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TMI Blog2019 (8) TMI 889X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee towards construction/furnishing of Hotel Courtyard Marriot We are of the considered view, that as the investment made by the assessee towards construction/furnishing of Hotel Courtyard Marriot, viz. (i). electrical fittings: ₹ 79,80,001/-; and (ii). furniture and fittings: ₹ 1,08,24,000/-, therein aggregating to ₹ 1,88,04,000/- was sourced from the cash that was received back by the assessee against the payments made towards bogus purchases , therefore, in the backdrop of the declaration of the bogus purchases of ₹ 4,41,26,298/- made by the assessee, a separate addition as regards the application of the said amount would not be justified. - Decided in favour of assessee. - ITA No.3186/Mum/2014, 3098/Mum/2014 - - - Dated:- 7-8-2019 - Shri G. Manjunatha, Accountant Member And Shri Ravish Sood, Judicial Member Appellant by: Shri B. Srinivas, D.R Respondent by: Shri Vijay Mehta, A.R ORDER PER RAVISH SOOD, JM The present cross appeals filed by the assessee and the revenue are directed against the order passed by the CIT(A)-40, Mumbai, dated 25.02.2014, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be set aside and that of the Assessing Officer restored. 2. Briefly stated, the assessee company belongs to Kanakia group , which is engaged in construction, real estate, hospitality business etc. The assessee company is engaged in hotel business and operates a hotel, viz. Hotel Courtyard Marriot. Search and seizure proceedings under Sec. 132 of the Act were carried out on 29.03.2011 on Kanakia group , and the directors of the group entities were also covered. Subsequent to the search proceedings the assessee company surrendered an amount of ₹ 4,41,26,298/-towards bogus bills booked during various years in its books of account , viz. A.Y 2008-09 (₹ 1,85,64,923/-); A.Y 2009-10 (₹ 2,49,59,227/-); A.Y 2010-11 (₹ 2,99,538/-); and A.Y 2011-12 (₹ 3,02,609/-). The A.O while framing the assessment observed that the assessee company had made unexplained investments in various capital assets by incurring expenditure in cash. The explanation of the assessee that the cash received back against payment made towards bogus purchases was used to make investments in the aforesaid assets was not subscribed by the A.O, who rejected the same. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments made towards bogus bills and the expenditure incurred out of the said amount, as under: HimanshuBhai Lacs Bal with You-1/4/09 Against various purchase bills +Received till 30/09/09 purchase bills 1242.39 700.12 1942.51 Less: Paid capex meriott Flooring Bathroom fitting and plumbing 126.52 74.22 Paid New Atrium Office- CMI Plastering Plumbing 8.86 26.47 24.63 59.96 260.70 Bal with U 1681.81 On the basis of the aforesaid f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24.05.2011. Also, a typed copy of the said seized diary was placed on our record by the assessee. It was submitted by the ld. A.R, that the assessee during the course of the search proceedings had declared an undisclosed income of ₹ 4,41,26,298/- in respect of bogus purchases which were debited in its books of accounts , and accordingly had reduced the said amount from the cost of the building. It was submitted by the ld. A.R, that the cash received back by the assessee against payments made towards bogus purchases was spent on the construction/furnishing of Hotel Courtyard Marriot. In order to fortify his aforesaid contention, it was submitted by the ld. A.R that the source of the investment/expenditure made by the assessee towards the construction/furnishing of the hotel building was clearly discernible from the seized document viz. Annexure A2 Page 13. In fact, it was submitted by the ld. A.R, that the A.O had most arbitrarily perused the contents of the seized document viz. Annexure A2 Page 13. It was submitted by the ld. A.R, that though the A.O on the basis of the contents of the aforesaid seized document viz. Annexure A2 - Page 12 had gathered the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gus bills which were booked by the assessee in its books of accounts , therefore, there was no justification for the A.O to have made any further addition in respect of the same. 5. Per contra, the ld. Departmental Representative (for short D.R ) relied on the orders of the lower authorities. It was submitted by the ld. D.R that as the assessee had failed to substantiate the source of the investment made towards construction/furnishing of the Hotel Courtyard Marriot, therefore, the A.O had rightly made an addition of ₹ 3,88,78,000/- in its hands. It was submitted by the ld. D.R that the assessee had failed to establish an inextricable nexus between the investment made towards the construction/furnishing of the Hotel Courtyard Marriot and the undisclosed income declared by it towards bogus purchases . In order to fortify his aforesaid contention the ld. D.R took us through the relevant observations of the A.O. 6. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Admittedly, during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,242,39 Add: Received up to 30.09.2009 purchase bills 700.12 1,942.51 Less: Capex Meriott Flooring Bathroom Fittings Plumbing 126.52 74.22 200.74 Paid for new atrium office Civil Flooring Plumbing 26.47 24.63 8.86 59.96 260.70 Bal with U1681.81 Add: Received up to 31.03.2010 against various Purchase bills ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther unexplained expenditure, had disallowed an amount of ₹ 52,48,298/- in its computation of income for the year under consideration. On a perusal of the contents of the seized document, viz. Annexure A2 Page 13, it stands revealed, that the details of day-to-day transactions of receipt of cash against the payments made towards bogus purchases , and the investment made out of the said amount towards construction/furnishing of Hotel Courtyard Marriot, along with the balance amount on various dates is therein found mentioned. We find that the A.O adopting a self-suiting approach had though accepted part of the contents of the seized document i.e to the extent the same revealed that the assessee had made investment towards construction/furnishing of the hotel building viz. Hotel Courtyard Marriot, however, he had whimsically declined to take cognizance of the fact that the said investment, as per the said seized document, was sourced from the cash that was received back by the assessee against the payments made towards bogus purchases . In our considered view, the aforesaid self-suiting and half hearted approach adopted by the A.O does not merit acceptance. As observed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of flats, in our considered view, is not only an unsubstantiated view but also baseless. We find that the A.O had not placed on record any material which could support his said claim. In fact, we find substantial force in the claim of the ld. A.R, that as the assessee was only engaged in the business of operating Hotel Courtyard Marriot, therefore, in the absence of any supporting material , there was no justifiable reason on the part of the A.O to hold that the investment made towards construction/furnishing of the hotel building was sourced from On money on sale of flats. In our considered view, the observation of the A.O as regards the source of the investment made by the assessee is devoid of any logical reasoning. We find that the approach adopted by the A.O for drawing of adverse inferences in the hands of the assessee had rightly been vacated by the CIT(A), observing as under: 8. I have considered the facts of the case, submissions and contention of the appellant and order of the A.O. The expenditure of ₹ 3,88,78,000/- had apparently been incurred during the year, on the following items, in respect of construction/furnishing of Marriot Hotel :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim of the appellant in this regard has to be allowed, out of total amount of ₹ 3,88,78,000/-. Though the AC has argued in the assessment order that this expenditure might have been incurred out of unexplained sources, since very specific details are available in the seized papers, claim to the extent of ₹ 2,00,74,000/-should be allowed. 11. In this regard, I would like to rely upon the judgement of Hon ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd. vs. CIT [26 ITR 775(SC)], relevant portion of which is reproduced as under :- As regards the second contention, we are in entire agreement with the learned Solicitor-General when he says that the ITO is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a court of law, but there that agreement ends; because it is equally clear that in making the assessment under sub-s. (3) of s. 23 of the Act, the ITO is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. The re must be something more than bare suspicion to support the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 99) 65 1TJ (Pune) 327: (1999) 71 ITD 245 (Rune) applied. 14. It has also been brought to my notice by the appellant that the Hon'ble Settlement Commission, Mumbai Bench, had allowed capitalization of various expenses out of bogus purchases in the case of M/s. Kanakia Spaces Pvt. Ltd., appellant's sister concern, under identical circumstances. 15. In view of the above discussion and respectfully following the above judgments. I hold that deduction for expenditure to the extent of ₹ 2,00,74,000/- should be allowed to the appellant. Accordingly, finding ourselves to be in agreement with the view taken by the CIT(A), we uphold his order to the extent he had deleted the addition of ₹ 2,00,74,000/-made by the A.O. The Grounds of appeal No. 1 2 raised by the revenue are dismissed. 9. We shall now advert to the contention advanced by the ld. A.R that the CIT(A) has erred in sustaining the addition of ₹ 1,88,04,000/- as an unexplained investment/expenditure in the hands of the assessee. On a perusal of the order of the CIT(A), it stands revealed that the aforesaid addition was sustained by him, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,324.60 Less: Capex Marriot Electrical Fittings Furniture Interiors 79.80 108.24 188.04 Capex new Attrium office furnishing Civil Flooring Plumbing Aluminium Fittings Electrical Fittings 45.29 62.72 27.84 48.24 52.22 236.31 424.35 Balance with you 1,900.25 Accordingly, we are of the considered view, that as the investment made by the assessee towar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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