M/S Srinilaya Projects,, Hyderabad vs Department Of Income Tax

The Income Tax Officer, vs. M/s. Srinilaya Projects, Ward 8(1) Hyderabad. Hyderabad. PAN ABEFS2931D (Appellant) (Respondent)

For Revenue : Mr. Rajat Mitra For Assessee : Mr. S. Rama Rao

Date of Hearing : 06.01.2015 Date of Pronouncement : 09.01.2015

ORDER

PER P.M. JAGTAP, A.M.

These two appeals are preferred by Revenue in the case of two assessees for A.Y. 2009-2010 on common issues and the same therefore have been heard together and are being disposed of by single composite order for the sake of convenience.

2. First, we take-up the appeal filed by Revenue in the case of M/s. Srinilaya A.R. Projects being 2 ITA.No.777 & 778/Hyd/2014 M/s. Srinilaya A R Projects, Hyderabad.

ITA.No.777/Hyd/2014 which is directed against the Order of Ld. CIT(A), Vijayawada dated 31.01.2014.

3. Grounds No. 1 and 7 raised by the Revenue in this appeal are general in nature which do not require any adjudication. Grounds No. 2 to 4 involve an issue relating to addition of Rs. 60 lakhs made by A.O. on the basis of statement given by assessee at the time of survey which stands deleted by Ld. CIT(A).

4. The material facts relevant to this issue are that assessee is a partnership firm which is engaged in the business as a builder. A survey under section 133A was carried out in its case on 25.08.2008. During the course of survey, certain books of accounts, documents and loose sheets were impounded. During the course of survey, a statement of the assessee was recorded wherein he admitted additional income of Rs. 60 lakhs for A.Y. 2009-2010 to cover-up the deficiencies with regard to the expenditure incurred up to the date of survey. Subsequently, the return of income for A.Y. 2009-2010 was filed by assessee on 30.09.2009 declaring total income of Rs.18,41,256. Since the amount of Rs. 60 lakhs on account of additional income declared during the course of survey was not included in the computation of income filed along with the return of income, the assessee was called upon by A.O. to offer its explanation in the matter. In reply, a letter dated 20.12.2011 was filed by assessee offering its explanation as under :

"As mentioned we have admitted an income of Rs.60,00,000 for the F.Y. 2008-09 i.e., during the year in which the survey operation was conducted.

3 ITA.No.777 & 778/Hyd/2014 M/s. Srinilaya A R Projects, Hyderabad.

Though we have mentioned that to cover certain deficiencies in case we are not able to submit the work orders in proof of the difference among consideration as per sale deed and the actual consideration passed to us. The estimate of Rs.60,00,000/- was made based on anticipated sales for the said financial year. We wish to bring to your kind notice that an amount of Rs.71,85,330/- only incurred towards, expenditure and reported sales of Rs.1,70,73,268/- up to the date of survey i.e., 25.08.2008. By considering the said numbers the admission of Rs.60,00,000/- cannot be appropriated to the deficiencies assumed during the period from 1st April, 2008 to 25th August, 2008.

As evident from the ROI filed the sales were only to an extent of Rs.2,31,25,068/- and an amount of Rs.20,81,256/- reported as profit which works out to 9% of the sales. In the light these facts and even after considering the information available from impounded materials, books of accounts and other relevant documents produced from time to time during the course of assessment proceedings there is no need in fact no scope to report/admit such a huge amount of Rs.60,00,000/- in our return of income as additional income.

As we have realized the status of sales by the last month of the F.Y. 2008-09, the same was intimated to the assessing officer and requested not to consider the said admission and there by not to deposit the post dated cheques issued for discharging the tax liability on the said income offered."

4.1. The explanation offered by assessee was not found acceptable by A.O. and relying on the admission made by the assessee during the course of survey, additional income of Rs.60 lakhs was added by him to the total income of the assessee in the assessment completed under section 143(3) vide order dated 23.12.2011.

4.2. The addition of Rs. 60 lakhs made by A.O. on account of declaration made during the course of survey was disputed by the assessee in the appeal filed before the Ld. 4 ITA.No.777 & 778/Hyd/2014 M/s. Srinilaya A R Projects, Hyderabad.

CIT(A) and after considering the submissions made by the assessee as well as the material available on record, the Ld. CIT(A) deleted the said addition made by the A.O. for the following reasons given in paragraph No. 5.2 of the impugned order.

"5.2. I have carefully considered the facts of the case, the submissions of the appellant as well as the order of the Assessing Officer. I find that the appellant during the course of survey had admitted Rs.60,00,000/- to cover up the deficiencies in the expenditure incurred upto the date of survey, but the same was not admitted in the return of income filed for the Asst. Year 2009-10. The appellant contended that it has presumed that the sales would be proportionate to the sales from 01.4.2008 to 25.8.2008, but there was steep down fall in the sales in the later part of the financial year. As seen from the P & L A/c. filed by the appellant, it is noticed that sales from 01.4.2008 to 25.8.2008 i.e., upto the date of survey is Rs.1,70,73,268/- whereas from 26.08.2008 to 31.3.2009 is 60,51,800/-. Thus, there is a clear downfall in the sales from 26.08.2008 to 31.3.2009. It is also noticed that the appellant admitted the net profit as per the P & L A/c. of Rs.20,81,256/- which is 9%. If the amount of Rs.60,00,000 is added to Rs.20,81,256/- the profit would be Rs.80,81,256/- against the sale of flats of Rs.2,31,25,068/- which would give a rate of 34% which is unusually higher. I find that 9% net profit admitted by the appellant is reasonable and considering the case of the appellant, I feel that the addition of Rs.60,00,000/- is not justified and accordingly deleted. This ground of appeal is decided in favour of the appellant."

5. We have heard the arguments of both the sides on this issue and also perused relevant material on record. It is observed that although additional income of Rs.60 lakhs was surrendered by the assessee during the course of survey, the reason for not offering such additional income in the return filed for the year under consideration was duly explained by the assessee on the basis of the actual facts and figures of the 5 ITA.No.777 & 778/Hyd/2014 M/s. Srinilaya A R Projects, Hyderabad.

post survey period. This explanation offered by the assessee, however, was not accepted by the A.O. without giving any reason whatsoever and addition of Rs. 60 lakhs was made by him merely on the basis of statement made by the assessee during the course of survey without giving any basis to corroborate the same. As rightly pointed-out by the assessee and taken note by the Ld. CIT(A), there was a clear down-fall in the sales of the assessee during the course of post survey period. Moreover, net profit of 9% was declared by the assessee on the entire sales for the year under consideration in the return of income filed and the same being fair and reasonable in the facts and circumstances of the case, the Ld. CIT(A) held that there was no justification in making a further addition of Rs. 60 lakhs which would have given an unusual higher net profit rate of 34%. Having regard to all the facts of the case, we find no infirmity in the impugned order of the Ld. CIT(A), deleting the addition of Rs. 60 lakhs made by the A.O. merely on the basis of statement made by the assessee during the course of survey and since the learned D.R. has also not raised any material contention to dispute the relief allowed by the Ld. CIT(A) to the assessee on this issue, we uphold the impugned order of the Ld. CIT(A) on this issue. Grounds No. 2 to 4 of the Revenue are accordingly dismissed.

6. Grounds No. 5 and 6 involve an issue relating to the addition of Rs.13,49,252 made by the A.O. under section 40A(3) on account of cash payments exceeding Rs.20,000 made by the assessee, which stands deleted by the Ld. CIT(A).

6.1. On verification of the books of accounts of the assessee, the A.O. found that expenditure aggregating to Rs.13,49,252 was incurred by the assessee involving items for 6 ITA.No.777 & 778/Hyd/2014 M/s. Srinilaya A R Projects, Hyderabad.

which payments were made in cash exceeding Rs.20,000. He, therefore, invoked the provisions of section 40A(3) and made disallowance of Rs.13,49,252.

6.2. On appeal, the Ld. CIT(A) deleted the disallowance made by the A.O. under section 40A(3) observing that the amount to the extent of Rs.7,99,400 was paid in cash to the Head of labourers by the assessee in order to make individual payments to the labourers comprising payments of lesser than Rs.20,000 each. As regards the balance amount, he held that the same represented aggregate amounts paid in single day but involving payments of less than Rs.20,000.

7. We have heard the arguments of both the sides on this issue and also perused relevant material on record. The Ld. D.R. has invited our attention to the relevant details of cash payments furnished by the assessee before the A.O. as placed at page no.66 of the assessee's paper book to point out that all the payments made by the assessee on account of material and labour exceeded Rs.20,000. He submitted that the A.O. therefore, was fully justified in invoking the provisions of section 40A(3) to make a disallowance of these payments and although the Ld. CIT(A) has deleted the said disallowance made by the A.O. on the ground that individual payments did not exceed Rs.20,000, there is nothing either in his impugned order or even in the details furnished by the assessee in the paper book to establish the same. He has contended that an opportunity may be afforded to the A.O. to verify this aspect. Since the Ld. Counsel for the assessee has no objection in this regard, we set aside the order of the Ld. CIT(A) on this issue and restore the matter to the file of A.O. for deciding the same afresh, after verifying the stand of the assessee that the 7 ITA.No.777 & 778/Hyd/2014 M/s. Srinilaya A R Projects, Hyderabad.

individual payments made in cash did not exceed Rs.20,000 at a time. Grounds No. 5 and 6 of the Revenue's appeal are accordingly treated as allowed.

8. In the result, ITA.No.777/Hyd/2014 of the Revenue is partly allowed for statistical purposes.

9. Now, we shall take up the appeal of the Revenue being ITA.No.778/Hyd/2014 filed in the case of M/s. Srinilaya Projects which is directed against the Order of the Ld. CIT(A), Vijayawada dated 31.01.2014.

10. Grounds No. 1 and 7 are general in nature and therefore, do not require adjudication.

11. Grounds No. 2 to 4 involve a common issue relating the addition of Rs.20 lakhs made by A.O. on account of declaration given by the assessee during the course of survey which stands deleted by the Ld. CIT(A).

11.1. As agreed by both the parties, this issue is similar to the one involved in the case of M/s. Srinilaya A.R. Projects in ITA.No.777/Hyd/2014 which has already been decided by us in the foregoing paras of this order. Accordingly, following the same, we uphold the impugned order of the Ld. CIT(A) on this issue. Grounds No. 2 to 4 of the Revenue's appeal are dismissed.

12. Grounds No. 5 and 6 involve an issue relating to the addition made by the A.O. under section 40A(3) on account of cash payments exceeding Rs.20,000 made by the assessee aggregating to Rs.9,98,400, which stands deleted by the Ld. CIT(A).

8 ITA.No.777 & 778/Hyd/2014 M/s. Srinilaya A R Projects, Hyderabad.

13. As agreed by both the parties, this issue is similar to the one involved in the case of M/s. Srinilaya A.R. Projects in ITA.No.777/Hyd/2014 which has already been decided by us in the foregoing paras of this order except the fact that one payment of Rs.1,55,250 made by assessee to Surya Timber was found to be made by cross cheque and not in cash. Accordingly, following the same, we set aside the order of the Ld. CIT(A) and restore the issue to the file of the A.O. for verification, except the payment made to Surya Timber, after affording due opportunity of being heard to the assessee. Grounds No. 5 and 6 of the Revenue's appeal are accordingly treated as allowed for statistical purposes.

14. In the result, ITA.No.778/Hyd/2014 of the Revenue is treated as partly allowed for statistical purposes.

15. In the result, appeals of the Revenue are treated as partly allowed for statistical purposes.

Order pronounced in the open Court on 09.01.2015.

Sd/- Sd/- (ASHA VIJAYARAGHAVAN) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER

Hyderabad, Dated 09th January, 2015 VBP/- Copy to

1. The Income Tax Officer, Ward 8(1), 8th Floor, D-Block, I.T. Towers, A.C. Guards, Hyderabad.

2. M/s. Srinilaya A.R. Projects, Flat No.411, My Home Madhuban Apartments, Nagarjunanagar, Ameerpet, Hyderabad.

3. M/s. Srinilaya Projects, Flat No.411, My Home Madhuban Apartments, Nagarjunanagar, Ameerpet, Hyderabad.

4. CIT(A), Vijayawada.

5. CIT-II, Hyderabad.

6. D.R. I.T.A.T. "B" Bench, Hyderabad.