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TMI Blog2020 (12) TMI 861X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee. Deduction of unaccounted expenses from Unaccounted income - Applicability of provisions of Section 40A(3) - Section 40A(3) of the Act are concerned in respect of unaccounted business expenses incurred in cash, we find admittedly that these are unaccounted transactions and hence, the same would have to be obviously incurred in cash and accordingly, the provisions of Section 40A(3) cannot be brought into operation at all. Admittedly, the seized document contains unaccounted income as well as unaccounted expenditure both were duly transacted only in cash. Hence, the applicability of provisions of Section 40A(3) of the Act to the said payments would not serve the scheme of taxation and would ultimately result only ending up in taxing the entire unaccounted gross receipts alone without giving benefit of deduction to the assessee. This is certainly not the intention of the legislature and more so, the provisions of the Act. Accordingly, the grounds raised by the assessee in this regard for all the assessment years are partly allowed. Addition made on account of capital contribution in the assessee firm by the partner - HELD THAT:- We hold that the benefit should be given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of construction of residential complex. A search and seizure action under section 132 of the Income-tax Act, 1961 was conducted on 26/02/2015 at the residence of Mr Vipul Mangal, partner of the assessee-firm. Simultaneously, the business premises of the assessee-firm was also covered under section 133A of the Act. During the course of search and survey action, various loose papers, notebook, diaries, etc. were found and seized / impounded, as the case may be, which indicated the acceptance of 'on money' on sale of the flats constructed by the assessee. Seized documents also reveal various payments/expenses made for the purpose of the construction business of the assessee. 3.1. A statement on oath was recorded from Mr. Vipul Mangal, partner of the assessee firm u/s.132(4) of the Act at the time of search proceedings by the search party. In that sworn statement, the partner of the assessee firm had categorically stated that there was on-money receipts on sale of flats in the project carried out by the assessee and which were duly reflected in the seized documents found during the search. The said partner had also stated that in the very same seized documents, there were cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s regard, the assessee also filed the entire details together with the narration and the nature of payment and the name of the party to whom such payments were made together with the complete break-up with dates for the total unaccounted expenditure of ₹ 6,01,09,970/-. Accordingly, the assessee offered for all the years put together unaccounted income as under:- Gross receipts representing on-money on sale of flats - ₹ 9,75,50,000/- Less unaccounted expenses used in Construction of the project belonging to the firm. ₹ 6,01,09,970/- Net unaccounted income offered to tax For all the years put together ₹ 3,74,40,030/- 3.3. We find that the assessee had submitted that the said net income of ₹ 3,74,40,030/- being the unaccounted income offered for all the years put together alone represented 38.38% of the gross unaccounted receipts. The main belief of the assessee is that the seized document in the form of diaries which contains details of unaccounted receipts on sale of flats as well as unaccounted expenses which were used for the purpose of assessee's business should be considered in toto and benefit of deduction for the said expenditure be given. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he name of the person to whom payments were made. Assessee has not furnished the full name of the persons to whom payments were made. c) In majority of the cases address of the persons and PAN were not provided by the assessee. d) In most of these cases, expenses were incurred in cash in excess of ₹ 20,000/- thereby violating the provisions of Section 40A(3) of the Act. e) The claim of the assessee that the expenses reflected in the seized diary are in the nature of architecture fees, the stamp duty, made to tenants as compensation for eviction, electrification fees, court case expenses, brokerage, parking lot eviction expenses, land demarcation expenses, NOC from various regulatory departments, revalidation fees, marble expenses, furniture expenses, plumber expenses, substation charges, legal charges etc., cannot be believed as the same were not substantiated by the assessee. 3.8. We find that the assessee has also furnished the name and address of the parties together with the specific amounts paid to them and also mobile number of those parties before the ld. AO which are tabulated in pages 16 & 17 of the assessment order to the tune of ₹ 500,06,930/- out of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the AO should have allowed set off of the unaccounted cash expenses as per the notings on the seized documents. However, only those unaccounted cash expenses an be allowed as a deduction which relate to the said unaccounted on-money receipts of ₹ 9,75,50,000/-. Also, such unaccounted cash expenses should be revenue in nature and also not prohibited by law. Moreover as per the matching principle only such unaccounted expenses can be allowed as a deduction where the corresponding receipts have been booked. 6.12. In course of the appellate proceedings, it was noted that the said total amount of unaccounted cash expenses of ₹ 6,01,09,970/- also includes cash payment of ₹ 50,00,000/- for buying land at Taloja which clearly cannot be allowed to be set off against the said on-money receipts. Further, the assessee itself in course of the appellate proceedings has quantified the payments which are prohibitied by law to be of ₹ 10,50,000/- and the expenses of capital nature to be of ₹ 1,00,000/-. Further, as mentioned earlier, it is a fact that the level of documentation in respect of the said unaccounted cash expenses is minimum and therefore, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... project, expenses of ₹ 10,50,000/- which are prohibited by law and expenses of ₹ 1,00,000/- which are capital in nature. Moreover, as noted earlier, in terms of the matching principle, only that portion of such expenses can be allowed for which corresponding on-money receipts have been booked during the relevant year. Therefore, it will be fair and reasonable to estimate the profit in respect of the on-money receipts of ₹ 9,75,50,000/-by applying a margin of 50% which will factor the non-allowable expenses out of the said unaccounted cash expenses of ₹ 6,01,09,970/-. Accordingly, the profit of the assessee on the said on-money receipts works out to ₹ 4,87,75,000/-. Since, only 10% of the project was incrementally completed during the relevant year, the profit for the relevant year is therefore, estimated at ₹ 48,77,500/-" 3.11. It is not in dispute that the details of unaccounted expenses in the sum of ₹ 6,01,09,970/- were part of the very same seized documents vide seized documents referred in Annexure-A3 which also contained details of on-money receipts to the tune of ₹ 9,75,50,000/- for all the assessment years put together. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the ld. CIT(A), the revenue should have preferred appeal before us or cross objections before us which was admittedly not done in the instant case. Hence, the finding given in this limited aspect in the order of the ld. CIT(A) need not be disturbed at this second appellate forum. We also find that assessee had also tried to match the total expenses to the tune of ₹ 5,00,06,930/- out of the total expenses of ₹ 6,01,09,970/- by giving the name, address, mobile number, nature of payment of the parties for their respective amounts before the ld. AO itself. However, considering the fact that these are unaccounted expenses and all these unaccounted expenses could not be fully substantiated by the assessee with proper supporting documents and also considering the fact that assessee's declared profit was 19.97% as per its regular books of accounts which is also categorically admitted by the ld. CIT(A) in page 25 of his order, we hold that the assessee would have made profit of 40% approximaterly on these unaccounted transactions by having the benefit in the form of huge cash discounts, huge savings in levy of indirect taxes, better negotiation of prices of materials due to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that the assessee had offered on-money pertaining to A.Y.2011-12 at ₹ 97,55,000/- and accordingly, the ld. AO had allowed telescoping of the same with capital contribution made by the assessee to that extent. This evidently led to a difference of ₹ 2,54,000/- in capital contribution (₹ 1,00,09,000-97,55,000/-) which remain unexplained, which was sought to be added by the ld. AO. We find that the seized documents does not state the year of receipts of on-money by the assessee. In this regard, we hold that the benefit should be given to the assessee by holding that the on-money receipts that pertaining to the entire project were received by the assessee in the initial year itself and the said money is certainly available for making capital contribution into the assessee firm, irrespective of the fact that only part of the such on-money receipts has been offered to tax in A.Y.2011-12. What is to be seen is the availability of cash in the hands of the partner to make the capital contribution in the assessee firm which is explained by on-money receipts. Hence, we direct the ld. AO to delete the addition made in the sum of ₹ 2,54,000/- being the deficit and ..... 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