TMI Blog2016 (2) TMI 1207X X X X Extracts X X X X X X X X Extracts X X X X ..... king the provisions of sec.40A(3) - cash credits in excess of ₹ 20,000/- otherwise than by cross cheque and demand draft - assessee is in the business of land aggregation - Held that:- The payment between the assessee and the vendors which are reflected in the sale deed executed by the vendors in favour of the assessee for which the assessee made a payment in excess of ₹ 20,000/- otherwise by issue of cheque or demand draft, these payments cannot be considered for invoking the provisions of sec.40A(3). To that extent the assessee gets relief, over and above relief granted in earlier para 10.1, as the exceptions contained in Rule 6DD are not exhaustive and that the said rule must be interpreted liberally as held by the Rajasthan High Court in the case of Smt. Harshila Chordia v. ITO [2006 (11) TMI 117 - RAJASTHAN HIGH COURT] - Where the payment made by the assessee to the vendors in a village or town, which on the date of such payment is not served by any bank, to any person, who ordinarily resides, or is carrying on his business therein that village or town and that payment should be excluded by invoking the provisions of sec.40A(3) in view of Rule 6DD(j). See case of D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) of the Act. The CIT(Appeals) deleted this addition by observing that the A.O. has not made out a case that the payments made to group concerns are excessive. Hence, he observed that application of sec.40A(2)(b) of the Act is not correct. We do not find any infirmity in the order of the CIT(Appeals) on the deletion of the addition made u/s.40A(2)(b) Disallowance of expenses incurred relating to registration of the property - Held that:- As it is clearly mentioned that the purchaser would bear the cost of registration and therefore, the assessee is not supposed to incur the abovesaid expenditure, if the land is registered in favour of other parties. Further, the expenses incurred for facilitating registration and these expenses are reimbursed by principal and shown as income of the assessee, then there cannot be any further addition on this count. Otherwise, it amounts to double addition. However, if the assessee purchases the land in its own name, then the expenditure incurred by the assessee should be part of the cost of land, which is the value of closing stock and due credit to be given to the assessee. With this observation, we remit this issue to the file of the A.O to ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT Appeal Nos. 1570 to 1576 & 1998 to 2004 (Mds.) of 2015 - - - Dated:- 19-2-2016 - Chandra Poojari And G. Pavan Kumar, JJ. K.R. Vasudevan, Advocate and Anush Shankar, CA for the Appellant. Suneel Verma, CIT for the Respondent. ORDER Chandra Poojari, These are cross appeals by the assessee and by the Revenue directed against the common order of the Commissioner of Income-tax (Appeals) dated 12.6.2015 for the assessment years 2005-06 to 2011-12. Since, the issues involved in these appeals are common, these are clubbed together, heard together and disposed off by this common order for the sake of convenience. 2. The facts of the case as narrated in the assessment year 2005-06 are that there was a search action u/s. 132(1) of the Act at the premises of the assessee as well as residential premises of the directors of the assessee on 2.7.2010. Consequent to the search, notice u/s.153A was issued to the assessee on 3.2.2012. The assessee filed the returns of income on 31.10.2012 declaring the total income as under: Assessment Year Returned income (in Rs. ) 2005-06 33,62,270 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iginal assessment already completed u/s.143(3) of the Act. 5. The ld. DR submitted that the assessment was framed consequent to search u/s.132 of the Act at the assessee's premises took on 2.7.2010 and the AO issued notice u/s.153A of the Act and validly the assessments were framed in this case for all assessment years. 6. We have heard both the parties and perused the material on record. The contention of the assesse's counsel is that for the A.Ys. 2005-06 and 2006-07, the original assessment was already completed and there is no incriminating material found during the search action u/s.132 in the case of the assessee and as such, there can be assessment u/s.153A r.w.s 143(3) of the Act limited to the addition made in original assessment. 6.1 There is no dispute that Section 153A is applicable in this case. Hence, the Assessing Officer is obliged to issue notice under section 153A in respect of six preceding years, preceding the year in which search etc. has been initiated. Thereafter, he has to assess or reassesses the total income of these six years. It is obligatory on the part of the Assessing Officer to assess or reassess total income of the six years as prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in case of search etc, thus, the two are inextricably linked with each other. 6.2 Before proceeding further, one may now examine the provisions contained in sub-section (2) of section 153. It provides that if any assessment made under sub-section (1) is annulled in appeal etc., then the abated assessment revives. However, if such annulment is further nullified, the assessment again abates. The case of the assessee is that this provision further shows that completed assessments stand on a different footing from the pending assessments because appeals etc. proceedings continue to remain in force in case of completed assessments and their fate depends upon subsequent orders in appeal. On consideration of the provision and the submissions, it is found that this provision also makes it clear that the abatement of pending proceedings is not of such permanent nature that they cease to exist for all times to come. The interpretation of the assessee, though not specifically stated, would be that on annulment of the assessment made under section 153(1), the Assessing Officer gets the jurisdiction to assess the total income which was vested in him earlier independent of the search and wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... six years. The pending proceedings shall abate. This means that out of six years, if any assessment or reassessment is pending on the date of initiation of the search, it shall abate. In other words pending proceedings will not be proceeded with thereafter. The assessment has now to be made under section 153(1)(b) and the first proviso. It also means that only one assessment will be made under the aforesaid provisions as the two proceedings i.e. assessment or reassessment proceedings and proceedings under this provision merge into one. If assessment made under sub-section (1) is annulled in appeal or other legal proceedings, then the abated assessment or reassessment shall revive. This means that the assessment or reassessment, which had abated, shall be made, for which extension of time has been provided under section 153B. 6.6 The question now is - what is the scope of assessment or reassessment of total income under section I53A(1)(b) and the first proviso? For answering this question, guidance will have to be sought from section 132(1). If any books of account or other documents relevant to the assessment had not been produced in the course of original assessment and found i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... criminating material discovered in the course of search action. There was also no allegation that the assessee has failed to produce books of accounts and documents in the course of original assessment. Being so, the assessments for the assessment years 2005-06 and 2006-07 are bad in law. This also finds support from the decision of Special Bench in the case of All Cargo Global Logistics Ltd. v. Dy. CIT [2012] 137 ITD 287/23 taxmann.com 103 (Mum.)(SB). Accordingly, this ground of appeal of the assessee is allowed in assessment years 2005-06 and 2006-07. However, in other assessment years, there are incriminated material found during the course of search operation and the assessments are pending for these assessment years and hence, framing of assessment is justified. 7. The next ground in all the assessee's appeals is with regard to invoking the provisions of sec.40A(3) of the Act in respect of cash credits in excess of ₹ 20,000/- otherwise than by cross cheque and demand draft. 8. The assessee is in the business of land aggregation and it aggregate lands for big companies like M/s. Mahindra World City Corporation, M/s. Unitech etc. The nature of the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature cases 6944000 44670500 116545000 14011000 1320500 42907500 121508000 Amounts correctly paid 2868000 460000 37910200 1732500 45863500 88834200 Total 9812000 45130500 49564700 15743500 1320500 88777000 210342200 Disputed Amount 2643000 16278950 8297000 5729800 1298000 16548500 50795250 % of disputed Amounts 26.94% 36.07% 16.74% 36,39% 98.30% 18.64% 24.15% Similarly, the AO quantified the total for all these seven years at ₹ 2,05,93,10,216/-, out of this, ₹ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvind Srinivasan (iii) Shri R.S.Senthil Kumar and (iv) Shri B. Venkatarama Reddy. Intermediaries have shown the actual amounts whereas, the assessee has booked higher amounts in this regard. Therefore, the CIT(Appeals) was of the opinion that the relationship between the assessee and these intermediaries also cannot be termed as principal and agent relation and it can be like principal to principal relation. However, the assessee has not deducted TDS from the payments made to the intermediaries and therefore, the contention of the assessee that these intermediaries are its agents found no merit by the lower authorities. Further, the assessee took a plea before the CIT(Appeals) that the payments made in village/town which on the date of such payment is not served by any bank. To verify this claim, the CIT(Appeals) called for remand report from the A.O. After getting the remand report from the AO, the CIT(Appeals) observed that ₹ 87,09,32,190/- was paid in cash which was not served by bank. According to the CIT(Appeals), this amount of ₹ 87,09,32,190/- includes 25% i.e. ₹ 21,77,33,047/-, which is inflated purchase cost of land and excluding this, he has giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts from the principals by cheque and accounted the same in its books of account. As per the MOU agreement, the assessee has to acquire large tracts of contiguous land at a particular location. For this purpose, the assessee appointed agents to negotiate the terms and conditions with the sellers of the land. This plea of the assessee was examined by the Department and found that the agents were confirmed the negotiations of the assessee for the purchase of land. As recorded in the assessment order for the assessment year 2011-12, the following persons are examined: (i) Shri S. Ashokan (ii) Shri Arvind Srinivaann (iii) Shri R.S.Senthil (iv) Shri B. Venkatarama Reddy Further, the statements were recorded from C. Sushila, Mrs. S. Jayamani, Thangaraj, Rajagaopal and Prakashchand. There is no dispute to the fact that the assessee has no direct dealings with the landowners. The payments were made to landowners through these agents and payments also received by the assessee as a principal. Being so, as the provisions of Rule 6DD(k) of the I.T.Rules, 1962, where the payment is made by any person to his agent, who is required to make payment in cash for services on behalf of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cticable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. Rule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule. It will be clear from the provisions of sec.40A(3) and Rule 6DD that they are intended to regulate business transactions and to prevent the use of unaccounted money or reduce the changes to use black money for business transactions. 10.3 Thus, the genuineness of the payment and the identity of the payee are the most and foremost requirements to invoke the exceptions carved out in Rule 6DD of the IT Rules, 1962. Being so, if the assessee made the genuine cash payments and if it is confirmed by the respective vendors that they have received payments and there was compulsion to the assessee to make the payment on account of business expediency and since the realisation of cheques and DDs take longer time, the assessee was forced to make cash payments to the landowners to drive them to come for registration. These payments cannot be considered under the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence if any between the money recorded as purchases by the assessee and the seller could be on account of any or all of the following reasons: (i) Agent has not parted with all the monies given for the specific property. (ii) The seller has recorded only portion of the money received from the assessee. (iii) Combination of the above. As the agent in each of the above transaction have confirmed the receipt of money and acknowledged the same through stamped receipt, sale agreement and power, it has been provided beyond doubt. These facts have been examined during the course of post-search investigation and on the insistence of the department an affidavit was filed by the assessee offering to declare the additional income. Therefore, according to the assessee, the expenditure incurred on purchase of land is genuine and disallowance on account of differences between the stamped receipts and recording of purchase cost in the books of account of the assessee is compensated by declaring additional income in the return of income filed u/s.153A of the Act. He relied on the following judgments for the proposition that no estimation of income is possible under search assessment p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority is the best judge of the situation. It is his 'best judgment' and not of anyone else's. (Emphasis supplied). 15.1 We also place reliance on the judgment of the Andhra Pradesh High Court in the case of Gopal Lal Bhadruka v. Dy. CIT [2012] 346 ITR 106/27 taxmann.com 167, wherein it was held that for the purposes of sections 153A and 153C of the Act, the Assessing Officer can take into consideration material other than what was available during the search and seizure operation for making an assessment of the undisclosed income of the assessee. 15.2 In the present case, the main contention of the ld. AR is that notice for enhancement was given only to enhance the purchase cost of land at ₹ 5,07,95,250/-. However, additional income was made on the higher side at ₹ 21,77,33,047/-. In our opinion, the CIT(Appeals) travelled beyond the notice of enhancement issued to the assessee for enhancement of assessment. Hence, over and above this amount, if the CIT(Appeals) wants to enhance the assessment, he should have given fresh notice as prescribed in sub-sec. (2) of sec.251 of the Act and given reasonable opportunity of being heard to the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of sec.40A(2)(b) are attracted. The year-wise payments are as under: A.Y. Disallowance made by AO u/s. 40(a)(ia)/40A(2)(b)/37 2005-06 ₹ 21,00,000/- 2006-07 ₹ 23,00,000/- 2007-08 ₹ 49,20,000/- 2008-09 ₹ 39,30,000/- 2009-10 ₹ 28,00,000/- 2010-11 ₹ 27,00,000/- 2011-12 ₹ 17,24,980/- 16.2 According to the ld. AR, since the payments have already been made before the end of the close of the year, in view of the decision of the Special Bench of the Tribunal in the case of Merilyn Shipping Transports v. Addl. CIT [2012] 136 ITD 23/20 taxmann.com 244 (Visakhapatnam) and judgment of Gujarat High Court (sic) in the case of CIT v. Vector Shipping Services (P.) Ltd. [2013] 218 Taxman 93 (Mag.)/38 taxmann.com 77 (All.), disallowance u/s. sec 40(a)(ia) is not warranted. 17. We have heard both the parties and perused the material on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance under 'registration expenses' 2006-07 ₹ 43,57,872/- 2007-08 ₹ 84,48,657/- 2008-09 ₹ 1,47,09,981/- 2009-10 ₹ 1,34,02,237/- 2010-11 ₹ 21,20,568/- 19.2 The AO while making the restriction for the A.Y. 2006-07 has observed as under : Vide pre-assessment notice dated 21-3-2013 served on 21-3-2013, it was proposed to make the following addition/disallowance: Vide questionnaire u/s 142(1) served on 28-12-2012 asssessee was requested to furnish property-wise break-up of stamp duty and registration fee charges. It has not been furnished till date. During the hearing on 18-3-2013 it was requested to explain as to how Rs.'5101882 which works out to more than 7% of the purchase cost of properties was Claimed as registration and stamp duty charges when almost all the purchases were made through power of attorney. No explanation was offered. Only the ledger account copy of both the accounts furnished. On perusal it is seen that on 9-2-2006 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000 only in the F. Y 2012-13. Hence the registration expenses are restricted to 1 % (744010) of the purchase cost (74401000) and tile balance of ₹ 4357872 is disallowed. Aggrieved, the assessee went in appeal before the Commissioner of Income-tax(Appeals). 19.3 On appeal, the CIT(Appeals) confirmed the expenditure under registration to 1% of the purchase cost of land on ad hoc basis. According to the ld. AR, the entire expenses claimed were backed by evidence and also the said expenditure includes all other expenses, till such time the land is ultimately conveyed to the buyer and these expenditure incurred in terms of the agreement entered into by the assessee and the buyer. 20. We have heard both the parties and perused the material on record. It is seen from the agreement entered in October 2005 between the assessee and the project developer M/s. Unitech Buildtech Ltd. that the purchaser shall bear all the expenses in respect of the registration, such as stamp duty, registration fee, documentation charges and other incidental charges thereto. As it is clearly mentioned that the purchaser would bear the cost of registration and therefore, the assessee is not suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l in nature and the assessee has not produced any details for the same. In our opinion, neither the AO nor the CIT(Appeals) have gone through the nature of expenditure specifically, Therefore, it is appropriate to remit the issue to the file of the AO for fresh consideration and the assessee is directed to place necessary bills and vouchers/receipts to show that this expenditure is not in the nature of capital and this expenditure was incurred wholly and exclusively for the business expediency. Accordingly, we remit this issue to the file of the AO for fresh consideration. The position is same in other assessment years also. This ground of appeal is allowed for statistical purposes. 23. The next ground for the assessment year 2008-09 in ITA No.1573/Mds/2015 is that the Commissioner of Income-tax(Appeals) erred in not adjudicating the ground relating to the addition of income of ₹ 107,60,696/-. 24. Admittedly, the assessee has raised this ground as ground No.35 before the Commissioner of Income-tax(Appeals), which is as follows : 35. The Learned Assessing Officer erred in the addition of ₹ 1,07,60,696/- being the amount offered earlier by the assessee even afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessed income is not tenable. The learned AO, after considering all the details mentioned in the assessment order had concluded that the expenditure claimed by the assessee has been incurred and had therefore invoked the provisions of section 40A(3) of the Act. Hence, it is not appropriate for the appellate authority to propose disallowance, by relying on the details furnished by the AO in the assessment order, without giving any reasons, when the AO himself has disregarded the details mentioned in the assessment order. This would amount to introduce in the assessment new sources of income, which is not a subject matter of tile original assessment, which we submit humbly is not tenable. In this regard. your kind attention is invited to the decision in the case of Narrondas Manordass v. CIT 31 ITR 909 (Bom) and CIT v. Scindia Steam Navigation Ltd. [1971] 80 ITR 589 (Bom.). The learned AO has made disallowance of the entire purchase cost of land. by invoking the provisions of section 40A(3) of the Act. Now, your goodself has proposed enhancement of Income by disallowing expenses for purchase of land. Making an addition to income by disallowing a portion of the purchase cost. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(3) r.w.s 153A of the Act. 28. In the Revenue's appeals in ITA Nos.1998 to 2004/Mds/15 , the first ground in all these appeals is with regard to reducing the addition towards inflation in purchase cost of the land from 32.58% to 25%. Since, we have adjudicated this ground in assessee's case in earlier paragraph 15, it does not require any adjudication. It is dismissed. 29. The CIT(Appeals) erred in not examining whether the assessee was forced to make cash payments or wilfully made the cash payments and later sought refuge u/s.6DD(g). This ground does not require adjudication as we have adjudicated the same issue in assessee's appeal in para 10 above. 30. The next ground is that the CIT(Appeals) erred in giving relief to the assessee by holding that provisions of sec.40A(2)(b) would not be applicable to the technical/consultancy charges paid to the group concern on the ground that the AO had made out a clear case for the same. 31. We have heard both the parties and perused the material on record. The CIT(Appeals) deleted this addition by observing that the A.O. has not made out a case that the payments made to group concerns are excessive. Hence, he observe ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
