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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI R.S. SYAL & SHRI S.S. VISWANETHRA RAVI
PER R.S.SYAL, VP :
These two appeals by the Revenue relate to the assessment years 2007-08 and 2008-09. Since a common and inter-woven issue is raised in these two appeals, we are, therefore, proceeding to dispose them off by this consolidated order for the sake of convenience.
2 ITA Nos.1066 & 1067/PUN/2011 Shri Rahul Chandrakant Shah
Briefly stated, the facts of the case are that a search action was
taken u/s. 132(1) of the Income-tax Act, 1961 (hereinafter called
‘the Act’) in Jadhav-Shah group of cases at Nashik on 08-02-2008,
of which the assessee is a part. During the course of search, certain
incriminating documents/material was found from the business and
residential premises of the assessee. Statement of the assessee was
recorded u/s.132(4) of the Act. The assessee was specifically asked
to explain the transactions of sale/purchase of lands noted in the
diaries and on loose papers, in response to which the assessee
submitted that all the transactions noted in the diaries and loose
papers pertained to him. Pursuant to notice u/s.153A of the Act, the
assessee furnished returns declaring total income of Rs.2,30,700/-
for the A.Y. 2007-08 and Rs.58,16,000/- for the A.Y. 2008-09. The
assessee had filed original return for the A.Y. 2007-08 declaring
total income of Rs.2,30,700/-. During the course of assessment
proceedings, the Assessing Officer (AO) observed that diaries and
loose papers found and seized during the course of search from the
residential premises of the assessee showed various notings and
cash payments received and paid on account of advances against
sale and purchase of various lands. Name of the persons from
whom such cash amounts were claimed to have been received by
3 ITA Nos.1066 & 1067/PUN/2011 Shri Rahul Chandrakant Shah
the assessee and also name of the persons to whom cash amounts
were claimed to have been paid, were not clearly borne out from
these documents at all the places. The AO observed that apart from
purchase and sale of properties, the assessee was also doing
purchase and sale of lands on commission basis for third parties.
During the course of assessment proceedings, the assessee produced
cash book and ledger written up to the date of search and it was
submitted that all the transactions and advances received and paid
on account of sale and purchase of land, noted in the diaries and
loose papers, were reflected in such books of account prepared after
the date of search. The AO noticed that the assessee credited total
cash of Rs.10,16,66,535/- on account of cash received as per the
seized documents giving the specifications of seized documents
only. Name of the persons from whom cash was received were not
mentioned in certain cases by the assessee in such cash book.
Similarly name of persons to whom such cash was paid were also
not mentioned in certain cases. Total of such cash paid over the
period 01-04-2001 to 08-02-2008 was to the tune of
Rs.10,16,60,973/-. Total cash credited for the A.Y. 2007-08 stood
at Rs.2,08,43,767/- and for the A.Y. 2008-09 at Rs.7,94,96,368/-.
The AO required the assessee to substantiate the receipts of cash by
4 ITA Nos.1066 & 1067/PUN/2011 Shri Rahul Chandrakant Shah
supplying name of the persons from whom it was received on
account of purchase of land and name of the persons to whom such
cash was paid. The assessee submitted that the cash book was
prepared from the material seized in the course of search which was
a complete record of the transactions noted in the seized documents.
At the same time, the assessee expressed his inability to provide the
names and addresses in respect of certain parties paying cash to him
for which there was no reference in the seized documents. The
assessee, however, admitted that these transactions pertained to him
only. The AO accepted that the transactions recorded in the seized
documents were correctly recorded by the assessee in the books of
account so prepared after the date of search. He, however, objected
to the non-submission of any explanation by the assessee in respect
of cash received and recorded in the books of account. The
assessee’s contention that only the peak amount should be taxed and
not the entire cash entries did not find favour with the AO. He
noted that the total amount of cash received for the A.Y. 2007-08
was Rs.2,08,43,767/- which was liable to be taxed. Similarly for the
A.Y. 2008-09, the AO held that total cash received and recorded in
the books of account, drawn after the date of search on the basis of
seized documents, at Rs.7,94,96,368/- was also liable to be taxed.
5 ITA Nos.1066 & 1067/PUN/2011 Shri Rahul Chandrakant Shah
He, therefore, made these additions in the finalization of the
assessments for the two years under consideration.
The ld. CIT(A) first disposed of the assessee’s appeal for the
A.Y. 2008-09 in which the entire discussion has been made and
thereafter followed such decision in his order for the A.Y. 2007-08.
The assessee placed year-wise maximum cash balances for the
assessment years 2002-03 till 2008-09 before the ld. CIT(A), which
has been tabulated at page 3 of the impugned order. In such
tabulation, the assessee gave year-wise maximum cash balance
offered to tax, which for the A.Y. 2007-08 stood at Rs.28,71,458/-
and for the A.Y. 2008-09 at Rs.5,64,910/-. Thereafter, the assessee
submitted property-wise details of purchase consideration, sale
proceeds received with net profit. Against the sales of plots
amounting to Rs.8,09,43,888/- in the tabulation on pages 3 and 4 of
the impugned order, the assessee stated to have been earned profit
of Rs.55,06,787/-. The ld. CIT(A) called for the remand report from
the AO in respect of the details furnished by the assessee, who
mainly relied on the original order passed by his predecessor except
for mentioning that the AO wrongly invoked section 69A instead of
section 68. The ld. CIT(A) noticed that the assessee offered total
6 ITA Nos.1066 & 1067/PUN/2011 Shri Rahul Chandrakant Shah
income of Rs.55,06,787/-, being, profit from sale and purchase of
lands over the period. Apart from that, he also took note of peak
balance liability to be taxed. In this way, he reduced the addition to
Rs.7,17,879/- and further telescoped the addition of Rs.5,64,910/-
into such amount computed by him at Rs.7.17 lakh and finally
sustained the addition at Rs.1,52,969/- for the A.Y. 2008-09. For
the A.Y. 2007-08, the ld. CIT(A) reduced the addition to
Rs.28,71,458/- and allowed relief for the remaining amount of
Rs.1.79 crore. The Revenue is aggrieved by the reduction in the
amount of additions made for the years under consideration.
We have heard both the sides and perused the relevant
material on record. During the course of search, certain
incriminating material in the form of diaries etc., was found
evidencing the receipts and payments of money. In the statement
u/s. 132(4), the assessee submitted that these amounts were received
towards purchase of land for certain customers which amounts were
given to the sellers and the payments reflected such handing over of
the amounts to the sellers. In addition, the assessee also admitted to
be involved in the purchase and sale of lands in his capacity as an
owner. All the loose papers etc. found during the course of search
7 ITA Nos.1066 & 1067/PUN/2011 Shri Rahul Chandrakant Shah
were recorded by the assessee in the form of a cash book prepared
after the search, which the AO accepted to be having all the relevant
details of unrecorded transactions. These transactions are basically
in the nature of either purchase of land for customers against
commission ranging 0.50% to 2% as stated during the course of
search itself or these are transactions of purchase and sale of land by
the assessee for self. It is an admitted position that the seized
documents partly contained names of the persons from whom cash
was received for purchasing land on their behalf. Some of the
transactions did not have any name/narration. It is after the search
that the assessee prepared his cash book and ledger on the basis of
the seized documents. The AO has recorded in Para 5.3.6 (ii) for
the A.Y. 2007-08 that “Moreover, the correctness of the
transactions is not the issue here in this case. The transactions are
accepted as correct and no doubt is taken on the transaction
recorded in the books of account”. Again in Para 5.3.6 (iv), the AO
has accepted that “the information furnished by the assessee is
accepted as correct and only the source of cash credited in the
books have been asked to explain.......... Here, in this case the books
of account are prepared on the basis of documents seized by the
Department from the assessee’s residence and office premises”.
8 ITA Nos.1066 & 1067/PUN/2011 Shri Rahul Chandrakant Shah
Thus, it can be seen that the AO primarily accepted that entries in
diaries, which formed the bedrock of the additions made by him,
were fully and truly reflected in the cash book albeit prepared after
the date of search. In such a situation, we need not go beyond the
entries recorded in the cash book. The sum and substance of the
AO’s action in making addition of Rs.2.08 crore for the A.Y. 2007-
08 and Rs.7.95 crore for the A.Y. 2008-09 is that the receipt side of
the cash book containing details of the persons from whom the
assessee allegedly received cash, was unexplained. In that view of
the matter, we need not examine other material found during the
course of search.
We have gone through a copy of the cash book prepared by
the assessee, which was produced by the ld. DR before us. The
assessee has also produced a summarised statement of the cash book
before us. On going through the cash book, it is found that the
assessee has recorded certain amounts with dates mentioning the
name of the persons from whom cash was received. The assessee’s
case is that he received cash from prospective buyers of land and
thereafter negotiated with the prospective sellers with a view to earn
commission income. In addition to that, there are certain
9 ITA Nos.1066 & 1067/PUN/2011 Shri Rahul Chandrakant Shah
transactions of cash received which did not bear any name. Such
transactions will have to be presumed as done by the assessee for
his own purpose. Once the assessee has purchased and sold certain
pieces of land for outside customers, it is only the profit element in
such transactions which can be charged to tax. If certain amount of
cash is received from buyers which is then handed over to sellers, it
is not the amount of receipt which can be added to the assessee’s
total income but only the profit element embedded in the
transaction. In so far as the assessee’s own transactions are
concerned, apart from profit element, there will be certain capital
investment also going into the purchase of said pieces of land,
which would also require addition.
The ld. CIT(A) on page 3 of the impugned order for the A.Y.
2008-09 has drawn a chart which contains peak cash balances
pertaining to the A.Yrs. 2002-03 to 2008-09 that totals up to
Rs.44,21,230/-. The peak balance for the years under consideration
at Rs.28,71,458/- for the A.Y. 2007-08 and Rs.5,64,910/- for the
A.Y. 2008-09 is required to be added to the total income of the
assessee, if not already offered. Similarly pages 3 and 4 of the
impugned order contain a chart showing property-wise transactions
10 ITA Nos.1066 & 1067/PUN/2011 Shri Rahul Chandrakant Shah
of purchase and sale with profit. Total amount of sale as considered
in this chart figures at Rs.8.09 crore with profit of Rs.55,06,787/-.
This profit element of Rs.55,06,787/- is also required to be added to
the total income of the assessee for the concerned years, if not
already added. It is further pertinent to note that the AO found total
receipts at Rs.10.16 crore pertaining to the years under
consideration, for which he made the additions. If we reduce the
amount of sales considered by the ld. CIT(A) at Rs. 8.09 crore, it is
found that still a sum of Rs.2.07 crore (Rs.10.16 crore minus
Rs.8.09 crore) representing the amount received by the assessee,
either on his own account or for further purchase of land on behalf
of others, has not been subjected to tax. The profit element on such
sale is also required to be added, which the ld. CIT(A) forgot to do.
When we examine the amount of profit tabulated by the ld. CIT(A)
on page 4 of his order at Rs.55,06,787/- with the corresponding
sales of Rs.8.09 crore, the percentage of profit which turns out, is
6.80%. We direct that similar percentage of profit should be
applied to the remaining receipts of Rs.2.07 crore, which escaped
the attention of the ld. CIT(A). Such percentage of gross profit, if
applied to the remaining amount of Rs.2.07 crore, gives further
profit of Rs.14.07 lakh which is required to be added to the total
11 ITA Nos.1066 & 1067/PUN/2011 Shri Rahul Chandrakant Shah
income of the assessee for the years under consideration. Such
amount is directed to be apportioned between the two years under
consideration in the ratio of unproved credit entries, for which
additions have been made, that is, 2.08 : 7.95.
To sum up, total income for the years under consideration to be
added on the basis of the unrecorded cash receipts found during the
course of search is in three parts, viz., the first, being, the maximum
cash balance of Rs. 28,71,458/- and Rs.5,64,910/- for the years in
appeal; the second, being, the part of profit element of
Rs.55,06,787/- on sale of plots amounting to Rs.8.09 crore as
relating to the two years under consideration, in addition to
Rs.1,52,969/- for the A.Y.2008-09 being extra profit sustained in
the first appeal; and the third, being, profit of Rs.14.07 lakh on
remaining amounts of entries at Rs. Rs.2.07 crore in the ratio of
receipts of Rs.2.08 crore and Rs.7.95 crore for the A.Ys. 2007-08
and 2008-09 respectively. We, therefore, set-aside the impugned
orders and remit the matter to the file of AO for examining and
ensuring that these three elements are duly taxed in the total income
of the assessee for the years under consideration. To the extent these
12 ITA Nos.1066 & 1067/PUN/2011 Shri Rahul Chandrakant Shah
three elements have been fully or partly offered by the assessee or
sustained in the first appeals, suitable reductions should be made.
In the result, both the appeals are partly allowed.
Order pronounced in the Open Court on 15th October, 2019.
Sd/- Sd/- (S.S. VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 15th October, 2019 सतीश
आदेश क� क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to: अ�ेिषत आदेश आदेश आदेश अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. 3. The CIT(A)-1, Nashik 4. The CIT (Central), Nagpur िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे 5. “B” / DR ‘B’, ITAT, Pune; 6. गाड� फाईल / Guard file. आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune
ITA Nos.1066 & 1067/PUN/2011 Shri Rahul Chandrakant Shah
Date 1. Draft dictated on 14-10-2019 Sr.PS 2. Draft placed before author 15-10-2019 Sr.PS 3. Draft proposed & placed JM before the second member 4. Draft discussed/approved JM by Second Member. 5. Approved Draft comes to Sr.PS the Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *