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Facts
A search under Section 132 of the Income Tax Act was conducted on the assessee's residential premises, leading to the issuance of a notice under Section 153A. The assessee filed a return declaring income from various sources. The Assessing Officer (AO) made additions based on income from house property, business, contract work, travel business, and treated cash credits as unexplained. The assessee challenged these additions before the CIT(A), who rejected the appeal.
Held
The Tribunal held that the additions made by the AO were not sustainable in law. The Tribunal noted that the AO relied on loose sheets and statements not properly corroborated and that the DRI proceedings were challenged and stayed by the High Court. The Tribunal also directed the AO to await the outcome of the DRI proceedings and the connected Writ Petition.
Key Issues
Whether the additions made by the AO based on loose sheets, third-party statements, and DRI proceedings are sustainable in law, and whether the search itself was valid.
Sections Cited
132, 153A, 68, 69C, 132(4), 44AD, 69, 69A, 158BB(1), 132A
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Income Tax Appellate Tribunal, BANGALORE “B” BENCH, BANGALORE
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE “B” BENCH, BANGALORE Before Shri Chandra Poojari, Accountant Member and Shri Soundararajan K., Judicial Member ITA No. 863/Bang/2024 (Assessment Year:2018-19)
Chandra Shekhar DCIT, Central Circle-1(3) C/o V. Sudhindranath Revenue Building No.51/7/1, Chitrakoot, Queens Road vs. Bangalore 560001 Ratna Avenue, Richmond Road Bangalore 560 025 PAN – AHLPS2732B (Appellant) (Respondent) Assessee by: Ms. Pooja Maru, CA Revenue by: Shri Kiran D., Addl. CIT-DR Date of hearing: 31.07.2024 Date of pronouncement: 19.08.2024 O R D E R Per: Soundararajan K., J.M. This appeal filed by the assessee challenges the order CIT(A)-11, Bangalore dated 19.02.2024 in respect of Assessment Year (AY) 2018-19.
The brief facts of the case are that the assessee is doing real estate business in the name and style of M/s. C R Builders & Developers and also running restaurants in Bangalore. A search u/s. 132 of the Income Tax Act, 1961 (the Act) was conducted on 16.08.2018 in two residential premises of the assessee and based on that notice u/s. 153A of the Act was issued on 27.03.2019 directing the assessee to file return of income. Thereafter the assessee filed return of income on 07.12.2020 declaring an income of Rs. 30,94,350/- being income from house property, profits and gains of business or
2 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) profession and from other sources. Thereafter the Assessing Officer (AO) issued notices u/ss. 143(2) and 142(1) of the Act. The AO made additions in respect of the income from house property, income from construction business, income from contract work and income from travel business. The AO also treated the cash credits as unexplained cash credits u/s. 68 of the Act. The AO estimated the income of hotel business by taking the profit at 20%. The AO also relied on the show notice issued by the DRI and made an addition of Rs. 52,02,96,462 as unexplained money and Rs.6,77,45,693 as unexplained investment in gold seized by the DRI and a further sum of Rs. 61,95,716 as unexplained income from Dubai transactions. The AO also made addition u/s. 69C of the Act that too based on the DIR investigation. The assessee challenged the above said order before the CIT(A) and the ld. CIT(A) had rejected all the contentions of the assessee and dismissed the appeal. Against the order of the ld. CIT(A) the assessee is in appeal before the Tribunal raising the following grounds of appeal: - “1. The CIT(A) has erred in dismissing the grounds of Appeal no 1 and 2 raised by the Appellant. The Search proceeding initiated under section 132 of the Income Tax Act 1961 is null and void ab initio. The search was initiated on the borrowed satisfaction of the DRI Show Cause Notice. The CIT (A) has relied on precedents passed by courts lower to Supreme Court, wherein the contention of the Assessee Appellant is based on later Supreme Court judgement. Thus the Act of the CIT (A) is breaching and transgressing the doctrine of judicial discipline which gives the decision of the Supreme Court a precedent over the ratio decidendi of other lower courts. Article 141 of the Constitution of India stipulates that the law declared by the Supreme Court shall be binding on all Courts within the territory of India. Thus, the general principles laid down, by the Supreme Court are binding on each individual including those who are not a party to an order. Just as judgments and orders of the Supreme Court have to be faithfully obeyed and carried out throughout the territory of India under article 141 of the Constitution, so should be judgments and orders of the High Court by all inferior courts and tribunals subject to supervisory jurisdiction within the State under articles 226 and 227 of the Constitution. 2. The CIT(A) has erred in dismissing the grounds of Appeal No 3 and 4 based on surmises and presumptions. The fact that a grievance is generic cannot be a ground of dismissal. The Opportunity to be heard is a universal law being one of the major principles of Natural Justice. The Arbitrary dismissal show cases the non-application of the mind and a prejudice against the Assessee Appellant leaning towards the fact that the order mostly is not a speaking order.
3 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) 3. The CIT (A) has erred in dismissing the grounds of appeal no 5 which stated that the Learned Assessing officer had not given show cause notice before making additions. 4. The CIT (A) has erred in dismissing the grounds of appeal no 6. The AO has made a capricious and random addition of Rs. 38,30,142/- and Rs. 13,15,828/- as Income from House Property without considering the prima facie facts and the basis of which is evidence that is not valid as per law. The evidence relied on in itself is flawed being loose sheets unsupported by further corroborative evidence and being against the IT Act 2000. The Additions were made on the basis of material that doesn't not qualify as evidence since the documentary proof was vide tampering the computer and the third party statement was not subject to cross examination by the Assessee Appellant. 5. The CIT (A) has erred in dismissing the grounds of appeal no 7 based on surmises and presumption. The basis of addition of Rs. 14,44,940/- was purely derivative account of profit percentage which was arrived by a random calculation of profit margin at 37% when the industry profit is at 4 to 5% (Builder and developer industry). The basis of the calculation of cost per sq feet of 3112 is not made privy to the Assessee Appellant. 6. The CIT (A) has erred in dismissing the Ground No 8 of the Assessee Appellant thus making an addition of Rs.53,54,031/- which is wrongful. The Addition has been made only on the basis of the statement that was made by a third party which moreover was not subject to cross examination. This is against the provisions of section 132(4) of the Income Tax Act 1961. The statement made by one Avinash Reddy was redacted as well which was not given efficacy by the AO due to an obvious biased and prejudiced mindset. Therefore the entire evidence stands to be redacted. It has also been established under various caseprecedents interpreting the section 132(4) that the additions cannot be made primarily on the statement recorded during search and seizure if the same is not corroborated by a further incriminating evidence. Loose sheets are dumb documents which cannot take the place of evidence due to lack of corroborative evidence. The Submissions made by Mrs N Garg was also rejected without reason. 7. The CIT (A) has erred in dismissing Ground No 9 as the addition of Rs. 3,52,837/- was made on an ad-hoc basis without any incriminating or supporting evidence. 8. The CIT (A) has erred in dismissing the Ground No 10 and 11 for unexplained cash credits of Rs. 11,50,000/- and Rs.1,15,53,530/-. The Assessee Appellant has during the Assessment proceedings submitted the proof of the transaction for the cash credit. The same was dismissed without sufficient reason and based on a third party statement not corroborated with any incriminating material. The Assessee Appellant has made it unambiguous that the cash credits were business transactions. 9. The CIT (A) has erred in dismissing Ground No 12 which argued that on the facts and circumstances of the case, the Assessing officer was not justified in adding income disclosed during search proceedings as unaccounted income. 10. The CIT (A) has erred in dismissing Ground No 13 which effectuates an addition of Rs.72,00,000/- as being suppressed income from cash sales of restaurants. The basis of the addition is a loose sheet which failed to be supported
4 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) by further substantial corroborative evidence and presumptuous reasoning of the profit being at 20%. The GST returns filed have been ignored without sufficient cause. An addition made based on loose sheets will not stand as per the legal provisions as it is not the book of account and is not supported by additional incriminating material. 11. The CIT (A) has erred in dismissing grounds 14 to 17 thus effecting an ad hoc addition of Rs. 52,02,96,462/-, Rs.6,77,45,693/- and Rs.61,95,716/-. The right of cross-examination of the statements made by the third party cannot be denied to the Assessee Appellant on any account as was done by the AO which is verbatim quoted in Page 104 of the CIT (A) order even more so as there isn't any other incriminating material. The AO has acted on borrowed satisfaction from the SCN of the DRI. The Evidence is circumstantial at its best. 12. The additions where section 68 is the charging section the same will not be made applicable as the Assessee Appellant has not maintained any books of account and the same is subject to deletion.” 3. At the time of hearing the learned A.R. of the assessee made an endorsement that she is not pressing ground Nos. 1,2,3,9 and 12 and accordingly we dismiss these grounds as not pressed. The learned A.R. filed two paper books along with notes on every issue and prayed to allow the appeal. The learned A.R. also filed the order of the ITAT, Delhi Bench reported in [2006] 99 ITD 417 (Del) in the case of Sukh Ram v. ACIT in support of her arguments. She also took us to the various documents filed in the paper books and prayed to allow the appeal.
The learned D.R., on the other hand, relied on the detailed orders passed by the lower authorities and prayed to dismiss the appeal.
We have heard the rival contentions and perused the material on record. The authorities below had discussed the issue in detail and therefore we are giving our findings to the various grounds raised by the assessee. In this case it is a fact that the assessee is doing construction work in the name and style of M/s. C R Builders & Developers and during the year he had executed 4 projects. The assessee is a non filer and he has not maintained any books of accounts until the time of search conducted on 16.08.2018. The first issue raised by the assessee is about the deemed rental receipts. The AO, based on
5 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) the search conducted at the two residential premises of the assessee, had estimated the deemed rental income from house properties. Right from the beginning the assessee’s case was that he is occupying the property at Door No. 1235, 3rd Cross, HAL 3rd Stage, Bangalore 560075 but the AO, without accepting the same, had estimated the rental value in respect of the property which is a self-occupied one. Further the assessee had pointed out that the three other properties were also vacant on account of renovation but the AO had not considered the same at the time of passing the assessment order. Even before the CIT(A) this plea was raised by the assessee but the ld. CIT(A) also not considered the same and finally confirmed the deemed rental income from house properties at Rs.38,3,142/-. The assessee, against the estimated income, had already declared an income of Rs.20,57,499/- after the SCN issued but the assessing authority had estimated the rental value by taking a higher rental value and thereby estimated the deemed rental income from house property. We are satisfied that the action of the authorities in estimating the rental value may be correct for the reason that the authorities are not able to lay their hands on the accounts maintained by the assessee. We are concerned with the method of estimation and if there are patent mistakes the same may be corrected by us. In this case the mistakes committed by the authorities are patent mistakes. Even though the authorities below are quasi-judicial authorities they have not considered the plea that the properties are self- occupied and vacant but without considering the same and without taking any steps to find out whether the claim of the assessee is true or not, they had confirmed the estimation based on the search conducted at the residential premises of the assessee. Further, as seen from the search conducted on 16.08.2018, the department had conducted search at the residential premises of the assessee and therefore estimating the deemed rental income, taking all the properties as rented out, is not based on the facts and in fact against the department’s own search. In fact the assessing authority had deputed its
6 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) officers to make a physical inspection of the houses but the officers in their report had not stated anything about the vacant houses and also about the self- occupied house. Therefore, we are of the view that the authorities below had failed to verify the facts while estimating the deemed rental income. On that score we set aside the assessment made on deemed rental value and remit the issue to the file of the AO to recompute the deemed rental income by taking into the fact of the self-occupation and the vacant houses. While considering the same the AO can also verify whether the rental value adopted in the assessment proceedings are correct or not based on the documents filed by the assessee. In the result the Ground No. 4 is allowed for statistical purposes.
Ground No. 5 is with regard to the estimation of profit out of the real estate business. As already stated the assessee had not disclosed the real estate business and also not maintained the basic documents. Therefore the AO with the available materials had estimated the income. We cannot find fault with the method adopted by the AO but the AO had estimated the profit at a margin of 37%. The assessee contended that the profit margin in this type of business is about 4 to 5% and also contended that the value estimated for the construction was also on a higher side and therefore contended that the rate adopted at Rs. 1608/- per sq. ft in the show cause notice is a reasonable one and therefore the estimation at Rs 2,255 is not correct. We find some force in the arguments of the learned A.R. since even as per s. 44AD of the Act, which speaks about the special provision for computing profits and gains of business on presumptive basis, a sum equal to 8% of the total turnover will be deemed to be the profit and gains of such business chargeable to tax under the head ‘profits and gains of business or profession’. If we consider the above said provision, the estimated profit made by the AO at 37% is very much on a higher side and no businessman would get such a higher profit. In view of the above said facts, taking clue from Sec.44 AD of the Act, we direct the AO to calculate the profit
7 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) at 8% on the real estate business. For this purpose we remit the issue to the file of the AO to decide the issue afresh. Gr No. 5 is ordered accordingly.
Ground No. 6 is with regard to the addition of Rs.53,54,031/-made on the contract business. We considered the arguments that the addition was made on the basis of the statement given by one Mr. Avinash Reddy, who is not at all connected with the business of the assessee. Even the said Avinash Reddy deposed that he was not aware of the actual profit but only the assessee knows about the same. In spite of that, the AO, based on the loose sheets seized at the time of search and also based on the statement given by Mr. Avinash Reddy, had estimated the profit at 20% on the total contract receipts. We find that the method adopted by the AO based on the statement of the third party and also based on the loose sheets seized at the time of search may not be correct but the AO has no other option except to estimate the income for want of records but the estimation should be on a reasonable basis. Therefore we find that the profit margin adopted by the AO at 20% is on a higher side. The assessee also brought to our notice that the total contract receipts include an amount alleged to be paid by one Nirmala G. for constructing her house which was denied by her. The AR in support of her contention had not adduced any proofs and therefore we are not inclined to accept the same. Moreover the assessee had not maintained the basic records and not brought to the notice of the authorities about the construction activities till the date of search. Therefore we proceeded to consider the learned A.R.’s main contention that adoption of 20% is somewhat higher and in order to render substantial justice and taking clue from Sec.44AD of the Act, we restrict the profit to 8% of the total contract receipts. In order to quantify the correct profit we remit this issue also to the AO. In the result the Gr No 6 is ordered accordingly.
Ground No. 7 relates to the estimation of profit from the travel business done by the assessee and the learned A.R. contended that the estimation of
8 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) adhoc profit at 15% as against the income declared by the assessee is without any corroborative evidence and it is only based on surmise and estimation. We also find that the profit margin estimated by the AO at 15% is not based on any evidence and it is only an estimation. In this circumstance we are inclined to restrict the profit margin at 8% instead of 15% taking clue from sec. 44AD of the Act and the issue is remitted to the file of the AO to quantify the correct profit derived from the travel business conducted by the assessee. In the result we ordered Gr No.7 accordingly.
In respect of ground No. 8 is with regard to sustaining addition of Rs.11,50,000/- and Rs.1,15,53,530/- u/s 68 of the Act. The learned A.R. submitted that necessary proofs were filed before the AO in respect of the cash credits made into the bank account. As seen from the assessment order the assessee is not only a builder and developer but also doing hotel business, travel business and gold business in Dubai and, therefore, for all the cash credits the assessee had explained the source and therefore the addition made by the assessing authority as unexplained cash credit are not correct. We also find that, as seen from the assessment order, the assessee is doing various types of business and received income from it and the same could have been credited to the bank account and therefore the assessment which is based on the statement of third party, without giving an opportunity to examine him, is not in accordance with the law laid down by the Hon'ble Supreme Court in the case of CIT Vs. P.V. Kalyana Sundaram (294 ITR 49) (SC). When the assessee was able to establish that these are the sources and the cash were credited in the bank account then without having any incriminating material the same cannot be treated as unexplained cash credits. In this case the assessee was able to explain how the cash credits were made into his account and, therefore, the addition made by the AO without any contra evidence that too based on the untested third party statement, is not in accordance with the
9 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) provisions of the Act. Further the income derived from all the businesses were estimated by the AO and, therefore, we are of the view that further addition based on the cash credit is not required in this case. We ordered accordingly.
In so far as ground No. 10 is concerned, the addition made on the basis of cash sales made in the restaurants, it is to be noted that the addition was based on the loose sheets found at the time of search without any corroborative evidence that too with a profit margin of 20%. As seen from the assessment order, the AO observed that, at the time of search it was found that the assessee had accounted the online transactions and credit card transactions only in the books of account maintained by them and all the cash sales were not recorded by the assessee. We found that the assessee is also not able to provide any other evidence to show that the entire sales were recorded in the books of account. Therefore, we are in agreement with the estimation made by the AO but we restrict the profit margin estimated by the AO which is at 20% to 8% taking clue from Sec.44AD of the Act. In view of this we are remitting this issue to the AO to recompute the income e estimated on the basis of sales made in the restaurants owned by the assessee. Ordered accordingly.
Ground No. 11 is with regard to the additions made by the AO, of Rs.52,02,96,472/-, Rs. 6.77,45,693/- and Rs. 61,95,716/- .This addition was made by the AO on the basis of the SCN issued by the DRI and not based on any incriminating materials seized during the search conducted by the department. We saw that the above said addition of Rs 52,02,96,472/- is in respect of the alleged cash taken from India to Dubai and reported to the Dubai Customs Authorities on the arrival of the assessee. The next addition is based on the gold seized in the Bangalore Airport by the DRI while the assessee was coming from Dubai and other additions based on the show cause notice issued by the DRI. The AO made additions based on the statements given by the assessee. But the statement was retracted by the assessee on
10 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) 28.09.2017 by sending a letter to the Commissioner of Customs about the coercion of the DRI officials and, therefore, requested the Commissioner not to consider the statement given before the DRI officials. The AO had also relied on various statements given by the travel agents and the statement given by the assessee but failed to look into the retraction given by the assessee before the Commissioner of Customs. Further, the additions were made not on the basis of any incriminating material seized at the time of search by the department but made solely on the basis of the show cause notice issued by the DRI. The SCN is the first step and, therefore, at this time the proceedings with the DRI is in the beginning stage not yet concluded and, therefore, the additions made by the AO based on the show cause notice is not correct. It is also a fact that the DRI proceedings were challenged before the Hon'ble Karnataka High Court and interim stay was also obtained. The AO as well as the CIT(A), while considering the pleas of the assessee that the issue is not finalised and the Hon'ble High Court has granted stay, observed that the stay is only for the proceedings and, therefore, nothing prevented the department from proceeding further based on the evidences collected by the DRI. We are afraid to accept the above said view of the Revenue for the reason that the assessee had denied the DRI proceedings and challenged the same before the Hon'ble High Court and if the Hon'ble High Court finally adjudicated the issue in favour of the assessee, then great prejudice would be caused to the assessee. Further, the DRI proceedings are now seized of by the Hon’ble High Court and, therefore, based on the show cause notice and the evidences available, the authorities under the Income Tax Act is not entitled to proceed further. Further the Delhi ITAT in the case of Sukh Ram (supra), which was relied upon by the learned A.R had given the following findings. The relevant findings given by the Tribunal in the above said case is extracted as below: - “29. As is evident from the contents of the aforesaid letter, there is nothing to show that the photocopies of the relevant diaries were forwarded by the CBI
11 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) Director to the Revenue Secretary due to the effect or as the outcome of the action by the Income Tax Department under Section 132. As a matter of fact, there is not even any reference to such action in the said letter. It is also pertinent to note that the said photocopies were forwarded by the CBI Director to the Revenue Secretary with a request that Income Tax, Enforcement Directorate and Customs may also give helping hand in the investigation. The investigation so referred to was the investigation being done by the CBI and the help was sought from the concerned three Government departments including Income Tax as well as Enforcement Directorate and Customs. It is worthwhile to note here that there is nothing to show that there was any search by the Enforcement Directorate or the Customs authorities. However, still the photocopies of the relevant diaries were sought to be made available to them to give helping hand to the CBI in their investigation which again goes to show that the photocopies of diaries forwarded by the CBI Director to the Revenue Secretary had nothing to do with the action of the Income Tax Department under Section 132. On the other hand, it appears that the said copies would have been got by the Income Tax Department even otherwise in the normal course irrespective of their action under Section 132. Another aspect which is relevant to take note of in this context is that the search and seizure operation was conducted by the Income Tax Department as well as CBI at the residential premises of the assessee on 16-8-1996 and if at all the diaries in question had been found by the Income Tax Department also, efforts would have been made by them to obtain the copies thereof, which represented important evidence, for the purpose of computation of undisclosed income of the assessee. However, there is nothing on record to show that any attempt whatsoever was made by the Income Tax Department to obtain the said evidence by issuance of authorisation under Section 132A or by any other method till 26-9-1996 when the same was received by them from Revenue Secretary at the instance of the CBI Director and that too for the purpose of giving helping hand to the CBI in their investigation. Having regard to all these facts and circumstances of the case, it is difficult to say that there was any cause-effect relationship between the copies of the diaries coming to the possession of the Income Tax Department and their search operation under Section 132 and the said evidence, therefore, cannot be considered as found as a result of search even if wide meaning is given to the expression "as a result of search" used in the statute as sought by the learned DR. 30. Before us, heavy reliance has been placed by the learned DR on the amendment made in Section 158BB(1) by the Finance Act, 2002 with retrospective effect from 1-7-1995 to contend that even the other material or information as are available with the Assessing Officer and relatable to the evidence found as a result of search also can be used as evidence for computing the undisclosed income of the assessee for the block period. It is true that these provisions amended with retrospective effect are required to be taken into consideration by us in the present appellate proceedings which are extension of the assessment proceedings keeping in view the decision of Hon'ble Bombay High Court in the case of CIT v. Mrs. Kamla S. Asrani wherein it was held that when the law is amended with retrospective effect, the court, when it decides any proceedings, has to apply such retrospectively amended law as if it were in force at all material times. The question, however, is whether the diaries in question were relatable to any evidence found as a
12 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) result of search under Section 132 or requisition of books of account etc. under Section 132A. In this regard, it is observed that the loose sheets containing twelve pages only were seized by the Income Tax Department from the residential premises of the assessee at Mandi besides cash of Rs. 2.45 crores seized from Delhi house. Further, cash of Rs. 1.16 crores seized by the CBI from Mandi House of the assessee was subsequently requisitioned by the Department under Section 132A. In addition to this seizure and requisition, some valuables such as jewellery, furniture items etc. were found but not seized by the Income Tax Department as mentioned in the panchnamas as well as annexures to the said panchnamas. As pointed out by the learned Counsel for the assessee before us, the aforesaid loose sheets containing twelve pages seized by the Income Tax Department were not at all used as evidence for the computation of undisclosed income of the assessee and this position, which is also evident from the assessment order has not been disputed by the learned DR. Even no attempt whatsoever was made by the Assessing Officer to establish any nexus to relate the diaries in question with the said loose sheets seized during the course of search or even with the valuables stated to be found in the residential premises of the assessee but not seized. Before us, the learned DR has also not been able to point out any relation between the diaries in question with the seized documents or the valuables found during the course of search but not seized. He, however, has submitted that the said diaries were found to have contained entries relating to substantial payments and receipts of cash and the same, therefore, were relatable to the cash seized from the residence of the assessee under Section 13 2 as well as cash requisitioned from CBI under Section 132A. 31. After considering all the facts of the case as well as the material available on record, we, however, find it difficult to agree with this contention of the learned DR. First of all, no attempt whatsoever was made by the Assessing Officer to establish any relation, either direct or indirect, between any of the entries found recorded in the diaries and the cash found and seized/requisitioned in the assessee's case. Secondly, the entire investment alleged to have been made by the assessee on the basis of entries found recorded in the diaries in question was separately added by the Assessing Officer to the undisclosed income of the assessee treating the same as unexplained in addition to the addition made on account of cash found during the course of search. If at all there was any relation between the entries found to be made in the said diaries and the cash found during the course of search, the Assessing Officer ought to have adjusted the same while making the addition under Section 69. Having not done the same, the inference which can be drawn is that there was no such relation at least noticed by the Assessing Officer. Moreover, the addition on account of alleged unexplained investment/expenses on the basis of entries in the diary was made by the Assessing Officer under Section 69 whereas the addition on account of unexplained cash found during the course of search was separately made under Section 69A. It is also pertinent to note here that the entries found recorded in the relevant seized diaries were for the period from 1990 to 1994 whereas the cash was found during the course of search on 16-8-1996 ie., after a period of more than two years which again goes to show that the entries found recorded in the said diaries had no relation with the cash found during the course of search. Having regard to all these facts and
13 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) circumstances arising from the material on record, it is difficult to say that the diaries in question in any way were relatable to the cash found during the course of search and the same, therefore, cannot be used as the basis for computing the undisclosed income of the assessee even going by the provisions of Section 158BB(1) as amended by Finance (No. 2) Act, 2002 with retrospective effect from 1 -7-1995. 32. As such, considering all the facts of the case as arising from the material on record discussed above, we are of the view that the diaries in question could not be considered as the evidence found as a result of search under Section 132 or requisition under Section 132A nor the same could be said to be relatable to any evidence found as a result of search or requisition of books of account in terms of Section 158BB(1). In that view of the matter, we hold that the same cannot be used as the basis to compute the undisclosed income of the assessee for the block period under Chapter XIV-B. The entire addition made by the Assessing Officer on the basis of the said diaries amounting to Rs. 48.86 crores thus is not sustainable in law and deleting the same, we allow the relevant grounds raised by the assessee in this regard.” 11.1 In view of this, in order to render substantial justice, it is appropriate to direct the AO to wait for the outcome of the proceedings initiated by the DRI and the connected Writ Petition filed by the assessee challenging the DRI proceedings and proceed thereafter in accordance with the judgement of the Hon'ble High Court after giving proper opportunity to the assessee. With the above directions, we set aside the findings of the authorities below in respect of Gr No.11 and remit the issue to the file of the AO for passing orders based on the outcome of the proceeding pending before the Hon’ble High court in W.P Nos. 42171/2019,11661/2019 and W.P No.49968/2019 and in accordance with law The Gr No.11 is ordered accordingly.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 19th August, 2024.
Sd/- Sd/- (Chandra Poojari) (Soundararajan K.) Accountant Member Judicial Member
Bengaluru, Dated: 19th August, 2024 NP/VG/SPSs
14 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2)
Copy to:
The Appellant 2. The Respondent 3. The CIT, concerned 4. The DR, ITAT, Bangalore 5. Guard File By Order
//True Copy// Assistant Registrar ITAT, Bangalore S.No. Details Date Initials Designation 1 Draft dictated on 07.08.2024 Sr. PS/PS 2 Draft placed before author 08.08.2024 Sr. PS/PS Draft proposed & placed before the Second 3 JM/AM Member 4 Draft discussed/approved by Second Member AM/AM 5 Approved Draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement Sr. PS/PS 7 File sent to Bench Clerk Sr. PS/PS 8 Date on which the file goes to Head Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE “B” BENCH, BANGALORE Before Shri Chandra Poojari, Accountant Member and Shri Soundararajan K., Judicial Member ITA No. 863/Bang/2024 (Assessment Year:2018-19)
Chandra Shekhar DCIT, Central Circle-1(3) C/o V. Sudhindranath Revenue Building No.51/7/1, Chitrakoot, Queens Road vs. Bangalore 560001 Ratna Avenue, Richmond Road Bangalore 560 025 PAN – AHLPS2732B (Appellant) (Respondent) Assessee by: Ms. Pooja Maru, CA Revenue by: Shri Kiran D., Addl. CIT-DR Date of hearing: 31.07.2024 Date of pronouncement: 19.08.2024 O R D E R Per: Soundararajan K., J.M. This appeal filed by the assessee challenges the order CIT(A)-11, Bangalore dated 19.02.2024 in respect of Assessment Year (AY) 2018-19.
The brief facts of the case are that the assessee is doing real estate business in the name and style of M/s. C R Builders & Developers and also running restaurants in Bangalore. A search u/s. 132 of the Income Tax Act, 1961 (the Act) was conducted on 16.08.2018 in two residential premises of the assessee and based on that notice u/s. 153A of the Act was issued on 27.03.2019 directing the assessee to file return of income. Thereafter the assessee filed return of income on 07.12.2020 declaring an income of Rs. 30,94,350/- being income from house property, profits and gains of business or
2 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) profession and from other sources. Thereafter the Assessing Officer (AO) issued notices u/ss. 143(2) and 142(1) of the Act. The AO made additions in respect of the income from house property, income from construction business, income from contract work and income from travel business. The AO also treated the cash credits as unexplained cash credits u/s. 68 of the Act. The AO estimated the income of hotel business by taking the profit at 20%. The AO also relied on the show notice issued by the DRI and made an addition of Rs. 52,02,96,462 as unexplained money and Rs.6,77,45,693 as unexplained investment in gold seized by the DRI and a further sum of Rs. 61,95,716 as unexplained income from Dubai transactions. The AO also made addition u/s. 69C of the Act that too based on the DIR investigation. The assessee challenged the above said order before the CIT(A) and the ld. CIT(A) had rejected all the contentions of the assessee and dismissed the appeal. Against the order of the ld. CIT(A) the assessee is in appeal before the Tribunal raising the following grounds of appeal: - “1. The CIT(A) has erred in dismissing the grounds of Appeal no 1 and 2 raised by the Appellant. The Search proceeding initiated under section 132 of the Income Tax Act 1961 is null and void ab initio. The search was initiated on the borrowed satisfaction of the DRI Show Cause Notice. The CIT (A) has relied on precedents passed by courts lower to Supreme Court, wherein the contention of the Assessee Appellant is based on later Supreme Court judgement. Thus the Act of the CIT (A) is breaching and transgressing the doctrine of judicial discipline which gives the decision of the Supreme Court a precedent over the ratio decidendi of other lower courts. Article 141 of the Constitution of India stipulates that the law declared by the Supreme Court shall be binding on all Courts within the territory of India. Thus, the general principles laid down, by the Supreme Court are binding on each individual including those who are not a party to an order. Just as judgments and orders of the Supreme Court have to be faithfully obeyed and carried out throughout the territory of India under article 141 of the Constitution, so should be judgments and orders of the High Court by all inferior courts and tribunals subject to supervisory jurisdiction within the State under articles 226 and 227 of the Constitution. 2. The CIT(A) has erred in dismissing the grounds of Appeal No 3 and 4 based on surmises and presumptions. The fact that a grievance is generic cannot be a ground of dismissal. The Opportunity to be heard is a universal law being one of the major principles of Natural Justice. The Arbitrary dismissal show cases the non-application of the mind and a prejudice against the Assessee Appellant leaning towards the fact that the order mostly is not a speaking order.
3 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) 3. The CIT (A) has erred in dismissing the grounds of appeal no 5 which stated that the Learned Assessing officer had not given show cause notice before making additions. 4. The CIT (A) has erred in dismissing the grounds of appeal no 6. The AO has made a capricious and random addition of Rs. 38,30,142/- and Rs. 13,15,828/- as Income from House Property without considering the prima facie facts and the basis of which is evidence that is not valid as per law. The evidence relied on in itself is flawed being loose sheets unsupported by further corroborative evidence and being against the IT Act 2000. The Additions were made on the basis of material that doesn't not qualify as evidence since the documentary proof was vide tampering the computer and the third party statement was not subject to cross examination by the Assessee Appellant. 5. The CIT (A) has erred in dismissing the grounds of appeal no 7 based on surmises and presumption. The basis of addition of Rs. 14,44,940/- was purely derivative account of profit percentage which was arrived by a random calculation of profit margin at 37% when the industry profit is at 4 to 5% (Builder and developer industry). The basis of the calculation of cost per sq feet of 3112 is not made privy to the Assessee Appellant. 6. The CIT (A) has erred in dismissing the Ground No 8 of the Assessee Appellant thus making an addition of Rs.53,54,031/- which is wrongful. The Addition has been made only on the basis of the statement that was made by a third party which moreover was not subject to cross examination. This is against the provisions of section 132(4) of the Income Tax Act 1961. The statement made by one Avinash Reddy was redacted as well which was not given efficacy by the AO due to an obvious biased and prejudiced mindset. Therefore the entire evidence stands to be redacted. It has also been established under various caseprecedents interpreting the section 132(4) that the additions cannot be made primarily on the statement recorded during search and seizure if the same is not corroborated by a further incriminating evidence. Loose sheets are dumb documents which cannot take the place of evidence due to lack of corroborative evidence. The Submissions made by Mrs N Garg was also rejected without reason. 7. The CIT (A) has erred in dismissing Ground No 9 as the addition of Rs. 3,52,837/- was made on an ad-hoc basis without any incriminating or supporting evidence. 8. The CIT (A) has erred in dismissing the Ground No 10 and 11 for unexplained cash credits of Rs. 11,50,000/- and Rs.1,15,53,530/-. The Assessee Appellant has during the Assessment proceedings submitted the proof of the transaction for the cash credit. The same was dismissed without sufficient reason and based on a third party statement not corroborated with any incriminating material. The Assessee Appellant has made it unambiguous that the cash credits were business transactions. 9. The CIT (A) has erred in dismissing Ground No 12 which argued that on the facts and circumstances of the case, the Assessing officer was not justified in adding income disclosed during search proceedings as unaccounted income. 10. The CIT (A) has erred in dismissing Ground No 13 which effectuates an addition of Rs.72,00,000/- as being suppressed income from cash sales of restaurants. The basis of the addition is a loose sheet which failed to be supported
4 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) by further substantial corroborative evidence and presumptuous reasoning of the profit being at 20%. The GST returns filed have been ignored without sufficient cause. An addition made based on loose sheets will not stand as per the legal provisions as it is not the book of account and is not supported by additional incriminating material. 11. The CIT (A) has erred in dismissing grounds 14 to 17 thus effecting an ad hoc addition of Rs. 52,02,96,462/-, Rs.6,77,45,693/- and Rs.61,95,716/-. The right of cross-examination of the statements made by the third party cannot be denied to the Assessee Appellant on any account as was done by the AO which is verbatim quoted in Page 104 of the CIT (A) order even more so as there isn't any other incriminating material. The AO has acted on borrowed satisfaction from the SCN of the DRI. The Evidence is circumstantial at its best. 12. The additions where section 68 is the charging section the same will not be made applicable as the Assessee Appellant has not maintained any books of account and the same is subject to deletion.” 3. At the time of hearing the learned A.R. of the assessee made an endorsement that she is not pressing ground Nos. 1,2,3,9 and 12 and accordingly we dismiss these grounds as not pressed. The learned A.R. filed two paper books along with notes on every issue and prayed to allow the appeal. The learned A.R. also filed the order of the ITAT, Delhi Bench reported in [2006] 99 ITD 417 (Del) in the case of Sukh Ram v. ACIT in support of her arguments. She also took us to the various documents filed in the paper books and prayed to allow the appeal.
The learned D.R., on the other hand, relied on the detailed orders passed by the lower authorities and prayed to dismiss the appeal.
We have heard the rival contentions and perused the material on record. The authorities below had discussed the issue in detail and therefore we are giving our findings to the various grounds raised by the assessee. In this case it is a fact that the assessee is doing construction work in the name and style of M/s. C R Builders & Developers and during the year he had executed 4 projects. The assessee is a non filer and he has not maintained any books of accounts until the time of search conducted on 16.08.2018. The first issue raised by the assessee is about the deemed rental receipts. The AO, based on
5 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) the search conducted at the two residential premises of the assessee, had estimated the deemed rental income from house properties. Right from the beginning the assessee’s case was that he is occupying the property at Door No. 1235, 3rd Cross, HAL 3rd Stage, Bangalore 560075 but the AO, without accepting the same, had estimated the rental value in respect of the property which is a self-occupied one. Further the assessee had pointed out that the three other properties were also vacant on account of renovation but the AO had not considered the same at the time of passing the assessment order. Even before the CIT(A) this plea was raised by the assessee but the ld. CIT(A) also not considered the same and finally confirmed the deemed rental income from house properties at Rs.38,3,142/-. The assessee, against the estimated income, had already declared an income of Rs.20,57,499/- after the SCN issued but the assessing authority had estimated the rental value by taking a higher rental value and thereby estimated the deemed rental income from house property. We are satisfied that the action of the authorities in estimating the rental value may be correct for the reason that the authorities are not able to lay their hands on the accounts maintained by the assessee. We are concerned with the method of estimation and if there are patent mistakes the same may be corrected by us. In this case the mistakes committed by the authorities are patent mistakes. Even though the authorities below are quasi-judicial authorities they have not considered the plea that the properties are self- occupied and vacant but without considering the same and without taking any steps to find out whether the claim of the assessee is true or not, they had confirmed the estimation based on the search conducted at the residential premises of the assessee. Further, as seen from the search conducted on 16.08.2018, the department had conducted search at the residential premises of the assessee and therefore estimating the deemed rental income, taking all the properties as rented out, is not based on the facts and in fact against the department’s own search. In fact the assessing authority had deputed its
6 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) officers to make a physical inspection of the houses but the officers in their report had not stated anything about the vacant houses and also about the self- occupied house. Therefore, we are of the view that the authorities below had failed to verify the facts while estimating the deemed rental income. On that score we set aside the assessment made on deemed rental value and remit the issue to the file of the AO to recompute the deemed rental income by taking into the fact of the self-occupation and the vacant houses. While considering the same the AO can also verify whether the rental value adopted in the assessment proceedings are correct or not based on the documents filed by the assessee. In the result the Ground No. 4 is allowed for statistical purposes.
Ground No. 5 is with regard to the estimation of profit out of the real estate business. As already stated the assessee had not disclosed the real estate business and also not maintained the basic documents. Therefore the AO with the available materials had estimated the income. We cannot find fault with the method adopted by the AO but the AO had estimated the profit at a margin of 37%. The assessee contended that the profit margin in this type of business is about 4 to 5% and also contended that the value estimated for the construction was also on a higher side and therefore contended that the rate adopted at Rs. 1608/- per sq. ft in the show cause notice is a reasonable one and therefore the estimation at Rs 2,255 is not correct. We find some force in the arguments of the learned A.R. since even as per s. 44AD of the Act, which speaks about the special provision for computing profits and gains of business on presumptive basis, a sum equal to 8% of the total turnover will be deemed to be the profit and gains of such business chargeable to tax under the head ‘profits and gains of business or profession’. If we consider the above said provision, the estimated profit made by the AO at 37% is very much on a higher side and no businessman would get such a higher profit. In view of the above said facts, taking clue from Sec.44 AD of the Act, we direct the AO to calculate the profit
7 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) at 8% on the real estate business. For this purpose we remit the issue to the file of the AO to decide the issue afresh. Gr No. 5 is ordered accordingly.
Ground No. 6 is with regard to the addition of Rs.53,54,031/-made on the contract business. We considered the arguments that the addition was made on the basis of the statement given by one Mr. Avinash Reddy, who is not at all connected with the business of the assessee. Even the said Avinash Reddy deposed that he was not aware of the actual profit but only the assessee knows about the same. In spite of that, the AO, based on the loose sheets seized at the time of search and also based on the statement given by Mr. Avinash Reddy, had estimated the profit at 20% on the total contract receipts. We find that the method adopted by the AO based on the statement of the third party and also based on the loose sheets seized at the time of search may not be correct but the AO has no other option except to estimate the income for want of records but the estimation should be on a reasonable basis. Therefore we find that the profit margin adopted by the AO at 20% is on a higher side. The assessee also brought to our notice that the total contract receipts include an amount alleged to be paid by one Nirmala G. for constructing her house which was denied by her. The AR in support of her contention had not adduced any proofs and therefore we are not inclined to accept the same. Moreover the assessee had not maintained the basic records and not brought to the notice of the authorities about the construction activities till the date of search. Therefore we proceeded to consider the learned A.R.’s main contention that adoption of 20% is somewhat higher and in order to render substantial justice and taking clue from Sec.44AD of the Act, we restrict the profit to 8% of the total contract receipts. In order to quantify the correct profit we remit this issue also to the AO. In the result the Gr No 6 is ordered accordingly.
Ground No. 7 relates to the estimation of profit from the travel business done by the assessee and the learned A.R. contended that the estimation of
8 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) adhoc profit at 15% as against the income declared by the assessee is without any corroborative evidence and it is only based on surmise and estimation. We also find that the profit margin estimated by the AO at 15% is not based on any evidence and it is only an estimation. In this circumstance we are inclined to restrict the profit margin at 8% instead of 15% taking clue from sec. 44AD of the Act and the issue is remitted to the file of the AO to quantify the correct profit derived from the travel business conducted by the assessee. In the result we ordered Gr No.7 accordingly.
In respect of ground No. 8 is with regard to sustaining addition of Rs.11,50,000/- and Rs.1,15,53,530/- u/s 68 of the Act. The learned A.R. submitted that necessary proofs were filed before the AO in respect of the cash credits made into the bank account. As seen from the assessment order the assessee is not only a builder and developer but also doing hotel business, travel business and gold business in Dubai and, therefore, for all the cash credits the assessee had explained the source and therefore the addition made by the assessing authority as unexplained cash credit are not correct. We also find that, as seen from the assessment order, the assessee is doing various types of business and received income from it and the same could have been credited to the bank account and therefore the assessment which is based on the statement of third party, without giving an opportunity to examine him, is not in accordance with the law laid down by the Hon'ble Supreme Court in the case of CIT Vs. P.V. Kalyana Sundaram (294 ITR 49) (SC). When the assessee was able to establish that these are the sources and the cash were credited in the bank account then without having any incriminating material the same cannot be treated as unexplained cash credits. In this case the assessee was able to explain how the cash credits were made into his account and, therefore, the addition made by the AO without any contra evidence that too based on the untested third party statement, is not in accordance with the
9 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) provisions of the Act. Further the income derived from all the businesses were estimated by the AO and, therefore, we are of the view that further addition based on the cash credit is not required in this case. We ordered accordingly.
In so far as ground No. 10 is concerned, the addition made on the basis of cash sales made in the restaurants, it is to be noted that the addition was based on the loose sheets found at the time of search without any corroborative evidence that too with a profit margin of 20%. As seen from the assessment order, the AO observed that, at the time of search it was found that the assessee had accounted the online transactions and credit card transactions only in the books of account maintained by them and all the cash sales were not recorded by the assessee. We found that the assessee is also not able to provide any other evidence to show that the entire sales were recorded in the books of account. Therefore, we are in agreement with the estimation made by the AO but we restrict the profit margin estimated by the AO which is at 20% to 8% taking clue from Sec.44AD of the Act. In view of this we are remitting this issue to the AO to recompute the income e estimated on the basis of sales made in the restaurants owned by the assessee. Ordered accordingly.
Ground No. 11 is with regard to the additions made by the AO, of Rs.52,02,96,472/-, Rs. 6.77,45,693/- and Rs. 61,95,716/- .This addition was made by the AO on the basis of the SCN issued by the DRI and not based on any incriminating materials seized during the search conducted by the department. We saw that the above said addition of Rs 52,02,96,472/- is in respect of the alleged cash taken from India to Dubai and reported to the Dubai Customs Authorities on the arrival of the assessee. The next addition is based on the gold seized in the Bangalore Airport by the DRI while the assessee was coming from Dubai and other additions based on the show cause notice issued by the DRI. The AO made additions based on the statements given by the assessee. But the statement was retracted by the assessee on
10 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) 28.09.2017 by sending a letter to the Commissioner of Customs about the coercion of the DRI officials and, therefore, requested the Commissioner not to consider the statement given before the DRI officials. The AO had also relied on various statements given by the travel agents and the statement given by the assessee but failed to look into the retraction given by the assessee before the Commissioner of Customs. Further, the additions were made not on the basis of any incriminating material seized at the time of search by the department but made solely on the basis of the show cause notice issued by the DRI. The SCN is the first step and, therefore, at this time the proceedings with the DRI is in the beginning stage not yet concluded and, therefore, the additions made by the AO based on the show cause notice is not correct. It is also a fact that the DRI proceedings were challenged before the Hon'ble Karnataka High Court and interim stay was also obtained. The AO as well as the CIT(A), while considering the pleas of the assessee that the issue is not finalised and the Hon'ble High Court has granted stay, observed that the stay is only for the proceedings and, therefore, nothing prevented the department from proceeding further based on the evidences collected by the DRI. We are afraid to accept the above said view of the Revenue for the reason that the assessee had denied the DRI proceedings and challenged the same before the Hon'ble High Court and if the Hon'ble High Court finally adjudicated the issue in favour of the assessee, then great prejudice would be caused to the assessee. Further, the DRI proceedings are now seized of by the Hon’ble High Court and, therefore, based on the show cause notice and the evidences available, the authorities under the Income Tax Act is not entitled to proceed further. Further the Delhi ITAT in the case of Sukh Ram (supra), which was relied upon by the learned A.R had given the following findings. The relevant findings given by the Tribunal in the above said case is extracted as below: - “29. As is evident from the contents of the aforesaid letter, there is nothing to show that the photocopies of the relevant diaries were forwarded by the CBI
11 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) Director to the Revenue Secretary due to the effect or as the outcome of the action by the Income Tax Department under Section 132. As a matter of fact, there is not even any reference to such action in the said letter. It is also pertinent to note that the said photocopies were forwarded by the CBI Director to the Revenue Secretary with a request that Income Tax, Enforcement Directorate and Customs may also give helping hand in the investigation. The investigation so referred to was the investigation being done by the CBI and the help was sought from the concerned three Government departments including Income Tax as well as Enforcement Directorate and Customs. It is worthwhile to note here that there is nothing to show that there was any search by the Enforcement Directorate or the Customs authorities. However, still the photocopies of the relevant diaries were sought to be made available to them to give helping hand to the CBI in their investigation which again goes to show that the photocopies of diaries forwarded by the CBI Director to the Revenue Secretary had nothing to do with the action of the Income Tax Department under Section 132. On the other hand, it appears that the said copies would have been got by the Income Tax Department even otherwise in the normal course irrespective of their action under Section 132. Another aspect which is relevant to take note of in this context is that the search and seizure operation was conducted by the Income Tax Department as well as CBI at the residential premises of the assessee on 16-8-1996 and if at all the diaries in question had been found by the Income Tax Department also, efforts would have been made by them to obtain the copies thereof, which represented important evidence, for the purpose of computation of undisclosed income of the assessee. However, there is nothing on record to show that any attempt whatsoever was made by the Income Tax Department to obtain the said evidence by issuance of authorisation under Section 132A or by any other method till 26-9-1996 when the same was received by them from Revenue Secretary at the instance of the CBI Director and that too for the purpose of giving helping hand to the CBI in their investigation. Having regard to all these facts and circumstances of the case, it is difficult to say that there was any cause-effect relationship between the copies of the diaries coming to the possession of the Income Tax Department and their search operation under Section 132 and the said evidence, therefore, cannot be considered as found as a result of search even if wide meaning is given to the expression "as a result of search" used in the statute as sought by the learned DR. 30. Before us, heavy reliance has been placed by the learned DR on the amendment made in Section 158BB(1) by the Finance Act, 2002 with retrospective effect from 1-7-1995 to contend that even the other material or information as are available with the Assessing Officer and relatable to the evidence found as a result of search also can be used as evidence for computing the undisclosed income of the assessee for the block period. It is true that these provisions amended with retrospective effect are required to be taken into consideration by us in the present appellate proceedings which are extension of the assessment proceedings keeping in view the decision of Hon'ble Bombay High Court in the case of CIT v. Mrs. Kamla S. Asrani wherein it was held that when the law is amended with retrospective effect, the court, when it decides any proceedings, has to apply such retrospectively amended law as if it were in force at all material times. The question, however, is whether the diaries in question were relatable to any evidence found as a
12 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) result of search under Section 132 or requisition of books of account etc. under Section 132A. In this regard, it is observed that the loose sheets containing twelve pages only were seized by the Income Tax Department from the residential premises of the assessee at Mandi besides cash of Rs. 2.45 crores seized from Delhi house. Further, cash of Rs. 1.16 crores seized by the CBI from Mandi House of the assessee was subsequently requisitioned by the Department under Section 132A. In addition to this seizure and requisition, some valuables such as jewellery, furniture items etc. were found but not seized by the Income Tax Department as mentioned in the panchnamas as well as annexures to the said panchnamas. As pointed out by the learned Counsel for the assessee before us, the aforesaid loose sheets containing twelve pages seized by the Income Tax Department were not at all used as evidence for the computation of undisclosed income of the assessee and this position, which is also evident from the assessment order has not been disputed by the learned DR. Even no attempt whatsoever was made by the Assessing Officer to establish any nexus to relate the diaries in question with the said loose sheets seized during the course of search or even with the valuables stated to be found in the residential premises of the assessee but not seized. Before us, the learned DR has also not been able to point out any relation between the diaries in question with the seized documents or the valuables found during the course of search but not seized. He, however, has submitted that the said diaries were found to have contained entries relating to substantial payments and receipts of cash and the same, therefore, were relatable to the cash seized from the residence of the assessee under Section 13 2 as well as cash requisitioned from CBI under Section 132A. 31. After considering all the facts of the case as well as the material available on record, we, however, find it difficult to agree with this contention of the learned DR. First of all, no attempt whatsoever was made by the Assessing Officer to establish any relation, either direct or indirect, between any of the entries found recorded in the diaries and the cash found and seized/requisitioned in the assessee's case. Secondly, the entire investment alleged to have been made by the assessee on the basis of entries found recorded in the diaries in question was separately added by the Assessing Officer to the undisclosed income of the assessee treating the same as unexplained in addition to the addition made on account of cash found during the course of search. If at all there was any relation between the entries found to be made in the said diaries and the cash found during the course of search, the Assessing Officer ought to have adjusted the same while making the addition under Section 69. Having not done the same, the inference which can be drawn is that there was no such relation at least noticed by the Assessing Officer. Moreover, the addition on account of alleged unexplained investment/expenses on the basis of entries in the diary was made by the Assessing Officer under Section 69 whereas the addition on account of unexplained cash found during the course of search was separately made under Section 69A. It is also pertinent to note here that the entries found recorded in the relevant seized diaries were for the period from 1990 to 1994 whereas the cash was found during the course of search on 16-8-1996 ie., after a period of more than two years which again goes to show that the entries found recorded in the said diaries had no relation with the cash found during the course of search. Having regard to all these facts and
13 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) circumstances arising from the material on record, it is difficult to say that the diaries in question in any way were relatable to the cash found during the course of search and the same, therefore, cannot be used as the basis for computing the undisclosed income of the assessee even going by the provisions of Section 158BB(1) as amended by Finance (No. 2) Act, 2002 with retrospective effect from 1 -7-1995. 32. As such, considering all the facts of the case as arising from the material on record discussed above, we are of the view that the diaries in question could not be considered as the evidence found as a result of search under Section 132 or requisition under Section 132A nor the same could be said to be relatable to any evidence found as a result of search or requisition of books of account in terms of Section 158BB(1). In that view of the matter, we hold that the same cannot be used as the basis to compute the undisclosed income of the assessee for the block period under Chapter XIV-B. The entire addition made by the Assessing Officer on the basis of the said diaries amounting to Rs. 48.86 crores thus is not sustainable in law and deleting the same, we allow the relevant grounds raised by the assessee in this regard.” 11.1 In view of this, in order to render substantial justice, it is appropriate to direct the AO to wait for the outcome of the proceedings initiated by the DRI and the connected Writ Petition filed by the assessee challenging the DRI proceedings and proceed thereafter in accordance with the judgement of the Hon'ble High Court after giving proper opportunity to the assessee. With the above directions, we set aside the findings of the authorities below in respect of Gr No.11 and remit the issue to the file of the AO for passing orders based on the outcome of the proceeding pending before the Hon’ble High court in W.P Nos. 42171/2019,11661/2019 and W.P No.49968/2019 and in accordance with law The Gr No.11 is ordered accordingly.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 19th August, 2024.
Sd/- Sd/- (Chandra Poojari) (Soundararajan K.) Accountant Member Judicial Member
Bengaluru, Dated: 19th August, 2024 NP/VG/SPSs
14 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2)
Copy to:
The Appellant 2. The Respondent 3. The CIT, concerned 4. The DR, ITAT, Bangalore 5. Guard File By Order
//True Copy// Assistant Registrar ITAT, Bangalore S.No. Details Date Initials Designation 1 Draft dictated on 07.08.2024 Sr. PS/PS 2 Draft placed before author 08.08.2024 Sr. PS/PS Draft proposed & placed before the Second 3 JM/AM Member 4 Draft discussed/approved by Second Member AM/AM 5 Approved Draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement Sr. PS/PS 7 File sent to Bench Clerk Sr. PS/PS 8 Date on which the file goes to Head Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE “B” BENCH, BANGALORE Before Shri Chandra Poojari, Accountant Member and Shri Soundararajan K., Judicial Member ITA No. 863/Bang/2024 (Assessment Year:2018-19)
Chandra Shekhar DCIT, Central Circle-1(3) C/o V. Sudhindranath Revenue Building No.51/7/1, Chitrakoot, Queens Road vs. Bangalore 560001 Ratna Avenue, Richmond Road Bangalore 560 025 PAN – AHLPS2732B (Appellant) (Respondent) Assessee by: Ms. Pooja Maru, CA Revenue by: Shri Kiran D., Addl. CIT-DR Date of hearing: 31.07.2024 Date of pronouncement: 19.08.2024 O R D E R Per: Soundararajan K., J.M. This appeal filed by the assessee challenges the order CIT(A)-11, Bangalore dated 19.02.2024 in respect of Assessment Year (AY) 2018-19.
The brief facts of the case are that the assessee is doing real estate business in the name and style of M/s. C R Builders & Developers and also running restaurants in Bangalore. A search u/s. 132 of the Income Tax Act, 1961 (the Act) was conducted on 16.08.2018 in two residential premises of the assessee and based on that notice u/s. 153A of the Act was issued on 27.03.2019 directing the assessee to file return of income. Thereafter the assessee filed return of income on 07.12.2020 declaring an income of Rs. 30,94,350/- being income from house property, profits and gains of business or
2 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) profession and from other sources. Thereafter the Assessing Officer (AO) issued notices u/ss. 143(2) and 142(1) of the Act. The AO made additions in respect of the income from house property, income from construction business, income from contract work and income from travel business. The AO also treated the cash credits as unexplained cash credits u/s. 68 of the Act. The AO estimated the income of hotel business by taking the profit at 20%. The AO also relied on the show notice issued by the DRI and made an addition of Rs. 52,02,96,462 as unexplained money and Rs.6,77,45,693 as unexplained investment in gold seized by the DRI and a further sum of Rs. 61,95,716 as unexplained income from Dubai transactions. The AO also made addition u/s. 69C of the Act that too based on the DIR investigation. The assessee challenged the above said order before the CIT(A) and the ld. CIT(A) had rejected all the contentions of the assessee and dismissed the appeal. Against the order of the ld. CIT(A) the assessee is in appeal before the Tribunal raising the following grounds of appeal: - “1. The CIT(A) has erred in dismissing the grounds of Appeal no 1 and 2 raised by the Appellant. The Search proceeding initiated under section 132 of the Income Tax Act 1961 is null and void ab initio. The search was initiated on the borrowed satisfaction of the DRI Show Cause Notice. The CIT (A) has relied on precedents passed by courts lower to Supreme Court, wherein the contention of the Assessee Appellant is based on later Supreme Court judgement. Thus the Act of the CIT (A) is breaching and transgressing the doctrine of judicial discipline which gives the decision of the Supreme Court a precedent over the ratio decidendi of other lower courts. Article 141 of the Constitution of India stipulates that the law declared by the Supreme Court shall be binding on all Courts within the territory of India. Thus, the general principles laid down, by the Supreme Court are binding on each individual including those who are not a party to an order. Just as judgments and orders of the Supreme Court have to be faithfully obeyed and carried out throughout the territory of India under article 141 of the Constitution, so should be judgments and orders of the High Court by all inferior courts and tribunals subject to supervisory jurisdiction within the State under articles 226 and 227 of the Constitution. 2. The CIT(A) has erred in dismissing the grounds of Appeal No 3 and 4 based on surmises and presumptions. The fact that a grievance is generic cannot be a ground of dismissal. The Opportunity to be heard is a universal law being one of the major principles of Natural Justice. The Arbitrary dismissal show cases the non-application of the mind and a prejudice against the Assessee Appellant leaning towards the fact that the order mostly is not a speaking order.
3 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) 3. The CIT (A) has erred in dismissing the grounds of appeal no 5 which stated that the Learned Assessing officer had not given show cause notice before making additions. 4. The CIT (A) has erred in dismissing the grounds of appeal no 6. The AO has made a capricious and random addition of Rs. 38,30,142/- and Rs. 13,15,828/- as Income from House Property without considering the prima facie facts and the basis of which is evidence that is not valid as per law. The evidence relied on in itself is flawed being loose sheets unsupported by further corroborative evidence and being against the IT Act 2000. The Additions were made on the basis of material that doesn't not qualify as evidence since the documentary proof was vide tampering the computer and the third party statement was not subject to cross examination by the Assessee Appellant. 5. The CIT (A) has erred in dismissing the grounds of appeal no 7 based on surmises and presumption. The basis of addition of Rs. 14,44,940/- was purely derivative account of profit percentage which was arrived by a random calculation of profit margin at 37% when the industry profit is at 4 to 5% (Builder and developer industry). The basis of the calculation of cost per sq feet of 3112 is not made privy to the Assessee Appellant. 6. The CIT (A) has erred in dismissing the Ground No 8 of the Assessee Appellant thus making an addition of Rs.53,54,031/- which is wrongful. The Addition has been made only on the basis of the statement that was made by a third party which moreover was not subject to cross examination. This is against the provisions of section 132(4) of the Income Tax Act 1961. The statement made by one Avinash Reddy was redacted as well which was not given efficacy by the AO due to an obvious biased and prejudiced mindset. Therefore the entire evidence stands to be redacted. It has also been established under various caseprecedents interpreting the section 132(4) that the additions cannot be made primarily on the statement recorded during search and seizure if the same is not corroborated by a further incriminating evidence. Loose sheets are dumb documents which cannot take the place of evidence due to lack of corroborative evidence. The Submissions made by Mrs N Garg was also rejected without reason. 7. The CIT (A) has erred in dismissing Ground No 9 as the addition of Rs. 3,52,837/- was made on an ad-hoc basis without any incriminating or supporting evidence. 8. The CIT (A) has erred in dismissing the Ground No 10 and 11 for unexplained cash credits of Rs. 11,50,000/- and Rs.1,15,53,530/-. The Assessee Appellant has during the Assessment proceedings submitted the proof of the transaction for the cash credit. The same was dismissed without sufficient reason and based on a third party statement not corroborated with any incriminating material. The Assessee Appellant has made it unambiguous that the cash credits were business transactions. 9. The CIT (A) has erred in dismissing Ground No 12 which argued that on the facts and circumstances of the case, the Assessing officer was not justified in adding income disclosed during search proceedings as unaccounted income. 10. The CIT (A) has erred in dismissing Ground No 13 which effectuates an addition of Rs.72,00,000/- as being suppressed income from cash sales of restaurants. The basis of the addition is a loose sheet which failed to be supported
4 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) by further substantial corroborative evidence and presumptuous reasoning of the profit being at 20%. The GST returns filed have been ignored without sufficient cause. An addition made based on loose sheets will not stand as per the legal provisions as it is not the book of account and is not supported by additional incriminating material. 11. The CIT (A) has erred in dismissing grounds 14 to 17 thus effecting an ad hoc addition of Rs. 52,02,96,462/-, Rs.6,77,45,693/- and Rs.61,95,716/-. The right of cross-examination of the statements made by the third party cannot be denied to the Assessee Appellant on any account as was done by the AO which is verbatim quoted in Page 104 of the CIT (A) order even more so as there isn't any other incriminating material. The AO has acted on borrowed satisfaction from the SCN of the DRI. The Evidence is circumstantial at its best. 12. The additions where section 68 is the charging section the same will not be made applicable as the Assessee Appellant has not maintained any books of account and the same is subject to deletion.” 3. At the time of hearing the learned A.R. of the assessee made an endorsement that she is not pressing ground Nos. 1,2,3,9 and 12 and accordingly we dismiss these grounds as not pressed. The learned A.R. filed two paper books along with notes on every issue and prayed to allow the appeal. The learned A.R. also filed the order of the ITAT, Delhi Bench reported in [2006] 99 ITD 417 (Del) in the case of Sukh Ram v. ACIT in support of her arguments. She also took us to the various documents filed in the paper books and prayed to allow the appeal.
The learned D.R., on the other hand, relied on the detailed orders passed by the lower authorities and prayed to dismiss the appeal.
We have heard the rival contentions and perused the material on record. The authorities below had discussed the issue in detail and therefore we are giving our findings to the various grounds raised by the assessee. In this case it is a fact that the assessee is doing construction work in the name and style of M/s. C R Builders & Developers and during the year he had executed 4 projects. The assessee is a non filer and he has not maintained any books of accounts until the time of search conducted on 16.08.2018. The first issue raised by the assessee is about the deemed rental receipts. The AO, based on
5 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) the search conducted at the two residential premises of the assessee, had estimated the deemed rental income from house properties. Right from the beginning the assessee’s case was that he is occupying the property at Door No. 1235, 3rd Cross, HAL 3rd Stage, Bangalore 560075 but the AO, without accepting the same, had estimated the rental value in respect of the property which is a self-occupied one. Further the assessee had pointed out that the three other properties were also vacant on account of renovation but the AO had not considered the same at the time of passing the assessment order. Even before the CIT(A) this plea was raised by the assessee but the ld. CIT(A) also not considered the same and finally confirmed the deemed rental income from house properties at Rs.38,3,142/-. The assessee, against the estimated income, had already declared an income of Rs.20,57,499/- after the SCN issued but the assessing authority had estimated the rental value by taking a higher rental value and thereby estimated the deemed rental income from house property. We are satisfied that the action of the authorities in estimating the rental value may be correct for the reason that the authorities are not able to lay their hands on the accounts maintained by the assessee. We are concerned with the method of estimation and if there are patent mistakes the same may be corrected by us. In this case the mistakes committed by the authorities are patent mistakes. Even though the authorities below are quasi-judicial authorities they have not considered the plea that the properties are self- occupied and vacant but without considering the same and without taking any steps to find out whether the claim of the assessee is true or not, they had confirmed the estimation based on the search conducted at the residential premises of the assessee. Further, as seen from the search conducted on 16.08.2018, the department had conducted search at the residential premises of the assessee and therefore estimating the deemed rental income, taking all the properties as rented out, is not based on the facts and in fact against the department’s own search. In fact the assessing authority had deputed its
6 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) officers to make a physical inspection of the houses but the officers in their report had not stated anything about the vacant houses and also about the self- occupied house. Therefore, we are of the view that the authorities below had failed to verify the facts while estimating the deemed rental income. On that score we set aside the assessment made on deemed rental value and remit the issue to the file of the AO to recompute the deemed rental income by taking into the fact of the self-occupation and the vacant houses. While considering the same the AO can also verify whether the rental value adopted in the assessment proceedings are correct or not based on the documents filed by the assessee. In the result the Ground No. 4 is allowed for statistical purposes.
Ground No. 5 is with regard to the estimation of profit out of the real estate business. As already stated the assessee had not disclosed the real estate business and also not maintained the basic documents. Therefore the AO with the available materials had estimated the income. We cannot find fault with the method adopted by the AO but the AO had estimated the profit at a margin of 37%. The assessee contended that the profit margin in this type of business is about 4 to 5% and also contended that the value estimated for the construction was also on a higher side and therefore contended that the rate adopted at Rs. 1608/- per sq. ft in the show cause notice is a reasonable one and therefore the estimation at Rs 2,255 is not correct. We find some force in the arguments of the learned A.R. since even as per s. 44AD of the Act, which speaks about the special provision for computing profits and gains of business on presumptive basis, a sum equal to 8% of the total turnover will be deemed to be the profit and gains of such business chargeable to tax under the head ‘profits and gains of business or profession’. If we consider the above said provision, the estimated profit made by the AO at 37% is very much on a higher side and no businessman would get such a higher profit. In view of the above said facts, taking clue from Sec.44 AD of the Act, we direct the AO to calculate the profit
7 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) at 8% on the real estate business. For this purpose we remit the issue to the file of the AO to decide the issue afresh. Gr No. 5 is ordered accordingly.
Ground No. 6 is with regard to the addition of Rs.53,54,031/-made on the contract business. We considered the arguments that the addition was made on the basis of the statement given by one Mr. Avinash Reddy, who is not at all connected with the business of the assessee. Even the said Avinash Reddy deposed that he was not aware of the actual profit but only the assessee knows about the same. In spite of that, the AO, based on the loose sheets seized at the time of search and also based on the statement given by Mr. Avinash Reddy, had estimated the profit at 20% on the total contract receipts. We find that the method adopted by the AO based on the statement of the third party and also based on the loose sheets seized at the time of search may not be correct but the AO has no other option except to estimate the income for want of records but the estimation should be on a reasonable basis. Therefore we find that the profit margin adopted by the AO at 20% is on a higher side. The assessee also brought to our notice that the total contract receipts include an amount alleged to be paid by one Nirmala G. for constructing her house which was denied by her. The AR in support of her contention had not adduced any proofs and therefore we are not inclined to accept the same. Moreover the assessee had not maintained the basic records and not brought to the notice of the authorities about the construction activities till the date of search. Therefore we proceeded to consider the learned A.R.’s main contention that adoption of 20% is somewhat higher and in order to render substantial justice and taking clue from Sec.44AD of the Act, we restrict the profit to 8% of the total contract receipts. In order to quantify the correct profit we remit this issue also to the AO. In the result the Gr No 6 is ordered accordingly.
Ground No. 7 relates to the estimation of profit from the travel business done by the assessee and the learned A.R. contended that the estimation of
8 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) adhoc profit at 15% as against the income declared by the assessee is without any corroborative evidence and it is only based on surmise and estimation. We also find that the profit margin estimated by the AO at 15% is not based on any evidence and it is only an estimation. In this circumstance we are inclined to restrict the profit margin at 8% instead of 15% taking clue from sec. 44AD of the Act and the issue is remitted to the file of the AO to quantify the correct profit derived from the travel business conducted by the assessee. In the result we ordered Gr No.7 accordingly.
In respect of ground No. 8 is with regard to sustaining addition of Rs.11,50,000/- and Rs.1,15,53,530/- u/s 68 of the Act. The learned A.R. submitted that necessary proofs were filed before the AO in respect of the cash credits made into the bank account. As seen from the assessment order the assessee is not only a builder and developer but also doing hotel business, travel business and gold business in Dubai and, therefore, for all the cash credits the assessee had explained the source and therefore the addition made by the assessing authority as unexplained cash credit are not correct. We also find that, as seen from the assessment order, the assessee is doing various types of business and received income from it and the same could have been credited to the bank account and therefore the assessment which is based on the statement of third party, without giving an opportunity to examine him, is not in accordance with the law laid down by the Hon'ble Supreme Court in the case of CIT Vs. P.V. Kalyana Sundaram (294 ITR 49) (SC). When the assessee was able to establish that these are the sources and the cash were credited in the bank account then without having any incriminating material the same cannot be treated as unexplained cash credits. In this case the assessee was able to explain how the cash credits were made into his account and, therefore, the addition made by the AO without any contra evidence that too based on the untested third party statement, is not in accordance with the
9 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) provisions of the Act. Further the income derived from all the businesses were estimated by the AO and, therefore, we are of the view that further addition based on the cash credit is not required in this case. We ordered accordingly.
In so far as ground No. 10 is concerned, the addition made on the basis of cash sales made in the restaurants, it is to be noted that the addition was based on the loose sheets found at the time of search without any corroborative evidence that too with a profit margin of 20%. As seen from the assessment order, the AO observed that, at the time of search it was found that the assessee had accounted the online transactions and credit card transactions only in the books of account maintained by them and all the cash sales were not recorded by the assessee. We found that the assessee is also not able to provide any other evidence to show that the entire sales were recorded in the books of account. Therefore, we are in agreement with the estimation made by the AO but we restrict the profit margin estimated by the AO which is at 20% to 8% taking clue from Sec.44AD of the Act. In view of this we are remitting this issue to the AO to recompute the income e estimated on the basis of sales made in the restaurants owned by the assessee. Ordered accordingly.
Ground No. 11 is with regard to the additions made by the AO, of Rs.52,02,96,472/-, Rs. 6.77,45,693/- and Rs. 61,95,716/- .This addition was made by the AO on the basis of the SCN issued by the DRI and not based on any incriminating materials seized during the search conducted by the department. We saw that the above said addition of Rs 52,02,96,472/- is in respect of the alleged cash taken from India to Dubai and reported to the Dubai Customs Authorities on the arrival of the assessee. The next addition is based on the gold seized in the Bangalore Airport by the DRI while the assessee was coming from Dubai and other additions based on the show cause notice issued by the DRI. The AO made additions based on the statements given by the assessee. But the statement was retracted by the assessee on
10 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) 28.09.2017 by sending a letter to the Commissioner of Customs about the coercion of the DRI officials and, therefore, requested the Commissioner not to consider the statement given before the DRI officials. The AO had also relied on various statements given by the travel agents and the statement given by the assessee but failed to look into the retraction given by the assessee before the Commissioner of Customs. Further, the additions were made not on the basis of any incriminating material seized at the time of search by the department but made solely on the basis of the show cause notice issued by the DRI. The SCN is the first step and, therefore, at this time the proceedings with the DRI is in the beginning stage not yet concluded and, therefore, the additions made by the AO based on the show cause notice is not correct. It is also a fact that the DRI proceedings were challenged before the Hon'ble Karnataka High Court and interim stay was also obtained. The AO as well as the CIT(A), while considering the pleas of the assessee that the issue is not finalised and the Hon'ble High Court has granted stay, observed that the stay is only for the proceedings and, therefore, nothing prevented the department from proceeding further based on the evidences collected by the DRI. We are afraid to accept the above said view of the Revenue for the reason that the assessee had denied the DRI proceedings and challenged the same before the Hon'ble High Court and if the Hon'ble High Court finally adjudicated the issue in favour of the assessee, then great prejudice would be caused to the assessee. Further, the DRI proceedings are now seized of by the Hon’ble High Court and, therefore, based on the show cause notice and the evidences available, the authorities under the Income Tax Act is not entitled to proceed further. Further the Delhi ITAT in the case of Sukh Ram (supra), which was relied upon by the learned A.R had given the following findings. The relevant findings given by the Tribunal in the above said case is extracted as below: - “29. As is evident from the contents of the aforesaid letter, there is nothing to show that the photocopies of the relevant diaries were forwarded by the CBI
11 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) Director to the Revenue Secretary due to the effect or as the outcome of the action by the Income Tax Department under Section 132. As a matter of fact, there is not even any reference to such action in the said letter. It is also pertinent to note that the said photocopies were forwarded by the CBI Director to the Revenue Secretary with a request that Income Tax, Enforcement Directorate and Customs may also give helping hand in the investigation. The investigation so referred to was the investigation being done by the CBI and the help was sought from the concerned three Government departments including Income Tax as well as Enforcement Directorate and Customs. It is worthwhile to note here that there is nothing to show that there was any search by the Enforcement Directorate or the Customs authorities. However, still the photocopies of the relevant diaries were sought to be made available to them to give helping hand to the CBI in their investigation which again goes to show that the photocopies of diaries forwarded by the CBI Director to the Revenue Secretary had nothing to do with the action of the Income Tax Department under Section 132. On the other hand, it appears that the said copies would have been got by the Income Tax Department even otherwise in the normal course irrespective of their action under Section 132. Another aspect which is relevant to take note of in this context is that the search and seizure operation was conducted by the Income Tax Department as well as CBI at the residential premises of the assessee on 16-8-1996 and if at all the diaries in question had been found by the Income Tax Department also, efforts would have been made by them to obtain the copies thereof, which represented important evidence, for the purpose of computation of undisclosed income of the assessee. However, there is nothing on record to show that any attempt whatsoever was made by the Income Tax Department to obtain the said evidence by issuance of authorisation under Section 132A or by any other method till 26-9-1996 when the same was received by them from Revenue Secretary at the instance of the CBI Director and that too for the purpose of giving helping hand to the CBI in their investigation. Having regard to all these facts and circumstances of the case, it is difficult to say that there was any cause-effect relationship between the copies of the diaries coming to the possession of the Income Tax Department and their search operation under Section 132 and the said evidence, therefore, cannot be considered as found as a result of search even if wide meaning is given to the expression "as a result of search" used in the statute as sought by the learned DR. 30. Before us, heavy reliance has been placed by the learned DR on the amendment made in Section 158BB(1) by the Finance Act, 2002 with retrospective effect from 1-7-1995 to contend that even the other material or information as are available with the Assessing Officer and relatable to the evidence found as a result of search also can be used as evidence for computing the undisclosed income of the assessee for the block period. It is true that these provisions amended with retrospective effect are required to be taken into consideration by us in the present appellate proceedings which are extension of the assessment proceedings keeping in view the decision of Hon'ble Bombay High Court in the case of CIT v. Mrs. Kamla S. Asrani wherein it was held that when the law is amended with retrospective effect, the court, when it decides any proceedings, has to apply such retrospectively amended law as if it were in force at all material times. The question, however, is whether the diaries in question were relatable to any evidence found as a
12 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) result of search under Section 132 or requisition of books of account etc. under Section 132A. In this regard, it is observed that the loose sheets containing twelve pages only were seized by the Income Tax Department from the residential premises of the assessee at Mandi besides cash of Rs. 2.45 crores seized from Delhi house. Further, cash of Rs. 1.16 crores seized by the CBI from Mandi House of the assessee was subsequently requisitioned by the Department under Section 132A. In addition to this seizure and requisition, some valuables such as jewellery, furniture items etc. were found but not seized by the Income Tax Department as mentioned in the panchnamas as well as annexures to the said panchnamas. As pointed out by the learned Counsel for the assessee before us, the aforesaid loose sheets containing twelve pages seized by the Income Tax Department were not at all used as evidence for the computation of undisclosed income of the assessee and this position, which is also evident from the assessment order has not been disputed by the learned DR. Even no attempt whatsoever was made by the Assessing Officer to establish any nexus to relate the diaries in question with the said loose sheets seized during the course of search or even with the valuables stated to be found in the residential premises of the assessee but not seized. Before us, the learned DR has also not been able to point out any relation between the diaries in question with the seized documents or the valuables found during the course of search but not seized. He, however, has submitted that the said diaries were found to have contained entries relating to substantial payments and receipts of cash and the same, therefore, were relatable to the cash seized from the residence of the assessee under Section 13 2 as well as cash requisitioned from CBI under Section 132A. 31. After considering all the facts of the case as well as the material available on record, we, however, find it difficult to agree with this contention of the learned DR. First of all, no attempt whatsoever was made by the Assessing Officer to establish any relation, either direct or indirect, between any of the entries found recorded in the diaries and the cash found and seized/requisitioned in the assessee's case. Secondly, the entire investment alleged to have been made by the assessee on the basis of entries found recorded in the diaries in question was separately added by the Assessing Officer to the undisclosed income of the assessee treating the same as unexplained in addition to the addition made on account of cash found during the course of search. If at all there was any relation between the entries found to be made in the said diaries and the cash found during the course of search, the Assessing Officer ought to have adjusted the same while making the addition under Section 69. Having not done the same, the inference which can be drawn is that there was no such relation at least noticed by the Assessing Officer. Moreover, the addition on account of alleged unexplained investment/expenses on the basis of entries in the diary was made by the Assessing Officer under Section 69 whereas the addition on account of unexplained cash found during the course of search was separately made under Section 69A. It is also pertinent to note here that the entries found recorded in the relevant seized diaries were for the period from 1990 to 1994 whereas the cash was found during the course of search on 16-8-1996 ie., after a period of more than two years which again goes to show that the entries found recorded in the said diaries had no relation with the cash found during the course of search. Having regard to all these facts and
13 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) circumstances arising from the material on record, it is difficult to say that the diaries in question in any way were relatable to the cash found during the course of search and the same, therefore, cannot be used as the basis for computing the undisclosed income of the assessee even going by the provisions of Section 158BB(1) as amended by Finance (No. 2) Act, 2002 with retrospective effect from 1 -7-1995. 32. As such, considering all the facts of the case as arising from the material on record discussed above, we are of the view that the diaries in question could not be considered as the evidence found as a result of search under Section 132 or requisition under Section 132A nor the same could be said to be relatable to any evidence found as a result of search or requisition of books of account in terms of Section 158BB(1). In that view of the matter, we hold that the same cannot be used as the basis to compute the undisclosed income of the assessee for the block period under Chapter XIV-B. The entire addition made by the Assessing Officer on the basis of the said diaries amounting to Rs. 48.86 crores thus is not sustainable in law and deleting the same, we allow the relevant grounds raised by the assessee in this regard.” 11.1 In view of this, in order to render substantial justice, it is appropriate to direct the AO to wait for the outcome of the proceedings initiated by the DRI and the connected Writ Petition filed by the assessee challenging the DRI proceedings and proceed thereafter in accordance with the judgement of the Hon'ble High Court after giving proper opportunity to the assessee. With the above directions, we set aside the findings of the authorities below in respect of Gr No.11 and remit the issue to the file of the AO for passing orders based on the outcome of the proceeding pending before the Hon’ble High court in W.P Nos. 42171/2019,11661/2019 and W.P No.49968/2019 and in accordance with law The Gr No.11 is ordered accordingly.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 19th August, 2024.
Sd/- Sd/- (Chandra Poojari) (Soundararajan K.) Accountant Member Judicial Member
Bengaluru, Dated: 19th August, 2024 NP/VG/SPSs
14 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2)
Copy to:
The Appellant 2. The Respondent 3. The CIT, concerned 4. The DR, ITAT, Bangalore 5. Guard File By Order
//True Copy// Assistant Registrar ITAT, Bangalore S.No. Details Date Initials Designation 1 Draft dictated on 07.08.2024 Sr. PS/PS 2 Draft placed before author 08.08.2024 Sr. PS/PS Draft proposed & placed before the Second 3 JM/AM Member 4 Draft discussed/approved by Second Member AM/AM 5 Approved Draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement Sr. PS/PS 7 File sent to Bench Clerk Sr. PS/PS 8 Date on which the file goes to Head Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE “B” BENCH, BANGALORE Before Shri Chandra Poojari, Accountant Member and Shri Soundararajan K., Judicial Member ITA No. 863/Bang/2024 (Assessment Year:2018-19)
Chandra Shekhar DCIT, Central Circle-1(3) C/o V. Sudhindranath Revenue Building No.51/7/1, Chitrakoot, Queens Road vs. Bangalore 560001 Ratna Avenue, Richmond Road Bangalore 560 025 PAN – AHLPS2732B (Appellant) (Respondent) Assessee by: Ms. Pooja Maru, CA Revenue by: Shri Kiran D., Addl. CIT-DR Date of hearing: 31.07.2024 Date of pronouncement: 19.08.2024 O R D E R Per: Soundararajan K., J.M. This appeal filed by the assessee challenges the order CIT(A)-11, Bangalore dated 19.02.2024 in respect of Assessment Year (AY) 2018-19.
The brief facts of the case are that the assessee is doing real estate business in the name and style of M/s. C R Builders & Developers and also running restaurants in Bangalore. A search u/s. 132 of the Income Tax Act, 1961 (the Act) was conducted on 16.08.2018 in two residential premises of the assessee and based on that notice u/s. 153A of the Act was issued on 27.03.2019 directing the assessee to file return of income. Thereafter the assessee filed return of income on 07.12.2020 declaring an income of Rs. 30,94,350/- being income from house property, profits and gains of business or
2 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) profession and from other sources. Thereafter the Assessing Officer (AO) issued notices u/ss. 143(2) and 142(1) of the Act. The AO made additions in respect of the income from house property, income from construction business, income from contract work and income from travel business. The AO also treated the cash credits as unexplained cash credits u/s. 68 of the Act. The AO estimated the income of hotel business by taking the profit at 20%. The AO also relied on the show notice issued by the DRI and made an addition of Rs. 52,02,96,462 as unexplained money and Rs.6,77,45,693 as unexplained investment in gold seized by the DRI and a further sum of Rs. 61,95,716 as unexplained income from Dubai transactions. The AO also made addition u/s. 69C of the Act that too based on the DIR investigation. The assessee challenged the above said order before the CIT(A) and the ld. CIT(A) had rejected all the contentions of the assessee and dismissed the appeal. Against the order of the ld. CIT(A) the assessee is in appeal before the Tribunal raising the following grounds of appeal: - “1. The CIT(A) has erred in dismissing the grounds of Appeal no 1 and 2 raised by the Appellant. The Search proceeding initiated under section 132 of the Income Tax Act 1961 is null and void ab initio. The search was initiated on the borrowed satisfaction of the DRI Show Cause Notice. The CIT (A) has relied on precedents passed by courts lower to Supreme Court, wherein the contention of the Assessee Appellant is based on later Supreme Court judgement. Thus the Act of the CIT (A) is breaching and transgressing the doctrine of judicial discipline which gives the decision of the Supreme Court a precedent over the ratio decidendi of other lower courts. Article 141 of the Constitution of India stipulates that the law declared by the Supreme Court shall be binding on all Courts within the territory of India. Thus, the general principles laid down, by the Supreme Court are binding on each individual including those who are not a party to an order. Just as judgments and orders of the Supreme Court have to be faithfully obeyed and carried out throughout the territory of India under article 141 of the Constitution, so should be judgments and orders of the High Court by all inferior courts and tribunals subject to supervisory jurisdiction within the State under articles 226 and 227 of the Constitution. 2. The CIT(A) has erred in dismissing the grounds of Appeal No 3 and 4 based on surmises and presumptions. The fact that a grievance is generic cannot be a ground of dismissal. The Opportunity to be heard is a universal law being one of the major principles of Natural Justice. The Arbitrary dismissal show cases the non-application of the mind and a prejudice against the Assessee Appellant leaning towards the fact that the order mostly is not a speaking order.
3 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) 3. The CIT (A) has erred in dismissing the grounds of appeal no 5 which stated that the Learned Assessing officer had not given show cause notice before making additions. 4. The CIT (A) has erred in dismissing the grounds of appeal no 6. The AO has made a capricious and random addition of Rs. 38,30,142/- and Rs. 13,15,828/- as Income from House Property without considering the prima facie facts and the basis of which is evidence that is not valid as per law. The evidence relied on in itself is flawed being loose sheets unsupported by further corroborative evidence and being against the IT Act 2000. The Additions were made on the basis of material that doesn't not qualify as evidence since the documentary proof was vide tampering the computer and the third party statement was not subject to cross examination by the Assessee Appellant. 5. The CIT (A) has erred in dismissing the grounds of appeal no 7 based on surmises and presumption. The basis of addition of Rs. 14,44,940/- was purely derivative account of profit percentage which was arrived by a random calculation of profit margin at 37% when the industry profit is at 4 to 5% (Builder and developer industry). The basis of the calculation of cost per sq feet of 3112 is not made privy to the Assessee Appellant. 6. The CIT (A) has erred in dismissing the Ground No 8 of the Assessee Appellant thus making an addition of Rs.53,54,031/- which is wrongful. The Addition has been made only on the basis of the statement that was made by a third party which moreover was not subject to cross examination. This is against the provisions of section 132(4) of the Income Tax Act 1961. The statement made by one Avinash Reddy was redacted as well which was not given efficacy by the AO due to an obvious biased and prejudiced mindset. Therefore the entire evidence stands to be redacted. It has also been established under various caseprecedents interpreting the section 132(4) that the additions cannot be made primarily on the statement recorded during search and seizure if the same is not corroborated by a further incriminating evidence. Loose sheets are dumb documents which cannot take the place of evidence due to lack of corroborative evidence. The Submissions made by Mrs N Garg was also rejected without reason. 7. The CIT (A) has erred in dismissing Ground No 9 as the addition of Rs. 3,52,837/- was made on an ad-hoc basis without any incriminating or supporting evidence. 8. The CIT (A) has erred in dismissing the Ground No 10 and 11 for unexplained cash credits of Rs. 11,50,000/- and Rs.1,15,53,530/-. The Assessee Appellant has during the Assessment proceedings submitted the proof of the transaction for the cash credit. The same was dismissed without sufficient reason and based on a third party statement not corroborated with any incriminating material. The Assessee Appellant has made it unambiguous that the cash credits were business transactions. 9. The CIT (A) has erred in dismissing Ground No 12 which argued that on the facts and circumstances of the case, the Assessing officer was not justified in adding income disclosed during search proceedings as unaccounted income. 10. The CIT (A) has erred in dismissing Ground No 13 which effectuates an addition of Rs.72,00,000/- as being suppressed income from cash sales of restaurants. The basis of the addition is a loose sheet which failed to be supported
4 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) by further substantial corroborative evidence and presumptuous reasoning of the profit being at 20%. The GST returns filed have been ignored without sufficient cause. An addition made based on loose sheets will not stand as per the legal provisions as it is not the book of account and is not supported by additional incriminating material. 11. The CIT (A) has erred in dismissing grounds 14 to 17 thus effecting an ad hoc addition of Rs. 52,02,96,462/-, Rs.6,77,45,693/- and Rs.61,95,716/-. The right of cross-examination of the statements made by the third party cannot be denied to the Assessee Appellant on any account as was done by the AO which is verbatim quoted in Page 104 of the CIT (A) order even more so as there isn't any other incriminating material. The AO has acted on borrowed satisfaction from the SCN of the DRI. The Evidence is circumstantial at its best. 12. The additions where section 68 is the charging section the same will not be made applicable as the Assessee Appellant has not maintained any books of account and the same is subject to deletion.” 3. At the time of hearing the learned A.R. of the assessee made an endorsement that she is not pressing ground Nos. 1,2,3,9 and 12 and accordingly we dismiss these grounds as not pressed. The learned A.R. filed two paper books along with notes on every issue and prayed to allow the appeal. The learned A.R. also filed the order of the ITAT, Delhi Bench reported in [2006] 99 ITD 417 (Del) in the case of Sukh Ram v. ACIT in support of her arguments. She also took us to the various documents filed in the paper books and prayed to allow the appeal.
The learned D.R., on the other hand, relied on the detailed orders passed by the lower authorities and prayed to dismiss the appeal.
We have heard the rival contentions and perused the material on record. The authorities below had discussed the issue in detail and therefore we are giving our findings to the various grounds raised by the assessee. In this case it is a fact that the assessee is doing construction work in the name and style of M/s. C R Builders & Developers and during the year he had executed 4 projects. The assessee is a non filer and he has not maintained any books of accounts until the time of search conducted on 16.08.2018. The first issue raised by the assessee is about the deemed rental receipts. The AO, based on
5 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) the search conducted at the two residential premises of the assessee, had estimated the deemed rental income from house properties. Right from the beginning the assessee’s case was that he is occupying the property at Door No. 1235, 3rd Cross, HAL 3rd Stage, Bangalore 560075 but the AO, without accepting the same, had estimated the rental value in respect of the property which is a self-occupied one. Further the assessee had pointed out that the three other properties were also vacant on account of renovation but the AO had not considered the same at the time of passing the assessment order. Even before the CIT(A) this plea was raised by the assessee but the ld. CIT(A) also not considered the same and finally confirmed the deemed rental income from house properties at Rs.38,3,142/-. The assessee, against the estimated income, had already declared an income of Rs.20,57,499/- after the SCN issued but the assessing authority had estimated the rental value by taking a higher rental value and thereby estimated the deemed rental income from house property. We are satisfied that the action of the authorities in estimating the rental value may be correct for the reason that the authorities are not able to lay their hands on the accounts maintained by the assessee. We are concerned with the method of estimation and if there are patent mistakes the same may be corrected by us. In this case the mistakes committed by the authorities are patent mistakes. Even though the authorities below are quasi-judicial authorities they have not considered the plea that the properties are self- occupied and vacant but without considering the same and without taking any steps to find out whether the claim of the assessee is true or not, they had confirmed the estimation based on the search conducted at the residential premises of the assessee. Further, as seen from the search conducted on 16.08.2018, the department had conducted search at the residential premises of the assessee and therefore estimating the deemed rental income, taking all the properties as rented out, is not based on the facts and in fact against the department’s own search. In fact the assessing authority had deputed its
6 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) officers to make a physical inspection of the houses but the officers in their report had not stated anything about the vacant houses and also about the self- occupied house. Therefore, we are of the view that the authorities below had failed to verify the facts while estimating the deemed rental income. On that score we set aside the assessment made on deemed rental value and remit the issue to the file of the AO to recompute the deemed rental income by taking into the fact of the self-occupation and the vacant houses. While considering the same the AO can also verify whether the rental value adopted in the assessment proceedings are correct or not based on the documents filed by the assessee. In the result the Ground No. 4 is allowed for statistical purposes.
Ground No. 5 is with regard to the estimation of profit out of the real estate business. As already stated the assessee had not disclosed the real estate business and also not maintained the basic documents. Therefore the AO with the available materials had estimated the income. We cannot find fault with the method adopted by the AO but the AO had estimated the profit at a margin of 37%. The assessee contended that the profit margin in this type of business is about 4 to 5% and also contended that the value estimated for the construction was also on a higher side and therefore contended that the rate adopted at Rs. 1608/- per sq. ft in the show cause notice is a reasonable one and therefore the estimation at Rs 2,255 is not correct. We find some force in the arguments of the learned A.R. since even as per s. 44AD of the Act, which speaks about the special provision for computing profits and gains of business on presumptive basis, a sum equal to 8% of the total turnover will be deemed to be the profit and gains of such business chargeable to tax under the head ‘profits and gains of business or profession’. If we consider the above said provision, the estimated profit made by the AO at 37% is very much on a higher side and no businessman would get such a higher profit. In view of the above said facts, taking clue from Sec.44 AD of the Act, we direct the AO to calculate the profit
7 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) at 8% on the real estate business. For this purpose we remit the issue to the file of the AO to decide the issue afresh. Gr No. 5 is ordered accordingly.
Ground No. 6 is with regard to the addition of Rs.53,54,031/-made on the contract business. We considered the arguments that the addition was made on the basis of the statement given by one Mr. Avinash Reddy, who is not at all connected with the business of the assessee. Even the said Avinash Reddy deposed that he was not aware of the actual profit but only the assessee knows about the same. In spite of that, the AO, based on the loose sheets seized at the time of search and also based on the statement given by Mr. Avinash Reddy, had estimated the profit at 20% on the total contract receipts. We find that the method adopted by the AO based on the statement of the third party and also based on the loose sheets seized at the time of search may not be correct but the AO has no other option except to estimate the income for want of records but the estimation should be on a reasonable basis. Therefore we find that the profit margin adopted by the AO at 20% is on a higher side. The assessee also brought to our notice that the total contract receipts include an amount alleged to be paid by one Nirmala G. for constructing her house which was denied by her. The AR in support of her contention had not adduced any proofs and therefore we are not inclined to accept the same. Moreover the assessee had not maintained the basic records and not brought to the notice of the authorities about the construction activities till the date of search. Therefore we proceeded to consider the learned A.R.’s main contention that adoption of 20% is somewhat higher and in order to render substantial justice and taking clue from Sec.44AD of the Act, we restrict the profit to 8% of the total contract receipts. In order to quantify the correct profit we remit this issue also to the AO. In the result the Gr No 6 is ordered accordingly.
Ground No. 7 relates to the estimation of profit from the travel business done by the assessee and the learned A.R. contended that the estimation of
8 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) adhoc profit at 15% as against the income declared by the assessee is without any corroborative evidence and it is only based on surmise and estimation. We also find that the profit margin estimated by the AO at 15% is not based on any evidence and it is only an estimation. In this circumstance we are inclined to restrict the profit margin at 8% instead of 15% taking clue from sec. 44AD of the Act and the issue is remitted to the file of the AO to quantify the correct profit derived from the travel business conducted by the assessee. In the result we ordered Gr No.7 accordingly.
In respect of ground No. 8 is with regard to sustaining addition of Rs.11,50,000/- and Rs.1,15,53,530/- u/s 68 of the Act. The learned A.R. submitted that necessary proofs were filed before the AO in respect of the cash credits made into the bank account. As seen from the assessment order the assessee is not only a builder and developer but also doing hotel business, travel business and gold business in Dubai and, therefore, for all the cash credits the assessee had explained the source and therefore the addition made by the assessing authority as unexplained cash credit are not correct. We also find that, as seen from the assessment order, the assessee is doing various types of business and received income from it and the same could have been credited to the bank account and therefore the assessment which is based on the statement of third party, without giving an opportunity to examine him, is not in accordance with the law laid down by the Hon'ble Supreme Court in the case of CIT Vs. P.V. Kalyana Sundaram (294 ITR 49) (SC). When the assessee was able to establish that these are the sources and the cash were credited in the bank account then without having any incriminating material the same cannot be treated as unexplained cash credits. In this case the assessee was able to explain how the cash credits were made into his account and, therefore, the addition made by the AO without any contra evidence that too based on the untested third party statement, is not in accordance with the
9 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) provisions of the Act. Further the income derived from all the businesses were estimated by the AO and, therefore, we are of the view that further addition based on the cash credit is not required in this case. We ordered accordingly.
In so far as ground No. 10 is concerned, the addition made on the basis of cash sales made in the restaurants, it is to be noted that the addition was based on the loose sheets found at the time of search without any corroborative evidence that too with a profit margin of 20%. As seen from the assessment order, the AO observed that, at the time of search it was found that the assessee had accounted the online transactions and credit card transactions only in the books of account maintained by them and all the cash sales were not recorded by the assessee. We found that the assessee is also not able to provide any other evidence to show that the entire sales were recorded in the books of account. Therefore, we are in agreement with the estimation made by the AO but we restrict the profit margin estimated by the AO which is at 20% to 8% taking clue from Sec.44AD of the Act. In view of this we are remitting this issue to the AO to recompute the income e estimated on the basis of sales made in the restaurants owned by the assessee. Ordered accordingly.
Ground No. 11 is with regard to the additions made by the AO, of Rs.52,02,96,472/-, Rs. 6.77,45,693/- and Rs. 61,95,716/- .This addition was made by the AO on the basis of the SCN issued by the DRI and not based on any incriminating materials seized during the search conducted by the department. We saw that the above said addition of Rs 52,02,96,472/- is in respect of the alleged cash taken from India to Dubai and reported to the Dubai Customs Authorities on the arrival of the assessee. The next addition is based on the gold seized in the Bangalore Airport by the DRI while the assessee was coming from Dubai and other additions based on the show cause notice issued by the DRI. The AO made additions based on the statements given by the assessee. But the statement was retracted by the assessee on
10 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) 28.09.2017 by sending a letter to the Commissioner of Customs about the coercion of the DRI officials and, therefore, requested the Commissioner not to consider the statement given before the DRI officials. The AO had also relied on various statements given by the travel agents and the statement given by the assessee but failed to look into the retraction given by the assessee before the Commissioner of Customs. Further, the additions were made not on the basis of any incriminating material seized at the time of search by the department but made solely on the basis of the show cause notice issued by the DRI. The SCN is the first step and, therefore, at this time the proceedings with the DRI is in the beginning stage not yet concluded and, therefore, the additions made by the AO based on the show cause notice is not correct. It is also a fact that the DRI proceedings were challenged before the Hon'ble Karnataka High Court and interim stay was also obtained. The AO as well as the CIT(A), while considering the pleas of the assessee that the issue is not finalised and the Hon'ble High Court has granted stay, observed that the stay is only for the proceedings and, therefore, nothing prevented the department from proceeding further based on the evidences collected by the DRI. We are afraid to accept the above said view of the Revenue for the reason that the assessee had denied the DRI proceedings and challenged the same before the Hon'ble High Court and if the Hon'ble High Court finally adjudicated the issue in favour of the assessee, then great prejudice would be caused to the assessee. Further, the DRI proceedings are now seized of by the Hon’ble High Court and, therefore, based on the show cause notice and the evidences available, the authorities under the Income Tax Act is not entitled to proceed further. Further the Delhi ITAT in the case of Sukh Ram (supra), which was relied upon by the learned A.R had given the following findings. The relevant findings given by the Tribunal in the above said case is extracted as below: - “29. As is evident from the contents of the aforesaid letter, there is nothing to show that the photocopies of the relevant diaries were forwarded by the CBI
11 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) Director to the Revenue Secretary due to the effect or as the outcome of the action by the Income Tax Department under Section 132. As a matter of fact, there is not even any reference to such action in the said letter. It is also pertinent to note that the said photocopies were forwarded by the CBI Director to the Revenue Secretary with a request that Income Tax, Enforcement Directorate and Customs may also give helping hand in the investigation. The investigation so referred to was the investigation being done by the CBI and the help was sought from the concerned three Government departments including Income Tax as well as Enforcement Directorate and Customs. It is worthwhile to note here that there is nothing to show that there was any search by the Enforcement Directorate or the Customs authorities. However, still the photocopies of the relevant diaries were sought to be made available to them to give helping hand to the CBI in their investigation which again goes to show that the photocopies of diaries forwarded by the CBI Director to the Revenue Secretary had nothing to do with the action of the Income Tax Department under Section 132. On the other hand, it appears that the said copies would have been got by the Income Tax Department even otherwise in the normal course irrespective of their action under Section 132. Another aspect which is relevant to take note of in this context is that the search and seizure operation was conducted by the Income Tax Department as well as CBI at the residential premises of the assessee on 16-8-1996 and if at all the diaries in question had been found by the Income Tax Department also, efforts would have been made by them to obtain the copies thereof, which represented important evidence, for the purpose of computation of undisclosed income of the assessee. However, there is nothing on record to show that any attempt whatsoever was made by the Income Tax Department to obtain the said evidence by issuance of authorisation under Section 132A or by any other method till 26-9-1996 when the same was received by them from Revenue Secretary at the instance of the CBI Director and that too for the purpose of giving helping hand to the CBI in their investigation. Having regard to all these facts and circumstances of the case, it is difficult to say that there was any cause-effect relationship between the copies of the diaries coming to the possession of the Income Tax Department and their search operation under Section 132 and the said evidence, therefore, cannot be considered as found as a result of search even if wide meaning is given to the expression "as a result of search" used in the statute as sought by the learned DR. 30. Before us, heavy reliance has been placed by the learned DR on the amendment made in Section 158BB(1) by the Finance Act, 2002 with retrospective effect from 1-7-1995 to contend that even the other material or information as are available with the Assessing Officer and relatable to the evidence found as a result of search also can be used as evidence for computing the undisclosed income of the assessee for the block period. It is true that these provisions amended with retrospective effect are required to be taken into consideration by us in the present appellate proceedings which are extension of the assessment proceedings keeping in view the decision of Hon'ble Bombay High Court in the case of CIT v. Mrs. Kamla S. Asrani wherein it was held that when the law is amended with retrospective effect, the court, when it decides any proceedings, has to apply such retrospectively amended law as if it were in force at all material times. The question, however, is whether the diaries in question were relatable to any evidence found as a
12 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) result of search under Section 132 or requisition of books of account etc. under Section 132A. In this regard, it is observed that the loose sheets containing twelve pages only were seized by the Income Tax Department from the residential premises of the assessee at Mandi besides cash of Rs. 2.45 crores seized from Delhi house. Further, cash of Rs. 1.16 crores seized by the CBI from Mandi House of the assessee was subsequently requisitioned by the Department under Section 132A. In addition to this seizure and requisition, some valuables such as jewellery, furniture items etc. were found but not seized by the Income Tax Department as mentioned in the panchnamas as well as annexures to the said panchnamas. As pointed out by the learned Counsel for the assessee before us, the aforesaid loose sheets containing twelve pages seized by the Income Tax Department were not at all used as evidence for the computation of undisclosed income of the assessee and this position, which is also evident from the assessment order has not been disputed by the learned DR. Even no attempt whatsoever was made by the Assessing Officer to establish any nexus to relate the diaries in question with the said loose sheets seized during the course of search or even with the valuables stated to be found in the residential premises of the assessee but not seized. Before us, the learned DR has also not been able to point out any relation between the diaries in question with the seized documents or the valuables found during the course of search but not seized. He, however, has submitted that the said diaries were found to have contained entries relating to substantial payments and receipts of cash and the same, therefore, were relatable to the cash seized from the residence of the assessee under Section 13 2 as well as cash requisitioned from CBI under Section 132A. 31. After considering all the facts of the case as well as the material available on record, we, however, find it difficult to agree with this contention of the learned DR. First of all, no attempt whatsoever was made by the Assessing Officer to establish any relation, either direct or indirect, between any of the entries found recorded in the diaries and the cash found and seized/requisitioned in the assessee's case. Secondly, the entire investment alleged to have been made by the assessee on the basis of entries found recorded in the diaries in question was separately added by the Assessing Officer to the undisclosed income of the assessee treating the same as unexplained in addition to the addition made on account of cash found during the course of search. If at all there was any relation between the entries found to be made in the said diaries and the cash found during the course of search, the Assessing Officer ought to have adjusted the same while making the addition under Section 69. Having not done the same, the inference which can be drawn is that there was no such relation at least noticed by the Assessing Officer. Moreover, the addition on account of alleged unexplained investment/expenses on the basis of entries in the diary was made by the Assessing Officer under Section 69 whereas the addition on account of unexplained cash found during the course of search was separately made under Section 69A. It is also pertinent to note here that the entries found recorded in the relevant seized diaries were for the period from 1990 to 1994 whereas the cash was found during the course of search on 16-8-1996 ie., after a period of more than two years which again goes to show that the entries found recorded in the said diaries had no relation with the cash found during the course of search. Having regard to all these facts and
13 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2) circumstances arising from the material on record, it is difficult to say that the diaries in question in any way were relatable to the cash found during the course of search and the same, therefore, cannot be used as the basis for computing the undisclosed income of the assessee even going by the provisions of Section 158BB(1) as amended by Finance (No. 2) Act, 2002 with retrospective effect from 1 -7-1995. 32. As such, considering all the facts of the case as arising from the material on record discussed above, we are of the view that the diaries in question could not be considered as the evidence found as a result of search under Section 132 or requisition under Section 132A nor the same could be said to be relatable to any evidence found as a result of search or requisition of books of account in terms of Section 158BB(1). In that view of the matter, we hold that the same cannot be used as the basis to compute the undisclosed income of the assessee for the block period under Chapter XIV-B. The entire addition made by the Assessing Officer on the basis of the said diaries amounting to Rs. 48.86 crores thus is not sustainable in law and deleting the same, we allow the relevant grounds raised by the assessee in this regard.” 11.1 In view of this, in order to render substantial justice, it is appropriate to direct the AO to wait for the outcome of the proceedings initiated by the DRI and the connected Writ Petition filed by the assessee challenging the DRI proceedings and proceed thereafter in accordance with the judgement of the Hon'ble High Court after giving proper opportunity to the assessee. With the above directions, we set aside the findings of the authorities below in respect of Gr No.11 and remit the issue to the file of the AO for passing orders based on the outcome of the proceeding pending before the Hon’ble High court in W.P Nos. 42171/2019,11661/2019 and W.P No.49968/2019 and in accordance with law The Gr No.11 is ordered accordingly.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 19th August, 2024.
Sd/- Sd/- (Chandra Poojari) (Soundararajan K.) Accountant Member Judicial Member
Bengaluru, Dated: 19th August, 2024 NP/VG/SPSs
14 ITA No. 385/Coch/2020 M/s. Kunnummakkara Service/Income Tax Officer, W(2)(2)
Copy to:
The Appellant 2. The Respondent 3. The CIT, concerned 4. The DR, ITAT, Bangalore 5. Guard File By Order
//True Copy// Assistant Registrar ITAT, Bangalore S.No. Details Date Initials Designation 1 Draft dictated on 07.08.2024 Sr. PS/PS 2 Draft placed before author 08.08.2024 Sr. PS/PS Draft proposed & placed before the Second 3 JM/AM Member 4 Draft discussed/approved by Second Member AM/AM 5 Approved Draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement Sr. PS/PS 7 File sent to Bench Clerk Sr. PS/PS 8 Date on which the file goes to Head Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order