2015 (12) TMI 897 - AT - Income Tax

Unaccounted cash transactions shown in seized material - CIT(A) conformed the addition - Held that - The reply furnished by the assessee is not satisfactory inasmuch as it lacks evidence and tries to disown the facts of the impugned document. This categorical finding of CIT(A) could not be controverted by Learned A. R. of the assessee before us and therefore, we do not find any reason to interfere in the order of CIT(A) on this issue. When the assessee could not bring evidence to establish that the cash transactions shown in seized material is duly recorded in books of the assessee, it has to be accepted that unaccounted cash was channelized in books by showing bank draft receipts. Hence, there is no infirmity in the order of CIT (A) on this issue. - Decided against assessee. Disallowance made on ad hoc basis to the extent of 1% of total expenses - CIT(A) deleted the addition - Held that - On the basis of general observations, without pointing out even a single specific defect in the vouchers or books of accounts, ad hoc disallowance made by Assessing Officer is not justifiable and the same was rightly deleted by CIT(A). Hence, on this issue, we decline to interfere in the order of learned CIT(A) - Decided in favour of assessee. Deduction claimed by the assessee u/s 80IA(4) disallowed - deduction u/s 80IA(4) is not allowable in case of a contractor and the assessee is a contractor and therefore, this deduction claimed by the assessee is not allowable to the assessee - Held that - In the present case, categorical finding has been given by CIT (A) that the assessee was engaged in development of road and is not a mere contractor as he had deployed his own capital, used his own management and expertise in maintenance and had to bear the risk and defect correction. These findings of CIT (A) could not be controverted by learned DR of the revenue and therefore, this tribunal order rendered in the case of Koya & Co. (2012 (5) TMI 158 - ITAT HYDERABAD ) is squarely applicable because the facts are similar. In the order of CIT (A), he has followed this tribunal order and various other judicial pronouncements as noted by him in his order, as reproduced above. Considering this factual and legal position, we find no infirmity that the order of CIT (A) on this aspect that in the facts of the present case, it cannot be said that the assessee company was mere a contractor and not a developer. Non allowability of claim of the assessee u/s 80IA(4) because this claim is made by the assessee for the first time in the return filed by the assessee u/s 153A - Held that - In both these years i.e. assessment year 2009-10 and 2010-11, the original return of income was filed by the assessee without claiming deduction u/s 80IA but within the time available u/s 139(1) because in assessment year 2009-10, the original return of income was filed by the assessee on 25/09/2009 whereas time available for filing the return was 31/10/2009 and in assessment year 2010-11, time available for revising the return was up to 31/03/2012 and the return u/s 133A was filed on 31/03/2012 i.e. within the time available for filing the revised return of income and till the date of search, due date of filing the return has not expired. Considering these facts that in these two years i.e. A.Y. 2007 08 & 08 09, where the time available for filing the revised return has expired before the date of search, CIT(A) has held that the claim made for deduction u/s 80IA(4) in the return filed by the assessee u/s 153A is not acceptable but in the later two years i.e. assessment year 2009-10 and 2010-11, since the time was available for filing the revised return/return of income u/s 139 (5)/ 139 (1) and the assessee could not file the revised return of income within the available time because of search, the return furnished in response to notice issued by the Assessing Officer u/s 153A should be considered as a return filed u/s 139(1) of the Act and therefore, on this issue also, we find no infirmity in the order of CIT(A) and therefore, this issue is decided in favour of the assessee in two assessment years i.e. assessment year 2009-10 and 2010-11 whereas in the earlier two years in which this issue has been raised by the assessee in its C.O. in assessment year 2007-08 and 2008-09, this issue is being decided against the assessee. Addition on the basis of valuation report of D.V.O - Held that - In the present case reference was made without rejection of books of accounts and therefore, the same is not valid. On merit also, he has given a finding that the Assessing Officer has not considered this aspect that this property was directly purchased by the assessee and then renovated and photograph of the building before renovation and after renovation was submitted before the Assessing Officer and the said investment was duly disclosed by the assessee in its income tax returns but the DVO report does not say that there is an extra investment over and above the declared amount. His report is only an estimate of the fair market value and not an estimate of investment. He has given a finding that the DVO s valuation report is based on fair market value and this fair market value is relevant for Wealth Tax purposes but under section 69, the term used is unexplained investment in the property. He has given example that if investment is made of ₹ 1,00,000 in April, 2003 and the fair market value of the same building in December, 2003 becomes then no addition can be made of ₹ 45,000/- being difference between investment in April, 2003 and fair market value in December, 2003. Learned D. R. of the Revenue could not point out any defect in this finding of CIT (A) on merit also and considering the totality of facts, we find no infirmity in the order of CIT (A) on this issue also. - Decided in favour of the assessee. Disallowance u/s 14A - Held that - Allowability of expenses u/s 57(iii) that actual earning of dividend income is not necessary for the purpose of allowing interest expenditure incurred for borrowing for making investment in shares. We have held that on the same analogy, for the purpose of making disallowance u/s 14A also, actual earning of dividend income is not necessary and if it is seen that the expenditure was incurred for earning dividend income, disallowance has to be made u/s 14A of the Act. Accordingly, on this issue, we reverse the order of CIT (A) and restore that of the Assessing Officer. This issue is decided against the assessee. Addition on account of vehicle running expenses - Held that - section 69C is not mentioned by the Assessing Officer, this comes out from the language of Para 7 of the assessment order that the assessee could not explain as to how this payment found recorded in the seized paper was recorded in the books of accounts. If the assessee fails to establish by bringing evidence that the entry of expenses found in seized material was recorded in books of accounts or that the same was paid out of known sources of fund, addition has to be made u/s 69C and deduction for corresponding expenditure is not allowable. Since the assessee could not establish by bringing evidence on record before us or before lower authorities that the expenditure noted in the seized material was in fact recorded in the books of accounts or was paid out of known sources of fund, the addition made by the Assessing Officer is to be considered as addition u/s 69C and since before CIT(A) or before us also, the assessee could not establish that the entry was made in the books of accounts or that the same was paid out of known sources of fund, deletion of addition by CIT(A) is not proper. Therefore, we reverse the order of CIT (A) on this issue and restore that of the Assessing Officer - Decided against assessee. Addition on account of cash payment exceeding - Held that - Assessing Officer invoked the provisions of section 40A(3) of the I.T. Act and the total amount of ₹ 69,83,015/- alleged as paid in cash exceeding ₹ 20,000/- was disallowed. When the assessee carried the matter in appeal before the CIT(A), he deleted the disallowance. It is noted by CIT(A) on page No. 31 of his order that part of expenses are related to assessment year 2008-09 and in that year, when the A. O. asked the assessee to explain, it was submitted by the assessee before the Assessing Officer that cash payments were not made to one single person on one single day and there was no bar under the provisions of IT Act for multiple payments being made to different persons which were less than ₹ 20,000/- for each person. The CIT(A) has noted down some instances also that amount of ₹ 85,894/- has been stated to have been made in cash consisting of payments of ₹ 19,894 ₹ 20,000 ₹ 18,000 ₹ 15,000 ₹ 15,000. Regarding one more payment of ₹ 1.05 lac, it was noted by CIT(A) that this is not a single payment to one party but is being paid to various parties and in support, copies of accounts are enclosed. Similarly payment of ₹ 1,10,000/- and ₹ 10,01,420/- was made but it was stated the same is duly recorded in the books of accounts being paid to various persons as per books of accounts produced. Considering these facts that the cash payment in excess of ₹ 20,000/- was not made to a single person on single date, we decline to interfere in the order of learned CIT(A) on this issue. - Decided in favour of the assessee.

Summary

Issues Involved:
1. Addition based on seized material.
2. Ad hoc disallowance of expenses.
3. Deduction under section 80IA(4) for infrastructure development.
4. Claim of deduction under section 80IA(4) in returns filed under section 153A.
5. Addition based on DVO's valuation report.
6. Disallowance under section 14A.
7. Addition on account of vehicle expenses.
8. Addition due to cash payments exceeding Rs. 20,000.

Detailed Analysis:

1. Addition Based on Seized Material:
The first issue pertains to the addition of Rs. 1,16,50,863 made by the Assessing Officer (AO) based on seized material, which was confirmed by the CIT(A). The assessee contended that the seized papers were rough reconciliation working papers and did not represent unaccounted entries. The CIT(A) rejected the assessee's explanation, noting that the entries related to receipts of Demand Drafts against cash payments and were not satisfactorily explained with evidence. The tribunal upheld the CIT(A)'s decision, stating that the assessee failed to prove that the cash transactions were recorded in the books, thus confirming the addition.

2. Ad Hoc Disallowance of Expenses:
The AO made an ad hoc disallowance of 1% of total expenses due to unverifiable vouchers and self-made debit vouchers. The CIT(A) deleted the disallowance, noting that the AO did not point out specific defects or reject the books of accounts. The tribunal upheld the CIT(A)'s decision, agreeing that general observations without specific defects do not justify an ad hoc disallowance.

3. Deduction Under Section 80IA(4):
The AO denied the deduction under section 80IA(4), arguing that the assessee was a contractor and not a developer. The CIT(A) allowed the deduction, stating that the assessee was engaged in developing infrastructure, deploying its own capital, and bearing risks. The tribunal upheld the CIT(A)'s decision, referencing judicial precedents that developers undertaking entrepreneurial risks and investments are eligible for the deduction.

4. Claim of Deduction Under Section 80IA(4) in Returns Filed Under Section 153A:
The AO denied the deduction claimed in returns filed under section 153A, arguing that it was not claimed in the original returns filed under section 139(1). The CIT(A) allowed the deduction for assessment years 2009-10 and 2010-11, noting that the time for filing revised returns had not expired before the search. However, for assessment years 2007-08 and 2008-09, the CIT(A) denied the deduction as the time for revising the returns had expired before the search. The tribunal upheld the CIT(A)'s decision on both counts.

5. Addition Based on DVO's Valuation Report:
The AO made an addition based on the DVO's valuation report, which estimated the cost of construction higher than what was recorded in the books. The CIT(A) deleted the addition, citing the Supreme Court's decision in Sargam Cinema, which held that reference to the DVO without rejecting the books of accounts is invalid. The tribunal upheld the CIT(A)'s decision, noting that the DVO's report was an estimate of fair market value, not actual investment.

6. Disallowance Under Section 14A:
The AO made disallowances under section 14A as per Rule 8D, which were deleted by the CIT(A) on the grounds that there was no exempt income in the relevant years. The tribunal reversed the CIT(A)'s decision, citing the Supreme Court's decision in Rajendra Prasad Moody, which held that actual earning of dividend income is not necessary for disallowance under section 14A.

7. Addition on Account of Vehicle Expenses:
The AO added Rs. 2,91,000 based on a seized document, alleging unrecorded vehicle repair expenses. The CIT(A) deleted the addition, noting that the AO did not specify the section under which the disallowance was made and did not reject the books of accounts. The tribunal reversed the CIT(A)'s decision, stating that the addition should be considered under section 69C as the assessee failed to prove that the expenses were recorded in the books.

8. Addition Due to Cash Payments Exceeding Rs. 20,000:
The AO disallowed Rs. 69,83,015 for cash payments exceeding Rs. 20,000, based on seized documents. The CIT(A) deleted the disallowance, noting that the payments were made to different persons and did not exceed Rs. 20,000 per person per day. The tribunal upheld the CIT(A)'s decision, agreeing that the disallowance was not justified as the payments were not made to a single person on a single day.

Conclusion:
The tribunal dismissed the assessee's appeal for assessment year 2005-06 and the Cross Objections for assessment years 2007-08 and 2008-09. Out of seven appeals by the Revenue, three appeals for assessment years 2009-10, 2010-11, and 2011-12 were partly allowed, while the remaining four appeals were allowed.