2017 (3) TMI 1048 - AT - Income Tax

Additions made on account of alleged on money receipt in respect of Ratnakar III scheme and Ratnakar IV scheme - reliance on loose sheet - Held that - The assessing authority has no power to disturb the sale price shown except in three cases. The first is under Section 145 of the Act. Where the sale of properties is part of the business of the assessee the Assessing Officer if he is of the opinion that the accounts are not correct and complete may proceed to reject the books of accounts and thereafter make a best judgment assessment of the income in the manner prescribed by Section 144. The second is the case where Section 50C of the Act is invoked on the basis of the prices fixed by the Stamp Valuation Authorities of the State Government. That section it is pointed out however applies only in the computation of capital gains and cannot BE availed by the Revenue where the profits of the business are to be computed. The third is the case of section 92BA inserted by the Finance Act 2012 w. e. f. 01.04.2013. This section gives power to the Assessing Officer to recalculate the profits shown by the assessee in cases of specified domestic transactions where the aggregate of such transactions entered into in the relevant accounting year exceeds a sum of Rs. 5 crores. Except in these three situations the Act does not permit the enhancement of the profits of the business shown by the assessee. The loose sheet of papers are wholly irrelevant as evidence being not admissible u/s. 34 so as to constitute evidence with respect to the transactions mentioned therein being of no evidentiary value. See CENTRAL BUREAU OF INVESTIGATION CBI Versus VC. SHUKLA & ORS. 1998 (3) TMI 675 - SUPREME COURT Moreover the Assessing Office did not make any inquiry from buyers of flat in respect of actual prices paid by them. He also did not make any other inquiry in order to corroborate his conclusion. There is no incriminating evidence to show that the assessee has sold the flats at a higher rate. In our understanding of the facts the impounded loose sheet can at the most be termed as dumb document which did not contain full details about the dates and its contents were not corroborated by any material and could not relied upon and made the basis of addition. We therefore set aside the findings of the ld. CIT(A) and direct the A.O. to delete the addition - Decided in favour of assessee

Issues Involved:
1. Addition of Rs. 32.56 crores as alleged on-money receipts.
2. Relevance and admissibility of evidence from loose sheets found during the survey.
3. Comparison with the case of M/s. Sambhav Infrastructure Pvt. Ltd.
4. Legal principles governing the assessment of undisclosed income.

Issue-wise Detailed Analysis:

1. Addition of Rs. 32.56 crores as alleged on-money receipts:
The primary grievance of the assessee was the addition of Rs. 32.56 crores (Rs. 25.66 crores for Ratnakar III and Rs. 6.90 crores for Ratnakar IV) by the Assessing Officer (AO) based on alleged on-money receipts. The AO relied on documents impounded during a survey and property prices in the locality. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, referencing a similar case involving M/s. Sambhav Infrastructure Pvt. Ltd. The Tribunal initially remanded the case for fresh consideration, directing the CIT(A) to confront the assessee with facts from the Sambhav case and allow the assessee a reasonable opportunity to respond.

2. Relevance and admissibility of evidence from loose sheets found during the survey:
The AO issued a show-cause notice based on loose sheets found during the survey, which allegedly indicated higher rates for flats than those recorded in the books. The assessee contested the validity of these loose sheets, arguing they did not pertain to their projects and lacked corroborative evidence. The Tribunal noted that the loose sheets did not mention any specific scheme, and the sizes of flats and penthouses listed did not match those in the Ratnakar III and IV projects. The Tribunal cited Supreme Court rulings, emphasizing that entries in loose sheets are not admissible under Section 34 of the Evidence Act unless corroborated by independent evidence.

3. Comparison with the case of M/s. Sambhav Infrastructure Pvt. Ltd.:
The CIT(A) had relied on findings from the case of M/s. Sambhav Infrastructure Pvt. Ltd., concluding that the practice of receiving on-money was rampant in the real estate business. However, the Tribunal found that the CIT(A) did not provide the assessee an opportunity to address these findings. The Tribunal directed the CIT(A) to allow the assessee to show how the observations in the Sambhav case would apply to their case. The High Court of Gujarat later instructed the Tribunal to hear the assessee's appeal based on materials on record, allowing all legal contentions.

4. Legal principles governing the assessment of undisclosed income:
The Tribunal emphasized that the AO cannot disturb the sale price shown by the assessee except in specific cases: under Section 145 of the Income Tax Act (if accounts are not correct and complete), Section 50C (based on stamp valuation for capital gains), and Section 92BA (for specified domestic transactions exceeding Rs. 5 crores). The Tribunal also referred to several judicial decisions, including Lalchand Bhasat Ambica Ram vs. CIT and CIT vs. A. Raman & Co., which held that additions cannot be made based on suspicion, surmises, or prevailing market perceptions without concrete evidence.

Conclusion:
The Tribunal found no merit in the impugned additions, noting that the loose sheets were "dumb documents" lacking corroborative evidence. The AO did not verify the actual prices paid by buyers or conduct further inquiries. The Tribunal set aside the CIT(A)'s findings and directed the AO to delete the addition of Rs. 32.56 crores. The appeal filed by the assessee was allowed.

Order Pronounced:
The order was pronounced in Open Court on 14-02-2017.

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