Jain Udhay International Pvt. Ltd., ... vs Department Of Income Tax

The D.C.I.T., Vs. M/s Jain Udhay International Pvt. Ltd. Central Circle-III, B-XXXIII/212, G.T. Rd. (West), Ludhiana. Jalandhar Bye Pass, Ludhiana. PAN: AAJCS2611R (Appellant) (Respondent)

Appellant by : Dr.Amarveer Singh, DR Respondent by : Shri S.R.Chhabra

Date of hearing : 01.04.2015 Date of Pronouncement : 08.04.2015

PER BHAVNESH SAINI, J.M. :

This appeal filed by the Revenue is directed

against the order of learned Commissioner of Income

Tax(Appeals)-I, Ludhiana dated 11.11.2014 for

assessment year 2009-10 on the following grounds :

"1. Whether on facts and circumstances of the case the decision of the CIT(A) to delete the addition of Rs. 25,79,850/- paid in cash for purchase of plot, is correct.

2. Whether the decision of the CIT(A) to delete the addition on account of cash paid for purchase of plot based on entries in hand written page No. 2 of Annexure Al is perverse as on the basis of similar entries in hand written page No. 1 of Annexure Al he has 2

confirmed the addition in the case of sister concern of the assessee."

2. The brief facts of the case are that search under

se ction 132 of the Income Tax Act, 1961 was conducted

in the case of the assessee on 01.03.2011 and during

the course of search operation certain loose documents

had been found and seized. The seized document at

S.No.Page 2 of Annexure A-l ( Party No.B-1) seized from

t h e r e s i d e n c e o f S h . S a n je e v K u m a r J a i n , 1 1 - 1 2 M a h a v i r

Enclave Barewal Road, Director of the assessee company

revealed that an amount of Rs.91,54,835/- had been

paid for purchase of land situated at Plot No.B-l5,

Punjab Apparel Park, G.T.Road, Doraha. The details of

payments as recorded on the impugned seized document

are as under:-

S.No. Particulars Amount(Rs.) 1 Advance cheque to Kay Jain Hosiery 1000000 2. Cheque to Kay Jain Hosiery 4953500 3. Cash paid to Kay Jain Hosiery 500000 4. Cash paid to Kay Jain Hosiery 2079850 5. Cheque to Kay Jain Hosiery 244430 6 Cheque to Kay Jain Hosiery 79380 7 Cheque to Kay Jain Hosiery 297675 Total 91,54,835/-

3. The Assessing Officer further observed that

amounts given in cheque to the tune of Rs.65,74,985/- had

been duly recorded in the books of accounts of the assessee

company whereas the cash payment made for purchase of 3

said plot had not been shown in the books of accounts. The

assessee on being confronted with these facts submitted

that cash payments of Rs.25,79,850/- had been booked

under the head land and site development expenses instead

of land account. The Assessing Officer after considering

the explanation of the assessee on the issue came to the

conclusion that there was no increase in the value of land

as claimed by the assessee and the books of accounts only

recorded the amounts spent on construction of the building

and the same could not be attributed to purchase of land as

claimed. The Assessing Officer, therefore, proceeded to

make the impugned addition.

4. The assessee challenged the addition before the

learned CIT (Appeals) and the arguments of the assessee on

the above issue are as under :

"A search u/s 132 was carried out at the business premises of the assessee company at B-XXXIII-212, G.T. Road (West), Jallandhar Bye Pass, Ludhiana on 01.03.2011. Inventory of cash in hand and Stocks were carried out and certain loose papers/documents were seized. As a result of discussion with the raiding party, a sum of Rs. 1 crore was surrendered u/s 132(4) for the A.Y. 2011-12 as follows :-

Undisclosed/Unrealized sales/Debtors : Rs.9000000

Unexplained Documents or Expenses : Rs.1000000

Total Rs.10000000 4

Among the seized documents, there was a paper, copy enclosed, which indicated certain payments made to Kay Jain Hosiery some by cheques some in cash. This paper was seized from the residence of Sh. Sanjeev Kumar Jain at 11-12, Mahavir Enclave, Barewal Road, Ludhiana, director of the company. The total payments of Rs.91,54,835/-, detailed on page 3 of assessment order, were for the purchase of land situated at plot no. 15, Punjab Apparel park, G.T. Road, Dohara, Ludhiana.

A perusal of this seized paper indicates that some payments were made by cheques and some payments were made in cash. The A.O. found that payments by cheque were recorded in the books of accounts but cash entries were not recorded. He therefore issued a notice under section 153A dated 05.12.2011 and in reply to which, the assessee filed its return in Form No.6 on 12.01.2012 declaring the same taxable income of Rs.1073410.

The A.O. asked the assessee as to why payments made in cash and not recorded in the books of account to which assessee replied vide letter dated 18.02.2013, copy enclosed stating that both types of entries were recorded in the books of account under two different heads i.e. payments by cheque amounting to Rs. 6574985/- under the head land account and payments made in cash of Rs.2579850/- under the head site development expenses under building under construction account.

The above explanation of the assessee did not find favour with the A.O. and he, therefore, made an addition of Rs.2579850/- to the already assessed income of Rs.1073410/-. Hence, this addition is agitated before your kind honour in appeal.

(A) SUBMISSION ON MERITS :-

The split up of the total cost of Rs. 9154835/- as detailed in the seized paper in respect of purchase of land is as follows :-

Cost of Plot @ Rs. 2150/- for 3969 Sq. Yds. :- 8533350/-

5 Boundry wall charges :- 244430/- 2 years maintenance charges :- 79380/- 50% transfer fee (paid to Punjab Apparel Park) :- 297675/- Total 9154835/-

The assessee wanted to pay the entire amount by cheque. However, the seller M/s Kay Jain Hosiery, which is not related to the assessee or any of its directors, for reasons best known to it, insisted on payment by cheques only to the extent of Rs.6574985/- and balance Rs. 2579850/- in cash.

Since the assessee was interested in purchasing the above Plot of land for setting up a new unit in the Hosiery zone on G.T. Road, Doraha, it had no other option but to comply with the wishes of the seller of plot.

Since the assessee did not have any surplus cash for that purpose, Sh. Sanjeev Jain, Director of the company, withdrew cash from his Bank A/c No. 10202389004 in State Bank of India by self cheques and out of that cash in hand payments were made to Kay Jain Hosiery from time to time. Some other expenses of the assessee company were met right from August, 2007 to March, 2008 and the total cash spent on behalf of the assessee company amounting to Rs. 40 lacs was debited to the assessee company on 31.03.2008.

Copy of Sanjeev Kumar Jain Account in Books of Jain Udhay Hosiery (P) Ltd., Bank A/c and cash in hand Account of Sanjeev Kumar Jain are enclosed.

From the above, it would become crystal clear that cash payments were made out of the bank withdrawls of Sh. Sanjeev Kumar Jain. The availability of cash cannot be doubted since the same was available by self withdrawals from SBI account as indicated in those accounts.

After the cash Payments made by Sh. Sanjeev Kumar Jain, the amount was debited to the assessee company. The assessee company had no choice to debit the cash payment to Kay Jain Hosiery to 'Land Account'. Instead it opted to debit the same 6

under the head 'Site Development expenses under Building construction account' by self prepared vouchers allegedly showing purchase of cement, sand, bricks & Stone etc. When actually these items were never purchased or used. Copy of Share Application account of Sanjeev Kumar Jain, Capital work in progress account and Imprest A/c Building Under Construction in the books of the Jain Udhay Fabrics Pvt. Ltd, are enclosed.

Actual expenses on construction of Building started much later and this fact can be got verified from an actual visit to the land site if considered feasible.

In view of the above submissions and factual position, it is prayed that the said addition of Rs. 2579850/- may kindly be deleted since the availability of the cash cannot be denied which was used for making cash payments to Kay Jain Hosiery who is the seller of the plot."

5. The learned CIT (Appeals) considering the

submissions of the assessee referred the matter to the

Assessing Officer for filing Remand Report and the

Assessing Officer also filed Remand Report on the matter in

issue. The observation of the learned CIT (Appeals) in para

5 of the appellate order reads as under :

" 5. The perusal of the submissions made by the appellant revealed that specific claim had been made to the effect that amount of Rs.25,79,850/- paid in cash for purchase of property from M/s Kay Jain Hosiery had been withdrawn from the personal account of Director Mr.Sanjeev Kumar Jain. It was further submitted that the said withdrawals from bank account in cash had been recorded in the books of accounts of the assessee company under the head 'Building and Construction'. It was also claimed that there had not been any actual construction of the building as recorded in the books of accounts but the said manipulation had been undertaken in order to generate the requisite cash for payment 7

of same for purchase of land. In this background, the AR of the appellant claimed that no construction on the given plot of land had been done which could be verified. It was under these circumstances that the Assessing Officer was directed to verify the claim of the appellant as to whether any construction had been undertaken during the year under consideration or in the later period. The Assessing Officer vide his report dated 22.07.2014 submitted the following comments after verifications:-

"In this regard, it is submitted that I alongwith my Inspector visited the site No.B-15, Punjab Apparel Park, G.T Road, Doraha (Ludhiana), which is purchased by the aforesaid company leased dated 22.05.2008. It is a vacant plot measuring 3969 sq.yards as per copy of site plan of the Punjab Apparel Park, Doraha submitted by the assessee.

It is further submitted that there is no construction or any development on the above said plot of land except for a small boundary wall for its identification which too appears to be very old one.

This report is submitted for your kind perusal and in compliance to your above said office letter dated 25.06.2014."

6. The assessee in rejoinder submitted as under :

"In continuation to our earlier written arguments dtd.11.02.2014 and your honour's directions to the Ld. Assessing Officer to visit the spot for verification of assessee's contention that actually no construction or development of the site purchased had taken place at all even till now.

From a perusal of the inspection report submitted by the Ld. Assessing Officer, your honour would observe that the assessee's contention stated in our reply dated 11.02.2014 stands established by actual inspection of the site by the Assessing Officer.

8 As regards boundary wall, which the Ld. Assessing Officer has observed that the same appears to be very old, it is submitted that the boundary wall was already existing at the time when the site was purchased. This would be clear from the sized paper already enclosed wi th our earl ier repl y that the cost of the boundary wal l at Rs.2,44,430/- was recovered by the seller from us separatel y in addition to the other costs of the site.

Thus, f rom both of the above f acts, it is clear that cash of Rs.25,79,850/- paid to the seller, which according to the Assessing Officer is income from undisclosed sources, actually has been paid by the director out of disclosed sources. The said amount was ultimately debited by the assessee company under the head "Building Construction Account" by giving fictitious names to the material purchased, though actually no material was purchased. This was done since the seller did not wish to take the entire price by cheque and the assessee did not have any money other than that recorded in the books of account.

In view of the above submissions, it is prayed that the addition made by the Ld. A.O to the tune of Rs.25,79,850/- may kindly be deleted."

7. The learned CIT (Appeals) considering the material

on record, Remand Report and submissions of the assessee

deleted the addition. The findings of the learned CIT

(Appeals) in para 7 of the appellate order are reproduced as

under :

"7. I have considered the facts of the case, the basis of addition made by the Assessing Officer and the submissions of the AR of the appellant and the verification on the same carried out by the Assessing Officer. The appellant had accepted the fact that no construction had been undertaken on the impugned plot of land either during the year under consideration or till date. The claim of the appellant to the effect that the entries made in the books of 9

accounts under the head 'Land and Development expenses' were intended to generate cash so as to make cash payments to the impugned seller seems to be correct. If the said en tr ies reg ard ing ex pen d iture of l and and bu il d ing construc tion were factually incurred, then there is no way the corresponding construction in the form of building would not have been there. Similar claim had been made by the appellant in respect of 'Land and Development expenses' debited in the year 2009-10 in the case" of M/s Jain Udhay Fabrics Pvt. Ltd. and on verification by the Assessing Officer fully developed building was said to be existing on the plot of land purchased by M/s Jain Udhay Fabrics Pvt. Ltd. It was under the given circumstances that the claim of appellant of having generated cash by manipulating books of accounts was found to be not acceptable and said addition had been confirmed. However since no building has been found to be constructed, as per the report of the Assessing Officer, the claim of the appellant on the issue cannot be said to be incorrect or without any basis. It is a matter of fact as established by the seized record that payments in cash to the tune of Rs.25,79,850/- had been made for purchase of plot, however the source thereof has been explained as bogus entries in the books of accounts under the head 'Land and Development expenses'. In view of the above detailed analysis of facts and circumstances of the case, the impugned entries in the books of accounts under the head 'Land and Development expenses' have not been found to be correct. In the circumstances, the next question arises as to where the said withdrawal of amount of cash has been utilized. The purchase of land by the appellant in same year involving payment of corresponding amount of cash as evidenced by seized record is clearly the answer to the question. In the circumstances, it would be wrong to conclude that source of said cash is unaccounted requiring addition. The said cash had been generated from the regular books of accounts as detailed above by wrongly terming the same as 'Land and Development expenses'. Therefore, no case for separate addition on this account is called for. Same is therefore directed to be deleted.

In the result appeal is allowed."

10 8. We have heard the learned D.R for the Revenue

and learned counsel for assessee at length and perused the

material available on record.

9. The learned counsel for assessee also placed on

record copy of Lease deed of plot No.B-15, Punjab Apparel

Park, G.T. Road, Doraha dated 22.5.2008. The

consideration of the Lease Deed is Rs.28,77,525/-. It is not

in dispute that during the course of search operation the

seized document was found and recovered from the

residence of the director of assessee company which

revealed that an amount of Rs.91,54,835/- has been paid

for purchase of the land situated at plot No.B-15, Punjab

Apparel Park, G.T. Road, Doraha. The assessee never

disputed the contents of the above seized document found

during the course of search. Section 292C of the Act would

also apply against the assessee and presumption shall be

laid against the assessee that the seized document belonged

to the assessee company. The learned counsel for assessee

also during the course of arguments did not dispute the

contents of the seized document revealing that the amount

of Rs.91,54,835/- had been paid for purchase of the above

plot. Part of the payment had been made by cheque and

the dispute is of the cash payment to the purchaser of

Rs.25,79,850/-. The assessee at the assessment stage

claimed that the cash amount of Rs.25,79,850/- had been

booked under the head 'land and site development expenses' 11

instead of 'land account'. Later on the assessee, however,

stated that these expenses were claimed through self

prepared vouchers showing purchase of cement, sand,

bricks and stone, etc. However, actually these items were

never purchased or used. It was, therefore, clear that the

assessee manipulated the book entries for the purpose of

showing the amount in question claiming it to be through

explained sources. The learned CIT (Appeals) also observed

in his findings that the claim of the assessee of generating

cash by manipulating books of account was found to be not

acceptable and the said addition has been confirmed. The

learned CIT (Appeals), however, on building construction

that no construction have been raised on the plot and that

the withdrawal of the amount of cash had been utilized,

deleted the addition. The learned CIT (Appeals) further

observed that the source of the amount in question has been

claimed through bogus entries in the books of account.

Therefore, on giving such observation against the assessee,

the learned CIT (Appeals) should not have deleted the

addition. The learned CIT (Appeals) also failed to

appreciate and consider the material on record. The

learned CIT (Appeals) accepted the withdrawal of the

amount for the purpose of explaining the amount in

question. The assessee has filed copies of the account of

Shri Sanjeev Kumar Jain from 1.4.2007 to 31.3.2008 in the

books of account of Jain Uday Hosiery (P) Ltd., from where

the funds were transferred to his saving bank account in

State Bank of India at pages 8 and 9 to show withdrawal of 12

the director from another company. Further copies of the

saving account with SBI of Shri Sanjeev Kumar Jain from

1.4.2007 to 31.3.2008 in his books of account showing

withdrawal of cash amount out of which share application

money for Rs.40 lacs were given to the assessee company is

filed at pages 10 to 12. Copies of the saving bank

statement of SBI of Shri Sanjeev Kumar Jain from 1.4.2007

to 31.3.2008 are filed at pages 13 to 28 from where cash

was withdrawn. Copy of cash in hand in the books of Shri

Sanjeev Kumar Jain from 1.4.2007 to 31.3.2008 is filed at

pages 29 of the Paper Book. Copy of Shri Sanjeev Kumar

Jain share application account is filed at page 30 to show

on 31.3.2008 cash of Rs.40 lacs has been received for share

application money. Copies of imprest account building

under construction for 1.4.2008 to 31.3.2009 from where

amounts were shown as used in construction to square up

the account are filed at pages 32 to 35. The learned

counsel for assessee by referring to these documents

submitted that the director Shri Sanjeev Kumar Jain has

withdrawn Rs.40 lacs from 1.4.2007 to 31.3.2008 (PB-29)

which was sufficient to explain the source of amount in

question for purchase of the plot. He has, however,

submitted that the same amount was wrongly shown for

giving of share application money which was mere entry.

The contention of the learned counsel for assessee is wholly

incorrect and is not acceptable. Once the assessee 13

manipulated the books entry in the books of account to

show initially that the cash payments were booked under

the head 'land and site development expenses', would

clearly disapprove the contention of the assessee. The

assessee accepted this fact in the reply before the learned

CIT (Appeals) that in fact, no building material was

purchased and used. Therefore, initially the claim of the

assessee of using the material for site development

expenses was found to be incorrect. The assessee further

tried to explain that the amount was withdrawn by Shri

Sanjeev Kumar Jain from the company and later on

transferred to his account from where the cash was

withdrawn. The explanation of the assessee is also false

and fabricated. The copies of the statements referred to

above pertained to the period from 1.4.2007 to 31.3.2008.

The Lease Deed of the property in question is, however,

dated 22.5.2008. It would, therefore, clearly prove that the

amount in question withdrawn by Shri Sanjeev Kumar Jain

has no connection with the Lease Deed in question. No

purchaser without entering into the deal to purchase the

property would withdraw the small amounts in whole of the

year in anticipation to purchase the property and when the

property is purchased by the assessee company, the

assessee company has failed to withdraw any amount,

therefore, there was no reason for the director to withdraw

small amount in whole of the year in earlier years.

Therefore, the claim of the assessee that the amount as

withdrawn by Shri Sanjeev Kumar Jain is available to the 14

assessee company for explaining the amount in question,

was wholly incorrect. Further the claim of the assessee is

factually incorrect because ledger of Shri Sanjeev Kumar

Jain (cash in hand)(PB-29) shows that the amount of

withdrawal of Rs.40 lacs was paid to Jain Udhay

International (P) Ltd. for share application money on

31.3.2008 and according to the statement of learned counsel

for assessee the share application money entry was also

bogus would clearly show that the assessee was

manipulating and making bogus entry so as to explain the

source of investment in property. Therefore, there is no

question of accepting the explanation of the assessee for the

source of investment in the property. The learned CIT

(Appeals) without appreciating the facts and circumstances

of the case and without any valid and cogent reasons should

not have deleted the addition. Thus the assessee has failed

to explain the source of the cash in question. Therefore,

the learned CIT (Appeals) should not have deleted the

addition.

10. Considering the totality of the facts,

circumstances, material on record and bogus entries made

by the assessee and its director in the books of account

clearly suggest that the assessee has failed to explain the

source of payment of cash of Rs.25,79,850/-. Therefore,

the order of the learned CIT (Appeals) cannot be sustained

in law. The same is liable to be reversed.

15

11. Accordingly, in view of the above discussion, the

order of the learned CIT (Appeals) is set aside and reversed

and the order of the Assessing Officer is restored.

12. In the result, departmental appeal is allowed.

Order pronounced in the open court on this 8th day

of April, 2015.

Sd/- Sd/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated : 8 t h April, 2015

*Rati*

Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.

Assistant Registrar, ITAT, Chandigarh