Income Tax Appellate Tribunal - Ahmedabad
Neptune Infrastructure Pvt.Ltd., ... vs Department Of Income Tax on 19 October, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
'D' BENCH - AHMEDABAD
(BEFORE SHRI BHAVNESH SAINI, JM AND SHRI A. L. GEHLOT, AM)
IT(SS)A No.450, 451, 452, 453 and 454 /Ahd/2011
A. Y.: 2001-02,2002-03, 2003-04,2004-05 and 2005-06
Neptune Infrastructure Pvt. Ltd., Vs The A. C. I. T., Central Circle -
205, Aarohi Complex, 1(4), Aayakar Bhavan,
Near Ganesh Plaza, Ashram Road, Ahmedabad
Ahmedabad
PA No. AAACN 5332 D
(Appellant) (Respondent)
IT(SS)A No. 428,429, 430, 431 and 432/Ahd/2011
A. Y.: 2001-02, 2002-03, 2003-04, 2004-05 and 2005-06
Vs Neptune Infrastructure Pvt.
The A. C. I. T., Central Circle -1(4),
Aayakar Bhavan, Ltd., 205, Aarohi Complex,
Ashram Road, Ahmedabad Near Ganesh Plaza,
Ahmedabad
PA No. AAACN 5332 D
(Appellant) (Respondent)
Assessee by Shri S. N. Divetia and
Shri Anil Khatriya, AR
Department by Shri S. S. Parida, Sr. DR
IT(SS)A No.442, 443, 444, 445, 446 and 447/Ahd/2011
A.Y.: 2001-02, 2002-03, 2003-04, 2004-05, 2005-06 and 2006-07
Mahalaxmi Bhavan Co-operative Vs The A. C. I. T., Central Circle -
Housing Society Ltd., 1(4), Aayakar Bhavan, Ashram
Site Office, Near Ghantakaran Road,Ahmedabad
Mahavir, O/s. Sarangpur Gate,
Ahmedabad
PA No. AACBM 0364 R
(Appellant) (Respondent)
2
IT(SS)A No. 436, 437, 438, 439 and 440/Ahd/2011
A. Y.: 2001-02, 2002-03, 2003-04, 2004-05 and 2005-06
Vs Mahalaxmi Bhavan Co-
The A. C. I. T., Central Circle -1(4),
Aayakar Bhavan, Ashram Road, operative Housing Society Ltd.,
Ahmedabad Site Office, Near Ghantakaran
Mahavir, O/s. Sarangpur Gate,
Ahmedabad
PA No. AACBM 0364 R
(Appellant) (Respondent)
Assessee by Shri Anil Khatriya, AR
Department by Shri S. S. Parida, Sr. DR
Date of hearing: 19-10-2011
Date of pronouncement: 31-10-2011
ORDER
PER BHAVNESH SAINI: This order shall dispose of all the above cross appeals of both the assessees which are connected on the matter in issue. For the purpose of disposal of all the appeals, the appeals of assessee M/s. Neptune Infrastructure Pvt. Ltd. (hereinafter referred as 'Assessee Company') are taken up first because in this case substantive assessment is made. The protective assessment was made in the case of Mahalaxmi Bhavan Co-operative Housing Society Ltd. (hereinafter mentioned as 'society').
1.1 We have heard learned representatives of both the parties at length, perused the findings of the authorities below and considered the material available on record. The assessee also filed written submission which is also taken into consideration.
3NEPTUNE INSFRASTRUCTUE PVT. LTD.
(All appeals of assessee and revenue) All the cross appeals are directed against the common order of the learned CIT(A), Ahmedabad dated 31-03-2011 for assessment years 2001-02 to 2005-06.
2. The facts noted in the impugned order of the learned CIT(A) are that the assessee is Private Limited Company incorporated in 1997 with the share capital of Rs.46,000/-. The Assessee Company claimed that during the year under consideration, it was engaged in the single project of developing Shree Ghantakarna Mahavir Cloth Market for Mahalaxmi Bhavan Co-operative Housing Society Limited. It was also engaged in the business of real estate development work and financial activities. The Assessee Company has developed the project Shree Ghantakarna Mahavir Cloth Market on the land admeasuring 31102 square meters bearing Revenue Survey number 20/1(Paiki) and Final Plot number 12(Paiki) of TPS No.18 originally belonged to M/s. Gujarat State Textile Corporation Limited., an Undertaking of the Government of Gujarat. M/s. Gujarat State Textile Corporation Limited received the said land along with Textile Mill Premises, plant and machinery etc., from M/s. Ahmedabad Cotton Manufacturing Company Limited (Known as BAGICHA MILL) and was vested with absolute ownership and possession thereof. Thereafter, M/s. Gujarat State Textile Corporation Limited sold and conveyed only vacant land i.e. the land in question to Mahalaxmi Co- operative Housing Society Limited belonging to the Mahalaxmi Group 4 originally headed by Shri Bholabhai Patel. The massive project Shree Ghantakarna Mahavir Cloth Market was started on this land by Shri Bholabhai Patel. Shri Bholabhai Patel could not garner enough funds required for the project; as a result Shri Ramanbhai D. Patel of M/s. Apollo Organizers and Developers acquired the development rights for the impugned plot. However, this new entrant who acquired the development rights was not having adequate funds required for the accomplishment of the Shree Ghantakarna Mahavir Market Project. Therefore, Neptune Group headed by Shri Rasikbhai D. Patel got involved in it. The later constructed and developed Shree Ghantakarna Mahavir Market Cloth Market finally. The Shree Ghantakarna Mahavir Cloth Market is a huge market complex. It consists of 13 buildings comprising of lower/basement, ground and three floors above. These buildings are numbered from 'A' to 'M' and comprise of 1985 shops with total built up are of 6,20,460 sq. ft. The Project is located in prime business area.
2.1 In the assessee's case, search action was conducted u/s 132(1) of the IT Act on 01-11-2006. Simultaneously, survey actions were also conducted under section 133A of the IT Act in respect of few premises of Neptune Group of cases. During the course of search and survey actions, certain documents were seized and certain statements were recorded and also certain statements were taken subsequent to it. The seized documents included a loose paper page Nos. 222 to 224 of Annexure - A-1 of seized material which is on the letter head paper of M/s. Neptune Infrastructure Pvt. Ltd., found from the office site of Ghantakarna Market. This Paper is exhibited 5 Annexure- A of the assessment order. It contained detail working of the project showing different blocks, floor under each block; shop No. under each floor, total area of each floor, value of sq. ft. in rupees, floor wise amount and grand total of each block. There are 13 blocks and the grand summary area of block Nos. A to M is shown as 620450 sq. ft. The sum total of all the blocks is shown at Rs.1,41,46,26,000/- based on this loose paper. The AO has drawn a conclusion that the assessee has realized the total sum of Rs.1,41,46,26,OOO/- for the entire project and as against the same, it has recorded total realized value of Rs.50,89,29,741/- and therefore, the balance amount of Rs.90.57 Crores (Rs.141.46 Crores - Rs.50.89 Crores) is a suppressed income. The AO, therefore, apportioned the amount of Rs.90.57 Crores in the project years from its commencement of assessment year 1997-98 to 2005-06 in the ratio of cumulative sales sold in the books as under:-
Assessment Year Cumulative sales Percentage Undisclosed Income proceeds shown in the (Rs.) books 1997-98 27,75,000 0.55 49,81,186 1998-99 1,30,00,000 2.00 1,81,13,405 1999-00 4,40,38,306 6.10 5,52,45,886 2000-01 8,07,88,891 7.22 6,53,89,393 2001-02 24,41,05,634 32.09 29,06,29,586 2002-03 37,89,59,285 26.50 24,00,02,618 2003-04 40,77,28,937 5.66 5,12,60,937 2004-05 49,39,43,660 16.94 15,34,20,542 2005-06 50,89,29,741 2.94 1,06,56,988 6 The assessee has declared total income and the gross development fees as under:-
Asstt. Year Gross Receipt (Rs.) Total Income declared (Rs.
2001-02 13,80,000 30.850
2002-03 11,40,000 26,968
2003-04 5,32,600 (-) 81,290
2004-05 74,500 (-)4,01,947
2005-06 NIL NIL
On the basis of above facts, the AO assessed the total income by bringing to tax the additional income as suppressed income and made apportionment as shown above in chart in each year.
2.2 The AO has also drawn the conclusion for income additions based on the materials available on the record, co-relating, the loose paper figures with the sale price of certain shops bearing Nos. A/106, 107, B/27, 28, J/231 & 232, J/201 and concluded that the price recorded in the books of accounts were at a lower rate and with the price stated in the statement recorded of Shri Nikin Prabhudas Patel -
Chairman of Mahalaxmi Bhavan Co-operative Housing Society Ltd. In reply to Question No. 5 of his statement dated 1-11-2006, wherein, Shri Nikin Prabhudas Patel submitted that the prevailing price as on the date of statement range from ground floor to third floor between Rs.8,000 to Rs.1,000 depending upon the situation and location of the shops. Similarly, Shri Bholabhai Patel, key person of Mahalaxmi Housing & Finstock Pvt. Ltd. submitted that the loose paper contained details of calculation per sq. ft. of floor wise of shops and offices in 13 block (Blocks A to M) in five floors, The total figure of receipts indicated in the loose paper is Rs.1,41,46,26,000/-. Based on this loose paper and the statements of the two persons, the AO has 7 drawn a conclusion that the sale price recorded in the books of account is understated and that the real price received is Rs.1,41,46,26,000/-. The AO further relied on the Annexure A-3 page 26 of the seized material from the office of Shri Bholabhai Patel, which is a cost certificate dated 21-2-2000 issued by the key person of Assessee Company, wherein, the price of certain shops have been declared at higher price than the documented price. Further, the AO has drawn conclusion from the post search inquiry made from the Mehsana Urban Cooperative Bank Ltd. that cost of shop reflected in the loan document is higher than the same recorded in the books of account. In the said document, Shri Rasikbhai Patel - Manager of Assessee Company stood as the surety to this loan transactions. Further, the AO has taken the base of Govt. Registered Valuation Report wherein the valuation is placed in report dated 16-1-2001 of C. K. Patel, Valuer and report dated 26-1-2001 of Mukund C. Shah, Valuer. The value placed by them for ground floor to third floor changes from Rs.3800/- to Rs.4600/- for ground floor and lower price for first floor to third floor. The AO, therefore, concluded that the price indicated in the loose paper was the real price fetched by the Assessee Company. Therefore, the difference between the price indicated in the loose paper and the price indicated in the books of accounts is suppressed receipt and chargeable to tax. Accordingly, The AO has made the addition to income as noted above.
3. The addition of undisclosed income was challenged before the learned CIT(A). It was contended inter alia that the Assessee Company, Neptune Infrastructure Pvt. Ltd. in all the years was 8 engaged in the development of the single project by the name Shree Ghantakarna Mahavir Cloth Market, the project was developed on behalf of Mahalaxmi Bhavan Cooperative Housing Society Ltd. which owned the land, the development work was executed by the Neptune Infrastructure Pvt. Ltd., the assessee under the development agreement executed with the society. The assessee was working as a supervision contractor and carried out the development work as per approved plans. The raw material required for construction and the engagement of the labour was done by the society the material and labour bills were raised by the suppliers and labours in the name of the society only, the land property and the superstructure work in progress is recorded in the books of society, the Assessee Company only supervised the entire project and managed the funds required for the project. The learned Counsel for the assessee also contended that the assessee had no right, title, interest or claim either in the land or on the superstructure viz. Shree Ghahtakarna Mahavir Cloth Market.
3.1 The main contentions of the assessee were that (a) the assessee was mere contractor engaged in the development work of the land property owned and belong the society, (b) the ownership and the land property and superstructure thereon was of the society,
(c) the Assessee Company merely supervised the entire project in terms of the development agreement and received consideration towards development charges which were reflected in books of accounts, (d) the Assessee Company has arranged the finance for the project and has charged interest thereon and TDS was made by 9 the society and this income was offered for taxation, (e) the allotment of the shops to the buyers was made by the society under the recommendation of the assessee after the buyers were enrolled as members of the society, (f) the annexure - A Page Nos. 222 to 224 reflecting the project details were mere estimation/projection sheet only and not paper to indicate the sale consideration, (g) the fact that group booking was made in respect of three parties reflects the correct allotment price in as much as the purchase price in their hands was accepted by the department under scrutiny assessment made by the Central Circle Officer, (h) the allotment was made at prevailing market price prevailing after the period of earth-quake, (i) the cost certificate issued by the Manager of the Assessee Company was made available to accommodate the buyers of the shop for drawing higher amount of loan so as to help them to purchase the property accommodating their margin money, (j) the difference in the price rate shown by the AO in Para 8 of the order stood explained and reconciled, (k) the allotment price collected for society from members was at the prevailing market rates supported by the registered sale document effected in the cases of subsequent transfer, which price match with the allotment price found recorded in the books, (l) a specific request was made by assessee to the AO to give opportunity before taking any adverse action and also to offer cross examination of such person, however, this opportunity was not given, (m) the assessee has filled the affidavits of five persons indicating that certificates were given to them by the representative of the Assessee Company to accommodate their needs and that the actual consideration given to Neptune Infrastructure Pvt. Ltd. was as 10 per money receipts issued and it was only price paid and that no other consideration was paid, (n) there was no material evidence on records to establish that the so called suppressed money was received by the assessee, (o) the AO has made an error in the measurement of the construction area. The AO has taken into consideration the measurement of 620450 sq. ft. (on the basis of the seized paper Annexure - A page Nos. 222 to 224), whereas, the actual construction measurement area is 395636, which was confirmed by the department valuation officer, Unit-II, under his report dated 17th February 2011. Therefore, the alleged suppressed money considered as income in assessment for the non-constructed area was totally illegal and unwarranted. The learned Counsel for the assessee filed the written submission on 25-03-2011 which reads as under:
"1. In furtherance to what is being submitted earlier, the appellant begs to submit as under:-
(i) The documents seized and relied upon by the Assessing Officer being schedule A does not state that total sale price for block No. A to M for the actually and physically constructed area of 6,20,450 Sq. ft. for Rs.1,41,46,26,000/- actually received or found from the possession of the appellant /assesses namely Neptune Infrastructure Pvt. Ltd.
but it was a future budgetary projection prepared much before the construction work and/ or the booking was started. In fact it has been clearly narrated in the seized documents as "VALUE OF Rs. /Sq. ft" only and not as misinterpreted by the Assessing Officer as SALE PRICE realized. The document has to be read and interpreted as such and not otherwise as has been done by the 11 Assessing Officer. After the site inspection and the report of DVO, it is now proved beyond doubt that neither the permission for block No. A to M for construction admeasuring 6,20,450 Sq. ft. was granted by the competent authority nor the construction work of 6,20,450 Sq. ft. was completed at the relevant time. In fact, the unconstructed area as on 31.12.2009 was of 1,89,898 Sq. ft.
(ii) The reliance placed by the Assessing Officer on some of the valuation certificates is also misplaced in as much as that the same were issued for the purpose of the clients and due confirmations in the form of affidavits are also placed on record. Thus, the same stands rebutted with concrete evidence as aforesaid.
2. Assuming without conceding and admitting, in the alternative at the most the addition for the value to the extent of such instances quoted in the assessment order could be sustained and it cannot be taken as a base to fortify the future budgetary projection drawn before the start of the work as aforesaid being value at Rs.1,41,46,26,000/- as sale price received and to tax it. There is no documentary evidence to suggest that the aforesaid value is received in full and not recorded in the books of account. Further the entire addition made in all the years is of the alleged sale price only and it is a settled law that only income earned out of such sale can be taxed. In the instant case nowhere in the relied seized document the cost of construction is mentioned and in such an eventuality the set off of cost incurred has to be allowed. At the most profit on it could be taxed but certainly not the whole amount.
3. The appellant also relies on the following Judicial Pronouncements in support of the above contentions:-
3.1 A. RAMAN & C0. 67 ITR11 (SC).
HEADNOTES:-
12"LAW DOES NOT OBLIGE A TRADER TO MAKE MAXIMUM PROFIT."
In the appellant's case the Schedule "A" seized and relied was a future budgetary projection of the value only and not actual receipt. Moreover, being a recessionary market at the relevant time different price was charged as such the value as shown cannot be taken as sale price and to tax as such.
3.2 S.P. GOYAL v. DEPUTY COMMISSIONER OF INCOME TAX [2002] 82 ITD 85 (MUM.) (TM).
HEADNOTES "SECTION 68 OF THE INCOME TAX ACT, 1961 - CASH CREDITS -ASSESSMENT YEAR 1993-94 - ADDITION OF RS.60 LACS HAD BEEN MADE BY ASSESSING OFFICER ON ACCOUNT OF CONSIGNMENT SALES ON. BASIS OF ENTRIES FOUND IN LOOSE SHEETS OF DIARY BELONGING TO ASSESSEE SEIZED DURING COURSE OF SEARCH - WHETHER LOOSE SHEETS OF PAPER TORN OUT OF DIARY FOR 1992 COULD BE CONSIDERED AS BOOKS FOR PURPOSE OF SECTION 68 - HELD, NO -WHETHER AS IT WAS ONLY A PLANNING, NOT SUPPORTED BY ACTUAL CASH, THEN THERE HAD TO BE CIRCUMSTANTIAL EVIDENCE FOUND IN FORM OF EXTRA CASH, JEWELLERY OR INVESTMENT OUTSIDE BOOK, EXPLANATION OFFERED BY ASSESSEE COULD NOT BE REJECTED - HELD, YES - WHETHER ADDITION MADE WAS ON MERE SUSPICION WITHOUT ANY CORROBORATIVE EVIDENCE AND HAD TO BE DELETED - HELD, YES.
In the appellant's case Schedule "A" was prepared in the name of Mahalaxmi Bhavan Co-operative Housing Society Ltd. who is owner of the "Shree Ghantakarna Mahavir Cloth Market"- project and the appellant has even at the time of search proceedings vide answer to question 25 or statement dated 26.03.2007, has 13 categorically stated that no such construction as mentioned is carried out because of lack of permission of Ahmedabad Municipal Corporation and also the Schedule was prepared before the beginning of the project and it is not in accordance with the actual allotment and booking amount. The collection shown in the books of account is the true collection and nothing is concealed. The appellant's case is even on more sound footing as in the cited Case the department did not record any statement of the assessee regarding that paper during the course of search.
3.3 RADHE DEVELOPERS (INDIA) LTD. v DY. CIT (ASST) S.R. 5, AHMEDABAD in IT(SS) A.N0.103/Ahd/1997 BY ITAT AHMEDABAD BENCH 'B' Dated 15.01.1999. As affirmed -by Gujarat High Court in the case of DEPUTY COMMISSIONER OF INCOME TAX v. RADHE DEVELOPERS (INDIA) LTD. [2010] 329 ITR 1 (GUJ).
HEAD NOTES:-
"THE TRIBUNAL HAD AFTER APPRECIATING EVIDENCE ON RECORD FOUND THAT THESE FIGURES WERE PROJECTED BUDGETARY ESTIMATES AND NO ACTUAL TRANSACTION HAD TAKEN PLACE."
In the appellant's case having regards to the factual position as narrated in para 1 (i) above coupled with answer to question no.25 narrated above below the case of S.P. Goyal (SUPRA) it should be appreciated that the same cannot be treated as actual receipt but future budgetary projection only and it cannot be added as income.
4. The appellant therefore earnestly request you honour to consider the above submissions judiciously before deciding the appeals."
144. The learned CIT(A) considering the explanation of the assessee in the light of the findings of the AO and material on record directed to estimate the taxable profit at 20% of the total receipts of the project and partly allowed all the appeals of the assessee. The findings of the learned CIT(A) in Para 6 to 11 of the appellate order are reproduced as under:
"6. I have considered the submissions of the appellant company and the contention of the Assessing Officer, as mentioned in the assessment order. I have also referred to the relevant documents of the seized materials. Before adjudicating the issue, in order to determine the correct measurement of the construction area of the shops, the matter was referred by the assessing officer during the course of appeal hearing to the valuation officer, unit-l, Ahmedabad. As per the loose paper, total construction area 620450 sq. ft. (as per Annexure-A), whereas, the department valuation report confirms the area of construction of the shops (built-up area) at 395636 sq. ft. as shown by the appellant company. Therefore, the total area and value considered by the A.O. as per the loose paper is not the correct factual position. The valuation officer, unit-ll, Ahmedabad has confirmed that the complete construction work as per the loose paper was not done even on the date of inspection in 20-10 -2011. The valuation officer has reported that out of 13 Blocks A to M, there was no construction work put on land Block No. F, G & H (fully vacant land) and Block E shops no. 20 to 32 from basement to top floor. Thus, the contentions of the A.R. before the A.O. that the entire project as per loose paper was not constructed is found to be true.
7. The other issues, emerging in the present case for adjudication are:-
(i) In which case, the "unaccounted income", if any, should be subjected to tax i.e. whether in the assessment of the appellant company or in the case of the Co-op, society viz. Mahalaxmi Bhavan Co-op.
Housing Society;
15(ii) Based on the appreciation of facts and other corroborative and circumstantial evidences, what should be "unaccounted income", which should be subjected to tax?
8. As regards to the adjudication on the first issue, it is noticed that the appellant has entered into a development agreement with M/s. Mahalaxmi Co-operative Housing Society on 15.06.1997, wherein M/s. Apollo Organisers and Developers has acted as confirming party. The appellant is termed as "party of the third part" in the aforementioned development agreement. The following clauses of the development agreements are worth mentioning:-
"9(b) According to this agreement, you, the Party of the Third Part, as developers of land acquired by the Party of the First Part, are eligible for all the rights. Accordingly, you, the Party of the Second Part are required to get the possession of the whole land and in relation to the development of said asset, the Party of the Third Part is required to provide all necessary facilities and to appoint staff members at its convenient and availability and we, the Party of the First Part will have no objection in relation to this matter." .
"9(d) According to this development agreement, the Party of the Third Part is eligible for all the rights regarding the necessary activities carried out by them on behalf of the Party of the First Part for development of the land acquired by the Party of the First Part i.e. Society. And for carrying out such development activities, the Party of the Third Part is eligible on behalf of the Party of the First Part if they are required to obtain any permission from Central Government, State Government and Municipal Corporation. And in relation to development of the asset, the party of the Third Part is eligible on behalf of the Party of the First Part if the Party of the Third 16 Part is required to obtain permission for construction from the Town Planning Office of Municipal Corporation, Collector, Deputy Collector, Commissioner and any other development authorities. We, the Party of the First Part are agreed to pass necessary resolution, sign the documents, and give declaration and undertaking for carrying out all the aforesaid activities by the Party of the Third Part. And, we, the Party of the First Part undertake the liability for the abovementioned activities carried out by the Party of the Third Part. "
"9(e) The Party of the Third Part is authorized to appoint engineers, supervisors, architect, solicitors and necessary staff for carrying out construction and development activities on the land acquired by the society. And for the purpose of construction on the land, the Party of the Third Part is authorized do enter into contract for goods and labour work and to purchase all necessary items in the name of society on behalf of society. For the purpose of purchasing any items if the Party of the Third Part is required to obtain permission from Government then the Party of the First Part is required to pass necessary resolutions and give undertakings to the Party of the Third Part."
"9(f) The Party of the Third Part, developers, according to the rights on the land, is authorized to carry out any kind of residential and commercial construction. If any person or person after becoming a member of society i.e. the Party of the First Part, demand for the possession of developed units then the Party of the Third Part can allot the possession after obtaining consideration in lieu of such unit. If any person from the Party of the Third Part wishes to become a member of the society then the Party of the First Part i.e. society will admit such person without any objection. The Party of the First Part will 17 not admit any person as a member of society without obtaining written permission from the Party of the Third Part. The Party of the Third Part can give the vacant place to any other person in lieu of adequate consideration. Thus, the Party of the Third Part is required to credit all amounts received by passing Journal Entry. And it is also required to credit the account of the Party of the Third Part by passing Journal entry for all the expenditure incurred for the purpose of development of asset. "
"9(f) The Party of the Third Part is authorized to create a lien and claim rights on the said property for the amount invested and expenses incurred by it for the development of such property. And the Party of the First Part cannot enter into any transaction with any one related to the property possessed by the Party of the Third Part as developers without a written consent from the Party of the Third Part. And without a permission of the Party of the Third Part, the Party of the First Part cannot rescind this development agreement."
"9(1) In this project, for complying with the legal procedure, if the member of the Party of the First Part who has acquired a property is required to make registered sale deed then as per the notice of the Party of the Third Part, the Party of the First Part has to make such sale deeds, and we, the Party of the First Part are agreed for making such sale deeds."
"9(m) In this project, if the member of the Party of the First Part is required to borrow money or take a loan from any institution for acquiring abovementioned units or property then the Party of the First Part as per the notice of the Party of the Third Part, has to provide necessary agreement and certificates."18
8.1 From the above terms and conditions of the development agreement, it is apparent that the appellant company has been entrusted all the powers, including power to enter new members and allot them the space. In other words, the appellant company is authorized to sell the "vacant place" in lieu of considerations. These clauses clearly illustrates that the appellant company has sold the "vacant place" in the constructed market and it has actually collected the price for the premises to be sold to the prospective buyers. In other words, the appellant company has been given absolute powers to develop and sell the shops in the project.
8.2 In view of above, I am in agreement with the findings recorded by the Assessing Officer in the assessment order that the project in question is the venture of the appellant company. In other words, the task of the construction of market a profit making venture of the appellant company as all the important areas of works including selling of premises in cloth market and collection of funds from members have been entrusted to the appellant company as per development agreement. Even the loan agreement with Dena Bank has been made by the appellant company. Based on all these direct and circumstantial evidences, it is apparent that appellant company is the real owner of the project. Hence, income and profits from the venture of construction of the cloth market is required to be taxed on substantive basis in the assessment(s) of the appellant company.
9. The next question for determination is as to what should be quantum of income to be assessed in the case of appellant company? As mentioned in the instant appellate order, the total area constructed till search date is 3,95,636 sq. ft. The document i.e. Annexure-A, shows the total constructed area at 6,20,450 sq. ft. It indicates that document (Annexure-A) also shows the future financial projections of the project. However, the rates of the properties, as mentioned in document (Annexure-A) could not be brushed aside. In the assessment, order, the Assessing Officer has cited the other circumstantial and corroborative evidences, which establishes that appellant has charged "on money" in the sale of premises of the project.
19Such evidences includes independent evidences collected from the office of Shri Bholabhai Patel (Annexure- A/3), wherein one of the main person of the appellant company group has issued certificates for certain shops in the cloth market, as mentioned by Assessing Officer at page 9 of the assessment order. The appellant could not be allowed to brush-aside such important pieces of evidences by merely stating that these certificates were issued for availing bank loans. The filing of affidavits or declarations in appeal proceedings from some "such persons", in order to rebut the contents of such evidences is of no use, as such affidavits and declarations are self serving documents and these carries no evidentiary values. Even the two independent valuers viz. Shri C, K. Patel and Shri Mukund C. Shah have certified the prevailing market price of the shops in the cloth market, which is much more than the Jantri Price.
9.1 In appeal proceedings, the counsel of the appellant has vehemently argued that properties in the cloth market have sold at Jantri price, which has been recorded in the books of accounts. However, I am afraid that due to availability of sufficient circumstantial evidences, such arguments of the appellants could not be accepted. It is a well known fact that in the real estate market, the "on money" receipt is always there. The same proposition is also true in the case of re-sale of shops. Thus, I am of the opinion that total receipts of the appellant company is required to be determined on the constructed area (till the date of search) on the basis of rates of the properties as mentioned in seized document i.e. Annexure- A. The same is determined as under:-
BLOCKS L/LL G/F. F/F S/F T/F Total (Rs.) A 7039 12763 12732 12447 3768 B 15695 15110 . 15120 14738 15140 C 13016 13625 13769 13449 13839 D 0 11396 11394 11112 7309 E 5760 6076 6076 5916 6076 20 I 8340 7810 7833 7683 7833 J 14397 14595 14537 14387 290 K 2675 3784 3786 3786 606 L 0 4185 4199 0 130 M 0 5372 5373 135 135 Round cab 400 TOTAL 66922 94716 94819 83653 55126 395636 @ 1600 3500 6500 2500 2200 1600 TOTAL 107075200 331506000 237047500 184036600 88201600 947866900
9.2 The appellant company, under the development agreement had declared development rate of 8% of the construction cost. However, for the detailed reasons mentioned in the instant appellate order, it is apparent that total receipts of the appellant company from the cloth market project, till search actions, are Rs.94,78,66,900/-. The appellant company is the real owner of the project. Hence, the appellant would certainly earn substantial profits from the project than mere 8% of construction cost, as mentioned in the development agreement. Taking into consideration all the relevant facts including receipts of substantial amounts as "on money" from the project, the total taxable profits are estimated at 20% of the total receipts from the projects. Thus, total profits from the cloth market project is determined at Rs.18,95,73,380/- and same are directed to be assessed in different assessment years, as per the formula devised by the Assessing Officer. The year- wise taxable profits for A.Y.2001 -02 to 2005-06 are determined as under:-
A.Y. Percentage Profit to be taxed (Rs.)
2001-02 32.09 6,08,34,097/-
2002-03 26.50 5,02,36,945/-
2003-04 5.66 1,07,29,853/-
2004-05 16.94 3,21,13,730/-
2005-06 2.94 55,73,457/-
21
The Assessing Officer is directed to modify the assessment order accordingly. The ground of appeal No.1 is disposed off accordingly.
10. As regard Ground No.2, the chargeability of interest under difference provisions of law, I hold that same is consequential nature and disposed of accordingly.
11. In the result, the appeal is treated as partly allowed."
5. The assessee as well as the revenue are in the cross appeals in all the assessment years under reference. The assessee has raised several grounds of appeal in all the appeals. The assessee has challenged the order of the learned CIT(A) in determining total income in all the assessment years at Rs.18,95,73,380/- as mentioned in Para 9.2 of the appellate order reproduced above. The assessee stated in the grounds of appeals that the society remained real owner of the land and building under reference and the assessee received developing charges. The learned CIT(A) should have accepted the property sold at Jantri Price and should not have accepted alleged on-money. The seized document Annexure - A was not for sale price realized as it was only project budgetary estimate and not actual transaction. The learned CIT(A) should not have determined the income on estimated basis at 20% and made the additions as mentioned in Para 9.2 of the appellate order. The learned CIT(A) should have considered the real income of the assessee as per law. The revenue challenged the order of the learned CIT(A) in reducing the profit of the assessee as against the income determined by the AO. The learned representatives of both the parties submitted that the issue for consideration thus would be 22 as to who is the beneficiary of the income out of the project in question and as to what quantum income should be determined in the case of the assessees.
6. The learned Counsel for the assessee reiterated the submissions made before the authorities below and referred to various documents on record considered by the authorities below and submitted that the revenue mainly relied upon seized paper Annexure- A/1 (PB-72 to 74) to make the above additions in all the years which was only future financial projection and would not indicate any on-money actually received by the assessee. The assessee as per the agreement for development has shown the profits in its books of accounts at Rs.50.89 Crores; therefore, no undisclosed income is earned by the assessee. PB - 75 i.e. cost certificate is issued to get bank loan would also not indicate any on- money received by the assessee which also contained extra work instructed by the parties. PB-41 is statement of Shri Nikin Patel connected with the society. PB-66 is the statement of Rasikbhai Patel. PB-12 is the statement of Shri Bholabhai Patel, original owner of the project. The property was inspected by the DVO at the appellate proceedings and falsified the measurement of the project taken by the AO as per Annexure - A/1 (copy of the same is filed at PB-210). PB-351 is the translated copy of development agreement dated 15-06-1997, according to which assessee would be entitled for 8% development charges. He has also referred to affidavits (PB-366 to 370) of the purchasers in which they have affirmed that cost certificates were issued by the Assessee Company for taking higher 23 loan from the bank as they need not to contribute any amount. He has filed copies of the tax audit report on sample basis for assessment years 2001-02 (PB- 717 to 751) to show development charges have been booked in the books of the Assessee Company. Copies of the TDS certificate are filed at PB-752 to 757 to show that tax has been deducted by the society on payment to the Assessee Company. PB-758 to 788 are the copies of the acknowledgment and statement of income for the returns filed in response to search notices u/s 153A of the IT Act as well as u/s 139(1) of the IT Act with assessment orders u/s 143(3) /143(1) of the IT Act for assessment year 2001-02 to assessment year 2005-06 to show that income of the assessee from development charges have been accepted by the department in regular assessment proceedings. The sample copies of bills for material purchased by the society along with ledger account of steel, cement etc. for the period from 01-04-2001 to 06-12-2005 are filed at PB-789 to 807 to show all the building materials for construction of the project were purchased in the name of the society. PB - 808 to 816 are the sample copies of the booking receipts which were transferred and adjusted against the society. Copies of ledger accounts are filed at PB - 817 to 841. The details of units resold by the assessee's allottee at Jantri Price are also filed. At PB - 842 to 843, chart is filed showing average rate as per Annexure
- A. The assessee has shown development charges in the books in all the assessment years under appeal. Apart from it, for assessment years 1997-98 to 2000-01, development charges received from the society has been shown in the regular return. Copies of the audited accounts for assessment year 2000-01 showing development 24 charges received from the society have been filed at PB - 844 to 887 which have been assessed by the revenue department as development charges in the earlier year and the order of ITAT Ahmedabad Bench in ITA No.3181/Ahd/2003 dated 30-07-2004 for assessment year 2000-01 is filed in support of the same. He has submitted that work in progress is booked in the books of the society. Whatever statements of Shri Bholabhai B. Patel and Nikin P. Patel were recorded were not subjected to cross examination by the assessee because the AO did not allow cross examination of their statement despite request made to the AO. He has referred to PB - 142, 143 and 146 to show that assessee made a written request before the AO to allow cross examination to their statements. He has, therefore, submitted that such statements shall have to be excluded from consideration. He has submitted that no evidence was found that assessee earned any income on account of on-money. He has submitted that all allotment to the members have been made by the society, therefore, the entire project vest in the society. The sales made to the members match with the books of accounts as per Jantri Rate. Therefore, finding of receipt of on-money is merely based on presumption. He has submitted that the report and statements of the valuer Shri C. K. Patel and M. C. Shah have not been supplied to the assessee. The loans applied to the bank were meant for getting higher loan so that the purchasers need not to pay margin money. He has submitted that Shri Bholabhai Patel was not connected with the project; therefore, he would not be knowing the actual affairs of the Assessee Company. All accounts of the Assessee Company have been settled with the society. The Assessee Company is not owner of 25 the project and has no beneficial right in the project. The assessee was merely the developer of the project of the society. Earlier returns filed by the assessee have been accepted by the revenue department showing income on account of development charges from the same project. Due to earth-quake the sales have gone down. Annexure - A/1 contained the details of "value" which is wrongly taken as receipts by the revenue authorities. The details contained in Annexure - A/1 have been disproved by the report of the DVO and rightly accepted by the learned CIT(A). He has submitted that Shri Nikin P. Patel even did not know who is the owner of the shop. Shri Bholabhai Patel also relinquished his rights in the property in question. Therefore, he has no concern whatsoever with the project. The calculation made by Shri Bholabhai Patel was thus only projection. He has submitted that the purchasers of the shops have not been examined by the AO at any stage. He has relied upon the decision of the Hon'ble Gujarat High Court in the case of M. K. Shah, 307 ITR 137, decision of the Hon'ble Delhi High Court in the case of S. M. C. Sharebroker Ltd., 288 ITR 345 and the decision of the Hon'ble M. P. High Court in the case of P. C. Nahata, 301 ITR 132. He has also relied upon order of ITAT Ahmedabad Bench in the case of Hiral Pharma Ltd. Vs DCIT in ITA No.1255/Ahd/2001 dated 29-01-2010 in which it was held that the statement recorded by the ITO and his report would not be relevant to the matter in issue as well as cannot be read in evidence because assessee was never allowed cross examination to such statement at the assessment stage. The statement recorded by the AO was excluded from consideration. He has also relied upon order of ITAT Ahmedabad Bench in the case of Yadav Developers Pvt. Ltd. Vs 26 DCIT, ITA No.3674/Ahd/2008 dated 08-04-2011 in which it was held that there was no evidence in possession of the revenue on the basis of which it could be held that the assessee has taken on-money on booking of the flats. The learned Counsel for the assessee also submitted that onus on the AO to tax the income on account of on- money has not been discharged. No evidence has been brought on record to prove that assessee has received any on-money. The learned Counsel for the assessee in the alternate contention submitted that even though there was no evidence on record that the assessee was beneficial of the project, at the most only profit could be added and the assessee has already shown the profit out of the project at 8%, therefore, entire addition is liable to be deleted.
7. On the other hand, the learned DR relied upon order of the AO and submitted that assessee made up a story to avoid payment of taxes. The scheme of development should be considered as a whole. There is no single evidence filed to show that assessee was developer only. Owner has given all the rights to the Assessee Company. No details of sale price have been given. The assessee has collected entire money of the project. Shri Nikin P. Patel claimed in his statement as Chairman of the society and also worked as salaried employee of the Assessee Company. The learned DR did not dispute the measurement of the constructed portion of the project taken by the DVO. He has submitted that Shri Nikin P. Patel was appointed Chairman of the society by Shri Rasikbhai P. Patel of the Assessee Company; therefore, the Assessee Company controlled all the affairs of the society. The development agreement clearly 27 highlighted that assessee was eligible for all the rights in the project, purchase all goods, built any commercial or residential area, part with possession or add new member and sale deed could be made by the owner/society on the notice of the Assessee Company. Therefore, the entire income should be assessed in the hands of the Assessee Company. The learned DR submitted that loan certificate is given by the Assessee Company; therefore, estimate of income against the assessee was justified. No profit & loss account was filed in the case of the society as only balance sheet was filed. It is not clear as to how income is computed by the society. The transactions of the society do not indicate how expenses were accounted for in the books of accounts. The society has no say in the affairs of the project. There is a specific finding by the learned CIT(A) that the income belong to the Assessee Company. He has also referred to statement of Shri Nikinbhai P. Patel and Shri Bholabhai Patel to show that similar Annexure - A/1 was found from residence of Shri Bholabhai Patel and that they have admitted real rates of the property in question and the future rates have gone up. The learned DR however, fairly stated that there is nothing on record to show that their statements were subjected to cross examination by the Assessee Company. He has submitted that cost certificate Annexure - D - 3/26 and A - 3/26 were issued by the Assessee Company. However, in the statement of Shri Rasikbhai Patel, director of the Assessee Company, no undisclosed income have been declared. He has submitted that cost certificate match with the Annexure - A/1 and that the assessee's counsel admitted rates/cost certificate in the statement of facts. The valuation report of C. K. Patel and M. C. Shah are prior to the search, which 28 proves that the assessee has shown lower rates in the books of account. The bank loan certificate have shown higher value which compared with the Annexure - A/1. He has submitted that it is a common knowledge that in real estate business, the real value of sale consideration is always higher as against the Jantry rate which is meant for stamp valuation only. The learned DR filed details of four parties of the shops which were mortgaged along with mortgage documents to show that higher rates have been shown in the mortgage documents. He has also referred to statement of facts filed before learned CIT(A) to show that assessee accepted entire consideration was received by the assessee. The learned DR also filed copy of Annexure - A/1 / 217 to show that cash and cheque amount was received for J and L Block would indicate that higher consideration was received by the Assessee Company. He has submitted that though the DVO referred to the lesser constructed area but the assessee in the statement of facts mentioned the constructed area of 473394. The learned DR therefore submitted that instead of gross profit addition the entire receipts should be added in the case of the Assessee Company because the expenses have already been booked in the books of accounts. The learned DR submitted that the seized document is corroborated by various other evidences, therefore, learned CIT(A) should not have deleted part of the addition. He has relied upon order of ITAT Pune Bench ( TM ) in the case of Khopade Kishanrao Manikrao Vs ACIT, 69 TTJ ( TM ) 135 in which it was held that assessment should be based on evidence including circumstantial evidences. He has also relied upon 29 the decision of the Hon'ble Supreme Court in the case of D. D. More, 82 ITR 540.
8. The learned Counsel for the assessee in the rejoinder reiterated the submissions made earlier and submitted that Bholabhai P. Patel was not connected with the project, so his statement is not believable, because he was not in the picture in the year 2006 and earlier he has surrendered all his rights in the project. He has also referred to profit & loss account of the society to show that even work in progress is shown and booked in the books of the society. He has submitted that statement of Nikin P. Patel and Bholabhai P. Patel were not allowed cross examination, therefore, cannot be read in evidence and further their statements would not prove that assessee received any actual on-money. He has submitted that there is no evidence on record to prove assessee received any on money of the project. Entire receipts have been booked by the society. The statements and valuation report of the valuer C.K. Patel and M. C. Shah have not been supplied to the assessee. Therefore, principle of natural justice is violated. He has submitted that Annexure - A/1 / 217 referred to by the learned DR would not indicate assessee received any actual on-money. Same is the position with regard to mortgage documents. In the written submission the queries raised by the AO have been explained. PB - 638 is order of the learned CIT(A) dated 28-02-2011 in the case of the society for assessment year 2007-08 in which it is mentioned that the society ceased to exist with effect from 07-12-2005 as per order of Registrar of Societies and thus the development agreement between assessee and society rescind. It is 30 also stated in the written submission that the learned CIT(A) held that the seized document Annexure - A/1 also shows the future financial projection of the project and such finding of fact have not been challenged by the revenue department. The learned Counsel for the assessee also submitted that the reply of the assessee also indicate that assessee suffered huge losses. He has therefore, submitted that learned CIT(A) should have deleted the entire addition.
9. We have considered rival submissions and material on record. It is stated that the Assessee Company entered into development agreement with the society vide development agreement dated 15-06-1997 (PB - 351) according to which the society was owner of the property in question and also taken over the possession of the land in project and the Assessee Company was required to complete the project subject to certain conditions which includes payment by society to the Assessee Company on account of developing charges. No title of the project in question was transferred in favour of the Assessee Company. If possession is transferred to the assessee for construction, there is no illegality because assessee required possession of the property and other facilities at the project for completion of the project. Necessary documents in favour of the Assessee Company were also required for completing the obligations. If material is purchased or labour is engaged through the Assessee Company on behalf of the society as per agreement, there is nothing wrong or suspicion in the transaction. All accounts are adjusted between the Assessee Company and the society and ultimately sales have been made by the society. As per development 31 agreement, society is required to pay 8% of the total project expenditure to the Assessee Company as developing charges in the form of remuneration for developers. The Assessee Company has shown development charges as its income in the earlier years prior to the assessment years under appeal. Copy of the audit report for assessment year 2000-01 is filed in the paper book to support the contention of the assessee that in earlier years development charges have been shown to the revenue department for the same project. Order of the Tribunal dated 30-07-2004 in ITA No.3181/Ahd/2003 for the same year is also filed to support the contention of the assessee that even in the regular assessment the revenue department accepted development charges from the same project in the case of the assessee. Even in the returns filed for all the assessment years under appeal u/s 139(1) of the IT Act prior to the search, the assessee has shown the development charges for developing the same shopping complex and in several years under appeals the contention of the assessee has been accepted in the assessment orders u/s 143(3) / 143 (1) of the IT Act. Copies of the same are filed in the paper book. It would, therefore, show and prove that the assessee prior to the search has been disclosing the income on account of development charges for developing the shopping complex as per the development agreement in question and the revenue department accepted the same nature and source of income of the assessee. Therefore, the nature of business income of the assessee could not be disputed by the revenue department in the proceedings u/s 153A of the IT Act under appeals. It is well settled law that though the principle of res-judicata does not apply to the 32 income tax proceedings but the principle of consistency shall have to be followed by the revenue department while making the assessments. The revenue department did not dispute the income received by the assessee on account of development charges from the same shopping complex under consideration in earlier years as well as in the regular assessments u/s 143(3)/143(1) of the IT Act for the assessment years under appeal, therefore, revenue department cannot be permitted to take a different stand and change the nature of business income of the assessee. We rely upon the decisions of the Hon'ble M. P. High Court in the case of Godavari Corporation Ltd., 156 ITR 835, Hon'ble Supreme Court in the case of Berger Paints (India) Ltd., 266 ITR 99, Hon'ble Supreme Court in the case of Satish Pannalal Shah, 249 ITR 221 and Hon'ble Punjab and Haryana High Court in the case of Vikas Chemi Gum, 276 ITR 32. No evidence or material was found during the course of search or at the assessment proceedings to prove that right, title or interest in the shopping complex in question has been transferred by the society in favour of the Assessee Company. PB - 638 is the order of learned CIT(A) dated 28-02-2011 of the society for assessment year 2007-08 in which it was mentioned that the society ceased to exist with effect from 07-12-2005 as per orders of Registrar of Cooperative Societies. Therefore, the development agreement would no longer survive in favour of the assessee. It would also prove that the assessee was not vested with any right or title of the property in question; therefore, it should not be considered as venture of the Assessee Company. All bills of material and labour are found in the name of the society. The work in progress is also booked in the books of accounts of the 33 society. No incriminating material was seized during the course of search to prove that assessee received any on-money from the buyers/purchasers of the shops. The seized paper Annexure - A/1 contains the details of floor, shop, total, value of square feet and amount. The total square feet is given at 620450 and the grand total at Rs.141,46,26,000/-. The assessee claimed before learned CIT(A) that the constructed area of the complex is lesser. The DVO was appointed at the appellate stage who has confirmed in his report (PB
-210) that the constructed area till the date of the search is 395636. The remaining was constructed after search. Therefore, there is no ambiguity in the report of the DVO as against the facts mentioned in the statement of fact as pointed out by the learned DR. Virtually, learned DR did not dispute the report of the DVO during the course of argument. Moreover, DVO is a departmental officer and have some expertise on the same line; therefore, his report could not be disbelieved. Thus, the report of the DVO clearly falsified the Annexure - A/1 which is the sole basis for making the additions against the assessee. The AO has no basis to take the value of square feet as noted in the seized paper as sale consideration or undisclosed income of the assessee. The AO has not appreciated the language used in the Annexure A/1 and without any basis or evidence took the value as the sale proceeds/undisclosed income. The Hon'ble Delhi High Court in the case of Girish Chaudhury, 163 Taxman 608, held "there is no basis as to how, AO came to conclusion that 48 was Rs.48 lacs. No material is there to support such findings of the AO. It is dumb document. Additions deleted." The learned CIT(A) in Para 9 of the impugned order on 34 consideration of the report of the DVO and seized document Annexure - A also held that the seized paper indicates that the document Annexure - A also shows the future financial projection of the project. The finding of fact recorded by the learned CIT(A) on appreciation of the seized material have not been challenged by the learned DR during the course of argument. No specific ground of appeal has been raised in the departmental appeal against this finding. Further, no material is produced to rebut this finding of the learned CIT(A). Therefore, it would support the contention of the assessee that the assessee has not received any undisclosed income on account of on-money from the project in question. There is no indication in the seized paper that the assessee actually received Rs.141 Crores. In the absence of any evidence to prove that assessee received Rs.141 Crores, authorities below were not justified in making addition against the assessee. The Hon'ble Gujarat High Court in the case of CIT Vs Maulikkumar K. Shah, 307 ITR 137 "Held, dismissing the appeal, that from the beginning the assessee was stating that the notings appearing in the diary were rough estimates and estimation was made for submission to the bank for obtaining a loan from the bank. The inference of the Assessing Officer that the assessee had received on-money, i.e. the differential amount as shown in the seized diary and the books of account, was merely based on suspicion and surmises and there was no material to support the conclusion of the Assessing Officer that the assessee had in fact received any on- money. The Assessing Officer had no evidence with him to support his conclusion. The assessee had worked out the floor-
35wise rate of the shop on the seized paper but it was not possible that every shop could be sold at that price and while selling the shops, many purchasers may pay advance money. Therefore, the rates of all the shops at the time of actual sales could not be the same as estimated in the seized paper. The amount mentioned along with rates per square foot of different floors on the loose paper was in respect of an estimate for the loan from the bank. No other evidence had been shown to justify that these amounts were received from the purchasers. The concurrent finding was that on the basis of these loose papers, no addition was justified. Thus, there was no interference called for in the order of the Tribunal." The Hon'ble Gujarat High Court in the case of DCIT Vs Radhe Developers India Ltd. and Another, 329 ITR 1 held "The assessee-company was engaged in the business of land development and allied activities. Search and seizure proceedings under section 132 of the Income-tax Act, 1961 were initiated at the business premises of the assessee-company and residential premises of the managing director and an employee of the assessee-company. In response to notice under section 158BC of the Act, a return of nil income for the block period was filed by the assessee. The assessment was framed on a total undisclosed income of Rs.28,30,21,200. The Assessing Officer worked out the investment at a sum of Rs.25,10,80,000 as unexplained investment and added it under section 69B of the Act. The Tribunal came to the conclusion that the addition for undisclosed receipt had to be sustained only to the extent of Rs.12,80,00,000 as accepted by the assessee and there was no 36 basis for making addition to the tune of Rs.20,55,86,000 as the assessee had acquired development rights only in relation to 7 lakhs sq. yds. Of land and not 11.11 lakhs sq. yds. Of land. At the same time, the Tribunal also recorded that the amount of Rs.12,80,00,000 paid by the assessee for acquisition of the development rights had to be treated as allowable deduction under section 37 of the Act. On appeal:
Held, dismissing the appeal, (i) that the assessee had entered into a transaction involving the total land area to the tune of 11 lakhs sq. yds. And this was found on the basis of loose papers found from the residence of the employee of the assessee. The Tribunal had recorded, after appreciating the same set of evidence in the form of documents seized from the residence of the employee that it only contained the payment schedule and no amount was actually paid. The Tribunal had therefore, after taking the totality of circumstances into consideration recorded that both, as regards the area as well as the amount of payment and the point of payment, the Department had not been correct in discarding the version put forth by the assessee as supported by documentary evidence. This was not a case where relevant evidence had been ignored and irrelevant evidence had been taken into consideration. The only test that was required to be applied was whether on the facts found and the state of evidence on record the conclusion arrived at by the Tribunal was one which could had been arrived at by a reasonable person properly informed in law. Applying 37 this test, it could not be said that the decision recorded by the Tribunal was one which could not have been arrived at by a reasonable person properly informed in law considering the state of evidence on record. Hence, in so far as the addition to the extent of Rs.12,80,00,000 being upheld by the Tribunal was concerned, no interference was warranted."
9.1 Considering the above discussions, it is clear that there is no basis for the authorities below to hold that assessee received undisclosed income of Rs.141 Crores for the entire project. The seized document Annexure - A/1 would not support the findings of the authorities below for receipt of suppressed income. The seized paper appears to be future financial projection of the project and do not disclose any undisclosed income received by the Assessee Company of the society. It is not admissible in evidence against the assessee or the society for earning of any undisclosed income.
9.2 The authorities below relied upon evidences collected from Bholabhai Patel and statements of Bholabhai Patel and Nikin P. Patel to establish that assessee has received on-money out of the shopping complex. The authorities below have also relied upon report and statement of the valuer. However, according to the learned Counsel for the assessee despite making a request to allow cross examination to their statements, the AO did not give any opportunity to the Assessee Company to cross examine their statements. Even, the report of the valuer was not made available to the assessee.
Therefore, their statements cannot be read in evidence against the 38 assessee. The Hon'ble Supreme Court in the case of Kishanchand Chelaram, 125 ITR 713 observed that "evidences collected at the back of assessee to be confronted to the assessee to give him opportunity to rebut it otherwise it will not be admissible." The Hon'ble Delhi High Court in the case of S. M. C. Sharebrokers Ltd., 288 ITR 345 held that "AO did not allow cross examination of the person searched. Illegal. Cannot be relied upon. Principle of Natural Justice not followed." The Hon'ble M. P. High Court in the case of CIT Vs Rameshchandra Shukla, 10 ITJ 286 held that "it is now well settled that where the assessee requests the AO to issue summons, to enforce attendance of the creditor to establish the genuineness and capacity of the creditor, it is duty of the AO to enforce attendance of creditors by issuing summons. If the AO does not choose to issue summons and examine the creditors, he cannot subsequently treat the loans standing in the name of such creditors as non-genuine, nor add the amount thereof to the income of the assessee." The Hon'ble Madhya Pradesh High Court in the case of Prakash Chand Nahta Vs CIT, 301 ITR134 - "Held, that as the Assessing Officer had not summoned R in spite of the request made under section 131 of the Act, the evidence of R could not have been used against the assessee and in the absence of affording a reasonable opportunity of being heard by summoning the said witness the assessment order was vitiated."
9.3 The learned Counsel for the assessee referred to several pages from the paper book which are replies filed before the AO to 39 show that assessee made requests to the AO to allow cross examination of their statements but nothing has been done in the matter. The learned DR stated that there is nothing on record to show that AO has given any opportunity to the assessee to cross examine any of the statements of the persons recorded at the back of the assessee. Therefore, the evidences collected at the back of the assessee and the statements recorded which were not subjected to cross examination on behalf of the assessee cannot be read in evidence against the assessee. Moreover, the statements of these persons do not indicate if assessee received any on-money for the project. All the seized materials also do not indicate if assessee received actual on-money out of any transaction. We may further note that no corresponding recoveries, assets or valuable items were found having any nexus with the alleged earning of undisclosed income during the search or otherwise. Cost certificates or loan papers filed with the bank were meant to get higher loan sanctioned. Even, these do not indicate receipt of any undisclosed income by the assessee. The learned DR referred to Annexure - A/1 / 217 which is not connected with the assessee and provides balance in the case of Himanshubhai and the amount deposited in bank by Subhashchand. These, therefore, cannot be treated as circumstantial or corroborative evidences. The sales made by the society to various persons may differ because of the location and the floor area and the market condition in the real estate. But the same would not prove in the absence of any evidence that assessee received any undisclosed income. The inference of the AO that assessee had received undisclosed income that is the differential amount as shown in the 40 seized paper and the books of accounts, was merely based on suspicion and assumptions and there was no material to support conclusion of the AO that assessee had in fact received any on- money.
9.4 The assessee filed affidavits of certain persons/purchasers in which it is stated that cost certificates were obtained for taking higher loan from the bank in order to avoid payment of margin money. These affidavits have not been disputed by the revenue department. No purchasers of the shops have been examined by the AO. No sale deeds executed in their cases have been disputed. The assessee in the written submission explained that assessee was required to debit all amounts received by passing journal entry and expenditures were also adjusted. The Assessee Company was entitled to development charges and the amounts received on behalf of the society were adjusted against the account of the society. All development charges received by the Assessee Company have been credited in the regular books of accounts. Same submissions were also made before the authorities below but the same have not been rebutted through any evidence. All sales are made at the Jantri Rate. The assessee in the written submission also explained that post severe earth-quake in city on 26-01-2001, the real estate market was affected and it also further affected due to Godhra Riots at the end of February, 2002. The explanation of the assessee is reasonable and probable and cannot be brushed aside. The explanation of the assessee clearly prove that there was no evidence with the revenue department that assessee has collected any on-money for itself or for the society. There is no 41 evidence or material found on record to establish that any on-money was received by the assessee. The finding of receipt of on-money in real estate business is based on no evidence and is based on assumption of facts which are not on record. There is no circumstantial or corroborative evidence available on record to support the findings of the authorities below. Considering the above discussions, we find that there is no evidence to prove that the project in question is the venture of the Assessee Company. There is no evidence on record to prove that the assessee was real owner of the project. There is no evidence on record to support the conclusion of the AO that the assessee had in fact received any on-money. The addition made on substantive basis in the case of the assessee is, therefore, highly unjustified. The assessee society was owner of the project and has rightly shown the income from the project in their books of accounts. The orders of authorities below thus cannot be sustained in law. No addition can be made against the assessee in all the assessment years on the basis of Annexure -A/1 or the remaining seized paper.
9.5 In view of the above findings, there is no need to discuss the quantum of addition by applying profit rate as is done by the learned CIT(A). However, we find that the learned CIT(A) decided this issue also. Therefore, we take up this issue also briefly for finalization. We further find that the Assessee Company, under the development agreement has declared development charge at 8% of the development cost. The AO made addition of the entire receipts as per seized paper and the learned CIT(A) determined the taxable profit by 42 applying 20% of the total receipts from the project for making the addition. The Hon'ble Calcutta High Court in the case of CIT Vs S. M. Omer, 201 ITR 608 - Held, that section 69 of the Income-tax Act, 1961 was not applicable in the instant case. The assessee supplied the goods after incurring certain cost and after manufacturing the goods and the amount that was received from the Defence Department could not represent the net income but it was the sum received including the profit and expenditure. The Tribunal was justified in upholding the deletion of Rs.1,01,649 (see p. 610D - F)". The Hon'ble Gujarat High Court in the case of CIT Vs President Industries, 258 ITR 654 - "Held, dismissing the application for reference, that the amount of sales could not represent the income of the assessee who had not disclosed the sales. The sales only represented the price received by the seller of the goods; only realization of the excess over the cost incurred could form part of the profit included in the consideration for the sales. Since there was no finding to the effect that investment by way of incurring the cost in acquiring the goods which were sold had been made by the assessee and that that investment was also not disclosed, only the excess over the cost incurred could be treated as profit." The Hon'ble Gujarat High Court in the case of CIT Vs Samir Synthetics Ltd., 326 ITR 410 held - "In the course of a search by the Excise Department in the premises of the assessee, it was found that the production of man-made fabrics was suppressed and only a small part thereof was shown in the excise register. The assessee could not reconcile the production, sales and the 43 closing stock despite opportunity given by the Assessing Officer and addition in respect of unaccounted sales was made by the Assessing Officer. The Commissioner (Appeals) found that the assessee failed to explain the suppression of production of fabrics and also held that any addition that was to be made was not in respect of the sale consideration but only in respect of the profit. The Commissioner (Appeals) reduced the addition made by the Assessing Officer. The Tribunal concurred with the Commissioner (Appeals) as it found that there was no evidence on record to prove that the assessee had claimed all the expenses in the profit and loss account. On appeal:
"Held, dismissing the appeals, that in view of the concurrent findings of fact by the Commissioner (Appeals) and the Tribunal that the reduced addition was just and equitable on account of papers found during the search, there was no merit in the appeals."
It is, therefore, well settled that the amount of the sales/receipts could not represent the income of the assessee who had not disclosed the sales. The sales only represent the price received by the seller of the goods, only realization of the excess over cost incurred could form part of the profit included in the consideration for sales. Therefore, the learned CIT(A) rightly deleted the addition on account of the total receipts which were treated as undisclosed income by the AO. However, there is no basis in the finding of the learned CIT(A) to apply 20% against the total receipts to compute the income of the assessee. The history of the assessee shall have to be considered while estimating the income of the assessee. As noted above, in 44 earlier years the assessee declared income on account of development charges which were accepted by revenue department and even in the assessment years under appeal in regular assessments also the income on account of development charges have been accepted by the revenue department. The assessee has declared income on account of development charges in the returns under consideration; therefore, no further addition can be made against the assessee. The learned CIT(A) was, therefore, not justified in sustaining part addition in all the assessment years by applying profit rate of 20%. The learned CIT(A) should have deleted the entire addition.
9.6 Considering the above discussions, we are of the view that assessee has not earned any undisclosed income. There is no evidence or material on record to prove that the assessee has in fact received any undisclosed income for the entire project. Whatever evidence was collected by the AO is not sufficient to make out a case against the assessee. In view of the above findings we set aside the orders of the authorities below and delete the entire additions in all the assessment years.
9.7 In the result, all the appeals of the assessee are allowed and departmental appeals are dismissed.
45(Mahalaxmi Bhavan Co-operative Housing Society Ltd.) (All appeals of the assessee and the revenue)
10. All the cross appeals are directed against common order of learned CIT(A)-1, Ahmedabad dated 31-03-2011 for assessment years 2001-02 to 2005-06. However, assessee has further preferred appeal in ITA No.447/Ahd/2011 against the order of the learned CIT(A)-I, Ahmedabad dated 28-02-2011 for assessment year 2006-
07.
11. In all the departmental appeals, the revenue challenged the deletion of additions on account of profit from the cloth market made on protective basis. The AO made the substantive addition in the case of M/s. Neptune Infrastructure Pvt. Ltd. and protective assessment in the case of the society. The learned CIT(A) noted in the impugned order that since substantive addition on account of undisclosed income is upheld by him in the case of Assessee Company - M/s. Neptune Infrastructure Pvt. Ltd., therefore, protective assessment was deleted in the case of the society. While considering the issue in the case of Assessee Company, we have held that no addition could be made in the case of the Assessee Company - M/s. Neptune Infrastructure Pvt. Ltd. because additions were made without any basis or evidence and deleted the entire additions. Therefore, no protective addition could be made in the case of the society also. We accordingly, do not find any merit in all the appeals of the revenue. The same are dismissed. On the same issue, assessee also raised ground No.3 in all the appeals stating 46 whether the learned CIT(A) was right in holding that developer as real owner of the project in spite of the fact that the ownership remained with the assessee society and ultimately agreement was cancelled. In view of the finding given in the case of the Assessee Company - M/s. Neptune Infrastructure Pvt. Ltd. and on dismissal of the departmental appeals, in the case of the society, this ground has become infructuous in all the appeals and is accordingly disposed of.
12. In all the appeals of the Assessee Society, the assessee raised grounds No.1 and 2 challenging the assessment orders u/s 153A of the IT Act on the ground that no search action u/s 132 of the IT Act have been carried out because no warrant has been issued in the name of the Assessee Society. The learned DR objected to these grounds of appeals because it was not raised before the learned CIT(A) and no request is made for admission of additional grounds of appeal. The learned DR also produced warrant of authorization in the name of the assessee society to show that search was carried out on the basis of warrant of authorization. In this view of the matter, we find that this ground is misconceived and raised without any basis and even without seeking leave of the Bench for admission of additional ground. The learned Counsel for the assessee on the objection of the learned DR seeks permission to withdraw both the grounds in all the appeals of the assessee. Grounds No.1 and 2 in all the appeals of the assessee are accordingly dismissed as not pressed.
4713. The Assessee Society raised grounds No.4 and 5 in all the appeals which read as under:
"4. Whether under the facts & circumstances of the case Ld. CIT(A) was legally and factually correct in upholding the rent received on unsold shops and offices in the project as rent on the vacant land and thereby treating the same as income from other sources as originating from the capital asset i.e. land, resulting into denial of statutory deduction under section 24 of the Act ?
5. Whether the CIT (A) was right in not considering rent received on vacant shops & offices as non taxable on mutuality concept?"
14. On these grounds of appeals in assessment years 2001-02 to 2005-06, learned CIT(A) followed his order for assessment year 2006-07 dated 28-02-2011 and dismissed these grounds of appeals of the assessee. We therefore, take up this issue from assessment year 2006-07. The assessee submitted before the AO that it is not liable for any tax as it claimed that they were carrying on activity of construction of building for its members only as mutual concern out of funds provided by the members of the society and also that the society was working on no profit no loss basis. The AO noted that two issues cropped up as far as the taxability is concerned viz., rent income and profit from construction activity of Shree Ghantakarna Mahavir Cloth Market Project. On the rental income AO noted that assessee furnished balance sheet along with its other submissions. On perusal of balance sheet it was observed that the work in progress has been arrived after reducing the rent received to the tune of Rs.3,10,574/-. The AO following the decision of the Hon'ble 48 Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers, 227 ITR 172 held that the rent derived by the society from letting out of the open plot requires to be taxed. The rent being derived from the letting of this plot as the building was not ready, as evident from the fact that the balance sheet shows work in progress, the income required to be brought to tax under the head "income from other sources". The addition was made in all the assessment years under appeal under the head "income from other sources" instead of "rental income". The learned CIT(A) noted in the impugned order for assessment year 2006-07 that assessee has not made any submission on this point. The learned CIT(A) confirmed the order of the AO by following the same decision of the Hon'ble Supreme Court and noted that rental income cannot be assessed under the head income from house property, because the assessee has given vacant land on rent which was lying idle at the relevant time. Resultantly, statutory deduction u/s 24 of the IT Act was also not allowed. The learned CIT(A) followed the order of assessment year 2006-07 in the remaining appeals and dismissed this ground of appeal in all the remaining years. It may be noted that in assessment year 2001-02 to 2005-06 the learned CIT(A) noted the submissions of the assessee with regard to rental income and exclusion of income on principle of mutuality. The learned CIT(A) also noted that since income is earned from renting the property, therefore, it has no nexus with the mutuality activities. The remaining appeals were also dismissed on this issue.
15. The learned Counsel for the assessee submitted that complete details were filed before the authorities below which includes rent 49 receipts of shops/offices rented out to various persons/parties details of the same constructed area is also mentioned in the rent receipts copies of which are filed in the paper book from PB - 208 to 221. He has also referred to reply of the assessee (PB - 156 Para 5) in which the assessee explained the names of members to whom shops are rented out along with copy of resolution of the society. Copies of return of income, balance sheet and ledger account of rental income are also filed in paper book to demonstrate that rental income was shown in the books of accounts of the assessee. Copies of the same are filed from pages 101 to 117 and PB - 274 to 297. The learned Counsel for the assessee submitted that the AO did not asked for any specific details and merely on work in progress shown in the books presumed that assessee has rented out vacant land of the project. He has submitted that since large number of shops and offices have been rented out to various persons, therefore, it is difficult to believe that large number of people could be accommodated as tenant in the open space. He has submitted that findings of the authorities below are factually incorrect and the rental income could be tax as income from house property on which assessee would be entitled for deduction u/s 24 of the IT Act and further income would be exempt on principle of mutuality.
16. On the other hand, the learned DR relied upon the orders of the authorities below and submitted that there is a factual difference in the submission of the assessee and finding of the AO. Therefore, matter could be restored to the file of the AO for reconsideration. He has further submitted that even if it may be presumed that 50 shops/offices already constructed have been rented out in the shopping complex to various persons, it would amount to business income of the assessee on which deduction u/s 24 of the IT Act would not be allowable.
17. We have considered rival submissions and material on record. We find that the AO has not discussed the details and facts in the assessment orders. The AO on finding that work in progress has been shown in the balance sheet of the assessee, presumed that open plot has been rented out. The AO has not examined the receipts and other details and the report of the DVO which prove that substantial construction was completed on the date of the search. It appears that no specific show cause notice is issued to the assessee on this issue. The documents and explanations filed by the assessee prima facie prove that the assessee let out shops and office premises to various persons. It is difficult to believe that large number of people could be rented out open plot for any activities. Since there is a factual difference in the finding of the AO and the submissions of the assessee, therefore, in our view the matter requires reconsideration at the level of the AO. We accordingly, set aside the orders of the authorities below and restore this issue to the file of the AO with direction to re-decide this issue by giving reasonable sufficient opportunity of being heard. The AO shall give specific finding on the explanation of the assessee supported by documents. In the result, grounds No. 4 and 5 in all the appeals of the Assessee Society are allowed for statistical purposes.
5118. Ground No.6 in all the appeals of the assessee are general and prayer for granting relief on the grounds of appeals considered above and require no further adjudication.
19. In the result, all the appeals of the revenue in the case of the Assessee Society are dismissed whereas all appeals of the Assessee Society are partly allowed for statistical purposes.
20. No other point is argued or pressed.
21. In the result, all the departmental appeals in cases of both the assessees are dismissed. All the appeals of the Assessee Company
- M/s. Neptune Infrastructure Pvt. Ltd. are allowed. All the appeals of the Assessee Society - M/s. Mahalaxmi Bhavan Cooperative Housing Society Ltd. are allowed partly for statistical purposes.
Order pronounced in the open Court.
Sd/- Sd/-
(A. L. GEHLOT) (BHAVNESH SAINI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Lakshmikant/-
Order pronounced in open Court on 31/10/11
Sd/- Sd/-
(A. K. G.) (B. S.)
A. M. J. M.
52
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Dy. Registrar, ITAT, Ahmedabad