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TMI Blog2013 (11) TMI 723X X X X Extracts X X X X X X X X Extracts X X X X ..... derabad. 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 mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounting to 9.08, acres of land and the balance has been treated as advance by 'the assessee. As per page No. 13 of the impounded material annexure A/VV/2, the cost of the above land of 9.08 acres is mentioned by the assessee therein at Rs. 1,84,00,000/-. During the course of survey on 13.03.2008 in the statement given by Smt. P. Uma Devi, Chief Accounts Officer of WR Housing Pvt. Ltd. in reply to question No. 6 she has stated as under: "In the financial year 2005-06 the company has paid Rs. 3.84 crores. In 2006-07 Rs. 5.5 crores is paid to CSK Realtors and 2007-08 the company has paid till now Rs. 6,05,82,665/-. The company has purchased 53 acres of land at Rs. 24 lacs per acre as per the agreement of sale entered into by both the parties. However, CSK Realtors Pvt. Ltd. demanded to revise the price to Rs. 34 lakhs per acre as the project of SAM is continuing for 3 years. As per the demand the company is paying till now and around Rs. 1.5 crore is yet to be paid. The sources for the cheque payments is out of company's bank amount and part of the cash payments are made out of the cash book. For the financial year 2005-06 and 2006-07 all cash payments are accounted in books. Out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payments of Rs. 3,82,20,000/ - pertaining to SAR-1, SAR-2 and Jukala lands are also disallowed and added to the total income which works out to Rs. 76,44,000/-. Addition: Rs. 76,44,000. Totally, he added u/s. 40A(3) of the Act an amount of Rs. 1,38,18,400. On appeal the CIT(A) observed that the total payment is as follows: Payment to CSK Realtors Rs. 3,84,00,000 Payments to others Rs. 3,83,19,715 Total Rs. 7,67,19,715 8. Out of this, an amount of Rs. 43,35,000 was paid by cheque and an amount of Rs. 63,00,000 was outstanding and no payment was made. Thus, after deducting a sum of Rs. 1,06,35,000, the balance amount is only Rs. 6,60,84,715. The CIT(A) worked out 20% of this at Rs. 1,32,16,943 and confirmed the same u/s. 40A(3) of the Act. Against this, the assessee is in appeal before us. 9. The learned AR submitted that the above payments were made to agriculturists in the places where there are no banking facilities. Being so, there is reasonable cause for such payment which falls under the exception provided under Rule 6DD of Income- tax Rules, 1962 and he prayed to delete the addition. He further submitted that the sellers were not accepting payments by cheque and m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Even clause (j) of this Rule cannot be applied which is providing an exception due to non access to the banking facilities causing hardship to the payee or to the business exigencies. Being so, the assessee has failed to establish the circumstances necessitating the payment in cash. More so, the omission of the erstwhile clause (j) of Rule 6DD which excludes the ground of hardship to the payee from mitigating circumstances and the assessee's case could succeed only on it establishing the same to fall within the specific clause of Rule 6DD. In the present case, the assessee has failed to establish the exception provided in Rule 6DD. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entries as per the slip marked as A/VVR/2, the same is to be considered as unexplained expenditure in the hands of the assessee. Accordingly, this issue is remitted back to the AO for fresh consideration. 20. The next issue is with regard to deletion of addition on account of unexplained expenditure not recorded in the books of account. 21. Brief facts of the issue are that the AO in his assessment order referred to the material impounded during the course of survey. The AO found that certain illegal amounts have been paid to various people aggregating to Rs. 53,80,000/-. Two sheets of paper were found during the course of survey. In one of the papers payments made from 27.11.2005 to 19.02.2006 aggregating to Rs. 14,50,000 was written and the another contained payments aggregating to Rs. 53,80,000/-. In the sheet where the total amount of Rs. 53,80,000 is found, it is mentioned that payments have been made at Rs. 25,000 and Rs. 17,000 per acre for 65 acres. The contention of the assessee is that there is a mistake in the figure arrived at the figure Rs. 16,50,000 but it is only Rs. 14,50,000. It is also contended by the assessee that the total amount paid during the entire peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture. Therefore, he objected that no addition can be made by applying the provisions of sec. 69 of the Act. Accordingly, the CIT(A) deleted both the additions made by the AO. Against this, the Revenue is in appeal before us. 24. We have heard both the parties and perused the material on record. The contention of the AR is that the assessee has not claimed any expenditure at Rs. 16.5 lakhs and it cannot be considered for addition. Regarding Rs. 53.8 lakhs, he submitted that it was received from Sri Sai Mac Society and made the payment. However, before the AO the assessee has not furnished any information, whatsoever, regarding these two payments. In our opinion, it is appropriate to remit the issue to the file of the AO for fresh consideration and only the payments which are unaccounted relating to the assessment year under consideration are to be added. This ground is partly allowed for statistical purposes. 25. The next ground in Revenue's appeal is with regard to deletion of addition made towards valuation of closing stock at Rs. 3,04,52,451. 26. Brief facts of the issue are that the Assessing Officer valued the closing stock of the land venture-wise. With regard to SAM i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure. It is also explained before the AO that its business is to purchase the land and developing the land into plots. The plots are sold before the entire land is developed. There would be some expenditure which was incurred for development and some expenditure which has to be incurred. Such amount of expenditure which is to be incurred is not evaluated by the assessee and debited to the profit and loss account. The expenditure of sales commission is Rs. 175 per sq. yd., and the administrative cost is about Rs. 94 per sq. yd. If all the factors are taken into consideration, the assessee submitted that there would be no difference in the cost price. Further, the assessee admitted 8% of the profit. The AO also accepted that the proportionate rate is 8%. In the circumstances, the assessee submits that: (a) the method adopted by the Assessing Officer is not correct; (b) The assessee adopted the method of arriving at the closing stock by taking into account the actual cost of the land and, therefore, development expenses relatable to the said land in stock. It is the correct method and, therefore, the assessee submitted that the addition is not justifiable. 29. On appeal, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO accepted the value of opening stock admitted based on the said method. In view of the above, he held that the method adopted by the assessee is correct and the method adopted by the AO is not correct. Therefore, the CIT(A) deleted the addition so made. Aggrieved, the Revenue is in appeal before us. 32. We have heard both the parties and perused the material on record. In this case, the AO considered the sales value - 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, in our opinion, 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, we remit 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. 33. In the result, the assessee's appeal in ITA No. 1681/Hyd/2010 is dismissed and the Revenue appeal in ITA No. 222/Hyd/2011 is partly allowed for statistical purposes. Order pron ..... X X X X Extracts X X X X X X X X Extracts X X X X
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