FOUNDATION ONE INFRASTRUCTURE PVT. LTD.,COIMBATORE vs. ACIT, CENTRAL CIRCLE-1,, COIMBATORE

Aggrieved by the additions made in assessments completed for AY’s 2013-14 to 2017-18, assessee preferred appeals before the First Appellate Authority. The CIT(A) vide impugned orders dated 30.09.2024 dismissed appeals of the assessee. The CIT(A) however treated on-money receipts as business income of the assessee company u/s.28 of the Income Tax Act and directed the AO to tax the same accordingly.

Aggrieved by the orders of First Appellate Authority, rejecting appeals of the assessee and confirming additions made by AO, assessee has preferred these appeals before the Tribunal. The assessee has filed two sets of paper book. In the first set of paper book, assessee had enclosed case laws to support various propositions canvassed before the Tribunal (which we shall consider in the course of this order). In the second paper book, the assessee had enclosed relevant extracts of survey manual stating that statement recorded u/s.133A has no evidentiary value, case laws supporting proposition that impounded material must be relied on as a whole etc. The grounds raised for assessment years are identical except for variance in figures. For AY’s 2015-16 & 2017-18 there are additional grounds with regard to duplication of additions to 3152//CHNY/2024 made by AO. The grounds raised

The assessee has also filed an application vide its letter dated 18.02.2025 for admission of additional ground, wherein it is stated that “the sworn statements recorded u/s.131(1A) of the Act are impermissible and not valid in the eyes of law”. The assessee has also filed a petition seeking permission of the Tribunal to consider grounds not raised before the lower authorities, but raised for the first time before ITAT. The said ground states that electronic record obtained from computer do not comply with the provisions of section 65B of the Indian Evidence Act, 1872 and same cannot be taken or admissible as an evidence in the eyes of law. The ground relating to violation of provisions of section 65B of the Indian Evidence Act, 1962 and validity / permissibility of statements recorded u/s.131(1A) of the Act, during the course of survey proceedings on the facts of instant case are purely legal issues, hence the same are taken on record.

The learned AR submitted that in a case of survey u/s.133A of the Act, statement can be recorded only u/s.133A(3) of the Act. Only in the event of satisfaction of conditions mentioned u/s.133A(6) of the Act, a statement can be recorded u/s.131(1A) of the Act. It was submitted by the learned AR that in the present to 3152//CHNY/2024 case, survey team has not brought anything on record that conditions mentioned u/s.133A(6) for recording sworn statement u/s.131(1A) of the Act. In this context, learned AR referred to relevant extract of survey manual, which is placed on record at page 81 of the 2nd paper book. Therefore, it was contended that sworn statements recorded u/s.131(1A) of the Act are impermissible and invalid in the eyes of law. The learned AR also relied on following case laws to buttress his above submissions: i) CIT Vs. S.Khader Khan & Sons reported in 300 ITR 157 ii) Hon’ble Delhi High Court judgement in Khem Chand Mukim Vs. PCIT (Inv)reported in 423 ITR 129 (Del)

The learned AR further contended that admittedly in the instant case, there has been no compliance as mandated as per provisions of section 65B of the Indian Evidence Act, 1872 for taking electronic records as a piece of evidence. It was submitted that there was no certificate as per terms of said section and in absence of same, loose excel sheets printed from the computer of AGM (Admin) does not have any evidentiary value. Further, learned AR submitted that impugned material must be relied upon as a whole. In this context, learned AR relied on following case laws:- i) CIT Vs. D.D.Gears Limited (2012) 25 taxmann.com 562 (Del) to 3152//CHNY/2024 ii) ACIT Vs.Rivervalley Flour Mills P.Ltd (2013) 147 taxmann.com 560(Patna) iii) ACIT Vs Omprakash & Co (2004) 2 SOT 1 (Mum Trib)

It is also submitted by the learned AR that AO has not proceeded against buyers who have alleged to have paid on-money, whereas, assessee has obtained confirmation from buyers stating that they have only paid amounts disclosed in the sale deed. On merits, the learned AR submitted that additions made for AY 2015- 16 is bad in law, because same amount has been added also in AY 2014-15. Similarly for AY 2017-18 a sum of Rs.2 crores has been added twice i.e., for AY 2016-17 as well as for 2017-18. Lastly, it was contended by the learned AR that CIT(A) has erred in not considering confirmation letters given by purchasers stating that only disclosed consideration was paid.

The learned DR submitted that even assuming sworn statement cannot be taken as a piece of evidence, the assessee voluntarily had furnished two letters disclosing receipt of on-money for various years and how the same should be brought to tax in respect of various AY's. Further, the learned DR strongly relied on findings of AO and CIT(A) and submitted that order of CIT(A) is correct and no interference is called for. to 3152//CHNY/2024

We have heard rival submissions and perused materials on record. In the instant case, the grounds raised

We find from the Survey Manual, 2019 that survey team should have recorded the statement under section 133A[3] [iii] of the Act which does not grant power to survey team to administer oath as in the case of search. Even if we consider that the subject statements are recorded under section 133[A][3][iii] of the Act, the same does not have any evidentiary value as held by the jurisdictional high court in the case of CIT vs. S. Khader Khan son reported in 300 ITR 157. The Hon. Apex Court dismissed the SLP filed by the revenue and the issue has reached finality. We find that recording of to 3152//CHNY/2024 statement under section 131[1A) of the Act in the case under consideration is incorrect and invalid as per law. Since the subject statements are invalid in law therefore the same could not have been used to make any addition in the case under consideration. Even considering the judgement of the Hon'ble Supreme Court in the case of Pooran Mal v Director of Inspection [1974] 93 ITR 505 (SC) where it was observed that material obtained from an illegal search can still be used against the person in whose custody it was found, it is to be noted that the Hon’ble Apex Court in the said decision concerned itself with material obtained from an illegal search and not a mere illegal statement recorded under the wrong provisions of the Income Tax Act as stated in the aforesaid paragraphs.

We also find that the assessing officer relied upon the impounded material in the form of excel sheets that were taken from the computer of the employee of the assessee company, and he made the additions based on the aforesaid material. We find merit in the contention of the AR is that the impounded material relied upon by the assessing officer ought to have been accompanied by a certificate in terms of section 65B[4] of the Indian Evidence Act, 1872 which is a precondition so as to render the same as admissible in evidence. In the instant case, the said certificate was not obtained in respect of such impounded material, i.e., excel sheets to 3152//CHNY/2024 that the Assessing Officer has relied upon to make additions and thus in view of the non-adherence to the provisions of section 658(4) of the Indian Evidence Act 1872, the said impounded material is inadmissible in the eyes of law. In this context, we rely on the judgement of Hon’ble Apex Court in the case of Arjun Panditrao Khotkar v Kailash Kushanrao Gorantyal & Ors reported in (2020) 7 SCC 1 and the order of Chennai Bench of ITAT in the case of Mr.A.Johnkumar v DCIT in (Order dated 13.05.2022). It is a fact that the AGM of the assessee company has signed the said loose sheets in excel form. It can however be seen that this hardly meets the requirements set out in section 65B[4] of the Indian Evidence Act, 1872. We further find that the Evidence Act would apply to income tax proceedings, but not the rules of evidence as held by the Hon. Apex Court in the case of Chuharmal v CIT reported in 172 ITR 250. Thus, non-compliance with the provisions of the section 65B[4] of the Indian Evidence Act, 1872 in the case under consideration invalidates the AO’s reliance on the print out of the excel sheets taken out of computer of the AGM of assessee company.

We further find that the assessing officer has relied upon the impounded material obtained during the course of survey and has taken into consideration only some portions of the impounded to 3152//CHNY/2024 material and has disregarded the rest of it, which is not permissible in law as held by the Hon. Delhi High Court in the case of CIT v D.D.Gears Ltd. reported in 25 taxmann.com 562. It is also a fact that the total consideration stated in the loose sheets does not match with the other data contained in the said sheet if the cash component is included in the total cost of the flat. Apart from the entries made under the CASH column of the loose sheets, the assessing officer has not brought out any other material or corroborative evidence to prove the receipt of on-money by the assessee company, which only goes to show that the impounded material contained a lot of inaccurate data which are not capable of being reconciled, making the same unreliable and thus could not have been relied upon for making the additions.

We also note that the entries in the excel sheets do not indicate when the alleged on-monies in respect of sale of flats was received by the assessee company. In fact, the assessing officer merely relies on the project-wise and year-wise details of on-money receipts that were provided by the assessee company to make additions across various assessment years. The said details were provided through two letters, one on 12.06.2017 and the other on 26.07.2017, contents of which have been reproduced in the assessment order. On a glimpse of the contents of the first letter, it to 3152//CHNY/2024 can be seen that the year of receipt is mentioned as relating to AYs 2014-15 to 2018-19 since the year of receipt is stated as the years 2013-14 to 2017-18. Coming to the second letter, it can be seen that the assessee company had agreed to offer income in AYs 2013- 14 to 2017-18. This clearly shows that the letters given in writing by the assessee company are contrary to each other, making them undependable and probably under stress, and thus cannot be used against the assessee company. Not merely that the said 2 letters contain irreconcilable differences, it also is stark that these letters were obtained in aftermath of proceedings u/s.131[1A] of the Act. We have already observed that statements recorded u/s.131[1A] of the Act are impermissible in the facts and circumstances of the case and at any rate carry no evidentiary value. Even for this reason, the said letters cannot be used as evidence to support any additions made by assessing officer. The assessing officer has proceeded to make the additions only on the basis of statements which were invalid and obtained without authority of law and on inaccurate loose sheets / dumb documents that were incapable of being relied upon for making any addition. Further CIT(A), in the impugned order has stated that the sale consideration per sq.ft with reference to the same project in the transaction where cash component is involved is lower compared to where there is no cash component involved to 3152//CHNY/2024 is entirely through banking channel.” This assumption of the CIT(A) may not be fully correct. The price difference in adjacent apartment may be due to multiple reasons. The vasthu compliant apartment will fetch higher price. The payment terms accorded to customers will also affect price per sq.ft etc.

It is undisputedly clear that the lower authorities had not collected any other evidence to prove that the impugned income was earned by the assessee company. The Ld. AO has even resorted to double additions which are evident and clearly show lack of application of mind on his part, which has been upheld by the Ld. CIT(A). Thus, in our considered view that there was no corroborative evidence to support the claim made by the Assessing Officer. We hold that mere statements or letters which are not corroborated by other independent and cogent evidence cannot be relied upon for making any additions. Therefore, on facts of the instant case, we delete the additions made for AY's 2013-14 to 2017-18.

In the result the appeals filed by the assessees are allowed. Order pronounced in the open court on 11th March, 2025.