2014 (4) TMI 165 - AT - Income Tax

Addition u/s 40A(2)(b) of the Act Suppression of sale receipts - Difference between SRO rate and purchase consideration paid treated as expenditure - Levy of interest u/s 234B of the Act - Penalty u/s 271(1)(c) of the Act Held that - The assessee has booked excess expenditure - this expenditure not gone into the Profit and Loss A/c - Unless and until the assessee claimed it as an expenditure in the assessment year under consideration, the provisions of section 40A(2)(b) have no application - The AO was of the opinion that had the assessee is in real estate business and on making plots in the land, the assessee is going to derive benefit - unless and until expenditure is debited to the Profit and Loss A/c. and claimed it as an expenditure while computing income in the assessment year under consideration, provisions of the section cannot be applied - there cannot be any addition in the assessment year under consideration u/s. 40A(2)(b) of the Act - the addition is set aside - the issue relating to levy of interest u/s. 234B and initiation of penalty proceedings u/s. 271(1)(c) does not survive as we have deleted the addition itself Decided in favour of Assessee. Assessee contended that the AO has not brought anything on record to show that any extra consideration passed between the parties - In the absence of any material to show that extra consideration passed between the parties in respect of the properties of the assessee it is not appropriate to consider the price shown in the website in respect of the properties Relying upon K.P. Verghese vs. ITO 1981 (9) TMI 1 - SUPREME Court - section 52(2) of the Act can be invoked only where the consideration for the transfer of a capital asset has been understated by the assessee, or, in other words, the full value of the consideration in respect of the transfer is shown at a lesser figure than that actually received by the assessee, and the burden of proving understatement or concealment is on the Revenue - the sub-section has no application in the case of a bona fide transaction where the consideration received by the assessee has been correctly declared thus, the order of the CIT(A) upheld Decided against Revenue. Proper bills and vouchers not produced Held that - The assessee s books of account are not verifiable - Certain payments are made by self-made vouchers only and there is every chance of inflating the expenditure thus, the AO is directed to disallow 5% of cash payments supported by self-made vouchers. Decided partly in favour of Revenue.

Issues Involved:
1. Addition made under Section 40A(2)(b) of the Income-tax Act, 1961.
2. Levy of interest under Section 234B of the Act.
3. Initiation of penalty proceedings under Section 271(1)(c) of the Act.
4. Addition towards suppression of sale receipts.
5. Deletion of addition made by estimating net profit at 10% of sales.

Issue-wise Detailed Analysis:

1. Addition made under Section 40A(2)(b) of the Income-tax Act, 1961:
The assessee challenged the addition of Rs. 3,97,04,400 made under Section 40A(2)(b). The assessee argued that the land was not stock-in-trade and the expenses were not booked to the profit and loss account. The CIT(A) confirmed the addition, but the Tribunal found that the expenditure was not debited to the profit and loss account. The Tribunal held that unless the expenditure is claimed as a deduction in the profit and loss account, Section 40A(2)(b) cannot be applied. Consequently, the addition was deleted.

2. Levy of interest under Section 234B of the Act:
The Tribunal noted that since the addition under Section 40A(2)(b) was deleted, the issue of levy of interest under Section 234B does not survive.

3. Initiation of penalty proceedings under Section 271(1)(c) of the Act:
Similarly, with the deletion of the addition, the initiation of penalty proceedings under Section 271(1)(c) was also rendered moot.

4. Addition towards suppression of sale receipts:
The Revenue appealed against the deletion of the addition of Rs. 15,22,10,300 towards suppressed sales. The AO had based the addition on the difference between the sale price registered and the price quoted on the assessee's website. The Tribunal upheld the CIT(A)'s decision, stating that there was no material evidence to show that any extra consideration passed between the parties. The Tribunal relied on the Supreme Court judgment in K.P. Verghese vs. ITO, which held that the burden of proving understatement or concealment is on the Revenue.

5. Deletion of addition made by estimating net profit at 10% of sales:
The AO had estimated the net profit at 10% of sales due to unverifiable books of account and self-made vouchers. The CIT(A) deleted this addition, but the Tribunal found that since the books were not verifiable and many payments were made by self-made vouchers, there was a possibility of inflated expenditure. The Tribunal directed the AO to disallow 5% of cash payments supported by self-made vouchers, thereby partly allowing the Revenue's appeal.

Conclusion:
The Tribunal allowed the assessee's appeal regarding the addition under Section 40A(2)(b), resulting in the deletion of related interest and penalty issues. The Tribunal dismissed the Revenue's appeal concerning suppressed sales but partly allowed the appeal regarding the estimation of net profit, directing a 5% disallowance of cash payments supported by self-made vouchers.

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