Income Tax Appellate Tribunal - Pune
Sairang Developers Pvt..Ltd, vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
Pune Bench B, Pune
Before Shri Shailendra Kumar Yadav, Judicial Member
and Shri G.S. Pannu, Accountant Member
I.T.A. No. 647/PN/2004
Block assessment period 1997-98 to 2002-03
Dy. CIT Cent. Cir. 1(1) Pune Appellant
Vs.
Sairang Developers & Promoters Pvt.Ltd.,
501-502 Corporate Plaza
Senapati Bapat Road
Near Chaturshinghi Road,
Shivajinagar, Pune-400 016 Respondent
Appellant by: Shri S.K. Singh
Respondent by: Shri Sunil Pathak and
Shri Nikhil Pathak
ORDER
PER SHAIALENDRA KUMAR YADAV, JM
This appeal by the revenue is directed against the order of the CIT(A)-I Pune dated 2-1-2004/23-2-2004 on the following grounds:
1. The CIT(1)erred in not considering the recasted trading P& L A/c in the block assessment order 1ade on the basis of entries borne out from seized paper No. 17 & 55 which depicted the final consolidated position of busines8 affairs of the assessee for the block period.
2. On the facts and in the circumstances of the cases and in law the Ld. CIT(A) has erred in deleting the addition of undisclosed profits of Rs. 7.66 crores by adopting different methods of valuation for opening and closing stock.
2 ITA No. 647/PN/04Sairang Developers Block period: 1997-98 to 2002-03
3. The. CIT(A) has erred in not properly appreciating issues of books of accounts and the closing stock as no books were produced either before the CIT(A) or before the A.O. and also that the correctness of the valuation of the dosing stock of land was not properly verified.
4. On the facts and in the circumstances of the case & in law, the CIT(A) erred in not sustaining the addition even when value of closing stock is taken on cost as is evident from the Ld. CIT(A)'s own findings given in para No.4.1, 4.1.2, 4.6.2, 4.8.1 of the appellate order.
5. The CIT(A) erred in not considering the remand report dated 20-2-2004 of the assessing officer as also the adjournment letter dated 13-2-2004 and 17-2-2004.
6. On the facts and in the circumstances of the case:
& in law, the Ld. CIT(A) erred in not sustaining an alternate addition as brought out in the remand report dated 20-2-2004 of Rs. 6.56 crores u/s 69 of the IT Act which in fact emanated from the assessee's own submissions before the A.O dated 26-4-2003 and before the CIT(A) during the appellate proceedings on 22-10- 2003.
7. The appellant reserves the right to, add, alter, amend, and modify the grounds of appeal at the time of hearing.
2. The assessee is a private limited company and engaged in the business of land development. The assessee purchases land from the rural cultivators and after development of the same sells it to various customers in and around Pune city.
3. A search and seizure action u/s132 of the Act was carried out at the office premises of the assessee on 11-4-2001. The Assessing Officer made an addition of Rs. 7,66,28,884/- on account of suppression of 3 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 business receipts. The Assessing Officer has discussed this issue in para 7 to 15 of the block assessment order. The addition is based upon two papers namely page no. 17 of bundle no. 2 seized by party No.1A and paper no.55 of bundle no. 2.
4. The Assessing Officer after taking into consideration the submissions made on behalf of the assessee concluded the matter as under:
"12. On perusal and careful consideration of assessee's submissions and contentions therein, it has been observed that in order to explain the transactions in respect of purchase and sales of land, assessee has mainly relied upon his system of accounting. In this context the salient features which emerge from assessee's contentions are as following:
1. That the assessee follows the mercantile system of accounting.
2. That the assessee account for the sale of land of plots on the basis of either when sale deed is executed or possession of plots of land is given to buyer on receipt of total sale consideration whichever is earlier.
3. That until possession is given or sale deed is executed, till that period whatever amount received by assessee against sale of plots of land is shown as liability against the head Advance against sale of plots in the balance sheet and it is at the possession or final deed is executed that assessee account for it as sale.
4. That it is but for the technical reason that the land reflected in the balance sheet of company is actually in the name of individual directors as N.A. is not permissible for companies.
5. That the definition of transfer provided u/s 2(47) of the IT. Act is not applicable to the facts and circumstances and method of accounting of the assessee company.
6. That considering these aspects the sales reflected in seized loose paper No. 17 are not complete sale and 4 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 entire amount of sale shown at Rs. 14.57 cores may not be considered as total sales and only that portion which is covered under the head Advance against Sale of plots' only should be taken as sale by company.
That all the transaction appeared in paper No. 17 & 55 have duly been recorded in the regular books of accounts . Thus the assessee company has contended that there are no suppressed profits with reference to sales as per seized paper No. 17.
13. I have carefully perused the seized documents and papers and have gone through the oral and written submissions of the assessee. On close security and analysis of seized papers and submissions of the contentions of the assessee company are not acceptable for the reasons enumerated below.
13. 1. The assessee even though in his statement u/s 132(4) has stated that his books of accounts are maintained on computer, but no such books of accounts were found to have been maintained on computer as on the date of search. These books of accounts were neither produced at the time of search nor these books were produced in the post search proceedings before the investigation wing and it is the first time that the assessee produced some computerized sets of books of accounts which was neither seized, nor marks of identification were found on these books of accounts which is a clear indication that books were not available at the time of search. As such no books of accounts were either found (except manual registers relating to sale of land) and seized. Some books of accounts maintained manually in the form of sales register seized vide annexure A to panchnama dated 24-4-2001 was found but no register relating to purchase was found or seized. Even the entries in the manually maintained sales register are not complete and these registers do not give conclusive and complete picture of sales and as such the entries on this paper does not tally with the sales depicted on paper no. 17 seized at bundle 2.
13.2. That assessee does not maintain stock register and as such no quantitative details have been maintained by 5 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 the assessee. No such register was found at the time of search. An attempt was made to match the quantitative details with the form No. 3 CO part of Audit Report, however, no such details have been found enclosed with the audit reports enclosed with the returns filed for the period A. Y. 97-98 to 2000-01.
13.3. The assessee follows mercantile system of accounting and the final sale deed or possession of plot is not relevant in the case of the assessee company particularly for the obvious and patent reasons firstly because assessee company received substantial amount at the time of transactions of sale and for the balance amount receivable assessee company obtained post dated cheques from buyers as security which is surfaced from the seized documents and on default or cheque getting bounced the assessee company either cancel the transaction or forfeit earnest money. But no such evidence of cheque getting bounced and cancellation of sale transaction was found or produced during asst. proceedings and as such no such records are maintained by the company. In any case even if a sale transaction is cancelled, it is either sold to another buyer or it will remain in closing stock. Secondly in the absence of any stock register or quantitative details, contentions of the assessee are not verifiable from the available records.
13.4. The entries on paper No. 17 & 55 gives the consolidated positions of business affairs of assessee company and all entries on this paper has to be considered in consolidated manner and none of the entries can be considered or explained in isolation. The assessee admitted that the purchase are genuine but no records either found at the time of search or produced during the post search asst. proceedings in support thereof Besides it is of immense significance to mention that the seized loose paper No. 17 at Bundle NO.2 also gives details of expenses of Rs. 5.04 crores for Development and Administrative Expenses which are found commensurate to the expenses claimed in the returns filed. But. sales are not reconciled, hence not recorded in regular books of accounts.
13.5. The paper No. 55 of Bundle No. 5 gives details of cash purchases of Rs 62 ,44,4701-out of which assessee itself has admitted Rs. 20,91 ,000/- as not disclosed and 6 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 have offered in the block return. It is an indication that the assessee had indulged into purchase and sales outside books and also when no basic records have been maintained by the assessee.
13.6. The accounting system adopted by the assessee i. e. Sales treated final and offered to taxes as and when final sales deed is executed or possession is given to buyer is not of vital significance once the assessee fails to prove that whether or not the transactions borne out from the seized papers are actually reflected in books of accounts, if any, maintained by assessee company or not.
13.7. The expenses mentioned on the paper No. 17 pertain to F. Y. 1997-98 to 2000-01 which the assessee admits to be genuine , therefore, the remaining contents of the seized paper 17 relating to purchase, sales and closing stock items in quantity and value has to be considered actual transactions of assessee's business but not found recorded in books of accounts.
13.8. The assessee in its letter has raised the issues regarding non availability of assets to the extent of undisclosed income proposed in the Trading Account. In this respect, it is mentioned that assessee company came into existence w.e.f 24.10.1996 and has been dealing in land. On the date of commencement, there was nil opening stock. From the information revealed from the page No. 17, it can be seen that within a very short spell of time assessee has accumulated huge assets in the land transactions and it has reflected in the closing stock of land at Rs. 7,99, 10,613/-. Such generation of profit from the trading of land cannot be ignored. Thus, the submission made by assessee in its letter has no merits.
14. In the light of above facts and material evidences borne out from the seized documents, the suppression of net profit of Rs. 7,66,28,884/- on the basis of trading profit and loss account recasted is justified and also that assessee's contentions of valuing closing stock at cost price has no merits."
5. The matter was carried in appeal before the first appellate authority wherein the first appellate authority examined not only the relevant page no. 17 but also the 7 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 background in which whole issue has been dealt with by the Assessing Officer. The sequence of events leading to the seizure of page no. 17 and subsequent investigation has been examined and it throws considerable light on the nature of the additions made by the Assessing Officer.
5.1. After seizure of the papers, in the first instance, Managing Director of the company was required to explain the same in the statement on oath recorded u/s 131 of the Act on 18-4-2001. In the first statement recorded subsequent to search, the Managing Director of the company shri K.M.A. Rasheed has submitted as under:
"Q.11 Now I am showing page nO.17 of bundle nO.2 which? apparently shows the details of land cost, amount paid, balance to be paid, total sales, amount received and receivable, sq.ft. of land purchased / sold, stock (closing) of land and value thereof besides expenditure incurred for the years 1998, 1999, 2000 & 2001. Please explain the entries of this page?
Ans. The entries in this page have been made by Accountant Mr. Me era Nair. How she has made the entries cannot readily be narrated by me since the entries have been made by her. I shall be able to explain it after consulting my Accountant.
Q.12 I once again request you to give attention carefully to this page. To this page (i.e. page nO.17 of bundle No.2) as I understand from the reading of this page that your company is purchasing and selling land after development in respect of sites viz. Sairung Villa, Sairung Garden, Sairung Avenue, Sairung City, Sairung Paradise, Sairung Sardinia & Sairung Avihal. In all these schemes, you have sold land for rs.14,57,63,221/- and purchased rand for Rs.9,06,00,333/-. You have also paid land cost at Rs. 4, 57, 99, 808/- and still to be paid Rs. 4, 48, 00, 525/-. Moreover, you have already received towards sale' of land Rs. 9, 66, 44, 496/and still receivable from the customers Rs. 9, 91, 18,725/-. Please confirm the same.8 ITA No. 647/PN/04
Sairang Developers Block period: 1997-98 to 2002-03 Ans. I have already stated in reply to Q. No. 11 that this paper has been written by my employee and I am not in a position now to explain these entries. Since it has been written by that employee and how she has received the data is not known to me. However I shall try to explain. the same later on after consulting my employee Accountant."
5.2. The second instance relating to the explanation of this paper was done by the letter dated 11.05.2001 by the assessee addressed to the Add!. DIT, (Investigation), Pune which has also been quoted verbatim by the concerned Assessing Officer at the relevant point of time.
5.3. At the stage of the proceedings before the first appellate authority, the Assessing Officer was asked to examine the exact dates of purchases and sales of land and payments made to sellers of land and details of amount received from purchasers of land vis-à-vis details of expenses claimed as shown on page No. 17. Detailed verification of regular books of accounts and other registers vis-à-vis entries on this page was required to be made so as to work out exact figure of undisclosed income. Apart from this perusal of para-11 of the assessment order reveals that the assessing officer has apparently conducted the enquiry and found that no dispute with the figures noted on the relevant page no. 17 and certain queries were made with regards to the same by the Assessing Officer at the relevant point of time.
5.4. The CIT(A) observed that the Assessing Officer issued a notice u/s 142(1) on 6-1-2003 wherein details on various aspects of the search have been called for in general. In this first notice u/s 142(1), the Assessing Officer has 9 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 required the assessee to explain the contents of page no. 17 in detail. The Assessing Officer has also taken note of a letter filed by the assessee in respect of these notings and has required information about holdings of stocks/plots in the individual name. The part of the notice is given hereunder:
"Page No. 17 .' The contents noted on this page are required t be explained in detail. While explaining the element of profit revealed out of it also requires to be clarified. You have already filed a letter in respect of the noting, however, the information about holding of stock/plots in the individual name requires to be clarified in detail. The date wise details of purchase and sales about the transactions on the basis of noting on this page require to be explained.
You are requested to file a statement showing exact date of purchase and sale of land and payment made to sellers of land, date wise receipt from the customers noted in the above page vis-à-vis details of expenses claimed as shown in the above page. Please analyze the details noted in the above page no.17 with reference to your books of accounts."
5.5. Thereafter a notice u/s 142(1) dated 23-4-2003 which has been served on the assessee on 24-4-2003. It is clear from this second notice that the Assessing Officer has prepared trading account on the basis of seized paper no. 17 and thus the closing stock has been taken at a value shown in the seized paper. It was clear from the aforesaid notice that the Assessing Officer was not in any way disputing the fact relating to the assessee having books of accounts at the point of hearing before him. The entries on page 17 were weighed on the mind of the Assessing Officer and these only formed the basis of making the addition of undisclosed income which has been made for the block period as a whole and not for different assessment years in the block period.
10 ITA No. 647/PN/04Sairang Developers Block period: 1997-98 to 2002-03 5.6. The perusal of the submissions dated 25-2-2003, which is a part of assessment order shows that the assessee has submitted as under:
"BUNDLE NO. 2 (PAGE NO. 17) This page contains a Tentative Projected Statement for the management information purpose prepared manually by clerical staff around in the month of February 2001. It contains projected funds flow details for the various projects of the Company as to total tentative land area purchased, total tentative cost thereof, total amount paid therefore and - balance to be paid.
We wish to draw your kind attention to the fact that while preparing the projected/tentative funds flow statement on page no. 17, the person preparing the said statement has not followed any standard method of accounting regularly employed by the company in respect of purchases, sales, quantity and stock valuation, etc. and prepared the statement entirely at its own judgment and discretion.
Further, the clerical staff has prepared the statement to please the employer and therefore the said statement is not free from clerical errors / omissions, etc. Since the statement was prepared by the clerical staff and therefore not knowing all accounting principles and prepared the statement in half- hazard way to please the employer. It also includes details as to tentative total plot booking assumed as sales, total amount so far received inclusive of post dated cheques received against plot booking and balance to be received on account of plot booking and in few cases on account of sales.
Further it shows the tentative stock of land remaining in hand after plot booking and in few cases sales to customers. The tentative stock of land in hand was not valued at cost as per regular method of stock valuation.
Detailed note on the columns contained in this statement is as under :-1) NOTE ON COLUMN NO. 1
This column contains names of the various projects 11 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 developed by the company. There are total seven projects undertaken by the company for development/plot booking and Project at Sr. NO.8 named as "School 12/9" belonging to M/s. Sairung Developers Prop. Shri K.M.A. Rasheed.
Every individual project is created by consolidation of various lands located at different survey nos. at different villages acquired by the company for development/plot booking. Kindly refer separate sheet enclosed herewith giving brief of survey nos., village, area acquired, etc.
2) NOTE ON COLUMN NO. 2 NAMED AS "TOTAL LAND COST"
This column pertains to project wise aggregate total amount of the various lands already acquired and proposed to be acquired for consolidation of land for a particular project, irrespective of payments made for acquiring those lands.
The company purchases the land from the land owners/ farmers vide agreement to sale/sale deed/Power of Attorney and the balance consideration is paid over deferred period as per mutual terms.
Kindly refer Annexure A1 TO A8 enclosed herewith giving the brief details of total amount in respect of each land acquired and proposed to be acquired of every individual project.
3) NOTE ON COLUMN NO. 3 IN RESPECT OF PAID:
This column contains project wise actual aggregate payments made to the various landowners."
The company has issued the cheques for the payment towards such purchases and on few occasions company has paid cash. The details of amounts paid in cheque or cash towards various land purchase transactions are briefed in Annexure A 1 to AB enclosed herewith.
All cheques payments and all the cash payments except aggregate cash payments of Rs.20,91,2501- are already accounted in books of accounts and computerized account extracts enclosed herewith to Annexure A1 to A8 corroborate to this fact.
Out of above said aggregate cash payment of Rs.20,91,250/-, 12 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 cash payment of Rs. 15,00,000/-pertains to Sairung Villa Project of M/s. Sairung Developers & Promoters (P) Ltd. and Rs. 5,91,250/- pertains to Sairung School 12/9 belonging to M/s Sairung Developers Prop. Shri K. M.A. Rasheed.
The aforesaid cash payment of Rs. 15,00,0001- in respect of Sairung Developers & Promoters (P) Ltd was made out of undisclosed income of the proprietor and the same has already been declared in the Block Return for the above said Block Period.
4) NOTE ON COLUMN NO. 4 NAMED AS 'BLC TO BE PAID"
The aggregate amounts appearing in this column are worked out after deducting aggregate figures/amounts of column No. 3 from the aggregate figures/amounts of column No. 2 in respect of lands already acquired and proposed to be acquired.
5) NOTE ON COLUMN NO.5 NAMED AS "TOTAL SALES":
This column pertains to aggregate amount of plots bookings including post dated cheques (i.e. P.D.C.) received as well as receivable and plot sales including amount receivable against sales.
Further it is useful to note that, the Company is accounting the sale/transfer of plots either on sale deed basis or on the basis of possession of land/plot after receipt of full consideration which ever is earlier as per definition of 'Transfer" in the I. T. Act.
In respect of plot booking, the company accounts for the amounts received including only P.D.C. realized, under the accounting head as ADVANCE FROM CUSTOMERS under the head of CURRENT LIABILITIES of the Balance Sheet of the Company and only after the receipt of entire consideration and consequent to its sales deeds/possession of plots, the amounts received in respect of plot booking and appearing in CURRENT LIABILITIES are transferring to SALES. In respect of Sale Deed/Possession of plots, the total sales amounts are credited to sales appearing in the Profit * Loss Account and balance receivable if any against sales are appearing under the head "RECEIVABLE FROM CUSTOMERS" under the Current Asset is Balance Sheet of the Company.
The company is accepting bookings of plots from the 13 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 prospective customers by accepting the token amount and granting the installments ranging maximum upto 60 monthly installments, In such plot bookings, the company neither give any possession of plot/land nor creating any right, title, interest whatsoever in nature in plot/land and only after receipt of full consideration the possession/sales/transfer are effected vide sale deed, Total sales consideration for the proposed plot/land and payment schedule is mentioned in the booking agreements/letters/sale deed with the prospective customers, The amounts of booking agreements is also included in the column "Total Sales" to arrive the projected present tentative fund flow.
Thus it is useful to note that the major amounts appearing in the column no,5 named as 'TOTAL SALES" are the aggregate amount of total plot booking amounts received and receivable including P.D. C. amounts as explained above, We wish to draw your kind attention to the fact that the entire aggregate amount appearing in column No. 5 is already reflected in the regular books of accounts, Looking to the above facts and circumstances, your honour will appreciate that the aggregate amount appearing in the column No. 5 is not sales, Kindly refer Annexure B 1 to B 7 enclosed herewith giving the brief details of project wise total plot booking/sales inclusive of amount of P.D.C. received/receivable,
6) NOTE ON COLUMN NO. 6 NAMED AS 'RECD' This column reflects the project wise aggregate actual amounts received from customers including amount of post dated cheques (P.D.C.) The prospective customers pay the amount in installments ranging maximum upto sixty installments by giving post dated cheques, In case of P.D.C. received, entries are made in books of accounts only after realization of those P. D. C. and whereas the column No. 6 named as "RECD," Reflects total aggregate amount including P.D.C. received but not realized, It is useful to note that the marketing personnel who maintains the project wise Booking Register record the entire Post Dated 14 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 Cheques received/receivable in spite of the fact that the said P. O. C. are not realized.
Kindly refer ANNEXURE B1 TO B7 enclosed herewith which give the brief details of amounts received and reconciliation enclosed herewith also give brief details of amounts received as per regular books of accounts and amounts appearing in column no. 6.
The aggregate amount actually received including the P.D.C. realized appearing in the column No. 6 are already reflected in the regular books of accounts. And the same can be easily cross . verified.
7. NOTE ON COLUMN NO. 7 NAMED AS RECEIVABLE.
The aggregate amounts appearing in this column are worked out after deducting aggregate figures/amounts of column No. 6 from the aggregate figures/amounts of column No. 5 in respect of plot booking/sale including P.D.C. received and receivable.
Thus this column of the statement also included the aggregate amounts receivable in respect of plot booking even though the sales/possession of the said plot booking were not made and whereas in the books of accounts amount receivable from customers are appearing only after sale/possession of plot as explained above.
8) NOTE ON COLUMN NO. 8 NAMED AS "PURCHASE AREA.
This column represents project wise total aggregate area in sq. ft. of the land acquired/proposed to be acquired. The same can be verified from the Annexure A 1 to A8 enclosed herewith.
This area column is related to the Column No. 2 named as "Land Cost" relevant to total land acquired and proposed to be acquired.
We wish to draw your kind attention to the fact that the land area mentioned in the column 8 are entirely covered by the land cost mentioned in column nO.2 of the same statement and vice versa.
It is useful to note that while developing/plotting the land, 15 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 part of the area of the land is used for internal road, open space, children play park, and for other common amenities. And therefore, after deducting the land for the road and other amenities as above said, the net area is only available for the purpose of sale. "
9) NOTE ON COLUMN NO.9 NAMED AS "SOLD SQ. FT"
This column pertains to project wise aggregate total area in sq. ft. for the plot bookings including P.D.C. cheques received and receivable and plots sold including the area of internal road and other amenities as explained above.
The area of the internal road and other amenities are wrongly included in sales area.
This area column is related to the Column nO.5 named as "Sales" relevant to total amounts received/receivable against plot bookings including P.D.C. received/receivable and sale of plot's. The same can be verified from the Annexure B1 to B7 enclosed herewith.
We wish to draw your kind attention to the fact that the land area excluding area of internal roads and other amenities mentioned in the column 9 are entirely covered by the sales/ plot booking amounts including P.D.C. received/receivable mentioned in column no. 5 of the same statement and vice versa.
10) NOTE ON COLUMN NO 10 NAMED AS " STOCK"
This column is indicating the aggregate project wise balance area worked out after deducting the area mentioned in column no 9 related to plot booking/sales and the area left! reserved for internal road, open space and other amenities as explained above from the area mentioned in column no 8 related to total land area acquired/proposed to be acquired.
11) NOTE ON COLUMN NO 11 NAMED AS " VALUE" ( i.e. STOCK VALUATION:
This column represents project wise total aggregate valuation of stock made by the person who has prepared this statement. The stock might have valued on the basis of quantity mentioned in column no 10.16 ITA No. 647/PN/04
Sairang Developers Block period: 1997-98 to 2002-03 It is worth to note that after the verification of the stock valuation, your honour shall certainly observe that the" stock was not valued certainly at cost as per regular method of accounting followed by the company. Looking to the fact, the valuation of the stock made by the clerical staff shall be ignored.
12) NOTE ON BOTTOM PART OF THE STATEMENT:
The bottom part of the statement represents the actual year wise expenditure incurred by the company from 1997 to December 2000 grouped in the statement under major expenditure head.
The column no 4 of the bottom part of the statement reflects the year wise summary of aggregate expenditure since F. Y 97- 98 to 2000-01.
All the aggregate expenditure mentioned in the statement has already been reflected in the regular books of accounts and relevant profit and loss account and other financial statements of the company.
Kindly refer annexure C enclosed herewith showing the break up of the aggregate expenditure mentioned in the statement and the same can be easily cross verified with the account extracts enclosed herewith and the books of accounts.
Looking to the above facts and circumstances and after verification your honour will appreciate that the statement on page no 17 is the tentative projected funds for statement prepared by the clerical staff solely to please the employer and containing clerical errors and omissions and prepared without following any standard accounting principles. Therefore, the statement on page no 17 is not valid, authenticate and bona- fide legal statement and therefore the same can not be relied upon.
Further, the supporting documents enclosed herewith corroborate to the fact that the statement on page no 17 is tentative projected funds flow statement. It is useful to note that no supporting incremental documents/papers were found in seized documents in respect of statement on page no 17.
We therefore request your honour that in view of the above facts and circumstances, the statement on page no 17 shall 17 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 not be relied upon and therefore the said statement shall be ignored."
5.7. From this the CIT(A) observed that the assessee had given it's version in detail regarding the nature of the page nO.17 and also pointed out that it was prepared manually by the clerical staff in the month of February, 2001. In this background, the CIT(A) observed that the above said paper was written by the Accountant of the company. It was also observed that the Accountant at the relevant point of time was not in the employment of the assessee but at latter stage appeared before the Assessing Officer during the assessment proceedings time and again. First of all, the Assessing Officer was required to examine the writer of the page no. 17 with regard to various entries before arriving at any reasonable conclusion about the same. However, the Assessing Officer did not examine this Accountant at any stage though she was supposed to have explained the page no. 17 of bundle no. 2 to the Assessing Officer on 7-4-2003 as per page 2 of the order sheet in the assessment records of the Assessing Officer and has also correlated the same with page no. 55 of bundle no. 6.
Apart from this, the said Accountant Mrs. Meera Satish Nair also filed an affidavit on behalf of the company during the appellate proceedings which read as under:
18 ITA No. 647/PN/04Sairang Developers Block period: 1997-98 to 2002-03 "I undersigned Mrs. Meera S. Nair, wife of Mr. Satish N. Nair, Age 36 years, Occupation - Service, presently residing at Gopurathingal House, Neruvisser, P.O. Arawtupuzha, Trichur, Dist. Keral 680562 and presently arrived in Pune and earlier working as an accountant of Sairang Developers & Promoters Pvt. Ltd./M/s. Sairang Developers of Pune do hereby state and affirm on solemn affirmation as under:
1. That earlier, I was working as accountant with Sairang Developers & Promoters Pvt. Ltd. & Sairang Developers from 1998 to March 2001 and later on January to August 2003.
2. That I had prepared the projected statement of Fund Flow showing the project wise tentative details in respect of purchases, including the tentative future project proposals, sales including the total aggregate of plot booking advances received and aggregate tentative future installments receivables including unrealized post dated cheques showing the area sq.ft. of sales/purchases/stock, area of road/common amenities clubbed in sales area, and stock was valued at tentative market rates.
3. That the above said tentative statement was prepared only for management purpose to plan the tentative future/projected field flows.
4. That the above said tentative projected statement was prepared manually by me in half hazard way for management purpose only.
5. That above said tentative statement was prepared without following any standard accounting method/system and without stock valuation method regularly employed by the appellant in respect of purchases/sales/stock valuation/ quantity etc.
6. That the above said tentative statement was prepared entirely at my discretion/judgment and therefore the said statement might be subject to errors and omissions.
The above statements are true & correct to the best of my knowledge and belief Solemnly affirmed at Pune on 21s1 November, 2003."
5.8. Apart from this, the CIT(A) observed that Mrs. Meera S. Nair who was the author of the impugned paper was not examined during the assessment proceedings. However, she 19 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 was produced before the CI(A) and was cross examined by the assessing officer. All the details of the statement recorded on 22.12.2003 revealed the details of the transaction in question as per annexure 3 attached to the appellate order.
STATEMENT ON OATH OF SMT MEERA SATISH NAIR, WIFE OF SATISH N. NAIR AGE 36 YEARS RESIDENT OF GOPURTHINGAL HOUSE, NERUVISSERY P.O. APATTUPUZHA, TRICHUR, DISTI. KERALA RECORDED ON 22-12-2003 AT 1.00 P.M. DURING THE APPELLATE PROCEEDINGS IN THE CASE OF M/S. SAIRANG DEVELOPERS AND PROMOTERS PVT. LTD. (FOR BLOCK PERIOD ENDING ON 11-4-2001) AT TE OFFICE OF COMMISIOSNER OF INCOME TAX (APPEALS) I PUNE Oath is administered in the name of God Sd/-
(Smt. Meera S. Nair) R.J.LAHOTI, CA. is the witness. A. Sundaram, DCIT. Cen. cir. l(I), Pune is present 011 the behalf of the assessing officer. EXAMINATION IN CHIEF BY·THE APPELLANT'S REPRESENTATIVE SHRI.R.J.LAHOTI A.I My Name is Smt. Meera\Satish Nair. I was working with Sairang Developer's & Promoters Pvt. Ltd. from May, 1998 to March, 2001 and again from January, 2003 to 311t August, 2003. At present, I am residing in Kerala had not working anywhere.
Q.2 What is your qualification and what work were you doing in the above company?
A.2 My qualification is B.A. in Economics from Calicut University, Kerala. I was working as an Accountant in the above company and was carrying on entire accounting including computerized accounting and management information system.
Q.3 Where were you when search was conducted on 11.04.2001 in the above said company?
A.3 I had resigned the job in March, 2001 and went to Kerala. I was in Kerala during the search conducted in the above said company.
Q.4 When and how did you come to know about the search in the above said company?
20 ITA No. 647/PN/04Sairang Developers Block period: 1997-98 to 2002-03 Ans.Mr. K.M.A. Rashid alias K.R. Malik, Managing Director of the Company had intimated me about the search in the month of May, 2001 after search took place. Q.5 Have you filed an Affidavit on 21.11.2002 giving the brief facts of the seized page no.17, bundle no.2. seized during the search in appeal proceedings of the above said company?
Ans. Yes, I have filed an affidavit before Hon. CIT (A)-I, Pune in respect of page no.17, bundle no.2 during the block appeal proceedings of the above said company. Q.6 Please go through the: page no.17 of bundle no.2 and confirm that whether you have you prepared the page Do.17 of bundle no.2 and when?
Ans. I have gone through page no.17 and confirm that I had prepared the page no.17 in Feb. 2001.
Ans. It was projected rough statement of fund flow showing the project wise tentative details in respect of purchases including the tentative future project proposals, plot booking also wrongly treated as sales in page no.17 including the total aggregate of ~lot booking advances and tentative future installments receivables including unrealized post dated cheques showing the area sq.ft. of sales/purchases/stock, area of road/common amenities wrongly clubbed in sales area and stock was valued at tentative market rate.
Q.8 What was the purpose of preparing page no.17 and on whose instruction it was prepared?
Ans. Mr. Malik, M.D had instructed me. He wanted to know how much amount had to be paid to the farmers/what is the liability, how much stock will be there because company had to pay huge amount to farmers and he had to know how much amount he will get from the sales including advances.
EXAMINATIN IN CHIEF IS OVER.
CROSS EXAMINATION OF MRS.MEERA S. NAIR BY MRS.A. SUNDARAMA, DCIT, CENTRAL CIRCLE. l(l), PUNE ON 22.12.2003 AT 3.00 P.M. Oath is administered in the name of God Sd/-
(Meera S. Nair) C.Q. 1 I am showing you page, no.17 of bundle no.2 which is written in pencil. Please say when you made it and who told you to make to it and from where you got the data to make it?
Ans. I made in Feb. 2001 on the directions of Shri.K.R.Malik, Managing Director of the company and I made it with the help of the regular books of accounts, booking register and a note book in which details of future 21 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 purchases were dictated by Mr. Malik.
C.Q 2 : Kindly explain the various columns on the upper half of page no. 17?
Ans : First column is "projects" which gives the various projects of the company. The second column "land cost"
which gives the details of cost of each project as per the books of accounts as well as the future purchases from the note book as told by Mr. Malik and noted by me. The third column "paid" gives the details of the amount paid for each project. The fourth column is "balance to be paid" is the difference between the second and third column. The fifth column is "total sales" which is the sale amount as per the books of accounts for the sales which has been completed and also includes the total sale price of the plots against which booking advance has been received. The sixth column "received" is the actual amount received against sales as per the books of accounts and the amounts received against the plot booking shown as liability in the books of accounts. The next column 'receivable' is the difference between previous two columns. The next column 'purchase area' is the area in sq. ft. of different projects including the future purchases. The next column "sold/AT/RD" reflects actual sales and the plot booking area including road and amenities. The next column "stock"
is the difference of earlier two columns and the figures written below the stock figure in this stock column gives the market value of the projects per sq.ft. as told to me by the marketing people Shri.Babu, director and Mrs. Beena Gonzalvis. This is the maximum rate which is expected 0f these projects. The last column gives the total market value of the closing stock.
The lower half of the sheet page no. 17 contains the details of expenditure incurred for the years 1998, 1998, 2000 and 2001 totalling to Rs. 5.04 crores as per the books of accounts as on February 2001. This was worked out by me as Mr. Malik wanted to know the difference between the total receipts and the total payments. There is another figures of Rs. 6,45,000/- below column 4 to be payable to soma roma Benuse for the project Sairang Medo. C.Q. 3 : Whether this is the first time you have made this statement or regularly you prepare such statements? Q. 3 : Who asked you to file the Affidavit dated 21.11.2003 submitted before me and who drafted the contents thereof? Ans : Mr Malik asked me as ·to whether I could file an affidavit before the Income tax authorities and I agreed for the same. Mr.Khaladkar, Advocate drafted the contents. Q. 4 : What was the purpose of filing this affidavit and what have you stated therein?
Ans : The purpose of filing this affidavit was to state that page no.17, bundle no.2 has been written by me and that it was tentative statement of projected fund flow. The purpose of this statement was to help the company to find out it's 22 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 receivables and payables in Feb. 2001. This statement was prepared by me under the guidance of the company directors and with the help of the books of accounts and booking register. The assertion made by me in point 4,5 and 6 of the above affidavit may accordingly be considered modified. While the preparation was done by me, I took the help of the records and the concerned persons for knowing the market data and future purchases. Of course, as I am not a commerce graduate, I did not take the valuation as market value or cost, whichever is lesser. Q.5 : When the purpose 'of the statement prepared was to find out receivables and payables, please state as to why any other system than that has been followed regarding market value etc. should have been taken by you? Ans: I am not sure.
Q..6 : Between May, 2001 and January, 2003, did anybody from the company give you a copy of page no.17 and asked for any clarification?
Ans. No. The first time I saw page no. 17 bundle no.2 was in January, 2003 when it was shown to me by Accounts people in Pune.
Q.7 : Please let me know as to why you did not file any affidavit between January, 2003 and November, 2003 and what prompted you to file the same now?
Ans. I appeared during assessment proceedings and explained the paper to the assessing officer. Now that I am in Kerala, our Consultant thought it fit to explain the truth I file the affidavit.
Q.8 : Are you aware that the contents of your affidavit and the contents of the statement above are contradictory at several points?
Ans: Yes.
Ans. Regularly I do not make this statement. Only in December, 2000 I made it once and second time I made it in Feb. 2001.
C.Q. 3 : Why did you make the statement on page no. 17 of bundle no. 2?
Ans. Mr.Malik, M.D. wanted to know the position of amount payable to the farmers and how much amount is to be received from the plot booking as well as the stock left. We had lot of liabilities of farmers.
C.QA What did you do with the notebook on which future purchases were written by you as dictated by Mr.Malik? Ans. When I left the service in March, 2001 I kept with me only as it was of no use. I might have destroyed it later. C.Q.5 Who asked you to maintain this notebook and who asked you to destroy the same?
Ans. I maintained it for my purpose only to record details required to prepare the statement etc. Nobody asked me to destroy it.
23 ITA No. 647/PN/04Sairang Developers Block period: 1997-98 to 2002-03 Questions by CIT(A)-I Pune.
Q.I When did you join the company and in what capacity? Ans I joined the company in May, 1998 as an Accountant. I left it in March, 2001. I rejoined it in January, 2003 to leave again in August, 2003. I joined as an Accountant. There were only two people in the Accounts Department during my first tenure, the other being Mr. Sunii Aranke, M.Com. I used to look after cheque preparation, data entry and booking register whereas Mr. Sunil was looking after balance sheet work and banking matters. During my second tenure, I was called to assist only for Income tax assessment work and there were two other persons including Mr. Sunil in the Accounts Department.
Q.2 How did you come to know about the search in Sairang Developers. Who informed you and what was the exact communication to you?
Ans: I came to know of it in May, 2001 when Mr. Malik informed me over phone. I offered to help in whatever way possible and I felt bad. He informed me about the seizure of papers including paper no.17 in question. He did not either inform me the contents thereof in detail nor did he ask me to explain the same.
RE-EXAMINATION BY SHRI R.J. LAHOTI, CA.
Re-examination denied by Shri R.J. Lahoti, C.A. Read, understood and found correct.
Sd/-
(Smt. Meera S. Nair) Recorded before me Sd/-
(Pradeep Sharma) CIT(A)-I Pune.
5.9 It is observed by the CIT(A) that an important issue which required to be addressed at this stage was the claim of the Assessing Officer that the assessee did not maintain books of accounts and no books of accounts were found and seized.
This observation has been made by the Assessing Officer in contra distinction to para 11 of the assessment order quoted below and para 13.7 of the assessment order which reads as 24 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 under:
'Thus, there is no dispute as regards the facts and figures noted on this seized paper no. 17 which gives the final consolidated position of business affairs of assessee company. In connection with the above information a query was also raised during statement recorded u/s 131 of the Managing Director, Shri Rashid on 4-6-2001 who replied in response to Q.No. 2 that entire expenses as shown in this page have been shown in regular books of accounts for respective assessment years. It was also submitted by him that all such expenses were recorded as summary of revenue expenditure on various items and also consolidated figures have been shown in this page".
5.10. Besides this, having gone through the submissions made on behalf of the assessee, CIT(A) also opined that the statement on oath of the Managing Director of the assessee, panchanama prepared at the time of search and subsequent assessment proceedings, that the findings of the Assessing Officer in this regard is contrary to the facts on record. As per panchanama giving inventory of documents/papers seized, items no. 9 to 12 refer to computerized cash book and bank book for A.Y. 1997-98 to F.Y. 1999-00. Besides this, in the first statement u/s 131 recorded by the investigation Officials, the Managing Director has time and again referred to the books of accounts on computer at the time of search itself.
The computers were existing at the time of search is also borne out by the order u/s 132(3) dated 16-4-2001 wherein the first item is folders, documents, computers kept in the cabin where seals have been placed on that date. In the statement on oath of the managing Director before the ADI (Inv) there are frequent references to regular books of accounts and there was clear cut mention of production of regular 25 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 computerized books of accounts before the DDI (Inv). A copy of assessee's letter dated 5-6-2001 before the ADI (Inv) is given in Annexure 4 to the appellate order and the same makes it clear that the books of accounts were produced at least before the Investigation Officer. The CIT(A) also observed that in the notice u/s 142(1) dated 6-1-2003 the Assessing Officer has time and again referred to regular books of accounts and clarification with reference to the same in so far as the seized material was concerned. However, at no stage the Assessing Officer has referred to non-existence of books of accounts. In fact, he has, in the order sheet entry dated 2-11-2003 referred to verification of the details filed by the assessee besides the clear cut mention of correlation of page no. 17 in the order sheet dated 7-4-2003. In this background, the CIT(A) was surprised that such an important aspect remained to be brought on record. In the light of these facts on record of the department there is no justification in the stand of the Assessing Officer in para 13.1 of the assessment order which was contrary to his own stand in para 11 of the assessment order with regards to books of accounts.
5.11 . In this background, the CIT(A) observed that it would be necessary to point out that the Assessing Officer was given an opportunity to submit a remand report on various submissions of the assessee before him and the remand report has been submitted by the Assessing Officer through Addl. CIT through letter No. Addl. CIT/Central Range -1/282 dated 29- 10-2003. An important point which has been noticed by him ins in para 12 of the remand report which reads as under:
"In para C of the submissions the assessee has claimed that the information on page no. 17 is already 26 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 reflected/disclosed in the seized record/books of account/regular return excluding the proposed/projected business proposals. On verification of the contents noted on this page it is seen that there is no such marking on this page indicating assessee's contention as proposed or estimated and hence the submissions of assessee is not commensurate with the contents noted on this page".
5.12. The CIT(A) further observed that there was an important marking on page 17 which read "receivables" and the same has also been noted by the Assessing Officer while reproducing it on page no. 5 of the assessment order itself. Thus, it was not found correct to say that this paper has no marking relating to or indicating the assessee's contention that it was proposed or estimated, albeit in an indirect manner. In any case, the marking was there and the term "receivables" was required to be looked into and not merely ignored. The connotation of the term was an important aspect for working out the true intent of the page no. 17. Further, coming to para 13 of the remand report coupled with the statement on oath of the Accountant (refer to C.Q. 2) it was observed that the stock has not been valued at an estimated market value. It has been clearly stated by the Accountant in the statement u/s 131 that the stock has been as per the marketing value of the project per sq. ft. as told to her by the marketing people of the company. In fact, she has even confirmed that the last column gives the total market value of the closing stock. It was also noted by the CIT(A) that in the relevant column of stock, the rate has been shown separately for different projects as multiplication to the area of the stock left. In such a situation it was not justified to say that the stock has not been shown at market value. Further relevant page no. 17 did not bear any date and therefore the whole 27 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 interpretation that has been worked out by the Assessing Officer was without any evidence having been on record before him. In fact, in response to question no. 6 in the statement on oath before the CIT(A) that the Accountant confirmed that this page was prepared by her in February 2001. In such a situation, even if the addition is enquired to be made, it could have been made only in A.Y. 2001-02 after duly applying the relevant provisions of Income-tax Act including section 145 of the Act. Merely rejecting the contention of the assessee without going through the evidence on record or by ignoring part of the evidence on record, such as, the rates having been mentioned in the stock column itself, would certainly not lead to a proper conclusion. The CIT(A) further observed from the assessment order that in the remand report in para 14, the Assessing Officer has referred to the books of account not having been there at the time of search. This observation of the Assessing Officer was not based on any verifiable evidence in so far as the notice u/s 142(1) sent by the Assessing Officer himself in April 2003 also refers to the books of accounts with which the assessee was required to compare the trading account worked out by the Assessing Officer.
5.13 In this background the CIT(A) observed that it would not be correct to say in the light of an uncontroverted statement on oath u/s 131 at the time of search and therefore indirectly admitted in the notice u/s 142(1) sent by the Assessing Officer towards the end of assessment proceedings in so far as the books of accounts are concerned. It was also noted by the CIT(A) that if the books of accounts were not there, the Assessing Officer was required to make reference of the same in the notices issued and the assessee of the same during the 28 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 assessment proceedings itself. The CIT(A) further observed that as per letter dated 3-2-2004 received from the office of the CIT (Central) a request was made for allowing permission to the Addl. CIT Central Range 1,Pune to submit an additional remand report. The additional remand report was submitted by the Addl. CIT on 12-2-2004 and a copy of the same was enclosed to the appellate order as Annexure 5 which reads as under:
Sub:- Appellate proceedings in the case of M/s. Sairung Developers & Promoters (P) Ltd.Supplementary Remand report - reg No. Pn /Addl. CIT{C)/ Rg-l,l2003/04/455 Office of the Additional Commissioner of Income-tax (Central) Range 1, Pune Date: 11-02-2004 Forwarded to the Commissioner of Income Tax(Appea1s), Pune for further necessary action.
2. The DCIT Cent. Cir. 1(1) Pune attended before the CIT(A) on 23/10/2004 and cross examined Smt. Meera Nair ex-
employee of M/s. Sairung Developers and Promoters Pvt. Ltd. No intimation about such developments at appellate proceedings was received in this office from " the CIT (A)I, Pune. Even the DCIT Cent. Cir 1(1) discreetly attended the proceedings without appraising undersigned and the undersigned was thus recanted/preempted of availing opportunity to attend before the CIT(A) to give rebuttal to the contents of the affidavit filed by Smt. Meera Nair. In this case of M/s. Sairung Developers and Promoters Pvt. Ltd. an addition of Rs. 7.66 crores has been made on the basis of seized papers. Therefore, in order to strengthen the department's case, the directions of the DGIT (Inv) that the Addl. CIT should represent the cases before CIT(A) could not be carried out for want of communication both from A.D. and CIT(A). it is also vital to mention here that the DCIT Cent. Cir. 1(1) Smt. A. Sundaram was not the A.O in this case and since search assessment order was passed with previous approval of the Addl. CIT CR.l. It, therefore, becomes obligatory for the DCOT to appraise the approving authority as regards the representations before the CIT(A) and in· such" approved search and seizure cases, any representation before the appellate authority should be through the Addl. CIT.CR.l and as such representation which has taken place in isolation without proper channel has caused prejudice to the interest of revenue. Therefore supplementary remand report may kindly be considered.
29 ITA No. 647/PN/04Sairang Developers Block period: 1997-98 to 2002-03 Yours faithfully Sd/-
(B.L. MEENA) Addl. CIT (Central) I Pune 5.14 . The assessee was given an opportunity to submit its comments vide submissions dated 16-2-2004 and the same has been marked as Annexure 6 to the appellate order. The Assessing Officer was also given an opportunity to present any additional information that may be considered necessary for strengthening the case of the department and the concerned Addl. CIT CR 1 appeared on 16-2-2004. However, the Assessing Officer was not able to furnish any information on the relevant issue with reference to the panchanama drawn at the time of search, statements on oath u/s 132(4), submissions of the assessee before the DDI (Inv) and various references to page 17 in the assessment order. Thereafter, on the evening of 16-2-2004 a submissions, supposedly final, was received for placing on record from the Addl. CIT which is reproduced as under:
"No Pn/Addl/CIT G.R.. 1/2003-04/465 Office of the Addl. Commissioner of Income-tax CenifalRange-1, Pune Date: 16.02.2004 To, The Commissioner of Income Tax(Appeal)- I, Pune.
Sir, Sub:- Appellate proceedings in the case of M/s. Sairung developers Promoters (P) Ltd. -reg Kind reference is invited to the appellate proceedings 30 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 took place today on 16-02-2004 with the undersigned along with A. O. wherein the contents of the letter dated 22-12-2003 (Annexure-5) filed by assessee had been discussed. In this regard my following submission may kindly be placed on record.
1. Para 3.2.3 The seized paper No. 17 vide bundle No. 2 clearly depict the final consolidated position or business affairs of assessee in respect of a projects launched by assessee during the block period. It gives the details of opening stock, purchases, sales and closing stock in' terms of quantity and value. No books of accounts were either found or seized nor produced by assessee at the time of block assessment proceedings, therefore, the reconciliation done by assessee on the basis of books and comparing such results with the profits arrived at by A. O. on the basis of seized paper is not relevant. This factual aspect has already been elaborately discussed in the assessment order, Remand report dated 23/10/2003 and supplementary remand report dated 12/02/2004 wherein it has clearly been established that the entries depicted on seized papers have not been explained by assessee with reference to his returns of income filed or books of accounts. Further, it is mentioned that question of pointing out any defects in books does not arise in the absence of maintaining such books of accounts.
ii) Para 3.2.4 Coming to the judicial decisions cited in para 3.2.4 of assessee's letter, it is submitted that none of the case laws cited pertain to block search assessment (Search and seizure assessments) and the ratio laid down in these judicial decisions is not applicable in the present case in as much as no books of accounts were found and seized in the case of assessee to compare and tally the entries borne out from seized papers no. 17 and 55.
However, the Hon. CIT(A) may decide the issue on the facts of the case and judicial decisions cited (emphasis supplied).
Yours faithfully Sd/-
(B.L. MEENA) Addl. CIT (Central) I Pune 5.15. In the above letter, the concerned Addl. CIT has submitted that "however, the Hon'ble CIT(A) may decide the 31 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 issue on the facts of the case and judicial decisions cited." The CIT(A) found that the additional remand report submitted by the Assessing Officer was basically a repetition of the assessment order. Regarding the submissions of the Addl. CIT dated 16-2-2004 the main emphasis given was on the books of accounts not being found or seized or produced by the assessee at the time of block assessment proceedings. Besides what has been discussed in the appellate proceedings, at difference places, the CIT(A) pointed out that this stand of the Addl. CIT was not correct as it was not borne out by the records and the legal and factual aspects of the issues described hereunder.
"(i) In the statement u/s 132(4) of Shri. K.Shabbir Babu, director of the appellant company recorded on the first day of the search i.e. on 11.02.2001, there is a direct reference to the books of accounts in question nO.8 quoted hereunder:
"Q.No.8. Do you maintain books of accounts for the business. Please give details thereof? Ans. Yes, we are maintaining books of accounts and all transactions are fed to the computer regularly. and I shall submit the print out in the short time."
In response to question no.10, in the same statement the cash balance as on 31.03.2002 as per cash book has also been given. To quote:
Q.No. 10: Kindly state what is your cash balance as on 10- 4-2001?
Ans: We have completed books for SDPPL as well as proprietary concerns upto 31-3-2001 and as per that closing cash balance of SDPPL was Rs. 15,88,713.11, further no books so far written. In such a situation, it is to be put on record that the books of accounts as on 31.03.2001 were available at the time of search.
(ii) As per Panchanama dated 24.04.2001, copy of which is enclosed as Annexure - 7 to this appellate order, computerized cash book and bank book for F.Ys. 1997-98, 32 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 1998-99 and 1999-2000 were found at the time of search. In the light of this specific mention of the books of accounts in the investigation record, it is not understood as to how the departmental officers are claiming today that the books of accounts were not found at the time of search. It may only be true, if at all, that the books of accounts for the period 01.04.2001 to 10.04.2001 were perhaps not available, but that would not make any difference in reconciling the position which is admittedly for February, 2001 in so far as the seized paper no. 17 is concerned.
(iii) A copy of the seized paper nO.17 submitted by the assessing officer is given in Annexure - 8 to this appellate order. It is note-worthy that the lower half of the page nO.17 has been admitted to be reflected in the books of accounts by the assessing officer in the assessment order and no addition/disturbance on that account has been made. In Para 11 of the assessment order, the assessing officer has admitted that there is no dispute as regards the facts and figures noted on the seized paper nO.17 and has also referred to the statement u/s.131 dated 04.06.2001 of the Managing Director Mr. K.M.A. Rasheed wherein he had stated that all expenses are recorded in the regular books of accounts in the respective assessment years. A copy of the first four pages of the said statement of oath u/s.131 is given in Annexure -9 to the appellate order. It is not understood as to how a part of the seized paper could be considered as being reflected in the regular books of accounts by the revenue and for the other half, they are not able to even accept the existence of the books of accounts. This is something really amiss.
(iv) Legally speaking, it was the duty of the assessing officer to point it out to the appellant that the books of accounts were not found. The principle of natural justice embodied in the Latin dictum "audi alteram partem" only means that a person has right to be heard by way of an opportunity, which should be adequate and reasonable, so as to enable the person affected to meet the case against him. It is this principle which was enforced by a Bench of three judges in Rakesh C. Rastogi V. Appropriate Authority (2002) 253 ITR 94 (SC) setting aside the order of the Appropriate Authority, where the comparative instances relied upon by the appellant were not considered before an order was passed and the~ reasons which prompted the Authority to reject the comparability of the cases relied upon were not disclosed. In 33 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 all such cases, it is clear that a fair opportunity means not only hearing the assessee on the inference drawn, but also giving a further opportunity, when the explanation given is not satisfactory. It is only such opportunity, which meets the requirements of basic principles of natural justice.
v) When the statement on oath of Mrs. Meera Nair, ,ex- accountant was recorded and the cross examination was done by the assessing officer during the appellate proceedings, basically a failure of the principles of natural justice was sought to be made good by the CIT(Appeals) as no queries were raised by the assessing officer from the said author of page No. 17. However, as there is no power of set aside is now available, following the law laid down in the case of Tin Box Co. Vs. CIT, 249 ITR 216 (SC), a proper opportunity was allowed not only to the appellant but also to the department. Even at that stage, the issue of the books of accounts not being present and the figures not being reflected in the regular books of account was not at all raised by. the department either in the cross examination or in any submission subsequent thereto. It would, therefore, not be proper to revert back now and make a seemingly frivolous allegation not based on facts.
(vi) Section 132(4A) raises a presumption that what is found during search belongs to the appellant and that is true. But such a rule is intended to help the search officer to seize the assets when there is no proper explanation for the same. It does not justify the assessment with reference to the seized records without any enquiry on the same. Where it was the assessee's case that the transactions contained in the papers were pertaining to a company of which he was a director, the presumption applicable in the search provisions cannot justify the assessment without any enquiry as to the true nature of the papers seized. This was the law that was decided in Mansukhlal Nanjibhai Patel v Dy CIT (2001 )251 ITR 341 (Guj). Similar view was taken in CIT v P.R. Metrani (HUF) (2001) 251 ITR 244(Kar).
(vii) What we assess is the undisclosed Income of the appellant in the block assessment proceedings. Section
15.~BB envisages a position in which books of account have not been found. But in our case not only there are seized papers and manual registers as has been admitted by the assessing officer in Para 13.1 (and also sales registers referred to by the assessing officer in the same paragraph) of the assessment order. The question is as to whether these registers and papers could 34 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 have been utilized for the purposes of computing undisclosed income vis-à-vis the seized material. At this stage, it would be relevant to look into the following legal aspects of the issue. Section 158 88(1) is as under:
"The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, (wef 1-7-1995 in accordance with the provisions of the Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the assessing officer and relatable to such evidence), as reduced by the aggregate of the total income, or, as the case may be, as increased by the aggregate of the losses of such previous years determined, -
(a) where assessments under section 143 or section 144 or section 47 (wef 1-7-95 have been concluded prior to the date of commencement of the search or the date of requisition), on the basis of such assessments;
(b) where returns of income have been filed under section 139 (wef 1-7-1995 or in response to a notice issued under sub section (1) of section 142 or 148) but assessment have not been made till the date of search or requisition, on the basis of the income disclosed in such returns w.e.f. 1-7-1995 -
(c) where the due date for filing a return of income has expired, but no return of income has been filed, - (A) on the basis of entries as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition where such entries result in computation of loss for any previous year falling in the block period; or (B) on the basis of entries as recorded in the books of accounts and other documents maintained in the normal course on or before the date of the search or requisition where such income does not exceed the maximum amount not chargeable to tax for any previous year falling in the block period;
(ca) where the due date for filing a return of income has expired, but no return of income has been filed, as nil, in cases nor falling under clause (c) ;
35 ITA No. 647/PN/04Sairang Developers Block period: 1997-98 to 2002-03
(d) where the previous year has not ended or the date of filing the return of income under sub section (1) of section 139 has not expired, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course on or before the date of search or requisition relating to such previous years;
(e) where any order of settlement has been made under sub section (4) of section 245D, on the basis of such order;
(f) where an assessment of undisclosed income had been made earlier under clause (c) of section 158BC, on the basis of such assessment."
While discussing this issue, Hon. ITAT Mumbai Bench has in the order of Shri Bhupendra M. Shah, Kailash Chand Jain & Co. Vs. DCIT SR 51, Mumbai in IT(SS) A No. 87/MUM/98 reported in PCAS Journal Vol. 1 Part (December 2002) held as under:
"The scheme of block assessment also takes into consideration the non maintenance of conventional books i.e. cash book and ledger, and therefore, it postulates that the disclosed income should be adopted as per the entries in the books of accounts and documents etc. If the sole emphasis of block assessment was on maintenance of regular books, the same should have been provided clearly and the words "documents maintained in regular course" would not have been in the sub-section. The sole reason of A.O's making the addition is that the books were written after the search. The assessee relied on ITAT Mumbai Bench decision in the case of Shri Babu Samuel Vs. ACIT in IT (SS) A No. 8/MUM/97. In this case also, the assessee had written the books after the search. The A.O made the addition regarding the source of cash only on the ground that the books were written after the search."
In view of this clear cut position of law, the emphasis by the Addl. CIT CR 1, Pune is entirely misplaced.
(viii) It is on record that the appellant had produced books of accounts before the DDI (Inv) and this aspect has also been brought out by the appellant in it's submission dated 16-2-2004 in which a copy of letter 36 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 dated 5-6-2001 before the DDI (Inv) has been enclosed by the appellant in the letter dated 16-2-2004. Not only this, the appellant has also submitted detailed extracts from books of accounts before the Assessing Officer during assessment proceedings as discussed later in this order."
5.16 CIT(A) further examined whether in absence of books of accounts, it would be reasonable to draw a inference by drawing the trading account by taking the closing stock reflected on page No. 17 at market value and by totally disregarding the method of accounting regularly followed by the assessee and admitted by the department in the regular assessment proceedings. Hon. Delhi High Court in the case of CIT Vs. Gowar Sons (Pvt. Ltd.), 250 ITR 460 that the trade practices are required to be looked into before recognition of income in seized papers so far as valuation of inventory or stock is concerned. It is settled law that it is open to the tax payer to adopt any recognized method of valuation as long as such method is consistently followed. The assessing officer is bound to accept such method, since it is binding on him u/s 145 of the I.T Act. The Supreme Court in CIT v British Paints India Ltd. (1991) 188 ITR 44 (SC) has clarified that the method should be one, which is recognized' and does not distort the income. Even the adoption of the average price prevailing in the last month of the accounting year as a 37 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 method may be acceptable as held in CIT vs Fazilka Co-op Sugar Mills Ltd (2002) 255 ITR 411 ( P & H ), since there could be no loss for the Revenue in the method followed. It was further observed by the CIT(A) that the value adopted by the assessee was not less than the cost. It , therefore, upheld the order of the Tribunal , which approved the method, because it was consistently followed. The system followed should ordinarily be a recognized one and should not distort the income.
5.17 The CIT(A) further observed valuation of stock is a matter of accounting. Where the assessee has consistently not taken excise element in valuation of stock, and such practice has also been accepted in the past, the matter of valuation cannot ever be subject matter of any proceedings u/s 147. The decision of the Supreme Court in Walace Flour Mills Co Ltd v Collector of Central Excise (1990) 186 ITR 440 (SC) to the effect that manufacture constitute taxable event, it was found, would not be relevant, if as a matter of valuation, it was not consistently taken into account, but all the same not ignored because it was being accounted by treating such liability as crystallized on the date of expanding and accounted on that basis. There is no escapement of income in such cases as had been decided in similar circumstances " in Caprihans India 38 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 Ltd. V. Prakash Chandra (2002) 256 ITR 721 (Bom) following the decision in Hindustan Lever Ltd. V. V.K.Pandey, Jt. CIT (2001) 251 ITR 209 (Bom). Such being the position of law, the system of accounting followed by the assessee, "cost or market value" whichever is lower, is only to be employed in the trading account to compute profits, if any, from the seized paper No.
17. 5.18 After proceedings on 16.02.2004 was concluded, a request letter was received on 17.02.2004 from Mrs. V.Teredesai, DCIT for giving time of one week for further written submissions. On no submissions having been filed on 23.02.2004, the CIT (A) decided to visit the room of ACIT.CR.1 (1), Pune to personally inspect the seized materials once again and perused the case records which had been returned to the assessing officer. It has been verified by him, in the presence of the assessing officer and the ITO of the Circle that, while the case records were sent to the CIT(A) only in one folder, the regular submissions of the assessee during assessment proceedings, in one box file were separately kept in the almirah of the officer. Incidentally, this box file contains full and complete details of the submissions of the assessee including the copies of account submitted by the appellant during the assessment proceedings before the assessing officer 39 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 and most of which had been submitted before the CIT(A) in the paper book form vide letter dated 09.06.2003. Thus, what ever had been produced by the assessee before the assessing officer has only been produced before the CIT(A) and it gives a full and complete explanation of the assessee with regard to the seized paper No. 17 with the help of extracts of books of accounts. The CIT(A) was surprised that the same has been totally ignored by the assessing officer in the assessment proceedings and thereafter the same has also not been produced before him along with the case records. In this background the CIT(A) observed that there was no need for any further submissions by the departmental authorities as the issues were crystal clear and sufficient details are available in the assessment records of the assessing officer. As stated above the CIT(A) had already conducted enquiries himself by getting the statement on oath of Smt. Meera S. Nair, author of the seized paper No. 17 recorded before him during the appellate proceedings and giving the assessing officer an opportunity to cross examine her. Furthermore, the assessing officer's remand report has been sent to the appellant and reply of the appellant on the same has been obtained before passing of the final order. Furthermore, in view of the decision of Hon. Karnataka High Court in the case of Shri.Shankar 40 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 Khandasari Sugar Mills Vs. CIT, 193 ITR 669 (Kar), wherein it has been held that the Revenue must act fairly in the matter of assessment as much as it is interested in collecting the tax.
The CIT(A) therefore, proceeded to pass the appellate order in this case. The CIT(A) further observed that the paper book submitted by the appellant during appellate proceedings was sent to the assessing officer for remand report as early as on 09.06.2003. When the officer who has passed the assessment order was in office. Not only this, he was reminded to submit the same vide his letter dated 23.09.2003 as well.
5.19 On perusal of the seized materials CIT(A) further found that ·Mrs. Meera S. Nair, ex-accountant of the assessee, who was the author of the seized paper No. 17 has been making such rough notings from time to time. This got reflected from the seized material A-3-3, which is a diary and on page 4 and 5 thereof there are details of amounts paid to land owners and the balance to be paid as on December, 2000 and June, 2001 i.e. after the date of the search. A copy of the relevant page nos. 4 and 5 of Annexure A-3-3 is annexed as Annexure 10 to the impugned order. Furthermore, in the diary of Mrs. Meera S.Nair seized on 11.04.2001 as per Annexure A-1-8, there are umpteen details of rough entries project wise of the cheques issued and cheques to be received on different dates including 41 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 May, 2001, June, 2001 etc. This reflected that the lady official was regularly engaged in preparing such details of receivables as were reflected in the seized page nO.17. Thus, the seized material itself gives full credence to the submissions of the appellant and the examination of Mrs. Meera S. Nair.
5.20 Before concluding, the CIT(A) observed that the legal position with regard to the two main issues i.e. the estimation of sales and valuation of closing stock was not in favour of the stand that has been erroneously adopted by the assessing officer. The decision of Hon. Mumbai High Court in the case of Estate Investment Co. Ltd. Vs. CIT, 121 ITR 580 (Mumbai) laid down that the profits accrue only when conveyance is executed and registered where mercantile system of accounting is being followed. In so far as valuation of closing stock is concerned, there are well accepted principles laid down by a series of court decisions such as CIT Vs. British Paints Vs. CIT, 188 ITR 44 (S.C) that the valuation of closing stock is required to be done at cost or market price, whichever is lower. Not only this, it is the right of an assessee to adopt a particular system of accounting and the assessing officer has to look at the substance of the situation and decide the matter in such a manner that neither the revenue is put to unreasonable loss nor the assessee is subjected to any 42 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 unreasonable hardship -Shaligram Kanhaiyalal Vs. CIT, 133 ITR 915 (P&H) SLP dismissed - 143 ITR (81.) 65 (SC). In CIT Vs. Hazaribaug Coal Board, 171 ITR 135 (Cal), the practice followed by the assessee year after year In treating the expenditure and reimbursement from Coal Board in it's accounts was held to be a regular method for keeping the accounts. In the present case the assessee has been following a well accepted method of accounting for sales only when registration is done or full consideration is received coupled with well known stock valuation position, cost or market value, whichever is earlier. The CIT(A) found no reason to reject such a regular system of accounting on an ad hoc basis on the basis of a paper, which has been found at the time of search, prepared by an Accountant of the company for a particular purpose, which was required to be properly evaluated by the assessing officer before jumping to the conclusion in the manner which has been done.
5.21 In so far as the valuation of closing stock is concerned, the CIT(A) found that erroneous stand has been taken by the assessing officer as reflected in Para 18 of the remand report by stating as under:
"The assessee claims that" there is no realistic realized reflection of any assets including stock at cost out of exceptional huge profit by A. 0 without any bonafide 43 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 authenticate ground. Therefore the huge addition is made by AO is totally unjustified and hence not tenable."
The claim of the assessee is incorrect in view of the fact that the paper no 17 shows the value of the plot at Rs 7,99,10,613/-. These papers were found and seized in the office premises of the assessee on which assessee is relying for its day to day functioning and as such the assets can be treated as realizable and genuine. Para no 13.8 may also be considered on which it is discussed that such generation of profit and accumulation there of in the land value can not be ignored . In the circumstances the submission made by the assessee has no merits. The value of stock in trade available with the assessee to the amount of Rs 9 crores is a reflection or investment in assets."
On one side, the assessing officer has taken the market value of the closing stock and thereafter called it investment in the assets which is not justified. Another wrong stand which the assessing officer had taken was that the information depicted on page 17 as on the date of search and as noted by the CIT(A) above, the same was not true. The resultant determination of undisclosed income on the basis of these wrong surmises could, therefore, not be considered as proper. In Atulkumar Jain, 64 TT J (Del) 786, Hon. Tribunal has held that the addition on the basis of an uncorroborated seized material on presumptions/assumptions without bringing any corroborative material evidence in support is not justified.
According to the CIT(A), the assessing officer has not indicated any purchase or sale outside the books of accounts or has even tried to examine the position in this regard. As against 44 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 this, in the submission dated 22.12.2003, the assessee has delineated the position of profit as per page No. 17 and the variance in sales have both been reconciled project wise and all this is given in Annexure-11 to the appellate order. In Satnamsingh Chabra, 74 TT J (Lucknow) 976, the ITAT has held that uncorroborated loose papers found during search cannot be taken as a sale for the estimation of undisclosed income. The ITAT Pune Bench in the case of Khopade Kishanrao Manikrao Vs. ACIT, 250 ITR 18 (AT) and the ITAT, Delhi Bench in the case of Amarjit Singh Bakshi (HUF) Vs. ACIT (decision of third member) 263 ITR 75 (AT) has taken similar view.
5.23 In view of the aforesaid discussion on various aspects of the issues involved and after going through the submissions of the appellant and facts of the case, the CIT(A) concluded that page 17 Bundle No.2 gives a rough working of the estimated profits of the company from different projects which would arise in future. The stand of the assessing officer that the assessee is following mercantile system of accounting is correct but that would not permit the assessing officer to take the value of the stock at market value as against the cost.
Further more, the assessing officer has himself admitted that only when possession is given or sale deeds executed, amount 45 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 received by the assessee is treated as advance against sale of plots and therefore not akin to taxable receipts for the block period. In view of this the CIT(A) held that the assessing officer has not found any defects either in the books of accounts or in the method of accounting of the appellant. The assessee has been able to explain the position as given in page No. 17 with the books of accounts and the stand of the assessing officer that books of accounts were not there is not borne out by evidence gathered at the time of search or records of the assessing officer. Considering all these aspects, it would not be possible to sustain the addition made by the assessing officer.
6. Before us the learned DR relied on decision of A.O and submitted that the CIT(A) was not justified in not considering the recasted trading P & L a/c in the block assessment order made on the basis of entries borne out from seized paper no.
17 and 55 which depicted the final consolidated position of business affairs of the assessee for the block period. Further, the CIT(A) was also not justified in deleting the addition of undisclosed profits of Rs. 7.66 crores by adopting different methods of valuation for opening and closing stock. The CIT(A) erred in not properly appreciating the issues of books of accounts and h closing stock as no books wee produced either before the CT(A) or before the Assessing Officer and also that 46 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 the correctness of the valuation of closing stock of land as not properly verified. The CIT(A) was not justified in considering the remand report dated 20-2-2004 of the Assessing Officer as also the adjournment letter dated 13-2-2004 and 17-2-2004.
In this background, it was submitted that the order of the CIT(A) be set aside and that of the Assessing Officer be confirmed. On the other hand, the learned counsel for the assessee supported the order of the CIT(A) and reiterated the submissions made before him and submitted that the reasoned and detailed order of the CIT(A) should be upheld.
7. After going through rival submissions and material on record, we find that there was a search on the assessee on 11.04.2001. In response to the notice u/s. 158BC, the assessee filed the return declaring total undisclosed income of Rs. 15,57,000/-. The learned A.O. completed the asst. by determining the total undisclosed income of Rs. 7,81,85,884/-
by making the addition of Rs. 7,66,28,884/-. The A.O. has made the addition of Rs. 7,66,28,884/- on the basis of loose paper nos. 17 & 55 of bundle no. 2 found during the course of search. The said loose paper no 17 has also been placed on page 1 of the paper book and paper no. 55 is given on record.
According to the A.O., the said loose paper no. 17 gives the details of the projects of the assessee, land cost, amount paid, 47 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 amount to be paid, total sales of land, amount received, amount receivable, purchase area, sold area, stock and value of stock in respect of different projects carried out by the assessee. The A.O. has stated that the notings on the said loose paper regarding the expenses of Rs. 5.04 crores for Development and Administrative expenses tallied with the amounts recorded in the books. However, according to the A.O., the figure of sales and stock noted on the seized paper are not reconciled with the amount recorded in the books.
Further, the A.O. has stated that the assessee has not maintained any books of accounts and hence, the figures on the loose paper cannot be reconciled with the disclosed income. The A.O. has held that when the figures pertaining to expenses noted on the loose paper have tallied, the other figures of sales, purchases and stock valuation noted on the said paper are also to be considered as true and correct. Thus, he has drawn the trading account by considering the figures of sales, purchase, expenses and closing stock noted on the said paper. Accordingly, he has worked out the profit at Rs.
8,46,10,501/- and after deducting the profit disclosed by the assessee in the returns filed prior to search, the A.O. has worked out the undisclosed income of Rs. 7,66,28,884/-.
48 ITA No. 647/PN/04Sairang Developers Block period: 1997-98 to 2002-03
8. The stand of the assessee before us has been that the addition made by the A.O. of Rs. 7,66,28,884/- is not justified at all. The A.O's finding that the assessee did not maintain books of accounts is not correct. The assessee had maintained regular books of accounts. In fact, during the course of hearing, the assessee submitted a note giving the references to various notings of the A.O. in the assessment order and his remand reports wherein reference to the books of accounts maintained by the assessee has been made by him only. Thus, the constant contention of the A.O. that the assessee had not maintained the books is not justified.
8.1 It was submitted that proper books of accounts were maintained by the assessee. In fact, the learned CIT(A) has noted this fact that the assessee has maintained proper books of accounts. In para 4.6.4, page 21 of the order, the CIT(A) has rightly held that the assessee maintained proper books of accounts. Even in the show cause notice issued by the A.O., there is a reference to the books of accounts maintained by the assessee. In case, the books of accounts are not maintained, how, the A.O. could make reference of the same in the show cause notice.
8.2 The assessee also submitted that the assessment for some of the years falling within the block period were 49 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 completed prior to search and the copies of the asst. orders are given on page 367 to 373 of the paper book filed before us.
The copies of the income tax return and the balance sheet are also given for the various years from page 218 to 366 of the paper book. It is submitted that for A.Y. 1997 - 98, the learned A.O. has completed the assessment u/s 143(3) and has clearly noted that the assessee has maintained regular books of accounts. Accordingly, the assessee submitted that it had maintained proper books of accounts and the contention of the A.O. that no books of accounts were maintained is not justified.
8.3 Secondly, on merits, it was submitted that the A.O. had totally erred in making the addition of Rs. 7 .66 crores. on the basis of loose paper No. 17 found during the course of search.
It was submitted that the said paper gives the details of the various projects carried out by the assessee, the total land cost, amount paid towards land, amount payable towards land, total sales, amount received towards sales, balance amount receivable, purchase area, sale area, closing stock and value. The assessee stated that this page was prepared by Mrs. Meera S. Nair, accountant in the month of February, 2001 for management purposes only. This fact has been deposed on oath by the accountant in her affidavit given on 50 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 page no. 122 - 124 inter alia, explained that the said paper was giving the details of the receivables in the various projects including the stock in hand which was also valued at market price. This paper was only a note for the management to judge the receivables including the market value of the stock.
8.4 As regards, the land cost noted on the said page, there is no dispute between the assessee and the A.O. and the assessee has accepted the addition of Rs. 15,57,000/-
in the block return towards the cash paid for the purchases. The only dispute was regarding the value of sales and the value of closing stock which was adopted by the A.O. as per the said paper as the correct figures for working out the income. In this background, it was submitted that the assessee was recognizing sales only when the possession was handed over to the customer or upon execution of sale deed whichever was earlier. This method of accounting has been accepted by the dept. prior to search. The copies of the asst. orders for A.Y. 1997 - 98, 1999 - 2000,2002 - 03 and 2003 - 04 are given on pages 367 to 385 of the paper book.
8.5 In case of the plots for which possession is not handed over or the sale deeds were not executed, the amounts received from the plot owner were shown as an advance in the 51 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 books. These advances were taken to sales only when the possession was given or the conveyance was made. On the paper no. 17 and 55, the assessee submitted that the sales figure included all the agreements which were made by the assessee with the purchasers till Feb, 2001. This is because from the angle of the management, all these plots were sold.
So, only the remaining plots were taken to the closing stock.
The assessee has given a chart reconciling the figures of sales vis-à-vis the sales shown in the books as well the agreements entered into before Feb, 2001 and in which the advances received from the customers are shown in the balance sheets.
8.6 The assessee also claimed to co relate all the amounts noted as sales on the loose paper with the actual sales recorded in the books and the proposed sales which are shown as advances in the books. From pages 3 to 36 of the paper book, it was submitted that all the figures noted on the loose paper are co related with the amounts as per books. For instance in respect of project Sairang Villa, the amount of sales noted on the seized paper was Rs. 5,28,46,912/- while the amount recorded in the books was Rs. 3,35,54,450/-.
Further, the amount of Rs. 1,93,92,462/- was pertaining to the pending agreements in respect of which the possession had not been handed over or conveyance was not made. In 52 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 case, the figure of actual sales and the proposed sale transactions added i.e. (Rs. 3,35,54,450 + Rs. 1,93,92,462), one can arrive the amount of sales noted on the seized paper.
Accordingly, it was attempted to clarify that the amount of sales noted on the seized paper tally with the amount of sales recorded in the books and the proposed sale transactions.
Similar exercise has been carried out in respect of the other projects of the assessee.
8.7 The assessee also clarified that in respect of all the projects whose details were noted on the seized paper, the figure of sales tally with the books of accounts as per the reconciliation explained above. It was also pointed out that in respect of project Sairang Paradise, the amount of sales and the proposed sales as per books is more than Rs. 1,61,401/-
vis-à-vis the amount noted on the seized paper. This was because, the seized paper was written in Feb, 2001 while the books of accounts were taken into consideration till 11th April, 2001 i.e. the date of search. There was a sale in the month of March, 2001 of Rs. 1,61,401/- which was not considered while preparing the seized paper and hence, the amount does not tally to that extent.
8.8 Assessee attempted to reconcile the figure of amount received as per books on account of sales and proposed sale 53 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 transactions vis-à-vis the amount noted on the seized paper. It was submitted that the figures were reconciled. Further, the amounts as per books of accounts were more than the amount noted on the seized paper. This is because the seized paper is written in Feb, 2001 while the books of accounts are taken are till 11th April, 2001 i.e. the date of search. Now, some of the amounts were received from March to April and hence, the amount as per the books was more. The assessee had also given the details of the amounts received in March and April 2001 in its paper book no 2 on pages 401 - 413. Accordingly, it is submitted that all the sales noted on the seized paper, amounts receivable and amounts received are duly reconciled with the corresponding figures in the books of accounts and therefore, there are no sales outside the books of accounts nor was there any unaccounted income involved in seized paper.
8.9 Assessee further, submitted that the addition has been made because of the fact that while preparing the seized paper, the closing stock has been considered at market value as against the valuation at cost. The assessee had been valuing the closing stock at cost. However, the value of closing stock has been taken at market value in the paper. This was apparent from the seized paper itself. For example, in respect of project Sairang Villa, the total area is 12,71,833 sq. ft while 54 ITA No. 647/PN/04 Sairang Developers Block period: 1997-98 to 2002-03 the total land cost is Rs. 1,27,15,000/-. The area sold was 11,64,224 sq ft. and the balance area was lying as closing stock. In case, the cost per sq. ft. it would come to Rs. 9.99.
The area of closing stock was 1,07,609 and hence, if we value the closing stock at cost, the valuation comes to Rs.
10,75,808. However, the value of closing stock is considered at Rs. 42,04,360 which is around 4 times the cost per sq. ft.
Accordingly, since the closing stock has been valued at market value as against cost, naturally while preparing the trading account, the profits have increased. Thus, by considering the closing stock at market value as against cost, the profits have increased while working out the trading account as per the figures mentioned on the seized paper. In respect of other projects, similar difference was noted on account of closing stock due to the fact that the closing stock had been considered at market value as against cost. The CIT(A) has dealt with the above issues from para 4.10 onwards. He has rightly stated that the assessee has a right to adopt a particular system of accounting for valuation of stock. In this case, the assessee's system is recognized in law. He has referred to the Supreme Court decision in the case of Berger Paint Ltd. [188 ITR 44] wherein it has been held that the stock should be valued at cost or market price whichever is lower.
55 ITA No. 647/PN/04Sairang Developers Block period: 1997-98 to 2002-03 The learned CIT(A) in para 4.6.2 of his order has also referred to the statement of the Mrs. Meera Nair, accountant where she confirmed that the closing stock has been valued as per the marketing value of the project per sq. ft as told to her by the marketing people. Accordingly, the CIT(A) has rightly held that the learned A.O. has erred in holding that the closing stock was not shown at market value. In this background, we find that the loose papers do not reveal any unaccounted income.
All the figures of sales, stock, receivable, etc, etc. tally with the books of accounts. The A.O. has not demolished the assessee's contention. In the remand reports, he has simply stated that the books are not maintained. He has not given reasoned finding that the seized paper notings do reflect any unaccounted income. The A.O. has not pointed out any defects in the books of accounts maintained and also the balance sheets and the returns filed prior to search. In view of the above, CIT(A) was justified in deleting the addition in question.
We uphold the same. 9. As a result, appeal of the revenue is dismissed.
Decision pronounced in the open court on 4th March 2011.
Sd/- sd/-
(G.S. Pannu) (Shailendra Kumar Yadav)
Accountant Member Judicial Member
Pune dated the 4 March 2011
th
56
ITA No. 647/PN/04
Sairang Developers
Block period: 1997-98 to 2002-03
Ankam
Copy of the order is forwarded to :
1. The Appellant
2. The Respondent
3. The CIT(A)- I Pune
4. The CIT - I Pune
5. The D.R, 'B' Bench, Pune
6. Guard File
By order
Assistant Registrar
Income Tax Appellate Tribunal
Pune Bench, Pune.