Income Tax Appellate Tribunal - Ahmedabad
Gargi Construction Co.,, Ahmedabad vs Department Of Income Tax on 21 February, 2006
IN THE INCOME TAX APPELLATE TRIBUNAL
'A' BENCH - AHMEDABAD
(BEFORE S/SHRI BHAVNESH SAINI, JM AND A. N. PAHUJA, AM)
ITA No.1122/Ahd/2006
A. Y.: 2002-03
The Income Tax Officer, Vs M/s. Gargi Construction Co.,
Ward 9(2), 3, Sahyadri Apartment,
Vasupujya Chambers, Sardar Patel Stadium Road,
nd
'A' Wing, 2 Floor, Navrangpura,
Ashram Road, Ahmedabad Ahmedabad
PA No. AABFG 7909 B
(Appellant) (Respondent)
ITA No.1168/Ahd/2006
A.Y.: 2002-03
M/s. Gargi Construction Co., Vs The Income Tax Officer,
3, Sahyadri Apartment, Ward 9(2),
Sardar Patel Stadium Road, Vasupujya Chambers,
Navrangpura, 'A' Wing, 2nd Floor,
Ahmedabad Ashram Road,
Ahmedabad
PA No. AABFG 7909 B
(Appellant) (Respondent)
Department by Shri R. K. Dhanistha, DR
Assessee by Shri S. N. Divatia, AR
ORDER
PER BENCH: Both the cross appeals are directed against the order of the learned CIT(A)-XV, Ahmedabad dated 21-02-2006 for assessment year 2002-03.
2. The revenue has raised the following grounds of appeal:
ITA Nos. 1122 and 1168/Ahd/200 2Gargi Construction Co.
"1. The ld. CIT(A) has erred in law and on facts in reducing the addition on account of undisclosed and unaccounted income of Rs.46,55,000/- as against the addition of Rs.1,33,00,000/- made by the A.O.
2. On the facts and in the circumstances of the case, the ld. ICT(A) ought to have upheld the order of the Assessing Officer."
3. The assessee has raised the following grounds of appeal:
"1. The learned CIT(A)-XV, Ahmedabad erred in law and on facts in restricting the income of the appellant being services charges at 35% of the unaccounted receipts in the hands of the appellant as developer which is reduced to be 35% of Rs.1,33,00,000/- that is equal to Rs.46,45,000/-, as against pray of the appellant to reduce it proportionately as only developer.
2. The learned CIT(A)-XV, Ahmedabad erred in law and on facts in considering the unaccounted money at Rs.1,33,00,000/- as estimated by the assessing officer, without taking into consideration the errors committed by the learned assessing officer in estimating unaccounted receipts in absence of any cogent evidences and also by non offering of opportunity to the appellant of cross examination by the party concerned.
3. The learned CIT(A-XV, Ahmedabad has come to a conclusion that the unaccounted receipts as estimated by the learned assessing officer is correctly estimated though the estimate was done without considering the plea of the appellant made with correct and proper explanation. Thus, the appellant prays that proper relief may be given thereby reducing the income of the appellant as per law.ITA Nos. 1122 and 1168/Ahd/200 3
Gargi Construction Co.
4. The learned CIT(A)-XV further erred in law and on facts in adopting the charging of interest U/s. 234B as wrongly calculated by the learned assessing officer. The same may be reduced to nil to secure law and justice."
3. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the materials available on record.
4. The facts of the case are that during the year in appeal the assessee has carried out construction work of Sauramya Bungalows, Vallabh Vidyanagar, Anand as per development agreement with Gargi Association. The assessee is a partnership firm doing construction work. At the time of registration of Gargi Association, the NTC, the initial members were relatives of partner Shri Rohitkumar J. Patel. For some period Shri Rohit J. Patel remained Chairman and Managing Director of Gargi Association and for some period Smt. Jayshreeben R. Patel, wife of Shri Rohitkumar J. Patel remained as Chairman. The AO observed from the terms and conditions of development agreement as narrated by him at pages 2 to 5 of the assessment order that the NTC Gargi Association is only for the name sake. Further, the AO referred to certain documents impounded by the ITO Ward Anand during the course of survey proceedings u/s 133A of the IT Act on 31-01-2002 in respect of M/s. Gargi Construction Co., developer of the scheme of Sauramya Bungalows at Anand. Shri Rohirkumar J. Patel, partner of the firm was confronted with the impounded materials by recording statement u/s 131 of the IT Act on 23-02-2005. From verification of the ITA Nos. 1122 and 1168/Ahd/200 4 Gargi Construction Co.
impounded materials and the details furnished by the appellant, the AO observed that the assessee has accounted for receipt in respect of bungalows to the extent of 60% only and there are entries of cash receipts in respect of three bungalows i. e. bungalow No.6B (pages 1, 2 and 19 of Annexure A-2), Bungalow No.3A (page 76 reverse side of Annexure A-4) and Bungalow No.5A (page 77 of Annexure A-4) in the impounded diary. These cash receipts were not accounted for by the assessee. The AO also observed that the ratio of receipts in cash and cheques comes to 40: 60 which proved that the assessee has received 40% in cash as on money which has not been accounted for. The amount of accounted receipts was of Rs.1,99,90,000/- which was 60% and 40% of the same comes to Rs.1,33,00,000/- and therefore, the said amount of Rs.1,33,00,000/- was unaccounted and undisclosed income of the assessee. Accordingly, the AO issued show cause notice to the assessee proposing to add Rs.1,33,00,000/- in response to which the assessee filed a reply vide letter dated 21-03-2005 which has been reproduced by the AO at pages 6 to 13 of the assessment order. The AO considered the reply of the assessee and observed the following facts:
"(i) Page Nos. 1, 2, 19 of Annexure A-1 contained the details of Bungalow NO.6 B allotted to Saryubala Prafulbhai Patel. The sale price of this bungalow was Rs.26,72,000/-
whereas the appellant has accounted for Rs.12,00,000/- only. Thus, difference of Rs.14,17,000/- was unaccounted receipt for the said bungalow. The Assessing Officer referred to page 19 of Annexure A-1 and observed that the amount of Rs.10,00,000/- was received by cheque on 24.1.96 and Rs. 2 lacs was received on 10.2.2000. Therefore, the balance amount of Rs.14,72,000/- was received in cash.
ITA Nos. 1122 and 1168/Ahd/200 5Gargi Construction Co.
(ii) In respect of Bungalow No.6A allotted to Harisbhai Patel, the Assessing Officer observed that as per page 28 (reverse) of Annexure A-3, the sale price noted was Rs.19 lacs whereas the appellant has accounted for Rs.14,20,000/- only. Thus, Rs.4,80,000/- was unaccounted amount.
(iii) The sale price of Bungalow allotted to Madhubhai was Rs.16,00,000/- as per page 28 (reverse) of Annexure A-3 whereas the appellant has accounted for Rs.12,50,000/- only. Therefore, the unaccounted amount was Rs.3,50,000/-.
(iv) In respect of Bungalow B-1 allotted to Majulaben Vithalbhai Patel as per page 101 of Annexure A-3, the house price was Rs.27,40,000/-, whereas on reverse side of page 102, the same was mentioned as Rs.31,87,000/-. From the said amount the Assessing Officer excluded telephone, legal expenses, colour, window grill, light etc. and arrived at sale price of Rs.28,50,000/- and as the appellant accounted for only Rs.13,50,000/-, the Assessing Officer treated the difference amount of Rs.15,00,000/- as unaccounted amount.
(v) The page 70 (reverse) of annexure A-4 contained details of Bugnalow No.5B allotted to Bhupendrabhai Patel, the house price of which was Rs.27,93,680/- whereas the appellant has accounted for Rs.17,10,000/- only. Therefore, unaccounted amount was Rs.10,83,000/-.
(vi) For Bungalow allotted to Jayantibhai Patel as per page 75 of Annexure A-4, the house price was Rs.27,21,000/- whereas the appellant has accounted for only Rs. 17 lacs including Rs.4 lacs for extra work. Thus, unaccounted amount was of Rs.14,21,000/-. Thus the Assessing Officer concluded that the amounts received by cheques have been accounted for by the appellant whereas the amounts received by cash have not been accounted by the appellant which represented on money.
(viii) In respect of Bungalow No.3A allotted to Vadibhai ITA Nos. 1122 and 1168/Ahd/200 6 Gargi Construction Co.
Sheth as per page 76 (reverse) of Annexure A-4, the house price was Rs.15,75,000/- whereas the appellant has accounted only Rs.8,75,000/-. Therefore, unaccounted amount was Rs.7 lacs.
(viii) As regards Bungalow No.5A allotted to Harshadbhai G. Patel as per page 77 of Annexure A-4, the price of the said bungalow was Rs.15,43,800/- whereas the appellant has accounted for Rs.9,60,000/- only. Thus the unaccounted amount was of Rs.6,43,000/-."
The AO observed that in case of unaccounted income, there would be only notings and jottings and there would not be proper description and the ratio of receipt in cash and cheques comes to 40:60. In view of above facts the AO made addition of Rs.1,33,00,000/- as undisclosed income of the assessee.
5. The addition was challenged before the learned CIT(A) and it was submitted as under:
"The appellant firm consists of 2 partners viz.
(i) Rohitkumar Jasubhai Patel,
(ii) Gargi Rohitkumar Patel.
2. The appellant firm does the work as a contractor on behalf of the Gargi Association for construction of Sauramya Bunglows at the Vallabh Vidhyanagar, Anand. The Gargi Association is a non-trading association under the Bombay Non-trading Corporation Act 1959 vide Reg. No. NTCG 1440 dated 20th March, 1987 having its registered office at 20 GIDC, Vitthal Udhyognagar Taluka District Anand. The said association is the owner of 12 twin bungalows and 8 single bungalows totaling to 20 bungalows thus, in all there are 20 members, which is known as Sauramya situated at Vinu Kaka Marg, Bakrol ITA Nos. 1122 and 1168/Ahd/200 7 Gargi Construction Co.
Road, Vallabh Vidhyanagar. As per the memorandum of the title deeds the above said association had taken a loan of Rs.49 lacs from the Kalupur Commercial Bank Ltd., and granted to M/s. Gargi Construction Co., thereby mortgaging the land to the above said bank and the Gargi Association stood as the mortgagor.
3. The above said scheme has for the first time commenced in the year 1996 when the prices in real estate were rising and all of a sudden there was a stalemate in the market and prices started declining. During the year under consideration the appellant firm carried out construction work on behalf of Gargi Association for construction of Sauramya Bungalows. During the year the appellant firm has shown service charges of Rs.7,50,000/- and interest income at Rs.2,06,407/- after debiting interest to partners of Rs.3,43,243/- thereby showing net profit of Rs.61,301/- and disclosed total income of Rs.57,829/- and filed the return of income on 29th July 2002 along with relevant details.
4. There was an agreement as stated above between the appellant firm and Gargi Association. The details of the condition of the said agreement had been supplied to the Ld. A. O. (enclosed as Annexure. I). The Ld. A. O. has wrongly reproduced the said agreement and totally traveled against the appellant firm and has come to a conclusion and stated in the assessment order at page no.5 that at the time of registration of Gargi Association, the initial members were relatives of Shri Rohitkumar J. Patel, for some period, Shri Rohit J. Patel remained Chairman and Managing Director of Gargi Association and for some period Smt. Jayshreeben R. Patel, wife of Shri Rohitkumar J. Patel remained as Chairman. He has further taken the view that from the terms and condition as per development agreement it can be established that Gargi Association is only for the name sake. The detailed explanation to contradict the facts wrongly categorized by the ld. A. O. at the time of preparing the assessment ITA Nos. 1122 and 1168/Ahd/200 8 Gargi Construction Co.
order will be given in our submission here-in below for the benefit of your consideration.
5. Now coming to the facts of the case, we have to submit that in this case there was a survey under section 133A of the Income-tax Act, conducted by the Income-tax Officer, Anand. During the course of survey certain documents/loose papers were impounded from the residence of site engineer Shri Vihag Brambhatt and thereafter the same had been supplied to the Income-tax Officer, Ward 9(2), Ahmedabad for completion of the assessment.
6. Without considering the details produced before the Ld. ITO Ward 9(2) Ahmedabad and also taking cognizance of the documents collected and impounded, the total income of the appellant has been estimated at Rs.1,33,43,132/- as against declared income of Rs.57,829/- being 40% of the regular receipts of Rs.1,99,90,000/- together with levy of interest under section 234B of Rs.90,21,489/-.
7. During the course of discussion, it was informed to the Assessing officer about the rates of the various schemes developed in the vicinity of the area of which the present bungalows were to be constructed. The schemes which have been taken for comparison are much new schemes developed. It is stated further that considering all these, the present scheme is too much older, however the pricing matches each other. This fact can be examined and verified from the details of the site plans enclosed as Annexure- II. By putting all these facts along with the location of the site plan we want to highlight your good self that prices fixed in this case are nominal and self matching.
8. Now coming to the declaration made by the Gargi Association on a bond paper of Rs.20/-, there in it is stated and described the scheme, the land area, the construction of bunglows which consists of 12 twin ITA Nos. 1122 and 1168/Ahd/200 9 Gargi Construction Co.
bunglows and 8 single bunglows , totaling to 20 bungalows known as Sauramyaat Vinu Kaka Marg, Bakrol Road, Vallabh Vidhyanagar. The said declaration itself proclaims the avenue such as survey numbers and the same has been signed by the President and Secretary of Gargi Association.
9. On review of the memorandum of deposit of title deeds the same has been made on February 2000 at Anand between Gargi Association, NTC., where the President and Secretary intend to create an equitable mortgage against repayment of the secured loan of Rs.49 lacs which was granted to M/s. Gargi Construction Company by the Kalupur Commercial Co-operative Bank Ltd., of which the Gargi Association remains the mortgagor. From this it is explicitly clear that the Gargi Association and Gargi Construction Company are bound by law to develop the land for constructing the above bungalows as mentioned therein. All the relevant copies of documents such as declaration and memorandum of deposit to title deeds had been submitted before the Ld. A. O. during the course of asstt. Proceedings but no cognizance has been taken upon those details as best known to him. If the Ld. A. O. has properly gone though the documents filed before him, then he could not have made such erroneous comments as stated in page number 5 starting with "..... terms and conditions as per development agreement it can be established that Gargi Association is only for the name sake".
10. The Ld. A.O. has stated in assessment order at page 6 that the case of appellant had undergone a survey under sec. 133A which was conducted by the ITO. Ward. Anand on 31st January, 2002, and during the course of survey impounded documents in respect of M/s. Gargi Construction Company, the developer of the scheme of sauramya Bunglows at Anand. The registered office of the Gargi Construction Company ( the appellant in this case) is situated at 3, Sahyadri Apartments, Stadium ITA Nos. 1122 and 1168/Ahd/200 10 Gargi Construction Co.
Road, Navrangpura, Ahmedabad 380 009 and the Assessing Officer of the appellant for the year under consideration is the ITO, Ward 9(2) Ahmedabad. In the circumstances of the case, the process of survey under sec. 133A which has been conducted by the ITO Anand is out of jurisdiction and the entire action whatsoever has been done by the ITO Anand has no legal validity and is in excess of jurisdiction. The statement of the Assessing Officer that M/s. Gargi Construction Company is the developer of the Scheme of Sauramya is also not correctly stated by him. This point is also discussed and explained at the appropriate place in this submissi9on. The Income Tax Officer is an executive officer in the administration of the Act and the function of the ITO is fundamentally quasi-judicial in nature. According to the decision of Supreme Court, reported in M. M Ipoh Vs. CIT/M Chettiappan Vs. ITO reported in 67 ITR 106 (SC) while exercising his quasi-judicial powers, he must act in a fair and not in a partisan manner. Based on this we respectfully submit that the Ld. ITO should not have exercised powers most beneficial to the revenue and at the same time most adverse to the assessee. In support of this contention we draw your kind attention to the decision of the Supreme Court in the case of CIT vs. Simon Carves Ltd. reported in 105 ITR 212 (S.C.). But for conducting the survey the Ld. ITO erroneously decided the jurisdiction and proceeded to conduct the survey under sec. 133A of the I. T. Act and accordingly imposed a levy on the appellant. This act of the Ld. ITO is quite erroneous and required to be quashed abintitio to protect law and justice. In support of this contention, we draw your kind attention to the decision of the Honourable Supreme Court in the case of Raza Textile Ltd. Vs. ITO 87 ITR 539 (SC). Thereafter the final order under sec. 143(3) has been made on 30th March, 2005 for the year under consideration by the ITO, Ward 9(2), Ahmedabad. The ITO Anand has not at all the jurisdiction to conduct the survey under sec. 133A of the I. T. Act.
ITA Nos. 1122 and 1168/Ahd/200 11Gargi Construction Co.
11. In this case the survey under sec. 133A of the IT Act was conducted on 31st January, 2002. This date falls within the accounting period relevant to A. Y. 2002-03. The appellant gets time up to 1st July, 2002 normally for filing of the return relevant to A. Y. 2002-03. However the appellant filed its return of income on 29th July, 2002. Thus the return of income cannot be up-turned during the course of proceedings because of the fact that the return of income has been filed after conducting the survey thereby forming a rebuttable presumption of facts against the appellant. What amount of evidence would be necessary for rebutting the presumption arising out of such survey is a matter of realm of sufficiency or inadequacy for reaching a conclusion of facts. It does not give rise to a question of law. In this connection reference is invited to the decision of the Honourable High Court of Gujarat in the case of CIT Vs. Mayank Rooplast Industries reported in 149 Taxation 364 (Gujarat).
12. Further on perusal of the assessment order at page number 6, it is mentioned that the ITO Anand who conducted the survey under section 113A on 31st January, 2002 impounded documents in respect of Gargi Construction Company, developer of the Scheme of Sauramya Bungalows at Anand. From, this it is very clear that during the course of survey certain documents were impounded by the I. T. Authorities which have been narrated by the Ld. ITO. So far as section 133A of the Income-tax is concerned, it does not confer any power to impound/seize or even to remove the books of accounts or other documents from the business premises. A thing which cannot be done directly cannot be allowed to be done indirectly. To support this contention we invite your kind attention to the decision of the Karnataka High Court in the case of Sri Venkateshwara Tourist Home (P) Ltd. Vs. Asstt. Director of Income-tax (Investigation) reported in 233 ITR 736, 740 (Karn.).
ITA Nos. 1122 and 1168/Ahd/200 12Gargi Construction Co.
13. On the basis of the facts narrated above, we request your honour to pass necessary order thereby accepting the returned income of the appellant and also further request your good-self to quash the process made under sec. 133A of the I. T. Act, being carried out without jurisdiction and subsequently astt. completed by another officer on the basis of the survey conducted earlier for want of jurisdiction.
14. In assigning the action initiated by the impugned notice against the appellant for alleged undisclosed income based on survey proceedings, it is to notice that the condition precedent is not satisfied in this case because no document or asset belonging to the appellant were found in the survey proceedings. In this case, on the basis of mere jotting on few papers which were impounded at the residential premises of Mr. Bihag who was performing his duties as Site Engineer at Anand for the appellant firm and without any valuables as defined under sec. 158B(b) such as money, bullion, jewellery or other valuable articles or things or any income based on any entry in the books of accounts or other documents or transactions, it was not possible to even prima facie raise an inference that the appellant is in possession of undisclosed income.
15. We further submit that in the case of the appellant the Assessing Officer was not justified in considering the amount of Rs.1,33,00,000/- as stated in the assessment order based on jotting invoking thereby the provisions of sec. 69A of the Income-tax Act mainly because there was no evidence on record that the appellant has become the owner of the said amount in question during the financial year relevant to assessment year under consideration.
16. In this connection we further draw your kind attention to the fact that in the presence of the appellant's statement of affairs for the last several years, it cannot be presumed or assumed by the revenue that the appellant ITA Nos. 1122 and 1168/Ahd/200 13 Gargi Construction Co.
acquired cash money during the financial year relevant to assessment year under consideration, and unless and until the assessing officer brings out some cogent materials to prove that the appellant became the owner of the above said money or monies worth the provisions of sec. 69A could not have been invoked. In support of this contention we respectfully draw your kind attention to the decision in the case of Jagtar Singh Vs. ITO, reported in 65 TTJ (Del) 476.
17. Now coming to page 6 of the assessment order, we find on a minute reading of the facts mentioned therein, and from that it can easily be revealed that the survey under sec. 133A of the Act has been conducted on 31-01-02. This survey is conducted in respect of Gargi Construction Co., the developers of scheme, Sourmya bunglows, at Anand by the Income-tax Officer, Anand. In fact the Gargi construction is not the developer of the Sauramya bunglows scheme. The survey party surveyed Gargi Builders and Construction Pvt. Ltd., and all the inventories were made of Gargi Builders and Construction Pvt. Ltd. The survey was conducted at the residence of Mr. Bihag, the Site Engineer. The diary was taken from him, which is mentioned at page No.118. Mr. Bihag is the Site Engineer, who purchased materials on site and not to purchase any material for site. The diary taken from Mr. Bihag did not speak about the procedures for collection and allotment of site. Thus, the diary found and impounded is of the personal diary in its nature and character. Thus the questions asked to the Site Engineer standing at Serial NO.2 and 8 are required to be cross- examined, to justify the veracity of the facts.
18. On examination of the contents of the dairy, it can be seen that all the diary is written by jotting only. The very important factor is the variation in prices of bungalows is due to time-lag, such as for selection of site, allotment of units, completion of construction of units and at last the time taken for sale.
ITA Nos. 1122 and 1168/Ahd/200 14Gargi Construction Co.
19. In order to verify the prices of the unit, it is necessary to compare the prices of similar unit at the vicinity, of the plot in question. If the point of development is taken for verification or examination with other units at is vicinity, then it would be very clear that the prices collected from the members of Sauramya match with the prices of other units and if then variation exits it would be according to changes of development opted by different member in this unit.
20. We further draw your kind attention to the Brochures and facilitation chart. On examination of this one can see that the sale price of the unit get reduced if there is reduction in cost of development, as envisaged in the brochures and in the facilitation chart, at the same time cost gets increased if more development is demanded at the option of the unit holder. Based on this fact and its objectives, the reply is made to the show cause notice issued by the Assessing Officer.
21. At the beginning we must say that Para 1 & 2 are the repetition. Similarly Para 7 & 12 are the repetition, the same will follow in the case of Para 8, 11 and 9. The receipts as per Para 1 and 7 are Rs.29,00,000/-. But the conclusion of the ld. A. O. is as follows:-
Consideration as per A. O. Rs.26,72,000/-
+ Rs.27,21,000/-
Rs.53,93,000/-
22. We further submit that the Ld. A. O. concluded that the price is at Rs.35,00,000/- and not Rs.36,60,000/-. But jotting at Para 12 is Rs.30,00,000/-. Jotting for Para 12 is at page No.106 and not on 117, which is reflected in annexure A-4.
23. At Para No.1, the unit is for Rs.12,00,000/-. Jotting will show that Anilbhai will give Rs.5,70,000/- as on 2.3.98. On review one can understand that out of Rs.23,40,000/- some item like Rs.10,000/- and Rs.2,000/-ITA Nos. 1122 and 1168/Ahd/200 15
Gargi Construction Co.
are the expenses made on behalf of the members. For this unit price worked out is at Rs.24,17,720/- rest are the incidental charges and purchases made on behalf of the party. At the same timers.5,70,000/- and Rs.5,70,000/- are the amounts receivable. Thus, the amount of Rs.26,72,000/- is wrong. On the contrary Anilbhai agreed to pay Rs.5,70,000/-. The amount jotted shows expenses of Rs.5,70,000/-. Thus the amount of Rs.5,70,000/- added by the A. O. is wrong. In view of the facts as stated, the contention of the A. O. is not all acceptable. The Assessing Officer has not offered any opportunity to cross-examination of the parties and made the alleged addition on estimate basis.
24. As stated above, the survey was done a the residence of Mr. Bihag and the diary pertains to him, which is shown at page no.118. Thus what is written in the diary is actually known to him. The diary in question, your honour may find that it is written by Mr. Bihag, in his own hand writing. Thus the content of the diary is known to him only. Also the price of the bungalow as estimated at page no.118, is quite unknown to us and it is known by him only. The price of each unit mentioned at different pages do not match with prices mentioned in page 118. So this fact can only be explained by him. There are two diaries. There are entries prior to 1999 and 2000. Considering all these facts the question arises for consideration is that (i) what are the contents that have been written in the diary (ii) The contents are properly entered in the diary (iii) What are the details included in the diary (iv) what are the contents not included in the diary and (v) what are the contents that have been included in the diary.
25. Now coming to the jotting, we may state that the jotting is in fact found to be unrealistic and without any basis. The plot area shown at 8A, said to have been allotted to Madhubhai is admeasuring about 3894 sq. ft. against this jotting is shown at Rs.16,00,000/- which is quite unrealistic and without any basis.
ITA Nos. 1122 and 1168/Ahd/200 16Gargi Construction Co.
26. Further as per Para 2 & 3, the name of the allottee is Bhavanaben Harishbhai Patel having a land area of 3607 sq. ft. which was later on transferred to Babubhai Becharbhai Patel.
27. This is a smaller plot and the price of this plot is taken at Rs.19,00,000/- whereas the price of the bigger plot having 3894 sq. ft. allotted to Madhubhai is taken at Rs.16,00,000/-. Thus, the Ld. A. O. is said to have committed mistake in estimating the price of plot even arithmetically too giving full trust on the diary fetched at the residence of the Site Engineer. The amount realized from Bhavanaben is also not as per schedule. Of course, she might have realized the difference of price in question according to the prevailing market price at the time of transfer to a non-member. Thus the inclusion of th4e price that might have been fetched by Bhavanaben on transfer of her plot to outsiders cannot be ipso-facto considered as the price that has been as per schedule. Thus the price as concluded by the A. O. requires to be reduced, being illegal and inaccurate.
28. Further your kind attention is invited to Para no.4 jotting at Annexure A-3 on page no.101, wherein there is total of Rs.27,40,000/- without any mention of c/f or b/f. Therefore, page number is independent. Since page number opens with Rs.27,50,000, the brought forward is Rs.27,50,000/-. That means jotting has no connection with page no.101. Thus page number 101 is independent.
29. Your kind attention is further drawn to Para No.70, which occupies the reverse side of Annexure B-4. On verification of this page, one may see on top the house price is estimated by Site Engineer. Below this, the amount mentioned is received or receivable is not known. There has been no proper mentioning about this amount. There is a jotting of Rs.12,94,678/- where as amount received is Rs.17,10,000/-. Out of this, an amount of Rs.5,00,000/- is received after survey i.e. before survey ITA Nos. 1122 and 1168/Ahd/200 17 Gargi Construction Co.
that has been carried out by the Department, the amount received was Rs.12,10,000/-. Thus jotting is totally unrealistic, unwarranted and in-capable of conveying any meaning. Thus the estimation by the Ld. A. O. on the basis of such jotting recognizing it by greater enthusiasm, without considering its evidentiary value is nothing but an exercise of excess jurisdiction which requires to be over- ruled being abinitio null and void.
30. We would like to bring further to your kind notice that Para 6 on page number 71 is the reverse of annexure A-4. ON examination of this, your honour may find that there is a jotting price and the payment receivable which is shown at Rs.27,12,728/-. If three jotting figures as shown in the same page are totaled before jotting, the amount receivable comes to Rs.29,56,172/-. Thus there is no match between these figures. In fact the appellant in question in this case has only received Rs.60,000/- and has yet to receive Rs.13,40,000/-. Thus it can be well commented that the estimation of the Ld. A. O. has been done on the basis of incorrect information that too without providing any opportunity to cross-examine by the party against whom grave and adverse view has been taken.
31. Now your attention is again drawn to Para no.7m, at page number 75 of Annexure-4. This jotting is in respect of a bunglow that has been given possession on 20/12/1999 to one Shti Jayantibhai Patel and the consideration received is of Rs.18,00,000/-. In this case an amount of Rs.13,00,000/- plus Rs.1,00,000/- had been received after merely about 2 years after possession has been given. This is due to competition and economic scenario of construction industries. The construction company has nothing to do with cash payment. It is between member and outside agencies employed by Site Engineer. Thus the unaccounted consideration as stated above is incorrect. At the same time the ld. A. O. has not brought any evidence on record to establish his sand that his estimation is based on such evidence that he gathered either before completion of assessment or has ITA Nos. 1122 and 1168/Ahd/200 18 Gargi Construction Co.
collected during the course of assessment proceedings. In absence of this, the view taken by the Assessing Officer is without evidence and requires to be deleted and may kindly be decided on the basis of proper and correct explanation of facts mentioned by us to protect law and justice.
32. Similarly Para no.8 refers to jotting on page number 76 (placed at the reverse side of annexure A-4). The Ld. A. O. in his assessment order corrected it and written as 3A, instead of 4A. This has again been shown in Para No.11 and 9. These details are not correct, so far the estimation of house price is concerned. The receipt is shown at Rs.8,75,000/-. The amount of Rs.3,75,000/- is alleged to have been shown as un-accounted receipt. This is totally incorrect, in as much as, the said amount is paid by the allottee to the Site Engineer, for the purpose of alteration, addition etc. to his property and the said amount has been paid by the Site Engineer to some one else or to his agencies. Thus the contention of the Assessing Officer is perfectly incorrect. At the same time Ld. A.O. has not placed any material evidence to establish his view/ interpretation and as such this plea of the A. O. cannot be acceptable. Moreover, the Ld. A.O. during the course of assessment neither confronted this issue by calling upon the person for examination nor has offered any opportunity to the assessee to cross examine the said person. In view of the facts as stated above, the decision taken in absence of such proceedings, cannot be at all acceptable.
33. Now coming to Para no.9 which itself is related to Para no.8, the Ld. A. O. could not bring any separate evidence on record to vitiate the explanation placed by us, at the time of asstt. Proceedings.
34. As regards Para no.10, it is said to be a jotting made at page no.77 of annexure - A-4, which is an estimate, and it does not at all make a clue between ITA Nos. 1122 and 1168/Ahd/200 19 Gargi Construction Co.
amount outstanding shown on page 77 and its reverse side. The extra items are shown on both the sides and at the end deduction is given and at last balance payable is shown which appears to be incorrect proposition. Thus the jotting on this page is not acceptable. Not only this what for this jotting has been made and for which propose it is made is also unknown to the appellant. Thus any view taken by the Ld. A. O. upon this jotting that too against the interest of the appellant, unless taken for interpretation or cross examination between the parties to it, its application against the assessee is prejudicial and unlawful and requires to be deleted abintio to protect law and justice. The Para 11 is in all respect similar and mostly related to the details already explained at Para no.8. Hence it is not necessary to repeat the same here again.
35. All the above explanations have been filed in the form of submission with reference to show cause notice dated 15.3.2005 and the same has been reproduced in the assessment order starting with Para 3, exhibit4ed at page 6 of the assessment order, under appeal.
36. In view of the facts stated above, it is quite necessary to mention here that the assessment in question has been completed on 30-3-2005, while the submission of the appellant was filed on 21.3.2005 pursuant to show cause notice dated 15.3.05. Thus the Ld. A. O. has not even applied his mind to read and understand the submission of the appellant in this case and thus it is presumed that the assessment has been completed without considering the submission made by the appellant. Due to this reason, the appellant had to suffer lot of injustice.
37. On harmonious reading of page no.6, of the assessment order in question, it is understood that the most important aspect by which the addition under sec. 69A of the Act amounting to Rs.1,33,00,000/- was made on the basis of impounded documents during the course ITA Nos. 1122 and 1168/Ahd/200 20 Gargi Construction Co.
of survey conducted under sec. 133A of the IT Act on 31-01-2002. These impounded documents are altogether enlisted along with assessment order, which in all contains 24 pages. Since the documents mentioned above had been given greater weightage by the A. O. it would not be out of place if little attention has been given to examine the modus operandi of its nature and diversity of the same when used against the appellant.
38. Coming to annexure X, some figures are written in the loose papers, however, no name is given and no name of the writer, and also not known by which date it is written. Whether this paper is of M/s. Gargi Construction Co. or not is also not visible or ascertainable. The amount written in the loose paper if considered remotely, can anybody be able to find the value of the bunglow, or the bunglow number to which it pertains, not at all. Thus presumption that has been used by the Ld. A. O. nevertheless be turned to be highly imperfect and cannot be at all taken as a judicial rich document for reaching a conclusion for invoking the provisions of sec. 69A of the I. T. Act, 1961.
39. Similarly on next paper, at top it is written as '2' if it is presumed page. As 3, then where is the name of the bunglow, is it written on the same page, answer is 'no'. If asked who has written this paper, one must say 'no'. In the left side of th4e paper some narrations are given and at the right side some figures are given. What it in fact means and for what purpose it is written, whether those figures are correctly written, it if is correct, on whose behalf and whose request it is written, for what purpose it is written is quite unknown. If such loose paper is taken as a document for ascertaining the addition under sec. 69, evidently it is illogical and unlawful.
40. Next paper contains two numbers written on top. One is '19' and at right side figure 3 is covered by circle. The name written are starting point is crossed, and another name is written. Not only this over the crossed ITA Nos. 1122 and 1168/Ahd/200 21 Gargi Construction Co.
name another name is also written. Which is the actual name and for whom it is written are also not known. As stated earlier some description of items are written against which some figures are also written. No name of the writer. At top right corner presumably a date 19/5/2000 is given, below that another date 24/1/96 is given and just little below that date 3rd date is given as 10/2/2000. Thus it amounts to repetition of earlier transaction. Against two figures ie 10,000/- and 2,00,000/- two tick mark are made. What this tick mark may indicate and if there is no tick mark against other figures written, what would be the destiny of such figures. All these questions remained unanswerable. In such occasion no reliance can be placed on such loose papers. In case any view is taken against the appellant based on such loose papers it required to be quashed.
41. Similar is the destiny of the next loose paper which represented as 4 being covered by circle. The similar is the next loose paper written as 5 covered by circle, and also one address is and pager telephone numbers of two persons are given, but it does not create any evidence for addition under sec. 69A of the I. T. Act, 1961.
42. Next is the loose paper written at top '102' covered by circle. No name of person is written in this paper. Only it is seen some dotted line being crossed horizontal and down word which depicts no details for any presumption.
43. On next loose paper '7' is encircled, and few figures are written at last the total is written in figures of Rs.31,87,000/-. No name of the person for whom it is written, when it is written are not traceable. It is also not possible to use as an evidence against the appellant as stated above.
44. On the next page at top 101 is encircled. Sauramya B.1 is written, who has written this, what is the use of this loose paper are not known. For that it is written, on whose direction it is written. All these questions remained ITA Nos. 1122 and 1168/Ahd/200 22 Gargi Construction Co.
unanswerable. Thus, as stated above this loose paper cannot at all be used against the appellant for addition under sec. 69A of the Act.
45. Similarly on next page at right top '9' is encircled. Except this nothing is visible or readable. Therefore no comment is given. Next one is encircled as 28. In this loose paper two dates are given, which denote nothing nor other jotting is though readable conveys no meaning. On next jotting loose paper '11' is encircles. Below that B. No.6 is written. Next below Madhubhai is crossed and Harishbhai Patel is written. There are few dates given in the loose paper, what for it is meant is unknown, and no comment is placed here against the jotting. Similar is with next page, here perhaps '16' is encircled, where the rest of the pages have gone or what it was unknown. Against certain figures no description is given. Therefore no comment is given. Similar is figure encircled as '13'. These details cannot be known to any person of having ordinary knowledge of understanding. The next page is encircled as '14' which also keeps every body under confusion. A name is underline as ---------------------.
46. All loose papers are similar type and as stated by us, these loose papers cannot be taken as an evidence for concluding any addition if at all it is done, it is totally against law.
47. In the given set of facts narrated above, we have made hard and sincere efforts to explain each and every jotting by assumptions and presumptions with a view to co-operate with the department for completing the assessment. This explanation was made in pursuant to show cause notice which has been reproduced by the Ld. A. O. from page 8 to 11. We further submitted in our lengthy explanation at last stating that for the sake of cross verification of the details, the unit holders may be issued notices under sec. 133(6) wherever necessary, if the Assessing Officer in fact required any information or confirmation to establish that cash was paid in addition to ITA Nos. 1122 and 1168/Ahd/200 23 Gargi Construction Co.
cheque amount. Not only this, we further requested to supply a copy of statement recorded under sec. 131 of the I. T. Act of Shri Rohit J. Patel to submit reply of quite explanatory nature. This part of request by the appellant was fully discarded. However, notices under sec. 133(6) of the Act were issued to certain unit holders. In fact the information required as per notice under sec. 133(6) was of a simple nature, in as much as the A. O. called for the sources of investment in the bungalows along with PAN, and the officer with whom they are assessed. All these unit holders to whom such notices have been sent gave their reply. Certain unit holders intimated additional information together with supporting details. These persons supplied all the details regarding payment made Gargi construction on behalf of Gargi Association and the details of other investment for addition, modification, alterations and other changes in additions to furniture, fixtures etc. In their statements they also confirmed that the above said additional work other than construction of bungalow have been done through Site Engineer, Mr. Bihag. From this, it is evidently clear that such work in addition other than construction was done through Site Engineer. This fact has been fully accepted by the Site Engineer, when he has been confronted with recording of statement under sec. 131 of the I. T. Act.
48. In this connection, it is to submit that the notices under sec. 133(6) were issued to 10 persons being the unit holders and no further details were demanded from them except source of investment as well as PAN and the Assessing Officer, with whom the I. T. returns have been filed. In fact the notices issued under sec. 133(6) are of symmetrical and of less weightage, upon which no adverse conclusion can be raised against the appellant.
49. We further submit that section 69A deals with unexplained money of which the assessee is found to be the owner. The material difference between sections 68 and 69A is that sec. 68 does not require that the amount is to be owned by the assessee. It only deals with any ITA Nos. 1122 and 1168/Ahd/200 24 Gargi Construction Co.
amount shown in the books of account of the assessee where as sec. 69A deals with money etc. owned by the assessee and found in his possession. Therefore, the ownership is one of the considerations when the matter comes under sec. 69A of the I. T. Act. IN this connection we invite your kind attention to the decision of the Calcutta High Court in the case of Durga Kamal Rice Mills V. C.I. T. (2003) 130 Taxman 553 (Cal.). So far as the facts of the present case are concerned, the addition made in the case of the appellant, is on the basis of presumption and assumption purely together with undue belief on the loose papers, impounded at the residence of a person who acts as a Site Engineer and except this no other cogent evidences are with the department. In view of the facts stated above, we request your honor to delete the addition made by the Assessing Officer to protect law and justice.
50. Further, on examination of the assessment order, it is evidence that the Assessing Officer has accepted the business income as disclosed by the appellant at Rs.43,132/- after deducting previous years' unabsorbed depreciation at Rs.14,697/-. Thus in fact the Assessing Officer has accepted the returned income of the appellant. The appellant in this case has regularly employed the method of accounting. Thus it is clear that the appellant has correctly maintained the accounts and committed no omission therein, due to this fact, the Assessing Officer has not made any application of Sec. 145(1) of the IT Act, and the addition as mentioned supra has been done on the basis of loose papers at the time of survey. In this connection we submit our explanation for the benefit of your judicial consideration. The estimation of income can be applied in regular assessment. No incriminating material was received in regard to those of 20 persons. The investigation made under sec. 133(6) of the 10 persons revealed that nothing incrimination has been found. The Assessing Officer making addition on account of jottings found in the diary and expecting it purely in respect of all 20 persons is not justified treating ITA Nos. 1122 and 1168/Ahd/200 25 Gargi Construction Co.
the jottings are correct and accurate, in view of the decision reported in the case of ITO Vs W. D. Estate (P) Ltd. 46 TTJ. While deciding the issue, the Honourable Tribunal has referred the following case laws decided by the Supreme Court as well as the Madras High Court reported in 97 ITR 96 (Bom.), 82 UTR 540 (SC), and 88 CTR (Mad) 21. The facts of the above cases are similar to the facts of the present case under appeal, we request your honour to delete the addition made by the Assessing Officer, on the basis of the decision as pronounced by the above courts. We further bring to your good-self that according to the decision of the Supreme Court in the case of C.I. T. Vs. Mussadilal Ram Bharose reported in 165 ITR 14 (SC) that there could not be any addition on the basis of presumption. It is very clear that the above said addition is made by the Assessing Officer, merely on presumption and suspicion on the basis of evidence said to have been collected by way of lose papers impounded from the third party. The said action of the A.O. is illogical, un-lawful and requires to be deleted in toto. In support of this contention, we invite your kind attention to the following judgments:-
(i) Addl. CIT Vs. Miss Lata Mangeshkar (97 ITR
699) (Bom) and
(ii) Jayantilal Patel Vs. A. C. of IT. (1998) 233 ITR 588 (Raj).
51. In furtherance to this, we further submit that section 145A inserted with effect from 01/04/1999 under which the Assessing Officer is empowered to apply the provisions of section 145 of the Income-tax, 1961, if according to him method of accounting regularly followed by the assessee is not in accordance with law and according to the standard prescribed by the department. Up till now, only two standards are prescribed. The department has not prescribed any standard so far as the computation of income from construction contract is concerned.
ITA Nos. 1122 and 1168/Ahd/200 26Gargi Construction Co.
The Institute of Chartered Accountants of India (ICAI), a statutory body, has prescribed two standards for the reorganization of income from the construction activity. Those standards are AS-7, which is described as Construction Contract. As per the standard of construction contract is defined as "A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use.
A cost plus contract is a construction contract in which the contractor is reimbursed for allowable or otherwise defined costs, plus percentage of these costs or a fixed fee. According to the definition mentioned above, the income is to be re-computed on the stages of completion of construction activity. The another standard is given for the recoganization of revenue for construction activity which deals with the recognization of revenue on completion of contract namely; on sale of Units Constructed. It appears that the learned assessing officer has not applied any of the recognized methods and has innovated new method which is not recognized either by CBDT or the Institute of Chartered Accountants of India (ICAI) and therefore, the whole assessment fails on the ground of computation.
52. In this connection we further bring to your kind notice that the decisions of Honourable ITAT Ahmedabad Bench 'C' in the case of Ashok Manilal Thakkar Vs. Asstt. CIT, Circle -2(4) reported in 97 ITD 361 (Ahd). In this case a survey operation has been carried out at assessee broker business premises and he accordingly disclosed additional income of Rs.40 lacs and 20 lacs on account of income earned by him through four activities. Subsequently, the assessee has filed letter of retraction to the said disclosure contenting that though documents found at the time of survey were minutely inspected and investigated, no objectionable notings, paper or record of ITA Nos. 1122 and 1168/Ahd/200 27 Gargi Construction Co.
any kind were found which could indicate that he was involved in any of the four activities. The Assessing Officer framed assessment order under section 143(3) without giving effect to disclosure made by the assessee. Subsequently, the Commissioner in exercise of his powers, under section 263, set aside the assessment order and directed the assessing officer to pass fresh assessment order and to tax disclosed amounts. The assessing officer framed assessments under section 143(3) read with section 263 for both the years to give effect to the orders under section 263.
On appeal, the assessee contended that having not found any material to prove the existence of any of the above four activities by the assessee on the basis of which disclosure was made, the order of the Assessing Officer could not be said to be erroneous within the meaning of section 263 and, therefore, the Commissioners' order passed under section 263 was not justified.
In view of the facts stated above, we submit that in the case of the appellant during the course of survey under taken by the department u/s 133A of the Income- tax Act, at the resident of site engineer Shri Vihag Brambhatt no incriminatory documents could be seized of collected, the addition made by the assessing officer without supporting any material on hand required to be annulled to protect justice. Your honour may justify that the same was the decision of the Honourable ITAT in the case of Ashok Manilal Thakkan Vs ACIT (supra).
From the facts stated above, it is preciously clear that in this case the Ld. Assessing Officer has made the addition based on the loose papers impounded during the course of survey that too laid out at the residence of an employee working as a Site Engineer, at Anand. At the same time the Registered Office of the appellant in this case is situated at Ahmedabad and the assessment is completed at Ahmedabad. The Ld. Assessing Officer has not taken any care to see the diary in relation to its handwriting and ITA Nos. 1122 and 1168/Ahd/200 28 Gargi Construction Co.
ever thought of whether the diary maintained by the employee can be considered as a document that can be taken for consideration to decide the addition while making the assessment. In fact remotely considering the diary impounded as correctly maintained, the Ld. Assessing Officer could not through out the completion of assessment find any evidences to substantiate the contention of the diary impounded are correctly maintained and has a direct bearing which attracts the provisions of sec. 69 of the I. T. Act. In absence of all these, the order passed by the Ld. Assessing Officer has no legal stand to be upheld. By placing all these facts, we request your honor to delete the entire addition as made by the A. O. with a view to protect law and justice."
The learned Counsel for the assessee further submitted vide letter dated 09-01-2006 as under:
"As stated by us the appellant in the case is doing the business of construction of buildings of which lands are being purchased from the outsiders. As has been discussed by the Assessing Officer, the Assessing Officer has pointed out the jotting of cash and has drawn conclusion that the said amount is 'on money'. By drawing this conclusion the assessing officer had made addition of recorded/unrecorded, sold/unsold bunglows. The appellant company had to make payment of on money to its owners at the time of acquisition of the plots of land. The amount has been detected by the department as per pages 2, 69, 75, 76, 76 (R) and 77 which are alleged to comprise of 'on money' which is the basis of addition. The above pages give the total amount of Rs.27,38,800/-. It is significant to note that at page no.69 the amount shown is Nil. Since the appellant had already paid to the owners of the land similar amount of money at the time of its acquisition, the said amount was therefore required to be exempted from computation from total income.ITA Nos. 1122 and 1168/Ahd/200 29
Gargi Construction Co.
In the above circumstances, the evidence if at all of 'on money' located by the department is Rs.27,38,000/- as per list attached herewith. According to the appellant if at all any base for addition is to be adopted, it is the figure of Rs.27,38,000/-. It is common practice to earn money. One has to spend something and this principle applied to earning of 'on money'.
In this connection we press the judgment of Aatithya Motels and Complex (P) Ltd. Vs. Jt. CIT 98 TTJ (Rajkot) 825 and two other judgments of Ahmedabad Tribunal and one of the Delhi and Mumbai Tribunal. The details and ratios are laid down hereunder:
In the circumstances no corroborative evidence has been found or seized by the department during the course of search.
In this connection we would like to draw your kind attention to the decision of the Honourable ITYAT Rajkot Bench pronounced in the case of Aadihya Motels and Complex (P) Ltd. Vs. Jt. CIT reported in (2005) 98 TTJ (Rajkot) 825. In this case it was decided by the Honourable ITAT (supra) that for the purchase of land payment of 'on money' is inevitable. This being prevalent practice it cannot be denied that the assessee has received 'on money' on sale of land and also paid 'on money' on purchase of plot. Considering these facts the Honourable ITAT directed the Assessing Officer to restrict the addition of 'on money' to Rs.10,00,000/- only as against the statement of 'on money' describing Rs.40/Rs.60 Lacs said to have been paid during the course of search and seizure operation. While deciding this case the Honourable ITAT refereed the reported decisions of the Honourable ITAT, Ahmedabad in the following cases.
1. Bharat A. Mehata Vs. ITO (2004) 86 TTJ (Ahd) 369 ITA Nos. 1122 and 1168/Ahd/200 30 Gargi Construction Co.
2. Shankerlal Nebhumal (HUF & Others Vs. DCIT (2003) 80 TTJ (Ahd) 69 In the circumstances, we would also like to bring to your kind notice that the Honorable ITAT, Amritsar "SMC"
Bench in the case of ITO Vs. Hanuman Poddar & Others reported in (2005) 98 TTJ (Asr) 705 decided the appeal in favour of the assessee, which was added U/s. 69 & 69A on the basis of noting on loose papers, found during the survey carried out U/s. 133A of the Income-tax Act, at the business premises of the two firms. In that case the names of the assessee were not appeared on those papers further the entries on these papers do not show whether these were receipts, expenses, investments, unaccounted sale or purchases. The Assessing Officer made additions on the basis of notings on loose papers and disclosure of Rs.10,00,000/- each on behalf of the firms. The Honourable Tribunal deleted the entire additions stating that assuming these entries represent investment by other family members cannot be taxed in the hands of the assessee. While deciding the above appeal the Honorable ITAT referred to the following cases:
Ashwani Kumar Vs. ITO (1991) 42 TTJ (Del.) 644 TTJ (Del.) 644/39 ITD 183 (Del.
Sunder Agencies Vs. Dy. CIT(1997) 59 TTJ (Mumbai) 610 (1997) / 63 ITD 245 (Mumbai) In view of the facts stated above it is requested that appropriate significance may be given to the appellant in view of the decisions stated above thereby the accepting the Gross Profit disclosed by the appellant to avoid litigation."
6. The learned CIT(A) considering the submissions of the assessee in the light of the findings of the AO and seized material ITA Nos. 1122 and 1168/Ahd/200 31 Gargi Construction Co.
allowed the appeal of the assessee partly. His findings in Para 3 to 5 are reproduced as under:
"3. I have considered the submissions of the learned Authorised Representative carefully and have also considered the observations of the Assessing Officer in the assessment order. The Authorised Representative has submitted that Rs.27,38,000/- as stated in Para 2.2 above is only the cash amount received on sale of bungalows and profit on that @25% to 30% should be taken as income in the hands of the appellant. As per the brochure issued for the scheme by the appellant as the builder, Rs.424/- per sq. ft. is the rate of construction and for land it was Rs.70/- per sq. ft. The total amount received by the appellant till 31.3.2002 was of Rs.1,39,80,000/- on sale of 15 bungalows and till 31.3.2005 on sale of 19 bungalows receipts were of Rs.1,59,03,186/-. It was argued by the Authorised Representative that in this case there was no search, only survey u/s. 133A was conducted, that too it was not conducted in the office premises of th4e appellant nor at the site office of Sauramaya Bungalows but the same was conducted at the residence of site engineer Shri Bihag Brahmbhatt and premises of Gargi Builders and Construction Pvt. Ltd., V.U. Nagar. Only a preliminary statement was taken from Rohit Patel, partner of the appellant firm at the time of survey on 31.1.2002. He was asked a general question about on money, which he denied. Thereafter a statement was recorded from him by the Assessing Officer on 23.2.2005 during the course of assessment proceedings, wherein also he has denied receipt of on money. Immediately after the survey and impounding of the diary from the site engineer, the partner Rohiit Patel was not questioned about the entries appearing in the impounded diary. The Authorised Representative has given comparative rates of various schemes like Suryavilla and Vaikuntha Bunglows located in Vinukaka Mark, Bakrol, developed by other developers in the same area where the appellant has developed the ITA Nos. 1122 and 1168/Ahd/200 32 Gargi Construction Co.
bunglows and has contended that the rate of construction as quoted by the appellant matched with the other developers.
3.1 The Authorised Representative has cited several decisions saying that papers/documents impounded during survey by ITO Anand have no legal validity. However in view of the following decisions the contention of the Authorised Representative is not accepted. It has been held in the case of Balwant Singh Vs. R. D. Shah reported in 71 ITR 350 (Delhi) that information gathered as a result of illegal search and seizure can be used subject to the value to be attached to it or its admissibility in accordance with the law relating to the evidence. Similarly it has been led in the case of Pooran Mal Vs. Director of Inspection reported in 93 ITR 505 (Supreme Court) that even though the search and seizure may be in contravention of section 132, still the material obtained thereby is liable to be used subject to law before the Income-tax authorities against the person concerned. In the case of Kusum Lata Singhal Vs. CIT reported in 185 ITR 56 (SC), it has been held that irrespective of the validity of the proceedings, the evidence or the testimony cannot be wiped out and does not become non-existent.
Further it was held in the case of ITO Vs. Firm Madan Mohan Damma Mal reported in 70 ITR 293 (All.) that documents recovered at a search which was not absolutely according to law can be utilised for assessment. In view of the above decisions, the entries found in the diary which has been impounded from the site engineer can be used against the appellant, even if it is held that the survey conducted was without jurisdiction. Therefore, the Assessing Officer is held to be justified in considering the entries as per the impounded diary.
3.2 The finding of the Assessing Officer that the entries in diary show that the cash component was 40%, appears to have some force. Therefore, the Assessing Officer's finding that the amount of Rs.1,33,00,000/- represents the on money is correct. However, as per terms and ITA Nos. 1122 and 1168/Ahd/200 33 Gargi Construction Co.
conditions of development agreement discussed by the Assessing Officer in pages 2 to 5 of the assessment order between the appellant and Gargi Association, a Non Trading Corporation and particularly clause 10 of the said agreement, the appellant has to receive service charges at the rate of 35% of the total cost of this scheme. The Authorised Representative has made the alternative contention that the entire on money is not the income of the developer and only 35% of on money could be considered as service charges and as income of the appellant as developer. The Authorised Representative has cited the decision of Hon'ble ITAT Ahmedabad Bench 'A' in the case of Satellite Builders & Estate Developers Pvt. Ltd. Vs DCIT in ITA No.1613/Ahd/2003 for A. Y. 1996-97 wherein the finding of the Assessing Officer that the assessee, a Non-Trading Corporation and the society are one and the same person and liable to be assessed as such one person was not accepted by the Hon'ble Tribunal and clubbing of income of NTC and society with that of the assessee developer was not approved. Therefore, the entire unaccounted receipts on sale of bungalows would not be the income of the developer rather the entire receipts of on money would be the receipt in the hands of the NTC, Gargi Association and the appellant as developer would be entitled only to 35% of the unaccounted sale proceeds or on money as income. The Authorised Representative has also cited the decision of Hon'ble ITAT, Ahmedabad Bench 'A' in the case of M/s. Vaishnav Construction Co., Nana Bazar, Vallabh Vidyanagar VS ITO, Wd.2, Anand in ITA No.1006 to 1009/Ahd/2004 for A. Ys. 1991-92n to 1994-95 dated 10/6/.2005 wherein the addition of on money on the basis of chits found from the house of third party was deleted and as regards the estimate of gross profit on estimated receipts from the construction and sale of bunglows in Bakrol, Anand, the Hon'ble ITAT considered 15% of G. P. rate as reasonable. The Authorised Representative has also cited the decision of Hon'ble ITAT, Rajkot Bench in the case of Aatithya Motels & Complex (P) Ltd. VS. JCIT reported in 98 TTJ 825 wherein the Hon'ble ITAT has ITA Nos. 1122 and 1168/Ahd/200 34 Gargi Construction Co.
observed that in view of the facts and circumstances of the case vis-à-vis the prevalent practice, it cannot be denied that assessee has received on money on sale of land and had also paid on money on purchase of plot. The Hon'ble Tribunal held "that keeping in view the facts and circumstances of the case vis-à-vis theory adopted by the Department itself and which is also known in commercial world and also keeping in view the ratio of 'on money' to the white money, as discussed by the Departmental authorities in their respective orders, we are inclined to hold that the assessee company is also not out of this vicious circle of on money payment and receipt. Therefore, keeping in view the totality of facts and circumstances of the case, we direct the Assessing Officer to restrict the addition of on money to the extent of Rs.10 lakhs in the hands of the assessee company."
Considering the facts and considering the ratio of decisions cited by the Authorised Representative and considering the development agreement between Gargi Association and the appellant in my opinion it would be reasonable to hold that the appellant is only entitled to service charges @35% of the unaccounted receipts in the hands of the appellant as developer. Accordingly, I reduce the addition to 35% of Rs.1,33,00,000/- which comes to Rs.46,55,000/-. Thus, the appellant gets part relief.
4. The second ground of appeal is against charging of interest u/s 234-B of the Act. As charging of interest is mandatory and consequential, the Assessing Officer is directed to rework the interest while giving effect to this order.
5. In the result, the appeal is partly allowed."
7. The learned Counsel for the assessee reiterated the submissions made before the authorities below and submitted that ITA Nos. 1122 and 1168/Ahd/200 35 Gargi Construction Co.
the diary in question did not belong to the assessee. The learned Counsel for the assessee ultimately restricted his arguments to the point that reasonable net profit rate may be applied against the unaccounted receipts of 35% so estimated by the learned CIT(A) of Rs.46,55,000/- because total unaccounted receipts cannot be the income of the assessee. He did not dispute the total unaccounted receipts estimated by the AO at Rs.1,33,00,000/- on the basis of the seized material and referred to the finding of the learned CIT(A) that the share of the assessee out of on money was only 35% as service charges and on so such service charges is estimated by the learned CIT(A) the real income would be estimated by applying net profit rate. In support of his contention he has relied upon the decisions in the case of CIT Vs President Industries 258 ITR 654 and in the case of CIT Vs Gurubachhan Singh J. Juneja 302 ITR 63. He has also relied upon the order of the ITAT Ahmedabad "B" Bench in the case of M/s. Jay Enterprises dated 30-10-2009 in ITA Nos. 1956, 1957, 1958 and 1959/Ahd/2006 in which gross profit rate was applied against the receipts. He has referred to PB-22 and PB-13 which are the income and expenditure account ending on 31-03-2001 and 31-03-2002 to show that main source of income of the assessee is service charges income. The learned Counsel for the assessee further submitted that presumption could be drawn that the assessee laid out expenditure for earning of services charges and might have shown the expenditure incorrectly in the books of accounts. Therefore, net profit rate could be applied to estimate the income.
ITA Nos. 1122 and 1168/Ahd/200 36Gargi Construction Co.
8. On the other hand, the learned DR relied upon the order of the AO and submitted that the assessee has not raised any ground of applying net profit rate or gross profit rate in the grounds of appeal, therefore, contention of the assessee is liable to be rejected. He has submitted that the issue of net profit and gross profit rate is not arising out of the impugned order and further the assessee admitted before the learned CIT(A) that 35% of the on money could be considered as service charges and as income of the assessee as developer. Therefore, the assessee cannot dispute the correctness of the statement made before the learned CIT(A). The learned DR submitted that no expenditure was laid out by the assessee to earn unaccounted income. The learned DR submitted that no evidence was found during the course of survey to show that the assessee spent any expenditure. The learned DR, therefore, submitted that the decision in the case of M/s. Jay Enterprises (supra) would not apply in the case of the assessee because in that case in the loose papers found the details of the expenditure was found. Therefore, this decision would not apply in the case of the assessee. The learned DR submitted that the assessee is not entitled for any further relief.
9. The learned Counsel for the assessee in the rejoinder submitted that the assessee could take any plea during the course of argument for application of net profit rate against the gross receipts and there is no need to take separate grounds of appeal in the grounds of appeal. The learned Counsel for the assessee was directed to file chart of net profit/gross profit rate for the assessment year ITA Nos. 1122 and 1168/Ahd/200 37 Gargi Construction Co.
under appeal and 5 years and on 31-03-2000, GP is 42.44% and on 31-032001, GP is 34.41%.
10. We have considered the rival submissions and material available on record. It is not in dispute that the assessee has carried out construction work of Sauramya Bungalows, Ahmedabad as per development agreement with Gargi Association. It is also not in dispute that during the course of survey proceedings carried out u/s 133A of the IT Act several incriminating documents and materials were impounded which were also confronted to the assessee. On the basis of the impounded materials and documents the AO came to the conclusion that the amount of Rs.1,33,00,000/- was unaccounted and undisclosed income of the assessee. The assessee tried to dispute findings of the AO but remained unsuccessful. Before the learned CIT(A) ultimately the assessee in the alternate contention submitted that the addition could be made of the unaccounted income in a sum of Rs.27,38,000/-. The learned CIT(A) on proper appreciation of the impounded materials and documents and considering the statement of the assessee and the agreement in question noted the submissions of the assessee through which the assessee admitted that addition could be made of Rs.27,38,000/- on account of amount received on sale of bungalows and the profit on that @25% to 35% could be treated as income of the assessee. The learned CIT(A) considering the entire material on record and the diary in question confirmed the findings of the AO that the amount of Rs.1,33,00,000/- represent the on money and thereafter considering the terms and conditions of the development agreement further held that the ITA Nos. 1122 and 1168/Ahd/200 38 Gargi Construction Co.
assessee has to receive service charges @35% of the total cost of the scheme. The learned CIT(A) also noted alternate contention of the assessee that the entire on money is not the income of the developer and only 35% of on money could be considered as service charges and as income as developer. The learned CIT(A) considering the over all evidences and materials on record ultimately held on the basis of the consideration of the development agreement between the assessee and Gargi Association that the assessee is entitled for service charges @ 35% of the unaccounted receipts as developer. 35% of the total receipts were accordingly confirmed as unaccounted income of the assessee. During the course of arguments the assessee tried to dispute the total working of Rs.1,33,00,000/- as made by the AO but no reconciliation could be submitted by the learned Counsel for the assessee. Ultimately, the learned Counsel for the assessee did not dispute the working of the AO in estimating the addition of Rs.1,33,00,000/- as income from undisclosed sources. The assessee submitted before the learned CIT(A) that 35% of such on money could be considered as service charges which is accepted by the learned CIT(A) and considered as 35% of Rs.1,33,00,000/- as income of the assessee from the undisclosed receipts. The assessee in the paper book filed copy of the income and expenditure account for the assessment year under appeal as well as of the preceding assessment year in which the main source of income of the assessee is from serviced charges. Others are small income on account of interest and dividend which have no connection whatsoever with the service charges income. In the income and expenditure accounts for both the years as referred to above including assessment year under ITA Nos. 1122 and 1168/Ahd/200 39 Gargi Construction Co.
appeal, the assessee has claimed expenses on account of salary, bonus, telephone, traveling, petrol, interest expenses and depreciation etc. No major expenses is considered and claimed in the income and expenditure accounts. The details of the expenditure claimed in the income and expenditure accounts would show that the assessee made complete claim of expenditure in the income and expenditure accounts. No details or evidences were found during the course of survey to prove that the assessee incurred or spent any other expenditure for earning the service charges income. No material or evidence was also filed before the authorities below to show that for earning net unaccounted service charges income, the assessee has spent or incurred any other expenditure for earning such service charges income. In the absence of any evidence or material on record, no deduction could be allowed in favour of the assessee for spending any alleged amount for earning the unaccounted service charges income. The learned Counsel for the assessee contended that presumption could be drawn that expenses were laid out by the assessee for earning unaccounted service charges income. Such a plea of the learned Counsel for the assessee is not sustainable in law because burden was upon the assessee to prove that actual expenditure was incurred for earning the service charges income. More so, the assessee admitted before the learned CIT(A) that as a developer the assessee would earn only 35% of on money which could be considered as service charges and income of the assessee. Therefore, the assessee cannot be permitted to deny the statement made before the learned CIT(A) which is also supported by the terms and conditions of the development ITA Nos. 1122 and 1168/Ahd/200 40 Gargi Construction Co.
agreement. The learned Counsel for the assessee mainly argued before the Tribunal that reasonable gross profit/net profit rate could be applied on income of Rs.46,55,000/- as considered by the learned CIT(A). The learned DR rightly contended that there is no such ground of appeal raised before the learned CIT(A) and further such a ground is nor raised even in the grounds of appeal before the Tribunal. In the absence of any such claim of application of gross profit/net profit rate on income estimated by the learned CIT(A), not such claim of the assessee could be considered. Such a plea is nor arising out of the findings in the impugned order. The assessee also cannot be permitted to raise the plea of applying gross profit/net profit rate on income of 35% of service charges as considered by the learned CIT(A) because it was held to be the income of the assessee out of unaccounted receipts. The learned CIT(A) accepted such contention of the assessee on t he basis of the evidences available on record. The assessee also admitted before the learned CIT(A) that 35% of the on money could be considered as service charges and income of the assessee as developer. Therefore, there is no reason to apply further gross profit/net profit rate on the income estimated by the learned CIT(A) at Rs.46,55,000/-. The assessee's Counsel relied upon the decisions in the case of President Industries (supra) and in the case of Gurubachhan Singh J. Juneja (supra) in which it was held that the entire sales cannot represent the income of the assessee. The learned CIT(A) has already considered that the entire unaccounted receipts of Rs.1,33,00,000/- cannot be considered as income of the assessee and it was held that the assessee would be entitled for income out of on money @35% of the total receipts. The ITA Nos. 1122 and 1168/Ahd/200 41 Gargi Construction Co.
findings of the learned CIT(A) was based upon the submissions of the assessee as well as development agreement. Therefore, the learned CIT(A) has already taken care of the ratio of the above decisions cited by the learned Counsel for the assessee. The learned Counsel for the assessee further relied upon the decision of ITAT Ahmedabad Bench in the case of M/s. Jay Enterprises (supra) in which during the course of search loose papers were found which contained the amount of receipt and the expenditure. On such facts, it was directed to apply gross profit rate against total gross receipts. These decisions would not support the contention of the learned Counsel for the assessee to apply gross profit/net profit rate on the income so estimated by the learned CIT(A). We may further note that the learned CIT(A) on the basis of incriminating materials and contention of the assessee has considered the unaccounted income of the assessee @35% being service charges against the total receipts estimated by the AO. Therefore, no further reduction of the addition is required in the matter. Considering the facts and circumstances noted above and in the absence of any ground of application of gross profit/net profit rate before the learned CIT(A) as well as before the Tribunal, we do not find any justification to consider the submission of learned Counsel for the assessee for application of gross profit/net profit rate in the matter. The finding of fact recorded by the learned CIT(A) have no been challenged by the learned Counsel for the assessee through any material on record. We, therefore, considering the totality of the facts and circumstances of the case do not find any justification to interfere with the order of the learned CIT(A). In the ITA Nos. 1122 and 1168/Ahd/200 42 Gargi Construction Co.
result, the grounds of appeal raised by the revenue as well as by the assessee are dismissed.
11. Charging of interest is consequential in nature and has not argued by the learned Counsel for the assessee. The same is dismissed as not being pressed.
12. In view of the above, we do not find any merit in both the cross appeals. Both are accordingly dismissed.
13. In the result, both the cross appeals are dismissed.
Order pronounced in the open Court on 31-12-2010 Sd/- Sd/-
(A. N. PAHUJA) (BHAVNESH SAINI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Date : 31 -12-2010
Lakshmikant/-
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Dy. Registrar, ITAT, Ahmedabad