Income Tax Appellate Tribunal - Ahmedabad
Dy. Commisioner Of Income Tax vs Pramukh Builders on 6 July, 2007
Equivalent citations: [2008]112ITD179(AHD), (2008)115TTJ(AHD)330
ORDER
I.C. Verma, Judicial Member
1. It was, in consequence upon difference of opinion between the Members constituting Ahmedabad Bench "B", Ahmedabad that the following question was got referred to for the opinion of the ld. Third Member (Through the Hon'ble President ITAT):
Whether, on the facts and in the circumstances of the case, should the Tribunal delete whole of the undisclosed income of Rs. 10 lakhs or should restrict the addition on account of "on-money" to Rs. 1,50,000.
2. The Hon'ble Third Member has now expressed his opinion the question referred to him as per order dated Nil June-2007, whereby he has agreed with the view taken by ld. Judicial Member according to which whole of the undisclosed income of Rs. 10 lakhs was directed to be deleted.
3. In view of majority decision, the addition of Rs. 10 lacs on account of undisclosed income having been sustained by the CIT (Appeals) stands deleted and assessee's appeal allowed on this point.
Pradeep Parikh, Vice President
1. There being a difference of opinion between the two learned Members of the Ahmedabad Bench of the Tribunal, in this case, the Honourable President was pleased to appoint me as a Third Member vide his order dated 24-4-2007 Under Section 255(4J of the Income tax Act, 1961 (the Act). The point of difference referred to the Third Member is as follows:
Whether, on the facts and in the circumstances of the case, should the Tribunal delete whole of the undisclosed income of Rs. 10 lakhs or should restrict the addition on account of "on-money" to Rs. 1,50,000.
2. The facts in the present case, as admitted by both the Members, are not in dispute. However, a brief recapitulation of the same would not be out of place. Search Under Section 132 of the Act was conducted at the premises of the assessee on 4-5-1994 resulting into seizure of incriminating documents. Statement of Shri Kamal Shah, a partner of the assessee firm was recorded on the same day. In this statement, he admitted an undisclosed income of Rs. 34,38,000 in M/s Adinath Constructions, an associate concern of the assessee-firm. Undisclosed income of Rs. 10 lakhs was disclosed in another associate concern M/s Suhani Builders and an equal amount was also disclosed in the hands, of the assessee. In all, total disclosure of Rs. 55 lakhs was made and it was also explained as to how the same has been invested. Another statement of Shri Kamal Shah was recorded on 29-6-1994 in which he enhanced the disclosure to Rs. 76 lakhs, retaining the disclosure of Rs. 10 lakhs in the hands of the present assessee. The investment of the enhanced disclosure was also explained in the statement. However, in the return filed by the assessee, the disclosed amount of Rs. 10 lakhs was not included and only a total income of Rs. 48,910 was returned. On being questioned as to why the disclosure made Under Section 132(4) is not included, it was explained by the assessee that there was no evidence of charging any on-money and hence merely on the basis of the statement, no such addition could be made. The Assessing Officer rejected the contention of the assessee and added the sum of Rs. 10 lakhs to the total income of the assessee. The CIT(A) accepted the contention of the assessee and observed that the statement of Shri Kamal Shah was taken on record based on mere suspicion and accordingly on the basis of the facts it was retracted by the assessee. He also observed that the Assessing Officer has not brought on record any cogent materia or evidence in respect of on-money receipts and no incriminating material or records have been identified from the seized record for making such addition. The CIT(A) deleted the addition.
3. When the matter came up before the tribunal, the learned Judicial Member took note of the specific findings/observations of the CIT(A) to the effect that (a) the statement of Shri Kamal Shah was taken on record based on mere suspicion, (b) the same cannot be treated as an admission and cannot be treated as material for framing the assessment and (c) the Assessing Officer has not brought on record any cogent material or evidence in respect of on-money receipts. The learned JM observed that the Revenue has not disputed the correctness of this finding arid hence the conclusion reached by the CIT(A) has to be accepted The alternative contention of the Revenue, on the basis of the order of the Tribunal n the case of Adinath Construction that at least 15 per ceril of the receipts should be treated as undisclosed income was also rejected on the ground that in the case of Adinath Construction, a diary was found in which the details relating to the receipt of om-money were found to be recorded. Moreover, in that case, the assessee itself has accepted a receipt of Rs. 14,22,000, but in the present case, there was no such diary nor was there such admission.
4. The learned AM took note of the conduct of the assessee in so far as that the disclosure was made by the managing partner of the assessee-firm, he had explained the modus operandi of charging on-money, explained the investment of such money and absence of duress while recording the statement. The learned AM held that these facts confirmed the factum and practice of charging on-money. Finally, though he did not much agree with the alternate contention to treat only 15 percent of the gross on-money as the assessee's income, yet, he sustained the addition to that extent only i.e. at Rs. 1,50,000.
5. Before me, the learned Counsel at the outset, referred to paragraph 19 in the order of the Tribunal in the case of M/s. Adinath Construction ITA Nos. 1975 & 1976/AHD/1999 dt. 21-10-05) to contend that the statement given by Shri Kamal Shah was not sacrosanct in so far as that the figures in the seized material were stated to be approximate figures and that it was categorically stated by him that he would state the exact disclosure only after examining all the papers and the account books. Extending this argument, it was submitted that no incriminating material was put before the assessee nor any asset was found or seized. The prohibitory orders continued till 29-6-1994 and the statement dt. 4-5-1994 was later retracted. In the interregnum there was no material found by the assessing officer to support the addition, in the case of Adinath also, it was contended, the CIT(A) had stated that no addition can be made on the basis of mere statement of the assessee. Similar were the observations of the Tribunal in the case of Adinath ((supra)) and also in the case of Shri Hastimal K. Bhansali (ITA No. 348/Ahd/98 dt. 22-8-2005). Further, in the case of Adinath, 15% addition was sustained because of the admitted seized material showing on-money of Rs. 14.22 lakhs. Referring to the order of the learned AM, it was submitted that the department did not foreclose the investigation even after 4-5-19194 and kept pending for 55 days but nothing was up. Thus, the learned Counsel fully supported the order the learned JM.
6. The submission of the learned Departmental Representative was that there was no formal retraction by the assessee. In the subsequent statement, only figures were changed and moreover, there was no evidence of any coecion during the recording of the statement. According to him, the statement given by the assessee did have evidentiary value and the addition made on the basis of the said statement was justified.
7. I have duly considered the rival contentions, the material on record and have perused the proposed orders by my learned brothers. Let us examine the main reasons given by the learned AM for his conclusion. The first reason which he considers to be a crucial pointer is that Shri Komal Shah is the managing partner of the assessee-firm and in fact, is one of the main persons who is in the know of the affairs of the business. This fact is undisputable However, having retracted from the original statement, the latter does not lead us to anywhere. The search was on the group as a whole consisting of several entities. The statements that he may have given during the search are for the group as a whole and though in the statement he has given the break-up of disclosure, it is not corroborated by anything that might have been unearthed during the search. There may have been hundreds of reasons and thoughts crossing in the mind of the deponent during the search and it is not expected that whatever is reeled out during the search is only after proper application of mind. He may have explained the modus operandi of charging on-money, or the avenues and the destination of such money. Again, this may be true for the group as a whole but the retracted statement does not lead to the conclusion that the particular assessee before us had an undisclosed income of Rs. 10 lakhs. The second reason given by the learned AM is that enhancing the figure of disclosure two months later shows proper application of mind and also absence of any duress while giving the statement. Well, there may not be any evidence of coercion being exercised by the search party, there may not be any duress also, but existence of confusion cannot be ruled out. Duress has to be distinguished from confusion. Duress is a constraint illegally exercised to force o person to perform some act. This, as mentioned earlier, may be absent. But confusion means something thrown into disorder wherein a person may be perplexed or embarrassed or thrown into turmoil. The entire family is likely to be in a state of perdition during and in the aftermath of the search. In fact, the revision of the earlier statement does not reflect application of mind but a state of compounded confusion only. When such are the state of affairs, no sanctity can be attached to the statement and that cannot form the sole basis to determine undisclosed income. It is not the question of throwing the burden on the Revenue as observed by the learned A.M. but certainly when search is conducted, it needs to have some basis to come to the conclusion of concealment. It is highly philosophical to soy that restricting the addition only in the entity where material is found, betrays the thinking and the machination employed by the assessee, using it as a ploy to make travesty of the entire judicial process of the search and seizure proceedings. All said and done where is the evidence to show that assessee had any undisclosed income barring the statement given by Shri Kamal Shah while under utter state of confusion. As a matter of fact, what has been stated about the so called machination of the assessee is an ill-founded and unwarranted allegation against the assessee. Further, it is interesting to note that though the learned AM has observed that the alternate argument of treating 15 per cent of the gross on-money as income defects the assessee's case in this regard. Despite this observation ultimately, he sustains the addition to that extent only. Therefore, in view of the foregoing discussion, I am convinced that there being no spectre of evidence regarding undisclosed income, no addition can be sustained. I am in agreement with the view taken by the learned JM.
8. The matter may now be placed before the regular bench for the disposal of the appeal in accordance with the majority opinion.
As there is a difference of opinion, the mater is being referred to the Hon'ble President of ITAT with a request that following question may be referred to a Third Member or pass such order as the Hon'ble President may think fit.
Whether, on the facts and in the circumstances of the case, should the Tribunal delete whole of the undisclosed income of Rs. 10 lacs or should restrict the addition on account of 'on-money' to Rs. 1,50,000/-.
Sanjay Arora (AM)
1. I have carefully gone through the order of my learned Brother. However, I find myself in respectful disagreement with the view taken by him and, therefore, proceed to write a separate and dissenting order.
2. The facts of the case are undisputed and detailed in the order of my learned brother. However, a brief re-capitulation thereof would enable to discern the issue(s) arising out of the same for the purpose of this appeal, as under:
(a) A search was conducted out at the premises of the assessee, a partnership firm engaged in the construction activity as developer, on 4-5-1994, resulting in seizure of some incriminating documents;
(b) A diary, marked as Annexure A-3 (and another marked A-9) to the Panclmama dated 5-5-1994 carried details in respect of 'on money', in codified form, which stood explained (decodified) by the deponent in his statement. Further, both the receipts and payments (as negative figures) stood recorded therein, which stood maintained in the form of a cash book;
(c) In his statement, Shri Kamal V. Shah, partner of the assessee-firm, recorded by the A.O. on 4-5-1994, and again on 29-6-1994, Under Section 132(4) of the Income-tax Act, 1961 ("Act" hereinafter), conceded to have received, among others, Non money' amounting to Rs. 10 lakhs in respect of its two schemes, 'Vrajbhoomi' and 'Hajbhoomi';
(d) Accordingly, the amount of Rs. 10 lakhs was disclosed as the undisclosed income in the hands of the assessee as a part of the total disclosure of Rs. 55 lakhs made in respect of the total group, for which the break-up of the corresponding assets was also given as a part of the statement itself, and which included Rs. 30 lakhs in the building(s) under construction (under various Schemes; the other two firms also being in the construction business), and work on which was stated to be substantially completed (refer question No. 37 to 39/4-5-1994);
(e) On 29-6-2004, the total disclosed amount stood enhanced to Rs. 76 lakhs, for which, i.e., a subsequent enhancement, leave was taken by the assessee in his statement Under Section 132(4) dated 4-5-1994. The amount of disclosure for the assessee-firm, however, remained the same, i.e., at Rs. 10 lakhs, and the entire amount as disclosed allocated to the current year (A.Y. 1994-95), save Rs. 6 lakhs in the hands of M/s. Adinath Construction for A.Y. 1995-96. In respect of the assessee-firm in the asset break-up of the enhanced disclosure, the amount was, again, declared as 'investment in schemes';
(f) Both the statements were recorded under oath, the second statement made after almost two months of the first one, in fact, only confirmed the former, and was endorsed and signed by all the partners, who were stated therein to have been consulted in the matter; carried signatures of independent witnesses; and further, carried reference to the penalty sparing Clause of Explanation (5) to Section 271(1)(c), as also with regard to having been made without any coercion, threat or undue influence;
(g) The assessee filed its return of income for the year on 14-3-1995 at an income of Rs. 48,910, i.e., without including the impugned sum of Rs. 10 lakhs, on the ground that no evidence of charging of von money' was found during the course of search and, therefore, addition on the basis of the 'statement' could not be made. The A.O. added the sum on the basis of the foregoing, and further stating that similar statements made by other persons, i.e., Shri Harshad F. Patel and Shri Kantilal N. Patel, stood acted upon by returning the disclosed amount in the case of their respective partnership firms, i.e., M/s. Patel Cement Products and M/s. Gujarat Constructions;
(h) In appeal, the learned CIT(A) accepted the assessee's retraction on the basis that the statement of Shri K.V. Shah was taken on the basis of suspicion and, therefore, in view of the various Court decisions, cannot be treated as admission in the first place, holding the same (retraction) to be made on the basis of facts; the A.O. being unable to bring any cogent material/evidence on record in respect of the receipt of 'on money' from the seized records. The draft order proposed by my learned brother upholds the decision of the learned CIT(A) on the same basis.
3.1 The deponent has in the statement [Under Section 132(4)] declared the booking rate for the different Schemes under progress/operation at the relevant time. For the Vrajbhoomi Scheme, these are stated to be as varying between Rs. 2,200 to Rs. 2,500 per sq.yd. (question No. 11/4-5-1994). As per the details furnished by the assessee in respect of sale of flats under the said Scheme, the average booking rate works to Rs. 2,122 (per sq.yd). The assessee has effected sales of about 2640 sq.yads during the year under reference, i.e., under the Vrajbhoomi and Rajbhoomi Schemes, and in respect of which the disclosure stands made. If this amount (of disclosure) is spread over the quantity (area) sold, it works to an average rate of Rs. 379 per sq.yd. For the Vrajbhoomi Scheme, therefore, it would total to Rs. 2,501 (Rs.2,122 + 379), i.e., in terms of the disclosed rate. Now, firstly, it is inconceivable, specially in the light of the diary (material) recording the receipt of on-money, that it was not being actually received. Secondly, the amount disclosed in respect thereof corroborates the booking rates for the relevant scheme, i.e., when considered in aggregate, so that the veracity of each, in a way, stands proved. It is not essential, it may be added, that the calculation as made on the basis of the statement corresponds exactly with the rates; the figure of Rs. 10 lakhs being itself only an approximate and tentative figure, but only 'fit', which they indeed do. Rather, the assessee's contention, submitted by way of an alternate plea, that only 15 per cent of Rs. 10 lakhs be brought to tax, i.e., as directed in the case of M/s. Adinath Construction for A.Y. 1994-95 and 1995-96 by the ITAT in cross appeals (i.e., ITA No. 1975 and 1976/Ahd/1999 and ITA Nos. 2167 and 2168/Ahd/1999 dated 21-10-2005), and addition in which stood also made on the basis of the same statement, contradicts the assessee' stand, besides proving, by implication, the Revenue's stand of the impugned statement not having been obtained under duress, and which is also not the assessee's case. In view of the foregoing, the holding of the statement as not amounting to an 'admission' becomes unsustainable.
3.2 Even otherwise, it is for the assessee to establish its case, i.e., of the admission being based on an incorrect understanding or assumption of facts, and which it has not done. The law in the matter is crystal clear; the onus to establish the admission as not true, or based on incorrect or wrong facts, is squarely on the assessee, and is heavy, as the admission itself constitutes an evidence against the assessee; so that it could only be discharged on the basis of some corroborative, cogent and contemporaneous material/record. No attempt to discharge the onus has been made in the present case.
3.3 At the same time, we also find that the ITAT, on the basis of the diary, (which pertains to the Shatrunjaya & Dawar Bazar Schemes of M/s Adinath Construction, i.e., the two of the five Schemes for which booking rates stand specified in the Statement), and wherein not only the receipts but also the expenses/payments stood recorded, after a detailed analysis, including of the sales (booking) rales for different Schemes, and that reflected in the books, and the operational results that transpire/result under the alternative scenarios, came to a finding of fact (in ITA Nos. 1975 & 1076/Ahd/1999 dated 21-10-2005 for A.Y. 1994-95 and 1995-96 for M/s. Adinath Construction) that the entire von money' did not represent the recipient's income, but only to the extent of 15 per cent thereof; the balance 85 per cent being expended on the same (project itself), even as, in that case too, the disclosure per statement Under Section 132(4) stood similarly retracted in full, with no part thereof being returned per its return of income. That being the case, it demonstrates that the disclosure(s) as made by the assessee was on a mistaken view on this mixed question of fact and law, i.e., of the entire receipt as representing its income liable to tax irrespective of the amount of business expenditure incurred there from. As such, there is no reason for not adopting the same ratio in the assessee's case as well; the modus operandi of receiving and expending money by the management being uniform for the different concerns (or not having been shown to be not so); and particularly in view of the fact that the expenditure in the assessee's case stood invested, by its own admission, in the construction schemes only. It would not be correct to accept, therefore, one part of the diary (material), i.e., of acceptance of von money', and not the other, i.e., of investing the same under the Schemes. No doubt, the assessee states the entire amount as having been invested in Schemes (stock in trade), but the Tribunal having come to a finding of fact that assessee's expenditure thereon is only to the extent of 85 per cent thereof, and which finding has been accepted by both the parlies, the same is no longer res Integra.
3.4 The net profit for the two Schemes upon completion works out to 6.10% and 2.58%, for the Vrajbhoomi and Rajbhoomi, respectively. The net profit rate, as per the assessee, the Revenue, and by adopting the income of 15% as per the ITAT in the case of M/s. Adinath Construction, worked out with reference to the receipt for the current year, is as under:
__________________________________________________________________________________ Receipt Profit/Assessee Revenue ITAT __________________________________________________________________________________ Vrajbhoomi 1921500 117212 __________________________________________________________________________________ Rajbhoomi 1835001 47343 __________________________________________________________________________________ Profit 164555 1164555 314555 __________________________________________________________________________________ Sales 3756501 3756501 4756501 4756501 __________________________________________________________________________________ % Profit 4.38 124.48 6.61 __________________________________________________________________________________ 3.5 The contention of the absence of corresponding assets as made by the assessee, and accepted by the learned CIT(A), also get dislodged and becomes unsustainable in view of the assessee's own admission of investment of 'on money' in the Schemes. In other words, the statement not only, thereby, proves the acceptance of 'on money' i.e., qua a third party, but also of the manner of its disposal, and it is on this basis that it has been able to secure relief in the case of M/s. Adinath Construction; the investment only forming a part of its stock-in-trade.
4. As, in view of the foregoing, I am not inclined to agree with the proposed order of my learned Brother, I feel incumbent to detail my reasons as well as the basis of my decision, as under.
4.1 In arriving at his decision, my learned Brother relies on the following in confirming the impugned order deleting the addition in totality:
(a) That the facts in the case of M/s. Adinath Construction, where similar disclosure was also made, and which stood confirmed to the extent of 15% (of the gross on-money), were different inasmuch as the seized diary pertained to that firm, and not the assessee-firm;
(b) That no other incriminating material was found with reference to the disclosure, including any corresponding assets; and
(c) That the Department has not been able to substantiate its stand with any cogent material.
In doing so, it is stated that the order of the ITAT in the case of Jorawar Singh M. Rathod (supra) and Hasthimal K. Bhansali (supra) is being followed, wherein the ITAT has endorsed the action of the first appellate authority following the ratio of the decisions of the Hon'ble Supreme Court in the case of Dhakesmri Culkm Mills Ltd. v. CIT (1954) 26 ITR 775 and Durga Prasad More 82 ITR 540.
4.2 In Durga Prasad More (supra), in fact, the Supreme Court has clarified that in view of the fact that Science has not been able to yet come up with any instrument that could detemine the reliability of the evidence placed before the Courts and Tribunals, they would judge the same on the basis of the test of human probabilities. The conduct of the assessee, in the facts and circumstances of the case is a crucial pointer in this regard. The disclosure was made by the managing partner of the assessee-firm, not only for it, but for all the group concerns, being engaged in the same activity of construction business, i.e., even for those for which he was neither a partner or director. He is one of the main persons, with other family members as partners/directors in other group firms, and both the statements, specially the second, which affirms the first, carrying their conscious and willing consent. In the statements, he explains the modus operandi of the charge of on-money; the rates being charged in respect of different Schemes; their construction status; the avenues and destination of the on-money received, etc. On seizure of a diary, wherein such receipts stood recorded, as also its application in the firm(s) day-to-day (business) expenditure, the disclosure was made, separately for each firm, also delineating the period of its earning and the manner of its investment. For the assessee-firm, it was stated to be in the construction Scheme itself, i.e., Vrajbhoomi, which was nearing completion. The disclosure was subsequently, i.e., after about two months, enhanced by a sum of Rs. 21 lakhs, even as the share of the assessee-firm, at Rs. 10 lakhs, remained unchanged. These are the undisputed incidents of the disclosure statements, and on the basis of which the retraction has to be tested, the evidentiary value of which stands statutorily enshrined, i.e., under the Act, and even otherwise subject to the provisions of Sections 14 and 115 of the Indian Evidence Act, 1872. To my mind, the same reveal, not only absence of any duress, as afore stated, but a clear application of mind and consideration of the facts in the two depositions. The Department having acted on the statement(s), admittedly given without any influence, and foreclosed its investigations, would, by the action of retraction, placed in a precarious and unenviable situation and cannot now be called upon to adduce material to support the assessee's statements, without the assessee itself being called upon first to discharge the onus on it of its statement as being untrue or based on incorrect/wrong facts. It is also pertinent to note that the recording in books of a part of the on-money in the case of M/s. Adinath Construction, i.e., to the extent of Rs. 14.22 lakhs (as against the disclosed amount of Rs. 34.38 lakhs), is only subsequent to the statement - it would not qualify to be termed as 'on-money' otherwise - and rather, in the facts and circumstances of the case, supports the Revenue's stand than that of the assessee's. As it, thereby, confirms the factum and practice of receiving of on-money, i.e., as stated, as well of its non-recording (sic) its regular books of account (refer answer to Q. (sic) 14/4.5.94). The subsequent booking of on-money only for the entity in respect of which the material (one diary) was seized, and only to the extent it was recorded therein, thus, under the circumstances, in fact, betrays the thinking and the machination employed by the assessee, using it as a ploy to make travesty of the entire judicial process of the search and seizure proceedings; the deposition under oath; and the law in the matter including the plethora of legal pronouncements. As held by the apex court in the case of Durga Prasad More (supra), the taxing authorities are not supposed to put blinkers on their eyes while interpreting material or evidence they come across. In arriving at this inference in law, I draw support from, among others, the following case law-
- CST v. H.M. Esufali
- Sumati Dayal v. CIT
- Council of ICAI v. Mukesh R. Shah (2004) 186 CTR 579 (Guj)
- Dr. S.C. Gupta v. CIT (2001) 248 ITR 782 (All)
- ITO v. Bipin FarasKhana (2000) 73 ITD 334 (Ahd)
- Hiralal Maganlal & Co. v. DCIT (2005) 96 ITD 113 (Mum.) 4.3 As regards the contention of non-discovery of any corresponding assets, I find the same is only an outcome of the acceptance of the retraction as legally valid, so that the question of the same would not arise in the first place, if it is not considered as so. It is only on its acceptance as such, that the onus would shift to the Department, which, in order to establish its case, would be required to adduce evidence/material. The said proposition, as afore-stated becomes legally unsustainable in view of the express provision of Section 132(4) of the Act, besides Sections 114 and 115 of the Evidence Act. The alternate argument of the assessee, i.e., to treat only 15% of the gross on-money as its income; the balance 85% being expended on the construction activity (i.e., stock-in-trade) rather defeats the assessee's case in this regard. One could consider some merit in the argument, howsoever marginal, i.e., given the position of law in the matter placing the onus squarely on the assessee/deponent, where the investment of on-money (undisclosed income) is on other assets, but where it is on stock in trade itself, the gross rate of which actually matches that declared by the assessee itself, the same becomes incomprehensible. As requiring the Department to adduce evidence or charging it for non-production of corresponding assets, is to penalize it: for accepting the assessee's version in the first place. And if that were to be the case, the entire amount of disclosure would be liable to be added to the assessee's income.
4.4 Lastly, I do not see any scope for the application of the ratio of the decision of the apex court in the case of Dhakeswari Cotton Mills Ltd. (supra), being in a vastly different setting; the present case revolving around the pure question of law, i.e., of the validity or otherwise of the retraction by the assessee in the facts and circumstances of the case.
5. In view of the foregoing, in my opinion, the entire sum of Rs. 10 lakh cannot be taken as the assessee's income, and the same shall have to be restricted to 15 per cent thereof, i.e., at Rs. 1,50,000.
Q. No. 7 Whether you wish to disclose any undisclosed income in view of Explanation 5 to Section 271(1)(c) r.w. Section 132(4)?
Ans.: I wish to take advantage under this Section and I disclose the following unaccounted income after consulting partners of the firm for A.Yrs. 1994-95 and 1995-96:
A.Y. Undisclosed income
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1994-95 Rs.70,00,000/-
1995-96 Rs. 6,00,000/-
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Rs.76,00,000/-
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The above undisclosed income has been earned by our different firms as under:
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Name of the firm A.Y. Undisclosed income
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1) Suhani Bldrs 94-95 Rs. 12,50,000/-
2) Pramukh Bldrs. 94-95 Rs. 10,00,000/-
3) Adinath Constn. 94-95 Rs. 47,50,000/-
95-96 Rs. 6,00,000/-
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> Total Rs. 76,00,600/-
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The above income as shown in different firms earned as 'on-money' from different schemes are invested in different assets as under:
i) Unaccounted income of M/s. Suhani Bldrs. has been distributed amongst Partners. I have invested my share In gold ornaments and I do not know the Investments made by other partners Suhani Builders Rs. 12,50,000
ii) Pramukh Builders
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Investment in schemes Rs. 10,00,000
iii) Adinath Construction Rs. 53,50,000
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Total Rs.76,00,000
The receipts of 'on-money' are recorded mostly in the seized diary marked as Annex. A/3 to the Panchnama dated 05-05-1994.
5. The assessee has filed its return of income for Asst. Year 1994-95 declaring an income of Rs. 48,910/- on 14/03/1995 and in the returns so filed, the assessee did not include the income of Rs. 10 lacs surrendered at the time of search.
6. The Assessing Officer called upon the assessee to explain as to why the surrendered income of Rs. 10 lacs has not been disclosed and why the same could not be assessed as income on account of 'on-money'.
7. The Assessee's reply before the Assessing Officer was as under-
(a) the income returned under the Income-tax Act is not required to be determined on the basis of statement recorded under Section 132(4).
(b) No evidence of charging of 'on-money' was found during the course of search, hence only on the basis of statement of the assessee 'on-money' earned cannot be taxed.
I.S. Verma, Judicial Member
1. In this appeal, the Revenue has objected to the Order of the CIT(Appeals)-VII, Ahmedabad dated 04/08/1999 passed for Assessment Year 1994-95 wherein the ld. CIT(Appeals) has deleted the addition of Rs. 10 lacs made by the Assessing Officer, after relying on the statement of Mr. Kamal V. Shah, partner of the assessee recorded Under Section 132(4) of the Act at the time of search conducted on 04/05/1994.
2. The Revenue has listed as many as 7 grounds in its appeal, but the issue involved is only one which relates to addition of Rs. 10 lacs by the Assessing Officer and consequential deletion of the same by the CIT (Appeals) by observing as under:
3.2. I have considered the facts of the case, contention of the Assessing Officer in the assessment order, the arguments of the appellant taken in the assessment proceedings and appellate proceedings as well as various Courts decisions relied upon by the appellant I am of the view that the statement of Shn Kamal V. Shah was taken on record based on mere suspicion and accordingly on the basis of the facts, the appellant firm has retracted the same Hence, the same cannot be treated as an admission of the appellant and cannot be treated as material for framing the assessment. The Assessing Officer has also not brought on record any cogent material and/or evidence in respect of on money receipts and also as evident from the assessment order, no incriminating records and materials have been identified from the seized records for making the additions on the basis of the statements of Shn Kamal V. Shah. Hence no addition can be made on the basis of his statement Therefore, the addition of Rs. 10,00,000/- made on the basis of the statement recorded Under Section 132(4) of the Act is hereby deleted.
3. We have heard the parties.
4. The brief facts relating to the issue and as have been revealed from the records are that-
(i) Search under Section 132(1) of the Income-tax Act was carried out in the premises of the assessee on 04-05-1994 resulting into seizure of incriminating documents.
(ii) Statements of Shri Kamal V. Shah was recorded by the Authorised Officer on 04-05-1994 and 29-06-1994 of the IT. Act. In replies to questions Nos. 37 and 38 of the statement dated 04-05-1994, he stated as under:
Q. No. 37 : Please explain the contents of diary marked as Annex. A/9 to the Panchnama prepared during the course of search.
Ans. 37 : In this diary there are two types of figures. The amounts written in this diary indicating - (minus) represent the expenditure. Whereas the amounts written beyond/(oblique) are to be read ignoring the oblique. These are the amounts given to some persons which is out of my undisclosed income For example, 200/- pertains expenses paid to Ranchhod 250/00 Kiritbhai means Rs. 25,000/- given to Kritibhai on 27-01-1996 which is not accounted for in our books of accounts.
Q. No. 38 : Please submit your explanation on concealed income as stated in reply to Q. No. 37 above?
Ans. 38 : I have already explained in replies to question No. 14 and 16 about the undisclosed income of Rs. 34,38,000/- earned by our firm. M/s. Adinath Construction. We have earned the above unaccounted money as 'on-money' in our schemes Shatrunjay Apartment and Dawa Bazaar. We have taken 'on-money' in our other firm. M/s. Parmukh Builders amounting to Rs. 10 lacs in our schemes Vrajbhoomi and Rajbhoomi. We have collected Rs. 10 lacs as 'on-money' in the hands of M/s. Suhani Builders in our schemes Devbhoomi and Dhasrambhoomi. Out of the above 'on-money' we have invested some money in giving cash loans on which we have earned Rs. 62,000/- as interest which is also being disclosed as income.
(iii) In reply to question No. 39, Shri Kamal V. Shah admitted under:
I wish to disclose my unaccounted income as under:
M/s. Adinath Construction Rs. 34,38,000 M/s. Pramukh Builders Rs. 10.00,000 M/s. Suhani Builders Rs. 10,00,000 Int. on loan (concealed) Rs. 62,000
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Rs. 55,00,000 ============= The above Rs. 55 lacs are our undisclosed income which we have invested in following assets:
Investment in ornaments Rs. 2 to 2.5 lacs Cash .... Rs. 1,30,000 Investment in our scheme for which booking has not been completed although the construction work is likely to be completed .... Rs. 30,00,000 Cash receivable Rs. 19,00,000 Household expenses Rs. 1,50,000
Year-wise details of undisclosed shall be submitted later on after verifying the books of accounts and seized materials and also I will enhance the disclosure if it is found in the loose papers and documents on verification. The disclosure enhanced later on shall be included under Section 132(4) r.w Explanation-5 to Section 271(1)(c) for the purpose of immunity from penalty and prosecution.
Another statement of Shri Kamal V.Shah was recorded after a gap of almost 3 months on 29-06-1994. In reply to question No.7 of the statement dt. 29-06-1994. Shri Kamal V.Shah enhanced disclosure to Rs. 76,00,000/- which includes disclosure of Rs. 53,50,000/- in M/s.Adinath Construction. The relevant statement is reproduced as under:
(c) Search party required to exercise statutory powers in conduct of the search proceedings whether one calls it the exercise of the power that he should act reasonably, fairly and bona fide and in consonance with the principle of natural justice.
(d) As the search party could not gather sufficient evidence the additional income offered under Section 132(4) is not considered in the return of income filed.
8. The Assessing Officer, however, did not accept the assessee's explanation and made an addition of Rs. 10 lacs after relying on the statement of Mr. Kamal V. Shah (assessee's partner) recorded at the time of search by observing as under:
3.2 The contention of the assessee is not acceptable and is incorrect because of the following reasons:
(i) As referred in paragraph 2 above, Shri Kamal V. Shah stated on oath under Section 132(4) that he was charging 'on-money' in the construction project run by Shri Kamal V. Shah and his family members. Shri Kamal V. Shah confessed additional income of Rs. 10 lacs in his statement dated 4-5-1994 in reply to question No. 38.
(ii) The statement of Shri Kamal V. Shah was again recorded on 29-06-1994 after a gap a almost two months. But even after this gap, he again confirmed the statement made under Section 132(4) and in reply to question No.3 he again confirmed the disclosure of additional amount on account of 'on-money' earned by him.
(iii) The statement of Shri Kamal V. Shah dt. 29-06-1994 was endorsed and signed by all the partners and the statement was given after consultation amongst all the partners. The Panchnama prepared during the course of search clearly indicate that statement recorded under Section 132(4) was recorded in the presence of pasnchas and also without any coercion, threat and undue influence. Even the assessee has not objected to the bona fides of the statement recorded by the Authorised Officer. The bona fide of the statement recorded under Section 132(4) has not been challenged by the Authorised Representative during the course of search and after search. Mere excuse and argument placed by the representative is that the Department could not get any documents in writing regarding collection of cash money over and above the cheque receipts.
(iv) The statement of Shri Kamal V. Shah was not the only one statement recorded during the course of search, but statements of other persons viz. Shri Hat shad F. Patel and Shri Kantilal N. Patel and nowhere the bona fides of recording the statement by the Authorised Officer was challenged. Even in other case of the group such as Shri Harshad F. Patel and his partnership concerns, the returns have been filed in view of the statement and there is nothing on record to disbelieve the bona fides of the statement and the comments in the notes enclosed alongwith the statement of income appears to be a casual and general as the same notes were enclosed by the Auditors. M/s. Dhiren Shah & Co., C.As. In the case of Shri Harshad F. Patel and also in the cases of M/s. Patel Cement Products and M/s. Gujarat Construction wherein the additional income was shown in accordance with the statement.
3.3. In view of the above discussion, the submission of the assessee is totally incorrect, misleading and after thought Therefore the same do not deserve for any consideration and the assessment order is being completed considering the facts and figures arising out of the search action.
9. The assessee went in appeal before the CIT(Appeals) and pleaded that the Revenue having not found any evidence at the time of search, either in the form of documents or in the form of assets with respect to alleged undisclosed income of Rs. 10 lacs, the addition made on the basis of statement recorded Under Section 132(4) of the Act alone was not justified. The ld. CIT(Appeals) deleted the addition as per his observations contained in paragraph No. 3.2 and we have reproduced the same as under:
3.2. I have considered the facts of the case, contention of the Assessing Officer in the assessment order, the arguments of the appellant taken in the assessment proceedings and appellant proceedings as well as various Courts' decisions relied upon by the appellant. I am of the view that the statement of Shri Kamal V. Shah was taken on record based on mere suspicion and accordingly on the basis of the facts, the appellant firm has retracted the same. Hence, the same cannot be treated as an admission of the appellant and cannot be treated as material for framing the assessment. The Assessing Officer has also not brought on record any cogent material and/or evidence in respect of on money receipts and also as evident from the assessment order, no incriminating records and materials have been identified from the seized records for making the additions on the basis of the statements of Shn Kamal V Shah Hence no addition can be made on the basis of his statement Therefore, the addition of rs. 10,00,000/- made on the basis of the statement recorded Under Section 132(4) of the Act is hereby deleted.
10. It was, in view of above facts and circumstances of the case, the ld. DR supported the order of the Assessing Officer by pointing out that the assessee's partner, Mr. Kamal V. Shah had not only admitted an income of Rs. 10 lacs in the statement recorded Under Section 132(4) of the Act on 04/05/1994, but had again, admitted the income of Rs. 10 lacs to have been earned by the assessee-firm in his statement recorded on 29/06/1994 - as per answers to question Nos. 37, 38 & 39 with the statement which have been duly taken care of by the Assessing Officer. He, therefore, submitted that the CIT (Appeals) was not justified in deleting the addition.
11. The ld. Counsel for the assessee, first of all, supported the order of the CIT(Appeals) by re-submitting the Revenue having not found any material during the search nor thereafter to show that the Assessee had earned any income of Rs. 10 lacs (outside the books of account) and also having not found any unexplained asset during the course of search, the addition made only on the basis of statements recorded Under Section 139(4) at the time of search or thereafter could not be sustained in law and, therefore, the CIT (Appeals) was quite justified in deleting the addition. The Assessee's Counsel, further, submitted that as is evident from the statement recorded in the assessment order, the assessee's partner, Mr. Kamal V. Shah has stated to have disclosed an income of Rs. 53,50,000/- in the hands of Adinath Construction and income of Rs. 12,50,000/- in the hands of M/s. Suhani Builders in addition to income of Rs. 10 lacs in assessee's hands, but in the case of M/s. Adinath Construction, the firm had not added any disclosed income in the return of income on the ground that interpretation of contents of documents found relating to that firm, did not reveal any unaccounted income According to counsel for the assessee, the Assessing Officer, after going through the documents relating to M/s. Adinath Construction (group company) and searched simultaneously alongwith the assessee had computed 'on money' from the scheme known as Shatrunjay Apartment and Deva Bazaar at Rs. 27,46,664/- and Rs. 44 lacs respectively. But on appeal, by the assessee, the CIT(Appeals) had sustained only an income equal to 15% of total 'on-money' appearing in the documents and not as computed by the Assessing Officer. The ld. Counsel, further, submitted that the order of the CIT (Appeals) in the case of M/s. Adinath Construction, Ahmedabad for Asst. Years 1994-95 & 1995-96 were upheld by the ITAT Ahmedabad Bench "C" in Assessee's and Revenue's cross appeals in ITANos.1975& 1976/Ahd/1999 and in ITA Nos. 2167 & 2168/Ahd/1999 respectively as per its order dated 21/10/2005. In other words, according ld. Counsel for the assessee, the addition on account of 'on-money', if at all any is to be sustained, it cannot be more than 15% of total 'on-money' of Rs. 10 lacs; meaning thereby that if order of the CIT (Appeals) is reversed, then the addition can be upheld only to the extent of Rs. 1,50,000/-, i.e. 15% of Rs. 10 lacs.
12. After careful consideration of the rival submissions, facts and circumstances of the case and decision of the Tribunal in the case of M/s. Adinath Construction (group company) and provisions relating to the admissibility of admission made in the statement Under Section 132(4) of the Act as well as retraction of the same thereafter, we are of the opinion that though the assessee has option to retract the statement recorded Under Section 132(4) or Under Section 131(1) of the Act, but the retraction is acceptable only if it is substantiated by the plausible evidence or material that the (sic) made in statement Under Section 132(4) or 131(1) of the Act cannot be sustained either in law or in facts.
13. So far as present case is concerned, there is no dispute that the assessee's partner, Mr. Kamal V. Shah had admitted an income of Rs. 10 lacs claimed to have been earned by the assessee-firm outside the books of account, both in statements recorded Under Section 132(4) as well as 131(1) of the IT Act, 1961, but the Revenue having not found either any material or any asset, which could be correlated to the alleged undisclosed income, the assessee was quite justified in retracting his disclosure statements.
14. Coming to the findings of the CIT (Appeals) contained in paragraph No. 3.2 of his order, which has been duly reproduced by us in paragraph No. 8 (supra), we are of the opinion that the CIT (Appeals) deleted the addition after making a specific finding to the effect that "I am of the view that the statement of Shri Kamal V. Shah was taken on record based on mere suspicion and accordingly on the basis of facts, the appellant firm has retracted the same."
14.1. The ld. CIT(A) has, therefore, treated the assessee's statement as not an admission by specific observation which reads as "hence, the same cannot be treated as an admission of the appellant and cannot be treated as material for framing the assessment."
14.2. The ld. CIT(A) has, further, supported his findings by another specific finding of fact to the effect that "the Assessing Officer has also not brought on record any cogent material and/or evidence in respect of 'on-money' receipts and also as evident from the assessment order, no incriminating records and materials have been identified from the seized records for making the additions on the basis of statements of Shri Kamal V. Shah."
14.3. Since the aforesaid findings of the CIT (Appeals), specially the finding that the Assessing Officer has also not brought on record any cogent material and or evidence in respect of 'on-money' receipts and also as evident from assessment order, no incriminating records and materials have been identified from the seized records for making the additions...." are on appreciation of facts and Revenue has not disputed the correctness of this finding during the course of hearing of the appeal before us, we are inclined to agree with the findings of the CIT (Appeals) that "so far as present assessee is concerned, the Revenue had not found any material during the course of search which could support either assessee's disclosure or revenue's presumption/assumption for making the addition and, therefore, order of the CIT (Appeals) requires no interference; meaning thereby that addition on the basis of statement Under Section 132(4)/131 of the Act, etc. which later on retracted by the assessee and in absence of any material found during search, in support of justification of addition, cannot be upheld.
15. The aforesaid decision of ours is further supported by the decision of ITAT Ahmedabad Bench 'B' in the case of ACIT v. Jorawar Singh M. Rathod 94 TTJ 867 [Ahd] and in case of ACIT v. Hashimal K. Bhausal for A.Y. 1994-95-ITA/A-1998 dt. 22-8-2005, wherein the Tribunal deleted the addition having been made in view of similar facts and circumstances as are of the case before us. The relevant part of the order of the Tribunal reads as under:
6. We have heard the ld. representatives of the parties and perused the record. After considering the facts of the case, we find that the A.O. had made the addition merely on the basis of statement recorded Under Section 132(4) at the time of search. We find that at the time of search no evidence or material or assets, immovable or movable properties were found which supports the disclosure of Rs. 16 lakhs. The assessee had retracted the said disclosure which has not been accepted by the department. It is true that simple denial cannot be considered as a denial in the eyes of law but on the same time it is also to be seen the material and valuable and other assets found at the time of search. The evidence ought to have been collected by the revenue during the search in support of the disclosure statement. The decision cited by ld. DR is distinguishable on facts. In the said case the disclosure was of Rs. 7 lakhs which was supported by investment in house property, unaccounted cash, unaccounted investment in furniture and unaccounted in gold ornaments etc. whereas in the case under consideration no such assets or valuables were supported to the disclosure. It is settled position of the law that authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee, under a mistake, mis-conception or on not being properly instructed, is over assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected S.R. Koshti v. CIT 193 CTR 518 (Guj). The ITO is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment or addition. Dhakeswari Cotton Mills Ltd. v. CIT 26 ITR 775 (SC). It is true that an apparent statement must be considered real until it was shown that there were reasons to believe that the apparent was not the real. Science has not yet invented any instrument to test the reliability of the evidence placed before a Court or Tribunal. Therefore, the Courts and Tribunals have to judge the evidence before them by applying the test of human probabilities CIT v. Durga Prasad More 82 ITR 540 (Supreme Court). In the light of above discussion and we apply the ratio of Apex Court in the case of Durgaprasad i.e. test of human probabilities, we do not find any material on record on which basis it can be said that the disclosure of the assessee for Rs. 16 lakhs is in accordance with law and in spirit of Section 132(4). Under the circumstances, we find that the CIT (A) has correctly deleted the addition.
15.2 In case of Hashimal K. Bhamsali both of in ware parties and had conform the order of the CIT (A) deleing (sic) and under similar for (sic) 15.3 Respectfully following the aforesaid decision of Co-ordinate Bench, we uphold the order of the CIT (Appeals).
16. So far as decision in the case of Adinath Construction is concerned, we are of the opinion that the facts of the case were quite different from the facts of the present case so much so that in the case of Adinath Construction, the Revenue had found a diary marked as Annexure A-3 during the course of search proceedings in which there were details relating to receipt of 'on-money'. Not only this, in that case, the assessee itself had accepted a receipt of Rs. 14,22,000/-, out of receipts recorded in the document, as having been received and had duly accounted for the same in the supplementary balance-sheet. In other words, the Revenue as well as the Assessee had proceeded on the basis of seized documentary evidence - marked as Annexure A-3. It was, therefore, in view of this evident found during the search that the Tribunal confirmed the order of the CIT (Appeals) sustaining an addition equal to 15% of receipts admitted by the assessee.
17. So far as present case is concerned, neither the Assessing Officer has referred to any such material/evidence/document found during the search, for making addition on account of 'on-money' nor the ld. DR referred to any such material during the course of hearing the present appeal before us. The Revenue's case throughout the proceedings, i.e. from assessment stage to hearing of the appeal before us has been only the reliance on the statements of Mr. Kamal V. Shah, wherein an income of Rs. 10 lacs was disclosed.
In view of above facts, we are unable to agree with the ld. DR that in any case, an addition to the extent of 15% of Rs. 10 lacs be sustained. In the result, the order of the CIT (Appeals) is confirmed.
In the result, the appeal of the Revenue is dismissed.
Order Prounced on / /2006