TMI Blog2023 (11) TMI 1230X X X X Extracts X X X X X X X X Extracts X X X X ..... as on 31/03/2015 + labour charges + opening work in progress. We are surprised to observe such kind of working by the AO which is dumb founded and has merely picked up certain figures from the financial statements on the closing dates to arrive at such irrelevant workings. He has failed to understand that when the assessee has consistently and regularly followed a method of accounting and proper documents are kept for each and every entry then without rejecting the book results and without finding any discrepancy in the books can an AO carry out such an exercise which is not meaningful and is purely a guess work. We thus, are of the considered view that the impugned addition for unexplained credit is based on surmises and conjectures. Ground No. 1 raised by the assessee is allowed. Addition invoking Section 43CA - HELD THAT:- As considering the fact that flats appearing in the list from Serial No. 5 to 15, agreement to sale was prior to 01/04/2013 and part of the consideration was received through account payee cheques, therefore, Section 43CA of the Act will not be applicable and the difference between the amount of sale consideration appearing in the conveyance deed and the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rman, Addl. CIT, Sr. D/R. ORDER PER DR. MANISH BORAD, ACCOUNTANT MEMBER: The present appeal is directed at the instance of the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter the ld. CIT(A) ) dt. 15/03/2023, passed u/s 250 of the Income Tax Act, 1961 ( the Act ) for the Assessment Year 2016-17. 2. The assessee has raised the following grounds of appeal:- 1. FOR THAT the Ld. Commissioner of Income Tax (Appeals)-N.EA.C. was absolutely in error in impliedly upholding the addition of Rs. 2,02,56,909/-made by the Ld. Assistant Commissioner of Income Tax, Circle 8(1), Kolkata without establishing any basis therefor and the purported conclusion reached on that behalf is entirely opposed to law. 2. FOR THAT the Ld. Commissioner of Income Tax (Appeals)-N.F.A.C. acted unlawfully in impliedly sustaining the purported addition of Rs. 1,71,18,489/- made the Ld. Assistant Commissioner of Income Tax, Circle 8(1), Kolkata by invoking the mischief u/s. 43CA of the Income Tax Act, 1961 without satisfying the parameters thereof and the adverse conclusion reached on that behalf in violation of the statutory prescription is completely unfounded, unjustified, and un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncials of the liquor business and came to a conclusion that the assessee has not declared sales to the tune of Rs. 97,36,152/- and made the addition by applying gross profit rate @ 4.65% thereby adding Rs. 4,52,731/- to the income of the assessee. Lastly, the ld. Assessing Officer on perusal of the various bank accounts held in the individual name of the assessee as well as other proprietorship concern and based on its own calculations which is available in the assessment order observed that unaccounted sales are to the tune of Rs. 9,84,52,571/- and made addition by applying GP Rate of 38.22% being average rate of gross profit, rate offered in the three concerns, namely, M/s. Gitanjali Enterprises, M/s. Gitanjali Polyclinics Diagnotics and M/s Gitanjali Chemist Drugist. The addition was made at Rs. 3,76,28,573/-. Accordingly along with other minor additions of Rs. 15,000/-, total additions were made at Rs. 7,54,71,702/- and income assessed at Rs. 9,17,53,930/-. 3.1. Aggrieved, assessee preferred appeal before the ld. CIT(A), challenging various additions except the one at Rs. 15,000/- and filed all necessary details which were filed before the Assessing Officer. However, on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itor of Rs. 1,10,00,000/- was arrived for making the impugned addition of Rs. 2,02,56,909/-. The observation of the Assessing Officer is interesting and the same is extracted below:- 2.4 In view of above, the balance sheet and profit loss account of S. Paik Co., a proprietorship concern of the assessee has been considered and found that liability as on 31.03.2015 is shown at Rs. 1,49,95,800/- and purchased of building materials debited to P/L a/c at Rs. 3,16,95,298/-, labour charges for Rs. 42,11,928/- and liability for such materials is shown at Rs. 3,48,64,832/- as on 31.03.2016. It was also noticed from the profit loss account that opening work-in-progress is Rs. 48,07,000/- and closing work-in-progress is Rs. 39,96,040/-. Total withdrawal from the related bank account is Rs. 2,61,06,063/- during the F. Yr. 2015-16. As per disclosed method of recognition of revenue expenses by the assessee in course of assessment proceedings, whatever materials were purchased during the year was subjected to current year expenses. As such total sundry creditors for such materials services should have been at Rs. 2,56,07,923/- [(purchase* sundry creditor for goods as on 31.03.2015+labour charges* ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the working of the impugned addition made by the Assessing Officer, it is brought to our notice that the books of accounts of the sole proprietorship concern M/s. S. Paik Co., are duly audited u/s 44AB of the Act. Assessee follows mercantile system of accounting and details of each and every transactions are claimed to have been maintained in the books of accounts to which there is no doubt at the end of the Assessing Officer as he has not pin-pointed to any specific observation, for e.g., wrong claim of expenditure or excess/bogus purchase or any other item of profit and loss account and balance sheet tantamounting to excess claim of expenditure or suppressed revenue/income. Coming to the working of the Assessing Officer extracted supra, we notice that the ld. Assessing Officer has disregarded the regular books of account of which the results are arrived at after making entries on day to day basis in cash book, bank book and journal, and finally the trading profit and loss account and audited balance sheet are arrived at which is the final picture of the transactions carried out during the year. It is also judicially settled that the manner of carrying out of the business act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is based on surmises and conjectures. We find support from the decision in the case of M.N. Dastur Co. Ltd. vs. DCIT (1997) 61 ITD 167 (Cal.) and the judgment of the Hon ble Supreme Court in the case of CIT vs. Woodward Governor India Pvt. Ltd. (2009) 312 ITR 254 (SC). Accordingly, Ground No. 1 raised by the assessee is allowed. 9. Ground No. 2 challenges the addition of Rs. 1,71,18,489/- made by the Assessing Officer invoking Section 43CA of the Act. The ld. Assessing Officer while examining the records of the assessee also possessed the individual transactions statement related to the assessee pertaining to 15 flats sold during the year of which market value was reported at Rs. 6,19,56,040/- but the credit in the profit and loss account was only Rs. 4,48,37,551/-. In reply, the assessee furnished the information about the flats sold during the year stating that most of the flats were booked in the preceding years and agreement to sale was entered and part of the consideration was received through account payee cheques. For the sake of reference, the names of the customers, date of booking, registry date, amount of sale consideration and market value as adopted by the stamp valuat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment through cheque is required to ensure that the agreement to sell, if any, relied upon by the assessee has been actually executed and acted upon as back dated cheque payment cannot be claimed by an assessee. In the case in hand, though some of the parties had not made initial payment i.e. on or before the date of agreement through cheque/banking mode, however, the facts show that the some of the payments were made in each case much before the execution of the sale deed. Under the circumstances, it cannot be said that the 'agreement to sell' relied upon by the assessee are bogus, rather, the payment of consideration in this case has been settled and paid as per the terms of the agreement. Under the circumstances, in the peculiar I.T.A No.354/Kol/2023 Assessment year: 2015-16 M/s Reegal Construction facts and circumstances, it will not be justified to adopt the stamp duty value as on the date of execution of the sale deed, rather, the object and purpose of the provisions will be achieved by taking the stamp duty value as on the date of execution of the agreement in the light of the peculiar facts and circumstances of this case. Moreover, the issue is otherwise decided by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time i.e. for the assessment year 2005-06, the only provision for application of deemed value for consideration was found under Section 50C of the Act relating to capital assets. At the relevant time there was no provision in the Act for deeming the consideration received on sale of goods/assets other than capital assets on the basis of stamp duty valuation. However, this provision in the form of Section 43CA of the Act has been introduced with effect from 1 April 2014. The present case pertains to the assessment year 2005-06. Therefore, Section 43CA of the Act will have no application for the subject Assessment Year. 13. In the case of CIT v. Neelkamal Realtors Erectors India (P.) Ltd. [2017] 79 taxmann.com 238/246 Taxman 274, the Division Bench of this Court had an occasion to consider the value of the flat in case of sale by the Developer in the context of section 50C and section 56(2)(vii)(b)(ii) of the Act. The Division Bench observed thus: 3. Regarding question No. (i): ** ** ** (f) It is self evident from reading of section 50C of the Act it would not have any application while determining 'Profits and gains of business or profession'. This is so as its application i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply in case of a builder for whom such immovable property is in nature of stock in trade and not capital asset. To overcome this difficulty the legislature had inserted Section 43CA under Finance Act, 2013 w.e.f 1.4.2014. This provision would enable the Revenue to tax the income arising out of sale of stock by a deeming fiction where subject to certain conditions, stamp valuation of such stock would substitute the actual receipt thereof. In absence of any such statutory provisions, giving rise to the deeming fiction, the Revenue cannot tax any amount which has not been received by a seller of an immovable property at the time of sale. (Emphasis Supplied) No contrary decision is shown. 15. As regards the decision in the case of Associated Builders relied upon by the Appellant- Revenue, it arose in the context of valuation of assets including stock in trade on dissolution of a partnership firm. This Court was concerned with the issue whether, when the asset was valued on the basis of book value as provided in the contract between the parties, is it open to the Assessing Officer to ignore it and ascertain whether the valuation done does represent the fair value of the asset. This t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration on or before the date of agreement cannot be imposed back-dated as the assessee could not have foreseen the introduction of section 43CA. 12. In view of the above discussion, considering the peculiar facts and circumstances of the case and the decision of the co-ordinate bench of the Tribunal, the additions made by the Assessing Officer/CIT(A) on the above issue are not sustainable and the same are accordingly ordered to be deleted. 11. In light of the above decision and discussion made in the preceding paragraphs and the fact that flats appearing in the list from Serial No. 5 to 15, agreement to sale was prior to 01/04/2013 and part of the consideration was received through account payee cheques, therefore, Section 43CA of the Act will not be applicable and the difference between the amount of sale consideration appearing in the conveyance deed and the value adopted by the stamp valuation authority cannot be added in the hands of the assessee and the same is hereby deleted. 11.1. So far as the remaining four flats are concerned, we find that in the case of first person, namely, Susmita Basu, there is no difference between the amount in the conveyance deed and the market val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the total deposits in the bank account which can be on other account also and not only the sales. While taking this course, the ld. Assessing Officer has nowhere disputed the book results as the same has not be rejected and even considering the finding of the Assessing Officer, it indicates that the total cash deposits in the bank account is less than the total sales shown in the profit and loss account. 12.1. Therefore, in our considered view, it is not a case of suppressed sales and working made by the Assessing Officer is purely on surmises and conjectures and, therefore, the action of the Assessing Officer, applying gross profit rate on the alleged suppressed sales tis uncalled for. Addition of Rs. 4,52,731/- is deleted and the Ground No. 3 raised by the assessee is allowed. 13. Ground No. 4 is raised against the addition of Rs. 3,76,28,573/-. The ld. Assessing Officer firstly referred to three business concerns of the assessee, namely, M/s. Gitanjali Enterprises, M/s. Gitanjali Polyclinics Diagnotics and M/s Gitanjali Chemist Drugist and referred to the commission income earned from sale of medicine. Thereafter, the ld. Assessing Officer referred to the total amount of cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which comes to Rs. 3,76,28,573/-. (38.22% of Rs. 9,84,52,571/-) 14. The above working of the ld. Assessing Officer is neither here nor there. Books of account have not been rejected u/s 145(3) of the Act. There is no link of the figures mentioned in the assessment order giving rise to the impugned addition. The ld. Assessing Officer has adopted his own theory for making the said addition but it is not supported by proper facts. The ld. Counsel for the assessee admitted the fact that the assessee carries on his businesses of running a diagnostic and polyclinic styled Gitanjali Polyclinic Diagnostics , running of retail trading of medicines under the name of Gitanjali Chemists Druggists and also acting as a Cleanrtg and Forwarding (C F) agent under the name and style of Gitanjali Enterprises . The appellant had maintained books of accounts u/s. 44AA of the Income Tax Act, 1961 only in respect to his concern styled Gitanjali Enterprises which were duly audited under the statutory requirement of s. 44AB of the Act and the entries made therein were fully supported by proper bills and vouchers. In pursuance of the activities of the appellant, it acts as Clearing and Forwarding agents an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e activities as a C F Agent. It is an undisputed fact that the sanctity and veracity of entries in the books of accounts in this relation were explained to the Ld. Assessing Officer who had not expressed any doubts regarding the veracity thereof. In other words, the Ld. Assessing Officer was unable to identify any defect in such books of accounts, which were duly supported by evidence. In fact, the Ld. Assessing Officer without any ostensible reason resorted to estimating the gross profit of the appellant. The provisions of s. 145(3) of the Income Tax Act, 1961 require that where the accounts produced by an assessee are not correct and are not complete to the satisfaction of the Assessing Authority, he has to assign reasons for such assumption and thereafter, resort to an estimate of income as contemplated in the provisions of s. 144 of the Act. In other words, the statutory prescription contained in the provisions of s. 145(3) of the Act requires the Assessing Authority to reject the books of accounts maintained by an assessee by recording plausible reasons. Therefore, rejection of books of accounts is a condition precedent for invoking the power and estimation of income is the su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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