MAHENDRA R. LULLA,MUMBAI vs. INCOME TAX OFFICER WARD 21(2)(2), MUMBAI

This is an appeal filed by the assessee against the order of CIT(A)- 33, Mumbai dated 17/08/2017 for A.Y.2007-08 in the matter of order passed u/s.143(3) r.w.s. 147 of the IT Act.

In this appeal, assessee is aggrieved for open of assessment u/s.147 and also for addition of Rs.26,64,000/- on account of alleged payment of on money in acquisition of residential property.

Rival contentions have been heard and record perused.

The assessee alongwith other family members, booked a residential flat no.2504 in the building named Torino at powai which was being constructed by Hiranandani Group (builder). The booking was made M/s. Mahendra R Lulla vide Allotment letters dated 31-03-2006. During the course of negotiation/booking, it was made clear by the assessee that entire payment would be made by "cheques only". The builder agreed for the same and only on this understanding, all payments were made by cheques only. The builder's said Allotment Letters confirm these facts. In the assessment order, AO observed that during the F.Y.2013-14, a search action took place on Hiranandani Group & certain documents were seized. Based on those documents, the A.O. issued notice u/s.148 on the assessee proposing to reopen the assessment for A.Y.2007-08. The assessee replied by his letter dated 31-03-2014 to treat the original Return filed on 31-07-2007, as if filed in response to notice u/s.148 and also asked the reasons for reopening. In the assessment order so passed, AO observed that the assessee had paid an amount of Rs.26,64,000/- in cash on 03-06-2006 to the builder as 'on money'. However, no documentary evidence was supplied to the assessee. The assessee therefore requested the A.O. to provide the basis and/or a documentary evidence in support of this said allegation . The assessee also requested A.O. for cross examination of the directors/partners/employees of Hiranandani Group. However, the Ld.A.O. neither Supplied any concrete evidence in support of his above allegation nor provided the opportunity of cross examination. The A.O. supplied merely one page statement copy of Shri. Niranjan Hiranandani without any evidence whatsoever in support M/s. Mahendra R Lulla of the same. These facts are very much evident from page nos. 3 & 4 of the Assessment order.

By the impugned order, the addition so made on account of on money was confirmed by the CIT(A) against which assessee is in further appeal before us.

Reliance was placed by learned AR on the decision of Tribunal in case of Naren Premchand Nagda in order dated 08/07/2016 wherein similar addition was deleted after observing as under:- 5. I have heard the rival contentions in the light of the material placed on record. The facts are not in dispute. The issue is as to whether the addition made on the basis of paper seized in the case of search on the Siddhi Group and not on the assessee and also on the basis of statement made by Shri Kantilal M Patel, the key person of Siddhi Group, is justifiable and in accordance with law. It is pertinent to mention that as per the record, the assessee has vehemently denied having made any cash payment of Rs.37 lakhs towards purchase of shop, over and above the price settled. In addition, in the case of "CIT V/s Lata Mangeshkar" (supra), relying on the evidence in the form of statement by two persons, to the effect that they had paid money in black to the assessee, as well as entries in the books belonging to them regarding the alleged payment, the AO made addition to the assessee‟s total income as income from "undisclosed sources". The Tribunal, having found that the evidence tendered suffered from serious infirmities, held that mere entries in accounts regarding payments to assessee were not sufficient to prove that assessee had received money in „black' for which, she did not issue a receipt. The additions were deleted. The Hon‟ble High Court held that entries in day-book or ledger would be a corroborative piece of evidence and once direct evidence of persons having made payments in 'black' was disbelieved, no value could be attached to those entries. The Tribunal was, accordingly held justified in deleting the additions. In the present case, apart from the papers seized in the search conducted, not on the assessee, but on the Siddhi Group, and the statement of Shri Patel, who is a key person of the Siddhi Group and has nothing to do with the assessee, there is no evidence to implicate the assessee, so far as regards the alleged payment of Rs.37 lakhs over M/s. Mahendra R Lulla and above the credited amount. Merely, on this basis, in my considered opinion and in the light of the principle laid down in the case of "Lata Mangeshkar" (supra) the addition is unsustainable in law.

The other case laws cited on behalf of the assessee, as above, are also to the same effect. No decision to the contrary has been cited before me on behalf of the department. Therefore, keeping in view the above decisions, in the absence of any incriminating documentary material/ evidence found against the assessee to prove that the alleged investment of Rs.37 lakhs had been made by the assessee as on money, over and M/s. Mahendra R Lulla above, credited amount for purchase of the shop in question, I find that the addition made by the AO and confirmed by the ld. CIT(A) is unsupported and unsustainable in law. The same is accordingly deleted.”

Reliance was also placed on the decision of the Co-ordinate Bench in case of Shri Anil Jaggi in dated 20/12/2017, wherein similar addition has been deleted by the Tribunal after observing as under:- 15. We shall now take up the case of the assessee on merits and deliberate on the validity of the addition of Rs. 2.23 crore made by the A.O on the ground that the assessee had made a payment of "on money" for purchase of flats from M/s Lakeview developers. We have perused the facts of the case and the material available on record on the basis of which the addition of Rs. 2.23 crore had been made in the hands of the assessee. We have further deliberated on the material placed on record and the contentions of the Id. A.R to drive home his contention that no payment of any "on money" was made by the assessee for purchase of flats from M/s Lakeview Developers. We find that the genesis of the conclusion of the A.O that the assessee had paid "on money" of Rs. 2.23 crore for purchase of property under consideration is based on the contents of the pen drive which was seized from the residence of an ex-employee of Hiranandani group. We have perused the print out of the pen drive (Page 42 of APB) and find ourselves to be in agreement with the view of the Id A.R that though against the heading "Amount of on money paid" the name, address and PAN No. of the assessee is mentioned alongwith the details of the property purchased by him, viz. Flat no.2501 in "Somerset" building from Lakeview Developers (a Hiranandani group concern), however, the same would not conclusively prove suppression of investment and payment of "on money" by the assessee for purchase of the property under consideration. We find that the information as emerges from the print out of the pen drive falls short of certain material facts, viz. date and mode of receipt of 'on money', who had paid the money, to whom the money was paid, date of agreement and who had prepared the details, as a result whereof the adverse inferences as regards payment of "on money" by the assessee for purchase of the property under consideration remain uncorroborated. We further find that what was the source from where the information was received in the pen drive also remains a mystery till date. We find that Sh. Niranjan M/s. Mahendra R Lulla Hiranandani in the course of his cross-examination had clearly stated that neither he was aware of the person who had made the entry in the pen drive, nor had with him any evidence that the assessee had paid any cash towards purchase of flat. We have deliberated on the fact that Sh. Niranjan Hiranandani in his statement recorded on oath in the course of the Search & seizure proceedings had confirmed that the amounts aggregating to Rs. 475.60 crore recorded in the pen drive were the on-money received on sale of flats, which was offered as additional income under Sec. 132(4) and thereafter offered as such for tax in the petition filed before the Settlement commission. We are of the considered view that there is substantial force in the contention of the Id. A.R that mere admission of the amounts recorded in the pen drive as the additional income by Sh. Niranjan Hiranandani, falling short of any such material which would inextricably evidence payment of "on money" by the assessee would not lead to drawing of adverse inferences as regards the investment made by the assessee for purchase of the property under consideration. We rather hold a strong conviction that the very fact that the consideration paid by the assessee for purchase of the property under consideration when pitted against the 'market value' fixed by the stamp valuation authority is found to be substantially high, further fortifies the veracity of the claim of the assessee that his investment made towards purchase of the property under consideration was well in order. We are of the considered view that though the material acted upon by the department for drawing of adverse inferences as regards payment of "on money" by the assessee formed a strong basis for doubting the investment made by the assessee for purchase of the property under consideration, but the same falling short of clinching material which would have irrefutably evidenced the said fact, thus, does not inspire much of confidence as regards the way they have been construed by the lower authorities for drawing of adverse inferences in the hands of the assessee. We thus are of a strong conviction that as the material relied upon by the lower authorities does not corroborate the adverse inferences drawn as regards the investment made by the assessee, therefore, the same cannot conclusively form a basis for concluding that the assessee had made payment of "on money" for purchase of the property under consideration. We thus in the backdrop of our aforesaid observations are of the considered view that the adverse inferences drawn by the A.O as regards payment of "on money" of Rs. 2.23 crore by the assessee for purchase of Flat No. 2501 from M/s Lakeview Developers are based on of premature observations of the A.O, which in the absence of any clinching evidence cannot be sustained. We thus are unable to subscribe to the view of the lower authorities M/s. Mahendra R Lulla and set aside the order of the CIT(A) sustaining the addition of Rs. 2.23 crores in the hands of the assessee. 16. The appeal of the assessee is allowed.

From the record we found that subsequent to search statement of Shri Niranjan Hiranandani and Shri Mahendra R Lulla were again recorded u/s.131 on 09/03/2017 which reads as under: Q.I. Please identify yourself and confirm that oath has been administered to you and you have been made aware of the consequences of giving false statement? Ans. 1. I am Niranjan Hirandani, S/o Dr. L.H. Hiranandani, Aged.67 years residing at Kanta, Littile Gibbs Road, Mumbai-400006. I confirm that oath has been administered to me and I am aware of the consequences of giving false statement on oath. 2. I am Mr. Mahendra Lulla S/O.Radhakishan T. Lulla, aged 61 years residing at 604, Ocean View, Union Park , Knar West,Mumbai-400052. . I confirm that oath has been administered to me and I am aware of the consequences of giving false statement on oath.