INCOME TAX APPELLATE TRIBUNAL
The Learned CIT (Appeals) failed to appreciate that the amount offered during Survey u/s 133A carried out on 13/02/07 was not offered as any cash or other investments were recovered during the survey, but as there were mere entries without any narration as to their nature being receipts or payments
Harsh Developers, 205, Hemu Classic,S.V. Road, Malad West, Mumbai – 400 064. PAN: AACFH 5342 L (Appellant) Vs. ACIT – 15(2), Mumbai (Respondent)
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES “H” MUMBAI
BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER
SHRI RAJENDRA, ACCOUNTANT MEMBER
ITA No. 7525/Mum/2010
Assessment Year 2007-08
205, Hemu Classic,
Mumbai – 400 064.
PAN: AACFH 5342 L
ACIT – 15(2),
Assessee by: Mrs. Arati Vissanji,
Revenue by: Shri N.K. Mehta
Date of hearing: 26-07-2012
Date of pronouncement: 01-08-2012
PER RAJENDRA, A.M.
The Appellant has filed the following Grounds of Appeal against the order of the CIT(A)-26, Mumbai dated 30.08.2010:
“1. The learned Comm of Income Tax (Appeals) 26, has erred in disallowing the expenses of Rs.54,85,579/- claimed by the assessee.
2. The Learned Comm of Income Tax (Appeals) 26, has grossly erred in disallowing the interest of Rs 29,43,751/- debited to the P & L Account.
3. The Learned CIT (Appeals) failed to appreciate that the amount offered during Survey u/s 133A carried out on 13/02/07 was not offered as any cash or other investments were recovered during the survey, but as there were mere entries without any narration as to their nature being receipts or payments.
4. The learned CIT (A) 26, has grossly erred in concluding in para 4.3 page 7 that unaccounted cash of Rs 3.05 crores was unearthed by the survey authorities.
5. The learned CIT (A) 26, has grossly erred in concluding that the appellant has failed to establish the actual business activities carried out.
6. The learned CIT (A) was not justified in bringing to tax the income earned out of monies of the business deposited with banks, and not allowing the offset of interest paid on the source of these monies, ie the unsecured Loans.
7. Without prejudice to the above, and alternatively, the Learned CIT (Appeals) - should have appreciated that if there is was no project undertaken during the year, the business was not discontinued and routine expenses to keep the office functional and business activities were in progress, hence normal expenses should have been allowed as claimed by the assessee.
8. The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal.”
2. The assessee-firm, a builder and contract filed its return of income and 31.10.2007 declaring total income of Rs.2,56,89,255/-. Assessment was finalized u/s.143 (3) of the Income-tax Act, 1961 (Act) on 14. 12.2009 determining the total taxable income at Rs.3,15,77,408/-. A survey u/s.133A of the Act was conducted on 13.02.2007 at the office premises of the assessee. A loose paper file along with a small diary was impounded during the course of survey. In respect of the entries appearing on page number 7-9 of the documents the assessee-firm admitted an undisclosed income of Rs.3.05 Crores. Assessee was following percentage completion method and was offering its income accordingly in respect of building projects.
3. While filing the return of income for the assessment year under consideration, the assessee-firm, debited various expenses to the extent of Rs.54.85 lakhs, thus returning taxable income at Rs.2.56 Crores. After going through the details filed by the assessee during the scrutiny assessment proceedings, Assessing Officer(AO)held that there was no business activities during the relevant year, that project was already complete during the financial year 2005-06, that in absence of actual business activities expenditure debited in P&L account could not be allowed. The AO further disallowed interest paid on unsecured loans amounting to Rs.29.43lakhs. He also added Rs.10.77 lacs under the head income from other sources being bank interest and interest on FDRs received by the assessee for the AY under consideration.
4. Assessee firm preferred an appeal before the Firs Appellate Authority (FAA). After considering the submissions of the appellant and the findings of the AO he held that most of the expenditure had been incurred with a view to inflate the expenditure for the year under consideration, that appellant had debited interest of Rs. 29.43 lakhs without any valid reasons, that interest expenditure was not a business expenditure, that it was inflated to reduce tax liability. He further held that assessee had not discharge his liability of proving that the interest expenditure was related to any project, that in reality there was no business activity after the completion of project for the AY. 2006-07.FAA upheld the addition made by the AO amounting to Rs. 10.77 lacs on account of bank interest and FDR interest received.
Before us, Authorised Representative (AR) submitted that expenditure incurred under various heads was allowed by the AO in the subsequent as well as in the previous assessment years, that evidences regarding TDS payments and professional services were submitted to AO during the assessment proceedings, that details of loans and interest payments were available with both the lower authorities, that cash amounting Rs. 3.05 Crores was not found during the survey action, the details of brokerage paid for selling flats were also submitted before the AO, that the business was never closed, that there was no construction activity but office was working in AY under construction. AR referred to Pg. Nos. 4, 5, 20, 30, 31-33 of the paper book. Departmental Representative (DR) submitted that no business activity was carried out during the year under consideration, that the letter of Suneel properties was not produced before the lower authorities, that shops were sold in the earlier years, that brokerage was paid this year for the work carried out in the previous assessment year.
5. We have considered the rival submissions. After going through the material available, we are of the opinion that it cannot be held that there was no business activity during the year under consideration .The assessee-firm is a developer and contract, so, it is not necessary that in every assessment year actual construction activity should be carried out .From the details available for the subsequent and previous assessment years, it is found that AO has allowed the expenditure incurred under the same heads for which disallowance has been made for the year under consideration.Details of tax deducted at source, brokerage paid, interest paid, salary paid to the employees of the firm were made available to the AO during the assessment proceedings. Considering the provisions of tax deducted at source, we are of the opinion that AO should have taken these payments for consideration while finalising the assessment order for the AY 2007-08. In our opinion, routine expenses to keep the office functional should have been also allowed. Under these circumstances, we are of the opinion that in the interest of justice matter should be restored back to the AO. He is directed to pass a fresh adjudication order after considering the material submitted before us. Assessee should furnish all the documentary evidences, submitted before us, to the AO during fresh assessment proceedings.
Ground Nos. 1- 8 are allowed, partly.
As a result, appeal filed by the assessee for stands allowed in part.
Order pronounced in the open court on 1st August, 2012.
(B.R. MITTAL) (RAJENDRA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Date 1st August, 2012
3. The concerned CIT (A)
4. The concerned CIT
5. DR “H” Bench, ITAT, Mumbai
6. Guard File
Income Tax Appellate Tribunal,
Mumbai Benches, Mumbai