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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO, HON’BLE & SHRI D.S. SUNDER SINGH, HON’BLE
IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, HON’BLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, HON’BLE ACCOUNTANT MEMBER ITA Nos. 630 & 631/VIZ/2018 (Asst. Year : 2015-16 & 2016-17) ACIT, Central Circle-1, vs. M/s. Sanghvi Properties, Visakhapatnam. D.No. 48-19-5/11, MVR Complex, Dwarakanagar, Visakhapatnam. PAN No. ACAFS 8697 K (Appellant) (Respondent)
C.O.Nos. 27 & 28/VIZ/2019 (Arising out of ITA Nos. 630 & 631/VIZ/2018) (Asst. Year : 2015-16 & 2016-17) M/s. Sanghvi Properties, vs. ACIT, Central Circle-1, D.No. 48-19-5/11, MVR Visakhapatnam. Complex, Dwarakanagar, Visakhapatnam. PAN No. ACAFS 8697 K (Appellant) (Respondent) Assessee by : Shri G.V.N. Hari – Advocate. Department By : Smt. Suman Malik - Sr.DR
Date of hearing : 09/04/2019. Date of pronouncement : 03/05/2019. O R D E R PER V. DURGA RAO, JUDICIAL MEMBER
These appeals by the Revenue and the cross objections by the assessee are directed against the separate orders of
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Commissioner of Income Tax (Appeals)-3, Visakhapatnam, both dated 17/09/2018 for the Assessment Years 2015-16 & 2016-17. Since facts and issues are common, clubbed and heard together and disposed of by way of this consolidated order. ITA No. 630/VIZ/2018 2. Facts of the case, in brief, are that the assessee is a partnership firm derived income from real estate business, filed its return of income declaring loss of Rs. 40,060/-. The return filed by the assessee was processed under section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as "Act"). Subsequently, a search and seizure operation under section 132 was conducted in the group cases of M/s. SVBC Gold on 24/11/2015 by Investigation Wing, Visakhapatnam. M/s.Navaratna Estates being connected to the SBBC group, a survey was conducted under section 133A in the case of M/s.Navaratna Estates, D.No. 10-1-29, 3rd Floor, CVSV Raghu Chambers, Sampath Vinayak Temple Road, Visakhapatnam on 24/11/2015. During the course of survey, certain incriminating material was found and impounded as Annexure-A/NRE/Survey/ Buss/02 pertains to the assessee-firm and it bears undisclosed income of the assessee in the form of unaccounted on money
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collected on sale of flats. The Assessing Officer has issued a notice under section 148 in view of the seized material relates to on money collected on sale of flats dated 25/03/2017. In response to the notice, the assessee has filed a detailed reply. The Assessing Officer after considering the reply, he has observed as under:- “7. The submission filed by the assessee on 23.11.2017 was perus1.The first issued involved in this case is On-money collected from sale of flats. The assessee in its submission, denied the alleged slip of on money transaction be/long to the Assessee Firm which was found in the premises of another organization i.e M/s Navaratna Estates and not from the assessee firm. The sale deed No, 1746/2015, affected by the Assessee Firm for sale of Flat No. 101 in "Platinum Paradise" to one Sri M.V.S.S. Raju, found at M/s Navaratna Estates was executed on 20.03.2015 and the idea of trying to link and connect these two transactions, where the gap of time is approximately eight months and above, is highly far stretched and beyond the belief and imagination of a normal person. The hand written of the slip is not matching with any partner and stated that they have neither a customer nor a mediator with the said e-mail id. 7.2 The assessee has failed to confront the issues found and communicated with the documents impounded by submitting with corroborative evidences. The onus is lies on the assessee to establish that they were not belong to their business. Hence, the contention of the assessee is not having any basis and is not acceptable. 7.3 The business premises of M/s. Navaratna Estates was also covered u/s.133A on 24.11.2015. During the course of survey operation, the above loose slip mentioned in para-5 was found and impounded, Sri M Y Subrhamanyam, partner of the firm was present during the course of survey operation was confronted with regard to above slip on three occasions mentioned above u/s.131(1A) of the Act. Sri M.Y.Subrhamanyam, Mg. Partner of M/s. Navaratna Estates has out rightly denied that the above loose sheet pertains to M/s. M/s Navaratna Estates.
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7.4 Sri M Y Subrhamanyam, Managing partner of M/s. Navaratna Estates in reply to Q. No 33 of statement recorded on 24.11.2015-stated that the details of the flat may be relating to the project "Platinum Paradise" undertaken by M/s. Sanghvi Properties. Again when confronted about the slip, the Mg. Pr. in reply to Q No 32 of statement dtd.07.12.2015 has reiterated the same i.e related to M/s. Sanghvi Properties. 7.5 Sri M Y Subrahmanyam Managing partner of M/s. Navaratna Estates when confronted with regard to lose sheet of paper containing receipt of on-money on sale of flats, the partner in reply to Q.No.7 of statement recorded on 11.12.2015 stated that I cannot identify the above paper and it does not relate to M/s.Navaratna Estates, however, to buy peace with the department we offer an amount of Rs.57.60 lakhs as our undisclosed income for the FY 2015-16. However, on cross verification with the assessment record for the relevant assessment year being the M/s. Navaratna Estates also notified to the ACIT, Central Circle-1, Visakhapatnam found that the said firm has not disclosed any additional Income on this count. 7.6 As mentioned in Para 7.4, Sri M Y Subrhamanyam, Mg. Pr. of M/s Navaratna Estates categorically in his statement mentioned that the contents of the flat may be relating to the project “Platinum Paradise” undertaken by M/s Sanghvi Properties. It is incidental to mention that Sri Suresh Kumar Jain who is the Mg Partner of M/s Sanghvi Properties is also managing partner of M/s. Navaratna Estates. In view of this the alleged loose slip found at the premises of M/s. Navaratna Estates cannot be denied stating merely the assessee firm has no nexus with the firm where it was found. Hence, the statement of Sri M.Y.Subrhamanyam, Managing partner of M/s. Navaratna Estates is found to be correct and accordingly the on-money received on sale of flats from project "Platinum Paradise" was computed. 7.7 The value and area of the flat mentioned in the lose sheet as Card Value is squarely matching with the value of the flat registered vide registered Sale Deed No. 1746/2015 found in the business premises of M/s. Navaratna Estates, Visakhapatnam during the course of survey operation on 24.11.2015 along with the alleged slip. This shows that the sale deed found is pertains to the assessee firm. As computed in sub-para 1.4 of para-5 above, the assessee is in receipt of on-money on sale of 3-flats out of 15-flats in the year under consideration, which was not disclosed in the books of accounts and hence treated as undisclosed income of the firm. In view of the above facts it is
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crystal clear that the assessee has collected On-Money of Rs. 74,70,000/- over and above the registered value as discussed above.”
On being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A). Before the ld. CIT(A) it was submitted that on the basis of the alleged sized documents, the addition was made, which was found in the possession of the third party i.e. M/s. Navaratna Estates, therefore the impugned material found cannot be presumed that it belonging to the assessee. It is also submitted that the addition cannot be made based on the statement of the third party except there is a material evidence to show that seized material belonging to the assessee. The ld.CIT(A) after considering the explanation of the assessee, deleted the addition made by the Assessing Officer. 4. On being aggrieved, assessee carried the matter in appeal before this Tribunal. 5. Ld. Departmental Representative relied on the order passed by the Assessing Officer. 6. Ld. counsel for the assessee relied on the order passed by the ld. CIT(A). 7. The issue involved in this appeal relates to on-money collected from the sale of flats. In this case, there is a survey
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conducted in the case of M/s. Navaratna Estates on 24/11/2015. During the course of survey, certain incriminating material is found and impounded as Annexure-A/NRE/Survey/Buss /02. The Assessing Officer based on the above incriminating material found during the course of survey at the premises of M/s.Navaratna Estates has examined Sri M.Y. Subrahmanyam, who is one of the partners of M/s.Navaratna Estates and his statement was recorded on 24/11/2015, wherein Sri M.Y. Subrahmanyam stated that the details of the flat as contained the loose sheet may be relating to the project ‘Platinum Paradise’. Again on 11/12/2015, Sri M.Y. Subrahmanyam has stated that he cannot identify the above loose sheet and does not relates to M/s.Navaratna Estates, however, to buy a peace with the department, he offered an amount of Rs.57.60 lakhs as their undisclosed income for the F.Y. 2015-16. The Assessing Officer also considered the value and area of the flat mentioned in the loose-sheet as a CARD value is squarely matching with the value of the flat registered vide registered sale deed No. 1746/2015 found in the business premises of M/s.Navaratna Estates, Visakhapatnam during the course of survey operation on 24/11/2015 along with the alleged slip and accordingly, the Assessing Officer made the addition of
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Rs.74,70,000/-. On appeal before the ld. CIT(A), it was submitted that the loose-sheet is found in the premises of M/s.Navaratna Estates, which is not belonging to the assessee, therefore, presumption contained in section 132(4A) has no application. The loose sheet neither contains signature by any of the employees nor written by any one of the partners of the assessee firm. Therefore, the addition cannot be made based on the statement of Sri M.Y. Subrahmanyam, partner of the M/s.Navaratna Estates. The ld. CIT(A) has considered the same and deleted the addition made by the Assessing Officer. We find that the addition made by the Assessing Officer only based on the loose-sheet which is found in the premises of M/s.Navaratna Estates. The Assessing Officer is not able to establish that the loose sheet is belonging to the assessee. It is also not the case of the Assessing Officer that the loose sheet is written by any employee nor signed by any of the Director. The Assessing Officer has come to a conclusion that the loose sheet of the assessee on the basis of statement given by Sri M.Y. Subrahmanyam who is Managing Partner of M/s.Navaratna Estates, initially stated that it may be belonged to the assessee. Subsequently, he stated that he cannot identify the loose sheet to whom which belongs. However, he has admitted the income in
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the hands of the M/s.Navaratna Estates as undisclosed income for the F.Y. 2015-16. Therefore, on the basis of statement given by one of the Directors of M/s.Navaratna Estates, whose premises loose sheet is found cannot be considered as a basis for addition in the hands of the assessee. The ld. CIT(A) has also considered the value and area of the flat mentioned in the loose sheet as CARD value is squarely matching with the value of the flat registered sale deed No. 1746/2015. Mere similarity between the CARD value mentioned in the loose sheet and the CARD value of the transaction recorded in the books of the assessee firm cannot lead to the conclusion that the assessee firm was indulged in receipt of on money on sale of flats. CARD value at a given point of time will be the same for all the flats in a particular town/city. Such a general factor cannot be used against the assessee firm to draw an adverse interference. We find that the Assessing Officer without establishing a fact that the loose sheet found in the premises of M/s.Navaratna Estates, based on the same, addition is made in the hands of the assessee, in our opinion, addition cannot be survived on the basis of mere suspicion to make the addition, the Assessing Officer has to establish that the loose sheet must belonging to the assessee. The ld. CIT(A) has considered the
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issue in detail and deleted the addition made by the Assessing Officer. The relevant portion of the order of the ld. CIT(A) is extracted as under:-
“6.2.1. It is with regard to addition of Rs.74,70,000/- towards on-money on sale of flats. I have carefully perused the loose sheet impounded in the case of M/s.Navaratna Estates, contents of the statements given by Sri M.Y.Subrahmanyam, the observations of the Assessing Officer and also the submissions of the appellant. The entire controversy emanated from one loose sheet found vide Annexure-A/NRE/Survey/ Buss/02 at the business premises of the firm M/s.Navaratna Estates. This sheet contained in very clear terms with regard to a flat the CARD value (fts.25,20,000/- calculated 1800 sq.ft. x Rs.1,400/- plus parking charges of Rs.50,000/-) and the total value (Rs.57,60,000/-) and the difference between the total value and the CARD value (Rs.31,90,000/-) was mentioned as Black portion. Apart from this, the loose sheet contained reference to an email 'Satyanarayana41@rediffmail.com'. While it is so, the survey team confronted this loose sheet to Sri M.Y.Subramanyam one of the partners of the firm M/s.Navaratna Estates. He gave two contradictory answers. In the statements recorded on 24.11.2015 and on 07.12.2015, he stated that the details of the flat as contained in the loose sheet may be relating to the project 'Platinum Paradise' undertaken by M/s.Sanghvi Proprties i.e. the appellant firm. However, in the later statement recorded on 11.12.2015, he admitted an undisclosed income of Rs.57.60 lakhs in the hands of the firm M/s.Navaratna Estates. Apart from the loose sheet and the statement of Sri M.Y.Subramanyam, the Assessing Officer relied on one more fact that in respect of one of the flats sold by the appellant firm, the consideration recorded in the books is Rs.25,20,000/- and the area of the flat sold is 1800 sq.feet. As such, according to the Assessing Officer, the information contained in the loose sheet matches with the transaction of the appellant firm. 6.2.2. As regards the loose sheet, the same was not found at the premises of the appellant firm. The presumption contained u/s.132(4A) of the Act applies only in respect of the person in whose possession the document is found. Further, the loose
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sheet is written neither by any one-of the partners of the appellant firm nor by its employees. It does not contain any signature. As such, the loose sheet cannot alone form the basis for making addition in the hands of the appellant firm. As regards the statement of Sri M.Y.Subramanyam, it is noticed that he has given quite opposite answers at different points of time. Not only that, in his final statement he owned up the transaction in the hands of the firm M/s.Navaratna Estates. At this juncture, no further enquiries were made to elicit which of the two versions is correct. No enquiries were made with regard to whom the email address mentioned in the loose sheet belongs to. Who paid to whom? When it was paid or received is also not known. Such enquiries were not made even during the assessment proceedings. Further, the admission given was towards entire value of Rs.57,60,000/ and not for the on-money of Rs.31,90,000/- suggesting that the admission was given towards some unexplained investment and not towards on-money. Mere similarity between the CARD value mentioned in the loose sheet and the CARD value of the transaction recorded in the books of the appellant firm cannot lead to the conclusion that the appellant firm was indulged in receipt of on-money on sale of flats. CARD value at a given point of time will be the same for all the flats in a particular town/city. Such a general factor cannot be used against the appellant firm to draw an adverse inference. It is a trite law that suspicion, however strong, cannot form the basis for making addition under the Income Tax Act. Further, in respect of the three flats considered for addition for the A.Y.2015-16, only one of the flats is admeasuring 1800 sq. feet and out of the balance two, one flat is measuring 1265 sq. feet and the other one 1275 sq. feet. Even the parking charges are different, however small the variation may be. Thus, the Assessing Officer is not justified in taxing the appellant on the basis of the seized document. 6.2.3. From the side of the appellant firm, they have produced the registered sale deeds as evidence in support of the consideration recorded in the books of account and also the confirmation letters from some of the customers. These positive evidences cannot be brushed aside-unless there is clear evidence to the contrary. 6.2.4. In view of the above, I do not find any justification for the addition made by the Assessing Officer towards on-money on sale of three flats by extrapolating the information contained in the loose sheet. The Assessing Officer is directed
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to delete the addition of Rs.74,70,000/-. This ground of appeal is allowed.”
In view of the above, we find no reason to interfere with the order passed by the ld. CIT(A). Thus, this ground of appeal raised by the Revenue is dismissed. 9. Ground No. 12 relates to addition in respect of addition of Rs. 12,52,650/-. In the assessment order, the Assessing Officer has noted that during the year under consideration, the assessee has sold three flats for total consideration is Rs. 59,65,000/-. On verification, it is seen that assessee has not disclosed the income from that sale. Considering the above facts, the gross profit @ 21% taken on such sale in other assessment year is taken for the year under consideration, which comes to Rs.12,52,650/- is taken as income on sale of above flats. 10. On appeal, it was submitted before the ld. CIT(A) that the project ‘Platinum Paradise’ was commented during the F.Y. 2014-15 relevant to the A.Y. 2015-16. The project is spread over more than one accounting year, it would be difficult to compute the profit in advance and therefore it has chosen to follow ‘Platinum Paradise method’ and the assessee has admitted the profit in the A.Y. 2016-17 and therefore the addition made by the
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Assessing Officer is not correct. The ld. CIT(A) by considering the submissions of the assessee, deleted the addition. 11. Ld. Departmental Representative has relied on the order of the Assessing Officer, whereas ld. counsel for the assessee relied on the order of the ld. CIT(A). 12. We have gone through the assessment order and submissions made by the assessee before the ld. CIT(A) and find that the ld. CIT(A) gave a categorical finding that the assessee has offered income for the ‘Platinum Paradise’ in the A.Y. 2016-17, therefore directed the Assessing Officer to delete the addition for the A.Y. 2015-16. For the sake of convenience, the relevant portion of the order of the ld.CIT (A) is extracted as under:- “6.3. It is with regard to the addition of Rs.12,52,650/- towards estimation of profit in respect of the three flats sold during the year. I have carefully perused the assessment order and also the submissions of the appellant. The project „Platinum Paradise‟ was commenced during the F.Y.2014-15 relevant to the A.Y.2015-16. In Annexure-IA of the sale deed (Document No.410/2015), it is clearly mentioned that the construction just commenced. The contention of the appellant is that since the project is spread over more than one accounting year, It would be difficult to compute the profit in advance and therefore it has chosen to follow 'Project Completion method'. On a careful perusal of the submissions of the appellant and also the financial statements for the F.Y.201516 I found that the appellant admitted profit in the F.Y.2015-16 relevant to A.Y.2016-17 as the project construction was completed by 31st March, 2016. I do not find any infirmity or defect in the method of accounting adopted by the appellant firm. The Assessing Officer has also not mentioned any specific defect in the method of accounting followed by the appellant firm. As such, I do not find any justification in the action of the Assessing Officer in estimating the profit in respect of the three flats sold during the relevant previous year. The Assessing Officer is directed to delete
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the addition of Rs.12,52,650/-. This ground of appeal is allowed.” 13. Once the assessee has admitted the income in subsequent year, it is not justified in making the addition in the earlier year. Therefore, we find no reason to interfere with the order passed by the ld. CIT(A). Thus, this ground of appeal raised by the Revenue is dismissed. 14. So far as ITA No. 631/VIZ/2018 is concerned, the facts involved in this appeal are similar to the facts involved in ITA No. 630/VIZ/2018. Therefore, our decision in ITA No. 630/VIZ/2018 shall apply mutatis mutandis to this appeal also. 15. Cross Objections filed by the assessee are only supportive to the orders of the ld. CIT(A). As the assessee has no grievance against the order of the ld. CIT(A), the C.Os. filed by the assessee have become infructuous and are dismissed accordingly. 16. In the result, appeals filed by the Revenue and the C.Os. filed by the assessee are dismissed. Order Pronounced in open Court on this 03rd day of May, 2019.
Sd/- sd/- (D.S. SUNDER SINGH) (V. DURGA RAO) Accountant Member Judicial Member Dated: 03rd May, 2019. vr/-
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Copy to: 1. The Assessee – M/s. Sanghvi Properties, D.No. 48-19- 5/11, MVR Complex, Dwarakanagar, Visakhapatnam. 2. The Revenue – ACIT, Central Circle-1, Visakhapatnam. 3. The Pr.CIT (Central), Visakhapatnam. 4. The CIT(A)-3, Visakhapatnam. 5. The D.R., Visakhapatnam. 6. Guard file. By order
(VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Visakhapatnam.