TMI Blog2016 (3) TMI 1157X X X X Extracts X X X X X X X X Extracts X X X X ..... not find any infirmity in his order deleting the addition of ₹ 1,13,75,605/- from the hands of the assessee firm and suggesting the AO to take remedial measures in the hands of the partners. We accordingly uphold the same and the ground raised by the revenue on this issue is dismissed. Addition on account of suppression of work-in-progress - Held that:- From the copy of the assessment order, we find that although the AO has discussed the valuation of closing WIP/suppression of profits while making the addition, however, the order does not show any query raised by the AO during the course of assessment proceedings on this issue. The AO has simply proceeded on the basis of the booming market at Panvel during the period when the survey was conducted and came to the conclusion on his own. It is the settled proposition of law that addition cannot be made on the whims of the AO based on some surmises and presumptions without putting any query to the assessee. An opportunity must be given to the assessee while making or proposing any addition. The assessee must be given a reasonable opportunity to make his submission. In absence of the same, there is clear violation of principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA No.1079/PN/2011 filed by the assessee and ITA No.1087/PN/2011 filed by the Revenue are cross appeals and are directed against the order dated 30-05-2011 of the CIT(A)-I, Thane relating to Assessment Year 2007-08. For the sake of convenience these were heard together and are being disposed of by this common order. ITA No.1087/PN/2011 (Revenue): 2. Ground of appeal No.1 by the revenue reads as under : 1. On the facts and in the circumstances of the case, the Ld.CIT(A) erred in deleting the addition of ₹ 1,37,00,000/- being expenses incurred on the development of land of the project done by the assessee for the reason that income is taxable in the hands of the firm overlooking the fact that the unaccounted expenditure has been incurred in the project done by the assessee firm. 3. Facts of the case, in brief, are that the assessee is a partnership firm and is engaged in the business as builders and developers. It filed its return of income on 30-01-2008 disclosing total income of ₹ 48,45,190/-. A survey u/s.133A of the I.T, Act was conducted at the business premises of the assessee firm on 30-08-2007. Simultaneous survey action was also conducted at H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l shown in the books was ₹ 91,11,000/- which was invested through the bank( Page no. 15 of Bundle no.5). The balance amount of ₹ 1,13,75,605 was invested in cash by different partners on different dates. In Annexure-l impounded from office of Mateshwari Enterprisesan an expense of ₹ 24 lakhs is shown which is the expenditure incurred in cash. The total cash expenditure is (1.13 crores + ₹ 0.24 crores) ₹ 1.37 crores which have not been recorded in the books of accounts. The total amount of ₹ 1.37 crores would be disclosed by two group namely Hirabhai Group and Rajendrabhai Group. As Jigar Shah and Dilip Shah have already retired, the amount brought in by them will be disclosed by Hirabhai Group and Rajendrabhai group. 6. From the above, the AO noted that as against the expenditure of ₹ 2,04,86,045/- the partners had brought in a total sum of ₹ 91,11,000/- to the firm through bank. However, the unaccounted expenses of ₹ 1,37,00,000/-, which was promised to be disclosed by the assessee, has not been disclosed in the return of income. The AO reproduced the trading account prepared by the assessee which is as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion since the turnover of the firm is ₹ 92,26,000/- and the total of projections are ₹ 2,04,86,045/-. As such there cannot be income more than the turnover under any circumstances. This fact itself clarify that those are the some estimates prepared by the partners for future. 8. However, the AO was not satisfied with the explanation given by the assessee. He observed that Shri Hirabhai had admitted the amount of ₹ 2,04,86,045/-, as per Page 16 Bundle No.5 as the total expenditure which includes the capital of ₹ 91,11,000/- contributed by the partners which was invested through bank and also which was shown in the books of account. An amount of ₹ 1,13,75,605/- was invested in cash by different partners on different dates. Further in Annexure 1 impounded from office of Mateshwari Enterprises, expenses of ₹ 24 lakhs is shown which is the expenditure incurred in cash. Therefore, assessee had admitted ₹ 1,13,75,605/- on the plea that expenditure of ₹ 24,21,963/- shown in Annexure 1 was incurred from the funds contributed by partners in cash. The AO, therefore, rejected the contention of the assessee that these are projected expenses pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot a voluntary one but extracted one under coercion and undue pressure by the survey team. It was submitted that during the course of assessment proceedings it was brought to the notice of the AO that figures appearing in the dumb document are only a projection of expenses to be contributed by the partners from different group in the firm and it is nothing more than that. Referring to the copy of the impounded document it was explained that it gives no clue about the year in which expenses were incurred, date, purpose of expenses and name of persons etc. Further, there was no discovery of any incriminating voucher or cash memos or such other evidence during survey which enables the AO to presume that certain expenses had been incurred by the assessee which is not accounted for in the regular books. It was further submitted that the survey was conducted on 3008-2007 and the alleged statement was taken from Shri Hirabhai and thereafter the issue remained silent with the AO for more than a year. Only during the course of assessment proceedings he took up the same, knowing very well that the survey statement has no evidentiary value under the law. It was further argued that as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found during survey and Shri Hiralal, the main person of the group has admitted that, the documents contained details of expenses incurred in connection with their business and he has further admitted that, these are unaccounted expenses incurred by the partner. I find that, the documents are correlated with the statement of Shri Hiralal. The argument is, therefore, rejected. 5.1 As regards the plea that, the statement recorded during survey is not an admissible evidence, I find that, the plea is devoid of any merit or force. The statement has been recorded on the basis of documents found and Shri Hiralal has not only owned up the documents but has also admitted the document to contain details of expenses incurred by the partners. The argument that, the statement has no evidentiary value stands unsubstantiated, accordingly the plea of the AR is rejected. Case laws relied are, therefore, not relevant. 5.2 As regards the issue of assessing the net unexplained expenditure of ₹ 1,13,75,605/- it is stated by the assessee that, the lands for the project were purchased in the year 2005 and whatever expenditure was incurred in connection with the lands on development was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above said expenditure. 5.5 As regards the contention of the assessee that, the expenses were incurred during the previous AY (06-07) and not during the year under appeal, I find that, there is a mention in Document No 16 to the effect that, the expenses were incurred upto the date of plan passing. I also find that, the final approval of the plan is given to the assessee on 29/03/06. Other corroborative evidence available in support of the assessee's contention is that, one of the partners 'mama' has retired from partnership firm on 01/04/06 which is evidenced by deed of retirement. I am, therefore, convinced to agree with the assessee's argument that the expenses have been incurred during the period relevant to the (previous) AY 06-07 and not during the AY 07-08 which is under appeal. On this ground also, the addition is not sustainable. 13. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us. 14. The Ld. Departmental Representative strongly opposed the order of the CIT(A). He submitted that although the CIT(A) has held that the unexplained expenses of ₹ 1,13,75,605/- is definitely an income within the meaning of section 69 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing (i.e. plan passing) . He submitted that the CIT(A) in his order at para 5.5 has given a finding that the final approval of the plan was given to the assessee on 29-03-2006. Referring to para 5.2 of the order of CIT(A) he submitted that the CIT(A) has given a finding that the lands were purchased in the year 2005. The above factual findings have not been controverted by the revenue. He submitted that when addition is made on the basis of a seized paper or impounded paper, the paper has to be considered in its entirety. He submitted that the expenditure has been incurred by 3 groups. Mama group has retired w.e.f. 01-04-2006. Therefore, when this group has retired w.e.f. 01-04-2006 how can they be taxed. Referring to page 20 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to the reply given by Shri Hiralal Rangani (Patel) wherein he has stated that the balance amount of ₹ 1,13,75,605/- was invested in cash by different partners on different dates. In the said statement he had also stated that the total amount of ₹ 1.37 crores would be disclosed by 2 groups, namely Hirabhai Group and Rajendrabhai Group. Shri Jigar Shah and Shri Dilip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion u/s. 133A which reads expenses upto plane passing . The relevant impounded document contains entries of expenditure on account of land and land development totaling to ₹ 2,04,86,045/-. Another document was impounded which revealed that an expenditure of ₹ 24 lakhs was made in cash. From the various documents impounded and submissions filed by the assessee, it was revealed that the partners of the assessee firm had brought in a total sum of ₹ 91,11,000/- to the firm through banking channel. As such there was unaccounted expenses of ₹ 1,37,75,045/- i.e. (Rs.2,04,86,045 + ₹ 24 lakhs (-) ₹ 91,11,000/-) for which it was admitted by the assessee that an amount of ₹ 1,37,00,000 /- will be disclosed in the return of income. However, since no such income was disclosed in the return filed, the AO asked the assessee to explain as to why the same amount shall not be added to the total income of the assessee. Rejecting the various explanations given by the assessee the AO made addition of ₹ 1,37,00,000/- to the total income of the assessee u/s.69C of the I.T. Act. 17.1 We find in appeal the Ld.CIT(A) deleted the addition of ₹ 1,13,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where it has been held that if there are cash credit entries in the books of firm in which the accounts of the individual partners exist and it is found as a fact that cash was received by the firm from its partners, then in the absence of any material to indicate that they were the profits of the firm it could not be assessed in the hands of the firm. 19. It is the settled proposition of law that when any addition is made on the basis of some seized paper/impounded document, then the same has to be read as a whole. The department cannot accept a part of the same as true and the balance part of the same as untrue. Admittedly in the instant case the impounded document shows expenditure incurred upto plane passing . As already mentioned earlier, the final approval of the plan was given to the assessee on 29-03-2006. Even the Annexure 1 found during the course of survey, copies of which are placed at pages 1 to 5 of the paper book only shows expenditure to the tune of ₹ 24,21,963/- for the period from 11-03-2006 till 30-07-2007, i.e. during the period of 3 financial years 2005-06, 2006-07 and 2007-08. Therefore in absence of any contrary material brought to our notice it has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Other expenses 16128398 25025012 WIP sold 6919450 Closing WIP 1,81,05,562 The AO accordingly, held that the assessee has suppressed closing WIP by ₹ 20,40,078/- and has shown WIP at ₹ 1,60,65,484 instead of ₹ 1,810,05,562/-. Thus, the AO made addition of ₹ 20,40,078/- to the total income of the assessee under the head suppression of WIP. 23. Before CIT(A) it was submitted that the entire addition made by the AO was on the basis of imagination which is beyond understanding. It was argued that during the course of assessment proceedings the AO has never raised the query of WIP nor it was answered or explained by the assessee. Therefore, there is complete violation of principle of natural justice. It was argued that while doing hypothetical working of WIP the AO mentions that during that period there was boom and builders were making good profit for which he gave an example of the sister concern Mateshwari Developers where net profit of 26.5% has been declared. However, the AO ignored the profit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r violation of principle of natural justice and no addition can be made. In this view of the matter and in view of the reasoning given by the CIT(A) while deleting the addition we do not find any infirmity in the order of the CIT(A). Accordingly, the same is upheld and the ground raised by the revenue on this issue is dismissed. 27. Grounds of appeal No. 3 and 4 by the revenue being general in nature are dismissed. ITA No.1079/PN/2011 (By Assessee) : 28. Grounds raised by the assessee are as under : 1. The Ld.CIT(A) has erred in law and on the facts and in the circumstances of the case while sustaining disallowance made by AO of ₹ 11,44,680/- partly written off, payment made to retiring partner as goodwill/compensation, accounted in the books of account. 2. The Ld.CIT(A) has erred in law and on the facts in not properly appreciating the purpose and provision of section 40A(2) (a) alike AO while sustaining disallowance of ₹ 11,44,680/-, which required specific finding related to excessive or unreasonable of expenditure incurred and being missing in AO s order. 3. The Ld.CIT(A) has erred in law and on the facts in not properly appreciating the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l sale consideration as per working : ₹ 1,05,03,400 Less -Sales taken in the books of accounts : ₹ 47,80,000 Balance : ₹ 57,23,400 This amount is treated as goodwill and taken in Assets and second effect is shown in Profit and loss account under the head Miscellaneous income (survey declaration). The assessee has written off 1/5th of such goodwill in the profit and loss account. Balance is carried to the balance sheet. 31. From the above the AO noted that as against the market rate of ₹ 1,05,03,400/- an amount of ₹ 35,03,400/- was shown in the books of the firm. Further, an amount of ₹ 9 lakhs and ₹ 5,05,000/- was also recorded in the books. Thus, the total amount disclosed in the books comes to ₹ 47,80,000/- and the amount not disclosed in the books is ₹ 57,23,400/-. He observed from the return that Miscellaneous income has been disclosed at ₹ 57,23,400/-. However, the same was nullified by debiting an amount of ₹ 11,44,680/- as goodwill. It was not explained how the goodwill was created. The AO noted that in the retirement deed there is no such mention regarding goodwill. The amount of ₹ 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... needs of the business. Relying on various decisions it was submitted that the compensation paid to the outgoing partners are paid for forgoing the future benefit, appreciation in value of property/assets etc. and it is normal business practice,therefore, the addition made by the AO should be deleted. 34. However, the CIT(A) was also not convinced with the arguments advanced by the assessee and upheld the addition made by the AO by observing as under : 6.1 The submission is considered and the decisions perused. I find from the assessment order that, sales to the retiring partners has taken place at a concessional rate which has caused loss to the firm to the tune of ₹ 57,23,400/-. In the statement recorded of Shri Hiralal Rangani on 30-08-2007, he admitted that, he would admit the differential amount of ₹ 52,80,000/- in his hands and ₹ 17,50,000/- in the hands of Shri Rajendra Naral Patel Group as income. However, the partners have not admitted any such income in their respective returns since the said income has been admitted in the return of the assessee firm. The AO has disallowed the expenses to the tune of ₹ 11,45,680/- u/s.40A(2). I am in full a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by raising this ground the assessee does not want to pay any tax. They have taken the department for granted. The claim is not substantiated by any evidence. Therefore, once it was admitted that the shops and office premises were allotted to him at lesser value than the market rate at that time, the provisions of section 40A(2a) are attracted. 38. Referring to the statement of Shri Hiralal Rangani (Patel) recorded on oath u/s.133A on 30-08-2007 he submitted that Shri Rangani in his reply to Question No.3 had admitted that the difference will be disclosed in the returns of the family members who were partners in M/s. Mateshwari Enterprises for A.Y. 2007-08. Despite this admission, no such income was disclosed. In any case since the provisions of section 40A(2a) are attracted for giving the shops/office premises at concessional rate to the outgoing partners, therefore, the AO was fully justified in making the disallowance and the Ld.CIT(A) was fully justified in sustaining the disallowance. He accordingly submitted that the grounds raised by the assessee on this issue should be dismissed. 39. We have considered the rival arguments made by both the sides, perused the orders of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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