TaxTMI 
TaxTMI 
2018 (2) TMI 2021
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....he Appellant individual is aggrieved by the order dated 30/9/2016 passed by the learned CIT(A) Pune 11 u/s 250 of the Income-tax Act, 1961 and is in appeal :- 1. Because, the Id. CIT(A) has erred in holding that the issuance of notice u/s 143(2) of the Act is not mandatory for carrying out assessment proceedings u/s 153A of the Act and accordingly holding that the impugned assessment order is valid. 2. Because, Id. CIT(A) has erred in holding that the Appellant was not entitled to make fresh claim in the return filed u/s 153A of the Act even though the material relating to the claim was available on record, 3. Because the Id. CIT(A) has erred in law in rejecting the Appellant's claim for deduction u/s 80IB (10) to the tune of Rs. 6,78,84,612/- at the threshold itself without going into the merits of the claim. 4. Because the Id. CIT(A) has erred in law in upholding the assessment order passed u/s 143(3) r.w.s,153A assessing total income at Rs. 6,78,99,609/-" 3. From these grounds of appeal, the assessee has challenged the assessment order passed by the AO u/s 143(3) r.w.s. 153A of the Act on the ground that the AO has failed to issue notice u/s 143(2) of the Act ....
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....out on the next day or shortly thereafter. Against these entries, no narration is given and only the names of the employees is mentioned. During the course of search, when the rough cash book was confronted to the assessee, the partner of the firm Shri Hari Bachubhai Mujat, in his statement recorded on 30-09-2011 admitted that these are on-money received in his real estate business from group firms and companies and also payment of money for various purposes including expenditure and investment which are not recorded in his books of account and accordingly agreed that he was not in a position to comment on various discrepancies pointed out in the rough cash book and hence in order to buy peace of mind and to avoid litigation, he surrendered an undisclosed income of Rs. 16 crores in various business concerns and in the name of family members. The partner of the firm, Shri Hari Bachubhyai Mujat has reiterated his admission in the statement recorded u/s 132(4) on 07-10-2011. 5. Consequent to search, notice u/s 153A of the Income-tax Act was issued on 19-01-2013 requesting to prepare a true and correct return of total income. In response to the notice, the assessee has filed the ret....
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....ash book and determined peak cash balance as on 02-06-2010 which worked out to Rs. 2,73,87,071/- which has been distributed equally between two partners and suggested for addition. To substantiate plea of peak cash credit theory, the assessee has further argued that unsecured loans from various individuals are not on-money and the details of the above payments are recorded in RCB Bundle No.1. Similarly, receipt of on-money amounting to Rs. 3.82 crores from different projects, which has been handed over to Shri Hari Bachubhai Mujat, as admitted by Shri Manoj B Gogta and the amount of Rs. 2.21 crores arising from Hari Bachubhai Mujat's account already stood accounted for. For advocating peak cash theory, the assessee has given various reasons as per which the RCB is a cash book recording inflow and outflow of cash including cash recorded in regular cash book. The said RCB contained entry of cash for credit for group as a whole but not specific to any single entity in the group. The inflow is in the form of cash withdrawals from bank, receipt of investors money, sale proceeds of land, unsecured loan, return of payment from employee, etc. the outflow is in the form of cash deposit in b....
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....omogenous in nature and reflects receipt of unaccounted cash and its application as investment and expenditure. The entries recorded in RCB-1 and RCB-2 are outside the books of account and hence, there is no merit in the arguments of the assessee that peak credit theory needs to be followed to ascertain correct income. The AO, after considering the submissions of the assessee explaining the peak cash theory and also on analysis of cash book prepared by the department on the basis of rough cash book observed that on analysis of entries found in the RCB, the receipts are mainly on account of amount received from investors and payments are related to investments made by the assessee, expenditure in respect of its project and cash given to employees of the group. Since the assessee has not been able to explain the true nature of entries recorded in the rough cash book and also the fact that it has admitted undisclosed income during the course of search and also in the post search investigation, rejected explanations of the assessee with regard to the peak cash theory and estimation of reasonable net profit of gross profit considering it as on-money and made addition of Rs. 12,19,50,872....
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....s developed 'Sreeji Heights' project on the land which has an area of more than one acre. The AO has discussed the project in the light of details filed by the assessee and brought out clear facts that the assessee has not complied with all the conditions specified in section 80IB(10), therefore, not eligible for deduction u/s 80IB(10) in respect of profits and gains. Since the assessee firm has failed to claim deduction in original return filed u/s 139(1) and also its claim is not in accordance with the provisions of section 80IB(10), therefore, rejected the claim made by the assessee and made addition of Rs. 89,94,609 to the total income. 8. Aggrieved by the assessment order, the assessee preferred appeal before the CIT(A). Before the CIT(A), the assessee has taken up a legal plea inasmuch as the assessment order passed by the AO u/s 143(3) r.w.s. 153A is bad in law as the AO has not issued mandatory notice which was required to be issued mandatorily u/s 143(2), therefore, the assessment order passed by the AO is null and void. In this regard assessee relied upon certain judicial precedents. As regards addition made by the AO towards unaccounted cash transactions, the assessee....
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....h was not made in the original return filed u/s 139(1) and accordingly, the AO was erred in rejecting the claim of the assessee even though its claim is in accordance with provisions of section 80IB(10) of the Act. Insofar as merits of the case, the assessee has submitted that it has fulfilled all conditions specified under section 80IB(10) so as to claim deduction. Therefore, the AO was incorrect in rejecting its claim even though the assessee has made a claim on the basis of decision of the jurisdictional High Court in the case of Brahma Associates (supra) wherein it was categorically held that the requirement of construction of commercial space within the specified limit is applicable for the project which have been approved on or after 01-04- 2005 whereas assessee's project has been approved on 16-10-2004. Insofar as other conditions that it has constructed certain flats over and above the specified limit fixed for construction of each flat even if there are certain flats which are constructed over and above the specified super built up are, there is no bar in claiming deduction towards eligible project on proportionate basis. 10. The CIT(A), after considering relevant submi....
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....rm at the time of search. Therefore, the AO has rightly made addition in assessee's case. 11. Insofar as deduction claimed u/s 80IB(10), the CIT(A) observed that in view of the fact that the assessee has not made any claim in respect of deduction u/s 80IB(10) in original return filed u/s 139(1) and also the fact the assessee cannot make new and fresh claims in the returns filed u/s 153A, the claim made by the assessee u/s 80IB(10) is not allowable. The CIT(A), after considering the facts and also on analysis of certain judicial precedents, including decision of the jurisdictional High Court in the case of Continental Warehousing Corporation (Nava Sheva) (2015) 58 Taxman.com 78 and in the case of Murli Agro Products ITA No.36 of 2009 judgement dated 29-10-2010 held that the assessee cannot make any fresh claim in respect of assessment years which have been unabated as on the date of search. Insofar as merits of the deduction claimed u/s 80IB(10), though the CIT(A) has not discussed the allowability of deduction u/s 80IB(10) in AY 2010-11, discussed the issue in the assessment year 2011-12 and observed that the assessee is eligible for proportionate deductions in respect of housin....
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....und and hence ground No.1 is dismissed, as not pressed. 13. The next issue that came up for our consideration is addition made by the AO towards undisclosed unaccounted cash transactions of Rs. 12,19,50,872 on the basis of rough cash books 1 & 2 found and seized during the course of search and also on the basis of admission of the assessee in the statement recorded u/s 132(4) of the Act. During the course of search two notebooks inventorised as Bundle No.1 & 2 were found and seized from the residential premises of Shri Hari Bachubhai Mujat wherein certain cash transactions in respect of receipts and payments were recorded. When the RCBs 1 & 2 have been confronted to the assessee, the partner of the firm admitted that the transactions recorded in RCBs 1 & 2 are unaccounted transactions in respect of on-money received towards sale of flats, unsecured loan received from various parties, cash withdrawal from bank and payment towards various expenses in relation to projects executed, cash deposit in bank and amount paid for purchase of properties and repayments of loans. During the course of search, in the statement recorded u/s 132(4), Shri Hari Bachubhai Mujat admitted that he was ....
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....ly on the basis of admission without any corroborative evidence to establish that it represents undisclosed income of the assessee is incorrect. The Ld.AR further submitted that when it is not possible to ascertain to any true nature of transaction, the best method to determine undisclosed income is to peak credit theory which has been accepted by the Courts, including the Hon'ble Andhra Pradesh High Court in the case of CIT vs Purshottam Jhawar (2013) 40 taxman.com 533 wherein the court held that application of peak credit concept for quantifying the undisclosed income is not contrary to the provisions of the Act. The Ld.AR further submitted that in case, the peak credit theory is not acceptable, then the second method for determination of undisclosed income is estimation of reasonable net profit on total receipts recorded in undisclosed rough cash book. Therefore, requested for estimation of net profit of 10% on total receipts quantified on the basis of those cash book at Rs. 27.59 crores. 15. The Ld.DR, on the other hand, strongly supported the order of the CIT(A) and submitted that the assessee has failed to admit undisclosed income admitted during the course of search in th....
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.... 3 assessment years in the statement recorded u/s 132(4) on 29-09-2011 and 17-10-2011. It is also an admitted fact that the assessee has filed letter on 02-09-2013 in the form of a separate booklet which contains 16 pages wherein it was submitted before the AO that disclosure made during the course of search in respect of undisclosed income was made without going through the seized materials and after analysis of the seized materials it has come to the notice that there was a mistake in disclosure of Rs. 14,19,10,000 and accordingly suggested 2 methods to compute the undisclosed income i.e. one on the basis of peak cash theory where the assessee has arrived at peak cash balance of Rs. 2,73,87,071 on 02-06-2010 and second, estimation of reasonable net profit on total receipts recorded in RCB excluding cash with employees and cash drawn from bank which worked out to Rs. 27.89 crores. To substantiate the plea of peak cash credit theory, the assessee firm further submitted that the assessee has analysed the transactions and as per which certain credits appeared in RCB are unsecured loan received from Smt. Janaki Shah of Rs. 45 lakhs, profit on sale of Ulve land of Rs. 1.27 crore, trans....
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.... is in the form of cash deposit to bank, repayment of loan, money given to broker, land cost, repayment to investors, expenses and money given to employees. The inflow and outflows are closely matches with total money in which is at Rs. 41.27 crores and total money "out" is at Rs. 41.37 crores. There is no evidence to support the true nature of these entries and this can be explained only through personal knowledge and belief. Even going by the analysis of the AO on the basis of trial balance prepared on the basis of RCB 1 & 2, the AO is unable to identify true nature of transactions recorded in RCB 1 & 2. The trial balance extracted by the AO is part of assessment order at para 4.1 on pages 4 to 6. On analysis of the trial balance prepared by the AO, we find that the credit side represents amount received from investor. The payment side represents amount paid for investments, expenses for the project, cash deposits to bank, departmental payments and amount paid to employees. The assessee explains that the amount paid to employees represents amount taken by the group either for expenses or payments for purchase of properties. Therefore, we are of the considered view that it is very....
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....ccounted transactions is quite more than the net profit in normally accounted transactions. In the case of construction business, the statute itself has provided for 8% net profit in cases of certain class of assesses where the turnover does not exceed specified limit. Though the provisions of section 44AD cannot be strictly applied to the facts of assessee's case, a clue from the said provision can be drawn to estimate net profit as the assessee's nature of business squarely fit into the class of assessee where the provisions of section 44AD applies. Therefore, keeping in view the facts and circumstances of this case and also drawing a clue from the provisions of section 44AD, further, considering the fact that these are unaccounted transactions, a reasonable net profit of 15% would meet the ends of justice. Therefore, we direct the AO to estimate net profit of 15% on total receipts quantified by the assessee. 19. The next issue that came up for our consideration is denial of deduction u/s 80IB(10) of the Act, in respect of housing project. The fact with regard to the impugned claim are that the assessee is in the business of development of flats. During the year under consider....
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....ted commercial area of 2,194.84 sq.mtrs which is more than the specified limit. The assessee has sold more than two flats to a single person in violation of clause (e) & (f), therefore, the AO opined that the assessee's claim is not in accordance with provisions of section 80IB(10) of the Act. 21. It is the contention of the assessee that the assessment for the AY 2009-10 onwards are abated which is evident from the fact that search action u/s 132(1) was carried out on 29-09-2011 and the time limit for issue of notice u/s 143(2) was expired on 30-09-2010 but no such notice was served on the assessee and the time limit for completion of assessment u/s 143(3) was due on 31-03-2012. Therefore, the assessment for the assessment year 2009-10 and subsequent years are abated and hence, the assessee can make a fresh claim which is very clear as per the provisions of section 153A, where it was specifically stated that the AO shall assess or re-assess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made. The assessee further contended that it has made a claim for deduction u/s 8....
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..... As per the provisions of section 153A if the assessments are concluded on the date of search, the assessee cannot make any fresh claim to reduce the income already admitted in the original return. In this case, though the assessee has not made claim of deduction u/s 80IB(10) in original return reduced the income by making fresh claim which was not in accordance with law. The Ld.DR further submitted that even on merits, the AO has brought out clear facts that the assessee has not satisfied with any of the conditions specified u/s 80IB(10) so as to be eligible for deduction and hence, the AO rightly rejected the claim made by the assessee and his finding should be upheld. 23. We have heard both the parties, perused the material available on record and gone through the orders of authorities below. The facts with regard to the execution of housing project which is eligible for deduction u/s 80IB(10) is not disputed by the lower authorities. The AO rejected the claim made by the assessee on the ground that the assessee has made a fresh claim in return filed u/s 153A which was not made in return filed u/s 139(1), therefore opined that the assessee cannot make a fresh claim in the re....
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....ifying the claim of the assessee for the entire project. The assessee is entitled to have benefit of deduction in respect of residential units satisfying the requirements u/s 80IB(10) as held in the following cases:- 1. Vishswas Promoters Pvt Ltd vs ACIT & Ors (2013) 214 Taxman.524 2. CIT vs Vandana Properties (2012) 19 taxman.com 16 24. The CIT(A) also negated the observations of the AO with regard to the applicability of the decision of the Hon'ble Bombay High Court in the case of Brahma Associates (supra) by holding that the AO was wrong in not following the decision on the ground that SLP was filed against the decision. In any case, as of now, the decision has been upheld to be correct by Hon'ble Apex Court and the SLP of the Income-tax Department is dismissed. The AO has mentioned that almost 1/3 of the flats have built up area in excess of the prescribed limits. The assessee has asked for a proportionate deduction on the flats which fulfilled the requirements of section 80IB(10) on proportionate basis excluding the flats having built up area in excess of 1000 sq.ft. However, the CIT(A) further observed that the assessee has not been able to counter the AOs finding th....
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....abated, then the AO is having jurisdiction to assess or reassess total income on the basis of return of income filed filed by the assessee u/s 153A, including incriminating material found as a result of search. Going by the same analogy, if the assessments are abated as on the date of search, the assessee is at liberty to file a true and correct return making a claim which was not made earlier in the original return filed u/s 139(1) if such claim is allowable under the Act. In this case, on perusal of the facts available on record, we find that the search took place on 29-09-2011, the dispute involved with regard to the claim of deduction u/s 80IB(10) pertains to AY 2009-10 to 2012-13. The assessment for the assessment year 2009-10 has been unabated / concluded as on the date of search as the time limit for issue of notice u/s 143(2) has been expired on 30-09-2010 even though no assessment has been framed u/s 143(3). Insofar as assessment year 2010-11 onwards, the time limit for issue of notice u/s 143(2) was due on 30-09- 2011, 30-09-2012 and 30-09-2013 and all the dates are after the date of search. Therefore, we are of the view that the assessment for AY 2009- 10 is unabated and....
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.... admitted based on evidences. The entries in books which was wrongly made earlier has been corrected now and has merely been brought in conformity with the primary documents for costs and sale proceeds. 27. The Ld.AR for the assessee submitted that the Ld.CIT(A) having accepted the fact that the assessee has explained the facts with regard to the reduction in work-in-progress due to the loss incurred on sale of two shops at city centre mall, failed to delete addition made by the AO by holding that the assessee has failed to furnish any evidence that the loss pertaining to AY 2009-10 and 2010-11 was not claimed in the respective assessment years. The Ld.AR further submitted that the Ld.CIT(A) has erred in upholding the addition of Rs. 173 lakhs as suppression of stock being irrecoverable loss written off during the year on the misinterpretation of the facts and information. The assessee has furnished necessary evidence to rectify the mistakes in passing entries in the books of account in respect of loss incurred on sale of flats to M/s Bombay Infrastructure Ltd. The AO merely, on the basis of non furnishing of confirmation from the party, has made addition even though the facts c....
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....ee has not filed any evidences. The assessee has filed various details to explain the loss. Therefore, we are of the considered view that the issue need re-examination from the AO in the light of evidence filed by the assessee; hence, we set aside the issue to the file of the AO and direct him to consider the evidence filed by the assessee and to decide the issue afresh in accordance with law after affording opportunity of hearing to the assessee. In the result, ground raised by the assessee is allowed, for statistical purpose. 31. In the result, appeal filed by the assessee in ITA No.6242/Mum/2016 for AY 2009-10 is dismissed and appeals filed by the assessee in ITA Nos.2676/Mum/2017, 2677/Mum/2017 & 2678/Mum/2017 for assessment years 2010-11, 2011-12 & 2012-13, respectively are partly allowed for statistical purpose. ITA Nos 6243 & 6244/Mum/2016, 2672 & 2673/Mum/2017, 6245 & 6246/Mum/2016 & 2675/Mum/2017 32. This bunch of 7 appeals filed by two different assessees are directed against separate, but identical orders of CIT(A)-11, Pune dated 16-01- 2017 for the assessment years 2009-10, 2010-11, 2011-12 and 2012-13. In these appeals, the assessee have taken up more or loss ....
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....n filed u/s 139(1) but not declared in revised return filed in response to notice issued u/s 142(1). 34. The brief facts of the case extracted from ITA No.2675/Mum/2017 are that the assessee had filed his original return of income on 11-01- 2013 declaring total income of Rs. 1,52,81,625. A search and seizure action u/s 132 of the Act, was conducted on 29-11-2011 and accordingly notice u/s 153A was issued on 11-03-2013. The assessee has filed a return u/s 153A on 02-09-2013 disclosing income of Rs. 1,55,85,230. In the return filed u/s 153A, the assessee has included an amount of Rs. 1,36,93,535 on account of disclosure made during the search towards unaccounted cash receipts recorded in rough cash book 1 and excluded an amount of Rs. 1,33,84,004 being the interest from partnership firms which was offered in the original return filed u/s 139(1). The AO completed the assessment u/s 153A, determining the total income at Rs. 1,53,75,700 excluding the offer of additional income of Rs. 1,36,93,535 but adding back interest accrued but not due from partnership firms. The assessee carried the matter in appeal before the first appellate authority. Before the CIT(A), assessee had taken up a....
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....disclosed. The CIT(A) further observed that it can be presumed that the assessee claims that while interest payable on his borrowings accrues immediately and interest receivable on his lending or investment in the firms would accrue in future when the firms profits are recorded or determined to the satisfaction of the assessees and its partners. This dual approach is nothing but an attempt to avoid payment of tax. With these observations and also relying upon certain judicial precedents, enhanced the assessment to the extent of interest deduction claimed against income from business. As regards assessment of income determined on the basis of seized material in the hands of M/s Akshar Developers and not in the hands of the assessee, the CIT(A) observed that the issue has been discussed in detail in the appellate order in the case of Akshar Developers, wherein the addition made by the AO has been confirmed and hence, there is no point in taxing the same income again in the hands of the assessee. The exclusion of such income from assessee's income has been rightly done by the AO. This ground of appeal was, therefore, dismissed. Aggrieved by the CIT(A)'s order, the assessee is in appea....
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....by the assessee observed that the assessee has included interest on capital accrued from partnership firm in the original return filed u/s 139(1). However, without there being any material changes in the facts, excluded interest in revised return filed u/s 153A, on the basis of amended partnership deed which is nothing but an afterthought to defer payment of taxes. The AO further observed that the question of accrual of interest from partners' capital account is fully dependent upon the clauses in partnership deed, but not by the conduct of the assessee. The assessee may amend the partnership deed to its convenience so as to defer payment of taxes but, what law says is important. Once, interest clause was provided in partnership deed, as per which the assessee needs to provide interest on capital whether or not paid. Moreover, the assessee has included interest in its return of income even after amendment to partnership deed dated 31-03-2009 which is a clear case of afterthought by the assessee, therefore, cannot be accepted. 38. The Ld.AR for the assessee submitted that the Ld.CIT(A) was erred in upholding addition made by the AO towards interest on capital from partnership fir....
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....titled for interest on capital; however, due to changed business conditions, the partners have mutually decided to defer payment of interest by amending interest on capital clause in the partnership deed by an addendum to partnership deed dated 31-03-2009. The assessee also contended that the partners have entered into one more amendment to partnership deed by amending interest on capital clause and decided not to pay any interest on partners' capital account because of adverse business conditions and accordingly whatever interest has been credited to partners' capital account has been reversed simultaneously reducing it from work-in-progress as the same had been debited to work-in-progress without treating it as revenue expenditure. 41. Having heard both the sides, we find that the controversy has to be resolved in the light of legal position that whether the assessee can exclude interest on capital in the return filed u/s 153A, which was earlier included in return filed u/s 139(1) of the Act. The assessee claims that the assessment for AY 2009-10 onwards are abated in view of the fact that the search took place on 29-09-2011 and the assessment for the AY 2009-10 onwards were a....
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....ly, on the basis of date of search, the assessment for AY 2010-11and onwards have been abated as the time limit for issue of notice u/s 143(2) was due to expire on 30-09-2011, therefore, going by the ratio of judgments of the jurisdictional High Court in Continental Warehousing (Nava Sheva) Ltd (supra) and CIT vs Gurinder Singh Bawa (supra), we are of the view that the assessee can make a fresh claim of any item of income in accordance with law. In this legal background, if we examine the issue before us in respect of taxability of interest accrued but not due on partners' capital account from partnership firm, the assessee sought to exclude interest on capital in the returns filed u/s 153A on the ground that such interest has not been due to the assessee in view of the addendum to partnership deed where the partners have mutually decided to postpone payment of interest and subsequently reversed interest by making simultaneous adjustment to work-in-progress. According to the assessee, interest accrued but not due on partners' capital account is not taxable, as the firm has not claimed deduction towards interest on capital in its books of account u/s 40(b) as it has reversed interes....
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....as claimed interest on capital u/s 40(b) against profits in the statement of total income in original return filed u/s 139(1) and in a return filed in response to notice u/s 153A, the position remains same. The facts are contradictory to each other. Therefore, we are of the considered view that the issue needs to be re-examined by the AO in the light of contradictory facts and if the AO finds that the partnership firm has claimed interest on capital against from profits then certainly, the assessee cannot excluded interest on capital in its return of income. If the firm has not claimed interest on capital against its profits and reversed interest on capital by reducing it from work-in-progress, then certainly, exclusion made by the partners in their individual hands in revised return is in accordance with law. Therefore, we direct the AO to verify these facts and take an appropriate decision in the light of our observation above. Hence, the ground raised by the assessees for the AYs 2010-11 to 2-12-13 in both the assessee's case are set aside to the file of the AO. 44. The next issue that came up for our consideration for AY 2-12-13 is addition made by the AO towards short term ....
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....nstead of long term. 45. Having heard both the sides and considered material on record, we find that the assessee has revised computation of capital gain in respect of sale of property and shifted short term capital gain declared in original return to long term capital gain in the revised return filed u/s 142(1) by changing the date of acquisition of property, according to which, the period of holding of asset is more than 36 months. As per the workings furnished by the assessee showing computation of capital gain as per original return of income filed u/s 139(1) and as per return filed u/s 142(1), there is a mismatch of date of acquisition of property, cost of acquisition and sale consideration. The assessee claims that while adopting cost of acquisition, it has inadvertently omitted to included registration charges and stamp duty. Similarly, the assessee claims that cost of acquisition was deducted twice from the sale consideration which resulted in double deduction and under statement of capital gain in respect of two shops. The assessee has filed various details to justify its arguments that the property has been purchased on 21-08-2007 by way of booking advance, however, in....