SHRI MAHAVIRSINH D. JADEJA, PROP. OF P.M. PRODUCTS,,RAJKOT-GUJARAT vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2,, RAJKOT-GUJARAT

आदेश / O R D E R

PER MAHAVIR PRASAD, JUDICIAL MEMBER:

The captioned appeals have been filed at the instance of the Assessee against the separate orders of the Commissioner of Income Tax (Appeals)–IV, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)- IV/328-R/CC-2/09-10 dated 19/01/2011 & 07/10/2013 arising from the assessment order(s) passed under s.153A of the Income Tax Act, 1961(hereinafter referred to as "the Act") dated 30/12/2009 relevant to Assessment Year (AY) 2007-08 & 2008-09 respectively.

IT(ss)A No.3/RJT/2011, ITA No.116/RJT/2011, IT(ss)Nos.36 & 37/RJT/2013 Shri Mahavirsinh D.Jadeja vs. ACIT Asst.Years – 2007-08 & 2008-09 - 2 - 2. Out of these four appeals, IT(ss)A No.03/Rjt/2011 for AY 2007- 08 and ITA No.116/Rjt/2011 for AY 2008-09 are cross-appeals for quantum proceedings and remaining two appeals, i.e. IT(ss)A Nos.36 & 37/Rjt/2013 for AYs 2007-08 & 2008-09 are for penalty proceedings u/s.271(1)(c) of the Act.

“(4) During the course of search at the premises of one Shri Jayantibhai J Tanti and cash of others Rs.88,51,500/- was found. During the course of search, Shri Jayantibhai Jagabhai Tanti vide answer to question No.17 of his statement dated 30-05-2007, admitted that out of the sum of Rs.88,51,500/-, a sum of Rs.87,49,500/- belongs to his father-in-law Shri Keshubhai Nanjibhai Korat. Accordingly, summons u/s. 131 (1A) was issued to Shri Maheshbhai

IT(ss)A No.3/RJT/2011, ITA No.116/RJT/2011, IT(ss)Nos.36 & 37/RJT/2013 Shri Mahavirsinh D.Jadeja vs. ACIT Asst.Years – 2007-08 & 2008-09 - 3 - Keshubhai Korat, son of Shri Keshubhai Korat, to examine the veracity of the statement given by Shri Jayantibhai Tanti. Shri Maheshbhai Keshubhai Korat was also examined on oath and was asked to explain the source of Rs.87,49,500/-, which was lying at the residence of Shri Jayantibhai Tanti. Shri Maheshbhai Korat, son of Keshubhai, vide answer to Question No.5, stated that land admeasuring 2 acre 8 guntha which was in the name of his father was sold for a sum of Rs.1,65,00,000/- to the assessee. It is seen that the total sale consideration of the above mentioned land at survey No 87/1 was decided at Rs.75,00,000/- per acre, amounting to Rs.1,65,00,000/- out of which advance of Rs.50,00,000/- was paid as per the agreement to sale dated 23.2.2007 (Relevant to AY 07-08) and receipt was made in the name of one Shri Vinubhai Sakaria, a person who works as site supervisor in construction firm. Moreover, on the same date, the agreement'to sale dated 23.2.2007 was also; made in the name of Shri Vinubhai Sakaria which was registered with Sub-registrar, Zone No 2, (Registration No. 2928) for a sum of Rs.3,50,000/-. Thus on the same date two agreements has been made for the sale of same land with the same person one disclosing the sale value at Rs.1,65,00,000/-and the other showing value of only Rs.3,50,000/-. Generally this modus operand! of on money payment of transacting on money payment is followed in land transactions. Finally, this land was sold by Shri Keshubhai Nanjibhai Karat to the assessee on 19/05/2007. The final sale deed was prepared only for Rs.3,51,000/- vide sale deed No. 092644 dtd.'19/05/2007. Shri Keshubhai also produced a copy of one notarized receipt dated 23.2.2007 before the Investigation Wing, wherein it is clearly mentioned that the property is 1.65 crores and that Rs.50.00 lac is received as advance. Another interesting feature is that Shri Vinodbhai Valjibhai Sakaria who had initially purchased the above land by executing an agreement to sale has now become one of the two witnesses who had signed the final sale deed. Thus, it became clear that this particular land was clandestinely transferred with minimum documented price. Since, the above land was sold by Shri Keshubhai Nanjibhai Korat, therefore, he was also examined on oath and his statement dated 26/06/07 was recorded by the Investigation Wing during the course of search relevant proceedings. In this statement, he confirmed that the said land was sold for Rs.1,65,00,000/- and he also produced copy of sale deed to describe the name and address of the purchaser. Interestingly, Shri Keshubhai Korat was never assessed to tax. Later on, the assessee was also confronted this matter and asked to explain the source of investment of Rs. 1.65 crore in the purchase of above property. However, vide Q No.3 to 7 of his statement dated 25-07-2007, he vehemently denied investment to the tune of Rs.1.65 crores but reiterated that he had purchased the property only for Rs.3,51,000/-. He further

IT(ss)A No.3/RJT/2011, ITA No.116/RJT/2011, IT(ss)Nos.36 & 37/RJT/2013 Shri Mahavirsinh D.Jadeja vs. ACIT Asst.Years – 2007-08 & 2008-09 - 4 - submitted during the course of search that, he does not know Shri Vinubhai Valjibhai Sakaria. Interestingly, if he did not know Shri Vinubhai Valjibhai Sakaria, then how did the signature of Shri Vinubhai Sakariya appear as witness in the final sale deed as the witness of the assessee himself? In fact there were two witness who has signed in the final sale deed, one being Shri Mahesh Karat the son of Shri Keshubhai Korat as witness of the seller and the other was Shri Vinubhai Sakariya as witness of the purchaser i.e. the assessee himself.

(4.1) During the course of assessment proceedings, on verification of the return filed by Shri Keshubhai Karat, who is aged around 80 years, and a farmer by profession, it was noticed that he had worked out capital gain on the sale of the said land and offered capital gain to the extent of Rs.1,59,49,OOO/- . This is the same agricultural land sold by him to the assessee, which has been denied by the assessee. The return of income, statement recorded u/s. 132(4) and the agreement to sale found during the course of search of Shri Keshubhai Karat is witness to the fact that the source of cash is from the sale of agricultural land belonging to Shri Keshubhai Karat. Hence, on one hand Shri Keshubhai is admitting the fact that the source of cash is land sold by him to the assessee and he is offering capital gain on the same whereas on the other hand, the assessee is admitting that the land purchased by him is only to the tune of Rs.3,51,000/-. If sales consideration of Rs 1.65 crores becomes capital gain for Shri Keshubhai, then simultaneously the same amount becomes investment of the purchaser. The modus operand! adopted in the transaction to camouflage and conceal the actual transfer consideration by preparing two simultaneous agreement to sale on one single date for different considerations proves the clandestine nature involved therein. The assessee is the actual purchaser of the land and the actual purchase consideration was also established at Rs 1.65 crores. It is also incredible to believe, land admeasuring more than two acres, situated within 8 kilometers of the Rajkot city would fetch only Rs 3.51 lakhs. In fact in the case of one of the assessee of this Circle, Shri Kamlesh Mehta who is assessed with this Circle, having PA No. ACKPM 9144 R, residing at 'Amita' 1 Bhaktinagar Station Plot, Rajkot ' for AY 2004-05, 2005-06 and 2006-07, whose land situated in a nearby locality (near Kothariya) where the assessee's land is situated, had shown the sale consideration at Rs.1250/- per sq meter, which comes to Rs.50,00,000/- per acre. In fact, the addition made on account of capital gain has been sustained by the Ld. CIT(A)-IV, Ahmedabad passed vide order No. CIT(A)IV/179.R/CC- 2/08-09 dated 27.11.2008 (AY 06-07).

IT(ss)A No.3/RJT/2011, ITA No.116/RJT/2011, IT(ss)Nos.36 & 37/RJT/2013 Shri Mahavirsinh D.Jadeja vs. ACIT Asst.Years – 2007-08 & 2008-09 - 5 -

(4.2) Another reason to hold that the agsessee has adopted a shrewd method to transfer land in his name by understating the sales consideration is established by the fact that, Shri Vinubhai Sakaria, who was the beneficiary in one of the agreement to sale deed, incidentally and surprisingly became the .witness to the finaj sale deed as the witness of the assessee. Thus, the assessee's intention in preparing two agreements to sale was to coyer up the legal hurdles, as also to ensure that after paying advance, Shri Keshubhai Karat does not turn away from the-deal. So by preparing two agreements to sale, the assessee was successful in hitting two birds with one stone.

(4.3) It is also seen from the return of income filed by the assessee that, the assessee has not recorded this transaction in his books at all. Therefore it is amply established that the intention of the assessee was to conceal the deal even on the registered value. It is only due to the proactive search action of the department and when substantial cash was found, did the matter come to light. Therefore, the cash undoubtedly represents the sale proceeds and that the assessee has made investment to the tune of Rs 1.65 crores, which is unexplained in the hands of the assessee. Two issues arise at this stage, that is;

a. Who is the actual purchaser of the property, whether the assessee (party to one agreement to sale) or Shri Vinubhai Sakaria (party to another agreement to sale) and b. What is the actual sale consideration (whether documented price of Rs 3.51 lacs or price as per notarized money receipt of Rs 1.65 crores).

(4.4) It therefore became imperative to establish the role of Shri Vinubhai Sakaria in the deal, who happens to be one of the party to the deal (agreement to sale) and then became witness in the final agreement. From his statement it is clear that he is a man of no means and earns his livelihood by working as a supervisor in a construction firm, having income of around Rs. 10,0007-. He was asked as to whether he knows Shri Keshubhai Korat or Shri Mahavirsinh Jadeja (assessee), which he denied. He also denied to have struck any land deal and expressed complete ignorance when the notarized cash receipt was shown to him. It is therefore established that Shri Vinubhai Sakaria is merely 8 name lender and he is not a party to deal.

(4.5) Since the assessee has also denied investment to the tune of Rs.1.65 crores, therefore, it became necessary to cross examine the assessee and Shri Keshubhai Korat. During the course of cross examination, Shri Keshubhai

IT(ss)A No.3/RJT/2011, ITA No.116/RJT/2011, IT(ss)Nos.36 & 37/RJT/2013 Shri Mahavirsinh D.Jadeja vs. ACIT Asst.Years – 2007-08 & 2008-09 - 6 - Korat was specifically asked to explain the cash found from the residence of Shri Jayantibhai Tanti, his son-in-law. He admitted that, the cash found was proceeds from the sale of the impugned land. He was also asked to identify the assessee, for which he admitted that, the cash was given to him at night and he could 'lot properly identify the assessee. This version may hold true because, Shri Keshubhai Korat is a man of 80 years of age and he is having problem with his eye sight and hearing.

(4.6) At this stage, another interesting argument which was raised by the AR of the assessee during the course of assessment proceeding was that, it is possible that the said cash may represent the income of Shri Keshubhai Korat, and he, in order to mitigate his tax liability by offering capital gain and getting immunity from penalty would be casting it upon the assessee. However, this argument fails to survive on two grounds.

(i) Shri Keshubhai is a farmer and the land in question has been received by him as inheritance. There is nothing in the seized materials which reveal that Shri Keshubhai had any source which would generate such huge amount of cash. Further since Shri Keshubhai's only source was. agricultural income, which is exempt in any case, and thus, there would have been no liability upon him to disclose the same. Further, it is also seen from the return of Shri- Keshubhai that, in the working of capital gain, Shri Keshubhai, after indexation, had shown capital gain to the extent of around 1.60 crores. So far as penalty is concerned, since the same accrued only in this year (that is the search relevant AY), and as due date for filing of return was still due, there, is no question of initiating penalty proceedings. Therefore the argument of the Id. AR of the assessee that this cash may represent the unaccounted income of Shri Keshubhai Korat, is laid to rest.

(ii) The second limb that negates the Id. AR's argument is that, if the theory of 'Income from other sources' comes into play,.then the .quantum of undisclosed income would not be Rs.1.65 crores but only to the extent of the seized cash i.e., Rs.88,51,500/-. The amount of Rs 1.65 crores comes into play only if the sale of property comes into question. If Shri Keshubhai would have adopted a strategy to show the seized cash as his unaccounted income, then the tax effect would have been roughly 30% of Rs 88.51 lacs, which would have worked out to Rs 26.55 lacs. Against this, by showing it as capital gain and after working out indexation, the gain offered is Rs 1.60 crores, which resulted in tax of more than Rs.32 lacs. Therefore, had it been income from other sources, Shri Keshubhai would have ended up in paying 25% lesser tax. He did not do so

IT(ss)A No.3/RJT/2011, ITA No.116/RJT/2011, IT(ss)Nos.36 & 37/RJT/2013 Shri Mahavirsinh D.Jadeja vs. ACIT Asst.Years – 2007-08 & 2008-09 - 7 - because he chose to hold to what is truth, though at the cost of paying more tax. He himself brought the notarized money receipt to the search authorities during the course of search itself and made statement to the effect that the cash represents sale consideration only. The statement was spontaneous, consistent and supported by evidence. Therefore, the AR's argument has no logical end and an attempt to prove it as his unaccounted income from other sources would be ethically unsound.

(4.7) During the course of cross examination, when the assessee was asked to conform the statement of Shri Keshubhai, he denied and stated that, he had not given any consideration over and above the documented price.

(5.0) In case of civil law the existence of a fact is proved by the theory of preponderance of probability on the basis of the documents found and the circumstantial evidences. Whereas in; the criminal law a fact is to be proved on the theory of beyond reasonable doubt. Income tax law is a civil law and therefore existence of a fact is to be proved by the theory of preponderance of probability on the basis of the documents found and the circumstantial evidences. This principle of preponderance of probability and circumstantial evidences to be considered to determine a fact for the purpose of implementation of taxation law, has been upheld by the Hon'ble Supreme Court in the case of Sumati Dayal Vs. CIT 214 ITR 801(SC). In the case of Rajiv Tandon Vs CIT Reported in 294 ITR 458 (Delhi), the Hon'ble Delhi Court has observed that Taxation authority needs to look into the circumstantial evidence and if circumstances are unusual or unnatural then the theory based on the unusual or unnatural circumstances is to be rejected. In this case on the basis of circumstantial evidences and theory of preponderance of probability it has been proved by the discussion in earlier paragraphs that the assessee has paid Rs. 1,65,00,0001- for purchase of the land.

(5.1) From the above discussion, it is clear that one agricultural land has been transacted and one party had offered and paid capital gain on the same. The second party (i.e. the assessee) though conceding that the transaction did take place (which is duly registered), has however denied to quantum of the deal. Since cash has been found from the possession of the seller Shri Keshubhai (from the possession of his son-in-law) and as a money receipt duly notarized and registered has been found, in which the deal size has been mentioned at Rs.1.65 crores, therefore, it is amply established that the actual sale consideration of Rs.1.65 crores have been met from the assessee's unaccounted

IT(ss)A No.3/RJT/2011, ITA No.116/RJT/2011, IT(ss)Nos.36 & 37/RJT/2013 Shri Mahavirsinh D.Jadeja vs. ACIT Asst.Years – 2007-08 & 2008-09 - 8 - sources. Further, as the assessee . has not even recorded the transaction in his books even at the registered sale deed value of Rs.3.51 lakhs, the books of the assessee is not reliable and they are liable to rejection. (6.0) In view of the above discussion, an addition of Rs.1.65 crores is made to the total income of the assessee being his unexplained investment in purchase of -land situated at 87/1, Vavdi. Out of this amount Rs.50,00,000/- has been paid as advance on 23.2.2007 and the balance of Rs. 1,15,00,000/- has been paid on 19.5.2007. Therefore Rs. 50,00,000/- is being treated as unaccounted investment by way of making advance payment for purchase of land from undisclosed sources in the Assessment year 2007-08 and the balance Rs.1,15,00,000/- is being treated as unaccounted investment by way of making payment on the date of sale for purchase of land from undisclosed sources in the Assessment year 2008-09. I am convinced that the assessee has concealed the particulars of his income and therefore, penalty proceedings u/s.271(1)(c) has been separately initiated.”

8.1. A search took place at the residential premises of one Shri Jayantibhai Jagabhai Tanti and cash of Rs.88,51,500/- was found. During the course of search, Shri Jayantibhai Jagabhai Tanti vide answer to question No.17 of his statement dated 30/05/2007 admitted that out of the

IT(ss)A No.3/RJT/2011, ITA No.116/RJT/2011, IT(ss)Nos.36 & 37/RJT/2013 Shri Mahavirsinh D.Jadeja vs. ACIT Asst.Years – 2007-08 & 2008-09 - 9 - sum of Rs.88,51,500/-, a sum of Rs.87,49,500/- belongs to his father-in- law Shri Keshubhai Korat. Accordingly, a summons u/s.131(1A) was issued to Shri Maheshbhai Keshubhai Korat, son of Shri Keshubhai Korat, to examine the veracity of the statement given by Shri Jayantibhai Tanti. Shri Maheshbhai Keshubhai Korat was also examined on oath and was asked to explain the source of Rs.87,49,500/-, which was lying at the residence of Shri Jayantibhai Tanti. Shri Maheshbhai Korat, son of Keshubhai vide answer to Question No.5, stated that land admeasuring 2 acres 8 gunthas which was in the name of his father was sold for a sum of Rs.1,65,00,000/- to the assessee. It is seen that the total sale consideration of the above mentioned land at survey No.87/1 was decided at Rs.75,00,000/- per acre, amounting to Rs.1,65,00,000/- out of which advance of Rs.50,00,000/- was paid as per the agreement to sale dated 23.2.2007 (Relevant to AY 2007-08) and receipt was made in the name of one Shri Vinubhai Sakaria. Moroever, on the same date, the agreement to sale dated 23/02/2007 was also made in the name of Shri Vinubhai Sakaria which was registered with Sub-registrar, Zone No.2, (Registration No.2928) for a sum of Rs.3,50,000/-. The final sale deed was prepared only for Rs.3,51,000/- vide sale deed No.092644 dated 19/05/2007 by Shri Vinodbhai Valjighai Sakaria in favour of the assessee.

8.2. Now a question before us is that whether assessee has made payment of Rs.1.65 crores to the Keshubhai Korat or not. In this case, when the Department had carried out search at the premises of Shri

IT(ss)A No.3/RJT/2011, ITA No.116/RJT/2011, IT(ss)Nos.36 & 37/RJT/2013 Shri Mahavirsinh D.Jadeja vs. ACIT Asst.Years – 2007-08 & 2008-09 - 10 - Jayantibhai Jagabhai Tanti, from whose residence, cash to the tune of Rs.88,51,500/- was found. Shri Jayatibhai Jagabhai Tanti is also a business man and also engaged in various manufacturing activities. Thus, the cash was found from the premises of a third person not related to the deal i.e., the assessee or Shri Keshubhai Korat.

8.3. In this case, Department has taken the statement of not the seller but his son statement was recorded and statement of Shri Keshubhai Korat was recorded after almost one month from the date of search. If the land belonged to Shri Keshubhai Korat, then his statement ought to be made the prima facie evidence and not the statement of his son and order of the Ld.AO is having several contradictions. First of all, the so- called money receipt is unsigned and assessee had paid advance of Rs.50 lakhs, the money receipt ought to have been issued by Shri Keshubhai Korat to the assessee. However, in this case, money receipt was produced by Shri Keshubhai Korat to the Investigation Wing. This money receipt was not found from the possession of the assessee. In fact, transaction took place as per the finding narrated by the Assessing Officer in his assessment order, the money receipt ought to have been found from the possession of assessee.

8.4. The search at the premises of the assessee did not yield anything. No documents, money receipt, agreement, etc. was found which establishes that the assessee had paid a total consideration of Rs.1.65 crores to Shri Keshubhai Korat. During the course of cross-examination,

IT(ss)A No.3/RJT/2011, ITA No.116/RJT/2011, IT(ss)Nos.36 & 37/RJT/2013 Shri Mahavirsinh D.Jadeja vs. ACIT Asst.Years – 2007-08 & 2008-09 - 11 - Shri Keshubhai Korat had denied to have received cash from the assessee. The Assessing Officer however, sidelined this aspect by holding on the basis of whims and fancies that Shri Keshubhai Korat was aged and was having eye sight problem. In support of his contention, assessee cited a judgement of Hon’ble Jurisdictional High Court in the case of CIT vs. Fairdeal Textile Park (P.) Ltd. reported in 43 taxmann.com 393. The relevant portion of the order (Head Notes) reads as under:-

“Section 69B of the Income-tax Act, 1961 - Undisclosed investment (Investment in immovable property) - During search of assessee company, two agreement to sell were found, according to which cash payment was made by assessee for purchase of land for establishing a textile park - Assessing Officer found that there was huge difference between price of land shown in those agreements at Rs. 2.80 lakh per bigha and price shown in sale deeds related to those lands at Rs. 70,000 to 80,000 per bigha - Therefore, he concluded that there was huge on- money transaction and he added that differential amount in income of assessee as unexplained income - However, those agreements were claimed to be cancelled by executors of same - It was found that land had been originally agreed to be purchased through middleman but on realizing that middleman was trying to surreptitiously pocket huge amount of money, purchases were made directly from owners and original agreements for sell found in search were not at all implemented - Whether in absence of any other evidence of on-money payment, Tribunal was justified in deleting addition - Held, yes [Para 10] [In favour of assessee]”.

IT(ss)A No.3/RJT/2011, ITA No.116/RJT/2011, IT(ss)Nos.36 & 37/RJT/2013 Shri Mahavirsinh D.Jadeja vs. ACIT Asst.Years – 2007-08 & 2008-09 - 12 - High Court in the case of Fairdeal Textile Park (P.)Ltd.(supra) and in the absence of any clinching evidence, we give relief to the assessee and hold that in these circumstances addition cannot be sustatined.

Assessee’s appeal in ITA No.116/Rjt/2011 for AY 2008-09

IT(ss)A No.3/RJT/2011, ITA No.116/RJT/2011, IT(ss)Nos.36 & 37/RJT/2013 Shri Mahavirsinh D.Jadeja vs. ACIT Asst.Years – 2007-08 & 2008-09 - 13 - confirmed by the Ld.CIT(A). As a result, both the appeals of the assessee are allowed.

Sd/- Sd/- (WASEEM AHMED) (MAHAVIR PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 26/02/2019 ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-IV, Ahmedabad 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण,राजोकट/DR,ITAT, Rajkot 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, राजोकट / ITAT, Rajkot 1. Date of dictation ..26.2.19 (dictation-pad 18- pages attached at the end of this appeal-file)Date on which the typed draft is placed before the Dictating Member …27.2.2019 2. Other Member… 3. Date on which the approved draft comes to the Sr.P.S./P.S…………….. 4. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S…….26.2.19 7. Date on which the file goes to the Bench Clerk…………………26.2.19 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………