TITLE DEVELOPERS LLP ( FORMERLY SABARI DEVELOPERS LLP),MUMBAI vs. DCIT, CC 4 (1), MUMBAI

The particulars of the appeals, the assessment years involved, the impugned appellate orders and the additions disputed before us are as under:

The assessee has raised several grounds of appeal in the respective assessment years. Broadly stated, the grievances raised before us challenge (i) the additions made towards alleged receipt of on-money on sale of residential flats; (ii) the validity of the assessments on the ground that the approval contemplated under section 153D of the Act was granted mechanically without independent application of mind; (iii) the legality of the assessment orders on account of alleged non-compliance with the CBDT Circulars governing Document Identification Number (DIN); (iv) denial of effective opportunity to cross-examine the person whose statement has been relied upon by the Assessing Officer; and (v) in certain assessment years, additions relating to cash deposits during the demonetisation period and alleged unexplained

The CIT (A) erred in confirming the additions made by AO ignoring the fact that the assessment framed u/s 153A/143(3) of the Act is required to be treated as “invalid and shall be deemed to have never been issued” in absence of any Document Identification Number (DIN) or for lack of computer- generated Identification Number (DIN) thereon which was required to be generated and duly quoted in the body of such communication as has been ordered by the CBDT vide Circular No. 19/2019 dated 14/08/2019 and reiterated vide the circular number 27/2019 dated 26/09/2019. 5. Ld. CIT(A) erred in law and on facts in not granting an opportunity to cross examine Mr Hiren Bharani, partner of the appellant, whose statement has been relied by giving frivolous reasons despite the fact that Mr Hiren Bharani had retracted his statement recorded during the course of search. The same was specifically demanded during the search proceedings. Thus, no reliance on the statement of Mr Hiren Bharani can be placed. 6. The appellant craves the leave to add, substitute, modify, alter, delete or amend all or any ground of appeal either before or at the time of hearing.” GsOA for AY 2015-16 1. Ld. CIT (A) erred in law and on facts in upholding an addition of Rs. 6,32,50,000/- made by Ld. AO alleging On Money received on sale of flats built / sold by the appellant though the appellant categorically denied to have received any such money and also filed affidavits of the buyers in support thereof. Thus, the addition made ignoring the submission and affidavits should be deleted. 2. Ld. CIT(A) erred in law and on facts by validating action of Ld. AO and overlooked integral part that even on the basis of the alleged seized material which shows that a sum of Rs.

The appellant craves the leave to add, substitute, modify, alter, delete or amend all or any ground of appeal either before or at the time of hearing. GsOA for AY 2016-17 1. The CIT (A) erred in law and on facts in upholding an addition of Rs. 1,74,98,680/- made by Ld. AO alleging On Money received on sale of flats built / sold by the appellant though the appellant categorically denied to have received any such money and also filed affidavits of the buyers in support thereof. Thus, the addition made ignoring the submission and affidavits should be deleted. 2. Ld. CIT (A) has erred in law and on facts in confirming the action of the Ld. A.O. in passing the impugned assessment order without there being requisite approval in terms of section 153D and in any case approval if any, is mechanical and without application of mind and is no approval in the eyes of law and as such, the assessment so framed is null and void and deserves to be quashed.” 3. The CIT (A) erred in confirming the additions made by AO ignoring the fact that the assessment framed u/s 153A/143(3) of the Act is required to be treated as “invalid and shall be deemed to have never been issued” in absence of any Document Identification Number (DIN) or for lack of computer- generated Document Identification Number (DIN) thereon which was required to be generated and duly quoted in the body of such communication as has been ordered by the CBDT vide Circular No. 19/2019 dated 14/08/2019 and reiterated vide the circular number 27/2019 dated 26/09/2019. 4. Ld. CIT(A) erred in law and on facts in not granting an opportunity to cross examine Mr Hiren Bharani, partner of the appellant, whose statement has been relied by giving frivolous reasons despite the fact that Mr Hiren Bharani has retracted

Ld. CIT(A) erred in law and on facts in not granting an opportunity to cross examine Mr Hiren Bharani, partner of the appellant, whose statement has been relied by giving frivolous reasons despite the fact that Mr Hiren Bharani has retracted his statement recorded during the course of search. The same was specifically demanded during the search proceedings. Thus, no reliance on the statement of Mr Hiren Bharani can be placed. 5. Ld. CIT (A) erred in law and on facts in confirming an addition of Rs 55,00,000/- deposited in the bank account during the relevant period demonetization though the source of the same had already been offered for income tax as taxable income in the audited books of account and declared in the Profit and Loss Account. Thus, the addition amounting to double taxation should be deleted. 6. Ld. CIT(A) erred in law and on facts by sustaining an addition of Rs 1,31,50,000/- made by Ld. AO in respect of an amount withdrawn by the partners of the firm in cash out of declared cash of Rs 12 crores after the same was declared by the appellant under the IDS on 29/09/2016 in valid currency before 08/11/2016 (i.e. the date of demonetization). Since, the source of the same was duly explained in the relevant books of accounts, the addition must be deleted. 7. The appellant craves the leave to add, substitute, modify, alter, delete or amend all or any ground of appeal either before or at the time of hearing. GsOA for AY 2018-19 1. Ld. CIT (A) erred in law and on facts in upholding an addition of Rs. 3,32,00,000/- made by Ld. AO alleging On Money received on sale of flats built / sold by the appellant though the appellant categorically denied to have received any

Before we proceed to examine the rival submissions and the legal issues arising for our consideration, it would be

On 06.10.2017, the business premises of the assessee came to be covered by an action under section 133A of the Act. During the course of the said proceedings, statements of Shri Jeet Bharani and Shri Devang Sharma, sons of the two partners of the assessee LLP, were recorded under section 131 of the Act. Subsequently, while the survey proceedings were still continuing, a warrant of authorisation under section 132 came to be issued by the competent authority and the survey proceedings accordingly stood converted into a search operation. As recorded in the Panchnama itself, the search proceedings commenced at about 2:30 p.m. on

Consequent to the search, notices under section 153A of the Act were issued requiring the assessee to furnish returns of income for the relevant assessment years. The assessee duly filed the returns in response thereto. During the assessment proceedings, the Assessing Officer principally relied upon certain diaries, loose sheets, handwritten notings and other documents found during the course of survey/search, read together with the statement recorded under section 132(4) of one of the partners, Shri Hiren Bharani, to conclude that the assessee had allegedly received substantial amounts as on-money over and above the consideration disclosed in the registered agreements executed in favour of various purchasers of flats. Proceeding on this premise, additions towards alleged suppression of sale consideration were made in different assessment years. Besides these additions, separate additions relating to cash deposits during the demonetisation period and alleged unexplained partners’ capital were also made in Assessment Years 2017-18 and 2018-19.

According to the Assessing Officer, the entries appearing in the seized diaries represented actual cash receipts received by the assessee outside its regular books of account and the statement recorded under section 132(4) furnished sufficient corroboration to establish that the assessee had been receiving consideration over and above the amounts disclosed in the registered sale documents. It was thus concluded that the seized documents reflected parallel transactions carried on outside the regular books and consequently represented undisclosed income chargeable to tax in the respective assessment years. The learned CIT(A), after considering the submissions advanced before him, substantially concurred with the reasoning adopted by the Assessing Officer and confirmed the additions.

Aggrieved by the aforesaid appellate orders, the assessee has preferred the present appeals before the Tribunal. At the very outset, Shri Vinod Kumar Bindal, learned Counsel appearing on behalf of the assessee, submitted that the impugned assessments suffer from fundamental jurisdictional infirmities apart from serious factual errors and, therefore, deserve to be quashed at the threshold itself. It was contended that the mandatory approval contemplated under section 153D of the Act had been granted in a wholly mechanical manner without any independent application of

Without prejudice, the learned counsel submitted that the entire edifice of the impugned additions rests upon a fundamentally erroneous appreciation of certain diaries, loose papers and internal compilations found during the proceedings conducted at the business premises of the assessee. According to him, these documents did not represent any actual receipt of undisclosed income or “on-money” from prospective purchasers of flats, but were merely tentative internal workings maintained for an altogether different purpose. Elaborating the factual background, he submitted that much prior to the search, the assessee had voluntarily made a declaration of undisclosed income amounting to Rs.12 crores under the Income Declaration Scheme, 2016, on 29.09.2016 before the jurisdictional Principal Commissioner of Income Tax, which declaration ultimately stood accepted by issuance of Form-IV dated 13.01.2018. Though the statutory scheme itself did not require maintenance or production

It was emphatically argued that except for these loose papers and internal compilations, no independent incriminating material whatsoever was discovered during the course of search to establish that the assessee had actually received any amount over and above the consideration recorded in the registered sale deeds. No unexplained cash was found. No undisclosed asset representing such alleged receipts was discovered. No evidence of utilisation of such alleged cash was unearthed. No parallel books of account, no unexplained investment and no corroborative evidence linking any purchaser with any alleged cash payment were found during the course of search. Thus, according to the learned counsel, the additions have been made merely by drawing presumptions from certain rough notings without any supporting evidence establishing that such notings ever translated into actual transactions.

The learned counsel further invited our attention to the various statements recorded during the course of survey as well as

It was further contended that notwithstanding the extensive powers available to the Revenue during and after search proceedings under sections 131, 131(1A), 132(4) and 133(6) of the Act, not a single meaningful enquiry was undertaken from any of the purchasers whose complete identity, addresses and Permanent Account Numbers were admittedly available on record. None of the alleged purchasers was examined to ascertain whether any amount over and above the registered sale consideration had actually been paid. Likewise, no reference was made to the Departmental Valuation Officer for determining the fair market

Another significant circumstance highlighted on behalf of the assessee was that all the real estate projects in respect of which allegations of receipt of on-money have been made were admittedly completed only in the subsequent financial years, much after the search proceedings.

The learned counsel also submitted that even the loose papers themselves unmistakably record numerous instances where initial bookings had subsequently been cancelled. According to him, these cancellations completely demolish the theory propounded by the Assessing Officer that every figure appearing in the diaries necessarily represented actual receipt of on-money. It was submitted that detailed documentary evidences, confirmations and affidavits from several purchasers, including those whose bookings had subsequently been cancelled, were produced before the Assessing Officer as well as before the learned CIT(A). However, neither authority considered it necessary to verify the contents of these affidavits or to examine the concerned purchasers. It was argued that once affidavits had been placed on record, and the Revenue chose neither to cross-examine the deponents nor to make any enquiry whatsoever from them, the contents thereof remained unrebutted and could not simply be brushed aside. Reliance in this regard was placed upon the settled principle laid down by the Hon’ble Supreme Court in Mehta Parikh & Co. v. CIT (30 ITR 181), wherein it has been held that unrebutted affidavits cannot be discarded without undertaking appropriate enquiry or cross-examination.

The learned counsel further submitted that the assessee had consistently maintained before every authority that the figures reflected in the impugned diaries were merely tentative negotiations, proposed pricing structures and internal estimates prepared in connection with prospective sales, many of which never materialised in the form originally contemplated. It was emphasised that several entries also related to bookings which were eventually cancelled and the flats were thereafter sold to altogether different purchasers under duly registered agreements at values exceeding the prevailing Ready Reckoner rates. According to him, these surrounding circumstances themselves demonstrate that the impugned documents could never be treated as conclusive evidence of actual receipt of unaccounted consideration.

Proceeding further, the learned counsel assailed the very jurisdiction of the Assessing Officer to frame the impugned assessments by relying upon the approval granted under section 153D. Referring to the documents obtained under the Right to Information Act, it was submitted that the draft assessment orders pertaining to several assessment years of numerous assessees were placed before the Additional Commissioner of Income Tax on the very same day and approvals under section 153D were also accorded collectively on a single day, namely, 27.12.2019. It was submitted that such approval was ex facie mechanical, without independent examination of the voluminous assessment records and without application of mind. Reliance was placed upon the

The learned counsel also drew our attention to the factual position relating to the status of the assessments on the date of search. According to him, except for Assessment Years 2017-18 and 2018-19, all the earlier assessments had already attained finality and therefore constituted unabated assessments. It was submitted that in view of the law declared by the Hon’ble Supreme Court in Abhisar Buildwell Pvt. Ltd., no addition in respect of such completed assessments could have been made in the absence of incriminating material discovered during the course of search relatable to those assessment years. This aspect, according to him, goes to the very root of the jurisdiction exercised by the Assessing Officer.

It was further submitted that apart from the alleged additions on account of on-money, the Assessing Officer also made certain additions in Assessment Years 2017-18 and 2018-19 by treating cash deposits in bank accounts and credits appearing in the partners’ capital accounts as unexplained, although these

The learned counsel thereafter elaborated his submissions by taking us through the statement of Shri Hiren Bharani recorded under section 132(4) of the Act and contended that the said statement, when read in its entirety and in the proper factual

Developing the aforesaid contention, the learned counsel submitted that the disclosure of Rs.12 crores made by the assessee under the Income Declaration Scheme, 2016 had already been made on 29.09.2016, much prior to the search proceedings. Though the statutory scheme did not require the declarant to maintain or furnish any supporting records explaining the computation of the declared income, certain internal workings and rough compilations had nevertheless been maintained by the assessee only as a safeguard to explain the declaration, if ever called upon to do so. It was submitted that the documents now relied upon by the Department are nothing but such internal compilations prepared in connection with the IDS declaration. Therefore, the very premise adopted by the Revenue that these documents represented fresh incriminating evidence of undisclosed income entirely independent of the IDS declaration is factually incorrect.

The learned counsel further submitted that immediately after completion of the search proceedings, Shri Hiren Bharani realised that certain answers given during the course of his statement under section 132(4), without proper consultation with the accounts team and professional advisors, were capable of being misunderstood. Accordingly, at the earliest available opportunity, by letter dated 16.10.2017 addressed to the Commissioner of Income-tax (Investigation)-2, Mumbai, he unequivocally retracted the statement and clarified the true factual position. According to the learned counsel, this retraction was neither belated nor an afterthought, but was made within a few days of completion of the search itself. More importantly, the Revenue neither examined the correctness of the retraction nor brought any independent material on record to disprove the factual assertions contained therein. It was therefore submitted that the retracted statement, standing by itself and unsupported by any corroborative evidence, could not legally constitute the sole foundation for making additions running into several crores of rupees.

The learned counsel further invited our attention to the questions and answers forming part of the statement recorded under section 132(4) and submitted that the Assessing Officer has proceeded on the assumption that the impugned diaries constituted evidence of actual receipt of on-money without appreciating that even during the course of recording of the statement, the partner had consistently maintained that the

The learned counsel further submitted that although the Department has repeatedly asserted that independent evidence was discovered during the course of search establishing receipt of unaccounted cash, the record itself belies such assertion. It was pointed out that except for the impugned loose papers and compilations, no unexplained cash, jewellery, bullion, valuables, investment or other asset corresponding to the alleged on-money was found during the search. Likewise, no evidence regarding utilisation of such alleged cash receipts was unearthed. It was argued that where substantial unaccounted receipts extending over several assessment years are alleged, some corresponding trail of assets, investments, expenditure or cash ought ordinarily

The learned counsel also submitted that the Assessing Officer has ignored several inherent inconsistencies appearing from the very documents relied upon by him. It was pointed out that the diaries themselves record numerous cancelled bookings and transactions which admittedly never culminated into completed sales. Detailed statements correlating each booking, subsequent cancellation and eventual sale to different purchasers under registered agreements were furnished before the Assessing Officer as well as the learned CIT(A). Affidavits from several purchasers confirming that no cash payment had ever been made were also placed on record. However, neither authority considered it appropriate either to examine those purchasers or to verify the correctness of the affidavits. According to the learned counsel, once such evidence had been produced by the assessee, the burden shifted upon the Revenue to dislodge the same through proper enquiry. In the absence of any such exercise, the affidavits and confirmations could not simply be ignored.

It was further contended that the Assessing Officer has proceeded on the erroneous assumption that every figure appearing in the loose papers necessarily represented actual receipt of cash. Such an approach, according to the learned counsel, is contrary to settled principles governing appreciation of

The learned counsel also emphasised that all the sale transactions eventually culminated in duly registered conveyances executed for consideration which was not only fully disclosed in the books of account but was also higher than the prevailing Ready Reckoner value adopted by the Stamp Valuation Authorities. According to him, if the Department genuinely entertained a belief that the assessee had actually realised higher consideration than what was reflected in the registered documents, it was incumbent upon the Assessing Officer to conduct independent enquiries either by examining the purchasers, obtaining comparable sale instances or making a reference to the Departmental Valuation Officer. None of these elementary investigative steps was undertaken. Instead, the

Without prejudice to the above submissions, the learned counsel further argued that even assuming some tentative figures appearing in the loose papers represented expected sale prices, the same could not automatically establish receipt of income. It was submitted that in the real estate business, negotiations frequently undergo multiple revisions depending upon market conditions, stage of construction, furnishing requirements, location of the flat and bargaining between the parties. The booking forms relied upon by the Department were merely preliminary commercial documents prepared by sales representatives reflecting proposed negotiations and estimated package values. Significantly, some of those sheets also contained calculations relating to GST, stamp duty, registration charges and proposed furnishing, which itself demonstrates that they were merely working papers prepared during negotiations and not records evidencing actual receipt of undisclosed cash.

The learned counsel further submitted that the burden to establish understatement of consideration squarely lies upon the Revenue. Once the assessee produced the registered sale deeds, books of account, confirmations, affidavits and detailed reconciliation of bookings, cancellations and subsequent sales, the initial burden stood duly discharged. Thereafter it was incumbent upon the Assessing Officer to establish, through cogent and

In support of the aforesaid propositions, the learned counsel relied upon an extensive body of judicial precedents including the decisions of the Hon’ble Supreme Court, various High Courts and different Benches of the Tribunal laying down, inter alia, that: (i) a retracted statement unsupported by independent corroborative evidence cannot by itself justify an addition; (ii) registered sale deeds constitute the primary evidence of consideration unless disproved by reliable material; (iii) loose sheets and rough notings have little evidentiary value unless corroborated; (iv) the burden of proving understatement of consideration rests upon the Revenue; (v) presumptions under sections 132(4A) and 292C are rebuttable; and (vi) no addition can be sustained merely on the basis of unverified entries in loose papers without conducting proper enquiry from the concerned purchasers or other relevant persons. Reliance was placed upon, amongst others, K.P. Varghese v. ITO, Motors & General Stores (P.) Ltd., Mehta Parikh & Co., Radha Kishan Goel, Kailashben Manharlal Chokshi, Inder Lok Hotels (P.) Ltd., Dolphin Builders (P.) Ltd., Layer Exports (P.) Ltd., Rivera Properties (P.) Ltd., Shah Realtors, Excellent Land Developers (P.) Ltd., Kanakia Hospitality (P.) Ltd., Chander Mohan Mehta and the other authorities specifically cited before us.

The learned counsel thereafter addressed the additions made in Assessment Years 2017-18 and 2018-19 on account of cash deposits in the bank accounts. It was submitted that the deposits aggregating to Rs.55,00,000/- and Rs.76,50,000/- respectively were fully reflected in the regular books of account and originated from amounts already offered to tax in the audited financial statements. Detailed notes explaining the source of such deposits formed part of the audited accounts filed along with the returns of income. According to him, the Assessing Officer himself accepted the additional income disclosed in the books but, while simultaneously treating the consequential bank deposits as unexplained, subjected the very same income to tax once again, thereby resulting in impermissible double taxation.

The learned counsel similarly assailed the addition of Rs.1,31,50,000/- made towards alleged inflation of the partners’ capital accounts. It was submitted that this addition proceeds upon a complete misconception of the Income Declaration Scheme. The declaration under the IDS had already attained finality upon acceptance by the competent authority and issuance of Form-IV. The declared income was duly credited in the books by way of partners’ capital in accordance with accepted accounting principles. The subsequent deployment of such funds, whether by way of deposit into bank accounts, withdrawal by partners or utilisation in work-in-progress, was fully disclosed in the audited financial statements. Once the declaration under the IDS had

Per contra, the learned CIT-DR strongly supported the orders passed by the Assessing Officer as affirmed by the learned CIT(A). She submitted that the statement recorded under section 132(4) of Shri Hiren Bharani constituted a voluntary admission regarding receipt of unaccounted on-money and that the seized diaries and loose papers provided adequate corroboration to such admission. According to her, the subsequent retraction deserved little evidentiary value inasmuch as it was made after due deliberation and was unsupported by any convincing material. She accordingly submitted that the Assessing Officer was fully justified in drawing the inference that the assessee had received consideration over and above that disclosed in the registered sale deeds. However, during the course of hearing, the learned CIT-DR fairly accepted that no independent enquiry had been conducted from any of the purchasers and no reference had been made to the Departmental Valuation Officer for determination of the fair market value of the flats. She nevertheless submitted that the findings recorded by the Assessing Officer, read together with the material found during the search and the statement recorded under section 132(4), sufficiently justified the additions made in the impugned assessments.

We have carefully considered the rival submissions, perused the assessment records, the impugned appellate orders, the statements recorded during the course of survey as well as search, the seized material, the documentary evidence placed in the paper books and the judicial precedents relied upon by both the parties. The principal issue which arises for our consideration is whether the additions made by the Assessing Officer towards alleged receipt of on-money on sale of flats can legally be sustained merely on the basis of certain loose papers and the statement recorded under section 132(4) of the Act, or whether the Revenue has discharged the burden cast upon it by establishing, through cogent, reliable and independent evidence, that the assessee had in fact received consideration over and above what stood disclosed in the registered sale agreements. The answer to this question necessarily requires an examination of the nature of the material found during the search, the surrounding circumstances in which it came into existence and the extent to which such material stands corroborated by independent evidence.

Before adverting to the evidentiary value of the seized documents, one significant factual aspect emerging from the record deserves to be noticed. It is an undisputed position

The additions impugned before us substantially proceed on the footing that certain diaries, loose sheets and handwritten notings allegedly contained details of cash received by the assessee over and above the consideration

The explanation consistently put forth by the assessee, right from the assessment proceedings till the hearing before us, is that the documents relied upon by the Revenue were never maintained as books of account nor were they intended to record actual receipt of cash outside the regular books. According to the assessee, these papers constituted internal compilations and working sheets prepared in connection with the declaration made under the Income Declaration Scheme, 2016, for preserving the particulars and supporting calculations relating to the income voluntarily disclosed

The surrounding circumstances lend considerable support to the aforesaid explanation. It is an admitted position that long before the search action, the assessee had voluntarily declared undisclosed income of ₹12 crores under the Income Declaration Scheme, 2016. The declaration was accepted by the competent authority and culminated in issuance of Form-IV. Once such declaration attained statutory finality, the existence of supporting calculations, reconciliations or internal workings maintained by the declarant cannot, by itself, lead to an inference that the very same papers subsequently represent fresh undisclosed income outside the books of account. If the Revenue intended to draw such an inference, it was incumbent upon it to bring some independent material on record demonstrating that the entries contained in those papers actually culminated into receipt of consideration over and above what stood disclosed in the registered documents. Mere existence of rough notings or internal calculations, divorced from corroborative evidence,

In fact, when one carefully examines the approach adopted by the Assessing Officer, it becomes evident that the entire exercise proceeds on the assumption that every numerical entry appearing in the seized papers necessarily represented actual cash received by the assessee. Such an assumption, in our considered opinion, cannot be elevated to the status of a legal inference merely because the documents happened to be found during the course of search. Loose sheets, rough calculations or private notings undoubtedly constitute relevant material for initiating investigation. However, before they are treated as conclusive evidence giving rise to taxable income, their true nature has necessarily to be examined in the light of surrounding circumstances and tested on the touchstone of independent enquiry. Suspicion, however strong it may appear at the initial stage of investigation, cannot substitute proof where the statute contemplates assessment of real income based upon legally admissible evidence.

Another significant feature which weighs with us is the complete absence of any meaningful enquiry from the purchasers of the flats. The identity of every purchaser was

In our considered opinion, the omission on the part of the Revenue to examine even a single purchaser assumes far greater significance than what appears at first blush. The allegation of receipt of on-money necessarily postulates the existence of two identifiable participants to the transaction, namely, the payer and the recipient. While the Revenue has proceeded on the assumption that the assessee received consideration over and above the documented sale price, it has not brought on record any evidence from the other side of the transaction, namely, the purchasers themselves. The

Equally significant is the fact that no enquiry whatsoever has been undertaken regarding the prevailing market value of the properties sold by the assessee. It is not even the case of the Assessing Officer that the sale consideration disclosed in the registered agreements was below the stamp duty valuation or substantially below the prevailing market price. On the contrary, the material placed before us indicates that the consideration disclosed by the assessee was generally at or above the ready reckoner value prescribed by the Stamp Valuation Authorities. If the Revenue genuinely believed that substantial consideration had passed outside the registered documents, some independent exercise to ascertain the fair market value of the properties or to compare contemporaneous market transactions would ordinarily have been expected. No such exercise has been undertaken. The allegation of receipt of on-money has thus remained

The assessee has also produced before the authorities below detailed reconciliations, affidavits of several purchasers and documentary evidence demonstrating that many of the bookings reflected in the seized papers never culminated into completed sales and were subsequently cancelled. According to the assessee, the very same flats were thereafter sold to altogether different purchasers through duly registered sale deeds. The reconciliation showing cancellation of bookings and subsequent sale of the same units has not been shown by the Revenue to be factually incorrect. More importantly, despite such detailed explanation having been furnished, the Assessing Officer did not consider it necessary to verify the factual position from any of the concerned purchasers. Once the assessee had discharged its initial burden by placing contemporaneous documentary evidence on record, the burden shifted upon the Revenue to dislodge such evidence through proper enquiry. Mere rejection of the explanation without undertaking any verification does not satisfy the standard of investigation expected in a search assessment involving allegations of receipt of substantial unaccounted cash.

Much emphasis has been placed by the Revenue upon the statement of Shri Hiren Bharani recorded under section 132(4). There can be no quarrel with the proposition that a statement recorded during the course of a valid search constitutes an important piece of evidence. At the same time, it is equally well settled that such a statement cannot be read in isolation, divorced from the surrounding circumstances or from the subsequent explanation furnished by the maker thereof. It is an admitted position that within a short span after the conclusion of the search proceedings, Shri Hiren Bharani submitted a detailed retraction explaining the circumstances in which the statement had come to be recorded and clarifying the true nature of the seized documents in the backdrop of the Income Declaration Scheme. The Revenue has not brought on record any independent material demonstrating that the explanation furnished in the retraction is false or inherently improbable. The evidentiary value of a retracted statement necessarily depends upon the existence of reliable corroborative material. Where such corroboration is absent, the statement by itself cannot become the sole foundation for sustaining additions of the magnitude involved in the present case.

We also find considerable force in the submission of the learned Senior Counsel that if the allegation of receipt of

Another circumstance which also assumes relevance is that the occupation certificates relating to the projects under consideration were admittedly obtained much after several of the entries appearing in the seized papers. The assessee has demonstrated that substantial portions of the projects attained completion only during the subsequent financial years. This factual position has not been disputed by the Revenue. The Assessing Officer has proceeded on the

The statutory presumptions available under sections 132(4A) and 292C of the Act undoubtedly permit the Revenue to draw certain presumptions regarding the ownership and contents of documents found during the course of search. However, these presumptions are rebuttable in nature and do not dispense with the obligation of the Revenue to establish the true character of the entries once a plausible explanation supported by contemporaneous material has been furnished by the assessee. In the present case, the assessee has not merely offered a bald explanation but has supported it by placing on record the declaration made under the Income Declaration Scheme, the acceptance thereof by the

Viewed cumulatively, the factual matrix emerging from the record reveals that the impugned additions have essentially been founded upon isolated notings appearing in loose papers read with a statement which was retracted almost immediately after the conclusion of the search. Against this, there exists a consistent explanation supported by documentary evidence, an accepted declaration under the Income Declaration Scheme, absence of corroborative evidence, absence of enquiry from purchasers, absence of any financial trail and absence of any material demonstrating actual circulation or deployment of alleged unaccounted cash. When all these circumstances are considered together, it becomes difficult to uphold the conclusion reached by the authorities below merely on the basis of suspicion arising from certain private notings.

It is in the backdrop of the aforesaid factual and evidentiary position that the additions relating to alleged receipt of on-money require to be examined. We shall, therefore, now proceed to analyse the legal effect of the seized documents, the evidentiary worth of the statement recorded under section 132(4), the scope of the statutory presumptions available to the Revenue and the applicability of the judicial precedents relied upon by the parties before recording our final conclusions on the principal additions made in these appeals.

Before proceeding further, we may also observe that in search assessments involving allegations of receipt of unaccounted consideration, the evidentiary burden cannot be said to stand discharged merely because certain loose papers containing numerical figures have been found during the course of search. Such documents undoubtedly constitute a relevant piece of evidence and may furnish a valuable starting point for investigation. However, where the Revenue seeks to convert those notings into taxable income, particularly running into several crores of rupees, it is expected to demonstrate, through surrounding circumstances and independent evidence, that the entries recorded therein truly represent completed transactions and actual receipt of income. More so, where the alleged transactions pertain to

In the present case, the entire assessment has proceeded on the premise that because certain figures appearing in the loose papers broadly correspond to particular flats, every such figure necessarily represents receipt of cash over and above the consideration disclosed in the registered documents. Such an approach, in our considered opinion, overlooks an equally important aspect, namely, that real estate transactions ordinarily pass through several stages before ultimately culminating into execution of a registered agreement. Initial negotiations, tentative price discussions, token bookings, proposed revisions, cancellations and re- bookings are common incidents in such business. Unless the Revenue establishes that the figures recorded in the loose papers were actually translated into completed monetary transactions, it would be wholly unsafe to infer that every entry necessarily represents taxable income accrued or received by the assessee.

The material placed before us, on the contrary, indicates that a substantial number of entries relied upon by the Assessing Officer related to bookings which admittedly did not culminate into completed sales. The assessee has produced detailed reconciliations demonstrating that several proposed purchasers either withdrew from the transactions or cancelled their bookings and that the very same units were thereafter sold to different purchasers under duly registered sale deeds. The authorities below have neither demonstrated that the reconciliation furnished by the assessee is factually incorrect nor undertaken any verification to establish that despite cancellation of such bookings, the alleged cash component had nevertheless been received and retained by the assessee. In the absence of such enquiry, the inference drawn by the Assessing Officer remains unsupported by any independent factual foundation.

Another aspect which considerably weakens the Revenue’s case is the complete absence of any financial trail. If, as alleged, the assessee had received substantial amounts by way of on-money over a period of time, the existence of some corresponding evidence indicating retention, utilisation or deployment of such cash would ordinarily have surfaced during the course of an extensive search operation. The Revenue, however, has not pointed out discovery of any

We also find that the approach adopted by the Assessing Officer proceeds on an inherent contradiction. On one hand, it is alleged that the assessee had systematically received huge amounts of cash outside its books over several years; on the other hand, neither the search proceedings nor the subsequent investigation have yielded any tangible evidence reflecting accumulation or utilisation of such alleged receipts. It is difficult to reconcile these two positions in the absence of any supporting material. While it may not always be possible for the Revenue to trace every rupee allegedly received outside the books, where additions of this magnitude are proposed solely on the basis of private notings, the existence of at least some corroborative circumstances establishing the flow of funds assumes considerable importance. Such corroboration is conspicuously absent in the present case.

We may now advert to the evidentiary value of the statement recorded under section 132(4). It is well settled that an admission constitutes an important piece of evidence, but equally well settled is the principle that an admission is not conclusive and its evidentiary value must necessarily be examined in the light of the surrounding facts and attending circumstances. A statement recorded during the course of search undoubtedly carries considerable evidentiary weight; nevertheless, where such statement is subsequently retracted by furnishing a detailed explanation and the retraction is supported by contemporaneous documentary material, the authorities are under an obligation to examine the correctness of such explanation through independent investigation. The statement cannot be viewed in isolation by ignoring all other surrounding circumstances emerging from the record.

In the present case, the retraction made by Shri Hiren Bharani was not an afterthought introduced for the first time during appellate proceedings. The explanation regarding the nature of the documents and their connection with the Income Declaration Scheme was furnished immediately after completion of the search proceedings. Significantly, the Revenue has not undertaken any investigation to

We are equally unable to accept the proposition canvassed on behalf of the Revenue that the statutory presumptions available under sections 132(4A) and 292C dispense altogether with the requirement of independent verification. Those provisions undoubtedly enable the Revenue to presume that the documents found during search belong to the person from whose possession they were seized and that their contents may be presumed to be true. However, these presumptions are rebuttable and cannot be stretched to mean that every figure recorded on a loose sheet automatically represents taxable income. Once the assessee has furnished a plausible explanation supported by contemporaneous documentary evidence, the statutory presumptions stand effectively rebutted and the burden shifts upon the Revenue to establish the contrary by conducting

The cumulative effect of the evidence placed before us also demonstrates that the authorities below have proceeded by considering isolated pieces of material while overlooking the entirety of the factual matrix. The declaration under the Income Declaration Scheme, its acceptance by the Department, the internal nature of the compilations, the reconciliations of bookings, the affidavits furnished by purchasers, the registered sale deeds, the ready reckoner values, the absence of any enquiry from purchasers and the absence of any financial trail have all been viewed by the authorities below in isolation rather than as parts of one integrated factual narrative. Appreciation of evidence in a search assessment cannot proceed in such a fragmented manner. Every circumstance has to be examined collectively to ascertain whether the Revenue has succeeded in establishing the charge of undisclosed income.

There is yet another aspect which deserves mention. The additions in the present case have essentially been founded upon certain diaries, loose sheets and handwritten notings recovered during the course of survey/search. It is by now

Applying the aforesaid principles to the facts of the present case, we find that the Revenue has failed to bridge the crucial evidentiary gap between the entries appearing in the seized papers and the alleged receipt of on-money. No purchaser has confirmed payment of any cash. No financial trail has been established. No corresponding asset, investment or unexplained expenditure has been discovered. No independent enquiry has been undertaken to verify

It is equally a settled principle that although proceedings arising out of a search carry with them certain statutory presumptions, the ultimate assessment must nevertheless rest upon evidence capable of establishing undisclosed income with reasonable certainty. The jurisdiction to assess undisclosed income consequent upon a search is undoubtedly wide; however, it is not unbridled. The statutory presumptions embodied in the Act are intended to facilitate investigation, but they do not dispense with the fundamental requirement that additions must ultimately be founded upon

Having considered the entire material placed before us in its proper perspective, we are of the considered opinion that the Revenue has failed to establish, by cogent and independent evidence, that the assessee had actually received any consideration over and above what stood disclosed in the registered sale agreements. The additions ultimately rest upon an inferential interpretation of certain loose papers coupled with a statement which was retracted immediately thereafter and which has remained unsupported by any independent corroborative material. The elementary investigative steps which could have lent credibility to the Revenue’s case, namely verification from purchasers, examination of market values, tracing of the financial trail or

We, therefore, hold that the seized loose papers, in the peculiar facts of the present case, constitute no more than a circumstance warranting investigation. They do not, by themselves, constitute conclusive evidence of receipt of undisclosed income. Once the explanation furnished by the assessee remained substantially uncontroverted and the Revenue failed to bring on record any independent material to establish actual receipt of on-money, the additions made by the Assessing Officer cease to have an adequate evidentiary foundation. Consequently, the findings recorded by the learned CIT(A), being entirely dependent upon the same material and reasoning, also cannot be sustained.

Accordingly, considering the entirety of the facts and circumstances discussed hereinabove, we hold that the additions made by the Assessing Officer towards alleged receipt of on-money on sale of flats are unsustainable both on facts as well as in law. The Assessing Officer is, therefore, directed to delete the additions made on this account in all the assessment years under consideration.

Since the assessee succeeds on the principal issue on merits and the additions constituting the substantive subject matter of these appeals have been directed to be deleted, we do not consider it necessary to adjudicate the remaining legal grounds relating to the validity of the approval under section 153D, the challenge founded upon the alleged non- compliance with the CBDT Circulars relating to Document Identification Number (DIN), denial of opportunity of cross- examination and the other jurisdictional grounds raised before us. The said grounds are, therefore, left open and are treated as not requiring adjudication, being academic in the peculiar facts and circumstances of the present case. We shall now proceed to examine the remaining additions relating to the cash deposits during the demonetisation period and the addition towards alleged unexplained partners’ capital, which arise on an altogether distinct factual footing and require independent consideration.

We shall now advert to the remaining additions which are independent of the issue relating to the alleged receipt of on- money. These additions pertain to (i) cash deposited by the assessee in its bank accounts during the demonetisation period in Assessment Years 2017-18 and 2018-19; and (ii) the addition made towards alleged unexplained partners’

The Assessing Officer observed that the assessee had deposited cash aggregating to ₹55,00,000/- during the period relevant to Assessment Year 2017-18 and ₹76,50,000/- during the period relevant to Assessment Year 2018-19. According to the Assessing Officer, the assessee had failed to satisfactorily explain the source of these deposits and, accordingly, the said amounts were treated as unexplained and brought to tax. The learned CIT(A), while affirming the additions, substantially concurred with the reasoning adopted in the assessment orders.

Before us, the learned Senior Counsel submitted that the authorities below have proceeded on an erroneous appreciation of the facts. Inviting our attention to the audited financial statements, ledger accounts and the notes forming part thereof, he submitted that the cash deposited in the bank accounts did not represent any unexplained receipt but constituted business cash already forming part of the regular books of account. It was explained that during the relevant

We have carefully examined the material placed before us. We find considerable force in the submissions advanced on behalf of the assessee. The audited books of account clearly disclose the business receipts from which the cash deposits have been explained. Significantly, the Assessing Officer has neither rejected the books of account nor disputed the accounting treatment accorded to the underlying receipts. There is also no finding that the receipts themselves constituted undisclosed income. Once the source of the cash stands duly reflected in the regular books maintained in the

We also find that these additions do not arise from any incriminating material unearthed during the course of search. They have merely been made by drawing an adverse inference from the entries appearing in the regular books of account and the corresponding bank statements. The source of the deposits having been satisfactorily explained from the disclosed books and no discrepancy therein having been established by the Revenue, the additions, in our considered opinion, lack any factual or legal basis. We, accordingly, direct the Assessing Officer to delete the addition of ₹55,00,000/- made in Assessment Year 2017-18 and the addition of ₹76,50,000/- made in Assessment Year 2018-19.

We shall now consider the addition of ₹1,31,50,000/- made in Assessment Year 2017-18 towards alleged unexplained partners’ capital. The Assessing Officer noticed that corresponding entries had been passed in the partners’

The learned Senior Counsel submitted that the entire addition proceeds on a complete misconception of both the factual as well as legal position. He pointed out that the declaration of ₹12 crores under the Income Declaration Scheme, 2016 had been voluntarily made by the assessee, accepted by the competent authority and had attained finality upon issuance of Form-IV. Consequent upon such acceptance, the declaration necessarily had to be given effect to in the books of account and the corresponding accounting entries were passed by crediting the partners’ capital accounts. It was further explained that part of the declared cash was subsequently deposited into the regular bank accounts, whereas the remaining amount had already been utilised in the ordinary course of the assessee’s business prior to demonetisation, including expenditure incurred towards the ongoing real estate projects, all of which stood duly reflected in the work-in-progress, the audited financial

Upon a careful consideration of the rival submissions and the material available on record, we find ourselves in agreement with the explanation furnished by the assessee. It is an admitted position that the declaration made under the Income Declaration Scheme has been accepted by the Department and has attained finality under the statutory scheme. Once such declaration stood accepted, the consequential accounting entries passed for incorporating the declared income into the regular books of account cannot be viewed in isolation so as to infer introduction of unexplained capital. The Assessing Officer has neither questioned the validity of the declaration nor disputed its acceptance under the statutory scheme. Likewise, no material has been brought on record to establish that the accounting treatment accorded by the assessee or the utilisation of the declared funds, as reflected in the audited financial statements, is factually incorrect. The entire addition thus proceeds merely on assumptions without any supporting evidence.

We also find considerable merit in the submission that the Income Declaration Scheme did not envisage that the declarant must continue to physically retain the declared cash till any future date. The declaration pertained to undisclosed income of earlier years, and once the same stood accepted under the statutory scheme, the assessee was fully entitled to deploy or utilise such funds in the ordinary course of its business. The audited books of account clearly demonstrate the manner in which the declared amount stood incorporated into the financial statements and utilised thereafter. In the absence of any material to establish that the explanation so furnished is incorrect, there remains no legal justification for treating the consequential accounting entries in the partners’ capital accounts as unexplained. The impugned addition, therefore, cannot be sustained.

We accordingly direct the Assessing Officer to delete the addition of ₹1,31,50,000/- made towards alleged unexplained partners’ capital in Assessment Year 2017-18.

In view of our foregoing discussion, the additions made on account of alleged receipt of on-money, the additions relating to cash deposits during the demonetisation period and the addition made towards alleged unexplained partners’ capital are all directed to be deleted. Consequently, the impugned orders passed by the learned CIT(A), to the extent they sustain the

In the result, all the appeals preferred by the assessee for Assessment Years 2014-15 to 2018-19 stand allowed.