2025 (2) TMI 400 - AT - Income Tax

Receipt of on-money for sale of shops - loose papers found during the course of search and statements recorded of sales manager relied upon - case the extrapolation on the basis of loose papers found during the course of search - HELD THAT - A perusal of the statement so recorded shows that after denial of Shri Anuj Goel regarding the receipt of any on-money from any of the customers no effort has been made by the Revenue to confront Shri Anuj Goel regarding the discrepancies found between two forms. We further find none of the persons to whom the shops/flats were sold have ever been examined by the search party during the course of search or post-search enquiry or by the Assessing Officer during the course of assessment proceedings. It is also an admitted fact that nothing is brought on record to show that any of the buyer to whom the flats have been sold are related to the assessee. We find the Hon ble Madras High Court in the case of CIT vs. S. Khader Khan Son 2007 (7) TMI 182 - MADRAS HIGH COURT has held that section 133A of the Act does not empower any ITO to examine any person on oath. Therefore the statement recorded u/s 133A of the Act has no evidentiary value and any admission made in such statement cannot be made the basis for addition. Hon ble Kerala High Court in the case of Paul Mathews Son vs. CIT 2003 (2) TMI 25 - KERALA HIGH COURT has held that the provisions of section 133A of the Act does not empower any ITO to examine any person on oath and the statement recorded u/s 133A of the Act has no evidentiary value. So far as the question of extrapolation for three assessment years is concerned as stated earlier neither the key person Shri Anuj Goel was confronted in his statement u/s 132(4) of the Act regarding the receipt of on-money nor any of the customers to whom the shops have been sold were either examined by the search party at the time of search or post-search enquiries nor any effort was made by the Assessing Officer to ascertain the sale of shops at higher price to the concerned buyers. It is also an admitted fact that no cash or valuables or any entry relating to any other expenditure out of such on-money was found during the course of search. Under these circumstances we are of the considered opinion that addition for all the 3 years by extrapolating is not justified. In the instant case the director/partner of the assessee firm has completely denied to have received any such on-money. Neither he was confronted subsequently nor any of the buyers/customers who are identifiable were examined/confronted either by the Investigation Wing during the course of search or post-search enquiries or by the AO at the time of assessment proceedings. So far as the decision of Hon ble Supreme Court in the case of Pooran Mal vs. Director of Inspection 1973 (12) TMI 2 - SUPREME COURT there is absolutely no dispute to the fact that evidences can be used but the same has to be corroborated. We are of the considered opinion that extrapolation cannot be made on account of receipt of on-money for sale of shops in respect of which no evidence was found during the course of search and no enquiry or investigation was conducted either by the search party during the course of search or post-search enquiries or by the AO during the course of assessment proceedings. Thus the grounds raised by the assessee are partly allowed for all the three years.

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this case were:

Whether the assessee firm was involved in accepting on-money in cash for the sale of flats/shops, as alleged by the Assessing Officer based on seized documents and statements recorded during the search.
Whether the addition made by the Assessing Officer based on the extrapolation of on-money for the sale of other shops was justified.
Whether the statements recorded under section 131 of the Income Tax Act and the documents seized during the search could be relied upon as evidence for making additions to the assessee's income.
Whether the addition should be restricted to the incriminating material found during the search or if it could be extrapolated to other transactions.
Whether only the profit element of the alleged on-money should be added to the income of the assessee instead of the entire amount.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Acceptance of On-Money

Relevant Legal Framework and Precedents: The case involved the interpretation of sections 132 and 153A of the Income Tax Act, which deal with search and seizure and assessments in cases of search or requisition, respectively. The presumption under section 132(4A) and 292C regarding the correctness of seized documents was also considered.
Court's Interpretation and Reasoning: The Tribunal noted that the statement of the sales manager, Shri Shirish Bhanudas Ranpise, recorded under section 131, indicated the acceptance of on-money. However, the partner of the assessee firm, Shri Annuj Goel, denied such acceptance in his statement recorded under section 132(4).
Key Evidence and Findings: The evidence included seized booking forms showing discrepancies in sale prices and the statement of the sales manager admitting to the acceptance of on-money.
Application of Law to Facts: The Tribunal found that while there was evidence of on-money for specific transactions, the general denial by the partner and lack of corroborative evidence from buyers weakened the case for widespread acceptance of on-money.
Treatment of Competing Arguments: The assessee argued that the booking forms were merely drafts and not evidence of on-money. The Tribunal partially accepted this argument, noting the lack of corroborative evidence.
Conclusions: The Tribunal concluded that while there was some evidence of on-money, the lack of corroborative evidence from buyers and the denial by the partner limited the scope of additions.

Issue 2: Extrapolation of On-Money

Relevant Legal Framework and Precedents: The Tribunal considered precedents regarding the extrapolation of income based on limited evidence, including the decision in the case of Golani Brothers.
Court's Interpretation and Reasoning: The Tribunal found that extrapolation requires a strong evidentiary basis, which was lacking in this case.
Key Evidence and Findings: The Assessing Officer extrapolated on-money based on a few transactions, assuming similar practices for other sales.
Application of Law to Facts: The Tribunal held that without corroborative evidence from additional transactions or buyers, extrapolation was unjustified.
Treatment of Competing Arguments: The assessee argued against extrapolation, and the Tribunal agreed, noting the absence of evidence for other transactions.
Conclusions: The Tribunal disallowed the extrapolation of on-money for transactions beyond those with specific evidence.

Issue 3: Reliance on Statements and Seized Documents

Relevant Legal Framework and Precedents: The Tribunal examined the evidentiary value of statements recorded under section 131 and the presumption of correctness for seized documents under sections 132(4A) and 292C.
Court's Interpretation and Reasoning: The Tribunal noted that statements under section 131 have limited evidentiary value and require corroboration.
Key Evidence and Findings: The Tribunal found that the statements and documents lacked sufficient corroboration from other evidence or buyer testimonies.
Application of Law to Facts: The Tribunal concluded that the lack of corroborative evidence weakened the case for additions based solely on these statements and documents.
Treatment of Competing Arguments: The assessee challenged the reliance on these statements, and the Tribunal agreed, citing the need for corroboration.
Conclusions: The Tribunal held that the statements and documents alone were insufficient for making additions without corroborative evidence.

Issue 4: Limiting Additions to Incriminating Material

Relevant Legal Framework and Precedents: The Tribunal considered the principle of limiting additions to evidence directly found during search operations.
Court's Interpretation and Reasoning: The Tribunal emphasized the need for direct evidence to support additions and rejected broad extrapolation.
Key Evidence and Findings: The Tribunal focused on specific transactions with evidence of on-money, rejecting broader assumptions.
Application of Law to Facts: The Tribunal limited additions to the specific transactions with evidence, rejecting broader extrapolation.
Treatment of Competing Arguments: The Tribunal sided with the assessee's argument to limit additions to specific evidence.
Conclusions: The Tribunal restricted additions to transactions with direct evidence of on-money.

Issue 5: Profit Element in On-Money

Relevant Legal Framework and Precedents: The Tribunal considered whether only the profit element of on-money should be added to income.
Court's Interpretation and Reasoning: The Tribunal acknowledged that only the profit element should be added, not the entire on-money amount.
Key Evidence and Findings: The Tribunal found no evidence to justify adding the entire on-money amount.
Application of Law to Facts: The Tribunal limited additions to the profit element of on-money, not the entire amount.
Treatment of Competing Arguments: The Tribunal agreed with the assessee's argument to limit additions to the profit element.
Conclusions: The Tribunal restricted additions to the profit element of on-money.

3. SIGNIFICANT HOLDINGS

The Tribunal held that the addition based on on-money should be limited to specific transactions with direct evidence, rejecting broader extrapolation.
The Tribunal emphasized the need for corroborative evidence to support additions based on statements and seized documents.
The Tribunal restricted additions to the profit element of on-money, not the entire amount.
The Tribunal allowed the appeals in part, reducing the additions made by the Assessing Officer and upheld by the CIT(A).

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