Income Tax Officer, Ward - 2(3)(4), Surat V. Shantai Developers, Surat

ITA 376/SRT/2023

• Counselvise Citation: [2024] 130 COUNSELVISE.COM (IT) 1335 (ITAT-SURAT)
• Duration Of Justice: 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 04-03-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 25-05-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Set aside; Additional evidence; TDS; Bogus
• Section: 147; 148; 144; 143(3); 142(1); 143(2); 68; 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No. 376/Srt/2023 (Assessment Year 2017-18) (Physical hearing) I.T.O., Ward 2(3)(4), Surat. Vs. Shantai Developers, F.P. No. 35, B/h South Gujarat University, Vill.- Vesu, Surat-395007. PAN No. ABIFS 0704 J Appellant/ Revenue Respondent/Assessee Department represented by Shri Ravi Kant Gupta, CIT-DR Assessee represented by Shri Rasesh Shah, CA Date of Institution of Appeal 26/05/2023 Date of hearing 05/03/2024 Date of pronouncement 19/03/2024 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the Revenue is directed against the order of National Faceless Appeal Centre, Delhi (NFAC/learned Commissioner of Income Tax (Appeals) [in short, the ld. CIT(A)] dated 29/03/2023 for the A.Y. 2017-18. The revenue has raised following grounds of appeal: “1. On facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs. 49.02 crore made by the AO u/s 68 of the IT Act, without appreciating the fact that during the course of assessment proceedings the assessee was provided adequate opportunities and admission of additional evidences resulted in violation of Rule 46A of I.T. Rules. 2. On facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 60,835/- for interest on late payment of TDS made by the assessee without appreciating the fact that this expense is not allowable in absence of any details. ITA No. 376/Srt/2023 ITO Vs Shantai Developers 2 3. On facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 1,37,04,845/- on account of disallowance of 20% of direct and indirect expenses made by the AO without appreciating the fact that the assessee failed to furnish supporting document in respect of these expenses. 4. On facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 7,30,772/- on disallowance of statutory liability u/s 43B of the I.T. Act made by the AO without appreciating the fact that the assesse had failed to furnish the complete details of said statutory liabilities alongwith proof of their payment within due date. 5. On the basis of the facts and circumstances of the case and in law, the ld. CIT(A) ought to have upheld the order of the Assessing Officer. 6. It is therefore, prayed that the order of ld. CIT(A) may kindly be set aside that of the Assessing Officer be restored. 7. The appellant craves to add, alter, amend and/or withdraw any ground of appeal either before or during the course of hearing of the appeal.” 2. Brief facts of the case are that the assessee is partnership firm and engaged in the business of a builder and developer, filed its return of income for A.Y. 2017-18 on 18/10/2017 declaring NIL income. The case of assessee was selected for scrutiny. During the assessment, the Assessing Officer noted that the assessee has shown high closing stock, large investment in property, higher turnover reported in service tax return as compared to Income tax return and squared up of huge amount of loans and huge increase in capital in the year. On the basis of such observation, the Assessing Officer issued show cause notice dated 06/12/2019. In the show cause notice, the Assessing Officer noted that there is a capital introduction of Rs. 49.02 crores during the year. The assessee has not made any explanation regarding genuineness of ITA No. 376/Srt/2023 ITO Vs Shantai Developers 3 transaction and other complete details to substantiate source, creditworthiness and capacity of capital introduced by the partner. The Assessing Officer on taking view that the despite repeated notices, the assessee has not made any compliance, therefore, addition under Section 68 of the Income tax Act, 1961 (in short, the Act) of Rs. 49.02 crores was made. The Assessing Officer further noted that the assessee has debited interest on payment of TDS of Rs. 60,835/- in its Profit & Loss Account (P&L Account) which is not an allowable expenses. The assessee was issued show cause notice but despite allowing opportunity, the assessee not complied till passing of the assessment order, thus the Assessing officer made addition of Rs. 60,835/-. The Assessing Officer further noted that during the year, the assessee has debited certain direct and indirect expenses of Rs. 73,63,172/- and Rs. 6,11,61,054/-, other than the interest on TDS. The assessee was issued show cause notice as to why 20% of direct and indirect expenses should not be disallowed by treating as bogus and non-genuine. Again the Assessing Officer by recording that despite issuing show cause notice, the assessee has not complied. Accordingly, the Assessing Officer disallowed 20% thereof and worked out the disallowance of Rs. 1.37 crore. The Assessing Officer further noted that the assessee has debited statutory liability of Rs. 7,30,772/- on account of TDS in P&L Account. The assessee failed to furnish complete details of such statutory liability ITA No. 376/Srt/2023 ITO Vs Shantai Developers 4 with proof of their payment within due date despite giving show cause notice. The Assessing Officer accordingly made addition thereof. 3. Aggrieved by the additions in the assessment order, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee filed detailed statement of facts as well as submission. The assessee in its statement of fact, submitted that the assessee is a partnership firm, engaged in real estate business. Notice under Section 143(2) of the Act was served on assessee on 13/08/2018 and the same was duly replied on 28/08/2018 by seeking adjournment. Thereafter, the assessee has not received any notice either through e-mail or through post or through personal services. The assessment order was passed under Section 144 of the Act. In the assessment order, the Assessing Officer wrongly stated that various notices were issued and served upon the assessee and that the assessee has not complied with. In fact, no such notice under Section 142(1) of the Act of any penalty or show cause notice during the assessment was received. The Assessing Officer has not checked whether the notices sent through e-mail was returned back or not. No notice by post or though notice server was served. The assessee on verification of ITDA Portal/Income Tax site, while making online submission noted that notice under Section 143(2) of the Act was issued on two e-mails i.e. (i) [e-mail] and (ii) [e-mail]. The assessee retreated that in fact notices ITA No. 376/Srt/2023 ITO Vs Shantai Developers 5 were not served upon the assessee. Against the addition of capital contribution by partner of Rs. 49.02 crore, the assessee submitted that such capital was introduced by its partner and the Assessing Officer failed to appreciate that as per law, the verification of source of capital introduced by a partner in a partnership firm, has to be made in the hands of partner and cannot be made in the hands of firm. The case of assessee was selected for scrutiny on five issues as recorded in para 3 of assessment order i.e. real estate business with high closing stock, large scale investment in property, higher turnover reported in service tax return as compared to Income tax return, large squared up loans and increase in capital. On the issues of selection of scrutiny, it is evident that the case was of assessee was not selected for various expenses incurred nor for verification of any other statutory liability despite the fact that the Assessing Officer made disallowance of 20% of direct and indirect expenses and addition of outstanding statutory liabilities which needs to be annulled out rightly. The Assessing Officer failed to appreciate that the books of assessee are duly audited by the independent statutory auditor and expenses incurred by assessee firm were fully verified and accepted in the audit without any clarification in the audit report and there was not question of making any ad hoc disallowance in ex parte proceedings. ITA No. 376/Srt/2023 ITO Vs Shantai Developers 6 Against the addition of Rs. 49.02 crores in respect of capital introduced by the partner, the assessee stated that the Assessing Officer made addition without appreciating the fact that as per law, verification of source of capital introduced by a partner in a partnership firm has to be made in the hands of partner and cannot be made in the hands of firm. The assessee received capital contribution from Shantai Realty (India) Limited, who is one of the partner of firm, which is distinct and separate legal entity assessed to tax having PAN: AAKCS8046B. The assessee furnished details, address, confirmation of partner, copy of audited accounts in the relevant extract of bank statement showing the capital introduced by the said partner. On the basis of such evidences, the assessee submitted that they have discharged their onus by furnishing complete details. The assessment or said partner was completed two years before under Section 143(3) of the Act. Further the case of partner (partnership firm) Shantai Realty (India) Limited was reopened by issuing notice under Section 148 of the Act and the source of capital introduced was once again furnished in the said proceedings initiated in pursuance of notice under Section 148 of the Act. The assessee also relied on the decision of Hon’ble Jurisdictional High Court in PCIT Vs Vaishnodevi Refoils & Solvex reported in (2018) 89 taxmann.com 80 (Guj), Punjab & Haryana High Court in CIT Vs Rameshwar Dass Suresh Pal Cheeka (2007) 163 Taxman 0270 (P&H), ITA No. 376/Srt/2023 ITO Vs Shantai Developers 7 Allahabad High Court in CIT Vs Jaiswal Motor Finance (1993) 141 ITR 0706 (All) and Ahmedabad Bench of Tribunal in M/s Jaylaxmi Land Developers Vs ITO in ITA No. 2226/Ahd/2016. On the addition of disallowance of 20% direct and indirect expenses, the assessee submitted that all expenses were incurred by account payee cheque or RTGS or through banking channel and no cash payment was made with regard to such expenses. TDS was made as and when applicable. Main expenses aggregating to Rs. 6.08 crores were incurred mainly on interest of unsecured loan and payment to partner on their capital. Administrative expenses aggregating Rs. 3,22,591/- was incurred for payment of SMC charges and other expenses on account of computer expenses, stationary and printing. Direct expenses aggregating to Rs. 73,63,172/- were incurred for purchase of construction material, labour charges, carting expenses etc. All expenses either direct or indirect were incurred exclusively for the purpose of business. The assessee also furnished comparative details of expenses in earlier two financial years. The assessee stated that the Assessing Officer failed to appreciate that there is no substantial increase in expenses for current year compared to two preceeding years. The Assessing Officer made addition on ad hoc basis without any basis and should be deleted. ITA No. 376/Srt/2023 ITO Vs Shantai Developers 8 Against the disallowance of outstanding TDS liability, the assessee submitted that outstanding TDS liability of Rs. 7,30,772/- at the year end is towards the deduction of TDS made by assessee firm in respect of interest expenses on unsecured loan, the said amount itself is not an expenses claimed by assessee. Even the said amount of TDS liability also has been fully paid within stipulated period, copy of Challan was furnished. On the addition of Rs. 60,836/- as interest on delayed payment of TDS, the assessee submitted that such expenditure is allowable expenditure as per the decision of Kolkata and Mumbai Tribunals in Ms Welkin Telecon Infra Pvt. Ltd. (2022) 142 taxmann.com 146 (Kolkata Trib) and Techno Electronics Ltd. in ITA No. 2338/Mum/2016. The submissions of assessee on various additions/ disallowance was sent to assessing officer for his comment. The assessing officer furnished his remand report to the ld CIT(A). 4. The ld. CIT(A) on considering the assessment order, submissions of assessee, remand report of assessing officer and relevant case laws filed by assessee passed his order. On addition of Rs. 49.02 crores of capital contribution by partner, the ld CIT(A) held that the assessee has explained source of Rs. 49.02 crores as capital introduced by Shantai Realty (India) Limited, who is one of the partner in the firm holding 82% stake. All the details were available in the documents filed with the ITA No. 376/Srt/2023 ITO Vs Shantai Developers 9 return of income. The assessee filed return of income of said partner alongwith confirmation of Director. Further the notice issued to said partner under Section 148A(b) of the Act for A.Y. 2017-18 to verify substantial credit in their bank account and thereafter vide order under Section 148A(d), the reopening proceedings were dropped after considering the explanation of source of credits. The ld. CIT(A) on considering such fact held that the partner of assessee introduced capital of Rs. 49.02 crores and closing balance as on 31/03/2017 is Rs. 41.92 crores which is confirmed by the Director of Shantai Realty (India) Limited. Such transaction is reflected in the return of income filed by the said partner. Thus, the capital introduction is fully explained and addition thereof was deleted by the ld. CIT(A). On the addition of delayed interest on TDS of Rs. 60,836/-, the ld. CIT(A) held that the Kolkata Tribunal and Mumbai Tribunal in case of Ms Welkin Telecon Infra Pvt. Ltd. (supra) and Techno Electronics Ltd. (supra) held that such payment is allowable expenditure. Following such decisions, the addition was deleted. On the disallowance of 20% of direct and indirect expenses, the ld CIT(A) asked the assessee to furnish details of similar expense in two preceeding years, such details were furnished by assessee. The ld. CIT(A) on comparison of similar expenses in two preceeding years, held that such expenses are incurred every year as seen in the given details. ITA No. 376/Srt/2023 ITO Vs Shantai Developers 10 The Assessing Officer have not brought anything specific abnormality in the claim of assessee in the remand report and the ad hoc disallowance was deleted. On the disallowance of unpaid TDS liability, the ld. CIT(A) held that such disallowance was on account of liability unpaid which does not attract the provisions of Section 43B of the Act. Such liability was paid before filing return of income. Such fact was not disputed in the remand report. On the basis of such finding, the ld. CIT(A) deleted the said addition. Aggrieved by the action of ld. CIT(A), the revenue has filed present appeal before this Tribunal. 5. We have heard the submissions of the learned Commissioner of Income Tax-Departmental Representative (ld.CIT-DR) for the revenue and the learned Authorised Representative (ld. AR) of the assessee and have perused the orders of the lower authorities carefully. The ld. CIT-DR for the revenue supported the order of Assessing Officer. The ld. CIT-DR for the revenue submits that during the assessment, the assessee has not made any compliance on various issued raised by the assessing officer, despite repeated notices. The ld. CIT(A) simply accepted the explanation of assessee and deleted all the disallowances/additions. The assessee failed to discharge his onus before the Assessing Officer and filed submissions before the ld. CIT(A). The submissions of assessee was accepted without giving any opportunity to Assessing Officer. Huge ITA No. 376/Srt/2023 ITO Vs Shantai Developers 11 amount was introduced by assessee in his capital on the pretext of capital contribution by the partner. The ld. CIT(A) deleted the addition only on the basis of submission of assessee. The ld. CIT-DR for the revenue submits that he supports the order of Assessing Officer on all the additions/ issues. 6. On the other hand, the ld. AR of the assessee supported the order of ld. CIT(A). Against deleting the disallowance of capital contribution, the ld. AR of the assessee submits that it is settled law that capital contribution by partner is to be examined in the hands of its partner. The case of partnership firm was reopened under Section 147 of the Act and on verification of fact and examining the source of capital in their hands, the proceeding was dropped. Copy of order under Section 148A(d) of the Act dated 31/07/2022 is filed on record. Once the capital is explained in the hands of partner and which was introduced as contribution in the assessee by the said partner which is having more than 82% stake in the assessee firm, thus the ld. CIT(A) on appreciation and verification of facts, deleted the entire addition. The ld. AR of the assessee submits that the ld. CIT(A) obtained the remand report on the submission of assessee on all the issues before passing the order which is evident from the order of ld. CIT(A) itself. To support his submission, the ld. AR of the assessee relied on all the case laws, on which the assessee relied before ld. CIT(A). On other issues, the ld. AR of the assessee supported ITA No. 376/Srt/2023 ITO Vs Shantai Developers 12 the order of ld. CIT(A) and would submit that all such additions/disallowances were made without any basis. The ld. CIT(A) on the submission of assessee obtained remand report from Assessing Officer and only on considering such remand report, allowed relief to the assessee. 7. We have considered the submissions of both the parties and perused the orders of the lower authorities carefully. We have also deliberated on the case laws relied upon the ld. AR of the assessee. Ground No. 1 relates to deleting the addition of Rs. 49.02 crores by admitting the additional evidence in violation of Rule 46A of the Income Tax Rules, 1962 (in short, the Rules). We find that the Assessing Officer made this addition by taking view that during the year under consideration, the assessee received capital introduction of such amount. On show cause notice to assessee, no details/documents were furnished with regard to such capital introduction, thus, the capacity of partner for such capital contribution were remained unexplained. We find that before the ld. CIT(A), the assessee in its submission, submitted that the assessee has not received any show cause notice except the notice under Section 143(2) of the Act. The assessee also pointed out about the discrepancies in the e-mail address shown on the ITBA Portal and the e-mail furnished by assessee. On merit, the assessee furnished complete details of capital contribution by partner, confirmation of partner, ITR and copy of ITA No. 376/Srt/2023 ITO Vs Shantai Developers 13 computation of total income with relevant bank detail. We find that alongwith the submission on this issue, the assessee filed detailed submission on other issue/addition. The ld. CIT(A) in his order has recorded that remand report was furnished by Assessing Officer. We find that neither the date of reference by the ld. CIT(A) for seeking remand report of Assessing Officer is mentioned in his order nor the date of remand report furnished by assessee is mentioned. However, on careful consideration of the order of ld. CIT(A), we may infer that such submission of assessee was forwarded to the Assessing Officer for his remand report and only on considering remand report, the ld. CIT(A) proceeded to adjudicate the issue on merit. Section 250(4) of the Act empowered the ld. CIT(A) before disposing appeal for making such further enquiry as he thinks fit or he may direct the Assessing Officer to make further enquiry and report the result thereof to him. The ld. CIT(A) verified the fact that capital introduced by Shantai Reality (India) Pvt. Limited, who is one of the partner and having 82% holding. All such details were available in the return of income. The assessee also filed return of income of said partner with the confirmation from the Director of said company. On verification of such facts and evidence, the ld. CIT(A) was satisfied that assessee has fully explained the capital contribution by their partner. The ld. CIT(A) also find that there was substantial credit in the bank account of partner who contributed which ITA No. 376/Srt/2023 ITO Vs Shantai Developers 14 was verified in the proceeding/assessment initiated by issuing notice under Section 148A(b) of the Act to the said partner and thereafter the proceedings of reopening were dropped. We find that assessee has placed on record copy of order under Section 148A(d) of the Act dated 31/07/2022 in case of said partner/Shantai Reality (India) Limited. 8. We find that Hon’ble Jurisdictional High Court in the case of PCIT Vs. Vaishnodevi Refoils & Solvex (supra) held that when amount received by assessee firm on account of capital introduced by one of the partner by the assessee firm, which is duly reflected in the accounts of concerned partner and he had also confirmed such contribution, impugned addition was to be set aside. We further find that Hon’ble Jurisdiction High Court in CIT Vs. Odedara construction (2014) 45 taxmann.com 65 (Guj) held that unless Assessing Officer brings material to show that amount brought in firm by partners represents unaccounted income of the firm and the partners had no capacity to make such investment, capital brought in firm could not be assessed in the hands of firm. Thus, in view of aforesaid factual and legal position, we do not find any infirmity or illegality in the order of ld. CIT(A) which we affirm. In the result, ground No. 1 of appeal is dismissed. 9. Ground No. 2 of appeal relates to deleting the addition of Rs. 60,835/-. As noted earlier, the Assessing Officer made addition by taking view that the assessee has not furnished any explanation till passing of the ITA No. 376/Srt/2023 ITO Vs Shantai Developers 15 assessment order. The ld. CIT(A) deleted the addition by following the decision of Kolkata and Mumbai Tribunal in Ms Welkin Telecon Infra Pvt. Ltd. (2022) 142 taxmann.com 146 (Kolkata Trib) and Techno Electronics Ltd. in ITA No. 2338/Mum/2016. No contrary fact of law is brought to our notice to take other view. Thus, we affirm the order of ld. CIT(A). In the result, this ground of appeal is dismissed. 10. Ground No. 3 of the appeal relates to deleting the ad hoc 20% disallowance of direct and indirect expenses. We find that the Assessing Officer made such disallowance by taking view that on service of show cause notice, the assessee has not complied and it is presumed that the assessee has nothing to say and 20% of such direct and indirect expenses was treated as non-genuine. We find that before the ld. CIT(A), the assessee filed detailed written submission. The ld. CIT(A) on the submission of assessee obtained remand report wherein no specific anomaly in the claim of assessee was specified by Assessing Officer in his remand report. The ld. CIT(A) in order to verify the genuineness of claim and the nature of expenses called the details of similar expenses immediately in two preceeding years. On the direction of ld. CIT(A), the assessee furnished complete details, we find that the ld. CIT(A) on comparison of such details, held that direct and indirect expenses including of financial expenses are incurred every year as seen in the details furnished by the assessee. The Assessing Officer ITA No. 376/Srt/2023 ITO Vs Shantai Developers 16 has not brought out any anomaly in the claim. We find that the Assessing Officer has not specified the basis of 20% of ad hoc disallowance. The Assessing Officer simply treated the expenses as bogus and non-genuine without specifying nature thereof. Thus, we do not find any infirmity or illegality in the order passed by the ld. CIT(A) which we affirm. In the result, ground No. 3 of appeal is dismissed. 11. Ground No. 4 of appeal relates to deleting the addition of Rs. 7,30,772/- on disallowance of statutory liability. The Assessing Officer made addition in the assessment order by taking view that the assessee has debited statutory liability of Rs. 7,30,772/- on account of TDS in P&L account and that on show cause notice, the assessee failed to furnish complete details of such statutory liability and proof thereof within due date. We find that the ld. CIT(A) on the submission of assessee obtained remand report from Assessing Officer. The ld. CIT(A) recorded that the Assessing Officer in his remand report have not made any adverse comment on the issue of this addition. The assessee has paid such liabilities before filing return of income. The disallowance was basically the liability of unpaid TDS on which provisions of Section 43B are not attracted. Before us, the ld. CIT-DR failed to bring any contrary decision of superior courts to take other view, therefore, we do not find any reason to interfere with the finding ITA No. 376/Srt/2023 ITO Vs Shantai Developers 17 of ld. CIT(A) which we affirm. In the result, this ground of appeal is dismissed. 12. Ground No. 5 to 7 of the appeal are general and need no specific adjudication. 13. In the result, this appeal of revenue is dismissed. Order pronounced in the open court on 19 th March, 2024. Sd/- Sd/- (Dr. ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 19/03/2024 *Ranjan Copy to: 1. Assessee – 2. Revenue – 3. CIT 4. DR 5. Guard File By order Sr. Private Secretary, ITAT, Surat