2017 (10) TMI 1339 - HC - Income Tax

Addition to the profit on sale of the Pent House - block assessment under Section 158BB - Held that - Although in the initial part, it is stated that during the course of search, certain loose papers numbered as 1 to 27 inventorised as ORF 67 were found and that, page 16 of the set of loose papers is page No.2 of an agreement entered into by Shri Jamaluddin for purchase of 1711 sq. ft. of City Centre space @ ₹ 5,000/- per Sq. Ft. in the latter part of the same paragraph, it is stated that the incriminating documents found during the course of survey and the statement of Shri V. Muneer constituted any other material in possession of the AO. In order to reconcile the apparent contradictions in what is stated in the assessment order, the learned Senior Counsel for the Revenue wanted us to read the words survey as search . This plea is raised for the first time and, therefore, cannot be accepted. Even if it is assumed that it was during the search that ORF 67 was recovered and that the page 2 of an agreement is part thereof, according to us, that case of the Revenue raised for the first time is not substantiated in any manner. Annexure-B is the Panchanama prepared at the time of search on 29.01.2003. ORF 67 is concerned, in the Panchanama, it is stated that ORF 67 consists of loose sheets containing statement of accounts, Serial Nos.1 to 23 . Therefore, the Mahazar prepared at the time of search does not record that ORF 67 included page 2 of an agreement as stated in the Assessment Order or as contended before this Court. Now we shall refer to Annexure-A, which is the letter dated 03.12.2004 sent by the Assessing Officer to the assessee. In this letter, it is stated that among the undisclosed income allegedly earned by the assessee, one of the items is the undisclosed sale price of City Centre space in the case of Shri Jamaluddin and Shri V. Muneer and that one of the items is undisclosed sale price of City Centre Space in the case of Shri Jamaluddin and Shri V. Muneer ₹ 51 lakhs during the financial year 2002-03 . Thereafter, it is again stated that the above are evidenced from seized documents ORF-6, 8, 10, 14, 15, 27, 28, 40, 159 and impounded documents from the premises of Shri Abdul Salam and Shri Jamaludeen. Therefore, if what the Assessing Officer stated in Annexure-A is read, the incriminating documents leading to the undisclosed income in question were recovered at the time of survey and the list of aforesaid seized documents does not include ORF 67 and if Annexure-B is read, the incriminating material was not revealed from ORF 67. Therefore, Annexures-A and B are contradictory to each other.

Summary

Issues Involved:
1. Remanding of profit on sale of pent house.
2. Remanding of alleged undisclosed profit on sale of land and building.
3. Addition of undisclosed sale proceeds of City Centre space.
4. Evidentiary value of a statement taken on oath under Section 131.
5. Applicability of the decision in Paul Mathew & Sons.
6. Addition based on a statement from survey proceedings prior to the search.

Detailed Analysis:

1. Remanding of Profit on Sale of Pent House
The first issue pertains to the deletion of ?21 lakhs related to the profit on the sale of a penthouse. The first appellate authority deleted this addition, citing a non-completion certificate and lack of seized material. The Tribunal remanded the issue to the Assessing Officer for fresh consideration, noting that the assessment order did not clarify whether the addition was for suppressed construction costs or sale receipts. The Tribunal also found that fresh evidence was considered by the first appellate authority without confronting the assessing authority. These reasons were deemed legally sound, and the Tribunal's decision to remit the issue was upheld.

2. Remanding of Alleged Undisclosed Profit on Sale of Land and Building
The second issue involves the addition of ?50,81,874/- as undisclosed profit on the sale of land and constructed area. The Tribunal remanded this issue, stating that the Assessing Officer failed to consider the terms of the agreement between the assessee and the landowners. The Tribunal directed the Assessing Officer to re-examine the issue in light of the seized materials and the terms of the agreement. This reasoning was also found valid, and the Tribunal's decision was upheld.

3. Addition of Undisclosed Sale Proceeds of City Centre Space
The third issue concerns the addition of ?50 lakhs related to the unaccounted receipt on the sale of commercial space to M/s Malabar Tower and Superior Decor. The first appellate authority set aside this addition, but the Tribunal restored it. The assessee argued that materials recovered during a survey conducted before the search could not form the basis for an order under Section 158BB. The court agreed, stating that the computation of undisclosed income must be based on evidence found during the search or requisition of books of account. The court cited several judgments supporting this interpretation, including Commissioner of Income Tax v. G.K.Senniappan and CIT v. S. Ajit Kumar. The Tribunal's decision to sustain the addition was deemed legally untenable.

4. Evidentiary Value of a Statement Taken on Oath Under Section 131
The Tribunal held that the statement taken on oath under Section 131 from Sri Muneer during survey proceedings had evidentiary value. However, the court found that materials recovered during a survey could not be relied upon for computing undisclosed income for the block period under Section 158BB. This interpretation was consistent with prior judgments, and the Tribunal's reliance on the statement was found to be incorrect.

5. Applicability of the Decision in Paul Mathew & Sons
The Tribunal held that the decision in Paul Mathew & Sons was not applicable to the facts of the case. However, the court did not provide a detailed analysis of this issue in the judgment. The focus remained on the evidentiary value of materials recovered during a survey and their applicability under Section 158BB.

6. Addition Based on a Statement from Survey Proceedings Prior to the Search
The Tribunal confirmed the addition of ?50 lakhs based on a statement from Mr. Muneer taken under Section 131 during survey proceedings prior to the search. The court found this approach legally flawed, as materials recovered during a survey could not be used for computing undisclosed income under Section 158BB. The court emphasized that the computation must be based on evidence found during the search or requisition of books of account.

Conclusion:
The appeal was disposed of with the court answering the questions of law in favor of the assessee. The Assessing Officer was directed to reconsider the matters as ordered by the Tribunal, ensuring compliance with the legal standards outlined in the judgment.