Income Tax Appellate Tribunal - Ahmedabad
Abhi Developers vs Ito on 12 June, 2006
ORDER
I.P. Bansal, J.M.
1. This is an appeal filed by the assessee and it is directed against the order of Commissioner (Appeals) dated 10-11-2000, for assessment year 1997-98.
2. Ground of appeal reads as under:
1. Addition of Rs. 6,07,830 for'on money'.
The proceedings under Section 133A of the Act were carried out at the business premises of the appellant firm on 25-2-1997. The appellant firm 'is engaged in the construction and sale of premises at Bhumi Building. The unit premises include both office premises and residential flats. During the course of survey one diary belonging to the firm was found. As per the entries recorded in the diary the appellant firm had received Rs. 30 per sq.ft. for residential flat and Rs. 65 per sq.ft. for office premises as 'on money' i.e., the excess sales consideration in addition to the consideration shown and agreed to have been received as per booking agreements."
3. Defect memo was issued to assessee as the appeal fees paid was short by Rs. 4,450. The same has been made good by making payment vide receipt dated 6-6-2006 placed on record.
4. Notice of hearing was sent to assessee which has duly been served vide acknowledgement placed on record. None was present on the fixed date of hearing. However, vide letter dated 8-6-2006 written submissions have been furnished which are taken on record and the appeal of the assessee was decided on the basis of written submissions and after hearing learned Departmental Representative.
5. The assessee is a partnership firm and carrying on the business of civil construction. The firm constructed flats and shops which have been sold to various parties. A survey under Section 133A was conducted at the premises of assessee on 25-2-1997. During the course of survey proceedings two diaries were found one of which pertained to the assessee. In this diary receipt of 'on money' was recorded. On the basis of calculation it was found that assessee had received total 'on money' of Rs. 6,07,830 (Rs. 4,60,800 in respect of sale of flats and Rs. 1,47,030 in respect of sale of shops).
6. During the survey proceedings statement of Shri Dipakkumar K. Patel, one of the partners of the firm, was recorded and he agreed to pay tax on the "on money" of Rs. 6,07,830 during the accounting year. As per submissions of assessee before Commissioner (Appeals) the return was filed as per provisions of Section 44AD of the Act. The assessee had shown net profit of Rs. 3,28,827 (profit before interest and salary paid to partners) and after providing interest and salary to the partners of Rs. 2,39,747 (interest paid to partners of Rs. 92,860 plus salary paid to partners Rs. 1,46,887. Thus net return was filed at Rs. 89,080.
7. The assessing officer issued show-cause notice to the assessee as to why the said sum of Rs. 6,07,830 should not be added separately be in disclosed income. The assessing officer vide letter dated 15-2-2000 asked assessee to submit explanation as to why its income should not be computed at Rs. 5,94,547 as per computation below:
1.
Sales receipts Rs.
28,30,800 Rs.
2,26,464 X 8% Less :
(A) Interest to partners Rs.
92,860 (B) Salary to partners Rs.
1,46,887 Rs.
2,39,747 Rs.
() 13,283
2. Disclosed income Rs.
6,07,830 Total Income Rs.
5,94,547 In response to said letter it was submitted that net profit has been shown by assessee at 9.56% of the total sale consideration i.e., Rs. 34,38,630. It was pleaded that entire "on money" should not be subjected to tax. The only profit rate should be applied. Following calculation was submitted to show that assessable profit of the assessee as per provisions of Section 44AD will be Rs. 35,343 and assessee has submitted return for Rs. 89,081 which is higher than the deemed income assessable under the provisions of Section 44AD. The assessing officer did not accept such submissions and computed the assessable income of assessee at Rs. 5,94,547. Aggrieved assessee filed an appeal before Commissioner (Appeals) who has upheld the assessment. The assessee is aggrieved hence in appeal.
8. In the written submission it has been mentioned that the assessee had filed the return of income under Section 44AD of the Act which requires to show the minimum net profit of 8%. It is pleaded that in view of the ITAT decision in the case of Kishor Mohanlal Telwala v. Asstt. CIT (1999) 64 TTJ Ahd.) 543 the entire "on money" received is not assessable but only 8% of such "on money" receipt is to be taxed. In respect of statement of partner it is pleaded that affirmation made during the survey is not literally binding - first on account of non-applicability of the oath and Evidence Act to the Income-tax Statute and secondly according to Section 94 of Evidence Act the affirmation before any court is rebutable by proving that admission or confession is irrelevant in view of the facts on record. Reference has been made to the decision of Hon. Supreme Court in the case of Shri Kishan v. Kurukshetra University AIR 1976 SC 376 that admission made in ignorance of legal rights or without the knowledge of the correct facts does not bind the maker of admission and it is pleaded that similar view was expressed by ITAT in the decision in the case of ITO v. Ratan Devi Dugar (1987) 20 ITD 483 (JP) and also by Himachal Pradesh High Court in the case of Satindar Kumar (HUF) v. CIT . Finally it is pleaded that as per valuation report the returned profits should be accepted.
9. On the other hand, learned Departmental Representative relied on the orders of assessing officer and the Commissioner (Appeals).
10. We have carefully considered the rival submissions in the light of material placed before us. Right from the stage 'of assessment the assessee has been relying on Section 44AD of the Act, the contents of which are as under:
44AD. (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an assessee engaged in the business of civil construction or supply of labour for civil construction, a sum equal to eight per cent of the gross receipts paid or payable to the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum as declared by the assessee in his return of income, shall be deemed to be the profits and gains of such business chargeable to tax under the head 'Profits and gains of business or profession':
Provided that nothing contained in this sub-section shall apply in case the aforesaid gross receipts paid or payable exceed an amount of forty lakh rupees.
(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of Sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed:
Provided that where the assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under Sub-section (1) subject to the conditions and limits specified in clause (b) of Section 40.) (3) The written down value of any asset used for the purpose of the business referred to in Sub-section (1) shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.
(4) The provisions of sections 44AA and 44AB shall not apply insofar as they relate to the business referred to in Sub-section (1) and in computing the monetary limits under those sections, the gross receipts or, as the case may be, the income from the said business shall be excluded.
(5) Nothing contained in the foregoing provisions of this section shall apply, where the assessee claims and produces evidence to prove that the profits and gains from the aforesaid business during the previous year relevant to the assessment year commencing on the 1-4-1997 or any earlier assessment year, are lower than the profits and gains specified in Sub-section (1), and thereupon the assessing officer shall proceed to make an assessment of the total income or loss of the assessee and determine the sum payable by the assessee on the basis of assessment made under Sub-section (3) of Section 143.) (6) Notwithstanding anything contained in the foregoing provisions of this section, an assessee may claim lower profits and gains than the profits and gains specified in Sub-section (1), if he keeps and maintains such books of account and other documents as required under Sub-section (2) of Section 44AA and gets his accounts audited and furnishes a report of such audit as required under Section 44AB) ExplanationFor the purposes of this section, the expression 'civil construction'includes
(a) the construction or repair of any building, bridge, dam or other structure or of any canal or road;
(b) the execution of any works contract.)" (Emphasis here italicize in print supplied) The receipt of the assessee including that of "on money" does not exceed Rs. 40 lakhs. Thus the assessee is not under a legal obligation to maintain books of account. The books of account, if any maintained, were not produced relying on the provisions of Section 44AD and the net income shown is more than 8% the minimum which can be assessed as deemed income of assessee under Section 44AD of the Act. Under Section 44AD the assessing officer cannot assess income of an assessee more than 8% unless assessee himself show more than 8%. The assessing officer does not have power to assess anything in excess of returned income if the returned income is more than 896 while computing the income of assessee under Section 44AD of the Act. A perusal of assessment order will reveal that addition of Rs.,6,07,830 has been made only on the basis of the fact that partner of assessee firm in the statement recorded at the time of survey had admitted to show the said "on money" as income. learned Commissioner (Appeals) has also upheld the addition on this score only. Otherwise there is no dispute regarding the applicability of Section 44AD of the Act on the facts of the case of assessee.
11. Now the only question which survives for our consideration is that whether only on the basis of statement made by the partner during the course of survey such addition could be sustained? As per well-settled law there is a basic difference between the statement recorded under Section 133A of the Act as compared to statement recorded under Section 132(4) of the Act. Such difference has been brought out by Hon. Kerala High Court in the case of Paul Mathews & Sons v. CIT . It will be relevant to reproduce the following observations of their Lordships from the said decision:
Section 133A(3)(iii) enables the authority to record the statement of any person which may be useful for, or relevant to, any proceeding under the Act. Section 133A, however, enables the income-tax authority only to record any statement of any person which may be useful, but does not authorize taking any sworn statement. On the other hand, we find that such a power to examine a person on oath is specifically conferred on the authorised officer only under Section 132(4) of the Income Tax Act in the course of any search or seizure. Thus, the Income Tax Act, whenever, it thought fit and necessary to confer such power to examine a person on oath, the same has been expressly provided whereas Section 133A does not empower any Income Tax Officer to examine any person on oath. Thus, in contradistinction to the power under Section 133A, Section 132(4) of the Income Tax Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income Tax Act. On the other hand, whatever statement is recorded under Section 133A of the Income Tax Act it is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to the any sworn statement which alone has evidentiary value as contemplated under law. Therefore, there is much force in the argument of learned Counsel for the appellant that the statement elicited during the survey operation has no evidentiary value and the Income Tax Officer was well aware of this."
In the present case the statement has been recorded under Section 133A of the Act. It is not the case of revenue that the total receipts of the assessee exceeded Rs. 40 lakhs so as to say that the income of assessee is not assessable under Section 44AD of the Act. There is no material on record to show that all the expenditure incurred in respect of civil work were duly claimed by the assessee and the receipt of "on money" was the net income of the assessee particularly when assessee has not maintained the books of account, or they have not been produced or relied upon by the assessee. There is no material with the department to arrive at a conclusion that for receiving "on money" assessee did not incur any expenditure. As pointed out earlier, that the only base for the revenue to assess the "on money" in its entirety, is the statement of partner recorded during the course of search. As per aforementioned decision of Kerala High Court no evidentiary value can be attached to such statement unless it is supported by some material. In this view of the situation, it can be held that there is no material with the department to make addition of "on money" in its entirety and what is assessable under Section 44AD is 8% of the gross receipt or more profits shown by assessee in its return of income. In the present case assessee has shown income of more than 8% therefore, no addition can be made by assessing officer while working under Section 44AD of the Act.
12. In view of the above discussion, it is held that no addition could be made to the income of assessee and, therefore, addition made is deleted.
13. In the result, appeal filed by the assessee is allowed.