INCOME-TAX OFFICER, NASHIK vs. SHRI RAHUL CHANDRAKANT SHAH, NASHIK

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

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.

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.

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.

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.

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.

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.

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. *