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2014 (7) TMI 963 - AT - Income TaxApplication of section 145(3) Correctness and completeness of accounts Held that - CIT(A) rightly was of the view that as per the observation of the AO in the assessment order, it is noted that no specific defect was detected by the AO in the books and there the assessee was maintaining books of account - the AO was satisfied about the correctness and completeness of books and method of accounting regularly employed by the assessee - The provisions of section 145(3) could be invoked if the AO is not satisfied about the correctness and completeness of the accounts and method of accounting followed - when the AO did not point out any specific defects in the books of account maintained by the assessee, the books cannot be rejected by invoking the provisions of section 145(3) of the Act - even after rejecting the books of account, the AO has not proceeded to estimate the income of the assessee and he has made disallowance out of various expenses debited by the assessee in the books of account - rejection of books of account is not proper and when the AO is making specific additions/disallowance, there is no impact on the assessable income of the assessee even if the books are not rejected and on this aspect, there was no reason to interfere in the order of CIT(A) Decided against Revenue. Direct expenses disallowed Details not furnished related to development of flats Held that - CIT(A) noted that the assessee had to incur major expenditure on infrastructural development such as leveling of land, landscaping, construction of roads, erection of street light polls, construction of overhead water tank etc. for 1st phase of the project - assessee furnished copy of bills and other details along with nature of work done in the paper book filed before him the AO s objection is that the assessee has not developed the flats because the assessee has sold plots in the present year - In the details of the expenses incurred by the assessee, reproduced by the CIT(A), it is not coming out that these expenses are not in relation to development of plots and the same are for construction of flats AO is making a general observation that in absence of proper evidence in the shape of vouchers and details as well as name and complete address to whom this amount has been paid, the token disallowance of 10% is justified but the AO has not pointed out a single instance as to what details were asked for by him in remand proceedings, which has not been submitted by the assessee order of the CIT(A) is upheld Decided against Revenue. Apportionment of expenses on commission and brokerage to work-in- progress (WIP) in P&L A/c Held that - CIT(A) noted that the assessee has filed confirmation from certain brokers - assessee contended that in the profit & loss account, total sales is shown at the same figure of ₹ 50,04,22.750/- from which a discount of ₹ 10,86,85,300/- was reduced and in this manner, net sale income was considered in the P & L Account at ₹ 39,17,37,450/- but while furnishing the details of brokerage and commission, gross sales figure was shown because gross sale figure was the basis for making payment of commission and discount was allowed to the buyers for certain early payment etc. and this discount is not in dispute - it comes out that whatever sales was accounted for by the assessee, the commission expenditure claimed by the assessee is in respect of sale only and not in respect of sale which is not considered there was no reason to interfere in the order of CIT(A) Decided against Revenue. Business expenses added Expenses properly vouched and supported Held that - The decision of CIT(A) is on the basis that the nature of expenses were charity and donation - But, sponsoring Kushti Dangal and making some payment to a club for sponsoring cultural events on the occasion of Baishakhi Mela, cannot be considered as charity and donation - It is not the objection that the business of the assessee was not being conducted at Rudrapur - Their objection is mainly that these expenses are in the nature of charity and donation - the expenses are not in the nature of charity and donation, this disallowance is not justified Decided in favour of Assessee. Incentives paid to brokers Complete disclosures made Held that - The disallowance was confirmed by CIT(A) merely on the basis that reply was not received from some payees - the disallowance was made by the AO to the extent of 30% for the reason that the assessee did not furnish bifurcation of incentive on sale of flats and advance booking of flats - The entire amount for which reply was received by the AO has been allowed by CIT(A) and the only basis for making the disallowance is that for the balance amount, no reply was received in reply to notice u/s 133(6) of the Act - making disallowance on the basis of the fact alone that some parties did reply, is not justified Decided in favour of Assessee. Deduction u/s 80IB Held that - The assessee did not construct the residential units in the plots and these plots were sold after basic infrastructural development of the project - the plots were sold to the buyers and it was not the concern of the assessee whether the construction had to be carried out or not by the buyers - the assessee did not obtain completion certificate of construction of the housing project from the competent local authority as required in the explanation to section 80IB(10)(a) of the Act there merit in the claim of the assessee that the assessee is eligible for deduction u/s 80IB(10) of the Act Decided against Assessee.
Issues Involved:
1. Application of Section 145(3) of the IT Act, 1961. 2. Disallowance of direct expenses. 3. Addition on account of commission and brokerage. 4. Jurisdiction of assessment. 5. Disallowance of business expenses. 6. Disallowance of incentives paid to brokers. 7. Deduction under Section 80IB of the IT Act, 1961. Issue-wise Detailed Analysis: 1. Application of Section 145(3) of the IT Act, 1961: The Revenue challenged the CIT(A)'s decision not to uphold the application of Section 145(3) by the Assessing Officer (AO). The AO was dissatisfied with the correctness or completeness of the assessee's accounts due to the lack of detailed working of brokerage and commission and the absence of a stock register. The CIT(A) found that the AO did not detect any specific defects in the books of accounts and that the assessee maintained proper records. The CIT(A) relied on various judicial pronouncements to conclude that the rejection of books under Section 145(3) was unjustified. The Tribunal upheld the CIT(A)'s decision, stating that the AO did not proceed to estimate the income even after rejecting the books, rendering the rejection improper. 2. Disallowance of Direct Expenses: The AO disallowed Rs. 1,69,45,090 out of direct expenses on the grounds that the assessee did not furnish details related to the development of flats, estimating 10% of the expenses to be apportioned to work-in-progress (WIP). The CIT(A) found that the assessee incurred major expenses on infrastructural development for the project and provided supporting bills and vouchers. The AO's remand report confirmed the genuineness of the expenses. The Tribunal upheld the CIT(A)'s decision, noting that the AO's disallowance was without material evidence. 3. Addition on Account of Commission and Brokerage: The AO disallowed Rs. 3,36,87,110 out of commission and brokerage expenses, estimating the commission at 6% of sales and alleging that the assessee did not furnish plot-wise details. The CIT(A) found that the assessee provided detailed confirmations and TDS certificates, and the AO's remand report verified the genuineness of the payments. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not find any discrepancies in the details provided by the assessee. 4. Jurisdiction of Assessment: The assessee challenged the jurisdiction of the assessment but did not provide specific arguments before the Tribunal. Consequently, the Tribunal declined to interfere with the CIT(A)'s decision on this issue. 5. Disallowance of Business Expenses: The AO disallowed Rs. 1,71,000 out of business expenses, considering them as charity and donation. The CIT(A) confirmed this disallowance. The Tribunal, however, found that sponsoring a Kushti Dangal and making payments to a club for cultural events were business expenditures aimed at publicity and brand building. The Tribunal deleted the disallowance, allowing the assessee's ground. 6. Disallowance of Incentives Paid to Brokers: The AO disallowed Rs. 4,30,873 out of incentives paid to brokers due to non-receipt of replies to notices. The CIT(A) confirmed this disallowance. The Tribunal found that the AO's initial objection regarding bifurcation of incentives was not supported by evidence. Since the major portion of the payments was verified, the Tribunal deleted the disallowance, allowing the assessee's ground. 7. Deduction under Section 80IB of the IT Act, 1961: The assessee claimed deduction under Section 80IB for profits from the sale of apartments. The CIT(A) denied the deduction, noting that the assessee did not construct residential units but sold plots after basic infrastructural development, and did not obtain a completion certificate. The Tribunal upheld the CIT(A)'s decision, finding no merit in the assessee's claim for deduction under Section 80IB. Conclusion: The Tribunal dismissed both appeals of the Revenue. The assessee's appeal for the assessment year 2007-08 was partly allowed, and the appeal for the assessment year 2008-09 was dismissed.
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