ACIT, NEW DELHI vs. SH MAHAGUN INDIA PVT. LTD.,, DELHI
Facts
The assessee, Mahagun India Pvt Ltd, faced additions to income for AY 2005-06 and 2006-07 related to non-disclosure of residual asset value, suppressed sales, and a disallowance under Section 40A(3) for cash payments exceeding limits. These additions arose from a survey and subsequent search operation on the Mahagun group, where incriminating materials like diaries and annexures were found. The Assessing Officer apportioned undisclosed income across several assessment years, including the impugned years, leading to the contested additions and disallowances.
Held
The Income Tax Appellate Tribunal (ITAT), relying on the Supreme Court's ruling in Abhisar Buildwell P Ltd, held that no additions or disallowances could be made for completed/unabated assessment years (like AY 2005-06 and 2006-07) without incriminating material specifically pertaining to those years. Finding no such specific incriminating material cited by the AO for the impugned years concerning residual assets, suppressed sales, or the Section 40A(3) disallowance, the ITAT directed the deletion of all these additions and disallowances. The Tribunal affirmed the CIT(A)'s deletion of suppressed sales additions for the impugned AYs, noting the seized materials mostly pertained to later years.
Key Issues
Whether additions and disallowances made by the AO in completed/unabated assessment years (AY 2005-06 and 2006-07) are valid in the absence of incriminating material specifically found for those years during a search operation. This includes additions for residual asset value, suppressed sales, and disallowance under Section 40A(3) of the Income Tax Act.
Sections Cited
Section 153A, Section 40(a)(ia), Section 133A, Section 132, Section 142(2A), Section 143(1), Section 143(2), Section 147, Section 148, Section 132(4), Section 40A(3), Section 271D, Section 269SS, Section 269TT, Section 271(1)(c), Section 17 (Evidence Act), Section 21 (Evidence Act)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI ‘E’ BENCH,
Before: SHRI VIKAS AWASTHY & SHRI NAVEEN CHANDRA
PER NAVEEN CHANDRA:- The above captioned two separate appeals by the assessee and
two separate cross appeals by the Revenue are preferred against the
order of the ld. CIT(A)–II, Delhi dated 30.04.2012 pertaining to
Assessment Years 2005-06 and 2006-07 respectively.
Since underlying facts are common in the captioned appeals,
they were heard together and are disposed of by this common order
for the sake of convenience and brevity
ITA No. 2818/DEL/2012 [A.Y. 2005-06] ITA No. 2819/DEL/2012 [A.Y. 2006-07]
[Assessee’s Appeals]
The assessee has raised as many as six grounds of appeal in both
the A.Ys. However, during the course of arguments, the assessee has
not pressed the issue relating to jurisdiction u/s 153A of the Act in
Ground Nos. 1 to 4. Accordingly, ground nos. 1 to 4 are dismissed as
not pressed for both the AYs.
The issue which remains to be considered by us is Ground No. 5 in
both the years which is in relation to the confirmation of part addition
of Rs. 20,00,000/- made by the Assessing Officer on account of non
disclosure of value of residual assets and confirmation of addition of
Rs. 70,600/- made by the Assessing Officer u/s 40(a)(ia) of the Act in
A.Y 2005-06.
The challenge before us is whether the impugned additions made
in the assessment orders are devoid of any incriminating material
found at the time of search and therefore, the ratio laid down by the
Hon'ble Jurisdictional High Court of Delhi in the case of Kabul Chawla
380 ITR 573 affirmed by the Hon'ble Supreme Court in the case of
Abhisar Buildwell Pvt Ltd 454 ITR 212 squarely apply making the
impugned additions invalid.
Briefly stated, the facts of the case are that there was survey
action u/s 133A of the assessee 20.03.2007. Thereafter a search and
seizure operation was also conducted by the Investigation Wing V(I),
Delhi in Mahagun group of cases on 27.08.2008 which included the
premises of the assessee u/s 132 of the Income-tax Act, 1961 [the Act,
for short]. After centralizing the assessee’s case, notice u/s 153A was
issued to the assessee company on 02.03.2009 for the year 2005-06 and
A.Y 2006-07and served upon the assessee company.
In response, the assessee filed returns of income on 30.09.2009
declaring income of Rs. 2,47,28,599/- for AY 2005-06 and income of Rs
9,07,12,050/- for A.Y 2006-07.
The assessing officer, having regard to the nature and complexity
noticed in the accounts of the assessee company, after due approval
from CIT, got the assessee’s accounts audited u/s 142(2A) of the Act.
In the course of assessment proceedings, the Assessing Officer
noticed that the assessee company has not declared the value of
certain assets in the balance sheet like roof rights, right to further
extension, super area, basement right, maintenance rights, right to
sell/lease commercially viable space like swimming pool, gymnasium,
advertisement right to put mobile tower etc., thereby decreasing its
income.
The assessee was asked to furnish total value of sale price in
respect of the project completed during the year and furnish valuation
report from approved valuer.
In response, the assessee filed detailed reply and has declared
land cost of the projects completed in the A.Y. 2005-06 at Rs.
5,41,92,203/- and Rs 10,66,88,800/- for AY 2006-07. However, the
Assessing Officer held that in the absence of details filed with regard
to valuation report, the residual rights for the top floor, value of
swimming pool, etc, are part of profit for which the assessee has not
paid any consideration. The assessee has earned the profit in lieu of
carrying out business activity that is construction of projects and as a
result of which after the sale of the apartments to the buyers, the
rights on the residual assets as above, remain with the builder.
Accordingly, the Assessing Officer computed the profits earned
by assessee company from residual rights including right over roof at
Rs. 85 lakh as against Rs. 60,21,355/- worked out by the assessee for
AY 2005-06 and Rs 1.25 crore as against Rs 88,90,733/- worked out by
the assessee for AY 2006-07.
The assessee agitated the matter before the ld. CIT(A) and
contended on both merit as well as legal ground that the entire
addition is devoid of any incriminating material found at the time of
search and since the addition has been made without there being any
incriminating material, it should be deleted.
The ld. CIT(A), after considering the facts and submissions,
upheld addition of Rs 20,00,000/- out of Rs 85,00,000/- for AY 2005-06
and Rs 20,00,000/- out of Rs 1,25,00,000/- for AY 2006-07.
Now both the assessee and the Revenue are aggrieved by the part
relief given by the ld. CIT(A) and have come in appeal before us.
Before us, the ld. counsel for the assessee vehemently contended
that the Assessing Officer has made additions which are not based on any incriminating materials. The Ld AR pointed out that the date of
search is 27-08-2008. The ld AR further pointed out that the return for
AY 2005-06 was filed on 26th October, 2005 and the assessment was
made under section 143(1). The time limit for issuance of Notice under section 143(2) was 31st October 2006. Since no notice u/s 143(2) was
issued within time prescribed, assessment for the AY 2005-06 becomes
a case of acompleted/unabated assessment. Similarly, the ld AR
pointed out that the return for AY 2006-07 was filed on 30th June, 2006 and the assessment was made under section 143(1). The time limit for issuance of Notice under section 143(2) was 30thJune 2007.
Since no notice u/s 143(2) was issued within time prescribed,
assessment for the AY 2006-07 becomes a case of a
completed/unabated assessment.
It was reiterated by the ld AR that since both the AY 2005-06 and
AY 2006-07were a case of acompleted/unabated assessment and there
was no incriminating material found referred in the assessment order
in this regard, the AO cannot make any additions. The ld AR pointed
out to relevant paras of the assessment order for AY 2005-06 and AY
2006-07 to show that there is no reference to any seized materials or
any incriminating material found in the assessment order on this issue.
He further stated that in completed/unabated assessment, the
addition can be made only on the basis of incriminating material. The
ld. counsel for the assessee relied upon the decision of the Hon'ble
Delhi High Court in the case of Kabul Chawla 380 ITR 573(Del) and
Meeta Gutgutia (2017) 395 ITR 526(Del) and (2018) 257 Taxmann
441(SC).
The ld AR, on merits of the case, relied upon the orders of the
ld. CIT(A) and reiterated what has been stated before the lower
authorities. The ld. counsel for the assessee also placed reliance on
the findings recorded by ld. CIT(A) and case laws relied upon by him.
Further, the ld. counsel for the assessee submitted that the ld. CIT(A)
has given a categorical finding that the admission of the assessee
relied upon by the Assessing Officer, was merely a subject working
given, without prejudice, on the insistence of the Assessing Officer
that if roof rights have to be valued, then how much value should be
ascribed to it. It was in no way any admission on the part of the
assessee.
The ld. counsel for the assessee further arguing on merits,
submitted that roof rights are only contingent because there is no
permission to construct the terrace and therefore such asset is not a
firm assetbutis a contingent asset. Similarly, all other assets have been
sold to the customers and if not sold to the customers, then have been
placed at the disposalof the customers and these cannot be sold to
other customers independently and, therefore, no separate valuation
can be taken.
Per contra, the ld. DR heavily relied on the orders of the
Assessing Officer. On the issue of additions made in absence of
incriminating materials, the ld. DRrelied on the decision of the
Hon’bleKerala High Court in the case of E.N. Gopakumar 75
Taxmann.com 215, Hon'ble High Court of Allahabad in the cases of CIT
VS. Raj Kumar Arora 52 Taxmann.com 172 and CIT Vs. Kesarwani Zarda
BhandarSahson ITA No. 270 of 2014 and other cases. On merits of the
additions, the ld DR could not controvert the findings of the ld. CIT(A).
We have carefully perused the orders of the authorities below.
Having heard the rival submissions and perusing the relevant material
on record we note that the search on the assessee was conducted on
27.08.2008. We also note that the AY 2005-06 and AY 2006-07 has
become a completed/unabated assessment as in both the AYs,
assessment u/s 143(1) has been made and the time to issue notice u/s
143(2) has expired. The ld. DR could not rebut this pertinent fact that
the two AYs involved are completed/unabated assessment years. We
also find from the perusal of the assessment order that there is no
mention of any incriminating material found at the time of search on
the basis of which the impugned additions have been made. The ld DR
has not rebutted this factual matrix that there is a total absence of
reference to any incriminating material for the said additions made in
the impugned AYs. Thefact that emerges, therefore, is that the
additions in the impugned A.Ys of 2005-06 and 2006-07 were made in
completed/unabated AYs without any reference to incriminating
material.
The issue of additions made sans incriminating materials in a
completed/unabated assessment is no longer res integra. The Hon'ble
Supreme Court in the case of Abhisar Buildwell P Ltd [2023] 294
Taxman 70 (SC),confirming the ratio laid down in Kabul Chawla [supra]
has set at rest the entire quarrel revolving around the assessments
devoid of incriminating material. The relevant findings are as under:
“In view of the above and for the reasons stated above, it is concluded as under: i) that in case of search under Section 132 or requisition under Section 132A, the AO assumes the jurisdiction for block assessment under section 153A; ii) all pending assessments/reassessments shall stand abated; iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the ‘total income’ taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments.
Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved. 24. The question involved in the present set of appeals and review petition is answered accordingly in terms of the above and the appeals and review petition preferred by the Revenue are hereby dismissed. No costs.”
The ratio laid down by the Hon'ble Supreme Court in the case of
Abhisar Buildwell P Ltd [supra] squarely apply to the facts and
circumstances of the instant case. The AYs of 2005-06 and 2006-07 are
completed/unabated assessments. The impugned addition is not based
on any incriminating material foundrelevant to the A.Ys under
consideration. Respectfully following the judgement in the case of
Abhisar Builder, we direct that the addition made by the AO on
account of residual rights be deleted. Accordingly, the ground No. 5
raised by the assessee in both the appeals in this respect is allowed in
both the A.Ys under consideration. As the additions are deleted on the
legal ground, no opinion is being given on the merits of the additions
made.
Ground No. 6 raised by the assessee in A.Y 2005-06 pertains to
the confirmation of addition of Rs. 70,600/- made by the Assessing
Officer u/s 40a(ia) of the Act.
Facts relating to this issue are that the Assessing Officer during
the course of assessment proceedings disallowed an amount of Rs
70,600/- u/s 40a(ia) of the I T Act on account of the fact that the
assessee had not deducted TDS on earth work centering and
shuttering.
The aggrieved assessee went in appeal before the ld. CIT(A),who
dismissed the ground taken by the assessee.
Aggrieved further, the assessee is in appeal before us.
Before us, the ld. counsel for the assessee vehemently stated
that this was a case of an unabated assessment and therefore, in the
absence of any incriminating material found as a result of search, no
disallowance could be made.
On the other hand, the ld. DR relied upon the orders of the
authorities below.
Having heard the rival submissions and perusing the relevant
material on record, we note that we have already held above regarding
the impugned AY 2005-06 being a completed/unabated assessment
year. The law laid down in Abhisar Builders’s case is equally applicable
to the facts of this disallowance. Respectfully following the judgement
in the case of Abhisar Builder, we direct that the disallowance made by
the AO on account of violation of the provision of the section 40a(ia) of
the I T Act be deleted. Accordingly, the ground No. 6 raised by the
assessee in its appeal for AY 2005-06 is allowed.
As a result, the appeal of the assessee in ITA No. 2818/DEL/2012
and ITA No. 2819/DEL/2012 is allowed.
ITA No. 3661/DEL/2012 [A.Y. 2005-06] ITA No. 3662/DEL/2012 [A.Y. 2006-07]
[Revenue’s Appeals]
Ground No 1 in both the A.Ys relates to the confirmation of part
addition of only Rs. 20,00,000/- made by the Assessing Officer on
account of residual assets in both the A.Y 2005-06 and A.Y 2006-07.
This issue has been discussed and decided by us in ground no 5 of
the assessee’s appeal for AY 2005-06 and AY 2006-07 wherein we have
decided the issue in favour of the assessee and against the revenue.
Therefore, following the same, we dismiss Ground No. 1 raised by the
Revenue in both the A.Ys.
Ground No. 2 in both the A.Ys is in relation to the deletion of
apportionment of suppressed sales/receipts of Rs.2,08,37,929/- for AY
2005-06 and Rs. 15,44,27,160/- for AY 2006-07 respectively.
The facts of the case are that during the course of assessment
proceedings, the Assessing Officer notes that incriminating material in
the form of a diary was found during the course of survey u/s 133A on
20.03.2007 which reflected the receipt of on-money/suppressed sale
proceeds of flats/shops. On being confronted, the assessee group
surrendered an amount of Rs. 16.95 crore which was over and above
the net profit for A.Y 2007-08 in the case of respective companies.
Subsequently, a search and survey operation u/s 132 was
conducted on the assessee group on 27.08.2008 during which
incriminating documents and diaries containing entries of unaccounted
income generated on account of receipt of on-money was seized. On
being confronted, the Managing Director of the group Shri Amit Jain in
his statement u/s 132(4) offered Rs. 30 crores as additional income on
account of cash receipts/entries which was over and above the regular
income to be declared without ascribing the AYs for which it was
attributable.
The Assessing Officer examined incriminating materials at
AnnexuresA-20,21,22&24seized during the search and concluded that
sum total of figures of Rs 32,82,27,143/-appearing on the credit side of
the AnnexuresA-20, 21,22 & 24along with Rs 16,95,88,000/-admitted
during the survey, represent undisclosed income of the assessee.
Accordingly, the Assessing Officer considered the entire receipts of Rs
49,78,59,943/- as undisclosed income and apportioned it in the AYs of
2003-04 to 2009-10 of the block period. For the impugned A.Y 2005-06
and A.Y 2006-07, the AO apportioned the undisclosed income of Rs.
2,08,37,929/- and Rs. 15,44,27,160/- respectively.
Aggrieved the assessee went in appeal before the ld. CIT(A) who
after exhaustively discussing the case, deleted the addition of Rs
2,08,37,929/- in A.Y 2005-06 and Rs. 15,44,27,160/- in A.Y 2006-07 by
holding in his order for AY 2005-06 as under:
“14. I have considered the assessment order, written submissions filed by theAR, AO's subsequent reports and the AR's rejoinder as well as the facts of the case and the position of law. The appellant is the principal Company of "The Mahagun Group". The appellant company was engaged in the business of real estate during seven impugned assessment years i.e. A.Y. 2003-04 till A.Y. 2009-10 (the blockyears) alongwith its associate companies namely M/s. Mahagun Developers Ltd ( MDL) & M/s Mahagun Realtors Pvt. Ltd. (MRPL) uptil A.Y. 2006-07 and thereafter it become a single entity on merger of its group companies in its fold by virtue of a merger scheme approved by Hon'ble Delhi High Court vide its order dated 10.09.2007 being effective from 01.04.2006. It has resulted in independent assessment proceeding uptil A.Y. 2006-07 of two merged companies i.e. MDL & MRPL and thereafter since A.Y. 2007-08 single assessment proceedings for the appellant company along with the merged companies. During the course of assessment proceedings for the block years the A.O. observed complexity in the books of accounts and accordingly, a special auditor u/s 142(2A) of the Act was appointed to carry out audit for the block years. A specific reference was made to the auditor to determine the value of "extrapolated sales" on the basis of seized material. The appellant offered additional income of Rs. 16.95Cr. during the survey proceedings u/s 133A and Rs. 30Cr. during search proceeding u/s 132 of the Act. It has filed its return for the A.Y. 2007- 08 disclosing the offered amount of Rs. 16.95Cr. However, it has disclosed additional income of Rs. 17.97Cr. for the search year i.e. A.Y. 2009-10 as against offered amount of Rs. 30Cr. made during the search.
As against such disclosure of additional income by the appellant for the two assessment years i.e. A.Y. 2007-08 & 2009-10, the department and the auditor has worked out suppressed receipts/sale/extrapolated sales at Rs. 49,78,59,943/-& Rs. 42,98,06,439/- respectively which has been spread over the block years in the ratio as determined by the auditor following Percentage of Completion Method ofAccounting(PCOM) as under: -
Asst Year Addl Income Extrapolation Extrapolation by Name of the company declared by Special the A.O. by the appellant Auditor Mahagun Realtors Pvt. 2006-07 5,22,91.433 6,05,71,018 Ltd. --- --- _._ - _. - - Mahagun Developers - 2004-05 - Pvt. Ltd. --do- 2005-06 2,02,54,253 2,34,61,235 f''\ -do- 2006-07 5,54,20,982 6,41,96,022 Mahagun India P. Ltd. 2004-05 - -do- 2005-06 1,79,63,669 2,08,07,939
-do- 2006-07 13,33,88,185 15,44,27,160 -do- 2007-08 16,95,88,000 2,09,41,931 2,42,57,786 . _.- - ............ .. _ .. ............ ............... - .................. - ... -_ .. .. - .......... _._.- -- - 41,21,842 ..... ....... - 35,58,41 1 -do- 2008-09 ,16,941 1 -do- 2009-10 17,97,85,305 12,60,57,575 Total 34,93,73,305 42,98,06,439 49,78,59,943 , --- - Accordingly, the A.O. has made addition of Rs. 2,08,07,939 during the year being the apportioned amount of suppressed receipts/sale as mentioned above to the declared income of the appellant for the year under review.
The appellant has disputed the quantum of additional income, its year of taxability, nature of such additional income and the taxable entity. The A.O. has calculated a sum of Rs. 49,78,59,943/- as suppressed
sale/receipts on the basis of sum total of credit side of the diaries seized during search proceedings now marked as Annexure A-20,21,22 & 24 amounting to Rs. 32,82,27,143/- and sum total of Rs. 16,95,88,000/- recorded in the diary seized during survey proceedings u/s 133A of the Act. There is no dispute on the part of appellant about the quantum of receipt at Rs. 16.95 crores and its inclusion in the taxable income of the appellant for the A.Y 2007-08 as the appellant himself has also disclosed such additional income in its return for the A.Y. 2007-08. However, the appellant has objected about its inclusion in the gross total of alleged suppressed receipt /sale as calculated by the A.O. at Rs. 49.78Cr. which the A.O. has spread over the block years following Percentage Completion of Method (PCOM).
I have gone through the contents of the seized papers at the time of survey in the year of 2007 (PBII 301-312) copy of which supplied by the appellant during these proceedings. The relevant information as recorded in the diary is reproduced below:
Month MIPL 5 MOL 4 MRL 21 MIPL Total Cumulative 4 Total I I April,06 38.20 19.20 14.20 13.78 128.38 128.38 34.00 , May, 06 39.00 22.00 30.00 123.00 251.38 I ; June, 06 33.00 24.00 50.00 40.00 147.00 398.38 July, 06 35.00 50.00 63.00 60.50 208.50 606.88 Auqust,06 86.00 36.00 66.00 75.00 263.00 869.88 Se/Jl.06 . . .. --.------44~OO· "'25:00 ············- - --·-- ·----'1058:88---- Oct. 06 30.00 86.00 34.00 26.00 176.00 1234.88 Nov. 06 - 33.00 35.00 16.00 84.00 1318.88 10.00 , Dec. 06 58.00 52.00 120.00 1438.88 --- Jan.07 --- 30.00 30.00 15.00 75.00 151388 Feb07 --- 76.00 82.00 24.00 182.00 1695.88
On perusal of the above information it is observed as under.-
Such receipts pertain to the period starting from April, 2006 till February, 2007relevant to A.Υ. 2007-08
It relates to various Mahagun Group of Companies as their names are mentioned in abbreviation on these pages. Such as MDL, MIPL, MRL etc
The numerical figure mentioned alongwith abbreviated name of the company appear to represent the project undertaken by the respective company such as "4" mentioned with MDL appears to represent its project Mahagun Mansion-II, 1/4, Indirapuram, Ghaziabad. "5" Mentioned with MIPL appears to represent its project Mahagun Mansion-I, 1/5 Indirapuram, Ghaziabad.
"21" mentioned with MRL appears to represent its project "Mahagun Maistro"F-21, Noida & "4" mentioned with MIPL appears to represent its project "Mahagun Morpheus" E-4, Sector 50, Noida.
Though it is apparent from the diary that income relates to the projects of the appellant's group companies, but it is difficult to presume that such receipts are either "on money" or "suppressed sales" of the appellant in the absence of any other evidence or information which may suggest that the impugned sums as recorded in the diary has been received by the appellant from its customers against sale of space. There is no individual/corporate name in the diary, only project-wise and month- wise sums are recorded as mentioned above. With this background, the sums recorded in the diary can only be construed as additional income of the appellant for the period recorded therein. The appellant himself has declared whole of such amount as additional income which further indicates that such income is basically other income from the projects and hence attributable to the year of surrender itself. Moreover, there
is no contrary material on records, which may suggest that such receipts pertain to the period prior to or subsequent to the period mentioned in the diary. Therefore, such additional income neither can be attributed to any other Assessment Years of block years nor can be clubbed with the remaining impugned amount of suppressed sale/receipt as determined by the A.O. on the basis of seized material during search u/s 132. The A.O. himself in the impugned assessment order has given his categorical finding that there is no issue as far as disclosure of such income by the appellant in its I.T. Return. Under the circumstances, out of total impugned sum of Rs. 49,78,59,943 the addition of Rs. 16,95,88,000 will restrict to A.Y. 2007-08 and that too in the hands of appellant company as the other two group companies namely MDL & MRPL got merged with the appellant company w.e.f. 01.04.2006. As far as the remaining amount of Rs. 32,82,27,143/- (49,78,15,143 -16,95,88,000) is concerned, it represents sum total of credit side of ledger books now marked as AnnexureA-20,21,22 & 24. While doing so the A.O. has observed that these annexures comprise only receipts and the figures mentioned on the debit side of these ledger books donot have any co- relation and that is why the same cannot be set off against the figures mentioned on the credit side. The A.O. has further relied upon the statement of Sh. Amit Jain recorded u/s 132(4) of the Act.
On perusal of these annexure it is observed that the annexure A-20, 21, 22 & 24 not only comprise receipts but there are corresponding debits also. Even the Special auditor has confirmed that these annexure comprise both receipts & payments. Further, the observation of the A.O. that there is no correlation between unaccounted receipts reflected on credit side and the amount reflected on debit side of these
ledger/Annexure does not appear to be correct. On verification of the annexure, it is observed that there are contra entries, adjustment on account of refund and price adjustment etc on the same pages which reflects impugned receipts as pointed out by the appellant during these proceedings as under……
Following ledger accounts of the respective annexures exhibit that the appellant has received the amount and refunded the same. Meaning thereby, when the documents itself suggest that the credit sum has already been refunded, the same cannot be included in the impugned suppressed sale / receipt at Rs. 32,42,27,143/-.
Keeping in view the above factual status, it is not in order to ignore the debit entries recorded in these annexures itself. The AO has not pointed out any single entry which is not related to the impugned suppressed sale/receipt credited in these ledger books. In the absence of such observation, in view of settled law that the documents found at the time of search has to be read as a whole, if it has to be relied upon. It cannot be read only to the extent it is advantages to the revenue and ignored when it becomes disadvantageous. In other words, if the transactions recorded on the debit column of the ledger account is doubted, then all the receipts mentioned in the credit columns of these ledger accounts comes under the ambit of doubt. It is a cardinal principle of interpretation of documents that they should be read as a whole as a person of common prudence will read them. They cannot be read in bits and pieces to suit the convenience of one party or the other party. Therefore, either the whole evidence has to be accepted or the whole evidence has to be rejected as held in India Seeds House Vs. ACIT 69
TTJ 241 ITAT [DEL]/ Dhanvarsha Builders & Developers P Ltd Vs, DCIT 289 ITR 50.
I have also gone through the copy of statement of Shri Amit Jain recorded u/s 132(4) dated 27.08.2009. It has been observed that the Assessing Officer has relied upon the statement of Shri Amit Jain in a mechanical manner, again to the benefit of the revenue. In reply to question No. 3 Mr. Jain has specifically mentioned that these ledger books comprise both receipts and payments of the projects. Mr. Jain was confronted with the ledger accounts of Smt. Kavita Jain (Page No.49 of A-20) & Mr. Rajesh Agnihotri (Page No. 16 of Annexure A-22) having only credit entries. I have verified annexure A-20 & A-22 which not only comprises the ledger account of Smt Kavita Jain & Mr. Rajesh Agnihotri having receipts only as admitted by Mr. Jain but also there are other party accounts having both debit and credit entries. The statement has to be accepted as a whole and could not be used in parts as held in Chander Mohan Mehta v/s ACIT (1999) 71 ITD 245 (Pune). It appears that the A.O neither during assessment, nor during remand proceedings, verified these ledger books before relying upon the statement of Sh. Jain. In any case, the admission made by the appellant during search operations constitute substantial evidence in view of section 17 & 21 of Evidence Act, but it is not conclusive and it is open to the appellant to show that it is incorrect as held in S. Arjan Singh v/s. CWT (1989) 175 ITR 91 Delhi High Court / Pullangod Rubber Products Co. Ltd. v/s. State of Kerala (1973) 91 ITR 18. In the instant case, the appellant has demonstrated, as stated above, that there are both debit and credit entries in these ledgers and the debits as appearing in the annexures has
direct-link with the credit appearing therein. It appears that the surrender of Rs. 30Cr. as made by the director was without verification of the transactions recorded in the Annexures. Therefore, in absence of any bar under the Act to rectify the mistake committed by the appellant while recording his statement u/s 132(4) at the time of assessment no adverse inference can be drawn against the appellant merely on the basis of statement. It is establish principle of law that the party is entitled to show and prove that the admission made by him probably is infact not correct and true as held in Kishan Lal Shiv Chand Rai 88 ITR 293 (P & H).
Now as far as the working given by the Special Auditor is concerned, it is observed that he has calculated extrapolated sales at Rs. 42,98,06,439/-for the entire block years which includes additional income offered by the appellant for the A.Y. 2007-08 and A.Y. 2009-10 on the basis of these annexures, in the following manner:
The Auditor has prepared Project-wise charts, showing customer-wise, flat-wise, and Area- wise detail for all the projects executed during the period of 01.04.2002 till 31.03.2009 as per books of accounts. The details so prepared comprise per sq. ft. sales price which also include other payments on account of Preferential Location Charges (PLC) etc.
The Auditor has treated the Annexures A-20, A-21, A-22, & A- 24 as related to the projects executed by the assessee company during the block years, taking clue from the information mentioned on the cover page.
While processing the transactions recorded in these Annexures (A-20, 21, 22 & 24) wherever, the Auditor came across identical
name as appearing as customer in the books of accounts of the assessee company and in these Annexures, it has been presumed by him that the transactions recorded in these Annexures relate to the same customer
On the basis of above hypothesis, the Auditor has prepared a separate excel sheet which discloses the information as gathered from the books of accounts as mentioned in para 1 and the cash paid by the customers as per these Annexures. On the basis of this excel sheet the Auditor has determined the alleged actual sale consideration (cash+cheque) received from these tainted customers whose names are appearing in the annexures as well as books of account.
Subsequent to above exercised, the auditor has calculated average sales price per sq ft of the project for determination of extrapolated sales for the entire project presuming that the assessee company has sold the space to all the customers at the average rate so determined.
The extrapolated sales so determined has been added to the actual sales as declared by the assessee company following percentage completion of method on year to year basis and sum total of declared sales as per books + extrapolated sales as determined above has been bifurcated over the period of completion of the project following PCM.
The difference between the total alleged sales (sales as per books of accounts+ extrapolated sales) as determined by the Auditor above and the sales as disclosed by the assessee company
from year to year has been treated as extrapolated sales by the Auditor
It is apparent from the excel sheets prepared by the Special Auditor that he presumed that the seized records were only "Part records" and the appellant has received "On Money" from all the customers irrespective of the fact whether their names are there or not in the books of accounts and seized material or vice-versa. Documents regarding receipt of "on money" by appellant having been found in respect of sale of flats to one party, addition could not be made in respect of all the parties to whom appellant sold flats merely on the basis of presumption as held in D.N.K. Kamani (HUF) v/s. Dy. CIT (1999) 70 ITD 77 TM (Pat.). In my considered opinion, the Special Auditor is not justified in deciphering the figures on the basis of seized documents based on unfounded presumptions and conjunctures without bringing any corroborative material evidence in support thereof, as held in the case of Atul Kumar Jain - Vs - DCIT, 64 TTJ 786 (Delhi) due to following reasons:-.
The law of averages sometimes gives very erratic results if the denominator value is substantially low than the numerator. In the instant case, average sale price has been determined for all the customers by considering the alleged "on money" paid by a very small segment of the customers as mentioned below:
Total S. No. Project \ Financial Year No. of customer Tainted customers Of the Project customers as I per the seized; , records _____ 5_ 1 MahaqunMansion - I RESIDENTlAL ------ -- 3.30- 17 ________ COMMERCIAL 28 14 2 Mahagun Mansion - II RESIDENTIAL 268
12 COMMERCIAL 25 NIL 3 MahaqunMorpheus : 116 NIL 4 Mahaqun Maestro 187 5 - Mahagun Mosaic 289 6 120 6 MahaqunMetro Mall 305 - -i \-- -~-- - -- I 7 MahagunMascot 682 i 8 ! 182 iTOTAL 2230 The Special Auditor has even determined extrapolated sales for the projects namely Mahagun Morpheus and MahagunMestro even if, none of the customers names appeared in the impugned ledger books. The bifurcation of alleged actual sales (sales as per books of accounts +extrapolated sales) as done by the auditor following PCM has determinedsales of the appellant company even less than the sales value as recordedby the appellant company in its books of accounts which is quite unrealistic. A comparative statement of actual sales as recorded in books of accounts and as determined by the Special Auditor is annexed here under as Annexure "A"……
Auditor has applied average rate for the purpose of calculation of extrapolated sales irrespective of location of the space in term of its floor, year of booking, preferential location etc.
Most probably, the AO realizing the infirmity in the manner and the method of calculation of impugned sum of Rs.42,98,06,439 on account of extrapolated sales as determined by the auditor, did not find it
worthwhile either to consider the nature of receipt of such impugned sum as "On Money" or its amount for the purpose of assessment.
Now coming to the disclosure made by the appellant out of these annexures, it is observed that, it has disclosed additional income at Rs, 17.97Cr. following "peak cash credit theory". In support of its contention, the appellant furnished before me verbatim copy of transactions recorded on these annexures in the shape of date-wise cash book prepared on tally software as part of its paper book at PB(131-154). On perusal of the same, I am of opinion, that though the appellant has used wrong terminology i.e. "peak cash credit" while offering the additional income at Rs. 17.97Cr. which in fact is the "progressive net highest credit balance" as on date of search, still I do not find any infirmity in the manner of offering of additional income as alleged by the A.O. The appellant during the course of survey u/s 133A in the year of 2007 had offered Rs. 16.95Cr. as additional incomewhich was also "progressive highest credit balance" as on date of survey calculated on the basis of similar type of ledger seized during survey.
I also do not find any infirmity in the method of capitalization of Rs. 16.97Cr. out of total additional income at Rs. 17.97Cr. offered by the appellant, in the work in progress of continuing projects namely "Mahagun Mall" & "MahagunMescott". If there was any likelihood that the undisclosed income was utilized by the appellant for any other purpose other than investing in the excess stock, the A.O should have brought something on record to show that the disclosure by the appellant was not correct. The onus was on the A.O. to prove that the undisclosed income was not invested in the stock. The A.O. neither has discharged its onus to prove that the undisclosed income was not invested in the stock nor it has
bought any evidence to show that the explanation offered by the appellant was not correct. Even the appellant was not asked to explain it at the time of search itself, how the undisclosed income has been utilized? The appellant's case is on the better footing in view of A.O's own admission in the assessment order that no unexplained stock/assets was found during the search. It is common practice in the trade of real estate to make cash expenditure for its projects as held by supreme court in DCIT v/s Ravi Holdings Pvt Ltd appeal No. 5795 of 2002. The appellant has duly disclosed such additional income in its profit & loss account over and above its regular income. Therefore, the allegation of the A.O. that such capitalization has nullified the impact of surrendered income to the taxable income has no merit. The action of the appellant to carry forward such capitalized work-in-progress to subsequent assessment year has judicial acceptance under the law as held in Balram Saha v/s. Commissioner of Income Tax (2011) 334 ITR 0383 (In the Culcutta High Court )/ Commissioner of Income Tax v/s. Prem Chand Jain (1991) 189 ITR 0320 (in the Punjab and Haryana High Court/ AnantharamVeerasingharah and Co. v/s. CIT (1980) 123 ITR 457 (SC)/ CIT v/s. Ram Sanchi Gian Chand ( 1972) 86 ITR 724 (P&H).
On perusal of assessment order, it is observed that the A.O. before making addition on account of unaccounted income on the basis of seized ledgers has treated such impugned receipts as "On money", "Extrapolated Sales", "Suppressed Receipts/Sales", "Unaccounted receipts/Sales" without realizing the fact that under the statute all these words have their own significance/interpretation which may fasten tax liability to the appellant of varying degree. The appellant during the course of these proceedings filed a photocopy of show-cause notice bearing No Addl
CIT/CR-2/2011-12/521 dated 18/11/2011 issued by the Asstt. Commissioner Central Circle, New Delhi u/s 271D for imposition of penalty on account of receipt /repayment of loan in contravention to section 269SS/269TT of the Act. The captioned notice also annexed with the four pages of these impugned ledger books. Such observations of the A.O. regarding nature of unaccounted income coupled with show- cause notice u/s 271D indicates that the A.O. was not sure about nature of receipts recorded in the ledgers before making addition. Even the A.O. was not confirmed about year of taxability of such unaccounted income that is why he has made addition of Rs. 49,78,15,143/- on substantive basis during the block years and simultaneously has also made addition on protective basis during A.Y. 2007-08 (survey year) and A.Y.2009-10 (search year). This position got further compounded during remand proceeding from his successor confirming that the impugned amount of extrapolated sales has been derived from the working of special auditor. The successor of the A.O. in the remand report has confirmed that the alleged amount of extrapolated sales i.e Rs 49,78,15,143/- has been taken on the basis of working done by special auditor report whereas in the impugned assessment order, the impugned sum has been calculated by adding the figures of surrender made at the time of survey i.e Rs 16,95,88,000 and Rs 32,82,27,143 being the sum total of credit side of the annexures seized at the time of search. The relevant portion of the remand report is reproduced below:-
"An addition of Rs. 2,08,37,929/- was made by the A.O. on the account of unaccounted receipts onthe basis of surrender of Rs. 49.78 Cr. in the proportionally form as worked out by the SpecialAuditor for the A.Y. 2004-05. This issue has been discussed
in length by AO in his assessment orderfor the A.Y. 2005-06 and the objections raised by the assessee company has been discussed and taken due care. Thus the addition on account of unaccounted receipts attributable to the assessee forthe A.Y. 2005-06 amounting to Rs. 2,08,37,929/- as supra treated as undisclosed income of theassessee and was added to the total income of the assessee. The AO also initiated penalty proceeding u/s 271(1)(c) of the Income Tax Act.
The A.O. in the remand report has stated that the appellant has agreed vide letter dated 27.07.2011 that unaccounted-receipts were required to be spread over the various years on the basis of percentage completion method. I have perused the impugned letter dated 27.07.2011 (PB 240-246) and have noticed that the appellant has never agreed to the alleged unaccounted receipts/on money. Infact, the appellant, without prejudice, submitted before the A.O., that if, at all, the department treat the figure calculated by special auditor as "extrapolated sales", in that case such alleged sales should be spread over the relevant years following the percentage completion method and only gross profit out of such alleged sales can be taxed as additional income. Extract of letter dated 27.07.2011 is being reproduced:-
(Without admission, if your honour is of opinion that the value of extrapolated sales as determined by the Special Auditor is correct, in that case it is prayed as under-
That the gross value of extrapolated sales at Rs. 42,98,06,439/- as determined by theSpecial Auditor may please be spread over project period following PCM and thereafter itshould be added to
the sales as declared by the assessee company in its books of accounts please refer to annexed excel sheet marked as "A-2" It will avoid absurdity about negativegross turnover as determined by the auditor (refer Annexure A-1 above).
That the alleged average rate as determined by the Auditor may please be discounted at appropriate rate, year-wise and floor-wise as the rate of first floor, in the muiti storied building cannot the same as if of the top floor of the building.
A reasonable percentage of profit on the alleged extrapolated sales may please be applied instead of adding the gross value of extrapolated sales to the taxable income of theassessee.
Due credit against additional income as declared by the assessee company during A.Y2007-08 & 2009-10 may please be given and adjusted as part and parcel of extrapolatedsales as determined by the Auditor
Therefore, the contents of impugned letter cannot be regarded as any admission bythe appellant on this account.
Under these circumstances, the Assessing Officer at the time of framing of impugned addition, has come to a conclusion that the contents of the annexures are correct and sum total of figures on the credit side of these annexures represent undisclosed income of the appellant. The A.O. has neither explained that sums recorded on the credit side of the annexures represent suppressed sale/receipts of the appellant nor that the sums recorded on the debit side of these annexures are not related to the credit side. There is no direct/indirect or corroborative evidence
so as to arrive at such conclusion. It is settled proposition of law, that undisclosed income arising out of search has to be based on correct, ascertainable and quantifiable undisclosed income evidenced from a search. The impugned sums on credit side of the annexures also cannot be accepted as "on money" as held by the A.O. as there cannot be any question of repayment of on money by the appellant to its customers as evidenced from the annexures itself. The credit sums also cannot be characterized as suppressed sale/receipts as in that case only gross profit at an appropriate rate can be subject to tax as per method of accounting followed by the appellant, which will be lesser than the additional income offered by the appellant even if, the gross profit ratio of 12% being applied to such impugned sale. Therefore, keeping in view all facts and circumstances as stated above, it is observed that
The impugned sum of Rs.32,82,27,143/- (credit side of the annexures) will be reduced by Rs 14,84,41,838 on account of debit/payments recorded in the annexures A-20, 21, 22 & 24 itself and the balance of Rs. 17,97,85,305/- shall be treated as undisclosed income of the appellant.
The additional taxable income as determined above will be taxed on the receipts basis in the respective year of its receipts as reflected in the seized documents itself as against the offer made by the appellant for search year, (A.Y. 2009-10) as per detail under:
A.Y Additional income Cumulative income
2007-08 2,18,19,636.00 2,18,19,636.00
2008-09 9,31,79,939.00 11,49,99,575.00
2009-10 6,47,85,730.00 17,97,85,305.00
TOTAL 17,97,85,305.00
The additional income will be added to the taxable income declared by M/s Mahagun India Pvt. Ltd (the appellant) as the other two companies namely M/s Mahagun Developers Ltd. & M/s Mahagun Realtors Pvt. Ltd. to whom such projects belong, has already got merged with MIPL w.e.f. 01.04.2006 by virtue of merger scheme approved by Hon'ble Delhi High Court.
Accordingly, the addition of Rs. 2,08,37,929/- on account of proportionate share of alleged suppressed sale/receipts as allocated to the year under review is deleted.”
We have heard the rival submissions and have perused the
relevant material on record. For the impugned AYs 2005 and 2006, we
are concerned with the limited issue i.e., whether the addition on
account of undisclosed income was made on the basis of incriminating
materials qua the assessment years involved. The CIT(A) has very
elaborately discussed the issue of addition of Rs 49,78,15,413/- as
undisclosed income based on suppressed sales/receipts spread over
the block period from AY 2004-05 to AY 2009-10. At para 15 of his
order, the CIT(A) has described the basis of addition made by the
Assessing Officer and the basis of Special Auditor’s working of the
suppressed sales.
We have incorporated the findings of the CIT(A) as above in our
order which may be summarized as under:
The auditor in the course of special audit, has determined
the suppressed receipts/sale/extrapolated sales at Rs.
42,98,06,439/- which has been spread over the block years AY
2004-05 to AY 2009-10 in the ratio as determined by the
auditor following Percentage of Completion Method of
Accounting.
The assessing officer has, however, made an addition of Rs
49,78,15,413/- by adding the figures of surrender made at the
time of survey u/s 133Ai.e Rs 16,95,88,000/- and Rs
32,82,27,143/- being the sum total of credit side of the
annexures seized at the time of search. The total amount of
Rs 49,78,15,413/- was apportioned, on extrapolation basis,
for each of the assessment year in the block period of AY
2004-05 to AY 2009-10.
The addition of Rs 16,95,88,000/-, based on receipts as
found in the diary impounded during survey u/s 133A dated
20.03.2007, pertains to the period April 2006 till February
2007 relevant to AY 2007-2008.
The balance addition Rs 32,82,27,143/- represents sum
total of credit side of ledger books marked as Annexure A-
20,21,22 & 24. While considering the entire credit as
suppressed sales, the Assessing Officer has not given
benefit,of the debit/payments recorded in the Annexure A-
20,21,22 & 24itself of Rs 14,84,41,838/-.
The CIT(A) held that the debit/payment recorded in
the Annexure A-20,21,22 & 24 of Rs 14,84,41,838/- must be
reduced from the corresponding credit entries of Rs
32,82,27,143/-. The balance of Rs 17,97,85,305/- only is to be
treated as undisclosed income of the assessee.
Theadditional undisclosed income as determined above
of Rs 17,97,85,305/- will be taxed on the receipt basis in the
respective year of its receipts as reflected in the seized
documents itself as against the offer made by the appellant
for search year (A.Y. 2009-10) as per detail as under:
A.Y Additional income Cumulative income
2007-08 2,18,19,636.00 2,18,19,636.00
2008-09 9,31,79,939.00 11,49,99,575.00
2009-10 6,47,85,730.00 17,97,85,305.00
TOTAL 17,97,85,305.00
We note that the finding of the CIT(A) is that the AO has
extrapolated the ‘suppressed sales’ found in the diary impounded
during survey u/s 133A and the seized documents to arrive at the
undisclosed income for the impugned AYs. We also note that the seized
materials and documents, relied upon by the Assessing Officer, reflect
the undisclosed income which pertains to AYs other than the impugned
AYs.We also note that the CIT(A), after perusing the seized materials,
came to a finding that the seized documents reflect undisclosed
income for AY 2007-08, AY 2008-09 and AY 2009-10. Furthermore, the
ld DR was not able to controvert the assertion of the counsel of the
assessee that there was no incriminating material found during the
search pertaining to the impugned AYs.
In the above factual matrix, the uncontroverted fact that
emerges for the impugned AY 2005-2006 and AY 2006-07, is that the AO
utilized extrapolated figures of suppressed sales to determine the
undisclosed income of the assessee which is not legally permissible as
held by the jurisdictional Delhi High Court in the case of Meeta
Gutgutia(supra) at para 71 that :
“For all of the aforementioned reasons, the Court is of the view that the ITAT was justified in holding that the invocation of Section 153A by the Revenue for the AYs 2000-01 to 2003-04 was without any legal basis as there was no incriminating material qua each of those AYs”.
The SLP filed against this judgement before the Hon’ble Supreme
Court was also dismissed as reported in PCIT v Meeta Gulgutia
(2018) 257 Taxmann 441 (SC). Therefore, for the reasons as
enumerated above, we hold that the addition made by the AO for AY 2005-06 and AY 2006-2007 are not made on the basis of seized material qua the assessment years involved and accordingly we direct the AO to delete the addition on account of suppressed sales for both the AYs.
Accordingly, Ground No. 2 raised by the Revenue in both the A.Y
2005-06 and AY 2006-2007 are dismissed.
At this juncture, we may mention that the CIT(A) has determined the undisclosed income of the assessee at Rs 17,97,85,305/- for three AYs 2007-08 to 2009-10 and has discussed the disclosure of Rs 30 crore by Shri Amit Jain, Director of the assessee group at para 18 of his order and the capitalization of Rs 16.97 crore as work in progress at para 24 of his order. As we have confined ourselves with the limited issue of whether the AO made the additions on the basis of incriminating materials qua the assessment years involved, in the impugned AYs, we are not expressing any opinion on the correctness of the income
determined forthree AYs 2007-08 to 2009-10 or the validity of
disclosure of Rs 30 Crore made u/s 132(4) by the Director Amit Jain.
We are also not expressing any view on the issue of capitalization of Rs
16.97 crore out of total additional income at Rs 17.97 crore offered by
the assessee in the work in progress of continuing projects as these
issues are to be examined and adjudicated in the respective years for
which it pertain.
The only issue which remains for our consideration is Ground No.
3 in A.Y 2006-07 in respect of deletion of addition of Rs. 1,39,688/-
made by the assessee Assessing Officer on account of disallowance u/s
40A(3) of the Act.
During the course of assessment proceedings, the Assessing
Officer noticed that in the audit report, cash payment in excess of Rs.
20,000/- has been made amounting to Rs. 6,98,442/-. When the
assessee was asked why 20% of the same should not be disallowed, the
assessee replied that payment has been made to parties by way of DD
as the parties were new and not agreeing for payment by A/c payee
cheque.
Not satisfied with the reply of the assessee, the Assessing Officer
found the payments to be in contravention of provisions of section
40A(3) of the Act and made addition of Rs. 6,98,442/- and added the
same to the total income of the assessee.
Aggrieved, the assessee went in appeal before the ld. CIT(A).
The ld. CIT(A) after considering the facts and submissions, came
to the conclusion that it is quite apparent that the company had made
payments to all the vendors by account payee demand draft made out
of cash withdrawals from its bank account. Relying upon the decision
of the Hon'ble Delhi High Court in the case of Basu Distributors Pvt Ltd
ITA No. 48/49/56/2011 order dated 06.02.2012 affirmed the view that
if the assessee has made payment vide demand draft obtained against
deposit of cash in the bank, no disallowance is needed to be made u/s
40A(3) of the Act and deleted the addition.
Aggrieved, the Revenue is in appeal before us.
Before us, the ld. counsel for the assessee vehemently stated
that this was a case of an unabated assessment and therefore, in the
absence of any incriminating material found as a result of search, no
disallowance could be made. The ld AR also relied on the decision of
the CIT(A).
On the other hand, the ld. DR relied upon the orders of the
authorities below.
Having heard the rival submissions and perusing the relevant
material on record, we find that the impugned AY is a
completed/unabated assessment year. The law laid down in Abhisar
Builders’s case is equally applicable to the facts of this disallowance.
Respectfully following the judgement in the case of Abhisar Builder,
we direct that the disallowance made by the AO on account of
violation of the provision of the section 40a(ia) of the I T Act be
deleted. Accordingly, the ground No. 3 raised by the revenue in its
appeal for AY 2005-06 is dismissed.
As a result, the appeals of the Revenue in ITA Nos. 3661 and
3662/DEL/2012 stand dismissed.
To sum up and conclude, the appeals of the Revenue in ITA Nos.
3661 & 3662/DEL/2012 stand dismissed. Appeals of the Assessee in ITA Nos. 2818/DEL/2012 and 2819/DEL/2012 are allowed.
The order is pronounced in the open court on 10.09.2024.
Sd/- Sd/-
[VIKAS AWASTHY] [NAVEEN CHANDRA] JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 10th September, 2024.
VL/
