TMI Blog2014 (3) TMI 1213X X X X Extracts X X X X X X X X Extracts X X X X ..... THAN HIGH COURT] even if the provisions of s. 145(3) are invoked, in the present circumstances and facts of the case, no addition is called for. AO is not justified in making any addition on this account and addition confirmed by learned CIT(A) is directed to be deleted. Thus, ground No. 1 of the assessee is dismissed and ground No. 2 of the assessee is allowed. Undisclosed investment in the plot purchased in the name of partnership firm - Addition on account of sharing of assessee in total alleged on-money payment paid by firm for purchase of Plot in which the assessee was partner - HELD THAT:- We find that the Department has carried out search over the assessee and no incriminating document was found to show undisclosed investment by the assessee in the purchase of the plot in the name of partnership firm Kamakshi International. We find that the addition was made/sustained in the hands of this assessee merely on surmises, conjectures, probabilities and possibilities without bringing any positive evidence. As admitted fact that the plot was purchased in the name of partnership firm Kamakshi International who is a separate assessee of IT Act through the registered sale dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is appeal the assessee has raised the following grounds : (i) On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in confirming the rejection of books of account by invoking the provisions of s. 145(3) of IT Act, 1961. (ii) On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in confirmmg the trading addition of Rs. 1,27,69,601 by estimating (the NP rate of 8,25 per cent on the declared turnover as against the trading addition of Rs. 13,42,358 made by the AO by applying NP 8.5 per cent on total turnover of Rs. 10,41,88,767 after allowing deduction of depreciation and interest of Rs. 1,95,075. (iii) On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in confirming that there was suppression of investment of Rs. 6,11,16,770 in the land purchased by M/s Kamakshi International. (iv) On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in confirming the addition of Rs. 61,11,677 on substantive basis in the hands of the assessee as against addition of Rs. 62,06,000 made by AO in the hands of the assessee on protective basis and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8-09 to asst. yr. 2009-10 as the gross receipts declined. The learned CIT(A) confirmed the addition without appreciation the correct facts. ITA No. 882/Jp/2013 (asst yr. 2010-11) The Revenue has raised the following grounds : (i) On the facts and in the circumstances of the case, the learned CIT(A), Central, Jaipur, has erred in reducing the NP rate of 8 per cent without giving proper justification, as against NP rate of 8.5 per cent adopted by the AO for the defects in the maintenance of account mentioned in the assessment order. (ii) On the facts and in the circumstances of the case, the learned CIT(A), Central, Jaipur has erred in excluding the addition of Rs. 1,29,00,000 made under s. 69B and interest thereon Rs. 4,35,110 on account of alleged unaccounted/undisclosed investment from the hands of the assessee ignoring the fact that addition confirmed in her appellate order dt. 16th Aug., 2013 has already been challenged before the Hon'ble Tribunal, by the other assessee Shri Manish Tambi. 2. Now, we are taking the appeals of the assessee and the Revenue for the asst. yr. 2009-10 as under : 3.1 Ground Nos. 1 and 2 of assessee's appeal (ITA No. 867/Jp/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 63,457, he estimated the net profit from business of assessee at Rs. 86,60,970 (which comes to 8.31 per cent of turnover) as against Rs. 73,18,613 declared by the assessee resulting in addition of Rs. 13,42,358 in the returned income of the assessee. Aggrieved from the order of the AO, the assessee filed appeal before learned CIT(A). The learned CIT(A) has confirmed the trading addition of Rs. 12,76,960 as against the trading addition made by AO at Rs. 13,42,358 by estimating the NP rate 8.25 per cent as against estimated by AO at 8.5 per cent and declared by the assessee @ 7.02 per cent on total turnover of Rs. 10,41,88,767. However, she did not allow deduction of depreciation and interest of Rs. 1,95,075. 3.3 Aggrieved from the order of learned CIT(A), the assessee as well as Revenue both are in appeal before us on this issue. The assessee objected the order of learned CIT(A) on the addition sustained by her by raising ground Nos. 1 and 2 before us. The Revenue has also objected the addition reduced by learned CIT(A) vide ground No. 1 raised before us. 3.4 The learned Authorised Representative submitted before us that Department has carried out intensive search operation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is not maintaining stock register. However, even if stock record is not maintained, the books of account cannot be rejected on this ground alone. Reliance was placed on decision of Delhi High Court in the case of Commissioner Of Income Tax-Ix. v. M/S Jas Jack Elegance Exports. [2010] 324 ITR 95/191 Taxman 386 (Del.) and decision of Tribunal Jodhpur Bench, in the case of Haridas Parikh v. ITO [2009] 29 SOT 13 (Jodh.) (URO) and decision of Tribunal Hyderabad Bench, in the case of Vishal Infrastructure Ltd. v. Asstt. CIT [2007] 104 ITD 537/11 SOT 386 . As regards the wages register the learned Authorised Representative submitted that the contract work is is being carried out through labour contractors or causal labours directly hired by the assessee. The payment to labour contractors is verifiable and payment was made after deducting TDS thereon. The assessee is maintaining labour register for labour directly hired by the assessee. The wages register was produced before the AO for examination during the course of assessment. As regards the estimation of the profit, the learned Authorised Representative submitted that the estimation of net profit is at very higher side. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P) Ltd. v. ITO ITA No. 152/Jp/2007, order dt. 30th May, 2008 stating that this assessee is engaged in civil construction. The Tribunal, Jaipur Bench, has accepted NP rate of 4.04 per cent in asst. yr. 2003-04 and 4.15 per cent in asst. yr. 2004-05. The learned Authorised Representative prayed that the additions of Rs. 12,76,960 confirmed by learned CIT(A) by estimating the profit of assessee and rejecting the books of account of the assessee were patently wrong and deserves to be deleted. 3.5 On the other hand, the learned Departmental Representative relied upon the findings given by AO. The learned Departmental Representative submitted that the learned CIT(A) estimated profit by applying NP rate of 5.25 per cent of contract receipts as against 8.50 per cent applied by the AO. The defects pointed out by the learned AO in the books of account are major defects and on the basis of defective books of account, true profit cannot be calculated. The learned Departmental Representative submitted that the profit estimated by AO is reasonable and the addition made in the order of AO should be sustained. 3.6 We have heard the rival contentions and perused the facts of the case and ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firmed by learned CIT(A) is directed to be deleted. Thus, ground No. 1 of the assessee is dismissed and ground No. 2 of the assessee is allowed. This also covers ground No. 1 of the appeal of the Revenue (ITA No. 88I/Jp/2013), which is dismissed in view of the detailed findings made as above. 4.1 Ground Nos. 3 to 5 in appeal filed by the assessee relate to confirmation of the addition of Rs. 61,11,677 on account of sharing of assessee in total alleged on-money payment of Rs. 6,11,16,770 paid by firm M/s Kamakshi International for purchase of Plot No. D-81, Ghiya Marg, Bani Park, Jaipur, in which the assessee was partner during the year under consideration. 4.2 Briefly staled, the facts of the case are that the assessee was a partner in the firm M/s Kamakshi International, Jaipur. During the year under consideration the above mentioned firm has purchased a Plot No. D-81, Ghiya Marg, Bani Park, Jaipur, measuring 1,058 sq. yards from M/s Om Builders Colonizers (P) Ltd. for a consideration of Rs. 1.20 crore vide registered agreement dt. 25th Feb. 2009. The AO opined that the market value of plot Nos. D-112A and D-112B which are in same locality and vicinity is Rs. 70,000 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipur, for a, sum of Rs. 1,20,00,000 on 25th Feb., 2009 which was supported by registered purchase deed and the same is duly reflected in books of account of firm and no on-money was paid for the purchase of this property. During the course of assessment proceedings the assessee requested that in case of any doubt the verification of fact can be made from seller of the plot but no verification was made by the AO. In the assessment order the AO has held that in reply to the show cause notice on the above issue the assessee did not offer any plausible explanation while during the course of assessment proceedings the assessee submitted the detailed reply (copy at paper book pp. 63-69) and no contra - material was brought on the record by the AO to disprove the reply of the assessee. The learned Authorised Representative submitted that the AO compared the purchases value of plot No. D-81 from value of plot Nos. D-112A and D-112B but both the properties are at different locations, different uses and the transactions were also carried out in different period. The plot No. D-18 is a residential plot situated on internal small road, while the plot Nos. D-112A and D-112B are commercial plot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her partners and books of account were also maintained and kept by such other partners. Further, the firm is separate income-tax assessee and whatever income earned either disclosed or undisclosed the same is assessable in the hands of the firm. The same cannot be taxed in the hands of the partner. Further, the assessee made only contribution of Rs. 60,000 only and balance amount of disclosed investment in property of Rs. 1,20,00,000 was contributed/managed by other partners of the assessee. Therefore, the disclosed investment in the property was not in profit-sharing ratio of the partners: therefore, it cannot be presumed that the alleged undisclosed investment will be in profit-sharing ratio of the partners. The learned Authorised Representative further submitted that the Department has carried out search over the assessee and no any incriminating document was found from the possession of the assessee to show undisclosed investment by the assessee in purchase of the impugned plot by the partnership firm. The learned Authorised Representative submitted that the learned CIT(A) sustained the addition in the hands of the assessee on the ground that the firm has no source of income. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to prove the investment. The AO has not brought any positive material to show that the assessee has made undisclosed investment in the plot purchased in the name of partnership firm. Hon'ble Delhi High Court in the recent case CIT v. Dinesh Jain (HUF) [2013] 352 ITR 629/[2012] 211 Taxman 23/25 taxmann.com 550(Del.) has made following finding : '11. Sec. 69B does not permit an inference to be drawn from the circumstances surrounding the transaction that the purchaser of the property must have paid more than what was actually recorded in his books of account for the simple reason that such an inference could be very subjective and could involve the dangerous consequence of a notional or fictional income being brought to tax contrary to the strict provisions of Art. 265 of the Constitution of India and Entry 82 in List I of the Seventh Schedule thereto which deals with 'taxes on income other than agricultural income'. This was one of the major considerations that weighed with the Supreme Court in K.P. Varghese (supra) in which case the provisions of sub-s. (2) of s. 52 fell for interpretation. It was observed that Parliament cannot choose to tax as income an it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the findings arrived at by us that the AO did not gather foundational facts to point to under-valuation the adoption of the norms under the WT Act is not commented upon by us. 13. The error committed by the IT authorities in the present case is to jump the first step in the process of applying s. 69B that of proving understatement of the investment, and apply the measure of understatement. If anything, the language employed in s. 69B is in stricter terms than the erstwhile s. 52(2). It does not even authorise the adoption of any yardstick to measure the precise extent of understatement. There can therefore be no compromise in the application of the section. It would seem to require the AO even to show the exact extent of understatement of the investment; it does not even give the AO the option of applying any reasonable yardstick to measure the precise extent of understatement of the investment once the fact of understatement is proved. It appears to us that the AO is not only required to prove understatement of the purchase price, but also to show the precise extent of the understatement. There is no authority given by the section to adopt some reasonable yardstick to measure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. The AO is not justified in making the addition on this account and addition confirmed by learned CIT(A) is directed to be deleted? Thus, ground Nos. 3 to 5 of the assessee are allowed.' 5. Ground No. 6 of the assessee is general in nature and therefore does not require any adjudication. Appeal filed by Revenue for asst. yr. 2009-10 (ITA No. 881/Jp/2013) 6.1 Ground No. 1 of the appeal filed by the Revenue is against the reduction of the trading addition by Rs. 65,398. We have decided this ground vide ground Nos. 1 and 2 of the assessee's appeal. In view of our detailed findings in assessee's appeal ITA No. 867/Jp/2013 vide ground Nos. 1 and 2, we dismiss this ground of appeal of the Revenue. 7.1 Ground No. 2 of the appeal filed by the Revenue is for deletion of the addition of Rs, 66,50,000 made under s. 69B and interest thereon Rs. 7,090 on account of alleged unaccounted/undisclosed investment from the hands of the assessee. Briefly stated, the brief facts of the case are that the AO held that during the course of search over Shri Manish Tambi, a finance broker, some documents marked as Annexs. A-1 to A-4 were seized and the seized documents were an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Departmental Representative submitted that the documents were found from the possession of Manish Tambi reveals that the assessee has made undisclosed loans through Shri Manish Tambi. The learned Departmental Representative submitted that the copy of documents as required by this assessee was given through the remand report submitted by the AO to learned CIT(A). The learned Departmental Representative justified the addition made by the AO on this account. 7.4 On the other hand, learned Authorised Representative submitted that first of all this is to be submitted that copies of documents seized from the possession of Shri Manish Tambi on which the entire addition was based were not provided to the assessee for which the assessee has made repeated requests. Even opportunity to check the arithmetic accuracy of assessee's ledger was not given to the assessee. Further, the assessment order is completely silent about the persons who took loan from the assessee through Shri Manish Tambi. It appears that no inquiry was made from these persons. Further, it is prevailing practice of market that Hundi/receipt is written by the persons who take loans and these hundies/receipts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lige. Against the order of RTI, the assessee filed appeal (copy at paper book pp. 80-81) but the same was also rejected for the same reasons as stated above by the appellate authority (paper book pp. 84-88). From the above it is clear that the assessee though again and again made request to the Department to provide the supporting documents/material in support of addition to be made/made in the hands of the assessee but the same was never provided to the assessee. The learned Authorised Representative submitted that all the inquiries or materials if any were gathered behind the back of the assessee, therefore, the same cannot be used against the assessee. If the AO proposes to act on such material as he might have gathered as a result of his private enquiries behind the back of the assessee, he must disclose the substance of all such material, though not the sources thereof [Dal Chand Sons v. CIT [1944] 12 ITR 458 (Lahore) ] to the assessee and if this is not done, the principles of natural justice stand violated Kishinchand Chellaram v. CIT [1980] 125 ITR 713/4 Taxman 29 (SC) ; Addl. ITO v. Ponkunnam Traders [1976] 102 ITR 366 (Ker.) ; International Forest Co. v. Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t oblique motive. Thereby, the CBI averred that the above persons (the respondents in the appeals) committed offences under s. 120B IPC and s. 13(2) r/w ss. 13(l)(d), 7 and 12 of the Prevention of Corruption Act, 1988. The CBI based its case on the entries made in the diaries and papers seized during search and in the context the issues relating to the interpretation of s. 34 of the Evidence Act and meaning of terms 'book', books of account and 'regularly kept' came in for the consideration of the Courts, including the Apex Court. The assessee has not given any cash loan or cash deposit to any party through Shri Manish Tambi. The learned AO has examined the books of account of the assessee and no nexus of assessee with Shri Manish Tambi was established. The learned AO at p. 5 of order mentioned that the Department has seized A-1 to A-4 from the office/residence of Shri Manish Tambi, which is list of clientele wherein name of assessee is also appearing but the fact remains that the AO has not correlated any entry from the books of account of the assessee with the seized records of Shri Manish Tambi. The learned Authorised Representative further submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion was made in the hands of the assessee were genuine and true For making the addition in the hands of the assessee on the basis of documents found and seized from the possession of Shri Manish Tambi, the learned AO had made several presumptions and assumptions and certain contra findings which are not based on corroborative evidence/documents which are as under : (i) In the assessment order the learned AO mentioned that 'Shri Manish Tambi neither during the course of search nor during assessment proceedings disclosed the name/identity of the persons/concerns/partners from whom money was received to be invested in the market or given to them when they needed it. The learned AO himself has mentioned in the order that Shri Manish Tambi (the persons in possession of which these documents were seized) did not disclose the name and identity of the assessee then on presumption and assumption, the AO held that the name appearing in the seized documents of Shri Manish Tamabi is same person who is being assessed by him. (ii) The learned AO mentioned in the assessment order that some of such names as appearing in these documents are that of Shri Vishnu Maharwal, Smt. Aruna S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the seized documents/papers pertained to the assessee and on the other side while disposing the application under RTI, the learned AO has held that the information is personal information of third party so the same cannot be given to the assessee. It is well-settled position of law that if any undisclosed income is presumed on the basis of documents seized from the possession of Shri Manish Tambi the same presumption should be taken in the hands of Sri Manish Tambi and not in the hands of the assessee because (the documents were found and seized from the possession of Shri Manish Tambi. If he did not disclose the name and identity of transacting party the Department have no material/evidence to presume that the entries recorded in the name similar to the name of the assessee belonged to the assessee and last but not the least the Department and Shri Manish Tambi both had admitted that the documents are personal documents of said Shri Manish Tambi. The AO however provided the copies of the seized documents (paper book pp. 120-140) and casting of assessee's ledger account on the basis of documents seized from the possession of Shri Manish Tambi (paper book pp. 118 to 119). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17.4.2009 Cash 300 01.5.2009 Cash 800 01.5.2009 Cash 800 05.05.2009 Cash 1,000 11.5.2009 Cash 2,000 12.5.2009 Cash 1,000 13.5.2009 Cash 1,000 18.5.2009 Cash 3,500 19.05.2009 Cash 3,800 25.5.2009 Cash 1,500 25.5.2009 Cash 1,500 25.5.2009 Cash 1,950 15.6.2009 Cash 50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used against the assessee without providing opportunity of confrontation to the assessee. If the AO proposes to act on such material as he might have gathered as a result of his private enquiries behind the back of the assessee, he must disclose the substance of all such material to the assessee and if this is not done, the principles of natural justice stand violated. The AO has submitted the remand report vide letter dt. 20th Dec, 2012 to learned CIT(A) Central, Jaipur, copy placed at assessee's paper book at p. 111-140. Copy of note sheet dt. 23rd Dec, 2011 (copy at paper book 114) was attached with the remand report. As per the Note Sheet entry dt. 23rd Dec, 2011, the AO sought explanation for undisclosed investment with Shri Manish Tambi (finance broker) for Rs. 1,29,00,000 for asst. yr. 2010-11 and Rs. 66,50,000 for asst. yr. 2009-10 and for interest income Rs. 7,090 for asst. yr. 2009-10 and Rs. 4,35,100 for asst. yr. 2010-11. The AO asked the learned Authorised Representative of assessee to file explanation on or before 26th Dec, 2011. as per the entry dt. 26th Dec, 2011 on the said note sheet the learned Authorised Representative of the assessee attended and filed rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee until and unless the opportunity of effective confrontation was not given. Here in the case of the assessee the copy of seized documents from the possession of Shri Mansih Tambi was not provided to the assessee, therefore, the same cannot be used against the assessee. Further, the Department has carried out intensive search over the assessee and no any material was found in corroboration to the material seized from the possession of Shri Manish Tambi. The AO has also not established any nexus of the entry in the books of account of the assessee with the impugned seized document from the possession of Shri Manish Tambi. The AO has prepared ledger account in the name of assessee, copy of which was enclosed with the aforesaid remand report, (copy placed at paper book p. 118). We find lots of discrepancies in the ledger account casted by the AO in the name of assessee from the seized records of Shri Manish Tarnbi, While preparing the ledger account in the name of the assessee from the seized documents found from the possession of Shri Manish Tambi, the AO has added 000 to the absolute figure mentioned in the seized document and in some cases the figure was taken without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... findings we uphold the rejection of the books of account here also for asst. yr. 2010-11, Thus, the ground No. 1 of the assessee's appeal is dismissed. 9.3 As regards the estimation of the profit, the facts are that in search the assessee has surrendered Rs. 30,00.000 on account of cash found by the search party and for other items stating that the same are represented by the suppressed business profit from the contract business. The assessee has declared contract receipts of Rs. 8,42,75,256 and as per books of account the net profit of Rs. 41,06,363 was declared. The assessee has increased this profit by Rs. 30,00,000 on account of surrender of suppressed business profit represented by cash found by the search party and other items, Thus, the assessee declared net profit of Rs. 71,06,363 from the contract business which gives the NP rate of 8.43 per cent of contract receipts. The AO after rejecting the books of account applied NP rate of 8.5 per cent on total turnover of business of the assessee by holding that other assessee carrying out similar business activities had declared similar net profit rate. The AO estimated the net profit of the assessee at Rs. 71,63,397 being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Bhawan V. Path Nirman (Bohra) Co. (supra) the past history of the assessee is best guiding factor. In the present case the assessee declared better results than the preceding years and therefore in view of the decision of Hon'ble jurisdictional High Court in the case of Gotan Lime Khaniz Udhyog (supra), even if the provisions of s. 145(3) are invoked, in the present circumstances and facts of the case, no addition is called for. The AO is not justified in making any addition on this account and addition confirmed by learned CIT(A) is directed to be deleted. Thus, ground Nos. 2 and 3 of the assessee are allowed. This also covers ground No 1 of the appeal of the Revenue (ITA No. 8S2/Jp/2013), which is dismissed in view of the detailed findings made as above. 10. Ground No. 4 of the assessee is general in nature and therefore does not require any adjudication. Revenue's appeal for asst. yr. 2010-11 (ITA No. 882/Jp/2013) 11.1 Ground No. 1 of the appeal filed by the Revenue is against the reduction of the, trading addition by applying NP rate at 8 per cent as against 8.5 per cent applied by the AO. We have decided this ground under the ground Nos. 2 to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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