Income Tax Appellate Tribunal - Chandigarh
M/S Motia Constructions Ltd., Zirakpur vs Dcit, Patiala on 7 February, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND
SHRI B.R.R. KUMAR, ACCOUNTANT MEMBER
ITA No.614/Chd/2012
Assessment Year: 2007-08
Motia Constructions Ltd. Vs. The DCI T
Chandigarh- Delhi Highway Central Circle
Royale Estate, N.A.C Patiala
Zirakpur
PAN No. AADCM6576B
(Appellant) (Respondent)
Assessee By : Sh. Sudhir Sehgal
Revenue By : Sh. Ashish Abrol
Date of hearing : 29/11/2017
Date of Pronouncement : 07/02/2018
ORDER
PER DIVA SINGH, J.M.
The present appeal has been filed by the assessee assailing the correctness of the order dated 28/03/2012 DCIT 1 Ludhiana pertaining to 2007 - 08 assessment year on the following grounds:
1. That order passed u/s 250(6) of the Income-tax Act, 1961 by the Ld. Commissioner of Income Tax (Appeals)-I, Ludhiana is against law and facts on the file in as much as he was not justified to arbitrarily uphold the action of the Ld. Assessing Officer in treating the capital gain with regard to transaction relating to SCO 393, Sector-8, Panchkula as business income.
2. That he was further not justified to arbitrarily uphold the action of the Ld. Assessing Officer in disallowing transfer expenses amounting to Rs. 20.98 lac relating to SCO 393, Sector-8, Panchkula.
3. That the Ld. CIT(A) was further not justified to uphold the addition of Rs. 86,108/- on account of alleged unexplained source u/s 68.
4. That he further gravely erred in upholding the action of the Ld. Assessing Officer in adding a sum of Rs. 81,51,000/- on account of alleged unexplained profit with regard to sale of land at Kharar (Tikka).
2. The relevant facts of the case are that the assessee company is related to Motia group of cases, Zirakpur on which a search and seizure operations under section 132 of the Income Tax Act was conducted on 25/02/2009. In response to notice under section 153 A the assessee declared its income which included Long Term Capital Gain of Rs. 26,62,402/- on account of sale of SCO plot No. 393, sector 8, Panchkula. The Assessing Officer after requiring the assessee to show cause and justify the said claim rejected it holding it to be chargeable ITA No.614/Chd/2012 Assessment Year: 2007-08 2 under the "head business income". The claim of transfer expenses of Rs. 20.98 Lacs were also held to be not substantiated and thus added to the income of the assessee. The said decision was challenged in appeal before the CIT-A. The assessee having failed before the said forum also is now before the ITAT vide grounds numbers 1 and 2 in the present appeal.
3. Apart from this the Assessing Officer in the course of the proceedings on account of page 62 of Annexure A-4 of premises A-3 required the assessee to address the same. Not convinced with the explanation offered qua serial No. 12 of the said document pertaining to land at Kharar Tikka he proceeded to make addition in respect thereof. The assessee's challenge before the CIT-A on this issue was also unsuccessful. As a result thereof the assessee is before the ITAT vide Ground No. 4 in the present appeal. These grounds have already been reproduced in the earlier part of this order.
4. The Ld. AR inviting attention to the grounds submitted that the assessee does not wish to press ground No. 3 accordingly the same is dismissed as not pressed The Ld. AR inviting further attention to the record submitted that he has filed a detailed synopsis consisting of 19 pages on facts and law accordingly in the course of the arguments he would be addressing the same on both the additions challenged in the present proceedings.
5. Addressing the addition challenged vide ground numbers 1 and 2 in the present appeal the Ld. AR carried us through the submissions advanced before the Assessing Officer and the CIT-A. Reiterating the arguments advanced which have further been elaborated in the synopsis filed it was submitted that the SCO was registered in the name of Sh. Prem Chand Bansal who was the father of Sh.
Pawan Bansal who was an erstwhile Director of the assessee company. It was his submission that the initial original payment of Rs. 48 Lacs had been made by Sh. Prem Chand Bansal to HUDA for this specific SCO. Since Sh. Premchand Bansal was unable to procure the remaining funds required for further payments to HUDA, accordingly it was sold to the assessee and the amount was reimbursed by the assessee to Sh. Prem Chand Bansal. The investment in the said SCO it was submitted was made by debiting the books of the assessee company and it was duly reflected in the balance sheet year after year in its Fixed Assets Schedule. The remaining amount of Rs. 83,16,762/- it was submitted was directly paid to HUDA by the assessee. It was also duly reflected in the balance sheet of the ITA No.614/Chd/2012 Assessment Year: 2007-08 3 assessee and consequently the possession of the SCO was also taken by the assessee. Referring to the record it was submitted that the entire amount was paid by cheque and the payment by the assessee has not been doubted by the Department. The said SCO was sold for an amount of Rs. 140,00,000/- to M/s Motia Projects Private Limited wherein Sh. Pawan Bansal and Smt. Pinky Bansal were Directors. The transfer charges amounting to Rs. 20,98,000/- were paid by the assessee consequently deduction of the said amount was claimed by the assessee while computing the Capital Gains Tax. Copy of the Sale Deed was made available to the Assessing Officer and is borne out from page 3 of the Assessment Order itself was heavily relied upon. In the said background the allegation of the Department that the assessee had wrongly disclosed the business income on account of sale of the said SCO as income from capital gains was strongly assailed. Secondly the denial of the transfer charges actually incurred by the assessee it was submitted was contrary to law and facts on record. In the said background the Ld. AR submitted that it is not in dispute that the ownership of the said property was with the assessee as only on account of this fact it has been considered to be a business income of the assessee by the AO. Accordingly the dispute revolves around the fact whether it is to be assessed under the head of capital gain or business income. Addressing this issue it was his submission that there is no bar on a taxpayer to hold as an investment the commodity in which he also trades. For the said purposes attention was invited to CBDT circular No. 4 of 2007 dated 15/06/2007 which permits that a Trader in shares can also be a Trader as well as an investor in his own right provided he maintains separate accounts qua the two portfolios. This issue it was submitted is well settled by judicial precedent. Attention was invited to a list of decisions on this issue. Addressing the facts in assessee's own case attention was invited to the Fixed Assets Schedule in the respective balance sheets depicting the position as on 31/03/2004; 31/03/2007 and on 31/03./2006 at specific pages 16, 35 and 70 of the paper book for the year under consideration. Referring to those it was submitted that it would reflect that the said asset was never forming part of assessee's stock in trade. This fact on record becomes a finding of fact and it has not been challenged by the Department. It was also his submission that it is for the assessee to decide the nature of a particular transaction at the time of entering into the same and the correctness of the same can be challenged by the Department only if the assertions made ITA No.614/Chd/2012 Assessment Year: 2007-08 4 are shown to be not demonstrated on the basis of books of accounts or are forbidden by law but in the facts of the present case it was submitted that the assessee has made the investment in the said property in financial year 2003-04 and continuously thereafter has shown the said asset as an investment and has never included it as its stock in trade. Thus in these peculiar facts the departmental insistence to consider the same as a business asset is contrary to law and facts. Reliance was placed upon various decisions of the High Court and ITAT. Copies of these it was submitted have been placed in the paper book filed.
a) ACIT Vs. Shri Om Parkash Arora in ITA No. 3154/Del/2010 order dt. 18/11/2011.
b) CIT Vs. Sushila Devi Jain 259 ITR 671 (P&H HC)
c) ACIT Vs. Piccadily Hotels (P) Ltd. 281 ITR 1 (P&H)
d) ACIT Vs. M/s Rajesh Kumar Aggarwal & Sons HUF in ITA No. 538/Chandi/2006
e) CIT Vs. S.K. Kaintal in ITA No. 51 of 2009 order dt. 04/03/2009; and
f) ACIT Vs. M/s Shree Estates as in ITA No. 102/Chd/2013 order dt. 03/10/2016.
5.1 Specific attention was invited to the decision fo the jurisdictional High Court in the case of ACIT Vs. Sushila Devi Jain (cited supra) and ACIT Vs. Piccadily Hotels(cited supra) for the proposition that the dominant motive of the assessee is only the relevant fact which is to be considered to determine the character of the transaction.
5.2. Referring to the record it was his submission that the SCO No. 393 was allotted to Sh. Prem Chand Bansal in the year 2000. As a result of payments by the assessee to Sh. Prem Chand Bansal the Assessing Officer has proceeded to treat the assessee as an owner. Having treated the assessee as an owner where facts demonstrated that it was an investment the claim of Capital Gain cannot be rejected. It was submitted that it is not disputed that part payment was made by the assessee directly to HUDA. The SCO was allotted to Sh. Prem Chand Bansal on 27/03/2006 in view of the fact that the allotment letter was in the name of Sh. Prem Chand Bansal. The said SCO was sold by the assessee to Motia projects on 12/05/2006. The Assessing Officer has drawn no adverse inference as he has himself deducted the purchase amount from the sale figure wherein the Assessing Officer has accepted the assessee as an owner and as a result of this proceeded to assess the same under the head business income. In these peculiar facts where the assessee all along has held it as an investment ITA No.614/Chd/2012 Assessment Year: 2007-08 5 and this fact has not been upset has also admittedly paid the transfer chances also. The denial of assessee's claim in the circumstances it was submitted was contrary to law and facts.
5.3. Addressing the arguments advanced before the AO as well as the CIT-A it was his submission that the assessee is reiterating the same arguments and thus without addressing the facts on record the CIT-A has selectively avoided to deal with the admitted facts and proceeded to deny the assessee's claim on the reasoning that the name of the assessee is not reflected in the Sale deed. The selective reasoning ignoring the conclusion of the AO which has not even been varied by the CIT(A) and which is in conformity with section 2(47) of the Income Tax Act was heavily assailed. Assailing the action of the Department in selectively reading part of the document wherein the figure of sales at Rs. 1.4 crore is taken and considered and the fact that this document itself reflects that the amount of Rs. 20,98,000/- stood reflected there as stamp duty and Registration charges etc. having been borne by the assessee which has wrongly been ignored attention was invited to paper book page 102 of paper book volume II.
6. The Ld. CIT DR inviting attention to the findings on record of the Assessing Officer and the CIT appeals on the other hand submitted that consistently the additions have been maintained by both the authorities. Relying heavily there on it was submitted that the accounting treatment given by the assessee in its books of accounts cannot be allowed to dictate as to under which head the income is to be assessed. It was his submission that the assessee is in the business of buying and selling properties it is a normal business transaction for the assessee and practice of the assessee. The facts on record are that the specific SCO has been purchased by Mr. Prem Chand Bansal who has applied for the specific property from HUDA. Part of the payment has been made by him and admittedly balance has been paid by cheque by the company however the sale deed is in favour of Mr. Bansal the amount could have been treated as a loan advanced to Mr. Bansal no doubt it has been shown as a Fixed Asset in the Balance Sheet and the Department has accepted ownership of the said property also and these facts it was submitted are not in dispute but the fact remains that it has been sold ultimately in the name of Mr. Prem Chand Bansal to Motia Projects Ltd. accordingly it was his submission that the addition has rightly been made in the hands of the assessee.
ITA No.614/Chd/2012Assessment Year: 2007-08 6
7. We have heard the rival submissions and perused the material available on record. It is seen from page 2 of the assessment order that the assessee in response to questionnaire dated 25/03/2010 replied on 15/09/2010 addressing the factual position at the first instance. The relevant extract from the assessment order is reproduced hereunder.
"1 company purchased commercial plot No 393, Sector 8, Panchkula for a sum of Rs 83,16,762/- in the F.Y 03-04. The same was sold in F.Y 2006-07 for a sum of Rs 1,40,00,000/- to Motia Projects Pvt. Ltd. and earned long term capital gain of Rs 35,70,238/- on the same.
2. As regards deduction of transfer expenses amounting to Rs 20,98,000/- from the sale of above mentioned commercial plot we have to state that same was incurred by the company as per terms and conditions between seller and buyer. Further these expenses . have been incurred for purchase of stamp papers and' registration charges for transfer of plot"
7.1 The assessee in subsequent replies has stated that the transfer in the name of the assessee has been through book entry only and has consistently been shown in its Fixed Assets Schedule right from F.Y. 2003-04. It is seen that the said explanation was not accepted by the assessing officer who rejected the explanation holding as under:
3.1 The replies filed by the assessee and the facts of the case have been considered. As regard to the issue of the head of income under which the profit' arising on account of transfer of SCO 393, Sector 8, Panchkula should be taxed, it is held that the said transfer is chargeable under the head "Business Income" as per following reasons:
a) The assessee is into the business of property dealing and is also a developer and colonizer.
b) No purchase deed was entered into by the assessee with regard to the purchase of SCO 393, Sector 8, Panchkula.
c) Accordingly no sale deed was entered into by the assessee with regard to the sale of SCO 393, Sector 8, Panchkula.
Hence the motive of the company right from the date of purchase was to sell it off whenever the best price for the same could be received. The purpose of the assessee was never to invest because had it been the case the assessee would have essentially got it i registered in its own name, the same should have been clubbed under the head of inventory rather than fixed assets which was erroneous on the part of the assessee.
(Emphasis Provided) 7.2 The above contradictory conclusion has specifically been assailed by the assessee as being against all accepted norms namely if the purpose was not to invest then it should have been clubbed in Inventory instead of Fixed Assets. The argument on behalf of the assessee has been purpose was to invest which is why it is not in the inventory as stock in trade. It is further seen that in view thereof the addition under challenge was made by the assessing officer holding ITA No.614/Chd/2012 Assessment Year: 2007-08 7 as under:
3.3 The income of the assessee on account of transfer of SCO 393, Sector 8, Panchkula during the year is calculated as under:
Sale consideration received 1,40,00,000/
-
Less purchase price of 83,16,762/-
property in F.Y. 03-04
Profit 56,83,238/-
Thus an addition of Rs 56,83,238/- is made in the hands of the assessee company under the head business income. The income under the head long term capital gain shown by the assessee is to be reduced by Rs 26,62,402/-.
7.3 The issue when carried in appeal before the CIT-A was decided in the following manner:
I have considered the basis of addition made by the AO and the arguments of the AR on the issue. The perusal of sale deed filed by the appellant shows that the impugned SCO has been sold by Sh. Prem Chand to M/s Motia Projects (P) Ltd. on 26/04/2006 and the transfer expenses of Rs.20,98,000/- have been borne by the seller only. However this property does not get transferred in the favour of M/s Motia Construction Ltd. i.e. the appellant even though only a book entry has been made in the books of appellant company which makes it abundantly clear that the impugned expenses for transfer have neither been incurred by the assessee nor paid by it. In the circumstances the claim of the appellant is without any basis and therefore rightly rejected by the AO. The nature of income is clearly assessable under the head income from the business and profession as the assessee is into the business of property dealing as a developer and the property in question has not even been purchased through the execution of registration deed which clearly shows the intent of using the same for purposes of trade and not investment. As such the AO has correctly assessed the income under the head business and, profession.
7.4 Considering the above findings in the light of the arguments of the parties before the Bench we find that admittedly the said specific SCO 393 in sector 8 Panchkula as per HUDA records remained in the name of Sh. Premchand Bansal. The fact that the initial payment for the acquisition of the said property was made by Sh. Premchand Bansal to HUDA is an admitted fact. The fact that subsequent payment of Rs. 8 3, 16, 762 was made by the assessee in financial year 2003 -04 is also not in dispute. The fact that by book entries it was transferred in the name of the assessee wherein the assessee consistently over the years right from 2003-04 Financial Year has been showing it as its Fixed Assets in its Fixed Assets Schedule is also not in dispute. Considering the peculiar facts of the case in the background where during the period the properties were freely being sold and acquired on the basis of GPAs the claim of the assessee is not far-fetched. The fact that it has been accepted by the Department also is also coming out from the record itself as the tax authorities are insisting that it ITA No.614/Chd/2012 Assessment Year: 2007-08 8 was a business income of the assessee. Thus ownership of the asset has not been doubted by the Department. The assessee's claim that on account of the fact that the father of one of its erstwhile directors made payment to HUDA and who ultimately was not in a financial position to continue to make further payments to HUDA as a result thereof seeing an opportunity the assessee stepped in and consequently made the subsequent payments is not in doubt. For what purposes the payments were made as the assessee claims it as an investor and not as a trader. The assessee has claimed consistently that it was an investment and has taken all necessary steps by making appropriate disclosure in its Balance Sheet etc. The AO assails the same holding it to be as an act of trader.
We note that the reasoning of the AO is based on an incorrect appreciation of financial and accounting principles which is evident from the statement "the purpose of the assessee was never to invest because had it been the case the assessee would have essentially got it registered in its own name, the same should have been clubbed under the head of inventory rather than fixed assets....'' The said reasoning is a very strange and surprising conclusion and it flies in the face of settled accounting principles. The very fact that the assessee has not shown it in its Inventory demonstrates that it was never considered to be a stock in trade for business income and the very fact that it has been shown in the Fixed Assets Schedule demonstrates the facts that the assessee right from the beginning intended to hold it is an investment. The absence of name in the Sale Deed of the assesse in the face of admitted facts on record wherein the AO accepts ownership of the assets and considers it to be a case of an activity of a trader and not an investor meets the challenges if any which has been the sole basis of the CIT(A)'s conclusion who also does not upset the finding that the assessee is the owner of the property and concurs with the AO that the assessee has acted as a trader. Thus in the peculiar facts and circumstances of the present case which have been elaborated at length in the earlier part of this order we find that the denial of assessee's claim has been based on incorrect appreciation of facts. The further argument of the Revenue that the transfer expenses consisting of stamp duty etc which admittedly has not been claimed as an expense either Mr Premchand Bansal or for that matter by M/s Motia Projects Private limited which as the assessee has consistently argued was an expenses were by the assessee which as explained had to bear on account of the transfer of the said property to M/s Motia Projects private Limited admittedly ITA No.614/Chd/2012 Assessment Year: 2007-08 9 has to be allowed. Accordingly we hold that ground No. 1 and 2 of the assessee in terms of the above are allowed.
8. The Ld. AR addressing the next issue challenged by the assessee in the present proceedings invited attention to the specific computerized sheet described as page 62 of Annexure A-4 of premises A-3 which has been reproduced at page 7 and 8 by the Assessing Officer which as per record has been seized from the residence of the Director of assessee company Sh. Krishan Goel. This fact it was submitted is evident from page 7 of the Assessment Order itself and is not in dispute. Referring to the said computerized sheet which has been addressed at length by detailed arguments of the assessee before the Assessing Officer and have also been considered at length by the CIT-A it was submitted that it had defined columns wherein in column No. 1 the names of the respective companies are mentioned and the heading in the remaining columns can be numbered as 2 to 7 in the computerized sheet as 2) total cost;
3) funds used; 4)sale; 5)total profit / market consideration; 6)amount of share of profit for funds used; 7)duration of funds used etc. Addressing the findings of the Assessing Officer it was submitted that the Assessing Officer assumed that the column ' total cost' reflects the actual total funds used by the assessee and under the column 'funds used' the assessee had shown the amounts entered in its books of accounts.
8.1. Accordingly on account of this incorrect assumption or understanding the Assessing Officer presumed that there was amount which was used by the assessee outside the books of accounts and made the additions in the respective years. Addressing the computerized sheet it was submitted that the addition was made for properties reflected in serial No. 1,2,6,9,14,16,17 and 22 on account of the difference in cost in the respective years. The Assessing Officer it was submitted further for the lands which were sold during the year under consideration calculated the alleged profit which was earned by the assessee company outside the books of accounts by subtracting the "total profit" and the profit shown by the assessee in its books of accounts. Referring to the Assessment Order it was submitted that the Assessing Officer has made addition for the properties mentioned at serial No. 2,13,14,16,19 on account of alleged profit in the respective years. Referring to the said document which has been extracted in the Assessment Order and referring to the same it was ITA No.614/Chd/2012 Assessment Year: 2007-08 10 submitted that the Assessing Officer has not made any addition on account of properties at serial No. 7,8,10,11 and 21 and has thereby accepted the fact that the said properties do not relate to the assessee. In the said background it was his submission that the additions have been objected to in the course of the assessment proceedings as well as even before the CIT-A that the paper contains notings of different / independent companies and not only of the assessee. Thus the said entries in the seized paper it was argued are only known to Sh. Krishan Goel that is the person from whom the said document was found Secondly even otherwise these appears to be mere estimates of the said Director and cannot be made the basis for making the addition in the hands of the assessee. Without addressing these arguments the addition has been maintained.
8.2. Inviting attention to the copy of the statements of Sh. Krishan Kumar Goel available at paper book pages 114 to 129 of the paper book volume II it was submitted that no specific question relating to this alleged seized document was asked from the said person. The notings it was submitted at best could be some rough estimates as notings of Sh. Krishan Kumar Goel. Accordingly it was his submission that no addition could be made in the hands of the assessee and this fact it was submitted is evident from the fact that had it been relatable to the assessee then there would have been no need for column No. 7 which is "amount of share of profit for funds used" Accordingly it was his submission that the assessee is objecting to the addition made on the basis of document which has been recovered from a third party. Reliance was placed upon the following decisions so as to argue that no addition could be made in the hands of the assessee in the fact of the said case also:
a) ACIT Vs. Ms. Katrina Rosemary Turcotte in ITA No. 3092/Mum/2015 and others vide order dt. 11/09/2017.
b) DCIT Vs. Shri Harvinder Pal Singla in ITA No. 456, 457 and 458/Chd/2014 and 462/Chd/2014 order dt. 05/01/2016.
8.3. As an alternate argument without giving up the arguments advanced it was submitted that even if for moment it is considered that this data is relating to the assessee company even then it is at best some kind of an estimate and is not based on any actual event as the same refers to properties which have been sold. Thus mentioning of figures becomes questionable because had it been the case then at least for the actual sales the amounts for which the properties were sold would have been correctly mentioned. It was submitted ITA No.614/Chd/2012 Assessment Year: 2007-08 11 that when a particular document relates to estimated cost and arrives at estimated sales were even though the estimated cost, visualized at the start of the project is not invested that the amount initially invested may at times match but if further investments visualized are not done then even that amount may not match as ultimately the assessee may chose not to expand the said project to the extent considered feasible or possible at the beginning and thus where the initial amount itself is not spent the occasion to arrive at an estimated profit visualized does not arise. The Assessing Officer it was submitted has made the addition on account of alleged unaccounted profit only in those cases where the Project has been actually sold before the date of the search, thus by virtue of this fact alone it is evident that the Assessing Officer agrees with the fact that the data contains some estimates of projects which have not been sold till the date of the search. As an illustration attention was invited to project reflected in serial No. 1, serial No. 4, serial No. 20 and serial No. 22 also on the computerized list which were stated to be not added. Thus it was his submission that the assessee enters the actual cost incurred in its books of accounts and similarly resultant profit/loss is even duly booked in the books of accounts as and when the particular project was sold by the assessee. This fact it was submitted itself is proved by the fact that the Department has not chosen to reject the books of accounts of the assessee under section 145(3) or otherwise drawn any adverse inference qua the books of accounts.
8.4. Referring to the record it was submitted that the Assessing Officer accepts the fact that the projects/ properties in serial No. 1 to 22 are not wholly owned by the assessee as this fact is evident from the fact that the Assessing Officer during the original assessment proceedings has not made any addition on account of properties at serial No. 7,8,10,11 and 21 on the basis of the fact that the said properties are not relating to the assessee and then this fact itself demonstrates that it was at best a mere estimate. Addressing the specific property mentioned in serial No. 12 it was submitted that the land at Kharar, tikka (11 acres out of which 51% share is held by the assessee) the total cost given thereof is 5.61 and funds used are 3.27 the sale at 13.77 is an estimate similarly the remaining figures mentioned for the project were estimates for the duration of funds used is shown as 14/11/2005 to 31/03/2006 explainable by Shri. Goel. The sale figures it was submitted was an estimate, a projection and not base on actuals. The Assessing Officer has picked up this figure and proceeded ITA No.614/Chd/2012 Assessment Year: 2007-08 12 to hold it as an actual event without any evidence on record except the projected estimates / some calculation of Shri. Goel. The Assessing Officer has proceeded to make an addition of Rs. 81.50 lacs. Referring to the remarks addressed it was submitted that in the column qua this property only the facts qua column number 1,2 and 3 are tallying and the rest of the figures do not tally with any figure on account of the fact that this was a mere estimate and that too has been estimated by Sri Krishna Goel and thus could have been answered by him alone.
9. The Ld. CIT DR inviting attention to the Assessment Order and the impugned order submitted that the document to the extent it pertains to the assessee has been considered by the Assessing Officer and the CIT(A). To the extent additions were warranted they have been done. The consistent findings are that these were not estimates and infact actual transactions recorded before the date of the search. The date on which the search took place is a fact. Considering this fact wherever addition was not to be made the AO has himself fairly accepted the explanation of the assessee. The finding of the Assessing Officer has been upheld by the CIT(A) also. Thus it was his submission that the Ld. AR by reiterating the very same facts and arguments on behalf of the assessee does not change the position that qua the specific property which is a subject matter of addition in the present proceedings the addition on facts is justified. It was his submission that the document has been made sometime in 2008. Figures for sales which completed prior to 2008 cannot be considered to be estimates as events have already transpired. Accordingly it was his submission that the addition on facts may be sustained.
10. The parties were provided opportunity/directed to address the specific document and sum up finally their respective stands and if need be to file their respective comments thereon after mutually exchanging the same. The ld. AR has filed his submission dt. 27/11/2017 wherein the arguments advanced have been summed up. Further arguments over and above addressing the headings and the assessee's interpretation thereon is elaborated from the following paras
(i) and (vi) these are extracted hereunder:
i)). In column 3, of the seized document it has been mentioned as 'total cost' and the interpretation given by the Ld. CIT ( DR) is that this "includes what is paid officially and what is paid in cash", is only the presumption of the department without any corroborative or cogent material on record and nothing as such, has been mentioned in the seized document. There is no statement of the person namely, Sh. Krishan Goyal, from whom such document was seized and from this, ITA No.614/Chd/2012 Assessment Year: 2007-08 13 how, it could be taken that the payment has been made in cash, which is not borne out from the seized document at all. Further, no enquiries u/s 133(6) or otherwise were made from the purchasers or sellers of the property to the assessee in question and neither any material brought on record to substantiate such finding, either from the computer of the assessee or from any other documents, seized during search and nothing has been mentioned in the assessment order as well. Thus, the whole basis of interpretation is on presumptions only and which cannot be used for making additions.
vi). The Ld. CIT (DR) has mentioned in the last page, that this paper was prepared somewhere in the first week of January 2008, which is also the presumption of the Assessing Officer. In this regard, it is submitted for the sake of argument, that even if it is taken as correct, still there are properties, which have not been sold till January 2008 as is evident from Property at Serial No. 1. Serial No. 6, Serial No. 17 and at Serial No. 20 and further, no statement of Sh. Krishan Goyal was recorded at any stage of proceedings and, thus, it is based, on presumptions only.
10.1 We note that in response to the submissions of the Ld. AR the CIT DR has also filed a small note wherein qua this specific property the following note has been given.
" 2. The AR has claimed that the workings on the sheet are in the nature of market estimations and in this connection has sought to demonstrate in the working in Columns 6 & 7 of the table are mathematically determined as explained by him in column as demonstrated in Column 10 & 11 A alternate working of the same which relies on the workings given by the Learned AO in para 6 of the Assessment Order is submitted along with this forwarding letter. The same has been shared with the Hon'ble AR in 27th November 2017."
10.2 In the remarks appended with the above explanation is as under:
11. We have heard the rival submissions and perused the material available on record the relevant facts relatable to the said issue are found discussed at pages 6 to 28 of the assessment order. A perusal of the same shows that during the course of the search at the residence (Premises A-3) of one of the Directors of the assessee company Sh. Krishan Goyal a computerized sheet of paper was seized which has been described in the assessment order as page No. 62 of Annexure A-4 which also contains the details of the projects of the assessee ITA No.614/Chd/2012 Assessment Year: 2007-08 14 company. The assessing officer accordingly required the assessee to explain the same. The relevant extract is reproduced from the assessment order for ready reference:
ITA No.614/Chd/2012Assessment Year: 2007-08 15 11.1 Although for the purposes of the present proceedings the above extract from the show cause notice issued to the assessee is sufficient. However for the sake of completeness the entire show cause notice is reproduced hereunder:
Vide reply dated 27/10/2010 and 22/11/2010, you have stated that the entries appearing in this sheet of paper is estimation made by Directors before search in the normal course of business. It was made to know total estimated cost, estimated sale & estimated profits of the projects relating to M/s Motia Construction Ltd. as welf-as other projects relating to one of the Director having interest in other concerns in addition to M/s Motia Construction Ltd. as mentioned at page No. 62 at serial no. 7,8,10,11 & 21.
On perusal of the details filed by you wrt each and every entry In the rows it has finally fathomed out that column no. 4 of the said sheet that is Funds used tallies with the regular books of M/s Motia Constructions Ltd. in toto. Also some entries of column no.3 i.e Total Cost as appearing in row no.3,4,5,12,13,15,16,19,20 & 21 tally with the regular books of assessee Company. The figures mentioned on the sheet as stated by you are in crores.
Column no. 8 of the said page i.e Duration of Funds used depicts the period as per the regular books. The last date mention on the sheet is 31/12/2007, the explanation for which as provided by you is that the said page was prepared somewhere in first week of January 2008 by all the Directors of the company. In light of the replies offered by you and facts discussed therein it is evident that page 62 reflects the actual data thus granting sanctity and offering veracity to the said document. Further analysis of the page brings out the following facts: • Ratio of Col 4: Col. 3 i.e Funds used: Total Cost is exactly same with ratio of Col. 7: Col. 6 i.e. Amount of share of profit for funds used: Total Profit. • Col.5(-) Col. 3 = Col. 6 i.e. Sale(-) Total Cost= Total Profit • The projects which have been sold off before 31/12/2007, in those cases the duration of funds used exactly tallies.
• The narration 40's 55% appearing in row 10 is 22 which tallies with the figure mentioned in the column of Total Cost.
• Similarly, the narration 11 acre's 51% share appearing in row 12(Land at Kharar Tikka). Total Cost is 5.61 out of which the company's share is 51% which comes to 3.27 in the funds used column.
The above analysis proves that the document page no. 62 of Annexure A-4 has been prepared very logically and scientifically. Thus in light of the above discussion and analysis and as per the various replies filed, you are required to explain as to why the difference in column 3 & col. 4 that is Total Cost(-) Funds used in respect of the Projects of the Company appearing at row no. 1,2,3,4,5,6,9,12 to 20 & 22 may not be considered as undisclosed investment of the Company in its Projects. The row wise differences are detailed as under:
S.No. Name of Company Total Cost Funds Used Fo/a/ Cos* (-) Funds Used
1. Adv. Agst. Land & Land at Bhankarpur 7.85 6.90 0.95
2. Motia Highway Kharar 1.02 0,51 0.51
3. Motia Homes at Zirakpur(30 Flats) 2.10 2.10 Nil
4. Mahesh Nagar Project Barnala, 3.60 3.60 Nil Samana Colony
5. Motia Royale Estate Nabha 1.38 1.38 Nil
6. Land at Derabassi (Mehendru 2.10 7.11 0.99 Land)
7.
8.
9. Land af Phabat (1. 75 acres] 1.05 0.90 0.15
10.
11. '
12. Land at Kharar Tikka(11 acres 51% 5.61 3.27 Nil as 51% of ITA No.614/Chd/2012 Assessment Year: 2007-08 16 Share) 5.61 is 3.27
13. Land at Gholumajra 0.78 0.78 Nil
14. Land at Kharar (13 kanal 4 Marias) 0.80 0.52 0.28
15. Green Vally flats Dhakoli 0.08 0.08 Nil
16. Comm. Plot SCO-393, Sec-8, Pkl 0,84 0.34 0.50
17. Motia Diamond at Kharar (Quila 1.28 0.60 0.68 Complex)
18. Adv. Against land at 0.15 0.15 Nil Singhpura(Sinha)
19. Land at Madopur 0.80 0.80 Nil
20. Land at Derabassi(Samgoli Land) 1.51 1.51 Nil
21.
22. Adv. Against Land at Kharar 7.65 2.94 4.71 (Sigma City Land 15's 51% share) Total Difference 8.77 • From the above table it is evident thai the unexplained investment of the company in its different project is Rs. 8.77 crores.
• • Why should the explanation offered by you that the Total Cost figure is a mere estimate may not be rejected in light of the fact that this document was prepared in first week of January 2003 by when the Total Cost incurred by the Company was already ascertained in fact incurred and hence there was no need for any estimation to be made for an event that had already occurred. • • Also wrt various sales of few projects that had already been incurred before 31/12/2007 narrated at row no. 2, 6, 12, 13, 14 and 19, it is not possible that the figures mentioned in the sale column and Total Profit Column be estimated ones. Accordingly a show cause is also provided as to why the difference on account of profit with regard to these rows as depicted in page 62 and as per the regular books may not be treated as undisclosed in the year relevant to such sales that is AY 2008-09 for row n o. 2 &6 and AY 2006-07 for row no. 12,13,14 & 19 and row no. 22 for AY 2007-08.
• The above information is being called for in addition to the order sheet noting dated 22.11.2010 at point No.2 11.2. On a perusal of the order it is seen that the assessing officer has taken note of the fact that the last date mentioned on the said sheet was 31/12/2007 thereby concluded that it was prepared sometime in the first week of January 2008. It is seen from the record that the assessee has consistently argued that the said document was a mere estimate and thus it cannot be made the basis of the addition in the present proceedings; it has also been argued that the document admittedly found from the residence of the Director Mr Krishan Goel could be best explained by him; it has also been argued that no specific questions have been put to the said person and thus being a document recovered from a third person it cannot be made a subject matter of addition in the hands of the case. In the course of the hearings our attention has been invited to specific unnumbered question appearing at paper book page 119(the specific statement of Sh. Krishna Goel as recorded in the course of the search proceedings available at page 114 - 119.
ITA No.614/Chd/2012Assessment Year: 2007-08 17 Question: during the course of search operation certain loose papers containing certain cash and other entries have been found and shown to you please explain the nature of these entries Answer: these entries are explainable and these will be explained later on. At present without lack of books of account I am unable to explain these entries.
11.3 The said statement it is seen was recorded on 25/02/2009. 11.4 it is evident from the reply of the assessee which has been extracted at page 9 and 10 in the very same show cause notice issued by the Assessing Officer in the earlier part of the order where the assessee's explanation qua the specific project is extracted in the show cause notice itself which shows that the assessee argued right at the outset that it was an estimate.
Vide reply dated 27/10/2010 and 22/11/2010, you have stated that the entries appearing in this sheet of paper is estimation made by Directors before search in the normal course of business. It was made to know total estimated cost, estimated sale & estimated profits of the projects relating to M/s Motia Construction Ltd. as welf-as other projects relating to one of the Director having interest in other concerns in addition to M/s Motia Construction Ltd. as mentioned at page No. 62 at serial no. 7,8,10,11 & 21.
11.5. Thus notwithstanding the arguments on behalf of the assessee that this was a mere estimate as such had no evidentiary value for saddling the assessee with addition the fact remains that qua the specific property the addition has been made in the present assessment year. For ready reference the relevant extract in regard to the specific explanation qua the same in the year under consideration available at page 20 and 21 of the assessment order is also extracted from the assessment order hereunder:
As regards land at Kharar (Tikka) as appearing at Sr. no. 12, we have to submit that company has purchased land measuring 17 Kanal 14.5 Maria for a sum of Rs. 3,10,76,000.00 on dated 14.11.2005 including registration expenses vide Basika No. 4496 from Sh, Hareet Singh. In addition to it, company spent.a sum of Rs. 15,70,500.00 towards development of the same & hence total investment made by the company in the said land was Rs. 3,26,46,500.00. In this regard, we have to state further that total cost of land was Rs. 5.61 Crore, out of which company's share was 51% i.e. 2.86 Crore & company has shown the said purchase along with registration & other expenses in the above said amount of Rs. 3,10,76,000.00. However, the said land was sold by the company on dated 24.04.2006 for a sum of Rs. 5,00,00,000.00 & earned profit of Rs.1,73,53,500.00 which has, been disclosed in the books of accounts & financial statements of the company in the year ending 31.03.2007. The copy of account of purchase & sale relating to this land along with photocopy of purchase & sale. deed, have already been submitted in our previous reply. Purchase & sale transactions are also verifiable from the revenue authorities where registration of such transactions takes place. Further, it was estimated that more land in addition to. land as mentioned above, shall be purchased & said proposed purchased land was estimated to be sold for the differential estimated sale amount (approx.) which in actual could not materialized as no further land was purchased by the company as proposed. Further no document regarding purchase & sale of proposed land was found during the course of search & also no evidence has been found out to show that ITA No.614/Chd/2012 Assessment Year: 2007-08 18 any extra money has been received by, the assessee company in excess of the consideration as mentioned, in the registration sale, deed. Hence, amount mentioned against sale, total profit/market consideration & amount of share of profit for fund used are only estimates whereas actual sale & profit has been shown in the books of accounts & financial statements as & when such transaction took place. Also during the course of search, no document has been found out regarding the actual sale of Rs. 13.77 Crore by the assessee company. In the absence of same, it cannot be presumed on conjectures & surmises that company has made sale of Rs. 13.77 Crore whereas the company has produced copy of registration deeds & no evidence has been found out for any extra amount received over and above the amount as mentioned in the Registration Deeds and books of accounts. Also no adverse evidences have been found out during the course of search for the same. Under the circumstances, we pray that no addition on this account be made.
11.6. It is pertinent to note that the CIT-A also considering the facts and the evidences qua the specific property considers the issue in the following manner
(iii) With regard to Sr. No-12 of pg-62 relating to land at Kharar (Tikka), as per the books of the assessee the land measuring 17 kanal, 14.5 marla was purchased for a sum of Rs. 311 lacs on 14-11-2005 + incurred development expense of 16 lacs thus bringing the total cost to the company of around 327 lacs (which tallies with the fund used column on pg 62) and sold during the F.Y. 2006-07 for Rs. 500 lacs as per the books.
11.7 Thus in the aforesaid factual background consideration the submissions advanced by the parties in the course of the hearing and the submissions available in the written synopsis placed on record we note that multiple arguments have been advanced and objections have been raised by the assessee in regard to the said specific document. Since these have already been elaborated in detail in the earlier part of this order repetition thereof is refrained from. We would only add at this juncture that as per the written submissions dt. 27/11/2017 which are filed by the Ld. AR considering which the Ld. CIT DR had also filed his written submissions dt. 29/11/2017 we note that the assessee has sought to explain the columns by stating that the interpretation given to "total cost" that it includes what was paid actually over and above what was paid in cash is a presumption without any corroborative evidence as neither there is any such statement of Sh. Krishan Kumar Goel from whom the said document was recovered nor have any enquiries been made independently under section 133(6) or otherwise by the AO from the purchasers or sellers and neither any material is brought on record to support the presumption that the recording in the books of account is incorrect and the computerized sheet is the only reliable evidence. Thus all these arguments have been considered and have been noted at length however for the purposes of addressing the issue in the present proceedings we note that Sl. No. 12 in the ITA No.614/Chd/2012 Assessment Year: 2007-08 19 computerized sheet it shows that the said document shows that some calculations have been made in regard to various projects wherein presumably Mr. Krishan Goel definitely had a share apart from the various other parties whose names are mentioned. The said observation is not a finding of fact it is just an observation made which is not in dispute in the present proceedings accordingly the correctness of the same is not a finding in the present order however we note that in the document some calculations are given therein whether these calculations are correct or not for each of the projects is also not a subject matter of consideration in the present proceedings what is required to be considered is whether the addition in the facts of the present case qua the project mentioned at Serial No. 12 on facts is correct or not. In order to address the same it is seen that qua the facts mentioned as set out in column No. 1 it is seen that it contains a description of the land i.e; its location and area and share of the assessee therein. The last column has the heading "duration of funds used" which is shown as from 14/11/2005 to 31/03/2006. The undisputed facts on record are that the specific property was sold on 24/04/2006. The amount for which it is stated to be sold as per assessee's submission are explained at page 20 and 21 of the assessment order extracted in para 11.5 of the order. The supporting documentary evidence in support thereof is available on record. The insistence of the tax authorities that the addition is maintainable in view of the computerized sheet which mentions under the column "sale" an amount of Rs. 13.77 in the circumstances which we propose to elaborate hereinafter does not inspire any confidence. We note that even if we consider that the last date mentioned in the said document is 31/12/2007 then why qua the said project in the "duration of funds used" column the period 14/11/2005 to 31/03/2006 be mentioned. The fact that sale took place on 24/04/2006 is an undisputed fact evidently the narrations made therein qua this Project definitely have not been updated. This is borne out from the said document itself thus if the document has been made on 31/12/2007 then why the position in regard to a specific sale on 24/4/2006 should not be factored in. In the said background the explanation given by the assessee at the first instance before the assessing officer that these were mere estimates / projection as there were some contemplation of expanding either by purchasing or amalgamating or joining whatever may be the modes available but addition in the said project was being contemplated wherein estimated profit was visualized which may have ITA No.614/Chd/2012 Assessment Year: 2007-08 20 been entered by Sh. Krishan Goel. The fact that ultimately the project was not expanded and was sold at a specific price on 24/4/2006 thus it eminently shows that the said computerised document qua this specific project definitely was in the realm of estimation as the date of user of funds seals the time line on 31/03/2006 the other arguments available at synopsis para 6 and the reliance placed upon the decision of the Punjab and Haryana High Court in the case of Piccadilly Hotels (P.) Ltd. further supports the decision taken.
12. Accordingly on account of the details reasons given hereinabove the addition are deleted.
13. In the result appeal of the assessee is allowed.
Order pronounced in the open court.
Sd/- Sd/- (B.R.R. KUMAR) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 07/02/2018 AG
Copy to: The Appellant, The Respondent, The CIT, The CIT(A), The DR