Income Tax Appellate Tribunal - Mumbai
Param Anand Builders Pvt. Ltd. vs Income Tax Officer on 29 March, 1996
Equivalent citations: [1996]59ITD29(MUM)
ORDER
J.K. Verma, A.M.
1. All these appeals involve common issues and hence they are being disposed of by a common order for the sake of convenience.
2. As can be gathered from the name of the assessee, the assessee-company was engaged in construction work. There was a search at the premises of the assessee on 11th May, 1987, and the Revenue claims that it had discovered incriminating material during the course of the search. Consequently assessments for the asst. yrs. 1981-82 to 1984-85 were reopened under s. 147/148 of the IT Act. The assessee had gone in appeal against those orders before the learned CIT(A) and, inter alia, had challenged the reopening of the assessments. The learned CIT(A) confirmed the assessment orders but did not deal with the issue of validity of reopening the assessments. The assessee did not take this as a separate ground before us for those assessment years but filed an application for allowing permission to raise an additional ground to the effect that the learned CIT(A) erred in confirming the reopening of the assessments. Vide a separate order of even date in ITA Nos. 7722 to 7725/Bom/94 for the asst. yrs. 1981-82 to 1984-85 we have set aside the orders of the learned CIT(A) with the direction to decide the abovesaid issue in accordance with law after providing adequate opportunity to the assessee of being heard.
3. For the assessment years now before us the assessee has come in appeal for the asst. yrs. 1986-87 and 1987-88 because the learned CIT(A) has not accepted the contentions of the assessee, with which we shall deal in the subsequent paragraph of this order and for the asst. yrs. 1985-86 and 1988-89 the Revenue has come in appeal because the learned CIT(A) had accepted that the assessee's assessments were to be completed on the basis of the project completion method and in substantially accepting the contention of the assessee with which we shall separately deal in the later part of this order.
4. The dispute now before us may be summarised as under :
The stand of the assessee is that it had started its business of a huge project which had taken several years for completion in the previous year relevant for the asst. yr. 1981-82. It expected that since it will take 7/8 years for completion it adopted the method of accounting stated to be "completed contract method" or "project completion method". According to this method the profits could be worked out only when the project was complete or at least substantially complete. As a result of this, the assessee filed a nil return of income for the asst. yr. 1981-82. It was accepted by the Department at nil income. Similar returns of income were filed for the asst. yrs. 1982-83 to 1985-86. These returns were not accepted and the Assessing Officer (AO) estimated the income by applying the profit rate at 10% to 15%. For the asst. yr. 1985-86 assessment of which was completed after the search on 25th March, 1988, the AO besides making estimate of profit @ 15%, made a separate addition of Rs. 73,19,200 pursuant to offer of the assessee of taxing Rs. 66 lacs as 'on money' receipts which are stated to have been entered in the books of account for asst. yrs. 1987-88 and 1988-89. In the appeals filed by the assessee before the CIT(A), the additions of estimated profit at 15% were deleted. The addition of Rs. 73,19,200 of asst. yr. 1985-86 was set aside with the direction that it should be considered afresh in the light of material on record and the amounts surrendered by the assessee in later assessment years. For the asst. yr. 1986-87 the assessee declared an income of Rs. 7,96,450 vide return filed on 13th Feb., 1987. But the assessment was completed at Rs. 55,11,859 on 31st March, 1989, and that was set aside by the learned CIT(A) on 26th Feb., 1990, for completing it afresh after giving the assessee a reasonable opportunity to explain the matters on the basis of which the additions had been made. According to the AO, in spite of repeated issue of notices of hearing, no compliance was made and hence the AO completed the assessment again taking into account the fact that he had to decide the two issues namely, (i) the quantum of on money received by the assessee, and (ii) the year in which that on money should be taxed. For dealing with these issues the AO took into account the statement of Shri J. N. Agarwal, one of the directors of the company, who had stated that the assessee-company had been charging 15% to 20% on money. He also took into account the statement of one Shri Mahesh Modi, accountant of assessee, whose statements were recorded during the course of search on 11th May, 1987, and 12th May, 1987. According to the AO Shri Modi had stated that the on money charged was 30% to 40%. He also referred to the statement during search, of one Shri Shyamlal Arora, supervisor, dt. 11th May, 1987, who had stated that on money charged was 30% to 40%. He also considered the plea of the assessee that these persons had retracted from their statements but rejected it because, according to him, firstly, no statement could have been recorded under threat or duress in the presence of independent Panchas at the time of the search, who have certified that no untoward incident had taken place during the course of search and, secondly, even if the statements were recorded under threat or duress, this information of 30% to 40% of 'on money' could not have been repeated by them before the ADI in the IT office. He, therefore, concluded that the so-called retraction was on the basis of undue pressure from the assessee who was the employer of those persons and who were employees. The AO also took into account a statement on oath of one Shri Dinesh R. Inamdar who had deposed to the effect that he had paid 40% as on money on the shop purchased by him from the assessee in 1983. On the basis of these pieces of evidence and also taking into account the fact stated by Shri J. N. Agarwal that no on money was charged from institutions like BMC, Dena Bank and some educational trusts, the AO estimated that on money received by the assessee could be 25% of the total consideration received by the assessee. He, therefore, worked out the quantum of on money received by the assessee and also disclosed by the assessee as under :
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A/c yr. Asst. yr. Total % on money % on money
agreement @ 25% - 0.25 15% undisputed
value for (Col. 1)
the flats 0.75
sold during
the year
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Rs. Rs. Rs.
1980 1981-82 8,12,000 2,71,000 1,42,000
1981 1982-83 65,74,000 21,91,000 11,50,000
1982 1983-84 27,86,000 9,28,000 4,87,000
1983 1984-85 87,21,000 29,07,000 15,25,000
1984 1985-86 81,64,000 27,92,000 14,28,000
1985 1986-87 76,25,000 25,42,000 13,34,000
1986 1987-88 24,47,000 8,16,000 4,28,000
1987 1988-89 6,05,000 2,02,000 2,06,000
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3,77,34,000 1,25,78,000 66,00,000
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He took the view that against this on money estimated at Rs. 1,25,78,000 the assessee had offered for taxation Rs. 26 lacs in the asst. yr. 1987-88 and Rs. 40 lacs in the asst. yr. 1988-89. After discussing in the assessment order that on money was unaccounted receipt, that there was no provision in law to assess unaccounted money arbitrarily in two years only, that the contention of the assessee that it has been following a project completion method of accounting is not correct for reasons given in the assessment order, he held that Rs. 25,42,000 was to be added in the asst. yr. 1986-87. He gave notice to this effect to the assessee on 9th Jan., 1982, but when no reply was received from the assessee he completed the assessment by rejecting the books of account under s. 145(2) and adding this amount of on money besides making some other additions and disallowances on specific grounds. The total income was thus assessed at Rs. 39,12,894. On the same basis the amount of on money worked out by the AO for different years as mentioned above was assessed by him in the assessment years starting from 1981-82 to 1985-86 also.
5. For the asst. yr. 1987-88 the assessee had filed a return of income on 30th Nov., 1987, declaring total income at Rs. 28,87,260. However, as earlier assessments were set aside by the learned CIT(A) the fresh assessment, on the basis of which now the assessee is in appeal before us was completed repeating the figures of assessment order dt. 14th March, 1991, and deducting therefrom the amount set aside by CIT(A) pertaining to 'on money', on a total income of Rs. 29,80,712.
6. For the asst. yr. 1988-89 the assessee filed a return of income in response to a notice issued under s. 148 declaring total income at Rs. 35,82,987. This return had been filed after taking into account the disclosure of on money to the tune of Rs. 40 lacs in this assessment year. While completing the assessment, the AO discussed the facts by almost repeating what had been discussed in the earlier years. He started the computation of income with net profit as per P&L A/c but, inter alia, added to that an amount of Rs. 5,09,600. This addition was made because according to the AO the assessee had shown a profit of only 3% of sale of flats, and 3% on work-contract taken this year, whereas the other assessees engaged in the construction business like Ever Smile Construction P. Ltd. and M/s Lokhandwala Construction Developers P. Ltd. had shown net profit from 7.5 to 10%. The AO estimated the profits in assessee's case on the lower percentage of 7.5% and thus added the difference of Rs. 5,09,600 to the income of the assessee over and above the profits as per the P&L A/c. The total income was thus assessed at Rs. 41,14,968 against the returned income of Rs. 35,82,987.
7. Shri D. M. Harish, learned counsel for the assessee, explained that the assessee-company had started a project for construction of 30 buildings at Dahisar(E) on a plot of land measuring 40,000 sq. yds. However, on 11th May, 1987, there was a search at the premises of the assessee and according to the learned counsel the Revenue passed prohibitory orders to the banks directing them to deny operation of accounts by the assessee and also of assessee's associates and directors and prohibiting the sale of flats. He submitted that fixed deposit of Rs. 1 lac and 10 tons of stocks and 10 tons of powder of sister concerns were also attached. He submitted that on account of monsoon season in the months of June, July, August and September those stocks of cement, etc., were exposed to danger of deterioration and total loss and hence according to the learned counsel on 11th Sept., 1987, the assessee came forward with an offer to the Revenue to surrender Rs. 66 lacs of income. He submitted that in spite of that on 11th Sept., 1987, itself 20 bank accounts of the assessee were seized. He submitted that this was in spite of the fact that no cash was found and only one paper showing cash receipts of Rs. 10 lacs were shown. The Revenue mainly relied on the statements of two persons recorded during the course of search, namely Shri Mahesh Modi, accountant and Shyamlal Arora, site supervisor, who allegedly stated that the assessee had been receiving payments in cash. The learned counsel explained that in spite of the fact that those persons had said that the assessee was receiving payments in cash, it did not mean that any payment received in cash was to be treated as unaccounted money or what is commonly referred to as 'on money'. He explained that all the receipts of the cash were recorded in the books of account of the assessee. Even then the assessee had surrendered what it stated to be unexplained income of Rs. 66 lacs. Rs. 26 lacs were surrendered for the asst. yr. 1987-88 and Rs. 40 lacs were surrendered for the asst. yr. 1988-89. The learned counsel claimed that the books are still in the possession of the Revenue and it can be verified from them that all the cash receipts are recorded there. He also referred to the affidavit of Shri Mahesh Modi dt. 8th Sept., 1988 (p. 127 of paper book, Vol. I). Yet, the assessee had surrendered the income of Rs. 66 lacs on account of continued 'torture' by the Department. Shri Harish further explained that Shri Modi had joined assessee's service only in June, 1983 and was not conversant with assessee's accounts of 1980 to 1983 where some of these cash entries were appearing. In this view of the matter he claimed that Shri Modi's statement on pages 118-119 of the paper book (dt. 11th May, 1987 at the time of search) is contrary to facts. He further explained that Shri Modi is only a matriculate and when he understood the implications of his statement he retracted from his statement on 12th May, 1987 (p. 122 of paper book, Vol. I) i.e., next day itself. Regarding the statement of Shri Shyamlal Arora, site supervisor (p. 108 of paper book, Vol. I), he submitted that he was site supervisor since 1983 and hence was not connected with sales or 'on money' and hence his statement to the effect that 70% of the agreed price was in white and 30% was 'on money' which was being collected in cash, was without any basis or his personal knowledge. The learned counsel for the assessee submitted that the assessee itself had surrendered the amount of Rs. 66 lacs as mentioned above which works out to 17.5%, in the last two years of the basis of project completion method of maintenance of books of account. In this context he referred to a few decisions particularly in the case of Champion Construction Co. vs. First ITO (1983) 5 ITD 495 (Bom) where it had been held that even under the project completion method the assessee need not wait to work out the profits till final sale and even if the project is substantially complete, the profits may be worked out. The learned counsel for the assessee referred to the returns of income filed on 30th Nov., 1987, for the asst. yr. 1987-88, i.e., after the date of its disclosure of income for the asst. yrs. 1987-88 and for 1988-89 made on 11th Sept., 1987, and submitted that the assessee itself filed the return at Rs. 28,87,260 for asst. yr. 1987-88 in which the amount of Rs. 26 lacs had been disclosed. He pointed out that the assessee had effected sales to the tune of about Rs. 75 lacs to various institutions and authorities like BMC, Dena Bank and some educational societies from whom no on money could be charged and the learned AO has accepted this fact. In spite of this the assessee had made a disclosure of Rs. 66 lacs which worked out to 17.5% of the total receipts of Rs. 3.77 crores which are the total sales during these 8 years. But the learned AO did not accept this gesture of the assessee and has, without any basis, estimated the on money at about Rs. 1.25 crores. The learned counsel claimed that this estimate of Rs. 1,25,78,000 of on money was in addition to the disclosure of Rs. 66 lacs made by the assessee. According to the learned counsel for the assessee, while for asst. yrs. 1981-82 to 1986-87 the AO had added the figures worked out by him as 'on money' for each year, against the figures which are allocated by him as part of Rs. 66 lacs when it came to asst. yrs. 1987-88 and 1988-89, he accepted the figures of Rs. 26 lacs and Rs. 40 lacs disclosed by the assessee. Thus, if the AO were to make additions of total of Rs. 1,25,78,000 only, he should have adopted the figures as allocated by him for different years; he should have considered the figures of Rs. 8,16,000 and Rs. 2,02,000 only for these two assessment years instead of Rs. 26 lacs and Rs. 40 lacs as disclosed by the assessee. Thus, according to Shri Harish, this has resulted in a double addition of the amounts disclosed by the assessee. He pointed out that he had given a working in the paper book (p. 162, Vol. II) where such amount is worked out to about Rs. 55.82 lacs and thus at least the amount of Rs. 55.82 lacs is added twice. He protested that there was no justification for this double addition and submitted that even to maintain his consistency, the AO should have restricted himself to the figures of Rs. 8,16,000 and Rs. 2,02,000 respectively for these two assessment years as worked out by AO himself.
8. Another objection in this regard taken by Shri Harish was that even the percentage of 25 mentioned by the AO is not correct because if he had taken 25% of Rs. 3.77 crores the figures should have worked out about Rs. 94,25,000 against the figure of Rs. 1,25,78,000 worked out by him. He submitted that this would in effect mean that he had taken figure at 33% of Rs. 3.77 crores for which there was no justification. The learned counsel explained that the expression 'on money' would indicate that some money is charged over and above the agreed price and not the agreement price plus 'on money'. He submitted that thus even if 25% were to be worked out it should have been 28% of 3.77 crores.
9. The learned counsel further submitted that there have been several cases e.g., the case of Mohroo N. Irani where in identical circumstances of search and seizure the Tribunal had accepted the net profit rate of 3% only for the asst. yr. 1985-86. He further explained that even the rate of 5% was applied after excluding the receipts in respect of garages, generators, etc.
10. The learned counsel thereafter argued that the Revenue had heavily relied on the statement of Dinesh Inamdar. In the first instance, the assessee was never confronted with the statement of that person. Secondly, Shri Dinesh Inamdar has filed an affidavit (p. 131 of paper book, Vol. I filed by assessee) in which he has stated that no on money had been paid by him. In these circumstances, according to the learned counsel, that evidence could not have been used against the assessee.
11. The learned counsel for the assessee also drew our attention to p. 282 of his paper book, Vol. 4, which is a statement of Shri Pradeep Sogthi, assessee's selling agent, where in response to question No. 11 in spite of suggestion from the Revenue to the effect that proportion of charging black money and white money by the assessee was 50 : 50, Shri Sogthi stated that only 10% was in black and 90% was in white. He submitted that the Revenue had made no mention about this statement because this was going against it and had thus suppressed the true facts. He further argued that since the Revenue has got the power to acquire the property if the apparent consideration differs from the real consideration by 15%, yet the very fact that no property had been acquired by the Revenue would indicate that there should have been no transaction in which the assessee should have charged on money at 15% or more.
11.1 Coming to the facts also the learned counsel submitted that if what Shri Dinesh Inamdar is alleged to have stated were true, the total price of 190 sq. ft. should have been Rs. 76,000 at the rate of Rs. 400 per sq. ft. and since Rs. 55,000 was the disclosed price, the balance alleged to have been paid in black could not have been Rs. 35,000.
12. Coming to the rate of profit disclosed by the assessee, he submitted that the assessee had already disclosed net profit rate at 21% for the asst. yr. 1988-89 whereas the AO had referred to cases where the assessees had disclosed net profit rates at 7.5% to 10% and hence there was no scope for making any additions. The learned counsel also drew our attention to some instances where the prices of flats sold were the same as they were to the institutions and thus claimed that even from non-institutional buyers the assessee had not charged on money or vice versa that no on money was charged from the institutions.
13. Coming to the allegations of the Department that the entire on money had been received at the time of agreement, he stated that the director, Shri J. N. Agarwal, had stated that the on money is also received in instalments along with the amounts of cheques and hence he insisted that the profits declared by the assessee including on money should be assessed in the last two years on the basis of project completion method as adopted by the assessee.
14. Coming to the question dealt with by lower authorities as to whether the provisions of s. 69A would apply in this case the learned counsel argued that no cash was found with the assessee as on 11th May, 1987, i.e., on the date of search. Hence, the provisions of s. 69A could not apply. He proceeded to argue that even if something was found, it has to be treated as the income of the financial year 1987-88 assessable in asst. yr. 1988-89. Since this has to be assessed on the basis of deeming provision, the fiction could not be stretched further. Thirdly, it was such a big project, and hence not only assessee's project completion method and nil income had been originally accepted for the asst. yr. 1981-82, this method has been accepted by the Hon'ble Bombay High Court in the case of Shree Nirmal Commercial Co. Ltd. vs. CIT (1992) 193 ITR 694 (Bom) and also by the Tribunal in several cases including the case of Shapurji Balaji (1994) 49 ITD 479 (Bom) and Champion Construction Co. (supra).
15. The learned Departmental Representative in his reply submitted that the learned AO had applied the rate of 25% as black money on the total selling price and not 33% on the disclosed price. He explained that if the total selling price was Rs. 100 and 25% was the on money, the break-up would be Rs. 25 on money and Rs. 75 disclosed money. However, if Rs. 75 were to be considered independently, the amount of Rs. 25 would work to 33% of Rs. 75. He explained that the Revenue had thus considered that the total receipts of the assessee including on money were about Rs. 5.02 crores, 25% of which was on money and that is how the figure of on money was worked out at Rs. 1,25,78,000 by the AO.
16. Regarding the statements of Shri Modi, accountant and Shyam Arora, site supervisor, the learned Departmental Representative pointed out that even the director of the company had stated that on money charged was upto 20%. Regarding the claim of the learned counsel for the assessee that on money was charged only in the last year he explained that taking into account the circumstantial evidence as was done in the case of Mont Blanc it had to be considered that on money had been charged regularly. He pointed out that as per the paper found during the course of search the assessee had admitted that it had received on money to the tune of Rs. 11,99,249 till 31st Jan., 1983, and hence it was not correct to say that the on money was received only during the last three assessment years.
17. Dealing with the allegations of torture and coerceive measures adopted by the Revenue, the learned Departmental Representative argued that no such measures had been adopted by the Revenue. On the other hand, the disclosure of Rs. 66 lacs of on money was not considered to be adequate by the Revenue in view of the incriminating documents found at the time of search. He further explained that the explanation of the learned counsel for the assessee that the accountant, Shri Modi, was appointed in 1983 was not very relevant because the summary of receipts given by the Departmental Representative in his paper book page No. 2 would show that the details were not in chronological order and they started with 24th July, 1984, and thereafter. This would mean that all the events were in his knowledge when Sh. Modi prepared the accounts.
18. The learned Departmental Representative further referred to page 4 of CIT(A)'s order and pointed that what the AO had held in his orders had been upheld by the learned CIT(A) to the effect that the books of accounts had not been regularly maintained and defects and discrepancies were found by the AO in the asst. yr. 1986-87. Again coming to the retraction of statement by Sri Modi and Sri Arora, he reiterated that those statements had been signed by those persons in the presence of Panchas and reconfirmed the next day. They could have retracted the next day but their retraction after 4 months and one and a half year after the search can have no evidentiary value and has to be ignored. The learned Departmental Representative finally argued that the books of account of the assessee had to be rejected and hence not only profits but the on money, which is admitted to have been received by the assessee had to be assessed on estimate basis from year to year.
19. In his rejoinder Shri Harish explained that the discrepancy referred to by the learned Departmental Representative and the learned CIT(A) was only of 0.4% and as per the decision of the Hon'ble Supreme Court in the case of CIT vs. Padamchand Ramgopal (1970) 76 ITR 719 (SC) such insignificant mistake could not be the basis for rejection of accounts. Regarding the amount of Rs. 11,99,449 alleged to have been found recorded on a piece of paper, the learned counsel for the assessee argued that it was recorded in assessee's books of account and offered to show five cash books. This was objected to by the learned Departmental Representative because no books of account were found or seized at the time of search. But the learned counsel insisted that these were the regular books of account.
20. Regarding the appeals filed by the Revenue for the asst. yrs. 1985-86 and 1988-89 the learned Departmental Representative vehemently argued that from what has been discussed earlier also in this order there was no justification for the learned CIT(A) to have come to the conclusion that the assessee's books of account have to be accepted or that the assessee has been following a regular method of accounting which can be said to be project completion method and hence he prayed that the orders of the AO assessing the incomes for the two years on the estimate basis may be restored.
21. We have carefully considered the rival submissions and the material on record. An analysis of the stand taken by the assessee and the Revenue can be made as follows :
22. According to the assessee on a project which was started in the year 1980 and in which total recorded receipts are to the tune of about Rs. 3,77,34,000, it should be accepted that it earned no profits till the asst. yr. 1985-86. Then in the asst. yr. 1986-87 it earned profits to the tune of Rs. 7,96,450. Thereafter in the asst. yr. 1987-88 it earned recorded profits of about Rs. 2,87,000 and in the asst. yr. 1988-89 even after declaring unaccounted profit of Rs. 40 lacs when the returned income was about Rs. 35,83,000 it had suffered a loss of about Rs. 4,17,000. In other words, the assessee wants it to be believed that in a project of construction of buildings including shops and flats between the year 1980 to the year 1987 assessee's total recorded profits were about Rs. 7.96 lacs plus Rs. 2.87 lacs less loss of about Rs. 4.17 lacs is equal to only Rs. 6.66 lacs. This would give a net profit rate of about 1.76% only on the disclosed receipts. The assessee has offered for taxation Rs. 26 lacs in the asst. yr. 1987-88 and Rs. 40 lacs in the asst. yr. 1988-89. If this is taken into account, the total receipts become Rs. 3.77 plus 0.66 is equal to Rs. 4.43 on which the disclosed and undisclosed profits would work out to Rs. 6.66 lacs is equal to Rs. 72.66 lacs and would give a rate of 16.4% net profit. Further, if the statement of the assessee to the effect that the assessee had not charged any on money from the institutions from whom receipts were to the tune of about Rs. 75 lacs it would mean that the assessee had charged Rs. 66 lacs of on money on receipts of about Rs. 3 crores which give an admitted rate of charging of on money of 22% on disclosed receipts or 17.93% on the disclosed receipts of Rs. 3.02 crores plus undisclosed receipts of Rs. 66 lacs totalling to Rs. 3.68 crores. Against the stand of the Revenue is that even as per the statement of Shri J. N. Agarwal, Director of the company, normally on money was being charged from the time of booking of flats or shops, although it was lesser in the earlier times but it increased towards end of completion of project. In this view of the matter the receipt of on money should be taxed in each year on pro rata basis. Secondly, since the claim of the assessee that it has followed the project completion method is not accepted, the income has to be assessed from the entire project from on to year basis. So far as the asst. yrs. 1987-88 and 1988-89 are concerned, the Department was almost accepting the returned income of the assessee including on money disclosed in these years but was making additions on estimate basis in respect of the disclosed receipts in view of low rate of profit shown by the assessee on these as compared to other assessees. In this background, our findings and decisions are as under :
23. In so far as the arguments and allegations of the assessee to the effect that it was tortured and harassed by the Revenue during the course of search and thereafter, are concerned, we are unable to agree with the learned counsel for the assessee. We find nothing on record to indicate that IT authorities have employed third degree methods to force some persons to make confessions or admissions. This is all the more unacceptable when independent witnesses were present at the time of search. Even if for the sake of argument it is accepted for a moment that the Revenue authorities had given some threat to the assessee and its employees, there is nothing to stop the assessee and its employees to either meet personally or through their authorised representatives the higher authorities or bringing to the notice of higher authorities through written communications that any statement or admission made by them before the search party was on account of threat, coercion, or undue influence. Moreover, merely writing that may not be sufficient but even what actual threat, coercion or undue influence was exercised is also required to be spelt out so that its veracity could be verified with the witnesses who were there at the time of search. In fact as mentioned by Shri Harish himself the assessee admitted having earned on money of Rs. 66 lacs vide its offer before the IT Department on 11th Sept., 1987, i.e., about 4 months after the search and that too was not accepted by the Department. We have also verified that the claim of Shri Harish to the effect that Shri Mahesh Modi, accountant had retracted from his statement even on the next day is not fully correct. We find that on 12th May, 1987 he had only stated that it was not he who had stated anything about sales of flats. We notice that this reply has come in response to question No. 2 (p. 122 of the paper book, vol. I) i.e., only on being told that on the preceding day he made a statement that whether he could recall what he had said and he, instead of saying what he had said, stated that he had not said. Apparently this was an unnatural answer and obviously given at the behest or threat, coercion, undue influence or request of Mahesh Modi's employer, namely the assessee. We have also noticed that on 11th May, 1987, it is not that he was all of a sudden made to state what was the percentage of black and white receipt by the assessee in respect of the shops and flats sold by it. We find that the statement of Shri Modi recorded on 11th May, 1987 has started at p. 113 of paper book of assessee, Vol. I. It is given after taking oath and after a large number of questions put to him and answers given by him and after he was confronted with the documents which were found at the time of search and after showing him p. 39 of file No. 21 and after asking him to go through it that Shri Modi gave explanations about those matters and then on p. 118 of the paper book continued till p. 119 that he had stated that on money varied from 70% : 30% to 60% : 40%. It was also asked as to who used to collect this money and he replied that the on money was collected by Shri Sogthi, selling agent and handed over to Shri J. N. Agarwal and that at times it was collected even by brokers who handed it over to Shri J. N. Agarwal. Moreover, even in his so-called retraction on p. 122 in his statement on 12th May, 1987, Shri Modi did not deny that any on money was charged. He only stated that the statement about the sale price and on money was made by Shyambhai and then repeated that Shyambhai had stated that the rate was 70% white and 30% black or 60% white and 40% black. In this background the subsequent affidavits or retraction supposed to have been made by him, in our opinion, carry no evidentiary value because there can be no doubt that they must have been made under the coercion, threat or undue influence of the assessee who is the employer and to whose interests his statement was very damaging. Similarly about the statement of Shyam Arora, we are unable to agree with the submission of Shri Harish. Only concession which can be made may be regarding the actual percentage which might be charged by the assessee a factor which has been considered by the AO. Regarding the argument of Shri Harish that the Revenue has totally ignored the statement of Shri Sogthi because it was in favour of assessee, we are unable to attach much importance to it because Shri Sogthi had stated that on money was being charged only at 10%. From the statement of Shri Sogthi we gathered that he was a man of great confidence of the assessee to whom Shri J. N. Agarwal had advanced Rs. 2,37,000 (p. 287 of paper book, Vol. 4) in cash in connection with some joint venture about which there was not even anything in writing, although as per his statement on p. 282 his monthly income was only between Rs. 1,800 to Rs. 2,000 and his family expenses were Rs. 1,000 to Rs. 1,100 (p. 288). Moreover, as has already been mentioned, even Shri J. N. Agarwal, Director has stated that the on money which was being charged was between 15% to 20% and hence the statement of Shri Sogthi to the effect that the on money was being charged at 10% only was obviously false and could not be relied upon and there was nothing wrong if the AO did not specifically refer to such unreliable statement made during the course of search. We need not mention that it is not necessary while writing any order or deciding any issue that every statement or every word or every argument has to be repeated. Only those words, arguments or statements are required to be referred in an order which are relevant for the purpose. We, therefore, also do not attach any importance to the statement of Shri Sogthi so far this case is concerned except concluding that his statement is not worthy of credence.
24. Coming to the argument of Shri Harish to the effect that the assessee had made a disclosure of Rs. 66 lacs to purchase peace and to avoid torture, we are unable to agree with these submissions because we are not inclined to accept that any assessee who is dealing in crores of rupees and who has got the benefit of best possible legal advice would give a charity of Rs. 66 lacs to the Govt. even when he had not earned that amount. Moreover, nowhere from the statement of Shri J. N. Agarwal it can be gathered that he was making the statement that on money from 15% to 20% was charged on the basis of any threat or coercion or in order to earn some favour from the IT Department. The very fact that the IT Department did not accept this percentage and had estimated the percentage of on money charged by the assessee at a much higher figure would show that it was not an offer by the assessee either under the influence of some threat or coercion or in order to win some favour from the IT Department. We have gone through the statement of Shri J. N. Agarwal and we find that the statement has been made by a knowledgeable businessman, who not only knows his business but also various provisions of the IT Act. In any case we do not find any material on record to show that the offer of disclosure of on money at Rs. 66 lacs was made on account of some threat, coercion or undue influence or fraud and hence we decline to agree with the arguments and submissions of Shri Harish in this regard.
25. In continuation with this finding we may also deal with the argument of learned counsel for the assessee regarding the method of accounting followed by the assessee and which is stated to be project completion method. The learned counsel for the assessee has relied on several decisions of the Tribunal and also of the Hon'ble Bombay High Court. We need not repeat the trite (law) that every decision is given according to the facts and circumstances of a particular case. In principle it may be alright that project completion method may be accepted as a method for computing the income of an assessee under s. 145(1) of the IT Act. However, whatsoever method an assessee might be following even the most recognised method of mercantile system or the cash system, once it is found that either the method of accounting is such from which correct profits cannot be deduced [proviso to s. 145(1)] or the books of account maintained by the assessee are not correct and complete [s. 145(2)], the method of accounting followed by the assessee loses its significance. When the provisions of s. 145(2) become applicable, even the entire books of account go in the background because if the books of account have not been maintained or are found to be not correct and complete, the AO is authorised to assess the income in accordance with the provisions of s. 144 of the IT Act which in turn would mean that he is authorised to assess the income according to best of his judgment. When applying these tests to the instant case we find that in the first instance the assessee has itself made an admission that its books of account are not correct and complete because as per its own admission the amount of Rs. 66 lacs had been received by it outside the books of account. We have also taken note of the fact that Shri J. N. Agarwal had admitted in his statement that normally the on money was being charged at the time of booking itself and only in exceptional circumstances, i.e., when the party was known or there was some surety or security given that the payment of on money was postponed, and hence we are not inclined to accept the theory of the assessee to the effect that the on money should be assessed as assessee's income only in the last two years, for which there is no basis or justification even with the assessee. In other words, there is nothing to show why Rs. 26 lacs should be assessed in the asst. yr. 1987-88 and Rs. 40 lacs should be assessed in the asst. yr. 1988-89. Regarding the argument of the assessee to the effect that if the assessee was charging some on money which was not accounted for in the books of account, it must also have been incurring some expenditure which was not accounted for in the books of account, we may observe that while it is an established principle that if an assessee makes some claims for deductions, the assessee has to establish it, we are not fully convinced about this argument for another reason also. It was argued by Shri Harish before us and we have also made a mention of his argument in our order that the assessee has charged the same amount as sale price from several customers as it had charged from some banks, institutions or BMC. This was to impress that the assessee did not charge any on money from these parties. To this extent the argument may be accepted. Yet, no one can believe that while selling the shops or flats to these institutions from whom no on money was charged, the assessee should not have even charged its normal rate of profit. This would mean that when the sales were shown to various parties from whom on money was charged, the same sale price was recorded in the books as was being recorded from those parties from whom no on money was charged. This in turn would mean that so far as the normal profit element was concerned, it was included in the recorded sale price because no builder would be selling the shops or flats at par or at a loss on the ground that the profits would be earned only in terms of on money. This leads us to come to the conclusion that the assessee should have earned normal profits in the sale prices recorded by it in its books of account and the on money earned by it was meant to represent its unrecorded income which could be spent in any manner the assessee liked. Hence, in order to claim that any expenditure out of those receipts was made for the purpose of assessee's business, the burden of proof lies on the assessee and since far from proving anything, it has not even brought anything on record to show as to what amount, if any and for what purposes, was spent by the assessee for meeting the purposes of business, in our opinion, no deduction as such can be allowed, although some concession may be given while determining as to what estimate of income has to be made.
26. So far as the assessee's attack on the statement of Shri Dinesh Inamdar is concerned, while we do express our disapproval of the way in which this particular matter has been dealt by the Department, it cannot be altogether ignored. Our disapproval is on account of the fact that not only the Revenue has failed to confront the assessee with that evidence, it has failed to file a copy of that statement before us in spite of an opportunity being given to it. We could have ignored it if it had stopped at that. But the assessee has chosen to file an affidavit of Shri Inamdar (p. 131 of paper book, Vol. I and a separate copy of the complete affidavit filed subsequently). This affidavit is dt. 28th Sept., 1988. In this affidavit Shri Inamdar has sworn that he had purchased a shop from the assessee for a total amount of Rs. 60,836 out of which Rs. 50,432 was the cost of shop, Rs. 4,101 was towards maintenance deposit and Rs. 6,303 was towards stamp duty deposit. He has further stated that some time in May, 1987 some persons had approached him and had informed that they were officials of IT Department and that according to their information the purchasers were paying 40% of purchase price as black money. The said officials are further stated to have told him that if he also does not give such a statement, they would subject Shri Inamdar to a great deal of harassment and that they would prosecute him for concealing his income and avoiding payment of tax. It is further stated that it was his first experience, therefore, he did what he was told and made a statement that he had paid on money to the said builders. This affidavit has been filed by the assessee. It is not known what prompted Shri Inamdar to swear this affidavit on 28th Sept., 1988. But this at least shows that the assessee was aware of the situation. It also shows that Shri Inamdar did make a statement before the IT authorities that he paid on money @ 40% of the purchase price. There is nothing to show that Shri Inamdar was such an innocent child who got a scare by the threat of some unknown IT officials and thereafter did not dare even to report this matter to any authority that he was compelled to give a false statement. We gather from the orders of the AO that the statement of Shri Inamdar was recorded under s. 131 and hence it is likely that the person recording the statement must have told him that he had to state the truth and that if his statement was found to be false he could be prosecuted. If that is the situation, it was all the more necessary for Shri Inamdar to have informed the CIT or some higher authority soon after giving such a statement that he has been made liable for criminal prosecution by being compelled to give a false statement. But no such matter has either been brought on record nor has even been stated in the affidavit of Shri Inamdar. On the other hand, what we gather from the material on record is that as per compilation given by the assessee, the first assessment after the date of search made by the Revenue is for the asst. yr. 1984-85 dt. 19th Aug., 1987 (pp. 9 to 16 of the compilation). Although it is a long order it makes no mention at all of any search having been conducted at the premises of the assessee or any material gathered during the course of search. This gives an impression that perhaps by the time this assessment order was completed the AO was not communicated by the Director of Inspection's office any details about the search and thereafter in the next assessment for the asst. yr. 1985-86 completed on 29th March, 1988, there was mention of the statement of Shri Inamdar and also of the fact that he purchased the shop in 1983 and that the assessee had made an offer of Rs. 33 lacs as on money for assessment. It is only after this that the assessee has filed the affidavit of Shri Inamdar. All these facts lead us to infer that the on money was being paid right from the year 1983 and that the deponent, Shri Inamdar should have retracted from that statement not only because of his relations with or influence of the assessee but mainly because he should have been told that if he does not retract, he may also be required to explain as to from where he paid that amount of black money. So far as the arithmetical mistake pointed out by the learned counsel for the assessee in this regard is concerned, we do not find it to be very significant because as per the details if the actual price of 190 sq. ft. at the rate Rs. 400 per sq. ft. works out to Rs. 76,000 and the recorded price was Rs. 55,000, the difference of Rs. 21,000 would roughly work out to 40% of the disclosed sale of Rs. 55,000. Taking all the factors into account we are unable to agree with argument of Shri Harish in this regard.
27. Another plea taken by the learned counsel for the assessee is that in some other case the Tribunal has accepted the application of net profit rate at 5% on gross receipts for the asst. yr. 1985-86 excluding receipts of garages, generators, etc. This is also not acceptable to us because the facts and circumstances of each case differ. Moreover, in the instant case as per assessee's own admission if the on money is taken into account, the net profit rate as per assessee's own argument for the asst. yr. 1988-89 works out to 21% and if the total receipts of the project are taken at Rs. 3.77 crores plus 66 lacs on money, i.e., total Rs. 4.43 crores, the net profit works out to Rs. 6.66 lacs as disclosed by the assessee in the books and Rs. 66 lacs as on money. This totals upto Rs. 72.66 lacs and will give a net profit rate of 16.40%. In this view of the matter the case relied upon by the assessee cannot be said to be a comparable case.
28. So far as the arguments of the learned counsel regarding applicability of s. 69A is concerned, in view of the fact that the income in this case has to be assessed on estimate basis, in our view this is only of academic interest and hence we may agree with the argument of the learned counsel for the assessee that so far as the facts and circumstances of this case are concerned, it is not necessary to invoke the provisions of s. 69A of the IT Act.
29. So far as the argument of the learned counsel for the assessee to the effect that the Revenue itself has in some of the years accepted assessee's system of accounting as project completion method and in some of the years the CIT(A) had accepted that the assessee had followed that method of accounting is concerned, we find that different authorities have been taking different views on different occasions. However, so far as the order of the CIT(A) which is now under appeal before us that is for the asst. yrs. 1981-82 to 1987-88 is concerned, we find that he has given a very specific finding in para 9 of his order that he did not find any evidence to the effect that project completion method was the system of accounting regularly followed by the assessee; that the AO had invariably taken the method of accounting as mercantile and that he agreed with the reasoning of the AO that the question of taxing the entire on money on completion of the project does not arise. It is true that for the asst. yrs. 1985-86 and 1988-89 for which the Revenue is in appeal before us, the concerned CIT(A) has taken the view that the assessee has followed project completion method and that it has to be accepted. However, after having considered all the facts and circumstances of the case as discussed above, particularly the fact that the assessee itself has admitted having received on money to the tune of Rs. 66 lacs which is not entered in the books of account, we do not agree with the findings of the learned CIT(A) in the asst. yrs. 1985-86 and 1988-89 that no income should be assessed for the asst. yr. 1985-86 and only what has been disclosed by the assessee in the asst. yr. 1988-89 should be accepted because the assessee has followed the project completion method of accounting. We may reiterate that merely because the assessee has followed a particular method of accounting cannot compel the AO to accept the book results unless the assessee satisfies that it does not fall either under the proviso to s. 145(1) or under the provisions of s. 145(2) of the IT Act. In this case as per assessee's own admission the amount of Rs. 66 lacs has not been included in assessee's books of account. Moreover even in the returns of income for the asst. yrs. 1986-87, 1987-88 and 1988-89, as per the orders of AO and CIT(A), the incomes have been returned not on the basis of book results but on estimate basis and hence it cannot be said that the returned income of the assessee has to be accepted. We also do not agree with the reasonings of the learned CIT(A) in the asst. yr. 1988-89 to the effect that since the assessee itself has shown the on money receipts as its income in the asst. yr. 1988-89, the profit would work out to 40% which is much more than what is applied by the AO and thus leading him to delete the addition of Rs. 5,09,600 because while making this computation the learned CIT(A) appears to have ignored the fact that the assessee has shown the on money of Rs. 40 lacs as income of this year when admittedly this on money was being received for the last several years and hence cannot be considered to be relevant for computing the profits of this year only, particularly when the total receipts shown this year are only Rs. 6,05,000. If the computation is made after taking that factor into account, the profit would not be 40% as mentioned by the learned CIT(A). But in any case it is irrelevant for reasons given by us in the preceding part of this paragraph.
30. So far as the reference of Shri Harish to a minor discrepancy and the ratio of the decision of the Hon'ble Supreme Court in this regard is concerned, in the first instance the discrepancies pointed out by the AO cannot be said to be minor and more so when as per assessee's own admission it has held back an amount of Rs. 66 lacs from being included in its books of account, by no stretch of imagination it can be said to be a minor discrepancy when the total receipts disclosed by the assessee are only Rs. 3.77 crores.
31. After taking into consideration all the facts and circumstances of the case and the arguments advanced by both sides we come to the following conclusions :
(1) It cannot be said that the assessee's books of accounts are correct and complete and hence, in our opinion, the income of the assessee in each of the assessment years has to be assessed according to provisions of s. 145(2) of the IT Act.
(2) It cannot be accepted that the assessee had received the on money as its income only in the last two assessment years under consideration. In our opinion, the assessee has been earning on money from the beginning of the project although the percentage might have increased in the later years.
32. Taking those factors into account the material which is on record and mentioned by us in this order, we are of the opinion that the view taken by the AO to the effect that assessee should have earned profits at the rate of 25% of gross receipts, appears to be reasonable. This is because even as per assessee's own submissions and disclosure, it had earned 'on money' at the rate of 17.5% of Rs. 3.77 crores. We have also discussed that no builder could be expected to be selling the shops and flats without charging some profits and hence a rate of 7.5% may be considered to be reasonable rate of net profit. We have also mentioned that this net profit is in addition to the 'on money' and must have been earned even from those parties from whom no 'on money' is stated to have been charged such as banks, BMC and other institutions. This would mean that the total profit rate would be 17.5% + 7.5% = 25%. Regarding the figure on which this rate is to be applied, we agree with the learned Departmental Representative that when a net profit or gross profit rate is applied for estimating the profits, it is applied on the total receipts and not on the receipts after deducting the profits. We, therefore, hold that the AO was justified in applying the profit rate of 25% on the gross receipts and in allocating the profits in different years. We further hold that the learned CIT(A) was not justified in taking the view for asst. yrs. 1985-86 and 1988-89 that assessee's profits should be computed on the basis of project completion method. We, therefore, reverse his order to this effect and direct that the AO may assess the profits of each year, starting from asst. yrs. 1981-82 to 1988-89 separately.
33. Accordingly, while the appeals filed by the Revenue are allowed, the appeals filed by the assessee are dismissed.