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TMI Blog2023 (4) TMI 1382X X X X Extracts X X X X X X X X Extracts X X X X ..... med unsubstantiated and incorrect expenses in calculation of cost of sales. (ii) The Ld. CIT (A) erred in considering the brokerage expenses as leveling expenses of land despite the fact that assessee itself submitted working of stock during the assessment proceedings and in calculating value of stock it had taken brokerage expenses too. (iii) The Ld. CIT (A) erred in considering the brokerage expenses as leveling expenses of land merely relying on the submissions of assessee that too in absence of any plausible documentary evidence. (iv) The Ld.CIT (A) erred in deciding above issue without giving any opportunity for verification/comments to AO, as new contention was made by assessee during appellate proceedings. 3.(a) The Ld. CIT (A) erred in deleting the addition made under section 40A(3) of the I.T. Act, 1961 of Rs. 40,00,000/- despite the fact that assessee had committed default within the purview of section 40A(3) of the I.T. Act, 1961 by making cash payment in excess of Rs. 20,000/-. (b) The Ld. CIT (A) erred in ignoring the fact that the seller Shri Jineshwar Lallulalji Jain was well known to the assessee and the seller was maintaining regular bank a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... development expenses of Rs. 1,57,51,980/- and labour charges of Rs. 75,10,340/-; both totaling to Rs. 2,32,62,320/- claimed in P&L A/c. Regarding "development expenses", Ld. AO also noted that the assessee has supplied following details: Name of the party Amount TDS Aashish Traders 1,23,000 1,230 Zakir Khan 80,98,538 80,985 Others 64,08,762 64,087 Other direct expenses 11,21,680 - Total 1,57,51,980 1,46,303 Ld. AO further observed that no details/bills/confirmations/ledger accounts have been produced; moreover in respect of "Others" and "Other direct expenses" shown in the above table, even the names of the parties have not been supplied. He further observed that although the assessee has submitted challan of deposing TDS, but no TDS return had been filed. Accordingly, he concluded that the claim of "development expenses" is not verifiable. Regarding "labour charges", he observed that the assessee claimed to have paid these charges to labourers and labour supervisors but no details/ ledgers/labour sheets were filed, hence the claim is not verifiable. Finally, Ld. AO disallowed 10% of the total expenditure amounting to Rs. 23,36,323/- and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , from all corners, it is clearly established that the work is given on contract basis and hence, there is no justification to add back the same in the hands of the appellant. In any civil contract business earning profit margin of 47.10% is unthinkable. The AO also mentioned that the appellant is a Real Estate Developer. The only thing objected by the AO was claim of higher expenses. Even AO went on making addition largely on the basis of assumption and to some extent on the basis of deliberation of facts gathered. I find that both the AO and appellant were not correct in so far as appellant offered loss of Rs. 9,05,177/- from the total receipt of Rs 3,56,28,160/- which is only net loss and on the other hand AO estimated a much higher net income from contract at Rs 1,50,51,327/- which comes to a whopping 47.10% of net profit from total receipt. Considering both of the net profits as unjustified and incorrect, it will be appropriate to estimate the net profit of appellant after allowing the expenses on which the appellant has deducted the TDS. The appellant has deducted TDS in respect of following payments:- Name of the Party Gross Amount TDS Ashish Traders 1,23,000/- 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an of TDS to AO. Taking into account these facts, Ld. CIT (A) has deleted the disallowance to the extent of 10% of Rs. 1,46,30,000/- i.e. Rs. 14,63,030/- and granted part-relief to assessee. The objection of Ld. AO qua this part is very limited i.e. the assessee has not filed TDS return. But for that objection, the AO has taken a separate action and referred the matter to TDS wing which is very clear from the assessment-order. In the circumstance, we agree with Ld. CIT (A) that the AO is not justified to make disallowance qua the payment of Rs. 1,46,30,000/- for which the assessee has supplied party wise details and also deducted TDS. Thus, there is nothing wrong in the part-relief granted by Ld. CIT(A). We approve his action. This ground of revenue is, thus, dismissed. Ground No. 2 (including sub-grounds thereof): 10. In this ground, the revenue claims that the CIT (A) has erred in deleting the addition of Rs. 96,30,181/- made by AO on account of determination of cost of goods sold. The revenue has raised this grievance on several counts as mentioned in different sub-grounds. 11. During assessment-proceeding, the Ld. AO interrogated the assessee qua th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... countancy. Hence the same is liable to be reduced from the cost of goods sold. Regarding other expenses, no supporting documents have been furnished and hence the same is not verifiable hence 20% of Rs 507.13 per sq ft (617.13-110) which amount to Rs 101.42 per sq ft disallowed. Therefore, cost of goods sold is taken at Rs 405.71 per sq ft is taken. Hence, total addition of Rs. 211.42 per sq ft is made. The land sold during the year is 45550 sq ft, hence addition of Rs 96,30,181/- is made to the income of the assessee on this account." 12. During first-appeal, Ld. CIT (A) deleted this addition by observing and holding thus: "4.2 Ground No. 2: Through this ground of appeal the appellant has challenged the addition Rs. 96,30,181/- out of difference in valuation of cost of goods sold. The AO has made addition of Rs. 96,30,181/- in the appellant's income, on account of undervaluation of closing stock. The addition was made mainly on account of two items, viz (a) Addition @110 per Sq Ft on the area sold during the year: (b) Adhoc disallowance of 20% of the cost of development. 4.2.1 During the course of assessment proceedings, the appellant had furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to any error in estimation, the cost of development is taken at a higher figure in the initial years, the cost available for charge against the inventory sold in the later years would be automatically be less. Thus the effect would be revenue neutral. The A.O. has estimated cost of sales @ Rs. 405.71 per sq.ft. against the appellant's claim of Rs. 617.13 per sq.ft. The AO has not brought out any comparable cases while adopting the rate while valuing the cost of sales. The AO should have adopted the comparable rate prevailing in that area. The AO has also not referred the matter to the valuation cell for valuation, who is Competent Authority for this purpose. The AO has not brought out any material on record which suggests that the appellant is doing any business other than reflected in the return of income. In the case of International Forest Co. vs. CIT (1975) 101.JTR 721 (J&K) it is held that AO cannot proceed to make an arbitrary addition and base his conclusion purely on guess work. He ought to have related his estimate to some evidence or material on the record as it is now well settled that if the profits shown by the appellant in his return are not accepted it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. After a careful consideration, we find the arguments of Ld. DR as meritorious. We agree to his submission that the Ld. CIT (A) has accepted a newer submission of assessee that the impugned expenditure @ Rs. 110/- per square feet was in the nature of "land filling expenditure" whereas the assessee himself claimed the same as "brokerage expenditure" before AO. We find weightage in the submission of Ld. DR that the CIT (A) has accepted this newer submission of assessee without calling any remand-report from Ld. AO. Going further, we agree to Ld. DR's submission that the CIT (A) has not made any working or calculation to arrive at a finding that claiming higher expenditure in the current year, would reduce the claim of assessee in later years and thereby the exercise would become revenue-neutral. Therefore, in the situation, we are of the view that a thorough working of the closing stock / cost of goods sold is required to be made/verified by Ld. CIT (A) and the Ld. AO must be given an opportunity of hearing on this issue. Hence, it would be most appropriate to remand this issue back to the file of Ld. CIT (A) to decide afresh. Needless to add here that the Ld. CIT (A) would d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rakesh Kumar v/s Asst. CIT, the ITAT Amritsar Bench also held that sale deeds of properties were registered with revenue Dept. of govt... the payments cannot be disallowed under section 40A(3) of the Act. 4.3.2 In the present case, the genuineness of payment has not been doubted as Assessing Officer himself has held that sale deed of property was registered with the Revenue Department of Govt. Therefore, the case of the assessee is fully covered by the above decision of Hon'ble Punjab and Haryana High Court. 4.3.3 The Hon'ble ITAT Indore Bench, Indore vide ITA No. 522/Ind/2014 dated 14.07.2016 in the case of Tirupati Constructions has allowed complete relief on the aforesaid point of addition to the appellant. 4.3.4 Similar view has been taken by ITAT Indore bench, Indore in the case of Vijay Kumar Jaiswal vs ACIT, 28 ITJ 289. In this case Hon'ble ITAT held that the payments were made at the direction of the department and the situation was not within the control of the appellant and ITAT deleted the said disallowances. 4.3.5 ITAT Indore bench Indore in the case of ITO Vs Jitendra Kumar Mandlecha, 23 ITJ 644 In this case the facts of the case was as und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration has been paid in cash; and therefore the situation attracts the provision of section 40A(3) of Income-tax Act, 1961. There is no dispute on these points. Now, what remains to be decided is a very short-point i.e. whether the assessee has any valid reason to come out of section 40A(3) or not? On a careful consideration of assessment order, we observe that the before AO, the assessee attempted to take benefit of clause (g) of Rule 6DD which provides that the disallowance u/s 40A(3) shall not be attracted "where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town". Accordingly, the assessee submitted to Ld. AO that the impugned cash-payment was made to the seller who does not maintain regular bank account. But when the AO tested the assessee to prove this claim, the assessee could not file any evidence to prove the same. Therefore, the Ld. AO resorted to disallowance. Then came the next stage of first-appeal before Ld. CIT(A). We observe that before Ld. CIT(A), the assessee took an altogether new and differe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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