TMI Blog2018 (6) TMI 1731X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered as a whole and not in a piece meal. AO cannot selectively consider some of the entries on said pages and not the others. It is also well observed practice of business that the Managing Director of the company do receive unaccounted receipts from the clients/company and keep with him in safe custody. Managing Director returns or spends the same for the company too. It is also not uncommon that such receipts are sometimes recouped outside the books of account, although the same constitutes unaccounted transactions. It is not correct to ignore these facts in business when we need to determine the net unaccounted income of the assessee. Grant of benefit of contra entries allegedly kept with the Managing Director - In the absence of any other corroborative evidences, on the issue of one to one correlation, the end of the previous year-net figures need to be considered after set off of cash receipts and return after safe keeping is considered. As such, there is no legal requirement of establishing such one to one correlation of figures. Therefore, in the absence of any incriminating information with the AO to establish that cash given to Managing Director for safe kee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note that these expenses are allowable for working out the excess expenditure spent outside the books of account. Therefore, this part of the arguments of Ld. DR stands dismissed. Benefit of set off of the brought forward losses pertaining to A.Y. 2004-05 against the income of this year - HELD THAT:- Since the direction of the CIT(A) is to allow set off brought forward losses in accordance with law , no corrigendum is necessary in the matter. When there are no brought forward losses pertaining to A.Y. 2004-05 as on date, question of set off of brought forward loss of that year against the income of A.Y. 2005-06 does not arise as per law and even otherwise such brought forward business loss, if any, cannot be set off against the deemed income assessed for A.Y. 2005-06. Addition on account of entire expenditure incurred on the capital asset - HELD THAT:- No dispute about the sale of shops to Mr. Dheeraj Keshwani for a sum of ₹ 1,99,00,000/- with extra works specified in the sale agreement. Assessee could not complete those works and the same works out to ₹ 56,20,400/-. We find that the said amount has to be borne by the assessee. Since the works are not done ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds of GDPL. Further, another sum of ₹ 53 lakhs was admitted in the hands of M/s. Construction Portals Pvt. Ltd. (in short CPPL ), a sister concern of M/s. GDPL. Both the assessees revised their revised returns and included the total such income of ₹ 2.59 crores (₹ 2.06 crores + 0.53 crores). 3. Relevant facts leading to the said disclosure of additional income of ₹ 2.59 crores (₹ 2.06 cr. + 0.53 lakhs) includes that the assessee earned unaccounted income on sale of stock and incurred unaccounted expenditure outside the books. The total such unaccounted cash receipts as per Bundle No.10 works out to ₹ 4,15,58,368/- and similarly, the total such cash payments works out to ₹ 4,25,58,303/-. Assessee explained that the said gap of ₹ 1.61 crores is explainable. As such, there is no dispute on these gross figures. Elaborating the need for arriving at the net amounts, the assessee submitted that the said figure of ₹ 4,15,58,368/- and ₹ 4,25,58,303/- need to be adjusted downwards to remove the effect of the duplicate entries, cash receipts and the withdrawals by the Managing Director for the business purposes of both M/s. GDPL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eimbursed by Mr. Dheeraj Keshwani works out to ₹ 50,59,040/-. 6. Aggrieved with the said order of the AO, assessee filed an appeal before the CIT(A). 7. Before the First Appellate Authority, assessee pleaded for deletion of said additions of ₹ 1.61 crores as well as other addition of ₹ 50,59,040/-. CIT(A) partly allowed the appeal of the assessee. CIT(A) confirmed the addition amounting to ₹ 1.47 crores out of ₹ 1.61 crores. Other additions are deleted. Subsequently, in connection with the claim of set off of the brought forward losses, CIT(A) rectified his order dated 25-06-2014 expunging certain expressions used in the direction given to AO on this issue and against the assessee. 8. Aggrieved with the relief granted by the CIT(A), the Revenue is in appeal (ITA No.767/PUN/2013) on the issues relating to net unaccounted expenditure of ₹ 50,59,040/- incurred on the capital asset/flat owned by Mr. Dheeraj Keshwani. 9. Assessee is in appeal (ITA No.597/PUN/2013) against the confirmation of addition of ₹ 1.47 crores (₹ 1.61 cr. ₹ 14,58,222). Further also, the assessee is in appeal (ITA No.1609/PUN/2014) against the min ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oneous, beyond jurisdiction, contrary to the provisions of law and facts prevailing in the case, it further be held the CIT(A) I, Pune have no jurisdiction to review/rectify appellate order passed by his predecessor. It be held that rectification letter dated 2506-2014 be deleted. The appellant be granted just and proper relief in this respect. Grounds raised by the Revenue vide ITA No.767/PUN/2013 : 1. The order of the Ld.CIT(A) is contrary to law and to the facts and circumstances of the case. 2. The Ld.CIT(A) grossly erred in deleting the addition of ₹ 56,20,400/- made in the assessment instead of confirming the same. 3. The Ld.CIT(A) grossly erred in deleting the addition by holding that the dispute is only whether the expenditure is capital or revenue whereas the Assessing Officer had specifically disallowed the claim by establishing that the expenditure was not genuine. 4. The Ld.CIT(A) grossly erred in deleting the addition without appreciating that there was no documentary evidence in support of the payment allegedly reimbursed to Shri Dheeraj Keshwani, and also further without appreciating that Shri Dheeraj Keshwani could have adjusted the bala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counted expenditure of ₹ 4,25,58,303/-. Further, CIT(A) deleted the addition of ₹ 50,59,040/-. 12. Further, Ld. Counsel for the assessee raised fresh demand for deleting the entire addition of ₹ 1.61 crores and not merely ₹ 14,58,222/- as the entire UE is spent for business needs of the assessee. Alternatively, Ld. Counsel for the assessee submitted that the assessee made certain working in the form of tables on the principle of appropriation of unaccounted income, expenditure, and summed up by mentioning that the addition, if any at all, needs to be restricted to ₹ 15,46,095/- only. Relevant calculations are given in the table discussed in the later part of this order. (para No.14). Appeal wise adjudication is taken up in the succeeding paragraphs. ITA No.597/PUN/2013 ITA No.1609/PUN/2014 By Assessee 13. The core issue in the assessee s appeal ITA No.597/PUN/2013 revolves around the confirmation of ₹ 1,47,00,081/- out of the original ₹ 1.61 crores, the difference between the unaccounted expenditure of ₹ 4,25,58,303 and the disclosed sum of ₹ 2.06 crores. Other minor issue raised by the assessee relates to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business use. From the above facts, the case of the assessee is that the figure of ₹ 4,25,58,303/- is not sacrosanct and the same requires downward adjustments to the extent of (1) the expenditure of ₹ 82,94,744/- handled directly by Mr. R.K. Gera and (2) the duplicate entries of ₹ 14,58,222/-. Both these claims of the assessee are borne out of the impounded material discovered during the survey action on 24-01-2002. We shall now deal with these claims of the assessee for downward adjustments of the unaccounted expenditure of ₹ 4,25,58,505/-. II. Expenditure of ₹ 82,94,744/- spent by Shri R.K. Gera, Managing Director of M/s. GDPL : The impounded material reflects the payout to Mr.R.K. Gera. Total of these payments works out to ₹ 82,94,744/-. AO holds that this amount constitute unaccounted expenditure in the hands of Mr. R.K. Gera and rejected the safe keeping centric explanation of the assessee. Further, Ld. Counsel for the assessee submitted that Mr. R.K. Gera returned ₹ 57,51,770/-, part of it to the company. Ld. Counsel relied on the impounded documents in this regard. Further, Ld. Counsel submitted that it is in the scheme of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee demands for further reduction of ₹ 82,94,744/- involving Mr. R.K. Gera, M.D. It is not the UE done by the Managing Director for assessee. But this amount was returned to the company as per needs to the extent of ₹ 57,51,770/-. In this order, we need to examine if the demand of the assessee for adjustment of UR to that extent is fair and if the CIT(A) is justified in denying the said claim of the assessee. 14. Written Submissions : Ld. Counsel filed the written submissions and according to him, there are 4 issues which require special adjudication and the same emanate from the grounds raised in the assessee in all these 3 appeals by M/s. GDPL. The following are the issues : (A) the correctness of addition of ₹ 1.61 crores (restricted to ₹ 1.47 crores by the CIT(A) on account of undisclosed income u/s.69C of the Act. (B) whether the addition u/s.69C of the Act be restricted to the difference between unaccounted expenditure and unaccounted income declared by the assessee. (C) Allowing of the set off against the unaccounted receipts to the unaccounted business expenditure of ₹ 48,59,242/- and the applicability of explanation u/s.37 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot exceed the difference between unaccounted expenditure and unaccounted income declared by the assessee. In this regard, the assessee submitted the following written submissions : 3.1 The peak credit of negative cash balance was submitted to the CIT(A), which is at Page No.90 to 95 of paper book. The peak credit of the negative cash balance is ₹ 2,15,42,563/- which is well within the amount declared by the assessee as its additional business income. 3.2 Without prejudice to this fact, a revised working of additional business income and the maximum amount that could be considered by the AO and the First Appellate authority over the amount offered by the assessee is computed as under : B Particulars Amount ( in Rs.) A Source: i. Undisclosed receipts (after setting off contra entries of MD and duplicate entries) (Refer Table 1) 1,52,02,259 ii. Total Undisclosed Expenditure (after setting off contra ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Excess cash available v=(i-iv) 78,00,043 vi. Balance declared 1,85,99,957 vii. Total declaration made by Mr. Kumar Gera in his statement during survey. Vii=(v-vi) 2,64,00,000 B. Application: Investment in land 2,79,46,095 C. Excess amount spent C=B-A(v)-A(vi) 15,46,095 As per the Ld. Counsel for the assessee, the net undisclosed receipts after the adjustment works out to ₹ 1,52,02,259/- and the excess amount spent is arrived at ₹ 15,46,095/- if the business expenditure (i.e. on land ₹ 2,79,46,095 + other expenditure of ₹ 48,59,242) are allowed out of adjusted undisclosed expenditure of ₹ 3,28,04,337/-. Thus, is it eh case of the assessee that the amount for additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ues for the first time before the Tribunal. DR cannot make out a new case before the Tribunal. F. Further, regarding application of provisions of section 37(1) of the Act raised by the Ld. DR, assessee filed the following written submissions : a) It was neither during the assessment proceedings nor during the appeal proceedings that the AO or the 1st Appellate Authority has raised any issue regarding disallowance of cash expenditure u/s.37(1) of the Act. It is for the first time before the ITAT that the Ld. DR has put forth this argument. If the contention of the Ld. DR is accepted, then a new issue which has never been part of any dispute at the assessment stage or at 1st appellate stage would emerge and which is against the provisions of the Act. b) Further, the entire case records were available before the AO as well as the CIT(A). After verifying the same, a view has been taken by the both the authorities to disallow the business expenditure as undisclosed income and not section 37(1) per se. Hence, remanding the case back to the file of the AO or CIT(A) to review the allowance of expenditure would tantamount to resorting to the powers of review provided u/s.263 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IBUNAL ON ADDITION OF ₹ 1.61 crores 17. On hearing both the representatives, we find that all the above 4 issues are relevant to the core issue relating to the addition of ₹ 1.61 crores made by the AO in addition to the amount of undisclosed income declared by the assessee in the return of income. Case of the assessee : As per the assessee, the undisclosed expenditure based on the impounded material quantified in the assessment order works out to ₹ 4,25,58,303/-. After giving adjustments on account of (1) duplicate entries -₹ 14,58,222/- and (2) cash given to Mr. R.K.Gera, MD of the company - ₹ 82,94,744/- for safe keeping, the net undisclosed expenditure as per the assessee works out to ₹ 3,28,05,337/- only. Out of this, the business expenditure incurred on the land works out to ₹ 2,79,46,095/- leaving the balance of unaccounted expenditure at ₹ 48,59,242/- only. It is the case of the assessee that entire net unaccounted expenditure is business expenditure and the same is allowable u/s.37(1) of the Act. The net undisclosed expenditure of ₹ 3,28,05,337/-, therefore, constitutes an allowable expenditure. Alternatively, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit on account of duplication of entries to the extent of ₹ 14,58,222/-. Ld. Counsel submitted that AO cannot ignore certain entries and selectively prefer other entries for the purpose of making addition of ₹ 1.61 crores. However, the CIT(A) erred in rejecting other due adjustments on account of (a) cash given to Mr. R.K. Gera ₹ 82,94,744/- and (b) cash received from Mr. R.K. Gera ₹ 57,51,770/-. We find it relevant to extract the table showing the cash payment to Mr. R.K. Gera amounting to ₹ 82,94,744/- and return of the cash to company to the extent of ₹ 57,51,770/-. The working of ₹ 82,94,744/- is extracted as follows : Page No. of Bundle Date of payment to MD Amount paid to MD Page No. of Bundle Date of receiving the amount back Amount received from MD 122 17.03.2004 8,75,000 122 26.04.2004 1,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,00,000 Total 57,51,770 68/69 02.09.2004 3,00,000 Total 82,94,744 Highlighting the unfair conclusion, Ld. Counsel submitted that the CIT(A) selectively ignored the details on the impounded paper on flimsy grounds of one to one nexus of cash payments and receipts involving Mr. R.K. Gera. It is in the normal course of business of any assessee wherever there is undisclosed receipts and payments, the Managing Director receives the unaccounted cash for safe keeping and spends or returns the same as per its needs. Bringing our attention to certain documents filed before us, Ld. Counsel submitted that the contra entries relating to establishing the cash received by Mr. R.K. Gera for the company and spending the cash for the purpose of the company. Ld. Counsel submitted that the impounded material is the source of both the undisclosed receipts and undisclosed payments and therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived from Anjum Datta 242800 23.08.2004 50,000.00 121 25.08.2004 Received from Sarita Agnihotri 300000 121 28.08.2004 5,50,000.00 121 27.08.2004 Received from Parwani 250000 121 01.09.2004 Received from Tarwala 300000 121 04.09.2004 8,16,000.00 121 01.09.2004 Received from Parwani 200000 121 02.09.2004 Received from L.K. Chinchankar 316000 121 08.10.2004 Received from Rani Rajani 550000 121 19.10.2004 7,75,000.00 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 121 23.08.2004 Received from Anjum Datta 242800 Total 82,94,744.00 Therefore, Ld. Counsel submitted for grant of adjustments narrated above and delete the addition of ₹ 1.61 crores. 18. Case of the Revenue : Per contra, the arguments of Ld. DR for the Revenue revolves around the need for confirming the order of CIT(A) without giving further adjustments as demanded by the assessee, both on account of unaccounted expenditure as well as the unaccounted receipts. However, Ld. DR for the Revenue did not deny the fact of emanating from the impounded material, which establishes the fact of undisclosed receipts and the payments on one side, the flow of cash bidirectionally from assessee to the Managing Director and reverse. CONCLUSION 19. We heard both the parties on this issue of making addition of ₹ 1.61 crores. We also considered the correctness of the need for grant of benefit of the adjustment of ₹ 82,94,744 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t these entries are not for the impounded material, but for the reason of one to one correlation of figures on the said material. On the contrary, AO/CIT(A) have no evidence whatsoever to demonstrate that the said ₹ 82,94,744/- given by the company, constitutes an unaccounted expenditure and not for safe keeping. We cannot understand otherwise, how the Revenue shall explain the fact of refund of ₹ 57,51,770/- by Mr. R.K. Gera to the company. The incriminating material confirms this fact. Therefore, considering the above correlation supplied by the assessee, in our view, the said conclusion of the AO/CIT(A) against the assessee is not sustainable. In the absence of any other corroborative evidences, on the issue of one to one correlation, the end of the previous year-net figures need to be considered after set off of cash receipts and return after safe keeping is considered. As such, there is no legal requirement of establishing such one to one correlation of figures. Therefore, in the absence of any incriminating information with the AO to establish that cash given to Managing Director for safe keeping is not for business purposes, the safe keeping-centric explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee are partly allowed. 22. Applicability of the provisions of section 40A(3) of the Act to the undisclosed expenditure. Regarding the issue of applicability of the provisions of section 40A(3) of the Act, we have considered the DR s submission to keep the issue open for examining the applicability of the said provisions to the cash expenditure discovered during the search action. As such, this issue is not considered by the AO in the original assessment proceedings or in the First Appellate proceedings. Strictly speaking, this is the issue raised for the first time by the Ld. DR before us. On considering the same, we find the issue/argument is raised orally for the first time before us. Hence, the same is unsustainable, in principle. Without prejudice, we examined the list of expenses of ₹ 48,59,292/- and find most of them are paid to local bodies towards PMC taxes and electrical charges etc. Other expenses are found to be below the specified limit of ₹ 10,000/- or ₹ 20,000/-, as the case may be. Accordingly, the arguments of Ld. DR are dismissed on technical grounds. 23. Allowability of undisclosed expenditure for business purposes in the anoth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion on the issue relating to the claim of set off of brought forward losses pertaining to A.Y. 2004-05 and withdrawn the said direction partly. In this regard, the CIT(A), on noticing the error in the last sentences in Para No.6 of his order, the expression, i.e. in accordance with law was expunged. CIT(A) directed the AO to make correction to that extent as per his modification order dated 25-06-2014 which reads as under : 4. In view of the above and since the direction of the CIT(A) is to allow set off brought forward losses in accordance with law , no corrigendum is necessary in the matter. When there are no brought forward losses pertaining to A.Y. 2004-05 as on date, question of set off of brought forward loss of that year against the income of A.Y. 2005-06 does not arise as per law and even otherwise such brought forward business loss, if any, cannot be set off against the deemed income assessed for A.Y. 2005-06. On the given facts of the issue, in our view, the decision of the CIT(A) is fair and reasonable and it does not call for any interference. Accordingly, the legal ground raised by the assessee is dismissed. 27. In the result, the appeal of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant mainly because the balance amount pertaining to the incomplete work could have been adjusted against the sale consideration. I have examined this contention of the appellant. The appellant has received ₹ 96,00,000 on account of enhanced amenities from the Keswanis which is included in the total consideration of ₹ 1,99,00,000 and which were shown as part of sale proceeds. The amount of ₹ 56,20,400 was claimed as revenue expenditure. In the revised return necessitated by the correction of these entries to reveal short term capital gains u/s 50 this expenditure of ₹ 56,20,400 has been capitalized. Therefore, the dispute is only whether this particular expenditure is capital or revenue expenditure. It is seen that the Assessing Officer has only disallowed the amount in question on the basis of certain surmises and conjectures. The reimbursement of payments to Dhiraj Keswani was through account payee cheques. Accordingly, the amount in question has been correctly added by the appellant to the block of assets and claimed as revenue expenditure. Accordingly, Ground No. 2(c) is allowed in favour of the appellant. CONCLUSION 30. On hearing both the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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