2011 (10) TMI 732 - AT - Income Tax

Summary

Issues Involved:
1. Substantive and Protective Assessments
2. Search and Survey Actions
3. Seized Documents and Statements
4. Income Additions Based on Seized Documents
5. Assessment of Rental Income
6. Principle of Mutuality
7. Admissibility of Evidence and Cross-Examination

Detailed Analysis:

1. Substantive and Protective Assessments:
The appeals involved substantive assessment made against Neptune Infrastructure Pvt. Ltd. (Assessee Company) and protective assessment against Mahalaxmi Bhavan Co-operative Housing Society Ltd. (Society). The Tribunal decided to address the appeals of the Assessee Company first since substantive assessment was made in its case.

2. Search and Survey Actions:
A search action under section 132(1) of the IT Act was conducted on 01-11-2006 on the Assessee Company. Simultaneously, survey actions under section 133A of the IT Act were conducted in respect of few premises of Neptune Group of cases. During the search, certain documents were seized, and statements were recorded.

3. Seized Documents and Statements:
The seized documents included loose papers (Annexure - A-1) found from the office site of Ghantakarna Market. These papers contained detailed workings of the project, showing different blocks, floor under each block, shop numbers, total area, value per square foot, and total amounts. The AO concluded that the Assessee Company realized a total sum of Rs. 141,46,26,000 for the entire project and recorded only Rs. 50,89,29,741, thereby considering Rs. 90.57 Crores as suppressed income.

4. Income Additions Based on Seized Documents:
The AO apportioned the suppressed income of Rs. 90.57 Crores across the project years from 1997-98 to 2005-06. The AO also relied on statements from Shri Nikin Prabhudas Patel and Shri Bholabhai Patel, which suggested that the sale prices recorded in the books were understated. The AO made income additions based on these materials and statements.

5. Assessment of Rental Income:
The AO assessed rental income derived from letting out open plots under the head "income from other sources" instead of "rental income," thereby denying statutory deduction under section 24 of the IT Act. The learned CIT(A) upheld this decision, noting that the land was rented out while the building was not ready.

6. Principle of Mutuality:
The Assessee Society claimed that it was carrying out activities for its members only, as a mutual concern, and was working on a no-profit-no-loss basis. The learned CIT(A) dismissed this claim, stating that income earned from renting the property had no nexus with mutuality activities.

7. Admissibility of Evidence and Cross-Examination:
The Assessee Company argued that the statements of Shri Bholabhai Patel and Shri Nikin Prabhudas Patel were recorded without allowing cross-examination, thereby violating principles of natural justice. The Tribunal agreed, stating that evidence collected at the back of the assessee must be confronted to the assessee to provide an opportunity to rebut it.

Conclusion:
The Tribunal concluded that the Assessee Company had not earned any undisclosed income. The seized documents were deemed as future financial projections rather than evidence of actual receipts. The Tribunal set aside the orders of the authorities below and deleted the entire additions in all the assessment years. Consequently, no protective addition could be made in the case of the Society. The Tribunal also remanded the issue of rental income back to the AO for reconsideration, directing the AO to provide specific findings on the explanation of the Assessee Society.