Precision Infrastructure (P) Ltd., New ... vs Department Of Income Tax

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH 'F', NEW DELHI Before Sh. N. K. Saini, AM And Sh. I. C. Sudhir, JM ITA No. 2542/Del/2013 : Asstt. Year : 2008-09 Asstt. Commissioner of Income Vs M/s Precision Infrastructure (P) Ltd., Tax, Central Circle-23, M-11, Middle Circle, Connaught New Delhi Circus, New Dehi-110001 (APPELLANT) (RESPONDENT) PAN No. AADCP9177B Assessee by : Sh. V. S. Rastogi, CA Revenue by : Sh. Vikram Sahay, Sr. DR

Date of Hearing : 20.11.2014 Date of Pronouncement : 09.01.2015

ORDER Per N. K. Saini, AM:

This is an appeal by the department against the order dated 22.01.2013 of ld. CIT(A)-XXXIII, New Delhi.

2. The only effective ground raised in this appeal read as under:

"On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition of Rs. 20,05,346/- made by the Assessing Officer on account of interest on PDCs Paid outside the books of account."

3. Facts of the case in brief are that the assessee filed the return of income on 16.09.2008 declaring an income of Rs. 34,861/-. Later on, the case was selected for scrutiny. The 2 ITA No. 2542/Del/2013 Precision Infrastructure (P) Ltd.

assessee was engaged in the business of development, construction and marketing of real projects for commercial & residential use. A search & seizure operation was carried out on BPTP Ltd. and some of its group companies on 15.11.2007, the assessee company belonged to the said group. On the basis of the post search enquiries made, it was established that the group company BPTP were following a business model as a part of which only part payments of the sale consideration in respect of the land purchased were paid at the time of execution of sale deed and the payments of balance sale consideration were invariably made through post dated cheques (PDCs) and for the intervening period (i.e. period between the date of sale deed and the date of encashment of PDCs), interest was paid in cash to the vendors of the land by the vendee company on monthly basis @ 1.25% p.m. According to the AO this cash payment of interest by the vendee company was not accounted for by the assessee in its books of account. The contention of the assessee before the AO was that no search warrant had been issued in the name of the assessee and hence documents recovered from the third party which did not belong to the assessee could not be used for reopening the completed assessment. The assessee also submitted to the AO as under:

3 ITA No. 2542/Del/2013 Precision Infrastructure (P) Ltd.

"..... we explain the modalities of issuing post dated cheques without payment of interest while executing and registering the sale deeds of lands. It often happens that when sale terms are finalized by the companies with farmers, it is agreed that part of sale consideration will be paid to the seller in the form of post dated cheques (PDC) without payment of interest. Such consideration is arrived at after taking into account compensation for deferment of payment. Such post dated cheques are unequivocally accepted by the sellers and this fact is recorded in the sale deed/receipt attached to the sale deed and forms part thereof. Since the mode of payment of part consideration by PDCs, as also the quantum of consideration specified in the PDC, is agreed to by the buyer, there is no question of payment of any interest for post dated cheques so issued. We deny that we have paid any interest against the post dated cheques....

It is emphasized that it is not the total consideration but only part consideration which is covered by the PDCs. It must be appreciated that part of sale consideration has already been given and recorded in the books. Human conduct shows that a builder, when he acquires such stock-in-trade would not pay the entire amount in one go. Rather he would depend upon receiving consideration from the customer, as and when it is received and then pay towards his liability for land and that is exactly what we have done. The sale between the company and the farmers is based on a bilateral contract which is executed as a sale deed and duly registered under the Registration Act. There is no evidence to show that, any interest payment over and above what has been recorded in 4 ITA No. 2542/Del/2013 Precision Infrastructure (P) Ltd.

the sale deed as sale consideration has been made by company. In this connection, as regards the question of tax avoidance or evasion, it is submitted that under sections 91 and 92 of the Evidence Act, no oral evidence may be admitted by the Court which is contrary to the averments contained in a written document (i.e. the sale deed in this case) and that a written contract cannot be ignored and a different contract between the parties be spelt out by the Court References:

(i) Re Poly Pack International PLC (in admn.) (1962) 2 All ER 433

(ii) CIT V Motor & Gen. Stores (P) Ltd. (1997) 66 ITR 692 (SC)

(iii) CIT V. B. M. Kharwar (1969) 72 ITR 603

(iv) ITO V. Shriram Bearings Ltd. (1987) 164 ITR 419 (Cal) affirmed in ITO V. Shriram Bearings Ltd. (1997) 224 ITR 724 (SC)

(v) SBI Vs Mula Sahakari Sakar Karkhana Ltd.

reported in 132 Comp Cases 565 (SC)..... Kindly note that as explained above, the consideration for delay in payment is already considered in the sale price agreed. The post dated cheques are also mentioned at the time of executing sale deeds in the form of receipts issued as attached which clearly shows that both the parties have agreed to payment through post dated cheques. We would like to point out that payment under a bilateral agreement depends entirely upon commercial understanding between buyer and seller and the same cannot be questioned by the assessing officer. In our case the farmers have clearly agreed for accepting payments through post 5 ITA No. 2542/Del/2013 Precision Infrastructure (P) Ltd.

dated cheques. Hence, there is no question of payment of any interest."

4. The AO did not find merit in the submissions of the assessee and made the addition of Rs. 20,05,346/- by observing in paras 2.6 and 2.7 of the assessment order dated 28.12.2010 as under:

"2.6 So keeping in view the business model/modus operandi of the BPTP Group, as is clear from the seized material as already discussed supra, it is proved beyond any iota of doubt that the assessee has also paid interest in cash to the vendor(s) on the amount of PDCs @ 1.25% per month (15% per annum) outside its books of account. Thus, by applying the rate of 1.25% per month on the amount of PDCs for the intervening period i.e. from date of sale deed to date of encashment of PDCs, the total amount of unaccounted interest paid by the assessee company to the vendors, is being computed as under:

S. Sa le Na me of t he Da te of Amou nt of Da te of No. of Amou nt of No. deed Vendor sa le deed PDC (in enca s hme Mont h PDC No. Rs) nt of int er est ( in PDCs Rs) (Ax B ( A) (B) x 1.25% 1 8744 Ra jpa l 20.7.2007 3,379,700 6.9.2007 2 84,493 2 8744 Chit er pa l 20.7.2007 3,379,700 6.9.2007 2 84,493 3 8744 Ur mila 20.7.2007 675,825 6.9.2007 2 16,896 4 8744 Poona m 20.7.2007 675,825 6.9.2007 2 16,896 5 8744 Sa vita 20.7.2007 675,825 6.9.2007 2 16,896 6 8744 Pr a deep 20.7.2007 1,351,950 15.9.2007 2 33,799 7 9268 Joginder Pa l 20.7.2007 2,450,000 18.9.2007 2 61,250 6 ITA No. 2542/Del/2013 Precision Infrastructure (P) Ltd.

8 3654 Ka nwa r la l 14.5.2007 6,384,375 18.7.2007 2 159,609 9 3654 Ka ila sh Kr 14.5.2007 6,384,375 18.7.2007 2 159,609 10 3654 Ya dr a m 14.5.2007 6,384,375 18.7.2007 2 159,609 11 3654 Sa tish Kr 14.5.2007 6,384,375 17.7.2007 2 159,609 12 3656 Ka nwa r la l 14.5.2007 10,521,875 18.7.2007 2 263,047 13 3656 Ka ila sh Kr 14.5.2007 10,521,875 18.7.2007 2 263,047 14 3656 Ya dr a m 14.5.2007 10,521,875 18.7.2007 2 263,047 15 3656 Sa tish Kr 14.5.2007 10,521,875 17.7.2007 2 263,047 Grand Tot al 20,05,346

2.7. As per above computation, a sum of Rs. 20,05,346/- has been paid by the assessee to the vendors as interest on PDCs issued to them. Since this interest has been paid by the assessee company outside its books of accounts in cash and has not been accounted by it in its books of accounts, the same is added to the income of the assessee being paid out of its undisclosed income."

(Addition of Rs. 20,05,346/-)

5. Being aggrieved the assessee carried the matter to the ld. CIT(A) who partly allowed the relief to the assessee and direct the AO to compute interest after 6 months from date of sale on conservative side. The relevant findings has been given by the ld. CIT(A) in para 5.4 of the impugned order which read as under:

"5.4 Learned AR has maintained all along that interest is not paid as all the receipts are only memorandum only. Analysis of these above seized document reveals that these seized documents definitely proves that interest is paid on PDCs. Various voucher in seized 7 ITA No. 2542/Del/2013 Precision Infrastructure (P) Ltd.

documents conclusively proves that the recipient has signed on voucher for receipt of the interest. Ld. AR's contention that these are only working of interest claimed by seller for putting up before senior management does not appear to be convincing. In case of claim, the receiver will not sign the voucher as recipient. Amounts are specific and calculation is 15% per annum. Therefore, Ld. AR without conceding that the interest is paid on PDCs has taken the stand that in none of the seized material, i.e. even in receipt seized, the interest is from date of issue of PDCs. Now issue arises whether interest on PDCs are paid from date of issue or for extension of PDCs. Documents discussed above where there is clear evidence of receipt of interest is for extension of period of PDCs. Ld. AR's arguments that calculation of interest on PDCs are extended, the recipient will definitely ask and settle for some additional compensation in form of interest. There is no evidence which proves that interest is paid from the date of sale to date of encashment of post dated cheques. However, there is concrete evidence in form of seized material to show that interest is paid and received by seller on the extension of PDCs as discussed above while analyzing the seized document. Therefore, in my view where ever the date of PDCs are extended interest is paid @ 15% per annum in cash out of Books of accounts which are evident from seized material. Therefore, interest on PDCs to the extent of extension period appears to quite reasonable and logical. Accordingly, interest on PDCs either as sale consideration or additional payment may be recomputed to the extent of extended period of PDCs by the AO and to that extent addition is confirmed. The above formula will apply to all group companies under the management of BPTP i.e. (M/s BPTP and Associate 8 ITA No. 2542/Del/2013 Precision Infrastructure (P) Ltd.

companies) including the appellant company as evidence is found in respect of various companies of BPTP and some seized paper could not be related to specific company. Therefore, it is proper to apply this formula for all companies under the common management of BPTP Group, head by Shri Kabul Chawla. All these companies are closely linked. Some companies purchase land and transfer the same to M/s BPTP Ltd., or Countrywide Promoters (P) Ltd. for Housing or commercial projects are ultimately developed and sold by M/s BPTP Ltd. and Countrywide Promoters Ltd. or in stray case by some other companies. Assessing Officer has applied the case of Eusuf Ali for applying interest on PDCs for all companies of BPTP Group for all Assessment Year under consideration. Ld. AR has tried to differentiate the above cited case on facts. In my view, as interest payment on extension of period of PDCs are established on numerous seized documents. A trend is established for the group as the overall management is controlled by one person Sh. Kabul Chawla and activities of all companies are interrelated. If it is not possible to work out the extension of PDCs in each case then AO is directed to recompute interest on PDCs after six months from date of issue of PDCs i.e. date of sale, as six months is taken as reasonable period for giving PDC as per sale deed. This view is formed on the basis the statement of Sh. Chhotu Ram which says that normally PDCs are given for 8 to 10 months. Further Ld. AR has also submitted few Sale Deed in respect of some of Seized record in the case of Ramvati Beero etc. where the interest working is made after 9/15 months. Taking these facts into consideration. It would be proper to compute interest 9 ITA No. 2542/Del/2013 Precision Infrastructure (P) Ltd.

after 6 months form date of Sale on conservative side. Accordingly this ground is partly allowed.

6. Now the department is in appeal. The ld. DR reiterated the observations made by the AO and strongly supported the assessment order dated 28.12.2010. In his rival submissions the ld. Counsel for the assessee submitted that the issue is squarely covered by the order dated 31.10.2014 of the ITAT 'C' Bench, New Delhi in the case of a sister concerns of the assessee viz. M/s IAG Promoters and Developers Pvt. Ltd. in ITA Nos. 1674/Del/2013 & 1765/Del/2013 for the assessment year 2008-09(copy of the said order was furnished).

7. We have considered the submissions of both the parties and carefully gone through the material available on the record. It is noticed that the facts of the present case are identical to the facts involved in the case of M/s IAG Promoters and Developers Pvt. Ltd. (supra). The said company is a sister concerns of the assessee and belonged to the same group companies of BPTP Group to which the assessee belongs. In the said case vide order dated 31.10.2014 the ITAT Bench 'C', New Delhi in ITA Nos. 1674/Del/2013 & 1765/Del/2013 for the assessment year 2008-09 observed in para 5 as under:

10 ITA No. 2542/Del/2013 Precision Infrastructure (P) Ltd.

"5. We have heard the arguments of both the sides and perused relevant material placed before us. At the outset, the ground raised by the Revenue is misconceived because learned CIT(A) has not deleted the addition of Rs. 5,06,625/- but has only directed to recalculate the interest. We have carefully gone through the order of the learned CIT(A) and also the submissions of both the parties and we do not find any infirmity in the order of the learned CIT(A). After examining the loose papers seized at the time of search at the assessee's premises, it was noticed that interest is paid on the PDCs only during the period of extension of PDCs and, therefore, he directed the Assessing Officer to recompute the interest on PDCs at the time of extension of the PDCs. He has further observed that if it is not possible to work out the extension of PDCs in each case, then the Assessing Officer is directed to recompute interest on PDCs after six months from the date of issue of the PDCs.

Therefore, the ground of appeal of the Revenue that the CIT(A) deleted the addition of Rs. 5,06,625/- made by the Assessing Officer on account of interest on PDCs is factually incorrect and contrary to the order of the CIT(A). The CIT(A) directed to recalculate the interest on PDCs and there was a sound logic for such direction. His direction is based on material found and seized at the time of search. In view of the above, we do not find any justification to interfere with the order of learned CIT(A) in this regard and accordingly, we reject ground No. 1 of the Revenue's appeal"

8. Since, the facts of the present case are similar to the facts involved in the aforesaid referred to the case. So, respectfully 11 ITA No. 2542/Del/2013 Precision Infrastructure (P) Ltd.

following the order dated 31.10.2014 in ITA Nos. 1674/Del/2013 & 1765/Del/2013 for the assessment year 2008- 09 in the case of sister concern of the assessee viz. M/s IAG Promoters and Developers Pvt. Ltd., we do not see any valid ground to interfere with the findings given by the ld. CIT(A) and accordingly do not see merit in this appeal of the department.

9. In the result, the appeal of the department is dismissed. (Order Pronounced in the Court on 09/01/2015)

Sd/- Sd/-

(I. C. Sudhir) (N. K. Saini) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 09/01/2015 *Subodh* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5.DR: ITAT ASSISTANT REGISTRAR

Date Initial 1. Draft dictated on 02.01.2015 PS 2. Draft placed before author 05.01.2015 PS 3. Draft proposed & placed before the second JM/AM member 4. Draft discussed/approved by Second Member. JM/AM 5. Approved Draft comes to the Sr.PS/PS PS/PS 6. Kept for pronouncement on PS 7. File sent to the Bench Clerk PS 8. Date on which file goes to the AR

9. Date on which file goes to the Head Clerk.

10. Date of dispatch of Order.