TaxTMI 
TaxTMI 
2014 (8) TMI 1228
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....idual. He is a contractor carrying out contract work on behalf of others. For the A.Ys. 2004-05 to 2009-10, the assessee filed returns of income u/s. 139(1) of the Income Tax Act, 1961 (Act) declaring the following income:- A.Y Original return of Income (u/s. 139) (Rs.) 2004-05 1,46,686 2005-06 3,94,510 2006-07 18,09,501 2007-08 14,37,560 2008-09 2,77,670 2009-10 4,77,760 3. A search u/s. 132 of the Act was conducted in the residential premises of Shri Ashok Kumar Chowta at Flat No.1003, Concord Apartment, Falnir, Mangalore on 13.2.2009. In the course of search, certain documents were found and seized. Some of the documents seized viz., A/AKC/C/8, A/AKC/9, A/AKC/12 and A/AKC/14 contained details of payment by Mr.Ashok Kumar Chowta to the Assessee. The Assessee had signed against each entry of payment as found in the seized document. Some payments were by cheque and some payments were by way of cash. These documents, according to the revenue, indicated payments made by way of cash by Ashok Kumar Chowta to the assessee for contract work done by the assessee for Ashok Kumar Chowta. 4. A Survey u/s. 133A of the Act was conducted in the bu....
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....te stone, blue metal etc., and was posting such payments to my account and getting my signature for such payments. Q.No.15: What was the total volume of the work done by you for the F.Y.s 2003-04, 2004-2005, 2006-2007m 2007-2008 and 2008-2009 and how much payments have you received totally from Sri.Ashok Kumar Chowta? I have not maintained books of account for my transactions with Sri.Ashok Kumar Chowta. As explained earlier, Sri.Chowta's engineers used to take measurement on completion of certain specified stages of work and used to draw bills in my name which I use to sign and submit to Sri.Chowta. However, Sri.Chowta has not passed even a single bill raised in my name. He use to make payments to me on weekly basis for the labour charges and for the materials purchased, so as to enable me to make payments to the labourers and the material suppliers. Certain payments for material suppliers were directly made by Sri.Ashok Kumar Chowta, but such payments were booked against my name and my signature was taken. Since, I have not maintained books for the works carried out for Sri.Ashok Kumar Chowta and also that I am not able to trace out all the bills submitted by me....
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.... work is required to be completed urgently, Sri Chowta employees, labourers directly and makes payments directly but the books such expenses also against my name. Q.27 Why did you sign for the receipt of the payment if such payments are not made to you and when you do not know to whom such payments are made? Ans. He does not make payment to me for the work. I have done if I refuse to sign for the above-mentioned cash payments. So, I am forced to sign for these cash payments. Q.No.28: Have you ever refused to sign for the above cash payments and had he ever refused payments to you? Ans: Yes. Q.No.29: In that case why did you not refused to carry on with the work and stop the work? Ans: If I stop the work he will not make the payments due to me and I will not be able to make payments to the labourers. Q.No.36: Please tell me whether all the receipts from Sri.Ashok Kumar Chowta in cheque as well as cash are accounted in your books and are included in the turnover disclosed in your income tax returns? Ans: I have disclosed the turnover in my income tax return as per the bills raised on Sri.Ashok Kumar Chowta. I do ....
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....your sworn statement u/s 131 referred to above, are you offering the above income as your additional income for the relevant asst. years? Ans: The above receipts do not represent my income. The above amounts were received towards cash for purchase of materials like sand, laterite stone, bricks, jelly, Hollow blocks etc. I have made cash payments out of the above receipts for the purchase of these materials required for construction. My income from the above receipts will be very negligible. These payments are received in cash only because the suppliers of the above materials insisted on cash payment. In fact, these payments are made for and on behalf of Sri Ashok Kumar Chowta for the construction of his projects. However, to purchase peace with the department, I am prepared to offer 8% of the above receipts as my additional income for the relevant Asst. years. 6. We may mention here that the incriminating document referred to by the AO is a diary seized from Ashok Kumar Chowta showing certain cash payments having been paid to the assessee. Apart from the contract receipts referred to above, there were also entries regarding cash payments received from the Assessee for p....
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....y deduction from the above total income other than that is eligible to me u/s. 88/80C." "Q.11. Do you want to state anything, else? Ans. : I will file my revised returns offering total income as given in my answer to your question No. 9 and pay the taxes. Considering the economic recession in general and also the financial difficulties that I am facing now, I request you to allow me sufficient time for payment of the tax. I assure that, I will pay the taxes in installments. I have fully co-operated with the department during the course of the Survey conducted in my office premises and also in the post survey enquiries as well as in furnishing the details required by you. Considering the co-operation extended by me, and also the fact that I have voluntarily come forward and offered the additional income I request that I may be absolved of all the penal consequences. I once again assure that I will start paying the taxes at the earliest." 7. The cash receipts not so accounted, as admitted in the statement recorded at the time of survey, for the various assessment years are as follows:- A.Y Gross receipts not included (Rs.) 2004-05 17,80,000 2005-06....
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....s and thus did not account for those receipts in his books of accounts. The reasons recorded also refers to Survey u/s.133A of the Act conducted in the Assessee's business premises on 21.4.2009 and statement recorded therein as also the statement recorded by the ADIT(Inv.),Mangalore on 11.5.2009 and the Assessee's admission to offer to tax unaccounted contract receipts. The reasons recorded also refers to the failure of the Assessee to file return of income as agreed. The AO has finally concluded that based on the above facts he has reason to believe that income chargeable to tax has escaped assessment. 12. This objection with regard to validity of initiation of reassessment proceedings was however rejected by the AO after referring to the assessee's statements at the time of Survey and before the ADIT which according to the AO was a voluntary and categorical declaration of additional income on the amount received in cash from Sri. Ashok Kumar Chowta. According to the AO the reasons formed by the department on the basis of the voluntary deposition (declaration of additional income) made by the assessee in the statement recorded is in order. The AO thereafter referred to decision....
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....n of offering any income from such unrecorded contract to tax. The Assessee reiterated that the payments recorded were made for purchase of materials by Chowta on his own but recorded in the name of the Assessee in the seized diary. The Assessee also pointed out that he had to sign the diaries only to ensure payment for contract work executed and that he has nothing to do with the cash so paid by Chowta as recorded in the seized diary. 14. The Assessee further pointed out to the further statement recorded on 11.5.2009 by the AD.I.T (Investigation) Mangalore in which the answer given by the Assessee to Q.No.2 & 3 which we have set out in the earlier paras, clearly bring out the fact that the receipts recorded in the diary do not represent Assessee's income and the fact that the above amounts were received in cash towards purchase of materials like sand, laterite stone, bricks, jelly, Hollow blocks etc. which Chowta gave to the Assessee for purchase of material for the construction of his projects. The Assessee also pointed out that the statement regarding offering income from the aforesaid receipts was only to purchase peace with the department and this fact is clearly recorded i....
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....mentioned in your answer to question No.2 were also for the purpose of the civil contract work done by him? Ans: yes." In the course of assessment proceedings the Assessee filed an affidavit of Mr.Ashok Kumar Chowta, affirming the stand taken by the Assessee before the AO in the course of assessment proceedings. In this affidavit a copy of which is placed at page-75-76, Mr.Ashok Kumar Chowta has reiterated the stand which the Assessee had taken on the cash payments found recorded in the seized document which was to the effect that the cash payments were for purchase of material for Ashok Kumar Chowta by the Assessee and were not in connection with any civil contract to be executed by the Assessee for Mr.Ashok Kumar Chowta. The affidavit is silent with regard to the statement given on 29.4.2009 by Ashok Kumar Chowta referred to above. 17. The AO, however, was of the view that the seized document clearly evidenced receipt of cash which has been duly acknowledged by the Assessee by affixing his signature. The AO also referred to the admission of the assessee in the statement recorded at the time of survey especially in Q.No.9 & 11, which we have already set out in the e....
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....es. The AO, however, based on the entries in the seized diary came to the conclusion that the assessee had paid the aforesaid sums over and above the amount recorded in the registered document and accordingly treated the same as unexplained investment u/s. 69B of the Act. 19. Aggrieved by the aforesaid additions made by the AO, the assessee preferred appeals before the CIT(Appeals). With regard to the validity of initiation of reassessment proceedings, the CIT(A) upheld the validity of initiation of reassessment proceedings. With regard to the merits of the addition made by the AO, the CIT(A) referred to the statement of the Assessee recorded at the time of Survey and by the ADIT (Inv.), Mangalore, thereafter and was of the view that the Assessee has throughout maintained a stance that he has received cash from Ashok Kumar Chowta for the various work that he has done through him and for the purchases of materials etc. and the cash payments received by the Assessee are not his turnover but were for the purchase of materials. Directly, it is the expenditure of Ashok Kumar Chowta and not the Assessee. The non-availability of the bills evidencing purchases according to CIT(A) was no....
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....nt of seller recorded by the Investigating Wing of Department, which was later on retracted and assessee was not given opportunity of crossexamining the seller on the said statement. The CIT(A) also held that the seized diary does not have reliability as it could not be corroborated with any other documents. The CIT(A) also took note of the fact that the person who wrote the diary i.e., Ms.Soumya Shetty had passed away before the date of search and therefore, there was no one to explain the entries. The CIT(A) also found from the records that the amounts in the diary and entries therein have not been used in the assessment of Sri Ashok Chowta therefore, it would be travesty of justice that the books which originally belong to Ashok Chowta which has not been used in his assessment proceedings could be used in the proceedings of a third party i.e. the Assessee. The addition made by the AO for AY 07-08 were therefore deleted by the CIT(A). 21. Aggrieved by the relief allowed by the CIT(A) the Revenue has filed appeals before the Tribunal. Aggrieved by the order of CIT(A) upholding the validity of initiation of reassessment proceedings and also sustaining addition made by the AO on ....
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....ceedings under s. 147/148 were rightly initiated after recording reasons on the basis of said information. It was also pointed out that the directions given by the Hon'ble Supreme court in the case of GKN Driveshaft Ltd Vs ITO(259 ITR 19)(SC) has been followed by the AO by passing a speaking and separate order passed on validity of initiation of reassessment proceedings. 2. As regards confirming estimating profits at 8% on contract receipts: The learned DR submitted before us that the addition on account of unaccounted contract receipts was made basing on the admission made by the assessee during the statement recorded u/s. 131 on 11.5.2009. In this regard our attention was drawn to the statement of the Assessee wherein in reply to q.no 2 and 9 the Assessee has clearly stated that the cash received from Sri Ashok Kumar Chowta as per seized material no. A/AKC/8, A/AKC/9, A/AKC/12 and A/AKC/14 are not recorded in the books of accounts. Accordingly he has offered to file revised return of income. This admission of additional income has once again confirmed in reply to q.no.11 in a statement recorded on 11.5.2009 wherein he stated that he has fully cooperated with the departme....
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....el for the assessee submitted that the reopening of assessment was not in accordance with the requirements of Sec.147 of the Act. According to him in the reasons recorded, the Assessing Officer has made a reference to the materials found during the course of search of Ashok Kumar Chowta and has also made a reference to the statement recorded at the time of survey and has merely come to the conclusion that income chargeable to tax has escaped assessment for A. Ys.2004-05 to 2008-09. According to the learned counsel for the assessee, reopening of assessment on the basis of search and survey report and impounded materials is not valid. In this regard, he placed reliance on the decision of the Hon'ble Supreme Court in the case of CIT v. Kelvinator of India Ltd., (2010) (320 ITR 561) (SC) wherein the Hon'ble Supreme Court has emphasized the requirement of existence of "reason to believe" income chargeable to tax escaped assessment as the condition precedent for reopening of assessment u/s.147 of the Act. Further reference was made to the decision of the ITAT, Chennai in Smt. R. Rajeshwari v. ITO (172 Taxmann 40) (Chennai-ITAT (Mag). In the aforesaid decision the Chennai bench of....
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....o the cash given by Chowta to the assessee for procurement of materials like cement, sand etc., for Ashok Kumar Chowta by the assessee and they were not for any sub-contract work executed by the assessee for Ashok Kumar Chowta. He drew our attention to the fact that the confession regarding offering income to tax was conditional upon verification of the assessee's books of account and if on such verification it is found that some contract receipts from Ashok Kumar Chowta have not been accounted, the same will be accounted and revised return filed. Our attention was also drawn to the fact that in answer to question no.9 in the statement recorded on 11.05.2009 the offer of income arising out of the seized diary was only with the sole intention of purchasing peace with the department and to avoid protracted legal proceedings. In the light of the fact that all contract receipts have been duly accounted by the assessee and in view of the fact that the cash payments recorded in the seized diary were in relation to the purchases made by the assessee on behalf chowta, the offer made at the time of survey and in the later statement turned out to be erroneous and therefore no income was ....
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....oceedings u/s.147 for A. Ys.2004-05 to 2008-09 is valid ? (ii) Whether the action of the CIT (A) in deleting the addition of 8% of the undisclosed contract receipts as evidenced by the seized document and as offered by the assessee in the statement recorded on 11.05.2009 (Q.9) was proper ? (iii) Whether the action of the CIT (A) in sustaining the addition at 1.5% of the cash payments found in the seized diary as well as according to the statement recorded on 11.05.2009, can be sustained ? and (iv) Whether action of the CIT(A) in deleting the addition on account of unexplained investment in properties for A. Y. 2007-08 made by the AO was proper? 28. We have given a very careful consideration to the rival submissions. To appreciate the rival contentions, we need to look at the sequence of events that took place in the case of the assessee. The first event that took place was the search in the case of Ashok Kumar Chowta at Mangalore on 13.02.2009. In the course of search incriminating documents marked as A-AKC/8, A-AKC/9, A-AKC/12 and A-AKC/14 were seized. The Assessing Officer by way of illustration has given a copy of the seized diary and the same is as....
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....rnover in my income tax return as per the bills raised on Sri.Ashok Kumar Chowta. I do not know whether the bills raised by me tally with the total cheque and cash receipt from Sri.Ashok Kumar Chowta, as per the materials seized in the search in his case. I request you to provide me the details of the payments made to me and acknowledged by me as per the books and other accounts seized from Sri.Ashok Kumar Chowta during the search in his case, so that, I will be able to reconcile the turnover declared by me in my income tax returns. In this connection, I assure that if the turnover disclosed by me in my income tax returns is less than the payments received from Sri.Ashok Kumar Chowta as per the seized materials, I will offer the difference in income for taxation for the relevant Asst. years, pay the taxes and file my returns of income. 32. On 11.05.2009, the ADIT (Inv), Mangalore again recorded the statement of the assessee u/s.131 of the Act. Even prior to this statement being recorded, on 29.04.2009, the ADIT(Inv.)Mangalore, recorded a statement of Ashok Kumar Chowta. Question no.5 in the statement recorded was with regard to whether cash payments made to the assessee were for....
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....e of purchasing peace with the Department. In our view the Revenue cannot make an addition solely based on such statement. 35. What now remains against the assessee is a statement of Chowta made on 21.04.2009 admitted that the cash payments made to the assessee were for executing contract work. On this statement we find that Chowta had filed an affidavit before the Assessing Officer dt 27.05.2010 copy of the same is placed at page 75 and 76 of the assessee's paper book. The said affidavit reiterates the fact that cash payments recorded in the seized diary were cash payments made to the assessee for the purpose of procuring materials for Chowta and not for any other purpose and that those payments have nothing to do with any contract work executed by the assessee for Chowta. This being the position, it was incumbent on the part of the Assessing Officer to confront the statement of Chowta recorded on 29.04.2009 and afford an opportunity of cross examination of Chowta by the assessee. This was not done by the Assessing Officer. In these circumstances, we are of the view that the Revenue cannot seek to place reliance on the statement of Chowta recorded on 29.04.2009 and in parti....
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....y Ashok Kumar Chowta with unaccounted contract receipts of the assessee as recorded in the seized diary. 38. The assessment is based purely on statement made at the time of Survey as well as on 11.5.2009 before the ADIT (Inv.) Mangalore, which according to us is a conditional statement and cannot form the basis for making an assessment. In our view, the assessee has been consistently taking a stand that the cash payments recorded in the seized diary was for procuring materials on behalf of Chowta and has nothing to do with the contract receipts of the assessee. In other words, cash payments were only payments made to the assessee for procuring materials for Ashok Kumar Chowta and it has nothing to do with the contracts executed by the assessee for Ashok Kumar Chowta. In fact as we have already seen the assessee had affixed his signature in the seized diary only for the reason that the payments for contract work executed by the assessee would be realized by Ashok Kumar Chowta only if such signature is made by the assessee. This will be clear from answer by the assessee to question 27 in the statement recorded at the time of survey. Taking into consideration all the facts and circ....
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....e is thus an admission by the assessee with regard to cash payments for purchase of properties in the statement recorded on 11.05.2009. His only stand has been that the cash payments were adjusted against contract amounts due to the assessee. This admission continues to remain without being retracted or explained as incorrect admission. It is thus clear that there were cash payments for acquiring the aforesaid properties over and above what is recorded in the registered documents as well as the books of accounts. The entries in the seized diary only corroborate the fact that there were cash payments in acquiring the aforesaid properties. The fact that Soumya Shetty was not available to explain the entries, in our view, will not be material. The fact that the assessee made cash payments for acquiring these properties having been admitted it was incumbent upon the assessee to explain the source of funds for making the aforesaid cash payments. In our view, the assessee has not given any valid explanation in this regard. This admission by the assessee remains uncontroverted through out. We are, therefore, of the view that the addition to this extent deserves to be sustained. Accordingl....