ACIT, Central Circle, Tirupathi V. Sri A. Madhusudhana Naidu, Chittoor

ITA 1808/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66379 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 21-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Assessee Lawyers: E PHALGUNA KUMAR
• Keywords: Search and seizure; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.1808/HYD/2011 ASSESSMENT YEAR: 2008-09 ACIT, CENTRAL CIR., TIRUPATI. .... APPELLANT VS. SRI A. MADHUSUDHANA NAIDU, RAMACHANDRAPURAM, CHITTORE. PAN:AQDPA 9642 D. RESPONDENT APPELLANT BY : SMT. NIVEDITA BISWAS RESPONDENT BY : SRI E. PHALGUNA KUMAR DATE OF HEARING : 23-08-2012 DATE OF PRONOUNCEMENT : 19-10-20 12 ORDER PER SAKTIJIT DEY, J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 12-08-2011 PASSED IN APPEAL NO.851/DCIT CC/TPT/CIT(A)-VII/10-11 AND IT PERTAINS TO THE ASSE SSMENT YEAR 2008-09. 2L. THE REVENUE HAS RAISED THE FOLLOWING TWO EFFE CTIVE GROUNDS BEFORE US:- 1. THE CIT (A) ERRED IN ALLOWING UNDISCLOSED COMMISSI ON RECEIVED OF RS.54,00,000/- FOR EVICTION OF ENCROACH ERS IN VIEW OF THE FACT THAT THE ASSESSEE FAILED TO PRODUC E THE 2 ITA NO.1808 OF 2011 SRI MADHUSUDHANA NAIDU. DETAILS OF TRANSACTION SINCE ONUS LIES ON THE ASSES SEE IN PROVING THE GENUINENESS OF THE TRANSACTION. 2. THE CIT (A) IS NOT CORRECT IN DELETING THE ADDIT ION OF RS.16,59,560/- (BEING 30% OF THE TOTAL EXPENDITURE ) AND DIRECTING THE AO TO ESTIMATE THE INCOME @ 12.5% ON CONTRACT WORK EXECUTED AT 60 LAKHS. IN VIEW OF THE FACT THAT THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE IN THE FORM OF BILLS/VOUCHERS IN SUPPORT OF THE EXPENDITURE CLAIME D BY HIM AD ALSO THE ASSESSEE HAS NOT GOT HIS BOOKS OF ACCOU NT AUDITED AS PER PROVISIONS OF 44AB OF INCOME-TAX ACT , THOUGH GROSS RECEIPTS EXCEEDED 40 LAKHS. 3. GROUND NO.2 RELATES TO THE DIRECTION OF CIT (A) FOR DELETING AN AMOUNT OF RS. 54 LAKHS OUT OF RS.60 LAKHS ADDED AS UNDISCLOSED COMMISSION. 4. THE ASSESSEE IS AN INDIVIDUAL DERIVING INCOME FR OM EXECUTING CONTRACT WORKS. FOR THE ASSESSMENT YEAR UNDER DISP UTE, THE ASSESSEE FILED HIS RETURN OF INCOME DECLARING A TOTAL INCOME OF RS.4,80,000/-. CONSEQUENT UPON A SEARCH AND SEIZURE OPERATION COND UCTED IN CASE OF SRI L. PURUSHOTTAM NAIDU GROUP, SOME INCRIMINATING MATE RIAL BELONGING TO THE ASSESSEE WAS FOUND AND SEIZED. THE AO ISSUED A NOT ICE U/S 153C. IN COURSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT M/S MG BROTHERS AUTOMOBILES PVT. LIMITED HAS DEVELOPED A VENTURE ST YLED AS MGB ENCLAVE AT CHIGURUVADA. THE CONTRACT WORK FOR DEVELOPMENT OF SAID PROJECT WAS GIVEN TO THE ASSESSEE. THE AO FOUND FROM THE CONTR ACT AGREEMENT THAT THE TOTAL VALUE OF CONTRACT WAS RS.1.25 CRORES. H OWEVER, WHILE EXAMINING THE BOOKS OF ACCOUNTS OF THE ASSESSEE, TH E AO FOUND THAT THE ASSESSEE HAS RECEIVED FROM CONTRACT WORK RS.60 LAK HS. THE AO THEREFORE ISSUED SUMMONS TO THE ASSESSEE AND RECORDED STATEME NT FROM HIM. IN THE STATEMENT RECORDED, THE ASSESSEE STATED THAT HE HAS RECEIVED AN AMOUNT OF RS.60 LAKHS THROUGH CHEQUE. SO FAR AS TH E BALANCE OFRS.60 LAKHS IS CONCERNED, THE ASSESSEE STATED THAT THOUGH THE ENTIRE CONTRACT WORK WAS FOR RS.1.20 CRORES, HE HAS EXECUTED WORK FOR RS.60 LAKHS ONLY 3 ITA NO.1808 OF 2011 SRI MADHUSUDHANA NAIDU. AND THE BALANCE AMOUNT OF RS.60 LAKHS WAS NEVER RE CEIVED BY HIM. THE AO HOWEVER OBSERVING THAT THE AGREEMENT ENTERED INT O BETWEEN THE ASSESSEE AND THE COMPANY M/S MG BROTHERS WAS FOR GR OSS CONTRACT VALUE OF RS.1.25 CORES AND THE ASSESSEE HAS ALSO ADMITTE D DURING THE RECORDING OF STATEMENT HAVING RECEIVED RS.60 LAKHS BY WAY OF CHEQUE AND RS.60 LAKHS IN CASH. THEREFORE, DENIAL OF HAVING RECEIVED RS.60 LAKHS IN CASH TOWARDS CONTRACT RECEIPTS CANNOT BE ACCEPTED AND AD DED THE AMOUNT OF RS.60 LAKHS AS UNDISCLOSED CONTRACT INCOME. THE AS SESSEE BEING AGGRIEVED OF THE ADDITION MADE BY THE AO, FILED AN APPEAL BEFORE THE CIT (A). 5. BEFORE THE CIT (A), THE ASSESSEE CONTENDED THA T ALTHOUGH ORIGINALLY THE CONTRACT WORKS WAS FOR RS.1.25 CRORE S BUT BECAUSE OF LEGAL DISPUTE WITH REGARD TO OWNERSHIP OF THE LAND, THE C ONTRACT WAS REDUCED TO RS.60 LAKHS AND THE ASSESSEE WAS ONLY CONTRACTED TO CARRY OUT LAND SCAPING WORK AND ONLY AN AMOUNT OF RS.60 LAKHS WAS PAID TO THE ASSESSEE THROUGH CHEQUES. THESE FACTS HAVE BEEN ADMITTED BY THE M.D OF THE CONTRACTEE COMPANY IN HIS SWORN STATEMENT. THE BRA NCH MANAGER OF THE CONTRACTEE COMPANY HAS ALSO STATED THAT PAYMENT UND ER THE CONTRACT WAS MADE FOR ONLY RS.60 LAKHS. IT WAS CONTENDED ON BEH ALF OF THE ASSESSEE SINCE THE AMOUNT OF RS.60 LAKHS ADDED BY THE AO WAS NEITHER RECEIVED NOR ACCRUED OR ARISEN IN FAVOUR OF THE ASSESSEE, HE COULD NOT HAVE TREATED IT AS INCOME OF THE ASSESSEE. THE CIT (A) AFTER CON SIDERING THE SUBMISSIONS OF THE ASSESSEE AND EXAMINING THE FACTS ON RECORD, FOUND THAT THOUGH THE ASSESSEE HAS ENTERED INTO AN AGREEM ENT WITH M/S MG BROTHERS TO EXECUTE THE LANDSCAPING FOR RS.1.25 CRO RES BUT, THE ASSESSEE HAS DONE THE LAND SCAPING FOR RS.60 LAKHS. HOWEVER , IT IS A FACT THAT THE ASSESSEE APPEARS TO HAVE RECEIVED RS.60 LAKHS FROM M/S MG BROTHERS AUTOMOBILES PVT. LTD., FOR EVICTING CERTAIN ILLEG AL OCCUPANTS OF THE LAND. THE AMOUNT OF RS.60 LAKHS WAS SPENT TOWARDS PAYMENT OF COMPENSATION 4 ITA NO.1808 OF 2011 SRI MADHUSUDHANA NAIDU. FOR EVICTING THE PERSONS WHO HAVE ILLEGALLY OCCUPIE D THE LAND BELONGING TO SMT. MUTHYALAMMA. THE CIT (A) FURTHER FOUND THAT TH E COMPENSATION AMOUNT WAS PAID TO THE ILLEGAL OCCUPANTS OF THE LAN D BELONGING TO SMT. MUTHYALAMMA WHICH WAS PURCHASED BY MG BROTHERS AUTO PVT. LTD. THE AMOUNT WAS PAID BY M/S. MG BROTHERS ON BEHALF OF SM T. MUTHYALAMMA TO THE ILLEGAL OCCUPANTS THROUGH THE APPELLANT. AS PER THE UNDERSTANDING BETWEEN THE PARTIES,THE AMOUNT PAID BY M/S MG BROT HERS WAS TO BE ADJUSTED TOWARDS THE PURCHASE COST OF THE LAND. TH E CIT (A) CAME TO A CONCLUSION THAT THE AO WITHOUT ASCERTAINING THE FAC TS THAT THE SAID AMOUNT OF RS.60 LAKHS WAS PAID TO THE ENCROACHERS OR NOT, WAS NOT JUSTIFIED IN REJECTING THE ASSESSEES CLAIM TO BE FALSE. THE CIT (A) FINDING THAT THE ASSESSEE GETS SOME COMMISSION FROM THE BUYER OF THE LAND FOR EVICTING THE ENCROACHERS. THE CIT (A) THEREFORE ESTIMATED T HAT OUT OF RS.60 LAKHS SPENT TOWARDS EVICTION WORK, THE ASSESSEE MUST HAVE EARNED COMMISSION AT THE RATE OF 10%. THE CIT (A) DIRECTED THE AO TO RESTRICT THE ADDITION TO RS.60 LAKHS. 6. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS SEEN FROM THE ASSESSMENT ORDER THAT THE AO HAS MADE THE ADDITION OF RS.60 LAKHS BY RELYING UPON THE AGREEME NT ENTERED INTO BETWEEN THE ASSESSEE WITH M/S MG BROTHERS AUTOMOBIL ES PVT. LTD., FOR AN AMOUNT OF RS.1.25 CRORES. HOWEVER, THE ASSESSEE IN COURSE OF RECORDING STATEMENT HAS CLEARLY STATED THAT SHE HAS NOT RECEI VED THE AMOUNT OF RS.60 LAKHS IN CASH BUT IT WAS PAID TO ENCROACHERS FOR THE PURPOSE OF EVICTING THEM FROM THE ILLEGAL OCCUPATION OF THE LA ND WHICH WAS PURCHASED BY MG BROTHERS. WHEN THE AO HAS NOT DISPUTED THE F ACT THAT THERE WAS ILLEGAL ENCROACHMENT IN THE LAND AND DISPUTE WITH R EGARD TO LEGAL OWNERSHIP, HE WAS NOT JUSTIFIED IN REJECTING OUTRIG HT THE CLAIM OF THE ASSESSEE THAT THE AMOUNT WAS PAID TOWARDS COMPENSAT ION FOR EVICTING THE ENCROACHERS. IT APPEARS THAT THE AO HAS NOT MADE A NY ENQUIRY AT ALL TO ASCERTAIN THE FACT AS TO WHETHER ANY COMPENSATION A T ALL WAS PAID OR NOT. 5 ITA NO.1808 OF 2011 SRI MADHUSUDHANA NAIDU. THOUGH THE ASSESSEE IN HIS STATEMENT HAS STATED THA T THE CHEQUES FOR RS.36 LAKHS WHICH WAS INCLUDED IN THE ASSESSEES CO NTRACT WAS DIRECTLY ISSUED TO THE CLAIMANTS WHO OCCUPIED THE LAND, SUCH FACT HAS NOT BEEN CROSS VERIFIED BY THE AO BY CALLING FOR THE BANK AC COUNT. SIMILARLY, WE FIND THAT THE CIT (A) HAS ACCEPTED THE VERSION OF T HE ASSESSEE WITHOUT MAKING ANY CROSS VERIFICATION OF THE FACT THAT WHET HER ACTUALLY COMPENSATION OF RS.60 LAKHS WAS PAID OR NOT. SINCE PROPER ENQUIRY HAS NOT BEEN CONDUCTED IN THIS REGARD, WE THINK IT PROP ER TO RESTORE THE MATTER BACK TO THE FILE OF THE AO WHO SHALL CONDUCT NECESSARY ENQUIRY AS MAY BE DEEMED FIT AND PROPER TO ASCERTAIN THE FACT AS TO WHETHER THE CLAIM OF PAYMENT OF AN AMOUNT OF RS.60 LAKHS TOWARD S COMPENSATION TO THE ENCROACHERS FOR EVICTING FROM THE LAND PURCHAS ED BY M/S M G BROTHERS AUTOMOBILES PVT. LIMITED. THE AO SHALL PAS S A REASONED ORDER IN THIS REGARD AFTER AFFORDING A REASONABLE OPPORTUNIT Y OF BEING HEARD TO THE ASSESSEE. 7. SO FAR AS THE THIRD GROUND IS CONCERNED, THE RE VENUE HAS CHALLENGED THE DIRECTION OF CIT (A) TO ESTIMATE TH E INCOME AT 12.5% ON THE CONTRACT WORKS OF RS.60 LAKHS AND DELETING THE ADDITION OF RS.16,59,560 MADE BY THE AO BY DISALLOWING 30% ON T HE EXPENSES INCURRED BY THE ASSESSEE. THE ASSESSEE HAS FILED H IS RETURN OF INCOME BY ESTIMATING THE PROFIT AT 8% FROM THE GROSS BILLS OF RS.60 LAKHS TOWARDS CONTRACT WORKS. THE AO MADE AN ADDITION OF RS.16,5 9,560 BY MAKING AD HOC DISALLOWANCE AT THE RATE OF 30% ON THE EXPENDIT URE CLAIMED BY THE ASSESSEE WHILE ESTIMATING HIS INCOME ON THE FINDING THAT THE BOOKS OF ACCOUNTS AND VOUCHERS IN SUPPORT OF THE EXPENDITURE CLAIMED CANNOT BE ACCEPTED SINCE NOT A SINGLE VOUCHER IS VERIFIABLE F OR WANT OF ADDRESS. THE CIT (A) FINDING THAT THE PROFIT SHOWN AT 8% IS MEAG RE, DIRECTED THE AO TO ESTIMATE THE PROFIT AT 12.5% OF CONTRACT WORK. THE CIT (A) HOWEVER DELETED THE AD HOC DISALLOWANCE OF EXPENDITURE OF R S.16,59,560. 6 ITA NO.1808 OF 2011 SRI MADHUSUDHANA NAIDU. 8. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AT THE OUTSET, WE MAY PUT ON RECORD THA T THE GROUND RAISED BY THE REVENUE CLAIMING THAT THE ASSESSEE HAS NOT GOT HIS BOOKS OF ACCOUNTS AUDITED AS PER THE PROVISIONS OF SECTION44AB OF THE ACT IS TOTALLY MISCONCEIVED SINCE THE AO IN THE ASSESSMENT ORDER I TSELF HAS OBSERVED THAT THE ASSESSEE HAS FURNISHED AUDIT REPORT IN FOR M 3CD ALONG WITH HIS RETURN OF INCOME. BE THAT AS IT MAY, THE AO HAS MAD E THE AD HOC DISALLOWANCE AT 30% OF THE EXPENDITURE CLAIMED ON T HE GROUND THAT THE EXPENDITURE CLAIMED IN THE BOOKS OF ACCOUNTS ARE N OT VERIFIABLE FROM THE VOUCHERS SUBMITTED SINCE THEY DO NOT CONTAIN ANY AD DRESS. WHEN THE AO FOUND THE EXPENDITURE CLAIM AS RECORDED IN THE BOOK S OF ACCOUNTS TO BE UNVERIFIABLE AND THE BOOKS ARE NOT RELIABLE IN THE ABSENCE OF PROPER SUPPORTING VOUCHER, HE SHOULD HAVE ESTIMATED THE PR OFIT INSTEAD OF MAKING A FURTHER AD HOC DISALLOWANCE FROM THE EXPEN DITURE CLAIMED IN ADDITION TO THE PROFIT DECLARED BY THE ASSESSEE. W E FIND THAT THE DIRECTION OF THE CIT (A) TO ESTIMATE THE PROFIT AT 12.5% OF T HE GROSS CONTRACT RECEIPTS IS IN TUNE WITH THE CONSISTENT VIEW OF THE TRIBUNAL IN CASES OF WORK CONTRACTS WHERE PROFIT IS ESTIMATED BY REJECTI NG BOOKS OF ACCOUNTS. WE THEREFORE UPHOLD THE SAME AND DISMISS THE GROUND RAISED BY THE REVENUE. 9. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 19-10-2012. SD/- SD /- (CHANDRA POOJARI) ACCOUNTANT MEMBER (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED THE 19 TH OCTOBER, 2012. 7 ITA NO.1808 OF 2011 SRI MADHUSUDHANA NAIDU. COPY TO:- 1) ACIT, CENTRAL CIR, 3 RD FLOOR, AAYAKAR BHAVAN, KT ROAD, TIRUPATI. 2)SRI MADHUSUDHANA NAIDU, KAMMAKANDRIGA VILLAGE, RAMACHANDRAPURAM (MANDAL), CHITTORE DISTRICT. 3) THE CIT (A)-VII,, VIJAYAWADA. 4) THE CIT CONCERNED, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABA D. JMR*