1999-VIL-102-ITAT-AHM
Equivalent Citation: TTJ 070, 122,
Income Tax Appellate Tribunal AHMEDABAD
Date: 20.12.1999
PRARTHANA CONSTRUCTION (P.) LTD.
Vs
DEPUTY COMMISSIONER OF INCOME-TAX.
BENCH
Member(s) : H. L. KARWA., T. N. CHOPRA.
JUDGMENT
T.N. CHOPRA, A.M.:
This appeal has been filed by the assessee against the block assessment made by the AO vide order dt. 26th March, 1998, computing undisclosed income for the block period at Rs. 73,00,000. Block assessment has been made under s. 158BC r.w. s. 158BD with the block period being financial year 1985-86 to 1994-95 and 1st April, 1995 to 21st Sept., 1995.
2. There is a delay in filing the appeal. The impugned order of block assessment was served on the appellant on 31st March, 1998, whereas the present appeal has been filed on 7th July, 1998, Explaining the reasons for delay, it has been submitted on behalf of the assessee-company that under mistaken belief that the appellate jurisdiction vested with the CIT(A), the assessee filed the appeal in the office of the CIT(A) V. Ahmedabad, vide receipt No. 21947, dt. 27th April, 1998. Subsequently when the mistake was discovered the assessee filed the present appeal before the Tribunal on 7th July, 1998. Pleading for condonation of delay it is prayed that the bona fide of the assessee are clearly manifested in the fact that the original appeal before the CIT(A) has been filed within time and the mistake in choosing the correct appellate form has arisen due to bona fide lack of knowledge on the part of the chartered accountant. In the circumstances of the case we condone the delay and admit the present appeal.
3. A few facts may be stated at the outset. Search and seizure operations under s. 132 of the IT Act, 1961 were carried out by the IT authorities in the case of M/s Gokul Corpn and its partners viz. Shri Sureshbhai A patel and Shri Deepak Mehta on 21st Sept, 1995. During the course of search operation certain documents were seized containing inter alia details or various land transactions which pertained to the assessee-company also. Accordingly the requisite information regarding these transactions was communicated to the AO and proceedings under s. 158BC r.w. s. 158BD were initiated. On 4th March, 1997, the assessee furnished the return for the block period for financial year 1985-86 upto 21st Sept., 1995, disclosing undisclosed income at nil figure on 7th April, 1997. The AO proceeded to complete the impugned assessment vide order dt. 26th March, 1998, computing the total undisclosed income at Rs. 73,00,000. Aggrieved with the said order the assessee has come up in appeal before us.
4. The first ground of appeal taken by the assessee reads as under:
"The learned AO has erred in making as addition of Rs. 20 lakhs and Rs. 25 lakhs solely on the statement of Shri Sureshbhai and Shri Deepakbhai. The statements do not bind the appellant in any manner, and in view of the facts and circumstances of the case, the additional deserves to be deleted."
5. Brief facts, having a bearing on the adjudication of this ground, briefly stated are these. During the course of search and seizure operations at the residence of Shri Sureshbhai A. Patel, partner of M/s Gokul Corpn., loose documents as per Annexure A-1 were seized. These documents contain at pp. 21 and 22 transactions involving the name of the assessee-company. On the front side of page No. 22 details of payments made to Arunbhai on account of settlement of disputes of members of Silver Arc have been indicated on the left side. On the right side it appears that sources of payments have been indicated. The paper relates to land of Silver Arc Scheme. A sum of Rs. 1,35,00,000 has been paid to one Shri Arun Thakkar which include actual payment of Rs. 1,10,00,000 under the heading "Silver Arc Members Samadhan Khate Arunbhai ne".
6. Right hand side of the page No. 22 shows details of collection of money amounting to Rs. 1,85,00,000. On the top portion on the right hand side of the page, the following narration appears:
Gautam Adani on account of Silver Ark
20,00,000.00 20.94 (Prarthna Walane Silver Ark na
Chukte-parat)
Returned back to Prarthnawala
on account of Silver Ark."
7. Back side of page No. 22 contained a number of entries with dates. The relevant entry for the purposes of this appeal appears on the right hand side which reads as under:
"Paid to prarthna on account of Kundan Nagar Land)
5,00,000 1-10-1994 (Pankaj)
20,00,000 16-10-1994 (Pankaj)
25,00,000
Statements of Sureshbhai A. Patel have been recorded under s. 132(4) on 22nd Sept., 1995 and subsequently under s. 131(1A) dt. 30th Oct., 1995, wherein Shri Sureshbhai A. Patel has explained the nature of the transactions recorded on p. 22 of the Annexure A-l seized from his residence. The gist of these statements, as appearing in the assessment order at pp. 5 and 6 reads as under:
"(i) On the front side of page No. 22, details of payments made (left hand side (LHS) for the settlement of disputes of various members and sources thereof (right hand side (RHS) are mentioned in respect of the land of silver Arc Scheme. For resolving the disputes of the members, a sum of Rs. 1,35,00,000 was decided to give to one Shri Arun Thakkar. Out of this Rs. 1,10,00,000 was actually paid; the details of which are mentioned on LHS under the heading 'Silver Arc Member Samadhan Khate Arunbhaine".
(ii) RHS of page No. 22 shows details or collection of money relating to this scheme and it shows a total collection of Rs. 1,85,00,000. Accordingly to Shri Suresh Patel, this was received from Shri Suresh Patel, this was received from Shri Gautam Adani through Shri Manoj Vadodaria. The money was collected by Shri Suresh Patel himself from the office of Shri Manoj Vadodaria and was given to Shri Govind C. Patel on the same days. Sometimes if money is not given to Shri Govind C. Patel and it is diverted somewhere else on his instructions then the same is also written like in the first entry, on p. 22 (RHS) for return of Rs. 20 lakhs to M/s Prarthna Construction on 20th Sept., 1994, which earlier was taken by Govind C. Patel from Prarthana Construction as Bana for this deal and money was returned because the deal could not be finalised between Prarthana Construction and Shri Govind C. Patel.
(iii) In respect of the entry on the front side of page No. 22 in which name of Prarthana Construction was written, Shri Suresh Patel in the statement dt. 30th Oct., 1995, has clarified that Rs. 20 lakhs, in cash was paid to Prarthana Construction for this land, (because earlier a deal was struck with it) which was later on cancelled and the token amount received at the time of making of this agreement (Rs. 20 lakhs) was returned to him which is mentioned on para No. 22."
The above statement pertains to the addition of Rs. 20 lakhs in respect of the deal of Silver Arc Scheme.
8. With regard to the second addition of Rs. 22 lakhs, as made by the AO and agitated vide ground No. 1 above has reproduced above pertains to the deal of Kundannagar Co-operative Housing Society land. This transaction as recorded on the back side of the page No. 22 has already been extracted hereinbefore. According to the AO this transaction is for land situated near Ocean Park, Satellite, Ahmedabad belonging to Kundan Nagar Co-operative Housing Society. Accordingly to the AO a token amount of Rs. 25 lakhs paid by Shri Govind C. Patel to the assessee-company in instalments Rs. 5 lakhs on 1st Oct., 1996, and Rs. 20 lakhs on 16th Oct., 1994. This payment was made to Shri Pankaj Shah as a representative of the assessee-company. On the basis of the statements of Suresh A. Patel as well as the Annexure A-1/22 referred to above the AO has stated that the amount of Rs. 25 lakhs was made by Shri Govind C. Patel through Shri Suresh A. Patel out of the cash received on account of Silver Arc Scheme. Later on this land was sold to Shri Mahesh Sharma by Shri Govind C. Patel an amount of Rs. 11 lakhs was received from him as per the notings made in the document A-1/22. The AO has further referred to loose documents being pp. 1 to 10 of Annexure A-1 of the Panchnama. seized from the office of Shri Suresh' Patel which relate to Kundan Nagar Co-operative Housing Society. According to Shri Suresh Patel, as per his statement dt. 10th Oct., 1995, these papers were given to by Shri Deepak Mehta for settlement of the problems of members. The control over this land situated near Ocean Park, Satellite, Ahmedabad, according to Shri Suresh Patel was exercised by the assessee-company though the possession was with Rabara by way of encroachment. From the backside of A1/22, document referred to earlier it appears that Zundannagar land was earlier purchased by Shri G.C. Patel from the assessee on token payment of Rs. 25, lakhs and subsequently he sold this land to Shri Mahesh Sharma after taking token payment of Rs. 11 lakhs. However, it appears that the deals were subsequently cancelled. On the basis of the aforesaid documents seized during search operations as well as the statements the AO came to the conclusion that the two amounts of Rs. 20 lakhs and Rs. 25 lakhs have been paid to the assessee in cash relating to the deals of Silver Arc and Kundannagar Co-operative Housing Society which represents the undisclosed income of the assessee-company.
9. When confronted with the statements of Shri Suresh Patel and Deepak Mehta recorded as above as well as the seized documents, the assessee vide its reply dt. 10th Feb., 1998, strongly rebutted the observations of the AO regarding the payments of Rs. 45 lakhs as above received in the Silver Arc and Kundannagar Co-operative Housing Society deals. According to the assessee the statement of Shri Suresh Patel does not indicate that cash of Rs. 25 lakhs was paid to him for acquiring development rights of land at Kundannagar Co-operative Housing Society. The assessee stated that a sum of Rs. 18,90 lakhs has been paid by Kundannagar Co-operative Housing. Society as per the books of accounts between the period 1st Jan., 1993 to 21st July, 1993, and further that the deal has been cancelled but the payments remained outstanding. Regarding Silver Arc Scheme the assessee stated that the only payment made by the assessee for acquiring development rights over Silver Arc land was a sum of Rs. 25 lakhs paid by cheque No. 123066 dt. 8th May, 1995, which has been received back on 19th June, 1995, through cheque on cancellation of the deal. The AO rejected the explanation of the assessee mainly on the ground. that the statements of Shri Suresh Patel and Shri Deepak Mehta who have been acting as brokers are to be relied upon since these are amply confirmed by the seized documents viz.
page No. 22 of Annexure A-1. With regard to Shri Deepak Mehta's statement, the AO observed at p. 12 as under:
"Certain evidences relating to settlement of members of Silver Arc Association have also been seized from the residence of Shri Deepak Mehta on 21st Sept., 1995, itself. In the statement under s. 132(4), dt. 21st Sept., 1995, of Shri Deepak Mehta has stated that this land was belonging to Shri Kashyap Thakore of H.K. Corporation who sold it to Shri Govind C. Patel of Ganesh Housing who in turn sold it to Shri Manoj Vadodaria and further the deal was struck with Shri Manoj Vadodaria and Prarthana Construction. While explaining his role in deal. Shri Deepak Mehta has stated that he was also one of the brokers in finalisation of the deal between Shri Manoj Vadodaria and Shri Govind C. Patel. Further he had done a job of arranging meeting between Shri Manoj Vadodaria and Shri Nimesh Shah of M/s Prarthana Construction. Importantly, his statement is also self-inflicting in the sense that he has admitted to have earned unaccounted brokerage from these deals which leaves him also open for taxation, and accordingly the evidential value comes even more. Therefore, his statement also points to the involvement of the assessee-company in this deal during that period i.e., September-October, 1994."
The AO accordingly proceeded to make the addition of Rs. 45 lakhs concluding that the amount of Rs. 20 lakhs and Rs. 25 lakhs was unaccounted cash. The amount of Rs. 20 lakhs relating to Silver Arc Scheme and Rs. 25 lakhs relating to Kundannagar land represented unaccounted cash received during the financial year 1994-95.
10. The learned counsel for the assessee-company strongly assailed the conclusions and reasoning adopted by the AO for making the impugned additions of Rs. 45 lakhs and argued that the loose papers and documents relied upon by the AO do not constitute admissible evidence against the assessee. The mainstay of the assessee's case as set up by the learned counsel is based on the landmark decision of the apex Court in the case of CBI vs. V.C. Shukla & Ors. (1998) 3 SCC 410. The learned counsel argued that the assessee has totally denied the alleged undisclosed transactions relating to Silver Arc and Kundannagar land and no conclusions can be drawn against the assessee on the basis of the statements of Shri Suresh Patel and Deepak Mehta. The learned counsel further pointed out that the assessee-company has not been allowed to cross-examine Shri Suresh Patel and Deepak Mehta and their statements recorded at the back of the assessee cannot be used for drawing conclusions against the assessee. Reliance is placed on the decision of Bombay Tribunal in Jaya S. Shetty vs. Asstt. CIT (1999) 64 TTJ (Mumbai) 551 : (1999) 69 ITD 336 (Mumbai). With regard to Silver Arc deal the learned counsel argued that as per books of account the assessee has made payments of Rs. 25 lakhs by cheque on 8th May, 1995, there was thus, no question for Rs. 20 lakhs being returned back on 20th Sept., 1994, by Shri Govind C. Patel as recorded on the front page on A-1/22 document. With regard to Kundannagar Scheme the learned counsel submitted that a sum of Rs. 18.90 lakhs has been paid on behalf of Kundannagar Housing. Society and since the deal was cancelled the amount remains outstanding from Govind C. Patel.
11. The learned Departmental Representative strongly supported the order of the AO and argued that Shri Suresh Patel and Deepak Mehta are brokers who have been involved in the Silver Arc as well as Kundan Nagar transactions and since their testimony is corroborated by the seized documents, the addition made by the AO deserves to be confirmed. The learned Departmental Representative further submitted that statements recorded by the tax authorities have been duly communicated to the assessee and thus constitute admissible evidence in support of the impugned additions made by the AO.
12. We have given our thoughtful consideration to the facts and circumstances of the case and also considered the rival submissions made before us. It appears that the main stay of the Department's case for making the impugned additions of Rs. 45 lakhs is the documents appearing at Sri. No. 22 of Annexure A-1 of the Panchnama found from the residence of Sureshbhai A. Patel who is a partner of Gokul Corpn. as well as other documents found during the search on 21st Sept., 1995. The first issue which falls for consideration before us is whether these documents and loose papers constitute admissible and relevant evidence in support of the Department's case or not. It is a settled proposition, as held by various judicial authorities, that rigours of the rules of evidence contained in the Evidence Act are not applicable to income-tax proceedings. However the principles contained in the Evidence Act, incorporated from Rules of natural justice forming part of the common law would naturally be applicable to income-tax proceedings. Reference in this connection may be made to the decision of Supreme Court in the case of Chuharmal vs. CIT (1988) 70 CTR (SC) 88 : (1988) 172 ITR 250 (SC). Now if we consider the evidentiary value of these documents as per s. 34 of the Evidence Act, 1872 it is amply clear that these loose papers and documents cannot possibly be construed as books of accounts regularly kept in the course of business. Such evidence would, therefore, be outside the purview of s. 34 of the Evidence Act, 1872. The ratio of the landmark decision of apex Court in the case of Central Bureau of Investigation vs. V.C. Shukla & Ors. relied upon by the learned counsel would apply. We are, therefore, of the considered opinion that the Revenue would not be justified in resting its case on the loose papers and documents found from the residence of a third party even if such documents contain narrations of transactions with the assessee-company. At this stage we may also refer to the provisions of s. 132(4A). The presumption under the provisions of s. 132(4A) would in any case not be applicable to a third party from whose possession such papers and documents have not been found by the Revenue. The Revenue has further relied upon the statements of Shri Sureshbhai and Shri Deepak Mehta, partners of M/s Gokul Corporation. We find merit in the contention of the learned counsel that such statements recorded at the back of the assessee would not ipso facto include the case against the assessee particularly when the maker of the statements have not been allowed to be interrogated by the assessee-company. Shri Suresh Patel and Shri Deepak Mehta are brokers and the transactions involving the receipt of on money have been according to the Revenue, arranged through these persons. Mere testimony of these brokers tendered at the back of the assessee would not be sufficient to establish that on money has been received by the assessee. The document appearing at p. 22 of Annexure A-1 shows the payment of Rs. 20 lakhs on 20th Sept., 1994, on the cancellation of the Silver Arc Scheme with Gautam Adani. Apparently it is a cancellation of the deal and the amount has been returned back to the assessee by Shri Adani there is nothing on record as to when the money was originally paid. As per books of accounts of the assessee a sum of Rs. 25 lakhs has been paid by cheque on 8th May, 1995 to Govind C. Patel in respect of Silver Arc deal. If that being so, the return of Rs. 20 lakhs in cash on 20th Sept., 1994, does not fit in with the sequence of events. There also appears to be some confusion regarding the identity of the parties with whom the Silver Arc deal has been entered into by the assessee. According to Shri Deepak Mehta, in reply to question No. 77 in the statement dt. 27th Sept., 1995, the Silver Arc Deal was entered into by the assessee-company with Shri Adani whereas the return of Rs. 20 lakhs in cash on 20th Sept., 1994, appears to have been made by Shri Govind C. Patel to the assessee. The statements of Shri Sureshbhai and Deepakbhai do not bring out full facts with regard to the transactions relating to Silver Arc as well as Kundan Nagar involving the assessee-company. The learned Departmental Representative has filed before us photocopies of block assessment orders made by the Tax authorities in the case of Shri Govind- C. Patel and Shri Gautam Adani Management & Consultancy Services Ltd. From these orders we find that in the case of Silver Arc addition has been made on substantive basis in the case of Shri Manoj Vadodaria and protective basis in the case of Gautam Adani Management & Consulting Services Ltd. It appears to us that the statement of Shri Manoj Vadodaria, again recorded at the back of the assessee would not in any manner land any support to the impugned additions made in the assessee's case.
13. Having regard to the aforesaid discussion we would proceed to delete the impugned additions of Rs. 45 lakhs with the observation that the AO has failed to adduce evidence in support thereof. Ground No. 1 is, therefore, allowed.
14. Ground No. 2 is against the addition of Rs. 28 lakhs in respect of Hasunagar Co-operative Housing Society land. The addition is mainly based on the statement of Shri Ramanbhai Patel recorded before the ADI on 8th Jan, 1996, wherein Shri Patel admitted that he received a sum of Rs. 28 lakhs in cash from the assessee-company for assigning the development rights of a part of the land on which the development scheme of Prarthan Vihar has been developed ,by the assessee compnay. According to Shri Ramanbhai Patel he was knowing one Shri Subhash Pandey who is promoter member of Hasunagar Co-operative Hsg. Society and later became member of managing committee. It was through the efforts of Shri Ramanbhai that land measuring 1,00,070 sq mts. In Shreyas Tekra was acquired by the society and other formalities like getting the no objection certificate from the concerned Government authorities as well as finding members for the co-operative society were completed. Statement of Shri Subhash Pandey has also been recorded wherein it has been stated that the assessee-company has been assigned development rights in the Sujan Scheme in respect of lands measuring 20,985 sq. mts. Shri Ramanbhai Patel admitted in his statement that the assessee-company agreed to pay on money at the rate of Rs. 120 per sq. yd. in cash and that total on money to be paid in cash aggregate to Rs. 30 lakhs out of which payment of Rs. 28 lakhs has already been received by him. On the basis of this statement the AO proceeded to make an addition of Rs. 28 lakhs as income from undisclosed sources which is being assailed by the assessee before us.
15. The learned counsel, raising legal objections against the impugned addition argued that while making a block assessment under Chapter XIV-B of the IT Act, no addition can be made in the case of the assessee on the basis of the statement of Shri Ramanbhai Patel and Subhash Pandey recorded under s. 131(1A). According to the learned counsel any such addition would be beyond the scope of s. 158BD r/w s. 158BC since no search operations have been conducted at the premises of the said persons. The learned counsel further submitted that the statements relied upon has been recorded at the back of the assessee and cannot, therefore, be utilised against the assessee without opportunity of cross-examination afforded to the assessee. The learned counsel further pointed out that Shri Ramanbhai has retracted from the statement and, therefore, the statement should not be relied upon by the Tax authorities. The learned counsel submitted that the assessee has paid a sum of Rs. 20.50 lakhs to the Hasunagar Society for acquiring development rights and in the circumstances there was no occasion for the assessee to pay a sum of Rs. 28 lakhs in cash to Shri R.B. Patel for his services of liaison work. Without prejudice to his main contentions, the learned counsel took up the alternative plea that even if the assessee has paid a sum of Rs. 28 lakhs to Shri Patel, and the expenditure is treated as unexplained expenditure under s. 69C, a. corresponding deduction under s. 37 would be allowable to the assessee.
16. After careful consideration of the matter, we are inclined to delete the addition of Rs. 28 lakhs made by the AO. The legal contentions raised by the learned counsel regarding the action of the AO in roping in the so-called cash payment made to Shri Ramanbhai for acquiring development rights have substantial merit in view of the decision of Gujarat High Court in the case of N.R. Paper & Board Ltd. vs. Dy. CIT (1998) 146 CTR (Guj) 612 : (1998) 234 ITR 733 (Guj). In the instant case no search operations have been carried out by the Revenue authorities on the premises of Shri Ramanbhai or Shri Subhash Pandey and no documents and records evidencing payment of on money by the assessee on the Hasunagar Co-operative Society land has been seized. Therefore, provisions of s. 158BC, applicable for search cases would not come into play in so far as the impugned addition of Rs. 28 lakhs is concerned. On this legal ground alone the addition is liable to be deleted. On factual merits also we find that statements of Shri Ramanbhai and Shri Subhash Pandey recorded at the back of the assessee cannot be relied upon for fastening tax liability against the assessee particularly when the assessee has not been allowed opportunity of cross-examination and no supporting evidence has been brought on record by the AO. The addition of Rs. 28 lakhs is, therefore, deleted.
17. Ground No. 3 is regarding levy of surcharge at the rate of 12 per cent on the tax calculated on the undisclosed income. However, since we have deleted the additions made on accounts of undisclosed income as above, there is no occasion for levy of any surcharge. Any surcharge levied in the instant case is, therefore, liable to be deleted. This ground is allowed.
18. In the result, the appeal is allowed.
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