Money listed in the books of accounts as eyewash must be added as unexplained money in accordance with Section 69A: ITAT
Fact and issue of the case
These are the appeals filed by the assessee and the revenue against the order of the ld CIT(A)-1, New Delhi dated 17.02.2014 for AY 2011-12. Assessee appeal ITA 2592/Del/2014 for AY 2011-12
The grounds raised by the assessee reads as follows:-
On the facts and circumstances of case and in law, the Commissioner of Income Tax (Appeal) erred in confirming the addition of Rs.38,78.388/- as income from other sources. On the facts and circumstances of case and in law, the addition of Rs.38,78,388/- made by the assessing officer is erroneous and CIT(A) should have deleted the same.
On the facts and circumstances of case and in law, the Commissioner of Income Tax (Appeal) erred in confirming the addition of Rs.1,50.49,000/- on protective basis. On the facts and circumstances of case and in law, the CIT(A) should not have upheld the addition of Rs.1,50,49,000/- even on protective basis. 73. On the facts and circumstances of case and in law, the addition of Rs.1,50,49,000 upheld by CIT(A) on protective basis is erroneous and the same is liable to be deleted.
On the facts and circumstances of case and in law, the assessment order passed by the assessing officer u/s 143(3) rw.s. 153A is illegal and without jurisdiction and Commissioner of Income Tax (Appeal) should have held so.
The grounds of appeal raised by the revenue are as under:-
The order of Ld. CIT (A) is not correct in law and facts.
On the facts and circumstances of the case the Ld. CIT(A) has erred in deleting the addition of Rs.38,78,388/- made by AO u/s 69 of the I.T. Act.
On the facts and circumstances of the case the Ld. CIT(A) has erred in deleting the addition of Rs. 5,57,50,000/- made by AO on account of “unexplained expenditure”.
On the facts and circumstances of the cases the Ld. CIT(A) has erred in directing the AO to cancel the reduction in closing work-in-progress on account of bogus purchases of Rs. 26,12,41,822/-.”
When the case was called for hearing neither the assessee nor any authorized representative (AR) appeared despite repeated service of notice. Therefore, we find it appropriate to adjudicate the appeal ex parte qua assessee after hearing the arguments of the ld CIT DR.
From the memo of the ground of appeal it is clearly discernable that the assessee has not pressed Ground Nos. 2, 3, 4 and 6 therefore, same are dismissed as not being pressed.
Apropos remaining effective sole ground No. 1 of assessee is with regard to confirming the addition of Rs. 38,78,388/- as income from other sources.
From the assessment order we note that the AO has made addition of Rs. 38,78,388/- on account of cash seized during the search and seizure operation. On being asked by the AO the assessee stated that these receipts have been received on account of advance received from the customers and as no sale has been booked. The assessee explained before the AO that the amount of advance would be included when the sale is recognized. However, the AO did not agree with the said explanation of the assessee and made addition by observing that it is only due to search that these cash receipts have been noticed and found that the same have not been recorded in the books of account. Accordingly, the AO made addition u/s 69A of the Act treating the same as unexplained money received by the assessee during the relevant financial year.
From the relevant part of first appellate order we further note that the ld CIT(A) while adjudicating ground No. 5 of assessee noted the written submissions of the assessee in para 7.1 of first appellate order wherein, the assessee submitted that the amount is duly recorded in the books of account and it is not a case of the assessee has not offered any explanation. It was also contended by the assessee that when the nature and source of cash receipts are established from the seized material itself provision of section 69A of the Act cannot be applied for making any addition in the hands of the assessee. Placing reliance on the order of the ITAT Pune Bench in the case Dhanvarsha Builders & Developers (P) Ltd Vs. DCIT (2006) 102 ITD 375 (Pune), it was contended that the concept of income is a legal concept and amount of real income has to be arrived at after considering various other aspect such as expenditure and year of taxability and even in case of undisclosed income detected as a result of search, accounting of profit has still to be made on the basis of method of accounting followed by the assessee.
The ld CIT(A) after considering the above written submissions and contentions of the assessee held that during the search and seizure operating incriminating documents indicating unaccounted cash receipts from customers was found and seized. There is no quarrel as to the nature or quantum of the amounts. The ld CIT(A) also noted that at the time of search and seizure operation cash receipts were not recorded in the books of account and these appeared to have been entered in the books of account subsequently. The ld CIT(A) further noted that no doubt the amount may have been entered into books of account of the appellant as advance from customers but the facts remain that these amounts were on money received in cash against the sale of flats and never intended to be accounted for or included in the books of account of the assessee. The ld CIT(A) also noted that the regular business activities have been duly accounted regularly in the books of account and the business transactions which have not been recorded in the books of account equated or treated on the equal footing. The ld CIT(A) concluded that the income from regular business transaction has to be taxed under the business head income from unaccounted/ undisclosed business transactions are not mandated by the law and are to be treated differently and taxed under the head income from other sources.
In view of the above, submissions of the assessee submitted before the authorities below allegations of the AO and findings recorded by the ld CIT(A) in para 7.2 to 7.5. It is apparent that the assessee is engaged in construction of flats and trading in immovable property. The AO categorically noted that the receipts found and seized during the search operation was not recorded in the books of account of the assessee and in a case when there would be no search then the same could not be revealed or unearth to the department. The ld CIT(A) also noted that the assessee has included the amounts in the books of account subsequently and there is no appropriate explanation regarding treatment of the same as advance from customers. In view of the above factual findings recorded by the ld CIT(A) we are of the considered view that undisputedly the assessee entered the amounts of cash receipts in the books of account as advance from customers but in fact these amounts were on money receipt in cash against the sale of flats and never intended to be accounted for by the assessee in its books of account. Therefore, when the transactions of sale of flats have attained finality then it is obvious that all the amounts receipt by the assessee and recorded in the books of account of the assessee as advance from customers has to be set off and included in the turnover of the assessee. At the same time when the amounts received in cash against the same transaction of sale of flats which have not been recorded in the books of account of the assessee at the time of search and seizure operation and subsequently recorded in the books as advance from customers is nothing but an eye wash to supplement the explanation of the assessee regarding the cash receipts. We are unable to agree with the contention and submission of the assessee placed before the authorities below and at the same time we are inclined to agree with the findings recorded by the ld CIT(A) as noted above, while confirming the addition are correct but his findings towards change of charging section from 69A to 56 are not correct. Therefore in view of foregoing we are inclined to hold that the addition made by the AO deserves to be confirmed in the hands of the assessee u/s 69A of the Act. Accordingly, ground No. 1 of the assessee is also dismissed.
Observation of the court
In our considered view, the bogus claim unearth and found during the course of search and seizure operation and post search enquiry and outcome of survey operation on the related parties which were found to be in the business of providing bogus purchases entries and with whom the assessee under taken purchases and added the same to the work in progress. In our considered opinion the assessee is not deserve to be allowed to show an include bogus purchases and to add the same to work in progress with an intention to increase the cost of construction and consequently reducing the profit therefrom. The Assessing Officer has made detailed enquiry and thereafter recorded a clear findings, as has been reproduced hereinabove then the ld. CIT(A) cannot be held as correct and justified in dismissing the action of the Assessing Officer which reduced work in progress shown by the assessee in the books of accounts. The bogus purchases cannot be allowed to be continued and to be shown as part of work in progress till the project is completed and sale is affected. When the Assessing Officer has found that the purchases are bogus and work in progress has been enhanced with the aid of bogus purchases then the same has to be reduced instantly in the year in which these were shown and recorded in the books of accounts and particularly in the work in progress account. Therefore first appellate order on this count is not found to be sustainable and thus we reverse the same. The action of the Assessing Officer in reducing work in progress by the amount of work in progress is restored. Accordingly ground no. 4 of revenue is allowed.
In the result, appeal of the assessee is dismissed and appeal of the revenue is partly allowed for ground no. 2 & 4 and partly allowed for statistical purposes on ground 3.
Order pronounced in the open court on 16/06/2023.
In the result, appeal of the assessee is allowed and ruled in favour of the assessee
Read the full order from hereGardenia-Aims-Developers-Pvt-Ltd-Vs-DCIT-ITAT-Delhi-2