Income Tax Appellate Tribunal - Hyderabad
M/S. M.G. Brothers Automobiles (P) Ltd, ... vs Assessee on 25 February, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'B', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER and
SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
Sl. ITA No. & A.Y. Appellant Respondent
No.
1. ITA No. 1637/Hyd/2011
A.Y. 2003-04
2. ITA No. 1638/Hyd/2011
A.Y. 2004-05
3. ITA No. 1639/Hyd/2011
A.Y. 2005-06 M/s. M.G. Brothers
4. ITA No. 1640/Hyd/2011
Asst. CIT
Automobiles (P) Ltd.
Central Circle
A.Y. 2006-07 Yemmiganur
Tirupati
5. ITA No. 1641/Hyd/2011 PAN: AABCM3712D
A.Y. 2007-08
6. ITA No. 1802/Hyd/2011
A.Y. 2008-09
7. ITA No. 417/Hyd/2012
A.Y. 2009-10
8. ITA No. 1642/Hyd/2011
A.Y. 2003-04
9. ITA No. 1643/Hyd/2011
A.Y. 2004-05
10. ITA No. 1644/Hyd/2011
A.Y. 2005-06 M/s. M.G. Brothers
11. ITA No. 1645/Hyd/2011
Deputy CIT
Automobiles (P) Ltd.
Central Circle
A.Y. 2006-07 Yemmiganur
Tirupati
12. ITA No. 1646/Hyd/2011 PAN: AABCM3712D
A.Y. 2007-08
13, ITA No. 1647/Hyd/2011
A.Y. 2008-09
14. ITA No. 296/Hyd/2012
A.Y. 2009-10
Revenue by: Sri K.C. Devadas
Assessee by: Sri D. Sudhakar Rao
Date of hearing: 25.02.2013
Date of pronouncement: 29.04.2013
ORDER
PER CHANDRA POOJARI, AM:
The above appeals by the assessee as well as by the Revenue are directed against different orders of the CIT(A)-VII, 2 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== Hyderabad for the above assessment years. Since all the appeals belong to a single assessee, these appeals are clubbed together, heard together and are being disposed of by this common order for the sake of convenience. The grounds raised by the assessee as well as by the Revenue are illustrative in nature. However, we have concised the same and adjudicated thereon.
2. The first common ground in both Revenue and assessee appeals is with regard to allowability of expenditure incurred on real estate business in purchase of land sites. There was a search action u/s. 132 of the Act in the business premises of the assessee relating to real estate business situated at Tirupati and Nellore on 25.7.2008. Consequent to this search action, assessment order was framed. The assessee is having several business activities such as automobiles, real estate and aqua feeds. In automobile division, the assessee is involved in trading of Tata make vehicles, tractors, Bajaj scooters, motorcycles, tractor spare parts and accessories and MICO spare parts and accessories. The assessee is also engaged in trading of aqua feeds and chemicals. In addition to these, the assessee is engaged in real estate business in cities like Nellore, Eluru, Vijayawada, Tirupati, Kurnool and Bangalore. From the Profit and Loss A/c., the Assessing Officer extracted the details of projects and sales for the above assessment years as follows:
A.Y. 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Purchases:
Real Estate Sites 15897872 37377194 90359771 74333032 154729647 155463876 146865975 Sales:
Real Estate Sites 2333125 43060394 79638679 140295749 132442289 146929868 142145887
3. The details of disallowance by the Assessing Officer as well as by the CIT(A) on this count are as follows:
3 ITA No. 1637/Hyd/2011 & Ors.M/s. M.G. Brothers Automobiles (P) Ltd.
==============================
Disallowance
Disallowance
A.Y. by the CIT(A)
by AO (Rs.)
(Rs.)
2003-04 31,79,574 9,00,000
2004-05 74,75,439 20,00,000
2005-06 1,80,71,954 30,00,000
2006-07 1,48,66,606 34,70,741
2007-08 3,09,45,930 56,05,655
2008-09 3,10,92,775 41,97,815
2009-10 2,93,73,195 40,33,670
4. Thus, the CIT(A) had given certain relief on this count.
Against giving relief to the assessee, the Department is in appeal before us in all these assessment years. Against sustaining a portion of additions, the assessee in appeal before us.
5. The contention of the assessee counsel is that the disallowance by the Assessing Officer at 20% is on ad-hoc basis as certain development expenses were made in cash is unjustified. The learned AR submitted that the assessee incurred this expenditure in the course of development of land to make the land saleable plots and in this line of business it is not possible to produce foolproof of expenditure. He submitted that the disallowance on ad-hoc basis at 20% of total expenditure by the Assessing Officer is not correct. Similarly, the CIT(A) should have deleted the entire expenditure instead of sustaining a portion of expenditure.
6. On the other hand, the learned DR submitted that the assessee has not furnished full details of expenses relating to land purchase, land development, commission payment, etc. The assessee also not furnished details relating to purchase of land, details of persons from whom such land was purchased, total area developed, number of plots extracted year-wise, plots sold and total closing stock-in-trade. Even the registered 4 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== document of land was not produced before the Assessing Officer and only the cash book was produced. Being so, in the absence of supporting documents, the Assessing Officer disallowed 20% of the expenditure claimed b the assessee on real estate and the same has to be confirmed.
7. We have heard both the parties and perused material on record. The main reason for disallowance by the lower authorities is that most of the payment is cash payments and not supported by proper documents. The assessee is in real estate business. The nature of business requires payments by cash. When the assessee makes payment in cash, the assessee is required to furnish details of payment so as to show the person who received the payment and purpose of payment. When the payment is only supported by self-made vouchers, there is every chance of inflating the expenditure. Being so, certain disallowance is very much warranted. The disallowance at 20% by the Assessing Officer is on very higher side. It gives exorbitant rate of net profit in this line of business which is not at all possible. Considering the sales and net profit rate, we are inclined to restrict the disallowance at 5% of cash payments and no disallowance on cheque payment. Accordingly, the Assessing Officer is directed to re-work the disallowance.
8. This ground is partly allowed in assessee's appeal as well as Revenue appeals.
9. The next ground in all the assessee as well as Revenue appeals, except in ITA No. 1640/Hyd/2011 (Revenue appeal), is with regard to allowability of expenditure in purchase of aqua feeds. The assessee company claimed expenditure towards purchase of aqua feeds as follows:
5 ITA No. 1637/Hyd/2011 & Ors.M/s. M.G. Brothers Automobiles (P) Ltd.
==============================
Amount
A.Y.
(in Rs.)
2003-04 4,08,87,118
2004-05 5,90,30,556
2005-06 5,12,76,636
2006-07 3,67,69,890
2007-08 4,46,73,702
2008-09 4,75,15,970
2009-10 4,77,07,794
10. The Assessing Officer disallowed 20% of the above on ad-
hoc basis on the reason that the ledger accounts of the creditors from whom the assessee has purchased aqua feeds which shows huge credit balances especially in the case of Godrej Agrovet, Chennai, Godrej, Kondapalli, SR Sea Foods, Nellore. According to the Assessing Officer the assessee made huge cash purchases. He disallowed 20% of the above expenditure. The CIT(A) sustained the disallowance as follows:
Disallowance A.Y. sustained by the CIT(A) (Rs.) 2003-04 3,00,000 2004-05 5,00,000 2005-06 5,00,000 2006-07 5,00,000 2007-08 7,00,000 2008-09 6,00,000 2009-10 7,50,000
11. Against the deletion of a portion of the additions and giving part relief to the assessee, the Revenue is in appeal before us. Against sustaining portion of the additions, the assessee is in appeal before us.
12. We have heard both the parties and perused the material on record. In this case the Assessing Officer not doubted the sale of aqua feeds. The Assessing Officer made the addition on 6 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== the reason that the ledger accounts of the parties are showing huge balances. The Assessing Officer recorded in his order that the payment was made by Demand Drafts in certain cases. He has doubted the payment by Demand Draft that whether they are crossed Demand Drafts or not. Thus he has doubted the genuineness of aqua feed purchases. However, the fact is that the purchases are from reputed companies like Godrej and there cannot be any inflating of expenditure by companies like Godrej. As such ad-hoc disallowance at 20% is on very higher side. In case of cash expenditure incurred by the assessee towards loading and unloading where there is chance of inflating the expenditure. Accordingly, on this count, we are inclined to disallow 5% of loading and unloading expenses which was made by cash. This ground in both Revenue appeals as well as assessee's appeals is partly allowed.
13. The next ground in assessee's appeal in ITA No. 1643/ Hyd/2011 is with regard to sustaining disallowance by the CIT(A) under sales promotion expenses at Rs. 5 lakhs and Revenue appeal in 1638/Hyd/2011 is with regard to deletion of Rs. 12,29,816.
14. Brief facts of the issue are that the assessee claimed an expenditure of Rs. 57,66,056 towards sales promotion expenses. The Assessing Officer compared this expenditure with earlier year's expenditure. According to him, in earlier year the total turnover was Rs. 11.23 crores and corresponding sales promotion expenditure is at Rs. 18,94,937. In the assessment year under consideration, the sales turnover was at Rs. 13.30 crores as against this the sales promotion expenditure was Rs. 57,66,056. The Assessing Officer is of the opinion that the expenditure increased 3 times in the assessment year under 7 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== consideration as compared to earlier year. Therefore, he disallowed 30% of this expenditure worked out at Rs. 17,29,816.
15. On appeal, the CIT(A) sustained Rs. 5 lakhs out of the above on the reason that the assessee has incurred expenditure in this assessment year for conducting demonstration, arranging meetings, erecting hoardings and other promotional expenses. Against this the assessee is in appeal before us. The Revenue is in appeal before us against the relief given by the CIT(A) at Rs. 12,29,816.
16. We have heard both the parties and perused the material on record. Admittedly, the sales promotion expenditure shown by the assessee is comparably higher as compared to earlier year. The assessee is required to prove the expenditure with supporting vouchers and bills. In the present case the assessee neither furnished books of account nor vouchers in support of the expenditure. Considering these facts, we direct the Assessing Officer to disallow 5% of cash expenditure only incurred towards sales promotion expenditure. This ground in both the appeals in ITA No. 1643/Hyd/2011 and ITA No. 1638/Hyd/2011 is partly allowed.
17. The next ground in Revenue appeals in ITA No. 1640/ Hyd/2011, 1641/Hyd/2011, 1802/Hyd/2011 and 417/Hyd/2012 (for A.Ys. 2006-07 to 2009-10) is with regard to deleting undisclosed income on sale of Surendra Garden ventures.
18. Brief facts of the issue are that during the course of search operation carried out in the business premises of the assessee-company evidence in support of a real estate division carried out in the name of Surendra Gardens was found and seized as document marked as Annexure 'A/MGBRE/TPT/4 at 8 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== various pages i.e., page Nos. 46 to 62, 37 and 38, 27 to 30, 1 to 12 and 64. There was total development of 10 acres 42 cents of land in the name of Surendra Gardens in A.Ys. between 2006-07 to 2009-10. The transaction was carried on by Sri M.R. Gangadhar who is Managing Director of the assessee-company. The Assessing Officer was of the opinion that this is a transaction carried on by the assessee itself on the following reasons:
1. The entire land was originally belonging to late Sri V. Sudarshan Reddy (father-in-law of Sri M.R. Gangadhar the Managing Director of the M.G. Brothers Automobiles - real estate division.
2. On demise of Sri V. Sudarshan Reddy the the land was inherited by Smt. V. Annapurnamma (wife) and Smt. Ramadevi and Smt. Uma Gangadhar (daughters). Smt. Uma Gangadhar is the wife of Sri M.R. Gangadhar. These three people are co-owners of the said land.
3. All the three co-owners had registered a power of attorney on 16-09-2005 in favour of Sri M.R. Gangadhar vide document No. 222/2005 to execute the sale deeds on their behalf. As per the power of attorney executed, the market value of the property as on date of 16-9-2005 was Rs. 8,10,000.
4. Though the power of attorney was given to Sri M.R. Gangadhar, the original co-owners namely Smt. V. Annapurnamma, Smt. K. Ramadevi and Smt. M. Uma Gangadhar were only applied to the Gram Panchayat of Mangasamudram Village in order to obtain the plan approval to execute the said real estate 9 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== venture. It is to be mentioned here that they have got the plan approval resolution No. 3 dated 14-5- 2005 itself. The GPA was given subsequently to Mr. M.R. Gangadhar to execute the sale deeds.
5. The entire land was converted into 137 plots and the same has been sold in the A.Y. 2006-07 to 2009-
10. However, neither the co-owners nor the assessee company has offered any profit out of the said real estate venture.
6. On the basis of the evidences gathered, the assessee company was asked to explain the unaccounted income generated out of the said transaction. In response to the show cause, it was stated by the assessee company that the company has only acted as a commission agent to carry out the real estate venture on behalf of the landlords.
7. Further it was also stated by them that all the co-
owners have admitted the net capital gain in their respective returns of income.
8. It is pertinent to mention here that all the co-owners did not admit any capital gain in their original return of income and also return of income filed on 25.11.2009 in response to the notice issued under section 153C. Suddenly on 03.08.2010 all the members namely M G Gopala Krishna, M G Gangadhar, M G Raghavendra, M G Vasavi and others filed revised return of income and admitted 1/10th of their shares as the long term capital gain.
10 ITA No. 1637/Hyd/2011 & Ors.M/s. M.G. Brothers Automobiles (P) Ltd.
==============================
9. It is evident that the assessee family did not admit the entire transaction in the original return and also the return filed in response to the notice issued under section 153C. Initially the entire group intended to disown the transaction. As the same has been proved beyond doubt they filed voluntary revised returns of income. However, the revised return is not considered on the fact that they are not the original co-owners and the revised return was filed with an intention to further mislead the department.
10. As the entire transaction of receipts and payments are booked in the books of account of M/s. M G Brothers Automobiles Pvt. Ltd, it has to be assessed in the hands of the company and not in any other hand.
11. The transactions are reflected in the balance sheet of the company under current assets (land payment & development) and current liabilities (actual sale considerations received from customers). In this manner, the company has totally evaded payment of tax.
19. The Assessing Officer quantified the sales for this assessment year as follows:
Sale Extent A.Y. consideration (sft) (in Rs.) 2006-07 46190 61,87,699 2007-08 43986 58,47,495 2008-09 69374 91,57,368 2009-10 60663 80,07,516 Total 220213 2,92,00,078 11 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
==============================
20. Finally, he determined the addition for above assessment years as follows:
Trading Account for A.Y. 2006-07 Rate Opening stock Extent of Consideration Cost (in Rs.) per sft (sft) sales (sft) (in Rs.) (Rs.) 2,62,598* 8,10,000 3 46,190 61,87,699 Closing stock 2,16,416 6,49,248 Gross profit Rs. 60,26,947 Total 68,36,947 68,36,947 * The total extent of land was 4,46,926 sft. Out of this 1,84,328 sft was consumed by roads and open space. Accordingly, the net plottable area as per the assessee family was only 2,62,598 sft.
The gross profit of the assessee-company for A.Y. 2006-07 was quantified into Rs. 60,26,947.
In the similar manner the trading account for the A.Y. 2007-08; 2008-09 and 2009-10 are also drawn and discussed in the respective assessment orders.
A.Y. 2007-08
Rate
Opening stock Extent of Consideration
Cost (in Rs.) per sft
(sft) sales (sft) (in Rs.)
(Rs.)
2,16,416 6,49,248 3 43,986 58,47,495
Closing stock
1,72,430 5,17,290
Gross profit Rs. 57,15,537
Total 63,64,785 63,64,785
A.Y. 2008-09
Rate
Opening stock Extent of Consideration
Cost (in Rs.) per sft
(sft) sales (sft) (in Rs.)
(Rs.)
1,72,430 5,17,290 3 69,374 91,57,368
Closing stock
1,03,056 3,09,168
Gross profit Rs. 89,49,246
Total 94,66,536 94,66,536
12 ITA No. 1637/Hyd/2011 & Ors.
M/s. M.G. Brothers Automobiles (P) Ltd.
==============================
A.Y. 2009-10
Rate
Opening stock Extent of Consideration
Cost (in Rs.) per sft
(sft) sales (sft) (in Rs.)
(Rs.)
1,03,056 3,09,168 3 60,663 80,07,576
Closing stock
42,393 1,27,179
Gross profit Rs. 78,25,587
Total 81,34,755 81,34,755
21. On appeal, the CIT(A) deleted the above addition on the reason that the land belonged to Late Sri V. Sudarshan Reddy and originally it belongs to his legal heirs. The assessee- company only acted upon as a middleman represented by the Managing Director, Sri M.R. Gangadhar to facilitate the sales transaction. Therefore, it is appropriate to assess the capital gain in the hands of the real owners of the land rather than a person who acted as a facilitator. The assessee-company who has acted upon as an agent and received commission on execution of the sale deed of such land. Accordingly, the CIT(A) directed the Assessing Officer to assess the capital gain in the hands of the real owners of the property. Against this the Revenue is in appeal before us for all the assessment years.
22. We have heard both the parties and perused material on record. There is no dispute in this year that the property measuring 10 acres 42 cents is owned by late Sri V. Sudarshan Reddy. The assessee having no legal title over the property and the assessee-company acted as an agent on behalf of the legal owners of the property through GPA and earned commission on the transactions. The Assessing Officer treated the income arising out of the sale of the property in the hands of the assessee on the reason that the income was not offered by the co-owners of the property in their original returns of income and only in the revised returns of income it was disclosed by 13 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== the co-owners. The non-offering of income by the co-owners of the property does not entitle the Assessing Officer to tax the same in the hands of a non-owner of the property. In our humble opinion, the income arising out of the sale of property has to be taxed in the respective hands of the co-owners but not in the hands of somebody else. As per the evidence brought on record, late Sri V. Sudarshan Reddy was the original owner of the property. On his death, the property was inherited by Smt. Annapurnamma w/o. Late Sri V. Sudarshan Redddy, Smt. Rama Devi (Daughter) and Smt. Uma Gangadhar (Daughter) and the daughters are also having share in the property as per the Will of late Sri V. Sudarshan Redddy. Sri M.R. Gangadhar is only a GPA holder who had executed the sale deed on behalf of the assessee-company for which commission was received by him and offered the same for taxation. Accordingly, we do not find any infirmity in the order of the CIT(A) and the same is confirmed. This ground in Revenue appeals in ITA Nos. 1640/Hyd/2011, 1641/Hyd/2011, 1802/Hyd/2011 and ITA No. 417/Hyd/2012 is dismissed.
23. The next ground in Revenue appeals in ITA Nos. 1637/Hyd/2011, 1638/ Hyd/2011, 1639/Hyd/2011, 1640/Hyd/ 2011 and 1641/Hyd/ 2011 is with regard to admission of additional evidence in support of payment for land purchase through cheque without giving an opportunity to the Assessing Officer to examine the same as provided under Rule 46A(3) of the Income-tax Rules, 1962.
24. In ITA No. 1802/Hyd/2011 the Revenue raised the ground that the CIT(A) is not justified in allowing the expenditure which was disallowed by the Assessing Officer u/s. 40(a)(ia) by accepting additional evidence in support of TDS made on advertisement and commission expenditure without affording 14 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== opportunity to the Assessing Officer to examine the same under Rule 46A(3). The grievance of the Department is that the assessee claimed expenditure towards advertisement and commission in these assessment years on which the assessee is liable to deduct TDS u/s. 194C and 194H of the Income-tax Act, 1961.
25. Brief facts of the issue are that the assessee-company produced evidence in support of deduction of TDS made on these expenditures. Whenever the assessee deducted TDS, certificates are issued belatedly and the same was not tallying from the NSDL data. Being so, the Assessing Officer disallowed the expenditure in these assessment years by invoking the provisions of section 40(a)(ia) of the Act.
26. On appeal the CIT(A) observed that the assessee had deducted the TDS and made payment to the Central Government. However, there was delay in issue of TDS certificates. The delay in issue of TDS certificates cannot be a reason for disallowance of advertisement and commission expenditures. After considering the necessary details, the CIT(A) directed the Assessing Officer to verify the said TDS certificates and allow the assessee's claim in accordance with law after giving an opportunity of being heard to the assessee.
27. We find that the CIT(A) has not decided the issue by himself. On the other hand, he has directed the Assessing Officer to examine the TDS certificates and allow claim of the assessee in accordance with law after giving an opportunity of being heard to the assessee. In such findings of the CIT(A), we do not find any infirmity. Accordingly, we confirm the order of the CIT(A) that the Assessing Officer is required to verify TDS certificates with regard to these two expenditures and decide 15 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== the issue in accordance with law. This ground in all the above Revenue appeals is dismissed.
28. The next ground in ITA No. 417/Hyd/2012 is that the CIT(A) ought to have appreciated the fact that the expenditure of Rs. 20,38,427 was not accounted in the books of account of the assessee.
29. Brief facts of the issue are that while computing the taxable income of the assessee-company for the year under reference, an amount of Rs. 20,38,427 was added as income of the assessee treating the said amount as unexplained expenditure incurred by the company during the year, based on the quantification of certain vouchers as reflected at page nos. 1 to 202 of Annexure A/MGBN/01, seized at the business premises of the company at Nellore. The amount of Rs. 20,38,427 was quantified based on the details of the vouchers, annexed to the assessment order and since such amounts are not reflected in the books of account, the same was treated as unexplained expenditure. In coming to a conclusion that such amount represents the unexplained expenditure, the Assessing Officer has made the following observation:
(i) Prima facie the assessee company admitted that the said expenditure are not accounted in books of accounts, either before the date of search or subsequent to search.
(ii) The claim of the assessee that the said amounts are advances given to the staff for various expenses, is totally wrong where such vouchers contained various details of expenditure incurred by the assessee company.16 ITA No. 1637/Hyd/2011 & Ors.
M/s. M.G. Brothers Automobiles (P) Ltd.
==============================
(iii) The payments were made outside the books of accounts and the same did not reflect in the cash book produced by the assessee company on 25.11.2010.
30. The assessee objected to the said addition and went in appeal before the CIT(A). It was submitted by the assessee that it is a normal practice for the company to pay the advances to the staff for incurring certain expenses which will be kept as suspense and the accounting of the said expenditure will be made on the date when staff submits the bills which may be at different dates. Accordingly, it was submitted that the consolidated list of vouchers which was quantified at Rs. 20,38,427 along with the amount of physical cash at Nellore division reconciled with the cash balances as per the cash books. These details were submitted to the ITO on the day of search and the Assessing Officer failed to consider these facts that amounts were only advances given to staff to incur various expenditures. Hence, it was pleaded that the amount of Rs. 20,38,427 was wrongly added and should be accordingly deleted. The assessee has reconciled such amounts to be Rs. 18,78,964 as against Rs. 20,38,427, on account of repeat of certain bills to the extent of Rs. 1,59,463 before the CIT(A). By showing such amounts as advances paid to the employees for incurring certain expenditure, the deficit cash balance was explained with reference to the physical cash available and balance as per cash book maintained at Head Office of Nellore.
31. The CIT(A) held that it could be seen from the annexure made to the assessment order, the amount represents advances given to the employees on various dates starting from 13.7.2008 to 30.7.2008 and the said amounts were also reflected in the annexure bearing No. MGB/Vouchers/PO dt. 30.7.2008 prepared by the ADIT (Inv.), Tirupati. Under the 17 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== circumstances, the said amounts cannot be termed as unexplained expenditure which formed part of the cash book for explaining the deficit cash balance as made on the day of search and as certified by the annexure made during the operation of the PO on 30.07.2008. Further, while dealing with the addition under the head 'unexplained cash found' on the day of search, the claim for the credit of such amount to explain the cash found at search premises was not allowed to the assessee, holding that the amounts were not available with the assessee, since the same were advanced to the employees. Having treated them as advances in explaining the cash found in search proceedings, cannot be further treated as unexplained expenditure. Accordingly, the CIT(A) directed the Assessing Officer to delete the addition made under this head. Against this the Revenue is in appeal before us.
32. We have heard both the parties and perused the material on record. As observed by the CIT(A), the Assessing Officer has not given correct treatment towards this expenditure out of unexplained cash found on the day of search. By observing that the amounts were not available to the assessee since the same were advanced to the employees. Once the Assessing Officer held that the amount was spent towards advances to the employees, again making the addition on the same count would amount to double addition which is not possible. Accordingly, deletion of addition by the CIT(A) is justified and we confirm the order of the CIT(A) on this issue. This ground of the Revenue is dismissed in ITA No. 417/Hyd/2012.
33. To sum up, Revenue appeals in ITA Nos. 1637 to 1641/ Hyd/2011, 1802/Hyd/2011 and 417/Hyd/2012 are partly allowed.
18 ITA No. 1637/Hyd/2011 & Ors.M/s. M.G. Brothers Automobiles (P) Ltd.
==============================
34. The next ground in assessee's appeal in ITA No. 1647/ Hyd/2011 is that the CIT(A) erred in upholding the addition of Rs. 60 lakhs with respect to Sri A. Madhusudana Naidu u/s. 69C of the Act.
35. Brief facts of the issue are that the assessee made a payment of Rs. 1.2 crores to Sri Madhusudana Naidu for development of land. Sri Madhusudana Naidu had entered into an agreement with the assessee to develop a particular land for a consideration of Rs. 1.25 crores out of which Sri Madhusudana Naidu appears to have received Rs. 1.20 crores from the assessee company. Out of Rs. 1.20 crores, the Assessing Officer observed that only Rs. 60 lakhs was entered in the books of account of the assessee and balance amount was not recorded in the books of account. The receipt of Rs. 1.20 crores was confirmed by Sri Madhusudana Naidu in his sworn statement. Therefore, the Assessing Officer made the addition of Rs. 60 lakhs u/s. 69C of the Act as the assessee has not furnished necessary details regarding payment of this money. On appeal, the CIT(A) confirmed order of the Assessing Officer. Against this, the assessee is in appeal before us.
36. The learned AR submitted that both Assessing Officer and CIT(A) relied only on the sworn statement of Sri Madhusudana Naidu and there is no evidence to show that the assessee has paid Rs. 1.20 crores. The agreement was unilaterally signed by Sri Madhusudana Naidu and no person on behalf of the assessee company signed the said agreement. Being so, that agreement cannot be binding on the assessee. Further he submitted that in the case of Sri Madhusudana Naidu for A.Y. 2008-09, the same CIT(A) vide his order dated 12.8.2011 observed in para 5.1 of his order that Sri Madhusudana Naidu had contract work only for Rs. 60 lakhs and another Rs. 60 lakhs is for eviction of 19 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== encroachers. The land is belonging to Smt. Chittoor Munamma and Rs. 60 lakhs was paid to the encroachers on behalf of the land owners and the said amount was to be finally adjusted from the purchase cost to be paid to land owners by M/s. M.G. Brothers Automobiles Pvt. Ltd. Being so, Sri Madhusudana Naidu had a contract work of Rs. 60 lakhs only. The Assessing Officer has not ascertained the fact that the said amount of Rs. 60 lakhs is not paid to the encroachers. Therefore, in the absence of that finding from the Assessing Officer's side, it cannot be said that the assessee (Sri Madhusudana Naidu) claim for having paid to the encroachers is false, on the strength of that order of the CIT(A). According to the AR, it cannot be said that the assessee has paid another Rs. 60 lakhs over and above Rs. 60 lakhs paid by cheque.
37. On the other hand, the learned DR submitted that the above argument of the AR has no merit. It is only due to search and seizure operation, the entire transaction came to light. Sri Madhusudana Naidu has never filed any return of income for A.Y. 2008-09. Only after the search operation, he has admitted in his return of income a sum of Rs. 60 lakhs that was stated to have been paid by cheque. As per the agreement a part of the transaction was acted upon whereas the remaining was not admitted by both the parties. During the course of examination of Sri Madhusudana Naidu, he has categorically admitted that he has received Rs. 60 lakhs in cash and Rs. 60 lakhs by cheque. According to the DR, the assessee has even not admitted the payment of Rs. 60 lakhs though it is evidenced by copy of TDS certificate.
38. We have heard both the parties and perused the material on record. An addition of Rs. 60 lakhs is made on account of an agreement signed by Sri Madhusudana Naidu for 20 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== development of the project named as MGB Enclave at Chiguruvada. As per this agreement the total contract value is Rs. 1.25 crores. The assessee has paid Rs. 60 lakhs by cheque which was duly accounted in the books of account of the assessee. As per the Assessing Officer, as stated by Sri Madhusudana Naidu, the assessee also paid a sum of Rs. 60 lakhs by way of cash which was not accounted for in the books of account of the assessee. The Assessing Officer herein made an addition of Rs. 60 lakhs towards unaccounted investment by the assessee. Further the Assessing Officer made another addition of Rs. 60 lakhs on the reason that there was no TDS on payment of money to Sri Madhusudana Naidu. In other words, the Assessing Officer made a total addition of Rs. 1.20 crores on this count. It is an admitted fact that the agreement entered on 17.6.2007 by the assessee with Sri Madhusudana Naidu for the development of MGB Enclave is an unsigned document. The assessee denied the contract amount at Rs. 1.25 crores and stated that the contract is only of Rs. 60 lakhs. It is also on record in the statement recorded from Sri Madhusudana Naidu in answer to question Nol. 29 which reads as follows:
Q. 29: Once again I question you regarding the payment of cash of Rs. 60,00,000 for which endorsements have been made on the rear side of the agreement. You have signed the acceptance of money in the presence of two witnesses Shri Prabhakar Naidu and Shri D. Raja Reddy. Do you confirm the receipt of payment?
Ans.: Yes. I confirm the receipt of payment to the encroachers of the land at Chiguruvada village. This property belonged to Chittoor Munamma and there were quite a few disputes in it. The problems are all cleared on receipt of this compensation.
39. Contrary to this Sri Madhusudana Naidu filed an affidavit before the CIT(A) dated 11.6.2011 which reads as follows:21 ITA No. 1637/Hyd/2011 & Ors.
M/s. M.G. Brothers Automobiles (P) Ltd.
==============================
"AFFIDAVIT
I, ABBURI MADHUSUDHANA NAIDU S/o. A.
DORASWAMY NAIDU, aged 59 years resident of Kamma Kandriga Village, Gajireddipalli post, Ramachandrapuram Mandal, Chittoor District, do hereby solemnly affirm and state on oath as under:
I am an Income Tax Assessee with PAN AQDPA9642D. I gave a sworn statement on 16.10.2008 before the ADI, Tirupati. Therein I confirmed that I paid Rs. 60.00 lakhs (Rs. sixty lakhs) to the encroachers of Smt. Chittor Munemma land that is being purchased by M/s. M.G. Brothers Ltd. The money I paid belongs to Smt. C. Munemma only. It is neither belongs to me nor to M/s. M.G. Brothers Ltd., Unless the encroachers vacate the land cannot be purchased by the M.G. Brothers Ltd. Unless the M.G. Brothers Ltd.
purchases, the money for payment to evict the encroachers is not available to Smt. C. Munemma. Hence in these circumstances, I stood as a mediator to release the money in instalments and see that it is utilized properly to pay the encroachers only.
Thus this amount has formed part of my work contract agreement. As I have already stated in the above sworn statement, my contract work is only for Rs. 60.00 lakhs. I have already filed my return of income for this work. On the respective payment dates i.e. 25.6.2007 Rs. 25.00 lakhs and Rs. 15.00 lakhs and on 5.7.2007 Rs. 20.00 lakhs in all coming to Rs. 60.00 lakhs was paid by cash and the same was received by me on those occasions from Smt. C. Munemma only.
I, the deponent above named, do hereby verify and declare that the contents of this affidavit are true and correct to the best of my knowledge and belief; no part of it is false and nothing material has been concealed there from Verified at Tirupati on this 10th day of June, 2011 Solemnly, sincerely affirmed and signed before me on this 11th day of June ,2011.
40. It is also on record that the assessee filed a letter before the CIT(A) on 14.6.2011 as follows:
22 ITA No. 1637/Hyd/2011 & Ors.M/s. M.G. Brothers Automobiles (P) Ltd.
============================== "From Dt: 14/06/2011 M.G. BROTHERS AUTOMOBILES PRIVATE LIMITED No. 1/683, Coop. House Building, Yemmiganur, KURNOOL DISTRICT To THE COMMISSIONER OF INCOME TAX (APPEALS)-VII, Aayakar Bhavan, HYDERABAD.
Dear Sir, Sub: Filing of further evidence and submissions- Appeal - reg.
Ref: PAN: AABCM3712D, A.Y. 2008-09.
We submit the following information/evidence for your kind consideration for the asst. Year 2008-09. Regarding the addition made by the Assessing Officer for the payments made to Sri A. Madhusudana Naidu, we further state as follows. The first Rs. 60.00 lakhs is towards the contract allotted to him to execute the land development work, which fact is not disputed by him or by us.
Regarding the second Rs. 60.00 lakhs the Assessing Officer is relying on the sworn statement of Sri A. Madhusudhana Naidu. We would like to draw the attention of the Learned CIT (Appeals) that never the ADI, asked about the source of this money. It is merely asked whether he has paid it or not. He agreed for the same. The fact is that the source of money is Smt. C. Munemma, the land seller to M/s. M.G. Brothers Pvt. Ltd. To this effect he is now coming forward to confirm by way of an affidavit which is herewith enclosed in original. As the nature of payment is to encroachers, it is but natural that the land owner for getting the land vacated has assured the company that she will utilize the part payment of the sale proceeds only for this purpose.
Kindly take this on record.
Thanking you, End: As above Yours faithfully, Sd/-
For M.G. Brothers Automobiles Pvt. Ltd."23 ITA No. 1637/Hyd/2011 & Ors.
M/s. M.G. Brothers Automobiles (P) Ltd. ==============================
41. Further there was also an agreement brought on record which is placed page Nos. 252 to 253 PB I wherein the assessee entered into development agreement with Sri Madhusudana Naidu on 20.6.2007 for development of property for Rs. 60 lakhs. It is also brought on record that the CIT(A) in the case of Sri Madhusudana Naidu vide order dated 12.8.2011 for A.Y. 2008-09 accepted the plea of Sri Madhusudana Naidu that contract was only for Rs. 60 lakhs and Rs. 60 lakhs is for eviction of encroachers. The CIT(A)'s order is placed at page Nos. 234 to 238 of assessee's Paper Book-I. Being so, considering all these facts, we are not in a position to hold that the assessee has paid Rs. 60 lakhs in cash to Sri Madhusudana Naidu vide unsigned agreement dated 17.6.2007 found during the course of search action. Further we also make it clear that the statement recorded from Sri P. Mohana, Manager of the assessee firm nor of Sri Madhusudana Naidu cannot be conclusive evidence unless it is supported by corroborative material. The statements were recorded by these two persons on the basis of unsigned agreement which was not acted upon. Being so, it is not possible to hold that the assessee has paid any money over and above Rs. 60 lakhs which was paid by cheque. Accordingly, this ground of the assessee is allowed.
42. The next ground in ITA No. 296/Hyd/2012 is with regard to non-granting of relief to the assessee in respect of the addition made on account of cash seized during the search operation at Rs. 51,87,159.
43. Brief facts of the issue are that during the course of search action on 25.7.2008 a total cash of Rs. 60,10,400 was found at the office premises of real estate division of the assessee located at 146, Prakasam Road, Tirupati out of which Rs. 60 lakhs was seized. In addition to this, an amount of Rs.
24 ITA No. 1637/Hyd/2011 & Ors.M/s. M.G. Brothers Automobiles (P) Ltd.
============================== 8,87,050 was shown to be cash found at the real estate division of Nellore branch of the assessee company and Rs. 2 lakhs was found at the bank locker belonging to Sri M.R. Gangadhar. While making the addition, the Assessing Officer treated a sum of Rs. 51,87,159 as unexplained cash after giving credit to the available cash in the books of account at Rs. 8,23,241 out of Rs. 60,10,400 found. While making the said addition, the Assessing Officer relied on certain documents notably page Nos. 70 & 71 of annexure A/MGBRE/TPT/01, seized during the course of search proceedings, apart from the statement recorded from Mr. P. Mohana, the manager of the company on 25.7.2008. Seized material page Nos. 70 & 71 of Annexure A/MGBRE/TPT/01, indicating the requirements of funds for purchase of land at Pudipatla village along with the sources for mobilization of the cash for such payments, and the Assessing Officer has drawn the inferences as regards to the cash found on the day of search with reference to the cash available in the books of account of the company, represented by its various branches/divisions. In the course of the assessment, the Assessing Officer has disbelieved the explanation dt. 12.9.2008 made by the assessee before the ADIT (lnv.), Tirupati and the written explanation before the Assessing Officer vide letter dt. 11.11.2010 and treated the difference between the cash found and cash as per cash book at Tirupati, as unexplained cash u/s 69A of the IT Act, 1961 and assessed the same as the income of the assessee company.
44. Before the CIT(A), the assessee has taken objections to the above addition under the head 'unexplained cash', and the main contention of the assessee was that the Assessing Officer failed to consider the fact that the transfer of cash by various branches of the company at Nellore to Tirupati was already accounted for, on the day of transfer as supported by a 25 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== vouchers and cash books of various branches, which were thoroughly examined by the Assessing Officer for transfer of cash with the extracts of the cash book of branches at Nellore taken by the ADIT (lnv.) and its team of Inspectors, on 25.7.2008. It was also contended by the assessee that cash of Rs. 56,00,000 was transferred from Nellore branch to Tirupati branch through Mr. P. Mohana on 24.7.2008, carried physically by car for which the tollgate receipts and related vouchers/bills of expenditure for his stay at Nellore were furnished but not considered by the Assessing Officer. As the tollgate receipts and vouchers of expenses forms the circumstantial and logical evidence, with the entries in cash book were examined by the Assessing Officer with reference to the availability of cash balances as required to be transferred to Tirupati branch and explained from the extract of the cash books of Nellore branches, there is no room for the Assessing Officer to treat the cash found at Tirupati branch, as unexplained cash. It was also contended by the assessee that though the cash was transferred on 24.7.2008 itself, the entries in the books could be made only on 27.7.2008 since the search proceedings that commenced on 25.7.2008 were continued till 26.7.2008,
45. It was stated by the assessee that even after producing the evidence by Tirupati Manager, the Assessing Officer has treated it as unexplained cash. It was also submitted that on the same day of search, search party visited Nellore branch and have verified physical cash balance with book balance which was tallied and keeping that aside, the conclusions were drawn and additions made which need to be deleted. Since it was additional ground before the CIT(A), the matter was referred to the Assessing Officer wherein the Assessing Officer was requested to furnish the documentary evidence as regard to the reconciliation of statement or copy of extract of books of 26 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== accounts or copy of the statements recorded u/s 132(4) and 133A at various branches of the assessee company for the needed reconciliation of the cash found and the cash balance with cash books in Nellore branches. In response to the same, the Assessing Officer (ACIT, Central Circle, Tirupati) has furnished the report dt. 14.11.2011, which runs as under:
"In this connection, the assessee company did not produce any additional evidence. It has simply resubmitted the explanation that was submitted before the Assessing Officer during the assessment proceedings. The Assessing Officer has discussed this Issue elaborately in the assessment order for the AY 2009-10 at page Nos. 6 to 13, countering the arguments of the assessee and also gave reasons for addition of Rs. 51,87,159, along with documentary proof extracted from the seized material, wherever applicable. In this connection, a copy of the sworn statement recorded under sec. 132(4) of the IT Act, 1961 from Sri P. Mohana, Manager of M/s. M.G. Brothers Automobiles Pvt. Ltd is submitted herewith, as called for, vide reference cited."
46. The findings/observations of the Assessing Officer through the assessment order and remand report and the submissions of the assessee were considered by the CIT(A). He observed that the assessee company engaged actively in the business of real estate, in addition to the regular business of automobiles covering tractors, two wheelers and dealership of Tata Motors, being operated from Tirupati, Kurnool, Chittoor, and Nellore and on the day of search operations launched on the evening of 25.7.2008, a total cash of Rs. 60,10,400 was found at Tirupati, out of which an amount of Rs. 60,00,000 was seized, since the cash found was not tallying with the amounts reflected in the books of accounts of the company. On the day of search, statement was recorded from one Mr. P. Mohana, Manager of the company wherein relevant questions were put to him as regards to the sources for the cash found in the Managing Director's cabin at real estate division of the company 27 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== located at Prakasam Road, Tirupati and as per his statement, an amount of Rs. 60,00,000 was carried by him from Nellore to Tirupati on the night of 24.7.2008, being the cash given/handed over by Sri M.R. Gangadhar, the Managing Director of the company at the Head Office in Nellore. But based on the information in the books of company, more specifically, the cash book which was written up to 24.7.2008 and as per the entries updated on the day of search based on the relevant documents, the cash balance was arrived at Rs. 8,23,241. Accordingly, the unexplainable cash was arrived at Rs. 51,87,159, after giving credit for the balances as per cash book, which has been treated as undisclosed income of the assessee company, while passing the assessment order.
47. The main contention/dispute arisen on this issue is the source for the cash found in the course of search & seizure proceedings which has been quantified by the Assessing Officer at Rs. 51,87,159 as unexplained cash, with reference to the entries in the cash book of Real Estate Division of the company at Tirupati, where the physical cash of Rs. 60,10,400 was found on the day of search. As per the Assessing Officer, the entire amount of Rs. 51,87,159 represents unexplained cash since there is no evidence for the availability of the cash for the company either at Tirupati or at other branches or no direct indication for transferring of cash from other branches to Tirupati. While explaining the source for the cash found, the assessee fell on the circumstantial/corroborative evidence in the form of tollgate fee paid for the car that was shown to have been used by Mr. P. Mohana, the Manager for carrying the cash from Nellore to Tirupati. The tollgate receipt is shown to have been the part of the seized material at page nos. 43 to 46 of Annexure A/MGBRE/TPT/01. However, while explaining the sources for the cash found, the assessee has taken different 28 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== stand at different times notwithstanding the contents of the sworn statement of Mr. P. Mohana, wherein it was categorically stated that MD of the company Mr. M.R. Gangadhar has handed over a cash of Rs. 60,00,000 to Mr. P. Mohana at Nellore on 24.7.2008 which was stated to have been carried to Tirupati on the same night. While submitting the statement of the affairs related to the same issue, before the ADIT (lnv.), Tirupati, it was stated that an amount of Rs. 65,08,000 was the cash balances available for the company with its various branches/divisions (7 in number) located at Nellore and Tirupati, out of which an amount of Rs. 12,88,000 related to MGB Real Estate, Nellore and leaving an amount of Rs. 9,08,000 pertaining to the said real estate division at Nellore, the balance of Rs. 56,00,000 was shown to have transferred to Tirupati on the night of 24.7.2008. The balance of Rs. 4,00,000 (Rs. 60.10 lakhs - Rs. 56.00 lakhs) stated to be the amount representing the unexplained cash to be offered in the hands of the company for AY 2009-10. The same assessee while submitting before the Assessing Officer, vide the explanation dt. 11.11.2010, submitted that the total of balances available at the said 7 branches/divisions at Nellore was Rs. 56.00 lakhs and was transferred to Tirupati. Thus, the unexplained cash of Rs. 4.10 lakhs (Rs. 60.10 lakhs - Rs. 56.00 lakhs) stated to be unexplained cash of Mr. M.R. Gangadhar and the same would be offered as unexplained income of Sri M.R. Gangadhar for AY 2009-10.
48. Thus, the assessee's statement found to be varying and inconsistent on these reasons by the Assessing Officer:
(i) The submissions deviated from the statements of Mr. P. Mohana, as regards to the quantum of amount transferred from Nellore to Tirupati, as well as the sources for pooling the said amounts at Nellore.29 ITA No. 1637/Hyd/2011 & Ors.
M/s. M.G. Brothers Automobiles (P) Ltd.
==============================
(ii) The balance of the amounts (Rs. 4.10 lakhs), after taking credit for the amounts shown to have transferred from Nellore (Rs. 56.00 lakhs) was shown once as the unaccounted income of the assessee and at the other time, it was shown as the amounts belonging to Mr. M.R. Gangadhar, Managing Director of the company.
(iii) While passing the entries in cash book at Tirupati for having transferred the cash, the amount was put at Rs. 52.00 lakhs out of which Rs. 4.00 lakhs stated to be related to the Bangalore branch, which is altogether a new angle in the explanation.
(iv) While explaining before the Assessing Officer during the course of assessment proceedings, the assessee fell on the stand that the cash balances available with various branches and divisions of the company Including the branches at Tirupati were the sources for the cash found at Tirupati but the said stand was almost abandoned subsequently.
49. On the other hand, the Assessing Officer instead of reconciling the cash balances as per the cash books of various branches, as on the date of search, for arriving at the exact and correct cash available to the company with reference to the cash found as on the date of search, was referring to the seized material wherein certain notings were made referring to the amounts available and the cash balances required for the company for payment of consideration for purchase of land located at Pudipatla village. Page Nos. 70 & 71 are the two vital documents, referred by the Assessing Officer, which were 30 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== shown to be indicating the figures of such requirement, and are illustrated as under;
Page No. 70 of A/MGBRE/TPT/01
MD Sir 51,00,000
From Kurnool 20,00,000
Cash in Hand 8,00,000
Cash at Bank 2.64,000
Cheques pending 4,00,000
Expected collections before regn. 15,00,000
------------------
1,00,64,000
Balance req. for payment 1,15,86,000
------------------
As could be seen, there is no indication of the dates as regards to the entries indicated on this page of the seized material.
Page No. 71 of A/MGBRE/TPT/0l Date 24.07.08 To Hon'ble MD Sir, Funds position in Tirupati branch as on 24.07.08.
Cash in hand 6.73
Cash at Bank 23.50
Cash 13.44
Total cash 43.67
Funds required for landlord payment
Cash 58.00
Cheque 95.00
153.00
109.33 required
P. Mohana
50. While drawing the inferences from the contents of the said seized material, the Assessing Officer has arrived at the following conclusions;
(i) Sri P. Mohana in his sworn statement dt. 25.7.2008 had stated that he had received Rs. 58,00,000 previous day i.e., on 24.7.2008 from Sri M.R. Gangadhar and entry with mention of the amount of 31 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== Rs. 58,00,000 at page no.71 of A/MGBRE/TPT/01 which also substantiates that Rs. 58,00,000 was received from Sri M.R. Gangadhar.
(ii) The amount of Rs. 8,00,000 (being the cash in hand) at page No.70 of A/MGBRE/TPT/01, exactly coincides with the cash availability in cash book, provided by the assessee to explain the sources.
(iii) The information at page No. 70 of A/MGBRE/TPT/Ol mention that funds were to be transferred from Kurnool which does not mention anything about other divisions specially the other division at Nellore, which proves that no cash was transferred physically from Nellore as per the claim of the assessee company.
51. Based on the analysis of the inferences drawn by the Assessing Officer, it clearly indicates that instead of verifying with the entries of cash books, the Assessing Officer has simply resorted to the surmises and presumptions based on the scattered information found in the seized material and the said analysis further indicates that the said inferences by the Assessing Officer do not escape from the inconsistencies or contradictions, as could be explained/narrated as under;
(i) The amount that mentioned to have been received by Mr. P. Mohana from the MD of the company at Nellore was indicated at Rs. 60,00,000, vide his statement dt. 25.7.2008, and not Rs. 58,00,000 as inferred/indicated by the Assessing Officer, in the assessment order.
(ii) The amount of Rs. 8,00,000 inferred to be the cash on hand which stated to be tallied with the cash balance as per books, which was taken as basis for explaining 32 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== the cash found, has been taken from the seized material (page no. 70 of A/MGBRE/TPT/01) where date was not mentioned and in case of seized material where the date of 24.7.2008 was mentioned (page no. 71 of Annexure A/MGBRE/TPT/01), the cash in hand was put at Rs. 6.73 lakhs as against the book balance of Rs. 8.23 lakhs.
(iii) Reconciliation of the cash found physically as against the balances of cash books of various branches, with reference to the date of search, was not carried out, with such books of accounts were impounded only after four months of search. Such reconciliation was also not made in the remand report in spite of the specific request.
52. Under the circumstances and based on the facts and information that have been brought on the record, the CIT(A) concluded that the basis adopted by the Assessing Officer lacks clarity in arriving at the conclusion as regards to the unexplained nature and source of cash found in the search proceedings. Similarly, the stand taken by the assessee also plagued by the inconsistencies whereby losing the credibility of the explanation offered for the cash found on the day of search. The main stand of the assessee is that the amount of Rs. 56,00,000, was flown from Nellore to Tirupati by Road in a Car ,accompanied by Mr. P. Mohana on the previous night of the day of search, represents the major portion of cash found at real estate division of the company at Tirupati, on the day of search and in-turn is explainable through the cash balances available with various branches/divisions of the company located at Nellore. But the analysis of the cash balances available for the company at Nellore reveals the 33 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== following information with regard to the availability of cash for the company, to be transferred to Tirupati on the day before the day of search.
Cash as
Physical
Division per cash
cash
book
i) Real Estate 31,28,207 8,87,050
ii) Bajaj two wheelers 3,62,303 77,483
iii) Tata cars 2,31,053 33,980
iv) Tafe Tractors 5,63,104 2,65,834
Total 42,84,669 12,64,347
Difference 30,20,322
53. According to the CIT(A), as could be seen from the above table, only a cash of Rs. 12,64,347 was available for the assessee company, physically at Nellore, from all the branches and divisions put together as against the cash balance as per cash books to the tune of Rs. 42,84,669, on the day of search, thereby showing a deficit balance of Rs. 30,20,322. This is the amount, which the assessee was trying to explain as the source of the cash found at Tirupati, since the assessee all along was submitting that source for cash found at Tirupati was the cash transferred from the Head Office located at Nellore and to explain such transfer the assessee was relying on the tollgate receipt as a corroborative proof. While filing the written submissions dt. 14.6.2011, the assessee was forcefully explaining that cash was pooled from the different divisions of Nellore branch, before transfer to Tirupati on 24.7.2008.
54. The CIT(A) observed that the explanation of the assessee that the cash was pooled from the various divisions/branches at Nellore is to be correct, it is time to examine the real cash available for the assessee company as on the date of search at Nellore. As per the statement on the cash balances of various branches/ divisions of Nellore, as on the date of search, indicate the deficit balance of Rs. 30,20,322, being the 34 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== difference between the physical cash available and the cash as per the books which can be assumed that the said cash was transferred to Tirupati for making the payments to the landlord for purchase of land at Pudipatla village, with a further assumption that entire cash equivalent to the deficit balance in cash was transferred to Tirupati, will not fully explain the cash found on the day of search at Tirupati. However, it is a fact that such deficit balance of the cash which has been indicated and arrived as above, was not available for the assessee to be transferred to Tirupati, as certain amounts totalling around Rs. 20,38,427 was shown to have been advanced to the employees, towards expenses for which the bills are yet to be submitted as on the date of search, and for the said reasons, the amount equivalent to Rs. 20,38,427 was requested to be treated as cash available with the assessee physically. This explanation was offered by the assessee while dealing with the subject of the addition made under the head 'unexplained expenditure', in the same assessment order. Under the Circumstances, the CIT(A) observed that the real cash available to the assessee at Nellore as on the date of search is only Rs. 11,41,358 which has been arrived as under:
Balances available as per books Rs. 42,84,669 Less : Actual cash found Rs. 12,64,347 Rs. 30,20,322 l.ess : Advances given for expenses Rs. 18,78,964 Rs. 11,41,358 ===========
55. Further the CIT(A) observed that even assuming that the entire balance of Rs. 11,41,358 was transferred/carried to Tirupati, the balance amount of cash that can be treated as unexplained would be Rs. 40,45,801. However, the assessee was trying to explain that an amount of Rs. 56,00,000 was carried from Nellore to Tirupati by Road on the night of 24.7.2008 which means the submission of the assessee is not 35 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== fully reliable and as such do not explain the amount of Rs. 51,87,159 which was treated by the Assessing Officer as unexplained cash found during the search at Tirupati. It is also the fact that the balance of Rs. 11,41,358 as indicated to be the amount available for the assessee at Nellore on 24.7.2008, is arrived on the basis of the assumption that cash balances were pooled from all the branches without any exception. However, the fact remains that except in the real estate division at Nellore, the cash balances available with other branches were not really big amounts to be transferred elsewhere. Under the circumstances, it can be safely concluded that actual balance available at real estate division of Nellore is only to the extent of Rs. 3,62,193, to be transferred to Tirupati, if the theory of transfer of cash from Nellore to Tirupati, to be believed. The said amount of available cash of Rs. 3,62,193 is arrived, as under:
Balance as per books Rs. 31,28,207
Less: Physical cash Rs. 8,87,050
Rs. 22,41,157
Less: Advance given for expenses Rs. 18,78,964*
Rs. 3,62,193
* the amount of Rs. 20,38,427 was corrected and reduced to Rs. 18,78,964 on account of the fact that an amount equivalent to Rs. 1,59,463 was shown to have been added twice in totalling the amount due to duplication of few bills.
56. He observed that the explanation of the assessee that cash has been carried by road to Tirupati becomes redundant, along with the inferences drawn by the Assessing Officer based on the figures indicated in certain seized material, as discussed. Based on the above findings, it was concluded that the assessee virtually do not have any accounted/explainable cash balances available with him at Nellore, so as to explain the cash found in the search and as such the entire addition of Rs. 51,87,159 on 36 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== account of unexplained cash found in the search premises, is confirmed by CIT(A). Against this, the assessee is in appeal before us.
57. The learned AR submitted that there was a transfer of cash balance from various divisions to Tirupati division as follows:
Sl. Amount
Particulars Remarks
No. (Rs.)
1. Real Estate, Nellore 3,80,000 PB II page 14
2. Tafe division 1,70,000 PB II page 16
3. Tata cars 16,00,000 PB II page 18
4. Balaji Two wheelers 4,50,000 PB II page 23
5. Tata commercial vehicles 17,00,000 PB II page 26
6. Aqua division 5,00,000 PB II page 47
7. Cash balance available at 8,23,241
Tirupati
Total 56,23,241
The total cash found is Rs. 60,10,400. Excess cash is Rs. 3,87,159 (Rs. 60,10,400 - Rs. 56,23,241).
58. He submitted that at the first instance itself in the course of search action, the Manager at Tirupati Branch Mr. Mohana stated that he brought the cash from Nellore. Within a few hours, the Department officials have visited Nellore branch and verified all the cash books of the division and compared physical cash balance with the books. One staff members of the assessee Mr. J. Mallesh has given a sworn statement that the physical cash balance of Bajaj division is having Rs. 77,483, car division - Rs. 33,980 and tractor division Rs. 2,65,834 and the real estate division is having Rs. 8,87,050. On the date of search the Department has taken the copies of cash books According to the AR the deficit cash balance at Nellore branch was nothing but transfer of the cash to Tirupati branch. He submitted that the transfer of cash entries was made on 26.7.2008 and thereafter the copies of the cash book was 37 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== obtained by the Department on the same day, as per which sufficient cash balance was available. With regard to this he drew our attention to the respective cash book pages as noted in PB No. II in pages 14, 16, 18, 26, 29 and 47.
59. On the other hand, the learned DR relied on the order of the CIT(A).
60. We have heard both the parties and perused the material on record. In this case as per copies of cash book furnished by the assessee in Pass Book-II in page No. 14, 16, 18, 26, 29 and 47 there was cash balance in various divisions belonging to the assessee. The assessee taken a plea that the cash balances from other divisions was transferred to the Tirupati Branch. When Revenue authorities inspected, physically there was a shortage of cash balance in other divisions and excess balance in the Tirupati Branch as comparable to books. The Department is not ready to accept the shortage in various divisions and only treating the cash balance in Tirupati as undisclosed income of the assessee which is not proper. The Department wants evidence for transfer of cash balance from other divisions to Tirupati Division. The Department is disbelieving transfer of cash balance from other divisions to Tirupati. In our opinion it is not correct as the Department is not having any material to show that the assessee has made any undisclosed investment or expenditure out of cash balances appearing in the books of account of the other divisions. It was held in the case of Ms. Aishwarya K. Rai vs. DCIT (104 ITD 166) (TM) (Mum) that when the assessee explained the cash found at the time of search or the cashbook which was produced before the Assessing Officer and the withdrawal made by the assessee from the Bank A/c. in the past, the explanation cannot be rejected and the cash cannot be treated as undisclosed income. Being so due credit 38 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== has to be given towards shortage of cash balance so as to consider that the same cash balance has been transferred to Tirupati division. Accordingly, we direct the Assessing Officer to give credit to the shortage found in other divisions to set off of excess balance found at the Tirupati division. This ground is allowed.
61. The next ground in ITA No. 296/Hyd/2012 is that the CIT(A) erred in considering the total value of land purchased at Tirupati for Rs. 5.13 crores as against purchase value of land at Tirupati at Rs. 2.93 crores thereby upholding addition of Rs. 2.20 crores.
62. Brief facts of the issue are that the Assessing Officer made an addition of Rs. 4 crores as unaccounted investment by the assessee in purchase of land located at Pudipatla village from M/s. VSN Jeevan Infra & Developers represented by the Managing Partner Mr. N. Purushotham Naidu. While making the addition, the Assessing Officer considered the value of 9.5 acres at Rs. 5.13 crores based on the figures reflected in the seized material as reduced by the amount of Rs. 1.13 crores for which said land was registered subsequently. While determining the addition of Rs. 4 crores, the Assessing Officer also relied upon the corroborative evidences found in the course of search proceedings such as receipt for payment made to the landlord on various dates in cash. The Assessing Officer also relied on the statement recorded from Sri P. Mohana, Manager of the assessee company who explained the nature and correctness of the contents of the seized material relied upon by the Assessing Officer. On appeal, the CIT(A) sustained the addition of Rs. 2.2 crores out of Rs. 4 crores. Against this the assessee is in appeal before us.
39 ITA No. 1637/Hyd/2011 & Ors.M/s. M.G. Brothers Automobiles (P) Ltd.
==============================
63. The learned AR submitted that the Assessing Officer based his arguments on the seized material Page No. 70 of A/MGBRE/ TPT/01 which was the rough paper working and not signed by anyone to quantify the amount of unaccounted investment of Rs. 4,00,00,000, as the difference between Rs. 5.13 crores and Rs. 1.13 crores, for 9.5 acres of land @ Rs. 54.00 lakhs per acre, whereas the land purchased is only 8.5 acres and registered for Rs. 1.13 crores. The AR also submitted that figures of Rs. 3.70 crores treated as unaccounted payments made for the purchase of land, till the date of search is wrong for the reason that the Assessing Officer was inconsistent in stating that the accounted amount for purchase of land was shown as Rs. 1.27 crores and sometimes Rs. 85 lakhs, whereas the amount actually registered for is only Rs. 1.13 crores. It is also submitted that the amount of Rs. 3.70 crores shown to have been paid up to 22.7.2008, include the amounts of Rs. 1.80 crores which was already admitted by the assessee company as its unaccounted income in filing the returns of income for AY 2008-09 & 2009-10 and Rs. 1.90 crores representing the amount mentioned in a receipt dt. 6.4.2008 which was not signed by the seller of the land. Accordingly, the assessee submitted that the above two amounts needed to be excluded from quantifying the unaccounted investment/ consideration and pleaded further that the amount of addition of Rs. 3.70 crores needs to be deleted, since Rs. 1.80 crores was offered as income and Rs. 1.90 crores represent the amount mentioned in an unsigned receipt.
64. It was submitted by the AR that the land purchased was only 8.5 acres @ Rs. 25 lakhs per acre, which comes to Rs. 2,12,50,000, whereas an amount of Rs. 2.93 crores was admitted by the assessee company which consists of an amount of Rs. 1.13 crores being the amount for which the land was 40 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== registered and Rs. 1.80 crores represents the unaccounted income as admitted by the assessee for two assessment years 2008-09 and 2009-10.
65. The learned DR submitted that the assessee company entered into an agreement with M/s. VSN Jeevan Infra & Developers for purchase of land to an extent of 9.5 acres located at survey no. 377, 378, 379 & 380 of Pudipatla village for a consideration of Rs. 5.13 crores @ Rs. 54.00 lakhs per acre. The first instalment of Rs. 10,00,000 was shown to have been made on 26.3.2008 and the registration of the land was shown to have been made subsequent to the date of search registered for an amount of Rs. 1.13 crores, for 8.5 acres of land. The evidence relied upon by the Assessing Officer are page no. 70 of A/MGBRE/TPT/01 dt. 25.7.2008, which has been scanned and made part of the assessment order by the Assessing Officer wherein it has been clearly indicated the extent of the land, along with rates for each acre of land, total consideration with certain amounts already paid as on date of search, though the exact date of the transactions were not indicated on the said page of the loose sheet. The other evidences relied upon by the Assessing Officer are the receipts issued by the seller of land and the details of such receipts are as under which indicate the date, amounts, and the page number in the seized annexures.
etc.
S. Amount Loose Sheet & Annexure (of seized
Date
No. (in Rs.) material)
1. 26.03.2008 10,00,000 Loose sheet No. 60 of A/MGBRE/TPT/01
2. 06.04.2008 1,90,00,000 Loose sheet No. 10 of A/MGBRE/TPT/05
3. 16.05.2008 10,00,000 Loose sheet No. 59 of A/MGBRE/TPT/01
4. 28.05.2008 54,00,000 Loose sheet No. 58 of A/MGBRE/TPT/01
5. 16.06.2008 25,00,000 Loose sheet No. 57 of A/MGBRE/TPT/01
6. 19.06.2008 21,00,000 Loose sheet No. 56 of A/MGBRE/TPT/01
7. 22.07.2008 60,00,000 Loose sheet No. 61 of A/MGBRE/TPT/01 41 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
==============================
66. The DR submitted that the receipt mentioned at serial no.(ii), for an amount of Rs. 1,90,00,000, was not signed by anyone and as such was not accepted by the assessee to be his unaccounted income whereas the receipt numbers (i) & (iii) to
(vii) were accepted by the assessee for having paid the amounts towards the purchase of the land and as such admitted the amount represented by such receipts as unaccounted income pertaining to AY 2008-09 [Rs. 10,00,000 represented by receipt at serial no.(i)] and for A.Y. 2009-10 [Rs. 1,70,00,000 represented by receipts at serial no. (iii) to (vii)], based on the dates of the receipts for payments.
67. Regarding the amount of Rs. 1,90,00,000 represented by the receipt dt. 6.4.2008 which is disputed by the assessee for accepting the same as the unaccounted payments made for the purchase of land at Pudipatla, it may be relevant to refer to the corroborative evidences as brought on record in the form of:
(a) Statement of Mr. P. Mohana regarding the rate at which land was purchased, extent of land purchased, the amounts paid and the balances payable as on the date of search.
(b) Page No. 70 of Annexure A/MGBRE/TPT/0l where the information regarding the area of land, rate and total consideration were mentioned along with the amounts paid (Rs. 3,70,00,000) till a particular date, which in all probability up to the date of 22.7.2008 for which the amount of Rs. 60,00,000 shown to have been paid vide the signed receipt dt. 22.7.2008, which was not disputed by the assessee.
68. The DR submitted that the circumstantial evidence in this case is page No. 70 of annexure A/MGBRE/TPT/0l, wherein the 42 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== consideration, rate, area of the land, total consideration and other details are mentioned. The next evidence is the receipt of Rs. 1,90,00,000 dt 6.4.2008, though unsigned, contains all the details such as the survey number of land, extent of land, name of the buyer, name of the seller, etc. Since the information/ evidence in the said unsigned receipt is matching with the majority of the indications/information related to the transactions, which is clinching in nature may help in overcoming the handicap of 'not signed by anyone', as claimed by the assessee and as such the true nature and the evidential value of the information embedded in such receipt/evidence may has to be determined on the basis of circumstantial/ corroborative evidences that it presents. In this case, the receipt dt. 6.4.2008, for payment of Rs. 1,90,00,000, do have all the indications except the signature, to make it a full fledged evidence as supported by the corroborative evidence in the form of page No. 70 of A/MGBRE/TPT/0l, wherein the other related details of the transaction are properly Indicated. Accordingly, the evidence in this case is clearly indicating against the assessee, ably supported by the seized material found in the search proceedings. Further, the explanations offered by the assessee are incoherent as regard to the total consideration for purchase of the land is concerned. In this context, it is pertinent to mention that while furnishing the submissions dt. 10.08.2011, the assessee was merely tailing on the inconsistencies arisen on account of the loose ends put together by the Assessing Officer whereas in the submissions, it was tried to explain through another set of explanation indicating the rate of consideration for purchase was Rs. 25 lakhs per acre and the actual consideration was Rs. 2,12,50,000 for 8.5 acres, as against which the assessee claimed to have admitted the investment of Rs. 2,93,00,000, with an amount of 43 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== Rs. 1.80 crores admitted as additional income and Rs. 1.13 crores being the consideration for registering the land.
69. The DR submitted that based on the information available on record and the supportive evidences on the subject matter under reference, the actual consideration can be quantified at Rs. 5,13,00,000 with the unaccounted investment in such property quantified at Rs. 4,00,00,000 being the difference between the amount for which it was agreed for purchase and at which it was registered subsequent to the date of the search, but well within the financial year ending 31.3.2009. Since the transaction is completed during the same financial year, the entire agreed consideration was deemed to have been paid before registration of the land and there are no alternative claims made by the assessee or evidenced in any other form to indicate that the total consideration was on reduced note, on account of reduction in extent of land area as well as the incidence of the search in which the proposed cash for the last instalment of Rs. 58.00 lakhs was seized by the Department.
70. The DR submitted that having quantified and confirmed the actual consideration for purchase of land at Rs. 5,13,00,000 and the unaccounted payments at Rs. 4,00,00,000. It was pointed out by the assessee all along that the land registered was 8.5 acres whereas the consideration was determined for 9.5 acres. In this regard, it was clarified in the assessment order that though it was agreed to purchase the land to the extent of 9.5 acres @ Rs. 54 lakhs per acre, only 8.5 acres was registered, leaving a balance of 1 acre to the Gram Panchayat, without any reduction in the consideration, as agreed upon by the assessee and the seller. This fact was also reflected in the seized material at page No. 70 of A/MGBRE/TPT/01 which was presumed to be as latest as 22.7.2008 i.e., just three days before the date of 44 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== search and the date fixed for registration of the land (i.e. 25.7.2008) and as per the receipt dt. 22.7.2008, the amount of Rs. 60,00,000 was incorporated in the total amount of Rs. 3,70,00,000 paid, as on the said date. Regarding the draft sale deed dt. 25.7.2008, it may be relevant to mention that it is a document which was proposed to be registered with lower value of consideration and it does not have any relevance in the background of the admittance of additional consideration over and above the registered price paid by the assessee itself. It is also relevant to indicate that the amount of Rs. 89,11,000 for which it was proposed to be registered by the draft sale deed, is also varying from that of the amount at which it was actually registered at Rs. 1,13,00,000.
71. We have heard both the parties and perused the material on record. In this case the contention of the Department is that the total payment was towards 9.5 acres at Rs. 54 lakhs per acre worked out at Rs. 5.13 crores. The assessee's plea is that the property has been registered for a value of Rs. 1.13 crores. The Department is relying on the loose sheets found during the course of search for making this addition. In our opinion, loose sheets dated 6.4.2008 marked as "10 of A/MGBRE/TPT/05"
shows an amount of Rs. 1.90 crores. There is no dispute that this is an unsigned receipt which cannot be acted upon and also cannot be relied upon. Further after excluding Rs. 1.90 crores from the seized material, the balance amount left out is at Rs. 1.80 crores. The assessee admitted in the books of account Rs. 1,13,00,000 towards cost of 8.5 acres of property which was duly registered as per document No. 2556/2008 dated 8th September, 2008 which is placed on record at pages 55-57 of Paper Book III (A.Ys. 2008-09 and 2009-10) (English version) and pages 58-64 of Paper Book III ay 2009-10 (Telugu version).45 ITA No. 1637/Hyd/2011 & Ors.
M/s. M.G. Brothers Automobiles (P) Ltd. ============================== Further there was valid seized material as below reflected totalling to Rs. 1.80 crores which is as follows:
S. Amount Loose Sheet & Annexure (of seized Date No. (in Rs.) material)
1. 26.03.2008 10,00,000 Loose sheet No. 60 of A/MGBRE/TPT/01
2. 16.05.2008 10,00,000 Loose sheet No. 59 of A/MGBRE/TPT/01
3. 28.05.2008 54,00,000 Loose sheet No. 58 of A/MGBRE/TPT/01
4. 16.06.2008 25,00,000 Loose sheet No. 57 of A/MGBRE/TPT/01
5. 19.06.2008 21,00,000 Loose sheet No. 56 of A/MGBRE/TPT/01
6. 22.07.2008 60,00,000 Loose sheet No. 61 of A/MGBRE/TPT/01 Considering all this, the assessee offered a sum of Rs. 10 lakhs as undisclosed income in A.Y. 2008-09 and Rs. 1.70 crores A.Y. 2009-10 totalling to Rs. 2,93,00,000 towards purchase cost of 8.5 acres of land. Being so, making further addition on this count is not possible as there is no seized material representing the addition.
72. Further it was also brought on record that the property situated next to the assessee's property was sold for the same price which was purchased by Sri Manchu Manoj Kumar s/o. Sri Manchu Mohan Babu, who purchased 1.40 acres at Rs. 13.2 lakhs per acre worked out at Rs. 18.48 lakhs on 10th September, 2008. Considering this, the comparable case brought on record justifies the claim of the assessee that the assessee purchased the property on 15.7.2007 measuring 8.5 acres for a consideration of Rs 1.13 crores at a rate of Rs. 13.2 lakhs per acre. The market value of the property is Ra. 13.20 lakhs per acre. However, there was evidence brought on record by the Assessing Officer that to the extent of Rs. 1.8 crores towards on-money payment, to that extent the assessee offered the same for taxation as undisclosed income two assessment years as stated earlier. There cannot be any further addition on this count. Further we rely on the judgement of Delhi High Court in the case of CIT vs. Anil Bhalla (322 ITR 191) wherein held as under:
46 ITA No. 1637/Hyd/2011 & Ors.M/s. M.G. Brothers Automobiles (P) Ltd. ============================== "Search and seizure was carried out in the premises of the assessee and the premises of a company of which the assessee was a director. The Assessing Officer made additions under the head of unexplained expenditure under section 69C of the Income-tax Act, 1961. The Commissioner (Appeals) and the Tribunal examined the entire evidence on record including the statements made by the assessee in the proceedings as well as before the Assessing Officer and then came to the conclusion that the additions could not be sustained in the absence of any other corroborative evidence. The Commissioner (Appeals) deleted the additions and this was confirmed by the Tribunal. On appeal:
Held, dismissing the appeal that the findings arrived at by the Tribunal were pure findings of fact and did not warrant any interference by the court."
73. Accordingly, this ground of the assessee is allowed.
ADDITIONAL GROUNDS IN ITA NO. 296/HYD/2012:
74. The first additional ground in ITA No. 296/Hyd/2012 is that the CIT(A) erred in confirming a sum of Rs. 1.36 crores u/s. 69 of the Act being transaction for land at Kurnool.
75. The assessee filed a petition explaining reasons for not raising this ground on earlier occasion and submitted that the additional ground was not raised inadvertently on earlier occasion. However, it arises directly out of the CIT(A) order and does not require any investigation into the facts and prayed that the additional ground be admitted. Similarly, the assessee raised the second additional ground that cash seized of Rs. 60 lakhs on 25.7.2008 ought to have been adjusted towards advance tax as per request made on 22.12.2008 thereby reducing the imposition of interest u/s. 234B of the Act. The assessee raised the third additional ground that certain direction given by the CIT(A) is unwarranted. The assessee 47 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== relied on the following judgements for admission of the additional grounds:
a) CIT v. Pruthvi Brokers and Shareholders P. Ltd., 349 ITR 336 (Bom)
b) Kailashben Manharlal Chokshi vs. CIT, 328 ITR 411 (Guj)
c) CIT vs. Gangappa Cables Ltd., 116 ITR 778 (AP)
d) National Thermal Power Co. Ltd. vs. CIT, 229 ITR 383 (SC)
e) CIT vs. Mohd Iqbal, 221 ITR 481 (MP)
f) CIT vs. Mahalakshmi Textile Mills Ltd., 66 ITR 710 (SC)
g) Jute Corporation of India Ltd. vs. CIT(A), 187 ITR 688 (SC)
h) Rajinder Nath vs. CIT, 120 ITR 14 (SC)
76. After going through the reasons advanced by the assessee counsel for raising the additional ground and that the assessee was inadvertently not raised the additional grounds on earlier occasion, we are convinced about the reasons advanced. Accordingly, we admit the additional grounds for adjudication.
77. The first additional ground is with regard to CIT(A) confirming a sum of Rs. 1.36 crores u/s. 69 of the Act being the transaction of land at Kurnool.
78. Brief facts of the issue are that the addition of Rs. 1,36,00,000 was made on account of the investment by virtue of purchase of land at Kurnool based on the contents of page No. 65 of annexure A/MGBRE/TPT/03, which is nothing but an agreement for purchase of one acre land at Kurnool for a consideration of Rs. 1.36 crores, out of which in amount of Rs. 50.00 lakhs was shown to have been paid as advance with an amount of Rs. 17.00 lakhs paid by cheque and Rs. 33.00 lakhs paid in cash. The said payments were alleged to have not been accounted in the books and as such the entire amount of Rs. 1.36 crores was treated as unaccounted investment u/s 69 of the IT Act, 1961.
79. The assessee objected to the above addition while submitting that a document referred by the Assessing Officer is only a fax message of the draft agreement not signed by 48 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== anyone, though the part payment has been given towards purchase of the land. It was also submitted that it is only a proposal of the seller and no such purchase was materialized by 31.3.2009. It was also submitted by the assessee that Assessing Officer has not enquired with the seller to know the facts and an unsigned loose sheet of agreement cannot be made the basis for the addition.
80. Further, the assessee has filed an additional evidence before the CIT(A) in the form of copy of the registered sale deed in document No. 10292/2010 dt. 1.12.2010 pertaining to the lands located at survey No. 931 by 1-1A, admeasuring Ac. 2.40 guntas located in suburbs of Kurnool town, through which it was shown to have purchased the said lands for a total consideration of Rs. 48 lakhs from three parties which also comprised the land of 1 acre, as reflected in the draft agreement entered with Mr. B. Chandrashekar. Since the information furnished by the assessee constituted the additional evidence as per rule 46A, the same has been referred to the Assessing Officer by the CIT(A) and the remand report of the Assessing Officer (ACIT Central Circle, Tirupati) dt. 14.11.2011 on the subject is as under:
"An addition of Rs. 1,36,00,000 was made towards unexplained investment in purchase of land from Sri. B. Chandra Sekhar basing on the seized document of Page Na. 65 of Annexure A/MGBRE/TPT/3 which contains the details of an agreement between the assessee company and Sri B. Chandra Sekhar in the month of April 2008. As per the seized document, the assessee company has intended to purchase 1 acre of land situated at S. No. 931/IA af Dwaraka Nagar far a consideration of 1.36 crores. As the said transaction was not reflected in the books of accounts of the assessee, the same was added as unexplained investment.
The assessee has produced the additional evidence in the form of Registered sale document No. 49 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd. ============================== 10292/2010 dt. 01.12.2010 saying that the land admeasuring 2.4 acres which includes the above said land was purchased by the assessee company only on 01.12.2010 for a consideration of Rs. 48,00,000 (@ Rs. 20,00,000 per acre). Thus, the assessee claimed that the company has not invested the sum of Rs. 1.36 lakhs as mentioned in the assessment order.
The explanation of the assessee is not acceptable for the following reasons:
(i) It is only on after-thought that the assessee has registered the purchase of the above said land along with the piece of land that was mentioned in the seized document for a for less rate than that of the rate mentioned in the seized document to mislead the deportment. It is further proved by the fact that the market value of the said land as mentioned in the registered sole deed is Rs. 2,32,32,000 (@ Rs. 2000 per sq. yard for 11,616 sq. yards i.e., 2.4 acres). Thus the market value of the land was Rs. 96,80,000 per acre whereas the assessee has shown the purchase cost as Rs. 20,00,000 per acre which is very hard to believe.
(ii) The assessee in its submission has stated that it has paid on amount of Rs. 17,00,000 as advance by way of DD on 19.4.2008 towards the purchase of l acre of land for Rs.
20,00,000. But as seen from the assessment records, the above advance paid to Sri. B. Chandra Sekhar is not reflected in the books of accounts of the assessee for the A.Y. 2009-10.
(iii) It is very hard to believe that the assessee has paid around 85% (i.e. Rs. 17,00,000) of the total consideration (i.e., Rs. 20,00,000) as advance, that too, 32 months before the registration of the agreement because in the real estate business, normally, around 10-20% of the total consideration is paid as advance and the remaining amount is paid at the time of registration.
(iv) Though the sale was registered on 01-12-2010, the assessee has not mentioned about this registered sale deed in its reply dt. 03-12-2010 submitted before the Assessing Officer during the assessment proceedings."
50 ITA No. 1637/Hyd/2011 & Ors.M/s. M.G. Brothers Automobiles (P) Ltd.
==============================
81. While furnishing the submissions with reference to the comments of the Assessing Officer in the remand report, the assessee has submitted before the CIT(A) various details such as the extent of the land, the amount of consideration paid for purchase of lands from Sri B. Chandrasekhar, Smt. B. Nagamani and Sri B. Lakshmi Narayana. It was also submitted that the market value of the land shown at Rs. 96,80,000 per acre on 1.12.2010, and whereas the market value of such land as on 23.4.2008 i.e., around the date of agreement was only at Rs. 20,00,000 per acre, valued as a whole, and as an agricultural land, which was not divided into plots and these aspects were shown to have clearly indicated in the market value certificate. It was also submitted by the assessee that the said land which was an agricultural land as on the date of agreement was developed into plots after conversion of the same from agricultural land to urban residential land and as such the market value was increased drastically by the time the actual registration has taken place i.e., on 1.12.2010. It was also submitted that the possession was given by the sellers before the registration and as per the provisions of sec. 2(47) of the IT Act, 1961, the transaction was completed with reference to the sale agreement of April 2008 and as such capital gains were also furnished by the sellers of the land for AY 2009-10. The assessee also relied on the following case laws, citing the ratios of the decisions and stating that the loose papers found during the search have no validity unless substantiated by the other facts found during the search.
(i) CIT vs Kailashchand Sharma, 198 ITR 201
(ii) DCIT vs Radhe Developers, 329 ITR 1
(iii) CIT vs Diplast Plastics Ltd., 327 ITR 399
(iv) CIT vs Maulik Kumar K. Shah, 307 ITR 137
(v) CIT vs Atam Values Pvt. Ltd., 184 Taxman 6
(vi) Gyan Kumar Agarwal vs ACIT, 60 DTR 241 51 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
==============================
82. As could be seen from the assessment order, the submissions of the assessee and the remand report of the Assessing Officer, the following facts emerged on the issue:
(i) The agreement for sale of land of 1 acre from Mr. B. Chandrashekar, was entered in the month of April 2008. Though it was unsigned as appeared at page No. 65 of the annexure A/MGBRE/TPT/03, since it was a fax message, the signature on the agreement was not seen, has all the information that are related to the agreement for sale, wherein the information such as details of the property, rate per acre, total consideration, other terms and conditions such as payment schedules, details of payments etc., are clearly indicated.
(ii) The amounts of Rs. 17.00 lakhs paid through demand draft dt. 19.4.2008 form the corroborative evidence in this regard and the assessee failed to explainthe said amounts through the books of accounts for the financial year ending on 31.3,2009.
(iii) The land under the subject matter was registered subsequently which means the agreement for sale was executed later, to presume all the conditions of the said agreement were complied with reference to the draft agreement, including the agreed consideration of Rs. 1.36 crores.
(iv) The registration of the property at a lower rate i.e. Rs.
20.00 lakhs per acre, as it appears is only an afterthought of the assessee and by the time the written submissions dt. 3.12.2010 made before the Assessing Officer at the time of assessment 52 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== proceedings, the information regarding the registration of the land was available but no such information was furnished before the Assessing Officer.
(v) The consideration paid as advance agreed to be paid was not accounted in the books of accounts thereby intentions of the assessee were made clear, which was to reduce the cost of such investment in the books of accounts.
(vi) Since a part of the information as per the document proved to be correct, it cannot be fair to presume that the other part of the information in the same document is wrong.
(vii) In normal course, no advance as high as 85% of the total consideration are given for a transaction, as shown to have happened in this case wherein an amount of Rs. 17.00 lakhs (paid through demand draft), was shown to be the advance against a total consideration of Rs. 20.00 lakhs for 1 acre of land supposed to be purchased from Mr. B. Chandrashekar.
(viii) The income tax returns of the sellers of the land, as furnished by the assessee during the course of the appeal proceedings, cannot be treated as an additional evidence where the primary evidence itself is clinching in nature.
(ix) The submissions of the assessee are little contradictory wherein it was submitted that the agreement was only a proposal and purchase was not materialized by end of financial year 2008-09. On the other hand, the assessee also tried to explain that 53 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== though the land was not registered, the possession of the land was given to the assessee, accordingly plots were made and the sellers have taken the sale considerations for computing their capital gains in filing their income tax returns.
83. Further, as per the record, there is no information to indicate that the said land was taken into possession by the assessee before the date of registration and no proof to indicate that the consideration for sale of land is less than what has been indicated in the agreement seized as page 65 of annexure A/MGBRE/TPT/03, except the copies of the Income tax returns filed by the sellers of the land wherein the capital gains were computed. However, close examination of such returns also indicate that such returns were filed belatedly i.e., after the date of search and apparently without paying the self- assessment taxes and as such cannot be taken as additional evidence. Further, there is no explanation for paying the advance for land to the extent of 85% of the total land cost, if the claim of the assessee that cost is only Rs. 20 lakhs per acre, is to be believed as true.
84. It was observed by the CIT(A) that the evidence found in the course of search proceedings wherein the rate of land was quoted as Rs. 1.36 crores per acre is substantial evidence wherein all the ingredients of a reliable document are indicated such as the extent of the land, survey number, rate of consideration, advances paid, total consideration, date of probable registration and conditions associated with it. It was also clearly stated in the agreement that the amounts were to be paid within 45 days from the date of agreement. Further, the details of the part payments made as advance through demand draft are very much available on record. In this manner, the 54 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== evidence found in the course of search related to the above transaction is not a loose sheet as contended by the assessee but a substantial evidence on its own, well supported by the corroborative and circumstantial evidence, as indicated above. Under the circumstances, the transaction is presumed to have been concluded with all the conditions of the agreement complied, including the total agreed consideration of Rs. 1.36 crores paid before the execution of the sale deed, related to the said land at Kurnool. Accordingly, the CIT(A) confirmed the addition made by the Assessing Officer on this count. Against this, the assessee is in appeal before us.
85. We have heard both the parties. The addition of Rs. 1.36 crores is based on the fax copy of unsigned agreement copy. This fax copy of agreement marked as 65 of Annexure MGBRE/TPT/1 is a draft agreement not signed by anybody. According to the assessee the Managing Director of the assessee company while recording the statement on 27.8.2008 recorded that no agreement has taken place with regard to Kurnool property. Only an advance amount was paid which was duly accounted and on receipt of the advance money the seller has prepared draft proposal. The AR also pleaded before us that as per the judgement of Supreme Court in the case of Moosa S. Madha and Azam S. Madha vs CIT (89 ITR 65) wherein held that Photostat copies have very little evidentiary value. It is also pleaded before us that an amount of Rs. 17 lakhs was paid by Demand Draft on 19.4.2008 for the purpose of purchase of 1 acre of land situated at Kurnool from B Chandrasekhar which was duly accounted in the books of account. Admittedly, the land was purchased by the assessee on 1.12.2012 by a registered sale deed bearing Document No. 10292/2010 wherein 2.4 acres was purchased from three persons for a total consideration of Rs. 48 lakhs. We have also gone through the 55 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== actual sale deed executed on 1.12.2010 which is placed on record at page Nos. 38 to 54 PB No. III for A.Y. 2009-10 wherein the total consideration for purchase of 2.4 acres situated at Ward No. 46 at KC Canal and Hundri River, Kurnool Municipal Corporation, Kurnool Sub District for a consideration of Rs. 48 lakhs. This sale deed was executed by three persons viz., (1) B. Nagamani w/o. B. Chandra Sekhar, (2) B. Chandra sekhar, s/o. Late Basina Annaiah and (3) B. Lakshminarayana s/o. Late Bandla Narasaiah. The assessee also placed copies of IT returns of these three persons which is placed on record in PB V for A.Y. 2009-10 wherein the Department accepted the consideration at Rs. 48 lakhs passed towards sale of this property. Considering all these facts and also the judgement of Supreme Court in the case of K.P. Varghese (131 ITR 597) wherein held that that section 52(2) of the Income-tax Act, 1961, can be invoked only where the consideration for the transfer of a capital asset has been understated by the assessee, or, in other words, the full value of the consideration in respect of the transfer is shown at a lesser figure than that actually received by the assessee, and the burden of proving understatement or concealment is on the Revenue; and the sub-section has no application in the case of a bona fide transaction where the consideration received by the assessee has been correctly declared and also on the judgement of Delhi High Court in the case of CIT vs. Anil Bhalla (322 ITR
191), we are inclined to hold that the consideration passed between the parties towards purchase of Kurnool property has to be considered at Rs. 48 lakhs only and the addition made by lower authorities at Rs. 1.36 crores is unjustified Accordingly deleted.
86. The next additional ground is with regard to seized cash of Rs. 60 lakhs on 25.7.2008 ought to have been adjusted towards advance tax as per requisition made by the assessee on 56 ITA No. 1637/Hyd/2011 & Ors. M/s. M.G. Brothers Automobiles (P) Ltd.
============================== 22.12.2008 thereby reducing the levy of interest u/s. 234B of the Act.
87. The learned AR submitted that the assessee has requested in his letter dated 22.12.2008 to adjust the seized cash towards advance tax for A.Y. 2009-10. In spite of this, the Department not adjusted the amount and levied interest u/s. 234B of the Act. He relied on the judgement of Delhi High Court in the case of CIT vs. KK Marketing (278 ITR 596) and also on the judgement of Delhi High Court in the case of Vishwanath Khanna (335 ITR 548) and judgement of P&H High Court in the case of CIT vs. Ashok Kumar (334 ITR 355).
88. On the other hand, the learned DR submitted that adjustment of seized cash cannot be adjusted towards advance tax or self-assessment tax and it has to be adjusted towards existing liability. He submitted that provisions of section 132B are applicable on this issue.
89. After hearing both the parties, we are of the opinion that the seized cash has to be adjusted in terms of section 132B of the IT Act. Further, after adjustment of the existing tax liability, if any amount still remains, the same has to be appropriated towards the tax relating to the assessment completed u/s. 153A of the Act. In the present case, the plea of the assessee is that there is no existing outstanding liability when the cash was seized. Hence the said amount has to be appropriated towards the tax liability under dispute. In our opinion, if there is no existing tax liability, the assessee's claim has to be entertained and the seized amount has to be adjusted towards tax liability of the present Assessment year under consideration as per assessee's request vide letter dated 22.12.2007. We order accordingly.
57 ITA No. 1637/Hyd/2011 & Ors.M/s. M.G. Brothers Automobiles (P) Ltd.
==============================
90. The third additional ground is that the CIT(A)-VII, Hyderabad erred in giving direction in paragraphs 5.9, 6.2.2, 6.3.4 and 8.1 that the Assessing Officer has to give relief for set off of income of Rs. 1.8 crores, Rs. 35 lakhs, Rs. 56 lakhs and Rs. 79,65,220 "provided they are not set off with the claim of expenditure being the cost of land debited to Profit and Loss A/c. According to the AR these are unwarranted directions given by the CIT(A) while disposing the appeal and it is not necessary for the purpose of disposal of the appeals. For this purpose he relied on the judgement of Supreme Court in the case of Rajinder Nath vs. CIT (120 ITR 14) wherein held as under:
"The expressions "finding" and "direction" in s. 153(3) are limited in meaning. A finding given in an appeal, revision or reference arising out of an assessment must be a finding necessary for the disposal of the particular case, that is to say, in respect of the particular assessee and in relation to the particular assessment year. To be a necessary finding, it must be directly involved in the disposal of the case. It is possible in certain cases that in order to render a finding in respect of A, a finding in respect of B may be called for. For instance, where the facts show that the income can belong either to A or B and to no one else, a finding that it belongs to B or does not belong to B would be determinative of the issue whether it can be taxed as A's income. A finding respecting B is initially involved as a step in the process of reaching the ultimate finding respecting A. If, however, the finding as to A's liability can be directly arrived at without necessitating a finding in respect of B, then a finding made in respect of B is an incidental finding only. It is not a finding necessary for the disposal of the case pertaining to A. As regards the expression "direction" in s. 153(3)(ii) of the Act, it is now well settled that it must be an express direction necessary for the disposal of the case before the authority or court. It must also be a direction which the authority or court is empowered to give while deciding the case before it. The expressions "finding" and"
direction" in s. 153(3)(ii) must be accordingly confined. Section 153(3)(ii) is not a provision enlarging the jurisdiction of the authority or court."
58 ITA No. 1637/Hyd/2011 & Ors.M/s. M.G. Brothers Automobiles (P) Ltd.
==============================
91. The learned DR relied on the order of the CIT(A) and submitted that the finding given by the CIT(A) in the above referred paras is very much necessary for the disposal of the appeal.
92. We have heard both the parties and perused the material on record. We have also gone through the paragraphs 5.9, 6.2.2, 6.3.4 and 8.5 of the CIT(A) order. The CIT(A) has given the directions in these paras on abundant caution to avoid double relief to the assessee. Being so, we are inclined to hold that appropriate deduction to the assessee is to be given ensuring no double deduction while passing consequential order.
93. In the result, all the Revenue appeals in ITA Nos. 1637 to 1641/Hyd/2011, ITA No. 1802/Hyd/2011 and ITA No. 417/Hyd/ 2012 and all the assessee appeals in ITA Nos. 1642 to 1647/ Hyd/20111 and ITA No. 296/Hyd/2012 are partly allowed.
Order pronounced in the open court on 29th April, 2013.
Sd/- Sd/-
(ASHA VIJAYARAGHAVAN) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated the 29th April, 2013
Copy forwarded to:
1. The Asst. CIT, Central Circle, 3rd Floor, Aayakar Bhavan, K.T. Road, Tirupati.
2. The Deputy CIT, Central Circle, 3rd Floor, Aayakar Bhavan, K.T. Road, Tirupati.
3. M/s. M.G. Brothers Automobiles (P) Ltd., 1/683, Co-op. House Building, Yemmiganur, Kurnool Dist.
4. The CIT(A)-VII, Hyderabad.
5. The CIT (Central), Hyderabad.
6. The DR - B Bench, ITAT, Hyderabad.
tprao