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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
सुनवाई क� तार�ख /Date of Hearing : 24.05.2016 घोषणा क� तार�ख /Date of Pronouncement : 22-08-2016 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member
These three appeals filed by the assessee firm for the assessment years 2007-08, 2008-09 and 2009-10 are directed against three separate orders of the learned Commissioner of Income Tax (Appeals)-39, Mumbai (Hereinafter ITA 76/Mum/2012, called “the CIT(A)”) dated 8th November, 2011, 8th November, 2011 and 30th October, 2012 respectively , the appellate proceedings before the learned CIT(A) arising from the three separate assessment orders , first dated 22nd December, 2009 passed u/s 143(3) read with Section 153A of the Income Tax Act,1961 (Hereinafter called “the Act”) for the assessment year 2007-08 , and the rest two assessment orders dated 22nd December 2009 and 29th November, 2011 respectively passed by the learned Assessing Officer (hereinafter called “the AO”) both u/s 143(3) of the Act.
2. First, we shall take up the assessee’s appeal in for the assessment year 2007-08 wherein the following grounds of appeal are raised by the assessee in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) read as under:-
“1. In confirming an addition of unaccounted income based on presumptions and surmises and without appreciating correctly the facts of the case and practical realities.
2. In not appreciating that no addition could be made based on rough workings found at the premises which at best represented provisional figures and nothing more.
3. In not appreciating the explanations given by the appellant of various reasons why flats are sold at different prices and other submissions made by the appellant. All the grounds above are without prejudice to each other.”
The brief facts in this case are that the assessee is a partnership firm engaged in the business of civil construction i.e. development of property at Mira Road, Dist, Thane. A search operation was conducted by Revenue u/s 132 of the Act on 13th March, 2008 at the residential/business premises of ITA 76/Mum/2012, Bharat Shah Group of cases. The assessee was also, inter alia, covered in the afore-stated search operations conducted by Revenue u/s. 132(1) of the Act. Notice u/s 153A of the Act was issued on 25th November, 2008 by the AO asking the assessee to file the return of income. The assessee filed its return of income u/s. 153A of the Act on 4th December, 2008 declaring a total income of Rs. 2,84,10,567/- which was income the same as declared in the original return of income filed u/s 139(1) of the Act. The assessee was asked by the AO to explain the contents of the seized material marked as Page No. 18, Annexure A-3 seized from 811,Embassy centre, Nariman Point,Mumbai . In reply, the assessee submitted the following explanations before the AO:-
“ THE EXPLANTIONOF PAGE NO 18 (ROUGH WORKING)
All the hand written workings on page No 18 and back of 18 are provisional rough workings. However, the explanation of the same is as under:
III - 176720 & 9715 is saleable area of Shanti Gardens Sector III project (Residential & Commercial respectively). 1201 & 1200 is the respective average price taken for working purpose which works out as the written figures of Rs 21,22,40,720/ - and Rs 1,16,58,000/- and the total as Rs 22,38,98,720/- mentioned on the said page. Whereas the actual sales is Rs 21,85,88,280 which is duly recorded in the books of accounts and in the balance sheet for the year ended 31.3.2007, few fiats were sold on discount hence the variation appears.
IV - 155260 & 10205 is saleable area of Shanti Gardens Sector IV project (Residential & Commercial respectively). 1350 & 1300 is respective average price taken for working purpose which works out as written 20,96,01,000 & 1,32,66,500 and the total as Rs 22,28,67,500 mentioned on the said page, Whereas the actual ITA 76/Mum/2012, ITA No. 7421/Mum/2012 sale is Rs 21,20,89,625, which is duly recorded in the books of accounts and in the balance sheet for the year ended 31.3.2007 few fiats sold on discount hence the variation appears.
1 The third hand written figure is Rs 10,07,41,500 which is derived from the back side of page 18, the figure 18330 & 181320 is saleable commercial and Residential area of Shanti Dham project 550 & 500 is respective average price taken for working purpose which works out as mentioned on the said page as sales realization Rs.10,07,41,500, whereas the actual sales is Rs 9,17,40,754/- which is duly recorded in the books of account and the balance sheet for the year ended 31.3.2007. The sales figure of Rs 10,07,41,500 includes the sales figures of building No A2/3 which till date is under construction (i.e. 70% of the work is completed). The saleable area of the said building is 39,900 sq. ft. The sale booked as on 31.3.2007 is Rs 9,17,40,754/- which does not include the sale value of building No. A2/3, hence the variation appears.
4. One WIP S/D hand written figure is 16,43,77,664/- which is the closing work in progress figure as on 31.3.2005 which is duly accounted in the books of accounts of the firm.
5. One total WIP S/G hand written figure is 40,04,25,610 which is the total of construction expenses and administrative expenses incurred up to 31.3.2007 of Shanti Garden project. Whereas the actual expenses booked as on 31.3.2007 in the books of accounts of the firm is Rs 40,04,57,874/-.
6. The Hand written figure of Rs. 48,30,86,776 is the total of WIP S/D, Rs. 16,43,77,664 & WIP S/G Rs. 31,87,09,112".
The assessee was confronted by the A.O. that if in page No. 18 Work-in- progress figures stated are matching with actual figures in the books of accounts maintained by the assessee, then why not as per section 132(4A) of the Act, sales figures should also be considered as actual sales and should be ITA 76/Mum/2012, treated as revenue for the relevant period. The assessee submitted the following reply:-
“When WIP figures and expenses tallies why not sales: The figures mentioned on page No 18 are only rough working figures. An average sale price of Rs 1201 for Flats and Rs 1200 for shops us taken and multiplied by the respective saleable area to arrive at a figure to present before the management to give an estimate of the profit which would have been earn had all flats/ shops being sold at a standard price. However the actual sale figures different obviously because all flats and shops cannot be sold at a fixed price. There are variations in the sale prices primarily on account of discounts given to buyers and due to the sales happening at different periods of time during the pendency of the project.
In particular the reasons for sales being different from the sales at a fixed price are : a. Business decision taken from time to time depending on the competition, volatility in the market, need of funds by the company etc. b. Our eagerness to have some confirmed booking at the initial stages of the project since Shanty garden project started after substantial gap of time from the earlier phase. c. Discounts given to some group buyers who besides buying in group also assured us of further substantial sales by giving healthy references, some of which subsequently materialized into sales.”
It was submitted by the assessee that no conclusion can be drawn from this rough sheet as it was merely an arithmetic working done for evaluation of management decisions and sales clearly do not represent actual sales.
ITA 76/Mum/2012, The A.O. rejected the contentions of the assessee in view of provisions of section 132(4A) of the Act. The A.O. observed that in view of provisions of section 132(4A) of the Act the loose papers and incriminating material found in the possession of the assessee belongs to the assessee and the contents thereof were true and that the same have been written/ handled by the person who were in-charge of the conduct of business. By merely denying that the papers have not been written in their hand writing , that they do not know about the contents of the same or filing affidavits from the buyers denying cash payments is not sufficient. Further, assessee is also involved in receiving cash i.e. out of book money, on the basis of which disclosure of Rs. 1.25 crores had also been made by assessee. Further from the analysis of Page No. 14 of loose paper file containing pages 1 to 24 seized during search operations, it is evident that assessee was involved in accepting cash i.e. out of books receipts. Thus, on the basis of above, the following additions were made by the AO by commenting as under:-
“Regarding sales of Shanti Gardens Sec. III Project, there is difference of 53,10,440 rs (22,38,98,720 – 21,85,88,280) as on 31.3.2007 i.e. for AY 2007-08, in actual sales booked till 31.3.2007 and figure written on loose paper. However WIP figures are matching with books of accounts. Accordingly Rs. 53,10,440 has been added back to the income of the assessee as out of book receipts.
Regarding Sales of Shanti Gardens Sec IV project, there is difference of Rs. 1,07,77,875 rs (22,28,67,500-21,20,89,625) as on 31.3.2007, i.e. for AY 2007-08, in actual sales booked till 31.3.2007 and figure written on loose paper. However WIP figures are matching with books of accounts. Accordingly Rs. 1,07,77,875 has been added back to the income of the assessee as out of book receipts.
ITA 76/Mum/2012, ITA No. 7421/Mum/2012
Regarding Sales of Shanti Dham project, there is difference of 90,00,746 rs. (100741500-91740754) as on 31.3.2007 for A.Y. 2007-08 in actual sales booked till 31.3.2007 and figure written on loose paper. This figure on back side of Page 18 was again reproduced on front side of Page 18. Accordingly, assessee's contention in this regard can't be accepted and Rs. 90,00,746 has been added back to the income of the assessee as out of book receipts. (addition Rs. 2,50,89,061).
Thus, total addition of Rs. 2,50,89,061/- was made to the income of the assessee by the AO vide assessment order dated 22nd December, 2009 passed u/s 143(3) r.w.s. 153A of the Act.
4.Aggrieved by the assessment order dated 22.12.2009 passed by the A.O. u/s. 143(3) r.w.s. 153A of the Act , the assessee filed its first appeal before the ld. CIT(A).
5. Before the ld. CIT(A) , the assessee reiterated the same submissions as were made before the A.O. during the course of the assessment proceedings. The assessee further submitted that seized page No.18 and back of page 18 in Annexure A-3 was a handwritten provisional working of the profit which would have been earned on various projects had all the units therein been sold at a particular predetermined price. The assessee contended that it was explained before the A.O. during the course of assessment proceedings u/s 153A read with Section 143(3) of the Act, that the flats were seldom sold at the same price in a project and that the sale price of an individual flat could differ from another because they were sold at a different points of time and based on business decisions such as competition, need of funds, volatility, discounts to be given . Hence, the assessee submitted that no conclusion ITA 76/Mum/2012, could be drawn based on a handwritten sheet which was at best provisional working. The assessee submitted that the AO erred in comparing sales shown in this rough loose sheet with the sales recorded in the books of accounts and then assuming that the balance represented the unaccounted sales of the assessee which is not recorded in the books of accounts and thus adding the same as undisclosed income of the assessee. Without prejudice it was submitted by the assessee that many of the flats sold were not at all sold in the relevant previous year and the AO is not justified in taxing the entire amount in the impugned assessment year. Thus, the assessee prayed before the learned CIT(A) to delete the addition of Rs.2,50,89,061/- made by the AO vide assessment order dated 22-12-2009 passed u/s 143(3) r.w.s. 153A of the Act.
The learned CIT(A) forwarded the submissions of the assessee along with the enclosures to the AO for remand proceedings. Remand report was called from A.O. whereby the A.O. submitted his report as under:-
“2.During the course of remand proceedings , Shri R S Pandey , Advocate from M/s Rajendra & Co. , along with Shri Shekhar Talekar, Manager (Accounts) attended from time to time and furnished the working of closing stock.
3. Shanti Garden, Sector III
3.1 . As per the seized material, the sale price was estimated of the saleable area of the said project as follows:
ITA 76/Mum/2012, ITA No. 7421/Mum/2012
Particulars Area & rate per sq. Amount (Rs. ft. Saleable are of 176720 x 1201 21,22,40,720/- residential space Saleable area of 9715 x 1200 1,16,58,000/- commercial space Total sales estimated 22,38,98,720/-
3.2 Out of the above, during the course of Remand proceedings, it is stated by the assessee that following residential space and commercial space were not sold in the accounting year relevant to the A. Y. 2007-08 and the same were shown as inventory. However, subsequently, the same were sold out in later years for which the assessee has furnished relevant documents. Particulars Area & rate per sq. Amount (Rs. ft. Saleable area of 2085 x 1201 25,04,085/- residential space Saleable area of 295 x 1200 3,54,000/- commercial space Total value of area not 28,58,085/- sold during the A.Y. 2007-08
4. Shanti Garden. Sector IV 4.1 As per the seized material, the sale price was estimated of the saleable area of the said project as follows:
Particulars Area & rate per sq. Amount (Rs. ft. Saleable area of 155260 x 1350 20,96,01,000/- residential space Saleable area of 16205 x 1300 1,32,66,500/- commercial space ITA 76/Mum/2012, ITA No. 7421/Mum/2012
Total value of area not 22,28,67,500/- sold during the A.Y. 2007-08.
4.2 Out of the above, during the course of Remand proceedings, it is stated by the assessee that following residential space and commercial space were not sold in the accounting year relevant to the A. Y. 2007-08 and the same were shown as inventory. However, subsequently, the same were sold out in later years for which the assessee has furnished relevant documents.
Particulars Area & rate per sq. Amount (Rs. ft. Saleable area of 2865 x 1350 38,67,750/- residential space Saleable area of 685 x 1300 8,90,500/- commercial space Total value of area not 47,58,250/- sold during the A.Y. 2007-08.
5. Shanti Dham, Sector -1 5.1 As per the aseessee seized material, the sale price was estimated of the saleable area of the said project as follows: Particulars Area & rate per sq. Amount (Rs. ft. Saleable area of 181320 x 500 9,06,60,000/- residential space Saleable area of 18330 x 550 1,00,81,500/- commercial space Total value of area not 10,07,41,500/- sold during the A.Y. 2007-08.
ITA 76/Mum/2012, Further, it was stated by the assessee that following residential and commercial areas not sold till date as observed from the balance sheet for the year ended on 31st March 2010:-
Particulars Area in Area x rate per Amount (Rs) sq. ft. sq. ft. Residential space in Bldg. 32,640 32,640 x 500 1,63,20,000 A-2 and A-3 (16,320 sq. ft. each) Commercial space in 3690 3690 x 550 20,29,500 Bldg. A-2 Total value of area not 1,83,49,500 sold during the A.Y.2007- 08 The ld. CIT(A) considered the submissions of the assessee, remand report and the assessment order of the A.O. and observed that there are seized material available to prove that the assessee has collected from the flat purchasers over and above the sale price shown in the sale documents. The assessee has also disclosed Rs.1.25 crores as an undisclosed income on it's own in the statement recorded during the course of search proceedings as ‘on money’ received for the period from 01-04-2007 to the date of search on 13-03-2008. Thus the assessee’s contention that it has not received any ‘on-money’ from the sale of flats was rejected by the learned CIT(A). It was also observed by the learned CIT(A) that certain flats and commercial areas in these projects were not sold up-to the end of the accounting year relevant to this assessment year and it was kept as an inventory. However the A.O. has applied the same rate for these spaces also and arrived at the undisclosed income which is not correct and the ld. CIT(A) held that the inventory stock has to be valued at cost price or market price, whichever is lower and the addition made to that ITA 76/Mum/2012, extent was ordered to be deleted by the learned CIT(A). Thus, it was held by the learned CIT(A) that there is no justification in arriving at the undisclosed income by taking the same sale price for inventory stock which was not sold till the end of the accounting year and hence the ld. CIT(A) directed the A.O. to exclude the ‘on-money’ determined for these unsold built up areas from the unaccounted income determined by the A.O. The ld. CIT(A) accordingly partly allowed the appeal of the assessee vide appellate order dated 08-11-2011.
6. Aggrieved by the appellate order dated 08-11-2011 of the ld. CIT(A) , the assessee is in further appeal before the Tribunal.
7. The ld. Counsel for the assessee submitted that there were search operations carried on by the Revenue on 13th March, 2008 in the case of Bharat Shah Group and the assessee was also covered in the said search operations. The ld. Counsel for the assessee submitted that assessee is a builder and the assessee is building a project in Meera Road, Thane which is an under developed area. . It was submitted that during the course of search operations carried out by the Revenue u/s 132(1) of the Act, apart from other seizures, one loose paper was found and seized which is marked as page No. 18 (having front and back marked 18 and 18a) of annexure A-3 from 811, Embassy Centre, Nariman Point, Mumbai which is placed in paper book page 22 -23 filed with the Tribunal. It was submitted by learned counsel for the assessee that the assessee has also made disclosure of Rs. 1.25 crores for the assessment year 2008-09 vide statement recorded during the course of search operations on 14-03-2008 of the partner of the assessee Mr. Mukesh D. Chowdhary (placed in paper book/page 1-6) on account of cash ‘on money’ received by the assessee from 01-04-2007 to the date of search, ITA 76/Mum/2012, ITA No. 7421/Mum/2012 which was duly offered for taxation in the return of income filed with the Revenue by the assessee for the assessment year 2008-09 , while the Revenue is extrapolating and making addition during the impugned assessment year 2007-08 without any evidence on record. The assessee submitted that the A.O. erred and relied on the loose papers found and seized from the possession of the assessee which contained rough notings and the contents were considered as true. The ld. Counsel drew our attention to the seized material page 18/18a Annexure A-3 which is placed at paper book page 22- 23 and submitted that the basic flat sale rates were applied to the total area to arrive at the total sale projection of the entire project. This is prepared for management purposes for advance tax purposes and is not and cannot be a basis for making an addition of undisclosed income as was done by the Revenue. It is submitted that the A.O. has made the addition of Rs. 2,50,89,061/- , while the ld. CIT(A) has given part relief to the assessee whereby the AO was directed by learned CIT(A) to eliminate ‘on-money’ element on the unsold stocks and the said unsold inventory be valued at cost or market price which ever is lower. The ld. Counsel also drew our attention to the assessment order and order of the ld. CIT(A). It was submitted that no further enquiry was made by the A.O. from the buyers. The A.O. has applied section 132(4A) of the Act and held that there is a presumption that the contents of the seized documents are true. Assessment has been made on the basis of seized material which are nothing but rough calculations. The ld. Counsel submitted that the assessee has already surrendered an amount of Rs. 1.25 crores voluntarily for the assessment year 2008-09 on account of cash ‘on money’ received from sale of units in the projects from 01-4-2007 to the date of search vide statement of partner of the assessee Mr Mukesh D Chowdhary recorded on 14-03-2008 . The said statement is not retracted by ITA 76/Mum/2012, ITA No. 7421/Mum/2012 the assessee or the said partner of the assessee rather the statement is honored by declaring the said surrendered amount in return of income filed with the Revenue and due taxes being paid to the Revenue. It is submitted that the assessee is not disowning the said seized document being page 18 and back of page 18 (placed at page 22-23/paper book) by the Revenue during the search operations. The ld. Counsel submitted that the assessee was confronted by the Revenue during the course of recording of the statement whereby the assessee explained as answer to the question No. 10 that the documents were prepared by the accountant for the purpose of advance tax. Thus the ld. Counsel further submitted that in reply to question No. 27 it was submitted by Mr. Mukesh D Chowdhary, the partner of the assessee that due to price rise in building construction , the assessee was able to collect cash money of 20% over and above the sale price realized by the assessee in financial year starting from 1st April, 2007 onwards amounting to Rs.1.25 crores upto the date of search which is not recorded in the books of accounts of the assessee and the assessee surrendered as an additional income an amount of Rs. 1.25 crores during the financial year 2007-08 with the request that no penalty/prosecution action should be taken against the assessee. The ld. Counsel submitted that no additions can be made based on presumption and surmises as was done by the Revenue. Without prejudice, the ld. Counsel submitted that the A.O. has included the entire sale proceeds being received in cash, even if addition is to be made then it was submitted that only profit component can be added to the income of the assessee and additions should be restricted to the profit margin on the said undisclosed sales. The assessee has already offered for taxation Rs. 1.25 crores as ‘on money’ received during the assessment year 2008-09. It was stated that the assessee has not received any ‘on money’ during the impugned ITA 76/Mum/2012, assessment year and in the absence of any evidence that any on-money was received during the impugned assessment year, no addition can be sustained. The ld. Counsel relied on the decision of Hon’ble Bombay High Court in the case of M/s. Jyoti Wire Industries Ltd. v. CIT in Income Tax Reference No. 38 of 1997 dated 25th September, 2012, whereby Hon’ble Bombay High Court has upheld the view of the Tribunal that merely because the tax-payer has received ‘on money’ during the assessment year 1990-91 , it does not follow that the tax-payer has also received ‘on money’ during the assessment year 1989-90.
The ld. CIT D.R. referred to the seized documents marked as page No. 18 and back of page 18 of annexure A-3 which is placed at paper book page No. 22-23. The ld. CIT D.R. relied upon the orders of A.O. and the ld. CIT(A) and submitted that in the seized material page 14 of loose paper file containing pages 1 to 24, there is clear-cut acceptance that ‘on money’ has been paid in the case of the assessee’s project. The contents of the said seized page no. 14 of loose paper file containing 1-24 pages which is part of seized material are reproduced below:-
“Minutes of the meeting held on 30/8/2005 at 3 pm in Chambers at Taj Mahal Hotel Bombav between Bharatbhai & papaji (D.G.C.).
Following points were discussed & agreed.
1. Distribution of cash money (RNDC) will be as follow: 50% will be kept by B.S. Shah against interest dues. Balance 50% will be distributed in the ratio of 60% B.S & 40%D.G. Group.
ITA 76/Mum/2012, ITA No. 7421/Mum/2012
2. Papaji pointed out that the sale values of Flats & Shops in phase-I differs from the actual to what is shown in the a/c given. B.S. agreed that difference is obvious from the instances given by papaji and it should be discussed in detail with B.S./R.C. & Chowdhary group.
3. Papaji pointed out that the rate charged for FR has a large difference & B-S agreed that he will look in to it after verifying it.
4. Agreed that Dhirubhai's group's deposit in RNDC should be returned back at the earliest.
Papaji pointed out that N.D. had agreed to give 10/- p.s.f. on 5,50,000 sq. ft. fsi of RNDC over & above the price settled . This was to be given in the form of diamond bangles worth approx. Rs.30 lacs for which R/C & N.D. along with papaji went to B.S.’s office 2/3 times to give measurement. However it did not work out at that time. Therefore against that money ND offered his office as collateral security till such time this commitment was honoured. Since ND’s commitment to XYZ have been carried out in 2003, 5 Years after his death. His commitment to us should also be honoured.
Shifting of the office at the site (RNDC) will be done after the commitments of ND is fulfilled which R/C is fully aware of.
Copy of the fax dated 18.01.96 showing the consolidated figures has been handed ever to BS in the above said meeting.”
The ld. CIT D.R. submitted that Rule of evidence is not strictly applicable in the income tax proceedings. The A.O. can rely on the documents seized along ITA 76/Mum/2012, with surrounding circumstances to come to the conclusion that there was undisclosed income keeping in view preponderance of human probabilities. The ld. CIT DR submitted that the ld. CIT(A) has concluded that ‘on money’ was received by the assessee and for the next year the assessee itself surrendered Rs.1.25 crores based on the statement recorded during course of search operations whereby it was admitted by the assessee that the ‘on money’ was received by the assessee from 01-04-2007 to the date of search. The ld CIT DR referred to the seized material page 18 and back of page 18 Annexure A-3 which is placed at paper book page 22-23 , wherein clearly reference to the date 31/3/2007 is mentioned twice and reference to the period 01-04-2006 to 31-03-2007 is also mentioned once. The said document was seized during search and clearly project wise details are mentioned. The assessee has not disputed that the figures pertain to the project undertaken by the assessee. The figures are not round figures and odd figures are mentioned in the said document , thus, these are actual figures as had these been projections, then round figures would have been there was the contention of learned CIT DR. The ld. CIT(A) remitted the matter to the file of A.O. for exclusion of cash ‘’on-money’ element from the additions made with respect to the unsold stock. The assessee has come out with the submission that assessee has given discount on sales. The assessee has to produce cogent material that it is rough noting and not final which the assessee failed to produce except taking the plea that these are rough notings. The cash ‘on money’ received by the assessee has to be brought to tax while the expenditure is already being debited in the books of accounts was the contention of learned CIT DR. The learned CIT DR submitted that there is an evidence by way of seized material and the statement recorded during course of search operations and the additions are not made in the impugned ITA 76/Mum/2012, ITA No. 7421/Mum/2012 assessment year 2007-08 based merely on extrapolating the statement of the assessee for the surrender made for the assessment year 2008-09 . The ld. CIT D.R. relied on the decision of Hon’ble Bombay High Court in the case of Surendra M. Khandhar v. ACIT [2009] 224 CTR 409 (Bombay) and submitted that the assessee has accepted that cash ‘on-money’ has been received by the assessee. He further relied on the decision of Hon’ble Bombay High Court in the case of Harish Textile Engineers Ltd. v. DCIT, [2015] 63 taxmann.com 66 (Bombay), in the case of Mahabir Prasad Rungta v. CIT, [2014] 43 taxmann.com 328 (Jharkhand) and also the decision of the ITAT Jaipur Bench in the case of Harishchand & Brothers v. ITO [1998] 64 ITD 331(JP) and submitted that incriminating material has been found during the course of search operations which clearly indicates that the assessee had concealed its income. The learned CIT DR submitted that there is no infirmity in the order of the ld CIT(A) and the same should be confirmed.
In the rejoinder, the ld. Counsel for the assessee submitted that no enquiry has been made by the A.O. with the buyers and also with any other persons. The summary of the flats sold and in inventory was submitted in the paper book page 32-56. On being asked by the Bench, the ld. AR submitted that the project Shanti Gardens was started in 2005 and the parties as per seized material page 14 of loose paper file containing paper 1-24 are partners of the project i.e. Mr. Bharat S Shah Group and Mr D G Choudhary group are partners in the construction projects undertaken by the assessee.
We have considered the rival submissions and also perused the material available on record including the case laws relied on by both the parties. The assessee is a builder engaged in the construction activity ITA 76/Mum/2012, developing property at Mira Road, District Thane. The assessee is a partnership firm wherein Bharat S Shah Group and D G Choudhary Group are partners which is an admitted and undisputed position between rival parties. During the course of search operations u/s 132(1) of the Act conducted by the Revenue on 13-03-2008 , several documents were found and seized which included document which is marked as page no. 18 and back of page 18 of Annexure A-3 which was also found and seized by Revenue from 811, Embassy Centre, Nariman Point, Mumbai wherein certain figures were written in the said seized paper related to alleged work-in-progress(WIP) and alleged sales related to the project undertaken by the assessee . The said seized material is placed in paper book page 22-23 filed with the Tribunal. The assessee has owned up the said document as belonging to it written by its accountant which is an admitted and undisputed position between the rival parties , and only contents of the said seized document are disputed by the assessee which is stated to be rough notings made by the accountant of the assessee which as per the assessee cannot be the basis for making additions as were made by the Revenue. The assessee has also admitted that the documents contained particulars of the work-in-progress and sales figures of the project undertaken by the assessee at Mira Road, Thane but figures per-se of sales recorded are disputed by the assessee as well as it is the contentions of the assessee that it represent projected / rough sale figures and not the actual sales figure as recorded in books of accounts maintained by the assessee. There is also seizure of a document marked as page 14 of loose paper file containing pages 1-24 which is a minutes of meeting having taken place on 30th August, 2005 at Taj Mahal Hotel, Mumbai between the two partner groups of the assessee firm namely Mr Bharat S Shah group and Mr D G Chowdhary group whereby an understanding has been reached as ITA 76/Mum/2012, ITA No. 7421/Mum/2012 well reiterated between the afore-stated both the partners group with respect to modus operandi for collection and consequent distribution of cash ‘on money’ amongst both the partner groups arising from the sale of flats in the projects undertaken by the assessee which on its perusal leave no iota of doubt that assessee firm has indulged in collecting cash ‘on-money’ from sale of flats in this project at Mira Road, Thane if read in conjunction with the seized material A-3 page 18 and back of page 18 , and also read along with the statement recorded during search operations of partner of the assessee Mr. Mukesh D Chowdhary on 14-03-2008 whereby the assessee firm surrendered Rs.1.25 crores by admitting of having received cash ‘on-money’ on sale of flats in the said project from the period 01-04-2007 till the date of search. As per seized material marked page 18 and back side of page 18/Annexure A-3 which is a seized document stated to be written by the accountant of the assessee prepared with reference to the date 31st March, 2007 as the said date duly find mentioned twice in the said seized document while period 01-04-2006 to 31-03-2007 find mentioned once in the said seized document page 18 and back side of page 18/Annexure A-3, there are figures of WIP which are also mentioned in the said seized document which figures are tallying with the books of accounts maintained by the assessee. Apart from the above, there is also mention of the word ‘Sales Realisation’ and ‘Sales’ against which certain figures are mentioned in the said seized document page 18 and back of 18 of Annexure A-3 which the Revenue is rightly contending that it represents the sale of the assessee as in our considered view , the word ‘Sales Realisation’ can only mean sales against which payments stood realized , thus no prudent person will write projected sales as ‘Sales Realisation’.The use of the word ‘Sales Realisation’ can only be interpreted as sales against which money stood realized. Similarly mention of ITA 76/Mum/2012, ITA No. 7421/Mum/2012 the word ‘Sales’ also means that sales stood concluded by the date of preparation of the document with reference to the date i.e. 31-03-2007 for the period to which it pertains as mentioned in the seized document. The figures against ‘Sales Realisation’ or ‘Sales’ which are appearing alongside figures of work-in-progress which figure of work-in-progress in the seized material found are the same figures as are recorded in the books of accounts which leaves us with no iota of doubt that figures against the word ‘Sales’ or ‘Sales Realisation’ are actual figures of sales concluded by the assessee. The presumption u/s 132(4A) of the Act shall apply , the documents having been found from the possession of the assesssee shall be deemed to belong to the assessee which in the instant case is not denied by the assessee and the content of the document shall be considered true and correct , thus, now it is for the assessee to rebut the same. Merely by saying that these are rough notings is not sufficient . On perusal of the document , it is observed that the assessee’s accountant while preparing the said seized document has multiplied the sales rate to the area available for sale of different units in different phases of the project to arrive at the sale figures individually project wise and then to arrive at the total consolidated sales figure of the assessee . The figures of WIP found mentioned in the seized document are matching with the books of accounts of the assessee maintained in regular course of busienss and hence on the same analogy the sales should also be actual sales keeping in view the use of word ‘Sales Realisation’ and ‘Sales’ in the said seized document. The contention of the assessee that the said document also showed inventory which is not sold by the assessee included in the sale figures , we find that inventory held by the assessee as at 31-03-2007 in Shanti Gardens project is insignificant while the most of the units already got sold out before 31-3-2007 while Shanti Dham project has unsold inventory of ITA 76/Mum/2012, ITA No. 7421/Mum/2012 approx. 20%. Our view is also strengthened as the period of 2006-2008 witnessed period of boom in real estate Industry in India when the real estate inventory was moving at a very fast pace and also had shown sharp and steep appreciations over a short period of time . The real estate projects were selling at that period of time of 2006-08 in India at fast pace on the launch/pre- launch stage itself . The stupendous rise of the real estate in the period 2006- 08 can also be seen by the re-sale rates mentioned in the seized documents which was clarified vide question no. 7-9 in the statement recorded on 14-3- 2008 of Mr Mukesh D Chowdhary , partner of the assessee(placed in PB/page 1-6) whereby per seized material of folder 3 page 2 resale rates per square mentioned of the flats in the project Shanti Garden are quoted at around Rs. 2750 per square feet while against the same the assessee is selling the flats @ Rs 2000 per square feet was the reply of the said partner of the assessee in reply to the said questions. Similarly the other documents seized also showed re-sale prices ranging from Rs. 2750-3100 per square feet for different flats in Shanti Garden project vide question no 8 and 9 against which the reply of the partner of the assessee is that these prices are quoted to casual buyers and not to the serious buyers, while on the other hand the assessee is showing revenue @ Rs 1200-1350 per square feet in the Shanti Garden project for different flats. The AO has not persued these seized documents (page 2/folder 3 i.e. Annexure A-3) while framing the impugned assessment and no further enquiry is made by the AO as borne out from the records/material before us with respect to these seized documents reflecting re-sale prices. The assessee has also in reply dated 26.10.2009 to AO during the assessment proceedings for the assessment year 2008-09 i.e. previous year 2007-08 had stated that there was real estate boom in the real estate business during 2007-08 where the buyers were keen to buy properties and wanted to ITA 76/Mum/2012, urgently strike deals with respect to flats of their choice keeping in view their perception of the flat being a prime flat in the building. Mr Mukesh D Chowdhary has in his statement dated 14-03-2008 confirmed about the boom in the real estate market in reply to question no 27.The real estate boom in 2006-08 is also reflected in CRISIL research report-Indian Real Estate overview whereby the real estate sector progress has been defined as under:-
“Phase I (2001-2005) was an initial growth phase with stabilising residential real estate prices following the global recovery post the “dot com” bust and 9/11 terrorist attacks in New York. At the same time, there was steady growth in Indian economic activity, noteworthy recovery in IT/ITES industry, growing urbanisation and a rising trend towards nuclear families.
Phase II (2006-2008) was a high growth phase where high demand for residential real estate led to doubling of housing prices. Demand rapidly increased due to India’s growing population, accentuated urbanisation, rising disposable incomes, rapidly growing middle class and youth population, low interest rates, fiscal incentives on interest and principal payments for housing loans and heightened customer expectations.
Phase III (2009-2010) witnessed substantial slowdown and part recovery in demand because of the global economic downturn, which led to a decline in affordability and tight liquidity. The retreat of various real estate investors, accompanied by slowdown in the capital markets, has resulted in oversupply and falling prices.”
ITA 76/Mum/2012, The Revenue has brought to tax only the difference between the sales figure recorded in the said seized document page 18 and back of page 18 of Annexure A-3 and the books of accounts maintained by the assessee as undisclosed income of the assessee. The above document page 18 and back of page 18 /Annexure A-3 has to be read together with in conjunction and in context of minutes of meetings held on 30-08-2005 between the Partner group whereby they have arrived at and reiterated understanding and modus operandi to generate ‘on money’ cash from this project and also arrived at the manner to distribute the same cash ‘on money’ amongst themselves. This is further corroborated by admission of the assessee partner Mr Mukesh D Chowdhary vide statement recorded on 14-03-2008 that cash money was generated in these projects and the assessee had received ‘on money’ to the tune of Rs.1.25 crores from 01-04-2007 to the date of search. It is an admitted and undisputed position by the assessee that project Shanti Garden (relevant sector III & IV in the instant assessment year) was started by the assessee in the year 2005 and completed in 2007 and the same was stated by the learned counsel for the assessee before us. The alleged meeting which took place on 30-08-2005 vide document no 14 of loose paper containing page 1-24 which is a minutes of the meeting wherein the understanding to generate and distribute cash ‘on money’ between the two partner groups was allegedly arrived at and reiterated as stated in the said seized document while it is other matter that the assessee has denied of any such meeting. The document was seized from the assessee and the presumption u/s 132(4A) shall apply that the document belonged to the assessee and the contents of the documents are true and correct. It is for the assessee to rebut the same which the assessee has merely denied the same while the documents speaks loudly that the said meeting in-fact took place on 30-08-2005 at Taj Mahal ITA 76/Mum/2012, ITA No. 7421/Mum/2012 Hotel , Bombay between the two partner groups to decide about the modus operandi to generate and distribute cash ‘on money’ from the projects undertaken by the assessee amongst two partner group in the manner stipulated in the said seized document . It is admitted by the assessee that two groups mentioned in the said document are to be decoded as Bharat S Shah group and D. G Choudhary group who are in fact partner groups of the assessee. The name of the assessee also did find mention as ‘RNDC’ in codes which in-fact stands for abbreviated version of the assessee name i.e. ‘Ramnagar Development Corporation’ . The case law of Jyoti Wire Industries Limited( Supra) relied upon by the assessee is clearly distinguishable as in this case there was no evidence that the tax-payer has received any on-money for the assessment year 1989-90 while there was an admission by the tax- payer that it did received on-money for assessment year 1990-91, while in the instant case there is a seized document no 14 of loose paper containing pages 1-24 , which are minutes dated 30-08-2005 whereby the partner groups held meeting to decide about the modus operandi to generate and thereafter distribute cash ‘on money’ amongst themselves from the projects undertaken by the assessee in the manner stipulated in the seized document corroborated by the seizure of document no 18/18a of Annexure A-3 which reflected the mismatch between sales recorded in the seized document and the books of account having reference to the date 31-03-2007 which is further corroborated by the statement dated 14-03-2008 of partner of the assessee Mr Mukesh D Chowdhary wherein the said partner of the assessee has admitted to having actually received cash ‘on-money’ from the projects undertaken by the assessee of Rs.1.25 crores from 01-04-2007 to the date of search . The conduct of the assessee through out starting with the commencement of the project Shanti Garden in 2005 is consistent till ITA 76/Mum/2012, ITA No. 7421/Mum/2012 recording of statement on 14-03-2008 that the assessee indulged in collecting cash ‘on-money’ from the projects undertaken by the assessee. The admission of the assessee vide statement recorded on 14-03-2008 of the partner of the assessee Mr. Mukesh D Chowdhary which statement of the partner is not retracted till date that the assessee collected Rs.1.25 crores as cash ‘on- money ‘ during 01-04-2007 till the date of search has to be necessarily read with document no 14 of loose pages 1-24 whereby minutes of meeting were recorded of meeting taking place way back in 30-08-2005 whereby both the partner groups reached and reiterated understanding to collect and distribute cash ‘on-money’ from these projects undertaken by the assessee. The assessee in-fact filed return of income for the assessment year 2008-09 and offered this surrendered income of Rs.1.25 crores for taxation. The assessee has also sold majority of the flats in the previous year 2006-07 with respect to Shanti Garden project and the insignificant inventory is left unsold as on 31- 03-2007. This period also matches with the period of boom in Indian Real Estate industry which is elaborately discussed above by us. Section 132 of the Act is a code in itself. The Section is placed in statute with an objective to prevent evasion of taxes and to unearth undisclosed income or hidden income and bring the same to tax as per the scheme of the Act. It also empowers revenue to seize money, bullion etc which represented the undisclosed income which are retained by the Revenue to be appropriated for realization of demands raised under the provisions of the Act persuant to the assessment framed by the Revenue in consequence of the search. There will always be some estimation and guess work while computing the undisclosed income of the assessee as the same had been kept hidden by the assessee from the Revenue which is within the special knowledge of the assesssee and may not be brought out completely before the authorities , thus, exact precision can ITA 76/Mum/2012, ITA No. 7421/Mum/2012 never be reached in estimating undisclosed income, the safe guard should be to ensure that guess work in estimating undisclosed income should not be arbitrary. In our considered view, the ld. CIT(A) has taken a correct stand confirming and sustaining the assessment order passed by the AO vide his appellate orders dated 08-11-2011, as also we agree with the stand taken by the learned CIT(A) in his appellate order dated 08-11-2011 whereby he directed the AO that amount of cash ‘on-money’ with respect to all the unsold stocks as at 31-03-2007 held by the assessee which the AO added in the undisclosed income of the assessee have to be eliminated from the chargeability to tax and the rest amount is to be brought to tax as undisclosed income of the assessee. We find no infirmity in the orders of the ld. CIT(A) whereby ld CIT(A) has upheld the assessment orders of the AO by confirming that the cash ‘on-money’ was in-fact being received by the assessee in the previous year relevant to the impugned assessment year, hence, we uphold/sustain the appellate order dated 08-11-2011 passed by the ld. CIT(A) by dismissing the appeal of the assessee. We order accordingly.
In the result appeal filed by the assessee in for the assessment year 2007-08 is dismissed.
2008-09
The grounds raised by the assessee firm in this appeal filed with the Tribunal read as under:-
“The Commissioner of Income Tax (Appeals) Mumbai has erred :-
ITA 76/Mum/2012, ITA No. 7421/Mum/2012
1. in confirming an addition although no papers were found during the Search proceedings to justify the said additions made.
2. in confirming an addition of on money earned on sale of flats on a purely estimated basis without any evidence being found either during the Search or thereafter to justify the same.
3. in not appreciating that the disclosure made by the appellant covered whatever income had been earned.
In not adequately appreciating that the project had only commenced in this year and was only complete to the extent of 25%.
5. in making an assumption that the appellant had earned on money on every transaction of sale without appreciating the submissions made and without appreciating that there was no evidence which was found during the Search or otherwise to justify the same.
All the grounds above are without prejudice to each other.”
The facts of the case are similar compared to ITA No. 76/Mum/2012. Since the assessee made disclosure of Rs. 1.25 crores during search proceedings on 13-03-2008 , during the course of assessment proceedings the assessee was asked by the AO to provide the basis of disclosure of Rs. 1.25 crores and as to why not cash receipts should be extrapolated for sales after 1.4.2007 till the date of search as the partners accepted to receive out of book money from 1.4.2007 onwards in his statement dated 14.3.2008 u/s 132(4) of the Act and disclosed Rs. 1.25 crores on this account. The extract of the statement reads as under:-
“Q.27 Do you want to say anything?
ITA 76/Mum/2012, ITA No. 7421/Mum/2012
Ans. I have to say only that due to the price rise in building construction business I have been able to collect cash money roughly 20% over and above the sale price realized by us in financial year starting from 1.4.2007 onwards amounting to Rs. 1.25 crores approximate upto the date, which is not recorded in my books of account of M/s Ramnagar Development Corporation. The same is hereby surrendered as additional income for the current financial year with the request that no penal/prosecution action should be taken against us & I may be allowed the immunity granted under Sec 132(4) of the IT Act, 1961."
In response vide letter dt 21.10.2009, assessee made following submission: "Query No.3 What is the basis of disclosure of Rs 1.25 crores?
The above disclosure was made to buy peace of mind at the end of very exhausting and emotionally and mentally an extremely tiring session lasting almost for 24 hours. It was made on the basis of the partners estimate of the additional income generated without having the energy or the time or being in the frame of mind to go into any sort of detail at that of time. We do submit that earning of such additional income is not a regular feature of this trade and the amount disclosed more than adequately covered the amounts which the promoters were aware of having receiving during the project."
Further vide letter dated 26.10.2009, assessee made following submission:-
“Please find enclosed herewith the statement of sales during period 1.4.2007 to 13.3.2008. We have to state that due to the boom in the real estate business during the ITA 76/Mum/2012, ITA No. 7421/Mum/2012 above said period we have been able to collect from some purchasers cash, money ranging from 10 to 20% on and above the sale price realized on some transactions depending upon the following factors
1) Buyers keen interest to buy a particular flat being his /her preferred choice due to reasons such as Garden/ Road Facing, view, cross ventilation, vastu, etc.
2) The urgent need of the buyer to strike a deal
3) His/her perception of the flat being a prime flat in the building
We reiterate that cash money as mentioned above not exceeding 20% has been collected in some transaction only and earning such additional income is not our regular practice. We further state that the disclosure of Rs. 1.25 crores more than adequately covered such earnings which promoters were aware of having received during the period mentioned above".
The assessee’s submission was considered by the A.O. but rejected and it was observed that the assessee was involved in accepting out of books money from 1.4.2007 onwards ranging from 10 to 20%. Further from the analysis of Page No. 14 of loose paper file containing pages 1 to 24, it was evident that assessee was involved in accepting cash ‘on money’ i.e. out of books receipts. The AO observed that accordingly on an average basis, at the rate of 20% extrapolation could be done on the total sales of Rs. 18,70,90,000/- for the period 1.4.2007 to 13.3.2008(date of search] which comes to be Rs. 3,74,18,000/- and out of this, the assessee had already made disclosure of Rs. 1.25 crores , so only the balance of Rs. 2,49,18,000 was directed to be ITA 76/Mum/2012, added to the income of the assessee for the assessment year 2008-09 by the AO vide assessment order dated 22-12-2009 passed u/s 143(3) of the Act.
Aggrieved by the assessment order dated 22-12-2009 passed by the A.O. u/s. 143(3) of the Act, the assessee filed its first appeal before the ld. CIT(A).
Before the ld. CIT(A), the assessee submitted that the A.O. has made the addition which was purely on presumption and surmises and without any specific material found to justify the same. The assessee submitted that no such evidence has been found that the cash ‘on-money’ has been collected on each and every bookings, hence, the A.O. was completely unjustified in making the addition during the year in question. It was submitted that the A.O. had completely ignored the submissions made by the assessee wherein it was stated clearly that cash ‘on-money’ was received only in some cases and that too varied between 10% to 20% and hence there was no case for the A.O. to pro rate that statement into assumption that on money of 20% had been received in respect of every single booking done by the assessee during the year in question. The assessee submitted that the project had only started during the year and had been sold only to the extent of less than 25% during the year in question and hence the possibility of huge on-money being paid by buyers was remote since a huge number of flats were still available for sale and the construction has not progressed as to be near completion. The assessee submitted that flats had been sold at a standard price and in certain cases where certain additional benefits were being given or where flats were better located or the buyer wanted to close in a deal, the assessee had been able to recover a premium and it was these premiums which had been offered to tax. Thus the assessee prayed that addition should not be made merely on ITA 76/Mum/2012, the basis of presumptions when no adverse material to justify the addition is available. Thus , the assessee submitted that the cash collected towards bookings be restricted to the figure of Rs.1.25 crores as surrendered/ disclosed and the balance addition made be deleted.
The ld. CIT(A) rejected the contentions of the assessee on the ground that the assessee admitted that certain ‘on money’ was received from the buyers of the flats and the seized material has proved that the assessee had received ‘on money’ on sale of flats. Mr. Mukesh D. Choudhry has also admitted in the statement recorded u/s 132(4) of the Act that due to boom in the real estate market, the assessee collected 20% ‘on money’ on the sale of flats and disclosed Rs.1.25 crore as additional income. The A.O. wanted to apply 20% of the extra money on the sale of all flats but the assessee tried to explain that the ‘on money’ received was ranging from 10% to 20% and the ‘on money’ was not received on all flats sale. The assessee has not retracted the statement made on 14-03-2008 up-to 26-10-2009. The asssessee vide reply dated 26th October, 2009 tried to explain that the ‘on money’ received was ranging from 10% to 20% while earlier the assessee stated that ‘on money’ received was 20%. The ld. CIT(A) observed that no evidence has been shown by the assessee to prove that the ‘on money’ received was Rs.1.25 crores or it was varying from 10% to 20% , while on the other hand the learned CIT(A) observed that the assessee has categorically stated in the statement recorded u/s 132(4) of the Act that due to boom in the real estate market, the assessee could collect 20% extra money. The ld. CIT(A) accordingly uphold the action of the A.O. that ‘on money’ at 20% on the sale of flats was received by the assessee as per the statement of the partner of the assessee Mr. Mukesh D Chowdhary recorded u/s 132(4) of the Act on 14-03-2008as the assessee ITA 76/Mum/2012, failed to prove that the ‘on money’ received ranged from 10-20% . Thus, the learned CIT(A) affirmed the assessment order dated 22-12-2009 passed by the AO u/s 143(3) of the Act vide his appellate order dated 08-11-2011.
Aggrieved by the appellate order dated 08-11-2011 of the ld. CIT(A), the assessee is in second appeal before the Tribunal.
The ld. Counsel for the assessee submitted that the basis of the addition was statement dated 14-03-2008 made by the partner of the assessee Mr. Mukesh D Chowdhary during the course of search operations whereby the partner of the assessee submitted in response to question no 27 that due to price rise in building construction , assessee was able to collect cash ‘on money’ roughly 20% over and above sale price from 1.4.2007 till the date of search amounting to Rs. 1.25 crores which is not recorded in the books of account and the same was surrendered by the assessee. The assessee has duly filed the return of income and disclosed the said amount of Rs.1.25 crores in the return of income filed with the Revenue and paid the due taxes. The A.O. has made the addition based upon extrapolation of 20% of the sales while no further enquiry is made Arbitrary additions have been made based on surmises, conjectures and assumptions which is not permitted. Complete details have been submitted by the assessee before the authorities below. The ld. Counsel relied on the CBDT Instruction dated 18th December, 2014. The learned counsel for the assessee submitted that no extra addition can be made apart from surrender of Rs.1.25 crores made by the assessee. The ld. Counsel submitted that the project was completed in May, 2009. The assessee is following project completion method of accounting hence estimate cannot be made. Occupation certificate was ITA 76/Mum/2012, received in May, 2009. The ld. Counsel relied on the decision of the Tribunal in the case of Guruprerna Enterprises v. ACIT, (2011) 57 DTR (Mumbai Trib) 465 and in the case of Jalaram Jagruti Developers Pvt. Ltd. v. DCIT in ITA No. 5121 to 5123/Mum/08 for assessment years 2003-04 to 2005-06 dated 28th April, 2009.It was submitted that the above decision is affirmed by the Hon’ble Bombay High Court. The assessee also relied upon decision of Jyoti Wire Indursties(Supra).
The ld. CIT D.R. relied upon the seized material marked as page 18 and back of page 18 /Annexure A-3 and the orders of the authorities below and submitted that the onus is on the assessee to prove that the ‘on money’ received was varying from 10% to 20% of sale and not 20% of the sales as stated in the statement recorded on 14-03-2008. The ld. CIT D.R. further relied upon the provisions of section 132 (4) and 132 (4A) of the Act. The ld CIT DR also relied upon the seized material marked as page 14 of folder containing loose pages 1-24 which is placed in the file. As per page No. 14, it is clearly mentioned that meeting took place between the two partner groups of the assessee on 30-08-2005 at Taj Mahal Hotel, Bombay wherein it was decided to generate and distribute cash ‘on money’ from the sale of flats of Shanti Garden. The ld. D.R. submitted that the voluntary statement was made by the partner of the assessee Mr Mukesh D Chowdhary on 14-03-2008 which has not been retracted by the assessee and the return of income has been filed wherein Rs1.25 crores was declared and offered for taxation. He drew our attention to the question no 7-11, 26 and 27 of statement dated 14- 03-2008 of Sh Mukesh D Chowdhary and submitted that the additions be sustained. The ld CIT DR submitted that the said partner of the assessee Mr. Mukesh D Chowdhary in reply to question no 27 stated that ‘on money’ ITA 76/Mum/2012, ITA No. 7421/Mum/2012 received was 20% and now onus is on the assessee to rebut that the statement was not correct. Income Tax Proceedings are governed by preponderance of human probabilities The ld. CIT D.R. relied upon the judgment of Hon’ble Supreme Court in the case of Sumati Dayal v. CIT (1995) 80 Taxman 89(SC) . It was submitted that keeping in view conduct of the assessee and on the test of preponderance of human probabilities , the additions as made by the AO and as confirmed by learned CIT(A) needs to be confirmed/sustained. It was submitted that the arguments taken by the assessee are afterthought. The ld. CIT DR submitted that it is the duty of the assessee to explain the seized material and document no 14 of loose seized folder containing 1-24 page clearly stipulates that the partner group of the assessee duly entered into an understanding to generate and distribute amongst themselves cash ‘on money’ received from the project. It was submitted that the disclosure was not suo motu but based on evidences found during search and the statement of the assessee was voluntary and circular relied upon by the assessee is not help to the assessee. The ld CIT DR relied upon decision of Hon’ble Bombay High Court in the case of Surender M Khandar(supra), decision of Hon’ble Andhra Pradesh High Court in the case of Gopal Lal Badhruka v. DCIT(2012) 27 taxmaann.com 167(AP), and decision of Hon’ble High Court of Allahabad in the case of CIT v. Lal Chand Jaiswal (2013) 40 taxmann.com 372(All. HC). Thus, in nutshell it was submitted by learned CIT DR that the search took place in the instant assessment year on 13-03-2008 wherein the assessee surrendered Rs.1.25 crores during search operations but failed to explain how the figure of Rs.1.25 crore was arrived at. The assessee has during recording of statement submitted that cash ‘on money’ is 20% of sale price of flat. The addition of ‘on ITA 76/Mum/2012, money’ as made by ld. AO and as confirmed by ld. CIT(A)@ 20% of sales needed to be confirmed.
In the rejoinder, the ld. Counsel submitted that Rs. 1.25 crores has been surrendered by the assessee which has already been offered for taxation and there is no dispute as to the same. It was submitted that surrender was made to cover discrepancies and department cannot be allowed to improve its case.It was submitted that Revenue can do extrapolation but not on the basis of guess work.
We have considered the rival contentions and also perused the material available on record including the case laws cited by both the parties. The assessee is a builder engaged in the construction activity developing property at Mira Road, District Thane. We have elaborately discussed in for the assessment year 2007-08 in preceding para’s of this order the entire factual background of the case. In the year 2005 on 30-08- 2005 there was a meeting between the partner groups of the assessee where there was a understating arrived at and reiterated during the meeting between the two partner groups for cash generation and manner of distribution of cash so generated amongst partner groups with respect to the project undertaken by the assessee. Vide page No. 18 and back of page 18 of Annexure A-3, we have confirmed the addition on account of cash ‘on money’ so generated in the ITA no 76/Mum/2012 with respect to the flats sold during the previous year 2006-07 relevant to the assessment year 2007-08 while ‘on money’ on the unsold stock in the assessment year 2007-08 was directed to be excluded as the same was not sold in the assessment year . The flats so sold in the assessment year 2008-09 as reflected per seized material ITA 76/Mum/2012, ITA No. 7421/Mum/2012 page 18 and back page of 18 vide annexure A-3, the ‘on money’ component shall be brought to tax based upon the sales executed of the inventory executed in the instant assessment year which were reflected of the projects vide seized annexure A-3/page 18 and back page of 18. The partner of assessee has stated in the statement recorded on 14-03-2008 that ‘on money’ received from 01-4-2007 to the date of search was 20% over and above sale price which in aggregate amounted to Rs.1.25 crores for the period 01-04- 2007 to date of search. The A.O. has applied 20 % extrapolation on the total sales which led to addition of Rs.3,74,18,000/-- inclusive of Rs.1.25 crores surrendered by the assessee. The AO per-se cannot apply part of the surrender by picking and choosing the figure of 20% over and above cash sales in isolation to the figure of total surrender of Rs.1.25 crores unless cogent reasons are brought on records. However, since part of the stock was sold during the assessment year 2008-09 which is carry forward from the assessment year 2007-08 whereby we confirmed the additions in assessment year 2007-08 based on sold flats , needed to be confirmed in the instant assessment year on same basis on the inventory sold in the previous year relevant to the instant assessment year 2008-09 by relying on the seized document page 18 and back of page 18/annexure A-3. With respect to the other stock of flat in other sectors of the project so sold during the previous year relevant to the instant assessment year 2008-09, we have to see it in context of the conduct of the assessee since 2005 when meeting took place between partner groups on 30-08-2005 whereby understanding was arrived at as well reiterated to generate cash ‘on money’ from sale of flats in the project and also to distribute the same amongst partner group which is reflected in seized material page 14 of loose paper folder containing page 1- 24, followed by seizure of documents page 18 and back of page 18 /Annexure ITA 76/Mum/2012, ITA No. 7421/Mum/2012 A-3 and the statement of partner of the assessee dated 14-03-2008 whereby he admitted having received cash ‘on money’ of Rs. 1.25 crores in the instant assessment year. This also need to be seen in context of real estate boom which was prevailing in Indian real estate sector in 2006-2008 which is elaborately discussed by us in for assessment year 2007-08 in preceding para’s. Thus, with respect to the sales recorded during the instant assessment year excluding sales which were of the unsold inventory of the last year which we have directed to include ‘on money’ based on page 18 and back of page 18/annexure A-3, the additions shall be made on same proportion as were made in the assessment year 2007-08 in the ratio of sale to undisclosed income brought to tax as the conduct of the assessee is continuing as brought on record since 2005 meeting till the recording of statement on 14-03-2008 as set out above whereby conduct of the assessee based on preponderance of human probabilities points to the receipt of ‘on money’ regularly by the assessee during the instant assessment year backed with booming real estate sector which itself is admitted by the assessee and quantification need to be done based on the empirical data of the immediately preceding year as the real estate boom continued during this instant assessment year . Keeping in view that the assessee has surrendered Rs. 1.25 crores during the search proceedings vide statement dated 14-03-2008, whichever figure as arrived at as per our above directions or surrendered amount of Rs.1.25 crores whichever is higher of the two needs to be added as un-disclosed income as in our considered view the estimate of the undisclosed income has to be made which definitely need some guess work which of course should not be arbitrary while on the other hand the details of surrender amount of Rs.1.25 crores is within the special knowledge of the assessee which details are not brought out by the assessee. The Revenue has ITA 76/Mum/2012, ITA No. 7421/Mum/2012 made addition @ 20% on extrapolation which is also not sustainable in the instant case by reading in isolation in divorce to the total surrender of Rs.1.25 crores as the addition has been made on the basis of the statement of partner dated 14-03-2008 which categorically stated that the surrender was to the extent of Rs.1.25 crores and secondly revenue has not made any enquiry to bring on record cogent tangible incriminating material to prove that the assessee received 20% cash on all sales while empirical data of preceding year which led to the framing of the assessment order of the preceding year as confirmed by the learned CIT(A) which order of the learned CIT(A) we confirmed does not suggest that addition to the tune of 20% on the sales value were made by the Revenue as sustained by learned CIT(A) in immediately preceding assessment year 2007-08. Hence addition are to be sustained in the manner laid down by us in our above decision. We have considered the case laws relied upon by both the parties while arriving at the conclusions as set out above. We order accordingly. for the assessment year 2009-10.
In this appeal filed before the Tribunal , the assessee has raised the following grounds:-
“The Commissioner of Income Tax (Appeals) - 39, Mumbai has erred:-
1. in confirming an addition of unaccounted income based on presumptions and surmises and without appreciating correctly the facts of the case and practical realities.
ITA 76/Mum/2012, ITA No. 7421/Mum/2012
2. in not appreciating that no addition could be made based on rough workings found at the premises which at best represented provisional figures and nothing more.
3. in not appreciating the explanations given by the appellant of various reasons why flats are sold at different prices and other submissions made by the appellant.
All the grounds above are without prejudice to each other.”
The assessee is a builder engaged in the construction activity developing property at Mira Road, District Thane. We have elaborately discussed in for the assessment year 2007-08 in preceding para’s of this order the entire factual background of the case. In this appeal, the A.O. has made similar addition based upon the seized page no. 18 and back of page 18 / annexure A-3 which additions were partly confirmed by the learned CIT(A) . We have sustained the order of learned CIT(A) in the assessment year 2007-08 in the manner laid down in our decision in ITA NO 76/Mum/2012 in preceding para’s for assessment year 2007-08 the additions made based on seized material page 18 and back of the page 18/annexure A-3. The addition has been made in this year based upon the sale of unsold stock which was carry forward from the earlier years based upon the seized material page 18 and back of page 18 of annexure A-3 whereby addition of Rs. 1,18,500/- has been made in the instant assessment year. We have upheld the validity of the additions made based upon the seized material page No. 18 and back of page 18 / annexure A-3 in ITA no.76/Mum/2012 for the assessment year 2007-08. We have observed that the search took place on 13-03-2008 while the instant assessment year is 2009-10 i.e. the assessment year is post search on 13-03-2008 . The seizures ITA 76/Mum/2012, ITA No. 7421/Mum/2012 were made on 13-03-2008 and statement was recorded on 14-03-2008 which all pertained to the activities and conduct of the assessee prior to the search action on 13-03-2008. The additions for the instant assessment year 2009-10 cannot be made based on the conduct of the assessee prior to the search on 13-03-2008 unless cogent tangible incriminating material is brought on record by the Revenue to prove that the conduct of the assessee carried on by it was the same by indulging in the activity of receiving cash ‘on money’ even post search on 13-03-2008. The contention of the Revenue that the sales are recorded in the same seized document page 18 and back of page 18 of Annexure A 3 based on which additions were made in the assessment year 2007-08 and now the additions are made with respect to unsold stock of the earlier years found recorded in the said seized document A-3/page 18 along with back of page 18 which has now been sold in the previous year relevant to the assessment year 2009-10 , may look tempting at the first blush but the fact of the matter is that this period is post search period whereby previous year commenced on 01-04-2008 and ended on 31-03-2009 and the search took place on 13-03-2008 i.e. prior to commencement of previous year , no fresh tangible incriminating material is brought on record by the Revenue to enable us to arrive at conclusion that contumacious conduct of the assessee which existed prior to date of search on 13-03-2008 even continued after the date of search also to sustain the addition as made by the Revenue , as the conduct of the assessee prior to the search which is reflected in the seized materials and statements recorded on the date of search cannot be held to be also continuing in the post search period unless there is tangible and clinching incriminating evidence brought on record by the Revenue to prove continuation of contumacious conduct of the assessee even during the post search period .Hence based on our above reasoning and discussions, We ITA 76/Mum/2012, order deletion of the addition of Rs.1,18,500/-made by the AO and as sustained by learned CIT(A). The appeal of the assessee is , therefore, allowed. We order accordingly.
In the result, the appeals filed by the assessee in ITA N0. 76/Mum/2012 for the assessment year 2007-08 is dismissed, while appeal filed by the assessee in 2008- 09 is partly allowed and the appeal of the assessee in for the assessment year 2009-10 is allowed.
Order pronounced in the open court on 22nd August, 2016. आदेश क� घोषणा खुले �यायालय म� �दनांकः ………….. को क� गई ।