Deepak Hanmant Pawar v. Addl. CIT, Satara Range, Satara
[Citation -2016-LL-0930-148]

Citation 2016-LL-0930-148
Appellant Name Deepak Hanmant Pawar
Respondent Name Addl. CIT, Satara Range, Satara
Court ITAT-Pune
Relevant Act Income-tax
Date of Order 30/09/2016
Assessment Year 2007-08
Judgment View Judgment
Keyword Tags adventure in nature of trade • opportunity of being heard • sale of agricultural land • construction expenditure • unabsorbed depreciation • computation of profit • additional evidence • civil construction • unaccounted income • business activity • civil contractor • contract receipt • municipal limits • original return • returned income • bogus liability • natural justice • total turnover • unsecured loan • profit on sale • crossed cheque • capital asset • contract work
Bot Summary: Since the books of account on the basis of which return of income was filed and its accompanying documents were found to be false because of non-disclosure of turnover of Rs.2,93,11,999/- from contracts in the return of income filed u/s.139(1) and since the assessee claimed substantial expenditure against the turnover of Rs.10.53 crores shown in the original profit and loss account as a result of which net profit shown was very low and since the assessee failed to substantiate the claim of such huge expenditure the AO rejected the books of account and completed the assessment in the manner as laid down under section 144 of the I.T. Act. The AO obtained information u/s.133(6) from the above 2 parties and noted that there is difference of Rs.3,02,50,842/- in the account of Vestas Wind Tech India Pvt. Ltd. and an amount of Rs.4,87,271/- in the account of Vestas RRB Pvt. Ltd. He further noted from the information received from Vestas Wind Tech India Pvt. Ltd. that the total bills raised by the assessee during the period from 01-04-2006 to 31-03-2007 was Rs.10,39,52,580/- against which the assessee has received payment of Rs.888,98,855/- and amount of Rs.1,50,53,725/- was receivable from Vestas Wind Tech India Pvt. Ltd. as on 31-03-2007. The AO held that income of Rs.10,39,52,580/- has accrued to the assessee during A.Y. 2007-08 for the contract works done by him for Vestas Wind Tech 5 ITA Nos.1734 1735/PN/2014 India Pvt. Ltd. since the assessee is following mercantile system of accounting. The assessee has disclosed turnover of Rs.7,46,40,581/- only in his return of income from Vestas Wind Tech India Pvt. Ltd. Thus, the assessee has suppressed turnover of Rs.2,93,11,599/-. After confronting the same to the assessee and considering the rejoinder given by the assessee to the comments of the AO the Ld.CIT(A) rejected the request of the assessee for admission of the additional evidences. Relying on the amendment to section 40(a)(ia) by the Finance Act, 2012 w.e.f. 02-04-2013 he submitted that disallowance u/s.40(a)(ia) of the Act need not be made if the assessee is not deemed to be an assessee in default under the first proviso to section 201(1). We find some force in the argument of the Ld. Counsel for the assessee that so far as disallowance u/s.40(a)(ia) is concerned the various Benches of the Tribunal following the insertion of the second proviso to section 40(a)(ia) by the Finance Act, 2013 w.e.f. 01-04-2013 are holding that disallowance u/s.40(a)(ia) of the Act need not be made if the assessee is not deemed to be an assessee in default under the first proviso to section 201(1) of the I.T. Act.


IN INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM ITA No.1734 /PN/2014 Assessment Years : 2007-08 Shri Deepak Hanmant Pawar, Appellant 184, Vyankatpura Peth, Satara PAN : AAYPP8419J v/s Addl. CIT, Satara Range, Satara Respondent ITA No.1735 /PN/2014 Assessment Years : 2007-08 Shri Kuldeep Deepak Pawar, Appellant 184, Vyankatpura Peth, Satara PAN : AALPPP9906N v/s Addl. CIT, Satara Range, Satara Respondent Assessee by : Shri S.N. Doshi Respondent by : Shri Hareshwar Sharma Date of Hearing :08.09.2016 Date of Pronouncement:30.09.2016 ORDER PER R.K.PANDA, AM : above 2 appeals filed by respective assessees are directed against separate orders dated 27-08-2014 and 25-08- 2014 of CIT(A)-III, Pune relating to Assessment Year 2007-08. Since identical grounds have been taken by respective assessees, 2 ITA Nos.1734 & 1735/PN/2014 therefore, these were heard together and are being disposed of by this common order for sake of convenience. ITA No.l734/PN/2014 (Shri Deepak Hanmant Pawar) : 2. Facts of case, in brief, are that assessee is individual and is engaged in business of Civil Construction work and power generation. He filed his return of income on 31-20-2007 declaring total income of Rs.54,00,167/-. During course of assessment proceedings AO observed that assessee has done contract work for Vestas Wind Tech India Ltd. and Vestas RRB Pvt. Ltd. and has disclosed gross turnover of Rs.10,53,32,956/-, details of which are as under : S.No. Name of company Turnover disclosed in return 1 Vestas RRB Pvt. Ltd. Rs.3,06,92,375/- 2 Vestas Wind Tech India Pvt. Ltd. Rs.7,46,40,581/- Total Turnover Rs.10,53,32,956/- 3. AO issued notice u/s.l42(1) on various dates calling for details of sundry creditors, debtors, advances, details of contracts completed, method of revenue recognition, complete address of all creditors and debtors etc. However, there was non-compliance from side of assessee on different dates. Subsequently, on 15-12-2009 authorized representative of assessee appeared before AO and submitted revised profit and loss account signed by assessee admitting additional receipts from contract of Rs.1,66,61,839/- and claiming additional expenditure of Rs.1.53 crores. AO, therefore, asked assessee to prove claim of additional expenditure of Rs.1.53 crores with proof of creditors shown in original and revised balance sheet and date for compliance 3 ITA Nos.1734 & 1735/PN/2014 was kept on 17-12-2009. However, there was non-compliance on said date for which AO issued summon u/s.131 and asked assessee to prove claim of expenditure in original return, additional expenditure of Rs.1.53 crores in revised profit and loss account and proof of sundry creditors in original and revised balance sheet, total turnover etc. However, there was non-compliance till completion of assessment. Therefore, AO inferred that assessee is not complying with terms of notices issued willfully to thwart investigations which have been carried on by making enquiries from parties with whom assessee is having transactions running into crores of rupees which are not recorded in books of account. In this background of total non-cooperation from assessee, AO proceeded to complete assessment on basis of evidences collected at time of assessment proceedings and material available on record. 4. He observed that assessee has filed return of income along with balance sheet and profit and loss account. Subsequently, assessee has filed another profit and loss account and Balance sheet during assessment proceedings. perusal of profit and loss account filed along with original return of income shows turnover of Rs.2,93,11,999/- from Vestas Wind Tech India Pvt. Ltd. has not been reflected in profit and loss account. This turnover is shown to extent of Rs.1,66,61,839/- in profit and loss account filed during course of assessment proceedings in response to query from his office on issue of revenue not being recognized by assessee and why bogus liability of Rs.6,02,16,726/- shown in name of Vestas Wind Tech India Pvt. Ltd. should not be treated as income. 4 ITA Nos.1734 & 1735/PN/2014 5. Since books of account on basis of which return of income was filed and its accompanying documents were found to be false because of non-disclosure of turnover of Rs.2,93,11,999/- from contracts in return of income filed u/s.139(1) and since assessee claimed substantial expenditure against turnover of Rs.10.53 crores shown in original profit and loss account as result of which net profit shown was very low and since assessee failed to substantiate claim of such huge expenditure AO rejected books of account and completed assessment in manner as laid down under section 144 of I.T. Act. 6. AO observed that assessee has shown sundry creditors at Rs.6,02,16,726/-. Since sundry creditors were substantial he decided to investigate this aspect. From details submitted by assessee on account of sundry creditors he observed that credit balance shown in name of Vestas Wind Tech India Pvt. Ltd. is Rs.1,51,97,117/- and credit balance shown in name of Vestas RRB Pvt. Ltd. Rs.5,96,516/-. AO obtained information u/s.133(6) from above 2 parties and noted that there is difference of Rs.3,02,50,842/- in account of Vestas Wind Tech India Pvt. Ltd. and amount of Rs.4,87,271/- in account of Vestas RRB Pvt. Ltd. He further noted from information received from Vestas Wind Tech India Pvt. Ltd. that total bills raised by assessee during period from 01-04-2006 to 31-03-2007 was Rs.10,39,52,580/- against which assessee has received payment of Rs.888,98,855/- and amount of Rs.1,50,53,725/- was receivable from Vestas Wind Tech India Pvt. Ltd. as on 31-03-2007. Therefore, AO held that income of Rs.10,39,52,580/- has accrued to assessee during A.Y. 2007-08 for contract works done by him for Vestas Wind Tech 5 ITA Nos.1734 & 1735/PN/2014 India Pvt. Ltd. since assessee is following mercantile system of accounting. However, assessee has disclosed turnover of Rs.7,46,40,581/- only in his return of income from Vestas Wind Tech India Pvt. Ltd.. Thus, assessee has suppressed turnover of Rs.2,93,11,599/-. Since concealed turnover is Rs.2,93,11,999/- and assessee has admitted only Rs.1,66,61,839/- in revised financial statements AO specifically asked question on this issue in statement recorded u/s.131 of I.T. Act on 19-12-2009 from assessee. Rejecting various explanations given by assessee in statement recorded u/s.131 AO made addition of Rs.2,93,11,999/- to total income being concealed turnover of assessee. 7. AO further noted that assessee in his revised profit and loss account filed during course of assessment proceedings has disclosed additional turnover of Rs.1,66,71,839/- and from said additional turnover assessee has claimed additional expenditure of Rs.1,53,94,839/-. Thus, assessee has admitted additional income of Rs.12,66,999/-. It was claimed that amount shown as credit balance (liability) in balance sheet has been recognized as income and amounts shown as advance in name of various persons have been claimed as additional expenditure. It was submitted that assessee has only reclassified balance sheet. 8. However, AO was not satisfied with explanation given by assessee and held same to be incorrect. He observed that assessee has introduced fresh creditors to tune of Rs.82,82,000/- in revised balance sheet details of which are as under : 6 ITA Nos.1734 & 1735/PN/2014 S.No. Name Original New balance Difference balance (Rs.) 1 Gatiman Earth Movers 600000 1200000 600000 2 Masai Multi Service 2518000 5037000 2519000 3 Sachin Constructions 1450000 2900000 1450000 4 Sanskruti Constructions 1450000 2900000 1450000 5 S.R. Patil 1218000 2436000 1218000 6 Yashoda Earth Movers 1245000 2490000 1245000 Total 84,82,000 9. According to AO assessee merely doubled credit balances shown in original balance sheet in order to claim bogus additional expenditure to tune of Rs.84,82,000/-. AO similarly observed that assessee could not prove additional expenditure of Rs.1,53,94,840/- by furnishing necessary evidences, details of which are as under : S.No. Name Amount 1 Gatiman Earth Movers 600000 2 Masai Multi Service 25,18,500 3 Sachin Constructions 14,50,000 4 Sanskruti Constructions 14,50,000 5 S.R. Patil 12,18,000 6 Yashoda Earth Movers 12,45,000 7 Mohanlal Devichand & 69,13,340 Sons Total 1,53,94,840 10. Similarly, assessee also could not justify genuineness of additional expenditure to tune of Rs.69,13,340/- towards construction expenditure in name of M/s. Mohanlal Devichand and Sons. AO issued summons u/s.131 to above party. In its reply, it was stated by M/s. Mohanlal Devichand and Sons that they did not have any transaction with Shri D.H. Pawar during A.Y. 2007-08. They have also confirmed that no amount was receivable from assessee as on 31-03-2007. Since despite giving repeated opportunities assessee did not appear before him, AO held 7 ITA Nos.1734 & 1735/PN/2014 that additional expenditure claimed from contract receipt of Rs.2,93,11,999/- is bogus. He, therefore, rejected additional expenditure claimed by assessee and brought to tax amount of Rs.2,93,11,999/- as income of assessee. 11. AO observed that assessee has claimed expenditure of Rs.8,54,14,403/- under head construction and incidental expenditure in original profit and loss account. During course of assessment proceedings AO asked assessee to prove genuineness of above expenditure. Since there was non- compliance from side of assessee and since assessee also failed to provide information as promised by him during course of recording of his statement u/s.131 AO proceeded to estimate gross profit from contract work at 12.5% of turnover. He accordingly calculated profit of Rs.1,31,66,619/- being profit @ 12.5% on turnover of Rs.10,53,32,956/-. He observed that assessee has disclosed net profit of Rs.54,96,900/- in original return. He accordingly disallowed expenditure of Rs.76,69,719/- out of total claim of Rs.8,54,14,403/-. AO similarly noted that assessee has claimed expenditure of Rs.1,07,27,000/- in name Shri Subham Electricals. In order to verify claim of assessee summon u/s.131 of Act was issued to Subham Electricals and his statement was recorded on 21- 12-2009. In sworn statement of Shri Mangesh Vitthal Wadekar, proprietor of Subham Electricals stated that during A.Y. 2007-08 he has done electrical works for Shri D.H. Pawar and raised bills of Rs.55,35,000/-. Therefore, AO concluded that assessee has claimed excess expenditure of Rs.51,92,000/-. He, therefore, made disallowance of Rs.51,82,000/- out of expenditure. Since 8 ITA Nos.1734 & 1735/PN/2014 assessee has not deducted any tax from payments made to above party AO made addition of Rs.55,35,000/- u/s.40(a)(ia). Thus, AO disallowed expenditure in name of Subham Electricals to tune of Rs.1,07,27,000/-. Similarly, in case of M/s. Mohanlal Devichand and Sons AO noted that assessee has claimed expenditure of Rs. 59 lakhs in name of above party in original return of income. In statement recorded u/s.131 M/s. Mohanlal Devichand and Sons had stated that they have not done any transaction with Shri Deepak H. Pawar during A.Y. 2007-08 and they have also confirmed that no amount is receivable from assessee. AO therefore disallowed claim of expenditure of Rs.59 lakhs in name of M/s. Mohanlal Devichand and Sons. 12. Similarly, for violation of provisions of section 40(a)(ia) AO made addition of Rs.31 lakhs in name of Gatiman Earth Movers, Rs.80,69,217/- in name of Masai Multi Services, Rs.26,05,000/- in name of Sachin Constructions and Rs.13 lakhs in case of Sanskruti Constructions. AO similarly made addition of Rs.1 lakh u/s.40A(3) on account of cash payment in excess of Rs.20,000/- to Gatiman Earth Movers and Pratik Bricks. AO further disallowed amount of Rs.2,100/- under head donations. Thus, he disallowed expenditure to tune of Rs.4,00,73,036/-. 13. AO analysed balance sheet and noted that assessee has shown other liabilities to tune of Rs.2,79,33,633/- and sundry creditors to tune of Rs.3,22,44,415/-. He examined genuineness of other liabilities/sundry creditors and noted that there are differences between figures shown by assessee and 9 ITA Nos.1734 & 1735/PN/2014 information collected u/s.133(6) in name of Vestas Wind Tech India Pvt. Ltd. (Rs. 9,38,843/-) and Vestas RRB Pvt. Ltd. (Rs.4,87,271/-), Shri D.K. Chopra (Rs. 1 lakh) Shri P.S. Power Infra India Pvt. Ltd. (Rs.35 lakhs). Therefore, AO made addition of Rs.50,26,114/- as bogus/non existing other liabilities. 14. AO further noted that assessee has shown sundry creditors at Rs.3,22,44,415/- out of which in most of cases opening balance and closing balances are same. He, therefore, inferred that sundry creditors to tune of Rs.3,22,44,415/- are not genuine and said liability is bogus liability which should be brought to tax since assessee could not furnish any evidence whatsoever to support claim of such liability. Since he has already brought to tax amount of Rs.69,13,340/- in case of M/s. Mohanlal Devichand and Sons which was claimed as additional expenditure, therefore, AO held that out of amount of Rs.84,75,000/- shown against M/s. Mohanlal Devichand and Sons credit should be given to this extent otherwise it would lead to double addition. He, therefore, brought to tax only amount of Rs.15,16,660/- in case of M/s. Mohanlal Devichand and Sons. Accordingly, out of total liability of Rs.3,22,44,415/- AO made addition of Rs.2,53,31,075/- as bogus/non existing sundry creditors. 15. AO further noted that assessee in its computation of total income has claimed deduction of Rs.15,60,970/- u/s.80IA on account of its windmill project. Since assessee has not set off notional carry forward of unabsorbed depreciation as per section 80IA(5) of Act, AO, following his stand in A.Y. 2005-06 and 2006-07 set off brought forward unabsorbed depreciation against 10 ITA Nos.1734 & 1735/PN/2014 income from windmill for A.Y. 2007-08. He observed that in A.Y. 2006-07 brought forward unabsorbed depreciation available for set off was Rs.57,09,097/-. From said brought forward depreciation income from windmill for A.Y. 2006-07 amounting to Rs.15,15,878/- was set off, leaving balance unabsorbed depreciation to be carried forward to subsequent years at Rs.41,50,219/-. income from windmill declared by assessee for A.Y. 2007-08 is Rs.15,60,970/- which he set off against brought forward unabsorbed depreciation of Rs.41,50,219/- and thereby rejected claim of deduction u/s.80IA. Thus, AO completed assessment on total income of Rs.10,67,03,361/- as against returned income of Rs.54,00,167/-. 16. Before CIT(A) assessee filed revised set of financial accounts as additional evidence under Rule 46A of Income Tax Rules. It was requested for admission of same as additional evidence. It was argued that though assessee had got his accounts audited u/s.44AB counsel who represented assessee before AO during assessment proceedings did not present matter properly leading to unreconciled differences which led AO to reject books. It was further argued that though AO had passed assessment order u/s.143(3), however, same was infact completed in manner provided in section 144. assessee argued that assessee s case was clearly covered by situations envisaged in clause (b), clause (c) and clause (d) of Rule 46A justifying admission of additional evidence. 11 ITA Nos.1734 & 1735/PN/2014 17. Ld.CIT(A) forwarded additional evidence filed before him to AO for his comments. AO in his report opposed admission of additional evidences on ground that assessee failed to substantiate existence of any deserving circumstance for same. After confronting same to assessee and considering rejoinder given by assessee to comments of AO Ld.CIT(A) rejected request of assessee for admission of additional evidences. 18. So far as merit of case is concerned Ld.CIT(A) upheld action of AO in bringing to tax undisclosed turnover of Rs.2,93,11,999/-. So far as disallowance of expenses/additions made by AO is concerned Ld.CIT(A) applying net profit percentage of 12.5% on undisclosed turnover of Rs.2,93,11,999/- which resulted in addition of net profit amounting to Rs.36,64,000/-. So far as disallowance u/s.40(a)(ia) is concerned Ld.CIT(A) relying on various decisions confirmed addition of Rs.2,12,09,217/-. Similarly, he also confirmed disallowance made by AO of Rs.1 lakh under provisions of section 40A(3). action of AO in bringing to tax addition of Rs.76,69,719/- on disclosed turnover by estimating profit at 12.5% was also upheld by CIT(A). 19. So far as disallowance of various liabilities by AO holding same as non existence in name of different parties are concerned Ld.CIT(A) deleted addition on account of Vestas Wind Tech India Pvt. Ltd. Rs.9,38,843/- and Vestas RRB Pvt. Ltd. Rs.4,87,271/- and sustained balance amount of Rs. 2,89,31,075/-. So far as disallowance u/s.80IA at Rs.15,16,790/- 12 ITA Nos.1734 & 1735/PN/2014 is concerned Ld.CIT(A) upheld action of AO in denying deduction u/s.80IA. 20. Aggrieved with such order of CIT(A) assessee is in appeal before us with following grounds : Ground No 1: On facts and in circumstances of case CIT(A) has erred in not admitting additional evidence filed in course of assessment proceedings overlooking legal proposition that these additional evidences only and clearly reveal correct assessable income and particularly being admissible in light of Rule 46A of Income Tax Rules. Ground No 2: On facts and in circumstances of case CIT (A) has erred in sustaining addition of Rs. 2,93,11,999/- on ground of undisclosed contract receipts while at same time making addition of Rs.36,64,000/- by estimating net profit @ 12.5% on said contract receipts. Ground No 3 : On facts and in circumstances of case CIT (A) has erred in estimating net profit of Rs. 36,64,000/- on alleged unaccounted contract receipt of Rs. 2,93,11,999/- and has also further erred in sustaining similar estimation made by Assessing Officer at Rs. 76,69,719/-. Ground No 4: On facts and in circumstances of case CIT(A) has erred in sustaining disallowance of Rs. 2,12,09,217/- u/s. 40(a)(ia) of Income Tax Act, 1961. Ground No 5: On facts and in circumstances of case CIT (A) has erred in sustaining disallowance of Rs. 1,00,000/- u/s. 40A(3)of Income Tax Act, 1961. Ground No 6: On facts and in circumstances of case CIT(A) has erred in sustaining addition sundry creditors and other liabilities of Rs 2,89,31,075/- above grounds of appeal may kindly be allowed to be amended, altered, modified etc., in interest of natural justice. 13 ITA Nos.1734 & 1735/PN/2014 21. assessee has also filed following additional grounds : Additional Ground No.1: On facts and in circumstances of case order passed by Assessing Officer is bad in law and invalid on jurisdictional ground that despite appellant's jurisdiction lying with Additional Commissioner of Income Tax, Satara Range, Satara most of Scrutiny Assessment Proceedings were conducted and completed at Pune. Additional Ground No.2: On facts and in circumstances of case and without prejudice to above Additional Ground No. 1 order passed by Assessing Officer is bad in law and invalid on following grounds: - i. Requiring to attend at Pune for assessment proceedings; ii. Obtaining appellant's ledger extracts from books of his customers and without providing same to appellant for reconciling difference; iii. Recording statements of several suppliers by Assessing Officer namely Mr. J. Y. Chavan, ITO Ward 2, Satara, which is impressible in law. iv. Recording statements of above several suppliers at back of appellant and making addition without providing copies of those statements and allowing cross examination; v. Allowing inadequate opportunity to furnish required details. 22. Ld. Counsel for assessee at outset relying on decision of Hon ble Supreme Court in case of NTPC Ltd. reported in 229 ITR 383, Jute Corporation of India Ltd. reported in 187 ITR 688 and decision of Hon ble Bombay High Court in case of Ahmedabad Electricity Company reported in 199 ITR 351 submitted that above grounds are purely legal grounds and full facts are available on record, and no fresh facts are necessary for verification, therefore, therefore these additional grounds should be admitted for adjudication. 14 ITA Nos.1734 & 1735/PN/2014 23. After hearing both sides and considering fact that additional grounds are purely legal in nature above grounds are admitted for adjudication. 24. Ld. Counsel for assessee while arguing additional ground Nos. 1 & 2 submitted that assessment order should be held as bad in law and invalid since Additional Commissioner of Income Tax, Pune who was holding charge of Satara Circle has conducted and completed assessment proceedings at Pune. Since assessee, instead of attending at Satara office of Income Tax Office, had to attend at Pune office for assessment proceedings, therefore, it has caused undue harassment to assessee. Therefore, AO who had no jurisdiction to assess assessee of Satara by sitting at Pune, order should be held as null and void on issue of jurisdiction. 25. He submitted that AO has obtained assessee s ledger extracts from books of his customers without providing same to assessee for reconciling difference and thereby making huge additions which is uncalled for and legally not tenable. Similarly, AO has recorded statements of various suppliers through ITO, Ward(2) of Satara which is impermissible. Further, those statements were never provided to assessee nor any opportunity to cross examination was granted to assessee. He submitted that inadequate opportunities were granted to assessee to furnish requisite details. He accordingly submitted that in view of additional grounds 1 and 2 entire assessment proceedings should be held as null and void. 15 ITA Nos.1734 & 1735/PN/2014 26. Ld. Counsel for assessee submitted that AO obtained assessee s ledger accounts from Vestas Wind Tech Pvt. Ltd. on 16-12-2009 and found difference in contract receipt of Rs.2,93,11,999/-. above ledger extract was not provided to assessee for reconciliation. Although assessee filed reconciliation statement before CIT(A) with copies of contract bills raised, cheques received, bank statements, bill-wise details of short credit etc., however, same was not admitted by Ld.CIT(A) and he estimated net profit of Rs.36,64,000/- by estimating profit at 12.5% of this undisclosed contract receipt. He submitted that since assessee has properly reconciled difference no separate addition on account of estimated gross profit should have been made. 27. So far as estimation of net profit at Rs.36,64,000/- by CIT(A) is concerned he submitted that assessee has shown net profit of 6.74% in original profit and loss account and 10.37% in revised profit and loss account. However, Ld.CIT(A) without considering reasonable percentage of net profit sustained addition of Rs.36,64,000/- by estimating profit at 12.5% of undisclosed receipt of Rs.2.93 crores. He submitted that when AO has already estimated net profit at Rs. 76,69,7219/- CIT(A) should not have sustained profit of Rs.76,69,179/-. In any case he submitted that following provisions of section 44AD different Benches of Tribunal are consistently estimating profit @8% of contract receipt. Therefore, profit at best can be estimated @8% of total turnover. 16 ITA Nos.1734 & 1735/PN/2014 28. So far as disallowance of Rs.2,12,09,217/- u/s.40(a)(ia) is concerned he submitted that there are 5 parties to whom payments have been made and which are disallowed u/s.40(a)(ia) of I.T. Act. Referring to pages 81 to 84 of paper book he submitted that payment of Rs.80,69,217/- has been made to Masai Multi Services towards purchase of materials, therefore, provisions of section 40(a)(ia) are not applicable for purchases of materials from said party. 29. As regards payment to 4 other parties are concerned he submitted that above parties have offered entire amount in their respective returns of income. Relying on amendment to section 40(a)(ia) by Finance Act, 2012 w.e.f. 02-04-2013 he submitted that disallowance u/s.40(a)(ia) of Act need not be made if assessee is not deemed to be assessee in default under first proviso to section 201(1). Referring to decision of Pune Bench of Tribunal in case of ITO Vs. Gaurimal Mahajan and Sons vide ITA No.1852/PN/2012 order dated 06-01-2014 for A.Y. 2008-09 he submitted that Tribunal after considering various decisions restored issue to file of AO with direction to examine contention of assessee that payees have filed their return disclosing amount received. He accordingly submitted that issue may be restored to file of AO with direction to verify as to whether payees have disclosed such receipts and paid tax on that and if so to delete disallowance. 30. Ld. Counsel for assessee further submitted that all payments have been actually made and nothing is payable at end of year. Therefore, in view of decision of Hon ble Allahabad 17 ITA Nos.1734 & 1735/PN/2014 High Court in case of Vector Shipping Company reported in 262 ITR 545 no disallowance u/s.40(a)(ia) is called for. 31. So far as disallowance u/s.40A(3) is concerned he submitted that no payment exceeding Rs.20,000/- in each case has been made to Gatiman Earth Movers, therefore, addition of Rs.2 lakhs u/s.40A(3) on account of payment to Gatiman Earth Movers is uncalled for. As regards disallowance of Rs.3 lakhs paid to Pratik Bricks is concerned he submitted that neither any amount has been paid to above party in violation of section 40A(3) nor assessee was confronted on this issue. He submitted that it is wrong entry and therefore no disallowance is called for. 32. As regards addition on account of liability of Rs.2,89,31,075/- is concerned he submitted that AO had disallowed sundry creditors of Rs.2,53,31,075/-. AO had further added unsecured loan of Rs.1 lakhs from D.K. Chopra and Rs.35 lakhs from Power Infra Pvt. Ltd. So far as sundry creditors of Rs.2,53,31,075/- is concerned he submitted that when these are opening balances which were carried forwarded this should not have been added in impugned assessment year. So far as cash credit of Rs.1 lakhs taken from Shri D.K. Chopra is concerned he submitted that same is received vide crossed cheque. His confirmation, PAN as well as ledger extract of said person was also given to CIT(A). However, same was not admitted. 33. So far as credit of Rs.35 lakhs from Power Infra Pvt. Ltd. is concerned he submitted that same was also received by crossed cheque drawn on UTI Bank. bank account and ledger account clearly show that amount was received by Shri D.H. Pawar by 18 ITA Nos.1734 & 1735/PN/2014 Cheque No.11817 dated 20-03-2007. Therefore, no addition is called for. He accordingly submitted that various additions made by AO and sustained by CIT(A) is uncalled for. Therefore, additions should be deleted and grounds raised by assessee should be allowed. 34. Ld. Departmental Representative on other hand strongly supported order of CIT(A). So far as additional grounds are concerned he submitted that it is not legal ground. Addl.CIT of Pune was holding additional charge of Satara and he was having valid jurisdiction over assessee. If assessee was harassed due to appearance before AO at Pune he could have filed grievance petition before concerned CIT or CCIT. Since assessee has participated in assessment proceedings without bringing to notice of higher authorities about his difficulties now he cannot challenge validity of jurisdiction. He cannot have any grievance. Therefore, additional ground raised by assessee on issue of jurisdiction should be dismissed. 35. So far as statements recorded from different persons through ITO, Ward-2 of Satara is concerned he submitted that ITO was given necessary permission to record statements of various suppliers. AO having jurisdiction over assessee had issued commission to officer of department for conducting local enquiry and there is nothing wrong in it. 36. So far as non supply of statements recorded and ledger extracts obtained from different parties are concerned he submitted that assessee was non-cooperative during course of assessment proceedings. When he was not participating properly he 19 ITA Nos.1734 & 1735/PN/2014 cannot say that he was not provided such statements or ledger extracts. 37. So far as merit of case is concerned he submitted that assessee has got his accounts audited. Subsequently during assessment proceedings he filed revised profit and loss account. He was unable to give proper reply as to why there were such huge differences in original and recasted profit and loss account and balance sheet. When he was caught for suppression of contract receipts, assessee filed revised profit and loss account showing some additional contract receipt and thereby debiting various expenses. Once assessee has accounted for expenditure in original profit and loss account there is no question of incurring any further expenditure. 38. So far as disallowance u/s.40(a)(ia) and 40A(3) are concerned he submitted that Ld.CIT(A) has given justifiable reasons for enhancing income on that account. He submitted that Ld.CIT(A) has given valid reasons while sustaining various additions. He accordingly submitted that order of CIT(A) be upheld. 39. We have considered rival arguments made by both sides, perused orders of AO and CIT(A) and paper book filed on behalf of assessee. We have also considered various decisions cited before us. We find assessee in instant case is individual and is engaged in business of civil construction work and power generation. assessee has filed return of income disclosing turnover of Rs.10,53,32,950/-. During course of assessment proceedings assessee filed revised profit and loss account admitting additional receipt from contract work at 20 ITA Nos.1734 & 1735/PN/2014 Rs.1,66,61,839/- and claiming additional expenditure of Rs.1.53 crores. There was complete non compliance by assessee during course of assessment proceedings for which AO had to complete assessment on basis of material available before him and enquiries conducted by him during such assessment proceedings. On basis of various discrepancies noticed and violation of provisions of section 40(a)(ia) 40A(3) etc and in view of discrepancies in amounts shown under head sundry creditors etc. AO completed assessment determining total income at Rs.10,67,03,361/-. We find assessee before CIT(A) filed revised set of financial accounts as additional evidence under Rule 46A of Income Tax Rules. Ld.CIT(A) after obtaining report from AO rejected revised set of financial accounts as additional evidence under Rule 46A of Act. 40. So far as merit of case is concerned Ld.CIT(A) almost confirmed various additions made by AO apart from disallowance u/s.40A(3), 40(a)(ia) etc. 41. It is submission of Ld. Counsel for assessee that various additions made by AO and upheld by CIT(A) are uncalled for since assessee has filed revised set of financial accounts before Ld.CIT(A) which contained each and every item duly reconciled and there was no scope for any addition. However, Ld.CIT(A) rejected additional evidence. Further, various ledger extracts obtained and statements recorded from various parties were not confronted to assessee. AO sitting at Pune has called assessee from Satara to appear before him at Pune Office and therefore there was undue hardship caused to 21 ITA Nos.1734 & 1735/PN/2014 assessee. 42. So far as additional ground relating to validity of jurisdiction is concerned, we do not find any merit in arguments advanced by Ld. Counsel for assessee. Admittedly, AO who was sitting at Pune was also holding charge of Satara Range, Satara. assessee is assessed at Satara. Addl. Commissioner has issued all notices to assessee from Satara office. However, he has asked assessee to appear before him at his regular office at Pune. If assessee had any grievance he could have approached concerned CIT or CCIT explaining his inability to appear at Pune Office on account of hardship. However, assessee instead of making any such complain to higher authorities had appeared before Addl.CIT at Pune who was holding charge of Satara Range. Now that huge additions have been made assessee cannot say that he was harassed because of his appearance at Pune Income Tax Office instead of appearing at Satara Office. We fail to understand as to what type of other evidences assessee could have produced at Sarata office before same AO which he could not furnish at Pune office. This ground raised by assessee at this juncture according to us is nothing but frivolous ground having no force in it. We therefore dismiss additional ground challenging validity of jurisdiction. 43. So far as ground relating to non supply of various statements recorded at back of assessee which were not confronted to him is concerned, we also do not find much force in above contention of Ld. Counsel for assessee. It is assessee who should have appeared before AO during course 22 ITA Nos.1734 & 1735/PN/2014 of assessment proceedings and should have complied with all statutory notices. However, assessee had scant regards for statutory notices issued by AO from time to time. If assessee does not appear before AO he cannot expect AO to confront evidences which he had gathered during course of assessment proceedings. No doubt it is principle of natural justice that any evidence which has been collected at back of assessee and which is utilized against assessee should be confronted to assessee before making any such addition. However, in instant case we find since assessee did not appear before AO despite repeated opportunities, there was no occasion on part of AO to confront these statements recorded or ledger extracts obtained from various parties. Therefore, ground raised by assessee on this issue is also dismissed. 44. So far as grievance of assessee that statements of several suppliers were recorded by AO Shri J.Y. Chauhan, ITO, Ward-2 of Satara office which is impermissible in law is concerned, we also do not find any merit in above ground raised by assessee in shape of additional ground. officer sitting at place can always take help of another officer by issuing necessary commission to record statements of various persons who are assessed under his charge. Here, in instant case, Additional Commissioner sitting at Pune has taken help of AO Shri J.Y. Chauhan, ITO, Ward-2, Satara to record statements of various persons of Satara only. This according to us cannot be held as impermissible in law. Ground raised by assessee therefore being devoid of any merit is dismissed. 23 ITA Nos.1734 & 1735/PN/2014 45. So far as ground relating to non admission of additional evidences filed during course of appeal proceedings is concerned, i.e. revised statements of financial accounts produced before CIT(A) we find Ld.CIT(A) has validly rejected such revised financial statements. Admittedly, accounts were audited by auditors and audit report was filed along with return of income and such audit report was also duly signed by assessee himself. Therefore, we fail to understand as to how and why accounts could be re-audited by another Chartered Accountant or same Auditor by recasting accounts. We fail to understand as to how such thing has happened since there is suppression of huge turnover as well as non recording of huge amount of expenses which have now been shown in revised financial statements which is not only unbelievable but also unimaginable. 46. However, we find some force in argument of Ld. Counsel for assessee that so far as disallowance u/s.40(a)(ia) is concerned various Benches of Tribunal following insertion of second proviso to section 40(a)(ia) by Finance Act, 2013 w.e.f. 01-04-2013 are holding that disallowance u/s.40(a)(ia) of Act need not be made if assessee is not deemed to be assessee in default under first proviso to section 201(1) of I.T. Act. Therefore, if payees have disclosed amount received from assessee and paid tax thereon, addition cannot be made in hands of assessee. However, this aspect has not been verified by AO since this issue is being raised before us for first time. 24 ITA Nos.1734 & 1735/PN/2014 47. assessee has also demonstrated that provisions of section 40A(3) is not called for in case of Gatiman Earth Movers since no amount exceeding Rs.20,000/- has been paid to that party. Similarly certain amounts have been received by crossed cheques with their confirmations. It is also submission of Ld. Counsel for assessee that given opportunity assessee can properly reconcile contract receipts and sundry creditors. Considering totality of facts of case, we are of considered opinion that matter requires re-visit to file of AO for proper adjudication of issue. We, therefore, restore issue to file of AO with direction to give one more opportunity to assessee to substantiate his case. AO shall also provide copies of various statements recorded and ledger extracts obtained of different parties for reconciliation of contract receipts as well as sundry creditors. AO shall decide issue afresh and in accordance with law after giving due opportunity of being heard to assessee. We hold and direct accordingly. Grounds raised by assessee are accordingly decided in terms indicated above. ITA No.1735/PN/2014 (Shri Kuldeep Deepak pawar) : 48. Revised grounds of appeal and Additional grounds raised by assessee are as under : Additional Ground No.1: - On facts and in circumstances of case order passed by Assessing Officer is bad in law and invalid on jurisdictional ground that despite appellant's jurisdiction lying with Additional Commissioner of Income Tax, Satara Range, Satara most of Scrutiny Assessment Proceedings were conducted and completed at Pune. Additional Ground No.2: - 25 ITA Nos.1734 & 1735/PN/2014 On facts and in circumstances of case and without prejudice to above additional Ground No.1the order passed by Assessing Officer is bad in law and invalid on following grounds:- i. Requiring to attend at Pune for assessment proceedings; ii. Obtaining appellant's ledger extracts from books of his customers and without providing same to appellant for reconciling difference; iii. Recording statements of several suppliers by Assessing Officer namely Mr. J.Y. Chavan, ITO Ward 2, Satara, which is impressible in law. iv. Recording statements of above several suppliers at back of appellant and making addition without providing copies of those statements and allowing cross examination; v. Allowing inadequate opportunity to furnish required details. Other Grounds: - Ground No 1: - On facts and ill circumstances of case CIT (A) has erred in not admitting additional evidence filed in course of assessment proceedings overlooking legal proposition that these additional evidences only and clearly reveal correct assessable income and particularly being admissible in light of Rule 46A of Income Tax Rules. Ground No 2: - On facts and in circumstances of case CIT (A) has erred in estimating net profit of Rs. 1,53,04,169/- @ 12.5% of unaccounted contract receipts of Rs. 12,24,33,359/- and at same time sustaining similar estimation of net profit made by Assessing Officer at Rs.15,92,056/- and further erred ill sustaining addition of Rs.12,24,33,359/- for unaccounted contract receipts. Ground No 3: - On facts and in circumstances of case CIT (A) has erred in sustaining disallowance made u/s 40(a)(ia) of Rs. 1,20,06,000/- with further enhancement of Rs. 1,00,20,800/- relying on corrected final accounts produced as additional evidence despite rejecting to admit said additional evidence. Ground No 4: - On facts and ill circumstances of case CIT (4)has erred in sustaining addition of Rs. 3,90,862/- with further enhancement of Rs.20,49,268/-u/s.40(a)(ia) and again relying on corrected final 26 ITA Nos.1734 & 1735/PN/2014 accounts produced as additional evidence despite rejecting to admit said additional evidence. Ground No 5: - On facts and in circumstances of case C1T (A) has erred in sustaining addition of Rs.96,78,970/- by rejecting claim of exemption of gain arose on sale of rural agricultural lands not falling in definition of capital assets within meaning of Sec. 2(14)(iii)(b) of Income Tax Act, 1961 and erroneously relying on corrected final accounts produced as additional evidence despite rejecting to admit said additional evidence. above grounds of appeal may kindly be allowed to be amended, altered, modified etc., in interest of natural justice. 49. After hearing both sides, we find additional grounds of appeal No.1 and 2 and other grounds 1,2, 3 & 4 by assessee are identical to grounds in ITA No.1734/PN/2014. We have already decided issue and restored matter to file of AO with certain directions. We have also dismissed some of additional grounds raised by assessee. Following same reasoning, above grounds are decided accordingly. 50. So far as grounds of appeal No.5 is concerned, this is new ground. Facts of case, in brief, are that AO during course of assessment proceedings observed that assessee during impugned assessment year has carried out land business. He has acted as mediator between windmill companies and land owners. difference between amount received by assessee from windmill company and amount paid to land owner is profit of assessee. However, assessee did not recognize profit for such land deals. AO, therefore, confronted same to assessee. In response to same assessee filed computation of profit from sale of land according to which sale consideration was shown at Rs.39,18,500/- and purchase cost was 27 ITA Nos.1734 & 1735/PN/2014 Rs.28,04,750/-. AO, therefore, treated difference of Rs.11,13,750/- as profit earned by assessee from unaccounted income from land business. 51. Before CIT(A) assessee challenged above addition made by AO on ground that all lands in question are rural agricultural lands and thus do not fall within definition of capital assets and therefore there was no cause for any addition. However, assessee during course of appeal before CIT(A) had submitted corrected books of account according to which profit on sale of land was shown at Rs.96,76,970/-. After making adjustment of compensation expenses amounting to Rs.23,81,325/- debited to this account correct gain arising on sale of agricultural land was shown at Rs.1,20,60,295/-. 52. However, CIT(A) also did not accept contention of assessee that gain has arisen on sale of rural agricultural land and therefore is not taxable. He observed that what assessee has essentially done was to facilitate acquisition of land by windmill companies for setting up windmill firms by purchasing lands from local land owners himself and selling it to companies due to curbs imposed by State Govt. with regard to sale of agricultural land. act of assessee in claiming compensation expenses of Rs.23,81,325/- and claiming same as business receipt itself shows that activity was being carried out as adventure in nature of trade. He therefore held that assessee s claim that land in question was agricultural land and not covered by provisions of section 2(14) is not germane to issue in question. Rejecting various explanations given by assessee Ld.CIT(A) 28 ITA Nos.1734 & 1735/PN/2014 enhanced income from land business to Rs.96,78,970/- as against Rs.11,13,750/- determined by AO. 53. Ld. Counsel for assessee strongly opposed order of CIT(A) on this issue. He submitted that although assessee is Civil Contractor, however, lands were purchased for himself being agriculturist and that too as investments. Further when CIT(A) has not accepted revised financial statements as additional evidence he should not have made addition of Rs.96,79,970/- on basis of corrected final accounts. He should have taken recourse to additional evidence which was rejected by him. He submitted that income from agricultural activity is exempt. Since assessee has filed necessary documents along with 7/12 extracts etc. of agricultural lands, certificate of Gram Panchayat for population and distance from nearest municipality and had demonstrated that these are rural agricultural lands and do not form part of capital asset within meaning of section 2(14)(iii)(b) of I.T. Act. Relying on following decisions he submitted that these transactions cannot constitute transaction entered in course of any business activity or in no way it is adventure in nature of trade : a. Barendra Prasad Ray reported in 129 ITR 295 (SC) b. Lala Indra Sen reported in 8 ITR 187 (Allahabad High Court) c. Kaur Singh reported in 144 ITR 756 (Punjab & Haryana High Court) d. Venkatasubbiah Reddiar reported in 221 ITR 18 (Madras High Court He accordingly submitted that necessary relief should be granted to assessee. 54. Ld. Departmental Representative on other hand heavily relied on order of CIT(A) on this issue. He submitted that 29 ITA Nos.1734 & 1735/PN/2014 when assessee is purchasing and selling land and has even claimed certain expenses in recasted/revised financial statements, this itself shows that assessee is in land business. Therefore, order of CIT(A) should be upheld. 55. We have considered rival arguments made by both sides, perused orders of AO and CIT(A) and paper book filed on behalf of assessee. We find AO in assessment order has made addition of Rs.11,13,750/- to total income of assessee on account of unaccounted income from land business. He arrived at this figure by reducing cost of land from sale proceeds. We find assessee before Ld.CIT(A) in his recasted financial statements had shown profit on sale of land at Rs.96,78,970/- after making adjustment of compensation expenses amounting to Rs.23,81,325/-. Since assessee has earned profit of Rs.96,78,970/- from such land dealings Ld.CIT(A) enhanced income to Rs.96,78,970/- as against Rs.11,13,750/- determined by AO. 56. It is submission of Ld. Counsel for assessee that lands in question are agricultural lands situated beyond 8 kms from municipal limits and therefore these are rural agricultural lands and do not form part of capital asset within meaning of section 2(14)(iii)(b) of I.T. Act. 57. However, this aspect was not properly looked into by AO or CIT(A) as necessary evidences which assessee has enclosed with paper book such as 7/12 extracts etc were not properly looked into. Further, main issues have already been restored to file of AO for adjudication of issues afresh. 30 ITA Nos.1734 & 1735/PN/2014 Considering totality of facts of case, we deem it proper to restore this ground to file of AO with direction to adjudicate same in light of our above observations and as per fact and law. Ground of appeal No.5 by assessee is accordingly allowed for statistical purposes. 58. In result, both appeals filed by respective assessees are partly allowed for statistical purposes. Order pronounced in open court on 30-09-2016. Sd/- Sd/- (VIKAS AWASTHY) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER Pune; " Dated : 30th September, 2016. Copy of Order forwarded to : 1. Appellant 2. Respondent 3. CIT(A)-III, Pune 4. CIT-III, Pune 5. DR, ITAT, B Pune; 5. Guard file. BY ORDER, // True Copy // // //True ( Sr. Private Secretary (ITAT, Pune Deepak Hanmant Pawar v. Addl. CIT, Satara Range, Satara
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