M/s. Narne Estates (P) Ltd, Hyderabad V. DCIT, Circle-16(1), Hyderabad

ITA 1463/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59216 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 17-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K MYTHILI RANI
• Assessee Lawyers: A V RAGHURAM
• Keywords: Unexplained cash credit; Opportunity of being heard; Application of stay; Set aside
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND CHANDRAPOOJARI, ACCOUNTANT MEMBER ITA NOS.1462 &1463/HYD/2011 ASSESSMENT YEARS: 2004-05 M/S NARNE CONSTRUCTIONS (P) LTD., SECUNDERABAD. (PAN: AAACN 9975 A) AND M/S NARNE ESTATES PVT. LTD., SECUNDERABAD. (PAN: AAACN4669 F) (APPELLANTS) S.A.NOS. 164 & 165/HYD/11 (IN ITA 1462 & 1463/H/11) M/S NARNE CONSTRUCTIONS (P) LTD., SECUNDERABAD. (PAN: AAACN 9975 A) AND M/S NARNE ESTATES PVT. LTD., SECUNDERABAD. (PAN: AAACN4669 F) (APPLICANTS) VS THE DCIT, CIR-16(1), HYDERABAD. -DO- (RESPONDENT) THE DCIT, CIR-16(1), HYDERABAD. -DO- (RESPONDENTS) APPELLANTS BY : SRI A.V. RAGHU RAM RESPONDENT BY : SMT.K. MYTHILI RANI ITA NOS. 1462 & 1463 & SA NOS.164 & 165 OF 2011 NARNE CONSTRUCTIONS & OTHERS, HYD. L.L ========================== 2 DATE OF HEARING: 01-12-2011. DATE OF PRONOUNCEMENT: 25-01 -2012. O R D E R PER BENCH: THESE APPEALS BY TWO DIFFERENT ASSESSES ARE DIRECTE D AGAINST THE DIFFERENT ORDERS OF THE CIT (A) DATED 20-6-2011. S INCE CERTAIN ISSUES INVOLVED IN THESE TWO APPEALS ARE COMMON AND IDENTI CAL IN NATURE, THESE ARE CLUBBED TOGETHER AND DISPOSED OF BY THIS COMBIN ED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEES ALSO FILED STAY APPLICATION NOS. 1 64 AND 1675/HYD/2011 SEEKING STAY OF PAYMENTS OF OUTSTANDI NG DISPUTED DEMANDS OF TAX. 3. FIRST LET US DEAL WITH THE COMMON GROUND IN THES E APPEALS WHICH IS WITH REGARD TO CONFIRMING THE ORDERS OF THE CIT (A) MAKING ADDITION AT RS.1,42,91,279/- AND RS.3,55,25,194/- IN THE CASES OF M/S NARNE CONSTRUCTIONS PVT. LIMITED AND M/S. NARNE ESTATE PV T. LIMITED THOUGH NOT AS UNEXPLAINED CASH CREDITS BUT AS INCOME OF TH E ASSESSES. 4. BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSESSES HEREIN ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION. DURING THE ASSE SSMENT YEAR, IT WAS NOTICED THAT THESE ASSESSEES SHOWN THE ABOVE MENTIO NED AMOUNTS IN THE BOOKS OF ACCOUNTS AS THE ADVANCES RECEIVED AGAI NST THE SALES. SINCE THE REQUIRED INFORMATION WAS NOT PRODUCED BY THE AS SESSEE, THE ASSESSING OFFICER ADDED THESE AMOUNTS UNDER SECTION 68 OF THE ACT AS UNEXPLAINED CASH CREDITS BY OBSERVING THAT THE ASSE SSEES EXPRESSED ITA NOS. 1462 & 1463 & SA NOS.164 & 165 OF 2011 NARNE CONSTRUCTIONS & OTHERS, HYD. L.L ========================== 3 THEIR INABILITY TO SUBMIT THE SUPPORTING BILLS/VOUC HERS IN PROOF OF THEIR IDENTITY GIVING SUCH ADVANCES. IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCE FOR THE RECEIPT OF THE ABOVE IMPUGNED ADVA NCES, IT WAS TREATED AS UN-EXPLAINED CASH CREDITS UNDER SECTION 68 OF TH E ACT. BEFORE THE CIT (A), THE ASSESSEES FURNISHED DETAILS OF ADVANCE S AND STATED THAT IT WAS RECEIVED TOWARDS SALES. THE CIT (A) CALLED F OR THE REMAND REPORT FROM THE ASSESSING OFFICER. THE CONCERNED ASSESSIN G OFFICER NOT FURNISHED THE REMAND REPORT EVEN AFTER LAPSE OF SEV EN MONTHS, AND THEN THE CIT (A) DECIDED THE ISSUE ON MERIT WITHOUT THE REMAND REPORT. THE CIT (A) HELD THAT THE ASSESSEE HAS TO ACCOUNT FOR I TS RECEIPTS OF A YEAR AS ITS SALES WHEN IT IS CLEARLY ACCOUNTED FOR THE C ORRESPONDING EXPENSES IN THE ASSESSMENT YEAR UNDER CONSIDERATION. AGAINS T THIS, THE ASSESSEES HEREIN ARE IN APPEAL BEFORE US. 5. THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING THE SAME METHOD OF ACCOUNTING TREATING THE ADVANCES RECEIVED ON SALES AS ADVANCES ARE REFL ECTED AS LIABILITIES IN THE BALANCE-SHEET AND WHEN THE PLOTS ARE ACTUALLY SOLD, THEY WERE APPROPRIATED TOWARDS SALES AND THE CORRESPONDING SA LES WERE REFLECTED IN THE SUBSEQUENT YEARS AND THERE IS NO RECOGNITION OF SALES IN THE ASSESSMENT YEAR UNDER CONSIDERATION AS IT IS ONLY R ECEIVED AS ADVANCE AND THE SYSTEM OF ACCOUNTING OF THE ASSESSEES WAS ACCEPTED BY THE DEPARTMENT IN EARLIER YEAR AS WELL AS IN THE SUBSEQ UENT YEAR AND DISTURBING THE METHOD OF ACCOUNTING DEPLOYED BY THE ASSESSEE SHALL BE AVOIDED. ON THE OTHER HAND, THE LEARNED DEPARTMEN TAL REPRESENTATIVE SUBMITTED THAT THERE IS NO REASON TO THE ACCOUNTING CORRESPONDING EXPENSES RELATING TO THOSE RECEIPTS OF ADVANCES AND POSTPONEMENT OR DEFERMENT OF ACCOUNTING OF SALES THAT WOULD DEFINIT ELY DISTURB THE REAL ITA NOS. 1462 & 1463 & SA NOS.164 & 165 OF 2011 NARNE CONSTRUCTIONS & OTHERS, HYD. L.L ========================== 4 PROFIT POSITION OF THE ASSESSEES. THE DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE PRIM ARY ARGUMENT OF THE ASSESSEES COUNSEL IS THAT THE ASSESSEE HAS BEEN CO NSISTENTLY FOLLOWING THE SAME METHOD OF ACCOUNTING YEAR TO YEAR AND THE ACTUAL SALES AFFECTED BY THE ASSESSEE WERE REFLECTED IN THE SUBS EQUENT YEAR ON ACTUAL REGISTRATION OF THE PLOTS. HOWEVER, THE ASSESSEE NO T PRODUCED ANY EVIDENCE REGARDING OFFERING OF SALES TOWARDS THESE ADVANCES IN THE SUBSEQUENT YEAR. THE ASSESSEE IS REQUIRED TO FURNI SH THE RECEIPT AND THE APPROPRIATION OF SALE ADVANCES ON PLOT-WISE AND THE ACCOUNTING OF CORRESPONDING SALES OF PLOTS IN THE SUBSEQUENT YEAR . NEITHER THE REVENUE AUTHORITIES NOR THE ASSESSEE BROUGHT ON RECORD ACTU AL OFFERING OF THE SALE ADVANCE AS SALE THE SUBSEQUENT YEAR. THIS BEING SO , WE ARE NOT IN A POSITION TO TAKE AN APPROPRIATE VIEW REGARDING THE CORRECTNESS OF THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. IN THESE CIRCUMSTANCES AND AFTER CONSIDERING THE TOTALITY OF FACTS OF THES E CASES, WE FEEL IT JUST AND PROPER TO SET ASIDE THE ENTIRE ISSUE TO THE FIL E OF THE ASSESSING OFFICER TO EXAMINE THE ISSUE AFRESH WHETHER THE ASS ESSEE HAS OFFERED THE SALE OF CORRESPONDING PLOTS TO TAXATION AND IF IT I S ACTUALLY REFLECTED THE SALES ADVANCES AS SALES IN THE SUBSEQUENT ASSESSMEN T YEAR, THE ADDITION IS NOT CALLED FOR. WITH THIS OBSERVATION, WE SET A SIDE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION WH O IS DIRECTED TO AFFORD AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND D ECIDE THE SAME IN ACCORDANCE WITH LAW. ITA NOS. 1462 & 1463 & SA NOS.164 & 165 OF 2011 NARNE CONSTRUCTIONS & OTHERS, HYD. L.L ========================== 5 7. THE NEXT GROUND IN ITA NO.1463/HYD/2011 IS WITH REGARD TO THE ADDITION OF RS.4 LAKHS AS UNEXPLAINED CASH CREDIT I N SPITE OF THERE IS CONFIRMATION LEFT AND THE ASSESSEE DISCHARGING THE ONUS CAST ON IT. THE ASSESSEE WAS IN RECEIPT OF RS.23.5 LAKHS FROM FIVE PARTIES AND OUT OF THEM, THREE PARTIES WERE ASSESSED TO TAX AND THEIR PAN NUMBERS WERE FURNISHED. HOWEVER, IN RESPECT OF TWO CREDITORS VI Z., A. MEDHA AND A. SREEKA, NEITHER THE PROOF OF THE SOURCES NOR THEIR INCOME-TAX PARTICULARS WERE FURNISHED BY THE ASSESSEE. IN THE ABSENCE OF SUCH INFORMATION, THE ASSESSING OFFICER TREATED THE LOANS GIVEN BY A. MED HA AND A. SREEKA AT RS. 3 LAKH AND RS.1 LAKH RESPECTIVELY AS UNEXPLAINE D CREDITS UNDER SECTION 68 OF THE IT ACT. IT WAS SUBMITTED THAT A . MEDHA AND A. SREEKA ARE MINORS IN THE ASSESSMENT YEAR UNDER CONSIDERATI ON AND THEIR CONFIRMATION LETTERS WERE DULY SIGNED BY SMT. DEEPA , WHO IS THEIR MOTHER AND IN THE CIRCUMSTANCES, IT WAS PRAYED TO D ELETE THIS ADDITION. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THE ASSESSEE HEREIN RECEIVED LOANS FRO M THE MINORS AND THE CONFIRMATION LETTERS WERE SIGNED BY THEIR MOTHER SM T. DEEPA. HOWEVER, THE ASSESSEE FAILED TO FURNISH THE SOURCES OF THESE CREDITS AND THE CAPACITY OF THE SAID MINORS TO ADVANCE THE MONIES. THE LOWER AUTHORITIES HAVE DOUBTED THE GENUINENESS OF THIS TR ANSACTION. BEFORE US ALSO, THE ASSESSEE IS NOT ABLE TO PRODUCE ANY EVIDE NCE REGARDING THE CAPACITY OF THE MINORS TO ADVANCE THE SAID LOANS. NO BANK ACCOUNT DETAILS OR OTHER RELEVANT MATERIAL TO SUPPORT THIS ARE FURNISHED BEFORE US. BEING SO, IN OUR OPINION, THE ONUS CAST ON THE ASSE SSEE IS NOT DISCHARGED. IN THE CIRCUMSTANCES, WE HAVE NO HESIT ATION IN CONFIRMING THE ADDITION ON THIS COUNT. IN VIEW OF THE ABOVE, THIS GROUND OF THE ASSESSEE IS HEREBY DISMISSED. ITA NOS. 1462 & 1463 & SA NOS.164 & 165 OF 2011 NARNE CONSTRUCTIONS & OTHERS, HYD. L.L ========================== 6 9. THE LAST GROUND IN ITA NO.1463/HYD/2011 IS WITH REGARD TO CONFIRMATION OF DISALLOWANCE OF 15% OF DEVELOPMENT EXPENSES WITHOUT APPRECIATING THE FACT THAT SUCH EXPENSES WERE NOT D EBITED TO PROFIT & LOSS ACCOUNT AND THE SAME WAS BEING SHOWN IN THE BALANCE SHEET. THE ASSESSEE CLAIMED TOTAL EXPENDITURE AT RS.2,81,53,08 9/- AND OUT OF WHICH THE ASSESSEE CAPITALIZED THE SAME AT RS.59,56,880/ -. THE BALANCE DEVELOPMENT EXPENDITURE WORKED OUT TO RS.2,21,96,20 9. THE ASSESSEE HAS NOT FURNISHED COPIES OF BILLS, VOUCHERS AND PRO OF FOR INCURRING SUCH EXPENSES ON DEVELOPMENT WORK. THE ASSESSING OFFICE R DISALLOWED 25% OF SUCH EXPENSES AS UNEXPLAINED INCOME AND ADDED TH E SAME TO THE INCOME OF THE ASSESSEE. ON APPEAL, THE CIT (A) CO NFIRMED THE DISALLOWANCE AT 15% OF THESE EXPENSES. 10. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. THE CONTENTION OF THE ASSESSEE IS THAT THIS ITEM HAS NOT BEEN DEBITED TO PROFIT & LOSS A/C AND THIS HAS BEEN SHOWN IN THE BALANCE-SHEET AND IT CANNOT BE CONSIDERED FOR ALLOWANCE OR DISALLOWANCES. WE FIND FORCE IN THE CONTENTION OF THE ASSESSEES COUNSEL THAT UNLESS TH E ASSESSEE CLAIMS THIS ITEM AS EXPENDITURE, THE ASSESSING OFFICER CANNOT A LLOW OR DISALLOW THE SAME. IN THE CIRCUMSTANCES, WE SET ASIDE THIS ISSU E TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE WHETHER THIS IS AN EXP ENDITURE CLAIMED BY THE ASSESSEE IN THE PROFIT & LOSS A/C OR SHOWN AS A N ITEM IN THE BALANCE- SHEET. IN THE EVENT, IF IT IS CLAIMED AS AN EXPENDI TURE, THE ASSESSING OFFICER COULD DISTURB THE SAME AND DISALLOW AN EXPE NDITURE CLAIMED IN THE P & L A/C TO THE EXTENT OF 10%, WHICH, IN OUR O PINION, IS REASONABLE. ON THE OTHER HAND, IF IT IS BALANCE-SHEET ITEM, THE ASSESSING OFFICER IS PRECLUDED FROM DOING SO. ITA NOS. 1462 & 1463 & SA NOS.164 & 165 OF 2011 NARNE CONSTRUCTIONS & OTHERS, HYD. L.L ========================== 7 11. SINCE WE HAVE DISPOSED OF THE MAIN APPEALS FILE D BY THE ASSESSES OF EVEN DATE, THE STAY APPLICATIONS NOS.164 AND 165 /HYD/2011 HAVE BECOME INFRUCTUOUS AND HENCE NO ADJUDICATION IS REQ UIRED. 12. IN THE RESULT, ASSESSEES APPEALS NOS. 1462 AND 1463/HYD/2011 ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPO SE WHEREAS THE STAY APPLICATION NOS. 164 AND 165/HYD/2011 ARE DISMISSED AS INFRUCTUOUS. ORDER PRONOUNCED IN THE OPEN COURT ON 25-01-2012 . . SD/- SD/- (CHANDRA POOJARI) (H.S. SIDHU) ACCOUNTANT MEMBER. JUDICIAL MEMBER. DT/-25-01-2012. COPY FORWARDED TO: 1. C/O S/ SHRI A.V. RAGHU RAM & K. VASANT KUMAR, ADVOCATES, 610, 6 TH FLOOR, BABUKHAN ESTATE, BASHEERBAGH, HYDERABAD. 2. 3. 4. 5. JMR * DCIT, CIRCLE - 16(1), HYDERABAD. CIT (A)-V, HYDERABAD. CIT , AP, HYDERABAD. THE DR., ITAT, HYDERABAD. ITA NOS. 1462 & 1463 & SA NOS.164 & 165 OF 2011 NARNE CONSTRUCTIONS & OTHERS, HYD. L.L ========================== 8