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2019 (1) TMI 1637 - AT - Income TaxUnexplained cash found - unexplained cash withdrawals - HELD THAT - Admittedly the cash books was not updated on the day of search and the statements were also recorded before the books of accounts were completed. The A.O. and the CIT(A) have verified the cash balances available and found that there were huge cash withdrawals by the assessee by way of cheques. The reason for not accepting the assessee s contention by the authorities is that the assessee has failed to explain as to why on a particular date the assessee had to withdraw cash by way of four cheques when it could have done by one cheque and that the assessee has also failed to establish the link between the cash withdrawn and the cash found at the time of search. Since both the A.O. and the CIT(A) have verified the cash and bank statements and have come to the conclusion that the assessee could not explain the sources for the cash found at the time of search and even before us the assessee could not establish the live link we see no reason to interfere with the order of the CIT(A). Disallowance of claim u/s 80-IB(10) in respect of project Sai Sagar Heights - HELD THAT - During the course of search proceedings and post search investigation the DDIT (Inv) noticed that the assessee-company violated the provisions of section 80-IB by constructing the flats where the built up area of almost every flat exceeded the prescribed limit of 1500 sft. A.O. observed that the assessee-company has constructed four residential complexes viz. Manasarovar Heights-I II and III at Hasmatpet Village and IVth one at Sai Sagar Heights at Begumpet Secunderabad. As far as the deduction with regard to the project at Sai Sagar Heights is concerned the A.O. observed that the assessee has been claiming deduction on the profits derived from this housing project in the earlier assessment years and the same has been denied on the ground that the assessee did not fulfil the mandatory condition of having minimum 1 Acre of land for the development of housing project. The CIT(A) confirmed the disallowance of deduction u/s 80-IB and brought it to tax against which the assessee is now in second appeal before us. Since the deduction u/s 80-IB with regard to Sai Sagar Heights is emanating from the earlier assessment years the same shall be considered while dealing with the issue in the Assessment Year 2007-08. Addition u/s 40A(3) despite taking on record the compelling reasons and circumstances under which the payment was made in cash - HELD THAT - We find that the contention of the assessee that it had initially issued crossed cheques but because of insufficient funds in its bank account the cheques were dishonoured against which payments were made in cash is not disputed by the Department. It is also a fact that every subsequent payment made by the assessee is in cash only. Considering the above in our opinion the assessee has satisfactorily explained the reason for making the cash payments. Therefore we are inclined to accept the contention of the assessee and the addition u/s 40A(3) is deleted. Exemption claimed u/s 80IB(10) on the additions / disallowances u/s 40A(3) and also u/s 69A sustained by him as the said additions / disallowances constituted a part of the business profits - HELD THAT - Assessee relied upon the CBDT Circular No.37/2016 dated 02.11.2016 wherein the Board has clarified that where the disallowances are made u/s 32 40(a)(ia) 40A(3) 43B etc. of the Act and other specific disallowances relating to the business activity against which the Chapter VI-A deduction has been claimed and such disallowance results in enhancement of the profits of the eligible business the deduction u/s Chapter VI-A is admissible on the profits so enhanced by the disallowance. Disallowance @ 10% of the direct and indirect expenditure claimed by the assessee on the ground that the assessee has not furnished the evidence in support of the total expenditure claimed by it - HELD THAT - CIT(A) has deleted the same by holding that the assessee has maintained proper books of account and that it is supported by bills / vouchers and that the Assessing Officer in a hurry to complete the assessment caused this blanket disallowance. For holding so the CIT(A) has considered that in the immediately preceding previous year the assessment was completed u/s 143(3) of the Act and the books of account have been verified and no disallowances were caused and that the projects are the same in the relevant previous year and that the Assessing Officer should have considered this aspect while causing an ad-hoc disallowance of 10% of the total expenditure. DR supported the assessment order while the Learned Counsel for the Assessee supported the order of the CIT(A). We find that except relying upon the order of the A.O. Ld DR has not been able to rebut the findings of the CIT(A) that the expenditure which has been disallowed during this A.Y. is the expenditure of same project which was considered and allowed in the earlier assessment years as well. Therefore we see no reason to interfere with the order of the CIT(A) on this issue and therefore the Revenue s grounds of appeal are rejected. Even otherwise in view of the CBDT Circular No. 37/2016 (supra) the disallowances which enhanced the business income ought to be allowed as deduction under Chapter VI-A of the Act and the assessee is eligible for deduction in respect of the said project. Therefore the Revenue does not benefit even if the ground is allowed. Disallowance of claim u/s 80IB(10) - A.O. observed that the area of most of the flats sold exceeded 1500 sft. A.O. therefore carried out further investigations from the flat owners and some of them deposed that the builder himself sold flats exceeding 1500 sft to them but got registered them by splitting them into smaller flats - HELD THAT - Minimum land required for an approved project is One Acre and though the project Sai Sagar Heights was built only on 4800 sq yds the area available was more than One Acre and therefore the project is eligible for deduction u/s 80IB(10) of the Act. Except for stating so the assessee has not been able to produce any evidence in support of its contention. Since the registered area on which the Sai Sagar Heights project has been constructed is less than One Acre we find that the project is not eligible for deduction u/s 80IB(10). Therefore we see no reason to interfere with the orders of the authorities below on this issue. Claim of deduction u/s 80IB(10) with regard to the project Manasarovar Heights II - Claim denied on the ground that the assessee has constructed flats whose area exceeded 1500 sft - HELD THAT - We find that 90 flats of Manasarovar Heights III exceeded 1500 sft of built up area and the assessee s contention is that it is the purchasers who have merged two flats into one thereby area has exceeded 1500 sft. However this contention is not convincing. Therefore the assessee is not eligible for deduction in respect of such flats. We therefore direct the Assessing Officer to grant proportionate deduction only in view of the decision of Hon ble Madras High Court in the case of Viswas Promoters (P) Ltd 2012 (11) TMI 1117 - MADRAS HIGH COURT . Thus Ground no.2 is partly allowed. Disallowance u/s 40A(3) of the payments made in cash on the ground that the assessee has not explained the reasons for doing so and the CIT (A) has confirmed the disallowance - HELD THAT - We find for the A.Y. 2009-10 similar disallowance was deleted by us and even if this disallowance is confirmed the assessee is eligible for deduction on the same u/s 80IB(10) of the Act as per the Board Circular No.37/2016 as raised by the assessee in the additional ground of appeal. Thus the additional ground of appeal raised by the assessee for allowing deduction for such enhanced income is allowed. House property income - considering the market rent method and gross maintainable rent method - HELD THAT - CIT(A) correctly directed the AO to apply rate of 7% on the investment of the assessee subject to cost inflation index and also further investments / improvements made by the assessee on this property during the year under consideration. To reach this conclusion CIT (A) followed the coordinate Bench decision of the ITAT for the AYs 2002-03 2003-04 and 2005-06
Issues Involved:
1. Addition of Rs. 3 Crores under Section 69A. 2. Deduction under Section 80-IB(10) for various projects. 3. Disallowance under Section 40A(3). 4. Deletion of addition made on account of 10% of direct and indirect expenditure. 5. Income from house property determination. Detailed Analysis: 1. Addition of Rs. 3 Crores under Section 69A: Facts: - The assessee, an individual, was found carrying Rs. 3 Crores in cash at the New Delhi airport, which he claimed belonged to the company, M/s. Sainath Estates Pvt Ltd. - During search proceedings, additional cash of Rs. 1,00,62,250/- was found at the business premises of the company. - The company admitted the cash as its unexplained income but did not reflect this in its return of income for A.Y. 2009-10. Judgment: - The A.O. added Rs. 3 Crores substantively in the hands of the company and protectively in the hands of the individual. - The CIT(A) deleted the protective addition in the hands of the individual since the substantive addition in the company's hands was confirmed. - The ITAT upheld the CIT(A)'s decision, dismissing the Revenue's appeal. 2. Deduction under Section 80-IB(10) for Various Projects: Facts: - The assessee claimed deductions for projects like Sai Sagar Heights and Manasarovar Heights. - The A.O. disallowed the deduction for Sai Sagar Heights due to non-compliance with the minimum land requirement and completion certificate issues. - For Manasarovar Heights, the A.O. disallowed the deduction due to flats exceeding the prescribed area of 1500 sq. ft. Judgment: - The ITAT upheld the disallowance for Sai Sagar Heights, confirming the project did not meet the conditions of Section 80-IB(10). - For Manasarovar Heights, the ITAT directed the A.O. to grant proportionate deduction for eligible flats, following the decision of the Hon'ble Madras High Court in Viswas Promoters (P) Ltd. 3. Disallowance under Section 40A(3): Facts: - The A.O. disallowed 10% of the expenditure claimed by the assessee due to lack of evidence. - The assessee argued that the payments were initially made by cheques, which were dishonored, and subsequently made in cash. Judgment: - The ITAT accepted the assessee's explanation for making cash payments due to dishonored cheques and deleted the disallowance under Section 40A(3). 4. Deletion of Addition Made on Account of 10% of Direct and Indirect Expenditure: Facts: - The A.O. disallowed 10% of the direct and indirect expenditure due to lack of supporting evidence. - The CIT(A) deleted this addition, noting that the assessee maintained proper books of account and the expenditure was consistent with previous years. Judgment: - The ITAT upheld the CIT(A)'s decision, noting that the Revenue did not provide sufficient evidence to rebut the CIT(A)'s findings. 5. Income from House Property Determination: Facts: - The A.O. determined the market rent of the property leased to M/s. Bhagyanagar Hotel Pvt Ltd at Rs. 3,04,06,020/-, significantly higher than the declared income. - The CIT(A) directed the A.O. to apply a 7% rate on the investment subject to cost inflation index. Judgment: - The ITAT upheld the CIT(A)'s decision, noting that it was consistent with previous ITAT orders for earlier assessment years. Conclusion: - Assessee's appeals for A.Ys 2007-08, 2008-09, and 2009-10 are partly allowed. - Revenue's appeals for A.Ys 2008-09, 2009-10, 2010-11, and 2011-12 are dismissed. - Revenue's appeal for A.Y. 2007-08 is dismissed.
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