DCIT CENTRAL CIRCLE 2(2), CHENNAI vs. JUBILEE PLOT AND HOUSING PVT. LTD., CHENNAI

आदेश / O R D E R

PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER

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(Appeals)-18, Chennai, it has taken altogether five grounds of which grounds 1 & 5 are general, needing no specific adjudication.

Out of the effective grounds 2 to 4, ground 2 reads as 2. under:-

‘’Disallowance u/s. 49A(3) - Rs.10,25,77,251/- The Id.CIT(A) has failed to appreciated the fact that the addition was made after examining the parties as per the ITAT directions on the assessment order dt.28.12.2010 and also on the basis of seized materials found during the search. After examining the parties and also on the basis of seized materials only the addition was made by the Assessing Officer’’.

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Aggrieved by this order, both assessee as well as the Department moved in appeal before this Tribunal. This Tribunal vide its order dated 21.06.2013 in & 1241 of 2011 had confirmed the adjudication made by ld. Commissioner of Income Tax (Appeals) with regard to deletion of disallowance of land development cost and part deletion of the disallowance u/s.40A(3) of the Act. However, with regard to the disallowance of �10,25,77,251/-, sustained by ld. Commissioner of Income Tax (Appeals) out of the total disallowance of �14,18,77,251/- made by ld. Assessing Officer u/s.40A(3) of the Act, this Tribunal remitted the issue back to the ld. Assessing Officer, with the following directions.

‘’9 The order of the Commissioner of Income- tax(Appeals) in confirming the disallowance of Rs. 10,25,77,251/- is seen very cryptic. He has not even examined the components of the expenditure incurred by the assessee. He has not examined as to whether any part of the expenditure would be covered by Rule 6DD. This is very important because the business of the assessee is purchasing land and developing it. In developing the land, we have already seen the nature of the expenditure, while dealing with the issue of land development expenses in assessee's own case for the assessment year 2007-08. Likewise, in the case of payments relating to purchase of land and land development expenditure, it is quite inherent that a number of payments will have to be made in cash, depending upon the exigencies of the circumstances. The Assessing Officer has made the disallowance without applying his mind on the application of Rule 6DD and the Commissioner of Income-tax (Appeals) equally followed suit.

10. We find that a casual approach to such a substantial amount of disallowance is not justified, nor it is fair and reasonable. Therefore, we remit back this ITA No.2258 /2018 :- 4 -:

issue to the Assessing Officer for fresh examination. He will verify the nature of the payments made by the assessee under different heads of expenditure. He should examine all the surrounding circumstances including the area where the operations were carried out, to whom the payments were made and whether any other exigencies existed at the time of payments. It is only after excluding all such exigencies that would be covered by Rule 6DD, the Assessing Officer can confirm the balance of disallowance, if any. Accordingly, this issue is set aside and remitted back to the Assessing Officer for fresh disposal in accordance with law."[Emphasis supplied]’’.

Meanwhile there was a search in the premises of the 4. assessee on 03.09.2013 and assessee was issued notice u/s.153A of the Act for the impugned assessment year among others. Assessee thereupon filed a return disclosing the same income as it had returned originally. In the assessment thereafter completed on 31.03.2016 u/s.143(3) r.w.s. 153A of the Act, ld. Assessing Officer did not give any relief to the assessee on the disallowance of �10,25,77,251/- sustained by the ld. Commissioner of Income Tax (Appeals) in the earlier round.

As per the ld. Assessing Officer assessee had effected cash as well as account payee cheque payments to the following persons for purchasing land in a village called Kannagapattu Village.

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Sl. Name of the party Details of Payment in Pmnt in No land Cash Cheque 1 Arumugan S. Kannagapattu 650000 740000 2 Lakshmipathi R Kannagapattu 3000000 6990000 3 Booshanamoorthy Kannagapattu 34740000 4180000 4 Srdharan Kannagapattu 10000 34740000 5 Chandrasekhar Kannagapattu 20000 4595000 6 Jayarama Chettiar Kannagapattu 3000 2402000 7 Mailappa Nattan Kannagapattu 7500000 100000 8 Venkatesan Kannagapattu 505000 2480000 9 Ellappa Naidu Kannagapattu 70000 2370000 10 Kistappa Naidu Kannagapattu 9500000 2605000 11 Munusamy D Kannagapattu 750000 125000 12 Sarasagopal p Kannagapattu 700000 3100000 13 Kristappa Naiker R Kannagapattu 3650000 100000 14 Arumuga Nattar Kannagapattu 2050000 822000 15 Nilamangai Kannagapattu 3350000 3850000 16 Devendran C Kannagapattu 1000000 1400000 17 Sudilamma V Kannagapattu 630000 400000 18 Manivannan V Kannagapattu 1110000 925000 19 Gopal Naicker Kannagapattu 10100000 10100000 20 Narayanasamy Kannagapattu 3385000 8215000 21 Rani H Kannagapattu 1920000 7500000 22 Ganesan J Kannagapattu 510000 8240000 23 Raja Ramanatham Kannagapattu 2537500 5825000 & Jayamangalam Vasudevan G 24 Kannagapattu 1520000 8100000 25 Arumugam Naicker Kannagapattu 6050000 100000 26 Arumugam Kannagapattu 145000 900000 27 Kumutha N Kannagapattu 615000 585000 28 Jalabhasha M Kannagapattu 12400000 200000000 29 Selvi k & Vasanthi Kannagapattu 14000 200000 30 Yasodha R Kannagapattu 50000 1175000 31 Ravichadnran P Kannagapattu 125000 6365500 32 Veerasamy T Kannagapattu 2118000 100000 33 Boopathy P Kannagapattu 1188000 1500000 34 Jayalakshmi S Kannagapattu 450000 19500000 35 Ellanathan C Kannagapattu 400000 22420000 36 Ramachandran C Kannagapattu 2811000 19600000 37 Munuswamy D & Kannagapattu 2500000 17500000 Kannian D 38 Sagunthala K Kannagapattu 6050000 12500000 39 Jayaraman R Kannagapattu 1000000 15100000 40 Ramakrishnan A Kannagapattu 2705000 2350000

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Though the assessee had contended that the payments were effected on account of commercial expediency and stood exempt under Rule 6DD(g), ld. Assessing Officer was not impressed. Ld. Assessing Officer was also not impressed by the argument of the assessee that cash payments were stopped the moment the concerned vendors had opened bank accounts.

Assessee’s appeal before ld. Commissioner of Income Tax 5.

(Appeals) was successful. Ld. Commissioner of Income Tax (Appeals) held as under at paras 5.4 to 5.9 of his order.

‘’5.4 I have perused the submissions of the AR and considered the arguments advanced by him. The crux of the AR's argument is that, this issue was remitted by the ITAT based on specific directions. As per the said directions, the Assessing Officer has to examine all the surrounding circumstances including the area where the operations were carried out, to whom the payments were made and whether any other exigencies existed at the time of payments. It is only after excluding all such exigencies that would be covered by Rule 6DD, the Assessing Officer can confirm the balance of disallowance, if any. Therefore, only those payments made without any exigencies alone needs to be disallowed under Section 40A(3) of the Act.

5.5 There was a boom in the real estate market then and that it was necessary therefore to conclude the transactions at the earliest possible and not to postpone them. The appellant did not know the vendors who were illiterates and obviously therefore, they have insisted for payment in cash and not through banking instruments. As a result, payments had to be made immediately to settle the deals at the lowest price. If the appellant had persuaded them to open the bank accounts thereby causing a delay, there is a possibility that either some other buyer will pitch in and seal the deal from the landowners

ITA No.2258 /2018 :- 7 -: or the landowners will increase the selling price of the lands. In either of the cases, the appellant will end up in a loss. Therefore, the business exigencies forced the appellant to act swiftly and pay the consideration as desired by the landowners with a sole motive to increase the ultimate profitability of the company. Therefore, there were exigencies for the appellant to make the payment to the landowners in cash.

5.6 The appellant has also satisfactorily established before the Assessing Officer regarding the identity of recipients and genuineness of expenditure. The Assessing Officer himself has summoned some of the landowners and confirmed the fact that they received cash from the appellant towards consideration. Therefore, the question of establishing the identity of recipients and genuineness of expenditure has been successfully dispensed with. The object of introducing the provisions of Section 40A(3) of the Act is to curb the practice of making large payments in cash for facilitating proper investigation as to identity of recipients and genuineness of transactions. 5.7 When an assessee makes large cash payments in cash towards expenditure, it becomes difficult for the Assessing Officer to investigate the identity of recipients and to ascertain whether the said recipients have offered the same to tax. For curtailing this, the provisions of Section 40A(3) were introduced to restrict the cash payments beyond Rs. 20,000/-. The Assessing Officer has never disputed the fact that by reason of paying the consideration in cash, he could not satisfy himself with respect to the identity of recipients or the genuineness of the transaction. Therefore, the objective of the said section for establishing the identity and genuineness of the recipient is fulfilled and there is no reason to disallow the said expenditure. The Hon'ble Rajasthan High Court in the case of Smt. Harshila Chordia vs. ITO 298 ITR 349 has also held that where genuineness of transaction and identity of payee were established and explanation of assessee for making cash remittances was acceptable in the light of modus operandi of assessee's business, payments in cash could not be disallowed. The Jurisdictional High Court in the case of CIT vs. Chrome Leather Pvt. Ltd. [1999] 235 ITR 708 (Mad.) has also held that when the identity of recipient and genuineness of transaction is established, no disallowance can be made under Section 40A(3) of the Act, without' even resorting to Rule 6DD.

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5.8 The appellant is a builder and developer and obviously the land purchased by the appellant would be in the nature of stock-in-trade. Usually, in the case of businessmen, purchases made in cash of stock-in-trade would be hit by section 40A(3) unless otherwise exempted under Rule 6DD. But, the circumstance in which a businessman makes cash payment for purchase of stock-in-trade is different from the circumstance in which a developer and builder makes cash payment for purchase of land. It is a known factor in our country that except certain Government and Corporate transactions, in majority of the land dealings particularly agricultural lands, the sellers of the land insist for cash payment. This is more true in the case of village area. Usually the land owners will not accept cheque or banking instruments as part of consideration and they insist that money should be paid before signing the documents before the Sub- Registrar. An assessee cannot swim against that inevitable practice in a particular line of transaction. It is not possible for the appellant to purchase land from the villagers by giving cheques and drafts when the villagers are insisting for cash payments. Therefore, it is to be seen that it is only in such circumstances where the appellant could not make payment through banking instruments that it had made the payments in cash and that was for reasons beyond its control.

5.9 I am also inclined to the view of the AR that in the transactions considered by the Assessing Officer, the appellant has made the payments entirely in cash in respect of certain transactions and has paid partly in cash and partly in cheque in respect of the other transactions. In respect of the transactions for which payments were made partly in cash and partly in cheque, the appellant has originally made the payments in cash and on persuading the landowners to open the bank accounts, the appellant has made the payments thereafter only through bank. As argued by the AR, the appellant has not made any payments in cash after opening the bank account. Even if any payments were made, they have to be analysed taking into account the exceptions in Rule 6DD. This fact was also not considered by the first appellate authority while disposing the earlier appeal. He has allowed relief only to the extent of those purchases for which consideration was paid entirely in cash. When the first appellate authority has allowed relief in respect of entire cash purchases because payment could not be made through cheques, the appellant is also eligible for relief in respect of those purchases for which payment was made in ITA No.2258 /2018 :- 9 -: cash till the time of opening bank accounts that too at the insistence of the appellant. This analogy is in same lines of the relief accorded to the appellant in respect of purchases for which payments were made entirely in cash.

6. Now before us, the ld. Departmental Representative strongly assailing the order of the ld. Commissioner of Income Tax (Appeals), submitted that there was no case for the assessee that the village Kannagapattu had no bank. As per the ld. Departmental Representative, it was an admitted position that in some cases assessee had paid cash and in some cases, paid by account payee cheques. Contention of the ld. Departmental Representative was that Rule 6DD (g) could be applied only where the village was not serviced by a bank. Further, as per the ld. Departmental Representative, assessee itself had admitted that the concerned vendors had bank accounts. According to the ld. Departmental Representative, just because the transactions were genuine would not mean that disallowance could not be made u/s.40A(3) of the Act.

According to him, nothing stopped the assessee from effecting the payments for purchase of land by cheque. As per the ld. Departmental Representative, the ld. Commissioner of Income Tax (Appeals) fell in error in deleting the disallowance made u/s.40A(3) of the Act.

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We have considered the rival contentions and perused the 8. orders of the authorities below. Instances where assessee had effected cash as well as cheque payments for acquiring land at Kannagapattu Village has given by us at para 4 above. In each of these instances there were cash payment as well as cheque payment to the same party. Main contention of the assessee before the lower authorities was that it had not made any cash payments once the vendors had started bank accounts. This submission of the assessee stands unrebutted. Therefore at the point when assessee had made payments by cash the concerned parties had no bank account. That apart, ld. Departmental Representative could not point out any incriminating material coming out of the search which could show that payments effected in cash were not genuine. Rule 6DD as it stood applicable for the assessment year 2008-2009, is reproduced hereunder:-

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‘’6DD. CASES AND CIRCUMSTANCES IN WHICH PAYMENT IN A SUM EXCEEDING TWENTY THOUSAND RUPEES MAY BE MADE OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT No disallowance under clause (a) of sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under clause (b) of sub-section (3) of section 40A where any payment in a sum exceeding twenty thousand rupees is made otherwise than by an account payee cheque drawn on a bank or account payee bank draft in the cases and circumstances specified hereunder, namely :- (a) where the payment is made to- (i) the Reserve Bank of India or any banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949) ; (ii) the State Bank of India or any subsidiary bank as defined in section 2 of the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959) ; (iii) any co-operative bank or land mortgage bank ; (iv) any primary agricultural credit society or any primary credit society as defined under section 56 of the Banking Regulation Act, 1949 (10 of 1949) ; (v) the Life Insurance Corporation of India established under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956) ; (b) where the payment is made to the Government and, under the rules framed by it, such payment is required to be made in legal tender ; (c) where the payment is made by- (i) any letter of credit arrangement through a bank ; (ii) a mail or telegraphic transfer through a bank ; (iii) a book adjustment from any account in a bank to any other account in that or any other bank ;

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(iv) a bill of exchange made payable only to a bank ; (v) the use of electronic clearing system through a bank account ; (vi) a credit card ; (vii) a debit card. Explanation.-- For the purposes of this clause and clause (g), the term 'bank' means any bank, banking company or society referred to in sub-clauses (i) to (iv) of clause (a) and includes any bank [not being a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949], whether incorporated or not, which is established outside India ; (d) where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee ; (e) where the payment is made for the purchase of- (i) agricultural or forest produce ; or (ii) the produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming ; or (iii) fish or fish products ; or (iv) the products of horticulture or apiculture, to the cultivator, grower or producer of such articles, produce or products ; (f) where the payment is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry, to the producer of such products ; (g) where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town ; (h) where any payment is made to an employee of the assessee or the heir of any such employee, on or in connection with the retirement, retrenchment, resignation, discharge or death of such employee, on account of gratuity, retrenchment compensation or similar terminal benefit and the aggregate of ITA No.2258 /2018 :- 13 -: such sums payable to the employee or his heir does not exceed fifty thousand rupees ; (i) where the payment is made by an assessee by way of salary to his employee after deducting the income-tax from salary in accordance with the provisions of section 192 of the Act, and when such employee- (i) is temporarily posted for a continuous period of fifteen days or more in a place other than his normal place of duty or on a ship ; and (ii) does not maintain any account in any bank at such place or ship ; (j) where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike ; (k) where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person ; (l) where the payment is made by an authorised dealer or a money changer against purchase of foreign currency or travellers cheques in the normal course of his business. Explanation.-- For the purposes of this clause, the expressions, 'authorised dealer' or 'money changer' means a person authorised as an authorised dealer or a money changer to deal in foreign currency or foreign exchange under any law for the time being in force’’.

Submission of the assessee that small pieces of land were purchased from large number of villagers who were mainly agriculturist, having residence in a village where access to bank was not easy, in our opinion cannot be brushed aside. Assessee in our opinion could claim the benefit of clause (g) of Rule 6DD. Considering all these, we are therefore of the opinion that ld. Commissioner of Income Tax

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(Appeals) was justified in deleting the disallowance made by the ld. Assessing Officer for cash payment effected by the assessee for purchasing land at Kannagapattu Village from various persons. We do not find any reason to interfere with the order of the ld. Commissioner of Income Tax (Appeals). Ground No.2 of the Revenue stands dismissed.

Ground No.3 of the Revenue is reproduced hereunder:- 9.

’3. Addition on account of escapement of sales - .Rs,2,49,34,500/- The Id.CIT(A) ought to have appreciated the judgement of the Hon'ble High court in ITA.No.38/2014 dated 25.07.2014, in the case of Canara Housing development company may be noted wherein, it was held once an assessment is reopened u/s. 153A the CIT could not exercise jurisdiction to initiate any proceedings u/s. 263 in respect of the earlier order following the case of All Cargo Logistics (supra). The Court had specifically ordered as under: ‘’the assessing authority shall determine the total income of the assessee taking into consideration the materials which was the subject matter of the earlier return and undisclosed income unearthed during search and also any other income which comes his notice". The Id.CIT(A) failed to note that in the case of All Cargo Global Logistics Ltd Vs. DCIT (2012) 137 ITD 287 (Mum)(SB) relied upon the assessee with regard to seized material for justifying the addition made has not attained finality. Subsequent decisions in the case of CIT, Thrissur Vs St. Francis Clay Decor Tiles 385 ITR 624(2016)(Ker) is in favour of the department’’.

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Thus, according to him, advances which were shown by it in its books were nothing but part of its turnover.

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‘’6.6 The Assessing Officer has merely made an observation in the Assessment Order without bringing on record the information found during the course of search. The said amount received from Smt. D. Sangupathi amounting to Rs. 1,09,62,000/-- and M/s. SSD Homes and Estates Developers Pvt. Ltd amounting to Rs. 1,39,72,500/- was appearing in the books of account which were considered by the Assessing Officer during the course of original assessment proceedings also. The statement of the Assessing Officer that the said balances represent the amounts received from land purchasers at Kannagapattu village was found during the course of search, is unfounded.

6.7. Therefore, there was no incriminating material found during the course of search indicating that the amounts received from Smt. D. Sangupathi and M/s. SSD Homes and Estates Developers Pvt. Ltd. were consideration received from land purchasers at Kannagapattu village. In the absence of incriminating material, no additions I disallowances can be made to the income returned. In view of the decision of Special Bench in the case of All Cargo Global Logistics Ltd., no doubt the addition in the case of the assessee can be made by the AO only on the basis of incriminating material found during the course of search. Similar view has been taken in the cases discussed as under:-

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(i) ABS Sanjjay vs. ACIT to 1693/Mds/2013 AB Sudarsanam vs. ACIT ITA No.1694 & 1695/Mds/2013

The Jurisdictional Bench of Hon'ble IT AT has followed the decision of Special Bench referred supra as well as the decision of Hon'ble Rajasthan High Court in the case of Jai Steel (India) vs. AC/T [2013J 88 DTR 1 (Raj.) and held as under:

2262 to (ii)Geetha Jayamurugan vs. DC/T ITA No. 2268/Mds/2015

"12. Thus, in our opinion, the assessments of 2007-08 to 2011- 12, which are not based on any incriminating and therefore the assessment framed under section 153A of the Act cannot be stand on its own leg, which are not framed on the basis of any incriminating material found during the course of search operation and they do not conform the mandate of section 153A of the Act. Accordingly, the assessments framed under section 153A r.w.s. 143(3) for the assessment years 2007-08 to 2011-12 [Jive assessment years] are quashed."

(iii)Sree Gopalakrishna Washing Centre vs. DCIT 15 " .... 5 Therefore, this Tribunal is of the considered opinion that in the absence of any material to indicate the inflation of expenditure, there cannot be any addition on the basis of statement alone."

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[2013J 36 taxmann.com 523 (Raj.) (iv) Jai Steel (India) vs. ACIT ’25. The argument of the learned counsel that the AD is also free to disturb income, expenditure or deduction de hors the incriminating material, while making assessment under s. 153A of the Act is also not borne out from the scheme of the said provision which as noticed above is essentially in context of search and/or requisition. 26 ..... The words 'assess' or 'reassess' have been used at more than one place in the Section and a harmonious. construction of the entire provision would lead to an irresistible-conclusion that the word 'assess' has been used in the context of an abated proceedings and reassess has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only based on the incriminating material found during the course of search or requisition of documents.

29…………if taken to its logical end would mean that even in cases where the appeal arising out of the completed assessment has been decided by the C1T(A), ITAT and the high court, on a notice issued under section 153A of the Act, the AD would have power to undo what has been concluded upto the High Court. Any interpretation which leads to such conclusion has to be repelled and/or avoided as held by the Hon 'ble Supreme Court in the case of K.P. Varghese (supra)." [2016J 386 ITR 483 (Bom.) (v) CIT vs. Gurinder Singh Bawa ‘’7 .... This in view of the fact that no assessment were pending, so as to abate nor any incriminating evidence was found. The grievance of the revenue is only with regard to finding in the impugned order on the merits of the individual claim regarding gifts and deemed dividend. However once it is not disputed by the revenue that the decision of this Court in Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra) would apply to the present facts and also that there are no assessments pending on the time of the initiation of proceedings under Section 153A of the Act. The occasion to consider the issues raised on merits in the proposed questions becomes academic."

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(vi)Rm.K. Viswanatha Pillai & Sons vs. DClT to 1067/Mds/2014 .............. ‘’5 Admittedly, all the years under consideration before us in all the appeals relate to the assessment years, which were not abated by the provisions of Section 153A of the Act. It has been held by the Mumbai Special Bench in the case of All Cargo Global Logistics Ltd. v. DClT (supra) that the additions can be made in the case of completed assessments assessment years which were not abated) only on the basis of incriminating material found during the course of search. Admittedly, in these cases, the Department did not unearth any incriminating material warranting addition. Under these circumstances, by following the decision of Mumbai Special Bench in the case of All Cargo Global Logistics Ltd. v. DC/T (supra), we hold that all the additions made by the Assessing Officer were not in accordance with law. It is pertinent to note that Hon'ble Rajasthan High Court in the case of Jai Steel {India} v. ACIT (259 CTR 281) and also Hon'ble Bombay High Court in the case of CIT v. Murali Cargo in I. T.A. No. 36/Mum/2010 dated 29.10.2010 have also expressed identical views as that Mumbai Special Bench referred above."

(vii) AR Murugadoss vs. ACIT to 564/Mds/2014

‘’5 In our opinion, additions could be made in the case of completed assessments (assessment years which were not abated) only on the basis of incriminating material found during the caurse of search. Admittedly, the Assessing Officer did not found any incriminating material warranting addition. Being so, we are inclined to direct the ITA No.2258 /2018 :- 20 -:

Assessing Officer to make addition only on the basis of incriminating material if any found during the course of search."

(ix)Marigold Merchandise (P) Ltd. vs. DC/T [20141164 TTl 448 {lTAT-Del.}

‘’5.2. In our considered view, Hon'ble Delhi High Court in the case of Anil Bhatia (supra) though has held that consequent to search assessing officer has to frame the block assessment for 6 years. Nevertheless the other issue which has been held is to the effect that addition under block assessment cannot be made u/s 153A as undisclosed income if no incriminating material is found as a result of search. This has been followed by Hon 'ble Rajasthan High Court in the case of lai Steel India (supra). By now various Benches of the ITAT including Delhi have upheld this view and deleted such additions which are not based on incriminating material found as a result of search which are cited by the Id. Counsel and are mentioned above. In view thereof, on this issue we hold that the assessing officer could not have made these additions in the impugned assessee u/s 153A, there being no incriminating material indicating any undisclosed income found as a result of search. This ground of the assessee is accordingly allowed. " Jignesh P. Shah vs. DCITITA No.1553 & 3173/Mum/2010 (x)

"9 ............ Thus, respectfully following the aforesaid proposition by the Hon'ble High Courts, we hold that in this case, the assessment for the A. Ys. 2002-03 and 2004-05 had attoined finality and admittedly there being no incriminating material found during the caurse of search relating to the addition made on account of deemed dividend, therefore, such an addition de hors any material found during the caurse of the search, cannot be roped in the assessment made u/s 153A by the assessing officer. 10 ........... Moreover the Hon'ble jurisdictional High Court in case of Murli Agro Products Ltd. (supra) has categorically clarified that the assessment which had attained finality cannot be disturbed unless incriminating material is found in the course of se. arch. ': (xi) Om Shakthy Agencies (Mad) P.Ltd. vs. DCIT(2016}157ITD 1062(1TAT-Chny)

"6.9. In view of the above, when the original assessment for the assessment years 2005-()6 & 2006-2007 has already been completed or time limit to complete the assessment has been lapsed and no incriminating material found during search

ITA No.2258 /2018 :- 21 -: operation, the assessment uls.153A to be made only as per the original assessment which was made u/s.143(1) or u/s.143(3) l~l the Act. 1t is all admitted fact that in these assessment years there IW/S 110 incriminating material discovered ill the course of search action. There was also no allegation that the assessee has failed to produce books of accounts and documents in the course .of original assessment. Being so, the assessments for the assessment years 2005-06 and 2006-07 are bad in law. This also finds support from the decision of Special Bench in the case of All Cargo Global Logistics Ltd. v. DCIT [2012J 137 ITD 287/23 taxmann.com 103 (Mum.)(SB) .: , (xii) CIT vs. Kabul Chawla [2015J 380 ITR 573 (Oel.-HC)

"37. On a conspectus of Section 153A(l) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: …..

…. iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AD which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material. " v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word ‘assess’ in Section 153A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the Assessing Officer.

ITA No.2258 /2018 :- 22 -: vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.

38 On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed. xiii) CIT vs. MGF Automobiles Ltd. 2015J 63 taxmann.com 137 (Del.)

"12. To begin with, what is striking is the fact that nowhere in the Assessment Orders for the AYs in question has the AO noted the stark fact that the material purportedly seized by the Revenue during the search was completely and irretrievably destroyed in a fire that took place on 6th October 2007 in Mayur Bhawan. While a photocopy of the panchnama showing what was seized is available, the material itself is not and in fact was not available with the AO when the assessment proceedings, consequent upon the search, took place. Further, as noted by the ITAT, no statement under Section 132(4) was recorded during the search. Therefore, there was no material, much less any incriminating material, recovered during the search which could form the basis of the Assessing Officer assessment order in terms of Section 153A of the Act.

(xiv) CIT vs. Murli Agro Products Ltd (2014) 49 taxmann.com 172 (Bom) 13. In the present case, there is nothing on record to suggest that any material was unearthed during the search or during the 153A proceedings which would show that the relief under Section 80HHC was erroneous. In such a case, the A.O. while passing the assessment order under Section 153A read with Section 143(3) could not have disturbed the assessment order finalised on 29.12.2000 relating to Section 80HHC deduction and consequently the Cl. T. could not have invoked jurisdiction 263 under Section of the Act."

(xv) Ideal applicanecs. Co. Pvt. Ltd vs. DCIR, to 177/Mu/15

assessed income are unsustainable in law, we are of the considered opinion that the additions made in the instant case are not sustainable and accordingly, we delete the same 6.8. Also, the Hon'ble High Courts and different benches of the Tribunal have been consistently taking a view that, in case nothing incriminating is found on account of search of requisition, the question of re-assessment of the concluded assessment does not arise 6.9. In view of the aforesaid discussion, I am of the view that, the additions / disallowances made to the income returned in case of unabated / completed assessment are unsustainable in law and therefore, direct the Assessing Officer to delete the disallowance on this ground. The appellant succeeds on this ground. Though I have decided the issue on law, I am also deciding the issue on facts hereunder:-

7.4 I have considered the argument of the AR. The amount of Rs. 1,09,62,000/- received from Smt. D. Sangupathi is shown as income under the head 'land sale and development charges received'. I have perused the ledger copy filed by the AR. As the said sum of Rs. 1,09,62,000/- received from Smt. D. Sangupathi was already offered as income under the head 'land sale and development charges received' forming part of the total amount of Rs. 195,30,52,117/- - admitted in the financial statements filed along with the Return of Income. Hence, addition of the same under the head 'Escaped Sales' amounts to double taxation. Therefore, addition of the same is liable to be deleted.

7.5 In respect of the addition of Rs. 1,39,72,500/-- received from M/s. SSD Homes and Estate Developers Pvt. Ltd., the Assessing Officer has made the addition merely stating that the said amount represents the consideration received from the Kannagapattu land purchasers. The Assessing Officer has not brought any evidence on record to show that the said amount represents the sale consideration for sale of Kannagapattu lands. The AR has filed the ledger account of M/s. SSD Homes and Estate Developers Pvt. Ltd. during the course of appellate hearing. On a perusal of the same, I am of the opinion that the said amount received from SSD Homes is an advance received from them and not sale consideration. The addition made by the Assessing Officer under the head 'Escaped Sales' is merely based on assumptions and not on facts. Unless the land is transferred to the buyer, the advance received cannot be treated as sale consideration. Without establishing that the land is transferred by the appellant in favour of the buyer, treating the advance as sale consideration is against the facts. Therefore, the said

ITA No.2258 /2018 :- 24 -: addition needs to be deleted. 7.6 Therefore, the appellant succeeds on this ground also. In the result, the grounds of the appellant on the addition of Rs. 2,49,34,500/- under the head 'Escaped Sales' are allowed’’.

Admittedly, regular assessment for the impugned assessment year stood already completed and there was nothing left to abate. No incriminating material was found at the time of search, to show that advances in the books of the assessee were actually part of its sale consideration. As for the judgment of Hon’ble Karnataka High Court in the case of Canara Housing Development Company vs. DCIT, (2015)

114 DTR 0162 relied on by the ld. Departmental Representative, there are a plethora of judgments of Hon’ble Delhi High Court as well as Hon’ble Bombay High Court, which have been cited by the ld. Commissioner of Income Tax (Appeals) in his order, which go in favour of the assessee. We therefore do not find any reason to interfere with the order of the ld. Commissioner of Income Tax (Appeals). Ground No.3 of the Revenue stands dismissed.

Ground No.4 raised by the Revenue is reproduced 14. hereunder:- ‘’Addition on account of unexplained investment in lands Rs.36,15,41,724/-. ITA No.2258 /2018 :- 25 -:

The Id.ClT(A) ought to have considered that the assessing officer has made additions on the basis of books of accounts found during the course of search.(ANN/PC/JPH/B&D/S-l & AN N/PC/J PH/B&D/S-8’’.

Facts relating to this issue are that there were two 15. documents numbered as AAN/PC/JPH/B &D/S-1 and ANN/PC/JPH/B & D/S-8 seized from the premises of the assessee during search. These documents named by the lower authorities as kachha registers allegedly reflected payments made by the assessee for land purchased at Illannur and Chengadu. First of these depicted the payments effected during the period March, 2006 to July 2007, whereas second one depicted the payments during the period January, 2008 to March, 2008. During the course of post search investigation, the payments listed in the books of accounts maintained by the assessee under tally software was compared by the ld. Assessing Officer with the payments shown in these kachha register.

Ld. Assessing Officer based on such comparison came to a conclusion that a sum of �36,15,41,724/- reflected in the seized records was not shown by the assessee in its books of accounts. This amount was arrived by ld. Assessing Officer as under:-

ITA No.2258 /2018 :- 26 -:

Area in Actual amount Rate Details given in cents paid in � per cent Annexure Entries in seized books where the rate per cent, total cost and payments recorded are tallying with the Tally 3461.5 189905200 54862 F2 records 99 to 100%.

Entries in seized books where the rate per cent, total cost and payments recorded are tallying with the Tally records 90 t0 98%. 8112 337113500 41557 F3 Entries where consolidated payments, recorded in seized books and tally, is tallying with the area of land purchased as per document and average cost (inclusive of 100% tallying 441 cents 4002 211618000 52878 F4 for �2,30,40,000 referred above)

Total 15575.5 738636700 47422 Entries where consolidated payments, recorded in seized books and tally, is tallying with the area of land purchased as per document 1945 39309670 F5 and name. Payments are not fully available Total 17520.5 777946370 Un-tallied payments 234036717 F6 Total Consolidated payments 1011983087 Opening balance: as per Tally as on 01.04.2007 26231005 Total payments in FY 2007-08 985752082 Less: Payments accounted in Tally in FY 2007-08 624210358 Difference in payments not accounted 361541724

ITA No.2258 /2018 :- 27 -:

Though the assessee stated that the entries in pencil in these kachha register were not actual payments but only indicated valuations intended for the prospective customers, ld. Assessing Officer did not believe this. According to the ld. Assessing Officer, both the cheque payments as well as cash payments were noted in pencil and hence assessee’s contention that cash payments alone were not effected could not be believed. Further, as per the ld. Assessing Officer recipients had signed against the pencil noting. Ld. Assessing Officer also relied on statements recorded from ten of the land vendors produced by the assessee. According to ld. Assessing Officer, such statements clearly indicated that assessee had effected payments over and above what was mentioned in the registered documents. An addition of �36,15,41,724/- was made as unexplained investment.

the pencil notings for payments in cash was for valuation purposes.

According to him, there was no sufficient reason to uphold the addition.

.Per contra, ld. Authorised Representative strongly supporting 18. the order of the ld. Commissioner of Income Tax (Appeals) submitted

ITA No.2258 /2018 :- 29 -: that assessee had accounted both cash payments as well as cheque payments in its books of accounts to the extent they were made. The cash amounts mentioned in the kachha register as per the ld. Authorised Representative was only for valuation purposes. According to him, the addition was made for non-existent cash payments and rightly deleted by the ld. Commissioner of Income Tax (Appeals).

We have considered the rival contentions and perused the 19. orders of the authorities below. The reason why ld. Commissioner of Income Tax (Appeals) deleted the addition appears at paras 8.4 to 8.11 of his order and these are reproduced hereunder:-

‘’8.4 I have considered the above written submissions and the arguments advanced by the AR during the course of appellate hearing. The appellant has entered into agreements with the land owners at IlIanur / Chengadu lands and paid advances of Rs. 2,62,31,005/- in the earlier years and Rs. 62,42,10,358/- during the year under consideration. The Assessing Officer has arrived at the consideration paid by the appellant at Rs. 101,19,83,087/- which was based on the segregation made by him from the pencil notings in the kacha register maintained.

8.5 It is an undisputed fact that the appellant has made negotiations with an international company M/s. Signatures Group for selling the lands at IIlanur / Chengadu village. The said international companies usually depend on the valuers having multi- national presence. Valuation is a subjective exercise which does not have any defined set of rules. There are many methods of conducting a valuation exercise and the popular method is to obtain the value at which any recently concluded transaction was conducted. I am fortified by the argument of the AR that such a method is usually suitable for smaller extent lands and not for the large tracts of land, as the transactions of such large extent do not happen frequently. The other method is to determine the consideration paid for purchase of land and add a ITA No.2258 /2018 :- 30 -: reasonable margin to it. As argued by the AR, the appellant has entered into agreements with the landowners at much earlier stages at very low rates. The said aggregation of smaller extent lands from various owners have given rise to hope of development in the said area and has resulted into boom in the said area, hence, the market value of the lands in the said area has increased substantially. To capitalize on the said increase in the value of lands, the appellant has made pencil notings in the kachareqister showing a higher consideration has been paid to the landowners for providing to the valuers thereby ensuring a higher sale realisation. Whereas, the appellant has not altered the books of account and the actual consideration paid was accounted therein. I find force in this argument of the AR. Therefore, the pencil notings in the said register shall not be given cognizance.

8.6 The pencil notings in the kacha register were the only information available with the Assessing Officer for making the addition. No other corroborative evidence was available in his possession to confirm the notings in the said register. The Assessing Officer has summoned some of the landowners who have confirmed the amounts received by them which was the recorded consideration. They have also confirmed that no additional sums were received by them over and above what was recorded. When they have specifically stated that no additional consideration was received by them, the Assessing Officer ought to have considered the said statement made on oath and ignore the pencil notings made, that too were made for obtaining a better valuation.

8.7 The Assessing Officer has relied on the statement made by land owners that they are aware that the appellant has recorded consideration over and above what is stated in the sale deed. For another specific question, the landowners have confirmed that they do not remember the amount mentioned in the sale deed. These two statements made by them are contradictory. Therefore, the said statement of the landowners that the consideration recorded is over and above what is stated in the sale deed, cannot be relied upon by the Assessing Officer for making such a huge addition of Rs. 36,15,41,724/-. 8.8. Now coming to the validity of pencil notings for admissibility of the same as evidence in the assessment proceedings, the appellant has maintained kacha registers for the purpose of making entries for ready reference while making the advance payments. The payments made to them are then entered into the books of account which are audited under law. The books of account have more reliability under law than the kacha registers that too, in which the notings were made in pencil. The Apex Court in the case of Sahara Diaries case (Common Cause

ITA No.2258 /2018 :- 31 -: vs. UOI WP (Civil) No. 505/2015) has held that it is only where the entries are in the books of account regularly kept, the same shall be admissible as evidence. The kacha register is maintained by the appellant for the purpose of recording land advance payments, which does not have probative value. The pencil notings made for a specific purpose shall have an evidentiary value only when they are supported by entries in the books of account, otherwise the said entries shall be treated as 'non-existent' in law. Therefore, the pencil notings not indicative of any transaction cannot be treated as having an evidentiary value and at best be treated as 'dumb document'. The pencil notings can be modified /deleted and are erasable, hence, they cannot be treated as having any value under law.

8.9 The entries in the Annexure F6 listed by the Assessing Officer were not tallying with any of the entries as per the books of account of the appellant. The value of such untallied entries itself constitute 23 percent of the total payments determined by the Assessing Officer. The value of the balance 77 were also matching on some parameters and there is no conclusive evidence that the entries in the kacha register are entirely matching with the entries in the books of account. The Assessing Officer has stated in the Order that duplications have been removed wherever possible, which indicated that the Assessing Officer is also not satisfied with the accuracy and completeness of the segregation made by him. Therefore, the additions made by the Assessing Officer on such incomplete satisfaction shall be treated as made on assumptions and not otherwise.

8.10 I am inclined to consider the argument of the AR that the Assessing Officer has segregated the notings in the kacha register merely based on the assumptions. The Supreme Court in the case of CIT vs. Kulwant Rai 291 ITR 36 has followed the ruling in Dhakeswari Cotton Mills Limited in 26 ITR 775 and held that - "even though income tax authorities including the Assessing Officer has unfettered discretion and not strictly bound by the rules and pleadings as well as materials on record and is legitimately entitled to act on the material which may not be accepted as evidence, nevertheless such discretion does not entitle them to make a pure guess and base and assessment entirely upon it without reference to any material or evidence at all". The decisions rendered in various cases relied on by the AR were also perused by me in totality of the facts, I hold that the segregation made by the Assessing Officer based on the pencil notings were made on assumptions and not on the basis of concrete evidence that the appellant has paid additional consideration. The Assessing Officer also could not ascertain the truthfulness of the notings from the landowners. When summoned, they have also categorically mentioned the amounts received from them and also stated on oath that the amounts received by them were the recorded consideration.

ITA No.2258 /2018 :- 32 -:

8.11 Based on the facts and the arguments advanced by the AR, I hold that the additions made are purely based on the assumptions and surmises without any evidence to corroborate. Therefore, I direct the Assessing Officer to delete the addition of Rs. 36,15.41,724/- made by the Assessing Officer under the head 'Unexplained investment in IIlanur / Chengadu Lands'. Accordingly, the appellant succeeds on this ground’’.

What we note is that ld. Assessing Officer himself in his computation of the sum of �36,15,41,724/-, vide table reproduced by us at the beginning of para 15 above, clearly stated that entries in the seized kachha register were tallying with books of accounts except for a sum of �23,40,36,717/-. He had given an item-wise list of the unreconciled sum of �23,40,39,717/- sum in annexure F6. Contention of the assessee before ld. Commissioner of Income Tax (Appeals) was that almost all the items in annexure F6 found a place in annexure F5 also and thus there were duplication of the said sum. Ld. Commissioner of Income Tax (Appeals) has reproduced the list where such duplications were there at pages 39 to 42 of his order. This was not disputed or rebutted by the Departmental Representative. But for these, ld. Assessing Officer himself had admitted that the figures tallied 90 to 100%. That apart, the statements given by the ten vendors who were produced by the assessee before ld. Commissioner of Income Tax (Appeals), copies of which have been produced before us clearly show that they had received what was recorded in the sale

ITA No.2258 /2018 :- 33 -: documents and nothing more. In answer to question No.12, Shri. J.

Ravi, Shri. K. Delvasigamani, Shri. M. Vedhagiri, Shri. A. Mohanan, Shri. M. Sadhasivam, Shri. T. Aladiyan, Shri. T.D.Muthuraman, Shri. K.

Kumaravelu and Shri. M. Ramachandran have all stated that they had not received any money above what was recorded in the related documents. The answer given by all of them are typically worded except for the variation in the respective amount. One given by Shri.

J. Ravi is reproduced hereunder:-

‘’12. As the information in the possession of the department, you have been paid moneys of �76,00,000/- towards the transaction. What do you have to say?

Ans:. I have received only �35,00,000/-. I am not aware of the balance amount’’.

There is no case for the Revenue that what was recorded in the sale document was not shown by the assessee in its books. In such a situation, we are of the opinion that ld. Commissioner of Income Tax (Appeals) was justified in coming to a conclusion that the addition could not have been made merely based on entries in the kachha register seized at the time of search, that too based on a computation which was error prone. We thus do not find any reason

ITA No.2258 /2018 :- 34 -: to interfere with the order of the ld. Commissioner of Income Tax (Appeals). Ground No.4 of the Revenue stands dismissed.

Order pronounced on Thursday, the 28th day of March, 2019, at Chennai.