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TMI Blog2016 (3) TMI 1157X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Facts of the case, in brief, are that the assessee is a partnership firm and is engaged in the business as builders and developers. It filed its return of income on 30-01-2008 disclosing total income of Rs. 48,45,190/-. A survey u/s.133A of the I.T, Act was conducted at the business premises of the assessee firm on 30-08-2007. Simultaneous survey action was also conducted at Hari Om Developers (proprietor Shri Hiralal Rangani, site office of Mateshwari Enterprises) and M/s. Mateshwari Developers. The assessee firm consists of 11 partners, namely Kantaben Naran patel, Dharmishtha Ben Hiralal Patel, Manish N. Patel (HUF), Govind Samji Patel, Bimlaben Bahubhai Patel, Sailesh Kantilal Patel, Dilip Manilal Chopra, Lila ben Kantilla Patel. Rajendra N. Patel, Paresh Babubhai patel, Amar Vishram Premjiani are the new partners who were admitted during the year as per the partnership deed (bundle No.7, page 37-38) Two partners namely Jigar Haresh Shah and Dilip Haresh Shah, partners retired on vide deed dated 1-4-2006 (Bundle No.7, D.No.26-37). 4. The AO noted that in Mateshwari Enterprises, Smt.Dharmishtha wife of Shri Hiralal Rangani and his brothers are partners. His family members a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought in a total sum of Rs. 91,11,000/- to the firm through bank. However, the unaccounted expenses of Rs. 1,37,00,000/-, which was promised to be disclosed by the assessee, has not been disclosed in the return of income. The AO reproduced the trading account prepared by the assessee which is as under : Particulars Amount (Rs.) Particulars Amount (Rs.) Land expenses 8896614 Sale of flat 9226000 Other expenses 16128398 Closing WIP 16065484 Goodwill written off 1144680 Miscellaneous Income disclosed in survey 5723400 Net Profit 4845192 31014884 31014884 7. From the above he noted that the assessee has disclosed only Rs. 57,23,400/- in the return and despite this additional income there is net profit of only Rs. 48,45,192/-. The AO, therefore, confronted the assessee as to why the amount of Rs. 1,37,00,000/-, which was promised to be disclosed during the course of survey, has not been disclosed. It was explained by the assessee that page No.16 impounded during the course of survey shows that these are only projection of expenses which was prepared by the partners for taking the new project. Further, page No.15 impounded durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... projected expenditure should not have appeared. Rejecting the various explanations given by the assessee the AO added an amount of Rs. 1,13,75,605/- u/s.69 of the I.T. Act by making the following observations : "The assessee has incurred/made investments of Rs. 1,13,75,605 as per document No.15 and 16 of Bundle No.5, which has not been disclosed in the return despite admitting the same during survey as corroborated by the documents found during survey. The amount of Rs. 1,13,75,605/- is added u/s.69. No separate addition has been made for Annexure I, D.No.1 to 5 as the expenditure was incurred from the unaccounted money brought by the partners. Penalty proceedings have been initiated for concealing particulars of income and manipulation of accounts with intention to avoid payment of taxes on amount of Rs. 1,13,75,605/-." 9. However, in the body of the assessment order the AO made addition of Rs. 1,37,00,000/- which is the amount disclosed by the assessee in his statement during the course of survey. 10. Before CIT(A) it was submitted that survey statement has no legal sanctity as per provision of law and decided by various authorities. It was further submitted that such survey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchased between March 2005 to July 2005 and also registered. Although as per AO cash expenses by partners were incurred for land and its development, however, the AO did not enquire from the sellers regarding the cash dealings as well as about land development of plots etc. by summoning them and recording their statement to correlate the alleged survey statement. The AO did not consider it requisite to make an independent enquiry and brought any material on record and has not given any cogent evidence to justify the addition made by him. The entire addition made by the AO was based on surmises and conjectures and is not based on any independent evidence. Relying on various decisions it was submitted that the AO is not justified in making the addition. 12. Based on the arguments advanced by the assessee the Ld.CIT(A) deleted the addition of Rs. 1,13,75,605/- from the hands of the assessee firm and suggested for assessment of the same in the hands of the partners. The relevant observation of the CIT(A) from para 5 to 5.5 of the order reads as under : "5. The submission is considered and the argument heard. The contents of the assessment order is perused. As regards the unexplain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... place as on 01/04/06, which is evidenced by retirement deed and the document No 16 contains details of payment to the retiring partners, which is a proof that, expenses did not relate to the year under appeal. It is submitted that, Shri Hiralal had stated to the AO that, the expenses were incurred by the partners belonging to the three groups and, therefore, it should have been rightly considered in the hands of the partners. Considering the expenses incurred by the partners in the hands of the firm is illogical, the AR has argued. 5.3 Section 69C of the Act provides that - Unexplained expenditure, etc. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year. 5.3.1 According to the provisions of Section 69C, this is the expenditure incurred by the assessee during the relevant FY for which no proper explanation is offered, will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,00,000/- was made by the AO u/s.69C of the Act after considering the statement of the partner recorded on oath during the survey action. Moreover, the expenditure was debited in the final accounts of the assessee firm which means that the assessee itself has incurred the expenditure. He submitted that the statement given during the course of survey was the true statement depicting the true state of affairs of the assessee firm. The subsequent accounts prepared after the survey for finalization of the income-tax return and submission of the assessee during the course of assessment proceedings are manipulations to escape the tax. He submitted that since the assessee itself has debited the said expenditure in its accounts and since the assessee could not offer the source of such amounts, therefore, the addition was rightly made by the AO. Therefore, the CIT(A) was not justified in deleting the addition made by the AO. 15. The Ld. Counsel for the assessee on the other hand heavily relied on the order of the CIT(A). He submitted that the Ld.CIT(A) in the instant case has deleted the amount of Rs. 1,13,75,605/- with 2 findings, i.e. (a) money spent by partners should be added in the ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The expenditure was incurred only during A.Y. 2006-07. The Ld. Counsel for the assessee submitted that Hiralal Rangani is not a partner or employee of the firm. May be his brothers are partners. However addition cannot be made on the basis of statement of a non-partner or non-employee. He submitted that once it is proved that the expenditure is incurred by the partners, the source of the firm are explained. Therefore, it cannot be added in the hands of the assessee firm u/s.69C. Addition, if any, could have been made in the hands of the partners and that too in A.Y. 2006-07 when the expenditure was incurred. There is no proof that any expenditure has been incurred in F.Y. 2006-07 relevant to A.Y. 2007-08. 16. Referring to the decision of Hon'ble Supreme Court in the case of ITO Vs. Muralidhar Bhagawandas reported in 52 ITR 335 he submitted that the Hon'ble supreme Court in the said decision has held that the jurisdiction of the appellate Assistant Commissioner u/s.31 was strictly confined to the assessment order of the particular year under appeal. It has further been held that the assessment or re-assessment in consequence of or to give effect to any finding or direction contai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear and it was incurred in the preceding year. We do not find any infirmity in the order of the CIT(A) deleting the addition of Rs. 1,13,75,605/-. From the impounded document, a copy of which is placed at page 7 of the paper book, we find the various expenses incurred are upto the passing of the plan. Since it has been mentioned at the top of the impugned document "Expenses upto plane passing", therefore, the date of passing of the plan is relevant. We find the finding of the Ld.CIT(A) at para 5.5 of his order that the final approval of the plan was given to the assessee on 29-03-2006 has not been controverted by the revenue. Further finding of the Ld.CIT(A) that one of the partners i.e. Mama group has retired from the partnership firm from 01-04-2006 which is evidenced by the Deed of Retirement has also not been controverted by the revenue. Under these circumstances, the finding given by the Ld.CIT(A) that the expenses have not been incurred during the impugned assessment year, in our opinion, is justified. 18. Further, from the statement recorded during the course of survey, we find Shri Hiralal Rangani in his statement has stated that the balance amount of Rs. 1,13,75,605/- was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO to take remedial measures in the hands of the partners. We accordingly uphold the same and the ground raised by the revenue on this issue is dismissed. 20. It may be pertinent to mention here that the Ld. CIT(A) has deleted only an amount of Rs. 1,13,73,605/- out of addition of Rs. 1,37,00,000/- made by the AO. Therefore, the ground raised by the revenue is also erroneous to this extent. 21. Ground of appeal No.2 by the revenue reads as under : "2. On the facts and in the circumstances of the case, the Ld.CIT(A) erred in deleting the addition of Rs. 20,40,078/- on account of suppression of work-in-progress." 22. Facts of the case, in brief, are that the AO during the course of assessment proceedings, on perusal of the trading account, noted that the assessee has shown sales of Rs. 92,26,000/-. The closing WIP was shown at Rs. 1,60,65,484/-. The income disclosed during survey was at Rs. 57,73,400/-. However, the assessee has shown profits of only Rs. 48,45,192/-. (The details of trading account has already been incorporated at para 6 of this order). Thus, despite the additional disclosure of Rs. 57,23,400/- the net profit has been declared at Rs. 48,45,192/-. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that factually and legally the AO is not justified in making the addition. 24. Based on the arguments advanced by the assessee the Ld.CIT(A) deleted the addition by observing as under : "8.3 The contents of the assessment order and submission are perused and considered. I find that, the assessee was not give proper opportunity before making the addition. I also find that, if the undisclosed income of Rs. 57,23,400/- is taken into account then the NP would work out to 32.40% which compares well with the results of sister concern. In the circumstances, I hold that, the addition is made on presumption and surmises and accordingly, I direct the AO to delete the addition. The ground is allowed." 25. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us. 26. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. From the copy of the assessment order, we find that although the AO has discussed the valuation of closing WIP/suppression of profits while making the addition, however, the order does not show any query raised by the AO during the course of assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partners were charged only Rs. 33,75,000 + Rs. 14,05,000. The AO recorded the statement of Shri Hiralal Rangani on 30-08-2007 on this income who in his reply had stated as under : "Annexure-II gives the detail of how the share of the retiring partners, Shri Dilip Shah and Shri Jigar Shah was calculated. In this document, there are calculations of 8 shops and office on the ground floor. Regarding shops, the market value was Rs. 2100/- per sq.ft. However, the sale agreement was made at Rs. 4,25,000/- for a shop of area 565 Sq.ft. whereas the sale price is Rs. 12,26,500/-. The detailed working of 8 shops was done to calculate the share of Shri Dilip Shah and Shri Jigar Shah, who were the retiring partners. In the books only Rs. 4,25,000 is written, whereas the market value is of Rs. 12,26,500/-. The total of this comes to Rs. 1,05,03,400/- out of which Rs. 35,03,400/- is shown in the books of the firm, where as the balance of Rs. 70,00,000/- was shared by me (Rs. 52,50,000) and Rs. 17,50,000 (by Shri Rajendra Narain Patel Group. This transaction is not disclosed in the books. With this working, two partners, Shri Jigar Shah and Shri Dilip Shah were retired from the firm and the shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,44,680/- debited under the head "goodwill". 32. Before CIT(A) it was submitted that the genuineness of the expenditure has not been doubted by the AO. It was submitted that sale of shops at concessional rate were made as a matter of understanding to retiring partners as compensation for contribution and future loss of income from firm. It was submitted that the same is clear from such statement on page 13 and it is also clear that this rebate was given for "removal of share" as mentioned in the statement which is the very basis of declaration of differential income. It was argued that when the AO on the basis of document No.17 accepts the income declared by the assessee, he cannot reject the claim of the asssessee regarding the compensation paid to outgoing partners on the basis of the same document. 33. Referring to the decision of the Pune Bench of the Tribunal in the case of Dhanvarsha Builder and Developer Vs. DCIT reported in 102 ITD 37 it was submitted that the Tribunal in the said decision has held that where seized document is considered for the purpose of computation of undisclosed income of assessee, expenditure mentioned therein would also become admissible to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Mateshwari Enterprises from their retirement ?. He submitted that Shri Haresh L. Shah in his reply had stated that no such goodwill was paid. He submitted that the sale of shops to partners was made as a matter of understanding to retiring partners as compensation for contribution and future losses of income from firm. He submitted that when the various documents are seized the department cannot utilize the seized documents which are against the assessee and ignore the documents which are in favour of the assessee. All the documents should be read as a whole. Further, the AO has not given any reasoning based on his enquiry to ascertain whether charging of such amount at a lesser rate is commensurate with the market rate or not. No proper reasoning has been given by the AO for making the disallowance. The assessee has rightly debited the goodwill amounting to Rs. 11,45,680/-. The CIT(A) also has not given any valid reasons for sustaining the addition. He accordingly submitted that disallowance made by the AO and upheld by the CIT(A) should be deleted. 37. The Ld. Departmental Representative on the other hand drew the attention of the Bench to Question No.8 put to Shri Haresh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,680/- being 1/5th of the above amount as goodwill. It is also a fact that in the retirement deed there is no mention of any goodwill to be paid to the outgoing partners. Therefore, while disclosure of Rs. 57,23,400/- is justified debiting the amount of Rs. 11,44,680/- in our opinion is not justified under the facts and circumstances of the case. Further despite admission during the course of recording of statement that such income will be disclosed in the hands of the partners, nothing was brought to our notice that any of the partners had disclosed such amount in his hands. Under these circumstances we hold that the AO was fully justified in bringing to tax an amount of Rs. 11,44,680/-. In view of the above and the detailed reasoning given by the Ld. CIT(A) we do not find any infirmity in the order of CIT(A). Accordingly, we uphold the order of the CIT(A) on this issue and the grounds raised by the assessee are dismissed. 40. The assessee has also taken the following additional ground : "1. The Ld.CIT(A) has erred in law & fact by confirming addition of Rs. 14,07,083/- (in para 5.6) in the hand of partners, inspite of fact that expenditure directly incurred by partners were R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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