9911796707
TMI Blog1999 (9) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... g, it is being assessed to income-tax. 3. In addition to the above, the assessee also obtained a contract from Jalgaon Municipal Committee (hereinafter called JMC) to construct a high-rise building at Jalgaon on the land provided by JMC. The relevant details relating to such contract are hereby stated : 4. JMC, Jalgaon had awarded the job of development of V.V. Market, with high-rise administrative building at Jalgaon, to the appellant, vide an agreement dated 18-10-1988, which has been amended from time to time by supplementary agreements. (In all seven supplementary agreements). The project was in respect of the development of a plot of land ad-measuring about 5 acres, by constructing on it a shopping complex, vegetable market and a high-rise administrative building of 17 storeys, as per the drawings and designs to be supplied by the JMC through their architect, Kabre Choudari, Nasik. The aforesaid vegetable market, shopping complex and high-rise administrative block are not separate buildings but all of them are a part of a single building complex. The aforesaid building complex was named as V.V. Market. The aforesaid scheme was a self-financing one. The funds for the construc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the previous supplementary agreement. 5. The JMC was agreeable to the aforesaid proposal. However, the Collector, Jalgaon again stayed the relevant Resolution of the JMC. This gave rise to yet another dispute and the work on the project suffered yet another setback. After lot of wrangling the Urban Development Minister, Maharashtra intervened and gave this approval to the aforesaid proposal. Accordingly 6th & 7th supplementary agreements were entered into with the JMC and the work on the project was restarted from 1-8-1996. The entire commercial complex has been completed and handed over to the JMC on 20-5-1999. The high-rise administrative building is almost complete except for some minor work. 6. The appellant was to provide the following shops, stalls, or premises at concessional rates to JMC or/and its nominees : (i) 472 Vegetable stalls in basement at the rate of Rs. 3,000 per stall. (ii) 74 Shops in basement at the rate of Rs. 40,000 per shop. (iii) 39 shops without mezzanine floor, on first floor at the rate of Rs. 40,000 per shop. 7. The following building(s)/shops were to be provided free of cost. (i) Complete High Rise Administrative Seventeen Storeyed Buildi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atement of the said partner dated 13th August, 1994 (date of search), investment recorded in the books was Rs. 6,42,53,318 as on 31-3-1994 and thereafter till 13th August, 1994, it was Rs. 35,80,328 aggregating to Rs. 6,77,79,946. 12. In view of the above, seized material in the course of search action, the assessments for assessment years 1990-91 to 1993-94 were reopened under section 148 vide notices dated 22-9-1994. The returns were filed in response to such notices. 13. After the search operation, the assessee was advised to change the method of accounting in respect of V.V. Market from project completion method to work-in-progress method. All expenses and income to the extent considered payable and receivable unless stated otherwise were accounted for on mercantile basis. The closing stock, stores, spares, consumables and work-in-progress were valued at cost. The aforesaid facts were clearly mentioned in the audit report under the head "General Remarks" for assessment year 1994-95. On the basis of the changed method of accounting, the assessee declared loss of Rs. 69,36,378 for assessment year 1994-95 in respect of the contract relating to the V.V. Market. 14. The ITO Ward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e were liable to be rejected. 2. As a consequence of the above finding, the trading result declared by the assessee were rejected. In respect to civil contract, he applied flat rate on net profit of 8% on the total contract receipts subject to depreciation. 3. In addition to the above, other income like hire charges, rent, interest, commission etc., were added to the income separately. 4. In respect to the V.V. Market project, he accepted the second valuation report of the D.V.O. and determined the unrecorded investment in the years under consideration as per Annexure 'A' II to the assessment order and the same were added as unexplained investment under section 69. 5. He estimated the income on the sale of shops at V.V. Market at the rate of 12% of the consideration recorded by the assessee. In addition to that, he estimated 'on money' at the rate of 105.78% of the total consideration recorded by the assessee. This percentage was arrived at on the basis of seized material relating to 28 shops. The sale of shops was considered in the year in which possession of shops was handed over to the customers. However, while making such addition, he allowed set off to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rora v. CIT [1971] 80 ITR 78 (All.) 3. S. Veeriah Reddiar v. CIT [1960] 38 ITR 152 (Ker.) 4. Uttam Chuna Pathar Udyog v. ITO [1998] 65 ITD 460(Jp.) 5. Asstt. CIT v. Rahamat Khan Chandan Khan & Party [1995] 83 Taxman 45 (Jp.) 6. Dr. Rajni Kant Dave v. CIT [1996] 58 ITD 510 (All.). 20. Regarding the rejection of account books vis-a-vis the V.V. Market Project, it has been submitted on behalf of the assessee that no incriminating material was found in the course of search to prove the falsity of the entries made by the assessee except to the extent of the "on money" received by it as per the seized material. All the entries are supported by vouchers. There is no material on the record to prove that expenditure claimed by the assessee was bogus. The method of accounting adopted by the assessee was also in accordance with accounting standard approved by the Institute of Chartered Accountants. According to the ld. counsel for the assessee, the book result cannot be disturbed except to the extent of "on money" found to be received by the assessee on the basis of seized material. In this connection, he also relied on the following decisions :--- 1. Bollam Narayana Reddy v. ITO [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se payments have been mentioned by the Assessing Officer on the basis of loose-papers found from the premises of V.V. Market and he drew our attention to such loose papers. He took us through such loose-papers to show that these payments related to V.V. Market and in various loosepapers, the words JMC were written which means Jalgaon Municipal Committee. Therefore, according to him, these payments cannot be considered while deciding the issue of rejection of account books vis-a-vis civil contracts. 23. Rival submissions of the parties as well as the materials produced before us have been considered/perused carefully. The main reason for rejecting the books of accounts vis-a-vis the civil work given by the Assessing Officer was that the assessee had made payments, as mentioned in paras 14.1 and 14.2 of his order, outside the books of accounts. After perusing the relevant materials, it is not possible to accept the reasoning given by him. The payments mentioned in paras 14.1 and 14.2 of the assessment order were taken from the loose-papers found in the course of search, the copies of which have been enclosed in the paper-book at pages 612 to 624. The perusal of these papers clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 3 of the said assessment order are being reproduced :--- "2. In response to notices issued under sections 143(2) and 142(1), Shri N.T. Shurpatne, Advocate attended Shri H.R. Shimpi, Accountant of the assessee firm and explained the return. The assessee firm continues to derive income from contracts from Government and semi Government. Assessee maintains four sets of books of accounts. One set belongs to Head Office and other set is for Bombay Office. Third set is for Poladpur, Dist : Raigad and the last set is for M/s. T. Deepchand & Sons, Bombay. The books of accounts are closed, adjusted and audited. The assessee maintains all vouchers for expenses. 3. During the year under consideration, the total work done is shown at Rs. 3,20,61,441. As the books of accounts are closed, adjusted and audited, the book results are accepted. The past records reveals that thorough verification was carried out in this case and no discrepancy was noticed. This year also there is no major flow noticed in the books of accounts." 26. Another reasoning given by the Assessing Officer was that assessee had nkt apportioned the expenditures like interest between civil works and V.V. Market project. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him in this regard for all the years are hereby deleted. 30. Before parting with this issue, we would like to refer the contention of the assessee that Assessing Officer was not justified in assessing the income by way of interest, commission, hire charges etc., under the head 'income from other sources". In our opinion, this plea of the assessee is misconceived. The perusal of the assessment orders passed by the Assessing Officer does not show that such income was assessed under the head "income from other sources". Except for assessment year 1990-91, the Assessing Officer has not referred even to the words ''income from other sources". He has simply stated "other income". The entire computation is only under one head and depreciation has been allowed after assessing all business income from civil works. He has only segregated various business income from civil works. In assessment year 1990-91, he has referred to the words "income from other sources", but there is nothing to show that he has assessed the same under the residuary head. There is a distinction between the assessment of a particular income under residuary head and reference of such income as "other inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... March, 1990 against recorded consideration of Rs. 50,76,500 giving rate of "on money" at 104.59%. On the basis of these details, the Assessing Officer was of the view that assessee must have received "on money" in respect of all the shops sold by it. The assessee disputed the receipt of "on money" before the Assessing Officer which was rejected in view of the above materials and the statement of the senior partner Mr. S.D. Golani, under section 132(4) who in answer to question No. 8 deposed that the sum of Rs. 75,00,000 spent on the construction of V.V. Market outside the books were gene-rated from the sale/booking of the shops. In view of these clinching materials, the Assessing Officer following the decision of the Supreme Court in the case of CST v. H.M. Esufali H.M Abdulali [1973] 90 ITR 271 estimated the quantum of "on money" in respect of the all 268 shops sold during the years under consideration by applying the rate of "on money" at 105.78% of the agreed consideration in the following manner :--- Asst. year No. of shops Recorded sale consideration On money 1991-92 69 8603513 9100796 1992-93 72 7749853 8197794 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us the fact of receiving "on money" on the sale shop as per the seized material. However, it was contended by him that receipt of "on money" should be restricted to the amount actually received by it as per the seized material inasmuch as there was no scope of estimating in the case of search. According to him, whatever "on money" was received was reflected in the seized material. Alternatively, it was submitted by him that "on money" as per the seized materials related to 201 shops only and therefore, there was no scope to assume the receipt of "on money" in respect of balance 67 shops. According to him, 268 shops were sold between, assessment year 1990-91 to assessment year 1994-95 and Assessing Officer has wrongly and illegally estimated the "on money" in respect of all the shops despite the fact that "on money" was found to have been received in respect of 201 shops only. It was also argued by him that uniform rate of "on money" could not be applied to all the shops. According to him, there is always possibility of not receiving "on money" in certain cases keeping in view the social and political circumstances in which the assessee has to live. In some cases, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Even the rate of "on money" applied by him is too excessive and only reasonable rate of G.P. should be applied as contended by him in respect of his own appeal. 30. Rival submissions of the parties and the materials placed before us have been considered carefully. There is no dispute before us of the fact that "on money" was received by the assessee in respect of shops sold by it. Annexure 'E' clearly shows the quantum of excess money received by the assessee in respect of 28 shops and the assessee also has no objection if the same is taken into consideration for determining the profits from this project. However, it is found that there is a duplicacy in respect of shop No. 9. So Annexure 'H' would be restricted to 27 shops. Annexure 'E4' is the complete list of 201 shops in respect of which "on money" was received by the assessee upto 25th March 1990. From the perusal of Annexures 'E'&'E4', it is clear that above 27 shops mentioned in Annexure 'E' and Annexure 'H' are also reflected in Annexure 'E4'. The only difference is that Annexure 'E' reflects the amounts received upto 17-12-1990 while Annexure 'E4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases was more than 100%. Only in some cases, it was slightly less than 100%. For example, Rs. 1,27,000 against recorded price of Rs. 1,31,000 in respect of shop No. 84, Rs. 1,25,500 against Rs. 1,33,500 for shop No. 87 and Rs. 1,21,500 against Rs. 1,33,500 in respect of shop No. 88. It is only in respect of one shop i.e. shop No. 1 that "on money" was only Rs. 88,620 against the recorded price of Rs. 2,75,000. But, the overall calculations made by the Assessing Officer shows "on money" at 105.78% of the recorded price. The perusal of the other details of 201 shops as per Annexure 'E4' also shows that in most of the cases, assessee was receiving "on money" at the rate of 100% of the recorded price or more than that. Therefore, in our opinion, there was no reason with the CIT (A) to reduce the rate of "on money" drastically low at 4596. The factors taken into consideration by the CIT (A), in our opinion, were not relevant keeping in view the seized material. Accordingly, the finding of the CIT (A) in this regard is therefore vacated. 32. Now the last question on this aspect is what should be the estimate of quantum of the "on money''. As far as 27 shops are concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 33. In view of the above discussion, it is held as under :--- 1 . That Assessing Officer was justified in estimating the "on money" in respect of all the 268 shops sold during years under consideration. 2. That the CIT (A) was not justified in determining the rate of "on money" at 45% of the recorded price. 3. That Assessing Officer was justified in assessing the "on money" in respect of 27 shops as per Annexure 'H'. 4. That Assessing Officer was justified in applying the rate of "on money" at 105.78% in respect of shops at ground floor. 5. That Assessing Officer was not justified in applying the rate of 105.78% in respect of shops at first floor. For the reasons given by us, Assessing Officer is directed to apply the rate of 100% of the recorded price in respect of shops at first floor. 6. That no estimate can be made in respect of shops/stalls sold to the nominees of Jalgaon Municipal Committee. 7. The total "on money" computed in the above manner shall be added to the recorded sale price for the purpose of determining the profits from this project. 34. Now let us take up the other component of the profit i.e. the cost of the project and the additions ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee to show that reference was made under section 55A of the Income-tax Act though in the body of the valuation report reference is made to the provisions of section 131(1)(d). It was further contended by him that even reference under section 131(1)(d) could not have been made by the Assessing Officer since no proceeding was pending on the date of such reference. In this connection, he relied on the judgment of the Bombay High Court in the case of Jamnadas Madhavji & Co. v. J.B. Panchal, ITO [1986] 162 ITR 331/27 Taxman 157 and of the Calcutta High Court in the case of Dwijendra Lal Brahmachari v. New Central Jute Mills Co. Ltd. [1978] 112 ITR 568. It was further submitted by him that once the original reference is invalid, then revision of such report would also be invalid. According to him, all the documents relating to investment in this project upto 31-3-1993 were available with the Income-tax Department since they were seized in the course of search. Whatever the material was available with the assessee was duly shown to the DVO. Thus, there was no fresh material with the Assessing Officer for asking the DVO to make fresh report. Further, the assessee cannot be held res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seized in the course of search which is declared illegal can be used as an evidence against the assessee. The answer given by the court was in affirmative. In the head-note of the report at page 506, the following observations of their Lordships are reproduced as under :--- ''In India, as in England, where the test of admissibility of evidence lies in relevancy, unless there is an express or necessarily implied prohibition in the Constitution or other law, evidence obtained as a result of illegal search or seizure is not liable to be shut out. Even though a search and seizure may be in contravention of section 132 of the Income-tax Act, 1961, still the material obtained thereby is liable to be used subject to law before the income-tax authorities against the person from whose custody it is seized and, therefore, no writ of prohibition in restraint of such use can be granted." This decision was again followed by the Supreme Court in the case of Dr. Partap Singh v. Director of Enforcement [1985] 155 ITR 166 at page 175. In this case, it was further observed that the court or the authority before which such material or evidence seized during the search shown to be illegal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere was no need to take the measurement again. In the absence of any defect in such valuation report, in our opinion, the Assessing Officer was justified in relying on the second valuation report while determining the cost of construction of this project. 38. At this stage, it is necessary to appoint out that two mistakes apparent from the record were noticed which were committed by the Assessing Officer. The first mistake relates to quantification of unaccounted expenditure in the construction of V.V. Market project. The Assessing Officer has quantified such expenditure at Rs. 1,63,03,573 as per the details mentioned in the Annexure 'A II' to the assessment order. The perusal of these details shows that Assessing Officer has allowed the credit of the sum of Rs. 75,00,000 by mistake which was disclosed by the assessee on account of unaccounted investment made by the assessee in that project. The working of the Assessing Officer was as under :--- Rs. Total cost of construction upto the date of search as per books of Account 6,33,74,395 Add amount disclosed by the assessee 75,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact that assessee received 'on money' at the time of booking/sale of shops. The senior partner of the assessee had stated in his statement under section 132(4) that unaccounted investment was made in the construction of the project out of the money generated on the sale of shops by way of 'on money'. Therefore, both the amounts of 'on money' as well as unexplained expenditure cannot be brought to tax. If the unaccounted expenditure was incurred out of 'on money' received by the assessee, then question of making any addition under section 69C does not arise because the source of expenditure is fully explained. In such case, it is only the 'on money' which can be considered for the purpose of taxation. It is pertinent to note that Assessing Officer himself had given set off while determining the taxable amount of 'on money'. But, this approach, in our opinion, was erroneous. Once the 'on money' is considered as revenue receipt, then any expenditure out of such receipt cannot be treated as unexplained expenditure. There cannot be double addition in respect of the same amount. However, the Assessing Officer has observed that ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 144 which in turn provides assessment to the best of judgment. It is the settled law that even the best judgment of assessment must be rational and cannot be arbitrary though some guess-work may be involved. In this connection, reference may be made to the decisions of Hon'ble Supreme Court in the case of Raghubar Mandal Harihar Mandal and in the case of Dhakeswari Cotton Mills Ltd. In the present case, the Assessing Officer has simply applied 12% rate of profit which has been reduced to 8% by CIT(A). Neither the Assessing Officer nor the CIT(A) has given any basis for such rate of profit adopted by them. Further, neither of them has taken into consideration the contractual obligations of the assessee to give major portion of the building to JMC free of cost alongwith various amenities and further to give 472 vegetable stalls in basement at concessional rate of Rs. 3,000 per stall and further 74 shops in basement and 39 shops at the first floor at the concessional rate of Rs. 40,000 each. In our opinion, the true profits from this project cannot be determined unless such liabilities are taken into account. In view of the settled position, the profits must be understood in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cost of saleable area of Rs. 25,000 (250 X 100). Thus, the profit for this year chargeable to tax would be Rs. 5000. 42. In view of the above discussion, the orders of CIT(A) are set aside on this issue and the Assessing Officer is directed to re-compute the taxable profit/loss from this project i.e. V.V. Market Project in the following manner :--- 1st Step To take the total cost of this project as per the books of account which has been stated by the assessee before us at Rs. 15,82,33,695 (page No. 199 of the paper-book). However, this figure is subject to verification by the Assessing Officer. 2nd Step To increase the above cost by the unaccounted expendi- ture of Rs. 2,38,03,573. The amount so arrived at shall be considered as total cost of the project. 3rd Step Such total cost of the project shall be spread over the total saleable area of the project. At page 195 of the paper-book, saleable area has been shown by the assessee at 2,30,404 sq. fts., but this is not the correct factual position because area of 472 vegetable stalls has remained to be included. The assessee has admitted this mistake and the total saleable area has been finally stated to be 2,70,741 sq. fts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y members of the partners of the assessee firm. Cash credits relating to assessment year 1993-94 represent the loans received by various parties. Firstly, we deal with the cash credits pertaining to assessment years 1990-91 and 1991-92. During the course of assessment proceedings, it was noticed by the Assessing Officer that certain shops at the around floor in the V.V. Market Project were booked in the name of various family members of the partners of the assessee firm, details of which is given at page 24 of the assessment order. When asked to explain the deposit amount for such booking, the assessee furnished confirmatory letters as well as the statement of accounts in respect of 13 family members out of 17 members. Such explanation was accepted by the Assessing Officer. However, according to the Assessing Officer neither any explanation nor confirmatory letters were produced in respect of the following deposits : Rs. Mrs. Lata B. Golani 45,000 Vasu Brijlani 50,000 Vimla Brijlani 45,000 Sapna B. Punjabi 37,500 1,77,500 In addition to these, it was also found by him that there was unexplained difference of Rs. 1,000, 5,000 and 5,000 in the case of Kisho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in cash. On the other hand, the ld. counsel for the assessee has supported the order of CIT(A). 46. After hearing both the parties, we do not find any merit in the appeal of the Revenue. The CIT(A) has found that booking deposits were made by these parties out of their capital accounts. It was also found by him that such bookings were cancelled and the amounts were returned by the assessee on account of cancellation. Besides this, these parties had confirmed the receipt of the refund of such amounts. It is important to note that CIT(A) has recorded a finding that the amounts refunded by the assessee to Vasu Brijlani and Vimla Brijlani appeared in the books of account seized during the course of search. In view of these material on the record, we do not find any reason to interfere with the orders of CIT(A). As far as Sapna Punjabi is concerned, she was assessed to income-tax at Bombay as found by the CIT(A). All the details were filed before the Assessing Officer. The amount of Rs. 37,500 upto assessment year 1990-91 were duly shown by her in the income-tax return and such amount was paid out of her capital account. Similarly, the balance amount of Rs. 50,000 was found to hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ails, it was found by the CIT(A) that the cash credits in the name of seven persons were repaid by cheques. Three of these parties were assessed to income-tax. All the parties had confirmed the amounts given to the assessee and repayment made by the assessee. On the basis of these materials, the CIT(A) deleted the addition of Rs. 3,15,000 in respect of the persons who could not be contacted by the Assessing Officer. In respect of other two parties i.e. Suresh Advani and Manju Advani, it was found by the CIT(A) that both of them had produced copies of their capital account, balance-sheet and details of their assessments. Both the parties had categorically admitted that they advanced the amount to the assessee and subsequently received back. Confirmatory letters were also filed before the Assessing Officer. Further, the repayment was made by cheques. In view of these facts, the addition of Rs. 1,85,000 in respect of these two creditors was also deleted. Aggrieved by the same, the revenue is in appeal before the Tribunal. 48. The revenue has challenged the order of CIT(A) in respect of seven parties out of nine parties. Perusal of the grounds of appeal shows that deletion of the cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92 to 1994-95 out of the sale of shops and "on money" received, the addition on this ground for assessment years 1989-90 and 1990-91 be adjusted as and when sales affected in future against the said construction commenced in these years." After hearing both the parties, we agree with the ld. Senior D.R. that CIT(A) had no jurisdiction to travel beyond the assessment years involved before him. Therefore, it is held that CIT(A) was not justified in giving any direction with reference to the addition made for assessment year 1989-90. Since assessment year 1990-91 was before him, the CIT(A) could issue the directions. However, it has been held by us in the earlier part of order that approach of the Assessing Officer in this regard was not correct. It has been held by us that it is the "on money" which has to be taken into consideration while computing the profits from the V.V. Market Project. It has been further held that no addition can be made in respect of unaccounted expenditure relating to assessment year 1990-91 since enough "on money" was available with the assessee for making such expenditure. Since the addition on this account has been deleted for assessment year 1990-91, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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