Radha Realty Corporation (I) P. Ltd.,, ... vs Assessee

2. The relevant facts of the case give raise to these appeals are as follows. The assessee is a company which is engaged in the real estate business of developing, plotting and construction of houses. A search and seizure action under section 132 of the Act was conducted in the case of the assessee on 17.10.2007. Pursuant to the said action, notices 2 ITA.No.13 to 17/Hyd/2014 Radha Realty Corporation (I) P. Ltd., Hyderabad.

under section 153A were issued by the A.O. on 10.10.2008 for all the five years under consideration, in response to which, its returns of income were filed by assessee company on 26.11.2008 declaring income as under :

A.Y. Income returned (Rs.) 2002-03 5,61,700 2003-04 8,33,740 2004-05 18,48,594 2005-06 19,13,640 2006-07 1,61,65,572

3. During the course of assessment proceedings, the case of the assessee was referred by the A.O. for special audit under section 142(2A) of the Act having regard to the nature of complexity of the accounts, after duly considering the objections raised by the assessee. As reported by the special auditor M/s. Mathesh & Ramana vide letter dated 07.06.2010, the assessee, however, did not extend any cooperation to them due to which the special audit could not be completed. Assessee also did not comply with the notices issued by the A.O. during the course of assessment proceedings. The A.O. therefore, was left with no option but to complete the assessments for all the years under consideration ex-parte to the best of his judgment on the basis of material available on record. In the assessments so completed under section 143(3) read with 153A of the Act vide orders dated 05.08.2010, the total income of the assessee for the years under consideration was computed by him as under after making certain additions including disallowance of development and selling expenses and disallowance u/s.40A(3).

3 ITA.No.13 to 17/Hyd/2014 Radha Realty Corporation (I) P. Ltd., Hyderabad.

A.Y. Income Disallowance Disallowance Total returned. of under section development 40A(3) and selling expenses (Rs.) (Rs.) (Rs.) 2002-03 5,61,700 21,27,550 18,56,234 45,45,484 2003-04 8,33,740 24,99,045 26,71,258 60,04,043 2004-05 18,48,594 14,03,092 69,26,130 1,02,32,421 2005-06 19,13,640 12,70,109 95,22,536 1,28,71,484 2006-07 1,61,65,572 39,61,661 3,07,98,920 5,10,93,466

4. Against the Orders passed by A.O. under section 143(3) read with section 153A for all the five years under consideration, appeals were preferred by the assessee before the Ld. CIT(A) challenging various additions made by the A.O. to its total income in the said assessments. During the course of appellate proceedings before the Ld. CIT(A), assessee again failed to comply with the notices issued by the Ld. CIT(A) fixing the hearing from time to time. Keeping in view this failure of the assessee, the Ld. CIT(A) proceeded to dispose of the appeals filed by the assessee on merit ex-parte vide his common appellate order whereby he confirmed substantially the additions made by the A.O. to the total income of the assessee in all the five years under consideration except allowing part relief on the issue of disallowance made by the A.O. under section 40A(3).

5. Aggrieved by the order of Ld. CIT(A), the assessee has preferred these appeals before the Tribunal on the following grounds which are identical except the amounts of disallowance.

1. "The order of the learned Commissioner (Appeals), to the extent prejudicial to the appellant, is erroneous both on facts and in law.

4 ITA.No.13 to 17/Hyd/2014 Radha Realty Corporation (I) P. Ltd., Hyderabad.

2. On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) was not justified in upholding the estimated disallowances made in the assessment passed under section 153A, which were not based on any incriminating material/evidence found during the search operation.

3. On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) erred by upholding the ad-hoc disallowance of Rs.21,27,550 (A.Y. 2002-03) Rs.24,99,045 (A.Y. 2003-04) Rs.14,03,092 (A.Y. 2004-

05) Rs.12,70,109 (2005-06) Rs.39,61,661 (A.Y. 2006-

07) out of the Development and Selling Expenses.

4. On the facts and in the circumstances of the case and in law, the learned CIT(Appeals) erred by upholding the arbitrary disallowance of the Development & Selling Expenses @ 20%, for which the A.O. had not given any basis.

5. The learned CIT (Appeals) erred by remitting the matter back to A.O. directing him to make disallowance u/s. 40A(3) in the year in which the advances were adjusted against purchases. On the facts and in the circumstances of the case and in law, she ought to have deleted the disallowance completely without any further direction.

6. Any other ground or grounds as may be urged at the time of hearing."

6. As submitted by the Ld. Counsel for the assessee, the common grounds No. 1 and 6 raised in the appeals of the assessee are general which do not require any specific adjudication. He has also not pressed common grounds No. 2 and 5 raised by the assessee in these appeals and the same are accordingly dismissed as not pressed.

7. The common grounds that now survive for our consideration and decision are only grounds No. 3 and 4 which involve the common issue relating to disallowance of 20% 5 ITA.No.13 to 17/Hyd/2014 Radha Realty Corporation (I) P. Ltd., Hyderabad.

made by the A.O. and confirmed by the Ld. CIT(A) out of development and selling expenses claimed by the assessee.

8. During the course of assessment proceedings, it was noticed by the A.O. that the assessee has debited to its P & L accounts the following expenses under the head "Development and Selling Expenses".

Item of ASSESSMENT YEARS. Expenditure 2002-03 2003-04 2004-05 2005-06 2006-07 Development cost 92,92,402 1,03,77,127 54,30,462 45,66,743 1,65,16,331 HUDA Charges 17,71,531 22,34,460 0 0 0 Commission 7,80,000 14,45,000 15,85,000 17,43,800 27,56,700 on sales Advertisement 99,500 50,650 0 4,000 1,97,650 expenses Business 3,10,802 Promotion Expenses Site visiting 4,65,850 6,22,448 0 0 26,820 expenses Total 1,24,09,283 1,47,29,685 70,15,462 63,50,543 1,98,08,303

As already noted, the case of the assessee was referred by the A.O. for special audit under section 142(2A) of the Act. In the absence of cooperation extended by the assessee, the special audit of the accounts of the assessee for the years under consideration, however, could not be completed by the auditors. The assessee also did not comply with the notices issued by the A.O. during the course of assessment proceedings and failed to produce any books of accounts or vouchers for the verification of the A.O. Keeping in view this failure of the assessee, A.O. treated the development and selling expenses claimed by the assessee, except development charges paid to HUDA as unverifiable. Accordingly, 20% of the development and selling expenses claimed by the assessee excluding HUDA charges were disallowed by him in the 6 ITA.No.13 to 17/Hyd/2014 Radha Realty Corporation (I) P. Ltd., Hyderabad.

assessments completed under section 143(3) read with section 153A for all the five years under consideration.

9. On appeal, the Ld. CIT(A) confirmed the disallowance made by the A.O. on this issue observing that the assessee, even during the appeal proceedings before him, failed to produce any books of accounts or other documentary evidence such as bills and vouchers to support and substantiate its claim for development and selling expenses. He held that the onus that lay on the assessee in this regard was not discharged by the assessee and the A.O. was fully justified in disallowing 20% of the development and selling expenses claimed by the assessee treating the same as unverifiable.

10. We have heard the arguments of both the sides on this issue and also perused the relevant material on record. The ld. Counsel for the assessee has not brought on record any material or has not raised any material contention to dispute the fact that there was a failure on the part of the assessee to support and substantiate its claim for selling and development expenses in spite of sufficient opportunity afforded by the A.O. during the course of assessment proceedings as well as by the Ld. CIT(A) during the course of appeal proceedings. He has also not disputed the fact that there was failure on the part of the assessee to extend the required cooperation to the Auditors appointed to carry on special audit under section 142(2A) of the Act. The limited contention raised by him is only that the disallowance of 20% made by the A.O. and confirmed by the Ld. CIT(A) out of development and selling expenses is on the higher side keeping in view the facts of the case of the assessee including the nature of the business and the same may be 7 ITA.No.13 to 17/Hyd/2014 Radha Realty Corporation (I) P. Ltd., Hyderabad.

scaled down. We find some merit in this contention of the ld. Counsel for the assessee and having regard to the facts of the case, including the nature of business of the assessee and the nature of expenses claimed under the head "Development and Selling Expenses", we consider it fair and reasonable to restrict the disallowance of 20% made by the A.O. out of development and selling expenses and confirmed by the Ld. CIT(A) to 15%. The common Grounds No. 3 and 4 of the assessees' appeals are thus partly allowed.

11. In the result, appeals of the assessee are partly allowed.

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. Radha Realty Corporation (I) P. Ltd., 6-3-609/96/A, Anandnagar Colony, Khairatabad, Hyderabad - 500 004.

2. DCIT, Circle 3(1), I.T. Towers, Masab Tank, Hyderabad.

3. CIT(A)-IV, Hyderabad.

4. CIT-III, Hyderabad.

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