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Facts
The appeals involved a search and seizure action that led to additions to income based on documents recovered. The Assessing Officer (AO) made additions under section 69 of the Income-tax Act, 1961, related to unexplained investments in properties. The Commissioner of Income-tax (Appeals) deleted these additions, leading to appeals by the revenue.
Held
The Tribunal held that in the absence of specific evidence of actual payment of 'on-money' and considering the nature of transactions as distribution of unsold stock or capital adjustment, additions made by the AO were not justified. For the loan addition, it was held that the decoding of the amount was not substantiated, and the explanation of labour charges for ornament repair was plausible, leading to a restricted addition.
Key Issues
Whether the additions made by the AO for unexplained investments in properties and alleged loans were justified without concrete evidence of actual payment or proper substantiation of the decoded amounts.
Sections Cited
69, 69A, 69B, 153A, 143(3), 45(4), 50D, 292C, 45(4)
AI-generated summary — verify with the full judgment below
Before: SHRI DINESH MOHAN SINHA & SHRI BIJAYANANDA PRUSETH
आदेश / O R D E R PER BENCH: These three appeals, two appeals by the revenue and one by assessee, emanate from the separate orders passed under section 250 of the Income-tax Act, 1961 (in short, “the Act”), dated 06.01.2023 and 05.01.2023 by the A.Ys 15-16, 18-19 & 20-21 Sh. Hemant N. Agarwal Commissioner of Income-tax (Appeals)-4, Surat [in short, “CIT(A)”] for the Assessment Years (AY) 2015-16, 2018-19 and 2020-21, which in turn arose out of separate assessment orders passed by Assessing Officer (in short, “AO”) u/s 143(3) r.w.s. 153A of the Act on 07.03.2022 and 04.03.2022. With the consent of both parties, all the appeals were clubbed, heard together and a common order is passed for the sake of convenience and brevity.
Grounds of appeal
1. raised by the revenue in IT(SS)A No.68/Srt/2023 for AY 2015-16 are as under: “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.4,54,05,674/- u/s 69 of the I.T Act despite the facts that addition has been made on the basis of incriminating details/document recovered during the search proceedings relating to investments by partners of the firms, their family members as well as other persons in Westfield Shopping Centre Project Ghod Dod Road Surat in which the details of documents date, market rate, area of shops and unaccounted investment made for purchase of the units/shops in the said project are mentioned.
2. In addition to the ground no. 1, on the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.4,54,05,674/- despite noting the facts that capital of Rs.1,14,16,900/- taken by the appellant from his father was paid in 22 different cheques to the firm Kuberji Developers towards acquiring the shops and if shops were only allotted to Shri Naresh Agarwal, partners of the firm and father of the appellant on dissolution of the firm then the there could not have been any need for making payment.
3. In addition to the ground no.1 & 2, on the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.4,54,05,674/- without appreciating the fact that if 33 shops were also the allotted shops as a part of dissolution process of the firm, then there could not have been any mention of ‘amount received’ and ‘amount due’ in the seized documents.
4. In addition to all above ground, on the facts and in the circumstances of the case and in law, the CIT(A) has granted relief de horse provisions of section 292C of the assessee.
5. Without prejudice to and in addition to the grounds No.1, 2, 3 & 4 on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by the Assessing Officer ignoring the principles of “Human Probability Test” i.e, preponderance of probabilities which is applicable for income tax proceedings.
6. On the facts and in the circumstances of the case and in law the Ld. CIT(A)-4 ought to have upheld the order of the Assessing Officer. 7. It is, therefore, prayed that the order of the Ld. CIT(A) may be set aside and that the AO may be restored to the above extent.”
Grounds of appeal raised by the revenue in IT(SS)A No.70/Srt/2023 for AY 2018-19 are as under:
“1. On the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the addition of Rs.4,79,82,099/- made by the u/s 69 of the I.T Act despite the facts that addition has been made on the basis of incriminating details/document i.e., separation deed recovered during the search proceedings relating to the value of the flats in Hans Residency project at Abhava Surat in which the value of such flats were mentioned at Rs.6,28,68,219/- and in the books of account the value of the flats were mentioned at Rs.1,48,86,120/-.
2. In addition to the ground no. 1, on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the addition of Rs.4,79,82,099/- made u/s 69 of the I.T. Act observing that the flats were appearing as WIP and the assessee has not paid any amount separately for acquiring the 12 flats as the flats were distributed as cost and hence there is no question of payment of ‘on-money’ despite the fact that the distribution was made as per the value of flats evident from the seized materials found during the course of the search proceedings in which the value of the flats were mentioned at Rs.6,28,68,218/- and to that extent un explained investment of the assessee is evident.
3. In addition to the ground no.1 & 2 above, on the facts and in the circumstances of the case and in law Ld. CIT(A) erred in deleting the addition of Rs.4,79,82,099/- made u/s 69 of the I.T. Act observing that the partners of the firm had distributed the flats in stock among themselves in their profit sharing ratios and the capital account of the assessee was debited at Rs.1,48,86,120/- despite the facts that the valuation of the 12 flats as decided by the partners was of Rs.6,28,68,218/- and hence the unexplained investment in acquiring the ownership of the 12 flats was of Rs.4,79,82,099/- of the assessee.
A.Ys 15-16, 18-19 & 20-21 Sh. Hemant N. Agarwal 4. Without prejudice to ground No. 1, 2 and 3 on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the addition of Rs.4,79,82,099/- made u/s 69 of the I.T. Act observing that there is no question of applying market value to the flats, which is in ignorance to the provisions of section 45(4) and 50D of the I.T. Act and despite the facts that the value of the flats decided at the time of dissolution of the firm at Rs.6,28,68,218/- and the assessee has declared the cost of the flats of Rs.1,48,86,120/- and hence an addition of Rs.4,79,82,099/- is warranted in the case of the assessee.
5. Without prejudice to the ground no. 1, to 4, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition without any direction u/s 150(1) of the Act for d addition in the case of the firm as it is undisputed facts that the fair market value of the 12 flats as on date of transfer to the assessee was of Rs.6,28,68,218/- and the book value of the flats was of Rs.1,48,86,120/- and hence an amount of Rs.4,79,82,099/- is taxable as capital gain in the hand of the firm in which assessee is partner as per the provisions of section 45(4) of the I.T. Act.
6. In addition to all above ground, on the facts and in the circumstances of the case and in law, the CIT(A) has granted relief de horse provisions of section 292C of the assessee.
Without prejudice to and in addition to the grounds No. 1 to 6 on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by the Assessing Officer ignoring the principles of “Human Probability Test” i.e., preponderance of probabilities which is applicable for Income Tax proceedings.
On the facts and in the circumstances of the case and in law the Ld. CIT(A)-4 ought to have upheld the order of the Assessing Officer.
It is, therefore, prayed that the order of the Ld. CIT(A) may be set aside and that the AO may be restored to the above extent.”
Grounds of appeal raised by the assessee in AY 2020-21 are as under: “1) The learned CIT(A) grossly erred in confirming addition of Rs.25 lacs on account of alleged loan on the base of some whatsapp image as discussed in para 6 of the appeal order. 2) The appellant reserves right to ad, alter and withdraw any grounds of appeal.”
IT(SS)A No.68/SRT/2024 (AY:15-16)
The facts of the case in brief are that the assessee filed his return of income on 31.10.2015 declaring total income of Rs. 8,16,780/-. Subsequently, a search and seizure action was conducted u/s. 132 of the Act in case of Kuberji Group on 06.02.2020. The residential premises of Shri Naresh Bisheshwarlal Agrawal, father of the assessee, was also covered during the search and seizure operation. Various incriminating documents were found and seized which indicated that the assessee had not disclosed his true and correct income in the original return of income. The assessee was issued notice u/s. 153 A of the Act. In response, he filed his return of income declaring the same total income of Rs.8,16,780/- on 15.04.2021.
5.1 During search proceedings at residence of Shri Shankarlal Uttamchandani, a digital image was found which was confronted to the assessee. The said image is pasted on page 5 of the assessment order. On the basis of such image, a show cause notice was issued to tax undisclosed investment in purchase of 33 shops in Westfield Project. The assessee furnished reply which is on page 4 of the assessment order. The AO was not satisfied the explanation and added unaccounted investment of Rs. 4,54,05,674/- u/s 69 of the Act in respect of 33 flats by adopting booking rate of Rs. 8500 to 13000 per sq. ft. depending upon the floors of the building.
A.Ys 15-16, 18-19 & 20-21 Sh. Hemant N. Agarwal 5.2 Aggrieved by the order, the assessee has filed an appeal before the CIT(A). The submission filed before the CIT(A) is reproduced in para 6.1 on page 4 to 6 of the appellate order. The CIT(A) deleted the addition on various reasons as mentioned in para 6.2 of the appeal order. He observed that Shri Naresh Agrawal (father of the assessee) was allotted 77 shops against unsold stock of the firm out of which 33 shops got registered in the name of his son, Shri Hemant Agrawal, the respondent-assessee. He also observed that money was received by the assessee from the bank account of his father, Shri Naresh Agrawal. Therefore, it was technically allotted to Shri Naresh Agrawal as partner of the firm. He further observed that no evidence of actual payment of unaccounted money was found for the said shops allotted to Shri Naresh Agrawal. He also observed that no addition is made in the case of Shri Naresh Agrawal, as it was distribution of unsold stock against his capital. Since shops were allotted out of unsold stock of the firm to the partner, Shri Naresh Agrawal, addition made by the AO on presumption that on-money has been paid applying the market rate could not be sustained. Hence, the CIT(A) deleted the addition .
Aggrieved by the order of Ld. CIT(A), Revenue has filed an appeal before this Tribunal. The Ld.CIT-DR supported the order of AO. He submitted that rates of booking of Westfield shops were found during the search in case of Shankarlal Uttamchandani and applying such rates, on money was required to be taxed as undisclosed income.
A.Ys 15-16, 18-19 & 20-21 Sh. Hemant N. Agarwal 7. On the other hand, Ld. AR of the assessee filed written submission which may be reproduced as below for ready reference: 1.1 The learned AO had relied upon some proof as per page 6 found and seized in the case of other partner Shankarbhai Uttamchandani through his son Hiren S. Uttamchandani as pasted on page 5 of the assessment order. The Respondent urges that there is reference of Shop No. 1006, 1060, 1061 and 1064 to 1066 wherein there is reference of gross amount of shops and on that base some average value is estimated. The Respondent strongly urges that, none of that shops is acquired by the assessee or any other family members as Shri Naresh Agrawal had acquired the shops on account of distribution of unsold stock of the project amongst the partners. 1.2 The learned AO estimated alleged undisclosed income against distribution of 33 shops of project called Westfield Shopping Center developed by Shri Kuberji Developers wherein his father is one of the partners. The learned AO applied the sale rate between 8500 to 14000 per sq. ft. on the base of different floors of the project. 1.3 The respondent strongly urges that there was big failure of the project and, therefore, part of the project was allocated to all the partners of the firm and accordingly Naresh Agrawal was allotted 77 shops. The Respondent further urges that, Naresh Agrawal was one of the partners in the firm and he had documented 80 shops in the name of his family members and accordingly 33 shops were acquired by the assessee. The Respondent strongly urges that the partner would not invest “on money” in his own project as it is mere distributions of unsold shops. 1.4 The Respondent strongly urges that his father Naresh Agrawal had withdrawn his capital from Kuberji Developers and part of the amount was transferred to the account of Hemant Agrawal for execution of document. This fact is discussed in para 6.2 of the CIT (A) order also. This proves that the shop was acquired from distribution of unsold stock to the partners. 1.5 The Respondent strongly urges that his father Naresh Agrawal (who is partner in Shri Kuberji Developers) had withdrawn capital from Shri Kuberji Developers and transferred the amount to him i.e. the Respondent who in turn paid the amount to Shri Kuberji Developers against distribution of shops. The Respondent therefore, urges that, it proves the acquisition of shops by Naresh Agrawal as a partner and since the document was executed in the name of his son, his capital was rotated from Shri Kuberji Developers. The Respondent urges that there is no question of payment of “on money” when the shops / office are distributed on mutual understanding amongst the partners. 1.6 No evidence for actual payment of on money - The Respondent strongly urges that, in the stringent action of search proceedings, no evidence has been found for actual cash payment against those 33 shops. The Respondent further urges that, in the search assessment, the block assessment has to be completed on the base of material evidence of actual payment of amount. 1.7 The Respondent therefore, urges that he had not purchased the shops but his father had acquired 77 shops as a partner on account of distribution of shops amongst the partners.
A.Ys 15-16, 18-19 & 20-21 Sh. Hemant N. Agarwal 1.8 The Respondent strongly urges that such distributions of shops by the partners are always at official rate as the firm would not make profit out of transactions with the partners. 1.9 The learned AO had not confronted any material evidence regarding actual payment of alleged on money by Shri Naresh Agrawal / his son Hemant Agrawal. 1.10 The Respondent strongly urges that he was allotted major shops on second floor which is technically not shop but are being used as offices. The Respondent strongly urges that most of the shops could not be sold as there are no buyers even today also. 1.11 The Respondent strongly urges that he was not confronted any statement of any person including Shankarbhai Uttamchandani and he was not allowed any cross examination of such person. The Respondent strongly urges that no addition ought to be made unless an opportunity to cross examine the third party is given whose records is relied upon. The Respondent relies following decisions of Hon’ble Supreme Court in the case of Kishanchand Chelaram vs. CIT (125 ITR 713) (SC) and CL Alwar vs. Jalan Hard Cock Ltd. 1.12 The Respondent urges that, in the block assessment proceedings, no addition ought to be made unless there is specific material evidence of actual payment of alleged on money. The Respondent relies on following decisions. CIT vs Kabul Chawla [380 ITR 573] (Del HC)(SLP Dismissed in SC – 380 ITR (ST) 4) PCIT vs. Kurule Paper Mills P. Ltd. [2016] 380 ITR 64 (Del.HC) – SLP Dismissed in SLP No. 34554 of 2015 PCIT vs Saumya Construction [ 81 taxmann.com 292] (Guj HC) PCIT vs. Star PVG Exports [ 112 taxmann.com 163] (Kar. HC) CIT vs Continental Warehousing Corporation (Nhava Sheva) Ltd [58 taxmann.com 78] (Bombay HC) PCIT vs. Delhi International Airport (P.) Ltd. – [2022] 40 taxmann.com 440 (Kar. HC)
7.1 The Ld. AR submitted that despite the stringent search and seizure operation u/s 132 of the Act in case of the assessee as well as in the case of Shri Shankarlal Uttamchandani, no evidence of payment of unaccounted money was found for shops transferred in the name of the assessee. He also submitted that the AO had confronted digital image of first floor, but the assessee had not acquired any shops on first floor. He had actually received the flats in the 2nd floor. He further submitted that, in the block assessment, actual payment of A.Ys 15-16, 18-19 & 20-21 Sh. Hemant N. Agarwal unaccounted money for the particular shop could be taxed and there is no scope for presumption. He also argued that, on the basis of rates found from other shops, no estimate could be made in this case. He relied upon the decision of Hon’ble jurisdictional High Court in case of CIT vs. Maulikkumar K. Shah (307 ITR 137) (Guj.), wherein Hon’ble High Court had deleted addition which was made by adopting rates of booking of other shops. He also submitted that even if the developer declares any profit on “on-money”, no addition is justified in his case in absence of evidence of actual payment of on-money for that particular shop. The Ld. AR also relied on the following decisions: (i) CIT vs. Maulikkumar K. Shah (307 ITR 137) (Guj.); (ii) CIT vs. Dhirajlal D. Patel (HUF) (Tax Appeal No. 579 of 2009) (Guj.); (iii) PCIT vs. King Buildcon (P) Ltd (2023) 456 ITR 770 (SC); (iv) DCIT vs. Royal Marwar Tobecco (P) Ltd (2009) 29 SOT 53 (Ahd. Trib.); (v) CIT vs. Abhisar Buildwell (P) Ltd (2023) 454 ITR 212 (SC); (vi) PCIT vs. Punchmukhi Managements Services (P) Ltd (2023) 456 ITR 358 (SC); (vii) Jawaharbhai Atmaram Hathiwala vs. ITO (2010) 128 TTJ 36 (Ahd.); (viii) Anil Jaggi vs. ACIT Circle 30 (1)-Mumbai; (ix) CIT Central vs. Sunita Dhadda (2018) 100 taxmann.com 526 (SC) and (x) ITO vs. Bharat A. Mehta (2015) 60 taxmann.com 31 (Guj.).
7.2 In view of the above decisions, the Ld. AR submitted that rates of all shops at the time of actual sales cannot be same as it was rough estimate and no addition could be made on the basis of rough estimate. He also submitted that no addition is justified on the basis of dumb papers. In the case of the seized A.Ys 15-16, 18-19 & 20-21 Sh. Hemant N. Agarwal papers where there is no details of any buyer or seller or there is no date / year or there is no signature, such paper should be considered as dumb paper. He also submitted that no addition is justified unless there is specific material of actual receipt of “on-money” of that particular flat / shop. No addition is justified by extrapolating the seized material. No addition is also justified by adopting a particular rate of booking of a particular shop in the project for rest of the shops on different floors and in different situations. No addition is also justified unless there is corroborative evidence for actual payment of on money of that particular shop in that particular project.
7.3 The Ld. AR also submitted that no addition is justified merely because the developer had disclosed income on “on-money”. For this, he relied on the various decisions including decision of Hon’ble Gujarat High Court in case of Bharat A Mehta (supra) and the decisions of ITAT in cases of Jawaharbhai Atmaram Hathiwala (supra) and Anil Jaggi (supra) wherein addition of alleged on money in the case of member was held not justified even though the developer had disclosed income on “on money” of the project or admitted having received on money on the project. In other words, in absence of specific evidence for alleged on money of a particular shop, no addition is justified in the case of buyer (member) of the project.
8. We have heard rival submission of both the parties and pursued the material available on records. We have also deliberated on various decisions relied upon by the parties. The AO made a single addition of Rs.4,56,05,674/- on A.Ys 15-16, 18-19 & 20-21 Sh. Hemant N. Agarwal account of unexplained investment u/s 69 of the Act in respect of shop in Westfield Shopping Complex. The CIT(A) has deleted the addition by observing that the project was developed by M/s Kuberji Developers where Shri Naresh B. Agarwal, father of the appellant, was one of the partners. Since major portion of the project could not be sold, the partners decided to distribute the unsold shops amongst themselves at cost price. Shri Naresh B.Agarwal got 77 shops and offices as per his profit sharing ratio out of which 33 shops were registered in the name of the appellant. The payment for the said shops was made by Shri Naresh B. Agrawal by withdrawing from his capital account in M/s Kuberji Developers. The appellant was also given Rs.1,14,16,900/- by his father, Shri Naresh B. Agarwal, by cheques which were used for making payment to M/s Kuberji Developers. The CIT(A) has recorded a finding of fact that there was no evidence of payment of any on-money by the appellant during the search. This has not been controverted by the revenue. The AO made addition of on-money due to the fact that appellant is not a partner of M/s Kuberji Developers. However, we find that the impugned flacts/shops were registered in the name of the appellant out of the unsold flats and shops received by the father of the appellant. Even the capital for purchases of the flats was provided by the father of the appellant. We further find that the image does not contain detail regarding any shop purchased by the appellant. Therefore, there is no infirmity in the order of CIT(A), which we confirm. Accordingly, the, grounds raised by the revenue are dismissed.
IT(SS)A No.70/SRT/2023 (AY 2018-19) 10. The facts of the case in brief are that assessee filed his return of income on 02.07.2018 declaring total income of Rs.13,51,240/-. Subsequently, a search and seizure action was conducted u/s 132 of the Act in case of Kuberji Group on 06.02.2020. The residential premises of Shri Naresh Bisheshwarlal Agrawal (father of the assessee) was also covered during the search and seizure operation. Various incriminating documents were found and seized which indicated that the assessee had not disclosed his true and correct income in the return of income. Accordingly, the AO issued notice u/s. 153A of the Act to the assessee. The assessee filed his return of income declaring the same total income of Rs. 13,51,240/- on 17.03.2021. The assessee is one of the partners in M/s Hans Devra Corporation, having share of 39%. The firm had developed project called Hans Residency. The other partners of the firm were Shri Natwarlal Murarilal Harlalka (39%) and Shri Raj Desai (22%). One image was found in the mobile, computer, laptop etc. and was confronted to the assessee in the assessment proceedings. The image is at para- 6.1 of the assessment order. The assessee was also confronted regarding copy of dissolution deed of M/s Hans Devra Corporation found from the pen drive of Shri Laxmikant R. Agrawal. The AO issued show cause notice to add unaccounted profit and share of investment of Rs. 4,79,82,099/-, being the difference between market value A.Ys 15-16, 18-19 & 20-21 Sh. Hemant N. Agarwal of the 12 flats at Rs.6,28,68,219 and registered value of Rs.1,48,86,120/-. The assessee had filed submission which is reproduced in para 6.2 of the assessment order. The AO was not satisfied with explanation and finally made addition of Rs. 4,79,82,099/- invoking section 69 of the Act.
Aggrieved by the order of AO, the assessee filed appeal before the CIT(A). The assessee filed written submission before CIT(A) which is reproduced in para- 6.2 of the appellate order. The CIT(A) observed that the assessee had acquired 12 flats on dissolution of partnership firm M/s. Hans Devra Corporation against his capital. The assessee did not pay any amount. He also observed that no evidence of unaccounted payment was found in the search proceedings of the assessee as well as in the case of other partner, Shri Natwarlal M. Harlalka. He also observed that flats are of 800 sq. ft. only and project is situated at Village Abhva, which is far from the Surat City and there is no question of such high value. He finally observed that no profits arise to the partner on dissolution of the firm. He also found that no evidence was found regarding payment of unaccounted money and hence, deleted the additions.
Aggrieved by the order of CIT(A), Revenue has filed present appeal before this Tribunal. The Ld CIT-DR supported the order of AO.
A.Ys 15-16, 18-19 & 20-21 Sh. Hemant N. Agarwal 13. On the other hand, Ld. AR for the assessee filed written submission and paper book and supported the order of CIT(A). He has also relied on various decisions of Hon’ble jurisdictional High Court and order of co-ordinate Bench of this Tribunal. He further submitted that the ITAT Surat has allowed relief on similar issue in case of the other partner of M/s Hans Devrah Corporation, Shri Natwarlal Muralilal Harlalka in IT(SS)A No.60/SRT/2023 dated 28.08.024. The submission of the appellant may be reproduced below for ready reference: “1.1 The learned AO made addition of Rs. 4,79,82,099/- on account of alleged unaccounted investment on 12 flats of project Hans Residency on the base of digital data found from Laxmikant Agrawal in the search proceedings. 1.2 The learned AO had relied upon digital image which was found from the laptop of Laxmikant Agrawal who is looking after loan department of the Kuberji Group. 1.3 The Respondent urges that he had not purchased the flats rather he had acquired the flats on dissolution of the firm M/s. Hans Devrah Corporation. The Respondent urges that the firm could not sell the flats and, therefore, the entire stock was distributed amongst the partners on dissolution. 1.4 The Respondent strongly urges that he had prepared a list with estimated market value of flat for the bank loan purpose. The said Laxmikant Agrawal was given list of various properties with estimated and exaggerated market value held by Kuberji Group and other family members and friends. The Laxmikant Agrawal used to give such properties as collateral security to banks / NBFC. Once they approve a loan to be granted of any of such properties. 1.5 The Respondent strongly urges that he had used some of the properties to acquire loans from NBFC / bank. Name of the lender company Name of the borrower Security offered company Religare Securities Ltd Jay Ambe Filaments (P) Ltd Shops of West Field project Indiabulls Housing Finance Ltd Naresh B. Agrawal Basement (lower ground), 1st & 2nd Floor of Kuberji House, Begumpura, Surat of Kuberji Developers Indiabulls Housing Finance Ltd Kuberji & Sons - do - Axis Bank Naresh B. Agrawal - do - South India Bank Ltd Shree Kuberji Builders (Prop. Block No. 182, S. No. 216/6, TPS Naresh Agrawal) No. 35, Kumbharia Kotak Mahindra Bank Naresh Agrawal S. No. 4, Block No. 4/B at Kumbharia The Respondent strongly urges that the value was highly inflated and the same is apparent because the value is worked out taking rate of Rs. 6,500/- per sq. ft. for the flats which were constructed in F. Y. 2012-13 and onwards. The Respondent strongly urges that the said flats are situated in the remote area of the city i.e. at Village Abhva and the said flats were meant for middle class salaried person as it was two room, kitchen without any other facilities. The Respondent urges that, for the purpose of distribution, value was worked out on an average of Rs. 13,19,390/- per flat (1,45,13,288 / 11 flats). The Respondent therefore, urges that value of flat at Rs. 51,87,978/- as against Rs. 13,19,390/- is apparently inflated value which is normally done for bank loan purpose. 1.6 The appellant strongly urges that during stringent action of search proceedings, both in the case of Respondent and other partners viz. Natwarlal Harlalka, no evidence was found for actual payment at the alleged value. 1.7 The Respondent relies on following judicial pronouncements. a) This is a simple case of taking a bank loan by adopting the fair market value of the property for the purpose of equitable mortgage but actually the book value of the property is Rs. 2.35 lakh. Assessing officer cannot make addition on the basis of market valuation done by the valuer for the purpose of obtaining higher loan. A higher valuation in no way gives any right to the assessing officer to make addition of income, under any of the provisions of the Act, in the hands of the assessee, rather it is only for obtaining loan or cash credit limit from bank- Vide Manoj Agarwala vs. ITO 2014 Tax Pub(DT) 0607(Kol-Trib) b) Only of account of inflated statements furnished to the banking authorities for the purpose of availing of larger credit facilities, no addition can be made if there appeared to be a difference between the stock shown in the books of account and the statement furnished to the banking authorities. – Vide CIT vs. Patel Proteins (P) Ltd. 2017 Tax Pub(DT) 1188 (Guj-HC) : (2017) 393 ITR 274 (Guj). c) Where the value of stock shown to bank for purpose of availing of higher credit facility was based on market rate and not at cost price but there was no difference in quantitative details, no addition under section 69B could be made, and was to be deleted. – Vide Pr. CIT vs. Gladder Ceramics Ltd. 2018 Tax Pub (DT) 463(Guj-HC) : (2018) 401ITR 205 (Guj). 1.8 The Respondent urges that the said digital data has no date, no details of any buyer or seller and it apparently shows that the statement is prepared by putting estimated value for the purposes explained hereinabove. The Respondent further urges that there is absolutely no corroborative evidence for actual investment as estimated. The Respondent also urges that, there are several properties which were acquired prior to block period and for that also, huge estimate is made against such properties. The Respondent therefore, urges that such paper ought to be considered as dumb paper. The Respondent relies on following decisions in the case of CIT vs. Maulikkumar K. Shah (307 ITR 137) (Guj.) wherein addition on dumb paper were deleted.
A.Ys 15-16, 18-19 & 20-21 Sh. Hemant N. Agarwal 1.9 The Respondent urges that, in the block assessment proceedings, no addition ought to be made unless there is specific material evidence of actual payment of alleged on money. The Respondent relies on following decisions. a) PCIT vs. Saumya Construction (P) Ltd (2016) 387 ITR 529 (Guj.) b) CIT vs. Rameshbhai Jivrajbhai Desai (2021) 271 taxmann.com 154 (Guj.) c) PCIT vs. Sunrise Finlease (P) Ltd (2018) 89 taxmann.com 1 (Guj.) d) PCIT vs. Devangi (2017) 88 taxmann.com 610 (Guj.) 1.10 The Respondent further urges that, on distribution, division and allotment assets being the partner of a firm, consequent to dissolution of the firm amounts to mutual adjustment of rights of the partners and such transactions was neither a sale nor exchange nor transfer of assets of the firm. The Respondent relies on following decision on issue of acquisition of assets. The Supreme Court in CIT v. Dewas Cine Corporation (1968) 68 ITR 240 (SC) and CIT vs. Bankey Lal Vaidya [1971] 79 ITR 594 (SC) held that the distribution, division or allotment of assets between partners of a firm consequent on its dissolution amounts to a mutual adjustment of rights of the partners and such transaction was neither a sale nor exchange nor transfer of assets of the firm. Further in Malabar Fisheries Co. vs. CIT [1979] 120 ITR 49 (SC), it was held that there was no transfer in terms of extinguishment of rights of the Firm in the Capital asset when the capital asset is distributed to the partner on dissolution. In Addl. CIT vs. Mohanbhai Pamabhai (1987) 165 ITR 166 (SC) Supreme Court had approved the decision of Gujarat HC in CIT vs. Mohanbhai Pamabhai, [1973] 91 ITR 393 (Guj) wherein it was held that when a partner retires from partnership firm and receives consideration in terms of money which includes proportionate share of goodwill therein, the same is not taxable as there is no ‘transfer’. Relying on Mohanbhai Pamabhai, the Apex Court had in the case of CIT vs. R.Lingamallu Raghukumar (2001) 247 ITR 801 (SC) held that even if consideration paid to retiring partner, exceeds the balance in its capital account, the same shall not be chargeable to tax. The amendment vide Finance Act 2021 was brought in Section 45(4) to enlarge the Scope of Section 45(4) by going beyond the original object for which same was enacted and in doing so reversing the legal position settled by various judicial precedents. As per the Memorandum explaining the provisions, reason for the amendment is stated as under: “………it has been noticed that there is uncertainty regarding applicability of provisions of aforesaid sub-section to a situation where assets are revalued or self -generated assets are recorded in the books of accounts and payment is made to partner or member which is in excess of his capital contribution.”
13.1 The AR finally submitted that this particular issue is squarely covered by the decision of this Tribunal in the case of Natwarlal M. Harlalka (supra), the other partners of M/s Hans Devrah Corporation.
A.Ys 15-16, 18-19 & 20-21 Sh. Hemant N. Agarwal 14. We have heard rival submission of both the parties and pursued the material available on records. We have also deliberated on the decisions relied upon by the Ld. AR of the assessee. We find that similar issue was before the Tribunal in case of other partner of the partnership firm, M/s Hans Devrah Corporation, namely, Shri Natwarlal M. Harlalka. The co-ordinate Bench of this Tribunal decided the similar issue against the revenue in para 6 of the its order, which is reproduced as under for ready reference: “6. We have heard rival submission of both the parties and perused the materials available on record. We have also deliberated on the decisions relied upon by the Ld.AR. It is an undisputed fact that the assessee acquired the 11 flats by virtue of dissolution of the partnership firm, M/s. Hans Devraha Corporation. The other two partners namely Shri Hemant Naresh Agrawal and Shri Raju Satish Desai received 12 and 9 flats respectively on dissolution of the firm. The assessee, has not paid any amount to acquire these flats, which were given to him on the basis of profit – sharing ratio of the partnership firm. No evidence of on-money or cash payment was found during the search at the premises of the assessee or in the premises of Shri Hemant Naresh Agarwal. The CIT (A) has held that profit will arise only when the flats are sold by the assessee over and above the cost at which they were acquired by assessee. We find that in the assessment order of the partnership firm M/S. Hans Devraha Corporation for A.Y. 2018-19, the AO has invoked provisions of section 45(4) of the Act and taxed Rs. 12,43,18,618/- by taking the fair market value of the asset on the date of transfer as the full value of construction. This includes the value of the flats received by the assessee based on the average rate of the flats in the digital image in the name of Shri Hemant Naresh Agarwal. The value of the flats considered for the purpose of capital gain u/s. 45(4) of the Act was taken at Rs. 5,88,15,846/- by the AO of the firm as against Rs. 5,76,29,200/- estimated by the AO of the assessee. The small difference appears to be due to some calculation error. Since the amount has been added in case of the firm as per law, the same cannot again be taxed in the hands of the assessee. Even otherwise, the estimated amount cannot be taxed in absence of any incriminating evidence to show that the assessee actually paid any on-money or cash for acquiring the flats. The decision of the Hon’ble Supreme Court in case of Abhishar Buildwell Pvt. Ltd (supra) is directly on the issue. Where it was held that in respect of competed assessment/ unabated assessment, no addition can be made by the AO in absence of any incriminating material found during the course of search u/s. 132 of the Act. The Hon’ble Delhi High Court in case of Anil Khandelwal (supra) held that in absence of any corroborative evidence found during the search at the premises of the assessee, no adverse inference can be drawn against the assessee merely on basis of seized documents from premises of third party. The other decision relied upon by the Ld.AR also supports the case of the assessee. Further, as stated earlier, the flats were acquired by the assessee on dissolution of the partnership firm and not by way of purchase by the assessee on dissolution of the partnership firm and not by way of purchase by the assessee. Hence, the question of unexplained investment u/s. 69B does not arise. In A.Ys 15-16, 18-19 & 20-21 Sh. Hemant N. Agarwal view of the above factual discussion and precedents, we do not find any reason to interfere with the order of CIT (A), which we affirm. Accordingly, the grounds of appeal raised by revenue are dismissed.”
14.1 The facts of the present are identical with the facts of the decision reproduced above. The appellant is the other partner of the same partnership firm, from which he has received the flats on dissolution of the firm at cost. Therefore, following the reasons given in case of Shri Natwarlal M. Harlalka (supra), the order of CIT(A) is upheld and appeal of revenue is dismissed. 15. In the result, appeal of revenue is dismissed. (AY 2020-21)
The facts of the case in brief are that assessee filed his return of income on 02.01.2021 declaring total income of Rs.9,42,200/-. Subsequently, a search and seizure action was conducted u/s 132 of the Act in case of Kuberji Group on 06.02.2020. The residential premises of Shri Naresh B. Agrawal, father of the assessee, was also covered during the search and seizure operation. Various incriminating documents were found and seized which indicated that the assessee had not disclosed his true and correct income in the return of income. The AO confronted a digital image of diary found and seized in the search proceedings of Shri Naresh Agrawal. The diary had two pages. On one page, there is entry of 2,500 (two thousand five hundred only) on 01.04.2019 and on other page, there was further entry of 2,500 (two thousand five hundred only) on 12.10.2019. The AO decoded Rs. 2,500/- as Rs. 25,00,000/- and assumed that A.Ys 15-16, 18-19 & 20-21 Sh. Hemant N. Agarwal Rs. 25,00,000/- two times were received and accordingly show cause notice was issued to tax unsecured loan of Rs. 50,00,000/-. The assessee filed reply dated Nil on 25.01.2022, which is reproduced on page 4 and 5 of the assessment order. The AR mainly submitted that there is no basis for decoding the amount of Rs.2,500/- into Rs. 25,00,000/-, particularly when the amount was written in words also. He also submitted that there is reference of gold ornaments, hence, it was some labour payment for repairing of the ornaments. The AO was not satisfied with the explanation and held that the assessee had received Rs. 25,00,000/- loans twice, i.e., Rs.50,00,000/- and the same was treated as unexplained and addition u/s. 69A was made.
Aggrieved by the order of AO, the assessee filed an appeal before the CIT(A). The assessee filed written submission which is at para 6.1 of the appellate order. The CIT(A) observed that the assessee had given loan of Rs.25,00,000/- on 01.04.2019 against security of ornaments which was returned on 12.10.2019. Accordingly, the CIT(A) restricted the addition to Rs. 25,00,000/- instead of Rs.50,00,000/- u/s. 69B of the Act.
Aggrieved by the order of CIT(A), the assessee has filed an appeal before this Tribunal. The only ground was regarding addition of Rs. 25,00,000/- as per the whatsapp image as discussed in para 6 of the appellate order. The AR filed written submission which is as under: “1.1 The learned AO made addition of Rs. 50/- lacs on the base of digital image found from the mobile of Naresh Agrawal. The learned AO decoded the figure lying in the digital device by putting 000 in the amount and accordingly the figure of Rs. 2500/- was converted into Rs. 25/- lacs. The learned AO made addition merely because there is signature of Hemant Agrawal on whatsapp data.
1.2 The appellant strongly urges that there is absolutely no base for assuming the amount of Rs. 2500/- into Rs. 25/- lacs by putting 000 on such figure. The appellant strongly urges that the amount is written in word also i.e. Rs. Two Thousand Five Hundred only which clearly proves that it is not Rs. 25/- lacs but Rs. 2,500/- only. 1.3 The appellant further urges that the second image, there is reference of first image and thereafter, it is clearly mentioned that received gold ornaments. The appellant therefore, urges that he had given Rs. 2,500/- for repairing of the gold ornament and the same was returned to him. 1.4 The appellant strongly urges that there is no reference of any rate of interest or any calculation of interest and therefore, it should not be assumed that loan for huge amount of Rs. 25/- lacs. 1.5 The appellant strongly urges that there is no reference of any word like loan given or taken. The appellant strongly urges that no addition is made on such dumb paper. 1.6 The appellant relies on following decisions wherein addition on dumb paper were deleted. a) CIT vs. Maulikkumar K. Shah (307 ITR 137) (Guj.) b) CIT vs. S. M. Aggrawal (293 ITR 43) Del. HC. c) Jayantilal Patel vs. ACIT (1998) 233 ITR 588 (Raj.) d) S. K. Gupta vs. DCIT (1999) 63 TTJ Del. Trib. 532 e) Atulkumar Jain vs. DCIT (64 TTJ Del. Trib. 786) f) Pooja Bhatt vs. ACIT (2000) 73 ITD 205 (Mum. Trib.) g) ITO vs. Shri Rajkumar Birla (ITA No. 934/944/945 / Hyd. / 2012) (ITAT Hyd.) h) ACIT vs. Shri Sharad Chaudhary (ITA No. 933 / Del. / 2012) i) Mohan Foods Ltd vs. CIT (301 ITR 185) 1.7 The learned CIT (A) held that the said image is regarding loan given against collateral security of gold ornaments and the same was returned on 12.10.2019, therefore, the addition was restricted to Rs. 25/- lacs u/s. 69A of the Act. 1.8 The appellant strongly urges that, both the learned AO as well as learned CIT (A) have not given the base for assuming the amount of Rs. 2500/- as Rs. 25/- lacs. The appellant therefore, urges that no addition ought to be made on presumption and out of surmise and conjectures. The appellant strongly urges that the amount is further written in word also as two thousand five hundred only and the same ought to be considered as Rs. 2500/- only. The addition may be restricted to Rs. 2500/- only.
18.1 The Ld. AR argued that there is absolutely no basis for decoding of the amount of Rs.2,500/- as Rs.25,00,000/-. He also submitted that against amount of Rs. 2,500/-, the same thing was written in words also and hence, question of decoding does not arise. He also submitted that there is no word like loan given or rate of interest or any period of interest and, therefore, it should not be A.Ys 15-16, 18-19 & 20-21 Sh. Hemant N. Agarwal assumed that loan given for Rs.25,00,000/-. He also submitted that there is reference of word ornaments on page 2, so the explanation of the assessee that it was for labour charges should be accepted. The Ld. AR submitted that the assessee is highly indebted, so there is no question of giving loan by him to some other party. The Ld. AR finally relied upon the decision of this co-ordinate Bench in the case of ACIT vs. Jaiprakash Agrawal vide 60 & 57 / SRT / 2022 dated 12.01.2024 on issue of decoding.
On the other hand, Ld. CIT-DR supported the CIT(A) order. He submitted that there is clear evidence of the loan in the seized paper which is signed by the appellant. The CIT(A) has duly allowed the relief of Rs.25,00,000/- and no further relief could be granted to the appellant in view of specific notings of incriminating character in the seized documents.
We have heard rival submission of both the parties and pursued the material available on records. We have also deliberated on the decisions relied upon by the Ld. AR of the appellant. So far as issue of decoding is concerned, the AO has stated that it pertains to loan transactions where the appellant had signed as a receiver. Obviously, the appellant did not receive back loan of Rs.2,500/- only. The impugned amount noted so meticulously and carefully in seized document cannot be for a meagre sum of Rs.2,500/-. The appellant is a builder and developer and was dealing with cash and assets running into crores of rupees. Hence, the contentions of the Ld. AR is also against the principles of preponderance of probability, which is recognized as a standard proof in A.Ys 15-16, 18-19 & 20-21 Sh. Hemant N. Agarwal Income-tax proceedings. The CIT(A) has given a categorically finding that loan of Rs.25,00,000/- had been given by the appellant on 01.04.2019 to a third party, whose mobile No. is 9374214685, against the collateral/security of gold ornaments. The said loan was repaid on 12.10.2019. We do not find any mistake in the finding of CIT(A), confirming the addition of Rs.25,00,000/-. He has been fair, reasonable and logical in allowing relief of Rs.25,00,000/- to the appellant and has sustained addition of Rs.25,00,000/- only. We find that the decision relied upon by the Ld. AR had also been relied upon before the CIT(A). It has been held by the Hon’ble Bombay High Court in case of Ashish Gandhi Builders & Developers Pvt. Ltd. vs. ITAT (2017-TIOL-137-HC-MUM-IT) that mere filing of paper book is not indicative of the fact that case laws referred therein have been relied upon by the assessee and submissions have been made with regard to the same. Therefore, in absence of explanation as to how the facts of the cases relied upon are similar to the facts of the appellant, they would not come to the rescue of the appellant. As far as the decision of this Tribunal in case of Shri Jaiprakash D Agarwal (supra) is concerned, we find that the facts of the said case were different from the facts of the instant case. In the said case, the CIT(A) had allowed relief to the assessee whereas in the present case, the addition made by the AO had been partly confirmed by the CIT(A) after giving proper reasons. We also find that the seized documents were signed by the appellant whereas it is apparent that the seized documents in case of Jaiprakash Agrawal D Agarwal A.Ys 15-16, 18-19 & 20-21 Sh. Hemant N. Agarwal (supra) were not signed. In view of the above facts, we find no infirmity in the order of CIT(A) and accordingly, ground raised
by the appellant is dismissed. 21. In the result, appeal of assessee is dismissed. 22. In combine result, both the appeals of revenue and assessee are dismissed.