Income Tax Appellate Tribunal - Ahmedabad
Kishore Mohanlal Telwala vs Assistant Commissioner Of Income Tax on 9 February, 1998
Equivalent citations: (1999)64TTJ(AHD)543
ORDER
R. K.. Bali AM :
This is an appeal by the assessee against the order dt. 31st Oct., 1996, passed by the Asstt. Commissioner (Appeals) (Inv.), Cir. (2), Surat, under s. 158BC of the Income Tax Act, 1961 for the block period 1986-87 to 1995-96 and 1st April, 1995, to 6th Oct., 1995.
2. Briefly the facts are that the assessee is an individual deriving income from business of yarn trading and manufacturing of grey cloth from yarn. There was an action under s. 132 at the residence of the assessee on 6-10-1995, along with the factory premises at factory at 1978-79, Suryapur Industrial Estate, and another factory at 32, Shivkrupa Industrial Society, Surat. As a result of the search certain incriminating documents along with the unaccounted investment in the form of unaccounted stock were found. During the course of search the assessee made a disclosure of Rs. 17 lakhs as his concealed income and additional income of Rs. 2 lakhs was offered by his brother as concealed income. Consequently notice under s. 158BC was issued on 17-10-1996, in response to which the assessee filed a return for the block period showing undisclosed income of Rs. 17 lakhs. Thereafter the assessment proceedings were continued which culminated in passing of an order by the assessing officer on 31-10-1996, wherein the undisclosed income was computed at a figure of Rs. 1,47,91,840 as per the break-up given at p. 13 of the assessment order.
3. Aggrieved with the order of the assessing officer the assessee has filed this appeal before us. Briefly the facts are that the search and seizure operation in the case of the assessee were offshoot of the main search in the case of Shri Naresh Agarwal group, During the course of search of Shri Naresh Agarwal it was found that Shri Naresh Agarwal. was initially a member of non-trading corporation viz., Chanakya Corporation which has taken up the work of organising and building activity of Hare Krishna Apartment at Bhatar Road. Surat. The above project was then left by Shri Naresh Agarwal after its planning and initiation and it was taken over by Shri Kishore M. Telwala (the assessee before us). Thus, it was on the basis of this information that the residence and the factory of the assessee were searched on 6th Oct., 1995. During the course of search a piece of paper was found which reflected unaccounted income by way of cash collection on the sale of a flat aggregating to a sum of Rs. 2.30 lakhs in Hare Krishna Apartment. In that paper the sale price of the flat was stipulated at Rs. 241 per sq. ft. while the kabja receipts were given of only Rs. 145 per sq. ft. The transaction in respect of sale of flat No. 301 having total area of 1,020 sq. ft. sold to one Shri Sunil Kumar M. Kapadia was recorded. In the paper the total sale consideration was shown at Rs. 4,04,161 out of which Rs. 1,48,544 was collected in cheque and Rs. 2,30,616 was collected in cash. Initially the assessee expressed his ignorance about the sale transaction but later on admitted that "on money" was being received for the project Hare Krishna Apartment. The cheque receipts are entered in the books of NTC, while the cash is not reflected in the books. However, during the course of statement the assessee stated that a major part of "on money" so collected has already been taken away by Shri Naresh Agarwal and Shri Mangtulal Harlalka before the assessee came on the scene and on that basis the assessee admitted his share of undisclosed income from the organising and building activity of Hare Krishna Apartment at Rs. 17 lakhs which was subsequently declared' as undisclosed income in the return filed in response to the notice under s. 158BC. The assessee, during the course of statement recorded by the search party identified various investments in the form of unaccounted assets as noted at p. 5 of the assessment order to be coming out of the undisclosed income of Rs. 17 lakhs earned by the assessee from organising and building activity of Hare Krishna Apartment. On the basis of the admission of the assessee that he in fact has charged "on money" in respect of sale of flats in the Hare Krishna Apartment, the assessing officer issued a show-cause notice to the assessee adopting sale consideration of the entire area of flats totalling 58,400 sq. ft. in the Hare Krishna Apartment at Rs. 400 per sq. ft. amounting to Rs. 2,33,60,000 and the 11 on money" received at 56.9 per cent of the above figure on the basis of the seized paper and thereby proposed to make an addition of Rs. 1,32,91,840.
Besides the above, the assessing officer also proposed an addition of Rs. 15 lakhs on account of initial investment in the entire project when he took over as chairman of the NTC from Shri Naresh Agarwal and Shri Mangtulal Harlalka and Shri Mahavir Prasad Jain. The assessee objected to the proposed additions by the assessing officer and submitted that there was absolutely no justification for making of such a huge additions only on the basis of a piece of paper which was not in the handwriting of the assessee which was in relation to only one flat measuring 1,020 sq. ft. and projecting the same over the entire covered area of Hare Krishna Apartment. Alternatively it was pleaded before the assessing officer that assuming, though not admitting, that "on money" were received by the assessee on the sale of flats in the Hare Krishna Apartment, necessary deduction should be allowed to the assessee on account of payment made by him to Shri Mangtulal Harlalka and Shri Mahavir Prasad Jain amounting to Rs. 38 lakhs which amount both of them disclosed under the VIDI Scheme, as the receipts from the assessee and further deduction should be allowed on account of the cost of construction which was estimated at Rs. 1,58,00,500 as per the certificate given by Shri Nikunj M. Chokshi, government approved valuer who valued the property known as Hare Krishna Apartment as on 1st May, 1994, when it was taken over by the assessee as chairman of the NTC. The assessee further submitted that he should be given credit for deduction on account of payment amounting to Rs. 21,90,800 which was given by the assessee as President of Chankya Corporation to Shri Devendrabtai, Shri Pankaj Thakorbhai, Shri Arvind Kumar Dayabhai and Shri Rajendra Thakorbhai along with the registration charges for the cost of land over which the project of Hare Krishna Apartment was constructed the details of which have been noted by the assessing officer to p. 6 of the assessment order but no credit was given. The assessing officer however, after considering the submissions of the assessee proceeded to make the assessment at total income of Rs. 1,47,91,840 which inter alia included a sum of Rs. 1,32,91,840 as 1. on money" received over and above the receipts recorded in the books of NTC as undisclosed income of the assessee for the block period.
4. Before us Shri S.N. Soparkar, the learned representative of the assessee submitted that perusal of the assessment order passed by the assessing officer indicates that the entire controversy relates only to one piece of paper found during the course of search proceedings which reflects the unaccounted income by way of cash collection on the sale of a flat aggregating to a sum of Rs. 2.30 lakhs. It was submitted that the assessing officer has determined the unaccounted income of the assessee for the block period aggregating to Rs. 1,47,91,840 mostly on presumptions and assumptions on the basis of a single piece of paper found at the time of search. It was submitted that such type of additions are not at all contemplated under s. 158BC in view of the decision of the Mumbai Tribunal in the case of Sunder Agencies v. Dy. CIT (1997) 59 M (Mum) 610 : (1997) 63 ITD 245 (Mum). Reliance was also placed on the decision of the Tribunal in the case of M/s Patel Rakesh Kumar Kantilal in ITA No. 8/Ahd/97. It was submitted that the assessing officer while determining the unaccounted income of more than Rs. 1.47 lakhs has relied on a hypothetical working given by the assessee during the course of assessment proceedings which was submitted by the assessee on a command by the assessing officer and on the said working it was clearly mentioned that it is being given without prejudice. It was submitted that the assessing officer failed to appreciate the logic behind the said working which reflected a net profit of 15.69 lakhs from the project. In order to appreciate the working of the profit of 15.69 lakhs from the project which was given in a hypothetical working to the assessing officer, the learned counsel filed a zerox copy of VDIS certificate of one of the payees Shri Mahavir Prasad Jain which reflected the receipts of money by said Mahavir Prasad Jain as paid by the assessee in his submissions as well as the working given by the assessee. Attention was invited by the learned representative of the assessee to the statement of the assessee recorded under s. 132(4) during the course of search wherein the assessee offered a sum of Rs. 17 lakhs as his unaccounted income which has been offered to tax in the return filed in response to notice under S. 158BC. It was submitted that there was no retraction from the disclosure made by the assessee during the course of search proceedings and accordingly there was no basis for applying any presumption and assumption by the assessing officer while working the huge undisclosed income of more than Rs. 1.47 lakhs. It was submitted that the hypothetical profit which could have been earned by the assessee even on the basis of the seized paper can be determined as under :
'Without prejudice :
(A) Total receipts I. 58,000 sq. ft. x Rs. 400 Total cost .. (B1) Cost of land being the amount paid to the old organisers (B2) Amount paid for land (B3) Cost of construction Total Expenses (B 1+B2+B3) Difference i.e. profit (A minus B) Rs. (Lakhs) 233.60 38.00 21.91 158.00 217.91 16.60 It was submitted that the items of cost noted at B comprising of Bl, B2 and B3 above are supported by the submissions/statement of the assessee recorded during the course of search and subsequent explanations/submissions made before the assessing officer during the course of assessment proceedings. It was submitted that the cost of land being the amount paid to the old organisers mentioned at BI amounting to Rs. 38 lakhs is proved from the fact that the assessee did not start the project and he has entered the project at a later stage and in fact the assessing officer has admitted this position that some payments must have been made by the assessee for taking over the project at p. 12 of the assessment order. However it was submitted that the assessing officer did not give any deduction in respect of this amount.
4.1 As regards the payment for the cost of land mentioned at B2 above it was submitted that the same was brought to the notice of the assessing officer who has recorded the same at p. 6 of the assessment order but chose not to give any deduction while computing the undisclosed income of the assessee. As regards item at B3 relating to the cost of construction it was submitted that the same was estimated at Rs. 158 lakhs on the basis of valuation report given by the approved valuer certifying the cost of construction and the same has been duly noted by the assessing officer at p. 7 of the assessment order. It was submitted that the assessing officer has not disputed this cost in the whole order and yet failed to allow any deduction in this regard. It was submitted that if the above three payments are not disputed by the assessing officer and which cannot be disputed on the basis of material on record, then even on the basis of working given by the assessing officer the profit earned from the project would be only Rs. 16.69 lakhs and not the huge addition of Rs. 1.47 crores which has been made by the assessing officer. It was further submitted that under s. 44AD of the Act where books of accounts are not maintained the legislature assumes that the rate of net profit is 8 per cent of the receipts and since in the case of the assessee a part of the project was already undertaken by the earlier president of the NTC, the assessee's share in the profit earned in relation to this project would definitely be much less than the sum of Rs. 17 lakhs offered by the assessee because assuming a net profit on the whole project the net profit will come to Rs. 18,68,800 on the receipts of Rs. 2,33,60,000.
Alternatively, it was submitted that even assuming, though not admitting, that the assessee had in fact received "on money" in respect of each and every flat in the Hare Krishna Apartment, even then s. 158BC empowers the assessing officer to tax only the undisclosed income and not undisclosed receipts. Reliance was placed on the decision of the Calcutta High Court in the case of CIT v. S.M. Orner (1992) 107 CTR (Cal) 272 : (1992) 201 1TR 608 (Cal) and the decision of the Tribunal in the case of Income Tax Officer v. Gurubachan Singh J Juneja (1996) 54 M (Ahd) (M 1 : (1995) 216 1TR 99 (AT). Accordingly it was submitted that the reasonable rate of net profit is applied on the unrecorded receipts then the addition which is required to be made to the income of the assessee will be less than the amount of Rs. 17 lakhs which has been offered by the assessee as undisclosed income and which was shown to have been spent by the assessee in the acquisition of various unaccounted assets as noted by the assessing officer at p. 7 of the assessment order.
5. The learned departmental Representative supported the order of the assessing officer and further submitted that in view of the decision of the Supreme Court in the case of s the assessing officer was justified in holding that the assessee was receiving 11 on money" in respect of flats sold in the Hare Krishna Apartment on the basis of piece of paper found during the course of search in respect of which it was admitted by the assessee that he was receiving 56.9 per cent of the total sale consideration in cash and only 43.1 per cent of the sale consideration was by cheque which was accounted in the books of the NTC. He accordingly submitted that the assessing officer was perfectly justified in making the disputed addition.
As regards the alternative submission of the learned representative of the assessee not to tax the entire receipts as undisclosed income but only the net profit earned by the assessee from the building activity, it was submitted by the learned departmental Representative that the decision of the Tribunal in the case of Gurubachan Singh J Juneja (supra) has not been accepted by the Revenue.
6. We have considered the rival submissions and have also gone through the order passed by the assessing officer. In view of the factual findings in the form of a paper seized during the course of search which clearly indicated that the assessee was receiving "on money" of Rs. 2,30,616 out of the total sale consideration stipulated at Rs. 4,04,161 which gives percentage of 56.9 per cent approximately, which was also admitted by the assessee before the authorised officer during the course of search, we are of the opinion that the assessing officer was justified in holding that the assessee in fact charged "on money" in respect of remaining flats also in Hare Krishna Apartment and thereby estimating the income earned by the assessee for the block period.
Under s. 114(d) of the Indian Evidence Act, 1872, there is a presumption that a thing or state of thing which has been shown to be in wdstence within a period shorter than that within which such thing or state of thing usuallyw ceases to eldest, is still in wdstence. If a thing or state of thing is shown to edst, an inference of its continuity within a reasonably proximate time goes forward and backward may sometimes be drawn.
In the instant case, it is shown that the assessee was charging "on money" in respect of booking of flats in Hare Krishna Apartment as is apparent from the seized paper in which flat No. 301 having total area of 1,020 sq. ft. was claimed to be sold to one Shri Sunil Kumar M. Kapadia wherein the total sale consideration was shown at Rs. 4,04,161 out of which Rs. 1,48,544 was collected in cheque and the balance of Rs. 2,30,616 collected in cash and the transaction was not denied by the assessee. Accordingly we are of the opinion that the assessee in fact did charge "on money" in relation to booking/sale of flats in Hare Krishna Apartment. However, the entire receipts on account of "on money" charged by the assessee on sale/booking of flats cannot be the undisclosed income of the assessee for the block period because what can be taxed under Chapter XIV-B is undisclosed income and not the undisclosed receipts. During the course of hearing before the assessing officer as well as before us the assessee has brought evidence on record to support that he had to pay a sum of Rs, 38 lakhs to the erstwhile organiser of NTC and further a amount of Rs. 21.91 lakhs for the land to various persons and it had also to spend a sum of Rs. 158 lakhs on the cost of construction for which necessary deduction has to be allowed. In any case what can be taxed is the profit which could have been earned by the assessee on the alleged unaccounted receipts amounting to Rs. 1,32,91,840 and not the entire amount. Further, the assessing officer has not brought any material on record that the assessee in fact had made any initial investment of Rs. 15 lakhs as alleged. In any case even if it is assumed that the assessee did make an initial investment of Rs. 15 lakhs which is to be taxed under s. 69C the corresponding deduction will have to be allowed under s. 37 of the Act as the investment was made in acquisition of business assets and as such the amount spent, was for the business of the assessee.
Thus, what can be added as the undisclosed income of the assessee under s. 168BC, is a reasonable amount of profit which the assessee could have earned by charging "on money" in respect of flats and the Mumbai Bench of the Tribunal in the case of Mrs. Mehroo N. Irani in ITA No. 1140/Bom/89 has taken the view that when a person is found to have been engaged in building construction activity and has received unaccounted money, what is required to be taxed is not the receipt but only 5 per cent of the receipt which is to be taken as a net profit. As against the above decision the assessee has himself offered 8 per cent profit on the total receipts which should be considered fair and reasonable. In any case it is to be seen that after the exhaustive search and obtaining the disclosure of Rs. 17 lakhs the search party has not been able to find any unaccounted assets except those which have been referred to in the statement of the assessee and a broad break-up of which was given by the assessee in his statement aggregating to Rs. 17 lakhs. These assets are by way of application of the unaccounted income which have been earned by the assessee from Hare Krishna Apartment project, part of which was reflected on the piece of paper found during the course of search against which the assessee himself has offered a sum of Rs. 17 lakhs as his unaccounted income. Thus, it is clear that the assets found at the time of search were the application of the unaccounted income of Rs. 17 lakhs which was offered to tax by the assessee in his return filed in response to notice under s. 158BC. Thus, keeping in view the totality of the facts and circumstances of the case we are of the opinion that the assessing officer was not justified in making the addition of Rs. 1,47,91,840 as the concealed income of the assessee because the profit earned on the unaccounted receipts on the basis of the special provisions at 8 per cent as per s. 44AD of the Act will be less than the amount of Rs. 17 lakhs disclosed by the assessee as undisclosed income in the return filed in response to notice under s. 158BC. Accordingly we do not find any justification in the action of the assessing officer in making the addition of Rs. 1,47,91,840 which is directed to be deleted.
7. In the result, the appeal is allowed.