TaxTMI 
TaxTMI 
2016 (10) TMI 531
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....2009 and 29th November, 2011 respectively 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,....
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....r working purpose which works out as mentioned on the said page as sales realization Rs. 10,07,41,500, 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 R....
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....e conduct of business. By merely denying that the papers have not been written in their hand writing , that they do not know about the contents of the same or filing affidavits 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,....
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....nd thus adding the same as undisclosed income of the assessee. Without prejudice it was submitted by the assessee that many of the flats sold were not at all sold in the relevant previous year 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/- Salea....
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....cial areas not sold till date as observed from the balance sheet for the year ended on 31st March 2010:- Particulars Area in sq. ft. Area x rate per sq. ft. Amount (Rs) Residential space in Bldg. A-2 and A-3 (16,320 sq. ft. each) 32,640 32,640 x 500 1,63,20,000 Commercial space in Bldg. A-2 3690 3690 x 550 20,29,500 Total value 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 a....
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....e Revenue is extrapolating and making addition during the impugned assessment year 2007-08 without any evidence on record. The assessee submitted that the A.O. erred and relied on the loose papers found and seized from the possession of the assessee which contained rough notings and the contents were considered as true. The ld. Counsel drew our attention to the seized material page 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....
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....d to the profit margin on the said undisclosed sales. The assessee has already offered for taxation Rs. 1.25 crores as 'on money' received during the assessment year 2008-09. It was stated that the assessee has not received any 'on money' during the impugned assessment year and in the absence of any evidence that any on-money was received during the impugned assessment year, no 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 cle....
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....by the assessee and for the next year the assessee itself surrendered Rs. 1.25 crores based on the statement recorded during course of search operations whereby it was admitted by the assessee that the 'on money' was received by the assessee from 01-04-2007 to the date of search. The ld CIT DR referred to the seized material page 18 and back of page 18 Annexure A-3 which is placed at paper book page 22-23 , wherein clearly reference to the date 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 dis....
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....rty at Mira Road, District Thane. The assessee is a partnership firm wherein Bharat S Shah Group and D G Choudhary Group are partners which is an admitted and undisputed position between rival parties. During the course of search operations u/s 132(1) of the Act conducted by the Revenue on 13-03-2008 , several documents were found and seized which included document which is marked as page no. 18 and back of page 18 of Annexure A-3 which was also found 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 asse....
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....s rightly contending that it represents the sale of the assessee as in our considered view , the word 'Sales Realisation' can only mean sales against which payments stood realized , thus no prudent person will write projected sales as 'Sales Realisation'.The use of the word 'Sales Realisation' can only be interpreted as sales against which money stood realized. Similarly mention of the word 'Sales' also means that sales stood concluded by the date 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 ass....
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....arden project vide question no 8 and 9 against which the reply of the partner of the assessee is that these prices are quoted to casual buyers and not to the serious buyers, while on the other hand the assessee is showing revenue @ Rs. 1200-1350 per square feet in the Shanti Garden project for different flats. The AO has not persued these seized documents (page 2/folder 3 i.e. Annexure A-3) while framing the impugned assessment and no further enquiry 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 r....
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.... completed in 2007 and the same was stated by the learned counsel for the assessee before us. The alleged meeting which took place on 30-08-2005 vide document no 14 of loose paper containing page 1-24 which is a minutes of the meeting wherein the understanding to generate and distribute cash 'on money' between the two partner groups was allegedly arrived at and reiterated as stated in the said seized document while it is other matter that the assessee has denied of any 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 ....
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.... of income for the assessment year 2008-09 and offered this surrendered income of Rs. 1.25 crores for taxation. The assessee has also sold majority of the flats in the previous year 2006-07 with respect to Shanti Garden project and the insignificant inventory is left unsold as on 31- 03-2007. This period also matches with the period of boom in Indian Real Estate industry which is elaborately discussed above by us. Section 132 of the Act is a code in itself. The Section 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 compl....
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....fy the same. All the grounds above are without prejudice to each other." 13. The facts of the case are similar compared to ITA No. 76/Mum/2012. Since the assessee made disclosure of Rs. 1.25 crores during search proceedings on 13-03-2008 , during the course of assessment proceedings the assessee was asked by the AO to provide the basis of disclosure of Rs. 1.25 crores and as to why not cash receipts should be extrapolated for sales after 1.4.2007 till the date of search as the partners accepted to receive 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 curr....
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....ed in accepting cash 'on money' i.e. out of books receipts. The AO observed that accordingly on an average basis, at the rate of 20% extrapolation could be done on the total sales of Rs. 18,70,90,000/- for the period 1.4.2007 to 13.3.2008(date of search] which comes to be Rs. 3,74,18,000/- and out of this, the assessee had already made disclosure of Rs. 1.25 crores , so only the balance of Rs. 2,49,18,000 was directed to be added to the income of the assessee for the assessment year 2008-09 by the AO vide assessment order dated 22-12-2009 passed u/s 143(3) of the Act. 14. Aggrieved by the assessment 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 ....
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....T(A) observed that no evidence has been shown by the assessee to prove that the 'on money' received was Rs. 1.25 crores or it was varying from 10% to 20% , while on the other hand the learned CIT(A) observed that the assessee has categorically stated in the statement recorded u/s 132(4) of the Act that due to boom in the real estate market, the assessee could collect 20% extra money. The ld. CIT(A) accordingly uphold the action of the A.O. that 'on money' at 20% on the sale of flats was received by the assessee as per the statement of the partner of the assessee Mr. Mukesh D Chowdhary recorded u/s 132(4) 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....
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....er groups of the assessee on 30-08-2005 at Taj Mahal Hotel, Bombay wherein it was decided to generate and distribute cash 'on money' from the sale of flats of Shanti Garden. The ld. D.R. submitted that the voluntary statement was made by the partner of the assessee Mr Mukesh D Chowdhary on 14-03-2008 which has not been retracted by the assessee and the return of income has been filed wherein Rs. 1.25 crores was declared and offered for taxation. He drew our attention to the question no 7-11, 26 and 27 of statement dated 14- 03-2008 of Sh Mukesh D Chowdhary and submitted that the additions be sustained. The ld 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 a....
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....ting between the partner groups of the assessee where there was a understating arrived at and reiterated during the meeting between the two partner groups for cash generation and manner of distribution of cash so generated amongst partner groups with respect to the project undertaken by the assessee. Vide page No. 18 and back of page 18 of Annexure A-3, we have confirmed the addition on account of cash 'on money' so generated in the ITA no 76/Mum/2012 with respect to the flats sold during the previous year 2006-07 relevant to the assessment year 2007-08 while 'on money' on the unsold stock in the assessment year 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 w....
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....ssee is continuing as brought on record since 2005 meeting till the recording of statement on 14-03-2008 as set out above whereby conduct of the assessee based on preponderance of human probabilities points to the receipt of 'on money' regularly by the assessee during the instant assessment year backed with booming real estate sector which itself is admitted by the assessee and quantification need to be done based on the empirical data of the immediately preceding year as the real estate boom continued during this instant assessment year . Keeping in view that the assessee has surrendered Rs. 1.25 crores during the 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 ....
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....der of learned CIT(A) in the assessment year 2007-08 in the manner laid down in our decision in ITA NO 76/Mum/2012 in preceding para's for assessment year 2007-08 the additions made based on seized material page 18 and back of the page 18/annexure A-3. The addition has been made in this year based upon the sale of unsold stock which was carry forward from the earlier years based upon the seized material page 18 and back of page 18 of annexure A-3 whereby addition of Rs. 1,18,500/- has been made in the instant assessment year. We have upheld the validity of the additions made based upon the seized material page No. 18 and back of page 18 / annexure A-3 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 ....