Calcutta H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in annulling the impugned order of the CIT dt. 10th June, 1986, passed under s. 263 of the IT Act, 1961 ?

Counsel Appeared

P.K. Mallick with J.C. Saha, for the Revenue : R.N. Bajoria with J.P. Khaitan & S. Singhi, for the Assessee

JUDGMENT

Y.R. MEENA, J. :

On an application under s. 256(2) of the IT Act, 1961 (‘the Act’) this Court has directed the Tribunal to refer the following questions set out in para 1 at p. 2 of the application : “1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in annulling the impugned order of the CIT dt. 10th June, 1986, passed under s. 263 of the IT Act, 1961 ?

2. Whether, the findings of the Tribunal leading to the conclusion that the order of the CIT dt. 10th June, 1986, was not valid in law are unreasonable and perverse ?” 2. The assessee is a partnership-firm and the firm carries on business of construction equipment, building materials, electrical fittings, acquiring and owning immovable properties, real estates, including rights therein, renting out properties as acquired and also deals in shares and securities. The assessment years involved in this case are 1981-82 to 1985-86. The assessments in all these years are completed under s. 143(3) of the Act. On scrutiny of the assessment records for these years, the CIT has taken the view that the assessment orders in these years of the ITO are erroneous and prejudicial to the interest of the Revenue on the following grounds : (i) The price of the leasehold land was found to be of the order of Rs. 24 lakhs. (ii) The acquisition of the leasehold right over 21 cottahs of land for a period of 75 years against the consideration of a mere deposit of Rs. 1 lakh. (iii) While the cost of construction of building was computed at Rs. 100 per sq. ft. the seized records indicated a much higher cost of construction as indicated therein, in the sale of premises. (iv) The receipts of on-money involved. (v) The proceeds on the demolition of the old building not estimated correctly. (vi) The crediting of the personal accounts of the partners on revaluation of the leasehold property to the extent of Rs. 74,12,700 without a corresponding reflection in the wealth-tax returns of the respective partners; and (vii) Non-verification of the loans alleged to have been received. Show-cause notice was issued to the assessee by the CIT as to why the assessment orders in these years should not be revised, under s. 263 of the Act. After hearing the assessee, the CIT in his order held that : (a) The price of land paid by the assessee to the lessor could be taken at Rs. 22,84,168. (b) The assessee has received ‘on money’ to the tune of Rs. 1,02,45,000 on sale of flats. (c) The AO should have included Rs. 51,000 towards the sale proceeds from the sale of material which was sold by the assessee on demolition of the old building.

Therefore, the CIT has directed the AO to examine the question regarding cost of construction of the building, receipt of ‘on-money’, examine to add of Rs. 23,000 on account of sale proceeds of the building material and verify the loans which the assessee claimed to have taken from different parties. The case of the assessee before the Tribunal was that there was no material before the CIT to estimate the cost of land at Rs. 22,84,168, which was taken on lease. The assessment order was passed and assessment proceedings were monitored by the CIT (Investigation), all the relevant materials were collected and were on record for making the assessments, ‘on- money’ theory of the CIT is baseless. For sale proceeds of the building material assessee had explained that though earlier the amount of Rs. 51,000 was offered by A.R. Sharma but that could not be accepted as there was stay of the Court on demolition work. Therefore, that firm withdraw from the offer and the material ultimately was shown for Rs. 28,000. Therefore, there is no question of taking sale proceeds at Rs. 51,000 against Rs. 28,000. The Tribunal has framed seven questions to consider whether the CIT was justified in setting aside the assessment orders and questions which read as under : (i) Whether assessments are made without proper enquiry by the ITO; (ii) the price of the leasehold land was found to be of the order of Rs. 24 lakhs and the leasehold right over 21 cottahs of land for a period of 75 years against the consideration of a mere deposit of Rs. 1 lakh whether justified; (iii) while the cost of construction of building was computed at Rs. 100 per sq. ft. the seized records indicated a much higher cost of construction as indicated therein, in the sale of premises; (iv) the receipts of ‘on- money’ involved; (v) the proceeds on the demolition of the old building; (vi) the crediting of the personalaccounts of the partners on revaluation of the leasehold property to the extent of Rs. 74,12,700 without a corresponding reflection in the wealth-tax returns of the respective partners; and (viii) non-verification of the loans alleged to have been received.

In appeal before the Tribunal, the Tribunal found that the ITO had made necessary enquiries and the assessment proceedings were monitored by the CIT (Vigilance), Calcutta. All directions given by the CIT(A) for the necessary enquiries were complied with and the allegation of the CIT regarding the ‘on-money on sale’ of the property as well as the amount of Rs. 22,84,168 stated to have been paid by the assessee for plot of land is baseless. Loans where genuineness of the cash credits were examined and after due verification those were accepted. Even in case of the sale proceeds of the demolition material was found justified. Therefore, the Tribunal has quashed the order of the CIT under s. 263, holding that when the assessment orders were neither erroneous nor prejudicial to the interest of the Revenue, the CIT should not set aside those assessment orders. The Tribunal has also decided the issues on merits at pp. 120-125, which read as under : “The assessee succeeds on merits also. The CIT in para 9 of his order concluded that the price of land paid by the assessee to the lessors could be taken at Rs. 22,84,168 based on seized paper marked as “BM-I”. Admittedly it was seized from the office premises of Jaggi Bros. Overseas (P) Ltd. and not from the assessee. It was a typed sheet. The assessee’s counsels had given copy of the same as copied by him (p. 64 Paper Book No. II). The original was not shown to us by the Departmental Representative. The said “BM-I” does not contain any name of the person or firm or company to which it relates. It does not contain the name of the property or the building to which it relates. It is not signed by anybody. The area of the land is not mentioned. The additional covered area available was stated to be 22,000 sq.ft. Existing area was stated to be 2,000 sq. ft. Total comes to 24,000 sq.ft. It does not tally with the covered area of 57,120 sq. ft. in the building known as ‘Hastings Chambers’ undertaken by the assessee. The lessor Sri P. Mullick was examined by the ITO on 27th March, 1985. Nothing was established from it, which goes against the assessee. Further, the Deputy Director of Inspection in his letter dt. 10th Aug., 1982 (placed at p. 21 of the Department’s paper book) addressed to the CIT (Investigation) clearly admits that there is no direct evidence as regards payment of substantial ‘on-money’ on purchase of land from the vendor. Most important factor is that the lease deed was dt. 3rd Feb., 1979. Assessee closed its books of account on 30th June, 1979. Relevant assessment year is 1980-81 and not the assessment years under consideration, viz., 1981-82 to 1985-86. For all the reasons, the CIT’s finding about the price of the land paid by the assessee at Rs. 24,00,000 has no legs to stand. It is not relevant to the assessment years under consideration.

The next issue relates to alleged receipt of ‘on-money’ by the assessee against sale of ownership spaces. For this purchase, CIT relied on “p. 3 and A-12, p. 16 of the seized records and SS-3.” The Departmental Representative had supplied us only with copy of SS-3 at p. 18 of his paper books. He has not supplied us with copies of other papers, viz., A-12, pp. 3 and 16 (supra), He had supplied copies of ‘Annexure A’, ‘Annexure B’ and ‘Annexure C’ at pp. 26 to 28 of his paper book wherein the figures of Rs. 17,16,244.05, Rs. 7,20,000 and Rs. 8,30,000 were mentioned. Even the ITO in his letter dt. 23rd Aug., 1985, mentioned these figures. Therein he says that a type statement was recovered at the office of Mr. Jaggi and according to it, assessee received on-money of Rs. 17,16,244. This statement on which reliance is placed by the CIT was not recovered from the assessee. It does not certain any indication as to who received and on whose behalf the amounts of Rs. 2,98,710 in cheques and Rs. 17,35,095 in cash were received. The CIT might have got some suspicion. But suspicion can never taken the place of proof. He has not brought any clinching evidence to pin down the issue of alleged receipt of on-money on sale of office space. His reliance on agreement dt. 22nd Aug., 1980 between the lessor, assessee and Burn Standard Company is also misplaced. It does not point out to receipt of any on-money. It is not even an indicator or pointer to the market price of office space. It was entered into by the assessee under duress as contended by it in its letter dt. 29th Aug., 1985 to the ITO. Element of compensation or liquidated damages for vacating the premises occupied previously by Burn Standard Co. have been included therein. The CIT is thoroughly mistaken in observing that in “BM-I” the assessee itself arrived at a profit of Rs. 50 lakhs. It is not known how he came to the said conclusion when the said statement does not contain the name of the assessee, signature of any of the assessee’s partners, etc. For the aforementioned reasons, the CIT’s finding on the alleged receipt of on-money of Rs. 1,02,45,000 by the assessee on sale of office spaces is without any basis and is based on surmise and suspicion only. It cannot be sustained. Regarding the proposed addition of Rs. 23,000 towards materials recovered from the demolished building, the CIT does not deny the use of salvaged materials in the building construction. He cannot compute their value, more so, as the difference between Rs. 51,000 (earlier offer from M/s A.K. Sharma & Co.) and Rs. 28,000 (actually credited to P&L a/c). There is no basis for directing the addition of Rs. 23,000. There is no finding by the CIT that the loans received by the assessee have not been examined by the ITO. In fact, all the loans taken by the assessee in all the assessment years under consideration have been fully examined. So, the CIT cannot direct the ITO to examine the question of verification of loans. Cost of construction was also examined by the ITO in all the assessment years and he was satisfied. So, the CIT is not justified to direct the ITO to examine whether the construction cost reflected in the accounts @ Rs. 115 per sq. ft. was reasonable or viable. He has not given any reason as to why he is giving such a direction.”

3. Heard the learned counsel for the parties. Considering the submissions and facts referred above.

4. It cannot be said that the AO has not made proper investigation for completing the assessments. It is true that all assessments are made on 27th Sept., 1985, the return of income for the asst. yr. 1981-82 was filed on 25th June and assessment proceedings commenced on 6th Aug., 1982. Several hearings took place in the years 1982-1984 and 1985. The relevant order-sheets were filed by the Department before the Tribunal. The ITO has made enquiries at the instance and direction of the CIT (Investigation), Calcutta. In these cases even report was called for by the CIT (Investigation), Calcutta and the report was sent through the IAC, Special Range-VI, Calcutta on 14th June, 1985. The CIT (Investigation) in his letter dt. 16th Aug., 1985, raised certain points, which were to be enquired into, and thereafter the case was to be discussed with him. For enquiry the matter was given to the Inspector and Inspector has furnished the report and the matter was again discussed verbally with the CIT on 16th Sept., 1985 and 29th Sept., 1985 and thereafter the assessments were completed. In view of these facts, it cannot be said that the assessments were made without proper enquiry.

5. Whether the assessee has paid Rs. 24 lakhs for the leasehold plot of land, which was taken on lease for 75 years? Firstly the lease of the plot of land is taken in relevant asst. yr. 1980-81 and the assessment years before us are from 1981-82 to 1985-86. The lease deed was executed on 3rd Feb., 1979, for a period of 75 years and the assessee was required to pay in addition to a deposit of Rs. 1 lakh, monthly rent of Rs. 3,300 which was to be enhanced by Rs. 330 every 10 years. There is no material on record to show that the assessee has paid Rs. 24 lakhs for the plot of leasehold land and when the assessment was completed under the supervision of the CIT (Vigilance), we do not find any substance in the view taken by the CIT that the assessee had paid Rs. 24 lakhs for acquiring the leasehold plot. Next reason given by the CIT is that A.K. Sharma has offered Rs. 51,000 for purchase of demolition material but the ITO has wrongly accepted the sale proceeds amount of Rs. 28,000 as stated above and discussed by the Tribunal. The reason given for accepting Rs. 28,000 was that when A.K.Sharma offered Rs. 51,000 for demolition material, there was a stay of the Court in that period. Therefore, demolition was not possible and thereafter he withdrew his offer and ultimately demolition material was sold for Rs. 28,000. On this account also it cannot be said that the order of the ITO was erroneous and prejudicial to the interest of the Revenue.

6. For cost of construction, the assessee has incurred expenditure of Rs. 1,70,806 on the building in asst. yr. 1983- 84 and in asst. yr. 1984-85 assessee has incurred expenditure of Rs. 5,78,768. That is, direct expenditure and indirect expenditure comes to Rs. 2,47,205 and in the asst. yr. 1985-86 the assessee has incurred expenditure on construction of Rs. 1,58,29,941. The AO has examined this cost of construction, which is fully supported by the vouchers. When the expenditure was fully supported by the vouchers, what more investigation is required specially in this case when the assessment proceedings were monitored by the CIT (Vigilance), Calcutta.

7. For sale price of new constructions the CIT has doubted that on-money has been paid to the assessee. He placed his doubt on seized papers marked BM-1, A-12 and HS-3. According to him, on-money received by the assessee from these different parties for sale of 12,276 sq. ft. amount to Rs. 17,16,244 and according to the CIT, the market price of the property was Rs. 350 per sq. ft. The Tribunal found that the seized papers referred to by him the CIT were not recovered from the assessee and on the basis of that paper and figure he computed the figure of Rs. 1,02,45,000 as on-money received by the assessee. The paper BM-1 did not contain any name of the person or firm or company or the price of property or building to which it related and that paper was not signed also by any one. The Tribunal further found that in view of the aforesaid facts, on-money theory of the CIT is baseless and has no legs to stand. More so, the Tribunal further found that the AO found that the confirmation letters are filed by the purchasers and income-tax file numbers also obtained by the ITO to certify the genuine price paid to assessee. Therefore, on the on-money theory basis the assessment orders cannot be said to be erroneous and prejudicial to the interest of Revenue. Considering the aforesaid facts, we found no infirmity in the view taken by the Tribunal on these facts also.

8. So far the ground for non-verification of loans is concerned, the Tribunal found that the ITO has verified the loans in course of the assessment. Confirmation letters of the creditors were on record when the confirmation letters are filed by the creditors and loans are verified. We do not find any reason to say that the assessment orders are erroneous and prejudicial to the interest of the Revenue on this account.

9. In view of the aforesaid facts, it cannot be said that the findings of the Tribunal are unreasonable or perverse when the assessment orders were made after due verification and under the supervision of the CIT (Vigilance) and all relevant material has been collected by the AO. The assessment orders cannot be said to be erroneous and prejudicial to the interest of the Revenue. Thus, we found no infirmity in the order of the ITO.

10. In the result, we answer to question No. 1 in affirmative that is in favour of the assessee and against the Revenue. We answer question No. 2 in negative that is also in favour of the assessee and against the Revenue.

[Citation : 253 ITR 124]