ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 1(4), MUMBAI vs. KALYANEE FORTUNE CONSTRUCTIONS, MUMBAI

P a g e | A.Y. 2017-18, 2018-19, 2019-20 & 2020-21 Kalyanee Fortune Construction, Mumbai pertaining to the assessment orders passed u/s. 143(3) r.w.s. 147 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for the Assessment Years [A.Y.] 2017-18, 2018-19, 2019-20 & 2020-21. Since the issues are common and interlinked and also the fact that appeals were heard together, they are being taken up together for adjudication vide this composite order for the sake of brevity. We take up 19)as the ‘Lead case’.Decision herein would apply mutatis mutandis to other appeals as well.

The grounds of the appeals are as under:-

In the subsequent appeal,both the above additions were agitated by the assessee before the ld.CIT(A). Based on the submissions of the assessee, it was noted by him that in respect of the addition of Rs 13,95,000/- being 44.64% of assessee’s share in the alleged cash receipts found during survey proceedings on GHL, the assessee and GHL had entered into Joint Development Agreement for development of the land owned by assessee at P a g e | A.Y. 2017-18, 2018-19, 2019-20 & 2020-21 Kalyanee Fortune Construction, Mumbai Village Sus, Tal Mulshi, Pune under the name ‘GangaAcropolis’. The major features of said agreement with respect to responsibilities and revenue had been duly discussed in the appellate order which inter alia provided that assessee had to ensure that the tittle in land has to remain clear; free of any encumbrances and that the same should be marketable. The cost to ensure the above had to be borne by KFC and had to bear and pay all duty, rates, taxes or cesses w.r.t. the land e.g. land revenue, Municipal Taxes, sundry statutory charges. Post tendering of land for the project, KFC had no responsibility of securing any permission or clearances. It was only concerned with his share of consideration. GHL had to procure all permissions/clearances. appointment of Architects, Consultants etc and bearing all costs regarding development of buildings on the land and other incidental expenses w.r.t. the project. KFC was not a party to any deals or negotiations with prospective clients. It had no knowledge of the mode of receipt of consideration. It was merely concerned with its share of sale proceeds. GHL was solely responsible to market the flats in the building built on the land and responsible for incurring all incidental expenses. KFC was not liable to pay costs for any type of govt. approval cost and if there is any subsequent change or revision of the project plan. It was not liable to pay costs even in case of any unforeseen events. If there was any revision in the sanctioned development plan, the incremental costs would be solely borne by GHL. KFC has no contractual or civil liability w.r.t. the project.

Before us, in the course of hearing the ld.AR has placed reliance on the findings and decision by the ld.CIT(A) reiterating the same contentions. A summary of additions made in each of below assessment years is detailed as follows: AY Financial Income Total Income Demand as Addition Year declared in as per per @44.64% of ITR Assessment Assessment 20% of cash order Component as alleged 2016- 2015-16 11,390 76,46,500 41,52,703 76,35,110 17 2017- 2016-17 1,840 2,61,86,590 1,48,61,967 2,61,84,750 18 2018- 2017-18 1,820 4,08,50,690 1,96,48,744 4,08,48,865 19 2019- 2018-19 41,30,92,430 48,48,03,296 4,01,08,476 7,17,10,866 20 2020- 2019-20 28,37,77,410 32,25,33,700 2,20,81,241 3,87,56,290 21 P a g e | A.Y. 2017-18, 2018-19, 2019-20 & 2020-21 Kalyanee Fortune Construction, Mumbai 5.1 It was submitted that KFC and GHL were mere business Partners working on a ‘principal-to-principal basis in fiduciary capacity. There was no other association or relation between the two parties. The assessee was totally unaware of any alleged acceptance of on-money. As per the Joint Development Agreement, GHL had the sole responsibility of developing the property and later marketing the flats and subsequent sales of the same. The assessee did not interfere or deal with any potential parties for sale. Further, it did not handle any aspect of receipt of sales consideration. Hence, there was no question of accepting any on-money in cash by it. In view of the Joint Development Agreement, the construction and marketing and sales activity were carried on by GHL. After the commencement of project since 2014, the first agreement for sale of flat was registered on 12 October. On verification and comparison of the data of sale agreement entered into, there was no sale of flat below the stamp duty rate, being market value of Flat/unit. The project was for the middle class group who were mostly salaried class, purchasing the flat by obtaining loans etc. All of the above showed that there was no possibility of any on-money being received in cash in respect of sale of the concerned flats. 5.2 It was further noted that during the course of the survey proceedings, statements were recorded on oath u/s 131 of the Act of the following sales representatives of Ganraj Homes namely Shri Deepak Tugave, P a g e | A.Y. 2017-18, 2018-19, 2019-20 & 2020-21 Kalyanee Fortune Construction, Mumbai Sr. Sales Manager, Vinit Singh, Sr. Sales Manager, Smt. Anjana Domkavale. Sr. Sales Manager and Mr. Sujeet Pandey, General Sales Manager. It was pleaded that the assessee had no involvement with these employees, as the persons mentioned above were associated with Goel Ganga Group. It did not have any control on these persons nor wasit responsible for any actions done by them. Further, their statements were self-explanatory, and reading of the same didnot confirm to the receipt of any on money. None of the partners. who were actually responsible for the revenue from the Project, had admitted receipt of any cash as on-money.Moreover, the AO had relied upon statements recorded during survey proceedings of the above-mentioned sales representatives to hold that KFC and GHL had accepted on-money on sale of units and further estimated income in the hands of KFC though there was no reference to KFC whatsoever in any of the statements and particularly when those persons were neither employees of the assessee nor were required to report to it.

We have carefully considered all the relevant facts of the case having perused the records and have heard the rival submissions.We have also gone through order passed by hon’ble ITAT,Pune bench(supra) in the case of GHL.Relevant parts of the said order are extracted as under for the sake of brevity and clarity: “3. During the course of assessment proceedings, the Assessing Officer noted that the assessee LLP is a partnership firm (on conversion from Ganraj Homes Pvt. Ltd. w.e.f. 03.06.2016) wherein Smt. Kavita Goel, Pinky Garg, Sulochana Garg, Mahavir Agarwal and Agrim Goel are the partners. The assessee firm is engaged in construction of residential and commercial projects and has executed a development agreement dated 10.10.2013 with M/s. Kalyanee Fortune Constructions, a partnership firm having its registered office at 3 AA, Edena Building, 97 Mk Road, Marine Lines, Mumbai on principal to principal basis for development of a piece of land at S.No.41, village-Sus, Mulshi, Pune, on revenue sharing basis. The share of gross sales proceeds of the project on the said land are to be apportioned between M/s. Kalyani Fortune Construction and M/s. Ganraj Homes in profit sharing ratio of 44.64% and 55.36% respectively. The assessee firm developed the said land with the project named as “Ganga Acropolis”. Ganga Acropolis is one of the premium residential projects under M/s. Ganraj Homes LLP, which is a concern of Subhash Goel Group, whose office was covered u/s 132 of the Act. The site office of the Ganga Acropolis was covered under survey action u/s 133A of the Act at 41/1, 41,2/14, Vill-Sus, Tal-Mulshi, Pune. 4. The Assessing Officer noted that during the course of search action it was seen that the assessee is involved in selling the units of the project at less than the P a g e | A.Y. 2017-18, 2018-19, 2019-20 & 2020-21 Kalyanee Fortune Construction, Mumbai prevailing market price which is more than the Ready Reckoner/Circle rate. Thus, the assessee was involved in receiving differential amount as on-money in sale consideration. He noted that during the course of survey proceedings at the project site office of the assessee, various incriminating documents were found. When these documents were correlated with entries found in other documents and Whats App chats, it becomes evident that the assessee firm is involved in accepting on-money in cash. After analyzing the various incriminating documents as well as evidences collected during the course of search and survey action, the Assessing Officer noted that the receipt of such on-money is clearly evident. He referred to the statements recorded of Shri Deepak Tugave, Smt. Anajana Domkavale and Vinit Singh who all are Sr. Sales Managers who have stated in their statements that the assessee has received on-money on account of sale of flats to different persons. However, the Assessing Officer noted that the assessee has not offered any on-money received in the ITRs filed. He, therefore, asked the assessee to file reply as to why the addition should not be made on account of receipt of on-money.

We find some force in the above arguments of the Ld. Counsel for the assessee. A perusal of the statement recorded of Shri Subhash Goel u/s 132(4) shows that not a single question has been asked by the search party on account of receipt of any on-money on the basis of the statements recorded u/s 131 of the senior sales managers. We further find none of the persons to whom the flats have been sold have ever been examined either by the search party during the course of search or post- search enquiries or by the Assessing Officer during the course of assessment proceedings. Further, a perusal of the details furnished by the assessee shows that most of the flats were sold to the persons other than the persons whose names are appearing in the seized documents. It is also an admitted fact that nothing is brought on record to show that any of the buyer to whom the flats have been sold are related to the assessee and the entire addition, in our opinion, has been made on certain guesswork on the basis of statements of the sales managers and some rough notings. Even the incriminating documents which relate to the pent house has not been sold. We, therefore, are of the considered opinion that the entire addition made by the Assessing Officer and sustained by the Ld. CIT(A) being on guesswork and surmises cannot be upheld.

We further find the Ld. CIT(A) in the case of the other partner of the joint venture M/s. Kalyanee Fortune Constructions having profit share of 44.64% in the project has deleted the addition on account of on- money received in the project Ganga Acropolis for assessment year 2019- 20 by observing as under: “8.1 Decision on ground no 5 & 6: These grounds are on the issue of addition of Rs.7,17,10,866/- on account of alleged on-money received. As both the grounds are inter-related, the decision on both is taken combined. 8.2 The AO, vide assessment order has mentioned that information was flagged on the insight portal regarding on-money receipt by the appellant and its partner on sale of flats/units in their project “Ganga Acropolis”, and during the survey on site office of the said project, evidences of on-money received by the appellant and its partner were found. Further, average 20% of stamp duty value was taken for estimating additions of on money in those flats where extrapolation was applied. 8.3 Moreover, the 10 found out that 20% of total consideration as mentioned in registered deed made during AY 2019-20 i.e. Rs. 16,06,42,620/- is on-money received by appellant firm and its partner during AY 2019-20 and the same had escaped assessment and was required to be taxed. Since, appellant ad its partner i.e. & M/s. Ganraj Homes LLP is having profit sharing ratio of 44.64% and 55.36% respectively; appellant’s share came to Rs.7,17,10,866/. In view of the same, a show- cause notice was issued to the appellant asking it as to why the amount received on account of on-money should not be added to its total income. In response, the P a g e | A.Y. 2017-18, 2018-19, 2019-20 & 2020-21 Kalyanee Fortune Construction, Mumbai appellant furnished its reply and the same was duly considered by AO however not found acceptable. Consequently, the assessment was completed u/s. 147 on 02.03.2024 making an addition of Rs. 7,17,10,866/- on account of on-money receipt. 8.4 I have carefully considered the facts of the case, submissions of the appellant, the observations of the AO contained in the assessment order and the other materials on record on this issue. It is pertinent to mention here that vide this office order dated 03.06.2024 having appeal no CIT (A)-47, Mumbai/10247/2017-18, 10757/2015-16, 13034/2016-17, 10409/2019-20 for A.Y. 2018-19, 2016-17, 2017-18 & 2020-21 respectively, the appeals on the identical issue, i.e. addition on account of on-money receipt, in the appellant own case for Α.Υ. 2016-17, 2017-18, 2018-19 & 2020-21 have already been decided in favour of appellant. The relevant portion of the order is reproduced hereunder: “I find that the view taken by Hon’ble Apex Court in the case of Common Cause (A Registered Society) v. UOI 245 taxman 214 (SC) that the entries in loose papers and electronic data from the premise of a third party which were not regularly kept during the course of business has no evidentiary value is also affirmed by the Hon’ble Karnataka High Court in the case of DC IT v. Sunil Kumar Sharma - [2024] 159 taxmann.com 179 (Karnataka). I find merit in the contention that on the basis of decision of the Hon’ble Apex Court (supra), entries in loose papers recovered at premise of third party have no evidentiary value. The alleged transactions mentioned in the rough notings of a third party were not recorded by the appellant. The alleged transaction vilas not corroborated from the material found at survey in the appellant own case. It is well settled in law that the loose papers and documents cannot possibly be construed as books of account regularly kept in the course of business. Therefore, the AO would not be justified in resting its case on the loose papers, diary and documents found from third party if such documents contained narrations of transactions with the assessee as decided by the Hon’ble Supreme Court in the case of Central Bureau of Investigation Vs VC Shukla.

I find that a survey action was conducted in the appellant’s own case on 31.01.2020 i.e. one year after the survey on M/s Ganraj Homes LLP. However, there is no mention in the order of assessment of any Incriminating evidence having being found at the premise of the appellant. It is also imperative that the presumption u/s 132(4A) of the Act is applicable to the person from whose possession or control the incriminating material is found & seized. Based on the incriminating material found from, third party search but not belonging to the appellant, this presumption will not be applicable unless corroborated by other evidence. Presumption available under section 132(44) can be drawn against the person in whose case search is authorized and from whose possession or control books of account, diary or documents are found in the course of search. Presumptions regarding correctness of contents of books of account etc, cannot be raised against the third party.

Further, even if the loose sheets are considered to be admissible as evidence, the AO has failed to bring on record that the proceeds of on-money was shared with the appellant. In absence of any such evidence, the addition of on-money in the hands of the appellant cannot be accepted. It is a settled law that the impounded documents have to be considered as it is and nothing can be altered or supplied therein. In the present case, the impounded documents by itself are incapable of testifying the stand of the AO that the appellant had received any on-money.

In view of the facts, I find that the AO has erred in appreciating the material on record correctly. Firstly, the validity of loose papers / diary notings found in the course of search as well as the statement recorded in survey cannot be accepted. The vital link between the material whatsoever found during the survey on M/s Ganraj Homes LLP and the appellant was missing. It has resulted in the addition being made on the basis of the suspicion that the appellant might have received his share of on-money without there being any single piece of evidence for the same. In this regard, I find that the Hon’ble Apex Court has, in plethora of cases, advised against the use of suspicion however strong, for the purpose of making addition as under: Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 (SC) Whether though ITO is not fettered by technical rules of evidence and pleadings and he is entitled to act on material which may not be accepted as evidence on account of law, but in making assessment under section 23(3) of 1922 Act he is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all - Held, yes. Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 (SC) In this case, Hon’ble Supreme Court observed that both ITO and ITAT arriving in their conclusions had indulged in suspicions, conjectures and surmises and acted without any evidence or upon a view of facts which could not reasonably be entertained or finding was perverse which could not be sustained and therefore Supreme Court was entitled to interfere with such finding and the addition made was liable to be deleted. Umacharan Shaw & Bros. v. CIT [1959] 37 ITR 271 (SC) "Taking into consideration the entire circumstances of the case, we are satisfied that there was no material on which the Income-tax Officer could come to the conclusion that the firm was not genuine. There are many surmises and conjectures, and the conclusion is the result of suspicion which cannot take the place of proof in these matters. Omar Salay Mohamed Salt v. CIT (1959) 37 ITR 151 (SC)

Therefore, I am of considered view that addition made of Rs. 13,95,000/- cannot be sustained hence deleted” 8.5. In view of the above, the AO is directed to delete the addition of Rs.7,17,10,866/- made on account of on-money receipt. Accordingly, the grounds of appeal

We find in the case of CIT Vs. Naresh Kumar Aggarwala (supra), the Hon’ble Delhi High Court has held that, there was a presumption raised under section 132(4A) on seizure of fax message and it was upon assessee to rebut that presumption by offering a plausible explanation. However, as mentioned earlier, the statements of the employees in the instant case were recorded u/s 131 of the Act and not u/s 132(4A) of the Act. Further, the managing partner of the assessee firm has completely denied to have received any on-money and neither he was confronted subsequently nor any of the customers who are identifiable were examined either by the Investigation Wing during the course of search or post-search enquiries or by the Assessing Officer at the time of assessment proceedings. So far as the decision of Hon’ble Bombay High Court in the case of Harish Textile Engrs. Ltd. vs. DCIT (supra) relied on by the Ld. CIT-DR is concerned, we find in that case the extrapolation on the basis of loose papers found during the course of search was upheld by the Hon’ble Bombay High Court. However, it is seen that the assessee in that case has accepted that it has received on-money whereas in the instant case the director / partner of the assessee firm has completely denied to have received any such on-money. Further, neither he was confronted subsequently nor any of the buyers/customers who are identifiable were examined/confronted either by the Investigation Wing during the course of search or post-search enquiries or by the Assessing Officer at the time of assessment proceedings. So far as the decision of Hon’ble Supreme Court in the case of Pooran Mal vs. Director of Inspection (supra) is concerned, there is absolutely no dispute to the fact that evidences can be used but the same has to be corroborated.

In view of the above discussion and in view of the decisions cited (supra), we are of the considered opinion that extrapolation cannot be made on account of receipt of on-money for sale of shops in respect of which no evidence was found during the course of search and no enquiry or investigation was conducted either by the search party during the course of search or post-search enquiries or by the Assessing Officer during the course of assessment proceedings.

Since in the instant case, admittedly, not a single question was put to Mr. Subhash Goel about the statements of the employees and the incriminating documents which relate to the sale of penth house has actually not been sold, most of the flats were sold to the persons other than the persons whose names were P a g e | A.Y. 2017-18, 2018-19, 2019-20 & 2020-21 Kalyanee Fortune Construction, Mumbai appearing in the loose sheets towards sale of the said very flats and the buyers are unrelated parties and since the Ld. CIT(A) in the case of other partner of the joint venture has already deleted the addition on account of such on-money received on sale of flats in the project Ganga Acropolis, we are of the considered opinion that no addition is called for in the hands of the assessee. Accordingly, the addition of Rs.2,42,12,902/- made by the Assessing Officer for assessment year 2017-18 being share of the assessee on account of extrapolation is deleted. The grounds raised

In the result, appeal of the Revenue stands dismissed.

The decision rendered by us in para 6/7 above would apply mutatis mutandis to the instant appeal as well. Accordingly, ground of appeal and the appeal are dismissed.

The decision rendered by us in para 6/7 above would apply mutatis mutandis to the instant appeal as well. Accordingly, ground of appeal and the appeal are dismissed.

In the result, all the above appeals in 4445, 4448 and 5779/Mum/2024 filed by the Revenue are dismissed.