ACIT-CIRCLE-4, Nagpur V. M/S ARMORS DEVELOPERS (P) Ltd, Nagpur

ITA 311/NAG/2014

• Counselvise Citation: [2014] 117 COUNSELVISE.COM (IT) 8866 (ITAT-NAGPUR)
• Duration Of Justice: 4 month(s) 10 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 23-10-2014
• Appeal Filed By: Department
• Bench Allotted: DB
• Assessment Year: 2004-2005
• Appeal Filed On: 12-06-2014
• Court: TRIBUNAL
• Department Lawyers: A R NINAWE
• Keywords: Income from undisclosed sources; Search and seizure; Set aside
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.311/NAG./2014 (ASSESSMENT YEAR : 200405 ) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE4, SARAF CHAMBERS NAGPUR 440 001 . APPELLANT V/S M/S. ARMORS DEVELOPERS (P) LTD. 590, NAVA NAKASHA, LASHKARIBAGH NAGPUR 400 009 PAN AAIFA6646L . RESPONDENT ITA NO.313/NAG./2014 (ASSESSMENT YEAR : 200405 ) M/S. ARMORS DEVELOPERS (P) LTD. 590, NAVA NAKASHA, LASHKARIBAGH NAGPUR 400 009 PAN AAIFA6646L . APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE4, SARAF CHAMBERS NAGPUR 440 001 . RESPONDENT REVENUE BY : SHRI A.R. NINAWE ASSESSEE BY : SHRI MANOJ MORYANI DATE OF HEARING 22.03.2017 DATE OF ORDER 24.03 .2017 2 M/S. ARMORS DEVELOPERS (P) LTD. O R D E R PER SHAMIM YAHYA, A.M. THESE CROSS APPEALS ARE DIRECTED AGAINST THE IMPUGN ED ORDER DATED 27 TH MARCH 2014, PASSED BY THE LEARNED COMMISSIONER (APPEALS)I, NAGPUR, FOR THE ASSESSMENT YEAR 20040 5. ITA NO.313/NAG./2014 ASSESSEES APPEAL THE GROUNDS RAISED BY THE REVENUE ARE REPRODUCED B ELOW: 1. THE LEARNED CIT(A) ERRED IN CONFIRMING TOTAL AD DITION OF ` 18,46,114 AS UNDISCLOSED INCOME. 2. THE LEARNED CIT(A) ERRED IN NOT CONSIDERING THE DETAIL REPLY OF THE ASSESSEE AND CONFIRM THE ADDITION OF ` 9,36,483 THOUGH ADDITIONS ARE DUE TO CHANGE IN VALUATION OF INVENTO RY OF WORKIN PROGRESS, THEREFORE, THE ADDITION CONFIRMED ARE UNJ USTIFIED, UNWARRANTED AND EXCESSIVE. 3. THE LEARNED CIT(A) ERRED IN NOT CONSIDERING THE DETAIL REPLY OF THE ASSESSEE AND CONFIRMED THE ADDITION OF ` 8,00,677 THOUGH THE SAME WERE NOT POINTED OUT BY THE AUDITOR, THERE FORE, ADDITION CONFIRMED ARE UNJUSTIFIED, UNWARRANTED AND EXCESSIV E. 4. THE LEARNED CIT(A) ERRED IN NOT CONSIDERING THE DETAIL REPLY OF THE ASSESSEE AND CONFIRMED THE ADDITION OF ` 1,08,954 AS UNEXPLAINED LABOUR PAYMENT. 5. THE LEARNED CIT(A) ERRED IN NOT CONSIDERING EXP ENDITURE OF ` 1,08,954 INCURRED ON LABOUR. 2. AT THE OUTSET, THE LEARNED COUNSEL FOR ASSESSEE SUB MITTED THAT HE DID NOT WISH TO PRESS GROUNDS NO.1, 2 AND 3. CONSEQ UENTLY, THESE GROUNDS ARE DISMISSED AS NOT PRESSED . 3 M/S. ARMORS DEVELOPERS (P) LTD. 3. THE ONLY ISSUE WHICH ARISES FROM GROUNDS NO.4 AND 5 , RELATES TO DISALLOWANCE OF ` 1,08,954 ON ACCOUNT OF UNEXPLAINED LABOUR PAYMENT. 4. THE ASSESSING OFFICER MADE DISALLOWANCE OF ` 1,08,954 BEING PAYMENT TO LABOUR CONTRACTOR ON THE GROUND THAT BIL LS FOR LABOUR EXPENSES WERE NOT PRODUCED DESPITE NOTING THAT SUCH EXPENDITURE WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. THE AUTHORITIES BELOW HAVE PROCEEDED TO DISALLOW THE SAME. THIS CLEARLY C OMES UNDER THE AMBIT OF DOUBLE DISALLOWANCE NOT SUSTAINABLE IN LAW . IN THIS REGARD, WE MAY GAINFULLY REFER TO THE ORDER OF THE LEARNED COM MISSIONER (APPEALS) AS RECORDED IN APPELLATE ORDER WHICH READS AS UNDER : GROUND NO.7 . IN THIS GROUND, THE APPELLANT HAS OBJECTED TO THE PAYMENT OF ` 1,08,954 TO THE LABOUR CONTRACTOR. THE A.O. HAS DISCUSSED THIS ISSUE IN PARA NO.5, ON PAGE NO.24 OF THE ORDER. THE A.O. HAS DISALLOWED THE AMOUNT MERELY FOR THE REASO N THAT THE BILLS FOR THE LABOUR EXPENSES WERE NOT PRODUCED BY TEH ASS. THE AUDITORS AFTER VERIFICATION HAS ADDED BACK THIS AMO UNT IN THE COMPUTATION OF TOTAL INCOME AS THE ASS COULD NOT EX PLAIN THE SAME. EVEN DURING THE APPELLATE PROCEEDINGS THE APP ELLANT COULD NOT SUBSTANTIATE HIS CLAIM FOR LABOUR PAYMENT, TH ER E F ORE T HI S AMO UNT OF RS.1,08,954/- REM AI NS UN E X PLA INE D, HE N CE THE ADDITION MADE BY THE A.O. ON T HI S I SSUE I S UPHELD . H EN C E, TH I S GROUN D IS DISMISSED. 5. FROM THE ABOVE, IT IS AMPLY CLEAR THAT SINCE THE IM PUGNED AMOUNT HAS ALREADY BEEN ADDED BACK TO THE TOTAL INC OME OF THE ASSESSEE, THERE IS NO QUESTION OF DISALLOWING THE S AME AGAIN. HENCE, 4 M/S. ARMORS DEVELOPERS (P) LTD. WE SET ASIDE THE ORDERS OF THE AUTHORITIES AND DECI DE THE ISSUE IN FAVOUR OF THE ASSESSEE. GROUNDS NO.4 AND 5 ARE ALLO WED. 6. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ITA NO.311/NAG./2014 REVENUES APPEAL 7. THE GROUNDS RAISED BY THE REVENUE ARE REPRODUCED BE LOW: 1. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A)-I, NAGPUR HAS ERRED IN ALLOWING PAYMENT OF RS.22,00,000/- MADE TO M/S. DOLLY ENTERPRISES, WHIC H WAS NOT PROVED BY THE ASSESSEE DURING THE ASSESSMENT PROCEE DINGS. 2. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A)-I, NAGPUR HAS ERRED IN ALLOWING THE PAYM ENT OF RS.1,07,000/- MADE TO SHRI SUKHDEV MANOHAR WHICH WA S NOT PROVED BY THE ASSESSEE DURING THE ASSESSMENT PROCEE DINGS. 3. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A)-I, NAGPUR HAS ERRED IN ALLOWING THE PAYM ENT OF RS.3,015/- MADE TO M/S. S.M. SALES WHICH WAS NOT PR OVED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS. 4. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A)-I, NAGPUR HAS ERRED IN ALLOWING THE PAYM ENT OF RSA,67,5001- MADE TO SHRI T.D. SHARMA WHICH WAS NOT PROVED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS. 5. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A)-I, NAGPUR HAS ERRED IN ALLOWING THE PAYM ENT OF RS.2,44,500/- SHOWN BY ASSESSEE AS STAFF SALARY EXP ENSES WHICH WAS NOT PROVED BY THE ASSESSEE DURING THE ASSESSMEN T PROCEEDINGS. 6. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A)-I, NAGPUR HAS ERRED IN ALLOWING THE PAYM ENT OF RS.6,89,859/- CLAIMED BY THE ASSESSEE AS EXPENSES O N VARIOUS AIDS WHICH WERE NOT SUPPORTED BY VOUCHER. 5 M/S. ARMORS DEVELOPERS (P) LTD. 7. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A)-I, NAGPUR HAS ERRED IN DELETING ADDITION OF RS.14,00,00/- DESPITE THE ASSESSEE EXPLAIN THE SOUR CE OF INTRODUCTION OF SHARE CAPITAL. 8. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A)-I, NAGPUR HAS ERRED IN ALLOWING THE PAYM ENT OF RS.2,23,820/- IN VIOLATING PROVISION OF SEC. 40(A)( 3) OF THE ACT. 8. BRIEF FACTS ARE THE TRIBUNAL, VIDE ORDER IN ITA NO.1 89/ NAG./2008 DATED 9 TH JANUARY 2009, SET ASIDE THE ORDER OF THE ASSESSING OFFICER AND DIRECTED AT PAGE NO.4 IN PARA5 TO GET THE ACCO UNTS OF THE ASSESSEE AUDITED BY A THIRD CHARTERED ACCOUNTANT UN DER SECTION 142(2A) OF THE ACT, AND OBTAIN A REPORT OF SUCH AUD IT ALONG WITH A PROFIT & LOSS ACCOUNT AND BALANCE SHEET AND THEREAFT ER MAKE THE ASSESSMENT AFRESH. THE TRIBUNAL HAD ORDERED FOR SPE CIAL AUDIT UNDER SECTION 142(2A) ON THE BASIS OF THE ORIGINAL SET OF ACCOUNTS MAINTAINED IN ACCORDANCE WITH THE PROVISIONS UNDER SECTION 44A A, WHICH WAS GIVEN FOR AUDIT TO THE SPECIAL AUDITORS APPOINTED U/S 142 (2A) ON 11 TH JANUARY 2010. THE SPECIAL AUDITORS APPOINTED IN THIS CASE U NDER SECTION 142(2A) OF THE ACT, HAS PREPARED AND SUBMITTED AN E XHAUSTIVE AND A DETAILED AUDIT REPORT DATED 16 TH APRIL 2010 TO THE ASSESSING OFFICER. THE SPECIAL AUDITORS IN THEIR SAID REPORT HAS DETER MINED A SUM OF ` 17,37,160 AS UNDISCLOSED INCOME OVER AND ABOVE THE INCOME DECLARED BY THE ASSESSEE. THE SPECIAL AUDITORS HAVE DETERMIN ED THE UNDISCLOSED INCOME OF ` 17,37,160 AFTER MAKING VARIOUS ADJUSTMENTS 6 M/S. ARMORS DEVELOPERS (P) LTD. AND DISALLOWANCES AFTER TAKING INTO CONSIDERATION T HE MATERIAL EVIDENCES SUBMITTED BY THE ASSESSEE. THE ASSESSING OFFICER, HOWEVER, HAS ASSESSED THE UNDISCLOSED INCOME OF ` 76,00,389, AS AGAINST THE QUANTUM OF UNDISCLOSED INCOME DETERMINED BY THE SPE CIAL AUDITORS AT ` 17,37,160. 9. APROPOS GROUND NO.1, ON THIS ISSUE, THE ASSESSING O FFICER HAD DISCUSSED THIS ISSUE IN PARA-2.13 ON PAGE NO.22 OF THE ASSESSMENT ORDER UNDER THE HEAD 'PAYMENT OF LABOUR WORK' . THE AO IN HIS ORDER HAS RECORDED A FINDING THAT THE ASSESSEE HAS MADE THE PAYMENT OF ` 2,00,000 ON 9 TH OCTOBER 2003 AND ` 20,00,000/- ON 23 RD OCTOBER 2003 TO M/S DOLLY ENTERPRISES. FURTHER, THE ASSESSING OFFICER STATES THAT THIS PAYMENT IS MADE AGAINST THE BILL O F ` 4,50,000 RAISED ON 31 ST MAY 2003 AND BILL OF ` 20,00,000 RAISED ON 31 ST DECEMBER 2003. THE ASSESSEE CLARIFIED THAT THE PAYMENTS WERE MADE AS AN ADVANCE AND SETTLED BY BILL DATED 31 ST DECEMBER 2003. THE ASSESSING OFFICER, HOWEVER, DECLINED TO ACCEPT THAT THE ASSES SEE HAS GIVEN SUCH ADVANCE FOR LABOUR WORK TO THE CONTRACTOR FOR THE R EASONS STATING THAT THE BILLS WERE VAGUE AND THE ASSESSEE COULD NOT GIV E ANY PROOF OR CONFIRMATION FROM THE PARTY. 7 M/S. ARMORS DEVELOPERS (P) LTD. 10. UPON ASSESSEES APPEAL BEFORE THE FIRST APPELLATE AU THORITY, THE LEARNED COMMISSIONER (APPEALS) GRANTED RELIEF TO TH E ASSESSEE HOLDING AS UNDER: 8.2 ON CAREFUL EXAMINATION OF THE FACTS, IT IS SEE N THAT THE PAYMENT OF RS.22,00,000/- WAS MADE BY THE APPELLANT BY ACCOUNT PAYEE CHEQUES. THERE IS NOTHING ON RECORD TO SHOW T HAT THE PAYMENTS IN QUESTION WERE MADE OTHERWISE THAN THE A CCOUNT PAYEE CHEQUES. IN THIS REGARD, THE FINDING RECORDED BY THE AUDITOR IN HIS AUDIT REPORT IS RELEVANT. THE AUDITOR WHILE EXPLAINING THE EXPENDITURE OF RS.22,00,000/- ON PAGE NO.70 OF HIS AUDIT REPORT (ANNEXURE 'N') HAS OBSERVED THAT THE PAYMENT OF RS. 22,00,000/- HAS BEEN MADE BY CROSSED CHEQUES AND THEY HAVE VERI FIED THE BILLS OF RS.20,00,000/- OF M/S DOLLY ENTERPRISES FURNISHE D BY THE APPELLANT DURING THE AUDIT PROCEEDINGS. THE BILL OF RS.2,00,000/- WAS NOT PRODUCED BEFORE THE AUDITOR BUT IT IS FOUND ON VERIFICATION THAT THE PAYMENT WAS MADE FROM THE BANK. THESE BILL S OF RS.2,00,000/- WERE TRACED OUT BY THE APPELLANT, WHI CH WERE SUBMITTED BEFORE THE AO DURING THE ASSESSMENT PROCE EDINGS VIDE LETTER DATED 29.04.2010 AND THE A.O. HAS DONE THE N ECESSARY VERIFICATION OF PAYMENT WITH REFERENCE TO A/C NO.46 8 OF UCO BANK. THE ABOVE FACTS GOES TO PROVE THAT THE PAYMENT MADE THROUGH THE CROSS CHEQUE BY THE APPELLANT IS NEITHER DISPUTED N OR PROVED OTHERWISE BY THE A.O. IT IS ALSO A FACT EMANATED FR OM RECORDS AND THE REPORT OF THE AUDITOR THAT THE APPELLANT HAS FU RNISHED THE RELEVANT BILLS BEFORE THE AUDITORS AS WELL AS BEFOR E THE A.O. AND THE A.O. HAS ALSO EXAMINED THE ENTRIES WITH REFEREN CE TO THE BANK ACCOUNT OF THE APPELLANT. THUS ONCE THE PAYMENT IS PROVED TO HAVE BEEN MADE BY A CROSSED CHEQUE FROM THE BANK ACCOUNT OF THE APPELLANT, TO MY OPINION, ASKING FOR FURTHER PROOF IS OF NO SIGNIFICANCE COUPLED WITH THE FACT THAT THE TRANSAC TION HAS ALREADY BEEN EXAMINED BY THE AUDITORS, DURING THE SPECIAL A UDIT AND A FINDING TO THAT EFFECT IS GIVEN. FURTHER, IT IS PER USED FROM PARA 2.5 ON PAGE 21 OF THE ASSESSMENT ORDER THAT THE ASSESSE E HAS MADE A REQUEST TO THE AO TO ISSUE SUMMONS AND EXAMINE THE PARTY, BUT THAT HAS NOT BEEN DONE BY THE LD.AO. THEREFORE, TAK ING INTO CONSIDERATION THE MATERIAL FACTS AS EMANATED FROM T HE RECORDS, THE PAYMENTS EFFECTED THROUGH THE BANKING CHANNEL IN TH E COURSE OF HIS BUSINESS BY THE APPELLANT CANNOT BE HELD TO BE NON-GENUINE IN THE ABSENCE OF ANY EVIDENCE CONTRARY TO THE RECORDS . THE AO, THEREFORE IS NOT JUSTIFIED AND THE ADDITION MADE IS DIRECTED TO BE DELETED. HENCE, THIS GROUND IS ALLOWED. 8 M/S. ARMORS DEVELOPERS (P) LTD. AGAINST THIS ORDER, THE ASSESSEE IS IN APPEAL BEFOR E THE TRIBUNAL. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON THIS ISSUE, WE FIND THAT TH E ASSESSING OFFICER HAS MADE DISALLOWANCE WITHOUT BRINGING ON RECORD CO GENT REASONS. THE LEARNED COMMISSIONER (APPEALS) HAS GIVEN A FINDING THAT THE PAYMENT WAS DULY MADE BY ACCOUNT PAYEE CHEQUE. THE LEARNED COMMISSIONER (APPEALS) HAS ALSO NOTED THAT THE RELEVANT RECORDS WERE DULY PRODUCED BEFORE THE SPECIAL AUDITORS AS WELL AS THE ASSESSIN G OFFICER. UNDER THESE CIRCUMSTANCES, IN OUR CONSIDERED OPINION, THE RE IS NO REASON TO INTERFERE WITH THE REASONED ORDER OF THE LEARNED CO MMISSIONER (APPEALS) ON THIS ISSUE. CONSEQUENTLY, UPHOLDING TH E ORDER OF THE LEARNED COMMISSIONER (APPEALS), GROUND NO.1, RAISED BY THE REVENUE IS DISMISSED. 12. APROPOS GROUND NO.2. ON THIS ISSUE, THE ASSESSING O FFICER, WHILE MAKING DISALLOWANCE OF THE PAYMENT OBSERVED THAT EX ECUTION OF WORK IS NOT ON EVIDENCE AND THAT DISCREPANCIES NOTICED I N CASE OF M/S. DOLLY ENTERPRISES, ARE ALSO APPLICABLE IN THIS CASE. ON T HE OTHER HAND, THE LEARNED COMMISSIONER (APPEALS) HAS DELETED THE ADDI TION BY GIVING FOLLOWING FINDINGS: 9.3 . FURTHER AS REGARDS TO THE PAYMENT OF ` 1,07,000/ MADE TO SHRI SUKHDEO MANOHAR, THE AUDITOR ON PAGE N O.66 AND 9 M/S. ARMORS DEVELOPERS (P) LTD. 42 OF THE AUDIT REPORT HAS STATED THAT SHRI SUKHDEO MANOHAR IS A LABOUR CONTRACTOR. ASSESSEE HAS PROVIDED BILL OF LA BOUR CONTRACTOR ON 21.03.2010 WHICH IS RELATED TO MANPOWER SUPPLY A ND PREPARED DURING AUDIT PERIOD IN CONFIRMATION FO EXPENSES. TH E AUDITOR IN HIS FINAL AUDITED FIGURES AS ON 31.03.2004 ON PAGE NO.4 2, OF THE AUDIT REPORT HAS CONSIDERED THE EXPENDITURE AS GENUINE AL LOWABLE EXPENSES WHILE DETERMINING THE DIFFERENCE BEING DIS ALLOWABLE. THEREFORE, THE ADDITION MADE BY THE A.O. IN RESPECT OF SHRI SUKHDEO MANOHAR AT ` 1,07,000 IS DIRECTED TO BE DELETED. HENCE, THESE GROUNDS ARE ALLOWED. 13. UPON CAREFUL CONSIDERATION OF THE SUBMISSIONS OF THE PARTIES, WE FIND THAT THE LEARNED COMMISSIONER (APPEALS) HAS DE LETED THE ADDITION AFTER APPROPRIATELY APPRECIATING THE EVIDENCE ON RE CORD, HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED COMMISSIONER (APPEALS). CONSEQUENTLY, UPHOLDING THE ORDER OF THE LEARNED COMMISSIONER (APPEALS), GROUND NO.2 RAIDED BY THE R EVENUE IS DISMISSED. 14. APROPOS GROUND NO.3. ON THIS ISSUE, THE ASSESSING O FFICER HAS MADE THE DISALLOWANCE ON ACCOUNT OF STEEL PURCHASED FROM M/S. S.M. SALES ON THE GROUND THAT THE ASSESSEE COULD NOT PRO DUCE CONFIRMATION FROM THE PARTIES. THE LEARNED COMMISSIONER (APPEALS ) HAS DELETED THIS ADDITION BY FOLLOWING OBSERVATIONS: 14.1 THE APPELLANT CONTENDED THAT DURING THE YEAR UNDER CONSIDERATION M/S. S.M. SALES CORPORATION RAISED A BILL OF ` 36,325 AGAINST SUPPLY OF MATERIAL AND TRANSPORTATION CHARG ES. THE APPELLANT PAID A SUM OF ` 33,900 VIDE TWO CHEQUES BEARING NO.265939 DATED 26.08.2003 FOR ` 8300/ AND NO.265939 DATED 10 M/S. ARMORS DEVELOPERS (P) LTD. 26.08.2003 FOR ` 25,000 LEAVING A BALANCE OF ` 3015 TO BE PAYABLE, WHICH IS REFLECTED UNDER THE HEAD SUNDRY C REDITORS IN THE BALANCE SHEET. SINCE THE TRANSACTION IN QUESTION IS EFFECTED THROUGH THE BANKING CHANNEL AND THE RELEVANT ENTRIE S ARE VERIFIABLE FROM THE BALANCE SHEET, HENCE, THE ADDIT ION IS DIRECTED TO BE DELETED. HENCE, THIS GROUND IS ALLOWED. 15. UPON CAREFUL CONSIDERATION OF THE SUBMISSIONS OF THE PARTIES, WE FIND THAT THE ASSESSING OFFICER HAS MADE ADDITION W ITHOUT COGENT REASON. CONSEQUENTLY, UPHOLDING THE ORDER OF THE LE ARNED COMMISSIONER (APPEALS), WE DISMISS GROUND NO.3, RAI SED BY THE REVENUE. 16. APROPOS GROUND NO.4. BRIEF FACTS ARE THAT THE ASSESS ING OFFICER HAS STATED THAT THE DISCREPANCIES NOTICED IN THE CA SE OF M/S. DOLLY ENTERPRISES ARE ALSO APPLICABLE IN THIS CASE. THE A SSESSEE VIDE LETTER DATED 09.06.2010, SUBMITTED TO THE ASSESSING OFFICE R THAT THE PAYMENT WAS MADE BY CROSS CHEQUE. THE ASSESSING OFF ICER NOTICED THAT THE CHEQUES DEPOSITED BY THE ASSESSEE WERE ENC ASHED ON THE SAME DAY, THEREFORE, THE PAYMENT SEEMS TO HAVE BEEN MADE BY BEARER CHEQUE AS THE SAME WAS ENCASHED ON THE SAME WORKING DAY. THE ASSESSING OFFICER, HOWEVER, HAS STATED THAT NO EVIDENCE OF EXECUTION OF WORK IS FURNISHED. THUS, THE ASSESSING OFFICER, HAS NOT BELIEVED THE TRANSACTION THROUGH A/C PAYEE CHEQUE S TATING THAT PAYMENT SEEMS TO HAVE BEEN MADE BY BEARER CHEQUE. 11 M/S. ARMORS DEVELOPERS (P) LTD. 17. UPON ASSESSEES APPEAL, THE LEARNED COMMISSIONER (AP PEALS) DELETED THE ADDITION HOLDING AS UNDER: 9.5 ON CAREFUL EXAMINATION OF THE FACTS IT IS SEEN THAT AS PER PAGE NO.68 OF THE AUDIT REPORT, THE AUDITOR HAS ACC EPTED THE PAYMENT MADE TO SHRI T.D. SHARMA OF ` 4,67,500. THE AUDITOR HAS NOTED A FINDING THAT THE EXPENDITURE WAS INCURR ED FOR THE WORK DONE BY THE SAID CONTRACTOR. THE PAYMENT WAS T HROUGH THE CHEQUE WHICH WAS ENCASHED FROM THE BANK AS PER THE COPY OF BANK ACCOUNT SUBMITTED BY THE ASSESSEE. THE A.O. HA D MADE THE ADDITION ON THE SUSPICION THAT THE CHEQUES WERE BEA RER CHEQUE AND BOTH THE SIDES OF THE CHEQUE WERE NOT PROVIDED TO HIM FOR VERIFICATION. THE AUDITOR IN HIS FINAL AUDITED FIGU RES AS ON 31.03.2004 ON PAGENO.42 OF THE AUDIT REPORT HAS CO NSIDERED THE EXPENDITURE AS GENUINE ALLOWABLE EXPENSES WHILE DET ERMINING THE DIFFERENCE BEING DISALLOWABLE. THUS, THE A.O. HAS M ADE THE DISALLOWANCE MERELY ON SURMISES WITHOUT ESTABLISHIN G THE FACT AND IN THE ABSENCE OF ANY EVIDENCE CONTRARY TO THE RECO RDS. THEREFORE, THE ADDITION MADE BY THE A.O. IN RESPECT OF SHRI T. D. SHARMA AT ` 4,67,500 IS DIRECTED TO BE DELETED. HENCE, THIS GRO UND IS ALLOWED. 18. UPON CAREFUL CONSIDERATION OF THE SUBMISSIONS OF THE PARTIES, WE FIND THAT THE LEARNED COMMISSIONER (APPEALS) WAS JU STIFIED IN HOLDING THAT THE ASSESSING OFFICER HAS MADE THIS ADDITION O N SURMISES AND CONJECTURES. THE EVIDENCE BROUGHT ON RECORD AND CON SIDERED BY THE LEARNED COMMISSIONER (APPEALS) DULY WARRANTED DELET ION OF ADDITION. CONSEQUENTLY, UPHOLDING THE ORDER OF THE LEARNED CO MMISSIONER (APPEALS), GROUND NO.4 RAISED BY THE REVENUE IS HER EBY DELETED. 19. APROPOS GROUND NO.5. ON THIS ISSUE, THE ASSESSING O FFICER HAS DISALLOWED A SUM OF ` 2,44,500 OUT OF SALARY TO STAFF ON THE GROUND 12 M/S. ARMORS DEVELOPERS (P) LTD. THAT THE ASSESSEE HAS CLAIMED THE SAME ON THE BASIS OF SELF MADE VOUCHERS. THE LEARNED COMMISSIONER (APPEALS) DELETE D THE ADDITION BY HOLDING AS UNDER: 11.1 ON CAREFUL EXAMINATION OF THE FACTS, IT IS SE EN THAT THE AUDITOR IN PARA12 ON PAGE NO.60 OF HIS AUDIT REPOR T HAD MADE AN OBSERVATION THAT CASH VOUCHER FOR THE PAYMENT O F RS. 40,000/- MADE IN THE MONTH OF APRIL DOES NOT CONTAI N THE DETAILS OF PAYMENT OF SALARY MADE PERTAINING TO WHICH MONTH AS PER SALARY SHEET PROVIDED THERE ARE 22 EMPLOYEES WITH T HE COMPANY DURING THE FINANCIAL YEAR 2003-04 AND SALARY PAID T O THEM WAS WITHOUT THE DEDUCTION OF PROFESSIONAL TAX. HOWEVER, THE CA ACCEPTED THE EXPENDITURE AS PER PAGE NO.43 OF AUDIT REPORT.' SINCE THE AUDITORS AFTER VERIFICATION HAS APPROVED THE EXPENDITURE EXCEPT THE DISCREPANCY NOTED ABOVE, THIS DOES NOT E NTAIL THE ASSESSEE DISQUALIFIED TO CLAIM THE EXPENDITURE. THE REFORE, THE ADDITION MADE BY THE AO, BEING 30% OF TOTAL SALARY TO STAFF BEING WITHOUT ANY BASIS AND IN THE ABSENCE OF ANY EVIDENC E CONTRARY ON RECORD, IS DIRECTED TO BE DELETED. HENCE, THIS GROU ND IS ALLOWED. 20. AFTER HEARING BOTH THE PARTIES, WE FIND THAT THE AS SESSEES ACCOUNTS HAVE ALREADY BEEN AUDITED BY SPECIAL AUDIT ORS. THE LEARNED COMMISSIONER (APPEALS), IN HIS ORDER, HAS DULY REFE RRED TO THE SAME. IN OUR CONSIDERED OPINION, THE LEARNED COMMISSIONER (APPEALS) HAS PASSED AS WELL REASONED ORDER WHICH DOES NOT REQUIR E ANY INTERFERENCE. CONSEQUENTLY, UPHOLDING THE ORDER OF THE LEARNED COMMISSIONER (APPEALS), GROUND NO.5 RAISED BY THE R EVENUE IS DISMISSED. 21. APROPOS GROUND NO.6. ON THIS ISSUE, THE ASSESSING O FFICER HAS DISALLOWED A SUM OF ` 6,89,859, UNDER VARIOUS HEADS. THE ASSESSING 13 M/S. ARMORS DEVELOPERS (P) LTD. OFFICER IDENTIFIED SOME OF THE EXPENSES IN RESPECT OF WHICH THE ASSESSEE COULD NOT PRODUCE THE BILLS. SUCH ITEMS AR E ENUMERATED AT SL.NO.1 TO 3 IN WHICH CASE THE ASSESSING OFFICER MA DE THE ADDITION FOR WANT OF PRODUCTION OF BILLS. THE EXPENDITURE APPEAR ING AT SL. NO.7 BEING ADVERTISEMENT WAS PARTLY DISALLOWED IN THE AB SENCE OF PROOF. THE EXPENDITURE AT SL. NO.10 BEING INSURANCE WAS FULLY DISALLOWED BEING PERSONAL IN NATURE PERTAINING TO DIRECTORS. THE ASS ESSING OFFICER DISALLOWED OTHER EXPENDITURE FOR WANT OF SATISFACTO RY EXPLANATION. HOWEVER, THE MAJOR EXPENDITURE RELATES TO THE COMMI SSION PAYMENT OF ` 4,04,400. THE ASSESSING OFFICER HAS DISALLOWED THE SAME ON THE GROUND THAT NONE OF THE PERSONS HAVE CONFIRMED THE COMMISSION RECEIPTS. 22. DURING THE FIRST APPELLATE AUTHORITY PROCEEDINGS, T HE LEARNED COMMISSIONER (APPEALS) DELETED THE ADDITION HOLDING AS UNDER: 12.1 ON CAREFUL EXAMINATION OF THE FACTS, IT IS SE EN THAT THE AUDITOR AFTER VERIFICATION OF THE EXPENSES UNDER VA RIOUS HEADS INCLUDING THE PAYMENT ON ACCOUNT OF COMMISSION HAS ACCEPTED THE CLAIM OF THE APPELLANT AS GENUINE. AS REGARDS TO TH E BILLS, THE CONTENTION RAISED BY THE APPELLANT THAT AFTER LAPSE OF SIX YEARS, PROPER BILLS FOR ALL EXPENDITURE MAY NOT BE POSSIBL E TO BE RETAINED IS ACCEPTABLE. SO FAR AS COMMISSION IS CONCERNED, THE APPELLANT HAS PROVIDED THE NECESSARY DETAILS TO THE AUDITORS AND THE AO, WHICH HAS BEEN ACCEPTED BY THE AUDITORS AS GENUINE. THE A O, HOWEVER HAS STATED THAT NONE OF THE PARTIES HAVE CONFIRMED THE COMMISSION PAYMENTS. THERE IS NOTHING ON RECORD TO SHOW WHETHE R ANY ENQUIRIES WERE CAUSED BY THE AO FOR VERIFICATION OF COMMISSION PAID. THE LD. AO HAS DISALLOWED THE COMMISSION WITH OUT VERIFYING THE SERVICES RENDERED. THEREFORE, SUCH DISALLOWANCE IS WITHOUT ANY BASIS AND DESERVES TO BE DELETED. AS REGARDS TO THE OTHER 14 M/S. ARMORS DEVELOPERS (P) LTD. EXPENDITURE, THE APPELLANT HAS ADDUCED THE NECESSAR Y DETAILS AND EVIDENCES BEFORE THE AUDITOR, WHICH ARE ACCEPTED AS GENUINE. THEREFORE, NO ADVERSE INFERENCE CAN BE DRAWN AS REG ARDS TO THE GENUINENESS OF SUCH PAYMENTS IN THE ABSENCE OF ANY EVIDENCE TO THE CONTRARY. THEREFORE, THE CLAIM OF THE APPELLANT IS ALLOWABLE. HENCE, THE ADDITIONS MADE BY THE AO ARE DIRECTED TO BE DELETED. HENCE, THIS GROUND IS ALLOWED. 23. UPON CAREFUL CONSIDERATION OF THE SUBMISSIONS OF THE PARTIES, WE FIND THAT THE LEARNED COMMISSIONER (APPEALS) HAS PA SSED A REASONED ORDER WHICH DOES NOT NEED ANY INTERFERENCE ON OUR P ART. CONSEQUENTLY, UPHOLDING THE ORDER PASSED BY THE LEARNED COMMISSIO NER (APPEALS), GROUND NO.6 RAISED BY THE REVENUE IS HEREBY DISMISS ED. 24. APROPOS GROUND NO.7. ON THIS ISSUE, THE ASSESSING O FFICER HAS MADE THE ADDITION FOR THE REASON THAT THE ASSESSEE COULD NOT EXPLAIN THE SOURCE OF INTRODUCTION OF SHARE CAPITAL BY EIGH T FAMILY MEMBERS INCLUDING THE ASSESSEE HIMSELF. 25. UPON ASSESSEES APPEAL, THE LEARNED COMMISSIONER (AP PEALS) HELD AS UNDER: 13.2 IT IS SEEN FROM THE ABOVE FINDING OF THE SPECIAL AU DITOR THAT THE SHARE CAPITAL SHOWN BY SHRI PETHE IN THE EARLIE R ORIGINAL AUDIT REPORT WAS NOT BASED ON THE QUALIFYING PARAMETERS O F INCREASE IN SHARE CAPITAL AS PER THE COMPANIES ACT, 1956. THE S PECIAL AUDITOR HAS CLEARLY INCORPORATED A FINDING THAT THOUGH IN T HE EXTRAORDINARY GENERAL MEETING OF THE COMPANY HELD ON 03.04.2003, A RESOLUTION WAS PASSED TO INCREASE THE CAPITAL WITH CORRESPONDI NG CHANGES MADE IN THE MEMORANDUM OF ASSOCIATION AND ARTICLES OF ASSOCIATION OF THE COMPANY. HOWEVER, THE MANDATORY REQUIREMENT OF FILING OF COPIES OF FORM NO.5 & FORM NO.23 WITH THE REGISTRAR OF COMPANIES WAS NOT COMPLIED WITH, THEREFORE, THE RESOLUTION TO INCREASE THE 9 L 15 M/S. ARMORS DEVELOPERS (P) LTD. SHARE CAPITAL IS PRIMA-FACIE IS INVALID. HAVING CON SIDERED THIS FACT, THE SPECIAL AUDITOR HAS NOTED A FINDING THAT THE AL LEGED AMOUNT OF SHARE CAPITAL HAS BEEN UTILISED FOR BUSINESS AS THE CLOSING STOCK OF THE COMPANY WAS FOUND INCREASED DUE TO LABOUR COST OF RS.9,00,000/- ON ACCOUNT OF SHARE CAPITAL UTILISATI BN MONEY AND BY RS.2,25,000/- ON ACCOUNT OF RE-PAYMENT MADE TO SHRI R.S.GUPTA. THE SPECIAL AUDITOR IN HIS REPORT HAS RECORDED A FI NDING THAT TWO ENTRIES OF RS.9,04,200/- AND RS.5,00,000/- ON ACCOU NT OF LABOUR CONTRACTOR EXPENSES HAVE BEEN PASSED AS ON 31.03.20 04 SHOWING THE PAYMENTS IN CASH TO THE LABOUR CONTRACTORS TO N ULLIFY HE IMPACT OF SHARE APPLICATION MONEY OF ` 14,00,000. THUS, AF TER HAVING CONSIDERED THE ENTRIES IN THE BOOKS OF ACCOUNT AND THE UTILISATION OF THE SHARE APPLICATION MONEY, THE SPECIAL AUDITOR HA S CONSIDERED A SUM OF RS.1,79,697/- AS PEAK CASH CREDIT, WHICH IS TREATED AS INCOME FROM UNDISCLOSED SOURCES. IN THE LIGHT OF TH ESE FACTS, THE FINDING ARRIVED AT BY THE SPECIAL AUDITOR, WHICH IS BASED ON THE MATERIAL FACTS AS EMANATED FROM THE RECORDS, IS ACC EPTABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE. THE RESULTANT SUM OF RS.1,79,697/- ON ACCOUNT OF PEAK CASH CREDIT IS UPH ELD AND BALANCE ADDITION ON ACCOUNT OF SHARE CAPITAL IS DIRECTED TO BE DELETED. HOWEVER, SINCE THIS AMOUNT OF RS.1,79,697/- HAS ALR EADY BEEN INCLUDED BY THE AO AS UNDISCLOSED INCOME IN THE TOT AL ADDITION MADE OF RS.17,37,160/- WHICH HAS BEEN CONFIRMED BY ADJUDICATING THE GROUND NO.1 OF THIS ORDER. THEREFORE, TO AVERT THE DOUBLE ADDITION, NO SEPARATE ADDITION IS BEING MADE OF RS. 1,79,697/-. 26. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ADDITION HAS BEEN MADE BY THE ASSESSING OFFICER ON THE GROUND OF LACK OF JUSTIFIC ATION OF SOURCE FOR SHARE CAPITAL / SHARE APPLICATION MONEY INTRODUCED. THIS, THE ASSESSING OFFICER HAS STATED ON THE BASIS OF EARLIER AUDIT RE PORT. THE ASSESSING OFFICER HAS NOT CONSIDERED THE SPECIAL AUDIT REPORT AT ALL. THIS APPROACH OF THE ASSESSING OFFICER IS NOT UNDERSTAND ABLE WHEN DUE TO THE PRESENCE OF CONFLICTING AUDIT REPORT, SPECIAL A UDITOR WAS APPOINTED. IT IS NOT UNDERSTOOD AS TO WHY THE ASSESSING OFFICE R WILL DISREGARD THE 16 M/S. ARMORS DEVELOPERS (P) LTD. SAME AND MAKE THE ADDITION ON THE BASIS OF EARLIER AUDIT REPORTS. THE LEARNED COMMISSIONER (APPEALS) HAS APPROPRIATELY AP PRECIATED THE SPECIAL AUDIT REPORT AND PASSED A REASONED ORDER. C ONSEQUENTLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY TH E LEARNED COMMISSIONER (APPEALS) AND UPHOLDING THE SAME, GROU ND NO.7 RAISED BY THE REVENUE IS HEREBY DISMISSED. 27. APROPOS GROUND NO.8. ON THIS ISSUE, THE ASSESSING O FFICER HAS MADE DISALLOWANCE OF ` 2,23,830 UNDER SECTION 40A(3) BY HOLDING AS UNDER: E. DISALLOWANCE U/S 40A(3): THE AUDITOR HAS IDENTI FIED FOLLOWING PAYMENTS EXCEEDING ` 20,000 WHICH ARE COVERED UNDER THE PROVISIONS U/S 40A(3). S. NO. NAME OF PARTY AMOUNT DETAILS 1. DIRECTORS REMUNERATION ` 1,19,150 PAID TO DIRECTOR, PAID TO SHRI ANAND KHOBRAGADE (NO VOUCHERS PRODUCED) 2. SHEIKH MUSTAK REHMAN ` 2,00,000 PURCHASE OF LAND 3. SHEIKH REHMAN MOHMAD ` 3,00,000 PURCHASE OF LAND 4. P.N. BONDRE ` 5,00,000 ADVANCE FOR LAND PURCHASE ` 11,19,150 (I) THE ASSESSEE HAS REPLIED THAT THE DIRECTORS REM UNERATION IS IN THE NATURE OF PAYMENT OF SALARY HENCE, SHOULD BE AL LOWED. REGARDING THE OTHER 3, PAYMENTS IT WAS CONTENDED TH AT THEY ARE FOR PURCHASE OF LAND AND THEREFORE CAPITAL IN NATURE. S O THE PAYMENT IS NOT COVERED U/S. 40A(3). THE EXPLANATION OF THE ASS ESSEE FOR RS. 1 , 19,150/- IS NOT ACCEPTED BECAUSE REMUNERATION IS AN EXPENDITURE IN THE HANDS OF THE ASSESSEE AND THEREFORE IT IS SQ UARELY COVERED BY 17 M/S. ARMORS DEVELOPERS (P) LTD. THE PROVISIONS OF SECTION 40A(3). (II) AS REGARDS THE PAYMENTS OF RS. 10,00,000/- THE ASSESSEE'S CONTENTION THAT THE PAYMENTS ARE NOT EXPENDITURE SI NCE, THEY HAVE BEEN CAPITALIZED IS NOT BORNE BY THE FACTS. THE AS SESSEE DEALS IN SALE AND PURCHASE OF LANDS AND PLOTS, THEREFORE, TH E EXPENDITURE ON PURCHASE OF LAND IS EXPENDITURE ON HIS STOCK IN TRA DE. , THEREFORE, THE PAYMENTS ARE COVERED BY PROVISIONS OF SECTION 4 0A(3). HENCE, 20% DISALLOWANCE U/S 40A(3); NOT MADE. ADDITION MAD E U/S. 40A(3) IS RS. 2,23,830/-. 28. THE LEARNED COMMISSIONER (APPEALS) DELETED THE ADDI TION BY HOLDING AS UNDER: 16.1 THE APPELLANT HAS CONTENDED THAT THE PAYMENT O F ` 8,00,000 OUT OF ` 11,19,150 WAS MADE AS AN ADVANCE FOR PURCHASE OF LAND. FURTHER THAT THE AMOUNT OF ` 1,19,150 PERTAINS TO THE PAYMENT OF SALARY TO THE DIRECTOR, WHICH IS INCLUDED IN THE TOTAL REMUNERATION PAID TO THE DIRECTOR OF ` 2,73,000. THE APPELLANT, THUS CONTENDED THAT THE PROVISIONS OF SE CTION 40A(3) ARE NOT APPLICABLE ON THESE PAYMENTS. ON CAREFUL EX AMINATION OF THE FACT, IT IS SEEN THAT THE PAYMENT ACTUALLY REPR ESENT ADVANCE FOR PURCHASE OF LAND AND SALARY TO DIRECTORS, WHICH BEING OUTSIDE THE AMBIT OF SECTION 40A(3), ADDITION IS NOT WARRAN TED. THE ADDITION, THEREFORE, IS DIRECTED TO BE DELETED. HEN CE, THIS GROUND IS ALLOWED. 29. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE LEARNED COMMI SSIONER (APPEALS)S ORDER ON THIS ISSUE IS NOT FULLY CORRECT. THE ASSES SING OFFICER HAS RIGHTLY OBSERVED THAT THE DIRECTORS REMUNERATION IS ALSO A N EXPENDITURE WHICH FALLS UNDER THE REALM OF SECTION 40A(3). SINCE SALE AND PURCHASE OF LAND IN ASSESSEES BUSINESS, THE PAYMENT MADE FOR P URCHASE OF LAND CANNOT BE SAID TO BE CAPITAL ACCOUNT. HOWEVER, SECT ION 40A(3) WOULD NOT BE ATTRACTED IN THE CASE AS THE SALE / PURCHASE OF LAND BY CASH 18 M/S. ARMORS DEVELOPERS (P) LTD. PAYMENT CAN BE CONSIDERED TO HAVE BEEN MADE DUE TO BONAFIDE REASONS DUE TO INSISTENCE OF THE LAND OWNERS. MOREO VER, THE LAND REGISTRATION IS DULY EVIDENCED BY REGISTRATION DEED SIGNED BEFORE THE REGISTRAR. HENCE, PROVISIONS OF SECTION 40A(3) ARE NOT ATTRACTED HERE. ASSESSING OFFICERS INVOCATION OF SECTION 40A(3) CA N BE RESTORED ONLY QUA PAYMENT OF DIRECTORS REMUNERATION. THE REVENUE PARTLY SUCCEEDED ON THIS ISSUE. 30. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOWED. 31. TO SUM UP, ASSESSEES APPEAL AS WELL AS REVENUES A PPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24.03.2017 SD/ - RAM LAL NEGI JUDICIAL MEMBER SD/ - SHAMIM YAHYA ACCOUNTANT MEMBER NAGPUR, DATED: 24.03.2017 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, NAGPURCITY CONCERNED; (5) THE DR, ITAT, NAGPUR; (6) GUARD FILE. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (DY./ASSTT. REGISTRAR) ITAT, NAGPUR