JAIRAJ KALYANI, MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX - CIRCLE 2, MUMBAI

ITA 945/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7301 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2013-2014
• Appeal Filed On: 16-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJEEV GUBGOTRA
• Assessee Lawyers: DR P DANIEL
• Keywords: Unexplained expenditure; Income from undisclosed sources; Deemed to accrue or arise in india
• Section: 69C; 133A; 69B; 131; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F, BENC H MUMBAI BEFORE SHRI PAWAN SINGH, JM & SHRI G. MANJUNATHA, AM ITA NO.945/MUM/2018 ( ASSESSMENT YEAR :2013-14 ) JAIRAJ KALYANI GROUND FLOOR PUSHPAK APARTMENT ULHASNAGAR-421 003 VS. ACIT, CIRCLE-2 MOHAN PLAZA, KHADAKPADA WAYALE NAGAR, KALYAN(W) KALYAN PAN/GIR NO. ABIPK4897J APPELLANT ) .. RESPONDENT ) ASSESSEE BY DR. P.DANIEL REVENUE BY RAJEEV GUBGOTRA DATE OF HEARING 1 1 / 07 /201 9 DATE OF PRONOUNCEME NT 17 / 0 7 /201 9 / O R D E R PER G.MANJUNATHA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE IS DIRECTE D AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX APPEALS3, THANE DATED 01/11/2017 AND IT PERTAINS TO THE ASSESSMENT YEAR 2013-14. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE LEARNED CIT (A) IS NOT JUSTIFIED IN U PHOLDING THE ACTION OF THE ASSESSING OFFICER OF THE ASSESSEE IN REDUCING THE W IP OF THE ASSESSEE AS PER BOOKS OF ACCOUNTS BY SUM OF RS, 80,12,815/- WITHOUT APPRECIATING THAT THE SAID SUM REPRESENTED THE VALUE OF BUILDING MATERIAL PURC HASED OUT OF REGULAR BOOKS BUT UTILIZED IN CONSTRUCTION OF ONGOING PROJECTS OF THE ASSESEE. 2. THE LD. CIT(A) HAS SERIOUSLY ERRED IN CONFIRMING ASSESSING OFFICER'S ACTION OF REDUCING THE WIP WITHOUT POINTING OUT AS TO UNDER W HICH PROVISIONS OF THE ACT THE ASSESSING OFFICER HAS REDUCED THE WIP REFLECTED IN THE PROFIT AND LOSS A/C. AND BALANCE SHEET AS PER BOOKS FINALLY CLOSED AND ADJUS TED AL THE YEAR END WHICH ADMITTEDLY INCLUDED THE VALUE OF BUILDING MATERIAL PURCHASED OUT OF BOOKS AND OFFERED ADDITIONAL INCOME IN THE VERY FINANCIAL YEA R AND OFFERED IN THE COURSE OF SURVEY ACTION. WITHOUT PREJUDICE TO THE ABOVE ITA NO.945/MUM/2018 JAIRAJ KALYANI 2 3. IT IS ALTERNATIVELY SUBMITTED THAT THE ID. C1T (A) HAS ERRED IN NOT CONSIDERING THE ARGUMENT OF THE ASSESSEE THAT THE ADDITIONAL IN COME DECLARED IN BETWEEN THE YEAR IN EFFECT RESULTED INTO AMOUNT UPENDED IN INCREASING THE CAPITAL OF THE ASSESSEE AS A PROPRIETOR, OVER AND ABOVE THE AMOUNT RECORDED IN THE BOOKS OF ACCOUNTS THEREBY FOLLOWING THE PROVISIONS OF SECTIO N 69B AND NOT SECTION 69C OF THE ACT. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTE R AND/OR VARY ANY OF GROUNDS AT THE TIME OR BEFORE THE HEARING OF THIS APPEAL. 5. THE APPELLANT THEREFORE PRAYS THAT ASSESSING OF FICER MAY PLEASE BE DIRECTED NOT TO REDUCE THE WIP. 2. THE BRIEF FACTS OF THE CASE ARE THAT, THE ASSESS EE IS AN INDIVIDUAL AND ENGAGED IN THE BUSINESS OF BUILDER AND DEVELOPER UN DER THE NAME AND STYLE OF M/S. PARAS CONSTRUCTION, FILED ITS RETURN OF INCOME FOR AY 2013-14 ON 01/10/2013 DECLARING TOTAL INCOME AT RS. 1,33,14 ,723/-. A SURVEY ACTION U/S 133A OF THE I.T.ACT, 1961 WAS CONDUCTED ON THE BUSINESS PREMISE OF THE ASSESSEE ON 11/10/2012. DURING SURVE Y, CERTAIN NOTEBOOKS WERE FOUND WHICH CONTAIN NOTINGS OF PURCHASE OF BU ILDING MATERIAL AMOUNTING TO RS. 80,12,815/-. DURING THE COURSE OF SURVEY, NOTEBOOKS WERE CONFRONTED TO THE ASSESSEE, FOR WHICH HE HAD A DMITTED IN HIS STATEMENT RECORDED U/S 131 THAT ENTRIES CONTAINED I N NOTEBOOKS RELATES TO PURCHASE OF BUILDING MATERIALS AMOUNTING TO RS. 80, 12,815/- REPRESENTS UNEXPLAINED EXPENDITURE WHICH WAS NOT RECORDED IN R EGULAR BOOKS OF ACCOUNTS AND ACCORDINGLY, AGREED TO OFFER ADDITIONA L INCOME OF RS. 80,12,815/- FOR AY 2013-14. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT ALTHOUGH THE ASSESSEE HAS CREDITED ADDITIONAL INCOM E OFFERED ON ACCOUNT OF UNEXPLAINED EXPENDITURE INCURRED IN RESPECT OF P URCHASE OF BUILDING ITA NO.945/MUM/2018 JAIRAJ KALYANI 3 MATERIAL TO THE PROFIT AND LOSS ACCOUNT ,BUT THE SA ME HAS BEEN ADDED TO CLOSING WORKING PROGRESS AND CARRIED FORWARD TO SUB SEQUENT YEAR. THEREFORE, HE CALLED UPON THE ASSESSEE TO EXPLAIN A S TO WHY CLOSING WORKING PROGRESS INCREASED TO THE EXTENT OF RS. 80, 12,815/-, REPRESENTS UNEXPLAINED EXPENDITURE CANNOT BE REDUCED FROM WORK ING PROGRESS IN VIEW OF THE PROVISION OF SECTION 69C OF THE ACT, 19 61. IN RESPONSE, THE ASSESSEE VIDE ITS LETTER DATED 18/03/2016 SUBMITTED THAT WHEN ADDITIONAL INCOME IS OFFERED ON ACCOUNT OF UNEXPLAINED EXPENDI TURE IN RESPECT OF EXPENDITURE OUTSIDE BOOKS OF ACCOUNTS, THE SAME CAN BE INCORPORATED IN BOOKS OF ACCOUNTS, IF SUCH UNEXPLAINED EXPENDITURE REPRESENTS PURCHASE OF MATERIALS AND ALSO THE SAME CAN BE CARRIED FORW ARD SUBSEQUENT TO YEAR AS PART OF CLOSING OF WORKING PROGRESS. THE AO AFTER CONSIDERING RELEVANT SUBMISSION OF THE ASSESSE AND ALSO AN ANAL YSIS OF PROVISION OF SECTION 69C AND PROVISO THERETO, CAME TO THE CONCLU SION THAT ANY INCOME OFFERED ON ACCOUNT OF UNEXPLAINED EXPENDITURE BEING DEEM INCOME CANNOT BE ALLOWED AS DEDUCTION UNDER ANY HEAD OF IN COME, INCLUDING INCREASE OF WORKING PROGRESS. THEREFORE, HE REDUCED WORKING PROGRESS TO THAT EXTENT , BEING ADDITIONAL INCOME OFFERED ON AC COUNT OF UNEXPLAINED EXPENDITURE TOWARDS PURCHASE OF BUILDING MATERIAL O UTSIDE OF BOOKS OF ACCOUNTS AMOUNTING TO RS. 80,12,815/- AND DETERMINE D CLOSING WORKING PROGRESS AT RS. 74,11,917/-. 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE LD. CIT(A), TH E ASSESSE HAS FILED ITA NO.945/MUM/2018 JAIRAJ KALYANI 4 ELABORATE RETURNS SUBMISSIONS ON THE ISSUE WHICH H AS BEEN REPRODUCED AT PARA NO.4 ON PAGES NO 5 TO 18 OF LD. CIT(A) ORDE R. THE SUM AND SUBSTANCE OF ARGUMENTS OF ASSESSEE BEFORE THE LD. C IT(A) ARE THAT ONCE ADDITIONAL INCOME IS OFFERED ON ACCOUNT OF UNEXPLAI NED EXPENDITURE U/S 69C OF THE ACT, THEN THE SAME CAN BE BROUGHT INTO B OOKS OF ACCOUNTS AND ADJUST AGAINST PURCHASE AS WELL AS CLOSING WORKING PROGRESS EVEN THOUGH, PROVISO PROVIDED TO SECTION 69C SPECIFICALLY STATES THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF UNACCOUNTED INCOME BEING U NEXPLAINED EXPENDITURE U/S 69C OF THE ACT. THE LD. CIT(A) AFTE R CONSIDERING RELEVANT SUBMISSION OF THE ASSESSEE AND ALSO AN ANALYSIS OF PROVISION OF SECTION 69C AND PROVISO PROVIDED THERETO, OBSERVED THAT PRO VISION OF SECTION 69 TO 69D ARE MEANT FOR BRINGING TO TAX UNRECORDED/NON-G ENUINE INCOME AND EXPENSES AND THESE WOULD NOT FORM ANY HEADS MENTION ED U/S 14 OF THE I.T.ACT, 1961, THEREFORE FROM THE PROVISO PROVIDED TO SECTION 69C, IT IS VERY CLEAR THAT THE ASSESSEE CANNOT CLAIM ANY DEDUCTION EITHER IN THE YEAR UNDER APPEAL OR IN THE SUBSEQUENT YEAR TOWARDS UNEX PLAINED EXPENDITURE REFERRED TO IN SECTION 69C AS DEEMED INCOME. SIMILA RLY, THE LD. CIT(A) HAS REJECTED ALTERNATE CONTENTION OF THE ASSESSEE THAT ADDITIONAL INCOME OFFERED DURING COURSE OF SURVEY SHOULD BE TREATED A S AMOUNT OF INVESTMENTS ETC, NOT FULLY DISCLOSED IN BOOKS OF AC COUNTS U/S 69B OF THE ACT, ON THE GROUND THAT THIS PLEA WAS NEVER TAKEN B EFORE THE AO AT THE TIME OF ASSESSMENT PROCEEDINGS AND ALSO FROM THE DE CLARATION MADE U/S 133A OF THE ACT IT WAS FROM CLEAR THAT IT IS NECE SSARILY WAS ON ACCOUNT OF ITA NO.945/MUM/2018 JAIRAJ KALYANI 5 UNEXPLAINED EXPENDITURE. ACCORDINGLY, DISMISSED APP EAL FILED BY THE ASSESSE. AGGRIEVED BY THE LD. CIT(A) ORDER, THE ASS ESSEE IS IN APPEAL BEFORE US. 5. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT(A) WAS ERRED IN CONFIRMING ACTION OF THE AO IN REDUCING WO RKING PROGRESS TO THE EXTENT OF SUM OF RS. 80,12,815/- BEING ADDITIONAL I NCOME OFFERED ON ACCOUNT OF UNEXPLAINED EXPENDITURE U/S 69C OF THE A CT, WITHOUT APPRECIATING THE FACT THAT ONCE INCOME HAS BEEN OFF ERED TO TAX, CORRESPONDING EXPENDITURE INCLUDING PURCHASES NEEDS TO BE BROUGHT INTO BOOKS OF ACCOUNTS AND APPROPRIATE TREATMENT SHALL B E GIVEN IN THE ACCOUNT. THE AR, FURTHER SUBMITTED THAT THE AO NEV ER DISPUTED FACT THAT INCOME HAS BEEN OFFERED ON ACCOUNT OF UNEXPLAINED E XPENDITURE IN BOOKS OF ACCOUNTS WHICH IS CLEARLY RECORDED IN ITS ASSES SMENT ORDER AT PARA NO.5, BUT EXCLUDED THE SAME FROM WORKING PROGRESS O N THE GROUND THAT ANY AMOUNTS REPRESENTS UNEXPLAINED EXPENDITURE WITH IN THE MEANING OF U/S 69C ,THEN AS PER PROVISO TO SECTION 69C, NO FUR THER DEDUCTION SHALL BE ALLOWED UNDER ANY HEAD OF INCOME IGNORING THE FACT THAT WHEN UNEXPLAINED EXPENDITURE REPRESENTS PURCHASES OF MAT ERIALS, THE SAME NEEDS TO BE ADDED TO PURCHASE ACCOUNTS AND CORRESPO NDING ADJUSTMENT SHALL BE MADE TO WORKING PROGRESS /STOCK ACCONT, IF SUCH MATERIALS ARE CONSUMED IN THE BUSINESS OF THE ASSESSEE. IN THIS R EGARD, HE RELIED UPON VARIOUS JUDICIAL PRECEDENTS, INCLUDING THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS BAJARGAN TRADERS-I N ITA NO. 258/2017 ITA NO.945/MUM/2018 JAIRAJ KALYANI 6 AND ALSO THE DECISION OF ITAT, MUMBAI A BENCH IN THE CASE OF AMARSINGH NARYANSINGH THAKUR IN ITA NO. 908/MUM/201 8. 6. THE LD. DR, ON THE OTHER HAND STRONGLY SUPPORTIN G THE ORDER OF THE CIT(A) SUBMITTED THAT IT IS VERY CLEAR FROM THE PRO VISO PROVIDED TO SECTION 69C, AS PER WHICH SUCH UNEXPLAINED EXPENDITURE WHIC H IS DEEMED TO BE THE INCOME OF THE ASSESEE SHALL NOT BE ALLOWED AS A DEDUCTION UNDER ANY HEAD OF INCOME. ALTHOUGH, THE LD. AR FOR THE ASSESS EE HAS RELIED UPON VARIOUS JUDICIAL PRECEDENTS, BUT FACT REMAINS THAT NONE OF THE CASE LAWS HAVE CONSIDERED PROVISO PROVIDED TO SECTION 69C AND HENCE ALL DECISIONS RENDERED CONTRARY TO PROVISION OF ACT AND ACCORDING LY, NEED NOT TO BE FOLLOWED. 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE H AS ADMITTED ADDITIONAL INCOME ON ACCOUNT OF UNEXPLAINED EXPENDITURE BEING UNRECORDED PURCHASES AND EXPENSES OF ITS BUSINESS IN THE BOOK S OF ACCOUNTS U/S 69C OF THE I.T.ACT, 1961. IT IS ALSO AN ADMITTED FACT T HAT ASSESSEE HAD ADMITTED ADDITIONAL INCOME IN ITS RETURN OF INCOME FILED FOR THE RELEVANT YEAR. THIS FACT HAS NOT BEEN DISPUTED BY THE AO. THE ONLY DIS PUTE IS WITH REGARD TO BRINGING SUCH UNEXPLAINED EXPENDITURE IN THE BOOKS OF ACCOUNTS UNDER CORRESPONDING HEAD OF EXPENDITURE AND ADJUSTMENT TO CLOSING WORKING PROGRESS/STOCK ENTRY FOR THE END OF THE FINANCIAL Y EAR. ACCORDING TO THE LOWER AUTHORITIES, IN VIEW OF SPECIFIC PROVISION O F SECTION 69C AND PROVISO ITA NO.945/MUM/2018 JAIRAJ KALYANI 7 PROVIDED THERETO, SUCH UNEXPLAINED EXPENDITURE WHIC H IS DEEMED TO BE THE INCOME OF THE ASSESSEE SHALL NOT BE ALLOWED AS A DEDUCTION UNDER ANY HEAD OF INCOME. IT IS THE CONTENTION OF THE ASSESSE E THAT WHEN UNEXPLAINED EXPENDITURE REPRESENTS PURCHASES OR EX PENSES INCURRED IN THE BUSINESS, THE SAME NEEDS TO BE BRING INTO BOOKS OF ACCOUNTS AND SUITABLE ADJUSTMENT NEEDS TO BE MADE TO CLOSING WOR KING PROGRESS, IF SUCH UNEXPLAINED PURCHASES/EXPENDITURE IS CONSUMED IN TH E BUSINESS OF THE ASSESSEE. WE FIND THAT THE ASSESSEE HAS RELIED UPON VARIOUS JUDICIAL PRECEDENTS INCLUDING THE DECISION OF HONBLE RAJSTH AN HIGH COURT IN THE CASE OF PR.CIT VS. BAJARGAN TRADERS (SUPRA) WHERE T HE HONBLE HIGH COURT HAS UPHELD THE FINDINGS OF THE TRIBUNAL IN RESPECT OF RECORDING UNEXPLAINED EXPENDITURE IN THE BOOKS OF ACCOUNTS AND ADJUSTMENT TO CLOSING STOCK. WE FURTHER NOTED THAT THE ITAT, JAIPUR BENCH, IN THE C ASE OF BHAJARGAN TRADERS IN ITA.NO. 137/JP/17 HAD RECORDED THE FINDI NGS IN LIGHT OF SURRENDER OF ADDITIONAL INCOME TOWARDS UNEXPLAINED EXPENDITURE AND CONSEQUENT ENTRY IN THE BOOKS OF ACCOUNTS WITH ADJU STMENT TO CLOSING WORKING PROGRESS AND HELD THAT THE UNRECORDED INVES TMENT WHICH HAS GONE IN PURCHASE OF SUCH UNRECORDED STOCK OF RICE H AS BEEN IN THE BOOKS OF ACCOUNTS AND OFFERED TO TAX BY CREDITING IN THE SAID AMOUNT IN PROFIT AND LOSS ACCOUNT. HAD THIS INVESTMENT BEING OUT OF KNOW N SOURCES, THERE WAS NO NECESSITY FOR ASSESSEE TO CREDIT THE PROFIT AND LOSS ACCOUNT AND OFFERED THE SAME TO TAX ACCORDINGLY, THERE IS NO ERROR IN R ECORDING SUCH TRANSACTIONS IN BOOKS OF ACCOUNTS AND THE ACCOUNTIN G TREATMENT THEREOF SO ITA NO.945/MUM/2018 JAIRAJ KALYANI 8 AS TO REGULARISE ITS BOOKS OF ACCOUNTS. A SIMILAR V IEW HAS BEEN TAKEN BY THE CO-ORDINATE BENCH OF ITAT, MUMBAI IN THE CASE O F AMARSINGH NARAYANSINGH THAKUR IN ITA NO. 908/MUM/2018 AND ALS O IN THE CASE OF M/S. KK INFRASTRUCTURES, WHERE SIMILAR VIEW HAS BEE N EXPRESSED BY THE TRIBUNAL. BUT, BUT FACT REMAINS THAT IN NONE OF TH E ABOVE CASES THE PROVISO TO SECTION 69C HAS NOT BEEN CONSIDERED BY T HE TRIBUNAL. ALTHOUGH, PROVISO PROVIDED TO SECTION 69C IS VERY CLEAR, AS P ER WHICH SUCH UNEXPLAINED EXPENDITURE WHICH IS DEEMED TO BE THE I NCOME OF THE ASSESSEE SHALL NOT BE ALLOWED AS A DEDUCTION UNDER ANY HEAD OF INCOME, BUT BOUND BY THE JUDICIAL PRECEDENTS AND ALSO CONSI STENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH OF ITAT IN NUMBER OF CASES AND ALSO FACT THAT THE HIGH COURT OF RAJASTHAN HAS APPROVED SUCH FINDI NGS, WE ARE OF THE CONSIDERED THAT THE AO AS WELL AS THE LD. CIT (A) W ERE ERRED IN REDUCING WORKING PROGRESS TO THE EXTENT OF ADDITIONAL INCOME OFFERED, BEING UNEXPLAINED EXPENDITURE U/S 69C OF THE I.T.ACT, 196 1. THEREFORE, WE REVERSE THE FINDING OF THE LD.CIT(A) AND DIRECT THE AO TO INCLUDE ADDITIONAL INCOME OFFERED DURING THE COURSE OF SURVEY TOWARDS UNEXPLAINED EXPENDITURE TO THE CLOSING WORKING PROGRESS. 8 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 17/07/20 19 SD/- (PAWAN SINGH) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 17/07/2019 ITA NO.945/MUM/2018 JAIRAJ KALYANI 9 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//