DCIT (Central)-1, Bhopal V. M/s. Envo Promoters & Developers (P) Ltd., Bhopal

ITSSA 228/Ind/2019

• Counselvise Citation: [2023] 102 COUNSELVISE.COM (IT) 0525 (ITAT-INDORE)
• Duration Of Justice: 4 year(s) 5 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 25-10-2023
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 31-07-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 20-10-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income
• Section: 37; 132; 40A(3); 143(3); 133A; 37(1)

Judgement Text

Page 1 of 11 आयकर अपीलȣय अͬधकरण, इंदौर Ûयायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER IT(SS)A No.228/Ind/2019 Assessment Year: 2014-15 DCIT, (Central)-I, Bhopal बनाम/ Vs. M/s. Envo Promoters & Developers Pvt. Ltd., SF-5, Alakhnanda Complex, Zone-I, M.P. Nagar, Bhopal (Revenue / Appellant) (Assessee / Respondent) PAN: AACCE 5516 G Assessee by Shri Kunal Agrawal, AR Revenue by Shri P.K.Mishra, CIT DR Date of Hearing 01.08.2023 Date of Pronouncement 26.10.2023 आदेश / O R D E R Per B.M. Biyani, A.M.: Feeling aggrieved by a consolidated appeal-order dated 06.08.2019 passed by learned Commissioner of Income-Tax (Appeals)-3, Bhopal [“CIT(A)”], which in turn arises out of a consolidated assessment-order dated 24.11.2016 passed by learned DCIT (Central)-I, Bhopal [“AO”] u/s 153A/ 143(3) of Income-tax Act, 1961 [“the Act”], the Revenue has filed this appeal for Assessment-Year [“AY”] 2014-15. 2. Heard the learned Representatives of both sides at length and case- records perused. Envo Promoters & Developers P. Ltd., Bhopal. IT(SS)A No.228/Ind/2019 A.Y. 2014-15. Page 2 of 11 3. Brief facts leading to present appeals are such that a search u/s 132 was conducted by Income-tax Department on one “Regal Homes Group” including assessee on 12.08.2014. Surveys u/s 133A were also conducted on connected entities. Pursuant to same, assessments were framed u/s 153A read with section 143(3) for AY 2011-12 to 2014-15 and u/s 143(3) for AY 2015-16 wherein certain additions were made. The present appeal, however, pertains only to one assessment-year, namely AY 2014-15 wherein the assessee contested additions in first-appeal before CIT(A) and succeeded substantially. Now, the revenue has come in next appeal before us assailing the relief granted by CIT(A). 4. The grounds raised in this appeal are as under: 1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 1,12,39,129/- made by the AO on account of unaccounted expenses u/s 40A(3) of the Income-tax Act, 1961. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 5,53,270/- made by the AO on account of unaccounted expenses u/s 37 of the Income-tax Act, 1961. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 44,11,320/- made by the AO on account of unaccounted receipt from various persons. Ground No. 1 and 2: 5. In Ground No. 1, the revenue claims that the CIT(A) has erred in deleting addition of Rs. 1,12,39,129/- made by AO on account of unaccounted expenses u/s 40A(3) and in Ground No. 2, the revenue claims that the CIT(A) has erred in deleting addition of Rs. 5,53,270/- made by AO on account of unaccounted expenses u/s 37. 6. The AO has dealt these additions in Para No. 6 of assessment-order. The basis of addition is certain loose-papers/cash-book found and impounded from 6/4, Chittor Complex Zone-1, Bhopal identified as “RO-2”. The loose-papers/cash-book were inventorised as “BI-9 or BI-19”. In sub- Envo Promoters & Developers P. Ltd., Bhopal. IT(SS)A No.228/Ind/2019 A.Y. 2014-15. Page 3 of 11 para 6.1, the AO made a list/chart of transactions mentioned in the impounded papers and alleged them as cash-payments of expenses having been made by assessee in violation of section 40A(3). In next sub-para No. 6.2, the AO has further noted that, from books of account of assessee, cash- payments of Rs. 7,65,007/- were also found in violation of section 40A(3). Thus, the total cash-payment aggregated to Rs. 1,17,92,399/- [Rs. 1,10,27,392 (+) Rs. 7,65,007]. The AO further noted that the assessee did not offer any explanation. Ultimately, the AO made his own analysis in Para No. 6.5 where he observed that out of total payments of Rs. 1,17,92,399/-, payments of Rs. 5,53,270/- related to the business of M/s Regal Samarth Krishna Builders, another entity of assessee-group but not to assessee which attracted disallowance u/s 37(1) and the remaining amount of Rs. 1,12,39,129/- related to assessee and attracted disallowance u/s 40A(3). The AO made respective disallowances. 7. The CIT(A) has dealt aforesaid disallowances in Para No. 6.4 of appeal- order and deleted fully. The revenue is aggrieved by CIT(A)’s order. 8. Before us, Ld. DR for revenue strongly supported the order of AO and objected to CIT(A)’s order. He submitted that the AO has compiled details of cash-payments from the documents impounded by authorities and thereafter made addition. On the contrary, the CIT(A) has recorded assessee’s stand qua those payments and given relief, therefore the CIT(A)’s order cannot be said to be a reasoned order. Ld. DR prayed to reverse CIT(A)’s order and uphold disallowance made by AO. 9. Per contra, Ld. AR for assessee made a serious attack on the action and approach of AO. For this firstly, he carried us to section 40A(3) which prescribed thus at the relevant time: “(3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure.” Envo Promoters & Developers P. Ltd., Bhopal. IT(SS)A No.228/Ind/2019 A.Y. 2014-15. Page 4 of 11 Ld. AR submitted that section 40A(3) triggers only when the assessee has claimed a deduction of any expenditure and the payment has been made in cash exceeding Rs. 20,000/-. Same is the case of section 37(1) where disallowance is attracted only if the assessee has claimed deduction of any expenditure. But in the present case, the assessee has not claimed any deduction of the amounts noted/jotted in BI-9 and yet the AO has made disallowances u/s 40A(3)/37(1). To demonstrate this, Ld. AR submitted that the accounts of assessee of the relevant years were duly audited and the auditors have checked all transactions recorded in books of account with supporting evidences/bills/vouchers but did not find any payment in violation of section 40A(3) or 37(1); therefore there is no adverse reporting in Form No. 3CD (audit-report). Same way, during assessment proceedings, the books of account of assessee consisting of cash-book, ledger, bills, vouchers and bank statements were duly produced before AO and the AO scrutinized them. But the AO could not and did not find any payment made by assessee in violation of section 40A(3)/37(1). Ld. AR submitted that when auditor’s examination and AO’s own scrutiny of books do not reveal any payment attracting section 40A(3)/37(1), how can there be disallowance u/s 40A(3)/37(1)? Ld. AR submitted that the AO has simply made an arithmetical listing of transactions jotted/noted in BI-9 and mechanically made disallowance whereas (i) the BI-9 was a combined ‘cash-book’ of assessee-group in which many of the payments were related to M/s Regal Samarth Krishna Builder, another entity of assessee-group and stand already recorded in their books (it happened so because the “RO-2” premise from where the documents were impounded, was a common premise of assessee and other group-entities of assessee); (ii) many transactions noted in BI-9 were in the nature of cash handed over on imprest for mitigating various petty expenses of business below Rs. 20,000/- for daily needs of business; and (iii) moreover many of the payments were in the nature of general outflow and not expenses at all, etc. Ld. AR illustrated some of the notings/jottings contained in the loose-papers, extracted by AO in assessment-order. For instance, there are several entries in the chart Envo Promoters & Developers P. Ltd., Bhopal. IT(SS)A No.228/Ind/2019 A.Y. 2014-15. Page 5 of 11 prepared by AO on Page No. 50-53 of assessment-order captioned as “Rajesh Jain return”, “Sir ko diye”, “Dau ko diye”, “Dau ne liye self”, “Anil Baghel Names”, etc. He carried us to Page 58 of Paper-Book and pointed out that there is an entry of Rs. 1,01,000/- on both sides of Cash-Book; on “Receipts” side “Rajesh Jain cash” is mentioned and on “Payments” side “Rajesh Jain Return” is mentioned. Ld. AR submitted that these notings clearly indicate that the assessee received and returned cash from/to Rajesh Jain, which are in the nature of general inflows/outflows. How can such transaction be an expenditure but the AO has assumed it as an expenditure. Thus, the Ld. AR strongly contended that the AO has simply made a listing of such transactions, without giving even first-thought to nature of transactions, and made disallowance u/s 40A(3)/37(1) whereas the fact is such that the entries mentioned in BI-9 have not been claimed by assessee as deduction. Then, Ld. AR carried us to the order of CIT(A), Para No. 6.4.3 to 6.4.5, to demonstrate that the CIT(A) has noted conclusive findings qua BI-9, and after due consideration, deleted the additions. Therefore, the order of CIT(A) is a proper and well-reasoned order, the same must be upheld without any interference. 10. We have considered rival submissions of both sides and perused the orders of lower authorities. First of all, we extract below the portion of order of first-appeal where the CIT(A) has given factual findings qua the loose- papers: “6.4.3 The appellant in order to explain transactions as per BI-9 stated that the said transaction belongs to M/s Regal Samarath Krishna Builder and further submitted that transactions incurred through these loose sheets are in the nature of imprest given to employee/staff of the firms for making further distribution against the petty jobs/labour payments and all the transactions are fully recorded in books of accounts. The appellant further submitted that the M/s Regal Samarth Krishna Builder being a contractor, requirement of petty payments to the different sites and different job in a day and to meet out such type of the requirements it would be incumbent upon the appellant to make imprest to their employee/staff who distribute the same to the worker/labour deputed at various jobs. The sum provided through imprest to employee/staff are being recorded in books of accounts and details of expenditures incurred out of the imprest in petty form of cash are fully recorded in ledger accounts and cash book. Envo Promoters & Developers P. Ltd., Bhopal. IT(SS)A No.228/Ind/2019 A.Y. 2014-15. Page 6 of 11 6.4.4 After considering the entire facts interalia written submissions filed I find a strong force in the contention of the appellant that appellant and its sister concerns are involved in the field of building & construction. Therefore, imprest were made to different employees/staff including Shri Anil Baghel. The AO vide para 6.5 (iii) has alleged that various payment in cash has been made to Shri Anil Baghel, who is a contractor. However, the AO failed to prove his allegation with supportive corroborative evidence suggesting cash payments to contractor, Shri Anil Baghel. On perusal of copies of cash payment vouchers to Shri Anil Baghel, on various instances payments have been made for ‘Labour payment’, ‘plumber’, ‘painter’, ‘sand bill’, ‘bricks’ and other miscellaneous expenses. If the cash payments were made to contractor, the same would not be in narration of labour payment, painter, conveyance changes, road work, structure work etc. Further, the AO vide para 6.5 (viii) has also stated that appellant has recorded expenses of project Trevani Heights in its books of account. On the other hand appellant has initially explained that the cash book BI-9 pertains to M/s Regal Samarth Krishna Builder and Project Trevani Heights is being run by M/s Regal Samarth Krishna Builder. 6.4.5 On perusal of brief detail of BI-9, on page no 50 to 53 of the assessment order, it was observed that payments were made to Anil Baghel, advocate, staff, to different individuals being employee/staff/partners/promoters and also for purchase of stamp.” 11. On perusal of same, we find merit in the contention of Ld. AR that the CIT(A) has given specific and cogent findings on the nature of notings/ jottings in loose-papers and thereafter deleted the addition. On the contrary, the AO has simply made listing of notings/jottings in loose-papers and made additions. We agree that the disallowance of section 40A(3)/37(1) is attracted only for the expenses for which the assessee has claimed deduction. In the present case, the CIT(A) has come to findings on the loose- papers that (i) there were payments related to M/s Regal Samarth Krishna Builder, other entity of assessee, which stand recorded in books of that entity; or (ii) transactions noted in loose-papers were in the nature of imprest payments made to different persons for petty expenses of business below Rs. 20,000/-; or (iii) there were transactions in the nature of general outflows not in the nature of expenditure, etc. With such cogent findings made in his order, re-produced in foregoing paragraph, the CIT(A) has come to a definite conclusion that the disallowance u/s 40A(3)/37(1) is not attracted in assessee’s hands; accordingly he has deleted the disallowance made by AO. During hearing, though Ld. DR for revenue has supported the order of AO and opposed the order of CIT(A), yet could not rebut the findings Envo Promoters & Developers P. Ltd., Bhopal. IT(SS)A No.228/Ind/2019 A.Y. 2014-15. Page 7 of 11 made by CIT(A). Therefore, we do not find any strong reason to interfere with the findings/ observations/conclusions made by CIT(A). However, as noted by us in foregoing Para No. 6 of this order, the AO has made disallowance u/s 40A(3) to the extent of Rs. 7,65,007/- in respect of cash-payments recorded in books of assessee. Therefore, disallowance to that extent is certainly attracted. Consequently, we uphold disallowance u/s 40A(3) to the extent of Rs. 7,65,007/- and remaining disallowance u/s 40A(3) as well 37(1) are deleted. The grounds raised by revenue are, therefore, partly allowed. Ground No. 3: 12. In this ground, the revenue claims that the CIT(A) has erred in deleting addition of Rs. 44,11,320/- made by AO on account of unaccounted business receipts. 13. The AO has dealt this issue in Para No. 5 of assessment-order running over Page No. 3 to 50 of assessment-order. He has noted that during the course of survey proceeding, the documents “BI-1” and “BI-8” were found which were in the nature of “Receipts-Books” containing receipts issued by assessee to different customers related to project “Krishna Campus” run by assessee. The AO further noted that the assessee is maintaining two sets of Receipt-Books, one pakka Receipt-Book which is entered in books and other Kachhi Receipt-Book which is not entered in books. He further noted that pakka-receipts contain details of service-tax but Kachhi-receipts do not have such details. The AO has also re-produced sample copies of pakka-receipts and kachha-receipts in assessment-order. When show-caused by AO, the assessee made submissions to AO but the AO rejected. Ultimately, the AO made a chart of unaccounted receipts from different customers on Page No. 49-50 of assessment-order and thereby made additions in various years; we are concerned with the addition of Rs. 44,11,320/- in AY 2014-15. Envo Promoters & Developers P. Ltd., Bhopal. IT(SS)A No.228/Ind/2019 A.Y. 2014-15. Page 8 of 11 14. The CIT(A) has dealt this issue in Para No. 6.2 of appeal-order. Before him, the assessee submitted that it is is engaged in sale and developments of plot only; the construction was done by M/s Envo Construction Company, a partnership-firm of Shri Sohan Singh Yadav and Shri Govind Singh Yadav, which is a sister concern of assessee. Since the business premises of assessee and sister concern were common, both of the Receipt- Books, one relating to plots (belonging to assessee) and other relating to construction work (belonging to sister concern) were kept at the common premise. The CIT(A) considered assessee’s submissions and deleted addition by observing and holding thus: “6.2.2 I have considered the facts of the case, evidence on record, plea raised by the appellant and findings of the AO. The appellant being aggrieved with the addition made by the AO, during the course of appellate proceedings, has strongly contended that the receipts for construction of house were received by its sister concern i.e. M/s. Envo Construction Co. and the entire receipts are fully recorded in regular books of accounts of M/s. Envo Construction Co. The appellant has also stated that the similar view was taken before the AO, however, the AO has rejected plea of the appellant and made the impugned addition. Considering the plea of the appellant I find it suitable to take up the issue on year-to-year basis. During the course of search receipts books BI-1 & BI-8 were found and seized from business premises of appellant which is also common premises of M/s. Envo Construction Co. (sister concern of appellant). The appellant has been engaged in development and sale of plots of its single project ‘Krishna Campus’ and once the plots were sold to customers, the construction work was done by M/s. Envo Construction Co. according to, requirement of the customers. My findings and this issue are as under:- X X X X X Assessment Year 2014-15: The AO in A.Y. 2014-15, made addition of Rs. 44,11,320/- on account of alleged unaccounted receipt from the following customers : S.No. Name of Customer Amount ( Rs.) 1. Shri Virendra Kumar Sharma 9,00,000/- 2. Shri Arvind Tiwari 4,75,000/- 3. Shri Vaman Rao 50,000/- 4. Shri Akash Saxena 2,58,320/- 5. Shri Sudheer Chaturvedi 5,00,000/- 6. Shri Vikas Maithil 3,00,000/- 7. Shri Mukesh Sahu 1,00,000/- 8. Shri Ranjeet Kapoor 1,00,000/- 9. Smt. Reena Malvkiya 42,000/- Envo Promoters & Developers P. Ltd., Bhopal. IT(SS)A No.228/Ind/2019 A.Y. 2014-15. Page 9 of 11 10. Shri Zahid Khan 2,00,000/- 11. Shri Suresh Kumar Shakya 3,86,000/- 12. Shri Ghanshyam Sharma 2,00,000/- 13. Shri Mohseen Khan 9,00,000/- On perusal of ledger account of Shri Virendra Kumar Sharma it was observed that sum of Rs. 5,00,000/- and Rs. 4,00,000/- has been received in cash on 02.12.2013 and 26.08.2013 respectively by M/s. Envo Construction Co. (being construction receipts), which was wrongly presumed by the AO to be unaccounted receipts of appellant firm. Further, on perusal of ledger account of Smt. Meena Tiwari (W/o Shri Arvind Tiwari), it was observed that the sum of Rs. 4,75,000/- has been received in cash by M/s. Envo Construction Co. on 12.10.2013 for construction at plot no. S-06 which was wrongly presumed by the AO to be unaccounted receipt of appellant firm. Further, on perusal of ledger account of Shri Vaman Rao in the books of accounts of appellant it was observed that appellant has received sum of Rs. 1,00,000/- on 28.07.2013, however, the AO made addition of Rs. 50,000/-. The transaction is fully recorded in regular books of accounts of the appellant firm. Further, on perusal of ledger account of Shri Akash Saxena it was observed that sum of Rs. 2,58,320/- has been received by M/s. Envo Construction Co. against construction bill on 31.03.2014. The entire transaction is fully recorded in regular books of accounts of M/s. Envo Construction Co. Further, on perusal of ledger account of Shri Sudhir Chaturvedi it was was observed that sum of Rs. 5,00,000/- has been received by M/s. Envo Construction Co. against construction bill on 25.05.2013. The entire transaction is fully recorded in regular books of accounts of M/s. Envo Construction Co. Further, on perusal of ledger account of Shri Vikas Maithil it was observed that sum of Rs. 3,00,000/- has been received by M/s. Envo Construction Co. against construction receipts on 20.07.2013. The entire transaction is fully recorded in regular books of accounts of M/s. Envo Construction Co. Further, on perusal of ledger account of Shri Mukesh Sahu it was observed that sum of Rs. 1,00,000/- has been received by M/s. Envo Construction Co. against construction receipts on 19.08.2013. The entire transaction is fully recorded in regular books of accounts of M/s. Envo Construction Co. Further, on perusal of ledger account of Shri Ranjeet Kapoor, it was observed that sum of Rs. 1,00,000/- has been received by M/s. Envo Construction Co. against construction receipts on 31.03.2014. The entire transaction is fully recorded in regular books of accounts of M/s. Envo Construction Co. Further, on perusal of ledger account of Smt. Reena Malviya it was observed that sum of Rs. 42,000/- has been received by appellant firm in cash on Envo Promoters & Developers P. Ltd., Bhopal. IT(SS)A No.228/Ind/2019 A.Y. 2014-15. Page 10 of 11 01.08.2013. The entire transaction is fully recorded in regular books of accounts of appellant firm. Further, on perusal of ledger account of Shri Zahid Khan, it was observed that sum of Rs. 2,00,000/- has been received by M/s. Envo Construction Co. against construction receipt on 31.03.2014. The entire transaction is fully recorded in regular books of accounts of M/s. Envo Construction Co. Further, on perusal of ledger account of Shri Suresh Kumar Sakya it was observed that sum of Rs. 3,86,000/- has been received by M/s. Envo Construction Co. against construction bill on 15.03.2014. The entire transaction is fully recorded in regular books of accounts of M/s. Envo Construction Co. Further, on perusal of ledger account of Shri Ghanshyam Sharma it was observed that sum of Rs. 2,00,000/- has been received by M/s. Envo Construction Co. against construction receipts on 29.05.2013. The entire transaction is fully recorded in regular books of accounts of M/s. Envo Construction Co. Further, on perusal of ledger account of Shri Mohseen Khan it was observed that sum of Rs. 11,95,000/- has been received by appellant firm for sale of plot no. 101 to Shri Jagdish. The entire transaction is fully recorded in regular books of accounts of appellant firm. In view of the above, it is very clear that entire receipts have been fully recorded in regular books of accounts of appellant and M/s. Envo Construction Co. Thus, the addition made by the AO is deleted.” 15. Before us, Ld. DR supported the order of AO. 16. Per contra, Ld. AR re-iterated the same submissions as were made before lower-authorities. Ld. AR submitted that there is nothing like ‘pakka- receipts’ and ‘kacha-receipts’ as alleged by AO. He submitted that one receipt-book relating to sale of plots belonged to assessee, thus recorded in the books of assessee and other receipt-book relating to construction work belonged to sister concern of assessee, thus recorded in the books of sister concern. Therefore, all receipts are duly recorded in respective books. Ld. AR contended that the CIT(A) has responsible findings in this regard; his order must be upheld. 17. We have considered rival submissions of both sides and perused the orders of lower-authorities. We find that the CIT(A) has given a clear finding that the receipts, which are alleged by AO as not recorded in books, were Envo Promoters & Developers P. Ltd., Bhopal. IT(SS)A No.228/Ind/2019 A.Y. 2014-15. Page 11 of 11 duly recorded in the books of M/s Envo Construction Co., a sister concern of assessee-firm. The CIT(A) has noted, in his order, the dates on which those receipts are recorded. Ld. DR could not rebut or contradict the findings made by Ld. CIT(A). Being so, we hardly find any reason to interfere with the order of CIT(A). The same is hereby upheld. This ground is thus dismissed. 18. Resultantly, this appeal of revenue is partly allowed. Order pronounced in the open court on 26.10.2023. Sd/- sd/- (VIJAY PAL RAO) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore Ǒदनांक /Dated : 26.10.2023. CPU/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Indore Bench, Indore