Income Tax Appellate Tribunal - Patna
D. N. Kamani (Huf) vs Deputy Commissioner Of Income-Tax on 6 May, 1999
Equivalent citations: [1999]70ITD77(PAT), [2000]241ITR85(PAT)
ORDER
Jordan Kachchap, J.M.
1. This appeal by the assessee is under s. 253(1)(b) against the order dt. 27th December, 1996 of the Dy. CIT, Spl. Range, Jamshedpur passed under s. 143(3)/158BD of the IT Act.
2. There was a search and seizure operation under s. 132 of the Act on 8th December, 1995 in the residential and business premises of Mr. N. D. Kamani, Mr. H. S. Grewal, Mr. Sanjeev Kapila and their family. During the course of that search operation in the residential premises of Mr. H. S. Grewal situated at 4-IC Road, Bistupur, Jamshedpur a bunch of loose sheets with identification mark HS-8 was seized from his possession. The AO noted that D. M. Kamani (HUF) had developed and constructed 18 flats at 4-IC Road, Bistupur, Jamshedpur during the period 1987-91 and out of which 16 flats were sold to different parties through agreement of sale. One of the flats was sold to Mr. H. S. Grewal vide agreement dt. 10th June, 1989. The document marked as p. No. 34 of the bunch of loose sheets marked as HS-8 seized from the possession of Mr. H. S. Grewal gave the complete details of the payment made by Mr. H. S. Grewal and his wife Mrs. D. Grewal against the purchase of said flat to D. N. Kamani (HUF). According to the AO Mr. H. S. Grewal and his wife paid Rs. 5,25,000 by cheque and additional amount of Rs. 3,35,000 in cash, but the records of D. N. Kamani (HUF) did not disclose that part of sale proceeds received in cash. The AO, therefore, required the assessee to furnish return of income for the block period under s. 158BD and various other information relating to construction and sale of those flats. The assessee D. N. Kamani (HUF) filed the return of income for the block period covering 1st April, 1985 to 8th December, 1995, on 30th November, 1996 and also information and details of construction and sale of those flats, such as area of construction, cost of construction, period of construction names and addresses of the buyers, sale price, date of transfer, date of giving possession to buyers, etc. In course of hearing copy of the said seized document i.e. p. 34 of HS-8 was supplied to Shri D. N. Kamani, the Karta of D. N. Kamani (HUF) and was asked to explain the same Shri D. N. Kamani denied the knowledge of the said document and contents therein. He said that during the search and seizure operation no books of account or any document was found and seized from the possession of the assessee on the basis of which the assessee could be said to have received on money from the buyers on sale of 16 flats. He said that he did not have any concern with p. No. 34 of HS-8; nor did he have any knowledge about the same. It was said that it was not clear from that as to whom and for which flat and for which purpose the payments were made. The word "cash paid in full amount" mentioned also did not disclose that the payment was towards the part of consideration amount of the flats. By his reply dt. 29th March, 1996, and also during the hearing it was clarified that the assessee did not receive on money. The AO examined some of the purchasers during the regular assessment, but did not find that if any on money was received by the assessee. It was also said that on the basis of presumption no addition could be made relating to income from undisclosed sources. However, those explanations did not find favour with the AO. From the impugned document marked as p. 34 of HS-8 the AO noted that there was mention of 'Dharamchand Mansion. In the bottom, there was no mention of words 'payment for flat'. So according to the AO that very document actually for payment for purchase of flat in Dharamchand Mansion at 4-IC, Bistupur, Jamshedpur. The AO considered the information furnished by the assessee vide his letter dt. 29th October, 1996 relating to details of consideration received by Mr. H. S. Grewal and Mrs. D. Grewal with the impugned seized loose sheets i.e. p. 34 of HS-8. The AO found that the cheque No., date and amount as shown by the assessee were the same as it was found to have been written in the impugned loose sheet p. 34 of HS-8. The AO also found that the payment by cheque as disclosed in the impugned loose sheet p. 34 of HS-8 was the same as disclosed by the assessee in his letter and in his books of account. So according to the AO the impugned loose sheet marked p. 34' of HS-8 was actually for purchase of flats by Mr. H. S. Grewal in Dharamchand Mansion at 4-IC Road, Bistupur, Jamshedpur. About the words mentioned 'Cash paid in full amount' and various transactions during the some of the months the AO found that actual figure shown as 3.35 lakhs was meant for 3.35 lakhs and the words 'paid full' projected that the entire consideration amount of the flat was paid in full. The AO observed that during the course of hearing in the case of Mr. H. S. Grewal he admitted that 3.35 stood for Rs. 3.35 lakhs. So according to the AO on the basis of seized document p. 34 of HS-8 it was evident that Mr. and Mrs. Grewal actually paid Rs. 3.35 lakhs and Rs. 5,25,750, but against that disclosed sale proceeds was only Rs. 5,20,750. He noted that in fact the consideration amount for flat received by cheque and received by cash payment consisted of in the ratio of 60 per cent : 40 per cent. The AO noted that in the business of real estate there was practice of referring the properties after taking on money and since both the sellers and buyers were benefited through such transactions the real things were not disclosed. The AO observed that Mr. H. S. Grewal was not only buyer of the flat, but also partner of D. N. Kamani in various concerns. D. N. Kamani and H. S. Grewal were the major shareholders of Global Systems (P) Ltd. and Arc Horn Leasing Company. For their mutual benefit they would not come with true facts and, in fact, the loose sheets '34' of HS-8 was clinching evidence that proved that D. N. Kamani (HUF) received on money from the sale of 16 flats developed by it (assessee). The AO further observed that in income-tax matters Evidence Act was not applicable and as such the matters were looked into and considered on preponderance of probabilities and circumstances. The AO further observed that flats in Dharamchand Mansion at 4-IC, Bistupur, Jamshedpur were situated in the heart of the city of Jamshedpur and in best commercial and residential area and so the sale price of those flats as disclosed by the assessee was much less than the existing market rate during that period in that area. He said that the approximate sale price at 400 per sq. ft., even after the addition mentioned below would be most reasonable. The AO, therefore, proceeded to determine the undisclosed income of the assessee on the basis of 60:40 ratio of the sale price of the flats respectively by cheque and cash keeping in view the impugned seized loose sheet p. 34 of HS-8. According to the AO the assessee did not produce any evidence that if the flat of H. S. Grewal was better than the other flats which were sold out. The AO gave the following working and finally completed the assessment of undisclosed income, yearwise, as under :
Assessment year Amount
Rs.
1987-88 3,34,839
1988-89 9,06,735
1989-90 2,35,127
1990-91 20,25,276
1991-92 7,18,730
1992-93 3,32,427
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45,53,134
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Aggrieved, the assessee has now come up in appeal before the Tribunal.
3. Shri S. B. Gododia, the learned authorised representative of the assessee attached on the impugned assessment order completed under s. 143(3)/158BD of the Act on various counts. He said that while completing the assessment the Dy. CIT neither appreciated the facts of the case properly nor the special provisions contained in Chapter XIV of the Act. He said that no books of account or any incriminating documents was found from the possession of the assessee. Admittedly, therefore, the authenticity of the document for the purpose of assessment under s. 143(3)/158BD in the case of the assessee could not be fully relied upon. He said that the document in question did not disclose for which flats the payments were made. The learned authorised representative of the assessee particularly referring to the latter part of the impugned document which spoke of certain transactions of payment in cash, he said that those transactions did not specifically speak as to for what purpose they were being paid. In course of his argument, the learned authorised representative of the assessee drew our attention to p. 34 of HS-8 placed as Annexure I of the assessment order. He said that no doubt there was mention of 'cash-paid full amount' but for what purpose there was no mention. Some figures were shown against some of the months, but those figures did not have prefix as 'Rupees' or that the figures '1', '75', '60' and '50' did not reflect any clear thing. The payment might have been made for other purposes and not towards the purchase of flat. That could be to the intermediary or for extra work and so on. The learned authorised representative of the assessee said that the same document contained a payment of Rs. 22,000 for generator. Even the AO himself in his assessment order stated that there was an addition of Rs. 76,751 from undisclosed sources in the case of H. S. Grewal which was spent for the improvement of that said flat. The learned authorised representative of the assessee further said that there was no primary and direct evidence to prove that if the assessee received additional money of Rs. 3.35 lakhs in form of cash. It is also not correct that the provisions of Evidence Act in the matter of income-tax were not applicable. He said that the AO was wrong in his approach. The correct position was that the provisions of the said Indian Evidence Act were not so rigorously applicable in the matter of income-tax as they were in criminal or civil or other matters. The learned authorised representative of the assessee further said that it was the wishful thinking of the AO that there was a practice prevalent in the business of real estate that the properties were transferred only on receipt of on money. Such preconception would not help the AO to make the additions in the present case. The matter has to be brought in appeal record either in the form of direct evidence or in circumstantial evidence irresistibly leading to establish the fact that the assessee received on money on sale of 16 flats. The learned authorised representative of the assessee further said that the AO by way of circumstantial evidence considered the matter that Jamshedpur was a beautiful city and Dharamchand Mansion at 4-IC Road, Bistupur, Jamshedpur situated in the heart of the city of Jamshedpur near famous regal ground which was best commercial and residential area of Jamshedpur and as such the sale price received by the assessee and disclosed in the books of account could not be the true and at par with the prevailing sale price during the period it was sold. The learned authorised representative of the assessee said that such observation mere on presumption and without any basis could not have legs to stand in the eye of law. There was no comparable case to show that if the others sold flats on a higher price than what was disclosed. The learned authorised representative of the assessee said that the cost of construction shown by the assessee was Rs. 175 per sq. ft. and the sale price of the flats was Rs. 295 per sq. ft. He said that the AO himself in the assessment order at p. 8 recorded that nothing was found during the course of search and seizure operation on the basis of which the cost of construction of project Dharamchand Mansion at 4-IC Road, Bistupur, Jamshedpur could be doubted. The AO further observed that the cost of project as disclosed in the account was found reasonable. The learned authorised representative of the assessee said that before the AO the assessee through letter dt. 9th October, 1996, brought to the knowledge of the AO that the assessee got the valuation done by the Registered Valuer and obtained his report on 8th March, 1993. According to this report of the Registered Valuer the value of the building was Rs. 68,75,000. Even the TISCO vide its letter No. nil dt. January, 1993, arrived the value of this building at Rs. 60,29,716. When there was no dispute of cost of construction, there did not seem any reason why the sale price was to be doubted or marked with question particularly when there was no evidence that if the additional amount was received by the AO. The learned authorised representative of the assessee, having referred to the assessment order of 1992-93 of the assessee particularly at p. 7 said that the assessee disclosed net income on average rate of 29.7 per cent and there was a finding that the net profit disclosed by the assessee out of that project was much better in comparison to other builders. The learned authorised representative of the assessee said they are on presumption and without bringing any acceptable material the AO exerted to substantiate his proposition for addition on estimate in that locality during the period the price of the flats at the rate of Rs. 400 per sq. ft. would have been reasonable. The learned authorised representative of the assessee said that if the total addition as was made by the AO would be considered then there would be a fantastic profit which could not be conceived of. The learned authorised representative of the assessee said that the land on which the building was constructed was on lease and that was only for a certain period and to that regard the learned authorised representative of the assessee referred to p. 3 of the assessment order of 1992-93 and that was why the purchaser were not willing to pay a higher price. The learned authorised representative of the assessee further submitted that the AO's conclusion on those various propositions which were primarily on presumption and conjectures could not be accepted. There was no evidence to show that if the assessee took on money in cash 40 per cent of the total price by each of the purchaser. It was emphasised by the learned authorised representative of the assessee that the assessee denied to have taken on money in cash. Mr. H. S. Grewal from whose possession the impugned loose sheet p. 34 of HS-8 was said to have been recovered also denied to have paid any on money in cash. The AO also inquired the matter from Mrs. Varsha Gandhi, one of the purchaser. The letters of Dy. CIT, Jamshedpur and of Mrs. Varsha Gandhi could be seen at pp. 3 and 25 of the paper book respectively. Mrs. Varsha Gandhi denied to have paid any on money in cash. She clarified that she was summoned earlier also when the regular assessment of D. N. Kamani (HUF) was being made and her statement under s. 131 was recorded. The learned authorised representative of the assessee said that no material, whatsoever, was gathered by the AO from the buyers to show that if they paid any on money. The learned authorised representative of the assessee further submitted that in this case the assessment was made under s. 143(3)/158BD of the Act. The special provisions have been introduced by way of Chapter XIV of the IT Act. The learned authorised representative of the assessee relied on the decision of the Tribunal, Bombay Bench in the case of ITO vs. W.D. Estate (P) Ltd. (1993) 46 TTJ (Bom) 143 : (1993) 45 ITD 473 (Bom) wherein also the assessments have been made on the basis of certain impugned documents, but in the absence of any evidence to show that the assessee, in fact received on money, the Tribunal deleted the addition. The learned authorised representative of the assessee said that manifestly no books of account or impugned document was recovered and seized from the possession of the assessee on the basis of which any undisclosed income could be said to have been found. The learned authorised representative of the assessee said that the addition on presumption or addition or estimate were not within the realm of provisions of Chapter XIV of the Act and in support thereto reliance was placed in the cases of Smt. Gita Rani Mondal vs. Asstt. CIT [(IT Appeal No. (99)M/7 (Cal) of 1989)] Calcutta 'E' Bench of Tribunal, Sunder Agencies vs. Dy. CIT (1997) 59 TTJ (Mum) 610 : (1997) 63 ITD 245 (Mum), Bench of Tribunal and Rishabh Marketing (P) Ltd. vs. Dy. CIT (IT Appeal No. (SS) 11 (Pat) of 1997) Patna Bench of the Tribunal. The learned authorised representative of the assessee concluded that the assessment completed for the block assessment years of 1987-88 to 1992-93 under s. 143(3)/158BD was unjustified and bad in law for the obvious reason that the assessment was made mere on presumption, conjecture and on estimate.
4. Smt. S. Verma, the learned Departmental Representative of the Revenue, on the other hand, submitted that the assessment completed under s. 143(3)/158BD was justified and in accordance with law. It was not mere on presumption or estimate, but was determined on the basis of evidence found during the search and seizure operation. She added that it was not a case of seizure of the document from 3rd party. Provisions of s. 158BD of the IT Act provided that if the AO was satisfied that the undisclosed income found and which belonged to other person, that could be assessed under Chapter XIV of the Act. She said that the impugned loose sheet p. 34 of HS-8 was a complete document and disclosed all information about the payment of price paid by Mr. and Mrs. Grewal to the assessee, D. N. Kamani (HUF). She pointed out from the assessment order the finding of the AO in order to show that the impugned loose sheet p. 14 HS-8 was actually the information about the material that the payment shown therein was for the flats of Dharamchand Mansion at 4-IC Road, Jamshedpur. She pointed out that from the information furnished by the assessee himself in which the details of payments by cheque were mentioned were the same as were found recorded in the document seized and marked p. 34 HS-8. She pointed out that the said document contained at the top 'payment for flats' and in the bottom 'D. Mansion' which stood naturally for Dharamchand Mansion. In the course of argument, she drew our attention to the words 'cash-paid full amount' and other words 'paid full' against the total 3.35 which naturally stood for Rs. 3.35 lakhs. She said that from the very look of the paper it would be apparent that the upper part of document related to payments by cheque and latter part by cash. She further said that Rs. 3.35 lakhs as mentioned in the document was accepted by Mrs. H. S. Grewal. She reiterated that the document was a clinching evidence from which it was evident that Mr. and Mrs. Grewal paid Rs. 5.25 lakhs through cheque and Rs. 3.35 lakhs through cash towards the price of the flat. She said that the payment by cash consisted of 40 per cent of the total sale price of Rs. 8.60 lakhs. The learned Departmental representative of the Revenue further said that the AO was right in considering the matter on the preponderance of probabilities and circumstantial evidences. Seller and buyer were mutually benefited and as such they did not come out with true facts and consider that circumstances the entire attending factors required consideration. She said that it was the matter of common knowledge and experience that for purchase of the flat purchaser as to pay money. She further added that the AO rightly observed and came to conclusion that the flat situated at 4-IC Road, Jamshedpur was in the heart of the city with best commercial and residential prospects and as such the sale price as disclosed by the assessee could not be said to be the correct and true. She said that no doubt the building in question was on lease land of TISCO, but there were provisions in the lease deed for renewal as was evident from the findings given at p. 3 of the assessment order for 1992-93 in regular assessment. So it was wrong to say that the prospective buyers would be reluctant to pay a good price. She said that in fact at Jamshedpur rest 15 purchasers also must have paid on money @ 40 per cent of the total cost. She further said that the assessment under s. 143(3)/158BC/158BD was rightly made. She added that it was not on presumption and estimate rather the same was worked out on the basis of clinching evidence and facts mentioned in the impugned loose sheet p. 34 of HS-8. The assessment order required no information, she added.
5. We have heard the rival submissions and gone through the appeal records including the papers compiled in the paper book along with the decisions. Admittedly here in the instant case p. 34 of HS-8 has been seized from the residential house of Mr. H. S. Grewal, one of the purchasers of one of 16 flats. The AO on the basis of that document determined the income at Rs. 46,37,020 and completed the assessment under s. 143(3)/158BD of the Act. It is to be noted that in many cases the judicial decisions, such as :
(1) Kishanchand Sobhrajmal vs. Asstt. CIT (1992) 42 TTJ (Jp) 423 : (1992) 41 ITD 97 (Jp);
(2) Addl. CIT vs. Ms. Lata Mangeshkar (1974) 97 ITR 696 (Bom), (3) Addl. CIT vs. Prakash Oil Industries & Ginning Factory (1995) 52 TTJ (Mad) 514;
(4) Amar Singh vs. ITO (1995) 53 TTJ (Del) 692 : (1995) 54 ITD 375 (Del), and (5) ITO vs. Thangam Aluminium Industries have disapproved additions made from undisclosed sources on the basis of papers/documents seized from the possession and control of 3rd party for want of there being no guarantee for genuineness of the seized documents and other corroborative evidences but now before us the prime question to be considered is whether on the basis of p. 34 of HS-8 the action of the AO is to be approved or not. Since p. 34 of HS-8 has been seized from the possession of residential premises of H. S. Grewal naturally the question of its authenticity comes for question. No doubt p. 34 of HS-8 has been seized from the residential premises of Mr. H. S. Grewal and there being no evidence that if that document is in handwriting of the Karta of the assessee or any of its members or any of the employees of the assessee or prepared at the dictate or order of the assessee, but at the same time the said document is so complete and full of information that it is difficult to disbelieve the genuineness of the document and contents thereof. The impugned documents has to be considered in full and not in part or by picking up one or two entries contained therein. At the top of the impugned document the words 'payment for flat' and in the bottom the words 'D. Mansion' are written. Naturally the payment relates to flat of Dharamchand Mansion situated at 4-IC Road, Bistupur, Jamshedpur. The said document contains two parts. Top portion speaks of the payment by cheque either by Mr. Grewal himself and by his wife Mrs. Grewal. The first two payments by cheque for Rs. 1 lakh and Rs. 75,000 have been made by Mrs. Grewal and other 4 payments by cheques have been made by Mr. Grewal i.e., Rs. 1.25 lakhs, Rs. 75,000, Rs. 50,000 and Rs. 47,000. It is to be seen that a remark 'balance left-by cheque is Rs. 52,500' has been made which was paid later on. The assessee has admitted to have received these payments by his letter dt. 29th October, 1996. Mr. and Mrs. Grewal have paid in total Rs. 5,20,750 by cheque. The other part of the document shows transactions by cash which, when reproduced, reads as follows :
"Cash - paid full amount :April, 1988 1 November, 1988 75 January, 1989 50 February, 1989 60 January, 1990 50
Paid full" --------
3.35
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There is no mention in between payments shown to have made by cheque and payments said to have been received by cash any purpose for which those cash payments have been made. So naturally the entire payments are for payment for flats. Against the payments shown by cash there is no mention if the cash payments was made for any other purpose. Though the learned authorised representative of the assessee has argued that the cash payments might be to intermediaries or for extra work or for any other purposes, there is no such mention rather the document clearly shows that payments are for flat and the words 'paid full amount' and again the words 'full paid' in the bottom against the total payment shown as 3.35 further go to suggest that the payment was Rs. 8,55,750. It is to be pointed out that though Mr. Grewal has denied to have paid on money in cash, but has admitted that the figures '3.35' stood for Rs. 3.35 lakhs. His knowledge that the figures 3.35 is for Rs. 3.35 lakhs give vent that the amount was cash payment towards the price of the flat and that was paid in full. So in our considered view, we reiterate, genuineness of the document p. 34 of HS-8 seized from the residential premises of Mr. Grewal, in view of the facts and circumstances of the case, cannot be disbelieved. From this document it is established manifestly that the assessee has received on money of Rs. 3.35 lakhs from Mr. Grewal and this can very well be said to be the undisclosed income of the assessee as contemplated under s. 158(1)(b) of the Act which is liable to be taxed in view of the provisions contained in Chapter XIV of the Act. However, we do not approve the action of the AO for making addition of the remaining amount of Rs. 42,18,134 (Rs. 45,53,134 - 3,35,000 = Rs. 42,18,134) under s. 143(3)/158BD of the Act which has manifestly been done mere on guess work and presumption. It is to be noted that the AO has found out that the assessee has received full sale price of flats of Rs. 8.60 lakhs from Mr. Grewal which consisted of 5.25 lakhs by cheque which has been disclosed in the books of account and the remaining amount of Rs. 3.35 lakhs which was on money received by cash. The payment of amount by cheque and cash comprises a ratio of 60:40 respectively of the total sale proceeds. According to the AO when the assessee can take on money from Mr. Grewal, the assessee must have taken on money @ 40 per cent in cash from the other buyers also and in that view of the matter he worked out the concealed income of Rs. 45,53,134. For the proposition that the assessee must have taken on money @ 40 per cent in cash, he observed that in real estate business this practice of taking on money is prevalent. He has also said that the flats of Dharamchand Mansion are situated in the heart of the city near Regal Ground of Jamshedpur and in the best commercial and residential area and, as such, the price on which the assessee showed to have sold the flats could not be accepted. According to the AO in that area Rs. 400 per sq. ft. would have been the reasonable price and in fact during that period that was the prevailing market rate of flats of that area. The AO on the basis of those observations worked out the undisclosed income of the assessee as detailed above. The AO, however, in his assessment order at p. 9 has observed that it is a case of strong presumption and circumstances and even then has proceeded to make out a heavy addition to the tune of Rs. 42,18,134. If in the real estate business the practice is that of making payment of on money it is not sufficient for making the addition from undisclosed source, and, in particular, in view of the provisions of Chapter XIV of the Act. Provisions of Chapter XIV do not contemplate assessments on account of presumption .or estimate or by disallowing statutory claims. The undisclosed income may not be something presumed. In fact, Patna Bench of this Tribunal in the case of Rishabh Marketing (P) Ltd. (supra) on the facts and circumstances of the case disapprove the assessment completed under s. 158BC of the Act on estimate basis on account of breakage/shortages of the bottle and shells. Similarly, the Tribunal, Calcutta Bench in the case of Smt. Gita Rani Mondal (supra) disapproved the completion of assessment under s. 158BC of the Act by disallowing the claim of the expenditure of the assessee under s. 40A(3) of the Act. The Tribunal, Mumbai Bench also in the case of Sunder Agencies (supra) in view of the facts and circumstances of the case has disapproved the assessment made under s. 154BC of the Act for disallowing a part of sale promotion on the basis of seized register. It is to be noted that the Revenue has no evidence in appeal record to prove that other buyers of the flats have also paid on money and that too 40 per cent of the undisclosed sale price. It is to be noted that the AO in the course of assessment proceedings examined those buyers and no material could have been gathered about the receipt of on money by the assessee by those buyers. By way of instance, in the course of his argument, the learned authorised representative of the assessee drew our attention towards p. 23 to p. 26 of the paper book through which the AO had inquired the matter from Mrs. Varsha Gandhi. It is to be noted that the Tribunal, Bombay Bench in the case of W.D. Estate (P) Ltd. (supra) in somewhat identical situation deleted the addition made on account of allegedly receiving of on money by the assessee in doing real estate transaction. In that case it so chanced that there was a search and seizure and file and table diary pertaining to one of the employees was found in which sales and sale amounts of some real estate were shown. That file and diary also disclosed the receipt of on money. The learned CIT(A) confirmed the addition, because he noted that the Ministry of Finance had published a report in which practice of payment of black money in real estate transaction in metropolitan titles was discussed. The Tribunal, Bombay Bench, however, deleted the addition because it found that employees from whose possession the file and diary were found was a disgruntled employee who was trying to blackmail the assessee-company. The Tribunal also noted that there was absolutely no evidence to show that the assessee, in fact, had received on money payments. Here in the case under consideration also, the AO has not been able to bring any evidence to prove that if the assessee has received on money and that also in cash from each and every buyer. It is to be noted that he examined the buyers, but from them also he could not gather any supporting material or evidence. The whole exercise of the AO to determine the on money received from the purchaser at Rs. 42,18,134 is mere on presumption and as such the aforesaid amount of Rs. 42,18,134 cannot be said to be the undisclosed income of the assessee as contemplated in Chapter XIV of the Act. The AO has tried to substantiate his presumption of receipt of on money by the assessee for flat of Dharamchand Mansion situated at 4-IC Road, Bistupur, Jamshedpur the sale price as disclosed by the assessee could not be the correct price. Rupees 400 per sq. ft. would have been the reasonable rate and that was the prevailing market rate during that period. However, it is to be noted that he has not shown any comparable case to prove that actually during the period in question the prevailing market rate of sale price of flat in that area was Rs. 400 per sq. ft. This part of his finding also is mere on presumption. Firstly it is to be noted that there is no direct or primary evidence to show that if the buyers have paid on money and that to the extent of 40 per cent of the total cost. Even there is no direct or primary evidence to show that the assessee received on money. It is to be further noted that there is always some proximity in between the construction cost and sale price. The assessee has shown the cost of construction at Rs. 175 per sq. ft. during the course of hearing of the appeal it has been pointed out that the sale price is Rs. 225 per sq. ft. The AO himself in his assessment order has given a finding that nothing was found during the course of search and seizure operation on the basis of which the cost of construction of the project at Dharamchand Mansion can be doubted. He has further observed that the cost of the project as disclosed in the account was found reasonable. It is to be further noted that the assessee got the valuation of the building done by the Registered Valuer at Rs. 68.75 lakhs. Even the TISCO did the sale at Rs. 60,29,760. (See Registered Valuer letter dt. 8th March, 1993 and TISCO's letter dt. January 1993). So if the AO's presumption is given to effect the sale price will be fantastically high which cannot be conceived of. In fact, from the regular assessment order for the asst. yr. 1992-93 it is to be seen from p. 7 of that assessment order that the assessee disclosed the average net profit at 29.7 per cent during the assessment years comprising the assessment years in which the project is completed. The AO has simply presumed that the sale price of the flat disclosed by the assessee is not correct, but this presumption of his own is not based on any sound and circumstantial evidence or any material. So when we set all the facts and circumstances together and the various judicial pronouncements referred to above the action of the AO to come to a finding that the assessee must have received on money from all the buyers is without any basis cannot be approved of. It is merely his presumption. In view of our finding given above the undisclosed income is only Rs. 3.35 lakhs which could be assessed under s. 143(3)/158BC/158BD of the Act, and not the whole amount of Rs. 45,53,134.
6. In the result, the appeal is allowed in part.
Sikander Khan, A.M.
1. I have gone through the proposed order of the learned brother. In the proposed order the learned brother has given two findings. Firstly, he held that from the seized documents it was established manifestly that the assessee had received on money of Rs. 3.35 lakhs from Mr. Grewal which was undisclosed income of the assessee as contemplated under s. 158(1)(b) of the IT Act. Secondly, he held that the addition of the remaining amount of Rs. 42,18,134 for similar on money on the sale of other flats could not be approved. While I agree with my learned brother in respect of his first finding regarding the addition of Rs. 3.35 lakhs, I respectfully differ with him in respect of the finding to delete the remaining addition of Rs. 42,18,134.
2. I extensively discussed with my learned brother so as to reach an agreement but unfortunately, it could not be possible. I am, therefore, writing my separate order.
3. The facts of the case and the submissions of the learned authorised representatives of the rival parties have been elaborately discussed by my learned brother in the proposed order. However, for the sake of recapitulation I am stating the facts in brief here.
4. Search under s. 132 was conducted on 8th December, 1995 in the residential and business premises of N. D. Kamani, H. S. Grewal and Sanjeev Kapila and their families. A bunch of loose sheets marked HS-8 were seized from the possession of H. S. Grewal at his residential premises.
5. D. N. Kamani (HUF) i.e., the assessee had developed and constructed 18 flats at 4-IC Road, Bistupur, Jamshedpur, during the period of 1987-91 out of which 16 flats were sold to different parties through agreement of sale. One of the flats was sold to H. S. Grewal vide Agreement dt. 10th June, 1989.
6. Page No. 34 of the bunch of loose sheets marked as HS-8 seized from the possession of H. S. Grewal gave the complete details of the payments made by H. S. Grewal and his wife, Mrs. D. Grewal against the purchase of the said flat to D. N. Kamani (HUF). According to the seized documents (p. 34 of HS-8) they had paid Rs. 3.35 lakhs in cash besides Rs. 5.25 lakhs paid by cheques. The amount paid in cash was on money and was not shown by the assessee in the sale proceeds.
7. The assessee denied before the AO to have taken any on money. It submitted that the addition could not be made on the basis of the papers seized from the third party. No books of account or any document had been seized from the possession of the assessee in course of the search to indicate receipt of any on money.
8. The AO was not satisfied with the submissions and contentions of the assessee. He observed that p. 34 of the seized document marked HS-8 clearly indicated payments of on money for the flat. There were mention of Dharamchand Mansion, mention of the words payments for the flat in cash, mention of details of cheques which tallied with those disclosed by the assessee in its books of account. But the payment of on money in cash was not disclosed by the assessee. After detailed discussions about the said seized documents the AO held that it revealed the payments of on money of Rs. 3.35 lakhs for the purchase of the flat from the assessee which the assessee had not disclosed in its books of account.
9. After the above finding the AO observed that the assessee must have received similar on money on the sale of the other flats. He added that H. S. Grewal was business partner of Kamani. Kamani and Grewal were the major shareholders of Arc Horn Global Systems (P) Ltd. They were also the partners in Arc Horn Leasing Company. Their business connection had been very old. Despite this close relationship the assessee had taken cash of Rs. 3.35 lakhs from Mr. Grewal against the sale of the flat to him, over and above, the payments by cheques. He further added that the quality of construction of the flats was similar. He, therefore, held that the assessee must have received similar on money on sale of other 15 flats. He added that after the addition of the on money the average sale price would come to Rs. 400 per sq. ft. which was fair and reasonable considering the fact that Dharamchand Mansion is situated in the heart of the city of Jamshedpur and in the best commercial and residential area. It is situated besides the famous Regal Ground and it is within 200 metres of the main post office and the main branch of the S.B.I.
10. The AO worked out the ratios of payments by cheques and the payment of on money in cash at 60 : 40 in case of H. S. Grewal. On the same basis he worked out on money received by the assessee in cash from the buyers of the remaining 15 flats. Thus, the total undisclosed receipt from the sale of 16 flats was worked out at Rs. 45,53,134 vide details at p. 9 of the impugned assessment order. This amount was added by the AO in the block assessment completed under s. 143(3)/158BD of the IT Act.
11. In the appeal before this Tribunal the learned counsel for the assessee assailed the addition for the on money from H. S. Grewal and on money from sale of the remaining 15 flats. It was denied that the assessee had received any on money from the sale of the flats. It was contended that no addition could be made on the basis of the documents seized from the third party. There was no evidence to show that the assessee had taken on money in cash @ 40 per cent. No books of account or any incriminating documents were found from the possession of the assessee. The authencity of the documents seized from the possession of H. S. Grewal could not be relied upon for the purposes of assessment under s. 143(3)/158BD.
12. The learned counsel submitted in course of hearing before this Tribunal that the details mentioned in the seized documents did not clearly show that the payments in cash were for the flat in question. There was no primary and direct evidence that the assessee had received the additional money of Rs. 3.25 lakhs in cash.
13. The learned counsel further submitted that the AO had added Rs. 45,53,134 as on money received in cash from the sale of the 16 flats, merely on presumption. He contended that there could be no addition on presumption that the assessee must have received on money in cash at 40 per cent from sale of all the flats. He added that after the addition the profit margin on the sale of the flats would become fantastic. He stated that the assessee had shown reasonable profit which ought to have been accepted. He contended that the sale price of Rs. 400 per sq. ft. after the addition for on money would be excessive in the case. He contended that there was no evidence to show that the assessee had received on money at 40 per cent from sale of all the flats. He added that the addition had been made only on presumption. He argued that such an addition could not be made in block assessment under s. 143(3)(1)/158BD. He relied on several decisions as discussed in the proposed order of my learned Brother.
14. The learned Departmental Representative, on the other hand, supported the order of the AO. She contended that the seized document was a clinching document of the payments of on money of Rs. 3.35 lakhs by H. S. Grewal for the purchase of the flat from the assessee. She added that the AO was justified in adding similar on money from the sale of the other flats. She relied on s. 114 of the Evidence Act, Supreme Court's decision reported in 62 STC 381.
15. My learned Brother in the proposed order after considering the facts and circumstances of the case and the submissions of the learned authorised representatives of both the parties in dispute held that the seized documents manifestly established that the assessee received on money of Rs. 3.35 lakhs from Mr. Grewal which was undisclosed income under s. 158(1)(b) of the IT Act. He, however, did not approve of the addition of the remaining amount of Rs. 42,18,134 on account of receipt of on money from sale of other flats. My learned brother has given mainly 3 grounds for deleting the addition of Rs. 42,18.134.
16. Firstly, he observed that the addition was made on guess work and presumption without showing comparable cases. Secondly, he is of the view that such addition could not be made in block assessments under s. 143(3)/158BD. Thirdly, the sale price will be fantastically high as a result of the impugned addition.
17. I am of the view that the addition for the undisclosed sale price of other 15 flats was proper and justified in the case on the basis of the seized documents. My learned brother has already held in the proposed order that the seized documents manifestly established that the assessee had received on money of Rs. 3.35 lakhs from Mr. Grewal which was undisclosed income of the assessee as contemplated under s. 158(1)(b) of the IT Act. The other 15 flats were part of the same building and the same project. They were similar in quality of construction. It is an admitted fact that H. S. Grewal had very close relationship with the assessee. Therefore, if the assessee had taken on money in cash from him, there was no reason to hold that it would not have been received on money in cash from other buyers of other flats.
18. From the above facts it is manifest that the addition for the undisclosed sale price, i.e., on money in respect of other 15 flats was not made on guess work or on presumption, rather the addition was made on the basis of the seized documents showing payments of on money in respect of the similar flat in the same building sold to H. S. Grewal. This was a reliable and concrete evidence of the fact that the assessee must have received undisclosed sale price from buyers of other flats. The case of H. S. Grewal was a comparable case for the similar addition. It would be wrong to hold that while addition made for undisclosed receipt of on money on sale of one flat was justified but there could be no similar addition for sale of other flats of the same building and the same project.
19. It will be too much to insist for similar documents of payment of on money by all the buyers of flats as was seized from Grewal. The seized document held by my learned brother as the concrete proof of payments of on money in cash by Grewal provided a proper and reliable basis to take the sale price of other flats at the same rate per sq. ft. subject to adjustment for any extra work, floor, timing of sale, market conditions, etc. If the sale price of ordinary shares of face value of Rs. 10 of company 'X' was Rs. 100 per share on 31st March, 1997, the sale price of all ordinary shares of company 'X' as on 31st March, 1997 must be taken at Rs. 100. Similarly, all the other flats were in the same building of the same project of the assessee having similar quality of construction. If the sale price of flat sold to Grewal was Rs. 400 per sq. ft., the sale price of other flats should be taken similarly subject to the adjustment for variables like extra works, etc.
20. The proof of payments of on money in one flat sold to Grewal had already established the fact that the books of account of the assessee were not reliable and correct. Under the circumstances, the application of s. 145 and estimate of sale price of other flats on the basis of the sale price of flat to Grewal was proper and justified. It is well known that the Tribunal, High Courts and Supreme Court upheld the addition on reasonable estimate in the cases where the books of account were not reliable and correct. In the instant case, the books of account had been proved to be not reliable and correct. Since the document of payment of on money was seized after the original assessment the findings regarding sale price of the flats in the original assessment were of no consequence.
21. The total sale consideration paid by H. S. Grewal for the purchase of the flat including the on money paid in cash as revealed by the seized documents clearly indicated certain per sq. ft. sale price of the flats in the building called Dharamchand Mansion. In view of the similar quality of construction, location, etc. the same per sq. ft. sale price could justly and reasonably be applied for determining the sale price of other 15 flats. The total constructed area of all the flats may not be the same. Therefore, it would be proper and appropriate to determine the sale price on the basis of the per square ft. sale price worked out from the total consideration paid by H. S. Grewal. The AO was not justified in determining the total sale price taking 40 per cent as payment of on money in cash. Instead of this the proper and just course would be to determine the total sale price on the basis of the per sq. ft. sale rate discovered on the basis of the seized documents. The AO should also make adjustments for the floor on which each flat was located, timing of the sale agreements, any extra work, etc.
22. It is seen that because the AO had a closed mind to determine the total sale price on the basis of 40% on money, he did not discuss the complete details like the total constructed area, floor, extra works, timing of the sale, etc. of each flat. On the other hand, the assessee was concentrating on its contention that there was no payment of on money and the seized document was not concrete evidence of payment of on money. It, therefore, did not furnish the details, explanations and evidences regarding other flats. I am of the view that to determine the amount of sale price of other flats it is necessary that complete details were obtained and examined before applying the per sq. ft. sale rates on the basis of the seized documents.
23. Now the question is whether the addition for the on money from sale of other flats could be made under s. 158B. I am of the view that the case was covered by s. 158B. The seized documents had been held by my learned brother to be proof of payments of on money by Grewal for the purchase of the flat from the assessee. After this finding by him the seized documents became relevant documents for the determination of the sale price or other flats in the same building. Sec. 158B(b) defines "undisclosed income" as under :
"(b) 'undisclosed income' includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would have been disclosed for the purposes of this Act."
24. From the above it is evident that the undisclosed income includes any income based on any document representing income which had not been or would not have been disclosed for the purposes of the Act. Clearly the seized documents in question represented the income which had not been or would not have been disclosed for the purposes of the Act. It will be wrong to give a restrictive meaning to the provisions of s. 158B(b) and to say that it will cover only the undisclosed sale price in respect of the flat sold to H. S. Grewal and that it will not cover undisclosed sale price of other flats for which no separate similar documents had been discovered in the search. The meaning of undisclosed income given in s. 158B(b) is inclusive and wide. We may note the words "based on .... other documents and transactions" used in s. 158B(b). It will cover all matters to which the seized documents would be relevant directly or indirectly. When the seized document was relevant to the flat sold to Grewal, it would be justly and fairly relevant to other similar flats sold to other buyers. The assessee had concealed part of the sale price in respect of the sale of other flats as it had concealed part of the sale price in respect of the flat sold to H. S. Grewal. In this view of the matter, I hold that the addition for the undisclosed part of the sale price of other flats would be covered by the provisions of s. 158B(b).
25. It is also worthmentioning here that Chapter XIV-B has to be read along with ss. 132, 147, Chapter IV and all other relevant provisions of the Act. This has been made clear by the provisions of ss. 158BB, 158BH & 158BC. Thus, the addition which should have been made in assessment under s. 143(3)/147 could be made in the block assessment as well. The first proviso to s. 158BC says that notice under s. 148 is not required for the block assessment. Certainly on the basis of the seized documents the AO could have issued notice under s. 148 for the concerned years to bring to tax the undisclosed sale proceeds of other flats if there had been no provision for the block assessment. Thus, the entire Chapter XIV-B has to be given a logical, just and fair interpretation and not in a manner which denies the Revenue what it could have got under other provisions of the Act. Chapter XIV-B was introduced not to curtail powers under other provisions like 147, but to make stringent provisions to curb tax evasion. It is clearly a case of concealment of income which was detected as a result of the search and seizure operation under s. 132 of the IT Act. The block assessment had to be completed covering the block period of 10 assessment years as provided in s. 158B(a). In view of the provisions of s. 158B(a) it could not have been possible to take action under s. 147 separately for the concerned years. All the 10 assessment years had to be merged into the block assessment.
Facts of the cases relied upon by learned brother were different. In the present case the seized document had been held to be concrete evidence of payment of on money by Grewal. No such document was found in the cases relied upon.
26. I would, therefore, hold that the undisclosed sale price of other 15 flats was covered under s. 158B and addition for the same in the block assessment would be proper and justified under Chapter XIV-B of the IT Act.
27. The last ground mentioned for deleting the addition of Rs. 42,18,134 in the proposed order is that there would be fantastic profit after this addition. In my view, this is not a strong reason to delete the addition. The profit margin would differ from case to case and transaction to transaction depending upon various factors. It is worthmentioning here that the price of the land where the building was located, must be very high. The land was acquired at low price but its market value at the time of sale of the flats was very high. Thus, the profit of the land was also embedded in the profit on the sale of the flats. If the assessee had sold only the land, he would have made fantastic profit but the land was utilised for developing and constructing the building called Dharamchand Mansion in which all the flats in question were located. Thus, the profit of the land had merged with the profit on the sale of the flats. Naturally, therefore, the combined profit would be much higher.
28. To sum up, I would hold that the addition for the undisclosed sale price of other 15 flats on the basis of the seized document was called for in the case. However, the addition made by the AO on the basis of 40 per cent on money, was not proper and justified. He should have determined the undisclosed sale price of other 15 flats on the basis of the per sq. ft. sale rates discovered from the seized documents relating to the sale of flat to H. S. Grewal. He should have allowed adjustment for total square feet constructed area of each flat, any extra work, the floor on which the flat was located, the time of the sale, market conditions, etc. He should have obtained complete details of each flat and then determined the total sale price after giving sufficient reasonable opportunity to the assessee in the matter. I would, therefore, consider it imperative to send the matter of addition of Rs. 42,18,134 relating to the undisclosed sale price of other 15 flats to the AO for redetermination after complying with the above directions.
REFERENCE UNDER S. 255(4) OF THE IT ACT, 1961 Sikander Khan, A.M. As we differ in our view in the above case, we request the Hon'ble President to kindly refer the matter to the 3rd Member on the following point :
"Whether, on the facts and in the circumstances of the case, the addition of Rs. 42,18,134 on account of on money for the sale of other 15 flats should be deleted or it should be set aside to the AO for redetermination on the basis of per sq. ft. sale price of the flat sold to H. S. Grewal after adjustment for extra works, floor, period of sale, etc. ?"
Jordan Kachchap J.M. As we differ in our views in the above case, we request the Hon'ble President to kindly refer the matter to the 3rd Member on the following point :
"Whether, on the facts and circumstances of the case and in law, on the basis of seized documents p. 34 of HS-8 which is the details of the price paid for purchase of flat can presumption be made that the assessee-HUF must have received on money from all the remaining 15 purchasers of the flats and an addition of undisclosed income of Rs. 42,18,134 be made on estimate under s. 158BC/158BD of the Act ?"
Nathu Ram, A.M. (AS THIRD MEMBER)
1. On account of difference of opinion between the Members of the Bench, the following questions posed by them have been referred to me by the Hon'ble President as per the provisions of s. 255(4) of the IT Act for decision as Third Member :
Question posed by J.M. :
"Whether, on the facts and circumstances of the case and in law, on the basis of seized documents p. 34 of HS-8 which is the details of the price paid for purchase of flat can presumption be made that the assessee-HUF must have received on money from all the remaining 15 purchasers of the flats and an addition of undisclosed income of Rs. 42,18,134 be made on estimate under s. 158BD of the Act ?"
Question posed by the A.M. :
"Whether, on the facts and in the circumstances of the case, the addition of Rs. 42,18,134 on account of on money for the sale of other 15 flats should be deleted or it should be set aside to the AO for redetermination on the basis of per sq. ft. sale price of the flat sold to H. S. Grewal after adjustment for extra works, floor, period of sale, etc. ?"
2. Before I go into the merits of the questions posed I would like to venture to recapitulate the facts for proper appreciation as borne out from the records.
2.1. The assessee-HUF owned a plot taken on lease from TISCO in 1961 and constructed thereon 18 flats during the period from 1988 to 1992. The assessee-HUF sold 16 flats therefrom to different parties through agreements of sale entered into with them during the period from 1987 to 1991. One of the flat was sold to Shri H. S. Grewal as per agreement to sell dt. 10th June, 1989, for a consideration of Rs. 5,20,750. Sale consideration of 16 flats is shown at Rs. 70,70,750 as per details given below :
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Sl. Name of buyer Date of execution Asst. Yr. Disclosed No. of agreement of sale, sale sale consideration
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1 2 3 4 5 ----------------------------------------------------------------------
1. Mr. H. S. Grewal 10-6-1989 1990-91 5,20,750
2. Mr. B. B. Khosla 5-12-1987 1988-89 5,32,250
3. Mr. X. J. Anklesaria 21-1-1988 1988-89 5,16,750
4. Mr. H. Gandhi 22-1-1987 1987-88 5,20,500
5. Bihar Extrusion 18-7-1988 1989-90 3,65,500
6. Mr. C. P. Shah 22-11-1989 1990-91 4,93,000
7. Mrs. H. Gandhi 28-1-1988 1988-89 3,60,500
8. Mr. N. Khetan 26-2-1990 1990-91 5,21,500
9. Mr. V. Gandhi 30-1-1990 1990-91 3,60,500
10. Mr. K. Gandhi 30-1-1990 1990-91 5,21,500
11. Mr. K. Gandhi 30-1-1990 1990-91 3,65,500
12. Mrs. A. Gandhi 30-1-1990 1990-91 3,65,500
13. Mrs. M. R. Varshnoi 27-2-1991 1991-92 3,76,000
14. Mr. S. Atwal 3-6-1991 1992-93 5,16,750
15. Mr. S. K. Shroff 21-4-1990 1991-92 3,75,000
16. Mr. N. K. Shroff 21-4-1990 1991-92 3,66,250 ---------------------------------------------------------------------
2.2. A search was conducted by the Department on 8th December, 1995 at the residential and business premises of Shri N. D. Kamani, Shri H. S. Grewal, Shri Sanjeev Kapila and members of their family. During the course of search at the residential premises of Shri H. S. Grewal, a bunch of loose-sheets marked as HS-8 was seized from his possession. Page 34 of the bunch of these papers contained details of payments made by Shri H. S. Grewal and his wife against the purchase of a flat from the assessee HUF. A photocopy of the said document is marked as Annexure I to the assessment order and the same is reproduced hereunder :
"Payment for flat Annexure I
Mrs. S. Grewal
Rs.
Chq. 113113 dt. 8-8-88 1,00,000
Chq. 113914 dt. 14-11.88 15,000
Mr. H. S. Grewal
Chq. 118585 dt. 16-2-88 1,25,000
Chq. 118591 dt. 9-5-88 75,000
Chq. 136413 dt. 24-4-89 50,000
Chq. 149410 dt. 27-7-90 47,500
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2,97,500
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Balance left by chq. is 52,500.00
Cash-Paid full amount
April, 88 = 1
November 88 = .75 19/11/88
February 89 = 60 10/2/89
June 89 = 50
Jan 90 = 50 ----------------
3.35 - Paid full
----------------
Paid for generator Rs. 22,000-Chq. No. (illegible) dt. illegible"
2.3. The AO noted on perusal of the above document that Shri Grewal and his wife paid Rs. 5,25,000 by cheque to the assessee-HUF and an additional amount of Rs. 3,35,000 was paid in cash. The AO noted that the amount received in cash was not disclosed by the assessee HUF in the return filed. Based on the said document, the AO initiated proceedings under s. 158BD in the case of the assessee HUF for the block period 1st April, 1985 to 8th December, 1995. In the return filed for the block period no undisclosed income was declared.
2.4. The AO noted that the assessee disclosed sale proceeds of the flat sold to H. S. Grewal at Rs. 5.25 lakhs but the assessee also received an amount, of Rs. 3.35 lakhs in cash. Thus the total sale proceeds from the flat sold to Shri Grewal came to Rs. 8.60 lakhs. The amount received in cash to the extent of Rs. 3.35 lakhs worked out to 40 per cent of the total sale proceeds which the assessee failed to disclose. Having regard to the total sale consideration of sixteen flats at Rs. 70,77,750, he worked out the amount received in cash over and above the apparent consideration at Rs. 47,18,500.
The AO confronted the assessee with such facts and made known his intention to compute the undisclosed income on account of "on money" received on sale of sixteen flats at Rs. 47,18,500 based on the said document seized. The assessee-HUF in reply submitted that the said document has no connection with the assessee regarding the remark "cash paid full amount" and it does not say anything regarding the payment to whom and for what purpose. It was contended that the presumption made that all the entries in the said document relate to the sale of flats is not correct. It was rather claimed that the document did not relate to the purchase of the said flat. Moreover, the AO had examined certain buyers during the course of regular assessment proceedings and he did not find any excess sale proceeds received. Further, during the course of search no unexplained investment was found. Neither any documentary evidence was recovered reflecting the acceptance of "on money". Moreover, the AO has referred to prevailing practice of charging such "on money". Such presumption is based on hearsay and is not correct. The assessee further furnished details of the consideration received on the sale of flat from Shri H. S. Grewal and denied having received any "on money" either from Shri Grewal or say other buyers of flats.
2.5. The AO noted that four payments shown to have been made by Shri Grewal and two payments by Mrs. Grewal as per the seized document are exactly the same with cheque number, dates and amounts as shown by the assessee-HUF in its accounts. By the time Shri Grewal had written the details of payments made against the said flat on the seized document, Rs. 52,500 was still payable to the assessee-HUF. Subsequently Shri Grewal paid Rs. 28,250 and Mrs. Grewal paid Rs. 20,000 totalling to Rs. 48,250 on 30th March, 1992 as against the amount payable by cheque at Rs. 52,500 as mentioned in the seized document. Thus the total payment through cheque made was at Rs. 5,20,750 by Grewal to the assessee-HUF.
2.6. The AO further noted that after the payments recorded in cash in the seized document Rs. 22,000 was paid by cheque for generator installed in the building. Besides this, there are no other transactions recorded in the seized document. The AO noted that along with the said cash payments, the words "paid full amount" are written twice once against the word "cash" and another against the total payment of cash of Rs. 3.35. The entries made therefore leave no scope for any doubt that the same have been written in relation to any transactions other than the purchase of flat by Shri Grewal from the assessee-HUF. This document is thus a clinching evidence of payment of cash of Rs. 3,35,000 against the purchase of flat by Shri Grewal to the assessee-HUF over and above the apparent consideration paid through cheque and duly disclosed by the assessee-HUF.
2.7. The AO also noted that Shri Grewal is a business associate of the assessee HUF being a major shareholder in Arc Horn Global System (P). Ltd. and partner in Arc Horn Leasing Co. for a long time and despite being business associate, the assessee-HUF has taken cash payment of Rs. 3.35 lakhs from Shri Grewal from sale of flat as "on money". The flat sold to Shri Grewal is no better than that sold to others. He also noted that Shri Grewal spent about Rs. 75,000 on improvement of the flat after its purchase. He further noted that even after inclusion of the cash payment received the sale rate worked out to about Rs. 400 per sq. ft. Dharamchand Mansion is situated in the heart of city of Jamshedpur and is the best commercial and residential area. The assessee-HUF has shown the sale of flats of Rs. 225 per sq. ft. He also noted that the cost of construction shown at about Rs. 175 per sq. ft. has been found to be reasonable by the Department. With these observations the AO computed the undisclosed income on account of "on money" received on sale of 15 flats at Rs. 45,53,134 spread over various years as per the details below :
Assessment year Undisclosed income
1987-88 3,34,839
1988-89 9,06,735
1989-90 2,35,127
1990-91 20,25,276
1991-92 7,18,730
1992-93 3,32,427
----------
45,53,134
----------
2.8. The AO added therein the income disclosed for the asst. yr. 1995-96 at Rs. 83,890 thereby computing the total undisclosed income at Rs. 45,37,024 and raised the tax liability thereon @ 60 per cent Rs. 27,82,212.
3. The learned Judicial Member placing reliance on certain decisions and analysing the entries recorded in the seized document has come to the conclusion that the said document seized from Shri Grewal is genuine and it proves that the assessee-HUF received "on money" of Rs. 3.35 lakhs from Shri Grewal. This can well be said as undisclosed income in the hands of the assessee-HUF as contemplated in s. 158B(b) (wrongly written as s. 158(1)(b)) of the IT Act and the same is liable to be taxed as per provisions of Chapter XIV-B. He, however, did not approve the action of the AO in estimating the undisclosed income on account of money received from other buyers of Rs. 42,18,134 being a guess work without any material evidence in support. He, therefore, sustained the undisclosed income computed at Rs. 3,35,000 thereby granting relief of Rs. 42,18,134.
4. The learned Accountant Member has concurred with the view taken by the learned J.M. in sustaining the undisclosed income computed at Rs. 3.35 lakhs. He has however dissented from the finding given by the learned J.M. on deletion of the remaining addition of Rs. 42,18,134 made on account of undisclosed sale price of other fifteen flats on the basis of the seized document and the reasoning given in support is as under :
(a) That the learned J. M. has already held in the proposed order that the seized document manifestly established the receipt of "on" money of Rs. 3.35 lakhs from Shri Grewal and the same was undisclosed income of the assessee as contemplated under s. 158B(b) of the IT Act. The other fifteen flats were part of the same building and the same project. They were also similar in quality and construction. It is also admitted that Shri H. S. Grewal was close business associate of the assessee-HUF. The assessee had taken "on" money from Shri Grewal. There is no reason to hold that it would not receive "on" money from other buyers.
(b) That the document seized from Shri Grewal is a reliable and concrete evidence to the effect that the assessee must have received undisclosed sale price from other flat buyers and it was too much to insist for similar documentary evidence about the payment of "on" money from other flat buyers.
(c) That the proof of payment of "on" money for one flat sold to Shri Grewal established the fact that the books of account maintained by the assessee-HUF were not reliable and correct and therefore application of provisions of s. 145 and estimate of sale price of other flats on the basis of the sale price of flat sold to Shri Grewal was proper and justified.
(d) That the AO while completing the regular assessment for the asst. yr. 1992-93 accepted the investments made in construction of flats and sale proceeds disclosed. Since the said document establishing payment of "on money" was seized after the original assessment, the finding given therein about sale price of flats is of no consequence.
(e) That it is apparent from the provisions of s. 158B(b) that undisclosed income includes any income based on any document representing income which had not been or would not have been disclosed for the purpose of the Act. Clearly the seized document represented the income which had not been or would not have been disclosed for the purposes of the Act. It would be wrong to give a restrictive meaning to the provisions of s. 158B(b) and to say that it will cover only the undisclosed sale price in respect of the flat sold to Shri Grewal and that it will not cover undisclosed sale price of other flats for which no such evidence has been found in search. The meaning of undisclosed income given in s. 158B(b) is inclusive and wide as is seen from the words "based on other documents and transactions" used therein and it will cover all matters to which the seized document would be relevant directly or indirectly. When the seized document is relevant to the flat sold to Shri Grewal, it would be fairly relevant to the other similar flats sold to other buyers. The assessee-HUF has not disclosed part of the sale price charged in respect of sale of other flats as well.
(f) That Chapter XIV-B has to be read along with ss. 132, 147, Chapter IV and all other relevant provisions of the Act as is clear from the provisions of ss. 158BB, 158BH and 158BC. Thus the addition which should have been made in the assessment under s. 143(3)/147 could be made in the block assessment as well. Thus the entire Chapter XIV-B has to be given a logical just and fair interpretation and not in a manner which denies the Revenue what it could have got under other provisions of the Act. It is thus clearly a case of concealment of income detected as a result of search and seizure under s. 132 of the IT Act.
(g) That one of the grounds taken for deleting the addition of Rs. 42,18,134 in the proposed order is that there would be fantastic profit after making such addition. According to the learned A.M. the profit margin differ from case to case and transaction to transaction depending upon various factors. Moreover, the price of land where the building was located must be very high. The land was acquired at low price but its market value at the time of sale of flat was high. Thus the profit of land was also embodied in the profit of sale of flats. If the assessee had sold land only it would have made fantastic profit. Since the land was used for developing and constructing the flats, the profit of land merged with the profit on sale of flats. Combined profit would therefore naturally be much higher.
4.1. The learned A.M. has further observed that the AO had a closed mind in determining the total sale price on the basis of 40 per cent "on money". He, however, has not discussed the complete details like the total constructed area, floor, extra work, timing of sale, etc. of each flat. As the sale consideration vary from flat to flat, the constructed area may also be varying. It would therefore be proper and appropriate for determining the sale price per sq. ft. based on the total consideration paid by Shri Grewal. The AO was thus held not justified in determining total sale price taking 40 per cent as payment of "on money" in cash. The proper and just course would have been to determine the total sale price on the basis of the per sq. ft. sale rate discovered from the seized document. Further, necessary adjustments for the floor on which each flat was located, time of sale agreement, extra work, if any, was required to be made. The AO should have also obtained complete details of each flat and then determined the total sale price after giving sufficient and reasonable opportunity to the assessee in the matter. With such observations he has restored the matter relating to the addition of Rs. 42,18,134 to the AO for redetermination after complying with the directions given.
5. The learned counsel for the assessee Shri S. B. Gadodia reiterated the submissions made before the lower authorities and further submitted that the undisclosed income has been computed on the basis of a paper found on search at the residence of Shri H. S. Grewal. Though the said paper shows the details of the payment made through cheque to the assessee-HUF by Shri Grewal and his wife but there is nothing to show that Shri Grewal made cash payment to the assessee-HUF of Rs. 3.35 lakhs over and above that disclosed. The said paper did give details of certain figures total of which is 3.35 but there is nothing to show that 3.35 represent Rs. 3.35 lakhs and this was paid by Shri Grewal to the assessee-HUF. So far as these figures are concerned, it is a dumb document and no adverse inference could be drawn therefrom unless corroborated by any independent evidence. According to the learned counsel, there is no such corroborative evidence found to suggest that Shri Grewal made payment in cash of Rs. 3.35 lakhs as "on money" to the assessee-HUF for purchase of flat. He also pointed out that Shri Grewal has denied having made any such cash payment to the assessee-HUF. Moreover, presumption under s. 132(4A) is also not available in the case of the assessee about the contents of the said document as the same was not recovered from the premises of the assessee-HUF and in support, he placed reliance on Rama Trading vs. ITO (1988) 25 ITD 599 (Pat) (TM). The assessee has also not admitted having received the said cash amount of Rs. 3.35 lakhs from Shri Grewal. Moreover, though the residence of Karta of HUF was also searched along with others, but no incriminating material relating to the construction and sale of the said flats was found. The learned counsel, therefore, pleaded that the addition made of Rs. 3.35 lakhs based on such document is neither justified nor valid.
5.1. As regards the addition made of Rs. 42,18,134 relating to the other fifteen flats sold, the learned counsel has submitted that for determination of undisclosed income, there is no scope for presumption, surmises and conjectures. The AO cannot presume undisclosed income for assessment purposes under the special provisions of Chapter XIV-B. Under this Chapter only undisclosed income found as a result of search and seizure can be taxed. The scheme of Chapter XIV-B does not give powers to the AO to draw presumption in regard to the undisclosed income. In this regard he has referred to paras 18 to 23 of the Tribunal's order in the case of Sunder Agencies vs. Dy. CIT (supra).
5.2. The learned counsel has further pointed out that the AO has himself observed in para 18 of the assessment order that though this is a case of presumption in the case of other buyers but the presumption is very strong in view of the discussions made. The learned counsel submitted that it is settled law that no income can be taxed as undisclosed income only on the basis of presumption, howsoever strong the presumption may be. As regards the fifteen flats no material evidence was found during search at the business or residential premises of the assessee. In the absence of any document, books of account, material and/or evidence found in the course of search relating to payment of "on money" in respect of fifteen flats, no undisclosed income could be computed for taxation under the special provisions of Chapter XIV-B. 5.3. He has also pointed out that the AO issued notices under s. 131/133(6) to the purchasers of fifteen flats to find out payment made, if any, of "on money" for purchase of their respective flats but they have denied having made any such payment to the assessee-HUF nor any material evidence was found at the residence of the assessee during the course of search relating to sale of fifteen flats. Moreover, the AO has himself in the assessment order mentioned that such addition is being made only on the basis of presumption. This in fact is outside the scope of Chapter XIV-B and the undisclosed income has to be necessarily based on material evidence found during the course of search. He has further pointed out that under the scheme of Chapter XIV-B the very heavy tax rate of 60 per cent is provided which is abnormally high in comparison to the normal rate of tax payable on regular assessment and for levy of such heavy tax the undisclosed income has to be proved beyond doubt on the basis of the material evidence found as a result of search or gathered during investigation. There being no material evidence found or seized during search, the undisclosed income computed by the AO in respect of fifteen flats is without jurisdiction looking to the plain reading of Chapter XIV-B. 5.4. The learned counsel has further mentioned that regular assessment in respect of the flats constructed was made by the AO and during the course of regular assessment proceedings the purchasers of flats were examined on oath under s. 131 and assessment was completed after making detailed scrutiny. The said assessment order is still subsisting which has neither been reopened nor cancelled by the CIT. The AO also found the profit shown from the flat sold as reasonable. Having done so addition could be made under Chapter XIV-B only on the basis of presumption.
5.5. The learned counsel has further contended that the AO-had not re-examined the flat owners under s. 131 in the block assessment proceedings nor any opportunity was given to the assessee to cross-examine them. The presumption of the AO that fifteen flat owners must have paid "on money" is not sustainable in law. In support the learned counsel has placed reliance on the Tribunal's decision in the case of Rakesh Kumar Kapadia vs. Asstt. CIT (1994) 49 TTJ (Ahd) 13 wherein it has been held that examination of all flat owners by the AO is essential to ascertain the payment of "on money" made by them and an opportunity to cross-examine the flat owners has to be given to the assessee.
5.6. It has further been contended by the learned counsel that the said paper seized from the premises of Shri H. S. Grewal and his statement recorded cannot be made the basis for computing the undisclosed income on account of "on money" in respect of other fifteen flats because the AO has not examined Shri Grewal in the assessment proceedings of assessee-HUF nor any opportunity was given to the assessee to cross-examine him. Unless the said document is brought in the assessment records of the assessee and genuineness of the same is proved by examining Shri Grewal and opportunity given to the assessee to cross-examine him, the same cannot be used as evidence against the assessee-HUF. Moreover, the said paper seized is also uncorroborated so far as the cash payment is concerned.
5.7. The learned counsel has also pointed out that admittedly the plot on which the building was constructed is a leasehold and the assessee carried out only this construction activity. No such activity was carried out either before or after. The Revenue has tried to justify the market rate at Rs. 400 per sq. ft. on the ground that realisation of price of land was also included in sale consideration of flats. He contended that market price of land be taken separately and considered for capital gain tax.
5.8. The learned counsel has also pointed out that the cost of construction shown by the assessee was Rs. 175 per sq. ft. and the sale rate was at Rs. 225 per sq. ft. The AO himself recorded on p. 8 of the assessment order that nothing was found during search on the basis of which cost of construction or sale price of flat could be doubted. When the AO has accepted the cost of construction he should have also accepted the sale price of the flats because nothing was found during search to suggest that any part of the sale price was not disclosed. Moreover, the issue relating to construction of flats and their sale was considered by the AO in his order for the asst. yr. 1992-93 and therein the average profit calculated at 29.76 per cent was found better in comparison to other builders. If the addition made by the AO is sustained then there would be fantastic profit which cannot be conceived of. Moreover, the building was constructed on leasehold land.
5.9. The learned counsel has further placed reliance on ITO vs Smt. Harbans Kaur (1993) 45 ITD 470 (Del), Addl. CIT vs. Miss Lata Mangeshkar's (1974) 97 ITR 696 (Bom) and submitted that the undisclosed income computed of Rs. 42,18,134 in respect of fifteen flats is neither valid nor justified in the absence of any material evidence found as a result of search or investigation and the learned J.M. for the detailed reasons given in his order was justified in deleting the same.
6. The learned Departmental Representative Smt. Anita Sinha on the other hand placed heavy reliance on the order of the AO as well as the order of the learned A.M. She has further submitted that the said document seized from the residence of Shri H. S. Grewal give complete details of payments made by him to the assessee-HUF through cheque as well as in cash. He evidently paid to the assessee-HUF Rs. 5,20,750 through cheque and Rs. 3,35,000 in cash. The seized document proves beyond doubt that the assessee-HUF received cash payment as "on money" over and above the apparent sale consideration from the flat buyers and it is based on such document that the AO has computed the undisclosed income on account of "on money" from the flat buyers. She further submitted that the land on which the said flats were constructed was on lease for thirty years from TISCO and the lease agreement was renewable as per its terms. Looking to the land rate and cost of construction the sale rate worked out based on the seized document at Rs. 400 per sq. ft. is fully justified and looking from this angle the undisclosed income computed is neither unreasonable nor unjustified. She further relied on the order of the learned A.M. and advanced elaborate arguments in support thereof. She further placing reliance on the decision of the Hon'ble Supreme Court in the case of CIT vs. Durga Prasad More (1971) 82 ITR 540 (SC) submitted that looking to the documents seized, surrounding circumstances and human probabilities the addition made is justified. However, that needs recomputation as per the observations made by the learned Accountant Member. She, therefore, submitted that the view taken by the learned A.M. is correct and the same deserves to be confirmed.
7. I have carefully gone through the orders of the learned brothers and have also considered the facts and rival submissions made before me. I find that the assessee-HUF acquired the plot of land measuring 12,467 sq. ft. on leasehold from Tata Iron & Steel Co. Ltd., Jamshedpur on 1st March, 1961, for a period of thirty years on payment of annual lease rent of Rs. 87.55 with an option to renew the lease for a further period of thirty years. The assessee-HUF constructed 18 flats thereon during the period from 1988 to 1991 on the total cost of Rs. 64,33,178 as per the details given below :
Assessment Year Amount invested
1989-90 Rs. 24,18,829.85
1990-91 Rs. 9,18,487.63
1991-92 Rs. 15,63,250.35
1992-93 Rs. 15,32,611.02
7.1. The assessee got a report from the registered valuer on the cost of construction of property in which the cost of construction was estimated at Rs. 65,31,230. The assessee sold sixteen flats for a consideration of Rs. 70,77,750 as per details given earlier.
7.2. The AO considered the profit element on construction of the property in the asst. yr. 1992-93. The AO noted that the assessee maintained books of account relating to the construction and sale of flats. He also scrutinised the entries made in the books of account. Entries in the books of account were co-related with the entries in the bank pass book both on credit and debit side. The receipt was evidenced by the credit side entries in the pass book on account of the flats sold to various parties and such receipts were found to be through account payee cheques. The flats were sold as per the agreement reduced in writing on properly stamped papers. According to the AO, majority of the purchasers were duly summoned under s. 131 of the IT Act on different dates and solemn confirmation of the individual purchasers were duly recorded. Entries in the books of account were co-related with the entries on the credit side of the bank pass book and the same were further cross-checked for reference to the investigative process under s. 131 of the IT Act. The AO found no discrepancy relating to the receipts shown on account of sale of flats. The AO also noted that entries on the debit side were also verifiable from the bank pass book and were further substantiated by subsidiary evidence in the form of bills and vouchers. The AO, therefore, found the construction account prima facie as correct.
7.3. The AO in the assessment order for asst. yr. 1992-93 also noted that net profit rate for different assessment years on the project was as under :
Assessment year Net profit rate
1989-90 21.6 per cent
1990-91 23.8 per cent
1991-92 11.11 per cent
1992-93 50.7 per cent
7.4. The average net profit rate for all the years worked out to 29.7 per cent. The AO noted that the net profit rate disclosed was reasonable as compared with comparable cases of similar nature. Copy of the assessment order for the asst. yr. 1992-93 referred to above, is placed at pp. 1 to 11 of the paper book.
7.5. I also note that the total built up area is about 36,610.20 sq. ft. and the parking space on the ground floor at 3,566 sq. ft. It is also noted that the super floor area in each flat was at 1,400/1,500/2,100 sq. ft. and accordingly, consideration received varied.
7.6. The Department conducted search at the business as well as residential premises of Shri N. D. Kamani. H. S. Grewal, Sanjeev Kapila and members of their family on 8th December, 1995, and during the course of search the aforesaid document was found and seized from the residence of Shri H. S. Grewal. No search was conducted in the case of the assessee-HUF there being no separate search warrant issued. However, search as mentioned above was carried at the residence of Shri N. D. Kamani, Karta of the HUF. It is not in dispute that no incriminating evidence was found and seized from the residential premises of the Karta of the HUF Shri N. D. Kamani during the course of search. The AO based on the said document seized from the residence of Shri H. S. Grewal initiated proceedings in the case of the assessee-HUF under s. 158BD of the IT Act.
7.7. As per the said document, the assessee received payment through cheque from Shri Grewal of Rs. 5,20,750 as per the details of payments recorded therein. The entries made in the said document of Rs. 5,20,750 are verifiable from the books of account of the assessee-HUF. Further, Shri Grewal also paid Rs. 22,000 through cheque of the assessee-HUF for generator and the payment received on this account has not been denied by the assessee-HUF. In between the entries of payments through cheque of Rs. 5,20,750 and payment for generator of Rs. 22,000 through cheque there are entries in the said document as per details given of cash payment of 3.35. Shri Grewal in the statement recorded confirmed that 3.35 figure is in lakhs. When first set and last set of entries through cheques are verifiable from the books of the assessee-HUF, the cash payment entries have to be taken as correct, the same being part of the same document. This document has thus been considered and found to be genuine. Though Shri Grewal has not admitted having made cash payment of Rs. 3.35 lakhs to the assessee-HUF and the assessee-HUF has also denied having received such cash payment but based on the aforecited document, the addition made to the extent of Rs. 3.35 lakhs on account of undisclosed income in the hands of the assessee-HUF has been sustained by the learned J.M. with which the learned A.M. has also concurred.
7.8. Thus the controversy before me for consideration relates to the undisclosed income computed of Rs. 42,18,134 on account of "on money" alleged to have been received from the remaining fifteen flat buyers. The AO based on the aforecited document held the view that the assessee-HUF received 60 per cent of the sale consideration of each flat through cheque and 40 per cent was taken in cash as "on money" which has neither been accounted for in the books of account nor disclosed to the Departments for taxation. According to the learned counsel, the buyers were summoned under s. 131 during the course of proceedings for the asst. yr. 1992-93 and none of them admitted having paid any "on money" to the assessee-HUF. The AO rather accepted the book results wherein cost of construction of the building as well as the sale consideration of the flats were accounted for. During the course of search no incriminating material was recovered either from the assessee-HUF or from its Karta. Further, during the course of block assessment proceedings also the AO called upon the flat buyers under s. 131/133(6) of the IT Act and none of them gave any damaging evidence. He also referred to the confirmation filed by Smt. Varsha Gandhi who purchased one of the flats and the same is placed at pp. 25 and 26 of the paper book. She confirmed that she made payment for the flat purchased at Rs. 3,66,500 through cheques as per details given therein. She has also made a reference to the summons under s. 131 from the AO during proceedings for the asst. yr. 1992-93 and explanation recorded thereof on 25th March, 1993. Moreover, I was given to understand that the Department has not taken any action in the hands of said fifteen flat buyers whereas action has been taken in the case of Shri H. S. Grewal based on the said document. The position so stated by the learned counsel has not been disputed or controverted by the learned Departmental Representative. It is thus evident from the records that there is no evidence gathered by the AO as a result of search or through investigation direction or indirectly to establish that the said fifteen flat buyers paid "on money" at 40 per cent of the total consideration or the assessee-HUF received such "on money" from the said fifteen flat buyers.
7.9. In Sunder Agencies' case (supra) it has been held by the Tribunal that it is beyond power of the AO to review assessments already completed unless some direct evidence come to the knowledge of the Department as a result of search which indicates clearly factum of undisclosed income. In the present case the only evidence found as a result of search was with regard to cash payment of Rs. 3.35 lakhs made by Shri H. S. Grewal to the assessee-HUF over and above the apparent consideration paid at Rs. 5,20,750 through cheque and the undisclosed income computed based on this evidence has been sustained but so far as other fifteen flats are concerned there is no material evidence found during search proving receipt of "on money" from the buyers. Moreover, in the assessment completed under s. 143(3) for the asst. yr. 1992-93 the AO has already accepted the accounts relating to the said fifteen flats and there being no material evidence found during the course of search it is beyond the power of the AO to review the position already accepted.
7.10. The AO has computed the undisclosed income relating to the said fifteen flats at Rs. 42,18,134 only on presumption that the assessee-HUF might have received "on money" from fifteen flat buyers also when he has taken Rs. 3.35 lakhs as "on money" from Shri H. S. Grewal looking to the location and there being prevalent practice of receiving "on money" in property transactions. Thus, the undisclosed income computed is solely based on presumption and not on any concrete material. The Tribunal in the aforecited case of Sunder Agencies has also held the view that scheme of Chapter XIV-B gives no power to the Revenue to draw presumption in regard to undisclosed income. Further, in the case of ITO vs. W.D. Estate (P) Ltd. (1993) 45 ITD 473 (Bom) the addition sustained by the CIT(A) partly influenced by a report of the Finance Ministry wherein a notorious practice of payment of black money in real estate transaction in metropolitan city of Bombay was discussed, was deleted by the Tribunal treating the addition being on hearsay evidence.
7.11. Another question that needs consideration is whether the undisclosed income could be estimated on account of "on money" from fifteen flats buyers based on the said document recovered from Shri H. S. Grewal invoking the provisions of s. 145 of the IT Act. Sec. 145 provides the method of accounting. According to this section income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" is to be computed in accordance with the method of accounting regularly employed by the assessee. When accounts are correct and complete but method employed is such that income cannot properly be deducted therefrom, computation is to be made on such basis and in such manner as the AO may determine. Where the AO is not satisfied about correctness or completeness of accounts, or where no method of accounting has been regularly employed, the AO is empowered to make assessment in the manner provided in s. 144. As mentioned above, the AO while completing the regular assessment for the asst. yr. 1992-93 has accepted the books of account maintained as correct. However, the document seized from Shri H. S. Grewal did indicate that the assessee received Rs. 3.35 lakhs in cash as "on money" on sale of flat to him and this amount was not accounted for in the books of account. It could, therefore, be said that so far as the said amount of Rs. 3.35 lakhs is concerned the books of account maintained were not correct and complete and the AO could resort to assessment of income by estimate invoking the provisions of s. 145 of the IT Act but such an action could only be taken at the most while completing the regular assessment. Admittedly the present proceedings involved are block assessment proceedings under Chapter XIV-B of the IT Act and not the regular assessment proceedings. It is also mentioned here that Chapter XIV-B is a code in itself providing for special procedure for assessment of search cases and as per sub-s. (2) of s. 158BB, in computing undisclosed income for the block period provisions of ss. 68,69,69A, 69B and 69C may be applied but nowhere it is provided in this Chapter that provisions of s. 145 would be applicable in computing the undisclosed income in the block assessment and there being no such provision made no undisclosed income could be computed on estimate basis invoking the provisions of s. 145 based on the said document relating to the flat sold to Shri H. S. Grewal in respect of the remaining fifteen flats sold to others. Further, when specific addition is made based on the said document, there could be no addition made on estimate basis based on the same document.
7.12. As regards the question whether such addition could be made in the normal course as per provisions of s. 147, r/w s. 148, of the IT Act, it is mentioned that s. 147 provides that if the AO had reason to believe that any income chargeable to tax has escaped assessment for any assessment year he may, subject to the provisions of ss. 148 to 153 assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his knowledge subsequently in the course of proceedings under this section or recompute the loss or the depreciation allowance or any other allowance as the case may be for the assessment year concerned. Thus for assessing an escaped income under s. 147 the AO must have reason to believe that any income chargeable to tax has escaped assessment. So far as the flat sold to Shri H. S. Grewal it is established from the seized document that cash of Rs. 3.35 lakhs was paid to the assessee-HUF over and above the apparent consideration and based on such evidence action under s. 147 could validly be taken. However, there is no such material evidence found during the course of search about the "on money" paid by the remaining fifteen flat buyers to the assessee-HUF or the assessee-HUF receiving any "on money" from them. The AO during the course of regular assessment proceedings for the asst. yr. 1992-93 examined the flat buyers under the provisions of s. 131 of the IT Act but no incriminating material came on record from their cross-examination. Further, during the course of block assessment proceedings also the AO again made an effort to ascertain from the remaining fifteen flat buyers the "on money" paid if any to the assessee-HUF by way of summons under s. 131 or enquiry letters under s. 133(6) of the IT Act but to no result. The search conducted at the premises of the Karta of the HUF also did not reveal the fact of "on money" received if any from the said fifteen flat buyers. Further, the document seized from Shri Grewal no doubt raised the presumption that the assessee-HUF might have similarly received "on money" from the other flat buyers but the presumption howsoever strong may be, cannot take the place of evidence or is no substitute of evidence. This should have however prompted the AO to make deep and proper enquiry/investigation but as is evident from above, the investigation/enquiry made by the AO from the other fifteen flat buyers has not produced any result in the direction of proving that the assessee-HUF received any "on money" from other flat buyers also. In this view of the matter no action could be taken under s. 147 to make any addition to the income declared on account of the fifteen flats sold.
7.13. According to the AO, the assessee-HUF sold flat to Shri Grewal for a total consideration of Rs. 8.60 lakhs as per the seized document and the per sq. ft. sale rate on this basis comes to Rs. 400 whereas the sale rate charged from other flat buyers is Rs. 225 per sq. ft. The flats are claimed to be situated in a very good locality and the quality of construction of flats sold to other buyers was not different from that sold to Shri H. S. Grewal. It is also noted that the assessee has shown the cost of construction approximately at Rs. 175 per sq. ft. Though the profit rate varied from year to year as per details given above, the average profit rate comes to about 29 per cent. The sale rate as worked out at Rs. 400 per sq. ft. in the case of Shri H. S. Grewal claimed to include element of land cost and looking to that the value worked out at Rs. 400 per sq. ft. was fairly reasonable. It is pointed out in this context that the land on which these flats have been constructed was taken on lease by the assessee-HUF from TISCO in 1961 for a period of thirty years on annual lease rent of Rs. 87.55. Lease period expired in March, 1991 and according to the learned counsel the lease has not been renewed for a further period. Most of these flats were agreed to be sold during the period from 1987 to 1990 and at that time there was no certainty that lease agreement shall be renewed beyond 1991. Under such circumstances the assessee-HUF could not get substantial price for the land while agreeing to sell the flats.
7.14. On due consideration of all the facts and circumstances discussed and the ratio of various decisions cited, I agree with the view taken by the learned J.M. that the undisclosed income commuted of Rs. 42,18,134 in respect of the remaining fifteen flats sold is not justified and the same has been rightly deleted.
8. The matter now shall go to the regular Bench for decision on the basis of majority opinion.