Mubarak Construction, Nashik V. Assistant Commissioner of Income-tax,

ITA 1515/PUN/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7269 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-09-2017
• Assessment Year: misc
• Appeal Filed On: 19-11-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AVDESH KUMAR
• Keywords: Unexplained expenditure; Search and seizure; Loose papers; Document seized; Bad and doubtful debts; Block assessment; Documents seized
• Section: 44AD; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 1515 /P U N/20 1 5 BLOCK PERIOD : 1996 - 97 TO 2002 - 03 MUBARAK CONSTRUCTION, S NO.441, TAKLI ROAD, FATEH WADI, B/H SHANKAR NAGAR, NASHIK 422001 . / APPELLANT PAN:A AHFN1983B VS. THE ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1, NASHIK . / RESPONDENT / APPELLANT BY : S MT. DEEPA KHARE / RESPONDENT BY : S HRI AVDESH KUMAR / DATE OF HEARING : 19 .0 9 .2017 / DATE OF PRONOUNCEMENT: 30 . 1 0.2017 / ORDER PER SUSHMA CHOWLA, JM: THE APPEAL FILED BY THE ASSESSEE IS AGAINST ORDER OF CIT(A) - 1 , NASHIK , DATED 2 8 . 0 9 .201 5 RELATING TO BLOCK PERIOD 1996 - 97 TO 2002 - 03 AGAINST ORDER PASSED UNDER SECTION 143(3) R.W.S. 158BC OF THE INCOME TAX ACT 1961 (IN SHORT THE ACT). 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 2 ITA NO. 1515 /PUN/20 1 5 MUBARAK CONSTRUCTION 1 . THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN REJECTING THE CLAIM OF LOSS/BAD DEBTS OF RS.10,24,412/ - WHILE COMPUTING THE UNDISCLOSED INCOME FOR THE RELEVANT BLOCK PERIOD. 2 . THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN NOT ACCEPTING THE CLAIM OF LOSS WHEN THE INCOME OF RS.16,24,412/ - WAS TAKEN INTO ACCOUNT WHILE COMPUTING THE UNDISCLOSE D INCOME OUT OF WHICH RS.10,24,412/ - WAS NOT RECEIVED RESULTING INTO LOSS. THE DEDUCTION OF LOSS OUGHT TO HAVE GIVEN BY THE LEARNED CIT(A). 3. THE ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST THE CLAIM OF LOSS / BAD DEBTS TOTALING RS.10,24,412/ - WHILE COMPUTING UNDISCLOSED INCOME FOR THE BLOCK PERIOD. 4. BRIEFLY, IN THE FACTS OF THE CASE, SEARCH AND SEIZURE OPERATIONS WERE CARRIED OUT AT THE PREMISES OF ASSESSEE ON 27.12.2001. DURING THE COURSE OF SEARCH, CERTAIN DOCUMENTS WERE SEIZED. THE STATEMENT UNDER SECTION 132(4) OF THE ACT OF SHRI SHOYEB MERCHANT , THE FATHER OF SHRI HUZEF AND ONE OF THE TRUSTEES OF BADRI HOSTEL BUILDING WAS RECORDED. THE ASSESSEE WAS EXECUTING CONTRACT WORK AND FINANCIAL AND CONSTRUCTION AFFAIRS WERE HANDLED BY SHRI SHOYEB ME RCHANT . HE ACCEPTED THE SAME IN HIS STATEMENT. IN RESPONSE TO NOTICE UNDER SECTION 158 OF THE ACT, THE ASSESSEE FILED THE RETURN OF INCOME AND THE CASE OF ASSESSEE WAS TAKEN UP FOR SCRUTINY. THE ASSESSEE DURING THE BLOCK PERIOD HAD UNDERTAKEN THE CONSTR UCTION OF HOSTEL BUILDING OF TRUST. THE ASSESSEE HAD ENTERED INTO AN AGREEMENT FOR THE SAID CONTRACT OF CONSTRUCTING HOSTEL BUILDING, AS PER LETTER DATED 03.07.1999. THE LOOSE PAPERS FILE MARKED AS A - 7 SEIZED FROM THE OFFICE PREMISES OF ANOTHER CONCERN C ONTAINED MONTHLY EXPENDITURE STATEMENTS AND ACCOUNTS FOR CONSTRUCTION OF HOSTEL BUILDING FROM MARCH, 1999 TO MAY, 2001. THE TOTAL EXPENDITURE WORKED OUT TO RS. 48,02,028/ - , OUT OF WHICH EXPENDITURE IN CASH WAS TOTALING RS.38,54,478/ - AND THE BALANCE EXPEND ITURE OF RS.9,47,550/ - WAS BY CHEQUE. THE ASSESSEE DECLARED THE INCOME UNDER THE PROVISIONS OF SECTION 44AD OF THE ACT IN THE ORIGINAL RETURN OF INCOME. HOWEVER, 3 ITA NO. 1515 /PUN/20 1 5 MUBARAK CONSTRUCTION THE ASSESSING OFFICER NOTED THAT THE BLOCK ASSESSMENT WAS TO BE FINALIZED ON THE BASIS OF SE IZED MATERIAL AND ON THE BASIS OF ENQUIRIES CONDUCTED POST SURVEY AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS. HENCE, THE ASSESSEE COULD NOT TAKE SHELTER OF SECTION 44AD OF THE ACT FOR NON - COMPLIANCE. ON THE BASIS OF CONFIRMATION GIVEN BY THE ARCHITE CT OF THE ASSESSEE, THE TOTAL COST OF PROJECT WAS WORKED OUT AND ADDITION WAS MADE IN THE HANDS OF ASSESSEE ON THE BASIS OF TWO BANK ACCOUNTS. THE TOTAL EXPENDITURE WORKED OUT TO RS.48,02,028/ - AND THE ASSESSEE WAS ASKED TO EXPLAIN THE SOURCE OF CASH PAYM ENTS MADE OF RS.38,54,478/ - INCURRED ON ACCOUNT OF CONSTRUCTION OF HOSTEL BUILDING. IN VIEW OF THE ENTRIES ON THE SEIZED DOCUMENTS, THE ASSESSEE WAS TO EXPLAIN TO THE EXPENDITURE OF RS.38,54,478/ - IN CASH AS PER THE SEIZED PAPERS. HOWEVER, THE ASSESSEE F AILED TO FURNISH COMPLETE INFORMATION. HENCE, EXCESS EXPENDITURE OF RS.37,44,478/ - WAS TREATED AS UNDISCLOSED INCOME OF THE ASSESSEE. THE ASSESSEE EXPLAINED THAT IT HAD RECEIVED A LETTER DATED 06.04.2004 FROM THE TRUST STATING THAT OUT OF RECEIVABLE OF R S.16,24,412/ - , RS.6 LAKHS WAS TO BE PAID IN FULL AND FINAL SETTLEMENT. HENCE, THE ASSESSEE PLEADED THAT SUM OF RS.10,24,412/ - WAS TO BE ALLOWED AS BAD DEBTS. THE SAID PLEA WAS MADE DURING THE COURSE OF APPELLATE PROCEEDINGS. IN THE FIRST ROUND, THE CIT(A) FAILED TO GIVE ANY DECISION ON THE SAID ISSUE. THE ASSESSEE MADE A REQUEST FOR ALLOWING THE SAID CLAIM. THE CIT(A) WAS OF THE VIEW THAT WHERE THE ASSESSING OFFICER IN THE REPORT AFTER VERIFICATION HAD CONCLUSIVELY REPORTED THAT TOTAL EXPENDITURE OF RS.70,73,065/ - WAS INCURRED ON CONSTRUCTION OF BADRI HOSTEL BUILDING DURING THE PERIOD STARTING FROM FINANCIAL YEAR 1999 - 2000 TO 27.12.2001, THEN THERE IS NO MERIT IN THE PLEA OF ASSESSEE. HE FURTHER OBSERVED THAT THE ASSESSING O FFICER HAD ALSO NOT COMMENTED UPON THE LETTER DATED 06.04.2004 RECEIVED FROM THE TRUST TERMINATING THE CONTRACT OF ASSESSEE AND ALSO POINTING OUT VARIOUS DEFECTS IN MAKING PAYMENT OF RS.6 LAKHS AS FULL AND FINAL SETTLEMENT FOR THE SAID PROJECT. THE MATTER 4 ITA NO. 1515 /PUN/20 1 5 MUBARAK CONSTRUCTION TRAVELLED TO THE TRIBUNAL, WHEREIN IT WAS HELD THAT THE CLAIM FOR BAD DEBTS THOUGH NOT MADE IN THE RETURN OF INCOME, WAS RAISED BEFORE THE CIT(A) AND HENCE, ALLOWABLE IN THE HANDS OF ASSESSEE. THE ISSUE WAS RAISED BY THE REVENUE BEFORE THE HONBLE HIGH C OURT, WHICH IN TURN, WITH REGARD TO QUESTION NO.(C) HELD THAT THOUGH THE ORDER OF THE CIT(A) TAKES NOTE OF THE CLAIM OF UNDISCLOSED INCOME BEING REDUCED ON ACCOUNT OF BAD DEBTS; HOWEVER, THE CIT(A) AFTER NOTING THE CONTENTION OF ASSESSEE, DID NOT ADJUDICAT E UPON THE SAME. IN VIEW THEREOF, THE HONBLE HIGH COURT SET ASIDE THE ORDER OF CIT(A) AND RESTORED THE ISSUE OF BAD DEBTS FOR FRESH CONSIDERATION BY THE CIT(A). 5. IN THE SECOND ROUND OF APPEAL, THE CIT(A) TOOK THE NOTE OF REMAND REPORT OF THE ASSESSING OFFICER DATED 30.03.2005 WHICH WAS FILED IN THE FIRST ROUND OF APPELLATE PROCEEDINGS, WHEREIN HE HAD STATED THAT THE ASSESSEE HAD ADMITTED THAT NO REGULAR BOOKS OF ACCOUNT WERE MAINTAINED FOR CONSTRUCTION OF BADRI HOSTEL BUILDING AT NASHIK. AS AGAINST TH E SAME, THE ASSESSEE FILED STATEMENT OF TOTAL EXPENDITURE INCURRED OF RS. 70,73,065/ - BEFORE THE ASSESSING OFFICER ON CONSTRUCTION OF BADRI HOSTEL BUILDING FROM FINANCIAL YEAR 1999 - 2000 TO 27.12.2001, WHICH THE ASSESSING OFFICER FOUND TO BE IN ORDER. THE C ORRECT FIGURE AS PER SEIZED DOCUMENT ANNEXURE - 7, PAGES 107 TO 135 AND THE ENTRIES IN THE BANK STATEMENT WAS RS.70,73,065/ - . IN RESPECT OF CLAIM OF BAD DEBTS IN THE REMAND REPORT , THE ASSESSING OFFICER STATED THAT THE CLAIM OF ASSESSEE WAS BASED ON LETTER DATED 06.04.2004 WHICH WAS NOT ONLY AFTER THE DATE OF BLOCK ASSESSMENT BUT ALSO AFTER THE DATE OF SEARCH. THE SAID LETTER DATED 06.04.2004 WHICH TALKS OF THE VISIT TO BADRI HOSTEL BY THE PERSONS ON BEH ALF OF THE TRUST ON 02.07.2002 , THE ASSERTION BY THE TRUST IN THE LETTER DATED 06.04.2004 THAT NO AMOUNT WAS PAYABLE TO M/S. MUBARAK CONSTRUCTION I.E. THE ASSESSEE BEFORE US, AFTER THE VISIT DATED 02.07.2002 AND DEFINITELY AFTER THE DATE OF SEARCH. HENCE, HE PLEADED IN THE 5 ITA NO. 1515 /PUN/20 1 5 MUBARAK CONSTRUCTION REMAND REPORT THAT THE CLAIM OF ASSESSEE IN RESPECT OF BAD DEBTS OF RS.10,24,412/ - SHOULD NOT BE ACCEPTED IN APPEAL AGAINST THE BLOCK ASSESSMENT. THE CIT(A) VIDE PARA 3.5 HELD AS UNDER: - 3.5 THIS IS AN ADMITTED FACT THAT THE ASSESSMENT MADE BY THE ASSESSING OFFICER PERTAINS TO BLOCK ASSESSMENT PERIOD PERTAINING TO ASSESSMENT YEAR 1996 - 97 TO AY 2002 - 03. IT IS ALSO NOT IN DISPUTE THAT THE LETTER FOR TERMINATION OF CONTRACT AND FULL AND FINAL SETTLEMENT IS RECEIVED ON 6/4/2004 WHICH IS AF TER THE A.Y. 2002 - 03. THUS, TILL ASSESSMENT YEAR 2002 - 03 THERE WAS NO INDICATION OR PROOF THAT THE APPELLANT WILL RECEIVE LESS AMOUNT THAT STIPULATED UNDER THE CONTRACT. IN OTHER WORDS DURING THE BLOCK PERIOD NO EVIDENCE IS THERE THAT RECEIPT OF 10,24,412/ - WILL BECOME BAD DEBT. THEREFORE FROM THE FACTS ON RECORD IT CAN BE INFERRED THAT THE AMOUNT OF 10,24,412/ - CANNOT BE CONSIDERED AS BAD DEBT IN THE BLOCK PERIOD AS IT PERTAINS TO PERIOD AFTER THAT. THE BAD DEBT CAN BE CONSIDERED IN AY 2005 - 06 SUBJECT TO SATISFACTION OF AO AS THE LETTER IN CONSIDERATION PERTAINS TO THE SAID PERIOD. 6. THE CIT(A) FURTHER NOTED THAT THE DATE OF SEARCH WAS 27.12.2001 AND THE VISIT TO THE BADRI HOSTEL BY THE PERSONS ON BEHA LF OF THE TRUST WAS 02.07.2002, WHICH PERTAINS TO THE ASSESSMENT YEAR 2003 - 04 WHICH WAS OUTSIDE THE PURVIEW OF BLOCK PERIOD. THE LETTER TERMINATING THE CONTRACT WAS ISSUED ONLY ON 06.04.2004 I.E. AFTER ALMOST 22 MONTHS AFTER THE VISIT OF THE PERSON FROM T HE TRUST. AS PER THE CIT(A), THIS FURTHER REINFORCES TH E FACT THAT DURING THE BLOCK PERIOD FOR WHICH ASSESSMENT WAS MADE BY THE ASSESSING OFFICER, THE DEBTS AS CLAIMED BY THE ASSESSEE HAD NOT BECOME BAD. HENCE, THE RATIO OF THE HON'BLE SUPREME COURT DECI SION IN THE CASE OF S.C. KOTHARI REPORTED IN 82 ITR 794 (SC) WAS HELD TO BE DISTINGUISHABLE ON FACTS. THE CIT(A) FURTHER RELIED ON DIFFERENT DECISIONS TO HOLD THAT THE JUD GMENT MUST BE READ AS A WHOLE AND THE OBSERVATIONS FROM THE JUDGMENT WERE TO BE CONS IDERED IN THE LIGHT OF THE QUESTIONS WHICH WERE BEFORE THE COURT. ACCORDINGLY, THE CLAIM OF ASSESSEE OF BAD DEBT OF RS.10,24,412/ - WAS HELD TO BE NOT IN ORDER. 7. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 6 ITA NO. 1515 /PUN/20 1 5 MUBARAK CONSTRUCTION 8. THE LEARNED AUTHORIZED REPRESE NTATIVE FOR THE ASSESSEE POINTED OUT THAT IT WAS SECOND ROUND OF PROCEEDINGS BEFORE THE TRIBUNAL. HE FURTHER POINTED OUT THAT THE ASSESSEE HAD FILED THE RETURN OF INCOME UNDER SECTION 44AD OF THE ACT. THEREAFTER, SEARCH UNDER SECTION 132(1) OF THE ACT WA S CONDUCTED ON THE PREMISES OF ASSESSEE ON 27.12.2001 AND SEVERAL DOCUMENTS WERE FOUND AND SEIZED. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE PROFIT AND LOSS ACCOUNT PLACED AT PAGE 50 OF THE PAPER BOOK AND POINTED OUT THAT THE ASSESSING OFFICER REJECTED THE APPLICATION OF SECTION 44AD OF THE ACT AND COMPUTED THE INCOME UNDER SECTION 158BC OF THE ACT ON THE BASIS OF NEGATIVE CASH IN CONSTRUCTION ACCOUNT, ON THE BASIS OF EVIDENCE FOUND DURING THE COURSE OF SEARCH. THE ENTIRE AMOU NT WAS CONSIDERED IN THE BLOCK RETURN AND THE LOSS CLAIMED BY THE ASSESSEE ON ACCOUNT OF DEBTS WAS FOR THE SAME PROJECT AND HENCE, ALLOWABLE. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACED RELIANCE ON THE ORDER OF CIT(A). 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE LIMITED ISSUE WHICH ARISES IN THE PRESENT APPEAL IS THE CLAIM OF ASSESSEE WHICH WAS FOR THE FIRST TIME MADE BEFORE THE CIT(A) IN THE FIRST ROUND OF APPELLATE PROCEEDINGS TO ALLOW BAD DEBTS OF RS.10,24,412/ - WHILE COMPUTING UNDISCLOSED INCOME IN THE HANDS OF ASSESSEE FOR THE BLOCK PERIOD. THE APPEAL IS FOR THE BLOCK PERIOD STARTING FROM FINANCIAL YEAR 1996 - 97 TO 2002 - 2003 MADE UNDER SECTION 158BC OF THE ACT. THE BASIS FOR MAKING THE ADDITION IN THE HANDS OF ASSESSEE WAS INCRIMINATING DOCUMENT S FOUND DURING THE COURSE OF SEARCH, WHICH RELATED TO CONSTRUCTION OF BADRI HOSTEL BUILDING. THERE IS NO DISPUTE THAT THE EVIDENCE HAS BEEN FOUND IN RESPECT OF COST OF CONSTRUCTION OF THE SAI D HOSTEL BUILDING WHICH 7 ITA NO. 1515 /PUN/20 1 5 MUBARAK CONSTRUCTION WAS NOT ACCOUNTED FOR IN THE BOOKS OF ACCOUNT. THE ASSESSING OFFICER HAD MADE THE ADDITION TOTALING RS.37,44,478/ - AS UNDISCLOSED INCOME FOR THE BLOCK PERIOD BEING THE EXPENDITURE INCURRED ON CONSTRUCTION OF HOSTEL BUILDING. THE A SSESSEE DID NOT MAKE ANY OTHER CLAIM BEFORE THE ASSESSING OFFICER. HOWEVER, FOR THE FIRST TIME BEFORE THE CIT(A), IT RAISED THE ISSUE AS TO ALLOWABILITY OF BAD DEBTS OF RS.10,24,412/ - BEING RELATED TO THE SAID PROJECT ITSELF. THE BASIS FOR AFORESAID CLAI M OF BAD DEBTS WAS A LETTER WHICH WAS ISSUED BY THE TRUST FOR WHICH THE CONSTRUCTION OF HOSTEL BUILDING WAS UNDERTAKEN. THE LETTER WAS FOR THE TERMINATION OF CONTRACT, UNDER WHICH FULL AND FINAL SETTLEMENT WAS RECEIVED ON 06.04.2004, WHEREIN AS AGAINST TH E CLAIM OF ASSESSEE OF RS.16,24,412/ - , THE SAID TRUST PAID ONLY SUM OF RS.6 LAKHS AS FULL AND FINAL SETTLEMENT AND THE BALANCE AMOUNT BECAME BAD DEBT IN THE HANDS OF ASSESSEE. 11. THE ADDITION IN THE HANDS OF ASSESSEE HAS BEEN WORKED OUT FOR UNEXPLAINED EXPENDITURE IN THE CONSTRUCTION OF HOSTEL BUILDING FOR WHICH, NECESSARY EVIDENCE WAS FOUND AND SEIZED DURING THE COURSE OF SEARCH. THE SCOPE OF ASSESSMENT FOR THE BLOCK PERIOD UNDER SECTION 158BC OF THE ACT IS ON THE BASIS OF INCRIMINATING MATERIAL FOUND DURING THE COURSE OF SEARCH AND ONCE THE SAID INCRIMINATING MATERIAL HA D BEEN SO FOUND AND ASSESSED IN THE HANDS OF ASSESSEE, THE QUESTION WHICH ARISES IS THE CLAIM OF ASSESSEE OF BAD DEBTS. THE BAD DEBTS HAVE ARIS EN FOR NOT BECAUSE OF EXPENDITURE HA VING NOT BEEN INCURRED , BUT BECAUSE THE TRUST DID NOT PAY THE SAID AMOUNT TO THE ASSESSEE. CERTAIN PERSONS VISITED BADRI HOSTEL BUILDING ON BEHALF OF THE TRUST ON 02.07.2002, WHICH IS ALSO AFTER THE DATE OF SEARCH I.E. 27.12.2001. THE LETTER TERMINATING THE CONTRACT WAS ISSUED ONLY ON 06.04.2004 I.E. ALMOST 22 MONTHS AFTER THE DATE OF VISIT. FIRST OF ALL, THE DATE OF VISIT DOES NOT FALL WITHIN THE BLOCK PERIOD BUT FALLS OUTSIDE THE BLOCK PERIOD AND EVEN THE LETTER TERMINATING THE CONTRACT WAS ISSUED 8 ITA NO. 1515 /PUN/20 1 5 MUBARAK CONSTRUCTION MUCH LAT ER AND WAS RECEIVED ON A LATER DATE BY THE ASSESSEE. THE ASSESSEE ADMITTEDLY, HAS MADE THE SAID CLAIM DURING THE PENDENCY OF FIRST APPELLATE PROCEEDINGS. ACCORDINGLY, WE UPHOLD THE ORDER OF CIT(A) IN DENYING THE CLAIM OF BAD DEBTS OF RS.10,24,412/ - IN TH E HANDS OF ASSESSEE. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, DISMISSED. 1 2 . IN THE RESULT, APPEAL OF ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON THIS 30 TH DAY OF OCTO BER , 201 7 . SD/ - SD/ - (ANIL CHATURVEDI) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 30 TH OCTO BER , 201 7 . G G C C V V S S R R / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A) - 1, NASHIK ; 4. THE PR. C IT - I , NASHIK ; 5. , , / DR B , ITAT, PUNE; 6. / GUARD FILE. / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE