Case Law Details
Jawahar B. Purohit Vs. Asst. CIT & Ors. (ITAT Mumbai)
Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra), wherein considering the judgment of the Special Bench of the Mumbai Tribunal in the case of All Cargo Global Logistics 137 ITD 287(SB) (Mum), considered this issue that, whether there is scope of assessment under section 153A of the Act in respect to completed assessment which is limited only to undisclosed income and undisclosed assets found during the course of search or not? Hon’ble High Court held that on a plain reading of section 153 of the Act it becomes clear that on initiation of the proceedings under section 153A of the Act, it is only the assessment/reassessment proceedings that are pending on the date of search under section 132 of the Act stand abated and not the assessments/reassessments already final for those assessment years which are covered under section 153A of the Act. Hon’ble High Court discussed the CBDT Circular No. 8 of 2003, date 18-9-2003 in 263 ITR (st.) 61 at page 107 wherein CBDT has clarified that on initiation of proceedings under section 153A of the Act the proceedings pending in appeal, revision or rectification proceedings against final assessment shall not abate. It is only because the final assessments do not abate the appeal, revision or rectification pending against final assessments would not abate.
Therefore, Hon’ble High Court rejected the arguments of the Revenue that on initiation of proceedings under section 153A of the Act, the reassessment final for assessment years covered under section 153A of the Act stands abated. Only the pending assessments get revived under section 153A of the Act. Hon’ble High Court further held that once assessment has attained finality, then the assessing officer while passing independent assessment order under section 153A/143(3) of the Act could not disturb the assessment order which has attained finality unless the material gathered in the course of search under section 132/153A of the Act established that the finality attained in the assessment were contrary to the facts unearthed during the course of search.
RELEVANT EXTRACT OF ITAT JUDGMENT
These appeals of different assessee’s are arising out of the different orders of Commissioner (Appeals)-39 Mumbai, in appeal Nos. Commissioner (Appeals)-39/IT-86, 88, 89, 90, 91, 2, 80, 81, 82, 83, 85/2012-13, date 6-9-13, 12-9-2013, 8-11-2012, 1-2-2013. The Assessments were framed by ACIT Center Circle-22, Mumbai for the assessment years 2004-05, 2005-06, 2006-07, 2007-08, 2008-09, 2009-10 & 2010-11 vide different orders dated 21-6-2012 under section 143(3) read with section 153A/C of the Income Tax Act, 1961 (hereinafter ‘the Act’).
First we will deal with ITA No. 790/Mum/2013 assessee’s appeal and ITA No. 1144/Mum/2013 Revenue’s appeal for assessment year 2005-06 in the case of M/s. M.R. Construction.
2. The first common issue in these cross appeals is as regards to the dis allowance made by assessing officer and partly restricted by Commissioner (Appeals) on account of remuneration under section 40(b) of the Act and also expenses for non deduction of TDS under section 194C of the Act on account of transport charges by invoking the provisions of section 40a(ia) of the Act. For this Revenue has raised following ground Nos. 1 & 2 :–
“1. That the learned Commissioner (Appeals) has erred in law and on facts in deleing the additions of Rs. 10,00,000 & Rs. 1,00,000 made under section. 40(a)(ia) on account of non- TDS on payment for labour charges & professional charges respectively without appreciating that the ratio of the decision of the Hon’ble Supreme Court in the case of Hindustan Coca Cola Beverages (P) Ltd. v. CIT 293 ITR 226 is only in respect of section 201 & not in respect of section 40(a)(ia).
2. The appellant craves to leave to add, to amend and/to alter any of the ground of appeal, if need be.”
Assessee has also raised following ground No. 1
“1. That the learned Assessing authority (Assistant Commissioner- Central Circle -22, Mumbai) and has grossly erred in making dis allowance of Rs. 33,05,310 by reducing the value of work-in-progress. As per following Particulars and the learned Commissioner (Appeals)-39, Mumbai has grossly erred in confirming the dis allowances of Rs. 22,05,310. As per the following particulars :–
| S. No | Particulars | Amount |
| 1 | Excess Remuneration disallowed under section 40(b) | 17,500 |
| 2. | Dis allowance under section 40(a)(ia) section 194C –Transport | 21,87,810 |
|
TOTAL |
22,05,310 |
3. The learned Counsel for the assessee stated that the assessing officer has made dis allowance of the following items :–
(a) excess remunerations disallowed under section 40(b) of the Act amounting to Rs. 19,500.
(b) Dis allowance under section 40(a)(ia) of the Act for non deduction of TDS under section 194C of the Act amounting to Rs. 21,87,810. (These items were confirmed by Commissioner (Appeals)).
(c) Deletion of dis allowance by Commissioner (Appeals) of labour charges of Rs. 10,00,000 and professional charges of Rs. 1,00,000 for non-deduction of TDS by invoking the provisions of section 40a(ia) of the Act.
4. At the outset, the learned Counsel for the assessee stated that none of the dis allowance is based on seized material. The learned Counsel for the assessee stated that these items are disallowed on the basis of the entries found recorded in regular books of account of the assessee whereby assessee has reduced the value of work-in-progress and not claimed these expenses in the accounts of the assessee. The learned Counsel for the assessee stated that it was engaged in construction business of development of SRA projects. A survey under section 133A of the Act and search under section 132 of the Act was carried out on the business premises and residences of the partners of the assessee firm on 16-11-2009. The assessee filed original return of income on 31-10-2005 in which these expenses were claimed and were allowed by the department. This fact is not denied by the learned Commissioner–Departmental Representative during the course hearing before us. When a specific point was raised by the Bench whether any seized material relating to these dis allowance are there or not? He fairly conceded the position that from the order of the assessing officer or from the order of the Commissioner (Appeals) or from the seized material it cannot be gathered whether any seized material relating to these dis allowances are available on record. As there is a categorical fact recorded by the assessing officer as well as Commissioner (Appeals) that these dis allowances are made by the Revenue on the basis of the return filed by the assessee originally on 31-10-2005 for the assessment year 2005-06 and search took place on 16-11-2009. The assessment/processing of return of income got completed on 31-10-2006, as no notices under section 143(2) was issued and assessment was not abated in view of the second proviso to section 153A of the Act. Once, the assessment was completed and has not abated for relevant assessment year, this issue is squarely covered by the decision of the Hon’ble Bombay High Court in the case of CIT v. Continental Warehousing Corporation (Nhava Sheva) Ltd. (2015) 374 ITR 645 (Bom).
5. We find that this issue now stands covered in favor of assessee and against the Revenue by the decision of Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra), wherein considering the judgment of the Special Bench of the Mumbai Tribunal in the case of All Cargo Global Logistics 137 ITD 287(SB) (Mum), considered this issue that, whether there is scope of assessment under section 153A of the Act in respect to completed assessment which is limited only to undisclosed income and undisclosed assets found during the course of search or not? Hon’ble High Court held that on a plain reading of section 153 of the Act it becomes clear that on initiation of the proceedings under section 153A of the Act, it is only the assessment/reassessment proceedings that are pending on the date of search under section 132 of the Act stand abated and not the assessments/reassessments already final for those assessment years which are covered under section 153A of the Act. Hon’ble High Court discussed the CBDT Circular No. 8 of 2003, date 18-9-2003 in 263 ITR (st.) 61 at page 107 wherein CBDT has clarified that on initiation of proceedings under section 153A of the Act the proceedings pending in appeal, revision or rectification proceedings against final assessment shall not abate. It is only because the final assessments do not abate the appeal, revision or rectification pending against final assessments would not abate. Therefore, Hon’ble High Court rejected the arguments of the Revenue that on initiation of proceedings under section 153A of the Act, the reassessment final for assessment years covered under section 153A of the Act stands abated. Only the pending assessments get revived under section 153A of the Act. Hon’ble High Court further held that once assessment has attained finality, then the assessing officer while passing independent assessment order under section 153A/143(3) of the Act could not disturb the assessment order which has attained finality unless the material gathered in the course of search under section 132/153A of the Act established that the finality attained in the assessment were contrary to the facts unearthed during the course of search. The relevant portion of the judgment reads as under :–
“31. We, therefore, hold that the Special Bench’s understanding of the legal provision is not perverse nor does it suffer from any error of law apparent on the face of the record. The Special Bench in that regard held as under :–
“The provision under section 153A is applicable where a search or requisition is initiated after 31-5-2003. In such a case the assessing officer is obliged to issue notice under section 153A in respect of 6 preceding years, preceding the year in which search etc. has been initiated. Thereafter he has to assess or reassess the total income of these six years. It is obligatory on the part of the assessing officer to assess or reassess total income of the six years as provided in section 153A(1)(b) and reiterated in the 1st proviso to this section. The second proviso states that the assessment or reassessment pending on the date of initiation of the search or requisition shall abate. We find that there is no divergence of views in so far as the provision contained in section 153A till the 1st proviso. The divergence starts from the second proviso which states that pending assessment or reassessment on the date of initiation of search shall abate. This means that an assessment or reassessment pending on the date of initiation of search shall cease to exist and no further action shall be taken thereon. The assessment shall now be made under section 153A. The case of learned Counsel for the assessee is that necessary corollary to this provision is that completed assessment shall not abate. These assessments become final except in so far and to the extent as undisclosed income is found in the course of search. On the other hand, it has been argued by the learned Standing Counsel that abatement of pending assessment is only for the purpose of avoiding two assessments for the same year, one being regular assessment and the other being assessment under section 153A. In other words these two assessments coalesce into one assessment. The second proviso does not contain any word or words to the effect that no reassessment shall be made in respect of a completed assessment. The language is clear in this behalf and therefore literal interpretation should be followed. Such interpretation does not produce manifestly absurd or unjust results as section 153A (i)(b) and the first proviso clearly provide for assessment or reassessment of all six years. It may cause hardship to some assesses where one or more of such assessments has or have been completed before the date of initiation of search. This is hardly of any relevance in view of clear and unambiguous words used by the legislature. This interpretation does not cause any absurd etc. results. There is no casus omissus and supplying any would be against the legislative intent and against the very rule in this behalf that it should be supplied for the purpose of achieving legislative intent. The submissions of the learned Counsels are manifold, the foremost being that the provision under section 153A should be read in conjunction with the provision contained in section 132(1), the reason being that the latter deals with search and seizure and the former deals with assessment in case of search etc, thus, the two are inextricably linked with each other.
Before proceeding further, we may now examine the provision contained in sub-section (2) of section 153, which has been dealt with by learned Counsel. It provides that if any assessment made under sub-section (1) is annulled in appeal etc., then the abated assessment revives. However, if such annulment is further nullified, the assessment again abates. The case of the learned Counsel is that this provision further shows that completed assessments stand on a different footing from the pending assessments because appeals etc. proceedings continue to remain in force in case of completed assessments and their fate depends upon subsequent orders in appeal. On consideration of the provision and the submissions, we find that this provision also makes it clear that the abatement of pending proceedings is not of such permanent nature that they cease to exist for all times to come. The interpretation of the learned Counsel, though not specifically stated, would be that on annulment of the assessment made under section 153(1), the assessing officer gets the jurisdiction to assess the total income which was vested in him earlier independent of the search and which came to an end due to initiation of the search.
The provision contained in section 132 (1) empowers the officer to issue a warrant of search of the premises of a person where any one or more of conditions mentioned therein is or are satisfied, i.e.–a) summons or notice has been issued to produce books of account or other documents but such books of account or documents have not been produced, b) summons or notice has been or might be issued, he will not produce the books of account or other documents mentioned therein, or c) he is in possession of any money or bullion etc. which represents wholly or partly the income or property which has not been and which would not be disclosed for the purpose of assessment, called as undisclosed income or property. We find that the provision in section 132 (1) does not use the word ”incriminating document”. Clauses (a) and (b) of section 132(1) employ the words ”books of account or other documents”. For harmonious interpretation of this provision with provision contained in section 153A, all the three conditions on satisfaction of which a warrant of search can be issued will have to be taken into account.
Having held so, an assessment or reassessment under section 153A arises only when a search has been initiated and conducted. Therefore, such an assessment has a vital link with the initiation and conduct of the search. We have mentioned that a search can be authorized on satisfaction of one of the three conditions enumerated earlier. Therefore, while interpreting the provision contained in section 153A, all these conditions will have to be taken into account. With this, we proceed to literally interpret to provision in 153A as it exists and read it alongside the provision contained in section 132(1).
The provision comes into operation if a search or requisition is initiated after 31-5-2003. On satisfaction of this condition, the assessing officer is under obligation to issue notice to the person requiring him to furnish the return of income of six years immediately preceding the year of search. The word used is ”shall” and, thus, there is no option but to issue such a notice. Thereafter he has to assess or reassess total income of these six years. In this respect also, the word used is ”shall” and, therefore, the assessing officer has no option but to assess or reassess the total income of these six years. The pending proceedings shall abate. This means that out of six years, if any assessment or reassessment is pending on the date of initiation of the search, it shall abate. In other words pending proceedings will not be proceeded with thereafter. The assessment has now to be made under section 153A (1)(b) and the first proviso. It also means that only one assessment will be made under the aforesaid provisions as the two proceedings i.e., assessment or reassessment proceedings and proceedings under this provision merge into one. If assessment made under sub-section (1) is annulled in appeal or other legal proceedings, then the abated assessment or reassessment shall revive. This means that the assessment or reassessment, which had abated, shall be made, for which extension of time has been provided under section 153B.
The question now is–what is the scope of assessment or reassessment of total income under section 153A (1) (b) and the first proviso? We are of the view that for answering this question, guidance will have to be sought from section 132(1). If any books of account or other documents relevant to the assessment had not been produced in the course of original assessment and found in the course of search in our humble opinion such books of account or other documents have to be taken into account while making assessment or reassessment of total income under the aforesaid provision. Similar position will obtain in a case where undisclosed income or undisclosed property has been found as a consequence of search. In other words, harmonious interpretation will produce the following results :–
(a) In so far as pending assessments are concerned, the jurisdiction to make original assessment and assessment under section 153A merge into one and only one assessment for each assessment year shall be made separately on the basis of the findings of the search and any other material existing or brought on the record of the assessing officer,
(b) in respect of non-abated assessments, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search.”
6. Accordingly, in view of the given facts and circumstances, we are of the view that this issue is squarely covered in favor of assessee and against the Revenue and hence, we allow the claim of the assessee. The assessing officer is directed to delete the entire dis allowance of excess remuneration under section 40(b) of the Act amounting to Rs. 17,500, dis allowance restricted by Commissioner (Appeals) for non-deduction of TDS under section 194C of the Act on transportation charges by invoking the provisions of section 40a(ia) of the Act amounting to Rs. 21,87,810. The Commissioner (Appeals) has also rightly deleted the addition of Rs. 10,00,000 on labour charges and Rs. 1,00,000 on professional charges for non-deduction of TDS. We confirm the order of Commissioner (Appeals) deleing the addition accordingly this common issue of Revenue’s appeal is dismissed and that of the assessee’s appeal is allowed.
7. The next issue in this appeal of assessee in ITA No. 790/Mum/2013 is as regards to the order of Commissioner (Appeals) sustaining the addition of unsecured loans amounting to Rs. 2.50 lacs as unexplained cash credit under section 68 of the Act. For this assessee has raised following ground No. 2 :–
“2. That the learned Assessing Authority (Assistant Commissioner, central Circle 22, Mumbai) and the learned Commissioner (Appeals)-39, Mumbai have grossly erred in law and on the facts and circumstances of the case in making and confirming addition of Rs. 2,50,000 on account of alleged unsecured loans under section 68 of the Income Tax Act 1961.”
8. The facts are admitted and agreed by both the parties. The facts are that the return of income was filed by the assessee for the assessment year 2005-06 on 31-10-2005. No notice under section 143(2) of the Act was issued by the assessing officer up to 31-10-2006. It means that the assessment/processing of return of income were completed under section 143(1) of the Act. No proceedings were pending. Subsequently, the survey under section 133A and search under section 132 of the Act was conducted by the department on the office premises of the assessee firm and residences of the partners on 16-11-2009. The assessing officer during the course of assessment proceedings notice that the assessee has received unsecured loans from Bhawani M. Purohit amounting to Rs. 1,00,000 and Ravi Purohit of Rs. 1.50 lacs and these are unexplained cash credits. The assessing officer notices from annexure iii to firm No. 6B of the special audit report, which contains details of unsecured loans taken and repaid and according to him these unsecured loans are unexplained cash credits and accordingly he brought to tax under section 68 of the Act. The Commissioner (Appeals) also confirmed the action of the assessing officer and confirmed the addition of unexplained cash credit under section 68 of the Act amounting to Rs. 2.50 lakhs. Aggrieved, assessee preferred the appeal before Tribunal.
9. Before us, the learned Counsel for the assessee stated that addition is not based on any seized material because no incriminating documents were found during the course of search and this is mentioned by the special auditors in their report in annexure- III to form No. 6B containing the details of unsecured loans from where the assessing officer has made addition. According to the learned Counsel these details were provided by assessee from its accounts which were available before the assessing officer in the original return of income. According to the learned Counsel this issue is also covered by the decision of Hon’ble Bombay High court in the case of continental Warehousing Corporation (Nhava Sheva) Ltd. (supra).
10. We find from the facts of the case that there is no incriminating material found during the course of search relating to these cash credits and accordingly, the issue is squarely covered by the decisions of Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra) as discussed in Para 5 and 6 of this order. Accordingly, this issue of assessee’s appeal is allowed.
11. The next issue in this appeal of assessee in ITA No. 790/Mum/2013 is as regards to the order of Commissioner (Appeals) confirming the addition made by on account of alleged undisclosed advances. For this assessee has raised following ground No. 3 and 4 :–
“3. That the Assistant Commissioner, Central Circle 22, Mumbai and the learned Commissioner (Appeals)-39, Mumbai have grossly erred has grossly erred in law and on the facts and circumstances of the case in making and confirming addition (on protective basis) of Rs. 89,50,295 on account of alleged undisclosed advances.
4. That the Assistant Commissioner, Central Circle 22, Mumbai and the learned Commissioner (Appeals)-39, Mumbai have grossly erred has grossly erred in law and on the facts and circumstances of the case in making addition on account of wrong reworking cash related to the current year as well as the amount negative/positive carried forward to the following years. Further they have not given the effect by the correct amount of brought forward negative/positive cash balance of earlier years(s) in the hands of partner of the firm Mr. Jawahar B. Purohit. And the learned Commissioner (Appeals)-39, Mumbai has grossly erred in law and on the facts and circumstances of the case in dismissing the ground of appeal.”
12. At the outset, the learned Counsel for the assessee stated that in the present case the assessment is made on protective basis and additions made was confirmed by Commissioner (Appeals) on substantiate the basis in the case of Shri Mahipal P Purohit and accordingly, the assessing officer while giving appeal effect to the order of Commissioner (Appeals), deleted the addition vide order dated 12-3-2014 by observing as under :–
“Order giving effect to Commissioner (Appeals) order Consequent to the Order of the Commissioner (Appeals)-39, Mumbai No. 3ITA-39/IT-80/2012-13, date 8-11-2012, the total income of the assessee is revised as under :–
| Sl No. | Particulars | Amount | Amount |
| A | Total income as per order giving effect of CIT(A) dated 28-03-2013 | 92,00,295 | |
| Less Relief allowed by CIT(A)
(i) Unrecorded advance (Addition was made on protective basis, the issue is confirmed in the cas of Shri Mahipal Purohit and this amount is taxable in the his hand vide CIT(A) order No. CIT(A)-39/IT-102/2012-13 dated 17-12-2013) |
89,50,295 | 89,50,295 | |
| Gross Total Income | 2,50,000 | ||
| Total Taxable Income | 2,50,000 |
When this was pointed out to the learned Commissioner Departmental Representative, he fairly conceded the position as the substantive addition has been confirmed in the hands of Shri Mahipal P Purohit. We find that the assessing officer has rightly deleted the addition while giving the appeal effect to the order of Commissioner (Appeals) in the case of Sh. Mahipal P Purohit, as the proactive addition has been confirmed. We find that the Commissioner (Appeals) has wrongly confirmed the addition and assessing officer has rightly deleted the addition while giving appeal effect to the order of Commissioner (Appeals) in the case of Sh. Mahipal P Purohit. This issue of assessee’s appeal is allowed.
ITA No. 3709/Mum/2013 of assessee’s appeal for assessment year 2006-07 in the case of M.R. Construction
13. The first issue in this appeal of assessee is against the order of Commissioner (Appeals) confirming the dis allowance of working in progress amounting to Rs. 22,34,910. For this assessee has raised following ground No. 1 :-
“1. That the Assistant Commissioner, Center Circle-22, Mumbai has grossly erred in law and on the facts and circumstances of the case in making dis allowances and the learned Commissioner (Appeals)-39, Mumbai has grossly erred in law and on the facts and circumstances of the case in confirming dis allowance of Rs. 22,34,910 reducing the value of Work-in-progress..”
14. At the outset, the learned Counsel for the assessee stated that the assessee filed its return of income for assessment year 2006-07 on 31-10-2006 and assessment under section 143(3) was framed by the assessing officer vide order dated 29-12-2008. The learned Counsel for the assessee stated that the assessing officer has made a total dis allowance of Rs. 44,88,410 which is as follows :–
| No. | Particulars | Amount |
| 1. | Excess Remuneration disallowed under section 40(b) | 45,127 |
| 2. | Dis allowances under section 40A(3) to the extent of 20% in case of Expenditure of Rs. 2,489,573/- | 4,97,915 |
| 3. | Dis allowances under section 40(a)(ia) | |
| Section 194C-Transport | 1,79,965 | |
| Section 194C Labour Charges | 1,72,270 | |
| Section 194C Contractor | 59,067 | |
| Section 194H- Brokerage Expenses/ Commission | 3,60,000 | |
| Section 194J –Professional Charges | 3,00,000 | |
| Section 194J –Supervision Charges | 11,55,500 | |
| 4. | Adhoc Dis allowance for direct Expenses @ 20% of Rs. 2,734,243 as discussed above | 5,46,850/- |
| 5. | Adhoc Dis allowance for indirect Expenses @ 20% of Rs. 2,858,579 as discussed above | 5,71,717 |
| 6. | Brokerage expenses to Mr. Krishnan Ayer considered for 100% dis allowance as discussed above | 6,00,000 |
| Reduction from WIP | 44,88,410 |
According to the learned Counsel, the Commissioner (Appeals) has deleted the part addition, made by assessing officer on the basis special audit report, amounting to Rs. 19,30,181 and confirmed the balance sum of Rs. 22,34,910. As per the assessing officer, these dis allowances are on the basis that the assessee has reduced these expenses from work in progress in its books of account and it means that these expenses are claimed as part of expenditure except the amount of Rs. 6,00,000 paid as brokerage to Shri Krishnan Iyer, which was disallowed 100%. The learned Counsel for the assessee admitted that the addition of Rs. 6,00,000 is based on seized material relating to dis allowance of this expense. He admitted that these other dis allowances are adhoc dis allowances and for non-deduction of TDS under various provisions of section by invoking provisions of section 40a(ia) of the Act.
15. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the above dis allowances are not based on any evidence i.e., the incriminating material found during the course of search. As the original assessment has not been abated, we are of the view that the issue is squarely covered in favor of assessee by the decision of Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra). We find that the assessee himself conceded that the dis allowance of brokerage expenses paid to Mr. Krishnan Iyer amounting to Rs. 6,00,000 deserves to be confirmed. We direct the assessing officer accordingly. This issue of assessee’s appeal is partly allowed.
16. The next issue in this appeal of assessee is against the order of Commissioner (Appeals) confirming the addition made by assessing officer of unsecured loans as unexplained cash credit under section 68 of the Act. For this assessee has raised following ground No. 2 :–
“2. That the Assistant Commissioner, Central Circle 22, Mumbai has grossly erred in law and on the facts and circumstances of the case in making addition and the learned Commissioner (Appeals) -39, Mumbai has grossly erred in law and on the facts and circumstances of the case in confirming addition of Rs. 2,20,000 on account alleged unsecured loans under section 68 of the Income Tax Act, 1961.”
17. The facts are admitted and agreed by both the parties. The facts are that the return of income was filed by the assessee for the assessment year 2006-07 on 31-10-2006 and original assessment was completed under section 143(3) of the Act vide order dated 29-12-2008. No proceedings were pending. Subsequently, the survey under section 133A and search under section 132 of the Act was conducted by the department on the office premises of the assessee firm and residences of the partners on 16-11-2009. The assessing officer during the course of assessment proceedings notice that the assessee has received unsecured loans from Deepak amounting to Rs. 25,000 and Pawan M. Purohit of Rs. 1.95 lacs and these are unexplained cash credits. The assessing officer notices from annexure III to firm No. 6B of the Special Audit Report, which contains details of unsecured loans taken and repaid and according to him these unsecured loans are unexplained cash credits and accordingly he brought to tax under section 68 of the Act. The Commissioner (Appeals) also confirmed the action of the assessing officer and confirmed the addition of unexplained cash credit under section 68 of the Act amounting to Rs. 2.20 lakhs. Aggrieved, assessee preferred the appeal before Tribunal.
18. Before us, the learned Counsel for the assessee stated that addition is not based on any seized material because no incriminating documents were found during the course of search and this is mentioned by the Special Auditors in their report in annexure- III to form No. 6B containing the details of unsecured loans from where the assessing officer has made addition. According to the learned Counsel these details were provided by assessee from its accounts which were available before the assessing officer in the original return of income. According to the learned Counsel this issue is also covered by the decision of Hon’ble Bombay High court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra).
19. We find from the facts of the case that there is no incriminating material found during the course of search relating to these cash credits and accordingly, the issue is squarely covered by the decisions of Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra) as discussed in Para 5 and 6 of this order. Accordingly, this issue of assessee’s appeal is allowed.
Coming to cross appeals for assessment year 2007-08 in ITA No. 3710/Mum/2013 in assessee’s appeal and ITA No. 3645/Mum/2013 in Revenue’s appeal in the case of M.R. Construction
20. At the outset, the learned Counsel for the assessee stated that the assessee and Revenue has raised two common issue regarding dis allowance of expense amounting to Rs. 1,03,34,780 and also addition of unsecured loans as unexplained cash credit under section 68 of the Act amounting to Rs. 4,54,300 confirmed by Commissioner (Appeals) out of total cash credit added by the assessing officer at Rs. 19,54,300. For balance deletion of Rs. 15,00,000 Revenue is in appeal. For this assessee has raised following ground Nos. 1 and 2 :–
“1. That the Assistant Commissioner, Central Circle -22, Mumbai has grossly erred in law and on the facts and circumstances of the case in making dis allowances and the learned Commissioner (Appeals) – 39, Mumbai has grossly erred in law and on the facts and circumstances of the case in confirming dis allowance of Rs. 1,03,34,780 (including Rs. 87,74,095 for which relief is provide in next assessment year) reducing the value of Work in progress.
2. That the Assistant Commissioner, Central Circle 22, Mumbai has grossly erred in law and on the facts and circumstances of the case in making addition and the learned Commissioner (Appeals) -39, Mumbai has grossly erred in law and on the facts and circumstances of the case in confirming addition of Rs. 4,54,300 on account alleged unsecured loans under section 68 of the Income Tax Act 1961.”
Revenue has raised following ground No. 1
“On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in directing the assessing officer to exclude the amount of Rs. 15 lakhs from the total addition of Rs. 19,54,300 made under section 68 of the Income Tax Act, without bringing any evidence on record.”
21. The learned Counsel for the assessee drew our attention to the assessment order and stated that this dis allowance of expenses is on account of assessee transferring these expenses to work in progress and accordingly, dis allowance was made under section 40(b) and also 40A(3) of the Act. The learned Counsel for the assessee further stated from the assessment order that the entire addition is based on Special Audit Report and for this the assessing officer observed as under :–
“From annexure I of the Special Audit Report, it is evident that excess remuneration of Rs. 143,960 has been claimed. Kindly show cause as to why remuneration exceeding the limit prescribed under section 40(b) should not be disallowed.”
Further, assessing officer also noted “form Annexure III of the Special Audit Report, it is evident that payments have been made for expenses incurred in cash exceeding Rs. 20,000 totaling to Rs. 50,63,001. Kindly, show cause as to why the payments made for expenses incurred in cash exceeding Rs. 20,000 should not be disallowed under section 40A(3).”
22. In view of the above, the learned Counsel for the assessee stated that both the additions i.e., the dis allowance of expense at Rs. 1,03,34,780 is based on the accounts of the assessee from where the Special Auditor has mentioned the same in audit report and these are not related to any incriminating material found during the course of search. The assessing officer has identified seven (7) cash creditors and adding a sum of Rs. 19,54,300 out of which Commissioner (Appeals) deleted the addition of unexplained cash credit at Rs. 15,00,000 and sustain the balance addition of Rs. 4,54,300 in the following names :–
| Dinesh Kumar Jain | Rs. 1,00,000/- |
| Vilas jadav | Rs. 1,00,000/- |
| Norangrai Bajaj | Rs. 2,54,300/- |
23. At the outset, the learned Counsel for the assessee stated on both the grounds addition is based on the accounts of the assessee and assessee has filed its return of income for assessment year 2007-08 on 15-11-2007 and no notice under section 143(2) was issued to the assessee on or up to 30-11-2008. It means that the return was processed under section 143(1) and no proceedings, whatsoever, was pending as on the date of search i.e., 16-11-2009. According to the learned Counsel, it means that the issue is squarely covered by the decision of Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra).
24. We have gone through the facts and circumstances of the case. We find that the admitted facts for the relevant assessment year 2007-08 are that the assessee has filed its return of income on 15-11-2007 and no notice under section 143(2) was issued up to 30-11-2008 and accordingly, the return was processed under section 143(1) of the Act and no proceedings were pending at the relevant time of search. It means that assessment has not abated for the relevant assessment year 2007-08 and addition on both the count i.e., dis allowance of expenses at Rs. 1,03,34,780 and addition of unexplained cash credits confirmed by Commissioner (Appeals) at Rs. 4,54,300 is based on the return of income filed by the assessee and its accounts and not based on any incriminating material found during the course of search. Once this is the position, we are of the view that the issue is squarely covered in favour of assessee and against Revenue by the decision of Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra). The appeal of Revenue is dismissed and that of assessee is allowed.
In ITA No. 3711/Mum/2013 for assessment year 2008-09 in the case of M.R. Construction
25. The first issue in this appeal of assessee is against the order of Commissioner (Appeals) restricting the various dis allowances at Rs. 54,29,145 out of the total dis allowances made by the assessing officer at Rs. 2,03,71,812. For this assessee has raised following ground No. 1 :–
“1. That the Assistant Commissioner, Central Circle-22, Mumbai has grossly erred in law and on the facts and circumstances of the case in making dis allowances and the learned Commissioner (Appeals) – 39, Mumbai has grossly erred in law and on the facts and circumstances of the case in confirming dis allowance of Rs. 54,29,145 reducing the value of Work in progress.”
26. The assessing officer made dis allowances/additions of various expenses leading to reduction from work-in-progress balance transferred to M/s. GM construction and the assessing officer had computed the dis allowances. The following are the dis allowances computed by the assessing officer as under :–
| No. | Particulars | Amount As per Asst. Order | Relief given by CIT(A) | Balance Amount after appeal effect |
| 1. | Excess Remuneration disallowed under section 40(b) | 1,43,960 | Nil | 1,43,960 |
| 2. | Dis allowance u/s 40A(3) to the extent of 20% in case of Rs. 5,063,001Expenditure | 10,12,600 | NIL | 10,12,600 |
| 3. | Dis allowance u/s 40(a)(ia) –non deduction of TDS | |||
| Interest on Loan –Jawahar Purohit | 11,50,309 | 11,50,309 | Nil | |
| Section 194C –Transport | 52,136 | 52,136 | Nil | |
| Section 194J –Professional Charges | 1,17,125 | Nil | 1,17,125 | |
| Interest on Loan –Asahi Infrastructure & Projects Ltd. | 10,686 | Nil | 10,686 | |
| Dis allowance under section 40(a)(ia) – Late Payment of TDS | ||||
| Section 194A –Interest on loans | 4,12,416 | Nil | 10,686 | |
| Section 194C Contractor | 78,06,579 | Nil | 78,06,579 | |
| Section 194J –Supervision Charges | 2,55,100 | Nil | 2,55,100 | |
| Section 194H –Brokerage Expenses/ commission | 2,50,000 | Nil | 2,50,000 | |
| Section 194J –professional charges | 50,000 | Nil | 50,000 | |
| 4. | Adhoc Dis allowance for direct Expenses @20% of Rs. 462,000 as 92,400 | 92,400 | Nil | 92,400 |
| 5. | Adhoc Dis allowance for Indirect Expenses @20% of Rs. 1,479,147 | 2,95,829 | 1,47,915 | 1,47,915 |
| 6. | Advertising Expenses disallowed under section 37(2B) | 36,000 | Nil | 36,000 |
| 7. | Adhoc Dis allowance for expenses – Kashish Constructorn for an amount of Rs. 15,55,400 to the extent of 20% | 3,11,080 | 3,11,080 | Nil |
| Reduction from WIP | 1,19,96,220 | 16,61,440 | 1,03,34,780 |
27. At the outset, the learned Counsel for the assessee stated that the assessee filed its return of income for assessment year 2008-09 on 8-12-2008 and processing of return filed by the assessee was done under section 143(1) of the Act by the assessing officer. No proceedings were pending as on the date of search on 16-11-2009 because no notice under section 143(2) of the Act was issued by the assessing officer within the limitation period. According to the learned Counsel, the Commissioner (Appeals) has deleted the part addition, made by assessing officer on the basis Special Audit Report by reducing the work in progress transfer to M/s. G.M. construction as business income amounting to Rs. 2,03,71,812 and confirmed the balance addition of Rs. 54,29,145. As per the assessing officer, these dis allowances are on the basis that the assessee has reduced these expenses from work in progress in its books of account and it means that these expenses are claimed as part of expenditure except the amounts of Rs. 4,58,858, Rs. 9,00,000 being dis allowance of miscellaneous expenses being repayment of advance, Rs. 14,77,884 being adhoc dis allowance of expenses incurred on Kashish Construction. The learned Counsel for the assessee admitted that these additions of the amounts of Rs. 4,58,858, Rs. 9,00,000 being dis allowance of miscellaneous expenses being repayment of advance, Rs. 14,77,884 being adhoc dis allowance of expenses incurred on Kashish Construction are emanating from seized material. He admitted that these other dis allowances are adhoc dis allowances and for non-deduction of TDS under various provisions of section by invoking provisions of section 40a(ia) of the Act or 40(b) or 40A(3) of the Act.
28. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the above dis allowances are not based on any evidence i.e., the incriminating material found during the course of search. As the original assessment has not been abated, we are of the view that the issue is squarely covered in favor of assessee by the decision of Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra). We find that the assessee himself conceded that the dis allowance of the amounts of Rs. 4,58,858, Rs. 9,00,000 being dis allowance of miscellaneous expenses being repayment of advance, Rs. 14,77,884 being adhoc dis allowance of expenses incurred on Kashish Construction are emanating out of seized material and hence, these are confirmed. We direct the assessing officer accordingly. This issue of assessee’s appeal is partly allowed.
29. The next issue in this appeal of assessee is against the order of Commissioner (Appeals) confirming the addition made by assessing officer of unsecured loans as unexplained cash credit under section 68 of the Act. For this assessee has raised following ground No. 2 :–
“2. That the Assistant Commissioner, central circle-22, Mumbai has grossly erred in law and on the facts and circumstances of the case in making addition and the learned Commissioner (Appeals)-39, Mumbai has grossly erred in law and on the facts and circumstances of the case in confirming addition of Rs. 1,03,650 on account of alleged unsecured loans under section 68 of the Income Tax Act 1961.”
30. The facts are admitted and agreed by both the parties. The facts are that the return of income was filed by the assessee for the assessment year 2008-09 on 8-12-2008 and the return was processed under section 143(1) of the Act and no proceedings were pending. Subsequently, the survey under section 133A and search under section 132 of the Act was conducted by the department on the office premises of the assessee firm and residences of the partners on 16-11-2009. The assessing officer during the course of assessment proceedings notice that the assessee has received unsecured loans from Mr. Naik amounting to Rs. 50,000, Noranggrai Bajaj Rs. 27,757 and Pawan M. Purohit Rs. 25,893 and these are unexplained cash credits. The assessing officer notices from annexure III to firm No. 6B of the Special Audit Report, which contains details of unsecured loans taken and repaid and according to him these unsecured loans are unexplained cash credits and accordingly he brought to tax under section 68 of the Act. The Commissioner (Appeals) also confirmed the action of the assessing officer and confirmed the addition of unexplained cash credit under section 68 of the Act amounting to Rs. 1,03,640. Aggrieved, assessee preferred the appeal before Tribunal.
31. Before us, the learned Counsel for the assessee stated that addition is not based on any seized material because no incriminating documents were found during the course of search and this is mentioned by the Special Auditors in their report in annexure- III to form No. 6B containing the details of unsecured loans from where the assessing officer has made addition. According to the learned Counsel these details were provided by assessee from its accounts which were available before the assessing officer in the original return of income. According to the learned Counsel this issue is also covered by the decision of Hon’ble Bombay High court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra).
32. We find from the facts of the case that there is no incriminating material found during the course of search relating to these cash credits and accordingly, the issue is squarely covered by the decisions of Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra) as discussed in Para 5 and 6 of this order. Accordingly, this issue of assessee’s appeal is allowed.
In ITA No. 3646/Mum/2013 for assessment year 2010-11 in the case of M.R. Construction
33. The only issue in this appeal of Revenue is against the order of Commissioner (Appeals) deleing the addition of Rs. 20 crores made by the assessing officer on account of receipt of this amount under tripartite agreement dated 25-10-2009 for selling development rights. For this Revenue has raised following two grounds :–
“1. That on the facts and circumstances of the case, the Learned Commissioner (Appeals) erred in deleting addition of Rs. 20 crores out of Rs. 40 cores received by the assessee from M/s. Park View Developers under a tripartite agreement dated 25-10-2009 for selling development rights on the ground that the assessee had not made the performance as required under AS-9 on Revenue Recognition to recognize the consideration received of Rs. 20 crores without appreciating that AS-9 had no application to the case of the assessee and that the sum of Rs. 20 crores had been received by the assessee on sale of development right and not towards performance of any contract or meeting any obligation and liabilities under any contract whereas the balance sum of Rs. 20 cores had been paid to the Joint Venture between the assessee and M/s.Green Bell, named as G.M. Construction for termination of the Joint Venture which alone had the liability to meet the obligations under the tripartite agreement dated 25-10-2009.”
2. That on the facts and circumstances of the case, the Learned Commissioner (Appeals) erred in deleting addition of Rs. 20 crores as above relying on a joint affidavit obtained from MIs. Green Bell & the assessee, as members of the Joint Venture, M/s. G.M. Construction, without confronting it to the assessing officer for the proposition that under the Joint Venture only the assessee had the liability to incur all the expenditure under the Joint Venture on the ground that no such expenses had been debited to the of accounts of the erstwhile Joint Venture.”
34. We have heard rival contentions and gone through the facts and circumstances of the case. The facts of the case are that the assessee firm came into existence on 8-7-2004. The assessee firm was granted Letter Of Intent (LOI) by Slump Rehabilitation Authority (SRA) dated 16-4-2005 in respect of certain land occupied by slums in Borivali, Mumbai. Under the LOI, the assessee firm had constructed Rehabilitation building No. 2. By agreement dated 12-1-2007, assessee firm and Green Bell construction Housing P Ltd. a JV in the name of GM Construction in which the assessee firm had 50% share and the project was to be further executed by the said JV. Copy of the JV agreement is enclosed in assessee’s paper book at Pages 257-265. The joint venture had constructed Rehab Buildings 1 &3. On 25-10-2009, a tripartite agreement was entered into between the assessee being MR construction, the JV named GM Construction and a third party M/s. Park View Developers whereby it was agreed as follows (copy of tripartite agreement is enclosed at pages 266-355 of paper book filed by the assessee) :–
(a) At page 269-270 the three parties to the agreement have been listed and the assessee firm is called as Developer,
(b) Whole of the right to develop and sell units in free sale component building under the LOI is granted to the Co-developer being Park view Developers.
(c) At page 273 in clause 3, consideration payable to the assessee is noted and at page 274-6 in clause 7, obligations of the assessee firm as Developer have been noted. It is clearly provided that at cost of the assessee firm Rehab building No. 4 has to be completed and also that all conditions of LOI have to be fulfilled by the assessee firm. The assessee firm is provided a consideration of Rs. 20,00,00,000 for selling right to develop free sale building and towards completing responsibility as developer under LOI,
(d) On page 273-4 in clause 4 it has been noted that JV i.e., GM Construction is dissolved, it gives up all its rights in the SRA project and it has removed itself from the site and in consideration thereof it has been paid a consideration of Rs. 20,00,00,000 independently.
35. The assessing officer held that whole of the sum of Rs. 20,00,00,000 being consideration to the assesse firm is income of the impugned year in which tripartite agreement was entered into. The assessing officer held that the amount of Rs. 20,00,00,000 is taxable in the impugned year. The reason as per the assessing officer is that as per the JV agreement with Green bell Housing, all the responsibility for completion of the project is on the JV and not of the assesse and therefore no responsibility rests on the assessee. As no responsibility rests on the assesse firm, therefore whole of the amount is immediately taxable in the hands of the assesse firm. The assessee before assessing officer claimed that the case of the JV, G M Construction was centralized in the same charge and assessment has been completed in its case considering the consideration received by it. Copy of the assessment order is enclosed in the assessee’s paper book. Aggrieved, assessee preferred appeal before Commissioner (Appeals).
36. The Commissioner (Appeals) held that JV was terminated and therefore no responsibility rests on the JV and it is the assessee as a developer who has to fulfill the responsibility as developer under the LOI. It has further been held that the tripartite agreement clearly records liability of the assessee firm as developer under LOI and the same cannot be ignored. It has been further held that as the said work is not complete Revenue cannot be recognized. Aggrieved, Revenue is in second appeal before Tribunal.
37. We find from the facts of the case that first of all, we have understand the scheme of Slump Rehabilitation which deal with problem of proliferating slums all over the city of Mumbai. The Government has announced scheme for redevelopment of land occupied by slums. The assessee is not the owner of land nor holding development rights over land on which the scheme has been sanctioned. As per the scheme, firstly three cooperative societies being Vitthal CHS, Khodiyar Mata CHS and Rabari Devraj CHS were formed by slum Dwellers. By a resolution they appointed assessee firm as developer for the said slum. An application was moved with Slum Rehabilitation Authority for approval for the rehabilitation of scheme. A project for rehabilitation of slum entails lot of responsibility on the developer. Each and every eligible slum dweller has to be provided, cost, a predefined area of unit for his rehabilitation. In addition, other structures in the slum like Temples, place of worship, etc. have also to be constructed and provided. Common amenities including roads, sewage, etc have to be planned and provided. Also various charges have to be paid to SRA authority office for welfare of slum dwellers have to be provided. Various charges have to be paid to SRA authority including development charges and corpus has to be provided to society of rehabilitation buildings for its future maintenance.
38. Against such outgoings, the scheme provides for incentive FSI which can be developed by the Developer and sold in open market and retain the sale proceeds thereof. The assessee before us claimed that grant of LOI by the SRA authority is the starting point for a developer. It is the scheme that though the SRA authority permits and grants proportionate FSI for free sale component in proportion to rehabilitation buildings completed but final separation of plot for rehabilitation building and free sale building with separate property card and occupation certificate for Free sale buildings is granted only after all the conditions of LOI are complete. We find from the entire scheme that Revenue in a SRA project is only from sale of development of free sale units and the same is an incentive for rehabilitating slums. For rehabilitation of slums, no separate consideration or cost is given to developer. To ensure that a developer does not enjoy incentive FSI before completion of rehabilitation, many checks and balances are provided under the scheme including the condition that developer under LOI cannot be changed and the liability of the developer as per LOI remains till the rehabilitation work is complete. Further, it is only on completion of rehabilitation work the property card for the plot of land is freshly issued by government giving separate card for land on which rehabilitation building is standing and separate card for land on which free sale building is standing. Also final occupation certificate for free sale building is issued only after all the conditions of LOT are fulfilled. The applicant has enclosed a flow chart available on web site of SRA authority where all the stages have been listed in details.
39. In view of the above facts, we find that the assessee under the tripartite agreement has sold right to develop and sell incentive FSI under the LOI. Separate consideration has been provided to the JV towards giving up its rights in the project as well as to remove itself from the site. The tripartite agreement clearly provides that the JV has been dissolved. Once the JV is dissolved and it gave up its rights on the SRA project, the assesse is the only and exclusive developer of the SRA project. The assessing officer erred in relying on terms of the JV agreement to hold that all the responsibility is of the JV and not the assesse. JV has received consideration for giving up its rights and the same has also been subjected to assessment by the same assessing officer. We are of the view that the assessing officer is clearly in error in relying on JV agreement which has been nullified by the tripartite agreement and income would accrue or arise to the assesse under the agreement when it complies with terms of the agreement. What has been agreed to be sold is incentive FSI towards Free Sale Building under the LOI. The right to the said incentive FSI comes into complete and final existence only on completion of all the conditions of LOI. As can be seen from the discussion earlier and the flow chart from web site of SRA, granting of property card for Free sale building and occupation certificate is only on completion of all conditions of LOI. The rights itself are yet to accrue to the assesse fully and finally and assesse cannot transfer what it does not own fully. It is only when conditions of LOI are fulfilled that the assesse can give away title to the free sale building. In the circumstance till the conditions of LOI are fulfilled transfer is not complete and income does not accrue to the assesse. We find from the facts of the case that lot of work in accordance with LOI was pending as on the date of tripartite agreement. This can be verified from the assessee’s paper book pages 413-430, paper book no 2. Accordingly, we are of the view that principal among st the conditions pending completion is construction of rehabilitation building no 4 and many temples and places of worship and the Commissioner (Appeals) has rightly held that income under the tripartite agreement has not accrued to the assesse and no amount is taxable in the hands of the assesse in assessment year 2010-2011. Accordingly, we confirm the order of Commissioner (Appeals) and this issue of Revenue’s appeal is dismissed.
Coming to ITA Nos. 7208, 7209, 7210, 7211, 7212, 7213 & 7214/Mum/2013 in assessee’s appeals for assessment years 2004-05, 2005-06, 2006-07, 2007-08, 2008-09, 2009-10 & 2010-11 respectively in the case of Jawahar B Purohit.
40. The two common & inter connected issues in theses appeals of assessee is against the order of Commissioner (Appeals) confirming the action of the assessing officer in issuing the net profit by applying 10% of the gross receipts and further not allowing telescoping effect of net profit addition against addition of negative peak giving effect to the balance of pulled cash account made by assessing officer. For this assessee has raised following ground No. 1 & 3 :–
“1. That the learned Assistant Commissioner, Central Circle 22, Mumbai and the learned Commissioner (Appeals)–. 39, Mumbai have grossly erred in law and on the facts and circumstances of the case in making addition and sustaining the addition, respectively, to the income by Rs. 14,48,166 by applying higher percentage of Net Profit to the gross receipts.
3. That the learned Assistant Commissioner, Central Circle 22, Mumbai and the learned Commissioner (Appeals)–39, Mumbai have grossly erred in law and on the facts and circumstances of the case in not giving the affect of addition and sustaining the not giving affect of addition, respectively, in business income by increasing the Cash Balance by Rs. 14,48,166 thereby affecting the balance of ”Jawahar B. Purohit – Pooled cash Account” and further affecting the Peak Negative Cash in current and forthcoming assessment years.”
41. Briefly stated facts are that the assessee is a civil and labour contractor carrying on activities as proprietor of many concerns i.e., M/s. Amrut Constructions and Gyanesh Constructions. The assessee is also partner in partnership firms of M/s. MR Construction which is engaged in the business of development of SRA project. A search action under section 132 of the Act was carried out on the business premises of the firms and residential premises of the contractors or partners by the department on 16-11-2009. The assessee before the department during the search proceedings under section 132 of the Act admitted that all the business concerns belonged to the assessee and accordingly based on search proceedings, assessee prepared fresh state of affairs book of accounts including turnover and transactions of such concerns. Similarly, the assessee also prepared pool account of cash in the name of “jawahar B Purohit”, in which all the expenses and outgoings detected during the search were accounted for. The shortfall in the said account was offered in the returns of income filed for the six assessment years in response to notice under section 153A of the Act. The assessing officer referred to re-casted books of accounts for Special Audit Report and assessments were completed considering the audit report furnished by the Special Auditor. During the assessment proceedings the assessing officer made adjustment to the said pooled cash account after making other various additions against which assessee has preferred the appeal before Commissioner (Appeals), which were partly allowed. These inter-connected common issues against the addition made by assessing officer by estimating net profit at the rate of 10% of the gross receipts and the same is confirmed by Commissioner (Appeals) which is challenged by assessee for assessment years 2005-06, 2006-07, 2007-08, 2008-09, 2009-10,2010-11 and also claimed telescoping effect of net profit additions against additions on account of negative peak.
42. At the outset, the learned Counsel for the assessee fairly agreed that he has no issue in retaining the estimation of 10% net profit on gross contracts and particularly he has not challenged the rejection of books of accounts. When a query was put to the learned Sr. Departmental Representative, he agreed that in case the net profit at the rate of 10% is upheld, the excess of the same can be given effect to telescope against other additions made on account of negative peak as raised by assessee in ground No. 3.
43. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that this issue is dealt by Commissioner (Appeals) in para 8 of his appellate order, wherein he has confirmed the action of the assessing officer by rejecting the books of accounts and sub-sequently, upheld the estimation at the rate of 10% of the gross contract receipts in Para 8.1 and 8.1.1 as under :–
“8.1. Having rejected the books, the assessing officer has proceeded to estimate the income at 10% of the gross contract receipts. The appellant had shown net profit at the rate of 3.79%, which was considered low taking into account in view of the incompleteness and incorrectness of the accounts. The appellant contents that the net profit adopted at 10% is exorbitant. It is pointed out that in the return filed under section 139(1), the net profit rate declared was 2.89% of the turnover; in the re-drafted books, after consolidation the declared business income is 3.79% of the turnover, which is 0.90% higher than that declared earlier. It is contended that the business income assessed by the assessing officer is excessively higher at 263% of the business incomer declared. On a consideration of the matter, it has to be stated here that, no doubt in making a best judgment assessment, some estimates have to be made and there is a certain amount of guess work. In fact, it is the appellant himself who has to be blamed since no complete or proper accounts were presented/maintained. The so as to have a basis, has mentioned section 44AD of the Act where a presumptive rate of 8% has been fixed for marginal and small contractors who do not maintain books. The assessing officer cannot be faulted for referring to section 44A1) for the reason that it provides a statutory guideline for estimating income from contract receipts. The assessing officer has fixed the net profit rate a little over 8%, i.e., at 10% of the gross contract receipts.
8.1.1 Considering the fact that books were not reliable, that business was also being carried on in the names of family members, relatives, not all of whom were filing returns, considering that the financial statements of all such family entities have not been made available for examination either before the Special Auditor or the assessing officer, it cannot be stated that the estimation by the assessing officer is arbitrary and without taking into account the history of the appellant. Hence, I am in inclined to uphold the action of the assessing officer in estimating the net profit at 10%. It is held that the estimation is not arbitrary but based on peculiar facts of the case. It has been held by the Hon’ble Supreme Court in the case of Commissioner of Sales Tax v. H.M. Esufali H.M. Abdulali (1993) 90 ITR 271(SC) that if the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis, the fact that there is no good proof in support of the estimate is immaterial.
To sum up, it is held that the accounts of the assessee were rightly discarded and the basis adopted for estimation of income has a relevant basis. The estimation is not arbitrary, but based on the peculiar fact as existing in this case.”
44. We find from the comparative statement that the profit declared and adopted by the assessing officer and confirmed by Commissioner (Appeals), clearly spell out the additions, which is identical in all the orders and the same reads as under :–
A.Y |
Gross Turnover |
Net Profit declared |
% of net profit declared |
Peak offered in ROI |
Peak accepted during assessment |
Total peak offered |
profit considering peak offer |
% of net profit |
Additionmade by assessing officer and confirmed by Commissioner (Appeals) adopting NP rate of 10% |
2004-05 |
2,32,59,516 |
8,77,786 |
3.79% |
0 |
0 |
0 |
8,77,786 |
3.79% |
14,48,166 |
2005-06 |
4,86,74,017 |
18,50,018 |
3.80% |
0 |
0 |
0 |
18,50,018 |
3.80% |
30,17,384 |
2006-07 |
3,02,89,790 |
11,60,339 |
3.83% |
0 |
0 |
0 |
11,60,339 |
3.83% |
18,68,640 |
2007-08 |
4,63,02,636 |
17,26,319 |
3.73% |
25,07,535 |
0 |
25,07,535 |
42,33,854 |
9.14% |
27,20,029 |
2008-09 |
10,48,76,738 |
39,58,773 |
3.77% |
42,47,059 |
53,67,292 |
96,14,351 |
1,35,73,124 |
12.94% |
65,28,901 |
2009-10 |
8,59,70,431 |
32,72,115 |
3.81% |
0 |
43,07,103 |
43,07,103 |
75,79,218 |
8.82% |
53,24,928 |
2010-11 |
1,19,43,168 |
4,70,717 |
3.94% |
0 |
38,46,992 |
38,46,992 |
43,17,709 |
36.15% |
7,36,030 |
Total |
35,13,16,296 |
1,33,16,067 |
3.79% |
67,54,594 |
1,35,21,387 |
2,02,75,981 |
3,35,92,048 |
9056% |
2,16,44,078 |
45. We also find from the findings of Commissioner (Appeals) as regards to telescoping to net profit addition against addition on account of negative peak was admitted by Commissioner (Appeals) in Para 11.1 at page 10 of his appellate order, which reads as under :–
“11.1 As can be seen, the ground itself is vague and is saddled with infirmity. No specific instance of double addition/taxation has been pointed out. Even otherwise, the addition/dis allowances are the subject matter of appeal and yet to attain finality. A submission was made that since the assessing officer increased the profit under best judgment assessment, he ought to have given the effect of increase in profit of the appellant in the cash balance on the asset side of the Balance Sheet. At this stage it is premature to give effect to the same, the appellant being aggrieved by the estimation as made. Once the assessment has attained finality then it would be meaningful to examine the said contention. For the said reason, the ground stands dismissed.”
46. In view of the above facts and circumstances, we are of the view that the assessee himself admitted that profit @10% i.e., net profit on gross contract receipt can be confirmed as estimated by the assessing officer but the consequential telescoping of the available cash balance amount to Rs. 14,48,166 in this year is to be allowed, giving effect to the balance of pooled cash account and further effecting the negative peak cash credit in current and in subsequent assessment years. We find the plea of the assessee is quite reasonable that the estimated net profit @ 10% is to be upheld and excess is to be allowed to be set off against negative peak cash in current assessment year as well subsequent assessment years. The assessee have filed complete details, the assessing officer can verify and allow the same. We direct the assessing officer accordingly.
47. Similar is the position in all the years, taking a consistent view, we direct the assessing officer to allow the excess of net profit addition to be set off against negative peak cash in the pooled cash account in all the years. We direct the assessing officer accordingly. These two inter-connected issues of the assessee are allowed but for verification and giving effect to the excess profit additions to be set off against negative peak cash account, are referred back to the file of the assessing officer.
48. The next issue in this appeal of assessee in ITA No. 7208/Mum/2013 for assessment year 2004-05 is as regards to the order of Commissioner (Appeals) confirming the addition of adjustments made in working of negative peak amounting to Rs. 6,89,004. For this assessee has raised following ground No. 2 :–
“2. That the learned Assistant Commissioner, Central Circle 22, Mumbai and the learned Commissioner (Appeals)–39, Mumbai have grossly erred in law and on the facts and circumstances of the case in net decreasing and sustaining the net decrease, respectively, by adjusting the Cash Balance by Rs. 6,89,004 thereby affecting the balance of ”Jawahar B. Purohit–Pooled Cash Account and further affecting the Peak Negative Cash in current and forthcoming assessment years.”
49. Brief facts relating to the issue are that the assessee filed working of negative peak cash showing a sum of Rs. 6,89,004 shown as receivable from M/s. Shyona Corporation but the assessing officer reduced this cash balance as on 31-3-2004 from the peak working. According to the assessing officer, no documentary evidences were furnished. The Commissioner (Appeals) also confirmed the action of the assessing officer vide Para 10.1 of his appellate order which reads as under :–
“10.1 It is observed from paragraph 15 of the order of assessment that the assessing officer has reduced the cash balance of the appellant by a sum of Rs. 6,89,004. The cash balance has been reduced based on the finding in the report of the Special Auditor that a sum of Rs. 6,89,004 is shown as having been received from MIs Shayona Corporation in the re-drafted books, whereas in the return filed under section 139(1) the said sum was shown as receivable. The appellant contends that the said amount was received in cash during the year. The assessing officer has not accepted the said explanation and hence the same has an implication on the Peak Negative Cash that has been offered as income in the subsequent year. The impact for the current year is that the cash balance as on 31-3-2004 stands reduced to the extent of Rs. 6,89,004. The assessing officer has calculated the res Peak Negative Cash for the year at Rs. NIL. On facts, and for the reason that appellant has no credible evidence to prove the explanation as offered, I decline to interfere with the action of the assessing officer.”
Aggrieved, assessee is in second appeal before Tribunal.
50. Before us, the learned Counsel for the assessee stated that he has carried out work for M/s. Shyona Corporation and the transactions were reflected in the books of accounts prepared and filed before search. But the party did not have funds to make payments by cheque but actually had made payment in cash. He explained that the party had not made payment by cheque and it exceeded the limits prescribed in the books of accounts prepared before search, the same was shown as receivable though amount was actually received by cash. He explained that in the re-casted books of accounts, the assessee has shown cash receipt against the contract work. To explain the position, the assessee stated that for over the period of two years being assessment years 2004-05 and 2005-06, the assessee had done contract work for M/s. Shyona Corporation and received a sum of Rs. 6,89,004 by cash in assessment year 2004-05 and Rs. 24,00,000 for assessment year 2005-06. The assessee made a plea that for contract work, the contractor account given credit for such a long period. He also admitted that the said amount was reflected as sales and part of turnover on which net profit has been estimated by the assessing officer @10% and the receipt of cash on two have been considered by the assessing officer for preparation of pooled cash account. The learned Counsel for the assessee referred to the working of negative peak as per assessing officer given at pages 180 to 225 of assessee’s paper book 2 filed on 23-6-2017. He also referred to separate sheet attached at page 233 of assessee’s paper book 2 which reflected this entry of Rs. 6,89,009 The relevant statement reads as under :–
| S No. | Nature of Transaction | Page No. of Assessment Order | Page No. of Commissioner (Appeals) | Date | Amount of Adjustment | Remarks |
| 1. | Sundry Debtors | Page No. 12, Para 15 point iii) | Page No. 9 ara 10.1 | 31-032004 | 6,89,004 | This amount is on account of amount receivable from debtor shayona Corporation. Since the amount was received in cash, no evidence of receipt of money is available. |
This amount is on account of amount receivable from debtor shayona Corporation. Since the amount was received in cash, no evidence of receipt of money is available. The learned Counsel for the assessee only requested that this amount is to be taken as received cash and should be considered for the adjustment made in working of negative peak. We find that the plea of the assessee’s Counsel is quite reasonable and accordingly, we direct the assessing officer to consider this amount while making adjustment in the working of negative peak. We direct the assessing officer accordingly.
51. The next issues in ITA No. 7209/Mum/2013 of assessee’s appeal for assessment year 2005-06 are in regard to remuneration of partnership, addition of interest on IT refund and dis allowances made in MR construction raised by way of ground No 2, 4 and 7 are not pressed by the learned Counsel for the assessee at the time of hearing under the instruction of the assessee. Accordingly, these three issues are dismissed as not pressed.
52. The next two issues in ITA No. 7209/Mum/2013 of assessee’s appeal for assessment year 2005-06 are against the order of Commissioner (Appeals) confirming the action of the assessing officer in sustain addition of negative cash balance of Rs. 1,97,176 i.e., and not adjusting the cash balance of Rs. 40,37,942 in the balance of Jawahar B Purohit pooled cash account. For this assessee has raised following ground Nos. 3 and 5 :–
“3. That the learned Assistant Commissioner, Central Circle 22, Mumbai and the learned Commissioner (Appeals) – 39, Mumbai have grossly erred in law and on the fact and circumstances of the case in making addition and sustaining addition, respectively on account of peak negative cash balance by Rs. 1,97,176 thereby also affecting the Cash balance in current and forthcoming assessment years.
5. That the learned Assistant Commissioner, Central Circle 22, Mumbai and the learned Commissioner (Appeals) – 39, Mumbai have grossly erred in law and on the fact and circumstances of the case in net decreasing and sustaining the net decrease, respectively, by adjusting the Cash balance by Rs. 40,37,942 thereby affecting the balance of ”Jawahar B. Purohit – pooled cash account” and further affecting the Peak negative Cash in current and forthcoming assessment years.”
53. The learned Counsel for the assessee stated that the assessee has borrowed from various persons aggregating to Rs. 11,02,652 and reflected in the books of accounts prepared before search action under section 132 of the Act. The assessee explained the following details which reads as under :–
Sr. No. |
Nature of Transaction |
Page No. of assessment order |
Page No. of Commissioner (Appeals) |
Date |
Amount of adjustment |
Details |
Remarks |
|
1. |
Unsecured loans |
Page No. 20 |
Page No. 11, point c)of 9.3 |
1-4-2004 |
11,02,652 |
A.B. More |
37,088 |
Originally the return of income filed under section 139(1), these loans were show as paid, but the bearer cheques were issued in their names and cash was withdrawan by the appellant. Confirmations were filed at the stage 153A proceedings confirming that the amounts were still outstanding. |
Akshar Construction co. |
1,89,750 |
|||||||
Amrut Engineers |
3,30,625 |
|||||||
Bhanwarlal Purohit |
21,275 |
|||||||
BhomaramjiGelaji |
19,000 |
|||||||
Hitesh H. Purohit |
22,425 |
|||||||
Rancchhodpurohit |
22,425 |
|||||||
Rohan& Associates |
3,83,312 |
|||||||
Shankar Shetty |
20,700 |
|||||||
Sharddha Construction co. |
33,052 |
|||||||
Varshasupeda |
23,000 |
|||||||
Total |
11,02,652 |
The learned Counsel for the assessee explained from the above that this amount of Rs. 11,02,652 in the name of various persons were borrowed and reflected in the books of accounts. The assessee had issued bearer cheques during the relevant previous year and cash was withdrawn and retained by him but in the books of accounts bear cheques were reflected as loans repaid. Subsequently in the re- casted books of accounts prepared before search action, on the basis of which assessment has been made, the assessee reflected the correct state of affairs. The learned Counsel for the assessee further stated that cash withdrawn by the assessee was shown in cash account and loans are shown as outstanding. The assessee filed confirmation letters from the lenders to the assessing officer, but the assessing officer did not accept the plea of the assessee and the Commissioner (Appeals) also confirmed the action of the assessing officer vide Para 9.3 of his order as under :–
“9.3 I have very carefully considered the matter. With regard to the finding of the assessing officer as regards the documents recovered from the premises of Shri S.R. Desai which indicated cash payments made to various parties, whose existence was in doubt, as stated in para 20 of the order of the assessment at page no. 18. The same were not reflected in the redrafted books of accounts. It is observed from the Report of the Special Auditor that in spite of the opportunities granted no proper or satisfactory replies could be given by the assessee in order to explain the discrepancies/anomalies as pointed out. In these circumstances, I am inclined to sustain the findings of the assessing officer No explanation was furnished before the assessing officer. However, as regards the opening cash, in all fairness the assessing officer will rework the peak negative cash and make adjustments taking into account the reliefs as granted.”
54. The second adjustment made is on account of alleged purchase of machinery of Rs. 5,35,290 as an outgoing in preparation of old cash accounts of Shri Jawahar B Purohit. The facts are that during the survey action carried out on 16-11-2009 on Shri SR Desai, the tax consultant who was earlier preparing and filing income tax returns of the assessee. During the survey at his office certain bills for purchase of machinery etc. were found and impounded, copy of which is also enclosed in assessee’s paper book at page 255. He argued that Shri SR Desai, on being question, clearly stated that the same are bogus bills procure by him to enable his client to make non-genuine as purchase of machinery and relevant copy of statement is enclosed at page 247 of the assessee’s paper book and relevant question No. 13 at page 251 and 252 reads as under :–
“Q.13. I am showing you blank letter heads and blank bills in the name of following entities impounded at page numbers from 83 to 94 of impounded material at Annexure ’A’.
Blank Letter Heads
1. National Institute of Industrial Engineering.
2. Indian Institute of technology Bombay
3. R.C. Builders and Developers
4. Jasmine Enterprises
Blank Bills
1. Metro Engineering works
2. Moolight Industries (P) Ltd.
3. Kohinoor sales corporation
4. R.H. Winsler Industries Ltd.
5. Rakesh Engineering Company
6. Jackson Engineers
7. Srikrishna Industries
8. Patel & Co.
Please confirm that these have been recovered from your office premise. Are the above mentioned entities your clients to whom you render professional service? Please state the reason why these blank letter heads and blank bills are lying in your office premise
Ans. Yes, I confirm that the above mentioned blank letter heads and blank bills have been founded at my office premises. These entities are not my clients. The blank letter heads are used on behalf of various clients to register with BMC. The blank bills are used to show purchase from various parties.
Q.14 Vide answer to question No. 13 you have mentioned that blank bills are used to show purchases from various parties Do you mean to say that the bills are merely raised in your office but the goods have not been actually procured? Please provide details that the goods have been actually delivered by showing details of transport date of delivery and bill of laden etc.
Ans. No details as mentioned above are available in my office at this time. This original bills have been taken away by the client. However, the above bills are bogus and no actual transaction has taken place.
Q.15 I am showing you photo copies bills impounded vide page number 95 to 125 at annexure ’A’ which have been found from your office premise in the following entities :–
1. Shree Sundha
2. H.M. Container Services
3. Moonlight Industries (P) Ltd.
4. Rakesh Engineering Co.
5. Jackson Engineers.
6. Srikrishna Industries
7. Kamal Industries
8. Shriti Enterprises.”
55. It was claimed by assessee that none of those bogus purchases have been accounted in the books of accounts of the assessee but assessing officer adopted contradictory stand that the assessee must have purchase the said machinery and therefore he considered the invoices amount of Rs. 5,35,290 as unaccounted investment shown as outgoing in pooled cash account. The third adjustments made by assessing officer in respect of receipt of cash of Rs. 24,00,000 disclosed by assessee from M/s. Shyona Corporation as available in pooled cash account of Jawahar B Purohit. It was contended that this amount is on account of amount receivable from debtor M/s. Shyona Corporation and since the amount was in cash there is no evidence of receipt of money. The learned Counsel for the assessee relied on the page 235 and 236 of the assessee’s paper book which reads as under :–
| 2. | Unaccounted purchase of Machinery | Page No. 17,18,19 | Page No. 10&11 point a) of 9.1, 9.2 and 9.3 | 3-2-2005 | 5,35,290 | This is invoice of R.H. Winsher industries Ltd. Which is seized from Mr. S.R. Desai Office not from our office as we earlier also reply to special auditor and assessing officer also that this invoices not belongs to us and this invoice never seized from us as we have never entered any transaction with the said party but assessing officer think this invoice very much related to us and he reduced the cash balance with this amount which is wrong. Replay to of Mr. S.R. Desai to Q. No. 13 & 14 in his statement under section 133A on 16-11-2009 may be seen in which he has stated that these bills are bogus and no transaction has taken place. |
| 3. | Sundry Debtors | Page No. 19,20 | Page No. 10, point b) of 9.1 | 31-3-2005 | 24,00,000 | This amount Is on account of amount receivable from debtor Shayona Corporation. Since the amount was received in cash, no evidence of receipt of money is available. |
56. We have heard the rival contentions and gone the facts and circumstances of the case. We find that as regards to the loan brought from various persona and the same are depicted at page 234 of the assessee’s paper book whereby the assessee has issued bearer cheques in their name and cash was withdrawn by the assessee and confirmation is filed at the stage of assessment despite the fact that in the books of accounts the amount are still outstanding, the cash received by the assessee from these debtors is available with the assessee and qua this amount, the assessee’s pooled cash account should be increased and peak benefit should be allowed.
57. The next issue in ITA No. 6847/Mum/2013 of Revenue’s appeal for assessment year 2005-06 is as regards to the order of Commissioner (Appeals) deleting the addition made by the assessing officer on account of agricultural income, not accepted and treated the same as income from other sources. For this Revenue has raised following two grounds :-
“1. On the facts and circumstances of the case and in law, the learned Commissioner (Appeals) has erred in deleting addition of Rs. 24,06,006 made on account of income from other sources declared by the assessee as agricultural income when the assessee had not produced any proof of land holdings.
2. On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) has erred in holding that the proceedings are not open when the provisions of section 153A clearly empowers the assessing officer to issue notice and make assessment and to assessee the total income of the assessee which includes disclosed as well as undisclosed income.”
58. At the outset, the learned counsel for the assessee stated that the assessee has declared agricultural income in its return of income filed under section 139(1) of the Act for assessment year 2005-06 as on 31-10-2005. The returned was processed under section 143(1) of the Act and no proceedings were pending as on the date of search dated 16-11-2009. There is no incriminating material found during the course of search. Once this is the position this issue is squarely covered in favour of assess and against Revenue by following the decision of Hon’ble Bombay High Court the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra).
59. We find from the facts of the case that search was carried out on 16-11-2009 and there is no incriminating material were found during the course of search relating to agricultural income and accordingly, by following the decisions of Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra). Accordingly, we confirm the deletion and the appeal of Revenue is dismissed.
60. The only issue in ITA No. 6848/Mum/2013 for assessment year 2006-07 in Revenue’s appeal is as regards to the order of Commissioner (Appeals) deleting the addition of Rs. 38,30,805 made by the assessing officer on account of agricultural income, not accepted and treated the same as income from other sources. For this Revenue has raised following two grounds :–
“1. On the facts and circumstances of the case and in law, the learned Commissioner (Appeals) has erred in deleting addition of Rs. 38,30,805 made on account of income from other sources declared by the assessee as agricultural income when the assessee had not produced any proof of land holdings.”
2. On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) has erred in holding that the proceedings are not open when the provisions of section 153A clearly empowers the assessing officer to issue notice and make assessment and to assess the total income of the assessee which includes disclosed as well as undisclosed income.”
61. At the outset, the learned counsel for the assessee stated that the assessee has declared agricultural income in its return of income filed under section 139(1) of the Act for assessment year 2006-07 as on 31-10-2006. No incriminating material found during the course of search and no proceedings were pending as on the date of search dated 16-11-2009. Once this is the position this issue is squarely covered in favour of assess and against Revenue by following the decision of Hon’ble Bombay High Court the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra).
62. We find from the facts of the case that search was carried out on 16-11-2009 and there is no incriminating material were found during the course of search relating to agricultural income. As per law what abates are only the pending assessments or reassessment proceedings and not the completed assessment and accordingly, by following the decisions of Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra). Accordingly, we confirm the deletion and appeal of Revenue is dismissed.
63. The next common issues in ITA No. 7210/Mum/2013 of assessee’s appeal for assessment year 2006-07 are regarding confirmation of addition by Commissioner (Appeals) of negative peak of Rs. 3,47,924, adjustment disallowed in working of negative peak of Rs. 1,85,000 and dis allowance made in M.R. Construction giving consequential effect in working of negative peak are not pressed by the learned Counsel for the assessee under the instructions of the assessee. Hence, the same are dismissed as not pressed.
64. The next common issues in ITA No. 7211/Mum/2013 for assessment year 2007-08 of assessee’s appeal is as regards to addition of adjustments of negative peak amounting to Rs. 11,07,941 and adjustment of working of negative peak of Rs. 51,41,818. For this assessee has raised following ground No. 2 & 4 :–
“ 2. That the learned Assistant Commissioner, Central Circle 22, Mumbai and the learned Commissioner (Appeals)–39, Mumbai have grossly erred in law and on the facts and circumstances of the case in making addition and sustaining addition, respectively, on account of Peak Negative Cash Balance by Rs. 11,07,941 thereby also affecting the Cash Balance in current and forthcoming assessment years.
4. That the learned Assistant Commissioner, Central Circle 22, 41 Mumbai and the learned Commissioner (Appeals)–39, Mumbai have grossly erred in law and on the facts and circumstances of the case in net decreasing and sustaining the net decrease, respectively, by adjusting the Cash Balance by Rs. 51,41,818 thereby affecting the balance of ”Jawahar B. Purohit–Pooled Cash Account” and further affecting the Peak Negative Cash in current and forthcoming assessment years.”
At the outset, the learned counsel for the assessee stated that the assessee has challenged the adjustment made by the assessing officer to pooled cash account and consequential addition made to total income on account of negative cash in such pooled cash account.
65. The first adjustment made by assessing officer to pooled cash account is on account of purchase of machinery on the basis of invoice found and impounded from S R Desai during simultaneous survey and search carried out at his place. The assessee contended that the assessing officer may be directed to ignore the said amount of Rs. 10,18,660 and not consider the same as outgoing in preparation of pooled cash account. The learned counsel for the assessee stated that this amount relates to assessee but Shri SR Desai vide question No. 13 and 14 of his statement recorded under section 133A of the Act on 16-11-2009 categorically stated that these bills are bogus and no transaction has taken place. The assessee drew our attention to statement of addition and adjustment to peak working given at page 237 of assessee’s paper book which reads as under :–
| Sr. No. | Nature of Transaction | Page No. of assessment Order | Page No. of CIT (A) | Date | Amount of adjustment | Details | Remarks |
| 1 | Unaccounted Purchase of Machinery | Page No 16, 17, 18 | Para No. 15 Para 9.3 | 17-02-2007 | 10,18,660 | This is invoice of Jack sons Engineers, Which is seized from Mr. S.R. Desai office not from our office as we earlier also replay to special auditor and AO also that this invoices not belongs to us and this invoice never seized from us as we have never entered any transaction with the said party but AO think this invoice very much related to us and he reduced the cash balance with this amount which is wrong. Replay to of Mr. S.R. Desai to Q. No. 13 ft 14 in his statement Os 133 A on 16-11-2009 may be seen in which he has stated that these bills are bogus and no transaction |
66. We find that this cash is available with the assessee as he has not made any purchases and this cash should be given effect while computing negative cash in the pooled cash account. We direct the assessing officer accordingly.
67. The second adjustment is as regards to not giving effect of cash available in respect to labour job work of Rs. 18,39,158. The facts are that one of the entity which was owned up by the assessee during search proceedings was M/s. Harshita Corporation and all the transactions of the said concern has been considered in the re-casted books of accounts. During the relevant assessment year, the said concern had done labour job work and received the amount of Rs. 18,39,158 by cash. In the re-casted books, both the sales and corresponding cost incurred had been reflected. Before us it was argue that expenses of the said concern were also recorded in re-casted books of accounts and net profit for the said year is only 4%.The assessing officer reduced the said sales from cash receipt in pooled cash account leading to shortfall in cash on hand. Though the assessing officer has reduced the same from turnover for making estimate of 10% NP but expenses of the said sales are still considered in the re- casted books of accounts and thereby are debited in pooled cash account. The assessee claimed that such an action amounts to double addition as sales are reduced from availability of cash in pooled cash account but corresponding expenses are still lying as debit to pooled cash account. The assessee claimed that the assessing officer may be directed to consider sales of Rs. 18,39,158 as available cash in pooled cash account. We find that the assessee has filed complete chart of cash sales which reads as under :–
68. In view of the above facts, we direct the assessing officer to allow the availability of this cash in the computation of negative cash in pooled cash account. We direct the assessing officer accordingly. This issue of assessee’s appeal is allowed.
69. The next issue in ITA No. 7211/Mum/2013 for assessment year 2007-08 of assessee’s appeal is as regards to allowance of deduction of school fee under chapter VI A of the Act amounting to Rs. 25,000.
70. A the outset, the learned Counsel for the assessee stated that this issue requires reconsideration at the level of the assessing officer as the assessee will file the evidence of payment of fee and the assessing officer can decide accordingly. The Departmental Representative has not objected. Accordingly, we restore this issue back to the file of the assessing officer. This issue of assessee’s appeal is partly allowed.
71. The next issue in ITA No. 7211/Mum/2013 for assessment year 2007-08 of assessee’s appeal is as regards to dis allowance made in M. R. construction by giving consequential effect in working of negative peak. The learned Counsel for the assessee has not pressed this issue under the instructions of the assessee and hence, the same is dismissed as not pressed.
72. The next two interconnected issues in ITA No. 7212/Mum/2013 for assessment year 2008-09 of assessee’s appeal are making addition to the negative peak account amounting to Rs. 1,75,56,162 and adjustment made in working of negative peak to Rs. 37,88,147. For this assessee has raised following ground No. 2 and 3 :–
2. That the learned Assistant Commissioner, Central Circle 22, Mumbai and the learned Commissioner (Appeals)–39, Mumbai have grossly erred in law and on the facts and circumstances of the case in making and sustaining reduction, respectively, on account of Peak Negative Cash balance by Rs. 1,75,56,162 thereby also affecting the Cash Balance in current and forthcoming assessment year.
3. That the learned Assistant Commissioner, Central Circle 22, Mumbai and the learned Commissioner (Appeals)–39, Mumbai have grossly erred in law and on the facts and circumstances of the case in net decreasing and sustaining the net decrease, respectively, by adjusting the Cash Balance by Rs. 37,88,147 thereby affecting the Peak Negative cash in current and forthcoming assessment years.”
73. By these ground Nos. 2 and 3 the assessee has challenged adjustment made by assessing officer to pooled cash account and consequential addition made to total income on account negative cash in such pooled cash account. The break up and facts of various adjustments made has been summarized in statement enclosed at page 239-241 of paper book no 2, which reads as under :–
74. We find from the facts of the case that the first adjustment to pooled cash account is on account of purchase of machinery on the basis of invoice found and impounded from S R Desai during simultaneous survey carried out at his place. The assessee claimed that facts and contentions relating to the said issue are the same as in ground 3 & 5 of assessment year 2005-06. The assessee contended that the assessing officer may be directed to ignore the said amount of Rs. 16,52,036 and not consider the same as outgoing in computation of pooled cash account. The second adjustment made by assessing officer is on account of sundry creditors to the extent of Rs. 15,56,011. The assessee claimed that he had issued bearer cheques during the relevant previous year and cash was withdrawn and retained by him. However, in books of accounts, the bearer cheques were reflected as payment to the said sundry creditors. In re-casted books of accounts prepared post search action on the basis of which assessment has been made, the assessee has reflected correct state of affairs. Cash withdrawn by the assessee has been shown in pooled cash account and sundry creditors are shown as outstanding. The assessing officer has dealt with the issue on page 16-18 and the Commissioner (Appeals) has dealt with the issue on page 16 in para 9.3. The assessee contended that the assessing officer may be directed to consider cash withdrawn against bearer cheques of Rs. 15,56,011 as available with him in computation of pooled cash account. The third adjustment made by assessing officer is on account of loans borrowed from various persons aggregating to Rs. 4,85,000 and reflected in books of accounts prepared before search action. The assessee claimed that he had issued bearer cheques during the relevant previous year and cash was withdrawn and retained by him. However, in books of accounts, the bearer cheques were reflected as loan repaid. In re-casted books of accounts prepared post search action on the basis of which assessment has been made, the assessee has reflected correct state of affairs. Cash withdrawn by the assessee has been shown in cash account and loans are shown as outstanding. Also, confirmation letters of the lenders were also furnished. The assessing officer has dealt with the issue on page 17-18 and the Commissioner (Appeals) has dealt with the issue on page 16 in para 9.3. The assessee urged that the assessing officer may be directed to consider cash withdrawn against bearer cheques of Rs. 4,85,000 as available with him in computation of pooled cash account. We find that this amount of cash is available with assessee and it should be considered while computing cash adjustment in the negative peak in pool cash account. We direct the assessing officer accordingly.
75. The next issue in ITA No. 7212/Mum/2013 for assessment year 2009-10 of assessee’s appeal is as regards to dis allowance made in M. R. construction by giving consequential effect in working of negative peak. The learned Counsel for the assessee has not pressed this issue under the instructions of the assessee and hence, the same is dismissed as not pressed.
76. The next issue in ITA No. 7213/Mum/2013 for assessment year 2009-10 in assessee’s appeal is as regards to addition made on account of negative peak amounting to Rs. 44,57,103 and adjustment made in working of negative peak of Rs. 1.50 lacs. For this assessee has raised following ground No. 2 and 4 :–
2. That the learned Assistant Commissioner, Central Circle 22, Mumbai and the learned Commissioner (Appeals)–39, Mumbai have grossly erred in law and on the facts and circumstances of the case in making addition and sustaining addition, respectively, on account of Peak Negative Cash Balance by Rs. 44,57,103 thereby also affecting the cash balance in current and forthcoming assessment years.
4. That the Assistant Commissioner, Central Circle 22, 41 Mumbai and the learned Commissioner (Appeals)–39, Mumbai have grossly erred in law and on the facts and circumstances of the case in net decreasing and sustaining the net decrease, respectively, by adjusting the cash balance by Rs. 1,50,000 thereby affecting the balance of ”Jawahar B. Purohit – pooled Cash Account” and further affecting the peak Negative Cash in current and forthcoming assessment years.”
77. The assessee by these ground Nos. 2 and 3 has challenged adjustment made by assessing officer to pooled cash account and consequential addition made to total income on account negative cash in such pooled cash account. In the present year, the claim of the assessee is restricted to addition made on account of negative cash on account of addition made in earlier years. By ground no 5 the assessee has raised alternative plea that even if addition on account of Net profit is sustained, credit for the same ought to have been given in preparation of pooled cash account. The assessee claimed that facts and circumstance relating the ground are same as ground Nos. 3 for assessment year 2004-05. The assessee claimed that the assessing officer may be directed to give credit for addition sustained on account of net profit in preparation of pooled cash account.
78. We direct the assessing officer to give credit for addition sustained on account of net profit in preparation of pooled cash account and also if any addition is made to negative cash account on account of additions of earlier years. We direct the assessing officer accordingly. This issue of assessee’s appeal is allowed.
79. The next issue in ITA No. 7214/Mum/2013 of assessee’s appeal for assessment year 2010-11 is as regards to the addition made on account of negative peak of Rs. 41,24,256 and adjustment made in working of negative peak of Rs. 23,19,367. For this assessee has raised following ground Nos. 2 and 3 :–
2. That the learned Assistant Commissioner, Central Circle 22, Mumbai and the learned Commissioner (Appeals)–39, Mumbai have grossly erred in law and on the facts and circumstances of the case in making addition and sustaining addition, respectively, on account of Peak Negative Cash Balance by Rs. 41,24,256 thereby also affecting the cash balance in current and forthcoming assessment years.
3. That the learned Assistant Commissioner, Central Circle 22, Mumbai and the learned Commissioner (Appeals)–39, Mumbai have grossly erred in law and on the facts and circumstances of the case in net decreasing and sustaining the net decrease, respectively, by adjusting the Cash Balance by Rs. 23,19,367 thereby affecting the Peak the balance of ”Jawahar B. Purohit- pooled Cash Account and further affecting the peak negative cash in current and forthcoming assessment years.”
80. The assessee has challenged by ground Nos. 2 and 3 the adjustments made by assessing officer to pooled cash account and consequential addition made to total income on account negative cash in such pooled cash account. The break up and facts of various adjustments made has been summarized in statement enclosed at page 242 of paper book no 2, which reads as under :–
| Sr No. | Nature of Transaction | Page No. Of assessment order | Page No. Of CIT (A) | Date | Amount of adjustment | Remarks |
| 1 | Purchase invoice | 14, 15 | Page No. 11, Para 9.3 | 17-08-2009 | 1,82,367 | This invoice belongs to shanti electric and hardware which we earlier already says that this invoice was missing by us for recorded and we request to A.O to allow this in our books but A.O make the addition in peak negative we have to say that this is only invoice and there is no cash payment to them |
| 2 | Presumed cash expenses | 15, 16 | Page No. 11, Para 9.3 | 15-11-2009 | 44,71,000 | As per statement of Shri Jawahar Purohit on 16-11-2009. The A.O. presumed this expenditure a day before the day of search. There is no basis of this presumption as the appellant in that case world not have stated that the cash was available with him on the day or search i.e. on 16-11-2009. |
81. The first adjustment to pooled cash account is towards payment of Rs. 1,82,367 towards invoice of Shanti Electric and Hardware. The assessee claimed that the said invoice has not been paid and was outstanding. However, the assessing officer treated the said invoice as paid and reduced the same in pooled cash account. The said issue has been discussed by assessing officer at page 14-15 and by the Commissioner (Appeals) at page 11, para 9.3. The assessee claimed that the assessing officer may be directed to ignore the said amount of Rs. 1,82,367 and not consider the same as outgoing in computation of pooled cash account. The second adjustment is presumed expenditure of Rs. 44,71,000 on a day prior to date of search. At the time of search in the preliminary statement the assessee had stated that cash of Rs. 30,00,000 was lying at his residence and Rs. 40,00,000 at office of M.R. Construction. The said statement is preliminary statement recorded at commencement of search and the statement was made without referring to any material or actual cash found. In the concluding statement on comparison of actual cash found of Rs. 11,00,750 and Rs. 14,34,000 respectively, shortfall as compared to preliminary statement was worked out at Rs. 44,71,000 and a query was raised vide question & answer No. 14 of statement dated 16-11-2009 and the assessee had stated that he had spent the said amount. The assessing officer has debited the said amount as outgoing in pooled cash account on the date prior to date of search. The assessing officer has dealt with the issue on page 15-16 and the Commissioner (Appeals) has dealt with the issue at page 11 in para 9.3. The assessee claimed that the preliminary statement or the concluding statement is not in nature of evidence to hold that the assessee had spent the said amount and treat the same as unexplained expenditure. The assessee submits that the reading of the concluding statement does not lead to conclusion that the assessee has incurred unexplained expenditure of Rs. 44,71,000 on 15-11-2009.The assessee prays that the assessing officer may be directed to ignore the said amount as outgoing in considering pooled cash account.
82. After both the sides and going through the facts of the case, we direct the assessing officer to allow the claim of the assessee and consider the availability of actual cash found of Rs. 11,00,750 and Rs. 14,34,000 and the same can be given effect to the cash. It does not lead to the fact that the assessee has incurred unexplained expenditure of Rs. 44,71,000 and we accordingly delete the addition. This issue of assessee’s appeal is allowed.
83. In the result, in the case of M.R. Construction of assessee’s appeal in ITA Nos. 790 & 3710/Mum/2013 for assessment years 2005-06 & 2007-08 are allowed, in ITA Nos. 3709 & 3711/Mum/2013 for assessment years 2006-07 & 2008-09 are partly allowed and in Revenue’s appeal in ITA No. 1144,3645 & 3646/Mum/2013 for assessment years 2005-06, 2007-08 & 2010-11 are dismissed. In case of Jawahar B. Purohit of Revenue’s appeal in ITA Nos. 6847 & 6848/Mum/2013 for assessment years 2005-06 & 2006-07 are dismissed and of assessee’s appeal in ITA Nos. 7208, 7209, 7210, 7211, 7212, 7213 & 7214/Mum/2013 for assessment years 2004-05 to 2010-11 respectively, are partly allowed.
VERY USEFUL