2022 (1) TMI 119 - AT - Income Tax

Addition made on the basis of loose paper impounded during survey u/s 133A - Addition on profit on sale - HELD THAT - The assessee in the books of accounts declared sales of ₹ 2,31,57,185/- and received advance from customers amounting to ₹ 2,78,85,753/- i.e. total ₹ 5,10,42,398/- against sale of land. Some of the transactions noted in papers did not materialize and thus finalize in subsequent year. Thus, transactions of purchase of land and sales of plots were recorded in books of accounts and these papers are rough papers containing notings, projections and estimates. These calculations are relating to 25% share in sale proceeds, cost of acquisition and other expenses and there was final liability of ₹ 7,48,200/-. We fail to understand that how working of 25% share could be treated as 25% profit. It is noticed that the AO has relied heavily upon the statement of Shri Ramesh Dangayach, Director of the assessee company without bringing on record any corroborative material. Therefore, in view of the above facts and circumstances, we do not find any reason to intervene or deviate from the findings so recorded by the ld. CIT(A) qua this issue and thus we uphold the same and consequently, this ground raised by the Revenue stands dismissed. Expenditure incurred on account of registration - HELD THAT - We are in agreement with the submission of the ld. A/R that when there was no purchase of land in the year under appeal, then no registration expenses etc. are received to be incurred on account of registration etc by the assessee in the year under appeal. Considering the above facts and circumstances of the case, the addition sustained by the ld. CIT (A) is unwarranted and the same is directed to the deleted. Addition made on the basis of impounded page no. 45 undated - HELD THAT - The paper neither bears the name of the company nor in the handwriting of any of the Directors/employees. When the sale proceeds have been recorded and accounted for in the books of account then no separate addition on this account can legally be made. It is evident and apparent from the assessment order as well as ld. CIT (A) s order that the impugned addition is made without verifying the fact that who is the buyer and who is the seller of the said plot of land. Thus the addition is completely based on suspicion and having no legal legs. It is a settled position of law that without any supporting legal documentary evidence, no addition can be made on the basis of deaf and dumb notings - considering the totality of facts and circumstances as well as all the relevant facts and notings on the seized paper, we are of the considered view that the impugned addition is made without any supporting documentary evidences and no legs to stand, therefore, we direct to delete the same. Additions on account of alleged transactions of Green City, Agra Road, on the basis of notings on impounded page undated - HELD THAT - It is a known fact that when any transaction of sale / purchase of land takes place then it is bound to exists certain documents i.e. agreement to sell, purchaser s name, registration of sale deed, payment receipt and other evidences which corroborates the execution of such transaction. It is by the ld. A/R that the seized papers do not bear the name of the assessee company and the transactions are not in the handwriting of any of the Directors or employees of the company and these papers are deaf and dumb documents do not bear the name(s) of sellers/purchasers, area of land, rate per sq. yard etc. and accordingly merely on the basis of some rough notings on the impounded papers, legally no addition can be made to the income of the assessee.Therefore, in our view, the impugned additions have been made on the basis of notings on the seized papers without bringing on record any supporting and corroborative evidences. The additions are made purely on the basis of guess work, estimation which are not sustainable in law. Accordingly we find no merit in sustaining the additions accordingly we direct to delete the same. Addition was made on the basis of estimated profit @ 25% - HELD THAT - We observed that the addition was made on the basis of rough notings without any supporting documentary evidences which is mandatory for real estate purchase and sale transactions. It is a settled position of law that no addition can be made on the basis of suspicion, surmises and conjectures. We noticed that the notings on the impounded papers are not supported by any other documentary evidences. The paper is undated and having only rough notings, therefore, we are of the considered view that as per law, no addition can be made on suspicion and without any legal supporting evidences and accordingly the addition confirmed by the ld. CIT (A) is deleted. Addition u/s 40(a)(ia) for alleged non-deduction of TDS from payments made to contractors for land development - HELD THAT - We observed from perusal of the record that the assessee company in case of land development expenses due TDS was deducted at the time of credit / payments made. The proof of payment of TDS is submitted. A.O. made the addition without proper verification from books of accounts of assessee company. It is an important fact that M/s Devi Infra Developers Pvt. Ltd. to whom development expenses paid has filed its return of income including the above said development charges paid by the assessee as its income. A copy of return of income of said company is already attached. Thus even in absence of submitting the declaration on prescribed Form u/s 201(1) of the Act no disallowance of the development charges paid to the said company deserves to be made. See GIRDHARI LAL BARGOTI, 2015 (11) TMI 746 - ITAT JAIPUR - we direct to delete the addition made qua this issue. Addition u/s 68 - HELD THAT - As observed from perusal of the record that these advances were received from persons who booked plots from company as prospective purchaser of plots. It is submitted that when assessee company gave possession or allotment letter of plot to purchaser the same was shown as sales in books of accounts of company and till then amount received from them has been shown as advance. It is submitted that the complete copy of ledger account is submitted with the A.O. and transactions are verifiable from possession letter or allotment letter and other relevant records of company. Considering the totality of facts and circumstances of the case, we set aside this issue back to the file of the A.O. for verification with regard to the fact that the sales are recorded in books of accounts and the same had been accepted in assessments of company and decide the issue afresh after providing effective and reasonable opportunity of hearing to the assessee in accordance with law. The assessee is at liberty to file any of the documents if it desired for deciding the issue. Addition being an enhancement made by the ld. CIT (A) in the impugned order - HELD THAT - There is absolutely no material placed by A.O./CIT(A) so as to held that rough jottings/notings which are only estimates, proposals and rough notings prepared by some persons for various proposals, estimates, rough workings in course of business. The revenue has not brought on record any contrary documentary evidence to rebut the claim of the assessee. We noticed that the ld. CIT (A) has taken the entire alleged amount of suppressed sale as income. It is a known fact that the gross sale consideration cannot be taken as income because to determine the profit/income, cost is to be deducted and only the profit on sales can be taken as income. As such, even otherwise the impugned enhancement made by the ld. CIT (A) is grossly wrong and bad in law. As observed from perusal of the impugned order that CIT (A) made the enhancement without giving any opportunity and also he has not brought on record any supporting corroborative evidence for the impugned addition made by him. It is settled position of law that no enhancement can be made without giving an opportunity to the concerned assessee. Further, as held by us in deciding the other grounds of appeal connected to the issue that no corroborative documentary evidence is brought on record by the revenue/ld. CIT (A) and accordingly without supporting evidence the enhancement made by the ld. CIT (A) cannot be sustained. Accordingly, we direct to delete the same.

Summary

Issues Involved:
1. Deletion of addition based on loose papers impounded during survey.
2. Justification of additions based on rough, dumb, and undated papers.
3. Estimation of profit rate and its validity.
4. Application of Section 40(a)(ia) for non-deduction of TDS.
5. Directions for initiating proceedings under Section 147.

Detailed Analysis:

Issue 1: Deletion of Addition Based on Loose Papers Impounded During Survey
The Revenue challenged the deletion of ?3,62,32,413/- based on loose papers found during a survey. The Tribunal observed that the statement recorded under Section 133A of the Income Tax Act, 1961, without any corroborative evidence, has no evidentiary value. The Tribunal upheld the CIT(A)'s finding that the addition was based on assumptions and not supported by any material evidence. The Tribunal cited the Supreme Court's decision in CIT vs. S. Khader Khan Son, which held that statements obtained under Section 133A do not have evidentiary value. Consequently, the Tribunal dismissed the Revenue's appeal.

Issue 2: Justification of Additions Based on Rough, Dumb, and Undated Papers
The Tribunal addressed multiple grounds where additions were made based on rough, dumb, and undated papers:

- Addition of ?1,48,52,496/- (Loose Papers No. 23-30): The Tribunal found that the calculations were rough estimates and not indicative of actual transactions. The addition was deleted as it was based on assumptions without corroborative evidence.
- Addition of ?2,16,45,000/- (Loose Paper No. 36): The Tribunal noted that the addition was made solely based on the statement of a director without any supporting material. The addition was deleted for lack of corroborative evidence.
- Additions of ?6,38,183/- and ?6,50,000/- (Loose Papers No. 46 and 47): The Tribunal observed that these additions were based on assumptions and lacked any material evidence. Both additions were deleted.
- Additions of ?24,50,000/- and ?1,94,733/- (Loose Papers No. 48, 49, and 54): The Tribunal found that the figures on these papers were rough and did not clearly indicate any transactions. The additions were deleted.
- Addition of ?2,19,03,529/- and ?16,35,800/- (Loose Papers No. 65-66): The Tribunal noted that these papers were rough estimates of development expenses and not indicative of actual payments. The additions were deleted.
- Addition of ?24,59,897/- and ?1,17,500/- (Loose Papers No. 67, 68, and 69): The Tribunal found that these papers contained rough notings without any clear indication of transactions. The additions were deleted.
- Addition of ?2,57,19,000/- (Loose Paper No. 71): The Tribunal observed that the notings were scribblings without any clear indication of transactions. The addition was deleted.

Issue 3: Estimation of Profit Rate and Its Validity
The Tribunal addressed the issue of estimating a profit rate of 25% on alleged sales:

- The Tribunal found that the AO applied a 25% profit rate based solely on a director's statement without any material evidence. The Tribunal upheld the CIT(A)'s finding that the addition was unjustified and deleted it.
- The Tribunal emphasized that profit estimation should be based on actual transactions and corroborative evidence, not on assumptions or rough estimates.

Issue 4: Application of Section 40(a)(ia) for Non-Deduction of TDS
The Tribunal addressed the disallowance of ?1,23,00,000/- under Section 40(a)(ia) for non-deduction of TDS:

- The Tribunal noted that the recipient of the payment, a private limited company, had filed its return of income, including the amount received. The Tribunal cited the decision in ACIT vs. Girdhari Lal Bargoti, where it was held that no disallowance should be made if the recipient has included the income in its return.
- The Tribunal directed the deletion of the disallowance, emphasizing that the payment's inclusion in the recipient's return negated the need for disallowance under Section 40(a)(ia).

Issue 5: Directions for Initiating Proceedings under Section 147
The Tribunal addressed the directions given by the CIT(A) to initiate proceedings under Section 147 for other assessment years:

- The Tribunal found that the CIT(A) had exceeded his jurisdiction by giving directions for another assessee while deciding the appeal of the current assessee.
- The Tribunal noted that the directions for initiating proceedings for A.Y. 2006-07 were against the provisions of Section 150(2) of the Act.
- The Tribunal dismissed the ground related to these directions as not pressed by the assessee.

Conclusion:
The Tribunal upheld the CIT(A)'s deletions of various additions made by the AO based on loose, rough, and undated papers, emphasizing the need for corroborative evidence. The Tribunal also directed the deletion of disallowances under Section 40(a)(ia) and addressed the jurisdictional issues related to directions for initiating proceedings under Section 147. The appeals of the Revenue were dismissed, and the appeal of the assessee was partly allowed.