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JCIT (OSD) , Central Circle, Dehradun Versus Shri D.M. Aggarwal

2015 (12) TMI 1324 - ITAT DELHI

Addition on account of unverifiable construction expenses - CIT(A) deleted the addition - Held that:- The assessee had shown the additional income in the returns furnished by him and his son and the AO had not recorded any finding that there was any evidence of any unexplained expenditure/ investment or any income which was not covered in the additional income disclosed by the assessee. CIT (A) has rightly held that there was no justification for making ad hoc disallowance of 10% out of the expe .....

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activities, and the assessee had shown a net profit rate of 10% of his gross receipt, whereas the rate of 8% is given in section 44AD for civil contractor is to be taken only as a benchmark for the purposes of estimation of net profit in such cases. Therefore, we concur with the ld CIT(A) that the ad hoc disallowance was not warranted and we find no merits in this ground of appeal of the department. In view of the above, we hold that the ld. CIT (A) rightly deleted the addition - Decided against .....

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he land in question. Therefore, we uphold the order of the ld. CIT (A) deleting the addition of ₹ 1 lakh made by the AO. Decided against revenue - ITA No.1137/Del./2012 - Dated:- 10-11-2015 - SHRI A.T. VARKEY, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Assessee : Shri Somil Agarwal, CA For The Revenue : Ms. Nandita Kanchan, CIT DR ORDER PER A.T. VARKEY, JUDICIAL MEMBER : This appeal, at the instance of the revenue, is directed against the order of the Commission .....

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1. The Ld. CIT has erred in law and on facts in deleting the addition of ₹ 11,35,949/- made by the A.O. on account of unverifiable construction expenses, without appreciating the fact that the CIT (Appeals) had himself admitted in his order that the assessee was not maintaining adequate books of account, and further that the assessee s case was not covered under the provisions of Section 44AD of the Act as the turnover of the business exceeded ₹ 40.00 lacs, therefore, accepting prof .....

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er the exception of Rule 6DD of the I.T. Rules. 3. Ground no.1 is against the deletion of addition of ₹ 11,35,949/-made on account of unverifiable construction expenses. 4. A search under section 132 of the Income-tax Act, 1961 (hereinafter the Act ) was initiated and took place in the business and residential premises of the assessee on 04.03.2009. A notice under section 153A (1)(a) of the Act was issued on 31.12.2009 and served upon the assessee on 06.01.2010. Further, a questionnaire an .....

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d balance sheet showing investments and liabilities which were prepared on the basis of accretion to the assets, as no books of accounts were maintained by the assessee. After perusing the documents produced before him, the AO observed that the assessee had incurred an expenditure of ₹ 1,13,59,499/- on the construction. He observed that the assessee had not produced the complete accounts and details of all these expenses and from the seized material, he also found that no regular books of .....

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construction at ₹ 1,13,59,499/-. The AO further observed that the assessee's case was not entirely that of a civil contractor where profits were determined on percentage in view of the provisions of section 44AD. He observed that this was a case of a builder, developer and the construction activities were a part of that business. 5. Aggrieved, the assessee filed an appeal before the first appellate authority and the ld. CIT (A) deleted the addition by observing as under :- 1.2 The subm .....

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the I.T. Act and the additional income actually disclosed in the returns of income furnished pursuant to the search. The following information was furnished by the assessee :- Shri Ashish Mohan Agarwal: Original filed u/s 139 Filed after search u/s 153A Additional income 50,000 1,05,000 55,000 59,500 1,24,290 64,790 1,05,600 7,22,600 6,17,000 1,40,000 36,07,830 34,67,830 2,92,280 37,71,920 34,79,640 9,95,230 36,32,100 26,36,870 Not due 5,31,800 45,31,800 Shri Devendra Mohan Agarwal: Original fil .....

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for taxation in the returns furnished pursuant to the search was ₹ 2,16,42,960/. The purpose of search is to detect evidence relating to undisclosed income earned by the assessee and to collect tax on the same. If a person has earned undisclosed income, it is logical that such income would not form part of his regular books of account. Hence, if the person has offered the additional income (as is apparent with reference to the seized documents and any other evidence which the AO may gathe .....

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ee had not maintained regular books of account and the required documents in respect of such income. It is settled law that an estimate of income should be cogent and should not be capricious or whimsical. The assessee has claimed to have furnished his income and expenditure account as well as statement of his assets and liability year after year, incorporating the findings relating to undisclosed income and assets during the search. He has shown that the additional income actually offered in th .....

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construction business. The debate whether he was a builder/developer or a civil contractor is not relevant. The issue is estimation of reasonable net profit of the assessee's business. Even if he were a civil contractor, his case would not be covered by section 44AD of the I.T. Act (because the turnover of the business exceeded ₹ 40,00,000/). On the other hand, even if he were just a builder/developer, his net profit had still to be estimated at a reasonable figure. The rate of 8% give .....

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g the fact that the assessee was not maintaining adequate books of account and further the assessee s case was not covered under the provisions of Section 44AD of the Act as the turnover of the business exceeded ₹ 40 lakhs, therefore accepting profit equivalent to 10% of the gross profit was perverse application of law in assessee s case. So, she pleaded that the order of the Ld. CIT(A) be reversed and the order of AO be restored on this addition. 7. Ld. AR for the assessee reiterated his .....

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upport of the contention that arbitrary disallowance was not justified. Accordingly, ld. AR wants us not to interfere in the order of the ld. CIT (A). 8. We have heard both the sides and perused the material on record. We find that the assessee was a professional, working as an advocate-cum-deed writer, and also indulged in real estate business. However, the assessee did not maintain adequate books of account which would satisfy the requirement of law in support of the real estate business. We t .....

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and together, they had made disclosure of additional income of ₹ 1,70,00,000/- during the search, as against which the additional income actually offered for taxation in the returns furnished pursuant to the search was ₹ 2,16,42,960/. We find that the ld. CIT (A) rightly observed that the purpose of search is to detect evidence relating to undisclosed income earned by the assessee and to collect tax on the same. The Ld. CIT(A) has also observed that if a person has earned undisclosed .....

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ting that the actual income earned by the assessee was more than what was disclosed by the latter in course of the search and subsequently in his returns, however, we find that no such evidence was brought on record by the AO to justify the ad hoc disallowance. We agree with the ld. CIT (A) that the addition was made simply because the assessee had not maintained regular books of account and the required documents in respect of such income. Estimation of income should not be capricious or whimsi .....

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e was any evidence of any unexplained expenditure/ investment or any income which was not covered in the additional income disclosed by the assessee. In the light of the above facts, we are of the view that the ld. CIT (A) has rightly held that there was no justification for making ad hoc disallowance of 10% out of the expenditure claimed to have been incurred by the assessee in construction business. We agree with the Ld. CIT(A) that whether the assessee was a builder/developer or a civil contr .....

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nly as a benchmark for the purposes of estimation of net profit in such cases. Therefore, we concur with the ld CIT(A) that the ad hoc disallowance was not warranted and we find no merits in this ground of appeal of the department. In view of the above, we hold that the ld. CIT (A) rightly deleted the addition and accordingly, we uphold the order of the ld. CIT (A) on this addition. This ground fails. 9. Ground No.2 is against the deletion of addition of ₹ 1 lakh made by the AO on account .....

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sions of section 40A(3) and thus made an addition of ₹ 1 lakh. 11. In the appeal before the ld. CIT (A), the ld. CIT (A), after taking note of the submissions of the assessee, observed that as regards the payments made to stamp vendors, the latter acted as the agents of the government for selling stamp papers, hence, he held that such payments were covered under the exception provided in Rule 6DD(b) and the said payments were duly vouched by the physical existence of stamp papers in questi .....

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6DD of the Rules. He accordingly pleaded to set aside the order of the ld. CIT (A) and restore the order of the AO on this issue. 13. Ld. AR reiterated the submissions made before the ld. CIT (A) and submitted that the assessee had incurred total expenditure of ₹ 84,04,300/- on purchase of land which included cost of land (Rs.77,10,000/-), payment of stamp duty (Rs.6,21,000/-) and registration expenses (Rs.73,300/-). He submitted that the expenditure incurred in cash referred to by the AO .....

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