STRAWBERRY CONSTRUCTIONS P.LTD,MUMBAI vs. DCIT CC 4(2), MUMBAI

The facts relating to above said issue are stated in brief.

The Revenue carried out search and seizure operation u/s 132 of the Act on 03/03/2014 in the hands of the assessee and the certain documents including a Pen Drive was seized. Based on these documents, a statement was recorded u/s 132(4) of the Act from one of the employees of the assessee named Shri Daxesh Parmar. The statement of Daxesh Parmar was confirmed by Shri Nilesh Tank, Director of the assessee company in the statement taken from him u/s 131 of the Act. During the course of search, one paper was seized, which contained a noting to the effect that a sum of Rs.21 lakhs was paid as brokerage to a person named Pravin Bhai for land dealing. A.Y.2007-08 Though the date was mentioned as 25.3.1997 and the amount was mentioned as 21000.00, Shri Daxesh Parmar stated that the date has been recorded by deducting ten years from the original date and the amount should be understood by removing “.”. Accordingly, the date mentioned as 25/03/1997 was taken as 25/03/2007, which fell in the Assessment Year 2007-08 and the amount was taken as Rs.21.00 lakhs. Based on the above said information, the Assessing Office reopened the assessee of the year under consideration by issuing notice u/s 148 of the Act on 28/03/2014.

The assessee objected to the reopening of the assessment before the Assessing Officer and also objected to the proposal to assess the amount of Rs.21.00 lakhs as income of the assessee. It was submitted that the assessee did not carry on any construction activity nor did it purchase any land during the year under consideration and hence the question of paying any brokerage does not arise. With regard to the statement given by Shri Daxesh Parmar, the assessee submitted that Shri Daxesh Parmar is neither its employee nor its agent. It was submitted that he used to threat the assessee seeking money and hence the assessee has made several police complaints against him for threat and extortion. It was submitted that a police complaint dated A.Y.2007-08 12/02/2014 was filed with police department prior to the date of search dated 31/03/2014 and FIR was filed on 01/04/2014.

The AO did not accept the explanations of the assessee and accordingly took the view that the assessee could not furnish proper explanations with regard payment of Rs.21 lakhs as brokerage to Shri Prvain Bhai. Accordingly, the AO assessed the same as unexplained expenditure u/s 69C of the Act. The Ld. CIT(A) confirmed the additions with following observations.

The Ld. AR submitted that the Assessing Officer has reopened the assessment after expiry of four years from the end of the present Assessment Year and the basis for reopening of assessment is the letter received from DDIT(Inv.) alleging payment of brokerage. The Ld. AR for the assessee submitted that the Assessing Officer did not apply his mind on the letter so received by him from DDIT to examine its veracity and simply reopened the assessment. In the above said A.Y.2007-08 letter, DDIT has referred to the following noting found in a seized document:-

The Ld. AR submitted that above said information does not give rise any reason to believe that there was escapement of income in the hands of the assessee. He submitted that the AO, without applying his mind on the above said information, has simply reopened the assessment and hence the assessment is bad in law.

The Ld. AR further submitted that assessee has filed settlement application before the Settlement Commission for Assessment Year 2010-11 to 2012-13. The Hon’ble Settlement Commission has examined veracity of seized documents and given a finding that these documents did not yield any foolproof, cogent, direct and clinching evidence to establish the department’s contention of non-disclosure of true and full income in the settlement application by the assessee company. The Ld. AR further submitted that Hon’ble Settlement Commission has given its finding on the reliability of the seized documents and the said order is binding on the Revenue, since the order passed by the Settlement Commission has been accepted by the Revenue. Accordingly, the Ld. AR submitted that the Assessing Officer 7 A.Y.2007-08 could not have placed his reliance on the very same document to reopen the assessment under consideration.

The Ld. AR also placed reliance on the decision rendered by Hon’ble Bombay High Court in the case of Vinod M. Chitalia vs Union of India (FERA Appeal No.8 of 2012) dated 28/03/2012. The Ld. AR further submitted that the Hon’ble Bombay High Court, in the above said case, has held that the order of settlement commission is considered to be conclusive of the matters stated therein and cannot be challenged in any other proceedings under any other law including FEMA. The Ld. AR further submitted that the findings given by the Hon’ble Settlement Commission on the reliability of evidences is conclusive and hence, the AO was not right in reopening the assessment by relying on the very same material. Accordingly the Ld A.R pleaded that the reopening of assessment should be quashed.

On merits, the Ld. AR submitted that the assessee had filed police complaints prior to the date of search in the name of Shri Daxesh Parmar, as he was threatening for extorting money from the assessee. The police has registered FIR on 01/04/2014 ie. subsequent to the date of search. Hence, the Ld. CIT(A) was not justified in holding that filing of FIR was a ploy at end of the assessee to confuse A.Y.2007-08 the proceedings. The Ld. AR further submitted that the assessee did not carry on any construction activity during the year under consideration and did not purchase any land also during the year. The question of paying brokerage shall arise only if any land transaction has been finalized during the year. Hence there was no reason for the assessee to make the alleged payment of brokerage of Rs.21.00 lakhs.

The Ld. AR further submitted that the view so entertained by the Ld. CIT(A) is not based on any material and is purely based on surmises under conjectures. The Ld. AR submitted that the Ld CIT(A) did not cause any enquiry nor did he bring any material on record any credible material to show that the assessee has incurred unexplained A.Y.2007-08 expenditure of Rs.21 lakhs towards payment of brokerage to a person named Shri PravinBhai. Accordingly, the Ld. AR submitted that the Ld. CIT(A) was not justified in confirming additions of Rs.21 lakhs in the hands of the assessee merely on the basis of surmises and conjectures.

On the contrary, the Ld. DR has strongly supported the order passed by the Ld. CIT(A).

We heard the parties and perused the record. We noticed that the Assessing Officer has made the additions on the basis of noting made in a seized material, which was deciphered as the payment of Rs.21 lakhs was made to a person named Shri PravinBhai as brokerage for land deal. Though the contents of payment and the amount was mentioned in different way, as stated earlier, the same was deciphered as having been paid on 25/03/2007 and the amount was Rs.21 lakhs. In the statement taken from Shri Daxesh Parmar u/s 132(4) of the Act, he has admitted that the same represents brokerage paid by way of cash. The Director of assessee company, Shri Nilesh Tank has endorsed the statement so given by the Shri Daxesh Parmar subsequently. A.Y.2007-08 14. It is the contention of the assessee that Shri Nilesh Tank has given statement under pressure and accordingly, he has retracted the statement subsequently. It was also pointed out that Shri Daxesh Parmar was not employee of the assessee and he has been creating trouble to the assessee by issuing threats for the purpose of extorting money from the assessee. We notice that the AO has rejected the above said contentions of the assessee without examining Shri Daxesh Parmar. On the contrary, the assessee has furnished evidences in the form of complaints lodged with Police personnel and FIR filed by the Police against Daxesh Parmar to substantiate its contentions that the statement given by him is not reliable. We also notice that the AO has not identified the Shri Pravin Bhai to whom the above said amount of Rs.21 laksh was alleged to have been paid. When the assessee has disowned the entries made in the seized paper and also pleaded ignorance above Pravin Bhai, in our view, the responsibility to prove the view taken by the AO lies upon the assessing officer, more particularly, when the assessee has contended that the statement given by Shri Daxesh Parmar is not reliable. As noticed earlier, the AO has also not conducted further enquiries with Shri Daxes Parmar.

Though, the Ld. CIT(A) has taken the view that FIR filed by the assessee against Shri Daxesh Parmar subsequent to the date of search was a ploy to confuse the assessment proceedings, yet we notice from the assessment order that the Assessing Officer has accepted the fact that the assessee has filed a police complaint with police authorities prior to the date of search and finally a FIR was lodged subsequent to the date of search. Hence, in our view, the Ld CIT(A) was not justified in taking a different view on this matter. In any case, no material was brought on record by Ld CIT(A) to show that the assessee did not file such a letter before the police authorities prior to the date of search.

The Ld. AR also vehemently argued on the validity of reopening of the assessment as well as binding nature of the order passed by the Hon’ble Settlement Commission. Since, we have granted relief to the assessee on merits, we don’t find it necessary to adjudicate these legal grounds, as the same would be academic in nature.

In the result, appeal filed by the assessee is allowed.