TaxTMI 
TaxTMI 
2016 (10) TMI 531
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.... passed by the learned Assessing Officer (hereinafter called "the AO") both u/s 143(3) of the Act. 2. First, we shall take up the assessee's appeal in ITA No. 76/Mum/2012 for the assessment year 2007-08 wherein the following grounds of appeal are raised by the assessee in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called "the Tribunal") read as under:- "1. In confirming an addition of unaccounted income based on presumptions and surmises and without appreciating correctly the facts of the case and practical realities. 2. In not appreciating that no addition could be made based on rough workings found at the premises which at best represented provisional figures and nothing more. 3. In not appreciating the explanations given by the appellant of various reasons why flats are sold at different prices and other submissions made by the appellant. All the grounds above are without prejudice to each other." 3. The brief facts in this case are that the assessee is a partnership firm engaged in the business of civil construction i.e. development of property at Mira Road, Dist, Thane. A search operation was conducted by Revenue u/s 132 of the....
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...., whereas the actual sales is Rs. 9,17,40,754/- which is duly recorded in the books of account and the balance sheet for the year ended 31.3.2007. The sales figure of Rs. 10,07,41,500 includes the sales figures of building No A2/3 which till date is under construction (i.e. 70% of the work is completed). The saleable area of the said building is 39,900 sq. ft. The sale booked as on 31.3.2007 is Rs. 9,17,40,754/- which does not include the sale value of building No. A2/3, hence the variation appears. 4. One WIP S/D hand written figure is 16,43,77,664/- which is the closing work in progress figure as on 31.3.2005 which is duly accounted in the books of accounts of the firm. 5. One total WIP S/G hand written figure is 40,04,25,610 which is the total of construction expenses and administrative expenses incurred up to 31.3.2007 of Shanti Garden project. Whereas the actual expenses booked as on 31.3.2007 in the books of accounts of the firm is Rs. 40,04,57,874/-. 6. The Hand written figure of Rs. 48,30,86,776 is the total of WIP S/D, Rs. 16,43,77,664 & WIP S/G Rs. 31,87,09,112". The assessee was confronted by the A.O. that if in page No. 18 Work-inprogress figures stated are match....
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....davits from the buyers denying cash payments is not sufficient. Further, assessee is also involved in receiving cash i.e. out of book money, on the basis of which disclosure of Rs. 1.25 crores had also been made by assessee. Further from the analysis of Page No. 14 of loose paper file containing pages 1 to 24 seized during search operations, it is evident that assessee was involved in accepting cash i.e. out of books receipts. Thus, on the basis of above, the following additions were made by the AO by commenting as under:- "Regarding sales of Shanti Gardens Sec. III Project, there is difference of 53,10,440 rs (22,38,98,720 - 21,85,88,280) as on 31.3.2007 i.e. for AY 2007-08, in actual sales booked till 31.3.2007 and figure written on loose paper. However WIP figures are matching with books of accounts. Accordingly Rs. 53,10,440 has been added back to the income of the assessee as out of book receipts. Regarding Sales of Shanti Gardens Sec IV project, there is difference of Rs. 1,07,77,875 rs (22,28,67,500-21,20,89,625) as on 31.3.2007, i.e. for AY 2007-08, in actual sales booked till 31.3.2007 and figure written on loose paper. However WIP figures are matching with books of ac....
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....ar and the AO is not justified in taxing the entire amount in the impugned assessment year. Thus, the assessee prayed before the learned CIT(A) to delete the addition of Rs. 2,50,89,061/- made by the AO vide assessment order dated 22-12-2009 passed u/s 143(3) r.w.s. 153A of the Act. The learned CIT(A) forwarded the submissions of the assessee along with the enclosures to the AO for remand proceedings. Remand report was called from A.O. whereby the A.O. submitted his report as under:- "2.During the course of remand proceedings , Shri R S Pandey , Advocate from M/s Rajendra & Co. , along with Shri Shekhar Talekar, Manager (Accounts) attended from time to time and furnished the working of closing stock. 3. Shanti Garden, Sector III 3.1 . As per the seized material, the sale price was estimated of the saleable area of the said project as follows: Particulars Area & rate per sq. ft. Amount (Rs. Saleable are of residential space 176720 x 1201 21,22,40,720/- Saleable area of commercial space 9715 x 1200 1,16,58,000/- Total sales estimated 22,38,98,720/- 3.2 Out of the above, during the course of Remand proceedings, it is stated by the assessee that f....
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....e of area not sold during the A.Y.2007-08 1,83,49,500 The ld. CIT(A) considered the submissions of the assessee, remand report and the assessment order of the A.O. and observed that there are seized material available to prove that the assessee has collected from the flat purchasers over and above the sale price shown in the sale documents. The assessee has also disclosed Rs. 1.25 crores as an undisclosed income on it's own in the statement recorded during the course of search proceedings as 'on money' received for the period from 01-04-2007 to the date of search on 13-03-2008. Thus the assessee's contention that it has not received any 'on-money' from the sale of flats was rejected by the learned CIT(A). It was also observed by the learned CIT(A) that certain flats and commercial areas in these projects were not sold up-to the end of the accounting year relevant to this assessment year and it was kept as an inventory. However the A.O. has applied the same rate for these spaces also and arrived at the undisclosed income which is not correct and the ld. CIT(A) held that the inventory stock has to be valued at cost price or market price, whichever is low....
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....age 18/18a Annexure A-3 which is placed at paper book page 22- 23 and submitted that the basic flat sale rates were applied to the total area to arrive at the total sale projection of the entire project. This is prepared for management purposes for advance tax purposes and is not and cannot be a basis for making an addition of undisclosed income as was done by the Revenue. It is submitted that the A.O. has made the addition of Rs. 2,50,89,061/- , while the ld. CIT(A) has given part relief to the assessee whereby the AO was directed by learned CIT(A) to eliminate 'on-money' element on the unsold stocks and the said unsold inventory be valued at cost or market price which ever is lower. The ld. Counsel also drew our attention to the assessment order and order of the ld. CIT(A). It was submitted that no further enquiry was made by the A.O. from the buyers. The A.O. has applied section 132(4A) of the Act and held that there is a presumption that the contents of the seized documents are true. Assessment has been made on the basis of seized material which are nothing but rough calculations. The ld. Counsel submitted that the assessee has already surrendered an amount of Rs. 1.25 crores v....
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....addition can be sustained. The ld. Counsel relied on the decision of Hon'ble Bombay High Court in the case of M/s. Jyoti Wire Industries Ltd. v. CIT in Income Tax Reference No. 38 of 1997 dated 25th September, 2012, whereby Hon'ble Bombay High Court has upheld the view of the Tribunal that merely because the tax-payer has received 'on money' during the assessment year 1990-91 , it does not follow that the tax-payer has also received 'on money' during the assessment year 1989-90. 8. The ld. CIT D.R. referred to the seized documents marked as page No. 18 and back of page 18 of annexure A-3 which is placed at paper book page No. 22-23. The ld. CIT D.R. relied upon the orders of A.O. and the ld. CIT(A) and submitted that in the seized material page 14 of loose paper file containing pages 1 to 24, there is clear-cut acceptance that 'on money' has been paid in the case of the assessee's project. The contents of the said seized page no. 14 of loose paper file containing 1-24 pages which is part of seized material are reproduced below:- "Minutes of the meeting held on 30/8/2005 at 3 pm in Chambers at Taj Mahal Hotel Bombav between Bharatbhai & papaji (D.G.C.). Following points were di....
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....e 31/3/2007 is mentioned twice and reference to the period 01-04-2006 to 31-03-2007 is also mentioned once. The said document was seized during search and clearly project wise details are mentioned. The assessee has not disputed that the figures pertain to the project undertaken by the assessee. The figures are not round figures and odd figures are mentioned in the said document , thus, these are actual figures as had these been projections, then round figures would have been there was the contention of learned CIT DR. The ld. CIT(A) remitted the matter to the file of A.O. for exclusion of cash ''on-money' element from the additions made with respect to the unsold stock. The assessee has come out with the submission that assessee has given discount on sales. The assessee has to produce cogent material that it is rough noting and not final which the assessee failed to produce except taking the plea that these are rough notings. The cash 'on money' received by the assessee has to be brought to tax while the expenditure is already being debited in the books of accounts was the contention of learned CIT DR. The learned CIT DR submitted that there is an evidence by way of seized materia....
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....ound and seized by Revenue from 811, Embassy Centre, Nariman Point, Mumbai wherein certain figures were written in the said seized paper related to alleged work-in-progress(WIP) and alleged sales related to the project undertaken by the assessee . The said seized material is placed in paper book page 22-23 filed with the Tribunal. The assessee has owned up the said document as belonging to it written by its accountant which is an admitted and undisputed position between the rival parties , and only contents of the said seized document are disputed by the assessee which is stated to be rough notings made by the accountant of the assessee which as per the assessee cannot be the basis for making additions as were made by the Revenue. The assessee has also admitted that the documents contained particulars of the work-in-progress and sales figures of the project undertaken by the assessee at Mira Road, Thane but figures per-se of sales recorded are disputed by the assessee as well as it is the contentions of the assessee that it represent projected / rough sale figures and not the actual sales figure as recorded in books of accounts maintained by the assessee. There is also seizure of a....
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.... of preparation of the document with reference to the date i.e. 31-03-2007 for the period to which it pertains as mentioned in the seized document. The figures against 'Sales Realisation' or 'Sales' which are appearing alongside figures of work-in-progress which figure of work-in-progress in the seized material found are the same figures as are recorded in the books of accounts which leaves us with no iota of doubt that figures against the word 'Sales' or 'Sales Realisation' are actual figures of sales concluded by the assessee. The presumption u/s 132(4A) of the Act shall apply , the documents having been found from the possession of the assesssee shall be deemed to belong to the assessee which in the instant case is not denied by the assessee and the content of the document shall be considered true and correct , thus, now it is for the assessee to rebut the same. Merely by saying that these are rough notings is not sufficient . On perusal of the document , it is observed that the assessee's accountant while preparing the said seized document has multiplied the sales rate to the area available for sale of different units in different phases of the project to arrive at the sale fig....
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....iry is made by the AO as borne out from the records/material before us with respect to these seized documents reflecting re-sale prices. The assessee has also in reply dated 26.10.2009 to AO during the assessment proceedings for the assessment year 2008-09 i.e. previous year 2007-08 had stated that there was real estate boom in the real estate business during 2007-08 where the buyers were keen to buy properties and wanted to urgently strike deals with respect to flats of their choice keeping in view their perception of the flat being a prime flat in the building. Mr Mukesh D Chowdhary has in his statement dated 14-03-2008 confirmed about the boom in the real estate market in reply to question no 27.The real estate boom in 2006-08 is also reflected in CRISIL research report-Indian Real Estate overview whereby the real estate sector progress has been defined as under:- "Phase I (2001-2005) was an initial growth phase with stabilising residential real estate prices following the global recovery post the "dot com" bust and 9/11 terrorist attacks in New York. At the same time, there was steady growth in Indian economic activity, noteworthy recovery in IT/ITES industry, growing urbanis....
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....ny such meeting. The document was seized from the assessee and the presumption u/s 132(4A) shall apply that the document belonged to the assessee and the contents of the documents are true and correct. It is for the assessee to rebut the same which the assessee has merely denied the same while the documents speaks loudly that the said meeting in-fact took place on 30-08-2005 at Taj Mahal Hotel , Bombay between the two partner groups to decide about the modus operandi to generate and distribute cash 'on money' from the projects undertaken by the assessee amongst two partner group in the manner stipulated in the said seized document . It is admitted by the assessee that two groups mentioned in the said document are to be decoded as Bharat S Shah group and D. G Choudhary group who are in fact partner groups of the assessee. The name of the assessee also did find mention as 'RNDC' in codes which in-fact stands for abbreviated version of the assessee name i.e. 'Ramnagar Development Corporation' . The case law of Jyoti Wire Industries Limited( Supra) relied upon by the assessee is clearly distinguishable as in this case there was no evidence that the tax-payer has received any on-money f....
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....on is placed in statute with an objective to prevent evasion of taxes and to unearth undisclosed income or hidden income and bring the same to tax as per the scheme of the Act. It also empowers revenue to seize money, bullion etc which represented the undisclosed income which are retained by the Revenue to be appropriated for realization of demands raised under the provisions of the Act persuant to the assessment framed by the Revenue in consequence of the search. There will always be some estimation and guess work while computing the undisclosed income of the assessee as the same had been kept hidden by the assessee from the Revenue which is within the special knowledge of the assesssee and may not be brought out completely before the authorities , thus, exact precision can never be reached in estimating undisclosed income, the safe guard should be to ensure that guess work in estimating undisclosed income should not be arbitrary. In our considered view, the ld. CIT(A) has taken a correct stand confirming and sustaining the assessment order passed by the AO vide his appellate orders dated 08-11-2011, as also we agree with the stand taken by the learned CIT(A) in his appellate orde....
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....ve out of book money from 1.4.2007 onwards in his statement dated 14.3.2008 u/s 132(4) of the Act and disclosed Rs. 1.25 crores on this account. The extract of the statement reads as under:- "Q.27 Do you want to say anything? Ans. I have to say only that due to the price rise in building construction business I have been able to collect cash money roughly 20% over and above the sale price realized by us in financial year starting from 1.4.2007 onwards amounting to Rs. 1.25 crores approximate upto the date, which is not recorded in my books of account of M/s Ramnagar Development Corporation. The same is hereby surrendered as additional income for the current financial year with the request that no penal/prosecution action should be taken against us & I may be allowed the immunity granted under Sec 132(4) of the IT Act, 1961." In response vide letter dt 21.10.2009, assessee made following submission: "Query No.3 What is the basis of disclosure of Rs. 1.25 crores? The above disclosure was made to buy peace of mind at the end of very exhausting and emotionally and mentally an extremely tiring session lasting almost for 24 hours. It was made on the basis of the partners esti....
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....t order dated 22-12-2009 passed by the A.O. u/s. 143(3) of the Act, the assessee filed its first appeal before the ld. CIT(A). 15. Before the ld. CIT(A), the assessee submitted that the A.O. has made the addition which was purely on presumption and surmises and without any specific material found to justify the same. The assessee submitted that no such evidence has been found that the cash 'on-money' has been collected on each and every bookings, hence, the A.O. was completely unjustified in making the addition during the year in question. It was submitted that the A.O. had completely ignored the submissions made by the assessee wherein it was stated clearly that cash 'on-money' was received only in some cases and that too varied between 10% to 20% and hence there was no case for the A.O. to pro rate that statement into assumption that on money of 20% had been received in respect of every single booking done by the assessee during the year in question. The assessee submitted that the project had only started during the year and had been sold only to the extent of less than 25% during the year in question and hence the possibility of huge on-money being paid by buyers was remote sin....
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....) of the Act on 14-03-2008as the assessee failed to prove that the 'on money' received ranged from 10-20% . Thus, the learned CIT(A) affirmed the assessment order dated 22-12-2009 passed by the AO u/s 143(3) of the Act vide his appellate order dated 08-11-2011. 16. Aggrieved by the appellate order dated 08-11-2011 of the ld. CIT(A), the assessee is in second appeal before the Tribunal. 17. The ld. Counsel for the assessee submitted that the basis of the addition was statement dated 14-03-2008 made by the partner of the assessee Mr. Mukesh D Chowdhary during the course of search operations whereby the partner of the assessee submitted in response to question no 27 that due to price rise in building construction , assessee was able to collect cash 'on money' roughly 20% over and above sale price from 1.4.2007 till the date of search amounting to Rs. 1.25 crores which is not recorded in the books of account and the same was surrendered by the assessee. The assessee has duly filed the return of income and disclosed the said amount of Rs. 1.25 crores in the return of income filed with the Revenue and paid the due taxes. The A.O. has made the addition based upon extrapolation of 20% of....
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.... CIT DR submitted that the said partner of the assessee Mr. Mukesh D Chowdhary in reply to question no 27 stated that 'on money' received was 20% and now onus is on the assessee to rebut that the statement was not correct. Income Tax Proceedings are governed by preponderance of human probabilities The ld. CIT D.R. relied upon the judgment of Hon'ble Supreme Court in the case of Sumati Dayal v. CIT (1995) 80 Taxman 89(SC) . It was submitted that keeping in view conduct of the assessee and on the test of preponderance of human probabilities , the additions as made by the AO and as confirmed by learned CIT(A) needs to be confirmed/sustained. It was submitted that the arguments taken by the assessee are afterthought. The ld. CIT DR submitted that it is the duty of the assessee to explain the seized material and document no 14 of loose seized folder containing 1-24 page clearly stipulates that the partner group of the assessee duly entered into an understanding to generate and distribute amongst themselves cash 'on money' received from the project. It was submitted that the disclosure was not suo motu but based on evidences found during search and the statement of the assessee was volun....
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....2007-08 was directed to be excluded as the same was not sold in the assessment year . The flats so sold in the assessment year 2008-09 as reflected per seized material page 18 and back page of 18 vide annexure A-3, the 'on money' component shall be brought to tax based upon the sales executed of the inventory executed in the instant assessment year which were reflected of the projects vide seized annexure A-3/page 18 and back page of 18. The partner of assessee has stated in the statement recorded on 14-03-2008 that 'on money' received from 01-4-2007 to the date of search was 20% over and above sale price which in aggregate amounted to Rs. 1.25 crores for the period 01-04- 2007 to date of search. The A.O. has applied 20 % extrapolation on the total sales which led to addition of Rs. 3,74,18,000/-- inclusive of Rs. 1.25 crores surrendered by the assessee. The AO per-se cannot apply part of the surrender by picking and choosing the figure of 20% over and above cash sales in isolation to the figure of total surrender of Rs. 1.25 crores unless cogent reasons are brought on records. However, since part of the stock was sold during the assessment year 2008-09 which is carry forward from ....
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....he search proceedings vide statement dated 14-03-2008, whichever figure as arrived at as per our above directions or surrendered amount of Rs. 1.25 crores whichever is higher of the two needs to be added as un-disclosed income as in our considered view the estimate of the undisclosed income has to be made which definitely need some guess work which of course should not be arbitrary while on the other hand the details of surrender amount of Rs. 1.25 crores is within the special knowledge of the assessee which details are not brought out by the assessee. The Revenue has made addition @ 20% on extrapolation which is also not sustainable in the instant case by reading in isolation in divorce to the total surrender of Rs. 1.25 crores as the addition has been made on the basis of the statement of partner dated 14-03-2008 which categorically stated that the surrender was to the extent of Rs. 1.25 crores and secondly revenue has not made any enquiry to bring on record cogent tangible incriminating material to prove that the assessee received 20% cash on all sales while empirical data of preceding year which led to the framing of the assessment order of the preceding year as confirmed by th....
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....in ITA no.76/Mum/2012 for the assessment year 2007-08. We have observed that the search took place on 13-03-2008 while the instant assessment year is 2009-10 i.e. the assessment year is post search on 13-03-2008 . The seizures were made on 13-03-2008 and statement was recorded on 14-03-2008 which all pertained to the activities and conduct of the assessee prior to the search action on 13-03-2008. The additions for the instant assessment year 2009-10 cannot be made based on the conduct of the assessee prior to the search on 13-03-2008 unless cogent tangible incriminating material is brought on record by the Revenue to prove that the conduct of the assessee carried on by it was the same by indulging in the activity of receiving cash 'on money' even post search on 13-03-2008. The contention of the Revenue that the sales are recorded in the same seized document page 18 and back of page 18 of Annexure A 3 based on which additions were made in the assessment year 2007-08 and now the additions are made with respect to unsold stock of the earlier years found recorded in the said seized document A-3/page 18 along with back of page 18 which has now been sold in the previous year relevant to ....