Income Tax Appellate Tribunal - Hyderabad
Sri Kamineni Srinivasulu, Nellore vs Department Of Income Tax on 8 April, 2013
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IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'A', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER
ITA No.292 of 2011
Asst. Year 2003-04
ACIT, Cir-1, Sri Kamineni Srinivasulu,
Nellore. -vs- Nellore.
PAN:AGOPK2574M
(Appellant) (Respondent)
C.O. No.42/Hyd/2011
In ITA No.292/Hyd/11
Assessment year:2007-08.
Sri Kamineni Srinivasulu, ACIT, Cir-1,
Nellore. -vs- Nellore.
PAN:AGOPK2574M
(Appellant) (Respondent)
Department by: Smt. Amisha S. Gupth
Assessee by : Sri J. Srinivasulu
Date of hearing: 08-4-2013.
Date of pronouncement: 19 -4-2013
ORDER
PER SAKTIJIT DEY, JUDICIAL MEMBER:
The appeal filed by the department and Cross Objection by the assessee are directed against the order dated 29-10-2010 of CIT (A), Guntur passed in ITA No.0168/CIT (A)/GNT/09-10 pertaining to the assessment year 2007-08.
22. The Revenue raised the following grounds before us:-
1. The orders of the CIT (A) Guntur is contrary to law and facts and circumstances of the case.
2. In the facts and circumstances of the case, CIT (A) is not justified in allowing claim of the assessee with regard to suppression of sales of Rs.57,50,000/- without any additional evidence.
3. CIT (A) erred in allowing the disallowance of Rs.18,00,000/- out of Rs.20,00,000/- made by the AO, without appreciating the facts with regard to quantum and nature of expenditure/business in the absence of single bill/voucher.
4. CIT (A) ought to have considered the facts and circumstances of the case with regard to payments made by the assessee violating the provisions of Sec. 40A(3) of the Act and confirm the act of the AO.
5. CIT(A) is not justified in allowing the addition towards deficit income offered by the assessee since the same is offered besides the defects pointed out buy the department during the course of survey and failed to appreciate the facts brought on record by AO in this regard.
6. Any other grounds that may be urged at the time of hearing"
3. Ground Nos. 1 and 6 are general in nature and hence they do not require any adjudication.
4. In ground No. 2, the department has challenged the deletion of addition made of an amount of Rs.57,50,000/- on account of suppression of sales.
5. Briefly the facts relating to the issue are, the assessee an individual is engaged in the business of conversion and development of agricultural land into saleable housing plots. For the impugned assessment year, the assessee filed his return of income on 16-10-2007 declaring total income of 3 Rs.14,68,660 and agricultural income of Rs.1,33,440/-. The return was initially processed u/s 143(1) of the Act. Subsequently, a survey was conducted on the assessee on 4-3-2008. Consequent upon the survey operation, the assessee filed a revised return of income declaring total income of Rs.30,89,820/- along with agricultural income of 1,33,440/-. In course of scrutiny assessment proceedings, the AO noted that the assessee has shown total saleable land of Rs.127278 sft. The AO noted that, normally in a layout 40% of the total area will be left for roads and other amenities and 60% of the land will be towards residential plots. Whereas the assessee has used 55% of the total area for residential plot and kept apart 45% for other amenities like park, roads etc.. This in the opinion of the AO is on the higher side. The AO therefore issued a letter to the assessee proposing to add the cost of the balance 5% i.e., 11,500 sft of land as lands suppressed and utilised for residential purposes. Though the assessee objected to the proposed addition, the AO rejected the same by observing that the evidence produced by the assessee in the form of the extract taken from internet from the website of Bangalore Metropolitan Region Development Authority has no evidentiary value as the land in question is in Kundanam Panchayat and not located in Bangalore. The AO adopting the rate of Rs.500/- per sft for the alleged suppressed land arrived at the cost at Rs.57,50,000/- which was added to the total income as undisclosed income. The assessee being aggrieved of the addition made challenged the same by filing an appeal before the CIT (A).
6. In course of hearing before the CIT (A), it was submitted by the assessee, during the relevant period the assessee developed 5 acres and 12 guntas of land owned in survey No.112 (part) situated at Arasanahalli village, Kundana hubli, Devanahalli Taluq. The assessee had initially submitted a plan for approval with 84 numbers of plots numbered as 1 to
84. However, the authorities concerned observing that non saleable land 4 left for parks and roads was less than quantum fixed by the government of Karnataka did not approve the plan submitted by the assessee. Finally, the lay out plan was approved for saleable area of 126971 sft consisting of 74 plots only. The area of remaining 10 plots declared as non saleable was included in the common area of road and park thereby arriving at the total saleable area at 54.99% as per the prevailing norms in that area. It was submitted that out of 74 plots allowed to be sold, the assessee had sold 69 plots during the financial year 2006-07 and the balance plots were shown as closing stock. It was submitted that though the assessee has submitted approval and layout plans before the AO but the same were ignored while making addition on account of suppressed sales. The CIT (A) after considering the submissions of the assessee deleted the addition by holding that the AO was guided by surmises and guess work rather than any cogent material brought on record.
7. The learned DR supporting the order of the AO submitted that as saleable area disclosed by the assessee is less than the normal, the AO was correct in drawing inference of suppression of sales.
8. The learned AR, on the other hand, strongly supporting the order of the CIT (A) submitted that the AO has made the addition purely on conjectures and guess work. It was submitted that the AO has not disclosed the basis on which he has come to a conclusion that normally saleable area is 60% of the total lay out. Similarly, there is no basis for the AO to come to a conclusion that the cost of land was Rs.500 per sft. The learned AR drawing our attention to the lay out approved by the concerned panchayat at page-30 of the paper book submitted that the plan was approved for a total saleable area of 54.99%. The learned AR also referred to the condition for approval of plan from the website of the Bangalore Metropolitan Region Development Authority (BMRDA in short) which is at page-31 of the paper book to substantiate his contention that even as per the prevailing 5 law of the State Government, the saleable residential plots shall be maximum 55% of the total area.
9. We have heard rival contentions and perused the material on record. On perusal of the assessment order, it is quite evident that the AO has come to a conclusion that the assessee has suppressed sale of residential plots to the extent of 5% only on the basis that normally 60% of the total lay out area is kept for residential plots. But, on what basis, the AO had fixed the aforesaid bench mark is not available on record. From the approved layout of concerned panchayat which is at page-30 of the paper book as well as the condition for approval fixed by the BMRDA which is at page-31 of the paper book it is clearly established that the saleable area as per the approved layout is 54.99% or approximately 55%. Similarly, the AO has not brought any material on record on the basis of which he has adopted the cost of land at Rs.500 per sft. Therefore, the addition having been made purely on conjectures and surmises and not being supported by any cogent evidence brought on record is legally unsustainable. The conclusion of the CIT (A) in this regard calls for no interference and accordingly the same is upheld. Hence the ground raised by the department is dismissed.
10. Ground No.3 is with regard to CIT (A) sustaining an amount of Rs.2,00,000/- out of the total disallowance of Rs.20,00,000/- made by the AO on account of development expenses.
11. Briefly the facts of the issue are, during the assessment proceedings, the AO noticed that the assessee has claimed development expenses of Rs.99,45,680/- incurred towards levelling of site, compound wall sanitary arrangement, watering arrangement etc. When the AO asked the assessee to produce supporting evidence with regard to the expenditure claimed, the assessee produced self-made vouchers. The AO opined that since the entire 6 expenditure claimed was supported by self made vouchers only, possibility of inflating expenditure cannot be ruled out. He therefore disallowed 20% of the total expenditure claimed amounting to Rs.20 lakhs and added it to the total income of the assessee. The disallowance made by the AO was challenged in appeal before the CIT (A).
12. The CIT (A) though was of the view that self made vouchers lack authenticity and fairplay but at the same time, he held that the need of such expenditure in the activities of the assessee cannot be ruled out. Accordingly, he restricted the disallowance to Rs.2 lakhs only.
13. We have considered the contentions of the parties on this issue and perused the material on record. Undisputedly, the entire development expenditure claimed for an amount of Rs.99,45,680/- was supported by self made vouchers only. Therefore, the payments made cannot be fully verified. The assessee has also not produced any other corroborative evidence to prove the fact that the entire expenditure is genuine. In these circumstances, though it has to be accepted that the assessee must have incurred expenditure towards development of the land but, at the same time, the possibility of inflating the expenditure cannot be altogether ruled out. As it appears, disallowance of 20% of the expenditure made by the AO is on the higher side. Similarly, the CIT (A), in our view, was not justified in restricting the disallowance to Rs.2 lakhs only. Considering the totality of facts and the circumstances, we are of the view that disallowance of an amount of Rs.10 lakhs would be reasonable enough to take care of the excess expenditure claimed by the assessee. Accordingly, the order of the CIT (A) is modified to this extent. The ground raised by the department is partly allowed.
714. In ground No.4, the department has challenged the deletion of addition made by the AO on account of cash payment made in violation of section 40A(3) of the Act. During the assessment proceedings, the AO noted that out of the total development expenditure of Rs.99,45,680/- the assessee has made several cash payments to the tune of Rs.84,89,098/- in violation of provisions of section 40A(3). On verification of the vouchers , the AO noticed that the assessee has made payments of less than Rs.20,000/- several times on the same day to the same person to get over the restriction put under 40A(3) of the Act. It was observed by the AO in the assessment order, since the land is situated in the outskirts of Bangalore City and very near to International Airport; the unavailability of banking facility is not acceptable. The AO further observed that the assessee's contention that the work was done on war footing which necessitated cash payment is also without any basis as the assessee has not advanced any cogent reason in that regard. The AO was of the view that the nature of development work does not involve any sudden payment and work to be done on a particular day is properly planned and executed accordingly. Hence, there is no necessity to make piecemeal payments several times on the same day to the same person without any idea that the assessee has to pay to the same person on more than one occasion. In the assessment order, the AO further noted specific instances on 3-4-2006, when the assessee made 18 payments less than Rs.20,000/- to one Mr. Ch.Kumar towards dozer charges . Again on 22-11-2006, thirty payments were made to Mr. K. Jayaramaiah towards expenditure for "Taru Roads". On the basis of the aforesaid observations, the AO came to hold the view that the assessee has violated the provisions of section 40A(3) of the Act and accordingly disallowed an amount of Rs.16,97,820/- being 20% of the amount paid in cash. The assessee being aggrieved of the disallowance made, challenged the same in the appeal filed before the CIT (A).
815. It was contended before the CIT (A) that though the AO in the body of the assessment order has noted that payments for an amount of Rs.84,89,098/- as mentioned in the annexure to the assessment order was made in cash in violation of section 40A(3), no such annexure mentioning the details made in cash was actually annexed to the assessment order. It was therefore contended that the observation of the AO is not correct. The assessee submitted that the alleged cash payment of Rs.84,89,098/- is only a hypothetical figure without any basis. It was further submitted that the AO in the assessment order referred to 30 payments made on 22-11-2006 to one Mr. Jayaramaiah towards expenditure for 'Taru Road". However, such conclusion drawn by the AO cannot be correct as it is not possible for a single person to construct a road nor all the thirty payments represent the wage of one person for one day. The CIT (A) considering the submissions made by the assessee and perusing the record was of the view that the specific instance of payment made to K. Jayaramaiah in a single day is difficult to comprehend. The CIT (A) was further of the view, as the payments made to unskilled work force which was payment made toward work rendered and not spending in cash expenditure, there is no violation of section 40A(3) of the Act. Accordingly, he deleted the addition made by the AO by invoking the provisions of section 40A (3).
16. The learned DR taking a cue from the observation made by the AO in the assessment order submitted that number of payments of less than Rs.20,000 was made on the same day to the same person in cash to avoid the restrictions put u/s 40A(3) of the Act. It was further submitted that since the payments were made in violation of Section 40A (3) of the Act, the disallowance made by the AO of 20% of the payments made in cash is in order.
917. The learned AR submitted before us that considering the nature of work done by the assessee it is common practice that many people are engaged in the work to do different activities and payments are made through representative of such workmen so as to distribute the same amounts to workmen. Hence, situation may demand that payments have to be made number of times to the same person on the same day and such payment made in cash is allowable u/s 40A(3) provided that such payment is less than Rs.20,000 at a time. It was contended that the observation made by the AO to the effect that 30 payments were made on a single day to one Mr. K. Jayaramaiah towards expenditure for Taru Road also does not stand to reason as it is not possible for a single person to construct a road and the amount paid cannot also represent the wage of one person for one day. The learned AR further submitted that, as it is the provisions of section 40A(3) is not applicable to the facts of the present case as each of the payment made to a person in a single day is less than Rs.20,000/-. It was submitted that such interpretation of the provision is the correct interpretation is established from the amendment brought to such provision by finance Act 2008 which provides that even aggregate of payment made to a person in a day would also attract the provisions of section 40A(3). However such amended provision would be applicable only for the assessment year 2009-10. Hence, no disallowance can be made for the impugned assessment year. In support of such contention, the learned AR relied upon the following decisions:-
i) CIT vs. Aloo Supply Co. (Orissa) (121 ITR 680)
ii) CIT vs. Triveni Prasad Pannalal (M.P) (228 ITR 680)
iii) CIT vs. Kothari Sanitation and Tiles Pvt. Ltd. (Mad.)(282 ITR 117)
18. We have heard rival submissions and perused the material on record.
10It is not in dispute that no single payment exceeding an amount of Rs.20,000/- was paid in a day to any person. It is also a fact on record that the assessee is engaged in the development activities of plots by making a layout, constructing roads, parks etc. Hence, the assessee has to engage labourers who are unskilled and from unorganised sector. Since the labourers work in a group, payment of their wages is generally made to a single person representing all the labourers. Hence, the payment of wages of all labourers made to their representative several times a day cannot be considered to be a payment made to a single person. The AO himself in the assessment order has referred to an instance of thirty payments made to a single person in a day for construction of "Taru Road". From the nature of work itself, it is discernible that the payment must be towards wages of labourers and not to a single person as alleged by the AO. In that view of the matter, no disallowance could be made by invoking the provisions of section 40A(3) of the Act. That besides, the words "in a sum exceeding Rs.20,000 " in section 40A(3)makes it clear that irrespective of any number of transactions where the amount does not exceed Rs.20,000/- in each transaction the provision of section 40A(3) is not applicable. In other words, for invoking section 40A (3) of the Act, a single transaction should exceed Rs.20,000/- and not the aggregate of the transactions. This view of ours is fortified by the following decisions:
iv) CIT vs. Aloo Supply Co. Orissa High Court (supra).
v) CIT vs. Triveni Prasad Pannalal (M.P) (supra) vi) CIT vs. Kothari Sanitation and Tiles Pvt. Ltd. (Mad.) (supra)
19. In fact, the decision of Hon'ble Orissa High Court in the case of Aloo Supply Company (supra) was challenged by the department before the Hon'ble Supreme Court, but the department's SLP was dismissed by the Hon'ble Supreme Court(143 ITR (St.) page 67). In fact, the aforesaid 11 interpretation of the provision is the correct interpretation, is further established from the fact that in Finance Act, 2008, the earlier provision of section 40A (3) was substituted by inserting new sub-section (3) in its place wherein it is provided that aggregate of payments made to a person in a day will also attract the rigors of section 40A(3). However, the new provision will be effective from 1-4-2009 only; hence it will not be applicable to the assessment year under dispute. The contention of the learned Departmental Representative that the amended provision of 40A (3) being clarificatory in nature would apply retrospectively is not acceptable. The provision contained u/s 40A(3) being a substantive provision would not apply retrospectively unless specifically given retrospective effect. The legislature in its wisdom having not done so the amended provision of section 40A(3) would apply prospectively w.e.f. 1-4-2009 only and not to the earlier assessment years. In aforesaid view of the matter, we hold that the CIT (A) was correct in deleting the addition made u/s 40A(3) of the Act.
Hence, the ground raised by the department is dismissed.
20. In ground No.5, the department has challenged the deletion of addition of an amount of Rs.10,20,555/- on account of deficit in additional income offered at the time of survey.
21. Briefly the facts relating to this issue are, during the survey operation conducted in the premises of the assessee a statement was recorded wherein the assessee offered to declare additional income of Rs.14 lakhs for the assessment year 2007-08 and pay tax on it amounting to about Rs.5 lakhs. During the assessment proceedings, the AO noted that in the additional income declared at Rs.16,21,261/- the assessee has included the cash deficit of Rs.6,64,046/- for developmental expenditure incurred on 5- 3-2007 and cash deficit of Rs.5,77,770/- on 7-10-2006. The AO was of the view that if the aforesaid two amounts are excluded the additional income 12 comes to only Rs.3,79,445/-. He therefore worked out a deficit of Rs.10,20,555/- and added it to the returned income.
22. The assessee challenged the addition before the CIT (A). The CIT (A) deleted the addition by holding that the assessee has disclosed additional income in terms with the offer made at the time of survey.
23. We have heard the contentions of the parties on this issue and perused the material on record. Consequent upon the survey conducted in the premises of the assessee on 4-3-2008, a statement was recorded u/s 131 from the assessee on 5-3-2008 wherein the assessee made the following offer:-
"I submit that I have already paid tax of Rs.4,73,000/- for the AY 2007-08. Now, I intend to offer additional income of Rs.14 lacs for the AY 07-08 and pay tax on it amounting to about Rs. 5 lakhs."
Subsequently, the assessee has filed a revised return of income declaring total income of Rs.30,83,935/- which included additional income of Rs.16,21,261/-. The assessee also paid the tax due along with statutory interest of Rs.6,49,320/-. The statement recorded from the assessee at the time of survey would reveal that the assessee had offered additional income of a total amount of Rs.14 lakhs so as to pay tax of Rs.5 lakhs. Perusal of the statement recorded from the assessee, a copy of which is submitted in the paper book, further reveals the fact that the offer of additional income was made not on account of any specific instance of non disclosure of income found at the time of survey, but to cover deficit or deficiency, if there be any. The revised statement accompanying the revised return (page 54 of paper book) also reveals that the additional income declared was on account of deficit cash and excess land development expenditure. The AO has admitted the fact that the assessee has declared additional income of Rs.16,21,261/-. That being the case, it cannot be said that the assessee has 13 not declared the additional income in the revised return filed in terms with the offer made at the time of survey. On the contrary the assessee has declared more than Rs.14 lakhs offered at the time of survey. In aforesaid view of the matter, we hold that the addition made of an amount of Rs.10,20,555/- is without any justifiable reason. Accordingly, order passed by the CIT (A) on this particular issue is sustained. The ground raised by the revenue is dismissed.
24. In the result, the appeal filed by the Revenue is partly allowed as indicated above.
25. The grounds raised by the assessee in Cross Objection No.42/Hyd/2011 are merely supporting the order of the CIT (A). In view of our decision in departmental appeal No.292/Hyd/2011, the Cross Objection has become infructuous and accordingly the same is dismissed as such.
Order pronounced in the court on 19th April, 2013.
Sd/- Sd/-
(Chandra Poojari) (Saktijit Dey)
Accountant Member Judicial Member
Dt/- 19th April, 2013.
Jmr*
Copy forwarded to:
1. ACIT, Cir-1, GNT Road, Daramitta, Nellore.
2. Sri Kamineni Srinivasulu, 16-623, Mini Bypass Road, Nellore.
3. CIT (A), Guntur.
4. CIT concerned 5 Departmental Representative, ITAT, Hyderabad.
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