DCIT Vs Shhlok Enterprise (ITAT Surat)
The assessing officer made addition on the basis of statement recorded during the survey without any supporting evidence or any adverse material on record. The learned Commissioner (Appeals) also concluded that it is settled legal position that statement recorded during the survey has no evidence of value moreover the survey party has no power to record the statement oath. Accordingly, addition made by AO could not be sustained.
FULL TEXT OF THE ITAT JUDGEMENT
1. This appeal by Revenue is directed against the order of the learned Commissioner of Income Tax (Appeals)-1, Surat [in short “the ld. CIT(A)”] dated 04.05.2016 for the Assessment Year (AY) 2012-13. The Revenue has raised following grounds in its appeal:-
“1. The Ld. CIT(A) erred in law and on facts of the case in holding that the statement of Shri Navin H. Patel, partner of the firm recorded during survey operation on 30.08.2013 did not have any evidentiary value. Shri Patel was bound to state the truth of the facts in his statement during survey to the Authorized Officer, who is also a public servant.
2. The Ld.CIT(A) erred in law and on facts in ignoring the fact that Shri Navin H Patel, the partner of the firm, on 05.09.2013, while stating on oath u/s.131 of the IT Act, had reaffirmed the modus operandi and quantum of unaccounted income stated and disclosed in his statement dated 30.08.2013.
3. The Ld.CIT(A) erred in law and on facts in accepting the retraction dated 23.03.2015, made after a considerable lapse of 18 months from the date of survey, without there being any reason tendered by the deponent. Therefore, the same is not a valid retraction and should have not been accepted by the CIT(A).
4. On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of unaccounted receipts brought in books of accounts in the form of unsecured loans through accommodation entries with the help of one Shri Vipul Thakkar, who was in the business of providing entries for a commission of 0.15%, on the ground that the figures of unsecured loan of Trial Balance, which was prepared on 30.08.2013 and these amount related to A.Y. 2014-15 without appreciating the fact that lenders, who appeared in the Trial Balance and have lent in subsequent years, also have lent unsecured loan during the year under consideration.
5. The Ld. CIT(A) erred in law and on facts in deleting addition of Rs.13,79,336/- on account of interest on Unsecured loan.
6. The Ld.CIT(A] erred in law and on facts in deleting the addition of Rs.2,86,54,117/- on account of difference in receipts as per impounded materials and regular books of accounts.”
2. Brief facts of the case that the assessee is a partnership firm engaged in the construction of residential and commercial properties. For the year under consideration the assessee filed its return of income on 31st August 2012 declaring total income of ₹ 22.22 lakhs. The case was selected for a scrutiny and assessment was completed under section 143(3) on 30th March 2015 assessing total income at ₹ 3.22 Crore. During the assessment it was noted that a survey was conducted under section 133A on the premises of assessee on 30th August 2013. In the survey certain books of account found and were impounded. In the said survey statement of one of the partner Navin H Patel was recorded. The partner of the assessee admitted that unsecured loan was availed by the assessee firm, arranged through one Vipul Thakkar on payment of commission at the rate of 0.15% of the cheque amount. On the basis of statement of partner the assessing officer issued show cause notice as to why the unsecured loan of Rs. 1.30 Crore received during the year should not be added to the total income of the assessee. The assessing officer in para in par 4 at page No. 6 recorded that the amount of figure of unsecured loan was wrongly takes as Rs. 1.30 Crore instead of Rs. 1.54 Crore. The assessee filed its reply and explained that none of the loan received by assessee is bogus. It was further contended that the statement was recorded under pressure at the fag starting of the survey proceeding. The partner who made a statement was unaware of any accounting knowledge and whatever the statement was made is erroneous. The assessee furnished the conformation and acknowledgement of return of income tax return of the lenders. The assessing officer has extracted the contents of the reply of assessee in para 4.2 of the assessment order. The assessing officer not accepted the explanation furnished by the assessee. The assessing officer on the basis of statement of partner of assessee recorded during the survey held that assessee failed to prove the creditworthiness of the lender. On the basis of aforesaid observation the assessing officer made addition under section 68 of ₹ 1.54 Crore.
3. The assessee also claimed and interest expenses on such unsecured loan of ₹ 13.79 lakhs. Since the loan was treated as bogus loan, consequent upon the interest expenses was also treated as non-genuine.
4. The assessing officer on further perusal of the survey report noted that assessee received booking amount of ₹ 4.81 Crore during the relevant financial year and that assessee has shown a receipt of ₹ 1.94 Crore only in its books of account. Therefore, the assessing officer issued show cause notice to explain the difference of ₹ 2.86 Crore in the books of account, should not be treated as additional undisclosed income. The assessee filed its reply and explained that differential amount are advance received as booking amount during the year and the assessee has disclosed the additional income of Rs. 2.00 Crore in the year in which flat, shops and offices were sold and document were executed. The assessee further explained that they are following ‘Percentage of Completion Method’ and have shown a specific percentage of work in progress (WIP) as profit and hence advance received would not affect net profit of the assessee. The assessee explained that during the year under consideration the assessee has shown profit at the rate of 8% of work in progress i.e. total cost of the construction. The contention of assessee was not accepted by assessing officer. The assessing officer noted that there is difference of Rs. 2.86 Crore, which has not been disclosed by the assessee. The assessing officer treated the entire difference of amount as income of the assessee. The assessing officer took his view that no profit can be calculated on such amount. The assessing officer also held that assessee failed to prove that unaccounted advance of ₹ 2.86 Crore are part of disclosure of Rs. 2.00 Crore made during the financial year 2013-14, i. e. for assessment year 2014-15. The assessing officer further noted that in the affidavit filed by assessee, the assessee admitted the disclosure on account of booking advances for project ‘Shalok Acarde’ for assessment year 2014-15, but no of bifurcations of disclosure has been given against the money received during the year. The assessing officer concluded that Rs. 2.86 Crore is the undisclosed income of the assessee, out of the amount of Rs. 2.86 Crore, the assessee availed accommodation entry in the form of unsecured loan of Rs. 1.54 Crore, on which commissions must have been paid to Vipul Thakkar. On the aforesaid observation no separate addition of unsecured loan was made, but addition of undisclosed advances was made. The assessing officer thus, made addition of Rs.2.86 Crore on account of unaccounted advance.
5. Aggrieved by the additions the assessee filed appeal before learned Commissioner (Appeals). Before learned Commissioner (Appeals), the assessee filed detailed written submission as recorded by him, in para 5 of the impugned order. In the written submission the assessee contended that survey was conducted on the assessee group on 30th August 2013. The assessing officer during the course of survey, recorded statement of Naveen H Patel, one of the partners of assessee was recorded. The partner in a statement had admitted that unsecured loan was accepted by the firm or he does not know the lender personally and that loan was secured on payment of commission, on the basis of his observation the assessing officer issued notice as to amount of a less loan of ₹ 1.54 Crore should not be added to the income of assessee. The assessee in reply to the show cause notice before assessing officer stated that none of the unsecured loan is bogus and whatever was stated during the survey by the partner of assessee was stated under pressure at the fag starting of survey proceeding, the partner was unaware of the accounting knowledge. The statement of said partner was again taken wherein he has specifically stated that his earlier statement was erroneous and there was no unsecured loan. The assessing officer not accepted the submission of assessee and treated the amount as undisclosed income. The assessee explained that during the course of survey no adverse material was found regarding unsecured loan allegedly received by assessee. On the basis of a statement of partner without any further evidence, it cannot be said that assessee received unsecured loan from bogus parties. During the course of assessment proceeding, copy of confirmation of all unsecured loan from lenders along with a return of income were furnished for verification by assessing officer. The loan amounts were received through banking channel through cheques. Thus, the assessee proved identity of lender, genuineness and creditworthiness of the transaction. There was no material evidence before the assessing officer for treating the loan as unaccounted received. Since the assessing officer treated the unsecured loan as unaccounted received consequent interest was also disallowed. The assessing officer without any material evidence on record treated the unsecured loan as unaccounted amount received only on the basis of a statement of one of the partner. Though, confirmation of unsecured loan was furnished to the assessing officer. The assessee also furnished the TDS deducted on the interest paid on unsecured loan as well as copy of TDS return.
6. With regard to addition on account of undisclosed receipt of ₹ 2.86 Crore, the assessee stated that during the course of assessment proceeding the assessing officer on the basis of survey report noted that assessee received ₹ 2.86 Crore as unaccounted received. The assessing officer issued show cause notice for treating the difference of actual received and the received shown by assessee in its books of account. The assessee explained that they are following ‘percentage completion method’ of accounting, wherein any case even if the assessee has received any amount is advance, they show profit as a per specific percentage of work in progress. For the year under consideration the assessee has shown 8% of work in progress. The assessee also relied on various case laws as recorded by learned Commissioner (Appeals).
7. The learned Commissioner (Appeals) after considering the submission of the assessee with regard to addition on unsecured loan of ₹ 1.54 Crore noted that the survey was conducted on 30th August 2013 and that statement was related to the assessment year 2014-15, and the firm had made disclosure of Rs. 2.00 Crore for that year. The assessing officer made addition on the basis of statement recorded during the survey without any supporting evidence or any adverse material on record. The learned Commissioner (Appeals) also concluded that it is settled legal position that statement recorded during the server has no evidence of value moreover the survey party has no power to record the statement oath. During the appellate proceeding the learned Commissioner (Appeals) directed the assessee to furnish the copy of return of income for assessment year 2012 – 13 with Audit Report and final accounts. On the basis of Audit Report the learned Commissioner (Appeals) noted that assessing officer taken a figure of ₹ 1.30 Crore only on the basis of statement of partner. The learned Commissioner (Appeals) also examined the statement of partner regarding the alleged unsecured loan and held that the said a statement is no way related with the assessment year under consideration moreover the figure of alleged unsecured loan of ₹ 1.54 Crore as recorded by assessing officer at ₹ 1.30 Crore is neither telling with the unsecured loan reflected in the books of account nor any party-wise breakup has been given by assessing officer in the show cause notice. No such information was confronted to the assessee. The learned Commissioner (Appeals) also held that once the assessee filed confirmation of lender and return of income, the onus by the assessee was discharged and it was shifted on the assessing officer to prove that entry made in the books are not genuine. The assessing officer has not issued any notice to the lender nor made any independent enquiry to ascertain the truth. On the basis of the aforesaid observation the learned Commissioner (Appeals) deleted that addition of unsecured loan. Since, the addition of unsecured loan was deleted the consequent disallowance of interest payment was also deleted.
8. With regard to addition on account of unaccounted received the learned Commissioner (Appeals) noted that it is an admitted fact that during the relevant period, the assessee received total amount of ₹ 4.81 Crore as booking advance from customer as evident from the impounded material. The assessee has accounted only Rs1.94 Crore, thereby a difference of ₹ 2.86 Crore, which has been treated by assessing officer as undisclosed income. The assessee has not shown any income either on such suppressed received. The learned Commissioner (Appeals) noted that before him the assessee raised mainly three contention, (i) assessee has shown correct income based on the percentage completion method, (ii) that entire alleged on money is not taxable as income as only profit element should be taxed, and (iii) that assessee has already made disclosure of Rs. 2.00 Crore as undisclosed income for the entire project on the basis of alleged on money received that is Rs. 7.56 Crore for the entire project. All these contention of assessee was rejected by assessing officer, the assessing officer simply made addition on account of difference of booking amount and the amount shown in the books of account. The learned Commissioner (Appeals) also noted that assessing officer allowed telescoping of unsecured loan of ₹ 1.54 Crore on the ground that same representing accommodation entries made out of the unaccounted money and represent utilization of money.
9. The learned Commissioner (Appeals) independently considered the contention of assessee regarding the percentage completion method as applicable to the real estate transaction. The learned Commissioner (Appeals) noted that assessee explained that project has fulfilled triple condition of revenue recognition during the year. First of achieving reasonable level of development i.e. stage of completion of construction, second at least 25% of saleable project area should be secured by agreements with buyers and third one at least 10% of the total revenue as per agreements are sale realized. The working provided by assessee was also recorded by learned Commissioner (Appeals) on page No. 20 and 21 of the order in the following manner ;
“Application of percentage completion method as per guidance note of
accounting for real estate transaction”
