CHARMS DEVELOPERS, Thane V. ACIT CIRCLE 1 , Thane

ITA 4745/MUM/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 0102 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 14-07-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A DHYHANI
• Keywords: Business income; Opportunity of being heard; Deemed to accrue or arise in india
• Section: 68; 69C; 143(3); 133A; 69B; 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “C” Bench, Mumbai Before Shri Shamim Yahya (AM) & Shri Kuldip Singh (JM) I.T.A. No.4745/Mum/2019 (Assessment Year 2014-15) Charms Developers Office No.1, 1 st Floor Rosa Royale, Opp. Eden Super Market, Hiranandani Estate, Patlipada, Ghodbunder Road, Thane(W) Mumbai-400 607 PAN : AAEFC2381G Vs. ACIT,Circle-1 Room No.22, B-Wing 6 th Floor, Ashar IT Park, Wagle Industrial Estate, Road NO. 16Z, Thane(W) Mumbai-400 604 (Appellant) (Respondent) Assessee by Shri Subodh Ratnaparakhi Department by Shri R A dhyhani Date of Hearing 06.12.2021 Date of Pronouncement 17 .01.2022 O R D E R Per Shamim Yahya (AM) :- This appeal by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals)-1 dated 30.04.2019 and pertains to assessment year 2014-15. 2. Grounds of appeal read as under:- On the facts and in law. 1. The Hon. CIT (A) erred in upholding and confirming the addition of Rs.2,45,26,110/- made by the learned A.O. u/s 68 of the I. T. Act 1961 and further erred in enhancing such addition u/s 251(2) by a sum of Rs. 3,54,73,890/-, resulting in total addition of Rs. 6,00,00,0007- to the returned income u/s 68 r.w.s 115BBE of the I. T. Act 1961, on account of additional income declared by the appellant in the course of survey action u/s 133A on 08.11.2013. The total addition of Rs.6,00,00,000/- (Rs.2,45,26,110/- + Rs. 3,54,73,890/-) being not justified as per law and facts may kindly be deleted. ITA No.4745/Mum/2019 2 2. The Hon. CIT (A) erred in disallowing the sum of Rs. 6,00,00,000/-, debited to the profit and loss account under the head "WIP declared u/s 133A survey", not appreciating that the appellant had not claimed any deduction for such amount, as the same amount was included in the closing work-in-progress credited to the P & L A/c and therefore the entries were revenue neutral and accordingly no addition was justified for the year under appeal. 3. The Hon. CIT (A) erred in holding that as per the proviso to section 69C of the I. T. Act, 1961, the appellant was not entitled for deduction of Rs. 6,00,00,000/-, debited to the profit and loss account under the head "WIP declared u/s 133A survey", not appreciating that the appellant had not claimed any deduction of the said amount in computing the total income for the year under appeal and therefore the addition was not justified for this reason also. 3. Brief facts of the case are as under:- Briefly stated facts of the case are that in this case the return of income, declaring total income at Rs. 3,54,73,890/-, was e-filed on 29.11.2014, for A.Y. 2014-15. The assessee is a partnership firm, engaged in the business of builder and developer. Subsequently, the case of the assessee was selected for scrutiny under CASS and notices u/s 143(2) of the Act were issued and served upon the assessee. In compliance, requisite details were submitted, examined and placed on record. During the year under consideration the assessee had booked sales at Rs. 44,55,98,225/- and shown net profit of Rs. 3,54,73,863/-, after interest and remuneration to partners. The assessment proceedings u/s 143(3) of the IT. Act, 1961 were completed on 29/12/2016, assessing the total income at Rs. 6,00,00,000/-. In this case, a survey, u/s 133A of the IT. Act, 1961, was conducted on 08.11.2013. During the course of survey action, on verification of various documents found and impounded, it was observed that in respect of various housing projects, such as 'Charms Paradise' Wing 'A', 'B' and Wing 'C', constructed by M/s Charms Corporation and Charms City, comprising of building Hellbron (A-1) to Corsica(A- 11) constructed by M/s Charms Developers, there was vast variation in sales rate of the flats booked/sold, in the same period or having small gaps in ings. In compliance, Shri John Mathew, partner in the firm, stated that it was not possible to explain these variations in sales rates, hence offered an additional income for F.Y. 2013-14 of Rs. 7,5 Crores, out of which Rs, 6 Crores was declared M/s Charms Developers and balance Rs. 1.5 Crores pertained to M/s Charms Corporation. It was further stated that for this purpose an entry in the books of accounts would be passed by crediting income disclosed u/s 133A and giving corresponding debit to work-in-progress a/c. However, on perusal of the P&L a/c during the course of assessment proceedings, the AO observed that in the ROI filed for AY 2014-15 in case of the assessee, the assessee had credited Rs. 6 crores under the head 'Income declared u/s 133A' and it had made a corresponding debit entry ( WIP declared u/s 133A' of Rs. 6,00,00,000/-. ITA No.4745/Mum/2019 3 As such the net profit of Rs. 3,54,73,863/-, declared by the assessee was exclusive of the declaration of Rs. 6,00,00,000/- made during the survey proceedings and was attributable only to the normal business income. Considering the above facts the AO required the assessee to show cause as to why the amount of declaration of Rs. 6,00,00,000/-, made during the survey action, should not be treated as deemed income u/s 68 r.w.s. 115BBE of the Act. In compliance the AR of the assessee filed written submission and contended that the amount of Rs. 6 Crores formed part of closing WIP of Rs. 27.05 Crores and that the assessee had declared profit of Rs. 6.63 Crores from its business, before interest and remuneration to partners, which was more than the income of Rs. 6 Crores, declared during the course of survey action. It was further claimed that none of element declared in survey was applied for computing cost of goods sold in current sales and on other hand the said income is capitalized to the balance stock and WIP. Accordingly it was contended by the assessee that income already offered as business income cannot be added again u/s 68 of the Act. The AO, however, did not accept the contention of the assessee and added Rs. 2,45,26,110/-[Rs. 6,00,00,000/- (-) Rs. 3,54,73,890/-], to the income of the assessee, u/s 68 r.w.s. 115BBE of the I.T. Act, 1961 by observing inter-alia as under- "The submission of the assessee have been perused carefully and the same are not acceptable for the reasons discussed below. i) Although it was not directly admitted, it is evident from the statement of Smt Hemlata Singh and the impounded material scanned and reproduced above that there is on-money component in the safes affected by the assessee firm. ii) It was voluntarily declared by Shri John Mathew, partner that amount of Rs. 6 Crores is to cover up the differences in rate variations for various reasons and factors. iii) The amount of Rs. 6.0 Crores was not entered in the books of account or explained as on the date of survey. iv) The amount of Rs. 6.0 Crores was not attributable to "specific customers to whom sales were booked, Even today, although credited in the books, the amount of Rs. 6.0 Crores stands unexplained. v) The declaration in survey was made over and above the normal income. No established businessman will make a declaration on the ground of rate differences. Had it been only for the reasons stated 'as business prudence, directions of the flats, payment schedules further bank loans or self finance etc', it was not required to make a declaration on this ground as the same could have been justified with the details of names and amounts from whom the money was received. But this is not the case, the declaration was implied to cover up the money owned by the assessee and is deemed income u/s 68 as the same is credited in the books and has not been explained. The scheme of ss. 68, 69, 69A, 69B and 69C of the I. T. Act, 1961, would show that in cases where in entry made in the books of account, the nature and source of investments made by the assessee or the nature and source of acquisition of money, bullion etc, owned by the assessee or the source of expenditure incurred by the assessee are not explained at all, or not satisfactorily explained, then the value of such credits, investments and money or the value of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of such assessee. It follows that the moment a satisfactory explanation is given about such ITA No.4745/Mum/2019 4 nature and source by the assessee, then the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per the provisions of the Act. However, when these provisions apply because no source is disclosed at all on the basis of which the income can be classified under one of the heads of income under s. 14 of the Act, it would not be possible to classify such deemed income under any of these heads including income from 'other sources' which have to be sources known or explained. When the income cannot be so classified under any one of the heads of income under s.14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. If it is possible to peg the income under any; one of those heads by virtue of satisfactory explanation being given, then these provisions of ss. 68, 69, 69A, 69B and 69C will not apply, in which event, the provisions regarding deductions etc applicable to the relevant head of income under which such income falls will automatically be attracted. Keeping in view the facts of the case and the above discussion, the provisions of section 68 r.w.s. 115BBE are applicable in this case. The income of the assessee is computed as under:- 1 Returned Income 3,54,73,890 2 Add:Unexplained income u/s. 68 r.w.s. 115BBE(Rs. 60000000/-less Rs.35473890) 2,45,26,110 Assessed Total Income 6,00,00,000 4. Upon assessee’s appeal Ld.CIT(A) confirmed the action of the AO. Furthermore, the Ld.CIT(A) made an enhancement of the assessment by Rs. 6 crores. The assessees argument that Rs. 6 crores disclosed in survey was already added in the profit and loss account was rejected by the Ld.CIT(A) on a finding that neither the assessee nor the assesssee’s auditors has stated that the increased sum of Rs. 6 crores is reflected in the closing work in progress/closing stock. In this regard to buttress the point the Ld.CIT(A) has observed as under:- “ The notes to accounts appended to the audited financial statements report significant accounting policies with regards to various matter including closing work in progress. This has been scanned and is placed at Page No.13 of this order. The relevant para reads as under:- “Closing WIP at the end is valued and certified by the assessee. The total cost of closing WIP is consist of all purchases made during the year including therein ITA No.4745/Mum/2019 5 duties and taxes, freight, inward and other expenditures directly attributable to the cost of purchases plus all Direct Expenses Indirect Expenses incurred during the year. The closing work in progress is converted into sales on the full completion of particular project during the relevant year. Thus, neither the assessee nor the auditor has stated that the sum of Rs. 6 cores debited to profit and loss account as WIP declared u/s. 133A survey is part of closing work in progress as on 31.03.2014. As per the notes to accounts the closing work in progress on 31.03.2014. As per the notes to accounts the closing work in progress consists of expenditure incurred at cost only. 5. For making the enhancement ld.CIT(A) had observed that the AO has understood the effect of wrong entries made by the assessee, but he has not been able to make appropriate addition. The ld.CIT(A) in this regard held as under:- It is thus clear that to negate the effect of additional income of Rs. 6 Crores declared in the course of survey action, the appellant has by debiting the same amount to the profit and loss account and not including the said Rs. 6 Crores in the closing work in progress has effectively reduced the taxable total income by equivalent amount. The AO has correctly pointed out his fact in the assessment order but has not grasped the adjustment made in the accounts fully. Considering all the factual aspects of the matter, I hold that, the appellant has not sincerely adhered to the disclosure of additional income made in the course of survey action u/s 133A. The Rs.6 Crores debited by the appellant to the profit and loss account as "WIP declared u/s 133A survey" is disallowed as deduction. Resultantly, the said amount would be the additional income of the appellant as declared in the course of survey action out of the said sum of Rs.6,00,00,000/-, the AO has already made addition of 2,45,26,1107- (Rs. 6,00,00,000 - Rs, 3,54,73,863). The said addition stands confirmed. The balance amount of Rs. 3,54,73,890/- (Rs. 6,00,00,000 (-) . Rs. 2,45,26,110/-) is the enhanced income of the appellant resulting from the disclosure of additional income made in the course of survey action. Accordingly, the addition made by the AO of Rs. 2,45, 26, 11 0/- is confirmed by dismissing all the grounds of appeal and the income of the appellant is further enhanced by Rs. 3,54,73,890/- under the provisions of section 251(2) of the Act. The total addition, over and above the returned income of Rs. 3,54,73,863/- is of Rs. 6,00,00,000/-. Accordingly, the assessed income of the appellant is Rs. 9,54,73,863/-. 6. Against the above order assessee is in appeal before us. 7. We have heard both the parties and perused the records. Ld. Counsel of the assessee made various legal submissions that the addition is not sustainable under ITA No.4745/Mum/2019 6 section 68 of the I.T.Act. That the addition has been made on estimated basis without 1 st rejecting the books. Furthermore, he submitted that assessee has actually declared as additional income, the sum of Rs. 6 crores declared during survey. He submitted that the additional amount of Rs. 6 corers, which has been debited to the profit and loss account as a stock declared in survey is duly reflected in the closing work in progress. That this amount was over and above the profit already declared by the assessee. That assesse’s profit shown in profit and loss account was more than Rs. 6 crores. The figure got reduced because of the debits to the profit and loss account regarding interest to partners and remuneration to partners. He submitted that these debits are only allocation of business income as per section 40b and revenue authorities are wrong in assuming that assessee has declared income lower than Rs. 6 crores declared in survey. However, ld.Counsel of the assessee submitted that since, the above submissions are factual the matter may be remitted to the file of AO to examine the veracity aspect of the submissions. 8. Per contra, Ld. DR relied upon the orders of the revenue authorities. 9. Upon careful consideration, we are inclined to agree with the submission of the Ld. Counsel of the assessee that the veracity of the factual submissions made by him may be examined at the level of AO to resolve the issues in this case. Firstly, we note that as regards, the finding of the authorities that the profit declared is less than Rs. 6 crores will not be correct if the assesse submissions that before the debit of partners remunerations and interest on partners capital account the profit is more than Rs. 6 crore. Secondly, Ld.CIT(A) has rejected the assessee’s claim that the increased figure of Rs. 6 crore reflected as declaration in survey by debit to stock in the profit and loss account is reflected in corresponding closing work in progress. ITA No.4745/Mum/2019 7 10. Ld.CIT(A) has rejected the submission of assessee for having included the aforesaid sum of Rs. 6 crores in the closing work in progress on the basis of certification of the audited account, which did not show that the closing stock includes this increased figure. 11. We find that this aspect can be verified by the AO. The components of closing work in progress are to be examined by him to arrive at the veracity of assesee’s factual submission that closing work in progress includes this as a corresponding effect of stock of Rs. 6 core to declared in survey debited to profit and loss. 12. As regards, the Ld. Counsel of the assessee submission regarding wrong application of section 68 is concerned, we are of the considered opinion that the said issue will arise only, if the above submissions of the Ld. Counsel of the assessee are not found to be correct by the AO. In any case, it is settled law that quoting a wrong section is not fatal to the assessment, if the addition is justified and warranted on the facts and circumstances of the case. 13. Accordingly, we remit the issue to the file of AO. The AO shall examine the account of the assessee for factual verification of the submissions regarding debits and entries claimed in the profit and loss account. Needless to add assessee should be granted adequate opportunity of being heard. Pronounced in the open court on 17 .01.2022. Sd/- Sd/- (KULDIP SINGH) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated : 17 /01/2022 Thirumalesh, Sr.PS ITA No.4745/Mum/2019 8 Copy of the Order forwarded to : The Appellant 1. The Respondent 2. The CIT(A) 3. CIT 4. DR, ITAT, Mumbai 5. Guard File. BY ORDER, //True Copy// (Assistant Registrar) ITAT, Mumbai