2015 (7) TMI 726 - AT - Income Tax

Undisclosed income of assessee - CIT(A) deleted the addition - Held that - Assessee has shown ₹ 3,00,000 as the amount received when sale took place and balance ₹ 3,00,000 as development charges. Therefore, in our view, in case of each of the transaction, an exercise has to be undertaken to find out not only the fact whether they appear in the accounts of assessee but also whether there is any variation between the amounts received as per list submitted by assessee and the loose sheets impounded at the time of survey. In our view, ld. CIT(A) should have given opportunity to AO to verify these facts to find out the authenticity of assessee s claim. Neither allowing opportunity to AO to properly verify the facts nor having himself verified the facts in detail, ld. CIT(A) should not have deleted the addition merely relying upon the submissions of assessee. In the aforesaid view of the matter, we set aside the order of ld. CIT(A) on this issue and remit the matter back to the file of AO for deciding the same after reasonable opportunity of hearing to Assessee to explain its case. AO must verify the documents submitted by assessee and thereafter take a decision in the matter. - Decided in favour of revenue for statistical purposes. Disallowance made u/s 40A(3) - CIT(A) deleted the addition - Held that - Though, assessee claimed before ld. CIT(A) that payments were made to persons at places where banking facility is not available, but, in our view, assessee s claim has to be proved through either certain process of enquiry or evidence brought on record. As it appears from the order of ld. CIT(A), he has accepted assessee s claim on the face value without making any enquiry or referring the matter to AO. Therefore, we set aside the impugned order of ld. CIT(A) on this issue and remit the matter back to the file of AO to verify assessee s claim that banking facility is not available at places where payments were made to concerned persons, hence it comes within the purview of rule 6DD. AO must afford reasonable opportunity of being heard to assessee before deciding the issue.- Decided in favour of revenue for statistical purposes. Disallowance made u/s 40(a)(ia) - CIT(A) deleted the addition - Held that - As can be seen, against the payment towards agent commission, assessee has deducted an amount of ₹ 1,38,300 and remitted to the govt. account, hence, AO s allegation that no tax was deducted is incorrect. As far as the development expenses are concerned, assessee has deducted tax on amount of ₹ 21,27,450 and the balance amount of ₹ 22,52,333, assessee itself disallowed and added back in the computation of income. Therefore, allegation of AO is proved to be wrong. Therefore, we agree with ld. CIT(A) in deleting these two additions. As far as, rent payment and payment towards development charges are concerned, we are of the view that assessee s contention that TDS provisions do not apply to these payments need to be verified by AO. - Decided partly in favour of revenue for statistical purposes. Disallowance of expenditure - CIT(A) restricting the disallowance - Held that - As can be seen while AO has disallowed 10% expenditure out of the expenditure claimed by assessee under various heads, ld. CIT(A) has restricted the disallowance to the expenditure claimed towards development expenditure, site visit expenditure, survey charges and preliminary expenses. In our view, the decision of ld. CIT(A) on this issue is just and proper and do not call for any interference. Though, assessee could not produce necessary proof in respect of claim of expenditure before AO, but, ld. CIT(A) has allowed assessee s claim after considering the fact that expenditure claimed towards directors remuneration, agents commission, development expenses etc. should not be disallowed on adhoc basis as assessee has actually incurred these expenditures. Ld. AR also submitted, assessee itself has disallowed expenditures where there are no supporting evidences, therefore, no further disallowance should be made. In view of the aforesaid, we uphold the order of ld. CIT(A) on this issue by dismissing the ground raised.- Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition of Rs. 1,29,28,500 based on additional evidence.
2. Disallowance under Section 40A(3) of the Income Tax Act.
3. Disallowance under Section 40(a)(ia) of the Income Tax Act.
4. Disallowance of expenditure claimed by the assessee.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 1,29,28,500 Based on Additional Evidence:
The department challenged the decision of the CIT(A) in deleting the addition of Rs. 1,29,28,500. The assessee, engaged in the real estate business, had filed its return of income declaring a total income of Rs. 28,66,090. During the assessment, the AO found that the assessee did not produce its books of account despite repeated opportunities. Consequently, the AO completed the assessment based on impounded material from a survey which indicated that the assessee received amounts in both white (Rs. 54,31,500) and black (Rs. 1,29,28,500) for the sale of plots. The AO treated the black money as undisclosed income. The assessee contended before the CIT(A) that the black money was actually development charges recorded as advances in the books of account. The CIT(A) agreed with the assessee and deleted the addition. However, the Tribunal found that the CIT(A) should have given the AO an opportunity to verify the facts before deleting the addition and remitted the matter back to the AO for verification and decision.

2. Disallowance under Section 40A(3) of the Income Tax Act:
The AO disallowed Rs. 13,09,996 (20% of Rs. 54,49,980) for cash payments exceeding Rs. 20,000, claiming they were not in compliance with Section 40A(3). The assessee argued that the payments were made in villages without banking facilities, falling under the exception provided under Rule 6DD. The CIT(A) accepted this claim and deleted the disallowance. However, the Tribunal noted that the CIT(A) accepted the claim without proper verification and remitted the matter back to the AO to verify the assessee's claim and decide accordingly.

3. Disallowance under Section 40(a)(ia) of the Income Tax Act:
The AO disallowed Rs. 1,25,94,603 for payments made without deducting tax at source, including agent commission, advertisement expenses, rent, and development charges. The assessee contended that TDS was deducted and remitted for agent commission and part of the development charges, while the balance was offered to tax. The rent payments were below the threshold for TDS, and the development charges were incurred by the assessee itself, not paid to contractors. The CIT(A) accepted these explanations and deleted the disallowance. The Tribunal upheld the CIT(A)'s decision regarding agent commission and part of the development charges but remitted the matter back to the AO for verification of rent payments and development charges.

4. Disallowance of Expenditure Claimed by the Assessee:
The AO disallowed 10% of various expenditures totaling Rs. 52,88,539 due to lack of supporting bills and vouchers. The CIT(A) restricted the disallowance to specific expenses (development, site visit, survey charges, and preliminary expenses) totaling Rs. 64,79,929. The Tribunal found the CIT(A)'s decision just and proper, noting that the assessee had incurred these expenditures and had already disallowed unsupported expenses. The Tribunal upheld the CIT(A)'s decision on this issue.

Conclusion:
The Tribunal partly allowed the department's appeal for statistical purposes, remitting certain issues back to the AO for verification while upholding the CIT(A)'s decisions on other issues.