Shree Sai Plaza, Hyderabad V. ACIT, Hyderabad

ITSSA 7/HYD/2006

• Counselvise Citation: [2010] 124 COUNSELVISE.COM (IT) 9299 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 3 month(s) 24 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 14-05-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 01-04-2010
• Assessment Year: misc
• Appeal Filed On: 20-01-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: E S NAGENDRA PRASAD
• Assessee Lawyers: S RAMA RAO
• Keywords: Search and seizure
• Section: 40A(3); 143(3); 132; 15

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI AKBER BASHA, ACCOUNTANT MEMBER IT(SS)A NO.7/HYD/06 : BLOCK ASST. YR.19 91-92 TO 14-9- 2000 SHREE SAI PLAZA, PUTAPARTHI. (PAN - AAJFS9670F) VS ACIT, CENT. CIR-5, HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S. RAMA RAO RESPONDENT BY : SHRI E.S. NAGENDRA PRASAD O R D E R PER AKBER BASHA, ACCOUNTANT MEMBER: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDE R OF THE CIT (A)-I, HYDERABAD DATED 7-11-2005 PERTAINING TO THE BLOCK PERIOD 1991-92 TO 14-9-2000. 2. GROUND NO.2 RAISED IN THIS APPEAL WITH REGARD TO I NITIATION OF PROCEEDINGS UNDER SECTION 158BD OF THE ACT WAS NOT PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE DURING THE COURSE OF HEARI NG. THEREFORE, THIS GROUND OF APPEAL IS DISMISSED AS NOT PRE SSED. 3. THE ONLY OTHER EFFECTIVE GROUND OF APPEAL IS WITH REGARD TO APPLICABILITY OF SECTION 40A (3) OF THE ACT TO THE FACTS OF THE INSTANT CASE. 2 4. BRIEF FACTS LEADING TO THIS ISSUE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM CONSISTING OF THREE PARTNERS. IT IS CA RRYING ON BUSINESS OF RUNNING A LODGE. THE AUTHORITIES CONDUCTED SE ARCH AND SEIZURE OPERATIONS UNDER SECTION 132 OF THE ACT AT THE P REMISES OF THE ASSESSEE. THE ASSESSING OFFICER ISSUED A NOTICE UNDER SECTION 158 BD READ WITH SECTION 158BC ON 13-9-2002 CALLING FOR THE R ETURN OF INCOME IN FORM 2B. THE ASSESSEE FILED THE RETURN OF INCOME IN FORM NO.2B ON 18-11-2002 ADMITTING UNDISCLOSED INCOME TO BE RS.NIL. T HE ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDER SECTION 158BC READ W ITH SECTION 158BD AND SECTION 143(3) DETERMINING THE UNDISCLO SED INCOME AT RS.31,11,336 AND THIS REPRESENTS DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 40A(3) ON THE PAYMENTS MADE DURING T HE BLOCK PERIOD OF RS.1,55,56,682. BEFORE THE ASSESSING OFFICER, IT WAS CONTENDED THAT THE ASSESSMENT CANNOT BE MADE UNDER SECTION 158BD AS THE AUTHORITIES CONDUCTED SEARCH AND SEIZURE OPERATIONS AT THE PREMISES OF THE ASSESSEE. NO INCRIMINATING MATERIAL WAS FOU ND DURING THE COURSE OF SEARCH AND THEREFORE EVEN THE NOTICE U/S 15 8 BD IS NOT VALID. CONSEQUENTLY, THE ASSESSMENT MADE IS BAD IN LAW. IT WAS PLEADED BEFORE THE ASSESSING OFFICER THAT IN THE REGULAR RETURNS OF INCOME THE INCOME FROM CONSTRUCTION ACTIVITY WAS OFFERED O N AN ESTIMATE BASIS ON THE RECEIPTS DECLARED. ONCE THE RECEIP TS ARE ACCEPTED AS TRUE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN M AKING ANY ADDITION UNDER SECTION 158BD OF THE ACT. IT WAS ALSO PL EADED BEFORE THE ASSESSING OFFICER THAT WHEN THE INCOME WAS ARRIVED AT ON AN ESTIMATE BASIS, DISALLOWANCE UNDER SECTION 40A (3) CANNOT BE MADE. IT WAS FURTHER CONTENDED BEFORE THE ASSESSING OFFICER THAT N O ADDITION BE MADE AS UNDISCLOSED INCOME OF THE ASSESSEE. HOWEVER, THE A SSESSING OFFICER COMPLETED THE ASSESSMENT DETERMINING THE UNDISCLOSE D INCOME 3 AT RS.31,11,340. AGGRIEVED AGAINST THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT (A). THE C IT (A) HELD THAT THE DISALLOWANCE OF EXPENSES INCURRED IN VIOLATION OF SECT ION 40A (3) ARE WITHIN THE AMBIT OF SECTION 158BB (1) OF THE ACT AND HELD AGAINST THE ASSESSEE. FURTHER AGGRIEVED BY THE FINDINGS OF THE C IT (A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT TH E ASSESSMENT IN THE BLOCK PERIOD WAS MADE BY THE ASSESSING OFFI CER ON ESTIMATE BASIS. HENCE A SEPARATE ADDITION CANNOT BE MADE UNDER SECTION 40A (3) OF THE ACT. HE UNDISCLOSED INCOME HAS TO BE CONSIDERED SEPARATELY FOR EACH OF THE ASSESSMENT YEARS AND I T IS NOT CORRECT TO HOLD THAT THE ENTIRE EXPENDITURE INCURRED I S ONE WHICH IS TO BE CONSIDERED UNDER SECTION 40A(3) OF THE ACT. ALTERNAT IVELY, THE EXPENDITURE INCURRED BY THE ASSESSEE ALSO INCLUDES COST OF CO NSTRUCTION OF THE HOTEL BUILDING WHICH IS CAPITAL IN NATURE AND THE SAME HAS TO BE EXCLUDED FROM THE AMBIT OF DISALLOWANCE. FINALLY, IT WAS SUBMITTED THAT THE PROVISIONS OF SECTION 40A (3) HAVE NO APPLICAT ION TO THE FACTS OF THE CASE PARTICULARLY WHEN AN INCOME WAS ESTIMATED BA SIS. FOR THIS PROPOSITION, HE RELIED ON THE DECISION IN THE CASE OF I NDWEL CONSTRUCTION VS. CIT REPORTED IN 232 ITR 776 BY JURISDI CTIONAL HIGH COURT. 5. ON THE OTHER HAND, THE LEARNED DR WHILE SUPPORTIN G THE ORDER OF THE CIT (A) AND SUBMITTED THAT THE DISALLOWANCE UNDER SECTION 40A(3) IS A MANDATORY AND AUTOMATIC IRRESPECTIVE OF THE JUSTIFI CATION WHICH PROMPTED THE ASSESSEE TO TRANSACT IN CASH. HE RELIED ON THE CASE OF DCIT VS. PRAJAY ENGINEERS SYNDICATES IN IT (SS) A NO.18 &/HYD/01 BY THIS TRIBUNAL. 4 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PART IES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND TH AT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF JURISD ICTIONAL HIGH COURT IN THE CASE OF INDWEL CONSTRUCTIONS (SUPRA). IN T HAT CASE, THE COURT HELD THAT WHEN AN ESTIMATE IS MADE IN SUBSTITUT ION OF THE INCOME OF THE ASSESSEE THAT IS TO BE COMPUTED UNDER SECTION 29 OF THE ACT, ALL THE DEDUCTIONS WHICH ARE REFERRED TO UNDER SECTION 29 A RE DEEMED TO HAVE BEEN TAKEN INTO ACCOUNT WHILE MAKING SUCH AN ESTIMA TE. THIS WILL ALSO MEAN THAT THE EMBARGO PLACED IN SECTION 40 IS ALSO TAKEN INTO ACCOUNT. ADMITTEDLY, IN THE CASE UNDER CONSIDERATION, THE INCOME WAS ADMITTED ON ESTIMATE BASIS. THE DECISION RELIED ON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE IN THE CASE OF DCIT VS. PRA JAY ENGINEERS SYNDICATES IN IT (SS) A NO.18 &/HYD/01 IS NOT APPLICABLE TO THE FACTS OF THE CASE AS IN THAT CASE THE UNDISCLOSED INCOME CONFIRMED BY THE TRIBUNAL ON THE BASIS OF DUPLICATE BOOKS OF ACCOUNT WHI CH CLEARLY SHOWS UNDISCLOSED RECEIPTS AND UNDISCLOSED EXPENDITURE AND ARRI VED AT UNDISCLOSED INCOME OF THE ASSESSEE BASED ON DUPLICATE BOOKS F ACCOUNTS AND NOT ON ESTIMATE BASIS, WHEREAS IN THE CASE UNDE R CONSIDERATION, THE INCOME WAS ADMITTED ON ESTIMATE BASIS. HENCE, RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT (SUPRA), WE ALLOW THE GROUNDS RAISED BY THE ASSESSEE ON TH IS ISSUE. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS AL LOWED IN PART. 5 ORDER WAS PRONOUNCED IN THE COURT ON 14 -5-2010. SD/- G.C.GUPTA SD/- AKBER BASHA VICE PRESIDENT ACCOUNTANT MEMBER. DT/- 14TH MAY, 2010 COPY FORWARDED TO: 1. C/O SHRI S. RAMA RAO, ADVOCATE, 103, INDIRADEVI NILAYAM, STREET NO.7, HIMAYATNAGAR, HYDERABAD. 2 ACIT, CENTRAL CIR-5, HYDERABAD. 3. 4. THE CIT, AP, HYDERABAD., CIT(A)-I, HYDERABAD. DR, ITAT, HYDERABAD. JMR * `