Skip to content


Asst. Commissioner of Income Vs. Shri Mohammad Farooq Tax Range - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Case NumberIT(SS) No. 57/Mum/2009
Judge
AppellantAsst. Commissioner of Income
RespondentShri Mohammad Farooq Tax Range
Excerpt:
.....developer was a fraud made by brother of assessee and deleted the additions made on account of on money received by assessee which was identified on the basis of incriminating papers seized during the action u/s. 132 of i.t. act, in the case of cpdpl (developer of the property). 2. on the facts and circumstances of the case and in law, the ld. cit(a) erred in deleting the addition made in respect of receipt of on money holding that the ao has not brought any confirmation or material evidence on record for the receipt of the funds. 2. the solitary issue is with regard to deletion of addition made on account of on money received by the assessee. 3. the facts of the case are that the assessee is a coowner of a property at chakala road, andheri (east), which he along with his mother and.....
Judgment:

VIVEK VARMA, JM:

1. The appeal is filed by the department, against the order of CIT(A) XXVII, Mumbai, dated 09.03.2009, wherein, the following grounds have been taken:

1. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in holding the agreement made between assessee and developer was a fraud made by brother of assessee and deleted the additions made on account of on money received by assessee which was identified on the basis of incriminating papers seized during the action u/s. 132 of I.T. Act, in the case of CPDPL (Developer of the property).

2. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition made in respect of receipt of on money holding that the AO has not brought any confirmation or material evidence on record for the receipt of the funds.

2. The solitary issue is with regard to deletion of addition made on account of on money received by the assessee.

3. The facts of the case are that the assessee is a coowner of a property at Chakala Road, Andheri (East), which he along with his mother and other siblings inherited from his father. The assessee, along with the other coowners gave the power of attorney (POA) to their eldest brother Mr. Abdulla Sahadat to fight the case of ownership of the plot. Mr. Abdulla Sahadat using the POA entered in a joint venture with M/s Credence Properties Developers Pvt. Ltd. (CPDPL) wherein the revenue generated on development of the property shall be distributed as:

a) 48% to developers

b) 26% to M/s Premier Iron and Metal Industries c) 26% to other co-owners (of which assessee share would be 4.42%)

4. On getting the information that Mr. Abdulla Sahadat had entered into an agreement for development of the plot of land, the assessee along with other coowners filed the suit of forgery and fraud against the brother and the CPDPL before the Hon'ble Bombay High Court, wherein, the Hon'ble Bombay High Court, in interim judgment has observed:

"On the other hand, prima facie, it appears to me that there is substance in the contentions of plaintiffs and defendant Nos. 2 to 5 that defendant No.1 in spite of being educated is not doing anything worthwhile in life. They were assisting him. However, on account of his fraudulent actions resulting in depriving them of valuable property rights, they were forced to institute the suits against him. Defendant No.1 has sacrificed rights of his mother, brothers and sisters for personal gain. On his showing, he executed development agreements in January, 2002 and received payment of more than Rs. 15 lakhs only for himself knowing fully well that no other member has received anything. There is substance in the contention of plaintiff that a fraud has been perpetuated to deprive them of their valuable rights of the suit property".

5. On 21.01.2003, search and seizure operation were carried out u/s 132 of the Income Tax Act on the residential and office premises of M/s Keystone Realtors Pvt. Ltd., of which CPDPL is one of the group companies. In the search, the JV agreement was found and seized and along with that certain documents were seized wherein there was evidence on money having been received on the sale of some flats. This information was forwarded to the AO having jurisdiction over the assessee who initiated proceedings u/s 158BD on the assessee and made the addition on account of practice of on money in the real estate business and made an addition of Rs. 5,56,839/-, being the 4.42% share of the assessee on the total on money received by CPDPL.

6. Aggrieved the assessee approached the CIT(A), wherein the assessee reiterated its stand that, neither he sold his share in the property nor did he receive any kind of proceeds either as sale proceed or on money. During the appellate proceedings, the assessee requested the AO to supply him the copies of the relevant material, on which the AO had based his case and made the addition, the extract of the letter dated 17.03.2008 is as under,

"The Asst. Comm. Of Income-tax 17(3)

Mumbai

Dear Sir,

Sub: Asst. Year 2005-06

Copies of material and statement

I have received the assessment order making an addition of Rs. 5,56,839/-, against which I have filed an appeal to the Commissioner of Income-tax (Appeals).

From the assessment order it is seen that you have relied upon pages 1 to 5 of Annexure A-3 seized from the premises of M/s Keystone Realtors Pvt. Ltd. since the addition is based on these papers, I have to request you to kindly give me a copy of the same.

Further it is evident that you must have recorded the statements of the main persons of M/s. Keystone Realtors Pvt. Ltd. as the papers were seized from them. I have to request you to kindly give me a copy of the statements recorded from all persons relating to the said seized papers and also give me a copy of the assessment order in the case of M/s Keystone Realtors Pvt. Ltd. and all other cases where a similar addition has been made based on the seized papers.

I do understand that there may be certain other issues in the statements and the assessments with which I am not concerned. Hence I request you to kindly give me a certified extract of the relevant portion only.

I further request you to kindly give me a copy of all material, statement and evidence in your possession relating to the above addition so that I am in a position to represent my case before the Commissioner of Income-tax (Appeals).

Finally I request you to give me a copy of the reasons recorded by you before the initiation of the proceedings u/s 158BD in my case. Though I am legally entitled to the above material at no cost, I am however willing to pay the copying charges for the same. Hence I request you to kindly inform me how much amount I must pay as copying charges in order to get the above mentioned copies, as I am unaware of the number of pages that may be zeroxed".

The reply of the ACIT 17(3), Mumbai, is as under,

"Farooq Mohammed Shahadat

Flat No. 210, 2nd Floor,

Baag -E -Rehamat,

17, Meghraj Sethia Marg,

Mumbai 400 008.

Sub: Asstt. Year -2005-06 -copies of material and statement. Ref: Your letter dated 17.03.2008 received in this office on 06.08.2008.

******

With reference to the above, you have asked for a copy of 1) pages 1 to 5 of annexure A-3 seized from the premises of M/s Keystone Realtors Pvt. Ltd.

2) The statement of the main persons of M/s. Keystone Realtors Pvt. Ltd.

3) Copy of the assessment order in the case of M/s. Keystone Realtors Pvt. Ltd. and all other cases where a similar addition has been made based on seized papers.

4) Copy of the reasons recorded before initiation of proceedings u/s. 158BD in your case.

This is to inform you that assessment has been completed u/s 143(3) r.w.s. 158BD of the I.T. Act on 28.09.2007 on the basis of information received from DCIT, Central Circle 10, Mumbai. The reason for addition of Rs. 5,56,839/- has been fully discussed by AO as per order u/s 143(3) r.w.s. 158BD. The material and statement asked for as above are not in the possession of this office.

Sd/-

(KAMAL MANGAL)

Asstt. Commissioner of Income Tax 17(3),"

7. The CIT(A), after going through the entire facts of the case, came to a conclusion that,

"Nothing has been brought on record by the AO on the question of payment of such alleged share to the appellant or for that matter other co-owners. M/s CPDPL was neither confronted with the question whether any payment in respect of on money has been made to the appellant in this case. It is a fact that on money transaction is outside the books of accounts. As already stated M/s CPDPL was not questioned in respect of payment of on money to the appellant at the same percentage as in the Development Agreement as the Development Agreement will never include a clause to refer any transaction like on money sharing which is outside the books of accounts. Therefore, based on the facts and material on record no addition can be made as there is no confirmation as to the payment of alleged on money and simultaneously there is not confirmation of receipt of the funds by the appellant. There is no material brought on record to lead positive evidence that cash was received by the appellant as indicated in the paper sized during the course of search from M/s. CPDPL".

Based on these observations, the CIT(A) deleted the addition.

8. Aggrieved, the department is in appeal before the ITAT.

9. Before us, the DR reiterated and relied on the observations of the AO and strenuously argued that the assessee was one of the recipients of on money, received by the company CPDPL.

10. The AR also basically reiterated the submissions made before the revenue authorities and the observations made thereon, by the CIT(A). The AR pointed out that the assessee's ignorance coupled with fraud committed against him and other coowners on the development of property is proved and becomes evident and flows from the order of the Hon'ble Bombay High Court in the Para 55, as extracted in paragraph no. 4, above, because the Hon'ble Bombay High court has come to a factual conclusion that a major fraud had been committed against the assessee and other coowners.

11. The AR, therefore, submitted that when even the Hon'ble High Court has concluded that Mr. Abdulla Sahadat had received the on money only for himself, therefore, nothing remains against the assessee. The AR, therefore, concluded that the AO had committed an error in making an addition on the assessee, which was completely devoid of any material evidence against the assessee, therefore, the addition was bad and, which was rightly delete by the CIT(A).

12. We have heard the arguments of the contesting parties and perused the material on record. From the material placed before us, the following emerge:

01. Bombay High Court has taken note of and has inferred that the assessee was a victim of a fraud committed by his own brother;

02. Bombay High Court has taken note of the fact and has inferred that Mr. Abdulla Sahadat, brother of the assessee, who fraudulently used the POA, received the money from CPDPL all by himself.

03. Bombay High Court has taken note of and has inferred that Mr. Abdulla Sahadat, brother of the assessee, sacrificed rights of his mother, brothers and sisters for his personal gain.

04. That a fraud has been perpetuated to deprive the coowners of their valuable rights.

05. That the AO did not have any material whatsoever to use the same against the assessee at any appropriate time.

06. That the AO was not in possession of the material and statements, which have been used against the assessee.

07. That the case of fraud and forgery was filed before the Hon'ble Bombay High Court sometimes in 2002, which was prior to the search under section 132 of the Income Tax Act on Keystone Realtors (P) Ltd., which was on 21.01.2003.

13. On the basis of the above facts, which should have been the main foundation for making the addition, we find that the foundation itself is shaky and even the basic material on which the addition should have been made is found to be missing, which clearly falls within the parameters of the ratio laid down by the Hon'ble Supreme Court in the case of Manish Maheshwari vs ACIT, reported in 289 ITR 341, wherein the Hon'ble Apex Court, clearly laid down that for the purposes of initiating proceedings u/s 158BD, the AO who had conducted search, must record reasons for transferring material connected with another person and transfer the material to the AO having jurisdiction over the person, on whom the block assessment has to be framed. The Hon'ble Supreme Court holds, as extracted, "Before the provisions of section 158BD of the Income-tax Act, 1961, are invoked against a person other than the person whose premises have been searched under section 132 or documents and other assets have been requisitioned under section 132A, the conditions precedent have to be satisfied. Held, accordingly, that where the premises of a director of a company and his wife were searched under section 132 of the Income-tax Act, 1961, and a block assessment had to be done in relation to the company, the Assessing Officer had to (i) record his satisfaction that any undisclosed income belonged to the company, and (ii) hand over the books of account and other documents and assets seized to the Assessing Officer having jurisdiction against the company".

This entire sequence of events, as observed by the Hon'ble Supreme Court in the case of Manish Maheshwari (supra), we find are evidently missing, as borne out from the letter from the letter from the ACIT 17(3) dated 02.09.2008, wherein he admits, "The material and statement asked for as above are not in possession of this office". This fact is further strengthened, because, the DR sought time to ask the AO one last time, which was duly allowed to the DR, to enquire, whether there is any material against the assessee, the DR, once again, showed his helplessness on the issue of producing the material relied upon by the AO to initiate and make an assessment under section 158BD.

14. On the overall consideration of the above facts, we are of the considered view that both on law and on facts, the addition made was not on sound footing and the CIT(A) was right in deleting the addition, which we sustain.

15. In the result, the appeal filed by the department is dismissed.

Order pronounced in the open Court on 13th February, 2013


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //