2019 (7) TMI 663 - AT - Income Tax

Unaccounted labour payments in cash - search proceedings - assessee in his statement submitted that the said unaccounted cash payments were to the tune of ₹ 8.70 Crores which were received in cash from Runwal Developers Ltd. - assessee alternatively pleaded before the CIT(A) that he being a Civil Contractor may be taxed at the rate of 8% of ₹ 8.70 Crores - CIT(A) taxed @16% based on profit of earlier years - HELD THAT - Assessing Officer of Runwal Developers Pvt. Ltd., had given a categorical finding that Runwal Developers Pvt. Ltd., had indeed made unaccounted cash payments of ₹ 8.70 Crores to the assessee. Hence, the order of the Department itself explains the source of ₹ 8.70 Crores for the assessee in respect of labour payments thereon by the assessee. Hence, there cannot be any addition that could be made in the hands of the assessee in the sum of ₹ 8.70 Crores in the facts and circumstances of the instant case. We also find that both the assessee as well as Runwal Developers Pvt. Ltd., were assessed by the same Assessing Officer and by the same Circle namely DCIT, Central Circle 4(1), Mumbai. Accordingly, we have no hesitation in directing the AO to delete the addition made in the sum of ₹ 8.70 Crores in the hands of the assessee. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the addition of ? 8,70,00,000/- could be made in the hands of the assessee in the facts and circumstances of the case.

Issue-wise Detailed Analysis:

1. Addition of ? 8,70,00,000/- in the Hands of the Assessee:

The primary issue in these appeals is whether the addition of ? 8,70,00,000/- could be made in the hands of the assessee. The assessee, engaged in the business of civil and labour contracts, had filed a return of income declaring a total income of ? 1,12,82,240/- for A.Y. 2015-16. During a search and seizure action under section 132 of the Income Tax Act in the Runwal Group of cases, certain incriminating documents were found at the assessee's premises. These documents indicated unaccounted cash payments made by the assessee, which the assessee explained as unaccounted receipts of ? 8,70,00,000/- from M/s. Runwal Developers Pvt. Ltd. for contract work.

The assessee contended that he had merely acted as a conduit, passing on the entire amount received in cash to labourers and labour contractors. Despite this, the Assessing Officer (AO) treated the entire sum of ? 8,70,00,000/- as undisclosed income and added it to the total income of the assessee.

Before the Commissioner of Income Tax (Appeals) [CIT(A)], the assessee argued that the AO had relied on the assessee's statement confirming that the seized documents related to payments made to labourers and contractors. The assessee reiterated that the amount received from M/s. Runwal Developers Pvt. Ltd. was passed on as labour payments. The CIT(A) found that the Runwal Group had offered substantial amounts as additional income on account of undisclosed sales, corroborating the assessee's claim of receiving ? 8.7 crores in cash. The CIT(A) also noted that the gross profit earned by the assessee in the preceding three years ranged from 11.6% to 15.4%, and adopted a gross profit rate of 16% for the year under consideration, resulting in an addition of ? 1,39,20,000/-.

Upon appeal, the Tribunal observed that the primary facts remained undisputed. The assessee had clearly informed during the search that he received unaccounted contract receipts of ? 8.70 crores. The seized documents supported the assessee's claim of incurring unaccounted cash expenses for contract work. The Tribunal noted that the source of cash payments was duly explained by the assessee at the time of the search.

The Tribunal also considered the assessment order framed in the hands of M/s. Runwal Developers Pvt. Ltd., where the AO had given categorical findings that Runwal Developers Pvt. Ltd. had indeed made unaccounted cash payments of ? 8.70 crores to the assessee. This finding corroborated the assessee's claim and explained the source of the unaccounted cash payments. Consequently, the Tribunal directed the AO to delete the addition of ? 8.70 crores in the hands of the assessee.

Conclusion:
The Tribunal concluded that the addition of ? 8,70,00,000/- in the hands of the assessee was not justified, as the source of the unaccounted cash payments was adequately explained and corroborated by the assessment order of M/s. Runwal Developers Pvt. Ltd. Therefore, the appeal of the revenue was dismissed, and the cross-objection of the assessee was also dismissed.