M/S. MANDVIWALA DEVELOPERS,,SURAT vs. THE DY.COMMISSIONER OF INCOME TAX,CIRCLE-1(2),, SURAT

The aforesaid explanation furnished by assessee was not accepted by Assessing Officer. The Assessing Officer held that during the survey, the statement of partner was recorded on oath. The partner disclosed unaccounted income of Rs.10.78 Crore as net income for AY-2012-13. The partner also affirmed that no other expenses or deduction would be claimed. The other partners of the firm also endorsed the correctness of the statement. The Assessing Officer further held that assessee has not explained the basis for stating that disclosed income during the survey and also arriving at the net income which according to the assessee offered for taxation. No documentary evidences of corresponding expenses incurred in arriving the net income is filed. Accordingly, the Assessing Officer on the basis of above observation, issued show cause notice dated 24.02.2015 as to why the difference of unaccounted undisclosed income declared during the survey and from the income offered for taxation, should not be added to the total income by treating the retraction as an afterthought. The Assessing Officer has recorded the contents of the show cause notice dated 24.02.2015, in para 5 of assessment order.

It was further stated that in answer to question no.33 that difference of cash and cash of paper book of Rs.7,86,857/-, was unaccounted cash of the assessee and in answer to question no.34, the partner admitted total unaccounted income of Rs.10.78 crore in the following manner: Particulars Sum written Actual amount Page no. 12 360 3,60,00,000 Page no. 17 335 3,35,00,000 Assessment Year.2012-13 M/s. Mandviwala Developers Page no. 18 280 2,80,00,000 9,75,00,000 Total 7. It was explained that while filing return of income, the partner of assessee-firm realized their mistake that the disclosure of unaccounted income has been made on the basis of business receivables, which is gross receipts of unaccounted transaction. The tax is always payable on profit and not on the transaction whether accounted or unaccounted. All the partners were under mental pressure and in such situation all agreed for disclosure of unaccounted income, taken into consideration business receivables which are gross receipts only. The assessee also filed retraction- affidavit of all the partners’ interalia stating therein that at the time of recording the statement of partner, they were under the impression that transaction recorded in the impounded paper is net unaccounted profit, which is actually gross business receipts. The assessee also relied on certain case law on the ratio that there is no evidentiary value of the statement recorded during survey action under section 133 of the Act.

The contention/explanation furnished by assessee was not accepted by the Assessing Officer. The Assessing Officer held that the assessee has not disputed the fact about the incriminating evidence specifically page no.12, 17 & 18 of Assessment Year.2012-13 M/s. Mandviwala Developers Annexure-BF-1/B1-2 of the impounded documents. The assessee has not disputed the writing on these three papers. The submission of the assessee that partners realized their mistake that the disclosure was made on the basis of business receivables which is gross receipt of unaccounted transaction was also not accepted by Assessing Officer. The assessing officer held that the partner of the firm specifically and categorically stated that the figures in the coded form against the name of the partners of the firm are the net profit of the firm or the quarter ending on June, 2011. However, the lower portion of page no.17 the figures were distribution of money among the partners in their profit sharing ratio and that partners of the firm categorically stated that the amount was distributed among the partners are the unrecorded and unaccounted receivables of the firm. The assessing officer also held that statement of Divyang Mandviwala was endorsed by two other partners namely Shailesh Suresh Chand Mandviwala and Vipul Kirit Kumar Mandviwala and their Chartered Accountant Pradeep Singhi. The assessee was asked to furnish the details of name, PAN, and complete address of the persons from whom such receivable of Rs. 9.75 Crore. In response to the said question it was explained that receivable of Rs. 9.75 Crore were out of the books transactions for which no track record was maintained. The Assessment Year.2012-13 M/s. Mandviwala Developers assessing officer further held that till 29/03/2013, the assessee had paid tax of Rs. 2.10 Crore, which is more than 50% of the return income. It was also held that during the assessment no bills, voucher or nature of expenses was brought on record. The assessing officer finally held that during the statement recorded in survey action the partner of the assessee disclosed net income and not gross income, further the manner in which unaccounted income was generated was not explained. On the aforesaid observation, the Assessing Officer brought the difference of undisclosed income and the return income of Rs.6,78,00,000/- to tax in the assessment order passed under section 143(3) dated 28.03.2015.

On appeal before the ld. CIT(A), the addition was upheld. The ld. CIT(A) while upholding the addition held that during the statement recorded in the survey proceeding the partners specifically stated that the amount is distributed among the partners are unrecorded and unaccounted receivables of the firm. The statement of partner of assessee was recorded in the presence of Chartered Accountant. The professional advice was available to the assessee at the time of recording the statement. The assessee filed return of income after one year and has paid tax of Rs.2.10 Crore till 29.03.2013 which is more than 50% of total income returned, which clearly indicates that income was Assessment Year.2012-13 M/s. Mandviwala Developers reduced while filing return of income being afterthought. No plausible explanation was offered by the assessee for paying tax of Rs.2.10 Crore as an advanced tax. The retraction statement after two years is an afterthought. It was also held that in normal circumstances, the appellant realizes mistake immediately and would have not waited for two years. The admission is an important piece of evidence. The burden to prove that statement was obtained by pressure or intimidation was on the assessee. The assessee claimed that he made statement under the mistaken belief of fact or law and that retraction should be made at the earliest opportunity. The ld.CIT(A) further held that assessee fails to produce the evidence with regard to the expenditure for verification before the Assessing Officer, despite several opportunity. Thus, the assessee failed to discharge the burden regarding the expenditure. The partner of assessee made discloser of unaccounted income on the basis of document and the loose papers found and impounded from their premises. Shri Divyang Mandviwala is an active partner of the business and was well-informed of the nature of business and the documents/papers lying at his premises. The disclosure statement was made after consulting the books of accounts. On the submissions of assessee that the assessee incurred expenses on the receivable, the ld CIT(A) held that the assessee failed to Assessment Year.2012-13 M/s. Mandviwala Developers explained that any expenditure was incurred as the same is not supported with any evidence.

The Ld. CIT(A) further noted that during the appellate stage the assessee raised new issues, which was neither raised during assessment or at the time of filing appeal. First claim/issue was regarding that source of unaccounted income and the nature of unaccounted business that is was from trading of sarees and dress material and not from land and building development. And that for sarees and dress material business the assessee maintained loose papers. The ld CIT(A) discarded the submissions of assessee by taking view that it is a ‘make believe story’. No such claim of business of sarees and dress material either during the survey action or in assessment or while filing retraction-affidavit was made. The incriminating material found was confronted with the partner, who disclosed unaccounted income witnessed by two other partners and their CA. The claim of assessee with regard to undisclosed textile business and profit of Rs. 4 Crore on unaccounted business receivable of Rs. 9.76 Crore giving a profit @ 41% in unimaginable. Otherwise the assessee failed to provide complete details of the parties with whom the assessee traded in such sarees and textile business. On the aforesaid observation the ld. CIT(A) affirmed the action of Assessment Year.2012-13 M/s. Mandviwala Developers Assessing Officer. Thus, further aggrieved the assessee has filed present appeal before the Tribunal.

We have heard the submissions of Shri Saurabh Soparkar, learned Senior Advocate assisted by Ms Urvashi Shodhan Advocate (ld. Counsel/ld. AR) and Shri S. T. Bidari, ld. CIT(DR) for the Revenue and have gone through the order of the lower authorities carefully. The learned Sr Counsel for the assessee submits that a survey action under section 133A was conducted on the business premises of the assessee on 5th July 2011. During the course of survey, some loose papers were found and impounded and were inventorised at the BF-16 and BF-17. The statement of one of the partner of was recorded. During the course of survey proceeding the impounded material was shown to the partner and was asked to explain the contents of the paper. In question was 27 and 30, the partner was asked to explain the page number 12, 17 and 18 of seized material. In answer to the question, the partner replied that sum mentioned on the page in lakhs and those are unaccounted business receivable, the summary was explained to that of ₹ 9.75 crore. The partner further admitted in answer to question number 33 that difference of cash founded as per books amounting to Rs. 7,86,857/- was unaccounted cash of assessee form. Further in answer to question number 34 partner admitted unaccounted Assessment Year.2012-13 M/s. Mandviwala Developers total income of firm of ₹ 10.78 crore. Later on the assessee realised their mistake that they had disclosed gross receipt of income as net income for the year under consideration. The assessee filed return of income on 27th September 2013 showing total income at ₹ 4.00 crore. During the assessment the assessee requested to the assessing officer to provide the copy of statement of partner recorded by survey team. The copy of the statement of partner namely Divyang Mandviwala was provided to the assessee’s representative. On receipt of statement of partner, the assessee immediately filed retraction affidavit, explaining the fact that at the time of survey action regarding gross receipt were taken as net received. Learned Senior Counsel further submitted that during the course of survey not even a single document found which can establish any on money was received under the construction project. The sole material on the basis of which the addition was proposed and made had been made are three papers containing therein business receivable of three months. The learned Senior counsel for the submits that under the income tax only net income is taxable and not the total gross receipt received by the assessee during the course of its business. The assessee after realisation that assessee had spent certain expenses offered the net income after deduction of expenses and offer the real income earned by the assessee.

The learned senior counsel for the assessee submits that assessee is in the business of real estate development and what could be added as undisclosed income of the assessee, a reasonable amount of profit, which the assessee could have earned. In support of his submission the learned senior counsel relied upon the decision of coordinate bench of the Ahmedabad Tribunal in Kishore Mohanlal Telwala Vs ACIT (107 Taxman 86), wherein it was held that what could be added as undisclosed income of the assessee under section 158BC was a reasonable amount of profit which the assessee could have earned by charging ‘on money’ in respect of flats. In that case the assessee offered 8% on the total receipt which was considered as reasonable and fair. The learned senior counsel for the assessee submits that decision of Tribunal was challenged by revenue before jurisdictional High Court in Income tax Appeal No. 411 of 1999. The appeal of the revenue was dismissed vide order dated 24.04.2000. The learned senior counsel by referring the said Assessment Year.2012-13 M/s. Mandviwala Developers decision invited our attention on the question no. 2, as framed by Hon’ble High Court, “whether on the facts and circumstances of the case, the ITAT having held that only the profit of undisclosed income has to be taxed in the block assessment was justified in admitting the claim of expenditure on the basis of oral evidence department has clearly discharged its onerous to prove the undisclosed received in the form of on money on the basis of material found and seized during the course of search”. The learned Senior Counsel submits that Hon’ble High Court while deciding the said question No. 2 held that Tribunal has rightly considered that in absence of any financial record or account being maintained by the respondent-assessee, the profit earned by the respondent-assessee for the block assessment was presumed to be more than 8% as per the provisions of section 44AD of the Act. Further, the contention of revenue was not accepted that no account has been maintained on nothing to substantiate the amount of expenditure incurred by the respondent-assessee was shown. The learned senior counsel submits that the ratio of case law in Kishore Mohanlal Telwala is a squarely in applicable on the facts of the present case.

To buttress his submissions, the Senior Counsel of the assessee also relied upon the following decisions: Gujarat High Court in case of Shardaben K Modi in Tax Appeal 1 Assessment Year.2012-13 M/s. Mandviwala Developers No. 123 of 2013 dated 30.04.2013 Hon'ble Kerala High Court, in case of Paul Mathews & Sons Vs 2 CIT (2003) 263 ITR 101 (Kerala), 3 Supreme Court in CIT Vs S. Khader Khan Son (2013) 352 ITR 480 SC, 4 Madras High Court CIT Vs S. Khader Khan Son (2008)300 ITR 157 (Madras) Gujarat High Court in CIT Vs Golden Finance[2013] 40 5 taxmann.com 329 (Gujarat) 6 Madhya Pradesh High Court in CIT Vs Digambar Kumar Jain (HUF)(2012) 83 CCH 0236 MPHC Delhi High Court in CIT Vs Dhingra Metal Works[2011] 196 7 Taxman 488(Delhi) Gujarat High Court in CIT Vs President Industries(2002) 258 8 ITR 654 (Guj), 9 Gujarat High Court in DCIT Vs Panna Corporation in Tax AppealNo. 323& 325of 2000 dated 16.06.2012, Gujarat High Court in CIT Vs Leo Formulation (P.) Ltd 10 [2014] 48 taxmann.com 328 (Gujarat), 11 Gujarat High Court in CIT Vs Samir Synthetics Mill[2010] 326 ITR 410 (Gujarat) Gujarat High Court in CIT Vs V R Textile in Tax Appeal No. 12 1828 of 2010, 13 Bombay High Court in CIT Vs Shri Hariram Bhambhani Incomt Tax Appeal No. 313 of 2013 14 Allahabad High Court in Ashok Kumar Rastogi Vs CIT [1991] 55 Taxman 433(Allahabad) 15 Kishor 107 Taxmann 86 ITAT, Mohanlal Ahmedabad Telwala 16 Kishor T.A. No. 411 to 1999 Gujarat High Mohanlal Court Telwala Green Field ITSS Nos. 289 to 291, ITAT, 17 Realty Pvt. Ltd. 320 to 322/AHD/2018 Ahmedabad 15. The assessee has filed following documents on record: 1 ITR with Computation of Total Income 2 Audit Report 3 Written submission before CIT (A) 4 Documents impounded during survey - Pg no. 12, 17 & BF17 5 Affidavit dated 25/02/2015 6 Show cause notice dated 24/02/2015 7 Reply to S.C.N. dated 03/03/2015 16 Assessment Year.2012-13 M/s. Mandviwala Developers 8 Details of documents impounded during Survey 9 Statement recorded u/s 131 of the Act a) Divyang Mandwila (In Gujarati) b) Brijesh Mandwila (In Gujarati) c) Hemish Mandwils 10 Explanation for documents impounded during survey 11 Application for additional evidence made before CIT(A) along with details of flat booking as on 05/07/201 1 12 Remand Report dated 07/03/2016 along with Balance sheet for A.Y. 2011-12 13 Rejoinder to remand report dated 1 5/03/20 1 6 14 Free English translation of documents recorded originally in Gujarati a) Statement of Divyang Mandwila b) Statement of Brijesh Mandwila 16. On the other hand the ld. DR for the revenue supported the order of the lower authorities. The ld. DR for the revenue further submits that during the survey action certain incriminating material in the form of various documents was found at the premises of assessee. The documents were inventorised and seized. During the course of survey proceeding, the statement of one of the partner of assessee was recorded, in the statement the said partner disclosed unaccounted income of ₹ 10.78 crore as income for the assessment year under consideration. In the statement, the partner affirmed that no other expenses, deduction will be claimed from the unaccounted income disclosed during the course of survey. During the assessment, the assessing officer noted that the assessee had not disputed that the sum written on these pages are in coded forms, i.e. three digits were actually stand for Crores. In reply to various Assessment Year.2012-13 M/s. Mandviwala Developers questions, the partner submitted a revised explanation and stated that actual figure written on these documents is Rs. 9.75 Crore. During the assessment, the assessing officer asked the assessee to provide the complete PAN, name and address from whom, this ₹ 9.75 crore is receivable. The assessee in its reply dated 3rd March 2015, before assessing officer submitted that ₹ 9.75 crore were out of books transaction for which they have not maintained any track record and, therefore, no details can be provided. Thus, the assessee failed to substantiate the names of person from whom such receivable is claimed. The statement of partner was recorded in the presence of two other partners and their chartered accountant. Both the partners and said chartered accountant endorsed the statement of the partner. The statement was given after due consultation of other partners and the consultant/chartered accountant who is their regular chartered accountant. The assessee while filing return of income on 27th September 2013, i.e. after one year of the due date for impugned assessment year, as prescribed under section 139 (1) on or before 30th September 2012. Before filing return of income the assessee paid tax of ₹ 2.10 crore. The payment of tax of Rs. 2.10 crore till 29th March 2013 was paid before return of income was filed, which is more than 50% of total income return, which indicates that income was reduced only while filing return of Assessment Year.2012-13 M/s. Mandviwala Developers income and the stand of the assessee, that they realised their mistake in disclosing net income instead of gross income, is nothing but an afterthought story. The learned DR for the revenue further submits that retraction should be made at the earliest possible opportunity. The assessee has not explained such circumstances as to why there was such delay of about two years in retracting from the statement of the partner, which was recorded in the presence of two other partners and the consultant of the assessee. The partner (s) of assessee has made a general statement in the affidavit, which is not supported by any evidence; the retraction was made after two year of initial statement, which itself created serious doubt.

The statement made by one partner, endorsed by two other partners, during the survey was in his exclusive knowledge. The learned DR for the revenue submits that the retraction made by partner is general statement, is not retraction in the eyes of law and is liable to be discarded. The learned DR further submits that even, if it is presumed for the sake of argument that the disclosure was made for a gross profit /receivable and the assessee incurred expenses for earning such gross receipt, the assessee has not filed any evidence to substantiate the fact that they have actually incurred any expenses. The assessee is making inconsistent statement which is far from truth. The Assessment Year.2012-13 M/s. Mandviwala Developers assessee failed to produce any evidence in the form of bills, voucher to establish that expenditure had been incurred to earn the undisclosed income, which required to be set off against the claim of alleged gross receivable. The netting of income out of unaccounted income disclosed is not allowable under the law. Even otherwise the assessee has not disclosed that what type of expenditure incurred by the assessee, either before the assessing officer or before first appellate authority. The assessee failed to bring any iota of evidence of the expenses incurred for earning such undisclosed receivable income. The ld. DR for the revenue prayed for dismissing the appeal of the assessee.

We have considered the rival submissions of the learned counsel and representatives of parties and have again gone through the orders of the lower authorities. We have also deliberated on each and every case law relied by ld. Sr Counsel for the assessee. The assessing officer while passing the assessment order made addition of Rs. 6.78 Crore by holding that during the survey statement of Divyang Mandviwala was recorded and was endorsed by two other partners namely Shailesh Suresh Chand Mandviwala and Vipul Kirit Kumar Mandviwala and their Chartered Accountant (CA) Pradeep Singhi. During the assessment the assessee was asked to furnish the details of name, PAN, and complete address of the persons from whom Assessment Year.2012-13 M/s. Mandviwala Developers such receivable of Rs. 9.75 Crore was receivable. No documentary evidences of corresponding expenses incurred for earning such net income, is filed. The explanation of assessee that receivable of Rs. 9.75 Crore were out of the books transactions for which no track record was maintained was also not accepted by assessing officer. The assessing officer further held that till 29/03/2013, the assessee had paid tax of Rs. 2.10 Crore, which is more than 50% of the return income. It was also held that during the assessment no bills, voucher or nature of expenses was brought on record. The assessing officer finally held that during the statement recorded in survey action the partner of the assessee disclosed net income and not gross income, further the manner in which unaccounted income was generated was not explained and added the difference of undisclosed income declared during the survey and offered in return income.

Before the ld CIT(A), the assessee raised additional grounds of appeal and contended that the undisclosed income offered during the survey action is income from the business of sarees and dress material. The Ld. CIT(A) while considering the additional ground of appeal noted that during the appellate stage the assessee raised new issues, which was neither raised during assessment or at the time of filing appeal. The assessee claimed Assessment Year.2012-13 M/s. Mandviwala Developers that source of unaccounted income and the nature of unaccounted business that is was from trading of sarees and dress material and not from land and building development. The assessee claimed that of the business of sarees and dress material business the assessee maintained record of its business on loose papers. The ld CIT(A) discarded the submissions of assessee by taking view that it is a ‘make believe story’. No such claim of business of sarees and dress material, either during the survey action or in assessment or while filing retraction-affidavit was made. The incriminating material found during the survey was confronted with the partner, who disclosed unaccounted income which was confirmed by two other partners and their CA. The claim of assessee with regard to undisclosed textile business/ sarees business and profit of Rs. 4 Crore on unaccounted business receivable of Rs. 9.76 Crore giving a profit @ 41% in unimaginable and rejected the additional ground raised

We have noted that while filing the present appeal, the assessee has not challenged the order of ld CIT(A) on the additional ground of appeal

Before, Tribunal the assessee has filed Audit report, copy of which is available at page No. 3 to 29 of PB. The Audit report is duly signed by learned CA, who was present during the survey action and endorsed the statement of the partner of assessee. In para 8 (a) of the Audit report the assessee/ auditor has shown its business of “Land & Building Development”, in para 8(b) which relates to change in the business or profession the assessee has written “N.A.”. Further, in para 9 of the Audit report it is reported that the books of accounts are maintained in computer system. Now again adverting to the stands taken by the assessee; before survey team the partner of the assessee disclosed additional income of Rs. 10.78 Crore, the assessee paid tax of Rs. 2.10 Crore till 29.03.2013, which shows the conduct of the assessee that the stamen made during the survey action was acted upon. However, at the time of filing return of income declared income of Rs. 4.00 Crore. The assessee retracted from Assessment Year.2012-13 M/s. Mandviwala Developers the statement of the partner after more than two years. No reasonable and plausible explanation in retracting the statement was offered except simply stating that they realised their mistake later on. If the mistake was realised later on the statement should have been retracted immediately. In the retraction affidavit the partners of the assessee has no where stated that there was any pressure or any coercive measure was used against them while recording the statement. Before ld CIT(A), the assessee raised another story of business of sarees and dress material, which was not substantiated. Thus, the additional plea of the assessee was not allowed. Strangely, again the decision of ld CIT(A) in not accepting the additional plea no grounds of appeal