Income Tax Appellate Tribunal - Pune
Anil Bansilal Lodha, Nashik vs Assessee on 30 January, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
BEFORE SHRI I C SUDHIR, JUDICIAL MEMBER
AND SHRI G.S. PANNU, ACCOUNTANT MEMBER
ITA No. 132/PN/07
(Block Period: 1.4.96 to 9.10.2002)
Mr Anil Bansilal Lodha, .. Appellant
Mangal Bhuvan, Opp. S.V School,
Panchvati, Nashik-3
PAN AAGPL1981M
Vs.
Asstt. Commissioner of Income-tax, .. Respondent
Cen. Cir. 2, Nashik
Appellant by : S/Shri Sunil Pathak & Nikhil Pathak
Respondent by : Shri S K Singh, CIT
Date of hearing : 30.01.2012
Date of pronouncement : 29.02.2012
ORDER
PER G.S. PANNU, A.M:
This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-I, Nashik dated 29.11.2006 which, in turn, has arisen from order dated 28.10.2004 passed by the Assessing Officer, under section 158BC read with section 143(3) of the Income-tax Act, 1961 (in short "the Act), pertaining to the Block Period 1.4.96 to 9.10.2002.
2. In brief, the facts are that the assessee is an individual carrying on the business of civil contracting for State Government authorities, Municipal Corporations as well as for private parties through a proprietary concern under the name and style of M/s A. B Lodha & Co. Besides, the assessee is also engaged in the business of land developers and builders. A search action 2 under section 132(1) of the Act was carried out at the residence-cum-office premises of the assessee on 9.10.2002. In the course of search, incriminating documents, books of account, etc., were found and seized and statements under section 132(4) of the Act of the assessee and some of his employees were also recorded.
3. In the above background, the Assessing Officer issued notice under section 158BC of the Act requiring the assessee to file a return of undisclosed income for the above-stated block period. In response, assessee filed a return declaring undisclosed income for the block period at Rs 50 lakhs. In the subsequent assessment finalized under section 158BC(c) read with section 143(3) of the Act on 28.10.2004, the Assessing Officer determined the total undisclosed income at Rs 1,00,26,450/- after making additions on account of on-money receipts on sale of flats/shops and undisclosed income of machinery hire charges, etc. The additions made to the returned income were challenged in appeal before the Commissioner of Income-tax (Appeals) who has since dismissed the appeal of the assessee. Not being satisfied with the order of the Commissioner of Income-tax (Appeals), the assessee is in further appeal before us on various Grounds of appeal as under:
"1. On the basis of facts and in the circumstances of the case, the ld CIT(A) 1 Nashik is not justified in confirming the addition of Rs 32,57,322/- on account of n money instead of profit. He is further not justified in rejecting the fact that the said money was received mainly towards extra work and the reference by the appellant towards on money in this respect was mainly in respect of extra consideration for extra work.
2. On the basis of facts and in the circumstances of the case, the ld CIT(A) 1 Nashik is not justified in holding that the claim of the appellant to tax the profit on the said extra receipt of money instead of entire receipt is after thought and he is further erred in holding that the carrying on extra work by the appellant is not proved by the appellant when the statement of the persons from whom the extra amounts were received were recorded by the AO during the course of assessment proceedings for the block period and the said persons have categorically confirmed that the extra money was paid towards extra work done.
3. On the basis of facts and in the circumstances of the case, the ld CIT(A) 1 Nashik is not justified in confirming the addition of Rs 11,64,015/- on account of on money over and above the extra receipts disclosed by the appellant.
4. On the basis of facts and in the circumstances of the case, the ld CIT(A) 1 Nashik is not justified in confirming further estimation of undisclosed income of Rs 37,80,290/- on account of on money particularly when complete details of entire payment received including extra amount together with nature of respective payment received in respect of all the customers in the form of 3 registers were fund and seized during the search action. He is further not justified in considering the said seized registers in part favour to him.
5. On the basis of facts and in the circumstances of the case, the ld CIT(A) 1 Nashik is not justified in confirming the addition of Rs 16,47,873/- on account of undisclosed machinery hire charges without appreciating the actual fact of the case that the statement of machinery hire chares was prepared by machinery division as were the terms or practice of said division whereas the accounting of the same is made as per actual fact. He is further not justified in not considering the reconcilable nature of the said entries.
6. On the basis of facts and in the circumstances of the case, the ld CIT(A) 1 Nashik is not justified in confirming the additions made on account of on money as well as machinery hire charges when he has carried out independent inquiries with the relevant parties and information received under such inquiries supports the contention of the appellant.
7. On the basis of facts and in the circumstances of the case, the ld CIT(A) 1 Nashik is not justified in confirming the stand of the AO of ignoring the information collected by the AO under the independent inquiries u/s 131 of the Act from the parties from whom the undisclosed on money as well as machinery hire charges are allegedly shown to be received by the appellant. He is further not justified in alleging that the impugned transactions are also kept outside by the said parties and no businessman shall confirm the same on inquiry by the Income-tax Department.
8. On the basis of facts and in the circumstances of the case, the ld CIT(A) 1 Nashik is not justified in confirming the various vicious remarks/observations of the AO in the assessment order for the block period."
4. In so far as Ground Nos 1 to 3 are concerned, the same relate to additions of Rs 32,57,322/- and Rs 11,64,015/- on account of on-money receipts on sale of flat/shops. The primary plea of the assessee is that the lower authorities were not justified in holding that the entire amounts are liable to be taxed as income. With regard to the aforesaid issue, an Additional Ground of appeal has also been raised, which reads as under:
"The ld CIT(A) ought to have allowed deduction of unaccounted expenditure incurred by the assessee out of the on money/extra work charges received by the assessee."
5. By way of the Additional Ground of appeal, the claim of the assessee is that it is entitled to some deduction on account of unaccounted expenditure against the amounts assessed as on-money receipts, while computing the undisclosed income thereof. The Additional Ground so raised was stated to be flowing out of the orders of the authorities below, inasmuch as it related to the actual determination of undisclosed income with regard to on-money receipts. The assessee contended that the Additional Ground has been specifically raised as a matter of abundant caution whereas his alternative plea has all along been that the gross amount of on-money receipts found at the time of 4 search cannot be assessed as undisclosed income, without allowing benefit of the expenses incurred against such receipts.
6. The learned CIT-Departmental Representative, appearing for the Revenue, has not disputed the aforesaid factual matrix asserted by the appellant, while submitting the case of the Revenue on the issue of admission of such Additional Ground of appeal.
7. Having heard the rival Counsels and considering the nature of dispute, we deem it fit and proper to admit the Additional Ground of appeal for determination. In this manner, the rival contentions were heard with regard to the dispute regarding determination of on-money receipt and undisclosed income thereof, on the basis of the material found during the course of search.
8. Briefly put the facts and circumstances relating to the aforesaid dispute can be summarized as follows. As noted earlier, assessee is engaged in the business of builders and developers. In the course of search, 3 diaries were found which related to booking and sale of flats and shops by the assessee with regard to Gopal Nagar Project and Swastik Niwas Projects. The Gopal Nagar Project consisted of 5 buildings and Swastik Niwas Project consisted of 2 buildings. The diaries found indicated receipt of on-money for sale of flats and shops undertaken by the assessee with regard to the aforesaid 2 projects. The diaries found revealed that assessee had received monies from customers, which was over and above the consideration stated in the sale deeds. On this aspect, assessee was examined and questions were put to him at the time of search in a statement recorded under section 132(4) of the Act. On account of the diaries found, the assessee admitted receipt of on-money in sale of flats/shops in respect of the aforestated 2 projects. It is observed that in the course of assessment proceedings, assessee computed on-money receipts at Rs 32,57,322/- on account sale of flats/shops in respect of the 2 projects. Simultaneously the claim of the assessee was that the said receipts, 5 which were over and above the consideration stated in the sale deeds, were on account of some extra work carried out for the respective customers and in doing so, assessee had incurred some expenditure, which was required to be deducted while computing undisclosed income on account of on-money receipts. The aforesaid plea was rejected by the Assessing Officer. Firstly, the Assessing Officer computed the on-money receipts at Rs 44,21,337/- and not at Rs 32,57,322/- as computed by the assessee. Secondly, according to the Assessing Officer, the plea of the assessee that the on-money receipt was towards extra work carried out for the customers was not evident from the seized record and, therefore, he did not allow any deduction for expenditure incurred against such receipts. In conclusion, the Assessing Officer computed undisclosed income on account of on-money receipts on the basis of the diaries at Rs 44,21,337/-.
9. In appeal, the assessee challenged the aforesaid addition on twin grounds. Firstly, it was asserted that the correct amount of on-money receipts was only Rs 32,57,322/- and not Rs 44,21,337/- as computed by the Assessing Officer. Secondly, it was agitated that the entire amount of on- money receipt could not be assessed as undisclosed income as the assessee had incurred certain expenditure against such receipts and it is only the net amount which should be taxed as undisclosed income. The Commissioner of Income-tax (Appeals) has dis-agreed with both the pleas set-up by the assessee as, according to him, assessee in the course of search had agreed that he had received on-money against the sale of shops and flats and therefore it was liable to be taxed on such amount. According to the Commissioner of Income-tax (Appeals), computation of on-money receipt at Rs 44,21,337/- made by the Assessing Officer was also on the basis of the search material and, therefore, it did not need any interference. In this manner, 6 both the pleas of the assessee were dismissed against which assessee is in further appeal before us.
10. Before us, the sum and substance of the plea set-up by the assessee is that the addition of Rs 44,21,337/- on account of on-money receipts is not at all justified, since the entire receipt cannot be considered as assessable income. With regard to the expenditure having been incurred on such unaccounted on-money receipts, it was submitted that even at the time of recording of statement under section 132(4) of the Act at the time of search, assessee had clarified that expenditure to the extent of 50% of such receipts has also been incurred, which is unaccounted in the regular account books. A reference was made to copy of the statement recorded under section 132(4), which is placed at pages 173 to 193 of the Paper Book. Secondly , it is also pointed out that during the course of assessment proceedings assessee brought to the notice of the Assessing Officer that even the search material contained details of certain expenditure incurred against the unaccounted on- money receipts and, therefore, for both the above reasons, assessee pointed out that the incurrence of expenditure against unaccounted on-money receipts is apparent from record. In this connection, reference was also made to page 194 of the Paper Book wherein is placed copy of a letter dated 15.10.2004 addressed to the Assessing Officer detailing references to certain page numbers of the seized material which showed incurrence of an expenditure of Rs 4,92,398/- against unaccounted on-money receipts. The learned Counsel vehemently pointed out that in the said communication, assessee had also referred to other instances which showed that unaccounted expenditure was also noted in the material seized.
11. On the other hand, the learned Departmental Representative has contested the pleas set-up by the assessee by pointing out that the on-money receipts have been found to be unaccounted and, therefore, the amounts have 7 been justifiably assessed as undisclosed income. Even with regard to the claim of deduction of certain expenses incurred against such on-money receipts, the leaned Departmental Representative opposed the plea of the assessee by pointing out that said amounts are unverifiable and indeterminate.
12. We have carefully considered the rival submissions. Before we proceed tyo adjudicate the substantive plea of the assessee that the entire amount of unaccounted receipts cannot be assessed as undisclosed income, we may touch upon the difference of Rs 11,64,015/- representing the amount of undisclosed on-money receipts determined by the assessee and that by the Assessing Officer. On this aspect, assessee furnished a detailed note showing Rs 32,37,322/- as on-money receipts on the basis of the diaries found during the search. However, the Assessing Officer differed on this aspect and by way of detailed discussion in paras 11.6 and 11.7 of the assessment order, the determination of on-money receipts have been made at Rs 44,21,337/-. In the course of the hearing before us, the learned Counsel referred to various pages of the diary seized to point out the discrepancies in adoption of figures by the Assessing Officer in this regard. Having considered the submissions on this point, we are not inclined to deviate from the amount determined by the Assessing Officer which is based on the material on record. Thus, on this aspect, we decline to interfere with the orders of the authorities below.
13. The main and the substantive dispute of the assessee is that the entire amount of Rs 44,21,337/- cannot be computed as undisclosed income on account of on-money receipts against sale of flats/shops. The incurrence of expenditure against such on-money receipts, in our view, is emerging from the material on record. We are in agreement with the plea of the assessee that from the very beginning at the time of recording of statement under section 132(4) of the Act, assessee has sought to put across that the entire amount of 8 on-money receipts cannot be considered as income for certain expenses have also been incurred against same. Assessee had explained even during the assessment proceedings that in some cases, assessee had received on- money against extra work to be performed for the customers; that in carrying out such extra work, assessee was required to incur certain extra expenditure which too remained unaccounted in the regular books of account. We may refer to question no. 26 of the statement of the assessee recorded under section 132(4) of the Act dated 10.10.2002, a copy of which has been placed at pages 173 to 193 of the Paper Book. In question No. 26, assessee was confronted as to why the entire amount of on-money receipts should not be treated as undisclosed income. In the answer, assessee submitted that the entire amount does not reflect income, inasmuch as it was also spent on respective projects and in fact it was stated that the same was not lying with him. Further-more, even during the assessment proceedings, as has been pointed out by the Counsel for the appellant, it was asserted that the search material itself shows certain unaccounted expenditure having been incurred. In this connection, our attention was invited to page 197 of the Paper Book wherein is placed a copy of paper seized which shows details of expenditure incurred on construction, which was unaccounted. The said seized material reflects an expenditure of Rs 4,92,398/- on construction. Apart therefrom, similar expenses have also been stated to have been found during the course of search, as is evident from the letter of the assessee dated 15.10.2004, a copy of which has been placed at pages 194 to 196 of the Paper Book. Be that as it may, at present we are not at the stage of quantifying the expenditure which is claimed to be unaccounted expenditure incurred by the assessee against the on-money receipts. We are only evaluating the justifiability of assessee's claim that seized material not only showed receipt of unaccounted on-money against sale of flats/shops, but also reflected unaccounted 9 expenditure incurred for the projects. On the basis of assertions made by the assessee consistently since the beginning and also assessee's pointing out of instances from the seized material, we find that the claim of the assessee cannot be brushed aside. In-fact, the plea set up by the assessee before the lower authorities has been merely brushed aside without putting them into any verification. Even before us, similar stand of the Revenue continues. Therefore, considering the entirety of facts and circumstances and the material on record, we find that the assessee is justified in seeking a deduction on account of unaccounted expenditure incurred on the projects while computing undisclosed income on account of on-money receipts on sale of flats/shops of the project.
14. In so-far-as the quantum of such expenditure incurred is concerned, it is correct that the same does involve an element of estimation since exact determination is not feasible. The learned Counsel for the assessee pointed out that the Pune Bench of the Tribunal in somewhat similar situation in the case of DCIT v M/s Bakre Construction, Pune, vide order 23.11.2007 in ITA No 869/PN/02, etc., has held that undisclosed income can be estimated at 25% of the receipts. Further reliance was placed on the following decisions for the proposition that entire on-money cannot be taxed and that certain credit has to be allowed for expenses incurred, even if on an estimate basis:
(i) Dhanvarsha Builders & Developers (P)Ltd. v. DCIT 102 ITD 375 (Pune);
(ii) Kishor Mohanlal Telwala v ACIT 64 TTJ 543 (Ahd);
(iii) Chitra Devi v. ACIT 77 TTJ 640 (Jd); and,
(iv) Chander Mohan Mehta v. ACIT 71 ITD 245 (Pune)
The learned Counsel for the assessee submitted that a similar estimation be applied in the present case, inasmuch as the business in the case of M/s Bakre Construction (supra) was similar to that of the assessee.10
15. The learned CIT-Departmental Representative has contended on this aspect that the extent of undisclosed expenses is an estimate required to be done which would tantamount to element of guess-work while assessing the undisclosed income, which is not feasible.
16. Having considered the rival submissions on this issue, we find that no doubt there is no evidence to show the exact amount of undisclosed expenses which have been incurred by the assessee. So, however, incurrence of such expenditure stands proved on the basis of search material itself. In somewhat similar circumstances in the case of M/s Bakre Construction (supra) which was engaged in construction business, assessee was found during the course of search to have received on-money, Revenue was called upon to estimate undisclosed expenses incurred against such on-money receipts. In the said precedent, the Tribunal confirmed the order of the Commissioner of Income- tax (Appeals) whereby undisclosed income was estimated at 25% of the gross on-money receipts. Considering the entirety of the circumstances of the present case, and the quality of evidence available, we find that estimation of income assessable on account of on-money receipts in the present case be adopted at 30%, which would meet the ends of reasonableness and justice. Thus, on this aspect, assessee partly succeeds. Accordingly, we direct the Assessing Officer to re-compute the income on account of on-money receipts on the above lines. Thus, in so far s Ground Nos 1 to 3 and Additional Ground is concerned, the assessee partly succeeds.
17. In so far as Ground No. 4 is concerned, the same relates to estimation of undisclosed income of Rs 37,80,290/- made by the Assessing Officer with regard to on-money receipts. Briefly put the facts in relation to the said dispute are as follows. As observed in the earlier part of this order, the diaries seized pertained to two projects, namely, Gopal Nagar Project and Swastik Niwas Project consisting of 5 buildings and 2 buildings respectively. The diaries 11 found contained details of the flats/shops sold in the 7 buildings of the aforesaid two projects. It is discernible from the record that in respect of a building Jeevan Deep of Gopal Nagar Project, there were total 18 flats as can be seen from page 106 of the Paper Book. The said seized material showed the details of 18 flats sold by the assessee. The learned Counsel has explained before us that the diary seized gave details in the same manner for all the flats of the 7 buildings contained in Gopal Nagar Project and Swastik Niwas Project The Assessing Officer, however, noticed that in some of the cases, there was no difference in the consideration stated in the sale deeds and that noted in the seized diary. The Assessing Officer was of the view that since the assessee had collected on-money in respect of other flats in the projects, similarly even in the case of those flats/shops wherein no such on- money was recorded, the assessee must have received on-money for such cases also. The Assessing Officer has calculated the percentage of on-money collected by the assessee for flats/shops as per the seized diary and applied the said percentage to the declared consideration of other flats/shops and, in this manner, arrived at a sum of Rs 37,80,290/- which, according to him, reflected on-money receipts other than those found recorded in the seized material. While carrying out this exercise, the Assessing Officer relied upon following judgments:
(i) CST v H.M. Esufali H.M. Abdul Ali 90 ITR 271 (SC);
(ii) Overseas Chinese Suisine v. ACIT 56 ITD 67 (Bom)(TM); and,
(iii) Golani Brothers v. ACIT 16 SITC 144 (Pune)(Trib).
The Commissioner of Income-tax (Appeals) has also sustained the action of the Assessing Officer against which assessee is in further appeal before us.
18. Before us, the learned Counsel for the assessee submitted that the lower authorities were not justified in estimating further on-money receipts in respect of flats and shops for which there was no evidence found during the 12 course of search. In fact, according to the learned Counsel, the seized diaries contained detail of all the flats/shops sold indicating therein not only the declared consideration, but also the unaccounted consideration and, therefore, in cases where no unaccounted consideration was found recorded, same should be accepted as such. The learned Counsel pointed out that the seized material was complete, inasmuch as it contained details of flats/shops sold by the assessee in respect of each building and, therefore, it was not a case where seized material was incomplete so as to justify any estimation of further receipt of on-money. The learned Counsel distinguished the judgments relied upon by the Revenue in support of estimation of income by pointing out that in all those cases either the seized material was incomplete so as to justify estimation, or it was a case where the estimation was otherwise justified. In the present case, there was no justification to assume that the assessee would have received on-money even in cases where NIL on-money has been recorded in the seized material.
19. On the other hand, the learned Departmental Representative has relied upon the orders of the authorities below in support of the case of the Revenue. According to him, the assessee was found to have received on-money for the various flats sold and, therefore, it was quite reasonable to presume that even for the other flats/shops, assessee would have received on-money and in this manner, it was sought to be contended that the lower authorities made no mistake in estimating on-money receipts.
20. We have carefully considered the rival submissions. In this connection, we find that the seized material in the shape of diaries is complete. The diaries seized reflect complete details of the flats/shops sold by the assessee in the 2 projects. The respective entries of each sale contain the consideration received by the assessee under various heads, including cases where unaccounted consideration has been received. In the said detail itself in some 13 of the flats/shops sold there is no mention of any unaccounted consideration. The seized material contains details for individual sales thereby showing the name of the customer, title, sale consideration, agreement cost, amounts received, dates of receipt of consideration, etc. All these details are available for all the flats/shops sold and in some cases, there is no difference between the declared sale consideration and the actual amount stated to have been received. In the face of such factual aspects, we find that there is no scope left for the Assessing Officer to presume that even in cases where there is no mention of consideration over and above declared consideration, that the assessee would have received undeclared consideration. Quite clearly, it is a case where the facts justify the inference that on-money has not been received in sale of all the flats/shops. In fact, in cases where the amount has been assessed as on-money receipts, same corresponds to amounts found to have been written in such seized material. Therefore, in cases where there are no entries of unaccounted consideration in the very same material there cannot be a presumption to the contrary. Thus, in our view, the Assessing Officer was not justified in assuming that in such situation he was to estimate receipt of on-money in cases where the seized material pointed to the contrary. Therefore, we are inclined to uphold the plea of the assessee on this Ground.
21. In so far as the reliance placed by the Assessing Officer on the judgment in the case of H M Esufali H.M. Abdul Ali (supra) is concerned, same, in our view is inapplicable to the facts of the present case. In the case before the Hon'ble Supreme Court evidence of suppression of sales was found for a period of 19 days and on that basis, it was presumed that suppression of sale would have occurred in the balance period also. Therefore, the estimation for the balance period was upheld In fact, in the present case there is no such fact-situation, inasmuch as the same seized 14 material reflects receipt of on-money in the sale of certain flats/shops and in the sale of other flats/shops same seized material reflects no receipt of on- money Therefore, in the face of complete records being available, there is no necessity to presume receipt of on-money in other cases. The other cases relied upon by the Revenue, namely, Overseas Chinese Suisine (supra) and Golani Brothers (supra) are on the same footing wherein evidence found related to a part of the period showing suppressed income. In the absence of record for complete period of assessment, Revenue was found justified in presuming suppression of income for the balance period in aforesaid decisions. As noted earlier, the factual position in the present case stands on an entirely different footing and, therefore, in our view, the ratio of judgments of aforesaid cases does not apply to the present case. Therefore, in the end, we conclude by holing that the lower authorities were not justified in making the impugned addition of Rs 37,80,290/- on account of estimation of on-money receipts. In the result, we set-aside the order of the Commissioner of Income- tax (Appeals) and direct the Assessing Officer to delete the impugned addition. Thus, on Ground no. 4, assessee succeeds.
22. Ground Nos. 5 to relates to addition of Rs 16,47,873/- on account of undisclosed machinery hire charges. We have carefully considered the rival submissions in this regard. We find that the impugned addition has been made by the Assessing Officer for the reason that assessee has not disclosed the receivable amounts in his regular books of account in respect of machinery hire charges. Even during the course of statement under section 132(4), assessee confirmed that the seized pages in Bundle No. A-11 pages 1 to 14 were in respect of machinery hire charges and it showed the outstanding amount receivable from various parties. Before us also, the learned Counsel for the assessee could not dislodge the findings of the lower authorities. In these circumstances, we affirm the findings of the Commissioner of Income- 15 tax (Appeals) on this aspect. The addition made by the Assessing Officer is thus upheld. On this Ground of appeal, the assessee fails.
23. Before parting, we may make an observation which would be relevant for the purpose of computing the ultimate total undisclosed income assessable in the hands of the assessee for the stated block period. While computing the undisclosed income in terms of our said order, the Assessing Officer shall bear in mind that the finally assessable total undisclosed income shall not be below the amount of undisclosed income disclosed by the assessee in the return of income.
24. In the result, the appeal of the assessee is partly allowed.
Decision pronounced in the open Court on 29 th Day of February, 2012.
Sd/- Sd/-
(I C SUDHIR) (G.S. PANNU)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune, Dated: 29 th February, 2012
B
Copy to:-
1) Mr Anil B Lodha, Nashik
2) ACIT Cen. Cir. 2, Nashik
3) The CIT (A)-I, Nashik
4 The CIT (Cen) Nashik
5) DR, "B" Bench, I.T.A.T.,Pune.
6) Guard File
True copy By Order
Sr. PS, ITAT Pune