TaxTMI 
TaxTMI 
TaxTMI 
2006 (12) TMI 189
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....i Mohan, a film actor, is the chairman of the company. On 20th Feb., 1999, there was a search action under s. 132 at the assessee's business premises situated at Kondapur Village, Hyderabad. During the search action, various incriminating documents were found and seized. There was also a search at the premises of the business associate of the assessee, Shri K. Madhava Reddy, on 19th March, 1999. During the course of search at the residence of K. Madhava Reddy, one unsigned Memorandum of Understanding (MoU) was found which reflects the transaction between the assessee and five others, on the one part, and Shri K. Madhava Reddy and M/s K.M.R. Estates & Builders (P) Ltd., on the other part. According to this MoU, the assessee and five of its nominees have agreed to purchase 95 acres and 5 guntas of land for which the consideration fixed was Rs. 2,40,40,000 which shall be paid between 15th Dec., 1995 and 3rd April, 1996. This was annexed to the assessment order as Annex. 'A'. At the business premises of the assessee, 5 registered sale deeds were also found and as per these sale deeds, M/s K.M.R. Estates & Builders (P) Ltd. has transferred 22 acres of land as follows to the nominees of ....
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....; and Registration Charges (Rs.) ------------------------------------------------------------ 1. 6443/96 5 acres 5,50,000 D. Raviveer Ch. Chandra Mohan D. Jaiveer ....
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....; Devi ------------------------------------------------------------ 4. 6475/96 4 acres 4,45,000 -do- D. Ravi Kiran ------------------------------------------------------------ 5. 6476/96 4 acres 4,24,000 -do- Vemuri Subramanyan ------------------------------------------------------------ The balance 73 acres and ....
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....n the MoU dated November, 1996, only a sum of Rs. 91,00,000 was found to be recorded as shown below: As per the books of accounts of the assessee: ----------------------------------------------------------- Date Cheque/Cash Amount (Rs.) Paid to ----------------------------------------------------------- 29.12.1995 Cheque 6,00,000 K.M.R. Estates & Builders (P) Ltd. ----------------------------------------------------------- 04.01.1996 Cheque 10,00,000 Madhura Bai and 7 others (Rs. 1,25,000 &nbs....
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....p; Builders (P) Ltd. ----------------------------------------------------------- 27.02.1996 Cheque 2,00,000 K.M.R. Estates & Builders (P) Ltd. ----------------------------------------------------------- 19.08.1996 Cheque 1,00,000 K.M.R. Estates & Builders (P) Ltd. ----------------------------------------------------------- Out of Rs. 64,50,000 paid, cheque for Rs. 3 lakhs was cancelled on 3rd April, 1996. As per the books of accounts of Sri Jayaberi Art Productions ----------------------------------------------------------- 19.....
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....26,104 already paid by M/s K.M.R. Estates & Builders (P) Ltd. for the transfer of 22 acres of land to M/s Shilpa Homes (P) Ltd., the assessee has received the payment of Rs. 3,62,28,294. In short, the AO discussed these facts in para 2.5 of his order which is reproduced below: "The sum and substance of the MoU dt. 25th March, 1997 referred in para 2.4 is that M/s K.M.R. Estates and Builders (P) Ltd. and 4 others had entered into an agreement for development and sale of 29 acres of land comprised in survey Nos. 32/1, 33/1 and 34/1 at Madinaguda Village in Serilingapally Mandal, Ranga Reddy District and share the profits in an agreed proportion. The MoU states that out of 29 acres of land, 22 acres were acquired by M/s K.M.R. Estates & Builders (P) Ltd. from the assessee in pursuance to a MoU dt. 10th Jan., 1997 and that the said M/s K.M.R. Estates & Builders (P) Ltd. had paid the assessee a sum of Es. 75,26,104 at the time of execution of the said MoU dt. 10th Jan., 1997 and that the balance consideration to be paid to the assessee in pursuance to the said MoU was Rs. 2,87,02,190. The MoU further states that in addition to the payment of Rs. 75,26,104, the assessee was further paid....
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.... at the assessee's premises. The onus of proving the veracity of these papers or documents seized from other premises vests with the Department and the same has not been proved. 3. The alleged addition of Rs. 1.49 crores as unexplained investment in the land and subsequent receipt has not brought out the existence of any asset within the meaning of the Act. Had the presumption by the Department were to be true, cash or equivalent asset should have been detected by the Department. 4. The AO very heavily relied upon the statement of Mr. K. Madhava Reddy for sustaining the addition of the alleged unexplained investment of Rs. 1.49 crores but does not accept the retraction of the statements by Mr. Madhava Reddy. 5. The contention that only cheque payments are found recorded in the books of accounts is unacceptable. It is nothing but natural the payments in cheques will naturally be found recorded in the books of accounts. The Department's contention that cash payments even though not found in any of the books of accounts expecting the assessee to accept the same when the truth is otherwise is unjustified. 6. The payments purported to have been paid by the assessee as per MoU dated ....
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....P) Ltd., stated to have been made on 30th March, 2001 after which this assessment in the case of the assessee has been made. There has been no independent application of mind by the AO of the assessee and was persuaded by another assessment order which is totally not relevant. The assessment order on which the AO relied upon has not been supplied to the assessee nor was given an opportunity to rebut the same. He further relied on the CBDT Circular No. 286/21/2003 dt. 10th March, 2003. He also relied on the following case law: 1. CIT vs. P.V. Kalyanasundaram (2006) 203 CTR (Mad) 449 : (2006) 282 ITR 259 (Mad); 2. CIT vs. G.K. Senniappan (2006) 203 CTR (Mad) 447 : (2006) 284 ITR 220 (Mad); 3. CIT VS. Ravi Kant Jain (2001) 167 CTR (Del) 566 : (2001) 250 ITR 141 (Del); 4. CIT vs. Vishal Aggarwal (2005) 196 CTR (Del) 279 : (2006) 283 ITR 326 (Del); 5. Bansal Strips (P) Ltd. & Ors. vs. Asstt. CIT (2006) 100 TTJ (Del) 665 : (2006) 99 ITD 177 (Del); 6. T.S. Venkatesan vs. Asstt. CIT (2000) 69 TTJ (Cal) 66 : (2000) 74 ITD 298 (Cal); 7. Eagle Seeds & Biotech Ltd. vs. Asstt. CIT (2006) 102 TTJ (Indore) 1065 : (2006) 100 ITD 301 (Indore); 8. Pankaj Dahyabhai Patel (HUF) vs. Asstt. CI....
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....ent. A: I have not computed the capital gains liability in relation to the above transaction until now. The above amounts were advanced by us to Sri K.M. Madhava Reddy and others are returned back to us through Shilpa Homes (P) Ltd. and others with 24 per cent interest. The interest received by us was offered as income in the relevant cases for the relevant years. I will work out the capital gains liability if any on the basis of the above information and I will submit the detailed workings to you. I am agreeing to the capital gains liability if it arises on the above workings. This I will submit tomorrow. If any set off has to be given to me as per law, the same should be given to me just to have a hold in getting our money, we have entered into a tri-party agreement. Q5: Would you like to say anything else. A: No Sworn statement on oath recorded from Shri D. Kishore Q1: Please introduce yourself A: I am D. Kishore, managing director of M.M. Financiers (P) Ltd. Q2: During the search and seizure proceedings at the residence of Shri M. Murali Mohan, cash was found amounting to Rs. 6,73,610 was found and inventorised, out of which Rs. 5,00,000 was kept in the ....... and the r....
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....ansferred 2,970 sq. yds. to K.M.R. Estates (P) Ltd. The balance was transferred to Shilpa Homes and their nominees. Q7: Please work out the profit derived by you on these transactions. A: The purchase cost for the land of 22 acres is approximately Rs. 22 lacs. The sale consideration received from Shilpa Group is Rs. 1,03,00,000 and from K.M.R. Estates Rs. 11,60,000, totalling to Rs. 1,15,00,000. Hence the profit on the sale of 22 acres of Madinaguda land comes to Rs. 93,00,000. Q8: Have you shown the income of Rs. 93,00,000 in the books of accounts of M.M. Financiers (P) Ltd. for the relevant years. If so give the details A: We have shown Rs. 24,52,148 as interest income from K. Madhava Reddy on the advance of Rs. 91,00,000 given to him. Q9: Whether the advance of Rs. 91,00,000 stated by you in above answer includes the purchase cost of 22 acres also? If so, how can you call it as advance if the land was duly transferred and registered? A: The advance for land receivable from Madhava Reddy is Rs. 69,00,000 but the interest was received on entire Rs. 91,00,000. Q10: You have stated earlier that the profit on sale of Madinaguda land to Shilpa Group comes to around Rs. 93,00,00....
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....and the agreement to repay Rs. 3,38,78,384 inclusive of interest Rs. 98,38,384. (ii) The cheque payments mentioned in the MoU have been accepted as correct by the parties to the MoU. (iii) The cheque payments are reflected in the books of accounts of the assessee as well as in the books of accounts of its sister-concerns. (iv) The fact that the assessee approached Shri K. Madhava Reddy to procure 95.05 acres of land at Madinaguda and Kondapur villages is admitted by the parties to the MoU. (v) It is an admitted fact that the assessee purchased 22 acres of land at Madinaguda, obviously in pursuance to the contract concluded on 29th Dec., 1995 referred to in the MoU. (vi) Shri K. Madhava Reddy in the statement recorded on 1st April, 2001 has admitted that he had identified to the balance extent of 73.05 acres required by the assessee and he had oral understanding with the landlords to procure the land for the assessee. (vii) Parties to the MoU dated November, 1996 admit that the contract was for the purchase of 95.05 acres of land. Here again, obviously as per the contract concluded on 29th Dec., 1995, referred to in the said MoU, was cancelled and the money advanced by the ass....
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....that of the assessee. It is important to note here that Shri Madhava Reddy is not the third party as such, but a party closely connected with the transactions. Further, the AO is not solely relying on the documents found there. The sequence of events, other details and evidence corroborate the contents of the document as specifically mentioned by the AO. Even the Courts and judicial forums' view is that the assessment should not be based on such documents without the support of corroborative evidence. [Doon Valley Roller Flour Mills (P) Ltd. vs. IAC (1989) 31 ITD 238 (Del), Asstt. CIT vs. Prabhat Oil Mills (1995) 52 TTJ (Ahd) 533, CBI vs. V.C. Shukla & Ors. (1998) 3 SCC 410). 12. The learned Departmental Representative further drew our attention to the sworn statement recorded from Shri K. Madhava Reddy on 26th May, 1999 which is reproduced below: Q.2 I am showing you seized material in Annex. KMR/A/10, sheet Nos. 38, 39, 40, 41 and 42. These papers were seized from your residence at Bowenpally. Please go through them carefully and explain the contents? A. These papers relate to Madinaguda land transaction known as Shilpa Gardens between me and Shilpa Group. The expenditure coll....
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....ers the cost of land is Rs. 12 lakhs per acre. Briefly, the details contained in the seized papers are as below: Sheet No. 38: In this paper the details of the sale, the amount received from the customers, the amount due and the total extent of land sold in respect of Shilpa Gardens are stated. Sheet No. 39: An overall picture of the Shilpa Garden venture can be got from this sheet. The total area stated to be 26.16 acres or 79,200 sq. yards, out of which area sold upto the date of preparation of the sheet is 58,345 sq. yds. which coincides with the area mentioned in the previous sheet. This has been sold for Rs. 4,29,32,650, out of which collections received is Rs. 2,61,96,707 and the balance remaining to be collected is Rs. 1,67,35,946. The total expenditure incurred as per this sheet is Rs. 3,76,17,420. The investment made by M/s K.M.R. Estates & Builders (P) Ltd. is mentioned as Rs. 1,04,60,000. He placed more emphasis on the information extracted below which forms part of Annexs. "C-1 to C-5" of the AO, on pp. 39 & 40 submitted by the Department: ------------------------------------------------------ Total area 26.16 acres &n....
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....p; 3,76,17,420 Total collections excluding investments 3,66,56,707 Investment Shilpa 9,60,716 Cheques issued to landowner 5,00,000 14,60,716 Land payment due (KMR a/c) 3,40,324 Total unsold area @ 750/ 20,855  ....
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....--------------------------- Rs. 1,79,576 ------------------------------------------------------------ Proclaimer & Land development Rs. 3,09,740 ------------------------------------------------------------ Rs. 1,16,500 ------------------------------------------------------------ Bank charges Rs. ....
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....d. had developed the 29 acres of land and sold them in smaller plots and out of the amount realized on sale, had paid a total sum of Rs. 3,62,18,000 in pursuance to the MoU dt. 25th March, 1997. The amount paid to the assessee as per the loose sheets referred to above and the total consideration shown as payable to the assessee as per the MoU dt. 25th March, 1997 is almost matching. The difference is only a little over Rs. 10,000. Further, he drew our attention to the sworn statement from Shri K. Madhava Reddy recorded on 20th March, 1999 which is reproduced below: Q.22 Please give the details of the transaction entered into by you and your group of companies with M.M. Financiers (P) Ltd. or the Jayabheri group. A. M/s M.M. Financiers (P) Ltd. has entered into an agreement with KMREL for purchase of 95 acres of land at Rs. 8,50,000 per acre. They have paid approx. Rs. 2.40 crores as part of the purchase consideration. Because the transactions did not materialize and at the instance of M.M. Financiers (P) Ltd., the agreement was terminated, at their instance, I have paid back Rs. 2.40 crores and also interest on the same at 2 per cent per month till the payment of last instalment....
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....owing words. Q.1 Please introduce yourself. A. I am P.C. Reddy, Chairman of Shilpa Homes (P) Ltd. Q.2 During the search and seizure operations conducted in the case of M/s Shilpa Homes (P) Ltd. dt. 20th March, 1999, certain incriminating evidence was found in relation to Shilpa Garden venture. Further, during the search and seizure operations conducted in the case of Sri K. Madhava Reddy on 29th March, 1999, certain incriminating evidence was found in relation to the above venture. You have been examined during the post-search investigations by the Investigation Wing of the Department. In this regard, I direct you to give complete details of the venture in Shilpa Garden and the profits earned in that venture as on the date of search. Further, you are also directed to state as to how much of the profits relatable to Shilpa Homes (P) Ltd. is disclosed in the books of accounts maintained. A. As per the findings in the search and seizure and as per the seized material found which was shown to us during the proceedings, we have worked out the detailed profit and loss statements for Shilpa Garden venture as on the date of search which is separately handed over to you now. As per this....
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....ed on the tripartite agreement entered on 1st Jan., 1997 between M/s K.M.R. Estates & Builders (P) Ltd. and K. Madhava Reddy, on the one part and M/s M.M. Financiers (P) Ltd., Jayabheri Builders, M/s Sri Jayabheri Art Productions, M. Murali Mohan, D. Kishore and M. Ram Mohan, on the second part and M/s Shilpa Homes (P) Ltd., on the third part. Further, he relied on certain loose papers found at the residence of K. Madhava Reddy. 14. This is a block assessment under Chapter XIV-B of the IT Act. Under s. 158BB, undisclosed income of the assessee for the block period is required to be computed on the basis of evidence found as a result of search or requisition of books of accounts or documents and such other materials or information as are available with the AO and relatable to such evidence as reduced by the aggregate of the total income or, as the case may be, increased by aggregate of loss of such previous year. As held in the case of CIT vs. G.K. Senniappan (2006) 203 CTR (Mad) 447 : (2006) 284 ITR 220 (Mad), "such other materials or information as are available with the AO" cannot be bisected or taken in isolation for the purpose of computation. Such other materials or informati....
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....amounts from M/s M.M. Financiers (P) Ltd. has been received by KMREL partly in cash and partly by way of cheques as indicated in MoU which is part of the seized record. During the repayment the entire amount was paid by Shilpa Real Estates (P) Ltd. partly through cash and partly through cheque except for Rs. 45 lakhs paid by me through cheque. Q.23 Please give the details of the transactions entered into by KMREL with Shilpa Real Estates (P) Ltd. A. KMREL sold 29 acres of land which was the land in agreement with M.M. Financiers (P) Ltd. earlier at Rs. 10 lakhs per acre amounting to Rs. 2.90 crores which was paid by Shilpa Real Estates to M.M. Financiers (P) Ltd. on my behalf. 16. When we read the above questions and answers, we do not find any consistency in the quantum of land and rate per acre. Once, he is telling that the land per acre is Rs. 8.50 lakhs. In answer to Q. No. 23, he is telling that the cost of land is Rs. 10 lakhs per acre. In answer to Q. No.7, he is telling that the cost of land is Rs. 12 lakhs per acre. Moreover, K. Madhava Reddy retracts his own statement. While cross-examining also, he denied things. In our opinion, unsigned agreement has no evidential va....
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....ight to shift the burden of proof. The Revenue authorities cannot automatically presume things. The actual things depend upon facts and circumstances of each case. The presumption under s. 132(4A) as to the truth of contents of books or documents seized was rebuttable and it was in the discretion of the authorities depending upon the facts, to decide whether presumption should be drawn or not. The expression used in this sub-s. (4A) is "may be presumed" which is also the expression used in s. 114 of the Evidence Act and it was not a mandate that whenever books of accounts are seized, the authorities concerned shall so presume irrespective of any other factor which may dissuade the authorities from doing so. Therefore, the authorities concerned should draw the conclusion judicially, depending upon the facts and circumstances of the case. There is no conclusive presumption. 18. In the present case, K. Madhava Reddy retracted his statement even during the cross-examination. It is already a matter of fact that there is a dispute among the assessee and K. Madhava Reddy as is evident from the answer to question No. 8 recorded on 26th May, 1999, appearing on p. 8 of the assessment order,....
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....eceivable by it, such a course requested by the assessee is beyond the scope of the assessment proceedings under Chapter XIV-B of the Act. Though the 22 acres of land was purchased in the names of third parties, the wherewithal for the purchase of the land was provided by the assessee and the assessee had also accepted the transaction as its own. The third party nominees have also filed affidavits stating that they had only let their names and the transactions only pertained to the assessee." In para 5.2.4 he holds as follows: "5.2.4 As stated earlier, the actual consideration received from M/s Shilpa Homes (p) Ltd., pursuant to the transfer of 22 acres of land as per the tripartite agreement between the assessee, M/s K.M.R. Estates & Builders (P) Ltd. and M/s Shilpa Homes (P) Ltd. is Rs. 3,62,18,000. The investment on this property transaction by the assessee is Rs. 2,40,40,000. Hence, the surplus of Rs. 1,21,78,000 received by the assessee requires to be brought to tax as either normal business income or capital gain. From the MoU dt. November, 1996, it is clear that M/s K.M.R. Estates & Builders (P) Ltd. agreed to repay the advance given by the assessee along with 42 per cent ....
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....unhambu & Sons vs. CIT and Surjitsingh Chhabra vs. Union of India and State of Tamilnadu vs. Kutty alias Lakshmi Narasimhan to support the retraction of the statement by Shri K. Madhava Reddy that it should be ignored and original statement to be relied. In our opinion, these case law are not applicable to the facts of the case on hand. In these cases relied on by the learned Departmental Representative, the original statement and the retracted statement were by the assessee himself. In the present case, both the original statement and the retracted statement were made by a third party i.e. K. Madhava Reddy. Further, on cross-objection also, K. Madhava Reddy denied his statement and the Revenue is not having any corroborative evidence in support of the original statement to say that it should prevail. 20. Further to the unsigned agreement (Annex. 'A'), there are several parties, viz., M/s K.M.R. Estates & Builders (P) Ltd., K. Madhava Reddy, M. Murali Mohan, D. Kishore, D. Ram Mohan, Smt. D.K. Devi, V. Subramaniam, M.M. Mohan and C.C. Mohan. As is evident from the record, he examined only K. Madhava Reddy, M. Murali Mohan and D. Kishore. The reason for not examining other parties ....
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....atement recorded from K. Madhava Reddy, managing director of M/s K.M.R. Estates & Builders (P) Ltd. and K.C.M. Reddy, managing director of M/s Shilpa Homes (P) Ltd. go contrary to this statement of accounts. 22. In our opinion, there is no valid seized material representing addition of Rs. 1.49 lakhs towards undisclosed purchase consideration. It is only on surmise basis and statement recorded from third party, K. Madhava Reddy, and M/s Shilpa Homes (P) Ltd. This cannot be acted upon. The Circular No. F. No. 286/2/2003/IT(Inv.), dt. 10th March, 2003 clearly refrains the AO from recording confessional statement during the course of search and seizure and survey operations and also warns the AO not to attempt to obtain any confessional statement as to the undisclosed income, and any action contrary shall be viewed adversely. It also states that the AO should rely upon the evidence and material gathered during the course of search. Here, in the present case, the evidence is only agreement which reflects the purchase consideration at Rs. 2.40 crores and the recorded statement shows the sale consideration of 22 acres at Rs. 3,62,18,000. The third party statement and unsigned agreement ....
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....onditions precedent for invoking such provisions are required to be strictly construed. The facts and circumstances giving rise to the presumption have to be established with reasonable certainty. The AO cannot first make certain conjectures and surmises and thereafter apply the deeming provisions based on such conjectures and surmises. In the absence of adequate material as to the nature and ownership of the transaction, undisclosed income could not be assessed in the hands of the assessee merely by arithmetically totalling various figures jotted down in the loose documents. In other words, for the purpose of resorting to deeming provisions, dumb documents or documents with no certainty have no evidentiary value. After consideration of the matter, the contentions of the assessee had to be agreed with. The impugned addition had been made by the AO on grossly inadequate material. The same was, therefore, directed to be deleted." Further, the loose papers found during the course of search at the premises of K. Madhava Reddy are a dumb form having no evidential value. No addition can be made on the basis of noting on loose sheets in the absence of corroborative material. The Revenue ....