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,
INCOME TAX APPELLATE TRIBUNAL,MUMBAI - A BENCH
, ,
Before S/Sh. I P Bansal,Judicial Member & Rajendra,Accountant Member
/.ITA No.3580/Mum/2014, /Assessment Year-2007-08
M/s Jayant K. Furnishers, ACIT-16(2),
Jyoti Studio Compound, Nana Mumbai.
Vs
Chowk, Grant Road,
Mumbai-400078
.../PAN:AADFJ6246G
( /Assessee) ( / Respondent)
/Assessee by : Shri Vimal Punmiya
/ Revenue by : Ms. S. Padmaja
/ Date of Hearing :07 - 04 -2015
/ Date of Pronouncement : 30 -04-2015
, 1961 254(1)
Order u/s.254(1)of the Inco me-tax Act,1961(Act)
Per Rajendra,AM.:
Challenging the order dt.27.03.2014 of the CIT(A)-27,Mumbai,Assessee has raised following
Grounds of Appeal:
Ground No.1
On the facts and circumstances of the case and law, the CIT(A) erred in confirming the
assessment passed by the Ld. Assessing Officer u/s 143(3) r.w.s. 153C of the Income Tax
Act,1961 dated 31.12.2010 is void-ab-initio and bad-in-law.
Ground No.2
On the facts and circumstances of the case and law, the CIT(A) erred in confirming the
contention of Ld. Assessing Officer in addition of Rs. 2,48,03,984/- on account of alleged
unaccounted cash receipts to the income of the assessee for the relevant Assessment Year.
GROUND NO: 3
On the facts and circumstances of the case and law, the CIT(A) erred in confirming the
contention of the Ld. Assessing Officer in addition of Rs. 1,23,64,632/ -(net) to the income of the
Assessee by rejecting the project completion method of accounting regularly followed by the
Assessee.
GROUND NO: 4
Without prejudice to Ground No. 3, Alternatively On the facts and circumstances of the case and
law, the CIT(A) erred in confirming the contention of the Ld. Assessing Officer in not allowing
deduction of the total expenditure, on account of the contract of Mr. Suresh Nanda (Sonali
Farm), which was accounted in A.Y. 2008-09 while bringing to taxable income from the said
contract in the A.Y. 2007-08.
GROUND NO: 5
The Ld. Assessing Officer erred in charging interest u/s 2348 and 234C of the IT Act.
GROUND NO: 6
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The Ld. Assessing Officer erred in charging interest u/s 271(1)(c) of the income tax act.
GROUND NO: 7
The assessee craves leave to add further grounds or to amend or alter the existing grounds of
appeal.
2.Assessee-firm engaged in executing works contract of interior decoration filed its return of
income on 29/10/2007 declaring total income of Rs.1.47 crores.Assessment u/s. 143(3) r.w.s.
153C was completed on 31.12.2010 determining the income of the assessee at Rs.5.19 crores.
An action u/s. 132 of the Act was initiated in case of Suresh Nanda on 27/2/2007, at Delhi.In his
case assessment order was passed u/s. 153(3) r.w.s. 153A on 30.12.2009. Certain documents
were recovered from Suresh Nanda that pertained to the assessee firm. The AO of the assessee
received a communication from Delhi-AO to initiate proceeding u/s. 153C of the Act. The AO at
Mumbai issued notice to the assessee for the AYs 2002-03 to 2007-08. The assessee challenged
the action of the AO contending that due satisfaction was not recorded by Delhi-AO.However,
AO of the assessee held that documents belonging to it were seized from Suresh Nanda and that
it was a fit case to frame the assessment. On the basis of the documents received by him the AO
held that the assessee had received 2/3rd of this contract amount in cash ,that only 1/3rd of the
receipt are received in cheque.He made an addition of Rs.2.48 crores on account of unaccounted
cash receipts from Sonali Farm Project (SFP).He further held that SFP had completed in AY.
2007-08 and hence the receipts had to be brought to tax in that year notwithstanding the fact that
the final bill was raised by the assessee in April 2007. The AO rejected the assessee's book
results and held that opening work in progress (WIP), as on 1/4/2007, had to be reduced by a
sum of Rs.1.24 crores
Aggrieved by the order of AO the assessee preferred an order before First Appellate Authority
(FAA).Before him,the assessee raised specific grounds about initiation of section 153 proceeding
beyond time limit. After considering the submission of the assessee and the assessment order the
FAA uphled the order of the AO.
3.First ground of appeal is about initiation of proceedings u/s. 153C of the Act. As per the
assessee,the order passed by the AO on 31.12.2010 was void-ab-initio and bad in law.It was
contended that search in the case of Suresh Nanda had taken place on 28.2.2007 and the time
limit for passing order was 21 months from the end of the Financial Year in which last search
authorization was given.It was also argued that that time limit for preparation for satisfaction
note available to the Delhi-AO was up to 31.12.2009, whereas he had prepared the satisfaction
note on 14.1.2010.According to the assessee there was delay of 14 days in preparation of
satisfaction note and therefore the assessment order passed u/s. 153 C was bad in law. As stated
earlier,the FAA decided the jurisdictional issue,along with the other issues,against the assessee .
4.Before us,Authorised Representative (AR) made the same submissions that were the part of the
arguments advanced during appellate proceedings. Departmental representative (DR) argued that
recording of satisfaction even after completion of 153A assessment was not fatal. She referred to
the judgment of Calcutta Knitwers,delivered by the Hon'blel Supreme Court (43 taxmann.com
446).It was argued that section 158 and section 153 were more or less same. She also relied upon
the case of Sudhir Dhingra of Delhi High Court (55 taxmann .com 231).
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5.We have heard the rival submissions and perused the material before us. We find that search
and seizure operation was carried out in the case of Suresh Nanda on 28.2.2000, that the last
authorisation was issued on 24.2.2007,that the assessment u/s. 153A was passed on 31.12.2009,
that the Delhi-AO prepared the satisfaction note on 14.12.2010. Clearly the satisfaction note was
prepared after the assessment of Suresh Nanda.In our opinion,if satisfaction note is recorded
even after the assessment proceedings are over but within a reasonable time, the assessment,
would not be held to be void-ab-initio.In the case of Sudhir Dhingra (supra),there was a delay of
five months in issuing a notice u/s. 158BD. The Hon'ble Delhi High Court held that the delay
was not unreasonable and upheld the action of the AO.Respectfully,following the above two
judgments we decide ground No.1 against the assessee.
6.Ground No.2 and 3 are inter-related, whereas Ground No.4 is an alternative ground.During the
course of search proceedings at the residential premises of Suresh Nanda a Fund Flow Statement
(FFS) was found and seized.The FFS gave details of payments made till 22.12.2005. As per the
statement an amount of Rs.3.72 crores was paid to the assessee till that date.The AO found that
the assessee in its ledger showed a receipt of Rs.1.24 crores only. The AO further found that the
search team had concluded that there were two sets of bill prepared by the assessee, that one set
of bill represented the actual amount and that the other represented only 1/3rd of the actual bill
amount that was paid in cheque.He held that difference in two bills was settled and paid in cash.
Accordingly,he treated Rs.2.48 crores(Rs.3.72 cr.(-)Rs.1.25 cr.) as unaccounted cash receipts.
He further held that the assessee had charged,in the final bill,rates that were much below the
rates mentioned in the running account bills(RAB).He concluded that the rates charged were
only half the rates.Therefore, he estimated that the bill amount was Rs.4.95 crores (Rs.2.47 cr. X
2) and concluded that the assessee had understated its income for the year under consideration.
The AO further mentioned that the income received in cash to the tune of Rs. 2.47 crores was
already considered and, therefore, under invoicing of the sale bill would have nominal impact on
the taxable income of the assessee.The AO was of the opinion that there was a huge time gap
between the last RABs and the final bill. He concluded that the project was over in the AY 2008-
09 and the income had to be assessed in that year only.He reduced the amount of opening WIP.
7.Before the FAA,the assessee argued that FFS, seized from Suresh Nanda,was not related to it,
that FFS was only an estimate,that the work was completed in AY 2006-07, that the final bill
was settled in AY.2011-12.After considering the submission of the assessee and the assessment
order,the FAA held that the assessee had received 2/3rd of the contract value in cash, that Suresh
Nanda,vide his letter dt.30.11.2009,had stated that value of the contract with the assessee was
Rs.5.09 crores,that the assessee was emphasizing the fact that the value of the contract was much
less .The FAA referred to the case of Durga Prasad More (82 ITR 540), Sumati Dayal (214 ITR
810),Shree Meenakshi Mills Ltd.(63 ITR 609).He further held that the assessment based on
search and seizure stood on a different footing in comparison to other proceedings,that in search
and seizure cases inferences and the seized material played a vital role,that in the case under
consideration an adverse inference was drawn against the assessee and same was based on
circumstances where no direct evidence was forthcoming,that from the seized documents the AO
had drawn a reasonable conclusion,that the seized FFS was in possession of the assessee's client,
that the onus of proving that the assessee had not received the amount in question was on it, that
the assessee had failed to discharge the onus,that the FFS dealt with cash payment to it by Suresh
Nanda,that the entire work of the project was completed in FY.2006-07 that merely because
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some dispute had arisen, income could not be postponed to next year, that the AO was justified
in rejecting the assessee's books of account, that the AO had rightly taxed income in 2007-08.
8.Before us,the AR argued that the assessee was engaged in the business of interior decoration,
that it would undertake and execute comprehensive works contracts on turnkey basis for interior
decoration premises according to the drawings and specifications of customers,that on getting
contracts and advances the assessee would commence purchase of specific materials and engage
requisite labour force on a sub contractual basis wherever necessary,that all such sub-contractors
were directly responsible to the assessee,that Running Bills(RB) submitted by the assessee would
be certified by the Architects/Interior Designers/PMC appointed by the customers after
examining the work done upto the date of RB as to the measurement, quality, quantity, etc.,that
based on such certification payments would be released to the extent of the amount certified,that
observation of the AO that the search team found two set of RB of same number, same date but
of different amount" was factually incorrect,that the AO had failed to appreciate the fact that one
set of RB were seized during the search proceedings and other set of bills were produced by the
person searched during the course of assessment proceedings,that the AO had failed to appreciate
the fact that the assessee had not issued two different sets of RB containing the same number and
same date,that Suresh Nanda had also admitted during the assessment proceedings that the RB
seized during the search were the bills pertaining to the work carried out at the Sonali Farm,that
second set of RB produced by Suresh Nanda were not made available to the assessee and the
same was also not available with the AO,that alleged second set could not be treated as
evidence,that the AO had failed to appreciate the fact that the amounts mentioned in RB seized
from the premises of the customer (subject to certification of the Architect)and that the amount
of RB as per records of the assessee were the same,that due to dispute in quantity, quality and
rate charged by the assessee the RB raised by the assessee were passed for ad-hoc payments,that
the AO only referred to the bill amount and the amount approved for payment,that he had not
noted the important and material remark by the project architect that "approval for ad-hoc
payment" on the face of RA bill 1,2 and 4,that the assessee had also objected the same by writing
letters to Nanda and the Architect, that to resolve the dispute a Third party Auditor was
appointed by Nanda,that extract of the Audit findings provided to the assessee by the Customer
was placed before the AO,that on getting Auditor's Report detailed discussions and negotiations
for pending items were held with the customer,that to avoid further disputes and delay the
assessee raised final bill in respect of work completed on 20.04.2007,that the AO had ignored the
above referred evidences filed by the assessee during the assessment proceedings,that without
appreciating the practice followed in the industry the AO concluded that the difference in RB
amount and amount certified by the customer on ad hoc basis was received by the assessee in
cash,that conclusion drawn by the AO was without any corroborative evidence of receipt of
cash,that the assessee had regularly followed the practice of submitting RB and Final Bill to all
Customers,that it would submit fair and final bill approval of the architect specially when the
when contracts were executed over longer period of time.He further argued that Fund Flow
Statement was unsigned loose paper and hence could not be considered as evidence,that Suresh
Nanda had also denied the correctness about the referred Fund Flow Statement,that he had
confirmed,in his replies against query by his AO,that the contract value mentioned in the Fund
Flow Statement was wrongly stated,that the correct contract value was Rs.5.09 Crores,that the
AO had failed to appreciate the fact that the Fund Flow Statement was one of the estimate made
by the person searched,that he ignored the covering note which clearly stated that the figures
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appearing in the statement were budgeted figures on the day of preparing the statement,that in
the column titled as Contractor / consultant at Sr. No. 13,15 and 16 and 18 of the statement
"YTB decided" had been typed which meant that the relevant contractors of consultants were yet
to be decided on the date of preparation the estimate,that the AO failed to understand the concept
of the RB which included certified or uncertified amount of previous RB plus value of
additional work carried out after raising previous RB,that the last RB was the correct indicator
of the total work done by the assessee,that he added cumulative amount of all RB instead of
considering cumulative value of last RB while arriving at total contract value, that the AO had
erred in making addition amounting to Rs. 2,48,03,984/- towards unaccounted cash receipts
without any corroborative evidence.He further argued that after detailed discussions in respect
of audit findings and negotiations for pending items with the customer,it had raised final bill in
respect of work completed in AY. 2008-09 and accounted accordingly during relevant AY.2008-
09,that against the bill so raised for Rs.2,47,84,631.98, the amount of Rs.1,24, 20, 071/- was
received by the assessee till 31.03.2007,that balance amount of Rs.1,23, 64,560/ -was received
by the assessee on 14.06.2011 i.e.during AY.2012-13,that considering the issues involved in
dispute raised by the customer and uncertainty about the certified value of the Bill the assessee
had shown Rs.1 ,24,20,000/ -till 31.03.2007 as Work in Progress. The AR referred to provisions
of Accounting Standard(AS) -29 and contended that the assessee could not recognize the amount
of income as it was uncertain in A.Y.2007-08,that it had recorded the said amount in A.Y.2008-
09 after detailed discussions and finalising the same,that as per AS-1 the revenue receivable
could not be recorded in books for the year under appeal as it was uncertain, that it was only after
third party independent audit and detailed discussions that the revenue became certain,that the
assessee assessee had rightly offered it in AY.2008-09. He referred to the page no.28,39 to
69,70-72,78-82 of the Paper book(PB).
9.We have heard the rival submission and perused the material before us. One of the questions to
be decided,by us,is the AY.in which income has to be assessed.The second issue is about value
of the contract.We find that in the FFS(pg No.121 of the Paper Book) the name of the assessee
firm appears at Sl.No.2.The FFS gives detail of contract/consultant, nature of job, contract value
and payment made till 22.12.2005. The Delhi-AO had recorded his satisfaction on the basis of
said FFS and AO as well as the FAA referred to it more than once while passing the order/
deciding the appeal.In our opinion,one thing is clear that the FFS is about payments made till
22.12.2005 and not beyond that date and that till that date the Suresh Nanda had not paid more
than Rs.3.72 crores.It also proves that disputed sum was received in the AY.2006-07 and not in
AY.2007-08. We find that the AO is heavily relying on the FFS on one hand but on the other
hand he ignores the date mentioned in the statement. The AO has not given any reason for not
considering the details mentioned in the statement. It is a fact that the final bill was prepared in
April,2007 and the assessee had offered the income in that particular year i.e. assessment year
2008-09.Returns of income filed by the assessee prove that all the receipts from Suresh Nanda
have been accounted for in respective years. We will discuss the issue at length while deciding
the issue of receipt of cash by the assessee.In our opinion the AO had no document or any other
evidence to hold that a sum,amounting to Rs.3.72 crores pertained to the AY.under appeal.
Therefore, we reverse the order of the FAA to that extent.
10.Now we would take up the issue of receipt of cash/cheque in proportion of 2/3rd and 1/
3rd by the assessee.As per the AO the documents from Suresh Nanda prove that 2/3 of the total
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receipts due from him were received in cash by the assessee.The AO has also mentioned that `the
search party was of the opinion that Suresh Nanda had made only 1/3rd payment in cheque'.Ín
our opinion it is the AO who has to decide the taxable income of an assessee after considering
the available material.Opinion of a search party cannot form basis for determining tax liability.It
is an uncontroverted fact,born out from the correspondence of the assessee,Suresh Nanda and the
principal contractor,that there was dispute about the work done by the assessee in the initial stage
and matter had to be finally referred to an arbitrator. The assessee was being paid one third
payment of the RB on an ad-hoc basis.All the RBs.prove that Suresh Nanda had not paid full
amount as mentioned in the bills.Bills specifically speak of payment `yet to be made.'Neither
the assessee nor Suresh Nanda had ever admitted to receiving or paying cash for the work
done.There is no documentary evidence of cash receipt by the assessee.The AO had,on the basis
of RBs.,arrived at the conclusion that cash was paid by Suresh Nanda.But,he did not make any
inquiry in that regard.He completely ignored the submission of the assessee.He did not take in to
consideration the documents that evidenced the existence of dispute and part payment.
Considering the peculiar facts and circumstances of the case,we are of the opinion that there was
no evidence that the assessee had received 2/3rd of the total payment in cash. Therefore,reversing
the order of the FAA,we decide the issue in favour of the assessee to that extent.Ground no.2-3
are allowed to the extent mentioned above.
As a result,appeal filed by the assessee stands partly allowed.
.
Order pronounced in the open court on 30th,April,2015.
30th ,2015
Sd/- Sd/-
( /I P Bansal) ( / RAJENDRA)
/ JUDICIAL MEMBER / ACCOUNTANT MEMBER
/Mumbai, /Date: 30.04.2015
JV.
/Copy of the Order forwarded to :
1.Appellant / 2. Respondent /
3.The concerned CIT(A)/ , 4.The concerned CIT /
5.DR "A" Bench, ITAT, Mumbai / , ,.. .
6.Guard File/
//True Copy//
/ BY ORDER,
/ Dy./Asst. Registrar
, /ITAT, Mumbai.
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