Radha Realty Corporation (I) P. Ltd., Hyderabad V. Dy. Commissioner of income Tax, Circle-3(1), Hyderabad

ITA 15/HYD/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87249 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 07-01-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 03-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: A V RAGHURAM
• Keywords: Search and seizure
• Section: 132; 40A(3); 143(3); 153A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI P. M. JAGTAP, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO. A.Y. APPELLANT RESPONDENT 13/HYD/2014 2002-03 RADHA REALTY CORPORATION (I) P. LTD., HYDERABAD. PAN AACCR230Q DCIT, CIRCLE 3(1), HYDERABAD. 14/HYD/2014 2003-04 15/HYD/2014 2004-05 16/HYD/2014 2005-06 17/HYD/2014 2006-07 FOR ASSESSEE : MR. A.V. RAGHURAM FOR REVENUE : MR. RAJAT MITRA DATE OF HEARING : 07.01.2015 DATE OF PRONOUNCEMENT : 09.01.2015 ORDER PER BENCH THESE FIVE APPEALS FILED BY THE ASSESSEE AGAINST THE COMMON ORDER OF LD. CIT(A)-IV, HYDERABAD DATED 18.1 0.2013 FOR THE ASSESSMENT YEARS 2002-2003 TO 2006-2007 INV OLVE SOME COMMON ISSUES AND THE SAME THEREFORE, HAVE BEE N HEARD TOGETHER AND ARE BEING DISPOSED OF BY THE SINGLE CO MPOSITE ORDER. 2. THE RELEVANT FACTS OF THE CASE GIVE RAISE TO TH ESE APPEALS ARE AS FOLLOWS. THE ASSESSEE IS A COMPANY W HICH IS ENGAGED IN THE REAL ESTATE BUSINESS OF DEVELOPING, PLOTTING AND CONSTRUCTION OF HOUSES. A SEARCH AND SEIZURE ACTION UNDER SECTION 132 OF THE ACT WAS CONDUCTED IN THE CASE OF THE ASSESSEE ON 17.10.2007. PURSUANT TO THE SAID ACTION , NOTICES 2 ITA.NO.13 TO 17/HYD/2014 RADHA REALTY CORPORATION (I) P. LTD., HYDERABAD. UNDER SECTION 153A WERE ISSUED BY THE A.O. ON 10.10 .2008 FOR ALL THE FIVE YEARS UNDER CONSIDERATION, IN RESPONSE TO WHICH, ITS RETURNS OF INCOME WERE FILED BY ASSESSEE COMPANY ON 26.11.2008 DECLARING INCOME AS UNDER : A.Y. INCOME RETURNED (RS.) 2002-03 5,61,700 2003-04 8,33,740 2004-05 18,48,594 2005-06 19,13,640 2006-07 1,61,65,572 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E CASE OF THE ASSESSEE WAS REFERRED BY THE A.O. FOR S PECIAL AUDIT UNDER SECTION 142(2A) OF THE ACT HAVING REGARD TO T HE NATURE OF COMPLEXITY OF THE ACCOUNTS, AFTER DULY CONSIDERING THE OBJECTIONS RAISED BY THE ASSESSEE. AS REPORTED BY T HE SPECIAL AUDITOR M/S. MATHESH & RAMANA VIDE LETTER DATED 07. 06.2010, THE ASSESSEE, HOWEVER, DID NOT EXTEND ANY COOPERATI ON TO THEM DUE TO WHICH THE SPECIAL AUDIT COULD NOT BE COMPLET ED. ASSESSEE ALSO DID NOT COMPLY WITH THE NOTICES ISSUE D BY THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS. T HE A.O. THEREFORE, WAS LEFT WITH NO OPTION BUT TO COMPLETE THE ASSESSMENTS FOR ALL THE YEARS UNDER CONSIDERATION E X-PARTE TO THE BEST OF HIS JUDGMENT ON THE BASIS OF MATERIAL A VAILABLE ON RECORD. IN THE ASSESSMENTS SO COMPLETED UNDER SECT ION 143(3) READ WITH 153A OF THE ACT VIDE ORDERS DATED 05.08.2 010, THE TOTAL INCOME OF THE ASSESSEE FOR THE YEARS UNDER CO NSIDERATION WAS COMPUTED BY HIM AS UNDER AFTER MAKING CERTAIN A DDITIONS INCLUDING DISALLOWANCE OF DEVELOPMENT AND SELLING E XPENSES AND DISALLOWANCE U/S.40A(3). 3 ITA.NO.13 TO 17/HYD/2014 RADHA REALTY CORPORATION (I) P. LTD., HYDERABAD. A.Y. INCOME RETURNED. DISALLOWANCE OF DEVELOPMENT AND SELLING EXPENSES (RS.) DISALLOWANCE UNDER SECTION 40A(3) (RS.) TOTAL (RS.) 2002-03 5,61,700 21,27,550 18,56,234 45,45,484 2003-04 8,33,740 24,99,045 26,71,258 60,04,043 2004-05 18,48,594 14,03,092 69,26,130 1,02,32,421 2005-06 19,13,640 12,70,109 95,22,536 1,28,71,484 2006-07 1,61,65,572 39,61,661 3,07,98,920 5,10,93,466 4. AGAINST THE ORDERS PASSED BY A.O. UNDER SECTION 143(3) READ WITH SECTION 153A FOR ALL THE FIVE YEAR S UNDER CONSIDERATION, APPEALS WERE PREFERRED BY THE ASSES SEE BEFORE THE LD. CIT(A) CHALLENGING VARIOUS ADDITIONS MADE B Y THE A.O. TO ITS TOTAL INCOME IN THE SAID ASSESSMENTS. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE LD. CIT(A), ASS ESSEE AGAIN FAILED TO COMPLY WITH THE NOTICES ISSUED BY THE LD. CIT(A) FIXING THE HEARING FROM TIME TO TIME. KEEPING IN VIEW THIS FAILURE OF THE ASSESSEE, THE LD. CIT(A) PROCEEDED TO DISPOSE O F THE APPEALS FILED BY THE ASSESSEE ON MERIT EX-PARTE VID E HIS COMMON APPELLATE ORDER WHEREBY HE CONFIRMED SUBSTAN TIALLY THE ADDITIONS MADE BY THE A.O. TO THE TOTAL INCOME OF THE ASSESSEE IN ALL THE FIVE YEARS UNDER CONSIDERATION EXCEPT ALLOWING PART RELIEF ON THE ISSUE OF DISALLOWANCE M ADE BY THE A.O. UNDER SECTION 40A(3). 5. AGGRIEVED BY THE ORDER OF LD. CIT(A), THE ASSES SEE HAS PREFERRED THESE APPEALS BEFORE THE TRIBUNAL ON THE FOLLOWING GROUNDS WHICH ARE IDENTICAL EXCEPT THE AM OUNTS OF DISALLOWANCE. 1. THE ORDER OF THE LEARNED COMMISSIONER (APPEALS), T O THE EXTENT PREJUDICIAL TO THE APPELLANT, IS ERRONEO US BOTH ON FACTS AND IN LAW. 4 ITA.NO.13 TO 17/HYD/2014 RADHA REALTY CORPORATION (I) P. LTD., HYDERABAD. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT (APPEALS) WAS NOT JUSTIFIED IN UPHOLDING THE ESTIMATED DISALLOWANCES MADE IN THE ASSESSMENT PASSED UNDER SECTION 153A, WHICH WERE NOT BASED ON ANY INCRIMINATING MATERIAL/EVIDENCE FOUND DURING THE SEARCH OPERATION. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT (APPEALS) ERRED BY UPHOLDIN G THE AD-HOC DISALLOWANCE OF RS.21,27,550 (A.Y. 2002- 03) RS.24,99,045 (A.Y. 2003-04) RS.14,03,092 (A.Y. 2004 - 05) RS.12,70,109 (2005-06) RS.39,61,661 (A.Y. 2006- 07) OUT OF THE DEVELOPMENT AND SELLING EXPENSES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(APPEALS) ERRED BY UPHOLDING THE ARBITRARY DISALLOWANCE OF THE DEVELOPMENT & SELLING EXPENSES @ 20%, FOR WHICH THE A.O. HAD NOT GIVEN AN Y BASIS. 5. THE LEARNED CIT (APPEALS) ERRED BY REMITTING THE MA TTER BACK TO A.O. DIRECTING HIM TO MAKE DISALLOWANCE U/S . 40A(3) IN THE YEAR IN WHICH THE ADVANCES WERE ADJUSTED AGAINST PURCHASES. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, SHE OUGHT TO HAVE DELETED THE DISALLOWANCE COMPLETELY WITHOUT AN Y FURTHER DIRECTION. 6. ANY OTHER GROUND OR GROUNDS AS MAY BE URGED AT THE TIME OF HEARING. 6. AS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSE E, THE COMMON GROUNDS NO. 1 AND 6 RAISED IN THE APPEAL S OF THE ASSESSEE ARE GENERAL WHICH DO NOT REQUIRE ANY SPECI FIC ADJUDICATION. HE HAS ALSO NOT PRESSED COMMON GROUND S NO. 2 AND 5 RAISED BY THE ASSESSEE IN THESE APPEALS AND T HE SAME ARE ACCORDINGLY DISMISSED AS NOT PRESSED. 7. THE COMMON GROUNDS THAT NOW SURVIVE FOR OUR CONSIDERATION AND DECISION ARE ONLY GROUNDS NO. 3 A ND 4 WHICH INVOLVE THE COMMON ISSUE RELATING TO DISALLOWANCE O F 20% 5 ITA.NO.13 TO 17/HYD/2014 RADHA REALTY CORPORATION (I) P. LTD., HYDERABAD. MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) OU T OF DEVELOPMENT AND SELLING EXPENSES CLAIMED BY THE ASS ESSEE. 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE A.O. THAT THE ASSESSEE HAS DEBIT ED TO ITS P & L ACCOUNTS THE FOLLOWING EXPENSES UNDER THE HEAD DEVELOPMENT AND SELLING EXPENSES. ITEM OF EXPENDITURE ASSESSMENT YEARS. 2002-03 2003-04 2004-05 2005-06 2006-07 DEVELOPMENT COST 92,92,402 1,03,77,127 54,30,462 45,66,743 1,65,16,331 HUDA CHARGES 17,71,531 22,34,460 0 0 0 COMMISSION ON SALES 7,80,000 14,45,000 15,85,000 17,43,800 27,56,700 ADVERTISEMENT EXPENSES 99,500 50,650 0 4,000 1,97,650 BUSINESS PROMOTION EXPENSES 3,10,802 SITE VISITING EXPENSES 4,65,850 6,22,448 0 0 26,820 TOTAL 1,24,09,283 1,47,29,685 70,15,462 63,50,543 1,98,08,303 AS ALREADY NOTED, THE CASE OF THE ASSESSEE WAS REFE RRED BY THE A.O. FOR SPECIAL AUDIT UNDER SECTION 142(2A) OF THE ACT. IN THE ABSENCE OF COOPERATION EXTENDED BY THE ASSESSEE, TH E SPECIAL AUDIT OF THE ACCOUNTS OF THE ASSESSEE FOR THE YEARS UNDER CONSIDERATION, HOWEVER, COULD NOT BE COMPLETED BY T HE AUDITORS. THE ASSESSEE ALSO DID NOT COMPLY WITH TH E NOTICES ISSUED BY THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND FAILED TO PRODUCE ANY BOOKS OF ACCO UNTS OR VOUCHERS FOR THE VERIFICATION OF THE A.O. KEEPING I N VIEW THIS FAILURE OF THE ASSESSEE, A.O. TREATED THE DEVELOPME NT AND SELLING EXPENSES CLAIMED BY THE ASSESSEE, EXCEPT DE VELOPMENT CHARGES PAID TO HUDA AS UNVERIFIABLE. ACCORDINGLY, 20% OF THE DEVELOPMENT AND SELLING EXPENSES CLAIMED BY THE ASS ESSEE EXCLUDING HUDA CHARGES WERE DISALLOWED BY HIM IN TH E 6 ITA.NO.13 TO 17/HYD/2014 RADHA REALTY CORPORATION (I) P. LTD., HYDERABAD. ASSESSMENTS COMPLETED UNDER SECTION 143(3) READ WIT H SECTION 153A FOR ALL THE FIVE YEARS UNDER CONSIDERATION. 9. ON APPEAL, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE A.O. ON THIS ISSUE OBSERVI NG THAT THE ASSESSEE, EVEN DURING THE APPEAL PROCEEDINGS BEFORE HIM, FAILED TO PRODUCE ANY BOOKS OF ACCOUNTS OR OTHER DOCUMENTA RY EVIDENCE SUCH AS BILLS AND VOUCHERS TO SUPPORT AND SUBSTANTIATE ITS CLAIM FOR DEVELOPMENT AND SELLING EXPENSES. HE HELD THAT THE ONUS THAT LAY ON THE ASSESSEE IN T HIS REGARD WAS NOT DISCHARGED BY THE ASSESSEE AND THE A.O. WAS FULLY JUSTIFIED IN DISALLOWING 20% OF THE DEVELOPMENT AND SELLING EXPENSES CLAIMED BY THE ASSESSEE TREATING THE SAME AS UNVERIFIABLE. 10. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL O N RECORD. THE LD. COUNSEL FOR THE ASSESSEE HAS NOT BROUGHT ON RECORD ANY MATERIAL OR HAS NOT RAISED ANY MATERIAL CONTENTION TO DISPUTE THE FACT THAT THERE WAS A FAILURE ON THE PART OF TH E ASSESSEE TO SUPPORT AND SUBSTANTIATE ITS CLAIM FOR SELLING AND DEVELOPMENT EXPENSES IN SPITE OF SUFFICIENT OPPORTUNITY AFFORDE D BY THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS WELL AS BY THE LD. CIT(A) DURING THE COURSE OF APPEAL PROCEEDINGS. HE HAS ALSO NOT DISPUTED THE FACT THAT THERE WAS FAILURE O N THE PART OF THE ASSESSEE TO EXTEND THE REQUIRED COOPERATION TO THE AUDITORS APPOINTED TO CARRY ON SPECIAL AUDIT UNDER SECTION 1 42(2A) OF THE ACT. THE LIMITED CONTENTION RAISED BY HIM IS ON LY THAT THE DISALLOWANCE OF 20% MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) OUT OF DEVELOPMENT AND SELLING EXPENSES IS ON THE HIGHER SIDE KEEPING IN VIEW THE FACTS OF THE CASE O F THE ASSESSEE INCLUDING THE NATURE OF THE BUSINESS AND THE SAME M AY BE 7 ITA.NO.13 TO 17/HYD/2014 RADHA REALTY CORPORATION (I) P. LTD., HYDERABAD. SCALED DOWN. WE FIND SOME MERIT IN THIS CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE AND HAVING REGARD TO THE F ACTS OF THE CASE, INCLUDING THE NATURE OF BUSINESS OF THE ASSES SEE AND THE NATURE OF EXPENSES CLAIMED UNDER THE HEAD DEVELOPM ENT AND SELLING EXPENSES, WE CONSIDER IT FAIR AND REASONAB LE TO RESTRICT THE DISALLOWANCE OF 20% MADE BY THE A.O. OUT OF DEV ELOPMENT AND SELLING EXPENSES AND CONFIRMED BY THE LD. CIT(A ) TO 15%. THE COMMON GROUNDS NO. 3 AND 4 OF THE ASSESSEES AP PEALS ARE THUS PARTLY ALLOWED. 11. IN THE RESULT, APPEALS OF THE ASSESSEE ARE PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09.01 .2015. SD/- SD/- (ASHA VIJAYARAGHAVAN) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 09 TH JANUARY, 2015 VBP/- COPY TO 1. RADHA REALTY CORPORATION (I) P. LTD., 6-3-609/96/A, ANANDNAGAR COLONY, KHAIRATABAD, HYDERABAD 500 004 . 2. DCIT, CIRCLE 3(1), I.T. TOWERS, MASAB TANK, HYDERAB AD. 3. CIT(A)-IV, HYDERABAD. 4. CIT-III, HYDERABAD. 5. D.R. I.T.A.T. B BENCH, HYDERABAD.