2011-VIL-740-ITAT-KOL

Income Tax Appellate Tribunal KOLKATA

I.T(SS). A Nos. 11 to 13/Kol/2011 & I.T(SS).A Nos. 15 to 21/Kol/2011

Date: 29.07.2011

M/s . FORT PROJECTS (P) LTD.

Vs

DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-VI, KOLKATA.

For the Appellant: S.K. Tulsiyan,
For the Respondent: D.R. Sindhal,

BENCH

Shri G.D. Agrawal, Vice President and Shri Mahavir Singh, Judicial Member

JUDGMENT

Mahavir Singh, Judicial Member

1. The cross-appeals, IT(SS)A Nos. 11 to 13/Kol/2011 by assessee and IT(SS)A Nos. 19 to 21/Kol/2011 by Revenue are arising out of orders of CIT(A), Central-1, Kolkata in Appeal Nos. 117 to 119/CC-VI/CIT(A)-C-1/09-10 dt. 25th Nov., 2010 and 30th Nov., 2010. IT(SS)A Nos. 15 to 21/Kol/2011 by Revenue are arising out of the orders of CIT(A), Central-1, Kolkata in Appeal Nos. 113 to 119/CC-VI/CIT(A),C-1/09-10 vide dt. 19th Nov., 2010, 25th Nov., 2010 and 30th Nov., 2010. Assessments were framed by Dy. CIT, CC-VI, Kolkata under s. 144/153C of the IT Act, 1961 (hereinafter referred to as "the Act") for asst. yrs. 2006-07 to 2008-09 and asst. yrs. 2002-03 to 2008-09 vide his orders dt. 31st Dec., 2009.

2. The first common issue in Revenue's appeal in IT(SS)A Nos. 19 to 21/Kol/2011 is as regards to orders of CIT(A) deleting additions made on account of alleged on-money receipts for on-going projects amounting to Rs. 2,58,64,762, Rs. 1,73,16,880 and Rs. 64,83,07,492 for the asst. yrs. 2006-07, 2007-08 and 2008-09 respectively, relying on project completion method of accounting followed by assessee company. For this, Revenue has raised common and identically worded grounds, except amount. Following three grounds raised in asst. yr. 2008-09 are being reproduced, as it is and will take facts and figures from this year only and will be decided far all three years on that basis.

"1. That, on the facts and circumstances of the case, learned CIT(A) has erred in both law and facts in deleting the addition of Rs. 64,83,07,492 on account of undisclosed income arising out of receipt of on-money from various projects.

2. That, in doing so, learned CIT(A) erred in putting emphasis on the project completion method of accounting ignoring the fact that books of account of the assessee company were rejected.

3. That, the learned CIT(A) failed to appreciate that on-money received in-respect of various project has to be added in the year of receipt."

Similarly, assessee has also raised common issues in IT(SS)A Nos. 11 to 13/Kol/2011 in regard to observations of CIT(A) that on-money received by assessee company in respect of its project that the same is to be considered on completion of projects as per method of accounting followed by assessee. In asst. yr. 2008-09 the assessee has also challenged the action of CIT(A) confirming addition in respect to transactions of seized document RM/5. For this, the assessee has raised common grounds and grounds raised in asst. yr. 2008-09 i.e. IT(SS)A No. 13/Kol/2011 read as under:

"1. That the orders passed by the lower authorities are arbitrary, erroneous, invalid and bad in law.

2. That on the facts and in the circumstances of the case, the learned CIT(A) erred, solely on the basis of a specific document showing certain specific transactions viz. RM-5 and as accepted by the appellant simply for buying peace with the Department, in observing that there is no dispute that 'on-money' was received by the assessee in respect of flats being sold by it and in holding that 'the AO was legally justified in assuming that assessee must have also received the 'on-money' from the prospective buyers in respect of the balance flats of these three projects'.

3. That the learned CIT(A) erred in having observed that on-money was received by the appellant company in respect of its projects which is to be considered on completion of project as per the method of accounting followed by the appellant.

4. That the unsubstantiated allegation including the bogus note forcibly created by the Department in course of search having been established beyond doubt being bogus, the CIT(A) erred in having still not declared the notings therein as having no evidentiary value."

3. Brief facts are that assessee is a private limited company engaged in housing, real estate, development of commercial malls etc. Search and seizure operations were conducted on 28th Feb., 2008 and on subsequent dates in Fort Group of cases along with Sri Vivek Kumar Kathotia, director of assessee-company at Flat No. A-2, 29, Ballygunge Park Road, Kolkata-19. Further, survey action under s. 133A was conducted in the office premises of assessee and in course of which the following books/documents were impounded:

Premises	Books/documents found and impounded
Office premises of M/s Fort Projects (P) Ltd. at 7/1A Hazra Road, Kolkata-26	PC/1 to PC/3
Office premises of M/s Fort Projects (P) Ltd. and M/s Fort Builders at 38/1 Panditya Road, Kolkata-29	FP/1 to FP/11,FP/CD-1.FP/CPU/1
Office premises of M/s Fort Projects (P) Ltd. at 59C Chowringhee Road, Kolkata and 297/1A Hazra Road, Kolkata-26	GB/1 to GB/17, GB/CPU/1

During search at the residential premises of Sri Vivek Kumar Kathotia, director of company, documents, computer printouts etc. marked RM/1 to RM/4 were found and seized and papers marked RM 5 containing details of on-money receipts of assessee company in respect of flats in three projects namely (i) 20 Lee Road, Kolkata (ii) 22 Lee Road, Kolkata and (iii) 68 Hindustan Park, Kolkata were also found and seized. On the basis of seized document RM-5 a disclosure of Rs. 9.02 crores was made by assessee, whereas the allegation of assessee was that said seized documents were forcibly manufactured by Department at the time of search and seizure action in case of Sri Vivek Kumar Kathotia and he was forced by search party to write the said seized documents and make an exorbitant disclosure of Rs. 9.02 crores on the basis of the same. In view of search proceedings under s. 132 of the Act and documents found from the director Shri Vivek Kumar Kathotia notices under s. 153C of the Act were issued to assessee on the basis of noting in RM/5 for the asst. yrs. 2002-03 to 2008-09. The assessee claimed that to buy peace and avoid protracted litigation and unnecessary dispute in the matter, it offered entire alleged receipts of on-money of Rs. 9.02 crores as indicated in RM/5 as income in its return of income filed under s. 153C for asst. yr. 2008-09. Due taxes thereon were also paid. Assessments under.s, 144/153C for asst. yrs. 2002-03 to 2008-09 were completed by AO on 31st Dec., 2009 assessing total income for said years at a total undisclosed income of Rs. 81,15,33,889 as against returned income of Rs. 9,72,47,117. The year-wise details are as under:

A.Y.	Income returned under s. 153C	Total income assessed by AO under s. 144/153C	Total income originally assessed under s. 143(3)	Total income determined under s. 153C
2002-03	(202,206)	1,604,525	(202,206)	NA
2003-04	93,510	1,844,805	258,750	98,158
2004-05	300,250	4,361,731	300,250	NA
2005-06	523,100	5,030,415	523,100	NA
2006-07	948,922	28,166,232	NA	NA
2007-08	4,023,311	27,321,716	NA	NA
2008-09	91,560,230	743,204,465	NA	NA
	97,247,117	811,533,889

For asst. yr. 2008-09 AO made an addition of Rs. 64,83,07,492 on account of alleged 'on-money' receipts over and above noting of Rs. 9.02 crores in RM/5. The AO extrapolated receipts of 'on-money' at the highest per square foot rate as noted in RM/5 to all the flats in the following three projects (including remaining flats in projects not mentioned in RM/5) and taxed resultant figure of Rs. 64.83 crores as on-money receipts for asst. yr. 2008-09 on the following projects:

(i) 68, Hindustan Park, Kolkata

(ii) 20, Lee Road, Kolkata

(iii) 24, Lee Road, Kolkata.

The AO while making this addition has held as under:

"68, Hindustan Park: When both the relevant documents, viz. impounded document GB/17 (pp. 56 to 57) and the pp. 1 to 3 of the seized document RM/5 are seen together, it is found that the assessee received the highest rate per square foot for the flat No. 4D Sri/Smt. A. Das- the total amount is Rs. 1,18,87,000 for 1,798 sq. ft. of flat. The rate works out to Rs. 6,611 per sq. ft. When the assessee admittedly received such rate from this flat, including on-money, in the project, there is no reason why the same rate was not received in respect of the other flats in the same project. The assessee has not disclosed any on-money in respect of most of the flats. The rates accounted for are different in most of the cases. There is no reason for variation of square foot rate in the same project.

As per the details in pp. 56 and 57, the total amount of flat Nos. 2A, 2B, 3A, 3B, 3C, 3D, 4C, 4D, 5A, 5B, 5C and 5D, which were allocated to the buyers as well as from which on-money receipts are evidenced by RM/5 is Rs. 284.18 lakhs. The total amount @ 6,611 per sq. ft. works out to Rs. 14,41,99,132. The assessee has accounted for Rs. 6,20,16,500 on account of those flats. Besides, the assessee has disclosed on-money receipt totalling Rs. 2,87,18,000 from some flats as per RM/5. The balance amount, therefore, works out to Rs. 14,41,99,132 minus Rs. 6,20,16,500 minus Rs. 2,87,18,000 = Rs. 5,34,64,632. In view of the seized documents and the facts as stated above, the books of account of the assessee are not correct and complete and as such the same are rejected and the balance amount of Rs. 5,34,64,632, which has not been accounted for or disclosed, is added to the income of the assessee as undisclosed on-money receipts in asst. yr. 2008-09.

20, Lee Road Project: When both the relevant documents, viz. impounded document GB/17 (pp. 53 to 55) and the pp. 4 to 6 and 8 of the seized document RM/5 are seen together, it is found that the assessee received the highest rate per square foot for the flat Nos. 401 and 301 from Mr. Jalan the total amount is Rs. 2,51,56,000 for total 5036 sq. ft. of flats. The rate works out to Rs. 4,995 per sq. ft. When the assessee admittedly received such rate from the two flats, including on-money, in the project, there is no reason why the same rate was not received in respect of the other flats in the same project. The assessee has not disclosed any on-money in respect of most of the flats. The rates accounted for are different in most of the cases. There is no reason for variation of square foot rate in the same project.

As per the details in pp. 53 to 55, the total area of flats is 78,920 sq. ft., the area allocated to landlord is 24,282 sq. ft. Therefore, the assessee's share is 54,008 sq. ft. The total amount @ 4,995 per sq. ft. works out to Rs. 13,30,40,200. HoweVer, the assessee has not accounted for the consideration of Rs. 2,51,80,000 in respect of the flat in the name of Vivek Agarwal, which is evident from the fact that the figures printed against his name have been penned through in the seized document. Thus the assessee has accounted for Rs. 13,30,40,200 minus Rs. 2,51,80,000 = Rs. 10,78,60,200. The assessee has disclosed on-money receipt totalling Rs. 2,58,40,000 from six flats as per RM/5. The balance amount, therefore, works out to Rs. 26,97,69,960 minus (Rs.10,78,60,200 plus Rs. 2,58,40,000} = Rs. 13,60,69,760. In view of the seized documents and the facts as stated above, the books of account of the assessee are not correct and complete and as such the same are rejected and the balance amount of Rs. 13,60,69,760, which has not been accounted for or disclosed, is added to the income of the assessee as undisclosed on on-money receipts in asst. yr. 2008-09.

24, Lee Road Project: When both the relevant documents, viz. impounded document GB/17 (pp. 51 and 52) and the pp. 7, 9 and 10 of the seized document RMJ/are seen together, it is found that the assessee received the highest rate per square foot for the flat No. 6B the total amount is Rs. 2,18,32,000 for total 2,729.ft. of flat. The rate works out to Rs. 8,000 per sq. ft. When the assessee admittedly received such rate from the flat, including on-money, in the project, there is no reason why the same rate was not received in respect of the other flats in the same project. The assessee has not disclosed any on-money in respect of most of the flats. The rates accounted for are different in most of the cases. There is no reason for variation of square foot rate in the same project.

As per the details in pp. 51 and 52, the total area of flats is 86,987 sq. ft. The total 'area allocated to landlord is 19,684 sq. ft. Therefore, the assessee's share is 67,303 sq. ft. The total amount @ 8,000 per sq. ft. works out to Rs. 53,84,24,000. The assessee has accounted for Rs,4,39,84,900 as evident from p. 52 of GB/17. The assessee has disclosed on-money receipt totalling Rs. 3,56,66,000 from three flats as per RM/5. The balance amount, therefore, works out to Rs. 45,87,73,100 [Rs.53,84,24,000 minus (Rs.4,39,84,900 plus Rs. 3,56,66,000)]. In view of the seized documents and the facts as stated above, the books of account of the assessee are not correct and complete and as such the same are rejected and the balance amount of Rs. 45,87,73,100, which has not been accounted for or disclosed, is added to the income of the assessee as undisclosed on-money receipts in asst. yr. 2008-09.

Thus the total addition made on this account from the three projects is Rs. 5,34,64,632 + Rs. 13,60,69,760 + Rs. 45,87,73,100 = Rs. 64,83,07,492, all in asst. yr. 2008-09."

Aggrieved, assessee preferred appeal before CIT(A).

4. The CIT(A) held that aforesaid three projects were incomplete during asst. yr. 2008-09, and hence, whole issue regarding receipts of on-money was to be considered by AO in the year in which projects will complete. Accordingly, he deleted the addition of Rs. 64.83 crores made with the observation that the quantum of undisclosed income of on-money and the mistakes pointed out by assessee were irrelevant for the year under consideration. CIT{A) further clarified that only profit element embedded in the trading receipts could be taxed which could be determined only on completion of project. He observed that conducting search and seizure operation in a particular year did not lead to an inference that undisclosed income detected as a consequence thereof was to be taxed in the assessment year relevant to previous years in which search was conducted. The accounting profits were yet to be made on the basis of method of accounting followed by assessee. The CIT(A) despite deleting addition for asst. yr. 2008-09 on the basis of project completion method, observed that AO was legally justified in extrapolating on-money receipts mentioned in RM/5 to other flats in other projects. Revenue is in appeal before Tribunal against deletion of addition on the basis of project completion method of accounting for reasons that on-money receipts from various projects have to be added in the year of receipt, since books of account were rejected by AO. As against the order of CIT(A), assessee contended that disputed seized document RM/5 was forcibly manufactured by the search party at the time of search and entire alleged on-money receipt of Rs. 9.02 crores mentioned in RM/5 in respect of few flats in these three projects was however offered in entirety by assessee as its income for asst. yr. 2008-09 solely to buy peace and avoid unnecessary dispute. According to assessee, no other evidence, whether documentary or circumstantial, pertaining to receipt of on-money for other flats in these three projects or other projects were found in course of search or survey operation and AO was thus completely unjustified in extrapolating on-money to the balance flats in these three projects merely on the basis of disputed seized loose papers and making an exorbitant addition of Rs. 64.83 crores on the basis of surmises and conjectures. However, assessee contended that CIT(A) was correct to the extent of holding that assessee was regularly following project completion method of accounting and these three projects were incomplete till asst. yr. 2008-09, no receipt, whether in cheque or cash was taxable for asst. yr. 2008-09.

5. We have heard rival contentions and gone through facts and circumstances of the case. First of all we have gone through the seized document RM/1, which is reproduced on p. 2 of the assessment order, which is again being reproduced for the sake of clarity, as under:

Page No. of RM/5	Name of project	Flat No.	Area	Name of buyer	On money received in cash
1.	68 Hindustan Park		3493 sq. ft	Smt. A.Das	91.32 lakhS
2.	-do-		1778 sq.ft	Smt. N. Kundu	55.94 lakhs
3.	-do-	2AB/3AB	6986 sq. ft	A. Ghosh and Ors	139.92 lakhs
4.	20 Lee Road	506	2514 sq. ft	H. Tated	25. 14 lakhs
5.	-do-	403	2514 sq. ft	S. Bachwat	26. 14 lakhs
6.	-do-	404/504	5028 sq. ft	R. Bachwat	56.28 lakhs
7.	-do-	3B	5029 sq. ft	Om Jalan	150.84 lakhs
8.	24 Lee Road	401 and 301	2729 sq. ft	Dilip Lahoti	83.76 lakhs
9.	-do-	6C	2729 sq. ft	Dilip Dugar	136.45 lakh
10.	-do-	6B	2729 sq. ft	Ashok Surana	136.45 lakh

We find that AO has summarized on-money receipts of seized document RM-1 and even this document is enclosed in assessee's paper book at pp. 101 to 111. We find that the assessee vide letter dt. 28th Dec., 2009 filed before AO, pointed out following defects/inconsistencies in seized documents RM/5 and according to assessee which proved that same were manufactured by search party at the time of search and did not represent actual state of affairs. The relevant details from letter dt. 28th Dec., 2009 are being reproduced as it is:

Name as per RM/-5	Whether actual sales made	Area as per RM/5 sq.ft.	Actual area of flats sq.ft.
Smt. A. Das	No such sale. Agreement cancelled in April 2006. So the question of receiving any on-money in 2007 did not arise	3,493	Since flat number is not mentioned in RM/5, so actual area is not determinable
Smt. N. Kundu	No such sale	1,798	Since flat number is not mentioned in RM/5, so actual area is not determinable
H. Tated	Sales made	2,514	3,422
S. Bachwat	No such sale	2,514	2,518
Om Jalan	No such sale	5,028	2,518
R. Bachwat	No such sale	5,028	5,036
Dilip Lahoti	No such sale	2,729	5,940
Dilip Dugar	No such sale	2,729	2,729
Ashok Surana	No such sale. Flat does not belong to the assessee but to the landowners on which the property was constructed	2,729	2,729

We find that AO rejected assessee's plea that seized papers were forcibly manufactured by search party at the time of search on the pretext that the said issue had been raised after 22 months from the date of search and furthermore there was no evidence that Sri Vivek Kathotia was forced to write said papers by search party. The AO observed that assessee had suo motu offered sums mentioned in RM/5 as its income for asst. yr. 2008-09 and even CIT(A) also rejected assessee's stand on similar grounds. We find that said seized papers were not manufactured by search party at the time of the search but were found from the possession and control of assessee in the course of search. As such, the presumption under s. 292C regarding the correctness of the contents of seized documents applies to RM/5 also. Further, it is assumed that the presumption regarding the correctness of contents of seized documents under s. 292C is applicable to KM/5, the said presumption is rebuttable and assessee unsuccessfully tried to rebut the presumption under s. 292C by pointing out defects/mistakes in RM/5, but unable to do the same by any cogent evidence. Accordingly, we have to accept the seized document RM/5 as correct and true.

6. When we have assumed that assessee was bound by the presumption under s. 292C in respect of the contents of seized documents marked as RM/5, the addition of Rs. 64.83 crores is also unsustainable because no corroborating document or evidence whatsoever was found in the course of search or survey action in support of addition of Rs. 64.83 crores. The said figure of Rs. 64.83 crores was arrived at by the AO by extrapolating the notings in RM/5 to all the other flats in three projects. We are of the view that AO was not justified in extrapolating few stray notings in RM/5 to the balance flats in three projects given that no incriminating evidence pertaining. thereto was found in course of search more so when the authenticity of the subject seized documents, RM/5 was itself challenged by assessee. Since it was presumed by us that assessee was bound by presumption under s. 292C in respect of seized paper RM/5, additions on account of alleged on-money could at best be limited to the seized materials and since assessee had suo motu offered entire on-money in its return of income, no further addition on this count was warranted. We find that Hon'ble Courts and Tribunals have time and again held that assessments cannot be framed merely on extrapolation theory i.e. discrepancies in respect of items must have existed in other years or other instances or projects unless a definite trend of malpractice is conclusively proved by substantial evidence on record. We find that Revenue contended that on-money receipts have to be added in the year of receipt and that CIT(A) erred in putting emphasis on the project completion method of accounting ignoring facts that books of account of assessee were rejected by AO. We find that CIT(A) observed that the assessee was consistently following project completion method of accounting and projects against which the assessee received 'on-money' were not complete during asst. yr. 2008-09. The CIT(A) further observed that income from projects was being offered by assessee only on the completion of projects and therefore, unaccounted advance receipt, if any, pertaining to the said projects had to have the same treatment and further AO had himself disallowed certain expenditure holding that same pertained to specific projects and had to be capitalized in the closing work-in-progress. Thus, the AO having not rejected and thus having accepted the project completion method of accounting consistently followed by assessee, there was no justification for estimating assessee's profits for these years by estimating undisclosed income earned from projects. We find that the AO had not disputed that on-money receipts were trading receipts received as advance from the prospective buyers of flats and only net profit could be brought to tax and not gross receipts. The CIT(A) has rightly held that only the profit embedded in trading receipt could be taxed which could be determined only on completion of projects/The conduct of search and seizure operation in a particular year did not lead to an inference that undisclosed income detected as a consequence thereof had to be taxed in the assessment year relevant to previous year in which the search was conducted but accounting profits have yet to be made on the basis of method of accounting followed by assessee. Therefore, we agree with the findings of CIT(A) that assessee was following project completion method of accounting, therefore all the amounts whether allegedly received in cash or by cheque were taxable in the years in which the projects were completed. In regard to extrapolating of noting in RM/5, the same cannot be applied to other projects, because on-money would fructify into income or partake the character of income only in the year of completion of project in accordance with project completion method of accounting followed by assessee. The undisclosed income, if any, had to be computed in accordance with the method of accounting followed by assessee and not in the year of receipt in accordance with cash system of accounting. We find that Hon'ble Bombay High Court in the case of CIT vs. Ghodawat Pan Masala Products (P) Ltd (2001) 170 CTR (Bom) 45: (2001) 250 ITR 570 (Bom) held that for the block assessment period 1984 to 1995 there was no material to indicate that the GP rate of 15 per cent was the basis for entire period. An excessive rate of gross profit was applied to arrive at a conclusion that closing stock was suppressed but Tribunal found that the AO made addition without any material to indicate that the gross profit was @ 15 per cent for entire block period. Hon'ble High Court, discussing facts, held as under:

"Mr. Desai, learned counsel appearing on behalf of the Department, contended that the Tribunal erred in deleting the addition. He contended that during the course of search, stock worth Rs. 1,32,52,685 came to be detected. He further contended that in respect of the period ast April, 1995 upto 27th Sept., 1995, the tentative trading account prepared by the assessee shows that the GP rate applied was 15 per cent and if that rate is taken into account, then the closing stock figure should be Rs. 2,05,90,919 and not Rs. 1,38,14,855. It was urged on behalf of the Department that under the above circumstances, the AO was right in making the above additions. We do not find any merit in the said contention. Firstly, the block assessment is for the period 1984-1995. One fails to understand as to whether the AO was justified in applying the GP rate of 15 per cent only on the basis that the tentative trading account for part period of ast April, 1995, to 27th Sept., 1995, was arrived at by applying the GP rate of 15 per cent. The AO has not at all considered as to what was the average GP rate during the period 1984 to 1995. Secondly, the assessee had contended before the AO that on account of acute competition, the GP rate could not be applied at 18 per cent. This fact has not been appreciated by the AO in its proper context. Thirdly, it may also be mentioned that although under Chapter XIV-B, the AO is entitled to take into account the estimate, particularly when documentary evidence was not forthcoming, an arbitrary method cannot be applied. There is no material to indicate that the GP rate of 15 per cent was the basis for the entire period 1984-1995. In the circumstances, an excessive rate of gross profit was applied to arrive at the conclusion that the closing stock was suppressed. Lastly, as pointed out by the Tribunal, in the matter of the second addition, the AO has worked out the said addition on the basis of excess of stock which finding is contrary to the finding of the AO while computing the closing stock. Under the above circumstances, the Tribunal was right in allowing the appeal.

7. Further, Hon'ble Rajasthan High Court in the case of CIT vs. Rajendra Prasad Gupta (2001) 166 CTR (Raj) 83: (2001) 248 ITR 350 (Raj) wherein Hon'ble High Court observed that under the scheme of provisions for block assessment it is apparent that it related to assessment of "undisclosed income" of assessee excluding incomes subjected to regular assessment in pursuance of returns filed by assessee for such period. and further observed that a perusal of s. 158BB of the Act makes it clear that returns are required to be filed in pursuance of a notice under s. 158BC(a) and assessment has to be framed on that basis in the light of material that had come into possession of assessing authority during the course of search which was the foundation of proceedings. The, correctness or otherwise of the returns filed in pursuance of the notice under s. 158BC(a) has to be examined with reference to the material in possession of the assessing authority having nexus to assessment of "undisclosed income". If the returns filed did not accord with the materials which were already in the possession of the authority the income could be estimated to the best of his judgment by the assessing authority on the basis of the material in his possession. and Hon'ble High Court held that there was no finding by the AO that the estimate of income was made after consideration of the material that came to light during the course of search and seizure, accordingly, Tribunal was justified in setting aside the best judgment assessment made by AO.

8. Similarly, Hon'ble Bombay High Court in the case of CIT' vs. C.J. Shah and Co. (2000) 246 ITR 671 (Bom) held that where material is detected after search and seizure operations are carried out, the AO is required to determine the undisclosed income and in such cases additions are based on estimates but in matter of estimation some amount of latitude is required to be shown to AO particularly when relevant documents are not forthcoming. However, Hon'ble High Court observed that it does not mean that the AO can arrive at any figure without any basis by adopting any arbitrary method of calculation. Hon'ble High Court has observed as under:

"It is well-settled that in cases where material is detected after search and seizure operations are carried out, the AO is required to determine the undisclosed income. In such cases additions are generally based on estimates. In matters of estimation some amount of latitude is required to be shown to the AO particularly when relevant documents are not forthcoming. However, it does not mean that the AO Can arrive at any figure without any basis by adopting an arbitrary method of calculation. In the present matter, A3, A4 and A6 nowhere records the turnover of the assessee as found by the Tribunal and yet on the wrong basis of the incoming and outgoing cash transactions, the AO has arrived at the turnover. Moreover, the peak investment was Rs. 40,14,806 for three months. However, there is no material seized to justify any figure to be included for a period earlier to the said period of three months. In the circumstances, the Tribunal has recorded a finding of fact and has held that the addition of Rs. 3.40 crores was totally unjustified. The entire finding of the Tribunal is based on the facts. No substantial question of law arises. Hence, the appeal is dismissed."

9. We find that even Hon'ble apex Court in Dhakeswari Cotton Mills Ltd. vs. CIT (1954) 26 ITR 775 (SC) laid down principle regarding estimation that while making assessment under s. 23(3) of the IT Act 1922, the ITO is not fettered by technical rules of evidence and pleadings, and he is entitled to act on material which may not be accepted as evidence in a Court of law, but he is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support assessment under s. 23(3). Hon'ble apex Court on facts of the case held that both ITO and Tribunal in estimating the GP rate on sales of the assessee did not act on any material but acted on pure guess and suspicion and therefore it was a fit case for the exercise of the power of the Supreme Court under Art. 136 of the Constitution of India. The Hon'ble apex Court held as under:

"As regards the second contention, we are in entire agreement with the learned Solicitor General when he says that the ITO is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a Court of law, but there the agreement ends; because it is equally clear that in making the assessment under sub-s. (3) of s. 23 of the Act, the ITO is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under s. 23(3). The rule of law on this subject has, in our opinion, been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Singh and Anr. vs. CIT.

In this case we are of the opinion that the Tribunal violated certain fundamental rules of justice in reaching its conclusions. Firstly, it did in Seth Gurmukh Singh and Anr. vs. CIT (1944) 12 ITR 393 (Lahore)(FB) not disclose to the assessee what information had been supplied to it by the Departmental Representative. Next, it did not give any opportunity to the company to rebut the material furnished to it by him, and lastly, it declined to take all the material that the assessee wanted to produce in support of its case. The result is that the assessee had not had a fair hearing. The estimate of the gross rate of profit on sales, both by the ITO and the Tribunal; seems to be based on surmises, suspicions and conjectures. It is somewhat surprising that the Tribunal took from the representative of the Department a statement of GP rates of other cotton mills without showing that statement to the assessee and without giving him an opportunity to show that that statement had no relevancy whatsoever to the case of the mill in question. It is, not known whether the mills which had disclosed these rates were situate in Bengal or elsewhere, and whether these mills were similarly situated and circumstanced. Not only did the Tribunal not show the information given by the elsewhere, and whether these mills were similarly situated and refused even to look at the trunk load of books and papers which Mr. Banerjee produced before the AM in his Chamber. No harm would have been done if after notice to the Department the trunk had been opened and some time devoted to see what it contained. The assessment in this case and in the connected appeal, we are told, was above the figure of Rs. 55 lakhs and it was meet and proper when dealing with a matter of this magnitude not to employ unnecessary haste and show impatience, particularly when it was known to the Department that the books of the assessee were in the custody of the Sub-Divisional Officer, Narayanganj. We think that both the ITO and the Tribunal in estimating the GP rate on sales did not act on any material but acted on pure guess and suspicion. It is thus a fit case for the exercise of our power under Art. 136."

10. In the present case before us, we find that assessee was following project completion method of accounting and these projects were incomplete during the year under consideration. Even if it is assumed that AO was justified in extrapolating the noting in RM/5, no income from other projects could be recognized for asst. yr. 2008-09. We are of the view that on-money would fructify into income or partake the character of income only in the year of completion of the project in accordance with the project completion method of accounting followed by the assessee. The AO was not justified in extrapolating few notings of RM/5 to balance flats of other three projects given that no incriminating evidence pertaining thereto was found during the course of search and even authenticity of document RM/5 was under challenge. Under these circumstances, we are of the view that Revenue as well as assessee were bound by presumption under s. 292C of the Act in respect of seized papers and addition on account of on-money can be limited to the seized materials. Since assessee himself has offered entire on-money seized as per document RM/5 in its return of income, no further addition can be sustained. We find that the assessee's reliance on the judgment of the Hon'ble Tribunal, Pune Bench in the case of Dhanvarsha Builders and Developers (P) Ltd, vs. Dy. CIT (2006) 105 TTJ (Pane) 376: (2006) 102 ITD 375 (Pune) wherein under the given facts, it was held that on-money receipts were assessable in accordance with the method of accounting followed by the assessee irrespective of the date of receipt of the cash. In the said case, consequent upon search and seizure operations conducted upon one of the shareholders of the assessee company, some incriminating documents were found and seized. Subsequently, statement of one of the directors of the assessee company was recorded in which he made declaration of undisclosed income of Rs. 48.95 lacs which according to him was on-money received by the assessee from its customers by way of cash but not accounted for in its books. On the basis of seized material, the AO assessed undisclosed income at Rs. 49.25 lacs and framed block assessment. In appeal, Tribunal gave following findings in regard to the year of assessability of the on-money receipts received in cash as under:

"The date of receipt of cash was not material for deciding the assessment year in which the profits embedded in such receipts were to be taxed. The assessee was following the 'project completion method' and therefore all amounts i.e. amounts received in cash as well as amounts received by cheques were taxable in the year in which project was completed or substantially completed."

We find that Kolkata Tribunal in the case of South Calcutta Promoters (P) Ltd. vs. ITO in ITA Nos. 2216 and 2217/Kol/2003, concerned assessee was engaged in the business of civil construction and development. The assessee booked income as and when flats were sold. Pursuant to search and seizure operation in the said assessee's case, it was found to have received amount in cash in the nature of advance over and above the advances reflected in books of account. The AO taxed the same as' income in the year of receipt ignoring the method of accounting followed by the assessee. Tribunal observed as under:

The amount received by cheque by the assessee was shown in the liability side of the audited balance sheet filed by the assessee. The AO himself has observed in the assessment order for the relevant asst. yr. 1992-93 that the amount of Rs. 37,79,234 as per the audited balance sheet was shown as "advance from parties' and no adverse action on this amount has been taken by the AO. We find that although the assessee has not accounted for the amount of Rs. 36,17,453 received in cash from the prospective buyers in its accounts, but it shall not change the characteristic of the amount received by the assessee which remains an advance from the parties only. No flat was sold during the relevant period. We find that the payees of these amounts in cash were not examined by the AO to find out whether the amount represents some other nature and not advance from the payees for the purchase of flats. It is not the case of the Department that the identity of the payees of the advance money in cash or the genuineness of the transaction is not proved or that this amount of Rs. 36,17,453 belongs to the assessee itself. The amount received as advance money against the booking of flats is not assessable as income in the hands of the assessee. The profit or loss, as the case may be, shall be determined and is assessable only as and when the flats are sold by the assessee."

In the instant case also, as far as the receipts of regular nature i.e. advances received in cheque from buyers are concerned, the AO has not challenged taxability of the same in the years of completion of the projects in accordance with the project completion method of accounting followed by the assessee. The AO has not challenged disclosure of receipts in cheques as 'advances' on the liabilities side of the balance sheet. He has not proposed to tax the same In the year of receipt as in the case of on-money. Thus, in respect of receipts in cheques, AO has accepted project completion method of accounting. Accordingly, we are of the view that AO erred in deviating from the said method of accounting and estimating on-money receipts for projects and taxing the same during asst. yr. 2008-09 on receipt basis. The said method of accounting has been consistently accepted as such by the AO in assessments framed under s. 143(3) of the Act for the past years. However, in assessments framed under s. 144/153C pursuant to search action, AO discarded the project completion method of accounting consistently followed by the assessee and estimated on-money receipts in respect of on-going projects for asst. yr. 2008-09 and taxed the same on receipt basis. In view of the above facts and circumstances, we are of the view that seized documents RM/1 to RM/5 are correct documents and these have to be read as it is. Further, we are of the view that the CIT(A) has rightly held that only profit element of on-money receipts, if any, will be assessed in the year when project is completed, we confirm the same. As regards to rejection of books of accounts challenged by assessee, we are of the view that in view of seized documents RM/1 to RM/5, the books of account are to be rejected, but the books of account reframed after incorporating the entries of these seized documents, the assessment is to be framed on this and CIT(A) has rightly held so. Even otherwise we have accepted the seized documents RM/1 to RM/5 as correct in the case of Vivek Kumar Kathotia in IT(SS)A Nos. 4 to 7/Kol/2011 of assessee's appeals, wherein vide para 15 to 17, we have held under:

"15. We find that the term 'used' in the provision of s. 292C of the Act 'may be presumed' is discussed, but in the context of s. 132(4) of the Act, by Hon'ble apex Court in the case of P.R. Metrani (supra) and said term implies that the presumption is rebuttable. The term 'rebut' means to disprove. In other words, unless contrary is proved, what is stated in the seized documents has to be presumed to be true and thus, the provisions of s. 292C of the Act do not confer discretionary power on the Department to presume or not to presume the correctness of seized documents held by CIT(A). We find that CIT(A) observed that s. 292C of the Act is not for the benefit of the assessee but it is for benefit of Department. We are of the view that the provision will equally apply to both assessee as well as Department and s. 292C of the Act only creates a legal fiction, whereby in case of search and seizure, contents of seized material are presumed to be true unless rebutted by the party claiming contrary. Now, we are of the view that onus of rebutting the presumption under s. 292C of the Act is on the party claiming otherwise, be it assessee or Revenue. In the present case before us, the seized documents RM-1 and RM-2 were found from the possession and control of the assessee. In present case, since seized documents RM/1 and RM/2 were found from possession and control of the assessee during the course of search in his case and by legal fiction, a presumption under s. 292C had to be drawn that the said documents belonged to the assessee and the contents thereof were true unless disproved by cogent evidence. The onus to prove that what was apparent from these books was not real was on the party which claimed it to be so. The Department claimed that the contents of RM/1 and RM/2 found from the possession and control of the assessee in course of search were incorrect. Thus, the onus was on the Department, to bring on record some acceptable evidence to prove that what was stated in the seized documents did not depict the actual state of affairs. The AO and CIT(A) failed to discharge such onus by bringing on record some cogent evidence to disprove noting in the seized papers. On the contrary, CIT(A) and AO tried to shift onus of proving entries in seized books/papers on the assessee in contradiction to provisions of s. 292C of the Act. We are of the view that seized documents RM/1 and RM/2 clearly depicting the purchase and sale of gold, diamonds and paintings and investment of the sale proceeds in property and shares had to be accepted as such unless some evidence or material was brought on record by the Revenue to show that what was stated in the seized documents was not correct. CIT(A}'s opinion that onus was on the assessee to prove that what was stated in the seized document was true; such an interpretation would render the deeming provisions of s. 292C otiose and presumption as to the correctness of seized documents is automatic under s. 292C of the Act unless the contrary is proved and as such, the assessee was not legally required to substantiate the seized documents with supporting evidence. Where the statute provides a deeming provision, what is prescribed is to be deemed without seeking corroborative evidence. We find from a bare perusal of RM/1 and RM/2, which would reveal that seized documents have been maintained in considerable details such as exact caratage of diamonds, the weight of gold and the rates of purchase and sales, the dates of purchase and sales have been mentioned. Further, in respect of paintings, minute details such as the exact size of the paintings and the names of the artists have also been mentioned in the seized documents. Thus, these are speaking documents and not dumb documents. A dumb document is a document which doesn't speak for itself and not a self-explanatory and detailed document like present one. Further, going through these documents it is revealed that these documents also record several regular transactions of the assessee which stand duly disclosed in regular books of account. The assessee has cited few examples in his written submissions of transactions of disclosed/regular nature found recorded in RM/1 are as under:

Date	Particulars of transactions
2-12-2002	Payment of Rs. 12,65,322 in the books of Ramani Projects on account of registration, stamp duty etc. to Registry office
15-2-2002	Payment of Rs. 11,15,514 in the books of Ramani Projects to KMC
30-3-2006	Cash withdrawn of Rs. 16,00,000 and Rs. 25,00,000 from Andhra Bank belonging to Salasar Mahanirman (P) Ltd.

Similarly several other notings pertaining to withdrawal of cash from the regular bank accounts of various companies, payment of cash on account of various properties acquired by various companies duly recorded in the books of those companies etc. were also recorded in RM/1 and RM/2. All these entries were verified from regular books of account and found to be correct and accepted as such by the Department. This also fortifies the fact that RM/1 and RM/2 contained genuine entries of the appellant and were not dumb documents.

16. We further find that Revenue did not make any effort to controvert the correctness of the noting in the seized documents. Revenue, both authorities below, did, not doubt the rates at which gold, diamonds and paintings were purchased and sold by the assessee and were not proved to be unfeasible or impracticable. Lower authorities failed to prove a single instance where sale proceeds of diamonds, gold or paintings actually represented 'on-money' or some other form of undisclosed receipt and in the absence of cogent evidence express noting in the seized documents could not be arbitrarily disregarded and no additions could be made solely on the basis of surmises and conjectures. Even seized documents could not be outrightly rejected as dumb documents without disproving the same. It is also a fact that seized papers were findings of search operations carried out by the Department and not papers submitted by the assessee suo motu in course of normal assessment which required substantiation. These papers were part of Department's evidence unearthed as a result of search carried out by the Department, and thus, the same were to be taken at face value unless contrary is proved. The said papers were not meant for production before the Department but for personal information of the assessee and as such, could not have been untrue of fabricated. Therefore, it was highly illogical on the part of the Department to assume that the said papers had been purposely prepared by the assessee to defraud the Department. As regards CIT(A)'s contention that no stocks of gold, diamonds or paintings were found in the course of search at the residential premises we are of the view that most of the gold, diamonds and paintings were sold prior to search action and as such considerable stocks of aforesaid items were not remaining at the time of search. Even during the course of search the assessee in reply to question No. 8 of his statement recorded on oath under s. 132(4) on 14th March, 2008, pp. 101 to 102 of assessee's paper book referred by learned counsel, wherein he stated that the gold after purchase was kept at various locations and this explains the reason why the remaining 2 kgs. of gold was not found in course of search at the residential premises of the assessee. Even during the course of search, in regards paintings, assessee admitted vide question No. 15 on the date of search that the same were on display at his residence and the same question No. 15, pp. 104-105 of assessee's paper book/is reproduced as under:

"Ans 15. I am fond of paintings and have been collecting them for my personal purpose to display in my residence from year 1993. I got bored of having the same paintings in the house for so long and therefore decided to sell the old ones and purchased new ones to display in the residence which were also on display in the residence on the date of search.

In view of these facts, we are of the opinion that RM/1 and RM/2 were a day-to-day account prepared by assessee and discovered as a result of search and the contents therein had to be presumed to be true under s. 292C unless proved otherwise. The CIT(A) rejected the claim of the assessee that this is not an authenticated document but relied on documents marked GB/12 impounded in course of survey in the premises of M/s Fort Projects (P) Ltd. and the said seized documents contained certain details of unrecorded cash payment on account of acquisition of Salt Lake property. Since RM/1 and RM/2 explaining the source of, acquisition of such property and accounts prepared on the basis of the same were rejected by CIT(A), we are of the considered opinion that noting in GB-12 only substantiates/confirms the entries pertaining to investment in property at Salt Lake noted in RM/1 and RM/2. Thus, GB-12 only fortifies the correctness of RM/1 and RM/2 and CIT(A) failed to explain the logic behind relying on one set of seized documents marked GB-12 containing details of unaccounted investment in property and rejecting the other set of seized documents marked RM/1 and RM/2 containing both the details of investment in property as well as explaining the source thereof. CIT(A) failed to appreciate that since RM/1 and RM/2 were found from the possession and control of the appellant in course of search conducted in the assessee's own case, presumption under s. 292C could more aptly be drawn in respect of RM/1 and RM/2 rather than documents impounded in course of survey in group case, i.e. GB-12.

17. In view of above facts, it is clear that the documents seized during the course of search from the possession of assessee are true till it is proved otherwise by cogent evidence. The onus to prove that the apparent is not the real is on the party who claims it to be so. Here, in the present case, Department claimed that documents inventorised RM-1 to RM-4 are dumb documents and for this Revenue has no basis whatsoever. To give a finding that the documents are dumb and such a finding can be reviewed on the ground that there is no evidence to support it or it is perverse. Further, when a conclusion has been reached on an appreciation of a number of facts, whether that is sound or not must be determined, not by considering the weight to be attached to each single fact in isolation, but by assessing the cumulative effect of all the facts in their setting as a whole. When a Court of facts acts on material partly relevant and partly irrelevant, it is impossible to say to what extent the mind of the Court was affected by the irrelevant material used by it in arriving at its finding. Such a finding is vitiated because of use of inadmissible material and hence decision in such situation is based on conjectures, surmises and suspicion. Hence, we consider documents found from the possession of the assessee during the course of search were real and declaration made by assessee on the basis of entry recorded in these documents of long-term capital gain on account of sale of gold and diamonds and also receipts on account of sale of paintings are true and there is no basis not to accept the same. Accordingly, we delete the addition made by CIT(A) of Rs. 6.009 crores and Rs. 90 lacs for asst. yrs. 2006-07 and 2007-08. This interconnected issue of the assessee's appeals is allowed."

Accordingly, out of these interconnected issues, the issue of assessee's appeals in IT(SS)A Nos. 11 to 13/Kol/2011 is dismissed. The interconnected issue of Revenue's appeals in IT(SS)A Nos. 19, 20 and 2 l/Kol/2011 is also dismissed.

11. Even we find from the records and arguments of both the sides that there are several mistakes and calculation errors having an impact running into several crores of rupees committed by AO while making the addition of Rs. 64.83 crores, CIT(A) however, while deciding appeal of assessee held that the quantum of undisclosed income on account of alleged 'on-money' and the mistakes pointed out by assessee were irrelevant for the year under consideration since same were to be considered in the years in which the projects were completed. As pointed out by learned counsel that at this stage since there is a Departmental appeal contesting deletion of addition of Rs. 64.83 crores by CIT(A), it would be pertinent to discuss the mistakes committed by the AO while estimating on-money receipts and the method adopted by him for extrapolation. The assessee has pointed out following mistakes in the order of AO in respect of all the flats in 20, Lee Road, over and above on-money receipts of Rs. 2.584 crores mentioned in RM/5. Similar exercise was undertaken with respect to the projects at 68, Hindustan Park and 24, Lee Road, Kolkata:

"68, Hindustan Park

While estimating the on-money receipts in respect of project at 68, Hindustan Park, on p. 7 of the assessment order under s. 144/153C for asst. yr. 2008-09:

• The AO alleged that the highest rate per square foot, was received for flat No. 4D from Sri A. Das. However, as per GB/17 (please refer to table on p. 4 of the assessment order), the said flat 4D belongs to Mr. Kundu and not A. Das.

• Again, the AO alleged that the assessee had accounted for Rs. 6,20,16,500 on account of flat Nos. 2A, 2B, 3A, 3B, 3C, 3D, 4C, 4D, 5A, 5B, 5C, 5D. The said figure was purportedly calculated by the AO from pp. 56 and 57 of seized documents marked as GB/17. However, on a perusal of the same (reproduced at p. 4 of the assessment order), it is seen that the total disclosed consideration in respect of such flats was Rs. 7,63,42,000 and not Rs. 6,20,16,500. Thus, the alleged additional on-money estimated by the AO at Rs. 5,34,64,632 (i.e. Rs. 14,41,99,132 minus Rs. 6,20,16,500 minus Rs. 2,87,18,000) will actually come to Rs. 3,91,39,132 (i.e. Rs. 14,41,99,132 minus Rs. 7,63,42,000 minus Rs. 2,87,18,000) if the calculation error committed by the AO is rectified.

Thus, the aforesaid error on part of the AO has resulted in surplus addition of Rs. 1,43,25,500.

20 Lee Road

'While estimating the on-money receipts in respect of project at 20, Lee Road, on pp. 7 and 8 of the assessment order under s. 144/153C for asst. yr. 2008-09, the AO committed the following errors:

The AO has taken the total area of fiats sold at 54,008 sq. ft. (78,290 sq. ft. minus 24,282 sq. ft. (allocated to landlords). However, the area of flats allocated to the landlords was only 19,246 sq. ft. Further, the AO failed to appreciate that the flat mentioned against Mr. Vivek Agarwal (5,036 sq. ft.) was not sold to him. Mr. Vivek Agarwal was just a tenant in the showroom space and thus, he was paying rent to the appellant. Thus, the question of receiving any on-money from him did not arise. Further, flat No. 501 having an area of 2,518 sq. ft. was still lying in stock (as per noting on p. 52 of GB/17). Thus, the area of flats sold in 20, Lee Road works out to 51,490 sq. ft. (78,290 sq. ft. minus 19,246 sq. ft. minus 5,036 sq. ft. minus 2,518sq. ft). Thus the total amount at the alleged rate of 4,995 per sq. ft. works out to Rs. 25,71,92,550 (i.e. 51,490 x Rs. 4,995). In respect of the flats sold, the assessee has accounted for Rs. 9,77,88,200 (i.e. Rs. 13,30,40,200 minus Rs. 2,51,80,000 (Vivek Agarwal) minus Rs. 1,00,72,000 (stock)]. Thus, after reducing the disclosure of Rs. 2,58,40,000 made by the assessee on the basis of RM/5, the additional alleged on-money works out to Rs. 13,35,64,350 (i.e. Rs. 25,71,92,550 minus Rs. 97,78,8,200 minus Rs. 2,58,40,000) as against Rs. 13,60,69,760 wrongly calculated by the AO."

Thus, correction of the aforesaid error alone will reduce the addition on account of alleged on-money by Rs. 25,05,410.

24, Lee Road

"The AO has considered total area of the flats in the aforesaid project at 86,987 sq. ft. Out of this, according to the AO, the total area allocated to landlord is 19,684 sq. ft. Therefore, as per the AO, the area of flats sold in the aforesaid project is 67,303 sq. ft. However, on a perusal of pp. 51 and 52 of GB/17 (reproduced at pp. 6-7 of the assessment order), it may be seen that the total area allocated to landlord is 22,413 sq. ft. (flat Nos. 3A 4B, SB, SC, SD, 6A, 6C, 6D). Further, flat No. 6B measuring 2,729 sq. ft. was still lying in stock. Again, unit No. GA/IA/2A measuring 47,619 sq. ft. was given on rent to Pantaloons Retail India Ltd. (i.e. still owned by the appellant). The said company paid rent to the appellant. As such, the actual area of flats sold in the aforesaid project works out to 14,226 sq. ft. (i.e. 86,987-22,413-2,729-47,619) as against 67,303 sq. ft. wrongly considered by the AO. Thus the total consideration including alleged on money (2) Rs. 8,000 in respect of flats sold will work out to Rs. 11,38,08,000 (i.e. 14,226 X Rs. 8,000) as against Rs. 53,84,24,000 - (i.e. 67,303 x Rs. 8,000) wrongly considered by the AO. As per GB/17, in respect of the flats sold, the assessee has accounted for Rs. 3,57,97,900 (i.e. for flat Nos. 3B, 4A, 4C, 4D, 5A). Further, the assessee has already made a disclosure of Rs. 3,56,66,000 for the impugned project on the basis of RM/5. Accordingly, the alleged additional on-money works out to Rs. 4,23,44,100 (i.e. Rs. 1,13,80,8,000 minus Rs. 3,57,97,900 minus Rs. 3,56,66,000) as against Rs. 45,87,73,100 erroneously computed by the AO."

The assessee himself contended that these are mistakes apparent from record and it will reduce the addition made by AO on account of additional on-money in respect of these projects by Rs. 41,64,29,000. Since assessee itself contended that these are mistakes apparent from record and we have decided the issue on the basis that the receipts cannot be added, since project has not been completed arid assessee is following project completion method, therefore, only the calculation errors (supra) committed by AO in respect of all the aforesaid three projects can be rectified by AO. For these years this exercise will be academic only, because we have already upheld the order of CIT(A) deleting addition.

12. The next common issue in these appeals of Revenue in IT(SS)A Nos. 15 to 20/Kol/2011 is in regard to deletion of addition on account of alleged on-money for asst. yrs. 2002-03 to 2007-08. In IT(SS)A No. 12/Kol/2001 for asst. yr. 2007-08 assessee is also aggrieved by the order of CIT(A) confirming the addition of undisclosed income on receipt of on-money in respect of project Fort Royal completed during the year under consideration. For this, assessee has raised the following ground No. 5:

"5. That on the facts and in the circumstances of the case, the learned CIT(A) erred in confirming addition of undisclosed income by way of so-called receipt of on-money on flats in respect of the 'Fort Royal' project of the appellant company completed during the year under consideration at Rs. 39,95,243."

Revenue in IT(SS)A Nos. 15 to 20/Kol/2011 for asst. yrs. 2002-03 to 2007-08 has raised identically worded grounds and the grounds raised in IT(SS)A No. 15/Kol/2011 i.e. 1, 2 and 3 read as under:

"1. That, on the facts and circumstances of the case, learned CIT(A) has erred both in law and facts in deleting the addition of Rs. 11,70,600 solely on the basis of the decision of Hon'ble Tribunal.

2. That, in doing so, learned CIT(A) overlooked the facts that additions were made on the basis of documents regarding receipt of on-money found relating to subsequent assessment years and the statement of the director of the company.

3. That, the learned CIT(A) overlooked the fact that additions/estimations can be made in earlier years on the basis of documents relating to subsequent year found in course of search/survey."

In other assessment years grounds are exactly identically worded except quantum.

13. The brief facts are that during course of survey various documents marked GB/2, GB/10 and GB/17 were impounded by Department which contained details of bookings made at different times at different rates for various projects. The AO challenged the validity of noting made in the said documents and observed that all flats in a particular project must have been sold at uniform and same rate per square foot irrespective of the time of booking and other factors effecting the rates of booking. AO adopted the maximum rate of booking for each project to all the flats therein and assumed balance amount as undisclosed on-money receipt. Before AO, assessee stated that each project takes a substantial period of time for completion and bookings are made over the entire life span of the project and factors affecting the rates of booking have already been submitted vide submissions dt. 28th Dec., 2009 before AO. The assessee explained various factors affecting rates of bookings and reasons why uniform rates could not be assumed in case of all flats in a particular project but ignored submissions of assessee and made addition aggregating to Rs. 5,63,32,175 for the asst. yr. 2002-03 to asst. yr. 2007-08 as on-money receipt on pure estimation basis in respect of following projects:

Name of the projects	A.Y.	Amount of addition	Total addition
Fort Royal	2003-04, 2006-07	13,61,250 38,45,142	52,06,392
Ramani Projects	2002-03, 2004-05, 2005-06, 2006-07	11,70,600 30,23,412 13,19,248 9,38,000	64,51,260
Fort Point	2005-06	14,57,000	14,57,000
Tower- 1	2006-07	19,61,520	19,61,520
Tower-2	2006-07	1,52,63,360	1,52,63,360
Block- 1	2006-07 2007-08	22,06,000 76,97,354	99,03,354
Block-2	2006-07	7,08,240	7,08,240
Oasis Block-4	2006-07 2007-08	9,42,500 27,57,810	37,00,310
Oasis Block-5	2005-06 2007-08	8,13,780 97,00,069	1,05,13,849
Oasis Block-7	2007-08	11,56,890	11,56,890

Before CIT(A) assessee argued that Ramani Project, Fort Point, Block-1 and Block 2, Tower-I and Tower-2 did not belong to the assessee company and as such, no addition could be made in the hands of assessee, as AO failed to appreciate that Ramani Project belonged to Ramani Projects (P) Ltd., Fort Point belonged to Balaji Grih Nirman (P) Ltd, and Tower-I and II, Block-I and 2 belonged to partnership firm M/s Fort Builders which were companies/partnership concerns distinct from assessee-company. Accordingly CIT(A) after verification of aforesaid facts deleted additions aggregating to Rs. 3,57,44,734 made in respect of Ramani Project, Fort Point, Tower 1 and 2 and Blocks 1 and 2 for the respective years as pertaining to separate taxable entities. Departmental ground challenging deletion of additions in respect of said projects not belonging to assessee is thus clearly unsustainable. Further, additions made by AO on account of on-money receipts for asst. yrs. 2002-03 to 2005-06 were also deleted by CIT(A) with the finding that since assessments for these years had already been completed under s. 143(3) of the Act before the date of search and nothing incriminating was found during the course of search or survey in respect of receipts of on-money for these years, completed assessments for these years could not be disturbed and no addition on account of on-money could be made merely on the basis of change of opinion. For this, reliance was placed by CIT(A) on the order of Kolkata Tribunal in the case of LMJ International vs. Dy. CIT (2008) 119 TTJ (Kol) 214: (2008) 14 DTK (Kol) 540. Out of additions made in respect of the remaining projects belonging to assessee viz. Fort Royal, Oasis Blocks 4, 5 and 7 for asst. yrs. 2006-07 and 2007-08, CIT(A) deleted additions made in respect of Oasis Blocks 4, 5 and 7 for asst. yrs. 2006-07 and 2007-08 with observation that since assessee had been consistently following project completion method of accounting and said projects were not complete during these years no addition could be made for asst. yrs. 2006-07 and 2007-08. The addition of Rs. 38,45,142 in respect of Fort Royal project for asst. yr. 2006-07 was also deleted with similar observation. CIT(A) further observed that Fort Royal project had been completed in asst. yr. 2007-08 and there was substantial difference in rates at which flats in the said project had been sold over a period of time. The CIT(A) observed that "in the case under consideration the first flat in the said project No. 3B having area of 1100 sq. ft has been booked on 24th Aug., 2001 @ 1,475 per sq. ft. whereas flat No. 6B in same project having same square foot area is booked @ Rs. 900 per sq. ft. on 20th March, 2003. Further the fiat No. 8A having area of 1,550 s. ft. has been booked on 19th Jan., 2005 @ Rs. 1,600 per sq. ft. whereas flat Nos. 9A and 9B having area of 1100 sq. ft. area each is booked @ Rs. 1,000 per sq. ft. on 26th April, 2005 and flat No. 9C/D having area of 2650 sq. ft. area is booked @ 919 per sq. ft. on 11th May, 2005." With these observations CIT(A) held that flat sold by assessee in the same project could be taken as comparable case. But assessee contended that there could be difference on account . of different variables like location, time of booking, mode of payment, market fluctuations, extra fittings etc, hence, he held that AO was not justified in charging highest rate as base rate for making estimation and rejected books of account and arbitrarily estimated profit of the project @ 6 per cent of the total expenditure. CIT(A) worked out undisclosed income from the said project at Rs. 39,95,243. He thus made an addition of Rs. 39,95,243 as alleged undisclosed profit from Fort Royal project for asst. yr. 2007-08 as against Rs. 52,06,392 estimated by the AO for the said project for asst. yrs. 2003-04 and 2006-07.

14. We have heard rival contentions and gone through facts and circumstances of the case. We find that assessee has challenged addition of Rs. 39,95,243 made by CIT(A) for asst. yr. 2007-08 on account of estimated undisclosed profit for Fort Royal project. As shall be clearly evident from facts on record, this addition is not based on any incriminating evidence discovered as a result of search in respect of receipt of on-money for Fort Royal project or any of aforesaid projects. The CIT(A) doubted the profit disclosed by assessee for the said project solely on account of difference in rates of booking of different flats in the said project over a period of time. Thus, only the correctness of the sale price of flats is in doubt. The total expenditure and all the other entries pertaining to the said project have been accepted by the AO and CIT(A). We find that the assessee time and again explained before AO and CIT(A), various factors affecting rates of bookings in case of builders but CIT(A) diluted significance of the same by pointing out few instances of sales by taking different rates in case of Fort Royal project. He alleged that the same was significant and could not have resulted merely on account of factors pointed out by assessee. We find that CIT(A) has singled out few instances of sales in case of Fort Royal project but assessee has also pointed out cases for sale thereof at a particular price and the variation in rates and explained as under:

Comparison-1

Party's name	Flat No.	Agreement date	Area (sq.ft.)	Rate per sq.ft. (Rs.)	Consideration (Rs.)	Remarks
Abhijit Banerjee	3B	24-8-2001	1100	1,475	17,72,500	Flat No. 6B was sold at Rs. 900 per sq. ft. on account of crash in real estate market. The appellant was unable to sell the expected number of flats in its project since its launching. Thus, to generate funds for project development, the appellant was bound to sell at lower rates
Avijit Singha	6B	20-3-2003	1100	900	9,90,000

Comparison-2

Party's name	Flat No.	Agreement date	Area Rate per (sq.ft.) sq.ft.(Rs.)	Consideration (Rs.)	Remarks
Ahana Roy	8A	19-1-2005	1,550 1,600	26,80,000	Flat Nos. 9A and 9B were raw/bare flats as mentioned in the agreements.
Uma Devi Dhandhania	9A	26-4-2005	1,550 1,000	16,00,000
Bishnu Kr. Dhandhania	9B	26-4-2005 20-3-2005	1,100 1,000 1,100	11,00,000	The fifth schedule work was done by the buyers and not by the appellant company due to which lower prices were offered to them

Comparison-3

Party's name	Flat No.	Agreement date	Area (sq.ft.)	Rate per sq.ft. (Rs.)	Consideration (Rs.)	Remarks
Mualidhar VC	9C/D	11-4-2005	2650	918	24,35,000	The said flat was sold at lower rate since the buyer was high ranking police officer and in terms of benefits arising on account of security etc. of the project, the appellant deemed It fit to sell flat at lower rates.

In view of the above explanation, we are of the view that decision to sell a particular flat at a particular price was taken out of commercial expediency and on valid grounds and cannot be randomly doubted by Department in the absence of any tangible evidence to show that the same did not depict the actual state of affairs. Even otherwise, under taxing system, it is for the assessee to decide how to conduct the business.

The Revenue cannot justifiably claim to put itself in the armchair of businessman and judge how business should be conducted or at what price a particular product should be sold. Hence, we are of the view that in the absence of conclusive evidence suggesting receipt of on money by assessee, prices at which flats were sold to purchasers vide duly executed agreement cannot be doubted and moreover, flats were sold to known and identifiable party at the rate mentioned above as per duly executed agreement. The agreements with the buyers of the flats were part of regular records and could have very well been verified by the AO and CIT(A). ‘

Accordingly, we have no hesitation in deleting the addition made in respect of Fort Royal projects for asst. yr. 2007-08. In regard to Revenue's appeals, additions made by AO on account of on-money receipts for asst. yrs. 2002-03 to 2005-06 were also deleted by CIT(A) with the finding that since assessments for these years had already been completed under s. 143(3) of the Act before the date of search and nothing incriminating was found in course of search or survey in respect of receipt of on-money for these years, completed assessments for these years could not be disturbed and no addition on account of on-money could be made merely on the basis of change of opinion. As the Revenue could not controvert the same, -we cannot interfere in the findings of CIT(A) and we uphold the order of CIT(A) oh this issue. Accordingly, the issue in IT(SS)A No. 12/Kol/2011 of assessee's appeal is allowed and the interconnected issue in IT(SS)A Nos. 15 to 20/Kol/2011 of Revenue's appeal is dismissed.

15. The next common issue in these appeals of Revenue -for asst. yrs. 2002-03 to 2008-09 against deletion of disallowance of interest and capital expenditure. For this, Revenue has raised similar grounds in all the years.

16. The brief facts are that the AO disallowed a sum of Rs. 19,92,060 being interest expense and Rs. 29,54,976 being 10 per cent of the expenditure debited in P and L a/c on estimation basis for asst. yrs. 2002-03 to 2008-09 by stating that the same should have been capitalized as work-in-process. The year-wise details of additions made by the AO are as under;

Particulars of addition	A.Y. 2002-03	A.Y. 2003-04	A.Y. 2004-05	A.Y. 2005-06	A.Y. 2006-07	A.Y. 2007-08	A.Y. 2008-09	Total
Disallowance of interest paid	461,882		793,619	736,559	-			1992060
Expenditure disallowed	174,249	187,841	234,450	180,728	342,548	434,417	1400,743	2954976

The assessee contended that it is following completed project method of accounting, wherein profits on sale of residential and commercial units is recognized only when the work in respect of project is completed. The cost incurred and payments received while project is in progress are accumulated and carried forward as work-in-progress (WIP) under inventories and as advances received from customers under current liabilities, respectively. It has valued its WIP as per accounting policy specified under AS-7. Costs that are (i) directly relatable to specific project, and (ii) attributable to the project activity in general and can be allocated to specific projects are included in WIP. However, costs that relate to the activities generally, or that relate to project activity but cannot be related to specific projects are debited in the P and L a/c as period costs. The assessee to elucidate this argument filed details of WIP for these assessment years and copies are filed at pp. 138-205 of assessee's paper book. From these details, it is verified that all the costs directly related to specific projects e.g. raw materials, carriage, labour charges, license, electricity charges, equipments, material and delivery charges, maintenance charges, motor car expenses, postage, printing and stationery, security charges, site development and cleaning charges, staff welfare, advance, travelling, transportation etc. are included in WIP. Further costs attributable to contract activity in general such as general expenses, insurance, construction overheads etc. are also allocated to specific contracts and included under WIP. Further, on a perusal of financial statements filed along with returns of income, we find that only costs which cannot be attributed to contract activity such as various general administration costs, selling costs, office maintenance, income-tax consultancy charges etc. are not allocated to specific contracts and debited in the P and L a/c. Thus, the valuation of WIP has been done strictly in compliance with AS-7 issued by the ICAI.

17. The CIT(A) deleted ad hoc disallowance of 10 per cent of the general expenditure and interest expenses for asst. yrs. 2002-03 to 2008-09 made by AO by observing that additions on account of disallowance of interest and common expenses did not emanate from incriminating material found during the course of search and since assessments for these years had already been completed before the date of search, the same could not be disturbed and the said issues could not be subject-matter of consideration for proceedings under s. 153A. CIT(A) followed the order of Kolkata Tribunal in the case of LMJ International Ltd. us. Dy. CIT (2008) 119 TTJ (Kol) 214: (2008) 14 DTR (Kol) 540. We find that Revenue could not bring anything or make any argument that there is fault in the order of CIT(A). We find that search action in the group case or the survey action in this case did not lead to discovery of any incriminating evidence whatsoever in respect of asst. yrs. 2002-03 to 2006-07 and as such completed assessments for such year could not be disturbed and items of regular assessments could not be added back in assessments framed under s. 153C of the Act. Thus, entire assessment orders framed under s. 144/153C for the said years making exorbitant additions in the hands of the assessee company on these issues is without any basis. Further, as discussed above, in the instant case, no search was conducted, proceedings under s. 153C were initiated against the assessee on the basis of one set of documents marked RM/5 seized from the premises of one of its directors. However, no incriminating material or documents were found in course of the search or survey action with respect to the allowability or otherwise of the expenditure or interest expenses for any of the years under consideration. In the original assessments framed under s. 143(3) of the Act for asst. yrs. 2002-03 to 2005-06, the AO after application of mind and detailed scrutiny of accounts had consciously allowed said expenses and interest On loan. Further, said expenses had also been allowed in summary assessment under s. 143(1) for asst. yr. 2006-07. However, later on while framing assessments under s. 144/153C for the said years, under identical circumstances vis-a-vis past, the AO opined that a part of such expenses and interest should have been capitalized to WIP. Accordingly, the same was added back by the AO under s. 144/153C merely on the basis of change of opinion in the guise of search assessment. Hence, CIT(A) has rightly deleted this addition. Accordingly, these two common issues of Revenue's appeals in IT(SS)A Nos. 15, 16, 17, 18, 19, 20 and 21/Kol/2011 are dismissed.

18. The next issue in IT(SS)A No. 19/Kol/2011 of Revenue's appeal for asst. yr. 2006-07 is as regards to the order of CIT(A) deleting the addition made by AO on account of loan received from Toplight Vinimay (P) Ltd. For this, Revenue has raised following ground No. 4:

"4. That on the facts and circumstances of the case learned CIT(A) erred both in facts and in law in deleting the addition of Rs. 10 lakhs on account of cash credit overlooking the fact that the paper trail was created to make the transaction look genuine which is otherwise bogus."

19. The brief facts are that assessee during financial year 2005-06 had received a sum of Rs. 10 lakhs as loan from Toplight Vinimay (P) Ltd. The AO alleged that the said company Toplight Vinimay (P) Ltd. was a typical entry company and therefore, the loan received by assessee was bogus. The AO thus, treated said sum of Rs. 10 lakhs as income of the assessee-company from undisclosed sources for asst. yr. 2006-07. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) deleted the addition by observing that AO had not proved that Toplight Vinimay (P) Ltd. was a typical entry company with supporting evidences and no specific finding in respect of documentary evidence furnished by the assessee in support of identity, creditworthiness and genuineness of transaction was given. Further, AO had not furnished any adverse evidence found during the course of enquiry from Kalyan Vypaar (P) Ltd. under s. 131 of the Act and no independent or corroborative evidence had been brought on record by the AO to prove that assessee had obtained accommodation entry in the form of loan. There was no justification on the part of AO to make addition only on the basis of certain enquiry made in respect of third party without bringing on record any cogent evidence to prove that assessee had taken accommodation entry. The AO's allegation that unaccounted money earned by assessee had been brought back to business by way of bogus unsecured loan which was not sustainable in the absence of any material on record to the said extent. The assessee had duly proved the nature and source of loan by documentary evidences and AO had held it unsatisfactory without bringing on record any contrary material. As such no addition could be made under s. 68. Aggrieved against findings of CIT(A), now Revenue is in appeal before us.

20. We have heard rival submissions and gone through facts and circumstances of the case. We find that assessee company had in fact received a loan of Rs. 10,00,000 from Toplight Vinimay (P) Ltd. which is duly assessed to tax under PAN AABCT 2411L. In support of the aforesaid, assessee submitted following evidences in its paper book:

(i) Acknowledgement of filing return of income for asst. yr. 2006-07 of M/s Toplight Vinimay (P) Ltd. - p. 217 of the paper book.

(ii) Audited balance sheet as at 31st March, 2006 of Toplight Vinimay (P) Ltd. showing balance of loans advanced to M/s Fort Projects IP) Ltd. of Rs. 10,07,076 as on 31st March, 2006 -p. 218 of the paper book.

(iii) Audited P and L a/c of M/s Toplight Vinimay (P) Ltd. for the year ending 31st March, 2006-pp. 219-222 of the paper book. .

(iv) Extract of bank book and bank statement in ABN-AMRO Bank of M/s Toplight Vinimay (P) Ltd. showing payment of Rs. 10 lacs to M/s Fort Projects (P) Ltd. on 23rd Feb., 2006 -pp. 223-224 of the paper book.

(v) Confirmation of account relating to loan of Rs. 10,09,123 (including receipt of Rs. 10 lacs in cheque) from M/s Toplight Vinimay (P) Ltd. p. 225 of the paper book.

We find that Toplight Vinimay (P) Ltd. is assessed to income-tax and loan was received through banking channel and disclosed in the financial statements filed along with returns of income both by assessee and Toplight Vinimay (P) Ltd. We find that AO for making addition referred to some enquiry conducted by the Investigation Wing against some Champal Lal Mittal and his associated bank accounts. The AO further observed that huge amount of cash had been deposited in certain bank accounts of Sri Mittal from where entire amount was transferred by cheques to various accounts in ABN-AMRO Bank and so on. After crossing five to eight intermediary layers, amounts were deposited in bank accounts of different beneficiaries and Toplight Vinimay (P) Ltd. was one such intermediary company with no actual business and assessee had on 24th Feb., 2006, received a sum of Rs. 10 lacs from said company. The AO noted that enquiries had been conducted with respect to source of Rs. 10 lacs in the bank account of Toplight Vinimay (P) Ltd. and 'few layers had been identified'.

Further, AO alleged that the assessee company was specifically asked for explanation but had not complied. Thus, the said sum of Rs.,10 lacs was added as income of the assessee from undisclosed sources. We find that aforesaid allegations and so-called findings of AO serve no purpose as far as assessee is concerned. The AO has observed that 'few layers' had been identified with regard to the source of Rs. 10 lacs received from Toplight Vinimay (P) Ltd. but has not given any details regarding such layers. Further, the AO has failed to prove by bringing on record some cogent evidence that this amount of Rs. 10 lacs had actually been deposited by assessee company directly or indirectly through intermediaries into the account of Toplight Vinimay (P) Ltd. and as such, represented income from undisclosed sources of the assessee. No such finding has been recorded or proved by AO. As such, no addition can be made in the hands of assessee. As far as assessee company is concerned, it has successfully proved genuineness and source of loan by furnishing the requisite evidences in the form of IT return and financial statements of Toplight Vinimay (P) Ltd. evidencing receipt of loan for the relevant year and also confirmation of the said party. In view of these facts and circumstances, we confirm the order of CIT(A) deleting the addition and this issue of Revenue's appeal is dismissed.

21. In the result, all the appeals of the Revenue are dismissed and assessee's appeals being IT(SS) Nos. 11 and 13/Kol/2011 are dismissed and IT(SS) No. 12/Kol/2011 of assessee is partly allowed.

 

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