Income Tax Appellate Tribunal - Pune
Sameer Balasaheb Ladkat, Pune vs Assessee on 18 July, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER
AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER
S. ITA/CO No Asstt.Yr Appellant/Cross objector Respondent
No
1 974/PN/10 2003-04 Sameer Balasaheb Ladkat, Asstt.
Bunglow No 46, Commissioner of
Varsha/Khushboo, I.T. Cen.Cir.1(2),
Koregaon Park, Pune 411 Pune
001
2 975/PN/10 2003-04 Late Shri Balasaheb Ladkat ACIT, Cen. Cir 1(2)
(through L/H) Sameer Pune
Balasaheb Ladkat, Pune
3 1025/PN/10 2004-05 Asstt. CIT Cir 1(2) Pune Shri Balasaheb M
Ladkat, Pune
4 CO 2004-05 Late Shri Balasaheb Ladkat ACIT, Cen. Cir 1(2)
44/PN/11 (through L/H) Sameer Pune
Balasaheb Ladkat, Pune
5 1018/PN/10 2004-05 Asstt. CIT Cir 1(2) Pune Shri Sameer
Balasaheb Ladkat,
Pune
6 CO 2004-05 Shri Sameer Balasaheb ACIT, Cen. Cir 1(2)
46/PN/11 Ladkat, Pune Pune
7 1017/PN/10 2004-05 Asstt. CIT Cir 1(2) Pune Shri Gautam
Balasaheb Ladkat,
Pune
8 CO 2004-05 Shri Gautam Balasaheb ACIT, Cen. Cir 1(2)
43/PN/11 Ladkat, Pune Pune
9 1015/PN/10 2004-05 Asstt. CIT Cir 1(2) Pune Smt Asha B Ladkat,
Pune
10 CO 2004-05 Smt Asha Balasaheb ACIT, Cen. Cir 1(2)
42/PN/11 Ladkat, Pune Pune
11 972/PN/10 2006-07 M/s SLK Properties, ACIT, Cen.Cir. 1(2)
Gautam B Ladkat, B-8 Pune
Success Chambers, 1232
Apte Road, Deccan
Gymkhana, Pune
12 973/PN/10 2007-08 -do- -do-
13 976/PN/10 2005-06 Late Shri Balasaheb Ladkat ACIT, Cen. Cir 1(2)
(through L/H) Sameer Pune
Balasaheb Ladkat, Pune
14 977/PN/10 2006-07 Late Shri Balasaheb Ladkat ACIT, Cen. Cir 1(2)
(through L/H) Sameer Pune
Balasaheb Ladkat, Pune
15 978/PN/10 2007-08 Late Shri Balasaheb Ladkat ACIT, Cen. Cir 1(2)
(through L/H) Sameer Pune
Balasaheb Ladkat, Pune
16 1026/PN/10 2006-07 ACIT, Cen. Cir. 1(2), Pune Shri Balasaheb M
Ladkat, Pune
17 CO 2006-07 Shri Balasaheb M Ladkat, Asstt. CIT,
45/PN/11 Pune Cen.Cir.1(2), Pune
18 1019/PN/10 2006-07 Asstt. CIT Cen.Cir.1(2), Shri Sameer B
Pune Ladkat, Pune
19 CO 2006-07 Shri Sameer B Ladkat, Asstt. CIT, Cen. Cir.
47/PN/11 Pune 1(2), Pune
Assessees by : Shri Sharad Shah
Department by : S/Shri S K Singh, Alok Mishra
2
Date of hearing : 18.07.2012
Date of pronouncement : .07.2012
ORDER
PER G.S. PANNU, A.M.:
The captioned appeals and cross objections relate to assessees belonging to one group and the proceedings arise out of common search action carried out by the Revenue under section 132(1) of the Income-tax Act, 1961 (in short "the Act") and, therefore, they have been clubbed and heard together for the sake of convenience and brevity.
2. The assessees have put on record respective Paper Books, which have been referred to in the course of submissions made before us. The rival Counsels have advanced their arguments by extensively referring to the respective orders passed by the income-tax authorities, as also the relevant material placed in the Paper Books at the time of hearing before us.
3. In brief the background is that assessees belong to one family whose business interests inter alia include dealing in petroleum products through operation of three petrol pumps, activity of power generation through windmill projects and also money lending and real estate business. The Department carried out search action at office as well as residential premises of the assessees. Simultaneously, survey action under section 133A of the Act was also carried out at the petrol pump and other allied premises belonging to the assessee group. Consequent to the actions of search and survey, assessments have been carried out which has resulted in certain additions, which were subject-matter of appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) has allowed part reliefs, against which the captioned appeals have been preferred by the assessees as well as the Revenue.
3
4. First, we shall take up the appeal vide ITA No 975/PN/10 in the case of late Shri Balasaheb A Ladkat (through L/H Shri Sameer B Ladkat) pertaining to the assessment year 2003-04. This appeal is directed against the order of the Commissioner of Income-tax (Appeals)-IIV Pune, dated 19.2.2010 which, in turn, has arisen from the order dated 31.12.2009 passed by the Assessing Officer under section 153A(b) of the Act, pertaining to the assessment year 2003-04.
5. In this case, the background is that the assessee is in the business of dealership of petrol and related products and also a member of M/s Panama Business Centre, an AOP as well as a Director in various group companies. In the case of this assessee, search was carried out under section 132(1) of the Act at the residential premises and simultaneously survey action under section 133A was carried out at the business premises of the assessee. In response to a notice under section 153A of the Act, the assessee duly filed his return of income, which was subject to a scrutiny assessment. As against returned loss of Rs 12,75,374/-, a loss of Rs 9,91,950/- was determined after making addition of Rs 1,50,000/- and Rs 1,33,423/- on account of unaccounted payments to Shri Rikabchand Oswal and disallowance out of staff welfare expenses/salary and allowances respectively. The assessee carried both the additions in appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) allowed partial relief with respect to the disallowance out of salaries/allowances and staff welfare and with regard to the unaccounted payments to Shri Rikabchand Oswal of Rs 1,50,000/-, the same was sustained. Against the latter sustenance of addition of Rs 1,50,000/- by the Commissioner of Income-tax (Appeals), assessee is in further appeal before us.
6. The addition in question is based on a seized material referred to as pages 29 to 35 of bundle No. 3 of Annexure-A. The Assessing Officer noticed 4 that the seized papers reflected that the assessee had entered into a MOU with one Shri Rikabchand Oswal for purchase of property, namely, Flat No 201 in 'A' Building in a project 'Shan Ganga'. The Assessing Officer further noticed that the assessee alongwith Shri Sameer Ladkat had entered into such MOU and the payment schedule annexed to such MOU indicated that a sum of Rs 3,00,000/- was paid by the purchaser, i.e assessee alongwith Shri Sameer Ladkat and the seller had acknowledged the receipt of such amount. The assessee was required to show as to whether such payment was duly accounted for in the regular books of account maintained. The plea of the assessee was to the effect that no such property was indeed purchased, but the said MOU was entered into merely as security for the amount advanced to Shri Rikabchand Oswal, and that no such payment of Rs 3,00,000/- was actually made. The assessee also explained that a payment of Rs 5,00,000/- by cheque on 18.12.2002 was made and that the acknowledged payment of Rs 3,00,000/ reflected by the seized copy of MOU was a part of such payment of Rs 5,00,000/-.The Assessing Officer, however, did not accept the plea of the assessee. Firstly, the Assessing stated that the seized paper clearly reflected that a sum of Rs 3,00,000/- was paid and its receipt has been duly acknowledged by the seller on 23.11.2002, i.e. the date of the MOU. Secondly, the cheque payment of Rs 5,00,000/- was dated 18.12.2002, which is subsequent to the acknowledged date of payment of Rs 3,00,000/- which is 23.11.2002, thus the logical inference was that upto 18.12.2002 assessee had made total payments of Rs 8,00,000/-.. According to the Assessing Officer, assessee was wrong in claiming that the payment of Rs 3,00,000/- referred to in the MOU on 23.11.2002 was part of Rs 5,00,000/- paid by cheque on the subsequent date. Therefore, the payment of Rs 3,00,000/- as reflected by the seized document was said to be unaccounted investment and 5 accordingly, the sum of Rs 3,00,000/- was equally assessed in the hands of the assessee and Shri Sameer Ladkat to the extent of Rs 1,50,000/- each.
7. Before the Commissioner of Income-tax (Appeals), assessee reiterated the submissions as put-forth before the Assessing Officer. The Commissioner of Income-tax (Appeals), however, sustained the addition on the ground that the investment of Rs 3,00,000/- was clearly evidenced by the seized document and that in the absence of any specific and acceptable explanation, same has been correctly treated as an unexplained investment. Against the aforesaid sustenance of addition, the assessee is in appeal before us.
8. Before us, the only point made out by the assessee is to the effect that the authorities below have not doubted the explanation that the assessee was engaged in money lending business and, therefore, the assessee had sought to explain that the impugned agreement for purchase of a flat was indeed entered into only as a security against the amounts otherwise advanced to the business concerns of the seller Shri Rikabchand Oswal, thus, there was no unexplained investment. Alternatively, a plea was also advanced to the effect that if it is assumed that assessee had paid such sum, then the payment of Rs 3,00,000/- was to be considered a part of the cheque payment of Rs 5,00,000/- made subsequently by the assessee to Shri Rikabchand Oswal.
9. On the other hand, the learned Departmental Representative defended the action of the lower authorities by placing reliance on the orders passed by them.
10. After having considered the rival submissions, we find that the seized document clearly reflects the payment of Rs 3,00,000/- and its receipt by the seller. Ostensibly, at no stage has the appellant denied the authenticity of the document seized and, therefore, in our view, the contents thereof, namely, payment of Rs 3,00,000/- by the assessee alongwith the co-signatory, namely, Shri Sameer Ladkat, cannot be doubted. Admittedly, the onus is on the 6 assessee to explain the source of making such payments which, in the present case, does not appear to have been satisfied by the assessee. Therefore, in this background, we find no error in the approach of the lower authorities in sustaining the addition of Rs 1,50,000/-in the hands of the assessee reflecting his share out of the total payment of Rs 3,00,000/- evidenced by the seized document in question. Thus, the assessee fails on this Ground.
11. In the result, assessee's appeal, vide ITA No 975/PN/10 fails and is dismissed.
12. We shall now take up ITA No 974/PN/10, which is an appeal filed by the assessee Sameer B Ladkat for the assessment year 2003-04. This appeal is directed against the order of the Commissioner of Income-tax (Appeals)-IV, Pune, dated 22.2.2010 which, in turn, has arisen from the order passed by the Assessing Officer under section 153A(b) of Act, pertaining to the assessment year 2003-04.
13. The first issue raised in this appeal relates to an addition of Rs 1,50,000/- made on account of unaccounted payment to Shri Rikabchand Oswal. The facts and circumstances of this issue being one and the same as considered by us in the case of Late Shri Balasaheb Ladkat, (ITA No 975/PN/10), following the parity of reasoning considered while disposing of the aforesaid appeal in the earlier paras, we confirm the impugned addition of Rs 1,50,000/- in this case also.
14. The other addition in dispute is of Rs 4,04,809/-, which is also on the basis of a similar seized document as was the document in the earlier addition. Therefore, there being no material or cogent reason to deviate from the view taken by us in respect of the addition of Rs 1,50,000/-, the impugned addition of Rs 4,04,809/- made on account of unaccounted payment to Shri Rikabchand Oswal is also hereby confirmed.
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15. So, however, while arguing the matter in this case, the assessee raised an alternative plea to the effect that no separate addition be made on this score having regard to the fact that the assessee had declared additional income, in a statement recorded under section 132(4) of the Act, of an amount of Rs 35,08,300/- on account of unaccounted cash loans and interest income thereof. In this context, the learned Counsel referred to the statement of the assessee recorded under section 132(4) of the Act, which is placed in the Paper Book on page 34. The seized document on the basis of which such an income was surrendered was also referred to and, on that basis, it is sought to be pointed out that cash loans of Rs 34,00,000/- found recorded in such document reflected interest computed upto certain periods amounting to Rs 1,08,300/-. It was pointed out that logically after the dates upto which interest is calculated in the seized document, such cash loans can be presumed to be returned back to the assessee and that such amounts can be said to have been available with the assessee to advance the impugned sum of Rs 1,50,000/- to Shri Rikabchand Oswal as per the agreement dated 23.11.2002. It was, therefore, contended that benefit of telescoping be allowed to the assessee.
16. The learned Departmental Representative, on the other hand, has opposed the plea on the ground that no nexus has been established by the assessee and, therefore, such a plea be not entertained at the present stage.
17. We have examined the alternative plea set up by the assessee and find that there is enough potent in the same to be examined by the Assessing Officer. We, therefore, hold that the Assessing Officer shall examine the plea of the assessee and it would be for the assessee to satisfy the Assessing Officer that such funds were available to him out of the income otherwise declared of Rs 35,08,300/- so as to explain the impugned addition. Therefore, 8 for the limited purpose, the matter is set aside to the file of the Assessing Officer.
18. In the result, the appeal of the assessee, vide ITA No 974/PN/10 is treated as partly allowed for statistical purposes.
19. We shall now take up Revenue's appeal in the case of Shri Balasaheb M Ladkat, Pune, vide ITA No 1025/PN/10 relating to assessment year 2004-
05.
20. This appeal by the Revenue is directed against the order of the Commissioner of Income-tax (Appeals)-IV, Pune dated 19.2.2010, which in turn has arisen from the order passed by the Assessing Officer under section 143(3) r.w.s. 153A(b) of the Act pertaining to the assessment year 2004-05.
21. In this appeal, the substantive dispute is by the Revenue is with regard to the action of the Commissioner of Income-tax (Appeals) in deleting an addition of Rs 2,00,88,783/- made by the Assessing Officer invoking section 68 of the Act.
22. In brief, the facts are that search and survey actions under section 132(1) and 133A of the Act respectively carried out at various residential and business premises of the assessee-group revealed that the assessee had credited an amount of Rs 2,00,88,783/- as maturity proceeds of Resurgent India Bonds (RIBs) which were received as gift. The total credit on account of such gifts was of Rs 3,95,07,925/- as per details in para 6.1 of the assessment order, however for the present purpose, the relevant amount is only Rs 2,00,88,783/- which is the amount found credited in the account books with reference to the assessment year under consideration. In the course of assessment proceedings, assessee was required to furnish the relevant details regarding the gifts, viz. name and address, proof of identity, age, occupation, yearly income, relationship, details of bank account, etc. of 9 the donor. The relevant details filed by the assessee have been tabulated by the Assessing Officer in para 6.2 of the assessment order. The Assessing Officer noted that the gifts in question were of RIBs, which were issued by the State Bank of India for subscription by the non-resident Indians, etc., in the year 1998 and carried an interest rate of 7.75% per annum and a maturity period of 5 years. Such Bonds were issued in terms of a Scheme formulated by the Government of India to attract foreign exchange and the investors were given immunity from the provisions of Foreign Exchange Regulation Act , 1973 (FERA) and the interest on such Bonds was also declared to be tax free. Accordingly, the RIBs so subscribed and allotted to the qualifying persons, namely, non-resident Indians were due for maturity in the month of October, 2003. These Bonds were claimed to have been received by the assessee as gifts from a non-resident Indian and the subsequent proceeds on maturity of such bonds, was found credited in the capital account of the assessee for the year under consideration and on such basis, the Assessing Officer proceeded to examine the nature and source of such credits appearing in the account books of the assessee during the year under consideration.
23. The Assessing Officer has examined the nature and source of the credits with reference to the requirements of section 68 of the Act. In terms thereof, the Assessing Officer has held that the assessee was required to establish the identity of the donor, the financial capacity of the donor and genuineness of the transaction. On all the three aspects, as per the Assessing Officer, the assessee did not offer a satisfactory explanation and, therefore, he has invoked section 68 of the Act to treat the credit of Rs 2,00,88,783/- as unexplained. On the issue of the identity of the donor, according to the Assessing Officer, though the assessee furnished details relating to the name and address of the donor alongwith affidavits in support of the gift, copy of passport etc., the identity of the donor could not be established, as the 10 assessee had failed to produce the donor before the Assessing Officer; On the issue of the financial capacity of the donor, the Assessing Officer noted that assessee could only produce computer-generated bank statements of the donor maintained with different banks and the assessee failed to produce further documents as required by him, and therefore the assessee had failed to discharge his onus to prove the financial capacity of the donor; that on the issue of genuineness of the transaction, as per the Assessing Officer, the transaction of gift was against parameters of human probability, as the donor was of 30 years of age and could not be expected to give such huge gifts to the assessee, who is not related to him by blood, caste or community. On the issue of occasion of the gift, the Assessing Officer found that there was no specific occasion for receiving the gift. The claim of the assessee that the gift was given by the donor for the gratitude that the donor had towards assessee group was also not accepted and it was noted that reciprocity was missing. The Assessing Officer further held that in the absence of blood relationship between the donor and the donee, the explanation given by the assessee that the donor was an old resident of Pune and is a close and old family friend who was being helped by the assessee group in the times of requirement, was also not found acceptable by the Assessing Officer. In sum and substance, as per the Assessing Officer the assessee had failed to establish the circumstance or the instance or the reasons for which the gift came to be made by the donor and accordingly, the Assessing Officer was also not satisfied with the genuineness of such gifts. On all these aspects, the Assessing Officer has made detailed discussions in para 6.1 to 6.8 of the assessment order and finally, the Assessing Officer concluded that the explanation offered by the assessee with regard to the amount of Rs 2,00,88,783/- credited as maturity proceeds of RIBs received as gift, was not satisfactory and accordingly, he 11 treated the same as income of the assessee for the assessment year under consideration by invoking section 68 of the Act.
24. In appeal before the Commissioner of Income-tax (Appeals), assessee made varied submissions by referring to the material on record to contend that the identity of the donor, capacity of the donor, and the genuineness of the gift stood established. The detailed submissions of the assessee on this aspect have been reproduced by the Commissioner of Income-tax (Appeals) in para 4.3 of his order and which are not being repeated for the sake of brevity. Apart from the aforesaid, assessee also set-up a plea before the Commissioner of Income-tax (Appeals) that the addition in question was beyond the purview of an assessment under section 153A of the Act, inasmuch as such an assessment is to be based on any incriminating document found in the course of search under section 132(1) and that in the present case, the gifts in question were declared by the assessee in the returns of income originally filed under section 139(1) of the Act and that no incriminating material was found during the search to show that such gifts were bogus. The Commissioner of Income-tax (Appeals) has considered the material and evidence available on record and on that basis, found that the identity and capacity of the donor stood established and even with regard to the genuineness of the transaction, the Commissioner of Income-tax (Appeals) has found the same acceptable, primarily relying on the ratio of the judgment of the Hon'ble Allahabad High Court in the case of Kanchan Singh v. CIT 221 CTR 456 (All). The following para of the Commissioner of Income-tax (Appeals) is relevant, which also contains a pertinent finding to the effect that the search and survey action undertaken by the Revenue did not reveal any incriminating material suggesting transfer of money for buying the impugned RIBs:-
12
"4.4.2 In view of the discussions made above and considering the facts in the light of the judgment quoted above, I find that the case of the appellant is required to be examined differently than hat the AO has done. If the same is done in the light of the decision given by the Hon'ble Allahabad High Court in a case relating to receipt of gift of RIBs, I find that the case of the appellant group is on much stronger footing. In the judgment quoted above even the genuinity was held acceptable in the light of gifts being of RIBs. It is also seen that the a major part of maturity value received by the appellant was of the nature of interest which is non-taxable as per appellant's submissions and those were required by the AO himself to have been excluded while making the addition. He himself admitted that the credit being examined is the credit of RIBs, which are the face value of RIBs. Te maturity value received was of value of RIBs and interest accrued in cumulative manner over the period of holding. It can further be seen that in this case search and survey of all premises of appellant group were arrived out and nothing incriminating suggesting transfer of money for buying these RIBs were found. In any case, I do not find any evidence of fact available on record which can permit me to deviate from the finding given on similar facts by Hon'ble Allahabad High Court quoted above. In view of the above, and considering all the discussion made herebefore, the appeal filed by the appellant is treated as allowed."
25. For all the above reasons, the Commissioner of Income-tax (Appeals) has deleted the addition made by the Assessing Officer by invoking section 68 of the Act. In view of the aforesaid, the Revenue is in appeal before us.
26. Before us, the learned CIT-Departmental Representative, appearing for the Revenue submitted that the Commissioner of Income-tax (Appeals) erred in deleting the addition inasmuch as the Assessing Officer was justified in concluding that the assessee was unable to satisfactorily explain the identity and capacity of the donor as also the genuineness of the transaction. In this regard, the learned CIT-Departmental Representative pointed out that in the absence of any occasion and reason whatsoever to make a gift to the assessee, the impugned transaction of gift was liable to be dis-regarded and treated as income of the assessee from undisclosed sources invoking section 68 of the Act. It was also pointed out that the donor and donee were unrelated by blood, caste or community and therefore, even on the test of human probability the transaction of gift was doubtful and the Assessing Officer was justified in rejecting the same. In substance, the arguments raised by the learned CIT-Departmental Representative are on the same lines as made out in the assessment order, which have been already adverted to by us in para 23 above and are accordingly not being repeated for the sake of brevity.
27. On the other hand, the learned representative for the assessee has primarily relied upon the order of the Commissioner of Income-tax (Appeals) in support of the case of the assessee. In justifying the conclusions drawn by the 13 Commissioner of Income-tax (Appeals), the learned representative has taken us through the voluminous Paper Book filed wherein is placed the relevant document and material on the basis of which the Commissioner of Income-tax (Appeals) has found that explanation of the assessee satisfactory within the meaning of section 68 of the Act. Apart therefrom, the learned Representative submitted that such gifts were declared by the assessee in the return of income originally filed under section 139(1) of the Act and further in the course of search and survey operation, no incriminating material was found to suggest any falsity or ingenuineness of the transaction. Therefore, it is submitted that the addition is not justified in the absence of any incriminating evidence found during search and reliance was placed on the following decisions:
(i) M.S. Aggarwal v. DCIT 83 TTJ 692 (Del);
(ii) DCIT v. Ramdeo Kumar Chitlangia 89TTJ 346 (Jd); and,
(iii) Narinder Kumar Sekhri v. ACIT 81 TTJ 1036(Asr)
28. We have carefully considered the rival submissions. The dispute before us involves a credit of Rs 2,00,88,783/- stated to be the maturity proceeds of gift received in the form of Bonds of $ 3,00,000. The gift is stated to have been received from one Mr Gurmeet Ajitsingh Rajpal, an NRI living in Dubai, UAE. It emerges that such Bonds were initially subscribed by Mr Gurmeet Ajitsingh Rajpal and allotted by State Bank of India in foreign exchange. Such Bonds were transferrable and were transferred in favour of the assessee by Shri Gurmeet Ajitsingh Rajpal by making necessary declarations in this regard to the State Bank of India on 16.7.2003, copies of which have been placed in the Paper Book at pages 143 to 150. Subsequently, on maturity, the State Bank of India redeemed the Bonds and credited the amounts to the assessee alongwith interest thereon whereby the amount of Rs 2,00,88,783/- has been deposited in the account of the assessee. Accordingly, it was claimed that the 14 amount reflected gift received from Mr Gurmeet Ajitsingh Rajpal to the assessee, and such a claim has not since been accepted by the Assessing Officer. Instead, the Assessing Officer has invoked section 68 of the Act and has held such credit as unexplained and accordingly the same has been treated as income assessable in the hands of the assessee. In this background, the controversy thus involves the provisions of section 68 of the Act.
29. Section 68 of the Act prescribes and empowers an Assessing Officer to charge to income-tax an amount credited in the account books which, in the opinion of the Assessing Officer, has not been satisfactorily explained. Under section 68 of the Act, if any sum is found credited in the account books of an assessee and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the Assessing Officer satisfactory, the sum so credited may be charged to income-tax as income of the assessee for that previous year. Ostensibly, section 68 of the Act required the assessee to satisfactorily explain the nature and source of the credit in question. It is quite well-settled that for the purposes of section 68 of the Act, an assessee is required to prove three conditions, namely, identity of the creditor, capacity of the creditor to pay the stated money, and genuineness of the transaction. It is also an equally well settled proposition that once the assessee prima facie complies the aforesaid three requirements, thereafter the burden shifts on the Revenue to establish the falsity of the transaction or to prove that the disputed credit represented money belonging to the assessee. On the latter proposition, a gainful reference can be made to the judgment of the Hon'ble Kerala High Court in the case of M A Unneeri Kutty v CIT 198 ITR 147 (Ker.) and SLP against said judgment has also been dismissed by the Hon'ble Supreme Court.
15
30. Further, even with regard to an amount found credited as a gift, the requirements of section 68 of the Act are liable to be considered, as laid down by the Hon'ble Supreme Court in the case of CIT v. P Mohankala 291 ITR 278 (SC). In nut-shell, in the context of the dispute before us, it has to be observed that having regard to section 68 of the Act, in order to prove the nature and source of the impugned credit, the burden is on the assessee to establish the identity of the donor, the capacity of the donor to pay and the genuineness of the transaction of gift. In this light, we may now examine the matter further.
31. At the outset, we may refer to a tabulation made by the Assessing Officer which enumerates the factual details that were filed by the assessee with respect to impugned transaction of gift. The tabulation contained in para 6.2 of the assessment order reads as under:
S.No. Details required to be filed by the Details submitted by the assessee.
assessee 1 Full names of the donors The names of donors are as mentioned in the foregoing tables.
2 Complete address of the donors Address of the donor has been furnished to me as follows:
Mr Gurmeet Singh Rajpal, No. 406, th 4 Floor, BMI Building, Khalid-Bin-
Walid Road, Bank Street, Bur Dubai, UAE.
Postal Address: P.O Box No 51l731, Dubai, UAE 3 Identity of the donor with proof and The assessee has submitted the nationality, supported by his/her copy of the initial page of passport. passport 4 Age of the donors 30 years 5 Occupation of the donors Occupation of the donors: It has been stated by the assessee that the donor is engaged in import and export from Dubai and investment in property. No specific details are given.
6 Yearly income of the donors with The assessee has submitted proof, the sour ce of income of donors supposedly computer generated alongwith details like nature of certificates of deposits from various business/profession/details of banks like ABN Amro Bank, Dubai, employer - If drawing salary, copies of Mashreq Bank, Dubai, Abu Dhabi returns of income of donors for Commercial bank, The Wall Street assessment years corresponding to Banking corporation Ltd, cook the previous year in which gift was Islands, Commercial Bank of received by donee and the Dubai, etc. These FDs are the immediately preceding assessment supposedly computer generated year, copies of balance sheets of the copies and do not bear any donor for assessment year authentication from the concerned corresponding to the previous year in bank authorities. The statement of 16 which gift was received by donee and asset has been submitted.
the immediately preceding
assessment year.
7 Relationship of the donors with the There is no blood relationship
done between the donors and the donee.
It has been claimed that the donor
is a personal friend of the family of
assessee. It has further been
claimed that the donor is resident
of Pune, now settled in Dubai.
8 How many times the donor has visited It has been claimed that the person
India before giving gift (to be who gave gift visits India and Pune
supported by his/her passport)? innumerable times as he hails from
Pune.
9 How many times the assessee has No details given
visited Dubai to meet the donor?
10 Who are the donors' relations in India No details given
and what are their addresses and
occupation?
11 To file the affidavit of the donor, duly The assessee has filed affidavit of sworn, before the Indian High the donor notarized in India and Commission in UAE, detailing the that before the Vice Consul, above mentioned information Consulate General of India in Dubai.
12 Date of receipt of gift The dates of receipts of gifts are mentioned in the foregoing tables 13 The details of bank accounts from The gifts have not been received which the gifts have been received by way of remittances. They are re3ceived by way of transfer of already subscribed Resurgent India Bonds issued by SBI. Hence, details of bank account are not submitted.
14 Copy of bank account wherefrom The gifts have not been received
amount of gift has been transferred to by way of remittances. They are
assessee's account received by way of transfer of
already subscribed Resurgent India
Bonds issued by SBI. Hence,
details of bank account are not
submitted.
15 The occasion of the gift It has been claimed that the
assessee and his family has
always stood by the donor in his
difficult times. No specific occasion
of gift has been mentioned.
16 The reasons for giving the gift It has been claimed that the
assessee and his family has
always stood by the donor in his
difficult times. No single instance of
such occasion of gift has been
mentioned.
17 Any form of correspondence between No details given
the donors and donee, prior to and
after the gift transactions
18 The family size of the donor and No details given
details of gifts given by donor on any
occasion or otherwise to the family
members of assessee
19 Details of gifts, if any, given by the No gifts given by assessee or his
assessee or the family members of family members to the donor or his
assessee to the donors or the family family members.
members of donors
20 It was requested to produce the The donor is not produced before
donors before the undersigned with the undersigned.
prior intimation of atleast 8 days
17
32. Factually, it is to be observed that the gift in question is of RIBs which have been subscribed by Shri Gurmeet Ajitsingh Rajpal, an NRI in terms of an issue by the State Bank of India. In this connection, it is noticeable that the Commissioner of Income-tax (Appeals) has made a reference to the manner in which such Bonds were issued by the State bank of India in pursuance to a scheme formulated by the Government of India in order to garner foreign exchange deposits and involved subscription by NRIs and NRI controlled Overseas Corporate Bodies (OCBs). The investors were given immunity from FERA and interest earned from such Bonds was made tax-free. Such Bonds were open for subscription for a brief period during August-September, 1998, and it carried an interest rate of 7.75% per annum and were to mature after a period of 5 years. The maturity proceeds of such Bonds have been credited to the account of the assessee by State Bank of India, after such Bonds were transferred to the assessee by way of gift by the original subscriber namely, Shri Gurmeet Ajitsingh Rajpal.
32.1 Before proceeding further, it would be pertinent to note here that the donor namely, Shri Gurmeet Ajitsingh Rajpal and the assessee are not relatives. In this context, the Hon'ble Allahabad High Court in the case of Kanchan Singh (supra) noted that prior to amendment by Finance Act (No.2) of 1992, an NRI could make gift of the Bonds only to relatives, but such restriction was taken away by Finance (No 2) Act 1991 by insertion of section 5(iiie) of the Gift-tax Act 1958 which read as under:
"Sec.5. exemption in respect of certain gifts - (1) Gift-tax shall not be charged under this Act in respect of gifts made by any person-
(iiie), being an individual who is a non-resident Indian, of property in the form of the bonds specified under sub-cl.(iid) of clause (15) of section 10 of the IT Act:
Provided that where an individual, who is a non-resident Indian in any previous year in which the bonds are acquired, becomes a resident in India in any subsequent year, the provisions of this clause shall apply in respect of the gifts of property referred to in this clause in such subsequent year or any year thereafter.
Explanation: For; the purposes of this clause, the expressions -18
(a).....
(b) 'non-resident Indian' shall have the meaning assigned to in clause (e) of section 115c of the IT Act."
33. Therefore, in this background one has to examine whether the explanation offered by the assessee with regard to the identity, capacity of the donor and the genuineness of the gift transaction is satisfactory or not. In so far as the identity of the donor is concerned, the same, in our view has been rightly accepted by the Commissioner of Income-tax (Appeals) inasmuch as same is supported by copy of the passport of the donor, copy of Visa, sworn affidavit made in the presence of Consulate General of India, Dubai and also the declaration of the gift before the Notary. The copies of aforesaid material have been placed in the Paper Book and on that basis, in our view, the Commissioner of Income-tax (Appeals) made no mistake in holding that the identity of the donor stood proved. At this point, we may also notice an assertion made by the assessee before the Commissioner of Income-tax (Appeals) that during the course of assessment proceedings, the Assessing Officer independently confirmed before the Notary before whom the donor had executed the affidavit. There is no negation to the aforesaid plea. All these factors, in our view, support the finding of the Commissioner of Income-tax (Appeals) to the effect that identity of the donor stood proved. The objection of the Assessing Officer that the donor was not produced before him and therefore, the assessee could not establish the identity of the donor, in our view, is not justified. In the face of the material on record, and whose authenticity was open for verification by the Assessing Officer and in the absence of any adverse findings by him on such material, the insistence of the Assessing Officer to be satisfied on the aspect of identity only on production of the donor, is quite unjustified. In fact, in our view, the identity of the donor also stands established by the transfer documents signed by the donor and 19 the assessee jointly which is addressed to the State Bank of India, Nariman Point, Mumbai in terms of which the Bonds have been transferred in the name of the assessee as gift. An illustrative copy of one such declaration dated 27.6.2003 has been placed at page 145 of the Paper Book which contains the relevant Bond certificate numbers, register folio numbers of the Bonds issued by State Bank of India, Nariman point, Mumbai in the name of the donor Shri Gurmeet Ajitsingh Rajpal. Similarly at page 144 of the Paper Book is the communication received from State Bank of India, Nariman Point, Mumbai, whereby the stated Bonds are said to have been transferred in the name of the assessee from Shri Gurmeet Ajitsingh Rajpal as gift. This evidence itself shows the identity of the donor. Be that as it may, in our view, the objection of the Revenue that the assessee could not establish the identity of the donor is misplaced and the Commissioner of Income-tax (Appeals) rightly rejected such assertion of the Assessing Officer.
34 Secondly, even with regard to the capacity of the donor to gift such Bonds is concerned, herein also we find that the Commissioner of Income-tax (Appeals) made no mistake in accepting the explanations furnished by the assessee. Pertinently, such Bonds could only be originally subscribed by an NRI and that too against foreign currency. In fact, the gift transfer form submitted to the State Bank of India, Nariman Point, Mumbai, copy of which is on record, clearly shows that the Bonds were purchased against US Dollars. Therefore, the source of money for the purchase of such Bonds in 1998 was in foreign currency outside India. In fact, in so far as the year under consideration is concerned, one has to examine only the source and nature of the amount credited in the account of the assessee, namely, the maturity proceeds of such Bonds and not with regard to the investments made in purchasing such bonds which could be made only in the financial year 1998-99 and not in the year under consideration. In fact, the Hon'ble Allahabad High Court has considered 20 an identical situation wherein also, section 68 was involved, vis-à-vis the maturity proceeds of Resurgent India Bonds gifted to the assessee therein. In that case too, the Revenue had doubted the nature and source of the amount credited by way of maturity proceeds in the account of the donee and in this context, it was noticed as under:
st "5. Undisputedly, in purchasing the four bonds the investments were made on 1 October, 1998 and not in the year under consideration and in the year under consideration, namely, in the asst. yr. 2004-05 only the maturity amounts of the bond were received.
6. Thus, so far as the year under consideration is concerned, the source and nature of deposit are fully established and the query with regard to the investment made in purchasing the bonds could be made only in the financial year 1998-99 relevant to the asst. yr. 1999-2000 and no n the year under consideration.
7. After the amendment in s. 5(iiie) of the GT Act by the Finance (No 2) Act of 1991, gift could be made to the person other than relatives also. The omission of the word 'relative' in the section shows that the amendment was made to promote the gift by NRI to the persons other than relatives to encourage inflow of foreign money in India through gifts."
35 Considered in the aforesaid light, we, therefore, find that the Assessing Officer misdirected himself. Moreover in the present case we find that the assessee produced copies of Bank statements of the donor Shri Gurmeet Ajitsingh Rajpal in various Banks on the basis of which it was sought to be made out that the donor was a man of means. In the course of the hearing, the learned Counsel referred to pages 73 to 96 of the paper Book wherein such documentation has been placed, namely, copies of fixed deposits of the donor with various Banks and their confirmations. Ostensibly, such material pertaining to the relevant period of Bond subscription by the donor was before the Assessing Officer also. There does not emerge to be any adverse findings on such material which, in our view, does prima facie support the assertions of the assessee. In the absence of any adverse material with the Assessing Officer such prima facie evidence cannot be brushed aside. Moreover, it is a well-settled proposition that in the context of section 68 of the Act, the assessee can at-best be called upon to prove and establish the source of the 21 credit, but not to prove the source of the source and for such proposition, reliance can be placed on the following decisions:
(i) S Hastimal v CIT 49 ITR 273 (Mad);
(ii) CIT v Daulat Ram Rawatmull 87 349 (SC); and,
(iv) Sarogi Credit Corporation v. CIT 103 ITR 344 (Patna). Undisputably, the donor invested in the RIBs in financial year 1997-98 and there cannot be a presumption on the part of the Assessing Officer that the donor lacked adequate financial capacity without bringing any material on record. Therefore, in view of the aforesaid discussion, we are unable to accept the view of the Assessing Officer and rather we affirm the finding of the Commissioner of Income-tax (Appeals) that the capacity of the donor to make gift is established having regard to the material on record. 36 Even with regard to the genuineness of the transaction, we find that the parity of reasoning laid down by the Hon'ble Allahabad High Court in the case of Kanchan Singh (supra) clearly supports the assertions of the assessee. Even in the case before the Hon'ble Allahabad High Court, the Revenue had doubted the genuineness of the gifts on the ground that the donee was not proved to be in contact with the donor for a long time. In the case before the Hon'ble High Court, apart from the declaration of the donor stating that he made the gift to the donee, the donor was neither found available on the address given in the declaration nor was the donee found aware of his present address. Under these circumstances in the case before the Hon'ble Allahabad High Court, the Revenue contended that the gift was assessee's own money routed through some fictitious person and therefore it was assessed as income from other sources. In this background, the Hon'ble High Court has made a detailed reasoning to conclude that the nature and source of the credit in the bank account namely the maturity proceeds of the Bonds received as 22 gift, was established by the assessee. The relevant discussion contained in paras 22 & 23 is as under:
"22. The reasons for arriving at a conclusion are as follows:
st
1. Four Resurgent India Bonds of 10,000 US dollars each were purchased on 1 October, 2003 on the application of Sri K C Kapadia, which is established from the application sent by the Chief Manager, SBI, NRI Branch, Mumbai.
2. Such bonds could be purchased only by NRI against the foreign currency.
Admittedly, the bonds were purchased against US dollars. Thus, the source of the money for the purchase of the bond, being US dollars is outside India.
3. The bonds reveal that they were transferable and, accordingly, they ere transferred in favour of the assessee by Shri K C Kapadia.
4. As a result of transfers of such bonds in favour of the assessee, the assessee received the maturity amount from the SBI and credited in her account. Letter of th the Chief Manager, SBI NRI Branch, Mumbai dated 28 Feb. 2006 confirms the transfers by way of gift to the assessee by Sri K.C. Kapadia.
st
5. Undisputedly, in purchasing the four bonds the investments were made on 1 Oct., 1998 and not in the year under consideration and in the year under consideration, namely, in the asst. yr. 2004-05 only the maturity amounts of the bond were received.
6. Thus, so far as the year under consideration is concerned, the source and nature of deposit are fully established and the query with regard to the investment made in purchasing the bonds could be made only in the financial year 1998-99 relevant to the asst. yr. 1999-2000 and not in the year under consideration.
7. After the amendment in s. 5(iiie) of the GT Act by the Finance (No.2) Act of 1991, gift could be made to the person other than relatives also. The omission of the word 'relative' in the section shows that the amendment was made to promote the gift by NRI to the persons other than relatives to encourage inflow of foreign money in India through gifts.
th
8. Shri K.C. Kapadia, by confirmatory letter dt. 8 Feb. 2006 duly notarized by Notary Public of New Jersey, has confirmed the gift of four such bonds. The letters written by the assessing authority were returned unserved with the remark "Not deliverable as addressed unable to forward" does not mean that Sri K.C. Kapadia was not traceable and was not in existence. There maybe so many reasons that the letter could not be delivered. Merely because the assessee could not tell any other address of Sri K.C. Kapadia, it cannot be inferred that Sri K.C.Kapadia was/is not in existence and his identity is doubtful.
9. The application moved by Sri K C Kapadia for the purchase of four bonds with the SBI, the issue of the bonds in the name of Sri K C Kapadia against US dollars is by itself an evidence to proof the identity of Sri K C Kapadia.
23. In the facts and circumstances and the reasons given above, we are of the view that there is no reason to doubt the genuineness of the gift by Sri K C Kapadia to the assessee. In any view of the matter, the assessee was able to establish the nature and source of the money. The nature and source of the money found deposited in the bank account of the assessee were the maturity amounts of the four bonds which st were purchased by Sri K.C. Kapadia on 1 Oct. 198. Therefore, so far as year under consideration is concerned, the nature and source are fully established. There is no evidence to show that the deposit in the bank account was the income from other sources of the assessee for the year under consideration." 37 In the background of the aforesaid judgment, we find that the Commissioner of Income-tax (Appeals) made no mistake in upholding the assessee's assertion that the transaction of gift was genuine. In fact in the 23 present case, it is not the case of the Revenue that the donor was not found at the given address rather as the assertion of the assessee before the Commissioner of Income-tax (Appeals) shows that an independent verification by the Assessing Officer with the Notary established the availability of the donor. Merely because the assessee did not produce the donor in person before the Assessing Officer the same, in our view, is not material to doubt the genuineness of the transaction. Moreover, as the amendment to section 5(iiie) of the Gift-tax Act shows that the Bonds in question could be gifted by the donor to any person other than relatives also. Considered in this background, the insistence of the Assessing Officer to reject the genuineness on the plea that the donor and donee being unrelated by blood, caste or community is, therefore, not a ground enough to doubt the genuineness of the transaction. Further-more, the Commissioner of Income-tax (Appeals) has rightly observed that in this case a search and survey of all the premises of the assessee group was carried out and nothing incriminating was found to suggest that any consideration has flown from the assessee to the donor surreptitiously in lieu of the gift of Bonds. Therefore, considering the aforesaid, in our view, in the absence of any corroborative evidence with the Assessing Officer, the genuineness of the transaction of gift by Shri Gurmeet Ajitsingh Rajpal to the assessee cannot be rejected on mere surmises and doubts. 38 Before parting, we may also refer to the plea of the learned Departmental Representative that the Assessing Officer has referred to certain case laws to justify the stand of the Revenue. In this regard, we find that the Commissioner of Income-tax (Appeals) has appropriately dealt with such approach of the Assessing Officer in the following words:
"In cases on which the AO placed his reliance for coming to the conclusion on the issue of 'nature and source' of credits, though were mostly elating to gifts or foreign gifts but none of them were on the issue of gifts of RIBs. The gifts in those cases were generally of receipt of money through bank transfers and the nature and the immediate source of such transfers remained shrouded in ambiguity giving rise to substantial support to the conclusion based on preponderance of probability that the 24 transfers of money has source to the unaccounted money of recipient done. In all those cases the final conclusion has been that the credit appearing in the books of the recipients is the money of the recipient of gift or credit entry. Therefore, the exercise adopted by the AO for determining the nature and source of he credits could be seen to be slightly out of context."
39 In our view, the aforesaid analysis by the Commissioner of Income-tax (Appeals) is quite appropriate and is borne out of the facts and circumstances of the present case.
40 In the final analysis, we therefore, conclude by affirming the action of the Commissioner of Income-tax (Appeals) in holding that the assessee had discharged his onus satisfactorily of proving the nature and source of the impugned credits appearing in his account books by way of maturity proceeds of the Bonds received as gift from Shri Gurmeet Ajitsingh Rajpal. Thus, on this Ground Revenue fails.
41 The last Ground in this appeal is with regard to an ad hoc disallowance of 10% out of salary and allowances which has since been deleted by the Commissioner of Income-tax (Appeals). Before us, the learned Departmental Representative pointed out a typographical error in the Grounds of appeal raised in the Memo of appeal and stated that the same pertains to an amount of Rs 1,02,707/- disallowed out of expenditure on salary and allowances. The Assessing Officer made ad hoc disallowance which has been deleted by the Commissioner of Income-tax (Appeals) on the ground that there was no instance of any payment having been made for non-business purposes. The Departmental Representative has not made out any cogent reasoning to support ad hoc disallowance made by the Assessing Officer and, in our view, the Commissioner of Income-tax (Appeals) made no mistake in deleting the disallowance of Rs 1,02,707/-, which we hereby affirm. The Revenue fails on this Ground.
42 In the result, the appeal of the Revenue in ITA No 1025/PN/10 is dismissed.
25
43. We shall now take up Revenue's appeal in the case of Shri Sameer B Ladkat, Pune, vide ITA No 1018/PN/10 relating to assessment year 2004-05. 44 his appeal by the Revenue is directed against the order of the Commissioner of Income-tax (Appeals)-IV, Pune dated 22.2.2010, which in turn has arisen from the order passed by the Assessing Officer under section 143(3) r.w.s. 153A(b) of the Act pertaining to the assessment year 2004-05. 45 In this case, the solitary issue is with regard to an addition of Rs 2,00,88,783/-. It was a common point between the parties that the dispute is identical to the Ground No. 1 considered by us in Revenue's appeal vide ITA No 1025/PN/10, wherein we have affirmed the order of the Commissioner of Income-tax (Appeals) in deleting the said addition. Following the parity of reasoning given therein, we affirm the decision of the Commissioner of Income-tax (Appeals) herein also. The Revenue thus fails on this ground. 46 In the result, the appeal of the Revenue, vide ITA No 1018/PN/10 is dismissed.
47 We shall now take up the appeal filed by assessee M/s SLK Properties, vide ITA No 972/PN/10 relating to assessment year 2006-07. 48 This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-IV, Pune dated 23.2.2010, which in turn, has arisen from the order passed by the Assessing Officer under section 143(3) r.w.s. 153A(b) of the Act pertaining to the assessment year 2006-07.
49. In this appeal, the solitary dispute arises from an addition made by the Assessing Officer of Rs 70,64,000/- as unexplained investment in the project. In brief the facts are that in the course of search, a paper titled as page No 8 of bundle No 16 was seized from the premises of M/s New Auto Centre, Plot 26 No. 36, Somwar Peth, Pune, a concern belonging to the assessee group. The said document was stated to belong to the assessee firm who is engaged in the business of promoters and builders. Mr Gautam Ladkat, a partner of assessee firm explained the writing on such documents. The narration on such document has been noted by the Assessing Officer in para 2 of the assessment order and such document has also been reproduced therein. As per the Assessing Officer, the said document reflected investment in project being undertaken by M/s SLK Properties, (the assessee firm), which was not accounted for in the account books maintained by the firm. After considering the explanations put-forth by the assessee, Assessing Officer has concluded that the payments reflected in the said document did not find a place in the regular books of account maintained by the assessee and, therefore, the amount of Rs 70,64,000/- represented unexplained investment by the assessee and accordingly, the same was added to the income of the assessee.
50. In appeal before the Commissioner of Income-tax (Appeals), the assessee contended that the payments recorded in the seized material are duly accounted for in the account books and in support it was stated that the figure of Rs 61 lakhs against 'Plot' written in the said document showed 1/3rd of the total purchase consideration of the plot at Rs 1.83 crores as Mr Gautam Ladkat was having one-third share in the assessee firm, it was a declared investment of Mr Gautam Ladkat in the account books of the assessee firm. It was, therefore, contended that the said document will not consider as reflecting any unexplained investment. The Commissioner of Income-tax (Appeals) has upheld the stand of the Assessing Officer by making the following discussion:
"4.3 It can be seen from the above that the ground No. 3 of the appellant relates to addition of Rs 70,64,000/- based on a piece of paper seized vide page No. 8 of bundle 16 at M/s New Auto Centre, Plot No. 36, Somwar Peth, Pune during the search of 27 Ladkat group. Mr Gautam Ladkat, who is the partner in this firm explained this paper in his statement recorded u/s 131 on 6.11.2006. There is no dispute that the paper seized belonged to SLK Properties. It is also clear from the noting available in the said paper that it contained details of investment made in the said firm till a particular date. The details available are quite specific viz. plot - 61,00,000/-, Khedkar bai - 25,000/-, Assignment tax - 89,000/-, Demarcation - 50,000/-, Raju - 2,00,000/-, Girme - 2,25,000/-, Demarcation - 75,000/-, Plan pass - 3,00,000/-. From the discussions made by the AO and the submissions of the appellant, it is apparent that both agree that the paper relates to SLK properties and the details mentioned therein are in respect of investment made in the project. However, the dispute is in respect of its nature i.e. whether the above amount of Rs 70.64 lakhs is accounted or not. The AO has held the above as unaccounted on the ground that the paper clearly shows the expenses under the heading 'cash' and not 'cheque'. All the details mentioned therein are not matching with the books maintained by the appellant. The appellant on the other hand, is claiming that the above details are accounted for in the books as it matches the total amount of investment made by Shri Gautam Ladkat of approximately Rs 71 lakhs till the date of the search and also because the amount of rd Rs 61 lakhs shown against plot is 1/3 of the total purchase consideration of the plot at Rs 1.83 crores. They have also relied on different arguments which are quite apparent from the reading of the relevant portions appearing in the assessment order and the submissions, which have been quoted above for the sake of ready reference. On careful consideration of all the facts available, I find it relevant to note that the paper clearly says that "SLK Investment uptill now". There is no dispute on this note.
rd Now, whether this noting represents the total investment in the project or only the 1/3 share of Mr Ladkat is an important issue for consideration. The AO has considered the entire investment as unaccounted relating to the appellant firm made out of undisclosed cash money. As against that the appellant has claimed that the above rd noting represents 1/3 share of Mr Ladkat and for that they have tried to match the figure of Rs 70.64 lakhs available in this paper with the total investment of Mr Ladkat in the books of the appellant, which is claimed at Rs 71 lakhs. In addition to this, they have also tried to co-relate that the amount of Rs 61 lakhs appearing in this document rd for plot represents 1/3 of the total purchase consideration of the land at Rs 1.83 crores. In my considered opinion, the above similarity of the two figures is only incidental because the appellant has not been able to co-relate each and every figure available in this document with similar figures available in the books. In addition to the above, it can be further seen that the above paper contains details of expenses relating to SLK Properties uptill now. This figure gets strengthened from the fact that rd in the bottom of the paper is a figure of Rs 23,55,000/- which actually is 1/3 of Rs 70.64 lakhs. This clearly shows that the total investment of Rs 70.64 lakhs is for the firm and the share of each partner in this expenditure is coming to Rs 23.55 lakhs. This goes to prove that the appellant's defense fails flat, wherein they have made co- relation to the amount of this paper with total investment of Mr Ladkat and also with rd the 1/3 land cost. In view of the above as well as on the finding that the appellant has failed to co-relate each and every item of this paper with the books, it is not possible to interpret it in an other manner than what the AO has done. It is therefore upheld that the above document represents unaccounted investment/expenditure of the appellant relating to the project in hand."
51 Not being satisfied with the order of the Commissioner of Income-tax (Appeals), assessee is in further appeal before us. The primary argument of the assessee before us is that the said document has no evidentiary value, inasmuch as it does not bear a date and otherwise also it contains incomplete narrations. Therefore, no addition can be made on the basis of the said document. Apart therefrom, it has also been pointed out that the assessee has recorded the relevant expenditure in the account books and for that matter, 28 referred to page 70 of the Paper Book wherein is placed a copy of investment in the firm made by the assessee upto the date of search which stood at Rs 71,10,000/-. The plea of the assessee is that the payments recorded in the said document at Rs 70,64,000/- is a part of the amount of investment of Mr Gautam Ladkat so recorded in the regular account books of the assessee firm at Rs 71,10,000/-. The learned Counsel further submitted that in any case, no addition can be made for the year under consideration as the document does not contain any date so as to co-relate it with the year under consideration. 52 On the other hand, the learned Departmental Representative, appearing for the Revenue, has contended that the Assessing Officer was justified in holding that the payments reflected by the seized document was over and above the investment recorded in the account books as the details mentioned in the seized paper did not match the account books maintained by the assessee.
53 We have carefully considered the rival submissions. Ostensibly, the seized document was put to the partner of the assessee firm Mr Gautam Ladkat who, in the course of his statement recorded under section 131 on 6.11.2006, has not disowned the same. In fact, in the course of such statement, the said partner explained the meaning of the expression "CHS"'as meaning cash and "CQ" meaning cheque. The amounts recorded against various items viz. plot, Khedkar bai, assignment, tax, demarcation, plan passed etc. totaling to Rs 70,64,000/- are all under the head 'CHS' meaning that the payments are in cash. It is also not denied by the assessee at any stage that the same reflects investments in assessee firm as the heading of the document itself says "SLK investments uptill now". Considered in this background, we therefore find no merit in the plea of the assessee that the document has no evidentiary value as the same is not complete in the absence of putting a date, etc. Rather, on its comparison with the investment 29 recorded in the assessee firm which stands at Rs 71,10,000/- it clearly emerges that the seized documents reflect unaccounted payments, inasmuch as the recorded investments are by way of cheque payments, whereas the seized document shows expenditure by way of cash payments. The Commissioner of Income-tax (Appeals), in our view, has rightly negated the plea of the assessee that the seized document does not show any unaccounted investment. In fact, the plea of the assessee of similarity of figure of Rs 61,00,000 appearing in the documents vis-a-vis 1/3rd of the total consideration of land at Rs 1.83 crores has also been appropriately dealt with by the Commissioner of Income-tax (Appeals) against the assessee, and the same does not call for any interference. Under these circumstances, we therefore find no reason to interfere with the findings given by the Commissioner of Income-tax (Appeals) which we have extracted in the earlier part of this order. One of the point raised before us is to the effect that the document seized is not relatable to the year under consideration in the absence of any date therein and, therefore, the addition in this year under consideration is not merited. On this aspect also, we find that the Assessing Officer in para 9 of the assessment order has appropriately dealt with such an objection of the assessee. The Assessing Officer has noted that the firm i.e. SLK properties came into existence during the financial year 2005-06 and most of the narrations in the seized document relate to acquiring of land and initial investment related transactions and in the absence of any date on such documents, the same are treated as unexplained investment of such year, i.e. assessment year 2006-07. Against the aforesaid, there is no plausible explanation furnished by the assessee and therefore we find no reasons to interfere with the conclusion of the Assessing Officer. Therefore, on this aspect also assessee fails.
3054 In the result, the appeal of the assessee, vide ITA No 972/PN/10 is dismissed.
55 We shall now take up appeal of M/s SLK Properties vide ITA No 973/PN/10 relating to assessment year 2007-08.
56 This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-IV, Pune dated 23.2.2010, which in turn has arisen from the order passed by the Assessing Officer under section 143(3) r.w.s. 153A(b) of the Act pertaining to the assessment year 2007-08. 57 In this year, the only plea raised by the assessee is that consequent to an addition of Rs 70,64,000/- in the preceding assessment year 2006-07 as unexplained investment towards the project, the assessee be allowed the benefit of treating the same as part of work-in-progress and in this manner, to such extent the opening work-in-progress for the assessment year 2007-08 shall stand increased. Notably, in so far as assessment year 2007-08 is concerned, the returned income of the assessee was accepted. The said plea of the assessee has been negated by the Commissioner of Income-tax (Appeals) primarily for the reason that such a claim was not made before the Assessing Officer and, therefore, the same could not be raised at the appellate stage. Against the aforesaid, assessee is in appeal before us. 58 On this aspect, the plea of the assessee, in our view, is liable to be examined on its merits. With this objective, we deem it proper to set aside this matter to the file of the Assessing Officer, who shall consider the plea of the assessee as per law and after affording a reasonable opportunity of being heard to the assessee. Thus, assessee succeeds for statistical purposes. 59 In the result, the appeal of the assessee, vide ITA No 973/PN/10 is allowed for statistical purposes.
3160 We shall now take up assessee's appeal in the case of Shri Balasaheb M Ladkat, (L/H) Sameer B Ladkat, Pune, vide ITA No 976/PN/10 relating to assessment year 2005-06.
61 This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-IV, Pune dated 19.2.2010, which in turn has arisen from the order passed by the Assessing Officer under section 143(3) r.w.s. 153A(b) of the Act pertaining to the assessment year 2005-06. 62 In this appeal, the solitary grievance of the assessee is with regard to an addition of Rs 31,86,000/- made on account of unaccounted extra collections from the customers on sale of petrol and diesel. 63 In brief, the facts are that three Note books were found and impounded in the course of a survey at premises of M/s New Auto Corner Somwar Peth, Pune. The said Note books contained details of the sales made at the three petrol pumps of the assessee group. Shri Sameer Ladkat, son of the assessee, explained the contents of the three Note books. The three Note books found were for the period namely, 2.10.2005 to 20.12.2005, 17.3.2006 to 10.6.2006 and 11.6.2006 to 4.7.2006 respectively. The Note books found carried certain codes apart from columns mentioning (i) name of the cashiers of 3 petrol pumps, (ii) MS: indicating quantity in litres of petrol (motor spirit) sold, (iii) HSD indicating High Speed Diesel. The fourth column contained the code, for instance, AO, BO, CO, AAE, BIP, etc. Shri Sameer Ladkat explained the codes as A representing Rs 10 and O after an alphabet represents 100, AO meant Rs 100, BO meant Rs 200, CO meant Rs 300, AAE meant 1150, and BID meant Rs 294 and so on. Thus, it transpired that additional amount was being collected by the assessee against the sale of petrol and diesel which was not accounted for in the account books. The aforesaid was admitted by the assessee.The Assessing Officer has referred to question No. 32 13, 14, 15 & 16 of the statement of Shri Sameer ladkat recorded on 7.7.2006 to point out that such additional collections of sale amount were not accounted for in the account books. On the basis of the explanation furnished by Shri Sameer Ladkat, the figures recorded in the note books in the coded form were decoded for the 3 petrol pumps and accordingly, the Assessing Officer reworked the contents of the Note books. On such basis, for the financial year 2005-06 the figures were decoded as 9,35,183/- and for financial year 2006- 07, same were decoded at Rs 10,39,489/-. With respect to Bundle No 4 representing Note book for the financial year 2005-06, the Assessing Officer observed that such note book contained pages 1 to 40 for the period 2.10.2005 to 20.12.2005. On its perusal, the Assessing Officer noticed that the assessee had destroyed 5/6th portion of the first 38 pages leaving only the names of the sales-men which according to the Assessing Officer indicated that assessee was periodically destroying the records of additional money received from the salesmen working on the petrol pump. Therefore, for the periods for which the Note books were available, the Assessing Officer worked out the unaccounted money received at 9,35,138/- and Rs 10,39,489/- for financial years 2005-06 and 2006-07 respectively.
64 In the course of assessment proceedings, the Assessing Officer confronted the assessee the evidence in the form of unaccounted extra money received, although not for the full year, and assessee was required to explain as to why on the basis of such material and admission of Shri Sameer Ladkat such collections be not estimated for the complete year. The Assessing Officer has accordingly estimated unaccounted extra money received at Rs 10,39,489/- for the assessment year 2007-08, at Rs 35,40,000/- for the assessment year 2006-07 and at Rs 31,86,000/- for the assessment year 2005-06. Such additions have been taken up by assessee in ITA 976/PN10, 977/PN/10 and 978/P/10 pertaining to assessment ears 2005-06, 2006-07 and 33 2007-08 respectively. Since the said Ground is common in all the three years, the same is taken up together.
65 Before the Assessing Officer, assessee pointed out that though Shri Sameer Ladkat, son of the assessee in his statement explained the codes A, B, C to mean Rs 10, 20, and 30 respectively, however, one Mr Amit who was maintaining such Note books had also given an explanation giving the meaning of such codes. As per the statement of Mr Amit, an employee of the assessee, A meant Rs 1, B meant Rs 2, and C meant Rs 3 and so on. It was canvassed that since the Note books were in the handwriting of Mr Amit, his statement should be considered in order to decoding the figures stated by A, B C and not as per the explanation of Mr Sameer Ladkat. The assessee also submitted that statement of Mr Amit was more acceptable, inasmuch as the unaccounted collections was on account of rounding up of sales. For example in case of a scooter owner if one litre of petrol and 30 ml oil is to cost Rs 39.70, actual collection made is of Rs 40 thereby resulting in extra collection of Rs 0.30. It was pointed out that if the decoding as done by the Assessing Officer is accepted, then it would represent a large amount of per litre collection which would be untenable and impractical. The assessee also submitted that it is in this background Mr Sameer Ladkat also suo motu offered an additional income of Rs 8,00,000/- for assessment years 2005-06, 2006-07 & 2007-08 on account of extra collections in his statement recorded under section 132(4) of the Act. The Assessing Officer, however, did not accept the explanation put-forth by the assessee. According to the Assessing Officer, the unaccounted income on account of extra collections was to be estimated on the basis of the decoding explained by Mr Sameer Ladkat. According to the Assessing Officer, the figures are written in codes as it was to be kept hidden from the eyes of the Government Department or even the employees of the assessee and the same was unaccounted. Therefore, it was 34 something which was in the special knowledge of the person who owned and controlled the business. Since Mr. Sameer Ladkat, son of the assessee, was effectively controlling the petrol pump business of the assessee, his interpretation of code was to be accepted and cannot be disbelieved in preference to that given by an employee. In this manner explanation of the assessee was rejected by the Assessing Officer.
66 In appeal before the Commissioner of Income-tax (Appeals), appellant made more or less similar arguments which were to the following effect that the Assessing Officer was wrong in ignoring that the statement of Mr Amit, who is the person who has maintained the impounded note books; that the figures calculated on the basis of explanation rendered by Mr Amit matched the explanation rendered by Shri Sameer Ladkat offering additional income in the course of his statement under section 132(4) of the Act. The Commissioner of Income-tax (Appeals) has, however, upheld the stand of the Assessing Officer for all the three assessment years by way of a common reasoning which is detailed as under:
"7.4 On careful consideration of the grounds raised by the appellant on the above issue along with the arguments made by the AO in the assessment order and the appellant made during appeal and before the AO, I find that the basic fact of suppression of income out of sales made is not in dispute. The note books seized is only in respect of quantum. Mr Samir Ladkat and Mr Amit have explained the system of code differently. The AO has followed the system which has been stated by Mr Samir Ladkat on the ground that he is the owner and in control of the affairs at these petrol pumps and therefore the explanation given by him has to be accepted to be more true than the one given by Mr Amit. On careful consideration I find that the stand taken by the AO is correct. The stand taken by the appellant to justify the system stated by Mr Amit to be more correct on the basis of per litre calculation, is not found to be correct in the light of the actual affairs. The extra collection as explained by the appellant has to be on the basis of number of customers and not on the basis of quantity sold. For example, if Rs 0.5 is presumed to be earned unaccounted in one sale, the amount of such earning would be same whether a customer buys one litre petrol or 40 litres of petrol. Therefore, the logic of per litre earning given by the appellant to support that the statement of Mr Amit is more acceptable is not acceptable..In the copy of the statement of Mr Samir Ladkat given during appeal, it is seen that he has clearly admitted the above fact and is now trying to escape from the legal implications of the statement and the documents found. Mr Amit being an employee cannot be accepted to be knowing more than Mr Samir Ladkat, who on the date of the survey was found to be managing the affairs of the business on behalf of his father. The AO has also correctly taken the implication of the above affairs to AY 2005-06 as M Samir Ladkat has in his statement stated to extend to. Therefore, even if no documents relating to AY 2005-06 was found, the admission of the appellant that such an affair was going on in AY 2005-06 has to be taken as evidence for the same. It was also found that the appellant was destroying the old documents relating to this 35 affair and therefore it is quite logical to contend that the affairs continued in AY 2005- 06 on the basis of the statement of Mr Samir Ladkat. The calculation made by the AO for the full year based on the documents and on the strength of judgments relied upon by him are also found to be correct. Considering all these facts the grounds referred above relating to this issue are treated as dismissed. Income under this head is to be taken for AYrs 2005-06, 2006-07 and 2007-08 at figures described at para 7.2.3 of this order and the AO in the assessment order."
67 Before us, learned Counsel for the assessee has assailed the respective orders of the authorities below. According to the assessee, the lower authorities have wrongly relied on the statement of Shri Sameer Ladkat for deciphering the notings in the Note books found during the survey without considering the statement of Shri Amit Wavhal, accountant of the assessee in whose handwriting such Note books were written. According to the learned Counsel, the Note books were found written in the handwriting of Shri Amit Wavhal and therefore, he was the best person to explain the contents of such documents and, it was on the basis of such explanation the assessee had offered a sum of Rs 8,00,000/- in a statement recorded under section 131(1)(b) of the Act on 22.8.2006. Apart from the aforesaid, it is also pointed out that as per the explanation furnished before the lower authorities the deciphering of the codes as per the statement of Shri Sameer Ladkat would result in amount of excess collections even higher than the dealer margin earned by the assessee on the sale of its products. It was explained that it is quite illogical that excess collections made from the customers on account of rounding up of the sale amount is significant as compared to the eligible commission from the petroleum companies. With regard to the assessment year 2005-06 a further plea has been raised to the effect that there was no documents seized or found during search which would show excess collections as was the case in the other two assessment years of 2006-07 and 2007-08. It was therefore contended that though the assessee admitted unaccounted income on account of excess collections for the three assessment years of 2005-06, 2006-07 and 2007-08 at Rs 8,00,000/-, but in 36 the absence of any corroborative evidence found relatable to the assessment year 2005-06, no addition is maintainable for such assessment year. 68 On the other hand, the learned Departmental Representative, appearing for the Revenue vehemently defended the orders of the authorities below by pointing out that the factum of assessee collecting amounts over and above the stated sales was admitted by the assessee and the same is also supported by the Note books impounded in the course of survey action. Even with regard to the assessment year 2005-06, the estimation of unaccounted income is sought to be justified on the ground that the assessee himself has admittedly surrendered income in the statement recorded under section 131(1)(b) of the Act dated 22.8.2006. In sum and substance, the orders of the authorities below on the stated addition is sought to be defended by the learned Departmental Representative.
69 We have carefully considered the rival submissions. It is quite evident that the assessee as well as an employee Shri Amit Wavhal admitted with respect to the three Note books impounded, that the same contained amounts collected from the customers which were not recorded in the account books. The only difference in the statement of Shri Samir Ladkat and that of the employee Shri Amit Wavhal was with regard to the deciphering of codes A, B, C, etc., used in such seized material. Ostensibly, if the deciphering of the codes as per the statement of Shri Sameer Ladkat is accepted, the same results in a higher amount of unrecorded income as against the statement of Shri Amit. The assessee has canvassed that the statement of Shri Amit, the employee be relied upon in preference to that of Shri Sameer Ladkat primarily for the reason that such Note books are in the handwriting of Shri Amit Wavhal. While the plea set-up by the assessee appears reasonable in the first instance, so however, the same has to be tested as to whether such a plea is plausible in the facts and circumstances of the present case. Admittedly, Shri 37 Amit Wavhal is an employee of the assessee looking after accounts. Now, on the other hand, Shri Sameer Ladkat, is admittedly controlling the affairs of petrol pump business. It is Shri Sameer Ladkat who would be the eventual beneficiary of the amounts so found unrecorded in the regular books of accounts. Pertinently, it is Shri Sameer Ladkat who offered additional income on account of such unrecorded income in his statement recorded on 22.8.2006, which has not been retracted at any stage. In this view of the matter, having regard to the plausibility of the explanations, in our view, it would be the statement of Shri Sameer Ladkat which would carry more authenticity and persuasive value. It is also notable that such statement of Mr Sameer Ladkat is spontaneous and is deposed in the first blush, and there is no retraction of the same. In this case, the values ascribed to the codes by the owner and controller of business is higher than those stated by the employee and even on the test of human probabilities, we find that the lower authorities made no mistake in relying on the statement of Shri Sameer Ladkat in order to decipher the codes written in the three Note books. Therefore, in principle, the action of the lower authorities on this aspect is upheld. 70 Now we may take up for consideration the plea of the assessee regarding the quantum of addition made by the Assessing Officer for the three assessment years in question. Clearly, the assessee suo moto offered additional income on account of excess collection from customers for the three assessment years 2005-06, 2006-07 and 2007-08 (upto the date of search) at Rs 8,00,000/-. Against this, the estimation of additional income has been made by the Assessing Officer at Rs31,86,000/-, Rs 35,40,000/- and Rs 10,39,489/- for assessment years 2005-06, 2006-07 and 2007-08 respectively. Before us, the plea raised by the assessee is that there was no evidence available for the assessment year 2005-06 inasmuch as none of the three note books impounded during the survey action pertained to the such period. 38 Similarly, with regard to assessment year 2006-07, it is pointed out that the Note books impounded contained data for 95 days only and for the balance of the period comprised in the previous year relevant to the assessment year 2006-07, it is computed by extrapolation. In so far as the assessment year 2007-08 is concerned, the amount of unaccounted extra money has been worked upto the date of search on the basis of the Note books impounded. In our considered opinion, the plea of the assessee that there was no justification of addition for assessment year 2005-06, is quite untenable. No doubt, the three Note books impounded do not relate to the period relating to assessment year 2005-06, so however, the assessee suo motu offered additional income on account of such unrecorded income even for the assessment year 2005- 06, though in a consolidated fashion for the 2005-06, 2006-07 and 2007-08 (upto the date of search). We also find that at no stage has such surrender of additions of income has been retracted by the assessee. The admission by the assessee and surrender of additional income for assessment year 2005-06 clearly speaks of the income having been earned by the assessee. Thus, we find no justification for the assessee to escape from the addition on this point for the assessment year 2005-06. Coming to the quantification of such addition, we find that the Assessing Officer after working out the addition of Rs 35,40,000/- for assessment year 2006-07 estimated the addition for 2005-06 by reducing it by 10% and accordingly, estimated the same at Rs 31,86,000/- (i.e 35,40,000 - 10%). In our considered opinion, the estimation for the assessment year 2005-06 does appear to be on a excessive side considering that the Assessing Officer has not related it either to the quantities of petrol/diesel sold and nor to the difference in rates of such products in the later two assessment years. Be that as it may, if such income for assessment year 2005-06 is estimated at Rs 25,00,000/-, the same in our view, would be justified to plug the leakage of revenue, if any. Insofar as the quantification of 39 such income for assessment years 2006-07 and 2007-08 is concerned, we find no reason to interfere with the same, as the same is based on the seized material.
71 Resultantly, whereas for assessment year 2005-06 vide ITA 976/PN/10, assessee partly succeeds on this aspect, and for the assessment year 2006- 07, i.e. ITA 977/PN/10 and for assessment year 2007-08 in ITA No 978/PN/10 in respect of Grounds of No 1 thereof, assessee fails.
72 Since there is no other Ground raised for assessment year 2005- 06, the appeal of the assessee in ITA 976/PN/10 is partly allowed. 73 We shall now take up assessee's appeal in the case of Shri Balasaheb M Ladkat, (L/H) Sameer B Ladkat, Pune, vide ITA No 977/PN/10 relating to assessment year 2006-07.
74 This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-IV, Pune dated 18.2.2010, which in turn has arisen from the order passed by the Assessing Officer under section 143(3) r.w.s. 153A(b) of the Act pertaining to the assessment year 2006-07.
75. Ground No. 1 relating to addition of Rs 35,40,000/- on account of undisclosed income earned by the assessee from petrol pump business has been dealt with by us in assessee's appeal for assessment year 2005-06, vide ITA N0 976/PN/10. For the detailed reasons given therein, the assessee fails on this Ground.
76. The only other Ground in this appeal relates to denial of assessee's claim for deduction under section 54 of the Act amounting to Rs 69,20,000/. The relevant facts, in this regard, are that the Assessing Officer computed capital gain on sale of Bund Garden property at Rs 69,75,322/- by adopting the full value of consideration at Rs 80 lakhs. The aforesaid computation was made by the Assessing Officer without prejudice to his conclusion that the 40 capital gain was to be computed with reference to consideration of Rs 2,90,00,000/-, which is the subject-matter of consideration by us in Revenue's appeal, vide ITA No..1026/PN/10 However, since the substantive addition was made by the Assessing Officer by assessing the capital gain at Rs 2,79,73,322/-, the capital gain of Rs 69,75,322/- was not separately added to the returned income. With respect to the capital gain earned of Rs 69,75322/-, the assessee claimed before the Assessing Officer that he had invested the capital gain on purchase of plot to construct a residential house thereon and therefore such capital gain was exempt in terms of section 54 of the Act. However, the Assessing Officer noticed that the construction of the house could not be carried out and, therefore, the assessee was not eligible for exemption under section 54 of the Act. The Assessing Officer further noted that the assessee had also not deposited the money in the prescribed account as required by section 54(2) of the Act. Pertinently the Assessing Officer also noticed that such capital gain was not declared in the return of income and it was a case where the assessee had no intention to declare such capital gain. The plea of the assessee before the Commissioner of Income-tax (Appeals) was that section 54 of the Act does not require that the construction of the new residential house be completed within 3 years and that it merely requires the assessee undertakes construction of a new residential house and in this case, the assessee had purchased a plot of land with constructed portion till plinth level. The entire investment in the purchase of plot for construction of house was eligible for exemption under section 54F of the Act. The Commissioner of Income-tax (Appeals) has disagreed with the assessee, as according to him, no construction has been carried out by the assessee on the purchased land and therefore the claim of exemption under section 54 has been denied. 77 Before us, the learned Counsel for the assessee submitted that it is not essential to complete construction of new house as stipulated under section 41 54(1) as long as the assessee had invested capital gains towards acquisition of plot and construction thereon. In this regard, reliance has been placed on the decision of the Chandigarh Bench of the Tribunal in the case of Smt Rajneet Sandhu v. DCIT 133 TTJ 64 (Chd).
78 On the other hand, the learned Departmental Representative has defended the orders of the lower authorities in support of the Revenue's stand. 79 We have carefully considered the rival submissions. In this case, the claim of assessee for exemption under section 54 of the Act has been denied by the lower authorities on the plea that the capital gain on sale of property has not been found invested in the construction of a new residential house. The plea of the assessee is that he has invested the consideration in plot and that the purchased plot itself was constructed upto plinth level as per the sale deed and therefore, it is to be taken as a case where the assessee is in the process of undertaking construction of a residential house, albeit incomplete within the prescribed period of 3 years. In our considered opinion, the case made out by the assessee is devoid of merits. The Chandigarh Bench of the Tribunal in the case of Smt Rajneet Sandhu (supra) observed that exemption under section 54F cannot be denied merely because the construction of the new house was not completed within 3 years. The assessee before us has sought to equate his case with that before the Chandigarh Bench of the Tribunal in the case of Smt Rajneet Sandhu (supra). In our considered opinion, the two cases stand on a different footing. In the case before the Chandigarh Bench of the Tribunal, assessee was found to have invested the full sale consideration received on the sale of original asset towards the purchase of plot and thereafter the construction of the building was also carried out, albeit partly . The Tribunal had noted that the construction was in progress and upto the period of 3 years the construction was complete upto 42 the ground floor roof level. Noting that the house construction was in progress and the assessee had not only invested whole of sale consideration of the land in the purchase of the plot itself and in fact started construction though not completed, it was deemed fit to allow exemption under section 54F of the Act. In the present case, from the orders of the authorities below there is no finding that any construction has been undertaken by the assessee within the stipulated period on the plot purchased. Therefore, the case of the assessee is distinguishable from the case before the Chandigarh Bench of the Tribunal and, therefore, said decision does not help the case of the assessee. The investment of proceeds in the plot of land, without undertaking any activity of construction cannot make the assessee eligible for deduction under section 54 of the Act, and accordingly, on this Ground, assessee fails. 80 In the result, assessee's appeal vide ITA No 977/PN/10 is dismissed.
81 We shall now take up assessee's appeal in the case of Shri Balasaheb M Ladkat, (L/H Sameer B Ladkat), Pune, vide ITA No 978/PN/10 relating to assessment year 2007-08.
82 This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-IV, Pune dated 18.2.2010, which in turn has arisen from the order passed by the Assessing Officer under section 143(3) r.w.s. 153A(b) of the Act pertaining to the assessment year 2007-08. 83 Ground No. 1 relating to addition of Rs 10,39,489/- on account of undisclosed income earned by the assessee from petrol pump business has been dealt with by us in assessee's appeal for assessment year 2005-06, vide ITA N0 976/PN/10. For the detailed reasons given therein, the assessee fails on this Ground.
4384 The only other Ground remaining in this appeal is with regard to the addition of Rs 12,01,190/- on account of unexplained cash balances. 85 In this regard, the brief facts are that at the time of survey, the total cash physically found was Rs 46,84,373/-. In the course of assessment proceedings, the Assessing Officer considered the cash balance as per the updated books of 7 entities of assessee group as on the date of survey, i.e. 6.7.2006 which came to Rs 34,80,183/-. Accordingly, the difference of Rs 12,04,190/- was added to the total income for the assessment year 2007-08 as unexplained cash. The Commissioner of Income-tax (Appeals) has also upheld the addition against which the assessee is in appeal before us. 86 Before us, the assessee has raised a limited plea to the effect that the reconciliation of the cash balance made out by the assessee has been wrongly negated by the lower authorities. Reference has been made to page 70 of the Paper Book to point out that as on the date of survey cash balances as per the books of account of certain group entities including individuals and HUFs was not considered. The learned Counsel submitted that once such reconciliation is examined, it would show that there does not remain any significant difference between the cash available as per account books and what was physically found. Apart therefrom, the learned Counsel pointed out that in the course of statement under section 131(1)(b) dated 22.8.2006, assessee had surrendered income on account of cash which has also not been set-off against the impugned discrepancy, if any, and therefore, the same would amount to a double addition. On both these aspects, the learned Counsel submitted that the assessee would be satisfied if the matter is remanded back to the file of the Assessing Officer for examination of the aforesaid pleas on merit.
4487 To the aforesaid plea of the assessee for remanding the matter for re- examination by the Assessing Officer, the learned Departmental Representative had no serious objection.
88 Having heard the parties, in our view, the aforesaid two pleas are liable to be considered by the Assessing Officer on merits before computing any addition on account of unexplained cash found during the course of survey. Therefore, we remand the issue back to the file of the Assessing Officer who shall consider the aforesaid pleas raised by the assessee and thereafter pass an order afresh on this limited aspect as per law. Needless to say, the Assessing Officer shall allow the assessee a reasonable opportunity of being heard before passing a order afresh. Thus on this Ground assessee succeeds for statistical purposes.
89 In the result, appeal of the assessee, vide ITA No 978/PN/10 is partly allowed.
90. We shall now take up Revenue's appeal in the case of Shri Balasaheb M Ladkat, Pune, vide ITA No 1026/PN/10 for the assessment year 2006-07.
91. This appeal by the Revenue is directed against the order of the Commissioner of Income-tax (Appeals)-IV, Pune dated 18.2.2010, which in turn has arisen from the order passed by the Assessing Officer under section 143(3) r.w.s. 153A(b) of the Act pertaining to the assessment year 2006-07. 92 In this appeal, the first issue is with regard to the action of the Commissioner of income-tax (Appeals) in holding that only a sum of Rs 80,00,000/- is to be taken as the full value of the consideration for the purposes of computing income from capital gains under section 48 of the Act from the sale of property by the assessee as against Rs 2,90,00,000/- 45 considered by the Assessing Officer. On this aspect, Revenue has raised four Grounds of appeal in the Memo of appeal, which read as under;
"1. The ld CIT(A) has erred in considering the sale value of Rs 80 lakhs in the hands of the assessee instead of Rs 2.90 crores for the purpose of section 48, which is based on the fact that the said property was sold by Pannama Infrastructure Park Pvt. Ltd., in which family members of the assessee were substantially interested, to Surana Bhansali Developers for the sale consideration of Rs 2.90 crores within a span of 16 days only.
2. The ld CIT(A) has erred in facts and circumstances of the case and in law in not appreciating the facts that the sale of the land by the assessee to PIPL for Rs 80 lakhs and its subsequent sale by PIPL in 16 days for Rs 2.90 crores was only a colorable device to defraud revenue so that the income from sale could be adjusted against the losses of PIPL. The CIT(A) should have appreciated the efforts of the AO in successfully piercing the corporate veil and should have upheld the addition made by the AO.
3. The ld CIT(A) has erred in facts and circumstances of the case and in law in not appreciating that the only purpose of the transaction was to reduce the tax liability through colorable device resulting in tax evasion.
4. The ld CIT(A) has erred in facts and circumstances of the case and in law in not looking through the game plan of the assessee where the only intention was to reduce the tax liability. The ld CIT(A) should not have insisted on taking the document value but should have adopted the value as taken by the AO."
93 Briefly the facts are that the survey action under section 133A of the Act carried out at the business premises of the assessee revealed that assessee had sold a property at survey No 362/6, Bund Garden Road, Pune on 20.7.2005 for a total consideration of Rs 80,00,000/- to a concern M/s Panama Infrastructure Park P Ltd (in short 'PIPPL'). The property comprised of land admeasuring 800 sq.mts out of which 150 sq.mts was occupied by a bungalow. The Assessing Officer firstly noticed that the assessee had not disclosed capital gain on sale of such property in his return of income relating to the assessment year 2006-07. It was also noticed by the Assessing Officer that subsequent to the sale of property to PIPPL on 20.7.2005, the latter PIPPL sold the development rights in the said property to M/s Surana Bhansali Developers, vide Agreement dated 6.8.2005 for a total consideration of Rs 2,90,00,000/-. The Assessing Officer also noticed that PIPPL was a company in which family members of assessee had interest. As the property was sold by the assessee to PIPPL at Rs 80,00,000/- on 20.7.2005 and which was 46 further sold by PIPPL to M/s Surana Bhansali Developers on 6.8.2005 i.e. within a period of 16 days at an enhanced consideration of Rs 2,90,00,000/-, the assessee was show-caused to explain the circumstances under which the property was sold to PIPPL at Rs 80,00,00/-. As per the Assessing Officer, it was unbelievable that the assessee was unaware of the property having a higher value than Rs 80,00,000/-. The Assessing Officer was of the view that the assessee was in knowledge of the real market value of the property which was at Rs 2,90,00,000/- and that the assessee had adopted a colourable device to avoid taxes by selling the property to PIPPL at a consideration below the market value as thereafter, PIPPL sold the same to another party for an enhanced consideration of Rs 2,90,00,000/- within a short span of time. The Assessing Officer after considering the submissions put-forth by the assessee concluded that the full value of consideration in the hands of the assessee was liable to be taken at Rs 2,90,00,000/- for the purposes of computing capital gains and accordingly, he computed long term capital gains at Rs 2,79,75,322/- as per para 9.15 of the assessment order. The explanations put- forth by the assessee before the Assessing Officer as well as before the Commissioner of Income-tax (Appeals) were vide written submissions dated 11.11.2008, which have been summarized by the Assessing Officer as per para 9.10 of the assessment order as follows:
"(a) My family members had decided to form a Private Limited Company to enter into the business of infrastructure development including business of builders and developers. The name of the company is PANAMA INFRASTRUCTURE PARK PVT. LTD. (Panama).
(b) The said company is continuing development projects. It has also gone into the infrastructure projects like wind power energy projects.
(c) The first project thought over by the company was to develop the Bund Garden property owned by me at that time.
(d) As the best method for deciding price is the market value declared in the Maharashtra Government Recknor for the purposes of levy of stamp duty, we inquired about the same. I am also advised that even income Tax Act, 1961 also relies on such valuation for deciding market value for the purposes of the capital gain computation (refer S.50C).
(e) The rate under the said Recknor was Rs 78,21,700/- on the basis of our enquiry.
(f) I therefore decided to round up the figure to Rs 80 lakhs and accordingly the consideration was decided while selling the said property to Panama.47
(g) Till that time, there was no question of any other basis of valuation and as prudent tax payer, if I would have charged more amount, it could have been an issue in the hands of Panama as to whether the price paid for stock in trade purchase is reasonable or not.
(h) My family members being novice to the activities of development, thought it fit to have some experienced builder developers to help implementing the development.
(i) They found M/s Surana Bhanshali to be such party and started negotiating for joint venture project with them. At present also such arrangements are being preferred by Panama.
(j) During the course of discussion with Surana Bhanshali, suddenly, they changed the stand and said that they would prefer to go alone.
(k) This would result in loss of probable profit on the project. Panama was not ready for the same. However, strange but ttue, Surana Bhanshali decided to compensate such loss of profit an they estimated the value of plot plus share of likely profit to be Rs 2.90 crores. They decided to pay the same.
(l) Having found the proposal beneficial, Panama accepted the same instantly and deal was done.
(m) Even from the valuation adopted while registering the said document, the value is less than Rs 80 lakhs. Thus, there is no reason to consider that any less amount was charged by me as compared to market price while selling the property to Panama.
(n) This profit is properly reflected in the books of Panama.
(o) In support of the fact a regard changed mood of Surana Bhanshali, I am enclosing the confirmation of Surana Bhanshali in this regard."
94 Before the Commissioner of Income-tax (Appeals) also, the assessee reiterated similar arguments. It was further pointed out by the assessee that there was no understatement of consideration, inasmuch as the consideration of Rs 80,00,000/- was higher than the market price determined by the Stamp valuation authorities for the purposes of payment of Stamp Duty. Before the Commissioner of Income-tax (Appeals), it was also pointed out that the Assessing Officer did not have the power to make any adjustment/ increase the amount of consideration for computing capital gains as per section 48 of the Act as section 52(2) of the Act which provided for such adjustment was omitted w.e.f. 1.4.1988. After considering the submissions of the assessee, the Commissioner of Income-tax (Appeals) held that the Assessing Officer was wrong in adopting full value of consideration at Rs 2,90,00,000/- for the purposes of computing capital gain on the sale of impugned property in the absence of any statutory provisions; the Commissioner of Income-tax (Appeals) further held that the application the principle laid down in the case of McDowell & Co. Ltd. v. Commercial Tax Officer 154 ITR 148 (SC) by the Assessing Officer to support adoption of sale consideration at Rs 2,90,00,000- 48 was also untenable under the facts and circumstances of the case. In this context, following discussion by the Commissioner of Income-tax (Appeals) is relevant:
"It is a fact that the sale made by the appellant as per the agreement entered into with PIPL at Rs 80 lakhs was t much lower figure than the consideration received for the sale of the same property at Rs 2.9 crores, within 16 days, by PIPL and PIPL being a company in which family members were having substantial interest and had unabsorbed losses, and all of these facts create the impression that the concerned parties have acted in concert to lower the taxation incidence in the hands of the appellant. The explanation of the appellant on the other hand that they were initially interested only to develop the said property in joint venture with M/s Surana Bhansali Developers and the said property was sold only because M/s Surana Bhansali Developers made an offer at a much higher figure to compensate the PIPL for the future profit also, cannot be ignored without giving it a serious consideration. It is a general perception that lands and such other capital assets are transacted at lower than the market value and therefore, initially s. 52 was there in the statute to tackle that situation. The Parliament in their own wisdom have deleted the said provision. S. 48 also can be seen to be having reference to "full value of consideration" and not "market value". In such a situation, even if the AO has serious doubts about the value of transaction, his job is much difficult to establish the same. Even if it is accepted in the facts of the case that the explanation given by the appellant are not correct and therefore the market value of consideration is at Rs 2.9 crores, I am afraid the AO has no authority to replace the full value of consideration with the market value of consideration in the legal position available in the statute. He will have to prove that the full value of consideration received by the appellant for the sale of the land is Rs 2.9 crores and not Rs 80 lakhs only. He has not brought any evidence on record to show that the actual consideration received by the appellant being the full value of consideration is at Rs 2.9 crores. As the facts exist, the consideration of Rs 2.9 crores was received by PIPL and not the appellant. There is nothing on record to see that PIPL has passed on the remaining considerations to the appellant. Even if PIPL is seen to be a company in which family members are interested and therefore, in that context they can influence the decision making but the fact remains that the consideration received remained with PIPL and was not passed on to the appellant. On the issue of tax planning, it was found from the discussions made by the AO in the assessment order that the appellant has not shown the above transaction in his regular return and has only shown it in the return filed after the search, this clearly shows that there was no conscious planning because in that case he would have shown it in the regular return. Considering all the facts available and the law on the issue under consideration, the full value of consideration cannot be taken at Rs 2.9 crores. It has to remain at Rs 80 lakhs."
Against the aforesaid, the Revenue is in appeal before us. 95 Before us, the learned CIT-Departmental Representative has referred to the assessment order to point out that the Assessing Officer was justified in holding that assessee had not declared appropriate amount of capital gain on sale of the property by transferring the property to PIPPL in which family members of the assessee were having interest, for a lower consideration than the actual market value of the property on that date. The learned Departmental Representative vehemently submitted that evidently within a short span of 16 49 days, the property which was sold for Rs 80,00,000/- to PIPPL was in turn sold to a builder/developer for an increased consideration of Rs 2,90,00,000/-. As per the learned Departmental Representative, this showed that the sale of property to PIPPL was not at market value and therefore, the Assessing Officer was justified in making the impugned addition. In this connection, the learned Departmental Representative also pointed out that the buyer PIPPL was a company in which the family members of the assessee were having interest and therefore, the Assessing Officer was justified in concluding that the assessee had adopted a colourable device to avoid payment of due taxes by transferring a property at lower than the market value. Therefore, the Assessing Officer was justified in invoking the principles laid down in the case of McDowell & Co. Ltd (supra) in disregarding the stated consideration in the Agreement and adopting the consideration of Rs 2,90,00,000/- as the full value of consideration for the purposes of computing capital gains as per section 48 of the Act.
96 On the other hand, the learned representative, appearing for the respondent-assessee vehemently justified the conclusion drawn by the Commissioner of Income-tax (Appeals). According to the learned representative, there was no justification for disregarding the consideration stated in the Agreement dated 20.7.2005, inasmuch as there was no material to show that the assessee had received any consideration over and above the stated consideration. In support of such proposition reliance has been placed on the following decisions;
(i) CIT v. Smt Nilofer I Singh 221 CTR 277 (Del);
(ii) CIT v. George Henderson & Co. Ltd 66 ITR 622 (SC) It is further pointed out that in the absence of section 52(2) of the Act, the Assessing Officer is not permitted to substitute the market value of the 50 property as the full value of consideration for the purposes of computing capital gains and in that light, he has relied on the decision of the Hon'ble Supreme Court in the case of K.P. Varghese v. ITO 131 ITR 597 (SC). Even with regard to the invoking of the principles laid down in the case of Mc Dowell & Co. (supra), the learned Counsel submitted that the Commissioner of Income-tax (Appeals) was justified in his conclusion, inasmuch as the sale of property by the assessee to PIPPL was at a consideration more than the market value assessed by the Stamp Valuation authorities for the purposes of payment of stamp duty. It was further pointed out that the assessee did not own any shares in PIPPL in his own name, though his family members had an interest in the said concern. In this connection, the learned Counsel also referred to an observation of the Commissioner of Income-tax (Appeals) that there was nothing to suggest that any consideration received by PIPPL from M/s Surana Bhansali Developers was passed on to the assessee at any stage. The learned Counsel reiterated the submissions put-forth before the lower authorities and explained the circumstance in which land was subsequently sold by PIPPL to M/s Surana Bhansali Developers for higher consideration. It was pointed out that there was a bona fide transaction whereby the property was sold to PIPPL for Rs 80,00,000/-. The learned Counsel referred to page 84 of the Paper Book wherein is placed a communication dated 6.11.2008 of M/s Surana Bhansali Developers, wherein s the reasons for paying the consideration of Rs 2,90,00,000/- to PIPPL has been explained.. In sum and substance, the learned Counsel for the assessee submitted that the sale consideration as reflected in the Agreement dated 20.7.2005 at Rs 80,00,000/- on account of sale of the property to PIPPL was bona fide and there was no justification for the Assessing Officer to repudiate the adoption of such amount of consideration for the purposes of section 48 of the Act. 51 97 We have carefully considered the rival submissions. The assessee executed a conveyance deed on 20.7.2005 in favour of PIPPL for a stated consideration of Rs 80,00,000/- whereby land admeasuring 800 sq.mts with an old bungalow covering 150 sq.mts of such area at Bund Garden, Pune was sold. Section 45(1) of the Act provides that profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income-tax under the head 'capital gains' and shall be deemed to be the income of the previous year in which the transfer took place. In terms of section 45(1), therefore, the profit arising on execution of conveyance deed dated 20.7.2005 is assessable in the hands of the assessee during the assessment year under consideration. Further section 48 of the Act provides that income chargeable under the head 'capital gains' shall be computed by deducting from the full value of the consideration received or accruing as a result of transfer of a capital asset the (i) expenditure incurred wholly and exclusively in connection with such transfer, and (ii) the cost of acquisition of the transfer and cost of improvement, if any thereto. The dispute in the present case relates to the computation of capital gains. The assessee contended before the Assessing Officer that the capital gain be computed by considering the full value of the consideration at Rs 80,00,000/-. The Assessing Officer, however, has considered a sum of Rs 2,90,00,000/- as the full value of consideration for the purposes of computing capital gains. The primary reason weighing with the Assessing Officer was to the effect that the assessee had sold the property to PIPPL below the market value because subsequently PIPPL sold the development rights of the land in question to a concern M/s Surana Bhansali Developers for a huge consideration of Rs 2,90,00,000/-. .On this aspect, the Commissioner of Income-tax (Appeals) has opined that the Assessing Officer is not empowered to compute capital gains under section 48 of the Act with reference to the market value of the property 52 inasmuch as it is only the full value of consideration received or accruing as a result of the transfer of the capital asset, which is relevant for computing capital gains. In this context, we find that section 50C of the Act is a special provision which provides for cases where the value adopted or assessed by an authority of the State Government for the purposes of payment of stamp duty, can be substituted and deemed to be the full value of consideration received or accruing for the purposes of section 48 of the Act. Notably, such a deeming provision comes into operation where the consideration received or accruing as a result of the transfer of the capital asset being land or building is less than the value adopted or assessed by any authority of State Government for the purposes of payment of stamp duty in respect of such transfer. The Commissioner of Income-tax (Appeals) has appreciated the aforesaid provision and has found that the stated consideration of Rs 80,00,000/- in the conveyance deed dated 20.7.2005 was not less than the value adopted or assessed by the authority of the State Government for the purposes of payment of stamp duty on such conveyance. Therefore, according to the Commissioner of Income-tax (Appeals), the full value of consideration as reflected in the conveyance deed dated 20.7.2005 cannot be disregarded by the Assessing Officer for the purposes of computing capital gain under section 48 of the Act. On the aforesaid aspects, there is no dispute and to that extent, we hereby affirm the action of the Commissioner of Income-tax (Appeals). Furthermore, it is also brought out by the Commissioner of Income-tax (Appeals) that the erstwhile section 52 (2) of the Act was no longer on the statute and, therefore, the computation of capital gain under section 48 of the Act could not be made with reference to the fair market value of the capital asset after disregarding the stated consideration received by the assessee. In fact, it is well settled that the expression "full value of the consideration"
contained in section 48 of the Act cannot be considered as synonymous with 53 the market value of the property under transfer and, therefore, having regard to the phraseology of section 48 of the Act, the Assessing Officer is not empowered to substitute the market value of the property in place of the full value of the consideration for computing capital gain. The distinction between the "full value of the consideration" received as a result of transfer of a property vis-à-vis market value of the property has been appreciated in the context of section 48 of the Act by the Hon'ble Delhi High Court in the case of Smt Nilfer I. Singh (supra). Considered in this light, we affirm the conclusion of the Commissioner of Income-tax (Appeals) in directing the Assessing Officer to adopt the full value of the consideration of the property at Rs 80,00,000/- for the purposes of computing capital gains in preference to the value adopted by Assessing Officer at 2.90,00,000/-.
98 So, however, the case set-up by the Assessing Officer is on a different principle, which we may now consider hereinafter. According to the Assessing Officer the transferee company, namely, PIPPL was a concern in which the family members of the assessee had an interest. The assessee transferred the property by way of sale on 20.7.2005 to PIPPL at Rs 80 lakhs, whereas within a span of 16 days, i.e. on 6.8.2005 PIPPL, in turn, sold the development rights for a consideration of Rs 2.90,00,000 which was substantially higher in comparison to the consideration received by the assessee. As per the Assessing Officer, the aforesaid situation reflected a colourable device adopted by the assessee to lower his tax liability and same amounted to avoidance of payment of legitimate taxes. As per the Assessing Officer, by this arrangement, the assessee lowered his liability to pay tax on the capital gains, which was otherwise payable with reference to the consideration of Rs 2,90,00,000/-. In coming to such conclusion, as per the Assessing Officer, the principles laid down in the case of Mc Dowell & Co (supra) were applicable and, therefore, proceeded to compute the capital gains in the hands of the 54 assessee by adopting the value of Rs 2,90,00,000/- as the consideration for the purposes of section 48 of the Act. On this aspect, we find that the Commissioner of Income-tax (Appeals) has made the following discussion:
"It is a fact that the sale made by the appellant as per the agreement entered into with PIPL at Rs 80 lakhs was t much lower figure than the consideration received for the sale of the same property at Rs 2.9 crores, within 16 days, by PIPL and PIPL being a company in which family members were having substantial interest and had unabsorbed losses, and all of these facts create the impression that the concerned parties have acted in concert to lower the taxation incidence in the hands of the appellant. The explanation of the appellant on the other hand that they were initially interested only to develop the said property in joint venture with M/s Surana Bhansali Developers and the said property was sold only because M/s Surana Bhansali Developers made an offer at a much higher figure to compensate the PIPL for the future profit also, cannot be ignored without giving it a serious consideration. It is a general perception that lands and such other capital assets are transacted at lower than the market value and therefore, initially s. 52 was there in the statute to tackle that situation. The Parliament in their own wisdom have deleted the said provision. S. 48 also can be seen to be having reference to "full value of consideration" and not "market value". In such a situation, even if the AO has serious doubts about the value of transaction, his job is much difficult to establish the same. Even if it is accepted in the facts of the case that the explanation given by the appellant are not correct and therefore the market value of consideration is at Rs 2.9 crores, I am afraid the AO has no authority to replace the full value of consideration with the market value of consideration in the legal position available in the statute. He will have to prove that the full value of consideration received by the appellant for the sale of the land is Rs 2.9 crores and not Rs 80 lakhs only. He has not brought any evidence on record to show that the actual consideration received by the appellant being the full value of consideration is at Rs 2.9 crores. As the facts exist, the consideration of Rs 2.9 crores was received by PIPL and not the appellant. There is nothing on record to see that PIPL has passed on the remaining considerations to the appellant. Even if PIPL is seen to be a company in which family members are interested and therefore, in that context they can influence the decision making but the fact remains that the consideration received remained with PIPL and was not passed on to the appellant. On the issue of tax planning, it was found from the discussions made by the AO in the assessment order that the appellant has not shown the above transaction in his regular return and has only shown it in the return filed after the search, this clearly shows that there was no conscious planning because in that case he would have shown it in the regular return. Considering all the facts available and the law on the issue under consideration, the full value of consideration cannot be taken at Rs 2.9 crores. It has to remain at Rs 80 lakhs."
99 In this context, we find it proper to refer to the explanation furnished by the assessee before the Assessing Officer contained in para 9.10 of his order which we have already extracted in the earlier part of this order. In terms of that explanation, it emerges that the family members of the assessee decided to enter into the business of infrastructure development, including the business of builders and developers and it was with such objective the company M/s PIPPL was formed. At the relevant point of time, the assessee transferred his Bund Garden property into the company and the assessee explained that such transfer was made for a consideration which was in line with section 50C 55 of the Act. Section 50C of the Act, as noted earlier, refers to the value adopted or assessed by the Stamp valuation authorities for the purposes of payment of stamp duty. As per the assessee, in the absence of any other benchmark to ascertain market value, the rate for payment of stamp duty was considered and upon comparison with the agreed consideration of Rs 80 lakhs, the consideration was found justified. The assessee explained that neither he nor his other family members who had interest in PIPPL were hitherto experienced in the business of builders and developers and, therefore, it was under these circumstances PIPPL pursued the negotiations for joint venture with M/s Surana Bhansali Developers. The assessee further explained that in the course of discussion with M/s Surana Bhansali Developers, the co-developer changed its stand and preferred to go alone. Considering such situation, PIPPL was compensated by M/s Surana Bhansali Developers for the loss of future profit accruing as a joint developer and, therefore, the PIPPL sold the development rights of the property for a consideration of Rs 2.90,00,000/- which was way above the market value of the plot as the same included the probable future profits on such project also. It was in this background, the assessee explained that PIPPL gave up the development rights on the land on 6.8.205 for a consideration of Rs 2,90,00,000/-. The assessee further has referred to a communication from M/s Surana Bhansali Developers placed at page 84 of the Paper Book wherein it is stated that initially the property was to be developed jointly with PIPPL, and due to certain developments during negotiations, M/s Surana Bhansali Developers proposed to carry out the development singly and in turn proposed the assessee to give up their future proposed income from development and offered a consideration of Rs 2,90,00,000/- to PIPPL. Accordingly, it is stated by M/s Surana Bhansali Developers that the property was bought for a consideration of Rs 2,90,00,000 vide Sale deed dated 6.8.2005.
56100 The aforesaid explanation has been appreciated by the Commissioner of Income-tax (Appeals). On the basis of the circumstances explained by the assessee for PIPPL to have received the consideration of Rs 2,90,00,000/- and coupled with the fact that the Assessing Officer did not have the power to substitute the market value of the property in place of the full value of consideration in section 48 in order to compute capital gains, the Commissioner of Income-tax (Appeals) has inferred that there was no motive of tax avoidance by carrying out a colourable device in the present case. The inference drawn by the Commissioner of Income-tax (Appeals), in our considered opinion, is plausible and is also rationale having regard to the facts and circumstances of the case. There is no denying to the assertion of the assessee that neither he nor his family members were hitherto not experienced in the property development and that the company PIPPL intended to develop the property in question jointly with an experienced person, namely, M/s Surana Bhansali Developers. The transfer of the properly to PIPPL at Rs 80 lakhs by way of conveyance deed dated 20.7.2005 is shown to be bona fide, inasmuch as the same compared favourably with the value determined by the Stamp valuation authority of the State Government for the purposes of payment of stamp duty. Prima facie, the aforesaid reasoning establishes the bona fides of consideration of Rs 80 lakhs on 20.7.2005. In fact, even the circumstances in which the consideration of Rs 2.90,00,000/- was received by the PIPIL on 6.8.2005 from M/s Surana Bhansali Developers are quite reasonable. This is for the reason that the assessee has been able to explain the reasons why PIPPL received a consideration at an enhanced amount. Earlier, the intention of the assessee's family, through PIPPL, was to jointly develop the property, whereas during negotiations with M/s Surana Bhansali Developers, PIPPL was faced with the proposal of development of property by M/s Surana Bhansali Developers, to 57 the exclusion of the PIPPL. M/s Surana Bhansali Developers compensated PIPPL for the loss of future income by paying consideration of Rs 2,90,00,000/- upfront to PIPPL. The aforesaid factors have been affirmed by M/s Surana Bhansali Developers as is evidenced on page 84 of the Paper Book. Quite clearly, the circumstances in which M/s Surana Bhansali Developers paid an enhanced consideration of Rs 2,90,00,000/- was before the Assessing Officer and there is no material on record to suggest that the same has been found to be false or otherwise contrary to the purported situation. The aforesaid circumstance has been merely disbelieved and rejected by the Assessing Officer without establishing any falsity or inconsistency in same, as it was seconded by the other concern, namely, M/s Suran Bhansali Developers. Therefore, in our view, the Commissioner of Income-tax (Appeals) has rightly considered such factors and has taken a reasonable view in holding that "there was no conscious planning" by the assessee, and accordingly we affirm his conclusion that the principles laid down in the case of McDowell & Co. (supra) are not applicable in the present case.
101 In view of the aforesaid discussion, we affirm the ultimate conclusion drawn by the Commissioner of Income-tax (Appeals) to the effect that the full value of the consideration be adopted at Rs 80 lakhs as against Rs 2,90,00,000/- considered by the Assessing Officer in order to compute capital gains on sale of the Bund Garden property by the assessee to M/s PIPPL. Thus, on this aspect, Revenue fails.
102 The next Ground in this appeal is with regard to an ad hoc disallowance of 10% out of salary and allowances which has since been deleted by the Commissioner of Income-tax (Appeals). The Assessing Officer made ad hoc disallowance which has been deleted by the Commissioner of Income-tax 58 (Appeals) on the ground that there was no instance of any payment having been made for non-business purposes. The Departmental Representative has not made out any cogent reasoning to support ad hoc disallowance made by the Assessing Officer and, in our view, the Commissioner of Income-tax (Appeals) made no mistake in deleting the disallowance of Rs 1,27,732/-, which we hereby affirm. The Revenue fails on this Ground. 103 The last Ground, raised by Revenue reads as follows:
"On facts and circumstances of the case and in law, the ld CIT(A) erred in treating loss of Rs 1,63,598/- as short term capital loss instead of loss from business as held by the AO."
104 On this Ground, the entire discussion by the Commissioner of Income- tax (Appeals) is contained in para 5 of his order, which reads as under:
"Ground No.6: The appellant through the above ground No. 6 already quoted above has raised issue relating to capital gains (loss of Rs 1,63,598/-) on the ground that the AO has not discussed the above issue. Submissions in this respect has been made through Annexure-4 of letter dt. 17.2.2010. In the said annexure, the appellant has shown certain figures relating to AY 2006-07. The issues raised are not clear as there is neither much of discussion in the assessment order or in their submissions. The appellant during the appeal also could not explain them clearly with documents and therefore, the same is dismissed."
105 At the time of hearing, the learned Departmental Representative has not demonstrated as to the grievance of the Revenue in order to raise the aforesaid Ground before us. The discussion in the order of the Commissioner of Income-tax (Appeals) also shows that the Ground raised before us is misconceived. Accordingly, the aforesaid Ground is dismissed as misconceived.
106 In the result, Revenue's appeal vide ITA No 1026/PN/10 is dismissed.
107 Next we take up Revenue's appeal vide ITA No 1019/PN/10 filed in the case of Shri Sameer B Ladkat, Pune.
108 This appeal by the Revenue is directed against the order of the Commissioner of Income-tax (Appeals)-IV, Pune dated 22.2.2010, which in 59 turn has arisen from the order passed by the Assessing Officer under section 143(3) r.w.s. 153A(b) of the Act pertaining to the assessment year 2006-07. 108 In this appeal by the Revenue, the first issue relates to an addition of Rs 1.14 crores made by the Assessing Officer on the basis of document found during the survey under section 133A of the business premises of M/s New Auto Corner, Plot No. 36, Somwar Peth, Pune, which is a proprietary concern of the assessee. The Assessing Officer noted that as per document no. 72/16 found during survey, it contained notings of costing of a property at Baner (22 acres). The details of such notings along with a copy of the impounded document has been reproduced in para 8 of the assessment order. The said document contained a narration towards "1.14 paid to farmers". The Assessing Officer, after considering the submissions of the assessee, proceeded to hold that it reflected payment of Rs 1.14 crores to the farmers in relation to a property, and such payment was made by the assessee from undisclosed sources and accordingly the same was added to the total income of the assessee for the assessment year 2006-07.
109 In appeal, the assessee pointed out that the Assessing Officer was not justified in inferring that any such payment was made by the assessee. The plea of the assessee was that the document contained a mere proposal and no actual transaction had been gone through. The detailed submissions of the assessee in this regard have been reproduced by the Commissioner of Income-tax (Appeals) in para 5.2 of his order. In sum and substance, the claim of the assessee was that the impounded document only showed rough notings of a proposal for property which never went through. The assessee also pointed out that even at the time of statement recorded under section 133(A)(iii) of the Act on 6/7.7.2006, it was pointed out that such document only contained proposal of land which never materialized. The assessee also pointed out that the affidavit furnished by Mr I T Khan whose name also 60 appeared on such document, was also being wrongly disregarded by the Assessing Officer in making the impugned addition. The Commissioner of Income-tax (Appeals) has deleted the addition by holding as under::
"5.3 On careful consideration, I find that the inference made by th AO is not correct. The documents itself reveal that same relate to a proposal of land for purchase. It did show that payment of Rs 1.14 crores has been made to the farmers but it did not show that the said payments have been made by the applicant. From the perusal of all the entries available in the documents, it can easily be seen that there were various options given to the appellant and one of the options was to share profit in the ratio of 35%.The same was also supported by the statements given by the appellant during the survey and also assessment in the form of affidavits of Mr I T Khan and Mr Ladkat. If for any reason, the appellant had doubt about this transaction, he could have made further inquiry in respect of the said land by verifying the facts from the ground itself. 22 acres at Baner was not a small ice of land it could have been easily identified and found out who has made the payments to the farmers. In my opinion, the A has erred in not taking al the entries available in the document together for forming his view and in not carrying the investigation to the logical end, if he had any doubt. The appellant in my opinion has prima facie discharged his obligation in respect of the documents found and it was the turn of the AO to further make inquiries for forming the opinion that Rs 1.14 crores was paid. The full transaction was of a much higher figure and therefore, to isolate an entry for basing the addition was not correct and is not allowable in law. In view of the discussions made above, the finding of the AO is held to be incorrect and appeal is allowed."
110 Before us, the learned Departmental Representative, appearing for the Revenue, has relied on the order of the Assessing Officer by pointing out that the documents found at the time of survey showed that an amount of Rs 1.14 crores was paid by the assessee and therefore the same was assessable as undisclosed income in the hands of the assessee.
111 On the other hand, the learned Counsel for the assessee vehemently pointed out that there was no evidence or material to suggest that any such transaction had indeed taken place so as to justify the impugned addition. 112 We have carefully considered the rival submissions. In our considered opinion, the analysis of the impounded document and the explanations rendered by the assessee, as made by the Commissioner of Income-tax (Appeals) is quite fair and proper. In fact it is evident that the assessee even at the time of survey deposed in his statement that the impounded document did not reflect any actual transaction, but was a mere proposal which never materialized. The Commissioner of Income-tax (Appeals) has rightly 61 appreciated that in case the Assessing Officer entertained any doubt with regard to assessee's explanation, it was open for him to make further local enquiries in as much as 22 acres of land at Baner, which was the subject- matter of proposal contained in impounded document, was not a small piece of land and it could have been easily verified by the Assessing Officer by conducting local enquiries. Even otherwise, it is quite evident that there is no material or corroborative evidence to show that any payment to the tune of Rs 1.14 crores was made to the farmers and that too, by the assessee. In fact, it is conspicuous that no effort has been made by the Assessing Officer to either identify the receipients (referred to as 'farmers' in the document) or the specific property connected to the impugned document. Rather, the document also by itself does not suggest execution of any particular transaction. The plea of the Assessing Officer that payment would have been made in cash is also not plausible, inasmuch as the survey and search action have not resulted in unearthing of any corroborative evidence in this regard. Considering the entirety of the circumstances, in our considered opinion, the Commissioner of Income-tax (Appeals) has rightly deleted the addition for the reasons contained in his order. The order of the Commissioner of Income-tax (Appeals) is hereby affirmed and accordingly, Revenue fails.
113 In the result, Revenue's appeal, vide ITA No 1019/PN/10 is dismissed.
114 Next we take up Revenue's appeal vide ITA No 1015/PN/10 filed in the case of Smt Asha Balasaheb Ladkat, Pune, for assessment year 2004-05. 115 This appeal by the Revenue is directed against the order of the Commissioner of Income-tax (Appeals)-IV, Pune dated 26.2.2010, which in turn has arisen from the order passed by the Assessing Officer under section 143(3) r.w.s. 153A(b) of the Act pertaining to the assessment year 2004-05. 62
116. In this case, the solitary issue is with regard to an addition of Rs 33,48,130/-. It was a common point between the parties that the dispute is identical to the Ground No. 1 considered by us in Revenue's appeal vide ITA No 1025/PN/10, wherein we have affirmed the order of the Commissioner of Income-tax (Appeals) in deleting the said addition. Following the parity of reasoning given therein, we affirm the decision of the Commissioner of Income-tax (Appeals) herein also. The Revenue thus fails on this ground. 117 In the result, the appeal of the Revenue, vide ITA No 1015/PN/10 is dismissed.
118 Next we take up Revenue's appeal vide ITA No 1017/PN/10 filed in the case of Shri Gautam Balasaheb Ladkat, Pune, for assessment year 2004-05. 119 This appeal by the Revenue is directed against the order of the Commissioner of Income-tax (Appeals)-IV, Pune dated 24.2.2010, which in turn has arisen from the order passed by the Assessing Officer under section 143(3) r.w.s. 153A(b) of the Act pertaining to the assessment year 2004-05.
120. In this case, the solitary issue is with regard to an addition of Rs 2,00,88,783/-. It was a common point between the parties that the dispute is identical to the Ground No. 1 considered by us in Revenue's appeal vide ITA No 1025/PN/10, wherein we have affirmed the order of the Commissioner of Income-tax (Appeals) in deleting the said addition. Following the parity of reasoning given therein, we affirm the decision of the Commissioner of Income-tax (Appeals) herein also. The Revenue thus fails on this ground. 121 In the result, the appeal of the Revenue, vide ITA No 1017/PN/10 is dismissed.
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122. In so far as the cross objections of the different assessees are concerned, they stand on a common footing. The learned Counsel for the assessee submitted that the Grounds raised are general in nature and no specific argument has been raised in support and therefore, the Cross- objections are accordingly dismissed as infructuous.
123. Resultantly, C.O Nos 42/PN/11, 43/PN/11, 44/PN/11, 45/PN/11, 46/PN/11 and 47/PN/11 in the case of Smt Asha Balasaheb Ladkat, Shri Gautam Balasaheb Ladkat, Late Shri Balasaheb Ladkat (through L/H Sameer B Ladkat, Shri Balasaheb M Ladkat, Shri Sameer Balasaheb Ladkat and Shri Sameer B Ladkat respectively are dismissed as infructuous.
Decision pronounced in the open Court on 31st day of July 2012.
. Sd/- Sd/-
(R.S. PADVEKAR) (G.S. PANNU)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune, Dated: 31 st July, 2012
B
Copy to:-
1) Assessees
2) ACIT Cen. Cir. 1(2)Pune
3) The CIT (A)-IV Pune
4) The CIT(Cen) Pune
5) The D R, "B" Bench, I.T.A.T., Pune.
6) Guard file
By Order
true copy
Sr.PS I.T.A.T., Pune