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2019 (3) TMI 1133
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.... the Hon. CIT (A) erred in confirming addition of Rs. 4,26,00,000/-, as undisclosed profit from the real estate project, Prime Mall at Kharghar, not appreciating that the appellant followed project completion method of accounting and the revenue from the project was not required to be recognised in the year under appeal as the project was not completed till 31st March 2012 and therefore the addition in the year under appeal was not justified. 3. Without prejudice, the Hon. CIT (A) erred in confirming addition of Rs. 4,26,00,000/-, as undisclosed profit from the real estate project, Prime Mall at Kharghar, ignoring that the estimated profit of Rs. 4,26,00,000/- worked out on the seized papers, included profit on closing stock also, which was recorded at market value and that several expenditures were not considered and sales figure was also estimated and therefore the addition of Rs. 4,26,00,000/- was not appropriate. 3. The grounds of appeal raised in the Revenue's appeal read as under: 1. On the facts and circumstances of the case and in law, the Ld. CIT (A)-11, Pune erred in reducing the addition from Rs. 9,54,00,000/- to Rs. 4,26,00,000/- on account of unexp....
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....s not actually a loss since unsold stock has not been included in this calculation which has been done on the front of the page where the figure arrived at is Rs. 4.26 crores profit. 7. Thereafter, the A.O. analyzed the front side of page nine as under: From further analysis of the above notings it is seen that the noting "(1) 5.22 crores" means sales of 5.22 crores as the word 'vechan' is written on top of the notings, which means 'sales' in Gujarati language. Similarly, the noting "(2) 4.32 crores" means cash component of sales as in normal parlance the word "no. 2 money" denotes black money or money which is not offered for tax. On further perusal of the accounts of the assessee, it is seen that the assessee has not shown any sales but the entire amount received from the customers is reflected in Balance Sheet as 'Advances from customers'. Thus, it is seen that the no. '1'sales of Rs. 5.22 crores reflected in the seized notings are not offered for tax by the assessee. No further submission has been made by the assessee in respect of the above notings. Vide ordersheet dated 18.3.2015, it was specifically proposed to add undisclosed sales of Rs.....
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....39;s objection is that as the said papers were seized from the residence of Shri Thakkar, the presumption u/s 132(4A) can not be applied against the appellant. The .argument is without any merit, it \s admitted that Shri Thakkar is a partner in the appellant firm. A partnership firm though accepted as a separate class of person under the I T Act, does not have a corporal existence, It has to be represented through its partners, Therefore in real life the firm and the partners are the same and one. Under the partnership Act each partner represents the firm and all the partners are jointly and severally responsible for their acts as partner of the firm. Thus any material, documents etc found in the possession or control of any of the partners can be treated as found in the possession or control of the firm. The firm has no other physical existence except for its partners to possess or own property. This is the only way presumption provided u/s 132(4A) can be understood in the context of a partnership firm, The appellant's objection is therefore rejected and it is held that the AO was right in law in holding that in the absence of any satisfactory explanation by the appellant or S....
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....any profit amounting to Rs. 4.26 crores as mentioned by your goodseif. Sir, even project Prime Mall developed by M/s. Raj Homes 5 V Group is not yet completed and as we follow percentage completion method of accounting, the sales is not yet accounted for in the books. Therefore, your saying on the basis of said document that 5.22 crore is sales of Raj Home 5 V Group is net acceptable as the same is not at all accounted for in the books. Sir, in M/s. Raj Home S V Group, there is closing WIP of Rs. 12.47 crores. Even the plot cost of Rs. 7.27 crores does not tally with the books. Hence, none of the figures tally with the figures shown in the seized document. Hence, it cannot be presumed that these two documents pertains to M/s. Raj Home S V Group for the project Prime Mall. Sir, even the figures of plot of land, stamp duty, expenses shown in the said documents are an estimated figures. Hence, it can be presumed that this documents may pertain to some of the project proposal received by my aforesaid client wherein the sales have occurred in two stages 1 & 2, the unsold stock of the said project and the cost incurred on the said project along with the expected profit. 10. It i....
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.... the entries are only partially presumed to be true, The calculations on the impugned papers show total income including sales by cheque and cash, receivables, development charges etc to be Rs. 11.15 cr. The value of the closing stock is taken at Rs. 10.07 cr. Thus total income is worked out at Rs. 21.22 cr. From this is reduced 'cost' of Rs. 16.96 cr. Thus the profit from the project has been worked out at Rs. 4.26 cr. I agree with the appellant's contentions that if the contents of the impugned lose papers are presumed to be true u/s 132(4A), then the addition should not be more than the profit worked out of Rs. 4.26 cr. The AO can not make disallowance of the 'cost' recorded on the same paper. The AO is therefore directed to restrict the addition to Rs. 4,26 cr as against Rs. 9,54 cr added by the AO. 18 Yet another objection of the appellant is that the profit if any arising from the project cannot be taxed in the year under appeal as the project was completed in the following asst year. The appellant claims to be following project completion method and as there were no sales during the year, no profit can be taxed. I cannot agree with this contentio....
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....egard reads as under: The assessee firm further submitted that the cursory look and comparison of the page Nos.2 and 9 revealed that notings in the said seized papers are estimated working of some project and the said notings are made at different points of time recording different sale rate for the same premises. Even the area of some of the premises in both the projects are different. Even the notings on page 9 at front and reverse side do not match. It was submitted that these differences in the notings clearly shows that the seized papers are nothing but rough noting pertaining to certain project. It was also submitted that the said seized papers were found from the residence of one of the partners but it does not mention the name of the assessee firm directly or indirectly and therefore, the AO is required to independently establish that the seized papers record undisclosed income of the assessee firm more so when the said notings are not recorded in the handwritings of Mr. Shankarlal Thakkar or any other partners of the assessee firm. It was further stated that the AO had copies of all financial statements for the earlier assessment years and he could not identify ev....
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....t say that the entries are only partially presumed to be true. The calculations on the impugned paper show total income including sales by cheque and cash, receivable, development charges, etc. to be Rs. 11.15 cr. The value of the closing stock is taken at Rs. 10.07 cr. Thus the total income is worked out at Rs. 21.22 cr. From this is reduced 'cost' of Rs. 16.96 cr. Thus the profit from the project has been worked out at Rs. 4.26 cr. I agree with the appellant's contention that if the contents of the impugned loose papers are presumed to be true u/s.!32(4A), then the addition should not be more than the profit worked of Rs. 4.26 cr. The AO cannot make disallowance of the 'cost' recorded on the same paper. The AO is therefore directed to restrict the addition to Rs. 4.26 cr. As against 9.54 cr. Added by the AO." 6. Against the aforesaid addition of Rs. 4.26 crores, the assessee firm is in appeal before the Hon'ble Appellate Tribunal. In this respect, it is submitted that it cannot be disputed that the seized paper page No.9 contains estimated figures and secondly, it refers to the project which on completion and on complete sale might generate profit....
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....hich are supported by the returns of income filed by the assessee firm from year to year, prove that the seized paper was a pure and simple estimate and it does not disclose the actual status of the project and it was prepared sometime in the year 2011 or 2012 for the purpose of estimating the profit, on the presumption that all the premises of the project are sold and at the rate anticipated in the seized paper. However, as per the return of income for A.Y. 2018-19, the assessee firm has not been able to sell a part of the project (around 45%) and therefore, the profit estimated as per the seized paper cannot be treated as income of the assessee firm, because the said profit as per the seized paper is an estimate and on the presumption that all the premises of the project are sold at the expected rate. The aforesaid facts are explained in the form of a chart giving details for the A.Ys. 2012-13 to 2018-19 which is at page 133 of the paper book (Vol.-II). It is, therefore, submitted that the addition confirmed by the Commissioner (Appeals) of Rs. 4.26 crores being the profit on completion of project is incorrect and contrary to the facts on the record of the A.O, and the same may b....
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....ly that in the course of the search, no cash was found nor any unaccounted investment was found, which is not recorded in the books of account of the assessee firm. It is, therefore, submitted that receipt of cash of Rs. 4.32 crores by the assessee on sale of premises is not only baseless but it is contrary to the facts on record. In this respect, it is submitted that the assessee had entered into various agreements for sale of various premises and many of them were registered and many of them were not registered. The assessee had considered in the A.Ys. 2015-16 and 2016-17 only those sales where the agreements are executed and registered, balance considerations are received and possession of the premises are given to the purchasers. All other agreements are not considered as sales, as the sale was not completed due to non-receipt of balance consideration and not handing over of the possession of the premises sold in the building constructed by the assessee firm. 16. It appears that when the seized papers were prepared sometime in the year 2011 or 2012, the assessee firm had entered into various agreements with various purchasers for sale of the premises in the project. Ho....
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....y the assessee. Vide order sheet dated 18.03.2015, it was specifically proposed to add undisclosed sales of Rs. 5.22 crores and cash component of Rs. 4.32 crores being undisclosed sales and undisclosed cash component received by the assessee. In response the assessee attended on 20.03.2015 and requested for adjournment. Following the principle of natural justice, the hearing Was adjourned to 24.03.2015. However on the date of hearing neither attended nor submitted any details as called for. The assessee also had not submitted any reason for non-attendance and non- submission of required details. Hence in absence of any satisfactory reply during the course of search proceedings as well as during the course of assessment proceedings, an amount of Rs. 5,22,00,000/- on account of undisclosed sales and an amount Of Rs. 4,32,00,000/- on account of on money were added to the total income of the assessee. 16. Upon careful consideration we find that the addition in this case is a result of search conducted wherein loose sheet being page no. 9 and scribbling in front of the said page is the sole basis. While analyzing the scribbling as mentioned in the order of the A.O. ....