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TMI Blog2019 (4) TMI 1908X X X X Extracts X X X X X X X X Extracts X X X X ..... ny tangible corroboration clearly falls in the realm of conjunctures and surmises. It is obvious that driven by misplaced suspicion, the AO has presumed the presence of on-money in respect of each of the residential flat sold. The action of the AO is a mere ipse dixit which is not objectively justifiable by some inculpatory evidence. It is only elementary to say that estimation of unaccounted money cannot be made only on the basis of contemplation. The order of the AO in making additions of ₹ 3.28 Crores is thus clearly arbitrary and unsustainable in law. Revenue could not demonstrate any material except unsupported statements of two persons. Such unverified statements without any proof towards its assertions are not a good evidence and do not raise any estoppel against the assessee. Therefore, the addition made by the AO is in the realm of speculation without any basis whatsoever. Hence, we decline to interfere with the order of the CIT(A) in so far as appeal of the Revenue is concerned. Maintainability of addition confirmed by the CIT(A) on the basis of statement of two purchasers - Statement of two persons cannot be recognized to the prejudice of assessee in the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that once the taxes have been paid on the amount disclosed, the penalty cannot be imposed under s.271AAA of the Act in the absence of any specific query raised to probe manner/substantiation thereof with respect to disclosure towards undisclosed income. The CIT(A) has rightly appreciated the facts and the circumstances of the case in perspective and deleted the penalty on the disclosure so in the absence of such query made having regard to the plethora of judicial precedent available on this premise. The conclusion drawn by the CIT(A) on this score thus resonates with the judicial view available in this regard and cannot be faulted. Grievance of the Revenue for deletion of penalty by CIT(A) on income offered by way of oral evidence under s.132(4) of the Act is bereft of any merit on variety of reasons noted above Purchasers have given statement on oath in the proceedings under s.131 against the assessee and confessed that they have given on-money - The quantum addition so made was not discovered or found per se in course of search under s.132 of the Act. The additions were made on the basis of post search inquiry. Such addition cannot be subject matter of Section 271AAA of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition of ₹ 14,10,000/- as made by the Ld. A.O. on account of on-money received from two members is required to be telescoped against the disclosure of ₹ 2 Crores made by the appellant firm for the financial year 2010-11 relevant to A.Y. 2011-12. 3. The Ld. CIT(A) has erred in law and on facts while failing to consider the fact that voluntary and suo-motto disclosure of unaccounted booking receipts from the members of the scheme amounting to ₹ 2.00 crores by the appellant firm for F.Y. 2010-11 relevant to A.Y. 2011-12 is more than sufficient to cover up the addition of ₹ 14,10,000/- confirmed by him in respect of on money received from two members and therefore, no separate addition is required as directed by him. 2.1 The grounds of appeal raised by the Revenue (in case of M/s. Savaliya Buildcon) in ITA No. 410/Ahd/2014 read as under: (i) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in restricting the addition to ₹ 14,10,000/- out of total addition of ₹ 3,28,13,355/- made on account of on-money receipts by the A.O. on the basis of evidence of reliable nature. (ii) On the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ousing Project were recorded on oath under s.131 of the Act. The AO noted that as per the statement so recorded of the two purchasers that one of the purchasers namely Smt. Surekhaben M. Bhavsar has admitted cash/onmoney payment of ₹ 9Lakhs towards purchase of residential flat in Krish Residency-1. Similarly, another purchaser Shri Hasmukhbhai M. Solanki also admitted on-money payment of ₹ 5,10,000/- in cash towards purchase of his flat. Placing reliance upon the statement of aforesaid two members of Krish Residency-1 recorded under s. 131 of the Act in the course of post search inquiry, the AO took a view that similar on-money amount must have been received in all other bookings made during the year. The AO accordingly applied the theory of extrapolation on the basis of admission made by the two purchasers of the residential flats and extended this in respect of all other sales having regard to the area sold. The AO computed estimated on-money amounting of ₹ 5,28,13,355/- to be undisclosed cash component in the sale of flats. Having regard to the disclosure of ₹ 2Crore already made in the search proceedings by way of statement under s.132(4) of the Act, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd estimation of probable on-money receipts from remaining other flat byers. The CIT(A) accordingly deleted the addition on account of on-money receipt of ₹ 3,28,13,355/- made by the AO. However, it sustained ₹ 14,10,000/- being aggregate of the confessional amount from two purchasers whose statements were actually recorded. In short, the CIT(A) sustained addition of ₹ 14,10,000/- out of total addition of ₹ 3,28,13,355/- made by the AO. It would be apt to reproduce the relevant operative para of the order of the CIT(A) hereunder: 8. Before taking a decision in this case, it will be worthwhile to go through the relevant judicial decisions in this regard: (a) It was held by Hon'ble High Court of Bombay in the case of CIT vs. C. J. Shah Co. (246 ITR 671) that estimation of undisclosed profit made by AO for the entire block period on the basis of seized loose papers which indicated undisclosed sales for three months was not justified. (b) In the case of Dolphin Builders Pvt. Ltd (356 ITR 420), Hon'ble High Court of Madhya Pradesh held that making addition merely on the basis of seized documents without cogent evidence that excess amount menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bungalow on the basis of admission made by builder during the search. However, no document was recovered during the search regarding on money paid by assessee. In. such a case, the addition was directed to be deleted by Hon'ble ITAT. (j) In the case of CIT vs. D Kanta [205 Taxman 115(Kar)], addition was made u/s. 69B r.w.s. 147 on account of unexplained investment in purchase of land. Search was conducted in the case of son of vendor from whom the land was purchased. During the course of search, son of vendor stated that assessee had received consideration of ₹ 75 lakhs. AO reopened assessment and made addition on the basis of this information. It was held by Hon'ble High Court that finding of AO was not based upon material found during the search and it was based on statement of son of vendor. Therefore, addition was not justified and the same was directed to be deleted. (k) In the case of Prarthana Construction Pvt. Ltd., it was held by Hon'ble jurisdictional High Court that revenue is not justified in resting its case on the loose papers and documents found from the residence of a third party, even if such documents contain narration of transactions with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Smt. Surekhaben Bhavsar and ₹ 510,000/-which was admitted by Shri Hasmukhbhai Solanki. I, therefore hold that addition on account of on-money receipt is to be restricted to ₹ 14,10,000/- as against ₹ 3,28,13,355/- made by AO. The AO is therefore directed to restrict addition on this account to ₹ 14,10,000/-. Ground no. 1 of the appeal is thus partly allowed. The CIT(A) accordingly granted partial relief to the assessee as noted above. 5. Aggrieved by the relief granted by the CIT(A) deleting ₹ 3,14,03,355/- so granted by the CIT(A) out of total addition of ₹ 3,28,13,355/- made by the AO towards unaccounted receipt, revenue has preferred the appeal before the Tribunal as per captioned ITA No. 410/Ahd/2014, whereas the assessee has also challenged the action of the CIT(A) in partly sustaining the addition to the extent of ₹ 14.10 Lakhs by the CIT(A) as per captioned appeal of the assessee in ITA No. 401/Ahd/2014 cross objection of assessee in CO No. 117/Ahd/2014 captioned above. 6. When the matter was called for hearing, the learned AR for the assessee pointed out that in the course of search proceedings initiated under s.132 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which confession remains unverified and unilateral nevertheless. The learned AR submitted that the appellant firm had declared additional income of ₹ 2 Crore merely to buy peace, save time and costs and to avoid protracted litigation and also to co-operate with the department as a goodwill gesture without any substantive evidences in possession of the Revenue. In the circumstances, estimation of income for the remaining period post search between 06.01.2011 to 31.03.2011 merely on surmises and conjunctures is totally uncalled for. 6.2 Without prejudice and in alternative, the learned AR for the assessee submitted that the entire estimated cash receipt on the basis of extrapolation cannot be added over and above what has been declared suo motu. The Revenue at best can assess a reasonable profit margin of 10% to 15% of the estimated cash receipts and in that circumstances, disclosure made by the assessee cannot be reckoned. In such eventuality, the assessed income will be far lower than the returned income already filed by the assessee in pursuance of the search. The learned AR thus submitted that the so called unverified statement of two of the purchasers cannot lead to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additions so made. 8. We have carefully considered the rival submissions. Both assessee as well as the Revenue are aggrieved by the order of the CIT(A). The addition on account of alleged on money receipt towards sale of residential flat by the assessee is subject matter of controversy. While it is the case of the assessee that in view of the voluntary declaration made by the assessee in its own record to the tune of ₹ 2 Crore which sufficiently covers any remotely possible on money receipt on sale of flats, separate addition over and above which is volunteered not plausible. The Revenue, on the other hand, seeks to contend that quantification of on-money receipt actually works out to ₹ 5,28,13,355/- and therefore addition of ₹ 3,28,13,355/- over and above ₹ 2 Crore declared is fully justified. In the course of search conducted under s.132 of the Act, the partners of the assessee are stated to have voluntarily disclosed an amount of ₹ 25 Crore in aggregate as undisclosed income for and on behalf of the Savaliya Group concerns for F.Y. 2010-11 relevant to AY 2011-12. The disclosure of ₹ 2 Crore out of aggregate disclosure of ₹ 25 Crores p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rebutted on behalf of the Revenue. This being so, the action of the AO in placing reliance upon statement of third party to crucify the assessee is clearly in negation of overriding principles of natural justice which is supposed to be guiding factor in an adjudication process. Needless to say, the appropriate opportunity to an affected party is not a gift but an absolute and salutary right which cannot be simply bypassed. The infringement of basic principles of natural justice has thus vitiated the order of the AO to the core. The legitimate expectation of the assessee to seek cross examination of a person making adverse comments against the assessee to enable it to traverse the assertions cannot be shunned in sub-version of judicial propriety while weighing an issue. The right to fair hearing is a guaranteed right. Every person affected by the statement of third party has indispensible right to know the evidence used against him. The AO as well as the CIT(A) has violated this cardinal principle as squarely underscored in Kishanchand Chellaram vs. CIT 125 ITR 713 (SC) and host of other decisions. Apart from a bald statement of third party loaded against the assessee which was neve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oof towards its assertions are not a good evidence and do not raise any estoppel against the assessee. Therefore, the addition made by the AO is in the realm of speculation without any basis whatsoever. Hence, we decline to interfere with the order of the CIT(A) in so far as appeal of the Revenue is concerned. 8.3 We shall now advert to the maintainability of addition of ₹ 14.10 Lakhs confirmed by the CIT(A) on the basis of statement of two purchasers. As emphatically noted above, the statement of two persons cannot be recognized to the prejudice of assessee in the absence of corroboration and/or cross examination thereof. The addition sustained on the basis of a bald admission of third party against the assessee has no probative value and thus unsustainable in law. We find potency in the plea of the assessee that despite search, no reference to any incriminating material recovered from assessee is found in the assessment order and the basis of addition is some post search enquiry from purchasers alone subsequent to search. Significantly, the assessee has repeatedly pointed out the absence of contemporaneous material before the lower authorities. Such assertions on beha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in confirming the penalty levied u/s. 271AAA of the Act of ₹ 1,41,000/- out of total penalty levied by the Ld. A.O. of ₹ 21,41,000/-. 2. The Ld. CIT(A) has erred in law and on facts while not considering the fact that no penalty can be levied on the addition of ₹ 14,10,000/- on account of on-money received from two members as the same is required to be telescoped against the disclosure of ₹ 2 Crores made by the appellant firm for the financial year 2010-11 relevant to A.Y. 2011-12. 11. The captioned appeals filed by the Revenue and the assessee against the order of the CIT(A) arises from the penalty order passed by the AO under s.271AAA of the Act concerning AY 2011-12. As noted above, the assessee has also filed cross objection against the appeal of the Revenue raising grievance for partial confirmation of the penalty similar to its cross appeal in ITA No. 3188/Ahd/2015 (supra). 12. The cause of grievance in all the captioned appeals/cross objection is common. In view of similarity of the facts and solitary grievance towards levy of penalty under s.271AAA of the Act, all the three matters concerning imposition of penalty are being disposed of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4) of the Act and in the return of income. The CIT(A) however confirmed the penalty @ 10% as per the provisions of Section 271AAA of the Act on remaining addition of ₹ 14,10,000/- upheld in the quantum proceedings by the first appellate authority. In the result, the CIT(A) deleted the penalty of ₹ 20 Lakhs and confirmed the remaining penalty of ₹ 1,41,000/- out of total penalty of ₹ 21,41,000/- imposed by the AO under s.271AAA of the Act. The relevant operative portion of the CIT(A) s order is reproduced hereunder: 3.1 I have considered the facts of the case, order of the A.O., submissions of the appellant and statement of the partner Shri Sanjaybhai Savaliya and Shri Kantibhai Savaliya recorded u/s.132{4) of the Act on 07-1-2011 and letter of the appellant firm filed before ITO(Inv.) affirming the disclosure statement u/s. 132(4) of the Act given by the partners of the firm filed on 06.04.2011 respectively during the course of search proceedings and the return of income filed by the appellant firm compiled in the paper book. 3.2 It is seen that during the course of search, the partner of the appellant firm Shri Sanjaybhai Savaliya and Shri Kantibhai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corded u/s.132(4) of the Act, the appellant firm has offered the income of ₹ 2,00,00,000/- in the return of income of the current financial year 2010-11 relevant to A.Y. 2011-12 in its return of income filed on 30-092011 u/s.139 and even paid the tax thereon along with interest In the present case of appellant firm, the search took place on 06/07-01-2011 and therefore, for F.Y.2010-11 relevant to A.Y. 2011-12, date of filing the return of income was due on the date subsequent to the date of search. Hence, in the case of the appellant firm, the provisions of section 271AAA of the Act are applicable. 3.5 The facts of appellant firm's case have been examined in the light of provisions of section 271AAA(2) of the Act. The partner of the appellant firm has disclosed the undisclosed income while giving the statement u/s.132(4) of the Act during the course of search for and on behalf of the appellant firm. The appellant firm has paid the tax thereon alongwith interest and shown the undisclosed income in the return of income under the head income from business and in the notes forming part of statement of total income also stated in detail the manner of earning the income an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nating material was found during the course of search proceedings. 3.6.1 Clause (ii) lays down the second condition that assessee should have substantiated the manner in which undisclosed income has been derived. In the present case of the appellant firm, after the partner of the appellant firm made the disclosure in his statement u/s. 132(4) of the Act for and on behalf of the appellant firm for an amount of ₹ 2,00,00,000/- for the F.Y.2010-11 relevant to A.Y.2011-12 being unaccounted booking receipts/extra receipts from some (few) members of the scheme known as Krish Residency no further question was asked by the Authorized Officer of the search. When the appellant firm also filed its letter dated 06-042011 to the ITO (Inv.) Unit-1, Ahmedabad, confirming the disclosure made by the partner of the firm, for and on behalf of the appellant firm by stating the manner of earning the income, the search in charge officer did not raise any further question to the appellant firm. 3.7 It is further clear that The principles laid down by the Hon'ble High Courts in the cases of CIT v. Mahendra C. Shah [2008] 299 ITR 305 (Guj.) CIT v. Radha Krishna Goel [2005), 278 ITR 4547(20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and fair confession and to surrender his income and also to deposit the tax and interest thereon which may result in an agreed assessment. The paramount intention appears to be that in the case of fair and clean confession and surrender of his income, during the course of search further litigation may be avoided and the Revenue may get the tax and interest, etc., at an earliest and the assessee may be saved from further litigation. Under s. 132(4), it is the authorised officer, who examines on oath any person, who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing, therefore, it is for the authorised officer to record the statement in his own way. Therefore, it is not expected from the person to state those things, which are not asked by the authorised officer. During the course of search person is so tortured, harassed and put to a mental agony that he loses his normal mental state of mind and at that stage it cannot be expected from a person to pre-empt the statement required to be given in law as a part of his defence. Under s. 132(4), unless the authorised officer puts a specific question wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the undisclosed income admitted in the course of search proceedings by disclosing in the return of income. 3.9 On the basis of the principles and ratio laid down by the Honorable jurisdictional High Court and by the Allahabad High Court cited supra and other courts have also given similar verdicts in cases such as (i) decision of Honorable ITAT in the case of DCIT vs. Smt. Sulochanadevi A. Agarwal, ITA No.1052/Ahd/2012, A.Y.2009-10, dated 20-07-2012,) (ii) ITO vs. Shilpa V. Gupta, ITA No.1784/Ahd/2012 Co.179/Ahd/2012 A.Y.2009-10, dated 14-12-2012, (iii) Rajendra Prasad Dokania, ITA No. 525/Ahd/2012 dated 4-5-2012, (iv) DCIT, Central, Surat vs. Rivva Exports Ltd., (v) DCIT, Central, Surat vs. Shri Harikishan S. Virmani (ITA No.2718 2719/Ahd/2012) dated 7-6-2013, and in view of facts of case as mentioned above, it can be stated that all the three conditions laid down, in the provisions of section 271AAA (2) of the Act on the basis of which the appellant can be eligible for immunity from penalty has been fulfilled in appellant's case. The appellant can be said to have substantially discharged the onus of substantiating the manner of earning undisclosed income. The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned AR for the assessee relied upon the order of the CIT(A) to the extent of relief granted by the first appellate authority and submitted in reiteration that in the search action under s.132 of the Act carried out in the premises of the assessee on 06.01.2011, no unaccounted money/asset/investment etc. were recovered. No reference in this regard has been made in the assessment order either. Likewise, no document or any inculpatory evidence has been referred in the quantum proceedings to lend credence to any alleged undisclosed income. The learned AR submitted that the sole basis of taxation of ₹ 2 Crores and consequent imposition of penalty thereon is the statement of the partner of the firm. It was submitted that except the stand alone oral evidence in the form of statement under s.132(4) of the Act, the Revenue has not brought out any material on record to establish the existence of any undisclosed income which expression has been statutorily defined in Section 271AAA of the Act itself. The learned AR submitted that neither does the scope of Section 271AAA of the Act extends beyond undisclosed income as defined nor does a standalone statement can be treated as docum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be allowed. 14.3 The learned DR for the Revenue, on the other hand, relied upon the order of the AO and submitted in furtherance that where the assessee himself has admitted existence of certain undisclosed income in the course of search and included the same as part of return, the consequences of penalty under s.271AAA of the Act cannot be escaped as wrongly adjudicated by CIT(A). It was further submitted that the AO has also rightly imposed penalty of ₹ 1,41,000/- on the excess undisclosed income found over and above income offered under s.132(4) of the Act. 15. We have carefully considered the rival submissions and perused the orders of the authorities below and material referred to and relied upon. 15.1 One of the significant plea raised on behalf of the assessee is that the income declared in the return of income arises out of regular stream of income from various sources and also ad hoc declaration combinedly made for group concern and included in the return of income towards its share and such disclosure per se does not tantamount to undisclosed income has codified in Explanation (a) below Section 271AAA of the Act. 15.2 To paddle its point of view, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which the undisclosed income was derived; and (iii ) pays the tax, together with interest, if any, in respect of the undisclosed income. (3) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1). (4) The provisions of sections 274 and 275 shall, so far as may be, apply in relation to the penalty referred to in this section. Explanation.-For the purposes of this section,- (a ) undisclosed income means- (i) any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132, which has- (A ) not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year; or (B ) otherwise not been disclosed to the Chief Commissioner or Commissioner before the date of the search; or (ii) any income of the specified previous year represented, either wholly or pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 132(4) in itself cannot be deemed to be undisclosed income in view of the limitations placed in the definition thereof. 9. Therefore we are of the considered view that in the absence of any incriminating material referred for the purposes of assessing alleged undisclosed income, the imposition of penalty under section 271AAA is without any legal foundation and thus not permissible. 10. In view of the aforesaid discussion, we do not consider it necessary to advert to the alternative plea of the assessee for imposition of penalty with reference to ad-hoc amount of declaration alone. 11. The order of the Assessing Officer towards imposition of penalty under section 271AAA is therefore set aside and the Assessing Officer is directed to delete the penalty so imposed. 12. In the result appeal of the assessee is allowed. 15.3 As noted above, the Co-ordinate Bench has dealt with identical issue and held that in the absence of any reference to tangible material, mere act of acquiescence of ad hoc income under section 132(4) of the Act cannot automatically be covered within the sweep of undisclosed income for the purposes of imposition of penalty under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able under s.271AAA of the Act for two reasons; (i) the quantum addition of ₹ 14,10,000/- itself has been deleted by us in the preceding para no. 9 with reference to ITA No.401/Ahd/2014 (supra) and (ii) the additions were made on the basis of post search inquiries and do not relate to undisclosed income as defined under s.271AAA of the Act. The quantum addition so made was not discovered or found per se in course of search under s.132 of the Act. The additions were made on the basis of post search inquiry. Such addition cannot be subject matter of Section 271AAA of the Act having regard to the narrower scope of definition of undisclosed income as provided therein. Therefore, we find merit in the plea of the assessee for deletion of penalty of ₹ 1,41,000/- under s.271AAA of the Act. The order of the CIT(A) is accordingly set aside to this extent and the AO is directed to delete the penalty. 19.2 In the result, the cross appeal of the assessee in ITA No.3188/Ahd/2015 and cross objection of the assessee in CO No. 14/Ahd/2016 are allowed. 20. The grounds of appeal raised by the assessee (in case of M/s. Savaliya Developers) in ITA No. 402/Ahd/2014 read as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as erred in law and on facts in confirming the addition of ₹ 8,55,000/- out of total addition of ₹ 3,68,42,425/- made on account of alleged on-money receipts by the Ld. A.O. The Ld. CIT(A) ought to have deleted the entire addition made by the Ld.A.O. 2. The Ld. CIT(A) has rightly held that extrapolation theory of on-money receipts cannot be made and has correctly deleted the addition made by the Ld.A.O. on account of extrapolation theory of on-money receipts. 21. The facts and issue concerning the addition made in the case of above referred assessee are identical group assessee - Savaliya Buildcon. Thus, without delineating on the issue again, the appeal of the assessee and cross objection of the assessee deserves to be allowed and appeal of the Revenue deserves to be dismissed in the light of our conclusion in ITA No. 401/Ahd/2014, 410/Ahd/2014 CO No.117/Ahd/2014 in respect of other group concern of the same group. 22. In the light of the aforesaid discussion, the appeal of the Revenue in ITA No. 411/Ahd/2014 is dismissed and appeal of the assessee in ITA No. 402/Ahd/2014 and cross objection in CO No. 118/Ahd/2014 is allowed. 23. In the combined result, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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