2013 (11) TMI 723 - AT - Income Tax

Addition made u/s 40A(3) of the Income Tax Act for addition for cash payment Contention of the assessee is that these payments were made to agriculturists and there are no banking facilities are available at the place where the payments were made Held that - Assessee being dealer in land and the places where the payments are made and received are having banking facilities. Being so it is incumbent upon the assessee to make payment by crossed cheques or DDs - These payments were made in excess of the sales consideration shown in the documents registered and it was paid because of insistence of the recipients and mostly on bank holidays. This claim of the assessee as being totally unsubstantiated comprising bald statement advanced only to meet the exigencies with a view to align its inference of the provisions of the statute. Most of the parties mentioned hereinabove were in Hyderabad. The properties sold by them might be situated outside Hyderabad. Being so it cannot be concluded that the recipients were having no bank accounts or access to the banking facilities. As such it cannot be said that the assessee s case is covered under the exception provided in Rule 6DD of the Income-tax Rules 1962 In the present case assessee has failed to establish the exception provided in Rule 6DD Decided against the Assessee. Addition on account of unexplained investment - Payment to CSK group under the head CSK land payment at Rs. 3, 84, 00, 000. However the entry in the cash book shows an amount of Rs. 38, 80, 000. The difference was worked at Rs. 3, 45, 20, 000 and the same was considered for making addition by the AO as unexplained investment Held that - Total payment to CSK Realtors is only Rs. 3.84 crores for which the AO invoked the provisions of section 40A(3) and payments were duly explained by the assessee but neither the CIT(A) nor the AO had gone through the cash book of the assessee by incorporating the entries relating to actual payments to CSK Realtors as per the slip found during the survey This issue remitted back to the AO for fresh consideration. Method of valuation of closing stock - Deletion of addition made towards valuation of closing stock- The Assessing Officer adopted the value of closing stock by taking into account the probable sale price of the land and reducing there from 8% of the net profit offered by the assessee - Assessee had to incur various items of expenditure other than the cost of land. The assessee had to incur expenditure on office on sales like commission and various other items of expenditure which do not increase the value of closing stock. Therefore the method adopted by the AO is not correct as observed by Commissioner(A) - Held that - 8% profit so as to determine the closing stock figure. As the assessee did not furnish the details in support of the claim of the closing stock the closing stock is to be valued at cost or market price whichever is lower and the method is to be followed consistently from year to year. Accordingly remitted the issue back to the file of the AO with a direction to the assessee to furnish full details of the method of valuation of the closing stock. Thereafter the AO shall determine the value of closing stock if necessary he may make necessary addition on this count.

Summary

Issues Involved:
1. Sustaining the addition of Rs. 1,32,16,943 under Section 40A(3) of the Income-tax Act, 1961.
2. Deletion of addition of Rs. 3,45,20,000 on account of unexplained investment.
3. Deletion of addition on account of unexplained expenditure not recorded in the books of account.
4. Deletion of addition made towards valuation of closing stock at Rs. 3,04,52,451.

Issue-wise Detailed Analysis:

1. Sustaining the Addition of Rs. 1,32,16,943 under Section 40A(3) of the Income-tax Act, 1961:
The assessee's appeal concerned the sustaining of an addition of Rs. 1,32,16,943 by the CIT(A) under Section 40A(3) due to cash payments for land purchases. The survey revealed cash payments to M/s. CSK Realtors and others, with a significant portion recorded in the cash book as multiple smaller payments to circumvent Section 40A(3). The assessee argued that payments were made to agriculturists in areas without banking facilities, citing Rule 6DD exceptions. However, the CIT(A) and the Tribunal found no evidence supporting the absence of banking facilities and upheld the addition, dismissing the assessee's appeal.

2. Deletion of Addition of Rs. 3,45,20,000 on Account of Unexplained Investment:
The Revenue's appeal contested the deletion of Rs. 3,45,20,000 added as unexplained investment. The AO noted a discrepancy between the cash book and seized material, leading to the addition. The CIT(A) deleted the addition, reasoning that the total payment to CSK Realtors was Rs. 3.84 crores, already considered under Section 40A(3). The Tribunal remitted the issue back to the AO for fresh consideration, instructing to verify the cash book entries and determine any negative balance as unexplained expenditure.

3. Deletion of Addition on Account of Unexplained Expenditure Not Recorded in the Books of Account:
The Revenue's appeal also addressed the deletion of Rs. 53,80,000 for unexplained expenditure. The AO identified payments not recorded in the cash book, leading to the addition. The CIT(A) deleted the addition, accepting the assessee's explanation of withdrawals from Sri Sai Mac Society used for the expenditure. The Tribunal remitted the issue back to the AO for fresh consideration, emphasizing the need to verify unaccounted payments for the relevant assessment year.

4. Deletion of Addition Made Towards Valuation of Closing Stock at Rs. 3,04,52,451:
The Revenue's appeal challenged the deletion of Rs. 3,04,52,451 related to closing stock valuation. The AO valued the closing stock based on probable sale prices, while the assessee argued for valuation based on actual costs and development expenses. The CIT(A) sided with the assessee, finding the AO's method incorrect. The Tribunal remitted the issue back to the AO, directing the assessee to provide detailed valuation methods and the AO to determine the closing stock value accordingly.

Conclusion:
The Tribunal dismissed the assessee's appeal and partly allowed the Revenue's appeal for statistical purposes, remitting key issues back to the AO for fresh consideration and verification. The order was pronounced on 8th November 2013.