DCIT, RAJKOT vs. M/S GARDEN ENTERPRISE, RAJKOT

The files named as 'Tower A61.xlsx', 'Tower B60.xlsx', 'Tower C60.xlsx', 'Tower D59.xlsx', 'Tower E61.xlsx', 'Tower F60.xlsx', 'Tower G61.xlsx' contained apartment wise specific details like the name of the owner, area of the apartment, rate at which it has been sold and dates on which cheque and cash has been collected etc. A sample sheet (containing details of flat no. 101, Tower A) is reproduced hereunder for reference – Page 4 of 41 to 89 & 121 to 125/RJT/2023 M/s. Garden Enterpris Further, the file named 'TESTING3.xlsx' contained a summary of all such individual apartment wise sheets. The same is reproduced hereunder for reference - Page 5 of 41 to 89 & 121 to 125/RJT/2023 M/s. Garden Enterpris Page 6 of 41 to 89 & 121 to 125/RJT/2023 M/s. Garden Enterpris Page 7 of 41 to 89 & 121 to 125/RJT/2023 M/s. Garden Enterpris Page 8 of 41 to 89 & 121 to 125/RJT/2023 M/s. Garden Enterpris Page 9 of 41 to 89 & 121 to 125/RJT/2023 M/s. Garden Enterpris Page 10 of 41 to 89 & 121 to 125/RJT/2023 M/s. Garden Enterpris Page 11 of 41 to 89 & 121 to 125/RJT/2023 M/s. Garden Enterpris Page 12 of 41 to 89 & 121 to 125/RJT/2023 M/s. Garden Enterpris Page 13 of 41 to 89 & 121 to 125/RJT/2023 M/s. Garden Enterpris Page 14 of 41 to 89 & 121 to 125/RJT/2023 M/s. Garden Enterpris Page 15 of 41 to 89 & 121 to 125/RJT/2023 M/s. Garden Enterpris Page 16 of 41 to 89 & 121 to 125/RJT/2023 M/s. Garden Enterpris Page 17 of 41 to 89 & 121 to 125/RJT/2023 M/s. Garden Enterpris From the above data, it can be seen that the assessee-firm has received total Rs. 146,65,13,765/- in cash and Rs. 97,48,94,185/- in bank on account for booking / sale of residential units of its Garden City Project.

During the post survey proceedings before the ADIT(Inv), Unit-2(2), Ahmedabad, the incriminating evidences from the digital data have been printed in five volumes (Vol. 1 to 5) and confronted to Shri Keyur Bhalodia, who also happens to be a partner of the assessee firm. In response, vide his written reply dated 04-07-2019, he has admitted that certain sheets (as reproduced above) contained details of unaccounted cash transactions of M/s Garden Enterprise which are not recorded in its regular books of accounts. Further, in his reply dated 04/07/2019 before the ADIT, he has elaborated on the relevant pages which pertain to the unaccounted business activities of M/s Garden Enterprise. The relevant portion of his reply is reproduced here under- At the outset we have to submit that a survey was also carried out by the Income- tax department on 18.07.2017 at the business premises of the firm of M/s Garden Enterprise and during the course of which Rs. 1,74,70,000 was disclosed on account of profit on trading in land. The firm had paid tax on the same.

However, on perusal of the reconciliation sheet submitted and its comparison with the individual flat holders' sheets extracted from the impounded digital data, it has been ascertained that the sheet as per page 87 to 93 of volume 1 highlighting cash receipts of Rs.1,46,65,13,765/- was latest whereas the other sheet with cash receipt of Rs.1,37,78,81,950/- was older one. The actual reconciliation as a result of the comparison is then prepared which is as under – Page 22 of 41 to 89 & 121 to 125/RJT/2023 M/s. Garden Enterpris Thus, as per the latest impounded sheet, total cash of Rs. 1,46,65,13,765/- has been received by M/s Garden Enterprise on sale or booking of the flats of its Garden City Project. Apart from the above, the following sheet from the impounded digital data (Page no. 121 of Volume 1) also highlight a figure close to the cash receipts of 146.65 Cr- Page 23 of 41 to 89 & 121 to 125/RJT/2023 M/s. Garden Enterpris The data on the above referred sheet clearly reveals the distributions made in Cash as well as in Cheque. The veracity of the noting made on the above sheet has been confirmed by comparing the cheque distributions mentioned on the above sheet with the data provided by the assessee-firm in its audited books. Following cheque distributions are mentioned on the sheet- Page 24 of 41 to 89 & 121 to 125/RJT/2023 M/s. Garden Enterpris Thus, Rs. 5,00,00,000/- have been distributed in FY 14-15 and Rs. 15,00,00,000/- have been distributed in FY 15-16. On perusal of the audited books of the assessee-firm, it has been noted that same amounts have been recorded in the respective years as total drawings from the partner's capital accounts.

From the aforementioned exercise, it has been confirmed that the noting made on the above referred sheet (page no. 121 of vol. 1) are actual transactions of distributions made to partners of the firm through cash as well as through cheques. The cash distribution entries as per the above sheet are as under - Page 26 of 41 to 89 & 121 to 125/RJT/2023 M/s. Garden Enterpris The above figure of total cash distribution (Rs. 147.51Cr) is close to the figure of cash receipts (Rs. 146.65Cr) as found on the sheets numbered 87 to 93 of volume 1 as discussed earlier. Thus, the figure of cash receipts of Rs. 146.65Cr also gets corroborated from the cash distribution figures as appearing on the sheet numbered 121 of volume 1. Shri Keyur Bhalodia, in submission dated 04/07/2019 had stated that the cash payments made to the landlords and cash expenses incurred for construction of the scheme have been meted out of total cash (on- money) received from flat holders and cash capital contribution received from the partners, and after considering these, an amount of Rs. 90.17 Cr. was distributed amongst the partner. This statement from Shri Keyur Bhalodia confirms one fact that minimum Rs. 90.17 has been earned in cash (net of all kinds of expenses) by the firm which was then distributed amongst the partners. However, allowance of such unaccounted expenses cannot be granted as no specific details of such expenses have been furnished. Though, Shri Keyur Bhalodiya has submitted certain sheets containing data of cash expenses but no reconciliation as to how much of it is already booked and how much of it is not recorded on books was accompanied with those sheets. Hon'ble Supreme Court in the case of CIT vs. Best & Co. (P.) Ltd. [1966] 60 ITR 11/AIR 1966 SC 1325, observed that although the burden of proof that a receipt is income lies on the revenue, it is not always so. It was held that the doctrine of shifting onus is applicable to income-tax proceedings and when sufficient Page 27 of 41 to 89 & 121 to 125/RJT/2023 M/s. Garden Enterpris evidence, either direct or circumstantial, is disclosed by the revenue, adverse inference can be drawn against the assessee, if the assessee has suppressed documents or evidence, for its failure to place before the department the material which is exclusively within his knowledge and keeping. Thus, it would be inappropriate to grant benefit of those expenses to the assessee for which no specific details are submitted. Further, even if the expenses would have been claimed, the same were needed to be disallowed in view of section 37, section 40(a)(ia), section 40A(3) of the Act which specifically prohibit allowance of such expenses which are either incurred in cash or where no TDS is made. Further, the assessee has not provided any documentary proof (i.e. invoice) in support of genuineness of such expenses incurred. It is also pertinent to mention that in absence of complete details of the third parties to whom payments were made there is loss to revenue which requires disallowance of such expenses, if claimed. In view of the above facts and findings, a notice u/s 148 of the Income- tax Act has been issued on 30/03/2021 with approval of competent authority. In response to the notice, a return of income has been filed on 11/05/2021 declaring loss of Rs. 21,87,375/ -. Notice u/s 143(2) of the Act was issued on 03/06/2021 and the reason / satisfaction recorded for re-opening has been supplied to the assessee. Then, notice u/s 142(1) has been issued seeking details and explanations from the assessee. The impounded documents containing the information relating to the assessee firm along with the submissions of Shri Keyur Bhalodiya before the investigating authority have also been supplied to the assessee in view of natural justice.

As seen above, the impounded digital data contained specific and self- explaining details regarding payments received in cash against each flat sold by M/s Garden Enterprise. On reconciliation of all the individual sheets along with the summary sheet it is ascertained that between FY 2011-12 to FY 2018-19, the assessee-firm has received total Rs.146,65,13,765/- in cash and Rs.97,48,94,185/- Page 28 of 41 to 89 & 121 to 125/RJT/2023 M/s. Garden Enterpris in bank on account for booking / sale of residential units of its Garden City Project. Therefore, in questionnaire issued u/s 142(1) dated 03/06/2021, the assessee has been requested to explain whether the cash receipts as appearing on the impounded incriminating document are reflected / accounted for in its regular books of account or not and if all these transactions are reflected in regular books of account then to submit necessary documentary evidences to substantiate the same. In response to the questionnaire, the assessee has submitted part of the details on the same day but did not comment anything on the specific queries raised pertaining to the cash receipts (on-money) as revealed from the impounded digital data and its contents. On 07/06/2021, an objection against re-opening has been received from the Authorised Representative of the assessee. The objection has been duly disposed of and conveyed to the assessee.

The AO has also dealt with assessee’s arguments as follows:

Finally, the AO has concluded as follows: “Therefore, there is no hesitation in believing that the firm has collected on-money of Rs. 1,46,65,13,765/- (at least) in form of cash over and above the payments received in cheque and mentioned in the respective registered sale deeds. This on-money collection is spread across FYs 2011-12 to 2018-19. The on-money receipt pertaining to the year under consideration has been derived by sorting every single cash receipt date wise. The reference is taken from the individual flat holder sheets titled as "Tower A61", "Tower B60", "Tower C60", "Tower D59", "Tower E61", "Tower G61". Further, wherever the exact date is not mentioned on the respective sheet, the date of sale of respective flat has been considered. Accordingly, the quantum of on- money receipts attributable to the year under consideration has been calculated at Rs. 8,03,74,500/-. In view of the above, Rs. 8,03,74,500/- is assessed as unaccounted income from business activities for the year under consideration and the total income reported by the Assessee-firm in its return filed in response to notice u/s 148 of the Act is enhanced to that extent. Further, since the assessee-firm has concealed the particulars of its income, penalty proceedings u/s 271(1)(c) of the Act are also being initiated separately.

On appeal, Ld. CIT(A) partly deleted the addition, observing as follows: “6.8 In view of above factual and legal matrix and looking to nature of business carried out by appellant, it is reasonable to estimate net profit on undisclosed on-money receipt rather than taxing entire on money as taxable income of appellant. It is settled law that on-money receipt as advance will be taxed in the year in which the sale consideration in recognised by the appellant in the books of account. It is also important to note that in case of unrecorded sales, the profit margin remains higher than the recorded sales. The year wise income under the head Business is arrived accordingly and detailed hereunder:-

On the other hand, learned Counsel for the assessee submitted that reasons recorded by the assessing officer and approval and satisfaction note are defective. Therefore assessment order should be quashed.

We note that the AO received information from the Investigation wing, Ahmedabad regarding the outcome of Survey action u/s.133A of the Act conducted in the case of M/s. Silver Infra, Ahmedabad. During the survey, digital data in the form of 'Pen Drive' has been found and impounded from a partner of the firm M/s. Silver Infra, Shri Keyur Bhalodia and co-incidentally, Shri Keyur Bhalodia is also a partner in the appellant firm i.e. M/s. Garden Enterprise. As seen from the said impugned digital data contained specific and self-explaining details regarding payments received in cash against each flat sold by M/s. Garden Enterprise. On reconciliation of all the individual sheets along with the summary sheet, it is ascertained that the appellant firm has received total Rs.146,65,13,765/- in cash for booking/sale of residential units of its Garden City Project. The appellant's case was accordingly reopened by issue of notice u/s.148 of the Act. We find from the assessment order that the AO had reasons to escaped assessment and the reopening was done after proper application of mind. In the case of Navratna Developers and Organisers Pvt. Ltd. for A.Y.2000-01, the Hon'ble jurisdictional ITAT in its order and CO No. 145/A/09 dated 27/08/2014, upheld reopening proceedings, holding that it is settled law that at the stage of issue of notice u/s. 148, the only question is whether there was relevant material on the basis of which a reasonable person could have formed the requisite belief. Whether that material would conclusively prove escapement of income is not the concern at that stage. It is a settled law that at the time of issuing notice u/s 148 of the Act, the AO simply has to be satisfied Page 38 of 41 to 89 & 121 to 125/RJT/2023 M/s. Garden Enterpris and should have "reasons to believe" that income has escaped assessment. The investigation of whether it has actually escaped assessment or not can only be done once the assessment proceedings are reopened. Further, we have also gone through the record and find that the AO has followed due procedure while reopening the assessment proceedings. It is further observed that after filing of return of income in response to notice u/s.148 of the Act by the appellant, the AO had provided the copy of reason of reopening to the appellant. Further, after receiving objection against reopening from the appellant, the AO had duly disposed of and conveyed to the appellant. The AO had also offered opportunities of being heard to the appellant by issuing various statutory notices including show cause notice, as is narrated in the re-assessment order. Therefore, approval and satisfaction note are in accordance with law, hence we dismiss the technical grounds raised

On the other hand, learned Counsel for the assessee relied on the findings of the learned CIT(A), and argued that only profit element is to be taxed in the hands of the assessee, and even the profit element taxed by the learned CIT(A) is on higher side, which should be reduced further, and for that learned Counsel relied on the various case law, as mentioned in the legal compilation.

On merit, we considered submission of both the parties. We find that assessing officer, vide his assessment order para No.6 to para No. 29, ( page No. 16 to 42), has analysed the seized material with corroborative evidences by making the various diagrams. The assessing officer also pasted the seized material in the assessment order itself. The assessing officer discussed the entire seized material with help of corroborative evidences and statements which have not been dealt with by the learned CIT(A). The assessee has also not submitted a chart showing reconciliation of on money received prior to commencement of the project from the partners, on money received from customers prior to commencement of the project and on money received after commencement of the project. The learned CIT(A) just took the submission from the assessee and case law, and sustain the estimated addition, which is not acceptable, as the assessing officer made a detailed finding, showing corroborative evidences, along with Page 40 of 41 to 89 & 121 to 125/RJT/2023 M/s. Garden Enterpris statements, which have not been rebutted or rejected by the learned CIT(A). Therefore, order passed by the learned CIT (A) is not in accordance with the mandatory provisions of section 250(6) of the Act, hence, such order is liable to be rejected. The overwhelming number of documentary evidences found by search team, which was corroborated by the assessing officer. The ld CIT(A) has not discussed any of these documents mentioned in the assessment order. The Id CIT(A) has not made any adverse finding in any of these documents mentioned in the assessment order by the assessing officer. The Ld.CIT(A) ought to have examined all these details and documents and refuted / rejected them, with a cogent adverse findings and discernable line of reasoning, in order to arrive at his own conclusion, which the learned CIT(A) failed to do so. Therefore, these all appeals of the assessee, as well as revenue needs to be restored back to the file of the ld.CIT(A) with the direction of the learned CIT(A) to deal with the findings of the assessing officer after taking appropriate remand report from the assessing officer, if any, and to examine the reconciliation of on money from partners and customers and then adjudicate the issue in accordance with law.