Dhatri Constructions Pvt. Limited, Hyderabad V. Dy. CIT, Central Circle-2, Hyderabad

ITA 2186/HYD/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1352 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 27-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M RAVIDNRA SAICIT
• Assessee Lawyers: S RAMA RAO
• Keywords: Unexplained cash credit; Unexplained expenditure; Depreciation; Transfer pricing; Search and seizure; Loose papers; Principle of natural justice; Additional evidence; Reasonable cause
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. ASST . YEAR APPELLANT RESPONDENT 2185/HYD/2011 2186/HYD/2011 14/HYD/2012 2006-07 2008-09 2007-08 M/S. DHATRI CONSTRUCTIONS P. LTD., HYDERABAD (PAN AACCD 1895 M) DY. COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE 2, HYDERABAD 104 /HYD/2012 2007 - 08 DY . COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE 2, HYDERABAD M/S. DHATRI CONSTRUCTIONS P. LTD., HYDERABAD (PAN AACCD 1895 M) ASSESSEE BY : SHRI S.RAMA RAO DEPARTMENT BY : SHRI M.RAVIDNRA SAI,CIT - DR DATE OF HEARING 16.1.2013 DATE OF PRONOUNCEMENT 15.3.2013 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS IS A BUNCH OF FOUR APPEALS THREE OF THEM AR E BY THE ASSESSEE AND THE REMAINING ONE IS BY THE REVENUE- DIRECTED AGAINST SEPARATE ORDERS OF THE COMMISSIONER OF INCOME-TAX(APPEALS) I, HYDERABA D, ALL DATED 30.11.2011. ASSESSMENT YEARS INVOLVED ARE FROM ASSESSMENT YEAR 2006-07 TO 2008-09. SINCE COMMON ISSUES ARE INVOLVED, THESE APPEALS ARE BEING DISPOSED OF WITH THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.2185/HYD/11 & 3 ORS. M/S. DHATRI CONSTRUCTIONS, HYDERABAD 2 ASSESSEES APPEAL: ITA NO.2185/HYD/2011 : ASSESSMENT YEAR 2006-07 2. IN THIS APPEAL BY THE ASSESSEE, DIRECTED AGAIN ST THE ORDER OF THE CIT(A) I HYDERABAD DATED 30.11.2011 FOR THE ASSESSM ENT YEAR 2006-07, THE ONLY ISSUE INVOLVED IS WITH REGARD TO DISALLOWANCE OF LAND DEVELOPMENT EXPENDITURE, ESTIMATED AT 30% OF THE TOTAL EXPENDIT URE CLAIMED BY THE ASSESSEE. 3. THE ASSESSEE, ENGAGED IN THE REAL ESTATE BUSINE SS AS A BUILDER AND DEVELOPER, CLAIMED LAND DEVELOPMENT EXPENDITURE A T RS.42.54,861 DURING THE YEAR. THE ASSESSING OFFICER, OBSERVING THAT THE EX PENDITURE IS NOT PROPERLY VOUCHED AND MOST OF THE EXPENDITURE IS EVIDENCED ON LY BY SELF MADE VOUCHERS, AND ALSO DOUBTING THE GENUINENESS OF THE EXPENDITUR E, CONCLUDED THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE IS EXCESSIVE AN D UNREASONABLE. HE ACCORDINGLY ALLOWED ONLY AN AMOUNT OF RS.4,60,800, AND THUS DISALLOWED THE BALANCE AMOUNT OF RS.37,94,061. ON APPEAL, THE CIT (A), RESTRICTED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER TO 30% O F THE TOTAL EXPENDITURE CLAIMED OF RS.42,54,861, I.E. RS.12,76,458. STILL AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US ON THIS ISSUE. 4. WE HEARD BOTH SIDES. IN THIS CASE, THE ASSESSE E PURCHASED THE LAND AT RS.80 PER SQ. YARD AND SOLD THE SAME AT RS.1265 PER SQ. YARD. IT MEANS, AFTER PURCHASING THE LAND, THE ASSESSEE HAS SPENT S OME MONEY FOR DEVELOPMENT OF THE LAND, SITUATED AT MUNEERABAD. THE ARGUMENT O F THE LEARNED DEPARTMENTAL REPRESENTATIVE IS THAT THE ASSESSEE HAS NOT PRODUCE D VOUCHERS IN SUPPORT OF THE CLAIM FOR DEVELOPMENT EXPENDITURE AND IT IS ONLY TO REDUCE THE PROFIT, THE ASSESSEE HAS CLAIMED SUCH HUGE AMOUNT OF EXPENDITUR E ON LAND DEVELOPMENT. IN OUR OPINION, THE ASSESSEE HAS INCURRED THIS EXPE NDITURE FOR THE PURPOSE OF LEVELLING OF THE LAND, LAYING OF ROADS, PROVIDING S EWERAGE AND WATER SUPPLY LANES AS SELL AS PROVISION OF ELECTRICITY, BESIDES CONSTR UCTING COMPOUND WALL. HOWEVER, ITA NO.2185/HYD/11 & 3 ORS. M/S. DHATRI CONSTRUCTIONS, HYDERABAD 3 THE ASSESSEE HAS FAILED TO PROVIDE ENOUGH CORROBORA TIVE EVIDENCE TO ESTABLISH THE GENUINENESS OF THE PAYMENTS. HENCE, DISALLOWAN CE OF A PORTION OF THE EXPENDITURE CLAIMED IS JUSTIFIED, BUT THE DISALLOWA NCE SUSTAINED BY THE CIT(A) WORKING OUT THE SAME AT 30% , IN OUR VIEW, IS ON HIGHER SIDE. IN OUR CONSIDE RED OPINION, A DISALLOWANCE WORKED OUT AT 10% OF THE TO TAL EXPENDITURE OF RS.42,54,861, WOULD BE FAIR AND REASONABLE, AS IT I S ONLY THE SELF-MADE VOUCHERS WHICH GAVE RISE TO DOUBT ABOUT THE GENUINENESS OF T HE EXPENDITURE, CALLING FOR DISALLOWANCE OF A PORTION OF THE SAME. ACCORDINGLY , WE DIRECT THE ASSESSING OFFICER TO RECOMPUTE THE INCOME, BY MAKING ONLY 10% DISALLOWANCE OUT OF LAND DEVELOPMENT EXPENDITURE CLAIMED BY THE ASSESSEE. CO NSEQUENTLY, ASSESSEES GROUNDS IN THIS APPEAL ARE PARTLY ALLOWED. 5. IN THE RESULT, ASSESSEES APPEAL FOR ASSESSMEN T YEAR 2006-07, BEING ITA NO.2185/HYD/2011 IS PARTLY ALLOWED. ASSESSEES APPEAL: ITA NO.2186/HYD/2011 : ASSESSMENT YEAR 2008-09 6. IN THIS APPEAL BY THE ASSESSEE, DIRECTED AGAIN ST THE ORDER OF THE CIT(A) I HYDERABAD DATED 30.11.2011 FOR THE ASSESSM ENT YEAR 2008-09, THE ONLY ISSUE INVOLVED IS WITH REGARD TO THE ACTION OF THE CIT(A) IN DISMISSING THE APPEAL OF THE ASSESSEE AS NOT MAINTAINABLE, IN TERM S OF S.249(4) OF THE ACT, AS THE ASSESSEE HAS NOT PAID THE ADMITTED TAXES. 7. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE AS SUBJECTED TO SEARCH AND SEIZURE ACTION UNDER S.1 32 OF THE ACT ON 9.10.2007. DURING THE COURSE OF SEARCH AND SEIZURE ACTION, THE RE WAS SEIZURE OF CASH AND THE ASSESSEE HAS REQUESTED THE DEPARTMENT TO ADJUST THE SEIZED CASH TOWARDS TAXES PAYABLE FOR ASSESSMENT YEAR 2008-09. ACCORDIN G TO THE LEARNED COUNSEL FOR THE ASSESSEE, THERE IS NO EXISTING TAX LIABILIT Y TO BE PAID BY THE ASSESSEE, AND ITA NO.2185/HYD/11 & 3 ORS. M/S. DHATRI CONSTRUCTIONS, HYDERABAD 4 THEREFORE, THE SEIZED CASH WAS TO BE ADJUSTED ONLY TOWARDS THE TAXES DUE FOR THE ASSESSMENT YEAR 2008-09. 8. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE SUBMITTED THAT THERE IS NO LETTER FROM THE ASSESSEE , REQUESTING THE DEPARTMENT TO ADJUST THE SEIZED CASH TOWARDS THE TAXES PAYABLE FOR ASSESSMENT YEAR 2008- 09. BEING SO, THE ASSESSEES APPEAL WAS NOT ADMITT ED BY THE CIT(A) AS PER THE PROVISIONS OF S.249(4) OF THE ACT. 9. WE HAVE HEARD BOTH SIDES AND PERUSED THE MATERI AL ON RECORD. IT HAS BEEN BROUGHT TO OUR NOTICE THAT THE ASSESSEE HAS FI LED A LETTER DATED 20.8.2009, REQUESTING THE DEPARTMENT TO ADJUST THE SEIZED CASH TOWARDS ADMITTED TAX FOR ASSESSMENT YEAR 2008-09. A COPY OF THE SAID LETTER IS PLACED AT PAGE 310 OF THE ASSESSEES PAPER-BOOK. HE ALSO MADE A REMARK TO THE EFFECT IN THE RETURN OF INCOME ITSELF, REQUESTING TO ADJUST THE SEIZED CAS H TOWARDS THE TAXES PAYABLE, AND CONSEQUENTLY, WORKED OUT THE REFUND DUE AT RS.1 5,38,997, DULY REFLECTING THE SAME AGAINST THE APPROPRIATE COLUMN IN THE RET URN, FOR THE ASSESSMENT YEAR 2008-09. THIS IS EVIDENT FROM PAGE 6 OF THE A SSESSEES PAPER-BOOK, WHEREAT COPY OF THE RETURN IS FURNISHED. CONSIDERIN G THESE ASPECTS, IN OUR OPINION, THE CIT(A) IS NOT JUSTIFIED IN DISMISSING THE APPEAL OF THE ASSESSEE, BY OBSERVING THAT THERE IS NO WRITTEN REQUEST FROM THE ASSESSEE, AUTHORISING THE DEPARTMENT TO ADJUST THE SEIZED CASH AGAINST THE TA XES DUE FOR THE ASSESSMENT YEAR 2008-09, SINCE THE RETURN ITSELF MADE SUCH A R EQUEST FOR ADJUSTMENT. IN THIS VIEW OF THE MATTER, WE SET ASIDE THE IMPUGNED ORDER OF THE CIT(A), AND RESTORE THE MATTER TO THE FILE FOR THE CIT(A), WIT H A DIRECTION TO DISPOSE OF THE APPEAL BEFORE HIM ON THE MERITS OF THE ISSUES INVOL VED THEREIN. HE SHALL, OF COURSE, PASS APPROPRIATE ORDERS ADJUDICATING ON THE MERITS OF THE GROUNDS RAISED BEFORE HIM, IN ACCORDANCE WITH LAW AND AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 10. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ITA NO.2185/HYD/11 & 3 ORS. M/S. DHATRI CONSTRUCTIONS, HYDERABAD 5 CROSS APPEALS FOR ASSESSMENT YEAR 2007-08 11. THESE ARE CROSS APPEALS FOR THE ASSESSMENT YE AR 2007-08, WHICH ARE DIRECTED AGAINST A COMMON ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-I HYDERABAD DATED 30.11.2011. 12. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE REAL ESTATE BUSINESS AS A BUILDER AND DEVELOPER. THE ASS ESSEE TOOK UP VARIOUS VENTURES WITH REAR TO DEVELOPMENT OF THE RESIDENTIA L PLOTS AND CONSTRUCTION OF APARTMENTS IN THE YEAR UNDER CONSIDERATION. FOR THE ASSESSMENT YEAR 2007-08, THE ASSESSEE HAS NOT FILED INCOME-TAX RETURN UNDER THE PROVISIONS OF S.139(1) OF THE ACT. THERE WAS SEARCH AND SEIZURE ACTION IN TH E CASE OF THE ASSESSEE UNDER S.132 OF THE ACT ON THE PREMISES OF THE ASSESSEE AN D ALSO OF THE DIRECTOR OF THE ASSESSEE COMPANY ON 19.7.2007. IN THE COURSE OF TH E SAID SEARCH VARIOUS INCRIMINATING MATERIAL WAS FOUND AND SEIZED. STATEM ENT WAS RECORDED FROM THE CHAIRMAN AND DIRECTOR OF THE ASSESSEE COMPANY. IN THE SAID STATEMENT RECORDED UNDER S.132(4) OF THE ACT, THE CHAIRMAN OF FERED ADDITIONAL INCOME OF RS.10,05,05,000. LATER, THIS OFFER WAS RETRACTED B Y THE ASSESSEE COMPANY. CONSEQUENT TO NOTICE UNDER S.1353A OF THE ACT, ASSE SSEE FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 ON 31.3.2009. LATE R, ASSESSEE FILED ONE MORE COPY OF ITS RETURN BEFORE THE ASSESSING OFFICER ON 23.7.209. IN THIS RETURN, ASSESSEE ADMITTED INCOME OF RS.92,82,922. LATER, T HE ASSESSING OFFICER ORDERED FOR SPECIAL AUDIT OF THE ASSESSEES BOOKS O F ACCOUNT UNDER S.142A OF THE ACT. THE SPECIAL AUDITOR HAS COMPLETED THE AUDIT OF ASSESSEES BOOKS OF ACCOUNT ON 29.3.2010. LATER, THERE WAS A SUPPLEMENTARY AUD IT REPORT AT THE REQUEST OF THE ASSESSING OFFICER, SUBMITTED BY THE SPECIAL AUD ITOR. ASSESSMENT WAS COMPLETED UNDER S.143(3) READ WITH S.153A OF THE AC T BY THE ASSESSING OFFICER ON 26.5.2010, DETERMINING THE TOTAL INCOME OF THE A SSESSEE AT RS.30,50,06,400, IN THE FOLLOWING MANNER- ITA NO.2185/HYD/11 & 3 ORS. M/S. DHATRI CONSTRUCTIONS, HYDERABAD 6 INCOME RETURNED RS. 92,82,922 ADD: ESTIM ATION OF PROFIT ON SUPPRESSED SALES RS. 8,96, 700 DISALLOWANCE OF DEPRECIATION RS. 4,94,283 DISALLOWANCE U/S. 40(A)(IA) ADVERTISEMENT RS. 3,00,240 DISALLOWANCE U/S. 40A(3) RS. 8,72,230 DISALLOWANCE US/. 40(A)(A) MARKETING EXP. RS. 4,79,240 DISALLOWANCE US/. 40A(2) TRAVELLING EXP. RS. 1 ,46,609 DISALLOWANCE OF DEVELOPM ENT EXP. RS.5,28,08,623 UNEXPLAINED CASH CREDITSHRI K.GOPAL(PROTECTIVE) RS. 2,59,44,719 UNEXPLAINED CASH CREDIT- P.M.REDDY RS. 38,00,000 UNEXPLAINED OPENING BALANCE RS. 57,40,000 UNEXPLAINED EXPENDITURE RS.3,42,40,846 TOTAL UNDISCLOSED INCOME DETERMINED RS.13,50,06,403 ROUNDED OFF TO RS.13,50,06,400 13. AGAINST THE ASSESSMENT MADE AS ABOVE, ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A), WHO ALLOWING CERTAIN RELIEFS TO THE ASSESSEE, PARTLY ALLOWED THE APPEAL, BY HIS IMPUGNED ORDER DATED 30.11.2011 . 14. WHILE THE ASSESSEE PREFERRED ITS APPEAL ITA NO .14/HYD./2012 AGGRIEVED BY THE ADDITIONS SUSTAINED BY THE CIT(A), REVENUE PREFERRED ITS APPEAL ITA NO.104/HYD/2012 AGGRIEVED BY THE RELIEFS GRANTED BY THE CIT(A). ASSESSEES APPEAL: ITA NO.14/HYD/2012 : 15. FIRST EFFECTIVE GRIEVANCE OF THE ASSESSEE IN I TS APPEAL IS WITH REGARD TO SUSTENANCE OF AN ADDITION OF RS.8,96,700 ON ACCO UNT OF SUPPRESSED SALES. 16. BRIEF FACTS IN RELATION TO THIS ISSUE ARE THAT THE ASSESSEE SOLD PLOTS BEARING NO.15,16 AND 17 TO ONE SMT.G.VIDYAVATHI AND NO.18 TO ONE SHRI ANJA REDDY DURING THE YEAR UNDER CONSIDERATION. AS PER THE SEIZED MATERIAL, THE ITA NO.2185/HYD/11 & 3 ORS. M/S. DHATRI CONSTRUCTIONS, HYDERABAD 7 THREE PLOTS SOLD TO SMT.VIDYAVATHI ARE FOR A CONSID ERATION OF RS.1,88,100, WHILE THE FOURTH PLOT SOLD TO SHRI ANJA REDDY WAS FOR RS. 68,100. HOWEVER, THE ASSESSING OFFICER WORKED OUT THE AVERAGE SALE PRICE PER SQ. YARD AND DETERMINED THE DIFFERENCE BETWEEN THE AVERAGE SALE PRICE PER S Q. YARD AND VALUE DISCLOSED BY THE ASSESSEE IN ITS BOOKS ACCOUNT AT RS.8,96,700 . IN OTHER WORDS, THE TOTAL VALUE OF THE PLOTS SOUGHT TO BE SOLD, APPLYING THE AVERAGE RATE, WORKED OUT TO RS.11,52,900, AGAINST WHICH THE ASSESSEE DISCLOSED ONLY RS.2,56,200 TOWARDS THE SALE OF THESE FOUR PLOTS. THE ASSESSING OFFICE R ADDED THE DIFFERENTIAL AMOUNT OF RS.8,96,700 TO THE INCOME OF THE ASSESSEE, TREAT ING THE SAME AS REPRESENTING SUPPRESSED SALES. 17. WE HEARD BOTH THE PARTIES ON THIS ISSUE. THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE IS THAT THERE IS N O SEIZED MATERIAL SUGGESTING THE SALE PRICE OF THESE PLOTS AT RS.11,52,900, AND AS SUCH THERE IS NO BASIS FOR CONCLUDING THAT THERE WAS SUPPRESSION OF THE SALE C ONSIDERATION DONE BY THE ASSESSEE. THE ASSESSMENT COMPLETED UNDER S.143(3) R EAD WITH S.153A HAS EMANATED FROM THE SEARCH ACTION UNDER S.132 OF THE INCOME-TAX ACT. IN OUR OPINION, THE ADDITION IS BASED ONLY ON THE PRESUMPT ION OF THE ASSESSING OFFICER. IN THE ABSENCE OF ANY EVIDENCE TO SHOW SUPPRESSION OF SALES BY THE ASSESSEE, WE ARE NOT IN A POSITION TO HOLD THAT THERE IS ANY EXTRA CONSIDERATION PASSED BETWEEN THE PARTIES ON ACCOUNT OF SALE OF THESE PLO TS. PLACING RELIANCE ON THE DECISION OF THE APEX COURT IN THE CASE OF K.P.VERGH ESE V/S. CIT(131 ITR 597), WE DELETE THIS ADDITION OF RS.8,96,700 MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE CIT(A), ALLOWING THE GROUND OF THE ASSESSEE ON THIS ISSUE. 18. THE NEXT GROUND OF THE ASSESSEE IN ITS APPEAL IS WITH REGARD TO DISALLOWANCE OF RS.3,00,240 MADE BY VIRTUE OF THE P ROVISIONS OF S.40(A)(IA) OF THE ACT, WITH REFERENCE TO THE ADVERTISEMENT EXPEND ITURE PAID TO FOLLOWING PARTIES- ITA NO.2185/HYD/11 & 3 ORS. M/S. DHATRI CONSTRUCTIONS, HYDERABAD 8 (A) PRAGATHI OFF SET PVT. LTD. RS.1,00,000 (B) OPTIMAL MEDIA SOLUTIONS RS. 58,000 (C) ASSOCIATED ENTERPRISES PVT. LTD. RS.1,12,240 (D) AAMODA PUBLICATIONS RS. 30,000 ACCORDING TO THE REVENUE AUTHORITIES, PROVISIONS OF S.194C ARE APPLICABLE TO THESE PAYMENTS MADE BY THE ASSESSEE, AND AS THE SAM E HAVE BEEN MADE WITHOUT EFFECTING DEDUCTION OF TAX AT SOURCE, THE S AME ARE LIABLE FOR DISALLOWANCE IN TERMS OF S.40(A)(IA) OF THE ACT. 19. WE HEARD BOTH THE PARTIES AND PERUSED THE MAT ERIAL AVAILABLE ON RECORD. THOUGH THE ISSUE RELATING TO APPLICABILIT Y OF PROVISIONS OF S.40(A)(IA) TO THE PAYMENTS IN QUESTION IS COVERED BY THE SPECIAL BENCH DECISION OF THE TRIBUNAL (VISAKHAPATNAM BENCH) IN THE CASE OF MERIL YN SHIPPING & TRANSPORTS (136 ITD 23), AS HAS BEEN BROUGHT TO OUR NOTICE BY THE LEARNED DEPARTMENTAL REPRESENTATIVE AND AGREED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE AS WELL, THE HONBLE HIGH COURT IS NOW SEIZED OF THE MATTER, HAVING GRANTED INTERIM STAY AGAINST THE SAID DECISION OF THE TRIBUNAL. IN THIS VIEW OF THE MATTER, WE SET ASIDE THE IMPUGNED ORDER OF THE CIT(A) ON THIS ISSU E, AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER, TO RECONSIDER TH E MATTER AFRESH IN CONSONANCE WITH THE VIEW THAT THE HONBLE HIGH COURT MAY TAKE IN THE MATTER. HE SHALL OF COURSE AFFORD REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE, AND THEREAFTER PASS APPROPRIATE ORDER IN ACCORDANCE WITH LAW. 20. THE NEXT GROUND OF THE ASSESSEE IN ITS APPEAL RELATES TO DISALLOWANCE UNDER S.40A(3) IN RESPECT OF THE FOLLOWING ITEMS OF EXPENDITURE (A) PAYMENT TO LANDLORD FOR ACQUISITION OF LAND RS.40 ,00,000 (B) VEHICLE MAINTENANCE RS. 1,44,274 ITA NO.2185/HYD/11 & 3 ORS. M/S. DHATRI CONSTRUCTIONS, HYDERABAD 9 (C) TRAVELLING EXPENDITURE RS. 90,000 (D) BUSINESS DEVELOPMENT EXPENDITURE RS. 26,875 21. AS FOR THE FIRST PAYMENT OF RS.40,00,000 MADE IN CASH, IT WAS CLAIMED TO HAVE BEEN MADE FOR ACQUISITION OF LAND F OR ASSESSEES VENTURE CALLED CYGNE PROJECT. THE ASSESSEE HAS TAKEN A PLEA BEFOR E THE LOWER AUTHORITIES THAT THE PAYMENT HAS BEEN MADE TO THE LAND LORD ON THE D ATE OF REGISTRATION BEFORE THE REGISTERING AUTHORITY, AND THE PARTIES TO WHOM THE PAYMENT WAS MADE WERE NOT HAVING ANY BANK ACCOUNT AT HYDERABAD, AND THEY ARE FROM PRODDATUR VILLAGE OF KADAPA DISTRICT, AND THEY HAVE COME TO HYDERABAD FOR SELLING THEIR LAND IN MANCHIREVULA VILLAGE OF RAJENDRANAGAR MANDAL. IT WAS SUBMITTED THAT THE REGISTRATION TOOK PLACE AFTER THE BANKING HOURS, AN D THERE WAS REASONABLE CAUSE FOR THE ASSESSEE TO MAKE THE PAYMENT BY CASH ON TH E DATE OF REGISTRATION. HOWEVER, THE LOWR AUTHORITIES FOUND THAT THE EXPLAN ATION OFFERED BY THE ASSESSEE IS NOT SATISFACTORY AND THE PAYMENT SHOULD HAVE BEE N DONE BY CROSSED CHEQUE OR DEMAND DRAFT AND THERE IS AN ALSO AN OPTION TO MAK E THE PAYMENT BY THE ASSESSEE BEFORE THE CLOSE OF THE BANKING HOURS. A CCORDINGLY, THE DISALLOWANCE, WORKED OUT AT 20% OF RS.40 LAKHS HAS BEEN MADE BY T HE ASSESSING OFFICER, WHICH HAS BEEN SUSTAINED BY TEHE CIT(A). 22. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTE D THAT THE PAYMENT IN QUESTION HAS BEEN MADE AT THE TIME OF REGISTRATI ON OF LAND IN FAVOUR OF THE ASSESSEE, IN THE PRESENCE OF SUB-REGISTRAR , WHO IS THE REGISTERING AUTHORITY. HE SUBMITTED THAT THE PAYMENT IS A GENUINE ONE AND MAD E TOWARDS THE PURCHASE OF LAND, AND THE PAYMENT HAS BEEN MADE AFTER THE BANKI NG HOURS. THE TWO PERSONS TO WHOM THE PAYMENTS IN QUESTION HAVE BEEN MADE, NA MELY A.TANDAVA KRISHNA AND K.SUBBA RAO, HAIL FROM PRODDATUR VILLAGE OF KAD APA DISTRICT, AND THEY DO NOT HAVE ANY BANKING FACILITY AT HYDERABAD, WHERE THEY HAD TO DO THE REGISTRATION OF THE LAND SOLD BY THEM IN FAVOUR OF THE ASSESSEE IN THE OFFICE OF THE CONCERNED ITA NO.2185/HYD/11 & 3 ORS. M/S. DHATRI CONSTRUCTIONS, HYDERABAD 10 SUB-REGISTRAR, AND THE PAYMENT HAD TO BE MADE BY TH E ASSESSEE AT THE TIME OF SUCH REGISTRATION. IT IS SUBMITTED THAT THE PAYMEN T OF THE AMOUNTS IN QUESTION COULD NOT HAVE BEEN POSTPONED BY THE ASSESSEE, AS O BSERVED BY THE CIT(A). ACCORDINGLY, IT IS SUBMITTED THAT THERE IS NO SCOPE FOR INVOKING THE PROVISIONS OF S.40A(3) TO THESE TWO PAYMENTS IN QUESTION. 23. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND, STRONGLY RELIED ON THE ORDERS OF THE LOWER AUTHORIT IES. 24. WE HAVE HEARD BOTH SIDES AND PERUSED THE MATER IAL ON RECORD. IT IS AN ADMITTED FACT THAT THE PAYMENT OF RS.40 LAKHS TO THE TWO PERSONS HAS BEEN MADE, TOWARDS THE PURCHASE OF PROPERTY SITUATED AT MANCHIREVULA VILLAGE OF RAJENDRANAGAR MANDAL. THE TWO PERSONS TO WHOM THE PAYMENTS AGGREGATING TO RS.40 LAKHS WERE MADE, VIZ. TANDAVA KRISHNA AND SUB BA RAO, HAVE COME FROM A REMOTE PLACE OF KADAPA DISTRICT, AND THEY ARE CLAIM ED TO BE NOT HAVING ANY BANKING FACILITY AT HYDERABAD. THE PAYMENTS IN QUE STION HAD TO BE MADE TO THEM AT THE TIME OF REGISTRATION AS PER THE SALE DE ED AND THE SAME CANNOT BE POSTPONED BECAUSE IF THE PAYMENT IS POSTPONED, REGI STRATION CANNOT TAKE PLACE ON THE SCHEDULED DATE AND TIME. THE FACT OF REGIST RATION AFTER THE BANKING YOURS IS NOT DISPUTED. THERE IS NO EVIDENCE BROUGHT ON RE CORD BY THE LOWER AUTHORITIES TO SUGGEST THAT THE PAYMENT HAS BEEN MADE DURING TH E BANKING HOURS. IN OUR OPINION, THERE IS A REASONABLE CAUSE FOR MAKING THE PAYMENT OF RS.40 LAKHS IN QUESTION IN CASH, AND AS SUCH THE ADDITION MADE IN RELATION TO THIS AMOUNT INVOKING THE PROVISIONS OF S.40A(3) CANNOT BE SUSTA INED. WE ACCORDINGLY DELETE THE SAME. 25. AS FOR THE PAYMENTS TOWARDS VEHICLE MAINTENANC E OF RS.1,44,274 AND TRAVELLING EXPENDITURE OF RS.90,000 ARE CONCERN ED, IT HAS BEEN SUBMITTED THAT THE ABOVE AMOUNTS REPRESENT THE AGGREGATE PAYM ENTS ON VARIOUS DATES ITA NO.2185/HYD/11 & 3 ORS. M/S. DHATRI CONSTRUCTIONS, HYDERABAD 11 DURING THE YEAR, AND PAYMENT ON EACH OCCASION WAS L ESS THAN RS.20,000. IT IS SUBMITTED THAT THE VEHICLE MAINTENANCE EXPENDITURE REPRESENTS THE EXPENDITURE INCURRED ON PURCHASE OF PETROL AND OTHER VEHICLE MA INTENANCE EXPENDITURE. SIMILARLY, THE TRAVELLING EXPENSES REPRESENT THE EX PENDITURE INCURRED ON THE TRAVELLING OF THE MANAGING DIRECTOR OF THE COMPANY ON VARIOUS OCCASIONS DURING THE YEAR. IN THE ABSENCE OF ANYTHING TO THE CONTR ARY, BROUGHT ON RECORD BY THE REVENUE TO DISPUTE THE ABOVE CONTENTIONS OF THE ASS ESSEE THAT THE PAYMENT ON EACH OCCASION IN RESPECT OF THESE TWO ITEMS OF EXPE NDITURE DID NOT EXCEED RS.20,000, WE FIND THAT THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER INVOKING THE PROVISIONS OF S.40A(3) CANNOT BE SUSTAINED. WE ACCORDINGLY DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IN RELAT ION TO THESE TWO ITEMS OF EXPENDITURE, VIZ. VEHICLE MAINTENANCE EXPENDITURE A ND TRAVELLING EXPENDITURE. 26. AS FOR THE DISALLOWANCE MADE UNDER S.40A(3) IN RELATION TO BUSINESS DEVELOPMENT EXPENDITURE OF RS.26,875, THE ASSESSEE COULD NOT OFFER ANY EXPLANATION WITH REGARD TO THIS EXPENDITURE REPRESE NTED BY CASH PAYMENT MADE TO M/S. MUSIKA SOLUTIONS P. LTD. IT IS IN THE ABSE NCE OF ANY EXPLANATION FROM THE ASSESSEE THAT THE DISALLOWANCE IN QUESTION HAS BEEN MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE CIT(A). IN THE ABSENC E OF ANY EXPLANATION OFFERED BY THE ASSESSEE, WE FIND NO JUSTIFICATION TO INTERF ERE WITH THE ORDERS OF THE LOWER AUTHORITIES IN RELATION TO THE DISALLOWANCE MADE WI TH REGARD TO THIS ITEM OF EXPENDITURE. WE ACCORDINGLY UPHOLD THE ORDERS OF T HE LOWER AUTHORITIES IN RELATION TO THIS ITEM OF EXPENDITURE OF RS.26,875, REJECTING THE GROUNDS OF THE ASSESSEE IN THIS BEHALF. 27, THE NEXT GRIEVANCE OF THE ASSESSEE IN THIS APP EAL IS WITH REGARD TO THE ADDITION OF RS.1,79,000 OUT OF RS.4,79,240 MADE BY THE ASSESSING OFFICER, UNDER S.40(A)(IA) OF THE ACT. ITA NO.2185/HYD/11 & 3 ORS. M/S. DHATRI CONSTRUCTIONS, HYDERABAD 12 28. ACCORDING TO THE REVENUE AUTHORITIES, PROVISIO NS OF S.194C ARE APPLICABLE TO THESE PAYMENTS MADE BY THE ASSESSEE, AND AS THE SAME HAVE BEEN MADE WITHOUT EFFECTING DEDUCTION OF TAX AT SOURCE, THE SAME ARE LIABLE FOR DISALLOWANCE IN TERMS OF S.40(A)(IA) OF THE ACT. 29. WE HEARD BOTH THE PARTIES AND PERUSED THE MAT ERIAL AVAILABLE ON RECORD. THIS ISSUE SIMILAR TO THE ONE WHICH WE CO NSIDERED WHILE DEALING WITH SIMILAR ADDITION OF RS.3,00,240 MADE BY THE ASSESSI NG OFFICER IN RELATION TO CERTAIN OTHER ITEMS OF EXPENDITURE. FOR THE REASON S DISCUSSED IN PARA 19 OF THIS ORDER, WE HOLD THAT THOUGH THE ISSUE RELATING TO AP PLICABILITY OF PROVISIONS OF S.40(A)(IA) TO THE PAYMENTS IN QUESTION IS COVERED BY THE SPECIAL BENCH DECISION OF THE TRIBUNAL (VISAKHAPATNAM BENCH) IN THE CASE O F MERILYN SHIPPING & TRANSPORTS (136 ITD 23), AS HAS BEEN BROUGHT TO OUR NOTICE BY THE LEARNED DEPARTMENTAL REPRESENTATIVE AND AGREED TO BY THE LE ARNED COUNSEL FOR THE ASSESSEE AS WELL, THE HONBLE HIGH COURT IS NOW SEI ZED OF THE MATTER, HAVING GRANTED INTERIM STAY AGAINST THE SAID DECISION OF T HE TRIBUNAL. IN THIS VIEW OF THE MATTER, WE SET ASIDE THE IMPUGNED ORDER OF THE CIT( A) IN RELATION TO THIS ISSUE ALSO, AND RESTORE THE MATTER TO THE FILE OF THE ASS ESSING OFFICER, TO RECONSIDER THE MATTER AFRESH IN CONSONANCE WITH THE VIEW THAT THE HONBLE HIGH COURT MAY TAKE IN THE MATTER. HE SHALL OF COURSE AFFORD REASONABL E OPPORTUNITY OF HEARING TO THE ASSESSEE, AND THEREAFTER PASS APPROPRIATE ORDER IN ACCORDANCE WITH LAW. 30. THE NEXT GRIEVANCE OF THE ASSESSEE, MADE OUT I N GROUND NO.6 OF THIS APPEAL, IS WITH REGARD TO DISALLOWANCE OF RS.1,46,6 00 MADE UNDER S.40A(2) OF THE INCOME-TAX ACT. 31. FACTS IN BRIEF RELATING TO THIS ISSUE ARE THAT THE ASSESSEE CLAIMED AN EXPENDITURE OF RS.1,46,600 TOWARDS TRAVELLING OF CH AIRMAN AND HIS FAMILY ON FOREIGN TRIP. IT WAS AVERRED BY THE LEARNED AUTHORI SED REPRESENTATIVE THAT THE ITA NO.2185/HYD/11 & 3 ORS. M/S. DHATRI CONSTRUCTIONS, HYDERABAD 13 EXPENDITURE WAS INCURRED ON THE FOREIGN TRIP UNDERT AKEN BY THE CHAIRMAN TO PARTICIPATE IN CEOS CONFERENCE ORGANIZED BY FORBES . ACCORDING TO HIM, IT WAS A BUSINESS TRIP, AND OUT OF THE ABOVE AMOUNT, RS.1,30 ,450 WAS INCURRED FOR THREE PERSONS, VIZ. CHAIRMAN, HIS PERSONAL SECRETARY AND WIFE AND IT IS INCURRED FOR THE BUSINESS PURPOSE, AND HENCE THE WHOLE EXPENDITURE W AS TO BE ALLOWED. IT WAS SUBMITTED THAT THE BALANCE EXPENDITURE OF RS.16,150 WAS INCURRED FOR THE CHAIRMANS TRIP TO BANGALORE, WHERE THE CHAIRMANS WIFE ALSO ACCOMPANIED. 32. WE HEARD BOTH SIDES AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE. IN OUR OPINION EXPENDITURE INCURRED FOR BUSINESS TRIPS HAVE TO BE ALLOWED, AND NO DISALLOWANCE COULD BE MADE IN THAT BEHALF. HOWEVER, IT IS NOT MADE CLEAR HOW THE EXPENDITURE INCURRED ON CHAIRMAN S WIFE, RELATES TO THE BUSINESS OF THE ASSESSEE. HENCE, WE DIRECT THE ASS ESSING OFFICER TO DISALLOW ONLY THAT PART OF THE EXPENDITURE OUT OF RS.1,46,600, WH ICH RELATES TO THE WIFE OF THE CHAIRMAN, ON THE BUSINESS TRIPS UNDERTAKEN BY THE C HAIRMAN. TO THIS EXTENT, GROUND OF THE ASSESSEE ON THIS ISSUE IS PARTLY ALLO WED. 33. THE NEXT GROUND OF THE ASSESSEE IN THIS APPEAL RELATES TO DISALLOWANCE OF 30% OF LAND DEVELOPMENT EXPENDITURE OF RS.5,28,08,623. THE ISSUE INVOLVED IN THIS GROUND IS SIMILAR TO THE ONE WHICH WE CONSIDERED WHILE CONSIDERING THE CORRESPONDING GROUND IN THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2006-07. HENCE, FOR THE DETAILED REASONS DISCUSSED IN THAT CONTEXT, IN PARA 4 HEREINABOVE, WE RESTRICT THE DIS ALLOWANCE MADE TO 10% OF THE EXPENDITURE. THIS GROUND OF THE ASSESSEE IS ACCORD INGLY ALLOWED IN PART. 34. NEXT GROUND OF THE ASSESSEE RELATES TO DISALLO WANCE OF THE PAYMENTS OF RS.10,68,021 AND RS.2,77,855, INVOKING THE PROVI SIONS OF S.40(A)(IA) OF THE ACT. THIS ISSUE WAS DECIDED BY THE CIT(A) WHILE DE ALING WITH THE ISSUE RELATING TO DISALLOWANCE OUT OF LAND DEVELOPMENT EXPENDITURE . WHILE CONSIDERING ITA NO.2185/HYD/11 & 3 ORS. M/S. DHATRI CONSTRUCTIONS, HYDERABAD 14 DISALLOWANCE OF 30% OF THE DEVELOPMENT EXPENDITURE, HE HAS GONE THROUGH THE ORDER PASSED BY THE ITO(TDS) 14(2), HYDERABAD UNDER S.201 AND 201(1A) OF THE ACT AND OBSERVED THAT THE PAYMENT MADE TO SHRI L.MOHAN REDDY WAS LIABLE FOR DEDUCTION OF TAX AT SOURCE, AND AS THERE IS NO DEDUCTION OF TAX AT SOURCE BY THE ASSESSEE, HE INVOKED THE PROVISIONS OF S.40(A)( IA) OF THE ACT. IN OUR OPINION, WHEN THE CIT(A) HAS DEALT WITH THIS ISSUE, WHICH WA S NOT DISCUSSED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, HE EMB ARKED ON ENHANCEMENT OF THE ASSESSMENT. THAT BEING SO, BEFORE MAKING SUCH AN ENHANCEMENT, THE CIT(A) SHOULD HAVE ISSUED A SHOW CAUSE NOTICE AND G IVEN OPPORTUNITY OF HEARING TO THE ASSESSEE, BEFORE MAKING ANY ADDITION/DISALLO WANCE IN THAT BEHALF. THE CIT(A), HAVING NOT DONE SO, HIS ORDER IN THAT BEHAL F CANNOT BE SUSTAINED. WE ACCORDINGLY SET ASIDE THE ORDER OF THE CIT(A) IN T HIS BEHALF, AND RESTORE THE MATTER TO THE FILE OF THE CIT(A), TO REDECIDE THIS ISSUE, BY FOLLOWING DUE PROCESS OF LAW, AFTER ISSUING A SHOW CAUSE NOTICE PROPOSING ENHANCEMENT, AND AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN RESP ONSE THERETO. HE SHALL PASS APPROPRIATE ORDERS IN ACCORDANCE WITH LAW, DULY CON SIDERING THE SUBMISSION OF THE ASSESSEE AGAINST THE ADDITION PROPOSED AND AFTE R CONSIDERING ALL THE MATERIAL AVAILABLE ON RECORD, BY PASSING A SPEAKING IN ACCOR DANCE WITH LAW. THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . 35. NEXT GROUND OF THE ASSESSEE IN THIS APPEAL IS WITH REGARD TO CONFIRMING THE ADDITION OF RS.1,43,25,689 OUT OF AD DITION OF RS.2,59,44,719 MADE BY THE ASSESSING OFFICER IN CONNECTION WITH RE CEIPT FROM ONE K.GOPAL, A UNDER S.68 OF THE ACT. 36. FACTS IN BRIEF RELATING TO THIS ADDITION ARE T HAT THE AMOUNT OF RS.2,59,44,719 ADDED BY THE ASSESSING OFFICER, REPR ESENTS THE RECEIPTS OF THE ASSESSEE FROM ONE K.GOPAL, AN NRI RESIDING IN USA S INCE 1985, ON FOUR OCCASIONS, DURING THE YEAR UNDER APPEAL. ACCORDING TO THE ASSESSING OFFICER, THIS ITA NO.2185/HYD/11 & 3 ORS. M/S. DHATRI CONSTRUCTIONS, HYDERABAD 15 AMOUNT WAS NOTHING BUT CONSIDERATION FOR THE LAND S OLD BY S.L.NARAYAN REDDY, FATHER OF THE DIRECTOR, IN ADDITION TO THE AMOUNT D ECLARED IN THE BOOKS. THE ASSESSING OFFICER OBSERVED THAT THE SAID SALE DOCUM ENT WAS REGISTERED AND LAND WAS TRANSFERRED FROM SLN REDDY TO K.GOPAL, AND HENC E THE ENTIRE SUM OF RS.2,59,44,719 WAS TO BE ADDED IN THE HANDS OF THE ASSESSEE COMPANY, AS UNEXPLAINED CREDIT ON ACCOUNT OF ON-MONEY PERTAININ G TO THE SAID SALE TRANSACTION. IT WAS THE SUBMISSION OF THE ASSESSE E BEFORE THE ASSESSING OFFICER THAT THE SAID AMOUNT REPRESENTS AN ADVANCE FOR ACQU ISITION OF PROPERTIES IN HYDERABAD AND THE SAID AMOUNTS WERE PAID BY THE ASS ESSEE TO ONE M/S. FIMA PROPERTIES PVT. LTD., ETC. 37. ON APPEAL BEFORE THE CIT(A), ASSESSEE ALSO AR GUED BEFORE THE CIT(A) THAT THERE IS NO DISPUTE ABOUT THE RECEIPT OF MONEY FROM GOPAL, WHO IS IN USA AND WHO WANTS THE ASSESSEE COMPANY TO INVEST IN SUI TABLE PROPERTIES THROUGH THE ASSESSEE. IT WAS ARGUED THAT SOME PROPERTIES W ERE ACQUIRED IN THE NAME OF GOPAL AND THE ENTIRE AMOUNT HAS BEEN TRANSFERRED TO M/S. FIMA PROPERTIES LTD. TO FACILITATE SUCH ACQUISITION OF PROPERTIES IN THE NAME OF GOPAL. HENCE, IT WAS PLEADED THAT THE ADDITION OF RS.2,59,44,719 IN THE HANDS OF THE ASSESSEE WAS NOT JUSTIFIED. IN THE COURSE OF APPELLATE PROCEEDI NGS, ASSESSEE WAS ASKED TO PRODUCE THE DETAILS OF PROPERTIES PURCHASED IN THE NAME OF THE SAID GOPAL AND THE TRANSFER OF MONEY TO M/S. FIMA PROPERTIES LTD. IN RESPONSE, THE ASSESSEE PRODUCED COPIES OF SALE DEEDS IN FAVOUR OF K.GOPAL, VIDE DOCUMENT NO.13/2010, 14/2010 AND 15/2010 FOR ACQUISITION OF LAND FOR A C ONSIDERATION OF RS.37,13,000, RS.41,87,000 AND RS.37,19,000 RESPECTIVELY. AS F OR THE TRANSFER OF MONEY ALSO, THE ASSESSEE FIELD ACCOUNT COPY OF THE M/S. F IMA PROPERTIES WHEREIN A SUM OF RS.18.01 CORES (NET) HAS BEEN TRANSFERRED TO SHR I MUSTAQ AHMED A/C. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE AS SESSEE, GAVE CREDIT FOR THE AMOUNT SPENT ON THE PURCHASE OF THREE PROPERTIES VI DE DOCUMENTS DETAILED ABOVE, AND RESTRICTED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ONLY TO THE ITA NO.2185/HYD/11 & 3 ORS. M/S. DHATRI CONSTRUCTIONS, HYDERABAD 16 BALANCE AMOUNT OF RS.1,43,25,719, FOR WHICH ALONE T HERE WAS NO SATISFACTORY EXPLANATION FROM THE ASSESSEE. 38. NOT SATISFIED WITH THE RELIEF GRANTED BY THE CIT(A), ASSESSEE PREFERRED APPEAL ON THIS ISSUE BEFORE US, WHEREAS R EVENUE IN ITS APPEAL CONTESTED THE RELIEF GRANTED BY THE CIT(A). 39. THE LEARNED COUNSEL FOR THE ASSESSEE INVITED O UR ATTENTION TO THE DETAILS OF THE AMOUNTS RECEIVED BY HIM FROM K.GOPAL , WHICH ARE AS FOLLOWS- 28.4.2006 ABN AMRO BANK(BY CHEQUE) RS.1,11,25,000 2.6.2006 CITI BANK(BY CHEQUE) RS. 45,44,866 13.7.2006 ABN AMRO BANK(BY CHEQUE) RS. 57,00,000 IT IS SUBMITTED THAT THE SAID GOPAL IS AN NRI AND T HE ASSESSEE COMPANY RECEIVED THE AMOUNTS IN QUESTION FROM HIM THROUGH BANKING CH ANNELS, AND HE IS A REGULAR BUYER FROM THE ASSESSEE. ACCORDING TO THE LEARNED C OUNSEL, ASSESSEE PURCHASED PROPERTY IN THE NAME OF K.GOPAL AND THE SAID AMOUN T WAS PAID TO M/S.FIMA PROPERTIES P. LTD. HE DREW OUR ATTENTION TO THE VAR IOUS DOCUMENTS IN THE PAPER- BOOK, AND SUBMITTED THAT THERE ARE ACTUAL PURCHASE S MADE IN THE NAME OF K.GOPAL, VIDE DOCUMENT NOS.13/2010, 14/2010 AND 15/ 2010 AND THE CONSIDERATION PAID WAS RS.37,13,000, RS.41,87,000 A ND RS.37,19,000 RESPECTIVELY. HE SUBMITTED THAT THE CIT(A), IN THE CIRCUMSTANCES WAS NOT JUSTIFIED IN SUSTAINING ANY PORTION OF THE DISALLOW ANCE MADE BY THE ASSESSING OFFICER, SINCE THE ASSESSEE HAS EXPLAINED NOT ONLY THE IDENTITY OF THE PERSON FROM WHOM THE MONEY WAS RECEIVED AND THE GENUINENESS OF THE TRANSACTIONS, AND THERE BEING NO DISPUTE WITH REGARD TO THE CREDIT-WO RTHINESS OF THE PERSON MAKING THE PAYMENT TO THE ASSESSEE, SHRI GOPAL, WHO IS AN NRI FOR A LONG TIME. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, IT IS THE GENUINENESS OF THE ITA NO.2185/HYD/11 & 3 ORS. M/S. DHATRI CONSTRUCTIONS, HYDERABAD 17 TRANSACTIONS IN THE LINE OF BUYING AND SELLING OF T HE PROPERTIES, WHICH CLINCHES THE ISSUE, AND HENCE, NO ADDITION COULD BE MADE UNDER S .68 OF THE ACT. 40. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON TH E CONTRARY, OPPOSED THE ABOVE CONTENTIONS OF THE ASSESSEE AND SUBMITTED THAT THE CIT(A) WAS NOT JUSTIFIED IN GRANTING ANY RELIEF TO THE ASSESSEE, S INCE THE VERY GENUINENESS OF THE TRANSACTIONS IS DOUBTFUL. 41. WE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IT IS AN ADMITTED FACT THAT THE ASSESSEE RECEIVED THE MON EY FROM K.GOPAL THROUGH BANKING CHANNELS. THE RECEIPTS BY THE ASSESSEE IS STATED TO BE FOR THE PURPOSE OF PURCHASE OF PROPERTIES IN THE NAME OF K.GOPAL. T HE ASSESSEE ENTERED INTO AN MOU WITH M/S. FIMA PROPERTIES, TO CARRY OUT THE PRO JECT FIMA HILL TOP, AT BANJARA HILLS, HYDERABAD AND THE ASSESSEE, WHENEVER RECEIVED THE MONEY FROM K.GOPAL, TRANSFERRED THE SAME TO M/S. FIMA PROPERTI ES, AND THERE ARE ACTUAL PURCHASES IN THE NAME OF K.GOPAL, VIDE DOCUMENT NOS .13, 14 AND 15/10 FOR A CONSIDERATION OF RS.37,13,000, 41,87,000 AND 37,19 ,000 RESPECTIVELY TOWARDS THE ABOVE PROPERTIES. IT SHOWS THAT K.GOPAL WAS HA VING A RUNNING ACCOUNT WITH THE ASSESSEE. THE CIT(A) ACCEPTED AN AMOUNT OF RS.1 ,16,19,000 AS GENUINE CREDIT. HOWEVER, HE FOUND BANK BALANCE FOR THE REM AINING OF RS.1,43,25,719 AS WELL. IN THE CIRCUMSTANCES OF THE CASE, IN OUR O PINION, THIS IS A BUSINESS TRANSACTION OF K.GOPAL WITH THE ASSESSEE, FOR WHICH THE ASSESSEE HAS BEEN REGULARLY RECEIVING MONIES FROM THE SAID PARTY. BE ING SO, IDENTITY AND GENUINENESS OF THE TRANSACTIONS CANNOT BE DOUBTED. IN OUR OPINION, PROVISIONS OF S.68 OF THE ACT CANNOT BE INVOKED UNLESS THERE I S MATERIAL TO SUGGEST THAT THE ASSESSEE HAS RECEIVED ANY ON MONEY ON SALE OF PRO PERTIES TO K.GOPAL. IN THE ABSENCE OF ANY FINDING OR MATERIAL IN THAT BEHALF, WE ARE OF THE VIEW THAT NO ADDITION COULD BE MADE INVOKING THE PROVISIONS OF S .68 OF THE ACT. WE ACCORDINGLY DELETE THE ENTIRE ADDITION OF RS.2,59,4 4,719 MADE BY THE ASSESSING ITA NO.2185/HYD/11 & 3 ORS. M/S. DHATRI CONSTRUCTIONS, HYDERABAD 18 OFFICER. THUS, ASSESSEES GROUNDS ON THIS ISSUE AR E ALLOWED AND THE REVENUES GROUNDS IN THIS BEHALF, IN ITS APPEAL, ARE CONSEQUE NTLY REJECTED. 42. THE NEXT GROUND OF THE ASSESSEE IN ITS APPEAL RELATES TO THE ADDITION OF RS.3,42,80,846 MADE ON ACCOUNT OF UNEXPLAINED EX PENDITURE. THIS ADDITION WAS MADE BY THE ASSESSING OFFICER, BASED ON SOME IN CRIMINATING MATERIAL FOUND IN THE RESIDENTIAL PREMISES OF ONE MALLKARJUN REDD Y, WHO WAS MD AND CEO O THE ASSESSEE COMPANY IN THE COURSE OF SEARCH AND SEIZUR E OPERATIONS. THE DOCUMENTS REPRESENT THE VOUCHERS PERTAINING TO THE MONTH OF MARCH, 07 IN RESPECT OF DEVELOPMENT ACTIVITY OF VARIOUS PROJECT S UNDERTAKEN BY THE ASSESSEE COMPANY DURING THE PERIOD AND THE PAYMENTS WERE MA DE IN CASH AND RECORDED IN THE CASH BOOK AND IN THE PETTY CASH BOOK. HOWEV ER, THE SAME WERE NOT RECORDED IN THE BOOKS OF ACCOUNT PRODUCED BEFORE TH E ASSESSING OFFICER IN THE COURSE OR ASSESSMENT PROCEEDINGS. HE TOOK NOTE OF THE DETAILED CONTENTS OF THE VOUCHERS AS WELL AS THE NATURE OF PAYMENTS UNDER EA CH PROJECT CHRONOLOGICALLY, AND NOTED THAT ALL THE EXPENSES WERE MADE IN THE MO NTH OF MARCH, 07 AND IN RESPECT OF LUNETTA VILLA, CYGNE, LEAFIG, SOGNAR, IM PERO ETC. EXPENDITURE BOOKED IN THE NAME OF EACH OF THESE PROJECTS IS ALSO NOTED AS- SOGNARE PROJECT : RS.1,60,50,000, LUNETTA VILLA : RS14,65,000, CYGNE PROJECT RS.55,87,000, LEAFIG RS.84,80,946, IMPERO: RS.26,57,900. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE PAYMENTS AS MENTIONED IN THE SEIZED PAPERS DO NOT SHOW L.MOHAN REDDY WHO IS THE MAIN PERSON TO UNDERTAKE SOGNAR VE NTURE AND OTHERS. THE PAYMENTS ARE MADE TO SOME OTHER PERSON WHO WAS DULY AUTHORIZED BY THE AUTHORISED SIGNATORY. BEFORE PROCEEDING TO FRAME THE ASSESSMENT, THE ASSESSING OFFICER HAS GIVEN OPPORTUNITY TO THE DIRE CTOR, S.V.REDDY, AND HIS SWORN STATEMENT WAS ALSO RECORDED UNDER S.131 OF TH E ACT, WHEREIN HE WAS SPECIFICALLY ASKED TO EXPLAIN THE DOCUMENTS SO SEIZ ED AND TO PRODUCE EVIDENCES TO THE EFFECT THAT THESE EXPENSES WERE DULY RECORDE D IN THE BOOKS OF ACCOUNT. IN THE ABSENCE OF PROPER EXPLANATION FROM HIM, AND PRO PER EVIDENCE FURNISHED BY ITA NO.2185/HYD/11 & 3 ORS. M/S. DHATRI CONSTRUCTIONS, HYDERABAD 19 THE ASSESSEE COMPANY, THE SAID AMOUNT OF RS.3,42,40 ,846 HAS BEEN ADDED AS UNEXPLAINED EXPENDITURE OF THE ASSESSEE UNDER S.69C OF THE ACT. THE SAID ADDITION HAS BEEN CONFIRMED BY THE CIT(A) ON APPEAL . HENCE, ASSESSEE IS IN SECOND APPEAL ON THIS ISSUE. 43. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTE D THAT VOUCHERS FOUND AT THE PREMISES OF SHRI MALLIKARJUNA REDDY AR E THOSE, WHICH WERE TO BE PAID BY THE ASSESSEE. THESE ARE PREPARED BY THE SAI D MALLIKARDJAN REDDY, FOR THE PURPOSE OF GETTING THE SIGNATURES OF THE CHAIRMAN O F THE ASSESSEE. THERE IS NO PAYMENT AGAINST THESE VOUCHERS. AS SUCH THESE ARE N OT RECORDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, SINCE UNLESS APPROVED BY T HE CHAIRMAN, VOUCHERS ARE DUMB DOCUMENTS, AND CANNOT BE ACTED UPON. 44. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND, STRONGLY SUPPORTED THE ORDERS OF THE REVENUE AUTHOR ITIES ON THIS ISSUE. 45. WE HAVE HEARD THE PARTIES AND PERUSED THE MATE RIAL AVAILABLE ON RECORD. THE VOUCHERS IN QUESTION ARE FOUND IN THE POSSESSION OF THE MANAGING DIRECTOR AND CEO OF THE ASSESSEE COMPANY. ON THE P RESUMPTION THAT THESE ARE UNACCOUNTED PAYMENTS, ADDITION WAS MADE BY THE ASSE SSING OFFICER AND SUSTAINED BY THE CIT(A). BUT IT IS A FACT ON RECO RD, THAT THESE VOUCHERS ARE NOT SIGNED BY THE MANAGING DIRECTOR. EACH PAYMENT HAS T O BE APPROVED AND AUTHENTICATED BY THE MANAGING DIRECTOR OF THE ASSES SEE COMPANY, SO AS TO FIND PLACE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. EVEN IF IT IS PRESUMED THAT THESE ARE GENUINE VOUCHERS, WHICH ARE NOT RECORDED IN THE BOOKS, THE DEPARTMENT HAS NOT EXAMINED THE PARTIES MENTIONED IN THESE VOUCHER S. IT MAY BE THE ATTEMPT BY THE ASSESSEE TO BOOK THE EXPENDITURE SO AS TO RE DUCE THE PROFIT OF THE ASSESSEE COMPANY. BUT GENUINENESS OF THE VOUCHERS ITSELF IS DOUBTFUL AND THE VIEW TAKEN BY THE DEPARTMENT, THAT THESE ARE UNACC OUNTED PAYMENTS MADE BY ITA NO.2185/HYD/11 & 3 ORS. M/S. DHATRI CONSTRUCTIONS, HYDERABAD 20 THE ASSESSEE CANNOT BE UPHELD, UNLESS THERE IS CLEA R EVIDENCE TO SUGGEST THAT THE ACTUAL WORK WAS CARRIED ON IN RESPECT OF THE W ORK MENTIONED IN THE VOUCHERS. IN THIS VIEW OF THE MATTER, IN OUR OPINI ON, IMPUGNED ADDITION MADE TOWARDS UNEXPLAINED EXPENDITURE INVOKING THE PROVIS IONS OF S.69C OF THE ACT, IN THE ABSENCE OF ANY CORROBORATIVE EVIDENCE BROUGHT O N RECORD BY THE REVENUE, CANNOT BE SUSTAINED. 46. LAST EFFECTIVE GROUND OF THE ASSESSEE IN ITS A PPEAL RELATES TO LEVY OF INTEREST UNDER S.234A, 24B AND 234C. THIS GROUND I S MERELY CONSEQUENTIAL AND DOES NOT CALL FOR INDEPENDENT ADJUDICATION, AND THE ASSESSING OFFICER MAY RE- QUANTIFY THE INTEREST CHARGED UNDER ABOVE PROVISION S, WHILE ULTIMATELY REFRAMING THE ASSESSMENT. 47. IN THE RESULT, THE APPEAL OF THE ASSESSEE, BEI NG ITA NO.14/HYD/2012 FOR ASSESSMENT YEAR 2007-08 IS PARTLY ALLOWED. REVENUES APPEAL: ITA NO.104/HYD/2012 48. THE FIRS GROUND FO THE REVENUE IN THIS APPEAL IS THAT THE CIT(A) WAS NOT JUSTIFIED IN STRAIGHT AWAY ADMITTING THE FRESH EVIDENCE ADDUCED BY THE ASSESSEE BEFORE HIM, AND HE OUGHT TO HAVE REMANDED THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR HIS EXAMINATION AND OFFE RING HIS COMMENTS THROUGH A REMAND REPORT, BEFORE DECIDING THE APPEAL BASED ON SUCH ADDITIONAL EVIDENCE. 49. WE HEARD BOTH SIDES AND PERUSED THE ORDERS OF THE LOWR AUTHORITIES. THE LEARNED DEPARTMENTAL REPRESENTATIVE, COULD NOT SPECIFICALLY POINT OUT AS TO WHAT IS THE ADDITIONAL EVIDENCE FURNISHED BY THE AS SESSEE FOR THE FIRST TIME BEFORE THE CIT(A), AND IN WHAT CONTEXT THE LEARNED CIT(A) HAS VIOLATED THE PRINCIPLES OF NATURAL JUSTICE BY CONSIDERING SUCH F RESH EVIDENCE. IN THE ITA NO.2185/HYD/11 & 3 ORS. M/S. DHATRI CONSTRUCTIONS, HYDERABAD 21 CIRCUMSTANCES, WE FIND NO MERIT IN THIS GROUND OF T HE REVENUE, WHICH IS ACCORDINGLY REJECTED. 50. THE NEXT GRIEVANCE OF THE REVENUE IN GROUNDS TWO AND THREE OF ITS APPEAL, RELATES TO THE ADDITION MADE UNDER S.68 OF THE ACT, REPRESENTING THE AMOUNTS RECEIVED BY THE ASSESSEE FORM ONE K.GOPAL. WE HAVE ALREADY ADJUDICATED ON THIS ISSUE, WHILE DEALING WITH THE C ORRESPONDING GROUNDS OF THE ASSESSEE ON THIS VERY ISSUE IN ITS APPEAL, ITA NO.1 4/HYD/2012 HEREINABOVE, AND FOR THE DETAILED REASONS DISCUSSED IN PARA 41 ABOVE , WE DELETED THE ENTIRE ADDITION OF RS.2,59,44,719 MADE BY THE ASSESSING OF FICER, ACCEPTING THE CONTENTIONS OF THE ASSESSEE IN THAT BEHALF. CONSEQ UENTLY, THESE GROUNDS OF THE REVENUE ARE LIABLE TO BE REJECTED. WE DO SO ACCORDI NGLY. 51. THE NEXT TWO GROUNDS OF THE REVENUE IN ITS APP EAL, BEING GROUNDS NO.4 AND 5 IS WITH REGARD TO DELETION OF ADDITION M ADE ON ACCOUNT OF OPENING BALANCE IN CREDITORS ACCOUNT UNDER S.68 OF THE ACT. IN OUR OPINION, UNEXPLAINED OPENING BALANCE CANNOT GIVE RISE TO ANY ADDITION UN DER S.68 OF THE ACT. IT IS ONLY CREDITS APPEARING IN THE BOOKS OF ACCOUNT FOR THE FIRST TIME IN THE RELEVANT ASSESSMENT YEAR COULD BE CONSIDERED FOR ANY ADDITIO N UNDER S.68 OF THE ACT. THE AMOUNT OF RS.57.40 LAKHS, BEING THE OPENING BAL ANCE BROUGHT FORWARD FROM EARLIER ASSESSMENT YEARS THIS CANNOT BE CONSIDERED FOR ADDITION IN THE ASSESSMENT YEAR UNDER CONSIDERATION, SINCE THERE WA S NO DISPUTE BY THE DEPARTMENT WHEN SUCH CREDIT WAS INTRODUCED IN THE R ELEVANT EARLIER ASSESSMENT YEAR. IF SO ADVISED, THE DEPARTMENT MAY CONSIDER M AKING APPROPRIATE ADDITION IN THE RELEVANT YEAR IN WHICH SUCH CREDIT WAS INTRO DUCED. IN THIS VIEW OF THE MATTER, WE DO NOT FIND MERIT IN THIS GROUND OF THE REVENUE, WHICH IS ACCORDINGLY REJECTED. ITA NO.2185/HYD/11 & 3 ORS. M/S. DHATRI CONSTRUCTIONS, HYDERABAD 22 52. IN THE RESULT, REVENUES APPEAL, ITA NO104/HYD /2012 FOR ASSESSMENT YEAR 2007-08 IS DISMISSED. 53. TO SUM UP, ASSESSEES APPEALS FOR ASSESSMENT Y EAR 2006-07 AND 2007-08, BEING ITA NO.2185/HYD/2011 AND 14/HYD/2012 ARE PARTLY ALLOWED, AND ASSESSEES APPEAL FOR ASSESSMENT YEAR 2008-09, BEING ITA NO.2186/HYD/2012, IS ALLOWED. REVENUES APPEAL FOR ASSESSMENT YEAR 2007-08, BEING ITA NO.104/HYD/2012, IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 15.3.2013 SD/- SD/- (ASHA VIJAYARAGHAVAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER DT/- 15 TH MARCH, 2012 COPY FORWARDED TO: 1. 2. 3. DHATRI CONSTRUCTIONS PVT. LTD., C/O. SHRI S.RAMA RA O, FLAT NO.102, SHERYA'S ELEGANCE, NO.3-6-643, STREET NO.9, HIMAYATNAGAR, HYDERABAD 500029 DY. COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE 2, HY DERABAD COMMISSIONER OF INCOME-TAX(APPEALS) I, HYDERABAD 4 . COMMISSIONER OF INCOME - TAX(CENTRAL), HYDERABAD 5 . DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S