2016 (2) TMI 1207 - AT - Income Tax

Assessment u/s.153A - what is the scope of assessment or reassessment of total income under section 153A(1)(b) and the first proviso? - Held that - When the original assessment for the assessment years 2005-06 & 2006-2007 has already been completed or time limit to complete the assessment has been lapsed and no incriminating material found during search operation the assessment u/s.153A to be made only as per the original assessment which was made u/s.143(1) or u/s.143(3). It is an admitted fact that in these assessment years there was no incriminating 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 (7) TMI 222 - ITAT MUMBAI(SB) - decided in favour of assessee. Addition invoking the provisions of sec.40A(3) - cash credits in excess of Rs. 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 Rs. 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 Dy. CIT v. Abhinandan Housing (P.) Ltd. 2014 (12) TMI 251 - ITAT HYDERABAD and Sahitya Housing (P.) Ltd. v. Dy. CIT 2014 (2) TMI 811 - ITAT HYDERABAD . Accordingly this ground of appeal of the assessee is partly allowed with direction to A.O. to decide afresh. Addition towards inflated purchase cost of land - main contention of the ld. AR is that notice for enhancement was given only to enhance the purchase cost of land at Rs. 5, 07, 95, 250/- however additional income was made on the higher side at Rs. 21, 77, 33, 047/- - Held that - to the extent of confirmation filed by the respective intermediaries who transacted the purchase of land cannot be considered for enhancement in the hands of the assessee. In respect of other agents who have not appeared before the AO and the assessee has filed affidavits from them which are not examined by the AO the same are required to be examined by the Assessing Officer and without examination it cannot be rejected as held by the Supreme Court in the case of Mehta Parikh & Co. v. CIT 1956 (5) TMI 4 - SUPREME COURT - the amounts considered as receipts in the hands of recipients cannot be doubted in the hands of the assessee so as to enhance the cost of land as bogus. Accordingly with this observation we direct the Assessing Officer only to consider the payments for enhancement which are not confirmed/disclosed by the recipients in their return of income. The enhancement of income for the assessment years 2005-06 and 2006-07 does not survive in view of quashing of assessment for these two assessment years. Thus the assessee gets relief out of Rs. 5, 07, 95, 250/- as above and the balance amount only to be considered as directed above Addition invoking the provisions of sec. 40(a)(ia) / 40A(2)(b) / 37 - technical/consultancy paid to assessee s group concerns stating that the following payments have been made without compensating service being received - AO held that the payments are unreasonable and excessive in nature and hence the provisions of sec.40A(2)(b) are attracted - Held that - The payment is not outstanding at the end of the close of the financial year and therefore the disallowance cannot be warranted as held in the case of N. Palanivelu v. ITO 2015 (10) TMI 1415 - ITAT CHENNAI . On the payment made to Santha Build tech India Pvt. Ltd. the A.O. also invoked the provisions of sec.40A(2)(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 examine whether the expenditure is incurred by the assessee for registration and whether the assessee is purchased the land in its own name and decide the issue accordingly. This ground of appeal is allowed for statistical purposes. Disallowance on capital expenditure - Held that - This expenditure was disallowed on the reason that they are capital 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. Enhancing the income towards difference between income admitted and income returned - Held that - A.R pleaded before us that an opportunity be given to reconcile the differences. Considering the request we remit this issue to the Assessing Officer with a direction to reconsider the issue afresh after giving an opportunity of hearing to the assessee. Levy of interest u/s.234A & 234B - Held that - The interest u/s 234A is chargeable from the date of expiry of the notice period given u/s 153A to the date of completing the assessment u/s 143(3) r.w.s 153A as held by the Tribunal in the case of Asstt. CIT v. V.N. Devadoss 2013 (2) TMI 871 - ITAT CHENNAI . The interest u/s 234B is to be levied only on the additional tax levied on the enhanced income determined u/s 143(3) r.w.s 153A. Therefore the period of charging of interest should be from the date of determination of income u/s 143(3) or 143(3) to the determination of enhanced income u/s 143(3) r.w.s 153A of the Act. Addition u/s 40A(2)(b) - 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 - Held that - 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 while disposing of the assessee s appeal. 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).

Summary

Issues Involved:
1. Invoking the provisions of section 153A of the Act and framing the assessment thereafter.
2. Invoking the provisions of section 40A(3) of the Act in respect of cash credits in excess of Rs. 20,000/- otherwise than by cross cheque and demand draft.
3. Confirming the addition towards inflated purchase cost of land.
4. Invoking the provisions of section 40(a)(ia) / 40A(2)(b) / 37 of the Act.
5. Confirming the disallowance of expenses incurred relating to the registration of the property.
6. Addition of income of Rs. 1,07,60,696/- for the assessment year 2008-09.
7. Enhancement of income towards the difference between income admitted and income returned for the assessment year 2008-09.
8. Levy of interest under sections 234A & 234B of the Act.
9. Reducing the addition towards inflation in purchase cost of the land from 32.58% to 25%.
10. Relief given by the CIT(Appeals) regarding technical/consultancy charges paid to group concern under section 40A(2)(b).

Detailed Analysis:

1. Invoking the Provisions of Section 153A:
The assessee contended that if no incriminating material was found during the search, the assessment should be framed based on the original assessment. The Revenue argued that the assessment was validly framed under section 153A following a search. The Tribunal held that for assessment years 2005-06 and 2006-07, where no incriminating material was found, the assessments were bad in law. For other years, where incriminating material was found, the assessments were justified.

2. Invoking the Provisions of Section 40A(3):
The AO disallowed 20% of cash payments exceeding Rs. 20,000/- not made by cross cheque or demand draft. The CIT(Appeals) granted partial relief. The Tribunal noted that the assessee acted as an agent for M/s. Unitech Ltd. and M/s. Mahindra World City Developers Ltd., and the payments were made through intermediaries. The Tribunal concluded that payments made to agents who further paid the landowners were covered under Rule 6DD(k) and thus exempt from section 40A(3). However, for payments made directly by the assessee to landowners, the Tribunal allowed the assessee to claim exceptions under Rule 6DD(j) if the payments were made in villages without banking facilities.

3. Confirming the Addition Towards Inflated Purchase Cost of Land:
The CIT(Appeals) estimated inflated purchase costs at Rs. 21,77,33,047/-. The Tribunal found that the CIT(Appeals) enhanced the assessment beyond the notice issued for Rs. 5,07,95,250/-. The Tribunal directed the AO to consider only payments not confirmed by recipients for enhancement and to exclude amounts confirmed by intermediaries.

4. Invoking the Provisions of Section 40(a)(ia) / 40A(2)(b) / 37:
The AO disallowed payments made to group concerns under section 40(a)(ia) and 40A(2)(b). The Tribunal allowed the assessee's appeal, noting that payments were not outstanding at the end of the financial year, thus disallowance under section 40(a)(ia) was not warranted. The Tribunal also upheld the CIT(Appeals) finding that the AO did not prove that payments to group concerns were excessive under section 40A(2)(b).

5. Confirming the Disallowance of Expenses Relating to Registration of Property:
The AO restricted registration expenses to 1% of the purchase cost, disallowing the rest. The Tribunal remitted the issue to the AO to verify if the expenses were incurred for land purchased in the assessee's name and if they were reimbursed by the principal.

6. Addition of Income of Rs. 1,07,60,696/- for the Assessment Year 2008-09:
The Tribunal noted that this ground was not adjudicated by the CIT(Appeals) and remitted the issue to the AO for verification of any mistake during the admission made by the assessee.

7. Enhancement of Income Towards the Difference Between Income Admitted and Income Returned:
The CIT(Appeals) enhanced the income by Rs. 1,96,23,884/- based on the difference between admitted and returned income. The Tribunal remitted the issue to the AO for reconsideration after providing the assessee an opportunity to reconcile the differences.

8. Levy of Interest Under Sections 234A & 234B:
The Tribunal held that interest under section 234A is chargeable from the date of expiry of the notice period under section 153A to the date of completing the assessment, and interest under section 234B is to be levied on the additional tax on enhanced income.

9. Reducing the Addition Towards Inflation in Purchase Cost of Land:
The Revenue's appeal on this ground was dismissed as the Tribunal had already adjudicated this issue in the assessee's favor.

10. Relief Given by the CIT(Appeals) Regarding Technical/Consultancy Charges:
The Tribunal upheld the CIT(Appeals) decision that the AO did not prove that payments to group concerns were excessive under section 40A(2)(b).

Conclusion:
The Tribunal allowed the assessee's appeals for the assessment years 2005-06 and 2006-07, partly allowed other appeals for statistical purposes, and dismissed the Revenue's appeals.