Sushee Realty LLP, , Hyderabad V. DCIT, Circle -2(2), Hyderabad

ITA 243/Hyd/2022

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 8134 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2024
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB-A
• Next Hearing Date: 07-02-2024
• Assessment Year: 2016-2017
• Appeal Filed On: 09-06-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Opportunity of being heard; Corroborative evidences; TDS
• Section: 132; 40A(3); 142(1); 143(2); 13; 22; 153C; 20

Judgement Text

आयकर अपीलीय अधिकरण, हैदराबाद पीठ में IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “A”, HYDERABAD BEFORE SHRI RAMA KANTA PANDA, VICE PRESIDENT & SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER आ.अपी.सं / ITA No. 243/Hyd/2022 (निर्धारण वर्ा / Assessment Year: 2016-17) M/s. Sushee Realty LLP, Hyderabad [PAN No. ACFFS0515F] Vs. Deputy Commissioner of Income Tax , Central Circle-2(2), Hyderabad अपीलधर्थी / Appellant प्रत्‍यर्थी / Respondent निर्धाररती द्वधरध/Assessee by: Shri S. Rama Rao, AR रधजस्‍व द्वधरध/Revenue by: Ms. TH Vijaya Lakshmi, CIT-DR सुिवधई की तधरीख/Date of hearing: 08/02/2024 घोर्णध की तधरीख/Pronouncement on: 26/03/2024 आदेश / ORDER PER K. NARASIMHA CHARY, J.M: This appeal filed by the assessee is directed against the order dated 13/04/2022 of the learned CIT(A)-12, Hyderabad, relating to assessment year (AY) 2016-17. 2. Facts of the case, in brief, are that the assessee is a Limited Liability Partnership (LLP), deriving income from real estate business. It filed its return of income 17/10/2016, declaring income of Rs. 3,40,010/-. A search and seizure operation u/s. 132 of the Income Tax Act, 1961 (for short “the ITA No. 243/Hyd/2022 Page 2 of 22 Act”) was conducted on M/s. Sushee Infra & Mining Ltd., and sister concerns and individuals relating to the Sushee Group. During the search, certain information pertaining to the assessee was found. Accordingly, a notice u/s. 153C was issued on 16/11/2018. The assessee in response to the same, filed its return of income on 08/01/2019, declaring an income of Rs. 3,40,010/-, which was filed in the original return of income. Statutory notices u/s. 143(2) and 142(1) of the Act were also issued and served on the assessee in response to which the learned AR of the assessee appeared before the learned Assessing Officer and filed the requisite details. 2.1. During the course of assessment proceedings, the Learned Assessing Officer noticed that the assessee has debited the following expenditure under the head ‘other expenses’ : S.No. Details Amount in Rs. 1. Site Expenses 13,38,912 2. Site Development Expenses 10,00,000 3. Water Tanker 29,19,300 4. Morrum Water Expenses 35,23,700 5. Hire Charges 13,96,500 6. Labour Charges 16,37,751 7. Garden Maintenance 16,86,450 8. Repair & Maintenance 10,77,381 Total 1,45,79,994 3. In absence of any supporting evidences such as bills and vouchers other than the ledger extracts, the Learned Assessing Officer disallowed the above expenditure of Rs. 1,45,79,994/- and added the same to the total income of the assessee. 3.1. The Learned Assessing Officer on verification of Page Nos. 1 to 10 of the seized material found in Annexure A/MLKR/R/01 at the residence of ITA No. 243/Hyd/2022 Page 3 of 22 Shri Lakshmikant Reddy, the MD of M/s. Sushee Infra & Mining Ltd., noted that these loose sheets contained consolidated statement of expenditure and income pertaining to the Eden Garden project, constructed by M/s. Sushee Realty LLP, who sold total 19 villa plots and received an amount of Rs. 11.54 crores in cash, over and above the registered sale consideration. He further noticed that in response to statement recorded u/s. 132(4) of the Act, shri Lakshmikanth Reddy, Director of the assessee-company stated as under: “I am voluntarily admitting the above cash receipts of Rs. 11.54 crores received over and above the registered sale consideration as unaccounted income in the hands of M/s. Sushee Realty LLP.” 4. Since the assessee had not admitted the above income in the return of income filed in response to notice u/s. 153C of the Act, the Learned Assessing Officer asked the assessee to explain as to why the amount of Rs. 11.54 crores should not be treated as ‘un-explained income’ for the impugned assessment year and subjected to tax. The assessee stated that all the receipts are accounted for in the regular books of accounts and there is no receipt of cash. However, the Learned Assessing Officer was not satisfied with the above explanation given by the assessee. He noted that it is clearly mentioned in the last column of the seized material that such cash of Rs. 11.54 crores received as on date. The designated partner in the LLP Shri Lakshmikant Reddy has filed an affidavit dated 17/08/2016 which was received in the office of the Pr. DIT (Inv.), Hyderabad on 01/09/2016, stating that the firm in all collected Rs. 11.54 crores as additional receipts from the purchasers of the villas and the said amount was not recorded in the books of accounts of the assessee. He had also stated that the said additional amount of Rs. 11.54 crores would be offered ITA No. 243/Hyd/2022 Page 4 of 22 in the return of income for the AY. 2016-17. In view of the above and relying on various decisions, the Learned Assessing Officer made an addition of Rs. 11.54 crores, treating the same as ‘un-accounted income of the assessee’ to be taxed @ 30%. The Learned Assessing Officer also made addition of Rs. 21 lakhs as unexplained cash deposit, Rs. 2,93,610/- as non- deduction of TDS and disallowance of Rs. 10,77,381/- u/s. 40A(3) of the Act. He accordingly determined the total income of the assessee at Rs. 13,37,90,995/-. 5. In appeal, learned CIT(A) deleted the addition of Rs. 21 lakhs as unexplained cash deposing, Rs. 2,93,610/- towards non-deduction of TDS and Rs. 10,77,381/- disallowed u/s. 40A(3) of the Act. So far as the addition of Rs. 1,45,79,994/- towards other expenses is concerned, the learned CIT(A) restricted the same to 25%, thereby sustaining an addition of Rs. 36,44,998/- and deleting the balance amount of Rs. 1,09,34,996/- by observing as under: “6.3 I have carefully considered the submissions of the appellant, the order of the Learned Assessing Officer thereon. The appellant contended that the AO erroneously made an addition of Rs.1,45,79,994/- under the head expenses when all the necessary evidences were furnished. The AO held that the expenses under the head "other expenses" in the nature of Site expenses, Site development expenses, water tanker, Morrum water expenses, hire charges, labour charges, Garden maintenance and repair and maintenance totaling to Rs.1,45,75,994/- could not be substantiated by furnishing relevant bills and vouchers. The AO did not consider the ledger extracts of these expenses and disallowed the entire amount for want of supporting evidences. During the course of appellate proceedings, the AR submitted the detailed written submissions and ledger accounts. It was contended that the site expenses of Rs.13,38,912/- contain expenses like cleaning, petrol expenses, labour conveyance, tea and coffee etc ITA No. 243/Hyd/2022 Page 5 of 22 which are small expenses which are incurred on the site by the site incharge. The amounts were initially paid to the person incharge and they have incurred the expenditure at site and the same was recorded in the books. Similarly, it was contended that the other expenses in the nature of site development expenses of Rs.10 lakhs, water tanker expenses of Rs.29,19,300/-, Manum expense of Rs.35,23,700/-, Hire charges of Rs.13,96,500/-, labour charges of Rs.16,37,751/-, Garden maintenance of Rs.16,86,450/- and Repair and maintenance of Rs.10,77,381/- are also incurred at the site and these were small expenses that are essential for its business. I have perused the ledger accounts of these expenses and the submission of the AR. It is seen that these expenses are expenses incurred each day and are in the nature of printing and stationery, petrol, staff welfare, transportation etc. Other expenses incurred at the site are on account of water tanker, morrum expenses, hire charges, labour charges, Garden maintenance and repair and maintenance of the machinery. These site expenses are in the nature of business expenses but the same are not fully vouched through pucca bills and vouchers. Hence, these expenses cannot be fully verified. Hence, the AO is right in disallowing these expenses. However, though there were no proper vouchers it is not correct to disallow 100% of these expenses. Therefore, in my considered view an adhoc disallowance of 25% of these expenses would meet the ends of justice. Accordingly, an amount of Rs.36,44,998/- (25% of Rs.1,45,79,994/-) is confirmed and the balance amount of Rs.1,09,34,996/- is directed to be deleted.” 6. So far as the addition of Rs. 11.54 crores is concerned, learned CIT(A) sustained the addition by observing as under: ITA No. 243/Hyd/2022 Page 6 of 22 ITA No. 243/Hyd/2022 Page 7 of 22 ITA No. 243/Hyd/2022 Page 8 of 22 ITA No. 243/Hyd/2022 Page 9 of 22 ITA No. 243/Hyd/2022 Page 10 of 22 ITA No. 243/Hyd/2022 Page 11 of 22 ITA No. 243/Hyd/2022 Page 12 of 22 ITA No. 243/Hyd/2022 Page 13 of 22 ITA No. 243/Hyd/2022 Page 14 of 22 ITA No. 243/Hyd/2022 Page 15 of 22 10.3.7 In view of the above detailed discussion, the addition of Rs. 11.54 crores on account of unaccounted cash received is confirmed and Ground Nos. 7, 8 & 9 are DISMISSED.” 7. Aggrieved by such an order of the learned CIT(A), assessee preferred appeal, by raising the following grounds: “1. The Hon'ble Commissioner of Income Tax (Appeals) has erred both on facts of the case and in law involved in so far as it is prejudicial to the interest of the Appellant. 2. The Hon'ble CIT(A) without taking into consideration the information filed before him proceeded to complete the appeal u/s.250 of the IT Act and the same is not sustainable. 3. The Hon'ble CIT(A) ignored the explanations given by the appellant and proceeded to confirm the income & Expenses arbitrarily and such action of the Hon'ble CIT(A) has no basis and therefore the same is liable to be deleted. 4. The Hon'ble CIT(A) ought to have observed that the AO erroneously made an addition of Rs.1,45,79,994/- under the head other expenses without considering the submission of the appellant. However, the CIT(A) partly allowed the same and allowed 75% of expense and disallowed 25% of the expenditure incurred by the appellant. 5. The Hon'ble CIT(A) ought to have observed that the AO erroneously brought to tax amount of Rs.11,54,00,000/- during the year without establishing that the said document belongs to the appellant, the said so called cash receipts were during the year and entire amount was income of the appellant during the year. ITA No. 243/Hyd/2022 Page 16 of 22 6. The Hon'ble CIT(A) ought to have observed that the AO erred in bringing to tax entire amount as income without considering the profit involved. 7. The Hon'ble CIT(A) ought to have observed that the AO failed to notice the undated documents pertains to AY 2017-18 and not to this assessment year 2016-17 . 8. Any other ground will be raised at the time of hearing.” Ground Nos. 1, 2 and 8 are general nature and dismissed. 8. Ground Nos. 3 & 4 relates to the order of the learned CIT(A) in partly allowing the expenditure at Rs. 1,45,79,994/-. 9. Learned counsel for the assessee submitted that the assessment has been made u/s. 153C of the Act and there is no seized material, based on which disallowance of expense has been made. In his alternate contention, learned AR contended that even the amount is to be confirmed the entire amount cannot be added. He submitted that the assessee recognizes the revenue on the basis of percentage of completion of work and if the disallowance @25% are to be confirmed, then the Learned Assessing Officer may be directed to modify the amount of revenue recognized, based on the system followed. In yet another alternate contention, the Learned counsel for the assessee submitted that a direction may be given to the Learned Assessing Officer to reduce the same from the cost incurred for the purpose of recognizing the revenue for the impugned assessment year. 10. The learned DR on the other hand, submitted that the learned CIT(A) is very generous in granting 75% relief to the assessee, despite non- submissions of bills and vouchers and, therefore, the same should be upheld and relief should not granted. ITA No. 243/Hyd/2022 Page 17 of 22 11. We have heard the rival arguments made by both the sides and perused the record. It is an admitted fact that due to non-submissions of the bills and vouchers towards other expenses debited in the profit and loss account, the Learned Assessing Officer made an addition of Rs. 1,45,79,994/-. We find that the learned CIT(A) after considering the peculiarity of the case, restricted such disallowance to 25% of the expenses. It is the submission of the learned counsel for the assessee that disallowance of the expenses will increase the cost incurred for the project and accordingly suitable direction may be given. It is also his submission that disallowance of 25% of the expenses by the learned CIT(A) is also in the higher side. It is an admitted fact that the assessee did not produce any bills and vouchers before the Learned Assessing Officer towards the various expenses claimed under the head ‘other expenses’. Although the assessee had produced the ledger extracts, however, bills and vouchers to the satisfaction of the Learned Assessing Officer were never produced before the Learned Assessing Officer for which the Learned Assessing Officer disallowed the entire expenditure under the head ‘other expenses’. We find learned CIT(A) restricted such disallowances to 25% on the ground that the earlier expenditure cannot be disallowed merely because the bills/vouchers were not produced since all fresh expenses are expenses incurred each day and are business expenses. In our opinion, the adhoc disallowance of 25% by the learned CIT(A) appears to be on higher side. Considering the totality of the facts of the case, we restrict the same to 20% of such expenses. The Learned Assessing Officer shall compute the disallowance accordingly. Ground raised by the assessee is partly allowed. ITA No. 243/Hyd/2022 Page 18 of 22 12. Ground No. 5 relates to the order of the learned CIT(A) in sustaining the addition of Rs. 11,54,00,000/-. In this connection, learned counsel for the assessee filed the following submissions: “4. Ground No.5 is with regard to addition of Rs.11,54,00,000/-. The appellant submits that there is no signature on the said paper and it is a dumb document without any evidence. The Learned Assessing Officer is of the view that it is an addition to the sale price recorded. In fact, nobody examined the purchasers of the flats to know whether any additional amount was paid by them or not. There is also no examination of other person. The Income Tax authorities did not find any seized document such as agreement of sale or receipt showing additional receipt. Therefore, the amounts cannot be added. 5. As an alternate, the appellant submits that out of the flats only one flat was sold during the year under consideration. The date of registration is provided in the table itself. Further, out of the total amount of Rs.11,54,00,000/- the following amounts are to be excluded as per submissions made. Villa/Flat No. Name of the purchaser Amount in Rs. Remarks Villa No. 01 Sri Ravindranath Reddy 47,92,000 It is paid in excess and cannot be considered as receipt. Villa No. 15 Singireddy Sheela 50,00,000 Additional Rs. 50 lakhs was paid as loan and, therefore, this is to be excluded. Flat No. 20 -- 39,00,000 Cash paid extra, It is also to be excluded. Flat No. 41 Sai Varun Reddy 90,00,000 Rs. 90 lakhs returned to owner. Flat No. 42 Smt. Divya 70,00,000 Cancelled the transaction. Flat No. 21 Sri Vijayender Reddy 1,50,00,000 Cancelled the transaction. Total 4,46,92,000 ITA No. 243/Hyd/2022 Page 19 of 22 6. The above amounts are to be excluded from Rs.11,54,00,000 as they cannot be considered as a part of sale. The balance of Rs.7,07,08,000/- only can be considered as the receipt. 7. Further, this amount also is to be considered only for the purpose of recognizing the revenue in accordance with the method of accounting adopted by the assessee. 8. Based on the revised cost and the increase in consideration, the revised revenue would work out as under: 9. The estimation so made was modified year after year and as on 31.3.2021, the expenditure incurred by the appellant worked out to Rs.84,12,84,800/-. The said amount has to be substituted for the cost estimated. Cost: Rs.84,12,84,800 The construction cost incurred upto 31.3.20160fRs.35,60,71,912/- would not change as the said amount represents the cost incurred till 31.3.2016 i.e. end of the financial year Rs.38,60,71,912 10. The flats sold also remain the same. The percentage of completion of the work will get modified to 43.36% as against 51.36% adopted in the computation. 11. The total sale consideration of 14 villas where more than 10% of the agreement value was received would become Rs.46,15,00,000/- and Rs.7,56,08,000/- (being the so called receipt in cash) the total being Rs.53, 71,08,000/-. 12. From the above said amount, the percentage of the revenue to be recognized is 43.36%. It works out to Rs.23,28,90,029/-. This will get substituted for the revenue recognized of Rs.23,70,26,400/-.” 13. Assessee prayed to direct the Learned Assessing Officer to compute the revenue to be recognized duly considering the method of accounting and the cash receipts to the extent mentioned above. 14. Learned DR on the other hand, heavily relied on the orders of the learned CIT(A). ITA No. 243/Hyd/2022 Page 20 of 22 15. We have heard the rival arguments made by both the sides, perused the orders of the Learned Assessing Officer and the learned CIT (A) and the paper book filed on behalf of the assessee. We have also considered various decisions cited before us. We find that the Learned Assessing Officer in the instant case made addition of Rs. 11.54 crores in the hands of the assessee on the ground that seized document (pgs. 1 to 10 of the seized material) vide Annexure A/MLKR/R/01 seized from the residence of Shri Lakshmikant Reddy, the MD of M/s. Sushee Infra & Mining Ltd., shows receipt of Rs. 11.5 crores in cash over and above the registered sale consideration of 19 villa flats. Further in response to statement recorded under section 132(4) of the Act, Shri Lakshmikant Reddy, Director of the assessee-company has also admitted to have received cash of Rs. 11.54 crores over and above the registered sale consideration. We find the learned CIT(A) upheld the action of the learned Assessing Officer, the reasoning of which has already been given in the preceding paragraphs. 16. It is the submission of the learned AR that there is no signature on the seized paper, it is a dumb document and has no evidentiary value. Further, nobody has examined the purchasers of the flats to know as to whether any additional amount was paid by them or not? It is his argument that the Revenue did not find any seized document such as agreement of sale or receipt showing additional receipt and, therefore, the said amount cannot be added. It is his alternate argument that out of the 19 flats, only one flat was sold during the year under consideration and in certain other cases, the purchasers have paid certain amount as loan and in certain other cases the transactions were cancelled and the amounts were refunded to the prospective buyers. ITA No. 243/Hyd/2022 Page 21 of 22 17. We find some force in the alternative argument of the learned counsel for the assessee that when certain amounts were received by the assessee as loans which were refunded subsequently and in certain cases, where the transactions were cancelled the amounts cannot be added as income of the assessee. Considering the totality of the case, in the interest of justice, we deem it proper to restore the issue to the file of the Learned Assessing Officer with a direction to examine the argument of the assessee that certain amounts were received as loan and in certain cases, the transactions did not materialize and the amounts were refunded to the prospective buyers. The Learned Assessing Officer shall decide the issue as per fact and law, after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds raised on this issue are accordingly treated as allowed for statistical purposes. 18. In the result, appeal of the assessee is treated as partly allowed for statistical purposes. Order pronounced in the open court on this the 26 th day of March, 2024. Sd/- Sd/- (RAMA KANTA PANDA) (K. NARASIMHA CHARY) VICE PRESIDENT JUDICIAL MEMBER Hyderabad, Dated: 26/03/2024 TNMM ITA No. 243/Hyd/2022 Page 22 of 22 Copy forwarded to: 1. M/s. Sushee Realty LLP, H.No. 8-2-293/82/L/246/A/2, Plot No. 246/A/2, MLA Colony, Banjara Hills, S.O., Khairatabad, Hyderabad. 2. The Dy. Commissioner of Income Tax, Central Circle-2(2), Hyderabad. 3. The Pr.CIT(Central)-Hyderabad. 4. DR, ITAT, Hyderabad. 5. GUARD FILE. TRUE COPY ASSISTANT REGISTRAR ITAT, HYDERABAD