TaxTMI 
TaxTMI 
TaxTMI 
2023 (6) TMI 803
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....dition of Rs. 15,02,88,986/- made by the Assessing Officer on account of undisclosed receipts." 4. A search & seizure operation was conducted u/s 132 of the Income Tax Act, 1961 on 26.02.2009 at the premises of the assessee. The Assessing Officer after going through the seized material found and seized made addition on account of undisclosed investment and unaccounted receipts. Aggrieved, the assessee filed appeal before the ld. CIT(A) who held that the additions have been made without any tangible, incriminating material demonstrating the liability to tax. 5. Hence, the appeal before us by the revenue. 6. For the sake of ready reference and completeness, the order of the ld. CIT(A) is reproduced as under: Investments/Income recorded in a diary "1. In this regard, during the course of the assessment proceedings the assessee company and its directors have been requested to explain each and every paper found and seized during the course of assessment proceedings. The seized notebooks include Annexure A/2 seized from the residential premises having page No. 1 to 8. In this annexures on various pages certain figures are mentioned. In these figures amount has been mentioned in ....
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....5 SM 01.04.03 CR 20.00 Int 1/4/03 To 31/12/08 10=35 1/1/2009 30=35 Opposite side of Page No. 6 Page No. 6 D-96 "Aaye" 31/4/05 2=41=64 1/8 cash 10=00 Int. 1/5/05 to 30/4 @75 paisa 19=50 25/1/2006 25=00 2=61=14 31-1-2006 15=00 Paid 35=00 1.6.6 B/F B/02=26=14 1.6.06 CR 2 Uchani Upto 30.5.08 11=14 31/10/07 Cash 5 3. In this regard the assessee has been requested to furnish the details of the transactions mentioned in the diary. However the assessee has failed to furnish satisfactory reply in respect of the figures mentioned in such diary. This diary is found from the residential premises of the assessee and on page no. 2, 6 "Cash" is written and on the page No. 3, 4, 5 and 6 the accounting term CR (credit) has also been mentioned. Hence it is evident that the financial transactions are noted in this diary and the diary is an account book o....
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....is page is Rs. 7=00 means Rs. 7,00,000/-. Page No. 2 On this page period of April 05 is mentioned it means these entries are pertains to the F.Y. 2005-06 (A.Y. 2006-07) and total amount involved is 7=75 means Rs.7,75,000/-. 6. Opposite side of Page No. 3 This page is an account of the person 20 No (Coded language). The date mentioned on this page is 01.04.03 means this page is pertains to the F.Y.2003-04 relevant to the A.Y. 2004-05. The total amount involved is 24.06 means Rs. 24,06,000/-. Below the entry A/c T/f/SH is also mentioned and credited in the concern as 'CR' is also mentioned. Means Rs. 24,06,000/- received from the person of '20 No.' and credited in the account of firm M/s Shriram Hariram Jewellers. Below this entry (Account) the name of 20 No P.S. is also appears. And again the date mentioned in this account is 01.04.03 means this page is pertains to the F.Y.2003-04 relevant to the A.Y. 2004-05. The total amount involved related to this person is 6=40 means Rs. 6,40,000/-. Below the entry A/c T/8H a/c is also mentioned means the amount is transferred to the account of the person 8H (Coded language) account. 7. Opposite side of Page No. 4 This page....
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....worked out to Rs. 19,93,530/- and of Rs. 1,81,230/- for the A.Y. 2006-07 and 2007-08 respectively. Below the entry total 2=61.14 (Rs. 2,61,14,000/-) and payment of Rs. 35.00 (Rs. 35,00,000) is mentioned and thereafter balance of 02/26.14 (Rs. 2,26,14,000/-) is mentioned. 10. Thereafter again the transaction dated 1.6.06 of 2 and dated 30/5/CR 11.14 and 31/10/07 cash 5 is mentioned. Means they have invested Rs. 2,00,000/- on 01.06.2006, Rs. 11,14,000/- in the same A.Y. i.e. 2007-08 and Rs. 5 lacs on 31.10.2007 i.e. A.Y.2008-09. The Year-wise unaccounted investment / income is mentioned hereunder: Page No. 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Total Page no2 0 0 700000 0 0 0 700000 Opposites ide of page no.2 0 0 775000 0 0 0 775000 Opposites ide Page no. 3 3046000 0 0 0 0 0 3046000 Opposites ide Page no.4 1318000 0 0 0 0 0 1318000 Opposites ide Page no5 2180000 180000 180000 180000 180000 135000 3035000 Opposite ide Page no6 0 0 26157530 1495230 500000 0 28152760 Total 6544000 180000 27812530 1675230 680000 135000 37026760 As discussed above t....
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.... figures have been deciphered and have been decoded merely on the basis of guess and suspicion. Therefore, the afore mentioned loose papers/notebook did not constitute to be a documents or account books. In any case it was wholly uncorroborated. Ld. AO was framing assessments of the entire group and in no case these facts and figures could be corroborated. It prima facie proves that Ld AO has assumed certain transactions have taken place of certain amounts imaginary without any corroborating evidence in his possession, either oral or documentary. No papers in fact were found during search and seizure operation to support his conclusion that there was an unrecorded investments/income was made or earned. No further enquiry was considered to be necessary for substantiating his action. The addition of Rs. 180000/- has been made purely on guess basis by using his imaginary whims in decoding and deciphering the notings. This is the amount of interest calculated on imaginary basis and by deciphering the rate from a rough calculation on page-6 which has got cross lines , it means, there may be some unknown estimate or rough calculation which could not be corroborated neither with the appel....
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....ered as assessee's income under the substantive provision of IT Act. Under the substantive provision of IT Act, it is now settled law that every receipt is not necessarily or cannot necessarily be income in the hands of the recipient and therefore, the question whether any particular receipt is income or not depends on the nature of the receipt and true scope as well as the fact of the relevant taxing provisions- as has been Held by Hon'ble Bombay High Court in the case of Mehbood Productions P Ltd Vs. CIT 106 ITR 768. In view of this settled proposition, it follows that revenue can tax only those receipts, which, first have been proved to be income in the hands of the recipients and secondly, the same have to proved as non-exempt from tax. We are therefore, of the opinion that it is revenue's onus, before assessing any receipt as taxable income; to prove that the receipt in the hands of the recipient is income and this can be proved or established only on the basis of some material evidence." But in this case, all these elements are not present. 5. Regarding presumption contained in Sec 132(4A) cannot be pressed into service in this block assessment, reliance is placed on M/s. ....
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....If this kind of loose papers/note books are to be considered as document for the purpose of assessment of income in IT Act, it would create rather a dangerous situation as any person having a little knowledge of the affairs of any person would create such document and thereby create all kinds of problems as apparently seem to have been done in this present case. 6.2 Regarding the Second Point we reiterate that during the year under appeal, the appellant has purchased further land that too from Meerut Development Authority, at Meerut and booking amounts were received from some of the parties for their Mall project, the same are duly accounted for in regular books of accounts and for Jaipur land was only purchased, no development could be started. In addition to the above, the AO has mentioned all kinds of details in assessment order, Para 4.5 to 4.8, but no enquiry was made at all in spite of the fact that after search all group cases were being assessed in his jurisdiction. The reason for the same is that in those cases no unaccounted source could be established which might be correlated with these purely estimates hence this addition was made independently in the absence of any....
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....in Ground No. 5 where there was no project in saleable condition and question of profits on purchase of land from Meerut Development Authority cannot arise. The AO has contradicted his statement regarding the source of unrecorded funds claimed to be noted in this annexure allegedly earned from its projects in hand because in this year an amount of Rs. 1,80,000/- has been adopted from this annexure and from projects a substantial amount has been claimed to be earned as prof its, the question arises where is that money, no correlation could be established between these two guessed statements. It is therefore, requested to all ow the ground." Finding on Ground of Appeal No 4:- I have carefully gone through the notings made on the document at Annexure A-2 which has been seized from the residential premises of Sh. Raj at Gupta, the Director of the appellant company. The deciphering & interpretation of these seized documents done by the AO in his finding, referred to above. It is noted from paras 4.3 & 4.4 of the order of the AO that the assessee has failed to furnished satisfactory reply in respect of figures /notings/recordings made in the pages of Annexure A-2, even upon requ....
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....ndings of the AO, the ground taken by the appellant is that the AO has decoded the notings in his own way and in the form of Crore/Lac/Thousand by arbitrarily adding zeros on basis of guess and suspicion. The appellant has also argued that the aforesaid loose papers do not constitute/ qualify to be account books and in any case it is wholly uncorroborated. Relying upon various decisions as referred in para no 4.1 above, the appellant also submitted that the impugned seized note book does not fall within the meaning of word document as defined in Section 3 of the Indian Evidence Act, or within the meaning of General Clauses Act as per which a document should have graphic representation and distinct manifestation leaving no room for guess, surmise and conjecture and it should be capable of having evidentiary value. That no papers were found during the search to support the AO's conclusion that there were any unrecorded investments/ income. That no further enquiry was conducted by the AO to substantiate his conclusion. On a careful consideration of the AO's finding and appellants submissions and the case laws upon which reliance has been placed by the appellant, when applied to the....
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.... on the subject and are therefore reproduced as under:- 6.4. We find that the AO has made out the case for making such addition based exclusively on the said piece of paper found and seized during the course of search. It is, therefore, to be examined whether the said paper found and seized is a document having evidentiary value to prove the fact of the transaction. The word "document" has been defined in s. 32 of the Indian Evidence Act to mean-any matter expressed or described upon any substance by means of letters, figures, or marks or by more than one of those means, intended to be used or which may be used for the purpose of recording that matter. The word "document" has also been Similarly defined in the General Clauses Act. The meaning of the word "describe" used in the definition as given in the New Shorter Oxford English Dictionary is "portray in words, recite the characteristics of, in detailed or graphic account of. The meaning of the word "express" used in the definition as per the New Shorter English Dictionary is "A graphic representation as image; an act of expressing or representing by words, signs or actions, expressions, a mode of speech, of phrase; an utteranc....
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....nd credits between persons; an account or record of debits and credits kept in a book; a book in which a detailed history of business transaction is entered; a record of goods sold or services rendered; statement in detail of the transactions between the parties. The book entry as per Black's Law Dictionary means "a notation, generally of figures or numbers, made in an accounting journal, consisting, in double entry book keeping, of debits and credits. Further, books of account means "books in which merchants, traders and businessmen generally keep their accounts. Entries made in the regular course of business; serial continuous and permanent memorials of business affairs. 6.8. The said piece of paper seized in search has not been proved to be written by the assessee relating to various business transactions in the normal course of business and, therefore, said paper also does not fall within the compass of the meaning of the books of account having credibility of its acceptance without support of corroborative evidence which is admittedly missing. This view is supported by the ratio of decisions of the Hon'ble Supreme Court in the case of V.C. Shukla JT (1998) 2 SC 172; and L.K....
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....n adequate substitute for tangible evidence and the additions made were not held justified. 6.13. In the case of CIT vs. SMC Investment Corporation (P) Ltd. loan was advanced by assessee and thereon simple interest was calculated by the AO and assessed on accrual basis whereas the assessee claimed that no interest income was received. A slip of paper was found in search showing calculation of interest and on that basis the AO presumed that interest was calculated on compound interest basis and the assessment was reopened. Debtor had not credited interest in its accounts and declined to pay interest. Finding by Tribunal that on basis of seized paper no inference could be drawn that the assessee charged compound interest. Accordingly, reassessment proceedings were held invalid." The jurisdictional high court in case of CIT vs. Girish Chaudhary 296 ITR 619 has also made simi lar observation. The relevant portion thereof is as under:- There is no material on record to show as to on what basis the Assessing Officer has reached at the conclusion that the figure "48" is to be read as Rs. 48 lakhs. Similarly, the document recovered during the course of search in the present case i....
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....sessee. As such, the ld. CIT(A) to that extent is justified in holding that estimation of sales on the basis of loose slips represented payment of wages is not possible." 5. No doubt, a false explanation of assessee may be a circumstance to be taken into account for recording a finding of undisclosed income and some degree of guess work is also permissible in such a situation, as held by the Supreme Court in Kachwala Gems vs. Jt. CIT (2007) 288 TTR 10, relied upon by the learned counsel for the revenue, it depends upon facts and circumstances of each case as to what is to be fair estimate of undisclosed income. The ld. CIT(A) as well as the Tribunal held that in the circumstances, the estimate of addition, to the extent assessed by the Assessing Officer, was not called for and the same was partly liable to be set aside." Reliance is also placed by the appellant on the observations made by the jurisdictional High Court in CIT Vs. Anil Bhalla 322 ITR 191 (Del), which are as below:- 'To support the addition on account of unexplained expenditure on the basis of jottings on a loose sheet of paper, it is necessary to establish that the notings represent unaccounted transaction, ....
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....n so far concerning making the full & final settlement of my accounts on my resignation from the company as Sr. Vice President (Marketing). After my numerous emails and telecoms since Sept. '08, finally the company's Managing Director, Mr. Anuraag Gupta, could take out some of his precious time to f ix up a meeting (where intentionally he made me to wait for more than an hour) to discuss the subject issue. As it appears from the discussions with Mr. Anuraag Gupta (MD): 1. That he is being misguided and has not been properly briefed about the true and factual position on the subject issue. 2. That I have been working in your company since last three years as member of the 'Care Team' with full devotion to the best of my professional abilities. 3. That due to professional reasons, I has resigned from your company's employment w.e.f . 1st Sept., 2008 after serving written Notice in this regard. 4. That since the date of my resignation, I have been in constant touch with the company for full and final settlement of my accounts and have reportedly been informed that my settlement is 'under process' . 5. That as per my records, information and as agreed upon by the c....
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....ual trust failing which I would be felt with no other remedy but to seek legal recourse at the cost and consequence of your company" 5.1 A perusal of this letter reveals that the person, Sh. Abdul Bari, has clearly mentioned in his letter that the assessee has made total sales to the tune of Rs.261,37,50,000/- from both of his projects, i.e. one commercial project at Meerut and one residential project at Jaipur. Further, as mentioned above, loose papers seized from another premise during the course of search, reveals as under: Old Sales: Type Area Rates Total Cost Unit Total Sale Value 2 Bed Room 1225 1550 1898750 263 499371250 2 Bed Room 1615 1550 2503250 164 410533000 2+1 Bed Room 1340 1500 2010000 14 28140000 441 938044250 Fresh Sales: Type A 1645 2000 3290000 128 421120000 Type A-(2 Bed Room) 1270 2000 2540000 16 40640000 Type B (2 Bed Room) 1615 2000 3230000 124 400520000 Type C 1340 2000 2680000 274 734320000 (2+1 Bed Room) &nb....
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.... fact that the company has only completed one project of Melange Mall at Meerut and the another Project of Residential Group housing has been continuing at Jaipur. It is the common and general practice to decide and assess the cost of the project and the projected sale value of the Project in order to decide the selling price of the coming project. Sir, page no 33 & 34 mentions target sales realization, calculated on the basis of area of flat, selling rate and number of units. At the end of it the estimated profit part and other costs visualized to be incurred during the implementation has been mentioned. This contention is further cemented by the fact that the interest amount has been shown in round figure (13% on AVG 75cr for 48 months 390,000,000.00/-). On page no 35, 36, 37 & 38 the target sale realization has been calculated. At the end of page no 38 booking amount to be received 15 % of BSP (Basis sale Price) of Rs. 93,80,44,250/- which is mentioned as old sales and the details thereof are mentioned on page no 36, is worked out at Rs. 14,07,06,637/- exactly has been mentioned this amount has being duly accounted for in regular books of accounts for your immediate reference th....
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.... had put my claim even on the estimated sales also because before January, 20081 had left the job. 5. In this context, I have not received any incentive money so far." 5.4 The contention of the assessee is not acceptable for the following elaborated reasons: (i) First of all, let us start from the letter of Sh. Abdul Bari dated January, 2008, seized during the course of search. This letter bears date 'January 08, 2008'. However, at point no. 3 of the letter, he has mentioned "that due to professional reasons, I had resigned from your company's employment w.e.f. 1st Sept. 2008 after serving written notice in this regard." So, if a person has resigned in September, 2008, as is evident (supra), then this letter must had been written after September, 2008 and it may be January 03, 2009. This letter was written by Sh. Abdul Bari after his resignation from the employment of the assessee company in the month of September, 2008. Therefore, it appears that there is a misprinting in the date of letter, as it many times happen in general parlance that on the first two three days of the January people forget to change year being in practice of mentioning old year. Hence, the date ment....
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....ot showing exact figures of sales and in turn also earning prof it on sale made out of books of account. 5.5 From the above, it has become clear that the assessee has no merits in its reply (reproduced above). Therefore, the sale noted in the seized material found at the two noting, i.e. (i) as mentioned in the letter of Sh. Abdul Bari and (ii) as noted in the seized page showing target sale. Therefore, the sale / prof it noted in the seized material is nothing but actual. The same has been proved wrong here. Therefore, the figures which have been shown in the chart (reproduced above) seized during search, under the head 'Total Sales' of Rs. 275,86,14,250/- is nothing but the actual sales of the assessee. Hence, the net prof it worked out by the assessee is Rs. 27,92,10,250/- is the amount of prof it which has been received by the company. The same is however, earned out of books of account. As the assessee has not shown such undisclosed net profit of Rs.27,92,10,250/-, the same is, therefore, bifurcated in their WIP ratio on year-to-year basis in accordance with the Accounting Standard-7 and added to the total income of assessee accordingly. 5.6 As per seized material, Sh. A....
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....Sh. Raj at Gupta contains some Debit and Credit entries which is taken to be the account of unaccounted money received by him out of books. The same is discussed in preceding para of this order. Hence, in any year, where the bookings / sales have been made by the assessee from either or both of the projects, the same are treated as unaccounted receipts. Therefore, no separate addition is made in those years on this account. But where in any year, there is no booking / sale from the project(s), the same is treated as unaccounted receipts from other business activities of the assessee. Therefore, the same are added separately in those years." 9. Sir, This imaginary calculation of prof its @12% from Mall Project for which the land was only purchased and no construction work was started during the year under appeal and Jaipur Housing Project for which the appellant did not do anything, is merely based upon a letter marked as page nos. 40-42 of Annexure A-3 of SOB-6 and Page nos. 33-38 of Annexure A-2 of SOB 6A. The first one is a letter written by Marketing Head Mr. Abdul Bari on 03.01.2008 after leaving the job from appellant company and the other one is the calculation sheets f....
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....; Investment in Meerut (WIP) Land Purchase 29451457 21076487 0 0 0 0 50527944 Expenses 185867 41972187 98780320 303120722 144454290 14422173 602935559 29637324 63048674 98780320 303120722 144454290 14422173 653463503 Investment in Jaipur (WIP) Land Purchase 0 138273760 7717900 2149700 0 0 148141360 Other Exp. 0 166142 8267178 35374174 36693692 26322913 106824099 0 138439902 15985078 37523874 36693692 26322913 254965459 The above mentioned details reveal the fact that during the year under appeal, land was purchased in Meerut and a sum of Rs. 1,58,05,034/- for Meerut was received as booking money from prospective investors in project. For Jaipur land worth Rs. 13,84,39,902/- was purchased. The contents of assessment order clearly mention that all the facts and figures as per books of accounts of the appellant were accepted during assessment proceedings because the same were adopted for calculation of imaginary prof its. 12. Sir, Ld AO ....
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....proves the uncertainty in the mind of Ld AO for the income earned by the appellant from these projects. 14. Sir, Real Estate development is the business for which there are no accounting standards nor treatment in text books to suggest any uniform method of accounting. It is therefore, to conform to the generally accepted accounting principles To recognize the accrual of revenue from real estate development business, there is an Accounting Standards i.e. AS-7, issued by The Institute of Chartered Accountants of India and the same was accepted by Ministry of Corporate Affairs under Companies (Accounting Standards) Rules 2006. As per this AS, the recognition of revenue in case of construction contracts as a self venture shall be when there is a certainty of completion of contract and substantial part of contract has been executed. This AS suggests two methods of recognition i.e. Percentage to completion and the other as completion of project method. In this case, the land was only bought, no construction work could be started merely nominal present and future bookings from parties were received. For verification of all the facts and figures, the balance sheet is being enclosed.....
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....fessional, unfair and unethical attitude of the company in not making the full and final settlement of his accounts upon his resignation from the Company as Senior Vice President (Marketing). In para 5 (B) of this letter Sh. Abdul Bari has calculated sales incentive receivable by him @ of 1% of sale value in case of Meerut Mall and Jaipur Township for Rs. 2,61,37,500/- in totality. The relevant part of this letter is as below:- 5.(B) Sales Incentive *(@ 1% of sale value) - Meerut Mall (sale value of Rs. 60,00,00,000/-) Rs. 60,00,000 - Jaipur Township (sale value of Rs. 2,01,37,50,000) Rs. 2,01,37,500 TOTAL Rs. 2,61,37,500 In para 5.4 & 5.5 of the assessment order the AO has referred to above mentioned loose papers seized from assessee's premises relating to the residential project at Jaipur wherein on the top of these pages the words "Target Sales Realization" have been mentioned. The AO has correlated this chart with the aforesaid letter of Sh. Abdul Bari and is of the view that these have close connection. It is held in para 5.5 that the sale /profit noted in the seized material is nothing but actual and the word "total sales" of Rs. 275,86,14,250 written....
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....rary claims against the appellant company. The assessee has also furnished details of the booking amount received for Meerut project relevant for AY 2005-06 which is for Rs. 1,58,05,034/- from prospective investors. From the copy of balance sheet filed it has also been substantiated that the investment in Meerut project on land purchase during F.Y.2004-2005 is for Rs. 2,10,76,487/- and after including other expenses for Rs. 4,19,72,187/- the total investment in Meerut project as on 31.03.05 is for Rs. 9,26,85,998/-. It has been contended that the AO has calculated prof its merely on basis of booking money when only the land has been bought and no construction work was started during the year. Referring to the accounting standards that is AS-7 issued by the Institute of Chartered Accountants of India the appellant has argued that there are two methods of recognizing accrual of revenue from real estate development business that is percentage to completion and completion of project method and that neither of these two methods are applicable in the facts of the case. As regards Jaipur project the appellant in his consolidated and common submission has reiterated that the letter w....
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....areful consideration of the AO's finding and appellant's submission it is observed that the letter dated 03.01.08 (correctly read as 03.01.2009) written by Sh. Abdul Bari has to be taken with a pinch of salt as apparently this letter is written by a former employee who is not satisfied with the settlement of his dues from the Company. Accordingly, while this letter can be the starting point for further investigation regarding it's contents and with reference to the regular books of accounts but it would not be appropriate to base and estimate the entire working of prof it merely on the basis of this letter. For simi lar reason even the second letter written by Sh. Abdul Bari & fi led during the assessment proceedings by the assessee should not be taken as entirely true and correct. I. Having observed so it is held that the prof it estimated by the AO for Rs. 35,64,000/- on Meerut Project is devoid of any substance on account of following reasons:- a. Firstly, there is no basis by which the AO has estimated the net prof it rate as 12% of the total booking received for the Meerut project which is purely a guess made by the AO without citing any comparable case or confronting su....
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....ure and surmise and is therefore directed to be deleted. Further the prof it estimated by the AO for Rs. 14,67,24,986/- on Jaipur Project is also devoid of any substance on account of following reasons:- On a perusal of pages 33 to 38 of A-2 SOB 6A it is apparent that the calculations are relating to "Target Sales Realization" as is written on the top of these pages. On page 33 of this Annexure from total targeted sale of Rs. 275.86 Crore the total cost of project for Rs 247.94 Crore has been deducted and a prof it of Rs. 27.92 Crore has been worked out. After noting interest expense on the project for a period of 48 months at the rate of 13% on average Rs. 75 Crores the net profit after tax has been worked out for a negative figure of Rs. 11.07 Crores. Thus from the nature of these documents and the calculation thereon it is observed that these are estimates and projections made by the appellant. Having held so it is logical to infer that even the calculation of consolidated net prof it for the project at Rs. 27.92 Crores made on page 33 to Annexure -A 2 is only a projected figure. Accordingly, there would be no basis for distribution of prof it for Rs. 27.92 Crores....