9911796707
TMI Blog2021 (8) TMI 366X X X X Extracts X X X X X X X X Extracts X X X X ..... it (in Rs.) A.Y. 2011-12 48,77,500 A.Y. 2012-13 19,26,945 A.Y. 2013-14 26,07,043 A.Y. 2014-15 24,93,693 A.Y. 2015-16 31,73,792 4. The relevant facts relating to above ground are, assessee is a partnership firm engaged in the business of construction of residential complex. A search and seizure action under section 132 of the Income Tax Act, 1961 (for short "the Act") was conducted on 26th February 2015 at the residence of Shri Vipul Mangal, partner of the assessee-firm. Simultaneously, the business premises of the assessee-firm were also covered under section 133A of the Act. During the course of search and survey action, various loose papers, notebook, diaries, etc. were found and seized / impounded, as the case may be, which indicated the acceptance of 'on money' on sale of the flats constructed by the assessee. Seized documents also reveal various payments/expenses made for the purpose of the construction business of the assessee. 5. A statement on oath was recorded from Shri Vipul Mangal, partner of the assessee firm under section 132(4) of the Act at the time of search proceedings by the search party. In that sworn statement, the partner of the assessee firm h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 70/- totally spent by the assessee for the purpose of construction of the project belonging to the assessee firm which are not recorded in the books of accounts of the assessee. The details of these expenses were duly listed out in the seized document diaries and assessee sought deduction for the same. In this regard, the assessee also filed the entire details together with the narration and the nature of payment and the name of the party to whom such payments were made together with the complete break-up with dates for the total unaccounted expenditure of Rs. 6,01,09,970/-. Accordingly, the assessee offered for all the years put together unaccounted income as under:- Gross receipts representing on-money on sale of flats Rs. 9,75,50,000/- Less:- Unaccounted expenses used in Construction of the project belonging to The firm. Rs. 6,01,09,970/- Net unaccounted income offered to tax for all the years put together Rs. 3,74,40,030/- 7. The assessee had submitted that the said net income of Rs. 3,74,40,030/- being the unaccounted income offered for all the years put together alone represented 38.38% of the gross unaccounted receipts. The main belief of the assessee is that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eized diaries for the following reasons:- "a) The assessee has not produced any documentary evidence to substantiate its claim of expenses. b) On perusal of the list provided towards expenses incurred, the ld. Assessing Officer observed that assessee has provided only the nature of expenses, or the name of the person to whom payments were made. Assessee has not furnished the full name of the persons to whom payments were made. c) In majority of the cases address of the persons and PAN were not provided by the assessee. d) In most of these cases, expenses were incurred in cash in excess of Rs. 20,000/-there by violating the provisions of Section 40A(3) of the Act. e) The claim of the assessee that the expenses reflected in the seized diary are in the nature of architecture fees, the stamp duty, made to tenants as compensation for eviction, electrification fees, court case expenses, brokerage, parking lot eviction expenses, land demarcation expenses, NOC from various regulatory departments, revalidation fees, marble expenses, furniture expenses, plumber expenses, substation charges, legal charges, etc., cannot be believed as the same were not substantiated by the assessee." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ument Annexure A-3 at Pages-42, 44, 46, 48, 50, 52, 54, 56, 58, 60, 62, 64, 66, 68, 70 & 71. Accordingly, the assessee pleaded for claim of fresh deduction in the sum of Rs. 1,88,51,945/-before the learned CIT(A). 13. After considering the submissions of the assessee, the learned CIT(A) without getting into these intricate details of expenses which were corroborated with entries in the seized documents proceeded to allow deduction towards unaccounted expenses to the extent of 50% of gross receipts on ad-hoc basis and distributed the same to various years in accordance with percentage completion method followed by the assessee. The relevant observation of the learned CIT(A) in this regard are reproduced herein for the sake of convenience:- "6.11. From the decisions of the Hon'ble High Courts cited above, it can be concluded that if the notings in the seize documents in respect of the unaccounted receipts are being considered to be true and considered while determining the undisclosed income of an assessee, the notings on the same seized documents in respect of the expenses a real so required to be considered while determining its undisclosed income. It is also relevant to note th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ari Lal Banshidhar, 229 ITR 229 (All.) 6.12 On the issue of what should be the reasonable profit margin which should be applied, the assessee contends that the profit margin shown by it in its books of 19.97% is much higher than the margin shown in the construction industry where even margin of 8% is considered to be reasonable. It was further submitted that on the said on-money receipts of Rs. 9,75,50,000/- it has offered a very high margin of 38.38% and therefore, the assessee contended that the action of the Assessing Officer of making further additions, is not correct. These contentions of the assessee cannot be accepted since, the margin earned by an assessee is to be decided on a case-to-case basis. If an assessee has claimed the entire expenses related to its project in its books, in that case, the entire on-money receipts have to be considered while determining its undisclosed income. Further, if the component of on-money vis-à-vis the accounted / cheque receipt is higher, the profit embedded in the on-money component will be lower since more proportion of the on-money will be used for the unaccounted expenses as well as the regular expenses. In the instant case, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he seized documents which is at paper book Pages-80 to 86. He prayed that the income should be assessed on the basis of real income. He submitted that even income is assessed under presumptive basis, it may be at 8%, whereas the assessee had already declared more than the above percentage. 16. On the other hand, Ld DR submitted that the claim of the assessee that it had incurred expenditure to the extent of 81% of income is factually incorrect. He brought to our notice the Para-6.3 of learned CIT(A) order and submitted that the assessee declared 19.97% as per its regular books of account and 38.38% of income which was declared by the assessee itself before Assessing Officer. The additional deduction claim before learned CIT(A), which is at Page-79 of the paper book and he submitted that the assessee has not claimed the additional deduction. Further, he submitted that the Argent and Splendor are two different entities, the entity Splendor is already in the business of marketing and sales for the entire group, there is no necessity for the assessee to incur brokerage expenses. 17. Further, he submitted that the assessee claim several unlawful expenses, he brought to our notice the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seized documents from where the income of Rs. 9.75 crores is offered. 20.2 The Departmental Representative has referred to Question nos 5 and 9 of statement on oath dated 26.02.2015 of Mr Vipul Mangal, partner of appellant-firm wherein Mr Vipul Mangal stated that Messrs Argent Constructions is a construction company and Messrs Splendor Developers is a marketing and sales company and accordingly, the Departmental Representative raised objection on the claim of brokerage expenses (for instance at Sr nos 138, 149, 170, etc) against the income from construction activity. According to him, brokerage expense paid to various persons cannot be claimed by us when a separate entity namely, Splendor Developers, a group company is engaged in marketing and sales activities. In this connection, he submitted that some flats have been sold through outside brokers and not through Splendor Developers; we have paid the said brokerage to such outside brokers in cash and hence, the same should be allowed as deduction. 20.3 The Departmental Representative referred to payments made to Mr Charanjeet Thapar as appearing in the seized material and submitted that this is return of loan and hence, ought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntal Representative cannot better the case of the Assessing Officer. As such, it is submitted that the amount paid to Mr Rasik Dudhwadkar ought to be allowed as a deduction. Further, insofar as 'Faisal (OSD)' is concerned, we submit that Faisal is our person handling 'on-sight development' work and hence, it is mentioned as Faisal (OSD); thus, OSD here means on-site development. Further, there is no evidence to suggest that these payments are not permissible in law - neither the Assessing Officer nor the CIT(A) has made any such allegations. Thus, it is submitted that the Departmental Representative cannot better the case of the Assessing Officer. As such, it is submitted that the amount paid to Faisal OSD) ought to be allowed as a deduction. 20.5 The Departmental Representative referred to payment of Rs. 50 lacs to Mr Anil Sharma Taloja and submitted that the said Rs. 50 lacs is paid towards purchase of land at Taloja and hence, being a capital payment, should not be allowed as deduction. He further submitted that the assessee itself admitted that the said Rs. 50 lacs is paid towards purchase of land at Taloja. In this connection, he submitted that it is an u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that out of the total expenditure of Rs. 6,01,09,970/-, the sum of Rs. 50,00,000/- pertains to land at Taloja, which represents amount spent for some other project of the assessee and expenses of Rs. 10,50,000/- which are prohibited by law and Rs. 1,00,000/- which are capital in nature. There is a categorical finding to this effect in Para 6.13 of the ld. CIT(A) as reproduced supra. Against this finding, the Revenue is not in appeal before us. Hence, the various arguments made by the ld.DR before us at the time of hearing need to be looked into from the perspective of finding given by the ld. CIT(A) in his order which is not appealed by the revenue before us. We find that the ld. DR was trying to point out that assessee had incurred various expenses which are prohibited by law and the same is not restricted to Rs. 10,50,000/- alone as mentioned in the order of the ld. CIT(A). We find that the ld. DR was trying to improve the case of the revenue before us which is not permissible as per law. Reliance in this regard is placed on the Special Bench of Mumbai Tribunal in the case of Mahindra and Mahindra Ltd., vs. DCIT reported in 2009-TIOL-255-ITAT-Mum-SB. Hence, the finding given in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for the purpose of assessee's business other than the specific instances pointed out by the ld. CIT(A) in Para 6.13 of his order such as expenses that are capital in nature, expenses which are prohibited by law and expenses that are relevant for the different project of the assessee. Admittedly, the seized document contains unaccounted income as well as unaccounted expenditure both were duly transacted only in cash. Hence, the applicability of provisions of Section 40A(3) of the Act to the said payments would not serve the scheme of taxation and would ultimately result only ending up in taxing the entire unaccounted gross receipts alone without giving benefit of deduction to the assessee. This is certainly not the intention of the legislature and more so, the provisions of the Act. Accordingly, the grounds raised by the assessee in this regard for all the assessment years are partly allowed. 22. The ground no.3 raised by the assessee is with regard to addition made on account of capital contribution in the assessee firm by the partner. 23. We have heard rival submissions and perused the materials available on record. We find that the partners of assessee firm have made capital ..... X X X X Extracts X X X X X X X X Extracts X X X X
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