TaxTMI 
TaxTMI 
2016 (2) TMI 1207
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....ed to the assessee on 3.2.2012. The assessee filed the returns of income on 31.10.2012 declaring the total income as under: Assessment Year Returned income (in Rs. ) 2005-06 33,62,270 2006-07 1,38,85,390 2007-08 24,09,57,343 2008-09 23,13,06,353 2009-10 1,63,46,820 2010-11 2,56,68,920 2011-12 4,06,63,322 The Assessing Officer completed the assessment determining the total income as below: Assessment Year Returned income (in Rs. ) 2005-06 1,95,51,081 2006-07 3,66,53,163 2007-08 35,56,66,484 2008-09 1,03,19,72,034 2009-10 19,41,11,104 2010-11 13,84,51,761 2011-12 71,69,58,702 2.1 The AO invoked the provisions of sec.40A(3) of the Act and disallowed 20% of the cash payments on the reason that they in excess of Rs. 20,000/- other than by cross cheque and demand draft. He also disallowed 20% of certain expenses due to non-production of tally accounts. He also disallowed depreciation on non-production of evidence on purchase of new asset and vehicle maintenance expenses, travelling expenses and telephone expenses on account of personal use. On appeal, the CIT(Appeals) has given partial r....
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....n contained in section 153A till the 1st proviso. The divergence starts from the second proviso which states that pending assessment or reassessment on the date of initiation of search shall abate. This means that an assessment or reassessment pending on the date of initiation of search shall cease to exist and no further action shall be taken thereon. The assessment shall now be made under section 153A. The case of the assessee is that necessary corollary to this provision is that completed assessment shall not abate. These assessments become final except insofar and to the extent as undisclosed income is found in the course of search. On the other hand, it has been argued by the revenue that abatement of pending assessment is only for the purpose of avoiding two assessments for the same year, one being regular assessment and the other being assessment under section 153A. In other words these two assessments merge into one assessment. The second proviso does not contain any word or words to the effect that no reassessment shall be made in respect of a completed assessment. The language is clear in this behalf and therefore literal interpreted should be followed. Such interpretatio....
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....r notice has been issued to produce books of account or other documents but such books of account or documents have not been produced, (b) summons or notice has been or might be issued, he will not produce the books of account or other documents mentioned therein, or (c) he is in possession of any money or bullion etc. which represents wholly or partly the income or property which has not been and which would not be disclosed for the purpose of assessment, assessed as undisclosed income or property. The provision in section 132(1) does not use the word incriminating document: Clauses (a) and (b) of section 132(1) employ the words books of account or other documents. For harmonious interpretation of this provision with provision contained in section 153A, all the three conditions on satisfaction of which a warrant of search can be issued will have to be taken into account. 6.4 Having held so, an assessment or reassessment under section 153A arises only when a search has been initiated and conducted. Therefore, such an assessment has a vital link with the initiation and conduct of the search. A search can be authorized on satisfaction of one of the three conditions enumerated earl....
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....as been found as a consequence of search. In other words, harmonious interpretation will produce the following results: (a) Insofar as pending assessments are concerned, the jurisdiction to make original assessment and assessment under section 153A merge into one and only one assessment for each assessment year shall be made separately on the basis of the findings of the search and any other material existing or brought on the record of the Assessing Officer, (b) in respect of non-abated assessments, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search. 6.7 The interpretation is to be made considering the principles of literal interpretation and reading the relevant provisions together. This interpretation does not in any manner give results which can be said to be ultra vires. It also does not give any absurd or unjust results. 6.8 Thus in assessment that are abated, the Assessing Officer retains the original jurisdiction as well as jurisdiction conferred on him under section 153A for....
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....will entail registration and stamp duty charges. The assessee has obtained power of attorney from the owners by paying them consideration in cash. Since consideration is not recorded in the power of attorney, the assessee company prepares a stamped receipt and gets the signature of the seller. The power of attorney is taken in the names of directors or loyal employees. Once a big chunk of land, say 100 acres, has been purchased, then they execute sale deeds in favour of the big companies. The company gets its agreed price from the big companies by way of cheque or DD. There is a written agreement recording the correct agreed rate, e.g. 25 lakhs per acre, etc. and that cannot be suppression of receipts. According to the A.O., the assessee tried to inflate the purchase cost of land. Therefore, to verify the purchase cost from various farmers, the A.O. during the course of post-period summons were issued and statements were recorded u/s.131 of the Act. According to the AO, enquiries revealed that the assessee has inflated purchase cost of land. As the AO verified 283 stamp receipts by way of enquiry u/s.133(6) out of which 112 were returned unserved, in 15 cases signatures were disown....
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....he difference between "consideration" and "cost" becomes the income/loss of the assessee arising out of the purchase of land, developing the same and selling the value added land. According to the CIT(Appeals), the assessee is just like any other real estate developer and there is no relationship as a principal agent between the assessee and the project developer. Even, he has observed that the assessee procured lands for project developer, three intermediaries, who in turn select the land, identify the land, negotiate price with landowners and purchase the lands. The assessee took a plea that all the payments were made by these intermediaries, which are duly accounted in the assessee's books of account and they are agents of the assessee and the payments made to these agents, who in turn made the payments to the land owners are covered under Rule 6DD(k). This plea of the assessee is rejected by the revenue authorities on the reason that the income-tax returns filed by these agents, who worked as intermediaries show that these intermediaries have acted like a trader and not as an agent of the assessee. The CIT(Appeals) also observed that during the course of search actions on t....
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....s been procuring and aggregating land properties to M/s. Mahindra World City Corporation, M/s. Unitech etc.. For this purpose, the assessee has brought properties from various small owners on behalf of M/s. Mahindra World City Corporation, M/s. Unitech etc. Though the assessee got the power of attorney, most of the properties are registered in the name of M/s. Mahindra World City Corporation, M/s. Unitech etc., on whose behalf the assessee makes negotiations for purchase of properties. Whenever the assessee makes payments, the assessee collected stamp receipts signed by the seller of the land i.e. villagers. The landowners executed the sale deed in favour of the companies and they got paid the agreed consideration. The contention of the Department is that these payments are made by the assessee to the landowners exceeding Rs. 20,000/- otherwise than cheques and demand drafts, which is violation of sec.40A(3) of the Act and disallowance is warranted. 10.1 The first plea of the assessee is that the land was purchased on behalf of principals through agents. For that purpose, the assessee entered into an MOU with the principal and the activities of the assessee are prescribed therei....
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....ces, the assessee made cash payments. At this point, it is pertinent to mention here that the Supreme Court in the case of Attar Singh Gurmukh Singh v. ITO [1991] ITR 667/59 Taxman 11 held that : "sec.40A(3) must not be read in isolation or to the exclusion of Rule 6DD. The section must be read along with the rule. If read together, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Section 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from undisclosed sources. The terms of sec.40A(3) are not absolute. Considerations of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing Officer the circumstances u....
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....n the case of Dy. CIT v. Abhinandan Housing (P.) Ltd. [2014] 42 CCH 75 and in the case of Sahitya Housing (P.) Ltd. v. Dy. CIT [IT Appeal No.246 (Hyd.) of 2011, dated 24.1.2014]. Accordingly, this ground of appeal of the assessee is partly allowed with direction to A.O. to decide afresh. 11. The next ground in all these appeals, is with regard to confirming the addition towards inflated purchase cost of land. 12. As discussed earlier, intermediaries/landowners have received lesser amount than the amount shown in the purchase account. Therefore, the CIT(Appeals) estimated the inflated purchase cost of land at Rs. 21,77,33,047/-. Against this, the assessee is in appeal before us. 13. According to the assessee, the procurement of land is done through intermediaries and all the intermediaries have confirmed that the money had been paid over to the seller, who have acknowledged the receipt of money through stamp receipt. The transaction is also evidenced by a sale agreement and power of attorney. It is also established that the assessee fixes the target price for land to be procured and enough scope and space is given to the agents to negotiate the price with the seller. The ag....
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....250/-. However, according to the assessee, the assessment was enhanced on the higher side at Rs. 21,77,33,047/-. Regarding the addition of income towards purchase cost of land as seen from the table "A", there is actual inflation of Rs. 5,07,95,250/-. Since there is no limitation u/s.153A / 153C, the enquiry by the AO to those materials found in the course of search and seizure operation, the Revenue authorities can take into consideration material other than what was available during the search and seizure operation for making an assessment of the undisclosed income of the assessee. For the purpose of estimation of income, we place reliance on the judgment of the Supreme Court in the case of CIT v. H.M. Esufali, H.M. Abdulali [1973] 90 ITR 271, wherein it was observed as under: "In estimating any escaped turnover, it is inevitable that there is some guess work. The assessing authority while making the 'best judgment' assessment no doubt should arrive at its conclusion without any bias and on rational basis. That authority should not be vindictive or capricious. If the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis....
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.... that the amounts considered as receipts in the hands of recipients, cannot be doubted in the hands of the assessee so as to enhance the cost of land as bogus. Accordingly, with this observation, we direct the Assessing Officer only to consider the payments for enhancement which are not confirmed/disclosed by the recipients in their return of income. The enhancement of income for the assessment years 2005-06 and 2006-07 does not survive in view of quashing of assessment for these two assessment years. Thus, the assessee gets relief out of Rs. 5,07,95,250/- as above and the balance amount only to be considered as directed above. This ground is partly allowed for statistical purposes. 16. The next ground in all these appeals is with regard to invoking the provisions of sec. 40(a)(ia) / 40A(2)(b) / 37 of the Act. 16.1 The facts of the case are that the Assessing Officer made disallowances u/s. 40(a)(ia) / 40A(2)(b) / 37 of the Act in respect of technical/consultancy paid to assessee's group concerns M/s. Shantha Buildtech Pvt. Ltd, M/s. Omshakthi Landscape Pvt. Ltd. stating that the following payments have been made without compensating service being received. The Assessing ....
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....round is allowed. 18. On the payment made to Santha Build tech India Pvt. Ltd., the A.O. also invoked the provisions of sec.40A(2)(b) of the Act. The CIT(Appeals) deleted this addition by observing that the A.O. has not made out a case that the payments made to group concerns are excessive. Hence, he observed that application of sec.40A(2)(b) of the Act is not correct. We do not find any infirmity in the order of the CIT(Appeals) on the deletion of the addition made u/s.40A(2)(b of the Act. This ground of appeal by the assessee is allowed. 19. The next ground in ITA Nos.1571 to 1575/Mds/15 for the assessment years 2006-07 to 2010-11 is with regard to confirming the disallowance of expenses incurred relating to registration of the property. 19.1 The facts of the issue are that the Assessing Officer restricted the allowability of various expenses incurred relating to Registration of the property. The AO made the disallowances as under : A.Y. Disallowance under 'registration expenses' 2006-07 Rs. 43,57,872/- 2007-08 Rs. 84,48,657/- 2008-09 Rs. 1,47,09,981/- 2009-10 Rs. 1,34,02,237/- 2010-11 Rs. 21,20,568/- 19.2 The AO while makin....
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.... are debited to the cost or purchase during the year. You have only taken our random figures without pinpointing any single transaction irrelevant to the year. Your estimation of 7.3% as high is irrelevant as the registration charges is 9%. Therefore, we object to your proposal to disallow any expenditure under this head. The reply was examined. The registration charges are 9% only in case of purchase of property' through sale deeds for which 8% is the stamp duty and 1% is the registration fee. For purchasing property through power of attorney, which is the practice of the assessee, the stamp duly and registration fee are nominal (around Rs. 500 each) during the relevant Financial Year. The power of attorney registration fee was hiked to Rs. 10,000 only in the F. Y 2012-13. Hence the registration expenses are restricted to 1 % (744010) of the purchase cost (74401000) and tile balance of Rs. 4357872 is disallowed." Aggrieved, the assessee went in appeal before the Commissioner of Income-tax(Appeals). 19.3 On appeal, the CIT(Appeals) confirmed the expenditure under registration to 1% of the purchase cost of land on ad hoc basis. According to the ld. AR, the entire ....
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....O. and requested not to disallow the expenses. After considering the reply, as per the list given to the AO during the hearing, capital expenses to the tune of Rs. 2,55,523/- has been debited to profit and loss account. Out of the above, the A.O. disallowed Rs. 2,30,000/- after allowing depreciation to the tune of Rs. 25,523/- for the assessment year 2006-07. Against this, the assessee carried the matter before the CIT(Appeals), who confirmed the finding of the A.O. on the reason that the assessee has not furnished any cogent explanation in this regard during the appellate proceedings also. 22.1 We have heard both the parties and perused the material on record. This expenditure was disallowed on the reason that they are capital in nature and the assessee has not produced any details for the same. In our opinion, neither the AO nor the CIT(Appeals) have gone through the nature of expenditure specifically, Therefore, it is appropriate to remit the issue to the file of the AO for fresh consideration and the assessee is directed to place necessary bills and vouchers/receipts to show that this expenditure is not in the nature of capital and this expenditure was incurred wholly and ex....
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....appellant and the landowners. 26. The facts of the case are that on verification of the revised income filed for the assessment years 2007-08 and 2008-09, it was found that the assessee has revised its income of the said asst. years to the tune of Rs. 31,06,68,250/- only as against the admitted income of Rs. 33,02,92,134/- before the investigation wing of the department. Thus, there is a shortfall of Rs. 1,96,23,884/-. In this regard, the AR was asked to explain why the assessed income for the said assessment years should not be enhanced to the extent of Rs. 1,96,23,884/-. 26.1 Before the Commissioner of Income-tax(Appeals), the assessee replied as under : "The proposal contained in your notice for enhancement of assessed income is not tenable. The learned AO, after considering all the details mentioned in the assessment order had concluded that the expenditure claimed by the assessee has been incurred and had therefore invoked the provisions of section 40A(3) of the Act. Hence, it is not appropriate for the appellate authority to propose disallowance, by relying on the details furnished by the AO in the assessment order, without giving any reasons, when the AO himse....
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....ing an opportunity of hearing to the assessee. 27. The next ground is with regard to levy of interest u/s.234A & 234B of the Act. 27.1 The interest u/s 234A is chargeable from the date of expiry of the notice period given u/s 153A to the date of completing the assessment u/s 143(3) r.w.s 153A as held by the Tribunal in the case of Asstt. CIT v. V.N. Devadoss [2013] 32 taxmann.com 133/57 SOT 67 (URO) (Chennai). The interest u/s 234B is to be levied only on the additional tax levied on the enhanced income determined u/s 143(3) r.w.s 153A. Therefore, the period of charging of interest should be from the date of determination of income u/s 143(3) or 143(3) to the determination of enhanced income u/s 143(3) r.w.s 153A of the Act. 28. In the Revenue's appeals in ITA Nos.1998 to 2004/Mds/15 , the first ground in all these appeals is with regard to reducing the addition towards inflation in purchase cost of the land from 32.58% to 25%. Since, we have adjudicated this ground in assessee's case in earlier paragraph 15, it does not require any adjudication. It is dismissed. 29. The CIT(Appeals) erred in not examining whether the assessee was forced to make cash payments or....