TaxTMI 
TaxTMI 
2018 (6) TMI 1731
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.... all the three appeals include that the assessee is a company and is engaged in the development of properties. There was survey action u/s.133A of the Act on the assessee on 24-01-2007. The aid action resulted in the discovery of incriminating information and the papers/ documents relating to both the assessees under consideration. The same were impounded for use in making of the assessments. It also resulted in discovery of unaccounted transaction of undisclosed receipts and they are undisputedly undisclosed expenditure outside the books of account. Based on these discrepancies as well as the disclosure of unaccounted income vide the sworn statement of the concerned persons of the assessees on 13-02-2007, an additional unaccounted income of Rs. 2.06 crores was admitted in the hands of GDPL. Further, another sum of Rs. 53 lakhs was admitted in the hands of M/s. Construction Portals Pvt. Ltd. (in short 'CPPL'), a sister concern of M/s. GDPL. Both the assessees revised their revised returns and included the total such income of Rs. 2.59 crores (Rs. 2.06 crores + 0.53 crores). 3. Relevant facts leading to the said disclosure of additional income of Rs. 2.59 crores (Rs. 2.06 cr. + 0....
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....e Act. 5. Brief facts on this issue of addition of Rs. 50,59,040/- are given in para 8 along with its sub-paragraphs of the assessment order. Brief facts include that the assessee sold a property to Mr. Dheeraj Keshwani. On his demand, certain works were undertaken by the assessee for the repairs on the flat, which resulted in additional expenditure of Rs. 56,20,400/-. The same was reimbursed by Mr. Dheeraj Keshwani. Rejecting the explanation that the said expenditure was incurred on the capital asset belonging to Mr. Dheeraj Keshwani, AO made the said addition. Otherwise, the total cost of the property-shop works out to Rs. 99.50 lakhs. Out of the same, the net amount reimbursed by Mr. Dheeraj Keshwani works out to Rs. 50,59,040/-. 6. Aggrieved with the said order of the AO, assessee filed an appeal before the CIT(A). 7. Before the First Appellate Authority, assessee pleaded for deletion of said additions of Rs. 1.61 crores as well as other addition of Rs. 50,59,040/-. CIT(A) partly allowed the appeal of the assessee. CIT(A) confirmed the addition amounting to Rs. 1.47 crores out of Rs. 1.61 crores. Other additions are deleted. Subsequently, in connection with the claim o....
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....the Appellant in this respect. 4. The Appellant prays to be allowed to add, amend, modify, rectify, delete, raise any grounds of appeal at the time of hearing. It is respectfully submitted that the grounds raised above also include the additional ground raised vide letter dated 16th April, 2018." Ground raised by the assessee against rectification order passed by the CIT(A) vide ITA No.1609/PUN/2014 : "1. On facts and circumstances prevailing in the case and as per provisions & scheme of the Act it be held, that first appellate authority rectified the appellate order dated 22-01-2013 passed by the CIT(A)-I, Pune is improper, erroneous, beyond jurisdiction, contrary to the provisions of law and facts prevailing in the case, it further be held the CIT(A) -I, Pune have no jurisdiction to review/rectify appellate order passed by his predecessor. It be held that rectification letter dated 2506-2014 be deleted. The appellant be granted just and proper relief in this respect." Grounds raised by the Revenue vide ITA No.767/PUN/2013 : "1. The order of the Ld.CIT(A) is contrary to law and to the facts and circumstances of the case. ....
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....ted part relief to the extent of Rs. 14,58,222/- and denied the assessee's explanation to the extent of Rs. 82,94,744/-. Assessee holds that this amount constitutes the one given to Managing Director safe keeping. Per Contra, Revenue holds that it is the part of the unaccounted expenditure of the company. However, as can be seen, the CIT(A) did not utter a word on this part of the claim of the assessee. However, in this regard, CIT(A) commented on the absence of cash out/in nexus, i.e. one to one transactional nexus and held that such nexus is the requirement for allowing the claim of further reduction of Rs. 82,94,744/- out of the sum of unaccounted expenditure of Rs. 4,25,58,303/-. Further, CIT(A) deleted the addition of Rs. 50,59,040/-. 12. Further, Ld. Counsel for the assessee raised fresh demand for deleting the entire addition of Rs. 1.61 crores and not merely Rs. 14,58,222/- as the entire UE is spent for business needs of the assessee. Alternatively, Ld. Counsel for the assessee submitted that the assessee made certain working in the form of tables on the principle of appropriation of unaccounted income, expenditure, and summed up by mentioning that the addition, if any a....
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....e business use. From the above facts, the case of the assessee is that the figure of Rs. 4,25,58,303/- is not sacrosanct and the same requires downward adjustments to the extent of (1) the expenditure of Rs. 82,94,744/- handled directly by Mr. R.K. Gera and (2) the duplicate entries of Rs. 14,58,222/-. Both these claims of the assessee are borne out of the impounded material discovered during the survey action on 24-01-2002. We shall now deal with these claims of the assessee for downward adjustments of the unaccounted expenditure of Rs. 4,25,58,505/-. II. Expenditure of Rs. 82,94,744/- spent by Shri R.K. Gera, Managing Director of M/s. GDPL : The impounded material reflects the payout to Mr.R.K. Gera. Total of these payments works out to Rs. 82,94,744/-. AO holds that this amount constitute unaccounted expenditure in the hands of Mr. R.K. Gera and rejected the safe keeping centric explanation of the assessee. Further, Ld. Counsel for the assessee submitted that Mr. R.K. Gera returned Rs. 57,51,770/-, part of it to the company. Ld. Counsel relied on the impounded documents in this regard. Further, Ld. Counsel submitted that it is in the scheme of business operation of the ass....
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....g Mr. R.K. Gera, M.D. It is not the UE done by the Managing Director for assessee. But this amount was returned to the company as per needs to the extent of Rs. 57,51,770/-. In this order, we need to examine if the demand of the assessee for adjustment of UR to that extent is fair and if the CIT(A) is justified in denying the said claim of the assessee. 14. Written Submissions : Ld. Counsel filed the written submissions and according to him, there are 4 issues which require special adjudication and the same emanate from the grounds raised in the assessee in all these 3 appeals by M/s. GDPL. The following are the issues : (A) the correctness of addition of Rs. 1.61 crores (restricted to Rs. 1.47 crores by the CIT(A) on account of undisclosed income u/s.69C of the Act. (B) whether the addition u/s.69C of the Act be restricted to the difference between unaccounted expenditure and unaccounted income declared by the assessee. (C) Allowing of the set off against the unaccounted receipts to the unaccounted business expenditure of Rs. 48,59,242/- and the applicability of explanation u/s.37(1) of the Act with reference to the unaccounted expenditure claiming se....
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....nditure and unaccounted income declared by the assessee. In this regard, the assessee submitted the following written submissions : "3.1 The peak credit of negative cash balance was submitted to the CIT(A), which is at Page No.90 to 95 of paper book. The peak credit of the negative cash balance is Rs. 2,15,42,563/- which is well within the amount declared by the assessee as its additional business income. 3.2 Without prejudice to this fact, a revised working of additional business income and the maximum amount that could be considered by the AO and the First Appellate authority over the amount offered by the assessee is computed as under : B Particulars Amount ( in Rs.) A Source: i. Undisclosed receipts (after setting off contra entries of MD and duplicate entries) (Refer Table 1) 1,52,02,259 ii. Total Undisclosed Expenditure (after setting off contra entries of MD and duplicate entries) (Refer Table 1) 3,28,05,337 iii. Less: Expenses on land (Refer Annexure-1) 2,79,46,095 iv. Business expenses available for deduction iv =(ii - iii) 48,59,2....
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....s to the table above. Assessee filed the written submissions and the same are extracted below : "The CIT(A) has added the entire amount of unaccounted cash expenditure u/s. 69C of the Act to the income of the Appellant. However, on a perusal of Para 7.5 on Page 13 of the assessment order passed by the AO, it can be observed that the AO has considered only the difference between the unaccounted cash receipts of Rs. 4.15 Crores and the unaccounted cash payments of Rs. 4.25 Crores amounting to Rs. 10,00,000/- u/s. 69C of the Act. (Refer Para 7.5 on Page 13 of the order of the AO). D. Regarding the fourth issue on the applicability of provisions of section 40A(3) of the Act towards the cash expenses discovered during the survey action, the assessee submitted the following written submissions: In support of his arguments, assessee relied on the following judgments/decisions : 1. Topstar Mercantile Pvt. Ltd. Vs. ACIT 225 CTR 351 (Bom.) 2. Mahindra & Mahindra Vs. DCIT 122 ITD 216 (SB) (Mum-Trib.) 3. Trend Micro India Pvt. Ltd. Vs. DCIT 64 taxmann.com 462 (Delhi-Trib.) 4. ACIT Vs. Anima Investment Ltd. 73 ITD 125 (Delhi (TM) 5. AC....
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....hall not be allowed as deduction from business income if it is incurred for any purpose which is an offence or which is prohibited by law. d) However, in the case of the Appellant, the payments have been made for the purposes of the business of the Appellant. Also, the entire details of expenditure are being verified by the AO from the seize documents and these expenditure includes payments being made to various contractors, for electricity meters and taxes, payments made to brokers, architects, etc. for the ongoing projects of the Appellant. Hence, it cannot in any way be said that the said expenditures are incurred for any purpose which is an offence or which is prohibited under the law. e) The quantum of expenses will clearly suggest that these are payments made for petty work. Hence, the claim of the Appellant regarding the said expenses is covered by provisions of section 37(1) of the Act not hit by the Explanation to section 37(1) of the Act, and hence is an allowable expenditure." This issue/argument is relevant in the context of the claim of the assessee that the undisclosed expenditure of Rs. 3.28 crores is for business purposes only. The same is allow....
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....of Rs. 1.47 crore confirmed by the CIT(A). From the point of view of the undisclosed receipts, Rs. 4,15,58,368/- is the gross receipts and there is no dispute. If the same is adjusted towards (a) duplicate entries amounting to Rs. 95,44,459/- (b) cash received back from Mr. R.K. Gera amounting to Rs. 57,51,770/- (c) amounts considered for other assessment years other than A.Y. 2005-06 amounting to Rs. 1,10,59,880/-, the net unaccounted receipts works out to Rs. 1,52,02,259/-. According to the assessee, after all these adjustments, the excess cash available works out to Rs. 1,03,43,017/-. Against this, assessee disclosed income of Rs. 2.64 crores and therefore, no addition is called for if the above adjustments are approved by the Tribunal. The impounded material is heavily relied by the assessee for all these workings. Thus, from undisclosed receipt angle too, Ld. Counsel for the assessee submitted that, out of gross undisclosed receipts of Rs. 4.25 crores, the net undisclosed receipts is only Rs. 1,52,02,259/- after adjustment of (1) duplicate entries; (2) contra entries and (3) undisclosed receipts for other assessment years. Ld. Counsel for the assessee adjusted the said R....
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....9.10.2004 7,75,000 121 27.10.2004 1,80,200 121 28.10.2004 15,50,000 121 29.10.2004 15,00,000 121 01.11.2004 5,00,000 120 21.12.2004 12,00,000 101 24.12.2004 1,00,000 120 04.01.2005 50,000 120 22.12.2004 10,00,000 120 28.01.2005 10,00,000 120 29.12.2004 4,00,000 120 21.02.2005 1,00,000 120 23.02.2005 5,50,000 120 15.02.2005 12,20,000 120 07.03.2005 7,00,000 Total 57,51,770 68/69 02.09.2004 3,00,000 Total 82,94,744 Highlighting the unfair conclusion, Ld. Counsel submitted that the CIT(A) selectively ignored the details on the impounded paper on flimsy grounds of one to one nexus of cash payments and receipts involving Mr. R.K. Gera. It is in the normal course of business of any assessee wherever there is undisclosed receipts and payments, the Managing Director receives the unaccounted cash for safe keeping and spends or returns....
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.... 121 08.10.2004 Received from Rani Rajani 550000 121 19.10.2004 7,75,000.00 121 18.10.2004 Received from Samina Santrampurwala 225000 121 27.10.2004 Received from Neeli Singh 180200 121 27.10.2004 1,80,200.00 121 28.10.2004 Received from Anjali Bhongale 2050000 121 28.10.2004 15,50,000.00 121 01.11.2004 5,00,000.00 101 24.12.2004 1,00,000.00 120 04.01.2005 50,000.00 120 27.01.2005 Received from Major Bajaj 4900000 120 28.01.2005 10,00,000.00 120 21.02.2005 1,00,000.00 120 10.02.2005 Received from Dubay 50000 120 23.02.2005 5,50,000.00 120 11.02.2005 Received from Dr. Jagwani 500000 120 24.02.2005 Received from Dr. Jagwani 500000 120 07.03.2005 7,00,000.00 120 04.03.2005 Received from Dr. Jagwani ....
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....counted transactions. In our view, it is not correct to ignore these facts in business when we need to determine the net unaccounted income of the assessee. 20. Regarding the issue of grant of benefit of contra entries qua the Rs. 82,94,744/- allegedly kept with the Managing Director, we find the case of the assessee is that the same is not to be included in the gross unaccounted expenditure of Rs. 4.25 crores as it is the money given to Managing Director for safe keeping. It is basically kept by the company with him for safe keeping and the same is returned to the company as per its need. As per the impounded papers, the Managing Director returned to the company to the extent of Rs. 57,51,770/- to be precise out of the said safely kept sum of Rs. 82,94,744/-. We find that these calculations have the strength of the impounded material. The balance of Rs. 25.43 lakhs, i.e.(Rs. 82,94,744/- - Rs. 57,51,770/-) is with the Managing Director at that point of time. If the same is considered, the net undisclosed expenditure shall be only Rs. 3.28 crores and not Rs. 4.11 crores. These workings are rejected by the AO/CIT(A), not for the reason that these entries are not for the impounded ....
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.... the same is spent in violation of the provisions of sections 37(1) and 40A(3) of the Act. We shall deal with these arguments separately. Coming back to the excess undisclosed expenditure of Rs. 15,46,095/-, we find this amount needs to be added to the income returned by the assessee and not Rs. 1.61 crores as done originally in the assessment. Assessee has no objection on this issue. To that extent, the arguments of Ld. Counsel are allowed. Thus, the sum of Rs. 15,46,095/- is confirmed in place of Rs. 1.61 crores. To sum up, the cash flow in and out is the part of safe keeping and the request for adjustment of undisclosed expenditure to the tune of Rs. 82,94,744/- is allowed. Therefore, the undisclosed expenditure works out to Rs. 3.28 crores only (i.e. Rs. 4.11 cr - 0.83 cr) and not Rs. 4.11 crores (rounded off). Further, also, the excess expenditure spent works out to Rs. 15,46,095/-. At the end, we confirm to the extent of Rs. 15,46,095/- only in place of Rs. 1.61 crores. To that extent, the order of the CIT(A) stands reversed. Thus, relevant grounds of the assessee are partly allowed. 22. Applicability of the provisions of section 40A(3) of the Act to the undisclos....
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.... appeal of the assessee (ITA No.597/PUN/2013) is partly allowed. ITA No.1609/PUN/2014 - By Assessee 25. This appeal is filed by the assessee in connection with the modification order of the CIT(A). The same is discussed in the preceding paragraphs of the order. In his order, the CIT(A) slightly modified the direction to AO and the same went against the assessee. Therefore, assessee filed this appeal. 26. In his order, the CIT(A) did not grant the benefit of set off of the brought forward losses of Rs. 1.04 crores (rounded off) pertaining to A.Y. 2004-05 against the income of this year. In this regard, the CIT(A) observed that the AO did not allow the same originally in view of the fact that the assessment proceedings for the A.Y. 2004-05 were incomplete at the relevant point of time. The losses were not crystallised then. Therefore, the CIT(A) directed the AO to allow set off of brought forward losses pertaining to the A.Y. 2004-05 in accordance with law. Subsequently, vide order dated 25-06-2014, the CIT(A) amended the above direction on the issue relating to the claim of set off of brought forward losses pertaining to A.Y. 2004-05 and withdrawn the said direction partly.....
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....shes of the customer) of these 2 units was Rs. 1,99,00,000. The appellant had inadvertently included this amount as sale proceeds in the original return of income. However since the appellant had been showing PT Gera Centre as part of fixed assets and claiming depreciation thereon, the capital gains in respect of sale of fixed assets were to be computed in accordance with provisions of sec. 50 of the Act and the sum of Rs. 56,20,400 was to be debited to the additions to fixed assets and not to the P & L account. This was accordingly corrected in the revised return of income dated 7.3.2007. It is argued before me, that the details of the expenses reimbursed to Shri Dhiraj Keswani as per the invoices raised by M/s Lemon Design Pvt. Ltd. and M/s Venkatesh Construction, the details of payments made directly to Shri Dhiraj Keswani (which were mostly paid by cheques except small payments made to labour by cash) were all filed before the Assessing Officer. However, the Assessing Officer has not accepted the contention of the appellant mainly because the balance amount pertaining to the incomplete work could have been adjusted against the sale consideration. I have examined this contention....