TaxTMI 
TaxTMI 
2020 (6) TMI 532
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....holding that the tax paid by M/s Metcon India at the maximum 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....
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....ne and for this purpose a sum of Rs. 36,08,96,156/ has been paid to M/s Metcon India, and debited to profit and loss account 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 ....
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....d". The terrain and topography of the ground in similar to that of the adjoining and surrounding plots. In fact, the adjacent land is still owned and used by M/s MSHC as 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 R....
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.... the Nagpur property dated 05.09.2008, the balance sheet as at 31.03.2008 and the bank statements of Canara Bank A/c No. 0119201003280 the following discrepancies are noticed. I) Receipts shown in balance sheet as on 31.03.2008 (liability side):- 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:-Un....
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....tal account of partners) Capital Accounts: Shri Ashok Mehta Smt. Rakshita Mehta M/s TDPL Opening Bal. as on 01. 04. 2008 as per ledger Rs. 3,99,88,051/- Rs. 44,27, 469/- Rs. 1,160/- Opening Balance as on 31.03.2008 Rs. 3,99,88,051/- Rs. 44,27,469/- Rs. 11,160/~ Closing Balance as per ledger as on 31.03.2009 Rs. 77,87,279/~ Rs. 1, 99, 72, 63 5/- Rs. 4,73,95,676/- Closing Balance as per Balance sheet as on 31.03.2009 Rs. 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....
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....ssessee it is seen that a major part of the claim of development work has been allotted to its sister concern for e.g. (i) Out of contract charges of Rs. 36.08 crores debited in this year, an amount of Rs. 31.42 crores and Rs. 17,39,415/- is claimed to have been paid to the sister concerns of the assessee viz. M/s Metcon India and M/s Hallmark Realtors Pvt. Ltd. (ii) Out of total purchases of Rs. 9,33,21,420/- an amount of Rs. 2.93 crores is claimed to have been made to M/s Taraash Developers Pvt. Ltd. (TDPL), a partner of the assessee firm. Presuming though not admitting, that the above expenses are expended for the business, the claims of payments to sister concerns ' 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 can....
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....AR brought the claims of both the parties. In Shri S.K. Kulhari, who stated that he was not aware of this Nagpur Land HCL the profit and loss a/c, balance sheet and bank statement for the relevant period. The same are on record. It was also stated by Shri S.K. Kulhari that Nagpur land transaction was known only to Late Shri MukeshTulsian who expired in Oct. 2010. In view of incomplete information the said payment is unverifiable. Hence the same is rejected. Second reason for disallowing the claim of Rs. 5 crores is that, the compensation paid to M/s. HCL cannot be considered as a genuine business expenses since the damages have been paid for non-performance of profit and loss account of the current year is disallowed. 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....
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....owable u/s 37, hence the claim of the compensation paid to retired partners is disallowed. 15.4 In this year the assessee has claimed salary & wages to the tune of Rs. 35,74,800/- as compared to last year's claim of Rs. 4,38,216/-. Moreover the year as discussed in length above, the firm had effectively no business activities after 05,09.2008. Therefore, the claim is considered to be excessive and unverifiable. Hence out of the above an amount of Rs. 30,00,000 is disallowed. 16. Vide letter dated 27.12.2011 the assessee has made a fresh claim to consider the gain on sale of land at Nagpur as capital gain instead of business income. This is an afterthought and cannot be considered at this stage of assessment. Moreover, the said land has been taken to be part of WIP 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....
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.... taken at site where the evidences of work being done at site was clearly established. The ld. CIT(A) has also taken support from the letter of Jt. MD, MSHCL, where he had admitted the fact of land was in illegal encroachment, existence of nalas, ponds and rocks at the time of sale. The other important fact considered by the ld. CIT(A) is order of settlement commission, where M/s Metcon India has admitted additional income of Rs. 24.40 crores for AY 2008-09 out of contract charges received from the assessee and this fact has been confirmed by the CIT in his Rule 9 report. Therefore, he opined that the AO was incorrect in coming to the conclusion that the assessee has failed to prove necessity of incurring huge expenses in connection with sale of land and accordingly, deleted addition made by 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 arbit....
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....hat purchase of Rs. 2.93 crores has been made from M/s Taraash Developers Pvt. Ltd., partner of the appellant firm. No specific reason has been furnished for making such purchases. Such purchases from group concerns definitely arouse suspicion and doubts. In view of the totality of the facts and circumstances and in fairness of the above, I hereby confirm 50% of the disallowance of purchases made amounting to Rs. 4,50,00,000/-, out of Rs. Rs. 9,00,00,000/-and the same is added to the total income of the appellant. The appellant gets relief for the balance addition amounting to Rs. 4,50,00,000/-. (iii) Coming to the disallowance of contractor charges of Rs. 34,08,96,165/-it is submitted that the total contract charges paid are as Rs. 36,08,96,165/-. The contract charges paid to Metcon India is Rs. 31,42,34,561/-. 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 regardi....
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....rcial. And we further inform that this change in land use to commercial was done by Nagpur Mahanagar Pallika, Nagpur vide its letter no.s, MPN/NRV/566, 600 and 627 dated 05 July 2008, 17 July 2008 and 24 July 2008, c)(i)Whether any construction activity and/or excavation and rock cutting had been carried out on the said land on the date of purchase: As we, hereinabove, have informed that the said land was occupied by hutments and unauthorized occupants. This land had a big slushy pond with garbage dump area on the other side. As per our finalized negotiations and conditions, Hallmark Developers executed the work of removal of slushy/muddy earth, excavated and transported the black cotton soil, chiseled and excavated the fragmented/weathered rock, executed RCC wall work below the boundary wall supported with girders etc., barricaded and fenced, made boundary 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 wor....
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....so agree with the contention of Mr. Thakkar, that for the bogus purchases which are once admitted in the case of the applicant-firm, M/s Metcon India, a further addition in the case of M/s Hallmark Development on similar grounds cannot be made as suggested by the CIT in his Rule 9 report. It is to be noted that the accommodation bills which have been offered to tax by M/s Metcon India (Rs. 24.4 crores) relate to the asst. years 2008-09 & 2009-10 when the Nagpur Land project was executed. These accommodation bills have direct nexus and connection with the development work undertaken by the applicant firm, M/s Hallmark Developers. While suggesting addition of the similar amount in the case of the applicant firm, M/s Hallmark Developers, the CIT in his Rule 9 report, in fact, has accepted the direct nexus between the bogus expenditure incurred by M/s Hallmark Developers and the cash generated through the accommodation 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'b....
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....okerage totaling to Rs. 1,00,93,1187- was paid to three parties viz Indrajeet Singh, Balvindar Kaur, and Rare Earth Property Solutions apart from the professional charges paid to lawyers /C.A. totaling Rs. 9,98,9437-. The TDS has been deducted from the brokerage paid and payment of TDS has been accepted by ITO, TDS vide order dated 25.02.2010 u/s. 201(1)/201(1A). The disallowance of the brokerage without pinpointing the reasons in this nature of business, is against judicious approach, as was held in the case of G.L. Gems vs. ACIT 4 ITR (Trib) 525 (2010) wherein it was held that "There was no justification for making disallowance of an amount of Rs. 10,000 out of brokerage expenses without pin pointing the reasons for disallowance especially when payment of brokerage @ 2 per cent is in the routine practice of the business and there is no findings that any broker is related to the directors of the assessee company. It is also worth noting in the present 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 r....
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....l rate will grant immunity of the assessee even when both are different entities and there is no question of double taxation involved. The ld. CIT(A) failed to appreciate the fact that although Income Tax settlement commission has allowed relief to M/s Metcon India, but such relief was granted on different grounds altogether and it does not have any bearing on the assessment of assessee which is concluded before search in the case of M/s Metcon India. The ld. DR further submitted that the ld. CIT(A) has grossly erred in not appreciating facts brought out by the AO before making addition and he had simply gone on the basis of evidences filed by the assessee to allow relief in respect of addition towards contract charges. The ld. DR further referring to page No 482 of PB filed by the assessee submitted that, the Hon'ble Settlement Commission had recorded categorical finding in its order in respect of modus operandi of M/s Metcon India in obtaining bogus purchase bills and consequent 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 Metco....
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....assessee in light of various facts brought out by the AO and came to the conclusion that the ld. AO has made additions purely on suspicious and surmise manner, disregarding all evidences filed by the assessee. The assessee had also filed agreements with M/s Metcon India for awarding works contract for development of land and payment details and argued that the work order has been issued after obtaining competitive bidding. The payment to contractor has been made after deducting applicable TDS as per law. The evidences of the work having been physically under taken were furnished including photographs taken at site. In fact, the seller of the land has confirmed that there exists a nala, illegal encroachment, hard rocks in the land. The purchaser of land 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. The AO has disregarded all evidences and made additions only on the....
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....ve conclusion, the AO had taken support from various external information including physical inspection of land, obtaining information from the seller of land M/s Maharashtra State Handloom Corporation Limited, buyer of the Land M/s Nunlet Projects Private Limited, photographs taken at land site on 24-12-2011 and opinion of DVO for drawing adverse inference against the assessee. The AO had also taken support from the fact that the assessee had entered into transactions with associated/ related parties. Accordingly, he came to the conclusion that various expenditures incurred under the head direct expenses materials, contract charges, brokerage payment, arbitration award, compensation to outgoing partners and salary and wages are not incurred wholly and exclusively for the purpose of business, i.e. land development and also said expenditure is excessive and unreasonable. 12. The AO had disallowed direct expenses materials purchases on three grounds, viz, (i) Said expenditure is not 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....
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.... concern. Therefore, we are of the considered view that the AO as well as the ld. CIT(A) were erred in disallowing direct expenses materials purchase. Hence, we direct the AO to delete additions made towards direct expenses materials amounting to Rs. 9,00,00,000/-. 13. Coming back to disallowance of contract charges of Rs. 34,08,96,156/- out of total contract charges paid of Rs. 36,08,96,165/-. The AO had disallowed contract charges mainly on the ground that no work has been undertaken at Nagpur land. The AO has arrived at above conclusion mainly on the basis of photographs taken at site and images downloaded from Google MAP. According to the AO, no development work was done in land and the nature of land was same as was at the time of purchase from MSHCL (Seller of land). The assessee, on the other hand furnished complete details of expenditure incurred for the purpose of development of land. The assessee had also filed agreements with M/s Metcon India for awarding works contract for 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....
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.... assessee had incurred huge expenditure for development of land. But, the AO has ignored and intentionally suppressed this information which was in his possession and on the contrary contended that information is culled out from public domain on the basis of which the addition is made. No doubt, it is the responsibility of the person who incurred expenditure shall discharge its onus by filing necessary evidences to prove that said expenditure is wholly and exclusively incurred for the purpose of his business and such expenditure is not excessive and unreasonable. In order to prove the same, he has to file complete details of expenditure and also to explain the nexus between expenditure and his business activity. In this case, there are no doubts of whatsoever regarding expenditure incurred for development of land. The overwhelming evidence furnished by the assessee has not been challenged by the AO during re verification proceedings. On the other hand, the ld. AO has made additions towards 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 w....