AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2020 (6) TMI 532
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....m marginal rate will grant immunity to the assessee even when both are two different entities and there is no question of double taxation involved. (b) The Ld. CIT(A) decided the issue without appreciating that the Hon'ble Income Tax Settlement Commission rejected the plea of the Department citing that it cannot revisit the additions made in the assessment order passed by the Assessing Officer before the Search action in view of the decision of the Hon'ble IT AT in All Cargo Logistics. (c) The Ld. CIT(A) decided the issue without appreciating that the observation of the Hon'ble Income Tax Settlement Commission does not have a bearing on the assessment concluded prior to the search action. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing 50% of the direct expenditure disallowed amounting to Rs. 4.5 crores out of Rs. 9 crores. (a.) The Ld. CIT(A) decided the issue without appreciation that the direct expenditure of Rs. 5.91 Crores claimed by the assessee on account of purchases made from M/s JB Enterprises is bogus as the party is one of the hawala entry provider in the list prepared by the Sales tax Department and the ass....
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....count under the head contract charges. The assessee had also incurred various other expenditures, including direct expenses materials purchase amounting to Rs. 9,00,00,000/-, brokerage payment of Rs. 100,93, 118/-, amount paid for arbitration award amounting to Rs. 5,00,00,000/-, compensation to retiring partners of Rs. 71,00,000/- and salary and wages expenditure of Rs. 30,00,000/-. 5. The case has been selected for scrutiny and during the course of assessment proceedings; the AO has called upon the assessee to furnish necessary evidences for all expenditure and to justify nexus between expenditure incurred under various heads of expenses to the business activity. During the course of assessment proceedings, the assessee has filed details of expenditure incurred under various heads of expenditure along with necessary evidences and also justified necessity of incurring those expenditures in connection with its business activity. The AO was not convincing with the evidences filed by the assessee with regard to various expenditures incurred under various heads of expenditure. According to the AO, the assessee was failed to offer any explanation and evidence that the same has been in....
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....its office. Outside of the said land in the adjoining plots there are residential buildings, office buildings, godowns etc which are habituated. The office building and godowns of M/s MSHC were being used even in the year 2005 i.e. year of purchases. Therefore the claim made by the assessee that the condition of the land at the time of purchase was abysmal and very bad and this necessitated a huge expenditure on its development is totally contrary to the real picture. The said piece of land is demarcated from the adjoining area on one the assessee fs own estimate the cost of construction of the wall is Rs. 60,88,3Q6/- The other three sides have been fenced by tin-sheets which is claimed to have been places by the purchaser that is M/s NPPL. b). On the date of sale of the land i.e. 05.09.2008, the Stamp Duty Authorities had assessed the value of the said plot as Rs. 18 Crores. This valuation by he said authorities appears reasonable given the fact that the plot was purchased for Rs. 8.05 Crores on 5th July 2005. Also the authorities would inspect and value the property and such valuation would definitely include the cost of land plus cost of improvement, before arriving at t....
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....- a) Unsecured loan from Nunlet Projects Pvt. Ltd. Rs. 2,00,00,000/- b) Advances received for Nagpur Land Rs. 16,08,69,806/- Total Rs. 18,08,69,806/- Receipts from NPPL shown in the Bank a/c (Canara Bank) in FY 2008-09 (as per the books of the assesses and as per Bank Statement) a) On 08.07.2008 Rs. 11,01,18,384/--$ b) On 06.09.2008 Rs. 9,93,192/--$ c) --do--- Rs. 70,00,00,000/-* d) ---do--- Rs. 2,67,50,000/-* TOTAL Rs. 83,78,61,576/- III). Receipts shown as per sa/e deed dated 05.09.2008 a) Advance Rs. 2,00,00,000/-* b) Advance on 26.07.2008 Rs. 18,82,50,000/-$ c) On execution date i.e. 05.09.2008 Rs, 72,67,50,000/~* TOTAL Rs. 85,50,00,0007- Reading the above three receipts (I,II and III) it is evident that the assessee has received excess consideration over and above the receipts as per sale deed s quantified below:-Untallied amounts : (indicated with $) i) Advances received for Nagpur Land Rs. 16,08,69,806/- ii) Deposit in Bank from NPPL on 08.07.2008 Rs. 11,01,18,384/- Hi) Deposit in Bank from NPPL on 06.09.2008 Rs. 9,93,192/- iv) Advance given on 26.07.2008 as per sale deed Rs. 10,82,50,000/- Rs. 38,02,31,382/- The as....
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..... 76,26,S26/- Rs. 1,68,11,882/- Rs. 4,72,30,981/- (IV). Bank accounts: As per balance sheet as per at 31.03.2008 Balance-Canara Bank, Rs. 2f 657/- Balance ICICI Bank Rs. 17,592/- Balance DRD Janta Bank Rs. 32,849/- Opening Balance as per bank statements Balance Canara Bank Rs. 2,657/- Balance ICICI Bank Rs. 88,98,900/- Ba/ance DRD janta Bank Closed on 28.03.2009 (Statement not given) Closing balance as per bank statements Balance Canara Bank Rs. 3,49,72,714/- Balance ICIC Bank Rs, 8,38,110/- Balance DRD Janta Bank closed on 28.03.2009 (statement not given) Reconciliation with cash book submitted. However, closing Balance appearing in the balance sheet as at 31.03.2009 Balance Canara Bank Rs. 6,47,56,314/- Balance ICICI Bank Rs, 8,38,110/- (Appearing as balance with DRD Janta Bank) Balance DRD Janta Bank {Closed on 28.03.2009} There are other discrepancies in the accounts. The assessee was asked to reconcile the figures and asked why there are discrepancies. The explanation was that due to fire at the officer, most accounts were destroyed and they were re-constructed. A copy of the FIR is placed on record. 14.3. Third ground for rejecting th....
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....cerns ' fall within the purview of section 40A(2). 1 The assessee was asked to explain why the same should not be considered as disallowance u/s 40A(2). The assessee vide letter dated 26.12,2011 gave very general explanations which are summarized above at para 12.2 above and has argued that the payments made to sister concerns are justified and that the provisions of section 40A(2) are not to be applied. Various case laws have also been cited in support thereof. The assessee's argument cannot be accepted since the basic question that still remains to be answered is whether "an expenditure of Rs. 61 crores can really be incurred for doing the above mentioned work on a plot of land admeasuring 9.41 acres and as pointed out in some of the case laws cited by the assessee itself, the question to be asked I "is it prudent to incur such huge expenditure only on development of he said land?" in fact this is exactly the central issue in this entire assessment. Hence the assessee's objection for disallowance u/s 37 and section 40A(2) is not acceptable. For all the above mentioned reasons based on the facts, accounts and law, the assessee's claim for the expenditure of Rs.....
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....llowed. Incidentally it needs to be mentioned here that at para 20 at page no. 9 Arbitrator has accepted M/s. HCL claim that they had invested some money for development purpose and also their time for different work of land development" In the same order the assessee has put forth the claim vide their letter dated 07.11.2006 and subsequent letters that they had complied with their part of the terms of conversion of land use, 80% of removal of encroachment etc. this is also evidence that some expenses on the land has already been incurred in financial year 2006-07. 15.2 The other major expense of Rs. 1,00,93,118/- is debited as brokerage charges paid to various parties. Details were called for. It is seen that in the party wise list the payment total to Rs. 1,10,92,061/- and as per the debits in the P & L A/c the amount shown is Rs. 1,00,93,118/-. This indicates the discrepancy in the amount of claim. Since it has already been explained above that the only major sale transaction was of the Nagpur Land therefore it is not clear as to the brokerage being paid to more than one party. Moreover the claim of the assessee is not verifiable hence claim of brokerage expenses is disall....
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....IP in the P/L a/c of this year and earlier year. The intention to treat this land as part of the business asset is also evident from the agreement for development entered into by the assessee through the above referred MOU dated 14th Sept. 2006. Hence the claim is rejected. 6. Being aggrieved by the order of the Assessing Officer, the assessee has preferred an appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee has filed detailed written submission along with application for admission of additional evidences under Rule 46A of the Income Tax Rules 1962 vide letter dated 14-06-2012. During the course of appellate proceedings, the ld. CIT(A) has forwarded additional evidences filed by the assessee to the AO for his comments and report. The AO vide his remand report dated 29- 03-2012 has commented upon additional evidences and their admissibility. The remand report was made available to the assessee firm, for which it has filed rejoinder dated 23-05-2012 and rebutted allegations of the AO in tabular format. The assessee had also filed additional written submissions from time to time and filed all possible evidences including, bills and vouchers in respect of all expense....
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.... the AO towards contract charges. As regards other additions being arbitration charges paid to Hindustan continental Limited (HCL), the ld. CIT(A) held that the assessee has filed overwhelming evidences whose veracity is not under challenge in cross verification proceedings and accordingly, there is no reason to sustain additions on this regard. Hence, he has deleted additions made towards arbitration award expenses. Likewise, the ld. CIT(A) has deleted additions towards brokerage charges paid to brokers Mr Indrajeet Singh, Balvinder Kaur and Rare earth property on the ground that various evidences has been filed to prove payment of brokerage charges. However, he had confirmed additions towards compensation to ex-partners amounting to Rs. 71,00,000/- and Salary and wages amounting to Rs. 30,00,000/- on the ground that no evidences and reasons has been furnished to prove and justify payment of compensation to partners and salary and wages to employees. The relevant findings of ld. CIT(A) are as under: (i) Coming to the disallowance of direct expenses material of Rs. 9,00,00,000/- under provisions of section 37(1) of the Act, I am in agreement with the AO that the onus to prove tha....
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....34,561/-. Therefore, though the underlying reason for making disallowance is on account of contract assigned to Metcon India, the additions have been made far in excess of the payments made to Metcon India. (iv) In this case, the appellant has carried out the due diligence regarding the assignment of contract work to M/s.Metcon India. The events and sequence regarding work contract are discussed in chronological order:- a) The appellant has signed MOD with Nunlet Projects Pvt. Ltd.(the buyer) to handover the land after developing. The development, include removal of marshy soil, illegal encroachments, rock cutting, leveling etc and after completion of development, the land was transferred to the buyer, vide sale agreement dtd. 05.09.2008. b) The appellant has assigned the contract work to Metcon India, being the lowest bidder as compared to Sportina Exim Pvt. Ltd. & Singa Transport Carriers c) The appellant has also deducted TDS on the contract work assigned to Metcon India and the contract receipts are reflected in the accounts of Metcon India, d) In response to AO's query, the JT. MD of MSHCL (Vendor of the Land) has confirmed of the existence of nalas, ponds and other il....
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....wall, filled the excavated area with murrum. Hallmark Developers has also demolished that already constructed high root sheds on to the said land and removed the debris. The land was properly developed and leveled before the execution of the sale deed. (ii) Whether any leveling, plotting or fencing work had been done before the date of purchase: We inform that high roof sheds were constructed along with the work executed as mentioned hereinabove in clause c(i). As per our finalized terms and conditions of leveled land, the existing structures were demolished. Apart from this, land development work and the fencing was completed with fast pace by Hallmark Developers at their own cost. We further inform that at the time of purchase, the land was properly segregated from surrounding properties/buildings by boundary wall and barbed by wire fencing with concrete poles in leveled condition, free from all encroachments. d) Status of land after purchase: After the purchase of land, we are in process of developing the land. The concept and design etc. has been finalized and submitted in the concerned authorities. But now the delay has happened mainly due to, some modifications in the p....
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....commodation bills by M/s Meteor? India. Therefore, the contention of the CIT, made in the Rule 9 report, for making addition of similar amount in the case of the applicant firm, M/s Hallmark Developers cannot be accepted." The order passed by the Hon'ble ITSC is final and conclusive. Furthermore, \ the aforesaid order has not been challenged before the High Court/Supreme Court. Therefore, the findings of the Hon'ble ITSC, being that of a superior body has to be accepted. Since M/s. Metcon India has already offered the expenses related to the Nagpur Land as its income and the nexus of the same having been accepted by the Hon'ble ITSC and the CIT in his Rule 9 report, the making of disallowance in the hands of the appellant firm would not be justified. M/s.Metcon India has paid the tax at the Maximum margin rate and it is not that, the contract receipt has been adjusted to reduce the taxable profit. In view of the above, the additions of Rs. 34,08,96,165/- made by the AO is deleted and the appeal of the appellant on this ground is partly allowed. (i) I have gone through the contentions of the AO and the submissions of the appellant. I find that the payments in quest....
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....ent case that the brokerage has been paid through account payee cheque. Hence this ground of appeal is decided in favour of the appellant. The AO has not refuted the submissions / contentions submitted by the appellant in this regard even in her Remand Report. Considering the details and the nature of business, and its practices and the fact that the payment to the brokers are not relatives of the partners of the assessee firm and the rate of brokerage being consistent with the trade practice disallowance made by the AO is not justified and is deleted. (i) I have carefully considered the contents of the assessment order and the Remand Reports as well as the contentions of the appellant filed during the assessment / appellate proceedings including the rejoinder to the Remand Report and other facts and details on record. It is an admitted fact that the expenses in question were not incurred exclusively and wholly for the purpose of business. Settling personal disputes with the funds of the appellant firm is not an expenditure incurred for the purpose of business as argued by the appellant. Merely, because a claim has been allowed in the earlier year does ispo facto lead to the co....
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....onsequent siphoning of money to make investments in loans and advances in regular books of account and this was not reported to Income Tax Department. From the above, it is very clear that payment made to M/s Metcon India is a bogus expenditure which was routed through own associated company in order to reduce profit from sale of land at Nagpur. The AO had also obtained external information and conducted field enquiry which clearly proves the fact of not carrying out any development work at Nagpur Land. In fact the position of land was unchanged when compared to date of purchase and date of inspection and this fact was further strengthened by the letter of Jt. MD, MSHCL. The ld. CIT(A) has ignored all these facts while allowing relief to the assessee. 9. In so far as disallowances of direct expenses materials, the ld. CIT(A) has decided the issue without appreciating the fact that direct expenses of Rs. 5.91 crores claimed by the assessee on account of purchases made from M/s JB Enterprises is bogus as the party is one of the hawala entry provider as per the list prepared by the Sales Tax Department and the assessee failed to prove the genuineness of the party. Similarly, direct e....
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....lling, rock cutting, fencing etc.,. The photographs taken at site for having done development work at land have been filed before the AO. The AO has disregarded all evidences and made additions only on the basis of his own assessment of land position and photographs taken at site on 24-12- 2011, without confronting those evidences to the assessee for its rebuttal. The ld. AR further submitted that the AO has arrived at a conclusion on the basis of his own assessment of possible expenditure required for development of land per acre, without appreciating the fact that the nature of land matters when it comes to amount of expenditure required to be spent for development. The AR further submitted that the ld. CIT(A) has also taken support from the findings of Hon'ble Settlement Commission in the order passed u/s 245D(4) in the case of the assessee firm, where it has been clearly held that accommodation bills taken by M/s Metcon India is in connection with works undertaken for contract with assessee firm for development work at Nagpur land. Therefore, once addition on total expenditure was having been made in the name M/s Metcon India, the Revenue recommending making additions of simil....
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.... incurred wholly and exclusively for the purpose of business within the meaning of section 37(1) of the Act. (ii) The said expenditure is excessive and unreasonable having regard to nature and extent of land development within the meaning of section 40A (2) of the Act. (iii)The AO had questioned prudence of incurring such expenditure for development of land. No doubt, the provisions of section 37(1) of the Act, places burden on the assessee who claims to have incurred expenditure to prove that said expenditure has been wholly and exclusively incurred for the purpose of his business. The assessee shall furnish necessary evidences to prove that said expenditure is in fact incurred for the purpose of his business. In order to discharge its onus, it has to file necessary evidences. In this case, on perusal of details available record, we find that the assessee has furnished complete details with regard to direct expenses materials, including bills from the suppliers. The AO has disallowed a sum of Rs. 9,00,00,000/- only the ground that major purchases is from sister concern and one of the supplier is in the list of hawala dealers as prepared by Sales Tax Department. The fact that major....
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.... development of land and payment details. The assessee had carried out due diligence regarding assignment of development work to M/s Metcon India, an AA category contractor registered with PWD, Govt. of Maharashtra. The assessee has assigned contract to M/s Metcon India, the lowest bidder among three bidders, viz, Sportina Exim Pvt Ltd and Singa Transport carrier. The payment to contractor has been made after deducting applicable TDS as per law. The evidences of work having been physically under taken were furnished including photographs taken at site. In fact, the seller of the land M/s MSHCL vide their letter dated 27-03-2012 has confirmed that there exists a nalas, illegal encroachment, hard rocks in the land. The purchaser of land M/s Nunlet projects Private Limited, in reply to AO letter dated 25-11-1011 has also confirmed having done all works before land was sold to them as agreed in MOU, including conversion of land from industrial to non-industrial purpose, clearing illegal encroachments and hutments, excavation of land, levelling, rock cutting, fencing etc.,. The photographs taken at site for having done development work at land have been filed before the AO which clearly....
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....ds contract charges purely on suspicious and surmise manner without bringing on record any evidence to prove that the assessee has received back equal amount in cash. There is no iota of evidences with the AO to prove his allegation that no work has been carried out at land. The evidences relied upon by the AO, including purported photographs and Google images were not shared with the assessee for its comments. Unless the evidences are confronted to the other side, the veracity of the same cannot be relied upon. It is trite and settled position of law that one cannot make additions unless and until the materials on which reliance is sought to be placed is confronted to the concerned person as held by the Hon'ble Supreme Court in the case of C. Vasantlal & Co . v CIT (1962) 45 ITR 206(SC). The fact that M/s Metcon India has been give work after due diligence and tender process cannot be ignored. The confirmations of vendor of land M/s MSHCL and the purchaser of land M/s NPPL is also cannot be ignored. From the above, it is undoubtedly proved that the assessee had undertaken land development work. We, therefore, are of the considered view that the AO was completely erred in disallow....