Income Tax Appellate Tribunal - Pune
Deepak Hanmant Pawar,, vs Assessee on 30 September, 2016
आयकर अपील य अ धकरण, पुणे यायपीठ "बी" पुणे म
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
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BEFORE SHRI R.K. PANDA, AM
AND SHRI VIKAS AWASTHY, JM
आयकर अपील सं. / ITA No.1734 /PN/2014
#नधा&रण वष& / Assessment Years : 2007-08
Shri Deepak Hanmant Pawar, .......... अपीलाथ /Appellant
184, Vyankatpura Peth,
Satara
PAN : AAYPP8419J
बनाम v/s
Addl. CIT, Satara Range, Satara .......... यथ /Respondent
आयकर अपील सं. / ITA No.1735 /PN/2014
#नधा&रण वष& / Assessment Years : 2007-08
Shri Kuldeep Deepak Pawar, .......... अपीलाथ /Appellant
184, Vyankatpura Peth,
Satara
PAN : AALPPP9906N
बनाम v/s
Addl. CIT, Satara Range, Satara .......... यथ /Respondent
अपीलाथ क ओर से / Assessee by : Shri S.N. Doshi
यथ क ओर से / Respondent by : Shri Hareshwar Sharma
सन
ु वाई क तार ख / घोषणा क तार ख /
Date of Hearing :08.09.2016 Date of Pronouncement:30.09.2016
आदे श / ORDER
PER R.K.PANDA, AM :
The above 2 appeals filed by the respective assessees are directed against the separate orders dated 27-08-2014 and 25-08- 2014 of the CIT(A)-III, Pune relating to Assessment Year 2007-08. Since identical grounds have been taken by the respective assessees, 2 ITA Nos.1734 & 1735/PN/2014 therefore, these were heard together and are being disposed of by this common order for the sake of convenience.
ITA No.l734/PN/2014 (Shri Deepak Hanmant Pawar) :
2. Facts of the case, in brief, are that the assessee is an individual and is engaged in the business of Civil Construction work and power generation. He filed his return of income on 31-20-2007 declaring total income of Rs.54,00,167/-. During the course of assessment proceedings the AO observed that the assessee has done contract work for Vestas Wind Tech India Ltd. and Vestas RRB Pvt. Ltd. and has disclosed gross turnover of Rs.10,53,32,956/-, the details of which are as under :
S.No. Name of the company Turnover disclosed
in the return
1 Vestas RRB Pvt. Ltd. Rs.3,06,92,375/-
2 Vestas Wind Tech India Pvt. Ltd. Rs.7,46,40,581/-
Total Turnover Rs.10,53,32,956/-
3. The AO issued notice u/s.l42(1) on various dates calling for the details of sundry creditors, debtors, advances, details of contracts completed, method of revenue recognition, complete address of all creditors and debtors etc. However, there was non-compliance from the side of the assessee on different dates. Subsequently, on 15-12-2009 the authorized representative of the assessee appeared before the AO and submitted a revised profit and loss account signed by the assessee admitting additional receipts from contract of Rs.1,66,61,839/- and claiming additional expenditure of Rs.1.53 crores. The AO, therefore, asked the assessee to prove the claim of additional expenditure of Rs.1.53 crores with proof of creditors shown in the original and revised balance sheet and the date for compliance 3 ITA Nos.1734 & 1735/PN/2014 was kept on 17-12-2009. However, there was non-compliance on the said date for which the AO issued a summon u/s.131 and asked the assessee to prove the claim of expenditure in the original return, additional expenditure of Rs.1.53 crores in the revised profit and loss account and proof of sundry creditors in the original and revised balance sheet, total turnover etc. However, there was non-compliance till the completion of the assessment. Therefore, the AO inferred that the assessee is not complying with the terms of the notices issued willfully to thwart investigations which have been carried on by making enquiries from the parties with whom the assessee is having transactions running into crores of rupees which are not recorded in the books of account. In this background of total non-cooperation from the assessee, the AO proceeded to complete the assessment on the basis of evidences collected at the time of assessment proceedings and the material available on record.
4. He observed that the assessee has filed return of income along with the balance sheet and the profit and loss account.
Subsequently, the assessee has filed another profit and loss account and Balance sheet during the assessment proceedings. A perusal of the profit and loss account filed along with the original return of income shows turnover of Rs.2,93,11,999/- from Vestas Wind Tech India Pvt. Ltd. has not been reflected in the profit and loss account. This turnover is shown to the extent of Rs.1,66,61,839/- in the profit and loss account filed during the course of assessment proceedings in response to query from his office on the issue of revenue not being recognized by the assessee and why bogus liability of Rs.6,02,16,726/- shown in the name of Vestas Wind Tech India Pvt. Ltd. should not be treated as income.
4
ITA Nos.1734 & 1735/PN/2014
5. Since the books of account on the basis of which return of income was filed and its accompanying documents were found to be false because of non-disclosure of turnover of Rs.2,93,11,999/- from contracts in the return of income filed u/s.139(1) and since the assessee claimed substantial expenditure against the turnover of Rs.10.53 crores shown in the original profit and loss account as a result of which net profit shown was very low and since the assessee failed to substantiate the claim of such huge expenditure the AO rejected the books of account and completed the assessment in the manner as laid down under section 144 of the I.T. Act.
6. The AO observed that the assessee has shown sundry creditors at Rs.6,02,16,726/-. Since the sundry creditors were substantial he decided to investigate this aspect. From the details submitted by the assessee on account of sundry creditors he observed that credit balance shown in the name of Vestas Wind Tech India Pvt. Ltd. is Rs.1,51,97,117/- and the credit balance shown in the name of Vestas RRB Pvt. Ltd. Rs.5,96,516/-. The AO obtained information u/s.133(6) from the above 2 parties and noted that there is difference of Rs.3,02,50,842/- in the account of Vestas Wind Tech India Pvt. Ltd. and an amount of Rs.4,87,271/- in the account of Vestas RRB Pvt. Ltd. He further noted from the information received from Vestas Wind Tech India Pvt. Ltd. that the total bills raised by the assessee during the period from 01-04-2006 to 31-03-2007 was Rs.10,39,52,580/- against which the assessee has received payment of Rs.888,98,855/- and amount of Rs.1,50,53,725/- was receivable from Vestas Wind Tech India Pvt. Ltd. as on 31-03-2007. Therefore, the AO held that income of Rs.10,39,52,580/- has accrued to the assessee during A.Y. 2007-08 for the contract works done by him for Vestas Wind Tech 5 ITA Nos.1734 & 1735/PN/2014 India Pvt. Ltd. since the assessee is following mercantile system of accounting. However, the assessee has disclosed turnover of Rs.7,46,40,581/- only in his return of income from Vestas Wind Tech India Pvt. Ltd.. Thus, the assessee has suppressed turnover of Rs.2,93,11,599/-. Since the concealed turnover is Rs.2,93,11,999/- and assessee has admitted only Rs.1,66,61,839/- in the revised financial statements the AO specifically asked question on this issue in the statement recorded u/s.131 of the I.T. Act on 19-12-2009 from the assessee. Rejecting the various explanations given by the assessee in the statement recorded u/s.131 the AO made addition of Rs.2,93,11,999/- to the total income being the concealed turnover of the assessee.
7. The AO further noted that assessee in his revised profit and loss account filed during the course of assessment proceedings has disclosed additional turnover of Rs.1,66,71,839/- and from the said additional turnover the assessee has claimed additional expenditure of Rs.1,53,94,839/-. Thus, the assessee has admitted additional income of Rs.12,66,999/-. It was claimed that the amount shown as credit balance (liability) in the balance sheet has been recognized as income and the amounts shown as advance in the name of various persons have been claimed as additional expenditure. It was submitted that the assessee has only reclassified the balance sheet.
8. However, the AO was not satisfied with the explanation given by the assessee and held the same to be incorrect. He observed that assessee has introduced fresh creditors to the tune of Rs.82,82,000/- in the revised balance sheet the details of which are as under : 6
ITA Nos.1734 & 1735/PN/2014 S.No. Name Original New balance Difference balance (Rs.) 1 Gatiman Earth Movers 600000 1200000 600000 2 Masai Multi Service 2518000 5037000 2519000 3 Sachin Constructions 1450000 2900000 1450000 4 Sanskruti Constructions 1450000 2900000 1450000 5 S.R. Patil 1218000 2436000 1218000 6 Yashoda Earth Movers 1245000 2490000 1245000 Total 84,82,000
9. According to the AO the assessee merely doubled the credit balances shown in the original balance sheet in order to claim bogus additional expenditure to the tune of Rs.84,82,000/-. The AO similarly observed that the assessee could not prove the additional expenditure of Rs.1,53,94,840/- by furnishing the necessary evidences, the details of which are as under :
S.No. Name Amount
1 Gatiman Earth Movers 600000
2 Masai Multi Service 25,18,500
3 Sachin Constructions 14,50,000
4 Sanskruti Constructions 14,50,000
5 S.R. Patil 12,18,000
6 Yashoda Earth Movers 12,45,000
7 Mohanlal Devichand & 69,13,340
Sons
Total 1,53,94,840
10. Similarly, the assessee also could not justify the genuineness of additional expenditure to the tune of Rs.69,13,340/- towards construction expenditure in the name of M/s. Mohanlal Devichand and Sons. The AO issued summons u/s.131 to the above party. In its reply, it was stated by M/s. Mohanlal Devichand and Sons that they did not have any transaction with Shri D.H. Pawar during A.Y. 2007-08. They have also confirmed that no amount was receivable from the assessee as on 31-03-2007. Since despite giving repeated opportunities the assessee did not appear before him, the AO held 7 ITA Nos.1734 & 1735/PN/2014 that the additional expenditure claimed from the contract receipt of Rs.2,93,11,999/- is bogus. He, therefore, rejected the additional expenditure claimed by the assessee and brought to tax the amount of Rs.2,93,11,999/- as income of the assessee.
11. The AO observed that the assessee has claimed expenditure of Rs.8,54,14,403/- under the head construction and incidental expenditure in the original profit and loss account. During the course of assessment proceedings the AO asked the assessee to prove the genuineness of the above expenditure. Since there was non- compliance from the side of the assessee and since the assessee also failed to provide the information as promised by him during the course of recording of his statement u/s.131 the AO proceeded to estimate the gross profit from the contract work at 12.5% of the turnover. He accordingly calculated the profit of Rs.1,31,66,619/- being profit @ 12.5% on the turnover of Rs.10,53,32,956/-. He observed that the assessee has disclosed net profit of Rs.54,96,900/- in the original return. He accordingly disallowed expenditure of Rs.76,69,719/- out of the total claim of Rs.8,54,14,403/-. The AO similarly noted that the assessee has claimed expenditure of Rs.1,07,27,000/- in the name Shri Subham Electricals. In order to verify the claim of the assessee summon u/s.131 of the Act was issued to Subham Electricals and his statement was recorded on 21- 12-2009. In the sworn statement of Shri Mangesh Vitthal Wadekar, proprietor of Subham Electricals stated that during A.Y. 2007-08 he has done electrical works for Shri D.H. Pawar and raised bills of Rs.55,35,000/-. Therefore, the AO concluded that the assessee has claimed excess expenditure of Rs.51,92,000/-. He, therefore, made disallowance of Rs.51,82,000/- out of the expenditure. Since the 8 ITA Nos.1734 & 1735/PN/2014 assessee has not deducted any tax from the payments made to the above party the AO made addition of Rs.55,35,000/- u/s.40(a)(ia). Thus, the AO disallowed expenditure in the name of Subham Electricals to the tune of Rs.1,07,27,000/-. Similarly, in the case of M/s. Mohanlal Devichand and Sons the AO noted that the assessee has claimed expenditure of Rs. 59 lakhs in the name of the above party in the original return of income. In the statement recorded u/s.131 M/s. Mohanlal Devichand and Sons had stated that they have not done any transaction with Shri Deepak H. Pawar during A.Y. 2007-08 and they have also confirmed that no amount is receivable from the assessee. The AO therefore disallowed the claim of expenditure of Rs.59 lakhs in the name of M/s. Mohanlal Devichand and Sons.
12. Similarly, for violation of provisions of section 40(a)(ia) the AO made addition of Rs.31 lakhs in the name of Gatiman Earth Movers, Rs.80,69,217/- in the name of Masai Multi Services, Rs.26,05,000/- in the name of Sachin Constructions and Rs.13 lakhs in the case of Sanskruti Constructions. The AO similarly made addition of Rs.1 lakh u/s.40A(3) on account of cash payment in excess of Rs.20,000/- to Gatiman Earth Movers and Pratik Bricks. The AO further disallowed an amount of Rs.2,100/- under the head donations. Thus, he disallowed the expenditure to the tune of Rs.4,00,73,036/-.
13. The AO analysed the balance sheet and noted that assessee has shown other liabilities to the tune of Rs.2,79,33,633/- and sundry creditors to the tune of Rs.3,22,44,415/-. He examined the genuineness of other liabilities/sundry creditors and noted that there are differences between the figures shown by the assessee and the 9 ITA Nos.1734 & 1735/PN/2014 information collected u/s.133(6) in the name of Vestas Wind Tech India Pvt. Ltd. (Rs. 9,38,843/-) and Vestas RRB Pvt. Ltd. (Rs.4,87,271/-), Shri D.K. Chopra (Rs. 1 lakh) Shri P.S. Power Infra India Pvt. Ltd. (Rs.35 lakhs). Therefore, the AO made addition of Rs.50,26,114/- as bogus/non existing other liabilities.
14. The AO further noted that the assessee has shown sundry creditors at Rs.3,22,44,415/- out of which in most of the cases the opening balance and the closing balances are the same. He, therefore, inferred that the sundry creditors to the tune of Rs.3,22,44,415/- are not genuine and the said liability is bogus liability which should be brought to tax since the assessee could not furnish any evidence whatsoever to support the claim of such liability. Since he has already brought to tax an amount of Rs.69,13,340/- in the case of M/s. Mohanlal Devichand and Sons which was claimed as additional expenditure, therefore, the AO held that out of the amount of Rs.84,75,000/- shown against M/s. Mohanlal Devichand and Sons credit should be given to this extent otherwise it would lead to double addition. He, therefore, brought to tax only the amount of Rs.15,16,660/- in the case of M/s. Mohanlal Devichand and Sons. Accordingly, out of the total liability of Rs.3,22,44,415/- the AO made addition of Rs.2,53,31,075/- as bogus/non existing sundry creditors.
15. The AO further noted that the assessee in its computation of total income has claimed deduction of Rs.15,60,970/- u/s.80IA on account of its windmill project. Since the assessee has not set off the notional carry forward of unabsorbed depreciation as per section 80IA(5) of the Act, the AO, following his stand in A.Y. 2005-06 and 2006-07 set off the brought forward unabsorbed depreciation against 10 ITA Nos.1734 & 1735/PN/2014 the income from windmill for A.Y. 2007-08. He observed that in A.Y. 2006-07 the brought forward unabsorbed depreciation available for set off was Rs.57,09,097/-. From the said brought forward depreciation the income from windmill for A.Y. 2006-07 amounting to Rs.15,15,878/- was set off, leaving the balance unabsorbed depreciation to be carried forward to subsequent years at Rs.41,50,219/-. The income from windmill declared by the assessee for A.Y. 2007-08 is Rs.15,60,970/- which he set off against the brought forward unabsorbed depreciation of Rs.41,50,219/- and thereby rejected the claim of deduction u/s.80IA. Thus, the AO completed the assessment on a total income of Rs.10,67,03,361/- as against the returned income of Rs.54,00,167/-.
16. Before CIT(A) the assessee filed revised set of financial accounts as additional evidence under Rule 46A of the Income Tax Rules. It was requested for admission of the same as additional evidence. It was argued that though the assessee had got his accounts audited u/s.44AB the counsel who represented the assessee before the AO during assessment proceedings did not present the matter properly leading to unreconciled differences which led the AO to reject the books. It was further argued that though the AO had passed the assessment order u/s.143(3), however, the same was infact completed in the manner provided in section 144. The assessee argued that the assessee's case was clearly covered by situations envisaged in clause
(b), clause (c) and clause (d) of Rule 46A justifying the admission of the additional evidence.
11
ITA Nos.1734 & 1735/PN/2014
17. The Ld.CIT(A) forwarded the additional evidence filed before him to the AO for his comments. The AO in his report opposed the admission of the additional evidences on the ground that the assessee failed to substantiate the existence of any deserving circumstance for the same. After confronting the same to the assessee and considering the rejoinder given by the assessee to the comments of the AO the Ld.CIT(A) rejected the request of the assessee for admission of the additional evidences.
18. So far as the merit of the case is concerned the Ld.CIT(A) upheld the action of the AO in bringing to tax the undisclosed turnover of Rs.2,93,11,999/-. So far as the disallowance of expenses/additions made by the AO is concerned the Ld.CIT(A) applying the net profit percentage of 12.5% on the undisclosed turnover of Rs.2,93,11,999/- which resulted in addition of net profit amounting to Rs.36,64,000/-. So far as the disallowance u/s.40(a)(ia) is concerned the Ld.CIT(A) relying on various decisions confirmed the addition of Rs.2,12,09,217/-. Similarly, he also confirmed the disallowance made by the AO of Rs.1 lakh under the provisions of section 40A(3). The action of the AO in bringing to tax addition of Rs.76,69,719/- on the disclosed turnover by estimating the profit at 12.5% was also upheld by the CIT(A).
19. So far as disallowance of various liabilities by the AO holding the same as non existence in the name of different parties are concerned the Ld.CIT(A) deleted the addition on account of Vestas Wind Tech India Pvt. Ltd. Rs.9,38,843/- and Vestas RRB Pvt. Ltd. Rs.4,87,271/- and sustained the balance amount of Rs. 2,89,31,075/-. So far as disallowance u/s.80IA at Rs.15,16,790/- 12
ITA Nos.1734 & 1735/PN/2014 is concerned the Ld.CIT(A) upheld the action of the AO in denying the deduction u/s.80IA.
20. Aggrieved with such order of the CIT(A) the assessee is in appeal before us with the following grounds :
"Ground No 1:
On the facts and in the circumstances of the case CIT(A) has erred in not admitting the additional evidence filed in the course of assessment proceedings overlooking the legal proposition that these additional evidences only and clearly reveal the correct assessable income and particularly being admissible in the light of Rule 46A of the Income Tax Rules.
Ground No 2:
On the facts and in the circumstances of the case CIT (A) has erred in sustaining the addition of Rs. 2,93,11,999/- on the ground of undisclosed contract receipts while at the same time making an addition of Rs.36,64,000/- by estimating the net profit @ 12.5% on the said contract receipts.
Ground No 3 :
On the facts and in the circumstances of the case CIT (A) has erred in estimating the net profit of Rs. 36,64,000/- on the alleged unaccounted contract receipt of Rs. 2,93,11,999/- and has also further erred in sustaining the similar estimation made by the Assessing Officer at Rs. 76,69,719/-.
Ground No 4:
On the facts and in the circumstances of the case CIT(A) has erred in sustaining the disallowance of Rs. 2,12,09,217/- u/s. 40(a)(ia) of the Income Tax Act, 1961.
Ground No 5:
On the facts and in the circumstances of the case CIT (A) has erred in sustaining the disallowance of Rs. 1,00,000/- u/s. 40A(3)of the Income Tax Act, 1961.
Ground No 6:
On the facts and in the circumstances of the case CIT(A) has erred in sustaining the addition sundry creditors and other liabilities of Rs 2,89,31,075/-
The above grounds of appeal may kindly be allowed to be amended, altered, modified etc., in the interest of natural justice."13
ITA Nos.1734 & 1735/PN/2014
21. The assessee has also filed the following additional grounds :
"Additional Ground No.1:
On the facts and in the circumstances of the case the order passed by the Assessing Officer is bad in law and invalid on the jurisdictional ground that despite appellant's jurisdiction lying with Additional Commissioner of Income Tax, Satara Range, Satara most of the Scrutiny Assessment Proceedings were conducted and completed at Pune.
Additional Ground No.2:
On the facts and in the circumstances of the case and without prejudice to above Additional Ground No. 1 the order passed by the Assessing Officer is bad in law and invalid on the following grounds: -
i. Requiring to attend at Pune for assessment proceedings;
ii. Obtaining appellant's ledger extracts from the books of his customers and without providing the same to the appellant for reconciling the difference;
iii. Recording the statements of several suppliers by the Assessing Officer namely Mr. J. Y. Chavan, ITO Ward 2, Satara, which is impressible in law.
iv. Recording the statements of the above several suppliers at the back of the appellant and making addition without providing the copies of those statements and allowing cross examination;
v. Allowing inadequate opportunity to furnish the required details.
22. The Ld. Counsel for the assessee at the outset relying on the decision of Hon'ble Supreme Court in the case of NTPC Ltd. reported in 229 ITR 383, Jute Corporation of India Ltd. reported in 187 ITR 688 and the decision of Hon'ble Bombay High Court in the case of Ahmedabad Electricity Company reported in 199 ITR 351 submitted that the above grounds are purely legal grounds and full facts are available on record, and no fresh facts are necessary for verification, therefore, therefore these additional grounds should be admitted for adjudication.
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ITA Nos.1734 & 1735/PN/2014
23. After hearing both the sides and considering the fact that the additional grounds are purely legal in nature the above grounds are admitted for adjudication.
24. The Ld. Counsel for the assessee while arguing the additional ground Nos. 1 & 2 submitted that the assessment order should be held as bad in law and invalid since the Additional Commissioner of Income Tax, Pune who was holding charge of Satara Circle has conducted and completed the assessment proceedings at Pune. Since the assessee, instead of attending at Satara office of the Income Tax Office, had to attend at the Pune office for assessment proceedings, therefore, it has caused undue harassment to the assessee. Therefore, the AO who had no jurisdiction to assess the assessee of Satara by sitting at Pune, the order should be held as null and void on the issue of jurisdiction.
25. He submitted that the AO has obtained assessee's ledger extracts from the books of his customers without providing the same to the assessee for reconciling the difference and thereby making huge additions which is uncalled for and legally not tenable. Similarly, the AO has recorded the statements of various suppliers through ITO, Ward(2) of Satara which is impermissible. Further, those statements were never provided to the assessee nor any opportunity to cross examination was granted to the assessee. He submitted that inadequate opportunities were granted to the assessee to furnish the requisite details. He accordingly submitted that in view of the additional grounds 1 and 2 the entire assessment proceedings should be held as null and void.
15
ITA Nos.1734 & 1735/PN/2014
26. The Ld. Counsel for the assessee submitted that the AO obtained assessee's ledger accounts from Vestas Wind Tech Pvt. Ltd. on 16-12-2009 and found the difference in the contract receipt of Rs.2,93,11,999/-. The above ledger extract was not provided to the assessee for reconciliation. Although the assessee filed the reconciliation statement before the CIT(A) with copies of contract bills raised, cheques received, bank statements, bill-wise details of short credit etc., however, the same was not admitted by the Ld.CIT(A) and he estimated the net profit of Rs.36,64,000/- by estimating the profit at 12.5% of this undisclosed contract receipt. He submitted that since the assessee has properly reconciled the difference no separate addition on account of estimated gross profit should have been made.
27. So far as estimation of net profit at Rs.36,64,000/- by the CIT(A) is concerned he submitted that assessee has shown net profit of 6.74% in the original profit and loss account and 10.37% in the revised profit and loss account. However, the Ld.CIT(A) without considering the reasonable percentage of net profit sustained the addition of Rs.36,64,000/- by estimating the profit at 12.5% of the undisclosed receipt of Rs.2.93 crores. He submitted that when the AO has already estimated the net profit at Rs. 76,69,7219/- the CIT(A) should not have sustained the profit of Rs.76,69,179/-. In any case he submitted that following the provisions of section 44AD the different Benches of the Tribunal are consistently estimating the profit @8% of the contract receipt. Therefore, profit at best can be estimated @8% of the total turnover.
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ITA Nos.1734 & 1735/PN/2014
28. So far as disallowance of Rs.2,12,09,217/- u/s.40(a)(ia) is concerned he submitted that there are 5 parties to whom payments have been made and which are disallowed u/s.40(a)(ia) of the I.T. Act. Referring to pages 81 to 84 of the paper book he submitted that payment of Rs.80,69,217/- has been made to Masai Multi Services towards purchase of materials, therefore, the provisions of section 40(a)(ia) are not applicable for purchases of materials from the said party.
29. As regards the payment to 4 other parties are concerned he submitted that the above parties have offered the entire amount in their respective returns of income. Relying on the amendment to section 40(a)(ia) by the Finance Act, 2012 w.e.f. 02-04-2013 he submitted that disallowance u/s.40(a)(ia) of the Act need not be made if the assessee is not deemed to be an assessee in default under the first proviso to section 201(1). Referring to the decision of the Pune Bench of the Tribunal in the case of ITO Vs. Gaurimal Mahajan and Sons vide ITA No.1852/PN/2012 order dated 06-01-2014 for A.Y. 2008-09 he submitted that the Tribunal after considering various decisions restored the issue to the file of the AO with a direction to examine the contention of the assessee that the payees have filed their return disclosing the amount received. He accordingly submitted that the issue may be restored to the file of the AO with a direction to verify as to whether the payees have disclosed such receipts and paid tax on that and if so to delete the disallowance.
30. The Ld. Counsel for the assessee further submitted that all the payments have been actually made and nothing is payable at the end of the year. Therefore, in view of the decision of the Hon'ble Allahabad 17 ITA Nos.1734 & 1735/PN/2014 High Court in the case of Vector Shipping Company reported in 262 ITR 545 no disallowance u/s.40(a)(ia) is called for.
31. So far as disallowance u/s.40A(3) is concerned he submitted that no payment exceeding Rs.20,000/- in each case has been made to Gatiman Earth Movers, therefore, addition of Rs.2 lakhs u/s.40A(3) on account of payment to Gatiman Earth Movers is uncalled for. As regards the disallowance of Rs.3 lakhs paid to Pratik Bricks is concerned he submitted that neither any amount has been paid to the above party in violation of section 40A(3) nor the assessee was confronted on this issue. He submitted that it is a wrong entry and therefore no disallowance is called for.
32. As regards the addition on account of liability of Rs.2,89,31,075/- is concerned he submitted that the AO had disallowed the sundry creditors of Rs.2,53,31,075/-. The AO had further added unsecured loan of Rs.1 lakhs from D.K. Chopra and Rs.35 lakhs from Power Infra Pvt. Ltd. So far as the sundry creditors of Rs.2,53,31,075/- is concerned he submitted that when these are opening balances which were carried forwarded this should not have been added in the impugned assessment year. So far as the cash credit of Rs.1 lakhs taken from Shri D.K. Chopra is concerned he submitted that the same is received vide crossed cheque. His confirmation, PAN as well as the ledger extract of the said person was also given to the CIT(A). However, the same was not admitted.
33. So far as the credit of Rs.35 lakhs from Power Infra Pvt. Ltd. is concerned he submitted that the same was also received by crossed cheque drawn on UTI Bank. The bank account and ledger account clearly show that the amount was received by Shri D.H. Pawar by 18 ITA Nos.1734 & 1735/PN/2014 Cheque No.11817 dated 20-03-2007. Therefore, no addition is called for. He accordingly submitted that the various additions made by the AO and sustained by the CIT(A) is uncalled for. Therefore, the additions should be deleted and the grounds raised by the assessee should be allowed.
34. The Ld. Departmental Representative on the other hand strongly supported the order of the CIT(A). So far as the additional grounds are concerned he submitted that it is not a legal ground. The Addl.CIT of Pune was holding additional charge of Satara and he was having valid jurisdiction over the assessee. If the assessee was harassed due to appearance before the AO at Pune he could have filed a grievance petition before the concerned CIT or CCIT. Since the assessee has participated in the assessment proceedings without bringing to the notice of the higher authorities about his difficulties now he cannot challenge the validity of jurisdiction. He cannot have any grievance. Therefore, the additional ground raised by the assessee on the issue of jurisdiction should be dismissed.
35. So far as the statements recorded from different persons through ITO, Ward-2 of Satara is concerned he submitted that the ITO was given necessary permission to record the statements of various suppliers. The AO having jurisdiction over the assessee had issued commission to an officer of the department for conducting local enquiry and there is nothing wrong in it.
36. So far as non supply of statements recorded and the ledger extracts obtained from different parties are concerned he submitted that the assessee was non-cooperative during the course of assessment proceedings. When he was not participating properly he 19 ITA Nos.1734 & 1735/PN/2014 cannot say that he was not provided such statements or ledger extracts.
37. So far as the merit of the case is concerned he submitted that the assessee has got his accounts audited. Subsequently during assessment proceedings he filed revised profit and loss account. He was unable to give proper reply as to why there were such huge differences in the original and recasted profit and loss account and balance sheet. When he was caught for suppression of contract receipts, the assessee filed the revised profit and loss account showing some additional contract receipt and thereby debiting various expenses. Once the assessee has accounted for the expenditure in the original profit and loss account there is no question of incurring any further expenditure.
38. So far as disallowance u/s.40(a)(ia) and 40A(3) are concerned he submitted that the Ld.CIT(A) has given justifiable reasons for enhancing the income on that account. He submitted that the Ld.CIT(A) has given valid reasons while sustaining various additions. He accordingly submitted that the order of CIT(A) be upheld.
39. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case is an individual and is engaged in the business of civil construction work and power generation. The assessee has filed the return of income disclosing turnover of Rs.10,53,32,950/-. During the course of assessment proceedings the assessee filed a revised profit and loss account admitting the additional receipt from contract work at 20 ITA Nos.1734 & 1735/PN/2014 Rs.1,66,61,839/- and claiming additional expenditure of Rs.1.53 crores. There was complete non compliance by the assessee during the course of assessment proceedings for which the AO had to complete the assessment on the basis of material available before him and the enquiries conducted by him during such assessment proceedings. On the basis of the various discrepancies noticed and violation of provisions of section 40(a)(ia) 40A(3) etc and in view of discrepancies in the amounts shown under the head sundry creditors etc. the AO completed the assessment determining the total income at Rs.10,67,03,361/-. We find the assessee before the CIT(A) filed revised set of financial accounts as additional evidence under Rule 46A of the Income Tax Rules. The Ld.CIT(A) after obtaining a report from the AO rejected the revised set of financial accounts as additional evidence under Rule 46A of the Act.
40. So far as the merit of the case is concerned the Ld.CIT(A) almost confirmed the various additions made by the AO apart from disallowance u/s.40A(3), 40(a)(ia) etc.
41. It is the submission of the Ld. Counsel for the assessee that the various additions made by the AO and upheld by the CIT(A) are uncalled for since assessee has filed revised set of financial accounts before the Ld.CIT(A) which contained each and every item duly reconciled and there was no scope for any addition. However, the Ld.CIT(A) rejected the additional evidence. Further, the various ledger extracts obtained and statements recorded from various parties were not confronted to the assessee. The AO sitting at Pune has called the assessee from Satara to appear before him at Pune Office and therefore there was undue hardship caused to the 21 ITA Nos.1734 & 1735/PN/2014 assessee.
42. So far as the additional ground relating to validity of jurisdiction is concerned, we do not find any merit in the arguments advanced by the Ld. Counsel for the assessee. Admittedly, the AO who was sitting at Pune was also holding charge of Satara Range, Satara. The assessee is assessed at Satara. The Addl. Commissioner has issued all the notices to the assessee from Satara office. However, he has asked the assessee to appear before him at his regular office at Pune. If the assessee had any grievance he could have approached the concerned CIT or CCIT explaining his inability to appear at Pune Office on account of hardship. However, the assessee instead of making any such complain to the higher authorities had appeared before the Addl.CIT at Pune who was holding charge of Satara Range. Now that huge additions have been made the assessee cannot say that he was harassed because of his appearance at Pune Income Tax Office instead of appearing at Satara Office. We fail to understand as to what type of other evidences the assessee could have produced at Sarata office before the same AO which he could not furnish at Pune office. This ground raised by the assessee at this juncture according to us is nothing but a frivolous ground having no force in it. We therefore dismiss the additional ground challenging the validity of jurisdiction.
43. So far as the ground relating to non supply of the various statements recorded at the back of the assessee which were not confronted to him is concerned, we also do not find much force in the above contention of the Ld. Counsel for the assessee. It is the assessee who should have appeared before the AO during the course 22 ITA Nos.1734 & 1735/PN/2014 of assessment proceedings and should have complied with all the statutory notices. However, the assessee had scant regards for the statutory notices issued by the AO from time to time. If the assessee does not appear before the AO he cannot expect the AO to confront the evidences which he had gathered during the course of assessment proceedings. No doubt it is the principle of natural justice that any evidence which has been collected at the back of the assessee and which is utilized against the assessee should be confronted to the assessee before making any such addition. However, in the instant case we find since the assessee did not appear before the AO despite repeated opportunities, there was no occasion on the part of the AO to confront these statements recorded or ledger extracts obtained from various parties. Therefore, the ground raised by the assessee on this issue is also dismissed.
44. So far as the grievance of the assessee that statements of several suppliers were recorded by the AO Shri J.Y. Chauhan, ITO, Ward-2 of Satara office which is impermissible in law is concerned, we also do not find any merit in the above ground raised by the assessee in shape of an additional ground. An officer sitting at a place can always take the help of another officer by issuing necessary commission to record the statements of various persons who are assessed under his charge. Here, in the instant case, the Additional Commissioner sitting at Pune has taken the help of the AO Shri J.Y. Chauhan, ITO, Ward-2, Satara to record the statements of various persons of Satara only. This according to us cannot be held as impermissible in law. Ground raised by the assessee therefore being devoid of any merit is dismissed.
23
ITA Nos.1734 & 1735/PN/2014
45. So far as the ground relating to non admission of additional evidences filed during the course of appeal proceedings is concerned, i.e. revised statements of financial accounts produced before the CIT(A) we find the Ld.CIT(A) has validly rejected such revised financial statements. Admittedly, the accounts were audited by the auditors and the audit report was filed along with the return of income and such audit report was also duly signed by the assessee himself. Therefore, we fail to understand as to how and why the accounts could be re-audited by another Chartered Accountant or the same Auditor by recasting the accounts. We fail to understand as to how such a thing has happened since there is suppression of huge turnover as well as non recording of huge amount of expenses which have now been shown in the revised financial statements which is not only unbelievable but also unimaginable.
46. However, we find some force in the argument of the Ld. Counsel for the assessee that so far as disallowance u/s.40(a)(ia) is concerned the various Benches of the Tribunal following the insertion of the second proviso to section 40(a)(ia) by the Finance Act, 2013 w.e.f. 01-04-2013 are holding that disallowance u/s.40(a)(ia) of the Act need not be made if the assessee is not deemed to be an assessee in default under the first proviso to section 201(1) of the I.T. Act. Therefore, if the payees have disclosed the amount received from the assessee and paid the tax thereon, addition cannot be made in the hands of the assessee. However, this aspect has not been verified by the AO since this issue is being raised before us for the first time. 24
ITA Nos.1734 & 1735/PN/2014
47. The assessee has also demonstrated that the provisions of section 40A(3) is not called for in case of Gatiman Earth Movers since no amount exceeding Rs.20,000/- has been paid to that party. Similarly certain amounts have been received by crossed cheques with their confirmations. It is also the submission of the Ld. Counsel for the assessee that given an opportunity the assessee can properly reconcile the contract receipts and the sundry creditors. Considering the totality of the facts of the case, we are of the considered opinion that the matter requires a re-visit to the file of the AO for proper adjudication of the issue. We, therefore, restore the issue to the file of the AO with a direction to give one more opportunity to the assessee to substantiate his case. The AO shall also provide copies of the various statements recorded and ledger extracts obtained of different parties for reconciliation of the contract receipts as well as the sundry creditors. The AO shall decide the issue afresh and in accordance with law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. Grounds raised by the assessee are accordingly decided in the terms indicated above. ITA No.1735/PN/2014 (Shri Kuldeep Deepak pawar) :
48. The Revised grounds of appeal and Additional grounds raised by the assessee are as under :
Additional Ground No.1: -
On the facts and in the circumstances of the case the order passed by the Assessing Officer is bad in law and invalid on the jurisdictional ground that despite appellant's jurisdiction lying with Additional Commissioner of Income Tax, Satara Range, Satara most of the Scrutiny Assessment Proceedings were conducted and completed at Pune.
Additional Ground No.2: -25
ITA Nos.1734 & 1735/PN/2014 On the facts and in the circumstances of the case and without prejudice to above additional Ground No.1the order passed by the Assessing Officer is bad in law and invalid on the following grounds:-
i. Requiring to attend at Pune for assessment proceedings;
ii. Obtaining appellant's ledger extracts from the books of his customers and without providing the same to the appellant for reconciling the difference;
iii. Recording the statements of several suppliers by the Assessing Officer namely Mr. J.Y. Chavan, ITO Ward 2, Satara, which is impressible in law.
iv. Recording the statements of the above several suppliers at the back of the appellant and making addition without providing the copies of those statements and allowing cross examination;
v. Allowing inadequate opportunity to furnish the required details.
Other Grounds: -
Ground No 1: -
On the facts and ill the circumstances of the case CIT (A) has erred in not admitting the additional evidence filed in the course of assessment proceedings overlooking the legal proposition that these additional evidences only and clearly reveal the correct assessable income and particularly being admissible in the light of Rule 46A of the Income Tax Rules.
Ground No 2: -
On the facts and in the circumstances of the case CIT (A) has erred in estimating the net profit of Rs. 1,53,04,169/- @ 12.5% of unaccounted contract receipts of Rs. 12,24,33,359/- and at the same time sustaining the similar estimation of net profit made by the Assessing Officer at Rs.15,92,056/- and further erred ill sustaining the addition of Rs.12,24,33,359/- for unaccounted contract receipts.
Ground No 3: -
On the facts and in the circumstances of the case CIT (A) has erred in sustaining the disallowance made u/s 40(a)(ia) of Rs. 1,20,06,000/- with further enhancement of Rs. 1,00,20,800/- relying on the corrected final accounts produced as additional evidence despite rejecting to admit the said additional evidence.
Ground No 4: -
On the facts and ill the circumstances of the case CIT (4)has erred in sustaining the addition of Rs. 3,90,862/- with further enhancement of Rs.20,49,268/-u/s.40(a)(ia) and again relying on the corrected final 26 ITA Nos.1734 & 1735/PN/2014 accounts produced as additional evidence despite rejecting to admit the said additional evidence.
Ground No 5: -
On the facts and in the circumstances of the case C1T (A) has erred in sustaining the addition of Rs.96,78,970/- by rejecting the claim of exemption of the gain arose on sale of rural agricultural lands not falling in the definition of capital assets within the meaning of Sec. 2(14)(iii)(b) of the Income Tax Act, 1961 and erroneously relying on the corrected final accounts produced as additional evidence despite rejecting to admit the said additional evidence.
The above grounds of appeal may kindly be allowed to be amended, altered, modified etc., in the interest of natural justice."
49. After hearing both the sides, we find the additional grounds of appeal No.1 and 2 and the other grounds 1,2, 3 & 4 by the assessee are identical to the grounds in ITA No.1734/PN/2014. We have already decided the issue and restored the matter to the file of the AO with certain directions. We have also dismissed some of the additional grounds raised by the assessee. Following the same reasoning, the above grounds are decided accordingly.
50. So far as grounds of appeal No.5 is concerned, this is a new ground. Facts of the case, in brief, are that the AO during the course of assessment proceedings observed that the assessee during the impugned assessment year has carried out land business. He has acted as a mediator between the windmill companies and the land owners. The difference between the amount received by the assessee from the windmill company and the amount paid to the land owner is the profit of the assessee. However, the assessee did not recognize profit for such land deals. The AO, therefore, confronted the same to the assessee. In response to the same the assessee filed computation of profit from sale of land according to which the sale consideration was shown at Rs.39,18,500/- and the purchase cost was 27 ITA Nos.1734 & 1735/PN/2014 Rs.28,04,750/-. The AO, therefore, treated the difference of Rs.11,13,750/- as the profit earned by the assessee from unaccounted income from land business.
51. Before CIT(A) the assessee challenged the above addition made by the AO on the ground that all the lands in question are rural agricultural lands and thus do not fall within the definition of capital assets and therefore there was no cause for any addition. However, the assessee during the course of appeal before the CIT(A) had submitted the corrected books of account according to which the profit on sale of land was shown at Rs.96,76,970/-. After making adjustment of compensation expenses amounting to Rs.23,81,325/- debited to this account the correct gain arising on sale of agricultural land was shown at Rs.1,20,60,295/-.
52. However, the CIT(A) also did not accept the contention of the assessee that the gain has arisen on sale of rural agricultural land and therefore is not taxable. He observed that what the assessee has essentially done was to facilitate acquisition of land by the windmill companies for setting up windmill firms by purchasing the lands from local land owners himself and selling it to the companies due to curbs imposed by the State Govt. with regard to sale of agricultural land. The act of the assessee in claiming compensation expenses of Rs.23,81,325/- and claiming the same as business receipt itself shows that the activity was being carried out as an adventure in nature of trade. He therefore held that the assessee's claim that the land in question was the agricultural land and not covered by the provisions of section 2(14) is not germane to the issue in question. Rejecting the various explanations given by the assessee the Ld.CIT(A) 28 ITA Nos.1734 & 1735/PN/2014 enhanced the income from land business to Rs.96,78,970/- as against Rs.11,13,750/- determined by the AO.
53. The Ld. Counsel for the assessee strongly opposed the order of the CIT(A) on this issue. He submitted that although the assessee is a Civil Contractor, however, lands were purchased for himself being an agriculturist and that too as investments. Further when the CIT(A) has not accepted the revised financial statements as additional evidence he should not have made addition of Rs.96,79,970/- on the basis of the corrected final accounts. He should have taken recourse to the additional evidence which was rejected by him. He submitted that the income from agricultural activity is exempt. Since the assessee has filed necessary documents along with 7/12 extracts etc. of the agricultural lands, certificate of Gram Panchayat for population and distance from the nearest municipality and had demonstrated that these are the rural agricultural lands and do not form part of the capital asset within the meaning of section 2(14)(iii)(b) of the I.T. Act. Relying on the following decisions he submitted that these transactions cannot constitute the transaction entered in the course of any business activity or in no way it is an adventure in nature of trade :
a. Barendra Prasad Ray reported in 129 ITR 295 (SC) b. Lala Indra Sen reported in 8 ITR 187 (Allahabad High Court) c. Kaur Singh reported in 144 ITR 756 (Punjab & Haryana High Court) d. Venkatasubbiah Reddiar reported in 221 ITR 18 (Madras High Court He accordingly submitted that necessary relief should be granted to the assessee.
54. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A) on this issue. He submitted that 29 ITA Nos.1734 & 1735/PN/2014 when the assessee is purchasing and selling land and has even claimed certain expenses in the recasted/revised financial statements, this itself shows that the assessee is in land business. Therefore, the order of the CIT(A) should be upheld.
55. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We find the AO in the assessment order has made addition of Rs.11,13,750/- to the total income of the assessee on account of unaccounted income from land business. He arrived at this figure by reducing the cost of land from the sale proceeds. We find the assessee before the Ld.CIT(A) in his recasted financial statements had shown the profit on sale of land at Rs.96,78,970/- after making an adjustment of compensation expenses amounting to Rs.23,81,325/-. Since the assessee has earned a profit of Rs.96,78,970/- from such land dealings the Ld.CIT(A) enhanced the income to Rs.96,78,970/- as against Rs.11,13,750/- determined by the AO.
56. It is the submission of the Ld. Counsel for the assessee that the lands in question are agricultural lands situated beyond 8 kms from the municipal limits and therefore these are rural agricultural lands and do not form part of the capital asset within the meaning of section 2(14)(iii)(b) of the I.T. Act.
57. However, this aspect was not properly looked into by the AO or the CIT(A) as the necessary evidences which the assessee has enclosed with the paper book such as 7/12 extracts etc were not properly looked into. Further, the main issues have already been restored to the file of the AO for adjudication of the issues afresh. 30
ITA Nos.1734 & 1735/PN/2014 Considering the totality of the facts of the case, we deem it proper to restore this ground to the file of the AO with a direction to adjudicate the same in the light of our above observations and as per fact and law. Ground of appeal No.5 by the assessee is accordingly allowed for statistical purposes.
58. In the result, both the appeals filed by the respective assessees are partly allowed for statistical purposes.
Order pronounced in the open court on 30-09-2016.
Sd/- Sd/-
(VIKAS AWASTHY) (R.K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
पण
ु े Pune; "दनांक Dated : 30 September, 2016.
th
सतीश
आदे श क) *#त,ल!प अ-े!षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. The CIT(A)-III, Pune
4. The CIT-III, Pune $वभागीय 'त'न(ध, आयकर अपील य अ(धकरण, "बी" पण ु े/
5. DR, ITAT, "B" Pune;
5. गाड+ फाईल / Guard file.
आदे शानस ु ार/ BY ORDER, // True Copy // //स या$पत 'त //True व-र.ठ 'नजी स(चव / Sr. Private Secretary आयकर अपील य अ(धकरण, पण ु े / ITAT, Pune