ITO, PONDICHERRY vs. V.MOHENE,, PONDICHERRY

आदेश / O R D E R

PER CHANDRA POOJARI, ACCOUNTANT MEMBER These two appeals by Revenue are directed against different orders of the Commissioner of Income Tax (Appeals)-VI, Chennai, dated 30.03.2014 for the above assessment years. First, we take up assessment year 2008-2009 for adjudication.

I.T.A.Nos.1788 &1796/Mds/2014 :- 2 -:

The Revenue has raised the following grounds:- 2.

Trading Company which was a consignment agent for pneumatic spares. The assessee also did business in the real estate. The case was selected for scrutiny by issue of notice u/s.143(3) of the Act dated 24.08.2010. The assessment u/s.143(3) of the Act was completed and assessing total income at �3,73,80,010/- and agricultural income of �65,000/-. Aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals).

Less: Purchase price, including registration Charges : �1,93,49,308/- Balance : �3,74,53,577/- Less: Value of unsold plots : � 2,16,817/- Profit from sale of plots : �3,72,36,760/- 4.1 The Assessing Officer also computed the income of the assessee by investment method at �2,36,85,707/- on the basis of the total amounts deposited in the bank accounts of the assessee, his wife and Mrs.Gandhimathi. The Assessing Officer has computed the profit by investment method at �2,36,85,707/- by following computation method.

Total Sale proceeds as per bank accounts : �3,36,26,000/- Investment made by the assessee : � 47,22,880/- Total : �3,83,48,880/- Less: Payment made to RVP Associates : �1,82,47,680/- Add: Registration charges not : � 13,69,672/- paid out of bank Add: Loans taken considered as doubtful : � 12,50,000/- Add: Cash in hand : � 9,64,835/- Profit from sale of plots : �2,36,85,707/- by investment method

4.2 The Commissioner of Income Tax (Appeals) observed the assessee has disclosed �40,00,000/- as unaccounted income I.T.A.Nos.1788 &1796/Mds/2014 :- 6 -: under the head Adhayam receipts in the course of assessment proceedings vide his letter dated 27.12.2010. As the income computed by the Assessing Officer by estimation method at �.3,72,36,760/- is higher than the income computed by investment method at �.2,36,85,707/- and also by offer of income by the assessee at �40,00,000/-, in the course of assessment proceedings, the Assessing Officer has taken higher amount i.e. the income estimated at �3,72,36,760/-and made addition of �3,72,36,760/- as the income over and above returned income.

4.3 The Commissioner of Income Tax (Appeals) further observed that it was the contention of the ld. Authorised Representative for assessee that 13 persons have given a declaration before Assessing Officer wherein they have stated that the amounts as per sale deed was the correct amount paid and they have mistakenly stated the amounts paid in the sworn statements given by them before the Assessing Officer. It was the contention of the the ld. Authorised Representative for assessee that the purchasers have clarified before Assessing

Officer that the additional amount paid in some cases included I.T.A.Nos.1788 &1796/Mds/2014 :- 7 -: for construction of the compound wall and charges for obtaining approval for converting the industrial land as for residential use. During the course of appellate proceedings, the Commissioner of Income Tax called for a remand report after giving opportunity of being heard to the assessee. In response to the query, the Assessing Officer has given his interim remand report vide letter dt. 31.10.2012 along with the copies of the sworn statements recorded from the purchasers, copy of the valuation report dt. 06.09.2012 furnished by District Valuation Officer for valuing the three storey building at Pondicherry registered in the name of Smt.M.Jeyanthi w/o of V.Mohene, valuing the construction cost of the property for the period FY 2004-05 at �35,55,000/- and for the period FY 2011-12 (3rd floor) at �13,25,000/- totaling to �.45,80,000/- and also final remand report dt. 15.01.2013.

4.4 The Commissioner of Income Tax (Appeals) further observed that he had considered the findings of the Assessing

Officer given in the assessment order, remand report and the submissions made by the ld. Authorised Representative for assessee carefully and also perused the copies of the sworn I.T.A.Nos.1788 &1796/Mds/2014 :- 8 -: statements given by the purchasers of the plots, the declarations made by them giving clarifications/explanations about the purchase price of the plots and also the loan confirmations or affidavits made by the parties which were placed in the case records. The main argument of the ld.

Authorised Representative for assessee was that the assessee did not make huge profits as determined by the Assessing

Officer in the assessment order. The other argument was that he had only earned a commission @ Rs.50/- per sq ft on the land sold. He has further stated that the 'on money' along with the document price which he has taken from the prospective buyers of the plots was taken on behalf of the land owners M/s

RVP Associates and the entire money was deposited in the bank account which was again transferred to M/s RVP Associates by way of cash and also by way of demand drafts etc. Some of the plots were purchased and sold on the same day. Majority of the plots were sold within 3 months from the date of purchase. The sequence of purchase and sale indicated that the land was sold immediately after the purchase from RVP Associates. The Assessing Officer himself indicates in the assessment order that the assessee has not received any uniform price from sale of I.T.A.Nos.1788 &1796/Mds/2014 :- 9 -: plots. Some of the plot purchaser's who have paid money in cash over and above the document price have denied the payment of cash as 'on money' in the subsequent declarations made before the Assessing Officer. However the total receipts including cash deposited in the bank accounts was much more than the total sale price of the plots. Just before 2 days from the date of the assessment order, i.e. on 29.12.2010, the assessee, has himself given a voluntary statement before the Assessing

Officer that the total receipts from plot sales was �2,71,16,000/- after deducting the transfer entries between accounts to the tune of �93,00,000/-, loan amounts �44,50,000/-, various re- deposits �30,00,000/-, agricultural income �2,50,000/-, sale of sugarcane �1,25,000/-, plot sold by his wife Jayanthi �1,50,000/.

The statement given by the assessee computing the total receipts from plot sales at �2,71,16,000/- was acknowledged by the Assessing Officer in the order of assessment as well as in the remand proceedings.

4.5 The Commissioner of Income Tax (Appeals) further observed that the purchase price of the land at �1,93,49,398/- was also acknowledged by the Assessing Officer in the remand report.

I.T.A.Nos.1788 &1796/Mds/2014 :- 10 -:

The sale price received as per the document value was only

�1,73,01,780/- as per the figure mentioned in the assessment order. That means, the entire 'on money' received by the assessee was deposited in the bank account by the assessee.

Therefore, the exact quantum of sale consideration of �5,68,02,885/- estimated by the A.O has no basis. The determination/estimation of the sale consideration of Rs.5,68,02,885/- was not based on any valid evidence. However the sale consideration at �2,71,16,000/- computed by the assessee in the course of assessment proceedings was based on investment method i.e. the total credit entries made in the bank accounts. However, while working the profit as per investment method, the Assessing Officer proceeded to take the sale proceeds as per bank accounts at �3,36,26,000/- without giving credit to the re-deposits made in the bank account at �30,00,000/- and also without looking into the claim of the assessee that loans of �44,50,000/- was received from 6 persons. From the perusal of the assessment records and details furnished by the assessee revealed that the assessee has received a loan of �10,00,000/- in cash from J.Vidhyachand, a loan of �7,50,000/-- from R.Sekar, a loan of I.T.A.Nos.1788 &1796/Mds/2014 :- 11 -:

�5,00,000/- from R.Muthuraju which were supported by affidavits, indicating their PAN nos and complete addresses.

Regarding the amounts received from Sun Pharmacy of �14,00,000/- and Poongavanam of �3,00,000/- and swaramoorthy of �5,00,000/- it was stated by the ld. Authorised

Representative for assessee that these were the advances received from the parties and same was adjusted against the lands allotted to them subsequently. The ld. Authorised

Representative for assessee also furnished the copies of the affidavits made by these 3 parties from whom' the cash advance was taken against purchase of the land. It was the contention of the ld. Authorised Representative for assessee stated that the affidavits from these 3 parties were already furnished before A.O during the course of assessment proceedings. The assessee relied on the ratio of the decision of the Supreme

Court Of India in the case of Orissa Corporation Ltd reported in 159 ITR 78 to prove that the loans are genuine and the assessee has discharged onus of proof furnishing the details of the loan creditors, addresses of the creditors, PAN nos. and confirmations. Considering the evidences furnished by the assessee during the course of assessment proceedings as well I.T.A.Nos.1788 &1796/Mds/2014 :- 12 -: as remand proceedings and legal position as cited above, the entire loan of �44,50,000/- obtained from 6 parties should not be again included in the computation of profit on sale of plots.

Therefore the action of the Assessing Officer to include the loan of �44,50,000/-- in the computation of profit requires to be deleted. Similarly, the re-deposits of �30,00,000/- out of the cash withdrawal from the bank account in which the sale proceeds were credited also needs to be removed from the computation of profit made by the A.O. In other words, the total receipts from plot sales of �2,71,16,000/-admitted by the assessee in the course of assessment proceedings vide his letter dated 29.12.2010 needs to be taken into consideration for the purpose of computing the gross receipts received from the sale of plots by the assessee. Further the Assessing Officer had again added the investments made by the assessee of �47,22,880/- to the total sale proceeds without any legal basis as the assessee had acquired the properties worth of �44,22,880/- through cash or cheque out of the income generated in the real estate business. The source of the purchase consideration paid in the name of the assessee’s wife Smt. Jayanthi was out of her own income. Smt. Jayanthi also I.T.A.Nos.1788 &1796/Mds/2014 :- 13 -: sated to have sold the property for a consideration of �1,90,000/-. Hence, the source of the purchase consideration paid by Smt. Jayanthi should not be again included in the computation of income of the assessee. Therefore, the entire investment of �47,22,880/- made by the assessee in his name also in the name of his wife should not be again included in the computation of the profit for tax purposes. Further, the Assessing Officer had included registration charges of �13,69,672/- and cash in hand of �9,64,835/- in the computation of the profit out of real estate business without any legal basis as the assessee was found to be withdrawing cash from the bank account for making payments which can be seen from the withdrawals appearing in the bank accounts on various dates. However, there was no evidence in respect of the agricultural income of �3,15,000/- which consist of �2,50,000/- on account of agricultural income and �1,25,000/- on account of sale of sugar. Even during the appellate proceedings, the assessee has come forward to admit on 31.01.2014 that he had earned profit @ �50/- per sqft on sale of land measuring

�1,24,679/- which comes to �62,33,950/-. During the course of appellate proceedings, AR of the assessee, was questioned I.T.A.Nos.1788 &1796/Mds/2014 :- 14 -: about the actual profit earned by the assessee and also required to give the explanation or clarification w.r.t the actual income earned by the assessee· based on the investment method. In response to the same, the AR of the assessee furnished the cash flow statement for the AY 2008-09 and for AY 2009-10 giving the details of the receipts and payments for investment purposes and the cash flow submitted by the assessee for assessment years 2008-09 and 2009-10.

4.6 The cash flow arrived by the assessee was based on the gross sale value of properties sold by the assessee admitted in his reply furnished before Assessing Officer dt.29.12.2010 after considering all the outgoings like transfer entries, re- deposits, loans from various parties etc. Therefore, the gross income of �2,71,16,000/- except to the extent of the agricultural income of �3,00,000/-) admitted as per the cash flow statement submitted during the appellate proceedings was treated as correct and genuine figure. As the assessee did not produce any documentary evidence in respect of the agricultural activities genuineness of the claim of income earned from agricultural activities was not accepted and the same was held as income I.T.A.Nos.1788 &1796/Mds/2014 :- 15 -: from other sources. The reduction in respect of stamp duty charges paid of earlier years was also not given for computation of the net profit earned by the assessee as it pertain to earlier years and included in the gross payment made to RVP

Associates as per cash flow statement. As the assessee made net of cash deposits in the bank accounts after incurring all normal business expenditure like payment of stamp duty, general maintenance expenditure, office expenditure, etc., the separate deductions in respect of all the business expenses is also not given while computing the real income earned by the assessee during the year under consideration. The reduction in respect of the payment made to RVP Associates is given for the purpose of computation of net profit as the assessee paid the money to RVP Associates out of the deposits made in the bank accounts maintained by the assessee in his name and in the name of Mrs.Gandhimathi. Therefore, the net profit earned by the assessee in the real estate business and other activities during the year under consideration was computed as under:-

Gross income from sale of properties : �2,71,16,000/- Less: Payments made to RVP Associates Including stamp duty (as per Cash flow statement) �1,93,49,308/- I.T.A.Nos.1788 &1796/Mds/2014 :- 16 -:

Less: Stamp duty charges in earlier years (as per cash flow statement – To be reduced from payment made � 6,42,447/- To RVP association ) ----------------------- �1,87,06,861/- Net Profit � 84,09,139/- Add: Agricutlural income treated as unexplained � 3,15,000/- ----------------- � 87,24,139/- ----------------- 4.7 The Commissioner of Income Tax (Appeals) directed the Assessing Officer to adopt the profit of ₹87,24,139/- as the profit from real estate business and other activities which remain to be accounted in the books of accounts and restrict the addition to ₹87,24,139/- instead of ₹3,72,36,760/-. Hence, the Assessing Officer was directed to delete the balance addition of ₹.2,85,12,621/- (₹3,72,36,760 – ₹87,24,139). Against this, the Revenue is in appeal before us.

Sale consideration as per calculation sheet : 5,68,02,885/- Less: Purchase price, including registration : 1,93,49,308/- Charges. Balance : 3,74,53,577/- Less: Value of unsold plots : 2,16,817/- Profit from sale of plots : 3,72,36,760/- The contention of the assessee counsel is that there is no unaccounted sale of property and the entire money was deposited in the bank account at �4,44,31,000/- which includes loan from various parties and the assessee explained the same as follows:-

My Deposits with ICICI Bank 16,15,000/- Deposit with Green land a/c. with ICICI : 26,86,000/- Deposits with ING Vysya : 2,51,51,000/- Deposits with Gandhi mathi account : 1,49,79,000/- Total receipts in bank accounts : 4,44,31,000/- Out of this, the following receipts are from the land sales and the assessee had furnished the details of receipts as under: ₹44,50,000/- Loan : Vidyachand : 10,00,000/- Sekar : 7,50,000/- Muthuraj : 5,00,000/- Sun pharmacy : 14,00,000/- Poongavanam : 3,00,000/- Eswaramurthy : 5,00,000/- Transfer form assessee account to Gandhi : 93,00,000/- Mathi Account Plot sold by my wife Jayanthi : 1,90,000/- Sale of sugarcane : 1,25,000/- Agricultural income : 2,50,000/- I.T.A.Nos.1788 &1796/Mds/2014 :- 18 -:

Various re deposit : 30,00,000/- Total receipts from various activities : 1,28,65,000/- Total receipts from the plot sale : 2,71,16,000/-.

Thus, the assessee’s total receipt from the sale of plot at �2,71,16,000/- and computed profits on the sale of these land transaction as follows:-

Gross income from sale of properties : �2,71,16,000/- Less: Payments made to RVP Associates Including stamp duty (as per Cash flow statement) �1,93,49,308/- Less: Stamp duty charges in earlier years (as per cash flow statement – To be reduced from payment made � 6,42,447/- To RVP association ) --------------- 1,87,06,861/- Net Profit � 84,09,139/- Add: Agricutlural income treated as unexplained � 3,15,000/- ----------------- � 87,24,139/- ----------------- In our opinion, the above computation of the income of the assessee is based on substantial evidence provided by the assessee and explanation given for the same. The Assessing Officer in the remand report has no material to suggest the gross income from the sale of plot at �5,68,02,885/- and contrary to this, the Assessing Officer estimated the sale value of the property without any supportive I.T.A.Nos.1788 &1796/Mds/2014 :- 19 -: material on his hand. In our opinion, the assessee’s version of gross receipt from the sale of property is based on evidence brought on record and further loan amount considered by the Assessing Officer as unexplained income to the tune of �44,50,000/- was considered by the Commissioner of Income Tax (Appeals) and there is no reason to doubt the same and it is to be considered as explained credit only.

Further, it is noted that the Assessing Officer even at the assessment stage accepted the total receipt of the plot at �2,71,16,000/-.

However, the Assessing Officer was not ready to compute the income on the basis of investment method instead he adopted the income on the estimation basis. In our opinion, when the material brought on record suggests the correct state of affairs of the assessee, it is not appropriate to estimate the income of the assessee on the basis of irrelevant consideration. The Assessing Officer could estimate the income of the assessee only when the following condition fulfilled.

(1) Failure to make return of income u/s.139(1) or 139(4) of the Act.

(2) Failure to produce the books of accounts in terms of notice issued u/s.142(1) of the Act.

(3) Failure to follow the direction of the Assessing Officer u/s.142(2) of the Act.

(4) Failure to comply to the terms in notice issued u/s.143(2) of the Act.

I.T.A.Nos.1788 &1796/Mds/2014 :- 20 -:

In the present case, there is no allegation by the Assessing Officer that the assessee failed to comply with the above requirements. Hence, the Assessing Officer cannot substitute his own view to the results show in the books of accounts.

�3,00,000/- was paid by the assessee, the assessee has not disclosed the purchase of shares in the return of income. The Assessing Officer added a sum of �57,00,00/- to the income returned. Aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals).

I.T.A.Nos.1788 &1796/Mds/2014 :- 22 -:

However, in the order, the Commissioner of Income Tax (Appeals) confirmed only �1,27,000/- as commission from scrap sales’’.

Mahendran and the assessee was also impounded, wherein scarps of standard rolling mills was sold for an amount of �67,25,000/- on 12.02.2009. The assessee, after obtaining the power of attorney from the partner of standard rolling mills Smt. Vijayalakshmi an agreement was reached for sale of scraps. The facts was confirmed by the assessee in the sworn statement taken during the survey u/s.133A on 06.12.2010. In the return of income filed the assessee didn’t disclose the income in the return. The assessee was directed to explain why the amount was not declared in the return of income. The ld. Authorised Representative for assessee has stated that the assessee has received a sum of �10,00,000/- only. A perusal of copy of document it was agreed by the parties that a sum of �10,00,000/- should be paid immediately i.e on 12.02.2009 and the balance amount should be settled before clearing the scraps. It was stated in the agreement on 31.03.2009 that the entire scraps were cleared after paying the balance of �57,25,000/-. Hence, it was clear that the assessee has received a sum of �67,25,000/- for sale of scraps, which is liable to tax under the head income from other sources u/s.56 of the Act, and is added to the income returned. Aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals).

I.T.A.Nos.1788 &1796/Mds/2014 :- 24 -:

Standard Steel Rolling Mills, a partnership firm without having any right of alienation. The scrap was sold on 12.02.2009 for a consideration of �67,25,000/-. The special power of attorney produced by the assessee do reveal about the fact of selling of scrap on behalf of Mrs. Vijayalakshmi. The assessee also contested on the alternative ground that it at all the income on sale of scarp was to be taxed, same was to be assessed in the hands of partnership firm, M/s. Standard steel rolling mills wherein the assessee was holding a share to the extent of the 36.842% as per the sale agreement dated 03.05.2008 signed between assessee and Mrs. Vijayalakshmi. The ld. Authorised Representative for assessee further contended that the agreement dated 03.05.2008 containing the purchase of shares of 36.842% in I.T.A.Nos.1788 &1796/Mds/2014 :- 25 -: the share of Vijayalakshmi in which she was a partner in Standard Steel Rolling Mills was already made available before the Assessing Officer in the course of survey proceedings. The assessee also produced the copy of cash receipt given by Smt. Vijayalakshmi authorizing the assessee as power of agent for the purpose of selling scrap and other accessories of Standard Steel Rolling Mills and also giving the details of the sale price of the scrap at �67,25,000/- to Shri.

T. Mahendran. The cash receipt produced by the assessee gives the details of commission of �1,27,000/- paid to assessee for selling the scrap. The Commissioner of Income Tax (Appeals) agreed with the contention of the ld. Authorised Representative for assessee that the assessee has carried out transaction for sale of the scrap on behalf of Mrs. Vijayalakshmi. The nature of the scarp was the material belonging to M/s. Steel Rolling Mills wherein Mrs. Vijayalakshmi was a partner in the assessed Steel Rolling Mills. The profit arising out of sale of scrap if any belongs to Mrs. Vijayalakshmi. The assessee had earned a commission of �,1,27,000/-. Hence, the Commissioner of Income Tax (Appeals) confirmed the addition to the extent of �1,27,000/- and deleted the balance addition. Against this, the Revenue is in appeal before us.

I.T.A.Nos.1788 &1796/Mds/2014 :- 26 -:

The assessee is entitled to receive commission at �1,27,000/- from this transaction and the same was offered to tax. Considering these facts the Commissioner of Income Tax (Appeals) deleted the addition made by the Assessing Officer to the tune of �67,25,000/-. The contention of the department is that cash flow statement shows �.67,25,000/- as receipt. The assessee admitted to have received this money on behalf of Mrs. Vijayalakshmi, it should be shown as receipts and not to be shown as application of money in the cash flow statement. We do not find any infirmity in the order of the Commissioner of Income Tax (Appeals) and the appeal of the Revenue is dismissed.

I.T.A.Nos.1788 &1796/Mds/2014 :- 27 -:

Order pronounced on Friday, the 28th day of August, 2015, at Chennai.