2019 (5) TMI 693 - AT - Income Tax

Unexplained Investment in properties - Addition u/s 69B - cash payments outside the books of account - notings made in the seized material - assessee s contentions that no cash was paid for purchase of the property - HELD THAT - As rightly contended by the assessee, the seized ledger of Indian Shipping Agencies Pvt. Ltd., in which these entries were made is not the regular cash book or any other books of account; and it is apparent that this ledger has been used for rough jottings and notings. As perused the letter of retraction dated 15.04.2008 filed before the ADIT (Inv.), Mangalore by the assessee in which the M.D. of the assessee has stated that there was no consideration paid over and above the consideration mentioned in the registered sale deed and the cash advance noted in the seized ledger were returned by the recipient after cheques were given, but no noting of the cash returned were made in the seized material. No addition could be made in respect of the so-called cash payments outside the books of account as unexplained investment. The contentions of Shri Ajit Kumar Rai (Shetty), that no cash payment was received by him from the assessee cannot be brushed aside lightly and his averments have not been controverted by the authorities below. No material has been brought on record to disbelieve / discredit Shri Ajit Kumar Rai s (Shetty) claim; which supports the stand of the assessee that no cash payment was made as stated at the time of search. Therefore, making any addition on the basis of the assessee s statement at the time of search by ignoring the assessee s subsequent explanation / rebuttal, which is corroborated by the statement of Shri Ajit Kumar Rai (Shetty), is clearly not justified. Addition on account of differences in liabilities - HELD THAT - In the course of hearing before us, the learned AR for the assessee did not file any reconciliation in respect of the difference in creditors balance; as already pointed out by the CIT(A). There is a difference of ₹ 1,14,172/- in the creditor s balances and this fact was noticed by the AO in the course of assessment proceedings. In the absence of any reconciliation being furnished to explain the difference of ₹ 1,14,172/- in creditor s balances, we find no reason to interfere with or deviate from the action of the CIT(A) in sustaining the aforesaid disallowance. Consequently, ground No.2 of assessee s appeal for Assessment Year 2004-05 is dismissed. Allowable business expenditure u/s 37 - expenses claimed under the head tipper mamools - HELD THAT - The factual finding of the CIT(A) that all these expenses are legitimate business expenses has not been controverted or shown to be erroneous by Revenue. We, however, find that even after rendering the above factual finding that expenses claimed under the head tipper mamools are legitimate business expenses, the CIT(A) has gone on to hold that some / partial adhoc disallowance of these for Assessment Yea₹ 2004-05 to 2008-09 was required to take care of payments to government officials; which, in our view, is not called for. In this view of the matter, we delete the adhoc disallowances made by the CIT(A) Machinery Hire Charges - HELD THAT - Assessee has not been able to adduce any evidence in support of the explanation and claim put forth; that the amounts collected towards machinery hire charges as per the seized materials found at the time of search did not belong to it and it was used for distribution amongst the staff and other members of the gang / crew that was carrying out the work. It is also seen that the AO and CIT(A) have relied on the statement of Shri Asif, the assessee s employee, given at the time of search that this shows that these amounts were being collected and recorded as such in the seized materials. Considering the fact that the material found shows the collection of cash, which was not recorded in the assessee s books of account, we are of the considered view that the addition made on this account is justified. Payments of speed money - genuineness of the expenses claimed - HELD THAT - Considering the AO s remand report and the enquiries made at the relevant point in time, it is seen that even on facts, the assessee has been able to establish the genuineness of the expenses claimed under this head and we find that there is no adverse material on record to establish that there is any inflation of expenses by the assessee. In this view of the matter, we are of the view that no interference is called for in the impugned orders of the CIT(A) on the issue of payments of speed money. Consequently, the grounds raised by Revenue on this issue are dismissed. Unexplained expenditure based on seized material A/HML/18 - HELD THAT - From the orders of assessment, it is seen that the assessee has put forth the very same explanation before the AO, as was put forth before the CIT(A) and the addition was made as the relevant books of account were not produced at that point of time. Before the CIT(A), in the case of M/s. Indian Shipping Agencies Pvt. Ltd., it appears that the books of account of various group concerns were produced and after due verification, these additions have been deleted. Following the conclusions arrived at and findings rendered by the CIT(A) in the case of M/s. Indian Shipping Agencies Pvt. Ltd., the CIT(A) has deleted the additions made in the hands of the assessee in the case on hand as well. - Revenue grounds are dismissed. Short deduction of TDS on the payments to labour contractors - disallowances made u/s 40(a)(ia) - HELD THAT - We find that the CIT(A) had rightly deleted these disallowances made u/s 40(a)(ia), holding that it would amount to duplication. The CIT(A), on examination of the details on record in this regard, found that the said payments made to sub-contractors in these years was in respect of speed money and hence there was no obligation to deduct tax at source thereon. It is however seen that the impugned disallowances were made on the ground that there is short deduction of TDS and it is not a case of failure to deduct tax at source. Considering the fact that no disallowance can be made u/s 40(a)(ia) in respect of short deduction of TDS as was held by the ITAT Kolkata Bench in the case of DCIT Vs. S. K. Tekriwal 2011 (10) TMI 10 - ITAT, KOLKATA Unexplained investment in Kuthar Lands - whether AO made the addition towards unexplained investment in the purchase of Kuthar lands in the hands of the assessee only on protective basis and not on substantive basis - HELD THAT - As rightly contended by the assessee, there is no need for making this addition of the said unexplained investment in the hands of the assessee in the case on hand as it is not Revenue s case that the lands at Kuthar were purchased either by the assessee or that unexplained funds of the assessee were used to make the said payment. It is seen that even the AO has only made the addition protectively in the hands of the assessee because the seized material, in which these payments were noted, were found in the course of search conducted in the case of the assessee company. In the facts and circumstances, as narrated above, we are of the view that the CIT(A) has rightly deleted the addition and we find no reason to interfere with or deviate from his decision. TDS u/s 194C - disallowance u/s 40(a)(ia) - payment less than ₹ 20,000/- - HELD THAT - It is not disputed that each voucher for the aforesaid payments is less than ₹ 20,000/- and the payments have been made to various persons and therefore the provisions of section 194C of the Act are not attracted at all. The fact is that several vouchers of less than ₹ 20,000/- are prepared and no adverse finding has been rendered thereon. Revenue has also not adduced any material to establish that these payments by the assessee are in the nature of works contract with M/s. S. S. Associates or M/s. Divya Enterprises and therefore the provisions of section 194C are not attracted to these payments made. No disallowance u/s 40(a)(ia) can be made since there was no requirement to deduct TDS in the first place. In this view of the matter and after taking into account the facts and circumstances of the case on this issue, we are of the opinion that the CIT(A) s finding directing deletion of the disallowance made by the AO for any interference and is accordingly upheld.

Summary

Issues Involved:
1. Validity of Search and Seizure
2. Unexplained Investment in Properties
3. Differences in Liabilities
4. Disallowance of Tipper Mamools
5. Addition of Machinery Hire Charges
6. Unexplained Investment in Property
7. Speed Money Payments
8. Unexplained Expenditure
9. Disallowance under Section 40(a)(ia) of the Income Tax Act
10. Unexplained Investment in Kuthar Lands

Detailed Analysis:

1. Validity of Search and Seizure:
The assessee challenged the validity of the search and seizure operations conducted under sections 132 and 133A of the Income Tax Act, 1961, on the grounds of improper issuance of warrants and lack of prior information. However, these grounds were not pressed during the hearing and were dismissed as not pressed.

2. Unexplained Investment in Properties:
The assessee contested the additions of ?7,50,000 and ?3,22,500 for AY 2003-04 and 2004-05, respectively, made as unexplained investments based on a seized ledger. The Tribunal found that the seized ledger was not part of the regular books of account and that the statement of the vendor, Ajit Kumar Rai, denying receipt of cash payments, corroborated the assessee's claim. Consequently, the additions were deleted.

3. Differences in Liabilities:
For AY 2004-05, the assessee challenged the addition of ?1,14,172 due to differences in liabilities. The CIT(A) upheld the addition as the assessee failed to provide a reconciliation. The Tribunal found no reason to interfere with this decision and dismissed the assessee's appeal on this ground.

4. Disallowance of Tipper Mamools:
The assessee and Revenue both appealed on the disallowance of tipper mamools. The Tribunal found that the expenses were legitimate business expenses and not illegal payments. Consequently, the adhoc disallowances made by the CIT(A) were deleted, and the grounds raised by the Revenue were dismissed.

5. Addition of Machinery Hire Charges:
The assessee contested the additions of ?18,70,440 and ?32,15,032 for AY 2007-08 and 2008-09, respectively, made for unaccounted machinery hire charges. The Tribunal upheld the additions, noting that the assessee failed to provide evidence supporting its claim that the amounts were distributed among workers.

6. Unexplained Investment in Property:
For AY 2008-09, the assessee contested the addition of ?40,00,000 as unexplained investment in property. The Tribunal found that the statements of the vendors denying receipt of any amount over the sale deed consideration corroborated the assessee's claim. Consequently, the addition was deleted.

7. Speed Money Payments:
Revenue challenged the deletion of additions for speed money payments across several assessment years. The Tribunal upheld the CIT(A)'s decision, noting that the payments were in line with the prevailing practice at New Mangalore Port Trust and were legitimate business expenses.

8. Unexplained Expenditure:
Revenue contested the deletion of additions made as unexplained expenditure based on seized material for several assessment years. The Tribunal upheld the CIT(A)'s decision, noting that the entries in the seized materials were recorded in the regular books of account of various group concerns.

9. Disallowance under Section 40(a)(ia) of the Income Tax Act:
Revenue challenged the deletion of disallowances made under section 40(a)(ia) for short deduction of TDS. The Tribunal upheld the CIT(A)'s decision, noting that the payments were not in the nature of works contracts and hence, the provisions of section 194C were not attracted.

10. Unexplained Investment in Kuthar Lands:
Revenue contested the deletion of the addition of ?40,79,000 made as unexplained investment in Kuthar lands. The Tribunal upheld the CIT(A)'s decision, noting that the addition was made on a protective basis and there was no evidence to connect the investment to the assessee.

Conclusion:
The Tribunal partly allowed the assessee's appeals for AY 2003-04 to 2008-09 and dismissed the Revenue's cross-appeals for AY 2004-05 to 2008-09, providing detailed reasoning for each issue involved.