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Facts
The appeals involve several assessment years and assessees, with common issues related to interest on P&F booking, IBMS and sinking fund charges, suppressed sales, unaccounted sales, and transactions recorded outside books. One specific appeal concerns late payment of employee contributions to PF & ESI.
Held
The Tribunal held that interest paid on cancellation of booking is a contractual obligation and deductible. Charges for IBMS and sinking fund were considered income as they were collected from customers without sufficient evidence of being security deposits. Suppressed sales and unaccounted sales were not substantiated by the Revenue. Transactions on a seized slip pad were held to belong to a third party, Saudagar Shah, and not the assessee.
Key Issues
The main issues revolved around the allowability of certain expenses, the nature of amounts collected from customers, and the validity of additions made by the AO based on seized documents and estimations, particularly concerning suppressed and unaccounted sales, and transactions with third parties.
Sections Cited
143(3), 153A, 115JB, 132, 37(1), 132(4A), 292C, 14A, 8D, 132(4)
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Income Tax Appellate Tribunal, DELHI BENCH “E”: NEW DELHI
Before: SHRI MAHAVIR SINGH & SHRI M. BALAGANESH
O R D E R
PER M. BALAGANESH, AM
The instant batch of six appeals of different assessees’ are for AYs 2009- 10 & 2010-11. Identical issues are involved in all these appeals and hence, they are taken up together and disposed of by this common order for the sake of convenience.
(M/s. Majestic Properties Pvt. Ltd) –Revenue’s appeal 2. The ground No. 1 raised by the revenue is challenging the deletion of disallowance of Rs. 69,26,040/- made by the ld AO on account of interest on P & F Booking incurred for not making allotment to the parties, being penal in nature.
We have heard the rival submissions and perused the material available on record. The return of for AY 2008-09 was filed by the assessee company on 30.09.2008 declaring total income of Rs. 2,39,129/- under normal provisions of Act and book profit of Rs. 88,55,223/- u/s 115JB of the Act. A search and seizure operation u/s 132 of the Act was carried out on 26.02.2009 in the case of the assessee. Notice u/s 153A of the Act stood issued to the assessee on 28.08.2009. In response thereto, the return of income was filed by the assessee on 29.09.2009 declaring income of Rs. 2,39,129/- after setting off of brought forward loss to the tune of Rs. 50,57,210/- under normal provisions of the Act. The assessee however paid tax on the book profit of Rs. 88,55,223/- declaring u/s 115JB of the Act. The ld AO noted that during the year under consideration, the assessee continued its business of builders, developers, colonizers etc. From the details of the work in progress submitted by the assessee for the Jaipur Project, the ld AO observed that the assessee had capitalized an amount of Rs. Page | 2 69,26,040/- on account of cancellation of booking. The assessee was asked to furnish the details of the same and also required to explain as to why the same may not be disallowed as same constitutes the interest paid on cancellation of booking, which is penal in nature. The assessee replied that it relates to capitalization of Rs. 69,26,040/- with regard to payment of interest on refund which was claimed after the acceptance of company’s proposal for plots and the allotment letters were issued to them in past years. The assessee submitted that when the allotment process has started and the company has started the construction of the project also then the funds received from those parties were earmarked for bringing the project into existence. In between if some of the allottees do not show their interest for making the full payment and want to withdraw, the same cancelled flat will definitely be allotted to some new party who will bear the cost of the time difference of the allotment of flat. Then the funds which were already invested in the construction of the project shall be required to be refunded to the allottees with interest. Then this financial cost definitely form part of the construction cost of the project. Hence in past year, the amount of interest paid to the parties who were allotted flats, was added to the work in progress to be charged against the revenue when the same shall be recognized. The ld AO however, did not heed to the contentions of the assessee and 4. concluded that interest paid on refund to the allottees is penal in nature and not allowable as deduction u/s 37(1) of the Act. In our considered opinion, the same is merely a contractual obligation pursuant to which the assessee had made payment of interest. The modus operandi adopted by the assessee together with the nature of transactions thereon have been duly explained hereinabove. There is absolutely no infringement of law made by the assessee. The payment of interest had arose on account of contractual obligations with the parties, whether Page | 3 oral or written and is inextricably linked with the business of the assessee and hence the same is merely compensatory in nature which has been duly deleted by the ld CIT(A), on which we do not find any infirmity. Accordingly, the ground 1 raised by the revenue is dismissed. Ground No. 2 raised by the revenue is challenging the deletion of addition 5. of Rs. 35,93,236/- on IBMS and sinking fund. We have heard the rival submissions and perused the material available on 6. record. The ld AO noticed that assessee had charged certain amount from customers on account of IBMS and sinking fund. Accordingly, as on 31.03.2008, the assessee has shown an amount of Rs. 35,93,236/- on account of sinking fund and IBMS in the balance sheet under the head current liabilities. The assessee submitted that this is a fund which has been created with a view to meet out unforeseen future liabilities on account of natural calamities and hence, the same is shown under the head liability in the balance sheet. The ld AO observed that this is not fund which has been created by the assessee out of its own source or surplus as instead the same has been charged from the customers to whom the shops of mall have been sold by the assessee. The ld AO observed that once an amount has been charged form the customers, it is an income of the assessee and same cannot be transferred to liabilities in the balance sheet. Accordingly, the ld AO brought to tax the sum of Rs. 35,93,236/- as income of the assessee. The ld CIT(A) considered the receipt of these charges from the customers to be in the nature of security deposit which are transferable to the account of the new purchaser of the shop. The ld CIT(A) also observed that this security deposit is not included in the sale deed and hence does not have a character of nature of income and deleted the addition.
It is not in dispute that the charges on account of IBMS and sinking fund 7. have been collected by the assessee from its customers to whom shops of the mall have been sold. No doubt, the assessee has to maintain the entire mall in which it would be entitled to collect the charges from the customers/ shop owners. However, no details were filed by the assessee with regard to these security deposits received which were either refunded back to the shop owners on any point of time or getting adjusted towards future contingencies as stated by the ld AR. All said and done as stated, these are the receipts in the normal course of business by the assessee from its customers. If the shop owner paid the security deposit to the assessee, the same shall have to be refunded back by the assessee to the concerned shop owner in the event of the said shop getting transferred to a new customer. In that scenario, it would be justified on the part of the assessee to reflect the receipts as a liability in the balance sheet. But in absence of any details from the side of the assessee as and when these security deposit either got refunded/ adjusted, it partakes the character of income in the year of receipt. Hence, we uphold the action of the ld AO in this regard and allow ground No. 2 raised by the revenue before us. Ground No. 3 raised by the revenue is challenging the deletion of addition 8. of Rs. 1,20,13,828/- on account of suppressed sale at Meerut Mall project. We have heard the rival submissions and perused the material available on 9. record. The ld AO noted that during the year, the assessee had sold the shops at Meerut Mall to different customers at different rates. The ld AO calculated the cost of each shop on dividing the total cost incurred in construction of Meerut Project by the total area of the Mall and arrived at the cost of Rs 2772.54 per sq ft. The ld AO further estimated that the shop at upper ground floor, lower ground floor to be at Rs. 3000 per sq ft and the shop of 1st, 2nd and 3rd floor estimated at Rs. 2950 , Rs 2900 and Rs 2900 per sq ft respectively. Based on this, he alleged that there was suppression of sales made by the assessee to the tune of Rs. 1,20,13,828/- made outside the books and brought to tax the same. The ld CIT(A) observed that the assessee has constructed the total area of 211239 sq ft of shopping mall of which 23954 sq ft is sold during the year under consideration and balance 187284 sq ft area is shown as closing stock. The ld CIT(A) deleted the addition by observing as under:-
It is further seen from the financial accounts that the total cost incurred in constructing 2,11,239 square feet of area is Rs.56,94,02,755 i.e. average cost Rs.2695.54 per square feet. Hence, from the above calculation, it is seen that the cost of area sold during the year comes to Rs.6.46 crores (23,954 x 2695.56). Since the total sale price realized and credited to the books of account during the year is Rs. 8.36 crores, therefore, the appellant has earned a profit of Rs. 1.9 crores which is 22.72% of sales. Therefore, in my view AO's finding that the appellant has sold the shop at lesser rates and which provoked him to apply a gross profit rate of 12% is not correct. 10.1 Having said that, further I am in agreement with the submission of the appellant that the application of average sale rate to all the shops sold which are located in a shopping mall is not the correct approach in determining the sale of any real estate project. It is a known fact that in any commercial venture, the selling price is determined on the basis of demand and supply forces which are at play in the market. In the real estate projects, the selling price also depends on the location of particular shops, for example, the shops which are at the entrance of the mall or near the lift/escalator will fetch slightly more price because in those shops the foot fall will always be more than the shop which are located in a poor location viz is near the toilet, backside etc.: Further, it is also a known fact that seller will normally charge a lesser price from the purchaser who is purchasing a large area than the one who is purchasing a smaller area. It is also seen that in the Shopping Mall Project, an established big brand having good market share eg. Mc Donalds etc. will always be in a more advantageous position to Page | 6 bargain a better price for a place in a Mall, and therefore they will always be paying a lesser price than compared to the other purchasers. The selling price of the shops in a Mall thus depends on variety of factors and therefore, the assumption of the AO, by relying on the principle of one size fit all" is beyond any commercial logic and has no legs to stand at all. 10.2 Further, it is also pointed out that the profitability of any venture has to be seen in the overall context which includes not only the construction expenses but also the other expenses like interest cost, depreciation cost etc. 10.3 It is also worth mentioning here that the present assessment has been framed under Section 143(3)/153A pursuant to the search action and where no incriminating material has been found during the search. suggesting that the appellant has received any own money on the property sold in the shopping mall. The reference of the diary seized from the residence of Mr. Rajat Gupta by the AO in his assessment of order does not have or reflect any entry or noting which in any way relates to the sale of properties in the shopping mall during the year.”
None of the aforesaid factual findings given by the ld CIT(A) could be 10. controverted by the revenue with cogent evidence before us. Either way it is only an estimated addition made by the ld AO which have no legs to stand in the facts and circumstances of the instant case. Hence, we do not find any infirmity in the order of the ld CIT(A). Accordingly, ground No. 3 raised by the revenue is dismissed.
Ground No. 4 raised by the revenue is challenging the deletion of addition 11. of Rs. 5,06,55,588/- on account of unaccounted sales.
We have heard the rival submissions and perused the material available on 12. record. Based on the seized material Annexure A-2 pages 40 to 42 seized from the office premises at 401, GOP Plaza, Sector 18, Noida and Annexure A-2 pages 33 to 38 seized from the office premises at 208, Ocean Complex, Sector-18, Noida during the course of search, the ld AO proposed addition of Rs. Page | 7 5,13,35,588/- and treated it as unaccounted sales. The document seized from GOP Complex is a letter written by Mr. Abdul Bari, a Senior Vice President (marketing) employee of the assessee company and in this letter, he has given details of his claim for full and final settlement of his dues after his resignation from the company. This letter also mentioned the amount of sales incentive @1% of sale volume of Meerut Mall of Rs. 60 crores and Jaipur Township of Rs. 201,37,50,000/-. The other documents mentioned the details of various kind of flats at Jaipur Township and its estimated sales value and total amount of total estimates sales and estimated cost including the estimated interest of proposed borrowed funds. The ld AO by making an addition on account of unexplained sales had tried to establish a nexus between the above mentioned documents relating to the sales mentioned in the letter of Mr Abdul Bari with that of all the amounts mentioned in the document seized from the other office premises of the assessee company. The ld AO estimated the profit @12% on the volume of sales mentioned in Mr Abdul’s letter (12% of Rs. 60 crores= 7.2 crores) and profit of Jaipur Housing Project was distributed on pro rata basis in AYs 2004-05 to 2009- 10. While distributing the profit of Meerut Mall Project, the ld AO adopted the value of booking amount received by the assessee company in the respective years, whereas in the case of Jaipur Housing Project, he had adopted value of work in progress of respective years. On the basis of this methodology, the profit of Meerut project was worked out at Rs. 1,24,41,600/- and for Jaipur project at Rs. 3,88,93,988/- by the ld AO and total sums Rs. 5,13,35,588/- was added to the income of the assessee. The ld CIT(A) observed that similar addition was made for AYs 2004-05 to 2007-08 in assessee’s own case which was deleted by his predecessor. The ld CIT(A) also noted that there is no change in the facts and circumstances during the year when compared to those in earlier years. He accordingly, deleted the addition made by the ld AO.
This issue is no longer res integra in view of the decision of this Tribunal in 13. assessee’s own case in 5392, 5571/Del/2011 for AYs 2005-06, 2006-07 and 2007-08 respectively dated 14.10.2022 wherein, it upheld the action of the ld CIT(A) by observing as under:-
“10. We have gone through the entire contents. The revenue authorities determined unaccounted profit on Meerut project and Jaipur project. The sole basis for making the addition was 58 the letter dated 03.01.2008 written by the marketing head Sh. Abdul Bari after leaving the job from the assessee company. In the letter, the marketing head had sought the sales incentives @ 1% to the tune of Rs. 2.71.11.319/-. The revenue has taken in this figure as sacrosanct determination of sales at Rs.275.86 Cr. on Jaipur project alone. backwards worked and The revenue deemed the target sales as total sales and brought the amount to tax based on the seized material of the party SOB 6A and SOB 6 Annexure A-2. The bookings accounted for Meerut project for the A.Y. 2005-06, A.Y. 2006-07 and A.Y. 2007- 08 was Rs.1.58 Cr., Rs.3.91 Cr. and Rs.6.23 Cr. respectively whereas for the Jaipur project, the bookings were to the tune of Rs.24.28 Cr., Rs.0.37 Cr. and Rs.14.23 Cr. The land has been purchased in Meerut for a sum of Rs.1.58 Cr. and the land at Jaipur worth Rs.13.84 Cr. has been purchased. The revenue authorities have accepted the total amount of booking received of Rs.31.97 Cr. till 2009 whereas as per the letter of Sh. Abdul Bari, the sale figure has been considered as Rs.60 Cr. for determination of profits. Similarly, the revenue has accepted the total booking of Rs.70.29 Cr. towards the sale whereas for determination of the profits, the projection as mentioned by Sh. Abdul Bari of Rs.279 Cr. has been considered. While considering the letter of Sh. Abdul Bari for determination of sales to the tune of Rs.279 Cr. and working out the profits/undisclosed income consequently, while doing so, the revenue has not even recorded the statement of Sh. Abdul Bari and confronted the same to the Principle Officer of the company.
Hence, we decline to interfere with the order of the Id. CIT(A) who held with coherent reasoning that the addition has been made totally based on conjecture and surmises.”
Respectfully following the same, the ground No. 4 raised by the revenue is 14. dismissed. Page | 9 Ground No. 5 raised by the revenue is challenging the deletion of addition 15. of Rs. 7,75,92,000/- on account of transaction recorded outside books as per seized documents. We have heard the rival submissions and perused the material available on 16. record. During the course of search on assessee’s premises, a slip pad was seized marked as Annexure A-2. The noting of the slip pad contain the details of certain transaction amounting to Rs. 7,75,92,000/-. The assessee was asked to explain the nature of transaction recorded on the said slip pad. The assessee vide letter dated 15.11.2010 stated that the slip pad belongs to one Mr. Saudagar Shah, who carries on the business of sale and purchase of paintings and sits in their office. The assessee also filed an affidavit of Mr. Saudagar Shah to this effect before the Investigation Wing during the course of post search investigation by the Asstt. Director of Income Tax, Investigation and submitted the copy of the same to the ld AO during the course of assessment proceedings reiterating that the slip pad belongs to Mr. Saudagar Shah. The assessee also stated that this fact could be enquired independently with Mr Saudagar Shah and also filed the copy of income tax return for AYs 2007-08 and 2008-09 together with the tax audit report of Mr. Saudagar Shah to prove that Mr. Saudagar Shah was dealing in sale and purchase of paintings. The ld AO did not chose to make any enquiry on his own with Mr. Saudagar Shah and instead directed the assessee to produce the Mr. Saudagar Shah for verification. Since Mr Saudagar Shah expired on 13.12.2010, the assessee could not fulfill the said requirement. Accordingly, the ld AO held that the notings on the slip pad belongs to the assessee for which no satisfactory reply could be given by the assessee. The crux of the observation of the ld AO in this regard are as under:- a. no stock of any painting was available at the time of the search at the assessee premises; b. in the balance sheet of Mr. Saudagar Shah, there is no stock of paintings reflected. Only sales and purchases are reflected in his trading account. The total value of purchase and sales is reflected in the profit and loss account in the year ended on 31.03.2008 of Mr. Saudagar Shah was Rs. 3,24,69,832/- and the same does not tally with the transaction recorded in the slip pad which total to Rs. 7,75,92,000/-. Thus, there is no nexus with the income tax return, balance sheet and audit report relating to Mr. Saudagar Shah and the noting of the slip pad; c. the assessee brushed aside his onus by not producing Mr. Saudagar Shah in time and instead was directing the revenue to make independent enquiry of Mr. Saudagar Shah. In the mean while, Mr. Saudagar Shah expired on 13.12.2010. Hence, the assessee had only projected a story of framing Mr. Saudagar Shah thereby jeopardizing the entire investigation qua Mr. Saudagar Shah; d. the value of sale of purchase of painting of high value which could have been done only through banking channels and assessee had not produced the bank statement of Mr. Saudagar Shah; e. mere filing of an affidavit of Mr. Saudagar Shah would not discharge the assessee proving its onus completely; and f. hence, the notings in the slip pad are entries of sales and purchase of painting of Mr. Saudagar Shah was nothing but afterthought of the assessee. With the above observations, the ld AO made a value of all the notings in 17. the slip pad in the sum of Rs. 7,75,92,000/- as income on substantive basis in the hands of the assessee and on protective basis in the hands of Mr. Rajat Gupta. Before the ld CIT(A), the assessee reiterated that Mr. Saudagar Shah had 18. indeed filed an affidavit before Investigation Wing itself to the Asst. Director of Income Tax (Investigation) during post search enquiry duly owning up the said slip pad marked as Annexure A-2 and the contents written thereon as belonging to him. The said affidavit categorically mentioned all the facts regarding his address, identification, his passport number, income tax details etc. The Investigation Wing chose not to make any enquiry with Mr. Saudagar Shah for reasons best known to the Wing. Even the affidavit of Mr. Saudagar Shah filed before the Investigation Wing was not put to any test or verification by the Investigation Wing or by the ld AO. Even during the assessment proceedings, the ld AO was requested to make direct independent enquiries with Mr. Saudagar Shah which he chose not to do and instead directed the assessee to produce Mr. Saudagar Shah. The assessee tried its level best and since Mr Saudagar Shah was not well at the relevant point of time, the assessee sought some more time from the ld AO to produce Mr. Saudagar Shah and eventually Mr. Saudagar Shah passed away on 13.12.2010 due to his ill health. The periodic reminders and requests made by the assessee to the ld AO to make independent enquiries with Mr. Saudagar Shah with regard to slip pad marked as Annexure A-2 for ascertaining the truth of the matter was sought to be ignored by the ld AO. It was pleaded that eventhough the presumption of ownership and contents of the slip pad in terms of Section 292C of the Act would be on the assessee being searched, the said presumption is rebuttable presumption which has been duly rebutted by the assessee by stating that the said slip pad belongs to Mr. Saudagar Shah who came forward to own up the said slip pad and the contents written thereon as belonging to him and this fact was also supported by way of Page | 12 an affidavit of Mr. Saudagar Shah filed before the ADIT (Investigation) during the post search enquiries. Hence, it was pointed out that the assessee had duly discharged its onus by rebutting the presumption u/s 292C of the Act. The assessee also placed reliance on the decision of the Hon'ble Supreme Court in the case Mehta Parikh and Co. Vs. CIT reported in 30 ITR 181 (SC) which held affidavit cannot be rejected unless it is put to test or verification or cross examination. It is pertinent to note that affidavit of Mr. Saudagar Shah was filed in May 2009 before the Investigation wing and he expired on 13.12.2010. Hence, the department had practically 18 months time to make independent enquiry of Mr. Saudagar Shah after the filing of affidavit which the revenue chose not to make. The ld CIT(A) appreciated the aforesaid contentions of the assessee and deleted the addition made in the sum of Rs. 7,75,92,000/- by observing as under:-
“16. I have gone through the above submissions of the appellant and have perused the AO's order and considered the facts and evidences on record and other judicial pronouncements on the issue.. From the submissions and facts on record the issue which is to be adjudicated is: "Whether the presumption under Section 132(4A) and Section 2920 in the facts of the present case, can be used against the appellant and therefore is the AO's right in making additions on the basis of such notings recorded in the slip pad. 16.1 It is seen that in this case a slip pad was seized on 26.02.2009 from the appellant's premises during search. During the post search investigation the ADI by its letter dated 14.05.2009 specifically asked the following questions to the appellant: "Annexure A-2, seized from your premises at 1/18B, Asaf Ali Road, New Delhi, shows certain cash transactions. Please explain to whom these transactions belong and what is your connection with these transactions."
The appellant in response to the above query vide his letter dated 22.05.2009 informed the ADI as under : - "Regarding Annexure A-2, we hereby submit that Annexure A-2 does not belong to us and we have no relation with these transactions. Annexure A- 2 belongs to one Mr. Saudagar Shah who carries on the business of sale and purchase of different kinds of paintings/articles. He sits in our office. He might have mentioned his transactions for sale and purchase of paintings in this Annexure A-2. He is a regular Income Tax Assessee. The same fact can be verified from Mr. Saudagar Shah also. Besides, an affidavit in this regard from Mr. Saudagar Shah is being enclosed." 16.2 From the perusal of the assessment order, it is further seen that during the course of assessment proceedings, in response to the query being raised by the AO on the notings recorded in the slip pad seized, vide Annexure A-2, the appellant informed the AO again vide letter dated 15.11.2010 reiterating the same reply, given to the ADI ir vestigation on 22.05.2009 i.ė.: "that the notings belongs to Mr. Saudagar Shah and this fact can be enquired independently also by them as the address is available with the department since 26.05.2009." 16.3 Thus from the appellant's reply to AO during the assessment proceedings and to the ADI (Investigation) during the post search proceedings, it is seen that from the very beginning appellant's stand has been, that the said diary does not belong to him but to Mr. Saudagar Shah. 16.4 I find that from the very beginning AO had shifted the entire burden upon the appellant and no enquiry has been done even after the appellant having filed the copy of ITR and Income and Expenditure account, Balance Sheet and Tax Audit Report for Assessment Year 2007-08 and 2008-09 in respect of Mr. Saudagar Shah. The AO has not conducted any enquiry to examine the contents of the information filed by the appellant in respect of Mr. Saudagar Shah nor any enquiry was conducted independently since 22.05.2009 till he died on 13.12.2010. The ADI and the AO kept sitting on the information for more than 18 months and instead of doing enquiry whatsoever, put the entire burden on the appellant to produce Mr. Saudagar Shah inspite of the fact that the address of Mr. Saudagar Shah was available with the AO. Page | 14 16.5 The presumption under Section 132 (4A) read with Section 292C is available to the AO but the same is rebuttable. No doubt the burden to rebut such a presumption lies heavily of the appellant but I find that in the facts of the present case, this burden was shifted to the AO/ADI by the appellant on the first available opportunity, when he filed the ITR, Balance Sheet, Audit Report etc. of Mr. Saudagar Shah and also filed the affidavit of Mr. Saudagar Shah where he own up the slip pad. 16.6 The AO in his order has not brought any material on record to show that the evidences filed by the appellant relating to Mr. Saudagar Shah were not genuine. The Income and Expenditure account having filed with the return of income by Mr. Saudagar Shah clearly mentions that he is dealing in painting and antique items.. 16.7 Further, it is also worth mentioning here that the names mentioned on the slip pad with whom transaction have been done, for instance, on page no. 5 and 6 (Mohitji) and on page no. 22 (Shri Ram Hari Ram) all these persons are being assessed with the same AO as that of the appellant, but, I find that no corresponding addition or action have been taken in their cases. 16.8 It is further seen that there is another noting on page no. 11 where cash is received from PNB, Asaf Ali Road on 15.05.2007. To this aspect, during the course of appellate proceedings the appellant filed the evidence and copy of all bank accounts of the appellant company and its director Mr. Rajat Gupta to substantiate that no such transaction of cash has taken place on that date from their bank accounts. These documents alongwith all the evidences and all bank accounts were sent to AO for his verifications and comments thereon and the requisite report was sought from the AO during the appellate proceedings, as the appellant was having the bank account in the same bank. But the AO vide his letter dated 16.05.2012 also could not establish that the transaction of Rs.14,50,000 was from the appellant's bank account or any of its director's account. 16.9 Thus from the above discussion, it is seen that the presumption under Section 132 (4A) read with Section 292C which is rebuttable one, the appellant shifted the onus at the very first opportunity on 22.05.2009 during the post search proceedings before the ADI by stating that the slip pad belongs to Mr.. Saudagar Shah, but the AO/ADI however did not discharge the same.
16.10 It is further noticed from the ITR of Mr. Saudagar Shah for Assessment Year 2007-08 and 2008-09 are dated 26.07.2007 and 29.01.2009, which is also much prior to the date of search i.e. 26.02.2009 therefore, the AO's contention that the slip pad belonging to Mr. Saudagar Shah, is an afterthought and is a cooked up story, in my humble view, does not hold good. 16.11 Further, I have also evaluated the AO's argument that the appellant's contention of belongingness of slip pad to Mr. Saudagar Shah be not accepted because the total of purchase and sales reflected in the Profit and Loss account for the period ending 31.03.2008 of Mr. Saudagar Shah does not tally with the total of the transaction recorded in the slip pad, in this regard it is stated that the entries in slip pad might relate to sales, purchase, debtors, creditors, expenses etc. because it is not necessary that total of trial balance will tally with sales and purchases. This interpretation of the AO appears to be quite absurd in my humble view. 16.12 Hence, considering in totality all the facts and evidences on record, the appellant by rebutting the presumption under Section 132(4A) read with Section 292C, had put the onus on the AO and AO had no material to show that transactions recorded in the slip pad belongs to the appellant. Therefore, from the above discussion, I hold that, the addition of Rs.7,75,92,000 deserves to be deleted.”
Before us, the ld DR vehemently reiterated the observation made by the ld AO by taking us to the relevant paragraph of the observation of the ld AO which are already captured herein above in this order. Hence, the same are not reiterated for the sake of brevity. We find that the following documents were relied by the ld AR before us in support of the findings of the ld CIT(A):-
a. copy of seized documents marked as Annexure A-2 enclosed in pages 221- 251 of Paper Book ; b. copy of statement recorded during the course of search enclosed in pages 252 to 269 of Paper Book; c. copy of assessee’s letter dated 15.11.2010 filed before the ld AO stating that the seized documents Annexure A-2 belong to Mr. Saudagar Shah together with an affidavit of Mr. Saudagar Shah and also submitting that Mr Saudagar Shah is not well, is enclosed in Page 270 of the Paper Book; c. copy of affidavit of Mr. Saudagar Shah in which he owned up the seized documents enclosed as Annexure A-2 together with the contents thereon, which is enclosed in page 271 of the Paper Book; d. copy of return of income of Mr. Saudagar Shah for the relevant AYs enclosed in pages 272 to 285 to the Paper Book; f. copy of the assessee letter dated 22.11.2010 addressed to the ld AO submitting that Mr. Saudagar Shah was still sick and requesting the ld AO to depute somebody to verify the fact and record the statement and gather information from Mr Saudagar Shah which is enclosed in page 286 of the Paper Book; g. copy of assessee’s letter dated 15.12.2010 submitted before the ld AO stating that Mr. Saudagar Shah expired on 13.12.2010, which is enclosed in pages 287 of the Paper Book; h. copy of newspaper cutting intimating about the date of last rituals of Mr. Saudagar Shah which is enclosed in page 282 of the Paper Book; i. copy of bank statement of Mr. Rajat Gupta and assessee enclosed in pages 289-300, 301-304, 308-333 and 335-371 of the Paper Book; j. copy of assessment order of Mr. Mohit Gupta one of the names mentioned in the seized documents vide Annexure A-2 which is enclosed in pages 305-306 of the Paper Book. Page | 17 On perusal of the aforesaid documents, we find that the assessee from the 20. date of search had always maintained that the notings in the slip pad Annexure A-2 does not belong to it and that the same belong to Mr. Saudagar Shah. To support this argument, an affidavit of Mr. Saudagar Shah was filed before the investigation Wing in May 2009 itself who had duly owned up the said seized documents and the contents thereon by giving all the explanations thereon. Mr. Saudagar Shah is regularly assessed to income tax and had filed his income tax returns for AYs 2007-08 and 2008-09 much prior to the date of search on the assessee herein. It is not in dispute that no enquiry whatsoever was sought to be carried out on Mr. Saudagar Shah either by the Investigation Wing or by the ld AO. As stated earlier, affidavit of Mr. Saudagar Shah was filed in May 2009 and he expired only in December 2010, thereby giving 18 months time to the department to examine the veracity of the contents of the affidavit. Surprisingly, the affidavit filed by Mr. Saudagar Shah was never put to test/ examination/ cross examination by the department. In the absence of such examination, contents of the affidavit had to be construed as true and correct and cannot be rejected at once. Reliance in this regard has been rightly placed by the ld AR on the decision of the Hon'ble Supreme Court in the case of M/s Mehta Parikh & Co Vs. CIT reported in 30 ITR 181 (SC). We hold that the burden u/s 132(4A) read with Section 292C of the Act had been duly shifted by the assessee to the income tax department right from the time of search, which fact also stood corroborated by an affidavit. Further, the ld CIT(A) had noted in his findings that the some of the names mentioned in the slip pad like Mohitji, Shri Ram Hari Ram are the persons who were assessed by the same ld AO and that no corresponding action has been taken in their case by the very same ld AO based on the said seized documents Annexure A-2 and no addition has been made in their hands.
In view of the aforesaid observations and respectfully following the judicial 21. precedent relied upon herein above, we do not find any infirmity in the order of the ld CIT(A) qua this issue. We hold that there cannot be any case of making any addition either substantive or protective either in the hands of the assessee company or in the hands of Rajat Gupta qua this seized document. Hence, ground No. 5 raised by the revenue is dismissed.
Ground No. 6 and 7 raised by the revenue are general in nature and does 22. not require any specific adjudication.
In the result, the appeal of the revenue for AY 2008-09 in ITA 23. 3289/Del/2013 is partly allowed.
ITA 3233/Del/2013 for AY 2008-09 (Assessee’s appeal)
Ground No. 2 raised by the assessee is challenging the disallowance made 24. by the ld AO on account of late payment of employees contribution towards PF & ESI contribution in the sum of Rs. 53,042/-.
We have heard the rival submissions and perused the material available on 25. record. This issue is settled against the assessee by the recent decision of Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd Vs. CIT reported in 448 ITR 518 (SC). Respectfully following the same, the ground No. 2 raised by the assessee is dismissed.
Ground No. 1 raised by the assessee is challenging addition of Rs. 26. 6,80,000/- made by the ld AO on the basis of seized documents vide Annexure A-2.
We have heard the rival submissions and perused the material available on 27. record. During the course of search, a diary was seized vide Annexure A-2 Page | 19 wherein in pages 1 to 8 of the diary, certain transactions were recorded which was commercial in nature and the amounts written were in coded form. The assessee stated that these were rough calculations and it does not relate to its business. The ld AO did not believe the explanation of the assessee and after analising the notings of the diary, came to the conclusion that the said diary belongs to the assessee and as per the notings in pages 1 to 8 thereon, the assessee has given certain money on interest @0.75 per month. Accordingly, the loan transaction for the year was Rs. 5 lakhs and interest transaction for the year Rs 1,80,000/- was arrived and total addition of Rs. 6,80,000/- was made by the ld AO as undisclosed investment. This action was upheld by the ld CIT(A). The ld AR placed on record copy of the Tribunal in assessee’s own case for AYs 2005- 06, 2006-07 and 2007-08 in 5392 and 5579/Del/2011 respectively dated 14.10.2022 wherein, the same issue has been considered and Tribunal had deleted the addition made on account of undisclosed investment. Respectfully following the same, the Ground No. 1 raised by the assessee is hereby allowed. Ground No. 3 raised by the assessee is general in nature and does not 28. require any specific adjudication. In the result, the appeal of the assessee in ITA No. 29. 3233/Del/2013 for AY 2008-09 is partly allowed. 3525/Del/2013 for AY 2008-09 (Shri Rajat Gupta) Revenue’s appeal 30. The only issue challenged by the revenue in this appeal is challenging the deletion of protective addition of Rs. 7,75,92,000/- made by the ld AO.
We have heard the rival submissions and perused the material available on record. This issue has already addressed elaborately by us in | 20 3289/Del/2013 in the case of Majestic Properties supra vide ground No. 5 wherein, we have already held that neither the substantive nor the protective addition would survive either in the hands of Majestic Properties or in the hands of Shri Rajat Gupta. Hence, grounds raised
by the revenue are hereby dismissed.
32. In the result, the appeal of the revenue in for AY 2008-09 is dismissed. for AY 2009-10 (Majestic Properties Pvt Ltd ) Revenue’s appeal 33. The Ground Nos. 1 to 4 raised by the revenue are identical to Ground No. 1 raised by the revenue for AY 2008-09 and the decision rendered in AY 2008-09 shall apply mutatis mutandis for AY 2009-10 also except with variance in figures.
Ground Nos. 5, 6, 7 and 8 raised by the revenue are identical to Ground Nos. 2,3 and 4 respectively in AY 2008-09. Hence decision rendered thereon shall apply mutatis mutandis for AY 2009-10 except with variance in figures.
Ground No. 9 raised by the revenue is challenging the deletion of disallowance of employees contribution to PF & ESI in the sum of Rs. 2,47,474/- which is identical to Ground No. 2 raised by the assessee for AY 2008-09. Hence, the decision rendered thereon for AY 2008-09 in assessee’s appeal shall apply mutatis mutandis for Ground No. 9 for revenue appeal for AY 2009-10 except with variance in figures.
Ground Nos. 10 and 11 raised by revenue are general in nature and does not require any specific adjudication.
In the result, the appeal of the revenue in for AY 2009-10 is partly allowed. Page | 21 ITA No. 1623/Del/2014 for AY 2009-10 (Majestic Properties Pvt Ltd)- Assessee’s appeal 38. Ground No. 1 raised by the assessee is identical to Ground No. 1 raised by the assessee for AY 2008-09 and hence the decision rendered thereon for AY 2008-09 in assessee’s appeal shall apply mutatis mutandis for Ground No. 1 for assessee’s appeal for AY 2009-10 except with variance in figures. 39. In the result, the appeal of the assessee in for AY 2009-10 is allowed.
AY 2010-11 (Majestic Properties Pvt Ltd ) Revenue’s appeal 40. Ground No. 1 raised by the revenue is identical to Ground No. 2 raised by the assessee for AY 2008-09. Hence, the decision rendered by us for Ground No. 2 in assessee’s appeal for AY 2008-09 shall apply mutatis mutandis for Ground No. 1 for revenue appeal for AY 2010-11 except with variance in figures.
Ground Nos. 2 to 6 raised by the revenue for AY 2010-11 are identical to Ground Nos. 1 to 8 raised by the revenue for AY 2009-10. Hence, the decision rendered by us for AY 2009-10 in assessee’s appeal shall apply mutatis mutandis for Ground Nos. 2 to 6 for revenue appeal for AY 2009-10 except with variance in figures.
Ground No. 7 raised by the revenue is challenging the disallowance of Rs. 30,18,514/- u/s 14A of the Act read with Rule 8D of the Income Tax Rules (hereinafter referred to as the Rules).
We have heard the rival submissions and perused the material available on record. The ld AO observed that assessee has sold agricultural land and has Page | 22 shown a profit from the sale of such land to the tune of Rs. 3,11,25,397/- as other income. Further, the assessee has made in investment in shares and mutual funds. The assessee was asked to submit the details of expenses disallowed by it u/s 14A of the Act for the purpose of earning exempt income. The assessee submitted the workings of disallowance u/s 14A of the Act read with Rule 8D(2) of the Rules and also pointed out that the tax auditor had considered the disallowance figure of Rs. 2,30,437/- instead of actual figure of Rs. 1,42,904/-. The ld AO disregarded the same and proceeded to apply the computation mechanism provided in 2nd and 3rd limb of Rule 8D(2)(ii) of the Rules and made a disallowance of Rs. 30,18,514/-. The ld CIT(A) in principle upheld the application of the computation mechanism provided in Rule 8D(2) of the Rules, but directed the ld AO to consider only those investments which had actually yielded exempt income to the assessee. Accordingly, he arrived at the disallowance figure of Rs. 1,41,139/- but stated that assessee had already disallowed the same in the return of income and hence, there is no need for further disallowance. No contrary findings or factual errors were brought by the revenue before us with cogent evidences. Either way, the law is very well settled that only those investments which had actually yielded exempt income to the assessee should be reckoned for the purpose of computing the disallowance of expenses u/s 14A of the Act read with Rule 8D(2) of the Rules. Hence, we do not find any infirmity in the order of the ld CIT(A) and accordingly, Ground no. 7 raised by the revenue is dismissed.
Ground Nos. 8 and 9 raised by the revenue are general in nature and does not require any specific adjudication.
In the result, the appeal of the revenue in ITA 3115/Del/2014 for AY 2010-11 is partly allowed.
To sum up, Appeal by Result No. 1. Majestic Properties 3289/Del/2013 2008-09 Revenue Partly Allowed 2. Pvt. Ltd 1748/Del/2014 2009-10 Revenue Partly Allowed 3. 3115/Del/2014 2010-11 Revenue Partly allowed 4. 3233/Del/2013 2008-09 Assessee Partly allowed 5. 1623/Del/2014 2009-10 Assessee Allowed 6. Rajat Gupta, 3525/Del/2013 2008-09 Revenue Dismissed Order pronounced in the open court on 27/06/2025.