TaxTMI 
TaxTMI 
2016 (2) TMI 835
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....Vatika Limited (formerly Vatika Land Base Private Limited) v. Commissioner of Income Tax] and that appeal was dismissed by the Division Bench of this Court on 6th April 2015. Search and Seizure operation 3. The background facts are that the Respondent-Assessee is engaged in the business of real estate development and was incorporated on 2nd July 1998 under the Companies Act, 1956. 4. A search and seizure operation under Section 132 of the Act was carried out at the business premises of the Assessee and residential premises of its Directors on 8th May 2003. For quite some time thereafter no further proceedings took place. 5. During the search and seizure operation, the Revenue seized various materials including inter alia the documents stored in the computer of one Mr. Sunil Awasthi, an employee of Vatika Group to which the Assessee belongs. These documents contained the working of the anticipated sale revenue on account of sale of space in the Vatika Triangle ('VT') and Vatika World ('VW') commercial complexes. The construction of these commercial complexes commenced in the financial year ('FY') 2001-02 (relevant to the Assessment Year 2002-03). VT compr....
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.... floor space was at Rs. 5,538 per sq.ft. and other floors was at Rs. 4,000 per sq.ft, the Assessee pointed out that Mr. Awasthi had been working as a Junior Executive under Mr. Pankaj Pal, Vice President (Marketing Division) of Vatika Group. The Assessee volunteered that "it is evident from the plain reading of the paper that these are mere projections and do not represent any completed materialized transaction." It was submitted that the said paper did not reflect that those were the actual sale rates. Attention of the AO was drawn to the footnote on the third page of the print out of the computerized file of Mr. Awasthi which read as under: "(i) It is presumed that the building will be completed and fully let out in the month of November 2002. (ii) Sale of building will took place over a period of nine month. (iii) Advance rent is adjustable in equal instalments over a period of 36 months (iv) Sale value calculated after adjustment for the security deposits and unadjusted advance Rent Deposit. (v) No Tax deducted at sources is considered on the rental revenues." 9. The Assessee in its reply pointed out that the projections "do not r....
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....nd Rs. 4,682 per sq. ft. (for 5th floor) for a total sum of Rs. 1,52,93,217. On this basis the Assessee calculated the net revenue loss at Rs. 17,93,217. According to the Assessee, the hand writings at the bottom of the page and adjoining sheets of A1/60 were dumb workings and mere figures. 12. As regards documents Annexure A-1 and Annexure A-9 seized from the residence of Mr. Anupam Nagalia, Director of the Assessee, it was submitted that they were mere projection sheets prepared by Mr. Anupam Nagalia who would be the best person to explain them. A request was made to summon Mr. Nagalia since the seized documents did not pertain to the Assessee. It was pointed out that the documents seized were not in the handwriting of the Assessee. As far as Annexure A-1 was concerned, it was submitted that it was an estimated working of assumed payments and receipts with the interest thereon. 13. As regards Annexure A-13 seized from the office of Vatika Group at First India Place, Gurgaon, inter alia stated to be in handwriting of Mr. Mrinal Nag whose statement was recorded by Deputy Director of Investigation ('DDI'), the Assessee explained that the said papers had nothing to do with the ....
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....a it appeared that the figure of purchase of the five flats was higher than the disclosed amount. 17. The AO proceeded to draw the following inferences: (i) The plots in VT were surrendered by Mr. Rajesh Bhatia and Ms. Poonam Bhatia at the rate ranging from Rs. 4,682 to Rs. 4,800 per sq.ft. in the month of February 2003 which shows that the plots in VT were sold at a rate ranging from Rs. 4600 to Rs. 4800 per sq.ft. in the month of February 2003. The entries mentioned on the reverse of page No. 26 of Annexure A-9 seized from the residence of Mr. Nagalia further strengthened this fact and revealed that Rajesh Bhatia and Poonam Bhatia had purchased their plots in VT at Rs. 4350 per sq.ft. in August 2002 and had further sold their respective plots in VT at Rs. 4682 per sq.ft. in February 2003. (ii) From the sale register (Annexure A-18), it was revealed that Mr. K.L. Verma and his family members had made a total investment of Rs. 4,11,43,300, out of which an amount of Rs. 1,65,44,740 was paid through cheques and the balance of Rs. 2,45,98,500 was paid in cash. These very flats were repurchased by the Assessee and sold to other persons at much higher rate. This was....
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....gs of the CIT (A) were as under: (i) The documents which could be related to the Assessee including those found in the possession/handwriting of Mr. Anupam Nagalia, Mr. Sunil Awasthi or Mr. Deepak Chakraborty cannot be made basis for making any addition in the hands of the Assessee unless a logical conclusion could be drawn from them. (ii) No adverse view was possible on the basis of entries recorded in Annexure A-13. The author of that document, Mr. Mrinal Nag, clarified that the entries therein were made by him for the purposes of a job at Unitech. (iii) As far as the print out of the file recovered from the computer of Mr. Sunil Awasthi was concerned, it established that the rate at which the flats on the second and third floor were sold was Rs. 3,250 per sq.ft. This was in excess of the sale consideration to the extent of Rs. 5,60,73,380. (iv) Annexure A-1/16 seized from the office of Vatika Group at First India Place, from the computer of Mr. Anupam Nagalia, did not indicate the consideration for the purchase of flats held by the Bhatias in VT. Therefore, no adverse view could be drawn from the said documents. (v) As regards the sal....
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....imate. 2. The CIT(A) has erred In deleting the addition of Rs. 11,34,05,096 out of total addition of Rs. 13,84,20,000. The Learned CIT(Appeals) should have upheld the addition as made by the Assessing Officer as he agreed with the findings of the Assessing Officer that there were statement of sale consideration. 3. The CIT(A) has erred in deleting the addition of Rs. 1,04,39,000 on account of addition made for a accommodation entry by the assessee as the additions were made by the Assessing Officer on the basis of discussion and derived from the seized documents during search operation. Order of the ITAT 26. By the impugned common order dated 8th March 2103, the ITAT dismissed the Revenue's appeal while partly allowing the Assessee's appeal. With regard to issue of the alleged undisclosed receipt on sale of flats/space in VT, the ITAT deleted the additions made by the AO as sustained by the CIT (A) of Rs. 5,60,73,380. It however upheld the additions of Rs. 1,35,00,000/- and Rs. 49,64,904/- aggregating to Rs. 1,84,64,904/- out of Rs. 2,00,14,904/- sustained by the CIT (A) in respect of the alleged undisclosed receipt on sale of flats/space in VW. The ITAT als....
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....ribunal was correct in law in deleting the addition of Rs. 25,40,36,454 out of the total addition of Rs. 31,01,09,834 made by the AO on account of undisclosed receipt from sale of space/flats in Vatika Triangle? 2. Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in law in deleting of Rs. 11,49,55,096 (i.e. Rs. 11,34,05,096 plus Rs. 15,50,000) out of the total addition of Rs. 13,84,20,000 made by the AO on account of undisclosed income not declared by the Assessee in its books of account? 3. Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in law in deleting the addition of Rs. 1,04,39,000 made by the AO on account of accommodation entries taken by the Assessee? 4. Whether on the facts and circumstances of the case, the order of the ITAT is not perverse as it has failed to consider that in this case, the AO made the addition on the basis of the relevant searched material gathered from the Assessee during the course of the search proceedings?" 29. However, by an order dated 20th May 2015 the only question that was framed for consideration by the ITAT was as....
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.... by the CIT (A), the Court could also examine the validity of the deletion by the CIT (A) of the balance sum of Rs. 25,40,35,954 in this regard. Submissions of counsel for the Assessee 34. Mr. C.S. Agarwal, learned Senior counsel appearing for the Assessee, sought to support the impugned order of the ITAT. Mr. Agarwal first submitted that the ITAT was right in observing that CIT (A) erred in accepting only one part of document which was otherwise characterized as projections. Merely because the portion that was accepted indicated that flats on the second and third floor had already been sold, it did not mean that the flats were sold at the rates mentioned therein. 35. Mr. Agarwal further submitted that once the sheet is held to be a projection statement, it is to be treated as such for all purposes. He also pointed out that the area stated in the document for the third floor was 17,004 sq.ft whereas the actual area was 16,121 sq.ft. Further up to AY 2003-04, the fourth floor had also been sold but it was not indicated so in this document. The constructed area recorded in the Sheet No. 10 was 1,30,425 sq.ft. whereas the total area sold was 94,671.09 sq.ft. The other figures....
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....isclosed income which was detected as a result of the search. There was no incriminating evidence to show that the Assessee had sold second floor measuring 1667 sq.ft. area @ Rs. 3250 per sq.ft. as against the actual sale consideration received @ Rs. 1535 per sq.ft. (average rate). There was no basis for the AO to have adopted the unit rate of Rs. 4800 per sq.ft. for determining the actual sale consideration in respect of the flats in VT. Lastly, it was submitted that the ITAT had based its conclusion on an interpretation of the documents in question and the said finding was essentially a finding of fact. Reliance was placed on the decisions in Commissioner of Income Tax v. Kantilal Prabhudas Patel (2008) 296 ITR 568 (MP) and Commissioner of Income Tax v. Manish Buildwell (P) Ltd. (2011) 245 CTR 397 (Del) to underscore the point that the additions cannot be made on guess work or estimates. Discussion and Reasons 38. At the outset the Court would like to recapitulate the scope of search proceedings under Section 158BC under Chapter XIV B of the Act. In Commissioner of Income Tax v. Ravi Kant Jain (supra) the Court explained: "The special procedure of Chapter XIV-B is ....
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....ount. Its verification has to be searched outside regular books with reference to material that has been found during search. That makes it imperative to adjudicate the return with reference to material that has come in the possession of the assessing authority during the course of search proceedings and on which basis the belief about the existence of undisclosed income is entertained by the assessing authority inviting invocation of sections 158BB and 158BC." 40. Turning to the case on hand, the document recovered from the file in the computer of Mr. Awasthi, forms the basis of the addition made by the AO, which was further reduced by the CIT (A). This was in the form of a computer print out of three sheets which were unsigned and undated. The first sheet was titled 'Cash-in-flow detail for the revenue', the next was titled 'Revenue details' and the third was titled 'Vatika Triangle, Guargaon.' The notes to the documents are indicative of their being projections. Noting (i) states that "it is presumed that the building will be completed and fully let out in the month of November 2002." Another note states "Further, the sale of the building will took place over a period of nine....
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....hat there are anomalies in the figures mentioned in Sheet Nos. 3 and 4 of the said document. This can be understood in a tabulated form as under: Floor Rate as per Sheet No. 3 (Rs. per sq.ft.) Rate as per Sheet No. 10 (Rs. per sq.ft.) Ground floor 5,538 4,154 First Floor 4,000 3,360 Second floor (already sold) 3,250 Third floor (already sold) 3,250 Fourth floor 4,000 3,250 Fifth floor 4,000 3,350 Sixth floor 4,000 3,360 Seventh floor 4,000 3,360 44. The above projection statement mentions rates for seven floors whereas the construction was still in progress and the seven floors had not been completed. There is another anomaly inasmuch as in para 8.28 of the order of the CIT (A), it is observed that the said document cannot form the basis of determining the actual rate of sales for the remaining floors, and yet, as rightly pointed out by the ITAT, those rates have been relied upon by the CIT (A) to determine the amount that should be added in respect of the sales of the flats on the second and third floors of VT. 45. As pointed out in Commissioner of Income Tax v. S.M. Aggarwal (supra) the said do....