TaxTMI 
TaxTMI 
2021 (8) TMI 366
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....d in the seized books. A.Y. Amount Gross Profit (in Rs.) A.Y. 2011-12 48,77,500 A.Y. 2012-13 19,26,945 A.Y. 2013-14 26,07,043 A.Y. 2014-15 24,93,693 A.Y. 2015-16 31,73,792 4. The relevant facts relating to above ground are, assessee is a partnership firm engaged in the business of construction of residential complex. A search and seizure action under section 132 of the Income Tax Act, 1961 (for short "the Act") was conducted on 26th February 2015 at the residence of Shri Vipul Mangal, partner of the assessee-firm. Simultaneously, the business premises of the assessee-firm were also covered under section 133A of the Act. During the course of search and survey action, various loose papers, notebook, diaries, etc. were found and seized / impounded, as the case may be, which indicated the acceptance of 'on money' on sale of the flats constructed by the assessee. Seized documents also reveal various payments/expenses made for the purpose of the construction business of the assessee. 5. A statement on oath was recorded from Shri Vipul Mangal, partner of the assessee firm under section 132(4) of the Act at the time of search proceedings by the sea....
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....ly stated by the assessee that on-money receipts on sale of flats was Rs. 9,75,50,000/- out of which Rs. 6,01,09,970/- totally spent by the assessee for the purpose of construction of the project belonging to the assessee firm which are not recorded in the books of accounts of the assessee. The details of these expenses were duly listed out in the seized document diaries and assessee sought deduction for the same. In this regard, the assessee also filed the entire details together with the narration and the nature of payment and the name of the party to whom such payments were made together with the complete break-up with dates for the total unaccounted expenditure of Rs. 6,01,09,970/-. Accordingly, the assessee offered for all the years put together unaccounted income as under:- Gross receipts representing on-money on sale of flats Rs. 9,75,50,000/- Less:- Unaccounted expenses used in Construction of the project belonging to The firm. Rs. 6,01,09,970/- Net unaccounted income offered to tax for all the years put together Rs. 3,74,40,030/- 7. The assessee had submitted that the said net income of Rs. 3,74,40,030/- being the unaccounted income offered for a....
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....nt year 2011-12 alone, the Assessing Officer had made further addition of Rs.'2,54,000/- on account of partner's capital contribution. 11. The Assessing Officer disregarded the claim of deduction towards expenses recorded in the seized diaries for the following reasons:- "a) The assessee has not produced any documentary evidence to substantiate its claim of expenses. b) On perusal of the list provided towards expenses incurred, the ld. Assessing Officer observed that assessee has provided only the nature of expenses, or the name of the person to whom payments were made. Assessee has not furnished the full name of the persons to whom payments were made. c) In majority of the cases address of the persons and PAN were not provided by the assessee. d) In most of these cases, expenses were incurred in cash in excess of Rs. 20,000/-there by violating the provisions of Section 40A(3) of the Act. e) The claim of the assessee that the expenses reflected in the seized diary are in the nature of architecture fees, the stamp duty, made to tenants as compensation for eviction, electrification fees, court case expenses, brokerage, parking lot evict....
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....45/- representing additional claim of expenses which were omitted to be claimed before the Assessing Officer at the time of assessment proceedings. The assessee submitted before the learned CIT(A) that the details of the said claim were also reflected in the same seized document Annexure A-3 at Pages-42, 44, 46, 48, 50, 52, 54, 56, 58, 60, 62, 64, 66, 68, 70 & 71. Accordingly, the assessee pleaded for claim of fresh deduction in the sum of Rs. 1,88,51,945/-before the learned CIT(A). 13. After considering the submissions of the assessee, the learned CIT(A) without getting into these intricate details of expenses which were corroborated with entries in the seized documents proceeded to allow deduction towards unaccounted expenses to the extent of 50% of gross receipts on ad-hoc basis and distributed the same to various years in accordance with percentage completion method followed by the assessee. The relevant observation of the learned CIT(A) in this regard are reproduced herein for the sake of convenience:- "6.11. From the decisions of the Hon'ble High Courts cited above, it can be concluded that if the notings in the seize documents in respect of the unaccounted receip....
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....uting the undisclosed income of the assessee cannot be quantified. Moreover, once the undisclosed income is being determined in an estimation basis, the provisions of Section 40A(3) cannot be applied as held by the Hon'ble High Courts in the cases of Smt. Santosh Jain (296 ITR 324) (P&H) and Banwari Lal Banshidhar, 229 ITR 229 (All.) 6.12 On the issue of what should be the reasonable profit margin which should be applied, the assessee contends that the profit margin shown by it in its books of 19.97% is much higher than the margin shown in the construction industry where even margin of 8% is considered to be reasonable. It was further submitted that on the said on-money receipts of Rs. 9,75,50,000/- it has offered a very high margin of 38.38% and therefore, the assessee contended that the action of the Assessing Officer of making further additions, is not correct. These contentions of the assessee cannot be accepted since, the margin earned by an assessee is to be decided on a case-to-case basis. If an assessee has claimed the entire expenses related to its project in its books, in that case, the entire on-money receipts have to be considered while determining its undisclo....
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....nal expenses were part of the same documents which were found during search. He submitted that the learned CIT(A) after considering the additional evidence submitted in support of above claim, still preferred to restrict the expenses on ad-hoc basis. In support of his submissions, he brought to our notice the seized documents which is at paper book Pages-80 to 86. He prayed that the income should be assessed on the basis of real income. He submitted that even income is assessed under presumptive basis, it may be at 8%, whereas the assessee had already declared more than the above percentage. 16. On the other hand, Ld DR submitted that the claim of the assessee that it had incurred expenditure to the extent of 81% of income is factually incorrect. He brought to our notice the Para-6.3 of learned CIT(A) order and submitted that the assessee declared 19.97% as per its regular books of account and 38.38% of income which was declared by the assessee itself before Assessing Officer. The additional deduction claim before learned CIT(A), which is at Page-79 of the paper book and he submitted that the assessee has not claimed the additional deduction. Further, he submitted that the Ar....
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....er dated nil of Nagin Parekh and Associates, Chartered Accountants. The claim was put before the CIT(A) by the aforesaid letter and during the discussions with the CIT(A) in the appellate proceedings. He submitted that the assessee staked a claim of additional expense of Rs. 1,88,51,945, by giving the details of expenses; such expenses emanate from the same seized documents from where the income of Rs. 9.75 crores is offered. 20.2 The Departmental Representative has referred to Question nos 5 and 9 of statement on oath dated 26.02.2015 of Mr Vipul Mangal, partner of appellant-firm wherein Mr Vipul Mangal stated that Messrs Argent Constructions is a construction company and Messrs Splendor Developers is a marketing and sales company and accordingly, the Departmental Representative raised objection on the claim of brokerage expenses (for instance at Sr nos 138, 149, 170, etc) against the income from construction activity. According to him, brokerage expense paid to various persons cannot be claimed by us when a separate entity namely, Splendor Developers, a group company is engaged in marketing and sales activities. In this connection, he submitted that som....
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....forth. Cash paid to the architect as his professional fees for work done, stage wise, is allowable expenditure and not hit by the provisions of the Explanation to section 37 of the Act. Further, he submitted that there is no evidence to suggest that these payments are not permissible in law - neither the Assessing Officer nor the CIT(A) has made any such allegations. Thus, it is submitted that the Departmental Representative cannot better the case of the Assessing Officer. As such, it is submitted that the amount paid to Mr Rasik Dudhwadkar ought to be allowed as a deduction. Further, insofar as 'Faisal (OSD)' is concerned, we submit that Faisal is our person handling 'on-sight development' work and hence, it is mentioned as Faisal (OSD); thus, OSD here means on-site development. Further, there is no evidence to suggest that these payments are not permissible in law - neither the Assessing Officer nor the CIT(A) has made any such allegations. Thus, it is submitted that the Departmental Representative cannot better the case of the Assessing Officer. As such, it is submitted that the amount paid to Faisal OSD) ought to be allowed as a deduction. ....
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....Pune Tribunal); iv) DCIT v/s Kanakia Hospitality (P.) Ltd. 179 ITD 1 (Mum.) (Trib.). 20. Hence, certainly deduction towards unaccounted expenses reflected in the very same seized documents need to be granted. However, what is relevant to be considered is whether those expenditure are revenue in nature, whether they are not personal in nature and allowable as deduction within the meaning of Section 37(1) of the Act. We find that the ld.CIT(A) had categorically observed that out of the total expenditure of Rs. 6,01,09,970/-, the sum of Rs. 50,00,000/- pertains to land at Taloja, which represents amount spent for some other project of the assessee and expenses of Rs. 10,50,000/- which are prohibited by law and Rs. 1,00,000/- which are capital in nature. There is a categorical finding to this effect in Para 6.13 of the ld. CIT(A) as reproduced supra. Against this finding, the Revenue is not in appeal before us. Hence, the various arguments made by the ld.DR before us at the time of hearing need to be looked into from the perspective of finding given by the ld. CIT(A) in his order which is not appealed by the revenue before us. We find that the ld. DR was trying to point ....
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....g Officer with regard to applicability of provisions of Section 40A(3) of the Act are concerned in respect of unaccounted business expenses incurred in cash, we find admittedly that these are unaccounted transactions and hence, the same would have to be obviously incurred in cash and accordingly, the provisions of Section 40A(3) of the Act cannot be brought into operation at all. It is not the case of the revenue that the various expenses reflected in the seized documents are not meant for the purpose of assessee's business other than the specific instances pointed out by the ld. CIT(A) in Para 6.13 of his order such as expenses that are capital in nature, expenses which are prohibited by law and expenses that are relevant for the different project of the assessee. Admittedly, the seized document contains unaccounted income as well as unaccounted expenditure both were duly transacted only in cash. Hence, the applicability of provisions of Section 40A(3) of the Act to the said payments would not serve the scheme of taxation and would ultimately result only ending up in taxing the entire unaccounted gross receipts alone without giving benefit of deduction to the assessee. This is cer....