AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2011 (10) TMI 732
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....ed representatives of both the parties at length, perused the findings of the authorities below and considered the material available on record. The assessee also filed written submission which is also taken into consideration. NEPTUNE INSFRASTRUCTUE PVT. LTD. (All appeals of assessee and revenue) All the cross appeals are directed against the common order of the learned CIT(A), Ahmedabad dated 31-03-2011 for assessment years 2001-02 to 2005-06. 2. The facts noted in the impugned order of the learned CIT(A) are that the assessee is Private Limited Company incorporated in 1997 with the share capital of Rs. 46,000/-. The Assessee Company claimed that during the year under consideration, it was engaged in the single project of developing Shree Ghantakarna Mahavir Cloth Market for Mahalaxmi Bhavan Co-operative Housing Society Limited. It was also engaged in the business of real estate development work and financial activities. The Assessee Company has developed the project Shree Ghantakarna Mahavir Cloth Market on the land admeasuring 31102 square meters bearing Revenue Survey number 20/1(Paiki) and Final Plot number 12(Paiki) of TPS No.18 originally belonged to M/s. Gujara....
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....No. under each floor, total area of each floor, value of sq. ft. in rupees, floor wise amount and grand total of each block. There are 13 blocks and the grand summary area of block Nos. A to M is shown as 620450 sq. ft. The sum total of all the blocks is shown at Rs. 1,41,46,26,000/- based on this loose paper. The AO has drawn a conclusion that the assessee has realized the total sum of Rs. 1,41,46,26,OOO/- for the entire project and as against the same, it has recorded total realized value of Rs. 50,89,29,741/- and therefore, the balance amount of Rs. 90.57 Crores (Rs.141.46 Crores - Rs. 50.89 Crores) is a suppressed income. The AO, therefore, apportioned the amount of Rs. 90.57 Crores in the project years from its commencement of assessment year 1997-98 to 2005-06 in the ratio of cumulative sales sold in the books as under:- Assessment Year Cumulative proceeds books sales shown in the Percentage Undisclosed Income (Rs.) 1997-98 27,75,000 0.55 49,81,186 1998-99 1,30,00,000 2.00 1,81,13,405 1999-00 4,40,38,306 6.10 5,52,45,886 2000-01 8,07,88,891 7.22 6,53,89,393 2001-02 ....
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....price. Further, the AO has drawn conclusion from the post search inquiry made from the Mehsana Urban Cooperative Bank Ltd. that cost of shop reflected in the loan document is higher than the same recorded in the books of account. In the said document, Shri Rasikbhai Patel - Manager of Assessee Company stood as the surety to this loan transactions. Further, the AO has taken the base of Govt. Registered Valuation Report wherein the valuation is placed in report dated 16-1-2001 of C. K. Patel, Valuer and report dated 26-1-2001 of Mukund C. Shah, Valuer. The value placed by them for ground floor to third floor changes from Rs. 3800/- to Rs. 4600/- for ground floor and lower price for first floor to third floor. The AO, therefore, concluded that the price indicated in the loose paper was the real price fetched by the Assessee Company. Therefore, the difference between the price indicated in the loose paper and the price indicated in the books of accounts is suppressed receipt and chargeable to tax. Accordingly, The AO has made the addition to income as noted above. 3. The addition of undisclosed income was challenged before the learned CIT(A). It was contended inter alia that the Ass....
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....et price prevailing after the period of earth-quake, (i) the cost certificate issued by the Manager of the Assessee Company was made available to accommodate the buyers of the shop for drawing higher amount of loan so as to help them to purchase the property accommodating their margin money, (j) the difference in the price rate shown by the AO in Para 8 of the order stood explained and reconciled, (k) the allotment price collected for society from members was at the prevailing market rates supported by the registered sale document effected in the cases of subsequent transfer, which price match with the allotment price found recorded in the books, (l) a specific request was made by assessee to the AO to give opportunity before taking any adverse action and also to offer cross examination of such person, however, this opportunity was not given, (m) the assessee has filled the affidavits of five persons indicating that certificates were given to them by the representative of the Assessee Company to accommodate their needs and that the actual consideration given to Neptune Infrastructure Pvt. Ltd. was as per money receipts issued and it was only price paid and that no other considerati....
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.... most the addition for the value to the extent of such instances quoted in the assessment order could be sustained and it cannot be taken as a base to fortify the future budgetary projection drawn before the start of the work as aforesaid being value at Rs. 1,41,46,26,000/- as sale price received and to tax it. There is no documentary evidence to suggest that the aforesaid value is received in full and not recorded in the books of account. Further the entire addition made in all the years is of the alleged sale price only and it is a settled law that only income earned out of such sale can be taxed. In the instant case nowhere in the relied seized document the cost of construction is mentioned and in such an eventuality the set off of cost incurred has to be allowed. At the most profit on it could be taxed but certainly not the whole amount. 3. The appellant also relies on the following Judicial Pronouncements in support of the above contentions:- 3.1 A. RAMAN & C0. 67 ITR11 (SC). HEADNOTES:- "LAW DOES NOT OBLIGE A TRADER TO MAKE MAXIMUM PROFIT." In the appellant's case the Schedule "A" seized and relied was a future budgetary projection of t....
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....STIMATES AND NO ACTUAL TRANSACTION HAD TAKEN PLACE." In the appellant's case having regards to the factual position as narrated in para 1 (i) above coupled with answer to question no.25 narrated above below the case of S.P. Goyal (SUPRA) it should be appreciated that the same cannot be treated as actual receipt but future budgetary projection only and it cannot be added as income. 4. The appellant therefore earnestly request you honour to consider the above submissions judiciously before deciding the appeals." 4. The learned CIT(A) considering the explanation of the assessee in the light of the findings of the AO and material on record directed to estimate the taxable profit at 20% of the total receipts of the project and partly allowed all the appeals of the assessee. The findings of the learned CIT(A) in Para 6 to 11 of the appellate order are reproduced as under: "6. I have considered the submissions of the appellant company and the contention of the Assessing Officer, as mentioned in the assessment order. I have also referred to the relevant documents of the seized materials. Before adjudicating the issue, in order to determine the correc....
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....appoint staff members at its convenient and availability and we, the Party of the First Part will have no objection in relation to this matter." . "9(d) According to this development agreement, the Party of the Third Part is eligible for all the rights regarding the necessary activities carried out by them on behalf of the Party of the First Part for development of the land acquired by the Party of the First Part i.e. Society. And for carrying out such development activities, the Party of the Third Part is eligible on behalf of the Party of the First Part if they are required to obtain any permission from Central Government, State Government and Municipal Corporation. And in relation to development of the asset, the party of the Third Part is eligible on behalf of the Party of the First Part if the Party of the Third Part is required to obtain permission for construction from the Town Planning Office of Municipal Corporation, Collector, Deputy Collector, Commissioner and any other development authorities. We, the Party of the First Part are agreed to pass necessary resolution, sign the documents, and give declaration and undertaking for carrying out all the aforesaid activ....
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....nt from the Party of the Third Part. And without a permission of the Party of the Third Part, the Party of the First Part cannot rescind this development agreement." "9(1) In this project, for complying with the legal procedure, if the member of the Party of the First Part who has acquired a property is required to make registered sale deed then as per the notice of the Party of the Third Part, the Party of the First Part has to make such sale deeds, and we, the Party of the First Part are agreed for making such sale deeds." "9(m) In this project, if the member of the Party of the First Part is required to borrow money or take a loan from any institution for acquiring abovementioned units or property then the Party of the First Part as per the notice of the Party of the Third Part, has to provide necessary agreement and certificates." 8.1 From the above terms and conditions of the development agreement, it is apparent that the appellant company has been entrusted all the powers, including power to enter new members and allot them the space. In other words, the appellant company is authorized to sell the "vacant place" in lieu of considerations. These clau....
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....The filing of affidavits or declarations in appeal proceedings from some "such persons", in order to rebut the contents of such evidences is of no use, as such affidavits and declarations are self serving documents and these carries no evidentiary values. Even the two independent valuers viz. Shri C, K. Patel and Shri Mukund C. Shah have certified the prevailing market price of the shops in the cloth market, which is much more than the Jantri Price. 9.1 In appeal proceedings, the counsel of the appellant has vehemently argued that properties in the cloth market have sold at Jantri price, which has been recorded in the books of accounts. However, I am afraid that due to availability of sufficient circumstantial evidences, such arguments of the appellants could not be accepted. It is a well known fact that in the real estate market, the "on money" receipt is always there. The same proposition is also true in the case of re-sale of shops. Thus, I am of the opinion that total receipts of the appellant company is required to be determined on the constructed area (till the date of search) on the basis of rates of the properties as mentioned in seized document i.e. Annexure- A. T....
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.....50 5,02,36,945/- 2003-04 5.66 1,07,29,853/- 2004-05 16.94 3,21,13,730/- 2005-06 2.94 55,73,457/- The Assessing Officer is directed to modify the assessment order accordingly. The ground of appeal No.1 is disposed off accordingly. 10. As regard Ground No.2, the chargeability of interest under difference provisions of law, I hold that same is consequential nature and disposed of accordingly. 11. In the result, the appeal is treated as partly allowed." 5. The assessee as well as the revenue are in the cross appeals in all the assessment years under reference. The assessee has raised several grounds of appeal in all the appeals. The assessee has challenged the order of the learned CIT(A) in determining total income in all the assessment years at Rs. 18,95,73,380/- as mentioned in Para 9.2 of the appellate order reproduced above. The assessee stated in the grounds of appeals that the society remained real owner of the land and building under reference and the assessee received developing charges. The learned CIT(A) should have accepted the property sold at Jantri Price and should not have accepted alleged on-money. The seized ....
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....2 (PB- 717 to 751) to show development charges have been booked in the books of the Assessee Company. Copies of the TDS certificate are filed at PB-752 to 757 to show that tax has been deducted by the society on payment to the Assessee Company. PB-758 to 788 are the copies of the acknowledgment and statement of income for the returns filed in response to search notices u/s 153A of the IT Act as well as u/s 139(1) of the IT Act with assessment orders u/s 143(3) /143(1) of the IT Act for assessment year 2001-02 to assessment year 2005-06 to show that income of the assessee from development charges have been accepted by the department in regular assessment proceedings. The sample copies of bills for material purchased by the society along with ledger account of steel, cement etc. for the period from 01-04-2001 to 06-12-2005 are filed at PB-789 to 807 to show all the building materials for construction of the project were purchased in the name of the society. PB - 808 to 816 are the sample copies of the booking receipts which were transferred and adjusted against the society. Copies of ledger accounts are filed at PB - 817 to 841. The details of units resold by the assessee's allottee ....
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....nt showing income on account of development charges from the same project. Due to earth-quake the sales have gone down. Annexure - A/1 contained the details of "value" which is wrongly taken as receipts by the revenue authorities. The details contained in Annexure - A/1 have been disproved by the report of the DVO and rightly accepted by the learned CIT(A). He has submitted that Shri Nikin P. Patel even did not know who is the owner of the shop. Shri Bholabhai Patel also relinquished his rights in the property in question. Therefore, he has no concern whatsoever with the project. The calculation made by Shri Bholabhai Patel was thus only projection. He has submitted that the purchasers of the shops have not been examined by the AO at any stage. He has relied upon the decision of the Hon'ble Gujarat High Court in the case of M. K. Shah, 307 ITR 137, decision of the Hon'ble Delhi High Court in the case of S. M. C. Sharebroker Ltd., 288 ITR 345 and the decision of the Hon'ble M. P. High Court in the case of P. C. Nahata, 301 ITR 132. He has also relied upon order of ITAT Ahmedabad Bench in the case of Hiral Pharma Ltd. Vs DCIT in ITA No.1255/Ahd/2001 dated 29-01-2010 in which it was h....
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....sessed in the hands of the Assessee Company. The learned DR submitted that loan certificate is given by the Assessee Company; therefore, estimate of income against the assessee was justified. No profit & loss account was filed in the case of the society as only balance sheet was filed. It is not clear as to how income is computed by the society. The transactions of the society do not indicate how expenses were accounted for in the books of accounts. The society has no say in the affairs of the project. There is a specific finding by the learned CIT(A) that the income belong to the Assessee Company. He has also referred to statement of Shri Nikinbhai P. Patel and Shri Bholabhai Patel to show that similar Annexure - A/1 was found from residence of Shri Bholabhai Patel and that they have admitted real rates of the property in question and the future rates have gone up. The learned DR however, fairly stated that there is nothing on record to show that their statements were subjected to cross examination by the Assessee Company. He has submitted that cost certificate Annexure - D - 3/26 and A - 3/26 were issued by the Assessee Company. However, in the statement of Shri Rasikbhai Patel, ....
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....ect. He has also referred to profit & loss account of the society to show that even work in progress is shown and booked in the books of the society. He has submitted that statement of Nikin P. Patel and Bholabhai P. Patel were not allowed cross examination, therefore, cannot be read in evidence and further their statements would not prove that assessee received any actual on-money. He has submitted that there is no evidence on record to prove assessee received any on money of the project. Entire receipts have been booked by the society. The statements and valuation report of the valuer C.K. Patel and M. C. Shah have not been supplied to the assessee. Therefore, principle of natural justice is violated. He has submitted that Annexure - A/1 / 217 referred to by the learned DR would not indicate assessee received any actual on-money. Same is the position with regard to mortgage documents. In the written submission the queries raised by the AO have been explained. PB - 638 is order of the learned CIT(A) dated 28-02-2011 in the case of the society for assessment year 2007-08 in which it is mentioned that the society ceased to exist with effect from 07-12-2005 as per order of Registrar ....
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....also filed to support the contention of the assessee that even in the regular assessment the revenue department accepted development charges from the same project in the case of the assessee. Even in the returns filed for all the assessment years under appeal u/s 139(1) of the IT Act prior to the search, the assessee has shown the development charges for developing the same shopping complex and in several years under appeals the contention of the assessee has been accepted in the assessment orders u/s 143(3) / 143 (1) of the IT Act. Copies of the same are filed in the paper book. It would, therefore, show and prove that the assessee prior to the search has been disclosing the income on account of development charges for developing the shopping complex as per the development agreement in question and the revenue department accepted the same nature and source of income of the assessee. Therefore, the nature of business income of the assessee could not be disputed by the revenue department in the proceedings u/s 153A of the IT Act under appeals. It is well settled law that though the principle of res-judicata does not apply to the income tax proceedings but the principle of consistenc....
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....re is no ambiguity in the report of the DVO as against the facts mentioned in the statement of fact as pointed out by the learned DR. Virtually, learned DR did not dispute the report of the DVO during the course of argument. Moreover, DVO is a departmental officer and have some expertise on the same line; therefore, his report could not be disbelieved. Thus, the report of the DVO clearly falsified the Annexure - A/1 which is the sole basis for making the additions against the assessee. The AO has no basis to take the value of square feet as noted in the seized paper as sale consideration or undisclosed income of the assessee. The AO has not appreciated the language used in the Annexure A/1 and without any basis or evidence took the value as the sale proceeds/undisclosed income. The Hon'ble Delhi High Court in the case of Girish Chaudhury, 163 Taxman 608, held "there is no basis as to how, AO came to conclusion that 48 was Rs. 48 lacs. No material is there to support such findings of the AO. It is dumb document. Additions deleted." The learned CIT(A) in Para 9 of the impugned order on consideration of the report of the DVO and seized document Annexure - A also held that ....
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....f DCIT Vs Radhe Developers India Ltd. and Another, 329 ITR 1 held "The assessee-company was engaged in the business of land development and allied activities. Search and seizure proceedings under section 132 of the Income-tax Act, 1961 were initiated at the business premises of the assessee-company and residential premises of the managing director and an employee of the assessee-company. In response to notice under section 158BC of the Act, a return of nil income for the block period was filed by the assessee. The assessment was framed on a total undisclosed income of Rs. 28,30,21,200. The Assessing Officer worked out the investment at a sum of Rs. 25,10,80,000 as unexplained investment and added it under section 69B of the Act. The Tribunal came to the conclusion that the addition for undisclosed receipt had to be sustained only to the extent of Rs. 12,80,00,000 as accepted by the assessee and there was no basis for making addition to the tune of Rs. 20,55,86,000 as the assessee had acquired development rights only in relation to 7 lakhs sq. yds. Of land and not 11.11 lakhs sq. yds. Of land. At the same time, the Tribunal also recorded that the amount of Rs. 12,80,00,000 paid by t....
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....see has received on-money out of the shopping complex. The authorities below have also relied upon report and statement of the valuer. However, according to the learned Counsel for the assessee despite making a request to allow cross examination to their statements, the AO did not give any opportunity to the Assessee Company to cross examine their statements. Even, the report of the valuer was not made available to the assessee. Therefore, their statements cannot be read in evidence against the assessee. The Hon'ble Supreme Court in the case of Kishanchand Chelaram, 125 ITR 713 observed that "evidences collected at the back of assessee to be confronted to the assessee to give him opportunity to rebut it otherwise it will not be admissible." The Hon'ble Delhi High Court in the case of S. M. C. Sharebrokers Ltd., 288 ITR 345 held that "AO did not allow cross examination of the person searched. Illegal. Cannot be relied upon. Principle of Natural Justice not followed." The Hon'ble M. P. High Court in the case of CIT Vs Rameshchandra Shukla, 10 ITJ 286 held that "it is now well settled that where the assessee requests the AO to issue summons, to enforce attendance of the creditor to es....
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....arket condition in the real estate. But the same would not prove in the absence of any evidence that assessee received any undisclosed income. The inference of the AO that assessee had received undisclosed income that is the differential amount as shown in the seized paper and the books of accounts, was merely based on suspicion and assumptions and there was no material to support conclusion of the AO that assessee had in fact received any onmoney. 9.4 The assessee filed affidavits of certain persons/purchasers in which it is stated that cost certificates were obtained for taking higher loan from the bank in order to avoid payment of margin money. These affidavits have not been disputed by the revenue department. No purchasers of the shops have been examined by the AO. No sale deeds executed in their cases have been disputed. The assessee in the written submission explained that assessee was required to debit all amounts received by passing journal entry and expenditures were also adjusted. The Assessee Company was entitled to development charges and the amounts received on behalf of the society were adjusted against the account of the society. All development charges received b....
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....profit by applying 20% of the total receipts from the project for making the addition. The Hon'ble Calcutta High Court in the case of CIT Vs S. M. Omer, 201 ITR 608 - Held, that section 69 of the Income-tax Act, 1961 was not applicable in the instant case. The assessee supplied the goods after incurring certain cost and after manufacturing the goods and the amount that was received from the Defence Department could not represent the net income but it was the sum received including the profit and expenditure. The Tribunal was justified in upholding the deletion of Rs. 1,01,649 (see p. 610D - F)". The Hon'ble Gujarat High Court in the case of CIT Vs President Industries, 258 ITR 654 - "Held, dismissing the application for reference, that the amount of sales could not represent the income of the assessee who had not disclosed the sales. The sales only represented the price received by the seller of the goods; only realization of the excess over the cost incurred could form part of the profit included in the consideration for the sales. Since there was no finding to the effect that investment by way of incurring the cost in acquiring the goods which were sold had been made by the asses....
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.... development charges have been accepted by the revenue department. The assessee has declared income on account of development charges in the returns under consideration; therefore, no further addition can be made against the assessee. The learned CIT(A) was, therefore, not justified in sustaining part addition in all the assessment years by applying profit rate of 20%. The learned CIT(A) should have deleted the entire addition. 9.6 Considering the above discussions, we are of the view that assessee has not earned any undisclosed income. There is no evidence or material on record to prove that the assessee has in fact received any undisclosed income for the entire project. Whatever evidence was collected by the AO is not sufficient to make out a case against the assessee. In view of the above findings we set aside the orders of the authorities below and delete the entire additions in all the assessment years. 9.7 In the result, all the appeals of the assessee are allowed and departmental appeals are dismissed. (Mahalaxmi Bhavan Co-operative Housing Society Ltd.) (All appeals of the assessee and the revenue) 10. All the cross appeals are directed against common order o....
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....to show that search was carried out on the basis of warrant of authorization. In this view of the matter, we find that this ground is misconceived and raised without any basis and even without seeking leave of the Bench for admission of additional ground. The learned Counsel for the assessee on the objection of the learned DR seeks permission to withdraw both the grounds in all the appeals of the assessee. Grounds No.1 and 2 in all the appeals of the assessee are accordingly dismissed as not pressed. 13. The Assessee Society raised grounds No.4 and 5 in all the appeals which read as under: "4. Whether under the facts & circumstances of the case Ld. CIT(A) was legally and factually correct in upholding the rent received on unsold shops and offices in the project as rent on the vacant land and thereby treating the same as income from other sources as originating from the capital asset i.e. land, resulting into denial of statutory deduction under section 24 of the Act ? 5. Whether the CIT (A) was right in not considering rent received on vacant shops & offices as non taxable on mutuality concept?" 14. On these grounds of appeals in assessment years 2001-02 to 2....
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....ity. The learned CIT(A) also noted that since income is earned from renting the property, therefore, it has no nexus with the mutuality activities. The remaining appeals were also dismissed on this issue. 15. The learned Counsel for the assessee submitted that complete details were filed before the authorities below which includes rent receipts of shops/offices rented out to various persons/parties details of the same constructed area is also mentioned in the rent receipts copies of which are filed in the paper book from PB - 208 to 221. He has also referred to reply of the assessee (PB - 156 Para 5) in which the assessee explained the names of members to whom shops are rented out along with copy of resolution of the society. Copies of return of income, balance sheet and ledger account of rental income are also filed in paper book to demonstrate that rental income was shown in the books of accounts of the assessee. Copies of the same are filed from pages 101 to 117 and PB - 274 to 297. The learned Counsel for the assessee submitted that the AO did not asked for any specific details and merely on work in progress shown in the books presumed that assessee has rented out vacant lan....