TMI Blog2022 (5) TMI 849X X X X Extracts X X X X X X X X Extracts X X X X ..... leakage. Considering the fact that neither the assessee could substantiate with documentary evidence about the genuineness of expenses nor the Assessing Officer brought comparable instances for similar improvement expenses on record, therefore, the order of ld. CIT(A) is modified and A.O. is directed to disallow 50% of improvement expenses out of total improvement expenses. Ground No. 1 .1 to 1.4 of the appeal is partly allowed. Disallowance under section 14A r.w.r.8D - CIT-A deleted the addition - HELD THAT:- Assessee in reply to the show cause notice provided working of disallowance under Section 14A. The assessing office neither recorded the working of assessee nor disregarded it before making disallowance under section 14A. Before ld CIT(A) the assessee explained that the assessee has earned dividend income of Rs. 77,620/- from Gujarat Ambuja Cement Co-operative bank, which is taxable. We find that the other dividend of Rs. 14,522/-,which has been included by assessee in his total income for the year. We find that the ld CIT(A) after considering the submissions of the assessee held that as the assesse had offered the income for taxation therefore, the provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer be restored. 2. Brief facts of the case are that the assessee is an individual, filed his return of income for the assessment year (A.Y.) 2012-13 on 31.07.2013 declaring income of Rs.1.22 crore. In the return of income the assessee has shown income from salary from Ganesh Real Financial Ltd and Shree Ganesh Real Marketing, income from house property , share of profit from firm, income from other source and capital gain . The case was selected for scrutiny. During the assessment, on verification of details in computation of income, the Assessing Officer(AO) noted that assessee has shown Long Term Capital Gain(LTCG) of Rs.20,13,754/-. On asking detailed working of LTCG and calculation of index cost of acquisition and the improvement of asset, the assessee furnished sale deed of non-agricultural land executed on 09/09/2011 with regard to land situated at revenue survey no.7, 8, 9, 10/11/11-2, 11-3, 14 Paiki 15, 16 and 21 situated at Taluka Himmatnagar sold at a sale consideration of Rs. 7.15 Crore. On perusal of sale deed, the AO noted that assessee was having 50% share in the said land. Thus, the share of assessee is Rs.3.57crore. On further verificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exactly showing the contract income of Rs.46,25,900/- against the direct expenses of Rs.44,51,700/-. Further, sundry creditors and debtors stood to Rs.53,63,650/- and Rs.46,25,900/- respectively, thus, it is clear that contractor has not made any payment to her labourer which is impossible looking at the nature of work. And for Pioneer Seva Mandal, the AO noted that the Pioneer Seva Mandal is a trust having Resignation Number. F/2929/Mehsana and having one of the trustee Mr. Vinodpuri Govindpuri Gosai, who is also one of the contractors. Pioneer Seva Mandal has undertaken labour contract exactly showing the contract income of Rs.47,80,250/- against the direct expenses of Rs.4,46,03,171/- [seems to be wrong figure]. Further the sundry creditors and debtors stood to Rs.11,56,315/- and Rs.47,80,250/- respectively. Thus, the contract had made part payment to its labour, but transport charges of Rs.10,97,225/- sundry creditors for transportation is to Rs.9,52,880/- which is also impossible looking at the nature of the work. 4. The AO further noted that development expenditure is apparently bogus, accordingly vide order sheet dated 12.02.2015, the assessee was asked to furnish the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50/-. The AO also held that the assessee claimed such expenses to supress LTCG. 6. The assessing officer further noted that the assessee has shown investment of Rs. 1.77 Crore. The assessee has shown exempt income of Rs. 77,620/- in the profit and loss account. The assessee has claimed interest expenses of Rs. 3.27 Crore in his profit and loss account. The assessing officer issued show cause notice as to why disallowance under section 14A be not made. In response to the show cause notice the assessee filed its reply and furnished its working under Rule 8D. The assessing officer worked out disallowance if interest expenses under Rule 8D(2)(ii) of Rs. 6,22,025/- and disallowance of indirect expenses under Rule 8D(2)(iii) of Rs. 56724/-, thus total of Rs. 678,749/- and added to the income of assessee. 7. Aggrieved by the additions in the assessment order, the assessee filed appeal before the ld.CIT(A). Before the ld.CIT(A), the assessee filed detailed written submission as recorded in para 2.2 at page no.8 to 14 of the order of ld.CIT(A). In written submission, the assessee in sum and substance submitted that the AO disallowed the development expenses of Rs.1.79 crore during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g in view the term of payment in mind. The assessee made all such payments by way of account payee cheques. The AO has not disputed the payment made through cheques, but as disputed only because of the late payment. 9. In alternative submission, the assessee explained that the development expenses were outstanding and were shown as liability in the books of the assessee. When the payments were made and the transaction of the creditors were squared up no liability exist. Had there been the creditors carried forward in the succeeding year and if the liability seized to exist, then the said amount would be treated as the creditors written and accordingly taxable under section 41 of the Act. Neither the creditors have been written off nor any liability ceased to exist. Rather all the creditors have been paid by way of account payee cheques only. Because the payments were made after a period of time, would not be surprised enough to consider the expenses are nongenuine. On the report of DCTI, Sabarkantha [commission report], the assessee explained that as per report he visited the site and concluded the development activity has been incurred on developing plots and making earth and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t money after three years, which is unusual. And that when the payments were made by the assessee to the said contractor it was immediately withdrawn in cash. 11. After recording the discrepancies identified by the assessing officer, the ld CIT(A) noted that as per the assessee he had produced all the invoices for the expenses. The expenses were made for development of non-agriculture land which was sold during the year. As per assessee he had made payments to sundry creditors for expenses. The assessing officer disallowed the expenditure on the ground that the payments was made over a period of time. The ld CIT(A) held that in his opinion the assessing officer was not justified in making the disallowance of improvement expenses. The assessing officer made addition on presumption basis. The ld CIT(A) also held that the assessing officer has not disputed the payment to contractor. The payments have been made through cheques. The payment was not made during the currency of the period, cannot be a ground for disallowance. The observation of the assessing officer that the amount was immediately withdrawn for their bank account and received back by the assessee is also his presumptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contractors and the reason for not paying the amount to sundry creditors during the year. The assessee was also asked to explain the genuineness of expenses incurred during the year. The assessee merely furnished ledger of all these contractors. The payment to these contractors was made in the year 2015 as evident from the ledger accounts. Three of contractor were directly or indirectly connected with Vinodpuri Govindpuri Gosai. Vinodpuri Govindpuri Gosai was not having sufficient means to execute such work. The AO asked Vinodpuri Govindpuri Gosai to furnish his return of income. On examination his return of income, the AO found that he has shown total income of Rs.1,77,812/- in the return of income filed for AY 2012-13. It was not possible for that person who is having such meagre taxable income, can wait for the payment for more than 3 years against expenses incurred by him. The assessee was also asked to furnish the copies of bank statement of sundry creditors showing the payment received by them. On perusal of their bank statement, the AO noted that amount transferred to their accounts by assessee was immediately withdrawn in cash on the same day, thus the expenses claimed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng term capital gain (LTCG) of Rs. 20,13,754/- in his computation of income. On being asked the working of capital gain and indexed cost, the assessee submitted that his has sold non-agriculture land at taluka Himmatnagar inn various surveys numbers. The total sale consideration was Rs. 7.15 Crore, the assesse is having share so he received Rs. 3.57 Crore in his hand. The AO on further verification find that the assessee has claimed cost of improvement for land filling, excavation, digging and other miscellaneous expenses. The assessee claimed total development expenses of Rs.1.79 Crore paid to four parties namely; (i) Gosai Vinod Puri Rs. 54,96,800/-, (ii) Patel Rajnikant Rs. 30,16,600/-, (iii) Pioneer Construction Rs. 46,25,900/- and (iv) Pioneer Seva Mandal Rs. 47,80,250/-. On further verification of the details the AO find that not a single penny was paid to the above said contractor. The assessee has shown all the expenses under list of sundry creditors. The assessee was asked to furnish the proof of subsequent payment to these contractors and the reason for not paying the amount to sundry creditors during the year. The assessee was also asked to explain the genuineness of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiny the AO issued notice under section 143(2) on 26.09.2014. During the assessment the AO examined the issue of LTCG claimed by the assessee. On being asked about the indexation cost and cost of improvement, the assessee came with the plea that a sum of Rs. 1.79 Crore is incurred on the development expenses. The AO found that not a single rupee is paid by the assessee during the currency of impugned assessment period and after detailed deliberations the AO disallowed the cost of improvement. As noted above the ld CIT(A) deleted the addition solely on the ground that the AO made additions on assumption and presumption. In our view the finding of the ld CIT(A) is not sustainable. The AO has brought sufficient material on record to prove that the expenses are not genuine. Inordinate delay in making such payment to the contractor itself is sufficient to disbelieve the story of the assessee. Moreover, the payment to the so-called contractor was made only when the case was selected for scrutiny. The payments made to the contractor were immediately withdrawn from their account, which itself create doubt on the genuineness of the transaction. The work of improvement is basically is labour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses in relation to improvement cost are not debited to the P L account and added to the cost of asset and filed detail in the form of annexure-3. The practice followed by assessee is not in accordance with the accounting practice, which further create doubts on the genuineness of the expenses. On the issue in relation to clarification in relation to debit balance of capital account, the ld. AR explained that the same is due to the mistake of the accountant as the accountant has debited the capital account of assessee while making investment activities in the LIC policies, which also creates doubt on the books of account maintained by the assessee. On the clarification with regard to delayed payment to creditors, the assessee claimed that it is his right to conduct the transaction which is appropriate to him and the revenue authority cannot step into his shoes. He was unable to make the spot payment and had negotiated the price of development activities and the payment was to be made in 3-4 years. No document to substantiate such contention was furnished except making self serving statement, which is unused. The reply furnished by assessee further strengthen the non-genuinenity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee on appreciation of facts. 24. We have considered the rival submissions of the parties and have perused the orders of the lower authorities carefully. We find that the assessing officer invoked the provisions of Rule 8D and made disallowance under section 14A. We further find that the assessee in reply to the show cause notice provided working of disallowance under Section 14A. The assessing office neither recorded the working of assessee nor disregarded it before making disallowance under section 14A. Before ld CIT(A) the assessee explained that the assessee has earned dividend income of Rs. 77,620/- from Gujarat Ambuja Cement Co-operative bank, which is taxable. We find that the other dividend of Rs. 14,522/-,which has been included by assessee in his total income for the year. We find that the ld CIT(A) after considering the submissions of the assessee held that as the assesse had offered the income for taxation therefore, the provisions of section 14A will be applicable. We find that when no exempt income is claimed by the assessee in its computation of income no disallowance under section 14A is warranted. Thus, we affirms the order of ld CIT(A) on this ground ..... X X X X Extracts X X X X X X X X Extracts X X X X
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