TMI Blog2006 (9) TMI 225X X X X Extracts X X X X X X X X Extracts X X X X ..... . Builders and the construction was also started on the abovesaid property. Subsequently, the construction could not be completed and the assessee decided to dispose of the unfinished structure. One part of the land was sold to one Syed Mohd. Jafar. The rest of the property was sold to Shri Amir Singh. An agreement of sale-cum-irrevocable general power of attorney was executed by the assessee on 14th Oct., 2000 in respect of the land in favour of Shri Amir Singh. As per the said agreement, the total sale consideration was Rs. 1.08 crores. As on the date of execution of the agreement of sale-cum-irrevocable general power of attorney, the assessee received Rs. 48,11,000 from the purchaser towards part of the sale consideration. On the date of execution of the sale, the said Shri Amir Singh paid another sum of Rs. 24,89,000 by three cheques. The balance consideration of Rs. 35,00,000 was not paid on the date of execution of the agreement of sale-cum-irrevocable general power of attorney. However, the said Shri Amir Singh executed a promissory note for a sum of Rs. 35,00,000 and also gave post dated cheques for payment of the above said amount of Rs. 35,00,000. 3. The learned represe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uffered by the assessee due to non-payment of the amount within the schedule period. According to the learned representative, the interest neither accrued to the assessee nor was received by the assessee. Since there is no clause in the agreement for payment of interest, the assessee has no right to recover any amount towards interest. Therefore, according to the learned representative, the interest said to have been computed in the paper seized cannot be treated as undisclosed income. Furthermore, according to the learned representative, the AO found that there was on-money consideration of Rs. 60,00,000. According to the learned representative, there was no on-money consideration. The actual consideration for the transaction was only Rs. 1.08 crores and nothing more than that. The registered document clearly shows that the sale consideration was only Rs. 1.08 crores and nothing more than that. 4. The learned representative for the assessee further submitted that the assessee computed the interest just to show to Shri Amir Singh the losses that were suffered by the assessee. The interest was computed on Rs. 60,00,000 by rounding off the outstanding amount of Rs. 59,89,000. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntative, either the Revenue should take the entire seized paper P-95 including the amount shown as pending, or reject the same in toto. 6. The learned representative again placed his reliance on the judgment of the apex Court in the case of CIT vs. Orissa Corporation Pvt. Ltd. (1986) 52 CTR (SC) 138 : (1986) 159 ITR 78 (SC), and submitted that when the assessee furnishes an explanation to show that the total consideration was only Rs. 1.08 crores, and what was computed in the seized paper is just to show to the purchaser the loss suffered by the assessee and no right accrued to the assessee in respect of the interest, this explanation of the assessee cannot be rejected unreasonably in order to make addition as undisclosed income. According to the learned representative, the Department cannot reject a good explanation unreasonably and convert good proof into no proof. The learned representative again placed his reliance on the judgment of the Bombay High Court in the case of CIT vs. Ace Builders (P) Ltd. (1994) 116 CTR (Bom) 224 : (1993) 202 ITR 324 (Bom), and submitted that unless the right to profit comes into existence, there is no accrual of profit to the assessee. According t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilable on record. It is not in dispute that the assessee executed an agreement of sale-cum-irrevocable general power of attorney in favour of Shri Amir Singh on 14th Oct., 2002. The total sale consideration mentioned in the agreement is Rs. 1.08 crores. It is not in dispute that the seized document P-95 was found in the residential premises of the assessee's son, Shri Gyan Kumar Agarwal. A copy of the seized paper is available at p. 52 of the paper book of the assessee. From 1st April, 2002 to 31st Aug., 2002, no interest was computed. For the month of September, interest was computed at the rate of 0.5 per cent. For October, the assessee computed for half of the month at the rate of 0.5 per cent. Further, the assessee computed interest from 14th Oct., 2002 to 26th Oct., 2002 on an amount of Rs. 24,89,000 at the rate of 18 per cent. Similarly, on. an amount of Rs. 16,59,000, interest was computed from 26th Oct., 2002 to 28th Nov., 2002 at the rate of 18 per cent. From 28th Nov., 2002 to 20th Dec., 2002, the assessee computed interest on Rs. 8,29,000 at the rate of 18 per cent. Below these particulars, it is shown as if an amount of Rs. 35,00,000 was pending. The case of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee and Shri Amir Singh in respect of the sale of the above said land. Therefore, in our opinion, there was an oral agreement between the assessee and Shri Amir Singh before execution of registered deed on 14th Oct., 2002. The very fact that the substantial amount was paid by Shri Amir Singh before 14th Oct., 2002 establishes that there was an oral agreement and in pursuance of that oral agreement Shri Amir Singh paid the amount to the assessee and ultimately the assessee has executed the agreement of sale-cum-irrevocable general power of attorney in favour of Shri Amir Singh. Therefore, we do not find any justification on the part of the lower authorities in concluding that there was no oral agreement. In our opinion, there was an oral agreement between the assessee and Shri Amir Singh for sale of the land and in consequence thereof Shri Amir Singh and his family members paid a sum of Rs. 48,11,000 and the registered deed was executed on 14th Oct., 2002. 9. The next question for consideration is as to what was the sale consideration. According to the assessee, the sale consideration was Rs. 1.08 crores. The registered agreement of sale-cum-irrevocable general power of attorney ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, we have to find out whether this seized paper establishes the fact of receipt of on-money of Rs. 60,00,000 or not? 10. As we have already discussed, as on 14th Oct., 2002 an amount of Rs. 59,89,000 was outstanding including the pronote and cheques given for Rs. 24,89,000. We have already concluded that there was an oral agreement between the parties for payment of the consideration before 31st Aug., 2002. When there was an oral agreement to pay money in advance and it was not paid, the assessee might nave computed and worked out probable loss suffered by him. The specific case of the assessee before the Tribunal is that just to show to Shri Amir Singh, the probable loss of interest was computed. However, no intention to charge interest on the outstanding amount of Rs. 59,89,000 (rounded off to Rs. 60,00,000). In our opinion, this explanation of the assessee appears to be reasonable and true. Had the amount been paid on or before 31st Aug., 2002, the assessee might have earned the interest by depositing the same in some other financial institution. Probably, to project this probable loss, the assessee might have computed and worked out the loss that might have been suffered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 60,00,000 over and above the sale consideration mentioned in the registered deed. It is also pertinent to note that after 14th Oct., 2002, the assessee computed interest only on Rs. 24,89,000 arid not on Rs. 59,89,000. This is obvious because the balance amount of Rs. 35,00,000 was payable subsequently in the month of November, for which the purchaser has issued four post dated cheques. If the intention of the assessee was to compute the interest on the entire outstanding amount, then the outstanding Rs. 35,00,000, which was really outstanding, would have been included in the computation. Had the cheques been realised on the date of presentation immediately after execution of the deed, the necessity of computation of interest might not have arisen. It is a settled principle of law that the date of payment would always relate back to the date of presentation of the cheque provided the cheque was not returned unpaid. In this case, on two or three occasions the cheque was returned unpaid and it was realised subsequently. Therefore, the assessee was prevented from using the money in the period in which, the cheque was returned unpaid. Therefore, a normal prudent person would naturally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee has no right to receive interest from the purchaser in pursuance of the agreement dt. 14th Oct., 2002. Even though a pronote was said to have been given on 14th Oct., 2002, the post dated cheques given by the purchaser for repayment of Rs. 35,00,000 clearly show that even on such pronote no interest was receivable by the assessee. Therefore, as rightly submitted by the learned representative for the assessee, the interest did not accrue to the assessee. Unless it accrued, as held by the Bombay High Court in the case of Ace Builders (P) Ltd., the same cannot be included in the total income for the purpose of taxation. This view of the Bombay High Court is also supported by the judgment of the apex Court in the case of CIT vs. Ashokbhai Chimanbhai (1965) 56 ITR 42 (SC). In view of the above, even the interest cannot be added as undisclosed income for the block period. Therefore, in our opinion, there is no justification on the part of the lower authorities in making addition of Rs. 60,98,176 as undisclosed income for the block period. Accordingly, the same is deleted. 14. Now, coming to the next issue of addition of Rs. 43,61,461, the learned representative for the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome for the block period by the CIT(A). The question arises for consideration whether the P L a/c tiled by the assessee with the regular return subsequent to the date of search could be a basis for making addition. This issue was considered by the Madras High Court in the case of CIT vs. G.K. Senniappan (2006) 203 CTR (Mad) 447 : (2006) 284 ITR 220 (Mad). In the case before the Madras High Court, there was a search operation. Simultaneously, there was also a survey. In the survey operation, some incriminating materials were found. On the basis of the incriminating materials found during the course of survey operation, the AO made addition in the block assessment as undisclosed income. When the matter came before the Tribunal, the Chennai Bench of the Tribunal held that for the purpose of block assessment, the undisclosed income shall be computed on. the basis of evidence found during the course of search or material which is relatable to the evidence found during the course of search operation. Ultimately, the Tribunal held that the material found during the course of survey operation cannot be a basis for computing undisclosed income for the block period. This decision of the Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X
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