The ITO, Ward-1, Anand V. M/s. Sadbhav Developers, Anand

ITA 2256/AHD/2009

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67673 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-07-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 22-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Assessee Lawyers: A L THAKKAR
• Keywords: Unexplained cash credit; Rejection of books of accounts; Business income; Loose papers
• Section: 143(3); 133A; 68

Judgement Text

ITA NO 2256- A- 2009 . A.Y. 2003- 04 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 2256/AHD/2009 (ASSESSMENT YEAR:2003-04) THE INCOME-TAX OFFICER, WARD-1, ANAND (APPELLANT) VS. M/S SADBHAV DEVELOPERS C/O VANDANA TRADING, JAY RAJ COMPLEX, ANAND SOJITRA ROAD, NR. BORASAD CHOKDI, ANAND. (RESPONDENT) PAN: AAGFD 5170 D APPELLANT BY : SHRI O.P. BATHEJA, SR. D.R . RESPONDENT BY : SHRI A.L. THAKKAR. ( )/ ORDER DATE OF HEARING : 12-07-2013 DATE OF PRONOUNCEMENT : 05-09-2013 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF CIT(A)-IV, BARODA DATED 13.05.2009 FOR ASSESSMENT YEAR 2003-04 . 2. FACTS AS CULLED OUT FROM THE ORDERS ARE AS UNDER: 3. ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF CONST RUCTION OF RESIDENTIAL UNITS. ASSESSEE FILED ITS RETURN OF INCOME FOR AY 2 003-04 DECLARING TOTAL ITA NO 2256- A- 2009 . A.Y. 2003- 04 2 INCOME OF RS 33,468/-. THE CASE WAS SELECTED FOR SC RUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S 143(3) VIDE ORDER DAT ED 30.3.2006 AND THE TOTAL INCOME WAS DETERMINED AT RS 14,51,990/-. AGGR IEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT( A) VIDE ORDER DATED 13.5.2009 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND H AS RAISED THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN REVERSING THE ASSESSING OFF ICER'S ACTION TO REJECT BOOK RESULTS U/S 145(3) OF THE INCOME TAX ACT, 1961 , IGNORING THE FACT THAT THE ASSESSEE HAD INFLATED THE EXPENSES THROUGH BILLS AND SELF MADE VOUCHERS. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO CONSIDER RS. 12,00,000/- AS BUSINESS INCOME OVERLOOKING THE FACT THAT ASSESSEE ITSELF HAD DISCLOSED RS. 12,00,000/- AS UNRECORDED INCOME DURING THE SURVEY AFTER CONSIDERING THE NOTING IN THE PAPERS, WHICH I NCOME WAS SUBSEQUENTLY SQUARED UP BY INFLATING EXPENSES THROU GH SELF SERVING VOUCHERS, ETC. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF PARTNE RS SALARY OF RS. 1,19,000/-, THOUGH THE PARTNERS WERE NOT IN INDIA D URING THE RELEVANT PERIOD. 4 THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND OR ALTER THE ABOVE GROUNDS AS MAY BE DEEMED NECESSARY. 4. 1 ST AND 2 ND GROUND ARE INTERCONNECTED AND THEREFORE THE SAME A RE CONSIDERED TOGETHER: 5. A SURVEY U/S 133A WAS CARRIED OUT AT THE BUSINESS P REMISES OF ASSESSEE ON 25.7.2002. DURING SURVEY NONE OF THE PARTNERS WE RE AVAILABLE AND THEREFORE STATEMENT OF SHRI SUNILKUMAR R PATEL, THE POWER OF ATTORNEY HOLDER OF ONE OF THE PARTNERS VIZ, SMT SMITABEN MAH ENDRABHAI PATEL WAS RECORDED WHEREIN ON CONFRONTING HIM ON THE BASIS OF THE LOOSE PAPERS ITA NO 2256- A- 2009 . A.Y. 2003- 04 3 FOUND, HE ADMITTED ADDITIONAL INCOME OF RS 12 LACS IN THE CASE OF THE ASSESSEE AND OF RS 8 LACS IN THE CASE OF SADHBHAV B UILDERS (ITS SISTER CONCERN). FROM THE RETURN OF INCOME FILED BY THE A SSESSEE, AO NOTICED THAT ASSESSEE HAD SHOWN CONTRACT RECEIPTS OF RS 87, 27,175/- AND GP OF RS 8,82,164/- WHICH WORKED OUT TO 10.10%. HE FURTHE R NOTICED THAT THE CONTRACT RECEIPTS INCLUDED THE UNDISCLOSED INCOME O F RS 12 LACS ADMITTED DURING THE COURSE OF SURVEY. ACCORDING TO THE AO, I F THE UNDISCLOSED INCOME OF RS 12 LACS WAS EXCLUDED FROM THE CONTRACT RECEIPTS, INSTEAD OF PROFIT SHOWN BY THE ASSESSEE, THE BOOK RESULT WOULD BE DEFICIT OF RS 3,17,836/-. HE ALSO NOTICED THAT IN THE IMMEDIATE E ARLIER YEAR AND IMMEDIATE SUBSEQUENT YEAR, THE ASSESSEE HAS SHOWN G P OF 8.45% AND 8.36% RESPECTIVELY. THE ASSESSEE WAS SHOW CAUSED TO EXPLAIN LOSS IN TRADING AND ALSO TO SHOW CAUSE AS TO WHY THE BOOK R ESULTS DECLARED BY THE ASSESSEE NOT BE REJECTED U/S 145(3) AND THE GROSS P ROFIT BE CALCULATED ON THE BASIS OF PREVIOUS YEAR. THE SUBMISSIONS MADE BY THE ASSESSEE WERE NOT FOUND ACCEPTABLE TO THE AO. HE THEREFORE CONCLU DED THAT AGAINST THE UNDISCLOSED INCOME OF RS 12 LACS DECLARED DURING TH E COURSE OF SURVEY, ASSESSEE HAS INFLATED THE EXPENDITURE THROUGH THE B ILLS AND SELF MADE VOUCHERS AND THEREFORE THE ASSESSEE'S BOOKS DOES NO T REFLECT THE TRUE AND CORRECT PICTURE OF THE AFFAIRS OF THE ASSESSEE AND THUS REJECTED THE BOOK RESULTS U/S 145(3) OF THE ACT AND THEREAFTER CALCUL ATED THE GROSS PROFIT @ 9% (ON THE NET RECEIPTS OF RS. 75,27,155/-) I.E. RS 6,77,444/-AS AGAINST THE DEFICIT OF RS 3,17,836/-. HE FURTHER, APPLYING THE RATIO OF THE DECISION IN THE CASE OF FAKIR MOHAMMAD HAJI HASSAN (247 ITR 290 (GUJ), CONSIDERED THE INCOME OF RS 12 LACS DISCLOSED DURIN G THE COURSE OF SURVEY TO BE INCOME FROM OTHER SOURCES AND AS DEE MED INCOME AND TAXED IT AS UNEXPLAINED CREDIT U/S 68 OF THE I.T. A CT. ITA NO 2256- A- 2009 . A.Y. 2003- 04 4 6. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) DELETED THE ADDITION BY HOLDING AS U NDER: 2.3 I HAVE CONSIDERED THE SUBMISSIONS. SURVEY WAS C ONDUCTED AT THE BUSINESS PREMISES OF THE APPELLANT, DURING WH ICH, LOOSE PAPERS PERTAINING TO APPELLANT'S BUSINESS WERE FOUND. A DI RECT NEXUS BETWEEN THE BUSINESS ACTIVITY OF THE APPELLANT AND THE LOOSE PA PERS FOUND DURING THE COURSE OF SURVEY WAS THERE. FURTHER, NO EVIDENCE IS ON RECORD TO INDICATE THAT APPELLANT HAD ANY OTHER SOURCE OF INCOME. THE ASSESSING OFFICER HAS RELIED UPON THE DECISION IN THE CASE OF FAKIR MOHD. HAJI HASAN. IN THE SAID CASE, THE HIGH COURT HAD NOTED THAT IT WAS NOT THE CASE OF THE APPELLANT THAT HE WAS IN THE BUSINESS OF SMUGGLIN G. IN THE PRESENT CASE, IT IS CLEAR THAT APPELLANT WAS A BUILDING CONTRACTO R CONSTRUCTING SMALL HOUSES AND DISCLOSURE WAS MADE AT THE TIME OF SURVE Y ON THE BASIS OF LOOSE PAPERS FOUND AT ITS BUSINESS PREMISES. IN THE CASE OF JALARAM INDUSTRIES CORPORATION, ITA NO.97 ( RAJKOT)/2003, RAJKOT BENCH OF ITAT AFTER CONSIDERING THE CASE OF FA KIR MOHD. HAJI HASAN, HELD THAT SINCE THE ASSESSEE WAS HAVING ONLY ONE SO URCE OF INCOME, IT CANNOT BE SAID THAT IT WAS DERIVING INCOME FROM UNK NOWN SOURCES. FURTHER, THE RAJKOT BENCH OF ITAT IN ITA NO. 362/RJ T/2006 IN THE CASE OF AMUL INDUSTRIES PVT. LTD. ALSO UPHELD THE DECISION OF CIT(APPEALS) DISTINGUISHING THAT CASE FROM THE CASE OF FAKIR MOH D. HAJI HASAN. IN VIEW OF ABOVE, IT IS HELD THAT THE DISCLOSURE OF RS ,12,00,000/- MADE BY THE APPELLANT DURING THE COURSE OF P SURVEY IS ASSES SABLE UNDER THE HEAD 'D' OF CHAPTER IV OF THE I. T. ACT, I.E.PROFITS AND GAINS OF BUSINESS OR PROFESSION'. 2.2.1 REGARDING G.P. ADDITION, AFTER REJECTING APPE LLANT'S BOOKS OF ACCOUNTS, THE MAIN REASON FOR ASSESSING OFFICER'S A CTION IS THAT AFTER EXCLUDING ADDITIONAL INCOME OF RS.12,00,000/- DISCL OSED DURING SURVEY, G.P. OF THE APPELLANT WAS LOWER AND WAS IN FACT A L OSS, WHICH COMPARED UNFAVOURABLY WITH THE PRECEDING AND SUBSEQUENT YEAR S. THE ASSESSING OFFICER ALSO TOOK ADVERSE NOTE OF THE FACT THAT EXP ENSES WERE CLAIMED AGAINST INCOME DISCLOSED DURING THE SURVEY ALSO. AS SESSING OFFICER WAS ALSO OF THE VIEW THAT EXPENSES WERE INFLATED. WHEN THE INCOME DISCLOSED DURING SURVEY WAS BUSINESS INCOME BASED ON LOOSE PA PERS PERTAINING TO CONSTRUCTION BUSINESS OF THE APPELLANT, EXPENSES OF SAME BUSINESS WOULD OBVIOUSLY BE DEBITED AGAINST SUCH INCOME. ASSESSING OFFICER HAS NOT BROUGHT ON RECORD ANY EVIDENCE IN SUPPORT OF HIS VI EW THAT EXPENSES WERE ITA NO 2256- A- 2009 . A.Y. 2003- 04 5 INFLATED. BESIDES, ASSESSING OFFICER HAS MADE DISAL LOWANCE OF EXPENSES SEPARATELY ALSO. THE INCOME DISCLOSED DURING SURVEY WAS BASED ON LOOSE PAPERS FOUND AT THAT TIME. AS EVIDENT FROM THE STAT EMENT RECORDED DURING SURVEY BOOKS OF ACCOUNTS WERE NOT WRITTEN ON THE DA Y OF SURVEY AND THE BOOKS OF ACCOUNTS WERE WRITTEN LATER, AFTER CONSIDE RING LOOSE PAPER TRANSACTIONS. IN VIEW OF THIS, THERE WAS NO JUSTIFI CATION TO COMPUTE THE G.P AFTER EXCLUDING INCOME DISCLOSED DURING THE SUR VEY. REJECTION OF BOOKS OF ACCOUNTS U/S. 145(3), WHEN THE SAME WERE A UDITED AND WHEN NO DEFECTS WERE FOUND IN THE BOOKS, IS NOT JUSTIFIED. THERE IS NO CASE FOR ADOPTION OF G.P. @ 9% BY DISCARDING BOOK RESULTS OF THE APPELLANT. THE ASSESSING OFFICER IS DIRECTED TO ADOPT THE BOOK RES ULTS OF THE APPELLANT INSTEAD OF TAKING THE SAME AT RS.6,77,444/-. THE BO OK RESULTS ALREADY INCLUDE ADDITIONAL INCOME OF RS.12,00,000/-. 7. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. BEFORE US, THE LD D.R. RELIED ON THE ORDER OF AO AN D CIT(A). HE FURTHER SUBMITTED THAT SIMILAR ADDITION MADE IN THE CASE OF SADBHAV DEVELOPERS MADE PURSUANT TO THE SAME SURVEY WAS UPHELD BY H'BL E TRIBUNAL IN ITA NO 2659/AHD/2005 ORDER DATED 15.10,2010. HE PLACED ON RECORD THE AFORESAID ORDER. HE THUS SUPPORTED THE ORDER OF AO. 8. THE LD. A.R. ON THE OTHER HAND SUBMITTED THAT THE F ACTS OF THE CASE IN THE CASE OF SADHBHAV BUILDERS WHICH IS RELIED UPON BY R EVENUE IS DIFFERENT FROM THAT OF ASSESSEE IN VIEW OF THE FACT THAT IN T HE CASE OF SADHBHAV BUILDERS UNRECORDED CASH RECEIPTS WERE FOUND WHEREI N THE CASE OF ASSESSEE UNRECORDED CASH PAYMENTS WERE FOUND. HE FU RTHER SUBMITTED THAT THE UNDISCLOSED INCOME HAS BEEN REFLECTED BY T HE ASSESSEE IN ITS BOOKS OF ACCOUNTS. HE THUS SUPPORTED THE ORDER OF C IT(A). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT DURING THE COURSE OF SURVEY, THE STATEMENT OF POWER OF ATTORNEY HOLDER OF ONE OF THE PARTNERS WER E RECORDED AND ITA NO 2256- A- 2009 . A.Y. 2003- 04 6 UNRECORDED CASH PAYMENTS WERE FOUND. IT IS ALSO A F ACT THAT THE UNDISCLOSED INCOME OF RS 12 LACS SURRENDERED AT THE TIME OF SURVEY WAS INCLUDED IN THE BOOKS AND WAS CONSIDERED IN THE TOT AL CONTRACT RECEIPTS. CIT(A) WHILE DELETING THE ADDITION HAS NOTED THAT T HERE WAS DIRECT NEXUS BETWEEN THE BUSINESS ACTIVITY OF THE ASSESSEE AND T HE LOOSE PAPERS FOUND DURING THE COURSE OF SURVEY AND THERE WAS NO EVIDEN CE ON RECORD TO INDICATE THAT ASSESSEE HAD ANY OTHER SOURCE OF INCO ME AND THE INCOME WAS ASSESSABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. HE HAS FURTHER NOTED THAT THE INCOME D ECLARED AT THE TIME OF SURVEY WAS ON THE BASIS OF LOOSE PAPERS FOUND AT TH AT TIME AND THE BOOKS OF ACCOUNTS WERE NOT WRITTEN AT THAT TIME AND THE B OOKS OF ACCOUNTS WERE WRITTEN LATER AFTER CONSIDERING THE LOOSE PAPER TRA NSACTIONS. HE HAS FURTHER NOTED THAT THE REJECTION OF BOOKS WAS NOT JUSTIFIED WHEN NO DEFECTS WERE FOUND IN THE BOOKS. BEFORE US REVENUE HAS NOT BROUG HT ANY MATERIAL ON RECORD TO CONTROVERT THE FINDINGS OF CIT(A). WE THU S FIND NO REASON TO INTERFERE WITH HIS ORDER ON THIS GROUND. THUS THIS GROUND OF THE REVENUE IS DISMISSED. 10. 3 RD GROUND IS WITH RESPECT TO DISALLOWANCE OF PARTNER' S SALARY 11. AO NOTICED THAT ASSESSEE HAS DEBITED PARTNER'S SALA RY OF RS 2,19,000/- AS AGAINST RS 1 LAC IN PRECEEDING AND SUBSEQUENT YEARS THOUGH THE ASSESSEE HAD NOT MADE ANY PROFIT DURING THE YEAR. HE ALSO NO TICED THAT SHRI DILIPBHAI PATEL AND RAJENDRA PATEL TO WHOM THE SALA RY WAS PAID, HAD LEFT INDIA. HE THEREFORE CONCLUDED THAT ASSESSEE HAS DEB ITED EXCESS SALARY WITH A VIEW TO REDUCE THE TAXABLE INCOME. HE ACCORD INGLY CONSIDERED THE SALARY OF RS 1 LAC TO BE REASONABLE INSTEAD OF RS. 2,19,000/- CLAIMED BY ITA NO 2256- A- 2009 . A.Y. 2003- 04 7 ASSESSEE AND ACCORDINGLY DISALLOWED RS 1,19,000/-. AGGRIEVED BY THE ORDER OF AO, THE MATTER WAS CARRIED BEFORE CIT(A). CIT(A) DELETED THE ADDITION BY HOLDING AS UNDER: SINCE THE DISCLOSURE MADE DURING THE SURVEY IS ON A CCOUNT OF BUSINESS INCOME, THE SAME CANNOT BE EXCLUDED FOR APPLYING SE CTION 40(B) TO COMPUTE ALLOWABLE DEDUCTION IN RESPECT OF PARTNERS REMUNERATION. IN HE CASE OF JAMNADAS MULJIBHAI, RAJKOT BENCH OF ITAT HA S UPHELD ASSESSEE'S CLAIM THAT SOURCE OF INVESTMENT IN EXCESS STOCK FOU ND DURING THE COURSE OF SURVEY WAS OUT OF BUSINESS INCOME AS THE SAME WAS N OT CONTROVERTED BY THE DEPARTMENT BY BRINGING ANY MATERIAL IN THIS REG ARD ON RECORD. THE ITAT FURTHER HELD THAT THE APPELLANT WAS ELIGIBLE T O CLAIM DEDUCTION OF REMUNERATION TO PARTNERS U/S.40(B) BY INCLUDING INC OME ON ACCOUNT OF EXCESS STOCK DISCLOSED DURING THE SURVEY. THE BANGA LORE BENCH OF ITAT IN THE CASE OF DEEPA AGRO AGENCIES (2005) 098 TTJ ( BANG.) 0766 ALSO DIRECTED FOR INCLUDING CASH CREDITS IN THE BOOK PRO FIT FOR THE PURPOSE OF ALLOWING REMUNERATION TO THE PARTNERS U/S. 40(B). I N VIEW OF THE FOREGOING, THE INCOME DISCLOSED AT THE TIME OF SURV EY IS TO BE INCLUDED IN BUSINESS INCOME FOR COMPUTING PARTNER'S REMUNERATIO N ALLOWABLE AS DEDUCTION, WHILE APPLYING SECTION 40(B). 12. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 13. BEFORE US, THE LD. D.R. SUPPORTED THE ORDER OF AO W HEREAS ON THE OTHER HAND THE LD .A.R. SUBMITTED THAT THE SALARY TO PART NERS WAS ALLOWABLE U/S 40(B). HE THUS SUPPORTED THE ORDER OF CIT(A). 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AO HAS DISALLOWED THE SALARY TO PARTNERS CONSIDERIN G THE SAME TO BE EXCESSIVE. CIT(A) HAS NOTED THAT THE PROFITS DECLAR ED DURING THE SURVEY IS ALSO TO BE CONSIDERED FOR WORKING OUT THE REMUNERAT ION TO PARTNERS U/S40(B) FOR WHICH HE HAS RELIED ON THE DECISIONS O F TRIBUNAL. BEFORE US, THE REVENUE COULD NOT BRING ANY MATERIAL TO CONTROV ERT THE FINDINGS OF ITA NO 2256- A- 2009 . A.Y. 2003- 04 8 CIT(A). WE THEREFORE FIND NO REASON TO INTERFERE WI TH THE ORDER OF CIT(A). THUS THIS GROUND OF REVENUE IS DISMISSED. 15. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN OPEN COURT ON 05 -09 -2013. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,A HMEDABAD