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2015 (9) TMI 908 - ITAT HYDERABAD

2015 (9) TMI 908 - ITAT HYDERABAD - TMI - Revision u/s 263 - determination of the income of the assessee by the A.O. from Sai Royal Residency (“SRR”) Project - as per CIT(A) A.O. failed to take into consideration the value of un-sold plots as well as to make disallowance under section 40A(3) and also allowed deduction on account of land development expenditure without verifying any documentary evidence - Held that:- The profit as indicated in the said working amounting to ₹ 3,98,88,000 was .....

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There is thus nothing available on record to show that the estimation of income of the assessee from Sai Royal Residency project as finally done by the A.O. was without taking into consideration the value of the unsold plots. Moreover, the figure of profit appearing in the relevant working of partners accounts was a net profit for the year under consideration available for distribution to the partners as indicated in the relevant impounded documents and the same ought to have arrived at after t .....

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estimated by the A.O. on the basis of the working of partners capital account found recorded in the relevant impounded documents and the working made by the A.O. taking gross profit at ₹ 5,33,38,000 and presuming the balance amount of ₹ 1,34,50,000 being difference between the gross profit and net profit as expenditure incurred towards land development was just to support the said estimation. The said balance amount treated as land development expenditure thus was never claimed by th .....

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called for and there was no error in the order of the A.O. in not making such disallowance separately as alleged by the Ld. CIT. We therefore agree with the contention of the Ld. Counsel for the assessee that the manner and method in which the income of the assessee from Sai Royal Residency project was determined by the A.O. on estimated basis was not appreciated by the Ld. CIT in proper perspective while pointing out error nos. 1 to 3, which were actually not there.

Taking the sale c .....

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7; 1.25 crores and although the amount of ₹ 3.75 crores was paid by ETA Star Property Developers Ltd. to M/s. Poornodaya Industries Limited, what the assessee actually received was only ₹ 1.1 crore while the balance amount was lying in the three bank accounts of M/s. Poornodaya Industries and its associates which were under attachment of the Court. Accordingly, the sale consideration of the property was taken by the A.O. at ₹ 1.25 crores and after reducing the cost of acquisiti .....

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sel for the assessee, a possible view in the matter thus was taken by the A.O. after taking into consideration all the relevant facts of the case while adopting the sale consideration of ₹ 1.25 crores and it is not permissible to the Ld. CIT to substitute his own view in place of the possible view taken by the A.O. under section 263. - Revision orders set aside - Decided in favour of assessee. - ITA.No.784/Hyd/2013 - Dated:- 28-8-2015 - SHRI P.M. JAGTAP AND SHRI SAKTIJIT DEY, JJ. For The A .....

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section 133A was carried out at the business premises of the assessee on 04.09.2008. Thereafter, on 28.05.2009, the assessee firm filed its return of income for the year under consideration declaring total income of ₹ 1,06,95,780. In the said year, two projects were developed by the assessee namely Sai Royal Residency ( SRR ) and Highway Heights. For the first project i.e., Sai Royal Residency ( SRR ), total land of ac.23.07 gts was purchased by the assessee and the same was converted int .....

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assessee from the said project was ₹ 15.33 crores. Accordingly, adopting the said sale consideration of ₹ 15.33 crore and deducting the corresponding purchase cost of land amounting to ₹ 10.03 crores, the difference of ₹ 5.30 crores was treated by the A.O. as the gross profit of the assessee from the project of Sai Royal Residency. He also found that page Nos. 29 to 32 of Annexure-A/SH/02 of the impounded material contained individual partners accounts and as per the work .....

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mission etc., he proposed to tax a sum of ₹ 3,98,88,000 in the hands of the assessee being the profit of SRR Project for the year under consideration. When this proposal was confronted by the A.O. to the assessee, the later objected to the same by submitting that the estimation of profit proposed to be made by him on the basis of papers impounded during the course of survey was not correct. It was claimed by the assessee that it has incurred a lot of expenses and faced legal/social dispute .....

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t. This explanation of the assessee was not found acceptable by the A.O. in the absence of any documentary evidence to support and substantiate the same and accordingly, a sum of ₹ 3,98,88,000 was brought to tax by him in the hands of the assessee as the estimated profit from SRR Project. 3. The other project namely Highway Heights was developed by the assessee on a land of ac.15.06gts which was converted into 176 plots. Out of the said 176 plots, 33 plots were shown to have been sold by t .....

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m Highway Heights Project was taken by the A.O. at ₹ 24,50,105 by treating the difference between ₹ 154 lakhs and ₹ 24.50 lakhs as expenditure incurred by the assessee in connection with lay out as well as sale of plots in Highway Heights project and accordingly, the said amount was also brought to tax by him in the hands of assessee for the year under consideration. 4. During the course of survey, certain documents were found showing that the assessee has sold 5.00 acres of la .....

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h of 5.00 acre in survey No.12 at Ushapur (v) was purchased from Smt. E. Ramadevi and others for a consideration of ₹ 1.25 crores while another stretch of 5.00 acre in the same survey number was purchased from the assessee firm for a sum of ₹ 1.25 crores. From the bank account of M/s. ETA Star Properties Development P. Ltd., it was noticed by the A.O. that the said firm has paid ₹ 3.75 crores to one M/s. Purnadaya Industries Ltd., Hyderabad. The said amount was stated to be pai .....

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#8377; 1.25 crores and after deducting the cost of acquisition of the said land amounting to ₹ 45,35,500, the profit of ₹ 79,62,500 was brought to tax by the A.O. in the hands of the assessee. Accordingly, the total income of the assessee for the year under consideration was determined by the A.O. at ₹ 5,03,00,605 in the assessment completed under section 143(3) vide order dated 31.12.2010. 5. The record of the assessment completed by the A.O. under section 143(3) came to be su .....

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penditure of Rs.l,34,50,000/- towards land development even though the assessee did not produce any evidence in respect of the said expenditure and the AO also did not verify whether the expenditure was actually incurred by the assessee and also did not examine the applicability of provisions of section 40A(3). c) The A.O. allowed the entire amount of ₹ 7,20,00,000/- & ₹ 7,66,00,000/- paid in cash towards acquisition of lands without examination of the applicability of provisions .....

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ing out the above errors and calling for the explanation of the assessee as to why the order passed by the A.O. under section 143(3) should not be revised by exercising his revisional powers under section 263. In reply, the following explanation was offered by the assessee vide its letter dated 06.03.2013. a) The actual acquired land is only 23 acres 26 guntas against the plotted area of 25 Acres 15 guntas. The assigned land of 2 acres purchased could not be sold in the market hence it has no va .....

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Sec 40A(3) of the Act in view of the Rule 6DD(g) of I.T. Rules in respect of cash payments made to land owners. d) With regard to adoption of Rs.l.25 crores as sale consideration in respect of property sold to ETAStar property, the assessee stated that the AO after consideration of all material adopted at the sale value of ₹ 1.25 crores, hence, there is no mistake which needs rectification u/s.263. 6.1. The above explanation of the assessee was not found acceptable by the Ld. CIT for the f .....

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rder without applying his mind to any issue regarding claim or contention or the Assessing Officer completed the assessment without carrying out the requisite enquiries. Reliance is placed on the judicial pronouncements in the cases of a) Gee Vee Enterprises Vs Addl. C1T & Others 99 ITR 375 (Delhi) b) Thalibai F Jain and others Vs ITO 101 ITR 1 (Karnataka) 1975 and c) Smruti Trading Company Vs ITO (2001) 70 TTJ (Mumbai Tribunal) 114. In the present case, there is nothing on record to show th .....

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essment order after examining the issues pointed out by him in the notice issued under section 263. Aggrieved by the order of Ld. CIT passed under section 263, the assessee has preferred this appeal before the Tribunal. 7. The Ld. Counsel for the assessee vehemently challenged the impugned order passed by the Ld. CIT under section 263 holding the order passed by the A.O. under section 143(3) to be erroneous as well as prejudicial to the interests of the Revenue. As regards the first three errors .....

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s were referred to by the A.O., the income of the assessee from Sai Royal Residency project was finally estimated by the A.O. on the basis of documents impounded during the course of survey wherein the profit from the said project as given in the working of partners accounts was shown at ₹ 3,98,88,000 for the year under consideration. He submitted that the profit of the assessee from Sai Royal Residency Project thus was not worked out by the A.O. on the basis of books of account and even t .....

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by the assessee before the Ld. CIT during the course of proceedings under section 263, the relevant payments in cash having been made by the assessee under exceptional circumstances, the disallowance under section 40A(3) even otherwise was not called for. 7.1. As regards the 4th error allegedly pointed out by the Ld. CIT in the order of the A.O. in adopting the sale consideration of land at ₹ 1.25 crores instead of ₹ 3.75 crores, the Ld. Counsel for the assessee invited our attention .....

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he Ld. CIT and the A.O. having taken a possible view after applying his mind to all the facts and circumstances, it is not permissible to the Ld. CIT to substitute his own view in the guise of revision under section 263. 8. The learned D.R. on the other hand, strongly supported the impugned order passed by the Ld. CIT under section 263. He relied on the various judicial pronouncements to explain the scope of powers which the Ld. CIT can exercise under section 263. He contended that such revision .....

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would satisfy the requirement of order being erroneous. He contended that these ingredients were very much there in the assessment order passed by the A.O. in the present case, as pointed out by the Ld. CIT making the said order erroneous as well as prejudicial to the interests of the Revenue and the Ld. CIT therefore was fully justified in setting aside the said order by exercising the powers conferred upon him under section 263. He also contended that the Ld. CIT vide his impugned order passe .....

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consideration i.e. A.Y. 2008-09 in the case of the assessee is set aside by the Ld. CIT by his impugned order holding the same to be erroneous as well as prejudicial to the interests of the Revenue. In this context, the Ld. CIT has allegedly pointed out four errors in the order of the A.O. which were duly communicated by him to the assessee in the notice issued under section 263. Out of these four errors, three errors are in relation to the determination of the income of the assessee by the A.O. .....

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y project was determined by the A.O. on estimated basis and therefore, there were no errors in the order of the A.O. as allegedly pointed out by the Ld. CIT. In this regard, he has invited our attention to the relevant portion of the A.O s order as appearing on page No.7, a perusal of which shows that sale consideration of Sai Royal Residency project for the year under consideration was shown by the assessee at ₹ 12.88 crores whereas, the same as per the relevant impounded documents was fo .....

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oyal Residency project for the year under consideration was shown at ₹ 3,98,88,000. When the A.O. proposed to adopt this profit as the net profit of Sai Royal Residency project by assuming the difference amount of ₹ 134.50 lakhs (Rs.5.30 crores taken as Gross Profit (-) ₹ 3,98,88,000) as the land development expenditure, the assessee took a strong objection by stating that the same is subject to lot of expenditure incurred on litigation, social disputes/ difficulties in executi .....

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n in the working of partners accounts in the impounded material as found during the course of survey. It is pertinent to note here that the basis on which the said figure was arrived at is neither given in the relevant impounded material (copies placed at page Nos.83 to 87 of the paper book) nor the A.O. has made any attempt to find out or ascertain the details of corresponding income and expenses giving such profit. Although he has treated the difference between sale consideration of ₹ 15 .....

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n by him involving assumptions and presumptions was just to support and substantiate such estimation of income made by him. 10. Once it is found that the income of the assessee from Sai Royal Residency project for the year under consideration was determined by the A.O. on estimated basis, the next question that arises for our consideration in the present context is whether there were errors in such determination as allegedly pointed out by the Ld. CIT in his notice issued under section 263 as er .....

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gross profit by the A.O. was just to support the said estimation. The profit as indicated in the said working amounting to ₹ 3,98,88,000 was adopted by the A.O. as net profit of the Sai Royal Residency project rejecting the stand of the assessee that further expenditure on account of litigation, bank interest etc., was incurred by it. In the working of partners account, the said profit was stated to be taken as per P & L account, but no such P & L account giving the details of wor .....

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der consideration available for distribution to the partners as indicated in the relevant impounded documents and the same ought to have arrived at after taking into consideration all the relevant facts and figures including the value of un-sold plots. It therefore cannot be said that the income of the assessee from Sai Royal Residency project as finally estimated by the A.O. did not take into consideration the value of un-sold plots as alleged by the Ld. CIT. 11. Regarding the expenditure of &# .....

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xpenditure incurred towards land development was just to support the said estimation. The said balance amount treated as land development expenditure thus was never claimed by the assessee and it therefore cannot be said that there was an error in the order of the A.O. in allowing the same. 12. As regards the error allegedly pointed out by the Ld. CIT in the order of the A.O. in allowing the land development expenditure and land cost paid in cash without considering the applicability of the prov .....

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expenditure in cash have gone into computation of those estimations so that such items can be disallowed under section 40A(3). In the case of Indwell Construction vs. CIT 232 ITR 776 (AP), a similar issue arose for consideration before the Hon ble Jurisdictional High Court in the context of section 40A(b) and while dealing with the same, it was observed by the Hon ble High Court that the pattern of assessment under the Income Tax Act is given by Section 29 which states that the income from prof .....

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timation and it is not correct in law to make a separate addition by way of disallowance under section 40. Keeping in view the legal position emanating from these judicial pronouncements and having regard to the fact that the income of the assessee from Sai Royal Residency project in the present case was determined by the A.O. on estimated basis, we are of the view that no separate disallowance under section 40A(3) was called for and there was no error in the order of the A.O. in not making such .....

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taking the sale consideration of land at Aushapur at ₹ 1.25 crores instead of ₹ 3.75 crores for the purpose of computing the profit, it is observed that this issue was duly examined by the A.O. during the course of assessment proceedings and on such examination, the following material facts relevant to the issue were noted by him. a) M/s. ETA has purchased five acres of land from M/s. Sri Surakshitha Homes which is registered on 21.05.2007 as document no 5644/07. b) The consideratio .....

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ve facts as well as the material available on record and the submissions made on behalf of the assessee, the A.O. identified the probable events that took place in connection with the relevant transactions as under : a) From the impounded copy of the undertaking the consideration appear to be 85 lakhs per acre of which the registered value is ₹ 25 lakhs and the balance ₹ 65 lakh appears on money. b) The amount of 3.75 Cr paid to M/s. Purnodaya Industries Ltd appear to have been debit .....

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5. The above probable events then were confronted by the A.O. to the assessee and after considering the submissions made by the assessee thereon, he found that the 5.00 acre of land at Aushapur was sold by the assessee to M/s. ETA Star Property Developers Ltd., for an apparent consideration of ₹ 1.25 crores and although the amount of ₹ 3.75 crores was paid by ETA Star Property Developers Ltd. to M/s. Poornodaya Industries Limited, what the assessee actually received was only ₹ .....

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