TMI Blog1996 (3) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... d an application for allowing permission to raise an additional ground to the effect that the learned CIT(A) erred in confirming the reopening of the assessments. Vide a separate order of even date in ITA Nos. 7722 to 7725 (Bom.)/94 for the assessment years 1981-82 to 1984-85 we have set aside the orders of the learned CIT(A) with the direction to decide the above said issue in accordance with law after providing adequate opportunity to the assessee of being heard. 3. For the assessment years now before us the assessee has come in appeal for the assessment years 1986-87 and 1987-88 because the learned CIT (Appeals) has not accepted the contentions of the assessee, with which we shall deal in the subsequent paragraph of this order and for the assessment years 1985-86 and 1988-89 the revenue has come in appeal because the learned CIT(A) had accepted that the assessee's assessments were to be completed on the basis of the project completion method and in substantially accepting the contention of the assessee with which we shall separately deal in the later part of this order. 4. The dispute now before us may be summarised as under : The stand of the assessee is that it had sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee-company had been charging 15% to 20% on money. He also took into account the statement of one Shri Mahesh Modi, Accountant of assessee whose statements were recorded during the course of search on 11-5-1987 and 12-5-1987. According to the Assessing Officer Shri Modi had stated that the on money charged was 30% to 40%. He also referred to the statement during search, of one Shri Shyamlal Arora, Supervisor dated 11-5-1987 who had stated that on money charged was 50% to 40%. He also considered the plea of the assessee that these persons had retracted from their statements but rejected it because according to him, firstly no statement could have been recorded under threat or duress in the presence of independent Panchas at the time of the search, who have certified that no untoward incident had taken place during the course of search and secondly even if the statements were recorded under threat or duress, this information of 30% to 40% of 'on money' could not have been repeated by them before the ADI in the Income-tax Office. He, therefore, concluded that the so-called retraction was on the basis of undue pressure from the assessee who was the employer of those persons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment year 1986-87. He gave notice to this effect to the assessee on 9-1-1992 but when no reply was received from the assessee he completed the assessment by rejecting the books of account under section 145(2) and adding this amount of on money besides making some other additions and disallowances on specific grounds. The total income was thus assessed at Rs. 39,12,894. On the same basis the amount of on money worked out by the Assessing Officer for different years as mentioned above was assessed by him in the assessment years starting from 1981-82 to 1985-86 also. 5. For the assessment year 1987-88, the assessee had filed a return of income on 30-11-1987 declaring total income at Rs. 28,87,260. However, as earlier assessments were set aside by the learned CIT(A) the fresh assessment, on the basis of which now the assessee is in appeal before us was completed repeating the figures of assessment order dated 14-3-1991 and deducting therefrom the amount set aside by CIT (Appeals) pertaining to 'on money', on a total income of Rs. 29,80,712. 6. For the assessment year 1988-89 the assessee filed a return of income in response to a notice issued under section 148 declaring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e statements of two persons recorded during the course of search, namely Shri Mahesh Modi, Accountant and Shyamlal Arora, site supervisor who allegedly stated that the assessee had been receiving payments in cash. The learned counsel explained that in spite of the fact that those persons had said that the assessee was receiving payments in cash, it did not mean that any payment received in cash was to be treated as unaccounted money or what is commonly referred to as 'on money'. He explained that all the receipts of the cash were recorded in the books of account of the assessee. Even then the assessee had surrendered what it stated to be unexplained income of Rs. 66 lacs. Rs. 26 lacs were surrendered for the assessment year 1987-88 and Rs. 40 lacs were surrendered for the assessment year 1988-89. The learned counsel claimed that the books are still in the possession of the revenue and it can be verified from them that all the cash receipts are recorded there. He also referred to the affidavit of Shri Mahesh Modi dated 8-9-1988 (p. 127 of paper book, Vol. I). Yet the assessee had surrendered the income of Rs. 66 lacs on account of continued 'torture' by the department. Shri Harish f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned Assessing Officer did not accept this gesture of the assessee and has, without any basis, estimated the on money at about Rs. 1.25 crores. The learned counsel claimed that this estimate of Rs. 1,25,78,000 of on money was in addition to the disclosure of Rs. 66 lacs made by the assessee. According to the learned counsel for the assessee while for assessment years 1981-82 to 1986-87 the AO had added the figures worked out by him as 'on money' for each year, against the figures which are allocated by him as part of Rs. 66 lacs when it came to assessment years 1987-88 and 1988-89, he accepted the figures of Rs. 26 lacs and Rs. 40 lacs disclosed by the assessee. Thus if the Assessing Officer were to make additions of total of Rs. 1,25,78,000 only, he should have adopted the figures as allocated by him for different years ; he should have considered the figures of Rs. 8,16,000 and Rs. 2,02,000 only for these two assessment years instead of Rs. 26 lacs and Rs. 40 lacs as disclosed by the assessee. Thus according to Shri Harish this has resulted in a double addition of the amounts disclosed by the assessee. He pointed out that he had given a working in the paper book (p. 162, Vol. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sogthi stated that only 10 per cent was in black and 90 per cent was in white. He submitted that the revenue had made no mention about this statement because this was going against it and had thus suppressed the true facts. He further argued that since the revenue has got the power to acquire the property if the apparent consideration differs from the real consideration by 15 per cent, yet the very fact that no property had been acquired by the revenue would indicate that there should have been no transaction in which the assessee should have charged on money at 15 per cent or more. 12. Coming to the facts also the learned counsel submitted that if what Shri Dinesh Inamdar is alleged to have stated were true, the total price of 190 sq. ft. should have been Rs. 76,000 at the rate of Rs. 400 per sq. ft. and since Rs. 55,000 was the disclosed price, the balance alleged to have been paid in black could not have been Rs. 35,000. 13. Coming to the rate of profit disclosed by the assessee, he submitted that the assessee had already disclosed net profit rateat 21 per cent for the assessment year 1988-89 whereas the Assessing Officer had referred to cases where the assessees had discl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the total receipts of the assessee including on money were about Rs. 5.02 crores, 25 per cent of which was on money and that is how the figure of on money was worked out at Rs. 1,25,78,000 by the Assessing Officer. 17. Regarding the statements of Shri Modi, Accountant and Shyam Arora site supervisor the learned D. R. pointed out that even the Director of the company had stated that on money charged was up to 20 per cent. Regarding the claim of the learned counsel for the assessee that on money was charged only in the last year he explained that taking into account the circumstantial evidence as was done in the case of Mont Blanc it had to be considered that on money had been charged regularly. He pointed out that as per the paper found during the course of search the assessee had admitted that it had received on money to the tune of Rs. 11,99,249 till 31-1-1983 and hence it was not correct to say that the on money was received only during the last three assessment years. 18. Dealing with the allegations of torture and coerceive measures adopted by the revenue the learned D. R. argued that no such measures had been adopted by the revenue. On the other hand, the disclos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 1988-89, the learned D. R. vehemently argued that from what has been discussed earlier also in this order there was no justification for the learned CIT(A) to have come to the conclusion that the assessee's books of account have to be accepted or that the assessee has been following a regular method of accounting which can be said to be project completion method and hence he prayed that the orders of the Assessing Officer assessing the incomes for the two year's on the estimate basis may be restored. 22. We have carefully considered the rival submissions and the material on record. An analysis of the stand taken by the assessee and the revenue can be made as follows : 23. According to the assessee on a project which was started in the year 1980 and in which total recorded receipts are to the tune of about Rs. 3,77,34,000, it should be accepted that it earned no profits till the assessment year 1985-86. Then in the assessment year 1986-87 it earned profits to the tune of Rs. 7,96,450. Thereafter in the assessment year 1987-88 it earned recorded profits of about Rs. 2,87,000 and in the assessment year 1988-89 even after declaring unaccounted profit of Rs. 40 lacs when the ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arguments and allegations of the assessee to the effect that it was tortured and harassed by the revenue during the course of search and thereafter, are concerned, we are unable to agree with the learned counsel for the assessee. We find nothing on record to indicate that income-tax authorities have employed third degree methods to force some persons to make confessions or admissions. This is all the more unacceptable when independent witnesses were present at the time of search. Even if for the sake of argument it is accepted for a moment that the revenue authorities had given some threat to the assessee and its employees, there is nothing to stop the assessee and its employees to either meet personally or through their authorised representatives the higher authorities of bringing to the notice of higher authorities through written communications that any statement or admission made by them before the search party was on account threat, coercion or undue influence. Moreover merely writing that may not be sufficient but even what actual threat, coercion or undue influence was exercised is also required to be spelt out so that its veracity could be verified with the witnesses who w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt white and 30 per cent black or 60 per cent white and 40 per cent black. In this background the subsequent affidavits or retraction supposed to have been made by him, in our opinion, carry no evidenciary value because there can be no doubt that they must have been made under the coercion, threat or undue influence of the assessee who is the employer and to whose interests his statement was very damaging. Similarly about the statement of Shyam Arora, we are unable to agree with the submission of Shri Harish. Only concession which can be made may be regarding the actual percentage which might be charged by the assessee, a factor which has been considered by the AO. Regarding the argument of Shri Harish that the revenue has totally ignored the statement of Shri Sogthi because it was in favour of assessee, we are unable to attach much importance to it because Shri Sogthi had stated that on money was being charged only at 10 per cent. From the statement of Shri Sogthi we gathered that he was a man of great confidence of the assessee to whom Shri J. N. Agarwal had advanced Rs. 2,37,000 (p. 287 of paper book, Vol. 4) in cash in connection with some joint venture about which there was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l on record to show that the offer of disclosure of on money at Rs. 66 lacs was made on account of some threat, coercion or undue influence or fraud and hence we decline to agree with the arguments and submissions of Shri Harish in this regard. 26. In continuation with this finding we may also deal with the argument of learned counsel for the assessee regarding the method of accounting followed by the assessee and which is stated to be project completion method. The learned counsel for the assessee has relied on several decisions of the Tribunal and also of the Hon'ble Bombay High Court. We need not repeat the trite that every decision is given according to the facts and circumstances of a particular case. In principle it may be alright that project completion method may be accepted as a method for computing the income of an assessee under section 145(1) of the Income-tax Act. However, whatsoever method on assessee might be following, even the most recognised method of mercantile system or the cash system, once it is found that either the method of accounting is such from which correct profits cannot be deduced [proviso to section 145(1)] or the books of account maintained by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o this extent the argument may be accepted. Yet no one can believe that while selling the shops or flats to these institutions from whom no on money was charged, the assessee should not have even charged its normal rate of profit. This would mean that when the sales were shown to various parties from whom on money was charged, the same sale price was recorded in the books as was being recorded from those parties from whom no on money was charged. This in turn would mean that so far as the normal profit element was concerned, it was included in the recorded sale price because no builder would be selling the shops or flats at par or at a loss on the ground that the profits would be earned only in terms of on money. This leads us to come to the conclusion that the assessee should have earned normal profits in the sale prices recorded by it in its books of account and the on money earned by it was meant to represent its unrecorded income which could be spent in any manner the assessee liked. Hence in order to claim that any expenditure out of those receipts was made for the purpose of assessee's business, the burden of proof lies on the assessee and since far from proving anything, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at of some unknown IT officials and thereafter did not dare even to report this matter to any authority that he was compelled to give a false statement. We gather from the orders of the Assessing Officer that the statement of Shri Inamdar was recorded under section 131 and hence it is likely that the person recording the statement must have told him that he had to state the truth and that if his statement was found to be false he could be prosecuted. If that is the situation, it was all the more necessary for Shri Inamdar to have informed the Income-tax Commissioner or some higher authority soon after giving such a statement that he has been made liable for criminal prosecution by being compelled to give a false statement. But no such matter has either been brought on record nor has even been stated in the affidavit of Shri Inamdar. On the other hand, what we gather from the material on record is that as per compilation given by the assessee, the first assessment after the date of search made by the revenue is for the assessment year 1984-85 dated 19-8-1987 (pp. 9 to 16 of the compilation). Although it is a long order it makes no mention at all of any search having been conducted a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a net profit rate of 16.40 per cent. In this view of the matter the case relied upon by the assessee cannot be said to be a comparable case. 29. So far as the arguments of the learned counsel regarding applicability of section 69A is concerned, in view of the fact that the income in this case has to be assessed on estimate basis, in our view this is only of academic interest and hence we may agree with the argument of the learned counsel for the assessee that so far as the facts and circumstances of this case are concerned, it is not necessary to invoke the provisions of section 69A of the Income-tax Act. 30. So far as the argument of the learned counsel for the assessee to the effect that the revenue itself has in some of the years accepted assessee's system of accounting as project completion method and in some of the years the CIT(A) had accepted that the assessee had followed that method of accounting is concerned, we find that different authorities have been taking different views on different occasions. However, so far as the order of the CIT(A) which is now under appeal before us that is for the assessment years 1981-82 to 1987-88 is concerned, we find that he has given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 5,09,600 because while making this computation the learned CIT(A) appears to have ignored the fact that the assessee has shown the on money of Rs. 40 lacs as income of this year when admittedly this on money was being received for the last several years and hence cannot be considered to be relevant for computing the profits of this year only, particularly when the total receipts shown this year are only Rs. 6,05,000. If the computation is made after taking that factor into account, the profit would not be 40 per cent as mentioned by the learned CIT(A). But in any case it is irrelevant for reasons given by us in the preceding part of this paragraph. 31. So far as the reference of Shri Harish to a minor discrepancy and the ratio of the decision of the Hon'ble Supreme Court in this regard is concerned, in the first instance the discrepancies pointed out by the Assessing Officer cannot be said to be minor and more so when as per assessee's own admission it has held back an amount of Rs. 66 lacs from being included in its books of account, by no stretch of imagination it can be said to be a minor discrepancy when the total receipts disclosed by the assessee are only Rs. 3.77 cro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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