Madhya Pradesh H.C : Making addition merely on basis of seized documents without cogent evidence that excess amount mentioned in seized document had actually passed on to assessee, was not sustainable where books of account of assessee-construction company were duly audited

High Court Of Madhya Pradesh

CIT vs. Dolphin Builders (P.) Ltd.

Section : 69, 44AD

Krishn Kumar Lahoti, Actg. CJ.

And M.A. Siddiqui, J.

M.A.I.T. No. 13 Of 2002

April  30, 2013

ORDER

M.A. Siddiqui, J. – The appellant has filed this appeal u/s 260-A of the Income Tax Act, 1961 being aggrieved from the order of appellate Tribunal, Income Tax, Indore dated 18.1.2002 by which the appeal preferred by Department was dismissed.

2. In brief the facts of the case are that that the respondents M/s Dolphin Builder (P) Ltd (hereinafter referred as assessee) constructed 24 flats in two buildings known as “Amardeep Apartments” and “Amarjyoti Apartments” and entered into agreement with Shri BD Agarwal and M/s Goyal Builders, according to which B.D. Agarwal had sold his land/plot to the assessee for a consideration of Rs.1,30,000/-. The assessee had constructed 10 LIG and 2 HIG flats to be sold through Goyal Builders on an agreed commission @2% of the sale proceeds.

3. As per the agreement the LIG flats were to be sold on the cost of 1.25 lakhs each and the HIG flats were to be sold at a cost of Rs.2.5 lakhs each. According to the assessee it received Rs.35,50,000/- on sale of flats, which were duly accounted for in the books of the assessee. Likewise, the assessee had also entered into another agreement with Shri Prakash Agrawal and M/s Goyal Builders wherein by clause No.4 of the agreement, Prakash Agrawal had sold his land/plot to the assessee for a consideration of Rs.1,60,000/-. The assessee was to construct 6 LIG flats to be sold at Rs.1.25 lakhs, 3 Sr. LIG flats to be sold at Rs.1.5 lakhs and 3 MIG flats to be sold at Rs.2.00 lakhs each through M/s Goyal Builders on payment of commission @2% to them. The sale consideration of these flats amounted to 18 lakhs and the net sale proceeds after deducting commission of Rs.71,000/-, @2% payable to M/s Goyal Builders were credited to the profit and loss account.

4. A raid was conducted by Income Tax Department, Bhopal u/s 132 of the Income tax Act, 1961 (in short ‘the Act’) in the premises of Goyal Builders in which some papers were found and some figures were noted in these papers. The department had taken action under Section 132 of the Act in the case of Shri Ashok Goyal Proprietor of M/s Goyal Builders and a note book marked as Annexure CII containing sketch map of “Amareep Apartment” and “Amar Jyoti Apartments” was found, where in the column for cost of flats i.e. the figures 4.5., 4.25, 3.15, 2.5, 2.35, 2 and 1.95 in respect of “Amardeep” and “Amar Jyoti Apartments” were mentioned. The Assessing Officer (A.O.) was of the view that these figures definitely indicated the sale price of the flats of the above two apartments.

5. The A.O. had come to the conclusion that the total sale proceeds of 12 flats in Amardeep Apartments worked out to be Rs.28,65,000/- as against sale proceeds accounted for in the books at Rs.17,50,000/- and thus the assessee had understated the sale proceeds by Rs.11,15,000/-. Similarly, in “Amar Jyoti Apartments” the total sale proceeds of 12 flats as per the figures given in Annexure C-11, worked out to be Rs.28,50,000/- and against sale proceeds accounted for in the book at Rs.18.00 lacs were corroborated by other seized documents. The total sale proceeds as per the seized documents worked out to be Rs.58,50,000/- as against the sale proceed of Rs.35,50,000/- accounted for in the books of accounts. The A.O. had determined the income at Rs. 2,84,000/- under Section 44 AD of the Act and separately deducted the commission of Rs. 20,19,700/-. Accordingly, he had determined the total income at Rs.25,03,700/-.

6. The matter was challenged before CITA by the assessee and CITA vide Annexure A-2 order dated 26/8/98, by partly allowing the appeal, came to the conclusion that total receipt including those not accounted for in the books, not exceeded Rs.40.00 Lakhs, so provisions of Section 44AD were not applicable and the A.O. was wrong in applying the provisions of Section 44 AD, and was not justified in assessing the assessment. Against the order of Income Tax Commissioner, the department travelled in appeal before the ITAT, Indore and assessee also filed the appeal.

7. The findings of Income Tax Commissioner were challenged by the assessee through ITA No.956/India/98 assessment year 1994-95 and department had also filed appeal through ITA 131/India/99 assessment year 94-95. The appeal of assessee was allowed and appeal of Department was dismissed against which this appeal has been filed. This appeal was admitted on 30/10/2002 on the following substantial questions of law:-

(i) On the facts and in the circumstances of the case, the learned CIT(A) erred in granting relief of Rs.4,68,750 in respect of assessee’s income in the case for the year under consideration.

(ii) On the facts and circumstances of the case, the learned CIT(A) erred in holding that the provisions of Section 44AD were not applicable on the facts of the case and in the allowing relief to the assessee by combining the amount of receipts shown and the amounts of undisclosed income.

8. (a) Learned counsel for the appellant has submitted that as the transaction was above Rs.40.00 lacs the A.O. had rightly applied the provisions of Section 44AD of the Act and supported the order of assessment passed by the Assessing Officer. His further submission was that ITAT had wrongly came to the conclusion that Section 44AD was not attracted and wrongly upheld the finding of IT Commissioner’s Order. That M/s Goyal builders had given the authority to sell the plot and commission was to be paid on the sale. As per Section 132 of the Act of 1961 in the case of Shri Ahsok Goyal, Proprietor of M/s Goyal Builders a note book marked as Annexure C-II containing sketch map of “Amardeep Apartment” and “Amar Jyoti Apartments” was found, wherein the column for cost of flats i.e. the figures 4.5., 4.25, 3.15, 2.5, 2.35, 2 and 1.95 in respect of “Amardeep” and “Amar Jyoti Apartments” were mentioned. The Assessing Officer (A.O.) was of the view that these figures definitely indicate the sale price of the flats of the two apartments. The A.O. At page 6 of his order had discussed that the cost of flats indicated in Annexure C-II, had tallied with the receipts of amounts from different purchasers mentioned in another seized document marked as Annexure C-15.

(b) The Assessing Officer, came to the conclusion that total sale proceed of 12 flats in Amardeep Apartments worked out to Rs.28,65,000/- as against the sale proceeds accounted for in the books at Rs.17,50,000/- thus the assessee had understated the sale proceeds by Rs.11,15,000/- Likewise in Amar Jyoti Apartments the total sale proceeds of 12 flats as per the figures given in C-11 were worked out to be Rs.28,50,000/- against sale proceeds accounted for in the books at Rs.18,000,00/- which were corroborated by other seized document Annexure C-15. The total sale proceed as per the seized document Annexure C-11 were worked out to be Rs.58,50,000/- against the sale proceeds of Rs.35,50,000/- accounted for in the books of accounts. The Assessing Officer had rightly determined the income at Rs.2,84,000/- under Section 44 AD and made additions of the unrecorded net receipts after deducting commission of Rs.22,19,700/-., while the CITA held that the estimation of net income @ 8% of the gross receipts was not proper.

9. Learned counsel for the respondent submitted that provisions of section 44 AD are not applicable. The books of Accounts were duly audited and assessee was maintaining the vouchers, bills cash memos and other relevant documents so the case of the assessee is not covered under clause-1 of Section 44. The ITAT have rightly determined the net profit rate at 8% on the receipt shown by the assessee. The total receipts shown by the assessee are of Rs. 34,79,000/- which were received from M/s Goyal Builders who was to sale all these flats. The receipts were shown after deducting the Commission of Rs.71,000/- paid to Goyal Builders at the rate of 2% on the total receipt of Rs.35,50,000/-. Therefore, the purpose of the computation of the total income the total receipts will be taken at Rs. 35,50,000/- applying the net profit rate at 8% of the total income of the assessee come to Rs.2,84,000/-.

10. Learned counsel for the appellant has submitted that undisputedly M/s Goyal Builders was engaged for the sale of the plots and flats were sold out through him and figures which were given in C-II are the correct figures of the Sales proceeds which were made by Goyal Builders.

11. Learned counsel for the appellant has vehemently opposed the prayer made by the respondent and has submitted that there is no evidence that excess amount if any collected by Goyal Builders was passed on to the assessee. There is nothing on record to show that any enquiry in this regard was conducted by the Department to prove the prevailing prices of the plots. It is also been submitted that if any material was found that there was excess payment then Goyal Builders could have been held liable and not the assessee and so the Tribunal has rightly deleted the additions by allowing the appeal.

12. We have perused the record, orders of the Assessing Officer, Income Tax Commissioner, the ITAT and we are in full agreement with the arguments advanced on behalf of respondent assessee that no prima facie evidence of passing any money from Goyal Builders to assessee was proved and for the papers seized from any other place i.e. Goyal Builders, assessee cannot be held liable, so, the tribunal has committed no error.

13. We have also perused the material in the matter and find that there was no evidence in the matter that the excess amount, if any, was collected by M/s Goyal Builders or even if it was collected then it was passed on to the respondent. There was no search, survey or seizure of the premises of the assessee. Apart from this, the department had not examined any purchaser or flat owner to verify the correctness of the aforesaid noting that some higher amount was paid by the said purchaser to M/s Goyal Builders or the fact that actual price was much higher to the price which was recorded in the account books. The Tribunal have also found that if any amount was collected in excess to the agreed price then M/s Goyal Builders could have been liable for that and not the assessee. We find the aforesaid reasoning of the Tribunal to be reasonable. Though there may be some doubt about the price of the flats but until and unless it could have been proved by some evidence, aforesaid doubt cannot take place of proof. Until and unless such noting is corroborated by some material evidence, the Assessing Officer erred in making addition in the income.

14. So far as the applicability of Clause 5 of Section 44 AD of the Income Tax Act is concerned, when the assessee had maintained accounts books, vouchers and other documents as required under Section 2 Sub Section 44 AA of the Income Tax Act and got them audited and furnished it alongwith audit report then such benefit should have been extended to the assessee. In the present case audited accounts books were maintained and there was no question of disbelieving them in absence of any cogent evidence.

15. The order passed by the tribunal is based on proper appreciation of facts and there is no error in the order.

16. In view of the aforesaid discussion, we find no merit and substance in the appeal and is accordingly dismissed.

[Citation : 356 ITR 420]