ASSISTANT COMMISSIONER OF INCOME TAX-1(1),, RAIPUR vs. SHRI. JAVED ALI PRADHAN,, RAIPUR

Per Shri N.S.Saini, AM: These are the appeals filed by the Revenue against the consolidated order of the CIT(A), Raipur, dated 31.03.2011 for the assessment years 2001-2002 to 2007-2008. 2. Since the facts and issues involved in all the appeals of the Revenue are common, they are disposed off together for the sake of convenience.

2 ITA Nos.126-132/BLPR/2011

Assessment Year Vide Additions deleted by CIT(A) Para No. 2001-2002

The assessee explained that the jottings and rough working noted in the aforementioned seized material, was explained as related to the real estate dealings of the investors arranged through the assessee and his associates who were also engaged in deriving income from 3 ITA Nos.126-132/BLPR/2011 commission in real estate dealings. The assessee was confronted with the entries in the loose papers marked A-1/4/43 and A-1/4 for the aforementioned assessment years. The assessee submitted that he is a real estate broker and derives brokerage/commission therefrom. It was submitted that in dealings exceeding Rs.10 lakhs, brokerage receivable was 1% and in transactions less than Rs.10 lakhs, the brokerage receivable was 2%. S/Shri M.A. Bhai, Aathar Bhai, Raju Bhai, Naidu, Shafique Bhai, Dhingaraji, Bajaj, Zia Bhai, Thakurram, Chopdaji etc., were some of the brokers engaged in this line through whom some dealings might have been made 'and the commission paid to them/received by the assessee, was invariably accounted for. The assessee in the course of acting as a real estate broker is required to organize meetings between the sellers and the buyers and have to be there till the execution of registered sale deed. During this process, the transactions passes through the hands of the assessee. As such the party for whom the assessee acts as broker, hands over the cash to the assessee for passing on to the seller and for various expenses relating to the deal. Since the assessee is involved as a broker, and the two parties are not normally known to each other, the buyer trusts the assessee and hence the money is handed over to him. In some cases, the deal is settled through the assessee and after deducting brokerage, the purchase consideration received from the purchaser is passed on to the seller but for some reason the settled deal stands subsequently cancelled/revoked and the consideration is vice-versed, even in such cases, the assessee's

4 ITA Nos.126-132/BLPR/2011 brokerage was not affected. Hence finality and ultimate registration were not the necessary considerations and conditions for earning brokerage and in some cases, at the time of execution of sale deed, the assessee passes on the consideration to the seller. The assessee has few employees who look after the work. As and when the sale deeds are to be executed, the consideration is handed over by the assessee to his employees, for passing the same to the seller. Since employees of the assessee might be dealing with more than one transaction at a time, an account is prepared by them. Loose papers found during search represent such notings. On some of the loose papers, there is an account of various details like cash commission, registration expenses etc. These details are maintained out of the money given by the buyers. At the end of the deal, such account is given to the assessee by his employees and the assessee in turn accounts for the same to the buyer. The assessee in the course of a day undertakes a number of transactions through his employees and since he is required to deal with number of persons, has to maintain account which was found during search. On some of the pages, details like registration expenses, stamp charges etc. were noted. This proves that in respect of amounts received from the buyers, the assessee maintained account upto execution of the registered document. Therefore, notings are not related to the assessee but related to the transactions between the buyer and seller. Hence the gross value of the considerations mentioned in these loose papers by no stretch of imagination could be presumed to be the receipts/payments assessable

5 ITA Nos.126-132/BLPR/2011 as undisclosed income of the assessee particularly when the assessee gets only brokerage at specified percentage in such dealings and nothing more than that. Hence the impugned receipt/payments etc., mentioned in these loose papers should not have been construed as related to the investments made by the assessee in real estates and hence it was vehemently contended that assessment of the same as undisclosed income in the hands of the assessee, unsubstantiated on the strength of evidence, was unsustainable on facts and in law. Referring to A-l/4/43, it was explained that the entries noted on some of the loose papers are haphazard in nature. On some of the loose papers, no date was mentioned. There was no mention of the names of the buyers/sellers nor was there any description/details of the involved properties relating to the rough jottings/scribbling noted therein. It was explained that all these related to the transactions of the parties for whom the assessee acted as a broker and so in the case of the assessee it is only the brokerage income which was to be considered. The nature of the jottings/scribblings in A-l/4/43 were explained to be almost similar to the jottings in A-1/4/41. The AO was requested to consider the explanation given against A-l/4/41 for arriving at right and reasonable conclusions in respect of the jottings in the impugned A-l/4/43. The explanation was accepted by the AO since there was no addition with reference to that. As per the AO, no details or evidence in respect of the aforementioned transactions, were furnished by the assessee and hence the AO opined that the aforementioned transactions appearing in A-l/4/43 were nothing

6 ITA Nos.126-132/BLPR/2011 but the payments made by the assessee from his undisclosed income. Similarly, the transactions found noted in Annexure A-l/4, were presumed to be the deposits made by the assessee income, in the huge business done by the assessee. The assessee submitted before the CIT(A) that search was completed in the first week of December 2006; the entire seized material was in the possession of the Department; the impugned assessments were completed on the last day of limitation i.e. on 31-12-08 and this shows that the learned AO had completed 2 years time at his credit but had not conducted any enquiries nor collected any evidence during this long span, to substantiate the presumptions and adverse inferences to be drawn, if any, against the assessee; but no such evidence was collected against the assessee. The detailed explanation submitted in assessment proceedings was not at all considered; no evidence whatsoever was brought on record either to prove the contrary or to substantiate that the jottings/scribblings in these Annexures represented the unexplained and unrecorded payments/ deposits made by the assessee in the respective years. According to the assessee, the impugned additions made on presumptions and suspicions holding the same to be the payments/ deposits made by the assessee for the respective years, unsubstantiated on the strength of evidence brought on record against the assessee, were opposed to all factual and legal standards and hence the same was urged for deletion.

7 ITA Nos.126-132/BLPR/2011 It was further submitted that in the impugned assessment orders, the AO had not given detailed working page-wise with reference to A- l/4/43 and A-1/4 to substantiate the aforementioned figures/conclusions arrived at. Hence the assessee sought for the aforementioned detailed working together with supporting evidence, if there be any, in possession of the AO to substantiate his presumptions in this regard. The issue was remanded to the AO with specific directions to submit detailed working of the additions giving page-wise details of A- 1/4/43 and A-1/4 together with supporting evidence and the AO was also directed to submit comments as to why the detailed explanation submitted on 15-12-08 together with its reply on Page No. 10 of enclosures running in 11 pages, was not considered. In the remand report dt. 23-02-10 the.AO had given the Page Nos. and amounts mentioned against each and submitted that the entries in the relevant pages of A-1/4/43 and A-l/4 were the payments/ deposits made to several persons and according to him, the source of these amounts were not explained and hence the same were added to the income returned. In the remand report, the AO mentioned that the impugned seized documents were verified in the presence of assessee's employee and since the amounts were not explained, the same were added.

8 ITA Nos.126-132/BLPR/2011 v. D.R.Bansal [2010] 228 CTR 247 [Chhattisgarh]. In that case Tribunal accepted appellant’s explanation that loose papers found during search were forged documents planted by two accountants for some ulterior motive and the Tribunal had not adverted to applicability of presumption u/s 132(4A) and hence the High Court remanded the issue to the ITAT. The facts in the appellant's case are entirely different and distinguishable from the above, which is evident from the detailed discussion supra..

9 ITA Nos.126-132/BLPR/2011 it was impermissible for the AO to invoke deeming provisions against the appellant. It is settled position of law that heavy burden is cast upon the AO to bring evidence on record, to justify application of the deeming provisions of law. This was not done in the instant case, although ample time and opportunity was granted to the AO. The AO had also not brought any evidence on record to disprove the genuineness and correctness of the factual submissions made on behalf of the appellant, explaining the modus operandi of the appellant's business of earning brokerage in the real estate dealings. On appreciation of the evidences available on record, coupled with the uncontroverted depositions of the concerned real estate brokers, it is abundantly clear that the notings are thus not related to the appellant but related to the transactions between the buyer and seller. Hence the gross value of the considerations mentioned in these loose papers, by no stretch of imagination, could be presumed to be the receipt/payments assessable as undisclosed income of the appellant, particularly when the appellant gets only brokerage at specified percentage in such dealings and nothing more than that. Hence the impugned receipt/payments etc., mentioned in these loose papers, in my considered view, should not have been construed as related to the unrecorded investments made by the appellant in real estates. Assessment of the same, as undisclosed income in the hands of the appellant, without bringing corroborative evidence on record, is unsustainable on facts and in law.

10 ITA Nos.126-132/BLPR/2011 cannot presume that there must be some other material or evidence which is not found during the search and the appellant must have derived undisclosed income therefrom. To hold that even in the absence of any such evidence or material found during search or thereafter, the AO would be empowered to estimate the income, is fraught with dangerous consequences [Samrat Beer Bar v. ACIT (2000) 69 TTJ 113 (Pune)].

12 ITA Nos.126-132/BLPR/2011

13 ITA Nos.126-132/BLPR/2011 matching material available for that previous year. This matching principle is very important for determination of undisclosed income/investments in assessments to be framed as a result of extensive search operations.

15 ITA Nos.126-132/BLPR/2011 and surmises. In the absence of adequate material as to the nature of the transactions, undisclosed income could not be assessed in the hands of the appellant merely by arithmetically totaling various figures jotted down on these loose papers.

16 ITA Nos.126-132/BLPR/2011

18 ITA Nos.126-132/BLPR/2011 deleting the addition, was confirmed. Therefore, the CIT(A) held that it was an undisputed position that the impugned borrowing was presumed to have been done on the basis of the impugned promissory notes. The assessee has not admitted of the transaction having been materialized. The transaction was presumed on the basis of promissory note found/seized during search. The CIT(A) further observed that assuming without accepting that the impugned transaction was materialized, even then provisions of section 69D of the Act were not attracted to the borrowings raised by executing such promissory notes and the addition made by the AO is unsustainable both in facts and in law, therefore, he deleted the addition.

19 ITA Nos.126-132/BLPR/2011 through Manoj Agrawal. The assessee in support of the same, filed affidavit of Shri Manoj Agrawal. Shri Manoj Agrawal accordingly appeared before the AO and deposed and affirmed the facts stated by the assessee relating to the aforementioned transactions, to be true. The AO had not brought any evidence on record nor confronted the deponent with any contrary evidence, to prove the impugned depositions as false. Neither the search team nor the AO had found/seized any unrecorded valuables, either in kind or in coin, to substantiate and fortify the presumption that the impugned sum represented the undisclosed income/investment made by the assessee in the relevant previous year. No title deeds were recovered to prove the presumed undisclosed income/investment. If the assessee was presumed to be an investor or buyer, then, there must be corresponding seller without whom the purchaser could not be presumed to have purchased/ invested in the assets, since it was for the Department to identify and bring on record, the seller. This exercise and investigation was not carried out. It was for the AO, who was alleging, to prove this allegation. Nothing was brought on record against the assessee to prove this allegation leveled against the assessee on presumption and surmises. The AO has admitted in the original assessment order that the assessee is a real estate broker and the rate of brokerage/commission mentioned by the assessee was accepted to be reasonable. It was submitted that even assuming without accepting that the impugned transactions related to the investors of the assessee, the brokerage available to the assessee in arranging such dealings, was not more than 20 ITA Nos.126-132/BLPR/2011 1% or 2 % , and therefore, there was no necessity for him to make any initial investment, as presumed by the AO. Viewed from this perspective also, the impugned addition made by the AO was unsustainable on facts and in law. The CIT(A) observed that in the case of the assessee there was not even an iota of evidence whatsoever to conclusively prove that the impugned figures appearing on these loose papers, were the income/investments made by the assessee from undisclosed sources. Except suspicion, there was no evidence in favour of the conclusion arrived at by the AO and since it is settled position that if the decision of quasi judicial authority is based only on suspicion, conjectures and surmises or on no material evidence, the same is to be struck down. The CIT(A) relied on the decision of Allahabad Bench of the Tribunal in the case of Monga Metals (P) Ltd. v. ACIT (2000) 67 TTJ 247 (AIL). Further, the CIT(A) observed that the Nagpur Bench of the Tribunal in the case of Elite Developers v. DCIT (2000) 68 TTJ (Nag.) 616, has held that in scrutiny assessment completed in consequence of search, no addition should be made on account of undisclosed income on estimations, presumptions, imaginations and guess work and income estimated on the basis of probabilities, possibilities, guess work, surmises and conjectures, cannot be assessed as undisclosed income. The CIT(A) observed that the entries noted on the loose papers pertained to third parties, for whom the assessee acted as a broker. If the AO disbelieved this fact/explanation, he should have issued summons to 21 ITA Nos.126-132/BLPR/2011 the parties concerned and should have enquired into the facts. This was not done and hence the impugned addition made on unverified and incorrect appreciation of facts, on presumptions and suspicion, is opposed to the decisions in Dhakeshwari Cotton Mills Ltd. v. CIT, (1954) 26 ITR 775 (SC); Omar Salay Mohamed Suit v. CIT, (1959) 37 ITR 151 (SC) and Lalchand Bhagat Ambica Ram v. CIT, (1959) 37 ITR 288 (SC), wherein it was held that: there must be something more than mere suspicion to support an assessment and mere suspicion cannot take the place of proof for the purpose of passing an order of assessment. The CIT(A) further observed that in the case of Mehta Parikh & Co. v, CIT, (1956) 30 ITR 181 (SC), the Hon’ble Supreme Court has held that: "any addition unsupported by evidence will be erroneous and unsustainable on facts and in law. Finally the CIT(A) observed that the seized documents in question may create a doubt but such a doubt, if extensively clarified on the strength of circumstantial evidence to be otherwise, should not have been substituted for proof, hence, he deleted the addition made by the AO.

22 ITA Nos.126-132/BLPR/2011 before the AO that it was a proposed sale agreement. The assessee was negotiating a deal with one Shri Zakir Khan. Certain terms were agreed upon while some of the conditions like total consideration, payment of balance consideration etc. were not finalized. The vendor had prepared a draft sale agreement and brought it to the assessee. The assessee did not agree with the total consideration proposed by the seller and hence the deal was not materialized. For this reason, the assessee did not sign the sale agreement. Since the assessee was interested in buying the property, the proposed sale agreement was retained by the assessee. The loose paper did not have any financial impact. In the sale agreement, the column of total consideration, date of balance payment have been left blank. This itself shows that the agreement was incomplete and it was not acted upon. This explanation was not proved as false by bringing any material on record. He observed that this explanation was simply ignored and brushed aside and the impugned addition of Rs.2 lakhs was made as unexplained investment. On appeal, the CIT(A) called for a remand report from the AO, who in his report dated 5.3.2010 stated that the impugned sale agreement did not bear the signature of the assessee. Therefore, in the given facts and circumstances, to substantiate the evidence, the assessee was required to obtain confirmation of the seller. The assessee obtained confirmation in the form of an affidavit from the vendor. The AO had not brought any evidence on record to controvert the aforementioned categorical

23 ITA Nos.126-132/BLPR/2011 depositions of Zakir Khan made in the affidavit. The CIT(A) deleted the addition by observing as under :- “12.1 I have gone through the document in question and I find that the same did not bear the signature of the appellant and thus the seized document was an unenforceable agreement and no evidence for investment presumed to have been made by the appellant, was found during search or thereafter. In my considered view, according to the provisions of section 10 of the Indian Contract Act, any contract/ agreement should be signed by the parties to the agreement which is the first and foremost condition precedent for a valid contract. As admitted by the AO in the remand report dt 05-03-10 the impugned document did not bear the signature of the appellant. Even assuming that only one party has signed the contract/ agreement and the other party refused to sign the same, the same does not constitute a valid contract in the eyes of Law as there is no consent between the parties which is one of the essential ingredients of a valid contract. Simply because one party has signed the contract and the other has not, the same will not constitute a valid, contract because both the parties have to invariably execute and sign such document to make such agreement/ contract authentic, since a contract without consent between the parties is ab initio void. In CIT v. Kulwant Rai [2007] 163 Taxman 585/291 ITR 36 (Delhi) the facts of the case before the HC were that the appellant had not signed the agreement in question and since the appellant had not signed the agreement, it was held by the Del. HC that no liability could be attributed qua that agreement towards the appellant since he was not a party to the agreement till he had signed the same. The mere fact that agreement was found in the possession of the appellant did not lead one anywhere. The addition made on surmises and guess- work was deleted . In M.M. Financiers (P.) Ltd. v. Dy. CIT [2007] 17 SOT (Chennai) (URO) the AO made addition towards undisclosed purchase consideration of certain property on the basis of third party's statement and an unsigned agreement found during search. On these facts, it was held that the third party statement and unsigned agreement cannot be acted upon since there was no valid seized material representing the impugned addition towards undisclosed purchase consideration. The addition was based only on surmises and statement recorded from third party. It was held by the Hon'ble Tribunal that while determining the undisclosed income in the search assessments, the AOshall be specific in his statement. He cannot draw his inference on the basis of suspicion , conjectures or surmises, since suspicion , however strong, cannot take place of material proof in support of findings of the AO. The AO should act in a judicial manner, proceed with judicial spirit and should come to judicial conclusion. The AO is required to act fairly as a reasonable person and not arbitrarily or capriciously. An assessment made on inadequate material cannot stand on its own leg. No addition can be made on the basis of noting on loose

24 ITA Nos.126-132/BLPR/2011 sheets in the absence of corroborative material if the Revenue has not found any circumstantial evidence in the form of any investment in cash, jewellery etc. Reliance is also placed on the decision of the then Juri ictional Bench of ITAT Nagpur in Laxmandas Kukreja ITA/SS No.86/ Nag./ 2001. For the reasons extensively enumerated above, the impugned addition is unsustainable on facts and in law. The same is, therefore, deleted. The appellant accordingly gets relief of Rs.2,00,000/-.”

25 ITA Nos.126-132/BLPR/2011 and that they are only corroborative evidence. Even then independent evidence is necessary as to trustworthiness of those entries which is a requirement to fasten the liability; (iii) The meaning of account book would be spiral note book/pad but not loose sheets; (iv) Entries in books of account are not by themselves sufficient to charge any person with liability, the reason being that a man cannot be allowed to make evidence for himself by what he chooses to write in his own books behind the back of the parties. There must be independent evidence of the transaction to which the entries relate and in absence of such evidence no relief can be given to the party who relies upon such entries to support his claim against another; (v) Even if books of account are regularly kept in the ordinary course of business, the entries therein shall not alone be sufficient evidence to charge any person with liability. It is not enough merely to prove that the books have been regularly kept in the course of business and the entries therein are correct. It is further incumbent upon the person relying upon those entries to prove that they were in accordance with facts;” In absence of any material brought before us to show either that the assessee had made actually any investment or the assessee had actually sold any asset/investment, we do not find any good reason to interfere with the order of the CIT(A), which is confirmed and the appeals of the Revenue are dismissed.

आदेशानुसार/ BY ORDER, (Senior Private Secretary) Income Tax Appellate Tribunal, Raipur