Sri. Sudhakar Mendon, Udupi V. DCIT, Udupi

ITA 1257/BANG/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2261 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-06-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 27-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BIJOY KUMAR
• Assessee Lawyers: VIJAYA KUMAR PUNNA
• Keywords: Unexplained cash credit; Business income; Opportunity of being heard; Bonafide belief; Additional evidence
• Section: 44AD; 143(3); 68

Judgement Text

ITA NO.1257 OF 2012 SUDHAKER MENDON UDUPI. PAGE 1 OF 9 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE A BENCHES, BANGALORE BEFORE SHRI GEORGE GEORGE K. JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.1257/BANG/2012 (ASSESSMENT YEAR: 2008-09) SUDHAKAR MENDON PRIYA DARSHINI COMMERCIAL COMPLEX, NEAR CITY BUS STAND, UDUPI PAN: ACUPM 3102 F VS. D.C.I.T. CIRCLE-1 UDUPI (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI VIJAYA KUMAR PUNNA DEPARTMENT BY: SHRI BIJOY KUMAR PANDA, DR DATE OF HEARING: 09/07/2013 DATE OF PRONOUNCEMENT: 12/07/2013 O R D E R PER GEORGE GEORGE K. J.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF CIT (A) MYSORE, DATED 01.06.2012 IN RELATION TO AS SESSMENT YEAR 2008-09. 2. THE ASSESSEE HAS RAISED EIGHT GROUNDS IN ITS MEM ORANDUM OF APPEAL. GROUND NOS. 7 & 8 ARE GENERAL IN NATURE AND NO SPECIFIC ADJUDICATION IS REQUIRED, HENCE THE SAME ARE DISMIS SED. THE REMAINING EFFECTIVE GROUNDS (GROUND NO.1 TO 6) RAIS ED BY THE ASSESSEE READ AS FOLLOWS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED CIT (A) OUGHT TO HAVE HELD THAT THE INCOME FROM THE SALE OF UNFINISHED FLATS WERE REQUIRED TO BE AS SETS UNDER THE HEAD INCOME FROM CAPITAL GAIN AS CLAIME D BY THE APPELLANT. 2. THE LEARNED CIT (A) OUGHT TO HAVE DELETED THE IMPUGNED ADDITIONS OF RS.2.00 LAKHS & RS.6,80,705 S INCE THE INCOME FROM BUSINESS HAD BEEN ESTIMATED AND ITA NO.1257 OF 2012 SUDHAKER MENDON UDUPI. PAGE 2 OF 9 ASSESSED U/S 44AD OF THE ACT AND THUS NO FURTHER ADDITION WAS POSSIBLE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT (A) OUGHT TO HAVE REFRAINED FROM UPHOLDING THE ALLEGED ADDITION FOR UNEXPLAINED INCO ME TO THE TUNE OF RS.2.00 LAKHS. 4. THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED TH AT THERE WAS A MISTAKE IN THE FIGURE IN SUNDRY DEBTORS WHICH WAS RECONCILED AND THERE WAS NO DEFICIENCY TO JUSTIFY THE IMPUGNED ADDITION AND ACCORDINGLY HE OU GHT TO HAVE DELETED THE ADDITION. 5. THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED TH AT THE SUNDRY CREDITORS SHOWN WERE GENUINE AND THE ADDITION U/S 68 OF THE ACT WAS OPPOSED TO LAW AND L IABLE TO BE DELETED. 6. THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED TH AT THE CREDITORS WERE NOT ON ACCOUNT OF CASH CREDIT AN D THEY WERE NOT IN FULL, FRESH CREDITS IN THE RELEVANT YEA R TO JUSTIFY THE IMPUGNED ADDITIONS, ESPECIALLY WHEN NO ADEQUATE OPPORTUNITY WAS GIVEN TO THE APPELLANT . GROUND NO.1 3. BRIEF FACTS IN RELATION TO THE ABOVE GROUND ARE AS FOLLOWS. THE ASSESSEE IS AN INDIVIDUAL. HE IS IN THE BUSINESS OF DEVELOPING AND CONSTRUCTION OF PROPERTIES. THE ASSESSEE HAS ALSO R ENTAL INCOME. DURING THE YEAR UNDER CONSIDERATION WHILE COMPUTING INCOME FROM CONSTRUCTION BUSINESS, THE ASSESSEE HAS BIFURCATED THE INCOME RECEIVED FROM CONTRACT BUSINESS AS BUSINESS INCOME U/S 44AD OF THE ACT AND THE INCOME DERIVED FROM SELLING OF UNFI NISHED FLATS. THE ASSESSEE SOLD HALF COMPLETED FLATS. THE GAIN DERIVE D FROM THIS TRANSACTION WAS CHARGED TO TAX AS CAPITAL GAINS IN THE RETURN OF INCOME. THE FINISHING WORKS OF SAME FLATS WERE UNDE RTAKEN BY THE ASSESSEE AND PROFIT DERIVED FROM THE TRANSACTION IS CHARGED TO BUSINESS INCOME. THE COMPUTATION OF INCOME BY THE ASSESSEE READ AS FOLLOWS: ITA NO.1257 OF 2012 SUDHAKER MENDON UDUPI. PAGE 3 OF 9 INCOME FROM CAPITAL GAIN SHORT TERM: SALE PROCEEDS OF 6 FLATS 5740/SFT PLINTH AREA - 35,25,000 LESS: COST OF CONSTRUCTION @ 600/-PER SFT. 34,44,00 0 RS.81,000 INCOME FROM BUSINESS: INCOME DECLARED AT 8% GROSS RECEIPT OF RS. 37,63,00 0 U/S 44AD RS.3,01,040 3.1 THE ASSESSING OFFICER IN THE COURSE OF SCRUTINY PROCEEDINGS U/S 143(3) WAS OF THE VIEW BIFURCATION OF TURNOVER FROM CONSTRUCTION BUSINESS OF THE ASSESSEE AS CAPITAL GAIN AND BUSINE SS INCOME WAS ONLY TO AVOID APPLICATION OF SECTION 44AB OF THE AC T, THE TDS AND ALSO TO TAKE ADVANTAGE OF CAPITAL GAIN PROVISIONS. THE ASSESSING OFFICER PLACING THE RELIANCE ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF MC DOWELL AND CO. LTD VS. CTO (154 ITR 148) (SC) AND CIT VS. BRITISH PAINTS (I) LTD, 188 ITR 44 (SC) CONCLUDED THE ASSESSMENT BY AGGREGATING THE TURNOVER DISCLOSE D FROM INCOME FROM BUSINESS AND INCOME FROM CAPITAL GAIN. ON T HE TOTAL TURNOVER OF RS.72,88,000, THE INCOME WAS ASSESSED A T 8% AS INCOME FROM BUSINESS. AS A RESULT OF CONSIDERING THE ENTIRE TURNOVER AND MAKING AN ASSESSMENT 8% OF THE TURNOVE R, THE INCOME FROM BUSINESS OF CONSTRUCTION WAS FIXED AT RS.5,83, 040 INSTEAD OF RS.3,01,040 DISCLOSED IN THE RETURN OF INCOME BY TH E ASSESSEE. 3.2 AGGRIEVED BY THE ASSESSMENT, THE ASSESSEE CARRI ED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. IT WAS CONTENDED BEFORE THE CIT (A) THAT THE ASSESSING OFFICER HAS E RRED IN REJECTING THE STATEMENT OF INCOME FILED AND THE ASSESSING WHO LE INCOME AS INCOME FROM BUSINESS. ITA NO.1257 OF 2012 SUDHAKER MENDON UDUPI. PAGE 4 OF 9 3.3 THE CIT REJECTED THE CONTENTIONS RAISED BY THE ASSESSEE AND DISMISSED THE APPEAL FILED BY THE ASSESSEE. THE REL EVANT FINDINGS OF THE CIT (A) READS AS FOLLOWED: 4.4 I HAVE CONSIDERED THE RIVAL CONTENTIONS. THE AO HAS GIVEN DETAILED REASONS FOR THE CONCLUSIONS DRAWN AN D I AM IN AGREEMENT WITH THE AO THAT IT WAS A DELIBERAT E ATTEMPT ON THE PART OF THE APPELLANT TO BIFURCATE T HE RECEIPTS AND I FIND NO INFIRMITY IN THE ACTION OF T HE AO IN ARRIVING AT THE GROSS BUSINESS RECEIPTS AND ALSO IN ESTIMATING AT 8% AS INCOME WHICH IN MY VIEW IS FAIR AND REASONABLE. 3.4 THE ASSESSEE BEING AGGRIEVED BY THE ORDER OF TH E CIT (A) IS IN APPEAL BEFORE US. 3.5 THE LEARNED AR REITERATED THE SUBMISSION MADE B EFORE THE I.T. AUTHORITIES, WHEREAS THE LEARNED DR SUPPORTED THE R EASONING OF THE ASSESSING OFFICER. 3.6 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE ASSESSEE IS IN TH E CONSTRUCTION BUSINESS. THE HALF CONSTRUCTED FLATS CONSTITUTE STO CK-IN-TRADE FOR THE PURPOSE OF INCOME TAX ACT. WHENEVER THESE FLATS ARE SOLD BY THE ASSESSEE, IT IS TO BE TREATED AS REGULAR BUSINESS A CTIVITY AS THE TRANSACTION TAKES PLACE FREQUENTLY AND FORM PART OF THE BUSINESS INCOME RATHER THAN CAPITAL GAINS. FURTHER, THE PERS ONS FROM WHOM THE CONTRACT RECEIPTS ARE RECEIVED ARE THE SAME PER SONS TO WHOM THE FLATS ARE SOLD. THEREFORE, THE ASSESSEE HAD CONSTRU CTED THE FLATS FOR THE SOLE INTENTION OF SELLING THEM AND NOT USING IT FOR HIS PERSONAL USE. THEREFORE, THE INCOME FROM CONSTRUCTION PROJEC T CANNOT BE BIFURCATED AND THE TOTAL INCOME HAS BEEN RIGHTLY TA XED UNDER THE HEAD INCOME FROM BUSINESS. THEREFORE, THE ORDER O F THE CIT (A) ITA NO.1257 OF 2012 SUDHAKER MENDON UDUPI. PAGE 5 OF 9 UPHOLDING THE ASSESSMENT ORDER ON THIS ISSUE IS COR RECT AND IN ACCORDANCE WITH LAW. THEREFORE, WE REJECT GROUND NO .1 RAISED BY THE ASSESSEE. 4. GROUND NOS. 2 4.1 IN THE ABOVE GROUND THE ASSESSEE CONTENDS THAT WHEN THE INCOME FROM BUSINESS HAS BEEN ESTIMATED AND ASSESSE D U/S 44AD OF THE ACT, NO FURTHER ADDITION IS TO BE MADE AND T HEREFORE, ADDITION OF RS.2,00,000 AND RS.6,80,705 REQUIRES TO BE DELET ED. THE ABOVE PLEA OF THE ASSESSEE WAS REJECTED BY THE CIT (A) BY OBSERVING AS UNDER: 4.5 I DO NOT FIND STRENGTH IN THE ARGUMENT OF THE APPELLANT THAT ONCE THE INCOME IS ESTIMATED OUT OF GROSS RECEIPTS, IT IS NOT CORRECT TO MAKE ADDITIONS BY RE FERRING TO REJECTED STATEMENT OF AFFAIRS. THE ESTIMATION OF INCOME IS BASED ON GROSS RECEIPTS IN THE P&L A/C TH AT IN NO WAY EXONERATE THE APPELLANT FROM EXPLAINING CRED ITS IN THE BALANCE SHEET WHICH ARE BASICALLY THE AMOUNT S SUED FOR CAPITAL PURPOSES AND REFLECTED AS ASSETS AND LIABILITIES IN THE BALANCE SHEET. ANY UNEXPLAINED F IGURES IN THIS WOULD AMOUNT TO MONEYS THAT HAS SURFACED FO R THE PURPOSE OF INVESTMENTS ON WHICH THE APPELLANT H AS NO EXPLANATION. ADDING ON THIS COUNT AS UNEXPLAINED CREDITS DOES NOT AMOUNT TO DOUBLE ADDITION AS ARGUE D BY THE APPELLANT. HENCE, THE ADDITIONS ARE CONFIRME D. 4.2 THE ASSESSEE BEING AGGRIEVED, IS IN APPEAL BEFO RE US. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUB MISSIONS MADE BEFORE THE INCOME TAX AUTHORITIES. HE ALSO PLACED R ELIANCE ON THE JUDGMENT OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SURINDER PAL ANAND, 242 CTR 61 (PUNJ & H AR). 4.3 THE LEARNED DR PRESENT WAS DULY HEARD. ITA NO.1257 OF 2012 SUDHAKER MENDON UDUPI. PAGE 6 OF 9 4.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND THE REL EVANT MATERIALS ON RECORD. AS RIGHTLY POINTED OUT BY THE LEARNED CIT (A) THE ADDITION WAS ON ACCOUNT OF CREDITS IN THE BALAN CE SHEET, WHICH ARE BASICALLY THE AMOUNTS USED FOR CAPITAL PURPOSE AND REFLECTS AS ASSETS AND LIABILITIES IN THE BALANCE SHEET. ANY UN EXPLAINED AMOUNTS IN THE BALANCE SHEET FIGURE WHICH DOES NOT HAVE A NEXUS WITH THE GROSS RECEIPTS FROM CONSTRUCTION BUSINESS OF THE ASSESSEE HAVE TO BE INDEPENDENTLY EXPLAINED BY THE ASSESSEE. THE DECISION THAT WAS RELIED ON BY THE LEARNED AR DOES NOT COME TO THE AID OF THE ASSESSEE, SINCE IN THAT CASE IT WAS CLEARLY NOTED T HAT THERE WAS A NEXUS WITH THE GROSS RECEIPTS OF THE CIVIL CONSTRUC TION BUSINESS OF THE ASSESSEE AND THE CASH DEPOSITS IN THE BANK WHIC H WAS SOUGHT TO BE ADDED TO TOTAL IN COME U/S 68 OF THE ACT. THEREF ORE, THE JUDGMENT OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IS CLEAR LY DISTINGUISHABLE AND DOES NOT HAVE APPLICATION TO TH E FACTS OF THE CASE. HENCE, GROUND NO.2 IS REJECTED. 5. GROUND NOS. 3 & 4 5.1 THE ASSESSING OFFICER IN THE COURSE OF THE ASSE SSMENT PROCEEDINGS NOTICED THAT SUNDRY DEBTORS WERE SHOWN AT R.3,00,000 INSTEAD OF RS.5,00,000 IN WHICH CASE, THE ASSET SID E INCREASED BY RS.2.00 LAKHS AND THE SOURCE OF THE SAME WAS UNEXPL AINED. THEREFORE THE SAID SUM OF RS.2.00 LAKHS WAS BROUGHT TO TAX AS UNEXPLAINED CREDIT BY THE ASSESSING OFFICER VIDE AS SESSMENT COMPLETED U/S 143(3) DATED 27.12.2010. 5.2 THE LEARNED CIT (A) CONFIRMED THE ADDITION MADE . 5.3 THE ASSESSEE BEING AGGRIEVED IS IN APPEAL BEFOR E US. THE LEARNED COUNSEL FOR THE ASSESSEE HAD FILED A PAPER BOOK CONTAINING ITA NO.1257 OF 2012 SUDHAKER MENDON UDUPI. PAGE 7 OF 9 SIXTEEN PAGES. HE ALSO FILED AN APPLICATION UNDER R ULE 29 OF THE I.T. RULES, 1963. A STATEMENT OF THE ASSET AS ON 31.03.2 008 WHICH SHOWS THAT SUNDRY DEBTORS FOR RS.3.00 LAKHS. IT IS SUBMITTED BY THE LEARNED AR THAT THERE WAS A MISTAKE IN THE FIGURE I N SUNDRY DEBTORS WHICH WAS RECONCILED AND THERE WAS NO DEFICIENCY TO JUSTIFY THE IMPUGNED ADDITION. 5.4 THE LEARNED DR PRESENT SUPPORTED THE ORDERS OF THE INCOME TAX AUTHORITIES. 5.5 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IN THE INTEREST OF JUS TICE, WE FEEL THE ISSUE NEEDS RECONSIDERATION BY THE ASSESSING OFFICE R. ON PERUSAL OF STATEMENT OF AFFAIR (PAGE 4 OF PAPER BOOK), IT IS E VIDENT THAT THERE IS MISTAKE IN FIGURE OF SUNDRY DEBTOR WHICH HAS RESULT ED IN DIFFERENCE OF RS.2.00 LAKHS. THEREFORE, THE MATER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR DE NOVA CONSIDERATION. THE A SSESSING OFFICER SHALL DISPOSE OFF THE MATTER AS EXPEDITIOUSLY AS PO SSIBLE AFTER AFFORDING A REASONABLE OPPORTUNITY OF HEARING TO TH E ASSESSEE. IT IS ORDERED ACCORDINGLY. THEREFORE, GROUND NOS. 3 & 4 A RE ALLOWED FOR STATISTICAL PURPOSES. 6. GROUND NOS. 5 & 6: 6.1 IN THE STATEMENT OF AFFAIRS AS ON 31.03.2008, T HE ASSESSEE HAS SHOWN A SUM OF RS.6,80,705 AS SUNDRY CREDITORS. ASS ESSING OFFICER ISSUED VERIFICATION LETTERS TO THESE PARTIES CALLIN G FOR ACCOUNT EXTRACTS AND CONFIRMATION. OUT OF THE CREDITORS, ON LY ONE SHRI A RAMACHANDRA RAO, PROP: M/S SRINIVAS STEEL SYNDICATE , PUTTUR, UDUPI RESPONDED STATING THAT THERE WAS A NIL BALA NCE. IN RESPECT OF OTHER CREDITORS, THERE WAS NO RESPONSE. THE ASSESSE E WAS REQUESTED ITA NO.1257 OF 2012 SUDHAKER MENDON UDUPI. PAGE 8 OF 9 TO PRODUCE THEIR CONFIRMATION. SINCE THE ASSESSEE H AD FAILED TO DO THE SAME, THE ASSESSING OFFICER CONCLUDED THAT THE CREDITORS WERE BOGUS AND MADE ADDITION OF RS.6,80,705. 6.2 THE CIT (A) CONFIRMED THE ADDITIONS SO MADE BY THE ASSESSING OFFICER. 6.3 THE ASSESSEE BEING AGGRIEVED HAS FILED THIS APP EAL BEFORE THE TRIBUNAL. THE ASSESSEE HAS FILED AN APPLICATION UND ER RULE 29 OF I.T. RULES, 1963 FOR ADMISSION AS EVIDENCE CERTAIN CONFI RMATION LETTERS FROM THE CREDITORS. IT IS STATED IN THE SAID APPLIC ATION THE ASSESSEE WAS UNDER THE BONAFIDE BELIEF WHATEVER DETAILS THAT THE ASSESSEE HAS FURNISHED WITH THE ASSESSING OFFICER AND THE CIT (A ) WAS ADEQUATE AND NEITHER THE ASSESSING OFFICER NOR THE CIT (A) E VER CALLED FOR THE CONFIRMATION FROM THESE CREDITORS. IT WAS SUBMITTED THAT NON SUBMISSION OF THESE DOCUMENTS WERE ON ACCOUNT OF BO NAFIDE BELIEF AND THESE DOCUMENTS WERE VERY MUCH ESSENTIAL TO DEC IDE THE ISSUE IN QUESTION AND THE DOCUMENTS ARE SUPPORTING THE SU BMISSIONS WHICH WERE MADE BEFORE THE INCOME TAX AUTHORITIES. 6.4 THE LEARNED DR PRESENT WAS DULY HEARD. 6.5 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ADDITIONAL EVIDENC E PRODUCED BEFORE US ARE VITAL FOR DISPOSAL OF THE ISSUE THAT IS RAISED BEFORE US. THE CONFIRMATION LETTERS ISSUED BY THE SUNDRY CREDI TORS ARE SUPPORTING THE ARGUMENTS RAISED BY THE AR. IN THE I NTEREST OF JUSTICE AND EQUITY, WE ARE OF THE FIRM VIEW THAT ONE MORE O PPORTUNITY NEEDS TO BE GIVEN TO THE ASSESSEE TO PROVE HIS CASE. ACCO RDINGLY WE ADMIT THE ADDITIONAL EVIDENCE ON RECORD AND RESTORE THE M ATTER TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION. NEEDLESS TO STATE THE ITA NO.1257 OF 2012 SUDHAKER MENDON UDUPI. PAGE 9 OF 9 ASSESSING OFFICER SHALL DISPOSE OF THE MATTER AS EX PEDITIOUSLY AS POSSIBLE AFTER AFFORDING THE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IT IS ORDERED ACCORDINGLY. THEREFORE, GROUND NOS.5 & 6 ARE ALLOWED FOR STATISTICAL PURPOSE. 7. IN THE RESULT THE APPEAL IS PARTLY ALLOWED FOR S TATISTICAL PURPOSE AS INDICATED ABOVE. ORDER PRONOUNCED AT THE END OF THE HEARING ON 12 TH JULY, 2013. SD/- SD/- (JASON P. BOAZ) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED 12 TH JULY, 2013. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, ITAT, BANGALORE BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCHES, BANGALORE