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2017 (6) TMI 778 - ITAT MUMBAI

2017 (6) TMI 778 - ITAT MUMBAI - TMI - Addition on account of alleged ‘on money’ given for purchase of flats - Held that:- The Department merely relied upon the statement of two person who were employees of a different group and there was no evidence with the Assessing Officer that in fact any ‘on money’ was paid in cash. Even in the statement tendered by these two employees, it has not been mentioned that in fact any cash was received by the group from the assessee over and above the payments m .....

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: Shri Ashwani Kumar For The Revenue : Shri Rajesh Kr. Yadav-DR ORDER Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 21/09/2016 of the Ld. First Appellate Authority, Mumbai. The only ground raised in the present appeal pertains to upholding the addition of ₹ 3 crores made on account of alleged on money given to Kamla Group for purchase of flats. 2. During hearing, the Ld. counsel for the assessee, Shri Ashwini Kumar, explained that there was an i .....

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ty was not provided to the assessee. The Ld. counsel further contended that whole order, there is no allegation that cash was in fact received from the assessee. It was also asserted that till date the assessee was never provided with the copy of statement, asked by the assessee or cross examination to the assessee by the Assessing Officer. It was also pleaded that the alleged information was also never provided to the assessee, so, the belief of the Assessing Officer that any on money was given .....

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he paper book) and further pages 15 & 16 of the paper book for agreement for flat no.1202. It was pleaded that the ld. Assessing Officer was not even in possession of the assessment order, therefore, there was no locus standi of the assessee to go before another Assessing Officer and to ask for the documents. It was pleaded that the observation of the Assessing Officer that cash was received is not borne out of facts. Our attention was invited to page 58 and 59 of the paper book, explaining .....

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on record that assessee paid any cash to M/s Kamla Group. Reliance was placed upon the decision in COMMISSIONER OF INCOME TAX vs. P.V. KALYANASUNDARAM 294 ITR 49 (SC), COMMISSIONER OF INCOME TAX vs. VED PRAKASH CHOUDHARY 305 ITR 245 (Del.), SEPCO III ELECTRIC POWER CONSTRUCTION CORPORATION, IN RE 205 taxman 115 (AAR.). 2.1. On the other hand, the ld. DR, Shri Rajesh Kr. Yadav, defended the addition made by the Assessing Officer and confirmed by the Ld. Commissioner of Income Tax (Appeals) by inv .....

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1202. The allotment letter of both these flats was filed before the Ld. Assessing Officer vide letter dated 04/02/2015. The assessee made payment of ₹ 2,30,00,000/- and furnished the copy of bank statement along with source of such payment before the Assessing Officer. The schedule of payment have also been mentioned in para -5 (page-2 of the assessment order). As per the Revenue, there was information from investigation wing that buyers paid on money to the Kamla Group for different proj .....

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in response to notice u/s 148 of the Act. In response to the notices issued u/s 143(2) and 142(1) of the Act, the assessee attended the proceedings and furnished the details called for during the case as has been admitted/acknowledged in para -4 of the assessment order. The assessee was issued show cause notice on 16/03/2015, which is reproduced hereunder:- "Information has been received from Investigation Wing after a search and seizure action conducted on Kamala Group of cases on 09.01.20 .....

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202. You are therefore requested to show cause as to why the said amount of cash should not be assessed as your income from undisclosed sources. " 2.3. The assessee vide reply dated 20/03/2015 to the aforementioned show cause notice, replied as under Regarding payment made to Yojna Infratech for purchase of flat no.1201 and 1202 in their project at Khar, I and my daughter have made payment by cheque as details given earlier. Regarding cash payment, as stated in your notice, I deny such paym .....

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y confirmed that cash was received from sale of flat developed by various entities of Kamla Group of companies. These statements, as per the Revenue, were further confirmed by the Director/partners of the group. The Ld. Assessing Officer at the last page of the assessment order has observed that it is a common practice by the builders to get cash in advance while booking the property. The denial of making any cash payment by the assessee to the group was not accepted by the Ld. Assessing Officer .....

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Kamla Group. In such a situation, we are expected to examine the contents of the statements, which is available at pages 19 to 51 of the paper book. In reply question no.7 with respect to providing details of commercial and residential project, Shri Nilesh K. Gawde specifically tendered that he was not looking after any project or sale related activities and therefore, he denied having any knowledge. In reply to question no.12, with respect to pen-drive, recovered during the course of search, i .....

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print out seized in annexure A1 . It was specifically replied that the particular data was prepared by one Shri Mahendra Rawal and further tendered that his job is merely to enter data as directed by Shri Mahendra Rawal, who does the cross checking after data entry. In reply to question no.23, with respect to the transactions in regular books of accounts, it was contended that he does not know about the recording as he was not a person working in the accounts department. 2.8. So far as the state .....

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ving any role in sale in the aforementioned companies, he specifically denied of having any role. In reply to question no.18, with respect to sales and receipt of money, he said these are dealt with by one Shri Manmohan Taneja and he is not aware as from where the cash was coming/received out of sale and also whether it is entered in the books or not. In reply to question no.20, as to what was to be done of the cash, he said that the cash was used to send at the direction of Shri Nilesh Gowani. .....

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sh presently, he specifically tendered that he has no knowledge about it. The contents of the statement either deny the receipt of cash and if received, it nowhere says that any cash was received from the present assessee on sale of two flats. The allegations are clearly vague. In such a situation, unless and until it is proved that any cash was received from the assessee, the addition cannot be said to be justified, which is purely on the basis of statement of some persons and no evidence has b .....

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m the present assessee. It is for the Kamla Group to explain the nature and source of such cash, if any, surrendered before any authority. 2.9. It is also noted that before the Ld. Assessing Officer/CIT(A) and also before this Tribunal, the assessee duly produced the computation of total income along with the acknowledgment of return filed by the assessee (pages 5 to 7 of the paper book), copy of letters submitted during assessment proceedings, balance sheet (pages 8 to 9 of the paper book), det .....

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book) are analyzed, the ld. Counsel explained before us that the ready recknor rate of the stamp duty valuation authority are lower than the payment made by the assessee, meaning thereby, at the relevant time, the ready recknor rates itself proves that the case of the assessee is genuine. There is no evidence on record, on behalf of the Revenue, that in fact any ón money was paid by the assessee to the builder/Kamla Group over and above the payments made through cheque/banking channel. S .....

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be deposited on the terms and conditions on the specified date provided at page -14 of the paper book). It is also noted (pages 17 & 18 of the paper book), the ready recknor rates of land + building for the residential building was ₹ 1,67,600/-, which clearly establishes that the area-wise rates (ready recknor rates of valuation authority) are lower to the payment made by the assessee through banking channel. 2.12. Now, we shall deal with the cases relied upon by both sides. The Hon&# .....

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following question of law : "Whether, on the facts and in the circumstances of the case, the learned Tribunal is right in law in quashing the assessment order for the asst. yr. 1989-90 by holding that the notice under s. 148 is invalid ?" 2. The facts are that the assessee filed her original return declaring nil income and the AO on receiving the information from Survey Wing of the IT Department that Neta Metal Works prepared a demand draft for a sum of ₹ 83,040 payable at Chand .....

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ter allowing reasonable opportunity of being heard to her. The assessee took the matter in second appeal and the Tribunal vide its order dt. 19th April, 1996 held that since the AO had failed to incorporate material and his satisfaction for reopening the assessment, the same was invalid. 3. We have heard learned counsel for the parties. 4. Sec. 147 of the Act defines the power and jurisdiction of the AO for making an assessment or reassessment of escaped income. Sec. 148 of the Act, on the other .....

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im. He cannot act on the basis of his whim and fancy, and the existence of material must be real. Further, there must be nexus between the material and escapement of income. The AO must record reasons showing due application of mind before taking recourse to reassessment proceedings. Still further the AO can assume jurisdiction for reassessment proceedings provided he has reasons to believe but the same cannot be taken recourse to on the basis of reasons to suspect. 5. In ITO & Ors. vs. Lakh .....

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e income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the Court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fe .....

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f the belief must be held in good faith and should not be a mere pretence." 6. The Tribunal while allowing the appeal of the assessee came to the conclusion that it was essential for the AO before issuing notice to record his own satisfaction on the basis of material and should not have acted merely upon the information received from the survey circle. It was further noticed that the Dy. CIT(A) had recorded that there was not sufficient evidence for making addition of ₹ 83,040 in the .....

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d got prepared a demand draft for a sum of ₹ 83,040 which was not accounted in the books of account of the assessee. The AO had not examined and corroborated the information received from the survey circle before recording his own satisfaction of escaped income and initiating reassessment proceedings. The AO had thus acted only on the basis of suspicion and it cannot be said that the same was based on belief that the income chargeable to tax had escaped income (sicassessment). The AO has t .....

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e, the Hon'ble High Court concluded/observed that section 147 empowers the AO to assess or reassess income chargeable to tax if he has reasons to believe that the income for any assessment year has escaped assessment. The power conferred under this section is very wide, but at the same time it ca nnot be stated to be a plenary power. The AO can assume jurisdiction under the said provision provided there is sufficient material before him. He cannot act on the basis of his whim and fancy, and .....

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d on. 2.14. It was further observed by the Hon'ble High Court that The AO had initiated reassessment proceedings on the basis of information received from the survey circle that the assessee had got prepared a demand draft for a sum of ₹ 83,040 which was not accounted in the books of account of the assessee. The AO had not examined and corroborated the information received from the survey circle before recording his own satisfaction of escaped income and initiating reassessment proceed .....

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oceedings was not valid and finally concluded that AO has to record reasons showing due application of mind before taking recourse to reassessment proceedings; AO having initiated reassessment proceedings simply on the basis of information received from the survey circle of the Department that the assessee had got prepared a demand draft which was not accounted in her books of account, without incorporating corroborative material and his own satisfaction that income has escaped assessment, issua .....

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with the argument of the ld. Counsel for the assessee that the present assessee has no locus standi to go to another Assessing Officer and ask for the documents of a different assessee. The ld. Assessing Officer of the present assessee was expected to independently examine the documents or the information, which pertains to the case of Kamal Group but that was not done. Even during hearing, cross examination was not provided by the Assessing Officer and at the instance of the Ld. First Appellat .....

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the IT Act, 1961 (for short the Act), by the ITO, respondent No. 3 herein, seeking to reopen the assessment of the petitioner-company for the asst. yr. 1996-97. 4. The petitioner-company is engaged in the business of manufacturing of electrical goods. It filed its return of income for the asst. yr. 1996-97 on 30th Nov., 1996, declaring an income of ₹ 9,26,867. The return of income was accompanied by the statement of assessable income, various other documents and annexures, including the st .....

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Government; and the loan was repaid in April, 1997, by account payee cheque. 5. It seems that since notice under s. 143(2) of the Act was not received by the petitioner within 12 months from the date of filing of the return, it was taken that the return had been accepted. On 5th May, 2002, the petitioner received the impugned notice under s. 148 of the Act. Pursuant thereto, the petitioner filed its return declaring the same income which had been declared in the original return filed under s. 13 .....

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Ltd. has given loan of ₹ 7,40,000 to M/s United Electric Company (Delhi) (P) Ltd. Shri Vijay Kumar Jain, the director of M/s Visa Fincap Ltd. has admitted in his statement recorded on oath under s. 131 of the IT Act by the AO, Ward 17(4), New Delhi, that the loan transaction with the assessee-company i.e., M/s United Electric Co. (Delhi) is not genuine. Shri Vijay Kumar Jain also admitted that the assessee-company M/s United Electric Co. (Delhi) had given cash to M/s Visa Fincap Ltd. and .....

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hat income chargeable to tax of ₹ 7,40,000 has escaped assessment within the meaning of s. 147, Expln. 2(b) of IT Act. Submitted to Addl. CIT, Range 18, with request to accord approval for issue of notice under s. 148 r/w s. 151(2) of IT Act. (Underlining, italicised in print, for emphasis) Sd/- (Sugan Chand Mittal) ITO, Ward 18(1), New Delhi Yes, I am satisfied that it is a fit case for issue of notice under s. 148 of the IT Act. Sd/- (N.K. Sharma) Addl. Commissioner of Income-tax, Range .....

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AO to initiate proceedings under s. 147/148 of the Act, the present petition was filed for quashing of notice dt. 30th April, 2002. 8. We have heard Mr. M.S. Syali, learned senior counsel for the petitioner, and Mr. R.D. Jolly, learned senior standing counsel for the Revenue, who has put in appearance on advance notice. The record of the AO has also been produced before us by Mr. Jolly and we have perused the same. 9. The main thrust of Mr. Syali s argument is that the foundation for the belief .....

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tion. Mr. Jolly, learned counsel for the Revenue, on the other hand, has submitted that power of reopening the assessment under the amended s. 147 being very wide, the AO is justified in reopening the assessment in order to investigate into the genuineness of the transaction between the petitioner and the said Visa Fincap. 10. Having considered the matter in the light of the material available on the record produced, we are of the view that the petition deserves to succeed. 11. Sec. 147 of the A .....

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le to tax had escaped assessment by reason of : (i) omission or failure on the part of the assessee to make a return of his income under s. 139 of the Act for any assessment year, or (ii) failure to disclose fully and truly all material facts necessary for his assessment for that year, are not present in the new main section but the crucial expression "reason to believe" still exists in the new provision. The amended s. 147 provides that where the AO has reason to believe that any inco .....

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he AO can reopen the completed assessment. Proviso to sub-s. (1) of s. 151 of the Act provides that after the expiry of four years from the end of the relevant assessment year, notice under s. 148 shall not be issued unless the Chief CIT or the CIT, as the case may be, is satisfied, on the reasons recorded by the AO concerned, that it is a fit case for the issue of such notice. These are some inbuilt safeguards to prevent arbitrary exercise of power by an AO to fiddle with the completed assessme .....

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sons, inducing the belief. Such a belief may not be based merely on reasons but it must be founded on information. 13. In Ganga Saran & Sons (P) Ltd. vs. ITO & Ors. (1981) 22 CTR (SC) 112 : (1981) 130 ITR 1 (SC), their Lordships of the Supreme Court, inter alia, observed that the expression "reason to believe" is stronger than the expression "is satisfied". The belief entertained by the AO should not be irrational or arbitrary. Alternatively put, it must be reasonable .....

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upport his tentative conclusion. In case of challenge, it is open to the Court to examine whether there was material before the AO, having rational connection or relevant bearing to the formation of the belief that is claimed to have been held at the time when he issued the notice. But the Court cannot for the purpose of ascertaining validity of the notice examine the sufficiency of the reasons for the belief [See S. Narayanappa & Ors. vs. CIT (1967) 63 ITR 219 (SC)]. 15. Explaining the scop .....

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n the file on the basis of which the authorising officer can have reason to believe that action under s. 132 is called for any of the reasons mentioned in cl. (a), (b) or (c). When the action of issuance of an authorisation under s. 132 is challenged in a Court, it will be open to the petitioner to contend that on the facts or information disclosed, no reasonable person could have come to the conclusion that action under s. 132 was called for. The opinion which has to be formed is subjective and .....

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iate authority. The reason to believe must be tangible in law and if the information or the reason has no nexus with the belief or there is no material or tangible information for the formation of the belief, then in such a case, action taken under s. 132 would be regarded as bad in law." (Emphasis, italicised in print, supplied) 16. It is, thus, trite, that when a challenge is made to the action under s. 147 of the Act what the Court is required to examine is whether some material exists o .....

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opy of the statement of V.K. Jain. Copy of the statement supplied to the petitioner is the same as is available on the file of the AO. On a careful perusal of the statement, we find that, the facts mentioned in the "reasons" are de hors the facts available on record. The relevant portion of the statement of V.K. Jain, dt. 18th Feb., 2002, reads as under : "Q. 5 Can you give the names and addresses of the above persons from whom you were receiving cash and giving entries thereafter .....

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the respondents that a list of the creditors, which included the name of the petitioner, was furnished by V.K. Jain subsequently and the same was forwarded to the AO of the petitioner. Applying the aforenoted settled principles, governing an action under s. 147 of the Act, we have no hesitation in holding that there was no information on record, which could provide foundation for the AO s belief that petitioner s transaction with M/s Visa Fincap Ltd. was not genuine and its income had escaped as .....

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e end of the relevant assessment year. As highlighted above, the legislature has provided certain safeguards to prevent arbitrary exercise of powers by an AO, particularly after a lapse of substantial time from completion of assessment. The power vested in the CIT to grant or not to grant approval is coupled with a duty. The CIT is required to apply his mind to the proposal put up to him for approval in the light of the material relied upon by the AO. The said power cannot be exercised casually .....

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to believe that the said income for any assessment year has escaped assessment. The power conferred under the said section, particularly after 1st April, 1989, is no doubt very wide but it cannot be said to be plenary. True, the amended provisions of s. 147 are contextually different from the pre-1989 provision, inasmuch as the cumulative conditions spelt out in cl. (a) of old s. 147 namely, that income chargeable to tax had escaped assessment by reason of : (i) omission or failure on the part o .....

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of ss. 148 to 153 and assess or reassess the income which has escaped assessment. Sub-s. (2) of s. 148 mandates that before issuing notice to the assessee under sub-s. (1), for filing the return, the AO shall record his reasons for doing so. Therefore, formation of reason to believe and recording of reasons are imperative before the AO can reopen the completed assessment. Proviso to sub-s. (1) of s. 151 provides that after the expiry of four years from the end of the relevant assessment year, n .....

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ust have reason to believe that income has escaped assessment. There should be facts before him that reasonably give rise to the belief, but the facts on the basis of which he entertains the belief need not at this stage be rebuttably conclusive to support his tentative conclusion. It is, trite, that when a challenge is made to the action under s. 147 what the Court is required to examine is whether some material exists on record for the AO to form the requisite belief and the reasons for the be .....

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1981) 22 CTR (SC) 112 : (1981) 130 ITR 1 (SC) and S. Narayanappa & Ors. vs. CIT (1967) 63 ITR 219 (SC) relied on; L.R. Gupta & Ors. vs. Union of India & Ors. (1992) 101 CTR (Del) 179 : (1992) 194 ITR 32 (Del) applied and finally concluded that a general statement made by a director of a creditor company that it was indulging in lending its name to certain parties without naming any party did not constitute reason to believe that the petitioner's loan transaction with the said com .....

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the appellant on 10th Feb., 2000. During the course of search, two memorandums of understanding (MoU) dt. 1st March, 1999 were recovered. These MoUs were entered into between the assessee, Ravi Talwar and Madhu Talwar. In terms of the MoUs, the assessee had paid ₹ 25 lakhs each to Ravi Talwar and Madhu Talwar towards part consideration for the purchase of agricultural land valued at ₹ 123.30 lakhs. The balance amount was to be paid on or before 30th April, 1999, failing which the amo .....

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of ₹ 50 lakhs was added in the hands of the assessee under s. 69 of the Income-tax Act, 1961 (for short 'the Act ) as unexplained expenditure. 4. The view taken by the AO was not accepted by the CIT(A) and also by the Tribunal. Both concurrently were of the view that there was not enough evidence to add the amount in the hands of the assessee. 5. The CIT was of the view that all the parties had denied the transaction and in fact the property in question was eventually sold by Ravi Tal .....

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nder the provisions of s. 132(4A) of the Act, there was a presumption about the correctness of the contents of the MoUs but relying upon the decision of the Karnataka High Court in CIT vs. P.R. Metrani (HUF) (2001) 169 CTR (Kar) 149 : (2001) 251 ITR 244 (Kar), it was held that the presumption was rebuttable. It was further held that the assessee had been able to successfully rebut the presumption. 7. Learned counsel for the Revenue reiterated the view expressed by the AO. Unfortunately, we are n .....

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n or before 30th April, 1999 when the purchase will be completed." 9. Notwithstanding this, the assessee as well as Ravi Talwar and Madhu Talwar denied the money transaction. In addition thereto, the case set up was that the agricultural land had, in fact, been sold to M/s Delhi Tent and Decorators (P) Ltd. by Ravi Talwar and Madhu Talwar. This was confirmed by Shri N.K. Mittal, one of the directors of M/s Delhi Tent and Decorators (P) Ltd. Quite clearly, the MoUs did not fructify. 10. Sec. .....

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8) 73 CTR (Raj) 184 : (1988) 173 ITR 393 (Raj). 11. Even in ITO vs. T. Abdul Majeed (1987) 64 CTR (Ker) 266 : (1988) 169 ITR 440 (Ker) it has been held as follows : "It is true that s. 132(4A) of the Act enables the Court to presume the truth of the contents of such books. However, it is a presumption which can be rebutted. Moreover, the presumption envisaged therein is only a factual presumption. It is in the discretion of the Court, depending upon other factors, to decide whether the pres .....

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e other hand, Ravi Talwar and Madhu Talwar had denied receipt of any money from the assessee. In the fact of these denials, there ought to have been corroborative evidence to show that there was in fact such a transfer of money. Both the CIT as well as the Tribunal have come to the conclusion that there was no such material on record. 13. The AO relied on certain other transactions entered into by the assessee with Ravi Talwar and Madhu Talwar for drawing a presumption in respect of the transfer .....

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facts of the case make it very clear that there were two MoUs entered into by the assessee with R and M in respect of the purchase of agricultural land. The two MoUs did record that "the purchase consideration shall be ₹ 123.30 lacs. The purchaser having paid to the vendor the sum of ₹ 25,00,000 part of the said purchase consideration as a deposit and shall pay the residual of said purchase consideration to the vendor on or before 30th April, 1999 when the purchase will be compl .....

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then, the presumption is a rebuttable one and relates to a question of fact. Insofar as the present case is concerned, the assessee had stated that in fact there was no transfer of money between him and R and M. On the other hand, R and M had denied receipt of any money from the assessee. In the fact of these denials there ought to have been corroborative evidence to show that there was in fact such a transfer of money. Both the CIT(A) as well as the Tribunal have come to the conclusion that the .....

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rned. No substantial question of law arises.. The Hon'ble Court relied upon the decision in CIT vs. S.M.S. Investment Corporation (P) Ltd. (1994) 207 ITR 364 (Raj) and ITO vs. T. Abdul Majeed (1987) 64 CTR (Ker) 266 : (1988) 169 ITR 440 (Ker) and finally held that since both assessee and alleged payees having denied to have advanced or received any amount as shown to have changed hands as per the MoU found during search, no addition could be made in block assessment in the absence of any fur .....

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chased a plot by consideration in cash. The Assessing Officer could not prove by evidence that such documents belongs to assessee and any on money transaction has taken place. The Hon'ble High Court held that on the basis of documents could not be treated as conclusive proof of on money transaction, therefore, addition could not be sustained. While coming to this conclusion, the Hon'ble Court duly considered the decision from Hon'ble Apex Court in CIT vs P. B. Kalyansundaram (2007) 2 .....

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