TMI Blog2014 (8) TMI 1228X X X X Extracts X X X X X X X X Extracts X X X X ..... the contracts executed by the assessee for Ashok Kumar Chowta. In fact as we have already seen the assessee had affixed his signature in the seized diary only for the reason that the payments for contract work executed by the assessee would be realized by Ashok Kumar Chowta only if such signature is made by the assessee. This will be clear from answer by the assessee to question 27 in the statement recorded at the time of survey. Revenue has failed to bring in material on record to corroborate its conclusion that the entries found in the seized diary are unaccounted contract receipts of the assessee and therefore the profit element in executing such receipts has to be brought to tax. There was no basis for the CIT (A) to have come to a conclusion that 1.5% of the receipts as evidenced in the seized diary should be brought to tax in the hands of the assessee. We, therefore, uphold the order of the CIT (A) deleting the addition of 8% of the receipts as found in the seized diary, however hold that the action of the CIT (A) in bringing to tax 1.5% of the cash receipts recorded in the seized diary was without any basis. There was no statement admitting any other income and the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he survey had examined the assessee and on such examination the assessee offered to tax income, but did not file return of income as agreed. In such circumstances, the Assessing Officer entertained the belief regarding escapement of income and therefore it cannot be said that the reopening was not valid. Similarly, the CBDT Instruction dt 10.03.2003 is only a direction not to take confession and it cannot be said that a reopening cannot be made on the basis of statement made at the time of search or survey. We are therefore unable to agree with the grounds raised by the assessee that reopening of assessment proceedings for A. Ys.2004-05 to 2008-09 was not proper. - ITA Nos. 829 & 830/Bang/2012 and 849 to 854/Bang/2012 And CO Nos. 23/Bang/2013 (in ITA No. 849/B/12) and 24 to 26/Bang/2013 (in ITA Nos. 852 to 854/B/12) - - - Dated:- 14-8-2014 - Shri N.V. Vasudevan, Judicial Member And Shri Rajendra, Accountant Member For the Assessee : Shri. K.K. Chaitanya, Advocate. For the Revenue : Shri. Bijoy Kumar Panda, Addl. CIT. ORDER Per Bench : ITA 849/12 is an appeal by the revenue and CO 23/13 is a cross objection filed by the assessee relating to A.Y. 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat for the project done for Ashokumar Chowta there was no written agreement but a quotation had been given on the basis of which, based on completion of work, the Assessee would receive payment from Ashokumar Chowta. Question No.13 to 18 and answers thereto has a bearing on issue to be decided in the appeal and the same is being reproduced: Q.No.13: Please explain the nature of contract work carried out for Shri Ashok Kumar Chowta was it only job-work contract or were you to procure the materials and construct the building? Ans: As per the understanding between me and Sri.Chowta, I was required to do the civil construction work on job work basis, but there was no written agreement between us to this effect. So far past two project the materials were also purchased by me and the contract work was completed by me only. Sri.Chowta made the entire payments to me only and I in turn made payments to the material suppliers. This method was followed since Sri.Chowta did not have sales tax registration at that time. However, for the other project cement steel were purchased and supplied by Sri.Ashiok Kumar Chowta. These purchases were made in his own name. But purchase of mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les, required for centering work, centering sheets, suppliers laterite stone etc. Q.No.17: Please furnish the names and address of the persons to whom such payments for supply of centering materials, laterite stone etc., is made by Sri.Ashok Kumar Chowta? Ans: I do not known the name address of the suppliers. Q.No.18: According to you what benefit arises to Shri.Chowta in booking the above cash payments in your name and by not booking such payments in the names of the actual suppliers of the materials? Ans: The reason for booking the above cash payments to the suppliers of such materials against my name is that the quotation submitted by me to Sri.Chowta for the contract works is including the cost of all materials and labour charges, but excluding the cost of steel. As per the oral agreement between me and Sri.Ashok Kumar Chowta, he is required to supply steel and I am required to procure all other materials including cement, laterite stone, blue metal, centering sheet, sand etc., and construct the building. This is the reason for Sri.Chowta booking the payments made to the suppliers of above materials against my name in his books of accounts. 5. The Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chowta as per the seized materials, I will offer the difference in income for taxation for the relevant Asst. years, pay the taxes and file my returns of income. 5. On 11.05.2009 the ADIT (Inv.), Mangalore recorded another statement of the Assessee u/s.131 of the Act. Q.No.2 3 and answers thereto are important and the same are reproduced as under: Q.2: Please call back to your memory to the statement recorded u/s 131 of the I. T. Act on 21.4.2009 during the course of the survey u/s 133A in your business premises. In your above statement, you had stated that you will cooperate with the department and furnish any information that is required in connection with your I. T.Assessment. You had also stated that if there is any difference in the income that you already offered for assessment and that is actually received including the cash receipts from Sri Ashok Kumar Chowta. Please tell me how much cash you had actually received from Sri Ashok Kumar Chowta during the relevant previous years. Ans: I have verified the returns of income filed by me for the earlier Asst. years and compared it with the regular books of accounts I maintained for the relevant accounting periods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k Kumar Chowta also shows that you have purchased certain residential and commercial premises from him and that you have paid a part of the consideration to him in cash. On verification of your Balance Sheet, it is seen that the above cash payments are not included in the cost of the above assets disclosed in your balance Sheet and that the cost of those assets are accounted at the value for which payments are made in cheque. The above facts indicate that you have incurred expenditure outside books for acquisition of assets. Hence, the answer given by you to question No,8 does not appear to be correct. What is your comment? Ans. : The cash payments to Sri. Chowta for purchase of residential premises and commercial premises from him is adjusted against the contract amounts due to me. I have not physically paid any cash to Sri. Ashok Kumar Chowta for the acquisition of the assets mentioned above. Considering all the above facts and circumstances and also with the sole intention of purchasing peace with the department and to avoid protracted legal proceedings, I offer taxable income at 8% of the Gross Contract receipts including the contract receipts in cheque and cash mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash receipts not so accounted, as admitted in the statement recorded at the time of survey, for the various assessment years are as follows:- A.Y Gross receipts not included (Rs.) 2004-05 17,80,000 2005-06 1,27,35,005 2006-07 28,05,000 2007-08 60,26,250 2008-09 27,00,000 Total 2,66,21,255 8. On the aforesaid gross receipts not included in the books of account, the assessee agreed to offer 8% additional contract receipts as income for the various assessment years. As stated in the statement recorded the assessee did not in file return of income offering additional income. 9. The AO therefore issued notice u/s. 148 of the Act on 26.3.2010 for assessment years 2004-05 to 2008-09. For the A.Y. 2009-10, notice u/s. 143(2) was issued because for the said assessment year, assessment was not completed u/s. 143(3) of the Act by then. In response to the said notices u/s.148 of the Act, the Assessee filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referring to the assessee s statements at the time of Survey and before the ADIT which according to the AO was a voluntary and categorical declaration of additional income on the amount received in cash from Sri. Ashok Kumar Chowta. According to the AO the reasons formed by the department on the basis of the voluntary deposition (declaration of additional income) made by the assessee in the statement recorded is in order. The AO thereafter referred to decision of The Hon ble Supreme Court in the case of Raymond Woollen Mills Ltd Vs. Income tax Officer 236 ITR 34 wherein it was held that at the time of judging the validity of initiation of reassessment what is required to be seen is as to whether there was prima fade some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at that stage. The AO also relied on the decision of Hon ble Supreme Court in the case of Central Provinces Manganese Ore Co. Limited. Vs. Income tax Officer 191 ITR 662 wherein it was held that findings rendered by the Customs Authorities that the assessee had under-invoiced the goods it exported may not be conclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diary do not represent Assessee s income and the fact that the above amounts were received in cash towards purchase of materials like sand, laterite stone, bricks, jelly, Hollow blocks etc. which Chowta gave to the Assessee for purchase of material for the construction of his projects. The Assessee also pointed out that the statement regarding offering income from the aforesaid receipts was only to purchase peace with the department and this fact is clearly recorded in the answer to question no.3 of the statement recorded on 11.5.2009. In other words, the Assessee pointed out that the above answers given by the Assessee clearly show that the cash payments as recorded by the Sri Ashok Kumar Chowta is not the turnover of Sri Dinakar Suvarna but utilized by Sri Ashok Kumar Chowta for purchase of materials directly which is the expenditure of Sri Ashok Kumar Chowta and not of Sri Dinakar Suvarna. 15. Attention of the AO was also drawn to Question No.4 and Answer thereto of the statement recorded on 11.5.2009 which according to the Assessee made it clear that the cash payments recorded are towards materials purchased by Sri Ashok Kumar Chowta and Sri Dinakar Suvarna has nothing to do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The affidavit is silent with regard to the statement given on 29.4.2009 by Ashok Kumar Chowta referred to above. 17. The AO, however, was of the view that the seized document clearly evidenced receipt of cash which has been duly acknowledged by the Assessee by affixing his signature. The AO also referred to the admission of the assessee in the statement recorded at the time of survey especially in Q.No.9 11, which we have already set out in the earlier paragraphs of this order. With regard to the affidavit of Mr.Ashok Kumar Chowta affirming the stand taken by the assessee that the sums reflected in the seized diary were in fact sums which Ashok Kumar Chowta had given to the assessee for purchase of materials and did not represent any payments made for carrying out contract work resulting in any income to the assessee, the AO did not believe this affidavit for the reasons that Ashok Kumar Chowta could not produce any bills and vouchers in support of his claim made in the affidavit. The AO came to the conclusion that the statement together with the entries in the seized record are sufficient to make the addition of income in the hands of the assessee. Accordingly, 8% of the und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs, the CIT(A) upheld the validity of initiation of reassessment proceedings. With regard to the merits of the addition made by the AO, the CIT(A) referred to the statement of the Assessee recorded at the time of Survey and by the ADIT (Inv.), Mangalore, thereafter and was of the view that the Assessee has throughout maintained a stance that he has received cash from Ashok Kumar Chowta for the various work that he has done through him and for the purchases of materials etc. and the cash payments received by the Assessee are not his turnover but were for the purchase of materials. Directly, it is the expenditure of Ashok Kumar Chowta and not the Assessee. The non-availability of the bills evidencing purchases according to CIT(A) was not fatal because the purchases were from unorganized sector for materials like sand, bricks, Blue metal, laterite stones etc., and such a practice prevails in the in the nature of this business. The CIT(A) however was of the view that in the course of the statements recorded, the Assessee had stated that there are certain other income that were also received by him which are small and negligible but they are there. He also found that the diary seized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, there was no one to explain the entries. The CIT(A) also found from the records that the amounts in the diary and entries therein have not been used in the assessment of Sri Ashok Chowta therefore, it would be travesty of justice that the books which originally belong to Ashok Chowta which has not been used in his assessment proceedings could be used in the proceedings of a third party i.e. the Assessee. The addition made by the AO for AY 07-08 were therefore deleted by the CIT(A). 21. Aggrieved by the relief allowed by the CIT(A) the Revenue has filed appeals before the Tribunal. Aggrieved by the order of CIT(A) upholding the validity of initiation of reassessment proceedings and also sustaining addition made by the AO on account of unaccounted contract receipts at 1.5% of the cash transactions recorded in the seized dirary, the Assessee has preferred corss- objection as well as appeals for AY 2005 -06 and 2006-07 in ITA No.829 830/Bang/2012. 22. We have heard the submissions of the learned counsel for the Assessee and the learned DR. The ld. DR submitted as follows: 1. As regards re-opening of assessments U/s. 147 The Learned DR submitted that a search ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DR submitted before us that the addition on account of unaccounted contract receipts was made basing on the admission made by the assessee during the statement recorded u/s. 131 on 11.5.2009. In this regard our attention was drawn to the statement of the Assessee wherein in reply to q.no 2 and 9 the Assessee has clearly stated that the cash received from Sri Ashok Kumar Chowta as per seized material no. A/AKC/8, A/AKC/9, A/AKC/12 and A/AKC/14 are not recorded in the books of accounts. Accordingly he has offered to file revised return of income. This admission of additional income has once again confirmed in reply to q.no.11 in a statement recorded on 11.5.2009 wherein he stated that he has fully cooperated with the department in survey proceedings and voluntarily come forward to offer additional income. The learned DR relied on the decision of the Hon ble Allahabad High court, in the case of Dr. S.C. Guptha Vs. CIT, 248 ITR 782, wherein it was held that a statement made voluntarily by the assessee could form the basis of assessment. The mere fact that the assessee retracted from the statement could not make the statement unacceptable. Our attention was also brought to the fact that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 2008-09. According to the learned counsel for the assessee, reopening of assessment on the basis of search and survey report and impounded materials is not valid. In this regard, he placed reliance on the decision of the Hon'ble Supreme Court in the case of CIT v. Kelvinator of India Ltd., (2010) (320 ITR 561) (SC) wherein the Hon'ble Supreme Court has emphasized the requirement of existence of reason to believe income chargeable to tax escaped assessment as the condition precedent for reopening of assessment u/s.147 of the Act. Further reference was made to the decision of the ITAT, Chennai in Smt. R. Rajeshwari v. ITO (172 Taxmann 40) (Chennai-ITAT (Mag). In the aforesaid decision the Chennai bench of the ITAT took the view that material gathered during search action u/s.132 can be used only for the purpose of assessment u/s.158BC of the Act. Further reference was also made to the decision of the Hon'ble Punjab Haryana High Court in the case of CIT v. Smt. Paramjit Kaur (311 ITR 68) (P H), wherein the Hon'ble Punjab Haryana High Court held that initiation of reassessment proceedings on the basis of information received from the Survey Circle regarding un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wta have not been accounted, the same will be accounted and revised return filed. Our attention was also drawn to the fact that in answer to question no.9 in the statement recorded on 11.05.2009 the offer of income arising out of the seized diary was only with the sole intention of purchasing peace with the department and to avoid protracted legal proceedings. In the light of the fact that all contract receipts have been duly accounted by the assessee and in view of the fact that the cash payments recorded in the seized diary were in relation to the purchases made by the assessee on behalf chowta, the offer made at the time of survey and in the later statement turned out to be erroneous and therefore no income was offered to tax by the assessee. Reliance was also placed on the fact that in the absence of the entries in the seized diary was not used for making assessment in the hands of Ashok Kumar Chowta. Besides the above, reference has been made to several decisions in the written note filed by the assessee, though those decisions were not cited before us at the time of arguments. With regard to the action of the CIT (A) in restricting the addition made by the Assessing Officer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be sustained ? and (iv) Whether action of the CIT(A) in deleting the addition on account of unexplained investment in properties for A. Y. 2007-08 made by the AO was proper? 28. We have given a very careful consideration to the rival submissions. To appreciate the rival contentions, we need to look at the sequence of events that took place in the case of the assessee. The first event that took place was the search in the case of Ashok Kumar Chowta at Mangalore on 13.02.2009. In the course of search incriminating documents marked as A-AKC/8, A-AKC/9, A-AKC/12 and A-AKC/14 were seized. The Assessing Officer by way of illustration has given a copy of the seized diary and the same is as under : 29. It can be seen from the aforesaid diary which was found in the course of search cheque as well as cash payments have been recorded date-wise and those payments have been signed by the assessee. In fact this factual position is not denied by the assessee. 30. The Revenue carried out a survey u/s.133A of the Act in the business premises of the assessee on 21.04.2009. In the course of survey, statement of the assessee was recorded. As we have seen in the earlier part of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in my income tax returns. In this connection, I assure that if the turnover disclosed by me in my income tax returns is less than the payments received from Sri.Ashok Kumar Chowta as per the seized materials, I will offer the difference in income for taxation for the relevant Asst. years, pay the taxes and file my returns of income. 32. On 11.05.2009, the ADIT (Inv), Mangalore again recorded the statement of the assessee u/s.131 of the Act. Even prior to this statement being recorded, on 29.04.2009, the ADIT(Inv.)Mangalore, recorded a statement of Ashok Kumar Chowta. Question no.5 in the statement recorded was with regard to whether cash payments made to the assessee were for the purpose of civil contract work or for purchase of materials required for construction work. Chowta in his statement has said that the cash payments to the assessee were made for the contract work done by the assessee for construction of the building. In the statement recorded on 11.05.2009 of the assessee, this answer given by Ashok Kumar Chowta in his statement recorded on 29.04.2009 has not been confronted to the assessee. In our opinion, this is a major lapse on the part of the Revenue. A statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that cash payments recorded in the seized diary were cash payments made to the assessee for the purpose of procuring materials for Chowta and not for any other purpose and that those payments have nothing to do with any contract work executed by the assessee for Chowta. This being the position, it was incumbent on the part of the Assessing Officer to confront the statement of Chowta recorded on 29.04.2009 and afford an opportunity of cross examination of Chowta by the assessee. This was not done by the Assessing Officer. In these circumstances, we are of the view that the Revenue cannot seek to place reliance on the statement of Chowta recorded on 29.04.2009 and in particular, the answer given to question no.5 which we have already extracted in the earlier part of this order. 36. The other aspect which needs to be considered is the question as to whether in the hands of Chowta the seized diary was used to make assessment of income. On this aspect the learned DR filed before us a letter dt 06.03.2009 by Ashok Kumar Chowta to the ADIT (Investigation Wing), Bangalore, in which Chowta has made a reference to the search u/s.132 of the Act, on 13.02.2009 and a declaration given by h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to do with the contract receipts of the assessee. In other words, cash payments were only payments made to the assessee for procuring materials for Ashok Kumar Chowta and it has nothing to do with the contracts executed by the assessee for Ashok Kumar Chowta. In fact as we have already seen the assessee had affixed his signature in the seized diary only for the reason that the payments for contract work executed by the assessee would be realized by Ashok Kumar Chowta only if such signature is made by the assessee. This will be clear from answer by the assessee to question 27 in the statement recorded at the time of survey. Taking into consideration all the facts and circumstances, we are of the view that the Revenue has failed to bring in material on record to corroborate its conclusion that the entries found in the seized diary are unaccounted contract receipts of the assessee and therefore the profit element in executing such receipts has to be brought to tax. 39. In our view, there was no basis for the CIT (A) to have come to a conclusion that 1.5% of the receipts as evidenced in the seized diary should be brought to tax in the hands of the assessee. We, therefore, uphold t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The entries in the seized diary only corroborate the fact that there were cash payments in acquiring the aforesaid properties. The fact that Soumya Shetty was not available to explain the entries, in our view, will not be material. The fact that the assessee made cash payments for acquiring these properties having been admitted it was incumbent upon the assessee to explain the source of funds for making the aforesaid cash payments. In our view, the assessee has not given any valid explanation in this regard. This admission by the assessee remains uncontroverted through out. We are, therefore, of the view that the addition to this extent deserves to be sustained. Accordingly, the grounds of appeal raised by the Revenue in this regard for A. Y. 2007- 08 in ITA.852/Bang/2013 is allowed. We may also add that these cash receipts found recorded in the seized diary have nothing to do with the other cash payments made by Chowta to the assessee which are recorded in the seized diary. 42. As far as the validity of the reassessment proceedings are concerned, we are of the view that the same is in order and the objections raised by the assessee in this regard are without any merits. (i) ..... 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