Income Tax Appellate Tribunal - Ahmedabad
Arjun C Orportation, Mehsana vs Department Of Income Tax on 11 January, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'D' BENCH - AHMEDABAD
(BEFORE SHRI BHAVNESH SAINI, JM AND SHRI A. K. GARODIA, AM)
IT(SS)A No.61/Ahd/2004
B. P.: 1988-89 to 1998-99
The A. C. I. T., Mehsana Circle, Vs M/s. Arjun Corporation,
Apollo Enclave, 2nd Floor, C/o. Sabera Hotel Pvt. Ltd.,
Opp. Simander Jain Temple, Ramosana Jakat Market,
Highway, Mehsana 384 002 Nr. Railway Crossing,
Mehsana
PA No. -
(Appellant) (Respondent)
IT(SS)A No.62/Ahd/2004
B. P.: 1988-89 to 1998-99
The A. C. I. T., Mehsana Circle, Vs M/s. Amar Corporation,
Apollo Enclave, 2nd Floor, C/o. Sabera Hotel Pvt. Ltd.,
Opp. Simander Jain Temple, Ramosana Jakat Market,
Highway, Mehsana 384 002 Nr. Railway Crossing,
Mehsana
PA No. -
(Appellant) (Respondent)
IT(SS)A No.184/Ahd/2005
B. P.: 1988-89 to 1998-99
The A. C. I. T., Mehsana Circle, Vs Sabera Hotel Pvt. Ltd.,
Apollo Enclave, 2nd Floor, Ramosana Jakat Market,
Opp. Simander Jain Temple, Nr. Railway Crossing,
Highway, Mehsana 384 002 Mehsana
PA No. -
(Appellant) (Respondent)
IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 2
M/s. Arjun Corporation and M/s. Amar Corporation
Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders
IT(SS)A No.185/Ahd/2005
B. P.: 1988-89 to 1998-99
The A. C. I. T., Mehsana Circle, Vs Vikas Builders,
Apollo Enclave, 2nd Floor, C/o.Sabera Hotel Pvt. Ltd.,
Opp. Simander Jain Temple, Ramosana Jakat Market,
Highway, Mehsana 384 002 Nr. Railway Crossing,
Mehsana
PA No. -
(Appellant) (Respondent)
Department by Shri B. L. Yadav, Sr. DR
Assessee by Shri Sunil Talati, AR
Date of hearing: 11-01-2012
Date of pronouncement: 03-02-2012
ORDER
PER BHAVNESH SAINI: This order shall dispose of all the above departmental appeals filed against different assessees.
2. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record.
3. Briefly, the background leading to filing of these appeals are that there was a search and seizure operation u/s 132 of the IT Act carried out at the residential premises of Shri Sendhabhai M. Desai and his family members at Mehsana and at Ahmedabad on 28-08- 1997 and certain documents were seized. Block assessment proceedings were completed in their cases as well as proceedings u/s 158BD of the IT Act were also conducted. The AO framed the IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 3 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders block assessment orders which remained in appeal before the learned CIT(A). The learned CIT(A) granted relief to the assessee against which the revenue has preferred the present appeals against different assessees. Now, we take up all the appeals separately for the purpose of disposal as under:
IT(SS)A No.61/Ahd/2004 ( Assessee -M/s. Arjun Corporation)
4. This appeal by the revenue is directed against the order of the learned CIT(A)-XXI, Ahmedabad dated 24-12-2003 for the above block period.
5. On ground No.1(i), revenue challenged the deletion of addition of Rs.40,000/- made on account of unexplained expenditure by way of payment to owner of the land which was stated to be developed by the assessee firm. This addition was made by the AO on account of terms of development agreement, copy of which was filed with the return of income. As per the AO, the assessee had paid a sum of Rs.40,000/- to Shri Vastabhai H. Desai, the owner of the land and the payment was not recorded in the balance sheet prepared by the assessee. It was submitted before the learned CIT(A) that the development agreement is not correctly interpreted by the AO. The partners of the assessee firm are Shri Kaushikbhai S. Desai and Shri Vastabhai H. Desai. The land on which the development agreement for construction of shops had been executed is owned by Shri Vastabhai H. Desai who is one of the partners of the assessee firm. The partner of the firm and the owner of the land though are different IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 4 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders head, they were interrelated as above. Considering the close association of both the parties to the development agreement it had been mentioned in the agreement that cost of the land had been determined at Rs.40,000/- and that Rs.40,000/- had been received by the land owner. However, it was not mentioned in the agreement as to whether the payment was made in cash or kind or through cheques etc. In fact, no actual payment was required to be made at that time considering the relation between the parties. Further, payment to land owner was made by the assessee firm after receipt of the same from the customer and it was actually paid in subsequent period on 22-10-1997. It was, therefore, submitted that the same is mentioned in the cash book relevant for the said period. The learned CIT(A) accepted the explanation of the assessee because the development agreement was silent with regard to payment whether made in cash or kind. The learned CIT(A) considering the relation of the parties accepted the explanation of the assessee. Even otherwise, the payment was shown to be received subsequently on 22-10-1997 out of the amounts received from customers. Addition was accordingly deleted. The learned CIT(A) also noted that the AO has not made this addition separately and it was taken to be covered in the overall addition made for the profit of the project in the related case of M/s. Amar Corporation. Addition was accordingly deleted.
6. Considering the rival submissions, we do not find any justification to interfere with the order of the learned CIT(A). The learned DR submitted that cost is noted in the agreement but the assessee claimed that nothing was proved on record if actual IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 5 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders payment was made as is mentioned in the development agreement. The assessee pleaded before the learned CIT(A) that payment was made subsequently on receipt of payment from the customers which is also shown in the books of accounts maintained by the assessee. The learned CIT(A) considering the dual capacity of the partner of the assessee firm being owner of the land and party to the development agreement rightly appreciated the facts of the case and rightly deleted the addition because entries were made on actual receipt of the amount subsequently in the books of accounts. This ground of appeal of the revenue has not merit and is dismissed.
7. On ground No.1 (ii), revenue challenged the deletion of addition of Rs.47,56,000/- out of total addition made of Rs.49,66,800/- as undisclosed profit of the project. As per the assessment order, in the computation sheet filed with the return, the assessee made a reference of valuation report. According to the same the assessee had worked out cost of construction for the block period at Rs.12,61,000/-. According to the AO, the assessee has stated to have sold no shop till the date of search. The AO observed that this was apparently done by the assessee to get the undisclosed income assessed at the rate of 30% as against 60% applicable for the block assessment cases. The contention of the assessee has not been accepted that no shop has been sold. According to the AO when the entire projects were unaccounted, how the assessee could assert about any particular method of accounting having been resorted to. As per the AO the logical method would be taken into account the expenses as well as profit estimated on year to year basis. According IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 6 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders to the AO the assessee had to offer profit for the block period and the AO accordingly proceeded to work out the profit of the assessee from the said project. The assessee has taken cost price of the project at Rs.12,61,000/- as on 31-03-1998 as per the report of the registered valuer and the assessee has shown opening stock of the same amount as on 01-04-1997. The valuation report was not found correct. According to the AO it could not be said whether the assessee carried out any construction from the date of the search to the date of inspection on 03-07-2000. The AO considering the considering the cost of the project, expenses and other things held that 90% of the sale consideration and 90% of the cost of construction were required to be considered for working out the profit. Therefore, 90% of Rs.16,48,200/- has been taken as cost of the construction by the AO. The AO further observed that as per details contained in the seized documents i.e. page 28 of Annexure A-15 of Party No.1, the assessee received amounts of Rs.1,50,000/-, Rs.1,75,000/- and Rs.1,85,000/- against s ale of different shops numbers constructed by the assessee. The AO observed that sale price per shop was around Rs.1,50,000/- to Rs.1,85,000/- and average sale price of the shops was considered at Rs.1,75,000/-. The contention of the assessee that no shop was sold was not accepted. The AO, therefore, considered the sales made by the assessee at 90% of the total price of 42 shops @ Rs.1,75,000/- per shop as relevant and total price comes to Rs.73,50,000/- . 90% of the same comes to Rs.66,15,000/- and after deducting cost of construction profit of project was worked out to Rs.49,66,800/-. The further details are noted by the AO in Para 27 and 28 of the assessment order for the purpose of making the addition. It was contended before the learned IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 7 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders CIT(A) that the AO was not justified in considering that the entire project was completed before the date of search and the entire sales have been made. It was informed to the AO that up to the date of search, the assessee had constructed only 21 shops and sold no shop and no sale deed was executed before the date of search. The shops were sold by executing sale deeds after the date of search and the assessee filed regular return of income for the same. It would, therefore, amount to double taxation. It was further submitted that the AO has wrongly considered the sale price of the shops @ Rs.1,75,000/- per shop and the seized paper cannot be relied upon in this regard. Confirmation letters from the purchasers of the shops have been filed with the copy of the sale deeds to support the contention of the assessee. Therefore, evidence on record should not have been disbelieved. It was further contended that the AO had rejected the cost of construction worked by the registered valuer without bringing any material against the assessee. The addition is, therefore, made arbitrarily and without any basis. It was further submitted that at the most profit rate of 8% of the receipts could have been taxed. As against the additions covered by the main addition, it was submitted that additions are unjustified and without considering the material on record. No on money was received. Therefore, the entire addition should have been deleted. The learned CIT(A) considering the explanation of the assessee and material on record noted that the issue of on money receipt by the assessee for sale of shops has been considered by the AO on the basis of the seized material and it is common knowledge that in similar business of civil IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 8 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders construction such practice is there to receive on money. Onus upon the assessee is not discharged. The learned CIT(A) also noted that if the contention of the assessee is to be accepted for price mentioned in the sale deeds and the expenses incurred as mentioned in the seized documents, the assessee would put to gross losses. However, in this line of business profit ranges up to 8% or so. Therefore, reasonable position only emerges if the same price of the shops as taken by the AO is considered for estimating the income of the assessee from their project undertaking by the assessee. The AO has considered that the entire project was completed and sold before the date of search. However, the assessee contended that it had sold no shop up to the date of search, therefore, sale was nil and sale deeds were executed after the date of search only. The AO observed in the assessment order that by the date of search the assessee had received the amount in respect of 15 shops as is mentioned in Para 14 of the assessment order. Sale deeds in respect of these shops have been executed after the date of search but sale amount is received before the date of search itself. According to the learned CIT(A) though major part of the project was completed before the date of search as observed by the AO, yet as even booking amount was not received in respect of large numbers of shops, therefore, the AO was not justified to assess the income from the entire project in the block period up to the date of search. The learned CIT(A), therefore, found it fair if the sale of 15 shops is taken before the date of search and the total value as per the AO would come to Rs.26,25,000/- (15 X Rs.1,75,000/-) and considering the decisions of IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 9 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders ITAT Ahmedabad Bench in the case of Kishor Mohanlal Telwala Vs ACIT, 64 TTJ 543 and Abhishek Corporation Vs DCIT, 63 TTJ 651 profit rate of 8% was applied and addition was confirmed in a sum of Rs.2,10,000/-. The learned CIT(A) with regard to suppression of receipts further noted that same would be covered by the sale price. It was also noted that when income is to be considered, expenses are also required to be considered. The learned CIT(A), therefore, directed to consider addition of Rs.2,10,000/- as against Rs.49,66,800/-.
8. The learned DR submitted that the learned CIT(A) has not shown any basis to take sale consideration of 15 shops only. The assessee is not in civil construction business. On the other hand, the learned Counsel for the assessee reiterated the submissions made before the authorities below.
9. On consideration of the rival submissions, we do not find any justification to interfere with the order of the learned CIT(A). The AO merely on assumption of certain facts which are not on record estimated the profit of the entire project presuming that the entire project was completed and the shops have been sold prior to the date of search. There was nothing on record to justify the findings of the AO in this regard. The assessee pleaded before the authorities below that no shop has been sold prior to the date of search. The learned CIT(A) on the basis of findings given by the AO separately found that the assessee has shown sale proceeds of 15 shops and booking amount was received before the date of search but the sale deeds have been executed IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 10 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders later on. It is well settled law that the entire receipts cannot be treated as income of the assessee. Profit rate should be applied against the receipt for working out the income of the assessee. The learned Counsel relied upon the order of ITAT in the group cases of Vikas Corporation in IT(SS)A No.240/Ahd/2005 dated 03-04-2009 (PB-41) in which on identical facts the learned CIT(A) applied profit rate of 8% against sale value and the Tribunal dismissed the departmental appeal. The learned CIT(A) considering the totality of the facts and circumstances rightly noted that only 15 shops shall have to be taken into consideration as sold prior to the search. Therefore, on such shops the sale consideration adopted by the AO was applied for working of the profit @ 8%. No infirmity has been brought to our knowledge for interfering in the order of the learned CIT(A). We, therefore, do not find any merit in this ground of appeal of the revenue. The same is accordingly dismissed.
10. On ground No.1 (iii), the revenue challenged the deletion of addition of Rs.13,00,000/- being unexplained investment made in purchase of land in the name of Shri Sendhabhai M. Desai. According to assessment order from the seized paper it was seen that payment of Rs.3,00,000/- was made in respect of the land at survey No.1500 and 1497 at Mehsana on 22-08-1997. The seized document which is the receipt of this payment is on the letter head of the assessee. It is signed by Hariskumar Ramanlal Jaishwal and Uttam Ramanlal Jaishwal. Further, other seized paper is agreement to sale dated 15-07-1997. This is in respect of sale of land in other survey Nos. 1535, 1497, 1501, 1502 and 1528 etc. This agreement is IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 11 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders shown to be between Shri Sendhabhai M. Desai and Shri Harishbhai Ramanlal Jaishwal and Shri Manish alias Uttam Ramanlal Jaishwal. As per the banakhat Rs.10,00,000/- was paid on 15-07-1997 to Shri Harishbhai R. Jaishwal and Shri Uttam R. Jaishwal. As per the assessment order it was explained by Shri Sendhabhai M. Desai that the aforesaid transaction pertained to M/s. Arjun Corporation and he has nothing to do with the same. However, the assessee fairly stated at the assessment stage that the transaction was entered into by Shri Sendhabhai M. Desai. The AO observed that since the transaction was noted in the letter head of the assessee, therefore, addition should be made in the hands of the assessee firm. It was submitted before the learned CIT(A) that agreement is executed between the owner of the land and Shri Sendhabhai M. Desai and Shri Sendhabhai M. Desai in his statement recorded u/s 132(4) of the IT Act stated that payment was made by him out of agricultural income who is also not partner of the assessee firm. Therefore, no investment could be made on behalf of the assessee firm. It was, therefore, submitted that the addition may be deleted. The learned CIT(A) found the contention of the assessee to be correct because the agreement to sell was executed between Shri Sendhabhai M. Desai and the owner of the land and receipt of Rs.3,00,000/- was issued on the letter head of the assessee. Therefore, merely receipt is on the letter head of the assessee would not prove any investment made by the assessee firm. It was further noted that Shri Sendhabhai M. Desai made investment in the property and not the assessee firm. Addition was accordingly deleted.
IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 12 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders
11. On consideration of the rival submissions, we do not find any merit in this ground of appeal of the revenue. Admittedly, no agreement to sell is executed by the assessee firm. The agreement to sell is executed by the owner of the land and Shri Sendhabhai M. Desai who is not partner of the assessee firm. Only letter head of the assessee firm is used for the purpose of receipt which is also not signed on behalf of the assessee firm. Thus, it would not prove that the assessee made any investment in any of the property. According to the assessee, Shri Sendhabai M. Desai admitted investment in the property out of agricultural income. Therefore, the learned CIT(A) on proper appreciation of facts and material on record rightly deleted the addition in the case of the assessee firm. Ground No.1 (iii) of the appeal of the revenue is accordingly dismissed.
12. In the result, the departmental appeal in IT(SS)A No.61/Ahd/2004 is dismissed.
IT(SS)A No.62/Ahd/2004 (Assessee - M/s. Amar Corporation)
13. This appeal by the revenue is directed against the order of the learned CIT(A)- XXI, Ahmedabad dated 24-12-2003 for the above block period.
14. On ground No.1 (i), revenue challenged the deletion of addition of Rs.4,40,000/- made on account of cash deposited in the account of Mehsana Urban Co-operative Bank Ltd. From the copy of the bank account of the assessee firm with Mehsana Urban Co-operative Bank Ltd., the AO observed that the assessee had deposited cash of IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 13 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders Rs.4,40,000/- in the same on different dates in financial year 1996-
97. It was explained before the AO that cash had been received from different persons as advance towards sale of shops. Confirmations from 13 out of 16 such persons were also filed by the assessee before the AO. However, the assessee could not produce the persons to confirm as to whether they had given cash or not, the entire amount was added as undisclosed investment out of undisclosed source. It was explained before the learned CIT(A) that the assessee had not maintained cash book due to disputes amongst the partners. It was informed to the AO that even no cash book was found during the course of search. The amounts were deposited out of the cash available with the assessee firm from the advances received from the customers and partners' capital to the tune of Rs.11,55,000/-. It was explained that the amount of Rs.4,40,000/- was made out of the deposits received from the customers and advances and towards partners' capital. Confirmations were filed to explain the above issue. The cash flow statement was also filed to explain the source of the deposits. It was, therefore, explained that the addition is unjustified. The AO however, did not accept the contention of the assessee because the parties could not be produced. It was also explained that the request of the assessee to issue summons to the customers/persons had been rejected by the AO and the assessee was directed to produce this parties. The assessee gave complete address with their source of income, copy of the sale deeds and their Permanent Account Numbers and confirmations. Therefore, the addition should not have been made. IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 14 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders The learned CIT(A) found that source of the cash deposited in the bank on different dates are shown in the cash flow statement prepared by the assessee on the basis of details of cash received on account of deposits received on shop booking and other explained sources. In the confirmations, the details like source of funds, Permanent Account Numbers and Ward Number etc. have been mentioned. Subsequently, the persons from whom advances were received, shops have been sold and sale deeds have been duly executed. The learned CIT(A), therefore, considering the material on record and the cash flow statement filed by the assessee along with source of the cash received from various customers deleted the addition.
15. The learned DR relied upon the order of the AO and submitted that no source of the deposit is explained. Therefore, addition was rightly made by the AO. On the other hand, the learned Counsel for the assessee reiterated the submissions made before the authorities below and referred to the details filed in the paper book at PB 39 to 41 and PB 55 to 79 in support of the findings of the learned CIT(A).
16. On consideration of the rival submissions, we are of the view that the learned CIT(A) on proper appreciation of the facts and material on record rightly deleted the addition. The assessee explained the source of the deposits made in the bank account being advances received from the customers and amount received towards partners' capital. Cash flow statement was furnished to explain the source which is supported by confirmations and evidences on record. IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 15 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders Therefore, the learned CIT(A) on proper appreciation of the facts and material on record rightly deleted the addition. Accordingly, we do not find any justification to interfere in the order of the learned CIT(A). This ground of appeal of the revenue is accordingly dismissed.
17. On ground No. 1(ii), revenue challenged the deletion of addition of Rs.38,69,756/- out of addition of Rs.41,06,556/- made on account of profit of the project. This issue is same as is considered on ground No.1 (ii) of the appeal in the case of M/s. Arjun Corporation (supra). In this case, the assessee contended that it had sold only 4 shops during the block period but the contention of the assessee was not accepted. The AO adopting the sale price of 40 shops @ Rs.1,85,000/- took the total price at Rs.74,00,000/- and 90% of the same was considered as sale price of Rs.66,60,000/- and after deducting cost of the construction of Rs.25,53,444/- made the addition of Rs.41,06,556/-. The assessee made similar submissions before the learned CIT(A) and the learned CIT(A) considering 8% profit on sale of 16 shops only by adopting the value per shop as per AO, considered the sale consideration at Rs.29,60,000/- and by applying 8% profit rate restricted the addition to Rs.2,36,800/-.
18. The learned representatives of both the parties submitted that the issue is same as is considered in the case of M/s. Arjun Corporation and stated that findings in that case may be followed in this case also.
IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 16 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders
19. On consideration of the facts of the case and submissions of the parties, we find that the issue is same as is considered in the case of M/s. Arjun Corporation (supra). By following the findings in that case above, we dismiss this ground of appeal of the revenue. In the result, ground No.1 (ii) of the appeal of the revenue is dismissed.
20. No other point is argued or pressed.
21. In the result, the departmental appeal in IT(SS)A No.62/Ahd/2004 is dismissed.
IT(SS)A No.184/Ahd/2005 (Assessee - Sabera Hotel Pvt. Ltd.)
22. This appeal by the revenue is directed against the order of the learned CIT(A)-XXI, Ahmedabad dated 30-03-2005, for the above block period.
23. On ground No. 1(i), revenue challenged the deletion of addition of Rs.22,67,322/- on account of construction expenses. The AO treated the construction expenses out of undisclosed sources of income. From the seized material files it was found that certain bills, vouchers pertained to hotel construction were there. Similar type of bills, vouchers were also found vide separate annexure. Therefore, the AO has observed that the assessee has incurred the expenses as investment made for purchase of construction material out of undisclosed sources of income and made the above addition. The assessee submitted before the learned CIT(A) that the assessee company is in the business of hotel and was incorporated by Mr. S. IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 17 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders M. Desai, K. B. Desai and V. H. Desai as promoter directors. The assessee company has acquired land by purchasing land right in revenue survey No.1725 of Mehsana and construction work was given to M/s. Vikash Builders. Initially, construction of hotel building was carried out by M/s. Vikash Builders and payments have been made for the same up to 1992-93. It w as also stated that due to disputes amongst the directors, construction and furnishing work has been discontinued for approximately two years. The construction work again commenced from the year 1996-97. It was explained that it is well known to the revenue department that construction of hotel and furniture was prepared at the hotel site which was also explained in the block return period and it has been mentioned that total civil construction amounting to Rs.23,86,600/- was completed up to the financial year 1992-93 and valuation report of M/s. Chaudhary Consulting Engineers, Mehsana was also furnished. In support of the valuation report detailed chart of the expenses was also given. The audited accounts were also filed from the year 1991-92 to 1997-98 with the return of income. It was, therefore, contended that incurring of the expenditure was explained through sources. It was submitted that valuation report was prepared by certified engineer and complete records were produced, therefore, addition is unjustified. It was submitted that construction expenses bills found during the course of search has been recorded in the regular books of accounts maintained by the assessee which were submitted along with the return of income. Complete records were maintained as per Companies Act. Bills and vouchers of the expenses are maintained IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 18 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders and the total of the same are also noted in the appellate order along with the chart. It was, therefore, explained before the learned CIT(A) that more amounts have been incurred for construction as against the seized paper. It was, therefore, submitted that whatever is mentioned in the regular books of account cannot be subject matter in the block assessment proceedings. It was submitted that since all the expenses are recorded in the books of accounts and mentioned in the balance sheet for financial year 1991-92 to 1997-98 and return is also filed for the same, therefore, addition is unjustified. GSFC loan of Rs.26,95,000/- has been sanctioned in favour of the assessee company and disbursement of the loan has been obtained by the assessee company and recorded in the books of accounts. Copy of the letter sanctioning the loan was also produced. Further, share capital and share application money amounting to Rs.35,53,686/- have been brought by the directors from the group associates, friends and relatives. Details of the same have also been filed to show that the assessee has source of incurring of the construction expenses. Further, addition if made on account of share capital would amount to double taxation. It was, therefore, prayed that addition may be deleted. As regards other observations against the assessee, the assessee contested the addition and it was explained that the assessee company came into existence on 18-02-1991; therefore, it is not possible to start construction prior to that. Therefore, the seized materials for earlier period have no relevance and such addition would be unwarranted. Further, observations were made against the assessee merely on presumptions and surmises for incurring IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 19 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders expenditure. Further, loose paper was explained which is on the letter head of the assessee company where total amounts were written. It was, therefore, submitted that since the letter head of Sabera Hotel is considered but none of the persons is engaged in the construction activity and no letter is received from anybody else. Since the loose paper was rough noting and jottings and is not supported by any evidence, therefore, addition is clearly unjustified and required deletion. The learned CIT(A) considering the explanation of the assessee delet4ed the addition. His findings in the impugned order are reproduced as under:
"I have carefully considered the contention of the Ld. Counsel for the appellant and perused the relevant record. The fact that the hotel construction work has been carried out in different years of block period has been accepted by the appellant as well as by the revenue. There is no dispute about hotel construction. As per Assessing Officer the appellant has made construction in Sabera Hotel for which bills have been found during search operation and the appellant has not explained the source of payments and as to where the expenses are recorded. The appellant has contended that yearwise audited accounts from F. Y. 1991-92 to F. Y. 1997-98 have been submitted with block period return of income, where in detail chart showing yearwise addition in relevant assets have been submitted. Moreover the appellant has stated that to support the construction work shown in audited accounts, a valuation report of M/s. Chaudhary Consulting Engineers has also been attached with block period return. The Ld. Counsel for the appellant has stated that the bills founds have been accounted for in regular books of accounts as maintained by the appellant and have also been audited. Moreover third party expert valuation report in support whereof has also been submitted to the Assessing Officer. Both the above documents have not been accepted by the Assessing Officer on minor grounds. No IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 20 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders finding or reasoning for disbelieving these documents have been given in the assessment order. It is seen that no independent inquiry was made or any evidence has been brought on record by the Assessing Officer in support of rejecting valuation report and/or audited accounts. In view of the details/explanation filed it is clear that that the expenses are truly and fully recorded in the books certified by way of the auditor. Similarly sources of t he expenses are fully explained by way of GSFC Loan and by introduction of share capital. Hence, the addition made is not justified and same is deleted."
24. The learned DR submitted that the documents found during the course of search prove unaccounted construction expenses spent by the assessee and no books were produced before the AO. Therefore, addition was rightly made by the AO. On the other hand, the learned Counsel for the assessee submitted that the valuation report and complete details were furnished and all the observations have been explained through material on record. Therefore, addition is unjustified. The learned CIT(A) on proper appreciation of the facts and material on record rightly deleted the addition.
25. On consideration of the rival submissions, we do not find any merit in this ground of appeal of the revenue. The assessee produced the valuation report as well as audit report pertaining to the construction expenses. The AO has not made any independent inquiry and nothing was brought on record against the valuation report filed by the assessee. The details submitted before the learned CIT(A) clearly prove that expenses were correctly recorded in the books of accounts which is also certified by the auditor. The assessee IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 21 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders explained the sources of incurring of construction expenses out of loan and introduction of share capital which is also not disputed by the revenue. Since, the explanation of the assessee clearly prove that all expenses were recorded in the books of accounts and the auditor has certified the same which is also supported by valuation report, therefore, no addition was required to be made. Further, the assessee explained that prior to the search construction expenses have been recorded in the books of accounts in several financial years would support the case of the assessee that no such addition could be made in the block assessment in respect of expenses shown in the books of accounts prior to the search and for that return for respective years have been filed with the revenue department. The learned CIT(A) on proper appreciation of facts and material on record rightly deleted the addition. There is no merit in this ground of appeal of the revenue. Same is accordingly dismissed.
26. On ground No.1 (ii), revenue challenged the deletion of addition of Rs.2,15,000/- out of total addition of Rs.3,00,099/- on account of payment made for which bills are not made available. According to the AO on examination of the seized material, it was observed that the assessee has made payment to certain suppliers amounting to Rs.3,00,099/- for which corresponding bills are not available. The source of these payments was asked for. The AO in the absence of any explanation held that payments have been made out of undisclosed income. Addition was accordingly made. It was submitted before the learned CIT(A) that it is double addition. The AO has made addition on account of bills of construction expenses which IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 22 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders were found during the course of search as unexplained. Further explanation was also given to show that addition is clearly unjustified. The learned CIT(A) on examination of the material on record and submission of the assessee deleted part of the addition. His findings in the impugned order are reproduced as under:
"I have carefully considered the contention of the Ld. Counsel for the appellant and perused the relevant record. It has been seen that certain bills of Shri Laxmi Traders amounting to RS.227094/- and of carpenter for furniture labour amounting to Rs.28350/- have been shown in the list in the assessment order in para - 4(ii). The argument of the appellant is convincing on these two payments for which bills have been found and recorded in assessment order itself. As regard sources and recording such payment, I refer to my decision taken in ground No.1 of appeal mentioned herein above in favour of the appellant and delete the addition of Rs.200000/- and Rs.15000/-. The remaining payments amounting to Rs.24099/- and Rs.61000/- the appellant has not submitted any material or details of bills for which payments have been made. It is also not explained as to how the appellant could be taken to be justified in not submitting any explanation before the Assessing Officer and even during appellant proceedings. Addition of Rs.85099/- (Rs.24099 + Rs.61000) made by the assessing office on accounts of these payments made is therefore confirmed."
27. The learned DR relied upon the order of the AO. On the other hand, the learned Counsel for the assessee reiterated the submissions made before the authorities below and submitted that this ground of appeal is same as is considered on ground No.1 (i) above.
IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 23 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders
28. On consideration of the rival submissions, we do not find any merit in this ground of appeal of the revenue. Since, the bills are same for which addition is already made for construction expenses and that ground has been dismissed above, therefore, this ground of appeal of the revenue has no merit and is accordingly dismissed.
29. On ground No.1 (iii), revenue challenged the deletion of addition of Rs.33,43,506/- made on account of share capital and share application money. The AO treated the share capital and share application money introduced in the assessee company as income from undisclosed sources. The assessee company has introduced such share capital and share application money in different years from financial year 1991-92 to financial year 1997-98. It was submitted before the learned CIT(A) that the AO was not justified in treating the share capital and share application money amounting to Rs.35,53,683/- as income of the assessee. No opportunity was provided to explain this issue because the AO was hearing other group cases. Whole addition is made for want of confirmation. It was submitted that all the share application money have been recorded in the books of accounts and intimated to the Registrar of Companies. Complete details were filed during the appellate proceedings which contained names of the investors and their details. Complete details and names would show that share application money is clearly explained. The AO has not made any inquiry or investigation and no statement of any person is recorded. The assessee submitted complete details before the learned CIT(A) and submitted that the assessee company was promoted by three directors namely S/Shri IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 24 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders S.M. Desai, K. B. Desai and V. H. Desai and they have introduced amounts in the assessee company in different years for the purpose of construction work. All the directors are agriculturists and they have sufficient land holdings and their confirmations were also filed. It was further submitted that Shri S. M. Desai had contributed the amounts for share capital and share application money out of withdrawals made from different firms namely M/s. Desai Enterprises, M/s. Gita Enterprises, M/s. Gujarat Livestock Agency, M/s. Vikash Builders and M/s. S.M. Desai, HUF. It was further submitted that they are assessed to tax and filed return of income which had been verified by the AO. It was, therefore, submitted that source of share application money is also explained. The learned CIT(A) considering the explanation of the assessee partly deleted the addition. His findings in the impugned order are reproduced as under:
"I have carefully considered the rival contents of the Assessing Officer and of the Ld. Counsel for the appellant and perused the record. As per Assessing Officer the appellant has failed to submit confirmation in support of introduction of capital. In absence of such explanation and submission the action taken by the Assessing Officer is as per accepted practice of the revenue. The Ld. Counsel for the appellant vehemently argued that the appellant has not been heard on the dates of hearings as all the six group cases has been kept on hearing on single day and only two cases have been heard whereas in remaining four cases order on ex-parte basis have been passed. The contention of appellant is quite reasonable and requires to be justified at appellate level and has been attended in judicial manner. The Ld. Counsel for the appellant has initially submitted confirmations of all the share applicants with supporting evidence of income. It is found from such confirmations that individually major share applicants have IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 25 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders contributed share application money up to Rs.10000/- to Rs.20000/- out of their agricultural and milk sale income. The amount being small and received from farmers and has been from agricultural income. I agree to such introduction of capital, based on their confirmation and income proof. The appellant has during appellate proceedings contended that main share contribution has been received from Mr. S. M. Desai group and it has been asked to submit its detail proof, from where it has been received. The appellant vide a detail submissions dated 22.3.2005 stated that Mr. S. M. Desai is partner in many firms. He has made withdrawals from the firms i.e. M/s. Desai Enterprises, M/s. Gita Enterprise, M/s. Gujarat Live Stock Agency, M/s. Vikas Builders and Mr. S.M. Desai HUF. Zerox copies of I. T. Return acknowledgments, statement of total income, copy of capital accounts etc. have been submitted. Confirmation letters from Assessing Officer have also been submitted in support of the submissions and arguments. Based on the above submissions, I agree to accept the introduction of capital by Mr. S.M. Desai from the firms M/s. Gita Enterprise, M/s. Desai Enterprise, M/s. Gujarat Live Stock Agency and Mr. S. M. Desai, HUF. All these firms have been assessed to tax and share capital money have been received from these firms. So far as amounts of Rs.410180/- from M/s. Vikas Builder is concern, I found that though money have been found received from M/s. Vikas Builders, it has not filed any regular return of income. ONl8y block period return have been filed by the appellant group. Considering the appellate proceedings and additions made on estimation of income basis u/s. 44AD of the I. T. Act, 1961, I allow Rs.2,00,000/- as capital contributed out of taxable income of the firm and confirm the addition of Rs.210180/- as out of undisclosed income of the appellant."
30. The learned DR submitted that no evidence was filed before the AO and even no remand report was called for. On the other hand, the learned Counsel for the assessee reiterated the submissions made before the authorities below and submitted that the AO did not give any opportunity at the assessment stage to explain this issue, IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 26 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders therefore, complete details were filed before the learned CIT(A), which are mentioned at PB 77 to 159 and further submitted that now the issue is squarely covered in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of Lovely Exports Ltd., 216 CTR 195 in which it was held as under:
"Conclusion: If the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company".
31. On consideration of the rival submissions, we are of the view that there is no merit in this ground of appeal of the revenue. The assessee submitted before the learned CIT(A) that the assessee was not heard of this case at the assessment stage because other group cases were going for hearing. The assessee, therefore, submitted that no opportunity was given at the assessment stage and the contention of the assessee was found reliable by the learned CIT(A). There is no ground of appeal by the revenue to dispute such findings of the learned CIT(A). It would, therefore, show that the AO made addition without giving any opportunity to the assessee. Therefore, there is no reason for the assessee to furnish any evidence before the AO. The assessee filed complete details of share application money and source of the introduction of the share capital along with confirmations. The learned CIT(A) on proper appreciation of facts and material on record rightly deleted the addition. Since the IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 27 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders issue is now squarely covered in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of Lovely Exports Ltd. (supra) and that nothing is produced before us to contradict the findings of the learned CIT(A) and that the case is very old one, therefore, we do not find any justification now even to remand the matter to the file of the AO for reconsideration. This ground of appeal of the revenue has no merit and is accordingly dismissed.
32. On ground No.1 (iv), revenue challenged the deletion of addition of Rs.5,13,000/-. As per the AO the assessee has received deposits from four persons amounting to Rs.5,13,000/- which was recorded in the loose paper. In the absence of any explanation, addition was made. The assessee objected to the addition and submitted that the loose paper is the letter head of Sabera Hotel on which rough working is made and name of some persons have been written but nothing is stated if any amount is received. The AO assumed certain facts without any justification. Therefore, in the absence of any evidence addition is clearly unjustified. It was submitted before the learned CIT(A) that same document was also considered in the case of S. M. Desai. Therefore, no double addition could be made. The learned CIT(A) considering the explanation of the assessee deleted the addition. His findings in the impugned order are reproduced as under:
"I have carefully considered the contention of the appellant and perused the relevant record. The impugned addition has been made on the basis of loose paper found vide page No.22 of Annexure -A-15 of party No.1. The loose paper is a letter head IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 28 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders of Hotel Sabera on which names of persons have been written and against them amounts have been written which has been totaled amount Rs.513000/-. It is also seen that and contended by the appellant that the Assessing Officer has simply asked the appellant about receipt of such deposits and where it has been recorded. No independent inquiry was made or any supporting evidence have been brought on record for the inference drawn that the above amounts are deposits received by the appellant. As against the above action of the Assessing Officer, the Ld. Counsel for the appellant has contested that the loose paper bears no legal and/or evidential value in the eyes of law if not supported by clinching and corroborative record, statement or proof. Many legal pronouncements have been cited in support of the arguments. It is further contended that the loose paper on which addition has been made has already been considered in assessment proceedings in the case of Mr. S. M. Desai (individual) in his personal block period assessment. Relevant portion of the assessment order and appellate order has been produced during assessment proceedings. Hence, agreeing with the finding of the CIT(A) given in the case of the appellant (9ndividual status), I delete the addition of Rs.5,13,000/-."
33. On consideration of the rival submissions, we do not find any merit in this ground of appeal of the revenue. The AO has not made any independent inquiry and no material is brought on record to support the addition. The learned CIT(A) found that similar addition is considered in the case of Shri S. M. Desai (individual) on the basis of same loose paper. Since, nothing is mentioned on the seized paper copy of which is filed at page 160 of the paper book about recovery of any amount by the assessee, therefore, addition was rightly deleted by the learned CIT(A). This ground of appeal of the revenue has not merit and is accordingly dismissed.
IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 29 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders
34. On ground No.1 (v), revenue challenged the deletion of addition of Rs.30,18,922/- on account of suppression of cost of construction of the hotel. According to the AO the seized paper contained the details on the letter head of Sabera Hotel which was written to United India Insurance Co. for increasing insurance cover of the hotel building and furniture by an amount of Rs.20,00,000/-. In the second page No.53 details amount of construction, TV etc. has been totaled at Rs.54,22,000/-. However, in the audit report the book figure is shown at Rs.24,02,578/-. The difference of Rs.30,18,922/- was treated as investment made out of undisclosed income and addition was accordingly made. It was submitted before the learned CIT(A) that addition is made without any basis. Merely Insurance Company was requested to increase the value has no ground to make the addition. Nothing would prove out of the same. Further, details were submitted to prove that all the bills and vouchers of the amount spent have been noted in the books of accounts. Therefore, addition merely on the basis of the letter written to the Insurance Company is unjustified. The learned CIT(A) on consideration of the material on record deleted the addition. His findings in the impugned order are reproduced as under:
"I have carefully considered the contentions of the appellant and perused relevant record. It is found that the assessing officer has made the addition on account of difference between total of loose paper figures and total of assets shown in audited accounts. It is accepted principle in assessment proceedings that difference found in such cases is required to be reconciled to finalise the issue. In this case due to non cooperation from the appellant side the difference has been treated as IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 30 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders investment out of undisclosed income of the appellant. At the same time the arguments of the Ld. counsel that the assessing officer has not carried out any independent inquiry and has not brought on record any clinching evidence in support of such huge addition seems convincing. It is also contested that nothing has been verified whether any insurance premium has been paid by the appellant or not. The appellant further stated that insurance cover has been taken before commencement of the year and has been taken on proposed construction and or furniture fixtures etc. to be installed. In the present case it has been taken on proposed construction work which has been discontinued for more than two year period due to server disputes amongst directors and the same could be seen from th4e chart of assets from audited accounts submitted in grounds of appeal No.1. As proposed construction and allied work has not been carried out the proposed insurance bears no value. The arguments raised by the appellant are convincing. In the result the addition made for Rs.3018922/- is deleted."
35. The learned DR relied upon the order of the AO. On the other hand, the learned Counsel for the assessee reiterated the submissions made before the authorities below and referred to PB- 164 and 165 which is the seized paper. On consideration of the rival submissions, we do not find any merit in this ground of appeal of the revenue. Addition is made merely on the basis of loose paper figure and assets shown in the books of accounts. The AO has not made any independent inquiry and has not verified whether insurance premium has been paid by the assessee or not. Merely on the basis of insurance correspondence nothing could be proved that the assessee suppressed the cost of construction and building etc. Addition was, therefore, rightly deleted by the learned CIT(A). The proposed insurance has not evidentiary value to make addition IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 31 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders against the assessee in the facts and circumstances of the case. This ground of appeal of the revenue is dismissed.
36. On ground No.1(vi), revenue challenged the deletion of addition of Rs.10,55,000/-. The AO observed that certain cash have been deposited in the current account No.2051 with Mehsana Urban Co- operative Bank Ltd. on different dates. In the absence of explanation of the source of the deposits addition was made. It was submitted before the learned CIT(A) that the assessee is a registered company and books of accounts are audited and copy of the audited accounts from 1991-92 onwards was filed before the Registrar of Companies and all the bank transactions are recorded in the books of accounts as well as for deposits made in the bank account. Therefore, addition is unjustified. It was also submitted that cash available in the cash book was deposited in the account of the assessee company. Details of the same are recorded in the regular books of accounts and the books of accounts and bank statement were produced to explain the same. It was also submitted that the assessee has share capital money on which other addition is made above, therefore, it would amount to double taxation. Addition is made by the AO without verifying the facts. The learned CIT(A) accepted the explanation of the assessee and deleted the entire addition. His findings in the impugned order are reproduced as under:
"I have carefully considered the contention of the Ld. Counsel for the appellant and perused the relevant records. As per assessing officer the sources of cash deposited have not been explained and order has been passed ex-parte. The contention IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 32 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders of the appellant is that the sources of cash deposits are fully explained and details confirmations and sources of income or funds have been submitted in earlier grounds of appeal No.3 in respect of introduction of share capital and share application money. It is further contended and submitted that the books of the appellant have been audited and audited accounts have been submitted before the assessing officer as well as in appeal proceedings. The transactions with Urban Co.op Bank Ltd. in current a/c no.1051 has been recorded in the books. Details copy of bank account etc. and copy of bank statement have been produced It has been shown in the accounts that cash deposited in the bank account has been shown in cash book of the appellant and has been tallied with each entry of bank deposits. Under the circumstances to justify the facts of the case, I hold that the cash deposited in to bank account has been out of sources explained by the appellant and has been recorded in the regular books of accounts which are also audited and submitted by the appellant. Therefore, addition of Rs.1055000/- is deleted."
37. The learned DR submitted that no cash book was produced before the AO. On the other hand, the learned Counsel for the assessee reiterated the submissions made before the authorities below and referred to PB- 166 to 174 to explain the source of bank deposits and also submitted that apart from the same the assessee has sufficient share capital. Therefore, addition is rightly deleted.
38. On consideration of the rival submissions, we do not find any merit in this ground of appeal of the revenue. The bank deposits were proved to have co-relation with the entries made in the books of accounts. Further, the assessee has sufficient share capital and share application money to explain this issue. Therefore, this ground of appeal of the revenue has no merit and is dismissed. IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 33 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders
39. No other point is argued or pressed.
40. In the result, the appeal of the revenue in IT(SS) A No.184/Ahd/2005 is dismissed.
IT(SS) A NO.185/Ahd/2005 (Assessee: M/s. Vikas Builders)
41. This appeal by the revenue is directed against the order of the learned CIT(A)-XXI, Ahmedabad dated 30-03-2005 for the above block period.
42. On ground No.1(i), revenue challenged the deletion of addition of Rs.17,53,235/- on account of construction expenses of Sabera Hotels Pvt. Ltd. It was submitted before the learned CIT(A) that the assessee had not kept required books of accounts which is also explained in the enclosure filed with the return for the block period. It was, therefore, explained that due to non-maintenance of books of accounts all the expenses made and bills paid could not be verified with the books. There were certain bills found during the course of search proceeding which were not total of all the bills but they were of some bills regarding construction work carried out to construct Sabera Hotel. Therefore, it cannot be said that same were out of books of accounts. The AO however, observed that department has found bills regarding construction expenses of Sabera Hotel amounting to Rs.17,35,235/-. As per valuation report prepared by P. M. Chaudhary the total value of construction of Sabera Hotel comes to Rs.23,47,290/-. The valuation includes the bills which were found IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 34 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders during the course of search and the same have been considered in the construction work of Sabera Hotel. The learned CIT(A) on consideration of the above facts found that report is given by registered valuer in respect of construction of Sabera Hotel and the valuation of the valuer is shown higher value than the bills of construction found during the course of search. Addition was accordingly deleted.
43. On consideration of the rival submissions, we do not find any merit in this ground of appeal of the revenue. This ground is already considered in the case of Sabera Hotel Pvt. Ltd. (supra) and the departmental appeal has been dismissed on the same ground. Further, the valuation shown by Sabera Hotel was more than the bills found during the course of search. Therefore, addition in case of the assessee was rightly deleted. This ground of appeal of the revenue is dismissed.
44. On ground No.1 (ii), revenue challenged the deletion of addition of Rs.1,25,000/- on account of purchase of plot. The learned CIT(A) found on examination of the loose paper that the loose paper contained names of other persons and further the name of the assessee firm was not recorded in the seized paper. In the absence of any direct evidence of proving purchase of land by the assessee, addition was deleted. On consideration of the rival submissions, in the light of the findings of the authorities below, we do not find any merit in this ground of appeal of the revenue. The assessee pleaded before the learned CIT(A) that this addition is made without verifying IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 35 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders the names shown in the sale deed because in the seized sale deed there is no mention of the name of the assessee firm nor of its twelve partners. Sale deed is made in the name of fifteen other persons who have not concern with the assessee firm. The learned CIT(A) on proper appreciation of facts and consideration of the loose paper rightly deleted the addition. This ground of appeal of the revenue is accordingly dismissed.
45. On ground No.1(iii), revenue challenged the deletion of addition of Rs.1,95,000/- out of total addition of Rs.4,65,000/- on account of unexplained cash credit. The AO made addition of Rs.4,65,000/- treating the same as unexplained cash credits as undisclosed source of income of the assessee. The addition was made on the basis of loose paper. Loose paper contained certain names from whom the assessee has received deposits. The details of the same are noted in the appellate order at page 9. The assessee claimed that shops have been sold by the assessee to those persons from whom deposits have been received. However, the evidences and confirmations were filed only in case of deposits of Rs.1,50,000/- from Shri R. K. Patel and for Rs.45,000/- from Shri Nanjibhai. The learned CIT(A), therefore treated only two cash credits as explained and deleted the addition of Rs.1,95,000/- out of total addition of Rs.4,65,000/-.
46. On consideration of the rival submissions, we do not find any merit in this ground of appeal of the revenue. The addition was made on the basis of the loose paper found in search which contained names of certain persons from whom the assessee has received IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 36 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders deposits. The assessee in respect of two persons mentioned above explained that shops have been sold to them against the deposits which was proved through confirmations and other evidences. The learned CIT(A) on proper appreciation of the facts and material on record rightly deleted part of the addition in respect of the deposits received from the two persons for sale of the shops. Ground No.1 (iii) of the appeal of the revenue is dismissed.
47. On ground No.1 (iv), revenue challenged the order of the learned CIT(A) in directing to take income of Rs.1,52,000/- instead of Rs.9,18,250/- on account of profit on sale of shops. The assessee pleaded that shops were sold for which sale deeds have been executed. Therefore, the AO was not justified in enhancing the value of the sales. It was also pleaded that against the total receipt only profit could be taxed. The learned CIT(A) considering the sale value of shops at Rs.19,00,000/- as was taken by the AO also considered the decision of ITAT Ahmedabad that against the receipts the profit should be estimated for the purpose of making the addition. Accordingly, 8% profit rate was applied and addition of Rs.1,52,000/- was confirmed as against addition made by the AO in a sum of Rs.9,18,250/-.
48. Both the parties submitted that the issue is same as is considered in group cases above in which the order of ITAT in the case of Vikas Corporation (supra) was relied upon in which profit was estimated by applying 8% as profit on the sale value. This ground is, therefore, covered by the decision in the group cases IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 37 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders mentioned above and accordingly this ground of appeal of the revenue is dismissed.
49. On ground No.1 (v), revenue challenged the deletion of addition of Rs.10,42,111/- on account of cash deposits in bank account. The AO made the above addition by treating cash deposits in bank account as undisclosed sources of income. It was explained before the learned CIT(A) that advances were received against the same. Therefore, addition is unjustified. The learned CIT(A) found that the assessee has sold 19 shops for Rs.19,00,000/- which is sufficient to explain the above addition. On consideration of the above facts, we do not find any merit in this ground of appeal of the revenue. Same is accordingly dismissed.
50. On ground No.1 (vi), revenue challenged the direction of the learned CIT(A) to take income of Rs.1,87,783/- as against Rs.3,21,510/- on account of profit from construction of Sabera Hotel Pvt. Ltd. The AO made addition of Rs.3,24,500/- on account of profit from construction of Sabera Hotel. The assessee objected to the said addition and submitted that the project was undertaken on no profit no loss basis because Sabera Hotel was sister concern. It was further submitted that report of the registered valuer was filed which includes profit of 15% and such profit amounts to Rs.2,31,080/- for the bill dated 03-10-1992 and similarly in financial year 1993-94 construction of Sabera Hotel was carried out to the extent of Rs.6,22,875/- and on the same ground 15% being Rs.93,430/- is brought to tax. Therefore, the profit of Rs.3,25,510/- was brought to tax. It was also explained IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 38 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders that the addition is made without appreciating the facts of the case. The learned CIT(A) accepted the contention of the assessee and by applying profit rate of 8% against the total receipt sustained the addition of Rs.1,87,783/-. On consideration of the rival submissions, we are of the vies the issue is same as is considered on ground No.1
(iv) above. By following the same reasons for decision, we dismiss this ground of appeal of the revenue.
51. On ground No.1 (vii), revenue challenged the deletion of addition of Rs.44,60,244/- on account of profit on sale of shops. In the assessment order it is stated that from the seized paper it was observed that on the letter head of Vikas Builders certain discrepancy is made. From the noting made and note placed by the assessee it appears that the assessee is in the business of purchase and sale of land. Addition of the above amount was made on account of suppression of profit from land transactions. Copy of the seized paper is filed at page 40 of the paper book and is also reproduced at page 17 of the appellate order. The assessee explained that it was merely a rough working, therefore, addition is unjustified. It was also explained that total area and profit martin noted in the same is without any basis and is not connected with the assessee. The seized paper do not reconcile with the actual working of the assessee. No supporting evidence is filed to explain for making the above addition. In the absence of any independent inquiry to prove rough working, addition is unjustified. The learned CIT(A) on examination of the seized paper (PB-40) found that the loose paper contained only IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 39 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders rough working which is not supported by any evidence, therefore addition is made merely on presumption.
52. On consideration of the rival submissions, we do not find any merit in this ground of appeal of the revenue. The learned DR submitted that seized paper was found from the possession of the assessee, therefore, addition is justified. However, on going through the working on the seized paper (PB-40) which is also reproduced in the appellate order at page 17, we find that the learned CIT(A) was justified in holding that the addition is made merely on presumption. The loose paper contained something as square feet and balance of six parts and five parts, and then some working is made. The said working in the loose paper would not indicate any profit earned by the assessee on sale of shops/plots. The assessee also specifically explained that the area mentioned in the seized paper would not match with the details submitted by the assessee. Nothing was also proved from the loose paper if the assessee was involved in any sale transactions. The learned CIT(A), therefore, on proper appreciation of the facts and the seized paper rightly deleted the addition. This ground of appeal of the revenue has no merit and is accordingly dismissed.
53. No other point is argued or pressed.
54. In the result, the departmental appeal in IT(SS)A No. 185/Ahd/2005 is dismissed.
IT (SS) A No.61 and 62/Ahd/2004 & IT (SS) A No.184 and 185/Ahd/2005 40 M/s. Arjun Corporation and M/s. Amar Corporation Sabera Hotel Pvt. Ltd. and M/s. Vikash Builders
55. In the result, all the departmental appeals in ITA Nos. 61 and 62/Ahd/2004 and IT(SS)A Nos. 184 and 185/Ahd/2005 are dismissed.
Order pronounced in the open Court.
Sd/- Sd/-
(A. K. GARODIA) (BHAVNESH SAINI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Deka/--
Lakshmikant Deka/
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Dy. Registrar, ITAT, Ahmedabad