TaxTMI 
TaxTMI 
2026 (8) TMI 273
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.... of convenience and to avoid repetition of discussion, they are being disposed of by this consolidated order. The facts obtaining in Assessment Year 2014-15 have been taken as the lead year and, unless the context otherwise requires, our findings shall apply mutatis mutandis to the remaining assessment years. 2. The particulars of the appeals, the assessment years involved, the impugned appellate orders and the additions disputed before us are as under: Assessment Year (Unabated Assessments) Addition for alleged suppressed sale proceeds- On-Money (Rs) Addition u/s 68 for unexplained cash credit (Rs) 2014-15 75,00,000 0 2015-16 6,32,50,000 0 2016-17 1,74,98,680 0 (Abated Assessments) 2017-18 2,42,50,000 Artificially inflated Capital Account of Partners 0 1,31,50,000 Cash Deposit in the Bank during 01.01.2017 to 31.03.2017 0 55,00,000 2018-19 3,32,00,000 Cash Deposit in Bank during the period from 01.04.2017 to 06.10.2017 0 76,50,000 3. The assessee has raised several grounds of appeal in the respective assessment years. Broadly stated, the grievances raised bef....
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....ing the fact that the assessment framed u/s 153A/143(3) of the Act is required to be treated as "invalid and shall be deemed to have never been issued" in absence of any Document Identification Number (DIN) or for lack of computer-generated Identification Number (DIN) thereon which was required to be generated and duly quoted in the body of such communication as has been ordered by the CBDT vide Circular No. 19/2019 dated 14/08/2019 and reiterated vide the circular number 27/2019 dated 26/09/2019. 5. Ld. CIT(A) erred in law and on facts in not granting an opportunity to cross examine Mr Hiren Bharani, partner of the appellant, whose statement has been relied by giving frivolous reasons despite the fact that Mr Hiren Bharani had retracted his statement recorded during the course of search. The same was specifically demanded during the search proceedings. Thus, no reliance on the statement of Mr Hiren Bharani can be placed. 6. The appellant craves the leave to add, substitute, modify, alter, delete or amend all or any ground of appeal either before or at the time of hearing." GsOA for AY 2015-16 1. Ld. CIT (A) erred in law and on facts in upholding an addition of....
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....al either before or at the time of hearing. GsOA for AY 2016-17 1. The CIT (A) erred in law and on facts in upholding an addition of Rs. 1,74,98,680/- made by Ld. AO alleging On Money received on sale of flats built / sold by the appellant though the appellant categorically denied to have received any such money and also filed affidavits of the buyers in support thereof. Thus, the addition made ignoring the submission and affidavits should be deleted. 2. Ld. CIT (A) has erred in law and on facts in confirming the action of the Ld. A.O. in passing the impugned assessment order without there being requisite approval in terms of section 153D and in any case approval if any, is mechanical and without application of mind and is no approval in the eyes of law and as such, the assessment so framed is null and void and deserves to be quashed." 3. The CIT (A) erred in confirming the additions made by AO ignoring the fact that the assessment framed u/s 153A/143(3) of the Act is required to be treated as "invalid and shall be deemed to have never been issued" in absence of any Document Identification Number (DIN) or for lack of computer-generated Document Identif....
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....f the appellant, whose statement has been relied by giving frivolous reasons despite the fact that Mr Hiren Bharani has retracted his statement recorded during the course of search. The same was specifically demanded during the search proceedings. Thus, no reliance on the statement of Mr Hiren Bharani can be placed. 5. Ld. CIT (A) erred in law and on facts in confirming an addition of Rs 55,00,000/- deposited in the bank account during the relevant period demonetization though the source of the same had already been offered for income tax as taxable income in the audited books of account and declared in the Profit and Loss Account. Thus, the addition amounting to double taxation should be deleted. 6. Ld. CIT(A) erred in law and on facts by sustaining an addition of Rs 1,31,50,000/- made by Ld. AO in respect of an amount withdrawn by the partners of the firm in cash out of declared cash of Rs 12 crores after the same was declared by the appellant under the IDS on 29/09/2016 in valid currency before 08/11/2016 (i.e. the date of demonetization). Since, the source of the same was duly explained in the relevant books of accounts, the addition must be deleted. ....
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....development and construction of residential housing projects in Mumbai. During the relevant previous years, the assessee was undertaking development of various residential projects, inter alia, Hill Grange, Palm View and Horizon View. The books of account of the assessee have consistently been maintained in the regular course of business, duly subjected to statutory audit and the income from the projects has been recognised in accordance with the recognised method of accounting consistently followed over the years. 5. On 06.10.2017, the business premises of the assessee came to be covered by an action under section 133A of the Act. During the course of the said proceedings, statements of Shri Jeet Bharani and Shri Devang Sharma, sons of the two partners of the assessee LLP, were recorded under section 131 of the Act. Subsequently, while the survey proceedings were still continuing, a warrant of authorisation under section 132 came to be issued by the competent authority and the survey proceedings accordingly stood converted into a search operation. As recorded in the Panchnama itself, the search proceedings commenced at about 2:30 p.m. on 08.10.2017, whereafter the proceedings c....
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.... It was contended that the mandatory approval contemplated under section 153D of the Act had been granted in a wholly mechanical manner without any independent application of mind by the approving authority, thereby vitiating the entire assessment proceedings. It was further submitted that the assessment orders are also rendered unsustainable on account of non-compliance with the CBDT Circulars relating to generation of Document Identification Number (DIN) and further because effective opportunity to cross-examine Shri Hiren Bharani, whose statement forms the principal foundation of the impugned additions, was denied to the assessee. 9. Without prejudice, the learned counsel submitted that the entire edifice of the impugned additions rests upon a fundamentally erroneous appreciation of certain diaries, loose papers and internal compilations found during the proceedings conducted at the business premises of the assessee. According to him, these documents did not represent any actual receipt of undisclosed income or "on-money" from prospective purchasers of flats, but were merely tentative internal workings maintained for an altogether different purpose. Elaborating the factual ba....
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....h proceedings, and at the very first available opportunity, Mr. Hiren Bharani, realising that his statement had been made under a mistaken understanding of facts and law and was capable of being misconstrued, retracted the same by a detailed communication dated 16.10.2017 addressed to the Commissioner of Income Tax (Investigation)-2, Mumbai. The said retraction, according to the learned counsel, has never been effectively dealt with or disproved by the Department by bringing any independent corroborative material on record. 12. It was further contended that notwithstanding the extensive powers available to the Revenue during and after search proceedings under sections 131, 131(1A), 132(4) and 133(6) of the Act, not a single meaningful enquiry was undertaken from any of the purchasers whose complete identity, addresses and Permanent Account Numbers were admittedly available on record. None of the alleged purchasers was examined to ascertain whether any amount over and above the registered sale consideration had actually been paid. Likewise, no reference was made to the Departmental Valuation Officer for determining the fair market value of the properties, nor was any enquiry cond....
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....nts thereof remained unrebutted and could not simply be brushed aside. Reliance in this regard was placed upon the settled principle laid down by the Hon'ble Supreme Court in Mehta Parikh & Co. v. CIT (30 ITR 181), wherein it has been held that unrebutted affidavits cannot be discarded without undertaking appropriate enquiry or cross-examination. 15. The learned counsel further submitted that the assessee had consistently maintained before every authority that the figures reflected in the impugned diaries were merely tentative negotiations, proposed pricing structures and internal estimates prepared in connection with prospective sales, many of which never materialised in the form originally contemplated. It was emphasised that several entries also related to bookings which were eventually cancelled and the flats were thereafter sold to altogether different purchasers under duly registered agreements at values exceeding the prevailing Ready Reckoner rates. According to him, these surrounding circumstances themselves demonstrate that the impugned documents could never be treated as conclusive evidence of actual receipt of unaccounted consideration. 16. Proceeding further, the ....
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....s well as reflected in the financial statements furnished along with the returns of income. Assessment Year (Unabated Assessments) Addition for alleged suppressed sale proceeds- On-Money (Rs) Addition u/s 68 for unexplained cash credit (Rs) 2014-15 75,00,000 0 2015-16 6,32,50,000 0 2016-17 1,74,98,680 0 (Abated Assessments) 2017-18 2,42,50,000 Artificially inflated Capital Account of Partners 0 1,31,50,000 Cash Deposit in the Bank during 01.01.2017 to 31.03.2017 0 55,00,000 2018-19 3,32,00,000 Cash Deposit in Bank during the period from 01.04.2017 to 06.10.2017 0 76,50,000 19. The learned counsel thereafter elaborated his submissions by taking us through the statement of Shri Hiren Bharani recorded under section 132(4) of the Act and contended that the said statement, when read in its entirety and in the proper factual context, does not justify the sweeping inference drawn by the Assessing Officer that the assessee had received undisclosed "on-money" on sale of flats. According to him, the statement has been selectively relied upon by the Revenue by isolating cer....
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....s running into several crores of rupees. 22. The learned counsel further invited our attention to the questions and answers forming part of the statement recorded under section 132(4) and submitted that the Assessing Officer has proceeded on the assumption that the impugned diaries constituted evidence of actual receipt of on-money without appreciating that even during the course of recording of the statement, the partner had consistently maintained that the calculations appearing therein were relatable to the material maintained for the purposes of the IDS declaration. Particular emphasis was placed upon the answer given to Question No.50, wherein Shri Hiren Bharani had specifically requested reasonable time to consult the accounts team, Chartered Accountant and other persons conversant with the records before furnishing a final explanation. According to the learned counsel, this itself demonstrates that there was no unequivocal admission that the amounts recorded in the diaries represented actual undisclosed income independent of the declaration already made under the IDS. On the contrary, the tenor of the answer clearly indicated that the deponent himself was explaining that ....
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....essments. Loose sheets, rough notings and tentative calculations may at best constitute a starting point for investigation, but by themselves they do not establish the existence of real income unless supported by independent corroborative material. Sections 132(4A) and 292C undoubtedly raise certain rebuttable presumptions regarding possession and ownership of documents found during search, but those presumptions do not extend to treating every entry contained therein as conclusively representing undisclosed taxable income. Such presumptions remain rebuttable and have necessarily to be tested in the light of surrounding circumstances, contemporaneous records and the totality of evidence available on record. 26. The learned counsel also emphasised that all the sale transactions eventually culminated in duly registered conveyances executed for consideration which was not only fully disclosed in the books of account but was also higher than the prevailing Ready Reckoner value adopted by the Stamp Valuation Authorities. According to him, if the Department genuinely entertained a belief that the assessee had actually realised higher consideration than what was reflected in the regist....
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....rted by independent corroborative evidence cannot by itself justify an addition; (ii) registered sale deeds constitute the primary evidence of consideration unless disproved by reliable material; (iii) loose sheets and rough notings have little evidentiary value unless corroborated; (iv) the burden of proving understatement of consideration rests upon the Revenue; (v) presumptions under sections 132(4A) and 292C are rebuttable; and (vi) no addition can be sustained merely on the basis of unverified entries in loose papers without conducting proper enquiry from the concerned purchasers or other relevant persons. Reliance was placed upon, amongst others, K.P. Varghese v. ITO, Motors & General Stores (P.) Ltd., Mehta Parikh & Co., Radha Kishan Goel, Kailashben Manharlal Chokshi, Inder Lok Hotels (P.) Ltd., Dolphin Builders (P.) Ltd., Layer Exports (P.) Ltd., Rivera Properties (P.) Ltd., Shah Realtors, Excellent Land Developers (P.) Ltd., Kanakia Hospitality (P.) Ltd., Chander Mohan Mehta and the other authorities specifically cited before us. 30. The learned counsel thereafter addressed the additions made in Assessment Years 2017-18 and 2018-19 on account of cash deposits in the ba....
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....ence that the assessee had received consideration over and above that disclosed in the registered sale deeds. However, during the course of hearing, the learned CIT-DR fairly accepted that no independent enquiry had been conducted from any of the purchasers and no reference had been made to the Departmental Valuation Officer for determination of the fair market value of the flats. She nevertheless submitted that the findings recorded by the Assessing Officer, read together with the material found during the search and the statement recorded under section 132(4), sufficiently justified the additions made in the impugned assessments. 33. We have carefully considered the rival submissions, perused the assessment records, the impugned appellate orders, the statements recorded during the course of survey as well as search, the seized material, the documentary evidence placed in the paper books and the judicial precedents relied upon by both the parties. The principal issue which arises for our consideration is whether the additions made by the Assessing Officer towards alleged receipt of on-money on sale of flats can legally be sustained merely on the basis of certain loose papers an....
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....urse of search. No bullion, jewellery or unexplained investment representing deployment of such alleged unaccounted receipts was discovered. No undisclosed bank account, parallel books of account or independent cash ledger reflecting circulation of such amounts has been found. Thus, the entire case of the Revenue ultimately rests upon the interpretation sought to be placed upon the loose papers coupled with the statement recorded during the course of search. 36. The explanation consistently put forth by the assessee, right from the assessment proceedings till the hearing before us, is that the documents relied upon by the Revenue were never maintained as books of account nor were they intended to record actual receipt of cash outside the regular books. According to the assessee, these papers constituted internal compilations and working sheets prepared in connection with the declaration made under the Income Declaration Scheme, 2016, for preserving the particulars and supporting calculations relating to the income voluntarily disclosed thereunder. It has been repeatedly asserted that the said documents merely represented internal reference material and were never intended to rec....
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....with us is the complete absence of any meaningful enquiry from the purchasers of the flats. The identity of every purchaser was admittedly available with the Department through the registered agreements for sale. Their names, addresses and Permanent Account Numbers formed part of the assessment records. Yet, neither summons under section 131 nor notices under section 133(6) appear to have been issued to ascertain whether any purchaser had in fact paid any amount over and above the consideration recorded in the registered documents. No purchaser has come forward to state that any cash payment was made to the assessee. Equally, no statement of any purchaser has been relied upon by the Revenue in support of its allegation. Such omission assumes considerable significance because the very foundation of the Revenue's case is the alleged receipt of cash from identifiable purchasers whose identity was never in dispute. 40. In our considered opinion, the omission on the part of the Revenue to examine even a single purchaser assumes far greater significance than what appears at first blush. The allegation of receipt of on-money necessarily postulates the existence of two identifiable part....
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....rtantly, despite such detailed explanation having been furnished, the Assessing Officer did not consider it necessary to verify the factual position from any of the concerned purchasers. Once the assessee had discharged its initial burden by placing contemporaneous documentary evidence on record, the burden shifted upon the Revenue to dislodge such evidence through proper enquiry. Mere rejection of the explanation without undertaking any verification does not satisfy the standard of investigation expected in a search assessment involving allegations of receipt of substantial unaccounted cash. 43. Much emphasis has been placed by the Revenue upon the statement of Shri Hiren Bharani recorded under section 132(4). There can be no quarrel with the proposition that a statement recorded during the course of a valid search constitutes an important piece of evidence. At the same time, it is equally well settled that such a statement cannot be read in isolation, divorced from the surrounding circumstances or from the subsequent explanation furnished by the maker thereof. It is an admitted position that within a short span after the conclusion of the search proceedings, Shri Hiren Bharani....
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....ns which either stood cancelled subsequently or were never acted upon. In real estate transactions, negotiations frequently undergo changes before ultimately resulting in execution of registered agreements. Therefore, unless the entries contained in such papers are correlated with actual completed transactions through independent evidence, it would be unsafe to presume that every notation necessarily represents concluded receipt of taxable income. 46. The statutory presumptions available under sections 132(4A) and 292C of the Act undoubtedly permit the Revenue to draw certain presumptions regarding the ownership and contents of documents found during the course of search. However, these presumptions are rebuttable in nature and do not dispense with the obligation of the Revenue to establish the true character of the entries once a plausible explanation supported by contemporaneous material has been furnished by the assessee. In the present case, the assessee has not merely offered a bald explanation but has supported it by placing on record the declaration made under the Income Declaration Scheme, the acceptance thereof by the Department, reconciliations, affidavits of purchaser....
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....ce, that the entries recorded therein truly represent completed transactions and actual receipt of income. More so, where the alleged transactions pertain to identifiable immovable properties sold through registered instruments, the availability of the purchasers provides the most natural and direct source for verification. The complete absence of any such enquiry assumes considerable significance while appreciating the evidentiary worth of the seized material. 50. In the present case, the entire assessment has proceeded on the premise that because certain figures appearing in the loose papers broadly correspond to particular flats, every such figure necessarily represents receipt of cash over and above the consideration disclosed in the registered documents. Such an approach, in our considered opinion, overlooks an equally important aspect, namely, that real estate transactions ordinarily pass through several stages before ultimately culminating into execution of a registered agreement. Initial negotiations, tentative price discussions, token bookings, proposed revisions, cancellations and re-bookings are common incidents in such business. Unless the Revenue establishes that th....
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.... neither the search proceedings nor the subsequent investigation have yielded any tangible evidence reflecting accumulation or utilisation of such alleged receipts. It is difficult to reconcile these two positions in the absence of any supporting material. While it may not always be possible for the Revenue to trace every rupee allegedly received outside the books, where additions of this magnitude are proposed solely on the basis of private notings, the existence of at least some corroborative circumstances establishing the flow of funds assumes considerable importance. Such corroboration is conspicuously absent in the present case. 54. We may now advert to the evidentiary value of the statement recorded under section 132(4). It is well settled that an admission constitutes an important piece of evidence, but equally well settled is the principle that an admission is not conclusive and its evidentiary value must necessarily be examined in the light of the surrounding facts and attending circumstances. A statement recorded during the course of search undoubtedly carries considerable evidentiary weight; nevertheless, where such statement is subsequently retracted by furnishing a ....
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....while overlooking the entirety of the factual matrix. The declaration under the Income Declaration Scheme, its acceptance by the Department, the internal nature of the compilations, the reconciliations of bookings, the affidavits furnished by purchasers, the registered sale deeds, the ready reckoner values, the absence of any enquiry from purchasers and the absence of any financial trail have all been viewed by the authorities below in isolation rather than as parts of one integrated factual narrative. Appreciation of evidence in a search assessment cannot proceed in such a fragmented manner. Every circumstance has to be examined collectively to ascertain whether the Revenue has succeeded in establishing the charge of undisclosed income. 58. There is yet another aspect which deserves mention. The additions in the present case have essentially been founded upon certain diaries, loose sheets and handwritten notings recovered during the course of survey/search. It is by now well settled that loose papers, rough notings or private compilations do not, by themselves, partake the character of regular books of account maintained in the ordinary course of business. Such documents may un....
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....tions embodied in the Act are intended to facilitate investigation, but they do not dispense with the fundamental requirement that additions must ultimately be founded upon credible evidence and rational inference flowing therefrom. Once an assessee furnishes a plausible explanation supported by contemporaneous records and surrounding circumstances, the burden shifts upon the Revenue to dislodge such explanation by conducting proper investigation and bringing on record material of a cogent nature. An assessment cannot ultimately rest upon conjectures or inferential assumptions where the surrounding evidence does not support the conclusion sought to be drawn. It is this well-recognised principle which, in our considered opinion, governs the adjudication of the present appeals. 61. Having considered the entire material placed before us in its proper perspective, we are of the considered opinion that the Revenue has failed to establish, by cogent and independent evidence, that the assessee had actually received any consideration over and above what stood disclosed in the registered sale agreements. The additions ultimately rest upon an inferential interpretation of certain loose pa....
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.... remaining additions relating to the cash deposits during the demonetisation period and the addition towards alleged unexplained partners' capital, which arise on an altogether distinct factual footing and require independent consideration. 65. We shall now advert to the remaining additions which are independent of the issue relating to the alleged receipt of on-money. These additions pertain to (i) cash deposited by the assessee in its bank accounts during the demonetisation period in Assessment Years 2017-18 and 2018-19; and (ii) the addition made towards alleged unexplained partners' capital in Assessment Year 2017-18. Since these additions have been made on distinct facts and rest upon separate reasoning adopted by the Assessing Officer, they require independent adjudication notwithstanding our findings on the principal issue. 66. The Assessing Officer observed that the assessee had deposited cash aggregating to Rs.55,00,000/- during the period relevant to Assessment Year 2017-18 and Rs.76,50,000/- during the period relevant to Assessment Year 2018-19. According to the Assessing Officer, the assessee had failed to satisfactorily explain the source of these deposits and, a....
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....evenue has not brought any such material on record. 69. We also find that these additions do not arise from any incriminating material unearthed during the course of search. They have merely been made by drawing an adverse inference from the entries appearing in the regular books of account and the corresponding bank statements. The source of the deposits having been satisfactorily explained from the disclosed books and no discrepancy therein having been established by the Revenue, the additions, in our considered opinion, lack any factual or legal basis. We, accordingly, direct the Assessing Officer to delete the addition of Rs.55,00,000/- made in Assessment Year 2017-18 and the addition of Rs.76,50,000/- made in Assessment Year 2018-19. 70. We shall now consider the addition of Rs.1,31,50,000/- made in Assessment Year 2017-18 towards alleged unexplained partners' capital. The Assessing Officer noticed that corresponding entries had been passed in the partners' capital accounts pursuant to the declaration made under the Income Declaration Scheme, 2016. According to him, the assessee had failed to satisfactorily explain the utilisation of the cash represented by the said decl....