DY. COMMISSIONER OF INCOME TAX-27(2), MUMBAI vs. M/S PARSHWA ASSOCIATES, MUMBAI

We shall first take up the appeal filed by the revenue. The facts relating to the case are stated in brief. The assessee is a partnership firm and is engaged in the real estate business as builders and developers. The assessee filed revised return of income on 31.10.2017 declaring total income of Rs. 79,89,053/-. The Department had earlier carried out survey action under section 133A of the Act in the hands of the assessee on 30.8.2016. During the course of survey, a statement was recorded on oath from one of the partners named Shri Govind V. Vikmani. In the said statements, he had agreed to surrender a sum of Rs.4.23 crores for taxation over and above regular profit. The above said amount related to „on money‟ receipt on sale of flats. The basis for arriving at the above said figure is explained in brief. During the course of survey operations, it was noticed that there was difference of Rs.11,33,21,965/- between MM Value (Value determined by for stamp duty purposes) and Sale value and the said difference was considered as “on money receipts”. It was noticed that the assessee had offered a sum of Rs.7,10,00,000/- under Income Disclosure Scheme of 2016. Accordingly, it was agreed by the partner to surrender the balance amount of Rs.4,23,21,965/-. The Assessing Officer noticed that the assessee did not offer the above said amount as mentioned in the statement. Accordingly, during the course of scrutiny proceedings, the Assessing Officer asked the assessee to explain the same.

Before the Assessing Officer, the assessee filed a detailed reply stating that, during the year under consideration, it did not receive any „on money‟ from the flats sold by it. It was also submitted that the flats have been sold in all the subsequent years and hence the income relating to the flats sold during the year under consideration can be assessed to tax. In this regard the assessee filed a detail summary of sale of flats which contained sale value of flats, MM value (Manva Mandir Value) and difference between MM value and sale value. It was submitted that after survey operations/demonetization announced by GOI, the buyers of the flats did not pay anything in cash and 3 M/s. Parshwa Associates accordingly, the flats were sold for actual sale consideration, which was more than the MM value. Accordingly, it was submitted that the difference in sale consideration of Rs.4.23 crores have already been included in the sale proceeds and offered to tax during the year under consideration and in the subsequent years. Accordingly, it was contended that no addition is called for during the year under consideration. The assessee also furnished a break up details for the amount of Rs. 4.23 crores referred to in the statement given by the partner as under:- Sr. Assessment year based on Difference between MM No. date of execution of Sale Value as per Annexure & Agreement Value as per Sale Annexure 1 2017-18 1,80,81,586 2 2018-19 1,43,15,463 3 2019-20 65,40,315 4 2020-21 & Subsequent 54,02,219 Years TOTAL 4,43,39,581 5 Less : Excess Amount of 20,17,616 Income offered in IDS, 2016 upto AY 2016-17 TOTAL 4,23,21,965

It was submitted that the amount of Rs. 4.23 crores was related to all the flats and they have been sold in AY 2017-18 and subsequent years and the actual income has been offered to tax whenever the sale has taken place. It was submitted that the buyers have not paid any on money as originally presumed during the course of survey operations and that the sale consideration of flats was equal or more than the MM Value. Accordingly, it was submitted that there is no requirement to make separate disclosure of Rs.4.23 crores.

The Assessing Officer, however, did not agree with the explanations given by the assessee. He took the view that the assessee has sold thirty flats during the year under consideration after 1.4.2016 and there was difference in the sale consideration mentioned in the agreement and MM value. The AO computed the said difference at Rs.3,40,69,184/- relating to 30 flats (flat numbers are mentioned in paragraph 3.11 at page 10 of the assessment order). Accordingly, the AO assessed the above said amount as unexplained income u/s 69A of the Act towards on money received by the assessee. The learned CIT(A) deleted the addition and hence the Revenue has filed this appeal.

We have heard the parties on this issue and perused the record. We noticed that the learned CIT(A) has deleted the addition with following observations :- “2.3 I have gone through the submission of the assessee and perused the assessment order. AO has made addition of Rs. 3,40,69,184/- purportedly on the basis of statement of Shri Govind V Vikmani. Assessee has alleged that working of this figure has not been provided by the AO. I find that in the assessment order at para 11 this figure has been stated to related to certain flats mentioned in that para. However the working is not available in the assessment order. As per the statement the amount represents amount of on- money received on flats which have been booked by customers. It has been mentioned by the AO that Shri Vikmani had offered the amount of Rs 4.3 cr in AY 2017-18. On being asked to explain why the amount was not offered the appellant has stated that the amount was to be offered subject to the registry of the flats. Since registry of flats did not take place in the FY 2016-17 entire profit could not be offered in one year. There were other reasons stated by the assessee. It was stated that post de- monetisation there was a fear among the flat buyers who booked the flat pending execution of agreement, post event of survey on the assessee firm that agreement at a lesser value than the sale value as per annexure may invite Tax troubles to them. Also the assessee insisted in getting whole amount in cheque. In view of this and execution of agreement as per sales value mentioned in the annexure the entire portion receivable against sale of flats is received by cheque only and no on money/cash portion was not received in respect of agreement executed during the relevant FY. The amount received during the year and also in subsequent years toward sale of flats has been duly credited in accounts and profit on the same has been offered on percentage completion method. Working of The entire sale value is accounted for in Financial Statements. The 5 M/s. Parshwa Associates

We notice that the AO has merely relied upon the statement given by the partner of the assessee firm and accordingly come to the conclusion that the alleged „on money‟ receipts is to be assessed to tax. We noticed earlier that the difference between the MM Value and Sale value of 116 flats was arrived at Rs.11.33 crores and since the assessee has offered a sum of Rs.7.10 crores under IDS scheme, the difference of Rs.4.23 crores was agreed to be offered for tax. The said offer was made when the sale agreement value was less than the MM Value. With regard to non-offering of above said amount, we notice that the assessee has offered following two explanations:-

In support of the above, the assessee has furnished the details of flats numbering 30 sold during the years relevant to AY 2017-18, 2018-19 and 2019-20. The assessing officer has computed the difference between the value shown in the Agreement for sale and the M M Value at Rs.3,40,69,184/-. However, the assessee the said difference actually works out to Rs.3,00,06,546/-. It is the submission of the assessee that the actual Sale agreement entered by the assessee was more than the MM Value. The actual sale value of the above said flats was Rs.5.97 crores, where as the MM value of these 30 flats was Rs.5.99 crores, the difference between the two was falling within the tolerance range. The Ld A.R reiterated that these 30 flats have been sold during the years relevant to the AYs 2017-18 to 2019- 20. The Ld A.R has furnished the details of date of sale agreement of 30 flats as under:-

A careful perusal of the above table would show that all the 30 flats have not been sold during the year relevant to AY 2017-18, i.e., they have been sold in subsequent years also. We also noticed that there was mistake in the computation of alleged unaccounted receipts made by the AO. According to the assessee, it has sold 33 flats after the date of Survey operations, whereas the AO has taken it as 30 flats. Further, the AO has computed the addition in respect of unsold flats also, which is not in accordance with law. We notice that the AO did not conduct any independent enquiry with the buyers of flats in order to ascertain the cash payments made by them. All these facts cumulatively prove that the AO has 9 M/s. Parshwa Associates made the impugned addition of Rs.3.40 crores without any basis. Probably, he has given much importance to the Statement given by the partner of the assessee firm. Even if an assessee surrenders any income in the Statement, yet it is possible for him to show that the said surrender was made under misconception. In this case, we notice that the assessee has explained as to why it did not offer the additional income surrendered by its partner. The assessee has, in fact, furnished details before the AO stating that the actual sale consideration has been received equal to or more than the MM Value. We notice that the AO has not verified those details at all. Thus, we notice that the AO has made the impugned addition without any basis. When there is no basis for arriving at the conclusion that the assessee has received any on-money, the addition is not justified as held by Hon‟ble Supreme Court in the case of PCIT vs. Nishant Construction (P) Ltd (2019)(101 taxmann.com 180)(SC).

In view of the foregoing discussions, we hold that the AO has not brought on record any material in support of the addition made by him nor he provided any basis for arriving at the basis, particularly when all the 30 flats have not been sold during the year relevant to AY 2017-18. Accordingly, we are of the view that the Ld CIT(A) was justified in deleting this addition.

We shall not take up the appeal filed by the assessee. During the course of a Survey operation conducted at the premises of M/s Nemijin Swetamber Jain Trust on 29-08-2016, a piece of paper was found. In the statement taken from a person named Shri Hemal Chandrakant Bheda, who was son of one of the partners of the assessee herein named Shri Chandrakant Nanji Bheda, he stated that this piece of paper may/appears to belong to the assessee firm. Accordingly, the DCIT (Exemption) forwarded the above said information to the assessing officer.

The said document contained details of Receipts and Payments. No specific date is also mentioned in it. The same is extracted below:-

We heard the parties and perused the record. Following arguments, inter alia, were advanced by Ld A.R:- (a) The AO cannot rely upon the Statement given a third party, that too, when he has stated that the impugned document may/appears to belong to the assessee herein, i.e., even the deponent was not sure as to whom the said document belong to. Hence, the AO could not have related this document to the assessee. (b) The impugned document is undated, unsigned, unnamed containing receipts and payments. Hence it cannot be definitely said that the transactions, even if it is assumed to belong to the assessee, pertain to the year under consideration. Hence, the AO could not have made addition in the instant year. (c) The AO has assessed entire receipts as income of the assessee without establishing that the said receipts are revenue in nature. A careful perusal of the document would show that the total receipts of Rs.5.71 crores included “Loan from K Galia” amounting to Rs.4,25,00,000/-. This loan amount cannot be considered to be revenue receipt assessable to tax. Further, there are other receipts against individual names and the nature of those receipts has also not been mentioned. Hence, they cannot also be considered as revenue receipts. (d) Even though the assessee had asked for cross examination of Mr. Hemal Bheda, the same was not provided by the AO. (e) Hence the above said document is a dumb document and the same should not have been relied upon by the AO.

We noticed earlier that the AO has made the impugned addition of Rs.5.71 crores on the basis of a piece of document found at the premises of a Trust. The assessee has been linked to the said document, since Shri Hemal

We also notice that there was total non-application of mind on the part of the AO in making the impugned addition. We noticed that the AO has assessed entire cash receipts as income of the assessee without examining the nature of entries and further, whether those receipts can be considered as revenue receipts assessable to tax. We have earlier noticed that the aggregate receipts of Rs.5.71 crores included loan receipts of Rs.4.20 crores, which is not revenue receipt. Further, a sum of about Rs.44.00 lakhs have been shown against name of certain individuals and nature of those receipts are also not known. Further, we have noticed that this document is undated and hence it cannot be said that these transactions are related to the year under consideration, even if it is assumed that the said document belongs to the assessee. We also noticed that the AO did not make any independent enquiry with regard to this document.

Accordingly, we are of the view that the AO was not justified in making this addition on the basis of a document, which should be classified as a dumb document. Accordingly, we are of the view that the Ld CIT(A) was not 13 M/s. Parshwa Associates justified in confirming this addition. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the addition of Rs.5.71 crores.

In the result, the appeal filed by the assessee is allowed and the appeal of the revenue is dismissed.