N.K. Sharma Enterprises Pvt. Ltd., ... vs Assessee

M/s N.K. Sharma Enterprises Vs. The AC IT Pvt. Ltd., Central Circle Ward 6, NAC Patiala Zirakpur

PAN No. AABCN3333K

(Appellant) (Respondent)

Appellant By : Sh. Sudhir Sehgal Respondent By : Sh. Manjit Singh

Date of hearing : 16/04/2015 Date of Pronouncement : 06/05/2015

ORDER

PER T.R.SOOD, A.M.

Both the appeals filed by the assessee are directed against the separate

orders dated 23/08/2012 of CIT(A)-I, Ludhiana ,

2. Since the assessee has raised identical issues, therefore, the appeals were

heard together and are being disposed of by this common order.

3. First, we shall take up the appeal in ITA No. 1051/Chd/2012. In this

appeal though assessee has raised various grounds numbering 1 to 16 but out

of it onl y ground Nos. 6, 10, 12 & 13 were pressed for hearing, which are as

under:-

6. That the Ld. CIT(A) has erred in confirming the addition of Rs.

8,88,795/- made by the Assessing Officer on account of so called construction charges paid from the undisclosed sources as per para- 12 of the order.

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10. That the Ld. CIT(A) has erred in confirming the addition of Rs. 75,438/- as per para 28 of his order, which was made by the Assessing Officer on the ground that the assessee had claimed the boring expenses as revenue expenditure whereas the same should be treated as capita expenses as per para 28 of the order.

12. That the Ld. CIT(A) has erred in confirming the addition of Rs. 72,050/- as discussed by him in para 33 to 35 of his order, which was made by the Assessing Officer on the ground that the assesee paid brokerage and consultancy charges to HLSI property Services India Ltd. on which, no TDS had been deducted.

13. That the Ld. CIT(A) has erred in not considering the fact that M/s HLSI property Services India Ltd. had been allowed exemption from the deduction of TDS on any payment made to him.

4. The other ground Nos. 5, 7 to 9, 11, 14 to 16 being not pressed are

dismissed as not pressed.

5. Ground No. 6:- After hearing both the parties we find that a search was

conducted in the N.K. Sharma Group of cases. During search, various

incriminating documents were found and seized. A document No. 51 of

Annexure A-12 dated 19.7.2006 and 18.8.2006 containing details of construction

charges amounting to Rs. 8,88,795/- was seized. The assessee was asked to

explain the details of sources of these expenses but no details were filed.

Ultimatel y, assessee was issued a show cause notice why this amount should not

be added to the income of the assessee but again no repl y was filed and,

therefore, this amount was added to the income of the assessee.

6. On appeal, it was submitted that assessee was engaged in the development

of various projects namel y Savitri Heights, D.E. Savitri Enclave, Savitri

Towers. In relation to these projects certain External Development Charges

(EDC) were required to be paid to Punjab Urban Planning and Development

Authorit y (PUDA). The charges mentioned in the seized documents were paid

by cheques to PUDA and were dul y entered in the books of account as can be

seen at pages 1 to 5. These submissions were forwarded by Ld. C IT(A) for 3

comments of Assessing Officer. The Assessing Officer objected to admission of

additional evidence because sufficient opportunit y was already given. These

comments were then confronted to the assessee.

7. In the rejoinder, it was mainl y submitted that Assessing Officer has not

commented on the merits of the issue but has simpl y objected to the admission

of the additional evidence. It was pointed out that since search was conducted in

a large group of assessees, it was difficult to obtain and reconcile various

documents and i.e. why the details could not be filed before the Assessing

Officer. Certain case laws were relied for admission of additional evidence.

8 The Ld. C IT(A) after examining the submissions, comments of the

Assessing Officer and counter comments of the assessee admitted the additional

evidence because according to him the same were required for adjudication of

the assessee. Further, on merits the issue was decided against the assessee vie

Para 11 which is as under:-

"11. The perusal of document at Sr. No. 52 of Annexure A-12 shows that it records the following transactions:-

Name Amount Date

Savitri Height Rs. 1,39,000/- 19/03/2006 D.E.O Rs. 2,52,528/- 31/08/2006 Savitri Enclave Rs. 1,95,607/- 31/08/2006 Savitri Tower Rs. 3,01,666/- 18/08/2006 Rs. 8,88,795/-

12. The appellant has explained the above detailed entries on the basis of following records:-

Date Amount 28/12/2006 Rs. 1,39,600/- 28/12/2006 Rs. 2,66,222/- 28/12/2006 Rs. 1,95,607/- 28/12/2006 Rs. 3,01,666/-

The comparison of the entries in the seized document and the explanation given by the appellant shows that the amounts paid are on one date i.e. 4

28/12/2006 whereas the dates as per the seized record are absolutely different. Further the amounts also differ to some extent. In the circumstances it is apparent that the explanation given by the assessee does not account for the evidence of payment as recorded in the seized paper. The addition made by the Assessing Officer is therefore confirmed.

9 Before us Ld. Counsel for the assessee submitted that assessee is in the

Real Estate business and was engaged in the construction and development of

different projects. For this, the assessee has to incur various expenses. The

amounts mentioned in the seized documents relates to payments which were due

to PUDA on account of External Development Charges. These were noted onl y

as a reminder. The actual payments could not be made on due dates but were

made ultimatel y on 28.12.2006 through banking channel. In this regard, he

referred to pages 1 to 4 of the paper book which is copy of ledger accounts of

various PUDA units and clearl y shows that payments has been made through

drafts.

10. On the other hand Ld. DR submitted that no details or evidence was filed

before the Assessing Officer regarding sources of this investment. The story of

making payments through banking drafts is an afterthought and these bank drafts

may relate to different dues.

11. We have considered the rival submissions carefull y. The sized documents

enumerated in A-12 reads as under:-

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12. The above clearl y shows that assessee noted certain payments made on

various dates towards different projects. There is no mention of PUDA in the

notings. Therefore, it is difficult to believe that payments have been made to

PUDA on account of External Development Charges. At the same time since the

assessee has filed a Bank Ledger Account, therefore, assessee was directed to

produce copies of the receipts from PUDA which will clinch the issue one wa y

or the others. For this Ld. Counsel has sought time of one week. The case was

treated as heard. After one week Ld. Counsel has simply filed copy of the

seized documents and a bank certificate from HDFC bank certifying that

Managers' cheque (MC) were issued on 20.12.2006 in favour of PUDA.

13. Thus, it is clear that no evidence is available to show that payments were

not made. It is very difficult to believe that assessee has made certain notings in

the diary just to remember that the same were required to be made to PUDA.

The dates mentioned in the notings are totall y different from the dates shown in

the bank certificate. Even if assuming for an argument sake that some payment

have been made through banking channel to PUDA the same may relate to some

other matter or another installment of External Development Charges. We fail to

understand that if payments noted in the seized documents were reall y related to

PUDA then why assessee is not in a position to produce receipts from PUDA

because the same relates to purchase of propert y and are generall y preserved

very carefull y. Therefore, in the absence of any evidence it is clear that assessee

has incurred certain expenditure for which no source has been explained before

the Assessing Officer or CIT(A) or even before us. However, we have also noted

that the payment amounting to Rs. 1,39,000/- has been made on 19.3.2006 which

means it relates to earlier year and cannot be added on the basis of seized

documents in this year. Therefore, we delete the addition to the extent of Rs.

1,39,000/- and confirm the order of Ld. CIT(A) in respect of three amounts i.e.

Rs. 2,52,528/-, Rs. 1,95,607/- and Rs. 3,01,666/-. Therefore, this ground is

partl y allowed.

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14. Ground No.10:- After hearing both the parties we find that during

assessment proceedings the Assessing Officer noticed from document Nos. 1 to

3 of Annexure A-20 that same contains details of boring expense of Rs. 88750/-

In response to query no detail were filed. Therefore, the expenditure was held

to be of capital nature and the sum of Rs. 74,438/- after allowing 15%

depreciation was added to the income of the assessee.

15. On appeal it was mainl y submitted that assessee was engaged in the

business of construction and sales of flats and plots, therefore, any expenditure

incurred on development and construction of flats is necessary to be treated to

be of Revenue expenditure. However, Ld. C IT(A) did not find force in these

submissions and decided the issue vide para 28 against the assessee, which is as

under:-

"28. I have considered the basis of addition made by the AO and the arguments of the AR on the issue. The boaring expenses are expected to give an enduring benefit to the business of the appellant and in a way serves as sort of plant and machinery in the process of construction of flats. The regular availability of water is essential in the business of construction. Even after the flats are constructed, the borewell is intended to serve as source of water supply to the inhabitants. Therefore, the expenditure in question should have been treated as capital. As such the disallowance made by the Assessing Officer is confirmed."

16. Before us, Ld. Counsel for the assessee reiterated the submissions made

before the C IT(A).

17. On the other hand Ld. DR strongl y supported the impugned order.

18. After considering the rival submissions we find force in the submissions

of Ld. Counsel for the assessee. First of all in the case of assessee, flats etc.

are treated as stock in trade because the same are required to be sold by the

assessee. Therefore, any expenditure incurred on construction of such flats is to 7

be treated as Revenue expenditure. Further, once flats are sold the assessee

cannot take away the tubewell. Further the boring may or may not yield water

in later years and therefore, it cannot be said that the same is of enduring

nature, therefore, in our opinion this expenditure has to be treated as Revenue

expenditure. Accordingl y we set aside the order of Ld. CIT and delete this

addition.

19. Ground Nos. 12 & 13:- After hearing both the parties we find that during

the course of search document Nos. 264 and 268 of Annexure A-20 containing

bills of brokerage and consultancy charges amounting to Rs. 72,050/- were

found. The brokerage was paid to M/s HLS I Propert y Services India Ltd. The

assessee was show caused why this expenditure should not be disallowed

because no TDS was deducted. Since no repl y was filed the Assessing Officer

added the sum of Rs. 72,050/- to the income of the assessee.

20. On appeal, it was submitted that M/s HLS I Propert y Services India Ltd

was exempt from provisions of deduction of tax and that is why no TDS was

deducted. The Ld. CIT(A) did not find force in these submissions and dismissed

ground vide para 35 which is as under:-

"35. I have considered the basis of addition made by the AO and the arguments of the AR on the issue. The appellant has only claimed that M/s HLSI property services India Ltd. had been allowed exemption from the deduction of TDS on any payment made to them but no evidence to substantiate the claim had been filed either at the time of assessment proceedings or appellate proceedings. In the circumstances the action of the Assessing Officer in making the impugned disallowance is confirmed."

21. Before us Ld. Counsel for the assessee reiterated the submissions made

before the C IT(A).

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22. On the other hand Ld. DR strongl y supported the order of C IT(A).

23. After considering the rival submissions we find no evidence was filed

before the Assessing Officer or Ld. C IT(A) or even before us to show that M/s

HLS I Properties Ltd was exempt from Income Tax by issuance of a certificate

by the Tax Authorities. Therefore, we find nothing wrong with the order of Ld.

CIT(A) and confirm the same.

24. In the result, appeal of the assessee is partl y allowed.

ITA No. 1052/Chd/2012:-

25. In this appeal the assessee has raised the following grounds:-

1. That the Ld. Commissioner of Income Tax (Appeals) has erred in giving his findings that only 50% of donation of Rs. 3,24,025/- was wholly and exclusively for the purpose of business and, thus, the action of the Ld. CIT(A) in confirming the other 50% of donation amounting to Rs.

3,24,025/- is uncalled for as per para 4 of his.

2. That the Ld. CIT (A) has erred in confirming the addition of Rs. 6,210/-

Rs. 12,286/- and Rs. 89,957/- made by the Assessing Officer on account of undisclosed purchases, construction charges and unexplained cash as per para 26 of his order.

3. That the additions have been confirmed by the CIT(A) against the facts and circumstances of case and submissions made by the assesse have not been properly considered.

4. Notwithstanding above said grounds of appeal, it is submitted that the learned CIT(A) has erred in not considering that no addition can be made as no incriminating nature of documents were found and seized during the course of search and seizure operation in view of the Special Bench judgment in the case of All Cargo Global Logistics Limited & Others as reported in 147 TTJ 513.

26. At the time of hearing Ld. Counsel for the assessee submitted that he

wishes to withdraw this appeal. Accordingl y, an endorsement to this effect has

been made on the grounds of appeal itself.

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27. The Ld. DR has no objection for withdrawal of the appeal, therefore,

appeal is dismissed "as withdrawn"

28. In the result, the appeal is dismissed as withdrawn.

Order pronounced in the Open Court on 06/05/2015

(BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 06/05/2015 Rkk

Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR