TMI Blog1992 (11) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... n that there was a raid at the premises of the assessee and in the course of the raid a table diary maintained by one Shri R.T. Sharma, and a file, were seized. Shri R.T. Sharma was the accountant of the assessee at the relevant time and it was the submission of the assessee before the revenue authorities that Shri R.T. Sharma was a disgruntled employee who wanted to black-mail the assessee and squeeze some amount out of the assessee. The file seized in the course of the search gave names of the parties to whom sales were made up to middle of the year 1980, the rate at which the sales were effected and also the amount received by way of 'on-money'. These documents were seized from the drawer of Shri Gehani, an employee of D H Sechron Electrodes Ltd., a sister concern of the assessee. It was based on these documents the additions were made by the Assessing Officer aggregating to Rs. 2,11,00,650. When the matter was carried in appeal, the Commissioner of Income-tax (Appeals) retained the additions to the extent of Rs. 45 lakhs. This was done by the CIT (Appeals) as, according to him, it would be difficult to substantiate the additions of on-money up to 11-6-1980. He was persuaded i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition made by. the Assessing Officer. However, for no apparent reasons he decides to retain a sum of Rs. 45 lakhs. In doing so, he merely relies on report published by National Institute of Public Finance and Policy which had only disclosed a trend in metropolitan towns and cities in India. Apart from stating that there was circumstantial evidence and overwhelming surrounding circumstances indicating payment of on money the CIT (Appeals) has no material to fail back upon to support part of the addition retained by him. There was a raid at the premises of the assessee and in the course of the raid nothing incriminating was found. The only material seized in this connection was a table diary and a file containing the names of the parties to whom assessee had sold the flats, the rate at which they were sold and the alleged on money received. These papers were signed by Shri R.T. Sharma a totally disgruntled employee of assessee-company. The papers were in fact found in the drawer of Mr. Gehani an employee of D H Sechron Electrodes P. Ltd., which is a sister concern of the assessee. Both according to the assessee were criminal in arms out to black-mail the assessee. The papers, in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... practice of payment of on money. The courts, in fact, have advised the Tribunal and the revenue authorities to take into consideration the prevalence of a practice formed in the business world. The statement of Shri R.T. Sharma is a clinching evidence against the assessee. He had, in fact, submitted to the Assessing Officer a tape-recorded conversion which he had with Shri Bhaiya who was a trusted employee of the Dalamals and also with Sri Kripalani, the constituted attorney of the non-resident parties. This conversion gives a strong flavour of the notorious activities carried on by the partners of the firm. It is an admitted fact that the partners did not have any income in India except their share income from this firm. Even so one of the partners had filed a revised return disclosing substantial additional income. This, according to the Departmental Representative, is indicative of the on money that the firm had been receiving on the sale of the flats. The booking rate initially was of Rs. 130 per sq.ft. and this probably was an amount which could not meet even the cost of construction. Then again, the Government and Semi-Government concerns were unable to get any premises in D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stry of Finance--Government of India. The Assessing Officer has also given a few instances of comparable cases which would go to establish that the assessee had, in fact, received on money payments on the sale of the flats. The fact that the additions made in the case of the buyers have been deleted by the appellate authorities should not detract from the merits of the revenue's case. 6. In reply, the learned counsel for the assessee submits that it would be evident that the assessee for this year had filed a return of income disclosing over Rs. 35 lakhs. No other builder probably had disclosed amounts of such great magnitude. Such disclosure would not have been possible if, as alleged by the revenue authorities, assessee had received substantial amounts as black money. The Assessing Officer has, no doubt, alleged that the cost of construction was probably more than the initial booking rate. But this is a matter which has not been accepted by the CIT (Appeals) because it was proved to his satisfaction that the cost of construction was much less than the initial booking rate. If, what the Assessing Officer has alleged is correct the project would not have ended with the profit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o slow to react and the escalating cost makes it impossible for them to acquire flats because by the time a decision is taken the cost had already shot-up. In any case, that cannot be urged as a ground for making an addition. 7. We have heard the parties to the dispute and in our view the appeal by the assessee has to succeed. It would be observed from the discussion above that the CIT (Appeals) had deleted a major part of the addition made by the Assessing Officer and that was for the reason that the additions made in the case of the buyers were also deleted by the CIT (Appeals) in their respective appeals. The same yard-stick should have been applied by the CIT (Appeals) in judging whether on money has been received on the sales after the so called cut off date.There is absolutely no evidence to show that the assessee, infact, had received on-money payments whether before or after the cut off date. We are not for a moment suggesting that there was no prevalence of on-money payments in the real estate business. But additions on account of on-money payments, to our mind, would not be justified even if we take judicial note of what is described by the revenue authorities as notori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred to in the assessment order but not relied upon, throws no light on the on-money transaction. As observed earlier, the nearest that the conversation could take us is a suggestion by Shri R.T. Sharma that he should also be considered as a beneficiary in the black money collected by the partners of the assessee firm. When such are the facts, an addition based on a report, though prepared by the experts of the Ministry of Finance, cannot be upheld. It may be mentioned in this connection that the reason that persuaded the CIT (Appeals) to confirm a minor part of the addition made by the Assessing Officer, was this report published by the Ministry of Finance and also the so-called comparable cases. In any case a survey report which has only highlighted the prevailing practice cannot be an adequate substitute for tangible evidence. The suit filed by Shri Poonamchand Shah making various claims against the assessee also does not in any way support the case of the revenue. Assessee had initially agreed to transfer the leasehold rights to Shri Poonamchand Shah, but nothing materialised out of the same. The suit filed by Shri Poonamchand Shah against the assessee was for damages and be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f housing scheme for Maharashtra Housing. There was a further notification on 6-8-1970 under section 6 of the Act that the land was so required. It has to be remembered that in the meantime the land had already become property of the partnership executed on 1-12-1966 and this partnership firm was carrying on among other things, the business of construction. On 12-6-1972 assessee received a letter from Government of Maharashtra that it had been decided in principle to allot to the assessee the unreclaimed plot No. 196 in Backbay Reclamations on a lease of 99 years in exchange of land in Powai. Thereafter instead of plot No. 196, Plot No. 206 was allotted to the assessee on 17-3-1973. The Powai land was taken over by the Government and this process was completed by 31-7-1973. The possession of the land at Plot No. 206, Nariman Point, was given on 16-8-1973. It was the claim of the assessee before the department that on 1-4-1977 assessee had converted its investment in Powai land into stock-in-trade. This land obtained in exchange in fact, was transferred to W.D. Estates Pvt. Ltd., and a loss of Rs. 1,85,000 claimed as a deduction by the assessee was the result of this transaction. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sense that the construction of a multi-storeyed building and the sale of apartments/flats therein was completed so also the sale of plot No. 206. The reliance placed by the assessee on D.L.F. Housing Construction (P.) Ltd. v. CIT [1983] 141 ITR 806 (Delhi), to our mind, is totally misplaced. That was the case where the assessee-company carried on the business of colonisation. During the year 1955-56, assessee purchased lands in two villages and developed them into residential colonies. Subsequently, in 1957 assessee in the course of its business also purchased about 300 bighas of agricultural land and raised an agricultural farm. The land though was shown by the assessee in its account under the head stock-in-trade he did not take any steps to develop the land in question and carve out plots. However, substantial amounts were spent on the agricultural farm and agricultural income was received therefrom. Out of this land, the Government compulsorily acquired nearly 300 bighas and a profit of Rs. 1,65,660 had resulted to the assessee. The Tribunal held that the land was a trading asset and the profit bore the character of income but it represented agricultural income and was, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, therefore, it is not possible to establish any nexus between the legal expenses incurred and the execution of the project. Similarly, donations have to be completely disallowed. Thus, there is justification to disallow a major part of the sum of Rs. 5,83,905. However, certain items like car expenses, brokerage paid to family members and the like have been disallowed by the Assessing Officer without adequate reasons. We, after hearing the parties to the dispute, shall allow the assessee a relief of Rs. 50,000 on an estimated basis. 12. The next ground of appeal regarding disallowance of expenses of Rs. 85,000 relating to premises in Dalamal Towers and Rs. 1,79,000 relating to premises in Dalamal House was not pressed at the time of appeal hearing. 13. The next ground of appeal is that the CIT (Appeals) erred in upholding Rs. 15,000 out of the claim of Rs. 55,343 in respect of telephone expenses. We have heard the parties to the dispute. Having regard to the fact that most of the partners are living abroad the amount disallowed by the revenue authorities would appear to be on the high side. We shall, After taking into consideration the submissions made by the parties to the disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial premises. When the matter came up in appeal, the CIT (Appeals) observed that in respect of sales up to 30-5-1970, it could be safely said that there was no passing of on money. That was the date on which the sale of one premises to one M/s. P.T.M. Family Trust was effected by the assessee. It may be stated in this connection that he had obtained remand report from the Assessing Officer and part of the relief granted by him was based on the remand report. M/s. P.T.M. Family Trust in turn had given their flat on lease to ECGC, a Government agency. In the sales effected thereafter the CIT (Appeals), estimated the receipt of on money of Rs. 15,45,000 and sustained the same. In this connection he has also relied on his own order in the case of Dalamal Sons Investment Co. The evidences relied upon by the Assessing Officer in making the additions and the CIT (Appeals) while giving the relief arc same or similar to the evidences in Dalamal Towers. In the case of Dalamal Sons Investment Co. we have held that there is no case for addition of on money. For the same reasons as in that case, we shall hold that even the addition of Rs. 15,45,000 does not deserve to be retained and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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