TMI Blog2020 (12) TMI 861X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of Section 40A(3) - Section 40A(3) of the Act are concerned in respect of unaccounted business expenses incurred in cash, we find admittedly that these are unaccounted transactions and hence, the same would have to be obviously incurred in cash and accordingly, the provisions of Section 40A(3) cannot be brought into operation at all. Admittedly, the seized document contains unaccounted income as well as unaccounted expenditure both were duly transacted only in cash. Hence, the applicability of provisions of Section 40A(3) of the Act to the said payments would not serve the scheme of taxation and would ultimately result only ending up in taxing the entire unaccounted gross receipts alone without giving benefit of deduction to the assessee. This is certainly not the intention of the legislature and more so, the provisions of the Act. Accordingly, the grounds raised by the assessee in this regard for all the assessment years are partly allowed. Addition made on account of capital contribution in the assessee firm by the partner - HELD THAT:- We hold that the benefit should be given to the assessee by holding that the on-money receipts that pertaining to the entire project we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of construction of residential complex. A search and seizure action under section 132 of the Income-tax Act, 1961 was conducted on 26/02/2015 at the residence of Mr Vipul Mangal, partner of the assessee-firm. Simultaneously, the business premises of the assessee-firm was also covered under section 133A of the Act. During the course of search and survey action, various loose papers, notebook, diaries, etc. were found and seized / impounded, as the case may be, which indicated the acceptance of on money on sale of the flats constructed by the assessee. Seized documents also reveal various payments/expenses made for the purpose of the construction business of the assessee. 3.1. A statement on oath was recorded from Mr. Vipul Mangal, partner of the assessee firm u/s.132(4) of the Act at the time of search proceedings by the search party. In that sworn statement, the partner of the assessee firm had categorically stated that there was on-money receipts on sale of flats in the project carried out by the assessee and which were duly reflected in the seized documents found during the search. The said partner had also stated that in the very same seized documents, there were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same. In this regard, the assessee also filed the entire details together with the narration and the nature of payment and the name of the party to whom such payments were made together with the complete break-up with dates for the total unaccounted expenditure of ₹ 6,01,09,970/-. Accordingly, the assessee offered for all the years put together unaccounted income as under:- Gross receipts representing on-money on sale of flats - ₹ 9,75,50,000/- Less unaccounted expenses used in Construction of the project belonging to the firm. ₹ 6,01,09,970/- Net unaccounted income offered to tax For all the years put together ₹ 3,74,40,030/- 3.3. We find that the assessee had submitted that the said net income of ₹ 3,74,40,030/- being the unaccounted income offered for all the years put together alone represented 38.38% of the gross unaccounted receipts. The main belief of the assessee is that the seized document in the form of diaries which contains details of unaccounted receipts on sale of flats as well as unaccounted expenses which wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 37,44,003 97,55,000 60,10,997 2,54,000 2 2012-13 63,64,805 1,65,83,500 1,02,18,695 3 2013-14 86,11,207 2,24,36,500 1,38,25,293 4 2014-15 82,36,807 2,14,61,000 1,32,24,193 5 2015-16 67,39,205 2,73,14,000 1,68,30,792 TOTAL 3,74,40,030 9,75,50,000 6,01,09,970 2,54,000 3.6. From the above table, it could be seen that for A.Y.2011-12 alone, the ld. AO had made further addition of ₹ 2,54,000/- on account of partner s capital contribution. 3.7. The ld. AO disregarded the claim of deduction towards expenses recorded in the seized diaries for the following reasons:- a) The assessee has not produced any documentar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of ₹ 1,88,51,945/- before the ld. CIT(A). 3.10. We find that the ld. CIT(A) without getting into these intricate details of expenses which were corroborated with entries in the seized documents proceeded to allow deduction towards unaccounted expenses to the extent of 50% of gross receipts on adhoc basis and distributed the same to various years in accordance with percentage completion method followed by the assessee. The relevant observation of the ld. CIT(A) in this regard are reproduced herein for the sake of convenience:- 6.11. From the decisions of the Hon‟ble High Courts cited above, it can be concluded that if the notings in the seized documents in respect of the unaccounted receipts are being considered to be true and considered while determining the undisclosed income of an assessee, the notings on the same seized documents in respect of the expenses are also required to be considered while determining its undisclosed income. It is also relevant to note that the unaccounted transactions are carried out primarily on trust and considering the inherit nature, the level of documentation is minimal. Therefore, it is not fair on the part of AO to insis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the profit margin shown by it in its books of 19.97% is much higher than the margin shown in the construction industry where even margin of 8% is considered to be reasonable. It was further submitted that on the said on-money receipts of ₹ 9,75,50,000/- it has offered a very high margin of 38.38% and therefore, the assessee contended that the action of the AO of making further additions, is not correct. These contentions of the assessee cannot be accepted since, the margin earned by an assessee is to be decided on a case-to-case basis. If an assessee has claimed the entire expenses related to its project in its books, in that case, the entire on-money receipts have to be considered while determining its undisclosed income. Further, if the component of on-money vis- -vis the accounted / cheque receipt is higher, the profit embedded in the on-money component will be lower since more proportion of the on-money will be used for the unaccounted expenses as well as the regular expenses. In the instant case, the assessee itself has determined the net surplus/profit; to be of ₹ 3,74,40,030/- @38.38% after considering the unaccounted cash expenses in respect of the said on- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. We find that the ld. CIT(A) had categorically observed that out of the total expenditure of ₹ 6,01,09,970/-, the sum of ₹ 50,00,000/- pertains to land at Taloja, which represents amount spent for some other project of the assessee and expenses of ₹ 10,50,000/- which are prohibited by law and ₹ 1,00,000/- which are capital in nature. There is a categorical finding to this effect in para 6.13 of the ld. CIT(A) as reproduced supra. Against this finding, the revenue is not in appeal before us. Hence, the various arguments made by the ld. DR by way of a separate tabulation in excel sheet sent to us in email which was also screen shared at the time of hearing by the ld. DR need to be looked into from the perspective of finding given by the ld. CIT(A) in his order which is not appealed by the revenue before us. We find that the ld. DR was trying to point out that assessee had incurred various expenses which are prohibited by law and the same is not restricted to ₹ 10,50,000/- alone as mentioned in the order of the ld. CIT(A). We find that the ld. DR was trying to improve the case of the revenue before us which is not permissible as per law. Reliance i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are prohibited by law and expenses that are relevant for the different project of the assessee. Admittedly, the seized document contains unaccounted income as well as unaccounted expenditure both were duly transacted only in cash. Hence, the applicability of provisions of Section 40A(3) of the Act to the said payments would not serve the scheme of taxation and would ultimately result only ending up in taxing the entire unaccounted gross receipts alone without giving benefit of deduction to the assessee. This is certainly not the intention of the legislature and more so, the provisions of the Act. Accordingly, the grounds raised by the assessee in this regard for all the assessment years are partly allowed. 4. The ground No.3 raised by the assessee is with regard to addition made on account of capital contribution in the assessee firm by the partner. 4.1. We have heard rival submissions and perused the materials available on record. We find that the partners of assessee firm have made capital contributions for an aggregate amount of ₹ 1,00,09,000/-. It is not in dispute that assessee s partner had categorically stated in the statement of oath recorded u/s.132(4) o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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