INCOME TAX OFFICER-20(1)(4), MUMBAI vs. DHUDHWALA REAL ESTATE AND INVESTMENT, MUMBAI

The grounds of appeal read as under :-

Brief facts of the case are that the assessee firm has undertaken the project at Retreat Compound Building at Belasis Road. A survey u/s 133A was conducted in the case of assessee on 28.09.2011. During the survey proceedings, a statement of Shri Nisar Ahmed Patel (Partner of assessee firm) was recorded wherein he had offered the net profit of Rs. 3 crores as the income for the financial year 2011-12 and also paid advance tax of Rs. 93.00,000/-. However, at the time filing return, the income declared was Nil, and the assessee claimed a refund of Rs. p,000/-. During assessment proceedings, the assessee was show caused as to why the declaration given at the time of survey proceedings should not be treated as net profit and Accordingly the amount of Rs. 3 crores should not be added to its total income. In response, the AR stated that the assessee is not bound to offer the income of Rs. 3 crores merely on the basis of offer of such income during survey by one of the partners who is not looking after accounting and taxation matter of the assessee firm. He stated that the assessee firm is consistently following judicially accepted 'project completion method' of accounting and that the project was not completed during the assessment year under reference. He also stated that Department has accepted the project completion method of accounting in the case of assessee in earlier years in respect of the said project and hence the said position must not be disturbed during the current year too keeping in view the "rule of consistency". Also the AR stated that the Guidance Note on accounting for real estate transactions (Revised 2012) issued by ICAI is not applicable to the assessee. The reply of assessee was not found acceptable by Assessing Officer and for reasons given in assessment order, he made addition of the amount of Rs. 3,00,00,000/- to income of assessee.

The Assessing Officer made the addition by observing as under :-

Upon assessee's appeal learned CIT(A) deleted the addition.

Learned CIT(A) found that there was no corroborative evidence for the addition of Rs. 3 crores, except the statement by one of the partners. Learned CIT(A) accepted the submission that the said partner was not looking after the tax and accounting of the assessee firm. That assessee was consistently following project completion method. That the same was duly accepted by the Department in earlier years.

We may gainfully refer to the observations of learned CIT(A) in this regard as under :-

Thereafter learned CIT(A) placed reliance upon following case laws from honourable Supreme Court for the proposition that without any corroborative evidence addition is not sustainable only on the basis of admission.

Accordingly learned CIT(A) deleted the addition. Against the above order, the revenue is in appeal before us.

We have heard both the parties and perused the records. Learned counsel of the assessee stated that the addition is made solely on the basis of statement on survey. She reiterated that no corroborative evidence has been found and referred in the orders of the Assessing Officer. She reiterated the submissions before the authorities below. She placed reliance upon the Hon'ble Supreme Court decision in the case of S Kader Khan (supra).

Per contra learned departmental representative regard upon the orders of the assessing officer. He submitted that the addition was based upon clear admission by the partner of the firm during survey proceedings. That the assessee firm also paid advance tax of Rs.93 lacs on the said undisclosed income. That the admission has never been retracted. Hence he submitted that the addition should be sustained.

We have carefully considered the submissions and perused the records. We note that in this case there is a clear admission by one of the partners of the firm of the assessee for having made and offered undisclosed income for taxation. This was duly backed by payment of advance tax of ₹ 93 lakhs. Thereafter, there was no retraction or a statement on oath by the assessee that the said offer was made wrongly. Having offered the sum for taxation and paid the tax due thereon assessee firm did not offer the same in the return of income. On enquiry in this regard, it was stated that the said disclosure was done by one of the partners who was not looking after the taxation aspect of the firm. However, this is a clearly self-serving statement. The assessee firm has paid tax of ₹ 93 lakh on the above said disclosure, now it cannot say that advance tax was paid without understanding the tax implication. Hence, this plea is totally unsustainable. Learned CIT appeals has totally erred in this regard in not taking into account this fact that the assessee has paid ₹ 93 lakh on the undisclosed income of ₹ 3 crore offered to tax. Thereafter, the assessee has claimed that though the assessee has offered to give the working of the undisclosed income within 10 days, the assessee was not called upon to give the said detail and the requirement by the assessing officer came only at the stage of assessment. We find that to our astonishment, the learned CIT appeals has accepted this statement. We find it is strange that assessee having accepted the undisclosed income paid the tax due thereon and promised to give the details within 10 days and if the assessing officer asks the assessee to give the same at the stage of assessment how can adverse inference be taken against the Department for having not pursued with the assessee to give the said detail prior to the assessment is beyond our comprehension.

Another plank of the learned CIT appeals is deleting the addition by accepting the assessee’s submission that assessee has been following project completion method consistently in the past. We fail to understand how the disclosure of undisclosed income and payment of tax thereon can be nullified by simply stating that assessee is following project completion method consistently. Offer of undisclosed income and payment of tax thereon has no relationship whatsoever with the said consistently applied method of tax.

Furthermore the learned CIT appeals has relied upon case was for the proposition that without corroborative evidence, addition cannot be made for undisclosed income on the basis of the statement on survey. Here again we note that the addition in this case is not solely on the basis of the statement on survey. The said statement was duly corroborated by payment of corresponding advance tax. Hence, the learned CIT appeals has totally misled himself in giving a finding that there was no corroborative evidence other than the statement on survey. Furthermore, in the case laws referred by him there was due retraction by the person who made the statement. In the present case, there is no retraction whatsoever of the person who is a partner of the firm. Hence, these case laws are absolutely not applicable on the facts of this case. Moreover, it is settled law of partnership laws operating in India that a partner can bind the firm for his actions done on behalf of the firm. Hence, the disclosure of undisclosed income by one of the partners and coupled with payment of tax by the firm thereon and thereafter no retraction by the said partner leads to the irrefutable conclusion that the disclosure of undisclosed income and its assessment as such by the assessing officer is correct.

Accordingly, in the background of above said discussion, in our considered opinion, the order of learned CIT appeals is not sustainable. Hence, we set aside order of learned CIT appeals and restore that of the assessing officer.

In the result, the Revenue’s is allowed