BHADRECHA CONSTRUCTION P. LTD, MUMBAI V. ITO 8(1)-4, MUMBAI

ITA 6771/MUM/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6599 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 22-04-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 07-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PITAMBER DAS
• Assessee Lawyers: HARIOM TULSIAN
• Keywords: Unexplained cash credit; Principle of natural justice

Judgement Text

, LH LHLH LH INCOME TAX APPELLATE TRIBUNAL,MUMBAI - C BENCH. , MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & DR. S.T.M . PAVALAN,JUDICIAL MEMBER /. ITA NO.6771/MUM/2011, ! ! ! ! / ASSESSMENT YEAR-2007-08 BHADRECHA CONSTRUCTION PVT. LTD. 103/104 SHRI RAM INDL ESTATE, OLD NAGARDAS X ROAD, ANDHERI(E), MUMBAI-400069 VS ITO 8(1)-4, 2 ND FLOOR, AAYAKAR BHAVAN, MUMBAI. PAN:AAACH1550P ( '# / APPELLANT) ( $%'# / RESPONDENT) &' ( ) / ASSESSEE BY : SHRI HARIOM TULSIAN ( ) / REVENUE BY : SHRI PITAMBER DAS ( (( ( '* '* '* '* / DATE OF HEARING : 22-04-2014 +,! ( '* / DATE OF PRONOUNCEMENT : 07-05-2014 , 1961 ( (( ( 254 )1( '-' '-' '-' '-' . . . . ORDER U/S..254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM : CHALLENGING THE ORDER DT.20.06.2011 OF THE CIT(A)-1 6,MUMBAI,ASSESSEE-COMPANY HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN THE LAW THE LD. CIT(A)-16 ERRED IN ENHANCI NG THE ADDITION MADE BY THE LD. AO AT RS. 60,00,000/- ON ACCOUNT OF UNEXPLAINED CREDIT BY WAY OF ADVANCE FROM M/S VASUNDHARA CO-OP.HOUSING SOCIETY L TD. AND ON THAT ACCOUNT MAKING A FRESH ADDITION OF RS. 94,42,869/- ON THE BASIS OF FINDING OF THE LD. AO IN HIS REMAND REPORT ON ACCOUNT OF UNACCOUNTED RUNNING SALES BILL RAISED BY THE ASSESS EE COMPANY ON M/S VASUNDHARA CO-OP. HOUSING SOCIETY LTD. WITHOUT APPRECIATING THE FACTS SUBMITT ED BY THE ASSESSEE COMPANY THAT THE SAID SALES HAS BEEN BOOKED IN THE SUBSEQUENT YEAR ALONG WITH THE C OST OF SALES BASED ON THE FACTS AND CIRCUMSTANCES IN THE CASE AND ACCOUNTING POLICIES, ADOPTED BY IT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN THE LAW THE LD. CIT(A)-16 ERRED IN MAKING A FRESH ADDITION OF RS. 2,02,42,706/- ON THE BASIS OF FINDING OF THE LD. AO IN HIS REMAND REPORT FOR VIOLATION OF THE PROVISIONS OF SECTION 40(A)1(A) WI THOUT APPRECIATING THE FACT THAT THE ASSESSEE COMPA NY HAD DEPOSITED RELEVANT TDS AMOUNT OF RS. 3,99,772/- ON 31.03.2007 I.E. THE DATE PRESCRIBED UNDER THE SECTION FOR SUCH PAYMENT AND THEREBY HAD COMPLIED W ITH THE PROVISIONS OF SECTION 40(A)(1A) OF THE ACT. 3. THE APPELLANT RESERVES THE RIGHT TO ADD; AMEND, MODIFY, OR SUBTRACT ANY GROUND OF APPEAL AT ANY STA GE OF HEARING. 2. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF CONTRAC TING,FILED ITS RETURN OF INCOME ON 30.10. 2007,DECLARING TOTAL INCOME AT RS.NIL.ASSESSING OFF ICER (AO)FINALISED THE ASSESSMENT ORDER U/S.144 OF THE ACT,ON 21.12.2009,DETERMINING THE TO TAL INCOME AT RS.1,27,39,000/-. FIRST GROUND OF APPEAL PERTAINS TO ENHANCING THE AD DITION BY THE FIRST APPEAL AUTHORITY(FAA). DURING THE ASSESSMENT PROCEEDINGS AO ISSUED NOTICES TO THE ASSESSEE ON VARIOUS OCCASIONS,BUT THE 2 ITA NO.6771/MUM/2011 BHADRECHA CONSTRUCTION PVT. LTD. ASSESSEE DID NOT APPEAR BEFORE HIM NOR ANY DETAILS WERE FILED.SO,HE HAD TO PASS BEST JUDGMENT ORDER. WHILE FINALISING THE ASSESSMENT,IN THE BALAN CE SHEET FILED BY THE ASSESSEE,HE FOUND THAT THERE WERE UNSECURED LOAN OF RS.60 LAKHS.AS PER THE AO IT WAS NOT KNOWN AS TO FROM WHERE LOANS IN QUESTION WERE RAISED,THAT CONFIRMATION OR LEDGER ACCOUNT OF THE LOANS WERE NOT ON RECORD,THAT CREDITWORTHINESS OF THE LENDERS AND GENUINENESS OF THE TRANSACTION WAS NOT PROVED.AS A RESULT,HE MADE AN ADDITION OF RS. 60 LAKHS TO THE TOTAL INCOM E OF THE ASSESSEE. 2.1. AGAINST THE ORDER OF THE AO,ASSESSEE PREFERRED AN A PPEAL BEFORE THE FAA.IT WAS SUBMITTED BEFORE HIM THAT THAT MONEY RECEIVED BY THE ASSESSEE WAS TRADE CREDIT,THAT IT HAD RAISED AND ISSUED FINAL BILL IN THE NEXT FINANCIAL YEAR,THAT SAME WAS RECORDED IN FINANCIAL YEAR ENDED MARCH 2008,THAT ABOVE TRADE ADVANCES WERE DULY SQUARED UP ,THAT IT WAS FOLLOWING PROJECT COMPLETE METHOD.FAA CALLED FOR A REMAND REPORT (RR)FROM THE AO IN THIS REGARD. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE , THE ASSESSMENT ORDER AND THE RR,HE HELD THAT THE SOCIETY HAS INFORMED THE AO THAT IT HAD ALLOTTE D A CONTRACT TO THE ASSESSEE FOR CIVIL CONSTRUCTION,THAT IT HAD COMPLETED PART OF WORK AND HAD RAISED RUNNING ACCOUNT BILL ON THE SOCIETY,THAT THE FIRST R.A. BILL WAS NOT AVAILABLE ,THAT THE ASSESSEE HAD ALREADY RAISED FIRST BILL ON 22/2/2007 IN RESPECT OF THE ALREADY COMPLETED PARTI AL CONTRACT WORK AMOUNTING TO RS.94,42,869 AGAINST WHICH SOCIETY HAD RELEASED PAYMENTS OF RS.6 0,00,000/-,THAT THE ASSESSEE HAD DONE THE WORK OF RS.94,42,869/- WHICH SHOULD HAVE BEEN OFFER ED TO TAX AS SALES, THAT THE ASSESSEE HAD SHOWN IT AS ADVANCE/UNSECURED LOAN,THAT THE ASSESSE E HAD TRIED TO HOODWINK THE DEPARTMENT TO THIS EXTENT,THAT THE ASSESSEE HAD CLAIMED AN ADVANCE OF RS.3,50,000/- GIVEN TO BHAGIRATH MISTRY,THAT THOSE ADVANCES WERE NOT REFLECTED IN ITS BALANCE SH EET BUT WERE REFLECTED IN THE P & L ACCOUNT AS EXPENSES CLAIMED BY THE ASSESSEE,THAT AT ONE SIDE T HE ASSESSEE WAS CLAIMING EXPENSES IN RESPECT OF THE SAID CONTRACT BUT ON OTHER SIDE IT WAS NOT OFFE RING THE INCOME RECEIVED AND WAS TREATING THE SAID SALES INCOME AS ADVANCE,THAT THE CLAIM OF THE ASSESSEE ABOUT THE SALES AS UNSECURED LOAN WAS NOT CORRECT,THE ASSESSEE HAD NOT DISCLOSED THE ACTU AL VALUE OF THE CONTRACT WORK COMPLETED DURING THE YEAR UNDER CONSIDERATION AND HAD SHOWN A PART O F IT AS ADVANCE RECEIPT,THAT THE ASSESSEE HAD COMPLETED THE WORK CONTRACT OF RS.94,42,869 AND HAD NOT OFFERED THE SAME FOR TAXATION PURPOSES,THAT THE FACT THAT THE ASSESSEE HAD BOOKED THE ABOVE SALES DURING THE NEXT PREVIOUS YEAR HAD NO RELEVANCE,THAT THE CONTENTION OF THE APPELLA NT THAT IT WAS NOT ALLOWED TO REBUT THE EVIDENCES GATHERED AND TO CROSS EXAMINE THE SOCIETY WAS NOTHI NG BUT A VAIN EFFORT TO MISLEAD THE FOCUS OF THE APPELLAT PROCEEDINGS.FINALLY,HE ENHANCED THE ADDITI ONS AT RS.94,42,869 AS AGAINST RS.60 LAKHS MADE BY THE AO. 2.2. BEFORE US,AUTHORISED REPRESENTATIVE(AR)SUBMITTED TH AT BEFORE ENHANCING THE INCOME FAA HAD NOT ISSUE NOTICE AS ENVISAGED BY THE PROVISIONS OF SECTION 251(2) OF THE ACT,THAT THE ASSESSEE WAS FOLLOWING PROJECT COMPLETION METHOD(PCM) IN PUR SUANCE OF ACCOUNTING STANDARD-7,THAT THE ASSESSEE HAD OFFERED THE INCOME FROM THE REPAIRING PROJECT IN THE SUBSEQUENT YEAR AND SAME WAS ACCEPTED BY THE DEPARTMENT,THAT SAME INCOME COULD N OT BE TAXED TWICE,THAT PAYMENT MADE TO BHAGIRATH MISTRY WAS NOT FOR THE VCSH PROJECTS,THAT FAA HAD ALLOWED THE ASSESSEE TO CROSS EXAMINE THE SOCIETY ABOUT THE LETTER ISSUED BY IT,T HAT WHILE DECIDING THE ISSUE AGAINST THE ASSESSEE,FAA HAD IGNORED CERTAIN IMPORTANT DOCUMENT S INCLUDING FULL AND FINAL BILL DATED 12.10.2007 ISSUED BY THE ASSESSEE TO THE SOCIETY , THE BALANCE SHEET OF AY.2008-09,COPY OF TDS CERTIFICATE ISSUED BY THE SOCIETY,COPY OF FORM 26 A.HE RELIED UPON THE CASES OF SKYLARK BUILD(48SOT306),TRIVENI ENGINEERING AND INDUSTRIES LTD. (336ITR374),PRAKASH CHAND NAHTA(301ITR134).DEPARTMENTAL REPRESENTATIVE(DR)SUB MITTED THAT THE ASSESSEE WAS NOT A DEVELOPER,THAT AS 7 WAS APPLICABLE TO DEVELOPERS ON LY,THAT IT HAD STARTED THE WORK IN THE YEAR UNDER CONSIDERATION,THAT PAYMENTS RECEIVED FROM THE SOCIETY WERE NOT ADVANCES,THAT SAME WERE THE UNRECORDED SALE FOR THE YEAR,THAT . QUESTION OF NON ISSUE OF NOTICE U/S.251(2) OF THE ACT BY THE FAA WAS LEFT TO THE DISCRETION OF THE BENCH BY THE DR. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.UNDISPUTED FACTS OF THE CASE ARE THAT VCHS HAD ALLOTTED A CONTRACT TO T HE ASSESSEE FOR REPAIRING OF THE BUILDING,THAT THE SOCIETY HAD MADE CERTAIN PAYMENTS TO THE ASSESSEE A ND SAME WAS SHOWN BY IT AS ADVANCES IN THE 3 ITA NO.6771/MUM/2011 BHADRECHA CONSTRUCTION PVT. LTD. BOOKS OF ACCOUNTS, THAT AO HAD MADE AN ADDITION OF RS. 60 LAKHS ON UNDER THE HEAD UNSECURED LOAN,THAT THE ASSESSEE MADE A CLAIM THAT IT WAS FOL LOWING PCM AS PER THE METHOD LAID DOWN BY AS-7,THAT IN THE SUBSEQUENT AY.ASSESSEE OFFERED THE INCOME ARISING OUT OF THE RECEIPTS OF THE SOCIETY FOR TAXATION,THAT FAA HAD CALLED FOR A RR F ROM THE AO,THAT ASSESSEE HAD ASKED FOR CROSS EXAMINATION OF THE OFFICE BEARERS OF THE SOCIETY,TH AT IT HAD CLAIMED THAT PAYMENT MADE TO BHAGIRATH MISTRY DID NOT PERTAIN TO THE REPAIR WORK OF VCHS,THAT FAA HELD THAT THE ASSESSEE HAD ACCOUNTED FOR SALE OF RS.94.42 LAKHS IN THE BOOKS O F ACCOUNTS.THUS,IT IS CLEAR THAT FAA HAD ENHANCED THE INCOME OF THE ASSESSEE AFTER CONSIDERI NG THE RR AND THE SUBMISSIONS OF THE ASSESSEE. 2.3.A. FROM THE ORDER OF THE FAA IT IS CLEAR THAT BEFORE E NHANCING THE INCOME OF THE ASSESSEE,HE HAD NOT ISSUED A NOTICE U/S.251 (2)OF THE ACT.WE AR E OF THE OPINION THAT THE FAA HAS TO ISSUE NOTICE TO THE ASSESSEE,IF HE IS OF THE OPINION THA T INCOME OF THE ASSESSEE.THERE IS NO DOUBT THAT HE HAS ALL THE POWER OF THE AO AND HIS POWER OF ENHANC EMENT ARE PART OF THE ACT.BUT,THE ONLY RIDER IS ISSUANCE OF A NOTICE,AS ENVISAGED BY SUB SECTION 2. PRINCIPLES OF NATURAL JUSTICE DEMAND THAT NO ADDITION TO THE INCOME OF AN ASSESSEE SHOULD BE MAD E WITHOUT CONFRONTING IT WITH THE MATERIAL WHICH IS BEING RELIED UPON BY THE DEPARTMENTAL AUTH ORITIES FOR MAKING SAID ADDITION.IN THE CASE UNDER CONSIDERATION QUESTION WAS OF ENHANCING OF IN COME AND IN OUR OPINION FAA COULD NOT ENHANCE THE INCOME OF THE ASSESSEE WITHOUT FOLLOWIN G THE MANDATE OF THE ACT.SECTION READS AS UNDER: (2) THE COMMISSIONER (APPEALS) SHALL NOT ENHANCE A N ASSESSMENT OR A PENALTY OR REDUCE THE AMOUNT OF REFUND UNLESS THE APPELLANT HAS HAD A REA SONABLE OPPORTUNITY OF SHOWING CAUSE AGAINST SUCH ENHANCEMENT OR REDUCTION. IN OUR OPINION,WORDS SHALL NOT ENHANCEINDICATE TH E BINDING NATURE OF THE PROVISION.IN THE MATTER OF GEDORE TOOLS PVT. LTD.( 238 ITR 268) HONBLE DELHI HIGH COURT HAD AN OCCAS ION TO DISCUSS THE ISSUE OF NOTICE U/S.251 OF THE ACT.ONE OF THE N INE QUESTION RAISED BY THE DEPARTMENT BEFORE THE HONBLE COURT READ AS UNDER : WHETHER THE TRIBUNAL RIGHTLY HELD THAT THE POWERS OF ENHANCEMENT BY THE COMMISSIONER OF INCOME-TAX (APPEALS) BEING SUBJECTED TO THE CONSTRA INTS AND LIMITATION AS PROVIDED UNDER SECTION 251(2) OF THE INCOME- TAX ACT, 1961, THE QUESTION O F ENHANCEMENT COULD BE CONSIDERED ONLY IF A NOTICE WAS GIVEN IN THAT REGARD ? HONBLE COURT ANSWERED THE QUESTION IN FOLLOWING MANNER: ON QUESTION NO. 6 ALSO THE POSITION IS SETTLED IN V IEW OF THE DECISION OF THE SUPREME COURT IN CIT V.RAI BAHADUR HARDUTROY MOTILAL CHAMARIA [1967] 66 ITR 443, THAT POWER FOR ENHANCEMENT BY THE COMMISSIONER OF INCOME-TAX IS SUBJECT TO THE L IMITATION AS PROVIDED IN SUB-SECTION (2) OF SEC- TION 251 AND SUCH QUESTION COULD BE CONSIDERED ONLY IF NOTICE WAS GIVEN IN THAT REGARD. ACCORDINGLY, THIS QUESTION IS ANSWERED IN THE AFFIR MATIVE AND AGAINST THE REVENUE. RESPECTFULLY,FOLLOWING THE ABOVE JUDGMENT,WE ARE OF THE OPINION THAT FAA SHOULD NOT HAVE ENHANCED THE INCOME OF THE ASSESSEE WITHOUT ISSUING A NOTICE U/S.251(2)OF THE ACT.THEREFORE,IN THE INTEREST OF JUSTICE,MATTER IS RESTORED BACK TO THE FILE OF THE FAA FOR FRESH ADJUDICATION,WHO WILL PASS THE ORDER AFTER AFFORDING A REASONABLE OPPORTU NITY OF HEARING TO THE ASSESSEE. GROUND OF APPEAL NO.1 IS ALLOWED IN FAVOUR OF THE A SSESSEE,IN PART. 3. NEXT GROUND OF APPEAL PERTAINS TO ADDITION MADE BY THE FAA OF RS.2.02 CRORES.DURING THE APPELLATE PROCEEDINGS AR OF THE ASSESSEE PLEADED TH AT THE AO HAD NOT ALLOWED THE TDS AMOUNTING TO RS.13,76,940 ON CONTRACTS,THAT IN THE E-FILED RETURN ALL THE TAN WAS PROVIDED OF ALL THE PARTIES AS WELL AS NATURE OF CONTRACTS AND GROS S RECEIPTS AND TDS THEREOF.HE DIRECTED THE AO TO VERIFY THE ISSUE.AFTER RECEIVING A REPORT FROM THE AO,HE HELD THAT THE ASSESSEE HAD NOT DEDUCTED THE TDS WHILE PAYING THE PAYMENTS TO THE SUB CONTRA CTORS BUT HAD DIRECTLY DEPOSITED THE AMOUNT OF TDS INTO GOVT. TREASURY AND HAD CLAIMED THE SAME AS EXPENSES,THAT IT HAD FAILED AND NEGLECTED TO DEDUCT THE TDS ON CONTRACTUAL PAYMENTS OF RS.2,0 2,42,726/-,THAT THE SAID EXPENSES WERE NOT ALLOWABLE IN VIEW OF THE PROVISIONS OF SECTION 40(A )(IA) OF THE ACT,THAT AS PER THE SAID PROVISIONS IT WAS BOUND TO DEDUCT THE TDS AND DEPOSIT IT IN THE G OVT. TREASURY,THAT THE ASSESSEE HAD,INSTEAD OF OBEYING THE INCOME TAX RULES AND REGULATIONS,OVERLO OKED AND NEGLECTED THE PROVISIONS OF TDS AS WELL AS PROVISIONS OF SECTION 40(A)(IA) OF THE A CT.HE HELD THAT THE ASSESSEES CLAIM FOR EXPENSES 4 ITA NO.6771/MUM/2011 BHADRECHA CONSTRUCTION PVT. LTD. ON ACCOUNT OF CONTRACTUAL PAYMENTS OF RS.2,02,42,72 6 WAS NOT ALLOWABLE AND THE SAME NEEDED TO BE DISALLOWED AND THE INCOME OF THE APPELLANT HAD T O BE ENHANCED TO THIS EXTENT. 3.2. BEFORE US, AUTHORISED REPRESENTATIVE (AR) SUBMITTE D THAT ASSESSEE WAS OUTSOURCING ITS JOB BY ENGAGING SUB-CONTRACTORS, THAT PROVISIONS OF SECTIO N 40A(I) OF THE ACT WERE NOT APPLICABLE, THAT CASE OF THE ASSESSEE WAS COVERED BY SECTION 119(5)( A) OF THE ACT, THAT ARRANGEMENT WITH THE SUB- CONTRACTOR WAS ABOUT NET TDS, THAT ASSESSEE HAD CAL CULATED TDS AND HAD PAID ON DUE DATE.HE RELIED UPON BY THE ORDER OF THE SPECIAL BENCH DELIV ERED IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS(ITA/477/VIZ/2008-AY.2005-06).DEPARTMENTA L REPRESENTATIVE(DR)ARGUED THAT THE PRO -VISIONS OF SECTION 40(A)(I) OF THE ACT WERE APPLIC ABLE.HE REFERRED TO THE CASE SIKANDARKHAN N TANVAR (357ITR312) DELIVERED BY THE HONBLE HIGH CO URT OF GUJARAT.QUESTION OF NON ISSUE OF NOTICE U/S.251(2) OF THE ACT BY THE FAA WAS LEFT TO THE DISCRETION OF THE BENCH BY THE DR. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT FAA HAD NOT ISSUED NOTICE U/S.251(2)OF THE ACT,BEFORE ENHAN CING THE INCOME OF THE ASSESSEE.FOLLOWING OUR DECISION AT PARAGRAPH NO. 2.3.A.,WE REMIT BACK THE ISSUE OF NON DEDUCTION OF TAX TO THE FILE OF THE FAA.HE IS DIRECTED THE ISSUE AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE,INCLUDING THE CASES RELIED UPON BY THE BEFORE US.GROUND OF APPEAL NO.2 IS ALLOWED IN FAVOUR OF THE ASSESSEE ,IN PART. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS PAR TLY ALLOWED. 0'1 &' 2 3 ( - . 4 ( ' 56 . ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH MAY,2014 . . ( +,! 7 8 7 EBZ EBZEBZ EBZ 201 4 , ( - 9 SD/- SD/- ( MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU / DR. S.T.M.PAVALAN) ( / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 8 /DATE: 07.05.2014. SK . . . . ( (( ( $': $': $': $': ;:!' ;:!' ;:!' ;:!' / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / '# 2. RESPONDENT / $%'# 22 3. THE CONCERNED CIT(A)/ < = , 4. THE CONCERNED CIT / < = 5. DR C BENCH, ITAT, MUMBAI / :>- $' LH LHLH LH , . . . 6. GUARD FILE/ - 0 %:' %:' %:' %:' $' $'$' $' //TRUE COPY// . / BY ORDER, ? / 5 DY./ASST. REGISTRAR , /ITAT, MUMBAI