2014 (4) TMI 1262 - AT - Income Tax

Undisclosed income - assessee has earned on-money on sale of units in its project Pride Purple, which was not disclosed in the regular account books - HELD THAT - On-money receipt reflected in the seized material on sale of unit to Mrs. Fatima Moiz Fakruddin others, has been offered for taxation by the assessee. Therefore, nothing much can turn by adjudicating as to whether or not the notings on the seized paper no.56 of Bundle No.2 reflect receipt of on-money from Mrs. Fatima Moiz Fakruddin. So however, the dispute starts from the fact that the Assessing Officer has presumed on the basis of the said seized material that assessee must have earned on-money on sale of all the units sold in the project. Factually speaking, there is no dispute that other than page no.56 of Bundle No.2 and to some extent loose paper no.20, there is no other material seized or found in the course of search or otherwise, which would show that assessee has received on-money on sale of units in the impugned project. The Assessing Officer adopted the rate of ₹ 4,000/- per sq.ft., as reflected in seized paper no.56, and applied it to sales of all the units and computed the impugned addition. We do not find that the assessee has admitted to a modus operandi of receiving sale consideration outside the books of account. It is also emerging from record that the Revenue has also not led any credible and cogent material or evidence to demonstrate that any modus operandi of receiving sale consideration outside the account books was being carried out by the assessee regularly, except in relation to one instance of sale to Mrs. Fatima Moiz Fakruddin. Therefore, under these circumstances it would not be justified for the Revenue to extrapolate receipt of on-money for the sale of other units in the project and accordingly there is no justification for the addition made on this count. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of Rs. 7,13,46,450/- made by the Assessing Officer as 'undisclosed income' based on alleged on-money received on the sale of units in the project Pride Purple Accord.
2. Justification of the Assessing Officer's estimation of on-money for all units based on a single instance of alleged on-money receipt.
3. Interpretation and validity of the seized documents and their implications on the assessment.
4. Applicability of legal precedents, specifically the judgments of the Hon'ble Supreme Court and Hon'ble Andhra Pradesh High Court, to justify the addition.

Detailed Analysis:

1. Addition of Rs. 7,13,46,450/- as 'Undisclosed Income':
The primary issue revolves around the addition of Rs. 7,13,46,450/- made by the Assessing Officer, who estimated the total undisclosed income at Rs. 10,53,46,450/- against the disclosed Rs. 3.40 crores by the assessee. This addition was based on the alleged receipt of on-money from the sale of units in the project Pride Purple Accord, which was not declared in the regular account books. The total income for the assessment year 2008-09 was thus determined at Rs. 10,01,08,430/- as against Rs. 2,87,61,981/- returned by the assessee firm.

2. Justification of Estimation of On-Money for All Units:
The Assessing Officer's estimation was based on a seized document (page 56 of Bundle No.2) indicating on-money receipt from a customer, Mrs. Fatima Moiz Fakruddin & others. The officer inferred that the average selling price should be Rs. 4,000/- per sq.ft. instead of the recorded Rs. 2,300/- per sq.ft. This inference was drawn from a single instance and extrapolated to all units sold in the project. The CIT(A) upheld this estimation, relying on the judgment of the Hon'ble Supreme Court in the case of Commissioner of Sales Tax vs. H.M. Esufali H. M. Abdulali, which allowed for extrapolation based on evidence of suppressed sales for a limited period.

3. Interpretation and Validity of Seized Documents:
The seized document (page 56 of Bundle No.2) was interpreted by the Assessing Officer and CIT(A) as evidence of on-money receipt. However, the assessee contended that the document was misinterpreted and explained that the rate of Rs. 4,000/- per sq.ft. was for a fully furnished unit, which was not ultimately sold. The actual sale was for an unfurnished unit at Rs. 2,300/- per sq.ft., as per the agreement. The assessee also pointed to seized documents (pages 64-65 of Bundle No.2) that supported their claim and argued that these documents were not considered by the Assessing Officer.

4. Applicability of Legal Precedents:
The judgment of the Hon'ble Supreme Court in H.M. Esufali H. M. Abdulali was cited to justify the extrapolation of on-money receipts to all units. However, the Tribunal noted that the Supreme Court's decision was based on proven and admitted suppression of sales over a period, which was not the case here. Similarly, the Hon'ble Andhra Pradesh High Court's judgment in Rajnik and Co. was distinguished as it involved admitted suppression of income by the assessee, which was not applicable in the present case.

Conclusion:
The Tribunal found that the Revenue's extrapolation of on-money receipts to all units sold was not justified. The seized document indicated on-money receipt for only one unit, and there was no evidence of a consistent modus operandi for receiving on-money across all sales. The Tribunal concluded that the addition of Rs. 7,13,46,450/- was not warranted and directed the deletion of this amount from the assessee's total income. The appeal of the assessee was allowed, and the order of the CIT(A) was set aside. The Tribunal emphasized that the factual position in this case did not justify the application of the legal precedents cited by the Revenue.