Income Tax Appellate Tribunal - Ahmedabad
Shri Nilesh Tejabhai Patel, Jamnagar vs The Dy.Cit.,Cent.Circle-1(2),, ... on 3 October, 2019
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ - अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD - BENCH 'D'
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI AMARJIT SINGH, ACCOUNTANT MEMBER
IT(SS)A No.531/AHD/2010
WITH
CO No.168/Ahd/2010
नधा रण वष / Asstt.Year: 2005-2006
DCIT, Cent.Cir.1(2) Shri Nilesh Tejabhai Patel
Ahmedabad. Vs. Prop. Grow More Brass Products
101, Centre Point
Indira Gandhi Marg
Jamnagar 361 008.
PAN : AAMPB 6483 A
(Applicant) (Responent)
Revenue by : Shri R.C. Danday, CIT-DR
Assessee by : Shri T.P. Hemani, AR
सन
ु वाई क तार ख/ Dateof Hearing : 27/09/2019
घोषणा क तार ख / Date of Pronouncement: 03/10/2019
आदे श/O R D E R
PER RAJPAL YADAV, JUDICIAL MEMBER:
Revenue is in appeal before the Tribunal against order of ld.CIT(A)- 1, Ahmedabad dated 30.3.2010 passed for the assessment year 2006-07. On receipt of the notice in Revenue's appeal, assessee filed CO bearing No.168/Ahd/2010.
2. Before adverting to the specific grounds of appeal taken by the appellant as well as respondent cross-objector, we deem it appropriate to note brief facts as under:
ITA No.531/Ahd/2010 with CO 23. A search under section 132 of the Act was conducted in Radhe group of cases including the case of the assessee on 4.8.2006. Notice under section 153A was issued to the assessee which was duly served. The assessee has filed his return of income under section 139(1) on 31.3.2007 declaring total income at Rs.50,09,300/-. In response to the notice under section 153A the assessee contended that return filed originally under section 139(1) be treated as filed in response to this notice. M/s.Sahara India Commercial Corporation Ltd. ("SICCI" for short) was exploring to develop a housing project in Jamnagar. Therefore, it required negotiator/mediator who could arrange land for it. It emerges out from the record that a memorandum of understanding was executed by the assessee and "SICCI" on 24.5.2005. Copy of which has been placed on page no. 31 to 36 of the paper book. Through this MOU, it was agreed that the assessee would make arrangement of 43.92 acres of land at the agreed price of Rs.13.00 lakhs per acre. According to the assessee, as per clause-4 of the MOU, this Rs.13 lakhs will include all cost of land and development expenses. Thus, the assessee is required to develop such land i.e. leveling, boundary cleaning, cutting of trees etc. The assessee has debited a sum of Rs.1,95,35,000/- at the rate of Rs.4,44,786/- per acre towards such development expenditure. The AO conducted an inquiry and recorded statement of four persons who have carried out this development on behalf of the assessee. He summarized his observation emerging out of examination of these four persons on page no.12 of the assessment order, which reads as under:
"During the course of examination of these parties the following facts emerged.
1. All though all the parties claimed that they were in the line of construction work from 2 or 3 years earlier before doing the job of ITA No.531/Ahd/2010 with CO 3 the land development work for the assessee none of them could produce any documentary evidence In support of their claim.
2. None of them had filed their return of income for earlier period or for the period after A. Y. 2006-07.
3. All the persons had filed only one return of income for A.Y. 2006- 07 showing income from earth work contract.
4. All the persons in their statement quoted the same rate for the work done.
5. All the persons stated that the work started from the month of July 2005 to December 2005 or January 2006.
6. All the persons had very common answer that they had deployed 3 or 4 tractors and 1 JCB.
7. In the case of One or Two persons who were having a note book with details of tractors could not even tell the registration number of tractors or the names of the owners whose tractors were taken on higher. It is pertinent to note here that everybody accepted that this was the biggest single contract they had ever under taken.
8. The copies of return of income produced by this parties were accompanied with profit & loss A/c which was prepared in a stereo type format even the expenses heads and the amount shown were almost identical.
9. A portion of statement of one Mr, Jayantilal Ravji Bhanderi is reproduced here under:
Q.9 In your bank account Rs.5lacs was deposited on 06.10.2005. You have withdrawn Rs.3lacs on 10.10.2005. Your daily expenses was Rs.7000, with balance of Rs.2,93,000/-
what did you do?
Ans.9 I deposited cheque in my account and had withdrawn amount which has been given to Shri Nileshbhai T. pate/ for expenses.
ITA No.531/Ahd/2010 with CO 4The assessee Shri Nilesh T. Patel who was present at the time of cross examination of his witnesses was also allowed re-examination of the witness Shri Jayantilal Ravji Bhanderi. The assessee first denied having received back any amount in cash but he changed his stance immediately and said that he accepted the cash for further disbursement after Two or Three days. The assessee was therefore, asked whether he had entered this cash amount in his daily cash book to which the assessee replied that he had not maintained any account of this cash."
4. On the basis of the above discovery of facts coupled with reply of the assessee given to question no.8 during the course of search, the ld.AO held that the assessee was not supposed to incur the expenditure towards development expenditure etc. and he made addition of Rs.1,95,35,000/- apart from other expenditure.
5. Dissatisfied with this disallowance, the assessee carried the matter in appeal before the ld.CIT(A). The ld.first Appellate Authority has appreciated the facts and arrived at conclusion that as per MOU the assessee was under obligation to carry out the development of the land, and therefore, he must have incurred some expenditure. The ld.CIT(A) on an estimate basis considered a sum of Rs.3 lakhs per acre as incurred by the assessee and allowed a deduction of Rs.1,31,76,000/- out of the alleged disallowance of Rs.1,95,35,000/-.
6. Revenue in its appeal is impugning deletion of disallowance of Rs.1,31,76,000/-. Certain administrative expenditure of Rs.2,52,031/- were claimed out of which Rs.2,16,574/- has been deleted by the ld.CIT(A). This deletion has been challenged in ground no.2. The amount has been confirmed by the ld.CIT(A) are being challenged in the CO by the assessee.
ITA No.531/Ahd/2010 with CO 57. As far as the appeal of the Revenue is concerned, relief granted by the CIT(A) by way of deletion of the above addition, tax effect involved would be less than Rs.50.00 lakhs. Therefore, when we pointed out applicability of recent CBDT Circular bearing no.17 of 2019 dated 8.8.2019, vide which CBDT restricted the department not to file appeal before the Tribunal where tax effect is below Rs.50 lakhs, the ld.DR did not dispute the same, and left to the Tribunal to pass appropriate order in accordance with law.
8. After hearing the both the sides, we are of the view that the present appeal of the Revenue falls within the purview of the CBDT Instruction cited (supra). It is not disputed by the Revenue that tax effect on the disputed addition is not more than Rs.50 lakhs, and therefore, keeping in view the above CBDT circular and provisions of section 268A of the Income Tax Act, we are of the view that the present appeal of the Revenue deserves to be dismissed. It is dismissed.
However, it is observed that in case on re-verification at the end of the AO it can be demonstrated that the tax; effect is more, or Revenue's case falls within the ambit of exceptions provided in the Circular, then the Department will be at liberty to approach the Tribunal for recall of this order. Such application should be filed within the time period prescribed in the Act. In view of the above, the appeal of the Revenue is dismissed due to low tax effect.
9. In the result, appeal of the Revenue is dismissed due to low tax effect.
ITA No.531/Ahd/2010 with CO 610. As discussed above, the assessee is impugning confirmation of disallowance of Rs.63,59,000/- out of land development expenditure, and Rs.33,457/- out business promotion expenses. While taking cognizance of these facts, we have taken note of facts observed by the AO while dealing with this issue. The ld.CIT(A) has examined this issue elaborately, and we deem it appropriate to take note of the finding of the ld.CIT(A), which reads as under:
"(B) Whether deduction of land development expenses of Rs.
1,95,35,000/- is allowable to the appellant?
(i) First of all, appellant has strongly objected to the comparison of the acts of the case of the appellant with the facts of the case of proprietor of M/s Radhe Builders as according to him, this is the main reason why huge additions/disallowances have been made in the "hands of the appellant. He stated that he is neither related nor associate of that person. Only similarity is that appellant has also sold land to M/S Sahara India to whom that person has sold the land. He stated that there is no similarity between the facts of the two cases.
(ii) Appellant has entered in to a Memorandum of Understanding with M/s Sahara India on 24.05.2005 for sale of land admeasuring 43.92 Acres of land at the agreed price of Rs.13,00,000/- per acre. As per preamble of the MOU, purchaser, M/s Sahara India has acquired land admeasuring 102.55 acres and by this MOU, they wanted to make total land acquisition of 150 acres i.e. further approximately 48 acres. Main purpose for acquisition of this land is that M/s Sahara India intends to develop a residential township in Jamnagar in 150-acre area. According to the clause no 4 of the agreement, M/s Sahara India has agreed to purchase land at average rate of Rs.13,00,000/- per acre, which shall include the cost of land and development expenses etc. Before Assessing officer, appellant-has produced copy of this MOU, which is updated and unsigned. Before me in the paper book, it is dated and signed by both the parties. Appellant also made prayer for admission of this agreement as additional evidence. Copy of the paper book is also ITA No.531/Ahd/2010 with CO 7 sent to Assessing Officer for verification of this agreement and Assessing Officer has obtained copy of the agreement from M/S Sahara India, which is the same as produced by the appellant in appeal. Therefore, I admit additional evidence submitted by the appellant.
(iii) Now on admission of this evidence main objection of assessing officer regarding the memorandum of Understanding that as it was undated and unsigned does not survive. Further, appellant has also stated before me that as the documents is just a memorandum of understanding between two parties , it is not compulsorily required to be registered u/s 17 of The Indian Registration Act 1908. Therefore, non-registration cannot operate against the. appellant. Contention of appellant is correct, therefore MOU-entered into between M/s Sahara India, and appellant is legally enforceable and requires to be given full effect to.
(iv) Clause No. 4 of the agreement between the parties is as under:
-
"(4) That the first party has agreed to purchase the additional land having Plot no. 380 situated in village: Dhuvanv 'at average rate of Rs. 13.00 lacs (inclusive profit) per acre, which shall include all cost of land and development expenses etc. Within a period of three months or such further period extended at the discretion of the First party to which second party has agreed......."
(v) Appellant has contended that these development expenses are in the nature of expenses, which makes land fit for use for development of township, which is the prime motive for purchase of land by M/s Sahara India. Such development expenses include babool cutting, jungle cutting, land levelling and pot filling etc. As per appellant, these work has been done by appellant through contractors before selling land to M/s Sahara India and incurred expenses of Rs.1,95,35,000/-. In fact, what is purchased by appellant from farmers is agricultural land which was cultivated by these landowners for a very long time, how this land is being procured by the company for development of housing township, therefore it is natural that some work is required to be carried out to make an agricultural land duly level plain to make it fit four use for development of a residential township. Main reasons for ITA No.531/Ahd/2010 with CO 8 disallowance of this expense by assessing officer have been discussed in Para no 7 of the instant appellate order. Appellant has shown the details of payments made to those persons, all the payments are made thorough cheque and all the persons to whom the work is allotted have confirmed that they have carried on the work, they have also shown receipt in their books of accounts and they have filed their return of income. Appellant has also produced contractors who have been chosen by assessing officer for examination and in examination; they have confirmed that they have carried on the work. During the course of examination before Assessing Officer, they . have also produced .the workbook. During the course of examination, the contractors have further stated that number of hours they have worked, how they have worked, how the labour payments have been made, they have employed supervisors and chowkindars. They have also entered in to contract with the appellant for carrying out this work which includes land filling, water sprinkling, grass and babool cutting, jungle cutting, rolling of land after all these work etc. They have also produced their books of accounts on which they have been examined and specific questions were raised, however no defects have, been found in those books also. It is also pertinent to note that all the payments have been made through cheques and all those payments are prior to the date of search (Search has taken place on 4.8.2006 i.e. after the close of the accounting year). Regarding withdrawal of the money within 2-3 days of deposit of cheque, it is natural that all the payments to be made by these contractors are in the nature of labour payments, tractors charges, JCB charges, supervisor charges. Most of these payments are made in cash because of the reason that labours, tractor walas and JCB drivers work on hourly basis, trip basis and they are paid in cash. During the course of examination, the contractors have produced the vouchers etc before assessing officer, however not a single voucher or payments was alleged as non- genuine. Further, non-filing of return of those persons for year prior and after AY 2006-07, appellant cannot be blamed in view of overwhelming evidence placed on record of carrying out the work. Appellant has stated that at the time of search on 4.8.2006, several photographs were taken, and those photographs-though taken after one year than development work carried on by the appellant shows that there is no grass on the land, it is properly levelled, properly filled etc, land is clean and is ready for construction work to be carried there on of development of a housing town ship by the buyer.
ITA No.531/Ahd/2010 with CO 9In his statement u/s 132(4), appellant has denied carrying out any development expenses and he disclosed Rs.1 crore as income from land deal. Appellant submitted that land levelling expenses and cleaning, filling expenses are not land development expenses and land development activity would be carried out later on by the buyer.
(vi) Further, such expenses were already incurred by the appellant in F Y 2005-06 i.e. before the date of search! In fact, development work was to. be carried out by the buyer of the land i.e. M/s Sahara India "and not by the appellant. Appellant has to handover the land to the company, which is fit for development of a township. Regarding the objection of the assessing officer that possession of the land was not given to the appellant at the time of entering into agreement to sale by the landowners, appellant stated that after that agreement is entered, possession is handed over to the appellant for carrying out development work. He further submitted that for the purposes of carrying out this type of works as it is not construction activity, it is not necessary that appellant should get the possession of the property as land owners have already stopped carrying on agricultural activity. Further, such types of covenants are mentioned for the reason that if the possession is handed over at the time of entering into agreement to sale, full stamp duty is chargeable, therefore, it is also the standard wording of agreements. Regarding statement of one contractor where he has stated that he made withdrawal of Rs.3,00,000/- on 10.10.2005 and handed over the sum to the appellant, appellant in turn clarified that as he is always on the site, that amount is given, to the appellant to hand it over to his supervisor for onward payments to be made. However, only because of isolated sum of Rs.3,00,000/- where the explanation of contractor as well as appellant was not found satisfactory By assessing officer, whole amount of Rs.1.95,35,000- cannot be disallowed. Further, some of the payments have also been made by the appellant after the date of executing sale deed in favour of M/s Sahara India. Generally, such small contractors who carries work and makes cash payments on weekly basis cannot keep outstanding for two to three months. It also defies logic and business prudence because these contractors withdraw sums within 2-3 days of deposit of cheques. Certain payments to contractors have been made two to three months after executing sale deed in favour of M/s Sahara India. Such payments made by appellant to Sh'ri Jayantilal Ravji Bhanderi is Rs.10,75,000/- and to Shri Keval Kamlesh Joshi of ITA No.531/Ahd/2010 with CO 10 Rs.15,50,000/-. Amounting in all to Rs.26,25,000/-. Appellant has not given any justification for payments of the amount after executing sale deed to M/s Sahara India. This also does not inspire confidence. Further, such expenses shown by the appellant for 4.92 acre is Rs.1,95,35,000/- which works out to Rs.4,44,786/- per acre which is considered excessive, looking to the nature of work being carried out. Hence, because of all inadequacies/ inconsistencies as pointed out above, the land levelling, jungle-cutting expense etc is fairly estimated at Rs.3,00,000/- per acre i.e. Rs.1,31,76,000/- for 43.92 acres in the case of the appellant. Therefore out of Rs.1,95,35,000/-, an Amount of Rs.1,31,76,000/- is allowed as expenses incurred on land levelling, jungle cutting etc. and making it fit for development of housing society by M/s Sahara India and disallowance of- Rs.63,59,000/-is confirmed."
11. With the assistance of the ld.representatives, we have gone through the record carefully. At the instance of the ld.counsel for the assessee, we have perused the memorandum of understanding available on page no.31 to 36 of the paper book. On the other hand, the ld.DR drew our attention towards observation of the AO extracted above as well as answer to question no.8 noticed by the AO, which reads as under:
"Q.8 What are the expenses which you have incurred PI Explain? In your above answer you have stated that you have incurred certain expenses on 43.92 acre land however upon the survey of the land it has come to the notice that no development has taken place and the land is in the same condition in which it was in the possession of the farmers.
A.8. In the above said land transaction I have earned only 1 crore rupees. I do not want to say anything in particular but it is true that I have not spent anything on land development, but it is also true that in today's time there are many other expenses in any land transaction. In totality I have to state that I have earned a profit of Rs. 1 crore and I accept that."
12. The explanation of the ld.counsel for the assessee qua this reply is that this statement has been misconstrued by the Revenue authorities. The ITA No.531/Ahd/2010 with CO 11 land development expenditure was to be borne by the SICCL. The obligation at the end of the assessee was to cut trees, leveling of plots, laying boundaries etc. While giving this reply, the assessee construed the question as if Revenue was talking of construction expenditure and other activities which are to be performed by Sahara. On analysis of this material, particularly, in the light of detailed reasoning/finding of the CIT(A) one fact is clear that the assessee has incurred certain expenditure towards development of this land i.e. cutting of trees, leveling, filling, demarcation of boundaries etc. The question now is, how to quantify it. As per the assessee, he has maintained details of all the persons who have performed this activity. He has made payment through account payee cheque. All the contractors are assessed to tax. They have filed their return of income in this year. The profit and loss account & balance sheet etc. were produced before the AO exhibiting hiring of equipment. One factor which weighed with the AO that one of the contractors replied about return of money to the assessee is concerned, the assessee has reimbursed this money, and on account of certain exigencies, it was required. The assessee has explained this aspect also To our mind, a perusal of the fact observed by the assessee, on examination of the alleged contractor, who performed the work of the assessee coupled with the statement of the assessee, it is not clear that all these expenses were exclusively laid out for the purpose of business. Some element of incompleteness in the details submitted by the assessee is involved. The CIT(A) estimated the expenditure incurred by the assessee at Rs.3.00 lakhs per acre, but that estimation is also not supported with any surrounding circumstances. Photography taken during the course of search by the Revenue would indicate that grass was cut, trees were uprooted. All these evidences ITA No.531/Ahd/2010 with CO 12 collected after one year of the transaction. The question is how to work out that the work which has been got done by the assessee, and accepted by the CIT(A) could be achieved in Rs.3 lakhs and not Rs.4,45,000/-. The disallowance at Rs.1,44,000/- per acre out of expenditure claimed at Rs.4,44,000/- is almost more than 30% of the expenditure claimed by the assessee. To our mind, even if there are lacunae in maintaining details at the end of the assessee, and he has claimed some inflated expenditure, that should be around 8% to 10% of the total and not 30%, because in this activity maximum profit even for the contract could be estimated at 8%. Therefore, in our opinion, ends of justice would meet if we scale down this disallowance of expenditure of Rs.63,59,000/- to Rs.30,00,000/-. We direct accordingly.
13. As far as second disallowance is concerned, i.e. Rs.33,457/- out business promotion expenses, after going through the order of the ld.CIT(A) we do not find any merit, and more particularly, no convincing arguments were advanced. It is confirmed.
14. In the result, appeal of the Revenue is dismissed and the CO of the assessee is partly allowed.
Order pronounced in the Court on 3rd October, 2019 at Ahmedabad.
Sd/- Sd/- (AMARJIT SINGH) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 03/10/2019