2020 (10) TMI 187 - AT - Income Tax

Assessment u/s 153A - Cash Receipts towards Construction - HELD THAT - Assessee has stated that actual investment in this regard is as per the regular books of accounts maintained by the firm and he has not invested any cash as alleged in the notice and request was made that the assessee can obtain confirmation from the vendor and the assessee also requested for the opportunity for cross examination of the vendor but the AO jumped to the conclusion on this basis that the assessee has not produced any material to show that the admission made by the assessee was incorrect in any way other than denying the payments stating that he was under stress. In our considered opinion, even the so called admission as noted by the AO is this much only that cash payment was indeed made. Even if we accept this admission as sacrosanct, the said cash payment can be added in the hands of the firm and not in the hands of the partners without bringing cogent material on record to show that such cash payment was made by the partners out of their own funds by giving a break up of how much is from own source of which partner. Addition might have been made in the hands of the firm and not in the hands of the partners and we delete the addition made by the AO in the hands of the partners. We could have directed the AO to make addition in the hands of the firm but by now, it has become time barred because more than 8 years have elapsed after the end of the relevant assessment year 2011 12. This addition is deleted and Issue No. 1 is decided in favour of the assessee. Investment in Om Sai Riddhi Siddhi Developers - HELD THAT - Adverse inference drawn by the AO as regards payment of on money for purchase of various properties in question is not sustainable and we delete the same in the hands of both the partners i.e. Mr. S. D. Kotian and Mr. M N Rajendra Kumar and also in the hands of the firm M/s Om Riddhi Siddhi Developers. Issue No. 2 in the appeals of the assessee as well as issue No. 2 in the appeals of the revenue are decided in favour of the assessee. Investment in M/s K. D. Developers - HELD THAT - Addition might have been made in the hands of the firm and not in the hands of the partners and we delete the addition made by the AO in the hands of the partners Mr. MNR. We could have directed to make addition in the hands of the firm but by now, it has become time barred because more than 7 8 years have elapsed after the end of the relevant assessment year 2011 12 and 2012 13. This addition is deleted. Undisclosed payment to Mr. Jayanti Lal Jain (JLJ) - HELD THAT - The assessee requested the AO to provide an opportunity to the assessee to cross examine JLJ before the AO to establish the truth. After reproducing the reply, the AO brushed aside it by stating that the assessee has not produced any evidence in this regard and in the absence of any evidence to the contrary of the allegation of the AO, this amount is brought to tax as unexplained expenditure. In our considered opinion, this stand of the AO is like asking for an impossible because the assessee s stand is this that he had not made any cash payment to JLJ and there cannot be an evidence for negative and the stand of the AO to require the assessee to bring evidence in support of negative is nothing but asking the assessee to do an impossible task. - Decided in favour of assessee. Cash collected in developed projects - HELD THAT - Three projects are owned and developed by two companies as per various MOUs and therefore, even if some on money in cash was received in respect of sale of these projects, income will be of these two companies in their agreed share but by no stretch of imagination, it can be considered as income of an individual i.e. Mr. MNR. Hence the addition made in the hands of MR. MNR is deleted for this reason alone and we do not discuss and examine other various arguments of both sides. Cash receipt on sale of shares in the company M/s MA Smart Builders Developers, Mangaluru in A. Y. 2017 18 - HELD THAT - When the property sold is owned by the firm, the income on account of receipt of on money, if any, will be of that firm only and not of the partner of the firm. The second reason is this that the addition was made by the AO on the basis of the statement of the supervisor and material impounded during the course of survey conducted at the head office of SCDCC Bank on 27.12.2016 without bringing on record any material for corroboration in support of entries in loose sheets or digital evidence. Hence, the receipt of on money itself is not established beyond doubt. The value as per agreement is said to be ₹ 354,97,500/- and alleged receipt is only ₹ 200 Lacs i.e. ₹ 95 Lacs by cheque and ₹ 105 lacs by cash and hence, total alleged receipt is much less that value as per the agreement. Quantum of such receipts - AO has worked out the figures by multiplying the noted figures by 100 and 1000 - HELD THAT - AO has been directed by CIT (A) to consider the cash receipt entries and unaccounted cheque entries if any as it is without multiplying it by 100 or 1000 and this finding and direction of CIT (A) has no infirmity because for such multiplication by 100 or 1000, no valid basis is given by the AO in the assessment order. Hence, we approve this finding of CIT (A) that unaccounted receipt is unaccounted turnover in respect of these projects and it should be computed by the AO by considering the entries in the seized materials about cash receipts by taking the noted figures as it is without any multiplication and if any entry about receipt of cheque is found as unaccounted then the amount of such cheques should also be added in unaccounted turnover without any multiplication. Quantum of to be brought to tax in respect of such unaccounted turnover - HELD THAT - CIT (A) has held that 8% of such unaccounted turnover should be considered as income and from that, the income declared in the returns on account of these projects in respective year should be reduced and only the balance should be brought to tax. On the second aspect about reducing the income declared in the returns on account of these projects in respective year from the income to be computed in respect of unaccounted turnover, we find no infirmity in the order of CIT (A) and we confirm the same. Percentage of unaccounted turnover to be considered as income - AO has added the whole amount of alleged cash receipts but the CIT (A) held that only estimated income out of such alleged cash receipts can be added - HELD THAT - In our considered opinion, the alleged cash receipts is unaccounted turnover only and 100% of turnover cannot be said to be income even in respect of unaccounted turnover and hence, we hold that there is no merit in this issue no. 5 raised by the revenue in its four appeals filed in the case of Mr. Mohammad Ameer. Cash investment in the lands purchased for projects executed by OSSRD - HELD THAT - For whether extra cash receipt was there or not, we find that for assessment order for A. Y. 2014 15 and A. Y. 2016 - 17, the AO has noted the entries found in seized material and these entries are of cash and cheques both with dates. This is not the case of the assessee that these cheques are not received by him. If entries in the seized material about cheque receipts are correct then cash receipt noted on same documents should also be considered as correct. Hence, we hold that in the facts of the present case, extra cash was in fact received by the assessee for all these four years as alleged by the AO in all these four years. CIT (A) has directed the AO to compute the income @ 8% of unaccounted turnover - Although no basis is indicated by CIT (A) for adopting 8% rate but it appears to us that he has been guided by the provisions of section 44AD of I T Act but the provisions of this section are applicable only in those cases, where the annual turnover is below a specified amount. In the present case, turnover is much higher and therefore, the rate specified in this section cannot be adopted. Adopting 3% profit rate will meet the ends of justice in the facts of the present case and therefore, we direct the AO to adopt 3% rate to compute net profit on unaccounted turnover to be worked out by him in respect of these projects. Addition based on the statement recorded during the search - HELD THAT - no merit in making addition only based on the statement recorded during the search and loose sheets found when the statement is retracted and details in the paper are not deciphered. These findings of learned CIT (A) could not be controverted by learned DR of the revenue by bringing any additional evidence on record in respect of identity and address of the persons named in loose paper and by deciphering the loose paper. Hence the addition made by the AO is based on the statement alone which is not sustainable as per settled position of law by now. Addition on the basis of retraction of the assessee - HELD THAT - Addition made is purely based on the statement made by the assessee without any corroborative evidence by the AO. Before us also, learned DR could not produce any corroborative evidence which was available with the AO to make these additions. This is a settled position of law that any addition made only on the basis of statement of the assessee in course of search without bringing on record any adverse cogent material to corroborate such statement, the addition so made is not sustainable and therefore, we find no infirmity in the order of CIT (A) on these three issues and therefore, decline to interfere in this order of CIT (A) on these three issues. Accordingly, Issue of the revenue is also decided in favour of the assessee.

Summary

Issues Involved:
1. Alleged Undisclosed Investment in ULWE PLOTS
2. Alleged Investment in Om Sai Riddhi Siddhi Developers
3. Alleged Investment in M/s K. D. Developers
4. Alleged Investment in M/s Global Star Realtors (P) Ltd.
5. Alleged Undisclosed Payment to Mr. Jayanti Lal Jain
6. Alleged Cash collected in developed project with PIPL
7. Alleged Cash Receipt on sale of Shares in MA Smart Builders & Developers, Mangaluru
8. Alleged Cash Receipt towards Construction of Sahakari Sadan (MA Smart)
9. Alleged Cash Receipt towards Construction of Garden City Project (Hindustan Bawa)
10. Alleged Cash Receipt towards Construction of Oceanic View Project (Mamko Builders)
11. Alleged Cash Receipt towards Construction of Other Projects
12. Deletion of the Addition made by the AO u/s 69A
13. Deletion of the Protective Addition made by the AO as unexplained Cash Investment
14. Deletion of the Addition made by the AO on Allegation of payment of On Money for 3 Projects
15. Deletion on the basis of Retraction of various Additions made by the AO
16. Direction of CIT (A) to estimate income @ 8% out of alleged cash receipts as against addition by the AO of the entire amount of cash Receipts

Detailed Analysis:

Issue 1: Alleged Undisclosed Investment in ULWE PLOTS
The AO added ?52.25 lakhs as undisclosed investment in ULWE plots, attributing 75% to M. N. Rajendra Kumar and 25% to S. D. Kotian. The Tribunal found that the investment was reflected in the firm’s books, and the cash component, if any, should be added to the firm’s income, not the partners’. The addition was deleted in the hands of the partners.

Issue 2: Alleged Investment in Om Sai Riddhi Siddhi Developers
The AO added ?685.98 lakhs as undisclosed investment, attributing 75% to M. N. Rajendra Kumar and 25% to S. D. Kotian. The Tribunal found that the investment was made by the firm, and any cash component should be added to the firm’s income, not the partners’. The addition was deleted in the hands of the partners and the firm.

Issue 3: Alleged Investment in M/s K. D. Developers
The AO added ?586.30 lakhs as undisclosed investment in K. D. Developers. The Tribunal found that the investment was made by the firm, and any cash component should be added to the firm’s income, not the partners’. The addition was deleted in the hands of the partners.

Issue 4: Alleged Investment in M/s Global Star Realtors (P) Ltd.
The AO added ?486.90 lakhs as undisclosed investment. The Tribunal found that the investment was made by the company, and any cash component should be added to the company’s income, not the directors’. The addition was deleted in the hands of the director.

Issue 5: Alleged Undisclosed Payment to Mr. Jayanti Lal Jain
The AO added ?191.86 lakhs as undisclosed payment. The Tribunal found that the addition was based on a pen drive and loose sheets without corroborative evidence. The addition was deleted.

Issue 6: Alleged Cash collected in developed project with PIPL
The AO added ?1099 lakhs as undisclosed cash receipts. The Tribunal found that the projects were owned by two companies, and any cash component should be added to the companies’ income, not the individual’s. The addition was deleted in the hands of the individual.

Issue 7: Alleged Cash Receipt on sale of Shares in MA Smart Builders & Developers, Mangaluru
The AO added ?105 lakhs as undisclosed cash receipt. The Tribunal found that the property was owned by the firm, and any cash component should be added to the firm’s income, not the partner’s. The addition was deleted.

Issues 8-11: Alleged Cash Receipts towards Construction Projects
The AO added various amounts as undisclosed cash receipts. The Tribunal found that the additions were based on loose sheets and statements without corroborative evidence. The Tribunal directed the AO to compute unaccounted turnover based on the evidence available and to compute income @ 3% of unaccounted turnover. The additions were partly allowed in favor of the assessee.

Issue 12: Deletion of the Addition made by the AO u/s 69A
The AO added ?183 lakhs as unexplained cash. The Tribunal found that the addition was based on a statement without corroborative evidence. The addition was deleted.

Issue 13: Deletion of the Protective Addition made by the AO as unexplained Cash Investment
The Tribunal found that the protective addition was not justified as the investment was made by the firm, and any cash component should be added to the firm’s income, not the partners’. The addition was deleted.

Issue 14: Deletion of the Addition made by the AO on Allegation of payment of On Money for 3 Projects
The Tribunal found that the addition was based on statements and loose sheets without corroborative evidence. The addition was deleted.

Issue 15: Deletion on the basis of Retraction of various Additions made by the AO
The Tribunal found that the additions were based on retracted statements without corroborative evidence. The additions were deleted.

Issue 16: Direction of CIT (A) to estimate income @ 8% out of alleged cash receipts as against addition by the AO of the entire amount of cash Receipts
The Tribunal found that 100% of turnover cannot be considered as income. The Tribunal directed the AO to adopt 3% rate to compute net profit on unaccounted turnover. The additions were partly allowed in favor of the assessee.

Conclusion:
The Tribunal allowed the appeals of the assessee and dismissed the appeals of the revenue, directing the AO to make additions based on corroborative evidence and proper computation methods.