TMI Blog2018 (9) TMI 1325X X X X Extracts X X X X X X X X Extracts X X X X ..... y was that ₹ 30 crores was towards internal and external development charges. This was an aspect which could be easily decided by securing relevant information from the statutory authority, i.e. HUDCO who received the payments. Independent corroboration of these too could have been sought otherwise the relevant books of account could have been checked. Furthermore, the statute does not compel the Revenue to raise a presumption; even when a tax authority does so, the sole basis of an addition entirely hinging upon the interpretation of certain figures in a diary would be flawed. For these reasons, this Court is of the opinion that since the inference drawn with respect to findings are based on essentially factual materials which were analyzed by the CIT and the ITAT, there is no reason to interfere with those findings. This question is accordingly answered against the Revenue and in favor of the assessee. Addition denoting unaccounted cash reflected in the seized cash slips - Held that:- this question pertains to pure finding of fact which concerns inferences to be drawn on the basis of material found. The CIT(A) and the ITAT felt that the amounts reflected in the seized s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,525/, made by the Assessing Officer, on account of unaccounted cash recorded in seized cash slips ignoring the statement recorded during the proceedings which revealed that this cash was over and above the amount recorded in the books of accounts? 4) Whether the Tribunal was correct in law in confirming the order of. CIT(A) deleting the addition of ₹ 92 lacs made by the Assessing Officer on account of commission paid to M/s. Televista Electronics Limited on sale of plot in Sushant Lok to M/s Vatika Green Field Limited ignoring the relevant provisions of section158B(b) of the Income Tax Act, 1961? 5) Whether order passed by Income Tax Appellate Tribunal is perverse in law as well as on facts in respect of the items referred to in the questions hereinabove? Re: Question No.1 2. The facts in brief in respect of this question are as narrated below; the Assessing Officer (AO) brought to tax an amount of ₹ 42 crores for the alleged suppressed sale proceeds of property at 27, Kasturba Gandhi Marg, New Delhi (the property or the premises ). The assessee [hereafter APIL ] had entered into an agreement with the owner of (the property) Late Dr. Raghunath ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hri Anand Nath and others (Principal owners). 2. As per the terms of the said agreement, APIL was entitled to 65% and principal owners to 35% of the total built up/saleable area, which was to be constructed on the stated plot. 3. The principal owners in violation of the agreement dated 6.7.1977 and during the pendency of a specific performance suit filed by APIL against them in the year 1980, transferred the said property with structure thereon to Mahajan Industries Ltd. 4. The stated suit for specific performance filed by APIL was decreed by the Hon'ble High Court of Delhi in favour of APIL in September, 1991 against which an appeal was filed by Mahajans before the higher bench of the Hon'ble High Court. 5. In order to avoid likely prolonged litigation and uncertainties of result, APIL, principal owners and Mahajans arrived at an out of court settlement whereby APIL was entitled to 40% and Mahajans to 60% of construction and development rights on the said property. 6. APIL agreed to transfer its rights under a settlement to M/s Verka Investments Pvt. Ltd., New Delhi at a total consideration of ₹ 52 crores. 7. During the relevant period t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efundable security deposit under this agreement. The assessing officers have not gone into the details of the transaction as also the agreement in detail otherwise the total amount can be liable for income tax even in the assessment year 1995-96 and if it so happens, the income tax liability including penalty and interest on this amount would be much more than ₹ 42 Crores i.e. the total consideration under this agreement. II. AGREEMENT FOR ₹ 10 CRORES a) An advance aggregating to Rs.I0 Crores was received under three agreements (Rs.4 Crores, ₹ 3 Crores and ₹ 3 Crores) as booking amounts against the sale in total of 108 residential apartments in the proposed Celebrity Homes project of APIL. The total consideration was fixed at ₹ 39 Crores to be received in phased manner over a period of 24 months from the date of signing of agreement. The first instalment of 20% was due within two months from the date of agreement. b) As per the terms of agreement if the buyer fails to make payments as per agreed schedule, the agreement is to be cancelled and determined and the entire booking amounts is to be forfeited. Accordingly, as no payment was r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much of a risk for APIL. APIL does not want to leave anything for the future but want to decide everything now and close the chapter forever. The provisions of ₹ 25 Cr. towards tax liability is absolute minimum. 4. The Revenue s position in the ensuing block assessment proceedings was that the 'Note' stated that the proposed arrangement was planned for tax point of view only to defer the tax liability. Out of total consideration of ₹ 42 Crores, the assessee had already received an amount of ₹ 40 Crores in the year 1995-96 and the remaining amount of ₹ 2 Crores was also received in M/s Ansal Buildwell Ltd. as interest free inter corporate deposit to be paid to the assessee at a later date. Under this agreement, there was no clause by virtue of which M/s VIPL could claim refund of any part of the consideration paid under the agreements. The liability of development and construction of the project was entirely of M/s VIPL and the assessee had no liability whatsoever in this regard. 5. The AO after carrying out necessary investigation and on consideration of the interpretation of 'Note' recovered during the course of search also recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case with discharge certificate which was the liability of Mahajan, towards VIPL. Therefore, as far as the assessee was concerned, that sale transaction was complete and it was not entitled to postpone showing accrual of income on account of sale of development rights in its books of accounts. It was held that the assessee s argument that it had no right to forfeit the amount was immaterial since the consideration had passed into its hands and the receipt was not in the nature of advance. The assessee was successful in persuading the ITAT to accept its contentions. The ITAT s reasoning in its impugned judgment discloses that its decision was weighed considerably by the phraseology of Section 158B(b) which defined what was undisclosed income . It held that since the assessee had disclosed in the first instance in the original returns all the details to the department, the discovery of note per se did not make any difference and that the addition could not be made on the ground that it was seized in the search proceedings. The ITAT further held that the appellate Commissioner s reliance on ₹ 2 crores paid to M/s. Ansal Buildwell Ltd. overlooked that the assessee did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specified intervals was also known. Furthermore, though styled as security deposit and ostensibly placing the burden on VIPL to carry on building activity and obtain for that purpose all necessary sanctions and clearances, the assessee did not and could not exercise any control over the manner of execution of the obligation, if any. It was emphasized that the time given or agreed to by the parties for the utilization of development rights and construction was 7 years. Further the assessee had no control over the manner of discharge of information in relation to such activities. It could not impose in any manner whatsoever its views or decision nor could it deduct any penalty or monetary damages for the performance of such so-called obligations. Plainly, the so-called security deposit was nothing more than sale consideration but treated for the sake of assessee s convenience as a deposit. 9. It was submitted that in the course of the search and seizure proceedings, the note shed a different light upon the nature of the transaction which necessitated further enquiry. The notice and inferences that the AO drew were based upon other corroborative matters such as the statement made o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO, which read as follows: This agreement is made at New Delhi on this 1st day of April, 1995 between: M/s. Ansal Properties Industries Ltd, 115 Ansal Bhawan, 16 KG Marg, New Delhi-110001, through Shri G R Gogia who has been authorised by the Board of Directors vide resolution passed in its meeting held on 21st May, 1993 hereinafter referred to as the first party (which expression shall be deemed to mean and include its successor-in-title/office, nominees and assigns) of the First Part: AND M/s. Verka Investment Pvt. Ltd; A-1/71A, Panchsheel Enclave, New Delhi through Shri Yatinder Singh, Director, who has been authorised by the Board of Director vide resolution passed in its meeting held on 31st March 1995 hereinafter referred to as the Second Party (which expression shall be deemed to mean and include its successor-in-title/office, nominees and assigns) of the Second Part: WHEREAS the First Party is holding development rights for erecting a multi-storeyed commercial building as permissible on the plot of land known as and bearing NO.27 K G Marg, New Delhi (hereinafter referred to as the said plot) under agreement dated 6th July 1977 (hereinafter re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the building plans, obtaining of terms of conversion from the L DO and exemptions under the ULCR Act etc. and all costs or outgoings for obtaining any sanction shall be met by the Second Party and the Present Owner in proportion to their respective share in the proposed building on the Said Plot. 4. That the first party is in possession of one room and a verandah in the existing building on the said plot and these shall be handed over to the second party on receipt of payment under Clause 9 (iv). The possession of the balance of the Said Plot and the structures thereon shall be obtained by the Second ' party from the Present Owner under the terms of the Settlement. 5. That the development and construction work on the Said Plot shall be completed by the Second Party within a maximum period of seven years of the grant of necessary sanctions from the competent authorities and obtaining the possession of the remaining portion of the said plot from the present owner, whichever takes place later. 6. That the Second Party, at the proportionate cost to be borne between it and the Present Owner, shall be liable and responsible for timely completion and development of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y shall be responsible to hand over to the Present Owner sixty percent (60%) of the total built-up saleable areas including basement and parking spaces allocated to the share of the Present Owner under the terms of the Settlement. xxxxxxxx xxxxxxxx xxxxxxxx 14. Timely payment of the sale consideration and the security deposit as per clause 9 and 10 above forms the essence of the terms of the contract. 13. The search and seizure proceedings took place on 10.02.2000; the block assessments notice under Section 158BC was issued on 22.01.2001 and the return was filed on 13.03.2001 whereby the assessee stated that its undisclosed income was NIL. The search proceedings had unearthed a note,[termed confidential], it importantly stated that the terms of the agreement indicated that the purpose for drawing it up was to defer income tax liability and that after receiving 95.23% of the total consideration, it was not refundable irrespective of completion of building, the amount was to be taxable in the year it was received - the total amount is taxable in the year in which it was received . The note also stated that there was no condition enabling VIPL to claim refund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od failing which the assessee was at liberty to forfeit the amount. There was no term in the agreement which entitled the assessee to exercise any manner of control over the performance of this obligation spelt out in clause 7. Therefore, the inference drawn by the AO and confirmed by the CIT(A) that the terms of the deposit as one for security was merely a camouflage or devise to postpone tax liability that was plainly staring in the assessee s face. This was also demonstrated by the fact that VIPL was under no circumstances entitled to claim refund of any part of the agreement which inter alia aimed over all development rights and the consequential rights to construct, let and collect consideration for the builtup space. The assessee could not claim any share in that nor control method or manner of execution. The device was created, i.e. of security deposit, to enable the assessee to successfully convey and postpone its tax liability which otherwise accrued in the order of execution in successive assessment years but for the seizure of notes which let the cat out of the bag, as it were. The Revenue would have continued to remain in the dark and eventually the assessee would not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht, the assessee s income can be revisited and additional amounts brought to tax. Having regard to these objectives, and the mandate of Section 158B(b), the sum of ₹ 42 lakhs brought to tax by the AO in the entire circumstances of the case was reasonable given the materials seized, the survey conducted and the statements recorded during the course of assessment proceedings. All these clearly reveal that the security deposit was a mere camouflage or a devise to postpone tax liability towards an uncertain date, at the convenience of the assessee. Clearly, the amount received pursuant to the agreement and the conveyances executed thereafter, showed that the intent of the parties was to treat it as a final consideration payable and paid in presenti. For these reasons, the first question is to be answered in favor of the Revenue and against the assessee. Re: Question No.2 19. The facts here were that during the course of search in the assessee s premises, a brown diary Annexure A-23 was seized from the office premises of M/s. Ansal Buildwell Ltd. The assessment was that of one Vinod Tiku, AVP (Technical) of M/s. Ansal Buildwell Ltd. It contained the following note: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 30 crores was an approximate figure of development split into two - external development charges for the entire area at ₹ 60 crores and the external development charges ₹ 14 crores. It was further observed that Vinod Tiku corroborated this position in the subsequent questioning and also in an affidavit. The CIT(A) particularly relied upon the answers to question nos. 16 and 17 and held that the totality of statements showed that the license in favor of the assessee was issued in 1996 after it furnished the bank guarantee and that this explanation of Vinod Tiku on 31.07.1998 could not be appreciated as it is an afterthought. The CIT allowed the assessee s appeal noting, therefore, that the AO alleged since that the figure 30 represented cash payment the onus of proving was upon him. Reliance on the statement per se, therefore, could not overcome explanation of Vinod Tiku with respect to the payment of Rs.. 30 cores towards overall development charges. 23. The ITAT which rejected the Revenue s appeal on this point held as follows: Since the diary in question was not recovered from the premises of the assessee, which is independent public limited co., t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esumption drawn in the circumstances of the case was upon analysis of materials and that AO s view was justified. It was pointed out that independent corroboration in regard to the seized diary was by way of consideration paid for acquisition of shares in Aadharshila Towers for ₹ 70 crores. The diary clearly stated that the total cost was ₹ 100 crores. The farmers who received the consideration were paid partly in cash. These corroborative materials were insufficient in income tax proceedings, on an application of principles of evidence to hold that ₹ 30 crores was the undisclosed cash component of the consideration. 25. This Court is of the opinion both the CIT and ITAT have rendered findings that were sound and reasonable on the question of whether the seized diary per se could in the overall circumstances of the case result in the addition of ₹ 30 crores. The assessee s explanation consistently was that ₹ 30 crores was towards internal and external development charges. This was an aspect which could be easily decided by securing relevant information from the statutory authority, i.e. HUDCO who received the payments. Independent corroboration of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the difference in cash balances in respect of seized cash books and the computer statement on the other hand were not in any way disturbed by the statements of the employees recorded. It was, therefore, held that the assessee s explanation that there were sufficient balances in the accounts of several imprest holders and that such amounts which were reflected in the slips should be treated as explained was, therefore, accepted. However, upon the tally of the total amount, the sum of ₹ 45,08,971/- was reduced to ₹ 6,32,525/-. 27. The ITAT held that the assessee had explained the substantial sum of ₹ 19,63,375/- and ₹ 20 lakhs which were reflected as cash in hand in terms of company s cash book which was seized on 28.01.2000; the findings of the AO, inasmuch as they proceeded to hold that there was no evidence to link assessee with cash receipts, were set aside. The ITAT was of the opinion that apart from the bare view that the AO took, that there was no other material to substantiate the assumption that slips denoted amounts outside the cash book in the documents which were the subject matter of assessment, it also found that the CIT(A) had reconciled all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sta. The CIT noted an affidavit of Sh. Bhalla dated 15.02.2002 where he mentioned about the role of Vipin Luthra and Televista and also had added that he assumed that no commission was payable by the assessee. After consideration of all these circumstances, in the Revenue s appeal, the ITAT further held that the amount could not be brought to tax as it was claimed as commission payable in the original returns and it was so claimed consistently by the assessee even in the block assessment. 30. This Court is of the opinion that the facts clearly indicate that ₹ 92 lakhs was claimed as commission payable to Televista and reflected duly in the documents and books filed along with the returns. These was subjected to normal assessment at the time when they were reported. The block assessment did not bring out any fresh material except the invoices for the AO to deduce any further undisclosed income. In these circumstances, the addition made by the AO was, in the opinion of this Court, correctly set aside by the lower appellate authorities. This question of law too is answered against the Revenue and in favor of the assessee. Re: Question No.5 31. This question of law, ..... 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