RIVERIA PROPERTIES P. LTD,MUMBAI vs. ITO CIR 7(2)(1), MUMBAI

3. Aggrieved by the assessment order, the assessee preferred appeal before the CIT(A). Before the CIT(A), the assessee challenged reopening of assessment on the ground that the AO has reopened assessment only on the basis of third party statement without there being any tangible material in his possession. Therefore, the reopening of assessment is bad in law and consequent assessment order should be quashed. As regards additions made by the AO towards on-money received for sale property, the assessee has denied of having received any money over and above whatever stated in the sale deed and also requested for copies of statement of director of M/s Hicons Constructions Pvt Ltd and documents seized in the premises of Hicons group of companies.

4. The CIT(A), after considering relevant submissions of the assessee observed that the assessee has deliberately failed to furnish any explanation / arguments and also to uphold the appellate proceedings on the pretext of requesting copies of documents. The CIT(A) further observed that when the AO agreed for providing copies of documents, the assessee refused to avail such opportunity. In facts and circumstances it was held that the assessee had no submissions / arguments to defend its case. The CIT(A) further observed

6 Rivera Properties Pvt Ltd that under these factual circumstances, the AO was justified in making additions of Rs.3.05 crores u/s 69A of the Act. Aggrieved by the order of CIT(A), the assessee is in appeal before us.

5. The Ld.AR for the assessee submitted that the Ld.CIT(A) erred in upholding the action of the AO in reopening the assessment based on solitary statement of third party recorded u/s 132(4) of the Act without any evidence to prove the truth except entry in the books of documents and transactions.

The Ld.AR further submitted that reopening of assessment is bad in law and liable to be quashed as the AO has not applied his mind to the facts or any material which suggests escapement of income, but relied upon the third party statement based on some loose papers found in the premises of third party which is not relevant to the assessment in assessee’s case. As regards addition made by the AO towards on-money, the Ld.AR submitted that the assessee has categorically denied of having received any money over and above whatever stated in sale deed right from the beginning. The assessee has denied receipt of money at the stage of investigation which is evident from the fact that in the statement recorded u/s 131, disowned the factum of receipt of on-money.

The AO without bringing on record any material evidence to suggest that on- money is exchanged between the assessee and the purchaser of property merely relied upon third party statement to make addition, which is incorrect.

7 Rivera Properties Pvt Ltd 6. The Ld.DR, on the other hand, strongly supported the order of the CIT(A).

The Ld.DR further submitted that the facts gathered during the course of search coupled with statement of director of M/s HCPL clearly establishes the fact of payment of Ra.3.05 crores consideration in cash for purchase of property which has not been recorded in the books of account of the purchaser as well as the seller. The AO has brought out clear facts to the effect that consideration received over and above what is stated in the sale deed is not disclosed in the return of income and hence, the addition made by the AO u/s 69A of the Act is in accordance with law and should be upheld.

8 Rivera Properties Pvt Ltd assessment within the meaning of section 147 of the Act. The assessee contention is that reopening is bad in law as the reasons recorded for reopening assessment is based on third party information without any material in the possession of the A.O. which suggest escapement of income. The assessee further contended that reason to belief entertained by the A.O. is not based on cogent material evidence and which is purely on third party statement which cannot be the basis for reopening assessment. The assessee questioned materials relied upon by the A.O. to form a belief of escapement of income.

The provisions of section 147 of the Act, authorize the assessing officer to assess or re-assess income chargeable to tax, if he has reason to believe that income for any assessment year has escaped assessment. The primary

9 Rivera Properties Pvt Ltd requirement of section 147 of the Act, is that there should be formation of belief by the assessing officer coupled with material evidence. If the A.O. has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that income had escaped assessment. The A.O. at the time of issuing notice u/s 148 of the Act, is not necessarily to establish the fact that there is an escapement of income. But, what is necessary is that there must be some relevant material on which the formation of opinion is arrived at by the assessing officer. In the instant case, the A.O. formed his opinion based on the information received from the investigation wing of the department and which is the valid basis for issuing notice u/s 148 of the Act. It is not necessary for the A.O. to conduct independent enquiry and gather material to form his opinion. Material may come from within the assessment records or from outside the assessment record. But what is important is that there should be some cogent material, which suggests prima facia escapement of income chargeable to tax.

Therefore, we are of the view that the A.O. has rightly formed his opinion based on the information received from the investigation wing of the department which constitutes a sufficient material for reopening of assessment and hence, the A.O. is right in reopening assessment. Therefore,

10 Rivera Properties Pvt Ltd we are inclined to uphold reopening of assessment and reject ground raised by the assessee.

Hicons Group is a loose sheet, wherein certain financial transactions were recorded in the name of the assessee Company which states Rs. 3.05 crores has been paid in cash for purchase of property m/s Rivera properties private limited. Based on said document and also admission made by the director of 12 Rivera Properties Pvt Ltd Purchaser Company, the A.O. acted upon and came to the conclusion that on money was paid to the assessee towards sale of property. The director of assessee company categorically denied having received on money right from the beginning. The assessee contended that the seized document found at the premises of M/s. Hicon group of companies is neither in the hand writing of any of the directors of the company nor is found in the premises of the assessee, therefore it cannot be used as evidence against for framing assessment. Besides the seized loose sheet, no other document is in the possession of the A.O. to show that the assessee has received on money from the purchaser. The A.O. has not made any attempt to find out some reliable and cogent material evidence on record to support his findings or to corroborate the statements of the vendee Company. The assessee Company denied having received money over and above what is stated in the sale deed.

The value shown in the sale deed is further supported by valuation report issued by registered valuer S.K. Godbole & Associates, which has been valued property for Rs. 75,00,000/-. The tenancy rights in the property has been transferred for a consideration of Rs. 85,00,000/- which is supported by 13 Rivera Properties Pvt Ltd agreements. Therefore, total sale consideration received for sale of property is Rs. 1,70,00,000/- which was received by cheques and admitted by both parties.

It was not a case of revenue that value shown in the sale deed is not real value of the property, because value declared in the sale deed is actual market value of the property fixed by the State Government authorities for determining stamp duty payable to the Government for registering the properties and also which was accepted by the registering authority. Further, there is no evidence to show that there is under valuation of property and section 50C of the Act is invoked while completing the assessment. The A.O. merely acted upon on the statement given by the third party, which was totally denied by the directors of the assessee company It was a settled position of law that unless the statement is tested under the cross examination, the same cannot be considered as evidence against the assessee. The A.O. used the admission of directors of Vendee Company made in the statement recorded u/s 132(4) of the Act, in their case, against the assessee, even though the director of Hicon group specifically not taken assessee company name anywhere in the statement. But, the A.O. failed to note that admission of other parties cannot be considered as conclusive evidence against the assessee, unless there is corroborative evidence on record, because the maker of statement can bind

14 Rivera Properties Pvt Ltd himself, but how he binds others from his statement without there being any further evidence on record.

6. In the present case on hand, except loose sheet found in the premises of third party and admission made by the third party in their assessment proceedings, there is no other evidence on record to prove that on money is paid. The assessing officer, without brought on record any evidence to prove that on money is exchanged between the parties, merely harping upon the loose sheet and the third party admission, which cannot be considered as conclusive evidence against the assessee to bring on money to tax as undisclosed income. The A.O. is required to bring further evidence on record to show that actual on money is exchanged between the parties, but literally failed to do so. The A.O. did not conduct any independent enquiry relating to the value of the property instead, merely relied upon the statement given by the purchasers of the property, which is not correct. Further, there is no proof of origin and destination of on money. The A.O. failed to prove the source of the purchasers as to how the money was arranged and also failed to prove the deployment of unaccounted money by the seller by any form of evidence.

Under these circumstances, based on paper jottings as conclusive evidence on money cannot be brought to tax as income from undisclosed sources.

15 Rivera Properties Pvt Ltd 7. Now coming to the observations of the CIT(A). The CIT(A) while confirming the assessment order, observed that the assessee failed to avail cross examination provided by the A.O. to justify non receipt of on money. The assessee without any reason neither utilized the opportunity of cross examination nor furnished any details to justify its stand. Without furnishing any details, simply delayed appellate proceedings on the pretext of requesting copies of documents. We do not agree with the findings of the CIT(A) for the reason that the A.O. himself recorded reasons for failure of cross examination of parties. As per the facts recorded by the A.O., failure of cross examination is attributable to both the parties. Therefore, for the simple reason of failure of cross examination, assessments cannot be made or taxes cannot be levied on the basis of loose papers or third party statements without any further evidence to justify on money payments. To tax any particular income, there must be some material evidence to show that the income is accrued or arises to the particular assesse. Unless, there is a proof, the department cannot collect tax on the admission/deposition of the tax payer alone. To tax any particular receipt, primary evidence is very much necessary and unless there is primary evidence, circumstantial evidence cannot be considered as conclusive evidence against any person to tax any particular receipt. Circumstantial evidence plays an important role in income tax proceedings, where the A.O.

16 Rivera Properties Pvt Ltd needs to estimate the income based on some evidence available for part of the year, then remaining period estimation can be made based on evidence available. But, payment/receipt of on money is purely a factual issue which cannot be decided based on circumstantial evidence.

“We have heard learned counsel for the parties and have gone through the record. It is true that the Division Bench of the High Court has borrowed extensively from the orders of the Tribunal and the Commissioner and passed them off as if they were themselves the author(s). We feel that quoting from an order of some authority particularly a specialized one cannot per se be faulted as this procedure can often help in making for brevity and precision, but we agree with Mr. Vahanvati to the extent that any “borrowed words” used in a judgement must be acknowledged as such in any appropriate manner as a courtesy to the true author(s). Be that as it may, we are of the opinion that the three questions reproduced above can, in no way, be called substantial questions of law. The fact as to the actual sale price of the property, the 17 Rivera Properties Pvt Ltd implication of the contradictory statements made by Rajarathinam or whether reliance could be placed on the loose sheets recovered in the course of the raid are all question of fact. We therefore find no infirmity in the order of the High Court. Accordingly, we dismiss the appeal.” 9. A similar issue has considered by coordinate bench of ITAT, Hyderabad `A’ Bench in the case of Smt. K.V. Lakshmi Savitri Devi Vs. ACIT (2012) 148 TTJ 517, wherein the Tribunal under similar circumstances held as under:

Admittedly there was no search action in the case of the assessee. It is a loose slip containing certain entries recording the payment which was found at the premises of CRK. It does not contain either date of payment or name of the person who has made the payment. According to the Department, CRK denotes C. Radha Krishna Kumar and KRK denotes K. Rajani Kumari. However, no name of the assessee was found in the louse sheet. The property was purchased from P w/c CRK for a disclosed consideration of Ps. 65 lakhs by the assessee. The property has been registered and the sale deed was executed for a consideration of Ps. 65 lakhs on 21st Aug., 2006 which consideration has been accepted by the State registration authorities. Further nothing was brought on record to show that there was any invoking of s. 50C while completing the assessment in the case of the seller. There is no evidence other than the seized material marked as 'A/CRK104' where relevant entries are made at Rs. 1,65,00,000. The seized material was not found at the premises o the assessee and there is no corroborative material to suggest that the assessee has actually paid Rs. 1.65 çrores towards purchase consideration of the property. The assessee and her brother categorically denied the payment of any money over and above Rs. 65 lakhs. The AO placed hi reliance on the statement of 5, who is a third party. The evidence brought on record by the Department is not enough to fasten additional tax liability on the assessee. As seen from the above document this is just a handwritten loose document and the handwriting is also not of the assessee and the loose document was found at the premises of a third party. The burden is on 18 Rivera Properties Pvt Ltd the Department to prove conclusively that the loose document belongs to the assessee. There is no presumption in law that the assessee has actually paid Rs. 165 lakhs towards purchase of the property. The undisclosed income in this case is to be computed by the AO on the basis of the available material on record. It should not be based on conjectures and surmises. As of now, the material considered by the AO for making the addition of Ps. 1 crore is seized material marked a 'A/CRK104' and the statement of S. This loose sheet found at the premises of CRK is not enough material to sustain this addition. The seized material found during the course of search and the statement recorded are some piece of evidence to make the addition. The AO has to establish the link between the seized material and other books of account to the assessee. The seized material and statement of CRK cannot be conclusive evidence to make this addition. The entire case herein is depending upon the rule of evidence. There is no conclusive presumption to say that actual consideration passed on between the parties is actually Rs. 165 lakhs. The assessee as well as her brother stated in their respective statements that the consideration passed between the parties is only Rs. 65 lakhs. In spite of this the AO proceeded to conclude that the seized material is conclusively reflecting the payment of consideration at Rs. 165 lakhs. The Department herein i required to establish the nexus of the seized material to the assessee. As stated earlier there is no date and name of the assessee. The allegation of the Department is that the seized material denotes the payment made by the assessee to the purchaser for purchase of the property. However, no such narration or name of the assessee was found in the seized material. The Department is not able to unearth any document or material or any corroborative material to show that the assessee herein actually paid Ps. 165 lakhs for purchase of the property. The Department has not brought on record the date on which the payment was made and the source from which ii is paid and/or any details of bank account from where the cash was withdrawn. Without any of these details, the Department has taken a view that the assessee has paid Ps. 165 lakhs for purchase of the property. The Department cannot draw inference on the basis of suspicion, conjectures and surmises. Suspicion, however strong cannot take place of material in support of the finding from the AO. The AO should act in a judicial manner,

19 Rivera Properties Pvt Ltd proceed with judicial spirit and come to a judicial conclusion. The AO is required to act fairly as a reasonable person and not arbitrarily and capriciously. The assessment made should have enough material and it should stand on its own legs. The basis for addition cannot be only the loose sheet or a third party statement. In the absence of corroborative material, and/or circumstantial evidence, the addition cannot be sustained. Thus, no addition can be made on a dumb document and noting on loose sheet. It should be supported by the evidence on record and the evidence on record is not sufficient to support the Revenue's action. In a block assessment undisclosed income has to be determined or the .basis of the material and evidence detected in the course of the search action. The circumstances surrounding the case are not strong enough to justify the addition made by the Department. The burden of proving the actual consideration in the purchase of property is on the Revenue. Considering the entire facts of the case, the Revenue has failed to discharge its duty, instead made up a case on surmises and conjectures which cannot be allowed. Under these circumstances, there is no reason to confirm the addition of Rs. 100 lakhs towards on-money payment. Accordingly, the addition of Rs. 100 lakhs is deleted.—CIT vs. P.V. Kalyanasundaram (2006) 203 CTR (Mad) 449: (2006) 282 ITR 259 (Mad) relied on”

The Hon’ble High Court while, deciding the issue in favour of the assessee held as under:

“We are of the view that the Tribunal has rightly held that the registered document dt. 21.8.2006 unde4r which the respondent purchased the above property showed that only Rs.65.00 lakhs was paid to the vendor by the respondent; that there was no evidence to show that the respondent had paid Rs.1.00 crore in cash also to the 20 Rivera Properties Pvt Ltd vendor; that no presumption of such payment of Rs.1.00 crore in cash can be drawn on the basis of an entry found in a diary/loose sheet in the premises of C. Radha Krishna Kumar which is not in the respondent’s handwriting and which did not contain the name of the respondent or any date of payment or the name of the person who made the payment. It rightly held that the Revenue failed to establish the nexus of the seized material to the respondent and had drawn inferences based on suspicion, conjectures and surmises which cannot take the place of proof. We also agree with the Tribunal that the assessing officer did not conduct any independent enquiry relating to the value of the property purchased and the burden of proving the actual consideration in the purchase of the property is on the Revenue and it had failed to discharge the said burden.”

The coordinate bench, under similar set of facts, decided the issue in favour of the assessee as under:

“The assessee has claimed to have made payment of Rs.1,01,687/- only upto 31st March, 1999 and has consistently taken the stand that it has not paid balance amount of Rs.3,81,414/- as stated in the seized document. No evidence could be brought on record by the Revenue to show that in fact the assessee had paid the amount of Rs.3,81,414/- to OD. No document containing signature of the assessee or handwriting of the assessee to corroborate the above making of payment by the assessee was found during the course of the search. Even at time of cross examination by the assessee the partner of OD could not produce any evidence that the amount written in the seized document was 21 Rivera Properties Pvt Ltd in fact received from the assessee. As the assessee has categorically denied to have made any payment in excess of Rs.1,01,687/- upto 31st March, 1999 in respect of purchase of flat the said denial cannot be brushed aside without bringing any positive material on record. Merely recording made by a third party or statement of a third party cannot be treated as so sacrosanct so as to read as a positive material against the assessee. In view of the above the CIT(A) was not justified in confirming addition to the extent of Rs.3,81,414/- in the hands of the assessee. Therefore the addition of Rs.3,81,414/- is deleted. Asst. CIT Vs. Prabhat Oil Mills (1995) 52 TTJ (Ahd) 533 relied on; K.P. Varghese Vs. ITO (1981) 24 CTR (SC) 358: (1981) 131 ITR 597 (SC) applied.”

11. We have heard rival submissions, perused the material submitted before us and also perused the orders of the revenue authorities. On a reading of the assessment order, it is absolutely clear that the addition has been made entirely on the basis of the photocopy of the sale agreement seized from the residence of the assessee in course of search and seizure operation. Undisputedly, the sale agreement is only photocopy and has not been signed by the assessee. The assessee has also raised serious allegation regarding the seizure of the impugned document and filed affidavit before DDIT (Inv.) asserting that the said document was planted by an officer of the department also named by the assessee in the affidavit. However, such allegation of the assessee has not at all been enquired into and has been met with complete silence by the department. From the materials on record, it is very clear that the AO has failed to lay his hands on any 22 Rivera Properties Pvt Ltd credible evidence to establish the fact that the assessee has purchased the property for a consideration of Rs.1,68,00,000/- as mentioned in the photo copy of sale agreement seized in course of search and seizure operation. The assessee has produced before the AO registered sale deeds in support of its claim that they had purchased the property for a consideration of Rs.23.50 lakhs. When the AO alleges that the assessee has paid more than what has been declared in the registered sale deed because the fair market value of the asset as on the date of transaction exceeds full value of consideration declared by the assessee then it is for the AO to prove that the value declared by the assessee is understated. In the appeal before us, excepting the photo copy of sale agreement, there is no other evidence on record found as a result of search or brought on record on the basis of enquiry conducted by the AO which could establish the fact that the actual consideration passed between the parties is not as mentioned in the registered sale deed but as per the sale agreement found during search operation. It is also an interesting fact to note that in the statement recorded from the assessee u/s 132(4) the revenue authorities have not put any question with regard to the sale agreement seized at the time of search and seizure operations. Smt. R. Nalini Devi also in her statement further clearly stated that the property was sold at Rs.23.50 lakhs and not at the rate of Rs.1.68 crores. The Hon'ble Supreme Court in the case of K.P. Verghese reported in 131 ITR 597 has held that onus is o n t h e d e p a r t m e n t t o p r o v e t h a t t h e a s s e s s e e h a s understated the value of the property and has paid more than what is mentioned in the registered sale deed. The Hon'ble Supreme Court in the case of Moosa S. Madha and A z am S . M a dh a vs . CIT ( 8 9 ITR 6 5 ) h a s h e l d t h a t photocopies have little evidentiary value. Therefore, photocopies of any document cannot by itself be considered as evidence for purpose of making addition in assessment proceedings. The AO is required to bring further evidence on record to show that the sale agreement was actually acted upon by the parties. This is because of the fact. when the AO is going to make an 23 Rivera Properties Pvt Ltd addition, there should be sufficient evidence brought on record to support such addition. No addition can be made on conjectures and surmises. As seen from the assessment order, the AO has adopted value of the property at the Rs.7000/- per sq. yard on the date of transaction. For adopting such a valuation, the AO has not conducted any enquiry or brought any materials on record to s h o w t h a t t h e v a l u e o f t h e p r o p e r t y o n t h e d a t e o f transaction was actually Rs.7000 per sq. yard. On the other hand, the assessee has demonstrated with supporting evidence that the value of the land on the date of transaction was the rate mentioned in the registered sale deed and for which the property was sold. The assessee has also produced sufficient evidence to show that the-re was dispute going on regarding the legal right over the property which also had an effect on the fair market value of the property. It is also pertinent to mention here that the assessee had filed his return f income for the assessment years under dispute much prior to the date of search declaring the purchase of land in question at the consideration mentioned in the registered sale deeds. 155) far as the AO's observations on the loose sheets recovered from the residence of Smt. Nalini Devi are concerned, the CIT (A) after duly examining them has given a conclusive finding that the assessee's name has no where been mentioned in those documents nor the amount of Rs.109.48 lakhs represents the expenditure incurred by Smt Nalini Devi. However, the amount was found to be the summary of the balance of various accounts operated by the family members of Smt. Nalini Devi. We find that the CIT (A) in his elaborate and well reasoned order has dealt with all these aspects and came to a finding on fact that the AO has made the addition purely on conjectures and surmises and not on the basis of any material or evidence brought on record. On examining the facts and materials before us, we are of the view that the finding arrived by the CIT (A) is just and proper and in accordance with the principles of law laid down by the Hon'ble Supreme Court and Hon'ble High Courts which are cited before him. We therefore find no necessity to interfere with the finding of the CIT (A) on this issue. Hence the grounds raised by the revenue for the years under consideration are 24 Rivera Properties Pvt Ltd dismissed.”

“We have heard the learned counsel for the appellant and gone through the impugned judgement and order of the learned Tribunal. It appears, the Assessing Officer had relied on a photocopy of an unsigned sale agreement in order to find that consideration amount has been paid at Rs.1,68,00,000/-. Therefore, this amount was not disclosed. The learned Tribunal has correctly concluded that unsigned photocopy of the agreement for purchase of the property cannot be a material to rely on, when the registered sale deed has been produced and the same shows that the property was purchased at a price of Rs.23,50,000/-. This registered sale deed was disclosed at the time of original assessment. According to us, the agreement of sale loses its force, the moment registered sale deed is executed. If the property has been purchased at a higher price than that of mentioned in the purchase deed, then the onus is on the Assessing Officer to establish that, as has been rightly concluded by the Tribunal on this issue. Moreover, photocopy of the unsigned agreement has got no evidentiary value. The Assessing Officer has done a guess work while coming to the conclusion that the price of the property is more than mentioned in the sale deed. There must be some material and basis to conclude that the purchase has been made at an under valuation.”

25 Rivera Properties Pvt Ltd 14. Considering the total facts and circumstances of the case and also applying the ratios of the judgements cited above, we are of the view that the A.O. is not correct in coming to the conclusion that on money is exchanged between the parties based on a loose sheet found in the premises of a third person. To sustain the addition, the A.O. should have conducted an independent enquiry about the value of the property and ascertain whether any under valuation is done, if so what is the correct value of the property.

Further, the A.O. did not brought on record any evidence to support his contention to say that there is on-money exchanged between the parties. In the absence of proper enquiry and sufficient evidences, we find no reason to confirm addition made by the A.O towards on money. Therefore, we direct the Assessing Officer to delete addition of Rs. 3,05,00,000/- made towards on money.

ITA.NO. 2748/M/2016

26 Rivera Properties Pvt Ltd 17. The brief facts of the case which leads to impugned penalty order has been narrated in paragraph --- of quantum appeal on the same issue in ITA.No.

250/M/2013. The A.O. levied penalty u/s 271(1)(c) for concealment of particulars of income in respect of on money payment for sale of property. The penalty issue is triggered out of quantum addition of Rs. 3.05 crores made towards alleged on money payment for sale of property. The detailed facts of impugned addition towards on money have been discussed in ITA.No.

250/M/2013. We have deleted impugned addition of Rs. 3.05 crores made towards alleged on money payment for sale of property for the detailed reasons recorded in paragraph ----in our order in ITA.No. 250/M/2013. Since, quantum addition made by the A.O. has been deleted, penalty levied u/s 271(1))(c) on such addition for concealment of particulars of income cannot survive. Therefore, we direct the A.O. to delete penalty levied u/s 271(1)(c) for concealment of particulars of income.

Order pronounced in the open court on 27th October, 2017.