9911796707
TMI Blog2006 (12) TMI 189X X X X Extracts X X X X X X X X Extracts X X X X ..... erial gathered during the course of search. Here, in the present case, the evidence is only agreement which reflects the purchase consideration at Rs. 2.40 crores and the recorded statement shows the sale consideration of 22 acres at Rs. 3,62,18,000. The third party statement and unsigned agreement cannot be acted upon. Further, the loose papers found during the course of search at the premises of K. Madhava Reddy are a dumb form having no evidential value. No addition can be made on the basis of noting on loose sheets in the absence of corroborative material. The Revenue has not found any circumstantial evidence in the form of any investments in cash, jewellery or others. They found only Rs. 6,73,610 in cash at the assessee's place. The assessee is not expected to explain the loose papers found at the premises of K. Madhava Reddy. Further, there is no evidence for the payment of money to the assessee by any party other than entered in the books of accounts. Similarly, there is no evidence for the payment of money towards purchase consideration by the assessee to M/s K.M.R. Estates Builders (P) Ltd. other than Rs. 91 lakhs. The AO failed to establish the payment of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there was a search action under s. 132 at the assessee's business premises situated at Kondapur Village, Hyderabad. During the search action, various incriminating documents were found and seized. There was also a search at the premises of the business associate of the assessee, Shri K. Madhava Reddy, on 19th March, 1999. During the course of search at the residence of K. Madhava Reddy, one unsigned Memorandum of Understanding (MoU) was found which reflects the transaction between the assessee and five others, on the one part, and Shri K. Madhava Reddy and M/s K.M.R. Estates Builders (P) Ltd., on the other part. According to this MoU, the assessee and five of its nominees have agreed to purchase 95 acres and 5 guntas of land for which the consideration fixed was Rs. 2,40,40,000 which shall be paid between 15th Dec., 1995 and 3rd April, 1996. This was annexed to the assessment order as Annex. 'A'. At the business premises of the assessee, 5 registered sale deeds were also found and as per these sale deeds, M/s K.M.R. Estates Builders (P) Ltd. has transferred 22 acres of land as follows to the nominees of the assessee: --------------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------------------------------------ 5. 6476/96 4 acres 4,24,000 -do- Vemuri Subramanyan ------------------------------------------------------------ The balance 73 acres and 5 guntas of land is not identified as per MoU by M/s K.M.R. Estates Builders (P) Ltd. Hence, the MoU was rescind and cancelled the earlier agreement dt. 29th Dec., 1995. This is as shown in p. 4 of the assessment order. As per cancellation agreement, M/s K.M.R. Estates Builders (P) Ltd. have agreed to repay Rs. 3,38,78,384 to the assessee which includes Rs. 98,38,384, penal interest to the assessee. In return, the assessee was to re-convey 22 acres of land to M/s K.M.R. Estates Builders (P) Ltd. or their nominees, which was transferred to the assessee's nominees. The assessee's nominees have transferred the 22 acres of land to M/s Shilpa Homes (P) Ltd., who is the nominees of M/s K.M.R. Estates Builders (P) Ltd., vide agreement dt. 1st Jan., 1997 (Annex. 'B' to assessment order). The consideration for 22 acres admitted by the nominees of the assessee in their books is Rs. 1,15,52,148 as detailed below: -------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ---------------------------------------------------- 30.01.1996 Cheque 6,00,000 K.M.R. Estates Builders (P) Ltd. ----------------------------------------------------------- 30.01.1996 Cheque 4,00,000 K.M.R. Estates Builders (P) Ltd. ----------------------------------------------------------- 27.02.1996 Cheque 3,00,000 K.M.R. Estates Builders (P) Ltd. ----------------------------------------------------------- 27.02.1996 Cheque 2,00,000 K.M.R. Estates Builders (P) Ltd. ----------------------------------------------------------- 19.08.1996 Cheque 1,00,000 K.M.R. Estates Builders (P) Ltd. ----------------------------------------------------------- Out of Rs. 64,50,000 paid, cheque for Rs. 3 lakhs was cancelled on 3rd April, 1996. As per the books of accounts of Sri Jayaberi Art Productions ----------------------------------------------------------- 19.01.1996 Cheque Rs. 9,70,000 K.M.R. Esta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09 payable to the assessee as per the MoU dt. 10th Jan., 1997 would be paid by M/s Shilpa Homes (P) Ltd. upon development and sale of the 29 acres of land. Thus the total sale consideration agreed to be paid to the assessee by M/s K.M.R. Estates Builders (P) Ltd. as per the MoU dt. 10th Jan., 1997 was Rs. 3,62,28,294 out of which, a total sum of Rs. 1,34,86,985 was already paid by M/s K.M.R. Estates Builders (P) Ltd. and balance of Rs. 2,27,41,309 was paid by M/s Shilpa Homes (P) Ltd." 4. The AO is of the opinion that the purchase consideration paid by the assessee to M/s K.M.R. Estates Builders (P) Ltd., as per unsigned MoU is at Rs. 2,40,40,000. The assessee has disclosed in its books of accounts only Rs. 91 lakhs. The difference between these two figures is Rs. 1,49,40,000 which was treated as undisclosed income of the assessee by the AO which was spread over to two assessment years since the payment was made during the period 1st April, 1995 to 31st March, 1996 and 1st April, 1996 to 31st March, 1997. Accordingly, the AO treated Rs. 1.33 crores for the asst. yr. 1996-97 and 16.40 lakhs for the asst. yr. 1997-98 as undisclosed income, which was confirmed by the CIT(A) on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and Mr. K. Madhava Reddy also denied the same. 7. The rates of cost/value per acre in various documents varying. The AO has not arrived at the conclusion as to what is the real value. The AO ought to have at least ascertained the market values as fixed by the State Government concerned as it is fundamental that only real income should be brought to tax not imaginary receipts. 6. The learned counsel for the assessee, therefore, vehemently argued that the material, the sworn statements, the corroborative evidence that were relied upon by the AO to make the addition towards unexplained investment of Rs. 1,49,40,000 were completely unreliable or not connected to the assessee or not found at the assessee's premises and the contents of the seized material are extraneous to the assessee. These were being the evidences that were gathered by the AO to sustain the addition is nothing but arbitrary, hence, to be deleted. He further submitted that the seized material at sl. Nos. 38 to 42 found at the premises of Mr. K. Madhava Reddy and based on these material an addition is made in the block assessment to the extent of Rs. 93,62,148 on contending that this represents difference between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isakha) 933; 10. Gorakhpur Petro Oils Ltd. vs. Addl. CIT (2005) 95 TTJ (All)(TM) 489; 11. Surjeet Singh Chhabra vs. Union of India Ors. 1997 AIR SCW 2507. 7. He drew our attention to the sworn statement recorded from Shri Murali Mohan on 12th April, 1999 and the sworn statement of Shri D. Kishore, managing director, which are reproduced below: Swam statement on oath recorded from M. Murali Mohan Q1: Please introduce yourself. A: I am Murali Mohan, Chairman of M.M. Financiers (P) Ltd and I am engaged in real estate business and film making. Q2: During the search and seizure operations in your case and in the case of M/s Shilpa Homes (P) Ltd. and Shri K. Madhava Reddy the information in relation to purchase of 22 acres of land in Kondapur area in survey Nos. 32/1, 33/1 and 33/1 is obtained and is part of the seized material. As per the information contained in the seized material, the nominees of your group by names, Ch. Chandra Mohan, Mulpuri Murali Mohan, Duggirala Ravi Kiran, Vemuri Subramanyam and Duggirala Kamala Devi have purchased the above lands through registered sale deeds during the period from 4th Jan., 1996 to 8th April, 1996. The cost of acquisition for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, it was stated that Rs. 60,000 belonged to the NRI, relative, Smt Nirmala Devineni, who was present at the time of search. The details for the remaining amounts were not given at that time and time was sought. Subsequently, during the search proceedings at the office premises of M.M. Financiers, you gave a letter in which you have stated that Rs. 4,50,000 were taken from S. Ramesh Babu of Madras which was drawn from his finance companies and sent through your accountant from Chennai to Hyderabad. Subsequently, you produced two letters from Andhra Bank, Thayagaraya Nagar, Chennai, dt. 19th March, 1999 in which it is certified that Rs. 4,65,000 were drawn from Andhra Bank, Thayagaraya Nagar Branch, Chennai on 19th March, 1999. However, the explanation given by you is not at all satisfactory as it is seen that the cash was drawn from various banks of Hyderabad. This fact is very clear from the detailed examination of the cash bundles found during the search. Please explain why this cash should not be treated as unexplained. A: For the sake of convenience the cash which was withdrawn from Chennai Andhra Bank, was converted into higher denominations and carried to Hyderabad by my ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the relevant financial year 1997-98. Why this should not be treated as the undisclosed income of M.M. Financiers (P) Ltd. for that year? A: On the sale of 22 acres on the basis of above computations the profit comes to Rs. 93,00,000. However, I would like to claim unrecoverable advance from K. Madhava Reddy as my business loss for the same year, which amounts to Rs. 69,00,000 Q11: What are the efforts made by you to recover the above amounts? A: I do not have any knowledge about that. The sale consideration is around Rs. 5.11akhs to Rs. 5.5 lakhs per acre. Q13: The bad debt not recoverable from Madhava Reddy cannot be claimed as an expenditure during the block period. You are free to proceed against Sri Madhava Reddy for recovery and after making sufficient efforts to recover the amounts you may pass necessary entries in your books of accounts to claim the irrecoverable money as bad debts. Hence, an amount of Rs. 93,00,000 being the profit on sale of Madinaguda land is taxable for the financial year 1998-99. Do you agree that the above income has escaped assessment? A: I will consult our chartered accountant and clarify the position. Q14: Would like to say anything ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. (vii) As provided in the MoU, the assessee had transferred 22 acres of land purchased to Shilpa Homes (P) Ltd., as nominated by Shri Madhava Reddy. (ix) The assessee had acknowledged the receipt of money advanced by it with interest. From the facts narrated above, it can be noted that the parties to the MoU had in fact acted upon the MoU and therefore the mere denial of the acceptance of cash payments by Shri K. Madhava Reddy or denial of such cash payments by the assessee cannot make the MoU dated November, 1996 a nullity. As both the parties to the transaction did not record the payment/receipt of cash, they had chosen to deny the same, as such a denial suited them. These are only self-serving statements and contrary to facts. 10. The learned Departmental Representative contradicted the contentions of the assessee that the AO has not taken into account the retraction of Shri Madhava Reddy. Shri Madhava Reddy's statements have been recorded not only during the search but subsequently (26th May, 1999 and 16th April, 2001). Apart from the fact that the statements have been given during the search is not automatic. In the case of V. Kunhambu Sons vs. CIT 0996) 131 CTR (Ker ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f closing stock and the profits are worked out in these papers. The total land area is 26.16 acres and the total sale area comes to 79.200 sq. yds. The statement was prepared as on 31st Dec., 1997. Q.3 Please identify the handwriting in page Nos. 38, 39 and 40. A. Someone related to Shilpa Group gave this papers at my residence. Q.4 Who is that someone and please identify the handwriting. A. A person by name Mr. Venkateswar Reddy, manager in Shilpa Group comes to me sometimes. I do not remember exactly who handed over these papers to me and whose handwriting it is. Q.5 I am showing you sheet Nos. 41 and 42 of the above annexures. Please identify the papers and explain the contents. Also identify the handwriting. A. These papers relate to payment made to Murali Mohan for 26.16 acres amounting to Rs. 3,16,80,000. The statement also mentions that the total payment made to Murali Mohan is Rs. 3,62,00,000 and the extra payments made to Murali Mohan comes to Rs. 45,38,000. I cannot identify whose handwriting, at this stage. Q.6 I am showing you the seized material in Annex. KMR/A/10 sheet No. 45. Please identify the documents and explain the contents and identify the handwr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... --------------------- Sold Area 58,345 ------------------------------------------------------ Balance 20,855 ------------------------------------------------------ Total due for 58,345 sold 4,29,32,650 ------------------------------------------------------ Collections 2,61,96,707 ------------------------------------------------------ Balance due 1,67,35,946 ------------------------------------------------------ Total collections 2,61,96,707 ------------------------------------------------------ Investment of K.M.L. 1,04,60,000 ------------------------------------------------------ Balance 20,855 ------------------------------------------------------ Total expenditure 3,76,17,420 Total collections excluding investments 3,66,56,707 Investment Shilpa 9,60,716 Cheques issued to landowner 5,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------------------- Paid to Narasimha Yadav Rs. 10,00,000 ------------------------------------------------------------ Total Rs. 3,76,17,420 ------------------------------------------------------------ Sheet No. 41: Survey numbers and the total extent of land can be found in this sheet. Sheet No. 42: Details of the payments made to Sri Murali Mohan are recorded in this sheet. Amount paid is mentioned as Rs. 3,62,18,000. The details contained in the sheet Nos. 39 to 42 (Annexs. C-1 to C-5) show that M/s Shilpa Homes (P) Ltd., as per the agreement of sale/MoU with the assessee and M/s K.M.R. Estates Builders (P) Ltd. had developed the 29 acres of land and sold them in smaller plots and out of the amount realized on sale, had paid a total sum of Rs. 3,62,18,000 in pursuance to the MoU dt. 25th March, 1997. The amount paid to the assessee as per the loose sheets referred to above and the total consideration shown as payable to the assessee as per the MoU dt. 25th March, 1997 is almost matching. The difference is only a little over Rs. 10,000. Further, he drew our attention to the sworn statement from Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls contained in the papers KMR/A/10-38 to 42 seized from the residence of Shri Madhava Reddy, the MoU dt. 25th March, 1997, and the answers given by Shri Madhava Reddy to questions put to him on 20th March, 1999 and 26th May, 1999 clearly establish the fact that a sum of Rs. 3,62,18,000 was paid to the assessee by M/s Shilpa Homes (P) Ltd. for the transfer of 22 acres of land. In the sworn statement recorded on 8th March, 2001 by the Dy. CIT, Circle 4(3), Hyderabad, from Sri P.C. Reddy, chairman of Shilpa Homes (P) Ltd., he has lucidly explained the whole gamut of the development and sale of the land purchased from the assessee which was jointly undertaken along with Sri K. Madhava Reddy in the following words. Q.1 Please introduce yourself. A. I am P.C. Reddy, Chairman of Shilpa Homes (P) Ltd. Q.2 During the search and seizure operations conducted in the case of M/s Shilpa Homes (P) Ltd. dt. 20th March, 1999, certain incriminating evidence was found in relation to Shilpa Garden venture. Further, during the search and seizure operations conducted in the case of Sri K. Madhava Reddy on 29th March, 1999, certain incriminating evidence was found in relation to the above venture. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,40,40,000. This agreement dt. November, 1996 is unsigned. For this agreement, M/s K.M.R. Estates Builders (P) Ltd., and K. Madhava Reddy, on the one part (sellers) and M/s M.M. Financiers (P) Ltd., represented by its chairman and directors and Smt. Duggirala Kamala Devi, Sri Vemuri Subramaniam, Shri Suggirala Ravi Kiran, Shri Mulpuri Murali Mohan and Shri Challagula Chandra Mohan, on the second part. On the basis of this agreement, the AO was of the opinion that the assessee has paid the purchase consideration of Rs. 2,40,40,000 towards the purchase of land. The AO also relied on the sworn statement recorded from K. Madhava Reddy and P.C. Reddy, chairman of M/s Shilpa Homes (P) Ltd. The AO also relied on the tripartite agreement entered on 1st Jan., 1997 between M/s K.M.R. Estates Builders (P) Ltd. and K. Madhava Reddy, on the one part and M/s M.M. Financiers (P) Ltd., Jayabheri Builders, M/s Sri Jayabheri Art Productions, M. Murali Mohan, D. Kishore and M. Ram Mohan, on the second part and M/s Shilpa Homes (P) Ltd., on the third part. Further, he relied on certain loose papers found at the residence of K. Madhava Reddy. 14. This is a block assessment under Chapter XIV-B o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wers thereto recorded on 20th March, 1999 are reproduced below: 22. Please give the details of the transaction entered into by you and your group of companies with M.M. Financiers (P) Ltd. or the Jayabheri group. A. M/s M.M. Financiers (P) Ltd. has entered into an agreement with KMREL for purchase of 95 acres of land at Rs. 8,50,000 per acre. They have paid approx. Rs. 2.40 crores as part of the purchase consideration. Because the transactions did not materialize and at the instance of M.M. Financiers (P) Ltd., the agreement was terminated. At their instance, I have paid back Rs. 2.40 crores and also interest on the same at 2 per cent per month till the payment of last instalment, namely, August, 1998. The amounts from M/s M.M. Financiers (P) Ltd. has been received by KMREL partly in cash and partly by way of cheques as indicated in MoU which is part of the seized record. During the repayment the entire amount was paid by Shilpa Real Estates (P) Ltd. partly through cash and partly through cheque except for Rs. 45 lakhs paid by me through cheque. Q.23 Please give the details of the transactions entered into by KMREL with Shilpa Real Estates (P) Ltd. A. KMREL sold 29 acres of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vour of the assessee or against the assessee. 17. Regarding the sworn statement, the sworn statement recorded under s. 132(4) is some piece of evidence. The AO has to establish the link with other books of accounts seized. It cannot be considered as the conclusive evidence. The words "may be presumed" appear in s. 132(4A) of the Act. Since the words "may be presumed" are incorporated in the section, it gives option to the authorities concerned to presume the things. But, it is rebuttable and it does not give definite authority and not a conclusive one. The assessee has every right to rebut the same by producing evidence in support of its claim. The entire case depends on the rule of evidence. The assessee has every right to shift the burden of proof. The Revenue authorities cannot automatically presume things. The actual things depend upon facts and circumstances of each case. The presumption under s. 132(4A) as to the truth of contents of books or documents seized was rebuttable and it was in the discretion of the authorities depending upon the facts, to decide whether presumption should be drawn or not. The expression used in this sub-s. (4A) is "may be presumed" which is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as already claimed the registration charges and the cost of stamp paper as a revenue expenditure, the cost to the assessee is Rs. 21,90,000. Admitted sale consideration is Rs. 1,15,52,148. Therefore, the capital gains on this transfer comes to Rs. 93,62,148. As the asset is held for less than 3 years, the sum of Rs. 93,62,148 is assessable as undisclosed short-term capital gain for the asst. yr. 1998-99 inasmuch as, according to the assessee the transaction was completed before 31st March, 1998. This is without prejudice to the assessment of a sum of Rs. 1,21,78,000 as undisclosed interest income as per the discussion in the following paras. As regards the request of the assessee to give set off of the sum of Rs. 69 lakhs receivable by it, such a course requested by the assessee is beyond the scope of the assessment proceedings under Chapter XIV-B of the Act. Though the 22 acres of land was purchased in the names of third parties, the wherewithal for the purchase of the land was provided by the assessee and the assessee had also accepted the transaction as its own. The third party nominees have also filed affidavits stating that they had only let their names and the transactions on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale price of 29 acres of land is Rs. 3,62,28,294 for which the assessee is not at all a party. While determining the undisclosed income in the block assessment, the AO shall be specific in his statement. He cannot draw his inference on the basis of suspicion, conjectures or surmises. Suspicion, howsoever strong, cannot take place of material in support of findings of the AO. The AO should act in a judicial manner proceed with judicial spirit and should come to judicial conclusion. The AO is required to act fairly as a reasonable person and not arbitrarily or capriciously. An assessment made on inadequate material cannot stand on its own leg. The case law relied on by the learned Departmental Representative in the case of V. Kunhambu Sons vs. CIT and Surjitsingh Chhabra vs. Union of India and State of Tamilnadu vs. Kutty alias Lakshmi Narasimhan to support the retraction of the statement by Shri K. Madhava Reddy that it should be ignored and original statement to be relied. In our opinion, these case law are not applicable to the facts of the case on hand. In these cases relied on by the learned Departmental Representative, the original statement and the retracted statement were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also to investigate into the details of such income. The AO has not established nexus between the loose slips and the seized material, There is no date or signature in the loose slips. No narrations or descriptions are written on these slips. Since these are unsigned and undated, the contents therein are insufficient to fasten the liability on the assessee. Further, the assessee has furnished statement of accounts of M/s K.M.R. Estates Builders (P) Ltd. for the period 1st April, 1995 to 31st March, 1996, which statements contain the details of payments as per tripartite agreement (Annex. 'B' to the assessment order). This was countersigned by M/s K.M.R. Estates Builders (P) Ltd. and M/s Shilpa Homes (P) Ltd. This being so, the statement recorded from K. Madhava Reddy, managing director of M/s K.M.R. Estates Builders (P) Ltd. and K.C.M. Reddy, managing director of M/s Shilpa Homes (P) Ltd. go contrary to this statement of accounts. 22. In our opinion, there is no valid seized material representing addition of Rs. 1.49 lakhs towards undisclosed purchase consideration. It is only on surmise basis and statement recorded from third party, K. Madhava Reddy, and M/s Shilpa Homes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee and belonged to the assessee, the Tribunal held that: "There was force in the contention of the assessee that there was no provision of law under which the impugned addition could be made to the income declared by the assessee. It is trite law that if an income not admitted by an assessee is to be assessed in the hands of the assessee, the burden to establish that there is such income chargeable to tax is on the AO. With a view to assist the AO and to reduce the rigour of the burden that lay upon the AO, provisions of ss. 68, 69, 69A to 69D have provided for certain deeming provisions, where an assumption of income is raised in the absence of satisfactory explanation from the assessee. As these are deeming provisions, the conditions precedent for invoking such provisions are required to be strictly construed. The facts and circumstances giving rise to the presumption have to be established with reasonable certainty. The AO cannot first make certain conjectures and surmises and thereafter apply the deeming provisions based on such conjectures and surmises. In the absence of adequate material as to the nature and ownership of the transaction, undisclosed income coul ..... 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