2016 (3) TMI 1157 - AT - Income Tax

Addition of expenses incurred on the development of land of the project done - Held that - It is the settled proposition of law that when any addition is made on the basis of some seized paper/impounded document, then the same has to be read as a whole. The department cannot accept a part of the same as true and the balance part of the same as untrue. Admittedly in the instant case the impounded document shows expenditure incurred upto plane passing . As already mentioned earlier, the final approval of the plan was given to the assessee on 29-03-2006. Even the Annexure 1 found during the course of survey, copies of which are placed at pages 1 to 5 of the paper book only shows expenditure to the tune of ₹ 24,21,963/- for the period from 11-03-2006 till 30-07-2007, i.e. during the period of 3 financial years 2005-06, 2006-07 and 2007-08. Therefore in absence of any contrary material brought to our notice it has to be held that the expenditure has been incurred prior to A.Y. 2007-08. In this view of the matter and in view of the detailed reasoning given by the CIT(A) we do not find any infirmity in his order deleting the addition of ₹ 1,13,75,605/- from the hands of the assessee firm and suggesting the AO to take remedial measures in the hands of the partners. We accordingly uphold the same and the ground raised by the revenue on this issue is dismissed. Addition on account of suppression of work-in-progress - Held that - From the copy of the assessment order, we find that although the AO has discussed the valuation of closing WIP/suppression of profits while making the addition, however, the order does not show any query raised by the AO during the course of assessment proceedings on this issue. The AO has simply proceeded on the basis of the booming market at Panvel during the period when the survey was conducted and came to the conclusion on his own. It is the settled proposition of law that addition cannot be made on the whims of the AO based on some surmises and presumptions without putting any query to the assessee. An opportunity must be given to the assessee while making or proposing any addition. The assessee must be given a reasonable opportunity to make his submission. In absence of the same, there is clear violation of principle of natural justice and no addition can be made. In this view of the matter and in view of the reasoning given by the CIT(A) while deleting the addition we do not find any infirmity in the order of the CIT(A). Accordingly, the same is upheld and the ground raised by the revenue on this issue is dismissed. Disallowance partly written off, payment made to retiring partner as goodwill/ compensation, accounted in the books of account - Held that - We find during the course of survey certain papers were impounded according to which 6 shops and 3 office premises were allotted to the partners belonging to Haresh Shah group. As per the said documents as well as the subsequent reply given by the assessee during the course of assessment proceedings it was found that the outgoing partners were allotted such shops and office premises at concessional rates of ₹ 47,80,000/- as against the market rate of ₹ 1,05,03,400/-. Thus, the difference of ₹ 57,23,400/- should have been offered to tax. Although the assessee has credited the amount of ₹ 57,23,400/- under the head miscellaneous income., however, the assessee has debited an amount of ₹ 11,44,680/- being 1/5th of the above amount as goodwill. It is also a fact that in the retirement deed there is no mention of any goodwill to be paid to the outgoing partners. Therefore, while disclosure of ₹ 57,23,400/- is justified debiting the amount of ₹ 11,44,680/- in our opinion is not justified under the facts and circumstances of the case. Further despite admission during the course of recording of statement that such income will be disclosed in the hands of the partners, nothing was brought to our notice that any of the partners had disclosed such amount in his hands. Under these circumstances we hold that the AO was fully justified in bringing to tax an amount of ₹ 11,44,680/-. In view of the above and the detailed reasoning given by the Ld. CIT(A) we do not find any infirmity in the order of CIT(A). Accordingly, we uphold the order of the CIT(A) on this issue and the grounds raised by the assessee are dismissed.

Summary

Issues Involved:
1. Addition of ?1,37,00,000 for unaccounted expenditure.
2. Addition of ?20,40,078 for suppression of work-in-progress.
3. Disallowance of ?11,44,680 for goodwill/compensation to retiring partners.

Issue-wise Detailed Analysis:

1. Addition of ?1,37,00,000 for Unaccounted Expenditure:
The Revenue appealed against the deletion of the addition of ?1,37,00,000 made by the AO for unaccounted expenditure. The AO based the addition on documents found during a survey and a statement by Mr. Hiralal Rangani, who admitted expenditure of ?2,04,86,045, including ?1,37,00,000 in unaccounted expenses. The CIT(A) deleted the addition, reasoning that the expenditure was incurred by partners and should be assessed in their hands, not the firm's. The CIT(A) also noted that the expenditure was incurred in the previous year, not the assessment year under appeal. The Tribunal upheld the CIT(A)'s decision, stating that the expenditure should be assessed in the partners' hands and was incurred in the prior year.

2. Addition of ?20,40,078 for Suppression of Work-in-Progress:
The AO added ?20,40,078 for suppression of work-in-progress, arguing that the assessee's net profit was lower than expected despite additional income disclosed during the survey. The AO compared the profit margins with a sister concern and concluded that the closing work-in-progress was undervalued. The CIT(A) deleted the addition, noting that the AO did not provide the assessee an opportunity to explain the valuation and based the addition on assumptions. The Tribunal upheld the CIT(A)'s decision, emphasizing the need for proper inquiry and opportunity for the assessee to explain.

3. Disallowance of ?11,44,680 for Goodwill/Compensation to Retiring Partners:
The assessee claimed ?11,44,680 as goodwill/compensation to retiring partners, which the AO disallowed, arguing that the amount was not justified and not mentioned in the retirement deed. The CIT(A) upheld the disallowance, agreeing with the AO that the expenditure was covered under Section 40A(2a) and was not substantiated. The Tribunal upheld the CIT(A)'s decision, stating that the assessee failed to justify the goodwill payment and no evidence was provided to support the claim.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of the ?1,37,00,000 addition and the ?20,40,078 addition for suppression of work-in-progress. The Tribunal also dismissed the assessee's appeal, upholding the disallowance of ?11,44,680 for goodwill/compensation to retiring partners. The additional ground raised by the assessee was dismissed as not pressed.