SUPREME REAL ESTATE DEVELOPERS P/ LTD,MUMBAI vs. ACIT CEN CIR 23, MUMBAI

order ,dated 28/02/2014, of the CIT(A)-40,Mumbai the Assessing Officer (AO) and the assessee have filed cross appeals for the above assessment year.Assessee-company,is a real estate developer.The AO completed the assessment,on 28/03/2013,u/s.143 (3) of the Act, determining its income at Rs. 43.30 lakhs.

Effective ground of appeal, filed by the AO,is about creating a sum of Rs.45 lakhs, found and seized during the search and seizure proceedings, out of sale of scrap.

ITA/3185/Mum/2014 : Brief Facts: 2.A search and seizure action u/s.132 of the was carried out,on 29/03/2011,at the business and residential premises of the directors of the assessee and the group concerns, including the assessee.During the course of the search the authorised officers found and seized certain documents and cash from the business as well as residential premises.Directors of the assessee

3097/M/14(11-12) SupremeRealEstate disclosed a sum of Rs. 45 lakhs on account of undisclosed sales of scrap,during the course of statement recorded on oath. During the assessment proceedings,the assessee argued that the amount of Rs. 45 lakhs represented income from sale of iron and steel scrap generated at Lucknow site where it was constructing all, that the project was shelved due to recession in the market, that the scrap was sold for Rs. 45 lakhs that was reduced out of the work in progress as on 31/03/2011,that cash in hand was increased by the said amount,that the return was filed accordingly. However, the AO did not accept the contention of the assessee and rejected the claim with regard to sale of iron and steel scrap. He treated the amount in question under the head income from other sources.

3.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA).Before him it made detailed submissions and referred to certain case laws. After considering the submissions of the assessee and the assessment order,he held that the assessee was constructing a Mall at Lucknow, that the running bills in respect of the construction work were submitted by the contractor to the assessee from time to time, that it had made payment to the tune of Rs. 3.69 crore to the contractor, that the bills were certified by the site engineer, that state of 319.543MT, valued at Rs. 79.88 lakhs, was purchased and used in the construction, that the assessee had claimed that entire foundation was demolished and steel scrap of 252 metric tons was generated, that it was sold at the rate of 18,000/-per tonne to a scrap dealer, that confirmation letter of the scrap dealer was filed during the assessment proceedings, that the dealer had confirmed purchase of scrap from the assessee for a sum of Rs. 45.08 lakhs, that the AO had asked the assessee to produce the scrap dealer for examination, that he was not produced, that later on the AO issued a summons under section 131 of the Act, that the summons could not be served, that the AO rejected the claim made by the assessee toward sale of scrap and treated the disputed amount is income under the head other sources, that the assessee had received Rs. 45 lakhs from the scrap dealer shortly before the date of search, that the details of sale of scrap was available in the diary seized from the business premises of the assessee, that the diary was maintained by DGM(purchase) from whose possession it was seized, that in his statement on oath he had admitted that the cash was out of the sale of steel scrap of Lucknow site,that a portion of the money had already been given to one of the directors of the company,that directors of the company had confirmed the statement made by the DGM,that

3097/M/14(11-12) SupremeRealEstate considering these evidences the AO should not have doubted the claim of the assessee.He referred to the case of Biren V Savla (100 TTJ 1006) and held that entire document should be read as a whole and that contents of the document should be treated as correct/rejected a whole, that the sum of Rs. 45 lakhs was generated on account of sale of scrap, that same had to be treated as business income in the hands of the assessee, that it was not required to be reduced out of the work in progress, that the AO should have considered separately in the profit and loss account. Accordingly, he allowed the appeal of the assessee,in part.

4.During the course of hearing before us, the Departmental Representative (DR) contended that the scrap dealer was not produced before the AO, that the assessee was not able to prove the nexus beyond out that the cash found at the premises of the assessee and the noting the diary about the sale of scrap at Lucknow were the same, that the there was no conclusive evidence to prove the genuineness of the claim made by the assessee. The Authorised Representative (AR) referred to the pages 1-8 of the paper book and stated that cash was generated from sale of scrap, that the entries in the diary contained the name of the scrap dealer, that at page 8 of the paper book entries pertaining to Lucknow project were mentioned, that the DGM and the directors of the company had admitted the generation of cash out of sale of scrap.He referred to their statements and stated that cash found during the course of search was on account of sale of scrap and not on account of any other source, that it was not a separate source/stream of revenue, that the group had offered Rs. 98.17 lakhs as income from sale of scrap in the hands of 7 entities including the assessee,that the explanation given by it that the cash seized pertained to income on sale of scrap was accepted by the very same AO’s in all other entities,that in all other cases he had accepted the treatment given by the assessee of reducing the income, generated on account of sale of scrap, from work in progress.He referred to the order,dated 28/03/2013, of Rupal R Kanakiya passed by the AO.

5.We have heard the rival submissions and perused the material before us.We find that an action u/s.132 of the Act was carried out in the group entities, that certain documents were seized by the authorised officers,including a diary containing the details of cash received on sale of scrap, that the DGM as well as the directors of the assessee admitted that cash was generated out of the sale proceeds of scrap sold,that the assessee along with the other entities of the group had admitted sale of scrap of Lucknow site,that the AO had accepted the claim made by the assessee with 3097/M/14(11-12) SupremeRealEstate regard to sale of scrap and receipt of cash in other entities, that he has not given any reason for rejecting the claim of the assessee though the facts were similar.We have gone through the paper book and we find that in the seized paper name of the Lucknow site,dates of receipt of cash and the amounts involved are appearing. In our opinion,sale proceeds received by the assessee on account of scrap sale cannot be taxed under the head income from other sources, as the transac- tion was directly related with the business of the assessee. The assessee was constructing a Mall at Lucknow and later on it had shelved the project. The AO has not doubted the genuineness of the statements of the directors of the company, recorded on different dates.In their statements they have admitted that cash found during the search proceedings was out of the sale of scrap. We have gone through the statements of DGM,dated 29/03/2011 (page 19-20 of the PB),one of the directors namely Rakesh Kanakiya, dated 30/03/2011 and 24/05/2011 (page 9-18 of the PB). In his answer to question number 7,he admitted that the notice in the diary seized during the search proceedings related to cash received on sale of scrap that were generated at the Lucknow site and that same remained to be accounted in the regular books of accounts.He further stated that cash found in the possession of the employees is the same as noted in the seized the paper. The AO has not brought any evidence that could show that assessee had received the cash from any other source.He was relying upon the seized documents for making the addition. But at the same time,he was rejecting the claim made by the assessee without any basis. In our opinion,the AO is barred from partly relying on a document seized during the search proceedings.From the day one the employees/directors of the assessee had stated that cash found at the business premises were generated from the scrap sale.Therefore,in our opinion, the FAA was justified in holding that the AO had not brought any evidence on record to tax the disputed amount under the head income from other sources.So,confirming his order,we decide the effective ground of appeal against the AO.

ITA/3097/Mum/2014:

6.The effective ground of appeal,filed by the assessee, is about direction given by the FAA to the AO to consider the sale of scrap separately in the profit and loss account.In the earlier paragraphs of our order, we have deliberated upon the facts of the case.We find that the FAA rejected the claim of the assessee about reducing the sale of scrap from the work in progress.After considering the peculiar facts and circumstances of the case we are of the opinion that income

3097/M/14(11-12) SupremeRealEstate generated from sale of scrap cannot be treated a separate source of income and it has to be taken as part of work in progress. Reversing the order of the FAA,we allow the effective ground of appeal filed by the assessee.