M/s. Sainath Estates (P) Ltd., Hyderabad V. DCIT, Central Circle-2, Hyderabad

ITA 1255/HYD/2012

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6485 (ITAT-HYDERABAD)
• Duration Of Justice: 6 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 15-10-2018
• Assessment Year: 2008-2009
• Appeal Filed On: 21-08-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C SRINIVAS REDDY
• Assessee Lawyers: A V RAGHURAM; T CHAITANYA KUMAR
• Keywords: Business income; Search and seizure
• Section: 43B; 40A(3); 143(3); 153A; 80IB; 69; 132; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A , HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA. NO .1254/HYD/2012 ( ASSESSMENT YEARS 2007 - 08) ITA. NO .1255/HYD/2012 ( ASSESSMENT YEARS 2008 - 09) ITA. NO .1256/HYD/2012 ( ASSESSMENT YEARS 2009 - 10 ) M/S. SAINATH ESTATES (P) LTD., 1 - 8 - 333 & 334, A - WANE, BEGUMPET, HYDERABAD. PAN: AAFCS 0211 D VS. DCIT, CENTRAL CIRCLE - 2, HYDERABAD. (APPELLANT) (RESPONDENT) ITA. NOS. 1363/H/2012 ( ASSESSMENT YEAR 2007 - 08) ITA. NOS. 1364/H/2012 ( ASSESSMENT YEAR 2008 - 09) ITA. NOS. 1365/H/2012 ( ASSESSMENT YEAR 2009 - 10 ) ACIT, CENTRAL CIRCLE - 2, HYDERABAD. VS. M/S. SAINATH ESTATES (P) LTD., 1 - 8 - 333 & 334, A - WANE, BEGUMPET, HYDER ABAD. PAN: AAFCS 0211 D (APPELLANT) (RESPONDENT) ITA. NOS. 1103 AND 1104 /H/2016 ASSESSMENT YEAR S 2010 - 11 AND 2011 - 12 DCIT, CIRCLE - 3(1), HYDERABAD. VS. M/S. SAINATH ESTATES (P) LTD., 1 - 8 - 333 & 334, NEAR HUDA OFFICE, BEGUMPET, HYDERABAD. PAN: AAFCS 0211 D (APPELLANT) (RESPONDENT) ITA. NOS. 1567/H/2012 ( ASSESSMENT YEAR 2009 - 10) ACIT, CENTRAL CIRCLE - 2, HYDERABAD. VS. SHRI KRV UDAY CHARAN RAO, 1 - 8 - 505, PRAKASH NAGAR, BEGUMPET, HYDERABAD. PAN: AQSPK 5459 M (APPELLANT) (RESPONDENT) 2 FOR ASSESSEE : SHRI A.V. RAGHURAM AND T. CHAITANYA KUMAR FOR REVENUE : SHRI C. SRINIVAS REDDY, DR DATE OF HEARING : 15.10 .201 8 DATE OF PRONOUNCEMENT : 11 .01.2019 ORDER PER SMT. P. MADHAVI DEVI, J.M.: ALL THE ABOVE APPEALS ARE CROSS APPEALS OF THE ASSESSEE - COMPANY AS WELL AS THE REVENUE FOR THE A.YS 2007 - 08, 2008 - 09 AND 2009 - 10, WHILE FOR THE A.Y. 2010 - 11 AND 2011 - 12 ONLY REVENUE IS IN APPEAL. HOWEVER, FOR THE ASSESSMENT YEAR 2009 - 10 , ITA NO. 1567/H/2012 IS THE REV ENUES APPEAL AGAINST THE ORDER OF THE CIT(A) - 1, HYDERABAD DATED 21/08/2012 DELETING THE ADDITION OF RS. 3 CRS MADE U/S 69A OF THE ACT IN THE HANDS OF THE INDIVIDUAL ASSESSEE SRI KRV UDAY CHARAN RAO WHICH IS BEING TAKEN UP FIRST ALONG WITH ITA NO.1256/H/20 12 WHICH IS THE APPEAL FILED BY THE ASSESSEE - COMPANY M/S. SAINATH ESTATES AGAINST THE ORDER OF THE CIT(A) - 1, HYDERABAD DATED 28.06.2012 CONFIRMING THE ADDITION OF RS. 3 CRS AND OTHER DISALLOWANCES IN THE HANDS OF THE ASSESSEE - COMPANY U/S 69 OF THE ACT . ITA NO. 1567/H/2012 (A.Y. 2009 - 10) (BY REVENUE) 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, AN INDIVIDUAL, WAS TRAVELLING BY AIR FROM HYDERABAD TO NEW DELHI , W HEN HE WAS SEARCHED U/S 132 OF THE ACT AT INDIRA GANDHI INTERNATIONAL AIR PORT, NEW DELHI AND WAS FOUND TO BE CARRYING RS. 3 CRS IN CASH WITH HIM . ON QUESTIONING, HE STATED THAT IT BELONGED TO THE COMPANY AND S UBSEQUENTLY, THE ENTIRE CASH WAS OWNED UP BY THE COMPANY M/S. 3 SAINATH ESTATES PVT LTD ALSO AS ITS UNEXPLAINED MONEY. FURTHER, DURING T HE SEARCH PROCEEDINGS AT THE BUSINESS PREMISES OF M/S. SAINATH ESTATES PVT LTD, PHYSICAL CASH OF RS. 1,00,62,250/ - WAS ALSO FOUND AND THIS WAS ALSO OWNED UP BY THE COMPANY. EVEN IN THE STATEMENT RECORDED DURING THE COURSE OF SEARCH , THE ASSESSEE EXPLAINED THAT THE SOURCES OF THE CASH FOUND, W AS THE AMOUNT OF RS. 2,37,00,000/ - BEING THE CASH WITHDRAWN FROM THE BANK ACCOUNT OF M/S. SAINATH ESTATES PVT LTD AND THAT THE BALANCE W AS THE CASH WITHDRAWN FROM CASH BALANCE S AVAILABLE IN THE BOOKS OF ACCOU NT OF M/S. SAINATH ESTATES PVT LTD. WHEN QUESTIONED, SRI K. PREM SAGAR RAO , THE M.D OF THE COMPANY, DEPOSED THAT THE CASH BALANCE WITH THE COMPANY AS PER THE BOOKS OF ACCOUNT MAINTAINED IN TALLY PACKAGE WAS AROUND RS. 4 CRS AS ON 16.03.2009. AS REGARDS T HE CASH OF RS. 3 CRS FOUND WITH SRI KRV UDAY CHARAN RA O AND SRI HARISH KUMAR KUNDRA AT NEW DELHI AIR PORT , IT WAS DEPOSED THAT THE SAME WAS BEING CARRIED BY THEM TO ARUNACHAL PRADESH TO MEET THE CIVIL WORKS PAYMENTS AND TO MAKE ADVANCE PAYMENTS TO THE CON TRACTORS FOR THE WORKS OF M/S. KRISHNODAYA INDUSTRIES PVT LTD, UNDERTAKEN BY M/S. SAINATH ESTATES PVT LTD. WHEN QUESTIONED ABOUT THE PURPOSE OF CARRYING ON THE CASH PHYSICALLY INSTEAD OF TRANSFERRING THE SAME THROUGH BANKING CHANNELS, IT WAS STATED THAT M /S. SAINATH ESTATES PVT LTD D ID NOT HAVE ANY BANK ACCOUNT IN ARUNACHAL PRADESH AND THEREFORE, THE CASH WAS BEING CARRIED PHYSICALLY. 3. THE A.O. OBSERVED THAT THE BOOKS OF ACCOUNT OF M/S. SAINATH ESTATES PVT LTD WERE MAINTAINED IN TALLY PACKAGE AND NOTI CED THAT THE ENTRIES WERE NOT UPDATED AS ON THE DATE OF SEARCH AND THAT THE CASH BALANCE AS PER THE BOOKS OF ACCOUNT AS ON 10.3.2009 WAS RS. 3,04,22,553/ - . HE ALSO OBSERVED THAT DURING THE COURSE OF SEARCH PROCEEDINGS , IT WAS NOTICED THAT A CASH DEPOSIT OF RS. 1 CR WAS MADE ON 16.03.2009 IN THE BANK ACCOUNT NO. 30181010004411 OF M/S. SAINATH 4 ESTATES PVT LTD WITH SYNDICATE BANK AND THAT DURING THE COURSE OF SEARCH PROCEEDINGS ON 1 6 .03.2009, A PHYSICAL CASH OF RS.1,00,62, 250/ - WAS ALSO FOUND IN THE OFFICE OF M/S. SAINATH ESTATES PVT LTD IN ADDITION TO RS. 3 CRS FOUND ON THE PERSON OF SRI KRV UDAY CHARAN RAO AND SRI HARISH KUMAR KUNDRA. WHEN CONFRONTRED, SRI K. PREMSAGAR RAO SUBMITTED THAT THERE WERE SOME OMISSIONS AND COM MISSIONS IN THE BOOKS OF ACCOUNT OF M/S. SAI NATH ESTATES PVT LTD AND THAT HE IS UNABLE TO EXPLAIN THE SOURCES FOR THE CASH AGGREGATING TO RS. 4,00,62,250/ - AND HE ADMITTED AN AMOUNT OF RS. 4 CRS AS THE UNDISCLOSED INCOME OF M/S. SAINATH ESTATES PVT LTD FOR THE FINANCIAL YEAR 2008 - 09 RELEVANT TO THE ASSESSMENT YEAR 2009 - 10. THE SAME WAS CONFIRMED BY SRI K. PREMSAGAR RAO DURING HIS SWORN STATEMENTS RECORDED ON 18.03.2009 AND 12.05.2009. SIMILARLY, THE INDIVIDUAL ASSESSEE ALSO CONFIRMED THAT THE CASH FOUND WI TH HIM AT NEW DELHI AIRPORT BELONG ED TO M/S. SAINATH ESTATES PVT LTD IN HIS DEPOSITION DATED 12.05.2009 AND THAT THIS IS THE UNDISCLOSED INCOME OF THE COMPANY FOR THE FINANCIAL YEAR 2008 - 09. 4 . AFTER CONSIDERING ALL THESE CONTENTIONS AND CONSIDERING THE F ACT THAT THE COMPANY , THOUGH ADMITT ED IN THE SEARCH PROCEEDINGS THAT THE CASH BELONG ED TO IT, DID NOT ADMIT THE UNEXPLAINED CASH IN ITS RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR 2009 - 10 , THE A.O. ADDED THE SUM OF RS. 3 CRS PROTECTIVELY IN THE HANDS O F THE ASSESSEE , SRI KRV UDAY CHARAN RAO AND SUBSTANTIVELY IN THE HANDS OF THE COMPANY AND BROUGHT IT TO TAX. 5 . AGGRIEVED, THE INDIVIDUAL ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), WHO DELETED THE SAME BY OBSERVING THAT THE SINCE THE SUBSTANTIVE ADDITION MADE IN THE HANDS OF THE COMPANY M/S. SAINATH ESTATES PVT LTD WAS CONFIRMED BY HIM, THE ADDITION OF RS. 3 CRS MADE IN THE HANDS OF THE ASSESSEE ON PROTECTIVE BASIS DESERVES TO BE DELETED IN THE ABSENCE OF ANY OTHER EVIDENCE TO SHOW THAT THE CASH FOUND BELONG ED TO THE 5 ASSESSEE. AGAINST THE RELIEF GRANTED TO THE ASSESSEE, THE REVENUE IS IN APPEAL BEFORE US BY RAISING THE FOLLOWING GROUNDS OF APPEAL: - 1. THE ORDER OF THE CIT(A) IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2. THE CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDITION OF RS. 3 CRS MADE U/S 69A OF THE IT ACT IN THE CASE OF THE ASSESSEE ITA NO.1256/H/2012 (A.Y. 2009 - 10) (BY ASSESSEE) 6 . THIS APPEAL IS FILED BY THE ASSESSEE - COMPANY M/S. SAINATH ESTATES PVT LTD , WHEREIN THE ASSESSEE HAS RAISED A GROUND OF APPEAL AGAINST THE CONFIRMATION OF ADDITION OF RS. 3 CRS IN ITS HANDS. THEREFORE, WE DEEM IT FIT AND PR OPER TO DEAL WITH THIS ISSUE FIRST ALONG WITH REVENUE APPEAL IN THE CASE OF INDIVIDUAL SRI KRV UDAY CHARAN RAO. 7 . ON GOING THROUGH THE FACTS OF THE CASE, WE FIND THAT SINCE THE TIME OF SEARCH, THE CONTENTION OF THE INDIVIDUAL ASSESSEE AS WELL AS THE COMPANY M/S. SAINATH ESTATES PVT LTD HAS BEEN THAT THE CASH FOUND WITH THE INDIVIDUAL SRI KRV UDAY CHARAN RAO BELONG ED TO THE CO MPANY. THE INDIVIDUAL AS WELL AS THE COMPANY HAVE TRIED TO EXPLAIN THE SOURCES OF THE CASH BUT THE CONTENTION THAT THE CASH BELONG ED TO THE COMPANY HAS NEVER CHANGED. IN VIEW OF THESE FACTS ONLY, THE SUBSTANTIVE ADDITION IN THE HANDS OF THE COMPANY , HAS BEEN CONFIRMED BY THE CIT(A) AND THEREFORE, THE PROTECTIVE ADDITION IN THE HANDS OF THE INDIVIDUAL HAS BEEN RIGHTLY DELETED BY THE CIT(A). THEREFORE, THE REVENUE S APPEAL IN ITA NO. 1567/H/2012 IS DISMISSED. 8 . AS REGARDS THE COMPANYS PLEA THAT THE ADDI TION MADE ON ACCOUNT OF CASH FOUND IN THE HANDS OF THE ASSESSEE SHOULD NOT HAVE BEEN HELD AS UNEXPLAINED MONEY, THE RELEVANT GROUND NO.4 IS AS UNDER: - 6 4. THE APPELLANT SUBMITS THAT CIT(A) HAVING TAKEN ON RECORD THE EVIDENCE WITH RESPECT TO THE AVAILABILI TY OF CASH WITH THE APPELLANT SHOULD NOT HAVE SUSTAINED THE ADDITION AND SHOULD NOT HAVE HELD THAT THE CASH IS UNEXPLAINED MONEY. 9 . DURING THE ASSESSMENT PROCEEDINGS, THE COMPANY HAS TRIED TO EXPLAIN THE SOURCES FOR TH E CASH OF RS. 4,00,62,250/ - FOUND DURING THE COURSE OF SEARCH BOTH AT THE BUSINESS PREMISES OF THE COMPANY AS WELL AS IN THE POSSESSION OF SRI KRV UDAY CHARAN RAO AS THE CASH WITHDRAWN FROM ITS BANK ACCOUNT. SINCE THE ASSESSING OFFICER DID NOT ACCEPT THE A SSESSEES CONTENTION, SUBSTANTIVE ADDITION WAS MADE IN THE HANDS OF THE COMPANY AGAINST WHICH THE ASSESSEE FILED THE APPEAL BEFORE THE CIT(A). THE CIT(A) PERUSED THE SUMMARY OF CASH FOR THE MONTH OF MARCH 2009 AS WELL AS THE BANK ENTRIES AS PER THE DETAIL S FILED BY THE ASSESSEE FOR THE MONTH OF MARCH 2009. HE OBSERVED THAT CASH OF RS. 3 CRS WAS SEIZED FROM SRI KRV UDAY CHARAN RAO AND HARISH KUMAR KUNDRA ON 17.03.2009 AT INDIRA GANDHI INTERNATIONAL AIRPORT, NEW DELHI AND PHYSICAL CASH OF RS. 1,00,62,250/ - WAS FOUND AT THE BUSINESS PREMISES OF M/S. SAINATH ESTATES. HE FURTHER OBSERVED THAT AT THE TIME OF SEARCH, THE BOOKS OF ACCOUNT WERE NOT UPDATED AND CASH BALANCES COULD NOT BE DRAWN PROPERLY. HE ALSO OBSERVED THAT DESPITE HAVING HUGE CASH BALANCES AS PE R THE CASH BOOK, THE ASSESSEE HAD DRAWN CASH FROM THE BANK REGULARLY AND THAT TOO MOST OF THESE WITHDRAWALS WERE SELF - WITHDRAWALS AND THE ASSESSEE COULD NOT FURNISH THE DETAILS OF PAYMENTS MADE FROM THESE WITHDRAWALS . OBSERVING THAT THERE IS NO LIVE - LINK BETWEEN T HE SO CALLED CASH WITHDRAWALS FROM THE BANK AND THE CASH FOUND ON THE DAY OF SEARCH, CIT(A) CONFIRMED THE ADDITION OF RS. 4,00,62,250/ - IN THE HANDS OF THE COMPANY AS UNEXPLAINED MONEY U/S 69A OF THE ACT AND THE ASSESSEE IS IN APPEAL BEFORE US A GAINST THE SAME. 7 10 . LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON HIS SUBMISSIONS MADE BEFORE THE CIT(A) AND SUBMITTED THAT ITS BOOKS OF ACCOUNT MAY BE DIRECTED TO BE V ERIF IED AND ONLY IF IT IS FOUND THAT THE ASSESSEE HAD CASH WITHDRAWALS SUFFICIENT TO EXPLAIN THE SOURCES, THE SAME MAY BE ACCEPTED. IN SUPPORT OF HIS CONTENTION THAT THE CONSTRUCT ED CASH BOOK ALSO BE CONSIDERED, HE RELIED UPON THE DECISION OF THE THIRD MEMBE R IN THE CASE OF MS. AISHWARYA K. RAI VS. DCIT (2007) 104 ITD 0166 (TM). 1 1 . THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE BURDEN OF PROVING THE CLAIM LIES ON THE ASSESSEE , BUT THE ASSESSEE COULD NOT EXPLAIN THE SOURCES FOR THE CASH FOUND IN POSSESSION OF SRI KRV UDAY CHARAN RAO AND ALSO IN ITS PREMISES AT THE TIME OF SEARCH. HE SUBMITTED THAT THE EXPLANATION OF THE ASSESSEE ABOUT THE CASH WITHDRAWALS IS NOTHING BUT AN AFTE R THOUGH T AND THEREFORE SHOULD NOT BE ENTERTAINED. 1 2 . HAVING REGARD TO THE RIVAL CONTENTION S AND THE MATERIAL ON RECORD, WE FIND THAT DURING THE ASSESSMENT PROCEEDINGS ITSELF , THE ASSESSEE HAD TRIED TO EXPLAIN THE SOURCES AS THE CASH WITHDRAWALS FROM THE BANK ACCOUNTS. ADMITTEDLY , THE CASH BOOKS WAS NOT UPDATED ON THE DAY OF SEARCH AND THE STATE MENTS WERE ALSO RECORDED , BEFORE THE BOOKS OF ACCOUNTS WERE COMPLETED. THE A.O. AND THE CIT(A) HAVE VERIFIED THE CASH BALANCES AVAILABLE AND FOUND THAT THERE WERE HUGE CASH WITHDRAWALS BY THE ASSESSEE BY WAY OF CHEQUES. THE REASON FOR NOT ACCEPTING THE A SSESSEES CONTENTION BY THE AUTHORITIES IS THAT , THE ASSESSEE HAS FAILED TO EXPLAIN AS TO WHY ON A PARTICULAR DATE THE ASSESSEE HAD TO WITHDRAW CASH BY WAY OF FOUR CHEQUES WHEN IT COULD HAVE DONE BY ONE CHEQUE AND THAT T HE ASSESSEE HAS ALSO FAILED TO ESTAB LISH THE LINK BETWEEN THE CASH WITHDRAWN AND THE CASH FOUND AT THE TIME OF SEARCH. SINCE BOTH THE A.O. AND THE CIT(A) HAVE VERIFIED THE CASH AND BANK STATEMENTS AND HAVE 8 COME TO THE CONCLUSION THAT THE ASSESSEE COULD NOT EXPLAIN THE SOURCES FOR THE CASH FO UND AT THE TIME OF SEARCH, AND EVEN BEFORE US, THE ASSESSEE COULD NOT ESTABLISH THE LIVE LINK, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). THUS, GROUND NO.4 RAISED BY THE ASSESSEE - COMPANY IS ACCORDINGLY REJECTED. 1 3 . GROUND NO.2 RAISED BY THE ASSESSEE IS AS FOLLOWS: 2. THE APPELLANT SUBMITS THAT, A MERE SHORTFALL OF 48 SQ. YARDS CANNOT BE A REASON FOR DISALLOWANCE OF CLAIM U/S 80 - IB(10) IN RESPECT OF PROJECT SAI SAGAR HEIGHTS. THE APPELLANT SUBMITS THAT THE LD. CIT(A) SHOULD HAVE OBSERVED THAT THERE IS SUBSTANTIAL COMPLIANCE OF THE PROVISIONS OF THIS SECTION AND THEREFORE SHOULD NOT HAVE DISALLOWED THE CLAIM U/S 80 - IB(10). 1 4 . AS REGARDS THIS GROUND, BRIEF FACTS ARE THAT IN RESPONSE TO THE NOTICE U/S 153A OF THE ACT, THE ASS ESSEE FILED ITS RETURN OF INCOME DISCLOSING INCOME ARISING OUT OF BUSINESS A ND PROFESSION OF RS. 12,55,61,984/ - AND CLAIMED DEDUCTION OF EQUIVALENT AMOUNT U/S 80 - IB OF THE ACT. DURING THE COURSE OF SEARCH PROCEEDINGS AND POST SEARCH INVESTIGATION, THE DDI T (INV) NOTICED THAT THE ASSESSEE - COMPANY VIOLATED THE PROVISIONS OF SECTION 80 - IB BY CONSTRUCTING THE FLATS WHERE THE BUILT UP AREA OF ALMOST EVERY FLAT EXCEEDED THE PRESCRIBED LIMIT OF 1500 SFT. THE A.O. OBSERVED THAT THE ASSESSEE - COMPANY HAS CONSTRUCTE D FOUR RESIDENTIAL COMPLEXES VIZ., MANASAROVAR HEIGHTS - I, II AND III AT HASMATPET VILLAGE AND IVTH ONE AT SAI SAGAR HEIGHTS AT BEGUMPET, SECUNDERABAD. 1 5 . AS FAR AS THE DEDUCTION WITH REGARD TO THE PROJECT AT SAI SAGAR HEIGHTS IS CONCERNED, THE A.O. OBS ERVED THAT THE ASSESSEE HAS BEEN CLAIMING DEDUCTION ON THE PROFITS DERIVED FROM THIS HOUSING PROJECT IN THE EARLIER ASSESSMENT YEARS AND THE SAME HAS BEEN DENIED ON THE GROUND THAT THE ASSESSEE DID NOT FULFIL THE MANDATORY CONDITION OF HAVING 9 MINIMUM 1 ACR E OF LAND FOR THE DEVELOPMENT OF HOUSING PROJECT. THE CIT(A) CONFIRMED THE DISALLOWANCE OF DEDUCTION U/S 80 - IB AND BROUGHT IT TO TAX AGAINST WHICH, THE ASSESSEE IS NO W IN SECOND APPEAL BEFORE US. SINCE THE DEDUCTION U/S 80 - IB WITH REGARD TO SAI SAGAR HEI GHTS IS EMANATING FROM THE EARLIER ASSESSMENT YEARS, THE SAME SHALL BE CONSIDERED WHILE DEALING WITH THE ISSUE IN THE ASSESSMENT YEAR 2007 - 08. 1 6 . GROUND NO.3 RAISED BY THE ASSESSEE IS AS FOLLOWS: - 3. THE APPELLANT SUBMITS THAT THE LD. CIT(A) ERRED IN LAW IN SUSTAINING THE ADDITION U/S 40A(3) DESPITE TAKING ON RECORD THE COMPELLING REASONS AND CIRCUMSTANCES UNDER WHICH THE PAYMENT WAS MADE IN CASH. 1 7 . BRIEF FACTS RELATING TO THIS ISSUE ARE THAT THE ASSESSEE - COMPANY HAD DEBITED A SUM OF RS. 45,11, 23,681/ - AS CONSTRUCTION EXPENSES AND FURTHER UNDER THE HEAD ADMINISTRATIVE AND GENERAL EXPENSES A SUM OF RS. 1,81,08,014/ - WAS ALSO DEBITED. THE ASSESSEE - COMPANY WAS ASKED TO FURNISH EVIDENCES IN SUPPORT OF SUCH EXPENDITURE BUT THE ASSESSEE COULD NOT F URNISH ANY EVIDENCE. THE A.O. OBSERVED THAT SINCE THE ASSESSEE FAILED TO RESPOND AND FURNISH ANY EVIDENCES IN SUPPORT OF ITS CLAIM, 10% OF THE EXPENDITURE UNDER BOTH THE HEADS IS TO BE DISALLOWED . HE ACCORDINGLY ADDED IT TO THE RETURN ED INCOME OF THE ASS ESSEE AND BROUGHT IT TAX , AGAINST WHICH , THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) EXPLAINING THAT THE PAYMENTS WERE ACTUALLY MADE IN CHEQUES IN THE FIRST PLACE BUT SINCE THE CHEQUES WERE RETURNED BY THE BANKERS, THE SAME AMOUNT AGGREGATING TO RS. 3.20 CRS WAS PAID IN CASH TO DIFFERENT PERSONS FOR SETTLEMENT OF DISPUTE PERTAINING TO LAND PURCHASES AND THE ASSESSING OFFICER DISALLOWED THE SAME U/S 40A(3) OF THE ACT. THE APPELLANT SUBMITTED THAT THE RECEIPTS ACKNOWLEDGING THE CASH PAYMENTS ARE PART OF THE SEIZED MATERIAL. IT WAS ALSO SUBMITTED THAT THE 10 ORIGINAL PAYMENTS IN RESPECT OF THE LAND LITIGATION ETC., WERE MADE BY WAY OF CROSSE D CHEQUES. CIT(A) DID NOT ACCEPT THE ASSESSEES CONTENTION AND HELD THAT REPEATED ISSUANCE OF CHEQUES PROVES THAT THE ASSESSEE RESORTED TO ISSUE OF CHEQUES INITIALLY WITHOUT SUFFICIENT BALANCE IN ITS BANK ACCOUNT AND THEREAFTER MADE CASH PAYMENTS. HE THE REFORE CONFIRMED THE DISALLOWANCE , AGAINST WHICH , THE ASSESSEE IS IN APPEAL BEFORE US. 1 8 . LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DISALLOWANCE U/S 40A(3) OF THE ACT CANNOT BE MADE IF THE ASSESSEE SATISFACTORILY EXPLAINED THE PAYMENTS MADE IN CASH EXCEEDING RS. 20,000/ - . HE ALSO SUBMITTED THAT THE ASSESSEE HAS MADE PAYMENTS INITIALLY BY WAY OF CROSS ED - CHEQUES BUT SINCE SUFFICIENT BALANCE WAS NOT THERE IN THE BANK ACCOUNTS, HE RESORTED TO MAKE PAYMENTS IN CASH AND IT IS A SUFFICIENT EXPLANATION FOR MAKING THE CASH PAYMENTS AND THE ADDITION OUGHT NOT TO HAVE BEEN MADE. 1 9 . LEARNED DEPARTMENTAL REPRESENTATIVE IS ALSO HEARD. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE CONTENTION OF THE ASSESSEE THAT IT HAD INITIALLY ISSUED CROSS ED CHEQUES , BUT BECAUSE OF INSUFFICIENT FUNDS IN ITS BANK ACCOUNT, THE CHEQUES WERE DISHONOURED AGAINST WHICH PAYMENTS WERE MADE IN CASH IS NOT DISPUTED BY THE DEPARTMENT. IT IS ALSO A FACT THAT EVERY SUBSEQUENT PAYMENT MADE BY THE ASSESSEE IS IN CASH ONLY. CONSIDERING THE ABOVE, IN OUR OPINION, THE ASSESSEE HAS SATISFACTORILY EXPLAINED THE REASON FOR MAKING THE CASH PAYMENTS. THEREFORE, WE ARE INCLINED TO ACCEPT THE CONTENTION OF THE ASSESSEE AND THE ADDITION U/S 40A(3) IS DELETED. 20 . IN ADDITION TO THE ABOVE, THE ASSESSEE HAS ALSO RAISED THE FOLLOWING ADDITIONAL GROUND: - 11 THE LEARNED FIRST APPELLATE AUTHORITY OUGHT TO HAVE ALLOWED THE EXEMPTION CLAIMED U/S 80IB(10) ON THE ADDITIONS / DISALLOWANCES U/S 40A(3 ) AND ALSO U/S 69A SUSTAINED BY HIM AS THE SAID ADDITIONS / DISALLOWANCES CONSTITUTED A PART OF THE BUSINESS PROFITS. 2 1 . IN SUPPORT OF THIS GROUND, LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE CBDT CIRCULAR NO.37/2016 DATED 02.11.2016 WHEREIN THE BOARD HAS CLARIFIED THAT WHERE THE DISALLOWANCES ARE MADE U/S 32, 40(A)(IA), 40A(3), 43B ETC., OF THE ACT AND OTHER SPECIFIC DISALLOWANCES, REL ATING TO THE BUSINESS ACTIVITY AGAINST WHICH THE CHAPTER VI - A DEDUCTION HAS BEEN CLAIMED, AND SUCH DISALLOWANCE RESULT S IN ENHANCEMENT OF THE PROFITS OF THE ELIGIBLE BUSINESS, THE DEDUCTION U/S CHAPTER VI - A IS ADMISSIBLE ON THE P ROFITS SO ENHANCED BY THE DISALLOWANCE. THUS, THE ADDITIONAL GROUND SO RAISED IS ALLOWED. HOWEVER, SINCE WE HAVE DELETED THE ADDITION U/S 40A(3), THE RELIEF UNDER THIS GROUND IS NIL . 2 2 . IN THE RESULT , ASSESSEES APPEAL ITA NO.1256/H/2012 IS PARTLY AL LOWED. ITA NO. 1365/H/2012 (A.Y. 2009 - 10) (BY REVENUE AGAINST THE COMPANY ) 2 3 . THIS IS REVENUES APPEAL FOR THE ASSESSMENT YEAR 2009 - 10. REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE ORDER OF THE CIT(A) IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2. THE LD. CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF 10% OF DIRECT AND INDIRECT EXPENDITURE IN THE ABSENCE OF ANY EVIDENCE FILED BY THE ASSESSEE FOR INCURRING SUCH EXPENDITURE. 3. THE CIT(A) HAS ERRED IN DELETING THE ADDITION STATING THAT THERE WAS NO FINDING OF THE ASSESSING OFFICER THAT HIS DECISION WAS BASED ON ANY MATERIAL FOUND IN THE COURSE OF ACTION U/S 132(1) SINCE THE INSERTION OF SECTION 158BI OF THE IT ACT, 1961 THE ASSES SING OFFICER 12 CAN TAKE INTO CONSIDERATION THE MATERIAL OTHER THAN WHAT WAS AVAILABLE DURING THE COURSE OF SEARCH AND SEIZURE OPERATION. 2 4 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER HAD DISALLOWED 10% OF THE DIRECT AND INDIRECT EXPENDITURE CL AIMED BY THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS NOT FURNISHED THE EVIDENCE IN SUPPORT OF THE TOTAL EXPENDITURE CLAIMED BY IT . T HE CIT(A) HAS DELETED THE SAME BY HOLDING THAT THE ASSESSEE HAS MAINTAINED PROPER BOOKS OF ACCOUNT AND TH AT IT IS SUPPORTED BY BILLS / VOUCHERS AND THAT THE ASSESSING OFFICER , IN A HURRY TO COMPLETE THE ASSESSMENT , CAUSED THIS BLANKET DISALLOWANCE . F OR HO LDING SO , THE CIT(A) HAS CONSIDERED THAT IN THE IMMEDIATELY PRECEDING PREVIOUS YEAR, THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT AND THE BOOKS OF ACCOUNT HAVE BEEN VERIFIED AND NO DISALLOWANCES WERE CAUSED AND THAT THE PROJECT S ARE THE SAME IN THE R ELEVANT PREVIOUS YEAR AND THAT THE ASSESSING OFFICER SHOULD HAVE CONSIDERED THIS ASPECT WHILE CAUSING AN AD - HOC DISALLOWANCE OF 10% OF THE TOTAL EXPENDITURE. 2 5 . LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ASSESSMENT ORDER WHILE THE LEARNED COUNS EL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A). WE FIND THAT EXCEPT RELYING UPON THE ORDER OF THE A.O., LD DR HAS NOT BEEN ABLE TO REBUT THE FINDINGS OF THE CIT(A) THAT THE EXPENDITURE WHICH HAS BEEN DISALLOWED DURING THIS A.Y. IS THE EXPENDITURE O F SAME PROJECT WHICH WAS CONSIDERED AND ALLOWED IN THE EARLIER ASSESSMENT YEARS AS WELL. THEREFORE, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) ON THIS ISSUE AND THEREFORE, THE REVENUES GROUNDS OF APPEAL ARE REJECTED. 2 6 . EVEN OTHERWISE, IN VIEW OF THE CBDT CIRCULAR NO. 37/2016 (SUPRA) THE DISALLOWANCES WHICH ENHANCED THE BUSINESS INCOME OUGHT TO BE ALLOWED AS DEDUCTION UNDER CHAPTER VI - A OF THE ACT AND THE ASSESSEE IS ELIGIBLE FOR DEDUCTION IN RESPECT OF THE SAID PROJECT . THEREFORE, THE 13 REVENUE DOES NOT BENEFIT EVEN IF THE GROUND IS ALLOWED. ACCORDINGLY, GROUNDS RAISED BY THE REVENUE ARE REJECTED AND THE APPEAL OF THE REVENUE IS DISMISSED. ITA NO . 1254 /H/2012 (A.Y. 2007 - 08) (BY ASSESSEE) ITA NO. 1363/H/2012 (A.Y. 2007 - 08 ) (BY REVENUE) 2 7 . BOTH ARE CROSS APPEALS FOR THE ASSESSMENT YEAR 2007 - 08 . FOR THE ASSESSMENT 2007 - 08 (ITA NO.1254/H/2012) , THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE APPELLANT SUBMITS THAT THE LD. CIT(A) - 1, HYDERABAD HAD ERRED IN LAW IN SUSTAINING THE DISALLOWANCES / ADDITIONS MADE BY THE ASSESSING OFFICER. 2. THE APPELLANT SUBMITS THAT THE LD. CIT(A) HAVING TAKEN ON RECORD THE MUNICIPAL TAX ASSESSMENTS PERTAINING TO INDIVIDUAL UNITS IN MANA SAROVAR HEIGHTS II OUGHT TO H AVE HELD THAT THE PROJECT COMPLIES WITH CONDITIONS LAID DOWN BY SEC. 80IB(10) AND SHOULD HAVE ALLOWED THE CLAIM OF THE APPELLANT U/S 80IB(10). 3. THE APPELLANT SUBMITS THAT, A MERE SHORTFALL OF 48 SQ YDS CANNOT BE A REASON FOR DISALLOWANCE OF CLAIM U/S 80I B(10) IN RESPECT OF PROJECT SAI SAGAR HEIGHTS. THE APPELLANT SUBMITS THAT THE LD. CIT(A) SHOULD HAVE OBSERVED THAT THERE IS SUBSTANTIAL COMPLIANCE OF THE PROVISIONS OF THIS SECTION AND THEREFORE SHOULD NOT HAVE DISALLOWED THE CLAIM U/S 80IB(10 ). 4. THE AP PELLANT SUBMITS THAT THE LD. CIT(A) ERRED IN LAW IN SUSTAINING THE ADDITION U/S 40A(3) DESPITE TAKING ON RECORD THE COMPELLING REASONS AND CIRCUMSTANCES UNDER WHICH THE PAYMENT WAS MADE IN CASH. 5. ON THE BASIS OF THE ABOVE SUBMISSIONS AND FURTHER SUBMISSI ON IF ANY THAT MAY BE PERMITTED TO BE MADE IN THE COURSE OF FURTHER APPELLATE PROCEEDINGS, THE APPELLANT PRAYS THAT: A. THE CLAIM OF APPELLANT U/S 80IB(10) IN RESPECT OF MANASA SAROVAR HEIGHTS - II AND SAI SAGAR HEIGHTS BE ALLOWED. B. THE ADDITION ON ACCOUNT OF DISALLOWANCE U/S 40A(3) SUSTAINED BY THE LD. CIT(A) BE DELETED. 2 8 . AS REGARDS GROUND NO.3 IS CONCERNED, BRIEF FACTS ARE THAT DURING THE ASSESSMENT PROCEEDINGS U/S 143(3 ) R.W.S 153A OF THE ACT, A.O. 14 OBSERVED THAT THE ASSESSEE HAS CONSTRUCTED FOUR RESIDENTIAL COMPLEXES VIZ., MANASAROVAR HEIGHTS - I, II AND III AT HASMATPET VILLAGE AND FOURTH ONE IE., SAI SAGAR HEIGHTS AT BEGUMPET, SECUNDERABAD. DURING THE COURSE OF ENQUIRIE S , INFORMATION WAS CALLED FOR FROM THE SUB - REGISTRAR S OFFICE TO FURNISH THE DETAILS OF FLATS AT SAI SAGAR HEIGHTS AND THE SAME WAS FURNISHED BY THE SUB - REGISTRAR. ON GOING THROUGH THE SAME, THE A.O. OBSERVED THAT THE AREA OF MOST OF THE FLATS SOLD , EXCEE D ED 1500 SFT. A.O. THEREFORE CARRIED OUT FURTHER INVESTIGATION S FROM THE FLAT OWNERS AND SOME OF THEM DEPOSED THAT THE BUILDER HIMSELF SOLD FLATS EXCEEDING 1500 SFT TO THEM BUT GOT REGISTERED THEM BY SPLITTING THEM INTO SMALLER FLATS. THE A.O , THEREFORE WA S OF THE OPINION THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 80IB(10) OF THE ACT IN RESPECT OF SAI SAGAR HEIGHTS. 29. FURTHER, HE ALSO OBSERVED AND FOUND THAT AS FAR AS SAI SAGAR HEIGHTS IS CONCERNED, THE TOTAL EXTENT OF LAND ON WHICH THE PROJECT IS CONSTRUCTED IS 4800 SQ YDS ONLY WHEREAS THE MINIMUM AREA REQUIRED IS 484 8 SQ YDS IE., ONE ACRE. HE THEREFORE HELD THAT SAI SAGAR HEIGHTS DOES NOT FULFIL THE CONDITION OF SECTION 80IB(10) OF THE ACT AND THEREFORE, THE ASSESSEE IS NOT ELIGIBLE FO R DEDUCTION U/S 80IB(10) IN SO FAR AS THIS PROJECT IS CONCERNED. ANOTHER REASON FOR DENIAL OF DEDUCTION U/S 80IB(10) IS THAT THE PROJECT APPROVED ON OR AFTER 01/04/2004 HAS TO BE COMPLETED WITHIN FOUR YEARS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE P ROJECT IS APPROVED BY THE LOCAL AUTHORITY AND THAT THE ASSESSEE HAS TO PRODUCE THE COMPLETION CERTIFICATE IN RESPECT OF SUCH HOUSING PROJECT. HOWEVER, HE OBSERVED THAT NO SUCH CERTIFICATE HAS BEEN PRODUCED BY THE ASSESSEE AND THEREFORE, HE HELD THAT THE P ROJECT SAI SAGAR PROJECT IS NOT ELIGIBLE FOR DEDUCTION U/S 80IB(10) OF THE ACT. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), WHO CONFIRMED THE ORDER OF THE A.O. AND THEREFORE, THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 15 30 . LEARNED COUNSE L FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT THE MINIMUM LAND REQUIRED FOR AN APPROVED PROJECT IS ONE ACRE AND THOUGH THE P ROJECT SAI SAGAR HEIGHTS WAS BUILT ONLY ON 4800 SQ YDS, THE AREA AVAILABLE WA S MORE THAN ONE ACRE AND THEREFORE, THE PROJECT IS ELIGIBLE FOR DEDUCTION U/S 80IB(10) OF THE ACT. EXCEPT FOR STATING SO, THE ASSESSEE HAS NOT BEEN ABLE TO PRODUCE ANY EVIDENCE IN SUPPORT OF ITS CONTENTION . S INCE THE REGISTERED AREA ON WHICH THE SAI SAGA R HEIGHTS PROJECT HAS BEEN CONSTRUCTED IS LESS THAN ONE ACRE, WE FIND THAT THE PROJECT IS NOT ELIGIBLE FOR DEDUCTION U/S 80IB(10). THEREFORE, WE SEE NO REASON TO INTERFERE WITH THE ORDER S OF THE AUTHORITIES BELOW ON THIS ISSUE. ACCORDINGLY, GROUND NO.3 I S REJECTED. 31 . AS REGARDS GROUND NO.2 IS CONCERNED, WE FIND THAT THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF DEDUCTION U/S 80IB(10) WITH REGARD TO THE PROJECT MANASAROVAR HEIGHTS II, ON THE GROUND THAT THE ASSESSEE HAS CONSTRUCTED FLATS WHOSE AREA EXCEED ED 1500 SFT. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE A.O. HAS DISALLOWED THE DEDUCTION WITH REGARD TO ENTIRE PROJECT, WHEREAS THE ASSESSEE IS ELIGIBLE AT LEAST FOR THE PROPORTIONATE DEDUCTION. IN RESPECT OF THIS CONTENTION, HE RELIED U PON VARIOUS CASE LAW. 3 2 . LEARNED DEPARTMENTAL REPRESENTATIVE, HOWEVER, SUBMITTED THAT THE DEDUCTION IS ELIGIBLE TO THE PROJECT AND NOT TO INDIVIDUAL FLATS AND THEREFORE, SINCE THERE IS MAJOR DEVIATION BY THE ASSESSEE IN CONSTRUCTION OF FLAT OF MORE THAN 1500 SFT, THE ENTIRE DEDUCTION IS TO BE DISALLOWED. 3 3 . HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT 90 FLATS OF MANASAROVAR HEIGHTS III EXCEED ED 1500 SFT OF BUILT UP AREA, AND THE ASSESSEES CONTENTION IS THAT IT IS THE PURCHASERS WHO HAVE MERGED TWO FLATS INTO ONE , THEREBY AREA HAS EXCEEDED 1500 SFT . 16 HOWEVER, THIS CONTENTION IS NOT CONVINCING. THEREFORE, THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION IN RESPECT OF SUCH FLATS. WE THEREFORE, DIR ECT THE ASSESSING OFFICER TO GRANT PROPORTIONATE DEDUCTION ONLY IN VIEW OF THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF VISWAS PROMOTERS (P) LTD REPORTED IN (2013) 29 TAXMAN.COM 19 (MAD.) . THUS, GROUND NO.2 IS PARTLY ALLOWED. 3 4 . AS REGARDS, GROUND NO.4 IS CONCERNED, WE FIND THAT THE ASSESSING OFFICER HAS MADE DISALLOWANCE U/S 40A(3) OF THE PAYMENTS MADE IN CASH ON THE GROUND THAT THE ASSESSEE HAS NOT EXPLAINED THE REASONS FOR DOING SO AND THE CIT (A) HAS CONFIRMED THE DISALLOWANCE . WE FIND F OR THE A.Y. 2009 - 10, SIMILAR DISALLOWANCE WAS DELETED BY US AND EVEN IF THIS DISALLOWANCE IS CONFIRMED, THE ASSESSEE IS ELIGIBLE FOR DEDUCTION ON THE SAME U/S 80IB(10) OF THE ACT, AS PER THE BOARD CIRCULAR NO.37/2016 AS RAISED BY THE ASSESSEE IN THE ADDITI ONAL GROUND OF APPEAL . THUS, THE ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSESSEE FOR ALLOWING DEDUCTION FOR SUCH ENHANCED INCOME IS ALLOWED. 3 5 . GROUNDS NO. 1 AND 5 BEING GENERAL IN NATURE AND THEREFORE, THEY NEED NO ADJUDICATION. 3 6 . IN THE RESULT, ASSESSEES APPEAL FOR THE A.Y. 2007 - 08 IS PARTLY ALLOWED. 3 7 . AS REGARDS THE REVENUES APPEAL ( ITA NO. 1363/H/2012 ), THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE CIT(A) IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2. THE LD. CIT (A) IS NOT JUSTIFIED IN DELETING THE ADDITION MADE ON ACCOUNT OF EXPENDITURE IN THE ABSENCE OF ANY EVIDENCE FILED BY THE ASSESSEE FOR INCURRING SUCH EXPENDITURE. 3. THE LD. CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDITION MADE ON ACCOUNT OF INCOME FROM HOU SE PROPERTY BASING ON MARKET RENT METHOD. 17 3 8 . IN THIS APPEAL, REVENUE IS AGGRIEVED BY THE DELETION OF ADDITION MADE ON ACCOUNT OF INCOME FROM HOUSE PROPERTY AND ALSO AGAINST THE DELETION OF ADDITION MADE BY DISALLOWING 10% OF THE DIRECT AND INDIRECT EXPENDITURE. IN THE REVENUES APPEAL FOR A.Y. 2009 - 10, WE HAVE UPHELD THE ORDER OF THE CIT(A) ON SIMILAR GROUNDS. THEREFORE, THE ORDER OF THE CIT(A) FOR THIS ASSESSMENT YEAR ALSO NEEDS NO INTERFERENCE . EVEN OTHERWISE, IN VIEW OF CBDT CIRCULAR NO.37/2016 (SUPRA) , IT W OULD HAVE TO BE ALLOWED AS A DEDUCTION U/S 80IB(10) OF THE ACT. THEREFORE, THIS GROUND OF APPEAL IS REJECTED. 3 9 . AS REGARDS GROUND NO.3, BRIEF FACTS ARE THAT THE ASSESSEE - COMPANY HAS DISCLOSED HOUSE PROPERTY INCOME OF RS. 5,95,000/ - ON ACCOUNT OF PROPERTY LEASED OUT TO M/S. BHAGYANAGAR HOTEL PVT LTD FOR RS. 12,00,000/ - PER YEAR. AFTER CLAIMING THE DEDUCTION U/S 24 A ND MUNICIPAL TAXES, THE BALANCE SUM OF RS. 5,95,000/ - WAS OFFERED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. DURING THE ASSESSMENT PROCEEDINGS, A.O. OBSERVED THAT THE INCOME ADMITTED BY THE ASSESSEE IN ITS RETURN OF INCOME WAS MEAGRE. HE OBSERVED THAT THE PROPERTY CONSISTS OF 14940 SQ YDS OF LAND AND TH AT THE NET ANNUAL VALUE AS PER SECTION 23 OF THE IT ACT, 1961 WAS DETERMINED BY THE ASSESSING OFFICER IN HIS SPEAKING ORDER FOR THE ASSESSMENT YEAR 2006 - 07. AFTER CONSIDERING THE MARKET RENT METHOD AND GROSS MAINTAINABLE RENT METHOD, HE DETERMINED THE MARKET RENT OF THE PROPERTY AT RS. 3,04,06,020/ - AS NET ANNUAL VALUE OF THE PROPERTY AND ARRIVED AT THE INCOME FROM HOUSE PROPERTY AT RS. 2,10,39,214/ - AND BROUGHT IT TO TAX. 40 . AGGRIEVED, ASSESSEE FIL ED APPEAL BEFORE THE CIT(A), WHO DIRECTED THE AO TO APPLY RATE OF 7% ON THE INVESTMENT OF THE ASSESSEE SUBJECT TO COST INFLATION INDEX AND ALSO FURTHER INVESTMENTS / IMPROVEMENTS MADE BY THE ASSESSEE ON THIS PROPERTY DURING THE YEAR UNDER CONSIDERATION. TO 18 REACH THIS CONCLUSION, CIT (A) FOLLOWED THE COORDINATE BENCH DECISION OF THE ITAT FOR THE AYS 2002 - 03, 2003 - 04 AND 2005 - 06 . AGAINST THE RELIEF GRANTED BY THE CIT(A), REVENUE IS IN APPEAL BEFORE US. 41 . WE FIND THAT THIS ISSUE IS COVERED BY THE ORDER OF THE ITAT IN THE EARLIER ASSESSMENT YEARS AND SINCE NO CONTRARY DECISION IS BROUGHT TO OUR NOTICE BY THE REVENUE ON TH IS ISSUE, WE CONFIRM THE ORDER OF THE CIT(A) ON THIS ISSUE AND THE REVENUES GROUND OF APPEAL IS REJECTED. 4 2 . IN THE RESULT, REVENUES APPEAL IS DISMISSED . ITA NO. 125 5 /H/2012 (A.Y. 2008 - 09) (BY ASSESSEE) ITA NO.1364/H/2012 (A.Y. 2008 - 09) (BY REVENUE) 4 3 . THESE ARE THE CROSS APPEALS FOR THE ASSESSMENT YEAR 2008 - 09 . IN THE ASSESSEES APPEAL (ITA NO.1254/H/12), THE FOLLOWING GROUNDS ARE RAISED: - 1. THE APPELLANT SUBMITS THAT THE LD. CIT(A) ERRED IN LAW AND IN SUSTAINING THE ADDITIONS / DISALLOWANCES. 2. THE APPELLANT SUBMITS THAT THE LD. CIT(A) SHOULD HAVE ALLOWED THE CLAIM OF APPELL ANT IN RESPECT OF SAI SAGAR HEIGHTS AS THE APPELLANT HAS PROVED SUBSTANTIAL COMPLIANCE OF LAW AS CONTAINED IN THE PROVISIONS OF SECTION 80IB(10). 3. THE APPELLANT SUBMITS THAT A MERE SHORTFALL OF 48 SQ YDS CANNOT BE A REASON FOR DISALLOWANCE AND SUCH DISALLOWANCE IS AGAINST THE SPIRIT OF THE SECTION. 4. THE APPELLANT SUBMITS THAT THE CIT(A) SHOULD HAVE ALLOWED THE CLAIM OF APPELLANT U/S 40A(3) PARTICULARLY AFTER TAKIN G ON RECORD THE COMPELLING REASONS / CIRCUMSTANCES UNDER WHICH THE PAYMENT WAS MADE IN CASH. 5. ON THE BASIS OF THE ABOVE SUBMISSIONS AND FURTHER SUBMISSIONS THAT MAY BE PERMITTED TO BE MADE IN THE COURSE OF THE APPELLATE PROCEEDINGS, THE APPELLANT PRAYS THAT: A. THE CLAIM OF THE APPELLANT U /S 80IB(10) IN RESPECT OF SAI SAGAR HEIGHTS BE ALLOWED. 19 B. THE ADDITION ON ACCOUNT OF DISALLOWANCE U/S 40A(3) BE DELETED. 4 4 . IN THIS APPEAL, THE ASSESSEE IS AGGRIEVED BY THE DISALLOWANCE OF DEDUCTION U/S 80IB(10) OF THE ACT IN RESPECT OF SAI SAGAR HEIG HTS AND ALSO THE DISALLOWANCE OF THE EXPENDITURE U/S 40A(3) OF THE ACT. WE FIND THAT BOTH THE ISSUES HAD COME UP FOR OUR CONSIDERATION IN THE EARLIER ASSESSMENT YEAR 2007 - 08 AND THE FOR THE DETAILED REASONS GIVEN THEREIN, GROUNDS NO. 2 AND 3 RAISED BY THE ASSESSEE ARE REJECTED AND GROUND NO.4 IS ALLOWED. GROUNDS NO.1 AND 5 ARE GENERAL IN NATURE AND THEREFORE, NO SPECIFIC ADJUDICATION IS NEEDED. 4 5 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED . 4 6 . IN RESPECT OF REVENUES APPEAL ( ITA NO.1363/H/2012 ) THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE CIT(A) IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2. THE LD. CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF 10% OF DIRECT AND INDI RECT EXPENDITURE IN THE ABSENCE OF ANY EVIDENCE FILED BY THE ASSESSEE FOR INCURRING SUCH EXPENDITURE. 3. THE CIT(A) HAS ERRED IN DELETING THE ADDITION STATING THAT THERE WAS NO FINDING OF THE ASSESSING OFFICER THAT HIS DECISION WAS BASED ON ANY MATERIAL FO UND IN THE COURSE OF ACTION U/S 132(1) SINCE THE INSERTION OF SECTION 158BI OF THE IT ACT, THE ASSESSING OFFICER CAN TAKE INTO CONSIDERATION THE MATERIAL OTHER THAN WHAT WAS AVAILABLE DURING THE COURSE OF SEARCH AND SEIZURE OPERATION. 4. THE CIT(A) IS NOT JUSTIFIED IN IGNORING THE EVIDENCE FOUND IN SEIZED MATERIAL AT PAGE NOS. 87 TO 91 OF ANNEXURE - A/S.E.P.L/04 WHICH CLEARLY SHOWED THAT SOME OF FLATS CONSTRUCTED BY ASSESSEE - COMPANY IN PROJECT MSH - III EXCEEDING 1500 SFT. 5. THE CIT(A) IS N OT JUSTIFIED IN IGNORING EVIDENCE IN RESPECT OF FLAT NO.629 IN MSH - III VENTURE PURCHASED BY M. SEETHARAMA MURTHY, AS PER SALE AGREEMENT DATED 27.10.2008, THE AREA OF THE FLAT EXCEEDED 2 500 SFT, AND HENCE NOT ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT. 6. T HE CIT(A) OUGHT TO HAVE NOTED THAT THE ASSESSEE - COMPANY ADOPTED A COLOURABLE DEVICE OF REGISTERING FLATS BY WAY OF MU LTIPLE SALE DEEDS SO THAT THE AREA OF THE FLAT CAN BE SHOWN AT LESS THAN 1500 SFT IN ORDER TO CIRCUMVENT THE PROVISIONS OF SECTION 80IB OF THE IT ACT. 20 4 7 . IN THIS APPEAL, VIDE GROUNDS NO. 2 AND 3, REVENUE IS AGGRIEVED BY THE DELETION OF ADDITION MADE ON ACCOUNT OF 10% OF THE DIRECT AND INDIRECT EXPENDITURE AND IN RESPECT OF DELETING THE ADDITION MADE BY DISALLOWING THE DEDUCTION U/S 80IB(10) OF THE ACT. WE FIND THAT BOTH THESE ISSUES HA VE ALREADY BEEN CONS IDERED IN THE A.Y. 2007 - 08 AND 2009 - 10 WHILE DEALING WITH THE RELEVANT APPEALS IN THE ABOVE PARAS OF THIS ORDER. RESPECTFULLY FOLLOWING THE SAME, WE REJECT THE GROUNDS NO.2 AND 3 RAISED BY THE REVENUE. 4 8 . AS REGARDS GROUNDS NO. 4 TO 6 ARE CONCERNED, WHI LE DEALING WITH THE APPEALS FOR THE AYS 2007 - 08 AND 2009 - 10, WE HAVE HELD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80IB(10) OF THE ACT IN RESPECT OF THE FLATS WHICH DID NOT EXCEED 1500 SFT. THEREFORE, RESPECTFULLY FOLLOWING THE SAME, WE REJECT THE GROUNDS NO.4 TO 6 RAISED BY THE REVENUE. 4 9 . IN THE RESULT, REVENUES APPEAL IS DISMISSED. ITA NOS. 1103 & 1104/H/2016 (A.Y. 2010 - 11 AND 2011 - 12 ) (BY REVENUE) 50 . BOTH THESE APPEALS ARE FILED BY THE REVENUE FOR THE ASSESSMENT YEARS 2010 - 11 AND 2011 - 12. IN RESPECT OF THE APPEAL FOR THE A.Y. 201011 (ITA NO.1103/H/16), REVENUE HAS RAISED 6 GROUNDS OF APPEAL AGAINST THE ALLOWING OF PROPORTIONATE DEDUCTION U/S 80IB(10) OF THE ACT IN RESPECT OF MANASAROVAR HEIGHTS - II AND III WHICH HAS BEEN DISALLOWED BY THE A.O. ON THE GROUND THAT THE ASSESSEE HAS NOT COMPLETED THE PROJECT WITHIN THE DUE DATE IE., 31.3.2009. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HA S NOW GOT THE COMPLETION CERTIFICATION AND THE CIT(A) HAS TAKEN THE SAME INTO CONSIDERATION FOR ALLOWING THE DEDUCTION. ON PERUSAL OF THE MATERIAL PLACED ON RECORD AS WELL AS THE 21 ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT THE CIT(A) AT PAGE 10 OF HIS O RDER HAS TAKEN INTO CONSIDERATION THE GHMC CERTIFICATED DATED 16.03.2013 TO ALLOW THE DEDUCTION TO THE ASSESSEE. THEREFORE, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) AND THE REVENUES APPEAL IS REJECTED. 51 . IN THE RESULT, REVENUES APPEA L IS DISMISSED . 5 2 . IN RESPECT OF THE APPEAL FOR THE A.Y. 2011 - 12 ( ITA NO.1104/H/2016 ) IS CONCERNED, THE REVENUE IS AGGRIEVED BY THE DIRECTION OF THE CIT(A) TO ALLOW 80IB DEDUCTION IN PREPARATION OF TURNOVER OF ELIGIBLE FLATS TO THE TOTAL TURNOVER OF THE ASSESSEE BY TAKING INTO CONSIDERATION THE PROJECT COMPLETION CERTIFICATE ISSUED BY THE GHMC DATED 16.3.2013, WHICH HAS BEEN SUBMITTED BEFORE US IN PROOF OF COMPLETION OF THE PROJECT. WE FIND THAT THIS MATTER HAD COME UP BEFORE US IN THE EARLIER ASSESSMENT YEARS AND RESPECTFULLY FOLLOWING THE SAME ANALOGY IN THE ORDER OF EVEN DATE, THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE DISMISSED. 5 3 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. 5 4 . CONCLUSIVELY, ASSESSEES APPEALS FOR THE AYS 200 7 - 08, 2008 - 09 AND 2009 - 10 ARE PARTLY ALLOWED. REVENUES APPEALS FOR THE AYS 2008 - 09, 2009 - 10, 2010 - 11 & 2011 - 12 ARE DISMISSED AND APPEAL FOR THE A.Y. 2007 - 08 IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH JANUARY, 2019. SD/ - SD/ - (S. RIFAUR RAHMAN) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 11 TH JANUARY, 2019. OKK 22 COPY TO: - 1) (I) SHRI K.R.V. UDAY CHARAN RAO, 1 - 8 - 505, PRAKASH NAGAR, BEGUMPET, HYDERABAD; (II) M/S. SAINATH ESTATES (P) LTD, 1 - 8 - 333 & 334, A - WANE, BEGUMPET, HYDERABAD; (III) M/S. SAINATH ESTATES PVT LTD., 1 - 8 - 333 & 334 NEAR HUDA OFFICE, BEGUMPET, HYDERABAD. 2) (I) DCIT, CIRCLE - 3(1), R.NO.714, 7 TH FLOOR, SIGNATURE TOWERS, OPP. BOTANICAL GARDEN, KONDAPUR, HYDERABAD. (II) DCIT, CC - 2, HYD (III) ACIT, CENTRAL CIRCLE - 2, 7 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD . 3) THE CIT(A) - 3 , HYDERABAD (II) CIT (A) - 1, HYD. 4) THE PR. CIT - 3 , HYDERABAD (II) PR. CIT - 1, HYD. 5) THE DR, ITAT, HYDERABAD 6) GUARD FILE