2013 (9) TMI 799 - AT - Income Tax

Year in which addition u/s 69C of the Income tax act be made Addition u/s 69C be made on account of unexplained expenditure - Addition in the cost of land of Rs.1,32,65,000/- based on the entries made in the impounded document - The explanation of the assessee that it was a hypothetical amount to justify the sale of flats at low price to the trust - Held that - In cases when there is no direct evidence, findings have to be been given after taking into account the surrounding circumstances and after applying the test of human probability which is an accepted principle as held by the Hon ble Supreme Court in the case of D.P. More 1971 (8) TMI 17 - SUPREME Court - On the facts of this case, considering the actual practice in construction industry, the probability of payment being made to government officials is very high which is supported by actual entry on the impounded documents - On the other hand, it is highly improbable that the partner being a religious person will lie to the religious trust and show favours by inflating cost when no favour have actually been given - Sum of Rs.1,32,65,000/- appearing on the impounded document, which is clearly attributed towards various clearances given by the authorities such as commencement certificate, intimation of deficiency etc. represented the money actually paid which is unaccounted. Amount can be added as unaccounted expenditure under section 69C of the Act only in the year in which expenditure has been actually incurred - Dates of clearances, such as, IOD, commencement certificate, condonation of deficiency, occupation certificate etc. can be reasonably taken as the dates of incurring the expenditure - Making addition of the entire amount in this year without ascertaining the dates of incurring such expenditure is not justified Matter restored to the file of A.O. to pass necessary order after examination. Addition of Rs.57,82,000/-, Rs. 10.00 lacs, Rs.12.00 lacs on the basis of entries made in the impounded documents - The sum of Rs.57,82,000/- has been explained as interest calculated for the period of early payment of installments. It had been explained that since payments had been made before due dates, the interest for the period had been calculated to be reduced from the cost of land. The sum of Rs.12.00 lacs has been explained as brokerage payable by SIWL to Durga Estate which had been paid by the assessee on their behalf and tax had also been deducted at source. As the vendor could not pay the amount, the same was reduced from cost of land - The sum of Rs.10.00 lacs has been explained as paid by the assessee to the vendor who had also given a hundi dated 31.1.2001 for repayment but since amount was not paid, this was reduced from the cost Held that - The amount of Rs.57,82,000/- was apparently calculation of interest @18% which had been reduced from the cost. The sum of Rs.12.00 lacs was brokerage paid on behalf of the vendor on which had also been deducted and amount had been reduced from the cost. None of the above amounts had been claimed by the assessee as expenditure in the P&L Account - Sum of Rs.10.00 lacs being personal loan given by the assessee was also reduced from the cost. Moreover, this amount related to assessment year 2001-02 and, therefore, could not be added in this year - Similar entry of Rs.46.00 lacs noted on the same document had been accepted by AO which had also been reduced from the cost Hence, the addition made is deleted Decided against the Revenue. Allowability of prorata deduction under section 80 IB(10) of the Act - There were many flats in respect of which built up area exceeded 1000 sq.ft. violating the conditions prescribed under section 80 IB(10) Held that - The deduction under section 80IB(10) can be allowed only on fulfillment of certain conditions one of which is that built up area of each flat should be less than 1000 sq.ft. In the instant case, 14% of built-up area consisted of flats which have built up area exceeding 1000 sq.ft. - Proportionate deduction for 86% of built up area which consisted of flats of built up area less than 1000 sq.ft. is allowed Decided against the Revenue.

Summary

Issues Involved:
1. Deletion of addition based on "out of pocket expenses" of Rs.1,32,65,000/-.
2. Additions based on entries in impounded documents (Rs.57,82,000/-, Rs.10,00,000/-, Rs.12,00,000/-).
3. Addition of Rs.12,65,000/- paid to VT.
4. Allowability of prorata deduction under section 80 IB(10).
5. Additions based on entries of Rs.4,00,000/-, Rs.8,01,707/-, and Rs.6,13,864/-.
6. Deletion of addition of Rs.1,32,65,000/- for assessment year 2004-05.

Detailed Analysis:

1. Deletion of Addition Based on "Out of Pocket Expenses" of Rs.1,32,65,000/-:
The first dispute concerns the deletion of an addition of Rs.1,32,65,000/- made by the AO based on entries in the impounded document. The assessee claimed the amount was hypothetical, used to inflate land cost for negotiation purposes, and no actual expenditure was incurred. The CIT(A) accepted this explanation, noting no evidence of actual expenditure. However, the Tribunal found that such payments are common in the construction industry and the document indicated actual payments for clearances. The Tribunal set aside the CIT(A)'s order and remanded the matter to the AO for further examination to ascertain the actual incurrence of expenditure.

2. Additions Based on Entries in Impounded Documents (Rs.57,82,000/-, Rs.10,00,000/-, Rs.12,00,000/-):
The AO made additions based on entries in the impounded document, which the assessee explained as reductions from land cost due to early payment of installments and brokerage paid on behalf of the vendor. The CIT(A) accepted the assessee's explanation, noting that similar entries were accepted by the AO. The Tribunal upheld the CIT(A)'s order, finding no error in the deletion of additions as the amounts were not claimed as expenses in the P&L account.

3. Addition of Rs.12,65,000/- Paid to VT:
The AO added Rs.12,65,000/- based on an entry in the impounded document, which the assessee claimed was rough working with no actual payment. The CIT(A) deleted the addition, noting discrepancies in shop numbers and areas, and the lack of corroborative material. The Tribunal upheld the CIT(A)'s order, agreeing that the entry did not indicate actual payment.

4. Allowability of Prorata Deduction Under Section 80 IB(10):
The AO denied the entire deduction under section 80 IB(10) as some flats exceeded the 1000 sq.ft. limit. The assessee claimed prorata deduction for compliant flats, supported by Tribunal decisions. The CIT(A) allowed the prorata deduction, following the decision in Bengal Ambuja Housing Development Ltd. The Tribunal upheld the CIT(A)'s order, finding no infirmity in allowing prorata deduction.

5. Additions Based on Entries of Rs.4,00,000/-, Rs.8,01,707/-, and Rs.6,13,864/-:
The AO made additions based on entries in the impounded document. The assessee explained that the entries represented differences in sale price and cost of construction, not actual payments. The CIT(A) accepted this explanation and deleted the additions. The Tribunal upheld the CIT(A)'s order, agreeing that the entries did not indicate actual payments.

6. Deletion of Addition of Rs.1,32,65,000/- for Assessment Year 2004-05:
The AO made a similar addition for the assessment year 2004-05 based on "out of pocket expenses." The CIT(A) deleted the addition, citing lack of corroborative material. The Tribunal set aside the CIT(A)'s order and remanded the matter to the AO for further examination, consistent with their decision for the assessment year 2002-03.

Conclusion:
The Tribunal partly allowed the revenue's appeals for statistical purposes, setting aside some deletions by the CIT(A) and remanding them for further examination by the AO. The Tribunal upheld the CIT(A)'s decisions on prorata deduction under section 80 IB(10) and other deletions, finding no error in those orders.