Maloo Construction Pvt.Ltd., Surat vs Department Of Income Tax

ITO, Ward-1(3) बनाम/Vs. M/s. Maloo Construction Pvt. Ltd. Surat. C/o. C.S. Bhatt & Co. 5013, Trade House Nr. Rishubh Petrol Pump Ring Road, Surat 395 002, Gujarat.

PAN : AABCM 5690 A

(अपीलाथ / Appellant) ( यथ / Respondent)

राज व क ओर से/ : Shri Dinesh Singh, Sr.DR Revenue by नधा रती क ओर से/ : None Assessee by सन ु वाई क तार ख/ : Date of Hearing 1st June, 2015

घोषणा क तार ख/ : 11th June, 2015 Date of Pronouncement

आदे श / O R D E R

PER KUL BHARAT, JUDICIAL MEMBER : This appeal of the Revenue is

directed against the order of the Commissioner of Income-Tax (A)-I, Surat dated 21.1.2011 FOR THE Asstt.Year 2007-08.

2. The Revenue has raised the following grounds in the appeal:

"1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition made on account of disallowance of 10% of land development expenses of Rs.34,87,850/- inspite of the assessee's failure to produce books of accounts and evidences to prove its claim.

ITA No.864/Ahd/2011 2. On the facts and in the circumstances of the ld.CIT(A) ought to have upheld the order of the AO.

3. It is, therefore, prayed that the order of the CIT(A) may be set aside and that of the AO may be restored to the above extent."

3. Briefly stated facts of the case are that the case of the assessee was picked up for scrutiny assessment and the assessment was framed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). By framing the assessment, the AO made disallowance out of land development expenses at the rate of 10% amounting to Rs.34,87,850/- . Against this, the assessee filed an appeal before the CIT(A), who, after considering the submissions of the assessee deleted the addition on account of land development expenses.

4. The only ground raised in the appeal is against the deletion of the land development expenses.

5. None appeared on behalf of the assessee. The appeal was earlier fixed for hearing on 19.6.2014, but none appeared and the case was adjourned to 11.8.2014. The case was again adjourned and notice of hearing was sent to the assessee for 30.9.2014 and served upon the assessee. But none appeared on behalf of the assessee. Thereafter, matter was further adjourned to 18.11.2014, which was subsequently adjourned to 5.1.2015 and to 16.2.2015. Finally the case was fixed for hearing on 1.6.2015. The notice of hearing fixing the hearing on 1.6.2015 was returned with remark "unclaimed". The Income Tax Officer has vide letter dated 26.11.2014 informed that the notice has been served at the last known address of the assessee by affixture. Under these facts, the case was taken up for hearing in the absence of the assessee and proceeded to dispose of the appeal ex parte qua the assessee-respondent.

6. Apropos Ground no.1, the learned DR, Shri Dinesh Singh, argued that the order of the CIT(A) is non-speaking and submitted that before the AO, despite giving sufficient opportunity, the assessee failed to furnish supporting evidences

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with regard to the land development expenses. He submitted that under these circumstances, the CIT(A) was not justified in deleting the addition. The ld. DR reiterated the submission made in the statement of facts as under:

"In this case, the assessee company had filed its return of income for the A.Y. 2007-08 on 31.10.2007 by showing total income of Rs. Nil. The scrutiny assessment was completed U/s.143(3) of the Act on 30.12.2009 and the total income was determined at Rs.34,76,110.

During the course of assessment proceedings, the assessee was requested to furnish complete details of land developers expenses (Labour payment) of Rs.3,48,78,5007- alongwith documentary evidences. However, inspite of affording sufficient opportunities to the assessee company, the assessee failed to furnish the details called for. and thereby such expenses are not verifiable and ultimately it cannot be proved that the said expenses were wholly and exclusively incurred by the assessee for the purpose of her business. Therefore, in absence of any details, 10% out of the land development expenses which comes to Rs.34,87,850 were disallowed and added to the total income of the assessee company.

Ld. CIT(A)-I, Surat while relying on the assessee's submission has deleted the addition of Rs.34,87,850 on account land developers expenses on the following ground:

1. The A.O.'s action of disallowing 10% of land development expenses in not accordance with the settled laws mentioned by the appellant

2. The A.O. has not done proper homework before coming to his decision.

3. The A.O. has simply disallowed this amount without looking in to the earlier year's record.

4. in view of the case laws quoted by the appellant, the addition was hereby deleted.

The decision of the Ld.CIT(A) in deleting the addition made by the AO of Rs.34,87,850 on account of disallowance but of Land Development expenses of is not acceptable for the following reasons:

(i) Right from the outside, it is seen that the assessee company was not interested in furnishing the details called for. It is seen from the record that inspite of affording sufficient opportunities in the interest of natural Justice to the assessee company, the assessee failed to furnish the requisite details. Even after summons u/s.131 of the Income-tax Act 1961 was also issued and served to Shri

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Rajeev Kumar and Shri S.CJain, Directors of M/s. Maloo Construction Pvt. Ltd., to attend personally and they were requested to submit the certain details. However, Shri Rajeev Kumar and Shri S.C.Jain, Directors of the company were not attended and also the details called for were not submitted. In these circumstances, the expenses claimed in the return of income for A.Y. 2007-08 were not verifiable as the documentary evidences/proof were not submitted for verification. Thereafter, yet another show cause letter dated 21-12-2009 was issued which too has remained un-complied with. Meanwhile, the Authorized Representative of the assessee company attended on 29-12-2009, but without any explanation to the above show cause letter dated 21.12.2009. These facts clearly indicate the non cooperative attitude of the assessee company towards the Department by not furnishing the details and even not responding to the Summons issued U/s.131 of the Act.

ii) The assessee company had failed to produce books of accounts and evidences in support of claim made under the head of Land Development expenses.(The expenses claimed could not be treated correct till the same are verifiable, with the supporting evidences and other details. The expenses claimed were actually/fully utilized for the purpose of Land Development Expenses was thus remained unanswered while finalizing the assessment. In absence of details, the genuineness and correctness of expenses claimed was not allowed by the AO fully. The assessee company had also failed to prove the reasonableness of land development expenses claimed. As such, the AO was justified in disallowing 10% of the land development expenses which comes to Rs.34,87,850.

(iii) The Ld.CIT(A) has not appreciated that the nexus between the expenditure and the business, in connection with which expenditure has been incurred has to be established before the assessee get entitled to deduction u/s 37(1), In this case asessee had failed to establish the nexus in respect of development charges with supporting evidences. Hence, the claim for deduction is not admissible in view of ratio laid down by the following Court in the case of CIT v/s Calcutta Agency Ltd. 19 ITR 191 (SC)

Under the aforesaid facts and circumstances of the case and in law, the Department is aggrieved from the order of Ld. CIT(A) and appeal to the ITAT is preferred as per the grounds of appeal annexed."

-4- ITA No.864/Ahd/2011 7. We have heard the learned DR, perused the orders of the lower authorities and material available on record. We find that the AO in para-8 of his order, has observed as under:

"8. The assessee company has failed to produce books of accounts and evidences in support of claim made under the head of Land Development expenses. The expenses claimed could not be treated correct till the same are verifiable to the supporting evidences and other details. The expenses claimed were actually/fully utilized for the purpose of Land Development Expenses, are still unanswered. In absence of details, the genuineness and correctness of expenses claimed could not be allowed in totto. Further, the assessee company has also failed to prove the reasonableness of land development expenses claimed. Accordingly, 10% out of the land development expenses are disallowed which comes to Rs.34,87,850/- (10% of Rs.3,48,78,500) and same is added to the total income of the assessee company. Since the assessee has filed inaccurate particular of its income and concealment of income, the penalty proceeding u/s.271(l)(c) is initiated."

8. However, the ld.CIT(A) deleted the addition by observing as under:

"6. I have gone through the assessment order and have considered the rival's contentions. I am of the opinion the AO's action of disallowing 10% of land development expenses is not in accordance with the settled laws and the various case laws mentioned by appellant the copies of which have been submitted before me. The AO has not done proper homework before coming to his decision. He has simply disallowed this amount without looking into the earlier years' record. Hence, in view of the case laws quoted by the appellant, the addition made is hereby deleted and the appeal is allowed."

9. We find that, before the learned CIT(A), it is submitted by the assessee that it had filed audited account books, however, due to paucity of time, the assessee could not produce the books of account before the ld.AO. It is also submitted by the assessee that the head office of the company was in Kolkata and the directors reside there and this being a time barring assessment, the AO was in a hurry to pass the order. It is not coming out of the order of the CIT(A) that whether the assessee had produced books of accounts before the ld. CIT(A), and the ld.CIT(A) has based its findings on the basis of the books of accounts,

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or any other supporting evidences in the form of bills, vouchers etc. were considered. The AO has given a categorical finding that despite giving various opportunities, the assessee failed to produce the evidences in support of the expenditure so claimed. It is also admitted fact that the books of accounts were not produced before the AO. The ld.CIT(A) has also not given any findings whether the books of accounts were placed before him. It is a settled position of law that the assessee is required to prove with supporting evidences, the expenditure claimed to be business expenditure, for claiming the deduction. In the present case, there is nothing on record to suggest that the assessee has produced supporting evidences in support of the expenditure so claimed, therefore, even, the ld.CIT(A) has not given any findings whether the books of accounts were produced before him, and he had verified the genuineness of the expenditure from the books of accounts. Under these circumstances, the findings of the CIT(A) cannot be confirmed. Further, the AO has disallowed only 10% of the total land development expenditure, but the basis of such disallowance is not given. Therefore, the issue requires fresh adjudication at the end of the AO. Therefore, we restore this issue back to the file of the AO for decision afresh on this issue. Needless to mention, the AO shall provide reasonable opportunity to the assessee to produce relevant material in support of its case. Thus, this ground of appeal of the Revenue is allowed for statistical purpose.

10. The grounds no.2 and 3 being general in nature, need no adjudication.

11. In the result, the appeal of the Revenue is partly allowed for statistical purpose.

Order pronounced in Open Court on the date mentioned hereinabove.

Sd/- Sd/- (G.D. AGRAWAL) (KUL BHARAT) VICE-PRESIDENT JUDICIAL MEMBER

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