TMI Blog2010 (11) TMI 951X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of loss claimed at ₹ 1,73,191/-. 4. Brief facts of the issue are that the assessee firm is engaged in the business of real estate. A search and seizure operation was conducted at the residential cum business premises of Sri Gopal Lal Badruka partner of the assessee firm u/s 132 of I.T Act 1961 on 27-6-2006. It was found that the assessee actively engaged in developing a property situated at No. 205, Tarbund, Secunderabad Cantonment and thereafter assessment was framed u/s 153A of Act in hands of Sri Gopal Lal Badruka in whose name warrant u/s 132 was issued and also assessment was framed in name of this firm and also in the name of other partner viz Sri Avadesh Badruka u/s 153C of the IT Act as assessment of income of any other than the person referred to in section 153A of the I.T.Act. The assessee herein filed return of income for the Assessment year 2003-2004 admitting a loss of ₹ 1,73,191/-. The assessing officer found that the documents seized vide annexure/GLB/22B/2(Page No.12) reveal that the firm was registered in the year 2003. The copy of the acknowledgement of registration issued by the Registrar of Firms, Govt. of AP was found and seized as part of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essential even in cases where there is a direct link between the loss incurred and the business. In any case, the assessee has carried on business or not, must be examined with reference to the facts of each case and no generalization can be made. In the present case, the lower authority has given a finding that the assessee has not commenced as well as carried on the business during the year under consideration. As such, this expenditure cannot be allowed as business deduction. In the result, ITA No.362/H/2010 is dismissed. 7. The next common ground in ITA Nos.363 to 366/H/2010 is with regard to addition of on money for all the plots and also estimating the same in the ratio as in the other plots for which evidence is found without appreciating the fact that no such on money is received in respect of other plots and treatment of entire on money receipt as income without giving deduction towards expenses instead of treating the only profit portion on such unrecorded receipts. 8. Brief facts of the issue are that the firm is engaged in the business of real estate. A search and seizure operation was conducted at the premises of the partner of the assessee, namely, Shri Gopal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the financial year 2003-04 to 2006-07 as per the tables below: FINANCIAL YEAR 2003-04 S.No. Plot No. Area (in sq.Y.) Purchaser Date of sale deed Doc.No./ Amount as per sale deed 1 1 2 1619.05 M. Surana 16.6.2003 1024/03 4209530 2 3 4 1598.35 D.Surana 17.7.2003 717/2003 4155580 3 5 482 P.D. Pulla 29.8.2003 1460/03 1301400 4 6 25.8 Sitarama Raju 30.1.2004 155/04 107640 5 7 331.76 AG Kumaraswamy 26.05.2003 922/03 862578 6 8 300 K Ramesh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Maj.K. Vivek 7.1.2004 22/04 2234040 20 205 open 1405.00 RK Jain 5620000 Total 21822899 FINANCIAL YEAR 2004-05 Sl.No. Plot No Area(sq.yd.) Purchaser Date of deed Doc.No. Amount as per sale deed 21 Open plot 242.47 Smt.M.V. Lakshmi M Phanikumar 15.10.04 2052/04 970000 22 Open plot 85.56 Sandeep Soni Sandesh Soni 27.10.2004 2094/04 385020 23 Open plot 586.66 Sandeep Soni Sandesh Soni 27.10.04 2093/04 2639970 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessing officer made the following additions to the returned income of the assessment year 2003-04. 1. Expenditure not supported by any proof ₹ 1,46,94,901 2. Suppression of sale receipts on land sale ₹ 7,01,23,094 11. At the same time the assessing officer added back the business loss which was set off by the assessee while filing the return of income since the business loss claimed for the assessment years 2003-04 was disallowed in the said assessment proceedings. Thus, the total income assessed for assessment years 2004-05 to 2007-08 as follows- Assessment year 2004-05 ₹ 10,61,82,676 Assessment year 2005-06 ₹ 4,63,83,800 Assessment year 2006-07 ₹ 99,08,940 Assessment year 2007-08 ₹ 3,32,39,000 12. Being aggrieved against the aforesaid assessments, the assessee went in appeal before CIT(A) who has agreed with the order of assessing officer for the assessment year 2005-06, 2006-07 and 2007-08. However, he has given partial relief for the assessment year 2004-05. While giving the partial relief, in case of layout plots the CIT(A)considered the ratio of unaccounted receipts to accounted receipts at 1.80: 1 and det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the open plot scheme sold during the year were registered much after the transaction of Sri K.B. Ramesh Kumar. Accordingly, the unaccounted receipt in respect of plot where no specific evidence has been found was as under: Name of the purchaser Amount as per sale deed (Rs.) Estimated unaccounted receipts (Rs.) G.V.Bhaskar Rao (1st Plot) 769995 1539990 Usha Sanghani 1923962 3847924 Sanjeevitha 2170000 4340000 G.Pavan 2639970 5279940 G.V.Bhaskar Rao (2nd plot) 2639970 5279940 Major Vivek 2234040 4468060 Total 12377937 24755874 However, the unaccounted receipts as above do not include on money receipts where specific evidence were found during the search and also admitted by the assessee has been determined as below: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f on money relating to other 24 plots. No seized materials were found for the receipt of the on money on 24 plots. No opportunity has been given to the assessee to cross examine the buyers who have confirmed the payment of on money. No corresponding assets were found for the investment of on money receipts. The sworn statement was recorded u/s 131 of the Act on 7.11.2008, 14.11.2008 and 21.11.2008 after a long time of the search action which was took place on 26.7.2006 and 27.7.2006. According to learned AR, the statement recorded u/s 131 of the Act has no evidential value. Further, the contention of the assessee s counsel is that the entire on money receipt cannot be considered in the hands of the firm and the firm has nothing to do with the same and that only the partners Shri Gopal Lal Badruka and Shri Avadesh Badruka were received the on money and the same was offered to tax in their individual hands. More so, other partners disowned the receipt of this on money by the firm and they have filed confirmation to that effect. Even, it was stated by the partners Shri Gopal Lal Bhadruka in his statement recorded u/s 132(4) that the unrecorded receipts and the income for the same belo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not by the partners. When the regular income generated from the business is shown in the hands of the firm, on same logic the undisclosed income also to be brought to tax in the hands of firm only. He submitted that there is a suppression of income by the assessee. When the methodology of suppression has been identified and the partner also has accepted the suppression, there is no question of confining the determination of the income by way of on-money only to the extent of evidence found during the course of search, and based on such material evidence on record, receipt of on money has to be determined by interpolating to all the transactions relating to 32 plots. The undisclosed income cannot be determined on the basis of investment, since there is no necessity of unearthing all the investments or unrecorded assets during the course of search action. Entire unrecorded income may not result in the making of investments by the assessee. Nexus of income with the assets need not be proved by the department, while determining the undisclosed income. As for the allowability of expenses out of such undisclosed income, he submitted that there is no evidence for incurring of expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r XIV of the I T Act. Therefore, S.158 BB(1) which falls in Chapter XIV B is not applicable to the facts of the present case. 17. Now coming to the contention of the assessee that the income under section 153A/153C has to be computed only on the basis of the search material, in our opinion, this contention of the assessee is misconstrued. Section 158BB in Chapter XIV B provides procedure for computation of undisclosed income in respect of searches carried out till 31-5-2003. In view of this specific provision in section 158BB(1) the undisclosed income of the block period shall be computed on the basis of the evidence found as a result of search or requisition of books of account or other documents and such other material or information as are available with the assessing officer and relatable to such evidence found during the course of search operation. Legislature by Finance Act, 2003 w.e.f. 1-6-2003 specifically excluded the operation of section 158BB (1) in respect of searches initiated on and after 1-6-2003. This is explicitly made clear by incorporating section 158BI w.e.f. 1-6-2003. In view of this, in our opinion, the provisions of section 158BB (1) which requires the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s suppressed turnover even for the other years, the addition made by the lower authorities was confirmed by the High Court. In the case of CIT Vs. H.M. Esufali H.M. Abdulali, cited supra, it was held that in estimating any escaped turnover, it is inevitable that there is some guess-work. The assessing officer while making the best judgment assessment, no doubt, should arrive at his conclusion without any bias and on a rational basis. That authority should not be vindictive or capricious. If the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis, the fact that there is no good proof in support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation. It is his best judgment and not any one else s. 19. In view of the above judgments, in our opinion, the assessing officer was well within his powers in interpolating the receipt of on money on the basis of the material available on record, even in respect of other transactions for which no direct material was found at the time of search. 20. The next contention of the learned counsel for the assessee is that the statements of Managing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of 8 plots which are as follows- Sl.No. Name of the purchaser Actual sale price as per the seized document quantified Rs. Sale price as per the registered sale deed Rs. On money consideration Rs. On money consideration Rs. Reference seized Material Nature of seized Material 1 Akula Srinivas 2100000 750000 750000 2003-04 A/GLB/684/A/1 Page No.143 to 154 Agreement of sale dated 24-1-2003 2 Kanday Ramesh 2100000 750000 1350000 2003-04 A/GLB/684/A/1 Page No.183 to 193 Agreement of sale dated 24-1-2003 3 KB.Ramesh Kumar 6070000 1901000 4169000 4169000 A/GLB/684/A/2 Page No.22 to 24 Receipts dated 17.8.2003 4 Raj Kumar Jain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above the registered price of the plot, and this on-money receipt not recorded in the regular books of account and therefore, it is a clear case of suppression of on-money receipts, which has to be brought to tax in the hands of the assessee firm in the impugned block assessment under S.153C of the Income-tax Act. Therefore, the assessing officer is justified in making the assessment in the hands of the firm on the basis of material available on record. The on-money receipt to be assessed in the hands of the firm since the firm is engaged in the business of land transactions and also since regular income generated from disclosed business of sale of plots has been offered for assessment in the hands of the firm. The on-money receipts, though received by the partners, the partners have received on behalf of the firm in their representative capacity and as its agents, and they have nothing to do with the business of the assessee firm, other than as a partner. The on-money is having direct nexus with the land business transactions of the assessee firm. It leads to absurd results, if the regular income from the sale of plots is assessed in the hands of the firm and the on-money in relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.3 of his order on pages 13 and 14 thereof, which we have already discussed hereinabove. Even in respect of these open plots, we do not find any infirmity in the order of the CIT(A), which is accordingly confirmed. The balance addition of ₹ 1,77,57,750 is on account of on-money receipt is based on the actual seized material and in the absence of any material to the contrary brought on record by the assessee, we find no justification to interfere with the order of the CIT(A) on this aspect. 25. For the assessment year 2005-06, estimated unaccounted receipts in respect of open plots is ₹ 1,14,43,940/- and such unaccounted receipts as per documentary evidence seized at the time of search is ₹ 2,03,44,400/-, with the total additions in this respect aggregating to ₹ 3,17,88,340/-. The seized documentary evidence suggests that the ratio of unaccounted receipts to the accounted receipts in the case of Smt.Kokilaben is 1.94:1 and in case of Shri Anand Singh the ratio is 1.75:1 . In our opinion, the plots are registered at the same time, and it is appropriate to adopt the average of these two ratios, instead of considering a ratio of 2:1 as done by the CIT(A). We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent for the purposes of assessment has not been given to the assessee. In our opinion, the assessments have been made not only on the basis of statements recorded from the buyers but also on the basis of seized materials and statements recorded from the Managing Partner, Shri Gopal Lal Badruka. Further, though the assessee was given opportunity to put forth its case before the lower authorities on various occasions, the assessee has not asked for any opportunity to cross-examine the buyers. Further, the assessee could not lead any evidence before us also to point out as to how the Department has denied the opportunity of cross-examination to it. The assessee, having not sought opportunity of cross-examination at the appropriate stages before the lower authorities, cannot now make out a grievance on this score. 28. The other ground common in these appeals is with regard to allowability of ad-hoc unrecorded expenses. The contention of the learned counsel for the assessee is that the expenditure is to be allowed on adhoc basis and only profit portion in relation to the unrecorded receipts has to be considered and it is not possible to have any evidence for expenditure that is not r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31. Brief facts of the issue are that the above expenditure not supported by any proof. This included ₹ 2 lakh towards cost of land, ₹ 42,27,651/- towards development expenses and ₹ 1,02,67,250 as consultancy charges. This amount was said to be paid to Shri Sridev Sharma. It was disallowed on the reason that no documentary evidence has been filed in the course of assessment proceedings. Before the CIT(A) the assessee filed copy of ledger account as well as copy of agreement with Shri Sridev Sharma of Delhi. Since the agreement was on plain paper having no signature of any witness and bearing no stamp of Shri Sridev Sharma, who has signed on behalf of M/s SD Constructions. Against this assessee is in appeal before us. 32. The learned AR submitted that the payment to Shri Sridev Sharma is subject to TDS and the amount received by Shri Sridev Sharma was assessed to tax . The expenditure incurred wholly and exclusively for the purpose of business. The department has not doubted the payment but doubted the rendering of services by Mr. Sharma . The assessee was able to get all license in connection with the property only because of valuable services rendered by Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA No.354/H/09, 583/H/2010, 355/H/2009, 584/H/2010, 356/H/2009, 585/H/2010, 357/H/2009, 358/H/2010, 580/H/2010, 359/H/2010, 581/H/2010, 360/H/2010, 582/H/2010 361/H/2010, which are cross appeals filed by the assessee as well as the Revenue for the assessment year 2004-05 to 2006-07 and the appeals for assessment year 2007-08 filed only by the assessee. 37. These are cross appeals for assessment year 2004-05 to 2006- 07 and assessee s appeals for assessment year 2007-08. The assessees grievance in their appeals are with regard to direction of the CIT(A) to assess the income from unrecorded receipts in the hands of the firm M/s Ahura Holdings instead of accepting the undisclosed income admitted by the partners namely Shri Gopal Lal Badruka and Shri Advesh Badruka and also the grievance regarding the disallowance of ad hoc expenditure claimed by the assessee at 40% of the on money. The department s grievance is with regard to deletion of the addition made on protective basis in the hands of the individual partners i.e. Shri Gopal Lal Badruka and Shri Advesh Badruka. 38. After hearing both the parties, we are of the opinion that in view of our decision in the context of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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