TaxTMI 
TaxTMI 
1997 (11) TMI 525
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....ment recorded from him under section 132(4) of the Income-tax Act, 1961 ('the Act'). The relevant questions and the answers are as below : "Q. No. 5I now show you page 12 of serial No. 9, a rough paid seized from your office. Please explain the cash receipts received in the month of February 1992 and where they are accounted. Ans. :This shows that I have received some money in cash for sale of our flats, shops, etc. (Received in the current financial year which is not accounted in the books of a/c) I have been charging on an average ₹ 100 per sq. ft. In cash over and above the agreed price at Kasturi Plaza, Dombivli. The area is approx. 10,000 sq. ft. sold so far. ₹ 100 on this area comes to ₹ 70,00,000. This entire amount has been received by me in this year only. In addition to these, I have received about ₹ 10,00,000 in respect of my other projects also thus, I wish to offer ₹ 80 lakhs as my current year's income under section 132(4). Immunity allowable under section 132(4) may please be given to me. I shall pay the tax on this declared income. This is in addition to normal income earned by us. I am making this disclosure on behalf of my fa....
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....e implications as to what is stated in the said statement. I did make a mention of the fact before the A.D.I. during the course of discussion that the aforesaid amount of ₹ 80 lakhs is the gross receipts, but as a Builder, we are required to incur lot of expenditure, which is unaccounted for. It is difficult to produce the evidence regarding the expenditure incurred, though it is for the purpose of business in the course of business and such expenditure is in the vicinity of almost 80 per cent of the amount that is received. The statement made by me, therefore, needs some modifications to the extent that the amount received by way of income being the 'on-money' for the sale of the flats is not the net income, but the net income may be at the most 20 per cent of the entire gross receipts." The letter also contained an explanation regarding the expenses claimed. The assessee was asked by the Assessing Officer to produce evidence in respect of the expenses and vide letter dated 5-2-1993, the assessee furnished a detailed explanation. The relevant portion of the letter, wherein the break up for the expenses claimed was given is as below : "(1)Protection amount paid t....
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....t be produced for enquiry since both of them had been killed in a gangwar. The assessee also produced certain paper cuttings before the Assessing Officer in support of the claim that these persons were killed in gangwars. 4. The Assessing Officer rejected the assessee's claim on the following grounds : "(1)No such expenses have been recorded in the regular books of account nor assessee has claimed before the search party while declaring the additional income for taxation. (2)During the proceedings under section 132(5) of I.T. Act, Shri Jagdish N. Lodaria has clearly mentioned that the expenses claimed for which no evidence can be produced. However, they produced necessary evidences during the assessment proceedings, which cannot be accepted as prima facie proof for claiming such expenses, as it is only an after thought. (3)The additional income declared under section 132(4) is only a net income for taxation after considering all possible expenses. Therefore, the expenses claimed by the assessee is a double one. (4)No evidences of transactions have been found or seized by the search party. Therefore, the unaccounted and unrecorded expenses claimed by the assessee is no....
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.... out that the statement was recorded at a time when the partner was totally exhausted and tired and was not in a fit state of mind to realise or analyse the implications of the statement. As regards the claim that the assessee-firm did not receive on-money in respect of the shops and offices, the learned counsel pointed out that there was no demand for them and, therefore, the assessee could not realise any extra money which is possible only if there is huge demand. As regards the expenses, he pointed out, on the basis of the evidence compiled in the paper book, that they were all fully supported by the statements, independent verification by the Inspector, newspaper cuttings, etc., and, therefore, the departmental authorities were not justified in rejecting the claim. He also drew our attention to the unreasonably high rate of gross profit which would arise if the expenses are not allowed and this he pointed out to demonstrate the inherent fallacy in the rejection of the claim for expenses. He also pointed out that the amount of concealed income as reflected by the seizure was not commensurate with what has now been allowed by the departmental authorities and this was one pointer ....
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....ared at ₹ 51,908 which reflected only 0.77 per cent of the turnover, which is ridiculously low. On the basis of these statements and facts, the learned departmental representative contended that the addition has been rightly made and sustained by the departmental authorities. 8. We have carefully considered the rival contentions. We have also gone through the orders of the departmental authorities and the evidence compiled in the paper books filed by the assessee. Two questions arise for our consideration. The first question is how far the statement made by the assessee's partner under section 132(4) can be relied on for the purpose of making the addition. According to the section, the authorised officer may examine any person in the course of search or seizure who is found to be in possession or control of any books, documents, money, etc. and any statement made by such person may 'thereafter be used in evidence in any proceeding' under the Act. The statement made by the partner of the assessee-firm can, therefore, be used as evidence for the purpose of making an assessment under section 143(3) of the Act. As per this section, the Assessing Officer is required to take into ....
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.... contain any claim regarding the expenses. What is showed was only the on money receipts on sale of shops. It is therefore quite natural that when this page was shown to the assessee-firm's partner, Jagdish Lodaria, his mind was fixed to the amount of on money received by the assessee-firm and the amounts disbursed by way of expenses could not have been present in his mind. If a question had been asked as to whether any expenses were incurred by the firm out of the on money receipts, perhaps the partner would have come out with the details thereof. We have to take a practical view of such matters and it is common knowledge that extra moneys are received in cash by builders in order to incur certain expenses which could not be recorded, whatever remains can only be taxed as income. Therefore, in our opinion, the admission can be made use of only for the purpose of holding that the assessee received on moneys @ ₹ 100 per sq. ft. in respect of 73,371 sq. ft. on flats, shops and offices. The statement cannot be made use of for the purpose of precluding the assessee-firm from claiming the disbursements made out of the on money receipts as expenditure, if they are backed by satisfa....
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....two persons in its letter dated 5-2-1993 is a strong circumstantial piece of evidence in its favour. We, therefore, consider that the claim of ₹ 20 lakhs has to be allowed. 12. So far as the pooja expenses are concerned, the expenditure of ₹ 14,720 which is stated to have been incurred for Satyanarayana Pooja conducted after completion of the construction can be allowed as deduction. 13. There is no direct proof in respect of the other payments claimed by the assessee. Such payments claimed by the assessee are in respect of hawkers, tapories, protection money, etc. However, considering the newspaper reports and also the fact that the assessee had been forced to incur similar payments, and taking an overall view of the situation in which the builders are placed, an additional estimated expenditure of ₹ 1 lakh is allowed as deduction. 14. The addition to be sustained as per our direction will be as below : Rs. Rs. Total on money receipts @ ₹ 100 per sq. ft. for 73,371 sq. ft. 73,37,100 Less payments as protection money, for vacating hawkers, tapories, etc. 30,00,000 Pooja expenses 14,720 30,14,720 Balance taxable as income 43,22,380 The addition....