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Commissioner of Income Tax, C-I Versus Vatika Landbase Pvt. Ltd.

2016 (2) TMI 835 - DELHI HIGH COURT

Undisclosed receipt on sale of flats/space - Sale of flats of VT [Vatika Triangle] - additions made on account of sale of space - application of standard rate - documents found during the search and seizure action relied upon for addition - Held that:- In the present case, there was no material on the basis of which the AO could have applied a standard rate of ₹ 4,800 per sq ft for all the floors of VT [Vatika Triangle]. It was also not open to the AO to draw an inference on the basis of t .....

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the CIT (A) was not sustainable in law. - Decided in favour of assessee - ITA 670/2014 - Dated:- 26-2-2016 - S. Muralidhar And Vibhu Bakhru, JJ. For the Appellant : Mr. Dileep Shivpuri, Senior standing counsel with Mr. Zoheb Hossain, Junior For the Respondent : Mr. C.S. Aggarwal, Senior Advocate with Mr. Prakash Kumar, Advocate JUDGMENT Dr. S. Muralidhar, J. 1. This appeal under Section 260A (1) of the Income Tax Act, 1961 ( Act ) by the Revenue against the impugned order dated 8th March 2013 pa .....

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[Vatika Limited (formerly Vatika Land Base Private Limited) v. Commissioner of Income Tax] and that appeal was dismissed by the Division Bench of this Court on 6th April 2015. Search and Seizure operation 3. The background facts are that the Respondent-Assessee is engaged in the business of real estate development and was incorporated on 2nd July 1998 under the Companies Act, 1956. 4. A search and seizure operation under Section 132 of the Act was carried out at the business premises of the Ass .....

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a World ('VW') commercial complexes. The construction of these commercial complexes commenced in the financial year ( FY ) 2001-02 (relevant to the Assessment Year 2002-03). VT comprised of eight floors (ground plus seven floors) having an aggregate area of 1,30,428 sq.ft. This was constructed on a land measuring 1.47 acres located at Sushant Lok, Phase-I, Gurgaon which was purchased by the Assessee in the year 2001 for an aggregate consideration of ₹ 9,71,92,559. It also has two b .....

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f the search the Assessee had incurred further expenditure of ₹ 2,25,85,025 on construction of VT. The Assessee had capitalized a sum of ₹ 2,44,47,535. It is stated that the aggregate cost of construction of VT was ₹ 27,10,74,854. Notice to the Assessee 6. Notice was issued to the Assessee by the Assessing Officer ( AO ) on 23rd July 2004 under Section 158BC of the Act. When no return was filed by the Assessee pursuant thereto, notice under Section 142 (1) of the Act was issued .....

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the office at First India Place, Gurgaon which was also referred in the notice issued to the Assessee. According to the Assessee, the register gives complete details of commercial space to different persons and figures of sale shown in this register are as per regular books of accounts. The list of persons to whom the sales were made along with their addresses was also part of the register. The response of the Assessee 8. As regards the allegations in the notice sent by the AO that from the info .....

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ed transaction. It was submitted that the said paper did not reflect that those were the actual sale rates. Attention of the AO was drawn to the footnote on the third page of the print out of the computerized file of Mr. Awasthi which read as under: (i) It is presumed that the building will be completed and fully let out in the month of November 2002. (ii) Sale of building will took place over a period of nine month. (iii) Advance rent is adjustable in equal instalments over a period of 36 month .....

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order to attract the investment from such customer." Further there were two such projection statements prepared by adopting different sale rates and therefore, these were mere figment of imagination . A request was made to summon Mr. Sunil Awasthi from whose computer the document had been retrieved. 10. With reference to the document marked as Annexure A1/60 (page No. 122) seized from the office of the Assessee at First India Place, Gurgaon on 26th May 2003, it was stated that the said pape .....

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planning stage itself. As the site for VW was in Sector 53, Gurgaon which was away from the main commercial hub, the Assessee was not able to demand a break-even price in the initial bookings. Accordingly, as per the general trade practice, in order to launch a project the Assessee intended to make few block bookings, and announce them in the market. This was intended to be done through a group of flat owners who were already holding certain flats in VT. While the flat owners in VT expressed th .....

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purchase of areas of 2829 and 2025 sq.ft. respectively in the 4th and 5th floors of VT at an average rate of ₹ 4,800 per sq.ft. (for fourth floor) and ₹ 4,682 per sq. ft. (for 5th floor) for a total sum of ₹ 1,52,93,217. On this basis the Assessee calculated the net revenue loss at ₹ 17,93,217. According to the Assessee, the hand writings at the bottom of the page and adjoining sheets of A1/60 were dumb workings and mere figures. 12. As regards documents Annexure A-1 and .....

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f assumed payments and receipts with the interest thereon. 13. As regards Annexure A-13 seized from the office of Vatika Group at First India Place, Gurgaon, inter alia stated to be in handwriting of Mr. Mrinal Nag whose statement was recorded by Deputy Director of Investigation ( DDI ), the Assessee explained that the said papers had nothing to do with the Assessee. They had not been found in the control and possession of the Assessee. It was reiterated that the Assessee enters into transaction .....

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e last date for completion of the block assessment under Section 158BE of the Act. In this assessment order it was noted by the AO that the Assessee had developed two commercial complexes - VT and VW - at Gurgaon. In VT the Assessee had sold 97320 sq.ft. of area and disclosed in the regular books of accounts the total consideration of ₹ 15.70 crore. On this basis the average sale rate worked to ₹ 1600 per sq.ft. As per the books of accounts, a total area of 47550 sq.ft. had been sold .....

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ia who were an employee and Director respectively of the Assessee. It was held that the documents found in their possession could therefore be held to belong to the Assessee. The seized documents proved that the Assessee had received higher consideration in respect of sale of space/flat in the commercial complex VT. The AO categorised the documents seized during the search into two types. One pertained to the working of anticipated sale revenue on account of sale of space in all floors. The othe .....

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te ranging from ₹ 4,682 to ₹ 4,800 per sq.ft. in the month of February 2003 which shows that the plots in VT were sold at a rate ranging from ₹ 4600 to ₹ 4800 per sq.ft. in the month of February 2003. The entries mentioned on the reverse of page No. 26 of Annexure A-9 seized from the residence of Mr. Nagalia further strengthened this fact and revealed that Rajesh Bhatia and Poonam Bhatia had purchased their plots in VT at ₹ 4350 per sq.ft. in August 2002 and had fur .....

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mentioned in the documents seized from the computer operated by Mr. Sunil Awasthi in which the sale rate was mentioned at ₹ 4,000 per sq.ft. 18. The AO proceeded to discuss the sale of flats in VT to Mr. Ramesh Chander Dhawan, Anil Kumar Dhawan, Rita Kakkar, Vidhi Kakkar, Sudha Wadhwan and Lavan Syal. The instances of sale of flats to Rakesh Dewan and Rita Kanwar were also analyzed. On that basis the undisclosed income of the Assessee was determined at ₹ 31,01,09,834 which was then .....

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iled appeal before the Commissioner of Income Tax (Appeals) [ CIT (A) ]. By an order the dated 31st March 2006 the CIT (A) granted partial reliefs in respect of the three additions as under: Particulars Amount of addition made (Rs.) Addition sustained by CIT(A) (Rs.) Relief granted by CIT(A) (Rs.) 1. Alleged undisclosed receipt on sale of flats/space in Vatika Triangle 31,01,09,834 5,60,73,380 25,40,35,454 2. Alleged undisclosed receipt on alleged sale of flats/space in Vatika World 13,84,20,000 .....

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d the addition to the extent of ₹ 25,40,35,954. 22. Much of the discussions in the order of the CIT (A) as far as the seized material is concerned, was focused on the print out of the file recovered from the computer of Mr. Sunil Awasthi. There were three sheets, i.e., Sheet Nos. 10, 3 and 4. The other findings of the CIT (A) were as under: (i) The documents which could be related to the Assessee including those found in the possession/handwriting of Mr. Anupam Nagalia, Mr. Sunil Awasthi o .....

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he rate at which the flats on the second and third floor were sold was ₹ 3,250 per sq.ft. This was in excess of the sale consideration to the extent of ₹ 5,60,73,380. (iv) Annexure A-1/16 seized from the office of Vatika Group at First India Place, from the computer of Mr. Anupam Nagalia, did not indicate the consideration for the purchase of flats held by the Bhatias in VT. Therefore, no adverse view could be drawn from the said documents. (v) As regards the sale of flats to Mr. K.L .....

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and Mr. Rakesh Dhawan were partially in cash. As regards of sale of flat to Ms. Rita Kanwar no such inference could be drawn on the basis of page 27 of Annexure A-1 seized from the residence of Mr. Anupam Nagalia. 23. In para 8.28 of his order, the CIT (A) observed as under: 8.28. From the above discussion, it is clear that the only addition possible on the basis of seized material is as per file cash flow/Vatika Triangle/ backup found from the computer of Mr. Sunil Awasthi where there is a men .....

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4 minus ₹ 5,60,73,380) is thus deleted. Appeals before the ITAT 24. Aggrieved by the above order of the CIT (A), the Revenue and the Assessee filed appeals before the ITAT. The Assessee questioned the order of the CIT (A) to the extent it sustained the addition of ₹ 5,60,73,380 as regards the sale of the second and third floor flats in VT and the two other additions made on account of sale of space in VW and accommodation entries. 25. As far as the Revenue s appeal was concerned, the .....

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00. The Learned CIT(Appeals) should have upheld the addition as made by the Assessing Officer as he agreed with the findings of the Assessing Officer that there were statement of sale consideration. 3. The CIT(A) has erred in deleting the addition of ₹ 1,04,39,000 on account of addition made for a accommodation entry by the assessee as the additions were made by the Assessing Officer on the basis of discussion and derived from the seized documents during search operation. Order of the ITAT .....

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respect of the alleged undisclosed receipt on sale of flats/space in VW. The ITAT also deleted the implied confirmation of the addition of ₹ 20 lakhs made by the CIT(A). The ITAT held as under: (i) Chapter XIV-B is intended to provide a mode of assessment of undisclosed income, which has been detected as a result of search. As the statutory provisions go to show, it is not intended to be a substitute for regular assessment. It is in addition to the regular assessment already done or to be .....

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etermining the rate of alleged sold portion. Also, it did not mean that the portions were sold at that rate. (iii) There was no direct evidence available with the AO indicating the sale of flats @ ₹ 4600 or ₹ 4800 per sq. ft. by the Assessee in VT. On presumptive basis, it cannot be said that assessee has sold all the flats @ ₹ 4,600 or 4,800 per sq.ft. (iv) On a plain reading of the evidence it cannot be conclusively held that the Assessee had received on money or that the sal .....

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y noticed both the Revenue and the Assessee filed appeals in this Court. As far as the Assessee s appeal was concerned, as already noticed, this Court by its decision dated 6th April 2015 in ITA No. 2 of 2014 rejected it and upheld the addition of ₹ 1,35,00,000 and ₹ 49,64,904 by the ITAT. 28. In the present appeal, the Revenue urged the following questions: 1. Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in law in deleting the add .....

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ts books of account? 3. Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in law in deleting the addition of ₹ 1,04,39,000 made by the AO on account of accommodation entries taken by the Assessee? 4. Whether on the facts and circumstances of the case, the order of the ITAT is not perverse as it has failed to consider that in this case, the AO made the addition on the basis of the relevant searched material gathered from the Assessee during th .....

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ns made by the AO as sustained by the CIT (A) of ₹ 5,60,73,380 pertaining to the sale of flats on the second and third floor of VT. Submissions of counsel for the Revenue 31. It is submitted by Mr. Dileep Shivpuri, learned Senior standing counsel for the Revenue, that the additions made by the AO to the extent of ₹ 31,01,09,834 on account of undisclosed receipt from sale of space/flats in Vatika Triangle was based on the searched materials. The search material was in the form of docu .....

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Tax (1995) 214 ITR 801 (SC), it was urged by Mr. Shivpuri that the ITAT should have appreciated the documents seized during the search from the standard of preponderance of probabilities. It was submitted that merely because Mr. Sunil Awasthi was not produced for examination and cross-examination, the documents recovered from his computer could not be ignored since he was an employee of the Vatika Group. It was safe to proceed on the basis of the documents recovered from the possession of the A .....

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ade by the ITAT of ₹ 5,60,73,380 as sustained by the CIT (A), the Court could also examine the validity of the deletion by the CIT (A) of the balance sum of ₹ 25,40,35,954 in this regard. Submissions of counsel for the Assessee 34. Mr. C.S. Agarwal, learned Senior counsel appearing for the Assessee, sought to support the impugned order of the ITAT. Mr. Agarwal first submitted that the ITAT was right in observing that CIT (A) erred in accepting only one part of document which was othe .....

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. Further up to AY 2003-04, the fourth floor had also been sold but it was not indicated so in this document. The constructed area recorded in the Sheet No. 10 was 1,30,425 sq.ft. whereas the total area sold was 94,671.09 sq.ft. The other figures noted in Sheet No. 3 (corresponding to Sheet No. 10) were only projections. Mr. Agarwal also pointed out the foot note on Sheet No. 3 indicated that it is presumed that the building will be completed and fully let out in the month of November 2002. In t .....

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ncome under Section 158B (b) of the Act. 36. Mr. Agarwal pointed out that neither Mr. Sunil Awasthi nor any of the buyers were examined as although a request made was on behalf of the Assessee. Once the Assessee gave an explanation for the documents seized, the burden shifted to the Revenue to show the basis on which it could be said that the flats were sold at ₹ 3250 per sq.ft. Relying on the decision in Commissioner of Income Tax v. S.M. Aggarwal (2007) 293 ITR 43 (Del), Mr. Agarwal subm .....

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hary (2008) 305 ITR 245 (Del), it was urged that in the absence of corroborative material, the additions made on the basis of sketchy documents which were unproved cannot be sustained in law. Reliance was also placed on the decision in Commissioner of Income Tax v. Vivek Aggarwal 231 Taxman 392 to urge that unless the amounts stated in the documents were actually paid, it cannot be presumed that the amount mentioned in the sale deed was not correct. 37. Relying on the decision in Commissioner of .....

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8377; 4800 per sq.ft. for determining the actual sale consideration in respect of the flats in VT. Lastly, it was submitted that the ITAT had based its conclusion on an interpretation of the documents in question and the said finding was essentially a finding of fact. Reliance was placed on the decisions in Commissioner of Income Tax v. Kantilal Prabhudas Patel (2008) 296 ITR 568 (MP) and Commissioner of Income Tax v. Manish Buildwell (P) Ltd. (2011) 245 CTR 397 (Del) to underscore the point tha .....

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is not intended to be a substitute for regular assessment. Its scope and ambit is limited in that sense to materials unearthed during search. It is in addition to the regular assessment already done or to be done. The assessment for the block period can only be done on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with the Assessing Officer. Evidence found as a result of search is clearly .....

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search. The scope of the block assessment proceedings before the AO was explained by the Rajasthan High Court in CIT v. Rajendra Prasad Gupta (2001) 248 ITR 350 (Raj) in the following words: "...the correctness or otherwise of the returns filed in pursuance of the notice under section 158BC(a) has to be examined with reference to the material in the possession of the assessing authority having nexus to assessment of undisclosed income which is with the assessing authority, and premise of s .....

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ions 158BB and 158BC are that of undisclosed income. Therefore, the proceeding carries with it a presumption that returns filed in pursuance of such proceedings are of undisclosed income and not necessarily in accordance with the books of account. Its verification has to be searched outside regular books with reference to material that has been found during search. That makes it imperative to adjudicate the return with reference to material that has come in the possession of the assessing author .....

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he first sheet was titled Cash-in-flow detail for the revenue , the next was titled Revenue details and the third was titled Vatika Triangle, Guargaon. The notes to the documents are indicative of their being projections. Noting (i) states that it is presumed that the building will be completed and fully let out in the month of November 2002. Another note states "Further, the sale of the building will took place over a period of nine months." Admittedly, as on the date of the search th .....

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on different floors. In fact, the Assessee did make a request for his cross-examination. The other possibility was to examine the purchasers of the flats as they would have confirmed the price paid by them and how much of it was in cheque and what extent in cash. However, that too was not done. 42. In Commissioner of Income Tax v. S.M. Aggarwal (supra), in similar circumstances certain slips of paper were recovered during search and their author was not examined. The Court observed: "It is .....

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ills case [2000] 245 ITR 297 (Delhi), during the course of search and seizure proceedings, certain slips were found, which, the Assessing Officer concluded, contained details of payment beyond those which were made by cheques and drafts and were duly reflected in the books of account. The assessee' s stand before the Tribunal was that the documents were " dumb documents" which did not contain full details about the dates of payment and its contents were not corroborated by any mate .....

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e as per Sheet No. 3 (Rs. per sq.ft.) Rate as per Sheet No. 10 (Rs. per sq.ft.) Ground floor 5,538 4,154 First Floor 4,000 3,360 Second floor (already sold) 3,250 Third floor (already sold) 3,250 Fourth floor 4,000 3,250 Fifth floor 4,000 3,350 Sixth floor 4,000 3,360 Seventh floor 4,000 3,360 44. The above projection statement mentions rates for seven floors whereas the construction was still in progress and the seven floors had not been completed. There is another anomaly inasmuch as in para 8 .....

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