The ITO, Ward-1(1)(3), Surat V. M/s. Jay Kesar Bhavani Developers Pvt. Ltd., Surat

ITA 1158/AHD/2017

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1916 (ITAT-SURAT)
• Duration Of Justice: 5 year(s) 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 05-05-2022
• Assessment Year: 2008-2009
• Appeal Filed On: 10-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Proportionate interest; Corroborative evidences; Set aside
• Section: 148; 143(3); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No. 1158/Ahd/2017 (Assessment Year: 2008-09) (Hearing in Physical Court) I.T.O., Ward 1(1)(3), Room No. 113, Aayakar Bhavan, Majura Gate, Surat. Vs. M/s Jay Kesar Bhavani Developers Pvt. Ltd., A-48, Bhulabhai Desai Park, Laxmikant Ashram Road, Katargam, Surat-395004. PAN No. AABCJ 6278 P Appellant/ assessee Respondent/ revenue Department represented by Shri Abhishek Gautam, Sr.DR Assessee represented by Shri Sapnesh Sheth, CA Date of hearing 06/05/2022 Date of pronouncement 07/07/2022 Order under section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the revenue is directed against the order of learned Commissioner of Income Tax (Appeals)-4, Surat (in short, the ld. CIT(A) dated 20/02/2017 for the Assessment year 2008-09. The revenue has raised following grounds of appeal: “1. On the facts and circumstances of the facts and in law, whether the ld. CIT(A) was justified in deleting the addition of Rs. 1,23,96,155/- made on account of cash receipts. 2. On the facts and circumstances of the facts and in law, whether the ld. CIT(A) was justified in deleting the addition of Rs. 35,72,114/- made on account of disallowance of interest expenses. ITA No.1158/Ahd/2017 Jay Kesar Bhavani Developers P Ltd. 2 3. On the facts and circumstances of the case, the ld. CIT(A) ought to have upheld the order of the assessing officer. 4. It is, therefore, prayed that the order of the ld. CIT(A) may be set aside and that of assessing Officer may be restored to the above extent.” 2. Brief facts of the case are that the assessee company is engaged in the business of land developer and civil construction, filed its return of income for the Assessment Year (AY) 2008-09 on 31/03/2009 declaring income of Rs. 9,69,041/-. The return of assessee was selected for scrutiny and assessment as completed under section 143(3) on 12/07/2009 accepting the returned income. Subsequently, the case of assessee was reopened on 29/03/2014. Notice under Section 148 of the Income Tax Act, 1961 (in short, the Act) dated 29/03/2014 was served upon the assessee. The assessment was reopened by recording the reasons that a survey was conducted under Section 133A of the Act on business premises of assessee on 31/12/2009 wherein certain documents were found and impounded. On verification of such impounded material, it was noted that the assessee company received Rs. 1.239 crore in cash against booking of residential units apart from consideration received in cheque. The cash receipt was not shown in the profit and loss account (P&L Account) for A.Y. 2008-09, so the income to that extent was escaped from assessment. In response to notice under Section 148, the assessee filed its reply dated 07/11/2014 ITA No.1158/Ahd/2017 Jay Kesar Bhavani Developers P Ltd. 3 and stated that the return filed originally be treated as return in response to notice under Section 148 of the Act. The assessee asked for reasons recorded. The copy of reasons recorded was provided to the assessee. The Assessing Officer recorded that the assessee was asked to explain about the amount of Rs. 1.239 crore received in cash from 37 persons. The Assessing Officer recorded that neither anybody attended nor any reply was furnished, so the Assessing officer on the basis of documents impounded during the survey action about the cash receipt from 37 persons of Rs. 1.239 crore, was added to the income of assessee. The Assessing officer further recorded that during the financial year under consideration the assessee received interest of Rs. 45.41 lacs and paid interest of Rs. 35.72 lacs. The assessee was asked to explain and give the details about such interest paid and received. The Assessing Officer recorded that the assesse has failed to submit any explanation; therefore, interest paid of Rs. 35.72 lacs was added back to the total income of assessee while passing the assessment order under Section 143(3) r.w.s. 147 of the Act on 23/02/2015. 3. Aggrieved, against the addition in the assessment order and on the validity of reopening under Section 148, the assessee filed detailed written submission. Against the addition of Rs. 1.239 crore, the assessee ITA No.1158/Ahd/2017 Jay Kesar Bhavani Developers P Ltd. 4 submitted that the assesse has recorded entire amount received from various parties against booking of residential units in its books of account and the same is supported by entries in the ledger account of all the parties. It is also evident that the amount received from cheque as well as by cash, both were recorded in the books of account. The entire amount is shown in Schedule-12 of audited balance sheet under head “advances against booking sales”. The total amount appearing under this head is Rs. 3.336 crore and this figure is much higher than the amount of Rs. 1.239 crore referred by the Assessing Officer. The audit report was prepared on 01/09/2008 whereas survey was carried out on 30/12/2009 which further substantiated the fact that the assessee recorded entire amount received from various parties for booking of residential units in its books of account. The Assessing Officer failed to consider the facts which are evident on perusal of audited balance sheet. On the disallowance of interest expenses, the assessee submitted that the Assessing Officer without giving any reasonable opportunity disallowed the entire interest expenses of Rs. 35.72 lacs and added the same to the total income of assessee. The Assessing Officer accepted the interest income of Rs. 45.41 lacs in the P&L account but made disallowance of interest expenditure which is debited to the P&L account. The assessee paid interest on unsecured loans and the ITA No.1158/Ahd/2017 Jay Kesar Bhavani Developers P Ltd. 5 same is claimed as deduction against interest income earned. Copy of ledger account of parties showing interest payment was furnished. The assessee further submitted that the Assessing Officer has not given fair and reasonable time and opportunity before making addition. Thus, the supporting evidence filed by the assessee along with submission may be accepted under Rule 46 of Income Tax Rules, 1962 (in short, the Rules). The assessee explained that the Assessing Officer issued show cause notice only on 02/02/2015 and assessment was completed on 18/02/2015 without giving fair and reasonable opportunity. 4. The additional evidences furnished with submissions was admitted ld. CIT(A) and directed the Assessing Officer to file his remand report on both the additions. The Assessing Officer filed his remand report on 13/10/2016 and again on 01/02/2017. The contents of remand report is reproduced by the ld. CIT(A) in para 7 of his order. In the remand report dated 01/02/2017, the Assessing Officer submitted that on 14/10/2016, the assessee furnished three folders of files heading “confirmation files”. The Assessing Officer noted that out of 37 parties/customers, the assesse furnished confirmation of only six customers. The assessee was asked to produce the parties for examination and the assessee has not produced any of the parties before the Assessing Officer. Thus, in absence of ITA No.1158/Ahd/2017 Jay Kesar Bhavani Developers P Ltd. 6 confirmation or non-appearance of the parties, the claim of assessee could not be ascertained. The Assessing Officer, accordingly, submitted that the addition of unaccounted cash credit is totally justified and to be sustained. On the addition of interest disallowance, the Assessing Officer reported that the assessee is following project completion method, therefore, the interest expenditure incurred on the so called secured loan should have been part of work in progress (WIP) and the same cannot be set off against the interest income. On the perusal of details, it is clear that the assessee availed loan for the purpose of project and the assessee has not submitted anything which can prove otherwise. Therefore, the addition made on account of disallowance of interest expenditure was rightly made during the assessment. 5. The report of Assessing Officer was forwarded to the assessee. The assessee filed its rejoinder. The contents of rejoinder filed by the assessee is recorded in para 8 of his order. In the rejoinder, the assessee submitted that the Assessing Officer not made any effort to make any independent inquiry, either at assessment stage or remand proceedings. The complete details are available on record. The Assessing Officer wrongly observed that the assessee has failed to prove the fact despite providing opportunity. The assessee filed complete details of confirmation in three ITA No.1158/Ahd/2017 Jay Kesar Bhavani Developers P Ltd. 7 files containing confirmation letter of parties, sale deeds and ledger accounts of parties. All these details were filed when matter was remanded to the file of Assessing Officer. The observation of Assessing Officer that confirmation of only six customers was filed is incorrect. The assessee filed confirmation in seven cases. Subsequently, the sale deeds was executed in respect of other units for which advances were received. Copy of sale deeds were filed before the Assessing Officer. The Assessing Officer has not considered those sale deeds nor made any verification of his own. The name of all 37 persons who made booking and advances were received are matching with the annexure in the audit report, which was prepared much before the date of survey. The Assessing Officer totally failed to consider such fact. In six cases relating to A.Y. 2007-08 and in one case relating to A.Y. 2008-09, the assessee received part payment through cheque and part payment through cash. All these payments are reflected in the ledger account of respective parties and closing balance is shown in audited balance sheet which tallies with the ledger account. The contention of Assessing Officer that cash are not recorded is illogical and incorrect. The Assessing Officer failed to bring any evidence which indicates that the assessee received amount from some other parties not appearing in the books of account. The matter relates to more than 8 ITA No.1158/Ahd/2017 Jay Kesar Bhavani Developers P Ltd. 8 years old, thus it cannot be expected from the assessee to file confirmation letter from all the parties. The assessee is not having any power to compel the parties to file their confirmation or to appear before the Assessing Officer. The assessee constructed residential houses which have been allotted to various parties for consideration received which has been duly recorded in the books of account. Complete details of residential unit are appearing in the audited balance sheet, sale deeds and ledger accounts. Against the interest disallowance, the assessee replied that the interest expenses incurred during the year is Rs. 60,96,751/- and out of this amount proportionate interest expenses of Rs. 35,72,114/- attributable to earning of interest income, has been duly claimed as a set off against the interest income earned. The balance amount of interest expenses of Rs. 25,24,637/- has been added to work in progress (WIP) which is evident on perusal of Annexure-7 of audit account. This fact is clearly mentioned in the column of remarks/notes in the ledger accounts of interest expenses. The Assessing Officer has not raised any query and proposed disallowance of interest on the basis of surmises and conjectures. The assesse claimed set off of proportionate interest expenses as the said expenses relates to earning of interest income from various parties as advances to them were given from borrowings made ITA No.1158/Ahd/2017 Jay Kesar Bhavani Developers P Ltd. 9 from HUDCO. The interest bearing loan obtained from HUDCO was transferred into Escrow account opened with Axis bank and Bank of India which in turn were given as advance to various parties on short term basis. During the year, the assessee made borrowings for carrying its business but there were certain unused funds available with assessee and it was given as advance on temporary basis on which the assessee earned interest income. Under the provision of I.T. Act, the expenditure which is incurred for earning of income required to be deducted for arriving at net income liable for taxation. The assessee had borrowings from HUDCO of Rs. 9.11 crores and has given advance of Rs. 7.46 crore to various persons on interest. As such approximately, 79% of borrowed funds have been used for giving advances on interest and consequently, interest expenditure has been claimed to the extent of 79% of interest income (Rs. 45.11 lacs) as set off. Thus, proportionate interest expenses have been claimed as deduction which is very much allowable under the provisions of the Act. 6. The ld. CIT(A) on consideration of submission of assessee, held that the addition of Rs. 1.239 crore is based on the plea as recorded for reopening the case and the allegation that advances found recorded in the impounded material during the survey do not find place in the final books ITA No.1158/Ahd/2017 Jay Kesar Bhavani Developers P Ltd. 10 of account and declared final profit. The Assessing Officer made addition of the amount by taking a view that the assessee did not prove before him that these amount in fact were taken into books of account. In the remand report, the Assessing Officer took a totally opposite stand that the credits in the books of account are not explained and genuineness is not proved. The ld. CIT(A) on considering the submission of assessee, agreed that the advances shown in the impounded record are found matching with the Schedule of such advances in the final account and audit report which were filed (prepared) before the date of survey. There was no reasonable cause to doubt these being outside the books of account. The Assessing Officer in his remand report has not brought any single entry where the advance in the impounded record did not figure in the final/regular books. The ld CIT(A) held that it is not the case where two different advances are shown for a single flat at two different places. The assessee has shown that these advances have been taken into sales and recognized as revenue subsequently. There is no iota of evidence for making addition accordingly; addition of Rs. 1.239 crore was deleted. 7. On the disallowance of interest expenses, the ld. CIT(A) held that the Assessing Officer justified the disallowance of interest expenditure on three counts i.e. (i) the secured loans have been taken for the purpose of ITA No.1158/Ahd/2017 Jay Kesar Bhavani Developers P Ltd. 11 completion of project, (ii) the assessee is following project completion method, therefore, the interest expenses incurred, unsecured loan should have been part of work in progress and the same cannot be set off against the interest income and (iii) on perusal of details furnished during the appellate stage and the purpose of loan for the project and nothing adverse is submitted. The ld. CIT(A) after considering the submission of assessee agreed with the contention of assesse that although the borrowings from HUDCO were for the purpose of project only, the account shows that a substantial part of which were at least during the year diverted to various parties on interest and interest income of Rs. 45.41 lacs was earned from such advances. It is not for the department to see whether HUDCO permitted the assessee to do or not. The fact remains that around 79% of borrowings from HUDCO was diverted for earning interest income. The assessee debited interest income only Rs. 35.72 lacs against the interest income of Rs. 45.41 lacs from such advances and balance of interest expenses Rs. 45,14,637/- has been taken to work in progress expenses which is evident on perusal of Annexure-7 of audited P&L account. The interest earned on parking of spare funds is taxable, however, the interest expenses for earning it is to be allowed. Therefore, the claim of assessee in this regard is totally as per accounting practice ITA No.1158/Ahd/2017 Jay Kesar Bhavani Developers P Ltd. 12 and law. This interest disallowance cannot be added and justified and deleted such disallowance. Aggrieved by the order of ld. CIT(A), the Revenue has filed the present appeal before this Tribunal. 8. We have heard the submissions of learned senior departmental representative (ld. Sr. DR) for the Revenue and the ld. authorised representative (AR) for the assessee and have gone through the orders of the authorities below. The ld. Sr. DR for the revenue submits that during the remand proceedings for the A.Y. 2008-09 out of total 37 customers, the assessee furnished confirmation of 5 or 6 customers only. The assessee was asked to produce the parties and the assessee has neither produced any party nor filed any confirmation. Therefore in absence of complete details, the claim of assessee cannot be ascertained as correct and genuine. On deleting the interest disallowance, the ld. Sr. DR submits that the secured loans were availed by assessee for the purpose of completion of project. The assesse was following project completion method, thus the interest expenses incurred on the so called secured loan should have been part of work in progress and the same cannot be set off against the interest income. 9. On the other hand, the ld. AR of the assesses supported the order of ld. CIT(A) on both the issues. The ld. AR submits that the assessee has ITA No.1158/Ahd/2017 Jay Kesar Bhavani Developers P Ltd. 13 recorded entire amount received from various parties against booking of residential units in its books of account and the same is supported by entries in the ledger account of all the parties. It is also evident that the amount received from cheque as well as by cash, both were recorded in the books of account. The entire amount is shown in Schedule-12 of audited balance sheet under head “advances against booking sales”. The total amount appearing under this head is Rs. 3.336 crore and this figure is much higher than the amount of Rs. 1.239 crore referred by the Assessing Officer. On the disallowance of interest expenses, the ld. AR of the assessee submitted that the Assessing Officer without giving any reasonable opportunity disallowed the entire interest expenses of Rs. 35.72 lacs and added the same to the total income of assessee. The Assessing Officer accepted the interest income of Rs. 45.41 lacs in the P&L account but made disallowance of interest expenditure which is debited to the P&L account. The ld. AR submits that the Assessing Officer issued show cause notice only on 02/02/2015 and assessment was completed on 18/02/2015 without giving fair and reasonable opportunity. The ld AR for the assessee submits during the remand report the Assessing Officer neither made any effort to make any independent inquiry nor at re- assessment stage or remand proceedings. The complete details are ITA No.1158/Ahd/2017 Jay Kesar Bhavani Developers P Ltd. 14 available on record before assessing officer. The assessee filed complete details of confirmation in three files containing confirmation letter of parties, sale deeds and ledger accounts of parties. The ld AR for the assessee submits that all details were filed when matter was remanded to the file of Assessing Officer. Subsequently, the sale deed was executed in respect of other units for which advances were received. Copy of sale deeds were filed before the Assessing Officer. The Assessing Officer has not considered those sale deeds nor made any verification of his own. The name of all 37 persons who made books and advances were received are matching with the annexure in the audit report, which was prepaid much before the date of survey. The ld. AR submits that the matter relates to more than 8 years old, thus it cannot be expected from the assessee to file confirmation letter from all the parties. When the assessee is not having any power to compel the parties to file their confirmation or to appear before the Assessing Officer. Complete details of residential unit are appearing in the audited balance sheet, sale deeds and ledger accounts. 10. Against the interest disallowance, the ld AR for the assessee submitted that the assessee incurred interest expenses of Rs. 60,96,751/- and out of this amount proportionate interest expenses of Rs. 35,72,114/- attributable to earning of interest income has been duly claimed as a set ITA No.1158/Ahd/2017 Jay Kesar Bhavani Developers P Ltd. 15 off against the interest income earned. The balance amount of interest expenses of Rs. 25,24,637/- has been added to work in progress. This fact is clearly mentioned in the note in books of accounts. The ld. AR submits that assesse claimed set off of proportionate interest expenses as the said expenses relates to earning of interest income from various parties as advances to them were given from borrowings made from HUDCO. Thus, proportionate interest expenses has been claimed as deduction which is very much allowable under the provisions of the Act, the ld CIT(A) on appreciation of facts found interest expenses in order. 11. We have considered the rival submissions of the parties and have gone through the orders of the lower authorities carefully. Ground No. 1 relates to deleting the addition of Rs. 1.239 Crore. We find that the Assessing Officer made addition by taking a view that in a survey was conducted under Section 133A on 31.12.2009 at business premises of assessee, certain documents were found and impounded, which shows that the assessee company received Rs. 1.239 crore in cash against booking of residential units apart from consideration received in cheque from 37 persons. The cash receipt was not shown in the P&L Account for A.Y. 2008-09. Before ld CIT(A), the assessee filed detailed written submissions and the supporting documents to substantiate the facts that the cash ITA No.1158/Ahd/2017 Jay Kesar Bhavani Developers P Ltd. 16 components received from the 37 booking parties were included in the books of accounts. 12. On the additional evidences filed with the submissions, the ld. CIT(A) directed the assessing officer to file his remand report. The contents of the remand report and the rejoinder filed by the assessee are not repeated herein as the same has been recorded (supra). we find that in the remand report, the assessing Officer instead of verifying whether cash component is recorded in the books of accounts and has been included in the income and offered for tax or not, took a different stand that the genuineness of amount was not proved by the assessee. The real issue during the assessment was that whether the cash received by assessee has been duly impounded for profit or not. We find that the ld. CIT(A) rightly appreciated the fact that once the advance as per the impounded material is found matching with the Schedule of advances in the final account. There was no reasonable cause to doubt these cash payments as being outside the books. The Assessing Officer has not brought any evidence that the impounded record did not recorded in the final books. It is interesting to note that survey was conducted by survey team in December 2009 and the notice under section 148 was served on 29 th March 2014. The assessing officer kept the matter under cold storage for four years. ITA No.1158/Ahd/2017 Jay Kesar Bhavani Developers P Ltd. 17 13. We find that the ld. CIT(A) on appreciation of fact, found that the assessee has included the cash component in his regular books of account and deleted the addition. No contrary fact or law is brought to our notice to take other view. Thus, we affirm the order of ld. CIT(A) on deleting the addition of Rs. 1.239 crore. In the result, the ground of appeal is dismissed. 14. Ground No. 2 of the appeal relates to disallowance of interest expenses. The Assessing Officer made the addition by taking a view that assessee received interest of Rs. 45.41 lacs and paid interest of Rs. 35.72 lacs. The assessee was asked to explain and give the details about such interest paid and received and that the assessee has failed to submit any explanation, therefore, interest paid of Rs. 35.72 lacs was added to the total income of assessee. We find that the ld. CIT(A) has given relief to the assessee by holding that though, the borrowings from HUDCO were for the purpose of project only, however, the account shows that a substantial part of borrowing were diverted to various parties on interest and earned interest of Rs. 45.41 lacs from such advances. It was held the department has not to see whether HUDCO permitted the assessee to do or not. The fact is that about 79% of borrowings from HUDCO were diverted for earning interest income. The total interest expenses incurred ITA No.1158/Ahd/2017 Jay Kesar Bhavani Developers P Ltd. 18 during the year is Rs. 60,96,751/-, out of this amount proportionate interest expenses of Rs. 35,72,114/- attributable to earning of interest income, has been duly claimed as a set off against the interest income earned. The balance amount of interest expenses of Rs. 25,24,637/- has been added to work in progress (WIP) which is shown in audited P&L account. The interest had earned interest income on parking of spare funds, is taxable, however, the interest expenses for earning it is to be allowable. It was held that the claim of assessee in this regard is totally as per accounting practice and law. We find that the ld CIT(A) granted relief to the assessee on appreciation of facts in proper perspective. No contrary fact or law is brought to our notice to take other view. Thus, we affirm the order of ld. CIT(A) on deleting the disallowance of interest expenses. 15. Grounds No. 3 and 4 of the appeal raised by the revenue are general in nature and needs no adjudication. 16. In the result, this appeal of the revenue is dismissed. Order pronounced in the open court on 07 th July, 2022 at the time of hearing of this appeal. Sd/- Sd/- (Dr. ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 07/07/2022 ITA No.1158/Ahd/2017 Jay Kesar Bhavani Developers P Ltd. 19 *Ranjan Copy to: 1. Assessee – 2. Revenue - 3. CIT(A) 4. CIT 5. DR 6. Guard File By order Sr.Private Secretary, ITAT, Surat