TMI Blog2011 (6) TMI 973X X X X Extracts X X X X X X X X Extracts X X X X ..... nkara Rao on 7.11.2006. During the course of search, certain documents which contain information comprising of receipts and payments to various persons were seized. Proceedings u/s 153A were initiated and in response to the notice issued u/s 153A return of income declaring income of ₹ 19,43,200/- which included the undisclosed income of ₹ 16,33,097/- was filed on 5.11.2007 by the assessee Shri P. Sankara Rao. During the assessment proceedings, the assessee filed a revised return of income on 8.12.2008 revising the income to ₹ 71,06,300/-. During the course of search, unexplained investment of ₹ 37,93,023/- was also noticed and the assessee claimed the telescoping of this investment against the income offered by it. The assessing officer did not allow the telescoping between the undisclosed income offered and the unexplained investment. 3. The assessee preferred an appeal before the CIT(A) and claimed telescoping between the undisclosed income and the unexplained investment. 4. The CIT(A) having examined this issue had allowed the telescoping between the undisclosed additional income and the unexplained investment and deleted the additions made on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned CIT(A) passed u/s 154 of the I.T. Act on 30.7.2010 is erroneous both on facts and in law. 2. The learned CIT(A) erred in holding that the appeal filed by the appellant herein for the Assessment Year 2002-03 on 17.2.2009 is not admissible. 3. The learned CIT(A) erred in passing the order u/s 154 of the Act holding that the provisions of sec. 249(4)(a) are mandatory in nature and are attracted to the case of the appellant herein. 4. The learned CIT(A) ought to have seen that the entire tax as per the return of income for the Assessment Year 2002-03 was paid by the time of passing the order u/s 154 of the I.T. Act and hence ought not to have passed the order u/s 154. 5. Any other ground that may be urged at the time of hearing. 7. In the light of these facts, we are of the view that appeal filed by the assessee against the order passed u/s 154 is to be decided first and if the order of the CIT(A) passed u/s 154 is set aside then the revenue s appeal vide ITA No.166 of 2010 is to be decided on merit. We accordingly proceed to adjudicate the appeal of the assessee in ITA No.447 of 2010. 8. During the course of hearing of the appeal, the Ld. Counsel for the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under sub-sec. 5 of section 139 of the Act. There is no other provision in the Act which modifies the procedure or the time frame for revising the return filed in response to notice u/s 153A of the Act. Therefore, the revised return filed during the course of assessment proceedings cannot be legally termed to be the revised return. Therefore, the income returned therein cannot be considered to be the income returned for the purpose of sub-section 4 of section 249 of the Act. The income returned can only be the income which was declared in the first return filed in response to notice u/s 153A of the Act and as per that return, the assessee has paid dues before filing of the appeal before the CIT(A). 9. The Ld. Counsel for the assessee further invited our attention to the fact that as on date, the assessee had paid the entire tax due on the income offered during the assessment proceedings by filing the revised return. In revised return, the total income was declared at ₹ 71,06,300/- on which tax along with the interest worked out to be at ₹ 31,50,521/- and the assessee had paid the taxes of ₹ 33,01,303/-. Therefore, there is no violation of any of the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any assessment proceedings. The assessment consequent to the search operation is specifically dealt u/s 153A to 153D of the Act. Consequent to the search, return was required to be furnished within a specified period in response to notice u/s 153A of the Act and the said return filed shall be treated to be return filed u/s 139 of the Act. Like section 139, no specific provisions were made u/s 153A with regard to the filing of this revised return during the course of assessment proceedings. Therefore, there is no scope of filing any revised return during the course of assessment framed consequent to the search operation. Even if any revised return is filed it would not be a valid revised return in accordance with law it may only be a mere admission of additional income during the course of assessment proceedings. But this revised return cannot assume of a character of a return filed u/s 139(1) of the Act. Therefore, the income declared therein cannot be called to be the income returned for the purpose of sub-section 4 of section 249 of the Act. We however for the sake of reference extract the relevant provisions of section 249(4) and 139(5) of the Act as under: Section 139(5): If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djudicated by us in foregoing paras, therefore, we decide the same in the same manner. Accordingly, this ground is rejected. The other grounds in this appeal relate to the telescoping between the undisclosed income declared by the assessees and the undisclosed investments. During the course of search, it was noticed that the assessee has made certain payments for acquisition of properties and for the year under consideration assessee had made the payment to the extent of ₹ 37,93,023/-. The assessee has declared the additional undisclosed income of ₹ 67,96,200/- and admitted the total income of ₹ 71,06,300/-. For the assessment year 2001-02, assessee has also offered an additional income of ₹ 92,09,500/-. Therefore, upto 12.9.2001, the funds available with the assessees on account of undisclosed income was of ₹ 1,60,05,700/-. Whereas up to the assessment year 2002-03, the assessee has made the investment of ₹ 37,93,023/-. The assessee claimed the telescoping of the investment out of this undisclosed income offered by the assessee. The telescoping was not allowed by the assessing officer and the assessee preferred an appeal before the CIT(A). The C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccepted principle is that if an intangible addition has been made earlier and there are also cash credits to that extent, separate addition of cash credits can not be made. The Courts have held that where trading additions had been made, the unproved cash credits could be taken to have come out of such intangible additions. Accordingly if unexplained cash credit addition has been made and such cash credits are withdrawn the same would be available for undisclosed investments for which no separate additions for undisclosed investments would be necessary. In the case of Anantharam Veerasinghaiah and Co. v. CIT (1980) 123 ITR 457 (SC) it has been held that, When an intangible addition is made to the book profits during an assessment proceeding, it is on the basis that the amount represented by that addition constitutes the undisclosed income of the assessee. That income, although commonly described as intangible , is as much a part of his real income as that disclosed by his account books. It has the same concrete existence. It could be available to the assessee as the book profits could be. (Lagadapati Subba Ramaiah v. CIT [1956] 30 ITR 593 (AP) and S. Kuppuswami Mudaliar v. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k assessment wherein the assessment of the whole block period is made, when additions are made for the block period on the basis of all investments, expenditures, and assets found to have been incurred or acquired during the block period, and which have remained unexplained in respect of their direct source, the assessee may justifiably claim and may well be treated as duly entitled to the benefit of telescopy/set off/credit of all such amounts of inflow whether by way of receipts or by way of undisclosed income resulting from intangible additions of the block period and thus being available with assessee and which amount/income could be utilized by the assessee for incurring the expenditure or making the investment or acquiring the asset found and remaining unexplained as on the date of search. The assessee will be entitled to the above mentioned benefit even though the assessee may not be able to establish a direct/live link/nexus of the said resultant undisclosed income with the unexplained expenditure/investment/asset. It may be no less funny to realize that when direct link of source of an expenditure/investment/asset is established, the same can hardly be treated as unexplain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 92,09,500/- and ₹ 67,96,200/- offered for the A.Ys 2001-02 2002-03 requires to be accepted. Unaccounted payments, under the facts and circumstances of the case, can be sourced to the unaccounted income declared by the appellant. Accordingly, it can safely be concluded that unaccounted investment of ₹ 37,93,023/- is explained by undisclosed income offered earlier. Since undisclosed and additional income of ₹ 1,60,05,700/- has already been assessed for the A.Ys 2001-02 2002-03, the addition of ₹ 37,93,023/- is considered as telescoped into the income already assessed and accordingly deleted. 16. Aggrieved, the revenue has preferred an appeal with the submission that this assessee has made an offer of undisclosed income when he was not able to prove the details of receipts and payments. The assessee himself has claimed that he has repaid the entire amount, therefore, no fund is available with him for making the said investments. The Ld. D.R. further contended that under these circumstances, the A.O. has rightly added the investments made by the assessees as an unexplained investment. 17. The Ld. Counsel for the assessee on the other hand has subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 11,41,245/- in A.Y. 2003-04 and for ₹ 8,14,250/- in A.Y. 2004-05. The assessing officer has made the addition of the same after invoking the provisions of section 69 of the Act as unexplained investment. 21. The assessee preferred an appeal before the CIT(A) with the submission that the assessee himself has declared the unexplained income at ₹ 1,60,05,700/- in A.Y. 2001-02 and 2002-03 and the said fund was available with the assessee for making investments in succeeding years. In assessment year 2002-03, the assessee made the investment of ₹ 37,93,023/- out of the said undisclosed income and after adjusting the same a substantial amount was available with the assessee for making investment in properties. The investment in A.Y. 2003-04 in properties was of only ₹ 11,41,245/- and in A.Y. 2004-05 it was at ₹ 8,14,250/-. Therefore, the said investment was made out of the surplus funds available with the assessees in relevant assessment years. The CIT(A) examined the issue in the light of various judgements and has deleted the additions after allowing a telescopy between the undisclosed income and the undisclosed investment. 22. Now the revenue is b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this regard. 24. The next controversy raised in the revenue s appeal is with regard to the deletion of short term capital gain of ₹ 24,65,525/-. In the assessee s appeal, the assessee has assailed the order of the CIT(A) that he has erred in holding that assessee has received on money in sale transactions. 25. The facts borne out in this regard from the orders of the lower authorities are that during the course of search it came to light that assessee has transferred 20 acres of land situated at Ravalkol village, Medchal Mandal, near Hyderabad to M/s. Jayadarshini Housing Pvt. Ltd. during the impugned period. Another site measuring 1930 sq.yds. at Kanuru, Vijayawada owned by M/s. Subhadarsi Estates was also sold to M/s. Jayadarsini Housing Pvt. Ltd. in the same period. The transfer of this land at Kanuru was effected by the assessee in the capacity of a Managing Partner on behalf of M/s. Subhadarsi Estates. M/s. Jayadarsini Housing Pvt. Ltd. was represented by Sri Gorla Sai Babu, Managing Director in both the transactions. The A.O. observed that the land at Ravolkol village was registered for a consideration of ₹ 15 lakhs while the land at Kanuru was transferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would fall outside 8 kms. of municipal limits. Therefore, the sale of agricultural land at Ravalkol village does not attract capital gain. In such cases, even if the on money is received by the assessee, the same cannot be charged to capital gain tax. 28. The revenue has challenged the order of the CIT(A) on the ground that the CIT(A) has admitted the jurisdictional map of the Greater Hyderabad Municipal Corporation without confronting the same to the assessing officer. Therefore, the additional evidence was admitted in violation of provisions of rule 46A of the I.T. rules. The Ld. D.R. further contended that in the light of these facts, the order of the CIT(A) be set aside and matter may be restored to the file of the assessing officer with the direction to re-adjudicate the issue in the light of jurisdictional map of Great Hyderabad Municipal Corporation. 29. The Ld. Counsel for the assessee on the other hand has submitted that the CIT(A) is also armed with co-terminus powers with that of the assessing officer and is competent enough to examine the evidence filed before him. Since the CIT(A) himself has verified the facts of location of the agricultural land, no purpose wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f income not declaring the receipt of additional amount as admitted in his statement. On receipt of return of income, the assessing officer has issued a questionnaire on 28.1.2008 asking the assessee to explain as to why ₹ 1.78 crores being on money received by him on the above sale consideration shall not be treated as undisclosed income for the assessment year 2005-06. The assessee was asked to produce the details with regard to the sale consideration on or before 18.2.2008. This notice was not replied by the assessee and a further notice dated 24.9.2008 was issued to the assessee through which the assessee was again asked to produce the details before 6.10.2008. Even up to this time assessee did not retract the earlier statement by filing any letter or affidavit. He has filed the affidavit retracting from his earlier statement on 8.12.2008 stating therein that under utter confusion in understanding the amount of ₹ 1.78 crores was accepted. The aforesaid facts categorically speaks that the assessee has not retracted from his earlier statement at the earliest opportunity. He has retracted only when he was cornered by the department during the course of assessment proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td., was examined and in his statement recorded on 9.11.2006, much after the date of search has admitted categorically that he had paid ₹ 1.78 crores to the assessee Shri P. Sankara Rao over and above the sale consideration recorded in the sale document. This statement of buyer was confronted to the assessee and in his statement recorded on 21.12.2006 the assessee has admitted the receipt of ₹ 1.78 crores in excess of the registered value of the transactions of both the sales. The relevant question No.6 and its answer is extracted hereunder for the sake of reference: Q. It is seen from the statement of Sri Sai Babu, the Managing Director of JDHPL, he was paid around ₹ 1.78 crores in excess of the registered value of the above said transactions towards sale consideration. Do you agree and have you recovered this amount? A. Yes, I do confirm that I have received around ₹ 1.78 crores in excess of the registered value of the transactions for both the sales. This was received in cash. 35. Since the statement of the assessee was recorded on 21.12.2006, much after the search i.e. on 07.11.2006, it cannot be said that the assessee was under the state of ut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has every right to consult the professionals on the statement made by it during the course of search and if he is advised so, he may retract from the statement recorded during the course of search and furnish valid explanation either to the search party or to the Assessing Officer or to the Commissioner having jurisdiction over the concerned Assessing Officer. In such circumstances, the contention of the assessee can be expected that his statement might have been recorded under the influence of coercion or under utter confusion. But if the assessee tried to retract from his earlier statement after a substantial period of time, such type of retraction is far from truth and cannot be accepted. 37. In the instant case, the statement of the assessee was not even recorded during the course of search. The search was conducted on 7.11.2006 and his statement was recorded on 21.12.2006. Therefore, it cannot be said that the statement was recorded under utter confusion as he has sufficient time to consult the professionals. Moreover the assessee has filed the affidavit retracting from his earlier statement on 8.12.2008 i.e. almost after 2 years. Therefore, the said retraction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The circle rates for the purpose of stamp duty on sale deed are always higher in the urban areas than the villages for the agricultural lands. Sometimes the circle rates in urban areas are more than the rates on which actual sale transaction was effected. Therefore, the possibility of receipt of on money are very remote in sale transactions of the land situated in urban areas. The Ld. Counsel for the assessee further invited our attention to the statement of the assessee recorded by the assessing officer which is available at pg.no.121 to 128 of the compilation of the assessee in which in response to question no.11 the assessee has deposed with regard to the source of investment of the property purchased on 1.12.2004 that it was out of the sale consideration of ₹ 1.78 crores received from M/s. Jayadarshini Housing Pvt. Ltd. The Ld. Counsel for the assessee has further contended that agricultural land was sold in 2004, whereas the land at Kanur, Vijayawada was sold in 2005. Therefore, the money invested in acquiring the other properties in 2004 was out of the sale considerations received by the assessees on sale of agricultural lands. The Ld. Counsel for the assessee further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly revised in the urban areas in comparison to the agricultural lands situated in villages. We have also taken into account the area of land sold in both the transactions. The agricultural land sold was of 20 acres, whereas the land at Kanur was only at 1930 sq.yds. Wherever the circle rates are revised in the urban areas the difference between the actual sale consideration and sale consideration declared in the sale deed becomes very less and possibility of receipt of on money is reduced. 43. Keeping in view the totality of facts and circumstances of the case, in the succeeding paragraphs, we have attempted to allocate the on money component between the two properties on some equitable basis. 44. The actual consideration received on sale of two properties located in two different locations is ₹ 300 lakhs. However the apparent consideration declared in the conveyance deeds is given below: Details of Properties Extent Value Av. Rate (a) Vacant site in Vijayawada 1930 Sq. yards Rs.108 lakhs. Rs.5613/- per Sq. yard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are fixed on Per Sq. yard basis in urban areas, while the same is fixed in Per Acre basis in village areas. Since the agricultural lands are generally transferred in between the farmers, the frequency of upward revision of SRO rates is usually low. (d) However, the SRO rates are revised frequently in urban areas considering the rise in market rates. The frequency of property transaction in urban area is usually high. However the frequency of property transactions in village area is usually low and also for the reason stated in point (c) supra, the frequency of revision of SRO rates in village area is also low. (e) For the reasons stated in point (d) supra, the gap between the Market rate and SRO rate of a property located in urban area is minimal. However, such gap tends to be high for village lands, particularly in respect of those lands located in those areas where high development potentials are seen in near future. The market rates will increase rapidly when more development activities are expected in those areas and in such cases, the gap between the SRO rates and market rates will be high. 46. In view of the constraints discussed above, it is inevitable for anybo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the market value of the urban property, the difference between ₹ 300 lakhs and the value so arrived at is taken as the value of village agri land. (c) The village agri. Lands are located in villages coming under Medchal mandal of Hyderabad. The assessee Shri P.Sankar rao has sold 20 acres of land in the year 2005 @ 11.27 per Sq. yard. In the same year, he has purchased 1000 Sq. yards of developed plot in a village falling in the above said mandal for a consideration of ₹ 4.00 lakhs, i.e. at ₹ 400 per Sq. yard, which is 35 times more than the value of village agri. Land sold . This is evident from the statement taken from Shri Goria Sai babu, which is extracted in pages 3 and 4 of the assessment order of M/s Subhadarsi Estates. Hence, in our view, it would be reasonable to assume that the the gap between market rates and SRO rates are very much higher in the case of village agri. Land. Accordingly it is assumed that the gap is 10 times, 15 times and 20 times in the second method. The value so arrived is taken as the market value of village agri. Land. The difference between ₹ 300 lakhs and the value so arrived at is taken as the value of urban land. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e difference between the SRO rate and market rate is taken as 10 times Then the value of village agri land is (Rs.54563/- x 10) x 20 acres = ₹ 109 lakhs. Then the balance consideration of 191 lakhs is taken as the value of urban vacant land. Then the difference between the above said market values and the apparent consideration is taken as the on money payment of respective properties. Urban land 191 lakhs (-) 108 lakhs = 83 lakhs (46%) Village land 109 lakhs (-) 11 lakhs = 98 lakhs (54%) (B) The difference between the SRO rate and market rate is taken as 15 times. Then the value of village agri. land is (Rs.54,563/- x 15) x 20 acres = ₹ 164 lakhs. Then the balance consideration of 136 lakhs is taken as the value of urban vacant land. Then the difference between the above said market values and the apparent consideration is taken as the on money payment of respective properties. Urban land 136 lakhs (-) 108 lakhs = 28 lakhs (15%) Village land 164 lakhs (-) 11 lakhs = 153 lakhs (85%) (C) The difference between the SRO rate and market rate is taken as 20 times. Then the value of village agri. land is (Rs.54,563/- x 20) x 20 acres = ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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