2022 (7) TMI 491 - AT - Income Tax

Tribunal confirms CIT(A) decisions on cash receipts and interest expenses, revenue appeal dismissed

I.T.O., Ward 1 (1) (3), Surat Versus M/s Jay Kesar Bhavani Developers Pvt. Ltd.

The Tribunal upheld the CIT(A)'s decisions to delete the additions of Rs. 1.239 crore on account of cash receipts and Rs. 35.72 lacs on account of ... Addition of cash receipts - AO made addition by taking a view that in a survey was conducted u/s 133A on 31.12.2009 at business premises of assessee, certain documents were found and impounded, which shows that the assessee company received Rs. 1.239 crore in cash against booking of residential units apart from consideration received in cheque from 37 persons - HELD THAT:- The cash receipt was not shown in the P&L Account for A.Y. 2008-09. Before ld CIT(A), the assessee filed detailed written submissions and the supporting documents to substantiate the facts that the cash components received from the 37 booking parties were included in the books of accounts. On the additional evidences filed with the submissions, the ld. CIT(A) directed the assessing officer to file his remand report. The contents of the remand report and the rejoinder filed by the assessee are not repeated herein as the same has been recorded - we find that in the remand report, the assessing Officer instead of verifying whether cash component is recorded in the books of accounts and has been included in the income and offered for tax or not, took a different stand that the genuineness of amount was not proved by the assessee. The real issue during the assessment was that whether the cash received by assessee has been duly impounded for profit or not? - We find that the ld. CIT(A) rightly appreciated the fact that once the advance as per the impounded material is found matching with the Schedule of advances in the final account. There was no reasonable cause to doubt these cash payments as being outside the books. AO has not brought any evidence that the impounded record did not recorded in the final books. It is interesting to note that survey was conducted by survey team in December 2009 and the notice under section 148 was served on 29th March 2014. The assessing officer kept the matter under cold storage for four years. CIT(A) on appreciation of fact, found that the assessee has included the cash component in his regular books of account and deleted the addition. No contrary fact or law is brought to our notice to take other view. Thus, we affirm the order of ld. CIT(A) on deleting the addition of Rs. 1.239 crore. In the result, the ground of appeal is dismissed. Disallowance of interest expenses - AO made the addition by taking a view that assessee received interest of Rs. 45.41 lacs and paid interest of Rs. 35.72 lacs - HELD THAT:- We find that the CIT(A) has given relief to the assessee by holding that though, the borrowings from HUDCO were for the purpose of project only, however, the account shows that a substantial part of borrowing were diverted to various parties on interest and earned interest of Rs. 45.41 lacs from such advances. It was held the department has not to see whether HUDCO permitted the assessee to do or not. The fact is that about 79% of borrowings from HUDCO were diverted for earning interest income. The total interest expenses incurred during the year is Rs. 60,96,751/-, out of this amount proportionate interest expenses of Rs. 35,72,114/- attributable to earning of interest income, has been duly claimed as a set off against the interest income earned. The balance amount of interest expenses of Rs. 25,24,637/- has been added to work in progress (WIP) which is shown in audited P&L account. The interest had earned interest income on parking of spare funds, is taxable, however, the interest expenses for earning it is to be allowable. It was held that the claim of assessee in this regard is totally as per accounting practice and law. We find that the ld CIT(A) granted relief to the assessee on appreciation of facts in proper perspective. No contrary fact or law is brought to our notice to take other view. Thus, we affirm the order of ld. CIT(A) on deleting the disallowance of interest expenses. Revenue appeal dismissed. Issues Involved:1. Deletion of addition of Rs. 1,23,96,155/- made on account of cash receipts.2. Deletion of addition of Rs. 35,72,114/- made on account of disallowance of interest expenses.3. Whether the CIT(A) ought to have upheld the order of the assessing officer.4. Request to set aside the order of the CIT(A) and restore that of the assessing officer.Issue-wise Detailed Analysis:1. Deletion of Addition of Rs. 1,23,96,155/- on Account of Cash Receipts:The assessee, a company engaged in land development and civil construction, filed its return for AY 2008-09 declaring an income of Rs. 9,69,041/-. The return was initially accepted but later reopened on 29/03/2014 due to a survey conducted on 31/12/2009 under Section 133A, which revealed unaccounted cash receipts of Rs. 1.239 crore from 37 persons. The assessee contended that all cash receipts were recorded in the books of account and reflected in Schedule-12 of the audited balance sheet. The CIT(A) admitted additional evidences and directed the Assessing Officer (AO) to file a remand report. The AO, in the remand report, claimed that the assessee failed to provide confirmations from all parties and did not produce them for examination. The CIT(A) found that the advances recorded in the impounded documents matched those in the final accounts, thus deleting the addition of Rs. 1.239 crore. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not provide evidence of unrecorded advances and that the survey findings were consistent with the audited accounts.2. Deletion of Addition of Rs. 35,72,114/- on Account of Disallowance of Interest Expenses:The AO disallowed interest expenses of Rs. 35.72 lacs, arguing that the assessee failed to justify the interest payments and that such expenses should be part of the work in progress (WIP) as the assessee followed the project completion method. The assessee claimed that the interest expenses were proportionate to the interest income earned from advances given to various parties using borrowed funds from HUDCO. The CIT(A) agreed with the assessee, noting that 79% of the borrowed funds were used to earn interest income, and allowed the set-off of Rs. 35.72 lacs against the interest income of Rs. 45.41 lacs. The remaining interest expenses were added to the WIP. The Tribunal affirmed the CIT(A)'s decision, emphasizing that the interest expenses were allowable as per accounting practices and law.3. Whether the CIT(A) Ought to Have Upheld the Order of the Assessing Officer:The Tribunal, after reviewing the facts and submissions, found no contrary evidence or legal basis to overturn the CIT(A)'s decisions on both the cash receipts and interest expenses. The CIT(A) had appropriately evaluated the evidence and provided relief based on a proper appreciation of the facts.4. Request to Set Aside the Order of the CIT(A) and Restore That of the Assessing Officer:The Tribunal dismissed the revenue's appeal, supporting the CIT(A)'s order in its entirety. The Tribunal found that the CIT(A) had correctly interpreted the evidence and the law, and there was no merit in the revenue's request to restore the AO's order.Conclusion:The Tribunal upheld the CIT(A)'s decisions to delete the additions of Rs. 1.239 crore on account of cash receipts and Rs. 35.72 lacs on account of disallowance of interest expenses. The appeal by the revenue was dismissed, affirming that the CIT(A) had properly considered the evidence and applied the law correctly.