Income Tax Appellate Tribunal - Ahmedabad
Bharat A. Mehta vs Ito on 17 May, 2000
Equivalent citations: (2004)86TTJ(AHD)369
ORDER
Vimal Gandhi V.P. This appeal by the assessee for the assessment year 1992-93 is directed against the order of the Commissioner (Appeals) upholding addition of Rs. 5,22,500 under section 69 of the Income Tax Act for payment of "on-money" to builders in respect of acquisition of a bunglow No. 28 in Tulip Scheme II from Shri Dilip D. Desai and others.
2. The provision of section 69 as applicable in the relevant period was as under
"69. Unexplained investments-Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the assessing officer satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year."
3. It is undisputed that onus to show that assessee has made investment not recorded in books of accounts is on the revenue. Once it is established that investment was made in the relevant financial year, the onus shifts on the assessee to explain such investment and in case it is not explained to the satisfaction of the assessing officer, the unexplained investment is to be deemed to be the income of the assessee of the relevant financial year. The main question involved in the present appeal is whether the revenue has been able to establish that assessee paid "on-money" of 5,22,500 while acquiring the aforesaid bunglow in Tulip Scheme-II. According to the assessee, he had invested only Rs. 6,12,000 whereas according to the revenue, the assessee paid extra amount of Rs. 5,22,500 besides the admitted investment.
4. The relevant facts are that revenue authorities carried out a search under section 132 on 27-3-1992 at the residential premises of Shri Dilipkumar D. Desai and Shri Bharatbhai S. Desai. These two persons were partners of M/s Desai Associates, M/s Desai Brothers and M/s Mahadevia Associates who were engaged in development of bunglows under scheme Tulip I & II near Doordarshan, Ahmedbad. In their statement they admitted to have received "on-money" while selling bunglows in Tulip Scheme and categorically stated that 60 per cent of consideration was received in cheque and 40 per cent cash. These persons further made disclosure of Rs. 1.50 crores on account of money received and not recorded in books of accounts.
4.1 In the light of above material, the assessing officer drew an inference that assessee also paid Rs. 5,22,500 as "on-money". The cost of the bunglow sold to the assessee (inclusive of "on-money") has been taken by the assessing officer at Rs. 11,35,000. It is not mentioned in the assessment order as to from where the above figure was taken but the learned departmental Representative during the course of hearing informed us that this was obtained from the file of the builder Desai Brothers. The assessee denied that he has paid anything over and above Rs. 6,12,000 to the builder and hotly contested claim that any addition under section 69 of the Income Tax Act can be made in this case. The learned counsel for the assessee also took the position that figure of cost of bunglow at Rs. 11,35,000 was never put to the assessee at any stage. The assessing officer summoned Desai Brothers Shri Bharatbhai Desai and Shri Dilipkumar Damodardas Desai and recorded their statements on 7-10-1998, in presence of learned representative of the assessee. English translation of examination of Shri Bharabhai Desai is as under
"Q. 1 Give your identification.
Ans. 1 My name is Bharatbhai Sakarchand Desai, aged 46, residing at Avadh Bunglow, Nr. Pragna Society bus stand, Navrangpura, Ahmedabad, partner in M/s Desai Bros. & Mahadevia Associates.
Q. 2 Have you prepared projects of Tulip-1 & Tulip-2 bunglows as partner of the above mentioned firm ?
Ans. 2 Yes, Projects are prepared.
Q. 3 Is it true that a search by IT department was conducted on 27-3-1992, at your residential place Avadh Bunglow, Nr. Pragna Society, Navrangpura, Ahmedabad ?
Ans. 3 Yes, It is true.
Q. 4 Is it true that you have declared 1.50 crores by Desai Brothers Association and Rs. 60 lacs by Desai Bros. and Mahadevia Associates as concealed income from these firms during the course of search ?
Ans. 4 Yes, the above facts are true.
Q. 5 Is it true that Rs. 1.50 crores that you have declared as your concealed income is "on-money" you have received from members of Tulip 1 and Tulip 2 schemes bunglows ?
Ans. 5 Yes, the abovementioned amounts have been received as "on-money" from members.
Sd/- Umesh A. Mehta, Power of Attorney Holder of Bharat A. Mehta dt. 7-10-1998 Sd/- C.H. Parmar dt. 7-10-1998 Sd/- B.S. Desai, dt. 7-10-1998 4.2 The assessee was permitted to cross-examine the witness and English translation of the same is to the following effect :
Q. 1 Is it true that I have booked one Bunglow in your Tulip-2 scheme ?
Ans. 1 Yes.
Q. 2 Is it true that you have issued one allotment letter from your firm on 27-5- 1993, after the payment from 1-11-1991 to 16-2-1993, Rs. one lacs by cheques made to you, and value of the building was agreed Rs. 6,00,000?
Ans. 2 Yes.
Q. 3 As per the abovementioned allotment letter Rs. 12,000 was to be paid for additional land. Is it true ?
Ans. 3 Yes Q. 4 You had given possession of the building after the amount of Rs. 6,00,000 as agreed was paid ?
Ans. 4 Yes the possession of the bunglow was given.
Q. 5 Were the receipts issued by you i.e., your firm for the amount received ?
Ans. 5 Yes Q. 6 What you have to say in the matter that I have not paid any additional amount excepting Rs. 6,00,000 and Rs. 12,000 as agreed to your firm to you ?
Ans. 6 It is true that no additional amount has been paid.
Sd/- Umesh A. Mehta, Power of Attorney Holder of Bharat A. Mehta dt. 7-10-1998 Sd/- C.H. Parmar dt. 7-10-1998 Sd/- B.S. Desai, dt. 7-10-1998 4.3 The assessing officer thought that re-examination of witness was necessary and, therefore, in the re-examination, further questions were put. The English translation is as under :
Q. 1 It is believed from your statement in reply to question No. 6 in the abovementioned cross-examination that you have taken 'on-money' from certain members of Tulip-2 scheme bunglows against sale while you have not taken "on-money" from certain members. It is true ?
Ans. 1 As no accounts for individual members have been maintained and as such I have no knowledge whether from all members or from certain members on-money' has been received.
Q. 2 If you cannot reply to the above question, can you say that from which members "on-money" were obtained and from which members not obtained ? i.e., what was the base of taking or non-taking 'on-money' ?
Ans. 2 No criteria was decided. According to time and circumstances 'on-money' were obtained.
Q. 3 During the search on 27-3-1992, as per your statement you have declared Rs. 1.50 crores as undisclosed income of your firms M/s Desai Bros. Associates and M/s Desai Brothers & Mahadevia Associates which amounts were received by you from the members of Tulip scheme 1 & Tulip 2 scheme as on-money'. While today you state that you have not received 'on-money' from Bharatbhai A. Mehta, meaning thereby that you have not obtained 'on-money' from all the members. Is it true ?
Ans. 3 In reply to question 1 it is stated that there is no accounts from which member what amount obtained and so I cannot say whether I have received 'on-money' from Bharatbhai or not.
Q. 4 During the search on 27-3-1992, whatever the statement you have made according to section 132(4) you have declared Rs. 1.50 crores as concealed income and cleared that how you have obtained i.e. according to your statement 60 per cent official amount is received by cheques and 40 per cent amount was obtained in cash as 'on-money' from the member, while as per to-day's statement you say that 'on-money' is not received from all the members. Hence, during the search statement made by you was not correct and in these circumstances why the immunity allowed in your case should not be withdrawn according to section 271(1)(c), Expln. 5(2) ?
Ans. 4 It is wrong. Ordinarily 60 per cent & 40 per cent were taken, but as there is no account, it is not possible to say what amount from whom has been obtained or not obtained. In reply to question, 2 it is stated that there was no criteria but according to time and circumstances the amounts were obtained. This statement is made at this time while you are assessing the income of Bharat Mehta your question regarding withdrawal of immunity given me a shock and I am unhappy.
Sd/- Umesh A. Mehta, Power of Attorney Holder of Bharat A. Mehta dt. 7-10-1998 Sd/- C.H. Parmar dt. 7-10-1998 Sd/- B.S. Desai, dt. 7-10-1998 4.4 To the same effect is the statement, cross-examination and re-examination of other partner Shri Dilipkumar Desai. There being no material difference in the two statements, it is not necessary to reproduce here the statement or Shri Dilipkumar.
4.5 The assessing officer rejected the claim of the assessee that no "on-money" was paid. He was of the view that admission of Desai Brothers that they received 40 per cent of consideration as "on-money" and had disclosed the same making disclosure of Rs. 1.50 lacs coupled with other facts, admitted in re-examination, was sufficient to hold that assessee did pay "on-money" of Rs. 5,22,500 besides the stated consideration. He therefore, added the above amount under section 69 of the Income Tax Act.
5. The assessee impugned the above addition in appeal before the learned Commissioner (Appeal) but remained unsuccessful. The learned Commissioner (Appeals) upheld the assessment.
Hence, this appeal by the assessee.
6. We have heard at length Shri J.P. Shah, the learned counsel for the assessee and Shri R.K. Gupta, the learned departmental Representative. We have also perused the relevant record. The short question as already noted is whether there is sufficient material to conclude that assessee made unexplained investment of Rs. 5,22,500. Shri J.P. Shah contended that the assessee was not bound by entries in the documents or books of accounts, if any, maintained by Desai Brothers. The assessee was further not bound by any admission made by the builders relating to receipt of "on-money". The statement and crossexamination of Desai Brothers taken in the presence of the assessee did not support the claim that "on-money" was paid by the assessee. Whether other purchasers of bunglow paid "on-money" or not was not assessee's concern. It was urged that material produced by revenue authorities for making addition in the hands of the assessee had no evidentiary value. In fact, it was inadmissible, Shri Shah also referred to the disclosure of Rs. 1.50 crores made by Desai Brothers and when disclosed amount was divided by the number of bunglows, the addition on an average worked out to Rs. 1 lakh and some odd amount and not Rs. 5,22,500 as taken by the assessing officer. Shri Shah also stated that alleged figure of cost of construction was neither put to the assessee nor to the witnesses examined by the assessing officer and was inadmissible in evidence. He submitted that the onus that lay on the revenue to establish by cogent evidence that unexplained investment was made by the assessee in the relevant financial year remained undischarged. The revenue authorities drew inferences which were against the material available on record. Shri Shah relied upon the following decisions
(i) J.S. Parkar v. V.B. Palekar & Ors. (1974) 94 ITR 616 (Bom)
(ii) Addl. CIT v. Lata Mangeshkar (1974) 97 ITR 696 (Bom)
(iii) CIT v. M.K. Brothers (1987) 163 ITR 249 (Guj)
(iv) ITAT decision in the case of Asstt. CIT v. Prabhat Oil Mill (1995) 52 TTJ (Ahd) 533.
6.1 Shri R.K. Gupta, the learned departmental Representative, strongly supported the orders of revenue authorities. He argued that the builder categorically admitted that they charged and received 40 per cent of total consideration as "on-money" from the purchasers, besides the consideration received by cheque. The above statement was supported by entries in the documents seized in the course of search. The builders further made huge disclosure of Rs. 1.50 crores on account of receipt of "on-money". According to the learned departmental Representative, the statement of the assessee that it had paid no "on-money" was of no consequence in the light of documentary and oral evidence brought by on record. The assessee could not explain any reason as to why the bunglow with cost of construction at Rs. 11,35,000 would be sold for Rs. 6,12,000; such an act is clearly unnatural and, therefore, cannot be accepted. Shri Gupta also drew our attention to the statement of Desai Brothers recorded at the time of raid in which they admitted having received of "on-money". He also drew our attention to p. 35 of paper book filed by the revenue which is a copy of pad of Desai Brothers Associates (but does not bear any seizure marking) with certain credit and debit entries dated 31-12-1991. There exists the following credit entry at Sr. No. 10.
"1,00,000 13-7-1991, Bharatbhai"
The aforesaid entry clearly suggested that assessee had paid "on-money". At this stage, Shri Shah, the learned counsel for the assessee objected to admission of above document as it was not relied upon by the assessing officer nor was confronted with the assessee. Even in the long statement of Desai Brothers recorded by the assessing officer, this alleged entry was not referred to. Shri Shah further submitted that Shri Bharatbhai was the name of one of Desai Brothers. In these circumstances, the above entry should not be admitted in evidence. At any rate, no reliance should be placed on this entry. To meet the above argument, Shri Gupta submitted that above entry can now be put to the assessee as Tribunal is final fact finding body and has to decide the matter on the basis of relevant material.
6.2 Shri Gutpa further submitted that it was a civil matter and was to be decided on preponderance of probabilities and assessee was not right in insisting on infallible evidence relating to discharge of burden of proof. Oral, documentary and circumstantial evidence clearly showed that the assessee did make investment of "on-money" and the same was rightly taxed in the hands of the assessee.
7. We have given careful thought to the rival submissions of the parties. In consequence to the search, Desai Brothers and their associate concern through their partners clearly admitted that they received "on-money" on sale of bunglow in project Tulip I & II. These concerns also surrendered Rs. 1.50 crores on account of "on-money" as "concealed income". Thus, as far as Desai Brothers are concerned, their own admission corroborated by disclosure made by them fully binds them and, therefore, there can be no challenge to the assessment of "on-money" in their hands. However, the question involved in the present appeal is as to what extent the statement/admission of Desai Brothers and their disclosure binds the assessee or can be used to justify assessment of "on-money" in the hands of the assessee.
7.1 It is now well-settled principle of natural justice that any material which is to be used against the assessee for purposes of assessment is to be put to the assessee and he is also to be allowed an opportunity to rebut the same. Use of any material or information without notice to the assessee is prohibited and any illegal use of material vitiates the whole assessment and renders it void. There are catena of authorities supporting the above proposition. We may usefully quote the following observations of the Hon'ble Supreme Court in the case of Kishinchand Chellaram v. CIT (1980) 125 ITR 713 (SC) at 714 (head notes) :
"Held, reversing the decision of the High Court, (i) on the facts, that the two letters dated 18-2-1995 and 9-3-1957, did not constitute any material evidence which the Tribunal could take into account for the purpose of arriving at the finding that the sum of Rs. 1,07,350 was remitted by the assessee from Madras, and if these two letters were eliminated, there was no material evidence at all which could support its finding. The statements of the manager in those two letters were based on hearsay, as, in the absence of evidence, it could not be taken that he must have been in-charge of the Madras office on 16-10-1946, so as to have personal knowledge. The department ought to have called upon the manager to produce the documents and papers on the basis of which he made the statements and confronted the assessee with those documents and papers. It was true that proceedings under the income-tax law were not governed by the strict rules of evidence, and, therefore, it might be said that even without calling the manager of the Bank in evidence to prove the letter dated 18-2-1955, it could be taken into account as evidence. But before the IT authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross-examine the manager of the Bank with reference in the statements made by him. Nor was there any explanation regarding what happened when the manager appeared in obedience to the summons referred to in the letter dated 9-3-1957, and what statement he had made."
7.2 The assessing officer of the assessee being fully aware of above principle did not rely on the admission made by Desai Brothers during the course of search in their premises or thereafter as also on the material subsequently collected in their assessment under the Income Tax Act but tried to meet the requirement of law. He summoned Desai Brothers and recorded their statement in presence of the assessee his representative and allowed an opportunity to cross-examine them to bind the assessee. We have already referred to statement of Desai Brothers dated 7-10-1998, and extracted questions and answers given by them in the examination, cross-examination and the re-examination. In the said crossexamination, Desai Brothers clearly admitted that value of bunglow sold to the assessee was agreed to be sold at Rs. 6,12,000 as per allotment letter dated 27-5- 1993. It is further admitted that possession of the building was delivered to the assessee on receipt of Rs. 6 lacs. Desai Brothers also admitted receipt of payment of Rs.12,000 besides Rs. 6 lacs as part of sale consideration. The answer to question No. 6 is as under :
"It is true that no additional amount has been paid.
The assessing officer with a view to establish his case carried out further examination of the witness which technically speaking under the Evidence Act was "re-examination". The re-examination should normally have been followed by further cross-examination by the assessee but it appears that no such further cross-examination was carried, it not being clear whether assessee's representative insisted for such cross-examination or not. At any rate, in the re-examination, the witnesses did not state that they received any "on-money" from the assessee for sale of bunglow. The statement further established firstly that as per allotment letter dated 27-5- 1993 and other documentary evidence, the assessee had shown to have paid only Rs. 6 lacs and Rs. 12,000 for acquiring the bunglow. Secondly, inspite of search, the revenue authorities could not lay hand on any document which could show that the assessee had paid "on-money". Thirdly, the assessing officer could not extract from the witnesses that assessee had paid "on-money" inspite of concealed threat in question No. 4 of the re-examination. The position that emerges is that witnesses when they were examined in presence of the assessee (as required by rule of natural justice) did not say that the assessee paid any "on-money" but, on the contrary, stated in reply to question No. 4 referred to and quoted above that no money other than Rs. 6,12,000 was paid to them.
7.2 The learned departmental Representative vehemently contended that there is oral, documentary and circumstantial evidence that Desai Brothers received on-money" in the sale of bunglow in Tulip I & II. It may be true. But the question here is whether there is any evidence against the assessee or is there any permissible evidence to establish that assessee paid "on-money" and thus made investment out of his undisclosed sources in terms of section 69 of the Income Tax Act. This question has an obvious answer. The relevant material which could be used against the assessee is the one which satisfies the principle of natural justice. The assessee's case that he paid only sale consideration of Rs. 6,12,000 is further corroborated by documentary evidence. The weighty evidence collected otherwise and not in presence of the assessee and which does not measure to the requirement of law is hardly of any avail to the revenue as it does not establish the case against the assessee.
7.3 The learned departmental Representative also referred to entry No. 10 of document at p. 35 of the paper book which has already been reproduced and is reshown as under :
"1,00,000 13-7-1991, Bharatbhai".
In our considered opinion, no weight can be attached to the above entry at this stage, as the said entry was never used by the assessing officer during the time of assessment although he had ample opportunity to do so. Even the learned departmental Representative could not explain as to why the said entry was not put to the assessee or to the developers Desai Brothers when they stated that there is no evidence with them to show that assessee had paid any "on-money" if the entry was connected with "on-money" paid by the assessee. One of Desai Brothers is Shri Bharat Desai and the entry does not show that it does not relate to the above person but to the assessee who is Bharat A. Mehta. Besides, the document does not bear any seizure mark and its origin is also not clear. We, therefore, do not attach any importance to the above document and hold that revenue has placed no material on record to show that assessee paid "onmoney" and made unexplained investment in terms of section 69 of the Income Tax Act. The authorities cited by learned counsel for the assessee fully support the above view that we are taking in the matter. The learned departmental Representative did not rely upon any authority taking a contrary view.
7.4 Shri Shah also drew our attention to the disclosure made by Desai Brothers at the time of search in period relevant to assessment year 1993-94 as under :
(1)Unaccounted cash
(a) Cash seized from my house 10,30,000
(b) Cash seized from Bharat Desai 25,000 10,55,000 (2) Unaccounted gold ornaments:
(a) Seized from my house 13,52,629
(b) Seized from Bharat Desai's house 1,02,471 14,55,100 (3) Unaccounted silver :
(a) Seized from my house 1,20,000
(b) Seized from Bharat Desai's House 8,199 1,28, 100 (4) Unaccounted valuables & articles 5,00,000 (5) Investment in construction & labour in Tulip Scheme 3,65,000 (6) Sundry receivables 85,00,000 1,50,03,200 He submitted that above disclosure has been made to explain cash and other valuable articles found with Desai Brothers who wanted to save their own skin. When the amount disclosed in dividend by number of bunglows sold it works out to approximately 1.50 lakhs per bunglow and not about Rs. 6 lakhs added in the case of the assessee. The revenue authorities could not give any material to justify the calculation of amount added in the hands of the assessee. Shri Shah further submitted that out of amount disclosed Rs. 85 lacs represented "sundry receivables". Thus, disclosed amount represented amount yet to be received from sundry debtors in period relevant to assessment year 1993-94 whereas the assessee has been held to have paid "on-money" somewhere in November, 1991, when agreement to purchase bunglow was entered with the developers. There is thus no nexus of the amount disclosed with assessment of "on-money" in the hands of the assessee. The arguments advanced on behalf of the assessee are not without substance. We have already held that no material has been produced by the revenue to establish that assessee has paid any "on-money". Shri R.K. Gupta, the learned departmental Representative, was asked to clarify the point of working of cost of construction given by the assessing officer as also whether proceedings in some of the cases of purchases of bunglow with reference to payment of "on-money" were not taken and dropped. Vide letter dated 4-5- 2000 placed on record Shri Gupta has stated "after receipt of said information the same will be filed". Shri Gupta vide letter dated 11-5- 2000, enclosed letter of the assessing officer dated 10-5- 2000, wherein as per Annex. 'A' it is claimed that "on-money" is shown at Rs. 5,22,500. In the Annex. 'A' item at Sr. No. 8 has been scored of and we do not find name of the assessee. At any rate, no calculation of working of cost of bunglow is available. On second point no information has been given and more time is sought by the departmental Representative. Unlimited time for furnishing information cannot be given. We cannot wait indefinitely and the case has to be closed and matter disposed of in accordance with law. Accordingly, we are proceeding to dispose of the case on the basis of material available on record.
7.5 Shri J.P. Shah, the learned counsel for the assessee, during the course of hearing of the appeal placed on record copy of order of Commissioner (Appeals)-VIII, Ahmedabad, dated 22-2-1999, in the case of Shri Subhash D. Patel who, like the assessee, had acquired a bunglow in Tulip-II and was held to have paid Rs. 6,64,225 as, "on-money" which was added in his total income. In the above appellate order, the learned Commissioner (Appeals) at p. 9 recorded as under :
"(8) On the basis of the seized loose papers and oral statement of Shri Dilip, Desai, no additions with regard to the alleged 'on-money' payment have been made in the case of Shri Hasmukh R. Patel, Shri Pravin R. Patel, Shri Pravinkumar D. Tahakkar, Shri Sureshbhai Premchand Shah & Shri Harkant C. Patel. "
It was ultimately held by learned Commissioner (Appeals) as under :
"The facts, however, show that in some of the cases of members where proceedings have been initiated for adding "on-money" under section 69 of the Income Tax Act, the proceedings have been ab initio dropped after examining fun facts and the evidence available."
The learned counsel for the assessee relied upon the above recorded fact which the learned departmental Representative could not refute inspite of opportunity and time allowed to him to ascertain the position from the assessing officer. This is an additional important fact going in favour of the assessee. But as order of Commissioner (Appeals) was passed only on 20-2-1999, and might be subjected to appeal, we do not decide the matter on this fact but on account of independent reasons given above. Having regard to all the circumstances mentioned above we hold that addition of "on-money" in the case of the assessee is unjustified. The addition of Rs. 5,22,600 is, accordingly, directed to be deleted.
8. In the result, assessee's appeal is allowed.