ACIT, CIRCLE-1, JODHPUR vs. M/S. VISHNU PRAKASH R PUGALIA, JODHPUR

IN THE INCOME TAX APPELLATE TRIBUNAL, JODHPUR BENCH, JODHPUR BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL ACCOUNTANT MEMBER ITA No. 09/JODH/2019 (Assessment Year: 2013-14) A.C.I.T. Vs. M/s Vishnu Prakash R Pugalia, Circle-1, P. No. 22, Subhash Colony, New Jodhpur. Pali Road, Bhagat Ki Kothi, Jodhpur. PAN No. AADFV 4672 J

Revenue by Shri A.S. Yadav, JCIT DR Assessee by Shri Ajay Moondra, CA Date of Hearing 4.11.2020 Date of Pronouncement 01/02/2021

O R D E R PER BENCH The present appeal has been filed by the Revenue against the order of the ld. CIT(A)-1, Jodhpur dated 26/10/2018 for A.Y. 2013-14, wherein the Revenue has raised following grounds of appeal:

“1. The ld. CIT(A) erred in facts and circumstances of the case in deleting the addition of Rs. 3,41,00,000/- made on account of unaccounted contract work recoded in hand written diary which were impounded during the course of survey as Annexure-AF Exhibit 01, Annexure-AF-Exhibit 03 & Annexure- AF-Exhibit-04 and admitted by both partner of the firm in their statement recorded during the survey that Rs. 3,41,00,000/- was unaccounted receipt of the firm.

2 ITA 09/Jodh/2019 ACIT Vs M/s Vishnu Prakash R Pugalia. 2. The ld. CIT(A) erred in facts and circumstances of the case in deleting the addition of Rs. 9,00,000/- made on account of unaccounted cash payment recorded in hand written diary which was impounded during the course of survey and admitted by the both partners of the firm in their statement recorded during the survey that Rs. 9,00,000/- was unaccounted expenditure of the firm.” 2. The hearing of the appeal was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic.

3 ITA 09/Jodh/2019 ACIT Vs M/s Vishnu Prakash R Pugalia. where some incrementing documents has been found and seized. After making enquiry and verifications, the AO assessed total income of the assessee at Rs.9,33,54,460/-. Being aggrieved by the order of the A.O., the assessee carried the matter before the ld. CIT(A), who after considering the submissions and the material placed on record, deleted the additions so made by the A.O. against which the Revenue is in further appeal before the ITAT.

4 ITA 09/Jodh/2019 ACIT Vs M/s Vishnu Prakash R Pugalia. account. During statement, in reply to Q. No. 18, he categorically stated that the remaining entries found in the seized diaries are related to unaccounted cash payments for various site expenses and the said unaccounted payments are also not recorded in regular books of account. The ld DR has further submitted that the A.O. after making detail enquiry and verification has made additions and the same may be confirmed at this level.

5 ITA 09/Jodh/2019 ACIT Vs M/s Vishnu Prakash R Pugalia. 4. Construction of Residential various Houses 67,63,42,730.00 5. Contract Work Receipt Gujrat 7,00,89,184.00 6. Agri Development and Other Misc. Contract 9,80,11,520.00 Work Receipt 7. Contract work receipt from B & G 73,97,869.00 Construction 8. Receipt Vat 14% 6,07,583.00 9. Vat 5% 6,01,259.00 10. Vat Free (Exempted) 65,85,891.85 11. Contract Work Receipt Pungalia Rakesh JV 9,43,01,851.52 12. Contract Work Receipt RSRD Construction 3,32,540.00 Corp Ltd. 13. Contract Work Receipt Tapi Prestressed 11,21,41,043.00 Products Ltd. 14. Contract Work Receipt Vishnu Infrastructures 35,00,00,00.00 15. Contract Work Receipt RMC 2,96,362.00 Total Contract Work 2,03,80,54,573.37 Receipt The above total contract work receipt of Rs. 2,03,80,54,573.37 also includes the contract work receipt of Rs. 3,41,00,000.00 for which entries were found in the seized dairies.

6 ITA 09/Jodh/2019 ACIT Vs M/s Vishnu Prakash R Pugalia. 3. With reference to unaccounted cash payments of Rs. 9,00,000.00 which was also surrendered at the time of survey. In this regards it is submitted that the expenses entries found in the seized dairies has also accounted for in the regular books of account under the head "Site Expenses". We have submitted the copy of copy of account of site expenses and the entries of the seized dairies has been marked with marker. (P. B. Page No. 233 to 261]

The alleged unaccounted contract work receipt of Rs. 3 41 00 000.00 and unaccounted cash payment of Rs. 9,00,000.00 has duly been recorded in the books of account hence the fingers of total contract work receipt and site expenses as appeared in the Audit Report are tallied with the books of accounts. We have submitted the completed work receipt account before the AO from which the fact is quite clear that the alleged un accounted work receipt has duly been accounted for in the regular books of account and the total the work receipt account is tallied with the work receipt figure in the audit report. (P. B. Page No. 16 to 44)

In view of the above facts it is quite clear that the entries so found in the seized dairies either contract work receipt or expenses has duly been accounted for in the regular books of accounts.

7 ITA 09/Jodh/2019 ACIT Vs M/s Vishnu Prakash R Pugalia. 5. With reference to said alleged unaccounted work receipt and unaccounted expenses surrendered at the time of survey by the partner Shri Vishnu Prakash Pungalia we would like to state that at the time of survey statements of Shri Vishnu Prakash Pungalia partner of the assessee were recorded and Shri Vishnu Prakash Pungalia is not looking after the accounts, audits and income tax of the firm. He is mainly looking after the department related work only hence he was not aware about the fact of the books and accounts. Accordingly, he has inadvertently accepted and surrendered the said unaccounted contract work receipt and cash payments of Rs. 3,41,00,000.00 and Rs. 9,00,000.00 respectively. The accounts, audits, income tax and sales tax work has been looking after by another partner Shri Ajay Pungalia. It is further submitted that the surrender was under the situation of tremendous stress; therefore additions just on the basis of such statements are not justifiable. There is no other conclusive supportive evidence or material to justify the proposed huge addition.

In this regard our submission is that the allegation of the AO is not at all correct that we have not retracted immediate after the survey on the following grounds :-

8 ITA 09/Jodh/2019 ACIT Vs M/s Vishnu Prakash R Pugalia. a. The survey was conducted on 27.08.2013 and we have filed the return of income on 30.10.2013 in which we have not disclosed the surrendered income, it means we have retracted from the surrendered income at just after the 2 months from the date of survey.

b. Further, we took just 2 months to retract from the surrender of the said undisclosed income, and before retraction we were to be so sure that the all the entries found the said dairy was duly accounted for in the books of account or not and 2 months is not too much time.

a. As we stated in our previous reply that no addition could be made only on the basis of admission at the time of survey without any supportive evidence.

b. In the present case there is no supportive evidence expect the admission of the partner during survey. The AO has no were mentioned in the assessment order regarding any other evidence then the statements in which the partner has admitted the said income as undisclosed income.

c. It is worthwhile to mention here that under survey, AO cannot record statement on oath, though he can record the statement of any person which may be useful for or relevant to any proceedings under the Act. Such statement is only an information and has no evidentiary value to be used only for corroboration purposes for

9 ITA 09/Jodh/2019 ACIT Vs M/s Vishnu Prakash R Pugalia. taking a decision on an issue either in favor or against an assessee.

d. Merely on the basis that at the time of survey, some entries were found in dairy and the same has been surrendered by the partner during survey did not mean that there would be an automatic addition on account of such entries. Such differences are always subject to explanation and reconciliation.

We have produced the complete books of account, bills and vouchers during the assessment proceedings in which the entries found the said dairies were duly been recorded noting contrary has been found in books of account and other details produced the AO has nowhere has mentioned in the assessment order that these entries, bills related to these entries were wrong or false.

e. An admission is an extremely important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect.

f. The addition so made by the AO is solely based on the admission of the Partner at the time of survey only no other material was available on record to justify the huge addition.

10 ITA 09/Jodh/2019 ACIT Vs M/s Vishnu Prakash R Pugalia. a. We do agree that we do not have the complete details of the said parties at all the stage of proceeding either at the time of survey or during the assessment proceedings.

b. We would like to draw your kind attention towards the fact that entries of Rs. 341.00 laces were on account of Private Work receipt not the expenses which we have claimed in the books of account and are not verifiable from the third parties. These entries are related to private work executed at the remote areas near to our other government projects are going on, hence the work was done by the site staff and payment has also been received by them and entered in the site dairies. Under such circumstances we do not have the complete name, address and other details and we are unable to produce them.

c. As we stated above that there are the work receipt entries, which were duly been accounted for in the books of account, now the question is that whether these are variable or not these entries could not be treated as un genuine. According to AO if these entries are unverifiable and have stated that we are unable to produce them then these entries are not genuine and if the receipt it not genuine then there is no need of any addition on this account. How unverifiable receipts could be added in the returned income. If it would be expenses then the situation would be altogether different, as un verifiable expanses could be disallowed but how the un verifiable receipt could be added in the income.

d. The AO further stated that the explanation so furnished are baseless and afterthought in this regard it is submitted that

11 ITA 09/Jodh/2019 ACIT Vs M/s Vishnu Prakash R Pugalia. noting contrary has found in the books of account bills and vouchers produced during assessment proceedings, then how it could be treated as baseless.

It is undisputed fact that survey was conducted on 27.08.2013 and the audit for the year under consideration was completed and audit report has been signed on 26.07.2013, which means the audit was completed and audit report has been signed one month before the date of survey, the audit report is part of seized record, then how it could be said after thought, rather is could be said pre though.

The books were duly been audited the audit report was prepared and duly signed by the auditor that too very much prior of survey, the audit report is part of seized documents, in which the total work receipt and sit expenses are tallied with the books then how could it be after thought.

12 ITA 09/Jodh/2019 ACIT Vs M/s Vishnu Prakash R Pugalia. recorded under coercion and additional evidences in support of assessee claims were not accepted by the department. He has relied upon the following judicial pronouncements:

(i) Sanjeev Kumar v. Income-tax officer, [2014] 50 taxmann.com 114 (Chandigarh - Trib.) (ii) CIT v. S. Khader Khan Son [2008] 300 ITR 157 (Mad.) (iii) Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 (SC). (iv) Chawla Brothers (P.) Ltd. v. Asstt. CIT [2011] 43 SOT 651 (Mum.) (v) Ramakrishnaiah vs. ITO [2010] 39 SOT 379 (HYD.) (vi) Ashok Manilal Thakkar vs ACIT — [2005] 97 ITD 361 (AHD.) He has further submitted that from the evidence and documents submitted during the assessment proceedings it is established that the alleged unaccounted work receipt and unaccounted expenses are duly been recorded in the regular books of account and the partner has admitted due to some inadvertent mistake and lack of knowledge. The addition so made by the AO is solely based on the admission of the Partner at the time of survey only no other material was available on record to justify the huge addition. In view of the above submissions and cited decisions it is respectfully submitted that the CIT (A) has rightly appreciate the facts and deleted the entire addition made on account of alleged unaccounted receipt of Rs. 3,41,00,000.00 and unaccounted expenditure of Rs.9,00,000.00”

13 ITA 09/Jodh/2019 ACIT Vs M/s Vishnu Prakash R Pugalia. and we have also gone through the orders passed by the revenue authorities. From perusal of the record, we found that the ld. CIT(A) has deleted the additions so made by the A.O. by observing as under:

“5.2 I have considered the assessment order, appellant's submissions and documents on record. During the survey proceedings the senior partner Shri Vishnu Prakash Pungalia in his statements admitted that a sum of Rs. 3,41,00,000/- was unaccounted contract receipts which had been received from various parties and Rs. 9,00,000/- was unaccounted cash payments for various site expenses. He surrendered Rs. 3,50,00,000/- stating that those amounts had not been recorded in books of accounts. The appellant further admitted that contract receipts amounting to Rs. 3,41,00,000/- had been received from various places hence it would not be possible to give complete name and address of the said persons. Therefore, on the basis of statement recorded of the partner of the appellant firm, the AO added Rs. 3,50,00,000/- to the total income of the assessee holding that Rs. 3,41,00,000/- was unaccounted contract receipts in addition to the total contract receipts of Rs. 2,03,80,54,537.37 as recorded in books of account and Rs. 9,00,000/- as unaccounted cash payments. During the course of appellate proceedings the AR of the appellant contended that the alleged contract work receipt of Rs. 3,41,00,000/- was duly accounted for under the head "Agri Development and Other Misc Contract Work Receipt" and cash payments of Rs. 9,00,000/- was also accounted for in the regular books of account under the head "Site Expenses". In support of his contention, the AR of the appellant submitted

14 ITA 09/Jodh/2019 ACIT Vs M/s Vishnu Prakash R Pugalia. ledger of contract receipts, bills issued to private persons and site expenses.

Further, during appellate proceedings, the AO was asked by the undersigned to re-examine the issue of so called unaccounted contract receipts and unaccounted cash payments in view of the submissions and other evidences submitted by the appellant before the undersigned; and to submit his comments. In response, AO vide letter dated 21.05.2018 and 29.06.2018 submitted that the contract receipts of Rs. 3,41,00,000/- had not been recorded in books of account as the survey had already been conducted prior to e-filing of Audit Report, However, I am not inclined to AO's contention for the reason that although, the Audit report was e-filed on 01.10.2013 but had been completed before the survey proceedings and the so called unaccounted receipts and cash payments was duly recorded in books of accounts. Further, the AO stated that Sh. Vishnu Prakash Pungalia, in his statements admitted that the contract receipts mentioned in diaries were not all recorded in books of accounts. In this regard, I find some force in appellant's submission that Sh. Vishnu Prakash Pungalia was not looking after the accounts and income tax of the firm. He was mainly engaged in core work of the firm and inadvertently accepted and surrendered the said unaccounted contract receipts and cash payments. As regards to AO's contention that Sh. Vishnu Prakash Pungalia retracted from his statement, I find that statement of any person is only an information which would be useful for proceedings under the Act, and no addition can be made solely on the basis of statement made by the appellant during survey proceedings unless supported by corroborative evidence. The Hon'ble

15 ITA 09/Jodh/2019 ACIT Vs M/s Vishnu Prakash R Pugalia. ITAT, Hyderabad in the case of B. Ramakrishnaiah vs. ITO, ITA No. 1152/Hyd/2009 held that merely on the basis of the statement taken no addition can be sustained. The relevant extract of the decisions is reproduced hereunder:-

'9. In view of the above judgements of various courts and in view of the CBDT instructions, the Sec.133A of the IT Act does not empower any authority to examine any person on oath, any such statement has no evidentiary value and any admission made during such statement, cannot, by itself, be made the basis for addition unless the assessing officer have corroborative material in hand to make such additions. If there is any unaccounted investment, the same should have been brought to tax as undisclosed income and not on the basis of MoU or on the basis of unsubstantiated statements recorded either from the assessee or from the third parties." Further, the Hon'ble ITAT, Jodhpur in the case of ACIT vs. Raj Dhariwal reported in 63 DTR 113 held as under:-

"The assessee, therefore, for valid reasons did not act in accordance with the admission made under s. 132(4) of the Act. The assessee, in fact also laid copy of sale deed on record of the AO and the sale consideration therein is found in conformity with the actual payment declared by the assessee. The rate of plot claimed to have been declared and paid by the assessee is consistent with the circle rate at which the stamp duty has been paid. The Department did not make any enquiry from the promoters or developers of the scheme nor from the market to show that the assessee has made payment more than that is found recorded in his accounts or the value of the property was more than that stated in the sale deed. The statement made under s. 132(4) making surrender which gives rebuttable presumption, could not have been taken as basis for making addition as unexplained investment in plot by the assessee, particularly when no evidence of payment, in fact, has been found even at the time of search. Under these circumstances, the statement alone cannot be made a sole basis for making addition as unaccounted investment as held by Hon'ble Andhra Pradesh High Court in the case of CIT v. Shri Ramdas Motor Transport[1999] 238 ITR 177/102 Taxman 300. It, however, remains, if the Department's case is that the promoters of the

16 ITA 09/Jodh/2019 ACIT Vs M/s Vishnu Prakash R Pugalia. scheme can be said to have received the amount towards construction or for any reasons more than that disclosed in his accounts by the assessee a suitable action may be taken in the hands of the vendors in accordance with law. The learned CIT(A), therefore, is found justified in deleting the addition of Rs. 24,50,000 as unaccounted investment which under the present facts and circumstances of the case needs no interference." In the instant case, the AO made addition of Rs. 3,50,00,000/- on the basis of the statement of partner Sh. Vishnu Prakash Pungalia recorded during survey. On perusal of the submissions and evidences adduced by the appellant, I find that contract work receipt of Rs. 3,41,00,000/- was duly accounted in the books of account under the head "Agri Development and Other Misc Contract Work Receipt" and cash payments of Rs. 9,00,000/- was also accounted in the regular books of account under the head "Site Expenses". The partner of the firm had admitted due to lack of knowledge of accounting and accounting affairs. Thus, the addition made by the AO would not be sustained as the appellant had produced evidences in support of his claim.

Another important fact which requires specific mention is that, "it is worthwhile to mention here that our audit for the year under consideration has been completed and audit report has been signed on 26.07.2013, and the survey was conducted on 27.08.2013, which means the audit report has been signed all most one month before the date of survey, our account has duly been examined and accordingly audit has been conducted and audit report has been prepared on 26.07.2013. The audit report is part of the seized documents", as submitted by the appellant

Therefore, in view of the facts and decisions as discussed above, I hold the addition made on account of so called unaccounted contract

17 ITA 09/Jodh/2019 ACIT Vs M/s Vishnu Prakash R Pugalia. receipt of Rs. 3,41,00,000/- and unaccounted cash payment of Rs.9,00,000/-, invalid which are hereby deleted. The appellant succeeds on ground No.2 and ground No. 3 accordingly; both grounds are treated as allowed.”

(i) An admission is an extremely important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and that the assessee should be given a proper opportunity to show that the books of account do not correctly disclose the correct state of facts.

(ii) In contradistinction to the power u/s 133A, section 132(4) enables the authorized officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income-tax Act. On the other hand, whatever statement is recorded u/s 133A is not given any evidentiary value obviously for the reason that the officer is not authorized to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law.

(iii) The expression 'such other materials or information as are available with the Assessing Officer' contained in section 158BB, would include the materials gathered during the survey operation under section 133A.

18 ITA 09/Jodh/2019 ACIT Vs M/s Vishnu Prakash R Pugalia. (iv) The material or information found in the course of survey proceeding could not be a basis for making any addition in the block assessment.

(v) Finally, the word 'may' used in section 133A(3)(iii) viz., 'record the statement of any person which may be useful for, or relevant to, any proceeding under this Act', as already extracted above, makes it clear that the materials collected and the statement recorded during the survey under section 133A are not conclusive piece of evidence by itself. From the above, it becomes absolutely clear that the addition cannot be made merely on the basis of statement which has no evidentiary value. This is further clarified by the Board itself that no efforts should be made to extract the surrender without corroborating evidence.

We further observe that no addition can be made only on the basis of the statement recorded u/s 132(4) of the Act as held by the decision of Hon'ble Rajasthan High Court in the case of CIT vs Dr. Raj Dhariwal reported in 63 DTR (Raj) 83 in which the Hon'ble Rajasthan High Court affirmed the decision of Hon'ble ITAT Jodhpur Bench in the case of ACIT vs. Raj Dhariwal reported in 63 DTR 113. In this case Hon'ble Rajasthan High Court affirmed the finding of the Coordinate Bench of the Tribunal by observing as under:

"The assessee, therefore, for valid reasons did not act in accordance with the admission made under s. 132(4). The assessee, in fact also laid copy of sale deed on record of the AO and the sale consideration therein is found in conformity with the actual payment declared by the assessee. The rate of plot claimed to have been declared and paid

19 ITA 09/Jodh/2019 ACIT Vs M/s Vishnu Prakash R Pugalia. by the assessee is consistent with the circle rate at which the stamp duty has been paid. The Department did not make any enquiry from the promoters or developers of the scheme nor from the market to show that the assessee has made payment more than that is found recorded in his accounts or the value of the property was more than that stated in the sale deed. The statement made under s. 132(4) making surrender which gives rebuttable presumption, could not have been taken as basis for making addition as unexplained investment in plot by the assessee, particularly when no evidence of payment, in fact, has been found even at the time of search. Under these circumstances, the statement alone cannot be made a sole basis for making addition as unaccounted investment. The CIT(A), therefore, is found justified in deleting the addition of Rs. 24,50,000 as unaccounted investment which under the present facts and circumstances of the case, needs no interference"

We observe from perusal of the impugned order that ld. CIT(A) has passed a reasoned and speaking order dealing with all material facts as well as the judicial precedents, therefore, in the view of the above facts and circumstances and judicial pronouncements referred above, we do not find any reason to interfere in the order of the ld. CIT(A) qua this issue, hence, we uphold the same.

20 ITA 09/Jodh/2019 ACIT Vs M/s Vishnu Prakash R Pugalia. ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: Jodhpur Dated 01/02/2021 *Ranjan Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT (A) 5. The DR 6. Guard File Assistant Registrar Jodhpur Bench