ACIT CENTRAL CIRCLE 1(3), AHMEDABAD, AHMEDABAD vs. RAKESHKUMAR MAHENDRAKUMAR SHAH , AHMEDABAD

3. The assessee has raised the following grounds of appeal:

1. In law and in the facts and circumstances of the appellant’s case, the Hon’ble CIT(A)-11 has grossly erred in upholding the order of assessment dated 20.03.2024 passed in the concerned assessment year.

2. In law and in the facts and circumstances of the appellant’s case, the Hon’ble CIT(A)-11, has grossly erred in upholding the validity of assessment proceedings initiated under section 143(3) of the Income Tax Act, 1961 even whereas such proceedings are bad- in-law.

3. In law and in the facts and circumstances of the appellant’s case, the Hon’ble CIT(A)-11 has grossly erred in treating an amount of Rs. 50,00,000/- as brokerage income instead of GAP income as already disclosed in the return of income filed.

4. The appellant craves to add, amend, alter or withdraw any ground either before or at time of the appeal hearing.”

4. The brief facts of the case are that the assessee filed his original return of income on 21.10.2022 under section 139(1) of the Act declaring income of Rs.14,73,11,550/-, which was processed under section 143(1) of the Act. A search action under section 132 was carried out on ACIT Vs. Rakeshkumar Mahendrakumar Shah & Rakeshkumar Mahendrakumar Shah vs. ACIT Asst. Year–2022-23 - 3– 07.03.2022 in the Urmin Group and its key associates, including at the residential premises of the assessee, where substantial incriminating material in the form of loose sheets, WhatsApp chats and other digital data was found and seized. Upon examination of this material, the Department concluded that several land/property transactions pertained to the assessee, and cash of Rs.11,84,34,650/-, jewellery valued at Rs.3,35,80,173/- and USD 18,700 were found and seized from his residence and lockers. Notices under sections 143(2) and 142(1) were issued on various dates, namely 04.10.2023, 14.08.2023, 22.08.2023, 09.01.2024, 18.01.2024 and 21.02.2024, calling for explanations from the assessee. Though several opportunities were provided, the assessee filed delayed and non-specific replies and avoided answering transaction-wise queries, compelling the Assessing Officer to complete the assessment based on the seized material, statements recorded and available records.

4.1 During the search proceedings, the assessee’s statement under section 132(4) was recorded on oath on 08.03.2022, 09.03.2022 and 10.03.2022. In these statements, as reproduced in the assessment order, the assessee admitted that he had been facilitating land/property deals since 2018 and earned brokerage income at the rate of 1% from both buyer and seller, and the assessee stated that he had earned brokerage of Rs. 7,06,86,000/- since 2018, much of which was retained in cash. He further confirmed that significant cash was kept at his residence and that relevant land deals included the Rancharda lands (Survey Nos. 743 and 1093) and Mulsana land parcels. At the time of recording, the assessee did not express &1724/Ahd/2024 ACIT Vs. Rakeshkumar Mahendrakumar Shah & Rakeshkumar Mahendrakumar Shah vs. ACIT Asst. Year–2022-23 - 4– any grievance, stated that the contents were true and correct, and signed each page of the statement. Subsequently, on 20.10.2022, more than seven months after the search, the assessee filed an affidavit-cum-clarification, asserting that he was mentally and physically exhausted during the four days of interrogation and that the officers recorded the statement under preconceived notions. He also claimed that he could not recollect what exactly was recorded and that he had not been provided copies of the statements. This affidavit stated that he had not earned brokerage as admitted in the statement, but rather earned “land trading / GAP income”. The affidavit also alleged that he was not permitted to read the recorded statement. A second affidavit dated 12.01.2024 reiterating similar claims was filed during assessment. The Assessing Officer rejected both affidavits as afterthoughts, noting that the assessee never complained before the Investigation Wing, provided no evidence of having applied for copies of statements, and himself admitted in the affidavit that he had “no memory” of what was recorded yet simultaneously alleged incorrect recording. The AO held that the affidavits were self-serving, devoid of merit, and lacked contemporaneous authenticity.

4.2 With respect to the undisclosed brokerage income, the Assessing Officer reproduced the exact answers given under section 132(4), where the assessee voluntarily admitted earning brokerage since 2018. Relying on this admission, the AO held that the assessee had consistently charged 1% brokerage from both sides in each land transaction. Based on seized WhatsApp chats showing at least 41 land/property deals, the ACIT Vs. Rakeshkumar Mahendrakumar Shah & Rakeshkumar Mahendrakumar Shah vs. ACIT Asst. Year–2022-23 - 5– AO required the assessee to provide deal-wise break-ups, but the assessee merely filed a generic reply for four assessment years and did not furnish any corroboration. The AO therefore held that the assessee had earned brokerage income of Rs. 50,00,000/- in respect of the Rancharda land deal for Survey Nos. 743 and 1093 during the year, noting that although the assessee admitted this amount in the statement, he avoided specifying the year of receipt. Given that huge cash was found during search, the AO treated it as income of the current year. Likewise, for the Mulsana land transaction, the AO concluded that the assessee earned brokerage of Rs. 1,81,75,387/-, being 1% on the total deal value of Rs. 90,87,69,370/- (registered deed value plus cash component), since the transaction was executed on 03.03.2022 and the assessee failed to deny receipt of brokerage. These were also supported by the assessee’s categorical admission in his statement that he charged 1% brokerage from both buyer and seller. The AO referred the valuation of Mulsana and Rancharda lands to the District Valuation Officer, making the brokerage computation subject to rectification on receipt of the DVO report.

4.3 As regards the cash, jewellery and foreign currency found and seized, the assessee contended that these were sourced from land trading and GAP income, yet admitted in the affidavit that he had no records of any such land trading or any land from which such income was allegedly derived. He further admitted that transactions were mostly done “on trust” and often without written documentation. The AO held that the assessee failed to provide even a single evidence such as farmer confirmations, &1724/Ahd/2024 ACIT Vs. Rakeshkumar Mahendrakumar Shah & Rakeshkumar Mahendrakumar Shah vs. ACIT Asst. Year–2022-23 - 6– payment details, bank statements, agreements, or even a list of lands allegedly traded to explain the seized assets. The AO found that the assessee’s subsequent claim of land trading was an attempt to retrospectively explain the seized assets and contradict his own earlier detailed admission of brokerage income in the 132(4) statement. The AO accordingly held that Rs. 12,22,36,163/- represented unexplained money and investment assessable under sections 69A and 69B read with section 115BBE, being accumulated unaccounted wealth unearthed during the search.

4.4 The AO therefore re-characterised the returned income of Rs. 14,73,11,550/- by holding that Rs. 2,50,75,387/- represented brokerage income chargeable under section 28 of the Act, comprising Rs. 19,00,000/- from KCL House (admitted by the assessee), Rs. 50,00,000/- from Rancharda Land, and Rs.1,81,75,387/- from Mulsana Land. The balance Rs. 12,22,36,163/- was held to be unexplained money or investment. The total assessed income was assessed at Rs.14,73,11,550/-, and penalty proceedings under sections 271AAB and 270A were initiated.

5.1 With respect to Grounds 3 and 4, which concerned the addition of Rs. 1,81,75,387/- on account of alleged brokerage income from the Mulsana land transaction and the addition of Rs. 12,22,36,163/- under sections 69A and 69B of the Act, the CIT(Appeals) examined the assessment order and the record of search in detail. He noted at the outset that during the search at the assessee’s premises, substantial cash, jewellery and foreign currency were found and that in the return of income the assessee had already disclosed Rs. 14,73,11,550/- comprising Rs. 19,00,000/- as brokerage income and Rs. 14,50,00,000/- as land trading and GAP income. The Assessing Officer, however, treated Rs. 2,50,75,387/- as brokerage income including brokerage attributed to Rancharda and Mulsana properties, and treated the balance amount of Rs. 12,22,36,163/- as unexplained income assessable under sections 69A or 69B. The CIT(Appeals) observed that although the AO referred broadly to digital evidences and WhatsApp chats indicating forty-one property transactions, the assessment order did not rely on any specific incriminating document establishing unexplained investment or unexplained money. Instead, the AO placed primary emphasis on the assessee’s statement under section 132(4) of the Act.

&1724/Ahd/2024 ACIT Vs. Rakeshkumar Mahendrakumar Shah & Rakeshkumar Mahendrakumar Shah vs. ACIT Asst. Year–2022-23 - 8– 5.2 The CIT(Appeals) then examined the assessee’s affidavits dated 21.04.2022 (filed before the AO on 20.10.2022) and 12.01.2024. He held that these affidavits were not in the nature of a retraction of income disclosed during search but were clarificatory statements explaining that the assessee was engaged in land trading and GAP-based transactions rather than brokerage transactions in the strict sense, and that the cash and jewellery found represented business income earned through such dealings. The CIT(Appeals) rejected the AO’s assertion that the affidavits were afterthoughts or that they lacked authenticity, noting that the assessee had not denied the ownership of cash or jewellery but had merely explained the correct nature of income. The CIT(Appeals) also held that if the AO intended to rely on the statement recorded under section 132(4) of the Act, the statement had to be read as a whole and not selectively, relying on the principles laid down by the Hon’ble Gujarat High Court in Glass Lines Equipments Co. Ltd. v. CIT (119 Taxman 813) and Navjivan Oil Mills v. CIT (124 Taxman 392), wherein it was held that a document must be read integrally and cannot be used piecemeal.

5.3 The CIT(Appeals) observed that in the assessee’s statement under section 132(4), the assessee repeatedly stated that the cash and jewellery found belonged to him and were earned from dealings in immovable properties, described by him as brokerage in the ordinary sense. This, according to the CIT(Appeals), aligned with the concept of GAP or margin income that brokers routinely earn by negotiating between buyers and sellers. He found force in the assessee’s explanation that land traders &1724/Ahd/2024 ACIT Vs. Rakeshkumar Mahendrakumar Shah & Rakeshkumar Mahendrakumar Shah vs. ACIT Asst. Year–2022-23 - 9– frequently operate in cash and that no cheques can be expected where transactions occur in the informal agricultural land market. He noted that although the AO claimed that incriminating evidence was found, the assessment order did not refer to any specific material establishing unexplained income. On the contrary, the WhatsApp chats indicating forty-one land transactions supported the assessee’s claim that he was engaged in land trading and GAP income, and not merely in earning formal brokerage for which cheque receipts should have existed.

5.4 After considering the evidence and circumstances, the CIT(Appeals) held that the AO was not correct in treating Rs. 12,22,36,163/- as unexplained income under sections 69A or 69B of the Act, because the assessee had already disclosed this amount as business income under section 28 of the Act. The CIT(A) held that the presence of substantial cash and jewellery, combined with the assessee’s repeated admission during search that such assets emanated from dealings in land, supported the stand that the income was from business activities of land trading and not unexplained sources. He therefore directed the AO to treat the entire amount of Rs. 14,50,00,000/- disclosed as land trading/GAP income as business income under section 28, and not as unexplained income under sections 69A or 69B.

5.5 Turning to the brokerage additions, the CIT(Appeals) distinguished between the Rancharda and Mulsana transactions. Regarding the Rancharda lands (Survey Nos. 743 and 1093), the assessee had in his &1724/Ahd/2024 ACIT Vs. Rakeshkumar Mahendrakumar Shah & Rakeshkumar Mahendrakumar Shah vs. ACIT Asst. Year–2022-23 - 10– section 132(4) statement clearly admitted to having received Rs. 25,00,000/- each from the buyer and seller, totaling to Rs. 50,00,000/-, and had not produced any affidavit from either party denying the payment. The CIT(Appeals) therefore confirmed the addition of Rs. 50,00,000/- as brokerage income under section 28 of the Act for the year under appeal. However, with respect to the Mulsana land transaction, the CIT(Appeals) found that although the assessee described the land deal in detail in his statement, he nowhere stated that he had received or was to receive brokerage in respect of that transaction. He therefore held that the AO erred in attributing brokerage of Rs. 1,81,75,387/- by mechanically applying a 1% formula to the deal value without any corroborative evidence. He also noted that since the assessee had disclosed Rs. 14,50,00,000/- as land trading and GAP income, any income notionally attributed by the AO to Mulsana land would already stand subsumed therein. Consequently, he deleted the addition of Rs. 1,81,75,387/-.

5.6 As a result, the CIT(Appeals) directed that Rs. 50,00,000/- alone be treated as brokerage income under section 28 and that the balance of Rs. 14,00,00,000/- be taxed as land trading/GAP income, both forming part of business income. Grounds concerning penalties under sections 271AAB and 270A were held to be premature and dismissed, and the general ground was also dismissed. The appeal was accordingly partly allowed.

5.7 Both the assessee and Department are in appeal before us against the order passed by CIT(Appeals). The Department is in appeal before us &1724/Ahd/2024 ACIT Vs. Rakeshkumar Mahendrakumar Shah & Rakeshkumar Mahendrakumar Shah vs. ACIT Asst. Year–2022-23 - 11– against the relief provided by CIT(Appeals) whereas the assessee is in appeal before us against Rs. 50,00,000/- being treated as brokerage income of the assessee.

7.1 We find that the CIT(Appeals) has correctly appreciated the ratio of judicial precedents which consistently hold that a mere statement, without corroboration, cannot form the sole basis for additions under deeming provisions, such as the judgment of the Hon’ble Madras High &1724/Ahd/2024 ACIT Vs. Rakeshkumar Mahendrakumar Shah & Rakeshkumar Mahendrakumar Shah vs. ACIT Asst. Year–2022-23 - 12– Court in CIT v. S. Khader Khan Son [2008] 300 ITR 157 (Mad.), wherein it was categorically held that statements recorded during search or survey cannot, by themselves and without supporting material, constitute substantive evidence. This principle has been reaffirmed in Pr. CIT v. Best Infrastructure (P.) Ltd. [2017] 84 taxmann.com 287 (Delhi), ITO v. Dulari Digital Photo Services (P.) Ltd. [2012] 24 taxmann.com 31 (Chd.), and reiterated by the Bangalore Bench of the Tribunal in Income-tax Officer v. Ramachandra Setty & Sons [2024] 163 taxmann.com 666 (Bang.-Trib.), where it has been held that a sworn statement must be corroborated by independent material and that additions based solely on unsubstantiated loose slips or uncorroborated statements cannot be sustained.

7.2 The CIT(Appeals) has also applied the correct principles relating to the treatment of income arising from land-related transactions, particularly in situations where the assessee has admitted that the assets represent business income generated through land deals negotiations. The CIT(Appeals) has rightly found that there was no separate material showing unexplained sources and that the seized cash and jewellery were already subsumed in the assessee’s declared land trading/GAP income. This view is fortified by the Chandigarh Tribunal decision in DDK Spinning Mills v. DCIT [2023] 157 taxmann.com 817 (Chandigarh- Trib.), wherein it was held that when the assessee has already offered the surrendered amount as business income and when there is no independent material showing any unexplained investment exceeding &1724/Ahd/2024 ACIT Vs. Rakeshkumar Mahendrakumar Shah & Rakeshkumar Mahendrakumar Shah vs. ACIT Asst. Year–2022-23 - 13– recorded amounts, sections 69B and 115BBE cannot be invoked. The ratio therein that the Assessing Officer must first bring tangible material evidencing unrecorded investment before shifting the burden upon the assessee squarely applies in the present case.

7.3 Similarly, the Bangalore Bench in Ramachandra Setty & Sons (supra) held that excess stock or assets found during search, where the assessee is engaged in a single known line of business and no other sources are detected, must be treated as business income and cannot be reclassified as unexplained investment under section 69B, unless independently corroborated. The CIT(Appeals) has applied this principle while holding that the assessee’s declared land trading/GAP income was to be taxed under section 28 and not under sections 69A or 69B read with section 115BBE.

7.4 With respect to brokerage additions, the CIT(Appeals) has differentiated the Rancharda and Mulsana transactions on sound reasoning. As regards Rancharda, there was a clear admission of having received Rs. 25,00,000/- each from the buyer and seller, with no contrary affidavit or evidence. Thus, sustaining the addition of Rs. 50,00,000/- was justified. As regards the Mulsana land transaction, however, the CIT(Appeals) noted that no admission of brokerage was ever made, and that the Assessing Officer adopted a mechanical 1% formula, unsupported by any document or third-party confirmation. This conclusion of the CIT(Appeals) is entirely in line with the principle stated in Glass &1724/Ahd/2024 ACIT Vs. Rakeshkumar Mahendrakumar Shah & Rakeshkumar Mahendrakumar Shah vs. ACIT Asst. Year–2022-23 - 14– Lines Equipments Co. Ltd. v. CIT (119 Taxman 813) (Guj.) and Navjivan Oil Mills v. CIT (124 Taxman 392) (Guj.), that a statement or document must be read as a whole and cannot be selectively used against the assessee.

7.5 In view of the above settled legal position, and finding that the CIT(Appeals) has thoroughly examined the evidentiary record, applied correct legal tests, and drawn conclusions that are balanced, reasonable and fully supported by judicial authority, we find no justification to interfere with his findings. The Department’s appeal challenging the deletion of the addition relating to Mulsana brokerage and the treatment of Rs. 14,50,00,000/- as unexplained income under Section 69A and 69B of the Act is without merit. Likewise, the assessee’s appeal challenging the sustenance of Rs. 50,00,000/- as brokerage income is also devoid of merit, since the CIT(Appeals) has relied on the assessee’s own categorical admission and the absence of any contrary evidence.