TMI Blog2013 (11) TMI 1748X X X X Extracts X X X X X X X X Extracts X X X X ..... urns of income for all the years mentioned above and the assessments were completed by making various types of additions in all the years. The assessee challenged all the assessment orders by filing appeals before Ld CIT(A) and got partial relief. Aggrieved by the orders passed by Ld CIT(A), both the parties have filed appeals before us challenging the decision of the first appellate authority on the issues decided against each of them. 3. For assessment year 2001-02, the assessee only has filed appeal before us, wherein he is challenging the addition of ₹ 50,000/- (out of ₹ 4,50,000/-) confirmed by Ld CIT(A). The facts relating thereto are stated in brief. In response to the notice u/s 153A of the Act, the assessee filed return of income declaring a total income of ₹ 1.00 lakh and agricultural income of ₹ 1.50 lakh. During the course of search operation, the department had seized a document numbered as VJJ-3(5), which happened to be an agreement dated 28-02-2001 entered by the assessee with his wife Smt. Ashifa Begum in connection with purchase of a property. The facts relating to the said agreement has been narrated by the assessing officer in his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed out that the amount of ₹ 4.50 lakh was actually paid by his wife as per the original agreement entered by her with Shri E.V. Alexander and Smt. Mary Mathew. It was submitted that the assessee did not pay any amount to his wife as per the agreement dated 28-02-2001 entered by him with her. The ld CIT(A) examined the abovesaid agreement and has given a clear finding as under in paragraph 10 of his order:- .But the fact remains that this agreement does not mention at all that Smt. Ashifa begum had received any consideration from the appellant for passing over her rights acquired through the agreement dated 29.11.1999. Hence as per the appellant the contention of the A.O. in para 3 of the assessment order that the appellant had paid ₹ 4,50,000/- vide agreement dated 28-02-2001 is wrong. I have carefully perused the seized documents as mentioned in the order and have verified the contents mentioned therein. It is found that nowhere in the agreement it has been mentioned that Smt. Ashifa Begum has received any consideration or ₹ 4,50,000/- from the appellant for passing on her rights acquired through the agreement dated 29.11.1999. Hence in my view t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that no consideration passed hands in pursuance of the said agreement. 8. Even if it is assumed for a moment that the said agreement is a sham agreement and the assessee only entered into this transaction as assumed by Ld CIT(A), then also, in our view, there is no requirement of making any addition since (a) the amount paid during the year under consideration was only ₹ 50,000/- and (b) the amount of total income and agricultural income declared by the assessee aggregating to ₹ 2.50 lakhs would be sufficient enough to explain the sources for ₹ 50,000/-. 9. Accordingly, we do not find any justification in confirming the addition of ₹ 50,000/- in AY 2001-02. Accordingly, we modify the order of Ld CIT(A) on this issue and direct the AO to delete the above said addition. 10. We shall take up the appeals filed for assessment year 2002-03 by both the parties. The additions made by the AO, relief granted/additions sustained by Ld CIT(A) are tabulated below:- Items Amount Relief granted Addition sustained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 19.00 lakh in the following manner:- Investment in PTP Nagar Property 13 lakh Investment in purchase of Benz car 6 lakh 12. In the appellate proceedings before Ld CIT(A), the assessee pleaded that there was violation of principles of natural justice as the assessing officer did not give enough time to offer explanations. Accordingly, the Ld CIT(A) called for a remand report from the Assessing officer. In the remand report, the AO accepted that a sum of ₹ 10 lakh would be available with Shri A.R. Shajahan, since S.I. Property has refunded a part of deposit already made by him. But the AO reported that there is no evidence to show that the said money has reached the hands of the assessee. During the course of assessment proceedings, the assessee had filed a confirmation letter obtained from Shri A.R.Shajahan, wherein it was stated that a loan of ₹ 10 lakh was paid by him to the assessee's wife named Smt. Ashifa Begum by way of cheque number 933034 drawn on 15.7.2000. During the course of remand proceedings, the assessing officer made enquiries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions that the assessee could not establish nexus between the financial transactions of Shri Shajahan and his bank account. Hence, the AO submitted in the remand report that the assessee has failed to furnish the sources for making the deposit of ₹ 35.45 lakhs. 15. The Ld CIT(A) confronted the Remand report with the assessee. In response thereto, the assessee submitted he had given explanations before the assessing officer out of his feeble memory and they are not based upon any books of account or diary noting or any other document. Accordingly, it was submitted that the possibility of mistakes in the said explanation cannot be ruled out. It was further submitted that : (a) the statement of accounts given by M/s S.I. Property clearly show that the they have carried the transactions with Shri M.M. Sulaiman only, i.e., the assessee herein. Accordingly, it was submitted that he only carried the transactions with M/s S.I. Property on behalf of Shri Shajahan. Accordingly, it was submitted that he only received the refund amount of ₹ 10.50 lakhs from M/s S.I. Property. (b) With regard to the bank deposits, he submitted that they represent real estat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th regard to the bank deposits addition of ₹ 35,45,376/-, the Ld CIT(A) accepted the explanation given by the assessee with regard to the two deposits of ₹ 5.50 lakhs each and accordingly deleted ₹ 11.00 lakhs. From the remaining amount of ₹ 24,45,376/-, the Ld CIT(A) allowed following deductions:- (i) Balance amount available out of income returned by the assessee - ₹ 1.15 lakhs, i.e. (Income returned ₹ 2.58 lakhs less investment in cashew factory ₹ 1.43 lakhs) (ii) Additional income offered in sec. 153A return - ₹ 3.00 lakhs. Accordingly, the Ld CIT(A) confirmed the addition of balance amount of ₹ 20,30,376/-. It is pertinent to note that the Ld CIT(A) did not accept the contentions of the assessee that the said deposits also consists of sale consideration received from four persons to whom the PTP Nagar property was sold, since the assessee could not produce any evidence in support of the said contentions. 17. We have heard rival contentions and perused the record. We notice that the assessee did not produce any cash flow statement to explain the sources and investments. In this regard, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he investment made in purchase of PTP Nagar property at ₹ 13.00 lakhs and assessed the investment made in purchase of Benz car at ₹ 6.00 lakhs. 19.1 The Ld CIT(A) noticed that the department did not unearth any evidence to prove that the Benz Car was purchased during the year under consideration. The AO also did not bring any material on record to show that the car was purchased during the year relevant to the assessment year 2002-03. The ld CIT(A) accordingly has expressed the view that the impugned addition of ₹ 6.00 lakhs has been made without bringing any incriminating material on record. The Ld CIT(A) also observed that the explanation of the assessee that the car was purchased by him in the earlier years out of his known sources of income was not rebutted by the AO. Under these circumstances, the Ld CIT(A) held that there is no reason to uphold the addition of ₹ 6 lakhs. 19.2 The revenue is assailing this decision of Ld CIT(A). However, we notice that the impugned assessment year 2002-03 falls in the category of concluded assessment, since it was not pending on the date of search. Under sec.153A of the Act, only pending assessments ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee only for the reason that the assessee could not show the nexus between the amount refunded by M/s S.I. Property and the bank entries. However, the fact remains that the assessee did not maintain proper books of account. Further the assessee was acting as middle man in the real estate and vehicle transactions. It cannot be denied that the assessee would be constrained to handle the money transactions of both the buyers and sellers. The AO has also accepted the fact that the bank accounts of the assessee show huge money transactions. It is also a fact that the relationship of the assessee with both the buyers and sellers would come to an end after the completion of the purchase/sale transaction. Under these circumstances, there is merit in the contention of the assessee that he was constrained to explain the transactions out of his feeble memory and hence he was not able to point out or explain each and every transaction in the bank accounts. In that scenario, as stated earlier, one is required to examine the explanations given by the assessee on the basis of surrounding circumstances, human conduct and human probabilities. In the instant case, the undisputed fact is that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the bank account of the assessee, the AO picked up three cash deposits aggregating to ₹ 35.45 lakhs and asked the assessee to explain the same. Since the explanations given by the assessee were not convincing, he assessed the above said amount as income of the assessee. The Ld CIT(A) accepted the explanations given for an amount of ₹ 11.00 lakhs and accordingly deleted the same. The department has also accepted the decision of Ld CIT(A) with regard to ₹ 11.00 lakhs. The Ld CIT(A) also gave set off of addition income of ₹ 3.00 lakhs offered by the assessee for this year during the course of search. The revenue is contesting the said decision on the reasoning that the same amount was telescoped with the investment made in purchase of cashew factory. 22. In the regular return of income, the assessee had declared ₹ 2.58 lakhs as his income. In the return filed subsequent to the search, the assessee has declared additional income of ₹ 3.00 lakhs. We have already noticed that the Ld CIT(A) has telescoped the investment of ₹ 1.43 lakhs against the income of ₹ 2.58 lakhs declared in the regular return of income. Hence, the conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the PTP Nagar property for ₹ 19.00 lakhs, the possibility of selling the same for ₹ 21.00 lakhs cannot be ruled out. We also notice that the assessing officer, in the remand report submitted for the immediately succeeding year, i.e. assessment year 2003-04, has accepted the submission of the assessee that the bank deposits represented advances received from various persons in respect of his real estate business, the loans availed by him and commission received. Under these circumstances, we find no reason as to why the AO could not accept the very same explanation for this year also. In view of the foregoing discussions, we do not find any justification in confirming the additions relating to bank deposits to the tune of ₹ 20,30,376/-. Accordingly, we modify the order of Ld CIT(A) on this issue and direct the assessing officer to delete the entire addition of ₹ 35.45 lakhs relating to the bank deposits. 24. The revenue is also contesting the relief granted in respect of purchase of cashew factory for a sum of ₹ 1.43 lakhs. We notice that the Ld CIT(A) has given a clear finding that the income declared by the assessee for this year was far m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO proceeded to estimate the sales amount realised on sale of Anakulam estate. The Assessing Officer noticed that the assessee has filed a letter from a person named Shri Noufal who happened to be the manager of Shri Abdul Kalam, referred above, wherein it was stated that he handed over certain demand drafts for an aggregate amount of ₹ 85.00 lakhs to the assessee herein on behalf of Shri Abdul Kalam. The Assessing Officer further noticed that the assessee had sold 12 acres of land at Anakulam Estate to a person named Shri Geevarghese Varghese for a consideration of ₹ 21.60 lakhs. Hence the Assessing Officer computed the total sale consideration on sale of Anakulam Estate at ₹ 1.06 crores as detailed below: (a) Demand drafts from Abdul Kalam : ₹ 85,00,000/- (b) Sale receipt from Geevarghese Varghese : ₹ 21,60,000/- Total: ₹ 1,06,60,000/- The cost of purchase of Anakulam Estate to the assessee was taken at ₹ 68,00,500/-, i.e., 101.50 acres at the rate of ₹ 67,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suggested to the Ld CIT(A) for enhancement of income. 26. In reply to the remand report, the assessee submitted that the assessing officer was not correct in assuming that he has sold only 83.22 acres of land and the remaining portion of land is available with him. The assessee submitted that entire extent of 101.50 acres was divided into several plots by creating internal roads. In view of the same, it was submitted that, the saleable area of the estate was reduced to 83.22 acres and remaining portion was converted into common area consisting of internal roads. Accordingly, the assessee submitted that he realized only 70.26 lakhs on sale of property. After deducting the cost of property of ₹ 68.00 lakhs, he could make a profit of ₹ 2.26 lakhs. Accordingly, he objected to the profit determined by the assessing officer under both the methods. With regard to the suggestion for enhancement of income by ₹ 24.00 lakhs, the assessee pointed out that Shri Abdul kalam, in the answer to Q. No.5, had stated that he gave a sum of ₹ 34.00 lakhs as loan to Shri M.M. Sulaiman, the assessee herein, up to 31.3.2003. Accordingly he submitted that the claim of receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on facts, figures and documents and the submissions made before the Assessing Officer it is a confirmed thing that the total value released on sale stands at ₹ 7026120/- which is as per seized documents. When this consideration is adopted for working of capital gain, the gain would merely be 2.26 lakhs, because the cost of land is ₹ 68 lakhs for which there is no controversy. As regards the sale of balance land as suggested by Assessing Officer in the remand report it has been submitted that the balance area was utilized in giving internal roads on dividing the estate into small pieces. Hence it is also controverted by the appellant that as on 31.03.2003 there was a balance land with the appellant. (d) On a consideration of facts and documents available either seized or otherwise I agree with the appellant that there is no evidence available with the Department that the assessee could have sold his entire land measuring 101.50 acres @ 180000/- per acre. The land which is sold for ₹ 180000/- per acre to Shri G. Varghese is supported by documents, but other documents show that the land sold to Shri Abdul Kalam, Attinkal and Shri Iqbal of Nilamel were sold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... une of ₹ 34.00 lakhs to the assessee by 31.3.2003. Before remand officer also, Shri Abdul Kalam confirmed payments to the tune of ₹ 16.00 lakhs to the assessee. Further the assessee has declared additional income of ₹ 8.00 lakhs also. Both these amounts aggregating to ₹ 24.00 lakhs would also explain the payment of advance of ₹ 25.00 lakhs. Accordingly, the Ld CIT(A) expressed the view that there is no requirement of making any separate addition on account of advance payment of ₹ 25.00 lakhs. The revenue is aggrieved by the said decision of Ld CIT(A). 28. We have heard the rival contentions and perused the record. We shall first deal with the ground of revenue relating to rejection of proposal for enhancement of income. The Ld D.R submitted that the Ld CIT(A) was not correct in rejecting the enhancement proposal given by the AO during remand proceedings. However, in our view, the Tribunal may not be empowered to issue any direction to the Ld CIT(A) to consider the enhancement proposal given by the AO that too during the course of remand proceedings. We also find that the Ld CIT(A) did not reject the proposal on the face of it, but has ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of land was consumed in creating internal roads, since the land was divided into several small blocks. We also tend to agree with the said view of Ld CIT(A), since it is in the common knowledge of everybody that a portion of land will be consumed for creating internal roads, when large sized land is converted into several small sized land. However, as pointed out by Ld CIT(A), the claim of the assessee that 18.28 acres of land got consumed in creation of internal roads was not substantiated. In our view, the assessee could have substantiated the said claim by furnishing the partition plan of the land. In the absence of any material, the Ld CIT(A) has determined the profit on sale of Anakulam Estate at ₹ 10.00 lakhs, by giving a reduction of about ₹ 5.00 lakhs towards the cost of internal roads. Under the circumstances discussed above, we do not find any infirmity in the decision taken by Ld CIT(A) on this issue. 30. We shall now take up the appeals filed by both the parties for assessment year 2004-05. The additions made by the AO, relief granted/additions sustained by Ld CIT(A) are tabulated below:- ITEMS AMOUNT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 1,95,000/- was purchased by Shri Abdul Kalam of Attingal and the same is required to be considered in his hands only and not in the hands of the instant assessee. With regard to the Banker's cheque of ₹ 20,25,000/-, the assessee claimed that following demand drafts received from buyers of Estate were deposited into his bank account maintained with ICICI bank and then a Banker's cheque for ₹ 20,25,000/- was purchased by utilizing those proceeds. 12.9.2003 1,95,000 12.9.2003 7,00,000 12.9.2003 7,00,000 12.9.2003 4,30,000 20,25,000 On examination of ICICI Bank account, the AO found that a sum of ₹ 19.75 lakhs was found deposited by way of cash in the said bank account, out of which the Banker's cheque of ₹ 20.25 lakhs was found to have been purchased. Since there was contradiction with regard to the mode of making deposits of the above said amounts, the AO concluded that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore remand officer, furnished copies of certificates obtained from State Bank of India to prove that the demand drafts worth ₹ 18.50 lakhs was purchased by Shri Nadeer Shah and E. Sulaikha. The assessee further submitted that he is now able to clarify all these facts, since he has analyzed the details collected during the course of remand proceedings. 30.4 The Ld CIT(A) was convinced with the explanations furnished by the assessee and accordingly deleted the addition of ₹ 20.25 lakhs relating to bankers cheque. With regard to the addition of ₹ 1.95 lakhs, since the remand officer has expressed the view that it need not be considered in the hands of the assessee, the Ld CIT(A) deleted the said addition also. 30.5 The Ld D.R submitted that the explanations, originally given before the AO during the course of assessment proceedings as well as remand proceedings were found to be false. Before Ld CIT(A), the assessee has given a fresh explanation, which was totally new one and totally in contradiction to the submissions earlier made. Since the assessee is changing his stand on this issue, the Ld D.R contended that the Ld CIT(A) was not justified in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement. On consideration of totality of facts, we find that the assessee has reconciled the payments made to M/s Thamarapalli Rubber company and we too find it to be convincing. Though the assessee's explanations were contradictory, it has been pointed out by the assessee that he was not having full details during the course of assessment proceedings. It is also a fact that the assessee did not maintain books of account. However, the subsequent explanations are supported by the statements given by Shri Abdul Kalam (Abdul Majeed) and the letter given by State Bank of India. With regard to the addition of ₹ 1.95 lakhs, the remand officer himself has stated that the same need not be considered in the hands of the assessee. Hence, in our view, the Ld CIT(A) was justified in deleting the additions of ₹ 1.95 lakhs and ₹ 20.25 lakhs referred above. 31. The next issue contested by the revenue relates to the addition of ₹ 5,70,000/-, being the cost of purchase of Benz Car. It was noticed by the AO that the assessee had purchased a Benz car during the year for an amount of ₹ 5.70 lakhs. With regard to the sources, the assessee explained that he ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputed the peak credit balance at ₹ 98,65,287/- and assessed the same. 32.1 In the remand proceedings, the remand officer computed the peak credit at ₹ 219.44 lakhs and commented that the same would result in enhancement of addition of ₹ 98.65 lakhs made by the AO. Before remand officer, the assessee submitted that the transactions in his bank accounts represent purchase/sale transactions of Anakulam estate and Thamarapally estates. Since the assessee did not file copies of sale agreements and confirmation from buyers, the AO rejected the said explanations. Since the deposits made in the bank accounts exceeded ₹ 3.00 crores, the AO expressed the opinion that the revised peak credit of ₹ 219.44 lakhs computed by him would be more appropriate than the figure computed in the assessment proceedings. 32.2 In response to the remand report, the assessee submitted that the sale value of Anakulam estate and Thamarapalli estate were ₹ 70.26 lakhs and ₹ 534 lakhs respectively and major portion of the sale proceeds were routed through the bank accounts maintained by him. He further submitted that he has furnished the names and address ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vehicle brokerage business. According to the assessee, major portion of sale proceeds were routed through his various bank accounts. The assessee has also submitted that there are many interbank transfers also. It is an admitted fact that the assessee has maintained several bank accounts and hence the possibility of interbank transfers cannot be ruled out. The AO has not accepted the above said claim, apparently for want of supporting evidences. However, the Ld CIT(A) has found force in the contentions of the assessee. In our view also, it may not be correct to reject the submissions of the assessee in an outright manner. Because the fact remains that the assessee is engaged in real estate business activities and further he did not maintain books of account. Hence, in our view, the explanations given by the assessee has to be tested on the basis of available evidences, surrounding circumstances and also by duly considering the human conduct and human probabilities, since the object of the Income tax Act is to assess the income in a judicious manner. The AO, in the remand proceedings, has pointed out that aggregate amount of deposits made during the year in various bank accounts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment proceedings. As stated earlier, the Ld CIT(A) has determined the income element at ₹ 50.00 lakh. However, in our view, there is a flaw in the approach of Ld CIT(A). It is pertinent to note that the Ld CIT(A), after having held that the entire amount of deposits cannot be considered as income of the assessee, has actually held the peak credit balance of ₹ 98.65 lakh as the gross receipts of the assessee. From the abovesaid amount, he has allowed set off of income element declared by the assessee/confirmed in his hands to the tune of ₹ 30.30 lakh, resulting in a balance of ₹ 68.35 lakh. From this amount, the Ld CIT(A) has allowed a deduction of about 25%, i.e., about ₹ 18.35 lakh towards expenses and accordingly confirmed the addition to the extent of ₹ 50.00 lakh. 32.7 It is an admitted fact that the assessee is acting as commission agent in real estate and vehicle businesses. It is nobody's case that the assessee is carrying on any other business. The Ld CIT(A) has also found force in the contentions of the assessee that the sale proceeds relating to the real estate business activities have been routed through the bank accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d following income in the return of income/revised return of income filed by him u/s 153A of the Act. Rental income 1,68,000 Income from other sources 4,35,000 Additional income 18,00,000 Total 24,03,000 34. The first issue relates to the addition of ₹ 11,28,840/- relating to the payment made to Rajshree Motors for purchase of car, vide receipt dated 12.8.2004. Before the AO, during the course of original assessment proceedings, the assessee submitted that he sold a Benz car with Regn. No. KL-1-V-9669 on 29.7.2004 to a person named Shri Shamusudeen and used the sale proceeds thereof to make the abovesaid payment. However, the assessee did not furnish any document to support his claim and hence the AO assessed the sum of ₹ 11,28,840/- as income of the assessee. 34.1 As in earlier year, the Ld CIT(A) called for a remand report from the assessing officer. In the remand proceedings, the AO conducted enquiries by issuing commission and it was found o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition of ₹ 6.78 lakh against the income declared by the assessee. Further, in the remand proceedings, the AO has accepted the availability of ₹ 4.50 lakh on sale of car to Shri Shamsudeen. Hence, we do not find any infirmity in the decision of Ld CIT(A) in deleting the addition of ₹ 11.28 lakh. 35. In the remand report, the AO himself has suggested for deletion of following two small additions:- Investment in Nemom Property 1,59,000 Purchase of land at Veloor village 3,67,500 The Ld CIT(A) also accepted the same and telescoped the abovesaid additions against the additional income declared by the assessee. In view of the availability of funds through the additional income declared by the assessee, we do not find any infirmity in the decision of Ld CIT(A) in deleting these two additions. 36. The next addition relates to the payments aggregating to ₹ 28.00 lakh given to Rajshree Motors on various dates. The search documents revealed that the assessee has paid amounts to Rajshree Motors aggregating to ₹ 58.00 lakh on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are disbursed by making necessary endorsement in the Registration Certificate book of the concerned vehicle and hence the possibility of diversion of funds is very remote. The AO has rejected the contentions of the assessee only for the reason that he has failed to prove the nexus. However, the fact remains that the assessee did not maintain books of account and hence it was difficult for him to prove the nexus. However, since the car loans cannot be used for other purposes, in our view, the AO should not have justified the addition, that too after accepting the source of these payments. Accordingly, in our view, the Ld CIT(A) was justified in deleting this addition of ₹ 28.00 lakh. 37. The last issue relates to the addition of peak credit balance in the bank accounts. During the course of assessment proceedings, the AO asked the assessee to explain the sources of deposits of ₹ 5.00 lakh and above made in the bank accounts of the assessee and also the details of withdrawals of ₹ 2.00 lakh and above. The assessee could not submit exact details, but stated that they represent the advances received from real estate transactions, loans received and commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmine the income portion from the peak credit amount of ₹ 85.77 lakh determined in the original assessment proceedings. In the immediately preceding year year, he had determined the income out of peak credit amount at ₹ 50.00 lakh. The ld CIT(A) first gave set off of the same, which left a balance of ₹ 35.77 lakh. During this year the assessee had declared additional income of ₹ 18.00 lakh and the same was telescoped against payment made to Rajshree motors and also against the cost of two properties purchased. After such set off, there remained a balance of ₹ 5,95,160/-. Hence the ld CIT(A) gave further set off of round sum of ₹ 6.00 lakh, which resulted in a balance amount of ₹ 29.77 lakh. In the earlier year, the Ld CIT(A) allowed a deduction of 25% and determined the balance amount as the income of the assessee. Applying the same principles, the Ld CIT(A) allowed further reduction of 25% from ₹ 29.77 lakh determined above and accordingly fixed the income amount at ₹ 22,33,416/- and confirmed the addition to that extent. Both the parties are aggrieved by the said decision of Ld CIT(A) 37.4 We have heard the rival cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there is violation of natural justice and accordingly, vide paragraph 6.3 of her order, quashed the assessment order in toto. The Ld CIT(A) also held that the AO was not correct in placing reliance on the return filed u/s 139(1) of the Act, since it is a defective return for the reason that the assessee did not attach Balance Sheet to it. Having held so, the Ld CIT(A) also proceeded to decide the issues on merits and deleted all the three additions made by the Ld CIT(A) (Sic-AO). Aggrieved, the revenue has filed this appeal before us. 40. The two legal grounds urged by the assessee viz., violation of principles of natural justice and validity of considering the defective return filed u/s 139(1) of the Act and the ground urged on merits relating to the assessment of commission at ₹ 12.88 crore arise out of common set of facts, which are narrated hereunder in brief. During the course of search, the search officials seized an agreement dated 12.8.2005 entered between the assessee and another person named Shri Varkey George by name Agreement for joint services . The objective of the agreement was to finalise the manner of sharing of commission income of ₹ 20.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 20,00,00,000 (Rupees Twenty crores only) from GFA as commission. Of the above amount, VG has paid under instructions from and on account of Sulaiman, a sum of ₹ 8,00,00,000/- (Rupees eight crores only) to Mr. Benny Joseph to handle and to meet expenses for settlement of labour. Out of the balance commission of ₹ 12,00,00,000 (Rupees twelve crores only) VG will retain a sum of ₹ 7,12,00,000/- (Rupees Seven crores Twelve lakhs only) including the TDS deducted by GFA, as his share and pay Sulaiman the balance amount of ₹ 4,88,00,000/- (Rupess Four Crores Eighty Eight lakhs only). Such payment will evidence a full and final settlement of accounts in respect of this venture between the parties and neither party will thereafter have any manner of claims or demands whatsoever against each other. As per the agreement Shri Varkey George transferred ₹ 8.00 crore to the account of Shri Benny Joseph. Subsequently he transferred the balance amount of ₹ 4.88 crore also to the account of Shri Benny Joseph. In turn, Shri Benny Joseph transferred ₹ 4.88 crore to the assessee's account. Afterwards, the assessee transferred back a sum o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticed that their signature did not tally with the signatures found in the vouchers. The AO issued summons to Shri Anil Singaneria and he also denied the submissions made by Shri Benny Joseph/assessee. The summons issued to Shri Hemant Goenka returned back unserved. Subsequently, the AO again conducted enquiries with 14 labourers, which included 6 labourers with whom enquiries were conducted earlier. They also denied the receipt of compensation and also denied the signature recorded in the vouchers. The AO examined the vouchers of compensation payments and noticed certain discrepancies like duplication of names, mismatch of the signature between the name and signature, typographical errors etc. Hence, the AO came to the conclusion that the vouchers seized during the course of search is a bogus document. 40.4 The AO initially forwarded the copies of statement recorded from 10 labourers to the assessee. However, he did not forward the statement recorded from 14 labourers subsequently. With regard to the statement of 10 workers also, the assessee sought for an opportunity to cross-examine them, but the AO did not provide the same to the assessee. The assessee submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per the decision of Hon'ble Kerala High Court in the case of CIT v. Kalpaka Transport Co. Ltd. [2006] 287 ITR 15/155 Taxman 593. Accordingly it was submitted that the AO should take the gross commission receipts at ₹ 4.88 crore only and not ₹ 12.88 crore. The AO did not accept the said contentions, but the Ld CIT(A) accepted the same. 40.6 Accordingly, the AO determined the gross commission receipts at ₹ 12.88 crores and assessed the same without giving any deduction for expenses. In the preceding year, the assessee had declared rental income from cashew factory. In this year, the assessee did not disclose the same. Hence, the AO assessed rental income of ₹ 1,68,000/- as in last year. The AO also assessed the peak credit amount in his bank accounts, which was worked out at ₹ 2.98 crore. 41. As stated earlier, the Ld CIT(A) also adjudicated the issued urged by the assessee on merits of the addition. The Ld CIT(A) held that the assessee has received only ₹ 4.88 crore, out of which he paid back ₹ 2,09,90,000/- to Shri Benny Joseph. The Ld CIT(A) deleted the addition relating to rental income of ₹ 1,68,000/-. With ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng assessment shall abate and the assessment has to be necessarily done under the provisions of sec. 153A of the Act. Since the assessment made u/s 153A for this year is original assessment, in our view, the AO is entitled to consider all the documents and information relating to the instant year that comes to his notice, for the purpose of making assessment. In that case, the documents filed along with the return of income filed u/s 139 of the Act also, in our view, can be considered by the AO for the purpose of making assessment u/s 153A of the Act. The Ld CIT(A) has held that the assessment is to be viewed from the point of view of return filed u/s 153A of the Act. Even though the starting point of the assessment may be the return of income filed u/s 153A of the Act, in view of the foregoing discussions, we are of the view that the AO is entitled to consider the documents filed along with return of income filed u/s 139 of the Act also. Accordingly, the order of Ld CIT(A) stands modified on this issue. 44. The Ld CIT(A) has quashed the assessment order in toto for violation of natural justice. We have already noticed that the AO did not provide opportunity to cross-exami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Malayalam Ltd and the letter written by shri Anil Siganeria to reject the contentions of the assessee. It is pertinent to note that the Addl. Director of IT (Inv) has recorded a statement from Shri Benny Joseph on 05-02-2007 and in the said statement he has affirmed the explanations given by the assessee, i.e., he has confirmed about the payment of compensation to workers to the tune of ₹ 9.54 crore, incurring of settlement expenses, receipt of ₹ 8.00 crore and ₹ 2.09 crore from the assessee etc. Subsequently Shri Benny Joseph has also written a letter with regard to the receipt of ₹ 8.00 crore, how it was withdrawn, to whom it was handed over etc. However, the AO has rejected the statement and letter of Shri Benny Joseph on a simple reasoning that he was also a party in the transactions. We wonder as to how the AO can reject the said statement and letter of Shri Benny Joseph so simply. There should not be any dispute that the parties to any transaction alone can confirm about the nature of transactions. 45.1 On assimilation of facts surrounding this issue, following facts emerge out:- (a) The assessee and Shri Varkey George have finalised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. Hence, they had to depend upon the officials of Harrisons Malayalam Ltd to disburse the settlement amounts. Accordingly the money was handed over to them and they have only disbursed the amounts, obtained vouchers and handed over to Shri Benny Joseph, who in turn, handed over the same to the assessee. Accordingly, it was submitted that the assessee cannot be found fault with the discrepancies/mistakes in the preparation of vouchers. In our view, there is force in the said submissions. Hence, in our view, the assessee cannot be found fault with the discrepancies or mistakes noticed in the vouchers. (g) According to the assessee, since they had to depend upon the officers of Harrisons Malayalam Ltd for settling the labour settlements, the sum of ₹ 8.00 crore was drawn from Currency chest branch of ICICI Bank in the presence of the officials of RPG Enterprises (group concern of Harrisons Malayalam Ltd) and the same was handed over to them. When this fact was not accepted by the AO, both the assessee as well as Shri Benny Joseph has requested the AO to examine the video recording of ICICI Bank. They also stated that Shri Anil Singaneria purchased four trunk boxes fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uchers and also for the denial of receipt of compensation by a minuscule percentage of workers, in our view, the assessee cannot be found fault with, since he or Shri Benny Joseph did not directly involve in the disbursement of compensation. As stated earlier, the AO has not acceded to the request of the assessee to produce as many numbers of workers as the AO may require. Hence, the transactions found in the bank accounts of the assessee and in the account of Shri Benny Joseph and the payment vouchers unearthed during the course of search, in our view, actually support the case of the assessee. 45.3 The AO has pointed out that the assessee has shown the gross commission receipts as ₹ 12.88 crore in the return of income filed u/s 139(1) of the Act. The assessee has pointed out that he has also claimed ₹ 9.54 crores as expenses in the said Profit and Loss account filed along with the original return of income. In the return filed u/s 153A of the Act, the assessee has declared only ₹ 4.88 crore as gross receipts and did not claim the amount of ₹ 9.54 crore as expense. Thus, it is seen that the assessee has prepared the Profit and Loss account in a dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de therein shall also apply for the year under consideration. Consistent with the view taken in assessment year 2004-05, in this year also, we hold that there is force in the submission of the assessee that he has routed through major portion of sale proceeds of real estate business and vehicle business through his bank accounts. 48. We shall now take up the appeal filed for assessment year 2007-08 by the department. The assessee did not file any appeal for this year. In this year, the assessee returned a loss of ₹ 26,87,125/-. The AO made following additions:- (a) Disallowance of claim of fee paid to Markose Markose 35,00,000/- (b) Disallowance of claim of payment made to Thomas Chaco 25,00,000/- (c) Disallowance of claim of payment made to casual workers 4,00,000/- (d) Addition relating to difference in premium income 53,00,000/- (e) Addition of investment in City Hospitals Maria Park 40,00,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee that the question of making disallowance u/s 40(a)(ia) would arise only if the relevant expenditure was claimed as a deduction. In the instant case, the assessee has submitted that he did not claim the payment of ₹ 35.00 lakh as deduction at all in the assessment year 2006-07. The said action of the assessee would have a neutral effect, i.e., it would amount to making a claim and thereafter disallowing the same. However, a perusal of the statement of account filed by the assessee for assessment year 2006-07 shows that the assessee has made claim of deduction of ₹ 35.00 lakh against the commission and thereafter disallowed the same and accordingly computed the total income at ₹ 2,51,35,000/-. Hence, it appears that both the AO and the assessee have discussed the matter without verifying the computation statement. There is no dispute with regard to the fact that the assessee has deducted tax at source from the abovesaid payment during this year. Hence, in our view, the Ld CIT(A) was justified in deleting the disallowance of ₹ 35.00 lakh. 50. The next issue relates to the addition of premium income of ₹ 53.00 lakh. The facts relating to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s income of the assessee. 50.2 In the remand report submitted to Ld CIT(A), the AO worked out the difference in the premium receipt at ₹ 1.91 crore, i.e., in a totally different manner, as discussed below:- (a) As against the amount of ₹ 3.42 crore mentioned in the revocation agreement, the assessee has received a sum of ₹ 3.02 crore by way of cheques and hence the remaining amount of ₹ 40.00 lakh remains unconfirmed. Hence the amount of ₹ 40.00 lakh is to be treated as the assessee's unaccounted cash u/s 68 of the Act. (b) Out of ₹ 3.02 crore received by the assessee by way of cheques, he has paid a sum of ₹ 70.50 lakh to the original owner as advance. One of the proposed buyers named Shri John Mathai has confirmed receipt of ₹ 1.02 crore only as repayment, vide his letter dated 22.6.2010. Thus, the assessee can be said to have spent a sum of ₹ 1.72 crore only out of the amount of ₹ 3.02 crore. Accordingly, the balance amount of ₹ 1.30 crore remained with the assessee and hence the same should be treated as assessee's commission income. (c) The original owner of Subramania ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kes the view that the prospective buyers have confirmed receipt of ₹ 1.02 crore only, where as in the revocation agreement, they have confirmed the receipt of ₹ 1.55 crore. Hence, the inference drawn by the AO is against the facts available on record. Since the AO has taken the figure of ₹ 1.02 crores, he is arriving at the income figure of ₹ 1.30 crore. If the repayment is taken at ₹ 1.55 crore and the gross premium amount is taken as ₹ 3.42 crore, it would result in a figure of ₹ 1.16 crore, which is the amount declared by the assessee in his return of income. Hence the proposal of the AO on this point is also devoid of any merit. (c) The AO has suggested the addition of ₹ 21.00 lakh as income of the assessee, since the original owner of the state has stated that this amount was paid to the assessee towards settlement of labour. According to the assessee, the AO has not put this statement to the assessee and he did not have a chance to offer his explanation. However, it is seen that this amount was given for a specific purpose, i.e., for settlement of labour and the AO has not brought on record any material to show that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.00 lakh, he submitted that the same was paid as advance for purchase of Hotel Maria Park. He further submitted that the premium income declared by him as well as the loan of ₹ 80.00 lakh obtained from Shri Isacc George during the year sufficiently explains the sources for the abovesaid payments. 53.2 In the remand report, the AO accepted about the availability of funds through the Commission income of ₹ 6.00 lakh and also the loan of ₹ 80.00 lakh taken from Shri Isacc George. However, the AO expressed the view that it is difficult to accept these explanations in the absence of a Cash flow statement. The Ld CIT(A) accepted the fact of availability of funds through the income declared by the assessee as well as the loan availed by him. Accordingly, the Ld CIT(A) deleted this addition. 53.3 We have heard the rival contentions on this issue. In the remand report, the AO has accepted the fact that the assessee has availed a loan of ₹ 80.00 lakh from Shri Isacc George. Besides the above, the assessee has also declared commission income of ₹ 6.00 lakh during this year. Hence, even if the AO do not accept the explanation of the assessee th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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