DCIT CC 3(4) CEN RG 3, MUMBAI vs. MARS REALTORS P. LTD, MUMBAI

The captioned are four appeals filed by the Revenue pertaining to two different assessees belonging to the same group in relation to the assessment years 2009-10, 2010-11 and 2013-14. Since the appeals involve a common issue, they have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity.

The Grounds of appeal raised by the Revenue for Assessment Year 2009-10 read as under:-

Briefly put, the relevant facts are that the respondent-assessee is a company incorporated under the provisions of the Companies Act, 1956 and is, interalia, engaged in the business of development of land and constructing residential flats and commercial complexes. A search action u/s 132(1) of the Act was carried out by the Department in the premises of the assessee on 10.12.2013. In a statement recorded u/s 132(4) of the Act at the time of search, the director of the assessee-company admitted that assessee-company had received on-money to the extent of Rs. 33,05,10,000/- from assessment year 2006-07 to 2012-13 from some of its customers and this on-money was introduced in the books of account in the form of un-secured loans which were nothing but accommodation entries i.e., Cash equivalent to the stated loan was given to accommodation entry provider. Subsequently, a survey action was carried out by the Department at the business premises of the assessee on 05.10.2015 in connection with purchase of Transferable Development Rights (hereinafter referred to as ‘TDR’) by the assessee company for which it was found to have paid cash of Rs. 2.20 crores. The statement recorded and documents impounded during survey revealed that on-money was received by the assessee in connection with certain projects. As a consequence, proceedings u/s 153A of the Act were initiated by the Assessing Officer for the period from assessment years 2008-09 to 2013-14 and in response, assessee filed returns for each of the said assessment years on18.12.2015 i.e. after the survey conducted in the premises of the assessee. In returns of income so filed u/s 153A of the Act for assessment

The position of unsecured loans shown by the assessee during assessment years 2009-10 to 2013-14 was as under:

Before the CIT(A), assessee contended that the statement deposed during the search showed that the source of obtaining bogus loans was the on-money received by the assessee. It was further submitted that during the survey proceedings an ‘Excel Sheet’ was found by the survey team wherein complete details of on money taken by the assessee, including date, name of person and project for which on money was taken, was mentioned. In view of the same, it was submitted that the on-money generated from sale of flats was used for obtaining loans. It was further submitted that the on money earned by assessee from assessment years 2008-09 to 2013-14 was offered to tax in the respective years. It was further submitted that on-money received in assessment years 2006-07 and 2007-08 could not be offered to tax. Merely because on-money was not offered to tax, it cannot be said that the source of bogus loan is not proved. It was further submitted that in assessment year 2012-13, the : 6 : to 7180/Mum/2016 Assessing Officer has accepted the contention of the assessee that the source of bogus loan is on money received by assessee and has not made any addition u/s 68 of the Act. Assessee also contended that no evidence has been brought on record by the Assessing Officer to show that on- money earned was spent elsewhere. Further, the fact that on-money is used for obtaining bogus loans has been accepted by Assessing Officer in assessment year 2012-13 since on-money offered by assessee in assessment year 2012-13 has been accepted by the Assessing Officer as such and no separate addition has been made in assessment year 2012-13 u/s 68 of the Act on account of bogus loan taken during the year. It was further submitted that a loose paper, which is part of the impounded documents found during survey, gives the detail of the utilization of the total on-money received of Rs. 33.05 crores. It is clearly mentioned therein that out of the on-money received, accommodation entries of Rs. 29.24 crores have been obtained. Assessee explained that this page also shows that on-money has also been used for purchasing TDRs to the extent of Rs.2.20 crores.

It was further submitted that the seized documents being relied by the Assessing Officer for making addition ought to be accepted fully. Once it is accepted on the basis of seized paper that on-money has been received by the assessee then it is not open for the Assessing Officer to disregard the subsequent notings in the seized document showing the utilization of on-money for obtaining bogus loans.

The CIT(A) accepted the submissions of the assessee and deleted the addition made by Assessing Officer u/s 68 of the Act. He also rejected the : 7 : to 7180/Mum/2016 conclusion of the Assessing Officer that no reasonable person would keep on money received in assessment years 2006-07 and 2007-08 for so much time. The CIT(A) was of the view that the onus to prove that money was used somewhere else was on the Assessing Officer since the notings on the seized documents demonstrated that on-money received by assessee was used for obtaining bogus loans. He further held that the statements recorded during the search and survey proceedings also supported the contention of the assessee that on money was used for obtaining bogus loans. In view of the above, CIT(A) deleted the addition made by the Assessing Officer u/s 68 of the Act against which the Revenue is in appeal before us.

Before us, ld. DR relied upon the reasoning of the Assessing Order in order to justify the impugned addition and since we have already noted the same in earlier paras, the same is not being reported for the sake of brevity. The ld. DR further placed reliance on the decision of Hon’ble Madras High Court in the case of B. Kishore Kumar vs. DCIT in to 744 of 2014, which has also been referred in the assessment order, to say that when there is a clear and categorical admission of the undisclosed income by the assessee himself, there is no necessity to scrutinize the documents.

On the other hand Ld.Representative for the assessee submitted that the assessee, during the search itself, in the statement recorded u/s 132(4) of the Act has admitted that accommodation loans were obtained from the on-money received by the assessee from sale of flats. He also : 8 : to 7180/Mum/2016 referred to the relevant deposition made u/s 132(4) of the Act during the course of search which is reproduced hereunder:

Further, it was pointed out that during the course of survey action, certain loose papers were also found which are placed in the Paper Book at pages 61 to 71 which clearly reflect the details of on-money received in various years. An ‘Excel Sheet’ containing details such as name of the buyer, cash receipt date, agreement date, Registration date, Flat / office no, Area, total agreement value, cash component, total deal value (placed at pages 63 to 67 of the Paper Book) which clearly give evidence of on- money received in various years was also referred to.

It was also pointed out that the copy of the seized paper placed at page 71 of the Paper Book clearly shows utilization of on-money received by assessee. It is evident from the said paper that the on-money received by the assessee was utilized for obtaining accommodation entries of loans. It is submitted that once the Assessing Officer accepts that assessee has received on-money on the basis of the seized documents, it cannot deny the fact of utilization of on-money which is also evident from the very same seized material. The relevant portion of the statement recorded during the course of survey was relied upon, which is reproduced hereunder:

Our attention of on-money received and its utilization for obtaining accommodation entries, which is as under:

It was submitted that in assessment year 2011-12, the Assessing Officer has accepted the additional income on account of on-money offered by the assessee even though no bogus loan was taken in the said year. Similarly, in assessment year 2012-13 also, Assessing Officer has : 12 : to 7180/Mum/2016 accepted the additional income of Rs.3,37,00,000/- on account of on-money offered by the assessee. It is pertinent to note that in assessment year 2012-13, the assessee has also obtained accommodation loan of Rs. 2,00,00,000/-. The Assessing Officer has accepted the fact that on money was utilized to obtain accommodation entries since no addition has been made on account of accommodation loans in assessment year 2012-13 by the Assessing Officer. It was further submitted that the seized paper reflecting on-money received by the assessee has also been accepted by the Assessing Officer since income offered of Rs. 3,37,00,000/- on account of on money has been accepted by him.

It was further pointed out that the Assessing Officer's contention is that on money received in assessment years 2006-07 and 2007-08 was utilized for some other purpose since no person would keep cash for so much time. Therefore, he was of the view that the source of accommodation entries for Assessment Year 2009-10 and 2010-11 remains unexplained. In this regard, it was submitted that once the seized document at pages 71 of the Paper Book clearly shows that the on money has been used for obtaining accommodation entries, then the onus is heavily on the Department to disprove the said fact. The Assessing Officer has not brought any evidence on record to disprove the fact that on-money was utilized for obtaining accommodation entry.

The Ld.Repersentative only reason for not accepting the fact that on money received in assessment years 2006-07 and 2007-08 was not utilized for obtaining bogus loans seemed to be that the returns for assessment years 2006-07 and 2007-08 could not be filed since the same were not : 13 : to 7180/Mum/2016 covered in the period of search and as a result, on money received in assessment years 2006-07 and 2007-08 could not be offered to tax. In this regard, it was submitted that merely because an amount could not be taxed does not mean that the seized paper which clearly shows that on money was utilized for obtaining accommodation entries, should be disbelieved.

The Assessing Officer has also alleged that it is beyond probability to believe that in assessment years 2008-09 and 2009-10, the assessee has not received any on money. In this regard, it was submitted that director of assessee, in his statement, had disposed that assessee has received on money only in some years. Further, it is evident from the seized paper found in the survey conducted in the premises of the assessee that on money has been received only in some years.

We have carefully considered the rival submissions and perused the relevant record. Notably, the controversy before us primarily revolves around whether the income admitted by the assessee in the statement recorded u/s 132(4) of the Act in the course of search, which is also supported by the incriminating material found during the course of search, is liable tobe taxed in the year in which the income was earned or is liable tobe taxed in the year in which such income was utilised in the form of taking unsecured loans. At the outset, we shall consider the manner in which the CIT(A) has dealt with the issue.

The CIT(A) noted that on money received by the assessee has been accepted by the Assessing Officer on the basis of the same seized

With respect to conclusion of the Assessing Officer that no reasonable person would keep on money received in assessment years 2006-07 and 2007-08 for so much time, the CIT(A) held that the onus to prove that money was used somewhere else was on the Assessing Officer since the notings on the seized documents demonstrated that on-money received by assessee was used for obtaining bogus loans. He further held that the statements recorded during the search and survey proceedings also support the contention of the assessee that on money was used for obtaining bogus loans. The CIT(A) further noted that the dates of receipt of cash are mentioned in the seized documents as such the observation of the Assessing Officer that there is no date of receipt of on money in the loose papers, is factually incorrect.

As regard Assessing Officer's contention that assessee did not provide any reason for non-acceptance of on-money in assessment years 2008-09 and 2009-10, he held that during the recording of statements (Q- 5, statement dated 11.12.2015) (Page no 56 of Paper Book), assessee was : 15 : to 7180/Mum/2016 asked whether on-money was received in all the years to which it was replied on-money was received only in some of the years; and pertinently no further questions were asked by the department.

As regards Assessing Officers objection that assessee failed to file any confirmation from parties for payment of huge amounts of cash against booking of flats, the CIT(A) held that the provisions of Section 292C of the Act raise a presumption that the contents of books of accounts/ documents impounded in the course of search/survey are true. Accordingly, he held that Assessing Officer was required to prove with sufficient evidence that the documents impounded during search are not reliable, an onus which was not discharged by the Assessing Officer.

The CIT(A) further agreed with the contention of the assessee that as per section 4 and 5 of the Act, the income should get assessed in the year in which it is generated/earned. He further held that section 68 is not applicable since source of such money is evidenced in the impounded papers. He relied on the decisions in the case of [CIT .P Mohanakala (2007) 291 ITR 278 (SC)I1Hindusthan Tea Trading Co. Ltd. v .CIT (2003) 263 ITR 289, 293 (Cal). [Sreelekha Banerjee v. CIT, (1963) 49 ITR (SC) 112, 120, 121, D. YasodammaGudur v. CIT, (1968) 70 ITR (AP): Anil Kumar Singh v. CIT, (1972) 84 ITR 307 (Cal); Abu Bucker Sait v CIT, (1970) 76 ITR 362 (Mad).In this background, the CIT(A) deleted the addition made by the Assessing Officer u/s 68 of the Act.

In the above paras, we have noted the findings of the CIT(A) in some detail, only to show that the CIT(A) has appropriately dealt with the : 16 : to 7180/Mum/2016 various objections raised by the Assessing Officer and deleted the addition made u/s 68 of the Act only after a thorough examination of the facts, material on record and judicial pronouncements. Before us, Revenue has not been able to controvert the findings recorded by the CIT(A) on the basis of any cogent material or reasoning except merely relying on the order of Assessing Officer.

In our considered opinion undisputedly, the director of the assessee- company had admitted earning of on-money in various years to the extent of Rs. 33,05,10,000/- in his statement recorded u/s 132(4) of the Act. The said admission was supported by the documentary evidence, a copy of which is placed at pages 63 to 67 of Paper Book in the form of ‘Excel Sheet’ recovered at the time of search wherein date of receipt, name of person, etc. is clearly mentioned. Thus, the year in which the on-money was received by the assessee can be clearly established from these details. In the statement recorded u/s 132(4) of the Act, it was further admitted that this on-money was used to introduce funds in the books of account in the form of unsecured loans. The loose paper found during the search provided the utilisation of on-money received by the assessee for the purpose of taking unsecured loans, copies of which are placed at pages 63 to 67 of Paper Book. In the return of income filed u/s 153A of the Act for assessment year 2009-10, since no on-money was received by it during the relevant assessment year, no income on account of on-money was declared. The Assessing Officer noted that though no on-money was received by the assessee, unsecured loans of Rs. 8,70,00,000/- was received by the assessee during assessment year 2009-10 which was not offered to tax and accordingly, made addition of Rs. 8,70,00,000 u/s 68 of : 17 : to 7180/Mum/2016 the Act as assessee failed to explain the source of the same. Contrary to this, in assessment year 2012-13, the Assessing Officer himself accepted the income offered by the assessee based on documents seized and taxed on-money received by the assessee during that year. It was pointed out by the assessee in the statement recorded u/s 132(4) of the Act that the source of unsecured loans was on-money received by the assessee which was further substantiated by the loose paper recovered at the time of search wherein utilisation of on-money was explained. The Assessing Officer rejected the claim of the assessee on the ground that on-money received by the assessee in assessment years 2006-07 and 2007-08 must have been used for other expenses and cannot be said to be available for utilisation for paying to the person from whom unsecured loan and thus was raised, proceeded to tax the unsecured loan received by the assessee in assessment year 2009-10.

It is pertinent here to refer to Section 292C of the Act, which reads as under: “Presumption as to assets, books of account, etc. 292C. (1) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search under section 132 or survey under section 133A, it may, in any proceeding under this Act, be presumed— (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that the contents of such books of account and other documents are true; and ….” (underlined for emphasis by us)

The next moot question which arises is as to whether income is to be taxed in the year in which the same was earned or it should be taxed in the year of its application. In this context, we find no error in the decision of the CIT(A) that in terms of sections 4 and 5 of the Act, the income be assessed in the year in which it is generated/earned.

We further refer to the Q. 29 of the statement recorded u/s 131 of the Act on 06.10.2015 in the course of proceedings u/s 133A of the Act wherein the director was asked to summarize the additional income offered by him. The relevant portion is reproduced hereunder:

In so far as decision relied upon by the ld DR in the case of B. Kishore Kumar vs. DCIT of 744 of 2014 is concerned, we find that on the basis of said decision ld. DR seeks to support the assessment order to say that on-money received by the assessee in assessment years 2006-07 and 2007-08 must have been used for other expenses and was available for utilisation for the purpose of unsecured loans while on the other hand he relies on the decision of B. Kishore Kumar vs. DCIT (supra) wherein the Hon'ble High Court has held that the where there is a clear and categorical admission of the undisclosed income by the assessee himself, there is no necessity to scrutinize the documents. The Assessing Officer by making a presumption that on-money received by the assessee in assessment years 2006-07 and 2007-08 must have been used for other expenses travelled beyond the admission of undisclosed income made by the assessee, which is quite contrary to the ratio laid down in the decision cited by the ld.DR.

Further, the Assessing Officer has invoked Section 68 of the Act to conclude that source of unsecured loans have not been explained by the assessee. In this regards, as noted by the CIT(A), source of unsecured loan was very much evidenced in the impounded papers to be the on-money earned by the assessee, and there is no justification to support the stand of the Assessing Officer. Thus, we find no justifiable reasons to interfere with the conclusion drawn by the CIT(A). We hold so.

Thus, in view of the aforesaid discussion, we hereby affirm the decision of CIT(A) and Revenue fails in its appeal.

This appeal pertains to assessment year 2010-11 wherein Grounds raised

Thus, in view of the aforesaid discussion, we hereby affirm the decision of CIT(A) and Revenue fails in its appeal.

This appeal pertains to assessment year 2013-14 wherein Grounds raised by the Revenue are slightly different as compared to assessment years 2009-10 and 2010-11. In the present year, the addition is made u/s 68 of the Act in the hands of assessee on protective basis and substantive addition is made in the hands of its group concern M/s. Mars Realtors Pvt. Ltd. as the unsecured loans are reflected in the books of the M/s. Mars Realtors Pvt. Ltd.

The facts in this year are different to the limited extent that in earlier year the assessee admitted the undisclosed income earned by it from on-money and the same was stated to be introduced in its account books by way unsecured loans, whereas in the year under consideration, being assessment year 2013-14, the income earned by the assessee from on-money was introduced as unsecured loan in its group company M/s. Mars Realtors Pvt. Ltd.

The Assessing Officer held that assessee and M/s. Mars Realtors Pvt. Ltd. are two separate entities and on-money earned by one entity cannot be used to explain the unsecured loans taken in other entities. Since the credits of Rs. 11,54,00,0000/- were reflected in the books of account of M/s. Mars Realtors Pvt. Ltd, the Assessing Officer made substantive addition u/s 68 of the Act in the hands of M/s. Mars Realtors Pvt. Ltd and a protective addition of the same amount in the hands of the assessee.

On appeal, the CIT(A) deleted the addition in the hands of the assessee holding that the M/s. Mars Realtors Pvt. Ltd was merely a pass through entity to introduce the funds in the assessee company and the funds in fact were generated out of the business operations of the assessee. The relevant findings are given in para 8.19 to 8.21 of the CIT(A) order which is reproduced hereunder:

Further, in assessment year 2013-14, there is merely an application of the income earned by the assessee in earlier year, as discussed in earlier part of this order. Since we have already held that income is to be taxed in the year in which the same is earned and not at the time of its application,

Thus, in view of the aforesaid discussion, we hereby affirm the decision of CIT(A) and Revenue fails in its appeal.

The facts of the present appeal are same as facts discussed in above. In this case, the addition of unsecured loans of Rs. 11,54,00,000/- was made by u/s 68 of the Act on substantive basis whereas th e addition of the same amount was made in the hands of its group concern M/s. Dev land and Housing Pvt. Ltd., (ITA No.7179/Mum/2016) on protective basis.

The CIT(A) has deleted the addition made in the hands of the assessee observing that the unsecured loan was sourced from the undisclosed income of the assessee’s group concern M/s. Dev land and Housing Pvt. Ltd and assessee was merely acting as pass through entity. While adjudicating the appeal in we have upheld the proposition of CIT(A) that Rs. 11,54,00,000/- introduced as unsecured loans in the account books of the assessee was income of its group concern M/s. Dev land and Housing Pvt. Ltd and assessee was acting merely as a pass- through entity to introduce funds in the group concerns.

Thus, once it is admitted that money in-fact belonged to another group-assessee, and the instant assessee was merely acting as a pass-

Thus, in view of the aforesaid discussion, we hereby affirm the decision of CIT(A) and Revenue fails in its appeal.

Resultantly, the captioned appeals of the Revenue are dismissed.