LOKHANDWALA SHELTERS INDIA P. LTD, BANGALORE V. DCIT, MUMBAI

ITA 3730/MUM/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0841 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 30-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SATISH CHANDRA RAJORE
• Keywords: Unexplained expenditure; Search and seizure; Loose papers; Document seized; Documents seized
• Section: 133(6); 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A , MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI N.K. PRADHAN , HON'BLE ACCOUNTANT MEMBER ITA NO. 814 /MUM/201 5 (A.Y: 2009 - 10 ) & ITA NO.4903/MUM/2016 (A.Y: 2011 - 12) D.C.I.T. CENTRAL CIRCLE 8(3) R.NO. 659, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400 020 V. M/S. LOKHANDWALA SHELTERS (I) (P.) LTD . 72, GANDHI NAGAR, D.S. MARG, WORLI, MUMBAI 400 018 PAN: AAACM 9952 E (APPELLANT) (RESPONDENT) ITA NO.4387/MUM/2015 (A.Y: 2010 - 11) & ITA NO.3730/MUM/2016 (A.Y: 2011 - 12) M/S. LOKHANDWALA SHELTERS (I) (P.) LTD . 72, GANDHI NAGAR, D.S. MARG, WORLI, MUMBAI 400 018 PAN: AAACM 9952 E V. D.C.I.T. CENTRAL CIRCLE 8(3) R.NO. 659, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400 020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MANI JAIN DEPARTMENT BY : SHRI SATISHCHANDRA RAJ ORE DATE OF HEARING : 31.10.2018 DATE OF PRONOUNCEMENT : 30 .11 .2018 2 ITA NO.814 & 4387 /MUM/201 5 ITA NO.3730 & 4903 /MUM/2016 M/S. LOKHANDWALA SHELTERS (I) (P.) LTD. O R D E R PER C. N. PRASAD (JM) 1. THESE APPEALS ARE FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2010 - 11 & 2011 - 12 AND THE REVENUE FOR THE ASSESSMENT YEARS 2009 - 10 & 2011 - 12 . 2. FIRST WE TAKE UP THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2009 - 10. 3. REVENUE HAS RAISED THE FOLLOWING GROUNDS IN ITS APPEAL: - 1. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN DELETING THE ADDITION OF RS. 35,00,000 / - AND RS. 24,22,000/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNDISCLOSED CASH EXPENSES BASED ON INCRIMINATING EVIDENCE IN THE FORM OF SEIZED DOCUMENT.' 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN DELETING THE ADDITION OF RS. 10,00, 000/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNDISCLOSED BROKERAGE EXPENSES IN CASH BASED ON INCRIMINATING EVIDENCE IN THE FORM OF SEIZED DOCUMENT.' 4. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT NOTICED THAT IN THE COURSE OF SEARCH AND SEIZURE PROCEEDINGS CARRIED OUT AT THE RESIDENTIAL PREMISES OF SHRI M .A . LOKHANDWALA , ONE O F THE DIRECTORS OF THE ASSESSEE S COMPANY , SOME INCRIMINATING DOCUMENTS AND LOOSE PAPERS WERE FOUND AND SEIZED. HE NOTICED THAT CERTAIN DETAILS OF PAYMENTS TO CRZ FOR CLEARANCE OF PROJECT HARMONY WAS MADE AND IN THE STATEMENTS RECORD ED FROM SHRI M.A. LOKHANDWALA, HE HAS STATED THAT THERE ARE SOME EXPENSES OF .35,000/ - FOR CLEARANCE OF CRZ (PART A ) AND THESE EXPENSES WERE INCURRED BY HIM 3 ITA NO.814 & 4387 /MUM/201 5 ITA NO.3730 & 4903 /MUM/2016 M/S. LOKHANDWALA SHELTERS (I) (P.) LTD. OUT OF POCKET. SIMILARLY, HE ALSO NOTICED THAT SOME OF THE DETAILS OF PAYMENTS WERE M ADE TO REGIS TRATION AUTHORITIES, TOTALING TO . 24,22, 000/ - . HOWEVER, IN THE COURSE OF SEARCH AND SEIZURE PROCEEDINGS ASSESSEE DENIED THAT HE IS NOT AWARE OF THESE TRANSACTIONS. IN THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSEE FURNISHED THAT THERE IS NO EVIDENCE OR MATERIAL FOUND WHICH CAN BE PROVED TO SAY THAT THESE AMOUN TS PARTICULARLY THE FIGURES TOWARDS PAYMENTS TO VARIOUS AUTHORITIES FOR REGISTRATION OF LAND AND IT IS ONLY A MERE ARBITRARY INFERENCE CANNOT BE DRAWN FOR MAKING THE ADDITION. NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE THE ASSESSING OFFICER MADE A DDITION AS UNEXPLAINED EXPENDITURE. ON APPEAL LD. CIT(A) DELETED THE ADDITIONS MADE BY THE ASSESSING OFFICER. 5. LD. DR STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE ADDITIONS WERE MADE BASED ON THE SEIZED MATERIALS , THE SAME S HOULD BE SUSTAINED AND THERE IS NO JUSTIFICATION IN DELETING THE ADDITIONS BY THE LD. CIT(A). 6. ON THE CONTRARY THE LD. COUNSEL FOR THE ASSESSEE STRONGLY PLACED RELIANCE ON THE ORDER OF THE LD. CIT(A) AND FURTHER SUBMITTED THAT THE LOOSE PAPERS DO NOT SUGGES T THAT THESE PAYMENTS WERE MADE TO AUTHORITIES AND THERE IS NO EVIDENCE ON RECORD TO ESTABLISH THAT THESE PAYMENTS WERE MADE TO AUTHORITIES FOR REGISTRATION OF LAND. 4 ITA NO.814 & 4387 /MUM/201 5 ITA NO.3730 & 4903 /MUM/2016 M/S. LOKHANDWALA SHELTERS (I) (P.) LTD. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THIS ASP ECT OF THE MATTER HAS BEEN ELABORATELY DEALT WITH BY THE LD. CIT(A) WITH REFERENCE TO THE SEIZED MATERIALS AND CONCLUDED THAT THERE IS NO EVIDENCE ON RECORD NOR ANY INVESTIGATION WAS CARRIED TO ESTABLISH THE CONTENTIONS OF THE ASSESSING OFFICER THAT THESE PAYMENTS WERE MADE TO AUTHORITIES FOR REGISTRATION OF THE LAND AND IT IS ONLY A PRESUMPTION DRAWN BY THE ASSESSING OFFICER THAT THESE PAYMENTS WERE MADE TO THE REGISTRATION AUTHORITIES. HE ALSO HELD THAT EVEN IF THE PRESUMPTION OF THE ASSESSING OFFICER IS CONSIDERED TO BE TRUE, THE ASSESSEE IS ENTITLED TO SET OFF THE ABOVE EXPENSES TOTALING TO . 57 ,22,000/ - AS AGAINST THE ADMISSION OF UNDISCLOSED INCOME OF .1, 43 ,00, 000/ - OBSERVING AS UNDER: - 6.1 THE CONTENTIOUS SEIZED MATERIAL REFERRED TO ABOVE VIDE PA GE NO. 22 OF ANNEXURE A1 IS PERUSED. IN THE SAID SEIZED DOCUMENT, THERE ARE TWO PARTS REFERRED TO AS PART 'A' AND PART 'B'. THE TOTAL OF THE SUMS IN PART 'A 1 IS SHOWN AS '35/=' AND THEREAFTER THERE IS A REMARK REFERRED TO AS 'AFTER 2 MONTHS'. UNDER PART 'B ', THE TOTAL FIGURE IS WRITTEN AS '26,22,000/ - '. THE ASSESSING OFFICER CONCLUDED THAT '35/=' MEANS RS.35,00,000/ - AND THE SAME AMOUNTS TO CASH EXPENSES NOT RECORDED IN THE BOOKS OF ACCOUNT AND IN RESPECT OF FIGURE APPEARING AS '26,22,000/ - ', THE AO CONCLUD ED THAT THE SAME IS RS.26,22,000 / - WHICH ACCORDING TO HIM IS THE PAYMENTS MADE TO VARIOUS AUTHORITIES FOR REGISTRATION OF LAND. THE ABOVE SEIZED DOCUMENT WAS PUT BEFORE SHRI MOHAMMED ABDUL HUSSAIN LOKHANDWALA DURING THE COURSE OF SEARCH ON 24.12.2008 AND IN RESPONSE TO Q. NO. 6 OF THAT STATEMENT, WHILE EXPLAINING PAGE NO. 22 OF ANNEXURE A - 1, HE MADE IT CLEAR THAT THE SUMS REFERRED TO IN PART 'A' OF THE SEIZED DOCUMENT IS RS.35,000/ - AND THESE WERE THE EXPENSES INCURRED BY HIM OUT OF HIS POCKET. WITH REGARD T O PART 'B' OF THE SEIZED DOCUMENT, HE HAD REPLIED THAT THE SAME WAS NOT KNOWN TO HIM. THEREFORE, IF THE AO HAD TO STATE THAT IT IS NOT RS 35,000/ - BUT IT IS RS 35,00,000/ - , CONTRARY TO THE EXPLANATION OF THE APPELLANT GIVEN DURING THE COURSE OF SEARCH, THE ONUS IS UPON THE AO TO PROVE THAT THE SUMS INVOLVED IS RS . 35,00,000/ - AND NOT RS 35,000/ - . THE AOS EXPLANATION THAT THERE ARE INSTANCES THAT THE APPELLANT USED TO WRITE IN SIMILAR MANNER AND ALSO ADMITTED UNDISCLOSED INCOME ON THE BASIS OF SUCH OTHER SEI ZED MATERIAL WILL NOT BE RELEVANT WHEN IT WAS CATEGORICALLY - EXPLAINED BY THE APPELLANT AT THE TIME OF SEARCH ITSELF, THAT THE SUMS INVOLVED IS ONLY RS 35,000/ - . THE AOS CONTENTIO N THAT THE SUM OF RS. 24,22,000/ - IS THE PAYMENT MADE TO VARIOUS AUTHORITIES F OR REGISTRATION OF LAND IS ALSO NOT BASED UPON ANY EVIDENCE AT HAND. NO ENQUIRY OR FURTHER INVESTIGATION WAS CARRIED OUT TO ESTABLISH THE CONTENTIONS OF 5 ITA NO.814 & 4387 /MUM/201 5 ITA NO.3730 & 4903 /MUM/2016 M/S. LOKHANDWALA SHELTERS (I) (P.) LTD. THE ASSESSING OFFICER. THE SEIZED DOCUMENTS ARE NOT SELF EXPLANATORY TO REACH THE CONCLUSION AS ARRIVED BY THE AO. EVEN IF THE PRESUMPTIONS OF THE ASSESSING OFFI CER IS CONSIDERED TRUE, THEN ALSO THE APPELLANT IS ENTITLED FOR SET OFF OF THE ABOVE MENTIONED EXPENSES TOTALING TO RS.57,2 2,000 (RS.33,00,000 + 24,22,000 ) AS AGAINST THE ADMISSION OF UNDISCLOSED INCOME OF RS 1,43,00,000/ - REFERRED TO IN PARA NO. 6.4 OF TH E ASSESSMENT ORDER. IN VIEW OF THE ABOVE THE ADDITION OF RS 33,00,000/ - AND 24.23.000/ - ARE HEREBY DELETED . 8. ON A CAREFUL READING OF THE LD. CIT(A) ORDER, WE DO NOT FIND ANY INFIRMITY IN THE DECISION TAKEN BY THE LD. CIT(A). NOTHING HAS BEEN PROVED CONTRAR Y TO THE FINDINGS OF THE LD. CIT(A) , HENCE THE SAME IS SUSTAINED. 9. COMING TO THE GROUND NO.2 I.E. ADDITION MADE TOWARDS UNDISCLOSED BROKERAGE EXPENSES, THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT NOTICED THAT THERE IS A NOTING ON SEIZED DOCUMENTS THAT THE CASH OF . 10 LAKHS WAS PAID TO SHRI RAVI BHUSHAN ON ACCOUNT OF COMMISSION ON SALE OF FLATS. WHEN ASSESSING OFFICER QUESTIONED WHY THIS SHOULD NOT BE ADDED THE ASSESSEE STATED THAT THE PAYMENTS WERE AGREED TO BE MADE INITIALLY BUT IN FACT WAS NOT PAID, T HEREFORE, THE QUESTION OF PROPOSED ADDITION DOES NOT ARISE. HOWEVER, THE ASSESSING OFFICER NOT CONVINCED WITH THE SUBMISSIONS AND SINCE THERE WAS A SPECIFIC MENTION IN THE LOOSE SHEETS THAT HOW MUCH WAS PAID IN CASH AND HOW MUCH WAS PAID THROUGH CH EQUES AND HOW MUCH WAS ADJUSTED, HE CONCLUDED THAT THE ASSESSEE HAD IN FACT MADE THE PAYMENTS AND ACCORDINGLY BROUGHT TO TAX AS UNEXPLAINED CASH EXPENSES. ON APPEAL LD. CIT(A) DELETED THE SAID ADDITIONS. 6 ITA NO.814 & 4387 /MUM/201 5 ITA NO.3730 & 4903 /MUM/2016 M/S. LOKHANDWALA SHELTERS (I) (P.) LTD. 10. LD. DR STRONGLY SUPPORTED THE ORDER OF THE ASSESSIN G OFFICER AND THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE LD.CIT(A). 11. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. BEFORE THE LD. CIT(A) ASSESSEE CONTENDED THAT .10 LAKHS WAS IN FACT RECEIVED BY THE ASSESSEE FROM SHRI RAVI BHUSHAN AS AGAINST PROPERTY SOLD TO HIM. LD. CIT(A) ALSO CORROBORATED THIS FACT WITH THE FINDINGS OF THE LD. CIT(A) IN THE CASE OF M/S. LOKHANDWALA INFRASTRUCTURE (P.) LTD. FOR THE ASSESSMENT YEAR 2009 - 10 WHEREIN THE LD.CIT(A) IN THE CASE OF M/S. LOKHANDWALA INFRASTRUCTURE (P.) LTD. ALSO GIVEN A FINDING THAT THE ASSESSEE GROUP SOLD FLAT TO SHRI RAVI BHUSHAN AND .88 LAKHS WAS RECEIVED TOWARDS AMENITIES AND .10 LAKHS FOR OTHER AMENITIES AND .2 5 LAKHS IN CHEQUE. THEREFORE, IN VIEW OF THE FINDING OF THE LD. CIT(A) IN THE CASE OF M/S. LOKHANDWALA INFRASTRUCTURE (P.) LTD., THE LD. CIT(A) IN THE PRESENT ASSESSEES CASE CONCLUDED THAT THE EXPLANATION OF THE ASSESSEE SHOWS THAT .10 LAKHS WAS RECEIVE D BY THE ASSESSEE FROM SHRI RAVI BHUSHAN AND SINCE THE ENTIRE SUM WAS OFFERED TO TAX FOR THE ASSESSMENT YEAR 2009 - 10 AS PER THE ASSESSMENT ORDER AT PARA . 6.2, 6.3 AND 6.4, THE LD. CIT(A) CONCLUDED THAT THE ADDITION SHOULD NOT BE MADE. WHILE HOLDING SO IT HAS BEEN OBSERVED BY THE LD. CIT(A) AS UNDER: - 7 ITA NO.814 & 4387 /MUM/201 5 ITA NO.3730 & 4903 /MUM/2016 M/S. LOKHANDWALA SHELTERS (I) (P.) LTD. 8.1 THE ASSESSING OFFICER'S CONTENTION IS THAT A SUM OF RS.10,00,000/ - WAS PAID BY CASH BY THE APPELLANT COMPANY TO SHRI RAVI BHUSHAN, COMMISSION AGENT, FROM THE UNDISCLOSED SOURCES AND THEREFORE THE SAME W AS BROUGHT TO TAX. HOWEVER, THE APPELLANT DISPUTES THE SAME BY STATING THAT RS. 10,00,000/ - IS THE CASH PORTION RECEIVED BY THE APPELLANT COMPANY FROM SHRI RAVI BHUSHAN AS AGAINST THE PROPERTY SOLD TO HIM. THIS ISSUE WAS ALSO DISCUSSED VIDE PARA NO. 10.13 OF THE CIT(A) ORDER VIDE APPEAL NO.CIT(A) - 38/IT - 338/2010 - 11 DATED 28.08.2014 IN THE CASE OF M/S LOKHANDWALA INFRASTRUCTURE PVT. LTD FOR THE A.Y. 2009 - 10, WHICH IS REPRODUCED AS UNDER: 'THE APPELLANT GROUP SOLD A FLAT FOR A SUM OF SOLD A FLAT FOR A SUM OF R S. 175 LAKHS TO SHRI RAVI BHUSHAN WHICH INCLUDES CHEQUE PORTION OF RS 87 LAKHS BEING THE AGREEMENT VALUE AND CASH PORTION OF RS 88 LAKHS AGAINST OTHER AMENITIES. RS 10 LAKHS OF CASH WAS RECEIVED AGAINST OTHER AMENITIES AND RS 25 LAKHS WAS RECEIVED IN CHEQU E AGAINST THE AGREEMENT VALUE. THEREFORE, THE BALANCE RECEIVABLE PRIOR TO ADJUSTMENT OF COMMISSION IS RS. 140 LAKHS WHICH INCLUDES RS 62 LAKHS BY CHEQUE TOWARDS AGREEMENT VALUE AND RS 78 LAKHS BY CASH TOWARDS OTHER AMENITIES'. 8.2 THE ABOVE EXPLANATION SHO WS THAT A SUM OF RS 10 LAKHS CASH WAS RECEIVED BY THE APPELLANT COMPANY FROM SHRI RAVI BHUSHAN. THE ENTIRE SUM OF RS 88 LAKHS BEING THE CASH PORTION FOR THE AMENITIES INCLUDING THE SUM OF RS 10 LAKHS IN CONTENTION WAS OFFERED TO TAX BY THE APPELLANT COMPAN Y FOR THE A.Y.2009 - 10 VIDE PARA NO. 6.2, 6.3 AND 6.4 OF THE ASSESSMENT ORDER. 8.3 BESIDES THE ABOVE EXPLANATION EVEN IF IT IS PRESUMED THAT THE SUM OF RS 10 LACS IS THE UNDISCLOSED PAYMENT BY THE APPELLANT COMPANY TO SHRI RAVI BHUSHAN, THE SAME IS REQUIRED TO BE SET OFF AGAINST THE UNDISCLOSED INCOME OF RS 1,43,00,000/ - OFFERED BY THE APPELLANT VIDE PARA NO. 6.4 OF THE ASSESSMENT ORDER. THE APPELLANT ALSO OFFERED RS 7,00,000/ - TO COVER UP VARIOUS DISCREPANCIES AND TOTALLY OFFERED A SUM OF RS 1,50,00,000/ - AS REFERRED IN PARA NO. 1 OF THE ASSESSMENT ORDER. IN VIEW OF THE ABOVE, THE ADDITION OF RS 10 LACS IS NOT SUSTAINED. 12. ON A CAREFUL CONSIDERATION OF THE FINDINGS OF THE LD. CIT(A), WE ARE NOT INCLINED TO DISTURB THE FINDINGS OF THE LD. CIT(A) AS NONE OF THES E FINDINGS HAVE BEEN REBUTTED BY THE REVENUE WITH EVIDENCES. THUS GROUND RAISED BY THE REVENUE IS DISMISSED. 13. NEXT WE TAKE UP THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2010 - 11. 14. THE FIRST GROUND OF APPEAL IS IN SUSTAINING THE ADDITION MADE ON ACCOU NT OF SUNDRY EXPENSES. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT NOTICED THAT ASSESSEE INCURRED CERTAIN EXPENSES IN CASH AND 8 ITA NO.814 & 4387 /MUM/201 5 ITA NO.3730 & 4903 /MUM/2016 M/S. LOKHANDWALA SHELTERS (I) (P.) LTD. DID NOT PRODUCE ANY SUPPORTING BILLS AND VOUCHERS. IT IS THE FINDING OF THE ASSESSING OFFICER THAT THESE EXPENSES ARE IN ROUND FIGURES AND ALMOST ALL THE EXPENSES WERE INCURRED TOWARDS GOVERNMENT BODIES FOR PROVIDING SERVICES, THEREFORE HE DISALLOWED THE EXPENDITURE. LD. CIT(A) SUSTAINED THE SAME. 15. BEFORE US LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ENTIRE EXPENSES CAN NOT BE DISALLOWED AND ADHOC DISALLOWANCE MAY BE MADE. 16. LD. DR STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 17. ON A PERUSAL OF THE ASSESSMENT ORDER, WE FIND THAT THE ASSESSING OFFICER OBSERVED THAT ALMOST ALL THE EXPENSES WERE INCURRED TOWARDS GOVERN MENT BODIES. HOWEVER, THE ASSESSING OFFICER HAS NOT GIVEN A FINDING THAT THE ENTIRE EXPENSES INCURRED WERE ONLY TOWARDS GOVERNMENT BODIES. THEREFORE, IN THE ABSENCE OF SPECIFIC FINDING THAT ENTIRE EXPENSES WERE INCURRED ONLY FOR THE GOVERNMENT BODIES ENTIRE EXPENDITURE CANNOT BE DISALLOWED. THEREFORE, KEEPING IN VIEW THE TOTALITY OF THE FACTS AND CIRCUMSTANCES, WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO 75% OF THE EXPENSES AND ALLOW ONLY 25% OF THE SAID EXPENSES AS DEDUCTION . 9 ITA NO.814 & 4387 /MUM/201 5 ITA NO.3730 & 4903 /MUM/2016 M/S. LOKHANDWALA SHELTERS (I) (P.) LTD. 18. THE SECOND ISSUE IN THE APPEAL OF THE ASSESSEE IS WITH REGARD TO THE DISALLOWANCE OF .6,56,625/ - TO M/S. WESTERN OUTDOOR STRUCTURES (P.) LTD. THE ASSESSEE IN THE COURSE OF ASSESSMENT PROCEEDINGS SUBMITTED THAT ASSESSING OFFICER ISSUED NOTICES U/S. 133(6) OF THE ACT TO THE M/S. WESTERN OUTDOOR STRUCTURES (P.) LTD TO ENQUIRE ABOUT THE TRANSACTIONS. IT APPEARS THAT THE SAID PARTY HAS STATED THAT IT HAS RECEIVED ONLY AN ADVANCE OF .6,56,625/ - . IT IS ALSO STATED THAT THE WORK ENTRUSTED WAS TAKEN UP DURING THE Y EAR 2010 AND COMPLETED DURING JULY 2010 AND BILL WAS FOR .14,72,416/ - . IN VIEW OF THIS THE ASSESSING OFFICER WAS OF THE VIEW THAT ASSESSEE HAS MADE ONLY ADVANCE PAYMENTS DURING THIS ASSESSMENT YEAR AND THEREFORE NOT ALLOWABLE AS EXPENSES. ACCORDINGLY, H E DISALLOWED THE SAID EXPENSES WHICH WAS SUSTAINED BY THE LD. CIT(A). 19. BEFORE US LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IF THIS EXPENDITURE IS NOT ALLOWABLE THIS YEAR THE SAME MAY BE ALLOWED IN THE NEX T YEAR. 20. LD. DR SUPPORTED THE ORDERS OF THE AUTHORIT IES BELOW. 21. ON A CARFUL PERUSAL OF THE ORDERS AND THE SUBMISSIONS OF THE LD.COUNSEL FOR THE ASSESSEE , WE ARE OF THE VIEW THAT THIS EXPENDITURE SHOULD BE TAKEN IN THE FINANCIAL YEAR 2010 - 11 RELEVANT TO THE ASSESSMENT YEAR 2011 - 12 AS THE WORK WAS COMMENCED, COMPLETED AND FINAL BILL WAS 10 ITA NO.814 & 4387 /MUM/201 5 ITA NO.3730 & 4903 /MUM/2016 M/S. LOKHANDWALA SHELTERS (I) (P.) LTD. MADE DURING THE A.Y.2011 - 12 . THUS, THE ASSESSING OFFICER SHALL CONSIDER THESE EXPENSES FOR ALLOWING IN THE ASSESSMENT YEAR 2011 - 12. 22. NOW WE TAKE UP THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2011 - 12. 23. THE FIRST GROUND OF APPEAL IS IN RESPECT OF DISALLOWANCE OF SUNDRY EXPENSES. THIS GROUND IS SIMILAR TO GROUND NO.1 RAISED IN ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2010 - 11 IN ITA.NO. 4387/ MUM / 20 15 THE DECISION TAKEN THEREIN APPLIES MUTATIS - MUTANDIS FOR THIS ASSESSMENT YEA R ALSO. ACCORDINGLY, THIS GROUND IS PARTLY ALLOWED. 24. COMING TO GROUND NO.2 WHICH IS IN RESPECT OF UNPROVED PURCHASES, THE ASSESSING OFFICER MADE 100% DISALLOWANCE AS THE SUPPLIER DID NOT RESPOND TO THE NOTICE ISSUED U/S.133(6) OF THE ACT. THE ASSESSEE IN THE COURSE OF ASSESSMENT PROCEEDINGS SUBMITTED THAT VIDE LETTER DATED 28.02.2014 REQUIRED RELEVANT DOCUMENTS SUCH AS DELIVERY CHALLANS, INVOICES, PAYMENT DETAILS ETC. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TRANSACTION IS GENUINE AND SIMPLY BE CAUSE ASSESSEE C OULD NOT PRODUCE THE PARTIES/SUPPLIERS THE PURCHASES MADE BY THE AS SESSEE CANNOT BE TREATED AS NON GENUINE. NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE THE ASSESSING OFFICER DISALLOWED THE ENTIRE PURCHASES OF .2,00,651 / - , WHICH WAS SUSTAINED BY THE LD. CIT(A). 11 ITA NO.814 & 4387 /MUM/201 5 ITA NO.3730 & 4903 /MUM/2016 M/S. LOKHANDWALA SHELTERS (I) (P.) LTD. LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT AS THE SALES WERE NOT DOUBTED AND ARE ACCEPTED BY THE ASSESSING OFFICER ENTIRE PURCHASES CANNOT BE DISALLOWED. 25. ON HEARING BOTH THE SIDES AND PERUSING THE ORDERS OF THE ASSESSING OFFICER AND LD. CIT(A) AND VARIOUS CASE LAWS , WE OBSERVE THAT THE SALES WERE ACCEPTED AND THE ASSESSEE PRODUCED COPIES OF INVOICES, BANK STATEMENTS, COPIES OF DELIVERY CHALLANS ETC., ENTIRE PURCHASES CANNOT BE TREATED AS BOGUS. KEEPING IN VIEW THE NATURE OF BUSINESS CONDUCTED BY THE ASSESSEE WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO 8% OF THE EXPENSES. THIS GROUND IS PARTLY ALLOWED. 26. COMING TO GROUND NO.3 WHICH IS THE ADDITION MADE ON ACCOUNT OF PAYMENT TO M/S. WESTERN OUTDOOR STRUCTU RES (P.) LTD . WE OBSERVED WHILE DISPOSING OFF THE APPEAL IN ITA.NO. 4387/ MUM/20 15 THAT THE EXPENSES WHICH WAS PAID TOWARDS ADVANCE HAS TO BE ALLOWED AS DEDUCTION IN THE F.Y. 2010 - 11 RELEVANT TO A.Y.2011 - 12 AS THE PARTY HAS CONFIRMED THAT THEY HAVE RENDERE D SERVICES AND THEY HAVE ACCOUNTED FOR THE SALES IN THE F.Y. 2010 - 11 RELEVANT TO THE A.Y. 2011 - 12. THUS, WE DIRECT THE ASSESSING OFFICER TO ALLOW THIS EXPENSES IN THIS ASSESSMENT YEAR. THIS GROUND IS ALLOWED. 27. COMING TO THE REVENUE S APPEAL FOR THE ASSES SMENT YEAR 2011 - 12. 12 ITA NO.814 & 4387 /MUM/201 5 ITA NO.3730 & 4903 /MUM/2016 M/S. LOKHANDWALA SHELTERS (I) (P.) LTD. 28. THE ONLY ISSUE IN THE APPEAL OF THE REVENUE IS IN RESPECT OF THE DISALLOWANCE OF EXPENSES BEING REGULARIZATION FEE PAID SLUM REHABILITATION AUTHORIT Y. 29. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IDENTICAL ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2010 - 11 , WHEREIN THE COORDINATE BENCH HELD THAT REGULARIZATION FEE PAID TO SLUM REHABILITATION AUTHORITY IS NOT PENAL IN NATURE AND IS ALLOWABLE AS DEDUCTION . COPY OF THE ORDER IS PLACED ON RECORD. 30. LD. DR RELIED ON THE ORDERS OF THE ASSESSING OFFICER. 31. ON A PERUSAL OF THE ORDER OF THE TRIBUNAL, WE FIND THAT THE ISSUE AS TO WHETHER REGULATION FEE PAID TO SLUM REHABILITATION AUTHORIT Y IS IN THE NATURE OF PENALTY FOR VIOLATION OR PROHIBITION OF ANY LAW UNDER E XPLANATION TO 37(1) OF THE ACT HAS BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2011 - 12 AND IT HAS BEEN HELD THAT SUCH PAYMENT IS NOT IN THE NATURE OF PENALTY. WHILE HOLDING SO, IT HAS BEEN OBSERVED BY THE TRIBUNAL AS UND ER: - 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE AO DISALLOWED PENALTY PAID TO SRA, MUMBAI U/S 37(1) ON THE GROUND THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS IN THE NATURE OF PENALTY FOR VIOLATION OR PROHIBITION OF ANY LAW, THEREFORE, CANNOT BE ALLOWED AS DEDUCTION U/S 37(1) OF THE ACT. ACCORDING TO THE AO, THE EXPLANATIONS OFFERED BY THE ASSESSEE ITSELF WAS AN ADMISSION THAT THE ASSESSEE COMPANY HAS VIOLATED SRA REGULATIONS. THE FACT THAT THE PAYMENT IS MADE FOR REGULARIZATION OF SITE IS WITHIN THE APPROVED PLAN AND HENCE NOT FOR ANY OFFENCE OR ACTIVITY WHICH IS PROHIBITED BY LAW DO NOT FIND SUPPORT FROM SRA ITSELF, AS THE SRA HAS LEVIED PENALTY FOR VIOLATION OF ITS RULES AND REGULATIONS. THE MAIN PURP OSE OF LEVY OF PENALTY IS TO DISCOURAGE THE DEVELOPER 13 ITA NO.814 & 4387 /MUM/201 5 ITA NO.3730 & 4903 /MUM/2016 M/S. LOKHANDWALA SHELTERS (I) (P.) LTD. FROM CARRYING OUT WORK WITHOUT / BEYOND APPROVAL. THE FACT THAT THE IRREGULARITY COMMITTED WAS WITHIN THE APPROVED PLAN IS NOWHERE REDUCES THE OFFENCE OF THE ASSESSEE. THE PROVISIONS OF SECTION 37 OF TH E ACT IS CLEAR AND UNAMBIGUOUS AS PER WHICH THE ASSESSEE HAS INCURRED ANY EXPENDITURE WHICH IS IN THE NATURE OF AN OFFENCE OR WHICH IS PROHIBITED BY THE LAW IS NOT ALLOWABLE AS DEDUCTION. IT IS THE CONTENTION OF THE ASSESSEE THAT PENALTY PAID TO SRA, MUMBA I IS FOR REGULARIZATION OF CERTAIN CONSTRUCTIONS WHICH WAS COMMENCED BEFORE ISSUE OF COMMENCEMENT CERTIFICATE, BUT NOT FOR VIOLATION OR INFRINGEMENT OF ANY LAW. THE ASSESSEE FURTHER CONTENDED THAT IT HAS PAID AMOUNT TO SRA FOR OBTAINING COMMENCEMENT CERTIF ICATE BEYOND CERTAIN SPECIFIED PERIOD WHICH WAS DELAYED DUE TO AMBIGUITY IN DEMARCATION OF THE COASTAL REGULATION ZONE. THE ASSESSEE FURTHER CONTENDED THAT THE NATIONAL INSTITUTE OF OCEANOGRAPHY WAS APPROACHED BY THE MAHARASHTRA COASTAL ZONE MANAGEMENT AUT HORITY FOR PROPER DEMARCATION OF THE COASTAL REGULATION BOUNDARIES AND AFTER DULY SURVEYED AND DEMARCATION WAS MADE, FURTHER COMMENCEMENT CERTIFICATE FOR THE PROJECT WAS OBTAINED BELATEDLY DUE THE REASONS BEYOND ITS CONTROL. THE FACT REMAINS THAT SRA HAS I SSUED COMMENCEMENT CERTIFICATE BY COLLECTING APPLICABLE FEES. THIS ITSELF SHOWS THAT THE SAID VIOLATION IS NOT AN OFFENCE UNDER THE ACT. 6. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATERIAL ON RECORD, WE FIND FORCE IN THE ARGUMENT OF THE ASSESSEE FOR THE REASON THAT THERE IS A DIFFERENCE BETWEEN PENALTY FOR INFRINGEMENT OR VIOLATION OF ANY LAW AND PENALTY FOR REGULARIZATION WITHIN THE PERMISSIBLE LIMITS OF BYE - LAWS OF CONCERNED AUTHORITY. IF THE PENALTY IS PAID FOR REGULARIZATION OF CERTAIN CONSTRUCTIONS WITHIN THE PERMISSIBLE BYE - LAWS OF CONCERNED AUTHORITY, THEN IT CANNOT BE CONSIDERED THAT INFRINGEMENT OR VIOLATION OF ANY LAW. IN THIS CASE, ON PERUSAL OF THE NOTICE AVAILABLE ON RECORD, WE FIND THAT THE ASSESSEE HAS PAID PENALTY TO SRA, MUMBAI FOR REGULA RIZATION OF CERTAIN CONSTRUCTION WORK WHICH HAD BEEN COMMENCED BEFORE OBTAINING COMMENCEMENT CERTIFICATE FROM THE SRA WHICH IS DUE TO REASONS BEYOND ITS CONTROL AS THERE WAS AN AMBIGUITY IN DEMARCATION OF THE COASTAL REGULATION ZONE WHICH BEEN LATER CLARIF IED BY THE MAHARASHTRA COASTAL ZONE MANAGEMENT AUTHORITY FROM THE NATIONAL INSTITUTE OF OCEANOGRAPHY AND AFTER DULY SURVEYED AND DEMARCATION WAS MADE GRANTED COMMENCEMENT CERTIFICATE FOR WHICH ASSESSEE HAS PAID NECESSARY FEES. THEREFORE, WE ARE OF THE VIEW THAT THE AO HAS ERRED IN TREATING AMOUNT PAID TO SRA, MUMBAI AS PENALTY PAID FOR THE PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW WHICH SHALL NOT BE ALLOWED AS DEDUCTION U/S 37(1) OF THE ACT. THE CIT(A), AFTER CONSIDERING RELEVANT FACTS AND A LSO DISTINGUISHING THE CASE LAWS RELIED UPON BY THE LD.AO IN THE CASE OF MAMTA ENTERPRISES VS CIT (2004) 135 TAXMAN 353 RIGHTLY DELETED ADDITION MADE BY THE AO. WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE ORDER OF THE CIT(A). HENCE, WE ARE INCLINED TO UPH OLD THE FINDINGS OF THE CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. 32. FACTS AND CIRCUMSTANCES BEING IDENTICAL, RESPECTFULLY FOLLOWING THE SAID DECISION, WE UPHOLD THE ORDER OF THE LD. CIT(A) IN DELETING THE DISALLOW ANCE. THIS GROUND IS REJECTED. 33. IN THE RESULT, APPEAL S OF THE REVENUE ARE DISMISSED AND APPEAL OF THE ASSESSEE ARE PARTLY ALLOWED AS INDICATED ABOVE . 14 ITA NO.814 & 4387 /MUM/201 5 ITA NO.3730 & 4903 /MUM/2016 M/S. LOKHANDWALA SHELTERS (I) (P.) LTD. ORDER PRONOUNCED IN THE OPEN COURT ON THE 30 TH NOVEMBER , 2018 SD/ - SD/ - ( N.K. PRADHAN ) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI / DATED 30 / 11 / 2018 GIRIDHAR , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM