III Rs. 33,76,499/-
2. For verification by the AO Rs. 1,06,47,003/-
3. Annexure - IV Rs. 1,28,12,858/-
4. Annexure V Rs. Nil (due to repetition Entries)
5. Annexure - VI Rs. Nil (due to debit balances & confirmations.) 18.1 Even though the CIT(A) has dealt with the sundry creditors exhaustively in dealing with Annexure - III, wherever he has found that the confirmations from parties which is more than closing balance as per books of assessee, the excess amounts were added as undisclosed income in the hands of assessee. We are not in a position to appreciate the above findings of CIT(A), in our opinion, the balances as per closing balance in the books of assessee has to be reconciled with confirmations and, if there is any difference, it may be due to various factors like the other party needs his accounts be reconciled. Mistake of other parties cannot be added in the hands of assessee. Similarly, there is a shortage in the confirmation balances which were not considered. CIT(A) has deleted Annexure -
V observing that there is a repetition of creditors. We observe that all the creditors are not repetitive.
18.2 We further observe that CIT(A) and AO has already confirmed that sundry creditors outstanding balances include debit balances to the extent of Rs. 15.22 crores. In our opinion, sundry creditors balances include these debit balances, which means the sundry creditors should be as below:
As per the balance sheet creditors outstanding Rs. 27.10 crores Debit balances as above Rs. 15.22 crores Total creditors Rs. 42.32 crores ========== 18.3 Hence, the assessee has to submit the details of sundry creditors of Rs. 42.32 crores without considering the mobilisation 31 ITA No. 749/H/13 M/s Deepika Infratech Pvt. Ltd., Hyd.
advances (which should be additional) and the party-wise reconciliation has to be done as on 31/03/2008. We are in agreement with CIT(A) that debit balances has to be accepted, but, the assessee has to account for Rs. 42.32 crores of sundry creditors and needs to be reconciled. In our considered view, the exercise done by various parties involved are not proper and a fresh reconciliation and confirmation needs to be done. Hence, we remit this issue back to the file of the AO with a direction to reconcile the whole sundry creditors as discussed above. Accordingly, this ground is treated as allowed for statistical purposes.
19. As regards ground No. 6 relating to disallowance u/s 40(a)(ia) of Rs. 28,16,79,775, it is observed that in the assessment proceedings, the AO had asked the assessee to produce TDS details in respect of following payments:
Sub-contract expenses Rs. 26,75,89,977 Department Labour Rs. 1,38,39,778 Audit fees Rs. 50,000 Advertisement Rs. 2,00,000 Total Rs. 28,16,79,775 =========== In the absence of TDS details, AO has disallowed the entire amount u/s 40(a)(ia) of the Act.
20. In the appellate proceedings, the assessee has submitted written submissions along with the paper book claiming that the entire amount of sub-contract receipts has already suffered TDS, which was not considered by the AO. Further, AO has disallowed the department labour of Rs. 1.38 crores for which TDS provisions are not applicable and the payments were made for more than 1000 members who are involved in the projects. Similarly, with the other disallowances of Rs. 2 lakh towards advertisement was already disallowed by the assessee and with regard to audit fees, it was only 32 ITA No. 749/H/13 M/s Deepika Infratech Pvt. Ltd., Hyd.
a provision and TDS will be deducted as and when the payment is made. The assessee further claimed that in the month of March, gross receipts were Rs. 26,75,89,977/- and total TDS deducted was Rs. 30,31,794/-. This amount of Rs. 30,31,794 was included in the consolidated challan for Rs. 88,47,037, which was paid through Andhra Bank, Somajiguda Branch, Hyderabad on 29/03/08.
20.1 The CIT(A) forwarded the paper book of assessee to AO for remand report. Initially, AO rejected the submissions of the assessee. However, while submitting consolidated remand report on various issues, AO finally quantified the amount at Rs. 10,05,88,166/- since the assessee failed to submit reconciliation of TDS paid in the hands of firm with that of assessee company. With regard to TDS made on sub-contracts, AO recommended for disallowance u/s 40(a)(ia) as noted in the ledger account of advances for suppliers and sub- contractors and enclosed annexure - III to remand report ( consisting of 45 parties). The above remand report was forwarded to assessee for its comments.
20.2 Assessee submitted that since the amounts are standing in the balance sheet as advances and are not debited to P&L A/c, no expenditure has claimed. The advance payments, even though, subject to TDS provisions, do not fall under the ambit of section 40(a)(ia) for the purpose of disallowance. As the company was formed by taking work of partnership firm with effect from 01/03/08, TDS made by firm on two contract payments are to be considered only for limited purpose of TDS compliance and hence, addition made u/s 40(a)(ia) amounting to Rs. 10,05,88,166/- is not sustainable.
20.3 After considering the submissions of the assessee as well as the remand report of AO, the CIT(A) observed as under:
33 ITA No. 749/H/13M/s Deepika Infratech Pvt. Ltd., Hyd.
11.10 In the case of the appellant, it is seen that no expenditure is claimed as the amount is lying in the balance sheet as advances and is not debited to P&L Ale, so as to attract the provisions of Section 40(a)(ia). Hence, the contention of the Assessing Officer that it is in violation of Section 40(a)(ia) is not tenable and is not sustainable for the AY 2008-09. In the year, in which such amounts are actually debited to profit and loss account, the disallowance u/s 40(a)(ia) is attracted, provided, if tax has been deducted during the year and the same is NOT deposited before the due date of filing of return of income.
However, for this AY 2008-09, I am of the opinion that the provisions of section 201(1) and 201(1A) are attracted on the amount of Rs.10,O5,88,166/-, as the assessee has not deducted TDS, though it is not debited to P&L A/c. Penalty u/s 221, for violating TDS provisions may also be imposed on the assessee. In other words 40 a ia is not attracted. But basic levy of interest u/s 201/201(lAl is to be charged as per law."
21. Ld. DR submitted that AO has not verified whether the advances were charged to P&L A/c. As per the remand report, AO has verified TDS deduction and compliance with the firm i.e. Deepika Constructions. He submitted that from the record, it clearly shows that AO has no occasion to verify the payments which are charged to P&L A/c and some of the payments kept as advances. He prayed that the issue may be remitted to AO for further verification. With regard to advertisement and audit fees, ld. DR submitted that these expenditures are already debited to P&L A/c and addition on these accounts should be sustained.
22. Ld. AR submitted that payments were kept in the balance sheet as advances and not charged to P&L A/c He submitted that the provisions of section 40(a)(ia) are not applicable to the case of assessee.
23. Considered the rival submissions and perused the material facts on record. We have noticed that originally AO has made addition of Rs. 28,16,79,775/-. In the remand report, AO has quantified the 34 ITA No. 749/H/13 M/s Deepika Infratech Pvt. Ltd., Hyd.
disallowance u/s 40(a)(ia) at Rs. 10,05,88,166/-. He has verified the TDS compliances with the details submitted by the assessee which includes TDS compliances by the assessee as well as the firm i.e. Deepika Constructions. We are not sure the extent of verification done by the AO. We find in the balance sheet that advances to suppliers and for expenses the outstanding at the balance sheet date are Rs. 28,46,83,075/-. At the same time, the assessee has charged to P&L A/c sub-contract expenses to the extent of Rs. 26,75,89,977/-. In fact, assessee has charged to P&L a/c certain expenses. For the sake of clarity and justice, we remit this issue also back to the file of the AO with a direction to verify the compliances of TDS with regard to the expenditure charged to P&L A/c and advances kept in balance sheet. We direct the AO to bring to tax u/s 40(a)(ia) only to the extent of expenses charged to P&L A/c, like, advertisement, sub- contract expenses and audit fees. Needless to mention that assessee may be given proper opportunity of being heard in the matter. This ground is allowed for statistical purposes.
24. As regards ground No. 7 relating to addition on account of disallowance u/s 68 of Rs. 27,42,19,940/-, it is observed that the AO in assessment order has noted that M/s Deepika Constructions, the firm that has been taken over by the assessee company showed the capital at Rs.18,28,21,991/-. However, in the balance sheet the capital was mentioned at Rs,45,70,41,931/-. Since, there is increase in the share capital and the assessee has not adduced any evidence before the AO, the difference amount of Rs. 27,42,19,940 (457041931 - 182821991), is added as unexplained u/s 68 of the Act.
25. Before the CIT(A), the assessee filed paper book wherein it was stated that the company has allotted shares to the extent of Rs.23 crores by way of a journal entry in favour of Deepika Avenues Private 35 ITA No. 749/H/13 M/s Deepika Infratech Pvt. Ltd., Hyd.
Ltd and was also shown in the balance sheet as share application money in Schedule-I to Balance Sheet. It was also mentioned that an amount of Rs.99,00,000/- was added during the year as share capital by promoters. Necessary copies of Form No.2 for the above transactions were filed. It was also informed that the promoters are operating mortgage loan accounts from UCO Bank amounting to Rs.2,67,12,040/-, which was shown under share application money and hence no unexplained investment was made in the form of share capital/share application money.
25.1 When the paper book submitted by the assessee forwarded to AO by the CIT(A) for his comments, while giving the observations in the remand report by the AO dated 03.10.2011, regarding the additions on difference of Rs.27,42,19,940/-, AO observed that it was stated by the assessee that Rs.23 crores was on account of advance on land from M/s Deepti Avenues Pvt ltd and the balance investment was done by Sri K. Upender Reddy, MD and his family members. The assessee has informed that there was no advance of land and the land was transferred by the said company in lieu of allotment of 46 lakhs shares at premium which was evidenced in Form 2 filed before the Registrar of Companies. However, the details of sources of share capital are as under:
a. Land transfer in lieu of allotment of 46 lakh Rs. 23,00,00,000 shares b. Promoters mortgage loan from UCO Bank 2,67,12,040 c. Share capital introduced by promoters as 99,00,000 per Form No. 2 d. Capital account of firm taken over by 18,28,21,991 appellant Total 44,94,34,031 The AO noted that as per balance sheet, the share capital was shown as Rs. 45,70,41,931/-, thereby leaving a balance source to be explained for the amount which comes to Rs. 76,07,900 (Rs.36 ITA No. 749/H/13
M/s Deepika Infratech Pvt. Ltd., Hyd.
45,70,41,931 - 44,94,34,031) and since no explanation was offered, the CIT(A) was requested to add Rs. 76,07,900/-.
25.2 After considering the submissions of the assessee and remand report of the AO, the CIT(A) observed that the difference of Rs.
76,07,900/- was arrived by the AO as she has adopted Director's family members mortgage loan from UCO Bank as Rs. 2,67,12,040 whereas as per the ledger produced by the assessee, it is shown as Rs. 3,42,19,940 (18720000 + 15499940). Further, the AO has also not taken into account the opening balance of share capital of Rs. 1,00,000/-. Since the difference amount of Rs. 76,07,900/- is satisfactorily explained by the assessee on production of ledger accounts of share capital and share application money, the CIT(A) directed the AO to delete the addition of Rs. 76,07,900/- as suggested by the AO in the remand report.
26. Considered the rival submissions and perused the material facts on record. As there is increase in the share capital and the assessee has not adduced any evidence, the AO made the difference amount of Rs. 27,42,19,940/- as unexplained u/s 68 of the Act. When the CIT(A) asked the remand report, the AO requested the CIT(A) to add Rs. 76,07,900/- as unexplained as against Rs. 27,42,19,940/-. The CIT(A) while directing the AO to delete the said addition gave a categorical finding that the assessee has satisfactorily explained the said amount on production of ledger accounts of share capital and share application money. Therefore, we find no infirmity in the order of the CIT(A) in directing the AO to delete the addition made on account of share capital and accordingly, upholding the decision of CIT(A), we dismiss this ground of revenue.
37 ITA No. 749/H/13M/s Deepika Infratech Pvt. Ltd., Hyd.
27. In the result, appeal of the revenue is treated as partly allowed for statistical purposes.
Pronounced in the open court on 28 th April, 2017.
Sd/- Sd/-
(P. MADHAVI DEVI) (S. RIFAUR RAHMAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 28 th April, 2017.
kv Copy to:-
1) ACIT, Circle - 17(1), 9 th Floor, Signature Towers, Kondapur, Hyd. .
2) M/s Deepika Infratech Pvt. Ltd., 8-2-686/C/D/5, Road No. 12, Banjara Hills, Hyderabad.
3) CIT(A) - V, Hyd.
4 CIT - 1, Hyderabad
5) The Departmental Representative, I.T.A.T., Hyderabad.
6) Guard File