TMI Blog2016 (10) TMI 1024X X X X Extracts X X X X X X X X Extracts X X X X ..... alleged on-money receipts made simply on the basis of uncorroborated noting and scribbling on loose sheets of papers made by some unidentified person and having no evidentiary value, is unsustainable and bad-in-law. - Decided in favour of assessee. Addition made on account of extrapolation of alleged on-money receipts purportedly recorded in loose sheets of papers - differences in the BMC built up area and built up area as per agreement - Held that:- The differences are on account of valid reasons and the assessee has not made any contradictory claims in respect of saleable area of flats. But, we are of the view that, since, we have given a find that the impugned papers do not contain recordings of any on-money receipt by the assessee, the question of extrapolating on-money receipts on the basis thereof does not arise. Even otherwise, we are in agreement with the argument of assessee that additions in search assessments are required to be made on the basis of tangible evidence and not solely on the basis of estimations and extrapolation theory. Thus, we delete the addition made on account of extrapolation of alleged on-money receipts purportedly recorded in loose sheets of paper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tical circumstances vis-a-vis the past, the AO opined that such expenses were not allowable u/s 37(1) of the Act. Accordingly, the same was illegally added back by the AO u/s 143(3) r. w. s. 153A of the Act merely on the basis of change of opinion in the guise of search assessment. Such an action is vitiated in law. It is an accepted principle of law that the AO does not have jurisdiction to review his own order. As such, since between the date of the order of original assessments u/s 143(3) of the Act and the date of framing assessment u/s 153A of the Act, no new material had come on record, no fresh information had been received in respect of the impugned compensation and interest expenses, the A.O could not add back items of regular assessment on the basis of mere change of opinion by resorting to materials already on record at the time of original assessment merely because a search action had been undertaken in the group case - Decided in favour of assessee Disallowing proportionate expenses incurred for constructing saleable area for alleged bogus tenants - Held that:- It is not a case where the assessee has been found having constructed the property in violation of the san ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs and during the years under consideration, it undertook the development of residential project namely, Legend at Walkeshwar, Malabar Hills, South Mumbai having two wings viz. Sea View and Necklace View . A Search operation u/s 132 of the Income-tax Act, 1961 (hereinafter as 'the Act') was conducted at the residential/business premises of the Bharat Shah Group of cases on 13.03.2008 and subsequent dates. The assessee, interalia, was covered in the search operations but pursuant to search warrants drawn in respect of premises not belonging to the assessee. However, it was claimed by the assessee that search at the said premises did not lead to discovery of any unaccounted assets, investments or incriminating evidence whatsoever relating to the assessee. Copy of the panchanama drawn in joint names, interalia, incorporating the name of the assessee was filed. (enclosed at pages 15 - 119 and pages 124-130 of the Assessee s Paper Book-I). During the course of search operation u/s 132 of the Act on 15.03.2008 at the office premises of Prime Down Town Estates Pvt. Ltd (in short PDTEPL), a group company formerly known as Bharat Shah Estates P. Ltd., at 3rd Floor, 55 Gamdevi Roa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in the circumstances of the case and in law, the Ld CIT (A) has failed to appreciate that the said income has nothing to do with the accounting system followed by the assessee for recognizing the revenue and that the same should be taxed in the year in which it was received by the assessee. (d) On the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in relying on the ratio laid down by the Hon ble Bombay High Court in the case of Jalaram Jagruti Developers Pvt Ltd. Wherein unaccounted cash receipts were entered in the regular books of accounts whereas in the instant case the assessee has neither admitted the existence of unaccounted cash receipts nor accounted them in its regular books of accounts. 4. The AO observed that during the course of search u/s 132 of the Act on the office premises of PDTEPL on 15-03-2008 an Annexure A1 containing loose papers pages 1 to 19 were seized and copy of which are attached to the assessment order as Annexure A. The assessee before the AO explained the contents of these seized papers as under:- 1. Page Number 1 to 16 appear to be rough estimates of working prepared by some-one, as can be seen from ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all these prospective clients are also ultimate buyers of the flats in the legend project. Further, these papers can t be just ignored as rough nothings, as the papers actually are informal ledger accounts of the flat purchasers. These pages contain nothings regarding the value of flats (including unaccounted receipts), noting of change in sales consideration (upon bargaining etc), details of receipt of cash cheque over a period of time. It has been written over a period of time, after due thinking and consideration, as and when events like rate finalization, rate renegotiation, cash received, cheque /draft received have taken place. It contains all or most of details in respect of the sale transactions mentioned therein, viz- XI. Name of the main person negotiating for purchase of flat. XII. Contact details of said person. XIII. Super built up area XIV. The rate finally decided to be charged per sq. f. super built up area. XV. Total money receivable XVI. Breakup of money receivable into accounted and unaccounted portion. XVII. Where renegotiation of rate has taken place, the renegotiated rate, revised total consideration and its breakup XVII ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... almost all buyers know Bharat Shah personally. This is also evident from the fact that in many cases name of the buyer was mentioned in form of his surname and business concerns, for eg. On page 9, shishir Mehta in Belgium. f. All your submission seems to be afterthought to avoid any tax liability, which is very evident from the fact that as per your claim you were planning to sell flats @ 10000rs. per sq ft chargeable on flats were sold @ 12000 rs per sq ft and more, for eg. Ashok Meta, Sujit Mehta, Ashok Siroya etc. g. Regarding out of book receipts in form of US dollars, assessee h. company has claimed that, it might be regarding provision of substantial imported items for special house, as it was possible for the company top import such items as per government policy, however it has failed to provide any evidence to substantiate this claim of yours. All these seems to be part of your afterthought process. 19. Further, as contended by assessee, SH means special house, in which 5000 rs. PSF are charged for furniture, tiles etc. But, as it is evident from the loose papers itself that claim of the assessee is wrong, as on page no. 10, there is mention of sale o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alable area charge to you is 4550 sq. ft. per flat. According to this calculation total consideration is coming at ₹ 12,01,20,000/- (4500 x 2 x 13200). Further, there is mention that 4 parking are being sold to you @ ₹ 5 lakh per parking, for which ₹ 20 lakhs already been separately charged from you. Thus total consideration charged by M/s Layer Exports Pvt. Ltd, for flats on 19th and 20th floor, as per this loose paper seized from Mr. Bharat Shah s premises, who is the promoter of Layer Exports Pvt Ltd, comes to ₹ 12,21,20,000/- What you want to say about this? Ans. We have nothing to do with this. We stand by the facts and figures which I am submitting to you. Q.8 On this page No.8 itself it is mentioned that on 27.11.2003 cheque of ₹ 100 Lakhs has been received and on 1.12.2003 cheque of ₹ 100 lakhs has been received, which is also evident from the details submitted by you regarding cheque payment. Do you confirm this? Ans. Yes I do confirm. Statement of Ashok siroya u/s on 12.10.2009:- Q.6 I am showing you page no.7 loose paper file containing pages 1 to 19 seized from Mr. Bharat Shah s premises. From this page i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 85,00,000/- has been received. This also tallies with the details submitted by the assessee that the total of first three cheques received b the assessee vide cheque No. 910755, 910760, 633881 being ₹ 3500000, 20000000, and 5000000 total up to ₹ 28500000/-. Accordingly, as it is the practice followed by Layer Exports Pvt. Ltd to write Q for cheque and Sh for cash, it can be clearly inferred that total ₹ 6,59,60,000/- has been received in cash for flats on 15th and 16th floor and ₹ 285,00000/- has been received by cheque. Further, on this page 5x5=25 is written which can be clearly inferred as that total 5 car parking for a consideration of ₹ 25 lakhs has been purchased. This details also tallies with your previous answers that total 5 car parking were purchases? Ans. I have not given any cash and the garages were including with the purchase of each flats as explained above i.e. 3 and 2 with all flats. Regarding cheque payment total payment paid by my family is ₹ 3,35,00,000/- and ₹ 1,18,00,000/- by me and my mother respectively. Q.9 Do you confirm that first three cheques given by you to Layer Exports vide cheque No. 910755, 910 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at previously? Ans. We never dealt with him. We dealt with M/s Layer Exports directly. However, he is a proprietor of M/s N Shah BVBA and based in Antwerp, Belgium. Accordingly, it can be concluded that even page no. 10 was not rough noting and supported revenue s contention that notings on these pages are systematically recorded. 4. On these loose papers, saleable area is mentioned as 2550 sq. ft. up to 14th floor, 4500 sq ft from 14 to 25 floor, and 5675 sq ft for floors above 25th floor, as it is common practice among builders to charge super builtup area from customer, which is 35-40% over and above carpet area and make agreement for built-up area which is carpet area + 20 % and thus evade taxes. On being confronted on this fact, assessee refuted it and claimed that initially, at the time of submitting plan to BMC, it was expected that 2550 sq ft saleable area will be allowed, but finally approved plan dt 13.9.2005, 2550 sq. ft area was not approved. This contention of the assessee can t be accepted at all, as it is evident from the loose paper no. 1 to 12 of Annexure A-1, containing pages 1 to 25 that assessee company has offered flats in Legend Project as secu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y don t know who has written the paper and on the other hand they are claiming that sh is abbreviation for special house and recd. is abbreviation for recording, which can t be accepted. They have been asked to either produce the person, who has written these papers or to accept that cash/ unaccounted money has been received. 7. Assessee' 5 claim that SH stands for special House and Recd. stands tor Recording is completely an afterthought as, during Search action, in his statement under oath, recorded or 8.5.2008, Mr. Bharat Shah, in clear words refuted that he is not aware of words SH 0 RECD . Relevant extract of Mr. Bharat' Shah's reply is being reproduced here: Q.7 On the above mentioned pages at various places, it is written Q recd. and SH recd. Doesn t this indicate that part consideration has been received in cash and part in cheque? Ans. I do not know the meaning of Q and SH as mentioned in the pages 1 to 19 of Annexure A-l. I once again reiterate that these are certain rough workings and nowhere cash is mentioned on these pages. This statement was given by Mr. Bharat Shah. chief' promoter of Layer Exports Pvt. ltd. in spite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a are from diamond trading community. From this page it is evident that 10.67.25.000 rs. have been received in cash is over and above cheque payment Assessee's submission in this regard has been considered but can't be accepted and accordingly addition of ₹ 10.67.25.000 on account of on money' receipts has been made. ' 27. On the basis of all the facts and analysis as mentioned above, it is crystal clear that Assesses is actively involved in the practice of receiving on money , i. e. out of books money and making agreement for very less value. Summary of yearwise receipts of on m given below: Name of purchase Wing Falt no. and area sold Date of first payment Accounted payment Unaccounted payment Page no AY Shishir Mehta Sea 10/1878.16 8/1/2004 1,98,92,949 2,1,32,051 9 2004-05 Yogesh Mehta Sea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,01,39,192 8 2004-05 Shrikant Mehta Necklace 21,22/3466.44 22/12/2005 4,82,09,400 10,02,10,600 14 2006-07 Pankaj Mehta Sea 29,30/3864.92 10.10.2003 4,23,71,880 106750000 12 2004-05 Sujit Mehta Sea 21,22/3466.44 2/9/2003 3,85,67,040 31047960 and 3,50,00,000 15 13 2004-05 23/41383.25 67,16,25,687 Sujit Mehta Sea 21,22/3466.44 2/9/2003 3,85,67,040 31047960 and 3,50,00,000 15 13 2004-05 23/41383.25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts. 10.5 The cash payments were also received on various dates and in many cases how much balance money to be received is also mentioned. 10.6 The AO has elaborately discussed the contents in the seized papers from page 3 to 14 of the assessment order. The inference drawn by the AO is very correct and I am convinced that the appellant has collected On Money on sale of flats and it is not accounted. 10.7 The appellant s contention that SH means Special House is not at all correct and the seized material clearly brings out the fact of receipt of cash and it is clear that the cash receipts are mentioned as sh i.e. last two words of cash. The AO has clearly brought out the reasons why the appellant s contention that SH cannot be considered as special house (as contended by the appellant) in pages 42 to 47 of the assessment order. 10.8 Further the words Recd is very clear that it is for received . The receipt of cash on .. In page 4 of the seized material it is mentioned as SH to Receive and Q Recd . Further it is mentioned as follows: 10,14,50,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd since the documents were seized from the site office of the construction projects carried out by the group, the appellant s contentions that these are loose, dumb papers and written by some third party cannot be accepted. Since the seized documents were seized from the site office of the project carried out by the appellant s group, presumption u/s. 292 C has to be drawn and AO has correctly drawn the presumption and the AO s action is upheld The appellant s contentions are rejected. 10.14 The appellant tires to explain with the help of page no.12 Annexure A2 that the appellant wanted to construct Special Houses with Furniture and Fittings etc. and to charge ₹ 5000/- per sq. ft. extra. Page no.12 of the Annexure A2 is reproduced below: To The Director As per verbal instructions, I clarify the method of working in respect of estimated details of selling flat, which is subject to increase in area of flat to 2550 sq. ft. upon approval of extra FSI. Buyers have been explained following pattern for sale of flats. Present approved carpet area is 1658 sq. ft. 20% is to be added for calculating built up area. Hence built up area is worked at 1989.29 sq. ft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n pages 1 to 19 of Annexure A1 is more than sufficient to prove that the appellant has collected on money for the flats which are mentioned in these seized documents. 10.21 Further, the affidavit filed by the buyers of the flats and the statements made by the purchasers before the A. O. cannot be relied upon since these statements were made after lot of time from the date of search. The truth contained in the seized documents is so clear and obvious that the appellant has collected on money from the buyers of the flat. There is no additional evidence required to prove this truth other than the seized materials. Accordingly, the CIT (A) noted that the AO has elaborately discussed the contents of the seized papers from page 3 to 14 of the assessment order and inference drawn by the AO is very correct and he was convinced that the assessee had collected On Money on sale of flats and it is not accounted for by the assessee. He further noted that the assessee s contention that SH means Special House is not at all correct and the seized material clearly brings out the fact of receipt of cash and it is clear that the cash receipts are mentioned as sh i.e. last two word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... office for construction project of PDTEPL at 55, Gamdevi Road, Gamdevi. The cleaning staff of the said office premises swore in his statement recorded in course of search on 13.03.2008 that Sri Ravi Nair, who was absent on the date of search, was in-charge of the said room. Copy of the aforesaid statement of Sri Prakash Vasant Mandovkar, cleaning staff is enclosed at pages 145-146 of the Assessee s Paper Book-I. In the said statement, Sri Mandovkar swore on oath that he was seeing the impugned papers for the first time and did not recognize the handwriting on the said papers. But, he argued that the AO interpreted the notings in the said loose sheets of papers at his own whims and caprice completely ignoring the explanations of the assessee and cogent evidence filed in support thereof. The AO alleged that the said seized papers recorded details of on money received in cash by the assessee over and above accounted receipts in cheque in respect of Legend project although no such noting was made in the said papers. The AO further alleged that the assessee was bound by the presumption u/s 132(4A) of the Act regarding the correctness of contents of the said loose papers and under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of on-money in respect of flats sold described in aforesaid 19 loose papers - ₹ 57,14,15,087/-. (ii) Further an addition of ₹ 10,02,10,600/- was made in AY 2006-07 in the hands of the assessee on the ground of representative assessee of Mr. Srikant Chandulal Mehta, one of the non-resident purchaser of the flats. The addition of ₹ 10.02 crores has been deleted by the CIT (A) and not challenged by the Revenue in appeal before the Tribunal. (iii) Addition in respect of other flats sold during the impugned years by extrapolating in results of 19 loose sheets of papers - ₹ 34,48,26,961/-. 9. Now before us Learned Counsel argued that on account of multiple reasons discussed supra, the impugned dumb loose sheets of papers seized from the premises of PDTEPL could not be used against assessee and were completely irrelevant immaterial insofar as the assessment of the assessee was concerned. For this he explained that, without prejudice to the above, even the noting in the said papers was prejudicially and erroneously interpreted by the AO at his whims and fancies. It is strongly asserted that the impugned papers do not contain any noting in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee analyzing the noting on the said pages. Extract of the same, AO's interpretation of page 4 of the loose papers at pages 6 to 7 of assessment order u/s 153A of the Act for AY 2007-08, is reproduced hereunder for the sake of clarity (Copy of the said loose paper is enclosed at page 97 of the Assessee s Paper Book-I):- Actual notings A O‟s inference Page 4 6.7.8 th FloorVipul 2550 x 3 x 13,000 =9,94, Terrace 350 x 1/3=15,17,000 4 x 5 = 20,00,000 1029.67 1014,50 50,000 13000 x As the details contained in this page, purchaser is one Vipul. He has purchased 6 th , 7th 8 th floor total 3 flats. As per record submitted by the assessee, the flats have been purchasd by one Sri Vipul P Shah in Necklace view. The writer has written in abbreviation eg. 10,29,67,000 is written as 1029.67. That 1029.67 is actually 102967000 is clear from plain mathematics. Adding 99450000, 1517000 and 2000000 the total of this is 102967000. As per these three flats each admeasuring 2550 sq. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived by the assessee as per his books vide cheque numbers 18173, 18176, 18170, 18172, 18171, 18178, 18177, 18175 and 18174. Further, it is also seen that the next few cheques add to 200 lakhs. 10,14,50,000 Q 59678847 SH 4,17,71,153 Recd 23375 1,83,96,153 The consideration is 101450000 of cheque is 59678847 and cash is 41771153. Of this cash, the assessee has received 23375000. 23375 is actually 23375000 because 41771153 minus 23375000 is 1936153. The overall inference is that the assessee has been accepting sale consideration partly in cash and partly in cheque. The seized paper contains details of cash as well as cheue payments and consideration. The assessee has received 23375000 by way of cash. This payment has been received in dollar denomination. Clearly Q means Cheque and SH means cash. The details contained in this page have not been written in one go but over a period of time. Other pages of the impugned loose papers were analyzed in a similar fashion by the AO, complete details of which are available in the assessment order. 10. On the basis of the same, the AO issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 051 11 Maya Mehta 13/1685 17/01/2004 2,03,50,200 1,93,57,051 3 Ramesh Mehta 14/1695 1/9/1695 2,03,50,200 1,93,57,051 3 Chandravadan Desai 19,20/3498 2/12/2003 4,19,80,608 8,01,39,192 8 Shrikant Mehta 21,22/3498 22/12/2005 4,82,09,400 10,02,10,600 14 33146 40,62,92,027 49,80,52,727 The learned Counsel for the assessee explained that further, from page no. 13 it was inferred by the AO that ₹ 3,50,00,000 has been received from Baka Mehta i.e. Suresh Chand Mehta, who is father and father-in-law of Sujit Mehta and Ashok Mehta respectively, who bought 21, 22, 15, 16 floors respectively. Similarly, from page no. 14, the AO inferred that total 7 flats are sold to one party by name L.D. f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the paper. None of the inferences are founded on Independent evidences. In the circumstances, we most respectfully submit that all the said inferences are totally baseless. However, without prejudice to our replies with the hope and expectation that the same would help you in arriving at a just, fair, equitable and unprejudiced view of the entire matter. The Counsel explained that assessee gave page wise analysis of the noting in the seized papers and the same has been reproduced in toto in the assessment order for AY 2007-08. Since the noting on all the pages of the seized papers are made on similar lines, for the sake of discussion, the assessee's explanation in respect of noting in one of the pages i.e. page 4 of the loose papers was drawn our attention. Assessee's explanations (also reproduced at page 22 of assessment order for A.Y. 2007-08) as under:- Actual notings Assessee‟s explanations Page 4 (*2) 6, 7 th , 8 th Floor Vipul 2550 x 3 x 13,000 = 9,94,50,000 As per explanation on page 12 as aforesaid the purchaser was shown working of amount to be charges as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferent terms which are correctly and completely recorded in books of account. 6. These noting are not in respect of cash received as alleged. These are recording of preliminary discussion pertaining to probable expenses for providing Special House (SH). Thereafter recordings have been made for part approval for items (imported or otherwise) to be provided for making proposed Special House). Terrace 350 x 13000 x 1/3 =15,17,000 4 x 5 parking =20,00,000 . 1029.67 . 1014.50 (*1) (*3) CHQ 19898200 x 3 = 59694600 19892949 59678847 (*4) 1029.67 Total 5,96,78,847 596.95 CH 4,32,88,153 432.72 SH 432.72 4,32,88,153 -233.75 5 x 46.75 . SH to receive 198.97 1,99,13,153 Q received 13.50 200.00 (*5) (*6) 10,14,50,000 Q 59678847 SH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pretation of noting in Annexure A-1 as made by the assessee. The said page 12 also proves conclusively that 'SH' referred to in Annexure A-1 means Special House and not Cash as erroneously interpreted by the AO. But, the AO rejected the explanation of the assessee and reliance was placed on page 12 of Annexure A-2 on the following alleged grounds:- 1. Contents of this page no. 12 of loose paper file containing pages 1 to 133 are not clearly understandable. 2. This page is written without any context and without any signature. 3. As you are relying on this page, rate mentioned in this page is 1959.29 @ 1000, which you want to assume as ₹ 10000 per sq. ft. which is not acceptable. 4. Further, there is no mention of any date on this paper as it is written on which date and as you are completely relying on this paper, you are required to produce the person who has written this, as onus u/s 132(4A) of the Act is on you to prove all these things. 5. In this page there is mention that subject to increase in area of flat to 2550 sq. ft. upon approval to extra FSI . You are hereby asked, as to when this proposal for extra FSI was made and please pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... phs that since none of the papers were found from the possession or control of the assessee, the assessee was not bound by the presumption u/s 132(4A) in respect of any of them. Reliance on page 12 of Annexure A-2 has been placed by the assessee with the sole object of explaining the entries in Annexure A- 1. 5. The relevant documents relating to proposal for extra FSI were duly filed with the AO vide letter dated 28.10.2009. Copy of the covering letter for filing the said details before the AO is enclosed at page 226 of the Paper Book-11 respectively. On a perusal of the same, Your Honour will appreciate that the assessee filed the following details with the AO: Copy of plan submitted for built up are of 2550 sq ft. (ii) Copy of IOD (iii) Copy of commencement certificate (iv) Various permissions of BMC etc. Copies of the aforesaid documents are enclosed at pages 243-259 of the assessee s Paper Book-11. The learned Counsel explained on a combined reading of page 12 of Annexure A-2 and pages 1 to 19 of Annexure A- 1, that it is amply clear that the noting on the impugned pages of Annexure A-1 are in the nature of rough workings/ estimates of expected realiza ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt value vis- -vis the purported agreement value as per seized papers as filed by the assessee before lower authorities:- Name of Purchaser Flat No. and area sold Actual agreement value So-called agreement value as per seized papers Seized AnnexureA-1 Page No. Yogesh Mehta 13/1989 1,98,92,600 1,98,92,949 6 Ashok Siroya Lalita Siroya 14/1879 2,37,52,200 1,98,92,949 7 Vimla Mehta* 15, 16/3212 3,85,67,640 2,85,00,000 15 Kiran Kothari 23,24/3212 5,20,34,300 3,04,27,676 16 Vipul Shah 6,7,8/5088 5,85,06,710 5,96,78,847 4 Kranti Impex 9/1990 1,98,92,600 1,98,98,949 11 Sankhla Builders Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of aforesaid Annexure A-1 found in course of search from the premises of PDTEPL but the CIT (A) note the following differences between the noting made in the seized paper and the actual state of affairs which proved the inference drawn by the AO is not proper and that the noting in the seized paper could not be held as genuine:- (i) The cheque payments of ₹ 1,98,92,949/- mentioned in the seized paper did not match with the actual cheque payment of ₹ 2,37,52,200/- made by the assessee and her husband as per agreement. (ii) The area of the flat as per the sheet was 2550 sq. ft. whereas the correct built up area as per the agreement was 1878.85 sq. ft. We find that the AO tried to explain the difference in area as per seized sheet and as per agreement by stating that builders normally charge for super built up area which is 40% more than the carpet area and execute agreement showing area only 20% higher than the carpet area. In this regard, the concerned assessee i.e. Smt. Lalita Siroya stated that the AO had not pointed out any material for his conclusion of the aforesaid practice amongst builders. Further the area at which total sale consideration had been calcu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally held as under:- On a careful examination of the copy of seized document as provided together with the facts as admitted, and in light of the glaring mismatches as above, and absence of any independent, reliable, corroborative evidence, It cannot be said that the said document, in any manner, can be held as genuine and reliable to hold that the assessee had paid unaccounted cash for the purchase of property as held by the AO. Similar decision was also made by the CIT (A) in the case of Sri Ashok Siroya and Smt.Vimla Mehta. 16. We find that in the case of Smt. Lalita Ashok Siroya decisions of the CIT (A) fortify the assessee's consistent stand that the noting in seized papers Annexure A-1 cannot be held to be conclusive enough to make such additions in the hands of the present assessee. Here we are placing reliance on the judgment of the Hon'ble Supreme Court in the case of CIT vs. P.V. Kalyanasundaram 294 ITR 49 (Copy enclosed at pages 261.1-261.5 of Paper Book), wherein the Hon ble Supreme Court upheld the decision of the ITAT that noting on the loose pieces of paper on the basis of which the initial suspicion with regard to the undervaluation had been r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sujit S. Mehta son of Baka Mehta recorded u/s 131 on 23.09.2009, which buttresses the aforesaid denial of the assessee in respect of alleged payment of ₹ 3.5 crores by Baka Mehta (Copy enclosed at pages 153-155 of Paper Book-1). Relevant portions of the statement are reproduced as under: Q. 10. Is it true that your father Mr. Sureshchandra Mehta was known as Baka Mehta in business circle Ans. Yes. He was known as Baka Mehta. Q. 11. On page 13 of loose paper file containing pages 1 to 19 it is written Baka Mehta on upper right hand side and down side it is written Sh reed 350 can it not be interpreted that your father must have paid ₹ 3.50 crores in cash to Layer Exports? Ans. My father died on 6.7.2003 and I entered into agreement for this flat on 12.6.2006, however, I made the first payment for this flat on 30.8.2003 of ₹ 21 lakhs i.e. even if it can be considered that the flat was purchased in August 2003 for which payment was made, my father already died before the first payment i.e. confirmation of flat. In view of the fact that Sh. Baka Mehta died on 06.07.2003, and first installment was paid only on 30.08.2003, the allegation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng by conjecture and hypothesis, the best way to judge correctness or otherwise of price of the flat will be to compare them with other buildings coming up at that time or completed during that time and other ready flats in the area....... You will appreciate that at about 10000/- per sq. ft. ready possession flats were being sold in the nearby vicinity, evidence in this regard have been filed. We are unable to understand how buyer could have purchased bare flats at rates as mentioned in loose papers in a building which was under construction and when completion date was also not certain............ But, here also, the AO failed to controvert the aforesaid submission of the assessee. 18. The assessee has placed reliance on co-ordinate bench decision of Mumbai Tribunal in the case of Harish Daulatram Innani Vs. DCIT (Inv) (2008) 24 SOT 541 (Mum) wherein it is held as under: (Copy enclosed at pages 493-504 of assessee s Paper Book):- Addition in block assessment towards undisclosed investment on account of payment of on-money by the assessee in purchase of flats on the basis of loose papers found during search could not be made by ignoring the specific denial b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerns vide Annexure A-1, pages 1 to 12 offering flats in Legend Project as security for credit facility in respect of B. Vijay Kumar Company and B. Vijay Kumar Jewellers. The AO further observed that in these letters, for security purposes, saleable area of flat is mentioned as 2550 sq. ft. for 2nd to 8th Floor and 6000 sq. ft. on 31st and 32nd floor. These saleable areas are mentioned in letter dated 15.02.2006 and 15.0 1.2007 of Layer Exports. The AO thus alleged that if, in the finally approved plan dated 13-09-2005, BMC disapproved 2550 sq. ft. area, then how the assessee kept showing the saleable area of flats as 2550 sq. ft. This according to the AO proved that the assessee was engaged in the practice of charging super built up area from customers but making the agreement in respect of built up area. The assessee explained that as is evident from the letter dated 11-01-2007 of the assessee company to OBC, the three flat sizes viz. 2550 sq. ft, 4550 sq. ft. and 5675 sq. ft, were based on 2.5 FSI applied to BMC. However, the assessee had received sanctions only for smaller sized flats and as such, had submitted fresh plans under new amended guidelines for 2.5 FSI. Further, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made on account of on money received by the assessee in respect of sale of property. The CIT(A) confirmed the addition partly after being influenced by a report published by Ministry of Finance wherein prevalence of notorious practice of payment of black money in real estate transaction in metropolitan city of Bombay was discussed. The ITAT deleted the additions. In this case, there was an adverse statement by one of the disgruntled employees of the assessee. Further, the comparable cases in the vicinity suggested payment of on money. Despite all these facts, the Mumbai Tribunal held that additions could not be made on the basis of report prepared by the experts in the Ministry of Finance. A survey report which highlighted prevailing practice could not be adequate substitute for tangible evidence. 22. We have also noted that the assessee filed complete details of names and addresses and copies of agreements entered into with the purchasers of flats in Legend before the AO. The AO issued summons u/s 131 of the Act to various purchasers of flats in the impugned project. The statements of several buyers were recorded on oath. In their respective statements recorded on oath, all th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was executed on 10.10.2008 for total consideration at ₹ 2,37,52,2001-. Details of payments have been already been submitted. I state that we have made payments by cheque only and nothing has been paid by way of cash. I have seen the paper first time and what is written on the papers is not in our knowledge. I totally deny that any payment is made by cash except cheques. Statement of Ashok Mehta u/s 131 recorded on 1.10.2009: Q. 8. lam showing you page no. 16 from loose paper file 1 to 19 seized from Mr. Bharat Shah's premises in which your name Mr. Ashok R. Mehta are written along with this 15th and 16h is written and Sh reced 659.60 and Q recd 285100 written. From this notings, it can be inferred that Mr. Ashok R Mehta have brought 15th and 16h floor in Legend project and cheque of ₹ 28500000 has been received. This also tallies with the details submitted by the assessee that the total of first three cheques received by the assessee vide cheque no. 910755, 910760, 633881 being ₹ 3500000, 20000000 and 5000000 total upto ₹ 28500000/-. Accordingly, as it is the practice followed by Layer Exports Pvt. Ltd. to write Q for cheque and Sh for cash, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh consideration have been mentioned. You are requested to explain which project these workings belong to and why it should not be construed that part consideration in respect of these flats has been received in cash outside the books of account? A. Since 1985 our many projects have been on-going/ completed. Before the project and during the construction phase, we make plans for different size flats and also furnished flats i.e. special house and unfurnished flats without amenities. The plans get altered as per the customers' requirement and BMC FSI. Further cash is nowhere mentioned in the above mentioned papers. As clearly evident from the above, the assessee's interpretation of the noting on loose papers is also supported by the statement of Shri Bharat Shah recorded in course of search and statements of buyers recorded u/s 131of the Act. Thus, these evidences and statements cannot be ignored if there is specific denial by the buyers and director and in such situation no addition can be made in the hands of the assessee on account of on-money merely on the basis of interpretation of noting in seized loose papers on the basis of conjunctures surmises. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vits of the buyers of flats in Legend before the AO:- (b) Mr. Shishir Mehta (c) Mr. Yogesh Mehta (d) Mr. Sujit Mehta (e) Mr. Amar K. Kothari (f) Mr. Ashok Mehta (g) Mr. Vipul Shah (h) M/s. Kranti Impex Pvt. Ltd. (i) M/s. Shankhala Builders Pvt. Ltd. j) M/s. Mangalam Gems Pvt. Ltd. 2) Evidence in respect of price at which flats have been sold in other buildings in Walkeshwar Area at comparable rates. The agreements submitted were in respect of building with ready flats and amenities whereas the assessee had sold under-constructed and bare flats in Legend. Still the rates were comparable. 3) Copy of the said letter dated 16.12.2009 (Copy enclosed at page 235 of assessee s Paper Book-11). Further copies of affidavits and agreements for sale of flats in vicinity at comparable rates (Copy enclosed at pages 161- 180 of Paper Book-I and pages 261-337 of Paper Book-11) respectively. An extract of one of the affidavits i.e. affidavit of Sujit Mehta is reproduced hereunder for the sake of ready reference:- 1. I confirm that the builder had offered Special House Scheme with furniture in the Building Legend being constructed at Walk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y evidence exists and has not been produced by the assessee despite being required to do so. In this connection, reliance is placed on the judgment of the Hon'ble Allahabad High Court in the case of L. Sohan Lal Gupta Vs. CIT, 33 ITR 786 wherein it was held that the Tribunal was not entitled to reject the affidavit filed by the assessee on the mere ground that he had produced no documentary evidence; if it was not accepted as sufficient proof the assessee should have been called upon to produce documentary evidence or he should have been cross-examined to find out how far his assertions in the affidavit were correct. (Copy enclosed at pages 537- 542 of assessee s Paper Book). Further, Hon ble Supreme Court in the case of Mehta Parikh Co. Vs. CIT, 30 ITR 181 (SC), the Hon'ble Apex Court held that rejection of an affidavit filed by an assessee was not justified unless the deponent had either been discredited in cross examination or had failed to produce other supporting evidence when called upon to do so. In the instant case, however, the noting in seized documents corresponded to the facts asserted in the affidavits by various buyers. (Copy enclosed at pages ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see despite request - copies of statements of members of housing societies recorded at the back of the assessee also not supplied - important witnesses not examined - no addition could be made in the hands of the assessee. Harakchand N. Jain Vs. ACIT (1998) 61 TTJ (Mum) 223 (supra) (Copy enclosed at pages 505- 536 of Paper Book). 28. In view of the above facts and proposition of law propounded by higher courts, we find that the AO, however, rejected/ disregarded all the evidences filed by the assessee in support of its interpretation of the seized papers and its claim that no transactions outside regular books of account were conducted and finally the AO summed up the year wise alleged receipts of on-money as under: Name of Purchaser Wing Flat No. and area sold Date of first payment Accounted payment Alleged Unaccounted payment Pg. No. AY Shishir Mehta Sea 10/1878.16 8/1/2004 1,98,92,949 2,01,32,051 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,82,09,400 1002,10,600 14 2006-07 Pankaj Mehta Sea 29,30/ 3846.9 20/10/2003 4,23,71,880 1067,50,000 12 2004-05 Sujit Mehta Sea 21,22/ 3466.4 02/09/2003 3,85,67,040 3,10,47,960 and 3,50,00,000 15 13 2004-05 Total 23/ 41383.25 4872,30,947 6716,25,687 On the basis of the above, the AO made an addition of ₹ 57,14,15,087/- for A.Y. 2004-05 and ₹ 10,02,10,600/- for A.Y. 2006-07 on account of alleged on-money receipts of the assessee allegedly recorded on the impugned 19 loose sheets of papers. 29. We also find that the CIT (A) upheld the AO's interpretation of the seized papers and on the grounds similar to those taken by the latter. The CIT (A) reproduced submissions of the assessee but he did not give findings on the same. The CIT (A) s reasoni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee, the same did not have any evidentiary value insofar as the assessee was concerned. Further, since the notings in the said papers were more in the form of rough scribbling, in coded form with several abbreviations, no definite interpretation could be given to the same. These uncorroborated, rough loose sheets of papers could not form the sole basis of making such enormous additions in the hands of the assessee. The Revenue thus erred in relying upon such feeble evidence in the form of scribbling on uncorroborated rough loose sheets of papers to justify additions running in more than 111 crores of rupees in the hands of the assessee, which is clearly not justifiable. Further, even the Revenue's interpretation of the notings made on the said papers is based on surmises, conjectures, assumptions and presumptions. 30. Without prejudice, the learned Counsel argued that so-called reasoning advanced by the CIT (A) (as summarized in para 11.1 supra) are countered in seriatim one by one hereunder:- (i) The seized papers contained the impugned details such as names of purchasers, flat nos., wing etc. in project 'Legend' since they appear to be rough noting and e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alance items to be explained and approved by buyers in SH scheme 18396153. (viii) As regards noting on page 9, as already stated earlier SH Recd may be an abbreviation for Special House recorded i.e. recordings for few items of Special House. Further noting read by CIT (A) as SH to Receive is actually SH to Recd which may stand for recordings for items of Special House pending discussion with client. Lastly noting All Q/SH Full Recd at the bottom of page 9 appears to have been made at a later point of time and may mean recordings for basic facilities (if approved to be received in cheque) and special house scheme fully discussed with clients (although pending approval). (ix) Further, in respect of noting on page 10 of the seized papers containing details of sample flat, the Learned CIT (A) has alleged that since the said flat was already constructed at the time of sale, there was no scope of increase in FSI in the said flat even if additional FSI was granted to the project. Thus, according to the CIT (A), the assessee's argument that it charged for 2550 sq. ft. thinking that additional FSI would be available to the project was not correct. In this regard, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. (iv) Noting on seized page no. 12 of Annexure A-2 explaining the notings on Annexure A-1 and fortifying the assessee's stand regarding Special House. (v) Documents supporting application for 2.5 FSJ by the assessee and rejection of the same by BMC and thus explaining the noting made in the impugned papers in respect of initial negotiation for expected sale of higher area on the basis of expected approval of plan by BMC. (vi) Agreements for sale of similar flats in vicinity of the Legend Project at comparable rates. (vii) Newspaper article regarding difficulty in sale of flats in Legend and thus reducing chances of sale of flats at exorbitant rates as suggested by the AO. (viii) Non-discovery of any circumstantial evidence in the form of any unaccounted investment, unaccounted cash or unaccounted expenditure corroborating the earning of substantial amount by way of on-money by the assessee as alleged by the AO. 33. In entirety of the matter, we are of the view that an addition in assessments carried out pursuant to search action u/s 132 of the Act has to be related to cogent and positive materials found during search which prove conclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jain Vs. DCIT reported in (1999) 64 TTJ (Del) 786 (Copy enclosed at pages 334-357 of assessee s Paper Book) had an occasion to examine the meaning word document and its evidentiary value for the purposes of sections 132, 132A and 132(4A) of the Act. At Para 6.4 to 6.6 of the order, the Delhi Tribunal observed as under:- 6.4 We find that the AO has made out the case for making such addition based exclusively on the said piece of paper found and seized during the course of search. It is, therefore, to be examined whether the said paper found and seized is a document having evidentiary value to prove the fact of the transaction. The word document has been defined in s. 32 of the Indian Evidence Act to mean - any matter expressed or described upon any substance by means of letters, figures, or marks or more than one of those means, intended to be used or which may be used for the purpose of recording that matter. The word document has also been similarly defined in the General Clauses Act. The meaning of the word describe ................ According to the Hon'ble Supreme Court in the case of Ramji Dayawala Sons (P) Ltd. vs. Invert Import AIR 1981 SC 2085, mere proo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtificates or money receipts which can prove conclusively the factum of any undisclosed income earned by the assessee or any unaccounted investments or expenditure made by him. Additions cannot be made simply on the basis of rough scribbling made by some unidentified person on few loose sheets of papers. 35. Our attention was further drawn to the decision of the Kolkata Tribunal in the case of ACIT Vs. Sri Radheshyam Poddar reported in (1992) 41 lTD (Cal) 449 (Copy enclosed at pages 368-372 of assessee s Paper Book) wherein it was held that no addition can be made simply on the basis of an unsigned piece of paper. Held as under (at para 5 of the order):- After hearing the rival submissions we are of the opinion that the assessee should succeed in this regard. It is no doubt true that as per the provisions of section 132 (4A)(ii), when any document is seized pursuant to search it may be presumed that the contents of such documents are true. We have examined a copy of MOU filed before us in this appeal and we find that the same, is not signed either by the assessee or by any person for and on behalf of Naihati Jute Mills. No names whatsoever are also mentioned in the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 575. 36. Further in the case of Pioneer Publicity Corporation Others Vs. DCIT reported in 67 TTJ 471, (Copy enclosed at pages 373-437 of Paper Book) the Delhi Tribunal held that no addition could be made simply on the basis of a noting on a visiting card found during search directing certain payment to bearer of card when there was nothing to establish that the assessee paid the amount to the said person. The Department had not made any enquiry from the person named. In the card about the amount given and as such, no addition could be made in the hands of the assessee. 37. Again in the case of Ashwani Kumar Vs. ITO (1992) 42 TTJ (Del) 644, the Delhi Tribunal observed as under (Copy enclosed at pages 303-315 of assessee s Paper Book):- Then for presuming that the contents of the books of account or document are true the document must be a speaking one. In this case the slip, said to have been recovered by the revenue, does not contain any narration in respect of the various figures noted therein. The slip does not indicate whether the figures referred to quantities of money or to quantities of goods and whether one side, and if so, which side represents rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the view that an assessment carried out in pursuance of search, no addition can be made simply on the basis of uncorroborated noting in loose papers found during search because the addition on account of alleged on-money receipts made simply on the basis of uncorroborated noting and scribbling on loose sheets of papers made by some unidentified person and having no evidentiary value, is unsustainable and bad-in-law. As such, the same is deleted. This issue of the assessee s appeal is allowed and that of the Revenue is dismissed. 39. The next common issue in these appeals, of the assessee in ITA No.1927/Mum/2011 for assessment year 2004-05, in ITA No.1928/Mum/2011 for assessment year 2006-07 and in ITA No.1929/Mum/2011 for assessment year 2007-08 and that of Revenue s appeals in ITA No.3019/Mum/2011 for assessment year 200405, in ITA No.2985/Mum/2011 for assessment year 2006-07 and in ITA No.2986/Mum/2011 for assessment year 2007-08, is as regards to extrapolation of 'onmoney' receipts noted in seized loose papers for other flats. For this the assessee has raised identically worded grounds and for the sake of brevity we are reproducing the following grounds as raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... area and built up area as per agreement have cropped up mainly on account of inclusion/ exclusion of balcony area and the AHU (Air Handling Unit). Comparative chart showing details of the BMC Carpet Area, BMC Built-up Area, Carpet area and built up area as per agreement, date of agreement, and the causes of differences in BMC built-up-area and Built-up area as per agreements for various flats in project 'Legend' was filed before us (Copy enclosed at pages 338- 349 of assessee s Paper Book-II). On a perusal of the same, we find that the differences are on account of valid reasons and the assessee has not made any contradictory claims in respect of saleable area of flats. But, we are of the view that, since, we have given a find that the impugned papers do not contain recordings of any on-money receipt by the assessee, the question of extrapolating on-money receipts on the basis thereof does not arise. Even otherwise, we are in agreement with the argument of assessee that additions in search assessments are required to be made on the basis of tangible evidence and not solely on the basis of estimations and extrapolation theory. Thus, we delete the addition made on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on completion of the project and that issue of occupancy issued by Municipal Authorities should only be the criteria for completion of project. d. On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in not appreciating the fact that 95% of the project was completed as per assessee s own statement and due to pendency of issue of bogus tenancy, possession was not given. e. On the facts and in the circumstances of the case and in law the Learned CIT(A) erred in not appreciating the fact that the project cannot be allowed to be stretched at the whims of the assessee, even if the assessee is following project completion method when the other circumstances clearly indicate that the project had been completed. The ratio laid down b the Hon ble Mumbai Tribunal in the case of Unique Enterprises Vs. ITO (2010- TIOL-737-ITAT-MUM dated 20.08.2010) and Champion Construction Company Vs. ITO (1983) 5 ITD 495 has not been appreciated by the Learned CIT(A). 43. Brief facts relating to this issue are that the assessee follows project completion method of accounting whereby the profit/ loss on sale of constructed units is recognized only on comple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... work of the building and not in respect of the internal finishing work. From the certificate of the Architect it is clear that the structural work and external wall were 100% complete and external finishing work was 90% complete by 31.03.2008. Thus, on an average, the external work of the building was completed to the extent of about 95% by 31.03.2008, which corresponds with the statement of Shri Bharat Shah. However, on account of completion of internal finishing work only to the extent of 65%, internal walls to the extent of 70%, plumbing work to the extent of 80%, water-proofing work to the extent of 85%, the overall building was completed only to the extent of 85% as certified by the Architect. Thus, the assessee claimed that the profit from the impugned project was not chargeable to tax in AY 2008-09 in accordance with the method of accounting followed by the assessee i.e. project completion method of accounting. As per the Profit Loss Account for the year ended 31.03.2009 a further cost of ₹ 2,89,24,276/- has been incurred in respect of the project at Walkeshwar during Financial Year 2008- 09. 44. The assessee explained that Shri Bharat Shah in his statement recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting of construction contracts in the books of the contractors. It presupposes the existence of a 'contract' for construction between a contractor and contractee. AS-7 is not applicable to cases where the construction activity is carried out on ownership basis and not in pursuance of any contract with a contractee. Thus, AS-7 is not applicable to the case of the present assessee which is engaged in development and construction of buildings on ownership basis and sale thereof to customers. The buyers purchase ready flats from the assessee. The agreement is for sale of completed flats as opposed to a contract for construction of flats/ buildings. As such, the entire discussion of the AO in respect of applicability of AS-7 and percentage completion method of accounting in the case of the assessee is without any basis. We also find that the assessee has been consistently following project completion method of accounting since the very inception of its business. The said method of accounting has been consistently accepted as such by the AO in assessments framed u/s 143(3) of the Act over the past years. As such, the same method should have also been accepted for AY 2008-09, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted earlier that the impugned project 'Legend' was not completed during the aforesaid years under consideration i.e. A. Ys. 2004-05 to 2008-09. In this regard we have to submit as under. 1. Certificate by Architect Pramod Shah Associates certifying that till 31.08.2008, Legend project was approximately 85% complete. (Copy enclosed at page 402 of Paper Book-Ill). 2. The Appellant had planned to construct 36 storey building in addition to basement and ground floor from the beginning. The Appellant had furnished the plan before the BMC and Fire Department for the same. The construction of 36 storey required FSI of 2.5 and in this respect copies of 3 letters addressed to the Executive Engineer MCGM Byculla, Mumbai- 400008 dated 15.06.06, 06.09.2007 and 10. 12.2008 were submitted (Copy enclosed at pages 516- 518 of Paper Book-Ill). The request of the appellant, however, was not acceded to and vide its letter dated 07.05.2010 the claim of the appellant for higher FSI of 2.5 was rejected (Copy enclosed at page 519 of Paper Book-III) and the appellant was informed that in its case the applicable FSI will remain at 2. Since the rejection of the request of the Appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n work to transport material and workers. The regular lifts for the use of flat owners are yet to be installed. The installation of 4 lifts will take place as part of completion of building and this will require the removal and replacement of the existing 2 service lifts. 7. In the sale agreement the flat buyers were required to make balance full payment only on issue of completion certificate by the BMC on the flats being ready for occupation (Copy enclosed at page 431 of Paper Book-Ill). Till date the Appellant had not received the full stipulated sale consideration for the flats and occupation was not allowed to any of the flat owners. The relevant clause 2.1 of sale agreement is reproduced below:- Being balance consideration on the promoter notifying to the Purchaser that the said flat is ready for occupation and the Promoter furnishing to the Purchaser the Occupation Certificate from the Corporation or at the request of the Purchaser, the Promoter giving to the Purchaser earlier possession, whichever is earlier. 8. It is also worthwhile to note that the amount received by the appellant at the time of sale agreement was in the nature of advance. In the eventual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g known as LEGEND under construction on the said property (hereinafter called the said flat ) together with a proportionate share in the common area and facilities in the said property appurtenant to the flat together with Car Parking Spaces No.----- on the lower ground/ upper ground and Car Parking Spaces No--------under stilts of the said building (hereinafter called the said car parking spaces ) at or for the price of Rs. -------/- and on certain terms condition mutually agreed upon by and between them. The said flat and the said parking spaces together with the benefit of the common areas, facilities and open spaces as presently stipulated are hereinafter referred to as the said Premises . 10. It may further be noticed that the agreed sale consideration for all the flats for which sale agreements were entered into comes to ₹ 175.03 crores. The agreed sale consideration for the flats for which the agreement were executed before 31.3.08 is ₹ 66.49 crores out of this agreed transfer consideration the amount received up to 31.3.08 by way of advance is ₹ 47.27 crores. Thus the amount received upto 31.3. 08 by way of advance in regard to the flats for whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the property was not completed till 31-3-2008. The AO is, therefore, not justified in assessing the income from this venture in the context of the fact that the assessee was following project completion method. Here, we are also conscious of the fact that the AO has not assessed the advances received from the flat owners as income from business in the year under consideration. It is therefore apparent that he was himself unsure as to in which year the income was to be assessed. Now, since the assessee is following project completion method of accounting and the impugned project was not complete during the years under consideration. 49. We find that in the instant case, as far as the receipts of regular nature i.e. advances received in cheque from the buyers are concerned, the AO has not challenged taxability of the same in the year of completion of the project in accordance with the project completion method of accounting followed by the assessee. The AO has not challenged the disclosure of the receipts in cheques as 'advances' on the liabilities side of the Balance Sheet. He has not proposed to tax the same in the year of receipt as in the case of alleged on-money. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we are of the view that AS-7 applies only to constructions executed in pursuance of contracts and not to projects executed suo moto. The implication is that in respect of own building projects, AS-7 does not apply. The pre-revised AS 7 (1983), inter alia, provided that The Statement also applies to enterprises undertaking construction activities of the type dealt with in this Statement not as contractors but on their own account as a venture of a commercial nature where the enterprise has entered into agreements for sale'. The revised AS-7 (2002) does not contain this provision. As a result of this, revised AS-7 is not applicable to certain enterprises, e.g., real estate developers or assessees carrying on construction business as opposed to construction contractors. As such, since the assessee is engaged in development and construction of buildings on ownership basis, AS-7 (revised) is not applicable to it. As argued by Learned Counsel the Accounting Standard - 7 has not been notified by the Central Government u/s 145(2) of the Act. As such, the AO cannot reject the accounts of the assessee company u/s 145(3) of the Act on the ground that that the assessee has not followed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions are also reproduced hereunder:- (1) Section 3(2)(i) of the abovementioned Act read as under: Not allow persons to enter into possession until a completion certificate, where such certificate is required to be given under any law, is duly given by the local authority (and no person shall take possession of a flat until such completion certificate has been duly given by the local authority. (ii) Further section 5 of the aforesaid Act reads as under:- Promoter to maintain separate account of sums taken as advance or deposit and to be trustee therefore and disburse them for the purpose for which are given: - The promoter shall maintain a separate account in any bank of sums taken by him, from persons intending to take or who have taken, flats, as advance or deposit, including any sums so taken towards the share capital for the formation of a co-operative society or a company, or towards the outgoings (including ground rent if and he shall hold the said moneys for the purposes for which they were given and shall disburse the moneys for those purposes and shall on demand in writing by a Competent Authority, make full and true disclosure of all transactions in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear that the advances paid by the purchasers will partake the character of advance till Occupancy Certificate is obtained. The purchaser of the flat cannot let, sublet, transfer, assign or part with purchaser's interest of benefit factor of the agreement until all the dues payable to the promoter are paid up. All the dues will not be paid till the possession of the flat is handed over. In view of this, It can be inferred that the risks and rewards are not transferred to the purchaser by the promoter until possession of Pat is given. 7.27 In the case of flat purchases, normally the purchasers book the flats by paying advances and later enter into agreement for sale and pays the monies as per the agreement for sale. Subsequently, the promoter completes the project and hands over the possession of the flats to the purchasers. The monies paid by the purchasers are returnable to the purchasers if the promoter is not completing the project successfully to the satisfaction of the purchasers. That stage will be achieved only when the Municipal authorities issue Occupancy Certificate. Until then, the money paid by the customers will only partake the character of 'advance money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the said case however held that since the cash receipts were from undisclosed sources and detected only as a result of search, they had to be brought to tax in the relevant assessment year to which they related and not on completion of the project, as claimed by the assessee. On appeal, the concerned CIT(A) held that only income from disclosed sources were to be computed as per method of accounting followed by the assessee and that the said method could not be applied to undisclosed receipts, which were to be taxed in the hand of the assessee on receipt basis. On further appeal by the said assessee, the Mumbai ITAT reversed the order of the CIT (A) and held as under:- We have considered the rival submissions. It is not in dispute that the receipts in question have direct nexus with the business of the assessee and represent cash receipts against sale of shops and flats. It is also not in dispute that the assessee follows project completion method of revenue recognition and that project was complete only in A. Y. 2008-09. Since, cash receipts have a direct nexus with the project of Jalaram Park, they have to be taxed only as income from the said project. The assessee has alr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oject, sale agreements were entered into in respect of 17 flats only up to 31-03-2008 as against the total 35 flats available in the building. The sale agreements for remaining 13 flats were executed after 31-03-2008. The chart enclosed reflects the amounts received by way of advances at the time of the execution of the sale agreement. The balance amounts were to be received at the time of handing over of occupation. In respect of the flats for which sale agreements were entered into after 31-03-08, Para 30 of the agreement mentioned that state of property as under 'construction'. This also clearly shows that the project had not been completed till the date of search. Further it also shows that up to 31-03-2008 the sale agreements entered into were approximately in respect of 60% of the flats only. It further shows that the agreed sale consideration for all the flats for which sale agreements were entered into comes to ₹ 175.03 crores. The agreed sale consideration for the flats for which the agreement were executed before 31.03.08 is ₹ 66.49 crores out of this agreed transfer consideration the amount received 31.03.08 by way of advance is ₹ 47.27 crores. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice to above, on the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in not considering the expenditure as capital expenditure not allowable as revenue deduction. 55. Brief facts relating to this issue are that the assessee company had received a sum of ₹ 11.50 lacs from Videocon Group for participation in the project Legend. Subsequently, since the project got delayed, Videocon Group decided to withdraw from the project for which the assessee company offered to repay them the principal amount of ₹ 11.50 crores. However, Videocon Group did not agree and filed a case against the assessee before the Hon'ble Bombay High Court. The said case was settled by filing Consent Terms wherein it was mutually decided amongst the parties that in lieu of the aforesaid payment, Bharat Shah Group would transfer their unit in the ground floor at Prabhadevi being constructed by Trambak Home Pvt. Ltd. for which necessary permission would be obtained within 90 days or in the alternate pay them ₹ 18 crores, including interest. In support of these facts, the assessee filed copies of orders dated 17.12.2004 12.09.2005 of the Hon'ble Bombay H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pages 38-48 of the assessee s Paper Book-I. The assessment for AY 2006-07 was not pending. Thus, the additions made in AY 2006-07 without giving reference to any seized documents found during course of search is bad-in-law. Learned Counsel argued that in the instant case, the purported search action in the assessee's case did not lead to discovery of any evidence whatsoever with respect to allowability or otherwise of the said expenses. Similarly, the search action in the group cases also did not lead to the discovery of any such evidence with regard to the impugned expenses. As such, items of regular assessment could not be added back in the assessment framed u/s 153A of the Act when no incriminating documents were found with respect to disallowed items in the search proceedings. Since assessment had originally been framed u/s 143(3) of the Act after taking into consideration the said expenses, the same could not be abruptly disallowed in assessments framed u/s 153A of the Act merely on the basis of change of opinion, there being no change in facts and circumstances as compared to the past. Judgment of Hon.ble Bombay High Court in the case of CIT V. Continental Warehousing C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporation (Nhava Sheva) Ltd. (supra), we delete the addition made by revenue and allowed this issue of assessee s appeal. 59. The next common issue in assessee s appeal in ITA No. 1930/Mum/2011 and Revenue s appeal in ITA No. 3021/Mum/2011, both for the AY 2008-09, is as regards to the order of CIT (A) disallowing proportionate expenses incurred for constructing saleable area for alleged bogus tenants amounting ₹ 5,56,39,387/- for the AY 2008-09. For this assessee raised following grounds:- 1. That the Learned CIT (A) erred in directing the AO to make disallowance of expenditure relating to cost of construction of the space meant for tenants in the assessment of the assessee in the assessment year when the income from the project is offered on its completion even though such direction was beyond the jurisdiction of LearnedCIT(A) as the claim relating to deduction of such expenses for that assessment year were not before her and the direction has been issued without consideration of the relevant facts and circumstances of the case as also the contentions of the appellant on the issue. 2. That the Learned CIT(A) erred in not taking into consideration the fact that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gal in view of the provisions of MHADA. The said figure has been arrived at by the AO as under:- 1,11,35,60,275 (total cost till 3 1.3.2008) - 6,50,00,000 (compensation) - 1,36,65,205 (interest) - 30,05,00,000 (Land cost) = 73,43,95,070/ 109562 (total saleable area) * 9960.83 sq. ft. (bogus tenants area) = ₹ 6,67,67,532/-. Aggrieved, assessee preferred appeal before CIT (A), who then determined based on the various orders of the MHADA computed the expenses to be disallowed in regards to illegal the extent of 771.44 sq. mts. i.e. 8300 sq. ft. instead of 9960.83 sq. ft. considered by AO. The AO had, however, not considered the part relief provided by the CIT (A) in its order giving effect. However, he later on rectified the assessment order u/s 154 and provided part relief and made a disallowance of ₹ 5,56,39,387/-, which is now under dispute before us. 61. The assessee had then filed an appeal before CIT(A) against the order passed u/s 154 of the Act raising a ground that the said addition cannot be made in AY 2008-09 as the assessee is following project completion method of accounting and has accordingly not booked any income in AY 2008-09. It was claimed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see claimed that since the entire area originally claimed in respect of the disputed 48 tenants was ultimately sanctioned and legalized by MHADA and the assessee paid the requisite consideration thereon, no disallowance can be made by invoking the explanation to section 37(1) of the Act in respect of proportionate expenses incurred in connection with construction of the said areas. Since the impugned area was legally sanctioned by MHADA, expenses incurred in connection with construction of the same are fully allowable u/s 37(1) of the Act. Even otherwise, the assessee claimed that the impugned disallowance of proportionate cost of ₹ 6,67,67,532/- made by the AO has resulted in double addition on the same count. It was further argued that the AO has rejected the book profits shown by the assessee for AY 2008-09 and estimated the profits of the on the basis of percentage completion method of accounting. While doing so, at Para 13 of assessment order u/s 153A of the Act for AY 2008-09, the AO has deducted impugned proportionate expenses for alleged bogus tenements of ₹ 6,67,67,532/- from the total construction cost of ₹ 103,48,95,070/- (i.e. 103,48,95,070 6,67,67,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he impugned construction cost of ₹ 6.67 crores although the said construction cost of ₹ 6.67 crores was never allowed by him while determining the profit of the assessee in accordance with percentage completion method of accounting. 65. On appeal by the assessee, the CIT (A) that the assessee had produced before MHADA evidence in respect of 9 tenants and in consideration of this representation, MHADA passed an order dated 30.07.2009 granting approval of 9 tenants as genuine. In respect of balance tenants the assessee was asked to pay for 771.44 sq. mt. at the rate of ₹ 2,42,300/- per sq. mt. The assessee accordingly paid ₹ 18,69,19,912/- so that the assessee could get this space of 771.44 sq. mt. and sell the flats. From the said facts, the CIT (A) concluded that since 771.44 sq. mt. stood confiscated by MHADA for violation of the law, the amount spent for constructing the said area could not be allowed as deduction u/s 37(1) of the Act, since according to him the said expenditure had been made in violation of law. He therefore directed the A.O to disallow the proportionate expenditure for 771.44 sq. mt. in the place of disallowance made by the AO for 925 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded in the Ready Recknor which could be thereafter dealt with in a commercial manner (i.e. sold for a consideration) by the assessee. In view of these factual aspects, we are of the view that that it is not a case where the assessee has been found having constructed the property in violation of the sanctioned plan or the relevant provisions of law governing the activity. It is also not the case where any part of the costs incurred on construction of the property has been found to be illegal, non-genuine or incurred for extraneous purposes. It is a case where the construction is legal and as per plan. The entire construction cost claimed by the assessee has actually been incurred by it on construction of the property. There is however, surplus constructed area intended for the occupiers of the erstwhile property. Since the claim of some of the occupiers was not found admissible, the surplus area has been transferred to the assessee for a consideration. Subsequently, the surplus area has been dealt with by the assessee in a commercial manner and the sale consideration for the same has been duly accounted for as and when so required. It is therefore, perfectly clear that the entire am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son carrying on the business. It cannot include sums spent by the assessee as agent of a third party, whether the origin of the agency is voluntary or statutory. In view of the above, we delete the disallowance of impugned expenses of ₹ 6,67,67,532/-. 69. Coming to the legal issues raised by assessee in ITA Nos. 3019,3020,2985 2986/Mum/2011 for the AYs 2004-05, 2005-06, 2006-07 2007-08 are as regards to the search assessments framed by the AO under section 153A of the Act despite the fact that no search on the assessee at its registered address was conducted u/s 132 (A) of the Act and no incriminating evidence found during the course of search on other person at the registered address of the assessee, hence, assessments framed are bad in law. Further, procedure laid down u/s 153C of the Act was not followed as the addition is based on paper seized in the course of search in the case of other person at the premises of another person. 70. At the outset, we have already decided the issues on merits i.e. in the appeals of the assessee and the appeals of the Revenue; hence, we need not to adjudicate the issues on jurisdiction i.e. the legal issues. 71. Coming to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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