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TMI Blog2019 (4) TMI 1908X X X X Extracts X X X X X X X X Extracts X X X X ..... rs Pvt. Ltd. -Do- 28.11.2013 26.03.2013 143(3) of the Act 2. The grounds of appeal raised by the assessee (in case of M/s. Savaliya Buildcon) in ITA No. 401/Ahd/2014 read as under: I. ADDITION ON ACCOUNT OF ON-MONEY RECEIPT - Rs. 14,10,000/- 1. The Ld. CIT(A) has erred in law and on facts while confirming the addition of Rs. 14,10,000/- on the basis of statement of two members recorded behind the back of the appellant, copy of which was not provided to the appellant during the course of assessment proceedings as well as in absence of granting the opportunity of cross examination of these two members. 2. The Ld. CIT(A) has erred in law and on facts while considering the alternative ground of the appellant that the addition of Rs. 14,10,000/- as made by the Ld. A.O. on account of 'on-money' received from two members is required to be telescoped against the disclosure of Rs. 2 Crores made by the appellant firm for the financial year 2010-11 relevant to A.Y. 2011-12. 3. The Ld. CIT(A) has erred in law and on facts while failing to consider the fact that voluntary and suo-motto disclosure of unaccounted booking receipts from the members of the scheme amounting to Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isclosures made suo motu for F.Y. 2010-11 relevant to AY 2011-12 were voluntary. An amount of Rs. 2 Crore was disclosed by the group in relation to captioned assessee firm to cover up any deficiency. The assessee, at the time of filing the return of income subsequent to search, duly included the aforesaid disclosure of Rs. 2 Crore towards unaccounted booking receipts from its Krish Residency 1 & 2 project and paid the taxes thereon. In the course of the scrutiny proceedings as a consequence of search, the AO observed that in the course of post search inquiry statement of two members/purchasers (namely; Surekhaben M. Bhavsar & Shri Hasmukhbhai M. Solanki) of Krish Residency Housing Project were recorded on oath under s.131 of the Act. The AO noted that as per the statement so recorded of the two purchasers that one of the purchasers namely Smt. Surekhaben M. Bhavsar has admitted cash/onmoney payment of Rs. 9Lakhs towards purchase of residential flat in Krish Residency-1. Similarly, another purchaser Shri Hasmukhbhai M. Solanki also admitted on-money payment of Rs. 5,10,000/- in cash towards purchase of his flat. Placing reliance upon the statement of aforesaid two members of Krish R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incriminating material found in this regard and the alleged cash component admitted by the two purchasers are far lower than the amount already declared. It was contended on behalf of the assessee before the CIT(A) that extrapolation theory adopted in the assessment order for making an addition of presumption basis is not permissible in law in the absence of any tangible material in corroboration. 4.3 The CIT(A) took note of the detailed submissions made on behalf of the assessee and found considerable merit therein. The CIT(A) accordingly observed that the AO was not justified in making extrapolation on basis of statement of two purchasers and estimation of probable on-money receipts from remaining other flat byers. The CIT(A) accordingly deleted the addition on account of on-money receipt of Rs. 3,28,13,355/- made by the AO. However, it sustained Rs. 14,10,000/- being aggregate of the confessional amount from two purchasers whose statements were actually recorded. In short, the CIT(A) sustained addition of Rs. 14,10,000/- out of total addition of Rs. 3,28,13,355/- made by the AO. It would be apt to reproduce the relevant operative para of the order of the CIT(A) hereunder: "8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm which indicated that assessee has made payment of on money for purchase of a flat. It was held by Hon'ble ITAT, Ahmedabad 'C' Bench that no evidence was brought on record by revenue to show that appellant had actually paid the on money. It was further held that assessee's denial cannot be brushed aside without bringing any positive material on record. The addition was held not be justified in such a case. (i) A similar view was held in the case of Bharat A Mehta [86 TTJ 369] by Hon'ble ITAT, 'B' Bench. In this case addition u/s. 69 was made on account of on money paid on purchase of bungalow on the basis of admission made by builder during the search. However, no document was recovered during the search regarding on money paid by assessee. In. such a case, the addition was directed to be deleted by Hon'ble ITAT. (j) In the case of CIT vs. D Kanta [205 Taxman 115(Kar)], addition was made u/s. 69B r.w.s. 147 on account of unexplained investment in purchase of land. Search was conducted in the case of son of vendor from whom the land was purchased. During the course of search, son of vendor stated that assessee had received consideration of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by AO in the assessment order. In view of all these facts, I hold that AO is not justified in making extrapolation on the basis of statement of Smt. Surekhaben Bhavsar and Shri Hasmukhbhai Solanki and estimating total on-money receipt in respect of 87 flats at Rs. 528,13,355/-. Merely on the basis of statement of two members, it cannot be presumed that appellant received similar amount from each and every client. It is a well established principle that suspicion; however, strong can never take the place of evidence. In this case, AO could have made addition of Rs. 900,000/- which was admitted by Smt. Surekhaben Bhavsar and Rs. 510,000/-which was admitted by Shri Hasmukhbhai Solanki. I, therefore hold that addition on account of on-money receipt is to be restricted to Rs. 14,10,000/- as against Rs. 3,28,13,355/- made by AO. The AO is therefore directed to restrict addition on this account to Rs. 14,10,000/-. Ground no. 1 of the appeal is thus partly allowed." The CIT(A) accordingly granted partial relief to the assessee as noted above. 5. Aggrieved by the relief granted by the CIT(A) deleting Rs. 3,14,03,355/- so granted by the CIT(A) out of total addition of Rs. 3,28,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded under s.132(4) of the Act making disclosure for entire financial year then in that circumstances any addition can be made only on the basis of cogent material and evidences against the assessee and consequently no addition can possibly survive in the absence of any adverse material brought on record. The learned AR contended that the assessee has already disclosed a lump sum amount of Rs. 2 crores in respect of extra booking etc. from some of the members of the project which will naturally include any amount allegedly confessed by two of the purchasers which confession remains unverified and unilateral nevertheless. The learned AR submitted that the appellant firm had declared additional income of Rs. 2 Crore merely to buy peace, save time and costs and to avoid protracted litigation and also to co-operate with the department as a goodwill gesture without any substantive evidences in possession of the Revenue. In the circumstances, estimation of income for the remaining period post search between 06.01.2011 to 31.03.2011 merely on surmises and conjunctures' is totally uncalled for. 6.2 Without prejudice and in alternative, the learned AR for the assessee submitted that the en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the assessee in respect of remaining flats sold. The AO was accordingly justified in estimating the cash component in respect of all the flats. It was further submitted that the AO was quite fair in granting relief in respect of amount already declared in the confessional statement recorded under s.132(4) of the Act and only the balance amount in excess of what was declared has been added in the hands of the assessee firm. In the circumstances, it was contended that there was no justification for the CIT(A) to cancel the additions so made. 8. We have carefully considered the rival submissions. Both assessee as well as the Revenue are aggrieved by the order of the CIT(A). The addition on account of alleged on money receipt towards sale of residential flat by the assessee is subject matter of controversy. While it is the case of the assessee that in view of the voluntary declaration made by the assessee in its own record to the tune of Rs. 2 Crore which sufficiently covers any remotely possible on money receipt on sale of flats, separate addition over and above which is volunteered not plausible. The Revenue, on the other hand, seeks to contend that quantification of on-mone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs is the bedrock for additions in controversy. It is an admitted position that the statements of two purchasers allegedly claiming to have paid cash money of Rs. 14.10 Lakhs in aggregate, were obtained behind the back of the assessee. The copy of the statement was not provided to the assessee at all. The cross examination of the purchasers were also not provided by the Revenue authorities despite several requests made by the assessee. Such overwhelming facts remain unrebutted on behalf of the Revenue. This being so, the action of the AO in placing reliance upon statement of third party to crucify the assessee is clearly in negation of overriding principles of natural justice which is supposed to be guiding factor in an adjudication process. Needless to say, the appropriate opportunity to an affected party is not a gift but an absolute and salutary right which cannot be simply bypassed. The infringement of basic principles of natural justice has thus vitiated the order of the AO to the core. The legitimate expectation of the assessee to seek cross examination of a person making adverse comments against the assessee to enable it to traverse the assertions cannot be shunned in sub-ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g additions of Rs. 3.28 Crores is thus clearly arbitrary and unsustainable in law. It is well settled that the Revenue authorities cannot base its findings on suspicions, conjunctures or surmises nor should it act on no evidence at all or on vague considerations partly on evidence and partly on suspicion, conjunctures or surmises. The Revenue could not demonstrate any material except unsupported statements of two persons. Such unverified statements without any proof towards its assertions are not a good evidence and do not raise any estoppel against the assessee. Therefore, the addition made by the AO is in the realm of speculation without any basis whatsoever. Hence, we decline to interfere with the order of the CIT(A) in so far as appeal of the Revenue is concerned. 8.3 We shall now advert to the maintainability of addition of Rs. 14.10 Lakhs confirmed by the CIT(A) on the basis of statement of two purchasers. As emphatically noted above, the statement of two persons cannot be recognized to the prejudice of assessee in the absence of corroboration and/or cross examination thereof. The addition sustained on the basis of a bald admission of third party against the assessee has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght to have deleted the entire penalty levied u/s. 271AAA of the Act of Rs. 21,41,000/-." 10.2 Apart from CO noted above, the assessee has also filed cross appeal reiterating the grievance raised as per CO. The grounds of appeal raised by the assessee (in case of M/s. Savaliya Buildcon) in ITA No. 3188/Ahd/2015 read as under: I. LEVY OF PENALTY U/S. 271AAA OF THE ACT 1. The Ld. CIT(A) has erred in law and on facts in confirming the penalty levied u/s. 271AAA of the Act of Rs. 1,41,000/- out of total penalty levied by the Ld. A.O. of Rs. 21,41,000/-. 2. The Ld. CIT(A) has erred in law and on facts while not considering the fact that no penalty can be levied on the addition of Rs. 14,10,000/- on account of 'on-money' received from two members as the same is required to be telescoped against the disclosure of Rs. 2 Crores made by the appellant firm for the financial year 2010-11 relevant to A.Y. 2011-12." 11. The captioned appeals filed by the Revenue and the assessee against the order of the CIT(A) arises from the penalty order passed by the AO under s.271AAA of the Act concerning AY 2011-12. As noted above, the assessee has also filed cross objection against the appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the assessee vide order dated 23.01.2015 passed under s.271AAA of the Act. 13.2 Aggrieved, the assessee preferred appeal before the CIT(A). 13.3 On reappraisal of facts and circumstances of the case, the CIT(A) deleted penalty to the extent of Rs. 20Lakhs levied @ 10% in respect of disclosure made of Rs. 2 Crores in the statement under s.132(4) of the Act and in the return of income. The CIT(A) however confirmed the penalty @ 10% as per the provisions of Section 271AAA of the Act on remaining addition of Rs. 14,10,000/- upheld in the quantum proceedings by the first appellate authority. In the result, the CIT(A) deleted the penalty of Rs. 20 Lakhs and confirmed the remaining penalty of Rs. 1,41,000/- out of total penalty of Rs. 21,41,000/- imposed by the AO under s.271AAA of the Act. The relevant operative portion of the CIT(A)'s order is reproduced hereunder: "3.1 I have considered the facts of the case, order of the A.O., submissions of the appellant and statement of the partner Shri Sanjaybhai Savaliya and Shri Kantibhai Savaliya recorded u/s.132{4) of the Act on 07-1-2011 and letter of the appellant firm filed before ITO(Inv.) affirming the disclosure statement u/s. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipts/extra receipts from some (few) members of the scheme known as "Krish Residency" in its letter dated 06-04-2011 for which no records have been maintained and in the search proceedings, no incriminating material/records have been found. 3.4 It is further seen that on the basis of the statement of partner recorded u/s.132(4) of the Act, the appellant firm has offered the income of Rs. 2,00,00,000/- in the return of income of the current financial year 2010-11 relevant to A.Y. 2011-12 in its return of income filed on 30-092011 u/s.139 and even paid the tax thereon along with interest In the present case of appellant firm, the search took place on 06/07-01-2011 and therefore, for F.Y.2010-11 relevant to A.Y. 2011-12, date of filing the return of income was due on the date subsequent to the date of search. Hence, in the case of the appellant firm, the provisions of section 271AAA of the Act are applicable. 3.5 The facts of appellant firm's case have been examined in the light of provisions of section 271AAA(2) of the Act. The partner of the appellant firm has disclosed the undisclosed income while giving the statement u/s.132(4) of the Act during the course of search for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p of the disclosure of Rs. 25,00,00,000/- wherein he has bifurcated the disclosure made of. Rs. 2,00.00,000/- in respect of income earned by the appellant firm being accounted booking receipts/extra receipts from some (few) members of the scheme known as "Krish Residency", for which no incriminating material was found during the course of search proceedings. 3.6.1 Clause (ii) lays down the second condition that assessee should have substantiated the manner in which undisclosed income has been derived. In the present case of the appellant firm, after the partner of the appellant firm made the disclosure in his statement u/s. 132(4) of the Act for and on behalf of the appellant firm for an amount of Rs. 2,00,00,000/- for the F.Y.2010-11 relevant to A.Y.2011-12 being unaccounted booking receipts/extra receipts from some (few) members of the scheme known as Krish Residency" no further question was asked by the Authorized Officer of the search. When the appellant firm also filed its letter dated 06-042011 to the ITO (Inv.) Unit-1, Ahmedabad, confirming the disclosure made by the partner of the firm, for and on behalf of the appellant firm by stating the manner of earning the income, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expiry of time specified in s. 139 and also specifies in the statement the manner in which such income has been derived and pays the tax together with interest, if any, in respect of such income. The exception appears to be to provide an opportunity to the assessee to make a clean and fair confession and to surrender his income and also to deposit the tax and interest thereon which may result in an agreed assessment. The paramount intention appears to be that in the case of fair and clean confession and surrender of his income, during the course of search further litigation may be avoided and the Revenue may get the tax and interest, etc., at an earliest and the assessee may be saved from further litigation. Under s. 132(4), it is the authorised officer, who examines on oath any person, who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing, therefore, it is for the authorised officer to record the statement in his own way. Therefore, it is not expected from the person to state those things, which are not asked by the authorised officer. During the course of search person is so tortured, haras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner in which undisclosed income was earned. Clause (iii) lays down the third condition regarding the payment of tax alongwith interest on undisclosed income admitted in the course of search. It is an undisputed fact that the tax and interest has been paid by the appellant firm on the undisclosed income admitted in the course of search proceedings by disclosing in the return of income. 3.9 On the basis of the principles and ratio laid down by the Honorable jurisdictional High Court and by the Allahabad High Court cited supra and other courts have also given similar verdicts in cases such as (i) decision of Honorable ITAT in the case of DCIT vs. Smt. Sulochanadevi A. Agarwal, ITA No.1052/Ahd/2012, A.Y.2009-10, dated 20-07-2012,) (ii) ITO vs. Shilpa V. Gupta, ITA No.1784/Ahd/2012 & Co.179/Ahd/2012 A.Y.2009-10, dated 14-12-2012, (iii) Rajendra Prasad Dokania, ITA No. 525/Ahd/2012 dated 4-5-2012, (iv) DCIT, Central, Surat vs. Rivva Exports Ltd., (v) DCIT, Central, Surat vs. Shri Harikishan S. Virmani (ITA No.2718 & 2719/Ahd/2012) dated 7-6-2013, and in view of facts of case as mentioned above, it can be stated that all the three conditions laid down, in the provisions of section 271 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing penalty of Rs. 1,41,000/- on additions made and sustained by the CIT(A) on the basis of statement of two purchasers in the housing project of the assessee builder. The cross objection has also been filed on the same footing. 14.1 The learned AR for the assessee relied upon the order of the CIT(A) to the extent of relief granted by the first appellate authority and submitted in reiteration that in the search action under s.132 of the Act carried out in the premises of the assessee on 06.01.2011, no unaccounted money/asset/investment etc. were recovered. No reference in this regard has been made in the assessment order either. Likewise, no document or any inculpatory evidence has been referred in the quantum proceedings to lend credence to any alleged undisclosed income. The learned AR submitted that the sole basis of taxation of Rs. 2 Crores and consequent imposition of penalty thereon is the statement of the partner of the firm. It was submitted that except the stand alone oral evidence in the form of statement under s.132(4) of the Act, the Revenue has not brought out any material on record to establish the existence of any 'undisclosed income' which expression has been statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d AR accordingly submitted that the remaining penalty of Rs. 1,41,000/- or additions made solely based on unvouched statement requires to be deleted and consequently, appeal as well as cross objection of the assessee deserves to be allowed. 14.3 The learned DR for the Revenue, on the other hand, relied upon the order of the AO and submitted in furtherance that where the assessee himself has admitted existence of certain undisclosed income in the course of search and included the same as part of return, the consequences of penalty under s.271AAA of the Act cannot be escaped as wrongly adjudicated by CIT(A). It was further submitted that the AO has also rightly imposed penalty of Rs. 1,41,000/- on the excess undisclosed income found over and above income offered under s.132(4) of the Act. 15. We have carefully considered the rival submissions and perused the orders of the authorities below and material referred to and relied upon. 15.1 One of the significant plea raised on behalf of the assessee is that the income declared in the return of income arises out of regular stream of income from various sources and also ad hoc declaration combinedly made for group concern and included i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived; (ii ) substantiates the manner in which the undisclosed income was derived; and (iii ) pays the tax, together with interest, if any, in respect of the undisclosed income. (3) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1). (4) The provisions of sections 274 and 275 shall, so far as may be, apply in relation to the penalty referred to in this section. Explanation.-For the purposes of this section,- (a ) "undisclosed income" means- (i) any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132, which has- (A ) not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year; or (B ) other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' as defined under section 271AAA of the Act. As noted, no reference to underlying material is found in the orders of lower authorities. A simple disclosure made in the course of search under section 132(4) in itself cannot be deemed to be 'undisclosed income' in view of the limitations placed in the definition thereof. 9. Therefore we are of the considered view that in the absence of any incriminating material referred for the purposes of assessing alleged undisclosed income, the imposition of penalty under section 271AAA is without any legal foundation and thus not permissible. 10. In view of the aforesaid discussion, we do not consider it necessary to advert to the alternative plea of the assessee for imposition of penalty with reference to ad-hoc amount of declaration alone. 11. The order of the Assessing Officer towards imposition of penalty under section 271AAA is therefore set aside and the Assessing Officer is directed to delete the penalty so imposed. 12. In the result appeal of the assessee is allowed." 15.3 As noted above, the Co-ordinate Bench has dealt with identical issue and held that in the absence of any reference to tangible material, mere act of acquiesc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in aggregate to the assessee for purchase of residential flat in the housing project. 19.1 The penalty so imposed and confirmed by the CIT(A) is not sustainable under s.271AAA of the Act for two reasons; (i) the quantum addition of Rs. 14,10,000/- itself has been deleted by us in the preceding para no. 9 with reference to ITA No.401/Ahd/2014 (supra) and (ii) the additions were made on the basis of post search inquiries and do not relate to 'undisclosed income' as defined under s.271AAA of the Act. The quantum addition so made was not discovered or found per se in course of search under s.132 of the Act. The additions were made on the basis of post search inquiry. Such addition cannot be subject matter of Section 271AAA of the Act having regard to the narrower scope of definition of undisclosed income as provided therein. Therefore, we find merit in the plea of the assessee for deletion of penalty of Rs. 1,41,000/- under s.271AAA of the Act. The order of the CIT(A) is accordingly set aside to this extent and the AO is directed to delete the penalty. 19.2 In the result, the cross appeal of the assessee in ITA No.3188/Ahd/2015 and cross objection of the assessee in CO No. 14/Ahd/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee (in case of M/s. Savaliya Developers) in CO No. 118/Ahd/2014 read as under: "1. The Ld. CIT(A) has erred in law and on facts in confirming the addition of Rs. 8,55,000/- out of total addition of Rs. 3,68,42,425/- made on account of alleged on-money receipts by the Ld. A.O. The Ld. CIT(A) ought to have deleted the entire addition made by the Ld.A.O. 2. The Ld. CIT(A) has rightly held that extrapolation theory of on-money receipts cannot be made and has correctly deleted the addition made by the Ld.A.O. on account of extrapolation theory of on-money receipts." 21. The facts and issue concerning the addition made in the case of above referred assessee are identical group assessee - Savaliya Buildcon. Thus, without delineating on the issue again, the appeal of the assessee and cross objection of the assessee deserves to be allowed and appeal of the Revenue deserves to be dismissed in the light of our conclusion in ITA No. 401/Ahd/2014, 410/Ahd/2014 & CO No.117/Ahd/2014 in respect of other group concern of the same group. 22. In the light of the aforesaid discussion, the appeal of the Revenue in ITA No. 411/Ahd/2014 is dismissed and appeal of the assessee in ITA No. 40 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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