Income from undisclosed sources—Addition under section 68—Creditworthiness of the persons from whom booking advances received, proved

Short Overview : Where out of 14 persons, 13 persons have duly confirmed the booking advances made to assessee and their creditworthiness was also examined by AO but no negative inference was drawn by him, no addition could be made under section 68 just because one person who had only advanced an meager amount, had not recorded the statement under oath as he was abroad. Consequently, penalty under section 271(1)(c) would also not be levied.

Assessee-firm was engaged in the business as builders and developers. AO made addition under section 68 on the ground that although the assessee had furnished confirmations in respect of the booking advances received from 14 parties, all the 14 parties had failed to respond to the notices issued under section 133 (6). Further, AO also levied penalty under section 271(1)(c) on such addition. Assessee submitted that as per the remand report, AO had examined the creditworthiness and genuineness of the transactions on oath of 13 persons by recording their statement under section 131. It further submitted that one of the persons could not attend the office as he was abroad.

It is held that: Since out of 14 persons, 13 persons have duly confirmed the booking advances made to assessee and as AO had also examined their creditworthiness and had not drawn any negative inference in this regard, therefore no addition under section 68 could be made just because one person who had only advanced an meager amount, had not recorded the statement under oath as he was abroad. Accordingly, the addition under section 68 would not survive. Consequently, penalty under section 271(1)(c) would also not survive.

Decision: In assessee’s favour.

Referred: Prerna Developers v. ACIT [I.T.A. No. 2904/Ahd./2009, 3028/Ahd./2009 : Assessment Year : 2006-2007, dt. 29-7-2011].

 

IN THE ITAT, AHMEDABAD BENCH

SUDHANSHU SRIVASTAVA, J.M. & AMARJIT SINGH, A.M.

Prerna Developers v. ITO

ITA Nos. 820/AHD/2015 & 2347/AHD/2016

1 October, 2019

Appellant by: S.N. Divatia, AR

Respondent by: S.K. Dev, Sr. DR

Sudhanshu Srivastava, J.M.

Both the appeals have been preferred by the assessee. ITA No. 820/AHD/2015 is the assessee’s appeal against the Order, dated 19-1-2015 passed by the learned Commissioner (Appeals), Gandhinagar, wherein the issue in dispute is the quantum addition of Rs. 52,14,000. ITA No. 2347/AHD/2016 is against that order of the learned Commissioner (Appeals), Gandhinagar wherein the learned first appellate authority has upheld the imposition of penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 (hereinafter called ‘the Act’).

Both the appeals pertain to assessment year 2006-07. Both the appeals were heard together and are being disposed of through this common order for the sake of convenience.

2. The brief facts of the case are that the assessee is a partnership firm engaged in the business as builders and developers. The return of income was filed declaring a gross total loss of Rs. 9,33,845. The return was initially processed section 143 (1) of the Act and case was later selected for scrutiny. The assessment was completed at an income of Rs. 49,33,155 after making addition of Rs. 6,53,000 to the partners’ capital account and Rs. 52,14,000 being booking advance deposits remaining unconfirmed.

2.1 Aggrieved, the assessee approached the learned first appellate authority who deleted the addition of Rs. 6,53,000 made on account of partners’ capital but confirmed the addition of Rs. 52,14,000 on account of booking advance deposits.

2.2 Aggrieved, the assessee as well as the Department approached the Tribunal who, vide Order, dated 29-7-2011 in ITA No. 02/09/2004/AHD/2009 & 3028/AHD/2009, restored on both the issues to the file of the assessing officer for fresh adjudication.

2.3 During the second round of proceedings before the assessing officer, the assessing officer once again made the addition of Rs. 52,14,000 as income of the assessee under section 68 of the Act on the ground that although the assessee had furnished confirmations in respect of the booking advances received from 14 parties, all the 14 parties had failed to respond to the notices issued under section 133 (6) of the Act. The learned Commissioner (Appeals), on appeal by the assessee, confirmed this addition of Rs. 52,14,000 on the ground that although the assessee had submitted confirmations from all the 14 depositors and had also submitted copies of their PAN, copy of Ledger accounts and copy of returns of income but the assessee has not provided any bank statements of the third parties to prove the source of income. The learned first appellate authority proceeded to confirm this addition of Rs. 52,14,000 and now the assessee is before this Tribunal again and has challenged the confirmation by the Ld. first appellate authority.

2.4 The assessing officer also proceeded to impose a penalty of Rs. 14,40,710 under section 271(1)(c) of the Act on the addition of Rs. 52,14,000. This penalty was also confirmed by the learned Commissioner (Appeals) and the assessee is before this Tribunal challenging the confirmation of the penalty also.

3. The learned authorised representative submitted that vide order sheet entry dated 29-11-2018, the bench had directed the Department to submit a remand report from the assessing officer by noting that the assessing officer ought to have investigated the issue with more vigour than simply issuing notice under section 133 (6) of the Act. It was submitted that the assessing officer was directed to first ascertain the identity of all the 14 persons/entities who had made booking with the assessee and thereafter the assessing officer was directed to verify the fact as to whether they have made the bookings or not, whether they have paid to the assessee or not and whether they have received back their money or not and cancellation if any.

3.1 The learned authorised representative submitted that the remand report, as directed by the Tribunal, had since been obtained and was available on page 3 of the paper-book. He drew our attention to the remand report dated 16-1-2019 and submitted that in this remand report the assessing officer had stated that summons had been issued under section 131 of the Act to the 14 persons who had made booking with M/s Prerna Developers i.e. the assessee and out of the 14 persons, 13 persons were examined on oath by recording their statement under section 131 of the Act. The learned authorised representative further submitted that one of the persons Sanjay Patel could not attend the office as he was abroad. It was further submitted that as per the remand report the assessing officer has examined the creditworthiness and genuineness of the transactions on oath and it has been verified from the statement/s recorded that all the 13 persons have made their bookings and have invested/paid to the assessee for booking of the property of M/s Prerna Developers. The learned authorised representative further submitted that the statements recorded by the assessing officer were also forwarded to the Tribunal for perusual. It was further submitted that as per the remand report, out of 13 persons 9 persons had stated that they had cancelled their bookings and had received back their booking amounts and had submitted confirmations in this regard. It was further submitted that the remaining 3 persons had stated that the cancellation amounts were converted into unsecured loans and interest was received by them on the said amounts. It was further submitted that as per the remand report in the case of Smitaben Mahindra Kumar Patel, it had been confirmed that she was allotted shop No. 3 against her booking.

3.2 The learned authorised representative submitted that in view of the detailed observations in the remand report, no addition was sustainable.

3.3 It was further submitted that the penalty being consequential was also to be deleted.

4. In response, the learned senior departmental representative placed reliance on the findings of the learned first appellate authority. The learned senior departmental representative however could not negate the fact that the remand report dated 16-1-2019 fortified the assessee’s claim regarding the advances having been received.

5. We have heard the rival submissions and have also perused the material on record. It is the grievance of the assessee that the learned Commissioner (Appeals) has erred in confirming the addition of Rs. 52,14,000 which pertained to advance/deposits. The assessee is engaged in the business of real estate development and it his claim that he had received the impugned amount from 14 persons as booking advances. After the matter travelling up to the Tribunal in the first round of proceedings, the issue was remitted to the assessing officer for fresh investigation and examination. In the fresh assessment proceedings, in pursuance to the directions of the Tribunal, the assessing officer initiated investigation and the assessee did submit confirmations, bank details and addresses of the 14 persons. As per the assessing officer, he had issued summons/notices under section 133 (6) of the Act requiring response from these 14 parties but somehow none of them responded to the query of the assessing officer. The assessing officer, thereafter, did not carry out any further investigation and again made the same addition. The appeal to the learned Commissioner (Appeals) also did not bring any relief to the assessee. Thereafter, after the matter having reached the Tribunal again, on an earlier date, the bench, vide order sheet entry dated 29-11-2018 noted that the assessing officer should have investigated the issue with more vigour than by simply issuing notice under section 133 (6) of the Act. The bench called for a remand report from the assessing officer by directing him to first ascertain the identity of all the 14 persons entities that had made bookings with the assessee. The assessing officer was further directed that he should verify the fact as to whether they have made the bookings or not, whether they have paid the amount to the assessee or not and whether they have received back their money or not on cancellation.

5.1 Subsequent to the directions of the bench, the remand report has been received which is dated 16-1-2019 and is placed on record. In the remand report it has been stated by the assessing officer that summons were issued to 14 persons under section 131 of the Act and out of 14 persons 13 persons responded and that the recording their statements under section 131 of the Act was concluded. The assessing officer has further stated that one of the persons Sanjay Patel could not attend the office as he was abroad. It has been further stated in the remand report that the creditworthiness and the genuineness of the transactions were examined on oath and it is verified from the statements recorded that all the 13 persons have made their bookings and that they have invested with the assessee for booking of the property. It has also been stated by the assessing officer that out of the 13 persons, 9 persons have stated that they have cancelled their bookings and have received back their booking amounts and have also submitted their confirmations in this regard. The remand report further states that the remaining 3 persons have stated that the cancellation amounts were converted into unsecured loans and interest was received by them on the said amounts. It has also been mentioned in the remand report that in the case of one Smitaben Mahendra Kumar Patel she was allotted shop No. 3 against her booking.

Thus a perusal of the remand report submitted by the assessing officer in this regard clinches the issue in favour of the assessee in as much as out of the 14 persons, 13 persons have duly accepted and confirmed the transactions. The assessing officer has also examined their creditworthiness and has not drawn any negative inference in this regard. Only one out of the 14 persons, one Sanjay Patel was not available for recording of the statement under oath as he was abroad. It is seen that Sanjay Patel has only advanced an amount of Rs. 51,000 and looking into the facts and totality of the circumstances that other 13 persons out of the 14 persons have confirmed the transactions of the assessee, the amount of Rs. 51,000 loses significance. Accordingly, in view of the remand report of the assessing officer, we are of the considered opinion that the impugned addition does not have any foundation to survive.

Accordingly we set aside the order of the learned Commissioner (Appeals) and direct the assessing officer to delete impugned addition.

5.2 Since the quantum addition stands deleted, the consequential penalty imposed under section 271(1)(c) also does not survive. The same also stands deleted.

6. In the final result both the appeals of the assessee stand allowed.