AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2021 (1) TMI 325
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....ct) representing application of appellant's undisclosed income of Rs..47,16,72,184/- and its sister concern's undisclosed income of Rs..10,00,00,000/-(representing booking advance received for flats by the appellant). (b) The learned Commissioner of Income tax (Appeals) erred in making certain observations/ findings in order to arrive at the conclusion that the aforesaid expenditure is not allowable which the appellant submits are factually incorrect, bad in law, based on assumptions, conjectures and surmises and ought to be rejected. (c) The appellant submits that the amounts referred to in Para l(a) above have been applied for the purposes of its business and the same ought to be allowed as an addition to the work in progress. 2. The appellant submits that the learned Commissioner of Income tax (Appeals) ought to have held that (a) only the profit embedded in the On-money of Rs..47,16,72,184/-received by the appellant is taxable; and (b) the amount of Rs..l0,00,00,000/- be allowed as addition to WIP. 3. (a) The appellant submits that the learned Commissioner of Income tax (Appeals) erred in not admitting the additional ground that only ....
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....ds of appeal which are as under: - "1. In the facts and circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) - 53, Mumbai ["the CIT (A)"] erred in upholding the assessment order passed by the learned Assessing Officer ("the AO") under section 143(3) r.w.s. 153C of the Income Tax Act, 1961 ("the Act") in the case of the Appellant for the relevant assessment year. 1.1 While doing so the Ld. CIT (A) failed to appreciate that: (a) The necessary pre-conditions for the initiation as well as completion of an assessment under section 153C of the Act were not fulfilled in the present case; (b) No satisfaction as contemplated under section 153C of the Act was recorded by the AO in the present case so as to frame an assessment under section 153C of the Act; and (c) In any case, the documents on the basis of which the assessment has been framed did not belong to the Appellant and as a consequence the AO had no jurisdiction at all to frame an assessment under section 153C of the Act. 1.2 Without prejudice to the above, the Appellant further submits that the order passed by the AO under section 143(3) r.w.s. 1....
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.... at the same time. During the course of search, statement u/s 132(4) of one Mr. Ramesh Shah, partner of Sumer Corporation was recorded wherein he admitted to having received on-money in cash in respect of the project undertaken by the Assessee though he is not a partner in the Assessee firm. Based on the said statement the Assessee had disclosed an amount of Rs..47,16,72,184/- as on-money received in cash on sale of flats and parking from the ongoing Prabhadevi project and the same was offered in its return of income for A.Y 2011-12. Further, another associate sister concern of the Assessee, M/s. Vighnaharta Projects Pvt. Ltd. (for short "VPPL") had also disclosed an amount of Rs..10 Crores during the said search which was offered by it in its return of income for A.Y 2011-12. These two amounts were accepted by the Assessing Officer based on the disclosure made by the Mr. Ramesh Shah in his statement recorded u/s 132(4) of the Act. Admittedly no cash was either found or seized during the course of search in the Sumer Group as well as survey at the site office of the assessee. While recording the statement, in response to Q. No. 24 Mr. Ramesh Shah had also stated that he would....
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....rlier years and subsequent years. It was therefore submitted that only 10% of the on-money be taxed in this year and the balance be carried over and brought to tax in the year of completion of the project. The Ld.CIT(A) partly allowed the appeal of the assessee. 8. So far as the disallowance on account of application of income is concerned, the Ld. CIT(A) confirmed the order passed by the Assessing Officer primarily on the ground that the expenditure incurred by the assessee was mostly that which would be in violation of section 37(1) of the Act in the absence of evidences. He further disallowed the application of income on the ground that no evidence of expenditure was found during the search and therefore also the same is not allowable. He, further, relying on certain documents furnished by the assessee observed that, the project was in advance stages and was substantially completed and therefore there was no need to incur any further expenditure on the said project. As far as application of income offered by VPPL is concerned he observed that application could be allowed only in the hands of the person who has actually offered the income. Since VPPL and the Assessee are two d....
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....DA who occupied the property on which the project is being developed and is available in public domain and those at Sr.No.4 are copy of High Court Orders evacuating the tenants, etc. It was therefore submitted that there was no fresh or private evidence furnished except those documents mentioned at Sr. No.3 of AEPB and which are nothing but a mere confirmation of High Court Order evacuating the tenants. 12. Ld. Counsel for the assessee further submitted that these evidences had to be furnished since the Ld.CIT(A) after calling for some documents which were duly furnished, made an incorrect and patently false observation in the impugned order that the project is substantially completed. This observation in the order was based on mere assumptions and without even apprising and confronting to the assessee. Therefore, it was submitted that the evidence was essentially to refute the patently false and incorrect observations of the Ld.CIT(A) at Para No. 4.3.6 of his order that there was no need to incur further expenditure since the project was substantially completed, which run contrary to the facts on record. Therefore, it was submitted that the additional evidences are filed onl....
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....d that there was a survey at the site office of the Assessee where this project was undertaken, however, neither during search nor during survey any cash was unearthed which in itself would lead to a strong inference that the cash was actually utilized in the project itself and therefore an application of income was claimed. Ld. Counsel for the assessee submits that the fact that the income was applied and a break-up thereof would be furnished was even stated in the Statement u/s.132(4) of the Act of Mr. Ramesh Shah taken on oath at the time of search. Ld. Counsel for the assessee submits that the Department was not at all justified in relying on only one part of the statement and reject the other part and on this proposition a number of case laws were relied upon. It was therefore argued that the only purpose of filing additional evidence was to refute the incorrect basis of rejection of the claim of the assessee on the observation that the project was substantially completed and there was no need to incur further expenditure. It was urged that otherwise, the claim is simply allowable since the Ld.CIT(A) has himself accepted incurring of expenditure in cash and particularly when d....
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....e assessee even without any appeal from the other side thereby making the assessee worse off than it was before filing of the Appeal. Ld. Counsel further argued that in the facts of the present case a remand back to the Assessing Officer would in fact be detrimental to the assessee and in such a case the power of remand could not be invoked. 19. Ld. Counsel lastly argued that even independent of the Additional evidence, the Assessee had offered Rs..47.16 Crores and its sister concern Rs..10 Crores during the course of search and as such there was no dispute about the existence of the source of funds in order to incur the expenditure. Therefore, even on this count there was no reason to deny the claim of expenditure since no cash was either found or even seized from any of the persons searched. 20. In response to the above, Ld.DR submitted in his written submissions as under: - "At commencement of proceedings, I had sought adjournment so that the case comes to physical hearing considering the complexity of issues raised, mainly the additional grounds. At conclusion of hearing, I had promised to submit some of the arguments in writing and this note is submitted a....
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....the Hon'ble Bench would hear the Assessee's Counsel and the Ld. DR could argue in physical hearing, if he so desires. The Ld. DR was so directed and he in fact accepted the same and even stated that no adjournment would be sought for by him on the next occasion whether the hearing is virtual or physical. However, on the hearing posted on 09.11.2020, the very same Ld. DR who had appeared on the earlier occasion i.e. 14.10.2020 appeared and again sought an adjournment in the matter on the ground of physical hearing. To this request a strong objection was again raised by the Assessee's Counsel since the matter was already delayed for more than two years, most of the issues were covered and it was therefore, requested that the matter be heard. As a result, the Hon'ble Members confronted the Ld. DR as to whether he wants a physical hearing in the matter and if so, why the Ld. Counsel for the Assessee should not be heard through Virtual Mode and thereafter the Ld. DR be heard in physical hearing. It was also pointed out that the very same Ld.DR had agreed on the earlier occasion that he would appear on the next date whether it is a virtual hearing or a physical heari....
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....fronted to the assessee. It is this observation of the Ld.CIT(A) which has been challenged by the assessee and to refute which further evidences have been furnished and which are in support only of the documents furnished before the Ld.CIT(A). It is a settled law that the Tribunal has the authority and it is in fact its duty to arrive at a correct finding of fact. 23. It is also a settled law that if the order has been passed by the lower authorities without granting a sufficient opportunity of being heard then the Assessee must be allowed to file additional evidences, for this we draw support from Keshav Mills v. CIT [56 ITR 365 (SC)], Roshan v. CIT [107 ITR 938 (SC)] and Prabhavati S. Shah v. CIT [231 ITR 1]. Further in numerous cases including those of the Hon'ble Jurisdictional High Court it has been held that when all the evidences are before the Tribunal, it must necessarily decide the issue instead of remanding the same. 24. Another important aspect of the matter is that the Ld.CIT(A) has made certain observations in his order which have not been challenged by the Revenue in its appeal. Therefore, those observations and findings are final. It is a settled law that ....
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....pportunity to set out its case. Reliance was placed on Tin Box Co. v. CIT [249 ITR 216 (SC)], Zenith Processing Mills Ltd. v. CIT [219 ITR 721 (Gujarat)] and Ester Industries Ltd. v. CIT [316 ITR 260 (Delhi)]. Referring to the respective orders it was stated that neither the Assessing Officer nor the Ld.CIT(A) have denied the fact that the expenditure was actually incurred by the Assessee for the on-going Prabhadevi project. It was submitted that the said approach was also correct in view of the fact that neither any undisclosed cash was found nor seized at the office premises and even at the site office where survey was undertaken. 28. It is submitted that the Ld.CIT(A) accepted the fact that expenditure was actually incurred by the Assessee on the project. He however, sustained the disallowance merely on surmises, conjectures and assumptions that the same is incurred in violation of Explanation to section 37(1) of the Act. It was stated relying on Dhirajlal Girdharilal v. CIT [26 ITR 736 (SC)] and Dhakeshwari Cotton Mills v. CIT [26 ITR 775 (SC)] that in the absence of any evidence whatsoever of violation of Explanation to section 37(1) of the Act, the expenditure could not be....
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....he case of CIT v. Golani Brothers [250 Taxman 446 (Bombay)] it was urged that once on-money is taxed any expenditure out of it cannot be disallowed. He further stated that once receipts from the same project are taxed then any utilization thereof in the same project must be allowed. 31. Ld. Counsel for the assessee further argued that the source has been taxed on the basis of the statement of Mr. Ramesh Shah who is not even a partner in the Assessee firm. The same was honoured and offered to tax by the Assessee. In that very statement, Mr. Ramesh Shah also stated that an application of these income would be provided to the Department and which was in fact provided which forms part of Page Nos. 52 to 56 of Paper book and which has not at all been disputed by the Department in any other concern. Ld. Counsel for the assessee therefore argued that once the statement is relied on by the Department, it must be relied on fully and the Department cannot pick and choose to rely only on that part of the statement which is favorable to it and not rely on the other part which is adverse to it. For this reliance was placed on various judgements. 32. Ld. Counsel for the assessee further ar....
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.... This pertain to categorization of income in dispute as profits and gains of business and profession. Unaccounted income is, in my view, in the instant case is to be categorized as income from other sources. Once categorized as income from other sources (section 68/69/69A/69B) normal deductions under section 30 to 38 does not arise nor do Accounting Standards relevant to business activity apply. The appellant in counter to my arguments has stated that the Assessing Officer has accepted that the income falls under profit and gains of business and profession. Even if it is so, when amendments to assessment is sought for in appeal (it is legally settled principle that selective or pick and choose approach cannot be taken on an integrated issue and a wrong is to be corrected at the earliest instance), when the root of the issue is faulty, then the fault also needs correction. In this connection I submit the following: - • If the previous decision is plainly erroneous, there is a duty of the Court of review it and not perpetuate the mistake i.e. A vital point was not considered or when an earlier relevant statutory provision has not been brought to the notice of Co....
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....sment Order and even the order to the Ld. CIT(A). The crux of his argument is that undisclosed income offered during search must be taxed under the head Income from Other Sources and the Assessing Officer has erred in taxing the same under the head Profits and Gains of Business and Profession. This fact is also admitted by the Ld. DR in his note. However, it is respectfully submitted that there is ample authority on the proposition that the Revenue cannot raise grounds contrary to its own order passed by the Assessing Officer. Under the scheme of the Income Tax Act, 1961 ("the Act" for short) the Department is not entitled to argue and appeal against the Assessment Order. In this regard a useful reference can be made to the following: Mahindra & Mahindra Limited v. DC1T [(2010) 122 ITD 216 (Mum-SB)] [Affirmed by the Hon'ble Jurisdictional High Court in CIT v. Mahindra & Mahindra Limited [365 ITR 560 (Bombay)]. Department did not challenge on the ruling of the Hon'ble Tribunal as regards the limitation on DR's powers to argue / make out on entirely new case contrary to the assessment order] ACIT v. Ms. Aishwarya K Rai - (2010) 1271TD 204 (Mumbai) ....
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....siness [Ref. CIT v. Mhaskar General Hospital - Tax Appeal No.1474 of 2009 and CIT v. Suman Paper and Boards Ltd. - (2009) 314 ITR 119 (Guj)]. In any case, it is a settled law, that as per the scheme of the Act all the other heads of income must be exhausted / excluded first before taxing an income under the head "Income from other sources" [Ref: S.G. Mercantile Corporation P. Ltd. v. CIT [83 ITR 700 (SC)], CIT v. T.P. Sidhwa [133 ITR 840 (Bombay)] & Bihar State Co-operative Bank Ltd. v. CIT [39 ITR 115 (SC)]. Hence even on this count the argument of the Ld. DR is contrary to the above and therefore unsustainable. 5. So far as the issue of disallowance of interest is concerned, the same has been dealt with adequately in the propositions already filed before the Hon'ble Tribunal earlier and the same may be decided on the basis thereof." 37. The Ld. Counsel for the assessee further stated that, the Revenue has not disputed the finding and observation of the Ld.CIT(A) that the expenditure was actually incurred. As such, the same is final and binding on the revenue in the absence of any appeal. It is also not disputed by them that the project is still under construction ....
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.... is placed at Page Nos. 52 to 56 of the Paper Book. As noticed above the Assessing Officer as well as the Ld.CIT(A) have completely by passed an important aspect of the matter that no cash was seized during the proceedings and the primary basis of taxing the on- money was the statement of Mr. Ramesh Shah. If such a statement is to be relied on then the same must be relied on completely and not in parts to suit the convenience of either. A statement sought to be used as evidence must be read as a whole and the Assessing Officer or the Ld.CIT(A) cannot accept part of a statement and conveniently ignore the other part. We therefore find that the Assessee is justified in claiming that as income was taxed on the basis of statement even the application thereof must be granted on the basis of such statement. This view is further supported by the judgements in the case of Glass Lines Equipments Co. Ltd. v. CIT [253 ITR 454 (Guj)], Chander Mohan Mehta v. ACIT [71 ITD 245 (Pune)], ACIT v. Vasantlal C. Mehta [77 ITD 76 (Rajkot)] & Ramanlal P. Chordia v. ACIT [87 TTJ (Pune) 713] relied on by the Assessee at the time of hearing. 40. We further find that it has been held in various judgements....
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....g incriminating documents, the Assessing Officer went about the exercise of scrutinising the revised return of income. During the course of the same, several queries and questions were raised. The 'on money' deals were probed in the backdrop of a contract awarded by the Jalgaon Municipal Council to the respondent/assesseecontractor and developers. There were certain shops which were to be allotted to the nominees of the Municipal Council and certain shops could have been sold in open market. It is in relation to the shops and sold essentially in the open market that the issue arose for determination. The sums received in cash so as to book the shops were paid by the interested parties. These interested parties were identified, equally the shops and the consideration determined. If the total consideration was determined and certain component of it was received in advance or as 'on money' in cash, then, the Tribunal concluded that the Assessing Officer could have treated that as a receipt. That was a receipt of income which was not disclosed but discovered on account of operations such as search and seizure carried out at the office premises as also the resid....
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.... the Tribunal therefore concluded and once the 'on money' is considered as revenue receipt, then any expenditure out of such money cannot be treated as unexplained expenditure, for that would amount to double addition in respect of the same amount." 42. In fact in the present case, the Ld.CIT(A) himself in Para No.4.3.6 of his order has observed that the Assessee has incurred expenditure in the project and this finding of the Ld. CIT(A) has not been challenged by the Revenue. Thus, the claim of the assessee as regards application of income could not be denied. We also find that the Ld.CIT(A) erred in sustaining the disallowance of application simply on the ground that the project of the Assessee was substantially completed and no further expenditure was required to be incurred is also baseless since the Assessing Officer himself in Para No.2 of the assessment order observed that the project is under construction. The observation of the Ld.CIT(A) is not based on any evidence on record. We further observe that even in the assessment orders for subsequent years the same position is accepted by the Revenue. Thus, the Ld.CIT(A) is not justified in rejecting the claim on such ....
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....the Department. On these facts it was held that in the event of K paying the tax on the unaccounted income from the receipts in his hands, the same unaccounted receipts could not be brought to tax in the hands of the assessee once again. Similar view was taken in the case of Rajni M. Patel v. DCIT [43 ITR (T) 628 (Ahmedabad)] wherein a search and seizure operation was carried out at premises of the assessee and various firms and associated concerns. The Assessing Officer added certain undisclosed income of the assessee. Similar addition was also made in case of firms. The assessee claimed that since he was partner in firms, he should be given telescopic benefit of income disclosed by the firm against addition made. On these facts it was held that, the Assessing Officer had agreed that the assessee is entitled for telescopic benefit but, while giving actual benefit to the assessee, he restricted all these to a sum of Rs..13 lakhs which is the amount the assessee himself disclosed. Once an estimated addition on account of household expenses, investment in land, investment on foreign travel are being made and the source of such expenditure is stated to be flowing from the firm which h....
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....8. It was further argued that the Ld.CIT(A) erred in adjudicating the additional grounds on merit once he had himself refused to admit the additional grounds. Therefore, his action is self-contradictory. 49. Ld. Counsel for the assessee argued that there is no estoppel against statute and therefore, it is open to the Assessee to claim before the authorities that a particular item of income is not taxable despite having offered the same in its return of income or even having accepted the same as taxable before the authorities or even in the books of accounts. For this proposition he relied on the decision of the Hon'ble Bombay High Court in the case of Nirmala Mehta v. CIT [269 ITR 1] and others. Therefore, it is submitted that there was no bar against the Assessee in claiming that the income erroneously offered in the return of income could not be withdrawn or revoked. 50. Ld. Counsel for the assessee further argued that only the profit element embedded in the on-money could be taxed in the relevant assessment year, since the Assessee is following the project completion method, the profit is ascertainable only in the year of completion of the project and as such no profit....
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....eipts were reflected income in the books of accounts for A.Y 2011-12. 52. Ld. Counsel for the assessee further stressed that it was repeatedly pointed out to the Ld.CIT(A) that the said entire on-money was erroneously offered as income in A.Y 2011-12 under an erroneous understanding and such erroneous offer could not lead to taxing the same. Ld. Counsel relied on Abdul Qayumme v. CIT [184 ITR 404 (All)], Mayank Poddar v. ITO [262 ITR 633 (Cal)] and SAIL DSP Employees Association v. UOI [262 ITR 638 (Cal)], to urge that any amount of admission or misapprehension could not make an item taxable which is otherwise not taxable. 53. Ld. Counsel for the assessee further referring to Page No.3, Para 4 of the Assessment order stated that, even as per the Assessing Officer on-money has been treated as merely receipt and part of sale consideration and not income, under the Act only income is liable to be taxed and not receipt. He also relied on various judgements to contend that on similar facts, similar issue of taxability of on-money has been decided by various judgements of the High Courts wherein it has been held that in case of receipts of on-money/unaccounted cash receipts only th....
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....d claim was not made by way of a revised return. Ld. Counsel for the assessee argued that both the reasons are untenable in view of the fact that the offer of income was under an erroneous understanding of law and there is no bar to make a claim as to taxability before the Appellate Authorities even without filing revised returns. 56. Ld. Counsel for the assessee further argued that, the last reason for the Ld.CIT(A) to dismiss the said grounds was that if the same are entertained it would lead to granting of a relief whereby the assessed income would be below the returned income. Ld. Counsel for the assessee urged that it has been held in various judgements, Gujarat Gas Co. Ltd. v. JCIT [245 ITR 84 (Gujarat)], CIT v. Milton Laminates [218 Taxman 108 (Gujarat) (Mag)], that the Assessed Income could well be below the returned income if certain item is taxed which is otherwise not taxable in law. 57. Ld. Counsel for the assessee lastly contended that the apprehension of the Ld.CIT(A) that allowing the said grounds would enlarge the scope of relief or lead to assessed income being below the returned income or change the entire complexion of the case, is totally ill-founded since....
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....acted by him, so far as the Assessee is concerned, it is entitled to claim that the offer was wrongly made by it. This fact was even put to the Ld.CIT(A) that the Assessee had erroneously offered the entire on-money as its income under an erroneous understanding of law. It was stated at the bar that post assessment there was a change in the advisor of the Assessee and pursuant to his advice additional grounds were raised before the Ld.CIT(A) claiming that only 10% of the on-money receipts are taxable in the relevant year and the balance is taxable in the year of completion of the project. We find that the Assessee was represented by two different consultants before the Assessing Officer and the Ld.CIT(A) respectively. We further find that, even otherwise, the claim raised by the Assessee is a purely legal claim and the Ld.CIT(A) erred in not admitting the same. 60. Now coming to the merits of the claim, we find that the Assessing Officer has himself accepted that the Assessee is following the project completion method and has accepted the method of offering income at 10% of the incremental receipts in the project and the balance is carried forward to the year of completion of th....
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....and not income per-se and therefore only profit element embedded therein be liable to be taxed and not the entire on-money receipts. 61. Now coming to the next aspect of the matter as to the year of taxability of on-money. We find that in the case of Dhanvarsha Builders (supra) cited by the Assessee the Pune Bench of the Tribunal held as under: - "... The third issue in this case is whether the amount will be taxable in assessment year 1996-97 or in some other year. The case of the learned counsel was that the assessee has been following project completion method for computing its profits. This has been demonstrated by referring to the returns already filed by the assessee where only day-to-day expenses were claimed and, therefore, it transpires that the assessee has been following project completion method. This is also clear from the discussion on page 1 of the assessment order under the head "Part-B". The conduct of search and seizure operation in a particular year does not lead to an inference that the undisclosed income detected as a consequence thereof has to be taxed in the assessment year relevant to the previous year in which search was conducted. In other word....
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....toppel against statute and the assessee could claim that its income is not taxable even if the same is offered in the return of income. In the cases of Abdul Qayumme (supra) and SAIL DSP (supra) it has been held that no amount of admission could lead to taxing an item if it is not otherwise taxable under the Act. In view of the above facts and judicial precedents, we find in favour of the Assessee and Grounds Nos. 2,3 and 4 are allowed. 64. Now we take up the next ground, Ground No. 5 of the Assessee's Appeal and the Grounds raised in the Department's appeal since these grounds arises on the same issue of disallowance of interest expenditure. During the relevant year, the assessee had incurred an amount of Rs..14.94 Crores as interest on borrowed capital which was added to WIP. The Assessing Officer held that the entire interest is not allowable since the same is on borrowings diverted by the Assessee to its sister concerns for non-business purposes. The Ld.CIT(A) after remanding the issue to the Assessing Officer, held that out of the total loans of approximately Rs..222 Crores, the amount of Rs..49 Crores (approximately) was utilized for the purpose of business of t....
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.... Assessing Officer himself and therefore the Department was not justified in sustaining the disallowance on such amount. 68. On the other hand, the Ld. DR has contended that that the Assessing Officer has made an analysis of the utilization of funds in his remand report and thereafter held that the amount of interest was rightly disallowable. Ld. DR further heavily relied on the order of the Assessing Officer in order to contend that the disallowance of interest was justified in the present case. 69. We have heard the rival contentions and perused the order of lower authorities as well as the material on record including the synopsis and the paper books as furnished. We note that the Ld. DR has not controverted the fact that the assessee had sufficient amount of interest free funds available with it in order to advance the same to its sister concerns. Even otherwise, the Honourable Jurisdictional High Court has in the case of Reliance Communication Infrastructure (supra) observed as under: - "Where the assessee, as in the present case, has significant interest in the business of the subsidiary and utilizes even borrowed money for furthering its business connection, ther....