M/s Aarvee Constructions., Visakhapatnam V. The ITO, Ward-2(3)., Visakhapatnam

ITA 506/VIZ/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2816 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-12-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2003-2004
• Appeal Filed On: 11-12-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B JAYA KUMAR
• Assessee Lawyers: C R HEMANTH KUMAR
• Keywords: Opportunity of being heard; Set aside
• Section: 40A(3); 133A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH: VISAKHAPATNAM BEFORE: SRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SRI B.R. BASKARAN, ACCOUNTANT MEMBER I.T.A. NO.506/VIZAG/2006 ASSESSMENT YEAR : 2003-04 AARVEE CONSTRUCTIONS, VISAKHAPATNAM VS. ITO WARD-2(3) VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO.AADRA 6898 D APPELLANT BY : SHRI C.R. HEMANTH KUMAR, CA RESPONDENT BY : SHRI B. JAYA KUMAR, DR O R D E R PER B..R. BASKARAN, ACCOUNTANT MEMBER : 1. THE APPEAL OF THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 12.09.2006 PASSED BY LD CIT(A)-II, VISAKHAPATNAM AND IT RELATE S TO THE ASSESSMENT YEAR 2003-04. 2. THE GROUND NO.1 IS GENERAL IN NATURE AND THE GROUND NO.4 IS NOT PRESSED. ACCORDINGLY BOTH THE GROUNDS ARE DISMISSED. THE RE MAINING ISSUES ARE LISTED OUT BELOW:- A. DISALLOWANCE U/S 40A(3) IN RESPECT PAYMENTS MA DE TO A SUB-CONTRACTOR NAME D G.BASKAR RAO - RS. 33,800/- B. DISALLOWANCE U/S 40A(3) IN RESPECT OF PAYMENTS MADE TO PAINTERS, CARPENTERS ETC. - RS. 80,015/- C. DISALLOWANCE OF DIFFERENCE IN THE SALE CONSIDERATION - RS.2,26,000/- D. ADDITION ON ACCOUNT OF DIFFERENCE IN PAYMENT OF GOOD WILL - RS. 32, 000/- E. ADDITION TOWARDS FINAL PAYMENTS RECEIVED FROM THE FLAT BUYERS - RS. 93,050 /- 2 3. WE HAVE HEARD THE PARTIES AND CAREFULLY PERU SED THE RECORD. THE FACTS RELATING TO THE ISSUE ARE SET OUT IN BRIEF. THE AS SESSEE FIRM, A BUILDER, CONSTRUCTED A BUILDING COMPLEX FOR A PERSON NAMED SRI N.KASI VISWANATH AND HIS FAMILY MEMBERS. THE CONSTRUCTION WAS COMPLETED DUR ING THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2003-04. SINCE THE ASSESSEE WAS SU BJECTED TO A SURVEY OPERATION U/S 133A OF THE ACT ON 12.3.2003, THE RET URN OF INCOME FOR ASSESSMENT YEAR 2003-04 WAS TAKEN UP FOR SCRUTINY. THE ASSESS ING OFFICER MADE VARIOUS ADDITIONS. IN THE APPEAL PREFERRED BEFORE LD CIT(A ), THE ASSESSEE GOT ONLY PARTIAL RELIEF. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. WE SHALL DEAL WITH ISSUES AGITATED BEFORE US IN SERIATIM. 4. THE FIRST ISSUE RELATES TO THE DISALLOWANCE OF RS.33,800/- MADE U/S 40A(3) IN RESPECT OF PAYMENT MADE TO A SUB CONTRACTOR NAMED S HRI G.BHASKAR RAO. THE ASSESSEE HAD MADE PAYMENTS EXCEEDING RS.20,000/- BY WAY OF BEARER CHEQUES TO THE ABOVE SAID SUB CONTRACTOR. THE TOTAL OF SUC H PAYMENTS MADE DURING THE YEAR UNDER CONSIDERATION WAS RS.1,69,000/-. ACCORD ING TO SECTION 40A(3) OF THE ACT, THAT STOOD AT THE MATERIAL POINT OF TIME, THE PAYMENT EXCEEDING RS.20,000/- IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSES SEE HAVE TO BE MADE BY WAY OF CROSSED CHEQUES OR CROSSED DEMAND DRAFT. IN CAS E OF NON-COMPLIANCE, 20% OF SUCH EXPENDITURE SHALL BE DISALLOWED. IN VIEW OF THE SAID PROVISION, THE AO DISALLOWED 20% OF THE PAYMENT SO MADE. LD AR SUBMIT TED THAT THE OBJECT OF SECTION 40A(3) IS ONLY TO IDENTIFY THE PAYEE AND IN THE INSTANT CASE, THE PAYEE IS ASSESSED TO INCOME TAX. ACCORDINGLY LD AR PRAYED TH AT THE DISALLOWANCE MADE MAY BE DELETED. WE NOTICE THAT THE RULE 6DD OF THE INCOME TAX RULES PROVIDES CERTAIN EXCEPTIONS TO THE PROVISIONS OF SECTION 40A (3). THE ASSESSEE COULD NOT SHOW THAT THE IMPUGNED PAYMENTS FALL UNDER ANY OF T HE EXCEPTIONS PROVIDED UNDER RULE 6DD. HENCE WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DECISION OF LD CIT(A) ON THIS ISSUE. 5. THE NEXT ISSUE RELATES TO THE DISALLOWANCE O F RS.80,015/- U/S 40A(3) OF THE ACT. THE AO, WHILE SCRUTINIZING THE BANK ACCOUNT O F THE ASSESSEE NOTICED THAT THE FOLLOWING AMOUNTS HAVE BEEN WITHDRAWN BY BEARER CHEQUES. 3 1. CHANTI - 76,950 2. M.K.SAHU - 52,325 3. RAJU - 66,700 4. SURIBABU - 36,800 5. VENKATA RAMANA 32,400 6. YOUSUF - 34,400 7. KRISHNA MURTHY - 38,500 8. SURIBABU - 22,000 9. MAHESWARI PAINTS 20,000 10. BHARTI PLYWOOD 20,000 ---------------- 4,00,075 ========= THE AO DISALLOWED 20% OF RS.4,00,075/- U/S 40A(3) O F THE ACT, WHICH WAS ALSO CONFIRMED BY LD CIT(A). THE CONTENTION OF THE ASSE SSEE IS THAT THE ABOVE PERSONS, BEING PAINTER, CARPENTER ETC., HAVE ONLY W ITHDRAWN THE RESPECTIVE AMOUNT ON BEHALF OF VARIOUS LABOURERS AND THE PAYME NT HOWEVER MADE TO EACH LABOURER WAS LESS THAN RS.20,000/- AND HENCE THE PR OVISIONS OF SECTION 40A(3) ARE NOT VIOLATED. 5.1 SECTION 40A(3) THAT STOOD AT THE RELEVANT P OINT OF TIME, STATES THAT WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF W HICH PAYMENT IS MADE IN A SUM EXCEEDING RS.20,000/- OTHERWISE THAN BY A CROSS ED CHEQUE DRAWN ON A BANK OR BY A CROSSED BANK DRAFT, 20% OF SUCH EXPEND ITURE SHALL NOT BE ALLOWED AS A DEDUCTION. THE PROVISIONS OF SECTION 40A(3) ARE EXPLAINED BELOW: A. THE ASSESSEE SHOULD INCUR ANY EXPENDITURE. B. IN RESPECT OF THE SAID EXPENDITURE, THE ASSESS EE SHOULD MAKE PAYMENT EXCEEDING RS.20,000/-. C. SUCH PAYMENT SHOULD HAVE BEEN MADE OTHERWISE THA N BY A CROSS CHEQUE OR CROSSED BANK DRAFT. 5.2 THE PAYMENTS MADE TO MAHESWARI PAINTS AND B HARTI PLYWOOD DO NOT EXCEED RS.20,000/-. HENCE THE DISALLOWANCES MADE I N RESPECT OF THESE TWO PAYMENTS ARE NOT IN VIOLATION OF SECTION 40A(3) AND ACCORDINGLY WE DIRECT THE AO TO DELETE THE DISALLOWANCE MADE IN RESPECT OF THESE TWO PAYMENTS. 5.3 THE ASSESSING OFFICER HAS CULLED OUT THE DE TAILS OF PAYMENTS CITED ABOVE FROM THE BANK ACCOUNT OF THE ASSESSEE. THE CONDITI ON STIPULATED IN SECTION 40A(3) IS THAT THE PAYMENT EXCEEDING RS.20,000/- SHOULD HAVE BEEN MADE IN 4 RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSESSEE. THE NATURAL COROLLARY I S THAT A PERSON MAY MAKE PAYMENT EXCEEDING RS.20,000/- IN RESPECT OF ANY EXPENDITURE ONLY IF THE AMOUNT OF RELEVANT EXPENDIT URE EXCEEDS RS.20,000/-. HENCE THERE ARE TWO CRUCIAL POINTS, VIZ., EXPENDITU RE AND PAYMENT. BOTH THE POINTS HAVE TO BE TAKEN INTO CONSIDERATION TO VERIF Y THE APPLICABILITY OF SECTION 40A(3). IN THE INSTANT CASE, THE AO HAS TAKEN INTO CONSIDERATION ONLY THE PAYMENT, SINCE HE HAS MADE THE DISALLOWANCE ONLY ON THE BASIS OF ENTRIES IN THE BANK ACCOUNT. THE AO HAS NOT VERIFIED THAT WHETHER THE IMPUGNED PAYMENTS ARE IN RESPECT OF ANY EXPENDITURE EXCEEDING RS.20,000/- . THE CONTENTION OF THE ASSESSEE IS THAT THE SAID PAYMENT HAS BEEN MADE TO MORE THAN ONE PERSON, I.E. THE EXPENDITURE WAS LESS THAN RS.20,000/- IN THE HA NDS OF EACH PERSON. HOWEVER, THE CONTENTION OF THE ASSESSEE NEEDS VERIF ICATION. IN ADDITION THERETO, AS STATED EARLIER, THE AO HAS ALSO NOT VERIFIED THE RELEVANT EXPENDITURE BEFORE INVOKING THE PROVISIONS OF SECTION 40A(3). HENCE W E SET ASIDE THIS ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO CONSIDER THE ISS UE AFRESH IN ACCORDANCE WITH LAW, AFTER GIVING NECESSARY OPPORTUNITY OF BEING HEARD T O THE ASSESSEE. 6. THE NEXT ISSUE RELATES TO THE DIFFERENCE IN SALE CONSIDERATION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ISSUED SUM MONS TO SHRI N.KASI VISWANATH, ON WHOSE BEHALF THE BUILDING COMPLEX WAS CONSTRUCTED BY THE ASSESSEE. IN THE SAID COMPLEX, FLAT NO.203 WAS S OLD DURING THE YEAR UNDER CONSIDERATION. WHEN ENQUIRED AS TO WHETHER THE CAP ITAL GAIN ARISING THERE FROM WAS OFFERED TO TAX OR NOT, SHRI KASI VISWANATH REPL IED THAT THE SAID PROPERTY WAS SOLD FOR RS.7.00 LAKHS AND HE GOT ONLY RS.3.90 LAKH S AND THE BALANCE AMOUNT OF RS.3.10 LAKHS WAS TAKEN AWAY BY THE ASSESSEE HEREIN . HE ALSO REPLIED TO ANOTHER QUESTION THAT THE ASSESSEE HEREIN HAS TAKEN THE AMOUNT OF RS.3.10 LAKHS IN ORDER TO ADJUST THE GOOD WILL AMOUNT OF RS.3.00 LAKHS WHICH WAS PAID TO HIM EARLIER. HOWEVER THE ASSESSEE DID NOT ACCEPT TH E ABOVE SAID STATEMENT AND ALSO DENIED THE RECEIPT OF RS.3.10 LAKHS. THE AO, HOWEVER, ADDED THE SUM OF RS.3.10 LAKHS STATED TO HAVE BEEN TAKEN AWAY BY THE ASSESSEE. 5 6.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE AO CAUSED ENQUIRIES WITH THE PURCHASER OF THE FLAT. THE INSPECTOR, IN HIS REPORT, STATED THAT THE FLAT NO.203 WAS SOLD AT RS.5,36,000/-. THE INSPECTOR HA S RELIED UPON A SALE AGREEMENT IN THIS CONNECTION. HOWEVER, AS PER THE REGISTERED SALE DEED, THE SALE CONSIDERATION WAS ONLY RS.4,56,000/-. THOUGH THE LD CIT(A) ACCEPTED THE FACT THAT THERE WAS NO MATERIAL WITH THE AO TO CORROBORA TE THE STATEMENT MADE BY SHRI KASI VISWANATH, YET THE LD CIT(A) TOOK THE SALE CON SIDERATION AS RS.5,36,000/- INSTEAD OF RS.7,00,000/- AND ACCORDINGLY GAVE A REL IEF OF RS.1,64,000/-. 6.2 THE LD AR CONTENDED THAT THE OWNER OF THE F LAT NO.203 WAS SHRI KASI VISWANATH ONLY AND HENCE THE DIFFERENCE IF ANY IN T HE SALE CONSIDERATION HAS TO BE ASSESSED IN HIS HANDS ONLY. HE FURTHER SUBMITTE D THAT THE ASSESSEE IS ONLY A BUILDER AND AS PER THE SALE DEED, WHICH IS ATTACHED IN THE PAPER BOOK, SHRI KASI VISWANATH ONLY HAS RECEIVED THE ACTUAL SALE CONSIDE RATION WAS ONLY RS.4,56,000/- THE SALE DEED IS A STRONG PROOF TO SHOW THAT THE ST ATEMENT GIVEN BY SHRI KASI VISWANATH IS WRONG. HE FURTHER CONTENDED THAT NEIT HER THE AO NOR THE KASI VISWANATH DID HAVE ANY MATERIAL WITH THEM TO SUBSTA NTIATE THE CLAIM MADE IN THE STATEMENT. 6.3 WE NOTICE THAT THE FLAT NO.203 BELONG TO SH RI KASI VISWANATH. THE SAID FLAT NO.203 HAS BEEN SOLD ON 31.10.2002 TO A PERSON NAME D SHRI V.SUBRAMANYAM. AS PER THE RECITALS IN THE REGISTERED SALE DEED, TH E SALE CONSIDERATION WAS RS.4,56,000/- AND THE SAME WAS PAID TO SHRI KASI VI SWANATH. THE INSPECTOR OF INCOME TAX MADE DISCREET ENQUIRIES AND AS PER HIS R EPORT THE SALE CONSIDERATION WAS RS.5,36,000/-. IT APPEARS THAT THE INSPECTOR R ELIED UPON A SALE AGREEMENT. BOTH THESE FACTS SHOW THAT THE SALE AMOUNT WAS NOT RS.7.00 LAKHS AS STATED IN THE SWORN STATEMENT BY SHRI KASI VISWANATH. LD CIT (A) ALSO ACCEPTED THE FACT THAT THE SALE CONSIDERATION COULD NOT BE RS.7.00 LA KHS. THE ASSESSEE, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, HAS DENIED THE ST ATEMENT OF SHRI KASI VISWANATH AND HAS ALSO DENIED THE RECEIPT OF RS.3.1 0 LAKHS. THE TWO DOCUMENTS VIZ., THE SALE AGREEMENT RELIED UPON BY THE INSPECT OR AND THE REGISTERED SALE DEED, SHOW THAT THERE IS NO VERACITY IN THE STATEME NT MADE BY SHRI KASI 6 VISWANATH. IN ANY CASE, THE UNDISPUTED FACT IS THA T THE FLAT BELONGS TO SHRI KASI VISWANATH ONLY AND HE ONLY HAS SOLD THE SAID FLAT. HENCE THE DIFFERENCE, IF ANY, IN THE SALE CONSIDERATION IS ASSESSABLE IN HIS HAND S ONLY. THE EVIDENCES CONSIDERED BY THE TAX AUTHORITIES CLEARLY SHOW THAT THE ASSESSEE COULD NOT HAVE BEEN RECEIVED THE AMOUNT OF RS.3.10 LAKHS. LD CIT( A) HAS ALSO GIVEN A CLEAR FINDING THAT THERE WAS NO MATERIAL WITH THE AO TO C ORROBORATE THE STATEMENT OF SHRI KASI VISWANATH. IN VIEW OF THE FOREGOING DISC USSIONS, WE FIND NO MERIT IN THE IMPUGNED ADDITION OF RS.3.10 LAKHS. HENCE WE SET A SIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE IMPUG NED ADDITION OF RS.3.10 LAKHS. 7. THE ADDITION OF RS.32,000/- RELATING TO THE DIFFERENCE IN GOOD WILL HAS BEEN MADE BY THE AO ON THE BASIS OF STATEMENT GIVEN BY S HRI KASI VISWANATH. LD CIT(A) HAS OBSERVED THAT THERE WAS NO MATERIAL WITH THE AO TO SAY THAT THE SALE CONSIDERATION OF THE FLAT WAS RS.7.00 LAKHS. THE E VIDENCES OF THE SALE AGREEMENT AND SALE DEED ALSO SHOW THAT THE ASSESSEE COULD NOT HAVE RECEIVED THE AMOUNT OF RS.3.10 LAKHS. IN VIEW OF THE ABOVE, NO RELIANC E CAN BE PLACED ON THE STATEMENT GIVEN BY SHRI KASI VISWANATH. THERE IS N O DISPUTE WITH REGARD TO THE FACT THAT THE ADDITION OF RS.32,000/- WAS MADE ONLY ON THE BASIS OF THE STATEMENT GIVEN BY SHRI KASI VISWANATH. IN VIEW OF THE ABOVE , WE DO NOT FIND ANY MERIT IN THE SAID ADDITION AND ACCORDINGLY DIRECT THE AO TO DELETE THE SAME. 8. THE LAST ISSUE RELATES TO THE ADDITION OF RS .93,050/-. THE ASSESSEE, INITIALLY ON 30.4.2004, FILED DETAILS OF AMOUNT RECEIVED BY I T IN RESPECT OF ALL THE FLATS. AS PER THE AO, THE DETAILS FURNISHED IN THAT LETTER T ALLY WITH THE SALE DEEDS. THE ASSESSEE AGAIN FURNISHED THE SAME DETAILS ON 16.2.2 006 BASED ON THE ENTRIES RECORDED IN THE BOOKS OF ACCOUNTS. THE AO HAS MADE A COMPARISON OF BOTH THE DETAILS AND HAS TABULATED THE SAME AT PAGE 5 OF THE ASSESSMENT ORDER. THE AO NOTICED THAT THERE WAS VARIATION IN BOTH THE FIGURE S CONSISTING OF BOTH SHORTAGE AND EXCESS. THE AO ASSUMED THAT THE ASSESSEE COULD NOT HAVE RECEIVED LESSER THAN THE AMOUNT STATED IN SALE DEED AND HENCE DID N OT CONSIDER THE SHORTAGES. HOWEVER, THE AO ASSUMED THAT THE AMOUNT RECEIVED IN EXCESS ARE RECEIPT OUTSIDE THE BOOKS OF ACCOUNT AND ACCORDINGLY ADDED THE EXCESS AMOUNT FOUND IN 7 SIX CASES AMOUNTING TO RS.93,050/- TO THE TOTAL INC OME. LD CIT(A) HAS ALSO CONFIRMED THE SAID ADDITION. 8.1 THE AO HAS STATED THE DETAILS FURNISHED IN THE FIRST LETTER WERE BASED UPON THE SALE DEEDS AND THE DETAILS FURNISHED IN THE SEC OND LETTER WERE BASED UPON THE ACTUAL ENTRIES RECORDED IN THE BOOKS OF ACCOUNT. T HAT MEANS, THE ASSESSEE HAS ALREADY RECORDED, THE EXCESS, IF ANY, NOTICED BY TH E AO IN HIS REGULAR BOOKS OF ACCOUNT. IN THAT CASE, ADDING THOSE EXCESS AMOUNTS AGAIN WILL LEAD TO DOUBLE TAXATION OF THE SAME RECEIPTS, WHICH ARE NOT INTEND ED IN THE TAXATION LAWS. HENCE WE DO NOT FIND ANY MERIT IN THE SAID ADDITION AND A CCORDINGLY DIRECT THE AO TO DELETE THE SAME. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 3.12.2009 SD/- SD/- (SUNIL KUMAR YADAV) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE : 3 RD DECEMBER, 2009 A COPY OF THIS ORDER IS FORWARDED TO : 01 M/S AARVEE CONSTRUCTIONS, C/OC.R. HEMANTH KUMAR, CHARTERED ACCOUNTANT, PRINCE APARTMENTS, 15, CBM COMPOUND, VI SAKHAPATNAM 02 THE ITO WARD2(3) VISAKHAPATNAM 03 THE CIT (A)-II, VISAKHAPATNAM 04 THE CIT, VISAKHAPATNAM 05 THE DR, ITAT, VISAKHAPAATNAM 06 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY ITAT, VISAKHAPATNAM BENCH