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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI ASHWANI TANEJA
This appeal is filed against the order of Ld Commissioner of Income Tax (in short referred to as CIT(A)) passed against the assessment order u/s 143(3) dt. 3.5.2011 for the A.Y 2007-08 on the following grounds:
“1. The Ld. Commissioner of Income Tax (Appeals) has erred in law and facts on records in sustaining the addition made by the A.O amounting to Rs.40,00,000/- by wrongly interpreting the facts and even though on „cross examination‟, the buyer of the property categorically denied having paid any such amount to the appellant.
2. The above addition is unjustifiable for another reason that the stamp authority had also confirmed the market value at Rs. 17.64 Lacs i.e. the amount at which the concerned property was sold to the buyer.”
2 Arvik Properties & Investments Pvt. Ltd.
2. During the course of hearing, arguments were made by Shri Vijay Mehta on behalf of the assessee and Dr. Promod Nikalje on behalf of the revenue.
The brief facts relating to the issue before us are that the assessee is a real estate developer and engaged in construction of buildings. Return of income declaring total income of Rs.5,76,607/- was filed on 31.10.07 showing income from sale of flats in building Silver Arch „B‟ constructed by the assessee company. A search and seizure action u/s 132(1) of the I.T. Act was taken in the case of Shri Dilip Kapoor and his wife Smt. Suman Kapoor on 6.11.06. In connection with the search and seizure, the companies of Shri Dilip Kapoor group were surveyed u/s. 133A of the I.T Act. In the course of survey operations, documents, loose papers and diaries were impounded inventorised as Annexure A-1 and A-2 from 5, Divyang S.B. Singh Marg, Mumbai and as Annexure A-1 to A-7 from office at 1102, Silver Arch B, New Milat Nagar, Andheri (W), Mumbai. On verification of the documents and loose papers it was found that certain documents pertained to the affairs of the assessee company. The assessment was completed u/s. 143(3) of the I.T. Act by the A.O on 30.12.08 determining the total income of Rs.45,77,600/- after making addition of Rs.40 lakhs on the basis of alleged unexplained entries at A-2 page 48 of the diary.
3. Being aggrieved, the assessed contested this issue in appeal before the ld. CIT(A). In the appeal, the assessed made submissions dt. 27.1.2009 which are reproduced as under:-
“1. The Learned Dy. Commissioner of Income tax (DCIT) has erred in law and facts on record in making the addition to the total income on imaginary basis an amount of Rs. 40,00,000/-, which is merely a 'noting‟ in 3 Arvik Properties & Investments Pvt. Ltd. the accountant's personal diary, impounded during the course of survey action .
The said addition has been made on imaginary basis/ conjectures and surmises is further supported by the fact that the ld DCIT has not invoked any action i.e. neither invoked sec. 68 nor sec. 69 nor sec. 69A nor sec.69B nor sec. 69C and therefore wrongly added the said amount to the total income.
3. The Ld. DCIT has wrongly correlated the said noting with the sale transaction of sale or flat no.1003 and wrongly concluded that it represents cash component received by the assessee, without bringing any material, whatsoever on record despite the fact that flat no. 1003 was sold at the price stated therein.
Without prejudice to the above, the said noting has been properly explained as narrated on page 4 of the assessment order, having „nil‟ impact on the income.”
4. During the course of appeal proceedings, ld. CIT(A) called for remand report from the AO. The AO furnished remand report dt. 22.3.2011. The relevant portion of the same is reproduced hereunder:-
“Kindly refer to the above.
2.0 In this connection, the undersigned was directed to carry out the following: a. to furnish a copy of statement recorded, if any, of Shri Mukesh Prajapati and Shri Humayun Rangila regarding the entry of Rs.40 lacs. b. If no statement was recorded, to examine Shri Prajapati and Shri Rangila on oath and furnish a report on the alleged payment of Rs. 40 lakhs.
3.0 In pursuance to remand proceedings, Shri Prajapati and Shri Humayun were enquired on oath, copy of statements enclosed.
4 Arvik Properties & Investments Pvt. Ltd.
(a) Shri Humayun Rangila denied any cash payment of Rs. 40 lacs to the assessee. He also submitted his ignorance to the entry written by Shri Prajapati in Page no.48, A-2.
(b) Shri Mukesh Prajapati, on the other hand submitted that he did not remember anything about the entry. He was also made aware of the inference drawn from the entry but he reiterated his ignorance about the entry, though he submitted that the diary was maintained by him.
4.0 It is an admitted fact that the diary was maintained by Shri Mukesh Prajapati. However, he submitted on oath that he does not remember anything about the entry. The words mentioned in the entry are „sales, cash, 1003, Rangila, 40 lacs', which undisputedly prove that the amount of Rs. 40 lacs was cash sales to Mr. Humayun Rangila in pursuance of sale of flat no. 1003. The submission of Mukesh Prajapati and Shri Humayun Rangila are untenable in view of the speaking evidence. In view of the above, it is stated that the appellant's claim is devoid of merit and must be rejected.
5.0 Accordingly, it is clear that the additions made in the assessment order were justified. Thus, I agree to the addition made in the assessment order.
6.0 In view of Para 4.0 and 5.0, it is stated that the additions made in the assessment order are correct and based on facts."
In response to the remand report, the assessed furnished a detailed rejoinder refuting all the allegations made in the remand report and reiterated that no cash has been received by the assessee with respect to the sale of the impugned property.
The ld. CIT(A) considered the remand report of the AO and the submissions of the assessee but he was not satisfied with the submissions made by the assessee and on the basis of the facts brought out it was concluded by him that the assessee has received amount in cash of Rs. 40
5 Arvik Properties & Investments Pvt. Ltd. lakhs on sale of the impugned flat and thus he confirmed the order of the AO and dismissed the appeal filed by the assessee. Being aggrieved, the assessee filed an appeal before the Tribunal.
During the course of the hearing, the ld. Counsel of the assessee made detailed submissions. Our attention was drawn to the copy of the seized documents enclosed in the paper book. The detailed arguments made by the ld. Counsel can be summarized as under:- i) The seized document is only a dumb document. Nothing can be concluded from the perusal of this document. Further corroboration was required before any addition could be made on the basis of this document. No such information or corroboration could be gathered by the lower authorities and, therefore, no addition could have been made on the basis of the dumb document like this. ii) The sale deed was registered on 23.9.2005 i.e. in the preceding financial year, whereas the AO has alleged that as per the seized document cash was paid on 15.5.2006 i.e. in the impugned financial year. It has been submitted that it is inconceivable and unimaginable that the sale deed of the property had already been entered in the preceding year whereas the cash was paid this year. Thus, the allegation of the AO was incorrect and without any basis. iii) Ld. Counsel submitted a chart showing the stamp value rates of adjoining properties in different years and it was argued that there has been a huge slump in the market and properties were sold even below the stamp value of the properties as assessed by the stamp valuation
6 Arvik Properties & Investments Pvt. Ltd. authorities and thus on the basis of high stamp value alone it cannot be concluded that there was receipt of cash in the transaction. iv) Ld. Counsel has made a statement at the bar that no action was taken and no addition was made in the hands of the purchaser viz. Mr. Humayun Rangila. The ld. DR could not controvert the statement of the ld. Counsel in this regard. v) Ld. Counsel made an alternate submission that without prejudice to the earlier submissions, in case it is held that cash was received by the assessee, then, no addition could have been made in this year for the reason that the assessee has already disclosed the entire sales value of the project in which this flat was located in the preceding financial year i.e. F.Y 2005-06 and since the assessee was following „project completion method‟, even if allegation was made that cash was received, the same could be added, as per law, only in A.Y 2006-07 in which sale has been booked by the assessee. For this proposition, the ld. Counsel has relied upon the following judgments:- a) DCIT v. Tejas Constructions, Jalgaon, dt. 31.1.2012 (ITAT, Pune) b) ITO v. Karda Construction Pvt. Ltd., dt. 31.7.2012 (ITAT, Pune)
On the other hand, the ld. DR submitted that there are ample evidences to show that cash has been received by the assessee on sale of the impugned property. He has relied upon the detailed reasoning given by the ld. CIT(A)
7 Arvik Properties & Investments Pvt. Ltd. for upholding the action of the AO and requested for upholding the order of the ld. CIT(A).
We have gone through the orders of the lower authorities and the submissions made before us by both the sides. It is noted by us at the outset from perusal of the impugned seized document included in the paper book that some scribbling has been made therein. We find that nothing could be deciphered clearly from the „noting‟ on this document. Some inferences were drawn by the AO that this document indicates receipt of cash by the assessee. This document is one of the pages of a diary which is claimed to be maintained by Shri Mukesh Prajapati, Accountant of the assessee company. During his examination by the AO in the remand proceedings, no concrete information could be elicited by the AO from Shri Prajapati which could have thrown some light about the nature and details of these scribbling. The AO also examined the purchaser i.e. Shri Humayun Rangila. He also refused to have paid any amount in cash. No useful information could be elicited in his statement recorded by the AO. It is noted that no further corroboration has been done by the lower authorities, which could have indicated exchange of cash. It is further noted by us that, as informed to us, no addition has been made in the hands of the purchaser.
On the other hand, the ld. Counsel has brought out various discrepancies in the allegations made by the lower authorities which, in our opinion, would demolish the case of the lower authorities. It is noted by us that the sale deed was registered in this case on 23.9.2005, whereas the impugned seized document is part of the diary dt. 15.5.2006 as has also been accepted by the AO at page 4 of the assessment order. The relevant paragraph of the AO‟s order is reproduced hereunder for the sake of ready reference:
8 Arvik Properties & Investments Pvt. Ltd.
“4. A-2 Page no. 48 This page pertains to dt. 15.05.06 there is entry of Rs. 40 Lacs cash against Rangila below sales 1003.”
It is an admitted case of the revenue that „noting‟ was done on a page dt. 15.5.2006. In our opinion, it is difficult to accept the case of the AO that for a property whose sale deed has already been duly registered with the concerned authorities on 23.9.2005, the cash component, if involved any, would be paid as late as on 15.5.2006. It is further noted by us that the stamp value assessed by the stamp valuation authority for the adjoining flats has been varying between Rs.38.5 lakhs to Rs. 42.20 lakhs during the period when the impugned sale deed was registered, whereas these properties were sold between Rs.15 lakhs to Rs. 19 lakhs. Thus, there was clearly a gap between the stamp value and the actual sales consideration. Thus, no conclusive inference could be drawn that merely because the stamp value was more, there was exchange of cash between the parties, unless some more cogent contrary material is brought on record.
Lastly, we find force in another argument of the ld. Counsel that even if, although denied by the assessee, it is assumed that cash was received by the assessee, the same could not have been brought to tax in the year under consideration since the entire sales consideration of impugned property sold by the assessee has been received and booked by the assessee in its books of accounts in F.Y 2005-06. On the basis of perusal of the profit and loss account it is noted that the sale value of the entire project has been booked in F.Y 2005-06. It is also an admitted case that the assessee is following „project completion method‟. Thus, if at all some addition is required to be made, that could have been made only during F.Y 2005-06, although we have already held on the basis of evidences brought before us that it could not be concluded
9 Arvik Properties & Investments Pvt. Ltd. that the assessee had received any cash amount. We derive our support from the decisions cited by the assessee in the case of ITO v. Karda Construction Pvt. Ltd. (supra). The relevant portion is reproduced hereunder:-
“6. We have heard the parties and perused the record. There is no dispute in this case that the un-recorded entries of cash receipts found were in respect of the sale of the flats. In sum and substance, it was forming the part of the sale consideration of the flats. The names of the buyers of the flats are also available on record. The assessee also agreed that it was a part of the sale consideration indirectly admitting partly suppressing of the sale prices of the flats. We find that the CIT(A) has relied on the decision in the case of Dhanvarsha Builders and Developers (Supra) as well as Golani Bros. (Supra). In our opinion, the Ld CIT(A) has rightly held that as the nature of the receipt is not disputed as that of the part of the sale consideration of the flats sold by the assessee and in that case, the same is to be taxed in the year in which the assessee has recorded the sale of the respective flat. We find no reason to interfere with the order of the CIT(A). Accordingly, the same is confirmed.” Similar view has been taken by the Pune Bench of the Tribunal in the case of Tejas Constructions (supra).
Thus, respectfully following these judgments and in view of the above discussion and facts and evidences brought before us, we find that the addition made by the AO is not sustainable as per law and facts, and therefore, the same is directed to be deleted.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 12th February, 2016.