2021 (2) TMI 1209 - AT - Income Tax

Assessment u/s 153A - Disallowance u/s. 40A(3) - AO found during assessment proceedings u/s. 153A that the appellant made cash payments to some sellers for purchase of land - HELD THAT - Respectfully following the judgment in the case of Gurdas Garg 2015 (8) TMI 569 - PUNJAB HARYANA HIGH COURT and Tirupati Construction 2016 (9) TMI 436 - ITAT INDORE hold that having regard to business expediency the payment in cash for purchase of land through registered deed was allowable. Thus considering the facts and the circumstances of the case the expenditure was allowable as Learned AO could not have questioned the allowability of expenditure without any incriminating document in the assessment u/s. 153A; the payment was covered under Rule 6DD(g); and that the payment was a genuine expenditure and was made under business expediency. The order of the Ld. CIT(A) is therefore sustained on this issue. Thus Ground No.1 of Revenue s Appeal for Assessment Year 2008-09 is dismissed. Addition on on-money payment - In absence of any incriminating material found during the course of search and further in absence of any direct or corroborative material even during the assessment except for the statement of son who was not a party to the transaction; and whose statement has no evidentiary value for this transaction; and further the fact that cross-examination was not granted; the addition has no legs to stand. The Ld. CIT(A) was justified in deleting the addition . Deduction u/s. 80IB(10) - As the issue of deduction u/s.80IB(10) of the Act which has already been settled earlier by this Tribunal for various preceeding Assessment Years in the case of assessee; and that no incriminating material was found in the case of the assessee claim of deduction u/s.80IB(10) of the Act cannot be denied in present proceedings u/s. 153A r/w. Section 143(3). Disallowance u/s 14A - HELD THAT - It is an established fact in the instant case that no interest disallowance u/s.14A of the Act is called for in the years under dispute before us as the assessee had sufficient interest free funds in the form of Share Capital and accumulated Reserve and Surplus to cover the investment in equity shares. However as regards the disallowance as per limb (iii) of Rule 8D of IT Rules we direct the Assessing officer to sustain the disallowance to the extent of dividend income earned during the year or 0.5% of average investment in equity shares at the end of each assessment year in question before us whichever is less. Addition based on loose paper found during the course of search - CIT-A deleted the addition - HELD THAT - Additions made on the basis of torn papers and loose sheets cannot be sustained as same do not indicate that any transaction ever took place and does not contain any information in relation to the nature and party to the transaction in question - See V. S K Gupta Vs. DCIT 1998 (2) TMI 164 - ITAT DELHI-C - thus the alleged document is dumb in nature and no nexus is established by the ld AO find no reason to interfere in the finding of Ld.CIT(A) which needs to be confirmed. Addition in respect of LPS A-13 relating to on-money in respect of 21 registries found from the office assessee-company and 6 registries found from the site office of Aakriti Aqua City - CIT-A deleted the addition - HELD THAT - The fact that the amount was deposited in the bank statement of the sellers is unproved by the Ld AO. If the bank statements as alleged by the ld AO were there why the same were not brought on record; why a copy of same was not provided to assessee; or why the same were not even brought on record in the Department s paper book before us. We have gone through the statement of Shri Laxmi Narayan also. It seems that he gave the statement about on-money in confusion as another land was purchased for a consideration of Rs. 6, 48, 000/- the same amount which is alleged to have been paid as on-money. Further in respect of Smt. Ayodhya Patidar Smt. Krishna Patidar and other it is unknown as to why statement of sellers were not recorded but a statement of third person who was not a party to the trasaction was recorded. Infact Thakur Prasad Patidar made different statements on different occasions. In his first statement at PB 362 in question 6 he stated that he was not aware of the consideration. In his second statement he stated at PB 367 question 11 that the consideration was Rs. 67 lakhs thus there was no on-money. In his third statement he stated that the consideration was Rs. 85 lakhs and thus there was on-money of Rs. 17 lakhs. Since his statements changed now and then hence his tesdtimony did not inspite confidence. Interestingly Ld AO added the difference between the transaction value and stamp value i.e. Rs. 104 lakhs less Rs. 67 lakhs. Further in respect of Shri Arjun Patidar he denied on-money. The addition is merely based on a guess work of the ld AO that the buyer would have paid on-money. Considering the entirety of the facts and detailed finding of fact by Ld.CIT(A) in light of settled judicial precedence we find no infirmity in the finding of Ld.CIT(A) and thus addition made by the Ld.AO cannot sustain. Addition on the basis of valuation report given by Departmental Valuation Office - CIT-A deleted the addition - HELD THAT - We respectfully following the judgment of Khushal Chand Nirmal Kumar 2003 (4) TMI 61 - MADHYA PRADESH HIGH COURT AND Nishi Mehra 2015 (3) TMI 156 - DELHI HIGH COURT and also considering the facts of the case that there is a huge difference in Valuation by the Registered Valuer and that of the DVO both being appointed by the department the addition after giving deduction for self-supervision self-procurement of materials and the deduction for rate difference in PWD and DPAR rates and that no incriminating material was found during the course of search to show any unaccounted expenditure find no reason to interfere in the finding of Ld. CIT(A) and thus dismiss Revenue s Ground. Unaccounted receipts - HELD THAT - CIT(DR) could not point out any evidence to prove that any amount was received in cash from the customer. The amount received as per the books tallies with the amount received as per the loose paper. The addition is uncalled for. We therefore dismiss this ground of department s appeal. Unexplained investment - HELD THAT - As undisputed fact that appellant has entered into an agreement with M/s. Aashirwad Sky Heights Tower Pvt. Ltd. The Ld. AO has alleged that assessee has paid sum of Rs. 21, 00, 000/- towards security deposit as per agreement. However assessee has contended that all the payments were made through cheque to the tune of Rs. 4, 80, 00, 000/- and no transaction was made in cash. Assessee has also brought to our notice that statement of Shri Mahendra Singh Namdeo was also recorded wherein he has admitted that the all the payments were received through cheque and the balance amount is still outstanding. We find that although the agreement raises suspicion that cash payment was made by assessee company of Rs. 21, 00, 000; but this suspicion is not confirmed by the department by providing any evidence on record. Both the parties to the transaction denied this cash payment. In the books of M/s. Aashirvad Sky Heights Tower Pvt Ltd this amount is not shown to have been received. On being asked it was informed that no action was taken in the case of M/s. Aashirvad Sky Heights Tower Pvt Ltd. The addition therefore lacks merits. Disallowance of expenditure - HELD THAT - At the first instance the primary evidences in support of the transactions in the form of PAN and TIN of the parties were available bank statements bills etc were on record and these transactions were already recorded in the books before the search was conducted. No evidence whatsoever has ever been stated by the department to have been found out during the course of search to show that the expenditure was bogus. Secondly Ld. AO referred to the report of the Inspector during the assessment. However the said Inspector s report was never brought on record. Even in the Department s Paper Book before us the same has not been filed. If such report is available why the department has never brought the same on record. Similarly the statement recorded on oath of Shri Verghese Joseph and Smt. Malti Gaur has never been brought on record. In the absence of the same the reliance of the Department on these evidence is uncalled for - a search was conducted at the premises of the assessee. No discrepancy was found in the work done. Rather the department got the valuation done by the Registered Valuer and later by the DVO. The department on one hand contended that work done was more as disclosed in the books; but on the other hand they are doubting the expenditure towards work done. The stand of the department is contradictory and inconsistent. We therefore in absence of any concrete evidence placed before us the Revenue authorities and also since Learned Departmental Representative being unable to disprove the evidences filed by the assessee to support of genuineness of expenditure find no merits in the action of Ld AO making disallowance of expenditure. Thus no interference is called for in the finding of Ld.CIT(A) Addition of unaccounted receipts under LPS 1/2 page no. 68 - addition based on loose paper found in search - HELD THAT - We find that a document was found with the heading AG8 Bhopal at the residence of Shri Yashovardhan Jain. This document contained certain entries against particular dates mentioning Cash Bhopal . How Ld. AO alleged the same to be cash receipt could not be comprehended. Whether this represents cash receipt or payment or cash balance is also not clear. The document can at best be said to be a dumb document in absence of any enquiry by the Ld. AO. We find that once such document was found from the premises of one employee Ld AO ought to have enquired as to the contents of the documents. Ld. AO merely choose to make his own conclusions. Going by the verison of the Ld. AO himself it cannot be known as to cash was received from whom and for what purposes. We therefore are in full agreement with the finding of Ld CIT(A) deleting the addition holding the said document as a dumb document. Penalty appeal u/s. 271(1)(c) and penalty appeal u/s. 271AAB(1)(c) - HELD THAT - As basis of levying the penalty u/s. 271(1)(c) of the Act and 271AAB(1)(c) of the Act i.e. the addition already stands deleted by us as held by us in preceeding paras there remains no legs for the impugned penalties to stand for and the same are therefore deleted

Summary

Issues Involved:
1. Disallowance under Section 40A(3) of the Income Tax Act.
2. Addition on account of unexplained expenditure.
3. Disallowance of deduction under Section 80IB(10).
4. Disallowance under Section 14A.
5. Addition based on loose papers.
6. Addition based on valuation report by Departmental Valuation Officer (DVO).
7. Addition based on unaccounted receipts.
8. Addition based on unexplained investment.
9. Addition based on on-money payments.
10. Addition based on retraction of the surrender made during the course of search under Section 132.
11. Penalty under Section 271(1)(c) and Section 271AAB(1)(c).

Detailed Analysis:

1. Disallowance under Section 40A(3) of the Income Tax Act:
The Tribunal held that the disallowance under Section 40A(3) was not justified in the absence of any incriminating material found during the search. The payments made in cash were covered under Rule 6DD(g) as the payments were made in a village not served by any bank. The Tribunal relied on the judgment of Gurdas Garg vs CIT and Tirupati Construction vs DCIT, confirming that the payments made in cash under business expediency are allowable.

2. Addition on account of unexplained expenditure:
The Tribunal noted that the addition was based on the statements of third parties, which were not corroborated by any evidence. The Tribunal emphasized the necessity of cross-examination and found that the statements of third parties without corroborative evidence cannot bind the assessee. The Tribunal followed the principles laid down in various judicial precedents, including Kishinchand Chellaram v. CIT, and deleted the additions.

3. Disallowance of deduction under Section 80IB(10):
The Tribunal observed that the deduction under Section 80IB(10) was already a subject matter of regular assessments in preceding years and was allowed by the Tribunal. The Tribunal found no incriminating material during the search to justify the disallowance. The Tribunal confirmed the allowability of the deduction, relying on its own order in ITA 472 & 473/Ind/2015.

4. Disallowance under Section 14A:
The Tribunal held that no disallowance under Section 14A could be made in the absence of any exempt income earned by the assessee. The Tribunal also noted that the assessee had sufficient interest-free funds to cover the investments, and hence, no interest disallowance was warranted. The Tribunal directed the Assessing Officer to sustain the disallowance to the extent of dividend income earned during the year or 0.5% of the average investment, whichever is less.

5. Addition based on loose papers:
The Tribunal found that the loose papers were dumb documents and could not be relied upon for making additions. The Tribunal emphasized the need for corroborative evidence and cross-examination of the parties involved. The Tribunal relied on various judicial precedents, including M M Financiers (P.) Ltd. Vs. DCIT and Pooja Bhatt Vs. ACIT, to delete the additions.

6. Addition based on valuation report by Departmental Valuation Officer (DVO):
The Tribunal observed that the valuation report by the DVO was not binding and could not be the sole basis for making additions. The Tribunal noted that no incriminating material was found during the search to justify the addition. The Tribunal allowed deductions for self-supervision and differences in CPWD and PWD rates, confirming the deletion of the addition.

7. Addition based on unaccounted receipts:
The Tribunal found that the addition was based on statements of third parties without corroborative evidence. The Tribunal emphasized the need for cross-examination and corroborative evidence. The Tribunal deleted the additions, relying on judicial precedents, including CIT vs. Chandrakumar Jethmal Kochar.

8. Addition based on unexplained investment:
The Tribunal noted that the addition was based on statements of third parties, which were not corroborated by any evidence. The Tribunal found that the statements were contradictory and not reliable. The Tribunal deleted the additions, emphasizing the need for corroborative evidence and cross-examination.

9. Addition based on on-money payments:
The Tribunal observed that the addition was based on statements of third parties without any corroborative evidence. The Tribunal found that the statements were not reliable and were retracted by the parties involved. The Tribunal deleted the additions, emphasizing the need for corroborative evidence and cross-examination.

10. Addition based on retraction of the surrender made during the course of search under Section 132:
The Tribunal held that an addition based on a mere surrender during the search without any corroborative evidence is not justified. The Tribunal found that no incriminating material was found during the search to support the addition. The Tribunal deleted the additions, relying on judicial precedents, including Pullangode Rubber Produce Co. Ltd. and CIT vs. Chandrakumar Jethmal Kochar.

11. Penalty under Section 271(1)(c) and Section 271AAB(1)(c):
The Tribunal deleted the penalties under Section 271(1)(c) and Section 271AAB(1)(c) as the very basis of levying the penalties, i.e., the addition, was deleted. The Tribunal emphasized that the penalties could not stand in the absence of the addition.