Income Tax Appellate Tribunal - Rajkot
Aatithya Motels And Complex (P) Ltd. vs Joint Commissioner Of Income Tax on 25 November, 2005
Equivalent citations: (2005)98TTJ(RAJKOT)825
ORDER
R.C. Sharma, A.M.
1. These are the cross-appeals filed by the assessee and Revenue against the order of CIT(A)-II, dt. 25th Feb., 1999 for asst. yr. 1995-96.
2. The assessee is aggrieved for retaining an addition of Rs. 32 lakhs on account of 'on money' received by the assessee. On the other hand, the Department is aggrieved by the action of CIT(A) for giving more credence to the statement recorded under Section 131(1A) as compared to the statement given under Section 132(4).
3. Rival contentions have been heard and records perused. Brief facts of the case are that there was a search and seizure action at the premises of Siddharth Enterprise, Jamnagar, which belonged to Shri Shailesh Mehta group. The search and seizure action was carried out on 23rd Aug., 1995. At the time of search and seizure action, statement of Shri Shailesh C. Mehta, partner of M/s Siddharth Enterprise, was recorded. In his statement Shri Shailesh Mehta stated that he had paid 'on money' of Rs. 47 lakhs for the land purchased by him for their Panorama Project. The money was paid to Shri Ashoklal, director of the assessee-company. As per the statement of Shri Mehta, total consideration amounted to Rs. 61 lakhs but conveyance deed was executed for Rs. 14 lakhs only. The remaining consideration of Rs. 47 lakhs was paid in cash. On the basis of statement of Shri Mehta, the assessee-company was called upon to explain as to why 'on money' receipt of Rs. 47 lakhs should not be taxed in the year under consideration. The assessee vide its reply dt. 2nd Feb., 1998 stated that Shri Mehta paid only Rs. 14 lakhs on the sale of land and he has not paid any 'on money' as alleged by him. Simultaneously search proceedings were conducted by the authorized officers at the premises of Shri Shailesh Mehta and also at the premises of Shri Ashoklal, director of the assessee-company, and no incriminating documents or papers were seized by the authorized officers which indicate any receipt of 'on money' from Shri Shailesh Mehta.
3.1 The AO, after considering the statement of Shri Shailesh Mehta under Section 132(4), held that his statement was voluntary and spontaneous and has evidentiary value. The AO also gave extract of the statement of Shri Shailesh Mehta to the assessee. The assessee in turn has cross-examined Shri Shailesh Mehta. After cross-examination of Shri Mehta, the assessee filed another explanation pointing out the discrepancy in the statement on cross-examination of Shri Mehta. The assessee brought to the notice of the AO that Shri Shailesh Mehta had admitted that he had not directly handed over 'on money' cash to Shri Ashoklal but it was paid to Shri Laxmidas Chandra, father of one of the partners, Shri Dipak Chandra. Based on this statement, the assessee argued before the AO that Shri Laxmidas Chandra was neither a broker nor a power of attorney holder or director of their company. Therefore, it was not believable that sum of Rs. 47 lakhs was handed over to him by a person who was a stranger and not related to Shri Ashoklal, the director of the assessee-company. The AO did not give any weight to the discrepancies in the cross-examination and relying on the statement given by Shri Mehta held that 'on money' of Rs. 47 lakhs was paid by M/s Siddharth Enterprises to the assessee-company during accounting year 1994-95 relevant to the asst. yr. 1995-96 and accordingly addition on account of 'on money' was made.
3.2 By the impugned order, the CIT(A) deleted part of addition and retained addition to the tune of Rs. 32 lakhs by observing that the first statement of Shri Shailesh Mehta was taken at 8 a.m. on 23rd Aug., 1995 immediately after reaching his premises for search and seizure action. In his opinion, the spontaneous statement recorded at the beginning of the search and seizure action must have evidentiary value because of the fact that such statement is spontaneous and is made without considering much of the pros and cons of such statement.. Therefore, such statement is bound to be nearer to the truth. Shri Shailesh Mehta is a builder and he has developed many complexes in Jamnagar. In fact, he is doing this work since 1980. Whatever information in respect of his bank account and properties were given by Shri Shailesh Mehta in his statement were found to be correct. Shri Shailesh Mehta submitted charging of 'on money' on the sale of various apartments developed by him. He has given the details of various properties purchased by him in reply to question Nos. 11 and 12 and has also admitted payment of 'on money'. In this very statement, Mr. Mehta had admitted that plot at the Panorama Complex was purchased for total consideration of Rs. 40 lakhs and the documents for the land were executed for Rs. 14 lakhs only. However, in his second statement which was recorded under Section 132(4) of the IT Act, after having admitted 'on money' receipt on the sale of its various projects, Shri Shailesh Mehta in answer to question No. 7 submitted that the land at Panorama Complex was actually purchased for Rs. 61 lakhs and his earlier statement that the same was purchased for Rs. 40 lakhs was not correct. In the opinion of CIT(A), this second statement of Shri Shailesh Mehta is not as reliable as the statement under Section 131(1A) recorded in the morning of 23rd Aug., 1995. In this statement, it appears that after having admitted charging of 'on money' Shri Shailesh Mehta increased the value of plot just to claim more debit on account of purchase of plot so that 'on money' receipts on sale of flats, etc. may be set off to a larger extent. In view of these facts, he observed that he has the reason to rely on the spontaneous statement of Shri Shailesh Mehta recorded under Section 131(1A) of the IT Act on 23rd Aug., 1995.
3.3 Aggrieved by the order of CIT(A), both the assessee and Revenue are in appeal before us.
4. It was contended by learned Authorised Representative that no 'on money' was given to the director of the assessee-company and that he had clearly denied the same during the course of search at his premises. He. further submitted that the statement given by party cannot be imposed on the assessee for making addition. As per learned Authorised Representative, the assessee also sought for cross-examination of Shri Shailesh Mehta on 23rd July, 1998. During the course of cross-examination Shri Shailesh Mehta had never agreed that he had paid the said amount to Shri Ashoklal who is one of the directors of the assessee-company. Learned Authorised Representative (has) also drawn our attention to the controversy in the statement of Shri Shailesh Mehta under Section 132(4) and submitted that the person to whom Shri Shailesh Mehta alleges to give 'on money' is not in any way related with the appellant-company as admitted by Shri Shailesh Mehta. He was also not aware whether the said person had good relation with Shri Ashoklal, director of the assessee-company. As per learned Authorised Representative, it was highly improbable that huge amount must have (been) taken to such person when Shri Shailesh Mehta never new about relation of such person with Shri Ashoklal. Furthermore, as per learned Authorised Representative, Shri Shailesh Mehta was also not aware as to whether Shri Ashoklal received 'on money' payment of Rs. 47 lakhs. In view of all the contradictions and improbabilities, the statement of Shri Shailesh Mehta cannot be relied upon. He further vehemently argued that the purpose behind Shri Mehta's statement regarding payment of 'on money' for purchase of land was getting set off of 'on money' payment against 'on money' receipts on sale of flats and offices. Allegations of 'on money' payment was made by him to save himself from taxation, therefore, such statement should not be relied upon. He also drawn our attention to the order of Tribunal in case of Bharat A. Mehta v. ITO, ITA No. 1683/Ahd/1999, dt. 17th May, 2000, headnote of which was reported at Taxmann, June, 2001, at p. 177 [full report at (2004) 86 TTJ (Ahd) 369--Ed.]. He also relied on decision of Tribunal, Ahmedabad 'C Bench, in the case of Shankeilal Nebhumal (HUF) and Ors. v. Dy. CIT in ITA Nos. 4600-4513 of 1991, dt. 27th March, 2001, reported at Taxmann Feb., 2004, at p..197 [full report at (2003) 80 TTJ (Ahd) 69--Ed.]. As per learned Authorised Representative, this issue is squarely covered by ITA No. 181/Rjt/1999, dt. 23rd Aug., 1999, in case of Ravindra Bhagwanji, Jamnagai v. ITO wherein similar addition was deleted by the Tribunal after observing as under:
"That statement of Shri Shailesh Mehta is highly motivated and self-serving. After purchase of plot in question Siddharth Enterprises developed it by constructing multi-storeyed building. He surrendered certain amount for assessment and claimed higher expenses than one claimed in the books. Shri Mehta claimed to have paid on money to assessee and others in the purchase of land. The deduction of on money has been allowed to Shri Mehta. This is what the AO has reproduced from the assessment order of Siddharth Enterprises, dt. 6th Nov., 1996."
4.1 On the other hand, learned Departmental Representative submitted that in the statement recorded under Section 132(4), Sri Shailesh Mehta clearly stated that the fact of giving 'on money' and the cross-verification was also allowed to the assessee and Shri Shailesh Mehta has never denied even before Shri Ashoklal during the course of cross-verification, that he has not advanced 'on money'. He, therefore, supported the order of the AO and submitted that CIT(A) was not justified in disregarding the statement given under Section 132(4) and thereafter relying on the statement given under Section 131 for deletion of part of addition made by the AO.
5. We have considered the rival contentions carefully and gone through the orders of authorities below and also deliberated on various decisions of the Tribunal cited at Bar by learned Authorised Representative, in the factual matrix of the case. We had also gone through the various statements recorded under Section 132(4) as well as statement recorded on cross-examination of Shri Shailesh Mehta on 27th March, 1998 at 3 p.m. by Dy. CIT, SR-II, in the presence of Shri Ashoklal, director of the assessee-company. The facts in brief are that the assessee-firm is a private limited company engaged in the business of real estate and building construction. It had sold one of its properties to M/s Siddharth Enterprises through its partner Shri Shailesh Mehta. The search and seizures were carried out in the business premises as well as residential premises of both the parties on 23rd and 24th Aug., 1995. During the course of search proceedings, Shri Shailesh Mehta had given a statement wherein he has stated that he paid 'on money' of Rs. 47 lakhs for the land purchased by him for his Panorama Project. As per the statement, total value of property was Rs. 61 lakhs only, out of this, he had paid Rs. 47 lakhs as 'on money' and the balance in white money. At the time of search, in the early morning, in the first statement given under Section 132(1A) Shri Shailesh Mehta stated that transaction was finalized for Rs. 40 lakhs, whereas in his statement under Section 132(4), he stated that transaction was finalized for Rs. 60 lakhs. The CIT(A) found that as the first statement was spontaneous statement and in the second statement recorded under Section 132(4), 'on money' figure was inflated to cover up the 'on money' receipts in order to lower overall taxable income of Shri Shailesh Mehta group. He further stated that Shri Shailesh Mehta paid cash to a person sent by Shri Ashoklal, director of the appellant-company and that it is not necessary that he should be an intermediatory person. It is enough if he recognizes the concerned person who is the carrier of the 'on money'. He, therefore, held that addition was to be made only with respect to sale consideration of Rs. 40 lakhs, after deducting white money paid by the assessee. The CIT(A) also observed that it is a common knowledge that 'on money' payment is made in the real estate transactions and the extent of 'on money' depends on the location of property and its uses. It is also a fact that builders have connived with each other on the issue of recording of minimum consideration in respect of transfer of properties so that stamp duty and other taxes could be saved. Once the transaction takes place, such evidences are destroyed, therefore, it is unlikely that the Department would get any evidence to corroborate the tracing of such 'on money' transactions. As per CIT(A) in all such transactions one has to rely on circumstantial evidence which accord with human probabilities.
5.1 Now coming to the decision of Tribunal relied on by the learned Authorised Representative, we found that receipt and payment of 'on money' was held to be not taxable on the basis of facts and circumstances of each particular case and no ratio has been laid down in any of the judgments with regard to deletion of 'on money' receipts/payments. The most appropriate case which is more nearer to the case of assessee is Ravindra Bhagavanji (supra), in which addition was deleted after having the following observation:
"That statement of Shri Shailesh Mehta is highly motivated and self-serving. After purchase of plot in question Siddharth Enterprises developed it by constructing multi-storeyed building. He surrendered certain amount for assessment and claimed higher expenses than one claimed in the books. Shri Mehta claimed to have paid on money to assessee and others in the purchase of land. The deduction of on money has been allowed to Shri Mehta. This is what the AO has reproduced from the assessment order of Siddharth Enterprises, dt. 6th Nov., 1996.
It is thus evident that Shri Shailesh Mehta and his company have been greatly benefited by setting up the case of payment of on money. In the present appeal, we are not concerned with the deduction allowed to Siddharth Enterprises has been rightly allowed or not. We are concerned with the question whether addition on the basis of statement of Shri Shailesh Mehta in the hands of the assessee is justified or not. In our considered opinion, the statement of Shri Shailesh Mehta, on the facts and circumstances of the case, evidently made to gain a huge benefit (which was duly allowed) is not sufficient to make addition in the hands of the assessee. We do not know how statement of Shri Shailesh Mehta is being preferred against denial of the assessee and others. The statement of Shri Shailesh Mehta is being preferred against denial of the assessee and others. The statement of Shri Shailesh Mehta is not of much evidentiary value against the assessee. The above view is supported by decision of the Hon'ble Bombay High Court in the case of Addl. CIT v. Lata Mangeshkar as also by decision of Tribunal, B-Bench, Ahmedabad, in the case of Asstt. CIT v. Prabhat Oil Mills (1995) 52 TTJ (Ahd) 533 as also by decision of Pune Bench of Tribunal in the case of ITO v. Bala Prasad R. Lokmanyawar (1984) 18 TTJ (Pune) 167. Accordingly, we direct that addition of Rs. 7 lakhs made in the hands of the assessee be deleted.
The assessee during the course of hearing had further contended that no action has been taken against four joint prospective purchasers of the property. The Revenue has further not shown that statement of other co-purchasers were.... Further, there is no evidence to show that the assessee was allowed to cross-examine Shri Mehta before statement was used against the assessee. Having regard to above circumstances, we are of the view that self-serving statement of Shri Mehta is of no value and addition based thereon is not sustainable. It is directed to be deleted."
5.2 After going through the observation made in the order of Tribunal as stated by learned Authorised Representative, we found that in the case of Ravindra Bhagawanji (supra), the addition was mainly deleted on the finding that statement of one party cannot form basis for making addition in the hands of the assessee when the assessee had clearly denied such receipt of 'on money'. A finding was also recorded in this case that there is no evidence to show that the assessee was allowed to cross-examine Shri Shailesh Mehta, before submission was used against the assessee. Thus, it is specifically clear that out of the two reasons/justification given for deletion of addition, one is with regard to not allowing cross-examination of Shri Shailesh Mehta to the assessee. However, in the instant case, the AO has allowed cross-examination of the person (Shri Shailesh Mehta) alleged to have given statement regarding advancing of the 'on money', in the presence of director of the assessee-company to whom he has given 'on money'. Therefore, the conclusions drawn in case of Ravindra Bhagavanji (supra), cannot be squarely applied to the instant case without referring to the facts and circumstances of the instant case. After going through carefully, the statement recorded on cross-examination of Shri Shailesh Mehta, dt. 27th March, 1998, as placed at p. 72 of the paper book, we found that Shri Shailesh Mehta has accepted the transaction of land purchase with Shri Ashoklal, director of the assessee-company through Shri Laxmidas Chandra, father of the partner, Shri Deepak Chandra. In further reply to involvement of Shri Laxmidas Chandra with the alleged transaction to whom 'on money' was paid for handing over to Shri Ashoklal, director of the company, it was stated that Shri Laxmidas Chandra has involved himself as a father of one of the partners of the firm in which Shri Shailesh Mehta was partner. He had also accepted payment of 'on money' and stated that Shri Ashoklal might have received this 'on money'. Thus, it is crystal clear that even from the statement recorded on cross-examination that there was movement .of 'on money' and in front of Shri Ashoklal, director of the assessee-company, Shri Shailesh Mehta has stated for payment of 'on money'. We are in agreement with the learned Authorised Representative, Mr. G.C. Pipara, that there is well settled legal proposition to the effect that no addition can be made in the hands of assessee merely on the basis of statement of third party, without bringing corroborative materials on record. In the instant case, both the lower authorities i.e., AO and CIT(A) have stated in their respective orders, that in any transaction of the real estate, there is involvement of 'on money'. The Department has not only made addition in the hands of Shri Shailesh Mehta on account of 'on money' payment to the assessee-company from whom land was purchased but also allowed deduction of such payment by considering it as expenses in the hands of Shri Shailesh Mehta, in respect of project constructed on the impugned land. Not only this, the Department had accepted the receipt of 'on money' in the hands of Shri Shailesh Mehta from the prospective buyers of flats which were on the alleged plot. Similarly, the Department has accepted the theory of 'on money' being received by the assessee-company and taxed the same in its hands. Now the question arises as to whether it can be presumed that while purchasing the alleged plot of land, the assessee-company had not paid any 'on money'. Undisputedly as per the observations made by the AO and CIT(A), there is involvemenc cf 'on money' in case of real estate dealings. Therefore, while accepting the payment of 'on money' by Shri Shailesh Mehta and receipt of 'on money' by the assessee, it cannot be denied that no 'on money' has been paid by the assessee-company on the purchase of the alleged plot of land which was in turn sold to Shri Shailesh Mehta. and on which it has received 'on money'. Therefore, keeping in view the facts and circumstances of the case vis-a-vis theory adopted by the Department itself and which is also known in commercial world, and also keeping in view the ratio of 'on money' to the white money, as discussed by the Departmental authorities in their respective orders, we are inclined to hold that the assessee-company is also not out of this vicious circle of 'on money' payment and receipt. Therefore, keeping in view the totality of facts and circumstances of the case, we direct the AO to restrict the addition of 'on money' to the extent of Rs. 10 lakhs in the hands of the assessee-company. We direct accordingly.
6. In the result, the appeal of assessee is allowed in part, whereas appeal of Revenue is dismissed.