Income Tax Appellate Tribunal - Pune
Gera Developments Pvt. Ltd.,, Pune vs Commissioner Of Income-Tax (Appeals) ... on 1 June, 2018
आयकर अपीलीय अिधकरण, पुणे ायपीठ "ए" पुणे म
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
ी डी.
डी क णाकरा राव , लेखा सद
य
एवं ी िवकास अव
थी,
अव
थी याियक सद
य के सम
BEFORE SHRI D.KARUNAKARA RAO, AM
AND SHRI VIKAS AWASTHY, JM
आयकर अपील सं . / ITA No. 597/PUN/2013
िनधारण वष / Assessment Year : 2005-06
Gera Developments Pvt. Ltd.,
M/s. MZSK & Associates,
Chartered Accountants,
Level 3, Business Bay,
Plot No.84, Wellesley Road,
Near RTO, Pune - 411 001
PAN : AAACG6703F .... अपीलाथ /Appellant
Vs.
ACIT, Circle-1(2),
Pune .... थ / Respondent
आयकर अपील सं . / ITA No. 767/PUN/2013
िनधारण वष / Assessment Year : 2005-06
DCIT, Circle-1(2),
Pune .... अपीलाथ /Appellant
Vs.
Gera Developments Pvt. Ltd.,
200 Gera Plaza,
Boar Club Road,
Pune - 411 001
PAN : AAACG6703F .... थ / Respondent
आयकर अपील सं . / ITA No. 1609/PUN/2014
िनधारण वष / Assessment Year : 2005-06
Gera Developments Pvt. Ltd.,
M/s. MZSK & Associates,
Chartered Accountants,
Level 3, Business Bay,
Plot No.84, Wellesley Road,
Near RTO, Pune - 411 001
PAN : AAACG6703F .... अपीलाथ /Appellant
Vs.
2
CIT(A)-1, Pune/DCIT, Circle-1(2),
Pune .... थ / Respondent
Assessee by : Shri Nilesh Khandelwal & Shri Rajiv Thakkar
Revenue by : Shri Ajay Modi, JCIT
सुनवाई की तारीख / घोषणा की तारीख /
Date of Hearing : 20.04.2018 Date of Pronouncement: 01.06.2018
आदे श / ORDER
PER D. KARUNAKARA RAO, AM :
There are 3 appeals filed by the assessee under consideration - for the common A.Y. 2005-06. Two of them, i.e. ITA Nos.597 & 767/PUN/2013, are the cross appeals. The remaining appeal ITA No.1609/PUN/2014 is filed by the assessee in connection with the rectification order passed by the CIT(A) u/s.154 of the Act correcting mistake in the order with reference to his direction to AO on the claim of set off of brought forward losses.
We shall take up both the appeals of the assessee first. ITA Nos.597/PUN/2013 & 1609/PUN/2014 - By Assessee
2. The facts common to all the three appeals include that the assessee is a company and is engaged in the development of properties. There was survey action u/s.133A of the Act on the assessee on 24-01-2007. The aid action resulted in the discovery of incriminating information and the papers/ documents relating to both the assessees under consideration. The same were impounded for use in making of the assessments. It also resulted in discovery of unaccounted transaction of undisclosed receipts and they are undisputedly undisclosed expenditure outside the books of account. Based on these discrepancies as well as the disclosure of unaccounted income vide the sworn statement of the concerned persons of the assessees on 3 13-02-2007, an additional unaccounted income of Rs.2.06 crores was admitted in the hands of GDPL. Further, another sum of Rs.53 lakhs was admitted in the hands of M/s. Construction Portals Pvt. Ltd. (in short 'CPPL'), a sister concern of M/s. GDPL. Both the assessees revised their revised returns and included the total such income of Rs.2.59 crores (Rs.2.06 crores + 0.53 crores).
3. Relevant facts leading to the said disclosure of additional income of Rs.2.59 crores (Rs.2.06 cr. + 0.53 lakhs) includes that the assessee earned unaccounted income on sale of stock and incurred unaccounted expenditure outside the books. The total such unaccounted cash receipts as per Bundle No.10 works out to Rs.4,15,58,368/- and similarly, the total such cash payments works out to Rs.4,25,58,303/-. Assessee explained that the said gap of Rs.1.61 crores is explainable. As such, there is no dispute on these gross figures. Elaborating the need for arriving at the net amounts, the assessee submitted that the said figure of Rs.4,15,58,368/- and Rs.4,25,58,303/- need to be adjusted downwards to remove the effect of the duplicate entries, cash receipts and the withdrawals by the Managing Director for the business purposes of both M/s. GDPL and M/s. CPPL. Further, it is explained that since the unaccounted cash payments exceeded the unaccounted cash receipts, the entire unaccounted cash payments of Rs.4,25,58,303/-, being the higher sum, was considered for addition in the A.Y. 2005-06 u/s.69 of the Act. Against these discrepancies, the assessee disclosed the said sum of Rs.2.06 crores in the hands of GDPL and Rs.53 lakhs in the case of CPPL leaving the balance of Rs.1.66 crores (Rs.4.25 cr - Rs.2.59 cr) for the present litigation on this account. Otherwise, the difference between the cash receipts and the cash payments works out to around Rs.10 lakhs.
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4. In this regard, a show cause notice was issued by the AO proposing to make the said amount as addition for the A.Y. 2005-06 in case of M/s. GDPL. In reply, assessee explained that the additional income which was actually offered in the hands of M/s.CPPL is Rs.58 lakhs and not Rs.53 lakhs as discussed above. Therefore, the balance figure for reconciliation works out to the reduced figure of Rs.1.61 crores only and not Rs.1.66 crores. Further, the assessee explained that the figure of Rs.4,25,58,303/- needs to be adjusted downwards for reasons already discussed above. However, in the assessment, AO analysed the above as well as the contents of sworn statement of the assessee and proceeded to make addition of Rs.1.61 crores u/s.69C of the Act as unexplained expenditure.
Further, AO also examined another issue relating to the capital receipts involving a property owned by Shri Dheeraj Keshwani and found need of making further addition of Rs.50,59,040/- as unexplained expenditure u/s.69C of the Act.
5. Brief facts on this issue of addition of Rs.50,59,040/- are given in para 8 along with its sub-paragraphs of the assessment order. Brief facts include that the assessee sold a property to Mr. Dheeraj Keshwani. On his demand, certain works were undertaken by the assessee for the repairs on the flat, which resulted in additional expenditure of Rs.56,20,400/-. The same was reimbursed by Mr. Dheeraj Keshwani. Rejecting the explanation that the said expenditure was incurred on the capital asset belonging to Mr. Dheeraj Keshwani, AO made the said addition. Otherwise, the total cost of the property-shop works out to Rs.99.50 lakhs. Out of the same, the net amount reimbursed by Mr. Dheeraj Keshwani works out to Rs.50,59,040/-.
6. Aggrieved with the said order of the AO, assessee filed an appeal before the CIT(A).
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7. Before the First Appellate Authority, assessee pleaded for deletion of said additions of Rs.1.61 crores as well as other addition of Rs.50,59,040/-. CIT(A) partly allowed the appeal of the assessee. CIT(A) confirmed the addition amounting to Rs.1.47 crores out of Rs.1.61 crores. Other additions are deleted. Subsequently, in connection with the claim of set off of the brought forward losses, CIT(A) rectified his order dated 25-06-2014 expunging certain expressions used in the direction given to AO on this issue and against the assessee.
8. Aggrieved with the relief granted by the CIT(A), the Revenue is in appeal (ITA No.767/PUN/2013) on the issues relating to net unaccounted expenditure of Rs.50,59,040/- incurred on the capital asset/flat owned by Mr. Dheeraj Keshwani.
9. Assessee is in appeal (ITA No.597/PUN/2013) against the confirmation of addition of Rs.1.47 crores (Rs.1.61 cr. - Rs.14,58,222). Further also, the assessee is in appeal (ITA No.1609/PUN/2014) against the minor relief withdrawn vide the rectification order passed by the CIT(A) dated 25-06-2014. Revenue is in appeal against deletion of addition of Rs.50,59,040/-.
10. Aggrieved with the said orders, before us, assessee raised the following amended grounds and the Revenue raised the following grounds in connection with the rectification order passed by the CIT(A). The said grounds are extracted here as under :
Amended grounds by assessee vide ITA No.597/PUN/2013 :
"1. On facts and circumstances prevailing in the case and as per provisions & scheme of the Act, it be held that the learned Assessing Officer ('Ld.AO') erred in adding Rs.1,61,00,000/- to the income of the Appellant and the first appellate authority erred in confirming the addition to the extent of Rs.1,47,00,081/- u/s. 69C of the Income Tax Act, 1961 ( 'the Act'). The Appellant be granted just and proper relief in this respect.
2. On facts and circumstances prevailing in case and as per provisions of law, it be held that the Ld. AO and the first appellate 6 authority erred in not setting-off the undisclosed income against undisclosed expenditure-and adding the entire undisclosed expenditure u/s. 69C of the Act although the expenditure no longer remained unexplained. Just and proper relief be granted to the Appellant in this respect.
3. Without prejudice to Ground No.1 and 2, on the facts and circumstances prevailing in case and as per provisions & scheme of the Act, if it is held that addition u/s. 69C of the Act has to be made to the income of the Appellant, the said addition cannot exceed the difference between the unaccounted expenditure and the unaccounted income declared by the Appellant. Just and proper relief be granted to the Appellant in this respect.
4. The Appellant prays to be allowed to add, amend, modify, rectify, delete, raise any grounds of appeal at the time of hearing.
It is respectfully submitted that the grounds raised above also include the additional ground raised vide letter dated 16th April, 2018."
Ground raised by the assessee against rectification order passed by the CIT(A) vide ITA No.1609/PUN/2014 :
"1. On facts and circumstances prevailing in the case and as per provisions & scheme of the Act it be held, that first appellate authority rectified the appellate order dated 22-01-2013 passed by the CIT(A)-I, Pune is improper, erroneous, beyond jurisdiction, contrary to the provisions of law and facts prevailing in the case, it further be held the CIT(A) -I, Pune have no jurisdiction to review/rectify appellate order passed by his predecessor. It be held that rectification letter dated 25- 06-2014 be deleted. The appellant be granted just and proper relief in this respect."
Grounds raised by the Revenue vide ITA No.767/PUN/2013 :
"1. The order of the Ld.CIT(A) is contrary to law and to the facts and circumstances of the case.
2. The Ld.CIT(A) grossly erred in deleting the addition of Rs.56,20,400/- made in the assessment instead of confirming the same.
3. The Ld.CIT(A) grossly erred in deleting the addition by holding that the dispute is only whether the expenditure is capital or revenue whereas the Assessing Officer had specifically disallowed the claim by establishing that the expenditure was not genuine.
4. The Ld.CIT(A) grossly erred in deleting the addition without appreciating that there was no documentary evidence in support of the payment allegedly reimbursed to Shri Dheeraj Keshwani, and also further without appreciating that Shri Dheeraj Keshwani could have adjusted the balance amount pertaining to the incomplete work against the consideration payable to the assessee if there were truly any such liability.
5. For these and such other grounds as may be urged at the time of the hearing, the order of the Ld.CIT(A) may be vacated and that of the Assessing Officer be restored.
6. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal during the course of appellate proceedings before the Hon'ble Tribunal."7
11. Before the First Appellate authority, the assessee argued that the amounts of Rs.82,94,744/- given to Managing Director for safe keeping and return of the sum of Rs. 57,51,770/- back to company constitute contra entries. However, the CIT(A) rejected the same as per the discussion given in Para No.4.9 of his order. CIT(A) only allowed the claim of duplicate entries amounting to Rs.14,58,222/-. Finally, the CIT(A) concluded in para No.4.11 of his order stating the following :
" 4.11 Therefore, keeping in view the discussion contained in preceding paragraphs 4.5 to 4.10 above, it is to be held that the addition under the head unaccounted expenditure u/s.69C, is to be taken Rs.1.47 Crores. This figure is arrived at by reducing cash payments of Rs.4,25,58,303 ( as per impounded) by Rs.14,58,222 ( duplicate entries). The resultant figure would be Rs.4,10,99,081/- or rounded off to Rs.4.11 Crores. Since appellant has already disclosed Rs.2.64 crores by way of fining revised return, the total addition that is sustained would be Rs.1.47 crores ( Rs.4.11 crores-Rs.2.64 Crores). Ground of appeal No. 2
(a) and 2 (b) are therefore, treated as partly allowed."
Thus, the CIT(A) granted part relief to the extent of Rs.14,58,222/- and denied the assessee's explanation to the extent of Rs.82,94,744/-. Assessee holds that this amount constitutes the one given to Managing Director safe keeping. Per Contra, Revenue holds that it is the part of the unaccounted expenditure of the company. However, as can be seen, the CIT(A) did not utter a word on this part of the claim of the assessee. However, in this regard, CIT(A) commented on the absence of cash out/in nexus, i.e. one to one transactional nexus and held that such nexus is the requirement for allowing the claim of further reduction of Rs.82,94,744/- out of the sum of unaccounted expenditure of Rs.4,25,58,303/-. Further, CIT(A) deleted the addition of Rs.50,59,040/-.
12. Further, Ld. Counsel for the assessee raised fresh demand for deleting the entire addition of Rs.1.61 crores and not merely Rs.14,58,222/- as the entire UE is spent for business needs of the assessee. Alternatively, Ld. Counsel for the assessee submitted that the assessee made certain working in the form of tables on the principle of 8 appropriation of unaccounted income, expenditure, and summed up by mentioning that the addition, if any at all, needs to be restricted to Rs.15,46,095/- only. Relevant calculations are given in the table discussed in the later part of this order. (para No.14). Appeal wise adjudication is taken up in the succeeding paragraphs. ITA No.597/PUN/2013 & ITA No.1609/PUN/2014 - By Assessee
13. The core issue in the assessee's appeal ITA No.597/PUN/2013 revolves around the confirmation of Rs.1,47,00,081/- out of the original Rs.1.61 crores, the difference between the unaccounted expenditure of Rs.4,25,58,303 and the disclosed sum of Rs.2.06 crores. Other minor issue raised by the assessee relates to the rectification order qua the set off of the brought forward losses of the assessee. Therefore, the issues linked to the addition of Rs.1.61 crores is take up in the succeeding paras.
BEFORE THE TRIBUNAL I. Unaccounted Expenditure (UE) of Rs.1.61 Crores : In the assessment, AO added this amount of Rs.1.61 crores on account of unaccounted expenditure. The manner of working of the amount of Rs.1.61 crores is already discussed in Para No.4 of this order above.
On the addition of Rs.1.61 crores, it is the argument of the Ld. Counsel for the assessee that the total unaccounted expenditure as per the AO works out to Rs.4,25,58,303/-. Considering the claim that the sum of Rs.82,94,744/- was given for safe keeping with Mr. R.K. Gera, Managing Director of the company along with the another claim of Rs.14,58,222/- on account of duplicate entries the net UE works out to Rs.3,28,04,337/- only and not Rs.4,25,58,303/-. The details are discussed in Para 8 of the impugned order and the relevant table is extracted here as under :
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Summary : YE As per AO As per actual Duplicate Expenditure 31.03.2005 verification (Pages 1- done by A.Y 2005-06 Expenditures 116) M.D. incurred by ( RKG MD) company B-10 117-122 27333538 19438794 7894744 B Pages 1-116 12407465 12107465 300000 B-19 1571222 113000 1458222 B-5 269674 169674 100000 GP 8 Page 37 84300 84300 Difference 892104 892104 Total for Y.E 42558303 32804337 1458222 *8294744 • Shri R.K. Gera, Managing Director took this amount for safekeeping and returned Rs.57,51770/- to the company for the business use.
From the above facts, the case of the assessee is that the figure of Rs.4,25,58,303/- is not sacrosanct and the same requires downward adjustments to the extent of (1) the expenditure of Rs.82,94,744/- handled directly by Mr. R.K. Gera and (2) the duplicate entries of Rs.14,58,222/-. Both these claims of the assessee are borne out of the impounded material discovered during the survey action on 24-01-2002. We shall now deal with these claims of the assessee for downward adjustments of the unaccounted expenditure of Rs.4,25,58,505/-.
II. Expenditure of Rs.82,94,744/- spent by Shri R.K. Gera, Managing Director of M/s. GDPL : The impounded material reflects the payout to Mr.R.K. Gera. Total of these payments works out to Rs.82,94,744/-. AO holds that this amount constitute unaccounted expenditure in the hands of Mr. R.K. Gera and rejected the safe keeping centric explanation of the assessee. Further, Ld. Counsel for the assessee submitted that Mr. R.K. Gera returned Rs.57,51,770/-, part of it to the company. Ld. Counsel relied on the impounded documents in this regard. Further, Ld. Counsel submitted that it is in the scheme of business operation of the assessee that the unaccounted receipts/flow bi-directionally between the company and the Managing Director of the 10 company depending on the safe keeping need and commercial expediency of the business. Thus, there is bi-directional movement of cash between the company and the Managing Director and the same is done in the business interest of the assessee. In other words, the assessee MD receives the unaccounted cash from the customers or from the company for safe keeping and return the same for meeting the needs of the business. Assessee furnished two tables showing the figures of Rs.82,94,744/- and Rs.57,151,770/- the amounts paid to Mr.R.K.Gera and received from Mr. R.K. Gera respectively. The impounded documents support the above claims of the assessee and the page numbers are specified in the tables too. Therefore, as per the assessee, there is need for granting requisite adjustments in the gross figures of the UE before crystallizing the net figure for addition in the assessment. AO settled for addition on account of UE only as the same is higher than the unaccounted receipts. As per the assessee, only the net figures of UE only are to be considered for making any addition in the assessment.
In para No.4.5 of his order, on considering the said submission of the assessee, the CIT (A) analysed the details of cash receipts as well as cash expenditure in the light of the seized/impounded papers and held the net cash receipts works out to Rs.1,52,02,259 (Para 4.6 of the impugned order) on the issue of unaccounted cash payments and the net cash expenditure in the hands of the assessee works out to Rs.3,28,04,337/-. After the matter was remanded to the AO, who was satisfied about the need for adjustment of the total unaccounted expenditure, the CIT(A) restricted the adjustment to the extent of Rs.14,58,222/- only on account of duplication of entries. In the process, CIT(A) ignored the claim of adjustment of Rs.82,94,744/-, i.e. the amount given to Mr.R.K. Gera, the Managing Director for the company. On considering the said sum of Rs.14,58,222/-, as per the 11 CIT(A), the net unaccounted/expenditure figure comes to Rs.4,10,99,081/- (Rs.4.11 crores rounded off) in place of Rs.4,25,58,303/-. Revenue is not aggrieved on this relief and therefore, there is no appeal before us. As discussed, the assessee demands for further reduction of Rs.82,94,744/- involving Mr. R.K. Gera, M.D. It is not the UE done by the Managing Director for assessee. But this amount was returned to the company as per needs to the extent of Rs.57,51,770/-. In this order, we need to examine if the demand of the assessee for adjustment of UR to that extent is fair and if the CIT(A) is justified in denying the said claim of the assessee.
14. Written Submissions : Ld. Counsel filed the written submissions and according to him, there are 4 issues which require special adjudication and the same emanate from the grounds raised in the assessee in all these 3 appeals by M/s. GDPL. The following are the issues :
(A) the correctness of addition of Rs.1.61 crores (restricted to Rs.1.47 crores by the CIT(A) on account of undisclosed income u/s.69C of the Act.
(B) whether the addition u/s.69C of the Act be restricted to the difference between unaccounted expenditure and unaccounted income declared by the assessee.
(C) Allowing of the set off against the unaccounted receipts to the unaccounted business expenditure of Rs.48,59,242/- and the applicability of explanation u/s.37(1) of the Act with reference to the unaccounted expenditure claiming set off against the unaccounted income.
(D) The applicability of provisions of section 40A(3) of the Act towards the cash expenses discovered during the survey action.
15. Further, the assessee filed the following issue-wise submissions and the same are extracted here as under :
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A. Regarding the first issue of the correctness of the addition of Rs.1.61 crores towards undisclosed income made by the AO u/s.69C of the Act, assessee filed the following written submissions :
"2.1.1 The CIT(A) in his order dated 22-01-2013 added the difference between the amount of undisclosed expenditure amounting to Rs.4,11,00,081/- and the amount of Rs.2,64,00,000/- declared by the Appellant in its revised return as unexplained expenditure us/.69C of the Act.
2.1.2. While making the above addition, the CIT(A) has not considered the fact that the amount of unaccounted cash payments and unaccounted cash receipts considered by the AO includes the cash given to the Managing Director of the Appellant Company i.e. Mr. Rohit Gera, for safekeeping and the amounts returned back by him amounting to Rs. 82,94,744/- and Rs. 57,51,770/- respectively. (Refer Para 8 and Para 6 on Page 66 and 65 respectively of the paper book). The above figures have been proved by the Appellant to be mere contra entries. These amounts although being payments and receipts respectively, cannot be said to be expenditure or income of the Appellant. Hence, the same need to be excluded while computing the addition to be made to the income of the Appellant. Accordingly, the correct amount of unaccounted cash receipts and cash payments should be Rs. 1,52,02,259/- and Rs. 3,28,05,337/- respectively."
Assessee relied on the following judgments/decisions for the legal proposition that when source is found then expenses should not be considered under the provisions of section 69C :
1. CIT Vs. Golani Brothers 85 taxmann.com 355 (Bom.)
2. ACIT Vs. Mulay Constructions Pvt. Ltd. 37 taxmann.com 207 (Pune- Trib.)
3. Dhanvarsha Builders & Developers Pvt. Ltd. Vs. DCIT 102 ITD 375 (Pune-Trib.)
4. CIT Vs. Babulal K. Daga 79 taxmann.com 337 (Guj.)
5. CIT Vs. S.K. Srigiri & Bros 171 taxman 264 (Kar.) B. Regarding the second issue relating to the addition u/s.69C of the Act the amount for addition cannot exceed the difference between unaccounted expenditure and unaccounted income declared by the assessee. In this regard, the assessee submitted the following written submissions :
"3.1 The peak credit of negative cash balance was submitted to the CIT(A), which is at Page No.90 to 95 of paper book. The peak credit of the negative cash balance is Rs.2,15,42,563/- which is well within the amount declared by the assessee as its additional business income.13
3.2 Without prejudice to this fact, a revised working of additional business income and the maximum amount that could be considered by the AO and the First Appellate authority over the amount offered by the assessee is computed as under :
B Particulars Amount
( in Rs.)
A Source:
i. Undisclosed receipts (after setting off
contra entries of MD and duplicate 1,52,02,259
entries) (Refer Table 1)
ii. Total Undisclosed Expenditure
(after setting off contra entries of MD 3,28,05,337
and duplicate entries) (Refer Table 1)
iii. Less: Expenses on land (Refer 2,79,46,095
Annexure-1)
iv. Business expenses available for iv =(ii - iii) 48,59,242
deduction
v. Excess cash available v=(i-iv) 1,03,43,017
vi. Balance declared 1,60,56,983
vii. Total declaration made by Mr. Kumar 2,64,00,000
Gera in his statement during survey. Vii=(v-vi)
B. Application:
Investment in land 2,79,46,095
C. Excess amount spent C=B-A(v)-A(vi) 15,46,095
3.3 The DR has argued that the contra entries, being payments made
to Directors and then subsequently received back from directors, have not been accepted by the department and the same have been considered as additional receipts and expenses. Considering the same to be correct, the working of additional income of the assessee would be as under :
Sr. Particulars Amount
No. ( in Rs.)
A Source:
i. Undisclosed receipts (after setting off
contra entries of MD and duplicate 2,09,54,029
entries) (Refer Table 1)
ii. Total Undisclosed Expenditure
(after setting off contra entries of MD 4,11,00,081 and duplicate entries) (Refer Table 1) iii. Less: Expenses on land (Refer 2,79,46,095 Annexure-1) iv. Business expenses available for iv =(ii - iii) 1,31,53,986 deduction v. Excess cash available v=(i-iv) 78,00,043 vi. Balance declared 1,85,99,957 vii. Total declaration made by Mr. Kumar 2,64,00,000 Gera in his statement during survey. Vii=(v-vi) B. Application:
Investment in land 2,79,46,095 C. Excess amount spent C=B-A(v)-A(vi) 15,46,095
As per the Ld. Counsel for the assessee, the net undisclosed receipts after the adjustment works out to Rs.1,52,02,259/- and the excess amount spent is arrived at Rs.15,46,095/- if the business 14 expenditure (i.e. on land Rs.2,79,46,095 + other expenditure of Rs.48,59,242) are allowed out of adjusted undisclosed expenditure of Rs.3,28,04,337/-. Thus, is it eh case of the assessee that the amount for addition is only Rs.15,46,095/- and not Rs.1.47 crores.
C. Regarding third issue of allowing of set off of undisclosed income against undisclosed cash expenditure for making addition u/s.69C of the Act. This issue relates to the table above. Assessee filed the written submissions and the same are extracted below :
"The CIT(A) has added the entire amount of unaccounted cash expenditure u/s. 69C of the Act to the income of the Appellant. However, on a perusal of Para 7.5 on Page 13 of the assessment order passed by the AO, it can be observed that the AO has considered only the difference between the unaccounted cash receipts of Rs. 4.15 Crores and the unaccounted cash payments of Rs. 4.25 Crores amounting to Rs. 10,00,000/- u/s. 69C of the Act. (Refer Para 7.5 on Page 13 of the order of the AO).
D. Regarding the fourth issue on the applicability of provisions of section 40A(3) of the Act towards the cash expenses discovered during the survey action, the assessee submitted the following written submissions:
In support of his arguments, assessee relied on the following judgments/decisions :
1. Topstar Mercantile Pvt. Ltd. Vs. ACIT 225 CTR 351 (Bom.)
2. Mahindra & Mahindra Vs. DCIT 122 ITD 216 (SB) (Mum-Trib.)
3. Trend Micro India Pvt. Ltd. Vs. DCIT 64 taxmann.com 462 (Delhi-Trib.)
4. ACIT Vs. Anima Investment Ltd. 73 ITD 125 (Delhi (TM)
5. ACIT Vs. Maersk Global Service Centre India Pvt. Ltd. 141 ITR 541 (Mum. Trib.)
6. ACIT Vs. Prakash I Shah 115 ITD 167 (Mum. Trib.)
7. ACIT Vs. Tech Books Electronics Pvt. Ltd. 176 ITJ 20 (Delhi.Trib.)
8. Travel Security Services India Pvt. Ltd. Vs. DCIT 186 TTJ 644 (Delhi Trib.)
9. Mckinsey Knowledge Centre Pvt. Ltd. Vs. DCIT 183 TTJ 553 (Delhi Trib.) In fact, this issue is raised by the Ld. DR for the first time before the Tribunal. Ld.DR is of the opinion that the undisclosed cash payments attracts the provisions of section 40A(3) of the Act.15
E. Further, assessee submitted that, even if the ground raised by the Ld. DR is allowed, the provisions of section 40A(3) of the Act cannot be applied to the case of the assessee as the computation of income has been made not on the books of account, but on the basis of seized material. Ld. Counsel also filed various decisions to suggest that the DR's role is restricted in the Tribunal and he is prevented from raising fresh issues for the first time before the Tribunal. DR cannot make out a new case before the Tribunal.
F. Further, regarding application of provisions of section 37(1) of the Act raised by the Ld. DR, assessee filed the following written submissions :
"a) It was neither during the assessment proceedings nor during the appeal proceedings that the AO or the 1st Appellate Authority has raised any issue regarding disallowance of cash expenditure u/s.37(1) of the Act. It is for the first time before the ITAT that the Ld. DR has put forth this argument. If the contention of the Ld. DR is accepted, then a new issue which has never been part of any dispute at the assessment stage or at 1st appellate stage would emerge and which is against the provisions of the Act.
b) Further, the entire case records were available before the AO as well as the CIT(A). After verifying the same, a view has been taken by the both the authorities to disallow the business expenditure as undisclosed income and not section 37(1) per se.
Hence, remanding the case back to the file of the AO or CIT(A) to review the allowance of expenditure would tantamount to resorting to the powers of review provided u/s.263 of the Act to the CIT. Thus, this argument of the Ld. DR should not be accepted.
c) Further, Explanation 1 to section 37(1) of the Act provides that expenditure shall not be allowed as deduction from business income if it is incurred for any purpose which is an offence or which is prohibited by law.
d) However, in the case of the Appellant, the payments have been made for the purposes of the business of the Appellant. Also, the entire details of expenditure are being verified by the AO from the seize documents and these expenditure includes payments being made to various contractors, for electricity meters and taxes, payments made to brokers, architects, etc. for the ongoing projects of the Appellant. Hence, it cannot in any way be said that the said expenditures are incurred for any purpose which is an offence or which is prohibited under the law.
e) The quantum of expenses will clearly suggest that these are payments made for petty work. Hence, the claim of the Appellant regarding the said expenses is covered by provisions of section 37(1) of the Act not hit by the Explanation to section 37(1) of the Act, and hence is an allowable expenditure."
16This issue/argument is relevant in the context of the claim of the assessee that the undisclosed expenditure of Rs.3.28 crores is for business purposes only. The same is allowable expenditure u/s.37 of the Act. There is no violation to the provisions of section 37(1) of the Act.
16. Per Contra, Ld. DR for the Revenue relied on the order of the AO. On this issue of claim of contra entries, Ld. DR submitted that the assessee needs to explain the contra entries specifying the correlation between cash in and cash between the assessee and the Managing Director of the company, then only the assessee's claim is allowable. CIT(A) expects one to one relationship for grant of relief on the claim of addition of Rs.82,94,744/- on account of contra entries. Further, Ld. DR argued vehemently stating that the expenditure is to be disallowed u/s.37 of the Act due to contravention of the law. Further, Ld. Counsel argued that the provisions of section 40A(3) of the Act or its proviso are attracted to the unaccounted expenditure in cash. However, Ld. DR is silent on the specific expenditure of Rs.10,000 or Rs.20,000/- as the case may be, details of aggregation of cash payments etc., DECISION OF THE TRIBUNAL ON ADDITION OF Rs.1.61 crores
17. On hearing both the representatives, we find that all the above 4 issues are relevant to the core issue relating to the addition of Rs.1.61 crores made by the AO in addition to the amount of undisclosed income declared by the assessee in the return of income.
Case of the assessee : As per the assessee, the undisclosed expenditure based on the impounded material quantified in the assessment order works out to Rs.4,25,58,303/-. After giving adjustments on account of (1) duplicate entries -Rs.14,58,222/- and (2) cash given to Mr. R.K.Gera, MD of the company - Rs.82,94,744/- for 17 safe keeping, the net undisclosed expenditure as per the assessee works out to Rs.3,28,05,337/- only. Out of this, the business expenditure incurred on the land works out to Rs.2,79,46,095/- leaving the balance of unaccounted expenditure at Rs.48,59,242/- only. It is the case of the assessee that entire net unaccounted expenditure is business expenditure and the same is allowable u/s.37(1) of the Act. The net undisclosed expenditure of Rs.3,28,05,337/-, therefore, constitutes an allowable expenditure. Alternatively, the assessee submitted that excess expenditure spent in the process works out to only Rs.15,46,095/- (Ref. Table at para 13 of this order). The addition needs to be restricted to the same against the sum of Rs.1.47 crore confirmed by the CIT(A).
From the point of view of the undisclosed receipts, Rs.4,15,58,368/- is the gross receipts and there is no dispute. If the same is adjusted towards (a) duplicate entries amounting to Rs.95,44,459/- (b) cash received back from Mr. R.K. Gera amounting to Rs.57,51,770/- (c) amounts considered for other assessment years other than A.Y. 2005-06 amounting to Rs.1,10,59,880/-, the net unaccounted receipts works out to Rs.1,52,02,259/-. According to the assessee, after all these adjustments, the excess cash available works out to Rs.1,03,43,017/-. Against this, assessee disclosed income of Rs.2.64 crores and therefore, no addition is called for if the above adjustments are approved by the Tribunal. The impounded material is heavily relied by the assessee for all these workings.
Thus, from undisclosed receipt angle too, Ld. Counsel for the assessee submitted that, out of gross undisclosed receipts of Rs.4.25 crores, the net undisclosed receipts is only Rs.1,52,02,259/- after adjustment of (1) duplicate entries; (2) contra entries and (3) undisclosed receipts for other assessment years. Ld. Counsel for the 18 assessee adjusted the said Rs.48,59,242/- against the undisclosed receipts of Rs.1.55 crores and arrived at the available expenditure of undisclosed receipts of Rs.1,03,43,017/-. Against this, assessee already declared Rs.2.64 crores and the undisclosed investment in land is Rs.2,79,46,095/- having the excess investment of Rs.15,64,095/-. Accordingly, the addition if any should be restricted to Rs.15,46,095/- only and asked for deleting the addition of Rs.1.47 crores.
Ld. Counsel for the assessee brought our attention to the issue of the existence of duplicate/contra entries on one side and the correlation of entries of cash given/received to/from Mr. R.K. Gera to company, and filed various workings based on the impounded documents/Bundle No./Page No. etc. Mentioning that all these figures emanate from the impounded material, Ld. Counsel for the assessee summed up by stating that the CIT(A) considered this fact and granted benefit on account of duplication of entries to the extent of Rs.14,58,222/-. Ld. Counsel submitted that AO cannot ignore certain entries and selectively prefer other entries for the purpose of making addition of Rs.1.61 crores. However, the CIT(A) erred in rejecting other due adjustments on account of (a) cash given to Mr. R.K. Gera - Rs.82,94,744/- and (b) cash received from Mr. R.K. Gera - Rs.57,51,770/-. We find it relevant to extract the table showing the cash payment to Mr. R.K. Gera amounting to Rs.82,94,744/- and return of the cash to company to the extent of Rs.57,51,770/-. The working of Rs.82,94,744/- is extracted as follows :
Page Date of Amount paid to Page No. Date of Amount No. of payment to MD of Bundle receiving the received Bundle MD amount back from MD 122 17.03.2004 8,75,000 122 26.04.2004 1,00,000 121 2,00,000 122 07.04.2004 50,000 122 20.04.2004 5,00,000 121 05.05.2004 1,31,770 121 20.05.2004 4,00,000 121 26.05.2004 20,000 121 29.05.2004 1,03,544 23.08.2004 50,000 19 121 28.08.2004 5,50,000 121 04.09.2004 8,16,000 121 19.10.2004 7,75,000 121 27.10.2004 1,80,200 121 28.10.2004 15,50,000 121 29.10.2004 15,00,000 121 01.11.2004 5,00,000 120 21.12.2004 12,00,000 101 24.12.2004 1,00,000 120 04.01.2005 50,000 120 22.12.2004 10,00,000 120 28.01.2005 10,00,000 120 29.12.2004 4,00,000 120 21.02.2005 1,00,000 120 23.02.2005 5,50,000 120 15.02.2005 12,20,000 120 07.03.2005 7,00,000 Total 57,51,770 68/69 02.09.2004 3,00,000 Total 82,94,744 Highlighting the unfair conclusion, Ld. Counsel submitted that the CIT(A) selectively ignored the details on the impounded paper on flimsy grounds of one to one nexus of cash payments and receipts involving Mr. R.K. Gera. It is in the normal course of business of any assessee wherever there is undisclosed receipts and payments, the Managing Director receives the unaccounted cash for safe keeping and spends or returns the same as per its needs. Bringing our attention to certain documents filed before us, Ld. Counsel submitted that the contra entries relating to establishing the cash received by Mr. R.K. Gera for the company and spending the cash for the purpose of the company.
Ld. Counsel submitted that the impounded material is the source of both the undisclosed receipts and undisclosed payments and therefore, there is a requirement of allowing other adjustments narrated above. Ld. Counsel filed a sheet giving the details of reconciliation in support of the claim of adjustment on account of contra entries too. The same is extracted as under :
Statement showing contra entries of cash received from customers and given to the MD on Page 85 and 86 of PB.
Page Date of Narration Amount Page Date of Amount paid
No. of receipt from of receipt No. of payment to to MD
Bundle customer from Bundle MD
customer
122 12-3-2004 Received from Dr. Shastri 1200000 122 17.03.2004 50,000.00
(Pg.84)
20
122 07.04.2004
122 20.04.2004 5,00,000.00
121 20.05.2004 Received from Shital 400000 121 20.05.2004 4,00,000.00
Ahuja-Gera Legend
(Pg.85)
121 26.05.2004 Received from Ramlal 80000 121 26.05.2004 20,000.00
Chaudhari - Gera Legend
(Pg.85)
122 12.03.2004 Received from Anjum 66500 121 29.05.2004 1,03,544.00
Datta (Pg.84)
122 18.03.2004 Received from Anjum 6300
Datta
122 27.04.2004 Received from Gumani 25000
121 26.05.2004 Received from Gumani 25000
121 23.08.2004 Received from Anjum 242800 23.08.2004 50,000.00
Datta
121 25.08.2004 Received from Sarita 300000 121 28.08.2004 5,50,000.00
Agnihotri
121 27.08.2004 Received from Parwani 250000
121 01.09.2004 Received from Tarwala 300000 121 04.09.2004 8,16,000.00
121 01.09.2004 Received from Parwani 200000
121 02.09.2004 Received from L.K. 316000
Chinchankar
121 08.10.2004 Received from Rani Rajani 550000 121 19.10.2004 7,75,000.00
121 18.10.2004 Received from Samina 225000
Santrampurwala
121 27.10.2004 Received from Neeli Singh 180200 121 27.10.2004 1,80,200.00
121 28.10.2004 Received from Anjali 2050000 121 28.10.2004 15,50,000.00
Bhongale 121 01.11.2004 5,00,000.00
101 24.12.2004 1,00,000.00
120 04.01.2005 50,000.00
120 27.01.2005 Received from Major 4900000 120 28.01.2005 10,00,000.00
Bajaj 120 21.02.2005 1,00,000.00
120 10.02.2005 Received from Dubay 50000 120 23.02.2005 5,50,000.00
120 11.02.2005 Received from Dr. 500000
Jagwani
120 24.02.2005 Received from Dr. 500000 120 07.03.2005 7,00,000.00
Jagwani
120 04.03.2005 Received from Dr. 500000
Jagwani
Pages other than 120, 121 and 122
121 23.07.2004 Received from Dubey 100000 68/69 02.09.2004 3,00,000.00
121 23.08.2004 Received from Anjum 242800
Datta
Total 82,94,744.00
Therefore, Ld. Counsel submitted for grant of adjustments narrated above and delete the addition of Rs.1.61 crores.
18. Case of the Revenue : Per contra, the arguments of Ld. DR for the Revenue revolves around the need for confirming the order of CIT(A) without giving further adjustments as demanded by the assessee, both on account of unaccounted expenditure as well as the unaccounted 21 receipts. However, Ld. DR for the Revenue did not deny the fact of emanating from the impounded material, which establishes the fact of undisclosed receipts and the payments on one side, the flow of cash bi- directionally from assessee to the Managing Director and reverse.
CONCLUSION
19. We heard both the parties on this issue of making addition of Rs.1.61 crores. We also considered the correctness of the need for grant of benefit of the adjustment of Rs.82,94,744/- towards the contra entries qua the receiving and returning of the cash by Mr. R.K. Gera, MD of the company. On consideration, we find that the demand for the said adjustment in principle has the basis of the figures emanating from the impounded papers during the survey action. As such, the assessee already offered the additional income of Rs.2.06 crores and paid taxes on this. Over and above the same, AO made addition of Rs.1.61 crores and the same is the subject of all this litigation. Therefore, in our view, there is no justification for rejecting the claim of adjustments. It is well settled legal proposition that the contents of the incriminating papers have to be considered as a whole and not in a piece meal. AO cannot selectively consider some of the entries on said pages and not the others. It is also well observed practice of business that the Managing Director of the company do receive unaccounted receipts from the clients/company and keep with him in safe custody. Managing Director returns or spends the same for the company too. Further, it is also not uncommon that such receipts are sometimes recouped outside the books of account, although the same constitutes unaccounted transactions. In our view, it is not correct to ignore these facts in business when we need to determine the net unaccounted income of the assessee.
22
20. Regarding the issue of grant of benefit of contra entries qua the Rs.82,94,744/- allegedly kept with the Managing Director, we find the case of the assessee is that the same is not to be included in the gross unaccounted expenditure of Rs.4.25 crores as it is the money given to Managing Director for safe keeping. It is basically kept by the company with him for safe keeping and the same is returned to the company as per its need. As per the impounded papers, the Managing Director returned to the company to the extent of Rs.57,51,770/- to be precise out of the said safely kept sum of Rs.82,94,744/-. We find that these calculations have the strength of the impounded material. The balance of Rs.25.43 lakhs, i.e.(Rs.82,94,744/- - Rs.57,51,770/-) is with the Managing Director at that point of time. If the same is considered, the net undisclosed expenditure shall be only Rs.3.28 crores and not Rs.4.11 crores. These workings are rejected by the AO/CIT(A), not for the reason that these entries are not for the impounded material, but for the reason of one to one correlation of figures on the said material. On the contrary, AO/CIT(A) have no evidence whatsoever to demonstrate that the said Rs.82,94,744/- given by the company, constitutes an unaccounted expenditure and not for safe keeping. We cannot understand otherwise, how the Revenue shall explain the fact of refund of Rs.57,51,770/- by Mr. R.K. Gera to the company. The incriminating material confirms this fact.
Therefore, considering the above correlation supplied by the assessee, in our view, the said conclusion of the AO/CIT(A) against the assessee is not sustainable. In the absence of any other corroborative evidences, on the issue of one to one correlation, the end of the previous year-net figures need to be considered after set off of cash receipts and return after safe keeping is considered. As such, there is no legal requirement of establishing such one to one correlation of figures. Therefore, in the absence of any incriminating information with the AO 23 to establish that cash given to Managing Director for safe keeping is not for business purposes, the safe keeping-centric explanation of the assessee needs to be accepted. Hence, in that case, the net expenditure figure of Rs.3.28 crores is proper. To that extent, the order of the CIT(A) needs to be reversed.
21. Thus, the issue of benefit of adjustment of Rs.82,94,744/- is held in favour of the assessee and now we shall now deal with the extent of undisclosed expenditure that is required to be confirmed in place of Rs.1.61 crores.
In this regard, we have examined the tables furnished b y the Ld. Counsel and extracted in Para No.14 above, said calculations provided by the assessee in terms of the application of the said net undisclosed expenditure of Rs.3.28 crores constitutes a possible explanation. According to the assessee, the major expenditure was incurred on the transaction relating to land purchase, i.e. Rs.2.79 crores. Rs.48.59 lakhs was spent on other business expenditure. Assessee furnished the list of such expenses. If the same are considered, the excess expenditure spent outside the books works out to Rs.15,46,095/- only. The said calculation is not disputed. However, Ld. DR for the Revenue has objection on the same or legal point of view. Ld. DR argued that the undisclosed expenditure of Rs.48.59 lakhs need not be allowed as the same is spent in violation of the provisions of sections 37(1) and 40A(3) of the Act. We shall deal with these arguments separately. Coming back to the excess undisclosed expenditure of Rs.15,46,095/-, we find this amount needs to be added to the income returned by the assessee and not Rs.1.61 crores as done originally in the assessment. Assessee has no objection on this issue. To that extent, the arguments of Ld. Counsel are allowed. Thus, the sum of Rs.15,46,095/- is confirmed in place of Rs.1.61 crores.
24
To sum up, the cash flow in and out is the part of safe keeping and the request for adjustment of undisclosed expenditure to the tune of Rs.82,94,744/- is allowed. Therefore, the undisclosed expenditure works out to Rs.3.28 crores only (i.e. Rs.4.11 cr - 0.83 cr) and not Rs.4.11 crores (rounded off). Further, also, the excess expenditure spent works out to Rs.15,46,095/-. At the end, we confirm to the extent of Rs.15,46,095/- only in place of Rs.1.61 crores. To that extent, the order of the CIT(A) stands reversed. Thus, relevant grounds of the assessee are partly allowed.
22. Applicability of the provisions of section 40A(3) of the Act to the undisclosed expenditure. Regarding the issue of applicability of the provisions of section 40A(3) of the Act, we have considered the DR's submission to keep the issue open for examining the applicability of the said provisions to the cash expenditure discovered during the search action. As such, this issue is not considered by the AO in the original assessment proceedings or in the First Appellate proceedings. Strictly speaking, this is the issue raised for the first time by the Ld. DR before us. On considering the same, we find the issue/argument is raised orally for the first time before us. Hence, the same is unsustainable, in principle.
Without prejudice, we examined the list of expenses of Rs.48,59,292/- and find most of them are paid to local bodies towards PMC taxes and electrical charges etc. Other expenses are found to be below the specified limit of Rs.10,000/- or Rs.20,000/-, as the case may be. Accordingly, the arguments of Ld. DR are dismissed on technical grounds.
23. Allowability of undisclosed expenditure for business purposes in the another argument for consideration before us. Regarding the 25 applicability of provisions of section 37(1) of the Act as argued by the Ld. DR, to such an undisclosed expenditure on revenue account, the case of the Revenue is that the said unaccounted expenditure of Rs.48,59,292/-, the same cannot be considered as an allowable business expenditure in view of the provisions of proviso to section 37(1) of the Act. In this regard, we perused the break-up of details furnished before us and, as discussed above, we find from the list furnished before us that expenditure was incurred on account of PMC taxes, electrical charges, sales promotion, marketing charges etc. All these accounts broadly falls in revenue zone and for the business expenses of the assessee. Infact, the major expenditure of Rs.2,79,46,095/- was incurred in connection with the purchase of land and there is no dispute about this transaction. The dispute is only on the sum of Rs.48,59,292/-. In our view, the proviso to section 37(1) of the Act will not come to this picture as no contravention of any law is made out by the AO. Therefore, AO shall note that these expenses are allowable for working out the excess expenditure spent outside the books of account. Therefore, this part of the arguments of Ld. DR stands dismissed.
24. In the result, the appeal of the assessee (ITA No.597/PUN/2013) is partly allowed.
ITA No.1609/PUN/2014 - By Assessee
25. This appeal is filed by the assessee in connection with the modification order of the CIT(A). The same is discussed in the preceding paragraphs of the order. In his order, the CIT(A) slightly modified the direction to AO and the same went against the assessee. Therefore, assessee filed this appeal.
26
26. In his order, the CIT(A) did not grant the benefit of set off of the brought forward losses of Rs.1.04 crores (rounded off) pertaining to A.Y. 2004-05 against the income of this year. In this regard, the CIT(A) observed that the AO did not allow the same originally in view of the fact that the assessment proceedings for the A.Y. 2004-05 were incomplete at the relevant point of time. The losses were not crystallised then. Therefore, the CIT(A) directed the AO to allow set off of brought forward losses pertaining to the A.Y. 2004-05 in accordance with law. Subsequently, vide order dated 25-06-2014, the CIT(A) amended the above direction on the issue relating to the claim of set off of brought forward losses pertaining to A.Y. 2004-05 and withdrawn the said direction partly. In this regard, the CIT(A), on noticing the error in the last sentences in Para No.6 of his order, the expression, i.e. "in accordance with law" was expunged. CIT(A) directed the AO to make correction to that extent as per his modification order dated 25-06-2014 which reads as under :
"4. In view of the above and since the direction of the CIT(A) is to allow set off brought forward losses 'in accordance with law', no corrigendum is necessary in the matter. When there are no brought forward losses pertaining to A.Y. 2004-05 as on date, question of set off of brought forward loss of that year against the income of A.Y. 2005-06 does not arise as per law and even otherwise such brought forward business loss, if any, cannot be set off against the 'deemed income' assessed for A.Y. 2005-06."
On the given facts of the issue, in our view, the decision of the CIT(A) is fair and reasonable and it does not call for any interference. Accordingly, the legal ground raised by the assessee is dismissed.
27. In the result, the appeal of the assessee is dismissed. ITA No.767/PUN/2013 - By Revenue
28. As discussed above, while dealing with the addition of Rs.1.61 crores, we have already dealt with the relief of Rs.14,58,222/-. We have held that the sum of Rs.15,46,095/- is only sustainable out of Rs.1.61 27 crores and balance is ordered for deletion. Therefore, this issue stands adjudicated against the Revenue by our finding on the said issue. Therefore, the only effective issue that remains to be adjudicated relates to the relief granted to assessee on the addition of Rs.50,20,400/-. We shall take it up in the following paragraphs of this order.
29. Addition of Rs.50,59,040/- : Regarding the addition of Rs.50,59,040/- on account of entire expenditure incurred on the capital asset involving Mr. Dheeraj Keswani, CIT(A) considered the submission of the assessee and granted relief to the assessee as per the discussion given in Para No.5.1 of his order and the same is extracted here as under :
"5.1. I have considered the .submissions made as per above and enclosure-II to the Statement of Facts. During the relevant financial year the appellant sold shops no. 1A1 and 1A2 at P.T. Gera Centre to Shri Dhiraj Keswani and Mrs. Varsha Keswani. The sale consideration excluding the car parking area (which was later on reduced as per the wishes of the customer) of these 2 units was Rs.1,99,00,000. The appellant had inadvertently included this amount as sale proceeds in the original return of income. However since the appellant had been showing PT Gera Centre as part of fixed assets and claiming depreciation thereon, the capital gains in respect of sale of fixed assets were to be computed in accordance with provisions of sec. 50 of the Act and the sum of Rs.56,20,400 was to be debited to the additions to fixed assets and not to the P & L account. This was accordingly corrected in the revised return of income dated 7.3.2007. It is argued before me, that the details of the expenses reimbursed to Shri Dhiraj Keswani as per the invoices raised by M/s Lemon Design Pvt. Ltd. and M/s Venkatesh Construction, the details of payments made directly to Shri Dhiraj Keswani (which were mostly paid by cheques except small payments made to labour by cash) were all filed before the Assessing Officer. However, the Assessing Officer has not accepted the contention of the appellant mainly because the balance amount pertaining to the incomplete work could have been adjusted against the sale consideration. I have examined this contention of the appellant. The appellant has received Rs.96,00,000 on account of enhanced amenities from the Keswanis which is included in the total consideration of Rs.1,99,00,000 and which were shown as part of sale proceeds. The amount of Rs.56,20,400 was claimed as revenue expenditure. In the revised return necessitated by the correction of these entries to reveal short term capital gains u/s 50 this expenditure of Rs.56,20,400 has been capitalized. Therefore, the dispute is only whether this particular expenditure is capital or revenue expenditure. It is seen that the Assessing Officer has only disallowed the amount in question on the basis of certain surmises and conjectures. The reimbursement of payments to Dhiraj Keswani was through account payee cheques. Accordingly, the amount in question has been correctly added by the appellant to the block of assets and claimed as revenue expenditure. Accordingly, Ground No. 2(c) is allowed in favour of the appellant."28
CONCLUSION
30. On hearing both the sides on this issue, we find that there is no dispute about the sale of shops to Mr. Dheeraj Keshwani for a sum of Rs.1,99,00,000/- with extra works specified in the sale agreement. Assessee could not complete those works and the same works out to Rs.56,20,400/-. We find that the said amount has to be borne by the assessee. Since the works are not done by the assessee, the assessee reimbursed the same to Mr. Dheeraj Keshwani. Therefore, assessee claimed the same as Revenue expenditure in his account. However, the same was claimed as Capital expenditure in the revised return of income.
With the background of these facts, we find that the CIT(A) gave a categorical finding in stating that the assessee paid the amount in account payee cheque to Mr. Dheeraj Keshwani and there is no dispute about it. As such, assessee also did not claim the said expenditure as the Revenue expenditure finally. Therefore, in our view, the decision of CIT(A) given in Para No.5.1 of his order above is favour of the Revenue and it does not call for any interference. Accordingly, the grounds raised by the Revenue are dismissed.
31. In the result, appeal of the Revenue is dismissed.
32. To sum up, ITA No.597/PUN/2013 is partly allowed. ITA No.1609/PUN/2014 relating to rectification order u/s.154 proceedings is dismissed. ITA No.767/PUN/2013 filed by the Revenue is dismissed.
Order pronounced in the open court on this 01st day of June, 2018.
Sd/- Sd/-
(VIKAS AWASTHY) (D. KARUNAKARA RAO)
याियक सद य /JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
पुणे Pune; िदनां क Dated : 01st June, 2018
सतीश
29
आदे श की ितिलिप अ ेिषत/Copy of the Order forwarded to :
1. अ पीलाथ / The Appellant
2. थ / The Respondent
3. The CIT(A)-1, Pune
4. CIT-1, Pune
5. िवभागीय ितिनिध, आयकर अ पीलीय अ िधकरण, "A Bench"
Pune;
6. गाड$ फाईल / Guard file.
आदे शानु सार/ BY ORDER,स स ािपत ित //True Copy// Senior Private Secretary आयकर अ पीलीय अ िधकरण ,पुणे / ITAT, Pune