9911796707
TMI Blog2018 (6) TMI 1731X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is a company and is engaged in the development of properties. There was survey action u/s.133A of the Act on the assessee on 24-01-2007. The aid action resulted in the discovery of incriminating information and the papers/ documents relating to both the assessees under consideration. The same were impounded for use in making of the assessments. It also resulted in discovery of unaccounted transaction of undisclosed receipts and they are undisputedly undisclosed expenditure outside the books of account. Based on these discrepancies as well as the disclosure of unaccounted income vide the sworn statement of the concerned persons of the assessees on 13-02-2007, an additional unaccounted income of Rs. 2.06 crores was admitted in the hands of GDPL. Further, another sum of Rs. 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 Rs. 2.59 crores (Rs. 2.06 crores + 0.53 crores). 3. Relevant facts leading to the said disclosure of additional income of Rs. 2.59 crores (Rs. 2.06 cr. + 0.53 lakhs) includes that the assessee earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 50,59,040/- are given in para 8 along with its sub-paragraphs of the assessment order. Brief facts include that the assessee sold a property to Mr. Dheeraj Keshwani. On his demand, certain works were undertaken by the assessee for the repairs on the flat, which resulted in additional expenditure of Rs. 56,20,400/-. The same was reimbursed by Mr. Dheeraj Keshwani. Rejecting the explanation that the said expenditure was incurred on the capital asset belonging to Mr. Dheeraj Keshwani, AO made the said addition. Otherwise, the total cost of the property-shop works out to Rs. 99.50 lakhs. Out of the same, the net amount reimbursed by Mr. Dheeraj Keshwani works out to Rs. 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 Rs. 1.61 crores as well as other addition of Rs. 50,59,040/-. CIT(A) partly allowed the appeal of the assessee. CIT(A) confirmed the addition amounting to Rs. 1.47 crores out of Rs. 1.61 crores. Other additions are deleted. Subsequently, in connection with the claim of set off of the brought forward losses, CIT(A) rectifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ify, rectify, delete, raise any grounds of appeal at the time of hearing. It is respectfully submitted that the grounds raised above also include the additional ground raised vide letter dated 16th April, 2018." Ground raised by the assessee against rectification order passed by the CIT(A) vide ITA No.1609/PUN/2014 : "1. On facts and circumstances prevailing in the case and as per provisions & scheme of the Act it be held, that first appellate authority rectified the appellate order dated 22-01-2013 passed by the CIT(A)-I, Pune is improper, erroneous, 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 Rs. 56,20,400/- made in the assessment instead of confirming the same. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven to Managing Director safe keeping. Per Contra, Revenue holds that it is the part of the unaccounted expenditure of the company. However, as can be seen, the CIT(A) did not utter a word on this part of the claim of the assessee. However, in this regard, CIT(A) commented on the absence of cash out/in nexus, i.e. one to one transactional nexus and held that such nexus is the requirement for allowing the claim of further reduction of Rs. 82,94,744/- out of the sum of unaccounted expenditure of Rs. 4,25,58,303/-. Further, CIT(A) deleted the addition of Rs. 50,59,040/-. 12. Further, Ld. Counsel for the assessee raised fresh demand for deleting the entire addition of Rs. 1.61 crores and not merely Rs. 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 Rs. 15,46,095/- only. Relevant calculations are given in the table discussed in the later part of this order. (para No.14). Appeal wise adjudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Rs. 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 Rs. 4,25,58,505/-. II. Expenditure of Rs. 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 Rs. 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 Rs. 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 business operation of the assessee that the unaccounted receipts/flow bi-directionally between the company and the Managing Director of the company depending on the safe keeping need and commercial expediency of the business. Thus, there is bi-directional movement of cash between the company and the Managing Direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 1.61 crores (restricted to Rs. 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 Rs. 48,59,242/- and the applicability of explanation u/s.37(1) of the Act with reference to the unaccounted expenditure claiming set off against the unaccounted income. (D) The applicability of provisions of section 40A(3) of the Act towards the cash expenses discovered during the survey action. 15. Further, the assessee filed the following issue-wise submissions and the same are extracted here as under : A. Regarding the first issue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 entries of MD and duplicate entries) (Refer Table 1) 3,28,05,337 iii. Less: Expenses on land (Refer Annexure-1) 2,79,46,095 iv. Business expenses available for deduction iv =(ii - iii) 48,59,242 v. Excess cash available v=(i-iv) 1,03,43,017 vi. Balance declared 1,60,56,983 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 3.3 The DR has argued that the contra entries, being payments made to Dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icability of provisions of section 40A(3) of the Act towards the cash expenses discovered during the survey action, the assessee submitted the following written submissions: In support of his arguments, assessee relied on the following judgments/decisions : 1. Topstar Mercantile Pvt. Ltd. Vs. ACIT 225 CTR 351 (Bom.) 2. Mahindra & Mahindra Vs. DCIT 122 ITD 216 (SB) (Mum-Trib.) 3. Trend Micro India Pvt. Ltd. Vs. DCIT 64 taxmann.com 462 (Delhi-Trib.) 4. ACIT Vs. Anima Investment Ltd. 73 ITD 125 (Delhi (TM) 5. ACIT Vs. Maersk Global Service Centre India Pvt. Ltd. 141 ITR 541 (Mum. Trib.) 6. ACIT Vs. Prakash I Shah 115 ITD 167 (Mum. Trib.) 7. ACIT Vs. Tech Books Electronics Pvt. Ltd. 176 ITJ 20 (Delhi.Trib.) 8. Travel Security Services India Pvt. Ltd. Vs. DCIT 186 TTJ 644 (Delhi Trib.) 9. Mckinsey Knowledge Centre Pvt. Ltd. Vs. DCIT 183 TTJ 553 (Delhi Trib.) In fact, this issue is raised by the Ld. DR for the first time before the Tribunal. Ld.DR is of the opinion that the undisclosed cash payments attracts the provisions of section 40A(3) of the Act. E. Further, assessee submitted that, even if the ground raised by the Ld. DR is allowed, the provisions of section 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will clearly suggest that these are payments made for petty work. Hence, the claim of the Appellant regarding the said expenses is covered by provisions of section 37(1) of the Act not hit by the Explanation to section 37(1) of the Act, and hence is an allowable expenditure." This issue/argument is relevant in the context of the claim of the assessee that the undisclosed expenditure of Rs. 3.28 crores is for business purposes only. The same is allowable expenditure u/s.37 of the Act. There is no violation to the provisions of section 37(1) of the Act. 16. Per Contra, Ld. DR for the Revenue relied on the order of the AO. On this issue of claim of contra entries, Ld. DR submitted that the assessee needs to explain the contra entries specifying the correlation between cash in and cash between the assessee and the Managing Director of the company, then only the assessee's claim is allowable. CIT(A) expects one to one relationship for grant of relief on the claim of addition of Rs. 82,94,744/- on account of contra entries. Further, Ld. DR argued vehemently stating that the expenditure is to be disallowed u/s.37 of the Act due to contravention of the law. Further, Ld. Counsel argued th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impounded material is heavily relied by the assessee for all these workings. Thus, from undisclosed receipt angle too, Ld. Counsel for the assessee submitted that, out of gross undisclosed receipts of Rs. 4.25 crores, the net undisclosed receipts is only Rs. 1,52,02,259/- after adjustment of (1) duplicate entries; (2) contra entries and (3) undisclosed receipts for other assessment years. Ld. Counsel for the assessee adjusted the said Rs. 48,59,242/- against the undisclosed receipts of Rs. 1.55 crores and arrived at the available expenditure of undisclosed receipts of Rs. 1,03,43,017/-. Against this, assessee already declared Rs. 2.64 crores and the undisclosed investment in land is Rs. 2,79,46,095/- having the excess investment of Rs. 15,64,095/-. Accordingly, the addition if any should be restricted to Rs. 15,46,095/- only and asked for deleting the addition of Rs. 1.47 crores. Ld. Counsel for the assessee brought our attention to the issue of the existence of duplicate/contra entries on one side and the correlation of entries of cash given/received to/from Mr. R.K. Gera to company, and filed various workings based on the impounded documents/Bundle No./Page No. etc. Ment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herever 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 therefore, there is a requirement of allowing other adjustments narrated above. Ld. Counsel filed a sheet giving the details of reconciliation in support of the claim of adjustment on account of contra entries too. The same is extracted as under : Statement showing contra entries of cash received from customers and given to the MD on Page 85 and 86 of PB. Page No. of Bundle Date of receipt from customer Narration Amount of receipt from customer Page No. of Bundle Date of Payment to MD Amount paid to MD 122 12-3-2004 Received from Dr. Shastri (Pg.84) 1200000 122 17.03.2004 50,000.00 122 07.04. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted for grant of adjustments narrated above and delete the addition of Rs. 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 Rs. 1.61 crores. We also considered the correctness of the need for grant of benefit of the adjustment of Rs. 82,94,744/- towards the contra entries qua the receiving and returning of the cash by Mr. R.K. Gera, MD of the company. On consideration, we find that the demand for the said adjustment in principle has the basis of the figures emanating from the impounded papers during the survey action. As such, the assessee already offered the additional income of Rs. 2.06 crores and pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 explanation of the assessee needs to be accepted. Hence, in that case, the net expenditure figure of Rs. 3.28 crores is proper. To that extent, the order of the CIT(A) needs to be reversed. 21. Thus, the issue of benefit of adjustment of Rs. 82,94,744/- is held in favour of the assessee and now we shall now deal with the extent of undisclosed expenditure that is required to be confirmed in place of Rs. 1.61 crores. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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 Rs. 10,000/- or Rs. 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 another argument for consideration before us. Regarding the applicability of provisions of section 37(1) of the Act as argued by the Ld. DR, to such an undisclosed expenditure on revenue account, the case of the Revenue is that the said unaccounted expenditure of Rs. 48,59,292/-, the same cannot be considered as an allowable business expenditure in view of the provisions of proviso to section 37(1) of the Act. In this regard, we perused the break-up of details furnished before us and, as discussed above, we f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s '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 assessee is dismissed. ITA No.767/PUN/2013 - By Revenue 28. As discussed above, while dealing with the addition of Rs. 1.61 crores, we have already dealt with the relief of Rs. 14,58,222/-. We have held that the sum of Rs. 15,46,095/- is only sustainable out of Rs. 1.61 crores and balance is ordered for deletion. Therefore, this issue stands adjudicated against the Revenue by our finding on the said issue. Therefore, the only effective issue that remains to be adjudicated relates to the relief granted to assessee on the addition of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 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 sides on this issue, we find that there is no dispute about the sale of shops to Mr. Dheeraj Keshwani for a sum of Rs. 1,99,00,000/- with extra works specified in the sale agreement. Assessee could not complete those works and the same works out to Rs. 56,20,400/-. We find that the said amount has to be borne by the assessee. Since the works are not done by the assessee, the assessee reimbursed the same to Mr. Dheeraj Keshwani. Therefore, assessee claimed the same as Revenue expenditure in his account. However, the same was claimed as Capital expenditure in the revised return of income. With ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
