MA SMART DEVELOPERS MANGALORE PVT LTD.,,MANGALORE vs. ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, MANGALORE

3.1 As per the JDA, two buildings were to be constructed in the plot of land belonging to the society. Out of the total saleable area of 88,890 Sq. ft of the 1stbuilding, the assessee company was entitled to 62,995 Sq. ft of shops and also the terrace area, along with car parking area and the undivided right in the property. The society was entitled to 25895 Sq. ft area in the same building. Further, the assessee company was also entitled for the 2nd building with saleable area of 3535 Sq. ft and open terrace area. Therefore, the assessee had the right to sell the constructed shops having a total saleable area of 62,995 Sq.ft in the 1stbuilding and the entire area of the 2nd building with 3535 Sq. ft. In addition, the assessee had the right to sell the terrace area of both the buildings.

3.2 During the course of search at the residences of Mr. Abdul Khader, Mr. Ibrahim Kaleel and Mr. Mohammed Ibrahim certain documents relating to the transactions of the assessee’sproject, SahakariSadana was found, wherein it was found that, assessee received certain amounts for sale of shops. It was evident from the seized record that the sale proceeds of the shops were collected substantively in cash and the remaining in cheques/RTGS. The assesseeapparently followed the percentage completion method for the purpose of revenue recognition and for determination of the taxable profits.

3.3 The AO stated in the assessment order that the assesseehad not maintained proper books of account. While estimating the profits under percentage completion method, the assesseeincorrectly considered only the cheque value/registered value of shops to determine the sale rate i.e. Rs.4,356/- per sq. ft. Whereas, the actual sales, based on the findings of the search, werebetween Rs.5,000/- to Rs.20,000/- per Sq. ft for most of the shops. Since the major portion of sale of shops were in cash, the assesseeignored deliberately the sale consideration in cash for revenue recognition. Numerous agreements, books, documents etc. had been seized from the residences of Sri. Mohammed Ibrahim, Sri Kodi Abdul Khader and Sri Ibrahim Kaleel, the Directors of the assesseecompany evidencing receipts in cash. Verification with the accounted data revealed that the cash receipts had not been accounted for and also that the same had not been considered in the revenue estimation made by the assessee.

3.4 During the course of the search, the department had seized the actual calculation made in respect of the shops entitled to the assesseefor sale. The data thus seized contained the details of all the rooms available for sale, shop No, name of the buyer, rate fixed for sale, Sq. ft area of each room, the total amount received/receivable amounts received in instalments, balance amount to be received, etc. The area of each shop, the sale rate, amount received, the total consideration etc. as per this calculation was found to tally with the sale agreements and the entries as per the books seized during the course of the search. However, while estimating the total consideration, the assesseecompany had considered only the amount received or to be collected in cheque/RTGS and completely ignored the consideration collected in Cash or to be collected in future in Cash.

3.5 Sworn statements were recorded from Mr. Mohammed Ibrahim u/s 132(4) on 31.08.2017, u/s 131 on 05.09.2017 and u/s 132(4) on 30.10.2017 in which he admitted to the unaccounted cash receipts, and he voluntarily agreed to offer an amount of Rs.12,29,91,300/- in total as unaccounted incomes in the hands of the assessee company for A.Ys 2014-15 to 2018- 19.These sworn statements have never been retracted by the assesseeor its directors though the additional income offered in the aforesaid statements were not honoured while filing the returns u/s 153C and u/s 139 for A. Ys 2014-15 to 2018-19. The assesseedeemed this response as a retraction, albeit without any substantiation or basis.

4.1 Similarly, in these assessment years also additions are purely based on assumptions and presumptions without any corroborative evidence to be deleted. Further, she submitted that AO disregarded the method of accounting regularly followed by the assessee without pointing out any defects or violation to section 145 of the Act. Further, books of accounts of assessee were duly audited and revenue was recognized based on uniform accounting policy consistently followed by the assessee, there was no any corroborative material to suggest the unaccounted transactions and the addition based only on certain loose slips found in the premises of other searched parties, hence, such additions cannot be made. Further, she submitted that statement was taken from assessee under coercion and cannot be made on the basis of such statement. She also drew our attention and relied on the order of the Tribunal in the case of Emkay Hindustan Infrastructure in to 983/Bang/2022 vide Tribunal order dated 16.6.2023 wherein the Tribunal deleted the additions on similar circumstances.

5.1 Sworn statements were recorded from Mr. Mohammed Ibrahim u/s 132(4) on 31.08.2017, u/s 131 on 05.09.2017 and u/s 132(4) on 30.10.2017 in which he admitted to the unaccounted cash receipts, and he voluntarily agreed to offer an amount of Rs.12,29,91,300/- in total as unaccounted incomes in the hands of the assessee company for A.Ys 2014-15 to 2018- 19.These sworn statements have never been retracted by the assessee or its directors though the additional income offered in the aforesaid statements were not honoured while filing the returns u/s 153C and u/s 139 for A. Ys 2014-15 to 2018-19. The assessee deemed this response as a retraction, albeit without any substantiation or basis.

5.2 He submitted that the assessee argued before the ld. CIT(A) that the seized materials were not found from its premises and that the additions were made purely on assumptions and presumptions without any corroborative evidence. The above arguments that the additions were made purely on assumptions and presumptions are considered by the ld. CIT(A). Contrary to the claim of the assessee, the seized materials were cogent, coherent and were directly correlating to the project undertaken by the assessee and the unaccounted cash receipts were directly related to the on- money component received on the sale of shops in the said project from its customers. As stated earlier, the seized materials clearly pointed out the actual transactions not recorded in the books of account and were part of the business activities of the assessee. The details extracted from the seized materials were specific, time-stamped and referred to the shops sold and the persons whom the assessee had dealt with, the amounts paid and the purpose for which cash payments were made. The evidences found were precise and more cannot be expected from the search/survey action as tax evaders' attempt to foil the evidences by removing/destroying the incriminating materials had to be overcome by meticulous efforts to cull out the evidences relating to tax evasion. He stated that the ld. CIT(A) was convinced that the investigating team and the AO brought out the evidences clearly to establish the generation of unaccounted income as well as unaccounted payments.

5.3 Further, he submitted that the assessee argued before the ld. CIT(A) that the AO disregarded the method of accounting regularly followed by the assessee without pointing out any defects or violations to section 145 of the Act. On the contrary, the AO brought out detailed list of evidences to prove that the assessee had not fully disclosed or reported the advances/sale considerations received to determine the total income for respective years. The AO, after bringing out the exact quantum of unaccounted sales, added the entire actual sales consideration to ascertain the tax liability of the assessee, thereby brought out the defects or violations of the assessee in revenue recognition. Few instances out of the large number of evidences brought out meticulously by the AO in the assessment order is reproduced here to highlight the efforts made by the investigating team and the AO in establishing the evidences against the assessee with respect to the additions made.

5.4 The ld. D.R. submitted that apart from the above, numerous other references to seized materials have been made by the AO to justify the additions made. The seized materials also included the unaccounted cash receipts issued by the assessee to the customers in respect of booking of shops. The AO also categorically concluded that the registered document will not help in any way for revenue recognition in this case as it doesn't show the actual transaction or the actual period of sale.

5.5 He submitted that to sum up, all these facts and materials are corroborative in nature and are very much relevant in ascertaining the unaccounted income in the hands of the assessee. Therefore, disregarding these evidences as dumb documents are ruled out as the impounded/seized materials have adequate and strong evidentiary value. Moreover, on the basis of various evidences collected during the search and survey in which the booking has been made by the customers by payment in cash for shops at SahakariSadana of M/s M A Smart Developers Pvt Ltd., test verifications have been conducted in some of the cases. In all of the cases test checked, the buyers have confirmed the payments and wherever proper sources could not be proved, have paid tax and filed return / revised return.

5.6 Further, he submitted that a sworn statement u/s 132(4) was recorded from the Directors of the assessee who had admitted to the unaccounted income by way of unaccounted cash receipts on sale of shops. The admission was categoric and unambiguous. The materials seized at the search premises have strong evidentiary value and cannot be ignored or disregarded unless inconsistencies or unreliability or unreasonableness is established by the assessee unequivocally. In this case, the seized materials were not questioned/disputed and the only question raised was its relevance to the case. In this regard, it is pointed out that the materials were seized from the premises of the Directors of the assessee. Precisely for this reason of suspicion, a search action was conducted rightfully and as expected, the materials reflecting true nature of business transactions of the assessee were recovered from these premises. It is quite a commonplace practice that the unaccounted affairs of the taxpayers are kept in secret and unassuming locations/places to avoid being detected. Knowing this, search/survey actions are conducted in multiple premises where it is suspected that the actual documents reflecting true nature of business affairs are kept secretly by the persons on whom such actions are initiated. In this case, the search/survey actions were initiated against the directors of the assessee and others in multiple premises wherever it was suspected that the unaccounted documents/books of account would have been kept by them. The assessee's argument that the documents were recorded from third party premises and therefore, not to be considered as evidence is unacceptable and unreasonable.

5.7 Further, he submitted that the arguments such as the books of account of the assessee was duly audited and revenue was recognized based on the uniform accounting policy adopted by the assessee, or the argument that no evidence relating to generation of unaccounted money and transfer of such money to the assessee, do not have any impact or significance to this case because a search/survey action was conducted in the group cases and evidences were k)und as a result of such action which pointed out the generation of unaccounted income as well as the unaccounted cash payments in the case of the assessee. All the transactions relating to unaccounted income were not recorded in the books of account and therefore, the above arguments have no relevance. This applies to all other assessment years of the assessee and to all the issues covered. 5.8 He further submitted that in addition to the above, the assessee also contended that the statement was taken under duress and therefore, not maintainable. General allegations were raised during this proceeding. However, neither a retraction letter nor any justification for not honouring the admission in the returns filed, were furnished adducing any evidence to support the claim.

5.9 He submitted that once the department had found the evidence relating to unaccounted transactions of the assessee, which was confirmed by an admission under oath, it is deemed that the burden of proof has been discharged by the department. The burden at this stage has shifted to the assessee to disprove the evidences gathered. Insteadof attempting to discharge its burden of proof in this case, the assessee raised charges without any basis and deserves no consideration.

5.10 He submitted that in the case of CIT vs Abdul Razak (2012) 20 Taxmann.com 48 (Ker.), it was held that the admission made by the assessee u/s 132(4) before the AO corroborated by the title deeds seized in search absolved the department from discharging any burden regarding the additions made on the strength of such admission. On the retraction filed by the assessee, there was a burden cast on the assessee to prove the retraction or rather disprove the admissions made. It was held that any retraction of a clear admission made has to be on the ground of being either erroneous or factually incorrect or one made under threat or coercion. In this case, neither of these grounds were fulfilled by the assessee. In view of the above, the retraction claim of the assessee has no value and liable to be disregarded.

5.11 During the course of assessment proceedings, the AO issued several notices including notice u/s 143(2) on 05.12.2019, u/s 142(1) on 23.08.2019, show cause notice stating assessment may be completed u/s 144 on 09.10.2019, letter affording another opportunity to furnish details on 15.10.2019, preassessment notice on 31.10.2019, another opportunity on 11.11.2019, final opportunity on 18.11.2019, letter calling for objections in finalizing assessment u/s 144 on 05.12.2019 and opportunity to file objection on 09.12.2019. However, the assessee did not respond to any of the letters/notices issued. As enumerated above, various opportunities were granted to the assessee before the assessment orders were passed. In the absence of any detail/clarification submitted by the assessee, the AO was forced to make additions based on the materials available on record. During this proceeding too, the assessee raised general issues and furnished case laws whether they were relevant to the case or not.

5.12 In addition, the assessee argued as follows before the ld. CIT(A):

5.13 The response to the above arguments was already made by the AO in the assessment order as follows:

5.14 Based on the facts and findings and the reasonings provided by the AO in the assessment order, the assessee’s argument that its case for AY 2015-16 and 2016-17 was held in favour by the ld. CIT(A) does not hold good and has no precedence value since the impugned assessment order is based on the evidences found and seized from the residences of Sri Mohammed Ibrahim, Kodi Abdul Khader& Sri Ibrahim Kaleel, who are the Managing Directors/Directors of the assessee and these evidences disproved the claim of the assessee before the appellate proceedings based on which the orders were passed. In vieW of the above, the ld. CIT(A) rejected the assessee’s arguments as unsustainable in this regard.

5.15 The assessee further argued before the ld. CIT(A) as follows:

5.16 The assessee argued that in the case of Mr. Mohammed Ameer, the issue that was dealt with by the learned CIT(Appeals) and Hon'ble ITAT, Bangalore Bench was that the AO made the addition on the unaccounted contract receipts in cash entirely whereas Ld. CIT(Appeals) confirmed only 8% of the unaccounted cash receipts but the Hon'ble ITAT, Bangalore Bench reduced the net profits ascertained to 3% of the unaccounted contract receipts in cash. The conclusion arrived at by the Ld. CIT(Appeals) was based on the facts that certain documents were impounded from the premises of M/S Coastal Construction (proprietor- Mr. Mohammed er) during the survey conducted in its premises on ()2.02.2017 in relation to the search conducted in the case of Mr. M.N. Rajendra Kumar and others on01.02.2017. 5.17 The learned CIT(Appeals) held that the documents impounded during the survey relating to unaccounted contractual cash receipts in cash amounting to Rs. 14.24 crores were inconsistent and unreliable and no enquiries in this regard has been conducted by the AO. It was also held that the presumption was based on the statement recorded from the accountant of the assessee Shri. Makeem. The assessee was not given opportunity to cross examine and the assessee had indeed retracted his statement. Further, it was a case that Mr. Mohammed Ameer was not a developer himself but was executing contracts on behalf of the assessee. Therefore, the Ld. CIT(Appeals) computed the income component out of the unaccounted cash receipts at 8%. Relying on the findings of the CIT(Appeals), the Hon'ble ITAT confirmed the order of the Ld. CIT(Appeals) but restricted the profit component to 3%.

5.18 In the case of Mr. M.N. Rajendra Kumar, the Hon'ble ITAT held that since the undisclosed income accrued in the hands of the respective entities and not in the hands of Mr. M.N. Rajendra Kumar, the addition made in the hands of Mr. M.N. Rajendra Kumar was incorrect. 5.19 The Ld DR submitted that none of these cases apply directly or indirectly to the assessee's case. In the case of Sri. Mohammed Ameer, the additions were made based on different seized/impounded materials arising out of search/survey in a different case. Whereas, the additions made in the impugned assessment order on the assessee were based on the seized materials recovered from the directors of the assessee and from the survey premises of the assessee. The reliability and the strength e evidentiary value of the evidences obtained in this search/survey has already been elaborately discussed above and the additions were made on the basis of these evidences. Needless to say, there cannot be straight forward comparisons between the two cases as the nature and the depth of evidence are different. no parallel can be drawn from the decision made in the other case.

5.20 Similarly, the findings in the case of Mr. M.N. RajendraKumar is entirely different and has no relevance or precedence to this case. Therefore, the argument of the assessee seeking parallel and relief is not maintainable.

5.21 As far as the reliability of the evidence are concerned, the assessee, apart from raising general issues which were discussed earlier, has not argued or put forth any specific countering evidences to disprove or deny the unaccounted cash receipts of the assessee. As stated earlier, the seized/impounded materials were recovered from the search/survey premises and they were all relating to the project undertaken by the assessee. There is no denial of fact that this project was executed by the assessee and agreements/documents were signed by the assessee with customers for the sale of the project. 5.22 It was submitted by Ld.DR that the documents recovered from the premises relating to the assessee referred to the actual transactions involving unaccounted cash receipts from the sale of shops in the said project. The documents also revealed the parties involved in the transactions, time-stamps and the amounts involved in each year. These documents were self-standing, self- explanatory and sufficient to prove the unaccounted transactions between the parties. By no stretch of imagination, these documents can be disregarded as dumb documents/loose sheets having no value. 5.23 It is relevant to note that the evidentiary value of impounded/seized materials recovered from search/survey varies between one party to other and are also dependent on several factors such as on whose premises the materials were recorded; on whose control these materials were available; who had written/kept in possession; who was the searched person, etc. The seized materials impounded were from the premises under the control of Directors of the assessee. On this very fact, the presumption as the asset books of account etc. u/s 292C of the Act applies. The same is reproduced below for easy reference.

5.24 It was submission of Ld DR that owing to the above presumption provided under the Act, it is deemed that the documents recovered from the search premises belonged to the directors of the assessee and their related entities and the contents of such documents are true. Even otherwise, the documents were self-speaking, self-explanatory and self-standing in terms of the evidentiary value as they are mutually corroborative and amply clear enough to establish the unaccounted transactions of the assessee. Moreover, the statement recorded u/s 132(4) twice from the directors of the assessee also clearly established the nature of the unaccounted transactions, parties and amounts involved etc, sufficient enough to make additions in the respective years as rightly done by the AO. The section 132(4) of the Act and the explanation to section 132(4) unambiguously clarifies the evidentiary value of the statement provided by directors of the assessee and this cannot be disputed when it comes to directors of the assessee and their related entities. The relevant portion of section 132(4) is reproduced below for ready reference.

3.4 Finally, Mr. Ibrahim Khaleel has stated in Q.No.47 a reproduced in page 19 of this order 3.5 Thus, the AO came to the conclusion that the assessee has systematically recorded cash receipts from various parties, which are not recorded in regular books of accounts maintained by the assessee. The said finding has been arrived on the basis of admission of Mr. Ibrahim Khaleel. However, fact remains that there were no corroborative material either to support the assessee or AO’s contention. The assessee has also made an allegation before us that statement was recorded at the time of search under duress and Mr. Ibrahim Khaleel was with totally confused state of mind. The ld. A.R. also submitted that while recording the statement Mr. Ibrahim Khaleel clearly mentioned in his answer to question no.47 that he has incurred cash expenses also and which has to be considered while calculating the tax liability as per law. In our opinion, even the statement recorded to be considered as true, it has to be considered in its entirety and there shall not be any cherry picking and the AO cannot consider only the portion which is favourable to revenue. 3.6 The ld. D.R. stated that the assessee has entered only the receipt of cash and not recorded any expenses details. Hence, there is no question of giving any deduction towards expenses. The ld. A.R. also submitted that in the question no.47, it was stated by Mr. Ibrahim Khaleel that unaccounted cash collection was Rs.4,93,05,000/- relating to assessment year 2017-18. Contrary to this, the AO spread it to 4 assessment years, which is contrary to the statement recorded on 31.8.2017. In our opinion, there is no correlation between the seized material and answer to question No.33 & 47 and the addition made by AO in this assessment years. Further, the AO stated that assessee has received cash from various parties but failed to bring on record any particular name from whom said cash has been received and also name and address of the person to whom said cash has been handed over. If at all, the AO had details of name and address of person who has paid the cash to the assessee, then he should have examined the said person to know the exact nature of receipts recorded in the impugned loose slips/scribbling pad. There is no iota of any evidence on record to prove that the AO had made any attempt to corroborate the entries mentioned in alleged scribbling pad or brought on record the details of name and address of payee. In the absence of any specific reference to the parties, from whom the monies have been received and also nature of receipt for which cash has been paid, it is very difficult to accept the noting in scribbling pad as undisclosed income of the assessee outside the books of accounts. 3.7 Further, on going through the answer to question no.47, it is abundantly clear that answer to question no.47 purport the statement of assessee and his declaration obtained by search team towards undisclosed income for the period covering the assessment year 2017-18 only and it looks like this is an obtained statement without bringing any material on record to support the same. It is well settled principle of law that when any document like present scribbling pad/loose slips are recovered during the course of search action and the revenue wants to make use of it, the onus is on the revenue to collect cogent evidence to corroborate the noting in alleged documents. In this case, revenue has failed to bring on record any cogent evidence to prove conclusively that the noting in the seized documents refer to the unaccounted cash receipts of the assessee. Further, no circumstantial evidence in the form of unaccounted assets and liabilities outside the books of accounts were found in the course of search action except physical cash of Rs.55 lakhs. In our opinion, the impugned additions made by AO on the basis of seized materials in the form of entries in the loose slips/scribbling pad is an in-advocate material. As such, since it cannot stand on its own legs. 3.8 The main contention of ld. D.R. is that the statement recorded u/s 132(4)/131 of the Act is self-speaking document and it cannot be overruled. In our opinion, reliability of these statements depends upon the facts of each case and particularly surrounding circumstances and in this case, the lower authorities reached to the conclusion on the basis of assumption resulting into fostering liability on the assessee on the basis of in-advocate material coupled with statement recorded during the course of search since there is no corroborative material to support the contention of the AO. In the absence of corroborative evidence, merely on the basis of admission in the statement recorded u/s 132(4)/131 of the Act, no addition could be made by AO. The AO failed to bring on record any materials to support his view to make an addition and there was no reason as to why AO did not proceed further to enquire into the unaccounted income as admitted by assessee in statement recorded u/s 132(4) of the Act. This fact was also not taken care of and also no corresponding assets with reference to unaccounted cash receipt of Rs.4,93,05,000/- was brought on record. In such circumstances, we are not in a position to sustain this addition. For this proposition, we rely on the following judgement: a) Sri Ganesh Trading Company Vs. CIT 257 CTR 159 (Jharkhand) 3.9 In the case of CIT Vs. Layer Exports Pvt. Ltd. reported in 53 ITR (Trib) 416 (Mum), wherein held that “loose papers found during the course of search and after considering the relevant facts held that no addition could be made simply on the basis of uncorroborated noting in loose paper found during the course of search action because addition on account of alleged on money receipts made simply on the basis of uncorroborated noting in scribbling or loose sheets of papers made by some unidentified person having no evidentiary value was unsustainable and bad in law”. 3.10 Being so, in our opinion, the addition made by AO on the basis of contents in loose slips/scribbling pad is not based on any cogent evidence or unaccounted assets or unaccounted investments unearthed during the course of search, but solely on the basis of assumption and presumptions. In our opinion, suspicion however strong cannot takes place of evidence, which can be used against the assessee. Had it been the case of the AO that the alleged entries in loose slips/scribbling pads and its contents was tested by examination and by cross examining the parties, then obviously it would give rise to an occasion to the AO to rely on said documents to make additions. In the present case, the AO has not made any effort to verify the entries recorded in the loose slips/scribbling pads by making further enquiries and examination/cross examination of the alleged persons or payee of said amount. Further, on perusal of entries in the loose slips/scribbling pads as recorded by AO in the assessment order, we find that nothing was emanating regarding name and address of persons through whom the said amount was received and the parties for which it has been paid. In the absence of any effort from AO by way of further proper enquiries, merely on the basis of entries in the loose slips/scribbling pad coupled with the statement recorded during the course of search, addition cannot be sustained. Being so, we are inclined to delete the addition made by AO in these assessment years towards unaccounted cash receipts by assessee. These grounds of appeal in all these appeals are allowed.”

6.1 In the present case, the facts of the assessee’s case are similar to that one considered by the Tribunal in the case of M/S Emkay Hindusthan Infrastructure, Mangalore cited supra and the ratio laid down therein is squarely applicable to the facts of assessee’s case herein. In view of this, applying the above ratio, the addition cannot be made towards unaccounted income as well as addition made u/s 40(a)(ia) of the Act in the hands of present assessee in all these assessment years. Accordingly, we delete these additions in the hands of assessee in all these assessment years and the grounds raised by the assessee are allowed in all these assessment years. A common order passed shall be kept in the respective case files.

Pronounced in the open court on the date mentioned on the caption page.