TMI Blog2021 (8) TMI 366X X X X Extracts X X X X X X X X Extracts X X X X ..... ey may not taken particular interest to record the proper reasons - we direct the Assessing Officer to add 20% gross receipts as the unaccounted income which has to be distributed to all the assessment years in accordance with the percentage of work completed by the assessee. Applicability of provisions of Section 40A(3) in respect of unaccounted business expenses incurred in cash - HELD THAT:- 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 find that the seized documents does not state the year of receipts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A search and seizure action under section 132 of the Income Tax Act, 1961 (for short the Act ) was conducted on 26th February 2015 at the residence of Shri Vipul Mangal, partner of the assessee-firm. Simultaneously, the business premises of the assessee-firm were 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. 5. A statement on oath was recorded from Shri Vipul Mangal, partner of the assessee firm under section 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 certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the seized document diaries and assessee sought deduction for the 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/- 7. 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to non-allowance of expenses Addition on accoupnt of partners capital contribution 1 2011-12 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 10. From the above table, it coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses, NOC from various regulatory departments, revalidation fees, marble expenses, furniture expenses, plumber expenses, substation charges, legal charges etc., cannot be believed as the same were not substantiated by the assessee. 11.2 The assessee has also furnished the name and address of the parties together with the specific amounts paid to them and also mobile number of those parties before the Assessing Officer which are tabulated in Pages 16 17 of the assessment order to the tune of ₹ 500,06,930/- out of the total expenditure of ₹ 601,09,970/-. No cross verification whatsoever was sought to be made by the Assessing Officer even in respect of details submitted by the assessee for ₹ 500,06,930/-. Despite this fact, the Assessing Officer had resorted to disallow the entire expenditure reflected in the very same seize documents which contains the details of on-money receipts which had been duly considered in the income offered by the assessee in the returns for the A.Y 2011-12 to 2015-16. 12. Aggrieved with the above order, assessee preferred an appeal before CIT(A) and filed detailed submissions. Before the ld. CIT(A), the assessee had also made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be allowed as a deduction where the corresponding receipts have been booked. 6.12 In course of the appellate proceedings, it was noted that the said total amount of unaccounted cash expenses of ₹ 6,01,09,970/- also includes cash payment of ₹ 50,00,000/- for buying land at Taloja which clearly cannot be allowed to be set off against the said on-money receipts. Further, the assessee itself in course of the appellate proceedings has quantified the payments which are prohibited by law to be of ₹ 10,50,000/- and the expenses of capital nature to be of ₹ 1,00,000/-. Further, as mentioned earlier, it is a fact that the level of documentation in respect of the said unaccounted cash expenses is minimum and therefore, it is almost impossible to ascertain as to what portion of the said unaccounted expenses relate to (i) the project of Silver Arch, (ii) is not capital in nature, (iii) not prohibited by law and (iv) whether the corresponding in come as per matching principle has duly been accounted. In view of such a factual position, the profit on the said on-money receipts of ₹ 9,75,50,000/- has to be reasonably estimated since the exact amount out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,75,50,000/-by applying a margin of 50% which will factor the non-allowable expenses out of the said unaccounted cash expenses of ₹ 6,01,09,970/-. Accordingly, the profit of the assessee on the said on-money receipts works out to ₹ 4,87,75,000/-. Since, only 10% of the project was incrementally completed during the relevant year, the profit for the relevant year is therefore, estimated at ₹ 48,77,500/-. 14. Aggrieved with the above order, assessee is in appeal before us. 15. Before us, the Ld AR brought to our notice basic facts and the findings of Ld CIT(A) at Page 10 of the order. He submitted that the Assessing Officer accepted the on money found during search but rejected the expenses incurred out of the above on money receipt, which was incurred only for the purpose of business. He also submitted that the relevant expenses were found in the same set of papers found during search. The assessee had submitted during the search as well as assessment proceedings that it is offering the net income for tax purpose. He submitted the learned CIT(A) accepted the plea of the assessee for the expenses claim and also submitted that the assessee made additiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nuineness of the expenditure. He also submitted that the case law relied by the counsel for the assessee is distinguishable and submitted that the CIT(A) has not verified the expenses claimed by the assessee but still allowed the same on ad hoc basis to the extent of 50% of the on money received. Therefore, the expenses claimed by the assessee to the extent of ₹ 1.88 crore was never claimed and not verified by authorities, therefore the claim should not be entertained. 18. In rejoinder, Ld AR submitted as below: 20.1 He submitted that the Departmental Representative mentioned that we have offered for tax 38.38% of gross on-money received and not 19.05% as claimed by the Authorised Representative during the course of hearing. In this connection, please find below the calculation of the aforesaid 38.38% and 19.05% Total on-money receipts 9,75,50,000 Less: Claimed before AO 6.01.09,970 3,74,40,030 38.38% Less: Additional claimed before 1,88.51,945 CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e disputes have arisen and, assessee repaid ₹ 34 lacs out of the aforesaid ₹ 291 lacs and claimed the said ₹ 34 lacs as expenditure/ reduction in receipt of on-money. As such, he submitted that ₹ 34 lacs is not a repayment of loan but refund of excess on-money received and hence, the same ought to be allowed as deduction' reduction from on-money received. 20.4 He submitted that the Departmental Representative submitted that there are several expenses appearing in the details of expenses claimed (page nos 80 to 85 of the paper book) which are not permissible in law and hence, ought not to be allowed as deduction inasmuch as the same is not allowable under section 37 of the Act. He more particularly referred to payments made to 'Faisal (OSD)' and 'Architect Mr Rasik Dudhwadkar' for Deficiency! CC! Fire NOC etc. In this connection, he submitted that Mr Rasik Dudhwadkar was the key architect handling the project 'Silver Arch'. Assessee paid architect fees to Mr Rasik Dudhwadkar in phase-wise manner that is, at every stage of work completion - for example, on getting CC, assessee paid ₹ 20 lacs in cash on 09.01.12 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wards purchase of land on which the project is built, and not for any separate land at Taloja. The phrase Taioja' is mentioned in the seized diary for the reason that Mr Anil Sharma was from Taloja and not because the land was located in Taloja. As such, we submit that the said expenditure of ₹ 50 lacs should be allowed as a deduction. 20.6 The Departmental Representative also referred to payments to Bhoomi Group In this connection, he submitted that the payment is made for purchase of TDR which is very clearly mentioned in the narration giving the nature of expense (refer Sr. Nos 14 and 15, Statement 1. 19. Considered the rival submissions and material on record. It is not in dispute that the details of unaccounted expenses in the sum of ₹ 6,01,09,970/- were part of the very same seized documents vide seized documents referred in Annexure-A3 which also contained details of on-money receipts to the tune of ₹ 9,75,50,000/- for all the assessment years put together. It is trite law that the said seized documents should be considered in toto and the revenue cannot leave that part of the seized documents which is detrimental to it and consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me, address, mobile number, nature of payment of the parties for their respective amounts before the Assessing Officer itself. We find that the learned Counsel for the assessee also responded to the submissions made by the Ld DR, which was reproduced supra for convenience, they also explained the reasons clearly. However, considering the fact that these are unaccounted expenses and all these unaccounted expenses could not be fully substantiated by the assessee with proper supporting documents and also considering the fact that assessee s declared profit was 19.05% as per its regular books of accounts which is also categorically admitted by the ld.CIT(A) in page 25 of his order, we hold that the assessee would have made profit of 20% approximately on these unaccounted transactions by having the benefit in the form of huge cash discounts, huge savings in levy of indirect taxes, better negotiation of prices of materials due to cash purchases and also the expenses specifically identified by Ld CIT(A), which the Ld AR has explained the nature of expenses in his submissions before us, may be few expenses which may be not substantiated by the assessee due to the fact that these expenses m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee firm has been made out of on-money receipts on sale of flats. Hence, the source of capital contribution gets duly explained by the on-money receipts. We find that the assessee had offered on-money pertaining to assessment year 2011-12 at ₹ 97,55,000/- and accordingly, the Assessing Officer had allowed telescoping of the same with capital contribution made by the assessee to that extent. This evidently led to a difference of ₹ 2,54,000/- in capital contribution (₹ 1,00,09,000 97,55,000/-) which remain unexplained, which was sought to be added by the Assessing Officer. We find that the seized documents does not state the year of receipts of on-money by the assessee. In this regard, we hold that the benefit should be given to the assessee by holding that the on-money receipts that pertaining to the entire project were received by the assessee in the initial year itself and the said money is certainly available for making capital contribution in to the assessee firm, irrespective of the fact that only part of the such on-money receipts has been offered to tax in A.Y. 2011-12. What is to be seen is the availability of cash in the hands of the partner to ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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