Jadhav Kangralkar Builders, Satara V. Assistant Commissioner of Income-tax, Satara Circle, Satara

ITA 2106/PUN/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7920 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 12-03-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 08-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASEEM SHARMA
• Keywords: Business income; Business expenditure; Income from undisclosed sources; Deemed to accrue or arise in india; Set aside; CHAPTER IV
• Section: 143(3); 40(b); 142(1); 133A; 143(1); 143(2); 22; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE BEFORE SHRI P.M. JAGTAP, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, J UDICIAL MEMBER . / ITA NO . 2106 /PUN/2017 / ASSESSMENT YEAR : 20 1 3 - 14 JADHAV KANGRALKAR BUILDERS, S. NO. 19A+20A, PLOT NO. 71, MANGALYA VISAVA PARK, GODOLI, SATARA, DISTT. - SATARA PAN : AAFFJ7037F ....... / APPELLANT / V/S. ASSISTANT COMMISSIONER OF INCOME TAX, SATARA CIRCLE , SATARA / RESPONDENT ASSESSEE BY : SHRI PRAMOD SHINGTE REVENUE BY : SHRI ASEEM SHARMA / DATE OF HEARING : 24 - 08 - 2020 / DATE OF PRONOUNCEMENT : 26 - 0 8 - 2020 / ORDER PER S.S. VISWANETHRA RAVI, JM : THIS APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 09 - 05 - 2017 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 4, PUNE [CIT(A)] FOR ASSESSMENT YEAR 2013 - 14. 2. THE ONLY ISSUE IS TO BE DECIDED AS TO WHETHER THE CIT(A) JUSTIFIED IN CONFIRMING THE ORDER OF AO IN TREATING THE ADDITIONAL INCOME DECLARED IN SURVEY AS INCOME FROM OTHER SOURCES AS AGAINST TH E BUSINESS INCOME CLAIMED BY THE ASSESSEE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 2 ITA NO . 2106/PUN/2017, A.Y. 2013 - 14 3. HEARD BOTH PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE IS A FIRM AND ENGAGED IN THE BUSINESS OF CONSTRUCTION OF HOUSING PROJECT NAMELY AAYODHY A NAGARI D URING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION . A SURVEY WAS CONDUCTED ON 30 - 11 - 2012 IN THE BUSINESS PREMISES OF ASSESSEE U/S. 133A OF THE ACT. WE NOTE THAT THE ASSESSEE OFFERED ADDITIONAL INCOME BASING ON SOME INCRIMINA TING DOCUMENTS FOUND DURING THE SAID SURVEY. THE ASSESSEE FILED RETURN OF INCOME DECLARING A TOTAL INCOME OF RS.1,06,32,791/ - ON 30 - 09 - 2013 AND THE SAME WAS PROCESSED U/S. 143(1) OF THE ACT. IN SCRUTINY , NOTICE U/S. 142(1) AND 143(2) WERE ISSUED , IN RESPONSE TO WHICH THE AR REPRESENTING THE ASSESSEE APPEARED FROM TIME TO TIME AND PRODUCED BOOKS OF ACCOUNT AND FURNISHED THE REQUISITE INFORMATION. 4. THE CONTENTION OF ASSESSING OFFICER WAS THAT THE ADDITIONAL INCOME OF RS.75,50,400/ - OFFERED BY THE ASS ESSEE DURING THE COURSE OF SURVEY SHOULD BE EXCLUDED FROM THE PROFIT AND LOSS ACCOUNT AND IS TO BE TREATED AS UNDISCLOSED INCOME U/S. 69 OF THE ACT. FURTHER, THE DEDUCTION CLAIMED U/S. 40(B) OF THE ACT ON ACCOUNT OF SALARY AND INTEREST PAID TO PARTNERS IS TO BE DISALLOWED. THE ASSESSEE CONTENDED THAT THE SAID DISCLOSED RECEIPT OF RS.72,73,369/ - ARE ON ACCOUNT OF DIFFERENCE OF SALES VALUE OF FLATS/UNIT SOLD AND THESE RECEIPTS ARE PART AND PARCEL OF THE TRADING RECEIPTS. THE SAID SUBMISSIONS OF ASSESSEE FO UND NOT ACCEPTABLE TO THE ASSESSING OFFICER AND THE ASSESSING OFFICER DISALLOWED CLAIMED U/S. 40(B) OF THE ACT AND TREATED AN AMOUNT OF RS.75,50,400/ - AS INCOME FROM OTHER SOURCES VIDE ORDER DATED 16 - 03 - 2016 U/S. 143(3) OF THE ACT. WE FIND , IN THE FIRST A PPELLATE PROCEEDINGS BEFORE THE CIT(A) THE ASSESSEE REITERATED THE SAME CONTENTIONS AS MADE IN THE ASSESSMENT PROCEEDINGS. THE CIT(A) HELD THAT UNACCOUNTED INCOME AS DECLARED DURING THE COURSE OF SURVEY CANNOT BE TREATED AS TRADING RECEIPTS FOR THE PURPOS E OF CLAIMING DEDUCTION U/S. 40(B) OF THE ACT 3 ITA NO . 2106/PUN/2017, A.Y. 2013 - 14 AND UPHELD THE ORDER OF ASSESSING OFFICER IN TREATING THE SAME AS INCOME FROM OTHER SOURCES. 5. BEFORE US, THE CONTENTION OF LD. AR IS THAT THE ASSESSEE SOLD 37,752 SQ. FT. O F AREA IN AAYODHYA NAGARI PROJECT T HAT THE ASSESSEE RECEIVED RS.200/ - EXTRA PER SQ. FT. OVER AND ABOVE ITS REGULAR INCOME, THE SAID DECLARED AMOUNT OF RS.75,50,400/ - IS A TRADING RECEIPT AND CONTENDED THE SAME SHOULD BE TREATED AS BUSINESS INCOME. WE FIND THAT THE ASSESSEE DURING THE COURS E OF ASSESSMENT PROCEEDINGS EXPLAINED THAT IT RECEIVED RS.200/ - EXTRA PER SQ. FT. OF 37,752 SQ. FT. THE SAID CASH PAYMENT GIVEN BY CUSTOMERS AS PER THEIR CONVENIENCE. HE REFERRED TO Q. NO. 9 AT PAGE 11 OF PAPER BOOK DURING THE COURSE OF SURVEY THE ASSESS EE CLEARLY STATED THAT WRITTEN ATIRIKT RAKAM IS OVER AND ABOVE AGREEMENT VALUE WHICH IS NOT RECORDED IN THE REGULAR BOOKS OF ACCOUNTS AND THE ASSESSEE SOLD 37,752 SQ. FT. IN AAYODHYA NAGARI PROJECT AND EARNED RS.200/ - EXTRA FOR EACH SQ. FT. 6. SHRI ASEEM SHARMA, THE LD. DR VEHEMENTLY OPPOSED THE SUBMISSIONS OF LD. AR AND SUBMITTED THAT THE ADDITIONAL INCOME OFFERED DURING THE COURSE OF SURVEY REPRESENTS UNDISCLOSED INCOME NOT RECORDED IN THE BOOKS OF ACCOUNT AND IT ASSUMES THE CHARACTER OF DEEMED INCOME WI THIN THE PURVIEW OF SECTION 69 OF THE ACT . THE ASSESSEE SHOULD NOT HAVE CONSIDERED THE SAID INCOME AS NORMAL TRADING RECEIPTS IN THE PROFIT AND LOSS ACCOUNT AND NOT ENTITLED TO CLAIM VARIOUS EXPENSES BY INCLUDING THE ADDITIONAL INCOME IN ITS BOOK PROFIT. HE ARGUED ANY INCOME EARNED OUT OF BOOKS OF ACCOUNT HOLD THE CHARACTER OF OTHER SOURCE OF INCOME AND BENEFIT OF BUSINESS EXPENDITURE CANNOT BE ALLOWED FROM SUCH INCOME. THE LD. DR SUPPORTED THE ORDER OF CIT(A). 4 ITA NO . 2106/PUN/2017, A.Y. 2013 - 14 7. WE FIND THAT THERE IS NO DISPUTE REGARD ING THE BUSINESS OF ASSESSEE AND EARNING RS.200/ - EXTRA OVER AND ABOVE REGULAR INCOME FOR SELLING 37,752 SQ. FT. IN AAYODHYA NAGARI PROJECT. FROM THE DAY ONE I.E. FROM DATE OF SURVEY AS DISCUSSED ABOVE, THE ASSESSEE WAS CONTENDED THE AMOUNT DISCLOSED DURI NG THE COURSE OF SURVEY AS ADDITIONAL INCOME IS PART AND PARCEL OF ITS REGULAR TRADING RECEIPTS AND CANNOT BE DEEMED AS UNACCOUNTED MONEY U/S. 69 OF THE ACT. WE NOTE THAT THE ASSESSEE INCURRED EXPENDITURE OF RS.80,00,000/ - ON ACCOUNT OF PARTNERS SALARY WH ICH IS REFLECTED IN PROFIT AND LOSS ACCOUNT AS ON 31 - 03 - 2013 AT PAGE 30 OF PAPER BOOK. THEREFORE, THE NATURE AND SOURCE OF SAID AMOUNT DISCLOSED DURING THE COURSE OF SURVEY IS ESTABLISHED AS BUSINESS INCOME AS THE ASSESSEE DOES NOT HAVE ANY OTHER BUSINESS ACTIVITY EXCEPT BUSINESS INCOME FROM CONSTRUCTION OF HOUSING PROJECT. THEREFORE, WE HOLD THE ENTIRE DISCLOSED AMOUNT RS.75,50,400/ - ARE ATTRIBUTABLE TO THE BUSINESS ACTIVITY AND CONSEQUENTLY IS ELIGIBLE FOR ALL ALLOWANCES U/S. 40(B) OF THE ACT. WE FIND A SIMILAR ISSUE AROSE IN THE CASE OF RASHTRIYA LEATHER WORKS IN ITA NO. 253/PN/2003 FOR A.Y. 1999 - 2000 BEFORE THIS TRIBUNAL AND VIDE ORDER DATED 23 - 06 - 2006 THIS TRIBUNAL HELD UNEXPLAINED EXCESS STOCK FOUND DURING THE COURSE OF THE SURVEY IS TO BE TREATED T O BE A PART OF BOOK PROFITS AND WERE CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. FOR BETTER UNDERSTANDING THE RELEVANT PART AT PARA 22 IN PAGE 38 OF PAPER BOOK IS REPRODUCED HERE - IN - BELOW: 22. NOW, THE QUESTION ARISES AS TO WHETHER THIS INCOME REPRESENTING THE UNEXPLAINED EXCESS STOCK FOUND DURING THE COURSE OF THE SURVEY CAN BE TREATED TO BE A PART OF BOOK PROFIT FOR THE PURPOSE OF SEC. 40(B) OF THE ACT. FOR THE PURPOSE OF SEC. 40(B) OF THE ACT, BOOK PROFIT IS DEFINED UNDER EXPLANATION 3 TO SEC. 40(B) OF THE ACT, WHICH READS AS UNDER : EXPLANATION 3: FOR THE PURPOSES OF THIS C LAUSE, BOOK PROFIT MEANS THE NET PROFIT, AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR COMPUTED IN THE MANNER LAID D OWN IN CHAPTER IV - D AS INCREASED BY THE A GG REGATE AMOUNT OF THE REMUNERATION PAID OR PAYABLE TO ALL THE PART NERS OF THE FIRM IF SUCH AMOUNT HAS BEEN DEDUCTED WHILE COMPUTING THE NET PROFIT. ON READING THE SAME, IT IS THUS CLEAR THAT THE NET PROFIT, AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR AND COMPUTED IN THE MANNER LAID DOWN IN CHAPTER IV - D AS INCREASED BY THE AGGREGATE AMOUNT OF 5 ITA NO . 2106/PUN/2017, A.Y. 2013 - 14 THE REMUNERATION PAID OR PAYABLE TO ALL THE PARTNERS OF THE FIRM, IF SUCH AMOUNT HAS BEEN DEDUCTED WHILE COMPUTING THE NET PROFIT IS AMOUNTED TO BOOK PROFIT FOR THE PURPOSE OF SEC. 40(B) OF THE ACT. CHAPTER IV - D COVERS THE INCOME CHARGEA B LE UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION. WE HAVE ALREADY HELD ABOVE ON THE FACTS AND CIR C U M STANCES OF THIS PARTICULAR CASE THAT THE UNEXPLAINED EXCESS TOCK WAS CHARGEABLE TO TAX UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION. IT IS ALSO NOT IN DISPUTE THAT THE INCOME R EPRESENTING UNEXPLAINED EXCESS STOCK HAS BEEN SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT YEAR. THEREFORE, THE INCOME REPRESENTING EXCESS TOCK FOUND IS TO BE TAKEN INTO ACCOUNT FOR DETERMINING THE BOOK PROFIT WITHIN THE MEANING OF SEC. 40(B) OF THE ACT. 8. IN VIEW OF THE ABOVE ORDER OF THIS TRIBUNAL AND THE DISCUSSION WE MADE IN THE AFOREMENTIONED PARAGRAPHS, THE ORDER OF CIT(A) IS NOT JUSTIFIED AND IT IS SET ASIDE. THE ONLY GROUND RAISED BY THE ASSESSEE IS ALLOWED. 9. IN THE RESULT, THE APP EAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH AUGUST, 2020 . SD/ - SD/ - ( P.M. JAGTAP ) ( S.S. VISWANETHRA RAVI ) VICE PRESIDENT JUDICIAL MEMBER / PUNE; / DATED : 26 TH AUGUST, 2020. RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A) - 4, PUNE 4. THE PR. CIT - 3, PUNE 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. // // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE