ITO, Ward-8(1), Hyderabad V. M/s Sri Nilaya Projects, Hyderabad

ITA 80/HYD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82286 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 28-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S RAMA RAO
• Keywords: Business income; Search and seizure; Non-deduction of tax; Corroborative evidences
• Section: 40A(3); 133A; 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 80/HYD/2013 ASSESSMENT YEAR 2008-09 THE INCOME TAX OFFICER WARD-8(1) HYDERABAD VS. M/S. SRI NILAYA PROJECTS HYDERABAD PAN: ABEFS2931D APPELLANT RESPONDENT ITA NO. 1868/HYD/2012 ASSESSMENT YEAR 2008-09 M/S. SRI NILAYA PROJECTS HYDERABAD PAN: ABEFS2931D VS. THE INCOME TAX OFFICER WARD-8(1) HYDERABAD APPELLANT RESPONDENT REVENUE BY: SRI SOLGY JOSE T. KOTTARAM ASSESSEE BY: SRI S. RAMA RAO DATE OF HEARING: 0 3 .0 7 .2014 DATE OF PRONOUNCEMENT: 28 .0 8 .2014 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THE ABOVE APPEALS ARE CROSS APPEALS DIRECTED AGAINST THE ORDER OF THE CIT(A)-III, HYDERABAD DATE D 23 RD NOVEMBER, 2012 FOR ASSESSMENT YEAR 2008-09. ITA NO. 80/HYD/2013 BY REVENUE : 2. THE ASSESSEE IS A BUILDER. IT FILED ITS RETURN OF INCOME FOR A.Y. 2008-09 ON 30.09.2008 DECLARING TOT AL INCOME OF RS. 9,38,203. A SURVEY OPERATION U/S. 13 3A OF INCOME-TAX ACT, 1961 WAS CONDUCTED ON 25.08.2008 AN D 2 ITA NO. 80/HYD/2013 M/S. SRI NILAYA PROJECTS ================= DURING THE SURVEY CERTAIN DOCUMENTS WERE IMPOUNDED. THE ASSESSEE HAS ADMITTED TO AN ADDITION INCOME OF RS. 15 LAKHS DURING THE SURVEY BUT DID NOT DISCLOSE THA T AMOUNT IN THE RETURN OF INCOME. THE AO MADE THE FOLLOWING ADDITIONS BY GIVING REASONS AS BELOW: ' DURING THE COURSE OF SURVEY PROCEEDINGS THE ASSESSEE ADMITTED AN ADDITIONAL INCOME OF RS. 15,00,000/-. AS SEEN FROM THE COMPUTATION FILED, THE ASSESSEE HAS NOT ADMITTED ADDITIONAL INCOME DECLARED DURING THE COURSE OF SURVEY PROCEEDINGS U/S 133A. THE ASSESSEE WAS ISSUED A SHOW CAUSE LETTER ON 8-12-2010 TO ADD TO THE INCOME RETURNED, THE ADDITIONAL INCOME DECLARED DURING THE COURSE OF SURVEY. THE ASSESSEE VIDE ITS REPLY DATED 15-12-2010 STATED THAT IT HAD NOT FILED ITS RETURNS OF INCOME BY THE TIME OF SURVEY AND WHATEVER THE INCOME DECLARED IN THE NORMAL COURSE OF BUSINESS, IS ADDITIONAL INCOME DECLARED DURING THE COURSE OF SURVEY AND SHOULD CONSTRUE THAT THE ADDITIONAL INCOME ADMITTED IS FROM THE NORMAL COURSE OF BUSINESS. THE ASSESSEE'S CONTENTION IS NOT ACCEPTABLE, FOR THE REASON THAT, TO COVER UP CERTAIN DEFICIENCIES NOTICED DURING THE COURSE OF SURVEY, THE MANAGING PARTNER OF FIRM ADMITTED, TO DECLARE ADDITIONAL INCOME OF RS. 15,00,000/-, VIDE THE STATEMENT RECORDED U/S 131 ON 02-09-08.' 3. THE AO FURTHER MADE PROPOSAL TO ADDITION OF RS. 13,63,209 U/S. 40A(3) AND RS. 2,44,163 U/S. 40(A)(I A) OF THE ACT. 4. BEFORE THE ASSESSING OFFICER, THE LEARNED AR SUBMITTED THAT MOST OF THE SAID EXPENDITURES ARE IN THE NATURE OF LABOUR PAYMENTS AND IT IS NORMAL PRACTICE IN THIS LINE OF BUSINESS THAT LABOUR IS ENGAGED BY BUI LDER THROUGH A MAISTRY. THE PAYMENTS HAVE BEEN DONE ON WEEKLY BASIS BASED ON THE ATTENDANCE BY THE LABOURE RS. 3 ITA NO. 80/HYD/2013 M/S. SRI NILAYA PROJECTS ================= THE SAID LABOUR PAYMENTS DID NOT ATTRACT THE PROVIS IONS OF SECTION 40A(3) AS NO ONE INDIVIDUAL LABOUR HAD RECE IVED THE AMOUNT EXCEEDING THE SPECIFIED LIMIT UNDER THAT SECTION. IT WAS FURTHER SUBMITTED THAT THE DETAILS OF LIST OF LABOURERS FOR WHOM ACTUAL DISBURSEMENT WAS MADE WAS NOT RECORDED BUT ENTRIES WERE MADE BASED ON THE CAS H RECEIVED ON SITE OFFICE FOR THE PURPOSE OF PAYMENT TO LABOURERS. 5. THE LEARNED AR ALSO ARGUED THAT IN CASE OF MATERIAL PAYMENTS ALSO THE PAYMENTS WERE MADE ON SITE FOR PURCHASE OF STEEL AND METAL AND ARE ACCOUNTED UNDER THAT HEAD. HOWEVER, THE PAYMENTS ARE MADE TO DIFFERENT VENDORS AND ALSO AGAINST DIFFERENT BILLS AND LOADS DELIVERED AT THE SITE. 6. THE SECOND ISSUE AS FOUND BY THE ASSESSING OFFICER IS THAT NO TAX WAS DEDUCTED AT SOURCE ON THE AMOUNT OF RS. 2,44,163 AND DISALLOWED THE SAME U/S. 40(A)(IA) AND ADDED TO THE INCOME RETURNED. 7. ON FURTHER APPEAL, THE LEARNED CIT(A) HELD THAT THERE IS A CLEAR VIOLATION OF THE PROVISIONS OF BOT H S. 40A(3) AND S. 40(A)(IA) AND THE ASSESSEE HAS NOT BEEN ABLE TO CONTROVERT ANY OF THE DISCREPANCIES POINTED OUT BY THE ASSESSING OFFICER. 8. THE CIT(A) HELD THAT THE ASSESSEE HAS NOT BEEN ABLE TO CONTROVERT ANY OF THE DISCREPANCIES FOUND BY THE ASSESSING OFFICER. 9. THE CIT(A) FURTHER HELD AS FOLLOWS: 4 ITA NO. 80/HYD/2013 M/S. SRI NILAYA PROJECTS ================= 'THESE ARE FACTUAL ISSUES AND THERE IS NO AMBIGUITY IN THE APPLICATION OF THE SPECIFIC SECTIONS IN THIS CASE. SINCE THERE IS CLEAR VIOLATION OF THE TWO SECTIONS, BOTH THE ADDITIONS ARE CONFIRMED. HOWEVER, THE ASSESSEE HAS ALREADY DISCLOSED RS. 15 LAKHS DURING THE COURSE OF SURVEY ON ACCOUNT OF VARIOUS DISCREPANCIES. THEREFORE, THE SAME ADDITION CANNOT BE MADE TWICE AND CREDIT HAS TO BE GIVEN FOR THAT DISCLOSURE FROM THE ABOVE TWO ADDITIONS. SINCE THE TOTAL ADDITION ON ACCOUNT OF SECTION 40A(3) AND ON ACCOUNT OF SECTION 40(A)(IA) WORKS OUT TO RS. 13,63,209 + RS. 2,44,163 = RS. 16,07,372, ONLY THIS ADDITION WILL STAND BECAUSE THE DISCLOSURE OF RS. 15 LAKHS ON ACCOUNT OF DISCREPANCIES IS COVERED BY THIS ADDITION.' 10. AGGRIEVED, BOTH THE ASSESSEE AND THE DEPARTMENT ARE IN APPEAL BEFORE US. 11. THE DEPARTMENT HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: (A) THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS IN FACTS OF THE CASE. (B) THE LEARNED CIT(A) OUGHT TO HAVE SUSTAINED THE ADDITION OF RS. 15,00,000 WHICH WAS MADE BY THE AO ON ACCOUNT OF DISCLOSURE GIVEN BY THE ASSESSEE DURING THE COURSE OF SURVEY. (C) THE LEARNED CIT(A) OUGHT TO HAVE SUSTAINED THE ADDITION OF RS. 15,00,000 MADE BY THE AO SINCE THE ADDITION WAS DISCLOSED BY THE ASSESSEE DURING THE COURSE OF SURVEY ON ACCOUNT OF THE DIFFERENCES IN ACTUAL SALE CONSIDERATIONS AND REGISTERED SALE CONSIDERATIONS AND IT DOES NOT INCLUDE THE STATUTORY PROVISIONS ON WHICH THE ADDITIONS MADE U/S. 40A(3) AND 40(A)(IA). 5 ITA NO. 80/HYD/2013 M/S. SRI NILAYA PROJECTS ================= 12. THE AO HAS OBSERVED THAT DURING THE COURSE OF SURVEY PROCEEDINGS THE ASSESSEE HAD ADMITTED AN ADDITIONAL INCOME OF RS. 15, 00 , 000 . HOWEVER, AS SEEN FROM THE COMPUTATION FILED, THE ASSESSEE HAD NOT AD MITTED ADDITIONAL INCOME DECLARED DURING THE COURSE OF SUR VEY PROCEEDINGS U/S. 133A. THE ASSESSEE VIDE ITS LETTER DT. 15.12.201 0 SUBMITTED THAT AT THE TIME OF SURVEY ON 28.5.2010 THE ASSESSEE HAD NOT FILED ITS INCOME TAX RETURN AND ALSO NOT REPORTED ANY INCOME. THEREFORE, THE INCOME OFFERED AT THE TIME OF SURVEY SHOULD BE TREA TED AS PART OF THE BUSINESS INCOME. THEREFORE INCOME ASSES SED IN THE ASSESSMENT SHOULD BE CONSIDERED TO INCLUDE RS. 15,00,000 OFFERED AT THE TIME OF SURVEY. 13. ASSESSEE HAD FILED RETURN OF INCOME ON 3.10.2008 DECLARING NET TAXABLE INCOME OF RS. 9,38,203. THE AO HAS PROCEEDED TO ADD A FURTHER SUM OF RS. 13,63,209 U/S . 40 A(3) AND RS. 2,44,163 BEING DISALLOWANCE U/S . 40 (A)(IA) AS ALSO A SUM OF RS. 15, 00 , 000 OFFERED AT THE TIME OF SURVEY. THE CIT(A) THOUGH CONFIRMED THE ADDITION OF RS. 15, 00 , 000 OFFERED AT THE TIME OF SURVEY, HELD THAT TAKING INTO ACCOUNT THE DISALLOWANCE U / S . 40 A(3) [RS. 13,63,209] AND DISALLOWANCE U/S. 40(A)(IA) [RS. 2,44,163], THE AMOUNT OF RS. 15,00,000 OFFERED IS INCLUDED IN THESE ADDIT IONS. OTHERWISE HE HELD TH A T IT WOULD AMOUNT TO DOUBLE ADDITION. IN EFFECT HE DELETED THE ADDITION OF RS. 15,00,000 MADE BY THE AO. 14. IN THIS APPEAL , THE R EVENUE HAS ASSAILED THE DELETION OF RS. 15, 00 , 000 OFFERED DURING THE COURSE OF SURVEY. IT IS WELL SETTLED THAT MERE STATEMENT OFFE RING ADDITIONAL INCOME IN THE COURSE OF SEARCH/ SURVEY S HOULD 6 ITA NO. 80/HYD/2013 M/S. SRI NILAYA PROJECTS ================= NOT BE THE SOLE BASIS OF ADDITION IN THE ASSESSMENT . IT SHOULD BE SUPPORTED BY OTHER DOCUMENTARY EVIDENCE T O SUSTAIN THE DISALLOWANCE. IN THIS CASE THE REVENUE WOULD LIKE TO SUSTAIN THE ADDITION OF RS. 15, 00 , 000 OFFERED DURING THE COURSE OF SURVEY WITHOUT ANY IOTA OF SUPPORTING EVIDENCE FOR ESCAPEMENT OF INCOME. THE MADRAS HIGH COURT IN THE CASE OF CIT VS. S. KADHAR KHAN SON 300 ITR 157 HAS HELD THAT SEC. 133A DOESN'T EMPOWER ANY INCOME TAX AUTHORITY TO EXAMINE ANY PERSONS ON OATH. HENCE, ANY SUE) STATEMENT MADE IN THE COURSE OF SURVEY HAS NO EVIDENTIARY VALUE AND ANY ADMISSION MADE DURING SUC H STATEMENT CANNOT BY ITSELF BE MADE THE BASIS OF ADD ITION. THIS VIEW IS SUPPORTED BY THE INSTRUCTIONS GIVEN BY THE CBDT ISSUED ON 10.3.2003 WHICH HAS BEEN EXTRACTED I N THE HIGH COURT'S DECISION. IN THAT CBDT HAD LAID DO WN THAT CONFESSION OBTAINED DURING THE COURSE OF SEARC H AND SEIZURE AND SURVEY OPERATION DO NOT SERVE ANY USEFU L PURPOSE . THE ASSESSING OFFICER SHOULD , THEREFORE , COLLECT EVIDENCE WHICH LEADS TO INFORMATION ON WHAT HAS NOT BEEN DISCLOSED OR IS NOT LIKELY TO BE DISCLOSED BEFORE T HE INCOME TAX DEPARTMENT. SIMILARLY, WHILE RECORDING STATEMENT DURING THE COURSE OF SEARCH AND SEIZURE OPERATION N O ATTEMPT SHOULD BE MADE TO OBTAIN CONFESSION AS TO T HE UNDISCLOSED INCOME. ANY ACTION TO THE CONTRARY SHAL L BE VIEWED ADVERSELY. THE AO SHOULD RELY UPON EVIDENCES AND MATERIALS GATHERED DURING THE SEARCH AND SEIZURE OPERATION OR THEREAFTER WHILE FRAMING THE RELEVANT ASSESSMENT ORDERS. 15. IN VIEW OF THE ABOVE, DECISION OF THE MADRAS HIGH COURT AS WELL AS CLARIFICATION ISSUED BY CBDT, WE H OLD THAT THE ADDITION OF RS. 15,00,000 HAS BEEN MADE BASED 7 ITA NO. 80/HYD/2013 M/S. SRI NILAYA PROJECTS ================= PURELY ON THE CONFESSION MADE BY THE ASSESSEE IN TH E COURSE OF SURVEY AND HENCE CANNOT BE SUSTAINED WITH OUT ANY FURTHER SUPPORTING EVIDENCE. WE, THEREFORE, FIN D THAT THE A D DITION OF RS. 15,00,000 REQUIRES TO BE DELETED. THE C I T(A), EVEN THOUGH HE HAD INITIALLY SUSTAINED THE ADDITION OF RS. 15,00,000, BUT FINALLY HE HAD HELD THAT ADDITION OF RS. 15,00,000 CANNOT BE MADE IN VIEW OF THE OTHER ADDITIONS MADE BY THE ASSESSING OFFICER. WHATEVER MAY BE THE RATIO, THE EFFECT OF THE C I T(A) ORDER IS THAT ADDITION OF RS. 15,00,000 WAS DELETED. WE CON FIRM THE CIT(A) ORDER OF A PP EAL FOR THE REASONS STATED ABOVE AND DISMISS THE APPEAL OF THE REVENUE. ITA NO. 1868/HYD/2012 (BY ASSESSEE): 16. THE LEARNED COUNSEL FOR THE ASSESSEE, ON APPEAL BEFORE US, WITH RESPECT TO ADDITION MADE U/S. 40A(3 ) RELIED ON THE ORDER OF JODHPUR BENCH OF THIS TRIBUNAL IN T HE CASE OF JAG DISH LAL V. ITO 94 TTJ 1119 (J OD-TRIB) WHERE IN HELD THAT O NCE THE GP RATE WAS APPLIED TO COMPUTE THE INCOME, THE EXPENSES ARE DEEMED TO BE CONSIDERED WH ILE APPLYING THE GP RATE AND THAT, THEREFORE, NO FURTHE R DISALLOWANCE UNDER SECTION 40A(3) COULD BE MADE. TH IS VIEW FINDS SU PPORT FROM THE JUDGEMENT OF ALLAHABAD HIGH COURT IN THE CASE OF C IT V. BANAWARILAL BANSIDHAR (1998) 229 ITR 229 ( A LL) AND RECENT JUDGEMENT OF MADHYA PRADESH HIGH COURT IN THE CASE OF CIT V. PURSHOTTAM LAL TAMRAKAR [2004] 270 ITR 314 (MP) . 17. THE AR ALSO RELIED ON THE JUDGEMENT AP HIGH COURT IN THE CASE OF LNDWELL CONSTRUCTIONS V. C IT (1998) 232 ITR 776 (AP ) WHEREIN IT HAS BEEN CLEARLY HELD THAT WHERE THE BOOKS OF ACCOUNT HAVE BEEN REJECTED, THE REVENUE CA N NOT 8 ITA NO. 80/HYD/2013 M/S. SRI NILAYA PROJECTS ================= RELY ON THE SAME BOOKS OF ACCOUNT FOR ADDITION OF A N EXACT AMOUNT OF EXPENDITURE IN THE P&L ACCOUNT. IT WAS ALSO HELD IN THAT CASE THAT WHEN AN ESTIMATE IS MADE, IT IS IN SUBSTITUTION OF THE INCOME THAT IS TO BE COMPUTED U NDER SECTION 29 AND IN OTHER WORDS, ALL THE DEDUCTIONS W HICH ARE REFERRED TO UNDER SECTION 29 ARE DEEMED TO HAVE BEEN TAKEN INTO ACCOUNT, WHILE MAKING SUCH AN ESTIMATE . 18. WITH RESPECT TO DISALLOWANCE U/S. 40(A)(IA) THE AR SUBMITTED THAT PROVISIONS OF SECTION 40(A)(IA) DO N OT APPLY TO THE PAYMENTS MADE TO THE PERSONS (INDIVIDUALS) A ND, THEREFORE, HAVE NO APPLICATION TO THE FACTS OF THE ASSESSEE'S CASE. 19. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE HAD FILED THE FOLLOWING PAPERS: (A) RETURN OF INCOME FOR A.Y. 2008-2009. (B) ACCOUNT COPIES CONTAINING CENTERING, ADVERTISEMENT, METAL ACCOUNT, BORE ACCOUNT, STEEL ACCOUNT PAINTING AND WOOD ACCOUNT. (C) ACCOUNT COPY OF VENKATAIAH, SRIDHAR REDDY (ARCHITECT) AND THE MESTRI WHO WERE ENGAGED BY THE ASSESSEE. 20. THE LEARNED DR POINTED OUT THAT WITH RESPECT TO THE PROFESSIONAL CHARGES OF RS. 2,10,163 AND FABRICATIO N CHARGES OF RS. 34,000, THE TDS HAS TO BE DEDUCTED W HICH HAD NOT BEEN DONE BY THE ASSESSEE. THE LEARNED DR ALSO POINTED OUT THAT AT 85 OF THE PAPER BOOK THAT MR. SREEDHAR REDDY, ARCHITECT WAS PAID AN AMOUNT OF MOR E THAN RS. 3 LAKHS. 9 ITA NO. 80/HYD/2013 M/S. SRI NILAYA PROJECTS ================= 21. WE FIND THAT THE ASSESSEE HAS FILED PAPER BOOK GIVING THE PARTICULARS OF PAYMENT IN CASH WHICH WAS DISALLOWED AS WELL AS OTHER PAYMENTS WHICH HAS BEEN DISALLOWED FOR NON-DEDUCTION OF TAX AT SOURCE. THE ASSESSEE CONTENDS THAT THE EXPENDITURE IN CASH ARE SUCH PROVISION OF 40A(3) WILL NOT APPLY AND THE PAYMENT OF RS. 2,44,163 DOES NOT ATTRACT PROVISION OF SEC. 40(A)(I A). THIS EVIDENCE OR ARGUMENT DO NOT APPEAR TO HAVE BEEN CONSIDERED BY THE AO OR CIT(A). IN THE INTEREST OF JUSTICE, WE REMIT THE ISSUE OF DISALLOWANCE OF RS. 13,63,209 U/S. 40A(3) AND RS. 2,44,163 U/S. 40(A)(IA) TO THE FILE OF THE AO. THE AO SHALL GIVE REASONABLE OPPORTUNITY TO TH E ASSESSEE TO SUBMIT HIS CASE AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW. 22. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO. 80/HYD/2013 IS DISMISSED AND THE APPEAL OF THE ASSE SSEE IN ITA NO. 1868/HYD/2012 IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 28 TH AUGUST, 2014 SD/ - (B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER HYDERABAD, DATED THE 28 TH AUGUST, 2014 TPRAO 10 ITA NO. 80/HYD/2013 M/S. SRI NILAYA PROJECTS ================= COPY TO: 1. THE INCOME TAX OFFICER, WARD - 8(1), D - BLOCK, 8 TH FLOOR, IT TOWERS, AC GUARDS, HYDERABAD. 2. M/S. SRI NILAYA PROJECTS, FLAT NO. 411, MY HOME MADHUBAN APTS., NAGARJUNA NAGAR, AMEERPET, HYDERABAD. 3. THE CIT(A) - III , HYDERABAD. 4. THE CIT - II , HYDERABAD. 5. THE DR, A - BENCH, ITAT, HYDERABAD.