THE ACIT, CIRCLE-2, BHARUCH vs. MANSI REALTY PVT. LTD., BHARUCH

आदेश /O R D E R PER O.P.MEENA, AM: This appeal by the Assessee is directed against the order of 1. learned Commissioner of Income tax (Appeals)-3 Vadodara (in short “the CIT (A)”) dated 21.12.2105 pertaining to Assessment Year 2011-12, which in turn has arisen from the assessment order passed under section 143 (3) dtd. 231.03.2014 of Income Tax

ACIT, Circle-2, Bharuch Vs. Mansi Realty Pvt. Ltd /ITA No.540/AHD/2016 /A.Y. 2011-12 Page 2 of 15 Act,1961 (in short ‘the Act’) by the Deputy Commissioner of Income-Tax–Bharuch Circle Bharuch (in short “the AO”). This appeal filed by the Revenue is directed against the 2. order of Ld. Commissioner of Income Tax (Appeals)-3; Vadodara [in short “the CIT (A)”] dated 21-12-2015 for the assessment year 2011-12. Grounds raised by the Revenue read as under: 3. 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs.5,97,63,776/- made on account of on- money receipts by the assessee on the basis of the statements recorded on oath u/s 131 of the Act of the buyers of the residential units.

2.1 The Ld. CIT(A) failed in not appreciating the ratio laid down in case of Amal Kumar Chakraborty v CIT 78 TAXMAN 302 (CAL.), wherein the Hon'ble Court

ACIT, Circle-2, Bharuch Vs. Mansi Realty Pvt. Ltd /ITA No.540/AHD/2016 /A.Y. 2011-12 Page 3 of 15 have specifically expressed that the dictum falsus in uno falsus in omnibus though applicable in criminal law, is a sound principle to apply in taxation when the matter is one of finding of fact on the basis of statements of a witness and their judicial evaluation.

Since, the above ground of appeal relates to deletion the 4. addition of Rs.5,97,63,776/- made on account of on-money receipts, hence same are being considered together. Brief facts of the case are that the assessee-company is 5. engaged in the business of construction and development of residential units in the project name “Garden City” at GIDC, Ankleshwar. This project was consisting of 432 units. A survey u/s.133A was carried out on 18-11-2010 at the office premises of the assessee. During the survey, the assessee did not co-operate, therefore in post-search survey summon u/s.131 of the Act were issued and served upon 22 persons who had booked the houses in the Garden City project. Out of 22 members, 17 of them accepted payment of on-money amounting to Rs.58,31,000/- as tabulated in Para 5.12 of the assessment order. The summons under section 131 of the Act was also issued to Shri Rameshbhai V. Savani, Managing Director of the assessee company, who has stated that all 432 bungalows have been booked and he had made disclosure of an

ACIT, Circle-2, Bharuch Vs. Mansi Realty Pvt. Ltd /ITA No.540/AHD/2016 /A.Y. 2011-12 Page 4 of 15 amount of Rs. 12 crores received on this account during current year. Thus, the assessee-company has accepted undisclosed income of Rs.12 crore to buy peace of mind to avoid litigation and unnecessary harassment to its customers. During the course of assessment proceedings, the AO has made some calculation based on statement of 17 members and worked out average value of Rs. 16,05,500 per unit and total price of 432 units was worked out to Rs.68.43 crores. The AO, after placing reliance on the decision of Hon’ble Supreme court in the case of CST v. H.M. Esufali [1973] 32 STC 77 (SC) has extrapolated the on-money and worked out on- money received by the assessee from 432 members at Rs. 68,43,28,400 including sale consideration plus on-money and after allowing leverage of 5% considered for total consideration including on-money receipt at Rs. 65,01,11,980. The AO, therefore observed that the total on-money receipt is worked out at 21.66% of total sale consideration, and after taking into consideration all the apprehensions raised by the assessee in the reply to show cause notice. In view of this, the AO has worked out on-money of Rs.17,97,63,776/-[65,01,11,980 X 75,88,900/ 2,74,45,100], against which the assessee has already disclosed Rs.12,00,00,000/-.As such the balance of Rs.5,97,63,776/-[17,97,63,776-12,00,00,000] was

ACIT, Circle-2, Bharuch Vs. Mansi Realty Pvt. Ltd /ITA No.540/AHD/2016 /A.Y. 2011-12 Page 5 of 15 treated as assessee’s undisclosed income earned from the project consisting of 432 bungalows of Garden City. Being aggrieved, the assessee filed an appeal before CIT(A). 6. Wherein the assessee has made detailed submissions dated 07-12- 2018 and submission dated 21-12-2015, which has been reproduced by the Ld. CIT (A) in his appellate order. It was submitted that during post-search-survey proceedings, summons were issued to 22 person whose statement was recorded under section 131 of the Act wherein they have produced evidence and admitted on-money payment made by them to the assessee. Similarly in his statement under section 131 of the Act, Shri Rameshbhai V. Savani, Managing Director of the company, who in reply to question No.9 of his statement made disclosure of Rs.12 crore as additional income for assessment year 2010-11 after considering the diaries, statement of the booking parties, and other details as found from the office premises of the Garden City Project. This disclosure was made to cover all discrepancies and after such disclosures made by him; no any further enquiries were conducted by the AO. It was further submitted that huge addition of Rs.5.97 crore was made without identifying any unaccounted asset or impounded material found during the course of survey, which necessitated such addition over and above the disclosure of Rs.12 crore made by the appellant.

ACIT, Circle-2, Bharuch Vs. Mansi Realty Pvt. Ltd /ITA No.540/AHD/2016 /A.Y. 2011-12 Page 6 of 15 Thus, the AO has proceeded on the basis of assumption, presumption and estimation for making the addition. As per the assessee for the working the ratio of on-money received from 17 parties, the AO has extrapolated the result in respect of balance 415 units i.e. 432 units -17 units. This shows that statement of 4% of the members was relied upon by AO, for making the addition towards the entire project. As this theory of extrapolation is applied to balance 96%, units is totally injudicious and untenable because even during the course of survey action no materials were found which necessitated disclosure to the extent of Rs.17 crores including addition made by the AO as against disclosure made by the appellant of Rs. 12 crores. The assessee has relied upon the decisions of Hon’ble Gujarat High Court in the case of CIT v. President Industries, 154 CTR 372 and in the case of Jay Builders v. ACIT, 33 taxmann.com 62 and also decision of Hon’ble ITAT, Ahmedabad in the case of Kishor Telwala 64 TTJ 543. It was contended that the addition could be made only in respect of those units where evidences relating to receipt of on-money has been found and not in respect of other units where there are no such evidences. Without prejudice, it was further claimed that even otherwise also the entire on-money cannot be taxed in the year of receipt as the same is required to be taxed in the year in

ACIT, Circle-2, Bharuch Vs. Mansi Realty Pvt. Ltd /ITA No.540/AHD/2016 /A.Y. 2011-12 Page 7 of 15 which actual sales takes place. After considering the explanation of the assessee, and applying judicial pronouncements as discussed in the appellate order, the CIT(A) has given his final finding in para 7.29 and 7.30 which reads as under: “7.29 The appellant has disclosed the on-money of Rs. 12 crores for the year under consideration as a result of survey action. Again, even if someone goes by the stand of the AO that there was on-money of Rs. 5,97,63,776/- also which was over and above the on-money of Rs. 12,00,00,000/- which were earned by the appellant on account of sale of the flats during the year under consideration, then also the total on-money would come to Rs. 17,97,63,776/-. But in view of decisions of Hon'ble High Court of Gujarat and also Hon'ble ITAT, Ahmedabad and many other Courts as discussed in detail in just preceding paragraphs of this appeal order this entire on- money of Rs. 17,97,63,776/- cannot be treated as profit or income of the appellant. In view of decisions of many Hon'ble Courts only profit embedded in such receipts of Rs. 17,97,63,776- being on-money can be taxed. Even if the profit @ 15% of this amount of Rs.17,97,63,776- is considered for taxation, then also 15% of this amount would come to Rs. 2,6,f64,566/-. However, the appellant has disclosed the income of Rs.12,00,00,000/- for taxation which is much more than this net profit of Rs. 2,68,64,566/- which has been worked out and considered @ 15% on entire on-money of Rs.17,97,63,776/- and which can be said to be the net profit embedded in such on-

ACIT, Circle-2, Bharuch Vs. Mansi Realty Pvt. Ltd /ITA No.540/AHD/2016 /A.Y. 2011-12 Page 8 of 15 money of Rs. 17,97,63,776/-. Thus, in view of these facts also no addition of Rs. 5,97,63,776/- can be made by the AO to the total income of the appellant by working out the total on-money receipt at Rs. 17,97,63,776/- as the unaccounted income of Rs. 12,00,00,000/- as disclosed by the appellant is much more than this embedded profit of Rs.. 2,69,64,566/- as worked out above. In view of these facts, the addition of Rs.5,97,63,776/- as made by the AO to the total income of the appellant is not sustainable and therefore the same is deleted.

7.30 As regards disclosure of net profits as made by the appellant in the returns of income filed for assessment years 2012-13, 2013-14 and 2014-15, the same cannot be the subject matter of appeal for the year under consideration i.e. for AY 2011-12. The appellant has disclosed the net profits for these assessment years and correctness of such profits may be verified by the AO for these years and therefore these profits cannot be considered for the year under consideration. The issue in question for the year under consideration is that as to whether entire on-money is required to be taxed or only net profit embedded in such on-money is required to be taxed. However, this issue has been dealt with in length in just preceding paragraphs of this appeal order and it is held that the disclosure of income of Rs. 12,00,00,000/- as made by the appellant for taxation is even much more than the net profit of 15% of the entire on-money of Rs. 17,97,63,776/- (i.e. the on-money of Rs. 12,00,00,000/-

ACIT, Circle-2, Bharuch Vs. Mansi Realty Pvt. Ltd /ITA No.540/AHD/2016 /A.Y. 2011-12 Page 9 of 15 as offered by the appellant for taxation + the on-money of Rs. 5,97,63,776/- as added by the AO to the total income of the appellant) and therefore this addition of Rs. 5;97,63,776/- is not sustainable and accordingly this addition of Rs. 5,97,63,776/- is hereby deleted. Thus, the grounds of appeal nos, 4, 5, 6, 7, 8 and the additional ground of appeal of the appellant are allowed.”

Being aggrieve, the Revenue has filed this appeal before us. 7. The ld. CIT(DR) relying on the order of the AO, submitted that the AO had worked out on-money estimate on the basis of statement recorded from 17 persons, who booked Bunglow in the Garden City. Thus, the on-money receipt of Rs. 17.97 crores was worked out as received from all the 432 units booked. He further submitted that the assessee did not co-operate in the course of search proceedings, however post-search survey enquiries were made, and summons were issued to 22 persons out of which 17 person have admitted on-money receipts. Therefore, the AO relying on the decision of Hon’ble Supreme Court in the case of CIT v. H.M. Esufali and after considering the explanation of the assessee and taking support from table mentioned in para 5.42 of assessment order in respect of 432 members who have booked Bungalows in the project and worked out on-money at Rs. 17.97 crores. In view of these facts and circumstances, the Ld. CIT (DR)

ACIT, Circle-2, Bharuch Vs. Mansi Realty Pvt. Ltd /ITA No.540/AHD/2016 /A.Y. 2011-12 Page 10 of 15 vehemently supported the order of the AO and requested that same may be upheld. Per contra, the ld. counsel submitted that the assessee has 8. already made disclosure of Rs.12 crore to buy peace and avoid unnecessary litigation and harassment to members who have booked bungalows in the said project. The AO has extrapolated the result of on-money receipt from the 17 parties in respect of remaining 415 unit. Thus, the statement of merely 4%, of the member have been applied for making addition towards the entire project based on extrapolation theory. This theory of extrapolation was applied to balance 96% units is totally injudicious and untenable because even during course of survey no materials were found necessitating the further calculation of on-money by the AO. It was further submitted that the AO was specifically requested to supply the evidences/materials impounded at the time of survey, if he intend to make addition in excess of the disclosure of Rs. 12 cores. However, the AO neither has supplied any such material to assessee nor has made reference of the same in the entire assessment order. The ld. counsel further supporting the order of the ld. CIT(A) submitted that the CIT(A) has judiciously considered that if the 15% of net profit is applied to the total on-money receipt of Rs.17,97,63,776/- then it gives net profit at Rs.2.69

ACIT, Circle-2, Bharuch Vs. Mansi Realty Pvt. Ltd /ITA No.540/AHD/2016 /A.Y. 2011-12 Page 11 of 15 crores as against this, the assessee disclosed Rs.12 crores for taxation which is more than Rs.6.88 cores. Therefore, the net profit estimated as on-money at Rs.17.97 crores is not justified from any angle. Therefore, the CIT(A) has rightly deleted the addition of Rs.5.97 crores made by the AO. We have heard the rival submissions and perused the 9. relevant material on record. We find that the assessee has made disclosure of Rs. 12 crores as on-money receipt based on statement recorded by the AO and seized material impounded if during survey proceeding. However, the AO has recorded statement under section 131 of the Act from 17 person and arrived at conclusion that ratio of on-money comes to 21.66% of total sale consideration of the project in respect of 432 units. Thus, the statement of 4 % has been utilized for making extrapolation to 96% units. Accordingly, on-money was estimated at Rs.17.97 crores out of Rs.12 crores disclosed by the assessee was reduced and balance was added. However, the CIT (A) observed if there was on-money of Rs. 5,97,63,776/- also which was over and above the on-money of Rs. 12,00,00,000/- which were earned by the appellant on account of sale of the flats during the year under consideration, then also the total on-money would come to Rs. 17,97,63,776/-. However, in view of decisions of Hon'ble High Court of Gujarat and

ACIT, Circle-2, Bharuch Vs. Mansi Realty Pvt. Ltd /ITA No.540/AHD/2016 /A.Y. 2011-12 Page 12 of 15 also Hon'ble ITAT, Ahmedabad and many other Courts as discussed in detail in just preceding paragraphs of his appeal order this entire on-money of Rs. 17,97,63,776/- cannot be treated as profit or income of the appellant. In view of decisions of many Hon'ble Courts only profit embedded in such receipts of Rs. 17,97,63,776- being on-money can be taxed. Even if the profit @ 15% of this amount of Rs.17,97,63,776- is considered for taxation, then also 15% of this amount would come to Rs. 2,68,64,566/-. However, the appellant has disclosed the income of Rs.12,00,00,000/- for taxation which is much more than this net profit of Rs. 2,68,64,566/- which has been worked out and considered @ 15% on entire on-money of Rs.17,97,63,776/- and which can be said to be the net profit embedded in such on-money of Rs. 17,97,63,776/-. Thus, in view of these facts also no addition of Rs. 5,97,63,776/- can be made by the AO to the total income of the appellant by working out the total on-money receipt at Rs. 17,97,63,776/- as the unaccounted income of Rs. 12,00,00,000/- as disclosed by the appellant is much more than this embedded profit of Rs.2,69,64,566/- as worked out above. In view of these facts, the addition of Rs.5,97,63,776/- as made by the AO to the total income of the appellant was not found sustainable and therefore the same was deleted. We are of the considered opinion that Ld.

ACIT, Circle-2, Bharuch Vs. Mansi Realty Pvt. Ltd /ITA No.540/AHD/2016 /A.Y. 2011-12 Page 13 of 15 CIT (A) has taking a judicial view after taking into consideration of various decision of Hon’ble Gujarat High Court and other High Court as well as tribunal. We find that the Hon’ble Gujarat High Court in the case of CIT V. Ashland Corporation 133 ITR 55 and in CIT v. Motilal C Patel & Company 173 ITR 666 held that it is settled law that no addition no addition can be made purely based on statement recorded during survey. Further, the Hon’ble Gujarat High Court in the case of DCIT 10. V. Panna Corporation [Tax Appeal No. 323 and 325 of 200 dated 16.06.2012] 74 DTR 89 held that it has been consistently held by this court and some other courts have been following the principle that even upon detection of on-money receipt or unaccounted cash receipt, what can be brought to tax is the profit embedded in such receipts and not the entire receipts themselves. If that were the legal position, what should be estimated as a reasonable profit out of such receipts, must bear an element of estimation. In the case of Abhishek Corporation v. Dy. CIT [1999] 63 11. TTJ (Ahd.) 651 held that “Where it was found that assessee had been charging ‘on money’/premium in respect of booking of flats, the entire receipts on account of ‘on money’/premium charged by the assessee on booking of flats would not be the undisclosed income of the assessee for the block period, but only net profit

ACIT, Circle-2, Bharuch Vs. Mansi Realty Pvt. Ltd /ITA No.540/AHD/2016 /A.Y. 2011-12 Page 14 of 15 rate could be applied on unaccounted sales/receipts for the purpose of making the addition. Similarly in the case of CIT v. President Industries [2002] 258 12. ITR 654 (Gujarat)head note reads “Section 69B, read with section 256, of the Income-tax Act, 1961 - Undisclosed investments - Assessment year 1994-95 - Whether amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales - Held, yes - During survey it was found that assessee had not disclosed certain sales in books of account - Whether Tribunal was justified in holding that unless there was a finding that investment by way of incurring cost in acquiring goods which had been sold, had been made by assessee and that had also not been disclosed, only net profits embedded in sales, and not wholesale proceeds itself, would be treated as undisclosed income of assessee - Held, yes”. In the light of above discussion, and judicial 13. pronouncements, we of the considered opinion that Ld. CIT (A) was justified in deleting the addition made on account of estimation of on-money. We observe that decision of Calcutta High Court in the case of Amal Kumar Chakraborty v. CIT 78 Taxman 320 (Cal) relied by the revenue is not applicable as in that case statement were relied However, in the case of on-money of Rs. 12

ACIT, Circle-2, Bharuch Vs. Mansi Realty Pvt. Ltd /ITA No.540/AHD/2016 /A.Y. 2011-12 Page 15 of 15 crores has been disclosed based on statement of units holder. Therefore, the receipt of on-money has been taxed and disclosed by the assessee. Further, where ratio of the Jurisdictional High Court have been applied wherein they have held that only profit embedded in on-money receipts is to be taxed and not the entire receipts. Hence, said decision has no application in the case of the assessee. In view of these facts and circumstances, we do not find any infirmity in the order of CIT (A), accordingly, same is upheld. Therefore, Ground No. 1 and 2 of the appeal are dismissed. In the result, the appeal of the revenue is dismissed. 14. Order pronounced in the open court on 13-12-2019. 15. Sd/- Sd/- (SANDEEP GOSAIN) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER सुरत/ Surat, �दनांक Dated:13th December, 2019/S.Samanta, PS Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order // TRUE COPY // Assistant Registrar, Surat