PRINCIPAL COMMISSIONER OF INCOME TAX-2 vs. KAMLESH PRAHLADBHAI MODI

C/TAXAP/331/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 331 of 2018 With R/TAX APPEAL NO. 332 of 2018 With R/TAX APPEAL NO. 333 of 2018 With R/TAX APPEAL NO. 334 of 2018 With R/TAX APPEAL NO. 335 of 2018 With R/TAX APPEAL NO. 336 of 2018 With R/TAX APPEAL NO. 337 of 2018 With R/TAX APPEAL NO. 339 of 2018 With R/TAX APPEAL NO. 344 of 2018 With R/TAX APPEAL NO. 345 of 2018 With R/TAX APPEAL NO. 359 of 2018 With R/TAX APPEAL NO. 360 of 2018 With R/TAX APPEAL NO. 361 of 2018 With R/TAX APPEAL NO. 363 of 2018 With R/TAX APPEAL NO. 364 of 2018 With R/TAX APPEAL NO. 365 of 2018 With R/TAX APPEAL NO. 367 of 2018 With R/TAX APPEAL NO. 368 of 2018 ========================================================== PRINCIPAL COMMISSIONER OF INCOME TAX-2 Versus KAMLESH PRAHLADBHAI MODI ========================================================== Appearance: MR MANISH BHATT, SR COUNSEL WITH MRS MAUNA M BHATT(174) for Page 1 of 9

C/TAXAP/331/2018 ORDER the PETITIONER(s) No. 1 MR SN SOPARKAR, SR COUNSEL WITH MR KIRTIKANT THAKER(2055) for the RESPONDENT(s) No. 1 MR. ARCHIT P JANI(7304) for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA

Date : 18/04/2018

ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. These tax appeals arise out of common orders passed by the Assessing Officer, CIT(Appeals) and the Tribunal. The Revenue   has   challenged   the   judgment   of   Income   Tax Appellate Tribunal dated 28.6.2017. 2. Tax appeal can be broadly classified into two sets. In first set of tax  appeals, Tax   Appeal No.331/2018 being the representative tax appeal, the Revenue has proposed the following question of law: “Whether the Income Tax Appellate Tribunal is right in law and on facts in deleting the addition made in respect of investment in land?” 3. The   other   set   of   tax   appeals,   Tax   Appeal   No.335/2018 being   the   lead   matter,     the   Revenue   has   proposed   the following question of law : “Whether the Income Tax Appellate Tribunal is right in law and on facts in deleting the addition made in respect of unaccounted income in the form of on­money from sale of shops at Himalaya mall?” Page 2 of 9

C/TAXAP/331/2018 ORDER 4. Between all these tax appeals, the Revenue has argued two issues before us. Before we take note of these issues, we may briefly record the background of the cases. 5. Respondent assessees are Kamlesh Prahladbhai Modi and his brother Rohit Prahladbhai Modi. They are engaged in the business of land development  and other real estate development  activities.  The  Revenue  refers  to   them  and their   entities   as   Himalaya   group   of   business.   Himalaya group   was   subjected   to   search   operation   on   22.4.2008 which   resulted   into   notices   being   issued   under   section 153A of the Income Tax Act 1961 for the assessment years 2003­2004 to 2008­2009. It appears that parallel search was also conducted in the premises of one Dasrath Patni. From the premises of Dasrath Patni, several loose papers were seized and impounded. These loose papers allegedly contained the details of various land transactions entered into by the assessees. These transactions could either be of buying   and   selling   of   land   in   and   around   the   city   of Ahmedabad. The Revenue also seized typed copies found from the premises of Dasrath Patni of the above earlier referred loose documents which were in handwritten. Major difference being that typed copies contained a description “PROJECTIONS”. 6. From the basis of documents seized from the premises of the assessees as well as from the premises of   Dasrath Patni,   the   Assessing   Officer   undertook   the   task   of ascertaining the assessees' cash transactions in such land deals. The assessees were confronted with two principal aspects. First was that in  many of these loose documents, Page 3 of 9

C/TAXAP/331/2018 ORDER there was reference to 'RP' , 'PD' and 'KM'. The assessees explained that 'RP' referred to Rohit P. Modi, 'PD'  referred to one P. Dubey and 'KM' referred to one K.Mehta. The assessees also conveyed to the Assessing Officer that the transactions recorded against the name of 'PD' and 'KM' were   the   assessees'   transactions.   These   persons   were involved for the purpose of registration of documents as they had the status of agriculturist and in State of Gujarat only   an   agriculturist   could   purchase   agricultural   lands. With   respect   to   handwritten   documents   and   the typewritten copies of such handwritten documents found from the premises of  Dasrath Patni, the assessees did not dispute either their connection with such land dealings or the contents of the documents. The principal defence of the assessees was that  in many of the cases referred to in these documents, the final deal of buying or selling of the lands   did   not   materialise   and   that   therefore,   projected profit did not result. 7. During   the   course   of   the   assessment   proceedings,   the assessees did disclose sizeable unaccounted cash receipts which was duly taxed. However, with respect to several land dealings the assessees contended that the final sales did not materialise and therefore, there was no on­money receipts by the assesses. This represents the first issue where   the   Tribunal   held   against   the   Revenue   which   is being argued before us. 8. The second issue that the Revenue has brought before us relates to the sale of commercial space in one Himalaya mall   situated   in   the   city   of   Ahmedabad.   The   Assessing Page 4 of 9

C/TAXAP/331/2018 ORDER Officer noted that the assessees had total saleable carpet area of 2,00,733 sq. ft., out of which the assessee had already sold 1,64,579 sq ft. Remaining area had remained unsold. Out of total carpet area sold by the assessee, the seized   documents   showed   on­money   receipts   in   sale   of 1,14,761   sq.   ft.   The   assessees   admitted   such   cash transactions. However with respect to the balance area of 49,818 sq. ft., the assessees claimed that no on­money was received in sale thereof. The Assessing Officer ignoring the assessees' objections  made the additions on par with the sale of the remaining commercial area in the said mall. CIT(Appeals)   deleted   the   said   additions.   The   Tribunal confirmed the view of the CIT(Appeals). This is the second issue the Revenue seeks to raise in these appeals. 9. With   respect   to   the   first   issue   we   may   notice   that   the Assessing Officer mainly proceeded on the following basis : 1)   That loose documents were found from the premises of Dasrath Patni. These handwritten loose documents tallied with the typewritten copies found from the same premises. 2)   The assessees owned up to their involvement in the land deals referred to in such documents. 3)   The assessees agreed that reference to 'PD' and 'KM' was of their dummies. 4)     In   the   land   dealings   in   which   the   assessees   had admitted   receiving   on­money   consideration,   similar transactions   were   found   from   the   same   set   of   papers. Page 5 of 9

C/TAXAP/331/2018 ORDER There   was   no   material   difference   between   two   sets   of papers. The assessees' defence that sales eventually did not take place cannot be accepted. 10. CIT(Appeals)   reexamined   the   issue   by   giving independent   reasons.   However   on   similar   factors,   he confirmed the additions, upon which, the assessee went in further appeal before the Tribunal. The Tribunal deleted the additions. The principal consideration which weighed to the Tribunal were as under : 1)  Documents were dumb documents. 2) They were not found from the premises of the assessee but from that of  Dasrath Patni. 3)   The typewritten copies of the handwritten documents carried a title “PROJECTIONS”. 4)  The assessees' contention that the land deals referred to in such documents did not materialise and, therefore, the projected income was not generated. 5)   The  Assessing  Officer  did not  dislodge  the evidence produced by the assessees in the form of affidavit of the proposed sellers of the land that eventually the land deals fell through. 11.As noted, the assessees themselves did not dispute their involvement in the land deals referred to in the documents found from the premises of   Dasrath Patni nor did they Page 6 of 9

C/TAXAP/331/2018 ORDER disown the reference to two persons 'PD' and 'KM'. In fact, they pointed out that these two dummies whose names would be used for registration of documents since they had status   of   agriculturist   and   in   the   State   of   Gujarat, agricultural   lands   could   be   brought   only   by   an agriculturist.  Thereafter however, the assessees sought to bifurcate two sets of deals. One where the land deals were completed and sales executed. In such set of cases, the assessees   accepted   receipt   of   on­money   in   the   eventual transactions. However, with respect to the rest of the deals, the assessees pointed out that they were merely proposed deals   and   documents   themselves   suggested   that   figures were on projected basis. There was nothing on record to suggest that the sale itself did eventually materialise. 12.We may take the case of Vejalpur land as a test case. CIT(Appeals)   has   also   recorded   that   for   such   land,   the assessees   had   paid   through   cheques   a   total   sum   of Rs.22,02,100/­     to   one   Sherin   Co.   Op.   Hsg.   Soc.   Ltd. during   the   period   between   28.7.2003   to   31.1.2005. CIT(Appeals) also noted that entire amount was repaid by Sherin Co. Op. Hsg. Soc. Ltd. in different cheques  during the period between 2.6.2005 to 5.12.2005. The Revenue did not have any further material to suggest that though the assessee might have exited from the land deal, Sherin Co. Op. Hsg. Soc. Ltd. had eventually sold the land to third party and in the process, the assessee had extracted its share   of   profit.   The   Tribunal   therefore,   accepted   the assessees'   contention   that   the   loose   documents   did   not refer to the actual receipt of on­money since the documents itself carried a title “PROJECTIONS” and further that the Page 7 of 9

C/TAXAP/331/2018 ORDER Assessing   Officer   had   nothing   to   discard   the   assessees' theory that these land deals did not eventually materialise. 13. Essentially   the   Tribunal   having   referred   to   the materials on record and come to factual conclusion, in our opinion, no question of law arises. 14.The second issue, we may recall,  pertains to the Assessing Officer making addition of projected on­money receipts by the  assessee  in sale of 49,929 sq.  ft.  of  carpet  area  of Himalaya mall. The Assessing Officer had projected the on­ money received by the assessee and duly admitted during the course of assessment proceedings for the remaining carpet area of commercial property in the Himalaya mall on the   basis   of   documents   found   during   search.   The assessees' defence was that not necessarily in all sales, premium  would   be  available.  49,929  sq.  ft.  carpet  area represented   the   shops   which   did   not   command   prime location. These shops were sold to the family members and in some cases to outsiders without charging any premium. The assessees pointed out that many of these shops were not tenanted thereby suggesting that these shops did not have ready income generating potential. CIT(Appeals) and the Tribunal both accepted the assessees' viewpoint. There was no concrete material suggesting that in the sale of remaining shops also, the assessees had accepted the on­ money. Merely because in rest of the sales, the assessees had admitted having received on­money, such admission cannot be projected for the remaining area where there was no such matching material found or admission made by the   assessees.   This   was   the   view   of   the   Tribunal. Page 8 of 9

C/TAXAP/331/2018 ORDER Significantly,   the   seized   material   did   not   include   any reference   of   on­money   with   respect   to   these   remaining shops. 15. This issue therefore, is virtually factual. CIT(Appeals) and   Tribunal  having   concurrently   held  in   favour  of  the assessees, we do not entertain this issue. 16. In the result all the tax appeals are dismissed. (AKIL KURESHI, J) (B.N. KARIA, J) raghu Page 9 of 9