DCIT CENT. CIR. 4(2), CENT. RANGE - 4, MUMBAI vs. UMESH H. GANDHI, MUMBAI

The only issue arising for consideration in the aforesaid appeal and the cross objection revolves around deletion / addition on account of alleged on–money received by the assessee from sale of flats and shops.

Brief facts are, the assessee is an individual. A search and seizure operation under section 132(1) of the Act was conducted on 5th January 2007, at the business and residential premises of one Shri Gurinder Singh Bawa his family members and group concern. In the course of search operation a copy of agreement dated 24th March 2003, relating to a joint venture between Gunjoth Properties Pvt. Ltd. which is a family concern of Shri Gurinder Singh Bawa and the assessee was seized. On the basis of the seized document a survey under section 133A of the Act was carried out at the business premises of the assessee on 5th January 2007. Consequent to the survey proceedings, the assessee was summoned under section 131 of the 3 Shri Umesh H. Gandhi Act and a statement was recorded by him on 13th February 2007. During the recording of statement, when the assessee was called upon to explain the alleged discrepancies found on the basis of materials seized / impounded, he offered an amount of ` 75 lakh towards cash receipts on sale of shops in a project developed by him with another party viz. M/s. Guru Prerna Enterprises. In the return of income filed for the impugned assessment year in response to the notice issue under section 153C of the Act, the assessee also offered the amount of ` 75 lakh as undisclosed business income. The Assessing Officer on the basis of material on record found that as per the statement recorded from third party the on–money received in cash was about 40% in case of sale of flat and 60% in case of sale of shops. Whereas, the Assessing Officer found that the assessee has offered income of ` 75 lakh at 10% sale of shops only. Therefore, relying upon the statements recorded from third parties and also the fact that the co– developer has offered undisclosed income in the ratio of 60% in case of sale of shops and 40% in case of flats, the Assessing Officer proceeded to work out the undisclosed income derived by the assessee from sale of shops and flats at ` 2,80,25,655 and added back to the income of the assessee. Being aggrieved of the aforesaid addition made by the Assessing Officer, assessee preferred appeal before the first appellate authority.

On the basis of submissions made by the assessee, the learned Commissioner (Appeals) directed the Assessing Officer to examine the witnesses again and allow the assessee to cross–examine them. On perusing the remand report as well as the statement recorded from Rajesh Ahuja, during the remand proceedings and cross–examination of Rajesh Ahuja by the assessee the learned Commissioner (Appeals) found that there is variance between the statements recorded from Rajesh Ahuja initially and in the course of remand proceedings. He observed, in the statement initially recorded Rajesh Ahuja, never stated that there was cash component of 60% in shops and 40% in flats. Further, in the statement recorded during the remand Rajesh Ahuja admitted of not receiving any brokerage from the assessee. He also stated that the assessee never told him to collect a particular percentage in cash and balance amount in cheque. The learned Commissioner (Appeals) found that in the course of cross–examination by the assessee Rajesh Ahuja stated that he did not sell any shop or flats belonging to the assessee and he did not receive any brokerage from him. He also accepted that negotiation for cash was done by the developers only and he was not participating in any such negotiation as he used to sit outside. He also stated that he only used to quote the over all rate and not the cash component and cheque component. He stated that he started working for the project only from June 2006 and 5 Shri Umesh H. Gandhi that too with Shri Chetan Patel, partner of Guru Prerna Enterprises. He also stated that whatever statement he had given earlier was a general statement as he never used to participate in the negotiation. The learned Commissioner (Appeals) also found that no incriminating material or evidence was found in the course of search / survey either from the premises of Guru Prerna Enterprises or the assessee regarding receipt of cash on sale of flats and shops. He also observed that the other witness also never stated that the assessee received any cash on sale of flats and shops. It is the assessee who had accepted receipt of some unaccounted cash on sale of shops and specifically denied of having received any cash on sale of flats. Further, the assessee had stated that the flats / shops were sold much prior to Rajesh Ahuja, joined as a broker to sell the flats. The learned Commissioner (Appeals) found from record that by the time Rajesh Ahuja joined the project site the assessee had sold seven out of eight flats in his possession. Further, out of 67 shops, assessee had already sold 65 shops through other brokers. He, therefore, held that by placing too much reliance on the statement of Rajesh Ahuja, no addition could have been made. More so, when no evidence of receipt of cash was found at the time of search / survey. He observed, though, at the time of recording of statement from the assessee on 13th February 2007, the authorised officer was conscious of the 6 Shri Umesh H. Gandhi statement recorded from Rajesh Ahuja and Mnsukhbhai, he never called upon the assessee to explain why the cash amount supposed to have been received by the assessee should not be at par with the cash receipt declared by Guru Prerna Enterprises. The learned Commissioner (Appeals) held, merely on the basis of disclosure made by the partner of Guru Prerna Enterprises no addition could be made at the hands of the assessee as such disclosure of cash receipt related to sale of constructed area belonging to Guru Prerna Enterprises and not the assessee. Further, the learned Commissioner (Appeals) observed that going by the statement of Rajesh Ahuja, he had sold five flats and 8 to 10 shops and money earned on account of cash component on such sales could not have been more than ` 1.23 crore out of which assessee’s 50% share could not have been more than ` 61 lakh. Against which the assessee has offered income of ` 75 lakh. Therefore, nothing more could have been offered by the assessee. Thus, it was held by the learned Commissioner (Appeals), the addition made by the Assessing Officer, could not be sustained. Having held so, the learned Commissioner (Appeals), however, observed that though receipt of cash component on sale of flats / shops could not be taken at the same level as of Guru Prerna Enterprises, however, considering assessee’s own admission of receiving ` 75 lakh in cash, possibility of further cash receipt cannot be ruled out all together. Therefore, he

Learned Departmental Representative relying upon the observations of the Assessing Officer submitted that percentage of cash receipt can only be arrived at from comparable cases. She submitted, when the co–developers has disclosed cash component at 60% for shops and 40% for flats it is reasonable and logical to adopt the cash receipt by the assessee at the same rate. She submitted, the yardstick applicable to the co–developer would also apply to the assessee. She submitted, when it is established on record that on– money received by the co–developer is much higher than what was declared by the assessee, the learned Commissioner (Appeals) was not justified in deleting the addition made by the Assessing Officer. She, therefore, submitted that the addition made by the Assessing Officer should be restored.

Learned Authorised Representative submitted, Rajesh Ahuja, on the basis of whose statements, the Assessing Officer has made the addition was sole selling agent of Guru Prerna Enterprises and not the agent of the assessee. He submitted, when the assessee had sold the 8 Shri Umesh H. Gandhi flats and shops much prior to the appointment of Rajesh Ahuja as sole selling agent and much before he sold the flats on behalf of Guru Prerna Enterprises, merely on the basis of declaration of cash receipt made by Guru Prerna Enterprises no addition can be made at the hands of the assessee. More so, when no incriminating material evidencing cash receipt by the assessee was found either during the search or survey. Challenging the addition of ` 25 lakh sustained by the learned Commissioner (Appeals), the learned Authorised Representative submitted, when the learned Commissioner (Appeals) on the basis of material on record has given a categorical finding that there is nothing on record to suggest that the assessee had received cash component over and above ` 75 lakh declared by him the addition of ` 25 lakh on purely estimate basis is uncalled for, hence, should be deleted.

We have heard rival submissions and perused material on record. A careful reading of the impugned assessment order leaves no room for doubt that the basis for addition on account of cash receipt (on– money) is the statement recorded from Rajesh Ahuja stated to be the sole selling agent of Guru Prerna Enterprises, Shri Arun Sharma, Sales Executive of Rajesh Ahuja, and letter dated 3rd April 2007, issued by Guru Prerna Enterprises. Relying upon the statements recorded from the aforesaid persons and disclosure of additional income of ` 5 crore

In the result, Revenue’s appeal is dismissed and assessee’s cross objection is allowed. Order pronounced in the open Court on 28.02.2018