2016 (10) TMI 553 - AT - Income Tax

On-money received - document seized during survey - Held that - A document was seized during the course of survey from the premises of the assessee, the assessee has not been able to explain the reason for executing such documents. The document seized (letter of intent) is on the joint letter head of the assessee and Sanand Properties Pvt. Ltd. The letter of intent specifically mentions the description of shop, area and the per sq. ft. rate. Admittedly, the assessee has entered into sale agreement with Mrs. Usha Majummdar and Ms. Punam Majummdar in respect of same Shop No. 129 which has been mentioned in the letter of intent. However, in the sale agreement the rate of shop has been stated to be much lower than what has been stated in the letter of intent. Thus, the document seized cannot be termed as dumb document. An inevitable conclusion that can be drawn from the seized document and the sale agreement is that the difference between the rate mentioned in those two documents is the on-money that has been received by the assessee. Therefore, the difference between the rate stated in the letter of intent and the sale agreement is the undisclosed income which has to be added in the income returned by the assessee. In so far as contention of the assessee that addition to the extent of net profit should be made, as the entire on-money received cannot be the profit of the assessee, we do not intent to agree with this contention. The assessee has disclosed the entire expenditure in its books of account. The assessee has not been able to show the additional expenditure which has been incurred but not disclosed in the books. The on-money received by the assessee in respect of Shop No. 129 is the pure profit of the assessee with no corresponding expenditure. Therefore, we reject the contention of the assessee to consider only the profit element as the undisclosed income of the assessee. The addition in respect of on-money received in respect of Shop No. 129 i.e. the shop in respect of which the document was seize during survey is upheld. Whereas, in the absence of any material to show that on-money was received in respect of other shops sold or booked during the financial year 2006-07, the addition on account of on-money is not sustainable. The principle of extrapolation of on-money on the other shops sold/booked during the period relevant to assessment year under appeal is rejected in the absence of any material on record.- Decided partly in favour of assessee.

Issues Involved:

1. Validity of addition based on a single undated document.
2. Extrapolation of 'on-money' to other transactions.
3. Consideration of net profit versus gross profit for 'on-money' received.
4. Reliability of evidence and books of account.
5. Applicability of legal precedents and principles.

Issue-wise Detailed Analysis:

1. Validity of Addition Based on a Single Undated Document:

The Assessing Officer (AO) made an addition based on a single undated document (Letter of Intent) found during a survey, which indicated a higher sale price for a shop than what was recorded in the sale agreement. The assessee argued that the document was undated, lacked signatures/initials of the assessee, and only bore the signature of one purchaser. The Tribunal, however, held that the document could not be termed as a "dumb document" and concluded that the difference between the rate mentioned in the Letter of Intent and the sale agreement was 'on-money' received by the assessee. Therefore, the addition was upheld for this specific transaction.

2. Extrapolation of 'On-Money' to Other Transactions:

The AO extrapolated the 'on-money' received for one shop to other shops sold/booked during the financial year 2006-07, resulting in a significant addition to the assessee's income. The Tribunal rejected this extrapolation, stating that the addition was made merely on the preponderance of probabilities without any concrete material evidence. The Tribunal emphasized that no other document was found during the survey to indicate that 'on-money' was received for other shops. Thus, the principle of extrapolation was deemed unsustainable in the absence of corroborative evidence.

3. Consideration of Net Profit Versus Gross Profit for 'On-Money' Received:

The assessee contended that if the addition based on 'on-money' was to be upheld, it should be restricted to the net profit element rather than the gross amount. The Tribunal rejected this argument, stating that the 'on-money' received was pure profit with no corresponding expenditure, as all expenses were already reflected in the books of account. Therefore, the entire amount of 'on-money' was considered as the undisclosed income of the assessee.

4. Reliability of Evidence and Books of Account:

The AO rejected the books of account on the grounds that the assessee had not fully and truly recorded the sale consideration of the shops. The Tribunal noted that the only document seized during the survey was the Letter of Intent for one shop, and no other evidence was found to suggest that 'on-money' was received for other transactions. The Tribunal emphasized that the addition based on extrapolation was not justified without concrete evidence, thereby upholding the reliability of the books of account for transactions other than the one specifically documented.

5. Applicability of Legal Precedents and Principles:

The Tribunal distinguished the present case from other cases cited by the Commissioner of Income Tax (Appeals) and the Department, where additions were upheld based on admissions by the assessee or substantial evidence of suppressed turnover. In the present case, there was no admission by the assessee regarding receipt of 'on-money', and no other corroborative evidence was found. The Tribunal also referred to similar cases where additions based on presumption and extrapolation were not upheld, reinforcing the principle that concrete evidence is necessary for such additions.

Conclusion:

The Tribunal partly allowed the appeal of the assessee, upholding the addition for the specific transaction documented in the Letter of Intent but rejecting the extrapolation of 'on-money' to other transactions due to lack of evidence. The Tribunal emphasized the need for concrete evidence to support such additions and maintained the reliability of the books of account for transactions other than the one specifically documented. The decision underscores the importance of substantive evidence in tax assessments and the limitations of extrapolation based on single instances.

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