Income Tax Appellate Tribunal - Chennai
M.M. Financiers (P) Ltd. vs Deputy Commissioner Of Income Tax on 8 December, 2006
Equivalent citations: (2007)107TTJ(CHENNAI)200
ORDER
1. This appeal by the assessee is directed against the order of the CIT(A), dt. 25th Jan., 2002 for the above block assessment period. The assessee has taken the following grounds:
1. The CIT(A) erred in confirming the addition of Rs. 1.49 crores being the difference between undisclosed purchase consideration of Rs. 2.40 crores and disclosed consideration of Rs. 91 lakhs.
2. The CIT(A) erred in holding that consideration passed on to the assessee for sale of 22 acres of land is Rs. 3,62,18,000 as against the disclosed consideration of Rs. 1,15,52,148, thereby confirming the addition of short-term capital gain at Rs. 93,62,148 and interest income of Rs. 3,63,704 in addition to the income declared by the assessee at Rs. 24,52,148.
2. The brief facts of the case are that the assessee company is engaged in real estate business. Shri Murali Mohan, a film actor, is the chairman of the company. On 20th Feb., 1999, there was a search action under Section 132 at the assessee's business premises situated at Kondapur Village, Hyderabad. During the search action, various incriminating documents were found and seized. There was also a search at the premises of the business associate of the assessee, Shri K. Madhava Reddy, on 19th March, 1999. During the course of search at the residence of K. Madhava Reddy, one unsigned Memorandum of Understanding (MoU) was found which reflects the transaction between the assessee and five others, on the one part, and Shri K. Madhava Reddy and M/s K.M.R. Estates & Builders (P) Ltd., on the other part. According to this MoU, the assessee and five of its nominees have agreed to purchase 95 acres and 5 guntas of land for which the consideration fixed was Rs. 2,40,40,000 which shall be paid between 15th Dec, 1995 and 3rd April, 1996. This was annexed to the assessment order as Annex. 'A'. At the business premises of the assessee, 5 registered sale deeds were also found and as per these sale deeds, M/s K.M.R. Estates & Builders (P) Ltd. has transferred 22 acres of land as follows to the nominees of the assessee:
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Sale Deed Date Extract Survey Name of the nominee in
Registration in Acres No. whose names the Sale
No. Deed was executed
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6443/96 04.01.1996 5 32/1 Ch. Chandra Mohan
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6444/96 04.01.1996 5 32/1 Mulpuri Murali Mohan
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6475/96 30.01.1996 4 33/1 Duggirata Ravi Kiran
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6476/96 30.01.1996 4 34/1 Vemuri Subramanyam
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6507/96 08.04.1996 4 33/1 Duggirala Kamala Bai
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S. Document Extent Consideration Sale Deed executed Purchased
No. No. including Stamp Duty by
and Registration
Charges (Rs.)
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1. 6443/96 5 acres 5,50,000 D. Raviveer Ch. Chandra Mohan D. Jaiveer Madhura Bai K. Indira K. Chandrakal Sandhya Ravi D. Sadana D. Yojana
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2. 6444/96 5 acres 5,50,000 -do- Mulpuri Murali Mohan
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3. 6507/96 4 acres 4,45,000 -do- D. Kamala Devi
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4. 6475/96 4 acres 4,45,000 -do- D. Ravi Kiran
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5. 6476/96 4 acres 4,24,000 -do- Vemuri Subramanyan
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The balance 73 acres and 5 guntas of land is not identified as per MoU by M/s K.M.R. Estates & Builders (P) Ltd. Hence, the MoU was rescind and cancelled the earlier agreement dt. 29th Dec, 1995. This is as shown in p. 4 of the assessment order. As per cancellation agreement, M/s K.M.R. Estates & Builders (P) Ltd. have agreed to repay Rs. 3,38,78,384 to the assessee which includes Rs. 98,38,384, penal interest to the assessee. In return, the assessee was to re-convey 22 acres of land to M/s K.M.R. Estates & Builders (P) Ltd. or their nominees, which was transferred to the assessee's nominees. The assessee's nominees have transferred the 22 acres of land to M/s Shilpa Homes (P) Ltd., who is the nominees of M/s K.M.R. Estates & Builders (P) Ltd., vide agreement dt. 1st Jan., 1997 (Annex. 'B' to assessment order). The consideration for 22 acres admitted by the nominees of the assessee in their books is Rs. 1,15,52,148 as detailed below:
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In the books of accounts of Amount received from Shilpa Homes (P) Ltd.
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M/s Jayaben Builders Rs. 24,99,567
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M/s Jayaben Art Production Rs. 12,88,000
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M/s M.M. Financiers (P) Ltd. Rs. 77,64,581
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Total Rs. 1,15,52,148
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On verification of the assessee's books of accounts, it was found that the assessee has entered the payment of Rs. 91 lakhs to M/s K.M.R. Estates & Builders (P) Ltd., as against admission by K. Madhava Reddy of M/s K.M.R. Estates & Builders (P) Ltd., at Rs. 2,40,40,000 vide the unsigned MoU. On verification of the books of accounts of the assessee and its sister-concerns, it was noticed that out of Rs. 2,40,40,000 paid to M/s K.M.R. Estate & Builders (P) Ltd., as shown in the MoU dated November, 1996, only a sum of Rs. 91,00,000 was found to be recorded as shown below:
As per the books of accounts of the assessee:
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Date Cheque/Cash Amount (Rs.) Paid to
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29.12.1995 Cheque 6,00,000 K.M.R. Estates & Builders (P) Ltd.
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04.01.1996 Cheque 10,00,000 Madhura Bai and 7 others (Rs.
1,25,000 each by DD)
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19.01.1996 Cheque 1,50,000 K.M.R. Estates & Builders (P) Ltd.
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30.01.1996 Cheque 18,00,000 D. Ramveer
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30.01.1996 Cheque 3,00,000 D. Jaiveer
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30.01.1996 Cheque 18,00,000 D. Ramveer
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30:01.1996 Cheque 3,00,000 D. Jaiveer
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30.01.1996 Cheque 6,00,000 K.M.R. Estates & Builders (P) Ltd.
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30.01.1996 Cheque 4,00,000 K.M.R. Estates & Builders (P) Ltd.
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27.02.1996 Cheque 3,00,000 K.M.R. Estates & Builders (P) Ltd.
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27.02.1996 Cheque 2,00,000 K.M.R. Estates & Builders (P) Ltd.
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19.08.1996 Cheque 1,00,000 K.M.R. Estates & Builders (P) Ltd.
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Out of Rs. 64,50,000 paid, cheque for Rs. 3 lakhs was cancelled on 3rd April, 1996.
As per the books of accounts of Sri Jayaberi Art Productions
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19.01.1996 Cheque Rs. 9,70,000 K.M.R. Estates & Builders (P) Ltd.
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30.01.1996 Cheque Rs. 30,000 K.M.R. Estates & Builders (P) Ltd.
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Total Rs. 10,00,000
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Total amount directly paid by the assessee Rs. 61,50,000
Paid by Sri Jayaberi Art Production on behalf of the assessee Rs. 10,00,000
Paid by M/s Jayaberi Builders on behalf of the assessee Rs. 19,50,000
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Rs. 91,00,000
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3. Further, the AO has noted that there was another agreement dt. 25th March, 1997 (Annex. 'D' to assessment order) between M/s K.M.R. Estates & Builders (P) Ltd. and four others where M/s Shilpa Homes (P) Ltd. has paid Rs. 2,87,02,190 in addition to Rs. 75,26,104 already paid by M/s K.M.R. Estates & Builders (P) Ltd. for the transfer of 22 acres of land to M/s Shilpa Homes (P) Ltd., the assessee has received the payment of Rs. 3,62,28,294. In short, the AO discussed these facts in para 2.5 of his order which is reproduced below:
The sum and substance of the MoU dt. 25th March, 1997 referred in para 2.4 is that M/s K.M.R. Estates and Builders (P) Ltd. and 4 others had entered into an agreement for development and sale of 29 acres of land comprised in survey Nos. 32/1, 33/1 and 34/1 at Madinaguda Village in Serilingapally Mandal, Ranga Reddy District and share the profits in an agreed proportion. The MoU states that out of 29 acres of land, 22 acres were acquired by M/s K.M.R. Estates & Builders (P) Ltd. from the assessee in pursuance to a MoU dt. 10th Jan., 1997 and that the said M/s K.M.R. Estates & Builders (P) Ltd. had paid the assessee a sura of Rs. 75,26,104 at the time of execution of the said MoU dt. 10th Jan., 1997 and that the balance consideration to be paid to the assessee in pursuance to the said MoU was Rs. 2,87,02,190. The MoU further states that in addition to the payment of Rs. 75,26,104, the assessee was further paid a sum of Rs. 59,60,881 by the said M/s K.M.R. Estates & Builders (P) Ltd. and that the balance amount of Rs. 2,27,41,309 payable to the assessee as per the MoU dt. 10th Jan., 1997 would be paid by M/s Shilpa Homes (P) Ltd. upon development and sale of the 29 acres of land. Thus the total sale consideration agreed to be paid to the assessee by M/s K.M.R. Estates & Builders (P) Ltd. as per the MoU dt. 10th Jan., 1997 was Rs. 3,62,28,294 out of which, a total sum of Rs. 1,34,86,985 was already paid by M/s K.M.R. Estates & Builders (P) Ltd. and balance of Rs. 2,27,41,309 was paid by M/s Shilpa Homes (P) Ltd.
4. The AO is of the opinion that the purchase consideration paid by the assessee to M/s K.M.R. Estates & Builders (P) Ltd., as per unsigned MoU is at Rs. 2,40,40,000. The assessee has disclosed in its books of accounts only Rs. 91 lakhs. The difference between these two figures is Rs. 1,49,40,000 which was treated as undisclosed income of the assessee by the AO which was spread over to two assessment years since the payment was made during the period 1st April, 1995 to 31st March, 1996 and 1st April, 1996 to 31st March, 1997. Accordingly, the AO treated Rs. 1.33 crores for the asst. yr. 1996-97 and 16.40 lakhs for the asst. yr. 1997-98 as undisclosed income, which was confirmed by the CIT(A) on appeal.
4.1 Regarding the other ground, the AO found that as per agreement dt. 25th March, 1997 (Annex. 'D' to assessment order), pursuant to transfer of 22 acres of land by the assessee to the nominee of M/s K.M.R. Estates & Builders (P) Ltd., the assessee was entitled to receive Rs. 3,62,18,000 (actually it is Rs. 3,62,28,294). The AO computed the difference between the cost of purchase of land at Rs. 2,40,40,000 and this sale consideration and arrived at the difference at Rs. 1,21,78,000 and segregated this as Rs. 93,62,148 as short-term capital gain and Rs. 28,15,852 towards interest. Since the assessee has already offered Rs. 24,52,148 as undisclosed interest, the AO brought Rs. 93,62,148 as undisclosed short-term capital gain and Rs. 3,63,704 as undisclosed interest. Aggrieved, the assessee is in appeal before us on these issues.
5. The learned Counsel for the assessee submitted that:
1. The MoU dated November, 1996 is unsigned and hence, loses its evidentiary value and cannot be admitted as evidence.
2. The MoU and other related documents were not seized at the assessee's premises. The onus of proving the veracity of these papers or documents seized from other premises vests with the Department and the same has not been proved.
3. The alleged addition of Rs. 1.49 crores as unexplained investment in the land and subsequent receipt has not brought out the existence of any asset within the meaning of the Act. Had the presumption by the Department were to be true, cash or equivalent asset should have been detected by the Department.
4. The AO very heavily relied upon the statement of Mr. K. Madhava Reddy for sustaining the addition of the alleged unexplained investment of Rs. 1.49 crores but does not accept the retraction of the statements by Mr. Madhava Reddy.
5. The contention that only cheque payments are found recorded in the books of accounts is unacceptable. It is nothing but natural the payments in cheques will naturally be found recorded in the books of accounts. The Department's contention that cash payments even though not found in any of the books of accounts expecting the assessee to accept the same when the truth is otherwise is unjustified.
6. The payments purported to have been paid by the assessee as per MoU dated November, 1996 in cash have not been proved by the Department, these have been denied by the assessee in writing and Mr. K. Madhava Reddy also denied the same.
7. The rates of cost/value per acre in various documents varying. The AO has not arrived at the conclusion as to what is the real value. The AO ought to have at least ascertained the market values as fixed by the State Government concerned as it is fundamental that only real income should be brought to tax not imaginary receipts.
6. The learned Counsel for the assessee, therefore, vehemently argued that the material, the sworn statements, the corroborative evidence that were relied upon by the AO to make the addition towards unexplained investment of Rs. 1,49,40,000 were completely unreliable or not connected to the assessee or not found at the assessee's premises and the contents of the seized material are extraneous to the assessee. These were being the evidences that were gathered by the AO to sustain the addition is nothing but arbitrary, hence, to be deleted. He further submitted that the seized material at sl. Nos. 38 to 42 found at the premises of Mr. K. Madhava Reddy and based on these material an addition is made in the block assessment to the extent of Rs. 93,62,148 on contending that this represents difference between cost and sale price of the assessee in respect of the land dealt with Mr. K. Madhava Reddy. Further, he submitted that:
1. This material in the form of loose sheets not found at the assessee's premises nor has the basic evidentiary value as they are neither signed nor authenticated. The very existence of these loose sheets and the notings thereon, the identity of the person who made these notings and the identity of the person who handed over these loose sheets to the person in whose premises these were seized are not known. Mr. K. Madhava Reddy at whose premises these loose sheets were seized had consistently denied the fact of which has been ignored by the Department and relied upon these unauthenticated documents to make the additions.
2. For the purpose of making this addition the Department referred to an agreement between Mr. K. Madhava Reddy and Shilpa Homes (P) Ltd., which is a transaction between themselves and have nothing to do with the undisclosed income in the assessee's case.
3. This addition is based on the assessment order in the case of M/s Shilpa Homes (P) Ltd., stated to have been made on 30th March, 2001 after which this assessment in the case of the assessee has been made. There has been no independent application of mind by the AO of the assessee and was persuaded by another assessment order which is totally not relevant. The assessment order on which the AO relied upon has not been supplied to the assessee nor was given an opportunity to rebut the same.
He further relied on the CBDT Circular No. 286/21/2003 dt. 10th March, 2003. He also relied on the following case law:
1. CIT v. P.V. Kalyanasundaram (2006) 203 CTR (Mad) 449 : (2006) 282 ITR 259 (Mad);
2. CIT v. G.K. Senniappan ;
3. CIT v. Ravi Kant Jain (2001) 167 CTR (Del) 566 : (2001) 250 ITR 141 (Del);
4. CIT v. Vishal Aggarwal ;
5. Bansal Strips (P) Ltd. & Ors. v. Asstt. CIT (2006) 100 TTJ (Del) 665 : (2006) 99 ITD 177 (Del);
6. T.S. Venkatesan v. Asstt. CIT (2000) 69 TTJ (Cal) 66 : (2000) 74 ITD 298 (Cal);
7. Eagle Seeds & Biotech Ltd. v. Asstt. CIT (2006) 102 TTJ (Indore) 1065 : (2006) 100 ITD 301 (Indore);
8. Pankaj Dahyabhai Patel (HUF) v. Asstt. CIT (1999) 63 TTJ (Ahd) 790;
9. Madhavi Finvest (P) Ltd. & Ors. v. Asstt. CIT (2006) 99 TTJ (Visakha) 933;
10. Gorakhpur Petro Oils Ltd. v. Addl. CIT (2005) 95 TTJ (All)(TM) 489;
11. Surjeet Singh Chhabra v. Union of India & Ors. 1997 AIR SCW 2507.
7. He drew our attention to the sworn statement recorded from Shri Murali Mohan on 12th April, 1999 and the sworn statement of Shri D. Kishore, managing director, which are reproduced below:
Sworn statement on oath recorded from M. Murali Mohan Q1 : Please introduce yourself.
A : I am Murali Mohan, Chairman of M.M. Financiers (P) Ltd and I am engaged in real estate business and film making.
Q2 : During the search and seizure operations in your case and in the case of M/s Shilpa Homes (P) Ltd and Shri K. Madhava Reddy the information in relation to purchase of 22 acres of land in Kondapur area in survey Nos. 32/1, 33/1 and 33/1 is obtained and is part of the seized material. As per the information contained in the seized material, the nominees of your group by names, Ch. Chandra Mohan, Mulpuri Murali Mohan, Duggirala Ravi Kiran, Vemuri Subramanyam and Duggirala Kamala Devi have purchased the above lands through registered sale deeds during the period from 4th Jan., 1996 to 8th April, 1996. The cost of acquisition for the above lands is Rs. 99,000 per acre. Do you confirm the above facts ?
A : The above facts are true and represent the factual position.
Q3 : I am showing you the documents forming part of the seized material from the office of Shilpa Homes (P) Ltd representing agreement of sale-cum-general power of attorney in respect of the lands mentioned in question No. 2 in favour of M/s Shilpa Homes (P) Ltd. These documents are signed by the persons stated in question No. 2. Please go through the documents and confirm whether they are genuine.
A : I confirm the genuineness of the above document.
Q4 : The cost of acquisition in the hands of the nominees of your group as per the registered documents is Rs. 99,000 per acre. The sale value for the same lands is Rs. 5,25,000 to Rs. 6,50,000 as per the agreement of sale and general power of attorney. It may be noted that the possession is already given to M/s Shilpa Homes (P) Ltd. In these circumstances please compute the capital gains liability in the hands of various persons belonging to your group and state whether the capital gains is declared to the Department.
A : I have not computed the capital gains liability in relation to the above transaction until now. The above amounts were advanced by us to Sri K.M. Madhava Reddy and others are returned back to us through Shilpa Homes (P) Ltd. and others with 24 per cent interest. The interest received by us was offered as income in the relevant cases for the relevant years. I will work out the capital gains liability if any on the basis of the above information and I will submit the detailed workings to you. I am agreeing to the capital gains liability if it arises on the above workings. This I will submit tomorrow. If any set off has to be given to me as per law, the same should be given to me just to have a hold in getting our money, we have entered into a tri-party agreement.
Q5 : Would you like to say anything else.
A : No Sworn statement on oath recorded from Shri D. Kishore Q1 : Please introduce yourself A : I am D. Kishore, managing director of M.M. Financiers (P) Ltd.
Q2 : During the search and seizure proceedings at the residence of Shri M. Murali Mohan, cash was found amounting to Rs. 6,73,610 was found and inventorised, out of which Rs. 5,00,000 was kept in the...and the remaining was returned. While explaining for the cash on the day of the search, it was stated that Rs. 60,000 belonged to the NRI, relative, Smt Nirmala Devineni, who was present at the time of search. The details for the remaining amounts were not given at that time and time was sought. Subsequently, during the search proceedings at the office premises of M.M. Financiers, you gave a letter in which you have stated that Rs. 4,50,000 were taken from S. Ramesh Babu of Madras which was drawn from his finance companies and sent through your accountant from Chennai to Hyderabad. Subsequently, you produced two letters from Andhra Bank, Thayagaraya Nagar, Chennai, dt. 19th March, 1999 in which it is certified that Rs. 4,65,000 were drawn from Andhra Bank, Thayagaraya Nagar Branch, Chennai on 19th March, 1999. However, the explanation given by you is not at all satisfactory as it is seen that the cash was drawn from various banks of Hyderabad. This fact is very clear from the detailed examination of the cash bundles found during the search. Please explain why this cash should not be treated as unexplained.
A : For the sake of convenience the cash which was withdrawn from Chennai Andhra Bank, was converted into higher denominations and carried to Hyderabad by my accountant who has been produced before you now.
Q3 : Please find out from your accountant and give details as to what denominations were initially obtained and what denominations it was converted into.
A : I found out from my accountant and state that the money was handed over to my accountant in packed form by one Mr. Chandrasekar, manager of finance company belonging to S. Ramesh Babu. After the opening of the pack we have seen the cash but we do not remember as to what denominations the cash consists of.
Q4 : Please explain what was the total extent of land you have purchased from Mr. K. Madhava Reddy at Madinaguda.
A : We wanted to purchase 95-100 acres at Madinaguda and Kondapur village from Shri K. Madhava Reddy, for our group This land has been registered in the names.
Q5 : Do you possess this land as on the date of search or it has been transferred A : We do not possess the land as on date of search as it has been transferred. Q6 : To whom did you transfer the land of 22 acres at Madinaguda A : We have transferred the land to M/s Shilpa Homes (P) Ltd at the instance of Shilpa Homes (P) Ltd. We have transferred 2,970 sq. yds. to K.M.R. Estates (P) Ltd. The balance was transferred to Shilpa Homes and their nominees.
Q7 : Please work out the profit derived by you on these transactions.
A : The purchase cost for the land of 22 acres is approximately Rs. 22 lacs. The sale consideration received from Shilpa Group is Rs. 1,03,00,000 and from K.M.R. Estates Rs. 11,60,000, totalling to Rs. 1,15,00,000. Hence the profit on the sale of 22 acres of Madinaguda land comes to Rs. 93,00,000.
Q8 : Have you shown the income of Rs. 93,00,000 in the books of accounts of M.M. Financiers (P) Ltd. for the relevant years. If so give the details A : We have shown Rs. 24,52,148 as interest income from K. Madhava Reddy on the advance of Rs. 91,00,000 given to him.
Q9 : Whether the advance of Rs. 91,00,000 stated by you in above answer includes the purchase cost of 22 acres also ? If so, how can you call it as advance if the land was duly transferred and registered ?
A : The advance for land receivable from Madhava Reddy is Rs. 69,00,000 but the interest was received on entire Rs. 91,00,000.
Q10 : You have stated earlier that the profit on sale of Madinaguda land to Shilpa Group comes to around Rs. 93,00,000. This is not offered by you as your income on sale of land for the relevant financial year 1997-98. Why this should not be treated as the undisclosed income of M.M. Financiers (P) Ltd. for that year ?
A : On the sale of 22 acres on the basis of above computations the profit comes to Rs. 93,00,000. However, I would like to claim unrecoverable advance from K. Madhava Reddy as my business loss for the same year, which amounts to Rs. 69,00,000 Q11 : What are the efforts made by you to recover the above amounts ?
A : I do not have any knowledge about that. The sale consideration is around Rs. 5.1 lakhs to Rs. 5.5 lakhs per acre.
Q13. The bad debt not recoverable from Madhava Reddy cannot be claimed as an expenditure during the block period. You are free to proceed against Sri Madhava Reddy for recovery and after making sufficient efforts to recover the amounts you may pass necessary entries in your books of accounts to claim the irrecoverable money as bad debts. Hence, an amount of Rs. 93,00,000 being the profit on sale of Madinaguda land is taxable for the financial year 1998-99. Do you agree that the above income has escaped assessment ?
A : I will consult our chartered accountant and clarify the position.
Q14 : Would like to say anything else A : No.
8. The learned Counsel for the assessee also submitted that 22 acres of land was acquired for Rs. 91 lakhs and for registration purpose it was shown as Rs. 21.90 lakhs and the same was sold for Rs. 1,15,52,148. The difference between the sale consideration and purchase price i.e., Rs. 1,15,52,148 (-) Rs. 91,00,000 = Rs. 24,52,148 which was rightly offered to tax and, therefore, there cannot be any undisclosed income. He drew our attention to the agreement dt. 1st Jan., 1997 (Annex. 'B' to assessment order) to which the assessee is a party. He submitted that this agreement tallies with the books of accounts of the assessee in its entirety and it is found during the course of search and it should be relied upon. The entire exercise done by the AO was in surmise and conjuncture. He drew our attention to the retracted statement of Shri K. Madhava Reddy dt. 16th April, 2001.
9. On the other hand, the learned Departmental Representative submitted that:
(i) The parties to the MoU namely, the assessee and Shri K. Mahdava Reddy have admitted all the facts mentioned in the MoU excepting the cash payment of Rs. 1,49,40,000 and the agreement to repay Rs. 3,38,78,384 inclusive of interest Rs. 98,38,384.
(ii) The cheque payments mentioned in the MoU have been accepted as correct by the parties to the MoU.
(iii) The cheque payments are reflected in the books of accounts of the assessee as well as in the books of accounts of its sister-concerns.
(iv) The fact that the assessee approached Shri K. Madhava Reddy to procure 95.05 acres of land at Madinaguda and Kondapur villages is admitted by the parties to the MoU.
(v) It is an admitted fact that the assessee purchased 22 acres of land at Madinaguda, obviously in pursuance to the contract concluded on 29th Dec, 1995 referred to in the MoU.
(vi) Shri K. Madhava Reddy in the statement recorded on 1st April, 2001 has admitted that he had identified to the balance extent of 73.05 acres required by the assessee and he had oral understanding with the landlords to procure the land for the assessee.
(vii) Parties to the MoU dated November, 1996 admit that the contract was for the purchase of 95.05 acres of land. Here again, obviously as per the contract concluded on 29th Dec, 1995, referred to in the said MoU, was cancelled and the money advanced by the assessee was agreed to be returned with interest.
(vii) As provided in the MoU, the assessee had transferred 22 acres of land purchased to Shilpa Homes (P) Ltd., as nominated by Shri Madhava Reddy.
(ix) The assessee had acknowledged the receipt of money advanced by it with interest. From the facts narrated above, it can be noted that the parties to the MoU had in fact acted upon the MoU and therefore the mere denial of the acceptance of cash payments by Shri K. Madhava Reddy or denial of such cash payments by the assessee cannot make the MoU dated November, 1996 a nullity. As both the parties to the transaction did not record the payment/receipt of cash, they had chosen to deny the same, as such a denial suited them. These are only self-serving statements and contrary to facts.
10. The learned Departmental Representative contradicted the contentions of the assessee that the AO has not taken into account the retraction of Shri Madhava Reddy. Shri Madhava Reddy's statements have been recorded not only during the search but subsequently (26th May, 1999 and 16th April, 2001). Apart from the fact that the statements have been given during the search is not automatic In the case of V. Kunhambu & Sons v. CIT , the Court has held that one cannot challenge the correctness of the statement made under Section 132(4) unless he proves that the statement was made under a mistaken belief of case or law. The Supreme Court in the case of Surjitsingh Chhabra v. Union of India has held that a confession though retracted is still an admission. In the case mentioned earlier, the Kerala High Court confirmed the addition made by the AO towards excess stock which was based on the statement of the partner and it was considered as sufficient evidence though no stock inventory was taken. The Supreme Court recently in the case of State of Tamilnadu v. Kutty alias Lakshmi Narasimhan has held that it will be injudicious jettison a judicial confessed on the mere premise that its matter has retracted from it and went on to observe that the Court has a duty to evaluate the evidence by looking at all aspects of the case.
11. Further, on the other contention of the assessee, he argued that the contention raised by the assessee relates to the AO's reference to seized material found in the premises other than that of the assessee. It is important to note here that Shri Madhava Reddy is not the third party as such, but a party closely connected with the transactions. Further, the AO is not solely relying on the documents found there. The sequence of events, other details and evidence corroborate the contents of the document as specifically mentioned by the AO. Even the Courts and judicial forums' view is that the assessment should not be based on such documents without the support of corroborative evidence [Doon Valley Roller Flour Mills (P) Ltd. v. IAC (1989) 31 LTD 238 (Del), Asstt. CIT v. Prabhat Oil Mills (1995) 52 TTJ (Ahd) 533, CBI v. V.C. Shukla & Ors. ].
12. The learned Departmental Representative further drew our attention to the sworn statement recorded from Shri K. Madhava Reddy on 26th May, 1999 which is reproduced below:
Q.2 I am showing you seized material in Annex. KMR/A/10, sheet Nos. 38, 39, 40, 41 and 42. These papers were seized from your residence at Bowenpally. Please go through them carefully and explain the contents ?
A. These papers relate to Madinaguda land transaction known as Shilpa Gardens between me and Shilpa Group. The expenditure collections, investments, the valuation of closing stock and the profits are worked out in these papers. The total land area is 26.16 acres and the total sale area comes to 79.200 sq. yds. The statement was prepared as on 31st Dec, 1997.
Q.3 Please identify the handwriting in page Nos. 38, 39 and 40.
A. Someone related to Shilpa Group gave this papers at my residence.
Q.4 Who is that someone and please identify the handwriting.
A. A person by name Mr. Venkateswar Reddy, manager in Shilpa Group comes to me sometimes. I do not remember exactly who handed over these papers to me and whose handwriting it is.
Q.5 I am showing you sheet Nos. 41 and 42 of the above annexures. Please identify the papers and explain the contents. Also identify the handwriting.
A. These papers relate to payment made to Murali Mohan for 26.16 acres amounting to Rs. 3,16,80,000. The statement also mentions that the total payment made to Murali Mohan is Rs. 3,62,00,000 and the extra payments made to Murali Mohan comes to Rs. 45,38,000. I cannot identify whose handwriting, at this stage.
Q.6 I am showing you the seized material in Annex. KMR/A/10 sheet No. 45. Please identify the documents and explain the contents and identify the handwriting.
A. This paper also came from Shilpa Group people but I am unable to identify whose handwriting it is.
Q.7 Please go through the above seized material and specify what is the cost of land per acre.
A. As per seized materials KMR/A/10, sheet Nos. 39, 40 and 42, the value/cost of the land comes to Rs. 12 lakhs. In sheet Nos. 39 and 40, the land is acres 26.16 guntas for which the cost is shown at Rs. 3,16,80,000 and the cost per acre comes to Rs. 12 lakhs exactly. According to sheet No. 42 also, the value is same. According to sheet No. 45 back side, the land mentioned acres 26.33 guntas and the cost of the land is shown at Rs. 3,21,90,000 which means Rs. 12 lakhs per acre.
Q.8 I am showing the seized material in KMR/P02/A sheet No. 4 (back side) 3,2,1. Please go through these documents and explain what it is.
A. I have gone through these papers. Sheet Nos. 1 to 7 are the synopsis of the submissions prepared by me for settlement of our disputes with Shilpa Group in the presence of one MLA.
Q.9 Please go through the above material and specify what is the cost of land in Shilpa Gardens purchased from Murali Mohan.
A. According to the above papers the cost of land is Rs. 12 lakhs per acre. Briefly, the details contained in the seized papers are as below:
Sheet No. 38 : In this paper the details of the sale, the amount received from the customers, the amount due and the total extent of land sold in respect of Shilpa Gardens are stated.
Sheet No. 39 : An overall picture of the Shilpa Garden venture can be got from this sheet. The total area is stated to be 26.16 acres or 79,200 sq. yards, out of which area sold upto the date of preparation of the sheet is 58,345 sq. yds. which coincides with the area mentioned in the previous sheet. This has been sold for Rs. 4,29,32,650, out of which collections received is Rs. 2,61,96,707 and the balance remaining to be collected is Rs. 1,67,35,946. The total expenditure incurred as per this sheet is Rs. 3,76,17,420. The investment made by M/s K.M.R. Estates & Builders (P) Ltd. is mentioned as Rs. 1,04,60,000.
He placed more emphasis on the information extracted below which forms part of Annexs. "C-1 to C-5" of the AO, on pp. 39 & 40 submitted by the Department:
-----------------------------------------------------------
Total area 26.16 acres 79,200
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Sold Area 58,345
-----------------------------------------------------------
Balance 20,855
-----------------------------------------------------------
Total due for 58,345 sold 4,29,32,650
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Collections 2,61,96,707
-----------------------------------------------------------
Balance due 1,67,35,946
-----------------------------------------------------------
Total collections 2,61,96,707
-----------------------------------------------------------
Investment of K.M.L. 1,04,60,000
-----------------------------------------------------------
Balance 20,855
-----------------------------------------------------------
Total expenditure 3,76,17,420
Total collections excluding investments 3,66,56,707
Investment Shilpa 9,60,716
Cheques issued to landowner 5,00,000
14,60,716
Land payment due (KMR a/c) 3,40,324
Total unsold area @ 750/ 20,855
1,56,41,250
Total collections due 1,67,35,946
3,23,77,196
Total investment 83,14,030
9,60,716
Sheet No. 40 : The break-up details for the expenditure of Rs. 3,76,17,420 is recorded in this sheet. Payment towards the land is stated as Rs. 3,16,80,000.
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Expenditure 31-12-1997
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Land procurement for 26.16 acres Rs. 3,16,80,000
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Paid to KMR (Land permit) Rs. 11,45,970
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Land Development expenditure Rs. 21,56,842
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Advertisement Rs. 2,84,200
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Rs. 1,79,576
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Proclaimer & Land development Rs. 3,09,740
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Rs. 1,16,500
---------------------------------------------------------------------
Bank charges Rs. 30,282
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Printing & Stationery Rs. 49,970
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Huda expenses Rs. 3,00,000
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Commissioning Registration charges Rs. 1,39,465
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Salaries Rs. 34,450
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Consultancy charges Rs. 15,000
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Paid to Narasimha Yadav Rs. 10,00,000
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Total Rs. 3,76,17,420
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Sheet No. 41 : Survey numbers and the total extent of land can be found in this sheet.
Sheet No. 42 : Details of the payments made to Sri Murali Mohan are recorded in this sheet. Amount paid is mentioned as Rs. 3,62,18,000.
The details contained in the sheet Nos. 39 to 42 (Annexs. C-1 to C-5) show that M/s Shilpa Homes (P) Ltd., as per the agreement of sale/MoU with the assessee and M/s K.M.R. Estates & Builders (P) Ltd. had developed the 29 acres of land and sold them in smaller plots and out of the amount realized on sale, had paid a total sum of Rs. 3,62,18,000 in pursuance to the MoU dt. 25th March, 1997. The amount paid to the assessee as per the loose sheets referred to above and the total consideration shown as payable to the assessee as per the MoU dt. 25th March, 1997 is almost matching. The difference is only a little over Rs. 10,000.
Further, he drew our attention to the sworn statement from Shri K. Madhava Reddy recorded on 20th March, 1999 which is reproduced below:
Q.22 Please give the details of the transaction entered into by you and your group of companies with M.M. Financiers (P) Ltd. or the Jayabheri group.
A. M/s M.M. Financiers (P) Ltd. has entered into an agreement with KMREL for purchase of 95 acres of land at Rs. 8,50,000 per acre. They have paid approx. Rs. 2.40 crores as part of the purchase consideration. Because the transactions did not materialize and at the instance of M.M. Financiers (P) Ltd., the agreement was terminated, at their instance, I have paid back Rs. 2.40 crores and also interest on the same at 2 per cent per month till the payment of last instalment, namely August, 1998. The amounts from M/s M.M. Financiers (P) Ltd. have been received by KMREL partly in cash and partly by way of cheques as indicated in MoU which is part of the seized record. During the repayment the entire amount was paid by Shilpa Real Estates (P) Ltd. partly through cash and partly through cheque except for Rs. 45 lakhs paid by me through cheque.
Q.23 Please give the details of the transactions entered into by KMREL with Shilpa Real Estates (P) Ltd.
A. KMREL sold 29 acres of land which was the land in agreement with M.M. Financiers (P) Ltd. earlier at Rs. 10 lakhs per acre amounting to Rs. 2.90 crores which was paid by Shilpa Real Estates to M.M. Financiers (P) Ltd. on my behalf.
He also drew our attention to the answers to question Nos. 25 given by Shri Madhava Reddy on 20th March, 1999 which are extracted below:
Q.25 I am showing you sheet Nos. 38 to 42 of the above referred Annex. KMR/A/10. Please go through the same and explain the contents therein.
A. Sheet Nos. 38 to 40 relate to the sale of merely 29 acres of land at Madinaguda being sold to various people. 55 per cent share belongs to four persons in equal proportions including myself. The other three persons are Shri Narasimha Yadav, r/o Bowenpally (Ph. 7752102) and two others only known to him. Remaining 45 per cent relates to Shilpa Real Estates (P) Ltd. represented by Shri S.C. Mohan Reddy (Ph. 3355261) and P.C. Reddy. Sheet Nos. 41 and 42 relate to the amounts paid to Mr. Murali Mohan in respect of the above transactions.
In the statement recorded on 26th May, 1999, Shri Madhava Reddy has explained in detail the contents of the papers seized from his residence. The details contained in the papers KMR/A/10-38 to 42 seized from the residence of Shri Madhava Reddy, the MoU dt. 25th March, 1997, and the answers given by Shri Madhava Reddy to questions put to him on 20th March, 1999 and 26th May, 1999 clearly establish the fact that a sum of Rs. 3,62,18,000 was paid to the assessee by M/s Shilpa Homes (P) Ltd. for the transfer of 22 acres of land. In the sworn statement recorded on 8th March, 2001 by the Dy. CIT, Circle 4(3), Hyderabad, from Sri P.C. Reddy, chairman of Shilpa Homes (P) Ltd., he has lucidly explained the whole gamut of the development and sale of the land purchased from the assessee which was jointly undertaken along with Sri K. Madhava Reddy in the following words.
Q. I Please introduce yourself.
A. I am P.C. Reddy, Chairman of Shilpa Homes (P) Ltd.
Q.2 During the search and seizure operations conducted in the case of M/s Shilpa Homes (P) Ltd. dt. 20th March, 1999, certain incriminating evidence was found in relation to Shilpa Garden venture. Further, during the search and seizure operations conducted in the case of Sri K. Madhava Reddy on 29th March, 1999, certain incriminating evidence was found in relation to the above venture. You have been examined during the post-search investigations by the Investigation Wing of the Department. In this regard, I direct you to give complete details of the venture in Shilpa Garden and the profits earned in that venture as on the date of search. Further, you are also directed to state as to how much of the profits relatable to Shilpa Homes (P) Ltd. is disclosed in the books of accounts maintained.
A. As per the findings in the search and seizure and as per the seized material found which was shown to us during the proceedings, we have worked out the detailed profit and loss statements for Shilpa Garden venture as on the date of search which is separately handed over to you now. As per this computation, the total profit derived as on the date of search is Rs. 1,06,72,617. The sale value per square yard is taken at Rs. 750 as per the seized material in KMR/A/10 sheet Nos. 38 to 42. The total square yards plotted are 79,200 out of which 62,000 sq. yards was sold as on the date of the search which includes unregistered sales also. The total cost of the land being the payments made to Sri M. Murali Mohan/M.M. Financiers comes to Rs. 3,62,18,000. The closing stock valuation taken @ Rs. 5639 per sq. yd. which includes the land cost and all other direct expenses on the land. Out of the total profit derived of Rs. 1,06,72,617, our share of profit @ 45 per cent comes to Rs. 48,02,677. The balance profit is relatable to Sri K. Madhava Reddy/K.M.R. Estates & Builders (P) Ltd. and others. No credence can be given to the averments of Shri Madhava Reddy in his sworn statement that was recorded on 16th April, 2001 that the MoU dt. 25th March, 1997 was not acted upon and that the papers found in his residence did not belong to him.
13. We have heard the rival submissions and perused the material on record. There was a search action at the premises of the assessee on 20th Feb., 1999. There was no discussion in the assessment order regarding the seizure of the documents or assets during the course of search. In addition to the search of the assessee's premises, there were searches conducted at the business premises of the associates of the assessee on 29th March, 1999. During the course of search, the Department found unsigned MoU (Annex. 'A' to assessment order) reflecting the transaction for purchase of 95 acres and 5 guntas of land for a consideration of Rs. 2,40,40,000. This agreement dt. November, 1996 is unsigned. For this agreement, M/s K.M.R. Estates & Builders (P) Ltd., and K. Madhava Reddy, on the one part (sellers) and M/s M.M. Financiers (P) Ltd., represented by its chairman and directors and Smt. Duggirala Kamala Devi, Sri Vemuri Subramaniam, Shri Suggirala Ravi Kiran, Shri Mulpuri Murali Mohan and Shri Challagula Chandra Mohan, on the second part. On the basis of this agreement, the AO was of the opinion that the assessee has paid the purchase consideration of Rs. 2,40,40,000 towards the purchase of land. The AO also relied on the sworn statement recorded from K. Madhava Reddy and P.C. Reddy, chairman of M/s Shilpa Homes (P) Ltd. The AO also relied on the tripartite agreement entered on 1st Jan., 1997 between M/s K.M.R. Estates & Builders (P) Ltd. and K. Madhava Reddy, on the one part and M/s M.M. Financiers (P) Ltd., Jayabheri Builders, M/s Sri Jayabheri Art Productions, M. Murali Mohan, D. Kishore and M. Ram Mohan, on the second part and M/s Shilpa Homes (P) Ltd., on the third part. Further, he relied on certain loose papers found at the residence of K. Madhava Reddy.
14. This is a block assessment under Chapter XIV-B of the IT Act. Under Section 158BB, undisclosed income of the assessee for the block period is required to be computed on the basis of evidence found as a result of search or requisition of books of accounts or documents and such other materials or information as are available with the AO and relatable to such evidence as reduced by the aggregate of the total income or, as the case may be, increased by aggregate of loss of such previous year. As held in the case of CIT v. G.K. Senniappan , "such other materials or information as are available with the AO" cannot be bisected or taken in isolation for the purpose of computation. Such other materials or information as are available with the AO should be as per this section relatable to such evidence. The word 'such' assumes much significance in this provision as it indicates only the evidence found as a result of search or requisition of books of accounts or other documents at the time of search. No other material can form basis for computation of undisclosed income of the block period.
15. In the present case, the unsigned MoU was found at the residence of K. Madhava Reddy. As per that agreement (Annex. 'A' to assessment order), the assessee has agreed to purchase 95 acres and 5 guntas of vacant land for a consideration of Rs. 2,40,40,000. This agreement is unsigned. This was not found at the premises of the assessee. K. Madhava Reddy also stated in his sworn statement that this agreement was not acted upon. He submitted that transaction did not materialize. He also stated that dispute arose between these parties and went for settlement before one MLA. Further, question No. 7 and the answer of K. Madhava Reddy recorded on 26th May, 1999 read as follows:
Q.7 Please go through the above seized material and specify what is the cost of land per acre.
A. As per seized materials KMR/A/10, sheet Nos. 39, 40 and 42, the value/cost of the land comes to Rs. 12 lakhs. In sheet Nos. 39 and 40, the land is acres 26.16 guntas for which the cost is shown at Rs. 3,16,80,000 and the cost per acre comes to Rs. 12 lakhs exactly. According to sheet No. 42 also, the value is same. According to sheet No. 45 back side, the land mentioned acres 26.33 guntas and the cost of the land is shown at Rs. 3,21,90,000 which means Rs. 12 lakhs per acre.
Question Nos. 22 and 23 and the answers thereto recorded on 20th March, 1999 are reproduced below:
22. Please give the details of the transaction entered into by you and your group of companies with M.M. Financiers (P) Ltd. or the Jayabheri group.
A. M/s M.M. Financiers (P) Ltd. has entered into an agreement with KMREL for purchase of 95 acres of land at Rs. 8,50,000 per acre. They have paid approx. Rs. 2.40 crores as part of the purchase consideration. Because the transactions did not materialize and at the instance of M.M. Financiers (P) Ltd., the agreement was terminated. At their instance, I have paid back Rs. 2.40 crores and also interest on the same at 2 per cent per month till the payment of last instalment, namely, August, 1998. The amounts from M/s M.M. Financiers (P) Ltd. has been received by KMREL partly in cash and partly by way of cheques as indicated in MoU which is part of the seized record. During the repayment the entire amount was paid by Shilpa Real Estates (P) Ltd. partly through cash and partly through cheque except for Rs. 45 lakhs paid by me through cheque.
Q.23 Please give the details of the transactions entered into by KMREL with Shilpa Real Estates (P) Ltd.
A. KMREL sold 29 acres of land which was the land in agreement with M.M. Financiers (P) Ltd. earlier at Rs. 10 lakhs per acre amounting to Rs. 2.90 crores which was paid by Shilpa Real Estates to M.M. Financiers (P) Ltd. on my behalf.
16. When we read the above questions and answers, we do not find any consistency in the quantum of land and rate per acre. Once, he is telling that the land per acre is Rs. 8.50 lakhs (Q. No. 22 refers). In answer to Q. No. 23, he is telling that the cost of land is Rs. 10 lakhs per acre. In answer to Q. No. 7, he is telling that the cost of land is Rs. 12 lakhs per acre. Moreover, K. Madhava Reddy retracts his own statement. While cross-examining also, he denied things. In our opinion, unsigned agreement has no evidential value. The AO has not found any corroborating evidence with any seized material. The AO has not verified as to who has written on the loose papers. This is evident from Q. No. 6 recorded from K. Madhava Reddy on 26th May, 1999. For better appreciation, we reproduce Q. No. 6 hereunder:
Q.6 I am showing you the seized material in Annex. KMR/A/10 sheet No. 45. Please identify the documents and explain the contents and identify the handwriting.
A. This paper also came from Shilpa Group people but I am unable to identify whose, handwriting it is. The AO has not established the link of loose papers with any other seized material. In the case of CIT v. Kailash Chand Sharma (2005) 198 CTR (Raj) 201, the following question was referred to Hon'ble Rajasthan High Court:
Whether on the facts and circumstances of the case, the learned Tribunal was justified in deleting the addition of Rs. 42,27,900 even though the assessee could not explain the loose papers relating to this amount which were found during, the search regarding the sale of land alleged to have been made by Smt. Chandrakant Pandit.
While deciding the above issue in favour of the assessee, the High Court has held that since the assessee has denied the transaction as well as the handwriting in the loose papers, the AO has failed to discharge his onus and held that the transaction mentioned in the loose papers did not belong to the assessee. The loose sheets on which the Revenue is placing reliance were not found with the assessee. The assessee has no knowledge of these loose slips. These were not hand written by the assessee or any employees of the assessee and these cannot be considered in favour of the assessee or against the assessee.
17. Regarding the sworn statement, the sworn statement recorded under Section 132(4) is some piece of evidence. The AO has to establish the link with other books of accounts seized. It cannot be considered as the conclusive evidence. The words "may be presumed' appear in Section 132(4A) of the Act. Since the words "may be presumed" are incorporated in the section, it gives option to the authorities concerned to presume the things. But, it is rebuttable and it does not give definite authority and not a conclusive one. The assessee has every right to rebut the same by producing evidence in support of its claim. The entire case depends on the rule of evidence. The assessee has every right to shift the burden of proof. The Revenue authorities cannot automatically presume things. The actual things depend upon facts and circumstances of each case. The presumption under Section 132(4A) as to the truth of contents of books or documents seized was rebuttable and it was in the discretion of the authorities depending upon the facts, to decide whether presumption should be drawn or not. The expression used in this Sub-section (4A) is "may be presumed" which is also the expression used in Section 114 of the Evidence Act and it was not a mandate that whenever books of accounts are seized, the authorities concerned shall so presume irrespective of any other factor which may dissuade the authorities from doing so. Therefore, the authorities concerned should draw the conclusion judicially, depending upon the facts and circumstances of the case. There is no conclusive presumption.
18. In the present case, K. Madhava Reddy retracted his statement even during the cross-examination. It is already a matter of fact that there is a dispute among the assessee and K. Madhava Reddy as is evident from the answer to question No. 8 recorded on 26th May, 1999, appearing on p. 8 of the assessment order, which reads as follows:
Q.8 : I am showing seized material KMR/P02/A, sheet No. 4 (back side) 3,2,1. Please go through these documents and explain what it is.
Ans. : I have gone through these papers. Sheet Nos. 1 to 7 are the synopsis of the submissions prepared by me for settlement of our disputes with Shilpa Group in the presence of one MLA.
Further, we find nothing about the land deal in the sworn statement recorded from M. Murali Mohan, chairman of the assessee company. He stated that the cost of land was between Rs. 5.25 lakhs and Rs. 6.50 lakhs per acre and confirmed the purchase of 22 acres of land at Kondapur, survey Nos. 31/1 and 33/1 and also confirmed that for registration purpose, the value is at Rs. 99,000 per acre. The Revenue authorities have also found signed agreement for 22 acres at Annex. 'B' to assessment order which reflects sale of 22 acres for a consideration of Rs. 1,12,37,332. This was entered in the books of accounts of all the parties. If so, in our opinion, this is a valid agreement and the difference of Rs. 3,14,812 is the interest for the delayed payment. The total receipt from M/s Shilpa Homes (P) Ltd., is Rs. 1,15,52,148. The total advance made as per books of accounts of the assessee is Rs. 91 lakhs and the difference is Rs. 24,52,148. This was rightly offered to tax. When the recorded consideration was Rs. 1,15,52,148, there cannot be basis for consideration of Rs. 3,62,18,000. The AO himself is confused. In para 5.23 of his order, he has held as follows:
5.2.3 In view of the shifting stands taken by the assessee, the cost of land has to be taken only as per the registered sale deeds. As the assessee has already claimed the registration charges and the cost of stamp paper as a revenue expenditure, the cost to the assessee is Rs. 21,90,000. Admitted sale consideration is Rs. 1,15,52,148. Therefore, the capital gains on this transfer comes to Rs. 93,62,148. As the asset is held for less than 3 years, the sum of Rs. 93,62,148 is assessable as undisclosed short-term capital gain for the asst. yr. 1998-99 inasmuch as, according to the assessee the transaction was completed before 31st March, 1998. This is without prejudice to the assessment of a sum of Rs. 1,21,78,000 as undisclosed interest income as per the discussion in the following paras. As regards the request of the assessee to give set off of the sum of Rs. 69 lakhs receivable by it, such a course requested by the assessee is beyond the scope of the assessment proceedings under Chapter XIV-B of the Act. Though the 22 acres of land was purchased in the names of third parties, the wherewithal for the purchase of the land was provided by the assessee and the assessee had also accepted the transaction as its own. The third party nominees have also filed affidavits stating that they had only let their names and the transactions only pertained to the assessee.
In para 5.2.4 he holds as follows:
5.2.4 As stated earlier, the actual consideration received from M/s Shilpa Homes (P) Ltd., pursuant to the transfer of 22 acres of land as per the tripartite agreement between the assessee, M/s K.M.R. Estates & Builders (P) Ltd. and M/s Shilpa Homes (P) Ltd. is Rs. 3,62,18,000. The investment on this property transaction by the assessee is Rs. 2,40,40,000. Hence, the surplus of Rs. 1,21,78,000 received by the assessee requires to be brought to tax as either normal business income or capital gain. From the MoU dt. November, 1996, it is clear that M/s K.M.R. Estates & Builders (P) Ltd. agreed to repay the advance given by the assessee along with 42 per cent interest. The assessee itself has admitted that it received interest @ 24 per cent. The surplus of Rs. 1,21,78,000 received, therefore, represents interest received on the money advanced by it. The assessee has already admitted an income of Rs. 24,52,148. A sum of Rs. 92,62,148 is proposed to be assessed as the undisclosed short-term capital gain, without prejudice to the finding given in this para. Hence the balance amount of Rs. 3,63,704 will be brought to tax as the undisclosed interest income of the assessee for the asst. yr. 1998-99.
19. As seen from the above paras, the AO is not firm as to whether the consideration for the sale of 22 acres of land passed on the assessee was at Rs. 1,15,52,148 or Rs. 3,62,18,000. Once he is telling it is at Rs. 1,15,52,148 and the short-term capital gain is Rs. 93,62,148. Immediately thereafter, he is stating that without prejudice to the above statement, the sale consideration was Rs. 3,62,18,000 and the short-term capital gain was Rs. 1,21,78,000 and the interest income is Rs. 24,52,148. There is severe inconsistency in determining the undisclosed income. This inconsistency has not stopped here. Further, the AO observed that the purchase cost of 95 acres 5 guntas of land is Rs. 2,40,40,000 as per unsigned MoU and the sale price of 22 acres is Rs. 3,62,18,000. However, while computing STG, he straightaway deducted the sale price of 22 acres with the purchase price of 95 acres 5 guntas. This method of computation is against the principle of law. According to AO, the sale price of 22 acres of land is Rs. 3,62,18,000 as stated in para 5.2.4 of the assessment order. However, as per Annex. 'D', the sale price of 29 acres of land is Rs. 3,62,28,294 for which the assessee is not at all a party. While determining the undisclosed income in the block assessment, the AO shall be specific in his statement. He cannot draw his inference on the basis of suspicion, conjectures or surmises. Suspicion, howsoever strong, cannot take place of material in support of findings of the AO. The AO should act in a judicial manner proceed with judicial spirit and should come to judicial conclusion. The AO is required to act fairly as a reasonable person and not arbitrarily or capriciously. An assessment made on inadequate material cannot stand on its own leg. The case law relied on by the learned Departmental Representative in the case of V. Kunhambu & Sons v. CIT (supra) and Surjitsingh Chhabra v. Union of India (supra) and State of Tamilnadu v. Kutty alias Lakshmi Narasimhan (supra) to support the retraction of the statement by Shri K. Madhava Reddy that it should be ignored and original statement to be relied. In our opinion, these case law are not applicable to the facts of the case on hand. In these cases relied on by the learned Departmental Representative, the original statement and the retracted statement were by the assessee himself. In the present case, both the original statement and the retracted statement were made by a third party i.e. K. Madhava Reddy. Further, on cross-objection also, K. Madhava Reddy denied his statement and the Revenue is not having any corroborative evidence in support of the original statement to say that it should prevail.
20. Further to the unsigned agreement (Annex. 'A'), there are several parties, viz., M/s K.M.R. Estates & Builders (P) Ltd., K. Madhava Reddy, M. Murali Mohan, D. Kishore, D. Ram Mohan, Smt. D.K. Devi, V. Subramaniam, M.M. Mohan and C.C. Mohan. As is evident from the record, he examined only K. Madhava Reddy, M. Murali Mohan and D. Kishore. The reason for not examining other parties is not clear to us. Similarly, to the MoU dt. 1st Jan., 1997 (Annex. 'B' to the assessment order) entered between M/s K.M.R. Estates & Builders (P) Ltd., K. Madhava Reddy, M.M. Financiers (P) Ltd., M/s Jayabheri Builders, M. Murali Mohan, D. Kishore, M.R. Mohan and M/s Shilpa Homes (P) Ltd. Here also, the AO has not examined all the parties on oath.
21. In the similar way, signed MoU, dt. 25th March, 1997 shows that the consideration payable to the assessee at Rs. 3,62,28,294 was towards the cost of 29 acres of land. In this case, the assessee is not at all a party. We are unable to comprehend as how this amount would become payable to the assessee when the assessee is not a party and how this agreement could become binding on the assessee. Here also, we observe that the following are the parties to this agreement (Annex. 'D' to the assessment order):
(i) M/s K.M.R. Estates & Builders (P) Ltd.
(ii) G. Narasimha Yadav
(iii) G. Prakash Yadav
(iv) Lakshmana Rao Yadav and
(v) M/s Shilpa Homes (P) Ltd.
Here also, the AO has examined only M/s K.M.R. Estates & Builders (P) Ltd., represented by K. Madhava Reddy and M/s Shilpa Homes (P) Ltd., represented by S. Chandra Mohan Reddy. Further, we observe that the AO has not gone into the details as to what has happened to these transactions in the hands of M/s K.M.R. Estates & Builders (P) Ltd. and M/s Shilpa Homes (P) Ltd. Whether these transactions have been properly disclosed in their books of accounts or not is not apparent from the records before us. It should not be fair, especially when the AO is the quasi-judicial authority. The duty the AO is not only to assess the income but also to investigate into the details of such income. The AO has not established nexus between the loose slips and the seized material, There is no date or signature in the loose slips. No narrations or descriptions are written on these slips. Since these are unsigned and undated, the contents therein are insufficient to fasten the liability on the assessee. Further, the assessee has furnished statement of accounts of M/s K.M.R. Estates & Builders (P) Ltd. for the period 1st April, 1995 to 31st March, 1996, which statements contain the details of payments as per tripartite agreement (Annex. 'B' to the assessment order). This was countersigned by M/s K.M.R. Estates & Builders (P) Ltd. and M/s Shilpa Homes (P) Ltd. This being so, the statement recorded from K. Madhava Reddy, managing director of M/s K.M.R. Estates & Builders (P) Ltd. and K.C.M. Reddy, managing director of M/s Shilpa Homes (P) Ltd. go contrary to this statement of accounts.
22. In our opinion, there is no valid seized material representing addition of Rs. 1.49 lakhs towards undisclosed purchase consideration. It is only on surmise basis and statement recorded from third party, K. Madhava Reddy, and M/s Shilpa Homes (P) Ltd. This cannot be acted upon. The Circular No. F.No. 286/2/2003/IT(Inv.), dt. 10th March, 2003 clearly refrains the AO from recording confessional statement during the course of search and seizure and survey operations and also warns the AO not to attempt to obtain any confessional statement as to the undisclosed income, and any action contrary shall be viewed adversely. It also states that the AO should rely upon the evidence and material gathered during the course of search. Here, in the present case, the evidence is only agreement which reflects the purchase consideration at Rs. 2.40 crores and the recorded statement shows the sale consideration of 22 acres at Rs. 3,62,18,000. The third party statement and unsigned agreement cannot be acted upon.
23. It is pertinent to note that the judgment of Hon'ble jurisdictional High Court in the case of CIT v. P.V. Kalyanasundaram (supra) holds that the burden of proof of actual consideration in such transaction was that of the Revenue. The Tribunal had given factual findings and held as follows:
The burden of proving actual consideration in such transaction was that of the Revenue. The Tribunal had given factual finding and held as follows:
'We find that it is the uniform view of the Courts and also held by the apex Court as reported in K.P. Varghese v. ITO , the burden of proving actual consideration in such transaction is that of the Revenue. Considering the entire gamut of the case, we find that the Revenue has failed to discharge its duties and as held by the learned CIT(A), instead made up a case on surmises and conjectures which cannot be allowed. Under the circumstances, we do not find any infirmity in the order of the learned CIT(A) and we uphold the appellate order in this regard.
We also found that the AO did not conduct any independent enquiry relating to the value of the property purchased. He merely relied on the statement given by the seller. If he would have taken independent enquiry by referring the matter with the Valuation Officer, the controversy could have been avoided. Failing to refer the matter was a fatal one'.
24. In the case of Bansal Strips (P) Ltd. v. Asstt. CIT (supra), while considering the issue of seized loose papers from the residence of the assessee during the search operation though the loose papers were not in the handwriting of the assessee and belonged to the assessee, the Tribunal held that:
There was force in the contention of the assessee that there was no provision of law under which the impugned addition could be made to the income declared by the assessee. It is trite law that if an income not admitted by an assessee is to be assessed in the hands of the assessee, the burden to establish that there is such income chargeable to tax is on the AO. With a view to assist the AO and to reduce the rigour of the burden that lay upon the AO, provisions of Sections 68, 69, 69A to 69D have provided for certain deeming provisions, where an assumption of income is raised in the absence of satisfactory explanation from the assessee. As these are deeming provisions, the conditions precedent for invoking such provisions are required to be strictly construed. The facts and circumstances giving rise to the presumption have to be established with reasonable certainty. The AO cannot first make certain conjectures and surmises and thereafter apply the deeming provisions based on such conjectures and surmises. In the absence of adequate material as to the nature and ownership of the transaction, undisclosed income could not be assessed in the hands of the assessee merely by arithmetically totalling various figures jotted down in the loose documents. In other words, for the purpose of resorting to deeming provisions, dumb documents or documents with no certainty have no evidentiary value. After consideration of the matter, the contentions of the assessee had to be agreed with. The impugned addition had been made by the AO on grossly inadequate material. The same was, therefore, directed to be deleted.
Further, the loose papers found during the course of search at the premises of K. Madhava Reddy are a dumb form having no evidential value. No addition can be made on the basis of noting on loose sheets in the absence of corroborative material. The Revenue has not found any circumstantial evidence in the form of any investments in cash, jewellery or others. They found only Rs. 6,73,610 in cash at the assessee's place. The assessee is not expected to explain the loose papers found at the premises of K. Madhava Reddy. Further, there is no evidence for the payment of money to the assessee by any party other than entered in the books of accounts. Similarly, there is no evidence for the payment of money towards purchase consideration by the assessee to M/s K.M.R. Estates & Builders (P) Ltd. other than Rs. 91 lakhs. The AO failed to establish the payment of Rs. 2.40 crores as purchase consideration for the acquisition of 22 acres of land and he has failed to prove the payment. Hence, we have no other alternative but to rely on the books of accounts maintained by the assessee according to which the purchase consideration was Rs. 91 lakhs and this has properly tallied with the sworn statement of the assessee.
25. The sale consideration of Rs. 3.62 crores for the sale of 22 acres of land vide agreement dt. 25th March, 1997 (Annex. 'D' to assessment order) for which the assessee is not a party and there is a valid agreement dt. 1st Jan., 1997 to which the assessee is a party and the payment in this agreement properly tallies with the books of accounts maintained by the assessee. Therefore, in our opinion, the sale consideration of Rs. 1,12,37,332 is properly disclosed by the assessee and the difference of Rs. 3,14,812 is interest for the delayed payment. This plea of the assessee, in our opinion, is having merit. The valid agreement dt. 1st Jan., 1997 cannot be said that it is an afterthough since it is the part of seized material. The assessee is justified in offering the difference between Rs. 1,15,52,148 and Rs. 91,00,000 as undisclosed income at Rs. 24,52,148, Since we have already held that there is no purchase consideration of Rs. 2,40,40,000 there is no question of computing the short-term capital gain on the difference of sale consideration of Rs. 3,62,18,000. Accordingly, we allow the grounds taken by the assessee.
26. In the result, the appeal of the assessee is allowed.