Realty Value India Pvt. Ltd.,, ... vs Assessee

Realty Value India P. Ltd., The Income Tax Officer, Hyderabad. vs. Ward 3(2) PAN AADCR6334G Hyderabad. (Appellant) (Respondent)

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

Date of Hearing : 25.03.2015 Date of Pronouncement : 31.03.2015

ORDER

PER B. RAMAKOTAIAH, A.M.

These two appeals are for the A.Y. 2008-2009 by assessee against the Orders of the Ld. CIT(A)-IV, Hyderabad dated 13.12.2013 and 17.01.2014 confirming the addition made under section 144 as well as penalty under section 271(1)(c) of the I.T. Act, 1961.

2. Briefly stated, assessee company is engaged in the real estate business and filed return of income declaring loss of Rs.7,82,380. During the course of assessment proceedings many notices were issued by the A.O. but there was no compliance from assessee. In view of non-compliance to the notice, a show cause letter dated 04.12.2010 was issued to the assessee why the assessment should not be completed under section 144 of the I.T. Act proposing details of the sundry creditors to an extent of Rs.81,15,738 and also disallowance of 2 ITA.No.389 & 690/Hyd/2014 Realty Value India P. Ltd., Hyderabad

25% of the expenditure debited to P & L account under two heads. In response to the show cause notice, the Managing Director appeared but since there was no business activities in the company, due to problems in real estate business sought time for production of books. The case was again adjourned to 16.12.2010 and assessee seems to have not appeared and accordingly, A.O. completed the assessment as proposed in the show cause notice determining the income at Rs.90,34,580 under section 144 of the I.T. Act. He also initiated penalty proceedings under section 271(1)(c) and levied penal.

2.1. Before the Ld. CIT(A), it was contended that Managing Director could not appear due to malaria fever and filed additional evidence before the Ld. CIT(A) contesting the action of the A.O. and additions made therein. Ld. CIT(A), however, on the reason that no evidence was furnished in support of the contention that assessee could not appear before the A.O. upheld the action of the A.O. in invoking the provisions of section 144 of the I.T. Act. Ld. CIT(A) also rejected the additional evidence filed and upheld the action of the A.O. in bringing to tax the outstanding sundry creditors at Rs.81,15,738 and also disallowance of expenditure at 25%. Assessee is aggrieved and raised various grounds before us.

1. "The order of the Ld. CIT(A) is erroneous both on facts and in law.

2. The Ld. CIT(A) erred in confirming the action of the A.O. in completing the assessment u/s.144 of the I.T. Act without providing proper opportunity to the appellant herein.

3. The Ld. CIT(A) erred in confirming the action of the A.O. in treating the amount of Rs.81,15,738/- as the income 3 ITA.No.389 & 690/Hyd/2014 Realty Value India P. Ltd., Hyderabad

of the appellant inspite of the fact that the assessee filed letters of confirmation from the persons who kept the amount in trust with the appellant as advance for payment to the vendors of the land.

4. The learned CIT(A) erred in confirming the action of the A.O. in disallowing 25% of the expenses under the head "Workmen and staff welfare of Rs.30,30,671/-, out of which Rs. 16 lakhs represents the remuneration paid to directors of the assessee company.

5. The Ld. CIT(A) erred in confirming the action of the A.O. in disallowing 25% of the expenditure of Rs.37,74,218/- under various heads on adhoc basis without appreciating the fact that the expenditure is genuine and was wholly laid out for the purpose of business of the appellant.

6. The Ld. CIT(A) erred in confirming the action of the A.O. in not allowing unabsorbed depreciation of Rs.1,14,789/-.

7. Any other ground that may be urged at the time of hearing."

3. Ld. Counsel at the outset submitted that assessee being a company has its accounts audited and referred to the audited P & L account to submit that assessee had only commission income to an extent of Rs.59,14,298 which resulted in loss after the expenditure during the year. The amounts brought to tax by the A.O. are outstanding liabilities against which assessee also had loans and advances to an extent of Rs.74,66,255. Just because the outstanding liabilities are not explained, the same cannot be the income without examining of the details whether the credits have occurred in this year or not, the source of various funds. Ld. Counsel also referred to the order of the Ld. CIT(A) to submit that additional evidence filed before the Ld. CIT(A) was not admitted and therefore, there is no option than to raise an 4 ITA.No.389 & 690/Hyd/2014 Realty Value India P. Ltd., Hyderabad

additional ground before the ITAT contesting the action of the Ld. CIT(A). It was submitted that assessee can justify the claims in the P & L account and balance sheet before the A.O. if another opportunity was given.

4. Learned D.R. submitted that assessee has not appeared before the Assessing Officer. Therefore, action of the A.O. and Ld. CIT(A) are justified.

5. We have considered the rival contentions and perused the orders of the authorities. Even though A.O. has given many opportunities and also issued show cause notices proposing additions under section 144, just because assessee Managing Director could not appear on the given date, in our view, the additions could not be made without analyzing the business activity of assessee. A.O. can enquire expenditure claims made in the P & L account. However, the outstanding sundry creditors or liabilities are not from the P & L account but are Balance Sheet amounts. The outstanding amount cannot become income, unless it is established that the credits were received during the year and further they are unexplained. Nothing was brought on record by the A.O. and only the outstanding amount was brought to tax without examining the nature of the amounts. Moreover, when assessee sought to file additional evidence, in our view, Ld. CIT(A) rejected admission of the same without any valid reason. Assessee is justifying that Managing Director could not appear before the A.O. on the given date due to ill-health. If Ld. CIT(A) has any doubt about the claims made, then it is for the Ld. CIT(A) to ask assessee to furnish necessary evidences. Without doing so the contention cannot be rejected on the reason that necessary evidence was not furnished. Even 5 ITA.No.389 & 690/Hyd/2014 Realty Value India P. Ltd., Hyderabad

otherwise, the additions per se cannot be justified without examining the contentions. In view of this, we have no hesitation in setting aside the order of the Ld. CIT(A) and A.O. and restore the assessment to the file of A.O. to do it afresh, as per the facts of the case and law on the subject. Needless to say that assessee should be given due opportunity in the proceedings. In case assessee does not appear or fails to appear before the A.O. or fails to substantiate the claims, then A.O. is free to invoke provisions of the Act in completing the assessment. The orders of authorities are set aside and assessment is restored to the file of A.O. Accordingly, assessee's grounds in ITA.No.389/Hyd/2014 are considered allowed for statistical purposes.

ITA.No.690/Hyd/2014 6. The A.O. without waiting for the order of the Ld. CIT(A), levied penalty. Since the assessment itself is set aside, penalty order does not survive. Accordingly, the orders of the authorities in the issue of levy of penalty are also accordingly set aside. A.O. is free to initiate the proceedings afresh in the assessment proceedings which are restored to him.

7. In the result, appeal of the assessee in ITA.No.389/Hyd/2014 is allowed for statistical purposes and ITA.No.690/Hyd/2014 of the assessee is allowed.

Order pronounced in the open Court on 31.03.2015.

Sd/- Sd/- (SAKJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACOUNTANT MEMBER Hyderabad, Dated 31st March, 2015 VBP/- 6 ITA.No.389 & 690/Hyd/2014 Realty Value India P. Ltd., Hyderabad

Copy to :

1. Realty Value India P. Ltd., Hyderabad

C/o. Mr. S. Rama Rao, Advocate, Flat No.102, Shriya's Elegance, H.No.3-6-643, Street No.9, Himayatnagar, Hyderabad - 500 029.

2. The Income Tax Officer, Ward 3(2), Hyderabad

3. CIT(A)-IV, Hyderabad

4. CIT-III, Hyderabad

5. D.R. ITAT "B" Bench, Hyderabad

6. Guard File