Pride and Expert Properties Private Limited, Bengaluru V. Deputy Commissioner of Income-Tax, Central Circle-1 (1) , Pune

ITA 175/PUN/2022

AI Insights

The case involves Pride and Expert Properties Private Limited, which appealed against the order of the Commissioner of Income Tax (Appeals)-11, Pune, confirming the additions made by the Assessing Officer. The additions included the disallowance of a weighted deduction for donations made to a Kolkata-based organization, which was found to be a bogus entity providing accommodation entries for tax evasion. The Tribunal also addressed the issue of deemed rental value of unsold flats, which was contested based on previous rulings in similar cases. The Tribunal's decision was influenced by the inability of the assessee to substantiate the genuineness of the donations and the application of the doctrine of fraud.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 137442 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Next Hearing Date: 27-03-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 23-03-2022
• Other Referred Cases: M/s. Motilal Dahyabhai Jhaveri and Sons vs. ACIT, Rajda Polymers vs. DCIT, Saimed Innovation vs. ITO, MRC Transolutions Pvt. Ltd. vs. ACIT, Kirit Laxmichand Lapsia vs. ACIT, CIT vs. Batanagar Education And Research Trust, CIT vs. Best and Co. (Private) Ltd., Gundecha Builders, Sai Spacecon India Pvt. Ltd., Kumar Properties and Real Estate Private Limited
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Question of law; Accommodation entries; Set aside
• Section: 143(3); 12AA; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “B”, PUNE BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER आयकर अपील सं. / ITA No.175/PUN/2022 िनधाᭅरण वषᭅ / Assessment Year : 2014-15 Pride and Expert Properties Private Limited, 901, 9th Floor, Pride Hulkul, 116, Lalbagh Road, Bengaluru, Karnataka- 560027. PAN : AAACE4356J Vs. DCIT, Central Circle-1(1), Pune. Appellant Respondent आदेश / ORDER PER INTURI RAMA RAO, AM: This is an appeal filed by the assessee directed against the order of ld. Commissioner of Income Tax (Appeals)- 11, Pune [‘the CIT(A)’] dated 27.01.2022 for the assessment year 2014-15. 2. Briefly, the facts of the case are that the appellant is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of builders. The Return of Income for the assessment year 2014-15 was filed on 24.11.2014 declaring total income of Rs.12,40,15,070/-. Against the said return of income, the assessment was completed by the Dy. Commissioner Assessee by : Shri Suhas Bora Revenue by : Shri M. G. Jasnani Date of hearing : 28.03.2023 Date of pronouncement : 28.03.2023 ITA No.175/PUN/2022 2 of Income Tax, Central Circle-1(1), Pune (‘the Assessing Officer’) vide order dated 09.12.2016 passed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) at a total income of Rs.13,28,61,632/-. While doing so, the Assessing Officer disallowed claim for the weighted deduction u/s 35(1)(ii) in respect of donations of Rs.50,00,000/- made to M/s. School of Human Genetics & Population Health, Kolkata by giving a finding based on the information received from the Investigation Wing of the Income Tax Department, Kolkata that it is a merely entry provider by providing accommodation entries of donations under the dubious scheme of tax evasion under which the bogus donations were received from the donors are returned back to the donors after retaining the commission. During the course of assessment proceedings, the Assessing Officer had called upon the appellant to establish the genuineness of the donations after furnishing the copy of the information received from the Investigation Wing of the Income Tax Department, Kolkata. However, the assessee company had failed to discharge the onus of proving the genuineness of the donation. The Assessing Officer had set out the findings given by the Investigation Wing of the Income Tax Department, Kolkata vide para 3.3 of the assessment order. Since the assessee company had failed to discharge the onus of proving the genuineness of donations, the Assessing Officer had ITA No.175/PUN/2022 3 concluded that the donations made to M/s. School of Human Genetics & Population Health, Kolkata is a merely accommodation entries provided by the said organization to the appellant and, accordingly, disallowed the weighted deduction u/s 35(1)(ii) of Rs.87,50,000/-. The Assessing Officer also brought to tax the deemed rental value of unsold flat which are held in stock-in-trade of Rs.96,558/-. 3. Being aggrieved by the above assessment order, an appeal was filed before the ld. CIT(A), who vide impugned order confirmed the additions made by the Assessing Officer. 4. Being aggrieved, the appellant is in appeal before us in the present appeal. 5. The ld. AR submits that the donation made is genuine one. Placing reliance on the following decisions of the Co-ordinate Bench of the Tribunal, ld. AR submits that the claim of the appellant should be allowed :- (i) M/s. Motilal Dahyabhai Jhaveri and Sons vs. ACIT, ITA No.3453/Mum/2018 and 1584/Mum/2019 dated 24.04.2019. (ii) Rajda Polymers vs. DCIT, ITA No.333/Kol/2017 dated 08.11.2017. (iii) Saimed Innovation vs. ITO, ITA No.2231/KOl/2016 dated 13.09.2017. (iv) MRC Transolutions Pvt. Ltd. vs. ACIT, ITA No.528/PUN/2017 dated 29.01.2021. (v) Kirit Laxmichand Lapsia vs. ACIT, ITA No.1202/Mum/2020 dated 15.09.2022. ITA No.175/PUN/2022 4 6. As regards to the addition made on account of deemed rental value of unsold flat, the ld. AR placed reliance on the decision of this Tribunal in assessee’s own case in ITA No.860/PUN/2022 for A.Y. 2017-18 dated 14.02.2023. 7. On the other hand, ld. Sr. DR placed reliance on the decision of the Hon’ble Supreme Court in the case of CIT vs. Batanagar Education And Research Trust, 129 taxmann.com 30 (SC), wherein, the Hon’ble Apex Court held that donee organization is held to be bogus organization engaged in the business of providing a mere accommodation entries to the donees and, therefore, the assessee company is not eligible for weighted deduction u/s 35(1)(ii) of the Act. 8. As regards to the deemed rental value of unsold flat, the ld. Sr. DR placing reliance on the orders of the lower authorities submits that the addition should be sustained. 9. We heard the rival submissions and perused the material on record. Ground of appeal nos.1 to 8 challenges the addition made by the Assessing Officer as confirmed by CIT(A) disallowing the claim for weighted deduction u/s 35(1)(ii) in respect of donations made to M/s. School of Human Genetics & Population Health, Kolkata of Rs.50,00,000/-. The assessee company made donations of Rs.50,00,000/- to organization, namely, M/s. School of Human ITA No.175/PUN/2022 5 Genetics & Population Health, Kolkata. Against this donation, the assessee company claimed weighted deduction u/s 35(1)(ii) of Rs.87,50,000/- being 175% of the donations amount. The Assessing Officer based on the information received from the Investigation Wing of the Income Tax Department, Kolkata held that the said organization was a bogus organization engaged in the dubious transactions of providing accommodation entries under which the donations received are paid back to the donees in the form of cash in lieu of the commission. Based on this information, the Assessing Officer had called upon the assessee company to prove the genuineness of the donation made. Despite several opportunities given to the appellant, the appellant had failed to discharge the onus of proving the genuineness of the transaction. The Hon’ble Supreme Court in the case of CIT vs. Best and Co. (Private) Ltd., 60 ITR 11 (SC) held that when the sufficient evidence, either direct or circumstantial, in respect of claim made by the assessee was disclosed by the revenue, an adverse inference could be drawn against the assessee, if he failed to put before the assessing authority, material which is in his exclusive possession or if he has suppressed documents and evidence, which is exclusively within his knowledge or in his possession. Thus, we are of the considered opinion that since the appellant had failed to discharge ITA No.175/PUN/2022 6 the onus of proving the genuineness of donations made or to rebut the allegation made by the Assessing Officer, the Assessing Officer is justified in drawing adverse opinion against the assessee. 10. Furthermore, the Hon’ble Supreme Court in the case of Batanagar Education And Research Trust (supra) based on the statement given by the Secretary, M/s. School of Human Genetics & Population Health, Kolkata had confirmed the action of the CIT (Exemptions) in rejecting of registration u/s 12AA based on the findings that the donations received by the trust were bogus donations, wherein, even the organization, M/s. School of Human Genetics & Population Health, Kolkata held to be bogus organization and the donations made to the same organization, namely, M/s. School of Human Genetics & Population Health, Kolkata are found to be dubious. Thus, the appellant had not discharged the onus lying upon it proving the genuineness of the donations and also failed to rebut the allegation of the Assessing Officer, which clearly means that he had also participated to the fraudulent activity committed by the said organization, namely, M/s. School of Human Genetics & Population Health, Kolkata. Thus, the doctrine of fraud can be squarely invoked to the facts of the present case. Accordingly, the ratio of the decisions placed by the ld. AR have no application to the facts of the present case, ITA No.175/PUN/2022 7 inasmuch as, those cases were decided on the premises that there was no allegation that amount of donation was paid back in cash to the donors and also there was no allegation that M/s. School of Human Genetics & Population Health, Kolkata was engaged in the fraudulent activities. Since, we held that the doctrine of fraud is applicable to the facts of the present case, even the principles of natural justice have no application, therefore, we are of the considered opinion that the ld. CIT(A) had rightly confirmed the action of the Assessing Officer in disallowing the claim for weighted deduction u/s 35(1)(ii) in respect of donations of Rs.50,00,000/- made to M/s. School of Human Genetics & Population Health, Kolkata. Therefore, we do not find merits in the ground of appeal nos.1 to 8 filed by the assessee company. Accordingly, ground of appeal nos.1 to 8 stands dismissed. 11. Ground of appeal nos.9 to 11 challenges the addition on account of deemed rental value of unsold flats allowing in the stock- in-trade. We find that this issue is squarely covered by the decision of the Co-ordinate Bench of this Tribunal in assessee’s own case (supra). The relevant paragraphs of the order of the Co-ordinate Bench of this Tribunal in assessee’s own case (supra) are reproduced as under :- ITA No.175/PUN/2022 8 “6. We have heard both the parties and perused the material available on record. We note that the Hon’ble Bombay High Court in the case of Gundecha Builders (supra) vide its order dated 31-07-2018 for A.Y. 2008- 09 considered question of law which are reproduced in para 2 of the said decision. The relevant question of law in para 2(i) is reproduced here-in- below for ready reference : “(i) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in treating the income received on letting out as house property income?” 7. On plain reading of the said question of law, we note that whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in treating the income received on letting out as house property. Admittedly, the assessee therein is engaged in the business of developing real estate projects which is evident from para 3(a) of the said decision. Further, it is also noted from para 3(e) that letting of property is not the business of assessee therein. Further, the Hon’ble High Court of Bombay by placing reliance in the case of Sane & Doshi Enterprises reported in 377 ITR 165 (Bom.) dismissed the substantial question of law raised by the Revenue by holding that the said question does not give any rise to substantial question of law which is evident from para 3(f) of the said decision. It is pertinent to note that the facts in the case of Gundecha Builders (supra) before the Hon’ble High Court was that the assessee therein received rental income which was classified as income from house property which is evident from para 3(b) of the said order. There is no dispute with regard to this aspect from the ld. DR. 8. Coming to the present facts of the case the contention of assessee was that the said 15 unsold flats was not sold during the year under consideration and no rental income derived from the said unsold flats as they were not let out, hence, no deemed rent could be levied u/s. 23(4) of the Act. We note that the assessee treated the same as 15 unsold flats as stock-in-trade which means that the profits on its sale would be offered as business income and no rental income received by the assessee from such 15 unsold flats. Therefore, facts in the case of Gundecha Builders (supra) are different from the facts of the present case in hand. Thus, we reject the arguments of ld. DR of applicability of observation of Hon’ble High Court of Bombay in the case of Gundecha Builders (supra). On similar issue and same identical facts, this Tribunal in the case of Sai Spacecon India Pvt. Ltd. in ITA No. 2824/PUN/2017 held no addition on account of deemed rent on unsold flats could be made in the hands of the assessee. The relevant portion of the same are as under for ready reference : “3. Heard both the parties and perused the material available on record. We note that the assessee is a Private Limited Company engaged in the business of Promoter, Developer, Builder and Power Generation. The AO found 37 unsold flats ready for possession and completion certificate in respect of said flats were also issued. He observed the assessee ITA No.175/PUN/2022 9 has not offered any rent income on these 37 unsold flats. The assessee claimed that the flats are stock-in-trade and the income from it is income from Business and Profession and not from House Property. The AO did not accept the submissions of the assessee and proceeded to calculate deemed rent vide its Para No. 5.4 to an extent of Rs.27,97,200/-. The CIT(A) confirmed the same. According to ld. AR that the issue is covered in favour of the assessee and the addition made by the AO as confirmed by the CIT(A) is not maintainable and the assessee recognized unsold flats as stock-in-trade. The ld. AR placed on record of order of this Tribunal in the case of Kumar Properties and Real Estate Private Limited in ITA No. 2977/PUN/2017 for A.Y. 2013- 14. The Co-ordinate Bench of Tribunal vide order dated 28-04- 2021 discussed the issue in detail from Para Nos. 3 to 13 of the said order and held that an exception has been carved out in section 22 of the Act that any such property or its part, which is occupied by the assessee for the purposes of any business or profession carried, the profits of which are chargeable to income- tax, shall be excluded on satisfying the conditions therein. The Co-ordinate Bench, further discussed the four conditions in Para Nos. 6, 7, 8 and 9. The first condition being that the property or its part should be occupied by the assessee as an owner. There is no material evidence to show before us that the assessee is not occupied the said unsold 37 flats. The second condition is that any business or profession should be carried on by the assessee. We note that the assessee filed return showing income from such business and also engaged in the business of property development. The third condition is that the occupation of the property should be for the purpose of business or profession wherein the assessee before us shown the said 37 unsold flats as stock in trade. The last condition is that profits of such business or profession should be chargeable to income-tax. In the present case that there is no dispute that the profits of the business of construction by the assessee are chargeable to income-tax. Therefore, in our view that the unsold 37 flats are occupied by the assessee are as owner; business of construction is carried on by the assessee; the occupation of the flats is for the purpose of business; and profits of such business are chargeable to Income-tax. Thus, in our opinion, all the four conditions provided in exclusion clause in section 22 of the Act are to be excluded, therefore, we hold that no addition on account of deemed rent on unsold 37 flats can be made in the hands of the assessee. The ld. DR did not dispute that the assessee recognized the unsold flats as stock- in-trade but however relied on the order of CIT(A). Thus, the order of CIT(A) is not justified and it is set aside. Thus, the grounds raised by the assessee are allowed.” ITA No.175/PUN/2022 10 9. In the light of the above, we hold that the order of CIT(A) is not justified in confirming the view of AO in levying deemed rent u/s. 23(4) of the Act on account of income from house property. Thus, the grounds Nos. 1 to 3 raised by the assessee are allowed.” 12. Respectfully following the decision of the Co-ordinate Bench of this Tribunal in assessee’s own case (supra), we uphold the finding of the Tribunal on this count. We order accordingly. Thus, the ground of appeal nos.9 to 11 stands allowed. 13. In the result, the appeal filed by the assessee stands partly allowed. Order pronounced on this 28 th day of March, 2023. Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 28 th March, 2023. Sujeet आदेश कᳱ ᮧितिलिप अᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A)-11, Pune. 4. The Pr. CIT (Central), Pune. 5. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण, “B” बᱶच, पुणे / DR, ITAT, “B” Bench, Pune. 6. गाडᭅ फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.